Private Companies Exposed

Presented by:

Kyle Stewart

Underwriting Officer

Underwriting and Marketing Expert

Disclaimer

The views, information and content expressed herein are those of the author and do not necessarily represent the views of Chubb Insurance Company of Canada or any of the insurers of The Chubb Group of Insurance Companies. Chubb did not participate in and takes no position on the nature, quality or accuracy of such content. The information provided should not be relied on as legal advice or a definitive statement of the law in any jurisdiction. For such advice, an applicant, insured, listener or reader should consult their own legal counsel.

Agenda

• Section I: Vulnerabilities– Employment Practices Liability– Directors and Officers Liability– SURVEY– WHO CAN SUE/ Marketing and Sales

• Section II:Product Solutions

Private Companies At Risk

Private Companies are vulnerable to risks that could put them out of business

and

Are currently operating without a safety net when it comes to management liability and professional liability exposures.

25% of the executives who responded felt that an EPL lawsuit would cause the most

financial damage to their company.

• 33% of companies surveyed experienced an EPL charge or lawsuit in the past five years.

However, only 9% of companies surveyed purchase this coverage

Employment Practices Liability

Average cost of EPL Charge or lawsuit:

$59,402

All it takes is one.

Employment Practices Liability

Employment Practices Liability

42% of executives surveyed believe the company already had EPL coverage under their General

Liability policy.

• Coverage gaps exist with GL, Umbrella and D&O policies.

• Breach of employment contract not covered under the traditional liability policy.

• Exclusions in GL and Umbrella policies for intentional acts and employment-related matters.

Scenarios

Wrongful Termination

• Employee count: 1,000, Annual revenue: $1,000,000,000

ABC Company fired a general manager for failing to follow a directinstruction concerning the preparation of financial documents. Theterminated employee sued the company for wrongful dismissal becauseshe did not believe that she should be forced to submit financialdocuments that she did not believe were reasonable. The B.C. SupremeCourt agreed.

The matter settled at approximately $1,000,000. The Courtawarded court costs in addition to the settlement amount.

Scenarios*

Human Rights

• Employee count: approximately 120, Annual revenue: approximately $20,000,000

This matter was brought before the Human Rights Tribunal of Ontario.The applicant, a 21 year employee alleged that she was the victim ofretaliation in the form of wrongful termination. The applicant feltthat her termination was the result of her previous allegation relatedTo discrimination and harassment on the basis of her disability(depression). She sought $430,000 in damages.

The matter settled for $75,000 representing common law notice andmental anguish damages. Defence costs of $10,000 were incurred.

Please note that the scenarios outlined herein are provided for general information purposes only. Loss scenarios are based on actual Canadian and US cases, and composites of such cases. Resolution amounts are approximations of both actual and anticipated loss and defence expenses. Facts may have been changed to protect confidentiality. These scenarios are not for purposes of policy interpretation.  Actual coverage is determined according to the particular circumstances of the claim submitted as well as the terms and conditions of the particular Chubb policy in issue.

Overview of Bill 168 (Workplace Violence)

According to Bill 168,the Occupational Health and Safety Amendment Act (Violence and Harassment in the Workplace):

“workplace harassment” means engaging in a course of vexatious comment or conduct against a worker in a workplace that is known or ought reasonably to be known to be unwelcome

Overview of Bill 168 (Workplace Violence) • All employers are required to prepare

policies with respect to workplace violence and workplace harassment and to review these policies no less than once per year

• Workplace violence risk assessments

• Protecting workers from domestic violence

• Disclosure of persons with a history of violence

• Right to refuse work where health or safety is in danger

What Does this mean For Your Business?

• Employers are required to update policies, develop programs and conduct risk assessments with respect to workplace violence and harassment

Vulnerable to Directors and Officers Liability

Not just an issue for public company executives:

– Nearly 14% of the companies Chubb surveyed experienced a D&O liability lawsuit in the past five years.

D&O

• Standard components involved in defending yourself in a civil suit:

• Pleadings • Factual Investigations• Motions and Cross-Examinations on Affidavits• Discovery• Experts• Legal Research and Analysis• Mediation and/or Arbitration• Pre trial conference• Trial• Appeals

Who can sue?

• Investors and shareholders

• Customers and clients

• Government regulators

• Creditors and lenders

• Competitors

Where can claims come from?• Breach of Fiduciary duty/mismanagement of

business.• Wrongful interference with a contract.• Failure to Deliver services.• Disclosure of materially false or misleading

information.• Unfair trade practices.• Self-dealing and conflicts of interest.• Consumer protection violation.• Violation of state and federal laws.

