Welcome to
The Marquis
Messenger,
a quarterly
newsletter for design
professionals from
your insurance broker,
T HE M ARQUIS A GENCY
◆ ◆ ◆
The
I N S I D E
Message
◆ Mergers and
Acquisitions:
Two Things That
Every Firm Needs
to Consider
◆ Underwriting Views:
M&A’s Insurance
Implications
◆ Helping Design
Firms Increase
Profitability:
Professional
Employer
Organizations
◆ Upcoming Risk
Management
Seminars and
Webinars
◆ Visit Our Website
for More Articles
& Information
800-272-6771
Mergers and Acquisitions
Two Things That Every
Firm Needs to Consider
Prior to “Inking the Deal”
The most important piece of paper in a
commonly neglected issues — the merging of
merger or an acquisition transaction, for both
firm cultures and who becomes responsible for
parties, is a professional liability insurance
the prior acts, errors and/or omissions of the
policy with appropriate policy limits, a readily
merged company.
absorbed deductible and prior acts coverage
In a merged firm, formerly powerful
for the work of the acquired or merged firm. In
members may have less power. Methods of
order to understand the wisdom
governance, work ethic and even
of this statement, however, you
regularly used computer programs
By
need to consider the following.
(i.e. e-mail, word processing and
LAWRENCE
Smaller firms that seek suitors
accounting) may be vastly
POWERS
to acquire them, or to merge with
different. Accordingly, both
them, do so for very obvious
parties to the transaction need
The Law Firm of
reasons:
to understand that there will be
Hoagland, Longo,
a loss of efficiency, at least for a
◆ to liquidate the value of
Moran, Dunst &
while, and a corollary loss of
accumulated goodwill and
Doukas, LLP
revenue. In merger and
pocket it.
acquisition transactions
◆ to fulfill unmet client demands
nationwide, a quarter to a half of the mergers
for specialized knowledge or the ability to
fail or fail to deliver the anticipated financial
deliver enhanced services.
return in the first one to three years following
the merger. In order to limit this risk and
◆ to compete with “the big boys.”
shorten this period of inefficiency, many
◆ to obtain capital.
companies considering joining forces forming
Firms that seek smaller firms to acquire or
strategic alliances, where the companies retain
“merge” with also do so for obvious reasons:
their own corporate forms, but work together
on cooperative projects, just to see where the
◆ to acquire someone else’s accumulated
“bumps in the road” will be if the transaction
goodwill and/or geographic location for use
goes forward. This practice enables the parties
in expanding market share and to eliminate
to see if they can successfully meld their skills
a competitor.
and personnel before they “tie the knot.”
◆ to fulfill unmet client demands for
The other issue that is given short shrift is
specialized knowledge or the ability to
how the merged companies will deal with the
deliver enhanced services.
continued risk of loss on projects commenced
or completed by the merged firm prior to the
These are the primary factors that drive
merger. Most of the mergers this writer has
most mergers and acquisitions. Accordingly,
seen address this issue by attempting to
when the transactional documents are drawn
characterize the transaction as “an asset
up for most deals, certain key issues tend to be
given short shrift. The purpose of this article is
— Continued on page 4
to create issue awareness for the two most
www.marquisagency.com
Underwriting Views:
THE MARQUIS AGENCY
900 Route 9 North ◆ Suite 503
Woodbridge, NJ 07095
phone: 800.272.6771
fax: 732.634.5379
www.marquisagency.com
Lenny Waldhauser
President . . . . . . . . . . . . . . . . x285
M&A’s – Insurance
Implications
Merger and acquisition activity is again
increasing in the design firm world.
Concerned more about clients and
culture, too many firms wait until the last
minute to consult with their insurance
advisor. This is a bad mistake that can
cost both the buyer and the seller money
and headaches.
