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How Much Can You Rely On Your Consultant's Lawyer?
HOW MUCH CAN YOU RELY ON YOUR CONSULTANT'S LAWYER? by Gary Lawson, JD, LLM, Bruce Campbell, JD, and Gavin Kahn, Esq. A common practice in business today is for companies to focus on the core of their businesses while hiring third parties or consultants to handle many ancillary activities. For example, businesses that do not specialize in investing hire third parties to make investment decisions for them. Still other companies hire consultants to assume the liability for risky activities. An example of an attempt to shift risk to consultants can be seen in the direct marketing business. Frequently, the direct marketing company ('the Company') relies upon consulting firms to review, if not structure, a variety of marketing programs and promotions. It is common for the direct marketing consultant to obtain a legal opinion from a law firm that is chosen by the consultant. The legal opinion usually sought is on whether the particular promotion satisfies some or all federal and state laws regulating such activity. It is common for the cost of the legal opinion to be considered an extra cost under the contract between the Company and the consultant, to be paid for by the Company. More often than not, the Company, the consultant, and the law firm know that the legal services are intended to benefit and be relied upon by the Company. Nevertheless, if there is a written agreement describing the legal services to be rendered, it is often between the consultant and the lawyer. And the Company is not a party to the agreement. If asked, many companies that hire consultants and pay the attorneys recommended by the consultants often express the belief that any legal opinion rendered concerning their company is an opinion on which they can rely. Moreover, these companies frequently believe that if the legal advice given falls below the standard of care-that is, constitutes malpractice- that the company receiving bad advice can sue the lawyer. Many companies are surprised to learn that the legal advice that they paid for will not serve as a basis for a claim, even if the lawyer committed malpractice. To gain an appreciation of how unusual this situation may seem to many companies today, a brief review of how tort law has evolved may be helpful. Prior to the 20th century, virtually all American courts refused to impose liability for negligence unless the injured party had a contractual relationship or was in privity with the party who injured him. Thus, if a manufacturer of 'widgets' put his product into the stream of commerce, he was only responsible to those with whom he was in privity (those who purchased his product from him directly). Gradually, the privity requirement was eroded. Early on in this evolution, manufacturers became liable to persons who bought their product from other parties who distributed the product through the chain of distribution. More recently, manufacturers have been held liable to persons who, although they did not buy the product in the stream of commerce, were injured by the product being used by someone who did purchase the product. While the privity requirement was being relaxed in the context of product liability, the courts also began to relax the privity requirement for certain services. Thus, accountants who were negligent in rendering an opinion that a company's financial statements accurately portrayed its financial condition could be held liable to investors in the company who could show that they made the investment on the basis of the erroneous financial information. For an accountant to be found liable in such a situation, the accountant would have to have been aware that the financial reports were to be used for a particular purpose, that a known party was intended to rely on the report, and that there was some conduct on the part of the accountant that linked him to that party and evidenced the accountant's understanding of that party's reliance.