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Ja n u a ry 2 0 1 6 PM#40063170
Claims Against Directors BY Greg Meckbach
Mental Injuries By Karen J. Borovay
Pollution Response By Amira Palacios & Glen Hopkinson
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CANADIAN UNDERWRITER
VOL. 83, NO. 1, JANUARY 2016 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY NEWCOM BUSINESS MEDIA INC.
www.canadianunderwriter.ca
COVER STORY
Claims Against Directors
28
The primary source of directors’ and officers’ liability claims has traditionally been companies going through insolvency, where individuals are on the hook for statutory liabilities. Meanwhile, the drop in commodity prices could give rise to shareholders’ misrepresentation lawsuits. BY GREG MECKBACH
FEATURES
12
40
Uber X
Faulty Workmanship
UberX is popular among consumers, but there are auto insurance coverage issues to consider due to the taxi exclusion.
Commercial general liability policies were not intended to cover damages caused by faulty workmanship, but this could change.
BY DANIEL STRIGBERGER
BY DOUGLAS D. EVERETT
22
47
18 Psychological Injuries
44 Business Interruption
When claimants allege they are suffering from psychological injuries, adjusters may rely on trained professionals, as well as on court rulings on causation and foreseeability.
There was an increase in 2015 in business interruption and contingent business interruption claims. The oil and gas, manufacturing, power generation and chemical sectors are particularly vulnerable.
BY KAREN J. BOROVAY
38 Severe Weather
BY BERNARD MCNULTY
A recent study estimates costs, in 2020 and 2040, to two Canadian cities from specific types of severe weather associated with climate change. BY AMANDA DEAN
Contingency Planning
Cargo Theft
A pollution incident requires a quick response, but environmental claims complexity means clients need access to law and engineering expertise.
The frequency of claims from cargo theft — especially food, electronics and auto parts — is on the rise, kickstarting an industry push to raise awareness of the problem.
BY AMIRA PALACIOS & GLEN HOPKINSON
BY JACLYN WEBSTER
January 2016 Canadian Underwriter
3
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to providing the most timely and relevant news, information
PROFILE
VOL. 81, NO. 2, FEBRUARY 2014 VOL. 81, NO. 2, FEBRUARY 2014 PROFILE
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Art Director astelmakowich@canadianunderwriter.ca steve@canadianunderwriter.ca Twitter: Editor @CU_Greg Senior Publisher Angela Stelmakowich Steve Wilson gmeckbach@canadianunderwriter.ca Gerald Heydens Art Consultation (416) 510-6793 @InsuranceMedia the industry, providing marketers with aTwitter: range of specialized Editor Senior Publisher Angela Stelmakowich (416) 510-6796 Steve Wilson astelmakowich@canadianunderwriter.ca steve@canadianunderwriter.ca Twitter: @CU_Greg Sascha Hass Angela Stelmakowich Steve Wilson (416) 510-6800 astelmakowich@canadianunderwriter.ca steve@canadianunderwriter.ca Art Consultation (416) 510-6793 Twitter: @InsuranceMedia Associate Editor (416) 510-6796 Online Editor astelmakowich@canadianunderwriter.ca steve@canadianunderwriter.ca and highly effective marketing communications opportunities. (416)Meckbach 510-6793 Twitter: @InsuranceMedia Sascha Hass Canadian Underwriter’s Insurance Media Group is committed Production Manager (416) 510-6800 Greg Art Director (416) 510-6793 (416) 510-6800 Harmeet Singh Associate Editor (416) 510-6800 Online Editor Gary White gmeckbach@canadianunderwriter.ca to providing the most timely and relevant news, information Gerald Heydens Associate Editor hsingh@canadianunderwriter.ca Production Associate Editor DirectorManager Greg Meckbach ArtArt Director Harmeet Singh (416) 510-6760 Twitter: @CU_Greg and resources to insurance professionals from all segments of GregMeckbach Meckbach Greg Heydens ArtGerald Director Twitter: @CU_Harmeet Gary White gmeckbach@canadianunderwriter.ca Gerald Heydens Art Consultation hsingh@canadianunderwriter.ca (416) 510-6796 gmeckbach@canadianunderwriter.ca gmeckbach@canadianunderwriter.ca Gerald Heydens (416) 442-5600 ext. 3652the industry, providingSubscriptions/Customer marketers with a rangeService of specialized (416) 510-6760 Twitter: @CU_Greg Art Consultation Sascha Hass Twitter: @CU_Harmeet National (416) 510-6796 ArtSascha Consultation Twitter: @CU_Greg and highly effective marketing Hass Gail Page (416) 510-6796 communications opportunities. 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PROFILE
Cameron & Associates James Cameron, president of Insurance Cameron &Consultants Associates Limited, was recognized by the CIP Insurance Consultants Limited, 14 Leading by Example Society when he was recognized byreceived the CIPits James Cameron, president of Established Award.its 14 Leading by Society whenLeader heExample received 14 Leading by Example Cameron & Associates 10 Up for the Challenge BY ANGELA STELMAKOWICH James Cameron, president Established Leader Award. of James Cameron, president of Insurance Consultants Limited, Patrick O’Hara, president Cameron & Associates BY ANGELA STELMAKOWICH Cameron & Associates was recognized by the CIP of the Canadian Insurance Insurance Consultants Limited, Insurance Consultants Limited, Society when hebyreceived Claims Managers was recognized the CIPits was recognized by Award. the CIP Established Leader Association, to get Society when hewants received its when he received its BYSociety ANGELA STELMAKOWICH educationLeader front and centre Established Award. Established Leader Award. BY ANGELA STELMAKOWICH in theFOCUS industry and attract SPECIAL BY ANGELA STELMAKOWICH more young people to the SPECIAL FOCUS 6 profession. Editorial
Senior Publisher
(416) 510-6800 (416) 510-6793 Twitter: @InsuranceMedia Associate Editor timely and relevant to providing the most news, information and highly effective marketing communications opportunities. Editor Senior Publisher (416) 510-6800 Greg Meckbach Art Director AssociateStelmakowich Editor Angela Wilson and resources to insurance professionalsSteve from all segments of gmeckbach@canadianunderwriter.ca Gerald Heydens Editor Senior Publisher Greg Meckbach
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14 Leading by Example James Cameron, president of 14 Leading by Example
Editor
Angela Stelmakowich Steve Wilson and resources from all segments of Editorto insurance professionalsSenior Publisher astelmakowich@canadianunderwriter.ca steve@canadianunderwriter.ca Angela Stelmakowich Steve Wilson Canadian Underwriter’s Insurance Media Group committed (416) 510-6793 marketers @InsuranceMedia the industry, providing with aTwitter: range ofis specialized
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EDITORIAL
Benefits Reduction
Reducing mandatory coverage does nothing to reduce the economic losses from vehicle collisions. Greg Meckbach Associate Editor Canadian Underwriter gmeckbach@ canadianunderwriter.ca
6
Canadian Underwriter January 2016
Changes to Ontario auto insurance, which take effect this June, could well reduce claims costs. But insurance professionals who welcome the changes should be careful what they wish for. In order to examine the impact of the reforms on the auto insurance industry, one should consider the fact that insurance is intended to cover economic loss if it is sudden and unforeseen. If an economic loss is not covered by an insurance policy, one way of looking at it is that an insurance company avoided a loss. Another way of looking at is that many people could have coverage gaps and are, therefore, not paying premiums that they otherwise might be paying. The average person may not be cognizant of all risks, but will be looking for help in the event of a catastrophic loss — whether it is from a flood, earthquake or vehicle accident. This year — for the second time since 2010 — the Ontario government will be reducing the mandatory first-party accident benefits coverage that vehicle owners must buy. Currently, the standard auto policy has a $50,000 limit for medical and rehabilitation benefits and $36,000 for attendant care. Those limits were twice as high before 2010. For collisions occurring on or after June 1, the standard accident benefit limit will be $65,000 and will include attendant care — meaning
the total limit will be reduced by $21,000. For catastrophic impairments there will be one $1 million limit that includes attendant care, instead of two separate $1-million limits for attendant care and medical. What the Ontario government did was to reduce the amount of accident benefits (AB) coverage that vehicle owners must purchase. There was essentially only one policy objective: reduce the premiums that vehicle owners have to pay their insurance providers. To put it another way, the primary public policy objective was to reduce the top-line revenue (per vehicle) flowing into Ontario auto insurance — a major product line for Canada’s property and casualty industry. Reducing mandatory coverage does nothing to reduce the economic losses from vehicle collisions. It only reduces the economic loss that is covered by the p&c insurance industry, unless consumers purchase optional additional coverage. Some might characterize coverage reduction as an anti-fraud measure. Reducing AB coverage could well reduce fraudulent claims, in the same way that excluding fire coverage from home insurance could reduce fraud by arson. One can only hope that there is a better answer to fraud than selling less insurance. Ontario’s auto reforms might be good news both for the life and health insurance industry and for advocates of
big government. Life insurance agents could tout the coverage gaps in auto to sell coverage in medical and rehabilitation expenses. After all, do most consumers really care who pays the medical care expenses arising from vehicle collisions? Some advocates would push to ensure the Ontario Health Insurance Plan (OHIP) provides more coverage for auto accidents, even if this necessitates tax increases. The major weakness in the Ontario auto insurance system is the fact that risk reduction is not the top policy objective. For example, another change that takes effect this June is a prohibition on changing an insured’s rate — or deciding whether to renew, cancel or issue a policy — in the event of a “minor” accident. An accident would be considered “minor” if no personal injuries are sustained, the cost of property damage does not exceed $2,000, the cost of all such damages is paid by the at-fault party and no payment is made by any insurer for property damage. However, minor accidents are usually indicative of risky behaviour, even if no one was hurt. Auto insurance should cover events that are truly accidental in nature. If coverage is reduced, then certainly claims costs can be reduced. However if the existing coverage does not cover the total economic loss, from events that are truly accidental, then the p&c insurance industry is probably missing out.
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Claims ALBERTA RESPONDS TO 2013 FLOOD REVIEW The Alberta government has accepted several recommendations in relation to an independent review of the province’s response to the floods that occurred in the summer of 2013. The report, called Review and Analysis of the Government of Alberta’s Response to and Recovery from 2013 Floods, makes 16 recommendations to enhance and improve the province’s emergency response and recovery procedures. “Work on implementing these is under way,” Alberta Municipal Affairs notes in a press release December 11. At press time, the flooding was Canada’s costliest natural disaster to date, when measured by insured losses of about $3 billion. The report on the response was prepared by MNP LLP. One recommendation was the development of a new provincial operations centre, which could either be a purpose-built facility or constructed in an existing government building.
FUNDS EARMARKED FOR DISTRACTED DRIVING WORKING GROUP A national working group should be established to address the problem of distracted driving, the Traffic Injury Research Foundation (TIRF) suggests in a recent report announced by The 8
Canadian Underwriter January 2016
Co-operators Group Ltd. The Co-operators reported this past December that it plans to provide funding to TIRF to establish a working group on distracted driving. “Because distracted driving is still an emerging issue, and one that falls under provincial jurisdiction, bringing together stakeholders to help develop a strategic plan at a national level will be very valuable work,” says Kathy Bardswick, president and chief executive officer of The Co-operators, in a statement. TIRF’s report is titled Distracted Driving in Canada: Making Progress, Taking Action. TIRF plans to work with Drop It And Drive — a British Columbia-based distracted driving educational campaign — to form the working group.
MARSH CALLS FOR GREATER PARTICIPATION IN U.S. FLOOD INSURANCE Insurers that contract with the United States National Flood Insurance Program (NFIP) should be allowed to write their own polices, Marsh & McLennan Companies Inc. suggests. Insurers are permitted to market, sell and service NFIP policies “under their own name in exchange for an administrative allowance from the NFIP,” Marsh & McLennan states in the report, titled Reforming the National Flood Insurance Program and released December 9. Those policies are dubbed write-your-own (WYO). “Any claims pay-
ments that are made by WYO companies are reimbursed by the NFIP,” notes Marsh & McLennan, adding that NFIP should share risk with private industry. “By opening up private market participation, the NFIP can help improve the program’s sustainability by providing expertise and market stability.”
Canadian Market ECONOMICAL INSURANCE MUTUAL POLICYHOLDERS APPROVE DEMUTUALIZATION Mutual policyholders of Economical Insurance — the first federally regulated property and casualty carrier to start the demutualization process — voted in December to continue to the next stage of demutualization. The vote took place nearly six months after the federal government enacted regulations allowing for the demutualization of p&c carriers. The mutual policyholders voted “in favour of commencing negotiations with non-mutual policyholders on the allocation of demutualization benefits through court-appointed policyholder committees,” Economical notes. Economical reports it would take at least two years, “from the date the board decides to proceed with demutualization to the date the Minister of Finance approves the final conversion proposal,” assum-
ing that each step is successful. The Board of Directors voted in favour of demutualization November 3.
UNDERWRITING INCOME TRIPLES IN CANADIAN P&C Underwriting income for the Canadian property and casualty insurance industry was $1.417 billion for the first nine months of 2015, a 190.2% increase from $488 million during the same period in 2014, MSA Research Inc. reports. MSA’s results include data on almost every insurer in Canada. The industry results at nine months omit “some major” writers regulated by Quebec’s Autorité des marchés financiers because those writers only file semiannually. The combined ratio for the industry improved 2.9 points, from 98.43% in the first nine months of 2014 to 95.53% during the same period last year. For the first nine months of 2015, direct premiums written were $36.42 billion.
Reinsurance US$85 BILLION IN ECONOMIC LOSSES IN 2015: SWISS RE Preliminary sigma estimates indicate total global economic losses from natural catastrophes and man-made disasters will total approximately US$85 billion in 2015, but just US$32 billion in insured losses, Swiss Re reports. A February winter storm in the United States was the
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largest loss-making natural disaster of 2015, resulting in insured losses of more than US$2 billion. Insured losses from natural catastrophes were lower than in 2014, while man-made losses were higher, Swiss Re notes in a press release December 18. The explosions this past August at the Port of Tianjin in China are expected to lead to the year’s biggest insured loss. Swiss Re reports that man-made disasters triggered US$9 billion in overall insurance losses in 2015, up from US$7 billion in 2014.
