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IMS Insights: Directors, Officers, and Broker's Professional Liability Claims and Exposures - YouTube
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Hello, Ty. It's good to see you.
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Good to see you, Chris.
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I hope you're well. I hope your family's well
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and you're staying productive during
this very strange聽time we're in.
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I am, and you too.
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Yeah, thank you.聽聽
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Ty, you've been doing insurance work for a聽
good long time. I think probably close to forty years.聽聽
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And I know you have gone through a lot of what聽
would be considered the the prior disasters,聽聽
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hurricanes and earthquakes and fires聽
and 9/11 and all that other stuff that have聽聽
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kind of kept us on our toes over the last聽
few years. But this is a unique situation,聽聽
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and I guess I'd like to talk with you about聽
what you see are some of the issues as a result of聽聽
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the COVID-19 epidemic and
all the things that聽it's had
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and the effects that it's had on our聽lives.
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Let's come back in a few minutes to possible聽
solutions because it sounds like you've spent some聽聽
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time thinking about that as well, which I think聽
will be very interesting to talk about. I want聽聽
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to continue on where you started, where you listed聽
categories of claims. Now, we've talked about some聽聽
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of the really interesting questions dealing with聽
those first-party insurance claims聽聽
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that we were talking about. But you raised other聽
kinds of claims, things like officers' and directors'聽聽
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liability, broker liability, etc. Can you聽say a few
words about how you see that developing?
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Yeah, I mean, outside of coverage disputes,聽
and again, we mentioned one and there are聽聽
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others like general liability and聽whatnot,
many other types of coverage聽
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litigation that I'm going to see.
Let's talk about directors' and officers' liability聽聽
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So, let's talk about two types there. First, let's
talk about non-coverage issues associated聽聽
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with directors' and officers' liability and then聽
we can mention some of the coverage issues聽聽
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that I see with directors' and officer's liability.聽
There has been at least, the last time I looked聽聽
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which was about four months ago, well over聽
100 cases against directors and officers聽聽
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alleging their liability. And again, D's and聽O's
have personal liability for mismanagement聽聽
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of the companies that they run聽
arising out of COVID-19.聽聽
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Many of these cases are against publicly聽
traded companies or D's and O's, I should say,聽聽
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of publicly traded companies alleging聽
non-disclosure in violation of the securities laws.
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Let me just give you a few. These are all聽
the ones that have sort of hit the news.
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You know, as a result of COVID-19
many of us have been using Zoom.
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In fact, we're using Zoom for this interview, right?
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Right.
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We've heard at the beginning that Zoom had some聽聽
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securities issues that they had a take care of,聽
and they had to increase their level of encryption聽聽
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and they did that. But before they did that, what聽
many people don't know, is that they got sued聽聽
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by their shareholders for not disclosing,聽
allegedly, their less than adequate, this聽聽
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is according to their shareholders, level of聽
encryption. So, when the news came up of the聽聽
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so-called Zoom bombing and other privacy concerns,聽
organizations started prohibiting Zoom usage
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and the stock price of Zoom plummeted. That聽
caused damage, of course, to the shareholders聽聽
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and they alleged a violation of 10B5 and 20A of聽
the securities and exchange act of 1934.
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Other shareholder actions against publicly traded聽
companies that have hit the news is there was聽聽
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a pharmaceutical company that I won't name that聽
allegedly told Trump that they could get a vaccine聽聽
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in three hours. Obviously, that wasn't true.
