Dealing with Civil Unrest
Retailers and other companies across the country are looking for a Plan B in the wake of riots that destroyed stores in Ferguson, Mo. and now Baltimore.
Meanwhile, carriers might seek to recover their losses from damage and business disruption claims by suing cities that tell their police to stand down to give space to protesters who “wished to destroy.” What’s unknown at this point is whether carriers would prevail.
Companies need to develop contingency plans specific for each location to manage events such as riots, as well as situations that could lead to them and the resulting consequences, said Sean Ahrens, security consulting services practice leader for Aon Global Risk Consulting in Chicago.
A key part of such planning includes determining under what circumstances onsite managers or a crisis management team should close retail locations.
“Now is also the time to review contingency plans to understand what other locations can be used during a time of unrest, as well as making sure companies that supply goods to them have alternative ways to make their goods available.” — Lance Becker, vice chairman, Northeast region, Arthur J. Gallagher & Co.
“Organizations that have robust plans and contingencies may actually have shelter in place to protect employees during civil unrest,” Ahrens said.
“But if a company has no policies or procedures in place, then in the worst case scenario, they should close the store and evacuate. Ultimately, a company’s duty of care is to protect their employees from all hazards.”
Post-event, companies should also provide counseling for employees who were caught up in a riot, though a lot of them might not want to come back, he said.
Tracy Knippenburg Gillis, global reputational risk and crisis management leader for Marsh Risk Consulting in New York City, said there are a lot of factors that determine when to close a facility, such as whether it serves a critical function in the community, or whether employees would lose needed income if the store closed prematurely during peaceful protests.
“Most organizations should have their crisis management teams on alert, if not actively engaged, monitoring and potentially making decisions on delayed openings or closures over the course of events,” Gillis said.
“They should be communicating to employees what they are doing and ideally monitoring what authorities are doing, so they can make the right judgment at the right time.”
Marsh has several clients in retail, hospitality and other entertainment-related industries that were impacted in last month’s Baltimore riots. Several suffered business disruptions due to curfews imposed by the city, said Bob O’Brien, a managing director in Marsh’s national claims practice in Washington, D.C.
“Companies should practice situational awareness,” O’Brien said.
“They have to go through several steps continuously, identifying exposures to the company and their supply chain. They should be aware of what’s going on all around them that could potentially impact them if they are caught up in a freeze zone or a closure zone.”
Companies should also review their insurance coverage to make sure they have the proper terms, limits and retention, he said. After an event, they should apply all possible triggers that could impact a claim, whether direct damage or civil authority that results in service interruption and ingress/egress issues.
Companies should make sure to secure documents to better ensure payment of their claims, he said.
Arthur J. Gallagher & Co. also had clients that suffered losses and filed claims as a result of the upheaval in Baltimore, said Lance Becker, vice chairman, Northeast region in New York City.
Becker said the recent riots that impacted area businesses serve as “an education” for companies to make sure their insurance policies cover “civil authority and unrest,” which would pay for either physical damage or losses for not being able to gain entry to the store.
“Now is also the time to review contingency plans to understand what other locations can be used during a times of unrest, as well as making sure companies that supply goods to them have alternative ways to make their good available,” he said.
Carriers might seek to recoup their losses by suing Baltimore, as several news outlets have reported that the police there were ordered to “stand down” and not prevent rioters from looting, burning or destroying stores, including a CVS pharmacy and an Ace Cash Express store.
Baltimore Mayor Stephanie Rawlings-Blake denied there was a stand down order, and she also told “Meet the Press” last Sunday that she regretted saying in an earlier press conference that space was given to protesters who “wished to destroy.”
Terrence Graves, a shareholder at Sands Anderson PC law firm in Richmond, Va., said that any city that experiences civil unrest might have sovereign immunity for those sorts of actions dealing with the police force.
“If a city government — like any other governmental entity — takes action within what is considered its governmental sphere, such as making political decisions, as opposed to its proprietary sphere such as providing water services or maintaining city streets, then a city might have governmental immunity,” Graves said.
“There is an interesting test that most courts would run though in order to determine whether the city was acting as a government or as a landlord.”
Insurer Has Duty to Defend Marker Maker
On April 25, 2012, Too Market Products Inc. filed suit against Creation Supply Inc. in U.S. District Court in Oregon.
In its lawsuit, Too Market alleged trademark infringement, violation of trade dress (the image or appearance of the product), and unfair competition against Creation Supply, when it imported and sold a competing line of markers in a similar shape. Too Market sought a permanent nationwide injunction against the sale of Creation Supply’s markers.
Creation Supply sought a defense from Selective Insurance Co. of the Southeast, which had issued it a business owners’ policy on Aug. 19, 2011. The policy excluded personal and advertising injury “arising out of infringement of copyright, patent, trademark, trade secret or other intellectual property rights.”
The exclusion related to the “use of another’s advertising idea in your ‘advertisement.’ ” But it did not apply to infringement “in your ‘advertisement,’ of copyright, trade dress or slogan.”
