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Peru: The impact of Emergency Decree 003-2017 on the insurance market for Surety bonds and letters of guarantee

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Recently, the President of the APESEG (Peruvian Association of Insurance Companies), Eduardo Moron, expressed his concern regarding the harmful impact that Emergency Decree N ° 003-2017 would have on the insurance market for bond letters and surety bonds that guaranteed the obligations of various members of the so-called construction club (Odebrecht and those associated) before the State. The potential amount that would be the subject of such a demand is estimated at approximately S / 3,800 million, of which 97% would be taken on by foreign reinsurance companies, since national insurers only retained 3% The aforementioned Decree was issued to guarantee payment to the State of civil liabilities generated by acts of corruption linked mainly to the Odebrecht mega corruption case. However, this disrupted the payment chain to suppliers and with it brought state works to a standstill, thus resulting in the State being able to execute the bonds or guarantees at any time. The Project for Law 2408, which will replace the Emergency Decree, remains in discussion and limits the extension of the application of the regulation. However, it is not clear if this new law will eliminate the risk of the aforementioned execution of the surety bonds, as there is still concern over whether it is possible to safeguard the onslaught of a massive claim on these insurances, on the basis of force majeure (or acts by the principal), given that the poor legislative technique employed by the State is one of the main causes of this situation. This article is written by Pedro Richter at Torres Carpio Portocarrero & Richter Abogados in partnership with DAC Beachcroft LLP. https://www.lexology.com/library/detail.aspx?g=dc0ade3c-35c5-43e6-8be6-17f75913dc91

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Chubb: Our willingness to roll up our sleeves sets us apart

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There are very few insurance carriers willing to “roll up their sleeves” and “dive head first” into a complex surety deal. The surety marketplace can have fierce competition and small profit margins. Insurer Chubb has an integrated global surety division under the leadership of Stephen Haney. Chubb’s surety team brings a “can do spirit” to the marketplace, and works hard to help enable a deal, explained Craig Gortner, Senior Vice President of Commercial Surety at Chubb. Chubb’s team of experienced professionals were recently involved in the execution of a complex surety bond for Altán Redes – a consortium backed by US-based Morgan Stanley Infrastructure Fund and the International Finance Corporation – which went on to win an international bidding process and contract to set up a nationwide shared wholesale 4G LTE telecommunications network in Mexico. Once completed, the open access wholesale wireless network is set to cover 92.2% of Mexico and 112 million people in less than seven years, using 4G LTE technology. Putting a surety bond in place for the project was no easy task. It required Chubb to draw on several different departments throughout its organization, within and outside of Mexico, all working towards a shared objective of finding the best possible surety solution for the project. From the outset of its involvement, Chubb worked closely with teams assigned by Altán Redes. Achieving a successful surety outcome required clear communication and cooperation between teams in various areas including commercial, underwriting, operations, legal, finance, accounting, and global accounts. “Chubb’s multinational identity and platform, as well as its financial strength and stability, helped accomplish this objective,” according to Gortner. “When it comes to a complex deal for a US-based investor who wants to get involved in a project outside the US, teaming up with the right surety company and broker is very important,” Gortner told Insurance Business. “Many carriers approach surety underwriting by simply looking at the four corners of a document. They want a deal that’s already done and dusted. “At Chubb, we’re willing to sit down, roll up our sleeves and dive head first into the details of a transaction to figure out whether or not a surety bond is feasible. Our willingness to get involved sets us apart from our competition. Our clients respect and appreciate that Chubb is willing and able to invest the time and resources to help them make their deals happen.” https://www.insurancebusinessmag.com/us/chubb/chubb-our-willingness-to-roll-up-our-sleeves-sets-us-apart-98332.aspx

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Marijuana insurers in holding pattern after Sessions memo

