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Craig Adoor

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Craig provides results-oriented business advice to boards and senior management of both publicly held and large private companies. By listening to clients and working to understand their businesses, goals and industries, he provides thoughtful and sound advice on corporate governance, SEC reporting obligations and disclosure matters. With decades in transactional practice, Craig brings an in-depth knowledge of mergers, acquisitions and dispositions of private and public companies as well as keen insight into the business challenges facing companies in numerous industries.

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Agricultural producers face liability risks generally experienced by most businesses – workers compensation, for example, and risks that can easily be covered by standard property and casualty insurance policies. However, agricultural growers and producers are also confronted with particular risks of losses and liabilities endemic to agriculture that go to the very heart of their businesses as farming operations.  As those involved in agribusiness realize, standard property and casualty policies may not be available to provide coverage for the unique risks and potential losses an agricultural producer faces – losses attributable to:

  • environmental matters;
  • animal diseases;
  • crop diseases;
  • pesticides and fertilizers; and
  • livestock and crop contamination, resulting in food borne illnesses for which there is liability and product recalls;

to name a few. Even if the commercial insurance is technically available, it is not available on practical terms because the premiums are so costly and the deductibles are so high the producers and growers cannot afford to pay them and still generate sufficient net income from their farming operations.  Further, if and to the extent carriers are willing to write insurance policies for these unique agricultural risks, they are of little value because the policy exclusions leave uncovered many of the very risks of which the producer is most concerned and for which it needs the policy.

Many large agribusiness companies have addressed their risk management issues through the formation and operation of single parent captive insurance subsidiaries as referenced in a previous post.  However, producers and growers have not embraced captive insurance despite the fact that it may represent a risk management tool tailor-made for the unique risks faced by crop growers as well as for the risks faced by livestock producers.  Most give as their reason for not pursuing captive insurance their belief that implementing and operating a captive insurance company is too costly, too complicated and draws their attention away from their primary focus – growing and selling crops or livestock or operating their related businesses.
Continue Reading Captive Insurance Can Help Agribusinesses Come Rain or Shine (or Other Events Adversely Impacting Industry Participants)

Husch Blackwell LLP partner Craig A. Adoor recently wrote a six-part series of blog posts on captive insurance – “Using Captive Insurance To Create Value for Your Company.” Companies operating in many different types of industries with different types of risks have formed captive insurance subsidiaries to help manage their risks. 

This blog post points out that companies operating in the agribusiness industry may be able to economically manage their liability risks by forming captive insurance companies. It cannot be stressed enough, however, that the parent company must have valid and bona fide business, risk management and insurance reasons for forming and operating a captive insurance company. Although there may be tax benefits, they must be ancillary to the business, risk management and insurance reasons.

PLANTING THE IDEA: IS CAPTIVE INSURANCE A VIABLE RISK MANAGEMENT TOOL FOR YOUR AGRIBUSINESS COMPANY?

Companies operating in the agribusiness industry face liability risks that most all companies in other sectors of the United States economy do. However, producers including row crop growers, livestock producers, dairy and egg producers and countless other producers are confronted with a myriad of other types of risks that may not impact non-agricultural industries nearly as much – risks such as:

  • environmental risks;
  • risks presented by earthquake, wind, hail, flood, drought;
  • animal diseases;
  • crop diseases; and
  • risks due to the use of pesticides, fertilizers.

Crop protection and specialty seed manufacturing companies, processors, equipment dealers, fertilizer dealers, seed dealers and grain elevator companies, none of whose businesses are directly tied to production but who support the producers, face these very same risks because their business existence depends on the producers.   …
Continue Reading Planting the Idea: Is Captive Insurance a Viable Risk Management Tool for your Agribusiness Company?

The following is Part VI of a six-part series of blog postings regarding whether a captive insurance subsidiary or one owned by the owners or affiliates of a company may represent an effective risk management tool that also provides economic benefits. Although there are various types of captive insurance, this posting will focus primarily on single parent/pure captives and how they might provide economic benefits for you or your food and agribusiness company. Part I, Part II, Part III, Part IV and Part V of the blog series are here.

This posting provides an overview of certain other considerations to forming a single parent or pure captive.    

PART VI – COSTS, EXPENSES AND OTHER CONSIDERATIONS IN FORMING A CAPTIVE

As any experienced business owner, executive or manager understands, risks, costs and expenses are associated with almost every business opportunity. The opportunities and benefits that may be realized through a single parent captive subsidiary are no different; they, too, are subject to costs and expenses.

