As smaller captive insurance companies proliferate, so do reinsurance pools or exchanges that attempt to deliver sufficient "risk distribution" to satisfy the requirements of the Internal Revenue Service. Without risk distribution, the captive would not be considered an insurance company for tax purposes and would then lose many of its potential tax benefits, including the election for the exclusion of insurance revenues from income under section 831(b) of the Internal Revenue Code.

Previous articles I have written have explored the mechanics of these pools and have questioned whether the majority in fact meet the risk distribution requirements as a matter of law. This article will explore a more basic issue ... are the funds being held by these pools secure?

Many captive managers have formed risk distribution mechanisms whereby the captives under management "swap" risk by ceding a portion of each captive's risk to the other captives and accepting a "retrocession" of risks from those other captives. Frequently, this exchange of risk is accomplished by a transfer of 50% or more of a captive's annual premium income to an entity that is affiliated with the captive manager, either as a "fronting" company to the captives or as a reinsurance company.

In either event, half of the funds paid by the insured to the captive are held for a year or more by this entity. Once losses are settled for the year in question, the balance, if any, is remitted to the captive. In the meantime, of course, if the captive has renewed its insurance policy to the insured, another annual premium has been received by the reinsurance entity and handled in the same manner.

The potential for abuse is immense. Cash is fungible. Whose money was remitted to the captive? The half that was held from last year or half of the latest premium received? This could create a classic case of a "Ponzi" scheme, where the money held from last year is spent and new money is used to cover the obligations from the previous year. The scheme collapses, of course, if there is a net drop in new captive formations for that captive manager.

These fronting companies or reinsurance companies are often domiciled offshore where annual audited statements may not be required and where litigation over mishandled funds would be difficult for the captive owner. Not all risk distribution mechanisms involve the retention of client funds; unfortunately, however, most of them do.

This article does not suggest that any captive manager has in fact mishandled client funds as described. But it is important to recognize the temptation and ask what, if anything, is being done to be sure that the temptation is never tested. A captive manager with 100 captives under management — each with $1,000,000 in annual premium — will have $50,000,000 or more of "float" to tempt him.

At a minimum, captive owners should require an accounting of retained funds by an independent CPA firm. Ideally, the captive owner should require that retained funds be held in a separate trust account by an independent trustee. But neither of these practices appears common in the captive insurance industry. In some cases, captive mangers have returned the "withheld" funds early, easing the fear of loss of the funds, but potentially making a mockery of the risk distribution mechanism itself.

What is the role, if any, of the captive insurance regulator? Captive legislation is not consistent when it comes to reinsurance pools. A review of the legislation of 14 of the most active captive domiciles reveals that 8 of them have no provision in their statutes to monitor or limit the activities of reinsurance pools (other than actual reinsurance companies licensed in their own domicile). The other 6 have specific language as follows:

The Commissioner may require any other documents, financial information, or other evidence that the pool, exchange or association will be able to provide adequate security for its financial obligations. The Commissioner may deny authorization or impose any limitations on the activities of a reinsurance pool, exchange, or association that, in the Commissioner's judgment, is necessary and proper to provide adequate security for the ceding captive insurer or segregated account and for the protection and consequent benefit of the public at large.

The domiciles break down as follows:

Specific language: Vermont, Missouri, District of Columbia, Kentucky, Montana and Tennessee.

No language: Delaware, Utah, South Carolina, Nevada, Arizona, Hawaii, Alabama and New Jersey.

It is interesting that the majority of small captives that use these reinsurance pools are domiciled in the 8 states that give the regulator no direct statutory authority to address the security of retained client funds. Of course, the regulators do have broad authority to question the overall efficacy of a captive's business plan. This review arguably could address concerns about the security of the captive's funds in the hands of third parties, particularly in the early years of a captive's life. But do they?

This author polled a number (but not all) of the regulators in these 14 states and got few responses from the 8 states without the specific language referenced above. Those few responses indicated that their view is that the relationship between the captive and the fronting company or reinsurer was a matter of private contract not subject to their regulation (other than determining that the reinsurance itself was real and met industry standards).

As the number of captives, captive managers and risk distribution pools continues to grow rapidly, the opportunity for a scandal in the captive industry also grows. The industry would not fare well if such a scandal made the front page of the Wall Street Journal. Captive owners should be aware of this risk and take action accordingly. And captive regulators should become more alert to possible abuses in this area and take action consistent with the powers available to them under their respective statutes.

In late February 2013, the Audit Unit of the California Division of Workers Compensation provided a newsline release which dealt with good faith negotiations and liens. The release stated:

The Audit Unit of the Division of Workers' Compensation has received an increasing number of complaints from individuals and entities providing services on a lien basis in workers' compensation claims. The complainants report that some payors have adopted a policy of refusing to discuss negotiating the provider's liens until the provider of the services demonstrates it has filed a lien with the WCAB and paid the applicable lien filing or activation fee required by the enactment of SB 863. Such a policy is both unsupported by the plain language of Labor Code sections 4903.05 or 4903.06, and directly contrary to the legislative intent of those sections and existing law.

