SCHOOL RULES FOR THE NEW MILLENNIUM: School Districts Face New Risks from the Playground to the Clas

With the new millennium comes a complex array of challenges to America’s public schools. Among them are the need to improve academic performance, reduce overcrowded classrooms, meet the needs of a growing number of children with disabilities, curtail dropout rates, and ensure the safety of students and teachers. For insurers, these challenges create a new crop of exposures and liabilities.

Today, there are roughly 51.5 million public and private school students and 3 million teachers in the United States, according to the National School Boards Association. And although these schools are scattered across the country, they are all faced with similar exposures.

The emerging areas of liability include: exposures associated with Internet access provided by schools to students; school violence-related claims; employment practices liability (EPL); and student-to-student sexual harassment. What does this all mean for the market?

“The state of the market is competitive, but we’re seeing some firming…due to just the general, overall industry conditions,” said Lloyd Kelley, president and CEO of Nashville, Tenn.-based PENCO, one of the largest writers of schools in California.

The San Diego office of PENCO has been placing coverage for schools in the Western states for more than 20 years. Coverage is currently provided for more than 460 school districts and JPAs (Joint Powers Authority) in the three states of California, Colorado and Arizona.

Robert Krall, senior loss control consultant for Coregis Insurance Company (one of the other big players in California), said that it “has been a very good market for at least a decade, if not longer.” But it is his understanding that the reinsurers are asking for more money from the primary insurers for writing the same level of coverage.

“A lot of that’s going to have to be passed on, and the insurance companies themselves, with the loss ratios they are currently posting, are not making money,” Krall said. “So I can see in the future that there are going to be some rate adjustments. How it’s going to occur-whether it’s going to be staggered over a length of time-I don’t know.”

Based in Chicago, Coregis provides comprehensive property and casualty coverage and risk-related services to thousands of public entities across the U.S. It is the only national carrier 100 percent focused on the public entity market.

“We’re starting to see some trends in the marketplace taking a harder turn,” Krall said. “A lot of insurance carriers that are in the public entity market are showing unusually high loss ratios.”

Sandy Middendorf, managing director of public entities for Reliance Specialty Division, had similar thoughts on the state of the market. “From an insurance perspective, there is a fair amount of upheaval going on right now,” he said. “Carriers [are] re-underwriting their books of business and looking for rate increases.”

Although Reliance Specialty writes school business all over the country, it’s just one area of focus for the company. “We don’t write that much…it’s primarily in the Southeast,” Middendorf said. “The written premium is something in the area of about $4 million, and that includes all lines of business.”

Bob Bambino, vice president-risk management, Wright Risk Management Company Inc., the management company for the New York Schools Insurance Reciprocal (NYSIR), shared some words of wisdom with regard to the availability of liability coverage: “Those who remember the hard market of the mid-1980s should take heed; it is these types of activities and exposures that typically suffer from the first wave of a hard market.”

NYSIR insures 173 school districts with approximately 510,000 students in N.Y. State, resulting in more than $24.3 million in written premium. “I’ll relate to our experience with the NYSIR program here in New York, but I’m willing to bet that, taking into consideration limited tort immunity and some other minor differences, folks like me who risk manage school exposures are probably facing the same kinds of problems,” he said.

It’s already happening in schools without economic challenges or budget issues. More and more schools are installing Internet-ready computers in the classroom. These districts are now having to deal with Internet-related liabilities. Eventually, the exposures will be everywhere-from the wealthier districts to the inner-city school districts.

Consider this scenario: You are teaching a class and there are 15 kids on computer terminals. While you are helping some students navigate throughout one site, three of your computer-savvy students are visiting sites they should not be visiting. This is where Internet security within the school and school system is so important.

“The ability to control the students’ access to less-than-desirable material is going to be extraordinarily difficult, and the liability issues between the students accessing that material and parental concerns/parental outrage if they catch the kids with this kind of material is going to be another emerging issue,” Krall said.

