OIl & Gas 360

We are at the crossroad of the largest financial crisis facing the oil and gas market, and the executive leadership teams of corporations are on the front line. The CAC Specialty restructuring leaders sat down with the team from EnerCom and Oil & Gas 360 to talk about personal asset risks and protections associated with being in leadership at this time of distress. 

 If you are a board member, or executive, making decisions impacting the employees and even the existence of the corporation; What keeps you up at night?   It should not be the personal risk.

Jason Horwitz, Executive Vice President, and Billy Kroupa, Senior Vice President, of CAC Specialty both have years of experience working collaboratively with clients on these issues and Directors and Officers (D&O) liability insurance. They shared their experience with EnerCom and Oil & Gas 360

 Key Takeaways 

What is Directors and Officers Liability Insurance (D&O)?

Directors’ & Officers’ (“D&O”) liability insurance is insurance coverage intended to protect individuals from personal asset exposure if they are sued as a result of serving as director or officer of a business or other type of organization. It can also provide balance sheet protection to the organization for (1) indemnification provided to directors and officers, and (2) defense costs, judgments and settlements associated with a claim where the company itself is a defendant.

D&O claims typically arise out of corporate governance issues, alleged violations of corporate law, or alleged breaches of the fiduciary duties owed to stakeholders (e.g., shareholders or creditors). Claims against publicly-traded companies oftentimes arise out of the requirements imposed by either the Securities Act of 1933 or the Securities Exchange Act of 1934. Finally, regulatory actions are a major source of D&O claims activity.

Jason Horwitz: “One of the biggest mistakes we see companies make is they treat D&O insurance sort of like an off-the-shelf policy or … check the box policy.”

Billy Kroupa; " And I would say just don't treat D&O insurance as a check the box item. There is a very broad spectrum of coverage that we say in these policies, everything from having a bankruptcy or credit or exclusion on the worst end to a policy that should be expected to respond. There is a very broad spectrum of breadth of coverage that we see in these policies, everything from having a bankruptcy or creditor exclusion on the worst end to a policy that should be expected to respond. But without having that review and understanding the actual scope of coverage, the fact that you have $10 million or 20 million dollars of insurance may, or may not actually be something that you can have comfort that it will actually work."

  • Off the shelf does not work in the D&O area, and each one needs to be crafted for the individual corporate circumstances.
  • It is not just a check box - you need to have experts review the policy to ensure the coverage matches the circumstances.
  • Sleep insurance - Can your board members, and executives, focus on their jobs rather that worry about every decision and how it may impact their personal assets?
  • All restructuring is not the same.
  • Sooner is always better (and maybe cheaper) but It is never too late to get the right coverage in place.

Expanding what’s possible for solving risk challenges – from the simple to the previously unsolvable.

We are a risk solutions company that brings you seasoned and proactive industry leaders, operating as a nimble and collaborative partner who puts you and your business first. With a knowledge-driven approach informed by data and decades of honed instinct, CAC Specialty brings an innovative vision to insurance broking to solve your risk challenges - from the simple to the previously unsolvable.

Jason Horwitz -CAC Specialty - oilandgas360

Jason Horwitz

Executive Vice President

Jason leads CAC's Special Situations Group, a unique practice in the insurance brokerage industry consisting of restructuring professionals who focus solely on insurance solutions for distressed and bankrupt companies.

Their expertise guides clients through the unique personal asset risks that arise in a distressed environment, as well as corporate issues such as collateral recapture, transactional liability, complex claim resolution and surety issues.

Billy Kroupa -Sr. VP CAC Specialty - oilandgas360

Billy Kroupa

Senior Vice President

Billy is a Senior Vice President at CAC Specialty with expertise in the placement of Directors & Officers Liability, Professional Liability, Employment Practices Liability, Fiduciary Liability, Crime, and Kidnap, Ransom & Extortion insurance programs on behalf of his clients.

As a member of CAC’s Special Situations Group, Billy focuses on insurance solutions for the most complex risks, including companies in financial distress and bankruptcy. Billy has handled the Directors & Officers Liability insurance placements for a number of large, high-visibility IPOs. Billy also has significant experience with companies in the Energy, Technology, Financial Institution and Real Estate sectors.


