Crisis and Risk Management: The Legal Whiteboard : Risk Management Lawyer & Attorney for Online Reputation, Crisis Management & Media Law

The current economic crisis has just suffered another casualty: the standard form creditors' rights coverage. Creditors’ rights coverage is often  viewed by lenders to be one of the most important risk management tools when negotiating title insurance coverage. That’s because the ability to purchase creditors’ rights coverage permits the shift of the risk of loss to the title company for any “covered” real property asset. More specifically, it provides coverage for the losses incurred where the subject transaction is voided by a bankruptcy or other applicable insolvency laws. Moreover, it also provides coverage for significant costs incurred in defending fraudulent conveyance or other preference challenge-type claims

While this is not a shocking development, as the availability of the coverage has been diminishing over time, it’s a significant jolt. When did this occur? Recently, The American Land Title Association (ALTA) actually decertified the ALTA Endorsement Form 21/21-06, which provides an insured with coverage against challenges and claims arising out of insolvency-type claims. This decertification went into effect on March 8, 2010. In fact, most title companies have already advised clients that they will no longer offer creditors’ rights coverage under new policies, and not will such endorsements be added to existing policies. Keep in mind, however, that decertification of the ALTA 21 does not mean that title companies cannot continue to offer creditors' rights coverage, unless prohibited by state law. Even if title insurance companies offer a special endorsement in the future, the level of coverage it will provide is unclear, and it will be likely be more expensive the  ALTA 21 Endorsement.

 How does this affect existing and future transactions? This change has already affected existing transactions and has indeed prevented some deals from closing. As to future transactions, without this coverage, lenders and buyers of distressed debt will need to perform even more extensive due diligence in order to better assess the risks of structuring transactions that could be subject to attack under applicable insolvency laws when entering into real estate purchase and/or financing transactions. Take a look at the factors title companies were examining when underwriting the insurance back in 2003. Borrowers will need to seek new advice to meet the changing expectations of their lenders. There is little information available as to which title insurance companies, if any, will offer cost-effective coverage. So for now, parties need to work to create new structures or transactional guarantees and alternative solutions to address the lack of creditors’ rights coverage. Now is a good time to update your title insurance checklist as part of your due diligence process because this may not be the only risk that has changed in the real new economy.Borrowers will need to seek new advice to meet the changing expectations of their lenders. There is little information available as to which title insurance companies, if any, will offer cost-effective coverage. So for now, parties need to work to create new structures or transactional guarantees and alternative solutions to address the lack of creditors’ rights coverage. Now is a good time to update your title insurance checklist as part of your due diligence process because this may not be the only risk that has changed in the real new economy.
 

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The 2010 Winter Olympics are over. This year was filled with memorable moments and a record number of Olympic Medals. Above that there was another standout moment. That moment was one truly memorable commercial, The Nike Human Chain. The commercial is a minute of pure inspiration with one simple message: Learning how to fall and get back up is the centerpiece of athletic greatness. And that lesson is indeed one of the most important lessons that today’s business crisis management teams need to master.  The recent allegations made by Floyd Landis, coupled with recovery from a nasty crash at the Tour of California, Lance Armstrong has proven himself to be an authentic Zen Master of Crisis Triage.

With a plethora of social media, real time information flow, it's a whole new reputation management game. This is vividly illustrated by the unraveling of the Toyota brand as well as the rapid fall of Tiger Woods.

Crisis management experts' standard advice is that the key to a successful handling of a crisis is preparing beforehand to respond early and take control of your story. In some cases, however, a company that lacks major crisis experience or has simply taken the "ostrich approach" in the early stages of a crisis and then things explode. At that point the hawks are circling, the blogosphere is buzzing, and perhaps the company is even facing criminal liability. What any business needs at that point is a Crisis Triage Plan. And that plan needs to be an agile and adaptive enterprise between executive management and a trusted team to manage the legal, public relations and social networksphere aspects of the crisis.

Where does the triage team start?

Triage usually starts with determining the greatest need at the immediate time that will stop damage from escalating. The starting point of Crisis Triage is to start taking responsibility in a credible and authentic way and stop hiding. Stop hiding documents that will eventually be revealed anyway. Stop hiding the fact that the Company may not have all the answers. The legal team is a critical part of the team, but don't let the message sound like it was written by a lawyer or a spin doctor. Create a simple message and get that message out. And that's just the start. "Everybody Get's Knocked Down, but How Quick are your Going to Get Up?

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