Chubb Insurance Company of Canada - PMAC€¦ · Chubb Insurance Company of Canada Professional...
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Lawyers · Patent and Trade-mark Agents 1 Chubb Insurance Company of Canada Professional Liability/ Risk Management Seminar For ICAC Members In partnership with Borden Ladner Gervais LLP Tuesday, January 19 th , 2010 12:00 pm to 2:00 pm (2-hours) At the Toronto Board of Trade (BMO)
Transcript of Chubb Insurance Company of Canada - PMAC€¦ · Chubb Insurance Company of Canada Professional...
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Chubb Insurance Company of Canada
Professional Liability/
Risk Management Seminar
For ICAC Members
In partnership with
Borden Ladner Gervais LLP
Tuesday, January 19th, 2010
12:00 pm to 2:00 pm (2-hours)
At the Toronto Board of Trade (BMO)
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Introduction (David B. Williams –SVP & head of Chubb Specialty Insurance in Canada)
Introduction to Chubb:• Chubb – Publicly traded company listed on NYSE (CB) with a $17
billion market cap.• Chubb Specialty Insurance (CSI) is a $2.9 billion division focused
on Financial Institutions, Fidelity, D&O, miscellaneous E&O, EPL, & Fiduciary lines.
• Chubb’s Financial Strength Rating (FSR) is “A++” from AM Best, “AA” from Fitch, “Aa2” from Moody’s, & “AA” from Standard & Poor’s, all independent evaluators of the insurance industry.
• Chubb’s senior unsecured corporate debt rating from S&P was upgraded from “A” to “A+” on December 15th, 2008. S&P also reaffirmed all of Chubb’s ratings with a “stable” outlook.
• Chubb continues to have a stable outlook from all four of the rating agencies.
History of Chubb’s relationship with ICAC & Sinclair-Cockburn Financial Group.
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Presenters/Sponsors
Chubb Insurance Company of Canada1. David B. Williams2. Trudy Haas3. Benjamin Wright4. Michael Densham
Borden Ladner Gervais LLP1. Prema Thiele2. Marsha Gerhart3. Angela Vivolo
Sinclair-Cockburn1. Darren Rodrigues
Investment Counsel Association of Canada1. Bob Hill2. Katie Walmsley
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Seminar Overview
Overview of NI 31-103 & Questions – P. Thiele/M.Gerhart.
Chubb’s FIB Capabilities & the New Insurance Requirements –B. Wright.
Recent E&O Claims Trends – A. Vivolo.
Chubb’s Claims Department – T. Haas
E&O and FIB Underwriting Considerations – B. Wright
FFIA & FIB Policy Coverages – B. Wright.
Chubb Summary – B. Wright.
Chubb’s New Cyber Security Product Offering – M. Densham.
Summary & Questions?
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ENSURING YOUR COMPLIANCEWITH NI 31-103
Chubb Insurance Company of Canada
Investment Counsel Association of Canada
Sinclair Cockburn Financial Group
Tuesday, January 19th, 2010
Prema Thiele &
Marsha Gerhart
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Advisers and Registrable Activity(the new reality)
Adviser
Portfolio Manager Exempt Market DealerInvestment Fund
Manager
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Advising Activity – Things to Consider
Changes in Requirements:Proficiency.
Supervising Associates.
Permitted Clients.
Conflicts of interest.
Exemptions from Registration:Sub-advisers.
Québec and Nova Scotia.
Transition Issues:Adding categories.
CCOs.
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Dealing Activity – is Registration Required?
EMD Registration:If “in the business of dealing” in “exempt products” or with accredited investors.
Requirements to Consider:Proficiency.
Capital and insurance.
No underwriting allowed.
Transition issues.
Exemptions Available:Proprietary pooled funds.
Western jurisdictions.
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Investment Fund Manager Registration – What’s this all about?
Who?“Investment Fund Manager” of an “Investment Fund”.
Resident vs Non-resident.
UDP and CCO.
When?Resident - Sept 28, 2010.
Non-resident – Sept 28, 2011
Where?Jurisdiction of head office (for now).
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Insurance Requirements - PM
Portfolio Manager:Policy must contain specific clauses.
Double aggregate limit or full reinstatement.
