IRMI Update—Issue #12
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
March 6, 2001
In This Issue
Colleague,
My comments on e-commerce insurance in the last issue drew some interesting
responses from readers (see below), and it is obvious this is an important topic
to you. Let me assure you that IRMI will continue to cover this topic in IRMI.com
and in our various publications. We plan to add another column or two in IRMI.com
on e-commerce risk management to complement Mike Rossi's excellent series on Cyber-Insurance (and, of course, Mike will continue to expand the information he is providing
there).
If you subscribe to IRMI publications, you can find detailed information
on cyber-insurance in the Media Insurance section of Professional Liability
Insurance. We've also covered various e-commerce risk management
topics in past issues of
The Risk Report,
and more are scheduled for the future. Naturally, we'll also explain the pending
changes in the commercial general liability (CGL) insurance policy, some of
which relate to Internet risks, in supplements to Commercial Liability
Insurance.
As you can see, we are committed to helping you identify and manage e-commerce
risks. If you have requests for specific topics you'd like us to cover, we'd
love to hear them.
Thank you for your support, and have a great day.
Jack
Jack P. Gibson
President
IRMI
Get Your Captive Ready Now! The long-anticipated
hard market seems to have arrived—maybe not on schedule, but it's here. So far,
the price increases have not been devastating. But what's around the corner?
We had better be prepared. By the time the risk manager realizes there's a problem,
it's too late to start exploring the use of a captive. Accordingly, the savvy
risk manager performs due diligence far enough in advance to be able to make
alternative decisions, secure in the knowledge they have been carefully investigated.
If yours is not a giant organization with great financial resources, you
may not need a single-parent captive or wish to capitalize one. One alternative
is the protected cell captive (PCC), a concept that emerged in the late 1990s
and is now receiving much popular attention. A PCC is a legal entity that isolates
premiums and losses of different insured organizations in segregated cells,
each of which is insulated from the liabilities of the company's other accounts,
including being protected from creditors in the event of another client's insolvency.
Like a trust, the sponsor of the PCC is the "trustee" of the assets in each
cell, but each cell belongs to a "beneficial owner." A PCC is essentially a
rent-a-captive with the advantage of legal segregation of accounts. Tax considerations
are beyond the scope of this risk tip, but they can be a consideration when
determining whether to domicile onshore or offshore.
Whether you explore the potential use of a PCC or a single-parent captive,
explore something NOW! If you're doing so only as a hedge against an extremely
hard market, you may never need your alternative. But if the worst-case market
scenario occurs, won't it be comforting to know that you've done your homework
and all you must do to implement your safety net is reach over and flip the
switch?
By: Barney Mercer, CPCU, ARM
Vice President, Risk Management
Snelling Personnel Services
E-mail: BarneyM@SNELLINGCORP.com
Suggest a Risk Tip. Future issues of IRMI Update will include more risk tips from our readers. Send
us a practical tip (less than 300 words) for identifying and managing risks,
buying insurance, managing claims, or filling gaps in insurance coverages. We'll
acknowledge your contribution as we did for Barney.
We add new Expert Commentary to IRMI.com every week. There are now 115 articles
on IRMI.com, and many more are in production. Below you'll find summaries of
some recent additions with links to the articles.
-
Ergonomics—A Risk
Management Perspective—OSHA's new Ergonomics Program Standard
has recently gone into effect. This article examines the new standard, its
requirements, and risk management concerns surrounding its implementation.
-
Insurance Coverage
for Mold Arising Out of Defective Workmanship—The proliferation
of indoor mold and mildew problems—and resulting lawsuits—have sent many
contractors scrambling for coverage under their insurance policies. This
article discusses case law surrounding the issue, including whether mold
is considered a "pollutant" and whether cleanup is covered under the CGL
policy.
-
Coordinating Persons
Insured in Primary and Excess Liability Policies—Too often little
attention is paid to exactly how coverage follows the various insureds from
underlying policies into umbrella/excess layers. Learn three important points
to review when coordinating coverage: the named insureds; the additional
insureds; and insured-versus-insured provisions.
-
Additional Insureds:
Where There Is a Right, There Is a Remedy—Except in Illinois—In
a recent opinion, the Illinois Appellate Court denied pro-rata reimbursement
to an insurer whose policy afforded additional insured status to a project
owner and general contractor. This article explains where the court went
wrong when it ruled that the doctrine of equitable contribution did not
apply because the two policies insured different risks.
