We are excited to welcome David Souders as today’s guest blogger for the first in what will be a series of monthly guest blogs. David is an insurance broker and risk management consultant who has been involved with the EB-5 program for years.
Many EB-5 Regional Centers understand the importance of Regional Center liability insurance. They realize that even with the best contracts and the most conservative projects, allegations of wrongdoing can be made, can be very costly to defend, and can lead to a prohibitively expensive settlement or judgment. In the worst cases, the costs to defend or settle a claim made against the Regional Center could damage its ability to continue operations.
Unfortunately, sometimes the drive to secure coverage does not arise until it is too late. Several times a year, a Regional Center operator comes to us to secure insurance coverage after a restless night caused by the knowledge that something has occurred or may be in the process of occurring that could lead to a demand against the Regional Center or its directors and officers (we call this “the knowledge of a circumstance”). Often times, the applicant is well aware that coverage will be provided for all other risks, which would otherwise be insured under the policy except for a claim that stems from the known circumstance. However, not many understand that the underwriter may do the following because of the known circumstance:
- Raise premiums and deductibles
- Exclude coverage for any future claim arising out of any actual or alleged wrong doing that took place prior to the issuance of coverage
- Delay proposing terms until the circumstance has been resolved
- Decline to offer terms now or in the future
Here are a few examples of actual circumstances that have triggered the aforementioned adverse underwriting decisions:
- A service provider threatened a lawsuit against the Regional Center
- A 526 NOID was received
- An 829 NOID was received
- A minority shareholder threatened legal action
- A regulator subpoenaed a Regional Center
- A project had a 526 RFE which was inordinately threatening
- A Regional Center was made aware of alleged misrepresentations made by a migration agent
Insurance coverage can be available early on and, in some cases, Regional Centers have been able to secure coverage prior to raising their first dollar. We strongly suggest that you look into obtaining coverage well before anything takes place, which could later become the cause of a future issue. Please contact David Souders (Dsouders@toddassociates.com) to learn more about insurance products for Regional Centers.
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