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Some insurers have left the marijuana insurance market after a warning memo sent by Attorney General Jeff Sessions earlier this year, but others are staying and even planning to increase their involvement in the sector, say observers. Insurers who have left the business include Glen Allen, Virginia-based Markel Corp. and Munich Reinsurance Co. unit Hartford Steam Boiler & Inspection Co., observers say. Mr. Sessions referred in his Jan. 2 memo to a memo issued in 2013 by then-Deputy Attorney General James M. Cole, which said law enforcement should focus on certain priorities with respect to marijuana, including preventing its distribution to minors. Mr. Sessions said, “previous nationwide guidance specific to marijuana enforcement is unnecessary and is rescinded, effective immediately.” “There’s been a mixed reaction,” said Ian A. Stewart, a partner with Wilson Elser Moskowitz Edelman & Dicker L.L.P. in Los Angeles. “On the insurance side, we saw a couple of carriers leave the space,” but “there are other carriers thinking about getting in, in 2018, who have taken a pause to see how things play out,” while others already in the business see this as an opportunity, he said. Justin Lehtonen, assistant vice president at Los Angeles-based wholesaler Worldwide Facilities Inc., said “probably one of the most severely handicapped areas at the moment” is coverage for equipment breakdown. A spokeswoman for Hamilton, Bermuda-based XL Group Ltd., which does business as XL Catlin, said it has not withdrawn from this market. “We review submissions on a risk-by-risk basis,” she said. Hartford Steam and Markel did not respond to queries on reports they had withdrawn from this market. “There have been markets that have pulled out, and some are just kind of tightening up,” said Ronnie Cabral, cannabis group practice leader at San Francisco-based wholesaler Crouse & Associates Insurance Co. The Cole memo’s withdrawal created “a little bit of a skittish marketplace that’s unsure about what they’re getting into,” said Rafael Haciski, a producer with Philadelphia-based broker The Graham Co. However, Stephen Pate, a member of law firm Cozen O’Connor P.C. in Houston, said despite the Cole memo’s withdrawal, “to date I haven’t seen anything that indicates to me they’ve done anything to try to enforce the federal marijuana laws.” Mr. Pate said insurers “right now are in a wait-and-see status, to see whether, in fact, the Trump administration is really, really going to do anything about this.” Seth A. Goldberg, a partner with Duane Morris L.L.P. in Philadelphia, said the memo has caused most industry participants to “pause and consider their involvement. But that said, the space has continued to grow and flourish,” and “the opportunity for insurers to profit from the space also remains.” Read More … http://www.businessinsurance.com/article/20180417/NEWS06/912320625/Marijuana-insurers-in-holding-pattern-after-Sessions-warning-memo

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Self-driving cars face a NH reality

