Sample Expert Report of

             IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

SUSAN SABOL, VALERIE DONE, and

KATHLEEN KLODNER on behalf of

themselves and all others similarly situated, CIVIL ACTION NO. 2:11-cv

Plaintiffs -04586-SRC-MAS

Vs

HYDROXATONE, LLC and ATLANTIC

COAST MEDIA GROUP

Defendants.

                      

RULE 26 (a) (2) (B) DISCLOSURE OF EXPERT

TESTIMONY OF JOHN J. O’BRIEN JD, CLU, CPCU

Personal Background

  1. I am an insurance professional with considerable insurance experience in both personal lines and commercial lines insurance including commercial general liability lines. My field of expertise is primarily insurance industry standards and practices. This experience ranges from education, teaching, work experience both in the field as an agent as well as in home offices of insurance companies and in addition in the management of insurance companies as CEO of my own insurance management company. My experience is reflected in the curriculum vitae which is attached and made a part of this document as Exhibit “A.”

  1. In addition to my training as an attorney, I hold the two highest credentials conferred both by the life and health insurance industry as well as the property and casualty insurance industry, namely, the Chartered Life Underwriter designation and the Chartered Property and Casualty Underwriter Designation.  I have received various awards from insurance industry groups and most recently a lifetime achievement award from the South Carolina Captive Insurance Company Association. I have served for many years on the South Carolina Bar Association insurance programs committee.

  1. I have testified and served as a consultant on the regulation and compliance of commercial lines as to policy language, policy service and claims. I have been trained in the various types and lines of insurance and have an understanding of the various segments of the industry, industry practices, marketing, service organization and the operation of commercial insurance companies from capitalization, regulation and operation and even through insolvency and run off.

  1. In the area of insurance policy interpretation particularly in commercial general liability and directors and officers liability, I have participated to drafting these policies, studied them as part of my insurance training, filed and had them approved by state regulators, negotiated terms and coverages, taught classes regarding said policies, and been recognized as an expert on commercial general liability policies by various courts of law. I am familiar with the major treatises on commercial general liability policies and the commercial general liability policies of the Insurance Services Organization. I am familiar with the procedures followed by brokers, commercial clients and underwriters in preparing and issuing policies in one state or to provide fifty state coverage and endorsing those policies to expand or restrict coverage.

  1. I have a working knowledge of the special rules of contract interpretation that apply to insurance contracts and that coverage will be determined based upon the four corners of the insurance policy and the intent of the parties under the rules of interpretation universally accepted by the courts in the interpretation of insurance policies. Those rules of interpretation provide that the policy is a contract of adhesion and must be interpreted to provide coverage whenever there is ambiguity. I am familiar with the industry practices of responding to claims made against insured’s under insurance policies and the high duty insurance companies have to respond to claims and to provide defense and coverage.

  1. I serve on the boards of five insurance companies and consult with insurance companies in the areas of good corporate governance and directors and officer’s protection in the event of claims and in the event of class action claims. I have designed professional liability policies and have instructed on the responsibility of officers and directors for their acts and how coverage is provided to these individuals for specific acts they perform in their capacity as officers and directors. I am familiar with the expansion of coverage’s and the exclusions from coverage of your typical professional liability and directors and officers insurance policy and coverage provided for class actions under said policies.. I have acted as a consultant in the area of commercial general liability and professional liability policies.

.

  1. As owner of an insurance management company during its operation I dealt almost exclusively with commercial lines of insurance and their governance and compliance and served in the design and insurance of commercial risk. I or my team designed commercial insurance products on a national scale including, policy language, coverage and cancellation provisions. We provided coverage, paid claims, underwrote and generally conducted all the steps of a commercial insurance carriers business.

  1. As an insurance attorney and through many years of insurance law practice as well as expert testimony and teaching, I am knowledgeable in the rules of insurance contract as well as insurance contract interpretation. My experience enables me to identify where there might exist insurance that would provide coverage in claims situations and what involvement and practices of an insured would present a situation where under the high duties owed by an insurance carrier to an insured, there would be a duty to respond. I have filed class actions as a plaintiff attorney and participated in a limited basis in a team of lawyers involved in a national class action so I am familiar with the operations of class action law suits. Class actions in which I have been involved included defective tires, failure to provide benefits to departing employees and defective toilet valves and polybutelene piping.

  1. As owner of an insurance management company during its operation, I dealt almost exclusively with commercial lines of insurance and their governance and compliance and served in the design and insurance of commercial risk. I, or my team designed commercial insurance products on a national scale including, policy language and cancellation provisions. I have submitted inter-company arbitration matters relating to builder’s risk, piercing corporate veils, construction, named insured, additional insured, certificate of insurance numerous times, completed operations, work product exclusion, occurrence definition and litigated those matters primarily through a nationwide subrogation practice under a nationwide law firm, O’Brien and Hennessy, that I formed and survives today as  Hennessy and Walker (subrogation.net) .

  1. As an insurance attorney and in particular as founding attorney of the law firm O’Brien and Hennessy, we represented numerous insurance companies in litigation matters across the country. I am familiar with the drafting of complaints in litigation so that all possible responsible parties are included and the pleading language drafted in a fashion that requires an insurer to respond to a complaint filed against its insured.

