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2018 Power Broker

Renewable Energy

A Partner to Weather All Storms

Susan Garrard, AIS, AINS
Managing Director
Beecher Carlson, Boston

Beecher Carlson’s Susan Garrard supported a client through a complex transaction involving the purchase of a lease interest in a portfolio of power projects from a bankrupt company.

“A material chunk of the portfolio is in a part of the country seriously affected by the hurricanes this year,” explained the client’s managing director, “so we have been trying to close deals over multiple potential claims.”

In some cases, the extent of damage remained unclear for a while. The company needed to ensure that new insurance would be available once the transaction closed.

“Susan has been creative, helpful and patient while dealing with these significant challenges on a portfolio that is very important to us,” said the managing director.

Garrard’s approach to carriers was that they were already on the risk and had an opportunity to recoup some premium. The lead carrier declined, but Garrard persisted down the list and found one carrier that concurred.

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“Susan has been a fantastic partner,” said the founder of another client company. “She, and her colleagues, helped me manage through purchasing a large property and liability insurance policy for a portfolio of solar projects last year, and then renewing that policy this year.

“With their help she managed the barrage of questions associated with my financing. They were actually more helpful than my internal insurance department at my last company. I could not have navigated the insurance buying process without her.”

A Precedent for Success

Geraldine Kerrigan
Executive Managing Director
Beecher Carlson, Boston

“Geraldine has revamped how we have developed our wind projects [internationally] and set an incredible precedent,” said the director of insurance and risk management for a client of Beecher Carlson’s Geraldine Kerrigan.

“We had been limited in the coverage [available] in the local market. We were faced with subpar service and limited options.

“Geraldine was able to provide multiple options for our projects to manage our exposures at a significant advantage. We completed our first construction close using one of Geraldine’s designs and have set an effective precedent and model for our future projects in the region.”

That model was wholeheartedly accepted by the company’s headquarters as well as local offices, “which is a really big deal,” said the client.

There were more than a few variables in the equation. The revamped program would have to meet the approval of local partners and contractors, as well as lenders and management at the client in the U.S.

For example, that meant looking beyond usual markets for catastrophe coverage that would be placed internationally but meet local requirements in places where wind energy is still relatively new.

Kerrigan was able to engage a major European underwriter that also had a presence in the region where the client had operations. The result was an English policy form with limits and deductibles that were in line with the client’s existing worldwide program as well as compliant with all local regulations.

The Know-How to Get It Done

Mary Leighton
Senior Vice President
Beecher Carlson, Boston

Renewable energy is no longer considered “alternative,” with wind and solar setting the cost basis in some wholesale markets. The complexity of transactions has evolved as well.

“This year we sold a large renewable facility,” said the VP of finance for a client of Beecher Carlson’s Mary Leighton.

“It was our largest transaction to date, and Mary led the way through the transaction for our program and working with the buyer as well.” Mary’s leadership helped ensure the process went smoothly, said the VP.

The client praises Leighton for supporting most of the firm’s activities, including refinancing another large operation and doing advance work for expansion into Asia.

“Mary really took on the tax equity structure in the refi. She made sure that the risk was balanced on both sides. Lenders always ask for the world and she was instrumental in bringing a realistic business approach to the risk.”

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Another client operates a waste-to-energy facility. Insurance costs were rising every year, and still renewals were difficult. When Leighton took on the business, she had her work cut out for her.

Leighton updated and streamlined the program, focusing on gaps but also on inefficiencies and excesses. That set the stage for an aggressive campaign to put the client in front of new markets. Leighton was able to pare the casualty program to the essentials. Liability costs were cut by almost a third.

Getting Ahead of Hurricane Claims

Michael Perron, ARM, P.E.
Power Generation Practice Leader
Willis Towers Watson, New York

With named storms wreaking havoc in 2017, some brokers impressed clients with their expertise in handling claims or even completing renewals or placements while claims were still open.

But for one client of Willis Towers Watson’s Michael Perron, the broker’s most impressive feat was what did not happen as the result of the year’s big storms.

