The Scales of Justice
Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.
Frankie and Hector
“It’s a great day for the Irish!”
Whether they loved him or found him annoying, workers in the seafood and meat departments in the Better Harvest grocery store in Boston’s Back Bay knew the meaning of that booming morning greeting very well.
It declared that boisterous fish cleaner and erstwhile fish-counter salesman Frankie Burns was at work, and he wanted everybody to know it.
Despite his sometimes jarring presence, most people loved Frankie. Frankie knew seafood, having worked on his family’s cod boat when he was younger. Now, at 55, he provided a knowledge of local fish and shellfish that was an asset in a store catering to the Back Bay’s educated, prosperous consumers.
Barrel-chested, with forearms, shoulders and biceps solidly built from years of manual labor, Frankie cheerfully and proudly unloaded the tubs of hake, pollock and flounder sold by the market.
This May morning, though, would prove to be a wake-up call for the hard-living Frankie. As he had thousands of times before, Frankie hoisted a heavy tub of iced pollock up onto the fish-cutting counter. This time, though, his back gave out.
“Whoa,” Frankie said as he clutched his lower back, wincing at the piercing, unfamiliar pain there.
Testing revealed that Frankie had aggravated a chronic degenerative back condition. His claim was found to be compensable.
With 180 stores nationwide and close to $8 billion in sales, Better Harvest’s human resources department was well-versed in the amendments to the Americans with Disabilities Act that were enacted in 2008.
Following Better Harvest’s well-documented procedures, and at Frankie’s reluctant request, Back Bay store manager Gracie Walker granted Frankie an accommodation under the ADA.
For now, Frankie was done hoisting ice-filled fish tubs. The store would need to find another fish cutter as the heaviest thing Frankie would be permitted to lift would be paper-wrapped one pound cod fillets.
“Hey, a job’s a job,” Frankie said, as he hoisted a beer and a Fenway Frank with his brother Petey at a Sox game that summer.
Hector Velasquez was the fish cutter in Better Harvest’s Brentwood, Calif. store.
At 53, Hector’s idea of a good time was to go Zydeco dancing with his latest and greatest girlfriend Vera at the Puma Club in nearby Venice Beach.
That’s exactly what Hector was doing on a steaming hot California night during a performance of his favorite Zydeco band, the Vallejo Oyster Crackers. But Hector made a misstep due to a slippery combination of spilled beer and crushed peanut shells on the dance floor of the Puma Club.
Vera tumbled to the ground with Hector but popped right back up, adjusting her hair and skirt in the process. Hector wasn’t so lucky.
“Honey, are you hurt?” Vera said.
Hector, whose love of beer, fried seafood and tortillas had left him with a stout belly, tried to get up but couldn’t.
Another dancer, seeing Hector in distress, stopped Hector from trying to move.
“Stay still, man,” the Zydeco dancer said. “You might have really hurt yourself.”
Hector’s fellow dancer put his hand on Hector’s belly to still his movements and pushed a chair cushion under his head.
“Be still a minute, man, and breathe — breathe against the pain,” the Zydeco dancer said.
Hector looked up at the man thankfully and started to breathe more deeply, his beer belly rising and falling with each labored breath.
Hector couldn’t make it to work the following Monday and filed for leave under the Family Medical Leave Act.
Hector rested for a few days, trying to dull the pain with Ibuprofen and light beer. Given that he wasn’t hurt at work, Hector didn’t go to a doctor, thinking he might end up bearing the cost of treatment that he couldn’t afford.
On the Thursday after his injury, Hector got a ride from a buddy and came back to work. Hector is self-medicating, taking unhealthy doses of Ibuprofen in an attempt to perform his job.
He barely made it through Thursday and Friday, depending on co-workers to cover for him. Over the weekend, home resting but still in substantial pain, Hector faced the music.
“There’s no way, man,” he said, looking at his bent-over body in the bathroom mirror.
“I gotta talk to somebody.”
The following Monday, Dave Wagner, the general manager of the Brentwood Better Harvest store, got a knock on his office door.
