Critical Issues In Independent School Risk Management and

Insurance

CAIS Trustee/Head Conference, January 26, 2008

Presented byBolton & Company—Ron Wanglin, CIC, Chairman of the Board and Cheryl McDowell, ARM, CSRM, CISR, Vice President, Education Practice Group

Understanding Risk

• Inherent in what schools do

• Unavoidable no matter how much risk management you employ

Understanding Risks

• Academics• Arts• Athletics• Co-curricular• Ethics/Character• Safety and

Security

• Services• Financial• Legal• Personnel• Fundraising• Communications

Schools are Risky Businesses

• Transportation• Foreign Travel• Athletics/P.E.

– Swimming – Equestrian– Gymnastics

• Camps• Outdoor Education• Survival Programs• Counseling

• Playgrounds• Dormitories• Cafeterias• Science labs• Arts facilities• Technical shops

(drama, woodworking, etc.)

• Security

Apparent Risks

• Fire• Flood• Earthquake• Hurricane• Tornado

• Theft• Auto accidents• Trips/falls• Death• Dismemberment

Less Obvious Risks

• Independent Contractors

• Employee use of school equipment or facilities

• Leased Equipment

• Pollution

Risk Management Responses

• Avoidance

• Prevention

• Reduction

• Transfer

• Assumption

Risk Management Methods

• Insurance• Education• Safety Procedures• Supervision• Elimination of hazards• Proper Maintenance• Proper planning of activities• Use expert advice as needed• VIGILANCE

Risk Management and Leadership

• Begins at the Board Level

Risk Management and Leadership

“There is no way a board can establish sufficient policies and procedures in order to eliminate all risk and resulting law suits. But a school can manage risk to keep litigation to a minimum. The board’s role is to ensure that the appropriate institutional and operational policies—such as personnel, student activities and behavior, crisis management, and financial management—are in place and that the school is following those policies and the resulting procedures every day in a consistent, fair manner”.

“…..the best protection against a suit is an active board of trustees that exercises its governance role with great care.”

NAIS Trustee Handbook

Risk Management and Leadership

• Begins at the Board Level (Cont.)

Policies & ProceduresFunding for staffing, maintenance and

repairsAnnual reporting requirement on update of

risk management programs

The Independent School Board of Trustees

Whereas, The Board of Trustees reaffirms that the development and implementation of a disaster preparedness plan and disaster recovery plan is essential to creating the optimal environment to safeguard the students, families, faculty, staff and visitors against illness and injury, and

Whereas, The Board of Trustees recognizes the need to develop s sound business continuation plan to respond to disasters and other catastrophic events to secure the financial stability and security of the school over the long term,

Therefore Be It Resolved, That the Board of Trustees hereby directs the school leadership to develop and implement the above plans using all reasonable means and resources, both internal and external, by January 1, 2007, and all such plans will be reviewed not less than annually to determine their appropriateness to meet the current and future needs of the school.

Risk Management and Leadership

• Continues with Administration

Establishes Safety/Operational Risk Management Committees

Provides GuidelinesModels responsible behaviorPromotes safety

To insure or not?

Fiduciary responsibility requires board consideration

• What liability limits to pick• Purchase catastrophic property

coverage such as Earthquake, Wind or Flood?

• Purchase Loss of Business Income & Extra Expense coverage (loss of tuition)

• Use of benchmarking

When we decide to insure

What are the issues, gaps and pitfalls?

United Educators

Umbrella Liability

UE General Liability–UE Sexual Abuse and Molestation (SAM)–sometimes Employee Benefit Liability

Auto Liability (Other carrier)

Employers Liability(Other carrier)

Educators Legal Liability

Includes:

- Trustee Liability- Employment Practices Liability-Professional Liability

Sometimes Employee Benefit Liability

Hartford

UMBRELLA

Separate Tower

Separate Tower

General Liability–Sexual Abuse & Molestation

Educators Legal Liability

• Trustee Liability

• Employment

Practices Liability

• Professional

Liability

• Employee Benefit

Liability

Auto Liability

Employers Liability

Philadelphia Insurance

Umbrella

General Liability–Sexual Abuse & Molestation–Educators Legal Liability (Professional only!)

