IRMI Update—Issue #18
An E-mail Newsletter for Risk and
Insurance Professionals
ISSN: 1530-7948
June 5, 2001
In This Issue
Colleague,
We are moving into full swing with our preparation for the 21st
IRMI Construction Risk Conference and will be sharing developments
with you as we firm up the program and speakers. In the meantime,
we need your help.
Do you know a risk professional who has developed an innovative
program to manage some aspect of the risks inherent in construction
projects? It might be an innovative OCIP approach, a safety program,
or a special insurance program that a contractor or project owner
has implemented. If so, please make sure they are nominated for
the Construction Risk Management Best Practices (CRMBP) award.
Our evaluation process starts in August, so you have plenty of
time to put together a submission for the judges. For more information
on the CRMBP award, visit the
CRMBP section
of IRMI.com.
We very much appreciate your friendship and support.
Have a great day!
Jack
Jack P. Gibson
President
IRMI
Don't Overlook Acquiring Company's Policies
To Cover Successor Liability. Many companies are concerned
with their exposure to successor liability in connection with the
products or operations of organizations they merge with or acquire.
The concern, of course, is that in acquiring another business's
property or product line, the buyer subjects itself to claims for
injury or damage arising out of that property or those products—even
injury or damage that took place before the acquisition.
Neither of the two standard risk transfer mechanisms—indemnity
agreements and additional insured status—works well in dealing with
these "incurred-but-not-reported" losses. The seller-indemnitor's
CGL coverage will not apply to contractual assumptions of liability
for injury or damage that has already taken place. And arranging
"retroactive" additional insured status for the buyer under the
seller's policies from past years is, to say the least, a long shot.
One often neglected source of protection for successor liability
arising out of past injury or damage is the buyer's own history
of general liability coverage. It is sometimes wrongly assumed that
the buyer's past CGL policies offer no coverage in connection with
injuries to which the insured buyer had no connection at the time
they occurred. As long as the buyer had liability insurance in force
at the time of injury or damage covered by a CGL policy, that insurance
should apply to the injury or damage whenever the insured incurs
liability for it (e.g., as the purchaser of the assets out of which
the injury arose years after the injury itself). Some courts agree
with this position, while some courts do not.
By: Jeff Woodward, CPCU
Senior Research Analyst
International Risk Management Institute, Inc.
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 Jeff.
Your Company Ad Can Be Here!—IRMI
Update reaches nearly 10,000 insurance agents, brokers, underwriters,
and risk managers who look forward to reading the tips and articles
offered in each issue. Since yours will be the only ad in this space,
it will be seen and acted on by key decision makers. For more information,
contact us or
click here.
We add new Expert Commentary to IRMI.com every week. There are
now 142 articles on IRMI.com, and many more are in production. Below
you'll find summaries of some recent additions with links to the
articles.
-
Intellectual
Property Coverage: Are You Naked?—The
cost of intellectual property litigation can be
astronomical, and continues to increase each year.
In certain cases, the high stakes of intellectual
property litigation can pose a very real threat
to the company itself. Learn about the exposure
and how to properly cover yourself.
-
Insurance Coverage Disputes and Society's Problems—Unfortunately,
insurance coverage disputes mirror casualty and
liability losses throughout the world. This article
examines recent litigation involving insurance coverage
disputes and violent crimes and sexual assaults.
-
Political
Risk in Asia: The Need for Structural Reform and
the Impact on Political Risk Insurance—In
the wake of the Asia Crisis, investors are hesitant
to commit large sums of new capital to the region.
The political uncertainty has increased awareness
of political risk insurance and how it can be utilized
as a risk management tool. This article examines
the region and the PRI market.
-
Next Generation Agency Management Systems—Renting
a management computer system to help run insurance
agencies is an increasingly viable option. This
article describes current Application Service Providers
and their offerings, including advantages and disadvantages
to consider.
What's New in the
2000 Edition ISO Commercial Property Forms—The 2000 revisions
to the ISO commercial property portfolio affect 11 coverage forms,
all 3 causes of loss forms, 24 coverage endorsements, and a number
of schedule endorsements. This article reviews the changes to the
building and personal property coverage form (CP 00 10).
Perceptual Diminished
Value for Personal Autos—Is perceptual or psychological
diminished value—the perceptual loss of vehicle market value due
to an accident—covered under the personal auto policy? This article
examines the debate, relevant case law, and ISO's response.
CRMBP Award Winner's
President To Discuss Construction Safety—At this year's
conference, Peter G. Vigue, president of Cianbro Corporation, will
tell the story of his company's change in philosophy and shift to
a culture that puts safety first. Paul Day of Cianbro received the
Construction Risk Management Best Practices Award in 2000 for the
implementation of a behavior-based, continuous improvement safety
process at a large bridge rehabilitation project. Mr. Vigue will
discuss the organizational changes necessary to make such programs
work. Mark your calendar to reserve October 29 through November
1 for the conference. Follow these links for more information on
the conference
and on Paul Day's safety program.
The Additional
Insured Book—Additional insured approaches and
issues are among the most misunderstood and controversial technical
concerns of risk and insurance professionals. This 478-page treatise
is recognized as the leading authority on these topics. Do you have
the latest (4th) edition in your reference library? If not, order
your copy today.
Jack's May 22 editorial in
IRMI Update
#17 on the risks of cyber attacks drew informed and interesting
responses from our readers. Slightly edited excerpts from some of
them are provided below.
- Jack's concern is right on the money. AIG has
been working with various federal agencies (most
notably, DOC, DOD, DOE, and Treasury), as well as
a number of public-private information sharing groups,
to determine the insurer's role in reducing the
threat of cyber-terrorism and cyber-war, as well
as the threats to our national infrastructure due
to the potential for a 'mass computer attack' of
whatever origin.