  1. In addition I am familiar and knowledgeable with the operation of commercial lines insurance companies and how they operate in compliance with commercial insurance regulation and service providers they rely upon for guidance as to state-by-state compliance, policy language, and policyholder service forms and requirements such as cancellation of coverage. This includes an organization known as the Insurance Service Organization (ISO). I am familiar with services, treatises, seminars, leading experts in the area of commercial general liability coverage’s as related to the construction industry. I have used ISO policy forms in various commercial lines situations and I am familiar with the commercial general liability ISO forms and endorsements, insuring clauses, definitions, exclusions and operation.

  1. I have been accepted as an insurance expert in state and federal courts and never found not to be qualified as an insurance expert.

  1. I have been retained by counsel to assist the court in certain areas of this case where my knowledge and experience might be beneficial.

BACKGROUND AND NATURE OF OPINION EXPRESSED

I have been asked to express my opinion on standards in the industry for evaluation of policy coverages for settlement of pending litigation, and procedures followed in the industry for determining the applicability of coverage of various insurance policies to claims made in two class action lawsuits filed pursuant to Rule 23 of the Federal Rules of Civil Procedure that were separately filed but have not been consolidated. I have been contacted by counsel for claimants in a case I refer to as the “Margolis” case. Counsel sought my opinion to assist primarily because of a proposed settlement of the other class action that I refer to as the Sabol case. The terms of the settlement document in Sabol by its language are intended to settle all customers’ claims of Defendants and thus the Margolis claims. The product involved is intended to prevent or remove wrinkles. It is my understanding that counsel intends to file an objection to the Sabol settlement. The entire settlement fund is to come from one insurance policy and not from three other insurance policies that counsel has asked that I opine on.

All of the opinions which I express here are provided based on my education, training and experience and are offered “within a reasonably degree of probability within my field,” regardless whether I recite those words again or not.

The class action law suit captioned Susan Sabol et al , on behalf of themselves and all others similarly situated, against Hydroxatone ,LLC and Atlantic Coast Media Group was filed on behalf of all persons residing in the United States who ordered a product or requested a “risk-free trial” from Hydroxatone, LLC, and/or Atlantic Coast Media Group and: (1) returned the product in accordance with the “30 Day Bottom of the Jar Guarantee” as advertised by Hydroxatone, but were denied a refund and/or were sent subsequent shipments of unordered products, and/or requested to cancel their membership in the Preferred-Customer Beauty Program (a/k/a Beauty Auto-Ship Program) but incurred additional charges for subsequent shipments of unordered products (the “Class”). This action seeks relief on behalf of the Class: (i) declaring that all consumers who timely returned products in accordance with the Guarantee are eligible for a refund (less “shipping and processing” fees); (ii) declaring that Hydroxatone is in breach of its own “Terms and Conditions” by failing to allow customers to timely cancel their Preferred-Customer Beauty Program memberships (“Beauty Program memberships” or “memberships”); (iii) declaring that Hydroxatone’s advertising of a risk free trial and/or 30-day money back guarantee is deceptive and misleading; (iv) directing that Hydroxatone refund customers who timely returned products in accordance with the Guarantee; (v) directing that Hydroxatone cease billing consumers for products after they have contacted Hydroxatone to cancel Beauty Program memberships; (vi) providing refunds to all persons who timely returned products but were refused refunds; (vii) providing refunds of all charges for unordered products incurred by those customers who requested cancellation of their Beauty Program memberships; and (viii) providing refunds for all unordered products to those persons who incurred charges after they timely returned products.

The other class action is entitled Lisa Margolis individually and as a putative class representative, against Atlantic Coast Media Group LLC, Hydroxatone LLC, and Thomas Shipley (collectively, the “ACMG Defendants”) and Marketing Architects, Inc. (Herein referred to as Margolis) regarding fraudulent billing practices, fraudulent advertising, deceptive trade practices, and breach of contract. The ACMG Defendants working with Marketing Architects sell skin-care products directly to consumers on television, telephone, radio, and print media and over the Internet by uniformly advertised free trials. The “free” trials are not. Consumers who respond to the free-trial ads are instead enrolled in delayed-billing, negative-option schemes that cost hundreds of dollars.

From an insurance perspective, there is a clear distinction between these cases and the claims they assert. Essentially that distinction is that the Margolis action contains a claim for disgorgement of $69.95 that customers were charged on their credit card when they were only supposed to be charged $7.95 for shipping and handling of a free sample. During the class period, this class of people was billed over $200 million. On the other hand the Sabol action is essentially seeking relief for a class of persons who agreed to participate in a try out trial offer had their credit card billed for the $7.95 and $69.95 but sent back the product jar and asked for a refund which they never received. My review of both the Sabol pleadings and the Margolis pleadings has led me to conclude that this is an accurate description of the distinction between the two cases. One seeks a refund for a product they returned (Sabol) and the other compensation for a $69.95 charge on their credit card that was obtained without authorization (Margolis).


Another important distinction for insurance coverage purposes is of the defendants named in the two lawsuits. After a deposition of ACMG’s Thomas Shipley in the Margolis litigation, the Margolis complaint was amended to add as defendants Thomas Allen Shipley individually. Also added was a separate company known as Marketing Architects that participated in the activities complained of in the class action. Thomas Allen Shipley has an ownership interest in Marketing Architects as well as an ownership interest in ACMG and he is also an officer and a director of ACMG.

