Litigation Risk

Liberty! Fraternity! Liability!

Universities, fraternities and their local chapters, and individuals may face liability for sexual assault, alcohol abuse or other actions.
By: | April 13, 2015 • 4 min read
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Recent incidents alleging alcohol abuse, sexual assault and other bad behaviors at America’s college fraternities have drawn national attention. Much of the discussion has focused on causes and prevention, but with litigation inevitable in some of these incidents, questions of liability are sure to arise.

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Individuals directly involved in such incidents face potential liability, but claims can also extend to the local and national fraternity organizations, to the universities and colleges with which they are affiliated, and even to the local chapters’ officers and their families.

“It all depends on how the claim or the complaint that is filed in court is framed. What are the allegations in that litigation? Who are the named defendants, and what are the circumstances of how it happened and can it be corroborated?” said Michael Liebowitz, senior director of enterprise risk management and insurance at New York University.

The local and national fraternities may face liability for incidents that  occur during fraternity events, especially on fraternity premises. Most local chapters have liability coverage purchased by their national organizations through a handful of companies that specialize in insuring fraternities and sororities. The largest of these, James R. Favor & Co., was actually acquired by a group of national fraternity organizations in 2006.

But just because a fraternity has general liability insurance, doesn’t mean a particular incident will be covered.

But just because a fraternity has general liability insurance, doesn’t mean a particular incident will be covered.

“Insurance policies typically exclude any criminal violations. So if it’s considered a crime, the policy is not going to cover it,” said Leta Finch, leader of Aon Risk Solutions’ national higher education practice.

In March 2014, “The Atlantic” reported that most fraternities have stringent, but largely unenforced, alcohol policies in place. The vast majority of fraternity-related injuries, assaults and other incidents involved violations of alcohol policies, which effectively provide liability protection for the fraternities while placing the individual members outside the coverage.

Lisa Zimmaro, assistant vice president for risk management and treasury at Temple University in Philadelphia, said that “fraternity insurance carriers have huge exclusions for alcohol-related events and sexual assault. … If the insurance carrier for the fraternity excludes certain acts, then the victim would have to look elsewhere for compensation for damages.”

One place they might seek compensation is from the university or college with which the fraternity is affiliated — and the nature of that affiliation can help determine what liability the institution might face.

Institutions that provide fraternities with space on campus, security, financial support or other resources could be perceived as having greater liability.

Closer relationships mean greater liability. Institutions that provide fraternities with space on campus, security, financial support or other resources could be perceived as having greater liability. Those with more distant and less structured affiliations would face fewer liability issues.

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Institutions should also be aware of exclusions to their coverage.

“If it is excluded on the policy and there is a finding in a civil action, the university would end up paying out of pocket. Just because there is an insurance exclusion doesn’t get them off the hook,” said Zimmaro, who added that institutions should also be aware of sub-limits.

“There maybe sub-limits, even if there’s not an outright exclusion, maybe coverage up to $5 million instead of $25 million. Know the limits of what your policy is going to pay,” she said.

The best way to avoid liability may be to prevent fraternity incidents from occurring, but ironically, codes of conduct and prohibitions on behaviors can increase liability if they lack adequate follow through.

“The minute colleges and universities start to dictate policy on fraternities and sororities, they are vicariously picking up liability, because then they are going to be forced to police it.” — Michael Liebowitz, senior director of enterprise risk management and insurance, New York University

“The minute colleges and universities start to dictate policy on fraternities and sororities, they are vicariously picking up liability, because then they are going to be forced to police it.

“[If] something bad happens because someone broke the rules, then the question is, ‘Why didn’t you have surveillance in place to monitor what was going on?’ So it is very much a double-edged sword,” said Leibowitz.

Finch pointed out that enforcing codes of conduct that lack clear consequences can also leave institutions exposed to liability from violators who feel they have been disciplined unfairly, treated inconsistently or been denied due diligence rights.

Parents of fraternity members can also face liability — and not just the parents of those directly involved in incidents.

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Leibowitz said that while primary liability lies with the fraternity member who committed the acts in question, “the rest of it lies with the officers of the chapter, from the president straight on down, because they’re the ones that set the tone, they’re the ones that are supposed to control what goes on. … If you want to be an officer, it comes with responsibility, and responsibility comes with liability.”

Zimmaro agreed. “Families are sued all the time for the acts of their students who are involved in incidents involving any kind of organization where someone gets hurt. An attorney is going to look for a compensation source, and if it’s mom and dad, then it’s mom and dad.”

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]
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Risk Management

The Profession

Scott Clark agreed to join Miami-Dade County Public Schools for two years to help build its risk management department. Then he forgot to leave.
By: | March 2, 2015 • 5 min read

R&I: What was your first job?

I got into the insurance business working for the Combined Insurance Co. of America on a part-time basis while I was attending the University of Illinois.