If a claims administrator has reasonable grounds to contend that nothing is owed, then good faith negotiation does not necessarily require an offer of compromise. In the absence of a good faith contention that nothing is owed, however, a refusal to negotiate prior to payment of the filing fee would not be in good faith.

Additionally, Title 8, California Code of Regulations, section 10109(e) mandates that "[a]ll Insurers, self-insured employers and third-party administrators shall deal fairly and in good faith with all claimants, including lien claimants."

Title 8 California Code of Regulations, section 10250(b) requires a moving party state under penalty of perjury that the moving party has made a genuine good faith effort to resolve the dispute before filing the Declaration of Readiness (DOR). Forcing a provider to file a lien and pay the filing or activation fee before the payor will discuss informal resolution of their billing amount prevents the provider from complying with this mandate. Such conduct could expose the payor to the imposition of sanctions, attorney's fees and costs under Labor Code section 5813. This practice also exposes the payor to audit penalties for violation of Title 8, California Code of Regulations, section 10109(e). As is the Audit Unit's existing practice, the Audit Unit will review all complaints received about this practice during the next random or targeted audit of any payor about whom such a complaint has been received.

This release has prompted quite a bit of commentary. Most have discussed the impact the directive will have on the ongoing lien problem that plagues the Workers' Compensation system in California as a whole. Many comment on the sins of the defense-side of the system. Shortly after I read this release, I read a blog update from David DePaolo, President and CEO of WCCentral. If you do not read Mr. DePaolo's blog or his updates, I would encourage you to do so. They are excellent reading. In his blog article, he stated that the Division of Workers Compensation has finally listened to the various lien claimant representatives who are complaining that the defense is not negotiating in good faith with them when they contact examiners regarding their liens. He had previously written a blog on what he argued was "despicable behavior."

I acknowledge that there are claims examiners and other support staff who may not deal in good faith when it comes to liens. However, does the blame for the inability or refusal to negotiate in good faith fall solely at the feet of the defendant? As a former claims examiner, I would loudly proclaim, "No!" There are two sides to the story. It is time to examine both.

SB 863 brought back a common sense approach to liens. Lien claimants can no longer simply paper a defendant with a green (or any other color) lien sheet and "claim" a lien is filed. They now must demonstrate they are a proper lien claimant by paying a filing fee to activate new or existing liens, and prove to both the payor (defendant) and the Workers' Compensation Appeals Board that they are justified in their demands for the time needed to negotiate.

Further, as the Torres decision states, they must also prove up their lien and assertion that the recovery they are seeking is due and proper. I would also argue that the Torres decision shed some light on one of the biggest challenges to negotiating liens: a lack of solid proof provided by the lien claimant. I believe it was the intent of SB 863 to take large steps to end frivolous lien filings and lien practices that clog every Workers' Compensation Appeals Board across the State.

The Division of Workers Compensation claims that requiring a lien to be filed and activation fee to be paid before lien negotiations commence is contrary to the plain language of Labor Code § 4903.5 and § 4903.6, as well as the legislative intent behind those sections and existing law. These sections deal with time frames and a statute of limitations for lien claimants to file their liens. They also protect the injured worker from the underlying obligation to pay for the service if a lien is not properly filed.

In my reading of these Labor Code sections, nowhere do I see an obligation for the defendant to address liens without a proper filing, as they can pay their fee well before the requirement to file a Declaration of Readiness is completed. In fact, these sections specifically require the lien claimant to adhere to the requirements of filing and proof of the same. SB 863 instructs the lien claimant to activate a lien by paying the fee.

The Division of Workers Compensation also states that a requirement to pay the activation fee prevents the lien claimants from negotiating in good faith prior to filing for a hearing. How does requiring the payment of a lien fee prevent the lien claimants from later asserting they could not negotiate in good faith prior to filing a Declaration of Readiness? I would argue that the filing fee lets the defendant know that the lien claimant is a proper party to the action. The lien claimant is not required to pay the filing fee at the same time the Declaration of Readiness is filed. The Division of Workers Compensation appears to indicate otherwise. Lien claimants have every opportunity to file their activation fee and then negotiate with the defendant over genuine disputes regarding payment and services.

We must also remember that SB 863 placed safeguards for lien claimants to recover filing fees as well as interest. They simply need to make a demand 30 days prior to filing a Declaration of Readiness. If the defendant fails to respond within 20 days and the Workers' Compensation Appeals Board and/or arbitrator eventually awards the amount of the original demand or more, they will be able to collect. Therefore, it appears the intent of the legislature was to hold both the lien claimant and the defendant accountable for good faith actions.

The lien claimant acts in good faith by paying a filing fee to activate their lien and then make a good faith demand. The defendant then has the responsibility of addressing the demand and negotiating in good faith, or pay the price for the failure to do so. I would add that the Division of Workers Compensation requires that a lien claimant file their activation fee and show proof of payment prior to the filing of a Declaration of Readiness, or by the date of the lien conference if they are not the party who filed for the hearing. See instructions at http://www.dir.ca.gov/dwc/liens.htm.

