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Telcom’s RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President & CEO Telcom Insurance Group 800.222.4664

Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

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Page 1: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Telcom’s RMC 2009 Boston MA

Telecommunications Operational Activities and the Resulting

Exposures they Create

Presented by Peter J. Elliott, CPCU, President & CEO

Telcom Insurance Group 800.222.4664

Page 2: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Seminar Topics

Insurance Basics and Definitions

Means to Exposure Analysis

Operational Exposures of a Telecommunications Provider and Coverage Analysis

Page 3: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Definitions

“Exposure” The state of being subject to the possibility of a loss.

Risk- Probability or threat of a damage, injury, liability, loss, or other negative occurrence, caused by external or internal vulnerabilities, and which may be neutralized through pre-mediated action.

“Risk Management” Analyzing all exposures to the possibility of loss and determining how to handle these exposures through such practices as avoiding the risk, retaining the risk, or transferring it, usually by insurance or another contract.

Page 4: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Definitions

“Insurance” A formal social device for reducing risk by transferring the risks to a third party known as an insurer. The insurer agrees, for a consideration, to assume, to a specific extent, the losses of the insured.

“Insurance” A Contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril.

"Insurance" comes from the Latin word for "Security". The word "Policy" comes from the Italian language meaning "Promise".

Page 5: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Definitions

“Liability” The state of being liable, that is legally responsible for an act or omission. “Legal liability” Responsibility imposed by law as opposed to liability arising from contracts or agreements. In law a legal liability is a situation in which a person is financially and legally responsible, such in situations of tort concerning property or reputation and, therefore, must pay compensation for any damage incurred; liability may be civil or criminal.

“Insurance law” Liability is often used to refer to blame worthiness that is used to apportion responsibility for repairing damage caused.

Page 6: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Quotes about Exposure Analysis

“Have you found Jesus yet, Gump?”

“I didn't know I was supposed to be looking for him, sir.”

“Stupid is as stupid does.”

“My momma always said, “Life was like a box of chocolates. You never know what you’re gonna get.”

Page 7: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Tools for Exposure Analysis

Physical Visits

Interviews with all Departments of the Organization

Financial Statements

Use of Checklist and Calculators

Personal Knowledge

Internet Searches

Page 8: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Tools for Exposure Analysis

Sample of a physical visit tool- a schematic flow of service(s) from starting point to end-user to find exposure.

Sales

Contract ReviewProvider

ISP ResellerAdvertise-ment Reviews

Equipment Sales Practices Review

Sales ContractReviews

delivery

Installation ReviewEquipment

Internet WarningsProtection

Customer Data Protection

Service Standards Service

Service VisitProcedures

Trainin

g Trainin

g

Trainin

gTrainin

g

Billing

Service Standards

Training

3rd PartyTermination

Process Review

Page 9: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Tools for Exposure Analysis

Worksheet ExampleInformation Technology Business Income Worksheet

This worksheet completed by:  Date  

FRAUD WARNING NOTICE LIST

Location 1 or all Locations Combined

Location 2 Location 2 Location 3 Location 3

Figures for year

Projection for year

Figures for year

Projection for year

Figures for year

Projection for year

ending ending ending ending ending ending        

GROSS REVENUE / INCOME

(Enter) License Fees $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Development Fees $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Maintenance Fees $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Professional Services $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Systems / Equipment Sales $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Support Fees $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Consulting Fees $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Installation Fees $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Training Fees $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Other $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Page 10: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Tools for Exposure Analysis

Personal Knowledge

If you have heart disease and need to have an angioplasty performed, do you go to a general practitioner or even worse to your landscaper?

It is hard to argue against the fact that specialists are able to produce more consistent and favorable results.

“Those who trust to chance must abide by the results of chance.”--Calvin Coolidge

Page 11: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Tools for Exposure Analysis

Internet Search of Company Website

Indemnification. You agree that the Company shall not be responsible for any third-party claims against the Company that arise from your use of the services. Further, you agree to reimburse the company for all costs and expenses related to the defense of any such claims, including attorney's fees, unless such claims are based on the Company's willful misconduct or gross negligence. This provision will continue to apply after the agreement ends.

