FINANCIAL SERVICES INDUSTRY SESSION - RIMS Handouts/RIMS 16/IND007/IND007_2016... · FINANCIAL SERVICES INDUSTRY SESSION (IND007) ... • Jacqueline Casey Olson, Claims Program Manager,

FINANCIAL SERVICES INDUSTRY SESSION

(IND007)

Speakers:

• David Goodwin, Covington & Burling LLP

• Tracy Jurusik, Regional Leader, FINEX Claims, Willis Towers Watson

• Jacqueline Casey Olson, Claims Program Manager, Wells Fargo

Learning Objectives

At the end of this session, you will:

• Understand trends in the insurance market for financial services entities

• Recognize High Risk Situations Facing Financial Institutions

• Understand how to maximize your insurance coverage

Market Trends

• Cyber Risks• Significant data breaches in 2015 and the impact on financial institutions

• Coordinating coverage with Crime/Fidelity coverage

• Professional Liability

• Crime/Fidelity Coverage• Social Engineering coverage disputes

• Market Solutions

• Investment Banking Coverage

Financial Institutions High-Risk Activities

• Consumer class actions• TCPA• FCRA

• Government Scrutiny• Third Party Relationships• Foreign Corrupt Practices Act

• Director and Officer issues• Yates Memo• Cyber/Network Security a C-Suite issue• Activist Shareholders

• Residual claims from 2008 recession

Consumer Class Actions FAIR CREDIT REPORTING ACT

• FCRA - Federal Statute governing use of consumer credit reports

• Exposure to financial institutions as:

• Procurers and users of information

• Furnishers and transmitters of information

• Marketers of credit or insurance products

• Employers

• Spokeo – Pending before the SCOTUS

Consumer Class ActionsTELEPHONE CONSUMER PROTECTION ACT

• 1991 law and 1992 and 2003 rules establishing do-not-call lists

• 2012 rules – express written consent

• Penalties

• Insurance Coverage

Government ScrutinyFOREIGN CORRUPT PRACTICES ACT

• FCPA Standards

• UK equivalents

• Who is subject to the FCPA

• Potential liabilities

• Insurance issues

Government Scrutiny Third-Party Relationships Risk Management

• Office of the Comptroller of the Currency issued new guidance

• Enhanced scrutiny by OCC

• Significance and complexity of Third-Party relationships

• Failure to assess risks

• Failure to perform Due Diligence

• Failure to continually monitor

• Incentives that increase risk

• Informal relationships

Government Scrutiny REGULATOR GUIDANCE RE THIRD PARTY SERVICE

PROVIDERS

• Due diligence

• Written contracts

• Ongoing monitoring

• Contingency plans in the event of termination

• Delineate clear roles between bank and TPSP

• Maintain appropriate documentation

• Regular reporting to senior management and the board

Director and Officer Issues

• Yates Memo

• Cyber/Network Security as a c-suite issue

• Activist Shareholders

• Overreliance in market sectors

Tips For Managing Claims

• What is a claim?• Lawsuit

• Written demand for money

• Tolling agreement request?

• Investigation?

• Subpoena?

• Agency proceeding

Tips For Managing Claims

• Interrelatedness• More than one claim treated as one claim

• Only one deductible, but

• Only one limit

• Spanning policy periods

• Notice Issues

• When do claims involve “interrelated wrongful acts?”

Tips For Managing Claims

• Notice• Know your policy’s definition of “claim”

• Timely reporting critical

• Make note of reporting thresholds

• Should you report everything?

• Bordereau reporting

Tips For Managing Claims

• Professional Services – what are they?• Traditional policies – limited to “professions”

• Financial services – broader scope

• “Services for or on behalf of a customer or client”

• Who is a customer or client

• Third party beneficiaries

• For a fee?

• Must the claim be made by a customer or client?

Tips For Managing Claims

• Defense Obligation• Duty to defend vs.

• Duty to indemnify defense costs

• When is a defense owed?

• Choice of counsel

• Reasonable defense costs

• Scope of Defense

• Allocation

Tips For Managing Claims

• Communication with Insurers• Frequency depends on program, size of the retention and quantum of

projected loss

• Balance communication with insurers with the burden of providing such information

• Cooperation clauses, sharing information with awareness of privilege issues

• Periodic conference calls on big claims with big towers

Tips For Managing Claims

• Covered damages• Tort damages

• Consumer torts

• Negligence v. recklessness vs. willful misconduct

• Fraud?

• Contract damages

• Benefits owing

• Consequential damages

• Disgorgement of fees

• Non-monetary remedies

• Fee awards

Tips For Managing Claims

• Settlement/Consent to settle• When do you need insurers’ consent?

