Commercial Insurance Update – Management Liability aka “Executive Risk”

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December 2009

Management Liability aka “Executive Risk”

Jeffrey W. Cavignac, CPCU, ARM, RPLU, CRIS © 2009 Cavignac & Associates – All Rights Reserved

Running a business involves its share of risk. The risk needs to be evaluated, and risk control techniques need to be implemented to reduce the frequency and severity of potential management liability claims.

Transferring this risk to an insurance company also needs to be considered. A number of different coverages are available to protect your company from management liability or what is also called “Executive Risk.” The insurance marketplace for these coverages is relatively broad.

Although you may elect not to purchase some of these coverages – or any of them for that matter – it is better to be aware of what is available and make a conscious decision to retain the risk than to find out after a loss that you could have purchased insurance to cover it.

Regardless of whether or not you elect to insure these exposures, they do lend themselves to being managed. The purpose of this article is not to discuss specific risk control techniques, although these should not be overlooked.

Many companies will provide a Cost Indication based on preliminary information. If you are interested, please complete and return to us the one page application at the end of this article.

Directors & Officers Liability (D & O)

What Is It?

A D&O policy provides liability protection for directors and officers when claims are asserted for actual or alleged wrongful acts. The assets of the company/organization and the personal assets of the directors and officers are protected from the costs of litigation and any covered damages.

Why Is It Needed?

Statistics show that shareholders are the most likely group to bring suit against these entities. However, suits do come from other sources such as competitors, customers, vendors and governmental and regulatory agencies. Allegations often include breach of duty, fraud, unfair business practices, infringement of trade secrets and other wrongful acts.

What Does It Cost?

• $1 million Limit of Liability (Indemnity and Defense)

• $1 million Addition Defense Limit – 20% Surcharge

• Rate Factor – Consolidated Company Assets

• Annual Premium

• Assets Up to $5 million – Annual Premium $3,500

• Assets $5 million to $10 million – Annual Premium $3,500-$4,000

• Assets $11 million to $15 million – Annual Premium $4,000-$5,000

• Assets $15 million to $25 million – Annual Premium $5,000-$6,000

Employment Practices Liability (EPL)

What Is It?

The EPL policy covers defense expenses, settlements and damage awards resulting from employee lawsuits alleging discrimination, harassment, wrongful termination, and other employment related claims.

Why Is It Needed?

The number of employment related lawsuits is at an all-time countrywide high, and is steadily increasing. Hundreds of thousands of employment claims are filed with state and local agencies.

What Does It Cost?*

• $1 million Limit of Liability (Indemnity and Defense) Including Third Party Allegations

• $100,000 Wage/Hour Violation Defense Only Sublimit

• $1 million Additional Defense Limit – 20% Surcharge

• Rate Factor – Total Number of Employees

• Annual Premium

• Employees Up to Ten $10,000 SIR* – Annual Premium $1,500-2,500

• Employees 10 to 25 $25,000 SIR* – Annual Premium $3,000-$4,000

• Employees 26 to 50 $25,000 SIR* – Annual Premium $4,000-$6,000

• Employees over 50 $25,000 SIR* – Annual Premium $50-$100 per Employee, Per Year

*Self-Insured Retention (SIR)

Fiduciary Liability

What Is It?

Fiduciary liability insurance responds to claims made against fiduciaries and trustees alleging breaches of duty imposed under the Employment Retirement Income Security Act (ERISA), including improper investments, plan and employee advice, insufficient funding, and failure for an insurer to perform in the administration and management of employee benefit plan.

Why Is It Needed?

The individuals who administer Employee Benefit Plans are subject to personal liability under ERISA. Fiduciaries are obligated to act solely in the interest of plan participants and beneficiaries, and are personally liable for any breach of their duties. Even with a participant directed 401(k) plan, fiduciaries can be held liable for a variety of reasons, such as poor investment options and failing to educate employees on their options.

What Does It Cost?

