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McGriff Hosts 2018 ExecutiveEdge Conference

06/20/2019

The 30th Anniversary of McGriff, Seibels & Williams’ Executive Edge conference was held at The Greenbrier in White Sulphur Springs, West Virginia May 7 – 9, 2018. Attended by insurance professionals with varying backgrounds of expertise, the conference provided the unique opportunity to collaborate on solutions for emerging risks affecting the industry. Our insurance carrier co-sponsors kicked off the event by hosting a meet and greet between senior underwriters and the risk management community. This year’s co-sponsors included AIG, AEGIS, Allied World, Chubb, Tokio Marine HCC, Paragon Brokers, Sompo International, XL Catlin and Zurich. In addition to establishing and strengthening carrier relationships, conference attendees enjoyed large group sessions as well as small group breakout sessions tailored to specific industry hot topics. To all who made the trek to be with us this year, thank you for making the 30th Executive Edge another great conference! To those unable to attend, we hope you will be able to join us next year! The following summaries provide a high-level overview of the various sessions presented as part of the conference.

 

VERNICE “FLYGIRL” ARMOUR KEYNOTE ADDRESS

Vernice “FlyGirl” Armour captivated the audience with her personal stories of being the first African American Female Combat Pilot in the U.S. Armed Forces and how her “Zero to Breakthrough” success plan can be followed by anyone ready to engage. Armour provided a detailed account of her dramatic mission in one of her tours in Iraq in which she identified the target, received permission to engage, and successfully saved the lives of American troops as a result of her quick thinking and plan execution. For more information on how to achieve “CLEARED HOT” status or make your next gutsy move, see the following resource:

Zero to Breakthrough: The 7-Step, Battle-Tested Method for Accomplishing Goals that Matter

DAN BAILEY: BETWEEN THE FERNS

In his annual Executive Edge address, Dan Bailey of Bailey Cavalieri, LLC teamed up with McGriff’s John Tanner to provided conference attendees with an update on the world of Directors & Officers Liability insurance and the issues impacting the market. Regarding the recent cyber exposure guidance by the SEC, Mr. Bailey emphasized that despite the initial commotion, the SEC guidance is just that – guidance – and he predicts the guidance will not have a material impact on the D&O marketplace. In his view, recent D&O suits involving a cyber breach aren’t typically a result of the events leading up to the breach but rather how the company manages the crisis afterwards (disclosure, insider trading policy lapses, etc.). Other topics discussed include the #MeTOO impact on D&O claims as well as the impact of the recent Supreme Court decision in Cyan, Inc. v Beaver County Employees Retirement Fund, ruling that class actions under the Securities Act of 1933 may be brought in state court.

LINK TO ADDITIONAL INFORMATION

WAGE & HOUR AND EMPLOYMENT RELATED CLASS ACTION UPDATE

Former plaintiff’s lawyer and current leading employment defense attorney Thomas Ahlering of Seyfarth Shaw LLP provided attendees with a unique perspective into the recent trends in the employment-related class action arena including wage and hour suits. Mr. Ahlering stated that despite the defendant-friendly ruling of Wal-Mart v. Dukes – which raised the standard of class certification and was thought to make it more difficult to monetize class actions – the total settlement amount for employment-related class actions in 2017 was $2.7 billion, an increase of 55% from $1.75 billion in 2016. Mr. Ahlering then provided an update on wage and hour class action litigation and the current state of the market, which at the time was uncertain. Although 2017 wage and hour filings and total settlement amounts experienced a decrease from 2016, the low investment, high-return profile of wage and hour litigation will continue to attract plaintiff’s lawyers. Finally, Mr. Ahlering provided an update on the EEOC and the surge of initiated litigation in 2017 despite the change in the political environment.

LINK TO CONFERENCE PRESENTATION

UPDATE: On May 21st, two weeks after the conference, the Supreme Court upheld the use of class action waivers in employment agreements in Epic Systems Corp. v. Lewis. In resolving this issue, the Supreme Court ruled that the Federal Arbitration Act permits the use of class action waivers in mandatory arbitration provisions in the employment context.

