AGRIBUSINESS WEBINAR Underwriting And Risk · PDF file · 2013-07-15Notable Court...
Transcript of AGRIBUSINESS WEBINAR Underwriting And Risk · PDF file · 2013-07-15Notable Court...
Ann Yachwak Senior Vice President Client Manager Reinsurance Division
Kelli Kukulka Senior Vice President Manager Agriculture Reinsurance Division
Presenters
2 2
Agenda
Emerging Exposures – Defined
Agritourism
Organic Farms
Antibiotic Resistance
Key Takeaways
3
Questions and Answers
Emerging Exposures – Working Definition(s)
New and developing risks and their related business opportunities that result from changes in risk factors with a high degree of uncertainty in terms of occurrence probability and loss amounts, and with a substantial potential impact on the company’s risk profile.
New, evolving, or previously benign, loss exposures or risks that have the potential to significantly impact insurance or reinsurance balance sheets or that provide material business opportunities that are currently not explicitly contemplated in coverage, pricing, or underwriting techniques.
Enterprise Risk Underwriting
4
Emerging Exposures Underwriting Working List
5
Aging Population
Fragile Global Economy
Climate Change
Exports to & Imports from Emerging Markets
Ethical/Political issues (e.g. Proposition 2)
Cyber-risks & Social Media
Technology (Alternative Energy, GMO, Nanotechnology)
The Issue
7
Origin
Problem
Estimated Magnitude
• All States – TX, CA, CO, SD, NJ, HI • 23,350 farms • $567 million in sales annually • USDA Program ‘Know Your Farmer, Know Your Food’ and Farmers
Market Promotion Program (FMPP)
• Problems associated with change in duty of care owed to these ‘business invitees’
• Additional legal complications stemming from non-farming business • Animal Welfare Act, Food safety & public health, liquor licenses, zoning
laws, building codes including ADA, taxation & permits
• Increasing in popularity - 2008 economic recession increased popularity of ‘staycations’ - opportunity to diversify & increase profits
• Small seasonal operations to large operations providing numerous consumer services year-round
Agritourism
Business Invitees
Animal Welfare Groups
Local Governing Bodies (Zoning/Building Codes/Permits)
Farmowner/CGL Insurer
Farmer/Operator
Contractors/Subcontractors
Manufacturers/Suppliers
Plaintiffs and Defendants
8
$$$$
Plaintiffs Defendants
Complex, Fluid Situation…..
Agritourism
Key Legislation/Regulatory Action
22 states have Agritourism statutes (www.NationalAgLawCenter.org)
Liability protections, tax credits, zoning requirements
Recreational use statutes may apply
Legal Landscape
9 http://www.nationalaglawcenter.org/ http://www.animallaw.info/
Source: National Agriculture Law Center
Source: Animal Legal and Historical Center
Animal Welfare Act – applies when animals are exhibited, including farm animals
46 States have equine activity liability statutes
Animal Legal and Historical Center (www.animallaw.info/)
Agritourism
Notable Court Cases
Lawson v. Dutch Heritage Farms, Inc., 502 F.Supp.2d 698 (N.D. Ohio 2007) negligence
Lilya v. Greater Gulf State Fair, Inc., 855 So.2d 1049 (Al. 2003) operator liability-duty to
warn
Westfield Companies v. Knapp, 804 N.E.2d 1270 (In. App. Ct. 2004) farm stands and
insurance
Everett v. State Farm, So.3d, 2010 WL 1170202 (La. App Ct. 2010) damages from
horseback riding accident
Brennan v. Schappacher, No. CA2008-09-231, 2009 WL 501639, 2009-Ohio-927 (Ohio
App. Ct. 2009) injuries sustained during hay ride; assumption of risk; negligent assumption
of risk
Smith v. Phillips, No. M2009-00104-COA-R3-CV, 2010 WL 1221436 (Tn. App. Ct. 2010)
horse owner not entitled to immunity under equine activities law
Legal Landscape
10
Agritourism
Standard Policy Exclusions…. Will they apply??
(a) Expected or Intended Are the injuries/damage excluded because the policyholders knew or should have known that the activity would lead to injury?
(h) Use of Livestock or Other Animals Does this exclusion apply to agritourism rides, etc?
(k) Business Pursuits How does this exclusion apply to agritourism? Considered farming?
Very fluid.........More questions than answers at this point. Many issues need to play out on a case by case basis in court.
Coverage Questions – Exclusions
11
Agritourism
No Easy Answers
Risk Selection – Supplemental Applications
Classes – Which classes acceptable Experience – understanding past activities – critical Risk Management – compliance with law & best practices
Contain Limits / Defense Sub-limits for agritourism liability claims Defense within limit
Additional Exclusions – To Avoid Coverage Must be drafted carefully,
not too broad Consider impact on
standard exclusions
Agritourism – Most absolute approach but exclusion must be realistic ---May impact application of standard exclusions
Specific Classifications
Pricing – CGL or Incidental Business
Rate Adequacy -- can charge be made under FCPL or is GL a better match to hazard class?