We have already seen a host of cases where lien claimants were dismissed for failure to show proof of their activation payment either at the time they filed the Declaration of Readiness or alternatively, prior to the hearing. However, we have also seen instances where the Workers' Compensation Appeals Board allows lien claimants to file on the morning of the hearing, even when the lien claimant was the party who filed the Declaration of Readiness. Why are we asserting a lien filing fee under SB 863 if we are permitting lien claimants to file and then argue on the day of court they are in "compliance" because on the morning of, or immediately prior to the hearing, they paid their filing fee?

Greg Jones of www.workcompcentral.com recently published statistics on the surge in liens filed in the latter half and most notably, the final quarter of 2012. His article stated that the largest unknown is how many of the liens filed will be "activated" and what the impact of the filing fee has on liens. Recall for liens filed after 1/1/13, the $150 activation fee applies. For liens filed before 1/1/13, it is $100. In both instances, the fees do not have to be filed until the matter is addressed at a hearing, or as late as 1/1/14. That allows for up to an entire year of negotiations on what would be considered an "inactive" lien. I see the mass filings in 2012 as evidence that lien claimants do not wish to process the filing fee. At the same time, they demand the defendants deal with them regardless of whether or not their liens are active.

I believe there were good intentions behind the Division of Workers Compensation's mandate. They are letting everyone know that negotiation during the claims process benefits everyone. And, it will help relieve the unbearable pressure the Workers' Compensation Appeals Board presently faces from dealing with an endless sea of liens. That being said, defendants should consider exactly what "good faith" really means, and how certain scenarios could result in a different number of conversations. I can assure you that your definition and the definition of most lien representatives will be different.

With all of this in mind, let us discuss specific scenarios and recommendations.

1. Negotiation during active treatment: I would argue that unless the case has been settled and the treatment is future medical in nature, or if the lien claimant can document they will not treat the applicant again, the lien cannot be addressed. Some examples would be certain diagnostic testing, former physical therapy locations, or prior treating physicians.
2. Future treatment: If you are negotiating prior to the resolution of the claim, ensure that the lien claimant will not be providing treatment in the future if at all possible. It makes no sense to deal with a new lien from the same lien claimant.
3. MPN arguments: If the treatment is based on non-MPN care, and if you can establish a proper Medical Provider Network was in place and proper notices were provided, litigate the Medical Provider Network issue as soon as possible. Prior to medical-legal evaluations and prior to the lien drastically expanding in size, as we know it will.
4. Petitions vs. liens: Certain groups such as copy services and interpreters, are arguing that a Petition for Costs is appropriate for their services. This is an ongoing issue that will require further litigation. At minimum, I would argue that if this is asserted after the case in chief has resolved, they are too late to assert the Petition as one of the parties (i.e. the applicant) has resolved their portion of the claim.
5. Claims notes: Document your files and claims notes often. Make your arguments clear and understandable. Claims notes can be used as evidence if needed. Also document calls when you leave a message.
6. Appeals: If a lien claimant is arguing fee schedule with you, ask them to submit their bill and supporting documentation, with a proof of service, for an appeal of the claims administrator's prior findings. The appeal will either generate new money for the provider, or firm up your argument that nothing is owed.
7. Zero dollars: If you truly believe nothing further is owed, it is not bad faith to assert the same. You paid per fee schedule. There is a Medical Provider Network issue. They have not proven their services were reasonable, approved, or rendered. The list is endless. The key is to document your case for $0.00 recovery and make sure your foundation actually exists.
8. Help your cause: Provide your attorney with all Explanations of Benefits during administration of the claim and after the case has settled. Provide them with any and all objection letters and involve them in the ongoing objection and negotiation process. Your attorney will need these to negotiate in good faith.
9. Aggressive representation: Make sure your attorney is aggressive. It may surprise you to know that the many providers use the same representatives to handle Workers' Compensation Appeals Board matters. Your attorney likely deals with a few people time and time again. They remember the aggressive attorney who knows their file. Additionally, make sure your counsel is not too cozy with them. They can be polite and friendly. Your attorney should never speak ill of their client, or their position.
10. Make them prove their case: Require the lien claimant serve you with all of their supporting documentation, not simply a bill and a report. If they intend on relying upon case law, statute, "usual and customary" arguments, or anything else, ask them to submit it to you prior to negotiation. They will ask the same thing from you. See the Torres decision.
11. Assignments: Make sure the lien claimant or representative has complied with the rules regarding assignment. If they have not properly notified the parties of the assignment of the lien (or multiple assignments) a recommendation to dismiss the lien should be made at the time of hearing.
12. Pick your date and time: The Division of Workers Compensation requires you negotiate in good faith. However, there is no requirement that negotiations must occur every day at any time. Many of my clients designate one or two days out of the week to devote to liens. In my opinion, this is acceptable, as long as you are actively answering the phone, or responding to a fax or email.
13. Verify: If a lien claimant states that they have filed their lien activation payment, request it to verify. You are not asking for the lien filing fee to be paid. You are merely asking for verification to determine if a lack of filing fee will be an issue at the time of the hearing.
14. Release the small fish: Resolving the very minor liens during the claims adjusting process will often make your outlook appear brighter. As the lien list shrinks to only a handful of large lien holders, the final lien process will seem more palatable.

