IRMI Update—Issue #17
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
May 22, 2001
In This Issue
Colleague,
Certainly one of the most critical risk management concerns today is managing
"cyber-risks." This was very much in evidence at the RIMS Conference earlier
this month. Technology risks are difficult for us to wrap our arms around and
are constantly changing as our firms advance in their uses of technology.
One of the cyber-risks that I've been thinking about is organized hacking
and cyber-warfare. Following the recent China-U.S. spy plane incident, Chinese
hackers reportedly defaced 80 or more U.S. Web sites while American hackers
did the same to 100 or more Chinese sites. Some commentators believe that the
Chinese efforts were encouraged, if not actually backed, by the government.
It is one thing to protect an organization's technology from random hackers
and loosely organized groups that must hide their activities, and quite another
to defend against an organized attack from another nation. Historically, it
was necessary to use ships, airplanes, or rockets to attack another nation's
industrial infrastructure. With increasing reliance on the Internet, however,
industry is becoming more and more vulnerable to organized cyber-attacks. Since
a cyber-attack is relatively inexpensive and somewhat clandestine, I believe
we have seen only a short preview of things to come.
This scary scenario has many implications that must be considered by risk
managers and insurers alike. What thoughts do you have about it? What recommendations
would you offer to risk managers, insurers, and other risk professionals? [See
reader comments].
Have a great day!
All the best,
Jack
Jack P. Gibson
President
IRMI
Obtain a "Knowledge of Occurrence" Endorsement.
Most liability policies contain clauses requiring prompt notice of claims
or even events that may lead to claims. While it is reasonable for insurers
to require prompt claims reporting to give them an opportunity to investigate
and provide for a defense, these clauses can lead to coverage problems.
Take, for example, an actual situation where a new employee was being harassed
at work. She complained to her supervisor on several occasions, but the supervisor
failed to take any action. The more she complained, the worse the harassment
became until she was forced to resign and later filed a discrimination charge
with the EEOC. It was more than a year after the employee first complained of
the harassment that a Senior Investigator for the EEOC sent notice of the claim
to the insured organization, which it promptly reported to its employment practices
liability insurer.
The insurer denied coverage on the basis of a "Prior Claims and Potential
Claims Exclusion," which stated, "This policy does not apply to any claim or
loss arising our of any matter that was listed, or should have been listed,
in the application attached to this policy." The insurer went on to point out
that the insured specifically responded "No" to the questions in the application
about whether or not any persons had filed complaints with the EEOC.
The question of whether the insurer's position was correct is debatable given
the facts. However, the debate was unnecessary because of two endorsements the
insurer overlooked when it denied the claim. The insured clearly was entitled
to coverage because the policy was endorsed with a "knowledge of occurrence"
provision that stated, "Knowledge of an occurrence by an agent, servant or employee
of the named insured shall not in itself constitute knowledge of the insured
unless the Chief Financial Officer shall have received such notice." Further,
the policy was endorsed with a provision reading, "Failure to disclose all existing
hazards at the inception of the policy, or errors or omissions in applications
or other documents shall not prejudice the insured in regard to the coverage
provided by this policy, provided that such failure was unintentional."
Such provisions frequently prevent extended disagreements between insureds
and their insurers over whether or not a claim can be denied on the basis of
late reporting or prior knowledge. While these provisions are rarely included
in insurers' standard policy forms, they can often be obtained through negotiation
and are added by endorsement.
By: Steve Bird, CPCU
Assistant Vice President
McNeary Insurance Consulting
E-mail:BirdS@mcneary.com
www.mcneary.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 Steve.
We add new Expert Commentary to IRMI.com every week. There are now 138 articles
on IRMI.com, and many more are in production. Below you'll find summaries of
some recent additions with links to the articles.
-
Courting Cyberbuzz
Can Enhance Your Firm's Reputation—This article explains what
can be done—proactively, by way of the Internet—to monitor, enhance, and
protect corporate reputations. By systematically listening and responding
to the cyberbuzz, you can open up new opportunities to create meaningful
dialogue with key stakeholders.
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Detecting Uncertainty
in the Meaning of Insurance Policy Wording—In this article, the
author explains four reasons why courts find the meaning of contract language
uncertain—ambiguity, vagueness, absurdity, and obscurity—and the importance
of detecting and clarifying uncertainties in contract language.
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Safety Incentive
Programs: A Critical Assessment—A majority of U.S. businesses
use some sort of safety incentive. Nevertheless, the debate continues as
to their effectiveness. Learn how such programs are designed, their pros
and cons, caveats to implementation, and possible alternatives.
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Superfund Decision
May Benefit Design—Builders on Environmental Remediation Projects—Design
professionals and contractors have long been concerned about their own potential
liability under CERCLA. This article discusses the recent Florida court
decision of Bashland v City of North Miami
and its affect on environmental liability under Superfund.
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Proactive Surety
Claims Handling—In recent years, sureties have begun more proactive
claims handling. This article explains how sureties can work with the project
owner, prime contractor, bond producer, underwriter, and claims personnel
so that all can be in a win-win situation after a claim.
2001: A RIMS Exhibit
Hall Odyssey—The 39th RIMS Annual Conference & Exhibition, held April
29-May 3, hosted nearly 10,000 official delegates and exhibiters in Atlanta.
Learn about the important issues and trends in risk and insurance along with
what was new and what was passé in this year's Exhibit Hall.
Indoor Air Quality: No
Easy Answers—Molds, bacteria, and viruses in homes and businesses
can create a wide variety of health problems. This article discusses the "A
Microbiological Menace? Indoor Air Quality and Molds, Bacteria & Viruses" seminar
at the RIMS Annual Conference.
Three Advanced CE Courses Available Online from IRMI! We're getting
rave reviews on the three advanced courses we've added to the Training & CE
section of IRMI.com. Now available, and approved by most states, are courses
on additional insured endorsements, employment practices liability insurance,
and directors and officers liability insurance. You can take the courses online
(most states) or order a printed version. For under $50, you can get the CE
credit you need, quickly! Just click on this
Training & CE link or
the button above left, insert the state(s) where you need CE credit, specify
property casualty, review the course catalog, and set up your CE account today.
New! Blueprint for Workers
Comp Cost Containment—Whether you are seeking to overhaul
your own workers compensation program or help a client fine-tune an already
effective program, Blueprint for Workers Comp
Cost Containment gives you insights and solutions for reducing workers
comp costs. Drawing on his 20 years of safety and claims management experience,
author Martin F. McGavin covers topics useful to both the insurance buyer and
seller. With workers comp costs on the rise, this timely book will pay for itself
over and over again. Go to Products & Services to see the table of contents
or to order your copy.
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