I have reviewed the proposed settlement agreement which is under the Sabol case caption. In brief, the terms of that settlement agreement requires the payment of $3 million as a settlement fund, from which is to be paid costs and attorney fees in addition to money for refund claims. All parties’ liability would be released under the terms, namely, all the defendants named in both the Margolis and the Sabol cases. No provision is made for the chief claim of the Margolis action, namely, the disgorgement of the $69.95 which I am informed is a fund or liability that could approximate $300 million.

I am advised that settlement will be funded by only one of the applicable insurance policies that I have reviewed, namely, the Great American Think Risk Liability Policy (hereafter sometimes the “GA policy”). That policy is a specialty commercial lines program policy. It is a modular policy that can be customized to provide coverage for media liability, advertising liability, errors and omissions, network security and other type of what I’ll refer to as “modern day” special risk. Larger brokers and insurance giants often partner together to develop specialty insurance policies for developing risk i.e. identity theft, HIPPA, internet sales and advertising, terrorism and so on. Essentially a team works together to design an insurance program that best suits the needs and particular business of the client. I have designed such policies. This is done often because the traditional ISO long standing ISO policy does not cover some of the more modern exposures or risks that a business might be particularly exposed to.

The GA policy has a $5 million aggregate. It can be described as a modular specialty insurance type product. The policy is based upon the old commercial general liability ISO policy as far as having the tradition format or lay out. The old ISO commercial general liability used to have an advertising injury section. However the advent of telemarketing in Internet sales practices like those engaged in by ACMG caused large specialty insurance companies and large brokers to develop what we call modular policies that are designed specifically and assembled specifically with a client’s business in mind so therefore one can select the type of coverage he wants. This particular policy provides up to $5 million in advertising injury. The only insured under the policy is an ACMG.

It is my understanding that up until this point in the class litigation in defending that various litigation that two million dollars of the five million Great American policy limit has been exhausted so if the $3 million is used to fund a settlement and all parties are released that essentially exhaust the Great American insurance policy’s limits. Consequently, the global settlement will have the consequence that members of the Margolis class will come up short. That is the argument I believe counsel will set forth.

My task as an insurance expert is to explore and examine the other insurance policies to determine if there is coverage for these losses that can be paid in to increase the funds or assist the Court in crafting a settlement that does not unfairly treat the Margolis class (that is, the IVR customers).

My experience with the insurance policy format used traditionally though out the industry as well as my understanding of rules of interpretation, burden of proof, burden of proof to prove an exclusion of coverage and how the industry views and applies policy language and claims from an industry practice perspective is of course always at work as I examine a claim and coverage under an insurance policy. There is nothing peculiar about New Jersey insurance law or practice which causes me to reach any different conclusions, or report any different standards and practices than those which I discuss here.

An insurance policies design will generally follow a preset format that date back to the original commercial general liability policy insurance policies and typically has the following distinct parts: declarations, insuring agreements, definitions, covered perils, exclusions, conditions and endorsements. Each component serves a separate and distinct purpose. The declaration page is very important that contains the name of the insured the type of coverage that is being provided. The dec sheet will typically show the amount of coverage, the types of coverage selected and not selected the named insured and any additional named insured’s. The insuring agreement says who is insured for what i.e. what type of coverage is being provided. Clearly worded definitions are important because under the doctrine of the contract of adhesion, ambiguities are resolved in favor of the insured. There is what is known as “all risk” policies where the insurance company has a great burden because the insurance company must prove that the losses clearly excluded. Typically that term “all risk” is no longer in prevalent use on the actual policy. At all times, the insurance company is held to the high standard of utmost good faith and under a high duty to resolved coverage issues in favor of the insured.

Employing these tried and true methods, I have reviewed the insurance policy known as the Chartis D& O insurance policy. The policy is an AIG product offered through Chartis and insured by National Union Fire. The broker is Marsh. That team is probably the leading provider of a product like this in the U.S. today.

Standard property-casualty insurance forms are promulgated by industry support organizations or insurance bureaus in behalf of member insureds most widely recognized provider a standard forms is the ISO the insurance service organization and there are others such as the American Association of insurance services.

These forms are used by virtually all personal lines insurance consumers and also large number of commercial insured’s may modify them with specific endorsement for specific needs. ISO forms are especially valuable in that they are filed in 50 states so a commercial carrier can use an ISO form and essentially have all the states specific endorsements he needs. The most widespread ISO commercial form is the commercial general liability form. Traditionally that form as a provision for damages that result from advertising injuries as a separate section.