I predict that an increasing number of lien claimants will assert that bad faith actions are taking place, even during active negotiations. Do not be afraid to assert that nothing more is owed if you have complied with bill review and timely payment, if your Medical Provider Network is secure, or if your arguments are sound. Otherwise, pick up the phone and talk.

Success in the medical device business is a team sport. One crucial member of a device firm's team is often an insurance broker. The right insurance brokers can help you get the most affordable coverage at the broadest terms. They can help guide you through the insurance maze and help you build a financial bulwark against various risks. If you face a crisis or a claim, they can partner with you and offer resources to come to your aid. In short, they can be invaluable business partners. Thus, a key part of any medical device firm's risk management program should be wise broker selection.

For starters, let's differentiate between an insurance agent and a broker. An insurance agent typically represents the insurance seller, i.e., the insurance company. An agent may have exclusive or non-exclusive contracts with certain insurance companies, and can place coverage only with those insurers.

An insurance broker brings buyers and sellers of insurance together, but represents you, the buyer. A broker can survey the entire insurance marketplace to find the best deal for you — assessing price, service and scope of coverage. For many medical device companies, an insurance broker will be their chief insurance advisor.

What should medical device companies look for in an insurance broker, or when evaluating their current one? Recently, I queried several insurance brokers who work in the medical device and life science space. Here, in no particular order, is a shopping list of fifteen qualities to look for when selecting this key business partner:

1. A broker who can grow with you and evolve with your insurance needs. Mike Tanghe of Falcon West Insurance Brokers, Inc. (Twin Cities, Minnesota area) says, "Make sure brokers can help not only with present needs, but insist they also have the expertise and capabilities to adapt as your firm grows and changes. Insurance needs for early-stage R&D firms differ from those of mature companies with several products on the market."

2. Look for low staff turnover and high longevity. Tanghe also recommends focusing on the individuals with whom you'll be working. Ask the broker, "What is your historical staff turnover ratio?" He urges that firms look beyond "dog and pony shows," and focus on a broker's customer service role. This should not only protect the client from exposures, Tanghe maintains, but also make a client's job easier as it navigates the complexities of insurance.

3. Device industry specialization. Byron Yankou, a broker with AVID Insurance and Risk Management in Toronto, notes that the device area is highly specialized. Take one small area, he says, such as an early-stage company. A new insurance broker isn't likely to build an insurance program that addresses Directors and Officers risk, or anticipate a seamless transition to a public listing.

4. Global perspective and resources. Yankou notes that with clinical trials occurring throughout the world — where even large international underwriters have limited resources — it's imperative that brokers have global connections to place international coverage.

5. Deep bench to provide a range of risk management/mitigation services. One can't be all things to all people, Yankou notes. "A good broker should have contacts to contract out certain aspects to outside specialists," he says. Specifically, he cites post-loss claims management or business interruption settlements. As a company emerges from an early stage into a growth stage or mature stage, determine if the broker has other value-adds like global capabilities and/or in-house claims advocacy.

6. Trade show/conference visibility. According to Russ Jones, a broker with Summers Thompson Lowry (North Carolina), brokers must "be visible at life science conferences so that prospects know they are serious about the business. Do you see the brokers attending industry trade shows? Do they read the trade journals in your industry niche? This is a sign they are steeped in your business.

7. Brokers must understand the science. They should have a basic grasp of the science the client is working on. If the broker does not understand your product — whether it is a drug-eluting stent, a retractor or an ophthalmic implant — he or she cannot "sell" you as a sound risk to an insurance underwriter.

8. A broker steeped in life science, who can view the business from an investor's perspective. Sam Fairley, Senior Vice President at RT Specialty in New York City, suggests finding a broker actively involved with life science accounts and who has assembled programs for start-ups and early-stage investment companies. This includes a broker who has used venture capital and private equity investment, right up through IPO and beyond. Get a broker, he says, that understands loss exposures from the investor side, from a regulatory angle and who has negotiated coverage at each stage, up through Phase III trials and product approval.

9. Passion and interest in the medical device sector! Shane Aiken, Account Director at Indemnity Corporation (Sydney, Australia) believes that a good broker is passionate about the science, the thrill of the ride from a capital and discovery standpoint, and wholeheartedly embraces their role in the business network. Andrew Tamworth, a life science underwriter with CFC Underwriting (UK), says a good broker has an interest in, and understanding of, the medical device sector.

10. An understanding of lifecycle risk. Medical device firms strive to build shareholder value. Procuring insurance is not as thrilling as buying that sexy new BMW you've been eyeing. Device firms face cost pressures. A good broker breaks through this, understanding the full discovery lifecycle — from capital raising to registration — and articulates to management the true nature of complex risk exposures that threaten balance sheets throughout the lifecycle, providing best practice solutions that provide protection.

Matt Heinzelmann, Executive Vice President at Higginbotham & Associates (Dallas) notes that, from early to mature stages, each insurance buyer is focused on different objectives. Part of a broker's value-add is understanding client's financial objectives, then (and only then) articulating specific insurance coverages with unique strategies that dovetail with short- and long-term goals. For example, early stage companies, focused on R&D, he notes aren't typically preoccupied with product liability, but might want a specialized insurance product that covers them for complications arising from human clinical trials.

