It all starts with understanding the full scope of exposure your clients face.
Because a lot more businesses than you think could really use and need this coverage.
It's not simply for big public companies and fancy high-profile board of directors.
There are a lot of small and midsize businesses that find themselves in trouble from a claim they didn't expect.
Eric Kaufer, Attorney at Wilson Elser, breaks down what can go wrong when management has a bad day.
Joey Giangola: Eric Kaufer, how you doing today, sir?
Eric Kaufer: Doing well, Joey. How are you doing?
Joey Giangola: Eric, I'm doing all right. I am doing all right. I have to know this before we really go anywhere, and as you've told me, sounds like born and raised in the New York area, what topping ruins pizza?
Eric Kaufer: I'm a traditional a pizza guy. I don't even go pepperoni. I think the New York pizza is done just right and you don't need to add anything to it.
Joey Giangola: We can definitely agree there. If I had to take a fairly common item, I would say black olives. People might riot about that. But, I mean, I can handle pepperoni, but black olives just changes the complexion.
Eric Kaufer: I think I can handle it all. I think all pizza is delicious no matter what. Maybe anchovies.
Joey Giangola: Yeah. I don't think it's fair to add any of the crazy ones that never really had any business to be on a pizza in the first place. The ones that generally are there. All right. Well, then favorite New York place? I'll just maybe get that out of the way. If somebody's coming to-
Eric Kaufer:Joe's Pizza.
Joey Giangola: All right. That's the place to go in your opinion?
Eric Kaufer: Yep. That's it. That's the one.
Joey Giangola: All right. Well, I want to take this over to the world of insurance and the idea is that generally having too much coverage rarely ruins a policy. Of course, there are maybe very few exceptions. But in the world of small business I think people don't take that approach to where they think, "Oh, if I have this coverage it's going to do something." Right? And how many instances have you seen businesses not maybe have coverage for an issue, a circumstance, that maybe would've been easily covered around that liability space, owning that business, and where they could have saved themselves a lot of trouble?
Eric Kaufer: Sure. I think there are a lot of components, especially to management liability insurance. And I've seen situations where a company would elect to have D&O insurance and then an EPL claim comes in, employment based claim comes in. Maybe a harassment claim and they're just left out the dry where those sort of things aren't necessarily covered. Litigation progresses and they just don't have the support that they may need.
And vice versa, it goes both ways. You have employment based coverage aspects and components where you anticipate maybe issues with employees, retaliation claims, whistleblower claims, but you don't really anticipate... You think, "I don't really have shareholders. There may not be liability here. I don't need D&O insurance. We don't have security exposure." And then you get a mismanagement claim. If there's no D&O coverage, if you don't have that component, again, you're just left out the dry without support and I see that quite often.
Joey Giangola: Yeah. There's often that sort of maybe sense of false security in a lot of times or maybe just a lack of awareness of the true potential scenarios. Is there something that stands out to you that you see maybe over and over again to where businesses constantly underestimate the potential claim scenario where they might be at risk?
Eric Kaufer: I do think it's in the D&O front. I think a lot of companies will lean towards employment based coverage, but they don't really anticipate the exposure in regards to D&O claims, directors and officers claims. They can be just commercial disputes with competitors, commercial disputes with vendors and sometimes those risks aren't considered.
Joey Giangola: Why is it that the D&O gets overlooked so easily? Mainly because they're just not fully aware of the structure of the company and the potential that can kind of crop up out of that?
Eric Kaufer: I think it's easy to think about the relationship with other employees that you have or clients and really consider the exposure there in terms of claims that can be made. And I think it's a little bit more abstract thinking about the claims that can be made against a director or an officer in terms of business disputes. People kind of just think of it as a securities based coverage, securities like shareholder coverage. And I think it goes way beyond that and we see a lot of issues that, quite frankly, security based claims are very rarely seen. It's more of commercial disputes between competitors, vendors, investors, those sort of situations.
Joey Giangola:I mean, how far down the small business chain do you think? Up until like the sole proprietor, mom and pop shop? Again, even those family scenario where people think, "Ah, it's family. I don't think we're going to need this." But even then you never really know what people are capable of until large sums of money are involved.
Eric Kaufer:I think that's exactly right. I think if you're soliciting money from anybody there's exposure there. I've seen claims where... I'm handling a claim right now where someone's starting a school and they had an evaluation of the business and hard times hit two years ago where something like that would struggle. And they're getting sued now for an improper evaluation of what that cost of the school was. And you just never know.
Joey Giangola: Well, even then. I think you brought up interesting point there. The other aspect is you really never know how far or how big a claim can go in those sort of scenarios too. There's kind of the wild card of the person that you're dealing with. How often is, maybe not even just coverage itself, but lack of a sufficient amount of coverage come into play too where maybe they don't have the right limits in place because, again, the lawsuit got out of control?