In the insurance industry there exists a specialty insurance groups like Markel or sometimes particular surplus lines carriers or Lloyds syndicates such as Catlin that develop specialty coverage forms geared to specific modern day or cutting edge initiatives. Often this is part of a corporate mission to capture a large share of what is viewed as the next or future insurance industry opportunity. Terrorism coverage after the World Trade Towers bombing and today threats to computer security are areas that are receiving special attention and special forms. Companies that are engaged in large scale on line or computer telemarketing are companies that have special and unique risks and new policy forms are being developed quickly so insurance companies can be ahead of the market in approaching these groups Because of the changing marketplace many specialty carriers are developing products for cyber losses advertising injury related to new types of losses that could be catastrophic such as large scale identity theft. When these forms are used, they do not have the history of the commercial general liability forms that have been used for years and years, containing language that has been the defined and even altered based upon particular court decisions. The type of losses that are covered under these new specialty insurance policies must be clearly defined just as they would be in the historical commercial general liability policy but often they are not and there is not always clarity when a loss develops if it was the type of loss that the policy was intended to cover. I suspect a good description of this is that many new policy types are yet a work in progress.

By way of background, the insurance industry as a whole employs standard insurance policy terms. These standard forms are periodically revised by their drafters in response to (1) changing loss exposures faced by personal and commercial insureds, (2) evolving underwriting philosophies of insurers, and (3) the development of case law interpreting coverage. As an example of the first scenario, ISO in 2003 added an identity fraud expense coverage endorsement and many insurers later followed suit as a result of the huge increase in reported identity thefts. In the second situation, restrictive homeowner’s endorsements concerning mold were introduced in 2002 that reflected a change in underwriting philosophy (prompted by a substantial increase in high-severity mold-related claims). With respect to the third scenario, courts may interpret a policy provision as allowing broader or more restrictive coverage than the drafters intended. In this case, the standard language will be revised in an attempt to more appropriately codify the intent. An example of this concerned the introduction of "prejudicial" language into the UM coverage's "consent to settle" exclusion amendment in the 2005 PAP. This amendment stipulated that the insurer will not grant UM coverage if the insured himself settles the bodily injury claim, but only if this settlement prejudices or harms the insurer's subrogation rights.

On the other hand, Insurers may also promulgate their own policy forms to create their niche in the marketplace. For example, large insurers such as Chubb and AIG developed homeowners forms geared specifically to wealthy clients. These policies offer broader coverage, with a wide array of "bells and whistles." For example, one insurer offers within its homeowners product customized coverages such as extremely high deductibles, excess flood insurance, landscaping coverage, and unlimited additional living expenses coverage. On the commercial side, the Hartford Steam Boiler Insurance Company specializes in insuring steam boilers and related equipment and promulgates its own specific form for this purpose. AIG, Chartis and March design specialty type policies to offer executives of company’s insurance policies like the ACMG D & O policy to cover exactly claims like the Margolis and Sabol claims brought against them individually and as directors. These policies typically contain new language and terms that have not be subject to actual application to claims situations or subject to court interpretation.

A review of the Chartis AIG Republic National policy shows that in the D&O Coverage Section that the company shall pay the loss of an individual insured of the company arising from the claim made against such individual insured for any wrongful act of such individual insured. A claim is defined and the complaint that was filed by Margolis fits the definition of claim. It covers directors and officers of ACMC so it covers Mr. Shipley. Republic National is required to defend Mr. Shipley. They are required to indemnify him for claims paid. There is exclusion at 4 (c) that relates to intentional wrongful fraudulent acts but the language of that shows clearly that there has to be a final adjudication. It is my experience that applying such language to deny coverage for misrepresentation for example where misrepresentation is expressly covered, would make the “fraudulent acts” exclusion is ambiguous. The policy is actually written and advertised to cover claims exactly like this claim. By industry standards, there would have to be an actual final adjudication of fraud in a proceeding such as a criminal proceeding. There has not been any such determination here, to my understanding, so that that exclusion in my opinion would not be applied to this type of claim, thereby granting coverage to this matter.

An argument could also be made that coverage is extended to Marketing Architects as an affiliate under this policy; however, that would not increase the aggregate of 5 million available under this policy. One can obtain a good understanding of the cafeteria type of coverage available to a business executive by looking at the dec sheet which explains that various coverage’s are available to pick from i.e. those risks that a modern day business executive might be exposed to such as D&O suits like those alleged in the Margolis complaint or risks like being kidnapped while on business travel.

A very important point to note is that D & O policies like the AIG policy are written on a claims made and not an occurrence basis with the idea that a director or officer like Tom Shipley will receive coverage for claims made against him even though they arise from an occurrence that predates the policy. D & O policies are designed to as much as can be accomplished by policy design to prevent gaps in coverage.

In essence the Margolis complaint alleges that the director of the company engaged in misrepresentation, triggering a duty to defend raised by the pleadings. The duty to defend of insurance company arises from the well-drafted Margolis complaint that sets forth the pleading that the insurance company has a duty to respond and defend. The two fold duties of the insurance company are the duty to defend but also the duty to indemnify. The insurance company is also not going to be able to refuse to indemnify on the basis of the fraud exclusion because there has not been nor is it likely there will be a final adjudication on the alleged fraud. This is especially true in the specialty policies that are designed with knowledge that officers and directors liability based upon fraud in these situations are to be expected and that is what the policy is designed to cover. Consequently my opinion is there is under this policy and additional $5 million. This $5 million is, in some respects, better than the $5 million that is available under the Great American policy because the there is language in the Great American policy seeking to exclude coverage for refunds that does not exist in the directors and officers policy offered by AIG.