11. A perspective that goes beyond insurance-buying, encompassing risk management and strategy. Michael Cremeans, who leads the life science practice at the Oswald Companies (Cleveland) says, "It's really not about insurance. A good broker truly acts as a business advisor and not as an 'insurance person.'" Any insurance placement results from hard work and analysis. Weaving insurance and risk management into a strategic plan, along with experience in dealing with contractual liability, are key components to adding value, Cremeans states.

12. A broker that breaks out of "insurance product" silos. Cremeans observes that the insurance industry often organizes itself into product-type silos, but many device firms dislike that approach. A broker that can apply knowledge across multi-insurance disciplines to the medical device industry has great value.

13. Ability to offer bespoke solutions. "Medical device companies are not cookie-cutter risks," Cremeans insists, "and may need something other than cookie-cutter insurance solutions and products." He cites as key success traits for brokers the ability to think laterally and design an insurance program around the client's needs rather than pushing off-the-shelf products.

14. Accessibility and pro-activity. A good broker stays in touch with the client — not just at policy renewal time — and communicates with you proactively as a device firm's risk profile changes. This, Cremeans says, enables the firm to re-calibrate the structure of the insurance program as needed. Crises and problems for device firms do not always conform to 9-to-5, Monday-through-Friday schedules. A good broker comes through in a pinch, even if a problem arises during "off hours."

15. Opens strategic alliances, resources and partnerships. Bruce Ball, Chairman of Britton Gallagher (Cleveland) says, "A good broker is steeped in the tangible and regulatory risks that a device company faces and offers substantive dialogue with senior management about risk and dealing with its consequences." He stresses, though, that a good broker doesn't stop there. An A-player, he adds, helps clients grow their businesses by opening up relationships with other clients, VC contacts/strategic consolidators and makes strategic introductions to their spheres of influence. "Being a CEO of a life science company can make you feel like you are on an island," Ball states, adding, "it doesn't have to be that way."

"Dream Teams" are monikers more often associated with US Olympic basketball squads than with med-tech enterprises. Device firms can help build gold medal caliber businesses, though, by incorporating savvy insurance brokers as part of their own risk management Dream Team!

This article originally appeared in the April 2013 issue of Medical Product Outsourcing Magazine.

This week's tragedy at the Boston Marathon has touched each of us on a very personal level and puts fear in our hearts that this could happen again. As the dust settles at the site, there will be many unanswered questions, and some of those issues will concern terrorism and insurance for terrorism.

What do we know at this point?

1. It is being speculated that this is an act of terrorism.
2. It is uncertain if it is an act of domestic or foreign terrorism.
3. It is, also, unlikely at this point that this will be a Certified Act of Terrorism.

What are the immediate insurance issues that we see from this event?

1. Severe injuries and death
2. Direct damage to buildings and structures
3. Direct damage to property (including vehicles)
4. Closure of areas due to direct loss and civil authority
5. Debris removal and damage
6. Workers Compensation

For all of us in the insurance industry, we have to be asking ourselves:

1. Are we offering terrorism coverage to our insureds?
2. Are we going beyond just the offer of the Terrorism Risk Insurance Act (TRIA) and offer stand-alone terrorism insurance, which is available in the insurance market place?
3. Are we carefully documenting our conversations with our insureds about the terrorism offer?

The Insurance Community University has two important classes for you to attend:

Update on Terrorism Exposures and Insurance — May 7, 2013

• Overview of terrorism risk and exposure
• Review of TRIA (Terrorism Risk Insurance Act)
• Terrorism Insurance

Insight on Errors & Omissions — April 25th and 26th

We have heard it a thousand times — "documentation;" but in light of the bombing, we have to take a harder look at what we are doing: your files must speak for themselves and contain the notes on discussions, offers, acceptances, rejections, and follow ups. The Errors & Omissions class is approved with various insurance companies, including Fireman's Fund for credit on your agent's Errors & Omissions renewal insurance.

One Friday afternoon three years ago, Harvard Professor Ashish K. Jha found out his father had been taken to "one of the most dangerous places in the world." Knowing as I do the energetic and courageous Professor Jha, I pictured a more senior version of him sky diving or climbing Mt. Katahdin. Unfortunately, the reality was far more banal, though still dangerous — Dr. Jha's father was taken to an American hospital.

The good news is Dr. Jha's father made a full recovery after only a few days in the hospital. The bad news: at least three potentially harmful errors occurred during those days. "On Saturday afternoon, he was given an infusion of a medicine intended for another patient — an infusion that was stopped only after I insisted that the nurse double-check the order," recounts Dr. Jha. "After she realized the error, she tried to reassure me by saying, 'Don't worry, this happens all the time.'"

Indeed, Dr. Jha agrees this "happens all the time," but it's not reassuring to him at all. In addition to being a concerned son, the professor is an expert in patient safety. He knew only too well the dangers his father faced — the legions of rampant errors, accidents and infections in hospitals throughout the United States.

The safety problem is an open secret among people in the health care industry. "When I tell this story, most of my colleagues shake their heads, but they are rarely surprised. We have come to expect such failures as a routine part of health care," says Dr. Jha. The statistics are staggering. Each year, one in four people admitted to a hospital suffer some form of harm, and more than 500 patients per day die.