Risk AVERAGE RISK MANAGER MAKES SIX FIGURES The median annual base salary for Canadian risk management professionals responding to the RIMS Risk Management Compensation Survey 2015 was $104,000 as of June 1, 2015. The survey results, released in December by RIMS, were based on 1,145 respondents (999 of whom were employed as risk management professional in the U.S. as of June 1, and 146 of whom were Canadians in the same occupation) to a broadcast e-mail sent in August 2015. The margin of error for the 95% confidence level is 2.8 percentage points for U.S. respondents and 7.5 points for Canadians. Base salaries varied by job title. For Canadian respondents indicating their roles
and responsibilities most closely matched chief risk officer or vice president of risk management, the median salary was $174,000. For respondents who function as claims managers or workers compensation claims managers, the median salary was $72,500.
A.M. BEST URGES CYBER EXPOSURE AWARENESS Insurance carriers writing cyber risk need to understand “aggregate exposures,” such as exposure of multiple clients to major service providers and “common vectors of attack,” A.M. Best Company Inc. suggests in a recent report. In the report — A.M. Best’s View on Cyber-Security Issues and Insurance Companies — the ratings agency included some questions it asks insurers as part of the rating process. One is how “non-obvious paths of aggregation, such as common service providers and vectors of attack,” are being evaluated. “The interconnectedness of cyber risk among companies is not necessarily correlated to attributes like physical location and class of business, so carriers must act accordingly and take a deeper look at the business written when examining potential aggregated loss scenarios affecting their portfolio,” A.M. Best notes in the report. “These insurance companies should have an understanding of their portfolio’s exposure to major service providers and
other common vectors of attack and adequately analyze the potential catastrophe scenarios on their book to arrive at reliable measures of potential losses.”
WILLIS TOWERS WATSON MERGER COMPLETE Willis Towers Watson plc — formed from the US$18-billion merger of commercial brokerage Willis Group Holdings plc and Towers Watson & Co. — began operating January 4. The merger was approved December 11 by shareholders of both Willis and Towers Watson. In North America, Londonbased Willis Group’s largest industry practice is in construction, in which it provides risk management services and places insurance and surety bonds. In Canada, Willis also provides cyber, directors’ and officers’ liability, professional liability and environmental, among others. Towers Watson’s services include product development, predictive modelling, claims consulting and catastrophe modelling for the insurance industry. The Arlington, Virginia-based firm was formed in 2010 with the merger of Towers, Perrin, Forster & Crosby Inc. and Watson Wyatt Worldwide Inc. In September, 2015, Towers Watson agreed to acquire Brovada Technologies Inc., a Rothesay, New Brunswick-based provider of workflow software for the insurance industry.
Regulation OSFI OFFICIAL EXPLAINS RISK OF ASSET MANAGERS None of the world’s largest asset managers are regulated by Canada’s Office of the Superintendent of Financial Institutions (OSFI), but that sector is vulnerable to incidents “that can spark global financial stability concerns,” OSFI deputy superintendent Mark Zelmer suggests. In remarks to the C.D. Howe Institute, Zelmer notes that OSFI does not regulate “any of the largest global asset managers” and that Canada “is not home to any of the major asset managers that are currently under the global regulatory reform spotlight.” Zelmer co-chairs the Financial Stability Board (FBS)’s work stream on non-bank/non-insurance entities. FSB, whose members include OSFI, recently identified five vulnerabilities of asset managers. One is “a mismatch between the liquidity of investment fund assets compared to the ease with which end-investors in those funds can redeem their fund units,” Zelmer suggests in his remarks. “If prospects dim and investors suddenly decide to rush to the exit gates, it could prove very disruptive for the markets in question, particularly if a fund has to quickly liquidate large blocks of securities to meet the redemption requests,” Zelmer warns. January 2016 Canadian Underwriter
9
PROFILE
Up for the Challenge Angela Stelmakowich Editor
Patrick O’Hara, president of the Canadian Insurance Claims Managers Association, is hoping to continue efforts to beef up education and attract more young people to the profession. Patrick O’Hara’s 40-year career in insurance could perhaps be attributed to one heck of a sales job — one delivered by, and ultimately targeted at, the man himself. Working out of high school as a disc jockey in British Columbia, Alberta-born and raised O’Hara filled the 9 pm to midnight slot, six days a week. One night he had to write, record and read a sponsor’s commercial spot for a trainee adjuster. “It sounded like a pretty challenging and entertaining occupation and/or career. So be doggoned, I decided I would apply for it,” says O’Hara, who is now claims manager for Millennium Insurance in Alberta and current president of the Canadian Insurance Claims 10 Canadian Underwriter January 2016
Managers Association (CICMA). O’Hara was offered the job and accepted. Beyond tackling a new challenge, there were two other very attractive features of the job: regular 8 am to 5 pm hours and more than double his salary in radio. Sold. There is nothing wrong with being entertained, O’Hara suggests, an approach he seems to maintain to this day. “I would probably say the day I no longer have fun coming to work is the day that I’m going to retire,” he says. O’Hara’s first job was as an inside telephone adjuster, which he stayed at for six months, representing the first of many interesting positions he would assume over the next four decades in the business. “In the first 14 years in the insurance industry,” says O’Hara, he and his wife moved nine times. In shops big and small — everything from independent adjusting firms to insurance companies — O’Hara has handled auto, multi-peril and specialty claims, working from British Columbia to Manitoba as an inside telephone adjuster, a field adjuster, an independent adjuster, a senior supervisor, a branch claims manager, a partner and a special loss adjuster. The list of companies for which O’Hara has worked is also long. It includes Insurance Corporation of
British Columbia (ICBC), CIS Limited, Wawanesa Insurance, Underwriters Adjustment Bureau, Royal Sun Alliance and Millennium Insurance.
BUILDING EXPERIENCE That commercial spot proved a stroke of luck for O’Hara. It was certainly luckier than the subject of his first-ever claim, which, nonetheless, offered proof positive that adjusting could be an interesting career choice, indeed. Working at the ICBC, O’Hara was sitting at his desk when he was called to reception to deal with a walk-in. There, he encountered a man with “a perfect horseshoe in his face,” he recalls. The man’s vehicle had collided with a moose, leaving a hoof print on his face that necessitated 112 stitches, he says. “Welcome to the insurance industry,” he says, laughing. O’Hara had a great time in B.C., and a great mentor at ICBC with his then superior. “What I liked about him is if you didn’t do it right the first time, you were going right back out that same afternoon or morning when you came back in. If something was missing in a statement, he would say, ‘This isn’t here, this isn’t here; go back and get it.’” But when the opportunity arose to return to Alberta, handling multi-peril-type claims and having a regular road run, O’Hara took it.
Over the next 20 years, he criss crossed Western Canada, assuming increasingly responsible jobs and building his ever-widening claims experience — everything from auto to tornado to a $4.5 million specialty claim. “I had some unbelievable tight claims to do,” he says of his experience with specialty claims. “I quite enjoyed it because the claims were not many, but they were very
“Education is still primary; it always will be,” he says, adding that CICMA’s goal is to “continue to get education front and centre with our industry.” detailed and very big,” he says. “So you learn again. It’s just building that experience level,” he notes. Then 16 years ago, O’Hara settled at Edmonton-area Millennium Insurance. “They were looking for a person who understood insurance, not just claims, but underwriting and everything else,” he says. His varied experience fit the bill and he was hired as a claims manager, a position he maintains to this day, although he has “had a hand in all nine departments.” “It’s been really entertaining and a lot of fun,” O’Hara says of his time at Millennium
Photo: Ian Jackson/EPIC Photography
PROFILE
Insurance, adding that his employer allows him the time he needs to continue his involvement in CICMA and work towards the goals members are striving to achieve. O’Hara’s first taste of CICMA was in the early 1990s when he was in Winnipeg, in fact serving as president of CICMA’s Manitoba chapter in 1992. He has been involved at the national level for about a decade.
EXPANDING EDUCATION Experience offers its own education, and education is something O’Hara hopes to continue to promote while CICMA president. “Education is still primary; it always will be,” he says, adding that CICMA’s goal is to “continue to get education front and centre with our industry.”
But it is not just about educating the industry; efforts also need to focus on the public. “People today are not that insurance knowledgeable,” O’Hara says. That said, is it a matter that Joe public does not “understand the wordings, or what is there or what isn’t covered, or are we not giving enough information when we’re selling a policy about available coverage?” he asks. “We, as an industry, might be our biggest problem because we don’t communicate enough to the general public,” he comments. “I think now, especially with social media, if you don’t communicate to people and tell them what’s up or what’s not, why aren’t we?” Another important education initiative, O’Hara says, is the Canadian Inter-Company Arbitration Agreement,
intended to provide an informal alternative to litigation when there are subrogation claims between insurance companies. “I sat as the national arbitration person for two years and I was amazed how many people didn’t understand the agreement,” he says, emphasizing the need to ensure everyone becomes better-informed. Also key to meeting CICMA’s central goal of promoting and enhancing the image and welfare of the general insurance industry in matters pertaining to settling claims will be attracting more younger people to the profession. At its national meeting last September, O’Hara — then vice president — had representatives introduce themselves and say how they got into the insurance busi-
ness. “Out of the 14 people around the table, not one of us had indicated that we had thought about insurance as a career, or had planned to become something in the insurance industry,” he says. “The challenge I gave to all our national delegates, during the course of the next year, contact your local high school, get a hold of the guidance counsellor and ask them if you can do a presentation on insurance as a career,” he says. Every national delegate “has taken that same challenge back to the local chapter,” he says. An injection of new blood would certainly help with keeping the adjusting sector healthy while it tackles existing and emerging claims. “The big one I think we’re all facing is cyber,” O’Hara says. “Everyone is going to be subjected to it at one level or another,” he suggests, meaning that CICMA must continue to work with the Canadian Independent Adjusters’ Association, Insurance Bureau of Canada and anyone who offers any information about insurance. “As senior management, we have to make sure our staffs are educated and informed as changes occur,” O’Hara says. “It’s a challenge every day, but it’s what it’s all about,” he says of working in claims. Still, being challenged can be fun. “The day it no longer becomes fun is the day that I’m done,” O’Hara says. January 2016 Canadian Underwriter
11
Daniel Strigberger
Lawyer, Samis + Company
The standard auto policy in Ontario has an exclusion for carrying passengers for compensation or hire, and this could lead to denial of claims involving vehicles providing uberX service. UberX, which lets drivers make money from consumers who book rides from apps on their mobile phones, is rapidly gaining popularity. However it raises a number of auto insurance coverage issues due to the taxi exclusion in Ontario’s standard auto policy and questions over whether uberX drivers could be considered as “insureds” under Uber’s commercial and general liability policy. In order to be properly insured, uberX vehicles need to be covered under policies similar to the endorsements that taxi operators must purchase. Uber and Intact Insurance recently announced plans to offer uberX drivers an insurance policy
12 Canadian Underwriter January 2016
tailored to the ride-sharing service, while Aviva announced auto insurance coverage for drivers who carry paying passengers in their own vehicles. Those announcements came on the heels of a lawsuit in Ontario. The Financial Post recently reported that an uberX driver — who was involved in an accident during an uberX ride — had his auto claim denied by his personal auto insurance carrier. In Ontario, Part VI of the Insurance Act governs most of the rules and terms of automobile insurance. A standard form — OAP 1: Ontario Automobile Policy, approved by the Superintendent of Insurance — is part of every motor vehicle liability policy with road coverage. OAP 1 covers insureds and their vehicles, with the term “insured” being relatively broad, especially for accident benefits coverage.
WHAT IS UBERX? UberX is a Web-based service program whereby users who meet certain criteria can make money carrying and delivering Uber subscribers from
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Uber Exclusion
Linda Bradley, Personal Recovery Coordinator, Advocate Insurance Group property
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“There is such satisfaction and relief when I know it’s a loss that’s going to be handled by Economical.” In Linda Bradley’s work with claimants, it’s all about relationships. That’s why she’s especially grateful for the excellent connections she’s made with Economical, helping her to truly be an advocate for her clients. “Economical gets where we’re coming from and they get that we’re going to live out our name,” Linda says. “They look after people.” Because their story is ours too. economicalinsurance.com/stories
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one place to another. Qualified uberX drivers respond to requests made by Uber riders through apps on their mobile phones. Essentially, a rider can summon an available vehicle to his or her location and any registered uberX driver can respond to ride requests. Riders do not pay drivers directly. Instead, they leave their credit card details in their Uber accounts, which get charged when each ride is complete. Court records indicate that Uber expected last year to have 15,000 drivers signed up, under the UberX Driver App, in Ontario by the end of 2015. Uber anticipates the majority of these will be based in the Toronto area.
WHY UBERX IS PROBLEMATIC Like most insurance policies, Ontario’s standard auto policy contains a number of exclusions, which can limit, reduce, or invalidate certain coverages depending on the breach. Section 250 (1)(c) of Ontario’s Insurance Act sets out the exclusions for using the vehicle as a taxicab and/or carrying passengers for compensation or hire: 250. (1) The insurer may provide under a contract evidenced by a motor vehicle liability policy, in one or more of the following cases, that, except provided in the Statutory Accident Benefits Schedule, it shall not be liable while, ... (c) the automobile is used as a taxicab, public omnibus, livery, jitney or sightseeing conveyance or for carrying passengers for compensation or hire; That exclusion is incorporated in section 1.8.1 of the OAP: 1.8 Who and What We Won’t Cover 1.8.1 General Exclusion Except for certain Accident Benefits coverage, there is no coverage under this policy if: the automobile is used to carry explosives or radioactive material; or the automobile is used as a taxicab, bus, a sightseeing conveyance or to carry paying passengers. However, we don’t consider the following as situations involving carrying paying passengers:
14 Canadian Underwriter January 2016
• giving a ride to someone in return for a ride, • sharing the cost of an occasional trip with others in the automobile; • carrying a domestic worker hired by you or your spouse; • occasionally carrying children to or from school activities that are conducted within the educational program; • carrying current or prospective clients and customers; or • reimbursing volunteer drivers for their reasonable driving expenses,including gas,vehicle wear and tear and meals. [emphasis added] The ramifications for an insured involved in an accident without proper coverage are obvious: The insured becomes personally responsible to indemnify a plaintiff for any personal injury claims against the insured. Any rights to property damage are forfeited. The insured’s access to accident benefits under
At some point the uberX driver will have to decide whether it pays to continue driving if the insurance costs outweigh the profit. the Statutory Accident Benefits Schedule (SABS) becomes severely limited. There is little doubt that uberX drivers are using their vehicles, if not as taxicabs, then “to carry paying passengers” when they are engaged in Uber events (i.e., responding to calls and/or delivering passengers to their destinations). Does the uberX driver’s insurer know that he or she is using a personal vehicle to carry paying passengers? Likely not. This could be a breach of section 233 of Ontario’s Insurance Act and, if so, “a claim by the insured is invalid and the right of the insured to recover indemnity is forfeited.” The insurer might also consider the act of uberX driving to be a “material change in risk” and cancel the policy before a loss even occurs, suggests one insurer quoted recently in the Ottawa Sun.