Liabilities of the Company. Except as stated in this Section 8, the Company shall have no liability for damages of any kind arising out of or related to events, acts, rights or privileges contemplated in this Agreement.

Page 12: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposures and Liabilities

Operations

General Liability Employee Benefits Intellectual Property Telephone DirectoryAlarm Liability Contractors Protective Failure to Supply Errors and Omissions Broadcasters Liability

Communications/Media Network Security/Data Directors Liability Employment Practices Fiduciary Liability Employers Liability Automobile Liability Pollution Liability Umbrella Liability

Page 13: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Commercial General Liability

Under this form of insurance and regarding a covered occurrence, the company will pay all sums the insured becomes legally obligated to pay as damages due to:

1. Bodily Injury (Coverage A) 2. Property Damage (Coverage B) 3. Personal Injury (Coverage C) 4. Advertising Injury (Coverage D) 5. Medical Payments (no legal liability

required) 6. Tenants Legal Liability

Page 14: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Commercial General Liability…Concepts

Bodily Injury…does it include sole allegations of mental anguish?

Personal Injury (Coverage C) This insurance coverage protects against false arrest, detention or imprisonment, or malicious prosecution; libel, slander, defamation, or violation of right of privacy; and wrongful entry, eviction, or other invasion of right of private occupancy.

What is missing from PI?

Page 15: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Commercial General Liability

Advertising Injury (Coverage D) means injury rising out of an offense committed in the course of your advertising activities, if such injury rises out of libel, slander, defamation, violation of right of privacy, piracy, unfair competition or infringement of copyright, title or slogan.

How does this differ from Intellectual Property?

Page 16: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Employee Benefits Liability

Protects the insured employer against claims by

employees or former employees resulting from negligent

acts or omissions in the administration of the insured's

employee benefits programs. The term "employee

benefits programs" is defined to include group life

insurance and group accident and/or health insurance;

profit sharing plans; employee stock subscription plans;

and workers compensation, unemployment insurance,

social security benefits, disability benefits, etc.

Page 17: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure Analysis

Intellectual Property… Concepts

IP is a legal field that refers to rights related to creations of

the mind such as musical, literary, and artistic works;

inventions; and symbols, names, images, and designs used in

commerce, including copyrights, trademarks, patents, and

related rights. Under intellectual property law, the holder of

one of these abstract properties has certain exclusive rights

related to the creative work, commercial symbol, or

invention by which it is covered.

Page 18: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure Analysis

Intellectual Property… Concepts Intellectual property rights are a bundle of exclusive rights over creations of the mind, both artistic and commercial. Artistic is covered by copyright laws, which protect creative works, such as books, movies, music, paintings, photographs, and software, and gives the copyright holder exclusive right to control reproduction or adaptation of such works for a certain period of time. Commercial are typically created and used for industrial or commercial purposes. A patent may be granted for a new, useful, and non-obvious invention and gives the patent holder a right to prevent others from practicing the invention without a license from the inventor for a certain period of time. A trademark is a distinctive sign which is used to prevent confusion among products in the marketplace.

Page 19: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure Analysis

Intellectual Property and the Law

The earliest use of the term intellectual property appears to be in an October 1845 Massachusetts Circuit Court ruling in the patent case , in which Justice wrote that "only in this way can we protect intellectual property, the labors of the mind, productions and interests are as much a man's own...as the wheat he cultivates, or the flocks he rears." (1 Woodb. & M. 53, 3 West.L.J. 151, 7 F.Cas. 197, No. 3662, 2 Robb.Pat.Cas. 303, Merw.Pat.Inv. 414).

Page 20: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Intellectual Property and the CGL

Are intangible/intellectual property liability exposures covered by the Commercial General Liability (CGL) policy?

The CGL covers bodily injury, property damage, personal injury, advertising injury and medical payments.

Many, if not all, intangible loss exposures are driven by allegations of financial loss…so the answer is?

