Minnick Engineering 911
Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.
To a disinterested observer, the sight of a middle-aged civil engineer using the company parking lot on a spring afternoon as a dressing room would be, at best, an example of bad taste.
But former Minnick Engineering employee Bill Hayes wasn’t getting ready for a game that afternoon. No, he had mayhem on his mind.
Hayes, terminated just two hours previously, got his jersey on and grabbed a metal softball bat from the back of his SUV.
Hayes paused, arched his back and let out a wounded scream. Then he charged the front door of the civil engineering company.
Matthew Forrester, just two years out of college, was the first Minnick employee to see Hayes coming.
“Stop Bill, don’t do it!” Forrester yelled and picked up a plastic chair in an attempt to slow Hayes down.
With one swipe of the bat, Hayes knocked the chair out of Forrester’s grasp and shattered Forrester’s left forearm.
Forrester’s scream of pain alerted a handful of employees, including Linda Minnick, the daughter of the company founder and current CEO, who was in the process of interviewing a job candidate in a nearby conference room.
Linda jumped up, the shocked job candidate right behind her, and tried to get to the conference door before Hayes did. But Hayes, a former college middle linebacker, was too strong and too quick.
He stuck the bat in the narrowing door crack, then used it to violently thrust the door back open. Hayes got in three swings before the job candidate chased him out of the room.
The attack left Linda Minnick with some cracked ribs and the job prospect with a shattered jaw.
“Who you gonna’ fire next, Linda?” Hayes yelled as he ran deeper into the building. Some employees ran for cover and others set off after Hayes.
Linda Minnick had terminated Bill Hayes a scant 127 minutes previously, but it had been a long time coming.
The interview with the young job prospect filled her with optimism — at least until Bill Hayes roared back into the building and carried out his act of revenge.
In pain but trying to focus, Linda Minnick looked out the window to see a Channel 4 television crew rolling into the company parking lot.
“How did they get here so fast?” she said to no one in particular, as an administrative assistant knelt down next to the stricken job applicant, who was sitting in a nearby chair in severe pain.
Right behind the news truck was a police cruiser.
“What?” Minnick said again, to no one. In the space of the last two minutes, she felt that she was becoming mentally unhinged.
The shock of the attack wasn’t the only cause of Linda Minnick’s confusion.
When the Springfield Township Police escorted Bill Hayes out of Minnick Engineering, this time for the last time, he was in handcuffs. Channel 4 was there to record the whole thing.
The television crew was there, courtesy of Hayes himself. Before his onslaught, Hayes had called his cousin Tommy, a Channel 4 cameraman, and told him he should come to the Minnick offices that afternoon, that he was going to “see some things.”
Linda was weak and in shock. The pain of her cracked ribs felt like someone was jabbing a knife into her lung. She could only sit and watch the police sergeant shove Bill Hayes’ head down into the cruiser.
But just before Hayes was shoved into the car, he caught Linda’s eye and smiled a demented smile.
A shiver went through Linda as she watched the patrol car roll away.
“This is all my fault,” she said to herself.
Linda’s memory provided it for her all too clearly. Five years ago, Bill Hayes punched an office wall during a meeting that was called to deconstruct some engineering errors in a public sector project.
Then, three years later, Mrs. Yost, a kindly woman who worked in sales administration, was working late one night and saw Bill Hayes urinating in a potted plant by the copy machine.
It was a case of “He said, she said.”
Hayes denied doing it. Mrs. Yost, who was 67 and close to retirement, became emotional when questioned about the incident and seemed to want to put it out of her mind. Again, no action was taken against Hayes.
Minnick was always a family-run operation- handling employee situations like the one Hayes presented was way beyond the realm of what Linda was prepared for.
The day of Hayes’ termination she had finally had enough of his inconsistent performance and took that step without thinking further on the potential reaction that it may have elicited.
Minnick was ill prepared for this tragedy. She knew that now as surely as she felt the stabbing pain in her side where her ribs were cracked.
A paramedic ran up to Linda Minnick.
“See to him first,” Minnick said, nodding to the seriously injured engineering graduate sitting in a nearby chair.
The initial toll from Hayes attack was staggering enough. There was the first wave of injuries to Linda Minnick, Matthew Forrester and the job applicant, Henry Neal, whose jaw injury required extensive and expensive reconstructive surgery.
But Hayes had also injured three more people, two of them seriously, before the police got to him. One injured party was the employee of a contractor, Warren B. White Custodial Services. Hayes had shattered that unfortunate man’s knee with his prized metal softball bat.
The six and ten o’clock local news featured footage of Bill Hayes being led out of the Minnick Engineering offices in handcuffs. Watching the coverage with her husband, Linda Minnick could only hope the story didn’t go national.