Insurance for licensed taxis Most taxicabs in Ontario are insured under individual or fleet OAP 1 policies. To get around the exclusions, in Ontario, auto policies for taxicabs and carrying paid passengers, a taxi operator must purchase an endorsement called the OPCF 6A (Permission to Carry Paying Passengers). The OPCF 6A removes the exclusions in section 1.8.1 of OAP and allows the insured to carry paying passengers for their business. Presumably an uberX driver could also purchase an OPCF 6A endorsement, although many insurers in Ontario do not offer the endorsement and the cost of the added coverage could be prohibitive for a casual uberX driver. uberX and the Uber “Auto” policy Uber boasts having its own insurance that protects drivers and passengers. The company states: Every ride on the uberX platform in Canada is insured. In the event of an accident during an uberX trip, ridesharing partners are covered by commercial auto insurance in addition to any insurance coverage maintained by the driver-partner. We also have a well established claims process. Upon being notified, we work with our riders or partners on properly resolving any accident claim. [emphasis added] Details of the insurance policy are sparse, but Uber has said it maintains an insurance policy of $5 million for passengers while on an Uber-arranged trip, notes background information provided in a recent court decision. In that decision, the Ontario Superior Court of Justice ruled that Uber is not carrying on a business in Toronto that is required to be licensed as a limousine service company or taxicab broker. However, after the court ordered the company to disclose the details of its policy, it was revealed that Uber carried a Standard Non-owned Automobile Policy (SPF No. 6) with AIG Insurance Company of Canada.
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Insurance Brokers Association of Ontario Elects New President
The SPF No. 6 is actually an endorsement that is attached to Uber’s commercial and general liability policy. The endorsement provides third-party liability coverage to “the insured”, which under the policy would be Uber and its affiliated companies. The SPF No. 6 form does provide coverage to “additional insureds”, but it is questionable whether or not an uberX driver would be considered to be an “additional insured”:
Doug Heaman
(Toronto, ON) The Insurance Brokers Association of Ontario (IBAO) is proud to announce that Mr. Doug Heaman has been elected as IBAO’s 73rd President. Doug was officially inducted at the IBAO Convention held in Toronto and formally assumed his role as President on January 1, 2016. His presidential theme is Create Your Future, based on the famous Abraham Lincoln quote: The best way to predict your future is to create it. Doug steps into his role as President with more than 33 years of experience in the insurance industry. Doug began his career in 1982 working for a local brokerage; within 5 years he started his own brokerage, DW Heaman Insurance. Three years later, he merged with Bradley Gaskin Marshall Insurance located in Cambridge Ontario, a company with a legacy that began in 1900. In 2005, Doug became sole owner of the company. With a vision to change the face of insurance, the office was relocated to Kitchener and rebranded as the Advocate Insurance Group. Advocate has continued to grow organically as well as through acquisition. In addition to obtaining his CCIB, Doug is a certified transformational trainer. “Insurance brokers provide choice and advice, and act as an advocate for their customers. I am looking forward to giving back to a profession that provides a valuable service to Ontario consumers,” said Heaman. As President of IBAO, Doug will lead implementation strategies for the provincial association. With a focus on educating brokers, educating consumers, advocating on insurance-related issues and ensuring the sustainability of the brokerage channel, Doug looks forward to helping Ontario brokers meet the future challenges of the insurance industry. “We are so pleased to welcome Doug into his new role as President,” said IBAO CEO Jim Murphy. “He has already made an incredible contribution to the industry with his work on the executive for the last three years. We look forward to an exciting and productive year with him at the helm of our association.”
16 Canadian Underwriter January 2016
1. Additional Insureds The Insurer agrees to indemnify in the same manner and to the same extent as if named herein as the Insured, every partner, officer or employee of the Insured who, with the consent of the owner thereof, personally drives: (a) in the business of the Insured stated in the Declarations, any automobile not owned in whole or in part by or licensed in the name of: (i) the Insured, or (ii) such additional Insured person, or (iii) any person or persons residing in the same dwelling premises as the Insured or such additional Insured person, or (b) any automobile hired or leased in the name of the Insured except an automobile owned in whole or in part or licensed in the name of such additional Insured person. It is unlikely that an uberX driver would be considered to be a partner or officer of Uber, and it is debatable whether or not a driver would be an employee. Uber is, in fact, appealing a recent California Labor Commission ruling declaring drivers to be employees. Accordingly, it is questionable that the driver would be protected under Uber’s SPF No. 6 coverage. Summary of coverage gaps If an uberX vehicle is not properly insured at the time of an accident because of a breach of section 1.8.1 of the OAP 1, uberX passengers would still be covered for accident benefits under their own policies or the insurer of the uberX vehicle. They would also be able to maintain a tort action against any third party and/or the uberX driver — but the insurance money available under the uberX driver’s liability limits would be only $200,000, pursuant to section 258 (4) of Ontario’s Insurance Act. If the passenger had his or her own auto insurance policy with a family protection endorsement, he or she might be able to claim excess coverage under his or her own policy. Meanwhile, the uberX driver would not have any third -party liability coverage and would be subject to a subrogation claim by his or her insurer if any proceeds are paid to the plaintiff. An uberX driver without auto insurance coverage would also be subject to the balance of the plaintiff’s tort claim above and beyond the $200,000 that the plaintiff might recover. Further, the uberX driver would be excluded from receiving various accident benefits. The uberX driver would
details about what their product would provide to uberX drivers. Aviva says its policy would “protect ride-sharing drivers (such as those contracted with uberX and the like) from the moment they initiate looking for passengers through to collecting and dropping off those passengers.”www We assume that Intact and Aviva’s policies would have to provide endorsements that are similar to the OPCF 6A but at a lower cost to policyholders. The main feature or selling point of the product will have to be cost. At some point the uberX driver will have to decide whether it pays to continue driving if the insurance costs outweigh the profit. not receive any reimbursement for property damage to his or her vehicle. Finally, it is not clear that Uber’s SEF No. 6 endorsement would extend coverage to uberX drivers. What is an uberX driver to do? At the time of writing, Intact and Uber had yet to release much, if any,
LAST THOUGHTS Another interesting question is whether uberX drivers will start flocking to Intact or Aviva to insure their automobiles. As noted above, the OAP 1 applies to all auto policies in Ontario insuring owners’ vehicles. If an uberX driver is unable to receive an uberX-friendly pol-
icy from their insurer, there is a good chance the driver would have to take all their insurance business needs to an insurer that can. Whatever happens going forward, there is sure to be some uber interesting insurance coverage questions answered in the coming months.
National Education Week February 22 - 26, 2016 CELEBRATE INNOVATION Join the Insurance Institute in celebrating innovation during National Education Week. Learn about what’s new at the Institute such as computer-based exams, the mobile app and new courses, certificates and seminars. Discover what’s going on in your local area by visiting our website or talking to your local Institute or Chapter manager. Follow us www.insuranceinstitute.ca/NationalEducationWeek
Learning for the real world. Rewarding.
January 2016 Canadian Underwriter 17
Psychological
Injuries
It can be challenging to examine a claim if it involves a psychiatric or psychological issue. An adjuster may need guidance from professionals with expertise in mental disorders and from court decisions on causation and foreseeability.
Karen J. Borovay
Associate, Forget Smith Morel
When faced with claimants who allege they are suffering from psychological or psychiatric injuries, it is important that adjusters understand the nature of such injuries and how they are dealt with by the courts. Everyone knows what it is to be stressed, to lose sleep as a result of anxiety, to be upset and, perhaps, even depressed when an injury interferes with daily activities. For the majority of individuals, life resumes as normal once the stressor or circumstance passes. However, for others, this is sometimes not the case. Arguably, adjusting claims that involve emotional or psychological issues can be difficult because of one’s own experiences with the issues raised by claimants. Adjusters may find themselves asking why payment should be made for stress and anxiety, when everyone in the world faces these. Or, otherwise, the question may be formulated as to why the person cannot simply move on with his or her life.
NATURE OF PSYCHOLOGICAL AND PSYCHIATRIC INJURIES Recent years have seen a movement towards opening a dialogue about mental health. The insurance industry has experienced a commen-
18 Canadian Underwriter January 2016
surate increase over the years in claims for psychological and psychiatric injuries (hereinafter referred to as “psychological injuries”). The challenge, of course, is with assessing the validity and extent of the injury, as well as dealing with subjective reports, as opposed to an objective measure — such as an X-ray evidencing a broken bone. The cause of a psychological injury can be organic, stemming from a head trauma, which leads to functional changes in the brain. Otherwise, it can result from a relationship with pain experience, such as where, for example, dayto-day activities are restricted, causing psychological distress, writes Statistics Canada’s Heather Gilmour, in a study — Chronic Pain, Activity Restriction and Flourishing Mental Health — published in Health Reports, a journal of StatsCan’s Health Analysis Division. Of course, it is accepted that psychological injuries are also capable of standing alone, whereby a claimant may not experience any physical sequelae, but psychological injuries are apparent.
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Manual of Mental Disorders (DSM-V) provides a catalogue of disorders and the criteria for diagnosing them. Enlisting the DSM-V here, the following are often encountered by claims adjusters: • Post-Traumatic Stress Disorder: PTSD may be identified where there is exposure to actual or threatened death, serious injury or sexual violation, whether directly experienced, witnessed, or the exposure is to a close family member or friend. The individual will often suffer significant distress or impairment in social interactions, capacity to work, or other important areas of functioning, notes DSM-V. • Chronic Pain: Referred to in the DSM-V as pain disorder, chronic pain is attributed to a combination of factors, including somatic, psychological and environmental influences. In 2011-2012, an estimated six million Canadians aged 18 or older (22%) reported that they were suffering from chronic pain, StatsCan’s Gilmour reports. Corresponding with chronic pain reports are increased reports of mental health issues, which has been attributed to, at least in part, restrictions in day-to-day activities, she adds. • Depressive Disorders: Depressive disorders can be caused by trauma. Among other things, these can lead to extreme anxiety, and psychoses, when untreated. Generally, for a major depressive episode, there will be significant distress or impairment in social, occupational, and/or other important areas of life. • Anxiety Disorders: Anxiety disorders may be expressed as agoraphobia, specific phobias, social anxiety disorder, or panic attacks. This non-exhaustive list offers some insight into the manner in which anxiety may be expressed.
EXPERT REPORTS The validity of a psychological injury can only be determined and diagnosed by enlisting a trained professional who can administer and interpret standardized assessment measures, and who can verify the presenting complaints and/ or the claimant’s self-reports. In most 20 Canadian Underwriter January 2016
cases, an expert report will clarify the nature and extent of the psychological injury and, potentially, expose injuryamplification and/or malingering. As an adjuster, determining if and when to retain an expert includes a consideration of the following issues: the stage of the proceedings; whether the claimant/plaintiff has already obtained a report that requires a rebuttal; the kind of expert to be retained; the instructions to be given to the expert; and the cost associated with obtaining the report. There may be other factors at play, but the analysis comes down to
and incorporated into the “threshold” question as to whether or not a plaintiff will be entitled to recover damages. Where prognosis is poor and improvement unlikely, the element of “permanence” will usually be established. “Importance” is generally considered in light of the circumstances of the claimant, including a consideration of the impact upon his/her way of life. Finally, “seriousness” is generally given its literal meaning, and will be established where the permanence and importance of the injury are found to seriously impact upon day-to-day activities.
The validity of a psychological injury can only be determined and diagnosed by enlisting a trained professional who can administer and interpret standardized assessment measures, and who can verify the presenting complaints and/or the claimant’s self-reports.
Causation and Foreseeability The Supreme Court of Canada’s decision in Mustapha v. Culligan of Canada Ltd., released May 22, 2008, remains the seminal case that deals with psychological injuries and, specifically, nervous shock. There, no car accident was to blame for the plaintiff’s psychological injuries, but he suffered immensely when he found a dead fly in the bottle of water he had just opened. The Supreme Court of Canada held that the psychological injuries were not reasonably foreseeable in a person of ordinary fortitude, otherwise known as the “average Joe/Jane”. Therefore, the highest court found that the plaintiff was not entitled to collect damages. The essential elements of negligence require that the damages sustained be causally linked to the breach of a duty of care. These elements are as follows: 1. the defendant owed the plaintiff a duty of care; 2. the defendant’s behaviour breached the standard of care; 3. the plaintiff sustained damages; and 4. the damages were caused, in fact and in law, by the defendant’s breach. Once it is established that the defendant owed a duty of care, such that he/ she/it would be obliged to avoid doing anything that would unreasonably risk danger to the plaintiff, and the conduct fell below the standard of care in the circumstances, the inquiry turns to the damages sustained by the plaintiff. Of
one of cost versus benefit, and will generally have the effect of either assisting with negotiations in the event that the result is unfavourable to the claimant, or otherwise assist the adjuster in properly assessing the claim.