Not holding client assets.
Holding client assets.
Transition if registering as IFM.
No surety bonds.
Global Bonding or Insurance.
Notification of Change/Claim/Cancellation.
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Insurance Requirements – EMD & IFM
EMD:Policy must contain specific clauses.
Specific $ amounts per clause.
Double aggregate limit or full reinstatement.
IFM:Policy must contain specific clauses.
Specific $ amounts per clause.
Double aggregate limit or full reinstatement
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Other Notable Requirements for Registrants
Referral arrangements.
Outsourcing expectations
Relationship disclosure obligations.
Policies and procedures
Books and records.
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Questions?
Lawyers • Patent and Trade-mark Agents
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Thank you
Prema Thiele [email protected] 416-367-6082
Marsha Gerhart [email protected] 416-367-6042
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Chubb’s FIB Capabilities
#1 Fidelity bond writer in North America based on premium – independent SFAA data (4th year in a row).
We have a national presence, with local representation in Toronto, Montreal, Calgary, & Vancouver.
Can offer all of the following Fidelity Bond types:Form-14/B – For all of the NI 31-103 registration categories of Adviser, Dealer, & Investment Fund Manager (IFM).
Form-24/A – For banks, trust companies, & other lending institutions.
Form-25/C – For insurance companies.
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Chubb’s FIB Capabilities
Both of our Form-14 and Form-B FIBs meet all of the registration requirements of NI 31-103, including:
The provision of a double aggregate.
Insuring Clauses A to E (Form-14) or 1 to 5 (Form-B).
Notice of Cancellation/Termination to the relevant provincial or territorial securities commissions (done by endorsement).
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Chubb’s FIB Capabilities
Comparing the Form-14 to the Form-B:Insuring Clause A – Employee Dishonesty (vs. Employee Fidelity in the SAA Form-14).
Insuring Clause B – On Premises.
Insuring Clause C – In Transit
Insuring Clause D – Forgery or Alteration.
Insuring Clause E – Extended Forgery (vs. Securities in the SAA Form-14).
Counterfeit Money (vs. Counterfeit Currency in the SAA Form-14).
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Chubb’s FIB Capabilities
Form-B also adds the following features:The elimination of the “Manifest Intent” requirement.The elimination of the dual trigger.Automatic coverage for newly acquired subs.Central handling of securities.Un-certificated securities.Computer Systems Fraud coverage.Facsimile Signatures coverage.Fraudulent instructions forgery incl. signatures of employees.Counterfeit Money IC incl. money of any country.Non-Cancelable except for Non-Payment of Premium.
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New Insurance Requirements
Applies to all of the NI 31-103 registration categories of:
Dealers (Section 4.21) – Most risky.
Advisers (Section 4.22).
Investment Fund Managers (Section 4.23) – Least risky.
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New Insurance Requirements
The key take-away is how you define “handle, hold, or have access to”, as that is the trigger point for the higher insurance requirements. In the absence of this trigger, the required limit can be as low as $50,000, which is what it is now.
If they are deemed to have Custody over client funds, the highest of the following applies:
• 1% of the Adviser’s AUM or $25M, whichever is less.
• 1% of the Adviser’s Total Assets or $25M, whichever is less.
• $200,000.
• An amount as determined by the BOD of the Adviser.
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New Insurance Requirements
Section 4.24 – Global Financial Institution Bonds.• How are subsidiaries of a foreign company treated?
Section 4.25 – Notice of Cancellation/Termination.
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New Insurance Requirements
How do you define “Custody”?
Impossible to give a definitive answer as that’s up to the provincial securities commissions to make a determination, but the NI 31-103 Companion Policy does give some guidance.