Dr. Jha has three recommendations. First, he calls for a better approach for tracking harm in the hospital. For a variety of reasons, this is not as easy as it should be.

Second, he says that hospitals need to feel the financial consequences of providing unsafe care. "A large proportion of hospitals have not adopted cheap and easy interventions that substantially reduce harm," he points out.

Why is this? For one thing, the financial incentives aren't there. Most hospitals get paid for all the work they do, regardless of whether it helped or harmed the patient. The more they do, the more they make. There have been efforts to address this nonsensical financing system by paying hospitals for achieving the right outcomes for patients, including in the Affordable Care Act. But a recent study by Catalyst for Payment Reform found that only 11 percent of payments to hospitals or doctors are in any way dependent on good quality or safety.

Professor Jha's third recommendation is to create accountability for patient safety: "Senior health care leaders have to feel that their jobs depend on delivering safe care." I would add another level of accountability implied but not stated in this recommendation: accountability to the American public. Hospital performance data should be publicly available to consumers, so we can choose doctors and hospitals with the best records. Hospitals that fail should lose market share. Last year, my organization, The Leapfrog Group, initiated one such effort, the Hospital Safety Score, a letter grade rating the safety of 2600 hospitals, which Dr. Jha advises us on. The Score is available to the public for free on our website or as an app, and it holds promise for driving a new market for safe care.

The Hospital Safety Score is useful to consult before you or your family members are admitted. But what should you do when you're already in the hospital and worried sick? Every hospital inpatient in America should navigate right now to this just-published AARP Magazine article and its virtual hospital room. The magazine noted features used in safer hospitals that all of us should look for in our own hospital. Among them:

• readily available faucets with infrared lights that remind people entering the room to wash their hands when they see a patient;
• IV poles, bed rails and faucets made with copper alloys, which prevents transmission of germs;
• sensors that alert nurses when patients are attempting to get out of bed;
• linen closets designed so staff can replenish supplies without having to enter the patient's room, which minimizes the spread of infection and disruption of the patient's rest.

The article also notes how safer hospitals use electronic systems for managing prescriptions — the best known way to prevent the kind of error Dr. Jha encountered during his father's hospital stay.

No doubt hospital leaders will read the AARP coverage without much surprise; all of this is well-known among clinicians and taught and studied throughout the health sciences. The premier textbook on patient safety advises most of what AARP found in its observations of excellent hospitals. Yet, too many hospitals still don't have the right precautions in place, and most consumers don't know to look for them. Until families make it clear to hospitals that safety matters to us, none of us, not even Harvard professors, can depend on safety when the ambulance arrives.

This article first appeared on Forbes.com.

When I think about businesses/people working out of their homes, the first picture that comes to mind are people working on their computers — in virtual offices, remote offices, and oftentimes offices outside of the United States.

That is why it came to me as a surprise when Yahoo recently proclaimed all their employees had to "come back to work." One news line read "work at home and you will be fired." Clearly this is a change, especially for a high tech company. Marissa Mayer, the president and CEO of Yahoo as of 2013, defends her stance and says it will "separate out the truly productive workers from stay at home slackers who abuse the system." Needless to say, the news is buzzing about this, so time will tell if she sticks to her guns.

While Yahoo is "going back to the workplace," more and more people are choosing to work from their home. The current economy has redefined how people cope with the unemployment dilemma, and many businesses encourage staff to work from home to better maximize their production and as a means to better deal with the demands of work and family.

Now home-based bakeries and cooks are getting a new incentive to work from home with the passage of a new law in California. Other states may have or may adopt similar laws. The California Homemade Food Act has created a new category of food producers called "cottage food producers" which will allow people to cook their food items in their kitchens at home. Up until this law was enacted, food producers had to use commercial kitchens. These food producers could include: caterers, suppliers to organic markets or farmers markets, and bakeries that supply local restaurants with breads or desserts.

Not all foods are approved to be cooked out of a home — only foods that are considered to be "safe" fall under this law. Approved items include: baked goods, cookies, coffee, nuts, vinegar, candy, and dried pasta.

"We talked with the different health departments and various scientists, and these products are 99.9% safe," accords to Mike Gatto, California Assemblyman. The state will require cottage food producers to take a food handling class and pass an exam that is created by the California Department of Public Health.

While the categories of the types of food that can be produced under this law are limited, at this time, it does open opportunities for some homeowners to work from their homes. From the broker/agent standpoint, we have to look more closely at the exposures and determine if the Homeowners Policy will pay for losses these home-based businesses might sustain. Here are some questions we need to ask our insured:

1. Are they cooking in a kitchen in their dwelling?
2. Are they cooking in a kitchen they have put in a detached structure?
3. Have they installed commercial cooking equipment in either their home or other structure?
4. Are they required and, if so, have they installed approved fire detection and suppression devices for their cooking equipment?
5. Are they operating the business in their personal names (as they appear on the homeowners policy) or have they formed a business and filed for a business name?
6. Do they have any employees?
7. How do they deliver the goods that they cook? In their personal vehicle?
8. Have they purchased a vehicle in the name of their business to deliver their goods?
9. Do they have customers come to their home for any reason?
10. How are they storing their food supplies and finished product?
11. Do they have a website for their business?
12. Do they sell product via the website?

