------Inwald Consulting Services, Inc.------
Health Care and Insurance Product Development, Strategic Relationships & Expert Services
Joseph M. Inwald
Chartered Property & Casualty Underwriter
Member of Michigan and Florida Bars
President
EXPERT REPORT
AMC v. NBC
December __, 2____
I have been asked by Academic Medical Center’s (“AMC’s”) counsel to review and analyze certain materials and to provide this Expert Report. Using indicated Deposition Transcripts and referenced Exhibits, I have been able to reach certain conclusions regarding the existence of a customary Brokerage Agreement between the parties, whether National Brokerage Corporation (“NBC”) satisfied its contractual obligations, and whether NBC’s performance met the requisite standard of care applicable to a national full service Insurance Broker’s maintaining regional offices (referred to as “Broker”) in this context (present even in the absence of a contract). Initially, the issues addressed will be stated in more detail. Second, a short statement of the conclusions reached will be presented. In the next portion, elements of my professional training and experience that was most directly utilized in reaching these opinions will be highlighted. The fourth section will list materials reviewed to date. The fifth and sixth sections will, respectively, focus on contractual and negligence focused findings as applied to the Policy Improvement and to the Claims reporting obligations of NBC. It should be noted that this Expert Report is based on documents reviewed through the 10th of December and conclusions may be modified as additional materials are reviewed. Is should also be noted at the outset that while the undersigned is a member of the Michigan and Florida B_____, the following conclusions should be construed as a product of the undersigned’s Insurance related training and experience.
Issues addressed in this engagement can be summarized as follows:
- Was there a customary contract for brokerage services between AMC and NBC and if so what were NBC’s contractual duties?
- Did NBC fail to perform its contractual duties?
- Did NBC’s breach or breaches impact the reasonableness of the settlement AMC received from FRONTING CARRIER/INSURER ASSUMING RISK?
- Apart from its contractual responsibilities, did NBC also have a duty (and the reasonable opportunity) as a Broker serving an Academic Medical Center, to “fix the Policies” thereby assuring that intended physicians, surgeons, dentists, chiropractors, podiatrists, anesthetists, residents, and interns (“Employed Physicians”) employees were covered and that claims were reported properly?
- Did NBC fail to meet that requisite duty?
- Did NBC’s failure(s) impact the reasonableness of the settlement AMC received from FRONTING CARRIER/INSURER ASSUMING RISK?
Short Answer
The short answer with regard to the Policy issues for each of the above questions is yes. To begin with, NBC was hired to use all of its resources to fix existing insurance program flaws and provide advice and service based on its full organizational capabilities. NBC was given substantial discretion and in fact billed AMC based on hours for those personnel that NBC selected. In this regard, its contractual and customary obligations were greater than if it merely placed one or more Policies.
As will be described in more detail below, it is concluded that NBC properly identified but did not resolve the narrow definition of “Insureds” that wrongfully excluded Employed Physicians. NBC clearly understood that Employed Physicians were intended by AMC and FRONTING CARRIER/INSURER ASSUMING RISK Underwriters to be covered. It should be noted at the outset FRONTING CARRIER was not at risk (other than in the event that INSURER ASSUMING RISK or the AMC Captive became insolvent) for paying claims. The “Primary Policy” was 100% reinsured by AMC’s captive and the “Excess Policy” was reinsured by INSURER ASSUMING RISK (as of the date of this Report, I have not seen the Reinsurance Agreements which should have been executed on or before 6/30/00). NBC could have easily fixed the Excess Policy by:
- Following through with INSURER ASSUMING RISK’s San Francisco office to obtain promised Endorsements,
- Presenting appropriate Endorsement language to INSURER ASSUMING RISK officers in either its regional office in San Francisco or Home Office,
- Using NBC senior management to contact their counterparts at FRONTING CARRIER/INSURER ASSUMING RISK to “leverage” their market clout in this context, or
- Using the upcoming renewal situation as an appropriate tool during the first few months of 2000 to insist that proper Endorsements were in place for both the 1997 and the 2000 Policies.