Michael Tanner [00:00:07] What's going on, guys? Energy 360 Network by Enercom, excited to be bringing you this interview with CAC Specialty, a topic that I personally know nothing about. So this is an awesome, awesome listen for me personally. Before I do that, I do need to do a couple shameless plugs.

Michael Tanner [00:00:20] First - 360 Digital Closing Bell on iTunes, Spotify, YouTube. We are live every single day with a digital closing bell. You can also check out our biweekly podcast. It is the place to go for energy finance, we keep you updated on everything that happens on EFT Twitter, what's going on in the world of oil and gas. We do a great job of keeping you updated and we appreciate all the love we've got. You can also find all the Energy 360 network stuff on www.oilandgas360.com the Energy Expert Network. You can also listen to all of the interviews that we have dropped, both this interview, CAC Specialty, and every previous one on iTunes and Spotify. We are getting all of this content in your favorite platforms and making it very easy for you. We had an awesome month and we've had awesome interviews because we really do a great job of choosing thought leaders throughout the industry, and this interview with CAC Specialty is none the less the same thing. We interviewed Jason Horowitz and William Cooper, who are with CAC Specialty. What these guys do is they focus on executive insurance, DOD insurance, and all the stuff that really I had no idea existed. I mean, once you listen to the interview, I think you'll sort of understand A: why this stuff exists, why it's needed. But it's also a great learning opportunity for someone like me who didn't know anything about this. Before I spoil too much, I'm going to turn it over to them and let you guys listen.

Stu Turley [00:01:39] Hey, we're excited to visit with CAC Specialty and just really looking forward to this open dialog during this tough time that we're in in the oil and gas and in everything else. So, Jason, if you wouldn't mind, just letting us have a little bit of feedback on CAC Specialty and let us know about what you guys got going on.

Jason Horwitz [00:02:03] Yeah, thanks Stu, thanks for having us. So CAC Specialty is a specialty insurance broker, and by that we mean we're not all things to all people. We only focus on the areas that we have an expertise in and we try to stay in our lanes. One of those areas of expertise is Billy and I's group, which we call the Special Situations Group. It's unique in the insurance world because we are restructuring professionals who focus on insurance solutions for distressed and bankrupt companies.

Jason Horwitz [00:02:28] A large part of that being DNO insurance and as you can imagine, given what's going on now and what was going on pretty much since 2015, 16, 17, we've been doing a lot of oil and gas deals. My personal background is I was a bankruptcy attorney for eight years at  Kirkland & Ellis  and Perkins QE, both in Chicago, and I was a bankruptcy consultant for six years before I joined this practice about five and a half years ago.

Billy Kroupa [00:02:54] And as I mentioned, based out of the Denver office, I'm an attorney by background as well. But I've been in the DNO insurance industry since 2007, the entirety of that time focused on directors and officers, liability insurance, and other executive liability products. And we started this group at a prior firm back in 2008, 2009 during the last financial downturn. And so I've been focused on distressed and bankrupt companies over the entire period of that time.

Aaron Vandeford [00:03:26] That's great. As we as we kind of dive into this market, certainly special situations, special times for sure. Let's talk a little bit about this DNO side of the business and what does that mean and what should oil and gas companies be thinking about on a DNO insurance as they go through maybe a distressed or into a different type of environment where they're having to have some tough discussions? What is DNO? 

Billy Kroupa [00:03:58] Well I think, to start, what they need to understand and what companies need to look at is first what's happened in the broader, you know, insurance market. So we have been in a very soft market cycle since about 2002, 2003, insurers were generally giving back 10 to 15 percent premium decreases at renewals. For the past few years, insurers have been expressing concerns about the profitability of their DNO insurance portfolios. It started out with concerns around primary placements, but that's crept up into excess. And so what we've seen, especially over the past nine months or so, is a significant hardening of the DNO market, where instead of the 10 to 15 percent decreases on average, companies are getting anywhere from 25 to 15 percent premium increases. And that's absent any sort of year over year change in underwriting risk profile. So when you add in financial distress or the potential for a bankruptcy filing, that exacerbates the insurer's concern and it leads to a much more difficult placement.

