The Risk Taker Roundup Welcome Mike Hay Director of Risk Assessment and Loss Prevention /...

The Risk Taker Roundup

Welcome

Mike HayDirector of Risk Assessment and Loss Prevention / Information Resources, State Office of Risk Management

Opening Remarks

Jonathan D. BowExecutive Director and State Risk ManagerState Office of Risk Management

Introductions

Mike HayDirector of Risk Assessment and Loss Prevention / Information Resources, State Office of Risk Management

Kallman Consulting Services

The Risk Taker Roundup Conference Discussion

on

Employment Practices LiabilityHosted by the Texas

State Office of Risk Management

Phil NortonPresident

Gallagher Strategic Risk Solutions

May 25, 2006May 25, 2006

Phil Norton – Arthur J. Gallagher & Co.Phil Norton – Arthur J. Gallagher & Co.

Employment Practices Liability:

The Exposure and its Trends

• Legal and Legislative Developments

• Class Action EPL Claims

• D&O Derivative Actions Following EPL Claims

• Trends toward Catastrophic Loss

• EPL Insurance Coverage Trends


Factors Influencing EPL Losses

1. The Older Workers Benefit Protection Act of 1990 and The Age of Discrimination in Employment Act of 1967

2. The Civil Rights Act of 19913. The American with Disabilities Act of 1990 (effective 1992)4. The Family and Medical Leave Act (1993)5. The U.S. Supreme Court decision in Harris versus Forklift Systems, Inc.

(November 3, 1993)6. Class Action EPL Claims7. Market Capitalization Drop8. Derivative Action Possibilities9. Typical Claims Costs are Significant10. Catastrophic Claims are Becoming More Likely


EPL Perils to consider• Wrongful Termination (actual and constructive)• Breach of Employment Contract• Discrimination• Harassment (sexual and workplace)• Failure to Employ/Promote• Wrongful Discipline or Wrongful Demotion• Failure to Grant Tenure• Negligent Evaluation• Invasion of Privacy and False Imprisonment• Employment Related Misrepresentation• Defamation or Employment Related Libel/Slander• Wrongful Infliction of Emotional Distress• Retaliation (including whistleblower)


Tracking EEOC Charge Filings

0

1000020000

3000040000

5000060000

7000080000

90000100000

1993 1995 1998 2000 2002 2004

EEOC ChargesRaceGender


The Gallagher Database on EPL Claims

• Research on Public Information - not client data

• Focus on Large Losses - $1MM or more– Approaching $5 Billion of Claim Costs in database

• All Losses are Post-1991 [Civil Rights Act]

• Mixture of Settlements and Verdicts

• Jurisdiction: half State Courts; half Federal


Large EPL Claims By IndustryGeneral Services

14%

Retail17%

Manufacturing21%

Financial12%

Professional12%

Public Sector10%

Energy & Utilities14%


Large EPL Claims by Type of Claim

7%

20%

7%

18%

14%

7%

15%

12%

0% 4% 8% 12% 16% 20% 24%

Retaliation

Wrongful Termination

Whistle Blowers & Other Claims

Age Discrimination

Gender Discrimination

Disability & Other Discrimination

Race Discrimination

Sexual Harassment


Top 10 States for Large EPL Claims30

10

6 6

4 4 4 43 3

CA TX NY FL IL NJ MI OH DC MA

Note: numbers are percentagesNote: numbers are percentages


Punitive Damages & EPL Claims

• About one-third of top $2.5 BL in large losses are due to punitive damages

• Of largest 150 claims, about half have punitive damages assigned

• Average percentage of full award that is punitive is about 35% for all large losses, but closer to 70%, if a punitive award is present!


