Conservation Defense Insurance Structure May 2011

Welcome to Conservation Defense Insurance Legal Structure Part II • Audio will come via your phone. • Join the conference call: Call 800-243-6403; Enter Pass Code 7153888 • Close all other programs (email, Word, etc.) • Technical Problems? Call 888-569-3848

Committed Land Trust Discussion Proposed Conservation Defense Insurance Program Legal Structure Part II May 2011

Progress Since March • • • • • • •

Submitted three Foundation requests $1 Million each Meet with numerous potential funders Filed all regulator applications Met with IRS Actuarial review underway Organized the limited liability company 3

Legal Structure Needs • • • •

Simple and effective Attractive to funders Protects Alliance and land trusts Integrates the insurance program and Alliance prevention and risk management services • Ensures stability through quality control and guidance by the Alliance subsidiary • Complies with all laws, regulations and accounting standards 4

Development Process • Alliance convened volunteer team of prominent attorneys – Philip Tabas, VP and General Counsel of TNC – Andy Dana (MT) and Jessica Jay (CO) • Conservation Insurance Pioneers and Authors – Fred Rich and Ted Holt of Sullivan & Cromwell • Evaluated alternative legal structures • Recommended structure to the Alliance board • We are grateful for their pro bono services to create the conservation defense insurance program 5

Legal Structure LAND TRUST OWNER MEMBERS THE INSURANCE COMPANY

TERRAFIRMA RRG LLC The Manager (ARMS)

THE LAND TRUST ALLIANCE, INC. (Massachusetts not-for-profit corporation)

ALLIANCE RISK MANAGEMENT SERVICES LLC (Vermont LLC; Alliance sole member)

(Vermont manager-managed not-for-profit LLC)

COMMERCIAL PROVIDER OF CAPTIVE MANAGEMENT SERVICES

CAPTIVE MANAGEMENT COMPANY

Legal Structure Details • Owners: The land trusts insured by the RRG • Corporate Status: a Vermont manager-managed not-for-profit Limited Liability Company • Tax Status: IRC § 501(n) charitable risk pool • Regulatory Status: Risk Retention Group • Governance: LLC Agreement and Members Committee • Employees: None • Services: On contract basis from the Alliance manager and from private third party expert providers such as the captive manager 7

Owners and Members Terrafirma Risk Retention Group LLC • • • • • • • • • •

Formed 4-18-11 by Land Trust Alliance Exclusive purpose as a qualified charitable risk pool IRC § 501(n) Owned and controlled by the participant § 501(c)(3) land trusts Members must continuously meet the membership requirements Managed under contract by a non-member Manager Selected by the Members Non-member manager is Alliance Risk Management Services LLC (“ARMS”) The Alliance is the sole and managing member of ARMS ARMS is not the third party, commercial captive insurance manager Manager has conservation expertise Captive Manager has insurance expertise 8

Roles • • • • • • • • • • • •

The Members Committee similar to a board of directors Responsible for overseeing Terrafirma No directors, trustees or officers Terrafirma contracts with ARMS for management ARMS appointed by Members Committee Staffed by Alliance Terrafirma reimburses ARMS for its costs ARMS performs non-administrative tasks and supervises commercial providers and does risk management ARMS can be replaced by a super majority of the Members Terrafirma directly contracts with captive insurance manager Captive manager handles financial and regulatory matters Terrafirma contracts with other providers 9

Involvement of the Members • • • • • • • • • • •

Members elect the Members Committee by region Members have direct vote to demand a general meeting Members vote on other fundamental organization matters Members appoint and dismiss Manager by two-thirds vote Members Committee supervises Manager and contractors Members get annual report from the Members Committee Annual meeting; Terrafirma will have at least 461 members Members may call a meeting by a majority vote Unanimous vote required to amend the Articles and other Two-thirds vote to amend Operating Agreement and dissolution Majority vote required for all other actions 10

Members Committee Formalities • • • • • • • • • • •

All volunteer; Single term of three years Mandatory year off after single three-year term Only member land trust senior staff and board trustees/directors Must be independent Nine classes; one class for seven geographic regions One class for the western at-large expert member One class for the Vermont resident appointed Initial Members Committee appointed by ARMS Annual meeting required in Vermont for Members Committee At least three times a year by telephone or web ARMS convenes and chairs meetings, circulates agendas, etc. 11

Elections • • • • • • • • •

Elected by Members in region (one Member, one vote) Staggered elections, two Committee Members elected annually Vacancies filled by Members Committee All elections via secure online voting system only 10-day response period, system users affirm authority to vote No quorum, candidate in each region with most votes wins Members Committee nominates candidates Includes representatives of all land trust size, type and location Includes representatives accredited non-accredited land trusts

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Regions • Pacific: AK, CA, HI, OR, WA 74 Land Trusts • Mtns and Plains: AR, AZ, CO, IA, ID, KS, MO, MT ND, NE, NM, NV, OK, SD, TX, UT, WY 72 Land Trusts • Western: Combined Pacific and Mountains & Plains regions • New England: CT, MA, NY 65 Land Trusts • Lakes: IL, IN MI, MN,OH, WI 64 Land Trusts • Northern NE: ME, NH, VT 62 Land Trusts • Atlantic: DC, DE, MD, NJ, PA, RI, VA, WV 62 Land Trusts • South: AL, Fl, GA, KY, LA, MS,NC,SC,TN 61 Land Trusts • Vermont Resident: Statutory domicile requirement; appointed 13

Claims Committee • • • • • •

Claims decisions Determination of claims Claims triage Case management Approval of settlements and litigation decisions Direction to National Coordinating Attorney (ARMS staff) 14

Claims Committee Formalities • • • • • • • • •

Members Committee members not eligible Five year terms Nominated by ARMS Approved by Members Committee Independence requirements Volunteers will be experienced land trust practitioners Practical skills and outlook Four persons with expertise NCA, ex officio 15

Claims Committee Reporting • Members Committee determine regular reporting • Mandatory additional reporting for – large, controversial or precedent setting claims – regular updates

• At least annual reporting for – in process and concluded matters

• At least annual trends and trajectory reporting • Annual actuarial analysis • Annual regulator reporting 16

Possible Claims Process • • • • • • • •

Establishing a form containing key information (TBD) Delivery of copy of property file Timing requirements and applicable statutes of limitation Estimates of initial costs Identity of contact person in the Member organization Confirmation that Member still eligible Other processes and information to be determined Collaborative, team effort of all involved 17

Standards • • • • • •

To determine coverage To determine claim management and options Selection of local counsel Fiscal management of claims Communications and roles Decision making

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Concerns & Comments • • • • • • •

Too complex? Enough representation? Equitable? Transparent? Too much work for land trusts? Eligibility issues? Other? 19

Next Steps • • • • • • • •

Finish raising the money Obtain insurance regulator approval Obtain IRS tax exempt status Confirm land trust eligibility Write application and policy forms Land trust review Alliance board vote Mechanics of start up (lots of details here) 20