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The New World of Commercial Liability

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How fresh coverage strategies and specialized products are protecting businesses in a world where Basic P&C Coverage no longer suffices

If you’ve been on Facebook, chances are you have engaged in the popular “Remember when…?” or “Who is this?” diversion, where someone posts an old picture of a person, place or thing, then invites “friends” to identify it.

Nostalgia for an earlier, simpler time seems to pervade our culture, probably because we live in such fastmoving, fast-changing times. Many fondly recall a time when the world felt less complicated, a workday had a beginning and end, and expectations were simpler.

Insurance always has been a reliable barometer of change, measuring and reflecting society’s increasing economic development and the need to protect those assets. Where straightforward property and liability coverages were once sufficient, operations and expectations have changed over the last decade. Nowadays, many business enterprises need new types of insurance coverage, whether it’s professional liability, cyber liability or even environmental coverage, to keep them safe.

Legacy of a Litigious Society

Are there more professional liability lawsuits today because there are more attorneys specializing in that type of practice? Or are their more attorneys in this specialty because there are just so many more angry people and so many more targets at which to aim their anger?

While there’s no clear answer to this chicken-or-the-egg question, what is clear is that in the wake of the recent Great Recession, the public’s already percolating frustration boiled over, unleashing a torrent of anger, suspicion and lawsuits against companies, pension-plan managers and anyone else whose actions might have caused financial losses. The public’s search for a culprit for their financial losses and other problems, and for a way to recover some of their losses, reverberates far and wide, observes Marla Donovan of the Office of the Chairman at Burns & Wilcox in Farmington Hills, Mich.

For example, more than three times as many consumer lawsuits were filed against collection agencies in May 2012 compared to May 2007, according to the Transactional Records Clearing House at Syracuse University. Meanwhile, in 2012, the total number of discrimination complaints filed with the Equal Employment Opportunity Commission approached 100,000, up considerably from the pre-recession low of about 75,500 in 2007. There are also new classes, such as the one that emerged in 2010 that bars companies from using genetic information in employment or healthcare decisions. Even that drew 280 complaints in 2012.

Defending against such charges is costly and so are the actions needed to restore a business reputation if the action is publicized. As a result, employment practices liability coverage is more important than ever. And there’s much more to the still unfolding liability story.

Changing Workplace Dynamics

The perpetually plugged-in world has created its own vulnerabilities. Take, for example, a service provider that must respond immediately to customer requests, sometimes at odd hours. The provider may be tired, out of reach of relevant information, or simply absorbed in something else, yet even then, a misspoken commitment, or a wrong or misunderstood response, can create problems down the road.

Similarly, the increased productivity required of today’s worker is an impetus to take shortcuts, which can adversely affect clients. And there’s a whole range of other new cyber-liability and data-breach threats (see the sidebar on pg. 19), says Chris Zoidis, senior vice president, Special Risk Division, at Burns & Wilcox.

Meanwhile, client expectations have changed, too, so there’s an increased likelihood that someone will sue for mistakes made while performing a professional service.

“Today, medical professionals are held to a higher standard than in the past,” explains Zoidis. “There was a time where doctors were viewed as experts and their actions were rarely challenged — barring an obvious error. But now, with increased access to medical disease and treatment information on the Internet, patients are more knowledgeable and more likely to question a medical professional’s actions. Combine that with increasing patient loads, and we are seeing claim instances rise. Thus, healthcare is one field where professional liability insurance is readily purchased, he adds.

Nowadays, management consultants, IT consultants, financial consultants, real estate consultants and just about every other imaginable type of consultant, likely will consider investing in some form of professional liability coverage for defense costs at a minimum. Whereas once it was generally accepted that a consultant’s role was just to make recommendations, leaving the entity that hired them to make ultimate decisions, no longer are consultants exempt from legal action connected to work they did for a client. Today, according to Zoidis, they’re often among the parties that get brought into a lawsuit, even if they did not make the ultimate decision or do the actual work that sparked the claim.

Today’s customer is much savvier about performance standards. Not only are they better able to recognize when necessary or expected standards are not being met, they are more apt to pinpoint responsibility. Also, new regulations and new case law help establish the standards that can then be breached. “If there’s a loss, customers are more likely to sue today than they were 10 years ago,” observes Zoidis.

Ironically, the development of professional liability coverage also has made insureds a bigger target for plaintiff’s attorneys. Before this coverage became popular, a settlement might be paid under the business’ general liability coverage or, more likely, from business earnings. Now that proof of coverage is frequently required to win a job; clients are often aware when there’s E&O coverage, and more likely to seek damages paid by the business’ deep-pocketed insurance company than from the pocket of a business associate, Zoidis says.

Environmental Risk

While industries around the globe have made vast improvements in identifying and handling pollution sources, claims stemming from pollution-related issues continue to increase because businesses are being held to higher standards than in the past. “Today, it’s not just factories or big oil companies. We’re seeing more pollution claims for the everyday contractor,” says Zoidis. “Claims could involve simply spilling a can of the gasoline that runs their generator or leaking Freon from an air conditioning unit. If the contractor causes the release, they are responsible for cleanup, remediation, property damage and any bodily injury.

“All contractors should have this coverage. But most probably don’t,” he continues. They fail to understand that if they’re digging around an underground tank and it starts to leak, they — and all other parties involved — will be called in to determine whether they had a role in causing the release. Even if only the manufacturer or the installer is ultimately found responsible, the contractor will still incur defense costs, which add up fast.

Today’s world of heavier workloads, higher expectations and low tolerance for mistakes makes businesses more vulnerable, so an appropriate property and casualty insurance program must go beyond the traditional to respond to changing risks. Newer coverages like professional liability, environmental liability and employment practices liability continue to evolve and make our interesting times a little safer.

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