Statutes & Law Supporting EPL Claims

• Title VII

• Age Discrimination in Employment Act

• Americans with Disabilities Act

• Pregnancy Discrimination Act

• Equal Pay Act

• Family and Medical Leave Act

• Title IX

• State Fair Employment Practice Statutes

• Whistleblower Laws

• Municipal Statutes and Regulations

• Breach of Contract

• Wrongful Termination

• Negligent and Intentional Infliction of Emotional Distress

• Defamation

• Invasion of Privacy

• Tortious Interference with Contract

• Harassment

• Assault and Battery

• Negligent Hiring/Supervision

• Fraud and Misrepresentation

Statutory Common Law


Some EPL Cases of Significance

• Voice of America• CALPERS• Coca Cola• Texaco• State Farm• Interstate Brands• Lucky Stores• Shoney’s• Publix• Home Depot• Microsoft• Farmers Insurance

• Denny’s• Miller Brewing• Triton Energy• Proctor & Gamble• Mitsubishi• Baker & McKenzie• Tishman Construction• General Dynamics• Hughes Aircraft• UPS• AT&T• Alabama DOT


Trends in EPL Insurance• The EPL exposure, including potential for catastrophic loss, has

increased significantly since 1991

• Pricing started high (1992/1993) then declined (1997), rose again (2001-2003) and is now declining again

• Meanwhile, EPL coverage has been greatly improved:

– sometimes packaged with Loss Control consulting

– punitive damages covered

– no downsizing exclusion

– bilateral discovery offered

– no “intentional acts” exclusion

– simpler reporting requirements often available

– flexible selection of defense firms may be possible

– third-party claim coverage


The EPL Marketplace Today

• Cycle of Capacity starting to turn up– 1992 to 1997, 1998 to 2003, 2004 - 2009…

• Until recently, Loss Ratios historically > 100%• Carriers took action in 2003 with:

– Increased deductibles!– Premium adjustments– Coverage fine-tuning

Risk Management, Insurance and Loss Control are more important than ever!


Responsibility for EP Compliance

82.0%

18.0%

5.0%

25.0%

2.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

Human Resources Legal Risk Management Other No One


Risk Evaluation and Loss Control – comprehensive auditing systems may be available– Prevention versus Reduction: Insurance is still key!

To prevent EPL claims, you should review your:

* Hiring Processes

* Employee Procedures

* Training Programs

* Performance Evaluations

* Termination Policies

* HR Operations

To reduce claims costs, you should review your:

* Insurance and Risk Transfers

* Claims Investigation

* Claim File Management

* Defense Controls

* Timely Notification

* Return to Work Programs


Appendix

• Additional Information on EPL Risks


The EPL Insurance Policy

• Who is covered?– Directors & Officers– All Full-time Employees– Temporary Employees and Volunteers– Independent Contractors– The Corporate Entity and Subsidiaries– Students in a limited capacity


Who can bring covered claims?

• Employees• Students• Applicants for hire• EEOC• State Agencies• Directors• Other individuals/entities acting on behalf


Potential Exclusions

• Strikes, Lockouts• Downsizing• Willful or Malicious Intent• Willful failure to comply with

law• M/A activity• Bankruptcy• Class Actions

• Deliberate Fraud• W. A. R. N.• Benefits Due• Written or Express

Employment Contract• Workers Comp. Claims• OSHA• Securities Violations


Coverages to Request

• Punitive Damages

• Back Pay

• Front Pay

• Pre/Post Judgment Interest

• Nonmonetary or Injunctive Relief


Coverage Triggers

• Written Demand for Monetary Damages

• Civil Proceeding

• Arbitration Proceeding

• Administrative Proceeding


Defense and Settlement Considerations

• Duty to Defend?

• Panel Counsel?

• Claims reporting threshold

• Right to Settle (esp. Hammer Clause)

• Reporting – When and How


Rating EPL - The Exposure Base

• Number of Employees– U.S. versus Foreign– Full-time versus Part-time– Leased Employees– By state (especially CA, TX, and MI)


Other EPL Underwriting Factors• The nature of the operations

• EEO-1 report

• Turnover

• Percentage of highly paid employees

• The quality of employment manuals and handbooks; the stated positions on the key practices and procedures

• Financial Condition

• M&A Activity

• Policy Wording Considerations

• Approach to Risk Management

• Litigation/Loss History - Claims experience is essential!

