I'm concerned that more companies aren't buying terrorism coverage in their property insurance programs. Many feel if they're not in trophy properties in New York or a handful of other cities, they have no exposure. And, without further attacks on American soil, people are being lulled into a false sense of security. As a result, many businesses are rejecting the coverage, even when the premiums are not ridiculously high. This may be a mistake.

It's dangerous to assume terrorists won't strike in the American heartland. This is a real possibility that is being too easily dismissed. As evidence, consider that the 2001 anthrax attacks hit Boca Raton, hardly a major metropolitan area.

Adding to my concern is the realization that Congress may be reticent to help uninsured organizations following another attack. Our representatives may feel they already provided a solution in the form of TRIA, so why should they bail out businesses which failed to take advantage of the insurance offered?

The erratic pricing for the coverage doesn't help. I'm told it's all across the board. Perhaps insurers should reduce the price they charge for terrorism coverage in most parts of the country and make terrorism a mandatory peril to be insured against, like fire and vandalism. This would lower the cost for everyone, eliminate adverse selection, and provide the spread of risk insurers need. Of course high-risk areas and properties would still require a more detailed underwriting approach.

Until something like this occurs, insureds must evaluate their exposure and compare it to quoted premiums. Unfortunately, the wrong decision could prove financially devastating to the business and result in an ugly E&O claim against the agent or broker.

So, how should a business go about making this decision? Are many of your industry peers or clients rejecting terrorism coverage? Is this wise or simply a play at the roulette wheel? Are insurers quoting reasonable premiums now? What should agents/brokers recommend? How do you feel about making it a mandatory peril in most areas of the country? [See reader comments.]

I'm pleased to announce a new IRMI book on this topic: Terrorism Insurance: What Risk and Insurance Professionals Must Know. We started covering this topic on IRMI.com right after the terrible events of September 11, and it has been a key focus in our publications ever since. We felt it would be worthwhile to put all we have learned about terrorism insurance into a single, cohesive, affordable book.

I hope to see you at the IRMI Construction Risk Conference next month.

Have a great day!

Jack

Jack P. Gibson
President
IRMI

Risk Tip

Allocate Markets When Seeking Competive Proposals—When a company is seeking competitive insurance proposals, it is a common practice for one or more of the agents to lock up the marketplace by quickly approaching numerous insurers about the account, including insurers the agent does not intend to use. Once approached by one agent, most insurers will not quote the account through another agent, which quells competition.

To keep this from occurring, it is wise to seek proposals from a limited number of qualified agents and assign insurers to them. This is done by asking each agent for a prioritized list of the companies he/she wishes to work with and advising them not to approach any markets until the markets are assigned. Then use the prioritized list to assign each insurer to only one agency, attempting to give each agency its first or second choice and working down from there. Advise all agents of the markets they may approach and inform them that they will be disqualified if they approach any others. The result is a coordinated approach to the marketplace that will maximize the competitive process.

Source: Derived from one of the recommendations in 101 Ways To Cut Business Insurance Costs

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 give you credit for your contribution.

New Expert Commentary

There are now 466 articles on IRMI.com, and many more are in production. Below you'll find summaries of some recent additions with links to the articles.

What's Causing Increased Medical Malpractice Premium Rates?—Charles Kolodkin discusses a recent General Accounting Office study of the medical malpractice insurance industry and the factors that have caused premium rates to increase.
The Current State of Wrap-Ups—After reviewing the current market, Rich Resnick concludes that wrap-ups continue to be the product of choice by owners, developers, and contractors on large construction projects.
Known Injury or Damage—Craig Stanovich looks at the history behind the provision that coverage ceases for all subsequent CGL policies once certain insureds learn of any continuing injury or damage.
Litigation Management Can Destroy Promised Service—The trend to reduce legal costs through litigation management can result in inferior service and greater indemnity payments. Barry Zalma explains.

IRMI Construction Risk Conference

Be Sure To Beat the October 24 Conference Fee Increase—On October 24 the registration fee for the 23rd IRMI Construction Risk Conference will be raised. Take advantage of the best price by registering today. Four pre-conference seminars and over 20 sessions and workshops will be held at the Conference in Chicago November 17-20. For details about all the sessions and the presenters, see the agenda.

To register, just complete the online registration form or call (800) 827-4242.