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A bill that would allow companies to road-test self-driving vehicles in New Hampshire may be facing some speed bumps. House Bill 314 cleared the House on a voice vote earlier this year. Its prime sponsor, Rep. Steven Smith, R-Charlestown, said the measure is the result of three years of work by around 20 stakeholders here. But he said there’s been some last-minute, “aggressive” lobbying by the autonomous vehicle industry to try to weaken the language in his bill. It’s frustrating, said Smith, who chairs the House Transportation Committee. “All of a sudden, they’re peppering us with model legislation at the end of a three-year period in the last two weeks,” he said. “It’s not the way we do business with our partners.” Smith said lobbyists want to change the bill to allow not just testing but deployment of driverless cars. He’s not budging. “I am not going to write a deployment package for a car that doesn’t exist,” he said. “I hope that they test here, but ultimately, my first job is public safety and a responsible test framework.” The legislation would allow someone to apply to the Department of Safety for an “autonomous vehicle testing license.” The company would have to provide the dates and locations where testing would occur – and put up a $10 million insurance or surety bond. It would also have to share some safety data with the state. Test vehicles would have to be accompanied by escort vehicles, and the license could be revoked for violating the rules of the road. Matthew Mincieli is Northeast regional executive director for TechNet, which represents about 70 technology and “innovation” companies. Mincieli said New Hampshire is “very appealing” for road-testing driverless cars because of its varied terrain and road conditions. But he said some of the requirements in House Bill 314 are too onerous. For one thing, he said, the $10 million bond is higher than anywhere else. And he said other states don’t require companies to notify them where the testing will occur. “We prefer the state not have the option of saying yes or no to certain locations,” he said. And the requirement of an escort vehicle is “a major impediment to testing,” Mincieli said. “That to us seems an overly complicated requirement.” The escort vehicle provision is “not negotiable,” Smith said. “You need eyes on (it) while it’s being tested.” Mincieli also objected to the provision that the state could pull the testing license for a violation of road rules. “That’s pretty broad,” he said. “The punishment doesn’t fit the crime.” Smith said he cobbled together portions of legislation that has worked in other states to create a law he thinks will be good for New Hampshire. He purposely did not include any definitions, since the industry is changing so fast, he said. Smith worked for eight years as a test engineer for a tech company. “And the things that they’re asking for, none of their test engineers would ask for,” he said. His bill would require that any vehicle tested here be first tested under controlled conditions that simulate “real world conditions.” “That’s responsible, and it builds confidence,” Smith said. “If a company isn’t willing to do that and they come to us and say, ‘We drove it around our parking lot,’ no, you’re not going on a New Hampshire road.” The debate here comes after some self-driving vehicles have been involved in fatal crashes in other states. Last month, after one of Uber’s self-driving test vehicles struck and killed a pedestrian in Tempe, Ariz., the company voluntarily suspended all of its testing programs around the country. Mincieli said the program New Hampshire lawmakers are proposing is far stricter than those of other states. “What they’ll do is end up causing testing and deployment to roll out more slowly,” he said. “It will cause a few speed bumps unique to New Hampshire.” The Legislature has to pass something, Smith said, noting the federal Department of Transportation has issued guidance that states can’t outright ban driverless vehicles. But the DOT leaves it up to states to regulate their own roads. Meanwhile, he said, “The industry’s made it clear that they don’t believe that anything in our statutes prevents them from doing it here tomorrow. “If we do nothing, they can just come here and it’s their playground,” he said. Sen. Regina Birdsell, R-Hampstead, who chairs the Senate Transportation Committee, said she’s spoken with some representatives of carmakers about their concerns. Birdsell said lawmakers have no intention of banning driverless vehicles. But, she said, “I want to make sure we do this right.” She said she initially was skeptical about driverless cars but has changed her mind. “I understand that autonomous vehicles are coming, and I honestly think it’s a really excellent alternative for our disabled and our elderly populations,” she said. Indeed, Jeff Dickinson, Granite State Independent Living’s advocacy director, told the Senate Transportation Committee last month that autonomous vehicles would be “transformative” for the elderly and disabled, especially in rural areas of the state with no public transportation. Read More… http://www.unionleader.com/Self-driving-cars-face-a-NH-reality

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IAT Insurance enters surety market with IFIC acquisition

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IAT Insurance Group has agreed to acquire IFIC Surety Group which includes International Fidelity Insurance Company and its subsidiary Allegheny Casualty Company. Through the deal IAT will enter the surety market. IFIC Surety Group is said to be the eighth largest surety writer in the US with over $150 million in gross written premium. IAT intends to maintain the IFIC brand and provide additional capacity and support its continued growth IAT has $1.3 billion in annual gross written premium and $1.2 billion of GAAP equity and acquired the renewal rights to a $40 million book of business from State Auto subsidiary Rockhill recently. “IFIC is a well-respected company with a long history in the surety sector and we are pleased to welcome it into the IAT family,” said IAT CEO Bill Cunningham. “Its leading position in the market and broad distribution network, make IFIC a natural fit for IAT’s strategic objectives. We value the quality of the IFIC team and their strong underwriting discipline, and we are pleased that chairman Fred Mitterhoff has agreed to stay on board for the next two years.” Fred Mitterhoff, IFIC chairman, added: “Like IAT, IFIC has always been a family-owned company and, when it came time to sell, we wanted to ensure that our values were maintained, including our commitment to employees, providing strong benefits, and fostering a supportive work environment. IAT is the perfect choice because they want to keep our talented team in place and invest in making the company even better.” https://www.intelligentinsurer.com/news/iat-insurance-enters-surety-market-with-ific-acquisition-15008