• Request insurers to waive lack of consent as a coverage issue

• Timely and robust information provided to insurers in real time = faster consent if a settlement opportunity should arise

• Settlement without consent – does the insurer avoid coverage period, or only if the insurer is prejudiced?

Tips For Managing Claims

• Choice of law/choice of forum• Choice of law clauses

• Types

• Enforceability

• Choice of forum

• Location

• Litigation or arbitration

• Enforceability

• Preferences

Tips For Managing Claims

• Follow form policies• Insured’s goal of obtaining a seamless insurance program

• Excess insurer’s goal of making sure that preferred limiting provisions are included

• Binders and insurer forms

• Policy issuance/policy review

• Dangers if program is not congruent

Case Study

Facts:

• Insured is a residential real estate lender (“Lender”)

• Lender purchased a policy of mortgage insurance to cover loans made to its customers

• Lender passed on the cost to its borrowers

• Mortgage insurer agreed to provide additional services to Lender

• Lender knowingly failed to disclose these services to its borrowers

Case Study

Facts:

• October 2012• Lender received call from a plaintiff’s firm asking for information relating to these activities

• Lender and firm entered into a tolling agreement

• Lender’s law department did not tell Risk Management about the tolling agreement

• Law department hires defense counsel to investigate

• December 2012• Lender received a letter of intent to file suit• Lender told Risk Management

• April 2013• Firm filed a class action in federal court seeking damages for:

• violation of federal and state laws governing real estate lending

• Fraud

• Breach of fiduciary duty

• Negligence

• Risk Management provides notice to E&O carrier on 4/15/13

Case Study

Policy Information:

• Policy Type: Claims Made Professional Liability/E&O

• Policy Period: 1/1/2012 – 1/1/2013; 1/1/2013 – 1/1/2014

• (Continuous coverage with same E&O carrier since 1/1/2010 with same terms and conditions)

• Policy Limits: $15 million / Policy Retention: $2.5 million per Claim

• Insuring Agreement:

• Insurer agrees to indemnify Insured for all sums the Insured is legally obligated to pay as Damages resulting from a Claim first made first made and reported to the Insurer during the policy period for a Wrongful Act in the performance or failure to perform Professional Services.

Case Study

• Policy Definition of Claim:• A written demand for monetary or non-monetary relief; or

• A civil, administrative or arbitration proceeding for monetary or non-monetary relief which is commenced by:

• Service of a complaint or similar pleading; or

• Receipt or filing of a notice of charges.

Case Study

• Policy defines “Damages” as:• Any amounts the Insured is legally obligated to pay because of judgments or

settlements, and defense costs; provided, however, that “Damages” shall not include any sums payable for dishonest or fraudulent conduct, for compliance with injunctive relief, or for punitive damages.

• Policy defines “Professional Services” as:• All activities incidental to the core business of the Insured and rendered on

behalf of another (i.e., a client or customer) for a fee.

Case Study

• When was the claim first made?• Written demand

• Tolling agreement

• Service of lawsuit

• Was it timely reported?• Who (at the office of Lender) has to know?

• Threshold reporting provisions

• Policy Notice Provision:• The Insured shall, as a condition precedent to coverage, give written notice of any

Claim as soon as practicable but in no event later than 180 days after the expiration of the Policy Period.

• Does it matter that Lender had continuous coverage with the same E&O Carrier since 1/1/2010?

Case Study

• October 2009• Lender was involved in mortgage insurance litigation

• Will the two claims be considered interrelated?

• How are “interrelated wrongful acts” different from “interrelated claims?”

Case Study

• Policy Definition of Interrelated Wrongful Acts:• Wrongful Acts which have as a common nexus any fact, circumstance,

situation, event, transaction or series of facts, circumstances, situations, events or transactions.

• More than one Claim involving the same Wrongful Act or Interrelated Wrongful Acts shall be deemed to constitute a single Claim and shall be deemed to have been made at the time at which the earliest Claim involving the same Wrongful Act or Interrelated Wrongful Acts is first made.

Case Study

Coverage Issues:

• What is the “Claim”?

• Was notice to the E&O carrier timely?

• What about 2009 Claim?

• If “Claim” is covered, what will carrier pay? • Defense costs? Starting when?

• Settlements or judgments?

Questions, Final Comments and Contact Information

David Goodwin, Partner, Covington & Burling LLP – [email protected]

Tracy Jurusik, Regional Leader, FINEX Claims, Willis Towers Watson –[email protected]

Jacqueline Casey Olson, Claims Program Manager, Wells Fargo –[email protected]