I was interested in the business partly because my great-grandfather started a regional property insurance company in 1917 in Indianapolis, Ind., named Merchants Property Insurance Co. of Indiana. It is still family owned and I succeeded my father on the board of directors when he passed away in 2011.

R&I: How did you come to work in risk management?

I was recruited by Wausau Insurance Cos. … As it turned out, the Superintendent of Schools for Miami-Dade County Public Schools (M-DCPS), Leonard Britton, had been reading about risk management and told his friend — who happened to be my boss with Wausau — that he wanted to create a risk management department from what was the current insurance department.

I [agreed] to meet with Superintendent Britton … he told me of his vision. Ultimately, I told Dr. Britton that I would come to the school for two years and help him build a risk management program for the district [but] I forgot to leave. I’m currently in the middle of my 29th year here!

R6-14p42_Profession.inddR&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

I think the biggest change is the fact that risk managers are not just viewed as insurance purchasers but professionals that sit at the highest levels of our organizations and serve business leaders on a macro level rather than just serving as insurance people within our organizations.

With a push from the risk management community, the insurance industry has become more accountable to their policyholders. This includes listening to the risk management community with regard to the types of coverage risk managers are seeking, including terms and conditions; issuing policies in a timely manner; and overall becoming a partner in creating strategic risk solutions.

R&I: What emerging commercial risk most concerns you?

Like many other industry professionals I am concerned about cyber risk, but my concern transcends the normal risks associated with cyber. It’s not just about making sure that … the personal information of my 345,000 students and 50,000 full and part-time employees is not hacked.

We have a significant focus on placing technology in the hands of our students, and to move them from traditional book learning into a high-tech environment of teaching and learning. That includes providing students with tablets, outfitting classrooms with SmartBoards and empowering all 345,000 students to become technologically savvy so that they will be able to compete in a technologically sophisticated world.

When you do that, cyber capability and protecting the risk around it becomes paramount. We must take necessary steps to protect [employees’ and students’] personal information, Social Security numbers, grades, and family information. Many fees which were once paid with cash are now paid with credit cards at our 400+ locations and this information must be protected as well.

With a push from the risk management community, the insurance industry has become more accountable to their policyholders.

R&I: Who is your mentor and why?

My mentor is a gentleman whom I have had the privilege of knowing and working with for my entire career at Miami-Dade County Public Schools. His name is Jim Marshall and he is a principal in the consulting firm of Silver Insurance Consultants based in St Petersburg, Fla.

I’ve worked with him for the better part of my 29 years at the Miami-Dade schools. His firm has been a consultant to Miami-Dade in property/casualty and risk management including claims administration. Jim has been instrumental in providing wording for many of the district’s manuscript insurance policies.

He is one of the most knowledgeable people I know and someone I would go to when I need clarity on how to handle a risk management issue.

R&I: What have you accomplished that you are proudest of?

Being identified as a national leader in risk management and serving as president of the Risk and Insurance Management Society (RIMS) in 2011.

R&I: What is your favorite book or movie?

Devil in the White City by Erik Larson is my favorite book. The book is set in Chicago around 1893 and is an interesting depiction of the 1893 Chicago World’s Fair intertwined with fictional characters and sub-plots.

Being from Illinois, I found the book fascinating for its historic depiction of the creation of the buildings for the 1893 World’s Fair on the South side of Chicago close to where the University of Chicago now is, and Erik Larson’s ability to augment this nonfiction story with creative fictional story lines and sub-plots.

I remember vividly how young the North Korean soldiers appeared to be, and I was only 20 years of age myself at the time.

R&I: What is the most unusual/interesting place you have ever visited?

Seoul, South Korea. I was fortunate enough to be able to travel with my best friend and fraternity brother and his family my senior year at U of I. His father was a project engineer for Amoco and they were building a refinery in the Seoul area.

I believe it struck me as a kid from Illinois as it was so different from other places I had traveled and we were actually able to go to the demilitarized zone and step into North Korea.

I remember vividly how young the North Korean soldiers appeared to be, and I was only 20 years of age myself at the time.

R&I: What is the riskiest thing you have ever done?

As a risk manager, I dare say that I typically do not participate in risky things; however, the two things which come to mind which I would typically not do include taking a small seaplane from Vancouver to Victoria (we returned by way of Ferry).

The other was a helicopter ride over the Hawaiian waterfalls and the pilot realized halfway through the trip that he was on the wrong radio frequency and unable to communicate with other helicopters in the area.

R&I: If the world has a modern hero, who is it and why?

Heroes are very personal and it’s not my place to name one for the world; however, my father who passed away in 2011 was one of mine. He taught me right from wrong, supported me and was very proud of my career in the insurance industry.

Janet Aschkenasy is a freelance financial writer based in New York. She can be reached at [email protected]
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A Global Perspective

Political risk is on the rise in an increasingly unsteady world.
By: | August 3, 2015 • 5 min read
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As any traveler knows, the world is full of uncertainty and dangerous places, where the challenges of simply trying to run a profitable business far from home are complicated by even greater risks, such as political violence, civil unrest, credit risk, corruption, expropriation of private assets by the government, and more.