Being the GM of this store, with its affluent and demanding customer base, was no joke. Dave Wagner was one busy man.
“Hector, what’s up?” Dave said.
“I need to talk to you, Mr. Wagner. It’s my back. I hurt it bad the other night and I can’t do any lifting, not much anyway,” Hector said.
Dave did some rapid-fire mental calculations as he gestured Hector to a chair.
“Sit down Hector, sit down,” he said.
Hector moved slowly to sit down, telling Dave everything he needed to know about how badly Hector was hurting.
“I’ll tell you what Hector, I’ll tell you what,” Dave said, as memories of Better Harvest HR emails concerning the ADA flashed through his formidable memory.
“Hold on a sec,” Dave said and popped down at his desk. In two clicks and a couple of scrolls, Dave scanned some emails from HR.
“Reasonable accommodation” is the phrase that stuck in Dave’s mind as he rapidly scanned the emails.
“You don’t have to lift,” Dave said, turning back to Hector. “You can work the counter. How does that sound?”
Hector, although in substantial pain, brightened some.
“That sounds good Mr. Wagner, thank you,” Hector said. But Hector’s feeble attempts to stand up sent Dave a message.
“Talk to Marcus and tell him what I said and I’ll talk to him too,” Dave said, as Hector made his way out.
As Hector went off to find Marcus, the manager of the seafood department, Dave engaged in professional, removed reflection.
“We’ll see what’s reasonable. I’ll give it three months,” he said to himself, before his vibrating cellphone distracted him.
“Cripe,” the harried Dave said to himself, looking at the number and picking up his phone.
“Dave Wagner,” he said impatiently to whoever was on the line.
Three months came and went, and Dave had to make a call. Hector just wasn’t that strong on the counter.
You had to have serious customer service skills to handle Brentwood and Beverly Hills customers and Hector was flailing. Complaints about him were coming at Dave from all sides, customers, co-workers, you name it.
“Reasonable means reasonable,” Dave said to himself as, worn down with complaints about Hector’s customer service shortcomings, he moved to terminate him.
The Wheel Turns
After his firing, it didn’t take long for the befuddled Hector to hook up with a gifted, ambitious employment rights attorney, Lucia Yamamoto, a graduate of Berkeley Law and a passionate defender of workers’ rights.
This is how the pre-trial negotiations went between Yamamoto’s firm, The Workers’ Rights Center, and the firm that did defense work for Better Harvest’s employment liability carrier, Apex Insurance.
“Okay guys, this is an easy one,” Yamamoto said on the phone call with the Apex defense team.
“We don’t see it that way,” was the game response from Ed Kleindinst, the defense lead for Apex’s law firm, Kleindinst, Evans, Hale & Brown.
“Oh really?” Yamamoto said, her derision palpable.
“You got two guys, practically the same age. They’re both working the same job. I mean this is beautiful,” she said.
“You accommodate one guy, and he’s still got a job,” Yamamoto said.
“Your GM in the Boston store continues to accommodate him, according to widely disseminated company policy…,” she continued.
“I don’t think you’re in a position to know how widely disseminated it was,” Kleindinst responded.
“Like it matters,” Yamamoto shot back.
“The other guy, same company, you terminate after 90 days even though it’s not presenting an undue hardship to your business. Instead, he was terminated because the manager felt he had accommodated him for long enough, which runs contrary to the company policy,” Yamamoto says.
“Been there 20 years, married with four children. Never been disciplined in his working life. Hello? Are you guys still there?” she said.
“We’re here,” Kleindinst said, this time with a little less vigor, pushing the mute button and rolling his eyes at his co-counsel in one of the Kleindinst, Evans, Hale & Brown conference rooms.
One of the partners jotted a note on a sheet of paper and slid it in front of Kleindinst.
There was a pause — orchestrated on the part of both Yamamoto and Kleindinst.
“Well, you’re not saying anything,” Yamamoto said.
“Go on, please, counsel,” Kleindinst said.
