CO-AUTHOR REJECTS AIG D&O REPORTPosted On: Aug. 2, 1998 12:00 AM CST
COLUMBUS, Ohio -- An attorney who specializes in directors and officers insurance issues is distancing himself from a white paper he co-authored on the Year 2000 problem.
In a letter sent to some brokers and insurers, Dan A. Bailey, a partner at Arter & Hadden L.L.P. in Columbus, Ohio, asserts that most standard D&O policies will cover claims related to Year 2000 problems.
The assertion is in marked contrast to an executive summary of the white paper, which was commissioned by a unit of American International Group Inc. and sent to AIG policyholders. The white paper stated that standard D&O policies may not cover Year 2000 claims (BI, July 13).
Mr. Bailey's letter adds to a growing controversy surrounding AIG and its position on Year 2000 coverage.
Mr. Bailey would not comment on the letter or the white paper summary. However, copies of both documents, which Business Insurance obtained, show contrasting views.
The executive summary sent out by National Union Fire Insurance Co. of Pittsburgh, Pa., an AIG unit, stated that D&O policies silent on the Year 2000 issue "will rarely (and poorly) serve the best interests of the board of directors."
Mr. Bailey said in his letter that he does not agree with the portion of the white paper regarding D&O coverage. He states in his letter, dated July 15: "We do not believe there (are) likely to be significant coverage defenses unique to Year 2000 claims under standard D&O insurance policies offered by insurers today. Thus, D&O policies that are silent regarding coverage for Year 2000 exposures are generally not deficit for that reason."
Mr. Bailey goes on to say there may be a "marginal" advantage in obtaining confirmation of Year 2000 coverage from an insurer through a letter or policy endorsement; such actions will ensure that insurers do not deny coverage for Year 2000 claims by arguing that the millennium is a "fortuitous event" not covered by insurance.
However, Mr. Bailey states further, "Because we suspect the vast majority, if not all D&O insurers, are unlikely to raise that coverage defense in any event, we do not view that coverage clarification as essential for insureds, but potentially helpful."
National Union recently launched its D&O Gold policy, which expressly covers Year 2000 liabilities (BI, May 25).
Mr. Bailey's letter concludes, "Even in the absence of such a coverage clarification, though, we believe it is likely that Year 2000 claims generally will be covered under an insurer's standard D&O insurance policy to the same extent as other types of similar claims."
Other authors of the white paper were Milbank, Tweed, Hadley & McCloy of New York; Coopers & Lybrand L.L.P. of New York; and John V. Guttag, professor of computer science and engineering at the Massachusetts Institute of Technology. Listed as providing additional assistance are New York law firms Cahill, Gordon & Reindel, and Cravath, Swaine & Moore.
When the contents of the white paper were revealed, National Union stated that it had only commissioned the report and did not necessarily endorse its findings. However, in a letter accompanying the executive summary, the insurer said the report "offers practical suggestions for protecting your organization and its management."
The management of Year 2000 problems requires dialogue among insurers, brokers and policyholders, National Union President John Cavoores said in a statement in response to Mr. Bailey's letter.
"It also requires educational efforts such as the white paper and is not an issue that can be summed up as simply as Mr. Bailey does in his letter," he said.
Also, the white paper was not intended to establish coverage positions regarding Year 2000 exposures, he said.
The letter by Mr. Bailey adds another element to what is becoming a controversial issue for AIG. Earlier, AIG had sent a letter to policyholders on the Year 2000 issue that said little about insurance coverage, but some observers said it could signal AIG's intention to deny Year 2000-related claims made on commercial liability policies (BI, June 29).
Additionally, AIG's near-silence
on D&O coverage for Year 2000 claims is in contrast to competitors Chubb Corp. of Warren, N.J., and Reliance National Insurance Co. of New York. The two insurers earlier this year stated they would treat Year 2000 D&O claims like any other D&O claims.