Page 21: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Intellectual Liability (IP)- The CGL Changed in 1986

The most commonly issued CGL policy, anything after 1986, changed the definition of "advertising injury", which was a common place for coverage, to cover specified offenses, such as defamation, invasion of privacy, misappropriation of advertising ideas or style of doing business, and "infringement of copyright, title or slogan". It is significant that the 1986 and most later editions of the form deleted piracy and unfair competition from the definition of "advertising injury”.

Note copyright was covered by for advertising and trademark coverage and was determined to be in place by courts 50% of the time.

Page 22: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Intellectual Property Insurance Coverage

Intellectual Property Insurance coverage protects companies for copyright, trademark or patent infringement claims arising out of the company's operation.

You need Intellectual Property insurance if the threat exists that you could be sued by a competitor for infringing on an idea or intellectual property belonging to someone else.

An Intellectual Property policy will pay the costs to defend you if someone tries to claim the rights to the same business model, process, or application.

Page 23: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Telephone Directory Liability

Protects against allegations of personal or advertising

injury violations and errors and omissions. The standard

CGL will exclude coverage if the insured is a publisher of

the books. However, even if they are not, the coverage is a shade of gray at best.

Page 24: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Alarm Operations Liability

Installation, monitoring and design all create an exposure. Installation needs to be rated for but is covered under the CGL, unless a designated activity exclusion is applied.

Monitoring is excluded by endorsement but can often be added back and coverage is granted for BI/PD. The design exposure created by installation is excluded and only a specialty liability policy will provide coverage.

Page 25: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Independent Contractors…Concepts

Sometimes it is cheaper to “out source” work than to add staff whether the task is permanent or temporary. This is generally regarded as true when looking at the hard dollar costs. But what happens if you include the soft costs like absorbing a bodily injury claim of an uninsured contractor?

In some forms of insurance, like workers compensation, it is virtually impossible to avoid the claim if you have not managed the risk. What about the CGL?

Page 26: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Commercial General Liability

A few policies will extend named insured status to persons

or organizations for your work as required by written

contract.

Most policies will require you to look at the insured

contract coverage found in the contractual liability

exclusion or at the leased workers definition.

Page 27: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Commercial General Liability

“Insured Contract”…

Coverage exists for liability that would have existed in

absence of a contract

Coverage exists for “insured contracts” which includes…a

contract pertaining to business under which tort liability of

another is assumed to a third party.

Leased worker is a person leased to you by a labor leasing

firm under agreement and it does not include temporary

workers. Temps are furnished to replace an employee

on leave or to meet short term needs.

Page 28: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Commercial General Liability…Concepts

Failure to Supply Exclusion: This insurance does not apply

to “bodily injury” or “property damage” arising out of the

failure of any insured to adequately supply, gas, oil, water,

electric or steam and sometimes communications.

This exclusion does not apply if the failure results from

sudden and accidental injury to tangible property owned or

used by the insured.

Removes- intentional and E&O exposure

Page 29: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Commercial General Liability…Concepts

Care Custody and Control of Property Exclusion

Most Liability Insurance policies exclude coverage for

damage to property in the care, custody, or control of the

insured. In some cases this type of coverage is not

available. In other cases, it can be purchased through liability

extensions for leased property damage and certain forms of

Inland Marine Insurance, like Installation Floaters,

Garagekeepers and in some cases this exclusion

can be made less restrictive by adding a Broad Form

Property Damage Endorsement.

Page 30: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Commercial General Liability…Concepts

Errors and Omissions: Coverage for liability resulting from

errors or omissions in the performance of professional

duties. Applicable as a general rule to professional business

activities such as banking, accounting, law, insurance and real

estate. These types of losses normally generate financial

losses.

There is an exposure in general telecommunication

operations and it can be covered elsewhere as the CGL does

not offer protection.

Page 31: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Error and Omissions…Concepts

Advice v. Professional Assistance

Computer Services

Network Design

Others- Special certifications and knowledge that the

general public does not have creates an exposure

Page 32: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Errors and Omissions Insurance

You can purchase a stated activity policy where the insured

will be covered for wrongful acts based on what activities

they list on their application or some insurers will provide

enterprise wide coverage which covers most activities that

are professional in nature with the standard expected

exclusions like medical malpractice and architect and

engineer design. An E&O Policy can pick up programming errors that an insured commits

while working on a computer of a customer, but any tangible

damage will be covered by the CGL property damage

section. 