Lawyers • Patent and Trade-mark Agents
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RECENT CLAIM TRENDS AND AVOIDING LIABILITY
Chubb Insurance Company of Canada
Investment Counsel Association of Canada
Sinclair Cockburn Financial Group
Tuesday, January 19th, 2010
Angela Vivolo, Partner, Borden Ladner Gervais LLP
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I. Liability of Investment Counsel/ Portfolio Manager
Davidson v. Noram Capital Management Inc., [2005] O.J.No. 4964 (S.C.J.) (Cumming J.) - Breach of FiduciaryDuty
Facts:Noram registered under Ontario Securities Act as Investment Counsel Portfolio Manager.Willman was principal and directing mind of Noram.Plaintiffs (included 3 retired couples with no significant experience as investors) retained Noram as their PM and opened discretionary portfolio managed accounts.Signed Standard Wrap Agreements - required Willman to invest plaintiffs’ capital conservatively in government bonds, corporate bonds and debentures.Willman’s investment strategy floundered; invested all of the plaintiffs’ funds in convertible bonds and debentures.Plaintiffs’ accounts deteriorated; sued Willman and Noram for breach of fiduciary duty.
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I. Liability of Investment Counsel/ Portfolio Manager
Admissions to the OSC:
Willman and Noram improperly managed portfolios, failed to deal fairly, honestly and in good faith with their clients, did not act in the best interests of clients and acted contrary to prudent business practice.
Willman failed to take adequate steps to ensure that securities bought and sold on behalf of clients and that Noram’s overall investment strategy were suitable or appropriate in view of the clients’ net worth, income, investment knowledge and experience and investment objectives and employment/retirement status.
Willman failed to disclose the risks involved in his intended investment strategy to his clients.
OSC terminated Noram’s and Willman’s registrations and imposed a permanent prohibition from trading securities.
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I. Liability of Investment Counsel/ Portfolio Manager
Civil Liability:
Cumming J. reviewed the regulatory regime for Investment CounselPortfolio Managers and the duties of registrants to “know the client” and ensure investment recommendations are appropriate.
Wrap Agreements specified the plaintiffs’ investment objectives and limited permissible investments.
Willman was aware of the ages and circumstances of the plaintiffs when they signed the Wrap Agreements and that they were risk-adverse.
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I. Liability of Investment Counsel/ Portfolio Manager
Cumming J. held that a fiduciary relationship existed between Willman and his clients:
Willman was their financial advisor.
Trust and confidence were placed in him as financial advisor; Willman knew this.
Plaintiffs were unsophisticated investors; relied entirely upon his skills and knowledge.
Willman acted in his sole discretion in making their investments through discretionary managed accounts.
Plaintiffs were vulnerable and relied upon him to act in their best interests; Willman was aware of their reliance.
As a fiduciary, Willman was obliged to exercise care, skill and diligence with respect to transactions on behalf of Noram’s clients:
Required to assess and monitor suitability of the client for type and scale of trade and ensure client not exposed to undue risk of capital loss.
PM must act in accordance with the investment objectives set out in its agreement with the investor.
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I. Liability of Investment Counsel/ Portfolio Manager
Willman also owed duty of care to provide the standard of care required of an investment advisor.
PM has a duty to advise. This duty is not simply an obligation to inform but requires directed information “designed to guide its recipient toward a decision consistent with his interest”.
Duty to ensure that the client is fully informed as to all material matters relevant to his/her investment portfolio; non-disclosure is a breach of this duty.
Certain factual situations can give rise to a duty to warn the client of the risks of that action.
Failure of a fiduciary to disclose information about a risk can result in liability if the failure to disclose denied the client the opportunity to avoid losses.
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I. Liability of Investment Counsel/ Portfolio Manager
Found Willman breached his fiduciary duty and did not meet the standard of care required of a PM:
No real discussion of risk tolerance with plaintiffs when account opened.
No discussion as to risk tolerance on an ongoing basis.
No meaningful discussions with clients regarding inherent dangers and risks of margin.
Improperly managed the plaintiffs’ portfolios.
Investments were inappropriate given the plaintiffs’ stated investment objectives.
Made misleading statements to the plaintiffs in respect of their investments.
Willman personally liable for breach of fiduciary duty and negligence.
Noram was vicariously liable for unlawful acts of Willman.
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I. Liability of Investment Counsel/ Portfolio Manager
Damages:
Damages for breach of fiduciary duty will include both capital losses and damages for loss of opportunity.
Willman and Noram jointly and severally liable to compensate the plaintiffs for all of their investment losses based on the valuator’s calculations.
