IRMI Update—Issue #135
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
April 19, 2006
In This Issue
Colleague,
We are looking forward to seeing our many friends and customers at the annual
conference of the Risk and Insurance Management Society (RIMS) next week. Each
year at this conference I take the pulse of the risk management community and
those who serve it in an effort to identify the problems, concerns, and most
pressing issues. Of course, being there also gives us the opportunity to personally
thank our customers for their trust and confidence. If you will be attending,
please stop by to say "Hello." Just look for the owl at exhibit booth #1013.
Interest in our upcoming Residential Risk Management and Insurance seminar
has been extraordinary, and seats at all three venues quickly sold out. However,
I am delighted to announce that we have finally been able to obtain more meeting
room space for the Orlando session (May 2–3), and have opened it back up for
registration. If you are interested in attending this seminar, please be sure
to register right away. You can learn more here.
Thank you for subscribing to IRMI Update and for recommending it to your
friends and colleagues.
Have a great day.
Jack
Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI
Avoid Unnecessary Costs with Environmental Surveys—A
pipe leaked in a ceiling of a high-rise building. The plumber ripped off the
insulation, sealed the pipe, and put blowers in to dry the leak. An office worker
tested the insulation debris that was all over the floor. It turns out it was
asbestos, and it was now blown all over the building. This resulted in the need
to evacuate and seal off the whole floor of the office building. Adjacent floors
were tested, and an emergency cleanup was conducted. After decontaminating all
furniture and moving it off site, the carpet was removed, only to discover asbestos
floor tiles sticking to the carpet. Naturally. the floor tiles were glued down
with asbestos mastic. After all removal and cleanup was done, the reconstruction
could be started.
This is a true story. This disaster could have been avoided by having an
initial survey and testing done to locate hazardous materials and having a plan
for this type of incident on hand. Having a preexisting relationship with an
environmental expert is helpful. Prequalify your consultant/contractor before
you need their services, and make sure they will be in business next year. This
job would have cost $500 if an experienced environmental firm had been involved
from the beginning. Instead, it was a $100,000 fiasco.
By: Robert Zeilon, Project Manager
A Q Environmental
Los Angeles
800-606-8007
rz@earthlink.net
Suggest a Risk Tip.
Send us a practical tip (less than 300 words) for identifying and managing risks,
buying insurance, managing claims, or filling gaps in insurance coverages.
Submit your tips. We'll
acknowledge your contribution as we did for Robert.
There are now 785 risk management and insurance articles on IRMI.com. Below
you'll find summaries of some recent additions with links to the articles.
More than 300 construction risk and insurance professionals have received
their
Construction Risk and Insurance Specialist (CRIS) designation. The CRIS
continuing education program has also been approved for CE credit in all 49
eligible states.
Learn more about this specialized curriculum to gain expertise in construction
insurance and risk management.
Barry Zalma has written 15 articles on insurance claims best practices since
he began writing for IRMI.com in 2003. His insurance consulting practice, Zalma
Insurance Consultants, is available to insurers and insureds to assist in the
resolution of insurance disputes or to provide consulting or expert testimony.
Mr. Zalma is a California attorney, a Certified Fraud Examiner, and serves on
the faculties of the Association of Certified Fraud Examiners and the Virtual
University of the Insurance Agents and Brokers of America. In his column, he
has addressed claims involving fire, windstorm, flood, mold, fungi, water damage,
and toxic chemicals. He has also written about stacking limits, adjusting claims,
and insurance fraud. For more information on Mr. Zalma, see his full
biography.
See a list of his IRMI.com
articles.
In IRMI Update 134, Editor Jack Gibson discussed
the need for some type of cap on the liability of outside (independent) directors,
and asked readers for their thoughts on the issue. Some of these responses are
reprinted below.
