Magazine article Risk Management

Over the Top

Magazine article Risk Management

Over the Top

Article excerpt

Liability can come from unexpected directions and in unanticipated amounts. No one knows this better than a Philadelphia bank and the two companies that provided its security guards, all of which became entangled in a unique case in 2008. The plaintiff was a young medical student who broke his back and derailed his career as a doctor when he fell through an open manhole after a homeless man pried open the cover. The jury assigned almost all of the blame to the company that owned the manhole covers for not installing locking mechanisms and awarded the plaintiff $85 million.

But even before the verdict was handed down, the bank and the security companies had to pay an almost $5 million settlement to the plaintiff because a bank security guard witnessed the homeless man removing the manhole cover and did nothing about it. The bank's risk manager could hardly have foreseen that a missing manhole cover would become a liability for a financial institution. Nonetheless, that is exactly what happened.


This case illustrates how, in order to protect itself from unpredictable events, a business needs to not only have the right primary liability insurance, but also excess casualty coverage that kicks in when a low-frequency, high-severity incident occurs. As a risk manager, you need to consider how worried you should be about liability beyond normal coverage limits based on the following factors:

Size. Large companies are more likely to be exposed to liability and lawsuits than smaller businesses. Marsh's Limits of Liability 2007 report found a strong correlation between a company's revenue generation and the average limits purchased in excess casualty. Companies with less than $200 million a year in revenue on average purchased limits of $28 million, while companies with revenue between $500 million and $1 billion averaged limits of $63 million. The largest companies--those with more than $10 billion in revenue--averaged limits of $288 million.

Reach. A company may make a small, inexpensive product, but if it can be found in every home in America, the exposure to risk is greatly multiplied when compared to a business whose products are sold within a small, finite universe. …

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