Public Officials Coverage / Cyber Risk

Jean MoreauAIG

Security & Privacy Security & Privacy LiabilityLiability

Nick EconomidisVice PresidentProfessional Liability DivisionAIG/National [email protected]

Insurance underwritten by member companies of American International Group, Inc. Any description herein is a summary only. It does not include all terms, conditions and exclusions of the policies described. Please refer to the actual policies for complete details of coverages and exclusions. Coverage may not be available in all jurisdictions. Issuance of coverage is subject to underwriting.

mailto:[email protected]

Security & Privacy LiabilitySecurity & Privacy Liability

AgendaAgenda

• Security & Privacy Exposures

• Traditional Policy Forms

• Security & Privacy Insurance Overview

• Questions


In the News…In the News…

2005 Disclosures of Data: disclosed incidents in the United States potentially affect more than 57 million individuals

Source: Identity Theft Resource Centerhttp://www.IDtheftcenter.org


Identity Theft


Data Breach

Computer Hacking

Lost Backup tapes

Stolen Laptop


“The online trade in stolen financial data is thriving.”

Countless Dens of Uncatchable ThievesApril 3, 2006New York Times



Typical Disclosure IncidentsTypical Disclosure Incidents

• Bank data theft: 700,000 exposed



• Major retailer: $16.5 million charge for losses due to a breach of computer security



• Theft of laptop containing employee records



• Social Security Numbers disclosed on mailing labels



• Website allows access to restricted information



• Financial information obtained from discarded records


Key Exposures…Key Exposures…

• Credit card information

• Healthcare information

• Personally identifiable information

- customers- employees

• Business information of others

- Trade secretsInsurance underwritten by member companies of American International Group, Inc. Any description herein is a summary only. It does not include all terms, conditions and exclusions of the policies described. Please refer to the actual policies for complete details of coverages and exclusions. Coverage may not be available in all jurisdictions. Issuance of coverage is subject to underwriting.

Covered by Insurance?Covered by Insurance?

• Commercial General Liability

• Bodily Injury and Property Damage

• Personal and Advertising Injury


Covered by Insurance?Covered by Insurance?

• Professional Liability

• In the performance of professional services?

• Personal injury exclusion?

• Dishonest acts exclusion?


Security & Privacy Insurance!Security & Privacy Insurance!• Negligent handling of private or confidential information

• Legal Liability

- “Pay on Behalf of” basis

- Duty to defend

- Defense within limits

- Defense cost coverage for certain regulatory actions (Subject to insurer’s consent)


Security & Privacy Insurance!Security & Privacy Insurance!

• Wrongful Act --

• Failure of the insured’s (computer) security

• Wrongful disclosure by an insured of private information

• An insured’s failure to protect private information

• Vicarious liability of an insured for a failure toprotect personal information by vendors


Security & Privacy Insurance!Security & Privacy Insurance!• Key exclusions --

• Dishonest Acts

- Officers or directors

- Employees (if officers/directors had knowledge)

• Misappropriation of trade secrets by an insured

• Contractual Liability

- Exception: obligation under a NDA Agreement

• Special Class Action Retention

• Greater of $100,000 or 200% of the standard retention



• Policy Limits

• Limits: up to $15 million available

• Retentions: start at $25,000

• Minimum Premium: $3,500

• Submission requirements

• AIG netAdvantage application



Policy application and materials

http://www.aignationalunion.com


http://www.aignationalunion.com/nationalunion/public/natproductdetail/0,2128,423-13-4474,00.html



• Who needs this?

• Financial Institutions

• Healthcare Providers

• Retailers

• Payment Processors

• Data Processors & Information Services

• anyone handling credit card information!

• anyone with employees!Insurance underwritten by member companies of American International Group, Inc. Any description herein is a summary only. It does not include all terms, conditions and exclusions of the policies described. Please refer to the actual policies for complete details of coverages and exclusions. Coverage may not be available in all jurisdictions. Issuance of coverage is subject to underwriting.


A Perfect Fit for Every Company!



Questions?Questions?




Thank you!Thank you!

Policy application and materials


Please drive safely on your way home!!!