• $1 million Limit of Liability (Indemnity and Defense)

• $1 million Additional Defense Limit – 20% Surcharge

• Rate Factors – Total Number of Employees and Total Retirement Plan(s) Asset Values

• Annual Premium – $800-$1,000

• For Up to 50 Employees

• For Total Plan Assets Up to $5 million

Kidnap & Ransom / Extortion (K&R)

What Is It?

This coverage helps businesses guard against the significant costs associated with kidnapping and extortion, threats of bodily harm, property damage,product contamination, launching a computer virus or divulging trade secrets.

Why Is It Needed?

Doing business internationally as well as within the borders of the United States continues to become more dangerous for companies and key managers. Even if no ransom is paid, expenses such as those from negotiators, attorneys and forensic analysts can have a significant impact on company balance sheets.

What Does It Cost?

• $1 million Limit of Insurance

• Rate Factors – Company Annual Revenue / Trips to Certain Countries with K&R Exposure

• Annual Premium – $500+

Identity Fraud Expense Reimbursement

What Is It?

The Identity Fraud Expense Reimbursement policy reimburses victims (employees and/or customers) of identity theft for the out-of-pocket expenses they incur while working to re-establish their credit and clear their names. The coverage reimburses victims for lost wages and notary and certified mailing charges.

Why Is It Needed?

Identity theft is the fastest growing white-collar crime in America with almost ten million people being victimized each year.

What Does It Cost?

• $25,000 Limit of Insurance Per Insured Person for Each Identity Fraud

• Rate Factor – Number of Employees

• Annual Premium

• Employees Up to Ten – Annual Premium $200

• Employees 10 to 25 – Annual Premium $200-$250

• Employees 26 to 50 – Annual Premium $250-$400

Note that all costs are estimates only, and are based on programs purchased separately. Premium discounts may be available when multiple coverages are written as part of the same policy or with the same carrier. Actual pricing is based on the risk profile of each account. ±

Disclaimer: This article is written from an insurance perspective and is meant to be used for informational purposes only. It is not the intent of this article to provide legal advice, or advice for any specific fact, situation or circumstance. Contact legal counsel for specific advice.


Risk Management Seminars 2010 Series

450 B Tower, 450 B Street, Suite 1800, San Diego, CA 92101-8005

Cavignac & Associates is in business to help you manage risk. Our Risk Management seminar series is designed to help you cut your total cost of risk — and drive dollars to your bottom line.

In addition to our Cavignac & Associates experts, many of our seminars will also feature guest speakers from the state Employment Development Department and Cal OSHA, and many other specialists to enhance your experience and answer your questions first-hand.

Don’t miss our exciting 2010 Risk Management Seminar lineup. We look forward to seeing you here!

For more information about upcoming seminars Click here to view our 2010 Seminar List

To sign up for upcoming seminars Contact Darcee Nichols at or 619-744-0596.

All training sessions available to our clients Reserve early / seating is limited! *


Executive Risk Indication Application

Completion of this form will enable us to obtain an Indication of Cost for the coverage(s) requested. Completion of a separate application will be required to place coverage.

1. Name of Insured

2. Insured’s Address

3. Nature of Insured’s Business

4. Total Revenues for the Most Recent Fiscal Year $

5. Projected Revenues for the Current Fiscal Year $

6. No. of Years in Business

7. Total # of Current Employees

8. Does Company have an Employee Stock Ownership Plan? Yes No

9. Has the Insured had any claims within the past 5 years that Yes No

10. would have been covered by the coverage being applied for?

Indicate which lines of business this Indication is for:

D&O EPL Fidelity/EE Dishonesty Fiduciary K&R ID Fraud

11. Check Limit and deductible desired:

Coverage Limit Deductible

$1 million $10,000

$2 million $25,000

Other $ Other $

Your Name   Your Phone    Your E-mail

After completion, fax to 619-234-8601. Be sure to include your name, phone number, fax number, and/or e-mail address so that we can respond to your request.


