Canadian Underwriter

RIMS Canada Conference

January 18, 2017   by Jacqueline Louie

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In today’s world, the pace of change is astounding; yet the challenges can also be opportunities. That was the focus at Resilience 2016, the 42nd annual RIMS Canada Conference, held in Calgary in September. Here’s what some of the speakers had to say on the theme of resilience.

Resilient Youth

Resilience for millennials is about retaining what’s essential while being elastic enough to change, according to Max Valiquette, an innovation and trend expert and a marketing and brand strategist.

Millennials expect disruption in every category, and they’re helping to remake every aspect of society, including the workplace.

“They’re the generation to focus on, especially at work,” Valiquette says. “It’s a generation that has more influence on the generations around them than any other in history.”

The millennials are a bigger group than Generation X, and they have a greater impact on their parents, the baby boomers, than their parents have on them, he explains. There’s no other cohort of young people as large coming up behind them to replace them, so millennials will continue to have a large impact over time.

Tech-savvy millennials are online daily (94% in this age group), and they’re leading the charge on social media activity. They’re also transforming physical spaces everywhere, Valiquette says, pointing to offices that look more like social spaces, with shared areas and breakout rooms, all driven by millennials’ tastes and preferences.

Consumer-led innovation is now feeding into the workplace, especially for millennials. “You’re being measured against everything else in their lives they know and love—you’re not just being measured against other offices or places to work,” he notes.

Millennials are seen as optimistic and ambitious, and the generation that follows, Gen Z, is equally optimistic, says Valiquette, who believes that unlimited technology and the accompanying sense that you can do more are leading to a cult of entrepreneurialism, with a lot of young people aspiring to be rock-star entrepreneurs like Facebook CEO Mark Zuckerberg.

Studies have found that millennials are a “true entrepreneur generation.” Fewer young people prize climbing the corporate ladder, and more want to start their own businesses.

“Entrepreneurs can also be intrapreneurs—behaving like an entrepreneur while working within a large organization. And the more people say they want to be entrepreneurs, the more important it is to foster and cultivate this at more traditional workplaces,” says Valiquette, who thinks companies can attract the best and brightest millennials with formal intrapreneurship programs.

“Soon, this might be table stakes. This can be a great way for employees to develop more skills, and it can be helpful for employee retention.”

A company’s brand is also important. “Attracting and retaining millennials as customers has a lot to do with attracting and retaining them as employees,” says Valiquette, who sees HR and marketing coming together and believes that everything starts with brand purpose.

“People are searching for meaning and will become advocates for brands,” he explains. “Your brand is a critical element of your human resources strategy. Nothing matters more to millennials and to Generation Z than a relationship with their workplace. Millennials want to be able to celebrate where they work.”

For resilient companies, connecting with millennials as customers, and also as current or potential employees, means having some of that elasticity themselves, he adds, in order to attract the best and brightest to their teams.

Never Let a Good Crisis Go to Waste

Some companies are able to make it through a crisis and not just survive but thrive. How do they do it?

“Don’t sell your coverage short, because you may need it,” says Tom Parsons, risk manager for FRHI Hotels & Resorts. “Be prepared to look at your policy and work with your brokers and underwriters to get to an agreement on a policy.”

All too often, when a crisis happens and a company suffers disastrous losses, people see it as a negative. They go into recovery mode, trying to save the business instead of looking for opportunities to improve it.

To come out of a crisis better than you were before, it’s important to know your policy. “Know what’s covered and what isn’t covered,” advises Bob Plenderleith, PwC vice-president of valuations, modelling and disputes.

Jeff Phillips, PwC U.S. managing director, advisory, explains: “Your insurance coverage is there to help you through a crisis, and if you know your coverage very well, you can get the most benefit from your policy to improve your business.”

According to Phillips, there are ways to approach a recovery that can be beneficial to both the insured and the insurance company, in that the insured will end up in a better position than before, and the insurance company will save both time and money.

To this end, it’s important to have a cross-functional claims team across all parts of the business. “If everybody is working together and looking at it as an opportunity to improve the business, the overall outcome will be much better,” Phillips says.

Adds Plenderleith: “You need to be creative and think about opportunities that support your business within the loss scenario. The whole point is, don’t let a good crisis go to waste. You have a contract in place with an insurance company, and you’re using that contract to help you get through it. You might as well use everything under that agreement you have in place, with all the benefits you’ve paid for, to come out of that crisis in the best position possible. And if you can benefit in some way, so that things are better than they were before, that would be ideal.”

Treacherous Waters: Negotiating Wordings and Coverage

John Nicholl, a partner with Clyde & Co. Canada LLP, says that brokers’ manuscript wordings are a bit like youngsters taking apart a watch and then trying to put it back together again—it’s not as easy as it looks.

“Drafting wordings is highly specialized. The results can be alarmingly drastic if someone gets it wrong,” says Nicholl on the role of a broker’s manuscript wordings and customized endorsements in policy interpretation.

Manuscript wordings and customized endorsements can bring benefits, but they also come with significant risks, since they won’t necessarily be interpreted in favour of the insured.