PSYCHIATRIC INJURIES AND THE COURTS Permanent, serious and important impairment In the context of motor vehicle accidents, as with physical injuries, Ontario’s Insurance Act stipulates that a psychological injury must constitute a permanent and serious impairment of an important function(s) in order to entitle a claimant to claim for damages. It was not until the mid-1990s that, in Ontario, psychological injuries were expressly recognized in the Insurance Act
course, psychological injuries are rec- sustained them following the bad stuff follow in the circumstances. ognized and compensable, but do not the defendant did but should not have Taken altogether, it is seen that psycome without their challenges when it done, then the defendant is on the hook chological injuries can be tricky to navicomes to proof — as the average adjust- for damages. gate, and are likely to require the input er, lawyer and judge will say. It is important to note that — as the of an expert to be sure of what is beIn Mustapha, the Supreme Court of Court of Appeal for Ontario found in ing dealt with. Incorporating medical Canada stated the following with regard Frazer v. Haukioja — the exact injuries sus- authorities and court rulings may make to psychological injuries: tained by the plaintiff need not be fore- it easier for adjusters to determine the ...[P]sychological disturbance that rises to the seeable, but only that some compensable direction in which they should steer level of personal injury must be distinguished from psychological injury could reasonably their files. psychological upset. Personal injury at law connotes serious trauma or illness...The law does not recognize upset, disgust, anxiety, agitation or other mental states that fall short of injury. I would not Surprised? ARC isn’t. Surpr purport to define compensable injury exhaustively, except to say that it must be serious and prolonged Your customer has a list of the vehicles that and rise above the ordinary annoyances, anxieties are covered by your fleet policy. You have and fears that people living in society routinely, a list of the vehicles that are covered by ARC Group Canada if sometimes reluctantly, accept. ...Quite simply, ARC Group Canada is a national that policy. network of independe minor and transient upsets do not constitute pernetwork of independent law firms, each intimately c And your lists aren’t theintimately same. each connected to their l sonal injury, and hence do not amount to damage. their local market. Once the fact of the injury is provInsurance and risk m When the one vehicle that is involved in experts. Regio en, the final element is to determine Insurance risk appear management an accident is the one thatand doesn’t on Na experts. Regionalnext? strength. whether damages have been caused by both lists, do you know what happens That is the National scope. the breach in fact and in law, each of ARC does. which require distinct analyses. Go to As That is the ARC Group. To determine causation in law, the Go to AskARC.com question is whether it was foreseeable that a person of ordinary fortitude (“Joe/Jane”, as above) would suffer the same injuries, that is, was it a “real risk”. This is referred to in the case law as “remoteness”, and is determined as a matter of law, on an objective basis, the Supreme Court of Canada noted in Mustapha. Causation in fact is a question to be determined by enlisting the “but for” test. As suggested by Ontario’s SuperiARC Group Canada is a national network of independent law firms, each intimately connected to their local market. or Court of Justice in Chin-Sang v. Bridson Insurance and risk management experts. Regional strength. and by the Court of Appeal for Ontario National scope. Go to AskARC.com in Frazer et al. v. Haukioja, the “but for” test consists of asking oneself whether but for the tortious conduct (the bad stuff the defendant did), would the inThe ARC Legal Reporter jury have occurred in any event? If not, Winter Issue – Article #1 A National Network of Independent Law Firms then the “but for” test is made out, and it has been confirmed that the defenWhen is a medical examination considered a second examination dant’s tortious conduct is a source of under Rule 36 of the New Brunswick Rules of Court? injury. The ARC Legal Reporter Once a court has ruled that the psyv. Crowther and Kelly Case: Winter IssueReported – Article #1 Blyth 2009 NBCA 80 chological injuries were foreseeable, Citation: When both the plaintiff’s physical and mental condition are in issue in an action, and At Issue: A National Network of Independent Law Firms meaning that even the average Joe/Jane the plaintiff undergoes a physical examination, will a subsequent application for a psychiatric examination be considered an application for a second medica could reasonably be expected to have examination? When is a medical examination considered a second examination Should medical examinations that are ordered as part of the discovery process be characterized as ‘independent’ medical examinations? under Rule 36 of the New Brunswick Rules of The Court? Court of Appeal of New Brunswick Court:
If you’re in Manitoba, this is considered an automobile.
ARC_Fleet ad_1/2 page.indd 1
Reported Case: Citation: At Issue:
Judgment Rendered: Factual Summary:
If y Manitoba conside autom
October 13, 2009 (Reasons delivered November 2015-02-14 26, 2009) 1:05 PM The plaintiff suffered injuries in a motor vehicle accident and commenced an action seeking damages. Both the plaintiff’s physical state and mental state were in issue in the action. The plaintiff submitted to a physical examination by the defendant’s expert but subsequently refused to submit to a psychiatric examination.
Blyth v. Crowther and Kelly 2009 NBCA 80 When both the plaintiff’s physical and mental condition are in issue in an action, and
Pollution Containment
Amira Palacios
Claims Consultant, Environmental Pollution, XL-Catlin
Glen Hopkinson
Vice President and Head of Claims, Canada, XL-Catlin
Whenever there is a release of a hazardous substance that could cause injury or give rise to a pollution claim, an immediate response is required. Those responding to such an incident need to have expertise in many areas, including remediation and environmental law. Examples of environmental disasters include the 1989 crude oil spill from the Exxon Valdez off the coast of Alaska; chemical contamination in homes built over the Love Canal in Niagara Falls, New York; and the 2010 explosion of the Deepwater Horizon offshore drilling platform. Recent incidents in Canada — such as the Mount Polley mine disaster in British Columbia and the Lac-Mégantic train derailment in Quebec — show that environmental incidents can originate from numerous sources and can pose severe damage to the environment, property and public health. They can also damage a business and its reputation. Unlike other traditional property and casualty insurance claims — where damage is done and the state of damage remains relatively inactive
once it is inflicted — damage from an environmental incident can grow exponentially, quickly. Quite simply, pollution spreads. Depending on where an environmental incident occurs, it can spread even more rapidly, causing both physical environmental and financial damages to climb. For instance, a fuel oil spill in a paved parking lot may not pose a costly threat. But say that contaminant trickles from the parking lot into a storm sewer, which, in turn, discharges into a stream several hundred metres away. The resulting damage — which could include clean-up, fine, public relations and national resource restoration expenses, among others — can grow by a factor of 10.
SPECIAL EXPERTISE One characteristic of environmental claims is a sense of urgency. All environmental claims require an immediate response. Environmental claims have specific areas of complexity, including the immediate need to contain a pollutant, whether the pollutant is released into the
Illustration by Lars Rudebjer threeinabox.com
Minimizing the severity of a pollution claim requires contingency planning and an immediate response. While many commercial general liability policies do not cover pollution, some insurers offer in-house expertise in emergency response, environmental remediation and applicable regulations.
22 Canadian Underwriter January 2016
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ground, air or water. They also require substantial specialized expertise in a variety of different areas (such as science, engineering and environmental law) to contend with the issues and tasks that typically follow a pollution incident. Those tasks include the following: • understanding the dynamics of all the parties involved and then dealing with them to meet local, provincial and national environmental oversight and regulatory requirements; • choosing an appropriate and cost-effective remediation method; • assessing environmental/natural resource damages; • monitoring long-term clean-up costs and progress; • handling local stakeholders, from homeowners to grassroots environmental activists; and • providing legal defence support.
SPILL RESPONSE PLANS One company’s environmental disaster may not be considered disastrous to all companies. The cost of a 750litre fuel spill along a highway could devastate a small trucking company, but a spill of the same size may be deemed a minor incident by a large oil company. Yet regardless of a company’s size, an environmental incident has the potential to pose a bigger financial loss and more reputational damage if not handled properly. Many facility operations are legally required to prepare response plans in the event of a spill situation. As environmental incidents require instant attention, these plans help set responses in motion quickly. This is critical to reducing costs and controlling liability when a disaster takes place. Development of a response plan may require outside assistance, which can be advantageous for the different perspectives a third-party can bring. Consulting companies specialize in identifying exposures, recommending preventive measures, engineering controls, and preparing the response protocols. Others that can be called in to help 24 Canadian Underwriter January 2016
with response planning include local fire departments and regulators, as well as a variety of other sources that insurance companies make available to their clients to help with loss prevention efforts. Likewise, companies have come to realize that the adequacy, or inadequacy, of their insurance is an important consideration in their survival and wellbeing, especially in the event of an environmental incident. A commercial general liability (CGL) policy will likely not cover all of a business’ exposure to the extent it may need. Most CGL policies offer little or no pollution coverage. Instead, most actually contain a pollution exclusion. Likewise, most property polices do not offer coverage for clean-up of the company’s owned property in the event of a pollution incident. The environmental insurance market has grown and developed over the last
Environmental claims have specific areas of complexity — including the immediate need to contain a pollutant — whether the pollutant is released into the ground, air or water. 30 years to address these coverage gaps. However, in Canada, not all insurance companies can offer local in-house expertise on technical environmental matters.
PRE-QUALIFICATION In addition to coverage designed to address pollution-related expenses that most other coverages exclude, another advantage of specialized pollution coverages is the specific environmental expertise of technical consultants, legal and claims experts that some environmental insurers offer their clients. Claims specialists work with underwriting teams to provide clients with a very integrated environmental risk management approach, helping strengthen both loss prevention and preparedness
just in case the worst happens. This expertise is particularly instrumental in facilitating a quick response to an environmental incident that helps contain and minimize potential liability and control clean-up cost severity. Claims specialists with engineering/ science-oriented backgrounds bring a great understanding of the physical and chemical characteristics of pollutants, including how they react in any given environment, what remediation methods have proven most successful, or what environmental regulations could be called into play. In the event of an environmental disaster, a business needs to be ready to act. Environmental insurers and their claims specialists put considerable effort into pre-qualifying environmental emergency response contractors and consultants, looking to determine which vendors have the proper equipment, trained personnel and appropriate insurance coverage to address a situation. This pre-qualification process also allows a business to pre-establish rates, terms and conditions that will allow immediate mobilization of the necessary resources and avoid the kind of price gouging that many fall victim to during times of crisis.
FIRST RESPONSE Many parties become involved in pollution claims. Environmental claims specialists — working with their loss prevention teams — often serve as important liaisons even before an incident occurs. For instance, local first responders, including fire departments, must have the proper training and equipment to respond to a large release at an industrial facility property. To help manage severity concerns, many insurers will provide local fire departments with the opportunity to visit a site, point out potential issues or even conduct training at a business’ facility to establish a level of trust. This type of liaison also gives first responders the advantage of having previously been to the site before any disaster situation. Other agencies also play a key part in planning, including provincial minis-
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tries of environment or labour, as well as various municipal or regional agencies. Immediately following an environmental incident, part of an environmental claims consultant’s job is establishing good lines of communications with these agencies, as well as neighbouring businesses, homeowners, local environmental organizations or others who may be directly affected by a pollution incident or are ready to voice their concerns.
Three examples of hazardous material releases give some guidance on the necessary response, and the potential magnitude of an insurance claim.
RAIL SPILL In one case, a chemical manufacturer received rail cars of sodium hydroxide on a rail spur located on its property. While offloading operations were performed, a two-inch hose dislodged from its con-
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nection coupling. As a result, more than 38,000 litres of sodium hydroxide was released into a gravel area along the rail line. The spill entered drainage ditches on both sides of the rail line. Environmental claims counsel and a technical consultant worked with the manufacturer to co-ordinate and manage the clean-up of the pollution release at the insured’s location. Claims counsel retained a hazmat contractor to remove more than 800 tons of contaminated soil and collect 132,000 litres of sodium hydroxide water. The technical consultant worked closely with the insured to ensure that the remediation response was timely, performed properly and the insured’s property was returned to its prerelease condition. As a result of this release, the company’s environmental insurer paid US$1.9 million under an environmental policy to clean up the pollution release.
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In another incident, a fire erupted at a general storage warehouse, spreading to its hazardous chemical storage area. This resulted in a release of toxic smoke and chemical vapours into the surrounding community. Hazardous liquids were also released into the surrounding soils through firefighting water runoff. The local fire department’s hazardous materials response team responded to the fire to contain the contamination. Hundreds of surrounding community members filed a class action lawsuit, citing health problems from inhalation of toxic vapours and property damage from hazardous firefighting water run-off. On behalf of the warehouse, an environmental claims consultant responded and interacted with regulatory agencies to determine clean-up actions and retain local counsel to handle the class action lawsuit. The warehouse’s pollution insurance paid US$545,000 to settle the citizens’ suit and cover remediation and legal defence costs.
AMMONIA RELEASE Another example of a release, of a toxic
inhalation hazard, involved the renovation and expansion of a food distribution centre. The construction manager hired a contractor to construct and install a new refrigeration system at the facility. As the contractor was cutting a section of piping, a cloud of ammonia was released inside the facility. It took more than an hour to contain the release. Four workers and two medical technicians were sent to hospital as a result.
The contractor’s environmental insurer responded. The contractor had pollution liability coverage as part of a combined pollution and professional liability policy. It was also determined that there was US$100,000 of pollution coverage available in its general liability policy. Additionally, the claim investigation revealed that the facility owner was not a “passive” observer, as originally reported. This was due to the fact
that the facility owner’s “refrigeration expert” provided guidance and advice during the line-cutting operation. The contractor’s environmental insurer was able to facilitate a reduction in the initial demand based on the involvement in the facility owner refrigeration expert. The general liability carrier paid its US$100,000 pollution limit. The contractor’s pollution policy covered the remaining damages, paying in excess of US$250,000. The immediate decisions that must be made surrounding an environmental incident are most effective if they have received prior thought and planning by experienced professionals. Past environmental disasters have left many businesses thinking about what could happen. Preparation for an environmental incident mitigates potential future liabilities, controls clean-up costs, potentially reduces insurance costs and maintains a positive image with employees, customers and the public at large.
Claims Against Directors Shareholders’ lawsuits alleging misrepresentation, pollution cleanup orders and privacy breaches are some of the major trends that could influence directors’ and officers’ (D&O) liability claims in Canada, experts suggest. The Supreme Court of Canada in December paved the way for class action lawsuits against a major Canadian bank and a motion picture firm — as well as directors and officers of each firm — arising from a drop in share price. Meanwhile, a clean-up order issued to directors of an insolvent Ontario manufacturer “set off alarm bells” among corporate directors, one lawyer reports. Greg Meckbach
28 Canadian Underwriter January 2016
C
ompanies going through insolvency proceedings are a major source of directors’ and officers’ (D&O) liability claims, but class-action lawsuits — alleging misrepresentation prior to drops in stock prices — can also give rise to such claims, some experts warn. Some new developments affecting D&O insurers include a December 2015 Supreme Court of Canada ruling on Ontario’s Securities Act, the collapse of commodity prices and a pollution clean-up order issued against directors of a Cambridge, Ontario manufacturer of helicopter components, insurance professionals suggest. “Historically the primary source of D&O liability was statutory liability in the event of insolvency of a company,” writes Paul Emerson, vice president, liability claims for Berkshire Hathaway Specialty Insurance (BHSI) in Canada, in a statement to Canadian Underwriter. Those statutory liabilities, Emerson suggests, could include unpaid wages, taxes and contributions to pension plans. “Where a company is insolvent and seeks protection from its creditors, the D&O policy can become the only tangible source of potential recovery for shareholders,” reports Shara Roy, a partner with law firm Lenczner Slaght Royce Smith Griffin LLP. Roy, whose practice areas include insolvency and securities regulatory actions, says individual directors and officers can be named both in shareholders’ lawsuits and in regulatory proceedings. “More recently, liability for breach of corporate governance legislation, derivative claims and claims under oppression remedy legislation have given rise to D&O liability claims,” Emerson reports. In Ontario, an oppression remedy gives a plaintiff the right to sue in order to “recover for wrongs done to the individual complainant by the company or as a result of the affairs of the company being conducted in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of the complainant,” wrote Justice Robert Blair, of the Court of Appeal for Ontario, in a decision released May 26, 2015 in Rea v.Wildeboer.