Eric Kaufer: It is very easy for a lawsuit to get out of control. I think defense costs alone can be significant. I think that's where we come in, especially in my role, where we try to really work with all the parties involved to try to mitigate exposure on all fronts. And most of that exposure, it relates to defense costs. And if you don't have that support you can just bury yourself in litigation and really erode a limit of a policy without even considering the exposure if this thing, lawsuit, goes to trial and you get hit with a judgment. There's a balancing act to consider when navigating claim situation and defense costs can quickly erode a policy limit. And if you don't consider that at the outset you could leave yourself exposed to a judgment and some loss, indemnity.
Joey Giangola: Can you maybe take us inside sort of what that process looks like for an agent out there that might be afraid of what would happen if they found themselves in the middle of one of those scenarios with a client? If somebody like yourself had to step in and start to manage this situation, what does that look like for them and what can they maybe tell their clients to expect in that situation?
Eric Kaufer: It could be a challenging situation and there's pressure on both fronts. And there's pressure from the agent to make sure that their client is sufficiently insured. And on our end, we're trying to navigate situation to protect the insurer's interests and to protect the interests of the insurance carrier. I think everybody's interests align in a way where we can work together to try to leverage some of that coverage component, which is the lack of funding, to maybe facilitate a resolution. But yeah, there's definitely some pressure in regards to the agent and their client dynamic if they could potentially left uninsured or underinsured.
Joey Giangola: Is there anything that you have seen working with that agent in terms of the conversations that they've had or the experiences that you've kind of seen that they've gone through that if you had to give somebody a piece of advice of what to avoid or sort of how to get ahead of this? I guess, is there anything that sort of stands out that you've seen happen time and time that if you had to give an agent sort of a little warning flag, this is something that you kind of see often?
Eric Kaufer: You know what? I think what we see sometimes, when we come across these issues where the limits are being tested, I think normally it occurs because of a defense cost eroding the policy limit. And I think sometimes clients of the agents think that they want their own counsel in place. And they just get litigation heavy instead of really relying on the dynamics that maybe the carrier might have and the relationships that they might have to limit costs and really get on the same page with trying to resolve this thing instead of just running with litigation and getting emotional about it. So I think an issue arises often where defense costs get out of control because of the want or need of the agent's client, the insured, to assign their own counsel. It can get very out of hand.
Joey Giangola: Well, you bring an interesting point on the emotion front, right? What role do you think an agent would maybe play in managing sort of the temperament of their client and how much responsibility do you think they have maybe in guiding this? Again, trying to control it in a way to keep it somewhat under wraps because, like you said, depending on who is involved it can probably get pretty emotional pretty quickly. I mean, what level of involvement should they have and how can they successfully navigate that?
Eric Kaufer: In terms of an agent's perspective with their client, I mean, obviously they have insight and they can strategize and coordinate and discuss the types of coverage that they have and how to navigate a claim. And I think that's also where having good insurance comes into play and having a good infrastructure comes into play. Again, that's our bread and butter. When someone's talking to me they're having a rough day, especially our first call. They're being sued and it's stressful. And you're getting blamed for something that you don't think you did anything wrong. And so we step in initially and we really try to calm the situation, problem solve, strategize. We coordinate with the insureds, we coordinate with the agents. We all try to get on the same play to protect everybody's interests and to really get ahead of any problem to ease the stress. I think that's an important consideration when you're looking for coverage. You want to make sure you have that support and that infrastructure during a very stressful time of a lawsuit or a claim.
Joey Giangola: You said something that was interesting in that if they're talking to you they've had a rough day. Now, insurance agents probably don't have that as often, maybe, as you do. There's probably a higher percentage. How have you learned to deal with that sort of talking to somebody on what might be their worst day in a long time? And agents have to do that less frequently, but obviously if we're dealing with these scenarios, what stands out to you in sort of helping people through that?
Eric Kaufer: I think taking an empathetic approach always helps. Understanding that they're having a tough day if they're talking to me. And really hearing them out, listening to the facts and being straightforward. Letting them know my thoughts initially, an analysis or an assessment on how this can really shape out. And to get them the same page about how we're going to problem solve and really get them out of this situation. If it's a lawsuit, whether by motion or by resolving with something early on to just extricate them pretty quickly if we can.
Joey Giangola: Yeah. I mean, walking that fine line of sort of making sure they're comfortable in the process, but at the same time not providing any sort of false hope and just telling them to them like it is. Do you find that there's a level of respect that's sort of instantly gained in that scenario?
Eric Kaufer: Yeah, I think so. There's definitely a respect and trust and you develop a relationship as a situation plays out. Sometimes these lawsuits can go on for years. We try to avoid that at all costs, but you develop a relationship and if you're straightforward and on top of it at the outset you can develop a very good dynamic and really work together to mitigate any sort of exposures that you may or may not have.
Joey Giangola: Yeah, that's another interesting point, the duration of time that something like this could drag on is something that agent might not be prepared to handle in terms of, again, servicing a client or whatever. Any tips on having the stamina to, again, be there for that duration? Like you said, as it drags on and on and on, coverage has probably gone a couple different ways. And depending on the size of the claim, they might be doing something else with the coverage. What have you seen in terms of the course, the lifespan, of this stuff and what can they expect and how should they be sort of in front of some of these things?