(1) Even though the privity requirement has been relaxed in cases brought against accountants, the courts have generally balked at relaxing the privity requirement for claims against lawyers. The courts have justified their adherence to the privity requirement on the basis that legal ethics require the lawyer to serve only his client. Thus, in most states, a lawyer may be found liable only to his client. The most frequently stated rationale for the privity requirement is that a lawyer must devote his efforts solely to the benefit of his client. On the other hand, one might attribute this state of the law to a silent fraternalism or an unspoken bond between lawyers and judges. That is, judges who were once practicing lawyers are sympathetic to the wishes of lawyers to avoid liability for their rendition of legal services. Regardless of the motivation for adherence to the privity requirement, the vast majority of states still require the existence of privity between a client and a lawyer before liability may be established against the lawyer. Nevertheless, in a minority of states, the courts have looked at the lack of privity between an injured party and a lawyer and have accepted one of several theories in order to allow an injured party to establish liability against the lawyer. One theory allows persons who are intended third-party beneficiaries to establish liability against the lawyer. This theory has been used most frequently in the context of probate proceedings. For example, a testator gives instructions to his lawyer to set up a trust for A, B, and C. Yet the lawyer fails to establish the trust. As a result, A, B, and C sustain adverse tax treatment of their inheritance and are required to pay more taxes than if the trust had been established. In most instances, A, B, and C would not have a privity relationship with the lawyer. Nevertheless, the trust was specifically designed for their benefit. Unless the privity requirement is relaxed, A, B, and C will be unable to establish liability against the lawyer for malpractice. To provide A, B, and C with a remedy, some courts have said that because A, B, and C were the intended beneficiaries of the trust, they should be able to establish liability against the lawyer. A second theory that has been used to relax the privity requirement against lawyers is to allow persons whose relationship to the transaction or event is so close that it places them within in a zone in which it is highly likely that they would be harmed. Defining the parameters of who is within such a zone has been difficult. The courts have struggled with this issue but have said that the analysis requires a detailed factual review and will be done on a case-by-case basis. These courts have generally looked to three criteria for imposing liability: (1) the awareness by the lawyer that the statement is to be used for a particular purpose; (2) reliance by a known party on the statement in furtherance of that purpose; and (3) some conduct by the lawyer linking him to the relying party and evincing his understanding of that reliance. Even though these criteria may be satisfied, a company will still only have the ability to establish liability against its consultant's lawyer in a handful of jurisdictions. Therefore, companies that deal with consultants and their consultants' counsel should not rely on the possibility of the courts to relax the privity requirement. Instead, companies should take certain steps to ensure they will have recourse if bad advice is given to them by their consultants' attorneys. One solution is for the company to establish a contractual relationship directly with the consultant's law firm. In addition, all agreements between a company and its consultants should be reviewed by the company and its counsel to determine if the agreement with the consultant allows the consultant to hire counsel. Second, the company may be well served by including in their agreement with their consultants a provision that establishes a link between the legal services rendered to the consultant and the company. Third, the company could provide in its contract with the consultant that a copy of all correspondence between the consultant and the lawyer hired by the consultant must be sent to the company. Finally, the company could require that any legal opinion letters from counsel to the consultant be addressed to both the consultant and to the company. Generally, when a company hires a consultant, there is an expectation that the company can rely on the consultant's lawyers. Nevertheless, this expectation can be frustrated unless the company takes steps to establish a link between itself and the counsel. A careful review of all contracts with the consultant should be undertaken to determine if consultants have the authority to hire counsel. Where appropriate, steps should be taken to protect the company's expectation that it can rely on its consultant's counsel. Notes: (1) In re Crazy Eddies Sec. Litig., 812 F. ,upp 338 (ED NY 1993), Ahmed v. Trupin 809 F.Supp 1100 (SD NY, 1992). Also arguments have and will continue to be made that accounts can be liable under the Restatement of Torts (Second) 552. © Copyright 199...______________________   ADDRESS YOUR FAX TO THE RISK MANAGEMENT LETTER at (714) 955-1929. Special trial subscription not available to existing or previous RML subscribers.