Page 33: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Errors and Omissions Insurance

Some E&O policies will add back coverage for personal injury and advertising injury of Internet Service Providers, which is a common CGL exclusion (policies need to be read to determine if this applicable). A side benefit is that Internet E&O could be covered by a policy. This could be claims related to website design, hosting or email services that are provided depending on stated activities or enterprise coverage.

Page 34: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Broadcaster Liability

Robust policies will not only add back coverage for personal

and advertising injury excluded by the CGL for those in the

business of broadcasting (to transmit or make public by

means of television) but they also will pick up potential

Errors and Omissions claims that the content was erroneous

in advice offered.

Page 35: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Communications and Media

Protects against claims or suits for damages resulting from the unauthorized use of another party's copyrighted or trademarked intellectual property, whether it's in an electronic or print format. It also covers the unauthorized use of any advertising material, or any slogan or title, of others in the advertising of the business of others. Finally, it covers exposures resulting from plagiarism of a literary or artistic format, character, or performance in a company's material.

Page 36: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Breach Definition

Personal information that is in a format that can be easily read and used by thieves is stolen and personal information is in unauthorized hands.

Who Is Held Accountable?

Board of Directors and Senior Management

By Contract-- 3rd Parties?-IT Services Providers

Page 37: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

What Data Do You Keep?

Credit Card Information on Customers

Social Security Numbers- Employees or Customers

Bank Routing Numbers- Employees and Customers

Driver’s License Data- Employees

Credit Reports- Employees or Customers

Background Checks- Employees and potential hires

Page 38: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Known Breach Data As Of 6.2.2009 ITRC

• 2009- 236 breaches with 11.6 million records exposed.

• 2008- 656 breaches with 35.6 million records exposed.

• 2007- 448 breaches with 127 million records exposed.

• 2006- 315 breaches with 20 million records exposed.

• 2005- 158 breaches with 64.8 million records exposed.

Page 39: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Federal Laws

There are bills under consideration- Senate's Notification of Risk to Personal Data Act and Personal Data Privacy and Security Act as well as the Data Accountability and Trust Act, Social Security Number Protection Act, and Prevention of Fraudulent Access to Phone Records Act -- all of which are under consideration in the House.

Page 40: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

State Laws

State Security and Data Breach Laws- New laws are literally being passed on a monthly basis but as of the date of this presentation the following states have laws: AK, AR, AZ, CA, CO, CT, DE, DC, FL, GA, HI, ID, IL, IN, IA, KS, LA, MA, MD, ME, MI, MN, MT, NE, NV, NH, NJ, NY, NC, ND, OH, OK, OR, PA, PR, RI, SC, TN, TX, UT, VI, VA, VT, WA, WV, WI and WY.

Page 41: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Beyond the State-Federal Trade Commission- FTC/FCC

Originally, this consumer protection agency reasoned that a company’s failure to follow a published policy was a deceptive act and should be regulated by the FTC. Later, the agency expanded enforcement under the theory that a company’s failure to take reasonable measures to protect customers personal information is, in itself, an unfair practice. They will levy fines, requiring higher security and also the payment of the FTC’s legal costs.

CPNI and Red Flags Rules…

Page 42: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Commercial General Liability and Breaches

Common Injuries:

Bodily Injury (BI) CGL Property Damage (PD) CGL

Personal Injury (PI) CGL Advertising Injury (AI) CGL

Special Damages CGL

Why not under PD or PI?

Page 43: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Commercial General Liability and Breaches

It is not PD or PI?

PD is limited to coverage from loss to tangible property.

The PI section of policies does not cover damages due to failure to protect data, the coverage territory might be limited to the US only, subcontractors are not automatically part of the “named insured” definition on most policies, and there is no claims trigger for financial loss (only that is not part a result of a covered allegation).