Aaron Vandeford [00:05:09] So as you think about those difficult placements, obviously CSC is well positioned to work with a number of different entities to get these things placed. What are some of the key things that management teams need to be coming and talking to you guys about to give comfort on getting  a DNO policy in place?

Jason Horwitz [00:05:31] Yeah, what the first and foremost, they need to think about making sure that the program is sound. One of the biggest mistake we see companies make is they treat DNO insurance sort of like an off the shelf policy or sort of what I refer to as a check the box policy. So when they're in this distressed situation, whether they're heading towards the transaction, either be in court or out of court, they've got checklists. And, you know, DNO is always on these checklists and what we see way too often is companies say, OK, do we have DNO insurance? Check. We need to get a tail, check. Let's move on. In that, unfortunately, is gonna put them in a really, really bad situation. DNO policies are not off the shelf policies like your auto policy. They're all drafted differently. Each carrier has their own form. Each of those forms is geared towards a healthy company, not a distressed one. So these company brokers are required to heavily manuscript or heavily amend these policies to shift the leverage from the insurance carrier to the insured company. If they don't do that, they're going to create gaps in coverage, which creates exposure for the directors and officers, even if it's drafted really, really well - if the broker that doesn't understand bankruptcy or the destress world, there could be distress specific or bankruptcy specific issues in these policies. So first and foremost, do a thorough review of the DNO policy. If you've hired counsel, you should have them do it. You also need to have a broker do it, who understands bankruptcy because it's just it's a different skill set they need from what their normal healthy company renewal was a couple of years ago to what they're heading into right now.

Aaron Vandeford [00:07:02] So I think that's a really important point. And I want to dove a little bit more into that. As you think about, you know, obviously this is more than checking the box, as you say. How does a good or well-crafted DNO policy or tailored solution help maybe make management make better decisions and ultimately think about better outcomes for their stakeholders? If a good DNO policy's in place?

Jason Horwitz [00:07:29] Yeah, that's a good question. So the way it answered is this: companies under normal circumstances usually have two lines of defense between a claim coming in - you know - claim hitting their personal assets and then worrying about obviously their retirement, their kid's college education, house, whatever, the first one is indemnity. So they get indemnified by the company. The second is the DNO policy. You know, generally what happens is what we see is people don't really care about DNO insurance, you know, they don't care about insurance until they need to care. Right? They know they need to have it so they get it. And that's great when all is going well. When things start heading in this direction where we're at now and sort of the financial distress we're seeing in the oil and gas market. When you get to a certain level, it's generally insolvency. You're not going to have indemnity from the company. You still have a claim for it, but that claim's technically worthless. So the only line of defense you have from your personal assets is the DNO insurance.

Jason Horwitz [00:08:28] So what we hear a lot of times, as they call it, sleep insurance, right? When we're heading towards this situation, directors and officers will get calls from people say, hey, listen, we're heading for this transaction, we need the sleep insurance. And that's sort of - what they're referring to is a tail. We can talk about that in a second. But what we always try to tell them is, yes, you need a tail, but we need to make sure that DNO policy itself is sound first before you put the tail on it. Because otherwise, you're throwing good money after bad. And to specifically answer your - answer your question, once they have that sleep insurance, which is not just a tail, but it's a sound DNO policy with then run off coverage or a tail added to it. Now they're that - now they can be very - have - you know, the comfort that they are protected, they don't have to worry about their personal assets, they don't have to worry about a lawsuit comes in. It's going to focus them on what they need to do as opposed to having them focused - have their attention focused elsewhere, which is, "Oh, my gosh, I've been sued. What's going to happen now?".

Jason Horwitz [00:09:26] What these guys find out very quickly is when they bring in restructuring professionals, they have - they are giving so many different tasks and assignments and work above and beyond what their normal day to day job is, that it's all consuming, like the amount of work these C-suite people are doing, preparing for a restructuring, whether it be in court or out of court is daunting. And then that's just on top of what they're doing in their normal circuit, the normal day to day. So professionals need them to focus on getting the restructuring - the work they need to do, they can't be distracted. And if they don't have good DNO insurance, if they don't have that sleep insurance, they're going to be distracted. And that's going to ultimately affect the restructuring. Then one more point I'll make is if they don't have anything and we've seen this way too often than we should where - just the company ends up into not having DNO insurance or losing it or has very bad DNO insurance and stuff isn't covered, you see management and the board resign in certain circumstances, and that's not good for anybody.

