Insurance Coverage & Recovery

In House Warrior: Insurance Coverage in a Pandemic with Tom Bentz

Tom Bentz, partner with Holland & Knight and co-chair of their insurance practice, speaks with Richard Levick, chairman of Levick, in this transcribed installment of the In House Warrior Podcast series.

Speaker 1: Welcome to the Corporate Counsel Business Journal's daily podcast, In House Warrior, with host Richard Levick, chairman of LEVICK, a global crisis and litigation communications firm.

Richard Levick: Good day. This is Richard Levick with In House Warrior, the daily podcast of the Corporate Counsel Business Journal. And with me tonight is Tom Bentz, partner with Holland & Knight and the co-chair of their insurance practice. Tom, welcome to the show.

Thomas Bentz: Thank you for having me.

Levick: It's great to see you and I know we're going to have a wide ranging conversation about insurance coverage today. How did you become an insurance lawyer?

Bentz: Well, as I said before, I wish I could tell you that I always wanted to be an insurance attorney but the reality is that's not how it happened. I was in law school and wanted to be a litigator and in my first couple of years I was doing some litigation work. What I found was that every time I got to the courthouse ready to go with my trial as a young attorney, the insurance companies would swoop in at the last minute and settle the case. After a couple of experiences with that, I decided I was on the wrong side of this business. I wanted to be where the decisions were being made about whether or not the case was going to go, not preparing for trial for weeks on end only to find out that someone else had decided it wasn't going to happen.

Levick: So, Tom, is there anyone who grows up dreaming of becoming an insurance lawyer? I don't think your experience is entirely that different.

Bentz: It's actually a fascinating area, all kidding aside, I got from a very young age to be able to get in front of the C-suite executives and the board of directors. It was actually probably way better than being a litigator in the terms of my experiences early on and being able to interact with the real key decision makers.

Levick: I think it's always a fascinating experience, isn't it? When we're young, which for me, it's a long time ago, but you're sitting there and you realize people are listening.

Bentz: As I said, for me it was an opportunity that I wasn't really expecting but kind of fell into and for better or for worse, this is where I ended up.

Levick: Well, Tom, tell us about where the state of the market now? Let's start with D&O.

Bentz: Directors and officers liability insurance right now is entering in or probably fairly entrenched now into a hard market for the first time in probably more than 10 years, probably pushing 15 years. So, this is probably something that most risk managers and executives haven't had to endure before. We've seen single, double digits, even triple digit increases on most areas of risk. Carriers are being much more selective about who they want to write, what lines of coverage they want to write and how much limit they want to put up. That's creating for the first time in a very long time, some difficult choices for companies to make.

Levick: What's driving some of this? You touched on it a little bit.

Bentz: I think that probably the biggest thing that's driving it right now are the loss ratios that the insurance carriers are seeing. We've seen litigation explode over the last several years. Defense costs continue to rise. We've seen a number of event-driven litigation matters. So, #metoo has driven a lot of cases. Whereas before we only saw securities class actions against companies that had large stock drops. Now #metoo, different issues of bad publicity, whatever it is, can really create a securities class action against the different companies.

But I also think that we've seen a deterioration in the investments that a lot of the insurance companies have made. Which makes it harder for them to make money on the investment side, as opposed to on the premium side. That continues to be an issue for carriers, which is why premiums are going up to try and cover those losses.

Levick: This is a little bit of rhetoric but has the standard for boards almost become perfectioned? You talked about, it used to be a stock drop that was required before there was litigation but now it can be almost anything.

Bentz: I think that's fair to say but I also think that part of that issue is we've had some recent decisions that have allowed plaintiff's bar to bring this in multiple jurisdictions. So, you can bring it in federal court, you could bring it in state court and you can't have that multi-district litigation to say, we're going to resolve this all in one forum. That means you have to litigate it in whatever state you're in, multiple states potentially and in a federal court and you can get different answers. So, you don't have that formality, you'd only have that one fight even on issues that would be normally considered a securities class action. You have it in multiple forums and that's really driving a significant amount of the increases.

Levick: What can directors do with this evolution in litigation and liability?

Bentz: Well, I think there's a couple of things that they can do and being an insurance person, my first response is to make sure that they're acting as good risk managers. That they're mitigating their risk and they're understanding where they're mitigating their risk and insurance policies are a really important part of that but that's one component. It's very, very common for me to work with a client, even at the most sophisticated of companies. They don't know who their carriers are. They don't know who their insurance broker is. They may know that they have D&O insurance or that they have a significant amount of limit but that's really about all they know.

Things like, can I choose whichever law firm I want? If I can choose whatever law firm, what hourly weights can I pay? Things like, do I have full coverage for this? Or is there a sub-limit for this issue? Or is there even coverage for this issue? Those are things that we just don't see most boards really drilling down on. And then when they do have a claim, they're often surprised because the policy doesn't respond in the way that they thought it would or should.

Levick: And now we're moving obviously into this period of COVID, we've got all sorts of business interruption. Won't you just take us down that road?