  • Costs to Organize and Qualify the Single Parent Captive with the Appropriate Jurisdiction

Apart from the time spent in the initial consideration regarding whether organizing, implementing and operating a captive insurance subsidiary makes sense from a business perspective, once the decision is made to move forward, the company will incur costs, expenses and professional fees. These costs and expenses will include but will not be limited to:

  • professional fees for preparing the feasibility study;
  • fees of the actuary to prepare the report required by the feasibility study;
  • preparation of the documents other than the feasibility study that must be submitted as part of the application to the selected jurisdiction’s captive insurance division; and
  • accounting and legal fees.

Thereafter, unless the parent has experienced insurance executives and staff who can operate the captive, it will incur additional costs and expenses as it pays a “captive manager” to operate and manage the captive insurance subsidiary, prepare the financial statements and make the required annual filings and other filings with the applicable jurisdiction’s insurance regulatory authorities. The parent will also need tax professionals, accounting and some legal assistance to handle issues as they arise.
Continue Reading Using Captive Insurance to Create Value for Your Company – Part VI

The following is Part V of a six-part series of blog postings regarding whether a captive insurance subsidiary or one owned by the owners or affiliates of a company may represent an effective risk management tool that also provides economic benefits. Although there are various types of captive insurance, this posting and the one to follow will focus primarily on single parent/pure captives and how they might provide economic benefits for you or your food and agribusiness company. Part I, Part II, Part III and Part IV of the blog series are here.

This posting provides an overview of the benefits to a company and its shareholders or members of forming a single parent or pure captive.    

PART V – CERTAIN BENEFITS OF FORMING A SINGLE PARENT OR PURE CAPTIVE

After identifying the most salient risks facing a company (which should be a part of any company’s risk management function) management considering captive insurance should evaluate the following:

  • whether commercial insurance coverage is available for those risks;
  • whether the available commercial coverage for those risks have such a high deductible and so many exclusions that the company is effectively self-insuring the potential losses from those risks;
  • whether the premiums charged by the commercial providers are not only affordable but also less than the company could provide itself through forming a captive subsidiary for those risks, given the probability of the occurrence of the risk events actually occurring and the magnitude of the loss if the event were to occur; and
  • whether commercial insurance for those risks are likely to remain available at such affordable costs for the foreseeable future.

One of the primary values of the single parent captive is the parent’s ability to customize policies that insure against business and operational risks that are not available from third party insurers or at costs that are unreasonably high given the risk and the potential harm to the company. Captive insurance rarely replaces third party insurance. Rather, it serves as a gap filler to provide coverage that commercial carriers do not provide at a reasonable cost. …
Continue Reading Using Captive Insurance to Create Value for Your Company – Part V

USING CAPTIVE INSURANCE TO CREATE VALUE FOR YOUR COMPANY

The following is Part IV of a six-part series of blog postings regarding whether a captive insurance subsidiary or one owned by the owners or affiliates of a company may represent an effective risk management tool that also provides economic benefits. Although there are various types…

The following is Part III of a six-part series of blog postings regarding whether a captive insurance subsidiary or one owned by the owners or affiliates of a company may represent an effective risk management tool that also provides economic benefits. Although there are various types of captive insurance, this posting and the three to follow will focus primarily on single parent/pure captives and how they might provide economic benefits for you or your food and agribusiness company. Part I and Part II of the blog series are here.

This posting turns its attention to two basic elements of insurance – risk transfer and risk distribution.    

PART III: RISK TRANSFER AND RISK DISTRIBUTION

The Supreme Court has identified two criteria for an arrangement to be treated as insurance for federal income tax purposes. Accordingly, these must be present for a company to deduct premiums for insurance and, under Section 831(b) of the Internal Revenue Code for a captive insurance company to exclude up to $1.2 million in premiums received.  These are:

  • risk transfer; and
  • risk distribution.

Risk transfer is the insured’s transfer of its liability risk to another person or entity, and risk distribution is the insurer’s spreading its liability risk among a number of insureds.

