By DAN REYNOLDS, senior editor of Risk & Insurance®
A rapidly warming trend of claims in connection with the whistle-blower provisions of the Dodd-Frank financial regulation legislation stands to upset a professional lines market that was already facing pricing uncertainty.
In a November report on its whistle-blower program, the Securities and Exchange Commission reported that it received 334 whistle-blower tips between August 12 and September 30. Dodd-Frank, which represents a sweeping attempt to regulate publicly traded companies and their subsidiaries, establishes a bounty of between 10 percent and 30 percent of any monetary sanctions over $1 million to be paid to whistle-blowers whose information leads to successful enforcement action. The SEC established its whistle-blower office in August.
To Gregory Keating, a Boston-based attorney who co-chairs the Whistle-blower and Retaliation Practice for employment practices firm Littler, times have never been more ripe for whistle-blower claims against companies and their officers and directors.
He said he personally has seen a spike of more than 150 percent in whistle-blower and whistle-blower retaliation cases in the past two years. He added that the damages sought in these types of cases are much larger than in other types of employment practices claims.
"I would say that the demand letters dwarf almost any other type of employment litigation cases, except perhaps the class actions which get into the millions of dollars as well," Keating said.
"I can tell you this, I have had a half a dozen cases in the past year where the demand letter was well into the seven figures and that is definitely on the very high end of employment cases, which typically there is a lot at stake but usually it is not a multimillion-dollar demand," Keating said.
In October, Littler conducted a survey of 51 senior executives, the majority of whom were from S&P 500 companies. Of those executives, 96 percent said they were either very concerned or moderately concerned about potential whistle-blower claims.
Torus, the global specialty insurer, also conducted a survey on a related topic, querying 102 executives at the Professional Liability Underwriting Society International Conference in San Diego in early November.
That survey revealed that 30 percent of respondents see a changing pricing environment in professional liability as a major cause for concern.
Jeffrey Grange, senior vice president, head of professional lines at Torus, said an insurance catastrophe loss year that will eclipse $100 billion is tightening the market overall, and Dodd-Frank is going to specifically pressure professional lines.
"Now, what we are seeing in the specialty arena is a lot of nervousness," Grange said. "You are seeing things like Dodd-Frank and the impact of the financial crisis and many other exposures that are looming on the horizon, so the specter of increased exposure and heightened risk is staring the underwriters squarely in the eye," Grange said.
Keating said his firm has more than 125 associates and shareholders in its newly formed Whistle-blower and Retaliation Practice at Littler, and is looking to add more.
"There is no doubt that this is a growth area," he said, "and has been recognized as such by our firm and we are systematically looking to hone our expertise and grow our group."
November 23, 2011
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