Readers may recall our post last month regarding the plight of Oberlin College in Ohio. At the time, they had just lost a lawsuit brought against them by a local bakery that the college had apparently victimized. As we noted at the time, the institution's insurers may balk at covering it at all:
"[I]t appears that the insurer, Lexington Insurance Company, is likely to disclaim coverage for the intentional torts which gave rise to the verdict."
But wait, it gets better (well, for certain values of "better"):
"Will Oberlin College be able to secure a bond? Probably, but it might not be as easy as you would think."
What's this about a bond, you ask?
Well, as expected, the college is appealing the rather large judgment; the challenge is that such appeals take a while, and the interest alone on that sum is over $4,000 a day. The Gibson family is concerned that Oberlin might metaphorically "bleed out" and have nothing on which they can collect:
In Ohio, folks (and institutions) that wish to appeal an award are free to do so, but must post a bond which essentially guarantees that the amount will be paid if the appeal is lost. It's important to note that, as our good friend and guru of P&C Bill M points out, a bond is not an insurance policy, but a 'financial instrument.'
Okay, so what?
Well, in the post we excerpted above, it's claimed that the carriers "writing these appeal bonds want to take zero risk."
Which is kind of the anti-thesis of insurance, which is acknowledging and underwriting for a specific risk. In this case, the carrier(s) will want to have some pretty substantial collateral to back up their guarantee of such a large sum. This could be in the form of cash (as in the school's endowment), and/or buildings and equipment. The point is that, unlike a typical insurance policy, these plans are not risk-based.
That may yet prove to be critical.
[Special IB thanks to Bill M for taking the time to help us understand this]
"[I]t appears that the insurer, Lexington Insurance Company, is likely to disclaim coverage for the intentional torts which gave rise to the verdict."
But wait, it gets better (well, for certain values of "better"):
"Will Oberlin College be able to secure a bond? Probably, but it might not be as easy as you would think."
What's this about a bond, you ask?
Well, as expected, the college is appealing the rather large judgment; the challenge is that such appeals take a while, and the interest alone on that sum is over $4,000 a day. The Gibson family is concerned that Oberlin might metaphorically "bleed out" and have nothing on which they can collect:
In Ohio, folks (and institutions) that wish to appeal an award are free to do so, but must post a bond which essentially guarantees that the amount will be paid if the appeal is lost. It's important to note that, as our good friend and guru of P&C Bill M points out, a bond is not an insurance policy, but a 'financial instrument.'
Okay, so what?
Well, in the post we excerpted above, it's claimed that the carriers "writing these appeal bonds want to take zero risk."
Which is kind of the anti-thesis of insurance, which is acknowledging and underwriting for a specific risk. In this case, the carrier(s) will want to have some pretty substantial collateral to back up their guarantee of such a large sum. This could be in the form of cash (as in the school's endowment), and/or buildings and equipment. The point is that, unlike a typical insurance policy, these plans are not risk-based.
That may yet prove to be critical.
[Special IB thanks to Bill M for taking the time to help us understand this]
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