January 2016 Canadian Underwriter 29
COVER STORY
Claims Against Directors A derivative action gives a complainant, such as a shareholder, the right to “apply to a court for leave to bring an action,” on behalf of a company, to “recover for wrongs done to the company itself,” Justice Blair added. Over the past three years, frequency levels in Canadian D&O claims “have been fairly consistent,” reports Paul Shore, international practice leader, management liability for The Navigators Group Inc. Shore notes there has been an increase in the size of settlements being sought by plaintiffs. “In the last 18 months, just from what I have personally experienced on our book, I think the plaintiff law firms have become a lot more confident, a lot more aggressive, especially those companies that have cross-border shareholders and operating exposure,” Shore adds. “There has been a lot more aggression, a lot more digging in by the plaintiff law firms to really push higher settlements than what was previously the case.” Stamford, Connecticut-based Navigators operates a Lloyd’s insurer, which covers D&O risk for about 185 Canadian clients.
STATUTORY LIABILITY At Ottawa-based underwriting agent Encon Group Inc., the most common type of D&O liability claim is still employment practices liability, reports Tanya Banfield, Encon Group’s vice president of D&O claims. “It has been that way for many years, probably since D&O liability insurance was first started,” Banfield says. Employees “are generally a corporation or an entity’s biggest exposure,” she adds. Employment laws vary by province, notes Kenneth Thornicroft, a professor of law and employment relations for the University of Victoria’s Gustavson School of Business. In British Columbia, there are more than 100 different statutory provisions which “provide for statutory liability in some circumstances” for directors and officers, adds Thornicroft. Examples include tax and environmental laws. 30 Canadian Underwriter January 2016
“Provincial ministries of environment have recognized new ways to expand their powers and authority to extract more fines and penalties,” Emerson writes. In Ontario, the Ministry of the Environment and Climate Change can impose clean-up orders on directors and officers. For example, in 2012, MOE issued remediation orders against
“More recently, liability for breach of corporate governance legislation, derivative claims and claims under oppression remedy legislation have given rise to D&O liability claims,” reports Paul Emerson of Berkshire Hathaway Specialty Insurance. aircraft components maker Northstar Aerospace Inc. Until 2010, Northstar operated a site, in Cambridge, which was contaminated, both by trichloroethylene from Northstar’s manufacturing activities and by contaminants from a different property. A cleanup order was imposed on Northstar, but the firm was granted protection under the Companies’ Creditors Arrangement Act. The cleanup order was then imposed on 13 Northstar directors, who unsuccessfully appealed to the province’s Environmental Review Tribunal.
Instead of seeking judicial review, the directors reached a settlement. “A number of directors had not been on the board at the time when contamination occurred and yet were held liable by the (then) Ministry of the Environment,” Roy reports. The Northstar case “set off a lot of alarm bells,” says Andrea Laing, a Toronto-based partner with Blake, Cassels & Graydon LLP who focuses on commercial litigation. “I am frequently seeing directors looking to ensure that they have adequate coverage.” Shore suggests there could be more pollution clean-up orders issued against directors, “given there may well be increase insolvencies for companies in mining and oil and gas, which are more than likely going to be the majority of those implicated on pollution type claims.” The 13 Northstar directors were not covered by an environmental impairment liability policy, and their D&O policy excluded remediation, said Brian Rosenbaum, Aon Risk Solutions’ national director, legal and research practice, during a presentation in 2014 at the RIMS Canada conference in Winnipeg. “This is something the insurance community quickly worked on to ensure affirmative coverage for this type of incident,” Shore reports. Shore notes that in lawsuits giving rise to D&O liability claims in Canada, plaintiffs “typically” allege misrepresentation or incorrect disclosure guidance on the part of directors and officers. One of the “biggest reasons” for D&O claims in Canada is Part XXIII.1 of Ontario’s Securities Act, which took effect 10 years ago, Laing suggests. Section 138.3 (1) of Part XXIII.1 “creates a statutory cause of action for misrepresentation in the secondary securities market in favour of any person who acquires or disposes of the securities of an issuer between the time the document containing the representation was released and the time the misrepresentation was corrected,” wrote Justice George Strathy — then of the Ontario Superior Court of Justice — in a decision released in 2012.
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Claims Against Directors At the time, Justice Strathy (who has since been appointed chief justice of Ontario) ruled that a class-action lawsuit (filed by representative plaintiffs Howard Green and Anne Bell) against the Canadian Imperial Bank of Commerce (CIBC) was time-barred. That decision was overturned, in February 2014, on appeal. In a divided ruling released December 4, 2015, four of seven Supreme Court of Canada judges ruled that the shareholders’ lawsuit against CIBC could proceed.
of Appeal for Ontario judges — which issued its ruling in February, 2014. In its 133-page ruling (cited as CIBC v. Green) published December 4, the Supreme Court of Canada ruled that the lawsuit against IMAX could proceed, but the one against Celestica cannot. In the lawsuit against IMAX, individual defendants include CEO Richard Gelfond, chairman Bradley Wechsler and Kenneth
INDIVIDUAL DEFENDANTS Along with CIBC, four individuals — including Gerald McCaughey, chief executive officer of CIBC until September 2014 — were named as co-defendants. Court records indicate that CIBC’s share price dropped 37% between May 31, 2007 and February 28, 2008. The bank had been exposed to the United States residential mortgage market. As a result of the deterioration of those investments, CIBC incurred after-tax losses of more than US$6 billion. In their lawsuit, Green and Bell are essentially alleging that CIBC officials failed to disclose, in 2007, the bank’s exposure to the U.S. mortgage market. The allegations have not been proven in court. CIBC’s appeal was heard February 9, 2015. In the same hearing, the Supreme Court of Canada also heard appeals in two separate shareholder class-action lawsuits, filed in Ontario, alleging misrepresentation. One was against Toronto-based electronics vendor Celestica Inc. and the other was against motion picture firm IMAX Corporation of Mississauga, Ontario. Plaintiffs suing IMAX, Celestica and CIBC — initially before separate lower court judges — “pleaded an intention to claim damages under the statutory cause of action,” under Ontario’s Securities Act, “for alleged misrepresentations in respect of shares trading in the secondary market.” The issues on appeal in all three cases were similar. Appeals were heard by one panel — comprised of five Court 32 Canadian Underwriter January 2016
“There has been a lot more aggression, a lot more digging in by the plaintiff law firms to really push higher settlements than what was previously the case,” says The Navigators Group’s Paul Shore. Copland, a director from 1999 through 2012 who had served as chair of the board’s audit committee. Court records indicate that on August 10, 2006, IMAX’s share price dropped 40%. That was the day after IMAX disclosed it was responding to an inquiry, from the U.S. Securities and Exchange Commission, on the timing of its revenue recognition. Plaintiffs allege that IMAX misrepresented its 2005 earnings, “in particular with respect to the number of theatre systems installed by the Company during Q4 2005,
and the revenue recognized for such theatre systems.” Those allegations have not been proven in court. One issue in the trilogy of cases was the interpretation of Section 138.8 of the Securities Act, which stipulates that “no action may be commenced” for misrepresentation “without leave of the court.” All seven Supreme Court of Canada judges hearing the appeals agreed that in order to commence an action for misrepresentation in the secondary securities market, under Ontario’s Securities Act, there must be “a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.” Insurance Bureau of Canada (IBC) — which had intervener status in CIBC’s appeal — “took the position that the test for granting leave should be an onerous, rigorous test so that only cases with merit should be allowed to proceed to the starting line in Ontario, and on that point, the Supreme Court of Canada agreed with us,” says Alan D’Silva, a partner with Stikeman Elliot, which represented IBC. For insurers writing D&O liability, the Supreme Court of Canada’s decision “is generally a good development,” D’Silva adds. “Canadian shareholder class-action litigation became a reality when secondary market liability was introduced in 2006, with consistent and steady activity since,” writes BHSI’s Paul Emerson. “While there have been fewer filings in 2015, the inventory of unresolved class actions should now be able to proceed in light of the recent decisions by the Supreme Court of Canada in the Green v. CIBC trilogy of cases. We anticipate a return to the stream of filings in future years, albeit perhaps with a shift by shareholder counsel to focus on higher severity cases while the courts continue to interpret the boundaries of the relatively new securities legislation. In this space, defence costs have been quite volatile, in light of uncertainty regarding the proper test for leave to commence statutory actions and applicable limitation periods.”
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Claims Against Directors The provisions allowing such lawsuits under Ontario’s Securities Act have liability caps, notes Blake, Cassels & Graydon’s Andrea Laing. “There is a liability limit in the statute which is $25,000 or 50% of the directors’ compensation from the issuer in the previous year, but we are seeing that plaintiffs’ lawyers are having some success in persuading the courts that in addition to certifying statutory claims under the Securities Act, they are also bringing common law misrepresentation claims,” Laing reports. Common law misrepresentation claims, she adds, are not based on the Securities Act, but “are just kind of run-of-the-mill negligent misrepresentation claims that anyone could make and they have suggested to courts that they should also certify these claims and the problems with these common law claims is they are not subject to the caps under the legislation.” This, Laing suggests, “is of particular concern to underwriters and to directors and officers themselves, in that they thought there would be a fairly low cap on directors and officers liability, but plaintiffs’ lawyers are having some success in persuading courts to certify misrepresentation claims based on public disclosures which are not subject to these liability limits and are effectively finding ways to work around the caps.” Misrepresentation lawsuits “tend to be filed in Ontario, but the other provinces and territories have their own equivalents to part XXIII.1,” Laing adds. “It has been a bit slower in some of the other provinces, but we are starting to see secondary market class-action claims being launched in B.C. and Quebec in particular, but also other provinces.” In lawsuits alleging misrepresentation or incorrect disclosure guidance, plaintiffs’ law firms “look at isolated one-day stock drops as their initial focus for a securities class action,” reports The Navigators Group’s Paul Shore. “Mining was a focus over the last couple of years,” Shore adds. “Oil is going to be a focus this year, next year and the coming years.” 34 Canadian Underwriter January 2016
At press time, the price of West Texas Intermediate Crude oil dropped below US$30 per barrel. WTI was trading at US$59.82 this past June and US$95.08 in 2011, BMO Capital Markets reports. Oil and gas “is going to be a challenging sector for insurers, as well as for the companies themselves,” Shore predicts. “If oil stays below $40 for the next six months, and all of a sudden they release
$2,000 an ounce and then it quickly goes to $1,200 and stays there,” Shore reports. “Oil companies, prior to the last 12 months, may have made big acquisitions and bets when oil was $100, so I think you are going to get those companies struggling now to justify why they potentially overpaid for such an asset.” Other commodity prices have dropped as well. For example, BMO reports that nickel, which was trading at US$7.65 per pound in 2014, was down to US$3.96 in December.
BEAR MARKET
“Where a company is insolvent and seeks protection from its creditors, the D&O policy can become the only tangible source of potential recovery for shareholders,” reports Shara Roy of Lenczner Slaght Royce Smith Griffin LLP. results that are below everyone’s expectations, then it’s quite easy to point the finger at the directors and officers.” Some shareholders’ lawsuits arise from “poorly timed acquisitions” in both mining and oil and gas, Shore suggests. “You have those companies that unfortunately made an acquisition at the wrong time, like the gold companies buying assets based on $1,900 to
At press time, the S&P/TSX composite index was below 12,200, compared to 15,524.75 this past April. “Recent volatility of the Canadian markets suggests a real potential for new claims,” Emerson reports. “Financial pressures could lead to aggressive accounting practices to represent stronger than actual performance. Further, in the normal course, securities class actions are launched almost immediately after a drop in share price or discovery of an error. In light of the recent performance of the TSX owing to the current commodity price environment, and the growing tail of shareholder wealth disappearing, there may well be claims forthcoming before limitation periods are triggered. The merits of claims related to long-term share value decreases will certainly be subject to testing, but there is no question that masses of unhappy shareholders will have expectations that are difficult to manage,” Emerson explains. Another trend in D&O claims is breach of privacy legislation, which “can result in massive administrative penalties,” Emerson notes. “These laws are not well-tested and the jurisprudence is in its infancy. But increased cyber risk activity and confirmed civil rights of action for breach of privacy legislation foreshadow a new, real area of risk for directors and officers.” For example, there are lawsuits pending as a result of the hacking this past August of online dating service Ashley Madison, notes Michael Parent, a professor
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COVER STORY
Claims Against Directors
“We are seeing that plaintiffs’ lawyers are having some success in persuading to courts that in addition to certifying statutory claims under the Securities Act, they are also bringing common law misrepresentation claims,” says Andrea Laing of Blake, Cassels & Graydon LLP. of marketing at the Telfer School of Management at the University of Ottawa. “When I look at what is perhaps the Number 1 thing on directors’ minds today, that would be cyber security,” adds Parent, a former director of the Centre for Corporate Governance and Risk Management at the Beedie School of Business at Simon Fraser University. In the Ashley Madison lawsuit, “the question will be, did the directors and officers of those organizations take reasonable care to protect their data, and/ or if warned about a possible breach, take reasonable action to protect that data or to remediate the impact of the breach?” says Parent. Privacy breaches can result in lawsuits where both a corporation and individual defendants are named, suggests Imran Ahmad, who leads the cyber security practice of law firm Cassels Brock & Blackwell LLP. Breaches can result from employees losing USB keys or hackers deliberately targetting a corporate computer system, Ahmad suggests. “The question is, ‘What does the board and what does management have to do to make sure they can mitigate any exposure that they have?’” says Ahmad. Directors could be held personally liable if they failed to ensure employees were properly trained or if they failed to 36 Canadian Underwriter January 2016
ensure that the firm had “steps in place to make sure that the information was secure,” Ahmad warns. In the event of a privacy breach, a D&O claim could include legal fees and remedial action such as credit monitoring for people whose data was compromised, Ahmad suggests. “Although they may not be successful in terms of bringing a case against those directors and officers, you still have to pay your lawyers, you still have to prepare your materials, you still have to respond to the materials that are being filed, so there is a cost to that,” he adds.
breach notification Recent amendments to Canada’s Personal Information Protection and Electronic Documents Act (PIPEDA) could require organizations to notify certain individuals and organizations of certain breaches of security safeguards that create a risk of significant harm and to report them to the federal privacy commissioner. Those amendments were passed into law this past June, but do not come into force until regulations are in place. Amendments to PIPEDA “dealing with breach reporting, notification and recordkeeping will be brought into force only after related regulations outlining specific requirements are developed and in place,” a spokesperson for
the Office of the Privacy Commissioner of Canada told Canadian Underwriter, referring a question on timelines to the department of Innovation, Science and Economic Development (ISED). “Options regarding next steps, including consultations, are being developed,” a spokesperson for ISED Canada wrote in an e-mail to Canadian Underwriter, when asked whether the federal government plans to develop regulations to bring those amendments into force. Commenting in general, Parent notes that corporate directors have both a fiduciary duty and a duty of care. “The duty of care basically says that, as a director, the standard that you are held to is not perfection or even the standard of the highest performing director in your sector, but rather, ‘have you obtained good or appropriate information?’” Parent reports. He adds the test of the duty of care depends — among other things — on whether or not a director has “critically reviewed” information and whether or not he or she has made a “reasonable” decision under the circumstances. “Anybody can be sued,” Parent notes. “All it takes is a lawyer and some money. It does not mean (the allegations) will stand to reason or be upheld by the courts.”
