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MANAGED HEALTH CARE, WITH its alphabet soup of providers-HMOs, PPOs, etc.- which intended to reduce overall costs by heavy reliance on prevention, may be a useful concept for risk managers in their approach to liability exposures.
That is, no less than once a year risk managers ought to consult with a knowledgeable loss control professional who has the depth of experience and understanding to evaluate the full range of the company's exposure to liability claims.
Historically, loss control assessments from commercial insurance providers have tended to focus on a particular line of coverage, in most cases workers compensation. While such an approach provides some benefit to the policyholder, it is increasingly clear that today's rapidly changing liability environment presents a potentially greater exposure to loss.
Some insurers have responded by restructuring their loss control departments into areas of highly specialized expertise, such as health care, product liability, environmental impairment and so on. This approach to loss control service may address a wider range of exposures than the generalist orientation described above, but it is desirable to have a more holistic evaluation of a company's exposures than a piecemeal assessment can provide.
An annual liability checkup may help a company avoid the measure of adverse publicity like the recent headline-generating stories about workplace environments at Texaco Inc., Mitsubishi Motor Manufacturing of America Inc. and Digital Equipment Corp. Depending on the size and scope of the policyholder's operation, it may be desirable for a seasoned professional to spend a week or more on location, assessing virtually all of a company's liability exposures, to come up with a meaningful composite evaluation.
The facts vary widely in the three cases mentioned, but each offers lessons.
In the Texaco case, for example, the company appeared to have a personnel program in place that was compliant with both Equal Employment Opportunity Commission guidelines as well as recent federal civil rights legislation.
By agreeing to the massive settlement-$176.1 million (BI, March 17)-as well as submitting to ongoing review by the EEOC of future employment practices, however, it is obvious there was a significant discrepancy between Texaco's formal corporate policies and procedures and what was actually happening in the field.
The pervasive allegations of sexual harassment in the Mitsubishi case seem to reflect a classic "hostile environment" situation that pertains in historically male-only preserves in the workplace, in this case an auto assembly plant (BI, Dec. 23, 1996).
Perhaps the most interesting of the three, however, is the Digital Equipment Corp. keyboard injury case.
Although a judge threw out a $5.3 million compensatory damages award and ordered a new trial (BI, May 5), one of the bases for the award was that Digital was involved in an ergonomic remedial program for its own employees as a result of a 1990 Occupational Safety and Health Administration citation for the cumulative trauma hazards that were alleged to exist in the company's Colorado operations. Plaintiffs lawyers argued that Digital trained its own workers in ergonomics to prevent repetitive motion injury but provided less information to customers.
The other surprising facet of this case was that the verdict was based on a theory of failure to warn rather than any direct finding that the keyboards themselves were defective. And, perhaps more important than the presence or absence of precautionary labels is the underlying principle of how best to make a product as safe as possible.
These cases illustrate the kind of liability exposures a company must address if it is to succeed in "managed risk."
These exposures include product liability, an area highlighted by the Digital case. Any company making a consumer product today must be aware of all of the exposures resulting from the product's life cycle, i.e., from product conception through ultimate disposal. While the basis of product liability stems primarily from the common law of the states, numerous regulatory agencies-the Food and Drug Administration and Consumer Product Safety Commission are just two examples-also must be consulted for compliance purposes.
The list of regulations and laws with which companies must comply is lengthy, but the principal area where a company can expect to see ever-increasing liability exposure and sanctions is in employment practices liability. The legal environment in this area is in a state of constant change in terms of enhanced vigilance by the EEOC, the 1991 amendment to the 1964 Civil Rights Act and the Americans with Disabilities Act, just to name a few. The astute risk manager has to be fully aware of the ramifications of each of these events, as well as similar developments in the future.
These myriad concerns in an evolving and increasingly hostile legal environment underscore the need for an active approach by all risk managers with significant liability exposures. Just as managed care has been an aid to the health care industry, managed risk may prove vital for companies' long-term financial health.