So, when that came out as being untrue, their stock聽聽
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dropped, they were sued. There was a company that聽
allegedly disclosed that they could get a big聽聽
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supply of N95 masks. When that came out that聽
that wasn't true, they got sued. And then, of course, there聽聽
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was the cruise company that was sued聽
for not disclosing that they were aware of聽聽
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the virus and didn't tell anybody about it聽
until afterwards. They've delayed聽聽
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it by I forget how long. Actually, it could聽have
been only a few days. But it doesn't really聽matter.聽
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So, there's been many, many聽suits
against directors and officers by shareholders聽聽
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against publicly traded companies and聽
ones against privately held companies as well.聽聽
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Let's go back a little bit closer directly聽
to insurance. As you were describing this, I'm聽聽
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thinking to myself, what kind of liability do聽
agents and brokers and people who may have聽聽
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helped sell these policies or helped
place these policies potentially have?聽
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You know, that is, I think聽one of the largest category
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of insurance related litigation
that we're going to see聽聽
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because at the end of聽
the day, if a big percentage聽聽
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of these business interruption cases and聽
these other cases go against the policy holders,聽聽
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and there are many, as I mentioned besides聽
business interruption that are going to be聽聽
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coverage issues, if a big percentage of聽
those goes against the policy holders,聽聽
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policy holders are going to start blaming their聽
brokers. And they're going to say their聽聽
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brokers should have sold them coverage or聽
policies that covered these things, right?
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And
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there are both defenses and聽vulnerabilities.
So not to get too geeky here,聽聽
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so here's the good news and the bad news.
So, the good news is that the law is generally on聽聽
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the side of brokers, which as a general matter,
and I'll take New York as an example because聽聽
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I'm a New York lawyer. But again, I'm an expert聽
witness, as you know, so I speak from the point of聽聽
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view of custom and practice. But in New York,聽
general agents really just have a duty to聽聽
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obtain the coverage that the clients ask them to.聽
That's it. They have to obtain that coverage within聽聽
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a reasonable time and inform their client if聽
they can't obtain the coverage. They don't have聽聽
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a duty to advise or guide or direct the client.聽
They are not the personal financial advisors.聽聽
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They don't guarantee coverage. They're聽
basically order takers. That's the good news.聽聽
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The bad news, is that almost every broker I know聽
does not project themselves that way. Because you聽聽
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project yourself that way, you don't get聽
a lot of business. Most brokers I know聽聽
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don't go to the client and say, "Listen, I don't聽
really know anything. You tell me what you want聽聽
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and then I'll get it for you. That's it. Tell me聽
what you want." That's not the way to make聽聽
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a lot of money in this life. So, most brokers聽
directly or indirectly give the impression聽聽
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to clients that they actually know what聽
they're doing, that they are a risk advisor.聽聽
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And the problem with that is that when you go聽
down that road, you develop what many courts聽聽
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call a special relationship. And when you develop聽
a special relationship, you start having duties聽聽
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to actually be the person that you say that you聽are.
And then you get in trouble. The other way聽聽
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you get in trouble is there's a natural聽
inclination to want to help your client.聽聽
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So, if the client says to you, "I'm聽losing money.
I'm shut down. You've got to do something."聽
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There's a natural inclination to say to the聽
client, "Don't worry. I'll figure this thing out.聽聽
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You're going to be okay." Now, every lawyer聽
will tell you this is a dumb thing to say.聽聽
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People say it anyway because you want聽
to help. Because if you don't help, the聽聽
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person is going to run away. This gets聽
you in trouble. So, in the real world,聽聽
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brokers say a lot of things that are going to get聽
them sued. In addition to that, there are and has聽聽
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been since 2013 stand-alone insurance policies聽
that cover the very thing that people want.聽聽
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Very few people have bought it, but that doesn't mean聽
they weren't available and that doesn't mean that聽聽
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a broker that really did his due diligence or her聽
due diligence wouldn't have found them.聽聽
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There's an argument that a broker that projects themselves聽
as saying, "I can help you get the coverage that you聽聽
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really need, which would include coverage for聽
business interruption arising out of viruses,"聽聽
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could actually have found that coverage. Now, it聽
was very expensive. The client might have said no.聽聽
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But now the client is going to say,聽
"You didn't even tell me it existed. And by the way,聽聽
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I found out it actually did exist.
You didn't give me the option to say no."
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