In recent years, courts have moved towards interpreting all contracts within the context of the “factual matrix” in which they’re negotiated. While this typically won’t affect the interpretation of standard form wordings, it has major implications for many commercial insurance policies.

“The process of tailoring and negotiating manuscript wordings becomes more important if you end up having to litigate over coverage,” Nicholl says. “If you’re going to customize wordings, you need to know who is acting for whom. For example, is the broker acting for you or for the insurer, or both? That responsibility for the drafting can have consequences later on, because if there is an ambiguity in the manuscript wording, then a court might not interpret it as it would normally, contra proferentem, against they who stipulate— against the insurer.”

If you’re planning to manuscript all or part of a wording and tailor it to the insured, “No. 1, you’ve got to be careful the manuscript fits with the rest of the wording,” Nicholl says. “No. 2, you’ve got to be particularly conscious that everything you say and do that leads up to the deal may go into evidence if there’s a coverage dispute—because the courts will look at the factual matrix as an aid to interpreting the policy. If it involves a large general liability insurance policy, where there could be many endorsements and long periods of negotiation involving a broker leading up to a deal, then the factual matrix could be very complex. And the more complicated it gets, the less certain the outcome is.”

With manuscript wordings, it’s very important to keep your documentation for as long as you expect the coverage to extend, Nicholl says. “You need to keep the history of negotiations—because they are what’s going to allow you to preserve your entitlement to coverage, and, in the long-tail, business that can be a very long time.”

Exercise communications discipline, “because if evidence goes in, in order to allow the court to interpret what the deal was, it’s going to include all communications— your emails, your notes and your memos to your CFO. You need to think, as you’re doing the deal, about how you’re expressing it. Because if you’re sloppy about it, then there’s a risk the court will misunderstand what the deal was.”

For his part, Lawrence Theall, a partner at Theall Group LLP, agrees that the communications in the course of negotiations will likely have a significant influence on how a court interprets a policy.

“It’s important when you’re drafting those emails, and when you’re talking about coverage negotiations to be precise, and to close the loop to confirm the other party’s agreement or acknowledgement,” he says.

Since the RIMS Canada Conference, the Supreme Court of Canada has rendered its decision in Ledcor Construction, confirming that different appellate standards of review now apply to manuscript, as opposed to boilerplate, wording.

Doing Business South of the 49th

The most important thing to know about doing business in the U.S. is that insurance culture is different south of the border than it is in Canada.

That’s according to Pamela Hans, managing partner of the Philadelphia office of Anderson Kill, Attorneys and Counselors at Law. “It’s a litigious culture,” says Hans.

Recently, there have been two important developments in the U.S. for policyholders, with respect to coverage for continuous injury and environmental liabilities.

The first, from May of this year, is the case of Viking Pump, which addressed the following issues: first, allocation as between insurance policies that are triggered by continuous damage; and second, whether vertical or horizontal exhaustion of limits is required to trigger excess coverage.

As to the first issue, the Viking Pump court applied “all sums” allocation. This holding turned, in part, on the policy language, which expressly did not restrict coverage to the limits of a single policy period in situations where loss happened over more than one policy period. Based on the policy language, the court found that pro rata allocation was not required.

As to the second issue—exhaustion— the court applied a vertical exhaustion rule. This enables policyholders to tap their excess insurance policies when the primary layer immediately below is exhausted.

A second recent development was an August decision by a New Jersey judge that a notice letter from the U.S. Environmental Protection Agency identifying a company as a potentially responsible party is now a “suit,” which triggers the insurer’s duty to defend under a commercial general liability policy. A Ninth Circuit (Federal appeals) court in California also reached the same conclusion in May.

Another development was a commercial general liability policy coverage case from 2014, Zurich American Insurance Co. versus Sony Corp. of America et al, regarding a data hack of Sony Corp.’s PlayStation online services. The New York trial court concluded that actions of a third party, in that case theft, did not trigger a duty to defend.

“Although the case was settled while appeal was pending, it remains an important decision in terms of cyber coverage.”

At renewal time, Hans recommends closely comparing policy language, particularly when it comes to cyber coverage.

“Court decisions and claims tend to drive policy language and changes in policy language. Particularly with cyber coverage, where the field is evolving so quickly, it may be that we see changes in policy language from year to year,” she notes. “So it’s very important that policyholders and brokers are mindful of that and carefully scrutinize policy forms, particularly cyber coverage, to identify any changes that insurance companies may have made from year to year. Because of an increasing number of cyber hacks, you’re seeing more and more claims and more and more policyholders wanting coverage for cyber liabilities.”

She also recommends watching the issue of additional insureds, which “is really important, because so many companies are asking to be additional insureds and are being asked to name counterparties as additional insureds. It’s very important to understand exactly how that additional insured coverage will work, given the language of the contract of the additional insured endorsement and in light of recent court developments such as Deepwater Horizon.”

Copyright © 2016 Transcontinental Media G.P. This article first appeared in the October 2016 edition of Canadian Insurance Top Broker magazine

This story was originally published by Canadian Insurance Top Broker.