“We did have some potential claims,” said the company’s international risk manager, “but importantly some of the loss-control that was put in place before the storm may have prevented major losses.

“This was a major win. I am a former property insurance broker, and based on that experience, I can say that Mike was very tactical in what he put together for us.”

The key was a detailed review of several policy sublimits. Perron specified certain ones to increase, including service interruption, doubling that. So when a hurricane left the area without power for a protracted period, the higher service interruption limit could not have been more timely.

Another client, a solar-panel developer, needed clarity on their third-party liability exposure for panels installed on residential properties. The client’s counterparties were seeking coverage that the client thought was excessive.

Perron worked with underwriters for the client as well as for the counterparties to quantify both the liability and property risks. In the end, the client purchased a limit higher than what had originally given them pause, but that decision was driven by hard data.

An Objective Expert

Marc Toy
Senior Vice President
Beecher Carlson, Seattle

“Marc Toy was able to help me navigate the correct decision in purchasing non-standard insurance,” said the VP of project finance at one of Toy’s clients, a solar developer.

“We use third-party tax equity in our capital structure. One tax-equity investor wanted us to provide a certain level of production insurance for the first few years. That is not standard.

“We were choosing between an established firm offering this coverage and a new entrant. Marc walked me through the policy for each and presented the pluses and minuses. He did not promote either option, even though going one direction was in his favor. Marc just provided clear and objective analysis of both policies.”

Insurance to support the viability of a portfolio of solar projects — and to backstop the revenue stream in the event of an energy shortfall event — is gaining traction in the sector. As yet, there are just a few carriers offering it, so brokers have a challenge taking this risk to market.

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“We have an extremely complicated international company structure,” said the director of insurance and risk management at another client. “Marc was instrumental in ensuring our risk exposures, public and private, were adequately addressed.

“Throughout numerous company evolutions this year, he has been able to mitigate any detrimental effects to our worldwide master liability coverage while obtaining extremely competitive rates to our programs.”

The Innovation to Win

James Wagner, CPCU, CIC
Senior Vice President
Marsh, Charlotte, N.C.

A client of Marsh’s James Wagner had a joint-venture wind farm that was approaching the end of original equipment manufacturers (OEM) warranty. The warranty included maintenance on site.

“We knew we needed to be competitive in the bid process to perform the maintenance ourselves and compete against the OEM’s bid, which was a full wrap with one price for service and labor,” said the risk manager for the client. The company needed a way to provide the confidence of a full wrap to the board.

“Jim listened and concluded that we needed ‘financial smoothing.’ This type of coverage did not exist, but he brought the concept to a specialty underwriter and together they were able to create ‘cost cap’ coverage. Using that, we won the bid.”

The cost cap is essentially a layer of coverage that sits above the annual maintenance to provide protection against inaccurate projections of maintenance costs.

Since the placement was such a success, the client has placed it for several other farms that had also fallen off warranty. Those multiple placements allow the company to proceed with other business ventures.

Also, the client’s all-risk property carrier has since lowered its rates on the wind farms with the new warranty in place.

“Jim has helped to create a world-class property program for us,” said another client. “He worked tirelessly to make sure all the pieces aligned and the program we implemented was solid and yields the savings we projected to the shareholders.”

More from Risk & Insurance

More from Risk & Insurance

Pharma Under Fire

Opioids Give Rise to Liability Epidemic

Opioids were supposed to help. Instead, their addictive power harmed many, and calls for accountability are broadening.
By: | May 1, 2018 • 8 min read

The opioid epidemic devastated families and flattened entire communities.

The Yale School of Medicine estimates that deaths are nearly doubling annually: “Between 2015 and 2016, drug overdose deaths went from 33,095 to 59,000, the largest annual jump ever recorded in the United States. That number is expected to continue unabated for the next   several years.”

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That’s roughly 160 deaths every day — and it’s a count that’s increasing daily.

In addition to deaths, the number of Americans struggling with an opioid disorder disease (the official name for opioid addiction) is staggering.

