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
beer pong

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 riskletters@lrp.com.
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D&O Pricing

Buyers’ Market for D&O

Most brokerages are seeing decreased pricing for D&O coverage, although pricing may increase for their smaller company clients.
By: | April 13, 2015 • 5 min read
D&O

Overall, pricing for directors and officers insurance programs are down, thanks to increased carrier competition for excess lines, according to brokerage firms. But rates are higher for some sectors such as health care and life science organizations.

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According to the “Aon Financial Services Group D&O Pricing Index” for the fourth quarter of 2014, the average price for $1 million in limits for Aon clients increased 10.3 percent from the third quarter of 2014, due mainly to the change in the mix of business from one quarter to the next.

Comparing the current quarter with the prior year quarter, the average price fell 12.2 percent.

For those programs that renewed in both Q4 2014 and Q4 2013, pricing fell 7.4 percent.

“We are entering a buyers’ market, as pricing is starting to come down in totality for these D&O programs,” said Brian Wanat, chief executive officer of Aon’s financial services group in New York City.

“We are entering a buyers’ market, as pricing is starting to come down in totality for these D&O programs.” — Brian Wanat, chief executive officer, Aon’s financial services group

While pricing for primary D&O policies is relatively flat, increased competition within the excess market is lowering prices, resulting in a net reduction for overall programs, Wanat said. As carriers such as Allianz SE in Munich enter the excess market, it creates a better supply environment, lowering prices.

“D&O has been profitable with no real increase in claims frequency or severity,” he said. “In many instances, only the primary layer comes into play, given dismissal rates where defense costs are contained and paid by the primary layer of D&O only, with the excess unscathed.”

Moreover, reinsurance, which has even softer prices, has been “ample and a good proposition for insurance companies,” Wanat said.

For Arthur J. Gallagher & Co., smaller private clients in particular are paying firmer prices because most only purchase primary policies and not excess policies, said Phil Norton, president of the company’s professional liability division in Chicago.

They are also getting larger percentage increases because of their mix of covered claims, including entity claim allegations such as antitrust and deceptive trade practices, which are more expensive because they are the leading cause of the higher loss ratios.

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On the other hand, many larger firms are getting an overall decrease when they add excess, particularly if they are in the right industry, such as manufacturing, Norton said.

“Most manufacturers don’t have any unique risks and they tend to flow with the economy,” he said. “They don’t even have to be making extraordinary profit to be considered a very good risk – they just need to be stable.”

“When things are high, they can fall farther and if there are big stock drops, companies can pretty much count on getting D&O claims.” —  Rob Yellen,
 executive vice president, FINEX North America, Willis

Overall, AJG’s private clients saw an 8 percent to 10 percent price increase in 2014, which has relaxed to 5 to 8 percent increases in 2015 to date, Norton said.

Brenda Shelly, Marsh’s U.S. D&O product leader in New York City, said that, while excess rates for Marsh’s public company D&O polices have been declining since their peak in the fourth quarter of 2012, primary ABC rates are firming.

However, since lower excess prices offset primary market increases, companies with good risk profiles were still able to achieve overall program decreases each year, she said.

“In the private and nonprofit spaces, we continue to see rate and retention pressure, which we expect to continue for the next few quarters due to very broad coverage and historical low rates at the same time they were experiencing serious claims for the past few years,” Shelly said.

Jeffrey R. Lattmann, executive managing director, executive liability at Beecher Carlson in New York City, said that the clients that have had flat pricing on primary have had consistently well-managed, good financials, while the clients that have seen increased premiums have had material changes in risk, adverse development in their financials and claims paid.

Smaller companies, which have employment practices liability built into their D&O policies, are facing headwinds if they operate in California, Lattmann said. “If they have any employees in California, they are experiencing higher pricing and higher retentions, as it’s the toughest state to underwrite with all of the employment litigation.”

According to Willis data, public companies have seen less upward pressure on rates, although rate increases are likely for health care companies, homeowner/condominium associations, educational institutions and nonprofit entities.

For financial institutions, Willis is seeing small decreases on primary coverage, with slightly greater savings on excess. For companies that have yet to see relief from credit crisis increases, particularly financial guarantee companies, rate decreases could be as large as 25 percent.

“In the end, I don’t think the financial crisis was as scary from a D&O insurer perspective as many expected,” said Rob Yellen,
 executive vice president, FINEX North America, Willis in New York City. “While we’re still seeing bankers get sued when their banks failed, the amount of claims were not nearly as bad as many thought they were going to be.”

Looking forward, Yellen said, the D&O market is “at a crossroads.”

“We’ve had a relatively stable slow-growth economy and now have a pretty high stock market at or near 52-week highs,” he said. “When things are high, they can fall farther and if there are big stock drops, companies can pretty much count on getting D&O claims.”

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Those companies are also facing challenges as the Federal Reserve appears ready to raise rates at any time, and a strong dollar is making it harder for U.S. companies to make money outside the U.S., Yellen said.

Moreover, the SEC is now focused again on accounting fraud, which typically hits D&O harder than insider trading.

“So while clients may see a bit of price relief this year due to competition, D&O exposure seems to be getting worse,” he said.

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at riskletters@lrp.com.
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Sponsored: Berkshire Hathaway Specialty Insurance

Healthcare: The Hardest Job in Risk Management

Do you have the support needed to successfully navigate healthcare challenges?
By: | April 1, 2015 • 4 min read

BrandedContent_BHSIThe Affordable Care Act.

Large-scale consolidation.

Radically changing cost and reimbursement models.

Rapidly evolving service delivery approaches.

It is difficult to imagine an industry more complex and uncertain than healthcare. Providers are being forced to lower costs and improve efficiencies on a scale that is almost beyond imagination. At the same time, quality of care must remain high.