The role of the private insurance industry is: (1.)
To provide risk management products and services,
including the providing of discounts for sponsored
products. i.e., to reward good behavior in this
area. (2.) To assist in after-event recovery (by,
for example, providing public relations reimbursement
coverage as well as criminal reward funds to catch
cyber-criminals) (3.) To provide multi-pronged insurance
coverage, including third-party liability (Web content
and network security), first-party property damage,
first-party business interruption, etc., as well
as professional E&O coverage targeted toward Internet
professionals.On the other hand, the public sector
has responsibilities too, including: (1.) Providing
R&D funding (2.) Providing legal and regulatory
relief, where appropriate, such as in FOIA, Antitrust
and information sharing/management responsibility
liability rules and safe harbors. (3.) Reinsurance
support in event of a CAT type event in circumstances
where losses exceed the insurance industry's ability
to fund.
—Ty R. Sagalow, Chief Operating Officer &
Executive Vice-President, AIG, New York
- Acknowledging that there could be a problem
is probably the foremost issue for most risk managers,
insurers, and other risk professionals. In many
discussions that I've had recently, there appears
to be the 'head in the sand' mentality—if I don't
see it or if I don't understand the issues, then
there must not be a problem.
—Becky Walker, Risk Manager, D.E. Harvey
Builders, Inc., Houston
- It is unfortunate to think that business may
need to adopt a military style of counter cyber
terrorism. However, I feel that this is imminent.
Complacency of businesses who fail to assess cyber
threats is what the cyber terrorists are counting
on. The businesses that maintain the constant information
technology security will prevail.
—Al Flute, Safety Consultant, The Zenith
Insurance, San Diego
- You are correct. Cyber crime is a scary risk
and not very well addressed by insurance. My biggest
concerns at this point are: (1.) Cyber criminals
are just getting started. The worst is yet to come.
(2.) Cyber crimes that have already occurred are
probably extremely under-reported for a lot of reasons
having to do with risk management decisions made
at the CEO level.
—Glenn Linville, CPCU, ARM,Consultant, CORE
Risk Services, Inc.
- Suppose that someone on the other side of the
world is surfing the 'Net and runs across our Web
site. Suppose they decide to pirate our name and
open an office to conduct staffing business. When
we find out about it, what do we do? How do we go
about hiring a lawyer in an unfamiliar country to
take measures under local law to stop the pirate
from using our name and reputation? It seems to
me that there might be a place for an insurance
product that would step into the picture and pay
on our behalf the legal costs to bring the pirate
to a halt. A company like AIG, for example, with
a global network of operations might develop such
a product. They could marshal their connections
with law firms around the globe who would be available
to represent the interests of the policyholder in
such matters.
—Barney Mercer, CPCU, ARM, Vice President—Risk
Management, Snelling and Snelling, Inc., Dallas
- Ironically, our Association site was one that
was hacked apparently by these Chinese cyber terrorists.
Our website is hosted on the IIAA server. We are
defenseless. There needs to be greater security
on the Internet DNS system to stop unauthorized
persons from altering DNS records. This is apparently
what happened in this instance. Any other solution
would be political.
—E. Stuart Powell, Jr., CPCU, CIC, CLU, ChFC,
ARM, AMIM, AAI, Director of Technology and Technical Affairs, Independent
Insurance Agents of North Carolina, Inc., Raleigh, NC
- The key is communication. At this point, senior
management of most companies has only a vague idea
of how the technological backbone of their business
works. The real knowledge in that area rests with
technicians who are (sometimes) paid poorly, treated
badly, and possess little loyalty to the enterprise
as a whole. Even in companies where technicians
are well treated, there is little true communication
among those who face the risk and those who must
manage it.
My advice would be for the risk management department
to institute regular conversations with their colleagues.
Learn the technology. It isn't that hard to pick
up the basics. You don't need to be able to program
network software, but you should have rudimentary
knowledge of how information is stored, gathered,
and used.
—Donna Ferrara, Esq., Vice-President, Arthur
J. Gallagher Risk Management Services, New York
- Thanks for your words on this frightening new
slant on hacking. Unfortunately I don't know that
there is any new or different approach we can take
(other than squaring and cubing our investment in
security); either our systems are protected, or
they aren't. The only difference is the hacker's
level of funding.
Where concerted attacks from other countries may
be clearly identified, we need to ensure that our
government is aware of these. Unfortunately however,
our government is obviously not willing to make
the necessary sanctions against China and similar
countries by voting with their (our) checkbook.
As such, the most we can hope for is making our
own hackers aware of it in hopes that their grass
roots counterattacks will be effective in discouraging
such actions. (As in your article, China: 80, U.S.:
100.)
—Nick Shoop, AIC, Director, Insurance & Safety,
Straus-Frank Enterprises Limited (d/b/a CARQUEST Auto Parts)
- I read your article with great interest. My
suggestion would be to include the "exposure" in
an expanded/revamped war-risk exclusion. The standard
ISO exclusion (liability) only applies to liability
assumed under contract. Coverage could then be added
by endorsement with a sublimit and separate premium
charge to address this exposure. On the property
side, some of this exposure is already covered by
several carriers we handle claims for, under electronic
data processing systems and equipment; electronic
data processing media; electronic data processing
extra expense. However, once again you have the
common policy war exclusion, acts of foreign enemies,
hostilities (whether war is declared or not), which
may take the claim out of coverage. This again can
be added in by endorsement with a separate premium
and sublimit.
—Charlie Henderson, Claims Manager, Summit
Risk Services, Inc., Hatboro, Pa.
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