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Extreme Weather
Amanda Dean
Associate Vice President, Atlantic Canada, Insurance Bureau of Canada
A study released in December includes detailed estimates of economic costs of severe weather events in 2020 and 2040 in two major Canadian cities. Those forecasts account for projected effects of climate change. What impact could climate change have on economic losses from ice storms west of Toronto and extreme wind in Halifax? Researchers provided detailed numbers for these and other extreme weather events, in a study released this past December. Canada’s property and casualty insurance industry has been at the forefront of connecting the corporate world to researchers who have been working on solutions to help society adapt to climate change. The industry is responding in several other ways, including supporting research to help Canadians adapt to the increase in severe weather events stemming from climate change. Six years ago, the p&c insurance industry was among the first to identify adaptation to climate change as a key public policy issue. Insurers could not ignore the devastating toll that weath-
38 Canadian Underwriter January 2016
er-related losses were having on consumers and the alarming increase in claims payouts. A study commissioned by Insurance Bureau of Canada — Economic Impacts of the Weather Effects of Climate Change — includes estimates of some of the future costs to two Canadian cities. One is Halifax and the other is Mississauga, Ontario, which borders Toronto to the west. The study provides estimated costs of specific types of severe weather events associated with climate change. As climate experts have been warning, the incidence of severe weather events has been increasing due to the impacts of climate change, including the worldwide rise in temperatures. For the insurance industry, the evidence is in the numbers. In Canada, the annual insured losses as a result of large severe weather events have gone from an average of $400 million a year in the 1980s to hovering around $1 billion a year this decade. In 2013, they hit $3.2 billion as a result of the Alberta floods and Toronto rainstorms. Since 2010, insured damages from extreme weather events in Canada have cost almost $8 billion, which is only a portion of the total economic costs to the country. These alarming numbers pushed IBC, on behalf of its member companies, to delve deeper. With support from Natural Resources Canada through Canada’s Adaptation Platform, IBC com-
For each weather event, the researchers calculated what the economic costs to the city could be as a result of these weather events five years out (in 2020) and 25 years out (in 2040).
missioned Green Analytics Corporation and the Ontario Centre for Climate Impacts and Adaptation Resources to conduct the study to learn more about what the future might hold for Canadian communities regarding weather extremes. The purpose of the study was to help build the case for adaptation by contributing to the body of research on the potential impacts of climate change. It begins to quantify what would happen if adaptation does not keep pace with the changing climate. The findings of the study highlight the need to increase infrastructure investments now to reduce costs down the road. IBC chose to work with Halifax and Mississauga because officials with both cities had already demonstrated knowledge and a strong interest in dealing with climate change. Both cities have done work toward preparing for more severe weather conditions. In Halifax, a port city, officials are acutely aware of the sea level rise that is occurring in the harbour, and the need to prepare for more extreme weather conditions. Halifax was an early-adopter of greenhouse gas emission tracking and reduction targets, and has been active in climate adaptation and resilience building. Mississauga, Canada’s sixth largest city, is an active partner with neighbouring municipalities in addressing the risks and future impacts of climate change. For instance, it is implementing a stormwater charge to better maintain and expand its stormwater infrastructure. IBC’s study is a partial analysis, looking at two severe weather events per city. For Halifax, the researchers studied extreme winds and storm surge flood-
ing; for Mississauga, they considered ice storms and stormwater flooding. For each weather event, researchers calculated what the economic costs to the city could be as a result of these weather events five years out (in 2020) and 25 years out (in 2040). They also considered the effect of more severe climate change, and ran the numbers for 2020 and 2040 three times — first using the cities’ current climate conditions, and then assuming a moderate and high acceleration in the rate of climate change. Below are some of the results.
HALIFAX BY 2040 • The annualized loss expectancy from extreme wind events could be about $18 million. A moderate increase in the rate of climate change could increase this figure to $20 million. • One extreme wind event (calculated as a 1-in-25-year event) could cost an estimated $123 million to $126 million.
MISSISSAUGA BY 2040 • The annualized loss expectancy from ice storms could be about $9 million. A moderate increase in the rate of climate change could increase this figure to about $12 million per year. • One severe ice storm (calculated as a 1-in-25-year event) could cost an estimated $23 million to $38 million. What researchers learned from the study was mostly common sense. For example, one could expect that if a city experiences a moderate increase in the rate of climate change, the annualized loss expectancy of an event would also increase. But the study demonstrates with hard numbers and firm data that
changes in the climate will produce definitive effects on local economies. Canadian municipalities are working hard to adapt to climate change. City officials are well-aware that adapting means improving infrastructure to make it more resilient to the heavier rains, stronger winds and higher temperatures the country is facing. Municipal leaders say they need cooperation and funding from provincial and federal governments to prepare. They cannot go it alone. Municipalities need provincial and federal support to provide the much-needed funding to fix their sewer and stormwater systems. To make their case for infrastructure dollars, municipalities need research and up-to-date data about how the increase in severe weather is affecting them. The information provided in the study is the kind of data that city officials say they need to build their case for adapting now. Like any preventive measure, it is difficult to quantify the value in doing so — but this study begins that important discussion. Of course, insurers have a vested interest in helping cities adapt. Improvements that cities make will reduce the number of claims that insurers will face in the years going forward to 2040. Over the past few months, as insurance professionals follow news out of the Paris climate conference, it has been easy to feel overwhelmed by the sheer enormity of the problem. The problem of climate change is big and incredibly complex. But it is only through pragmatic and incremental efforts that decision-makers will acquire the knowledge and data necessary to support the changes they need to make.
January 2016 Canadian Underwriter 39
Douglas D. Everett
President, IIC Services and CHES Special Risks
Commercial general liability insurance was never intended to cover damages caused by faulty workmanship. Although this principle has been upheld by some courts in the United States, the 2010 Progressive Homes ruling will likely prompt CGL insurers to re-evaluate decisions to deny their duty to defend. In Canada, there is no standard wording for a commercial general liability (CGL) policy. Most are based on Insurance Bureau of Canada (IBC)’s revised CGL, which is intended to cover property damage as a result of an accident, but was never anticipated to cover inferior workmanship on the part of construction contractors. Contra proferentem (Latin: “against [the] offeror”), also known as “interpretation against the draftsman”, is a doctrine of contractual interpretation. It provides that — where a prom-
40 Canadian Underwriter January 2016
ise, agreement or term is ambiguous — the preferred meaning should be the one that works against the interests of the party who drafted the contract. In 2010, the Supreme Court of Canada ruled that when the policy language is ambiguous, a court “should prefer interpretations that are consistent with the reasonable expectations of the parties.....so long as such an interpretation can be supported by the text of the policy.” Where general rules of contract construction “fail to resolve the ambiguity, courts will construe the policy contra proferentem — against the insurer,” wrote Justice Marshall Rothstein on behalf of Canada’s highest court, in its decision against Lombard Insurance Company of Canada. Progressive Homes was successful in obtaining a court ruling that Lombard Insurance had a duty to defend Progressive in a lawsuit by the British Columbia Housing Commission.
DUTY TO DEFEND As a result of the Progressive Homes v. Lombard decision, the nature and extent of the claims made in court pleadings — in an action against a contractor or subcontractor — will be of utmost importance in triggering an insurer’s duty to defend under a CGL policy.
Illustration by Lars Rudebjer threeinabox.com
Faulty Powers
Illustration by Lars Rudebjer threeinabox.com
When faced with a claim under a CGL policy, an insurer needs to consider the Progressive Homes ruling — and what the Supreme Court of Canada ruled on an insurer’s duty to defend a liability claim — when deciding whether or not to deny a claim. Insurers have relied on the following proviso in their insuring agreement: “However, we will have no duty to defend the insured against any action to which this insurance does not apply.” Essentially, the contra proferentem rule stipulates that if the wording in a policy is vague, the court is going to rule against the party who drafted the contract. That is not supposed to be the case if the intent of the wording is clear.
REASONABLE EXPECTATIONS A recent ruling by Ontario’s Superior Court of Justice in a disputed home insurance claim, raises doubts as to whether Canadian courts will take into account the intent of policy wording. In the decision, in Choukair vs Allstate Canada, the court awarded damages to the insured, which resulted from increased costs associated with Ontario’s Building Code. This despite the fact that the policy excluded “losses or increased costs of repair or cost of improving or upgrading dwellings or structures due to the operation of any by-law regulating the zoning, demolition, repair or construction of buildings and their related services.” The City of Ottawa had adopted the provincial Building Code, by reference, in its municipal bylaw, to ensure that building permits conform to the Building Code. Most insurers would agree on the intent of the exclusion that was an issue in this claim. The direction from the Progressive Homes ruling, that courts “should prefer interpretations that are consistent with the reasonable expectations of the parties,” seems to have been overlooked in the Choukair case. The expectation of the insurer was disregarded completely. So where does that leave an insurer when the language of the policy is vague in some way?
Consider the complex issue of faulty workmanship and the CGL policy. An article published in Randy Maniloff’s Coverages Opinions newsletter, May 8, 2013 and updated in July 2015, listed 66 cases in various state courts in the United States relating to faulty workmanship and the CGL. Of these, in 31 decisions based on the specific facts of each case, the court found failure to perform — or faulty workmanship — is not covered under the CGL policy. Maniloff also referenced 19 U.S. Federal Court decisions on this issue. Of those, there were 11 judgments in which the court ruled that faulty workmanship was not covered by the CGL. That represents a large shift from just two years ago.
The courts in the U.S. have had difficulty finding the results of poor or faulty workmanship can fall into the definition of an accident, because if a job is done poorly, it is likely that something bad may happen. However, there remains a distinct difference in how courts in Canada and the U.S. consider the interpretation of the exclusions relating to faulty workmanship.
DEFINING ACCIDENT There are no exact “standard” CGL wordings in Canada. However, the majority find their origins in IBC’s CGL wording, updated in 2005. For coverage to be considered, it must cause property damage and/or bodily injury resulting from an occurrence and subject to the exclusions and conditions and occurring in the coverage territory. Occurrence is defined as “an accident, including continuous or repeated exposure to substantially the same gen-
eral harmful conditions giving rise to one or more claims.” Many CGL policies do not provide a definition of the word accident and, therefore, courts typically look for the meaning of the word elsewhere. Here are a few examples taken from various court rulings in the U.S. • the requirement of a fortuitous loss is a necessary element of insurance policies based on either an “accident” or “occurrence;” • accident usually is interpreted to mean an “undesigned, sudden and unexpected event;” and • an accident is “an event or condition occurring by chance or arising from unknown or remote causes.” The courts in the U.S. have had difficulty finding the results of poor or faulty workmanship can fall into the definition of an accident, because if a job is done poorly, it is likely that something bad may happen. Many courts have stated that by granting coverage for faulty workmanship, an insurer could be covering a business risk, and this may work against the public good.
AMBIGUOUS POLICY WORDING In Canada, as demonstrated by the Supreme Court of Canada decision in Progressive Homes v. Lombard, the court saw the fault laid in the unclear policy wording — that when in doubt, the victim must be compensated. At least in this case, there was sufficient evidence that Lombard must defend the allegation. Progressive Homes had been sued by the B.C. Housing Commission, which alleged that four condominium developments had water damage due to defects. A B.C. court ruled in 2007 that Lombard did not owe a duty to defend Progressive Homes under its CGL policy. That ruling was upheld on appeal but overturned by the Supreme Court of Canada, in its decision released in September 2010. In Progressive Homes, the high court ruled that “whether defective workmanship is an accident is necessarily a case-specific determination.” That de-
January 2016 Canadian Underwriter 41
termination “will depend both on the circumstances of the defective workmanship alleged in the pleadings and the way in which ‘accident’ is defined in the policy,” Justice Rothstein wrote, adding he “cannot agree with Lombard’s view that faulty workmanship is never an accident.” There is “no impediment to concluding” that defective workmanship is an accident, “unless, of course, it is not supported by the specific language of the policy.” The court disagreed with the conclusion, of B.C.’s appeal court, “that such an interpretation offends the assumption that insurance provides for fortuitous contingent risk,” the ruling states. “Fortuity is built into the definition of ‘accident’ itself as the insured is required to show that the damage was ‘neither expected nor intended from the standpoint of the Insured,’” Justice Rothstein wrote. Canada’s highest court was also “not persuaded by Lombard’s argument that equating faulty workmanship to an accident will convert CGL policies into performance bonds.” Quoting case history, Justice Rothstein noted that a performance bond “ensures that a work is brought to completion...whereas the CGL policies in this case only cover damage to the insured’s own work once completed.” With the definition of accident accepted by the Supreme Court of Canada, 42 Canadian Underwriter January 2016
the accident need not be a sudden event. An accident can result from continuous or repeated exposure to conditions. The pleadings made by the B.C. Housing Commission sufficiently allege an “accident”. There is no reference to intentional conduct by Progressive Homes. This would suggest that the property damage was expected or intended. The pleadings allege negligence. On its face, that allegation suggests that the damage was fortuitous. In addition, it is clear from the pleadings that the damage alleged is the result of “continuous or repeated exposure to conditions”, which squarely fits within the definition. A number of Canadian law firms have expressed concerns over a possible change in direction in interpreting this issue under the CGL. A trial would determine what is actually covered or excluded with respect to damages. Coverage itself may or may not apply. The key point is that now there is an opening for defective workmanship to trigger a defense under general liability insurance, where it has not done so before.
