IRMI Update
Risk Management
& Insurance Commentary, Tips, and Tactics
July 22, 2009 | Issue 210 | ISSN: 1530-7948
In This Issue
Colleague,
My colleagues here at IRMI have been very busy this summer. They
have completed work on several new initiatives I think you might
be interested in.
The new
Management
Liability Insurance Specialist continuing education and certification
program, launched June 8, is designed to provide expertise in
professional liability insurance fundamentals and the more specific
nuances of D&O, employment practices, and fiduciary liability exposures
and insurance. Priced very reasonably, members of RIMS enjoy a 10
percent discount. Insurance CE credit is available in most states.
Coming soon is the IRMI Construction
Risk Manager, a no-cost e-mail newsletter that will provide
risk management and insurance tips and news for those in or those
who serve the construction industry. You also get a special white
paper, "Effective Contractual Risk Transfer in Construction," when
you subscribe. Simply register
for the IRMI Construction Risk Manager
on IRMI.com.
Our Risk Management & Insurance
for Green Construction webinar will be kicking off soon and,
of course, registration for the
29th IRMI Construction Risk
Conference (in the Washington, D.C. area on November 1–5) is now
open. The early-bird rate applies through August 31. New events
include hot topic breakfast presentations on federal insurance regulation,
a new networking reception, and a special lounge for CRIS certification
holders. For the first time ever, we're offering 1-day passes for
those unable to attend the entire conference. Everyone who is anyone
in construction risk and insurance will be there, and you should
be, too.
Lastly, we've set up an IRMI Group on LinkedIn for networking
with our friends in the industry. Currently we are engaged in an
interesting exchange on additional insured issues based on questions
posed at one of our webinars.
Consider joining the IRMI LinkedIn Group.
Thank you very much for your friendship and support, and have
a good summer.
All the best,
Jack
Jack P. Gibson, CPCU, CRIS, ARM
President
International Risk Management Institute, Inc.
Featured Educational
EventHot Topic of Federal Regulation
Two prominent insurance professionals will summarize the Obama
Administration's initiatives that may affect insurance regulation
and present opposing views on federal versus state insurance regulation.
Learn more about these
"Hot Topic" speakers, see the entire Conference agenda, and
reserve your spot at the
29th IRMI Construction Risk Conference. You can also
download a "business case" to show your boss why you should
attend.
Risk Tip
Know When To Recover Defense Costs
A claim is made. The insurer agrees to defend the policyholder
in the lawsuit under a reservation of rights. Later, after spending
$100,000 defending the case, facts are disclosed prompting the insurer
to deny coverage. After an orderly withdrawal of insurer-appointed
counsel, the policyholder continues to defend the case and succeeds
in having the case dismissed after spending an additional $50,000.
Should one sue the other to recover the fees paid?
For policyholders, remember the advice learned a long time ago,
"Don't ask the question if you don't want to hear the answer." Many
states allow an insurer to recover defense costs it paid if the
claim presented was not covered by the policy. Here, the policyholder
could sue for $50,000 and potentially lose $100,000.
This could happen in California, for example. California courts
have held that because premiums are collected only for covered claims,
policyholders should not retain the benefits of defense costs paid
for claims not covered by the policy. On the other hand, in Missouri,
insurers may not recover previously paid defense costs even if the
claim is determined to be not covered under policy. Missouri courts
reason that policyholders are entitled to a defense until it is
determined the claim is not covered by the policy.
From the insurer's perspective, one should do what one can to
preserve any right to recover costs paid to defend claims eventually
found to not be covered under the policy. In Florida, for example,
insurers may recover costs only if possible reimbursement is spelled
out in a reservation of rights letter accepted by the policyholder.
Nothing startling here. This tip is another application of "know
the rules of the game before you play."
By: Joel R. Mosher, Of Counsel
Shook,
Hardy & Bacon, L.L.P.
Kansas City, MO
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 Joel.
Submit an IRMI
Update risk tip.
What's New in Your
IRMI Library
Employee Benefits in Captives
Due to the rising cost of medical care and the simple fact that
group medical insurance is a major cost center for corporate America,
one of the hottest topics in risk management is the concept of covering
employee benefits in captives. We've worked hard over the past few
years to keep you well informed on this subject. Most recently,
issues of both Captive Insurance Company
Reports (CICR) and The Risk
Report have addressed it. If you subscribe to
CICR, you can read "Debunking
EB Captive Formation Myths" in the platform to which you subscribe:
If you subscribe to The Risk Report,
get Kate Westover's perspective on "Employee Benefits in Captives"
here:
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.
Recent Articles on
IRMI.com
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.
IRMI Featured Publication
E&O, D&O, and EPL Professional Development Program
The
Management Liability Insurance Specialist (MLIS™) continuing
education program provides specialized expertise in professional
liability insurance fundamentals and the more specific nuances of
directors and officers, employment practices, and fiduciary liability
exposures and insurance. With MLIS behind your name, you'll have
the competence, confidence, and credibility to deal with these complex
and intimidating lines of insurance.