We turn now to the Darwin National Assurance Company D & O policy that also insures Atlantic Coast Media Group, LLC. Much of what I said about the Chartis D & O policy can also be said about the Darwin policy. Darwin is part of a two billion dollar insurance holding system headquartered in Switzerland know as Allied World Assurance Co. Holdings AG. The Darwin product is aptly described as a “Management Liability Package Policy.” Management at ACMG, LLC acting with their broker selected specific coverage including employers’ practices, fiduciary liability and most relevant to the class action coverages I am offering my opinion on, $5 million of Directors and Officers Liability Coverage. Standard practice in my experience and opinion is for the lawyers and parties involved in the planned class action settlement to fully examine the coverage available here before agreeing to accept only funds from the limited Great American single policy. Failing to do so is contrary to standard practice and would be unreasonable. I have been provided nothing to indicate this was done. Rather, I have been advised that Class Counsel confirmed that he was unaware of any policies other than the Great American policy when he negotiated the settlement being proposed to the court. This failure to determine the existence of these other policies and the extent of their coverage is, based on my experience and training, contrary to standard practice and unreasonable.

Reasonable professionals addressing insurance coverage determination for subject events or series of events (as in class actions) are obligated under long standing industry standards and practices to carefully research and identify all sources of coverage for the claims they are asserting. It is my opinion this was not done here by Class Counsel or defense counsel. It is further my opinion that more information needs to be acquired about the placing of the Darwin coverage and the position of Darwin towards the presenting of the Margolis claim against Shipley as an officer of Atlantic Coast Media.

After that information is gathered and only then can an informed decision be made what portion of this $5 million is available to add to the $5 million from Great American and the 5 million from Chartis/AIG under the D & O policy there.

There is language in the Darwin policy that creates confusion traditionally regarding knowledge of claims prior to the “continuity date” and reference is made also to disclosures that would have been made in the application for the Darwin policy (which I have asked to see, but objector counsel indicated Class counsel and defense counsel refuse to provide further materials of any kind) regarding disclosure of prior acts that might lead to a claim under the Darwin D & O policy if issued. I will state that this refusal to cooperate in providing information designed to obtain additional monies for coverage is highly contrary to reasonable, standard practice in the industry. The Darwin policy was issued without any specific prior acts exclusion. The policy is designed to provide continuous protection of officers and directors so policies that pre-dated this policy and the failure to have known of its existence is not in conformity to my experience of the conduct of reasonable persons in seeking full and complete coverages for pending claims. The policy in the representation section addresses disclosure and prior acts:

My opinion based on the materials currently available to me is that this coverage will be available to Mr. Shipley because while he might have had knowledge of the two class actions against the company, and the company might have included reference to them in the Darwin application, there was no prior action or claim against Mr. Shipley individually as an officer when the policy was placed. This allows a strong assertion that the parties will find the additional $5 million from the Darwin policy available to fund the class action settlement. It is my opinion that it would not be a best practice and it could be described as “reckless” not to carefully explore and seek to use the coverage available under the Darwin insurance policy and the Chartis/AIG policy.

I repeat that the withholding by the defense and Class Counsel of relevant materials interferes with my ability to provide a certain opinion that the $5 million available under Darwin would be paid but my education, training and experience would allow me to provide a highly certain opinion that the parties can rely upon after they gather the required information. For example was the claim presented to Darwin and have they issued a reservation of rights letter that can be reviewed?

Also there is additional coverage in the policy on an excess basis for $1 million for “Dedicated Excess Coverage for Insured Persons (D&O) that in exercising due care and following well established industry standards should and would be explored by a careful and competent professional.

It is my opinion that the actions by counsel for the Margolis class in taking exception and objecting to the global settlement was warranted and well supported. The settling parties have failed to access coverage which my education, training and experience show is available for the subject claims. The settling parties have also carelessly failed to fully explore the coverage available under the Darwin policy. This opinion by me is a position that I fully support as an expert on insurance practices and coverages. Based on my experience and the information I currently have it is more likely than not that the Darwin coverage will also be provided. It was the reasonable expectations of the parties that in return for the premiums paid for the Darwin coverage, the listed $5 million coverage would be available for the kind of claims being made in each of these class actions against the company’s officers.

Lastly, I will address coverage’s afforded Marketing Architects, Inc. under the Beasley Media Policy. This is a specialty policy designed by Beasley and offered as surplus lines and it appears to have been placed in two Lloyds syndicates. It also has the cafeteria approach and according to the policy dec sheet, the “coverages purchased” were 3 million for each claim of Multimedia Advertising, Professional Liability, Computer Information and Security Liability and, lastly, Privacy Liability.

There is a 3 million aggregate for all claims.

The policy can best be described as a “hybrid” or modern day policy specifically designed to meet the unique needs of new industries. In short, there is not a lot of precedent and experience in interpretation of policy language and indeed in exactly what types of claims are covered. In the insurance industry’s rush to capture market, policies are touted to cover almost every eventuality and in particular those claims that the client is most likely to face because of the nature of his business. Beasley itself describes this specially designed product on its web site as:

Fast changing industries confront fast changing risks. Our insurance coverage helps our clients seize new opportunities in some of the most competitive and dynamic markets on earth. Our approach is different. We seek to understand our clients’ business models and analyze their attendant exposures. And we look to design insurance coverage that can be a source of competitive advantage for our clients.”

