Businesses of all sizes should prioritize developing and implementing a risk management program to protect themselves, directors, officers, and subsidiaries. Last month, Newfront’s John McCall joined panelists Andrea Gildea of Wise and Brittany DeGan of RewardStyle in TechGC’s “Building and Maintaining an Internal Risk Assessment Program” virtual panel.

Identifying what a risk assessment program can look like.

Where to go for additional support and guidance.

The panelists discussed how risk assessment programs should identify where risk and uncertainty could impact business objectives and decide the best path to mitigate those risks, whether through insurance, employee training, or controls. It may involve multiple lines of defense including compliance committees should involve regular internal audits.

When it comes to assessing what risk is, and how much risk to anticipate, best practice is to appoint a constituent from each division of the business to identify all risks relevant to their area and score said risk based on probability and impact. From there, the mechanisms to mitigate those risks can be determined. The most effective programs come to fruition when all parts of the organization come together to bring different perspectives.

Involving third parties can be incredibly beneficial in establishing and maintaining a successful program. Your insurance broker should be able to assist in training legal or other teams in what they should be looking for in contract negotiations in regard to insurance requirements. They can also create a customized reference guide for legal teams outlining what should be looked for in a specific sector. Have outside counsel review your insurance policies. Outside counsel will tell you quickly about the quality of the coverage in place as they work with many clients with different insurance and therefore have further visibility into what is possible. Lastly, an outside insurance consultant will also help dig into proposed policies to ensure you’re not paying for something that sounds better than it really is or unnecessary components of a policy. The outside consultant can also act as a secondary advisor alongside the insurance broker, as well as help companies run an effective interview and selection process to find the right insurance broker for your company.

No organization can be risk-free but finding the right insurance broker and other outside service providers will allow a business to best balance its risk tolerance with the most effective policies, training, and best practices.

Businesses of all sizes should prioritize developing and implementing a risk management program to protect themselves, directors, officers, and subsidiaries. Last month, Newfront’s John McCall joined panelists Andrea Gildea of Wise and Brittany DeGan of RewardStyle in TechGC’s “Building and Maintaining an Internal Risk Assessment Program” virtual panel. Key takeaways include: Identifying what a risk […]

Building and Maintaining a Risk Assessment Program

Co-authored by Kim Cauthorn, COO of PIUS, a specialist insurance MGA.

In a world of 1) increasingly smaller windows of time between periods of economic volatility; 2) a measurable shift over the past half century from tangible assets to intangible assets that now account for 85% of the value of the S&P 500; and 3) an increasing trend towards uncapped contractual indemnification between vendors and customers, it is clear that intellectual property infringement exposure for a technology company is a fast-evolving risk. Managing this risk requires proactive collaboration between a company’s general counsel and chief financial officer to win key customer contracts vital to the company’s growth while also protecting the company’s often delicate balance sheet as it tries to address 1) hypergrowth, 2) market position, 3) cash burn and run rate, and 4) present/future profitability.

What should you think about when negotiating IP infringement indemnifications?

An immediate piece of advice is to make sure that if you agree to indemnify another party (e.g.: vendor or customer), always retain control of the defense…if not, you may lose your ability to seek recoupment from your insurer, which can be the difference between a multi-million 14419 impact to the company or not.  More importantly, you lose control of litigation that has the potential to affect your company the most.

Sally Bracho, Senior Vice President of Claims & Contracts for Newfront, says “We typically see 3rd party IP infringement carved out from a limitation of liability clause, resulting in a significant risk exposure. While it is understandable that a customer would want protection in the event they are sued for IP infringement based on their use of the vendor’s product, we suggest our clients take all possible steps to limit that risk exposure. For example, attempt to limit the definition of “indemnitees” as a broad definition increases the exposure. If your product is integrated into the customer’s product, try to remove “end users” from the definition to lessen the risk exposure or attempt to limit the exposure to direct damages; indirect damages, such as loss of business if the customer cannot continue to sell the product, can be substantial. A super cap can sometimes be negotiated to avoid uncapped liability. We suggest our clients also pay attention to warranty statements, in addition to the indemnity provisions, as an IP warranty may be carved out from the limitation of liability provision.”

Other non-monetary controls in the contract can limit exposure.  Andrew Basile, President of law firm Young Basile, notes, “The indemnifying party should have the right to update the product or service to avoid infringement or to terminate the agreement going forward if an infringement claim is made or appears likely.  In other words, there should be an escape hatch.  The indemnity should also exclude claims based on combinations of the provider’s product or services with third party offerings if the infringement claim is based on the combination.”

Unlike other types of insurance such as management and professional liability insurance, IP infringement liability insurance can be used to backstop a technology company’s contractional duty to indemnify a customer facing a patent infringement lawsuit for using technology supplied by the technology company.

