What Your Senior Management Does Not Know About Risk Management (But Should)

1. What Your Senior Management Does Not Know About Risk Management (But Should) RIMS Annual Conference April 30, 2014 Barry Mitchell, ManagerRisk Security & Global Loss Control Teck Resources Limited Mark J. Plumer, Esq., PartnerChair, Insurance Practice GroupOrrick, Herrington & Sutcliffe LLP

2. Legal Notice This presentation is for informational purposes only, and is not offered as legal advice. No attendee should act or refrain from acting on the basis of any matter contained herein without seeking appropriate legal or other professional advice on the particular facts and circumstances at issue. The views expressed herein are the authors’ own and do not necessarily represent the views of their respective firms, attorneys and/or clients.

3. Introduction • General Counsel and Risk Managers view the world differently • General Counsel focus most intently on insurance when there is a claim • General Counsel often assume at the outset of a major claim that if relevant insurance was purchased, it covers the claim • General Counsel often do not fully understand either the hurdles that need to be overcome before an insurer will acknowledge an obligation to pay or the intricacies of performing an insurance claim to secure coverage • At the very best companies, Risk Managers and General Counsel communicate effectively on a variety of issues focused on claims and potential claims, including communicating on these types of issues before major claims arise

4. How Insurance Fits Into Your Company’s Organizational Structure (Or Should Fit) • Define the proper scope of your Company’s risk management function • Limited to the purchase of insurance • Or, management of corporate risk • Evaluate the most sensible organizational location for the risk management department • Less than 15 percent of risk managers report to the general counsel or law department • Ensure an open channel of communication between the risk management and legal functions, no matter what structure you employ

5. Explain the Structural Contours of Your Company’s Insurance Program • Explain that corporate insurance programs vary widely • Companies may buy from the “best” insurers, others from the least expensive • Companies may retain substantial risk, others very little • Companies may rely upon domestic insurers, others foreign • Companies may operate through captives and the reinsurance market, others do not • Even among companies that share similar structural profiles, the quality of the insurance contracts purchased can vary dramatically especially regarding non-standard products Make Sure Your General Counsel Understands Your Structure.

6. Explain What Insurance Is (And Is Not) Being Purchased • Types of insurance being purchased and reasons therefor • Required (workers compensation) • Optional (general liability, property, crime, fiduciary) • Types of insurance not being purchased and reasons therefor • Cyber • Business Interruption • Employment • Pollution Legal Liability • Political Risk A Useful Exercise To Avoid Surprises Is To Identify With The General Counsel The Risks Most Worrisome To Your Company And Then To Evaluate What Your Current Insurance Does/Does Not Actually Cover.

7. Explain The Claims Process Sum Certain $$ in return for release and indemnity (includes value for future claims) Settle Confidentiality & Standstill Agreement Preparation of Settlement Evaluation Principal-to- Principal Negotiations Return to original status quo (Informal) Impasse Right toClaim UponInsurance Loss/Claims/ Potential Claims Litigation Historic Costs + Declaratory Judgment Tender of Claim Reservation/ Denial of Claim Insurer Investigation/ Cooperation Litigation Insurer Defenses (Formal) Win Lose

8. Get Involved In Crisis Planning(With the General Counsel) • Is insurance part of your emergency response plan(s)? • Does it incorporate giving notice of the claim? • Does it incorporate observing policy conditions that may limit or eliminate coverage? • “Claims control” clauses • “Consent to settle” clauses • Does it incorporate how you will track your “loss” internally in a fashion that allows for maximum insurance recovery? If You Are Not Involved On The Front-End, You Likely Will Not Play A Major Role On The Claims/Crisis Back-End.

9. Get Involved in Crisis Management(With the General Counsel) • After a loss, is there a process in place to quickly determine: • What types of policies may respond to a loss? • The categories of insurers that must be notified • Unique requirements of your specific policies (i.e., batching clauses) • Specific timing requirements • Whether the Company may control its defense • Whether and what settlements may be made without advance insurer consent, or what protocol is necessary to get consent. Take Into Account That Coverage is Getting More Complex, With More Manuscripted Wordings And Additional Exclusions.

10. Get Involved in Crisis Planning(With the General Counsel) • Insurance policies often contain time requirements • Notice provisions • Proof of loss provisions • Suit limitation provisions • Waiting periods • Arcane timing provisions • Repair/replace deadlines • Insurers may be willing to extend these deadlines, or at least certain of them • But courts may uphold forfeitures of coverage if policy wording makes these provisions a condition precedent, and a policyholder fails to comply Keep Your Eye On The Clock: Insurers Sometimes Agree To Toll One Notice Limitation While Others Continue To Run.

11. Focus The General Counsel On Dispute-Related Provisions • Explain that some of your Company’s policies may contain terms that substantively impact the adversarial claims process in the event of a dispute with your insurers • Arbitration provisions • Choice of law provisions • Provisions that abrogate contra proferentum • Structural issues • Differing requirements in differing layers of coverage Your Focusing The General Counsel On Such Provisions Can Help To Avoid Surprises.

12. Confirm The General Counsel’s Understanding of Key Recurring Insurance Issues

13. Recurring Insurance Legal Issues • Duty to Defend Issues • Trigger of Coverage • Number of claims/occurrences • Application Issues • Claim notification issues • Cooperating and partnering requirements • Consent to Settle • Suit limitation provisions Create A Bridge To The General Counsel To Keep Abreast Of Key Legal Developments.

14. Discuss The Proper Management of Thorny Insurance Issues • D&O Structure (including coordination of bylaws and D&O policies) • Insurance for Projects (including master service agreement requirements) • Vendor Endorsements • OCIPS • Mergers and Acquisitions • Structure of transactions may affect insurance rights • Insurer Insolvencies • Looming Liabilities, by industry

15. Work Together on Litigation • Do not let Risk Management be boxed out of the process • Be proactive about Risk Management’s role • Risk Management understands the policies, the insurers, and the insurers’ mindset better than the Legal Department • Be proactive about opportunities for settlement

16. Be Proactive • Provide regular (at least annual) detailed briefings to the General Counsel • Confirm that there is a pipeline to assure Risk Management is apprised of all claims and potential claims • Have someone from the Law Department appointed as the bridge to Risk Management • Work with General Counsel to conduct bi-annual audits of key policies using outside coverage counsel • Ask outside counsel to provide free training for risk management and law personnel on topics of interest

17. Tools and Techniques for Communicating with In-House Lawyers • Clear written and oral communication • Follow-up and pro-active • Examples of issues, i.e., other companies/benchmark • Think analytically – like a lawyer

18. Lessons Learned

19. Questions

20. Thank You