Freeing Cargo From Captivity
Kraft and Heinz announced their merger in the spring of 2015, around the time of Heinz’s May 1st renewal. The impending marriage spurred Senior Manager of Corporate Risk Management Carlos Dezayas to rejigger his insurance portfolio ahead of the acquisition’s finalization.
“We were looking for the most efficient structure for the combined program so that everything would be in place on day one of the merger,” Dezayas said.
He found that the Kraft Heinz cargo program was sorely in need of an overhaul.
“The cargo program was run through our captive, with a $25,000 retention held at the business unit level and a $225,000 retention at the captive. The problem was that we only had captive licenses in the EU, U.S., Canada, Australia and New Zealand,” he said.
This meant that import/export operations from countries such as China, Japan, Korea, Costa Rica and Brazil were vulnerable. Whenever a claim breached the local deductible but not the captive deductible, it was difficult to get cash into those countries to make claim payments; large cash infusions were subject to a variety of local taxes.
Heinz also could not collect premium from the unlicensed countries.
“Essentially we were overcharging the business units in the licensed countries to make up for the fact that we could not charge any premium from the unlicensed countries,” Dezayas said.
Working with Marsh broker Herman Brito, Dezayas removed the cargo program from the captive structure, retained the local business unit deductibles and established locally admitted policies written by AIG.
The move was atypical — most companies don’t move from a captive to a fully insured plan — but it paid off.
“A year and a half down the road, this seems to be a more stable structure for us,” he said.
“It has allowed the business units to be comfortable knowing we have the coverage in place and that their claims will be paid. It also creates more visibility and transparency across the entire program, which is what senior management expects from their insurance portfolio.”
“[The new program structure] has allowed the business units to be comfortable knowing we have the coverage in place and that their claims will be paid.” — Carlos Dezayas, senior manager, corporate risk management, The Kraft Heinz Co.
In addition to increasing efficiency, the new non-captive structure also means Kraft Heinz can collect premium from every business unit while shifting administrative and claims management expenses away from the captive.
Brito, assistant vice president at Marsh, and a 2016 Power Broker® winner, praised Dezayas for his willingness to tackle a project outside of his area of expertise.
“Carlos came from a strong insurance background, but not particularly in marine. When we were undergoing our renewal strategy, he quickly familiarized himself with marine terminology and set out to learn the latest and greatest in the marine world — not an easy task,” Brito said.
“He took the time to walk through the policy language with me and ask the right questions. He was willing to put his trust in Marsh when we discussed changing the captive structure for cargo and was always extremely responsive.” &
Policy Haunts Halloween Attraction
It was a Halloween trick the theater company didn’t expect.
Between Oct. 31, 2014 and the following morning, the Foundation Theatre Group’s haunted house attraction on a floating stationary barge at Chicago’s Navy Pier sank during a storm.
A more disconcerting surprise came afterward: It discovered its commercial general liability insurer denied coverage.
The ghoul, according to the theater group, is their insurance brokerage, which they accuse of negligently failing to place insurance coverage that would “cover, among other things, storms and sinking,” according to a lawsuit filed on June 15.
Foundation Theatre Group sued New Lisbon, Wisc.-based Donat Insurance Services and Kenneth Donat, its director of special events, in U.S. District Court for the Northern District of Illinois, seeking at least $1.5 million in damages.
The brokerage was instructed to protect the theater company “for possible losses to the barge, including marine and hull risks, protection and indemnity insurance, pollution liability insurance, crew insurance and excess insurance,” according to the lawsuit.
“Donat and Donat Insurance, acting as agents for Foundation, negligently failed to exercise the proper knowledge, skill and professional care of someone engaged in the business of procuring insurance policies … ,” the lawsuit alleged.
It noted that the brokerage “promotes themselves as ‘one of the best in the special events insurance industry,’ as someone a customer ‘can truly trust that knows the industry from the inside out,’ and as someone that can provide ‘the most comprehensive coverage available.’ ”
The sinking of the barge resulted in several different lawsuits, including one from Capitol Specialty Insurance Corp., which issued the CGL policy, seeking a court declaration that it does not need to provide a defense or indemnity to the theater group.
Donat’s attorney, Mitchell A. Orpett of Tribler Orpett & Meyer, said in an email that the brokerage denies any liability.
The litigation is “only one version of a complicated situation,” he said, and the theater group is “the target of several other companies who have attempted to blame Foundation and thereby escape their own responsibility and legal liability for the damages they caused at Navy Pier.”
He said the theater group’s lawsuit, “I am confident, [was] only reluctantly filed as a defense to the unwarranted claims of the others. I am confident as well that Foundation’s lawsuit will be resolved without any finding of liability against Mr. Donat or Donat Insurance Services.” &
Think You Don’t Need Environmental Insurance?
“I don’t work with hazardous materials.”
“My industry isn’t regulated by the EPA.”
“We have an environmental health and safety team, and a response plan in place.”
“We’ve never had an environmental loss.”
“I have coverage through my other general liability and property policies.”
These are the justifications clients most often give insurers for not procuring environmental insurance. For companies outside of sectors with obvious exposure — oil and gas, manufacturing, transportation — the risk of environmental damage may appear marginal and coverage unnecessary.
“Environmental insurance is not like every other insurance,” said Mary Ann Susavidge, Chief Underwriting Officer, Environmental, XL Catlin. “The exposure is unique for every operation and claims don’t happen often, so many businesses view coverage as a discretionary purchase. But the truth is that no one is immune to environmental liability risk.”
Every business needs to be aware of their environmental exposures. To do that, they need a partner with the experience to help them identify exposures and guide them through the remediation claims process after an incident. The environmental team at XL Catlin has been underwriting these risks for 30 years.