Page 44: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Network Security and Data Liability and CPNI/Red Flags

It will pay for damages incurred by claimants from a breach and the expense incurred due to the violation. It will also cover the regulatory fines from failure to abide by laws and regulations and this will include CPNI, Cable TV Operators, and any applicable state issues. Generally, punitive is covered if allowable by state law.

It is more than identity theft which is a veneer of protection. ID theft is partial help after a loss of data occurs, but it is not protection before an event happens.

Page 45: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Network Security and Data Liability

Network and Data Liability standard coverage exclusions include: fraud, SEC violations, fiduciary claims, RICO and collusion events, ERISA, EPLI, D&O, insured vs. insured, war, terrorism, pollution, and BI/PD.

Network and Data Liability coverage enhancements include: PR expenses, crisis management expense, paper breaches, laptop and peripheral carriers, and notification expense.

Page 46: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Liability…Concepts

Claims Made- liability coverage only if a written claim is

made during the policy period or any applicable extended

reporting period. For example, a claim made in the current

year could be charged against the current policy even if the

injury or loss occurred many years in the past. If the policy

has a retroactive date, an occurrence prior to that date is not

covered. Occurrence Coverage- liability coverage only for

injury or damage that occurs during the policy period,

regardless of when the claim is actually made. For example, a

claim made in the current policy year could be charged

against a prior policy period, or may not be covered, if it arises

from an occurrence prior to the effective date.

Page 47: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Liability…Concepts

Aggregate Limit- Generally reserved for liability based

policies and limits and insurers maximum exposure on the

policy to the stated limit in the policy year unless a

reinstatement clause has been provided.

Punitive Damages- Judgments meant to teach the

defendant a lesson for the pain and suffering or loss of

services their actions caused.

Page 48: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Liability…Concepts

Protective Policies: Most common are railroad and

contractors protective policies. Quite often these entities

want their own limit that is not shared for a specific

project and they want the additional control that is

afforded by having the policy written in their name.

Page 49: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Directors and Officers Liability…Concepts

Insurance that protects directors and officers from

liability claims arising out of alleged errors in judgment,

breaches of duty, and wrongful acts related to their

organizational activities.

Examples of Responsibility that Create Exposures:

Duty of CareDuty of LoyaltyDuty of ObedienceStatutory Duties

1933 SEC ActSarbanes-Oxley 2002

Page 50: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Directors and Officers Liability…Concepts

Most lawsuits don't come from shareholders, but from creditors, contractors, competitors, government bodies, employees, and anyone else who might be affected by the decisions of directors and officers. Contrary to popular belief, these groups account for more than 50 percent of lawsuits covered by D&O liability insurance. Even if corporations have by-laws indemnifying officers and directors for suits brought against them, the corporation's balance sheet will be adversely affected by legal fees and any settlement. The possibility of the corporation becoming insolvent or going bankrupt, in which case directors and officers can become personally liable, also exists.

Page 51: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Directors and Officers Liability…Concepts

The first D&O Policy was created and written by Lloyd's of London following the stock market crash of the 1930’s. As initially developed it covered just the Directors and Officers against allegations of failure to perform their duties. Common Sources of Claims-Merger and Acquisitions Deceptive Trade

PracticesContract Disputes Restraint of

TradeDishonesty Anti-TrustTax Issues Regulatory

ProblemsFinancial Performance Executive

CompensationConflicts of Interest Inadequate

DisclosureFaulty Financial Reporting

Page 52: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Directors and Officers Liability

Coverage A- Protects Directors that are not indemnified by

the Entity

Coverage B- Covers the Entities obligation to indemnify

the Directors and Officers via by-laws or state law

Coverage C- Entity Coverage- Protects the entity itself

Side A Towers v. Entity Coverage Issue

Page 53: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Directors and Officers Liability…Concepts

Duty to DefendPay on BehalfExtended Discovery and Supplemental

Report PeriodPrior and Pending Continuity DateInsured v. InsuredChange in ControlRescindableOutside Entity ProtectionBankruptcy Exclusion

Page 54: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Employment Practices Liability…Concepts

Suits brought against businesses by allegedly aggrieved employees are a very serious problem today. Examples of covered acts include: misrepresentation, retaliation, libel, slander, humiliation, harassment, defamation, failure to employ or promote and the like. 1 in 3+ (35%) private companies will be sued according to a Chubb study from 2007.