Technology, Media & Business Services

We support our clients with well designed insurance coverage; valuable risk

management advice; and swift and reliable response services activated in the event of a

claim.  

Cyber liability

Beazley Breach Response - a market-leading solution to address the concerns of

customers

whose personally identifiable data is lost or stolen.

addresses these concerns for clients outside the US, UK and France.

Information Security & Privacy - covers third party claims arising from security

breaches

and failure to comply with privacy policies (Coverage for UK/International clients) 

Tech, media and miscellaneous professional liability”

Based on my education, training and experience, Marketing Architect’s reasonable expectations in obtaining this policy would be that claims such as set forth in the Margolis complaint would be expected to have Beasley respond with a defense and respond with indemnification in the event of a settlement or verdict.

I have reviewed the policy in detail and in my opinion a strong claim can be made for coverage of the activities complained of by Margolis in the action against Marketing Architects. This newly designed policy appears as a traditional all risk policy and the insurance company will have the burden to demonstrate that the particular activity of Marketing Architect’s fall within the various exclusions set forth in the policy. Ambiguities will be resolved to provide coverage. Most of these highly technical exclusions are recent additions to the world of insurance terminology so reasonable men will differ on their meaning and applicability and there is no real court precedent to rely upon. Rather than offering a scenario and becoming an advocate, I would like to opine that a reasonable person would not fail to strongly press a claim for coverage under this Marketing Architects D & O Lloyds Beasley policy. Again, it is my professional opinion that the failure to strongly present and fully explore all coverages under this policy prior to releasing that carrier’s insured would be contrary to ordinary and reasonable practice in the industry.

INFORMATION CONSIDERED IN REACHING OPINIONS

The information supplied to me by counsel are copies of the two class action law suits, the proposed settlement document, copies of all insurance policies insuring the defendants named in the class actions, copies of the deposition of Defendant Shipley, a memorandum from counsel providing back ground on the class actions which requests that I opine on the matters in this report. In my analysis, I have relied upon my knowledge of insurance policy forms, history of various coverage’s, ISO material, material from International Risk Management, RIMS, ISO, my own libraries of risk management, policy kits from industry associations, internet review of new risk policies, and internet review of the various specific insurance policies. I am an active subscriber to IRMI and have all cases and forms available. On a daily basis I am linked in to associations and groups of insurance experts and participate in discussions there. No specific publication or resource was relied upon as authority from my opinion expressed here.

CONCLUSION

For all of the reasons set forth in the opinion above, it is my conclusion within a reasonable degree of probability that entering into the current proposed global settlement of all claims of all customers of Atlanta Coast Media Group without fully accessing available coverage under the AIG, Darwin and Lloyds policies is contrary to standard practice and bordering on reckless. .

Respectfully submitted,

______________________

John J. O’Brien JD CLU CPCU

EXHIBIT A – EXPERT CV JOHN J. O’BRIEN JD CLU CPCU

John J. O’Brien J.D., C.L.U., C.P.C.U.

Insurance Consultant and Expert Witness

4862 Marshwood Drive

Hollywood, South Carolina 29449

(843) 471-0407

Bachelor of Arts/Pre-Law

LaSalle University

Philadelphia, Pennsylvania

J.D.University of Tennessee

Knoxville, Tennessee

Chartered Life Underwriter

American College for Life Underwriting

Bryn Mawr, Pennsylvania

Chartered Property and Casualty Underwriter

The American Institute

Malvern, Pennsylvania

Candidate for Associate in Marine Insurance

The American Institute

The Chartered Property and Casualty Underwriter and Chartered Life Underwriter Designations were earned by completing five year courses of study for each designation consisting of study and testing on ten different areas of each discipline as well as meeting the experience standards and ethics standards of the American Institute and the American College.

Memberships: United States District Court/Eastern District of Pennsylvania Bar/South Carolina; State of Minnesota (inactive); South Carolina and Pennsylvania (inactive) Bars; Consulting, Litigation, & Expert Witness Section of the American Society of Property and Casualty Underwriters; Law Committee of the International Claims Association-prepared national survey of law on misrepresentation as a defense in life insurance litigation; 1994 to present Insurance Committee of the South Carolina Bar Association; 1992 Insurance Law Committee of The Pennsylvania Bar Association; 1994-1996 Property Insurance Law Committee of the Tort and Insurance Practice Section of the American Bar Association; Federation of Insurance Counsel; Claims Section of the Society of Chartered and Property Underwriters; Expert and Consultant Section of the Society of Chartered and Property Underwriters Association, Captive Insurance Companies Association and South Carolina Captive Insurance Association, American Society of Chartered Life Underwriters.

