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: Berkshire Hathaway Specialty Insurance

Searching for Stability in Cyber Space

The dynamic cyber risk landscape demands a stable insurance carrier with a prudent approach and an eye on the long road.
By: | April 18, 2016 • 6 min read

SponsoredContent_BHSICyber risk affects every industry differently, but there’s one common denominator. No sector is safe.

As headline-grabbing breaches crack systems and tarnish reputations of major retail, healthcare and financial companies, the need for cyber insurance has become increasingly apparent.

Given the constantly changing nature of cyber risk and the market landscape, creating a stable, sustainable cyber insurance business demands a prudent approach, with an eye on the long road.

“We’ve seen carriers jump in and out, wanting to take advantage of a new opportunity, but perhaps underestimating the risk,” said Danielle Librizzi, Senior Vice President, Head of Professional Liability, Berkshire Hathaway Specialty Insurance (BHSI).

“As cyber exposure became more tangible to carriers, in-force coverage was tested and many made radical changes to pricing and availability of coverage. BHSI is committed to entering the cyber market in a thoughtful and sustainable way. We want to be there for our customers as the risks continue to evolve.”

Diverse, Evolving Risks

Danielle Librizzi, Senior Vice President, Head of Professional Liability, Berkshire Hathaway Specialty Insurance

Danielle Librizzi, Senior Vice President, Head of Professional Liability, Berkshire Hathaway Specialty Insurance

Cyber exposure – and coverage — have been evolving, posing different risks and underwriting challenges for different industries. The technology, financial services and healthcare industries illustrate the diverse issues that must be considered in order to provide effective, financially sustainable cyber solutions.

The technology sector was the first cyber battleground, and technology E&O forms included some cyber coverage by virtue of the nature of the risk. “There’s inherent cyber coverage for third party liabilities in E&O,” Librizzi said.

While coverage is widely available, tech companies pose challenges to underwriters because of their unique position in the cyber “supply chain.” These companies provide software, hardware and cloud services; virtually every organization in the world is dependent on a tech provider of some stripe. If an insurer is covering both the provider and its clients, the aggregate risk should be monitored closely.

Think of a DOS attack on a cloud provider that prevents all of its clients – which could include anyone from a bank to a retailer or transportation company — from accessing stored customer or corporate data or running cloud-based service apps. That single attack could bring business in multiple industries to a grinding halt, potentially causing business interruption and E&O losses.

SponsoredContent_BHSIThe tech industry hasn’t seen a large scale event like this yet, but it isn’t waiting around for one to strike before addressing the underlying risk. Controlling and accounting for the aggregate exposure will mold the direction that coverage development takes.

“Our combined form, introduced in October, 2015, is a comprehensive solution that includes first and third party cyber coverage as well as traditional E&O coverage,” Librizzi said.

However, that approach may not be appropriate for other industries. Financial Institutions, for example, may seek a dedicated cyber only policy which does not include traditional E&O coverage.

While banks typically have strong protocols for network security and privacy, they also have a much greater exposure in massive stores of customer data. Financial Institutions are looking to address liability in the form of class action lawsuits or heavy regulatory investigations and fines emanating from cyber, and may not want to compromise their traditional E&O limits.

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“Additionally, given the increased reliance on outsourced providers for technology solutions, we have started to see the introduction of sub-limited coverage for dependent business interruption and payment card industry (PCI) fines and assessments as enhancements to coverage,” Librizzi said. “We might see those sub-limits go to full coverage as competition gets heavier.”

Other industries, which may not be as advanced as financial institutions in addressing cyber threats, have suffered more from a lack of robust cyber coverage that can keep up with increasing exposure.

Healthcare, for example, has seen a surge of cyber attacks since hospitals and other health systems went electronic. To a hacker, healthcare providers represent a warehouse of valuable personal identifiable and protected health information.

SponsoredContent_BHSIEmail addresses from healthcare systems typically are white-listed and less likely to get caught in a spam filter, giving hackers incentive to obtain access and gain control of a healthcare provider’s network in order to launch phishing attacks.

After some high-profile breaches in 2015, Human Health Services and the Office for Civil Rights came under scrutiny for not doing enough enforcement of HIPPA. Fines imposed by regulators increased dramatically over the past decade, and seem poised to only get higher.

“They’ll be ramping up enforcement of regulations in 2016, and that’s only a peek of what’s on the horizon,” Librizzi said.

The burgeoning of healthcare’s cyber exposure has challenged the insurance industry to better understand the nature of the risk and how best to secure hospital systems. Coverage for this sector remains the most difficult to write effectively.

BHSI understands the need for different customers to have different solutions. Some customers desire a dedicated cyber policy that does not include traditional E&O coverage. BHSI’s Network Security and Privacy stand-alone policy is designed to address the needs to those customers.

“The cyber exposures and coverages needs of healthcare, financial services and technology are on different timelines and will look very different in the future,” Librizzi said.

Even in more mature markets, the conflation of commercial and personal cyber risk will challenge insurers going forward. Most existing cyber products don’t cover property damage and personal injury; as the risks emerge and the Internet of Things becomes more pervasive, the coverage will have to evolve as well.

“We must always be thinking about what is on the horizon from a risk and coverage perspective – our technology driven society demands it,” Librizzi said.

Anticipating challenges and adapting to each industry’s needs has been a cornerstone of BHSI’s approach to cyber. It’s careful and measured approach has also helped the specialty insurer build an arsenal of experts and ancillary services to help clients better grasp and mitigate their exposure.

“We know the importance of really understanding the risk and communicating it clearly to our customers,” Librizzi said. “We don’t bury our coverage in a pile of definitions, and we provide the expertise to help insureds stay ahead of the next big breach.”

To learn more about BHSI’s professional liability products, visit http://www.bhspecialty.com/.

Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, medical stop loss and homeowners insurance. The actual and final terms of coverage for all product lines may vary. It underwrites on the paper of Berkshire Hathaway’s National Indemnity group of insurance companies, which hold financial strength ratings of A++ from AM Best and AA+ from Standard & Poor’s. Based in Boston, Berkshire Hathaway Specialty Insurance has offices in Atlanta, Boston, Chicago, Fort Lauderdale, Houston, Los Angeles, New York, San Francisco, San Ramon, Stevens Point, Auckland, Brisbane, Hong Kong, Melbourne, Singapore, Sydney and Toronto. For more information, contact [email protected].

The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service. Any description set forth herein does not include all policy terms, conditions and exclusions. Please refer to the actual policy for complete details of coverage and exclusions.

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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 Berkshire Hathaway Specialty Insurance. The editorial staff of Risk & Insurance had no role in its preparation.




Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, medical stop loss and homeowners insurance.
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