Water Crisis

Water Crisis Damages Flint Businesses

Flint businesses are seeing a loss of revenues and continue to face reputational damage.
By: | March 11, 2016 • 3 min read
Flint water crisis

Early this year, President Obama declared a state of emergency due to the water crisis in Flint, Mich., making the city and its residents eligible for federal disaster aid.

Officials eventually took action to make Flint’s water supply safer, but businesses still face reputational damage, loss of revenue and for the most part, no insurance coverage due to pollution exclusions.

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In April 2014, Flint switched from using Detroit’s water system to draw its own drinking water from the Flint River. Since then, the river’s acidic water corroded lead pipes, leaking lead into the city’s drinking water.

While residents began complaining in 2015 about the odd smell, taste, and discoloration of the water, public officials insisted it was safe to drink. That was until a September 2015 study by the Hurley Medical Center found that the number of children with above-average levels of lead in their blood nearly doubled after the city changed its water source.

Flint officials acknowledged the problem and the city started getting water from Detroit again the following month.

But the damage had already been done, not just to the thousands of residents who were exposed to high levels of lead, but to homes and businesses with lead plumbing that began to corrode from the acidity.

While a safer source of water is now in place, the physical and economic damages could mount for years.

Businesses in the city are “significantly impacted,” said George Wilkinson, group vice president of the Flint and Genese Chamber of Commerce.

The event is not only a public health crisis but an economic crisis that is resulting in a loss of sales and a halting of business operations, he said. It has been especially problematic for restaurants, hotels and those in the hospitality industry.

“They’re seeing a significant decline in [revenue]. There’s also an increase in expenses because they’re buying bottled water and having to install filtration systems,” Wilkinson said.

Flint’s restaurants now regularly test their water and some installed filtration systems that can cost up to $2,000 each.

While business owners can act to ensure their water is lead-free, the real problem is the reputational damage that the city faces, he said.

“They can be cleared by the Health Department but the real problem is the negative perception. The media is portraying Flint as a war zone,” Wilkinson said.

Flint business owners are largely left exposed because business interruption insurance has stringent pollution exclusions, said Micha Knapp, a producer at the Graham Co. in Philadelphia.

Most general liability and property policies preclude any business interruption or property damage arguments a customer could make, he said. In addition, commercial general liability policies do not cover risks associated with polluted water as they often contain an Absolute Pollution Exclusion or a Total Pollution Exclusion specific to lead.

“From a liability and property perspective, there’s often a suite of pollution exclusions that will remove any coverage for a pollutant or containment like lead. It can leave a company susceptible,” Knapp said.

Dave Walker, president of Hartland Insurance Agency in Hartland, Mich., said few businesses in Flint have the specialized insurance necessary to cover businesses losses.

“They would have to have expected this to have that kind of coverage in place. It’s not something most businesses carry,” he said. “Most will have to [cover losses] out of pocket.”

Knapp said it’s important for Flint businesses to continue to effectively test the water for environmental hazards that could impact customers’ health. He recommended they also consider eventually removing and replacing lead pipes on their properties.

Companies can also consider a Pollution Legal Liability insurance policy, which is geared specifically to the restaurant, hospitality and real estate sectors. Such coverage will also protect companies against liability and property damage associated with Legionella.

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“Most don’t have it but there are markets out there that will pick up that coverage,” Knapp said.

Flint’s water crisis could be a glimpse into a mounting national problem, according to experts.

Fitch Ratings said in early-March that there are more than 6 million lead water service lines in existence around the country, most of which are located in the Northeast and Midwest.

Dr. Jeffrey Griffiths, a professor of public health at Tufts University and a former chairman of an advisory board for the U.S. Environmental Protection Agency’s Drinking Water Committee, said in an article for the Detroit Free Press that many of the nation’s pipes can not be located or tested.

Craig Guillot is a writer and photographer, based in New Orleans. He can be reached at [email protected]
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Risk Insider: Dan Holden

Oklahoma’s Pretzel Logic

By: | March 2, 2016 • 2 min read
Dan Holden is Manager of Corporate Risk & Insurance for Daimler Trucks North America (formerly “Freightliner”). He manages the risk management program in the U.S., Canada and Mexico. He can be reached at [email protected]

As a veteran of the workers’ compensation claims trenches, I saw first-hand how the expensive nature of the system drove employers out of business. Not only was it sad to see businesses go belly-up, it was equally sad for the workers who were suddenly unemployed.

