Travel Risk

Duty of Care in a Perilous Age

As risks grow globally, companies must increase focus on the perils that may face their employees abroad.
By: | June 1, 2017 • 6 min read

Political risk and terrorism are on the rise, and so is the responsibility of all companies and organizations to make sure that their most treasured asset, their employees, are safe when they travel.

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Risk consultants and insurers warn that now more than ever employers must make their best efforts to guarantee the physical and mental integrity of staff members and their dependents in foreign jurisdictions. Failing to do so can result in litigation in the U.S. and other countries alike, not to mention the potential of harm to valuable human resources.

U.S. safety and workers’ comp laws do not explicitly impose obligations on companies to guarantee the safety of employees sent abroad. Nonetheless, courts typically acknowledge duty of care obligations, resulting in high compensation for stakeholders that suffer harm while working abroad.

“OSHA has guidance for traveling employees, but the regulatory environment stops at the borders of the U.S.,” said Hart S. Brown, vice president of organizational resilience at Hub International. “Even then, companies are exposed to significant liabilities when their employees are traveling abroad for work.”

Hart S. Brown, vice president of organizational resilience, Hub International

The lack of specific legislation about the issue could actually make it more likely that litigation will take place, according to law office Fisher Phillips. In a recent report published by International SOS, the firm noted that, if an employee suffers some kind of injury abroad, he or she is left with little alternative but to pursue legal redress by alleging that the company was negligent towards its duty of care obligations.

Brown said researchers have found that four out of every five business travelers believe their companies are responsible for protecting them throughout their travels, and a large share of them would consider suing if an adverse event occurred.

Once the decision to litigate is made, employees and their lawyers can shop around to find the most favorable jurisdiction for their cases. Countries such as the United Kingdom and France have implemented strict duty of care legislation that can apply to international travel, and lawsuits can be initiated there if companies have a presence in those places, even if the incidents happened elsewhere.

In the case of litigation, penalties can be significant. In 2015, the U.S. Court of Appeals decided that a Connecticut boarding school failed its obligations when it took students to China in 2007 and a 15-year-old contracted bone encephalitis after being bitten by ticks. The court ruled that the school should pay damages of $41.5 million, $10 million of which was paid to the student’s family.

Identify Foreseeable Risks

To avoid such situations, companies have been urged to invest in programs that address the identification of risks, the adoption of prevention measures and the training of employees before sending them abroad. The key is to make sure that foreseeable risks are identified and properly dealt with.

Robert Quigley, duty of care expert, International SOS

“Every company is involved in different kinds of work and in different locations, so their foreseeable risks will depend on their own environment and the destination of their mobile workforce,” said Robert Quigley, a duty of care expert at International SOS. “But many companies do not act on their duty of care to the extent that they should, hoping that nothing will ever happen.”

This approach sounds misguided, especially considering the problems that employees can face away from home. They range from natural catastrophes to political violence and terrorism to accidents during leisure time and illness. Stress and depression are also concerns.

Some of the biggest threats, though, aren’t what you might expect.

“Motor vehicles are in fact the number one cause of death among aid workers,” said Lynne Cripe, director of resilience services at KonTerra, a consultancy that advises NGOs who send staff to extremely risky locations.

Another concern involves employees being jailed for breaking laws they aren’t aware of. In January, for example, a South African expat and his Ukrainian fiancée were arrested in the United Arab Emirates for having sex out of wedlock.

Laurie Sherwood, a travel industry attorney at Walsworth, said that the employer and its partners involved in the organization of a trip are expected to disclose to travelers as much as possible about the risks they’re likely to face. Therefore, a thorough assessment must be performed for all stages of a trip in order to identify all foreseeable risks.

“There is no duty to warn of unforeseeable risks,” she pointed out. “On the other end of the spectrum, there is generally no legal duty to warn of obvious risks.”

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Once risks are identified and shared with employees, companies must work towards training potential travelers and implementing systems that can help them before, during and after the trip, said Kevin Pedone, a vice president at Clements Worldwide. Pedone said specialized insurers like Clements offer online information platforms, pre-trip training and other tools to help travelers prepare themselves for the risks ahead.

In the event of an incident, these insurers have access to teams with expertise in evacuation services, medical support or kidnapping negotiations. “Companies do not want their HR staff negotiating with kidnappers,” he said.

“Many companies do not act on their duty of care to the extent that they should, hoping that nothing will ever happen.” — Robert Quigley, duty of care expert, International SOS

Once impacted employees return to the U.S., insurance can cover psychological evaluation, medical treatment, rehabilitation and even time off to help with the healing process.

Policies can also cover litigation costs, and if the organization is found negligent, any financial compensation up to the limits of the policy.

Document for Transparency

Every facet of an employers’ program for protecting the health and well-being of their traveling employees must be well documented, said Brown. It is vital, for instance, that the accountability chain in the case of an incident during an international trip is clearly specified. Individuals to whom the incident must be escalated have to be identified by title or by name, he recommended.

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In a recent report, International SOS pointed out that decision makers with duty of care responsibilities in multinational companies include managing directors, general secretaries, corporate security and risk managers, travel managers, medical directors, insurance managers, legal managers, heads of HR, global HR practitioners responsible for international assignees and employees responsible for managing the work of international assignees.

It’s not hard to see how communication can get broken with so many people involved, and why clarifying the role played by each one is an important task.

“If the company had policies and procedures in place, and the person followed them, then the company will probably be ok from a liability lawsuit point of view,” Quigley said. Doing things right can go a long way toward avoiding the publicity and uncertainty of a court case.

