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10 Insurance Tips for Risk Managers

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NEW ORLEANS—Most companies will at one time or another face coverage issues and lawsuits. In order to identify and avoid insurance-related issues and disputes before they arise, risk managers should take advantage of proven strategies for resolving difficult claims, advised Darin McMullen, attorney with Anderson Kill, P.C. at the RIMS 2015 Annual Conference & Exhibition here.

1. The purpose of insurance is to insure.

Don’t underestimate potential future problems and think of loss prevention and risk transfer rather than loss financing, he noted. Companies need to assess the types of risks they will face and make sure their program is tailored to meet these needs. Also important, he said, is making sure policies are designed to cover the losses the company will face on a day to day basis. For example, certain types of risks are seen in manufacturing and other risks are particular to an IT vendor. Risk managers need to examine any pitfalls or shortages that may exist in their current policies and seek legal opinions well in advance of renewal. They need to look at how exclusions might be interpreted as well, McMullen said.

Joshua Gold, also an attorney with Anderson Kill, added that risk managers’ jobs are more difficult than ever, with fragmentation in insurance programs existing, since many polices are purchased for a program. These may include directors and officers, product liability and cyber insurance. “There are products out there that try to assimilate them and make sure gaps in coverage are treated,” Gold said, adding that while the fine print in policies can be overwhelming, it can be key for proper coverage, especially when dealing with multiple lines, excess layers and towers of insurance.

2. Don’t limit insurance expertise to the risk management department.

All too often, “there are still going to be thorny claims and there still are going to be disputed claims, which are unavoidable,” McMullen said. He said that building expertise elsewhere within the company is critical to taking advantage of any and all available coverage. “We get the need for everybody to work together, but now, more than ever, this is important,” he said. Coverage should not just be delegated to risk or legal and collaboration is needed. For example, IT departments need to be included when planning for cyber coverage.

3. Lawyers and risk managers can be natural allies.

While there may be friction between departments in a company, legal generally recognizes the beneficial role risk managers play, McMullen said. He added that risk managers need to put any insurance-related communications in writing and assist in the analysis of policies and claims.

4. Insurance is an essential component of corporate resources and asset conservation plans.

Risk managers should purchase coverage with the intent of safeguarding the company’s own property and employees. They also need to recognize which mechanisms actually transfer risk and which do not.

5. Think insurance after a loss occurs.

This means looking to insurance coverage following all lawsuits, claim letters, product-related issues and financial losses. Risk professionals also need to analyze other sources of insurance that could possibly cover a claim.

6. Give notice of a claim or loss as soon as possible.

When faced with a claim or loss, McMullen advised risk managers not to hesitate to notify their broker, insurers and everyone in their tower of insurance as soon as possible.

7. When you make a claim, don’t accept “no” for an answer.

There is no downside to challenging an insurer’s denial of coverage. “You owe it to your company, you owe it to your organization to explore this and push back,” McMullen said, adding that determination and persistence often mean the difference between coverage and no coverage.

8. Find out where your company’s policies are.

Locate, collect and catalogue past insurance policies. Also acquire and keep policies of all entities related to your company.

9. Don’t panic if your insurer becomes insolvent.

If this is the case, McMullen advised risk professionals to file a proof of claim as a creditor and file a claim against the state guaranty fund in one or more possible jurisdictions. He recommended that they request the next layer of insurance companies to “drop down,” and also to consider litigation options.

10. Make sure your insurance team is conflict-free.

This means the team should be untainted–risk managers need to know where loyalty lies and if an attorney is representing both sides, McMullen said. “You want a conflict-free insurance team to take on the insurance company and to fight for the coverage that you are paying for,” he concluded.

 

EPA, DuPont Reach Settlement Over Pesticide Violations

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Failure to register and label a pesticide with the U.S. Environmental Protection Agency (EPA) has netted a penalty of $1.85 million for DuPont, the EPA announced today.

DuPont did not submit reports about the potential adverse effects of an herbicide product called Imprelis, introduced in 2010, the EPA said in a statement. The agency alleges that from October 2010 through June 2011, DuPont distributed or sold Imprelis on 320 occasions with labeling that did not include adequate directions for use, warnings or caution statements to protect non-target plants.

The product was available in 4.5 fl. oz., 1 gallon and 2.5 gallon size containers, and was primarily sold to pest control professionals servicing the lawn, golf, turf and weed control sectors from New Jersey to Wisconsin, the EPA said. Customers who applied the product found that it led to damage and death of some types of coniferous trees, including Norway spruce and white pine.

In June 2011, the EPA started to get complaints from state pesticide agencies regarding evergreen damage related to use of Imprelis. According to the EPA, DuPont reported it received more than 7,000 claims of death or damage to trees. Cases of tree damage and death were widespread in the Midwest, especially Indiana, Illinois, Michigan, Minnesota, Ohio and Wisconsin. Indiana investigated more than 400 cases of tree damage related to Imprelis in 2011, the EPA said.

The agency added that media reports put claims as high as 30,000 by homeowners, landscapers, golf courses and entities with crop damage from the use of the herbicide.

DuPont stopped selling the product in August 2011 and in 2013, the Wilmington, Delaware-based company reached a settlement with representative plaintiffs in a class action lawsuit in federal court in Pennsylvania.