These are just a couple of questions in a long list of considerations. The answer to these questions will direct the broker/agent as to how the Homeowners policy should be endorsed, not to mention the concerns relating to the personal auto used for delivery purposes or perhaps a truck purchased in the company name.

While the new law creates new opportunities for the home-based business, it also adds a responsibility to all of us in the insurance field to identify risk and suggest creative solutions. The insurance community center conducted a two hour class on insuring businesses operating out of a home in January of 2013. That archived webinar is available to all Insurance Community University members and the new Business in the Home audio presentation is now available in the Insurance Community University Library.

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Donnelly v. Greenburgh Central School District, a recent federal court decision, addresses one of the core eligibility issues under the Federal Family & Medical Leave Act (FMLA).

The court focused on what hours must be counted toward the 1,250 hours of actual work when determining whether an employee is eligible for leave under the FMLA leave. In particular, the court focused on counting work from home or away from the workplace. The former high school teacher alleged that he was denied tenure in retaliation for taking FMLA leave. The district defended by arguing that Donnelly was not eligible for FMLA leave because he had not worked at least 1,250 hours during the previous 12 months.

The district relied on the certificated collective bargaining agreement to calculate the number of hours Donnelly actually worked. The collective bargaining agreement provided that the maximum work day for a teacher was 7.5 hours, which is one hour longer than the school day. The district multiplied this number by the number of days Donnelly worked during the previous year and found that he worked 1,247 hours (only three hours shy of qualifying for FMLA leave).

Donnelly argued that he typically worked 1.5 hours before and after class and that additional time should be included in calculating his FMLA eligibility. A judge disagreed and relied upon the maximum work day in the collective bargaining agreement in finding that Donnelly was not eligible for FMLA leave because he could not produce reliable evidence showing that he actually worked 1.5 hours each day before and after class performing work that was integral to his teaching job. Accordingly, the judge dismissed his FMLA retaliation claim.

The Federal Appeals Court reversed, finding that a jury should decide whether Donnelly worked enough hours to qualify for FMLA leave.

The Court first noted that under the FMLA regulations, because the school district did not maintain accurate records of the actual hours Donnelly worked, the district had the burden of proving that Donnelly did not work 1,250 hours and was, therefore, ineligible for FMLA leave. The Court further held that the collective bargaining agreement did not govern how many hours Donnelly worked for purposes of FMLA eligibility. The Court emphasized that all of the hours Donnelly worked performing activities that were an integral and indispensable part of his job as a teacher should be counted, regardless of the work day provision in the collective bargaining agreement.

The most important part of the Court's ruling deals with counting work performed from home. The Court held that, especially in the case of teachers who grade papers and plan lessons from home during "off duty" hours, there is no preclusion from counting that time when calculating FMLA eligibility, as long as the work is an integral and indispensable part of the job.

What This Means for Employers

1. If an employer does not have an accurate and reliable way of accounting for an employee's hours, the employer will bear the burden on summary judgment of proving that the employee did not meet the eligibility requirement, which is a very difficult burden. This will be especially difficult when dealing with salaried employees and those exempt from overtime, because under separate wage and hour laws you cannot require them to record their hours or clock in and out.
2. Work from home may be counted in determining FMLA eligibility. We live in an era when employers expect employees to be accessible at all times because of cell phones and smart phones. If you expect an employee to respond to email or calls after hours, you may be required to count those hours in determining FMLA eligibility. Furthermore, even if an employer has no way of accounting for work from home, that work may nonetheless be counted in determining FMLA eligibility.

Copper theft presents a significant challenge for loss control.

Unlike other property crimes where "recovery" goes a long way toward mitigating the loss, such as the recovery of a stolen car in an auto theft, the recovery of the stolen copper seldom impacts the size of the claim.

Copper theft is different because the damage done to a building stealing a few hundred dollars' worth of copper can cost insurers tens of thousands of dollars to repair. The typical copper theft claim involves the damage done ripping wires and plumbing out of walls or the coils from a rooftop HVAC system. In vacant buildings, thieves target water lines and sprinkler systems as well as the electrical wiring. Once a vacant property has been hit, thousands of dollars must be spent to bring it back up to code before it can be occupied. It is this "collateral damage" that makes copper theft claims so expensive to an insurance company.

The key to reducing copper theft claims is prompt police response. The faster law enforcement arrives, the less time thieves have to damage the property. Faster police response is what wireless video alarms deliver and why they are a valuable tool for loss control against copper theft.

Copper theft has impacted insurance companies across North America, becoming a mainstream problem covered by television news. The following reports from television news underscore much of what this article is attempting to communicate — a new paradigm to mitigate risk and reduce claims impacting the real world from Virginia to Arizona.

Construction crime is a close cousin to copper theft and has been a black hole for risk management with few affordable solutions. The nature of construction risk is temporary and this means that wired surveillance cameras and alarm systems are simply too expensive and cumbersome to install to make them cost-effective.

