1August 28, 2012

The Three C's of Surety Agent E&O

Presented by: Edward M. (Butch) WeedMartin Weed, LLC100 Union Hill Drive, Suite 150Birmingham, Alabama 35209(205)443-6661 (direct)emweed@martinweedllc.com

Three C's of Surety Agent E&O

How to use Character and Capacity to avoid spending Cash on attorneys

(Like the one talking to you now).

August 28, 2012 2

Speaker@NASBPConvention

KIAWAH

August 28, 2012 3

Edward M. (“Butch”) Weed• Surety Bond Underwriter, USF&G, Birmingham, AL 1984-85

• Licensed Producer/Agent, The Wend Agency n/k/a International Assurance, Mobile, AL 1985-88

• NASBP Conventions, Kiawah Island, SC

• NASBP Agent School, Houston, TX

• USF&G Agent School, Baltimore, MD

• CPCU Designation (completed in two years, 1985-1987)

August 28, 2012 4

Edward M. (“Butch”) Weed: NASBP Member turned Attorney

• Defense Litigation Attorney since 1991 (Insurance, Surety, Professional Malpractice, Construction, E&O, Environmental)

• University of Alabama, BS in Corporate Finance and Investment Management 1984, JD 1991

August 28, 2012 5

Three C's of Surety Agent E&O

Why are we here?

August 28, 2012 6

Three C's of Surety Agent E&O

“What actually happened?”versus

“What someone (usually a non-agent) suggests should have happened?”

August 28, 2012 7

Three C's of Surety Agent E&O

I. Cash

II. Character

III. Capacity

August 28, 2012 8

Three C's of Surety Agent E&OIII. Capacity of NASBP members:

A. Knowledge

B. With Ability to Apply Knowledge to Get Results (Wisdom/Savvy/Experience)

C. Ability to Recognize When Results May Not Be Possible

D. Skills and Technology

August 28, 2012 9

Three C's of Surety Agent E&OIII. Capacity of Professionals in Surety Bonding:

A. Knowledge (Things Agents Know):

1. Properly Trained, Experienced Surety Agents, such as those with NASBP membership, are the smartest people in the industry-as the NASBP logo reads, you are “Professionals in Surety Bonding.” Understand that with that membership, comes responsibility.

2 Agents Don’t Underwrite.

3. Agents Don’t Handle Claims.

4. Good Relationships Are the Key to Success.

August 28, 2012 10

Three C's of Surety Agent E&O

III. Capacity: Knowledge and Applying Knowledge

NASBP = smartest people in the industry: The Surety is counting on you to get asked for information. The Contractor is counting on you to get the bond.

When things go bad, as the smartest person around, you could be blamed! Document and Document, as you do already... Emails can save you-Assume every one is evidence.

August 28, 2012 11

Three C's of Surety Agent E&O

Emails, Emails, Emails!

•Found everywhere

•What Attorneys use to reconstruct events

•What Courts will rely upon as Evidence

August 28, 2012 12

Emails=Documentation=Evidence

1. Be polite.

2. Identify the important stuff (contractor, project and what is being sent).

3. Specify the next step.

4. Be short-no narratives or irrelevant stuff.August 28, 2012 13

Good EmailTo: Nancy UwFrom: Mary MayeyeDate: August 28, 2012RE: Your file number 012345AB XYZ Contracting - State Highway Project Number 123cba (09/15/12 letting)

Dear Nancy:

Attached is the information you requested on July 6, 2012, including:1. 06/30/12 in-house interim statement;2. 12/31/11 CPA Review; 3. 06/15/12 Bank Reference; and4. Explanation of the change in ownership from the CPA.5. Resumes of new owners.I trust you will find it in good order, and let me know if you have any questions, or require anything else.

Assuming there is nothing else you may require, please let me know when you might be available to discuss bondingfor the project we discussed. In the interim, I may try to call you later today to confirm you got this email and theattached information, and to facilitate issuance. Because, XYZ is a ten year insurance customer of our agency (andyour company) we would like to make sure we have done everything to be in a position to offer the most competitivesurety option possible.

Thanks

August 28, 2012 14

Bad EmailTo: NancyFrom: Larry S. Lost, XVII, DVM, CPCU, RIMS, CPA, M,D., DDS, M,P. Date: August 28, 2012Re; Information

Here it is. Nancy, you are making this contractor get a bunch of stuff that no underwriter has ever asked for. It hastaken some time. Sureas Surety has already offered to write his book of business (including bonds AND insurance). Sureas Surety also issued bonds for other contractors on the same job and didn’t require any of this. This is a goodguy, and we would hate to lose or have to move his commercial insurance if you don’t work with us. I need to hearfrom you by 5PM today that you agree to write the bond now that we have gone to all this trouble to get you all thisadditional stuff you asked for. Mark, Jr. does these kind of jobs all the time, and grew up on a backhoe. The fact thathe has now bought the business from his father who has retired and made enough money to move to Australia shouldtell you something about how good a contractor this is, so not sure why that matters here.