Gateway Specialty Insurance provides a competitive insurance program tailored specifically for nonprofit organizations — including chambers of commerce, booster clubs, parent-teacher associations, foundations, trade associations, and membership groups. As a wholesale broker with access to USLI and other top-rated markets, Gateway Specialty helps retail agents place comprehensive, affordable coverage for these unique risks. Overview of the Program From Gateway Specialty Insurance Nonprofit organizations serve vital roles in their communities but carry distinct liability and operational exposures. Gateway Specialty’s nonprofit program is structured to make quoting and placement simple for agents. You can expect straightforward submission requirements, fast turnaround (often same-day or next business day), and access to admitted markets where available—helpful when clients prefer admitted paper. Ideal Accounts and Appetite This program is designed for 501(c)(3) and similar nonprofit entities that need coverage for daily operations, board exposures, and fundraising or public events. Target classes include: Chambers of Commerce Booster Clubs and School Support Groups Parent-Teacher Associations (PTAs) Foundations and Charitable Trusts Trade and Professional Associations Membership-based nonprofits Good fits are organizations that run periodic fundraising events, manage volunteers, or maintain a governing board. Typically this program favors groups with straightforward operations and limited or well-managed event risk. Complex nonprofits with substantial property portfolios, high volunteer payroll exposure, or unusual licensing needs may require alternative markets. Coverage Highlights and Advantages Policies can be written as a package or monoline to match each client’s needs. Principal coverage options include: Business Owners Policy (BOP) Directors & Officers (D&O) and Employment Practices Liability (EPLI) Special Events Liability Crime Coverage (including Employee Dishonesty) Hired and Non-Owned Auto Liability (in most states) Umbrella Liability Gateway also offers complimentary risk management resources to help insureds lower exposures and meet venue or grant requirements. Underwriting Notes and Minimum Premiums The program accepts submissions with no appointment requirement and no premium commitment to quote. Minimum premium starts at $500, allowing placement of many small and mid-sized nonprofits. Underwriters typically review governance practices, event frequency and size, volunteer screening, and any fundraising/raffle activities. Provide ACORD forms and event details to speed quoting. Territories and Availability Available in most states: AL, AZ, AR, CA, CO, CT, DE, FL, GA, HI, ID, IL, IN, IA, KS, KY, ME, MD, MA, MI, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NY, NC, ND, OH, OK, OR...T, VT, VA, WA, DC, WI, and WY. Most markets are admitted, which can simplify claims handling and compliance for insureds. Why Work With Gateway Specialty Insurance Gateway Specialty combines wholesale distribution with access to top carriers like USLI, experienced underwriting for nonprofits, and responsive account management. Agents benefit from fast quotes, flexible packaging, and no appointment barrier to submit. Whether you’re placing a single small PTA or managing a portfolio of membership associations, Gateway aims to deliver professional service and competitive terms. To submit an application, email your ACORD forms to submissions@gatewayspecialty.com. For questions, contact Anthony Vellutato at 877-977-4474 ext. 7044 or avellutato@gatewayspecialty.com. Frequently Asked Questions What types of accounts are a good fit for this program?This program is ideal for nonprofit organizations such as chambers of commerce, booster clubs, PTAs, foundations, and membership groups. Is there a minimum premium required?Yes. The minimum premium for this program starts at $500, making it affordable for small and mid-sized organizations. What coverages are available?Coverage options include BOP, D&O, EPLI, special events, crime, hired/non-owned auto, and umbrella. Policies can be written as package or monoline. Do agents need an appointment to submit business?No. There is no appointment or premium commitment required to submit nonprofit business to Gateway Specialty. How quickly can I get a quote?Gateway Specialty offers same-day or next-day turnaround on most nonprofit submissions when complete ACORDs and event details are provided. Need help placing an account? Connect with a market specialist.

Sample Electronic Communication Policy
Every firm with a computer network, Internet access, or e-mail should have a policy for using them. Without one, you risk wasted time and inappropriate use by employees that can be unprofessional at best. Steve Anderson addresses the need with this document, a sample electronic usage policy template you can use as is, or customize to your firm. ABC Insurance Agency Policy Purpose To maximize the benefits of electronic communications to ABC Insurance Agency (The Company) and its employees, while protecting the Company and its employees from liability and/or performance challenges due to improper or unauthorized use of the systems made available to facilitate the business of the Company. Company Property As a productivity enhancement tool, the Company (including all subsidiaries) provides and encourages the business use of electronic communications (notably the Internet, voice mail, electronic mail, and fax). Electronic communications systems owned by the Company and all messages generated on or handled by these electronic communications systems, including back-up copies, are considered the property