“Oh I’ll go on, I could go on all day with this one,” Yamamoto said.
“Two million,” she said.
“Oh come on!” Kleindinst said.
“See you in court!” Yamamoto replied.
Kleindinst’s partner jerks his head at the sheet of paper, trying to focus Kleindinst.
“One million,” Kleindinst said.
“One and six or we go to court and no more of this,” Yamamoto said.
There is another pause.
“Gentlemen, are we done?” said Yamamoto.
Kleindinst looked at his co-counsel, who nodded and pulled back in his chair.
“Yes, we’re done,” Kleindinst said.
“I really, really don’t like her,” Kleindinst said to his partner after he hung up.
“Like it matters,” his partner said.
Risk & Insurance® partnered with Sedgwick to produce this scenario. Below are Sedgwick’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance®.
1. Medical review: Make sure you request and document medical reviews of any request for leave or accommodation under the Family Medical Leave Act or the Americans with Disabilities Act as part of the overall interactive accommodation process.
2. Consistency: Different injured employees with debilitating chronic conditions should be treated with consistency under the Americans with Disabilities Act, regardless of whether their need for accommodation is due to a work-related injury, a non-occupational injury or illness or for another medical need.
3. Document, document, document: Companies need to make sure that standard procedures regarding leave or accommodation under the Family Medical Leave Act or the Americans with Disabilities Act are in place, up to date and triggering interactive process review – as well as clearly communicated to employees. Companies also need to document that they have communicated changes to those policies in a comprehensive and timely manner. A robust information management platform is key to supporting the process and necessary documentation.
4. The leave option: Although the goal of ADA/ADAAA is to keep people at work and every effort should be made to meet an accommodation request, supervisors need to keep in mind that there may be cases where a workplace accommodation isn’t possible or advisable due to the significant hardship it would place on their business; time off from work may be the only option. Shoe-horning an employee into a task they are unfit for may do more harm than good.
5. Disabled means disabled: Under the law, even if a condition is “controlled” by medication or some other treatment method, a disability is still a disability. Be very careful not to treat someone with a chronic condition differently just because they’re asymptomatic.
A Dim View
Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.
All’s Well That Begins Well?
Darryl Korn shook off his loafers and propped his bare feet next to an errant branch of rosemary on the stone wall that separated his patio from the long slope down to the Missouri River. As the light faded, he sipped the Provencal rosé in his glass and let the fruity dryness of the wine pucker his mouth into a happy grimace.
Korn, the CEO of Heaven’s Gardens, a Midwestern retailer based in Jefferson City, Mo., specializing in high-end patio and lawn furniture and accessories, was literally in his element.
A wood fire burned not far away in one of his company’s stone pizza ovens. Just a few minutes now and the flatbread he’d made with his own hands would be in there bubbling.
With his wife and children in town seeing a movie, this was one of those moments he wished he could capture; peace of mind, how rare it was.
It was the sight of the dying light on the river that got him thinking about work again. River: flood risk.
Korn’s workday included a review of his company’s risk management program with his risk committee. Most CEOs wouldn’t sit in on such meetings, but Korn did.
Korn felt great about the meeting. He reflected on how the company documented and ranked all property risks, flood, named storm, earthquake and tornado on a matrix broken down by zip code.
The company also worked with its carrier on an engineering risk assessment that provided the carrier with crucial information such as the age of the buildings and the construction materials they were composed of.
With operations bordered by Idaho, Utah and Arizona to the West and Tennessee, Kentucky and Ohio to the East, the company was particularly keen on showing underwriters its crisis management and business continuity muscle in the wake of a tornado, flood or earthquake.
Transparency and good data, that was the way to good coverage at the best price, Korn told himself, secure that he had mastered risk management wisdom that people at the C-suite level, even in mid-2015, didn’t usually concern themselves with.
Equally satisfying to Korn was the risk committee’s report on the company’s financial and operational resilience risk management strategy. From interest rate swaps to alternate energy suppliers in the face of catastrophe, it was all there.