RESULTING DAMAGE There is no doubt that the decision of the Supreme Court of Canada will affect or has the potential to affect the landscape in commercial general liability. The supreme court found, in this case,
that there is a possibility of insurance coverage (under a CGL) for defects in an insured’s own work. The Court also found there is clearly the possibility of coverage for resulting damage. If there are any conclusions to be drawn following the release of this decision, they are as follows: (1) the wording of the applicable CGL policy is key in determining the possibility of coverage and, consequently, an insurer’s duty to defend; and (2) the nature and extent of the claims made in a court pleadings in an action against a contractor or subcontractor will be of utmost importance in triggering an insurer’s duty to defend under a CGL policy. They will also be highly suggestive of the extent of an insurer’s obligation to indemnify its insured. The practical result of this case will likely be a re-evaluation of decisions by CGL insurers to deny coverage for claims. Going forward, it is anticipated that this decision will cause insured parties to carefully reconsider the wording of their policies, to determine if coverage may be available in circumstances where it may have been previously denied. In Canada, it appears that this issue has been resolved, at least in relation to the insurers’ obligation to defend. However, as in many disputed casualty claims, it costs the insurer money, if even the insurer is right.
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Interruption C laims Factors affecting business interruption (BI) claims in Canada include the continued move towards just-in-time inventory delivery, lower commodity prices and risk-specific policies placed by brokers. The frequency of BI claims in Canada was consistent with experience in other countries, though in Canada in recent years, about 50% of BI claims originated from natural events.
Bernard McNulty
Head of Claims — Canada, Allianz Global Corporate & Specialty (AGCS) Americas
While business interruption (BI) losses in some Canadian resource sectors were lower in 2015, there was an overall increase in BI and contingent business interruption (CBI) in 2015. The claims experience of Allianz Global Corporate & Specialty Canada is consistent with AGCS’s global offices. Large and complex BI and CBI claims continued to increase in both value and frequency through 2015. Of these, the size and frequency of CBI losses increased most dramatically. CBI losses take place when an insured’s customer or supplier suffers a direct loss resulting in its inability to supply the policyholder with products or services. This, in turn, generates an insured loss for the client. Modern just-in-time (JIT) inventory strategies — employed by companies to increase efficiency and decrease waste by receiving goods only as they are needed in the production or supply process — has contributed to the increase in CBI losses. Further, large “volume buy” customers are often no longer willing to wait for inventory levels to be stabilized following a loss and the frequency of these customers being permanently lost has increased.
44 Canadian Underwriter January 2016
Perhaps another reason for the statistical increase in both direct BI and CBI claims is greater sophistication, experience and diligence on the part of brokers. Brokers tend to understand the risks a large commercial client is exposed to and carefully place a full coverage solution for the client. As such, there are fewer discrepancies between the reported and actual revenue streams. With an increased accuracy in reporting values, there are now far fewer applications of coinsurance when adjusting BI claims. There has recently been a greater emphasis on broker manuscript or risk-specific policies placed by brokers to better reflect the unique exposures, including BI and CBI risk.
DISASTER RECOVERY The only exceptions to the size and frequency of BI and CBI losses experienced by AGCS in 2015 were in the commodity sectors, such as oil & gas and mining. In those sectors, lower global commodity prices in 2015 lowered the overall frequency and size of these claims. In many cases, even if there
were smaller incidents, they fell within large retention structures or deductibles for these clients. In Canada, AGCS also experienced a greater frequency and severity of “extra expense” claims in 2015 as businesses proactively minimized BI losses through alternate sourcing and production capabilities. Extra expense coverage responds to labour costs to add extra production shifts, extra shipping costs to transport product from alternate facilities and various other extra charges incurred by clients to mitigate or eliminate BI claims. In many cases, a client with a detailed disaster recovery or contingency plan can eliminate a BI claim completely while incurring a comparatively modest extra expense claim. From a claims perspective, there tend to be key coverage extensions included in policies — such as the “selling price” clause — which can limit or eliminate a BI claim. The significance and impact of the global supply chain first became clear in Canada following the tsunami in Japan in March 2011. Following that event, numerous Canadian manufacturers who depend on components made in Japan were affected. These businesses — as well as Canadian wholesalers and retailers of everything from electronics to automobiles — also suffered CBI losses. These CBI losses were measured and adjusted for the period it took to regain normal operations and, in many cases, for the entire policy indemnity period. From that event, many businesses developed much broader supply networks to spread the risks of losing component parts from any one country or any one regional in the world going forward. Across Canada, the origin of BI claims differs to some extent from the global experience. From the 2013 floods in Alberta and Ontario, to the 2014 ice storm in the Greater Toronto Area and the 2015 snow load losses in Atlantic Canada, BI claims originating from natural sources represented close to 50% of these claims while BI claims originating from technical or human factors represent the other 50%.
For Allianz, the top causes of BI losses in Canada over $10,000 that were not caused by natural events were as follows: fire and explosion at 41%; mechanical breakdown at 16%; delayed start-up (DSU) at 13%; collapse (structural, racking or other) at 9%; faulty design/defect at 7%; vehicle or other impact at 6%; vandalism at 3%; cast loss (entertainment) at 3%; and power interruption at 2%. In Canada, both the oil & gas and mining sectors have large interdependencies with pipeline and rail companies. Although these companies incurred losses in the past, they performed very well in 2015 and were relatively loss free. The entertainment sector in Canada was also largely loss free in 2015. Although some cast claims were submitted, production companies worked
In Canada, cyber claims that result in BI losses are still infrequent and the insurance coverage products that will respond to these losses are still being refined. very effectively to minimize these losses and assisted their cast member(s) to resume work as quickly as possible. The frequency of “set” losses resulting in BI also declined in 2015 as production companies continued to emphasize strong risk management protocols.
INTERCONNECTIVITY Looking ahead, aside from the perils of data breaches and regulatory fines, businesses need to consider the BI of cyber complications. This exposure is sometimes underestimated by management and will become clearer in the future, especially with greater interconnectivity of systems in everyday life and business operations. In Canada, cyber claims that result in BI losses are still infrequent and the insurance coverage products that will re-
spond to these losses are still being refined. Within the next five to 10 years, BI will be seen as a key risk and a major part of the cyber insurance landscape. Today, many companies are concentrating on managing and controlling cyber risks within their own organization. However, they will increasingly look to extend insurance cover to their supply chains as business exchanges with partners are increasingly being conducted over information technology (IT) networks. Even if a company is confident in its own IT controls, it is still exposed to cyber risk through its business partners, contractors and supply chains and the level of sophistication and risk management of those business partners varies significantly. Policyholders need to be clear in their understanding of the effect that cyber incidents could have on their supply chains. They need to understand the following: the implications if they cannot deliver their products in time or if they lose customer data; laws in any jurisdiction that might apply; and the cost if hiring lawyers and IT experts. Continued high levels of BI are also expected to occur in the heavy manufacturing, power generation and chemical sectors. Those types of operations are incorporating more complex, interconnected supply chains, production or output commitments and reciprocal service commitments. The current climate of lower commodity prices in Canada compresses margins and will continue to strain these complex channels. In Canada, there is a greater emphasis on predictive modelling to identify areas of potential failures and the subsequent impact to all parties. Carefully considered contingency plans now include in-depth analysis of even the most remote eventualities. Despite all these measures, losses will continue to occur and insurance products will respond. In order to navigate through business interruptions, insurance providers should listen to clients’ needs at the starting point — and work with clients to ensure that losses are investigated and settled quickly. January 2016 Canadian Underwriter 45
Putting the pieces together.
Events and Seminars Calendar You work hard to protect your clients’ property. Now, it’s time to ensure that you apply the same kind of energy and commitment to your own success. CIP Society Events and Seminars give you the opportunity to learn, to network, to catch up on industry developments and to think about your career.
CIP Society Events & PROedge Seminars
Professional Development Curriculum
Webinar – Inside an Errors & Omissions Claim........................................................January 28 Ottawa – PROedge: Managing Customer Loyalty .................................................January 28 Edmonton – PROedge: Social Media Risk ...................................................................February 3 Markham – PROedge: Advanced Investigation of Slips, Trips & Falls .........February 4 Ajax – PROedge: Social Media Risk ..................................................................................February 5 Ajax – Industry Trends & Predictions 2016 .................................................................February 25 Toronto – Symposium 2016................................................................................................April 21
Vancouver – Think on Your Feet®.............................April 12-13 Vancouver – Building Better Relationships .......April 14 Conestoga – Think on Your Feet® ............................May 3-4 Calgary – Think on Your Feet®....................................May 10-11 Calgary – Building Better Relationship.................May 12 Toronto – Essential Management Skills ...............May 17-19 Edmonton - Essential Management Skills..........June 7-9
Keeping you at the forefront of the P&C industry. The CIP Society. MEMBERS BENEFIT. www.insuranceinstitute.ca/cipsociety
Jaclyn Webster
Claims Business Support Specialist, Northbridge Insurance
A lack of centralized reporting makes it difficult to understand the scale and scope of cargo theft in Canada. However, existing data indicates some types of cargo — and even certain days of the week — are riskier than others. Transport trucks often haul more than $200,000 worth of cargo. Commodities such as food and beverages, home and garden supplies, electronics and auto parts are at risk of theft. Although the frequency of cargo theft claims is increasing in Canada, there has been an improvement in how quickly information about the problem is being communicated. Cargo theft in Canada continues to be a serious issue that costs the economy approximately $5 billion a year, notes research from the Canadian Trucking Alliance (CTA). Over the past
decade, cargo crime has evolved from a crime of opportunity to a more sophisticated and targeted crime perpetuated by large-scale criminal enterprises. This evolution has had a broader impact on society as organized criminals have distribution networks that quickly move goods to a black market economy. This helps fund criminal and terrorist organizations that engage in the trade of narcotics and illegal firearms, among other activities. With the high value of goods being transported, cargo theft is a low-risk crime with a high reward. Some cargo theft gangs travel from city to city in order to follow loads. Some even hire commercial drivers to help with their efforts. Freightwatch International has reported an increase in the use of fake drivers and identification since 2011. Unfortunately, a lack of centralized reporting for this type of crime has made it difficult to understand its scale and scope. With the launch of the National Cargo Theft Reporting Program — a collaborative effort among Insurance January 2016 Canadian Underwriter 47
Illustration by Lars Rudebjer threeinabox.com
Cargo Theft
insBlogs
Bureau of Canada (IBC), CTA, insurance claims since they peaked in 2008. Over carriers and law enforcement agen- the past five years, the average claim cies — there has been a push for greater amount has fluctuated, with a slight inawareness of the risks of cargo crime and crease, in 2014, to nearly $30,000. better data collection. The result has been This increase can be attributed both to quicker reporting, investigation and re- an increase in the value of goods being covery of property returned to victims. transported, and to better targeting by soInformation from IBC members phisticated criminals for specific types of shows the frequency of cargo theft cargo. A transport truck will often be haulclaims is increasing. Northbridge In- ing between $200,000 and $250,000 of Blogs hosted by Canadian surance has Insurance seen a downward trend in Underwriter cargo. However, settlement criteria, car-
insBlogs
Recent Blog Posts Featured on
riage agreements and high deductibles result in lower settlement amounts. Transportation firms can improve cargo security through measures such as identifying cargo theft hot zones and routes. The riskiest provinces are Quebec and Ontario. Cargo theft activity also spikes on certain days of the week, with a majority of cargo loss incidents happening between Friday and Monday. Ten years of Northbridge Insurance claims show that Monday has historically been the most popular day for cargo criminals to strike, with thefts almost 40% higher
insBlogs.com
Insurance Blogs hosted by Canadian Underwriter Is the Personality of Insurance Changing? by Christian Bieck – Jan 11
Ontario Moves Forward with Regulating the Towing Industry by Willie Handler – Jan 9
In 2016, Digital, Analytics, and Mother Earth will not be Ignored by Patrick Vice – Jan 7
Two ONCA decisions on property policy faulty workmanship exclusion, and limitation period for liability policy defence obligation by Michael Teitelbaum – Jan 4
The Risks of Digital Interconnectedness by Christian Bieck – Dec 28
ONCA addresses defence obligation of insurer of additional insured by Michael Teitelbaum – Dec 22
Another ONSC Judge Weighs in on PJI, Deductible by Daniel Strigberger – Dec 16
‘Taking the comprehensive’ off home insurance by Glenn McGillivray – Dec 16
Government Posts Proposed Changes to DRS Regulations by Willie Handler – Dec 9
Competition Bureau Supports Ride-Sharing Services by Willie Handler – Dec 8
Autopilot: Driver Education Disrupted by Andrew Lo – Dec 4
48 Canadian Underwriter January 2016
Across Canada, food and drink cargo make up more than a third of all thefts, due to the ease of reselling to merchants who may not be aware they are purchasing stolen goods. than on any other day of the week. Holiday weekends also see a dramatic spike in reports of cargo theft. The type of cargo also produces different risks, as some regions see higher rates of theft for specific goods, notes data compiled by FreightWatch International Supply Chain Intelligence Center. For example, the Greater Toronto Area is particularly vulnerable to theft of automobiles and parts.
Across Canada, food and drink cargo make up more than a third of all thefts, due to the ease of reselling to merchants who may not be aware they are purchasing stolen goods. Freightwatch International reports that the top three thefts, by product type, are food/drink, home/garden and electronics. Historic claims information and industry trends help to inform underwriting guidelines. Understanding the important variables, asking the right questions about cargo type and route, risk management practices and identifying trends help ensure that underwriters minimize losses for companies and customers alike. In underwriting cargo risk, insurance providers can ask simple questions about where the cargo is going, what the cargo is and the level of commitment they have towards safety and hazard management. Last year there was an improvement in how quickly information is being
BICKFORD KESEBI LLP 8 KING ST E
SUITE 710
Theft by Product Type Home / Garden 12%
Metals 6%
Food / Drinks 37%
Miscellaneous 6%
Pharmaceuticals 9%
Electronics 9%
Auto Alcohol Parts 6% 6%
Cosmetics / Personal Consumer Care 3% Care 3%
Building / Industrial 3%
Source: FreightWatch International Supply Chain Intelligence Center
communicated to the industry. IBC reports that in 2015, it issued more than 500 alert bulletins on cargo thefts, trucks and trailers, up from 239 in 2014. IBC notes its bulletins are now being sent across North America.