Schools hooked up to the Internet need to install programs to limit access of certain kinds of Web sites. “The districts are going to need to consider how they are letting the schools have access…how they have the students and the parents sign off acknowledging that there is a potential exposure and that they agree they can’t have 100 percent control over exposure to these kinds of Web sites,” Krall said. “A lot of the programs are extremely effective, but they’re not 100 percent effective.”

The April 1999 tragedy at Columbine High School in Littleton, Colo., brought the issue of school violence to the forefront. In the last few years, several similar incidents have occurred in West Paducah, Ky.; Pearl, Miss.; Edinboro, Penn; Fayetteville, Tenn.; and Springfield, Ore.

Law enforcement is one issue that goes hand-in-hand with school violence. “School counseling, as a result of things like Columbine, costs big dollars,” Middendorf said.

A recent survey of school violence in West Virginia, funded by the national American Society of Safety Engineers’ (ASSE) Foundation, found that schools participating in the study lacked effective policies, plans and procedures to respond to acts of school violence and terrorism. After finding that the districts were unprepared, the researchers recommended, among other things, that each school system develop customized guidelines that can be incorporated into a comprehensive plan “that best serves its distinctive needs.”

PENCO’s Kelley said that he expected to see a possible change in underwriting following the tragic school shootings. “Oddly enough, we haven’t seen school violence affect the underwriting as much as I might have expected, but then again, how are you going to underwrite something like school violence,” he said. “We haven’t seen carriers pulling out of the market for that reason, and we haven’t seen some unreasonable increases in the general liability pricing.”

Coregis’ Krall agreed that school violence had not necessarily changed their underwriting process. “I think it has changed the types of services we’re providing to our school districts,” he said. “We’re doing more violence prevention seminars throughout the U.S…providing districts with more tools, understanding and training in how to minimize their exposure to school violence.”

The Denver Public School system includes 125 schools, approximately 70,000 students, close to 11,000 employees, and an annual payroll of roughly $310 million. “School districts are governmental entities, so each state is going to have a little bit of different treatment of governmental immunity,” said Stephen Finley, director of risk management for Denver Public Schools. “The treatment of governmental entities as to when they’re negligent and when they’re not is going to drive insurance costs.”

According to Finley, the Denver Public School system has very good sovereign immunity. “But as far as school violence being a new wrinkle…it’s really not driving our cost right now,” he said. “I’m not seeing any pressure in the marketplace that I’m in…that seems to be driven by a concern for underwriting against school violence.”

Depending on the allegations, coverage for school districts for sexual harassment can be problematic.

In terms of losses, what Bambino said he sees in the New York schools are workplace or employment-based discrimination and harassment, “particularly claims involving age and disability discrimination and sexual harassment.” “We’ve also seen claims involving peer-to-peer sexual harassment,” he said. “On the GL side, it’s assaults and sports-related losses.”

Coregis has also seen some peer-to-peer sexual harassment claims filed, according to Krall. “School districts are now being held responsible for harassment between students, according to a Supreme Court ruling in June 1999, so that’s going to become an emerging issue for schools.”

Another difficult issue to deal with in schools is employment practices liability (EPL). In fact, Kelley ranked student violence and EPL as two of the bigger problems that all schools-not just in California, but countrywide-are facing these days.

“I think we’re going to see school communities, meaning the kids and staff, become more diversified, and I think that presents challenges and opportunities,” Bambino said. “There are more women working-covered by Title VII; more minorities employed-covered by Title VII; more people over the age of 40-protected by the ADEA; and more people who are physically challenged-covered by the ADA. So it will be even more important for schools to properly risk manage the EPL and civil rights exposures.”

Producers who represent schools should look to the loss control or risk management departments of their insurer or third-party administrator for help in controlling these exposures, according to Bambino.

“I think the key to success in the school programs is the stability and the consistency of the suppliers and the dedication to schools,” Kelley said. “Specific attention to loss control that’s specific to schools-like playground safety and other safety issues-those are the things that differentiate the better providers.”

Topics California Carriers New York Underwriting Education Risk Management