Cal OSHA Report

Top Ten Most Frequent Safety Violations for 2009

By Stuart Nakutin, CSA, COA, CET, WCCP, CHMC Director of Safety and Claims

© 2009 Cavignac & Associates – All Rights Reserved

Cal OSHA revealed the preliminary Top Ten Most Frequent Workplace Safety Violations for 2009 as part of a presentation at the National Safety Council’s annual Congress & Exposition. The number of top ten violations has increased almost 30% over the same time period in 2008. These workplace violations are:

1. Scaffolding (9,093 Violations)

Scaffold accidents most often result from the planking or support giving way, or from the employee slipping or being struck by a falling object.

2. Fall Protection (6,771 Violations)

Any time a worker is at a height of four feet or more, the worker is at risk and needs to be protected. Fall protection must be provided at four feet in general industry, five feet in maritime, and six feet in construction.

3. Hazard Communication (6,378 Violations)

Chemical manufacturers and importers are required to evaluate the hazards of the chemicals they produce or import and prepare labels and safety data sheets to convey the hazard information to their downstream customers.

4. Respiratory Protection (3,803 Violations)

Respirators protect workers against insufficient oxygen environments, harmful dusts, fogs, smokes, mists, gases, vapors, and sprays. These hazards may cause cancer, lung impairment, other diseases, or death.

5. Lockout-Tag Out (3,321 Violations)

“Lockout-Tag out” refers to specific practices and procedures to safeguard employees from the unexpected start up of machinery and equipment, or the release of hazardous energy during service or maintenance activities.

6. Electrical Wiring (3,079 Violations)

Working with electricity can be dangerous. Engineers, electricians, and other professionals work with electricity directly, including working on overhead lines, cable harnesses, and circuit assemblies. Others, such as office workers and sales people, work with electricity indirectly and may also be exposed to electrical hazards.

7. Ladders (3,072 Violations)

Occupational fatalities caused by falls remain a serious public health problem. The U.S. Department of Labor (DOL) lists falls as one of the leading causes of traumatic occupational death, accounting for 8% of all occupational fatalities from trauma.

8. Powered Industrial Trucks (2,993 Violations)

Each year, tens of thousands of injuries related to powered industrial trucks, or forklifts, occur in U.S. workplaces. Many employees are injured when lift trucks are inadvertently driven off loading docks, lifts fall between docks and an unsecured trailer, they are struck by a lift truck, or when they fall while on elevated pallets and tines.

9. Electrical in General (2,556 Violations – See #6)

Working with electricity can be dangerous. Engineers, electricians, and other professionals work with electricity directly, including working on overhead lines, cable harnesses, and circuit assemblies. Others, such as office workers and sales people, work with electricity indirectly and may also be exposed to electrical hazards.

10. Machine Guarding (2,364 Violations)

Any machine part, function, or process that may cause injury must be safeguarded. When the operation of a machine or accidental contact injures the operator or others in the vicinity, the hazards must be eliminated or controlled. ±


2010 Cost of Living Adjustments

(COLAs) Announced Qualified Plan Limitations for 2010 — No COLA Increases

The IRS recently announced that there will be no Cost of Living Adjustments (COLA) to the listed Qualified Plans in 2010.

For more information, contact:

Patrick Casinelli, RHU, REBC Employee Benefits Department

Social Security COLAs – No Increases for 2010

Since 1975, Social Security general benefit increases have been cost-of-living adjustments (COLAs). The 1975-82 COLAs were effective with Social Security benefits payable for June in each of those years; thereafter COLAs have been effective with benefits payable for December. Prior to 1975, Social Security benefit increases were set by legislation.

In June 1975, the first COLA was based on the increase in the Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers (CPI-W) from the second quarter of 1974 to the first quarter of 1975.

The 1976-83 COLAs were based on increases in the CPI-W from the first quarter of the prior year to the corresponding quarter of the current year in which the COLA became effective. After 1983, COLAs have been based on increases in the CPI-W from the third quarter of the prior year to the corresponding quarter of the current year in which the COLA became effective.


Although COLAs for the Supplemental Security Income (SSI) program are usually the same as those for the Social Security program, SSI COLAs have generally been effective for the month following the effective month of Social Security benefit increases. For additional detail, see SSI historical payment standards ±