Tag Archives: tenants

Building Blocks for Risk Leaders (Part 2)

Important things in life are not easily reduced to 10 steps. Nevertheless, this series provides a list of 10 building blocks to achieving long-term success in risk management from someone who has spent more than 25 years striving to carve out the most satisfying career possible, while never losing sight of the attributes attached to the bigger picture. The first article in the series, covering the first two steps, is here. This articles covers steps three and four.

3. Industry Background

Many accomplished risk leaders have come up through the insurance industry, from within brokers, insurers or consultants or from the myriad of industry service providers such as claim administrators, loss prevention providers and actuaries. All of these fields are valuable for providing that broad swath of knowledge that engenders long-term success. But now that risk management is evolving into a much broader discipline, under different labels (e.g., enterprise risk management, strategic risk management or integrated risk management), the question remains whether traditional insurance-based beginnings are still the best preparation for a career in risk management. Or, are there other fields that might provide better starting points?

This new risk management realm requires greater breadth of knowledge to be successful. For example, it calls for greater skills in influencing others. These types of leadership skills are especially critical because success is often a function of securing buy-in and support from senior managers and even board members. But that doesn’t mean that the traditional areas of learning and insurance industry expertise shouldn’t be pursued .

The basic tenants of for risk leaders — risk identification, assessment, measurement, mitigation, monitoring and reporting — are as applicable as they ever were for the effective management of all risks, from A to Z. Gaining expertise and knowledge in many areas of risk management is helpful to developing the broad understanding needed to provide effective risk management advice to the enterprise. Such broad understanding is gained only by spending time in the right trenches, ideally with mentors who can guide the way through politically charged minefields. In addition, time spent in audit, compliance, legal and even process engineering can provide valuable insight into areas where relationships must be developed to understand their priorities and how they overlap with those of risk professionals.

4. Getting Involved Outside the Organization

Leaders of all types do not limit their leadership abilities to only one firm. Generally, good leaders lead everywhere, and leadership skills can help move a risk manager’s interests forward. This means that, while showing leadership internally is job one, demonstrating leadership in the broader discipline or profession is also important to long-term success. Getting involved outside their own organizations allows risk managers to have leadership experiences that broaden knowledge and hone political skills. This is especially true if the risk manager’s own company provides few opportunities to develop leadership skills. Often, these developmental opportunities within the organization are reserved for a few individuals who have been identified as “high potential,” whether accurately or otherwise.

An external development strategy may be hard to execute when the work environment is particularly challenging. It is also heavily dependent on what’s commonly known as “who you know” to connect to key external entities and leaders. So, risk management personnel should consider trade and professional organization involvement, serving on key supplier advisory boards, becoming involved with entities pushing regulatory change, etc. Contributions of value with any of these will enhance both reputation and provide personal brand benefit .

Slumlord Must Repay Insurer for Settlement Contribution

Insurers Should Never Allow Slumlord to Profit From Bad Acts
In Axis Surplus Insurance Company v. Reinoso No. B228332 (2012) WL 2389324) an insurer, under a full reservation of rights, including the right to recover any costs of defense or settlements paid, defended Edgar and Linda Reinoso from claims by their tenants. Evidence, as the defense progressed clearly established that the Reinosos operated rental properties in a manner that allowed infestations of insects, vermin, and rats. Mr. Reinoso had pleaded no contest to at least two charges about properties he owned and was classified as a “slum lord.”

Ultimately, the tenants settled their claims against the Reinosos and their management company, Proud American, for over $3 million, with Axis contributing over $2 million under a reservation of rights.

Axis sued the Reinosos and Proud American for reimbursement of defense and settlement costs, based on the policy’s exclusion for injuries that were “expected or intended from the standpoint of the insured.” The trial court awarded Axis recovery of its $2 million+ settlement contribution, concluding that Axis had proven that the tenants’ claims were not actually covered.

The California Court of Appeal affirmed the judgment allowing Axis reimbursement of its settlement contribution and found wanting Mrs. Reinoso’s argument that she was an “innocent” insured and that the exclusion for “expected or intended” injuries thus did not apply to her.

Since an insurer only has a duty to indemnify the insured for covered claims, and no duty to pay for non-covered claims because the insured did not pay premiums for such coverage, and since both Reinosos owned and operated the apartment complex in a manner that damaged their tenants and profited from the operation of the apartments Mrs. Reinoso was not innocent of the charges made by the tenants. Since evidence showed that Linda had a sufficient benefit from the settlement such that not to allocate to her joint and several liability to the insurer of the full amount paid by the insurer to settle the Tenant Action the Court of Appeal concluded would amount to unjust enrichment.

Mrs. Reinoso was a co-owner of the property in question with Edgar, and the property was held as community property. She participated in the management of the property. Defendants in a joint venture are jointly and severally liable for non-economic damages whatever their respective interests in the joint venture. Moreover, Linda’s community property interest would be liable for obligations in connection with the property. Faced with exposure of many millions of dollars, perhaps up to $30 million, and punitive damages, Linda received the full benefit of the settlement.

The Court of Appeal agreed with the trial court that the insurer was entitled to reimbursement of the amounts it contributed to the settlement.

Conclusion
When defending a case under a reservation of rights it is imperative to, as did Axis, properly reserve rights to contribute to a settlement. If done properly it is imperative that the insurer then file suit to recover the amounts paid if the insured will not voluntarily pay.

To do so, the Court of Appeal noted, that the insurer must create and deliver to the insured:

  1. a timely and express reservation of rights;
  2. an express notification to the insureds of the insurer’s intent to accept a proposed settlement offer; and,
  3. an express offer to the insureds that they may assume their own defense when the insurer and insureds disagree whether to accept the proposed settlement.

Axis did so, and all insurers considering paying a settlement in a case where there is no coverage for indemnity should follow the recommendation.