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SOUTHAMPTON, Bermuda-Acknowledging a potential exposure and putting risk management in action is critical to reducing a company's ultimate liability in a mass tort scenario.

Companies that "put their head in the sand" when confronted with a potential mass tort are risking larger awards, potential loss of coverage and bad publicity, a panel of risk management and legal experts says.

Donald J. Sullivan, vp-risk management for Baxter International Inc. of Deerfield, Ill., said there are several keys to surviving a potential corporate disaster from mass torts:

Early detection. "If it's out there, it's not going to go away if you don't manage the process," he said.

Choose partners wisely, including members of an in-house response team, insurers and outside counsel.

"For risk managers, choose your employer wisely and make sure you have an employer that will allow you to do your job, because if you can't do your job you're going to be butting your head against a wall," he added.

Risk managers must be involved in the process.

Share information within the organization. "You need to share information with everyone so that everyone can do their job to manage the loss. You even need to share information outside the organization with your insurance carriers so they have an understanding of the loss and can do the right thing," he said.

Having the right team of people in place to review the potential threat, gather information and communicate with involved parties is an important start, said Mr. Sullivan.

Once that team is in place, "the first thing I think you absolutely must do is find out what the problem is and what are the facts. Once you have the facts, then you can move forward," he said. To do otherwise, a company runs the risk, for example, of its representatives making inaccurate or conflicting comments to the press, he said.

In assembling a team to help in-house counsel and the risk manager respond to claims, a company should include a trial attorney, separate settlement counsel, public relations representatives and legislative relations representatives, said Anna S. Richo, associate general counsel for Baxter.

The two were at the center of a panel discussion on how to avoid a corporate disaster, held during the Bermuda Insurance Symposium III in Southampton, Bermuda, Feb. 18-21. Baxter, a health care products manufacturer, has been named in silicone breast implant litigation as a result of a company it acquired, as well as litigation over HIV-contaminated blood products for hemophiliacs.

A team-based approach has worked well for Baxter, Ms. Richo said, because the company culture empowers employees "to do what it is that they do best. In the context of mass torts, you cannot have a hierarchical structure. It just won't respond fast enough to the types of decisions that need to be made."

"In order to manage this thing, you have to move quickly, you have to be on your feet, and you have to get involved to the extent that you can get involved, and the right people have to be brought in," agreed Mr. Sullivan, who added that teams should include corporate communications and the business unit whose product or service is involved in the claim.

Sometimes, however, a company may find that there are internal conflicts or times when business profit centers are in denial that a potential liability exposure exists or will bloom into a mass tort, observed David McManus, president of Arthur J. Gallagher & Co. (Bermuda) Ltd., who served as panel moderator.

"Internal conflicts are deadly. You can't be fighting internally at the same time you are fighting claims," said Mr. Sullivan.

That can be reduced when members of an industry share their views and problems for educational purposes, said defense attorney Thorn Rosenthal, a partner with Cahill Gordon & Reindel in New York.

"It also helps a lot when an industry puts together a coordinated response and they don't undercut each other, because if one member of the industry gets a bad verdict, it's going to hurt them more than the others, but the others are not going to escape scot-free," Mr. Rosenthal said.

In addition to potential co-defendants, insurers also want to be brought into the process early on.

"Denial is a big problem we've seen all along in the development of mass torts. You have product people fighting.*.*.because they don't want to admit they have a problem," said Brian O'Hara, chairman and chief executive officer of X.L. Insurance Co. Ltd. Denial in some cases has allowed policyholders to extend coverage or get it renewed at favorable terms, he added.

"We want to be brought in as quickly as possible" to help manage the potential liability, said Brian Duperreault, chairman, president and CEO of ACE Ltd.

One impediment to good insurer relationships, however, can arise early in the process, warned Mr. Sullivan.

"Thirty-page reservation-of-rights letters don't always help us," he noted. "We sometimes have to disclose that in 10-K's, I have to disclose that to my board of directors, my senior management," he said, which can create misunderstandings or conflict. The risk manager's key role there is to communicate to managers why an insurer sends a reservation-of-rights letter, and to respond to the letter and find out what the insurer's true concerns are. "If management doesn't understand the process, it can be a very difficult situation."

Indeed, it also may prompt outside counsel to initiate coverage litigation against the insurers, said Ms. Richo.

"In-house counsel need to be strong enough to manage and put your outside attorneys in check, because a lot of their initial reaction is to litigate," she said. In-house attorneys' roles are to prevent that from happening and to see the bigger picture, including that the company may want to get insurance coverage in the future from its insurers, Ms. Richo said.

Mr. Sullivan said the risk manager also needs to work with outside coverage counsel on nearly a day-to-day basis. "Certainly, if it gets to litigation, our litigation team would be involved, but through the negotiation process our relationship with the insurance company needs to be managed by the risk management department, not by the law department," he said.

Baxter is in litigation with some of its insurers over its losses, noted Mr. Sullivan, though he said it has been able to negotiate settlements with the vast majority of its insurers. "Don't let the coverage counsel make that decision. That decision should be yours with the advice of both in-house and outside counsel," he said.

Mr. O'Hara said that how a company approaches its insurers can dictate whether the claims process is amicable or combative.

"We have other insureds who show up with plaintiffs attorneys representing them in negotiations with us, and I can see we're going to have a problem," he said. "We're going to meet people the way they come to us. Baxter came to us as businessmen and said let's sit down, keep the lawyers out and find a solution to this."

"We all want to deal with the problem," Mr. Duperreault said. "We sell coverage to ultimately pay, and we have certainly written a lot of checks at ACE since it was formed," he said.

In addition to managing the insurance claims process, public and media relations are another key component of managing the mass tort exposure.

"There's no question that bad public relations exacerbates the legal exposure several-fold. It ranges from coloring management's attitude to prejudicing the potential juror pool," said Mr. Rosenthal.

"My chief recurring nightmare is having Mike Wallace walk in the door," quipped Mr. O'Hara.

"From my experience, as awful as 'no comment' sounds, it is better to have no comment until you know what your story is than to come out early with something that you later on have to retract," said Ms. Richo.

"It's essential that there's control of the company's presentations to the public and the press. We've seen plenty of disasters where one guy is saying one thing, the plant manager's saying something else, everybody's speaking to the press and nobody knows what's going on," said Mr. Duperreault.

"You almost have to pre-plan that and have all of this set up in advance, so that there is a designated spokesperson and a coordinated response," he said.