Writings: Consultant to authors of The Legal Environment of Insurance, Vol. I & 2 1993 and Bad Faith Denial, South Carolina law student text; Author "Subro Shorts"- monthly news letter addresses legal issues facing insurance industry. Author of Articles- "Bermuda-New Opportunities for Self Insurance Markets"; "Charleston, South Carolina as a Situs for Captive Insurance Companies", "Ignoring Subrogation Means Lost Opportunity" Business Insurance January 16, 1995." “O’Brien and Hennessy Subrogation Education Series Give Yourself the Edge When Filing An Inter-Company Arbitration Submission". “Insuring through Segregated Cells in the U.S.- Will Our Firewalls Stand Up.”, Risk Retention Groups and Purchasing Groups in a Nutshell, Subrogation a Missed Opportunity, IRMI Captive Insurance Company Reports, “Distinct Subrogation Issues: Pandora’s Box,” by John J. O’Brien JD, CLU, CPCU, O’Brien and Hennessy Education Series, Volume 1, Subject 2.    Insurance Articles have appeared in the National Underwriter, Business Insurance, The Philadelphia Business Journal, Captive.Com, Captive Insurance Company Reporter, IRMI, the Risk Retention Reporter, The Charleston Business Journal, Best’s Insurance and Insurance Arbitration Forums Inc.

Seminars: Have conducted insurance seminars at American International Group, Penn Mutual Insurance Company, Farm Bureau Insurance, Sentry Insurance Group, Commercial Union, Virginia Farm Bureau, Collections By Counsel, Inc. and Penn National Insurance Company, South Carolina Captive Insurance Association, Bermuda Captive Insurance Conference, World Captive Forum, Nevada Captive Insurance Company Conference and other companies and conferences. Have addressed agent’s groups and taught courses in life and health insurance with the Philadelphia Insurance Society and taught courses as part of the American College C.L. U. curriculum

Faculty: Adjunct Faculty at the College of Charleston in Risk Management and Insurance.

Board Memberships: International Center for Captive Insurance Education, Positive Physicians Risk Retention Group, First Keystone Risk Retention Group, Red Clay Risk Retention Group, Grand Strand Captive Insurance Company, O’Brien Clan Foundation, and Leader Care Insurance Company.

Legal Experience: Advised Individuals on Insurance Matters as part of my Law Practice and reviewed Estate Plans for Individuals and worked with their financial advisors. Past Senior Partner/President of O'Brien and Hennessy Group. Represented over one hundred self insure and insurance companies on insurance subrogation and insurance coverage issues. As such we litigated insurance coverage and insurance subrogation matters including agent's liability matters. We also submitted matters involving disputes between insurance companies to inter-company arbitration and mediation. As member of the Pennsylvania and South Carolina Bars participated in numerous trials involving insurance issues. Handled Legal Matters for Captive Insurance Companies including establishing the legal entities.

Insurance Experience: Over thirty years of experience in insurance law. Taught Insurance Law with The Philadelphia Insurance Society and with the Philadelphia Association of Chartered Life Underwriters. Guest Lecturer 1995-1997 Risk Management- Legal Issues, College of Charleston, Charleston, South Carolina; Guest Speaker - Philadelphia Claims Association - Bad Faith Punitive Damages Post Fletcher. Licensed as an insurance agent for life and health. Speaker - Las Vegas, Nevada, Using the Internet for Insurance Research. Past Chairman- South Carolina Captive Insurance Association. Board Member- National Association of Subrogation Professionals – Recipient of 2002 President’s Award. Former chairman of the South Carolina Captive Insurance Association. Established Captive Insurance Education Certificate Program at the Tate Center, College of Charleston. Recipient of Life Time Achievement Award from South Carolina Captive Insurance Association.

Expert Witness Experience: Have been qualified numerous times as an insurance expert in both state and federal courts on insurance, life and health insurance matters, duties and responsibilities of agents, commercial general liability policy, product suitability, insurance coverage bad faith and claims handling matters.

Chief Executive Officer- Charleston Captive Management Co., Manage Insurance Companies and Self Insurers in the State of South Carolina, Nevada and at offshore locations. See http:// www charlestoncaptive.com. Founded the first Captive Insurance Management Company in South Carolina which I sold in 2005 to Wilmington Trust Company. From 2005 to 2007, served as Vice President of Wilmington Trust introducing the company to the insurance management business. Serve as board member for various alternative risk companies and as board member of the Vermont International Center for Captive Education and instructor for the Ethics Course. Developed the ICCIE Course on Captive Governance. Serve now as a consultant and insurance expert witness and advise self insurers and captives on formation, service providers, domicile selection and operation and corporate governance.

Board Memberships: Leader Care Insurance Company, First Keystone Risk Retention Group, Red Clay Risk Retention Group, Positive Physicians Reciprocal, Grand Strand Captive Insurance Company, O’Brien Clan Foundation and International Center for Captive Insurance Education.

Earlier Insurance Positions included:

Vice President and General Counsel, American Patriot Insurance Co. (formed and licensed new insurance company including preparation and regulatory approval of all policy forms); claims counsel advised underwriting, claims, agency and policyholder service areas;

Associate General Counsel of National Home Insurance Company (supervised litigation, handled relationship with state insurance departments and wrote industry's first easy to read insurance policy) served on claims committee - advised company on health and life insurance claims;

Counsel of IDS Insurance Company (Now American Express Life) and Counsel of Colonial Penn Insurance Company (during this time I supervised claim litigation across the country and offered legal opinions on claim situations and insurance policy interpretations). Worked with agents across country in establishing insurance programs. Began insurance career as an insurance agent in Knoxville, Tennessee.

