Neil Maser, Cedar Square Insurance and Financial Services

Technology, of course, encompasses a wide range of services and

businesses. To name but a few, these of course include those involved in

information technology, service technology, including engineering and design

work, as well as lab, facility, and field testing operations. Others may

be more focused in the area of product innovation and design, and computer

soft ware programming with for a wide variety of applications As you can

see, the diversity in this evolving field can present unique challenges when

they come before an insurance company.

What I would like to do this morning is make some general comments about

what a commercial insurance policy is and then deal with more specific

issues and common problems I sure some of you have encountered when you take

on contracted work and try and obtain the necessary insurance to satisfy

your client or customer. Hopefully I will get through my presentation in 15

minutes or so, and then open the floor if anyone has any questions.

For our purpose here today, I will not discuss any consideration for health

or disability insurance or the need for Director's and Officer's liability

insurance. So what is Business Insurance? What are your client's looking

for when they ask you to provide evidence of insurance?

Generally, a well-written business insurance policy will address five major

areas of coverage. The first three, which includes coverage on your

property, business interruption coverage, and crime are usually quite easy

to obtain and usually quite affordable. Unfortunately, someone looking to

you for proof of insurance, may not really care if you choose to insure any

of the first three! What they are looking for is proof you have general

liability insurance

I will just make a few brief comments on the first three before I move on to

the liability portion. Coverage on your "Property" deals with insuring

your business contents-for example, your office equipment, perhaps your

building, and perhaps the need for off-premises coverage on property, against

perils such as fire, theft and vandalism etc. Hopefully this is done on a

replacement cost basis.

Business Interruption, on the other hand, simply provides a means of

generating funds to replace lost income and the provision of money for extra

expenses following an event such as a fire, while crime coverage protects

against loss of money from things like robbery or hold-up and includes

employee fidelity.

As I mentioned earlier, the first three areas present little challenge in

obtaining and anyone looking for evidence of coverage will generally not be

too concerned whether you have this or not, with perhaps the exception of

your banker!

"Commercial General Liability Insurance" - This is the area where

technology based businesses often run into difficulty and it is, in most

instances, what your client is looking for when they require evidence of

insurance. It is typically purchase in increments of $1M, $2M, or $5M.

What does general liability insurance protect against? This coverage

protects the business entrepreneur, and often the client if they insist on

being added to your policy as an additional insured, for claims against

you for any " bodily injury or property damage as a consequence of the use

of occupancy of your premise, your product, or the service or operation you

provide. Not only will the policy pay if you are found negligent in terms

of injury someone or damaging their property, it also looks after your

legal expenses along the way.

This is probably the most important aspect in understanding "why"

insurer's are reluctant and often do not want to freely grant this coverage,

particularly to a technology entrepreneur. An insurer's concern stems from

what is referred to as the "product and completed operations hazard"

As I move along today, this will be the focus of my discussion because it

clearly presents the greatest challenge to obtaining liability coverage.

At this point, I would like to briefly mention the fifth and final area of

coverage. This is known as "Professional Liability" insurance and is more

commonly referred to as "errors and omissions" coverage or "malpractice" as

it is known in the medical field. This type of coverage deals with your

"competence" in the area or field in which you work.

This type of coverage is often purchased through a professional society or

association such as OPEGGA although it certainly can by bought separately

and in the context of our discussion today, "professional liability" will

refer to coverage for errors in design, engineering, non-performance,

among other things.

As I mentioned a few minutes ago, our discussion will revolve around the

area of liability, particularly general liability, and to a lessor extent,

professional liability.

So what is the big deal or problem for a technology based entrepreneur in

getting general liability insurance? Why doesn't an insurance company

simply take your money(as much as they can) and give you a policy?

Firstly, by their very nature, insurance companies are very conservative!

If they do not " fully" understand something, they are far less inclined to

offer favorable pricing or indeed offer coverage at all, at any premium!

Something which is new, something with little history or marketplace place

experience leaves underwriter's nervous and far more likely to say NO when

asked to provide a $1M, perhaps $2M, or even $5M blanket line of credit,

which is essentially what a policy of insurance is. Think of the fun you

would have at the bank with no security whatsoever if you tried to arrange

the same thing!

A very simplistic analogy which influences modern day underwriting stems

from the enormous long term problems that resulted for insurer's when they

issued product liability policy's for manufacturer's of asbestos years ago!

Who would have thought that simple product would have resulted in the

financial nightmare that followed. The insurance policy was priced with

little knowledge of the magnitude of future claim costs.

