It is a pleasure to announce that the agenda for the 29th IRMI Construction Risk Conference is set, the speakers are committed, and our Web site is ready to take your registration. If you buy, sell, underwrite, or advise about construction insurance or manage construction risks, this is the one conference you don't want to miss.

"But times are tough, Jack, and we're cutting costs," you may be saying. Well, I have many reasons for believing you can't afford not to go—more reasons than I can list in this short newsletter. Therefore, we have compiled them on www.IRMI.com. On this same page, we offer Word files that will help you build a legitimate business case for your attendance that you can use with your boss, whether you are an agent, broker, underwriter, contractor risk manager, project owner risk manager, or attorney. Learn more about why you should attend and download text to build your case for attending.

If you already know the value of the Conference and are planning to attend, you will also be pleased to learn that the fee is the same as it was in 2007 (and you may qualify for a 50 percent discount if you've never been before). This spring we went back to the negotiating table with the Gaylord National Hotel and Convention Center, and we convinced them to lower your nightly room rate significantly below what we were able to get 4 years ago when we originally contracted with them. If you book soon, you can also get an incredible deal on your airfare. Also, most meals are covered by the conference fee. In summary, we've done everything possible to keep your costs down.

So, spend a few minutes reviewing the IRMI Construction Risk Conference curriculum, consider just how much you will learn, and then plan to meet and network with all the major players in the construction risk, surety, and insurance field. They will be there and you should be, too.

We promise you will be better prepared to deal with a hard insurance market when it hits and that you will fly or ride home with practical strategies and tactics to survive and thrive in these tough economic times. I look forward to seeing you on the Potomac.

All the best,

Jack

Jack P. Gibson, CPCU, CRIS, ARM
President
International Risk Management Institute, Inc.

Risk Tip

Consider Purchasing K&R Insurance

Expatriates working abroad face being kidnapped in high-risk areas away from home where their companies cannot protect them. Organizations and financial institutions with a significant global presence can be targeted for ransoms ranging from thousands to millions of dollars. While it may seem rare, kidnap is a thriving, corrupt business that is more common than companies would like to admit. Statistics are difficult to gather because, on average, only about 10 percent of incidents are reported.

There are compelling economic and ethical reasons for companies to invest in kidnap, ransom, and extortion insurance since ransom demands can be staggering, particularly in the struggling global economy, with more than 14 countries recording cases of $25 million or more in recent years. Cases are usually settled for between 10 and 20 percent of the demand, but in certain territories, kidnappers refuse to negotiate and resort to excessive violence until their demands are met.

Although the policy covers ransom, it also includes other expenses that make it extremely cost-effective in the event of kidnap, such as:

Interest costs associated with obtaining the ransom
Travel and accommodation for victims and relatives
Salary of the kidnapped individual(s)
Medical and hospitalization expenses
Personal financial loss of the insured
Costs incurred during business interruption
Interpreters
Increased security
Job retraining after release

This coverage helps mitigate the financial and human costs associated with kidnap and ransom by providing necessary services to ensure a safe, speedy, and satisfactory resolution.

By: Chris Beck, Sr. Vice President of Insurance Sales
Clements International
Washington DC
cbeck@clements.com

GET PUBLISHED IN IRMI UPDATE: 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 Chris.
Submit an IRMI Update risk tip.

What's New in Your IRMI Library

Avoid Excess Liability Policy Pitfalls

The umbrella and excess liability insurance program is arguably the most important insurance that most organizations buy. It is, after all, what protects against catastrophic liability loss. While umbrella policies are quite complex, excess policies appear to be very simple. This appearance is deceptive, however. When structuring a layered excess liability program, the goal is usually for each layer to "follow form" of the layers below it, such that uniform coverage will apply. Unfortunately, this goal is often not met, and there is a surprising amount of litigation over how these policies work. The newly revised and updated discussion of excess liability coverage in Commercial Liability Insurance will open your eyes to the potential problems and help you avoid potentially devastating errors. Check it out on the online delivery platform to which you subscribe (or in Volume 3 of your print manual):

For summaries of other new and updated information in your IRMI library, go to What's New on IRMI Online or What's New in SilverPlume Sage.