As an expert witness offered opinion letters on coverage issues on the 1943 Standard Fire Insurance Policy and Extended Coverage Endorsement; Standard Homeowners Policy; Bad Faith ERISA; Commercial Liability Umbrella Policy; Fresh Market Tomato Crop Insurance; Pollution Exclusion as Applied to Lead Poisoning; Standard Automobile Insurance Policy; Business Use Exclusion In Personal Automobile Policy. "Dailey-Sand" Uninsured Motorist Releases; Refusal to Settle within Policy Limits; Strict Liability/Product's Liability Coverage; Agents and Brokers Duties; Life Insurance Conditional Receipt: Bad Faith Refusal to Defend; Bad Faith Refusal To Pay; Intentional Act Exclusion; Respondeat Superior, Misrepresentation of Smoking on Insurance Application; Work Product Exclusion; Claims Handling Best Practices; Offer of Uninsured Motorist Benefit; Accidental Death; Incontestability Clause in Life Insurance Contract; Duties owed to Certificate of Insurance Holder under Commercial Liability Policy: ERISA Exception under Agent’s Error and Omission Policy; Business Exclusions Under Home Owner’s Policy; Mold Prevention in Fire Cases, and numerous other matters

Current Practice: In 1993 after acquiring the CPCU designation began serving as an expert witness on insurance matters. During the next 15 years while leading the insurance law firm of O’Brien and Hennessy and building the insurance management firm of Charleston Captive Management as its owner and CEO also served as an expert in over 50 insurance matters testifying in state and federal court. These assignments ranged from coverage, underwriting, claims, suitability, best practices and broker’s activities. During this period studied and focused on best practices as they apply to all facets of insurance providers, insurance companies and insurance brokers and agents. After selling Charleston Captive Management to Wilmington trust focused on the introduction of Wilmington Trust into captive management as Vice President and also served on the boards of insurance companies and on the board of the International Center for Captive Insurance Education. These activities caused an interruption in accepting new expert witness work. At ICCIE, taught the course in ethics and developed a new course that focused on the operation of insurance companies and best practices from the perspective of the Board of Directors. After leaving Wilmington Trust became once again more active as an expert witness and while serving on boards of directors continuing a focus and study on best practices as they are applied to all facets of insurance company operation. This experience as an insurance attorney, in managing many insurance companies from organization through growth and operation including underwriting claims policy issuance and licensing assist to prepare one as an expert in the field of insurance. Serving as an active board member on five insurance companies and participating in operations, claims, underwriting, and administration and best practices as they apply particularly in insurance company operations allow one to qualify as an insurance expert. Current practice is centered in the areas of best practices in insurance company operations, insurance expert witness and insurance company boards.

I have testified in the following cases in the past four years:

 

Jill A. Stoller v. All American Plumbing et al. State of South Carolina, County of Beaufort Court of Common Pleas Case No: 2007-CP-07-2735;

Benjamin Leake, et al. vs. American National Property & Casualty Co. State of South Carolina, County of Greenville Court of Common Pleas Case No: 2009-CP-232-2978

American Motorist Insurance Company, Inc. vs. Public Building Authority of the County of Knox et al, U.S District Court- Civil Action No. CV 3:09 -cv- 0068

Cole Vision Corporation and Sears Roebuck & Company vs Steven C. Hobbs, O.D. and NCMIC Insurance Company, CP Charleston County, South Carolina Case No. 07-CP-43-500

Hill v. Fidelity Life Association, In the United States District Court for the District of South Carolina, Charleston Division, Civil Action No. 2:12-1184-DCN

List of Published Articles – John J. O’Brien JD, CLU, CPCU

Medical Malpractice Insurance Crisis: Alternative Risk Transfer Solutions, by John J. O’Brien JD, CLU, CPCU” Wilmington Trust Corporation, 2006. http:// published at captive.com/ medmalwhitepaper

Give Yourself the Edge When Filing an Inter-Company Arbitration Submission” By John J. O’Brien JD, CLU, CPCU, Arbitration Forums Newsletter, spring 2001.

Segregated Cell Captives: Are Our Firewalls Fireproof,” Captive Insurance Company Reports, May 2004, International Risk Management Institute, Inc.

Subrogation: A Missed Opportunity?” Captive Insurance Company Reports, November 2009, International Risk Management Institute, Inc.

Will the NAIC Guide lines “Crowd Out” RRGs Board of Directors Best Practices Along With the Best Independent Directors? By John J. O’Brien JD, CLU, CPCU, Risk Retention Reporter, April, 2011.

Risk Retention Groups in a Nut Shell, Your Guide to Understanding RRGS” By John J. O’Brien JD, CLU, CPCU, Published at the Document Library at TheFriendlySocietyRestored.Com

Protected Cell Companies: Firewalls Revisited, Captive Insurance Company Reports”, Captive Insurance Company Reports, April, 2008, International Risk Management Institute, Inc.

The Right People. The Right Board” presentation on insurance company board practices at World Captive Forum February 2, 2012 available at World Captive Forum.Com web site

Course Material prepared for the following courses: Ethics and Captive Insurance Companies and Corporate Governance at the Board of Directors Level available through International Center for Captive Insurance Education.

John J. O’Brien JD, CLU, CPCU

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