Nick [email protected]




Thank You to Our Sponsors

Risk Assessment & Loss Prevention

Mike Hay

Sam Arant

Sally Becker

Lisa Bell

Joe Deering

Risk Assessment & Loss Prevention

Cherie Hughes

Lester Taylor

Benny Vanden Avond

Mary Loza

Sam Stone

SORM’s Insurance Program

• Directors’ and Officers’ Liability (Public Official Liability) Statewide Program

• Short-Term Special Event General Liability Program

• Statewide Automobile Insurance

• Volunteer Insurance Program

• Statewide Property Insurance

RALP’s Services

• Accident/Incident Review and Analysis• Emergency Evacuation Program Development• Traffic Safety Programs• Education and Training Programs• Identification of Hazards and Employee Accident Exposures• Job Safety Analysis• Safety Inspection Programs• Back Injury Protection Training• Ergonomic Assessment and Training• First-Aid Program (Certification provided)• Hazard Communication Program (HAZCOM)• Hazardous Materials Management Program (HAZMAT)• Personal Protective Equipment Assessments• Industrial Hygiene Services

RALP Assists Agencies By:

• Identifying, evaluating, and reducing potential liability exposures and liability losses

• Reviewing risk management programs used by state agencies

• Assisting state agencies to implement effective risk management programs

RALP Accomplishes These Services By:

• Providing risk management guidelines• Administering on-site risk management program

reviews• Administering safety evaluations, consultations,

and training• Analyzing annual reports from state agencies on

loss information, existing and potential exposure to loss, and estimates of category of risk of losses incurred but not reported

• Providing agency outreach and training

SORM 200

• The SORM 200 is the sole source for collecting statewide information from state agencies regarding their expenditures for risk management activities, insurance purchases and non-workers’ compensation claims made or settled against the agency.

• The intent of the SORM 200 is to capture costs associated with agency Risk Management Programs, and to compile information necessary for SORM to include the administrative costs of risk in the Office’s biennial report to the Legislature.

REPS

• The Risk Evaluation and Planning System (REPS) is a data collection and analysis tool intended to assist state agencies in identifying exposures to loss in various operational areas. REPS is comprised of three major sections. The “Risk Evaluation Survey” portion is intended to lead client agencies through a series of questions intended to identify exposures that could result in financial or operational losses. The “Frequency and Severity Analysis” portion of the survey calculates the probability and potential impact of exposures identified in the first section. The “Apply Mitigating Strategies” portion recommends mitigating strategies to reduce or eliminate losses from identified exposures.

Risk Management User Group

• The next meeting of the Risk Management User Group is June 20, 2006, in the William B. Travis Building from 8:30 a.m.-12:30 p.m.

• Agenda items include:– Emergency Responders Workers’ Compensation Consequences

– Lessons Learned from Hurricane Rita

– REPS Enhancements

– Exposure Claims

– How Insurance Works

– Avian Flu

• For more information, contact Cherie Hughes at (512) 936-1483.

Agency Outreach & Training

• SORM’s Agency Outreach & Training section offers a variety of safety, health, risk management, and workers’ compensation training for state agencies.

• Popular courses include:– Additional Duty Safety Officer (ADSO) Orientation– Adjuster Prelicensing Training– Confined Space Entry– Defensive Driving– Training for Claims Coordinators – Level 1

• Find out more by clicking on the “Outreach & Training” tab at www.sorm.state.tx.us.

Risk-Tex Newsletter

• SORM’s quarterly newsletter keeps State of Texas agencies up-to-date on topics relating to risk management, workers’ compensation, and training.

• To subscribe, send an email to Risk-Tex Editor Sam Lawrence at [email protected].

Basic Fleet

Risk Management for Public Entities

The purpose of this document and any activities to its creation ("The St. Paul Travelers Activities") was to develop current underwriting information and/or to assist you with your legal responsibility to maintain safe premises, practices, operations and equipment. The St. Paul Travelers Activities do not cover all possible hazardous conditions or unsafe acts that may exist, are not legal advice, are not for the benefit of any other party and do not amend, or otherwise affect the terms, conditions or coverages of any insurance policy issued by The St. Paul Travelers . Implementation of any practices suggested by this document is at your sole discretion. The St. Paul Travelers disclaims all warranties, express or implied and assumes no liability to any party for any damages arising out of or in connection with The St. Paul Travelers activities.