After all, this is more than just a business.

The pressure on risk managers, brokers and CFOs is intense. If navigating these challenges wasn’t stress inducing enough, these professionals also need to ensure continued profitability.

Leo Carroll, Senior Vice President, Healthcare Professional Liability, Berkshire Hathaway Specialty Insurance

Leo Carroll, Senior Vice President, Healthcare Professional Liability, Berkshire Hathaway Specialty Insurance

“Healthcare companies don’t hide the fact that they’re looking to reduce costs and improve efficiencies in practically every facet of their business. Insurance purchasing and financing are high on that list,” said Leo Carroll, who heads the healthcare professional liability underwriting unit for Berkshire Hathaway Specialty Insurance.

But it’s about a lot more than just price. The complexity of the healthcare system and unique footprint of each provider requires customized solutions that can reduce risk, minimize losses and improve efficiencies.

“Each provider is faced with a different set of challenges. Therefore, our approach is to carefully listen to the needs of each client and respond with a creative proposal that often requires great flexibility on the part of our team,” explained Carroll.

Creativity? Flexibility? Those are not terms often used to describe an insurance carrier. But BHSI Healthcare is a new type of insurer.

The Foundation: Financial Strength

BrandedContent_BHSIBerkshire Hathaway is synonymous with financial strength. Leveraging the company’s well-capitalized balance sheet provides BHSI with unmatched capabilities to take on substantial risks in a sustainable way.

For one, BHSI is the highest rated paper available to healthcare providers. Given the severity of risks faced by the industry, this is a very important attribute.

But BHSI operationalizes its balance sheet in many ways beyond just strong financial ratings.

For example, BHSI has never relied on reinsurance. Without the need to manage those relationships, BHSI is able to eliminate a significant amount of overhead. The result is an industry leading expense ratio and the ability to pass on savings to clients.

“The impact of operationalizing our balance sheet is remarkable. We don’t impose our business needs on our clients. Our financial strength provides us the freedom to genuinely listen to our clients and propose unique, creative solutions,” Carroll said.

Keeping Things Simple

BrandedContent_BHSIHealthcare professional liability policy language is often bloated and difficult to decipher. Insurers are attempting to tackle complex, evolving issues and account for a broad range of scenarios and contingencies. The result often confuses and contradicts.

Carroll said BHSI strives to be as simple and straightforward as possible with policy language across all lines of business. It comes down to making it easy and transparent to do business with BHSI.

“Our goal is to be as straightforward as we can and at the same time provide coverage that’s meaningful and addresses the exposures our customers need addressed,” Carroll said.

Claims: More Than an After Thought

Complex litigation is an unfortunate fact of life for large healthcare customers. Carroll, who began his insurance career in medical claims management, understands how important complex claims management is to the BHSI value proposition.

In fact, “claims management is so critical to customers, that BHSI Claims contributes to all aspects of its operations – from product development through risk analysis, servicing and claims resolution,” said Robert Romeo, head of Healthcare and Casualty Claims.

And as part of the focus on building long-term relationships, BHSI has made it a priority to introduce customers to the claims team as early as possible and before a claim is made on a policy.

“Being so closely aligned automatically delivers efficiency and simplicity in the way we work,” explained Carroll. “We have a common understanding of our forms, endorsements and coverage, so there is less opportunity for disagreement or misunderstanding between what our underwriters wrote and how our claims professionals interpret it.”

Responding To Ebola: Creativity + Flexibility

BrandedContent_BHSIThe recent Ebola outbreak provided a prime example of BHSI Healthcare’s customer-centric approach in action.

Almost immediately, many healthcare systems recognized the need to improve their infectious disease management protocols. The urgency intensified after several nurses who treated Ebola patients were themselves infected.

BHSI Healthcare was uniquely positioned to rapidly respond. Carroll and his team approached several of their clients who were widely recognized as the leading infectious disease management institutions. With the help of these institutions, BHSI was able to compile tools, checklists, libraries and other materials.

These best practices were immediately made available to all BHSI Healthcare clients who leveraged the information to improve their operations.

At the same time, healthcare providers were at risk of multiple exposures associated with the evolving Ebola situation. Carroll and his Healthcare team worked with clients from a professional liability and general liability perspective. Concurrently, other BHSI groups worked with the same clients on offerings for business interruption, disinfection and cleaning costs.

David Fields, Executive Vice President, Underwriting, Actuarial, Finance and Reinsurance

David Fields, Executive Vice President, Underwriting, Actuarial, Finance and Reinsurance, Berkshire Hathaway Specialty Insurance

Ever vigilant, the BHSI chief underwriting officer, David Fields, created a point of central command to monitor the situation, field client requests and execute the company’s response. The results were highly customized packages designed specifically for several clients. On some programs, net limits exceeded $100 million and covered many exposures underwritten by multiple BHSI groups.

“At the height of the outbreak, there was a lot of fear and panic in the healthcare industry. Our team responded not by pulling back but by leaning in. We demonstrated that we are risk seekers and as an organization we can deploy our substantial resources in times of crisis. The results were creative solutions and very substantial coverage options for our clients,” said Carroll.

It turns out that creativity and flexibly requires both significant financial resources and passionate professionals. That is why no other insurer can match Berkshire Hathaway Specialty Insurance.

To learn more about BHSI Healthcare, please visit www.bhspecialty.com.

Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowners insurance. 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 regional underwriting offices in Atlanta, Boston, Chicago, Los Angeles, New York, San Francisco, Toronto, Hong Kong, Singapore and New Zealand. For more information, contact info@bhspecialty.com.

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, and homeowners insurance.
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