New Expert Commentary

There are over 1,100 risk management and insurance articles on IRMI.com. Below you'll find summaries of some recent additions with links to the articles.

Self-Insured Retentions versus Deductibles—Don Riggin outlines the differences between the two.
The 2007 AIA Document—A new process allows dispute resolution choice. Ken Slavens explains.
Valuation Insights: TARP and Insurers—Jeff Balcombe discusses the L&H valuation impact.
Recent Texas Cases Involving First-Party Claims—Brent Cooper relates current coverage cases.
Workers Compensation Issues and Trends 2009 —The NCCI Annual Issues Symposium is reviewed.
First Quarter RIMS Benchmark Survey™ Shows Soft Landing—Advisen survey data provided.

IRMI Featured Educational Event

Early-Bird Registration Open

You can now reserve your spot at the 29th IRMI Construction Risk Conference. This premier forum for construction risk professionals will be held November 1-5, 2009 at the Gaylord National in the Washington, D.C. area. See the agenda, workshop curriculum, speakers, and more. You can also download a "business case" for seeking approval to attend.

Your View

Capping Indemnity Clauses

IRMI Update 206 asked readers for their views of whether indemnity clauses be capped in contracts. Below are some of the responses.

I am not going to berate risk transfer of one's negligence to another in a construction contract. I do not believe in it, enough said. Transferring that risk with a cap is just as bad. It only sounds better until you realize that most losses are small to medium size, and only a few losses are truly large or catastrophic. The examination should focus on the transfer of the risk and not the amount of risk transferred.

A strong argument is, whose loss is it when one company's negligence (Company N) is transferred to another (Company D) in a construction contract. Since Company D pays the loss, or Company D's insurer pays the loss, it's Company D's loss. Company N had the loss but Company D got stuck with the loss experience and a possible increase in premiums if the claim is insured. That is an inequitable result. Many states have or are enacting anti-indemnity statutes and see this as against public policy.

Society is best served by each party being responsible for its own negligence. Those individuals and companies who operate with fewer negligence losses should have a competitive advantage over those that that have more losses. The law of diminishing returns forces individuals and companies to change the way they operate or face extinction.

—Dan Sielicki, Director of Risk Manager, Baker Concrete Construction, Inc., Monroe, OH
Many companies do use the indemnity section to make the contractor their insurance company. I have seen contracts where the indemnity is tied to the minimum insurance requirements, but if you carry more insurance, the limit increases to the upper limit. I would welcome caps and negotiating the cap limit. I would also like more legislation limiting the ability to cover sole negligence of others.

—David M. Riggs, Insurance Specialist, Asplundh Tree Expert Co., Willow Grove, PA
I completely agree that businesses should demand caps or limits on their liabilities assumed by contract and have been recommending such provisions to our clients for some time. We recently intervened on behalf of one of our clients in a case where the carrier had accepted a full tender of defense and indemnity (inappropriately) from a higher tier on a $40 million burn case/lawsuit. Luckily, we were successful in having the provision ruled invalid; however, the carrier had approached our client indicating that they were tendering their full limits of coverage and that our client would need to bring all assets to mediation. Fortunately, we were able to prevent this disaster and actually saved the carrier $2 million in the process. However, this case underscores the importance for businesses to be careful when entering into contracts and emphasizes that they should not shy away from negotiating better terms even when contracting with large corporations. Is getting one particular project worth risking your entire operation?