On 5/25 McGriff provide the following client alert:

CLIENT ALERT: IS IT TIME FOR AN EMPLOYEE ARBITRATION AGREEMENT?

In a 5-4 decision that may have broad implications in the employment practices liability (EPL) and wage and hour (W&H) insurance world, the U.S. Supreme Court this week upheld the use of class action waivers in employment agreements. The circuit courts had been split on whether class or collective action waivers contained in employment arbitration agreements violate the employees’ right to collective bargaining protected by the National Labor Relations Act (NLRA). In resolving this issue, the Supreme Court ruled that the Federal Arbitration Act permits the use of class action waivers in mandatory arbitration provisions in the employment context.

It is too early to determine the effect this will have on EPL and W&H insurance products; however, we expect underwriters will immediately be interested in whether potential insureds have or plan to implement an arbitration agreement with a class and collective action waiver and, if so, to what class of employees this applies. Over time this decision may positively impact underwriters willingness to incorporate wage and hour coverage into standard EPL policies (at least for employers who have waivers). Whether or not waivers stand the test of time or culture for harassment and discrimination complaints is not clear (there is backlash already in a few jurisdictions and industries); however, for the largest volume of employment litigation today (wage and hour matters) the waivers may well be a sea change.

Thomas E. Ahlering, an attorney with Seyfarth Shaw, specifically addressed this topic at our recent Executive Edge client conference. See below a link to his firm’s alert concerning the decision’s implications for the majority of employers in the United States. Attached separately are slides from a Seyfarth webinar conducted 5/23/18 with practical considerations for employers, including pros and cons of implementing mandatory arbitration.

http://www.seyfarth.com/uploads/siteFiles/publications/MA052118LE.pdf

BLOCKCHAIN IS OFF THE HOOK

Markus Veith, partner-in-charge of the Grant Thornton Northeast Financial Institutions Practice and a blockchain technology specialist, provided conference attendees with an overview of blockchain basics. Mr. Veith first walked us through the blockchain distributed ledger system whereby the blockchain ledger is distributed and replicated throughout a network and then recorded in immutable blocks that can either be public, partially decentralized (requiring permission for access), or completely private. He then highlighted three case studies to illustrate the ways in which blockchain is being used today in smart contracts, asset tracking, and digital/crypto currencies. Blockchain technology allows for greater efficiency and “smart contracts,” Mr. Veith explained, by creating a protocol to program agreements between multiple parties without relying on intermediaries to confirm authentication and execution. In the case of asset tracking, the blockchain technology provides greater visibility into each point in a transfer in a way that has utility in asset tracking like inventory, warehouse management, and supply chain/logistics. Additionally, blockchain technology has also had a substantial impact in the currency and financial transaction space, both in terms of facilitating faster and more secure cross-border payments and in terms of spawning literally hundreds of new crypto-currencies following the lead of bitcoin. While the insurance industry is only beginning to wade into the blockchain arena, there is clearly potential for transformative change.

LINK TO CONFERENCE PRESENTATION

BREACH OF EPIC PROPORTIONS

After attendees were divided into four teams, Melissa Ventrone of Thompson Coburn LLP and Mark Lopes of G2S Global guided the groups through a tabletop exercise in what initially seemed to be a minor breach. Using a publicly traded software company with roughly 10,000 employees and $20 billion in revenue as the sample company, presenters began the exercise with an email – a self-proclaimed hacker threatens that, unless the company pays a demand of $3 million in bitcoin within 48 hours, the personal information of the CEO and the CEO’s family will be released to the public and all company information will be destroyed. The scenario continues to unfold as the company’s IT department notices a large influx of spam emails and a large volume of outbound traffic and incoming connections. An investigation into the breach reveals that the system is sending data to an external IP address, and customer credit and debit cards are being fraudulently used. The CEO receives another email from the hacker increasing the ransom demand and further threatening destruction of the company. The IT department further informs the CEO that shutting down just 30% of the systems would cost over $1 million in lost revenue per day. Throughout the development of the breach, presenters encourage each individual group to discuss amongst themselves the steps they would take as Risk Managers of the sample company. The varying responses from the groups provide insight into how different each company’s response may be and how having an incident response plan is critical for every company regardless of industry.