With more collaboration and communication between trucking companies, insurance companies and law enforcement, it is hoped that 2016 will bring with it even more awareness around the risks of cargo theft.
ADVOCATES ADVISORS PRAGMATISTS TO R O N TO , O N
W W W. B I C K F O R D K E S E B I . C O M January 2016 Canadian Underwriter 49
MOVES & VIEWS
UPCOMING EVENTS: FOR A COMPLETE LIST VISIT
www.canadianunderwriter.ca
AND CLICK ‘MY EVENTS CALENDAR’ ON THE HOME PAGE
1
AssessMed Inc., a provider of independent medical evaluation services, has welcomed Donald Kunkel [1a] as its new president, replacing Brian Sutherland. Kunkel was most recently executive vice president, for AssessMed. Also at AssessMed, Brigitte Kearney [1b] is the company’s new director of quality assurance and recruitment.
2
ACE Limited recently announced more leadership appointments in light of its acquisition of The Chubb Corporation, completed in January. Andy Hollenberg [2], most recently country (Canada) president for ACE Group, becomes regional chief operating officer. Within ACE’s business unit, Paul Johnstone, most recently senior vice president of Chubb Personal Insurance, Canada, will now lead Personal Risk Services; Ana Robic, most recently senior vice president of Chubb Commercial Insurance, Canada, will lead Commercial Insurance; and Bobbie Goldie, most recently vice president of professional risk for ACE in Canada, will head up Major Accounts. For ACE’s Professional Lines, Cameron Rose, most recently senior vice president of Chubb Specialty Insurance, Canada, will lead Professional Lines and support the Major 50 Canadian Underwriter January 2016
Accounts and Commercial Insurance divisions. Steve Lucas, most recently vice president of national account marketing for ACE in Canada, will lead Marketing and Business Development.
3
CARSTAR Automotive Canada Inc., a network of independently owned collision and glass centres, has been acquired by Driven Brands Inc. of Charlotte, North Carolina, which previously acquired CARSTAR’s operations in the United States. The Canadian operation of CARSTAR will remain under the current management, with Sam Mercanti [3a], chief executive officer of CARSTAR Canada, serving as chairman and Michael Macaluso [3b] continuing as president. CARSTAR Canada’s three staff members, Larry Jefferies, Lisa Mercanti-Ladd and Dennis Concordia, have decided ‘‘this was the right time for them personally to step aside in order to provide opportunities for the existing team to thrive,” Mercanti says.
4
Crawford & Company (Canada) Inc.’s Greg Smith [4a] and Gary Gardner [4b] have taken on new responsibilities. Smith, former senior vice president of key account management, is the company’s new senior vice president of administra-
1a
1b
4b
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tion, while Gardner, senior vice president of global client development, will oversee the key account management team and sales and marketing department. With 19 years of service at Crawford & Company Canada, Smith will oversee many of the claims management provider’s head office departments that support business operations across the country, including information and communication technology, human resources and administration services. Gardner, with the company for more than two decades, will use his extensive knowledge and insight of the independent adjusting and insurance industry, as well as his strong relationships with key clients, as part of his new duties.
5
Yvonne Steiner has taken on the role of Swiss Re Corporate Solutions’ head of property, Canada, succeeding Claudio Totino, who is retiring in 2016. Before joining Swiss Re in 2007, Steiner held various underwriting and global product specialist roles. She will now be based in Toronto.
6
The existing shareholders of Torontoheadquartered forensic engineering and sciences firm Giffin Koerth have bought Ron Koerth’s ownership interest in the company. The firm’s Board of Directors announced in mid-December that Koerth, the company’s co-founder and senior
MOVES & VIEWS MOVES & VIEWS
of Calgary; Gordon Adams; Robert Cartwright, Jr.; Al Gorski; Leslie Lamb; John Phelps; Michael Phillipus; Frederick Savage; and Lori Seidenberg.
3 2
9 8 positions have included general adjuster, branch manager, principal, has of relinquished vice president operations his role in the day-to-day and Lloyd’s Division leader. management and operations of the firm, but will continue to serve as a consultant. Macdonald Chisholm
6 7
Trask Insurance (MCT) Maeve Davisin[7] is announced early her join 25 years Januarybringing that it will propofcasualty insurance experierty and brokerage ence to Insurance Search BrokerLink. The terms of the Bureau of Canada, transaction were notwhich dissuppliesnotes source documents closed, a statement and retrieval services to the from BrokerLink. BrokerLink property and casualty claim companies, subsidiaries of industry. She will serve Intact Financial Corp., as ISB Canada’s vice include 84 officesnew serving president of clientCanada, services. clients in Atlantic
8
Alberta and Ontario. Dating Tarathan Morissette [8] back more 60 years, is Pario Engineering MCT has more than 110 inEnvironmental suranceand professionals in 18 Sciences’ new of offices. Michaeldirector Brien, who business development. Her has led MCT over the last 12 experience includes working years, joins BrokerLink as as a claims specialist and in head of its Atlantic operations.
5 3a
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Carolyn Snow [7] will a service management posilead RIMS as president tion at for a national insurance the 2014 term, services provider. 2011,1. which took effect In January she joined SCM Insurance Snow, who has been on the as business RIMS Boarddevelopment of Directors for manager for another company seven years, is currently diwithin organization. rector the of risk management for
9
Humana Inc. She previously J. Gallagher servedArthur as RIMS’s treasurer, has acquired British secretary and director of Columbia retail insurexternal affairs. The RIMS ance broker Christie-Phoenix board for 2014 also includes (Victoria) Ltd. and its affiliate vice president Richard Discovery Insurance Services Roberts, Jr.; treasurer Julie Ltd. Terms ofcorporate the transaction Pemberton; secrewere not disclosed. tary Nowell Seaman,Christiedirector Phoenix in of globalspecializes risk management for developing tailored programs Potash Corporation of for the commercial Saskatchewan Inc.;realty Gloria sector, as well as smalldirector Brosius; Steve Pottle, business insurance packages of risk management services and auto, home, marine and at York University; Jennifer travel coverage. its direcpart, Santiago; Janet For Stein, Discovery productsand tor of risk offers management across similar classes of insurance at the University
8
As of January 8, Toronto insurance bro3b ker Jones DesLauriers Insurance Management Inc. (JDIMI) had acquired Whitley Insurance and Financial Services. Whitley Insurance has offices in Belleville, Ontario and the nearby communities of Trenton, Deseronto and Stirling. “The acquisition is expected to build a solid presence for JDIMI in Eastern 10a and position the firm Ontario to better service their clients, business, specializing in with strengthened commerpersonal lines insurance. cial and personal insurance Chris Flintin[9], offerings the managing region and a partner of Christie Phoenix, new financial services diviand his associates will from sion,” notes a statement continue to operate inCEO their JDIMI. President and current locations.will lead the Shawn DeSantis
10
teams from both companies. Loris ClarkeMurray [8] hasWallace been [10a] and Brian named successor to Paul Reeve [10b] have Whitley, president of Whitley been appointed to Echelon Insurance, who will remain Financial Holdings period. Inc.’s during a transition Board of Directors, subject to regulatory approval. Currently chairman Kenexecutive Rayner [9] has of Financial joinedHorizons AndersonGroup, WallaceMcTague is a director of both & Associates the Canada Pension Plan Ltd. as its director of busiInvestment Board and Axia ness development, Central NetMedia Corporation. Reeve Region. “Ken brings a wealth is partner and chair of the of experience to our comCorporate andheld Regulatory pany, having various Insurance Group of Cassels senior management positions Brock & Blackwell LLP.MGAs,” with insurers and other
9
says Chuck McTague, president of Anderson McTague & Associates, a familyowned MGA based in New Brunswick. In January, Anderson McTague & Associates announced it was expanding, adding an office in Toronto to service the brokers of Ontario and Manitoba. Rayner’s appointment confirms the 4a company’s “commitment to the Ontario/Manitoba marketplace, and to the building of a local support team to assist brokers with their surplus lines and difficult to place business,” McTague adds.
10
The Guarantee Company of North America has announced that Tara SCM Risk vice Wishart [10] became Management president of claims for the Services (RMS) insurer’s Toronto branch on has launched a Canadian December 2, 2013. Having solution 21 yearsfor of property experience in The inspection Guarantee’sreplacement claims cost valuations. Called department, Wishart will be rmsPrecise, thethe property responsible for operations replacement inspection of the Torontocost Branch Claims. valuation tool is designed to She first joined The Guaranbe responsive to the detail tee in 1995 as an adjuster and and customization has held roles of of specific increasand unique features a ing seniority with the of combuilding capturedmost during the pany, including, inspection process, thereby recently, claims manager for helping accurately gather specialtytolines. Wishart is a the diverse characteristics member of both the Suretyon expected loss costs. The tool Association of Canada and is imbedded in RMS’s resithe Canadian Association of dential process. Women inspection in Construction.
10b
11
Follow @CdnUnderwriter on http://twitter.com/CdnUnderwriter
January 2016 Canadian Underwriter
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February 2014 Canadian Underwriter
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GALLERY
The Registered Insurance Brokers of Ontario (RIBO) returned to the Arcadian Loft in downtown Toronto for its 2015 Annual General Meeting (AGM), held November 6. Guests had a chance to meet with old friends and enjoy an outstanding meal before the meeting. Beth Pearson, immediate past RIBO president and now chairman, discussed the changing times, data breaches and broker responsibilities to ensure they fulfill their responsibility to safeguard client information. She also provided RIBO’s heart-felt thanks to association chief executive officer, Jeff Bear, who retired at end of 2015. Patrick Ballantyne has been appointed to succeed Bear as RIBO general manager and CEO.
52 Canadian Underwriter January 2016
GALLERY
GALLERY
The 60th Annual Black Tie Dinner of the Toronto Insurance Conference (TIC) was held November 3 at the Four Seasons Hotel in downtown Toronto. The event was attended by 300 people who enjoyed hearing the views of guest speaker, the Honourable Bob Rae, 21st Premier of Ontario, former leader of the Liberal Party Of Canada, lawyer, mediator, speaker and writer. Rae was elected 11 times to the House of Commons or the Ontario legislature between 1978 and 2013. He served as Ontario Premier from 1990 to 1995, and served as interim leader of the Liberal Party of Canada from 2011 to 2013.
54 Canadian Underwriter January 2016
GALLERY
‌Continued on page 56 January 2016 Canadian Underwriter
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GALLERY ‌Continued from page 55. The 60th Annual Black Tie Dinner of the Toronto Insurance Conference (TIC) was held November 3 at the Four Seasons Hotel in downtown Toronto.
56 Canadian Underwriter January 2016
GALLERY
January 2016 Canadian Underwriter
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GALLERY
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Completely Updated for 2016- over 10,000 changes!
WICC Ontario Chapter held its Annual Breakfast for Cancer at the Fairmont Royal York in Toronto on November 12. More than 440 insurance industry supporters attended the event. Sharing their inspirational story were guest speakers Dr. Christine Maheu and Claudia Hernandez. Dr. Maheu’s research interests include cancer survivorship intervention research, as well as the psychosocial and behavioural impacts of breast/ovarian cancer and of being at risk of inherited cancers. Hernandez lived first-hand the experience of cancer treatment and rehabilitation for breast cancer and is up-to-date on current research regarding cancer rehabilitation and promoting exercise as a crucial part of cancer treatment.
GALLERY
The Property Loss Restoration Expo (PLR Expo) once again held Canada’s largest restoration conference in Toronto at the International Plaza Hotel on November 16 to 18. The event featured a tradeshow, informative sessions and workshops, keynote speakers and ample opportunity for networking. More than 60 exhibitors filled the exhibit hall and the tradeshow floor bustled with delegates from across Canada. Described as the “Saturday Night Live for Business,” attendees were also delighted to hear motivational speakers Tim and Kris O’Shea.
January 2016 Canadian Underwriter
59
GALLERY
SCOR held its annual cocktail celebration of the Beaujolais Nouveau Wines release on November 19 at Stratus Restaurant in Toronto. While enjoying the company of industry colleagues, guests sampled both a selection of the 2015 Beaujolais Nouveau wines and gourmet offerings prepared by the Stratus.
Your Insurance News Source .ca Sign-Up at http://bit.ly/cuenews to receive Canadian Underwriter’s free DAILY e-Newsletter each morning – containing all of the latest industry news, press releases, blogs, events, careers and more.
60 Canadian Underwriter January 2016
GALLERY
Sovereign General Insurance hosted a “Fall Cocktail” reception on November 19 at Victor Restaurant within Toronto’s Hotel Le Germain. Guests were treated to fine cocktails and cuisine while enjoying an evening of networking.
January 2016 Canadian Underwriter
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GALLERY
PLUS (Professional Liability Underwriting Society) held its Winter Mixer at Joey Restaurant in downtown Toronto on November 19. Wintery weather was nowhere to be seen, however, as attendees mixed, mingled and enjoyed fine fare with accompanying cocktails.
62 Canadian Underwriter January 2016
Masked – 20 Years Uncovering a Cure Wednesday, April 6, 2016 Westin Harbour Castle 1 Harbour Square Toronto,ON M5J 1A6
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29237_full pg.indd 1
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ACE and Chubb are now one. On January 14, 2016, ACE Limited acquired The Chubb Corporation, creating a global insurance leader operating in 54 countries under the renowned Chubb name. The new company combines Chubb’s 130 years of underwriting insights and devotion to customer service with ACE’s three decades of technical underwriting excellence, broad risk appetite and global presence. Our goal is to provide the very best insurance coverage and service to individuals and families and businesses of all sizes — from small and mediumsized companies to the largest multinational corporations — all across the globe. As the world’s largest publicly traded property and casualty insurer, the new Chubb has the balance sheet strength and financial security of an AA rating from Standard & Poor’s and an A++ rating from A.M. Best. As craftsmen of insurance, we are devoted to meticulously conceiving, crafting and delivering extraordinary coverage to meet the needs of the modern world — a world that is epic in scale but by nature both personal and connected. To find out more, go to new.chubb.com.
Chubb. Insured.
SM
© 2016 Chubb. Coverages underwritten by one or more subsidiary companies. Not all coverages available in all jurisdictions. ACE®, Chubb®, their respective logos, and Chubb. Insured.SM are registered trademarks.