Page 55: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Employment Practices Liability

Employment Practices Liability is an exposure to legal

liability caused by an employee, past employee or

potential employee claiming their rights have been

violated. Coverage is available to protect the corporation,

directors & officers and employees for claims resulting from

wrongful termination, discrimination, sexual harassment,

wrongful discipline and failure to employ or promote.

It is not Employee Benefits Liability!

Page 56: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Potential Claims Allegations:Wrongful terminationSexual harassmentDiscriminationWorkplace torts

What are first and third party exposure?

Employment Practices Liability…Concepts

Page 57: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Employment Practices Liability…Concepts

Definition of EmployeeFirst and Third Party ExposureHammer ClausesIndividual v. Aggregate LimitsWage and Hour ClaimsChoice of Defense Representation

Page 58: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Fiduciary Liability…Concepts

A wrongful act includes any violation of the responsibilities, obligations, or duties imposed

on fiduciaries by the Employee Retirement

Income Security Act (ERISA), as well as acts, errors, or

omissions in the performance of the duties of the plan

administrator.

The ERISA definition of a fiduciary is very broad. It is any

person so named in the plan or any person who exercises

any discretionary authority or control with respect to the

management or administration of the plan or its assets

Page 59: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Fiduciary Liability…Concepts

The rules and regulations of ERISA include strict

guidelines for fiduciaries. Failure to comply can result in

lawsuits from employees, former employees, and

beneficiaries, as well as the Secretary of Labor, Treasury

Department, and Pension Benefit Guarantee Corp. The

sponsor corporation as well as the individual fiduciaries are

at risk.

ERISA also has a broad definition of what is considered an

employee benefit plan. It includes any plan, fund, or

program established or maintained for the purpose of

providing employee benefits to its participants or

beneficiaries.

Page 60: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Fiduciary Liability

Under a fiduciary liability policy, the insured includes the

following: • The sponsor organization • The plan(s) • Any natural person in his/her

capacity as fiduciary or administrator of the plan(s)

Personal assets can be attached. This makes the last

insured very important!

Page 61: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Fiduciary Liability…Concepts

Potential Claim Allegations: Benefits dispute, benefits

reduction, managing plan assets, selecting service providers,

misrepresentations, benefit communications, poor

investments, and plan termination.

LaRue v. DeWolff, Boberg & Associates authorizes individual defined contribution plan participants to sue for fiduciary breaches that impair the value of plan assets in the individual’s plan account. Dr. Anthony Iorio had appointed Lafferty & Partners LLC, a New Jersey-based investment firm as the investment manager for his firm's 401(k) plan.  Apparently, the owner of Lafferty & Partners (Jeffrey Lafferty) stole thousands of dollars from the plan and Iorio was charged with breaching his fiduciary duties by not adequately monitoring the activities of Lafferty & Partners.  According to the article, Dr. Iorio is required to restore $32,263.51 to the plan and to pay a $6,452.70 civil penalty.

Page 62: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Workers Compensation…Concepts

Simply defined, workers compensation recompenses, gives something to a worker, one who performs labor for another, for services rendered or for injuries. This simple definition is taken in part from Webster's Ninth New Collegiate Dictionary and in studying this subject closely, we find this definition extremely accurate. Workers compensation is not "insurance", rather, it is social insurance, much the same as unemployment compensation and social security. It is however, the oldest form of social insurance.

Page 63: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Workers Compensation…Concepts Under the various workers compensation

systems, insurance is purchased or provided by

employers through individual insurance companies, funds, or self

insurance plans to provide the worker with the wage

indemnity, medical benefits, and a source of

compensation when employer liability in involved. All of these

protections are required by the laws or acts of the various

states or provinces for many years.