Independent Valuator calculated plaintiffs’ damages as the difference between the reasonably expected value of the money they invested with Noram, given their expressed investment objectives, and that actual value of their investments due to the alleged breach of duty by Noram and Willman.
used the Scotia Capital Universe Bond Index to determine what reasonably expected values were
Plaintiffs did not fail to mitigate their damages.
Punitive damages were not appropriate in this case, however given the breach of fiduciary duty and management of the plaintiffs’ investment portfolios, costs were awarded on a substantial indemnity basis.
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II. Recent Claim Trends
More of the same:Suitability Claims:
Failure to construct an investment portfolio that mirrors client’s investment objectives and risk tolerance levels.
Failure to know the client.
Failure to ensure that an investment, originally suitable remained suitable.
Failure to update KYC.
Over-concentration in single investments or in single industry sectors; lack of diversification of investments.
Recent Cases:
Mazzarolo v. BMO Nesbitt Burns Ltée (2009).
Gale v. Scotia McLeod (2008).
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II. Recent Claim Trends
What’s New?
Product specific claims:
Suitability vs. product due diligence:
− Portus.
− Olympus.
Causation issues (e.g. is cause of the loss the attributes/character of the product itself or the fraud of the principals?).
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III. What to expect if you are sued
1. Complaint Letter/Response.
2. Statement of Claim Issued.
3. Statement of Defense.
4. Affidavit of Documents.
5. Examination for Discovery.
6. Mediation/Pre-trial.
7. Trial.
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IV. Avoiding Liability
General Professional Obligations:
Maintain current knowledge of applicable legislation, regulations and rules.
Attend continuing education courses.
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IV. Avoiding Liability
Really know your client:
NI 31-103 (Sections 13.2 and 13.3).
Go beyond the application form and KYC principles
Understand your client’s unstated objectives, needs and pressures (or you will learn about them soon enough).
Actively listen to what your client is telling you – and not telling you.
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IV. Avoiding Liability
Practice defensively:Document what you do, including by retaining electronic copies of documents:
Record in writing:− Disclosures provided to the client.
− Client consents.
− Correspondence.
− Detailed notes of all meetings between you and the client and third parties.
Young v. RBC Dominion Securities (2008) – electronic record-keeping system.
Keep copies of all documents provided by client.
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IV. Avoiding Liability
Be scrupulously accurate:
“Over-inform” where appropriate.
Before client signs, review objectives and risk tolerance with the client, explain what it means and ensure buy-in.
Confirm your discussions re: objectives and risk tolerances in writing.
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IV. Avoiding Liability
Account Maintenance & Changing Objectives:
NI 31-103 (Section 13.2(4)).
Keep in regular contact with clients.
Re-confirm objectives and risk tolerances on regular basis.
If objectives/risk tolerances are changing, update the KYC.
Ensure changing objectives and risk tolerances match client’s age, income, net worth, etc..
Keep notes of conversations and copies of documents exchanged.
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IV. Avoiding Liability
Know how to identify and avoid problem clients - trust yourself and your instincts.
Lawyers • Patent and Trade-mark Agents
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Thank you
Angela Vivolo [email protected] 416-367-6708
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Chubb’s Claims Department
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FFIA - Key Underwriting Factors
Claims/litigation history & regulatory issues.
Years in business, performance, size.
Change in assets under management, clients lost vs. gained.
Change in management and employee turnover.
Client profile.
Ownership and affiliated businesses.
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Underwriting Questions/Guidelines
Is there an External Custodian?
Are portfolio Financial Statements sent directly to all clients by the firm?
Does the Custodian also send financial statements directly to each client, independent of the Investment Manager?
Are address changes made in writing by all clients, with confirmations of the address change sent to both the old & new address?
Are the claimed returns implausible?
What is the flow of funds on new client investments? ie. Is it by cheque only? Who are cheques made out to?
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FFIA Policy Structure
A. Employment Practices Liability (EPL).
B. Fiduciary Liability (FID).
C. Directors and Officers Liability (D&O).
D. Outside Directorship Liability (ODL).
E. Investment Advisers Errors and Omissions
Liability (E&O).
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FFIA Advantages
One integrated policy.
Duty to Defend wording.
25% Acquisition Reporting Threshold.
100% Defense Cost Allocation.
