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December 2019

Chubb Introduces First-of-Its-Kind Financial Institution Fidelity Bond to Address Unique Risks Faced by Asset Managers

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WHITEHOUSE STATION, N.J., Dec. 17, 2019 /PRNewswire/ — Chubb (CB) has introduced a new fidelity insurance solution, the Financial Institution Bond for Asset Managers, to address the unique range of risks faced by today’s asset managers. This new financial fidelity bond provides modernized coverage for a range of risks that can result in loss of customer capital. These types of risks often stem from fraudulent activities of employees, computer hacking and impersonation of executives, clients, and counterparties. Chubb (CB) designed its new fidelity bond in response to the changing risks associated with advancements in technology used by advisers to manage assets. According to a 2017 PwC report on the future of the asset and wealth management industry, assets under management globally are expected to exceed $145 trillion by 2025. “The asset management industry is growing at a rapid pace, and safeguarding customer capital is top of mind for asset managers,” said Michael Mollica, Executive Vice President, Chubb North America Financial Lines. “Given today’s digital environment, it has never been more critical for asset management firms to ensure they have the right coverage in place to address a range of new risks.” According to The Financial Crimes Enforcement Network, since 2016, there have been more than $9 billion in possible losses affecting U.S. financial institutions and their customers as a result of business email compromise schemes Chubb’s (CB) new Financial Institution Bond for Asset Managers solution provides an extra layer of protection for exposures that may not be covered under existing policies, including: financial loss resulting from unauthorized access to the firm’s computer systems by hackers, including the use of malware and viruses; unauthorized access to a firm’s network, including mobile applications and customer web portals; the transfer of the firm’s capital or its customers’ capital through fraudulent instructions over the Internet, email or telephone; and,/ul> impersonation of an employee or known vendor that causes the firm’s funds to be fraudulently transferred by an authorized employee. For more information about Chubb’s (CB) Financial Institution Bond for Asset Managers, contact your local Chubb (CB) agent or broker. http://news.chubb.com/2019-12-17-Chubb-Introduces-First-of-Its-Kind-Financial-Institution-Fidelity-Bond-to-Address-Unique-Risks-Faced-by-Asset-Managers

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legislation

Quebec Court orders “modest” $1 million suretyship for short-term stay of Canadian enforcement pending U.S. annulment

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In Lakah v. UBS, 2019 QCCA 1869, the Court of Appeal of Québec denied leave to appeal a Superior Court decision that ordered than an arbitral party post a $1 million suretyship pending U.S. annulment proceedings. The Court of Appeal, in a very brief judgment, based its decision on the following considerations: The decision to impose a surety of $1 million was a matter of discretion and was governed by a standard of reasonableness; A surety of $1 million was not unreasonable considering that the arbitral award was in excess of US$150 million; The Superior Court decision was not inconsistent with the principle of proportionality in civil proceedings; and A stay of proceedings is a case management measure and, in principle, cannot be appealed barring exceptional circumstances. Background of Facts An arbitral award was issued on November 2, 2018 that required that Michel Lakah (“Mr. Lakah”) pay US$151,603,902.00 plus 12% interest per annum to UBS AG et al. (“UBS”). On February 4, 2019, Mr. Lakah applied to vacate the Arbitral Award before the U.S. District Court, Southern District of New York. Although no exact date has been set for the hearing of the application, a judgment is expected to be rendered by the U.S. District Court by December 2019. The Superior Court’s Decision In June 2019, in the face of the application to vacate the arbitral award in the United States, UBS applied to the Québec Superior Court in Montreal to recognize and enforce the Arbitral Award (the “Enforcement Proceedings”). Invoking article 654 of Québec’s Code of Civil Procedure, which was modeled after article 36(2) of UNCITRAL Model Law on International Commercial Arbitration (1985), Mr. Lakah sought to stay the Enforcement Proceedings until a final decision was rendered on the application to vacate before the U.S. District Court. In response, UBS requested that Mr. Lakah post a $5 million suretyship in the event that the Superior Court issued a stay. Justice Peter Kalichman of the Québec Superior Court noted that the right to a stay under article 654 C.C.P. is not automatic and should be granted only in exceptional circumstances, as a stay “impedes one of the key goals of arbitration, which is to avoid protracted litigation”. However, Justice Kalichman noted that the grounds alleged in the U.S. annulment proceedings “appeared serious” on their face and merited a stay of the Enforcement Proceedings, which was limited to a period of sixty days following the release of the decision in the application to vacate. After determining that a temporary stay was justified, Justice Kalichman stated that Mr. Lakah had the burden of resisting suretyship by demonstrating that he lacked the means to satisfy such an order, which he failed to do. The Court ultimately ordered Mr. Lakah to provide a suretyship in the amount of $1 million, noting that it was a “relatively modest” amount considering the quantum of the arbitral award. Court of Appeal Decision Mr. Lakah sought leave to appeal the Superior Court’s decision, claiming that the order to provide a $1 million surety was “unreasonable in the light of the guiding principles of procedure” and that the decision was “manifestly erroneous in fact and in law[1]”. Justice Patrick Healy held that a stay of proceedings is a case management measure and cannot be appealed barring “exceptional circumstances” in which the “ruling appears unreasonable” and results in a serious prejudice[2]. Justice Healy added that the decision to impose a surety of $1 million was “essentially a matter of discretion that is governed by a standard of reasonableness.” Quoting Justice Kalichman, he agreed that in an action of over $150 million, a surety of $1 million was “modest” and could not possible be considered unreasonable[3]. Finally, Justice Healy noted that nothing in the file established prima facie that the Superior Court decision was inconsistent with the principle of proportionality in civil proceedings and that nothing would “justify interference with the judge’s exercise of discretion under article 654 C.C.P.”[4] Implications to Arbitral Proceedings This case is representative of Canadian courts’ pro-arbitration stance and the reluctance to permit parties to engage in conduct that may result in parallel proceedings. Indeed, the Court of Appeal confirmed that a court’s exceptional power to stay the enforcement of an arbitral award pending an application to vacate that very award is entirely consistent with the general judicial policy in favour of the enforcement of arbitral awards. https://www.mccarthy.ca/en/insights/blogs/international-arbitration-blog/quebec-court-orders-modest-1-million-suretyship-short-term-stay-canadian-enforcement-pending-us-annulment?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original

