Cliff Rudolph's Insurance Blog

CUNA MUTUAL/CUMIS non-renewing credit unions?

Back in September I blogged about a recent statement made by CUNA MUTUAL/CUMIS regarding future actions they would take in light of recent downgrades by AM BEST and FITCH.  It sounds like my forecast may have hit it's mark.  I recently heard that the strategy is to non-renew credit unions and selectively offer renewal terms to those that CUNA MUTUAL/CUMIS feels are a good fit.  The renewal will have significant changes to the terms of the prior policy. 

This could be significantly challenging for most credit unions.

1. Does your credit union have the resources and expertise to identify the change in terms and conditions?
2. Does your credit union have the resources and expertise to understand how these changes effect the credit union's ability to transfer risk?
3. Have you developed a contingency plan? Have you identified insurance brokers that can offer competitive terms and have the expertise to develop risk management strategies for credit unions?

This couldn't come at a worse time for credit unions.

Cliff Rudolph

You May Be Held Personally Liable for Wage and Hour Violations

If you are in HR, are a director or officer of an organization, and/or a hiring/firing manager a recent decision by the Ninth Circuit Court of Appeals should be of significant concern.  In Boucher v Shaw (July 2009) the court held that individual managers can be held liable for unpaid wages under the Fair Labor Standards Act.

One of the most frequent claims I see are lawsuits stemming from employee related allegations of wrongful termination, workplace discrimination, workplace harassment, and wage and hour claims.

Previously it was argued that an organizations managers, officers and owners could not be personally liable for the corporation's wage and hour violations.  In Boucher vs. Shaw, Castaway Hotel Casino and Bowling Center filed for Chapter 7 liquidation bankruptcy in 2004; shortly thereafter a suit was filed for unpaid wages, vacation and holiday pay under the federal Fair Labor Standards Act(FSLA). 

 

On appeal, the Ninth Circuit held that former employees of Castaways could pursue federal wage and hour claims filed personally against the CEO, CFO and other officers of the corporation. 

 

Consider for a moment how it would effect you personally to be held personally liable for an employee related lawsuit.  Not fun.

 

This is a significant issue for all employers.  Furthermore, many organizations that purchase EPLI insurance (Employment Practices Liability Insurance) to defend and pay claims related to employee suits will be surprised to find out that the policy may not pay for claims against individuals. 

 

Insurance coverage is available on a limited basis. Many of the common carriers of EPLI--Hartford, Travelers, CNA, Chartis, Chubb offer coverage for defense, some may offer indemnity.  But it many cases coverage must be requested, and coverage varies from carrier to carrier.  Seldom will a carrier offer to pay for a claim for wages.

 

Also, it is critical to check Who Is an Insured on your EPLI policy.  While typically employees, officers, etc are considered insureds, policy language varies and you may also be faced with an insured vs insured exclusion, nullifying coverage.

 

Conclusion: Always request this coverage on EPLI policies. Be clear as to what's covered ( usually just defense) and what limit applies.

 

Here is a good article to read http://www.hartfordhelp.com/article.htm?id=2157

 

Cliff Rudolph

 

 

Are you insured by CUNA Mutual/CUMIS?

Recently CU Times reported that CUNA Mutual/CUMIS would be adapting its corporate bond program based on the impact the economy has had on CUNA Mutual/CUMIS bottom line performance.  CUNA MUTUAL Article in CU Times

 

The article quotes Media Relations Senior Manager Rick Uhlmann as saying:

 

“Because financial condition has an impact on Bond and SIP losses, we have an obligation as a mutual company committed to credit unions to take certain actions and maintain our financial strength for all of our policy owners.”

 

But what exactly does that mean if you are insured by CUNA Mutual/CUMIS? It could mean that the terms and conditions within the policy will change or renewal premiums could be much higher.  But it could also mean that Credit Unions could be declined renewal coverage by CUNA Mutual/CUMIS. 

 

I believe that CUNA Mutual/CUMIS will incorporate a plan to do all three.  With the recent downgrades and negative outlook ratings by AM Best and Fitch  This is probably a reaction by CUNA Mutual/CUMIS to strengthen a weakened financial position.  Furthermore, should CUNA Mutual/CUMIS, continue to decline, many Credit Unions may be in breach of contract as many contracts require that insurance be placed with "A" rated insurance carriers.  You'll note that recently the Federal Home Loan Bank of Boston decided to stop buying mortgages that have their primary insurance with CUNA Mutual Group Mortgage Insurance as a result of the Standard and Poor's July 29th downgrade from A to BBB+.

 

Credit Union's that purchase insurance directly from CUNA MUTUAL/CUMIS should start looking for alternatives today, as the marketplace is tough on financial institutions, and many brokers are unfamiliar with the specific needs of Credit Unions.

 

Cliff Rudolph

 

Stanford Financial 1.6 Billion Class Action, Your Insurance Broker on your Board of Directors?