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It was definitely a case of lose-lose.

One way to combat the high costs of workers’ compensation was to opt-out of the traditionally expensive system in states that allowed it. By opting out, employers were forced to be more engaged in the administration of their program and focus more on the outcomes.

The result was a less expensive system; providing quality benefits to the injured workers; thus improving the overall outcome.

Oklahoma was one of the states that seemed to have found the right mix. So I was quite dismayed to learn of the recent decision by the Oklahoma Workers’ Compensation Commission (WCC).

The case, Vasquez v. Dillard’s Inc., involved a worker for Dillard’s who was denied benefits after a work injury that was determined to be an aggravation of a pre-existing injury.

Oklahoma was one of the states that seemed to have found the right mix. So I was quite dismayed to learn of the recent decision by the Oklahoma Workers’ Compensation Commission (WCC).

The WCC declared the opt-out portion of the workers’ compensation system unconstitutional because they felt it created a dual system whereupon the injured worker is treated differently.

The most intriguing facet is how the WCC abandoned their traditional administrative role for that of a judiciary in deciding what law is, and is not, constitutional.

That, I suppose, is another story.

However, they completely ignored the already approved opt-out option and remanded the case back to the Administrative Law Judge within the traditional workers’ compensation system.

Not only am I concerned about that sort of pretzel logic, but I also see it as another attack on exclusive remedy.

Right now my company doesn’t do business in any of the opt-out states. That doesn’t mean we wouldn’t consider it if that option presented itself down the road.

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But that is probably on hold as any state considering moving forward with the opt-out system has now been stopped dead in their tracks. Best to sit tight for now.

As for whether the Oklahoma ruling will change what I do in regards to workers’ compensation remains to be seen. As I’m sure many employers will do now, I’ll wait on the sidelines and see how this plays out.

This is basically what I was doing before the Oklahoma ruling … observing from afar to see if the opt-out system (if/when it came to my states) was not only cost-effective but also fair to the workers.

To be honest, I would never consider an alternate workers’ compensation system unless I was convinced it offered our injured workers the same, or better, benefits as the traditional system. I would also need to be convinced that it produced better outcomes.

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Sponsored: Liberty Mutual Insurance

Buyers Beware: General Liability Outlook May be Shifting

Buyers should focus on building a robust GI program and risk management infrastructure to lessen the impact of emerging GI trends.
By: | July 5, 2016 • 6 min read

The soothing drumbeat of “excess capital” and “soft market” to describe the general liability (GL) market is a familiar sound for brokers and buyers. Emerging GL trends, however, suggest the calm may not last.

Increasing severity of GL claims may hit some sectors like a light rain at first, if they have not already, but they could quickly feel like a pelting thunderstorm in others. A number of factors could contribute to the potential jump in GL prices for certain industry segments or exposures, possibly creating “micro” or niche hard markets in the short-term, and maybe even turning the broader market over the longer-term.

“There are trends we’re seeing that will play out slowly. Industries that carry more general liability exposure will and have been hit first and hardest, but it won’t apply across the board initially,” said David Perez, Senior Vice President and Chief Underwriting Officer, for Liberty Mutual Insurance’s National Insurance Specialty operation. “There is ample capital in the market today, which allows a poor performing account to move its policy frequently from carrier to carrier. Poorer performing classes, however, will likely face increased pricing for GL policies and a reduction in capacity.”

The good news for buyers is that they can take action today to lessen the impact these trends and the evolving market may have on their GL programs.

David Perez on the state of the GL market.

Medical and Litigation Trends Drive Severity

One factor increasing claim severity is the rising cost of health care, driven both by greater demand and by medical inflation that is growing faster than the Consumer Price index.

The impact of rising medical costs on commercial auto is well-known. Businesses with heavy transportation exposures are finding it more difficult to obtain coverage, or are paying more for it.

That same trend will impact general liability, just on a slower and more fragmented basis.