D&O

• Average loss to private companies: $229,756

• The largest event disclosed by a respondent was $2,000,000.

• A total of 33% of cases fell between $100,000 and $2,000,000

Scenarios*

Misrepresentation Suit from a Prospective Investor

• Employee count: approximately 230 Annual revenue: approximately $55,000,000

An officer of XYZ Corporation held a conversation with a potentialinvestor in which they discussed the future plans for the company,including the launch of new products over the coming six months.Based on this information, the investor committed over $500,000 to thecompany. After a year, the products the investor had anticipated did notappear in the marketplace and the value of the original investmentdeclined. The investor sued XYZ and its directors and officers formisrepresentation, seeking over $10 million in compensatory andpunitive damages.

Following two years of litigation and $250,000 in defence costs, the partiesfinally reached a settlement with the plaintiff for $335,000.

Please note that the scenarios outlined herein are provided for general information purposes only. Loss scenarios are based onactual Canadian and US cases, and composites of such cases. Resolution amounts are approximations of both actual andanticipated loss and defence expenses. Facts may have been changed to protect confidentiality. These scenarios are not forPurposes of policy interpretation.  Actual coverage is determined according to the particular circumstances of the claim submitted as well as the terms and conditions of the particular Chubb policy in issue.

Scenarios

Bankruptcy- Investigation of Pre-bankruptcy Conduct of Directors andOfficers

• Employee count: approximately 960 Annual revenue: approximately $450,000,000

XYZ Company is a privately owned manufacturer of both automobile Parts and repair equipment. In 2008, XYZ entered bankruptcy proceedings andreceived numerous claims for outstanding statutory liabilities (unpaid wages and vacation pay). The Bankruptcy Trustee is now investigating a potential claim against the directors and officers for oppressive conduct (inter-company transactions in the zone of insolvency, including dividend payments). The statutory liability claims are being paid as they are being qualified.

Chubb is defending the company’s directors and officers. Chubb has paid approximately $130,166 in defence costs and $189,924 in indemnity.

Bill C-45 (Amendment to the Criminal Code)

Bill C-45 (Section 217.1 in the Criminal Code):

• Created rules for establishing criminal liability to organizations for the acts of their representatives.

• Establishes a legal duty for all persons "directing the work of others" to take reasonable steps to ensure the safety of workers and the public.

• Sets out the factors that courts must consider when sentencing an organization.

• Provides optional conditions of probation that a court may impose on an organization.

Section II: Product Solutions

Product Solutions

• ForeFront Policy –D&O, EPL, F/L, ODL

+

• Advantage or Premiere Endorsement

Advantage Endorsement

• Entity Coverage for both defense and settlement costs.

• Have the ability to share the limits or separate the limits (Please note separating the limits applies to all insuring agreements)

• 100% defence Cost coverage for insured persons• Separate, additional limit of up to $1,000,000 for

non-indemnifiable D&O claims.• FOR BIPD EXCLUSION including D&O and ODL

defense costs coverage for Bill C-45 claims. (For BIPD in the Forefront)

Advantage continued

• Deductible for all Insuring Clauses is waived upon determination of no liability.

• Definition of Subsidiary broadened to include partnerships, limited partnerships or joint ventures that the Insured is responsible for managing or operating.

• Non-rescindable for D&O non-indemnifiable claims - under any circumstance

• Extradition Coverage• True Side A $1,000,000.00 Pollution Coverage (In

the Forefront)

Advantage continued

• Final adjudication language for the personal profit exclusion. Defense Costs will not be recouped.

• Acquisition threshold up to 30%• Deletion of Hammer Clause. Insured has more

control over settlement decisions.• Investigative Cost Coverage up to $250,000.00• D&O and ODL coverage for appointed Directors,

DeFacto Directors, Trustees, and Governors

Premier – Claims Makers….we’re the payers• Defence costs in addition to the LOL, with

a set Defence Limit amount. (Up to $3m)

• Separate limits for ALL - 7 insuring clauses as an option

• The I vs I exclusion replaced by an Insured Organization vs Insured Person Exclusion

• Employed Lawyers Coverage as an additional Insuring Clause

• Explicit Clause 1 Tax Coverage • D&O and ODL defense costs coverage for

Bill C-45 claims including defence costs coverage for manslaughter claims

• Investigative Cost Coverage up to $100,000.00 (Ability to separate this limit) Additional insuring clause

Email Submissions or Questions to:

kylestewart@chubb.com

General questions and enquiries:1-416-359-3222 ext. 4344

Product Information and Applications:www.chubbinsurance.com

Contacting Chubb