President's Message

The Education Day Committee, which consists of Todd Marumoto, Ruth Lindstrom, and Scott Ritto, has exceeded all expectations this year. You can get more information on this event in this newsletter.

In addition to our annual Education Day, the chapter is working on a scholarship program for the children of our members who will be entering college. We hope to have a formal launch of this scholarship program in the near future. If you have a child who will be graduating from high school and will be continuing his or her education, please look for the announcement.

Continuing with the education theme, all of us need to make sure we are keeping up with our ever-changing profession. This is not limited to formal classes. As Risk Managers we need to get away from our desks, walk around, and see what is going on out there. This is an investment you must make. Find time to ride with a truck driver, or go along with a sales rep, and see what these folks are doing. Go to your warehouse and be seen. For those who have safety as part of their job, don’t just show up for the training or inspections. Learn what the employees do.

By the way, if you have not been looking at the L.A. RIMS website, what are you waiting for? This year we have added value to our website. You can access many resources including job opportunities as well as the membership application for the chapter via a PDF file.

We continue to try to improve our luncheon registration. For those who have been inconvenienced, I apologize. We are transitioning from a manual style to electronic. We hope to have the entire process streamlined soon, including online registration and payment.

Just a reminder that ballots are on their way. Please vote for your 2006 board members and submit them as soon as possible.

Lastly, a special thank you to all the volunteer board members. These are the folks who have volunteered their time and talent to this chapter. Thank you.

Dennis Healy

L.A. RIMS Chapter President

Safeguards for Directors and Officers

Optimize the Protections Afforded by Indemnification and D&O Insurance.

By John R. Musitano, Jr., Esq.

The widely publicized criminal prosecutions and civil lawsuits targeting the executives of such companies as Enron, WorldCom and Global Crossing have highlighted the exposures faced by directors and officers to even those uninitiated in the field of corporate risk management.  Directors and officers, as well as risk managers hoping to protect their company’s assets and to retain or attract highly qualified executives, need to review and optimize directors’ best personal protections against such claims: corporate indemnification and Directors & Officers (”D&O”) insurance. 

Indemnification.  Often, directors and officers believe that corporate indemnification insulates them from lawsuits which target them based on their role in the company.  This is generally untrue for several reasons.  One, not all indemnification provisions are the same.  Indemnity language in a company’s bylaws should be reviewed to determine if it is outdated or written to afford less than the maximum protection available under the law.  Most states’ corporate statutes dictate when a corporation is required to indemnify its directors and when it is permitted to indemnify.  A company’s indemnification language may not be written broadly to obligate the company to indemnify in the instances involving permissible indemnity. 

The second reason that indemnification does not totally insulate a director is that the law simply does not permit indemnification for certain types of claims.  Yet another consideration is even where a company is committed to indemnifying its director, it may not be able to by virtue of its financial condition and the high expenses associated with these types of lawsuits. 

D&O Insurance.    D&O insurance typically provides coverage for third party suits naming the directors and officers personally.  The policy insures that a director will receive a defense to such suits regardless of the company’s indemnity language or financial condition.  D&O policies include personal coverage for the directors, known as “Side A” coverage, which is generally triggered when a corporation is unable to indemnify.  A director will want to evaluate the limits and conditions associated with this coverage, as well as whether the risk of corporate insolvency necessitates the purchase of standalone Side A coverage, referred to as excess Side A or D&O difference-in-conditions coverage

The policies also include “Side B” coverage, which provides reimbursement to the corporation for the cost of indemnifying directors and officers.  Such coverage is as important to the financial protection of the corporation as is the Side A coverage to the directors.  Without it, a company faces bearing on its own the onerous expenses of D&O claims including, most significantly, having to fund the defense of directors against claims falling within the grant of indemnification.  Accordingly, such insurance should be obtained or, if already a part of a company’s portfolio, reviewed to determine whether the limits and coverage best suit the risks of the particular company. 

Considering the exposures faced by its directors and officers to claims naming them personally, as well as the financial burdens that a corporation may shoulder with such claims, a risk management program which balances strong indemnification with adequate D&O coverage can ultimately reward both the directors and officers and the corporation.
 

Hurricane Katrina has opened our eyes to the importance of emergency preparedness.  As you may have heard, prior to Katrina and 9/11, FEMA discussed three scenarios that could occur and should be prepared for: a terrorist attack in New York, a catastrophic hurricane in the east, and an earthquake in California.  Unfortunately, two out of the three have occurred, and it’s only a matter of time before the third event occurs.

Recently there was a roundtable discussion on the radio discussing not only Hurricane Katrina, but also emergency preparedness.  A few important points were brought out.  Most Californians spend a lot of time in their cars and/or are in the vicinity of their cars.  How many of us are prepared for a disaster if we were in our cars when it occurred?  It would make sense for us to have an emergency preparedness kit in our vehicle.  What would you need in order to survive in your car for at least a day?  Think about this and you will be able to pull together an emergency preparedness that addresses your personal needs.

Click here to download the article
 

The Centers for Disease Control and Prevention (CDC) has published a new fact sheet with guidance on preparing for a terrorist bombing.  The downloadable document recommends steps including these: 

• Know your work, school and community disaster plans.
• Identify an alternative hospital, as those nearest the event are always the busiest.
• If you are in a bombing event, leave the area immediately and avoid crowds, as they may be targeted for a second attack.

As well, the fact sheet contains a grid that describes recommended steps to take if you think someone is going to set off a bomb in your workplace.

Prepared in partnership with the American Red Cross, the sheet urges readers to visit the Red Cross website for help creating a disaster plan.  That location is http://www.redcross.org/preparedness/cdc_engligh/CDC.asp