The underwriter for Heaven’s Gardens, Hammond Kresley of regional insurer Butte Mutual, was enjoying a similarly peaceful sunset from his deck across the river. Although, being an underwriter, Kresley had a single malt in his hand.
Butte Mutual’s property portfolio, which roughly mirrored Heaven’s Garden’s geographic focus, was also broken down and ranked by zip code and degree of risk. Just as it did with Heaven’s Garden, Butte Mutual worked with many of its property insureds to provide risk engineering services that provided a deeper dive in the underwriter’s quest for transparency and good data.
Butte Mutual’s confidence in the diversity of its book of business and its approach to risk engineering was such that it had aggressively sought out new property business in this rate-challenged environment.
The company considered its approach to data, engineering and underwriting a differentiator, something that allowed it to take on business that its competitors wouldn’t dare to.
Darryl Korn was setting down his glass of rosé to slide the pizza in the oven when it hit. As his wine glass fell and shattered and the plate glass windows on the back of his house cracked, Korn initially thought the region was being bombed. It took seconds until he realized that for the first time in his life, he was experiencing an earthquake.
The earthquake was a 6.9 on the Richter scale on the New Madrid Fault, severely damaging numerous regional companies.
Scrambling for Information
Thankfully, Korn and his family escaped injury in the rare Missouri quake, but his company didn’t.
Yes, everyone knew about the New Madrid Fault. But no one thought it would rupture, or at least not at this intensity.
One of the cruelest twists for Heaven’s Gardens was that the facility which housed its servers– which the company boasted to underwriters was well out of reach of a flooding Missouri River or any of its tributaries– was badly damaged in the quake.
Store managers and operations staff accustomed to digital communication with headquarters were knocked off line and were slow to get important information to headquarters.
Thus, exquisitely bad data clouded company leadership’s perspective for the first few days after the quake.
“I don’t think we lost a single major supplier, “the company’s logistics chief, Raif Heck, told Korn and other leadership the day after the quake.
But due to poor communications, the company learned two days later that Heck was wrong.
Two of the metal fabricating companies that supplied Heaven’s Gardens with its grills and additional oven hardware were severely damaged. Ten Heaven’s Gardens stores in Missouri and Illinois were also hit hard.
Two of the damaged stores were in St. Louis, which meant the loss of key sales producers.
After suffering a delay due to bad information, the company scrambled to identify alternate hardware suppliers, but the process dragged on and on. Even undamaged stores suffered delays in reopening due to overwhelmed municipal inspectors being unable to visit properties quickly enough to issue certificates of occupancy.
The inspection delays got so bad that Korn himself got on the phone with the deputy mayor of St. Louis.
“There’s not a single crack in those structures,” Korn said, in one of several instances where he completely lost patience with the chaos all around him.
“No way can we issue certificates of occupancy until we get those properties inspected and we are still days away from that,” the deputy mayor replied.
“Days?” Korn exclaimed.
“Days.” said Hammond Kresley, in a meeting with the Butte Mutual reserving oversight committee (ROC), as it tried to get a handle on what sort of reserves it was going to need to set aside to cover insured quake losses and business interruption losses.
That screeching sound they all heard was Butte Mutual’s aggressive underwriting program — that it built up and justified over years — grinding to a halt.
Until it could get a handle on its quake losses, the carrier wasn’t going to take on any new business that looked even remotely risky.
A month after the quake, Heaven’s Gardens was seeing double-digit sales drop-offs in its undamaged stores due to its supply problems. The company prided itself on locally sourced materials and simply didn’t have the backup suppliers to keep it going in a meaningful way.
Quake damage to retail sites and first- and second-tier suppliers was something the company had known was possible. What was so maddening was the fact the company had paid a good deal of money for a risk engineering assessment and now all of that looked like it was going to waste.
The risk engineering assessment was great from a premiums paid and eventual claims perspective, but not much use with business recovery. Not from this rare earthquake event anyway.
