D&O Insurance Archives -

Giving The NYAG More Ammo

The saga of the Directors and Officers liability insurance for the NRA Board of Directors continues. As I wrote almost two months ago, Lloyds of London refused to renew the existing policy. In the interim, the board voted to set up a $5 million contingency fund. The inadequacy of this fund was the impetus for Buzz Mills’ resignation from the board.

Now there are reports that that NRA leadership said that they have a policy which leads us to the latest controversy. It was based upon an email sent in early August to board members from Secretary and General Counsel John Frazer saying that they had obtained Directors and Officers liability coverage.

The blog NRA In Danger reports that board member Rocky Marshall has been asking Frazer for a copy of the new policy that supposedly protects them. He has been stonewalled despite making five or more requests for a copy of the policy in both writing and verbally.

From NRA In Danger:

August 17, director Marshall writes a rebuttal, repeating that a director’s right of inspection is absolute, and no employee-officer has a right to proclaim the corporation’s records “confidential” against a director. Frazer in a phone call said that bloggers would write negative articles if the policy were released. Marshall answers, “To use this as an excuse for not releasing information that I have requested is creating an artificial barrier that prevents me from performing proper oversight. This also increases the risk for the NRA because the NYAG lawsuit continues to highlight the lack of oversight from the NRA Board of Directors.”
Marshall adds, inspection at Fairfax HQ is hardly feasible for a director a thousand miles away., at a time of Covid-19. Inspection at the Houston meeting is insufficient; he wants his attorney to look it over.
“This email is another demand for a copy of the Declaration page of the D&O policy. I would be grateful to receive this copy via email or a hard copy mailed to my physical address. Failure to provide a copy of the D&O policy is unacceptable regardless of the contrived reasons that you have outlined in your email.’
Yesterday, August 27, Marshall sent the entire email exchange to the board, after waiting ten days for a reply that never came.

Damn bloggers. We are the bane of both Tara Chipman’s and John Frazer’s existence.

Now to the core of the issue. Does a director have a right of inspection of corporate records which would include the D&O policy in question?

The answer is unequivocally yes according to the NY Court of Appeals which is the highest court in New York. Given that the NRA is a non-profit incorporated under New York law, these rulings control.

That court said in 1955 in Matter of Cohen v. Cocoline Products (309 N.Y. 119 (Ct of Apps 1955)) that it was an “absolute, unqualified right, having its roots in the common law, to inspect their corporate books and records” More recently, in Matter of Brenner v. Hart Systems (493 N.Y.S.2d 881, 114 A.D.2d 363 (Ct of Apps 1985)), the Court of Appeals found that directors had the absolute and and unqualified right to “inspect and examine corporate books and records.” It then went on to say that Brenner would suffer irreparable harm if denied this right. This case centered on Brenner’s demand to see the accounting records to determine whether they were inadequate and whether there were irregularities and/or improprieties. In the context of the NRA, that makes that case highly relevant!

In some ways I do feel for John Frazer. He has been named as a co-defendant by the New York Attorney General in the dissolution complaint for “negligence”, was called “unprepared to manage the legal and regulatory affairs of the NRA”, was said to be ignorant of New York non-profit law, and has been accused of many other failures to adequately do his job. To add insult to injury, he was paid about half of what Josh Powell was paid by the NRA. This despite Powell’s reputation for being incompetent, a sexual harrasser, and really kind of dumb except when it came to his own self-preservation.

That said, Frazer’s loyalty to Wayne and Wayne’s wishes will be his and the NRA’s undoing. If Frazer’s refusal to provide a copy of the insurance policy to Marshall when Marshall has an absolute right to see it doesn’t come up in court, I’d be very surprised. You know the NY Attorney General’s Office is already watching every action or inaction by the NRA, its officers, and the board like a hawk. This is just one more thing to add to the argument for dissolving the NRA.

One last comment. Thanks to the postponement of the NRA Annual Meeting, Rocky Marshall remains a director of the NRA with all its rights, privileges, and obligations because his term of office does not end until the Annual Meeting takes place.

Is Wayne LaPierre A Peril Or A Hazard?

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.