The National Institute on Drug Abuse (NIDA) estimates that 2 million people in the United States suffer from substance use disorders related to prescription opioid pain relievers, and roughly one-third of those people will “graduate” to heroin addiction.

Conversely, 80 percent of heroin addicts became addicted to opioids after being prescribed opioids.

As if the human toll wasn’t devastating enough, NIDA estimates that addiction costs reach “$78.5 billion a year, including the costs of health care, lost productivity, addiction treatment, and criminal justice involvement.”

Shep Tapasak, managing principal, Integro Insurance Brokers

With numbers like that, families are not the only ones left picking up the pieces. Municipalities, states, and the federal government are strained with heavy demand for social services and crushing expenditures related to opioid addiction.

Despite the amount of money being spent, services are inadequate and too short in duration. Wait times are so long that some people literally die waiting.

Public sector leaders saw firsthand the range and potency of the epidemic, and were among the first to seek a legal reckoning with the manufacturers of  synthetic painkillers.

Seeking redress for their financial burden, some municipalities, states and the federal government filed lawsuits against big pharmaceutical companies and manufacturers. To date, there are more than 100 lawsuits on court dockets.

States such as Ohio, West Virginia, New Jersey, Pennsylvania and Arkansas have been hit hard by the epidemic. In Arkansas alone, 72 counties, 15 cities, and the state filed suit, naming 65 defendants. In Pennsylvania, 16 counties, Philadelphia, and Commonwealth officials have filed lawsuits.

Forty one states also have banded together to subpoena information from some drug manufacturers.

Pennsylvania’s Attorney General, Josh Shapiro, recently told reporters that the banded effort seeks to “change corporate behavior, so that the industry can no longer do what I think it’s been doing, which is turning a blind eye to the effects of dumping these drugs in the communities.”

The volume of legal actions is growing, and some of the Federal cases have been bound together in what is called multidistrict litigation (MDL). These cases will be heard by a judge in Ohio. Plaintiffs hope for a settlement that will provide funding to be used to help thwart the opioid epidemic.

“From a societal perspective, this is obviously a big and impactful issue,”  said Jim George,  a managing director and global claims head with Swiss Re Corporate Solutions. “A lot of people are suffering in connection with this, and it won’t go away anytime soon.

“Insurance, especially those in liability, will be addressing this for a long time. This has been building over five or six years, and we are just now seeing the beginning stages of liability suits.” 

Basis for Lawsuits

The lawsuits filed to date are based on allegations concerning: What pharma knew or didn’t know; what it should have known; failure to monitor size and frequency of opioid orders, misrepresentation in marketing about the addictive nature of opioids; and false financial disclosures.

Opioid manufacturers, distributors and large drugstore chains together represent a $13 billion-a-year industry, meaning the stakes are high, and the pockets deep. Many have compared these lawsuits to the tobacco suits of the ’90s.

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But even that comparison may pale. As difficult as it is to quit smoking, that process is less arduous than the excruciating and often impossible-to-overcome opioid addiction.

Francis Collins, a physician-geneticist who heads the National Institutes of Health, said in a recorded session with the Washington Post: “One really needs to understand the diabolical way that this particular set of compounds rewires the brain in order to appreciate how those who become addicted really are in a circumstance where they can no more [by their own free will] get rid of the addiction than they can get free of needing to eat or drink.”

“Pharma and its supply chain need to know that this is here now. It’s not emerging, it’s here, and it’s being tried. It is a present risk.” — Nancy Bewlay, global chief underwriting officer for casualty, XL Catlin

The addiction creates an absolutely compelling drive that will cause people to do things against any measure of good judgment, said Collins, but the need to do them is “overwhelming.”

Documented knowledge of that chemistry could be devastating to insureds.

“It’s about what big pharma knew — or should have known.  A key allegation is that opioids were aggressively marketed as the clear answer or miracle cure for pain,” said Shep Tapasak, managing principal, Integro Insurance Brokers.

These cases, Tapasak said, have the potential to be severe. “This type of litigation boils down to a “profits over people” strategy, which historically has resonated with juries.”