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legislation

Insurance agent enters guilty plea

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A South Abington Twp. insurance agent pleaded guilty to collecting insurance premiums from construction companies and never buying the insurance on their behalf. Timothy A. Hewitt, 41, billed six clients more than $200,000 for performance bond insurance without buying the insurance from Liberty Mutual, Lackawanna County Assistant District Attorney C.J. Rotteveel said Wednesday. Hewitt pleaded guilty Monday in Lackawanna County court to five counts of insurance fraud and one count of forgery, all third-degree felonies punishable by up to seven years in prison and a maximum fine of $15,000. Rotteveel, the prosecutor for the Northeastern Pennsylvania Insurance Fraud Task Force, said he plans to seek prison time for Hewitt and restitution for the payments that never covered the companies. The companies were Arc Electric of Hazleton; Hi-Tech Flooring and Designtech Interiors, both of Kingston; Diaz Forest Products and Diaz Stone and Pallet, both of Harford; and Diaz Manufacturing of Montrose. Fortunately, he said, the companies never had to make a claim against the phony bonds. http://citizensvoice.com/news/insurance-agent-enters-guilty-plea-1.2319384

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SCC sues DOT, construction company over damaged building [Liberty Mutual]

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Southwestern Community College is seeking compensation for damage to the Balsam Center building that it believes resulted from the R-5000 road project, a 0.7-mile connector road between N.C. 107 and N.C. 116 that wound up costing $30 million. A three-way finger-pointing contest over the damage has been ongoing since 2015, with SCC blaming DeVere Construction Company Inc. and the N.C. Department of Transportation, and DeVere and the DOT each claiming that the other is responsible for the mess. In the suits, SCC claims that DOT’s construction easement for the culvert project associated with the R-5000 project was limited to the Balsam Center parking lot, but that the easement stopped at the concrete sidewalk in front of the building. However, the suits say, when DeVere installed helical anchors to secure metal sheeting for the project, those anchors extended under the Balsam Center’s foundation. In January 2015, the suits say, DeVere began removing the metal sheeting and the helical anchors, but no fill or grout was placed in the holes created when those anchors came out. This caused holes in the ground under the building’s foundation. As a result, the suit said, vertical and horizontal cracks appeared in the Balsam Center’s interior and exterior walls and floors. “Due to NCDOT’s and DeVere’s actions and/or omissions stated above, the subsurface soil underneath the Balsam Center Building’s foundation was disturbed and compromised, leading to soil settlement and shifting underneath the Balsam Center Building and is the direct and proximate cause of the Balsam Center Building’s settlement-related damages,” both suits read. SCC claims that DeVere failed to adhere to its own plans and specifications, charging the company with negligence and trespass to real property. In its complaint against the DOT, SCC further states that a copy of a subsurface report commissioned for the project, which DOT received in September 2012, was not shared with SCC. It also claims that the alleged trespass of the helical anchors outside the project right-of-way amounts to taking of a “compensable interest” of SCC’s property and that SCC is due compensation for this taking, as well as recovery of court, attorney, appraisal and engineering fees. In its response to the lawsuit filed March 8, DeVere denied many of the central claims in SCC’s complaint. DeVere denied the assertion that the right-of way was limited to the parking lot area, as well as the claims that no fill or grout was placed in the holes when the anchors were removed, that DeVere did not use proper desaturation protocol, that DeVere failed to adhere to its own plans and specifications and that damage to the Balsam Center Building was the result of DeVere’s negligence. The DOT approved all of the construction plans, DeVere said, and any damages that occurred “were caused by defects in the plans and specifications provided by NCDOT and were not caused by DeVere.” In addition, the company said, because it did its work in accordance with the specifications from DOT, it can’t be held liable for any damages resulting from performance of that work. If damage did result from the work, the response said, SCC should seek compensation by suing DOT for compensation for property taken — which, as it happens, SCC is doing. DeVere further expounded on its complaints against DOT in a third-party lawsuit attached to its response, bringing in the DOT, CALYX Engineers and Consultants Inc. and engineer Dave Wissell as third-party plaintiffs in the case. According to this complaint, the DOT and the engineering firm CALYX knew or should have known about saturated soils and subsurface water under the Balsam Center. These entities “were negligent and breached their duties of care owed to the College by preparing drawings, plans and specifications that were defective, and those defects were the proximate cause of any property damage alleged by the College,” DeVere said. The plans were defective, DeVere said, because they required stone to be placed around the subgrade culvert, which would have allowed water to migrate from the Balsam Center’s foundation, creating voids underneath and causing the building to settle. DeVere also pointed the finger at engineer Dave Wissell, who it says designed the temporary shoring that SCC alleges ultimately created the problems, saying that the “alleged but denied property damage arises from and relates to the acts and/or omissions of Wissell.” DeVere states that its agreement with Wissell included a provision that Wissell would reimburse DeVere for any costs it should be required to pay for settling claims related to the work. DeVere closed by asking that SCC’s claims against it be dismissed and that any costs or liability associated with the case by covered by DOT, CALYX and Wissell. DOT has not yet filed a response to either SCC’s lawsuit or DeVere’s third-party complaint. When asked about the case, a DOT spokesman said that the department has a policy against commenting on ongoing lawsuits. “CALYX was only recently added to the lawsuit by DeVere, and as such, it is too soon to offer any detailed response,” said Candace Austin, communications manager for CALYX. “Based on what we know at this time, CALYX strongly denies any and all liability in this matter.” A request for comment sent to Wissell was not immediately returned. This is not the first time that DOT and DeVere have been at loggerheads. In January 2016, the company walked away from DOT projects across the state, including its $15.9 million contract for the R-5000 project. Despite warnings from the DOT, DeVere defaulted on the project, initiating a bonding procedure that resulted in DeVere’s bonding agency, Liberty Mutual, suing the company in federal court. Liberty sued the company for $12.5 million, saying that it had “willfully breached” its duty to Liberty in the way it spent funds from the bonding company, and that DeVere “intentionally submitted false, misleading and/or inaccurate information contained in the financial statements submitted to Liberty.” For example, said Liberty, financial statements submitted in 2013 to assure Liberty that there was enough collateral to protect Liberty from

