by While I had heard rumors of Lloyd’s of London refusing to renew the NRA’s Directors and Officers insurance, Stephen Gutowski of The Reload confirmed it yesterday morning. He noted that in this past weekend’s Board of Directors meeting, they voted to create a $5 million fund to cover the board and executives as they search for a new policy.
NRA board member Phillip Journey told The Reload the fund was announced during the closed executive session of the gun group’s Saturday board meeting. He said board members were authorized to talk about it after the session ended, though. He believes the fund was created to alleviate concerns about liability raised by a number of board members.
“It was apparent from the comments that there are several board members that have expressed concerns,” Journey said. “This was their attempt to address the concern, knowing that the policy expires in, golly, less than 40 days.”
Lloyd’s did not respond to a request for comment. The elite business group has a reputation for insuring high-risk clients, and Journey said its decision not to renew the NRA’s policy is bad news.
“I mean, if Lloyd’s won’t insure you, who the hell will?” he said.
Judge Journey is correct. Lloyd’s of London will insure and reinsure risks that traditional insurance companies will refuse to cover. It should be noted that Lloyd’s is not a company but a marketplace that brings together investors, underwriters, brokers, and insurance companies.
I taught insurance and financial planning at Western Carolina University as an adjunct instructor for a decade. One of the topics we covered was risk management and ways to mitigate it. Insurance is the proper tool to use when the severity of the loss is high and the likelihood of an occurrence is low. It is properly termed “risk transfer”.
Without getting too deep into the weeds, there are a few definitions that need to be clarified when speaking of insurance. First, risk is the probability or chance of a loss. In the NRA’s case, I am speculating the underwriters calculated that the probability of a loss or claim against the directors and officers for failing to do their fiduciary duty was rather high.
Going further, peril is the direct cause of a loss while a hazard is something that either causes or increases the likelihood of a loss. If you have a homeowner’s policy you will see these terms on it. Looking at the recent condo collapse in Dade County, the collapse was the peril while the deteriorating concrete was the hazard. In terms of the NRA, you could say that Wayne LaPierre’s grifting behavior is the peril and that the Board of Directors acquiescence in letting Wayne do anything he wants is the hazard.
A couple of the major considerations in underwriting D&O insurance are recent legal actions alleging violation of federal or state law and involvement in bankruptcy proceedings. The NY Attorney General’s lawsuit to dissolve the NRA and hold Wayne and others personally responsible fits that bill as does the abortive attempt to use bankruptcy to evade New York’s enforcement authority. When you add that to the Board’s seeming unwillingness to do its fiduciary duty, it is no wonder that the underwriters at Lloyd’s said nope.
As a result, the NRA will self-insure as noted in the article from The Reload. Frank Tait, who is running for the Board, has an excellent look at what self-insuring or setting up a captive insurance company would mean for the NRA.
A more humorous look at this whole debacle comes from Bitter at Shall Not Be Questioned. She notes that Wayne is a bigger risk than fire and brimstone. Lloyd’s is willing to insure the Hawaii neighborhood that sits on top of an active volcano but is not willing to insure the NRA’s directors and officers. At least with the volcano you know the extent of the losses.
So to answer the question posed in the headline, I think you could say that Wayne is the peril and his continuing presence at the top of the NRA is the hazard. Dumping the Gang of Four of Wayne, Carolyn, Charles, and Willes won’t cure the NRA’s problems but it would be a step in the right direction.
One downside in all of this for reformers is that they demonstrated with Ollie that if you offend Wayne, he’ll just get the rest of the board to deny indemnification if it’s needed. It seems to me – totally not an expert here – that $5 million is on the low side for covering a board that big with so many recorded votes and recorded committee assignments that are potentially problematic. It makes me worry for some people who might be waiting for what they think is the right reform movement opportunity will be seen as “not supportive enough” of Wayne & crew as the next to be denied coverage at the whim of those in control if it’s needed. This solidifies more and more power in the hands of the one person the bankruptcy judge called out in a negative way. That’s not good. They are no longer held to any industry standards and expectations by going their own way with this, and it means it gives more opportunity for them to threaten any reform-minded board members.
$5 million is on the low side given the NRA’s issues.
You bring up an excellent point using indemnification as a weapon against reformers.
As to the celebrities and well-to-do on the board, I would be looking at this as the time to exit. No attorney in his right mind would advise his or her client to take the risk of going “naked” or without proper D&O insurance. Their personal assets are at risk.
“the NRA will self-insure”
Yeah but will they, really?
I put the odds of the NRA setting up a proper, legal, bankruptcy remote captive insurance agency entity for self insurance at 0.000%. I put the odds of them setting up a trust which WLP or Brewer III can tap, so they in turn can tap 18 year old blond interns at 100.000%. I put the odds of the 3509 members of the Board of Directors holding Brewer or WLP accountable at -10%. We are more likely to See BidenHarris on stage sporting an open carry AR47.
The latter by the way is probably the real reason LLoyds wont unsure the NRA. You forgot to mention “moral hazard.” WLP is a moral hazard, the existence of 3rd party insurance probably removes any incentive for the Board to fix problems.
In other words, the hazard at the NRA is moral hazard, in more ways that one.
Long term, without 3rd party insurance, NRA board members facing greater personal financial risk is a good thing. It will force them to look at their bank accounts and think long and hard about WLP and his minions. Unless they are dumb enough to think that the $5 million will really be there when they need it.
I didn’t forget to mention moral hazard but merely skipped it. It most definitely is suffering moral hazard. Wayne has no incentive to retire so long as his actions are condoned by the board.