“Most of these cases don’t reach the courts, as they are mostly settled outside,” Quigley concluded. &

Rodrigo Amaral is a freelance writer specializing in Latin American and European risk management and insurance markets. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Cyber Liability

Fresh Worries for Boards of Directors

New cyber security regulations increase exposure for directors and officers at financial institutions.
By: | June 1, 2017 • 6 min read

Boards of directors could face a fresh wave of directors and officers (D&O) claims following the introduction of tough new cybersecurity rules for financial institutions by The New York State Department of Financial Services (DFS).

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Prompted by recent high profile cyber attacks on JPMorgan Chase, Sony, Target, and others, the state regulations are the first of their kind and went into effect on March 1.

The new rules require banks, insurers and other financial institutions to establish an enterprise-wide cybersecurity program and adopt a written policy that must be reviewed by the board and approved by a senior officer annually.

The regulation also requires the more than 3,000 financial services firms operating in the state to appoint a chief information security officer to oversee the program, to report possible breaches within 72 hours, and to ensure that third-party vendors meet the new standards.

Companies will have until September 1 to comply with most of the new requirements, and beginning February 15, 2018, they will have to submit an annual certification of compliance.

The responsibility for cybersecurity will now fall squarely on the board and senior management actively overseeing the entity’s overall program. Some experts fear that the D&O insurance market is far from prepared to absorb this risk.

“The new rules could raise compliance risks for financial institutions and, in turn, premiums and loss potential for D&O insurance underwriters,” warned Fitch Ratings in a statement. “If management and directors of financial institutions that experience future cyber incidents are subsequently found to be noncompliant with the New York regulations, then they will be more exposed to litigation that would be covered under professional liability policies.”

D&O Challenge

Judy Selby, managing director in BDO Consulting’s technology advisory services practice, said that while many directors and officers rely on a CISO to deal with cybersecurity, under the new rules the buck stops with the board.

“The common refrain I hear from directors and officers is ‘we have a great IT guy or CIO,’ and while it’s important to have them in place, as the board, they are ultimately responsible for cybersecurity oversight,” she said.

William Kelly, senior vice president, underwriting, Argo Pro

William Kelly, senior vice president, underwriting at Argo Pro, said that unknown cyber threats, untested policy language and developing case laws would all make it more difficult for the D&O market to respond accurately to any such new claims.

“Insurers will need to account for the increased exposures presented by these new regulations and charge appropriately for such added exposure,” he said.

Going forward, said Larry Hamilton, partner at Mayer Brown, D&O underwriters also need to scrutinize a company’s compliance with the regulations.

“To the extent that this risk was not adequately taken into account in the first place in the underwriting of in-force D&O policies, there could be unanticipated additional exposure for the D&O insurers,” he said.

Michelle Lopilato, Hub International’s director of cyber and technology solutions, added that some carriers may offer more coverage, while others may pull back.

“How the markets react will evolve as we see how involved the department becomes in investigating and fining financial institutions for noncompliance and its result on the balance sheet and dividends,” she said.

Christopher Keegan, senior managing director at Beecher Carlson, said that by setting a benchmark, the new rules would make it easier for claimants to make a case that the company had been negligent.

“If stock prices drop, then this makes it easier for class action lawyers to make their cases in D&O situations,” he said. “As a result, D&O carriers may see an uptick in cases against their insureds and an easier path for plaintiffs to show that the company did not meet its duty of care.”

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One area that regulators and plaintiffs might seize upon is the certification compliance requirement, according to Rob Yellen, executive vice president, D&O and fiduciary liability product leader, FINEX at Willis Towers Watson.

“A mere inaccuracy in a certification could result in criminal enforcement, in which case it would then become a boardroom issue,” he said.

A big grey area, however, said Shiraz Saeed, national practice leader for cyber risk at Starr Companies, is determining if a violation is a cyber or management liability issue in the first place.

“The complication arises when a company only has D&O coverage, but it doesn’t have a cyber policy and then they have to try and push all the claims down the D&O route, irrespective of their nature,” he said.

“Insurers, on their part, will need to account for the increased exposures presented by these new regulations and charge appropriately for such added exposure.” — William Kelly, senior vice president, underwriting, Argo Pro

Jim McCue, managing director at Aon’s financial services group, said many small and mid-size businesses may struggle to comply with the new rules in time.

“It’s going to be a steep learning curve and a lot of work in terms of preparedness and the implementation of a highly detailed cyber security program, risk assessment and response plan, all by September 2017,” he said.

The new regulation also has the potential to impact third parties including accounting, law, IT and even maintenance and repair firms who have access to a company’s information systems and personal data, said Keegan.

“That can include everyone from IT vendors to the people who maintain the building’s air conditioning,” he said.

New Models

Others have followed New York’s lead, with similar regulations being considered across federal, state and non-governmental regulators.

The National Association of Insurance Commissioners’ Cyber-security Taskforce has proposed an insurance data security model law that establishes exclusive standards for data security and investigation, and notification of a breach of data security for insurance providers.

Once enacted, each state would be free to adopt the new law, however, “our main concern is if regulators in different states start to adopt different standards from each other,” said Alex Hageli, director, personal lines policy at the Property Casualty Insurers Association of America.

“It would only serve to make compliance harder, increase the cost of burden on companies, and at the end of the day it doesn’t really help anybody.”

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Richard Morris, partner at law firm Herrick, Feinstein LLP, said companies need to review their current cybersecurity program with their chief technology officer or IT provider.

“Companies should assess whether their current technology budget is adequate and consider what investments will be required in 2017 to keep up with regulatory and market expectations,” he said. “They should also review and assess the adequacy of insurance policies with respect to coverages, deductibles and other limitations.”

Adam Hamm, former NAIC chair and MD of Protiviti’s risk and compliance practice, added: “With New York’s new cyber regulation, this is a sea change from where we were a couple of years ago and it’s soon going to become the new norm for regulating cyber security.” &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]