The technology challenges are significant: in addition to limited budgets there is often no power, no phone lines, and no easy access to internet. Policy holders do not want to spend large amounts of money for temporary infrastructure that has no value after the job is done. For construction, human guarding is the most obvious approach, but it is beyond the budgets of many job sites. With guarding cost prohibitive, from a loss control perspective there have been very few affordable options for mainstream policy holders to protect their projects. Construction remains a problem child for many insurers who are forced to raise deductibles and implement exclusions to make construction profitable.

The following newscast from Buffalo, New York describes the challenges of securing a construction site and successes found with wireless video alarm systems.

While human guards have become too expensive and unreliable for many sites, technology is improving and loss control has a new tool to secure construction sites. Portable wireless video alarms give loss control professionals an affordable tool to deliver police response to a job site before the damage occurs. These new wireless camera/detectors (called MotionViewers) sense an intruder and send a short video clip of the incident over the cell network to a central monitoring station for immediate review and police dispatch and priority police response.

The immediate review/response with a monitored video alarm has proven more effective than human guards as the sensor/cameras are installed in multiple points across the job site to detect and report any activity. The crucial factor in reducing claims for copper theft is immediate police response, and video verified alarms make all the difference — the monitoring central station operator is a virtual eyewitness to the crime.

Police treat a video verified alarm as a crime-in-progress — they respond faster and they make arrests. Case studies on video verified alarms have arrest rates of over 50%. One construction site in Arizona had 40 arrests over four months on a single site. Arrests make a difference because one arrest prevents an additional 30 crimes — copper theft is typically done by habitual thieves who target construction sites or vacant property.

To be affordable and effective, the camera/sensors must be easy to install, without the cost of trenching cables and running wires. Power is a challenge as many construction sites have only temporary power provided by generators during working hours. Many vacant building have no power at all.

The wireless Videofied alarm systems need no infrastructure to secure a site. They operate for months or even years on batteries, communicating over the cell network to the central station. These portable MotionViewers are more effective than fixed cameras because they can be moved to protect the assets on a job site as the project evolves. Portability is important because construction theft is often an inside job by a subcontractor familiar with the delivery and location of expensive materials or assets — and they know the locations of fixed cameras and how to avoid them. In contrast, magnetic mounts on the wireless MotionViewers enable the job supervisor to move the cameras, placing them on steel studs and tool cribs at the end of the day to protect what is most at risk.

Wireless video verified alarms for outdoor applications mean that loss control professionals have an effective tool to fight copper theft that is affordable enough for implementation by their policy holders. For more information visit www.videofied.com.

There was a lot that changed with the Commercial Property Forms in the 2013 series. In fact, most forms underwent some sort of modification. One of the most interesting of the changes was the introduction of an optional coverage available on the Dependent Property Forms for Dependent Properties in the Supply Chain (Business Interruption).

By way of background, the Business Income and Extra Expense forms require that there is direct damage at the premises described by a covered cause of loss that gives rise to a loss of income or need to pay extra costs to operate during the period of restoration. In providing this form of coverage, we have been aware of the exposure to a loss of income due to a physical loss at a location that our insured depends on for various reasons. Recognizing that a loss to a dependent location could cause financial harm to our insured, ISO created Dependent Property Endorsements (CP 1508, CP 15 09, CP 1534) provided on a scheduled basis. What this means is that, for our insured, we identify what company(ies) they are dependent on and schedule those locations on the Dependent Property Form attached to their business income policy.

For example, we could be insuring a winery that is dependent on a single manufacturer to manufacture their distinct wine bottle and provide them with their customized cork. If that bottle manufacturer had a loss to their manufacturing facility by a peril insured against on the winery's policy and the winery now has no bottles and the winery can demonstrate they are losing money or incurring an Extra Expense by going to a more expensive alternate supplier then the Dependent Property Endorsement could respond.

What we learned, when losses such as this arise, is that oftentimes the physical loss did not occur at the dependent location we scheduled on the policy but rather to a "location" that the dependent property was dependent upon to supply them a product or service. So to expand on the winery example — the bottle manufacturer is dependent on a single cork manufacturer to supply them with the blank corks they customize and the cork manufacturer has a loss (covered peril) and cannot supply the wine bottle company with the product. We never identified the cork manufacturer on our insured's policy as there was no known or direct relationship.

The new language on the Dependent Property forms have an option for "secondary contributing locations" and "secondary recipient locations." Secondary locations are limited to direct suppliers and recipients of the dependent property's materials or supplies.

On the form, secondary contributing location and recipient location are now defined terms. There are some important clarifications of the coverage:

1. The secondary location is not identified in the schedule. However, there is a box on the schedule that has to be marked identifying that a secondary location has been included.
2. The secondary location cannot be owned or operated by the "contributing" or "recipient" location that is identified in the schedule.
3. There is clarity that a secondary location is not a road, bridge, tunnel, waterway, airfield, pipeline or any other similar area or structure.
4. There is clarity that any source of "services" in the area of water, power, wastewater removal or communication supply cannot be a secondary dependent property. These would be covered under Utility Interruption endorsements.
5. Lastly, there is clarity that the secondary dependent property coverage is subject to the territory of the policy and is not worldwide.

This additional coverage under the Dependent Property Endorsements is very important to consider, especially for manufacturing accounts. This all gets back to our identifying exposure and providing solution.

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