About Brandon Righi

Brandon Righi is RIMS’ program and content manager.

8 Legal Developments You Need to Know About

In a new RIMS Professional Report, attorneys Mark Plumer and Xandra Bernardo (of Pillsbury Winthrop Shaw Pittman LLP) and Patrick Walker, a risk professional at mining company Rio Tinto Group, shed light on the top risk management legal developments of 2017.

According to the authors, risk managers “must be familiar with the legal principles that underlie claims that are asserted. A successful resolution will turn on the policy wording, the company’s business relationship with the affected insurers and the strength of the  coverage argument under the law.”

In The Top 8 Legal Developments You Need to Know About in 2017, the authors lay out the notable rulings on insurance law relating to rights of coverage, rescission, cyber coverage and more. Here is a quick look at their findings:

  1. Rights to Coverage: There were important developments to rights of coverage under historic occurrence-based policies. These relate to “long-tail” liabilities such as environmental exposures.

“The best practice now is to assign the right to make claims on historic policies for such exposures, where such transfer of rights is intended. Legal counsel should assure that the law in the affected jurisdictions allows for the transfer of insurance rights.”

  1. Rescission: It’s an insured’s worst nightmare: you have a claim that you believe should be covered, and the insurance company finds a way to rescind coverage. It’s a growing trend. “In particular, insurers are requiring more disclosures during the application process and may seek rescission if full and accurate disclosures are not provided.”

The authors focus on H.J. Heinz Co. v. Starr Surplus Lines Ins., a trial decision that was reached in New York’s Third Circuit. The court ruled that Heinz was not entitled to its purchased coverage because of historic loss information that was mistakenly withheld by the company’s risk manager.

“The Heinz case highlights the importance of answering questions thoroughly and truthfully in connection with applying for insurance. Applying for insurance is an increasingly challenging process, particularly with respect to specialty policies that require answers to many questions and call for considerable data. Risk managers must assume that insurers will be emboldened by Heinz and other, similar cases.”

  1. Consent to Settle: In case you needed to be reminded: risk management and corporate counsel need to work together!

“Some courts may simply void coverage where there is a voluntary payments provision and advance consent from an insurer for a settlement was not requested regardless of whether the insurer was prejudiced. It is rare that insurers will stand in the way of a settlement. Thus, asking for consent often is no more than a technical requirement. Insurers should not be allowed to escape coverage your company has paid for based on a technicality.”

  1. Notice: Your coverage can be voided if you don’t give prompt notice of a claim. There were two important developments on this front in 2017 that the authors describe in detail in the report.

“The best way to avoid an insurer ‘late’ notice argument is to provide notice at the earliest reasonable date, even if this requires later supplementation and clarification. Of course, this is often easier said than done. You should learn the law affecting notice in your home jurisdiction and consider treating occurrence-based policy and claims-made policy notification procedures differently…”

  1. Cyber Claims: This is obviously a hot area in risk management and in insurance. It seems like we constantly hear about new entrants into the insurance market on this front, with new firms specializing in cyber also popping up almost every day. Risk managers need to exercise caution in this field: cyber insurance is still relatively new and untested, and the claims history for this subfield is short.

The policies are also potentially confusing. For example, “many cyber policies specifically provide coverage for credit card association assessments for an additional premium. These policies are quite complicated and may contain dozens of cross-referenced definitions.”

  1. Construction Claims: The authors dive into key decisions coming out of New Jersey and Iowa on this familiar risk management topic. They caution risk managers to “make certain your CGL policy has a subcontractor exception in the ‘your work’ exclusion. Policies containing a ‘your work’ exclusion that do not also include a subcontractor exception to that exclusion place your company at greater risk.”
  2. Additional Insured: Access to additional insured endorsements is getting narrower, according to the authors. A decision from New York continues this trend: the June 2017 decision from New York’s high court in Burlington Ins. Co. v. NYC Transit Auth.

The report cautions that the Burlington decision “may come as a surprise to many policyholders who expect courts to interpret additional insured endorsements broadly, particularly ISO’s standard form endorsements. Risk managers concerned about this potential reduction in coverage can follow the advice of the Burlington court: ‘Of course, if the parties desire a different allocation of risk, they are free to negotiate language that serves their interests.’”

  1. Scope of Coverage: It’s important to understand your home jurisdiction’s philosophy on long-tail general liability claims. There are two types of jurisdictions, according to the authors: “all sums” and “pro rata.” In 2017, there were several decisions that complicated this well-understood legal dynamic.

“If your company faces a long-tail claim, be proactive and understand the scope of coverage law applicable to your historic policies. If the jurisdiction applies the ‘all sums’ principle, make sure your counsel is aware of it. If not, confirm whether your historic policies contain non-cumulation clauses or if the applicable jurisdiction has considered the ‘unavailability’ exception to pro rata allocation.”

