Liability Exposure and Risk Management

By Herman, Melanie L. | Children's Voice, March/April 2005 | Go to article overview

Liability Exposure and Risk Management


Herman, Melanie L., Children's Voice


Predicting liability remains an elusive task, but there are two steps every child welfare agency can take.

Despite experience facing claims and defending litigation, many leaders of child welfare agencies approach the prospect of managing liability risk with trepidation-and with good reason. Liability risks represent the ultimate unknown in a child-serving agency. Claims against an agency can range from modest demands for medical costs associated with a minor accidental injury to lawsuits demanding millions of dollars for physical and psychological harm and punitive damages.

And the universe of potential claimants has grown. An agency could find itself in a legal battle with recipients of services, volunteers, employees, funding sources, or even partner organizations. Allegations against an agency can include everything from negligent hiring to negligent supervision, breach of confidentiality, retaliation, or third-party harassment. The circumstances behind a claim could include an incident involving two children, or one involving a third-party and a child under the agency's supervision.

Even with these unknowns, however, an agency can't afford to ignore improbable risks nor allow its mission and key programs to be unnecessarily constrained by fear of litigation. How then should executive staff approach the task of managing liability risk? The Nonprofit Risk Management Center (NRMC) suggests a two-pronged strategy child welfare agencies can adapt to suit their individual circumstances and environment.

But first, it's important to take an expansive view of risk management.

Risk Management Through a Wide-Angle Lens

For some organizations, risk management is inherent with the insurance buying process. The insurance industry bears some of the blame for the view that one manages risk by purchasing insurance coverage. Yet, every agency that has received a letter declining coverage knows that advertising slogans promising relief from risk by purchasing insurance are far from the truth.

Nor does coverage remove the sting of liability from risk, as any agency executive who has spent hours producing documents required in litigation, preparing for a deposition, or carefully Grafting information about pending litigation for client groups or funders can tell you.

Don't fall into the trap of thinking that meeting the list of minimum requirements for coverage eligibility is evidence of effective risk management. As insurers increase their eligibility requirements, that's easy to do. But the truth is that an expansive view of risk management-one that enables an agency to identify risks long before they materialize and prepare adequately to meet risk head on-must go beyond the confines of an agency's insurance program. Insurance finances the results of the risk, it doesn't manage the risk.

STEP 1 :

The Risk Management Committee

A thoughtful, long-term approach to risk management requires the integration of risk management into an agency's day-to-day operations. One of the most cost-effective ways to accomplish this is to form a risk management committee, charged with development and oversight of the organization's risk management program.

Ideally, a child welfare agency's risk management committee would include paid staff and board members, as well as professional advisors to the organization. Equally important to include are those who actually deliver the services the agency provides, such as foster parents or teachers.

In a child welfare agency, a risk management committee's primary responsibilities may include

* developing and securing board approval of the organization's risk management goals and policy statement;

* undertaking an annual risk assessment to identify key exposures and strategies;

* reviewing the organization's current risk financing and insurance-buying strategies;

* evaluating services and coverage provided by the organization's insurance agent or carriers, and coordinating the process of putting the agency's insurance program out to bid;

* preparing an annual report on risk management for the board of directors; and

* reviewing the results of risk assessments by outside advisors or consultants, and determining what actions the organization will take. …

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