The Exposure

Number ONE Cause of occupational fatalities• 3,000-4,000 workers die each year

A leading cause of work related injury• 200,000 are disabled• Costs average 3 X other injuries

One of the most frequent accident causes

One of the leading causes of third-party liability claims

Selection Placement Training Accountability Monitoring

Components Of The Auto Exposure

Drivers Vehicles Policies Transfer

Selection and Placement

Requirements – CDL Class?

Experience counts 50% of accidents happen to employees with 1 year or

less experience in a specific job

Don’t hire “bad drivers” Background and MVR checks

Physically and psychologically suited Drug testing Vision / hearing requirements Subject to ADA restrictions

Hiring a driver without conducting a background investigation

Using a driver whose license is suspended or revoked Using a driver with a poor motor vehicle record Forcing (or allowing) a fatigued driver to operate a

vehicle Failing to address known alcohol or drug related

problems.

Selection and Placement“Negligent Entrustment”

Selection and Placement“MVR checks”

Who? All Drivers

How? State DMV/American Background

What? Criteria

Where? Personnel Office

When? Hire/Continually/Annually

Why? You Are Responsible

Selection and Placement“MVR Grading Criteria”

Minor violations Stop sign / traffic signal

offenses Speeding (not more than

20 mph over posted limit) Improper turn, failure to

signal Seat belt violation Illegal passing

Major violations DUI alcohol / drugs Leaving scene of an

accident Reckless driving Falsifying an accident

report Vehicular homicide or

assault Attempt to elude an officer

Grading Criteria (Three Years)

Violations Grading Criteria

0 –1 Minor Violation Clear

2 Minor Violations Borderline

3 Minor Violations * Poor

4 Minor Violations Unsatisfactory

Any Major Violation Unsatisfactory

* Trigger for remedial training

Selection and Placement“Physical & Psychological “

Law enforcement psychological assessments

NFPA driver / operator recommended practices

ADA issues Local Physical Requirements Vision/Hearing Test Doctors note

Selection and Placement“Drug Testing” Pre-employment For cause Post accident Random

Safety sensitive employees

Security Sensitive D.O.T. requirements Union Contract Substance Criteria

Prescription Non-Prescription Alcohol Illegal

Selection and Placement“Driver Test”

Does a valid drivers license mean they can operate the vehicle or equipment?

Do you let law enforcement officers carry weapons before they qualify?

Require applicants demonstrate competence before you let them operate a vehicle or piece of equipment.

Driver Training

Orientation training Specialized training

Police cars Fire apparatus Ambulances Construction

equipment 15 passenger vans

Defensive driving FLI “Coaching” series

Driver meetings

98% of accidents are caused by human behavior.

Accountability

Accident investigation

Reporting & documentation

Determine preventability

Accident review committee

Consequences and rewards

Charge-back (cost allocation) system.

Retain Physical Damage by department

Driver Deductibles

At fault accidents require driver to pay a set deductible

Must be acknowledged by driver IN ADVANCE and IN

WRITING

May not reduce pay below minimum wage

Discuss this one with your attorney

Employee (Driver) File

Application Background checks Medical records

(confidential) Drug and alcohol test

results Physical exams

Road test (check ride) MVR Photocopy of license Training records Disciplinary records.



Standardize The Fleet

Performance and design specifications

Maintenance

Inventory

Don’t pay for vehicles you don’t own !

Ensure that all of your vehicles are covered !

Keep your inventory up-to-date.

Maintenance

Scheduled preventive maintenance

Based on manufacturers recommendations Vehicle history folder Shop inspection reports Repair orders Shop software

Vehicle condition reports

Headlights, brake lights, warning equipment Fluid levels, tire air pressure, etc

Vehicle File

Document: Purchase Date/Cost Driver Inspections Mechanics Inspections Defect Reports Manufacturers Defect

Reports Annual Inspections Maintenance Costs ALL MAINTENANCE

Government employees / due process

Licensing requirement

Driver qualifications

Motor Vehicle Records criteria

Personal use



Maintenance

Personal vehicle use on city / county business

Accidents & thefts

General driver responsibilities

Preventable accidents



Hired & non-owned

Contractors

Volunteers

Certificates of Insurance




Disaster Planning & RecoveryDr. James Kallman, ARM

Kallman Consulting Services700 Furlong Dr

Austin, TX 78746-4127631-748-0853

[email protected]



Benefits of Disaster Planning & Recovery Save lives

Minimize asset losses

Contain recovery costs

Minimize lost revenues

Increase productivity

Reduce regulatory problems

Get back to business faster


Components of Disaster Planning

& Recovery

Before: DPP – Disaster Preparation Plans

During: ERP – Emergency Response Plans

After: BCP – Business Continuity Plans


DPP – Disaster Preparation Plans

1. Articulate your goals

2. Assess hazards

3. Assess current plans

4. Develop/revise ERP & BCP

5. Test the plans



1. Articulate your goals

What do want to happen after the event?