It was like the company was blind where it most needed vision. What exactly was down and how bad was the damage? That was the problem.
By the summer of 2016, a mere year after the ῀M 6.9 quake that rattled Missouri and Illinois, Heaven’s Gardens, from a revenue perspective, had lost 15 percent its pre-quake size.
When it came to design and product execution, the company was spot-on with its approach to functional, rustic outdoor furnishings. Its “locally-sourced” mantra was also golden.
But that ended up mattering little to frustrated customers who couldn’t pick up the equipment they’d ordered due to supply delays. Brand loyalty still meant something in this country, but not so much that somebody who ordered a pizza oven in April was happy to get it in October.
A year after the quake, the company still hadn’t found the second of two grill and fittings suppliers that met its local sourcing and design criteria.
Competitors to the East and West, some of them whose design couldn’t hold a candle to what Heaven’s Gardens produced, moved in to pick up pieces of the company’s business.
It took Butte Mutual six months to determine something that should have been good news but wasn’t. It turned out that the carrier had more than enough reserves to comfortably withstand insured losses from what became known as the “Hannibal Cannibal,” the quake named for its epicenter in Hannibal, Mo.
But a lack of visibility into its property portfolio meant the carrier failed to take the aggressive action it needed to take in these market conditions.
Deprived of the fullness of its topline growth potential, Butte Mutual survived, but its tepid growth for the next three years was off-putting to shareholders.
The company should have been a regional carrier star and instead became a mediocrity.
Risk & Insurance® partnered with Esri to produce this scenario. Below are Esri’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance®.
1. Engineer success: Using GIS to determine property vulnerability on the front end of a catastrophe is a well-accepted practice. But what about the back end? Consider leveraging access to high resolution geographic information from ArcGIS that can provide disaster damage assessment on the back end, mitigating the chance of overwhelming field staff and supporting faster and more efficient response to your property customers.
2. Protect against data and communication losses: Depending on access to your own company’s physical data storage and communications infrastructure following a disaster could be severely shortsighted. Consider ArcGIS cloud and mobile solutions that house data and provide communications capabilities outside of your natural threat footprint.
3. Ask more of business partners: Using location information Heaven’s Garden constructed reasonably sound business continuity and disaster recovery plans for each of its facilities. But its network of suppliers lacked this same insight. As a consequence, the company suffered supply chain failures that greatly inhibited its ability to recover from the New Madrid earthquake.
4. Demand and ensure better transparency: Using ArcGIS post event data and imagery gives you visibility in real time to property damage and other crucial information in the aftermath of a disaster. Settling for a listing of possibly affected properties categorized by ZIP code is an outmoded method of assessment that will not be looked at favorably by underwriters and will be a boon to your unimpacted competitors.
5. Speed of recovery: Risk managers and their organizations cannot place enough emphasis on speed of recovery. Stories are emerging post-Superstorm Sandy and other recent disasters about risk managers who through preparation and boldness got on the loss scene and had their businesses back up in a fraction of the time that it took competitors. Nothing is holding you back but conformity.
A Modern Claims Philosophy: Proactive and Integrated
According to some experts, “The best claim is the one that never happens.”
But is that even remotely realistic?
Experienced risk professionals know that in the real world, claims and losses are inevitable. After all, it’s called Risk Management, not Risk Avoidance.
And while no one likes losses, there are rich lessons to be gleaned from the claims management process. Through careful tracking and analysis of losses, risk professionals spot gaps in their risk control programs and identify new or emerging risks.
Aspen Insurance embraces this philosophy by viewing the data and expertise of their claims operation as a valuable asset. Unlike more traditional carriers, Aspen Insurance integrates their claims professionals into all of their client work – from the initial risk assessment and underwriting process through ongoing risk management consulting and loss control.
This proactive and integrated approach results in meaningful reductions to the frequency and severity of client losses. But when the inevitable does happen, Aspen Insurance claims professionals utilize their established understanding of client risks and operations to produce some truly amazing solutions.