Page 64: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Employers Liability

The second coverage part of the policy. It protects the insured against liability imposed by law for injury to employees in the course of employment that is not covered as part of wage loss or medical injury.

Limits determine the coverage afforded for:• BI by accident per employee• BI by disease per employee• BI by disease per policy

Page 65: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Employers Liability

In some states, claims can be brought by spouses and

dependents of injured workers for loss of consortium,

companionship, comfort, and affection.

Third parties are also capable/eligible to bring legal action

for contributory negligence.

Page 66: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Employers Liability…Concepts

The phrase “out of and in the course of employment” is a

crucial element to determining if coverage applies. The

policy does not define this phrase so courts have the final

say when the act is in question.

BI must occur in the policy period and the lawsuits must be

brought in the US, its territories and possessions, or Canada.

Page 67: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Employers Liability…Concepts

Despite the reasoning and goal of having workers

compensation/employers liability protection there are 12

exclusions to the employers liability sections and here are a

few:

• Intentional acts and violations of law• Those assumed by Contract• Fines or penalties imposed for violating state or

federal law• Punitive damages• A general exclusion for employment practices type events

Page 68: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Commercial Automobile Liability…Concepts

Liability covers the user for designated vehicles

The concept of a permissible user comes into play in

liability coverage. Whereas, physical damage protection

covers the auto basically regardless of who is driving.

The liability protection for operation of permanently attached equipment like cherry pickers is potentially covered by the BAP but could be the CGL. On the road hazard versus operating is the key.

Page 69: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Commercial Automobile Liability

There are three parts to the liability insuring agreement:

• Pay all sums an insured must legally pay because of BI/PD caused by the ownership, maintenance or use of a covered auto.

• Pay all sums (actually very limited) for pollution clean-up

that the insured is legally responsible for.

• Insurer agrees to defend the insured from suits that

seek damages or covered pollution clean-up expense.

Page 70: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Commercial Automobile Liability

Numerical symbols are used on the policy declarations page and they show the coverage scope the insured has chosen. Liability Symbol 1 is the broadest.

If symbol 1 is denoted on the policy the insured

has liability for any automobile exposure and

any means any auto!

A common phrase is that fleet coverage applies

Page 71: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Commercial Automobile Liability

Uninsured/Underinsured Motorist- Sometimes called

reverse liability or a cross between no-fault insurance

and liability.

Covers an injured insured person for damages caused by a third party as if that parties liability policy is responding.

The third party can have no insurance, less than that

required by state law, or be a hit and run driver.

Page 72: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Commercial Automobile Liability

Non-Owned Liability

This covers, on an excess basis, the exposure your entity faces if an employee or anyone

else for that matter is in an accident while using a personal vehicle for

company business. The drivers insurance is the primary means of coverage.

There is no physical damage protection

Page 73: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Commercial Automobile Coverage

Hired Car Liability

This coverage is for short term (30 days or less) rental exposure. The protection can be

primary and excess limits would apply in the event of

a serious accident.

Unless your liability limits are inadequate, there

should be no need to take rental insurance at the dealers counter.

Page 74: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Pollution Liability

Pays on your behalf all sums you are legally obligated to pay as a result of emission, discharge, release, or escape of any contaminants, irritants, or pollutants into or on land, the atmosphere, or any water course or body of water, provided this results in "environmental damage." Additionally, pays to reimburse your expense for reasonable and necessary cleanup costs incurred in the discharge of a legal obligation validly imposed through governmental action, provided such expense is incurred because of "environmental damage." Pays for defense of any claim or suit that is the subject of this insurance.

Page 75: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Pollution Liability

Pollution "Environmental damage" is defined in the policy as "the injurious presence in or on land, the atmosphere, or any water course or body of water of solid, liquid, gaseous, or thermal contaminants, irritants, or pollutants.

Page 76: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Umbrella Liability…Concepts

A coverage basically affording high limit coverage in

excess of the limits of the primary policies as well as

additional liability coverages. These additional coverages

are usually subject to a substantial self-insured retention

The term "umbrella" is derived from the fact that it is a

separate policy over and above any other basic Liability

policies the insured may have.

