قالب وردپرس درنا توس
Home / Insurance / Pandemic recovery in bankruptcy complicates D&O guarantee

Pandemic recovery in bankruptcy complicates D&O guarantee



The pandemic-induced increase in bankruptcy applications is leading to increased demands for information from directors and officers' liability companies, experts say.

This was among the issues discussed by two panels at the Minneapolis-based Professional Liability Underwriting Society virtual last week.

There were six "mega" bankruptcy applications involving companies with at least $ 1 billion in reported assets during the first quarter of the year, 31 in the second and 15 in the third, a total of 52, compared to a quarterly average of 2005-2019 of five, According to a report by San Francisco-based Cornerstone Research Inc.

Mark Oakes, a partner with Norton Rose Fulbright US LLP in Austin, Texas, said that a big red flag in bankruptcy proceedings is transactions with related parties where payments to related parties or subsidiaries under the period leading up to bankruptcy takes precedence over payments to creditors. These could be subject to various clawback regulations, he said.

Mr. Oakes also said that defense costs "can increase very quickly" when there are several defense companies in D&O disputes.

Much depends on factors such as discovery and witnesses. "At the end of the day, our goal is to get our customers out of this and when you have multiple defense costs … it's really not good for anyone, so it's always a problem," Oakes said.

The plaintiff's attorney Craig Boneau, a partner with Reid Collins & Tsai in Austin, said, "Even from our perspective, there are logistical problems" with everyone having their own advice.

"If you try to have a mediation and rational discussion," it "becomes very difficult if there are 1

2 law firms" who are all trying to represent their own clients and trying to clarify that someone else has been wrong, he said.

"Not only is there a significant waste of assets but it also makes the whole logistics process much more complicated," says Boneau.

Carrie O & # 39; Neal, senior vice president, legal and claims, for broker CAC Specialty in Boulder, Colorado, said that although there have been many articles on bankruptcy exceptions in D&O politics, in the end, "Do we want to fight over something after that?"

It is incumbent on the parties to "have these very sincere conversations in advance", she said. "The fewer things we can fight for when we actually get a claim, the better."

During a session on D&O Guarantee in an era of severe bankruptcy, Scott Williams, New York-based senior vice president, Guarantee, at Chubb Ltd., said that D&O "has been a tough industry for several years", which struggling even through periods of economic expansion.

"The Great Unknown" is how the industry and bankruptcy claims will perform during a pandemic, he said, adding that this is unlikely to be known for several years.

When the pandemic hit, companies were shut down from their sources of liquidity, leading to mass bankruptcies in March, April and May, Mr Williams said. The other guesses that stem from the early business decisions "are already happening," he said.

It is more important than ever "before we start drawing, to try to identify the accounts" that have potential problems with their finances, he said.

Understanding a company's business model and cash flow management "has never been more critical than it is today", as well as understanding whether bankruptcy can be a requirement, Williams said.

He added, "not all bankruptcies are created equal", and it is important to "really dig through the company and understand its structure." Williams said that getting information on time and understanding the business before renewal has become much more important than it was before the pandemic.

Just understanding credit conditions and financial status is even more important than before, he said. [19659002] Kristin Meilert, Unionville, New York-based vice president, executive liability insurance at TDC Special Underwriters, a subsidiary of The Doctors Co., which specializes in health care, said health care bankruptcies generally had downward trends in 2019, but COVID-19 has turned everything upside down.

The pandemic has "definitely affected the way we write the business," she said, adding that TDC "asked some really specific questions over the past six months" to make sure there is a complete picture.

Discussing getting coverage for companies that may go bankrupt, Rob Yellen, New York-based executive vice president of Willis Towers Watson PLC's FINEX North America practice, said insurers want to know if a company is credible and a partner that they want to take this risk with.

He said that although "pricing can be ridiculous", a broker tries to "help both sides understand" where things come from. The broker can sometimes come up with a structure to help companies get the coverage they need, rather than all the coverage they used to have, and help them get through bankruptcy.

This can sometimes be challenging, said Yellen. For an account, for example, he could get what a client "desperately needed", if "not all the bells and whistles" the client wanted, he said.

Catalog


Source link