U.S. CAPTIVE INSURANCE LAW
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Why A Captive Insurance Company Should Cover Employment Claims

9/28/2016

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We're hosting a webinar titled "An Introduction to Captive Insurance" on Thursday September 29.  You can register at this link.

If you're unsure if your company is a viable captive candidate, we'll perform a free evaluation​
 It starts with a conversation that lasts between 30-60 minutes and is followed by an analysis of your currently in force insurance policies.

We formed and operate the first series LLC in Montana (named Aegis) for captive insurers.  Several other firms provide key services such as accounting, audit and actuarial work.  Please contact us at 832.330.4101 if you'd like to discuss forming a captive for your company
     

   There are several reasons why insurers offer employment liability as a separate policy, starting with the potential cost of each claim:

The reality is that defending a discrimination or other employment lawsuit is expensive. Defending a case through discovery and a ruling on a motion for summary judgment can cost an employer between $75,000 and $125,000. If an employer loses summary judgment (which, much more often than not, is the case), the employer can expect to spend a total of $175,000 to $250,000 to take a case to a jury verdict at trial.

Most employers, if acting rationally, will chose to retain an employee instead of assuming the risk of a $250,000 legal bill with an uncertain outcome. Moreover, employers cannot avoid this risk simply by settling every claim that is filed, lest the company risk the perception of being an easy mark by every ex-employee.


Second, there’s a 10% chance of this risk occurring, which is a higher probability than insurers desire.  The following causes of action are the most common: discrimination, discriminatory discharge, retaliation and harassment (for further information, please see the EEOC database located at this link). 

   The higher probability of occurrence combined with large payouts makes this risk perfect for a captive.  Writing this policy in your captive provides two distinct advantages over third party policies:

  1. Control over policy language: insurers or insurance company organizations such as ISO write insurance policies.  While certain interpretive presumptions supposedly counter-balance this advantage, these are insufficient to effectively level the playing field.  For example, some policies state the insurer will only reimburse “reasonable” legal fees, potentially granting the insurer the ability to minimize payments, thereby compromising the insured’s defense.  Contrast this with a captive insurance company, where the insured writes the policy, thereby granting him maximum drafting flexibility.  Ask any lawyer whether or not they want control over contract drafting and they’ll invariably tell you, “yes.”    
  2. Control over the litigation process: some insurers have a cadre of on call attorneys who defend insureds; others have a list of attorneys they recommend while still others have a maximum rate they’ll pay for representation, leaving the insured to find an attorney within a specified price range.  The basic problem with all of these options is the insurance company is still somehow involved with the process, potentially altering or even interfering in the attorney client relationship.  Compare that to a captive, where the insured is also the insurer, granting the insured maximum control over the litigation process.    
These two facts provide sufficient justification for a captive writing this policy.  Please call us at 832.330.4101 if you’d like to learn more.
 

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They Could Have Used a Captive Insurance Company: Blue Bell Ice Cream

9/22/2016

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We're hosting a webinar titled "An Introduction to Captive Insurance" on Thursday September 29.  You can register at this link.

If you're unsure if your company is a viable captive candidate, we'll perform a free evaluation​
 It starts with a conversation that lasts between 30-60 minutes and is followed by an analysis of your currently in force insurance policies.

We formed and operate the first series LLC in Montana (named Aegis) for captive insurers.  Several other firms provide key services such as accounting, audit and actuarial work.  Please contact us at 832.330.4101 if you'd like to discuss forming a captive for your company
     

   Blue Bell is often referred to as Texas’ ice cream.  It is sold in many restaurants and is prominently displayed in most local grocery stores.  Blue Bell has also suffered from several product recalls over the past several years.  Last year, they recalled a large amount of product due to a listeria contamination at their Brenham, Texas facility.  And now there is
news of another recall:

Blue Bell Creameries recalled select flavors of ice cream distributed across the South after finding chocolate chip cookie dough from a third-party supplier for use as an ingredient was potentially contaminated with listeria, the Brenham, Texas-based company announced Wednesday.

Blue Bell said it was recalling half gallons and pints of Blue Bell Chocolate Chip Cookie Dough and half gallons of Blue Bell Cookie Two Step made at its Sylacauga, Alabama, creamery after intensified internal testing found the cookie dough from Garner, Iowa-based Aspen Hills Inc. potentially tainted, according to a Blue Bell statement.
 

While these facts are unfortunate, they also point to several common insurance policies issued by captive insurance companies:

Product Recall:
this is at the heart of Blue Bell’s current situation; the company must expend funds to remove product from store shelves.  A product recall policy would cover this expense.

Product Liability: any company that places a product into the “stream of commerce” faces the possibility that the product will harm a third party.  A product liability policy would cover the company for this risk.

Brand Rehabilitation: Blue Bell is currently facing a PR nightmare; their name is once again associated with a tainted product.  The company needs to engage in “brand rehabilitation;” they’ll have to hire a PR firm to improve their public image.  A Brand Rehabilitation policy would cover this risk.

Legal Liability:
it’s probable that Blue Bell will have to hire an attorney to sue the third-party vendor who provided the cookie dough.  A legal liability policy would cover this risk.

Contractual Liability:
a contractual liability policy provides coverage for two distinct contract risks: a third party breach -- where the counter-party doesn’t perform their contractually agreed too promises -- and “anticipatory repudiation,” where the counter party acts in such a manner that the parent company would be forced to breach.  A contractual liability policy would cover the costs associated with this risk.  
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Why Your Captive Should Issue an Employee Theft/Fidelity Policy

9/4/2016

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We're hosting a webinar titled "An Introduction to Captive Insurance" on Thursday September 29.  You can register at this link.

If you're unsure if your company is a viable captive candidate, we'll perform a free evaluation​
 It starts with a conversation that lasts between 30-60 minutes and is followed by an analysis of your currently in force insurance policies.

We formed and operate the first series LLC in Montana (named Aegis) for captive insurers.  Several other firms provide key services such as accounting, audit and actuarial work.  Please contact us at 832.330.4101 if you'd like to discuss forming a captive for your company


While no one wants to think their employees steal, it's a remarkably common occurrence.  Consider the following facts from a 2012 report written by the Association of Certified Fraud Examiners:


  1. Survey participants estimated that the typical organization loses 5% of its revenues to fraud each year. Applied to the estimated 2011 Gross World Product, this figure translates to a potential projected global fraud loss of more than $3.5 trillion.
  2. The median loss caused by the occupational fraud cases in our study was $140,000. More than one-fifth of these cases caused losses of at least $1 million.
  3. The frauds reported to us lasted a median of 18 months before being detected.
  4. Perpetrators with higher levels of authority tend to cause much larger losses. The median loss among frauds committed by owner/executives was $573,000, the median loss caused by managers was $180,000 and the median loss caused by employees was $60,000.
  5. The vast majority (77%) of all frauds in our study were committed by individuals working in one of six departments: accounting, operations, sales, executive/upper management, customer service and purchasing. This distribution was very similar to what we found in our 2010 study.
  6. Most occupational fraudsters are first-time offenders with clean employment histories. Approximately 87% of occupational fraudsters had never been charged or convicted of a fraud-related offense, and 84% had never been punished or terminated by an employer for fraud-related conduct

These facts explain why our captives routinely write an employee fidelity policy.
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  • Welcome
  • Basic Information
    • Who Should Form a Captive?
    • Convert To A Pure Captive
    • How We Work
  • Following the Rules
    • Introduction to Anti-Avoidance Law
    • Substance Over Form
    • Sham Transaction
    • Step Transaction Doctrine
    • The Economic Substance Doctrine
  • Articles
  • Blog
  • About US