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Nationwide attorney: Insurer not surety of shop’s work, but will pay until right

Blog, Claims, Court, Repost / /

An attorney for Nationwide told the Pennsylvania Supreme Court last month that the insurer didn’t count as a surety responsible for the quality of its repair shops’ work. The Nov. 21 comments by Derecht lawyer Robert Heim during oral argument for Berg v. Nationwide provide consumers — and DRP shops — a view into how a carrier might view a DRP relationship. (Special thanks to PCNTV, whose video coverage of the oral arguments identified speakers and allowed us to capture what was said at the proceedings.) The Supreme Court had agreed in March to re-examine Pennsylvania Superior Court 2-1 decision in the long-running case. The Superior Court had determined Common Pleas Judge Jeffrey Sprecher overreached in finding Nationwide’s behavior bad faith and awarding $21 million in damages. Nationwide had suggested plaintiffs Daniel and Sheryl Berg (who died during the course of the litigation) have their 3-month-old, leased 1996 Jeep Grand Cherokee repaired at one of its direct repair program shops following a 1996 crash, according to a 2017 summary of the case by collision industry attorney Erica Eversman and another summary by plaintiffs’ attorney Mayerson Law. Heim said Nov. 21 the record showed that plaintiff Daniel Berg selected the Blue Ribbon shop, Lindgren Chrysler-Plymouth, based on prior work it had performed. Lindgren estimated Sept. 10, 1996, the repair would cost $12,326.50, but also had called the Grand Cherokee a total loss given its frame damage. Nationwide opted not to total the vehicle, and a claims log item notes: “REPAIRS ARE APPROXIMATELY 50% of ACV NATIONWIDE WILL NEVER RECOVER THE DIFFERENCE IN SALVAGE VALUE.” Four months later, the Jeep Grand Cherokee work was finished, with some of the frame work outsourced to a third party. The vehicle was unsafe, but Nationwide either didn’t inspect it as it should have or did inspect it and didn’t tell the Bergs, Sprecher concluded in 2014. Sprecher in 2015 decried Nationwide’s attempt to use a “scorched earth” litigation policy costing $3 million in its own attorneys fees and notes “several legal duties and fiduciary obligations that it recklessly disregarded.” He awarded $18 million plus another $3 million based on what Nationwide paid in its own attorneys. The Superior Court’s overturning of Sprecher’s decision appears to mean that Nationwide would only be responsible for the $295 in actual damages a jury awarded for finding Nationwide violated Pennsylvania’s unfair trade practices law. The jury also determined Lindgren should have to pay $1,925 in compensatory damages. Duty just to pay? Berg sued Lindgren and received a judgment for poor repairs, Heim told the Supreme Court Nov. 21, “which is the way this should have worked. Nationwide’s duty, under its policy, was to pay.” Pennsylvania Supreme Court Justice David Wecht said an “interesting” legal issue involved whether there was a “guarantee” and/or “heightened duty” in a DRP network. Presumably in developing such a network, Nationwide procedures exist to “inspect these shops and maintain certain standards,” Wecht said. Heim said there was a “heightened guarantee” over what support the consumer would receive should they pick a non-network body shop. If the non-Blue Ribbon body shop erred, the customer’s recourse would be to take action against the shop, Heim said. But using a DRP shop offered a “heightened guarantee” in which Nationwide would stand behind such a consumer until that repair was done, he said. Asked by Justice Max Baer if Nationwide agreed that it was the “surety” of its Blue Ribbon direct repair shops, Heim said “no.” How could the carrier offer a guarantee the work would be appropriate but not be the “guarantor of the work,” Baer asked. The insurer offered a guarantee that if their DRP shop’s work was wrong, “they will continue to pay for it until it is done correctly,” Heim said. “That’s really what it is, judge.” Plaintiff’s attorney Kenneth Behrend of Behrend & Ernsberger also addressed Nationwide’s duty regarding repair quality. However, he largely seemed to tie that responsibility to the insurer’s election to repair the Jeep rather than Lindgren being a DRP shop. https://www.repairerdrivennews.com/2019/12/10/nationwide-attorney-insurer-not-surety-of-shops-work-but-will-pay-until-right/