LM_SponsoredContent“In light of these trends, brokers and buyers should seek to understand how effectively their current or potential insurers defend GL claims, particular in using evidence-based medicine to assess and value the medical portion of a claim, and how they can provide necessary care to claimants while still helping clients control their total cost of risk.”

— David Perez, Senior Vice President & Chief Underwriting Officer, National Insurance Specialty, Liberty Mutual Insurance

“It takes longer for medical inflation to register through the tort system in general liability than it does in auto liability (AL) because auto claims are generally resolved more quickly,” Perez said. “But the same factors affecting severity in AL also exist in GL and as a result, it’s foreseeable that we will not only see similar severity trends in GL, but they may in fact be worse than we’ve seen in commercial auto.”

Industries with greater exposure to severity in general liability claims should be the first wave of companies to notice the impact of medical inflation.

“Medical inflation will drive up costs across the board, but sectors like construction and product manufacturing have a higher relative exposure for personal injury lawsuits.”

The impact of medical inflation on the GL market.

Beyond medical inflation, two litigation trends are increasing GL damages. First, plaintiffs’ lawyers are seeking to migrate the use of life care plans—traditionally employed only for truly catastrophic injuries—to more routine claims.  Perez recalled one claimant with a broken thumb and torn ligaments who sought as much as $1 million in care for the injury for the rest of his life.

Second, the number of allegations of traumatic brain injuries (TBI) in GL claims is growing.  It can be difficult to predict TBI outcomes initially and poor outcomes can be expensive and long tailed.

“In light of these trends, brokers and buyers should seek to understand how effectively their current or potential insurers defend GL claims, particular in using evidence-based medicine to assess and value the medical portion of a claim, and how they can provide necessary care to claimants while still helping clients control their total cost of risk,” notes Perez.

Changing Legal Landscape

Medical inflation and litigation trends are not the only issues impacting general liability.

Unanticipated changes in court interpretations of policy language can throw unexpected pressure on GL pricing and capacity.

Courts sometimes issue rulings interpreting policy language in a manner that expands coverage well beyond the underwriter’s original intent. Such opinions may sometimes have a retroactive effect, resulting in an immediate impact on not only open, but also closed cases in some circumstances.

Shifts in the Marketplace

In addition to facing price increases, GL brokers and buyers will be challenged by slightly shrinking capacity due to consolidation and repositioning among carriers in the marketplace. “Some major carriers have scaled back their GL writing, resulting in a migration of experienced senior management. As these executives leave, they take their GL expertise and relationships with them, resulting in fewer market leaders and less innovation,” Perez said.

“Additionally, there are new carriers coming into the business that may not have the historical GL loss data to proactively identify trends or the financial strength and experience to effectively service their GL customers and brokers. Both trends make it important for brokers and buyers to work with an insurer that is committed to the GL market and has the understanding and resources to help better manage risks impacting customers.”

Last year saw a high level of mergers and acquisitions in the insurance industry. Buyers should take advantage of that disruption to re-evaluate their needs and whether their insurers are meeting them.  Or better yet, anticipating them.

What’s a Buyer to Do?

Buyers—and their brokers— should look to partner with insurers that can spot emerging trends and offer creative solutions to address them proactively.

What should buyers and brokers do, given the trends facing the GL market?

“Brokers and buyers should value insurers that have not only durability and a long history in the general liability business, but also a strong risk management infrastructure,” Perez said. “Your insurer should be able to help you mitigate your specific risks, and complement that with coverage that works for you.”

Beyond robust GL claims and legal management, Liberty Mutual also provides access to one of the insurance industry’s largest risk control departments to help improve safety and mitigate both claim frequency and severity.

In addition, notes Perez, “Even if a company has a less than optimal loss history in general liability, there can be options to provide adequate coverage for that company. The key is to partner with an insurer that has the best-in-class expertise, creativity, and flexibility to make it happen.”

By working closely with their insurers to understand trends and their potential impacts, brokers and buyers can better prepare for the possible GL storm on the horizon.

To learn more about Liberty Mutual’s general liability offering, visit https://business.libertymutualgroup.com/business-insurance/coverages/general-liability-insurance-policy.

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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 Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.

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Liberty Mutual Insurance offers a wide range of insurance products and services, including general liability, property, commercial automobile, excess casualty, workers compensation and group benefits.
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