“I worked at several of the most well known and respected insurance companies in my many years as a claims executive. But few of them utilize an approach that is as innovative as Aspen Insurance,” said Stephen Perrella, senior vice president, casualty claims, at Aspen Insurance.
“We do a lot of trending and data analysis to provide as much information as possible to our clients. Our analytics can help clients improve upon their own risk management procedures.”
– Stephen Perrella, Senior Vice President, Casualty Claims, Aspen Insurance
Utilizing claims expertise to improve underwriting
Acting as adviser and advocate, Aspen integrates the entire process under a coverage coordinator who ensures that the underwriters, claims and insureds agree on consistent, clear definitions and protocols. With claims professionals involved in the initial account review and the development of form language, Aspen’s underwriters have a full sense of risks so they can provide more specific and meaningful coverage, and identify risks and exclusions that the underwriter might not consider during a routine underwriting process.
“Most insurers don’t ever want to talk about claims and underwriting in the same sentence,” said Perrella. “That archaic view can potentially hurt the insurance company as well as their business partners.”
Aspen Insurance considered a company working on a large bridge refurbishment project on the West Coast as a potential insured, posing the array of generally anticipated construction-related risks. During underwriting, its claims managers discovered there was a large oil storage facility underneath the bridge. If a worker didn’t properly tether his or her tools, or a piece of steel fell onto a tank and fractured it, the consequences would be severe. Shutting down a widely used waterway channel for an oil cleanup would be devastating. The business interruption claims alone would be astronomical.
“We narrowed the opportunity for possible claims that the underwriter was unaware existed at the outset,” said Perrella.
Risk management improved
Claims professionals help Aspen Insurance’s clients with their risk management programs. When data analysis reveals high numbers of claims in a particular area, Aspen readily shares that information with the client. The Aspen team then works with the client to determine if there are better ways to handle certain processes.
“We do a lot of trending and data analysis to provide as much information as possible to our clients,” said Perrella. “Our analytics can help clients improve upon their own risk management procedures.”
For a large restaurant-and-entertainment group with locations in New York and Las Vegas, Aspen’s consultative approach has been critical. After meeting with risk managers and using analytics to study trends in the client’s portfolio, Aspen learned that the sheer size and volume of customers at each location led to disparate profiles of patron injuries.
Specifically, the organization had a high number of glass-related incidents across its multiple venues. So Aspen’s claims and underwriting professionals helped the organization implement new reporting protocols and risk-prevention strategies that led to a significant drop in glass-related claims over the following two years. Where one location would experience a disproportionate level of security assault or slip & fall claims, the possible genesis for those claims was discussed with the insured and corrective steps explored in response. Aspen’s proactive management of the account and working relationship with its principals led the organization to make changes that not only lowered the company’s exposures, but also kept patrons safer.
World-class claims management
Despite expert planning and careful prevention, losses and claims are inevitable. With Aspen’s claims department involved from the earliest stages of risk assessment, the department has developed world-class claims-processing capability.
“When a claim does arrive, everyone knows exactly how to operate,” said Perrella. “By understanding the perspectives of both the underwriters and the actuaries, our claims folks have grown to be better business people.
“We have dramatically reduced the potential for any problematic communication breakdown between our claims team, broker and the client,” said Perrella.
A fire ripped through an office building rendering it unusable by its seven tenants. An investigation revealed that an employee of the client intentionally set the fire. The client had not purchased business interruption insurance, and instead only had coverage for the physical damage to the building.
The Aspen claims team researched a way to assist the client in filing a third-party claim through secondary insurance that covered the business interruption portion of the loss. The attention, knowledge and creativity of the claims team saved the client from possible insurmountable losses.
Modernize your carrier relationship
Aspen Insurance’s claims philosophy is a great example of how this carrier’s innovative perspective is redefining the underwriter-client relationship. Learn more about how Aspen Insurance can benefit your risk management program at http://www.aspen.co/insurance/.
Stephen Perrella, Senior Vice President, Casualty, can be reached at Stephen.firstname.lastname@example.org.