It also could, as a fallback position, have insisted that its client clearly understood the consequences of failing to schedule its Employed Physicians pursuant to the existing language and assisted it in compiling a conforming Schedule. All five of these options were readily apparent and feasible ways for NBC to meet its contractual obligations and its applicable standard of care as a Broker during the first few months of 2000.
The short answer with regard to the Claim issue for each of the above questions is yes. As will be described in more detail below, it is concluded that NBC failed to diligently address claim reporting practices as required by its contract with AMC and in accordance with prevailing Insurance Brokerage standards of practice in 1999 and 2000. It was, for instance, customary for Brokers to have some sort of calendar system to assure completion of time sensitive tasks in the renewal process, inclusive of verification that final claim reports were in a format acceptable to the Insurer(s) and were in fact submitted within the necessary time frame.
Consultant’s Role and Experience
Please see the attached December 2009 CV. I have not testified as an Expert Witness in the last ___ (_) years. ICS, Inc. is being compensated by AMC for Document review and any testimony at an hourly rate of $5__ with per diems for deposition or testimony and a $___ hourly rate applicable to travel time.
Academic and work experience has been exclusively focused on the intersection of Insurance, Health Care, and Law since high school. At the Wharton School separate majors were earned in Health Care (“HC”) Administration and Organizational Management. Coursework encompassed Property & Casualty, Life & Health, and Health Insurance. Summers were spent working in an administrative capacity at the Hospital of the University of Pennsylvania, one of the nation’s leading Academic Medical Centers, and at three hospitals with various teaching programs in Michigan. During Law School HC related courses were selected and paid work was done for the General Counsel at the University of Michigan Hospital and for Professor Southwick of the University of Michigan Business School on revising his tome on Hospital Law. Upon graduation, a position at a regional law firm with a practice unit focused on representing HC providers, HMO’s, and PPOs, was accepted. One significant legal project involved advising a Florida (teaching) Hospital on the advantages and disadvantages of establishing an insurance program similar to AMC’s. The next role was at a leading international accounting firm in their HC unit of their management consulting services division. The vast majority of the work was for a HC System that included a Teaching hospital with affiliations with several medical schools.
In 1987 Johnson & Higgins, the leading Insurance Brokerage firm serving HC clients at the time (a Broker) which was subsequently acquired by Marsh in 1996, recruited me to join their HealthGroup office in Detroit. The office established and served as the Broker or consultant for 11 hospital owned “captive” insurers. Clients included several nationally prominent Academic Medical Centers with attributes similar to AMC. During my tenure there both production and servicing responsibilities were assumed, a CPCU was earned, and a promotion to an officer role was accepted.
Since 1992 the current consulting practice has focused on helping Medical Malpractice Insurers develop and draft new products (inclusive of drafting insurance Policies for Hospitals and Physicians). In 1998-9 service in an executive capacity (VP reporting to CEO) for one of the leading national insurers of Hospitals and Physicians, a former consulting client, was accepted and responsibilities included the development of a new Insurance Policy form for Hospital use. My company served both as a front and as an excess insurer for several Academic Medical Centers that had programs similar to AMC. Since 1992 numerous organizations, including hospitals, have retained the practice to evaluate Insurance Broker performance, assess damages sustained from their malfeasance, and to conduct RFP’s for Brokerage services. Paid and gratis insurance and HC lectures and publications, including serving as a lecturer at Universities and Law Schools, are a regular adjunct of the practice.
Documents Reviewed
To date the following 20__ Deposition Transcripts have been reviewed:
Deponent Date
____ 6/12 & 11/12
______6/10
______7/1
______7/8
______5/22
______11/20
______6/15
______7/9
______7/10
______8/28
______11/12
______11/19
______11/13
______11/13
______8/18
______11/19
______7/11
______5/30
______7/2
______7/28
______11/28
While reviewing the above listed Transcripts, Exhibits were evaluated as necessary to improve comprehension of questions asked and answers given. Transcripts and Exhibits (“Documents”) were, on occasion, reexamined in light of subsequent Documents considered. It is concluded that this level of review, evaluation, and analysis of the Documents were sufficient to allow for the formation of this Expert Report.
Policy Focused Discussion
· Was there a customary contract for brokerage services between AMC and NBC and if so what were NBC’s contractual duties?
