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
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, PA
-
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, TX
-
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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