Underwriting Considerations – Summary
12
Agritourism
The Issue Organic Farms
14
Origin
Problem
Estimated Magnitude
• Organic produce commands price premium in agricultural industry - December 21, 2000 Organic Foods Production Act (OFPA) enacted - October 21, 2002 National Organic Program (NOP) implemented
• Sets national organic production & handing standards, labeling requirements, certification requirements
• Liability emanating from overspray and/or run-off of pesticides or herbicides, run-off of petroleum based fertilizers, cross-pollination with genetically engineered crops
• Does a commodity price differential constitute property damage?
• Top States – CA, WI, WA, NY, OR, PA, MN, OH, IA, VT and MI dominate
• 14,540 farms totaling 4.1 million acres • 10,903 USDA-certified and 3,637 exempt from certification • $1.7 billion in sales
Complex, Fluid Situation…..
Organic Farmer
Grower Cooperative
Processor/Mill/Packer
Community Supported Agriculture Groups
Farmowner Insurer
Traditional Farmer
GMO Developers
Custom Farmers/Contractors
Material Suppliers
Plaintiffs and Defendants
15
$$$$
Plaintiffs Defendants
Organic Farms
Key Legislation/Regulatory Action
Legal Landscape
National Organic Program
− Organic Foods Production Act (OFPA), 7 U.S.C. §§ 6501-6522
− Agricultural Marketing Service final rule, 7 C.F.R Part 205
− Potential defenses found under § 205.290 “Temporary variances”
State Organic Program may apply (can be more restrictive than NOP)
16
Organic Farms
Notable Court Cases
All One God Faith, Inc. v. Hain Celestial Group, Inc., No. C 09-03517 JF (HRL), 2009 WL
4907433 (N.D. Ca. 2009) claim that products do not meet NOP standards
Harvey v. Johanns, 494 F. 3d 237 (1st Cir. 2007) use of synthetic ingredients in processing
organic foods
Ongoing cases:
Missouri AG sues Armand & Teddi Bechard for distribution of raw milk in parking lot away
from farm premises.
Billy Goat Dairy Farm, Longmont, CO raw milk sickens 30 since June 2010.
Legal Landscape
17
Organic Farms
Standard Policy Exclusions…. Will they apply??
(a) Expected or Intended Are the injuries/damage excluded because the policyholders knew or should have known that their activity would lead to damage of organic?
(c) Pollution Is the run-off; overspray; pollen drift “pollution” if the Pollutants are brought to the job site by acts of nature?
(j) Custom Farming Apply the same to organic farming?
Very fluid.........More questions than answers at this point. Many issues need to play out on a case by case basis in court.
Coverage Questions – Exclusions
18
Organic Farms
No Easy Answers
Risk Selection – Supplemental Applications
Classes – Which classes acceptable Experience – understanding past activities – critical Risk Management – compliance with law & best practices
Contain Limits / Defense Sub-limits may not be practical Defense within limit
Additional Exclusions – To Avoid Coverage Must be drafted carefully,
not too broad Consider impact on
standard exclusions
Organic farming – Most absolute approach but is such an exclusion realistic
Specific Classifications – Raw milk sales, etc.
Underwriting Considerations – Summary
19
Real Milk Resource www.realmilk.com/where1.html
Organic Farms
Origin
Problem
Estimated Magnitude
The Issue
21
• On the agricultural side, low-dose antibiotics used for over 50 years to prevent disease or promote growth do not kill the disease.
• On the human side, antibiotics are still widely misused. Often, the diagnostics used to determine what bacteria is ailing a person are not precise, so the doctor will use a broad spectrum antibiotic. Broad spectrum drug may not kill the specific bug, instead making it stronger.
• Recently Documented Outbreaks - 2006 E coli outbreak traced to spinach contaminated from livestock waste run-off - 2010 Salmonella outbreak in eggs
• Food Cycle: Recall, Forget, Repeat
• 28.7 million pounds of antibiotics used annually in US livestock operations • 48 million Americans impacted (1 in 6 people) • Reported in 35 States – CA, IA, FL,TX, MS, OH and NC dominate • Ultimate scope of the problem still to be determined
Antibiotic Resistance
Consumers
Food Safety Watchdog Orgs
State & Local governing bodies
Food Processors & Suppliers
Importers / Exporters
Farmowners
Food Processors & Suppliers
Insurers
Pharmaceutical Industry
Importers / Exporters
$$$$
Plaintiffs Defendants
Complex, Fluid Situation…..
Plaintiffs and Defendants
22
Antibiotic Resistance
Key Legislation/Regulatory Action
December 19th, the Senate passed food-safety legislation intended to improve safety standards and give the FDA the power to order recalls.
Among the biggest red flags in the FDA Food Safety Modernization Act (S. 510) is a provision that would exempt farmers and ranchers who earn $500,000 or less in annual sales and sell most of their food directly to consumers, local restaurants or retailers within a 275-mile radius or within the same state from much of the federal oversight the bill mandates.
An estimated $1.3 billion in additional funding to implement the additional oversight is the next major hurdle for this legislation.