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Pennsylvania Mortgage Servicers Now Required to Get Licensed and Bonded

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As of June 2018, Pennsylvania non-bank mortgage loan servicers have to get licensed in order to operate in the state. The changes are introduced by Senate Bill 751, which makes alterations to the Pennsylvania Mortgage Licensing Act (MLA) The bill sets licensing requirements for mortgage servicers, such as meeting surety bond requirements, as well as posting a fidelity bond. Licensees will also need to meet fixed level of net worth criteria. The changes with the new bill In most states across the country, mortgage servicers have to obtain a license prior to conducting their activities. With Senate Bill 751, Pennsylvania becomes the next state that introduces a regulatory procedure for this type of mortgage professionals. In this way, it aims to guarantee better compliance of mortgage servicers with federal and state laws. By amending the state’s Mortgage Licensing Act, legislators aim to bring legal clarity and ensure higher safety standards for the general public. The new legislation comes as a legal answer to cases of consumer complaints from servicers in Pennsylvania. For offences committed by servicers, the current MLA fines of $10,000 per occurrence apply as well. Servicers’ licenses can also be revoked and suspended, if deemed necessary. Besides the licensing criteria, the new bill also introduces important definitions of key terms and sets disclosure rules. It creates a wholesome legal framework for mortgage servicers in Pennsylvania. The licensing requirement for PA mortgage servicers With the introduction of the bill, the Department of Banking and Securities becomes the regulatory body that oversees non-bank mortgage loan servicers in the state. It takes over the responsibility to ensure that mortgage servicers comply with the Consumer Financial Protection Bureau’s regulations at 12 CFR, Pt. 1024. License applicants will have to submit their documents through the Nationwide Multistate Licensing System (NMLS), similarly to most other mortgage professionals in the U.S. You will be able to file your application starting April 1, 2018. The licensing process for non-bank mortgage servicers will entail obtaining a $500,000 surety bond. You will also need to get a fidelity bond in a sufficient amount set by the authorities, and the bond should be approved by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation. Mortgage servicers will also need to maintain a minimum of $250,000 net worth at all times during the licensing period. You will have to cover licensing fees as well. Initial licenses cost $2,500 for the first office and $1,250 for each additional branch. For renewals, the fees are $1,000 for the principal office and $500 for additional ones. Meeting the bonding criteria One of the major licensing requirements you have to comply with if you want to run a mortgage servicing business in Pennsylvania is to obtain a $500,000 surety bond. The bonding functions as an extra layer of security for the state and consumers. For example, if a customer is subjected to any damages as a result of your actions as a mortgage servicer, they can file a claim against you. On proven claims, affected parties can receive a compensation that is up to the bond amount you have posted. In the case of Pennsylvania mortgage servicer bonds, this is $500,000. In order to get bonded, you don’t need to cover the whole required amount. You only have to pay a small percentage of it, which is often between 1% and 5%. This is called the bond premium and is determined on the basis of your personal and business finances. The better your overall profile is, the lower your bond cost is likely to be. https://nationalmortgageprofessional.com/news/66526/pennsylvania-mortgage-servicers-required-licensed-bonded