Risk transfer is an easy concept. By purchasing liability insurance from a third party, the company is transferring to the third party its risk of liability for an insurable loss it would otherwise have to pay itself.  Risk distribution is a somewhat more complicated concept and the IRS has issued two Revenue Rulings that provide guidance on how the risk distribution requirement may be satisfied.  In short, risk distribution may be satisfied if either:

  • the company that is to be the single member of the captive insurance company also owns 100% of twelve or more subsidiaries (“brother-sister affiliates”) to which the captive insurance company will provide the insurance with no one brother-sister affiliate accounting for less than 5 percent or more than 15% of the risk; or
  • more than 50% of the captive insurance company’s risk exposure is derived from insuring third parties.

…
Continue Reading Using Captive Insurance to Create Value for Your Company – Part III

The following is Part II of a six-part series of blog postings regarding whether a captive insurance subsidiary or one owned by the owners or affiliates of a company may represent an effective risk management tool that also provides economic benefits. Although there are various types of captive insurance, this posting and the four to follow will focus primarily on single parent/pure captives and how they might provide economic benefits for you or food and agribusiness company. Part I of this series can be found here.

This posting discusses an alternative to ownership of the captive by the holding company itself — how a business’s owners considering implementing captive insurance as an enterprise risk management tool can also use it as an estate planning or family wealth transfer tool.

PART II: ALTERNATIVE STRUCTURE – OWNERSHIP OF THE CAPTIVE BY AFFILIATES OF THE HOLDING COMPANY

Owners of companies may find organizing and implementing a captive insurance company of which they are the owners a worthwhile strategic alternative to the extent:

  • They seek asset protection;
  • They seek an additional entity as a vehicle for additional personal wealth accumulation; or
  • They are interested in using the captive as an estate planning tool or are otherwise interested in exploring alternative family wealth transfer mechanisms.

Owners of the parent can organize a corporation or a limited liability company to qualify as a captive insurance company and to provide the insurance to the parent and the subsidiaries of the parent. Structured in this manner, it becomes an additional asset of the owner and, to the extent the captive insurance company is successful, it is a source of additional wealth accumulation apart from the parent company itself. Of course its reserves are to be used to pay claims of the operating subsidiaries of the parent company owned by the shareholders or members of the captive insurance company. However, to the extent the reserves are not used and they grow over time, the value of the captive insurance increases and the wealth of the shareholders or members of the captive insurance company increases. The owners of the captive are entitled to any dividends and distributions approved by insurance regulatory authorities.
Continue Reading Using Captive Insurance to Create Value for Your Company – Part II

The following is Part I of a six-part series of blog postings regarding whether a captive insurance subsidiary or one owned by the owners or affiliates of a company may represent an effective risk management tool that also provides economic benefits.  Although there are various types of captive insurance, this posting and the five to follow will focus primarily on single parent/pure captives and how they might provide economic benefits for you or your food and agribusiness company.

Effective enterprise risk management (ERM) is an essential component of any successful business that in almost all circumstances imposes costs and expenses and represents a drag on a company’s profits.  Wouldn’t owners of such businesses and their managements be interested in learning about a risk management tool that provides insurance but may also result in the potential for increased earnings as well as tax savings and benefits?  Captive insurance might be that tool for your company.

PART I: INTRODUCTION AND BACKGROUND

Although enterprise risk management has many definitions, it is generally recognized as “the process of planning, organizing, leading, and controlling the activities of an organization in order to minimize the effects of risk on an organization’s capital and earnings.”  A well-run company recognizes that operating profitably necessarily involves taking risks.  It views the implementation and operation of effective ERM tools as a cost of doing business so that the company may take the necessary business risks to operate profitably while avoiding or minimizing the potential for far greater losses.

Some companies choose to self-insure all or a portion of their liability risk.  In its simplest form, self-insurance is actually no insurance.  The company that self-insures simply covers its own losses or the liability it incurs for damages out of its own pocket from its profits or retained earnings.  Such losses can adversely impact the self-insured company’s profits and in the case of a catastrophic loss or liability can drive the self-insured company into bankruptcy and liquidation.

Most companies purchase insurance against a wide range of potential losses.  Insurance coverage provided to a company by a commercial third party insurer is an ERM tool.  However, as many readers will have experienced, depending on the types of coverages sought, such insurance may be expensive.  The policies may have sizeable deductibles or significant exclusions.  The premium costs may become even more significant if the company never makes a significant claim as thousands or even hundreds of thousands of dollars are spent by the company that could otherwise have been used to pay dividends, make capital expenditures or acquisitions or for other corporate purposes.  Further, given the industry in which the company operates or the particular risks it faces, commercial insurance may even be unavailable or management may become concerned that commercial insurers will eliminate such coverages in the future.