Here is a short list of professional
liability action items for both the buying
and selling firms:
◆
Tom Sharp
Senior Consultant . . . . . . . . . . x628
Rich Hartman
Senior Consultant . . . . . . . . . . x625
Debra Pellet
AVP/Client Executive . . . . . . . . x618
Ami Jastrzemski
A&E Assistant Manager . . . . . . . x640
Jackie Foyil
Account Manager . . . . . . . . . . . x615
Chrissy Freeman
Account Manager . . . . . . . . . . . x623
◆
Account Manager . . . . . . . . . . . x645
Myra Regina
Account Manager . . . . . . . . . . . x616
Tina Gambacort
Commercial Lines . . . . . . . . . . x212
◆
The new firm should review the
combined claims experience of the
predecessor firms and make sure that
there are no surprises about their own
coverage, deductibles, or price at
renewal. Poor claims experience from
an acquired firm can impact the
premium of the buyer. A good,
specialty broker can help you predict
what to expect from your carrier.
◆
Monetary and time obligations for
open claims and circumstances
should be acknowledged. Open
Certificates of Insurance . . . . . . x626
◆ ◆ ◆
For more information visit our website
www.marquisagency.com
800-272-6771
◆
Inquire about existing circumstances
or claims that may not have been
reported. Ask your broker what to do
if you find any. You can negate
coverage if you don’t report claims
before switching policies.
◆ Check to see if there are any
After deciding on the legal
outstanding incidents on
format of the sale/
projects where the firms
By
purchase/consolidation,
worked together on either
make sure that prior
LORNA
on-going projects or in the
acts for both firms are
past. There may be
P
A
R
S
O
N
S
covered under the oninsurance exclusions about
going policy or “run-off”
V ICTOR O.
making covered claims
policies (offered by some
against each other after the
S CHINNERER &
but not all carriers).
merger/acquisition. Report
Although it is usually
C OMPANY, I NC .
any potential conflicts to
cheaper to name the
your broker.
acquired firms on the purchaser’s
◆ If the purchaser is acquiring only the
policy and combine prior acts under
the on-going policy, the purchaser/
assets of a firm, the status of each
new firm may be assuming liabilities
active project should be reviewed and
for which they hadn’t bargained or
noted in writing. Find a way to describe
anticipated. Insurance counsel and
the state of completion of each job by
advice from a broker that is a
saving a set of plans or initialing
specialist in the field of architects &
papers. Decide where the project will
engineers professional liability
be covered. Make sure your insurance
insurance is vital.
policy includes coverage for the
remainder of the projects in progress
Check the named insureds on the new
after the acquisition.
policy carefully — this is one of your
primary coverage triggers. This is also
a good time to check other features of
your policies. As firms grow,
mandatory deductibles often increase.
Limits of liability may need to be
raised. A broker that specializes in this
field of insurance can help you insure
the new firm appropriately.
Lorene Parrish
claims may require deductible
payments and senior principals’ time.
Reserves should be set aside from the
assets of the old firm.
2
◆
Review your professional service
contracts, client selection process,
quality assurance, quality control,
training, and other risk management
related activities to be sure consistent
procedures are being used.
You should check your other insurance
policies too. You will probably need to
obtain MVRs from new drivers, schedule
vehicles, list additional locations and
property, resolve indemnity and additional
insured issues on certificates, and make
sure that any new types of operations or
payrolls are reported to your carriers. An
insurance broker that specializes in
working with architecture and engineering
firms can simplify the process.
A little consultation before a merger or
acquisition can save you a lot of time and
money afterwards. Make sure your insurance
broker and company are in the loop. ◆
Spring
2007
Helping Design Firms Increa $e
Profitability: Professional
Employer Organizations
Most design firms do not have the
comprehensive human resource training
or background in employee management
essential in meeting demands of being an
employer. Managing a firm is the ultimate
“on the job” training.
Firms need to focus their time (billable
hours) and energy on “growing their
business” and not employee administration.
Did you get into architecture to design?
Or to manage people?
There is a strong correlation
between the success of a business
and the quality of its people. Does
your firm have the right employment policies, procedures,
insurance and risk management
tools to allow you to continue to
grow and be profitable even
with the potential setbacks and risk
associated with managing employees?
The Answer:
Professional Employer
Organizations
Professional Employer Organizations,
commonly referred to as PEOs, were
created to help small business owners
control their costs, and maintain their
focus on the initiatives that drive greater
growth and increased profitability.
