From Wacky To Serious, E&S Market Writers Take On Unique Exposures

Krewes are organized groups that parade together in costume, typically throwing beads or jewels into the crowd. Unlike other krewes, however, the one seeking coverage traditionally throws coconuts, Ms. Pharo noted. There were a lot of losses because of people getting hurt with these coconuts, and "we had to decide whether to pass on the risk or to throw an exorbitant premium on this."

AIG member company Lexington Insurance, which wrote the policy, finally landed on the idea of requiring the krewe to "take two beaners on the head" (retain losses associated with two separate coconut hits) before the coverage would kick in. That enabled the krewe to get insured, she said, declining to divulge whether more than two beaners were typical in a given year.

There were also a few stories of risks that even E&S carriers wouldn't write.

James Griffith, president of Princeton Risk Managers–a New Jersey-based wholesaler–recalled his struggle to place accidental death and dismemberment coverage on actor Richard Burton.

Mr. Griffith, a past-president of the Kansas City, Mo.-based National Association of Professional Surplus Lines Offices, said he was asked to try to place the coverage by a retail broker handling the insurance program for a movie production a few years before the actor died.

"They had been declined by stateside life insurers and were now reverting to the accidental death coverage to protect the film producers' investment," he recalled.

Mr. Griffith submitted the risk to Lloyd's underwriters he knew who did not compete with U.S. life insurers and could offer AD&D coverage. "Apparently, knowledge of Mr. Burton's lifestyle preceded him and my application, for even the underwriters at Lloyd's declined to offer coverage," he wrote in an e-mail to NU.

Greg Rubel, an executive vice president for Markel Southwest, was ready, willing and able to offer directors and officers and errors and omissions coverage for a mutual fund in the late 1990s when he worked at Markel's Shand Morahan unit. But another famous person–Cuba's president, Fidel Castro–just didn't cooperate to make it happen. In this case, he didn't die, Mr. Rubel recalled.

There were rumors that President Castro was in poor health, and believing that the country would open up to foreign investment upon his death, an investment adviser decided to set up a mutual fund that would invest in Cuba.

His idea was to collect funds and have them ready to go, believing a fund that was among the first to invest in prime Cuban hotel and entertainment properties would have superior returns, Mr. Rubel said.

At the time, Shand Morahan wrote a combined product for investment advisers as well as any mutual funds they established, providing D&O coverage for investment company boards and professional liability for the advisers.

"It wasn't that big of a risk because the market was trending up," Mr. Rubel said–noting, however, that there was some risk because funds would be invested in the U.S. stock market in the interim, potentially confusing some fund investors who would later end up owning Cuban hotels.

Among the conditions of coverage was an exclusion for excessive fees, related to management and research fees the advisor collected. "The possibility existed that he could sit on the funds" or put them in a money market account, charging fees while not doing any work, he explained, highlighting another risk.

However, none of that proved to be the biggest problem for the fund. "Since Castro didn't cooperate"–and remained alive–"the fund folded shortly after inception and never purchased the coverage," Mr. Rubel said.

Proving that the unique risks that fail to get insurance don't all involve the rich-and-famous or the infamous, David Baughman, vice president of First Specialty Insurance Corp., a specialty unit of GE Insurance Solutions, told NU about a declined liability submission for everyday folks–regular Americans sitting on barstools.

Well, not exactly sitting. More like racing. And not inside a bar, but outside–at more than 30 miles-per-hour.

"When I went to the Web site, I had to look twice to make sure I was really seeing what was there," Mr. Baughman recalled about his experience researching the manufacturer of barstool racers. "I thought, 'Is this for real?'" added the underwriter who has written product liability for 23 years.

Expecting a description of a game played inside a barroom, what he saw was a go-cart with a lawnmower-type engine on the back. Welded in place of a go-cart seat that would normally be inches off the ground was a barstool–"your typical round vinyl covered barstool"–with no back, situated so a rider would sit three-feet off the ground, with steering, gas and brake pedals extended within reach.

"This feels like an inherently dangerous product," he said, explaining why he declined to offer coverage. "If you hit something with this, nothing is going to keep you on it. You'll go flying."

Another consideration was the fact that a child could jump on an idle racer and take off, even though it's not sold to children. "We'd just have a tough time defending any type of claim by the nature" of the product, he said.

The account was covered by another carrier for a year before a nonrenewal that brought it back to the market, he reported.

GE Insurance Solutions also offered plenty of examples of unusual exposures that its specialty units did cover–ranging from property risks as large as 52 drawbridges, to those as whimsical as liability coverage for the National Association of Clowns.

Likewise, all the E&S writers responding to NU's call for unusual risks shared many examples where coverage was granted. While some seemed too hot to handle–such as Markel's example of the hot sauce that would explode if it was not refrigerated every 20 minutes–respondents said even bigger explosions were all in a day's work.

"We got it done," said Peter Taffae, managing director for Executive Perils, explaining that he was able to get D&O insurance for Occidental Petroleum when its renewal came up just two weeks after its Piper Alpha platform blew in 1988–and just as easily recalled tales of renewing D&O coverage for corporations threatened with hostile takeovers by legendary corporate raiders.

The Los Angeles-based wholesaler attributes the ability to move forward in these stressful situations to relationships with underwriters.

The underwriters "have to be able to trust you and have faith that if they stay on it, then when things get really rough, you'll support them," Mr. Taffae said. "That's the only reason you get these deals done."

From an insurer's perspective, Dave McDermid, an underwriting vice president for Scottsdale Insurance in Arizona, echoed a "business-as-usual" message and noted the ability of the specialty market to change with the times.

"The normal things we write–detective agencies, exterminators, day-care centers–are unusual to the standard market," he said. Plus, there's a whole array of service companies that need liability insurance–such as those offering pet pooper-scooper services, he noted.

"I'm not sure regular companies would even consider looking at something like that," he said. "It's just another one of the service programs we can put together," he said, describing the development of specialty service firms as a part of a trend in which busy families hire outside providers.

Like most service providers, pooper scoopers are required to be licensed and show proof of coverage before they go on someone's premises, he explained, noting that potential claims might involve someone accidentally disturbing a watering system or backyard line when digging around in the yard, or even leaving the fence open, allowing the dog to escape.

An interesting aspect of such examples, he said, is the fact that "most of these coverages weren't even required 10- or 15 years ago. We didn't have those services," he said, adding massage therapists to the list.

Perhaps only a science fiction writer looking into the future a decade or so ago might have envisioned the need for coverage for one risk that came to NU from an underwriter at U.S. Risk in Dallas–for a cryonics lab.

The lab, which houses frozen bodies of individuals who hope that science will one day make it possible to bring them back, includes a unit containing the head of baseball legend Ted Williams, according to executive vice president and marketing manager Monte Stringer.

Mr. Stringer advised that mislabeled corpses are not among the covered exposures. Instead, the coverage is a premises policy that might cover slip-and-falls (family members are allowed to visit) or liability related to the escape of nitrogen gas, he explained.

In all, nearly 60 ideas ranging from frigid to sizzling came into NU's editors for this special report, many of which we don't have the space to describe. In the pages that follow, and in a second installment next week, we review as many as we can, summarizing them based on a handful of common themes.

Art caption: (a barstool racer):

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