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Business Officer Magazine

The Best Defense

Are you prepared for that crisis that’s bound to happen on your campus? Here are lessons gathered from 25 years in liability insurance, courtesy of United Educators.

By Janice M. Abraham, Robb Jones, and Constance Neary

*Remember 1987? Gas was less than a dollar a gallon, telephones had cords, mortgages cost 11 percent a year and CDs paid 7 percent, and the new Apple IIGS computer offered a whopping 256 KB of memory. We wrote letters and memos, not e-mails, texts, posts, or tweets. 

That world doesn't exist anymore. And you can say the same thing about the liability landscape for colleges and universities. In 1987, while celebrating its 25th anniversary, NACUBO convened a task force of committed business officers (and representatives from several other associations) to address a looming crisis on campus—the inability to purchase affordable and appropriate liability insurance coverage. Through the group's wisdom and innovation, United Educators Insurance (UE) came into being.

So this year, while NACUBO celebrates its 50th anniversary and UE celebrates our 25th, we offer the UE perspective on how things have changed in the past quarter century. As we discussed in a concurrent session at the NACUBO 2012 Annual Meeting in Washington, D.C., here are the lessons we've learned in insuring education, and advice on how to best position yourself and your institution to guard against risk.

The Liability Landscape

The environment in which higher education operates has vastly changed over the past few decades. The combination of heightened expectations, a new culture of liability, and the prevalence of hindsight bias puts institutions on notice that they no longer exist in an ivory tower, immune from public scrutiny.

Everyone expects more from institutions. Students have become consumers, and they apply that mentality to all aspects of campus life. Neither the phrase nor the concept of "helicopter parents" existed in 1987, but today's hovering parents have changed the way institutions interact over parent-student issues, and raised the bar in terms of institutional responsibility. UE hears repeated variations of the following: "We entrusted our child to you and expected you to return her to us safely." This theme seems a constant, regardless of whether any personal conduct on the student's part might have led to an unfortunate tragedy. 

We have learned the lesson time and again that the liability climate will punish an institution if it doesn't follow best practices.

The juries who judge higher education feel the same way. UE has been conducting mock jury exercises for the past 20 years. By tracking juror attitudes over that time, we've learned that juries expect a higher standard of conduct from educational institutions than they do from corporations. The media—both old and new—also share unrealistic views. They believe educational institutions should be paragons of perfection. The media's stress on accountability; disdain for withheld information; and cynical, questioning approach shape the attitudes of the 
public and a full range of institutional stakeholders. 

The past 25 years have also seen the refine-ment of America's liability culture, which has in turn created an industry with a well-developed networking, lobbying, public relations, and financing structure of its very own. Contingent fee plaintiffs' lawyers have become large-scale entrepreneurs, and around them has grown an industry that seeks new opportunities. Educational institutions have become one of their targets; over 25 years, the increasing frequency of plaintiffs' lawyers suing schools is a notable development. That's likely due to the deep-pocket syndrome and the economic impact of an institution in a community and the larger economy. The plaintiffs' bar has achieved political power in many legislatures (to make the laws) and it has placed many of its veterans on the judicial bench (to decide the cases).

Both the legal community and the media have a common interest and modus operandi. Their mutual goal is to tell powerful stories that appeal to emotion and move people to action. The stories they tell through lawsuits, aided by an unrelenting media cycle, can be powerful. They drive the dollars that must be spent on defense lawyers, PR consultants, and costly settlements.

A typical story in the media is based on the increased power of hindsight bias. How many times have we heard, "Why didn't they connect the dots?" That statement is a classic example of hindsight bias, which always sees with enormous clarity, obscuring the ambiguities and complexities of events as they unfolded in real time. Such backward perspective is so powerful that it's one of the basic habits of human thinking. Our research indicates that this is a driving factor in the way juries consider cases. And, it's extraordinarily difficult for anyone to overcome. 

The worse the outcome, the more powerful the effect of hindsight bias (the "severity effect"). This phenomenon is the plaintiffs' lawyers' stock-in-trade, because it reinforces the powerful blaming themes used to craft stories, particularly those with a tragic outcome.

Twenty-five years ago, UE's founders correctly foresaw the link between managing risks and avoiding claims. We have learned the lesson time and again that the liability climate will punish an institution if it doesn't follow best practices. Having risk management practices in place allows a counter-story to be told-a compelling story that blends the values the school stands for, and explains how it tried to anticipate and address foreseeable risks through education and preventive measures. If institutions have their own stories to tell, there is hope that together we can navigate the new world of risk.

The Evolving Role of the Business Officer

The role of the business officer has changed tremendously over the past 25 years, as the traditional financial model of higher education-which included significant state support-is becoming unsustainable. Since US News & World Report first published its "Best Colleges" report in 1983, the publication has set a new standard for the way society views colleges and universities. Facts, figures, and rankings take on increasing meaning as institutions vie for public support, net tuition dollars, and other sources of funding. Entrepreneurial ventures abound to enable institutions to maintain financial strength, attract and retain students, and ensure long-term institution viability.

Flashback ... 15 Years Ago

In a May 1997 Business Officer article noting that United Educators, founded during a liability insurance crisis in the mid-1980s, had celebrated its 10th anniversary and enrolled its 1,000th member ...