As a preface, it should be emphasized that Insurance Programs similar to that of AMC’s in the _____to _____ time frame would have required specialized risk management and insurance brokerage services. “Specialization,” in this context, would include having individuals well versed in applicable HC and Insurance issues and a broad range of potential solutions. While it would be ideal to have this necessary specialization at both the Client and the Broker, at a minimum, it should be readily available at the selected Broker. Given Mr. ___’s knowledge that neither he nor Ms. ____ had this level of knowledge regarding Academic Medical Center Insurance Issues he knew it was one of NBC’s obligations (from both a contractual and a standard of care perspective) to assemble it within NBC’s service team. It is in fact common and reasonable for organizations with complex insurance needs to rely on Brokers (inclusive of NBC) for that degree of specialization and staffing to compensate for identified deficiencies within their Risk Management Department or function.
It is clear that a typical brokerage consulting contract existed between AMC and NBC. Ms. ____ appears to have initiated the Agreement which was accepted on behalf of NBC by Mr. ____. Based on industry custom, as reflected in the documents, NBC was obligated to suggest and follow though on program changes necessary to improve the AMC’s Risk Management function, inclusive of insurance policy administration. The contract was between the NBC and AMC. Evidence substantiating the existence of a customary written Agreement would include NBC Invoices (& AMC payments based on them) and several of the Emails which ratify the existence of mutual contractual duties related to joint efforts to improve the function. The task lists remove any doubt that NBC was charged with taking the lead role in fixing the Policies.
· Did NBC fail to perform its contractual duties?
Yes, NBC did not follow through with obvious and appropriate steps that were known to be available to improve the program. Initially, NBC did not follow though in fixing the identified problem with the scope of the Insured to include all Employed Physicians (regardless of whether they were Endorsed or Scheduled). NBC could have met its contractual obligation in this regard by following through with FRONTING CARRIER/INSURER ASSUMING RISK to get the Endorsement or by insisting that AMC compile a Schedule of Employed Physicians for transmittal to FRONTING CARRIER/INSURER ASSUMING RISK for inclusion as an Endorsement. To be more specific, the contractual obligation required NBC to draft specific ameliorative Endorsement language and to present it to FRONTING CARRIER/INSURER ASSUMING RISK for processing, to involve Account Executives with significant FRONTING CARRIER/INSURER ASSUMING RISK HC placements to lend a hand in overcoming any inertia or hesitation, or to secure the involvement of senior NBC management to assist in persuading FRONTING CARRIER/INSURER ASSUMING RISK to effectively comply with oral statements reportedly made by ____, _____, and ______. There is no indication that NBC used all (or even a small percentage) of its considerable resources available in an effort to deliver promised services.
At this point in time NBC, particularly during the first few months of 2____, could very easily have corrected the definition of the Insured as it was obligated to do. Initially, it could have persistently communicated with FRONTING CARRIER/INSURER ASSUMING RISK. Second, it could have drafted all of the proposed Endorsements to the excess Policy that would have corrected ALL of the identified problems including broadened the definition of Insureds to include Employed Physicians. ______would, based on my experience working collegially (as a Broker and as a consultant) with Hospital Professional Liability (“HPL”) Underwriters of various skill and experience levels, have reacted very differently if presented with language that she could have easily cut and pasted into the Endorsement word processing template. NBC should not have passively waited for her to write them on her computer, accept Mr. ______’s verbal or email assurances, or relied on the proffered Letter of Intent. During this time frame FRONTING CARRIER/INSURER ASSUMING RISK did in fact issue three out of the five Endorsements that NBC identifies as necessary. They did not charge an additional premium for the three and given the circumstances and timing there is no reason to believe that assuring Employed Physicians status as Insureds would have required great effort or additional premium. One basis for this conclusion is that the State Torts Claim Act limited any exposure for applicable services rendered in the State to $______-well within the underlying limits which was the financial responsibility of AMC’s Captive rather than the higher FRONTING CARRIER/INSURER ASSUMING RISK layer. As a corollary, the STATUTE also, during the _____-____ time frame, provided for the removal of Employed Physicians as responsible defendants. Another independent basis for this conclusion, apart from representations reportedly made by Messrs. ____ and ______, was the extremely soft insurance market conditions at the time.