August 28, 2012 15

Three C's of Surety Agent E&O

III. Capacity: Knowledge and Applying Knowledge

2. Agents Don’t Underwrite.

•Provide the asked for Information. •Don’t Analyze Information Yourself. •Allow Surety Underwriter to do job. •Deal With Voiced Concerns. •Let Surety Make Decision.

August 28, 2012 16

Three C's of Surety Agent E&OIII. Capacity: Knowledge and Applying Knowledge

3. Agents Don’t Handle Claims.

Agents Should Never Handle Claims: Why?•Surety Bonds Unlike Insurance•Theoretically No Claims•So you should have NO experience•If Actual Claim, Don’t Act Like NBD•Pass Information on to surety and get out

August 28, 2012 17

Good EmailTo: Nancy UwFrom: Mary MayeyeDate: April 3, 2013RE: Lien Filed; Your file number 012345AB XYZ Contracting - State Highway Project Number 123cba

Dear Nancy:

A supplier has filed a lien on the project and the owner has demanded action on our part. Attached please find:a. A copy of the lien filed April 1, 2013 in Yoknapatawpha County by Osay Can UC Curtains ;b. The original $2000 March 1, 2013 invoice for curtains (in the jobsite trailer);c. A copy of XYZ’s check #9876 for $2000 for advance payment of the curtains (February 1, 2013).d. Owner’s letter of April 2, 2013 to us and XYZ demanding action.

As additional background, XYZ’s new project manager ordered curtains for the trailer (prescribed by his doctor forstress relief reasons), and Osay Can UC demanded to be paid in advance for the specialty silk moray (sp?) Taffatafabric he wanted, which was done. XYZ is meeting with the owner of Osay Can UC tomorrow (4/4) to show themthe invoice and check and to try and get the lien withdrawn.

I will let you know if I hear anything else, and please let me know if you require anything else on my part. Also,Tom Terrific, XYZ’s new project manager’ s mobile number is (xxx) xxxx and his email address isTomT@expectanoutaofficeautoreply if you feel the need to speak with him directly.

August 28, 2012 18

Bad EmailTo: NancyFrom: Larry S. Lost, XVII, DVM, CPCU, RIMS, CPA, M,D., DDS, M,P. Date: November 24, 2013Re: Possible Claim

Nancy, I know your offices are probably closed for Thanksgiving today but I am in the office today trying to getcaught up. Been meaning to let you know what I have done so far (at no charge, I might add). The Owner hasstopped payment to XYZ for no reason at all. The state highway department bureaucrats are claiming that there is alien on the project from about six months ago. Everyone knows that you cannot lien a highway, so they are beingcompletely ridiculous. They are using this bogus $2,000 claim on some materials to avoid paying XYZ around $4.5mil that is owed. I told XYZ I would work with this claimant but they are foreign (French I think), haven’t respondto my letter demanding they return my calls, and don’t seem to want to remove this lien that is holding everything up. Also, there may be some other subs that may also try to claim on the payment bond if the highway departmentviolates the law anymore and refuses to pay XYZ the money owed them. I have already got our lawyer involved andhe says we have a good case for suing the supplier and the highway department. I have been through this kind ofthing before (many times) and will handle it, but just thought I should let you know. Also, while the state has sent abunch of letters where they threatened to declare us in default for not paying subs, etc., etc., we all know fromexperience that this is just a bluff to make us think they are going to file a claim on the performance bond and shouldnot be taken seriously. I will let you know when we file suit against the highway bureaucrats (probably thisMonday), you will get a kick out of the Complaint.

August 28, 2012 19

Three C's of Surety Agent E&O

III. Capacity: Knowledge and Applying Knowledge:

4. Good Relationships Are the Key to Success;

Surety Relationship > One BondContractor Relationship > One Bond (hopefully)One Bond < all the relationships put together

August 28, 2012 20

Three C's of Surety Agent E&OIII. Capacity

C. Ability to Recognize When Results May Not Be Possible

Recognize that you are not:

•a contractor•a surety•a state insurance department•a banker•an accountant•a lawyer•an owner, state highway department, or other such entity

August 28, 2012 21

Three C's of Surety Agent E&OIII. Capacity

C. Ability to Recognize When Results May Not Be Possible

Recognize that you are not:

•a contractor They bid and build, and risk assets and jobs, you don’t•a surety They have guidelines to reject bonds, you don’t•a state insurance dept. They make judgment calls on sureties, you don’t•a banker They can lend working capital, you can’t (shouldn’t)•an accountant They prepare financial statements, you don’t•a lawyer They draft the contracts and fight the battles, you don’t•an owner They have work to award, you don’t

In short, do not try to be something you are not: Your role is important, and so is theirs.