Auto Liability

Employers Liability

Trustee Liability (D&O)

Employment Practices Liability

Other coverages:

- Fiduciary Liability- Workplace Violence-Internet Liability

Philadelphia

Umbrella

Separate Tower

Separate Tower

General Liability–Sexual Abuse & Molestation

Educators Legal Liability

Professional only!

Or

Including Directors & Officers & Employment

Practices Liability

Auto Liability

Employers Liability

Some other carriers

Trustee Liability (D&O)

• Employment Practices Liability• Educators Legal Liability (Professional

Liability)

Umbrella/Excess

Excess over:

– General– Employee

Benefit – Workers’ comp– Auto

– Employer’s– Educators

Legal*– Trustee*– Employment

Practices*

What does this mean?

• Understand the structure of your policies to avoid coverage gaps

• You can’t just shop for the lowest price. Know what you are buying and make and informed educated decision!

Sexual Abuse & Molestation

• Be cautious!• Often sub-limited• No Umbrella coverage• Includes Sexual Harassment?• Know your coverage territory!!!!

Coverage Territory

Domestic: U.S., Canada, their territories and possessions

Foreign: Worldwide, except U.S., Canada, their territories and possessions

Foreign Liability

• Often excludes Sexual Abuse & Molestation

• May exclude Sexual Harassment

• Usually excludes injury or property damage to “participants”:– General Liability– Auto Liability

Foreign Liability

• Add back coverage for Sexual Abuse and Molestation?

• Add exclusion for law suits brought in the U.S.!!!

Issues To Address for All Liability Policies

• Risk Measurement– Does school have an exposure, and if so, how is it

managed?

• “Occurrence” or “Claims Made” Form

• Limits of Liability Carried

• Exclusions– Understand exposures of excluded areas

Common Liability Exclusions

• Sexual Abuse & Molestation• Athletic participation• White water rafting• Scuba diving• Equestrian• Trampoline/rebounding devices• Corporal punishment• Contact sports• Sports camps

Property Insurance Pitfalls

• Business Income/Extra Expense– Maximum down time?– Retain employees-continue payroll? What do

your faculty contracts say?– How long to regain your students?– Tuition refund policy? – Rental Income

• Co-Insurance/Agreed Value• Building Ordinance (Increased Cost of

Construction and Demolition)• Replacement cost

Property Insurance Pitfalls

Catastrophic perils:

• Earthquake

• Earthquake Sprinkler Leakage

• Wind (Hurricane, Tornado, etc.)

• Flood

Fiduciary, Employee Benefit Liability & ERISA Bonds

• Pension Plans

• Defined Contribution Plans—403(b) or 401(k)

• HIPAA

• COBRA

• Group Health & Welfare Plans

Fiduciary Liability

Remember-

Personal assets are at risk!

Employee Benefit Liability

Errors and Omissions Coverage for the administration of the employee benefits plans– Cobra– Medical Plan eligibility

ERISA Bonds

The Employee Retirement Income Securities Act (ERISA) of 1974

requires that a Fidelity Bond be in place in the amount of 10% of the plan assets up to a maximum of $500,000, if there is an employer

contribution to the 403(b) or 401(k).

Claims Reporting

• Schools are sensitive to negative publicity

• Often seek outside counsel first

• Policy may require reporting of any known incident that may give rise to a claim

• Failure to report could negate coverage

Legal Environment

Stay informed of what is happening and document, document, document!

Employment related examples:• Retaliation claims• Workers Compensation related

– 132a wrongful termination– ADA/FEHA and other similar laws

Insurance Broker Selection

• Knows industry

• Knows how schools operate

• Represents variety of high-rated companies

• Knowledgable staff handling all coverages and serves as claims intermediary

• One broker or several???

Critical Issues In Independent School Insurance

Bolton & Company

Cheryl McDowell, ARM, CSRM, CISR

Vice President, Education Practice Group

Direct: 626-535-1428

Toll free: CA 800-439-9337

Out of State 888-700-1444

cmcdowell@boltonco.com