The risk of financial liability for injury to another party remains a major concern for postsecondary institutions as well as their officers, faculties, and other personnel. This section examines various methods for managing such risk exposure and thus minimizing the detrimental effects of liability on the institution and members of the campus community. Risk management may be advisable not only because it helps stabilize the institution's financial condition over time but also because it can improve the morale and performance of institutional personnel by alleviating their concerns about potential personal liability. In addition, risk management can implement the institution's humanistic concern for minimizing the potential for injuries to innocent third parties resulting from its operations and for compensating any such injuries that do occur.
The major methods of risk management may be called risk avoidance, risk control, risk transfer, and risk retention. For risk transfer, there are three subcategories of methods: liability insurance, indemnity (or “hold-harmless”) agreements, and releases (or waivers).
Institutions should find it helpful to develop these various methods of risk management, and strategies for their implementation, into a campus risk management plan. A key component of any such plan is a professional risk manager or an office of risk management that provides a focal point for the institution's risk management efforts. The institution's legal counsel should also be involved in all phases of risk management. Another helpful organizational device would be an institution-wide risk management team or committee, which may also include school-level or division-level coordinators or teams. Risk assessment should be an essential aspect of any risk management plan. For some institutions, external consultants may be an important source of assistance in undertaking a comprehensive assessment of institutional risks or periodically updating this assessment. Risk assessment teams from within various sectors of the institution may also be helpful. (For additional guidance and resources, see the website of the University Risk Management and Insurance Association, at http://www.URMIA.org.)
The tragic effects of Hurricane Katrina on New Orleans, Louisiana, and its higher education institutions have served to cast a spotlight on the intricacies of property insurance and its role in institutional risk management. A group of cases consolidated under the title In Re: Katrina Canal Breaches Litigation provides a striking example. The cases were all lawsuits against insurance companies that had refused to pay claims for property damages resulting from Katrina and the failure of the New Orleans levees. One of the plaintiffs, Xavier University, alleged that it had suffered damages in excess of $30 million and sought recovery under its commercial “all-risk” property insurance policy (Xavier University of Louisiana v. Travelers Property Casualty Co. of America, 495 F.3d 191 (5th Cir. 2007)). In the Xavier case and the other cases consolidated with it, the insurance companies argued that damages caused by “flood” were specifically excluded from the plaintiffs' policies. The plaintiffs argued “that the massive inundation of water into the city was the result of the negligent design, construction, and maintenance of levees and that the policies' flood exclusions in this context are ambiguous because they do not clearly exclude coverage from an inundation of water induced by negligence.” In a complex opinion, the federal appellate court drew upon the law regarding insurance contracts, rules for construing contact terms, cases on flood exclusion clauses, other cases on water damage claims, and various sources containing definitions of “flood.” On this basis, the court rejected the plaintiffs' arguments, saying the cause of the levees' failure did not change the fact that the resulting escape of waters was a flood, which was specifically excluded from the plaintiffs' policies (495 F.3d at 221).
2.4.2 Risk management strategies. The most certain method for managing a known exposure to liability is risk avoidance—the elimination of conditions, activities, or programs that are the sources of the risks. This method is often not realistic, however, since it could require institutions to forgo activities important to their educational missions. It might also require greater knowledge of the details of myriad campus activities than administrators typically can acquire and greater certainty about the legal principles of liability (see Sections 3.2–3.4 and 4.4) than the law typically affords.
Risk control is less drastic than risk avoidance. The goal is to reduce, rather than eliminate entirely, the frequency or severity of potential exposures to liability—mainly by improving the physical environment or by modifying hazardous behavior or activities in ways that reduce the recognized risks. Although this method may have less impact on an institution's educational mission than would risk avoidance, it may similarly require considerable detailed knowledge of campus facilities and functions and of legal liability principles.
Risk assessments (see Section 2.4.1 above) are critical to the implementation of risk avoidance and control strategies. Risk assessment teams would therefore be an important organizational device to use with these methods of risk management. Another important organizational device is a crisis management team to manage institution-wide crises, along with other smaller teams to deal with particular crises affecting an individual or a small number of individuals (for example, a mental health crisis).
Purchasing commercial liability insurance is the first way in which institutions can transfer the risk of liability to others. An institution can insure against liability for its own acts, as well as liability transferred to it by a “hold-harmless” agreement with its personnel. With the advice of insurance experts, the institution can determine the kinds and amounts of liability protection it needs and provide for the necessary premium expenditures in its budgeting process.
There are two basic types of insurance policies important to higher education institutions. The first and primary type is general liability insurance; it provides broad coverage of bodily injury and property damage claims, such as would arise in the case of a negligently caused injury to a student or staff member. The second type is directors and officers insurance (“D & O” coverage, or sometimes “errors and omissions” coverage). It typically covers claims for wrongful acts without bodily injury, such as employment claims, student discipline, and due process violations.
General liability insurance policies usually exclude from their coverage both intentionally or maliciously caused damage and damage caused by acts that violate penal laws. Liability arising from the violation of an individual's constitutional or civil rights is also commonly excluded from general liability insurance coverage—an exclusion that can pose considerable problems for administrators and institutions, whose exposure to such liability has escalated greatly since the 1960s. In specific cases, questions about this exclusion may become entwined with questions concerning intent or malice.
Exclusions from coverage, as in the previous examples, may exist either because state law requires the exclusion or because the insurer has made its own business decision to exclude certain actions from its standard coverages. When the exclusion is of the latter type, institutions may nevertheless be able to cover such risks by combining a standard policy with one or more specialty endorsements or companion policies, such as a directors and officers policy. If this arrangement still does not provide all the coverage the institution desires, and if the institution can afford the substantial expense, it may request a “manuscript” policy tailored to its specific needs.
A second method of risk transfer is a “hold-harmless” or indemnification agreement, by which institutions can transfer their liability risks to other parties or transfer to themselves the liability risks of their officers or employees or other parties. In a broad sense, the term “indemnification” refers to any compensation for loss or damage. Insurance is thus one method of indemnifying someone. But in the narrower sense used here, indemnification refers to an arrangement whereby one party