From a coverage standpoint, Minnick Engineering was as vulnerable as its employees, prospective employees and contractors were the day Bill Hayes did what he did.
Warren B. White Custodial Services and the family of Henry Neal sued Minnick Engineering, alleging that the company had inadequate physical defenses in place in the event of an act of workplace violence.
Their lawsuits were successful, arguing as they did that the young Harry Neal suffered substantial emotional, not to mention physical trauma, getting hit in the face with a baseball bat at his very first job interview.
The janitor, who supported a wife and four children, also provided a sympathetic portrait for a jury. Linda was deposed as part of the legal proceedings. Under questioning, she admitted what the plaintiffs’ attorneys uncovered in their research.
Hayes presented a potential threat that hadn’t been adequately addressed by company leadership.
There was workers’ compensation coverage for the injuries to Forrester and the two other employees. But everything else hit the company’s general liability policy.
The litigation expenses alone in the Henry Neal case and the separate Warren B. White action amounted to more than $400,000.
Then came the medical and the emotional pain and suffering, which amounted to $1.2 million.
Those amounts tore right through the company’s self-insured retention of $200,000 and kept on going through its $1 million primary layer and into the $5M umbrella layer. Linda’s background was in engineering, not finance. Risk management was something she was sensitive to but now she was getting a real education in it.
There had been nowhere for the company’s general liability policy to run and hide in the aftermath of the Bill Hayes case. The broker trying to place the company’s coverage the following year was really up against it.
The company’s lack of a formal crisis management plan including methodology to deal with workplace violence was front and center with the underwriters.
“But we need coverage,” said Vince Liriano, the COO who handled insurance for the company. Minnick Engineering didn’t have a risk manager as such.
“Well, we’re going to need some premium increases, and larger retentions,” the underwriter said.
Leaving the renewal meeting, Linda felt sick to her stomach.
The only carrier that would talk to them wanted to triple the self-insured retention on the account and wanted a 40 percent premium increase.
There were two images Linda could not get out of her mind. The enraged, demented face of Bill Hayes forcing open that conference door, and the amount of money she and Vince Liriano had just agreed to as a self-insured retention.
The day Linda took over the reins of her father’s company seven years ago was the proudest day of her life. Now, a job doing traffic engineering studies in any other town but this one looked like a dream job.
Lessons Learned – Partner’s Content
Risk & Insurance partnered with XL Group to produce this scenario. Below are XL Group’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.
1. Security assessments: Pre-incident security assessment and consulting, available through qualified Security Consultants, subsidized by an allowance provided by the Insurer, with Kidnap Ransom & Extortion coverage, could have gone a long way in preventing the injuries and emotional trauma that buffets Minnick Engineering in this scenario. Such a Consultant assessment would have resulted in creation of a formal Crisis Management Plan that would have included premises security recommendations, such as double door implementation and locking mechanisms that may have prevented this attack. That consulting could also include training for employees in how to prevent, diffuse and respond to a workplace violence event.
2. Kidnap, ransom and extortion coverage: The actions that took place in this scenario would have triggered coverage under the definition of Assault in the XL Kidnap Ransom & Extortion policy. This coverage, in addition to providing the Security Consultant pre-incident training, would have mitigated the expenses that accrued to Minnick Engineering’s general liability and umbrella policies. Assault limits are generally available up to $2.5M Personal Accident, Legal Liability, Expenses and Consultant Expenses are all included in cover.
3. Consider medical and legal costs: In this scenario, medical and legal costs ended up constituting the lion’s share of losses. In addition to the physical injuries to the outside contractor and the young job prospect, there is also psychological damage and counseling costs to consider. A KRE policy would not only reimburse an insured for physical and mental medical costs, it would also cover the legal liability in cases where the insured is sued by the victims and those costs assigned to the insured.
4. Spread risk management responsibilities: One of the weak points in Minnick Engineering’s risk management structure was that the burden of determining what should be done with a potentially dangerous employee was siloed. Pre-incident counseling, which the Security Consultants provided by coverage under KRE insurance, could have offered valuable training to key executives who might not have had a protocol in place to handle a potential workplace violence situation. Additionally, a holistic Crisis Management plan could have been crafted, providing clear and concise direction to the senior team on prevention and management of a wide variety of situations that could harm a company’s personnel, property and reputation.
5. Consider your portfolio: Just as a key executive should not work in isolation when it comes to making risk management decisions, neither should a single insurance policy be left to take the brunt of all possible risks. Getting renewals for Minnick Engineering’s general liability policy became a nightmare after the company was hit by a workplace violence event. A KRE policy could have handled many of the expenses in this case and spared the more expensive general liability policy.
The Curse of the Black Adder
Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.