Many of you may have heard about the SEC civil complaint alleging a massive ponzi scheme operated by Stanford Financial WSJ Article .  Recently, plaintiffs filed a class action law suit against Willis Group, a UK-based insurance broker, and other defendants. The suit is filed on behalf of defrauded Mexican depositor clients of Houston based Stanford Financial Group and alleges Texas securities law violations by Willis and the co-defendants in the massive investment fraud scheme perpetrated by Stanford Financial Rueters Article.

The latest case is Canabal v. Willis of Colorado et al, U.S. District Court, Northern District of Texas (Dallas), No. 09-01474 and also names Mr. Robert S. Winter.  Mr. Winter is a Bond Specialist with Bowen, Miclette & Britt and was elected to the Board of Directors of Stanford International Bank in 1998.  He was also the primary insurance broker for all policies held by Stanford International Bank and its affiliated companies. 

It is alleged that "safety and soundness" letters from Bowen, Miclette & Britt were signed by Robert Winter without disclosure that Mr Winter was on the Board of Directors for Stanford International Bank news video from fox.  Furthermore, the lawsuit filed in Dallas, states that 'Willis agreed to Stanford's request to provide "safety and soundness" letters, and that "the clear intention" was for the letters to be used in Stanford's marketing to help retain and attract clients." Rueters Article .  These "safety and soundness" letters reportedly were sent to Stanford's agents identifying the insurance policies supposedly underlying Stanford International Bank's operations.  The allegations are that Willis would provide these letters to Stanford, and at times, directly to investors, with the understanding that investors would rely on the letters in deciding whether or not the investment was safe and insured.

I've never understood why Organizations do not see the conflict of interest when having their insurance broker appointed to the Board of Directors.  In many cases, an insurance broker is paid a commission, a percent based on the total premium that the insured organization pays.  Under this model, as the insured organizations exposure grows, so does the insurance brokers compensation.  As you can see, this could result in a conflict of interest.  Furthermore, in the Stanford Case, the broker was sending out letters that investors perceived as an independent assesment of the financial institutions Risk Management.  Obviously this was not the case.

Work with an independent broker that will advocate on your behalf (for that matter, it doesn't make sense to work with a Publicly traded broker in the first place- at a publicly traded firm, who's best interest does your broker have? yours or his shareholders? There is a reason why CPA's and attorney's are not publicly traded, but that is for another blog.).  Insurance Brokers BOD duties should be restricted to Non Profits (where they often know many influential people and are great at fundraising) and to their own firms or associations.  What ever the case, an insurance broker does not belong on the BOD of a client of the firm, whether or not that the insured is an individual client of the broker.

Cliff Rudolph

Some quick tips when it comes to D&O Renewals

Here are some quick tips when it comes to renewal proposals on D&O policies:

1. Make sure you have a copy (from the policy) of the definition of claim and the policy wording regarding incident and claim reporting.  Understand claim reporting and be sure to share the information on timing and responsibility with internal managers and staff.

2. The renewal meeting is a perfect opportunity to ask about whether or not there are any incidents or claims that should be reported. Document your file accordingly.

3. If you are moving coverage to a new Insurance Carrier:

· Be sure to review the renewal application. Check to see if there are any potential claims disclosed on the application to the new carrier that were not reported to the prior carrier.

· Be absolutely sure there is no change in the retroactive date such that would restrict prior acts coverage or any other change in terms that would preclude coverage for a claim that would have been covered under the expiring policy.

· Recommend to the client (in writing) that they report all actual claims and possible incidents to the expiring carrier within the prescribed period of time.

· If at all possible, have the new carrier except the “old carriers” application – in order to back date and utilize the same prior and pending litigation date. DO NOT have your client re-warrant the new insurance carrier’s application.

4. If you are renewing coverage, make sure you utilize the carrier’s renewal application and not a new business application. Why? The renewal application should NOT contain a claim/notice warranty question.

Corporate Governance and Risk Management for Financial Institutions: The Broker’s Role

The FDIC expects more bank failures as the financial crisis continues. On May 27th the FDIC released the Quarterly Banking Profile that represents a report card of the industry status and performance. It concluded that FDIC insured institutions reported a net income of $7.6 Billion in the first quarter of 2009, representing a significant recovery from the $32.1 Billion loss in the fourth quarter of 2008. However, this is 60.8% lower than the first quarter of 2008, a year in which we saw a decline of $32.7 Billion. The fourth quarter of 2008 represented the first quarterly loss since 1990. One third of all insured institutions were not profitable in the fourth quarter of 2008, and overall earnings were outweighed by sizeable losses at a number of large banks. Furthermore, during the first quarter of 2009, twenty-one financial institutions failed; the highest quarterly total since 1992.

Directors and Officers insurance is a critical piece of your overall risk management platform, both for your directors and officers, and the organizations they serve. Remember, when you have the right blend of a knowledgeable broker and a client that is taking the necessary precautions to “weather the storm”, underwriters will look at the strengths of your program instead of assuming the worst. In the end, choosing the right broker will increase the effectiveness of your risk management solution while lowering overall insurance costs.

Here is an article I wrote on the subject:

http://www.psfinc.com/press/corporate-governance-and-risk-management-for-financial-institutions-the-brokers-role