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Update on Environmental Insurance & Related Liability Matters. NAREIM Environmental Forum April 29, 2010. Today’s Topics. State of the Environmental Insurance Industry Emerging Insurance Trends Insurance Related Legal Trends Case in Point: Third Party Reliance Issues.

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Update on Environmental Insurance & Related Liability Matters

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Update on Environmental Insurance & Related Liability Matters

NAREIM Environmental Forum

April 29, 2010


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Today’s Topics

  • State of the Environmental Insurance Industry

  • Emerging Insurance Trends

  • Insurance Related Legal Trends

  • Case in Point: Third Party Reliance Issues


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State of the Environmental Insurance Industry

  • AIG Timeline:

    • September 2008: Lehman files for bankruptcy & US announces $85 billion takeover of AIG

    • March 2009: AIG announces that it will form property-casualty business AIU Holdings

    • Spring 2009: Restructuring and spin-offs

    • July 2009: Special Purpose Vehicle is formed, Chartis brand introduced

    • January 2010: Chartis completes legal entity structure


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State of the Environmental Insurance Industry

  • Chartis Remains Strong

    • Remains the largest U.S. based commercial P&C organization. Worldwide in 2009:

      • More than $40B Dollars in premium

      • Operating income was $699M

      • Combined statutory surplus was $38B (a 6% increase from 2008)

      • U.S. statutory surplus was $27.96B

      • Chartis paid an average of $75M in claims every day


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State of the Environmental Insurance Industry

  • In addition to Chartis, other carriers have a continuing presence in the environmental marketplace:

    • ACE

    • XL

    • Zurich

    • Chubb

  • New players: Ironshore, Navigator, etc.

  • New products? Not many


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State of the Environmental Insurance Industry

  • Products for Real Estate

    • PLL-like products

    • Main practice E&O/contracting programs

    • Project policies (Owner Controlled Insurance Programs [OCIPs] and Contractor Controlled Insurance Programs [CCIPs])

    • Cost-cap coverage still available, but all carriers have had losses on this line of business and now approach them as a tough risk

    • Financial products insuring banks for loan defaults on environmental matters no longer available


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Emerging Insurance Trends

  • Views from the trenches - emerging insurance issues to keep an eye on:

    • Duff Opinion: “soft” market is pretty much at an end

    • Carriers must begin to adjust premium income to claim payouts – they are mindful of what happens when they don’t (Reliance catastrophe, Kemper, etc.).

    • Smart risk management approach is to not fight for price, but fight instead for coverage enhancements if you are willing to avoid the standard “give me X% less” pro-forma demand


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Insurance Related Legal Trends

  • Indemnities rulings

    • Before the 2008 collapse, courts had begun to express a hostility to excess risk shifting in agreements, especially as seen in third party indemnities. See the Summer, 2008 Georgia Supreme Court case of Lanier at McEver LP v. Planners and Engineers Collaborative.


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Insurance Related Legal Trends

Additional insureds – general liability and “COPS” contractor operations are the real venues for this – NOT E&O

Remember: GL excludes pollution, E&O; COPS additional insured is not for E&O

ISO forms changed dramatically in 2004

Limited additional insureds to coverage for liability they suffered due to the policyholder (or those the policyholder was responsible for)


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Insurance Related Legal Trends

  • The 2004 amendments to the ISO Additional Insured Endorsement prior to this time, the endorsement could be construed by courts as granting full access to the policy for the additional insured relative to harms caused by the additional insured.

    • For a time, savvy risk managers continued to ask for the “old” (circa 1985) additional insured endorsement.

    • Carriers have clamped down on this practice and it is not a good rule of thumb to expect this old endorsement any more.


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Case in Point: Third Party Reliance Issues

  • Typical Scenario

    • Agadoni Consultants prepares a Phase I assessment of an acquisition site for Rockstone, the Primary Client.

    • Rockstone gives the Agadoni assessment to a lender, Duff Life, to rely upon the assessment as part of the acquisition financing.

    • Just prior to closing Duff Life requires Agadoni to provide a reliance letter but will not agree to terms beyond unlimited reliance.


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Case in Point: Third Party Reliance Issues

  • What are the Problems and Should I Care?

    • Consultant: unlimited risks without clear scope or contract with lender

    • Rockstone and Duff Life are Borrower and Lender. Their positions are structurally, inherently adverse from a legal perspective.

    • If consultant does not recognize and clear in advance the conflict, the reliance upon his work by two adversarial parties is a violation of most PE and PG ethical canons.

    • This can substitute for neglect and create significant liability for the consultant (potential train wreck insurance issue) and can derail recovery for a future insured claim.

    • It can also create trust and communication issues between the adverse clients and the consultant.


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Third Party Reliance Cases Going Both Ways

  • Georgetown Steel (3rd party reliance allowed) 1990’s – no controls in contract.

  • Iron Partners LLC v. Dames and Moore, URS et al. (June, 2009) (3rd party reliance NOT allowed; report specifically limited reliance.) Well reasoned opinion from the U.S. District Court in Tacoma, WA

  • Hawaii Motorsports v. Clayton Group In this case, the plaintiff asserted that the consultant KNEW the report would be received and relied upon by a third party; summary judgment denied; case proceeds. (District Court of Hawaii.)


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Third Party Reliance Solution

Secondary Client Agreement between Agadoni Consultants and Duff Life

Scope of work agreement

Terms for conflict resolution

Restrictions on further use

Defined standard of care

Waiver of conflicts

Limit of liability


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Conclusion

  • Questions & Answers

  • Presenter contact information:

    • Dr. Karl Duff, Ph.D., J.D.

      Professional Liability Consultants, LLC

      Phone: (770) 345-3577

      Email: kduff@tempus-plc.com

      (Licensed in Georgia and Illinois)

    • Alan Agadoni, Senior VP

      ATC Associates Inc.

      Phone: (678) 581-7551

      Email: alan.agadoni@atcassociates.com


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