Other issues related to total reliance on third party insurance include:

  • Commercial insurance providers often rely on industry loss statistics in setting rates rather than focusing on the loss experience of the individual company whose loss experience may be well below the industry average due to the company’s safety and other loss reduction programs;
  • The constraints on a company to work with its insurer to fashion insurance policies and risk coverages with terms and conditions tailored to the company’s particular risk profile; and
  • Inefficiencies and issues in processing claims through a third party insurer.

…
Continue Reading Using Captive Insurance to Create Value for Your Company

Legal Issues Involved in the Online Purchase and Sale of Packaged Foods

Part I of this blog posted on May 12, 2015, discussed the business and economic opportunities presented by online purchases and sales of packaged foods as well as some of the business challenges to be overcome to make the opportunities profitable. Part II discusses the legal challenges that should be addressed to make online purchases and sales of packaged foods a practical and profitable reality.

Those companies that choose to enter the online packaged goods marketplace will face legal challenges similar to those faced by other entities operating in the e-commerce space. In order to reach their intended markets and to receive the full benefit of operating in the online market place, companies will need to utilize websites containing e-commerce features and functionalities. In connection with the operation of these websites, retailers should draft and post on the site certain legal terms and conditions addressing:

  • The customer’s use of the site (i.e. website terms and conditions);
  • The retailer’s data collection and data sharing practices (i.e. the privacy policy); and
  • The terms and conditions under which customers purchase products offered through the website (i.e. the terms and conditions of sale).

While the content of these legal terms will need to be tailored to fit the particular retailer’s risk profile and operational particularities, there are several concepts that each retailer should consider addressing through these legal terms.
Continue Reading Online Shopping for Packaged Food – A Business and Economic Opportunity to be Exploited but with Business and Legal Challenges – Part II

Online Purchases and Sales of Packaged Food

This is the first of a two-part post discussing the business and economic opportunities presented by online purchases and sales of packaged foods. The second part will discuss the legal challenges that should be addressed to make online purchases and sales of packaged foods a practical and profitable reality.

Consumers largely purchase packaged food products at grocery stores and convenience stores although for years many of those same consumers have been making online purchases of products as diverse as apparel and footwear, computer hardware and software, autos and auto parts, consumer electronics, appliances, televisions, and movie tickets, to name just a few. Selling packaged foods online represents a substantial growth opportunity for packaged food manufacturers and food retailers that some have already begun to exploit. One study reported in the digital version of Advertising Age on September 14, 2014, predicted that online purchases of food and beverages would account for 2.3% of the $304 billion that would be spent in e-commerce retail in 2014, suggesting significant untapped potential. Other studies have led certain researchers to conclude that digital sales and distribution methodology will continue to grow but there are challenges that must be met. Nevertheless, packaged and processed food marketers and retailers would do well to explore the steps necessary to enter into the online market and to consider the legal issues they will of necessity confront.

Explanatory Note

There are many studies and more detailed descriptions of online packaged food marketing and distribution and the strategies to implement these types of sales and distribution channels than are set forth in this blog. This post draws heavily on an extensive study of online purchases of consumer packaged goods (which would include packaged foods) and in certain instances, our conclusions are extrapolated on data provided for online sales and marketing of consumer packaged goods. The source of much of the information came from “Digital Commerce in the Supermarket Aisle: Strategies for CPG Brands”, Deloitte University Press, which is affiliated with the well-known global auditing, business consulting and advisory firms (“Deloitte”). The same is true with respect to information drawn from an article by E.G. Schultz “Packaged-Goods Marketers Wade Warily into E-Commerce – Big Brands Stymied by Executional Strategies in a World Where Online Retailers Control the Consumer Relationship”, Digital Advertising Age, September 16, 2014. Accordingly, this is a broad overview of the potential growth opportunities and challenges and the legal issues presented by e-commerce and online shopping for packaged food products which have been gleaned from experts we have studied coupled with the knowledge of our attorneys who practice in the Food and Agribusiness industry unit of our firm.
Continue Reading Online Shopping for Packaged Food – A Business and Economic Opportunity to be Exploited but with Business and Legal Challenges