The U.S. District Court ruled Selective had a duty to defend, while denying allegations of breach of contract and bad faith. The insurer appealed the case to the Appellate Court of Illinois, First Judicial District. A Feb. 9 ruling upheld the lower court decision.
The appeals court ruled that retail store displays of that type of marker, in which the “shape and design of the marker is prominently displayed” constituted an advertisement under the policy.
Scorecard: Selective must defend Creation Supply in a trademark infringement case.
Takeaway: While the court ruled the in-store display was an advertisement, the opinion warned that its conclusion “does not mean that all retail product displays constitute advertising activity … .”
Claims Following Explosion Are Denied
On Dec. 7, 2009, a large pressure chamber used to grow synthetic quartz crystal exploded, throwing a four-ton fragment hundreds of feet. Other flying debris killed a man walking to his truck one-quarter mile away.
The owners of the pressure chamber, NDK America and NDK Crystal Inc. knew there were some concerns with its pressure chambers, which displayed some signs of cracking and future cracking when the contents were under pressure of 29,000 pounds per square inch.
Two years earlier, when NDK was in litigation with EPSI, the designer and manufacturer of the pressure chamber, EPSI and one of NDK’s experts warned against continued operation of the pressure chambers without performing inspections. As part of that litigation, NDK alleged that the pressure chambers, known as autoclaves, were “were defectively or negligently manufactured and showed signs of cracking and leaking.”
That case settled a few months prior to the 2009 explosion. After the explosion, Nipponkoa Insurance Co., Ltd., which had issued an “all risk” property insurance policy to NDK, filed suit, seeking a declaratory judgment that the policy did not cover the insured’s property or business interruption losses because it had been warned about the possibility of an explosion but continued to use the autoclaves anyway.
Thus, it argued, the explosion was not “fortuitous,” and that the autoclaves were not damaged by the explosion because they were valueless.
NDK argued that defects and cracking were not the cause of the explosion, and that its insurer acted with bad faith and breached its insurance contract.
The U.S. District Court for the Northern District of Illinois ruled that the explosion, while possible, was not inevitable and thus was a “fortuitous” event. However, the court also ruled that the autoclaves were “inherently dangerous and defective,” and that NDK provided no evidence that the machinery had any “actual cash value” other than as scrap metal.
In fact, it noted that the company argued in the earlier litigation against EPSI that the autoclaves were “unreasonably dangerous and defective … and were in need of replacement.”
The court also ruled that business interruption losses were not covered because the expected profits submitted by NDK were “an ‘expected’ or target goal, and not an actual projection of profits.”
Scorecard: Nipponkoa did not have to pay nearly $10 million for the autoclaves or for any business interruption losses.
Takeaway: As long as the explosion was merely a risk, even if a heightened risk, it was an insurable event.
Claims-Made Reporting Requirement Upheld
On Dec. 23, 2009, attorney Thomas Aul was notified by clients Melissa and Kenneth Anderson that they were “dissatisfied” with the legal representation he offered in the Andersons’ purchase of a commercial property in Delafield, Wis.
In a letter to Aul, the Anderson’s new attorney informed Aul that the terms of the transaction were “unfair and unreasonable,” that Aul had a conflict of interest in the matter, and that the transaction violated “the rules of attorney professional responsibility.” It sought payment of $117,125.
Although Aul had a claims-made-and-reported policy with Wisconsin Lawyers Mutual Insurance Co. (WILMIC) at that time, he did not report the claim until March 2011, nearly a year after the policy expired on April 1, 2010.
In March 2012, the Andersons filed suit against Aul and several real estate and investment companies owned by Aul, alleging breach of fiduciary duty, legal malpractice (negligence), breach of contract and misrepresentation contrary to Wisconsin state law.
In addition to compensatory damages, the lawsuit also sought punitive damages for “malicious” conduct and “intentional disregard of [their] rights.”
In May 2012, WILMIC intervened in the lawsuit, and defended Aul under a reservation of rights. It sought and received a summary judgment, declaring that the policy did not provide coverage for the claim.
An appeals court reversed that decision, determining that Wisconsin’s “notice-prejudice statutes” superseded the policy’s notice requirement. The notice-prejudice statutes state that an insured’s failure to furnish timely notice of a claim will not bar coverage unless timely notice was “reasonably possible” and the insurer was “prejudiced” by the delay.
A four-judge panel on the Supreme Court of Wisconsin reversed the case again, ruling that the policy’s requirements should be upheld.
“We conclude that the legislature did not intend to .. make the strict reporting requirement underlying claims-made-and-reported policies unenforceable in this state,” the panel ruled on Feb. 25.
Scorecard: The insurance company was not required to indemnify its insured following claims of legal malpractice, breach of fiduciary duty and other allegations.
Takeaway: A ruling upholding the claim would have converted all claims-made-and-reported policies into pure claims-made policies or occurrence policies.