Worldwide Coverage.
“Deliberate” Fraud – Final Adjudication.
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FFIA Advantages
Spousal Liability included.
Non-Cancelable except for Non-Payment of Premium.
No built in Regulatory or Takeover Exclusions.
One simplified application for all coverages.
Severable exclusions/representations for Insured Persons, specific Insured Persons knowledge imputed to entity.
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Chubb Overview
General Information.
Credit Rating.
Service Levels
Lawyers • Patent and Trade-mark Agents
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CyberSecurity by Chubb®
Insurance for Privacy Breaches
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EXTRA, EXTRA – READ ALL ABOUT IT!
“City of Regina
apologizes for privacy
breach” CBC News 11 Feb 09
“Privacy breach shocker:
Albertans' health records
exposed to computer hacker”
Edmonton Sun 9 Jul 09
“RCMP warn online scams on the rise” CBC News 7 Oct 08
“Experts: protecting Games' networks
from cyber threats a challenge” CTV
Olympics News 7 Nov 09
“FBI: Cyber crooks stole
$40M from U.S. small,
mid-sized firms” Washington
Post 26 Oct 09
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Privacy Breaches Incur Real Costs
A 2009 survey of more than 600 Canadian IT security professionals by TELUS and the Rotman School of Management at U of T found that on average(2):
IT security breaches – including viruses, intellectual property theft and abuse by employees – cost reporting organizations $834,149 in 2009, almost double the amount reported in 2008
IT security breaches soared to 11.3 per reporting organization in 2009, compared to 3 each in 2008
In 2008, ~17% of reporting organizations had “insider breaches” compared to 36% in 2009
(2) Globe & Mail 29 Sep 2009
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Privacy Breaches Incur Real Expenses
In the US, based on a survey of 17 industry sectors with a survey range of 4,200 to 113,000 records held(3)
Data breach costs averaged $202 per compromised record, up 11% since 2006.
Average cost per reporting company was $6.6mln per breach
Lost business due to a breach averages $4.59mln or $139 per compromised record
88% of all cases resulted from negligent handling of client records whereas 12% resulted from malicious acts
(3) 2008 Ponemon Institute Benchmark Study
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Causes of Breach(4)
Laptop – 35%.
System Failure – 33%.
Other Data Bearing Device – 14%.
Paper Spill – 7%.
Cyber Attack / Hack – 5%.
Lost media / backup 5%.
Social Engineering – 1%.
(4) Ponemon Survey – Cost of A Data Breach, 2008
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Privacy Legislation - Canadian Perspective
FEDERAL LEGISLATION:Personal Information Protection and Electronic Documents Act(PIPEDA).Privacy Act – applies to government institutions.
PROVINCIAL LEGISLATION:BC: Personal Information Protection Act (PIPA).Alberta: Personal Information Protection Act (PIPA).Quebec: An Act Respecting the Protection of Personal Information in the Private Sector (QPPIPS).Saskatchewan, Manitoba and Ontario: Health and Information Protection Act (HIPA), Personal Health Information Act (PHIA), Personal Health Information Protection Act (PHIPA).Other Provinces / Territories rely on PIPEDA.
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Notification Laws for a Privacy Breach
US:42+ States.
Mandating that organisations inform those individuals potentially affected by such a breach Many jurisdictions such as the European Union and Australia have tabled Bills or passed Acts legislating mandatory data breach disclosure.
Canada:have instituted voluntary guidelines.
federal government released a proposed model in June 2008 to impose mandatory notification.
Bill 54 in Alberta – First Canadian Province.
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CyberSecurity – Liability Triggers
Disclosure Injury.
Conduit Injury.
Content Injury.
Impaired Access Injury.
Reputational Injury.
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CyberSecurity Coverage Optional Insuring Clauses
Insuring Clause:
(B) Privacy Notification Expense.
(C)(1) Crisis Management.
(C)(2) Reward Expense.
(D) E-Business Interruption Expense and Extra Expense.
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CyberSecurity Coverage Optional Insuring Clauses
Insuring Clause:
(E) E-Theft Loss.
(F) E-Communication Loss.
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Questions
?????(G) E-Threat Expenses.
(H) E-Vandalism Expenses.