IRMI Products & Services

Cure for California Workers Compensation Headaches?—Levine on California Workers Compensation Premium and Insurance is a new reference manual designed to help you properly classify risks for premium determination, apply experience rating rules, understand insureds' rights to claims and rating information, understand and explain how rates are determined, evaluate employee leasing, "sovereign nation," and other alternative programs, deal with insurer insolvencies and the State Fund, handle premium disputes, and negotiate important premium issues with the WCIRB or underwriters. It is now available on IRMI Online, IRMI CD, SilverPlume Sage, and in print. For more information or to order a copy, please go to this Web page or call our customer service department at 1-800-827-4242.

Your View—Fixing Our Legal System

In IRMI Update 74, Jack discussed a report from the Center for Legal Policy at the Manhattan Institute that compares the plaintiff's bar to a huge corporation. Trial Lawyers Inc. draws a rather unflattering picture of the U.S. legal industry. IRMI Update readers were asked what they thought of both the report and the current state of our legal system. Many lengthy replies were received; edited versions are reproduced below. The free report, "Trial Lawyers Inc.," can be downloaded.

Just a thought: looking at trial lawyers as the villains is too simplistic. If you look at the mold litigation phenomenon, it can only partially be explained by the role of lawyers. The bigger question is what drives the public to see litigation as a great means of solving their problems? What feeds this view? Why do they seek to always find someone to blame for their problems? Blaming lawyers, or more specifically the plaintiff's bar, for the behavior of the public is probably giving lawyers too much credit.

In case you have not guessed, I am a lawyer, although not a member of the plaintiff's bar.

—Howard Carsman, Bullivant Houser Bailey PC, Portland, OR

While I am sympathetic to issues raised in the article, I am troubled that it was so one-sided. Litigation, unfortunately, is often the only way in this country to persuade the offending party to change their ways. So long as "bad" behavior is financially more attractive than "good" behavior, many corporations have proven they will opt for "bad" behavior (recall the Ford Pinto case where Ford disclosed that they had in fact done a cost analysis of installing a firewall between the gas tank and the passenger compartment but determined the cost of paying damages was less costly). When the financial pain is sufficient, the corporation/business/ institution will reform change its behavior.

The recent spate of litigation involving Enron/WorldCom/Chase-Morgan/CitiGroup, etc., has led to much needed reforms in corporate governance and the way our supposed "free" markets operate. Absent litigation, both civil and criminal, it is unlikely that the "bad" boardroom behavior would have changed for the better.

Litigation in our country is also a reflection of our society's outlook. We are a litigious society and it takes more than just lawyers to fuel it. President Bush is very fond of speaking about accountability. I would like to see individuals, corporations, institutions, and governments be accountable for their actions/behaviors. Ideally, we all would operate/act to the highest standards at all times and would freely acknowledge when we screwed-up. Unfortunately, litigation is often necessary to enforce our accountability. Until we change our collective behavior, we should not simply "harpoon" lawyers as the "evil-doers."

My comments are not intended to wash-away the points made in the Trial Lawyer Inc. article but rather to bring some balance to a very myopic/biased article written with a definite "agenda" and political bias.

—Rolf Neuschaefer, Bond Manager,
Robert E. Harris Insurance Agency, Inc., Costa Mesa, CA

American business has accepted this phenomenon as a "cost of doing business." Until that paradigm changes, we're doomed to continue in this absurd, non-value added, cost spiral. Trial attorneys contribute little to our society but much to themselves. Under the self-serving banner of providing "justice" for the common man, they profiteer beyond comprehension. Then, most attorneys focus on becoming politicians or judges. This enables them to self-perpetuate.

We boast that our legal system is the best in the world. It's also the worst in terms of what it costs us. Our judicial system has crossed the boundaries of common sense and good judgment and has become little more than an expensive game of chess. I would like to see your survey expand to the "soft costs" of senseless litigation. You mention defensive medicine, but let's not forget about manufacturing and other service providers. Allocated defense costs for insurance litigation alone should provide fertile ground for some supporting statistics.

—Bill Nagy, Vice President, Claims,
The Distinguished Programs Group, New York

Not all litigation is bad, and at times it is essential. However, too many in the plaintiff's bar have developed a knack for creating litigation where there should be none. But there is plenty of blame to go around for the flaws in our legal system. It starts with judges and juries that encourage frivolous litigation with grossly ridiculous and overly liberal decisions.