“Insureds might not experience this type of claim every day, but our environmental team does,” said Matt O’Malley, President, North America Environmental, XL Catlin. “We’ve seen what can happen if you’re not prepared.”
Susavidge and O’Malley debunked some of the common myths behind decisions to forego environmental coverage:
Myth: My business is not subject to environmental regulations.
Reality: Other regulators and business partners will require some degree of environmental protection.
Regulatory agencies like OSHA are more diligent than ever about indoor air quality and water systems testing after several outbreaks of Legionnaires disease.
“The regulators often set the trends in environmental claims,” Susavidge said. “In the real estate area it started with testing for radon, and now there’s more concern over mold and legionella.”
Multiple hotels have been forced to shut down after testing revealed legionella in their plumbing or cooling systems. In addition to remediation costs, business interruption losses can climb quickly.
For some industries, environmental insurance acts as a critical business enabler because investors require it. Many real estate developers, for example, are moving into urban areas where their clients want to live and work, but vacant lots are scarce. Those still available may be covering up an urban landfill or a brownfield.
“We’re able to provide expertise on those sites and the development risks so the contractor can get comfortable working on it. It’s about allowing our clients to stay relevant in their markets,” O’Malley said. “In this case, the developer is not an insured with a typical environmental exposure. But if there is a contaminant on the worksite, they could inadvertently disperse it. In a high-population urban area, the impact could be large.”
Banks also quite often require the coverage specifically because developers are turning to these locations with higher potential environmental risk.
“Though it’s not a legal requirement, insurance is a facilitator to the deal that developers really can’t operate without,” Susavidge said.
Myth: The small environmental exposure I have would be covered under other polices.
Reality: Environmental losses can result from exposure to off-site events and are excluded by many property and casualty policies.
Environmental risks on adjoining properties can lead to major third party losses. Vapor intrusion under the foundation of one property, for example, can unknowingly underlie the neighboring properties as well. The vapor intrusion can then seep into the surrounding properties, endangering employees and guests.
In other words, your neighbor’s environmental exposure may become your environmental exposure.
O’Malley described a claim in which a petroleum pipeline burst, affecting properties and natural resources 10 miles downstream even though the pipeline was shut off two minutes after the rupture. The energy company that owns the pipeline might have coverage, but what about the other impacted organizations? Many other property policies exclude environmental damage.
Sometimes the exposure is even more unexpected. In 2005, for example, a train carrying tons of chlorine gas crashed into a parked train set sitting in the yard of Avondale Mills — a South Carolina textile plant. The gas permanently damaged plant equipment and forced the operation to shut down.
“It’s not always obvious when you have an environmental exposure,” Susavidge said.
“When there is a big loss or a pattern of losses, the casualty market will typically move to exclude it,” said O’Malley. “And that’s where the environmental team looks for a solution. Environmental coverage has been developed to fill the gaps that other coverages won’t touch.”
Myth: We already have a thorough response plan if there is an incident.
Reality: Properly handling an environmental event requires experience and expertise.
In addition to coverage, risk managers need experience and expertise on their side when navigating environmental claims.
“For many of our clients, their first environmental claim is a very different experience because the claimant is not always a typical third party – it’s a government agency or some other organization that they lack experience with,” Susavidge said. “Our claims team is made up of attorneys that have specific domain experience litigating environmental claims issues.”
Beyond its legal staff, XL Catlin’s claims consulting team and risk engineers come with specialized expertise in environmental issues. 85 to 90 percent of the team members are former environmental engineers and scientists, civil engineers, chemists, and geologists.
“Handling environmental claims requires specialized expertise with contaminants and different types of pollution events,” O’Malley said. “That’s why our 30 years of experience makes a difference.”
Thirty years in the business also means 30 years of loss data.
“That informs us as a carrier how to provide the right types of services for the right clients,” Susavidge said. “It gives us insight into what our insureds are likely to experience and help us determine what support they need.”
Insureds also benefit from the relationships that XL Catlin has built in the industry over those 30 years. When the XL Catlin team is engaged following a covered pollution event, the XL Catlin claims team can deploy seasoned, experienced third party contractors that partner with the insured to address the spill and the potential reputational risk. And they receive guidance on communicating with regulatory bodies and following proper reporting procedures.
“The value of the policy goes beyond the words that are written,” O’Malley said. “It’s the service we provide to help clients get back on their feet, so they can focus on their business rather than the event itself.”
For more information on XL Catlin’s environmental coverage and services, visit http://xlcatlin.com/insurance/insurance-coverage/casualty-insurance.
The information contained herein is intended for informational purposes only. Insurance coverage in any particular case will depend upon the type of policy in effect, the terms, conditions and exclusions in any such policy, and the facts of each unique situation. No representation is made that any specific insurance coverage would apply in the circumstances outlined herein. Please refer to the individual policy forms for specific coverage details. XL Catlin, the XL Catlin logo and Make Your World Go are trademarks of XL Group Ltd companies. XL Catlin is the global brand used by XL Group Ltd’s (re)insurance subsidiaries. In the US, the insurance companies of XL Group Ltd are: Catlin Indemnity Company, Catlin Insurance Company, Inc., Catlin Specialty Insurance Company, Greenwich Insurance Company, Indian Harbor Insurance Company, XL Insurance America, Inc., and XL Specialty Insurance Company. Not all of the insurers do business in all jurisdictions nor is coverage available in all jurisdictions. Information accurate as of September 2016.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with XL Catlin. The editorial staff of Risk & Insurance had no role in its preparation.