Broadening Liability

As suits progress, all sides will be waiting and watching to see what case law stems from them. In the meantime, insurance watchers are predicting that the scope of these suits will broaden to include other players in the supply chain including manufacturers, distribution services, retail pharmacies, hospitals, physician practices, clinics, clinical laboratories and marketing agencies.

Litigation is, to some extent, about who can pay. In these cases, there are several places along the distribution chain where plaintiffs will seek relief.

Nancy Bewlay, global chief underwriting officer for casualty, XL Catlin

Nancy Bewlay, XL Catlin’s global chief underwriting officer for casualty, said that insurers and their insureds need to pay close attention to this trend.

“Pharma and its supply chain need to know that this is here now. It’s not emerging, it’s here, and it’s being tried. It is a present risk,” she said.

“We, as insurers who identify emerging risks, have to communicate to clients. We like to be on the forefront and, if we can, positively influence the outcome for our clients in terms of getting ahead of their risks.”

In addition to all aspects of the distribution chain, plaintiffs could launch suits against directors and officers based on allegations that they are ultimately responsible for what the company knew or should have known, or that they misrepresented their products or signed off on misleading financial statements.

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Shareholders, too, could take aim at directors and officers for loss of profits or misleading statements related to litigation.

Civil litigation could pave the way, in some specific instances, for criminal charges. Mississippi Attorney General Jim Hood, who in 2015 became the first state attorney general to file suit against a prescription drug maker, has been quoted as saying that if evidence in civil suits points to criminal behavior, he won’t hesitate to file those charges as well.

Governing, a publication for municipalities and states, quoted Hood in late 2017 as saying, “If we get into those emails, and executives are in the chain knowing what they’ve unleashed on the American public, I’m going to kick it over to a criminal lawsuit. I’ve been to too many funerals.”

Insurers and insureds can act now to get ahead of this rising wave of liability.

It may be appropriate to conduct a review of policy underwriting and pricing. XL Catlin’s Bewlay said, “We are not writing as if everyone is a pharma manufacturer. Our perception of what is happening is that everyone is being held accountable as if they are the manufacturer.

“The reality is that when insurers look at the pharma industry and each part of the supply chain, including the pharma companies, those in the chain of distribution, transportation, sales, marketing and retail, there are different considerations and different liabilities for each. This could change the underwriting and affect pricing.”

Bewlay also suggests focusing on communications between claims teams and underwriters and keeping a strong line of communication open with insureds, too.

“We are here to partner with insureds, and we talk to them and advise them about this crisis. We encourage them to talk about it with their risk managers.”

Tapasak from Integro encourages insureds to educate themselves and be a part of the solution. “The laws are evolving,” he said. “Make absolutely certain you know your respective state laws. It’s not enough to know about the crisis, you must know the trends. Be part of the solution and get as much education as possible.

“Most states have ASHRM chapters that are helping their members to stay current on both passed and pending legislation. Health care facilities and providers want to do the right thing and get educated. And at the same time, there will likely be an uptick in frivolous claims, so it’s important to defend the claims that are defensible.”

Social Service Risk

In addition to supply chain concerns, insurers and insureds are concerned that even those whose mission it is to help could be at risk.

Hailed as a lifesaver, and approved by the Food and Drug Administration (FDA), the drug Naloxone, can be administered to someone who is overdosing on opioids.  Naloxone prevents overdose by blocking opioid receptor sites and reversing the effects of the overdose.

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Some industry experts are concerned that police and emergency responders could incur liability after administering Naloxone.

But according to the U.S. Department of Justice, “From a legal standpoint, it would be extremely difficult to win a lawsuit against an officer who administers Naloxone in good faith and in the course of employment. … Such immunity applies to … other professional responders.”

Especially hard hit are foster care agencies, both by increased child placements and stretched budgets. More details in our related coverage.

While the number of suits is growing and their aim broadening, experts think that some good will come of the litigation. Settlements will fund services for the addicted and opioid risk awareness is higher than ever. &

Mercedes Ott is managing editor of Risk & Insurance. She can be reached at [email protected]