of the Company. Any attempt to violate, circumvent, and/or ignore these policies could result in corrective action, up to and including termination. Authorized Usage The Company’s electronic communications systems must be used solely to facilitate the business of the Company. Users are forbidden from using the Company’s electronic communications systems for private business activities, personal, or amusement/entertainment purposes. Employees are reminded that the use of corporate resources, including electronic communications, should never create either the appearance or the reality of inappropriate use. Inappropriate use might result in loss of access privileges and disciplinary action, up to and including termination. Proper Usage Employees are strictly prohibited from using Company computers, e-mail systems, and Internet access accounts for personal reasons or for any improper purpose. Some specific examples of prohibited uses include, but are not limited to: Transmitting, retrieving, downloading, or storing messages or images that are offensive, derogatory, off-color, sexual in content, or otherwise inappropriate in a business environment. Making threatening or harassing statements to another employee, or to a vendor, customer, or other outside party. Transmitting, retrieving, downloading, or storing messages or images relating to race, religion, color, sex, national origin, citizenship status, age, handicap, disability, sexual orientation, or any other status protected under federal, state, or local laws. Communicating confidential Company information to individuals inside or outside the Company or to other organizations, without specific authorization from management. Sending or receiving confidential or copyrighted materials without prior authorization. Soliciting personal business opportunities or personal advertising. Gambling, monitoring sports scores, or playing electronic games. User Identification Where electronic communications systems provide the ability to identify the activities of different users, these facilities must be implemented. For example, electronic mail systems must employ personal user-IDs and associated passwords to isolate the communications of different users. Fax machines that do not have separate mailboxes for different recipients need not support user separation. User Accountability Regardless of the circumstances, individual passwords must never be shared or revealed to anyone besides the authorized user. To do so exposes the authorized user to responsibility for actions the other party takes with the password. Violation could result in discipline of both the authorized user and the person receiving the password, up to and including termination. If users need to share computer resident data, they should use message-forwarding facilities, public directories on local area network servers, and other authorized information-sharing mechanisms. To prevent unauthorized parties from obtaining access to electronic communications, users must choose passwords that are difficult to guess (for example, not a dictionary word, a personal detail, nor a reflection of work activities). No Expectation of Privacy Employees should expect that the Company might access all information created, transmitted, downloaded, received, or stored in Company computers at any time, without prior notice. Employees should not assume that they have an expectation of privacy or confidentiality in such messages or information (whether or not this content is password-protected), or that deleted messages are necessarily removed from the system. No Default Protection Employees are reminded that Company electronic communications systems are not encrypted by default. If sensitive information must be sent by electronic communications systems, encryption or similar technologies to protect the data must be employed. Users should have no expectations of privacy using Company equipment. Unlike written communications, e-mail does not usually have an 'envelope.' Unless the e-mail message is encrypted, you’re sending a postcard, not a letter. Regular Message Monitoring Contents of electronic communications might be monitored and the usage of electronic communications systems will be monitored to support operational, maintenance, auditing, security, and investigative activities. The Company reserves the right to disclose any electronic messages to law enforcement officials without prior notice to any employees who might have sent or received such messages. Users should structure their electronic communications recognizing the fact that the Company will, from time to time, examine the content of electronic communications. Because all messages are company records the Company reserves the right to access and disclose any message sent over its electronic messaging systems. The Information Technology Department and Department Supervisors have the right to review the electronic communications of the employees they supervise to determine whether there have been any breaches of security, violations of company policy, or unauthorized actions on the part of the employee. Statistical Data Consistent with generally accepted business practice, the Company collects statistical data about electronic communications. For example, call detail reporting information collected by telephone switching systems indicates the numbers dialed, the duration of calls, the time of day when calls are placed, etc. Using such information, Information Technology personnel monitor the use of electronic communications to ensure the ongoing availability and reliability of these systems. If during the collection and review of such information they find