FCA Insurance Brokers
Don Anderson has been involved in more insolvency files than most in the industry since founding FCA’s national insurance program for insolvency practitioners in 1975. He shares with us some wild stories and some practical advice for today’s professionals.
It’s probably close to forty years since my first interaction with insolvency practitioners. In those days it was dominated by Clarkson Gordon, Price Waterhouse, Coopers & Lybrand, Deloitte & Touche, Arthur Andersen, Ernst & Whinney, Laventhol & Horwath. Those names will give you some idea of the change in players. There were very few independent practitioners.
My first exposure was on an estate that had a vacant building (insurers love that type of risk). After trying to market the account to insurers for days, I came up with very stripped down cover for a very high premium but even at that premium the commission was not worth the time and effort in placing the risk. I was very young and told my boss that we should avoid this type of business. His reaction was the opposite – he saw it as an opportunity to put together an insurance program specifically for that insolvency firm, giving access to their offices across Canada. After many months of wining and dining insurance underwriters, I found one that agreed to lead a program. I heavily sold them on the belief that the insurance risk actually improved after the appointment of a Trustee or Receiver.
The first estate that needed cover was a manufacturer that produced hockey tape. We put it on the program and within the first week someone backed up a tractor trailer to the loading dock at the plant and stole $25,000 of hockey tape -we’re talking 1975ish so that equates to probably $100,000 today. How do you sell that much hockey tape? That’s right, it was either a miffed creditor or supplier who had not been paid or the bankrupt… all the things the insurers were most afraid of.
To my amazement the lead insurer stuck with the program and over the next few years we were able to add almost all insolvency firms to our program. Over the years firms merged and changed. Probably starting about twenty years ago more insolvency start up firms emerged and the big accounting outfits seemingly took a step back other than from the very big insolvency files. Now most of the work we see comes from middle rank and smaller firms.
2) What are the key areas of an insurance policy that should be reviewed if an insolvency practitioner is considering coverage under a company’s existing policy?
Where do I start? This does not even pretend to be close to complete:
- Make sure the policy is in force.
- Have your name and appointment added as a “Named Insured” under the policy. That’s “Named Insured” not “Additional Insured” and get written confirmation that this has been done. Not requested, but done. Putting your firm on as just an additional insured will not cover you for liability claims.
- Remember that you are trusting in an insurance program that was purchased by an about-to-be-insolvent company — check limits and coverages closely.
- Vacant or unoccupied premises: discuss with the broker and get written confirmation that cover remains in effect without limitations.
- If you manufacture or complete a product, remember that you will have a long tail liability exposure after you complete the estate.
3) Are there any industries that practitioners should be very cautious about?
- Any estate with a possible environmental exposure.
- Companies that produce or sell hazardous items such as ladders/helmets/sporting goods/playground equipment.
- Operating contractors of any type.
- Car and vehicle rental and leasing.
- Water parks/amusement parks; and
- Oil and gas production/distribution/tank farms.
4) What are some of the biggest claims you’ve seen on an insolvency file?
The biggest claim came from what we would consider a very ordinary file. The estate consisted of a number of rental houses. A tenant of one of the houses was leaning on a wooden deck railing which gave way. She fell about four feet to the ground, was badly injured and became a quadriplegic. The claim was settled for many millions.
I think the most interesting file was an estate that was a motorcycle helmet importer that brought in and distributed helmets made in the Far East. The manufacturer did not have, or had very little, product liability insurance. There was about $700,000 in inventory. We told the receiver that in the event of a claim they would be considered the primary insured, and, as a result, they not only would have to purchase product liability insurance with a good dollar limit, but also long tail cover and nobody could say for how much limit and for how long a period of time. We gave preliminary estimates of cost. The receiver found these estimates to be ridiculous and talked to other brokers. Eventually it told the secured creditor, a bank, the bad news. The bank said “ridiculous” and talked to their own insurer. After hearing from them, the bank told the receiver to crush the helmets. There is not always a good answer.