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Contractor named to finish East Gadsden Community Center [Main Street]

Blog, Claims, Repost / /

A new contractor has been chosen to finish work on the long-delayed East Gadsden Community Center. At Tuesday’s meeting of the Gadsden City Council, it authorized an agreement with Bob Smith Construction, Inc. to complete the remaining work under the original contract for the project The original bid for the project was $5.5 million, and City Attorney Lee Roberts said the city has $3.5 million remaining that has not been spent. He said the cost for completion will be $5.2 million, but the bonding company will cover the difference between the amounts. “Assuming there are no further hiccups out there, this project will be completed without any further spending of taxpayer money,” Roberts said. Groundbreaking on the project was held in February 2018, and the plan was to have the project completed in about nine months. However, Roberts said work on the new community center stopped during construction, and the city engaged the surety company earlier this year to step in and help finish the project. All public construction projects by the city are bonded through a surety company that ensures the project is completed by the terms of the contract, which includes things like quality and timeliness. Roberts said NGM Insurance Company worked with the city on the claim. “They have secured another contractor that is familiar with our city engineer and has a good past working with [him],” Roberts said. “We have entered into an agreement on how we’re going to finish the project.” In addition to the money covered by the bonding company, the city has received some money in liquidated damages, which hopefully will offset additional architecture fees and any unforeseen costs. Roberts said the new contractor has a year to finish the project, but he has told the city it will hopefully be finished before then. City Engineer Heath Williamson said after the meeting that he expects work to start after the first of the year as there is still paperwork to be done. Another infrastructure issue got attention at the meeting as District 3 council member Thomas Worthy talked about street lights being out on Tuscaloosa Avenue. Worthy said there are 19 lights out from Henry Street to 10th Street, and the first resolution to fix them came up in 2018. “I just don’t understand — we can find money for any project we want to have except for doing something in District 3,” said Worthy, who said he had been told by Mayor Sherman Guyton weeks ago that the city would fix the lights, and they shouldn’t have to wait until a new budget comes around. Guyton said it would have to be added to the city’s next budget, and he was mistaken when he said there was money already available. “To portray me as not [doing] anything for Carver, we’ve put more than $2 million into that whole strip since I’ve been in office,” said Guyton, who also listed several of those projects. “I’m glad to do that just like any other part of town, but it’s not in the budget and it’ll have to wait,” he said. The city also approved a memorandum of understanding regarding the use of Everbridge by Safeware — software that allows the sending of public alerts. The memo allows the Gadsden/Etowah Emergency Management Agency to split costs for the service with DeKalb, Marshall, Lauderdale, Calhoun, Cleburne and Morgan counties. Each agency’s cost will be determined by its population. https://www.gadsdentimes.com/news/20191210/contractor-named-to-finish-east-gadsden-community-center

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How this surety bond could be examined by Supreme Court of Canada