questionable, inappropriate or illegal use of electronic communications, they must report their findings to management. Contents of Messages Workers must not use profanity, obscenities, or derogatory remarks in electronic messages discussing employees, customers, competitors, or others. Such remarks — even when made in jest — might create such legal problems as trade libel, defamation of character, or harassment/discrimination claims. Special caution is warranted because backup and archival copies of electronic mail might actually be more permanent and readily accessed than traditional paper communications. Therefore, transmission of obscene or harassing messages to any individual is strictly prohibited. Message Forwarding Recognizing that some information is intended for specific individuals and might not be appropriate for general distribution, electronic communications users should exercise caution when forwarding messages. Sensitive Company information must not be forwarded to any party outside the Company without the prior approval of management. Blanket forwarding of messages to parties outside the Company is prohibited unless such permission has been obtained. Handling Information About Security Users must promptly report all information security alerts, warnings, suspected vulnerabilities, and the like to an appropriate manager. Users are prohibited from utilizing Company systems to forward such information to other users, whether these users are internal or external to the Company. Public Representations No media advertisement, Internet home page, electronic bulletin board posting, e-mail message, voice mail message, or any other public representation about the Company can be issued without prior approval by management. Archival Storage All official Company e-mail messages, including those containing a formal management approval, authorization, delegation, or handing over of responsibility, or similar transaction, must be archived/copied to individual user archive files within the Company e-mail facility. Purging Electronic Messages Messages no longer needed for business purposes must be periodically purged by users from their electronic message storage areas (including outboxes, in-boxes, and file folders). It’s recommended that individual users delete electronic messages stored on the Company’s e-mail systems after 90 days. After seven days e-mail which has been sent to 'Trash' will automatically be purged in order to increase scarce storage space and simplify records management and related activities. Voice mail messages are saved for 30 days, then purged. Undeliverable messages are automatically deleted. Harassing or Offensive Materials The Company computer and communications systems are not intended and must not be used to exercise employees’ right to free speech. Sexually explicit words and images, ethnic slurs, racial epithets, religious or political statements, or anything else that might be construed as harassment or disparagement of others based on their race, national origin, sex, sexual orientation, age, religious beliefs, or political beliefs may not be displayed or transmitted. Unwanted telephone calls, e-mail, and internal mail messages are strictly prohibited, with violators subject to disciplinary action including termination. Users are encouraged to respond directly to the originator of such messages. If the originator does not promptly stop sending offensive messages, users must report the communications to their manager and the Human Resources department. The Company retains the right to remove from its information systems any material it views as offensive or potentially illegal. Establishing Electronic Business Systems Although the Company seeks to aggressively implement Electronic Data Interchange (EDI) and other electronic business systems with third parties, all contracts must be executed by paper documents prior to purchasing or selling via electronic systems. EDI, e-mail, and similar binding business messages must be released against blanket orders, such as a blanket purchase order. All electronic commerce systems must be approved prior to usage. Paper Confirmation for Contracts All contracts entered into through electronic offer and acceptance messages (fax, EDI, electronic mail, etc.) must be formalized and confirmed by paper documents within two weeks of acceptance. Employees must not employ scanned versions of hand-rendered signatures to give the impression that the sender signed an electronic mail message or other electronic communications....

Are You Getting The Most From Premium Financing?
'It's all good,' says Richard O'Neil, President of Key Insurance Corporation in Tampa, Florida. He has no complaints about his experience in premium financing, and it's easy to see why: His agency, with six branch offices and a total premium volume of about $10 million, has more than half of its 25,000 Personal Lines accounts financing their premiums. 'Much of it is nonstandard auto and mobile homes,' he explains. 