Some blame is also due defense lawyers who often try to blunt criticism directed at them by reminding us that they are not plaintiff lawyers. That's a cop-out, because for every plaintiff lawyer working a case, there is a corresponding defense lawyer. The plaintiff's bar is the marketing arm of the defense bar—and the defense lawyer gets paid win or lose. So why would the defense bar want to curb an overly litigious environment?

And our legislators are due blame for failing to reign in the lawsuit abuse. But what might we expect from politicians that are mostly lawyers! Our illustrious federal government supposedly spent more money in the 1990s prosecuting a company that created tens of thousands of jobs and paid billions in taxes than they did fighting terrorism. Was Bill Gates really a greater risk than Osama bin Laden?

But the lion's share of the criticism/blame goes to our citizenry who tolerate the inflationary flaws of the legal system. Texas Proposition 12 is intended to reduce the cost of medical care, yet almost 50 percent of those who voted think large non-economic damage awards are acceptable. Those who didn't vote, the majority of our citizens, apparently don't care.

—Rick Moscicki, Managing Principal,
The Risk Consulting Group, Jacksonville, TX

It seems to me that, whilst there may be a case for punishing offenders, particularly profit-motivated corporate ones, by assessing punitive damages, the fact that these large amounts go to the injured party has only served to create the industry described in the report, which is based, to a large extent, on frivolous suits. The simplest fix would be to have the punitive damages paid to the state instead. Successful plaintiffs would still be compensated for their losses and for "pain and suffering" (to use the UK expression), but would not look forward to wealth beyond their wildest dreams.

This would help to cut down the number of frivolous suits, Increase public funds, possibly leading to reductions in taxes, and, by no means least, help to reduce the pressure on insurers.

—Nigel Bailey, International Captive Consultants,
Tortola, British Virgin Islands

With the size, scope, and clout of ATLA, the legal system's probably not going to be fixed, but I have long thought that the Canadians have one very good procedure in their court system. As you probably know, in their system, the loser in civil litigation has to pay attorney fees for both defendant and plaintiff. The courts in Canada are not clogged. I think the immediate result of adoption of that practice would be to eliminate many of the lawsuits and "fishing expeditions" right away, based on merit. Of course, ATLA says that, like doing away with contingent legal fees, that would prevent poor plaintiffs from having their day in court. Personally, I think that's a very shallow argument, and what it really means is that there would be fewer opportunities for the plaintiff's bar to sway a jury into a big payday.

Further, I have a problem with unrestricted contingent attorney fees. I also think that requiring a collateral source rule (i.e., any judgment would be reduced by plaintiff's recovery from collateral sources like workers compensation) would be helpful. Also, requiring any punitive damages collected to become the property of the court/state/federal government. After all, if punitives are awarded because of offense against society, then society ought to get the money.

Reality says that these ideas will never become law, because ATLA will never willingly agree to the reduction of the winnings possible in the "plaintiff's legal lottery".

"Of course, that's just my opinion. And I could be wrong," Dennis Miller.

—Kirk A. Johnson, CIC, AAI, Senior Account Manager/Construction, SilverStone Group, Incorporated, Omaha, NE

A well-known plaintiff's attorney once proclaimed to a well-regarded defense attorney, "I'm your firm's biggest rainmaker!" The liability insurance industry also exists, in part, because of the plaintiffs' bar. No claims, no risk. No risk, no need for insurance. Accepting this reality is practical. However, conceding the exponentially spiraling expansion of "Trial Lawyers Inc." with minimal resistance is the insurance industry's BIG mistake. Perhaps it is the nature of liability insurers to always be on the defensive. Perhaps there is a fear that too much success with real tort reform will too severely reduce the risk necessary for their existence.

Unless insurers are willing to spend with the big boys, legislatures will pay lip service to tort reform with modest, almost always circumventable, changes. It may be too late, but insurers must go on the offensive and draw the public's attention to the tremendous costs to our society of an unfettered Trial Lawyers, Inc. Plaintiff's attorneys are not evil per se; they are just opportunistic capitalists. However, with little opposition, they have convinced the average American that they are altruistic crusaders, champions of "the little guy."

Unless effective, enforceable, constitutionally unassailable tort reform is passed nationwide, the current trend of marginal, even no, liability cases producing runaway verdicts can only be checked by the bench. ... Yet, there is no evident movement toward improvement. The insurance industry is at least partially to blame by its inaction.

—Edward M. Manganiello, Mendes & Mount, LLP, New York

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IRMI Update—Issue #75

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