By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®
They say that public entities are about 18 to 24 months behind the commercial sector when it comes to feeling the recession's impact. That puts them at about 2008, the depths of despair. Fiscal holes the size of the Grand Canyon leave elected officials no choice but to consider cuts--to employees, to services, of corners and, yes, of risk managers--and that leaves public-entity risk professionals scrambling to mitigate more exposure with less.
"It's all about risk managers and public entities doing more with less," said Patrick M. Gallagher, managing director of Arthur J. Gallagher Ltd., the U.K. arm of the insurance brokerage with a large presence in the public-sector space.
What's more, citizens and employees in towns and cities across the country are having to make do with less in their household budgets as well. For those less scrupulous people--or those earnestly injured or offended--lawsuits could be the way toward a beefier new bank account.
Yet surprise--apparently fraudulent claims are not swamping public entities.
As Gallagher reported to the audience at the June national meeting of the Public Risk Management Association, his firm is not seeing more fraud claims. "We're just yet to see it," he said.
Patricia Roberts, CEO and president of Genesis Underwriting Management Co., agreed, attributing it to perhaps the fact that the insurance industry overall has more tools to track fraud. Gallagher added that public risk managers also deserve credit for doing their jobs.
Yet don't be lulled into a false sense of security. Public risk management pros Michael Klein, president of middle markets at Travelers, warned that everyone, plaintiff's attorneys included, is looking for new revenue streams.
"The total amount of risk in the environment is rising," he told the PRIMA audience.
Again, everyone is trying to do more with less, and that is a recipe for loss.
According to Klein, a variety of losses can come out of the delay of capital expenditures, reductions and freezes on hiring, cuts in public services and other economic impacts; all of the losses coming with higher taxes perhaps, increased public ire and expectations.
EMPLOYMENT PRACTICES LIABILITY
One species of risks public entities should be wary about come from within, from the ire of employees who lost jobs, were forced into furloughs, saw raises deferred, and benefits cut: employment practices liability. Just consider Jefferson County in Alabama, where nearly 1,000 employees--a quarter of the workforce--has been let go, or Kansas City, where the public schools are cutting 700 out of 3,000 jobs.
"The lawyers will have a heyday for a while," said Dennis Molenaar, the Denver-based vice president of risk control for OneBeacon Government Risks.
When laying off workers, employers ought to keep an eye out for potential lawsuits stemming from the 42 U.S. Code Section 1983 (which affords civil action for deprivation of rights) and the Civil Rights Act. And with military veterans, laws such as the Uniformed Services Employment and Re-employment Rights Act come into play, and courts have "hammered" public entities with this, according to Molenaar.
In particular, the Civil Rights Act is providing a lot of ammunition for attorneys and their plaintiff clients.
"This is the hot potato for litigation right now," said Molenaar.
For this loss-control specialist, perhaps the best way for a public entity to avoid the court room in the current environment would be to not lay off anyone at all; instead, find creative ways to cut services not mandated by law and reduce costs.
If layoffs are necessary, planning and documentation are critical. All hands should be on deck for these decisions, including department heads, elected officials and legal staff. Don't leave these decisions to just one of those parties. A plan must be put in place, preferably a comprehensive one that explains an employment strategy for at least two years going forward, and one that clearly explains the rationale behind why a particular layoff strategy was taken, according to Molenaar.
An economic downturn, by the way, is not the time for punitive measures against problem employees.
"This is not the time to clean dead wood," he said.
THE CAT CLAIMS
Serious legal challenges can also come when workers get seriously injured, or a citizen takes a fall, a student suffers a head injury or sexual harassment charges rear their ugly head. Now's not the time, despite the cutbacks, to lay down your defenses against catastrophic cases.
"If you look at the number of claims and the amount of money they're throwing around, it's ridiculous," said Michael Patterson, partner in the Seattle law offices of Patterson Buchanan Fobes Leitch & Kalzer Inc.
Again, as with layoffs, the risk manager's best friend for catastrophe claims could be a policy that's clearly stated and written down, whether that's for handling when a student-athlete suffers a head injury or for sexual abuse charges at a school or in the office.
"They have to be in writing," Patterson said about these policies.
Another way to mitigate a potential catastrophic claim in these situations is to be generous, sympathetic even. Deborah Callahan, director of claims at the Washington Schools Risk Management Pool, shared how she once paid $10,000 for the funeral of a child hit by a bus, or $40,000 for a handicap-enabled van for a family whose member suffered a paralyzing injury.
"The goodwill from $40,000 goes quite far," she said.
Of course, public entities are having trouble scraping two pennies together, let along $40,000 in change.
July 1, 2010
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