For more information on “all sums” versus “pro rata,” as well as detail for all of the top legal developments, please visit www.rims.org and download the paper. All RIMS papers are members-only for the first 60 days of their release.

Should You Respond to a Reservation of Rights Letter?

An organization buys insurance to transfer certain types of risks (depending on the policies purchased). If a covered event occurs that results in a loss, you submit a claim and get paid. Simple, right? That’s how it would seem, but many experienced risk managers know it doesn’t always go that smoothly.

A recent RIMS Executive Report discusses one of the most common instances when things don’t go according to plan, and the insurer sends along some unpleasant surprises. In “A Risk Manager’s Guide to Reservation of Rights,” we learn how an insurer protest against paying a claim is commonly initiated and communicated: the dreaded reservation of rights letter.

In case you’ve never had the pleasure of receiving one, a reservation of rights letter is “a notice that the insurer has reserved its rights to either limit or deny coverage for the claim, based on the terms and conditions of the policy or information uncovered in an investigation of the claim itself.” In other words, these legal notices can become hurdles for an organization trying to realize the value of the insurance it has purchased.

Many risk managers do nothing when they receive this letter—they assume that the insurer will act in good faith and everything will work out. The authors of the RIMS Executive Report, however, strongly encourage a more active response. At the very least, the risk manager should compare the wording of the letter to the insurance policy language in question, as well as draft a response to the letter. The authors state: “Generally, there is no requirement that a policyholder respond to an insurer’s reservation of rights letter, disagreeing with the reservation or the bases thereof. However, it is highly recommended that the policyholder do so.”

A response letter might look something like this:
In some cases, a well thought-out response can save an organization a large amount of money. A good example is the common insurer-proposed reservation to recover defense costs spent on defending a policyholder if the insurer determines at a later date that it did not, in fact, have a responsibility to defend. In order to reject this reservation and the big legal bills that could come with it down the road, many jurisdictions in the United States require that the insured respond to the reservation of rights letter and specifically disagree with this detail.

According to the authors: “Receipt of a reservation of rights notice should prompt a review by risk managers…leading to an informed decision and deliberate action: whether to accept the insurer’s interpretation of the coverage and defense obligations, or respond with a reservation of its own rights. If not, unexpected and unintended consequences may result.”

The report also includes more in-depth information on obligatory communications, the use of tolling agreements and conflicts of interest that arise in these situations. In a reservation of rights situation, there can be some tricky territory to navigate. For example, insureds are almost always contractually obligated to cooperate with the insurer’s investigation and defense of claims. Failure to communicate or cooperate with these efforts can be a breach of contract and result in loss of coverage. It is important for the insured (i.e., the risk manager) to “understand its obligations in the claims management and settlement process, and the continuing obliga­tions when a reservation of rights notification is issued.”

The balancing act is that “Insureds need to continue cooperating…regardless of any coverage disputes, to preserve the continuity of claim management as well as meet the policy obligation.”

As the coordinator between functional areas and the in-house risk expert, risk professionals have an important role in all of these stages.

RIMS Conference Veterans Offer Advice to First Time Attendees

Last week a member of the RIMS Opis online community asked an important question: “What advice can RIMS Annual Conference & Exhibition veterans give to someone attending the show for the first time?” Luckily, the risk management community rushed in with some sage advice.

First and foremost, several people pointed out how helpful the First Time Attendee Orientation (4:30 p.m. on Sunday, April 23) is. Aside from getting the conference layout, attending the orientation is a great opportunity to meet and get to know people, as “networking is a huge benefit—perhaps the biggest benefit—of attending the conference.”

Here are some other tips from previous attendees to get the most out of the conference:

  • Download the RIMS app. The app will help to keep you on schedule. “I love this app because you can add your own events, see who is attending and plan your schedule. It even has a map!”
  • Leave the uncomfortable shoes at home. The Pennsylvania Convention Center in downtown Philadelphia is massive, and attendees will be doing a lot of walking. That said, don’t opt for flip-flops either, as most attendees are in business formal or business casual attire. One commenter shared this helpful system, “I can’t emphasize comfortable shoes enough! I log 25,000+ steps each day of RIMS and it is non-stop from morning to night. I bring a backpack and carry dressier shoes if I need to put them on for a specific meeting during the day.”
  • Take advantage of free food. “If you work this out right, you won’t buy any meals (except the occasional),” one commenter said. “There are many opportunities to eat for free at a RIMS Annual Conference, and that’s just on the tradeshow floor!” There are also several evening events hosted by underwriters and brokers, some of which splurge on impressive entertainment.
  • Get organized, but stay flexible. There are more than 150 education sessions, tradeshow floor activities and general sessions to attend. Before you get to Philadelphia, make note of the sessions you would like to attend, and put holds on your calendar along with location information. That way you won’t feel overwhelmed and flustered when you’re on site. There will inevitably be things that pop up when you’re at RIMS 2017—your plans will change, and that’s OK.
  • Find a show veteran to tag along with. Doing this can help with maneuvering the Exhibition Hall and to learn how to “work” the tradeshow floor.
  • Talk to the people around you. This can’t be emphasized enough. During down time before or after education sessions, during meals and at parties, be sure to meet new people and collect their business cards. Many business deals and careers have received big boosts from new connections made at the annual conference.
  • Bring a very tall stack of business cards!