July 2009, Rep. Louise Slaughter (D-NY) introduced the Preservation of Antibiotics for Medical Treatment Act (H.R. 1549) and the late Sen. Edward Kennedy (D-MA) sponsored the Senate version of the bill. Did not pass…
September 2010 – (S. 3767) Sen. Patrick Leahy (D-VT) The Food Safety Accountability Act would establish appropriate criminal penalties for certain knowing violations relating to food that is misbranded or adulterated. Did not pass…
Legal Landscape
23
Antibiotic Resistance
Notable Court Cases
September 2010 – Dwyer v. Quality Egg LLC, 10-cv-05847, U.S. District Court, Northern
District of Illinois (Chicago).
11/15/10 – New York Times headlines “BETTING ON JUSTICE: Putting Money on
Lawsuits, Investors Share in the Payouts”
February 2010 in the U.S. District Court of the Northern District of California, the Oceano
Packing Company is suing True Organic Products and Western Farm Service for selling
fertilizer contaminated by salmonella.
Legal Landscape
24
Antibiotic Resistance
1st party insurers appear to have strong coverage positions….
Coverage not likely to be routinely applied except in cases of weak policy wording
3rd Party Coverage will be the focal point of the issue going forward • Multiple coverages – CGL; Umbrella; Misc. Professional (e.g., consultants E&O) • Multiple parties – Grower; Processor; Importer, etc.
3rd Party Exposures and Coverage
25
Consumer Distributor Food Safety Inspection Processor Farmer/Producer
Antibiotic Resistance
Standard Policy Exclusions…. Will They Apply?
(a) Expected or Intended Are the injuries/damage excluded because the policyholders knew or should have known that the use of antibiotics would lead to the development of resistant bacterial strain?
(f) Pollution Is the run-off of resistant bacteria found in animal waste “pollution”?
(j) Your Product How does this exclusion apply to the meat or eggs or the animal itself? To animal waste products? Is it fertilizer (product) or is it by-product (waste)?
Very fluid.........More questions than answers at this point. Many issues need to play out on a case by case basis in court.
Coverage Questions – Exclusions (1 / 2)
26
Antibiotic Resistance
Standard Policy Exclusions…. Will They Apply?
(n) Product Recall No coverage in the CGL. If purchased separately review terms as no standard exists. Is the withdrawal, inspection, repair, replacement, or loss of use excluded if the product is withdrawn voluntarily? Ordered by government authority?
(h) Use of Livestock or Other Animals Does this exclusion apply to agritourism rides, petting zoos, fairs & exhibitions, etc?
(k) Business Pursuits How does this exclusion apply to agritourism, processed cheeses, meat processing, milk sales to public? Considered farming?
Very fluid.........More questions than answers at this point. Many issues need to play out on a case by case basis in court.
Coverage Questions – Exclusions (2 / 2)
27
Antibiotic Resistance
No Easy Answers
Risk Selection – Supplemental Applications
Classes – Which classes are acceptable? Actual Work – Understanding past activities - critical Risk Management – Compliance with law & best practices
Contain Limits / Defense Sub-limits for bacterial contamination claims Defense within limit
Additional Exclusions – To Avoid Coverage Must be drafted carefully,
not too broad
Agritourism – Most absolute approach but exclusion must be realistic ---May impact application of standard exclusions Prior Work – Excludes work that was started (or completed)
prior to the policy period – Best alignment of exposure and premium
Underwriting Guidelines Pricing – CGL or Incidental Business
Specific Classifications – Raw milk Rate Adequacy -- Can charge be made under FCPL or is GL
a better match to hazard class?
Underwriting Considerations – Summary
28
Antibiotic Resistance
Key Takeaways
29
Fluid, Rapidly Evolving Issues – Many Challenges; Stay Pro-active
Casualty More Likely To Be Seriously Impacted Than Property
Policy Wording A Key Wildcard >>>> Triggers, Exclusions, Etc.
Court Jurisdiction State vs. Federal; Treatment of Coverage Questions
Risk Selection / Coverage Focus on past as well as present operations and exposures; Consider interaction among trends
More Information
Contact your Munich Re Client Manager for additional information.
Kelli Kukulka [email protected] 312.993.8478
30
More Information Client Resources
Discuss specific emerging exposures
Resources and information concerning lines of business, industry topics, claims, timely insurance news, and training Publications, presentations, newsletters, white papers, state
profiles, and more. connect.munichre.com
Produced quarterly Provides the latest news, reports, and publications available on
many emerging issues that could have an effect on future claim and underwriting activity
Emerging Exposure Newsletter
Connect – Extranet Site
Client Visit
Your company’s Munich Re Client Manager or HSB Client Company Manager is your first point of contact to discuss all of these services.
31
© Copyright 2011 Munich Reinsurance America, Inc. All rights reserved. "Munich Re" and the Munich Re logo are internationally protected registered trademarks. The material in this presentation is provided for your information only, and is not permitted to be further distributed without the express written permission of Munich Reinsurance America, Inc. or Munich Re. This material is not intended to be legal, underwriting, financial, or any other type of professional advice. Examples given are for illustrative purposes only. Each reader should consult an attorney and other appropriate advisors to determine the applicability of any particular contract language to the reader's specific circumstances.