'Often the carrier wants its premium upfront. It's hundreds of dollars, and the customer doesn't have it.' Key Insurance obliges the carrier and the insureds by financing the premium through Bay Budget Corporation, a wholly owned agency subsidiary that currently charges about 16 percent simple interest, plus up to $20 as a set-up fee, with as little as 10 percent down. The interest and fees don't add to much to the monthly amount the customers will pay, O'Neil says, and besides: 'The selling point is service. The customer usually just says, 'Where do I sign?' O'Neil has been operating Bay Budget for 11 years, drawing on bank debt and internal funds for capital. Today the subsidiary earns a return that O'Neil will only say is in six figures. And while he knows not everyone wants to do this much premium financing, his rationale is convincing: 'You can easily make $50,000 or $60,000 with this.' Key Insurance is unusual among agencies for its volume and the type of close-to-home premium financing it employs. Most agencies that engage in the business arrange financing only for Commercial policies, and most use an outside company to assume the risk and administer the program. But even then, premium financing isn't widely used. While there are no independent statistics, industry leaders estimate that just $12 billion, or less than 10 percent, of Commercial P/C premiums are financed. It's not that agents don't know about premium financing: a PIA poll taken a few years ago found that nine out of 10 agents set up financing for some Commercial clients. Now, though, more agents are apparently following in Dick O'Neil's footsteps and going into business for themselves. As they seek ways to manage their cash flow more effectively, these agencies are trying to imitate on a small scale what the giants of the industry do as multi-billion-dollar businesses: borrow against receivables and lend against the unearned portion of the premium. It's high finance that promises new profits, but there are risks beyond the obvious of lending to a customer. That's why agents must ask a few tough questions before they take the plunge: Is there a large enough untapped demand that I can fill? Do I have the skills to run a finance company that generally must be licensed, incorporated, located, and staffed separately from the agency? Am I prepared to assume the requisite financial risk? Most agencies play it on the safe side. Julie Sizemore, Commercial Lines supervisor at the Murray M. White agency in High Point, NC, says her company has been arranging premium financing for Commercial accounts for more than 10 years. But they don't market the service aggressively: 'It's mainly a service to the customer,' she says, offered when the carrier or broker doesn't provide a payment plan. The agency, which uses Imperial Premium Finance for all its financing, normally doesn't guarantee the insured will pay the loan. For the most part, she says, 'There is really no risk for us at all.' Finance Everything That's music to the ears of Imperial, the fourth-largest company in the industry. The California-based company handles premium financing for many PIA members' E&O coverage. Like O'Neil. Imperial's President and CEO Robert Cycon urges you to be more aggressive in selling premium financing. 'We tell the agent to prepare the financing agreement and present it along with every policy quote.' Rex Hughes, vice president and partner with the Messer-Bowers Company, a $13-million agency in Enid, OK, is that aggressive. He'd rather strike a gusher than watch a slow dribble of commissions checks come in as installments are paid to the carrier. 'We try to finance everything and get our money upfront,' Hughes says. Messer-Bowers draws on several premium finance companies to arrange deals for multimillion-dollar premiums, but the agency also does its own financing by borrowing from a local bank. 'We shop for the best rate just like we shop for the best price for coverage,' he adds. When the agency obtains the financing from the bank, though, it must agree to full recourse if the insured fails to pay. Even so, there haven't been many problems. Says Hughes, 'We rarely have to make up any difference.' Five years ago, the Insurance Systems agency of Brecksville, OH (now Commerce Insurance Systems) entered the premium business when it opened its own company, Priority Premium Finance. Today, $1 million of the agency's $7 million in Commercial premiums is financed either with premium finance companies or through the subsidiary's own line of credit at an Illinois bank. 'It provides profit to the agency and helps the balance sheet,' says Greg Hostelly, Priority's vice president of finance. 'Financing converts receivables into cash or a more collectible note.' O'Neil is willing to admit that premium financing isn't for everyone. 'This isn't a business for people who aren't good managers. You have to follow the rules, monitor the accounts and collect the receivables.' But if an agency is ready to enter the ring, there are many companies eager to lace up their gloves. O'Neil's Bay Budget Corp. was equipped with a premium finance software system developed by Streetwise Systems of Boca Raton, Florida. EASYSTREET generates contracts and bills, tracks payments, and issues overdue and cancellation notices. Written for PCs and Novell networks, the program is offered in three increasingly sophisticated versions for agents getting started, independent finance companies and multi-state operations. Prices start at $5,000, plus a monthly maintenance charge of about $150, and the company says more than 300 copies have been installed. 'We provide training, maintenance, and ongoing communications about market conditions and changes in laws and regulations,' says Joseph Hartly, a Streetwise vice president. 