RIMS Recap: Tech Trends that Could Change Everything
Last month, Gordon Clemons, CEO and Chairman of CorVel Corporation, presented at the RIMS Conference in New Orleans, La. about emerging technology and how it is impacting risk management and workers’ compensation. The discussion served as a springboard for new insights on how technology will change the industry, and reaffirmed the need for integrated systems and human interaction for the best results.
The presentation noted the future is here – and technology is constantly evolving in hopes of outpacing tomorrow’s needs. As these technology platforms become more inherent in daily life, the gap in translating their utilization to workers’ compensation will begin to close.
Technology in Healthcare
While many consumer-based technology advancements exist in other industries, perhaps most notably in the retail space helping vendors to reduce various delays in the sales experience, people may forget that healthcare, too, is a consumer industry. And as such, healthcare also experiences workflow lags, which can be collapsed.
While patients and claims may not lend themselves as freely to mobile applications and technology that subscribes to the “Internet of Things” philosophy, the rapid rate of development foretells the not-too-far-off arrival of the “a-ha,” “wow factor”-type application that consumers are seeking in the healthcare industry.
Once we get there, we can only expect that the Pangea of resources will yield better outcomes. The potential impact to medical management includes more affordable/accessible healthcare, patient convenience, personal assistance, automatic inputs to claims systems and less administration from both patients and injured workers.
“Healthcare is stubborn about change. There are more data points in healthcare and there is a greater need for high quality and accuracy,” Clemons said.
Tech Trends for the Next Digital Decade
As an industry advocate in all things innovation, CorVel has been keeping tabs on emerging tech trends. As they begin to influence in other industries, it sparks the question – will they eventually change workers’ compensation?
Here are some of the trends on CorVel’s radar:
Smart phones and tablets were the first mobile devices to really start to gain traction across people’s personal lives. Since then, wearables (like Fitbits and smart watches) have been part of the next digital generation to be taken up by consumers.
As these personal devices quickly advance, wearables could offer payors and employers added insight into the wellness of claimants through the extent of their retrievable data.
Beacons are devices that use low-energy Bluetooth connections to communicate messages or triggers directly to a smart device (such as a phone or tablet). Retailers have started using this technology, sending offers to near-by consumers’ phones. Now the concepts of smart mirrors and smart walls offer a one-stop-shop with recommendations related to the preferences of the shopper – making a hyper-efficient business model. It is possible that we could see these devices adapted to being a catalyst for healthcare’s business model by reducing the delays of administrative work.
Formally known as unmanned aerial vehicles (UAV), drones can be remote-controlled or flown autonomously through pre-defined flight plans within their internal systems. Some carriers are testing the use of drones to potentially be used to evaluate property damage and responding to natural disasters.
As most injuries reported in workers’ compensation are musculoskeletal injuries, the industry lends itself well to the benefits of telecommunications and telemedicine. With the rise of electronic capabilities, telemedicine becomes another option to help guide an injured worker through their entire episode of care, reducing time delays.
In order to get to that point in time, implementing these trends (and those that are yet to be launched) will only be as successful as the population willing to accept them. Buy-in will require a commitment to the long-standing pillars of the industry. According to Clemons, “While technology can truly move the needle in workers’ compensation, it will take more than bells and whistles to maximize its impact.”
“People’s feelings are valid. The skepticism surrounding new technology is not misplaced, but neither is the enthusiasm,” Clemons said.
New Trends, Same Priorities
Beyond the buzzwords and hype surrounding the latest apps and devices, for new technology to succeed within the workers’ compensation realm, it boils down to the two primary concepts that drive the industry to begin with – effective infrastructure and a people-first philosophy.
The power of applicable resources and the actionable data that results from them is in the foundation of the systems themselves; that primarily being through the influence of integration. It is not a new concept; however, as technology advances and the reach of analytic capabilities broadens, it is important to find a provider that can harness this data and channel it into effective workflows to increase efficiencies and promote better outcomes.
CorVel’s proprietary claims management system has been developed and supported by an in-house, full-time information systems division to be intuitive and user-friendly. Complex, proprietary algorithms link codified data across the system, facilitating collaboration between services, workflows, customers, and technology and eliminating the risk that a crucial piece of information will be missed. The result is an active “ecosystem” providing customers with actionable data to provide the most accurate, comprehensive picture at any time, while also collapsing inherent delays.
For the injured worker, the critical human touch connection in the workers’ compensation process can never be minimized. By cutting lag time throughout the various inefficiencies underlying the industry’s workflows, CorVel can connect injured workers with quality care sooner. As systems advance, claims and managed care associates do not have to spend as much time on administrative work and will instead be able to devote more time to the injured workers, reviving the human touch aspect that is just as impactful within the industry.
Regardless of the technology that lies ahead, CorVel looks to the future with investments in innovation, while not losing sight of their role and responsibility to clients and patients. Dedicated to constant improvement for the services they provide injured workers and industry payors, CorVel is committed to improving industry services one app, click, drone (or whatever is yet to come) at a time – perhaps something to discuss in San Diego at next year’s RIMS conference.
For more information, visit corvel.com.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with CorVel Corporation. The editorial staff of Risk & Insurance had no role in its preparation.