One Fine Fall Day
Aaron Scott watched with pride as his German shorthaired pointer Sadie bulled her way through the switchgrass. Sadie was six, an age when most hunting dogs started to show signs of aging. But Sadie was as heavy in the chest and shoulders as some males, and just as tough.
Then suddenly Sadie was on point, her stub of a tail twitching frenetically. Seconds later, the male bird exploded out of the brush. Aaron swung his grandfather’s over and under Remington up and dropped the bird cleanly. Aaron smiled. It didn’t get any better than this.
Then his phone rang. He had to get it. As the CFO for Pinecrest Food Markets, which had 44 stores in four states, it was part of his job to take calls, all calls.
“This is Aaron,” he said.
“Aaron, it’s Christine.” Christine was Aaron’s older sister and the CEO of the company. Aaron knew that tone in her voice. The news wasn’t good.
“We just got a letter from Spendex that they’ve been hit by malware. It looks like we may have lost credit card numbers for about 600,000 customers.”
Aaron paused and again looked at the scenery and savored the diminishing scent of spent gunpowder. He wished he could turn back the clock to one minute ago, but all that was gone.
“You there?” Christine said.
“I’m here,” Aaron said.
“Can you please get those dogs in the truck and get back to the office? We got work to do.”
Christine preferred jumping horses to bird-hunting. On a fox hunt, she could ride with anyone in the state.
Aaron loved his sister, but he also bore a scar over his right eyebrow where she’d clocked him with a rock when they were preteens.
“I’m comin’. Be there in 30,” Aaron said.
Pinecrest had been founded by Aaron’s grandfather William in an 800-square-foot shop in Johnstown, Pa. It had grown to where it had stores in eastern Ohio, its native western Pennsylvania, West Virginia and the Maryland panhandle.
Aaron and Christine ran it now. The phrase “three generations — shirt sleeves to shirt sleeves,” was how old-timers described how quickly an inherited family business could fall apart. Aaron and Christine had vowed they would prove that old saying wrong.
Back at the office, Aaron read the letter from the credit card transaction processing vendor Spendex. Spendex was reporting that as many as 26 of its regional retail customers lost credit card numbers to The Black Adder, a malware that strips names, credit card numbers and expiration dates from the magnetic stripes of credit cards.
“Now what?” said Christine.
“Well, we’ve got to tell every affected customer what happened and we need to do it soon,” Aaron said.
“How much is that going to cost?” Christine said.
“Quite a bit, but we’ve got insurance for it,” Aaron said as calmly as he could as he looked down at his iPhone and started scrolling through his contacts.
Aaron was playing possum with his cool tone. He was the family peacekeeper and he knew that his role at times like these was to keep a lid on the much more volatile Christine.
Christine exhaled, and Aaron kept his eyes on his iPhone.
Part of the Pinecrest brand came from where it was based and who founded it.
Based as it was in a state that was home to almost a million military veterans, Pinecrest aligned itself with traditional values like patriotism, community, faith and family.
There was a picture of a local veteran who had given his life in armed conflict in every Pinecrest store.
So when it came to the data breach notification, Christine Scott — in what she felt was full alignment with the brand — didn’t shrink from responsibility.
In addition to letters and emails sent to Pinecrest’s 600,000 affected customers, Christine called local news stations to broadcast news of the breach and her promises to make good. She didn’t bother to ask Aaron whether he thought that was a good idea.
“Every one of our customers will be reimbursed for their time and trouble, including a year’s worth of multi-bureau credit monitoring services,” Christine said while the TV cameras recorded her.
“Well that’s what the policy says, doesn’t it?” Christine said when Aaron told her later that she probably shouldn’t have said that on television.
The very next day, a phone call from Pinecrest’s insurance broker was the second bad call Aaron got that month.
“Multi-bureau? No. The policy will cover services from a single credit monitoring bureau,” the broker, Robert Franz, told Aaron.
As Aaron spoke with Robert, he was multitasking and monitoring his emails. He saw an email marked “urgent” from Spendex. It was about the data breach.
“Hey Robert, can I call you back in a few minutes? I’ve got something hopping here,” Aaron said.
“Sure,“ Robert said, but in a tone that implied, “What could be more important than this?”
As it turned out, the email from Spendex was plenty important.
The notice from Spendex explained that although it was obligated to inform all of its customers that there had been a breach, in reality, only 14 of its 26 retail customers had been impacted. The clincher? Pinecrest wasn’t one of them.
Aaron pushed back from his desk and ran his hands through his hair.
“What the … ?” he said as loudly as he would say anything.
“What is it?” said Christine, popping her head into his office. She knew from the volume of Aaron’s voice that it was something big.