Page 77: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Umbrella Liability

Policies have two limits and two retentions:

Occurrence Limit

Aggregate Limit

Policy Retention

Self Insured Retention

Page 78: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Umbrella Liability Policy

Policies can be either a true umbrella, which can provide

broader coverage than the underlying insurance, or an

excess following form, which only covers above the

primary policies.

There are requirements on the limits that must be held on

the primary policies and the quality of the insurer

providing the initial protection.

Page 79: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Thank You

It has always been a matter of trust…

6301 Ivy Lane Suite 506 Greenbelt, MD 20770

800.222.4664 Phone 301.474.6196 Fax

[email protected] www.telcominsgrp.com

Page 80: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Telcom’s RMC 2009 Boston MA

Business Income The Upstream and Downstream

Exposure

Presented by Peter J. Elliott, CPCU, President & CEO

Telcom Insurance Group 800.222.4664

Page 81: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Indirect Loss a.k.a - Business Income and Extra Expense, Business Interruption, Time Element, Use and Occupancy Coverage

Indirect loss insurance provides insurance for a covered incident resulting in loss of use of property for a period of time. The loss is considered to be time lost, not actual property damage. Examples of time element coverage are Business Interruption, Extra Expense, Tuition Fees, Rents and Rental Value, Additional Living Expenses, and Leasehold Interest coverage.

It covers a severity exposure.

Page 82: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Indirect Loss a.k.a - Business Income and Extra Expense, Business Interruption, Time Element, Use and Occupancy Coverage

Its purpose is to replace for the insured during a period of business interruption what the business would have done had no loss occurred.

It is akin to what disability insurance does for us personally should we become injured and unable to work – it protects our income stream and our ability to pay bills.

Page 83: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Business Income and Extra Expense…Concepts

Business Income is generally defined as net profit or loss before taxes, plus continuing normal operating expenses, including payroll. Coverage is usually limited to the loss of income sustained until the property is restored, or for twelve months following the physical loss or damage.

Coverage is intended to be applicable for the period of recovery which should commence with “reasonable speed”.

What covers the period when customers have not returned?

Page 84: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Business Income and Extra Expense Exposure Analysis

All the standards apply; Physical Visits, Interviews with all Departments of the Organization, Financial Statements Analysis, Use of Checklist and Calculators, Personal Knowledge, Internet Searches.

An emphasis must be placed on two items;

1)The right limit of insurance/indemnification 2)The upstream and downstream identification

Page 85: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Business Income and Extra Expense…Concepts

Upstream Example: What would happen if a service you re-sell or utilities were unavailable due to a loss at the providers location?

Downstream Example: How do you account for lost customers after your operation is back up and running but they left because they could not live without service?

Another: Are there any key customers that would impair income if they suffered a loss and were unable to operate their business?

Page 86: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Business Income and Extra Expense…Concepts

Contingent BI- 4 Scenarios-depend on something else happening

Contributing Locations - Entities that deliver material or services to the insured or to the insured’s clients for that insured's benefit or account. However, these operations do not include water, communication, or power supply services

Recipient Locations - Entities that accept the products or services of the insured

Page 87: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Business Income and Extra Expense…Concepts

Contingent BI

Manufacturing Locations - Operations that manufacture product(s) for delivery to customers of the insured, under contract(s) of sale. Manufacturers of component parts, etc., are included in "contributing" locations on the previous slide.

Leader Locations – Physical locations that attract other to your site.

Page 88: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Exposure and Insurance

Business Income and Extra Expense…Concepts

Can you replace the limit for a policy period to what is actually lost?

How long can the extended recovery period be?

Can you afford to not have this coverage and limit adequately covered?

Page 89: Telcoms RMC 2009 Boston MA Telecommunications Operational Activities and the Resulting Exposures they Create Presented by Peter J. Elliott, CPCU, President

Thank You

It has always been a matter of trust…

6301 Ivy Lane Suite 506 Greenbelt, MD 20770

800.222.4664 Phone 301.474.6196 Fax

[email protected] www.telcominsgrp.com