In the financial services sector, this risk is real and can be exponential if a patent holder seeking to monetize its patents targets several customers of a fintech company. Just look at what happened when several Jack Henry customers were sued by Milestone IP. Or, at what happened when USAA won verdicts totaling over 00M against Mitek customer Wells Fargo over remote deposit capture technology. The good news is insurance is available to protect against such risks. As an example, a fast-growing fintech with plans to go public had several contracts with large financial institutions that included IP infringement indemnities. It was able to spread the cost of the insurance across those contracts to hedge against that financial risk.

While IP infringement indemnification risk is real, this next example highlights why it is important for tech companies to remember they can be sued directly too. A small but growing business communications services provider was forced to agree to high caps on the IP infringement indemnities it provided to three of its larger customers. It insisted it only needed IP insurance specific to those contracts. Fortunately, the company was convinced to purchase broader IP insurance because it was sued directly for patent infringement, unrelated to those contracts. The insurer accepted the claim and was able to assist the insured in resolving the claim quickly and cost-effectively. The additional cost to include coverage to protect the insured against IP infringement claims made directly against it outside of the scope of the three customer contracts was negligible.

At the end of the day, intellectual property as a chassis for our economy but also a source of litigation for all companies in the technology sector is only going one direction.  Do your best to balance growth while also managing risk, which can be done with careful attention and negotiation of indemnification to customers/vendors, as well as ever more efficient IP insurance.

This article was originally authored for the TechGC blog. Click here to view the original post.

Co-authored by Kim Cauthorn, COO of PIUS, a specialist insurance MGA. In a world of 1) increasingly smaller windows of time between periods of economic volatility; 2) a measurable shift over the past half century from tangible assets to intangible assets that now account for 85% of the value of the S&P 500; and 3) […]

Managing IP Risk and Contractual Indemnities

The in-house general counsel, more often than not at young fast-growing companies, is unaware of the company’s insurance policy requirements (e.g.: timely notice, consent to counsel and rates), let alone what is even covered under the insurance policies, until the company and/or its directors and officers are in the throes of litigation, or being investigated by regulators, or both.

I recommend the GC be involved in the up-front placement process alongside the finance team. It’s within a finance person’s nature to be primarily focused on the numbers (e.g.: premium) instead of the equally, if not more, important factors of policy wordings and claims expertise and reputation of the insurance carrier. This is where the rubber really hits the proverbial road. A GC’s input and perspective can have a multi-million dollar impact when/if that day or claim comes. When the company has a claim, it’s going to be the GC that’s going to have the arduous task of working with the broker and insurers to get loss paid, especially if there is a disagreement on coverage (that day will come for each of you if it hasn’t already). Don’t start with one arm already tied behind your back due to lack of involvement in the up-front decision making around insurer selection at the time of placing or renewing the policies – it’s worth your time once a year to be involved. A few hours of time spent by the GC in the placement process annually can have an immeasurable result.

What are the most important things the GC should be thinking about when it comes to insurance?

Unlike your auto insurance, the management/professional liability and cyber/crime insurance vertical (a tech and fintech company’s largest premium spend and likely largest risk exposures) is a very small and relationship-driven space. Do you know who your underwriter is and do they understand your business? Have you met the claims manager that will be assessing whether there is coverage or not for the claim? Who are you paying thousands or even millions in premium dollars to each year? These are the people you should know in advance of an “event” because these are the people you are going to be depending on to help you in a time of crisis, make your life easier; not harder, and reimburse your company for millions in defense, settlements, and adverse judgments. Lastly, do you understand the relationship dynamic between underwriting and claims, and the implications that one may have on the other, or are they separate/distinct profit and loss centers? That distinction can be the difference between getting claim denied or paid.

Meet your underwriters (virtually these days) every year so that they understand your ever-evolving risk. A live presentation that gives underwriter’s ability to ask questions will always yield better results. You should always control the narrative with your underwriters so that they don’t form their own, potentially uninformed, assumptions and “fill in the blanks” themselves. Unless those blanks are filled in proactively, the underwriter will always assume the worst case because that’s their job. You are building your relationships with underwriters that will hopefully be your advocates in getting a future claim paid. The point of the meeting with underwriters is to build a partnership. You want underwriters walking away wanting to fight for you.

No policy is created equal when it comes to policy language and ultimately coverage. Does the insurance carrier control defense or does the company? If the company has the duty to defend, can the company only choose from a panel of pre-approved lawyers stipulated by the insurance carrier or can they go outside the panel? What’s the insurance carrier’s approach to law firm rates charged? Does the insurance carrier hire the cheapest attorney possible or are they helpful/thoughtful in working with you to find the best defense for the case to all parties’ benefit? What is this insurance carrier’s overall claims reputation? All scenarios are workable, and there are pros/cons to each, but it’s a conversation that should be had upfront with the carrier and your broker to make sure it’s the right fit for both parties.