Aaron Vandeford [00:10:23] Right. And then we certainly see it on our investor relations practices - we're going through and doing a lot of this work. There certainly is a lot from one of these management teams, and I gave a talk this morning for another group where we believe and we've seen it time and time again, that great leadership is really where these companies are going to find themselves out into the next iteration of whatever these companies look like for the next 30 years. And so we want leaders to be good leaders and good leaders need to be protected so that they can do their job. And that makes a whole lot of sense to me. As we think about some of the things that you were just talking about, the timing obviously comes up as a key issue. Certainly we think companies should be well insured and management teams should be insured in good times. But you you talked a little bit about maybe they're underinsured going into a situation. When should a company be thinking about this? And when is it too late? Is it ever too late? Give us a little bit idea on timing as we think about these these issues.

Billy Kroupa [00:11:31] Yeah, I think ideally companies are giving a lot of consideration to the limits and structure of their DNO insurance program, you know, during blue sky periods, that's when it's easier to add limit - it's easier when when things are good to broaden the scope of coverage being provided. But we understand that that's not always the case. To Jason's point, a lot of times companies are coming to us on the eve of a bankruptcy filing or financial distress situation based on, you know, the concerns that they have with their current limits or structure. We can absolutely work with insurance carriers to increase the limits, you know, even leading up to a filing - it's expensive to do so. And a lot of it comes down to risk differentiation. So what we spend a lot of our time doing and what our practice is very successful with is educating underwriters and insurance carriers that every restructuring is not the same. There are different restructuring paths that lead to very different, levels of DNO risk exposure. And that's also where the professionals that are engaged by the company can be very helpful to involve those - involve them in those discussions. The underwriters appreciate that access. But I would say that it's never too late. Ideally, you're doing it at best times, but we do get calls 24 or 48 hours before a bankruptcy filing and we're still able to come in and be of assistance.

Aaron Vandeford [00:13:03] And how about, like, once a company even goes into bankruptcy, can DNO be written at that point, too?

Billy Kroupa [00:13:09] It can. And so our recommendation is that a company, if they're looking at a bankruptcy filing, that they negotiate and pay for the tail prior to the filing. The benefit is at that point they have full control over their finances. Once you file, there's additional requirements for approvals in the bankruptcy court. There's the potential for creditors or some other constituents to raise concerns with the premium payment for the run off policy. So ideally you would do it prior to the filing. But we understand again that that's not always possible. And so if a company is in bankruptcy and is looking to either increase their limits or negotiate and structure the tail at that time, they absolutely can do so. They just need to understand that it may be a little bit more of an involved process in terms of getting the court approval to make those payments.

Aaron Vandeford [00:14:03] Just a few more stakeholders in the pot there.

Billy Kroupa [00:14:06] Exactly.

Aaron Vandeford [00:14:07] So we've talked about this tail a couple of times. Can you guys dive a little bit more into what that actually is and what that means?

Billy Kroupa [00:14:17] Sure. So DNO insurance is written on what's called a claims made and reported policy, meaning that the policy that is in place at the time the claim is received by the company or the insured persons is the policy that responds, even if the alleged activity in the complaint pre- predated the inception date of the policy. And so when you think about statute of limitations risk, you need to make sure that you have a program in place throughout the entirety of that statute of limitations period, so that if a claim does come in, you have the ability to notice it to the insurance program. Rather than continuing to renew coverage for six years or longer after a change of control event that could be emergence from bankruptcy or the consummation of an M&A transaction if it's an out-of-court restructuring. What you can do is you can pre-negotiate that extended reporting period, so that's tail or run-off. Those are all synonymous terms, which again allows the individuals and the company to know that if a claim comes at any point during the statute of limitations, they have a program to which they can notice that claim.

Aaron Vandeford [00:15:25] So you mentioned an interesting point and I'll throw one out for you guys, as the experts, obviously these change in control situations, many times, you know, one team goes into bankruptcy and it's got one set of board and then you come out and you have a different management team or certainly a different board. What should, you know, new-come, new folks coming into this entity think about from a DNO insurance policy? And is that - is that an opportunity to change things, or are they protected by the existing policy?