PEOs serve as an outsourced human
resources department delivering a
single-source HR solution that is more
cost-effective, efficient and robust than
maintaining an in-house staff.
Core PEO services include:
◆
◆
◆
◆
◆
◆
Providing experienced HR, benefits,
payroll and risk management
professionals
Offering comprehensive benefits,
unaccessible to smaller firms
Comprehensive employer-paid health,
dental, life and vision insurance
Tax-advantaged programs such as
401(k), Section 125 plans and
Flexible Spending Accounts
Employee-paid programs ranging from
Legal plans to Group Auto and Home
Insurance to Credit Union Membership
Processing payroll and filing related
taxes
◆
Handling all benefits administration
from enrollment to termination
◆
Procuring mandated employee
insurance including disability and
worker’s compensation
By pooling together their clients’
employees, PEOs can negotiate lower
insurance rates, minimize on-going
increases and gain access to broader
benefit solutions than their client
could manage individually. Ultimately,
the PEO solution allows a business to
leverage additional growth from their
existing management structure —
without using valuable capital to
add personnel.
PEOs provide the recruiting
tools necessary to identify,
screen and legally hire the best
applicants; especially critical
to new or growing firms.
Finally, the PEO
relationship is more efficient to manage
than dealing with the variety of suppliers
responsible for providing the individual
services (e.g., payroll, benefits, worker’s
compensation, retirement plans).
The pay-off from working with a PEO
can be dramatic. A study by the Society
for Human Resource Management
determined that companies using a PEO
saved an average of 9–23 hours a week
on employee administration, while
delivering better benefits to their
employees.
The Marquis Agency partners with
Extensis, a New Jersey-based PEO, to
make these services available to our
clients.
Extensis: The Complete
Solution
Extensis is a full-service Professional
Employer Organization, founded on the
principle of eliminating a firms’ burden
of administration, while providing
in-depth HR programs and Fortune
500 benefits. Extensis provides
multiple on-line tools and
resources, but specializes in a
high-touch approach to its client
relationships. Each client
receives a dedicated Account
Steward that is their single point of
contact for HR, Risk Management and
Benefits.
Design Firms look to Extensis for
several reasons:
◆
Outsource administration to better
leverage team’s time and resources –
Focus on higher value activities
◆
Want complete and integrated
HR/Payroll/Benefits/Worker’s
Compensation solution:
◆
Broad-based resource to advise on
employee relations issues
◆
Compliance with Federal and State
statutes, get it right from the start
◆
Organizational tools such as
Employee Handbook, Employer
Guidebook, Benefit Summaries,
Labor Posters, etc.
◆
Methods to hire efficiently and
effectively — Background checks,
drug testing, offer letters, nondisclosures/non-competes, etc.
◆
Desire competitive health insurance
rates, predictable increases and
access to wider selection of plan
designs
◆
Like to offer Employer and
Employee-Paid benefits needed to
attract and retain high quality
employees
◆
Interested in benefits for highly
compensated individuals
◆
Want tax-advantaged programs —
401(k) plan, Section 125, Section 529
& Flexible Savings Account (FSA)
◆
Require 24/7 access to payroll and
benefit information for management
and employees
Extensis also provides
Employment Practices Liability
Insurance (EPLI), which protects
its clients from a broad array of
employment-related claims (e.g.,
sexual harassment, wrongful
termination, discrimination);
at no additional cost. In the
end, Extensis assists managers
who want to focus on
developing their business, not
being an employer. ◆
— For more information on PEO’s contact Debra Pellet x618 —
Spring
2007
3
www.marquisagency.com
Two Things to Consider
purchase,” as if the acquiring firm was
buying some old desks and cubicles,
instead of the people, the knowledge and
good will that reside within those cubicles.
That effort fails, in almost every instance,
when the merged firm and the acquiring
firm are sued for malpractice on the part
of the merged firm. It fails for the
following reasons.
In New Jersey, traditionally, a
corporation that simply acquires the
assets of another corporation through
sale or other transfer is not liable for
the debts and liabilities of the
predecessor corporation. There are,
however, four exceptions to this general
rule which need to be considered.