Who is your broker? And I don’t mean what company, but who individually is ACTUALLY doing the work? Who are you entrusting to negotiate the policy language where the difference between “and” and “or” can be the difference between a claim denied and millions in recovery for your company? At the first “full stack” Tech GC Conference I ever went to in San Francisco, I remember a breakout roundtable discussion led by a GC, that will remain nameless, who said “insurance brokers suck” as a blanket statement. Wrong. As an insurance broker myself and former underwriter that has worked or negotiated with most of the brokers in the US, please believe me when I say there are some amazing brokers (individuals) out there. Finding the right broker comes down to these 5 factors:

Process and Strategy – Does your broker have a strategy and process for how they want to approach the market and why? Each year, is the broker critiquing their own work (e.g.: policy language and coverage) to continually make improvements every year? Are they factoring in how your company is evolving in size, products, geography, and ultimately the company’s risk profile and appetite.

Creativity – Make no mistake, insurance policies are highly negotiable and can and should be customized specific to every unique company.

Experience – Especially in the difficult insurance market we sit in now, brokers with experience through different market cycles is a necessity. Brokers who have been previously underwriters are extremely well positioned because they have the underwriter’s perspective and therefore know what levers to pull, and most importantly are looked at by underwriters as peers first, brokers second. Those relationships developed on the carrier side are invaluable when you come to the negotiating table, which leads to my next point below:

Relationships – Strong senior level relationships with the decision-makers at insurance companies is critical. A broker’s strength of relationship with underwriters, and subsequently the individual broker’s reputation, is going to weigh highly on the terms and pricing you are able to secure. Underwriters are willing to stick their necks out and get creative, but only for brokers they have strong relationships and good reputational standing and trust. This is the unquantifiable part of making sure you choose the right broker.

References – The most important thing you can do when considering one broker from the next is ask for and call their references! Once again, while the broker’s firm is important, the individual that is actually negotiating the deal on your behalf is more important. This is the person(s) that is going to represent you to the market…birds of a feather fly together.

GCs need to be involved in the insurance placement process each year; not just when litigation occurs or investigations ensue. Pick your partners carefully.

“Knowing your carrier’s claim ‘philosophy’ is critical, particularly with more complex and high profile risks like D&O,” says Todd Greeley, Financial Lines Chief Operating Officer for QBE North America. “With more complex risk transfers, I can’t overstate the value of partnering with a carrier that offers technical expertise and engaged claim professionals who will approach your claims with the mindset of helping you get the best outcome – rather than on how it can avoid paying a claim. And you don’t want to learn that your carrier’s approach to claims doesn’t match your expectations in the middle of a high-stakes claim. Talk to your broker about the carrier’s claim reputation, and ask to meet the key claim decision-makers in the underwriting process today. This will help build a strong relationship where you can be assured you’ll be heard and receive the communications and outcomes you deserve when something goes wrong,” adds Greeley.

“The GCs who tend to get the best results during the claims process are those who have been transparent and up-front during placement regarding their risks and preferred claim resolution strategies,” says Dereick Wood, SVP, National Claims Services & Client Engagement at Newfront. “Are you willing to litigate a defensible claim to the mats? Or do you prefer to focus on the most efficient way to expedite a settlement and avoid legal cost and reputational exposure? When GCs are clear and consistent regarding claim philosophy with their insurance partners during placement, that synergy leads to a more focused and cohesive approach when the claim lands.”

The in-house general counsel, more often than not at young fast-growing companies, is unaware of the company’s insurance policy requirements (e.g.: timely notice, consent to counsel and rates), let alone what is even covered under the insurance policies, until the company and/or its directors and officers are in the throes of litigation, or being investigated […]

Insurance: The GC's Role & What to Think About

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Articles from John McCall

Building and Maintaining a Risk Assessment Program

Managing IP Risk and Contractual Indemnities

Insurance: The GC's Role & What to Think About

Newfront for Businesses

Newfront for Employee Benefits

Newfront for Private Clients

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Articles from John McCall

.css-13o7eu2{display:block;}Building and Maintaining a Risk Assessment Program

Managing IP Risk and Contractual Indemnities

Insurance: The GC's Role & What to Think About

Newfront for Businesses

Newfront for Employee Benefits

Newfront for Private Clients

Blog ‍

Connect ‍
with ‍
us. ‍

Building and Maintaining a Risk Assessment Program