So how does as an entrepreneur deal with this? Simply put, you give your

broker all the information he requests, whether it be in the form of

professional training, pamphlet's , brochures, marketing material,

website's, completed applications, and anything else that will help your

broker can sell "you" and your business , and make it as attractive as

possible to a potential underwriter. The more clearly they understand what

you are doing, the more likely you can expect favorable results.

I would like to make a comment on website's before I come back to the

"product and completed operations" discussion. Today, everyone uses

websites to promote their businesses, even the simplest businesses often

look like a Fortune 500 company's, involved in all sorts of interesting

things, offering products and services and expertise in a wide range of of

activities. Remember, underwriter's look at website's too! I have been

called many times by an anxious underwriter who has visited a website and

been shocked and greatly disturbed by what he has seen! It's a great

promotional vehicle but ironically, it may not necessarily be a good thing

when some already a little uncertain about what you do, who you work , is

looking to insure you!!.

Getting back to our discussion about the "product and completed operations

hazard", this is, of course, the area where the coverage for the product

you make, design, sell, or service you offer, comes from, and normally

where the underwriter gets scared off. With globalization and the

widespread use of the internet, worldwide distribution of ideas,

technologies, services and products has brought into focus differing values,

responsibilities, and willingness to litigate and presented serious

challenges for insurers. A contract of insurance, which after all is a

legal document, contemplates Canadian and Provincial rights and

responsibilities and must now recognize and face far reaching scrutiny in

places it was never intended, particularly US litigation.

One only need recall the MacDonald's coffee incident in California where a

patron spilled his coffee on himself and managed to get $60,000 USA out of

the deal.

Another reason for reluctance you may run into when looking for liability

coverage is recent verdicts which have "blurred the line" in terms of

defining what is a professional liability or error and omission's claim and

a general liability claim. As a consequence of litigation and the deep

pocket syndrome, many general liability insurers simply will NOT issue a

policy until confirmation is received that professional liabillty is in

place. Put another way, insurer's have found themselves in court incurring

expenses to defend themselves from allegations that they took the client's

money, they should have given the client the proper coverage in the first

place, even if, for example, they do not offer and had no intention of

picking up the professional liability exposure!!.

A interesting misconception I often run into is the assumption that field

tests, trials, prototypes, soft ware program and research etc is the

responsibility of the particular government agency one is working with. I have

heard comments that "they will look after things" if something goes wrong!

Yet, it is that very same agency or company that insists you must be

insured. In this context, you can effectively interchange the words "

insurance and responsibility" ! They are one of the same! I can assure you

that someone will be looking to you for responsibility if any opportunity

exits to shift blame and you will be obligated to possibly defend yourself

in a court of law.

The other day I was reading in one of our industry publication's and an

article which I felt was rather timely and I though I might share it with

you here today. A disturbing trend seems to be emerging in the

information technology or IT sector whereby a vendor launches an initial

lawsuit to collect unpaid fee's from a customer and then is promptly

counter-sued with allegations of non-performance. The IT sector is

particularly prone to "performance based disputes" due to inherent bugs,

fixes prevalent in any new or customized application. (Professional Liability

Issue)

So what does proper liability insurance look like. Obviously, it includes

both general liability and professional liability. Where do you get it? As

a rule, the mainstream insurance marketplace, which includes well known

brands like ING, AMA, Royal & Sunalliance, Dominion, Wawanesa, AXA, to name

a few, typically are reluctant and although not in every case but for the

most part do not cater to technology based business requiring both general &

professional liability. It does not hurt for your broker to have them take a

look at your operation but generally speaking they will decline.

That leave us with what is known as the "Specialty Markets" -companies

like Elliott Special Risks, Encon, St Paul Fire & Marine, Cree Church, to

name a few, and of course group associations I mentioned earlier.

Unfortunately, with more specialized underwriting and fewer insurer's,

greater lead time is required, greater demand for information, such as

lengthy applications, and of course higher premiums are likely.

All of this of course inevitably leads to the classic struggle between cost

and coverage. When underwriter's hear language like electronic,

metallurgical and mechanical support services, destructive testing,

explosive simulations, computer programming, field trials, remote piloted

vehicles, airborne platforms and contracts with the Dept of National Defence,

is simply scares the hell of them!

Full disclosure in terms of what you are doing, ample lead time for your

broker to search the market, and a willingness to include professional

liability as part of your protection package should will go a long way

toward acquiring general liability with the least hassle.

With that, this brings me to the conclusion of my presentation and I would

like to thank-you for your attention this morning. Hopefully, I did not

bore you too badly.