MLIS is recommended by the Risk and Insurance Management Society,
Inc.® (RIMS), and members enjoy a 10% discount off the course fees.
Learn more.
Your View
Exorbitant Executive Compensation
IRMI Update 209 asked
readers for their views on whether executives at publicly held companies
are overpaid and what, if anything, can be done about it. Below
are some of the responses.
-
I believe responsibility for overseeing executive
compensation lies with the owners of the companies--publicly
traded or not. Yet, apparently time and time again,
when shareholders are given the opportunity to vote
for the establishment of parameters, ties to performance,
or a compensation review committee, they do not
enact these controls. If the company shareholders
don't care how the executives are compensated, I
don't think it's anyone else's concern. Certainly
it's not the government's concern. It's a sad state
of affairs that the shareholders do not enact these
controls. But it's their company, and it's their
choice.
—Chris Christian, Vice President,
US Risk
-
Corporate CEO's role is not the day-to-day managing,
leading or in the trenches with company employees.
Their role is to make money for the stockholders.
I don't think they should get compensation or salary--they
should get a percentage of the profit. This way,
if they can't manage their way out of a paper bag,
they will not reap the rewards.
—Merrily J. Fine, Insurance
Broker, Fine Insurance Services, Sonoma, CA
-
AGREE: Bar exercise of options for a specific
number of years or until the stock price exceeds
a specific benchmark.
AGREE: Charge the cost of option grants against
corporate income when exercised.
AGREE: Award stock that must be held for a number
of years, so the executives win or lose right along
with stockholders.
DISAGREE: Require shareholders—not simply the board
of directors--to vote on stock option grants.
INSTEAD: Tie stock options to long-term performance
based on established goals. Let stockholders vote
on the goals.
DISAGREE: Require boards to retain an ability to
withhold or curb golden parachute payments.
INSTEAD: Establish specific rules for how much and
under what circumstances officers are eligible for
these payments.
Once a company goes public, their business changes
from whatever they were doing to pleasing their
stockholders. This is insanity and causes a good
bit of mischief, accounting trickery, and is all
about short-term goals. This is what needs to be
fundamentally changed to afford good, well-meaning
executives the luxury of focusing on the good of
the company and its long-term goals.
—Cathy L. James, Vice President,
Porter & Curtis, LLC
-
Corporate executives should be compensated based
on long-term success. One year does not make it
long term, it should be a minimum of 5 years. No
success, no bonuses, stock options, etc. In fact,
if the company does poorly, the executives should
be taking pay cuts and forgoing all perks. The full
slate of stockholders should approve any compensation
package for top executives. There is not a top executive
in this country worth $5 million a year, let alone
$25 million. While caps will not work, there has
to be a checks-and-balances system in place. Today,
there are no checks and balances anywhere in this
country for politicians or top executives. We need
to get back to the understanding that there are
risks and rewards in this life. If you take a risk
and fail, get up, and try again. Part of the problem
is our government doesn't want to let anyone fail.
When government gets involved, the only thing that
happens is it becomes inefficient, corrupt, and
entitled.
—Jim Kahn, Risk Manager,
Lackawanna Insurance Group, Wilkes-Barre, PA
-
Jack, you are quite correct in that it takes
someone of extraordinary skill and knowledge to
lead a large organization. The trouble is that there
aren't enough of them around, and there are many
pretenders. I support high rewards for a high level
of success, and would expect to be able to compensate
appropriately. Caps will not work, but share option
programs should be held in escrow for 3 years after
they have been awarded before the executive can
take their reward. This will ensure that they are
seeking long-term shareholder value and not merely
the quick-win.
—Stephen Loyer, Technical
Underwriting Manager, Vero Insurance Limited, Melbourne,
Australia
-
Jack, your proposals all have merit and could
possibly help solve this problem but you are not
addressing the real problem in this mess which is
the degradation of personal morality which accounts
for a broad spectrum of our societal ills. Boards
of directors need to first and foremost make sure
they are hiring executives who, in addition to possessing
the business acumen and experience needed to lead
a company, also possess a solid set of principles
which guide their lives and who have demonstrated
that they live a life of virtue. I suspect that
at the time some of these CEOs were hired, a board
who itself had the right outlook could have detected
some of the character flaws which ultimately led
the CEO and the company down the wrong path. Unfortunately,
however, I think many board members themselves are
lacking in these same qualities and thus are blinded
by the allure of profits and fat stock prices.
—Walt Birdsall, CFO, Nova
Group, Inc.
-
Attempts to cap compensation, as any other attempt
to impose price controls in a global economy, will
fail. There are domiciles in the world which impose
lower taxes and which would welcome corporate headquarters.
At some point, government attempts to control the
economy will cause U.S.-domiciled firms to leave
the United States permanently, taking more jobs
out of the country.
Funny, though, there is talk of capping executive
compensation, but no one speaks of capping compensation
of professional athletes and entertainers.
—Kenneth Bush, Executive
Vice President, Insurance Audit & Inspection Co.,
Port Hope, MI