Additional Insured
Course Approved in 28 States—The new "IRMI on Additional Insured
Status" continuing education course is an advanced-level class and has been
submitted for credit in all states that allow distance learning. You can read
the course material online, download it from the Web for printing, or order
a printed book and test from the Training & CE section of IRMI.com. Here is
a list of the states that have approved it for property-casualty insurance CE
credit: AK, CO, CT, GA, ID, IL, KS, KY, MA, MI, MS, MO, NE, NV, NM, OH, OK,
OR, PA, SC, SD, TN, TX, UT, VT, WA, WV, and WY.
You can get all the CE credit you need to satisfy most state's annual requirement
for under $50 through the Training and CE section of IRMI.com!
IRMI Workers Comp—Your
Safety Net in a Changing Marketplace—This definitive (1,300 page)
reference from IRMI gives you practical information on all aspects of workers
compensation—from detailed summaries of the state laws and benefit levels to
using the assigned risk plan in each state to setting up a safety program. It's
available in a two-volume printed set or on CD ROM. View the table of contents
and order online today.
There is a great deal of interest in e-commerce insurance as evidenced by
the many responses to Jack's last editorial in IRMI
Update #11 advocating the eventual combining of these coverages into the
more traditional insurance policies. While most readers seem to agree with the
concept, they are skeptical about when it will occur. The following are excerpts
from some of the responses we received.
- "I find myself in sympathy with your point of the evolution of insurance
coverages from separate policies to one all-encompassing policy. But we
have a very long way to go. The way the insurance industry handled Y2K,
pollution, and now the new amendment on the insuring agreement for Known
Loss or Injury leads me to believe that both the insurance companies and
the courts are in a dance that leads to separation of coverages. Therefore,
I respectfully disagree with you. Only plain-vanilla items will make it
to the common coverage policy. And that will just be a continuation of the
same old story of insurance, just dressed up in modern clothes."
—Chuck Schramm, CPCU, CIC, ARM, AAI, ARM Lamb, Little
& Company, Rolling Meadows, IL
- "Like you, I think cyber risks can and should be included in the master
liability, property, and crime programs of all insureds. The challenge is
that cyber exposures vary greatly from one entity to the next. To meet the
challenge, I think specialty carriers and units within standard carriers
will continue to develop for high-exposure businesses.
"The sleeper in all of the exposures may be employee dishonesty. The
average employee theft in cyber space is over $2 million, according to the
FBI. This means many such losses are over $10 million, though it's hard
to know because the losses don't get much publicity. Businesses tend to
be underinsured for this exposure, even before considering cyber theft."
—Michael M. Kaddatz, CPCU, ARM Managing Director, ARM
Tech, Lake Forest, CA
- "Insurers are indeed fast in introducing products for e-commerce. The
content of most of the policies I saw however weren't that impressive, I
thought. Some policies try to describe every possible cause which can lead
to damage.
"Buying a separate policy doesn't make sense to me. As a publisher, we
are covered already to a major extent by our errors & omission policies.
For first-party damage under our property insurance, our preference goes
out to broaden the definition of property with information assets, for example."
—Mahdy de Groot Corporate Risk Manager, Wolters Kluwer
nv, Amsterdam
- "I don't think the stand-alone cyber policies are a good way to cover
the same exposures that are covered in GL and Property policies. But the
Insurance Industry has traditionally covered 'new' exposures this way. Over
time, the coverages will be blended into 'regular' policies.
"Is any one buying the stand-alone cyber policies? I hear that a lot
of companies are 'evaluating' them. Sounds like a lot of looking and not
much buying."
—Dick Ryan Director of Risk Management, Franklin Templeton
Investments, San Mateo, CA
- "I've experienced first-hand some of the exposures presented by e-commerce
when an insured's 'safe zone' Web site was hacked, and credit card fraud
was perpetuated by the hacker. Not only was my insured bare but he was upset
by the fact that he had paid thousands of dollars in business insurance
and no coverage was provided under the form (in fact some of the claim was
specifically excluded under 'voluntary-parting of property'). Although he
had declined when I offered to pursue e-commerce coverage for him in the
past (which would have excluded most of the loss any way), the fact that
a separate policy is necessary to cover the e-commerce exposures presented
by the Internet makes it difficult for our insureds to understand. I only
wish there would be some additional coverage endorsements available to the
ISO property and crime policies to address these issues."
—Lucy Harris, CIC, CPCU Producer, SCF Insurance Services,
Inc., La Mesa, CA
- "I work for a company that handles this type of insurance. We are in
the process of formulating a policy that will cover both brick and mortar
and cyber exposures."
—Harriet Freeman J.S. Wurzler Underwriting Managers,
Inc., Okemos, MI
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