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McGriff Hosts 2016 ExecutiveEdge Conference
McGriff, Seibels & Williams held the 2016 Executive Edge conference May 9-11 at the Terranea Resort in Palos Verdes, California. The event provided a unique opportunity for professionals from all sides of the risk management arena to discuss topics and trends with decision makers both from the buyer side and carrier side. We appreciate all those who were able to attend the conference as well as our co-sponsors (AEGIS, AIG, Allied World, Chubb, Endurance, Paragon, Tokio Marine HCC, XL Catlin, and Zurich). For those who were unable to attend, you missed great camaraderie and education and we hope you make it next year! High level summaries of the sessions are included below:
Dan Bailey, Chair of Bailey Cavalieri's Directors & Officers Liability Practice Group, provided conference attendees with an update on the state of D&O litigation and trends affecting policyholders. After recapping 2015’s securities class action suits and settlement figures, Mr. Bailey discussed various trends affecting policyholders such as the downward trend in merger objection attributed to the Delaware judiciary’s recent s recent denial of disclosure only settlements and companies incorporating Delaware forum selection clauses into their bylaws. The discussion then moved to SEC enforcement activity and the recent Yates Memo and the impact of such on the insurance market (fines and penalties exposure, conduct exclusion trigger and violation of cooperation duties within the policy). While discussing SEC trends, Mr. Bailey walked through how coverage has expanded in recent years for SEC investigations against individuals and how many companies mistakenly believe there may coverage for the entity for similar investigations against the entity (although many carriers have begun offering such coverage for significant additional premium.) See Dan's white paper on Increasing D&O Criminal Exposures: Insurance And Indemnification Issues.
McGriff’s Michael Wakefield moderated a discussion with Teri McMahon of Alston & Bird and Peter Rosen of Latham & Watkins about transactional insurance, focusing specifically on the Representations & Warranties (R&W) product, market, and growing prevalence as a tool for buyers and sellers in mergers and acquisitions. Historically viewed as a Private Equity product, other types of transaction parties are now regularly using R&W insurance to replace or supplement the traditional escrow accounts that protect against financial losses resulting from inaccuracies in the seller’s representations and warranties. Ms. McMahon explained how deal lawyers use this insurance to facilitate transactions, and Mr. Rosen provided an update on developments in the fast-moving R&W insurance markets, as well as a summary of recent data on claims paid.
Andrew Fastow, Keynote Speaker
Former CFO of Enron Corporation from 1998 – 2001, Mr. Fastow provided conference attendees with unique insight into how executives can fall into the trap of justifying questionable decisions and disclosures by technically following the “rules” (such as accounting principles and SEC regulations) but ignoring the “principles” behind those rules (including the moral and ethical standards upon which they are based). Acknowledging the complexity of many accounting principles, Mr. Fastow identified current disclosures used by companies that are acceptable – but oftentimes misleading to shareholders – regarding the overall financial strength of companies.
As predicted, the SEC has recently released new and revised Compliance and Disclosure Interpretations emphasizing a renewed focus on public company’s use of non-GAAP measures. Practices companies should avoid, according to the SEC, include (i) presenting a full income statement of non-GAAP financial measures, (ii) presenting a non-GAAP measure using a style of presentation (i.e. bold, larger font, etc), and (ii) directly comparing a non-GAAP measure to a GAAP financial measure. While the intent is always to have a more transparent environment, Mr. Fastow warned that regardless of any new policy regarding financial disclosures, there will always be new and innovative measures by which companies may attempt to blur the lines. He encouraged companies tempted to so do to first consider the principles behind such rules and policies.
In the spirit of the American election season and the patriotic/pro-America conference theme, the claims panel this year used a debate format with each co-sponsor carrier including a claims candidate on stage front and center. Hosted by McGriff’s John Tanner, and moderated by coverage lawyers Mike Rossi of the Insurance Law Group and Tony Tatum of King & Spalding, the candidate opening statements and Q&A centered around executive risk claims handling issues. The candidates debated key claims handling issues ranging from the initial selection of legal counsel and managing or defining “reasonable” expenses to how to properly obtain settlement authority in the face of outstanding coverage issues or other disagreements as to the settlement amount . The moderators and candidates also discussed the proper role of the broker in the claims process and, while many debated amongst each other theories on best practices, the majority agreed that the process resulting in the best outcome includes participation from the client, underwriter and claims with an open dialogue from start to finish.
Cyber Discussion / McGriff’s cyber practice leader, Mary Guzman, hosted a Q&A session with cyber liability underwriters addressing topics and issues affecting the current market. Due to the increased number of claims and breaches experienced by companies of all sizes and in all sectors, the cyber liability market continues to mature in a manner that has resulted in clients and underwriters paying more attention to policy language and to the structure of insurance towers to ensure consistent coverage throughout. Underwriters also discussed the amount of capacity available in the marketplace as well as how the future of cyber liability is shaping up given the reliance of technology and cloud based computing making data more vulnerable than ever.
Also discussed in detail was the importance of negotiating proper wording in the cyber policies to address PCI fines, penalties, expenses and assessments (fraud charges and re-issuance fees) which may be charged by the Card Brands (VISA, Master Card, Discover, AMEX, etc..) against the merchant or card processor in accordance with the indemnity and other provisions in the Merchant Services Agreement. Mary challenged the markets on how they were addressing this exposure (full limits, sub-limits, limiting coverage only to fines) and further underscored the need to also modify the contractual liability exclusion to carve back coverage to accommodate the assessment allocation agreed to in the Merchant Services Agreement (to see recent decision in PF Chang case click here).
For more information on 2016 speakers, activities and co-sponsors, please refer to the Executive Edge website www.executiveedge.mcgriff.com