“We didn’t lose any data. We didn’t lose any data at all,” Aaron said.
“Great,” Christine said.
“No, not great,” Aaron said. “We just told about a million people that we did.”
“Now what do we do?” Christine asked.
Aaron felt that Christine had burned him before by going on television without seeking his counsel. That experience caused him to dig in his heels with Christine over what to do next.
“Slow down, just slow down,” Aaron said when the siblings met to go over strategy.
“I don’t know that we need to come out with an announcement just yet.”
Aaron’s reaction to his sister’s outspokenness had caused him to miscalculate. A full week went by until Pinecrest announced on its website and with another email blast that its customers had, after all, not been impacted by the Black Adder strike.
The company’s pause in making that announcement was as toxic as a rattlesnake bite.
The local media reacted negatively to the company’s week-long silence. News that the company sat on the knowledge that customers hadn’t lost data made the front pages of the Johnstown Tribune-Democrat and the Wheeling News-Register.
For the first time in its history, Pinecrest was dealing with the full brunt of a hit to its reputation.
The traditional print media was one thing, and no small thing in the markets Pinecrest served. But online commentary, ungoverned by journalistic ethics, pulled no punches. Commentators ridiculed the company for banking on the military sacrifices of previous generations, when it “didn’t have the guts,” in one poster’s vernacular, to tell people the truth.
The company’s broker, Robert Franz, phoned Aaron with even more bad news.
“You’re not covered for any of your breach notification expenses, or for any credit monitoring services,” Robert told Aaron.
“Please tell me why,” Aaron said, keeping his voice low because he was just not in the mood for any spontaneous crisis communications with his older sister.
“Under your policy, you’re only covered for notification and credit monitoring if there was an actual breach,” Robert said.
“No breach, no coverage,” he said.
“So we’re out about a million dollars,” Aaron said flatly. In the regional grocery business, where margins could sometimes be measured in the low single digits, a million dollars was a very big hit.
“I’m afraid so,” Robert said.
Sales at Pinecrest Food Markets were down around 10 percent in all four states that it operated in.
“Might as well shop at Supermart,”a grizzled Korean War veteran told Channel 11 in Charles Town, West Virginia.
With the company down a million out of pocket and with revenue hamstrung, Christine Scott and the rest of the Pinecrest team had some very difficult and expensive decisions to make.
Should they sue Spendex for its shoddy forensics? And what coverage did they have for the costs of that?
Rumors began to circulate in several state capitals that class action lawsuits were being prepared on behalf of the tens of thousands of Pinecrest customers who felt they were caused needless expense and worry because of the bad information Pinecrest put out to begin with.
Grandstanding attorneys general were probably not far behind. Pinecrest was possibly facing legal action on several fronts and it was unclear whether it had the coverage to pay for its defense.
With the world seemingly against them, Christine and Aaron took a day in late November and went to their grandfather’s hunting cabin in Somerset County.
The grouse were out there, but the two of them just sat staring at the fire in the cabin’s stone fireplace, with Aaron’s two bird dogs stretched out in front of the fireplace.
Sadie looked up hopefully as Aaron got up to throw another log on the fire.
“No huntin’ today, Sadie girl. Daddy is not in the mood,” Aaron said as Christine nursed a bottle of local craft-distilled rye.
“May I have some of that, please?” Aaron asked.
“Get your own bottle,” said Christine.
A regional grocery chain gets into hot water after it loses customer financial data. Making matters worse is that the company does not have a good grasp on the language in its cyber coverage policy. The company also suffers reputational damage when it notifies customers based on bad information.
1. Know your partners: Pinecrest sees its problems go from bad to worse because the company it uses to process credit card transactions has shoddy forensics and reports data breaches for customers that in the end had no data breach.
2. Know your coverage: Pinecrest suffers needless losses because key executives don’t understand its insurance policy when it comes to services available under the coverage for data breach notification and credit monitoring.
3. Be as transparent as possible: When it comes to notifying customers of substantial issues that could impact their expenditures, getting out quickly with the best information is extremely important. Pinecrest actually has good news to report midway through this story, but sits on it due to internal friction. The good of the team must clearly win out here.
4. Create realistic expectations: Coverage existed for Pinecrest officials to put together a reasonable response when customer data was lost. But a key executive broadcast inflated statements about what Pinecrest would be able to do, creating equally inflated expectations.
5. Hold vendors accountable: Given the volatile expansion of cyber risk, it makes good sense to require vendors contractually to indemnify you if they lose your crucial customer data.
The issues covered in this scenario center around crisis management and insurance pitfalls associated with loss from a cyber breach. This follow-up webinar focused on specific loss trends and cyber exposures, as well as presented steps to take to strengthen your crisis risk management program.