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

Risk Tip

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

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.

New Expert Commentary

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.
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.
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.
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.
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.

New IRMI Insights

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.

Training & CE

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.

IRMI Products & Services

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.

How To Subscribe or Unsubscribe

A subscription to IRMI Update is absolutely free. Use the e-mail registration form to initiate or terminate your subscription.

IRMI Update—Issue #17

In This Issue