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 Event

Hot 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.

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.

Questions and Answers on Additional Insured Issues—Part 1—Tricky additional insured endorsement coverage questions, as posed in its recent Webinar, are answered by IRMI.
Contractual Confusion—Assuming the Liability of Others—Craig Stanovich provides straightforward examples of the workings of contractual liability insurance.
Talent as a Scarce Resource—The face of talent is changing dramatically. Corbette Doyle looks at how to find and keep talented employees.
Agency Captives Revisited—Michael Mead explains the strong reasons to consider establishing an agency captive and the hazards to avoid.
Construction Injury Prevention through Safety—Peter Furst addresses the building process and the risks faced by construction workers, focusing on the construction phase and safety management.

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

Check It Out

Save 36% with the IRMI Professional Library

« previous

IRMI.com - Your Resource for Risk and Insurance Solutions ™

IRMI Update