Finally, a RIMS member advised attendees who don’t want to leave their healthy habits at home amidst all of the activity and parties, to “embrace wellness” with these tips:

  • Take part in the 5K Fun Run. This event will take place on Tuesday morning, before the start of educational sessions. It’s a great way to network, raise money for Spencer Educational Foundation (which supports the next generation of rising risk professionals), and experience the host city with an early morning perspective.
  • Visit the Wellness ZENter. The ZENter will be located centrally in the RIMS Marketplace Exhibit Hall.
  • Drink plenty of water. In addition to the health-conscious choices available at RIMS meals, look for other options, such as infusers and water bottles, in vendor handouts and giveaways.

Weighing In on Stand-Up Workstations and Exercise Balls

Stand-up workstations and exercise balls used for sitting in place of an office chair are gaining popularity. This has been fueled by reports of workers at Google, Facebook and other companies trading in their chairs to stand, or bounce, while working. They cite studies of the harm that hours of sitting can do.

Even here at the RIMS office several employees prefer sitting (or bouncing) on exercise balls to the familiar rolling desk chair, or working at a stand-up desk. Risk professionals have long been discussing the merits and downsides of these two popular choices.

But are these alternative ergonomic preferences really that beneficial?

Recently in an online discussion, some members of the RIMS Opis community said they were not in favor of exercise balls as ergonomic solutions. A risk manager in Oregon stated it bluntly: “Exercise balls should be limited to fitness programs. Your [workers comp] will own the injury if an employee slips off the ball and hits [his or her] head or has a soft tissue injury from the fall.” Several other commenters agreed that the balls are unstable and their use is discouraged or officially prohibited.

A CEO said: “While great for encouraging engagement of your core muscles during exercise, [balls] are not good for sitting at a workstation and in fact, research shows, increase your risk of ergonomic injury.”

In fact, some research has found their benefits negligible. A study of 28 subjects found that exercise or chair balls offer no advantages over a traditional workplace chair. According to a study by BioMed Central:

Results:

The results showed no significant difference with regard to spinal curvature between seating types. Initial sitting curvature was found to increase significantly over 30 minutes in both the desk chair and stability ball. In addition the results of the usability questionnaire showed a significant difference in three of the eight questions, in favor of the desk chair.

Conclusion:

No benefits were found through sitting on a stability ball over that of a desk chair in prolonged sitting as both seating types were found to replicate a poor sitting position through a kyphosed [outwardly curved spine] and slumped posture. The clinical implications of this study serve to benefit any healthcare professional considering use of the stability ball as a replacement desk chair.

In another online comment, a Missouri risk manager suggested a compromise, elaborating that while his organization allows their use, “They cannot be free-standing balls… they must be part of a chair ball with wheels and a seat backing.”

Stand-up desks received more positive feedback. Several risk professionals cited research equating excessive sitting and sedentary lifestyles with serious chronic health problems. A number of commenters shared anecdotes about how stand-up workstations have helped employee health issues. Several users noted that in their newly renovated, or soon-to-be-renovated, offices, stand-up workstations are de rigueur.

Who pays for these workstations? Most who commented said, or implied, that their companies foot the bill for stand-up desks if an employee requests them. Most seem willing to make the investment based on reports that providing ergonomic options can reduce workers comp claims.

Not all are sold on the benefits, however. A commenter from Chicago said, “As odd as it sounds, stand-up desks may not be wholly safe…. People get tired and fall down using them. And there is no confirmation standing is less stressful than sitting. Folks very quickly started to complain of sore hips, knees, feet and spines.”

A Virginia risk manager shared the wisdom of moderation and the middle ground, saying, “While sitting is bad—and the motive for getting a standing desk—standing all day can cause myriad lower back, leg and feet issues. It would be similar to what risk managers at grocery stores have to deal with their cashiers on their feet all day. Interspersing standing with sitting is key.”

Some researchers agree with this conclusion. A New York Times article reported that 15 minutes per hour at a standing workstation is recommended over standing all day.