'We try to eliminate the pitfalls and ways to lose money.' In the last year, for example, Streetwise opened a management company to operate finance companies for agencies that don't have the confidence, staff, or inclination to operate it themselves. Similarly, Stewart Rosenberg, an agent and president of Premium Finance Associates of Baltimore, offers to set up agents in premium finance with a software package that he is continually customizing to meet emerging needs. Rosenberg claims 61 current clients, including agencies, managing general agents, insurers and several independent investors who provide capital for premium capital for premium finance. Rosenberg has also lined up a major reinsurance company to act as a guarantor so that agents can borrow at close to the prime rate, like major corporations, and increase their leverage. He finds that agencies best suited for premium financing are those with strong niche markets where the policies are similar and a high percentage require financing. The volume threshold for entering into the business, he believes, should be about $100,000 for receivables, or $400,000 of premium to be financed. 'Our independent premium finance company has $22 million in receivables,' he says, 'and the late fees cover the payroll of almost $400,000.' At Commerce Insurance Systems in Ohio, the premium finance subsidiary is structured to minimize its administrative burden on the agency. St. Louis-based Cost Financial Services does the bookkeeping, invoicing and collecting, and charges a fee based on the number of transactions and dollar volume. 'They came to us, having already arranged the financing, and said, 'All we need is you,' he recalls. Yet, long-time industry players view agencies' premium finance subsidiaries skeptically. Paul Zarookian, senior vice president of A1 Credit, points out his company can borrow by selling commercial paper at the lowest market cost. The company-a New York subsidiary of AIG that is among the largest in the business-has recently offered rates from 4 to 13 percent, usually with 20 percent down and nine monthly payments. Deals for less than $75,000 are handled over the phone. NO AGENCY RISK A1 Credit avoids asking the agent to assume financial risk. In fact, the company's standard contract is non-recourse to the agency. 'If there's a shortfall in payments, I don't want to come after the agent to collect,' says Zarookian, 'because that's who we're trying to sell our services to.' Even when using a premium finance company, though, there is the risk having to return unearned commissions if there's a cancellation. And Zarookian identifies another risk: 'Short-term interest rates are low now, but we anticipate they're going to rise,' he projects. 'There is a rate risk in doing these loans, and you need the size and capital base to work with it. Most agencies don't have enough capital to do it, and they have to go to a bank, where their cost of borrowing is far higher.' Which brings up his third objection: 'What else could you do with that capital?' he asks. 'Looking at the return for the risk, most agents would probably do better hiring another producer than going into a business they may not completely understand.' At CIGNA's INAC premium finance subsidiary in Philadelphia, president Richard Skilton agrees. 'Agents should do what they do best, which is sell,' he says. 'We believe it's best for them to arrange premium financing and then step out of the picture.' With about $270 million of premium currently financed, INAC tries to win agents' business with competitive rates and responsive service. 'We offer quick turnarounds, electronic funds transfers, and direct access for account status information,' he says. The company is also putting software in agencies so agents can obtain quotes by computer. Agencies can also call the company for a quote. Agent who are profiting from their premium finance ventures also recognize other market risks. 'The greatest fear is of the failure of a carrier for whom you financed a premium,' says Dick O'Neil. When that happens, he explains, 'The carrier has your money and the insured, on getting the notice of insolvency, stops paying off the loan.' Still, some of those losses may eventually be made up by the state guaranty fund, says an optimistic O'Neil. 'Even with all the troubles we've had in Florida [in hurricane-related insolvencies], we've lost less than $1,000,' he says, 'and I expect to get half of that back.' But to minimize such exposures, O'Neil won't finance premiums for non-admitted or for excess and surplus lines carriers. He also steers clear of audited premium policies, since the insured may be handed a bill for more premium to pay for past coverage. If that happens, the bill could land in O'Neil's lap. Strict procedures and attention to detail can greatly minimize the E&O risk from arising from an incorrect billing or cancellation, says Imperial's Cycon. 'If you make a mistake like that, it can cause a lot of grief,' he warns. Cycon also believes it's best not to spread your business among several finance companies. 'You might not want to put all you eggs in one basket, but if you bring more volume to one company, you can get better terms.' Whatever level of risk agents accept in premium financing, there remains the question of whether it's a promising area to pursue. INAC's Skilton expects it to grow only with the market as a whole. Others, like Imperial's Cycon, believe several factors point to more financing. 'Insurance rates are soft now, and with low interest rates, the carriers aren't making as much on their investments, so we're beginning to see premiums go up,' he says. Furthermore, he predicts, carriers are likely to eliminate their own low-cost or no-cost premium financing programs in a hardening market. Forecasts aside, though, the possibilities bear serious consideration. Agents with a clear eye for risk, a growing need to offer their customers financing, and a desire to fill that need (either through the established premium finance companies or by establishing their own) can accomplish a host of goals through premium financing. Like Messer-Bowers' Rex Hughes, they can build new businesses, earn more on their existing book, and get their money sooner....