Changing Resilience

40th Annual Risk and Insurance Management Society (RIMS) Canada Conference (Winnipeg)

Delegates to the 40th Annual RIMS Canada Conference – the theme of which was Crossroads 2014: Changing Landscapes – gathered in Winnipeg September 14 through 17 to learn more about how the business landscape is constantly evolving and how today’s risk practitioners can best manage the risk and opportunity crossroads on a daily basis.

POLLUTION LIABILITY AND D&O POLICIES

Contracts in which one party agrees to hold another “harmless” from pollution liability deserve special scrutiny, an environment expert for a commercial brokerage suggested during the 40th Annual RIMS Canada Conference.

“Hazardous substance is a term that’s thrown around, like dangerous goods,” said Justin Perry, vice president and national practice leader for Aon Risk Solutions’ environmental services group. “The only difference is, ‘dangerous goods’ is actually defined at a federal level. ‘Hazardous substances’ is not,” Perry pointed out.

“Hazardous substance is a catch-all term” that needs to be defined in agreements, such as landlord-tenant or service provider contracts, Perry told session attendees.

Perry’s co-panelist, Brian Rosenbaum, national director, legal and research practice at Aon Reed Stenhouse Inc., pointed to a recent case as an example. Thirteen former directors (including Neil Baker) of Northstar Aerospace Inc. were ordered by Ontario’s then Ministry of the Environment to personally pay to remediate a contaminated site. Northstar had court protection under the Companies’ Creditors’ Arrangement Act.

Rosenbaum said the directors ended up paying $4.75 million, personally, as a result of a settlement with the Environmental Review Tribunal (Baker et al v. the Director, Ministry of the Environment).

“There was no indemnification for these directors and officers because Northstar was gone,” Rosenbaum explained. “There was no insurance because they didn’t buy an environmental impairment liability policy, and their (directors and officers) D&O policy had an exclusion in their definition of loss, dealing with remediation costs.”

A D&O liability policy is “technically not designed to deal with environmental liability, in and of itself,” Rosenbaum warned. He noted, though, some carriers have removed limitations (such as pollution, property damage and costs to comply with government orders) that used to be common in D&O liability policies.

“There is a movement afoot by a couple of carriers right now to provide Baker-type coverage, so cost to remediate and legal costs associated to set aside a Ministry of the Environment order, on their primary D&O forms,” he reported, but added that some of the forms he has reviewed need work.

“They haven’t dealt with the property damage and bodily injury exclusion properly and there are a number of other problems, but they are trying.”

ACTIVE SHOOTERS AND OCCUPIER LIABILITY

Current occupier liability laws may not cover events, including the liability exposure for a property owner or occupier when there is an incident of an active shooter entering the premises and shooting people, attendees of the 40th Annual RIMS Canada Conference heard.

“We are starting with basic legal principles that were not really devised for a shooter situation, and we have to apply them to a situation that they were not really designed for,” Howard Borlack, a founding partner of McCague Borlack LLP, said of occupiers’ liability laws.

“If you invite someone into your premises, you have a duty to keep them safe,” Borlack said. The “real liability” for property occupiers depends, in part, on what staff do after a criminal starts shooting, he noted. “If you don’t have procedures in place, if you haven’t trained your staff, if you don’t have… some sort of warning system, some area to take people, some way to identify that this is the danger area and everyone should go to another area, someone to escort people out,” Borlack noted, “that’s where real liability can come from.”

Most lawsuits arising from active shooters are being settled out of court and the law in occupiers’ liability is evolving, he said. “The more this happens, the more you can argue that it becomes foreseeable,” he explained.

“You are not immune from this in Canada,” Lance Ewing, industry practice group leader for real estate and hospitality and leisure at American International Group (AIG) Inc., said in reference to active shooter incidents.

Speaking at the same session, Ewing cited examples of active shooters in Canada, such as the 1989 murders of 14 female students at the University of Montreal and the 1992 murders of four engineering professors at Corcordia University.

Ewing showed a video produced by the City of Houston that offered emergency response tips, everything from leaving the area to hiding and ensuring cellphones are silenced, and fighting the active shooter (as a last resort) with improvised weapons such as chairs or fire extinguishers.

“Getting a training plan together is simply not enough anymore,” he said. “You’ve got to practise and train, and every member in your company should be trained at least once a year. You do them for fire drills in your businesses, don’t you?”

COMPUTER SECURITY RISK TOUGH TO UNDERWRITE

“The behaviour of employees can often be sudden and unforeseen, so I think we do see clearly an increased exposure in cyber,” Michael Kerner, chief executive officer for general insurance of Zurich Insurance Group Ltd., said in an exclusive interview with Canadian Underwriter at the 2014 RIMS Canada Conference.

“We see the well-publicized events around increased hacking and the possibility of personal data being compromised in the course of the events,” said Kerner, adding that this exposure has increased with the growth in computer networks, especially the public Internet.

A lot of the cyber exposures come from outside of a company, Kerner cautioned. “They come from supply chains, they come from other vendors, and those create exposure for a company.”

Kerner suggested that regardless of what information technology security practices are in place, it is difficult to defend a computer network from a determined miscreant. “It’s very challenging to have a good, strong fool-proof defence on cyber, because, essentially, when you are on the defence side of the cyber issue, you have to defend every single weakness, every single portal 24 hours a day, seven days a week,” he said.

“If you are trying to be on the offensive and trying to get in, you just need to find one weakness in one portal once and you are able to get in,” he noted.

BI COVERED DURING GAMES?

What might big events – such as the 2015 Pan American/Parapan American Games next July – potentially mean in terms of business interruption (BI) and what is covered by BI insurance?

It is a question some companies are asking, Mark Aiello, senior vice president of organizational risk and resilience for Marsh Canada, said of the games during a session at the 40th Annual RIMS Canada Conference. Most venues for the games next July 10 through 26 are in the Greater Toronto Area.

“Right now, there is a lot of talk going on… with respect to the traffic congestion and back-ups,” Aiello told attendees. “The same thing happened a few years ago with the G20 (summit). The ability for businesses in downtown Toronto or in that region to be able to conduct business on a regular basis is going to be challenging. You could have a disruption because of something that happens at the Pan Am Games that may not be a covered loss,” he added.

BI insurance “is really to cover the reduction in income when operations are interrupted by a covered loss” and is intended to provide money in case there is an interruption, Aiello said.

“You have different offerings that wil l cover expenses, lost revenue, lost profits and provide you with that liquidity upon having a loss, but it’s limited to covered perils,” he cautioned during his presentation.