Jason Horwitz [00:16:01] Yeah. They're gonna normally, under normal circumstances, new officers and directors are going to be covered automatically under the policy. There are certain circumstances where we get brought in, where we're literally just putting together a policy just for, called "the independent directors" or the inner management. In those specific circumstances, you need to be careful because the policy is written specifically for those two, three, four individuals. So at that point, you may need to include them. But under a normal policy, new directors and officers, once they get appointed, they're automatically going to be included. And this is something we see quite a bit in calls - a question we get quite a bit is when new people come on board, we've got a lot of contacts who are independent directors coming on these boards quite a bit or serve as inter management roles. Any time those guys are coming in new, they should take a look at the program.

Jason Horwitz [00:16:54] And we do that for a lot of our contacts, just to make sure they understand what they're stepping into, the policy's either good or it's it's got some issues and here's how we can potentially help. So that they're walking in with their eyes open. Generally, it's not going to affect whether they take on the engagement or not. At least they know what they're stepping into. And if it's bad enough, they may not take the engagement.

Aaron Vandeford [00:17:16] Well, that - that's really helpful. So I'll leave it, I'll throw it back to you guys one more time. If there's one thing to be thinking about from a DNO and protection aspect, what would you think that people need to keep top of mind?

Jason Horwitz [00:17:34] You know, I would think of it from the word that comes back to to me is expertise. These guys, you know, they've gone through a lot over the last - call it four or five years - in the oil and gas industry. It's been distressed for quite a bit of time so they may be used to it but going through a DNO, a renewal for a healthy company is a completely different skill set than going through one in a distressed situation. Throw in the fact, though, it looks like the price of oil today is $12.55, you're going through a pandemic, you're going through a very volatile DNO market, as Billy talked about earlier. It's just - and then you throw on top of it, you may be preparing for a bankruptcy or some sort of other out of court transaction and you need to put your program together to have it appropriate for that situation - it's just a completely different skill set. So the way the - what I would equate it to is when you're financially distressed, you're hiring bankruptcy lawyers to take you through it, you're not hiring - using your divorce lawyer. Use the appropriate professional for what you need. And in most circumstances, what we're seeing right now is the companies that are sticking with their current brokers are not getting a solution or getting an acceptable solution because they just don't know what they're doing in this environment. That's where we come in. Billy had mentioned earlier how to get us involved. It's the same answer you get from any professional, and that is, the earlier the better, because the more time we have, the better deal we can get. But more than 50 percent of our deals right now - Billy, correct me if I'm wrong - are of the variety: we get a call from someone says, hey, I tried to get you involved a month and a half ago, they wanted to stick with their broker. We are now a week from renewal or two weeks from a filing, and we're nowhere. Can you jump in and help? So ... and we can still. So, the short answer to your question is, is expertise. Use, you know, we get that everyone likes their broker and most people like their broker, and their broker may be great in sort of very healthy situations - make sure they are capable of handling the renewal or the tail process you're about to go through. And if they're not, you should look for someone who does this all the time, and that's us.

Aaron Vandeford [00:19:48] Billy, anything to jump in there?

Billy Kroupa [00:19:50] Yeah. And I would say just don't treat DNO insurance as a check the box item. There is a very broad spectrum of breadth of coverage that we see in these policies, everything from having a bankruptcy or credit or exclusion on the worst end to a policy that should be expected to respond. But without having that review and understanding the actual scope of coverage, the fact that you have $10 million or 20 million dollars of insurance may, may or may not actually be something that you can have comfort that it will actually work if you are named in a DNO claim.

Aaron Vandeford [00:20:28] Well, thank you very much. And I appreciate the time that you've given us as we think about the work that we do with clients. And it's so important to align yourself with folks and advisors that can can help you get something done. And certainly it sounds like you guys are moving right down that path. So thank you for joining us. Stu, I'll send it back to you.

Stu Turley [00:20:50] Sounds great, guys, what great discussion. We really appreciate that. It's amazing. People are going to need you guys. And, you know, it's this we're in some tough times and your insight is very valuable. So we really appreciate CAC and thank you for your time. All of your contact information will be in the interview notes. So thanks again, guys.

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