**SMALL BREAKOUT SESSIONS**

EMPLOYMENT PRACTICES LIABILITY AND THE #METOO MOVEMENT

Jeremy Salzman and Joe Kelly of Sompo International provided an assessment of the #MeToo Movement, its impact on the Employment Practices landscape, and practical tips for clients to avoid such claims. It is evident that the #MeToo effort is a movement, not a moment, with support groups forming around the victims like never before. The Weinstein claimants represent an example of how the environment has changed with the power shifting from top positions within a company to everyday employees. From an underwriting perspective, #MeToo remains a severity issue, not a frequency issue, with large, significant single plaintiff claims rather than class action claims pervading. Some of the more pertinent coverage issues include how allegations of sexual assault, as opposed to sexual harassment, are addressed in EPL policies and whether coverage extends to bodily injury arising from such allegations. Pay equity is another recent employment-related trend in the forefront for underwriters. Mr. Salzman and Mr. Kelly emphasized that internal policies and procedures (e.g., pay equity audits) along with proper training, which some states now require, are key both for preventing claims and for underwriting.

TRANSACTIONAL INSURANCE

Jeff Anderson of Allied World led a discussion of transactional insurance, with a particular focus on how Representation and Warranty Insurance has developed in recent years. Originally utilized mainly by private equity buyers looking to minimize post-closing contingent liabilities and hasten distributions to investors, R&W Insurance has evolved into a tool used by both strategic and financial buyers in virtually all industries to facilitate mergers and acquisitions. Market capacity and competition have increased as a growing number of carriers seek market share. After discussing the product’s evolution and the underwriting process, Mr. Anderson led a lively discussion of claims experiences and what insureds should expect in the claims-resolution process under R&W policies. Recent claims data suggests that claims will be reported on 15-25% of all policies. Claims typically arise within 400 days of the transaction’s closing, commonly aligning with the first post-closing audit of the acquired entity’s operations and financials. Carriers are paying covered claims but insureds should understand that valuing such claims can involve detailed analysis by experts for both the insured and the carrier.

LINK TO RWI INFORMATION

D&O AND ENTITY INVESTIGATIONS

Sarah Coyne and Adam Safwat from Weil, Gotshall & Manges LLP joined Rob Faber, Grant Merrill, and Kieran Hughes from AIG to provide an update on the current regulatory environment for public companies and their directors and officers. Specific topics included how entities and individuals become aware of potential regulatory proceedings and how such proceedings move from the informal investigation phase to formal regulatory proceedings. Ms. Coyne, Mr. Safwat, and Mr. Hughes also discussed the coordination of efforts between the SEC and DOJ, the importance of understanding the relationship you and your counsel have with regulators, and the advantages of cooperation throughout the proceedings. Mr. Faber and Mr. Merrill also shared AIG’s current entity investigation coverage options and how coverage may be triggered under different scenarios, as well as common coverage pitfalls existing in the market.

CRIME – SOCIAL ENGINEERING

Jason Glasgow of Allied World discussed social engineering (phishing) scams and coverage under crime and cyber policies for losses resulting from these scams. There are different types of phishing scams, Mr. Glasgow explained, including spear phishing (email), vishing (voicemail), and smishing (text). In a phishing scam, the fraudster tricks the target into releasing funds and/or sensitive information by posing as a known, trustworthy person. Since 2015, we have seen a 240% increase in phishing scams. From 2015-2016, $2.5 billion in losses were attributed to phishing, with 95% of the losses resulting from spear phishing. When discussing coverage, Mr. Glasgow noted that the Funds Wire Transfer clause of a crime policy may not cover a phishing claim, but coverage may be added to a crime and/or a cyber policy via a Social Engineering Endorsement. When underwriting social engineering coverage, underwriters look for risk management techniques such as employee training, call back procedures, antiviral software, and money transfer procedures. Mr. Glasgow emphasized that crime policies generally have a lower retention and lower limit for such claims whereas cyber policies generally have a higher retention and higher limit. Where a loss is reported under both a crime and cyber policy, he explained, the other insurance clause in the policies would be reviewed by the carriers.

LINK TO ALLIED WORLD HANDOUT