In Los Angeles, Peter Taffae, managing director of Executive Perils, has been developing solutions to give new life to corporations for decades, including a situation that involved an upscale supermarket chain that decided to give one of its corporate children up for adoption.

“Even though it's a food store, they owned a major division that did photocopying,” Mr. Taffae recalled, noting that it was the profitable photocopy division that attracted a Japanese buyer. Despite its earnings power, the supermarket executives were happy to be rid of it, since it didn't fit in with the remaining business.

However, the due diligence process overlapped the D&O renewal at a time when the market was hard–and raised a significant issue for the incumbent D&O insurer that a claim could result from the transaction.

Drafting a solution for the client and the insurer, Mr. Taffae diagramed all the possible claims outcomes and recommended rolling them together into a single algebraic pricing formula. “There were only four possible scenarios,” he said, going on to list them from worst to best.

“If it doesn't go through and there's litigation, that's a real big problem. If it goes through but there's litigation, it could be meritless”–someone alleging that the seller didn't get enough, he said. The two better outcomes would have the deal go through without a claim, or the deal failing, but no claims as a result, he said.

Mr. Taffae went on to walk through his pricing solution for the policy, which would include a six-year runoff for the subsidiary (needed because the acquirer was picking up any liabilities to cover the statute of limitations). The specifics of the formula included a deposit premium and a runoff component that would be surcharged or discounted depending on whether there was a claim.

“We got lucky. The deal did happen, and there was no claim,” he reported.

A multibillion-dollar software company featured in another one of Mr. Taffae's unusual risk examples was not so lucky. That one stands out because the company had an eight-digit claim going into its renewal, he said.

However, “what was good about this one is that we leveraged the renewal. We saw the renewal as an opportunity to make this a winner,” he said, noting that claims payment discussions heated up until the renewal.

“Litigation was really the next step against the carrier,” which didn't want to pay its limits loss. At the same time, the client had a new appreciation for how important the coverage was, he said.

With the renewal only a month away, the parties agreed to combine the renewal with the claims settlement. The carrier would write the $25 million check, but renewal was priced so the carrier would recoup its loss over time, Mr. Taffae said, going on to recall details of a formula that included multiplicative charges to the second- and third-year premiums for a three-year policy in the event of future claims. In a no-claims situation, the formula allowed the carrier to recoup the $25 million within six years.

Like Mr. Taffae, Anamae Saavedra, professional and management liability broker for CRC Insurance Services in Chicago, said similar creativity was needed to place a crime policy for a currency exchange that had experienced losses prompting a nonrenewal by its prior carrier.

She explained that currency exchanges, popular in Illinois, are little storefronts where you can pay bills, do money transfers, cash checks and in some cases take out mortgage loans.

Unusual, in this case, were the limits needed: $54,000, increasing to $114,000 every Thursday, Friday and day before a legal holiday; and increasing to $174,000 if the day before a holiday falls on a Thursday or Friday; and finally to $234,000 if the holiday is on a Thursday or Friday.

The Department of Financial Institutions, which regulates currency exchanges, required they carry a $1,000 deductible, she said. “A $1,000 deductible when you've had losses is not acceptable by a market, but the DFI was requiring this. There was no way we could go higher.”

Instead, the underwriter added a $5,000 surcharge to the $13,000 policy premium, she said. That surcharge will be used as a credit toward next year's premium if there are no losses under the policy, she added.

“It's going to keep the insured in check,” because if it tightens controls to prevent losses, the exchange will have that $5,000, she said, reporting that the exchange and the retailer were pleased with the outcome.