—Louis G. Fey, Vice President of Risk Management, Wright and Percy Ins., Baton Rouge, LA
The problem with limitations on contractual assumption of liability is that there is no limitation on the liability. If Company A engages Company B to perform some work, and if Company B causes Company A to incur liability because of Company B's work, why should not Company B be held responsible for the full amount of the liability incurred by Company A? If Company B had performed its work properly, Company A would not have the liability. These limitations, for the most part, shield the negligent party from the full amount of its liability, and require a non-negligent party to assume the risk of the negligent party.

—Kenneth Bush, Executive Vice President, Insurance Audit & Inspection Co., Port Hope, MI
Capping liability within the indemnity clause makes perfect sense. All too often, small businesses shoulder unreasonable liability exposure without having the slightest inkling of what they're actually committing to. As to timing, well as long as this continues to be a soft market, good luck trying to implement this strategy. Rational thought in pricing and underwriting practices as a whole get backseat priority in this economy—especially in the publicly traded carriers. I'm grateful to be working with a level-headed team in a mutual company.

—C. Eric Pike, Sr. Underwriter—Personal Lines, Penn National Insurance
From an agent point of view it is probably a good idea because you can only bleed so much before you die. In 35 years in this business, I have had only one E&O claim filed by a client, and in that one, there was found to be no error. In my opinion, the insurance company should have defended me, but they did not, and the claim eventually went away (the insurance company paid to make it go away) ... just cost us the deductible for defense, a lost client, and me still mad at the poor claims handling by the insurance company.

Also, in my opinion, the insurance companies no longer protect their agents like they did when I first started in this business. And the companies have pushed more of the duties and service work they use to do onto their agents (some agencies asked for it). We are no longer treated as a team member but just as an independent contractor, and thus we need to protect our assets even more by limiting liabilities as much as the market place will allow.

—Jimmie A. Sammons Jr., Producer, Watkins Insurance Group, Austin, TX
It depends on the level of services. If you are advising and recommending to client, should you have a limitation on your liability? If just taking orders and you cause a $20 million loss, should it be limited? The court system is not going to award large judgments without large losses. As an insurance agent, I believe my duty is to my clients and the insurance companies I represent, not my stockholders; as a corporate officer, my duty is to my stockholders. These responsibilities are not in conflict. If an agent wants to limit his liability and a client so agrees, then the contract should be more like a performance bond. Once a loss occurs, client makes demand, loss assessed and payment made, no need to prove legal liability. Actuaries tried this several years ago, and a lot of business moved.

As a buyer of insurance services, I ask, what is in it for me to limit your liability? Caveat Emptor!

—Theodore Pappas, President, The McLaughlin Company, Washington DC
Residence of Risk—An opposing view: Any "limitation of liability" must inherently assume that the insurance industry is incapable of capitalizing the risk or that insureds are opposed to purchasing the requisite insurance. For risk to be accepted as being "uninsured," simply due to the relative size or wishes of the perpetrator of negligence, would seem to be a travesty to our beloved profession.

Under the guise of "Risk Management," must the professionals in our industry weigh the relative "equitability of risk" as "the" determining factor of rightful negligence? Architects and engineers have successfully lobbied this tactic for too long; resulting in their "escape from liability and reality" … and, the risk management community has allowed this illusion of legitimacy to persist. When will risk management awaken, and take the rational steps necessary to determine "where indeed should risk reside"?

P.S. This limitation of liability movement actually flies in the face of anti-indemnity legislation. Weigh the facts, not the theory; be intellectually correct, not simply right.

—George Owens, CRIS, Senior Vice President, Higginbotham & Associates, Inc., Dallas
While limitations on liability may be crucial to smaller firms operating in a professional capacity, it seems inappropriate for large insurance brokers, like Marsh, to try to impose such limits. Professional negligence on the part of brokers handling complex, difficult placements could well exceed such artificial limits. Remember the WTC insurance fiasco? Marsh and other similarly situated brokers are free to purchase E&O insurance to cover their risk.

—Peter Viscardi, President, Viscardi Risk Consulting Corp.

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