Successor liability will be imposed if:
◆
◆
The purchasing corporation expressly
or impliedly agreed to assume the
debts and liabilities of the selling
corporation;
The transaction amounts to a consolidation of the seller and purchaser.
◆
The purchasing corporation is merely
a continuation of the selling
corporation, or
◆
The transaction was entered into to
fraudulently escape responsibility for
such debts and liabilities.
(Continued from page 1)
Almost every time a smaller firm is
swallowed up by a larger firm, the parties
intend to “join forces” and consolidate
their businesses. The word “synergy” is
bandied about and announcements are
made, touting the mutual advantages to
be gained, the fact that there will be no
lack of continuity in the business of the
merged firm. The parties make it
eminently clear for their clients that,
notwithstanding the deal, “the new boss”
is the same as “the old boss.” It is these
intentions characterize the true nature of
the transaction.
The Courts of New Jersey consider the
following factors in determining the true
intention of the parties to effect a simple
asset sale or a de facto merger and continuation of the merged firm’s business.
◆
Is there continuity of management,
personnel, physical location, assets,
telephone numbers, e-mail addresses
and general business operations?
◆
Has there been a cessation of the
ordinary business and a dissolution of
the merged entity as soon as is
practically and legally possible?
◆
Has there been an assumption by the
successor of the liabilities ordinarily
necessary for the uninterrupted
continuation of the business of the
merged entity?
◆
Is there continuity of ownership/
shareholders/persons in apparent
authority?
If these factors exist, then no matter
how your lawyer casts the nature of the
transaction in the closing documents and
no matter how you publicize the
transaction, the Courts will not be treat it
as a simple asset purchase. It will be
treated as a de facto merger, and the
acquiring firm may have successor liability
for the merged firm if that firm did not
maintain professional liability coverage
after the merger. Claims against the
merged firm must be covered by
someone’s professional liability insurance.
Accordingly, I trust that you now
appreciate the wisdom of the advice
contained in the first paragraph of this
article. Make your broker part of your
merger and acquisition team. ◆
Lawrence Powers is the co-partner
in charge of the Construction Litigation
Department of the New Brunswick,
New Jersey based law firm of Hoagland,
Longo, Moran, Dunst & Doukas, LLP. Mr.
Powers is also counsel to AIA-NJ, NJSPE
and NJASLA.
DONAVAN HATEM,
ATTORNEYS AT LAW
BEAZLEY
INSURANCE CO.
VICTOR O.
SCHINNERER/CNA
(in-house counsel for
Lexington Insurance Co.)
Q U A R T E R LY R I S K
MANAGEMENT
WEBINAR
REGIONAL RISK
MANAGEMENT
SEMINAR
for firms insured in the
Beazley A/E Professional
Liability Program
◆
RISK MANAGEMENT
SEMINAR
◆
◆
◆
T O P I C : Project
Alliancing and PublicPrivate Partnerships:
The Design Professionals
Risk and Insurance Issue
D A T E : June 7, 2007
T O P I C : 10 Most Common
Areas of Design Exposure
D A T E : Sept.19, 2007
T O P I C : BIM Professional
Liability Issues
D A T E : Nov. 28, 2007
From our company overview
to client services, articles
◆
T O P I C : Defending
Against Contractor Claims
D A T E : June 14, 2007
Invitation e-mailed to
current Policyholders of
Beazley. If you have not
received your invitation,
contact Megan Hemingway,
[email protected]
T O P I C : Critical Issues in
Construction Contract
Administration
D A T E : Nov. 1, 2007 NYC
and everything in between,
you can find what you need
by visiting our website:
www.marquisagency.com
For more information on
this seminar and other Risk
Management information visit
www.schinnerer.com ◆
◆
Client access to your
policy information
◆
Online certificate
issuance
◆
Additional articles for
design professionals
For information, contact
Donavan Hatem’s NY office
at 212-244-3333
800-272-6771
Visit Our
Website
For More
Information
Upcoming Risk Management Seminars
◆
Applications, additional
products, and more.
4
Spring
2007