August 28, 2012 22

Three C's of Surety Agent E&OIII. Capacity

A. Knowledge

B. Ability to Apply Knowledge to Get Results

C. Ability to Recognize When Results May Not Be Possible

D. Skills and Technology

August 28, 2012 23

Three C's of Surety Agent E&OIII. Capacity

D. Skills and Technology.

Use the skills you make your living with to see if concerns can be addressed before the lawyers get involved:

•Listen

•Identify the Concern

•Suggest Possible Means of Resolution/Prevention of the Problem Going Forward

August 28, 2012 24

Good EmailTo: Nancy UwFrom: Mary MayeyeDate: December 15, 2013RE: Possible Meeting or Conference Call (at your convenience)

Dear Nancy:

I tried to reach you on the phone, but understand you may be gone for the Holidays. I will be in your area after thefirst of the year and would like to sit down with you if you can find the time (lunch or dinner, if that is an option). Ifnot, could you give me a call soon?

Happy Holidays and I look forward to hearing from you soon.

Thanks,

August 28, 2012 25

Bad EmailTo: NancyFrom: Larry S. Lost, XVII, DVM, CPCU, RIMS, CPA, M,D., DDS, M,P. Date: December 31, 2013Re; Our Agency

Our agency is considering moving all of its surety business to Sureas Surety immediately. As you know, we havebeen with you for 68 years, and have written over thousands in bond premium. I do not appreciate your recent emailinsinuating that my not reporting a bogus claim over some curtains sooner had something to do with the highwaydepartment kicking XYZ off the job. You have no idea what I did (at no charge, I might add) to try and help thatsituation, and apparently don’t know anything about the business if you think the two things are related.

I have copied your boss and CEO on this email, and am considering sending a copy to the insurance department ifyour attitude is not straightened out shortly.

August 28, 2012 26

Three C's of Surety Agent E&O

III. CapacityD. Skills and Technology

•Technology exists, make it your bff (best friend forever).•Like many good friends, it already does everything you want, you probably just never noticed.

August 28, 2012 27

Three C's of Surety Agent E&O

Required Computer Skills and Technology:

1. The ability to locate ANY document or data from your system.

2. And send it anywhere.

3. And recognize how data is stored, and what it means if data doesn’t exist.

August 28, 2012 28

Three C's of Surety Agent E&O

To make technology= bff : )

• Identify types of file on your desktop.

• Find out how backup is handled.

• Do system searches.

August 28, 2012 29

Three C's of Surety Agent E&O

CHARACTER

August 28, 2012 30

Three C's of Surety Agent E&O(Kipling’s Lessons)

IF

IF you can keep your head when all about you Are losing theirs and blaming it on you,If you can trust yourself when all men doubt you,But make allowance for their doubting too;If you can wait and not be tired by waiting,Or being lied about, don't deal in lies,Or being hated, don't give way to hating,And yet don't look too good, nor talk too wise:

August 28, 201231

Three C's of Surety Agent E&O

If you can dream - and not make dreams your master;If you can think - and not make thoughts your aim;If you can meet with Triumph and DisasterAnd treat those two impostors just the same;If you can bear to hear the truth you've spokenTwisted by knaves to make a trap for fools,Or watch the things you gave your life to, broken,And stoop and build 'em up with worn-out tools:

August 28, 2012 32

Three C's of Surety Agent E&O

If you can make one heap of all your winnings And risk it on one turn of pitch-and-toss,And lose, and start again at your beginningsAnd never breathe a word about your loss;If you can force your heart and nerve and sinewTo serve your turn long after they are gone,And so hold on when there is nothing in youExcept the Will which says to them: 'Hold on!'

August 28, 2012 33

Three C's of Surety Agent E&OIf you can talk with crowds and keep your virtue,' Or walk with Kings - nor lose the common touch,if neither foes nor loving friends can hurt you,If all men count with you, but none too much;If you can fill the unforgiving minuteWith sixty seconds' worth of distance run,Yours is the Earth and everything that's in it,___________________________And - which is more - you' ll be a Man, my son! may not have a claim, not one!

-Rudyard Kipling

August 28, 2012 34

Three C's of Surety Agent E&O• Character is a yes/no question in underwriting, and

should be in your business.

• There is no in-between and partial credit is not given. • While lessons on character are far beyond the scope of

a one hour webinar, what Kipling said about character are the same things you should look for in:-yourself; -employees and -everyone you are associated with.

August 28, 2012 35

Three C's of Surety Agent E&O

Thanks for your time!Edward M. (Butch) Weed

Martin Weed, LLC

August 28, 2012 36

37August 28, 2012 37

YOUR QUESTIONS?If you do not have the opportunity to have your question addressed during the Seminar, you may contact the presenter directly:

Edward M. (Butch) WeedMartin Weed, LLC

100 Union Hill Drive, Suite 150Birmingham, Alabama 35209

(205)443-6661 (direct)emweed@martinweedllc.com