Eric Kaufer: Some of these lawsuits can play out for quite some time. And I think you need to take a customer service approach, proactively reach out, let them know that you're there checking in determining where you are in the process. Maybe following up with the claims team, the attorneys that are involved and seeing how you can help a situation. Again, I think it's important for everybody to be on the same page in protecting... Everybody's interests are aligned in order to mitigate what's going on. To shorten the lawsuit, to mitigate the exposure and open line of communication always helps.
Joey Giangola: So what you're saying is that they shouldn't take the approach of maybe they forgot about the lawsuit that's happening?
Eric Kaufer: Yeah. I wouldn't recommend that.
Joey Giangola: Not something that they're just going to happen to misplace. Yeah. I mean, that's interesting, right? Because again, this is something that we, as insurance agents, they're talking about these things as a reason to buy coverage and to prevent it and to be able to handle it. But at the same time it's something that they're not handling it the day to day, right? If there's something that maybe stands out across this entire conversation, from the coverage point to sort of being in the thick of it, if there's one thing that you could sort of boil it down to sort of really say, "This is the most important thing that you should sort of be on top of right away," what stands out to you in that regard?
Eric Kaufer: At the outset, before there's even a claim or you may ever have a claim, but I think the most important thing to do is to have the documentation of what's going on. If you are having communications with a vendor or a client, everything should be in writing. Everything should be put into writing. You should maintain a file for whoever you're speaking to because you never know. You never know what's going to evolve into a claim. If you're providing evaluation for your company or you're trying to get investors, keep that support. Explain why that's a reasonable valuation and maintain that because you just never know. You can't control who's going to file a claim, but what you can do is have the support and documentation to really help bolster any defenses you may have if something does evolve. So I think the defense really starts even before a claim evolves.
Joey Giangola: Well, and so how many times have you seen that be the case where the documentation wasn't in place and even if there was just a little bit it would've helped the agent quite a bit? Because, like you said, you never know what's going to happen. And you're probably going to go a long time without even having to deal with this, but if you do, this is just good sort of habit that you want to have in place to make sure it goes a lot easier for you.
Eric Kaufer: Yeah. Yeah, we see it all the time. All the time where there's this one document that... On the flip side, we see it where we find the document and it solves the issue like that, but there are countless times. There's lawsuits that are going on for years, it's because we're in discovery, we're trying to figure out what happened, we're trying to figure out if this claim has merit. If we know that early on we can just figure it out and resolve it, but it's important to have that documentation in place one way or the other.
Joey Giangola: All right, Eric. I've got three more questions for you, sir.
Eric Kaufer: Three?
Joey Giangola: Three.
Eric Kaufer: Fire away.
Joey Giangola: Very specific. And the first one is, what's one thing you hope you never forget?
Eric Kaufer: Is this in regards to what we're talking about or just generally speaking?
Joey Giangola: There are no rules here, Eric. You can go in any direction you please.
Eric Kaufer: I hope I never forget to not take things too seriously. It's easy to get pulled into the minutia and get stress and overwhelmed. And I think it's important to take a step back and appreciate your situation and not be too serious about it.
Joey Giangola: Now on the other side of that, what is one thing you still have yet to learn?
Eric Kaufer:I have yet to learn to stop taking things too seriously. I'm kidding. Yeah, I think I'm always learning. That's part of the beauty of even what I do, always coming across situation I've never seen before and it keeps you on your toes. And you're always learning something new, whether it's in the grand scheme of everything or whether it's in defending a claim.
Joey Giangola:All right.
Eric Kaufer: There's a lot to learn.
Joey Giangola: All right. All right, Eric. Last question.
Eric Kaufer: How about you?
Joey Giangola: Eric, nobody's ever made me answer this question. I don't know how I feel about that.
Eric Kaufer: You're the one asking the questions here.
Joey Giangola: You're breaking the system. To be real specific, I mean, I always say it doesn't have to be this big giant thing and I'm always trying to learn very, very small things. I would say right now in the kitchen I can't seem to crack a good stir fry. That's a big challenge of mine so I'm saying learning how to stir fry something and make it edible is really my current challenge right now.
Eric Kaufer: There you go.
Joey Giangola: And I've tried to learn and it's frustrating when you try to learn something and you can't quite execute on it. And I guess, thanks, Eric, for breaking the entire structure of the show. So congratulations on being the first one to do that. All right, Eric, last question to you, sir. And this is going to be interesting because while you're not directly in insurance, you are indirectly affected by it. If I were to hand you a magic wand of sorts to reshape, change, alter, speed up, really any part of insurance, what is that thing, where is it going and what is it doing?
Eric Kaufer: Quite frankly, I would take it to the litigation aspect and I would speed up the process of trying to navigate some of these issues. I think there's a lot of time, and that's coming from a lawyer where we make a living off of this, but I think there's a lot of time that's wasted and a lot of issues being navigated in resolving a claim that is being paid for by insurance or that is bringing in an insured and is very stressful on them. In the theme of what we're talking about, it could take years. And I think that there should be a more efficient process to it. And that's what I would wave my wand to try to fix.
Joey Giangola: Eric, it's been fantastic, sir. I'm going to leave it right there.
Eric Kaufer: Joey, it was a pleasure.