Anyone doubting this need only take a look at current events. Some 70 percent of the world’s nations currently have serious corruption problems throughout their governmental and civil service framework. Nearly 40 percent of all nations are experiencing some form of significant civil unrest. Signs of economic distress are everywhere, from falling oil prices to Eurozone debt crises to economic slowdown in China.

Despite such geopolitical risks, the world still needs its businesses to continue running amid dangers that range from warfare and terrorism to punishing economic conditions caused by international sanctions, to simple graft and hostility toward foreigners.

For global and multinational companies, keeping an eye on their political risk profile is as important as handling worker safety, environmental impact, products liability, or any other insurable risk. Thankfully, political risk exposures are insurable as well, and Starr Companies is there to provide its clients with robust political risk insurance coverage, a suite of unique support services that truly is second to none, and the ability to educate clients on how to manage their political risk.

Political risk hazards generally fall into one of the following categories:

Breach of Contract and Non-Honoring of Financial Obligations

Starr_BrandedContentThese related hazards involve the failure of a local actor to uphold their contractual or financial obligations to a foreign investor, and the inability or unwillingness of local authorities to intercede on the foreign investor’s behalf. This is perhaps the most common form of political risk hazard, as it is a major problem in any environment where there is substantial economic instability and/or corruption.

Confiscation of Property

Also known as “expropriation,” “ownership risk” and “nationalization,” this is when a government seizes property or assets without compensating the owners for them. An overt example of expropriation would be a revolutionary government seizing an office building or a factory belonging to a foreign-owned corporation. An example of creeping expropriation would be a series of successive events by a government to gradually deprive an investor of their property rights.

Regulatory Changes

This is when the local laws change in such a way as to constrict foreign investors’ economic activity in some way. It could range from creeping expropriation to changing taxation or labor laws that might simply make it far less profitable or far less efficient for a foreign entity to operate in a local jurisdiction.

Inconvertability of Currency

Also known as “transfer risk,” this is when a government takes action to prevent the conversion of local currency to another form of currency, making it difficult or impossible for foreign investors to transfer their profits elsewhere. This tends to happen in countries undergoing some kind of political crisis, like when Zaire—now the Democratic Republic of Congo—declared a new national currency in 1980.

Political Violence

Starr_BrandedContentProperty or income losses stemming from violence committed for political purposes, including, but not limited to declared and undeclared warfare, hostile actions taken by foreign or international forces, civil war, revolution, insurrection and civil strife (politically motivated terrorism or sabotage).

Kidnap and Ransom

Political violence might also manifest itself as a kidnap, ransom and extortion hazard, but that is typically covered by a separate, specialized policy.

To protect against these risks, insurers can provide comprehensive and custom-tailored political risk solutions, which at a client’s request can be broadened to cover investment contract repudiation, currency inconvertibility and political violence. Such policies typically last for periods of 5 to 10 years. Protected assets for this coverage include fixed assets (e.g., a factory, farm, warehouse or office), mobile assets (e.g., harvested natural resources, raw or manufactured inventory or mobile equipment), leased assets (e.g., aircraft, watercraft or construction vehicles) and investment interests in assets abroad (e.g., money dedicated to funding a foreign project, held in a host country bank and subject to expropriation).

Kidnap & ransom coverage protects company personnel and family by providing financial reimbursement for such an event. Depending on the insurer, some K&R programs also provide independent expert consultancy before and after a potential act of kidnapping, ransom or extortion.

Starr_BrandedContentGreat insurance coverage isn’t enough to adequately protect against political risk, however. Businesses need extra support to stay on top of their exposures, and to know what the latest geopolitical developments are.

 

Starr Companies, for example, does this through Global Risk Intelligence, a specialized team of political risk experts with long-standing backgrounds in national intelligence and international affairs. GRI delivers to Starr clients a unique risk advisory service that spans the gamut of commercial property & casualty exposures. GRI also produces two assets that are extremely helpful. The first is the Executive Intelligence Brief, a world-class monthly analysis of ongoing geopolitical developments (especially in emerging markets) available exclusively to a carefully selected readership of top executives. The second is the Global Risk Matrix, a quarterly ranking of the overall political security risk of every country on the planet.

The world’s geopolitical landscape is changing at a remarkable pace, with new risks and uncertainties arising in even the unlikeliest of places. And yet, as business becomes ever more globalized, insurers can provide their clients with tailored coverage to absorb the losses that stem from political turmoil. By finding the right insurer, with the financial strength to cover their risks as well as the analytical acumen to help turn risk into opportunity, businesses can create partners in prosperity anywhere in the world.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Starr Companies. The editorial staff of Risk & Insurance had no role in its preparation.




Starr Companies is a global commercial insurance and financial services organization that provides innovative risk management solutions.
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