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legislation

Canada: Obligation To Disclose A Surety Bond To Potential Beneficiaries

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Is the Decision in Valard Construction Ltd v. Bird Construction Co.1 Really Revolutionary in Quebec? The Supreme Court of Canada recently ruled on the obligation, whose existence and degree of intensity vary according to the circumstances, to disclose the existence of a surety bond for construction wages and materials to potential beneficiaries, pursuant to general principles of Common Law trusts and equity that do not apply, or at least not in the same way, in Quebec. After analyzing the decision, we will review the state of the law in Quebec in this regard. 1. The Valard decision General contractor Bird Construction Co. (“Bird”) required its sub-contractor Langford Electric (“Langford”) to provide a CCDC-222-type surety bond for the payment of wages and materials of its sub-contractors and suppliers, including Valard Construction Ltd. (“Valard”), in connection with a private construction project in the Alberta oilsands The provisions of the bond created a Common Law trust and named Bird as the trustee of the trust, which was intended to provide protection to unpaid creditors of Langford, who had to give the trustee notice of their claim within 120 days of their last provision of work or materials2. When Valard learned of the existence of the surety bond, however, the 120-day notice period had expired, such that its claim was rejected by the surety, Guarantee Company of North America. Following this rejection, Valard sued Bird on the grounds that it had breached its duty to inform Valard of the existence of the bond. Both the trial judge and the Alberta Court of Appeal dismissed Valard’s action. The Supreme Court overturned those judgments, concluding that even if the contract3 and Alberta law did not expressly require the trustee to inform potential beneficiaries of the bond, certain circumstances could require it to “take reasonable steps to notify potential beneficiaries of the trust”. In this case those circumstances were that the surety bond in question was not commonly used in private-sector projects in the oilsands, that it was not advertized or posted in the on-site trailer where Valard was required to attend daily meetings, that Bird had been advised that Valard was experiencing difficulties in getting paid, and that Valard was unaware of the bond’s existence until its right to avail itself thereof had expired. The Court indicated that in other circumstances, such as where a surety bond is commonly used or expressly referred to in the contract documents, “few if any steps may be required by a trustee” to disclose the bond’s existence. The Supreme Court analyzed the degree of intensity of the trustee’s duty in situations where a beneficiary arguably should be informed of the existence of the surety but neither the law nor the terms of the bond require this. Read More … http://www.mondaq.com/canada/x/684844/Building+Construction/Obligation+to+Disclose+a+Surety+Bond+to+Potential+Beneficiaries

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