-
The entire tort system is a mess. We should have a system of loser pays,
with a cap of how much you spent in your losing effort (thus, you can manage
your exposure and not be intimidated by the threat of financial ruin by
a much larger organization). We have recently had to increase our D&O limits
in order to attract qualified outside directors in a privately held company
with no IPO plans. Another cost increase. Perhaps more companies will establish
advisory boards, thereby limiting exposure to litigation.
—Jim Graber, CFO, Hayward Lumber Company, Monterey,
CA
-
Outside directors, when performing their official legal duties, should
behave like a fiduciary, in that all of their decisions should be made solely
with what is best for the shareholders in mind. That having been said, corporations
also owe a fiduciary-type duty of honesty and truthfulness to the general
public that purchases their products and services. Ultimately, directors
who serve with the highest standards of honesty and absolute integrity should
have nothing to fear, so conventional insurance should suffice, shouldn't
it?
—Thomas Davis, President, Davis American, Ltd., Oak
Brook, IL
-
Should directors and officers have a strict limit on their personal liability?
In my opinion, the "D" & "O" issues are different. Officers in a company
are similar to officers in the military: Corporations are not democracies,
and they disobey orders at their own peril. There should definitely be a
cap on Officers' liability assuming they are not on the Board of Directors.
The situation is different for Directors. They are the people to whom the
CEO reports, and they need to be held accountable personally to avoid the
rubber stamping we have seen so much in the last 2 decades. My suggestion
here is a return to the pre-1970s underwriting practice of requiring coinsurance
and even an SIR and making this or some part of this non-reimbursable or
insurable. We collectively need to have D's with personal "skin in the game"
to limit the risk of future Enrons and WorldComs. A combined cap plus net
personal retention would be ideal for Directors.
—James Macdonald, JW Macdonald Consulting, Philadelphia
-
If the threat of legal liability is needed to hold an individual accountable
in their actions as a board member, then why would you even want that person
on your board to begin with? A good board member should be first and foremost
a person of integrity and character, and it isn't difficult to discern that
in a prospective board member. I agree that limits are needed to protect
board members who are performing their duties honestly and diligently from
the unjust acts of greedy plaintiffs and their attorneys. It is a sad commentary
on our world, however, to think that the only thing motivating board members
to act responsibly is the threat of legal liability. There will always be
dishonest and self-serving people in all capacities, but I doubt seriously
whether even legal "checks and balances" will be sufficient to motivate
them toward the good.
—Walt Birdsall, CFO, Nova Group, Inc., Napa, CA
-
I like the sentence in your article about relying on the liability risk
to keep directors and officers honest. Seeing some of the salaries these
people pull in, a $1 million cap would be a slap on the wrist. If all their
assets are not on the line, how are you going to keep them honest?
—Cathy James, Vice President, Porter & Curtis, LLC,
Media, PA
-
I have to disagree with you on this one. CEO types are no different than
the rest of us, except that they have the obligation to set the ethical
tone for the employees in the company for which they work. To limit or remove
their liability would merely give the Ken Lays of the world an incentive
to act with careless disregard of their employers. They need to be held
accountable, and the D&O risk is insurable ... unless they've got a questionable
past, in which event they should not be in a CEO position anyway.
—David LaBrec, Partner, Strasburger & Price, LLP,
Dallas
-
As D&O liability becomes more an issue, more people will stay off boards,
in a capacity of director, because of the liability. It's fine to crucify
the Lays of the world, but what about the outside director who owns a successful
dairy and has absolutely no knowledge of how to run a dot.com business?
Why ruin that person when he or she can only make decisions based on what
is given to that person? To expect an outside director (and some from the
inside, in different departments) to be able to determine if the books are
cooked is just asking for the impossible and for something which is not
going to happen, and thus a further reduction to the number of people willing
to go on a board. At some point, an officer or director—who has no knowledge
of the accounting or other facets of a business but who is sitting on a
board with the responsibility of contributing to the overall direction of
a corporation—has to be given a pass.
—Stan Dreckman, CEO, Huggins/Dreckman Ins. Agency,
Inc., Long Beach, CA
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