Insolvency Exclusion Bars Coverage for Allegations That Actuarial Services Firm Contr

[Wigmeister General]

http://www.wileyrein.com/publication...ticles&id=6944

The United States Court of Appeals for the Ninth Circuit has held, under California law, that an insurer had no duty to defend an insured actuarial services firm in litigation alleging that the insured’s reserve reviews and rate level recommendations contributed to the insolvency of a medical malpractice self-insurance fund. Zurich Specialties London Limited v. Bickerstaff, Whatley, Ryan & Burkhalter, Inc., 2011 WL 1118463 (9th Cir. Mar. 28, 2011). The underlying third-party complaint, filed by the insolvent fund’s accountants, sought contribution from the actuarial services firm in an action by the fund’s receiver against the accountants. The actuarial services firm sought coverage under its professional liability policy, which excluded claims “arising out of . . . the insolvency or bankruptcy of the Insured or any other person, firm or organization.”

The court held that the allegation that the insured played a causal role in the insolvency of the self-insurance fund was sufficient to satisfy California’s broad definition of the term “arising out of” and to trigger the insolvency exclusion. The court found the doctrine of concurrent causation inapplicable because the conduct excluded by the policy—that the insured’s work allegedly contributed to the self-insurance fund’s insolvency—was the same as, and not independent of, any covered malpractice. The court concluded that no duty to defend was triggered because the underlying action fell squarely within the insolvency exclusion. The insured could not establish a duty to defend by speculating that the financial condition of the currently insolvent entity might improve and potentially render the insolvency exclusion inapplicable

[Mary Frances]

Holy cow. Surely there must be more to it than that? On the face of it, isn't this exactly what they bought malpractice coverage for?

[EddieC]

I think a lot of shops will be reading their insurance policy from cover to cover this week. Maybe for the first time.

[tommie frazier]

jeebers, this is not welcome to those policyholders.

[MountainHawk]

This seems like a bad decision ... what does AM cover if it doesn't cover costs from insolvency?

[Foodie]

From the link below, it looks like they went for the cheaper coverage, and got what they paid for.

http://www.mercatorpro.com/products/...liability.html

Exposure

Why the tight market? Primarily from the exposure arising out of insurer insolvencies and under-funded pension plans. Underwriters are nervous about the exposures from third parties when there are not enough funds available to pay the bills.

In particular, underwriters are concerned that actuaries are, in effect, being asked to guarantee results. There can be an expectation on the part of clients and third parties that the projections will be correct despite any qualifications. There have been a number of cases where clients, and insurance departments, have pursued actuaries for reserve projections that turned out to be inaccurate.

One of the services that actuaries provide is an educated, professional estimate of reserves at a point in time, and inherent in that estimate are a reliance on client information and an understanding that "things" change over time, like the legal environment. Actuaries cannot be expected to predict the future, only to estimate it.

Professional Liability Insurance

There are two or three markets that will provide professional liability insurance, sometimes called errors and omissions or E&O insurance, for an actuarial consultant. They thoroughly underwrite the business, looking at the type of work, clients, states clients are domiciled in, client engagement agreements and a variety of other factors before providing terms. The coverage provided is reasonable and consistent with professional liability coverage for other professions.

There are a few other underwriters that will provide insurance with severely restricted coverage. While the pricing may be attractive, the coverage is not. One method used by these underwriters to restrict coverage is to exclude coverage for actuarial opinions or reserve certifications, or to exclude any claim from insolvency. This is not a recommended approach since the coverage being excluded is what most actuaries need.

[Wigmeister General]

My read on this -- All of the Bickerstaff, Whatley actuaries must be brought before the ABCD. Clearly, they didn't understand their own insurance and then tried to pin it on the insurer.

Foul! Double-Foul!

















sorry, forgot the red font