Bentz: That's a very good example of what we were just talking about. A lot of people bought property policies with a business interruption rider and they assume when they hear business interruption, that pretty much any type of business interruption would be covered. Those property policies were really designed to cover damage to the property, such as when you have a fire or a flood or windstorm, whatever it is. And then when you're unable to open up the building because of the fire or flood, the windstorm, whatever it was, there was a certain amount of additional protection to cover you for that loss of business until the property could be repaired. The problem with trying to cram COVID loss, unsure under a business interruption policy is that if you do that, especially in a pandemic situation like this, you're taking a complete and total loss on every policy and every jurisdiction that you write it. Insurance doesn't work well that way.

If you have a localized fire or you have a localized windstorm or a localized whatever, you can spread that risk across your entire book of business. When you have a loss that covers your entire book of business, you can't recover from that. You're writing $10 million of coverage for a premium of $15,000/$20,000. If you have to pay out that difference on every risk you can't survive. And that's what I think you were really seeing right now and this is why so many carriers are fighting so hard to say there's not coverage for business interruption. Now, that being said, there are policies that do provide coverage. And one of the things that we do at Holland & Knight is make sure that the insurance understand what coverage they purchase. So, if you were worried about this kind of pandemic boss, or a viral loss, there was a way to write for that. It was expensive and a lot of carriers didn't want to do it but some would.

And that was a choice that people should be able to make and if they made it informed, then they either knew they were keeping that risk, or they were going to pay extra for it.

Levick: The insurance industry will talk out trying to sell in, previous years, pandemic related coverage and that a lot of buyers, most buyers not being interested. And yet now when you have the events, they are.

Bentz: Well, it's like anything else. Insurance is hindsight's 2020, right? If you knew what your risk was going to be, you'd buy the policy and you'd have plenty of coverage. This is a hundred year event. And I think the last time was 1918 that we had anything close to this kind of a pandemic.

Levick: We did a show back then as well, I believe you and I, Tom.

Bentz: And so people didn't think this was a big enough risk to justify the premium, if they even considered it at all. Some, and I'm sure many people didn't.

Levick: Tom, what about cyber? Everyone's working from home. All of a sudden, perhaps naively, there was this thought that we would be all in this together. And instead, what we've seen is an increase in cyber risk during the pandemic.

Bentz: Absolutely. That's another area where there's just been a tremendous uptake. First of all, the number of bad actors that are trying to breach the system, trying to get in, and trying to steal information and try to steal supplement checks, unemployment checks, whatever it is. There's plenty of money to be made if you're a bad actor and that's what they're doing right now. And you throw on top of that, number of people now working from home on their personal devices, where that wasn't really happening or certainly not in the quantity that we are now. Their personal devices may or may not have adequate protections. Their personal devices may or may not be insured under their insurance policy if they have a data breach.

And those are things that a lot of companies weren't prepared for. I mean, I think in general, IT departments have done a tremendous job in making sure that everyone was able to work from home and work remotely and get those systems to work in a way that was not expected to happen. But there are still some bumps and we're seeing. I think the last thing I saw was a 600% increase this year of hacks and data breaches, which is just a tremendous number because it wasn't a small number of it to begin with.

Levick: 600% increase is hard to comprehend.

Bentz: It's just really sad. And like I said, one of the things that we want to make sure of when I do a policy review is making sure that we know that those home computers are covered by the policy because on some forms they may not be.

Levick: And Tom in the minute or so we have left, what are the key takeaways you want to leave with general councils?

Bentz: I think that there's a couple of things that I would say. One, it's really, really important to know your coverage, know where your policy is. Again, one of the things that happened during the pandemic was you weren't allowed to go back into your office. Do you have access to your insurance policy to make a claim? Even if you have the coverage. And for some, they couldn't do it because they didn't know who their carrier was. They didn't know who their broker was. They didn't know who to contact. And so you really need to have those kinds of things available and at your fingertips as a general counsel. And I think that you need to spend the time... Insurance is not always the most exciting topic.

Levick: It was today, absolutely today.

Bentz: Well, aside from today, it's not always the most exciting topic and a lot of people don't care to get that involved in it until they have a claim. I mean, I've watched over the last year or so, a number of general counsel risk managers, CFOs lose their jobs because the policies did not respond in the way that they thought they were going to respond. I've seen this happen where a risk manager placed a very nice policy but the policy didn't allow the general counsel to hire the attorneys that he wanted to hire. And so if they use those attorneys, which is what the general counsel wanted to do, they have no coverage. And the risk manager lost his job over that.

I've seen, in a board setting, a risk manager walk in and tell the board that he had X number of dollars of coverage and sitting next to him, I had to stop and say, no, in fact, you don't have that. You have a much smaller sublimate of coverage and now you do have this real exposure. Again, these are things that are real concerns for a lot of these folks and they need to know where those pressure points are going to be in and make sure they've plugged those as best they can.

Levick: That's Tom, Tom Benz of Holland & Knight. Thanks so much for joining us. And I'm Richard Levick with In House Warrior, the daily podcast to the Corporate Counsel Business Journal. We'll see you tomorrow.

Bentz: You've been listening to the Corporate Counsel Business Journal's daily podcast, In House Warrior, with host Richard Levick.

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