Reuters reported that under the settlement agreement, DuPont will pay property owners to remove and replace damaged trees and other losses. Businesses that applied the herbicide to the property of others will also be compensated for customer site visits and other expenses.

The settlement provides up to $7 million in attorney’s fees and also costs for plaintiffs’ lawyers, Reuters said.

According to the EPA:

Pesticide registrants such as DuPont who violate FIFRA are subject to maximum civil penalty of $7,500 for each offense per FIFRA section 14(a)(1), as amended. In determining an appropriate civil penalty amount, FIFRA section 14(a)(4) requires that EPA consider the appropriateness of such penalty to the size of the violator’s business, the effect of the penalty on the violator’s ability to continue in business, and the gravity of the violation.

 

Trends and Predictions for Retailers

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Last year, retail and consumer packaged goods (CPG) companies faced challenges stemming from evolving regulatory compliance, brand exposure, reputational risk and increasingly complex global supply chains. No doubt 2014 will prove to be a pivotal year for organizations to demonstrate their focus and commitment to strong governance, risk management, and compliance in order to truly emerge as leaders. Here is a look at some top trends that have influenced the industry, and a few predictions that will shape the year ahead.

2013 Key Trends:

Increased Volume and Complexity of Regulations. In 2013, the retail/CPG industry faced a flurry of new and amended regulations spanning environmental compliance, conflict minerals reporting, product safety, data privacy, anti-corruption, product packaging and labeling to name a few.

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Ensuring compliance and staying one step ahead of regulators requires that retail and CPG organizations establish more centralized and collaborative compliance programs.

Managing the Supplier Ecosystem. We saw that environmental, man-made, and human rights issues can threaten the financial stability and reputation of retail and CPG organizations. Establishing a unified view of the organization and its entire supplier ecosystem requires consistency and transparency, which can be achieved only through stronger due diligence, monitoring, and reporting processes.

Focus on Collaboration. In response to increased compliance mandates, and added complexity throughout the supply chain, internal business functions have begun converging and collaborating in new ways. A strong, compliant, and risk-aware organization brings together the right people, the right skill sets, and necessary resources against a shared vision, mission, and purpose.

2014 Predictions:

Rising Importance of Reputation. Non-compliance, fines, product recalls, bribery and corruption allegations, customer activism, factory fires, and health and safety issues have put many retail and CPG companies in the hot seat.

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These incidents not only play out over front-page headlines, but can spread virally across social media sites in a matter of minutes. In 2014, building and maintaining an organization’s reputation will become a matter of survival.

Complying with the Affordable Care Act (ACA). The ACA impacts retail companies that employ a significant number of temporary workers. According to the ACA, health insurance must be provided to full time employees who work at least 30 hours per week. In the retail industry, however, employees who work at least 40 hours per week have traditionally been considered full-time. Overcoming this discrepancy will require new policies and processes that will impact employees, human resources teams, and compliance executives alike.

Investments in Technology. As operations expand and supplier ecosystems become more diverse, organizations will be faced with new opportunities and new challenges. We will see organizations continue to focus on integrating the activities of multiple functions.

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Investing in new technologies and tools to help integrate quality customer service, regulatory compliance, supply chain governance and security can help organizations realize greater efficiencies, enhanced agility and improved business performance.

The Cost of Food Fraud or “Does This Vodka Taste Like Bleach to You?”

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In the May issue of Risk Management, Emily Holbrook reported on the prevalence of food fraud in restaurants and supermarkets around the world. Characterized by counterfeit or purposely mislabeled foods used by unscrupulous producers looking to make a quick buck, food fraud manifests itself in many ways. Sometimes its as unsettling as pig rectum in place of calamari or horse meat for hamburger, while other times its farm-raised fish sold as “fresh-caught.” Regardless of the nature of the deception, customers are put at risk. Not only are they conned into buying more expensive items, but they can also be exposed to pathogens or toxins that they would have no reason to expect in their food.

The New York Times recently reported about instances of fake vodka laced with bleach to lighten its color or olive oil contaminated with engine oil to extend the supply and increase profits. It turns out that food fraud is more widespread than most people realize. 

“Around the world, food fraud is an epidemic — in every single country where food is produced or grown, food fraud is occurring,” said Mitchell Weinberg, president and chief executive of Inscatech, a company that advises on food security. “Just about every single ingredient that has even a moderate economic value is potentially vulnerable to fraud.”

The Times article goes on to cite a report by the United States Grocery Manufacturers Association, which puts the cost of adulteration and counterfeiting of global food and consumer products at $10 billion to $15 billion a year. The study further indicates that a single adulteration incident could cost a company anywhere from 2% to 15% of a company’s annual revenue. To use a bad pun, this is not small potatoes. Even the bleached vodka scheme was estimated to have cost the British government $2.3 million in lost tax revenue.

So given how pervasive and lucrative food fraud has become, companies will need to be more diligent to protect their bottom line and their reputations and to protect public safety, governments will need to fight back as well, either through regulation or prosecution. When there’s this much money at stake, the problem will only get worse. Hopefully it won’t take a widespread illness from food contamination to make it better.