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When do the terms of a surety bond allow a construction project owner to withhold payments to a contractor? This question could go to the Supreme Court of Canada, which recently announced a federal crown corporation wants to appeal a Newfoundland court decision resulting from a $2.3-million ferry wharf construction project that did not get finished on time and spawned a lawsuit. In 2013, Western Surety Company wrote a $1.6-million performance bond for RJG Construction Limited in connection with a ferry wharf construction project in Argentia, Nfld. for Marine Atlantic Inc., which operates ferry service between North Sydney, N.S. and Argentia. After delays in the work and delays in payments, Marine Atlantic and RJG Construction sued one another, each claiming the other was in breach of contract. Western Surety is not a party to the lawsuit. In RJG Construction Limited v. Marine Atlantic, released Feb. 23, 2018, Justice James Adams of the Supreme Court of Newfoundland and Labrador awarded Marine Atlantic $1.3 million for the extra money Marine Atlantic said it had to pay to complete the project using a different contractor That was overturned in 2019, with the Court of Appeal for Newfoundland and Labrador quashing the damage award and remitting the matter back to the Supreme Court, General Division, to assess damages owed by Marine Atlantic to RJG. Marine Atlantic is applying for leave to appeal that ruling, the Supreme Court of Canada announced Nov. 29. The top court could dismiss the leave application – in which case, the appeal court ruling stands – or decide to hear an appeal. A surety bond – which construction firms often must obtain before being awarded contracts – is a three-way contract for the benefit of the client’s clients. The insurer (the surety) writes a bond for its customer (the principal). If the principal fails to fulfill the terms of its contract, a surety bond could be payable to an obligee (such as a construction project owner) which is the principal’s customer. A performance bond in intended to provide assurance to a project owner that a project will actually get done. In the case of Marine Atlantic, the contract it awarded to RJG required RJG to complete the wharf project by June 15, 2013. But by October the wharf project was still not done. In January, 2014, RJG and Marine Atlantic both purported to terminate the contract, after Marine Atlantic froze some payments to RJG. Rather than pay the entire cost of the project when it was completed, the contract provided for the owner to make several progress payments after portions of work were done. In December, 2013, Marine Atlantic refused to release the fifth progress payment. Marine Atlantic was seeking a remediation agreement and had told RJG if no agreement was reached then funds that Marine Atlantic owed to RJG would be withheld to cover any additional costs incurred by Marine Atlantic in completing the project. Initially in 2018, Justice Adams ruled that Marine Atlantic was entitled to freeze payments to RJG in order to protect itself under the performance bond – which is a separate contract from the construction project. The construction contract gave Marine Atlantic the right to use any payments due to RJG to pay the cost of correcting RJG’s default, Justice Adams reasoned. That finding was overturned on appeal. Marine Atlantic told both Western Surety and RJG that, in Marine Atlantic’s view, RJG was in default by not meeting the construction schedule. At that point, Western Surety had four options: remedy the default; complete the contract in accordance with its terms and conditions; obtain a bid from other contractors to complete the contract; or pay the project owner (Marine Atlantic) the amount of the bid bond (or the owners’ proposed cost of completion) less the balance of the contract price. The construction contract between Marine Atlantic and RJG gives the owner the right to take possession of the work if the owner terminates the contract. Under that clause, the owner could withhold payments if it terminates the contract and charge the contractor the extra cost for the owner to continue the work. But that can only happen if the owner actually terminates the contract, Justice Francis O’Brien wrote on behalf of the appeal court in its unanimous ruling. The contract does not permit Marine Atlantic to freeze funds while the contract is ongoing, noted Justice O’Brien. Marine Atlantic did not actually correct a default at the time it was withholding payments, Justice O’Brien added. Therefore, Marine Atlantic did not incur any costs for which it would need to withhold funds from the contractor. “The fact that Western Surety had various options under the performance bond contract, and the fact that Marine Atlantic was waiting for Western Surety to select an option, did not entitle Marine Atlantic to freeze ‘any and all funds’ until an option had been chosen and acted upon by the surety,” Justice O’Brien wrote in the ruling against Marine Atlantic. “The language of the performance bond contract simply does not support such an interpretation.” Ultimately, the appeal court ruled that by freezing funds, Marine Atlantic repudiated the contract, meaning RJG was entitled to terminate the contract and seek damages. Citing previous court decisions involving surety bonds, Justice O’Brien wrote that if a contractor earns money and is not paid for that work, that money cannot be retained for the benefit of the obligee (in this case Marine Atlantic) or the surety (Western Surety) because to do so would mean the oblige or surety is enriched by RJG’s unpaid work under the contract. “Significantly, there is nothing in the record to indicate that the bondholder, Western Surety, agreed with the position taken by Marine Atlantic’s counsel,” wrote Justice O’Brien. “There is no evidence that Western Surety suggested or directed that Marine Atlantic freeze these funds. At no time did Western Surety indicate that payment of these funds to RJG could contravene Marine Atlantic’s obligations to Western Surety or cause prejudice which might void

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