Is this a SMART goal?



2. Assess the Hazards

a. Define “hazard”

b. Define “exposures”

c. Define “perils”



2. Assess the Hazards

d. Assess impacts

e. Assess likelihood

f. Assess timing

g. Describe the “risk”

time

E(X)1

E(X)2

E(X)3

Expected values

P(x)



3. Assess Current Plans

a. Use the FEMA checklists†

b. How well are you prepared?

c. How often to review your plans?

† FEMA – Emergency Management Guide for Business & Industry



4. Prepare/revise Plans

a. Direction and Control

b. Communications

c. Life Safety

d. Asset Management




a. Direction and Control

1) Set up Emergency Operations Center

2) Appoint Incident Commander




b. Communications

1) Lists of key ER personnel

2) Set up teams

3) Create IT systems & back-ups (power too!)

4) Install warning systems

5) Appoint public relations spokesperson

6) Assemble hazardous materials information




c. Life Safety

1) Establish evacuation plan & assembly points

2) Create Search & Rescue plans

3) Arrange for security

4) Secure water, food, shelter

5) Prepare first aid stations & crews

6) Establish medical care & transportation

7) Obtain sanitation


DPP – Disaster Preparation Plans4. Prepare/revise Plans

d. Asset Management

1) Prepare budgets

2) Arrange for cash

3) Obtain security

4) Get back up power (test) and supplies (paper)

5) Prepare shut down schedules

6) Secure relocation sites

7) Contract for salvage / restoration services


DPP – Disaster Preparation Plans5. Test your plans

a. Tabletop exercises

b. Simulations

c. Full

interruption

tests


ERP – Emergency Response Plans

What will you do if the emergency occurs?

Activate ERP

1. Direction & Control

2. Communications

3. Life Safety

4. Asset Management




Activate ERP

1. Direction & Control

Activate Emergency Operations

Center

Distribute vital information

packets to key teams




Activate ERP

2. Communications

a. Distribute Plan

b. Contact team leaders

c. Activate IT systems

(check back up systems)




Activate ERP

2. Communications

d. Activate warning system

e. Initiate public relations

f. Distribute HazMat data




Activate ERP

3. Life Safety

a. Site evacuation & assembly

b. Search and Rescue – employees and visitors

c. Provide first aid

d. Premises security (lock-out, tag-out)




Activate ERP

3. Life Safety

e. Distribute water, food, shelter (families)

f. Follow up on medical care & transportation

g. Arrange for sanitation




Activate ERP

4. Asset Management

a. Get Cash

b. Provide security

c. Implement back up power

d. Shut down / lockout / tagout

e. Obtain other supplies


BCP – Business Continuity Plans

Let’s get back to normal

Issues: a. What functions will you restore first?b. How will you restore them?c. What resources will you need?d. How long will it take?e. Who will do what?



BCP Process:

1. Articulate goals2. Activate BCP teams3. Distribute schedules & assignments4. Obtain cash (Insurance / retention)5. Set up temporary facilities



BCP Process: 6. Get workers (families)7. Contact external stakeholders

8. Employee rehabilitation9. Initiate salvage operations10. Initiate restoration activities


Disaster Planning & RecoverySummary

Before: DPP – Disaster Preparation PlansDuring: ERP – Emergency Response PlansAfter: BCP – Business Continuity Plans

Parting words of wisdom: Test your plans!


Disaster Planning & RecoveryThank You!

Dr. James Kallman, ARM

Thank You

The Risk Taker Roundup Welcome Mike Hay Director of Risk Assessment and Loss Prevention /...

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