"Ten years ago, the education community created United Educators as a permanent solution to the unresponsiveness and unpredictability of commercial insurance markets. Today, the marketplace has become highly competitive, but United Educators continues to thrive because our roots are firmly established in the academic community we serve."

BURTON SONENSTEIN, president and chief executive officer, United Educators

One of the biggest shifts has been the move to open new programs, add campuses, and implement joint projects. Such entrepreneurial initiatives include domestic and international programs, online and bricks-and-mortar branch campuses, solo and joint ventures. Institutions are partnering with foreign governments to establish campuses to meet the host country's growing student demand; launching online programs to compete for the growing adult learning market; and adding new certificate or degree programs to meet increasing demands in health care, IT, and other growing occupations. These new programs often effectively strengthen the core mission of the institution, meet new and evolving constituent needs, and add revenue to replace declining state and federal support. Regardless of the approach and the rationale, the pace and scope of entrepreneurial activities is increasing tremendously—as are the corresponding risks.

Consider these protracted lawsuits handled by UE, as they shed light on the emerging risks of entrepreneurial programs:

  • A university operated a campus in Europe, first working with the U.S. military, and then through a nonprofit. The institution knew the campus was losing money; after an audited financial review revealed ongoing problems, the program closed. A number of lawsuits from students, faculty, and the former campus president followed. Faculty expressed confusion regarding which entity owned the campus and what employment laws were applicable. Staff alleged that employment contracts were violated, and students were concerned about recovering paid tuition. Expenses borne by the U.S.-based institution to date include:
  1. An employee lawsuit costing $664,000 in legal fees and settling for $1.03 million.
  2. An ongoing lawsuit with students seeking $6.5 million in tuition refunds.
  3. A lawsuit involving the campus president with $342,000 in legal fees and $1.2 million in settlement.
  • A comprehensive university contracted with an outside partner to establish and run a medical assistant program that would carry the university's name. Students were told that the program was fully accredited and that they would be able to sit for the three required licensing exams. However, the accreditation secured allowed students to sit for only two of the exams; the university's application to extend the accreditation to cover the third exam was denied. Former students alleged that they were misled as to the accreditation status, and 15 students sued. The good news: There was indemnification from the outside contractor to the university. The bad news: The contractor was in such poor financial condition that the university had to front $100,000 in legal costs and $240,000 in settlement, and accept a monthly repayment from the contractor.  
  • A university offered financial incentives to departments and professors to teach off-site courses in computer and software disciplines. Recruiters promised students that completion of the courses—each lasting 6 to 8 weeks and costing $8,000—would lead to Microsoft certification. The rush to market these courses meant that departmental oversight was not up to university standards. Course materials were late arriving at remote sites and in some cases were not the most current materials. The coursework did not lead the students to the certification program they sought. The university refunded tuition, but a group of students sued, alleging that they were lured to quit steady jobs to take the course and that the institution violated the state's deceptive trade practices act. Total to settle was $231,000—leaving the university with a bad black eye.

So while it's all too tempting to move quickly, be innovative, and find ways for your institution to deliver new programs, prudence is essential to ensure that you are taking calculated risks. If a campus hasn't implemented an enterprise risk management (ERM) approach yet, this is the time to do so. ERM is an effective process for evaluating and managing new programs and opportunities.

A new program review should include external market research testing the demand for the program. Failed programs cost too much—in dollars and institution reputation—to make these decisions lightly. If research warrants the new venture, require a pro forma financial plan with clear explanations of all assumptions, as well as appropriate stress testing and legal review of all contracts, including employment, facilities, and operations.

And, in this environment of increased consumerism, institutions should be sure to obtain documentation of accreditation required to operate the program successfully, with special attention to requirements needed to sit for external exams and licenses. Know and heed consumer protection statutes. Do they apply to the proposed courses and programs of study? Conduct a thorough review of all electronic and print marketing materials to ensure compliance with consumer protection laws, and provide appropriate disclaimers for accreditation and employment prospects of program graduates. Make sure program administrators, including admissions staff, receive training to ensure understanding of consumer protection laws.

Lessons for Your Institution

  • No institution is immune.
  • A poor response can be as damaging as the initial crisis.
  • A crisis response plan is a living document.
  • Hire expert media relations consultants now—before a crisis hits.
  • Remind the president and senior-level administrators of their roles.

New programs require time to take hold; establish thorough reviews—annual for the first five years and regularly thereafter—to test the validity of assumptions, progress towards accreditation, financial results, and strength and relationship of all partners. 

At the other end of the exciting spectrum of adding campuses and programs is review and evaluation of current academic programs. Sometimes, in this economic climate, it makes sense for faculty and administration to recommend that the board of trustees close a program. Potential claims against the institution can come from several sources when a program is closed. Staff and administrators may be terminated; as may tenured faculty. Students may allege fraud or breach of contract.

To prevent problems associated with program closure, ensure that your administration has:

  • Involved faculty in the review and decision to close a program.
  • Explored and documented alternatives to closing the program.
  • Provided a clear and concise description of the institution's financial condition to the proper spokesperson and outlets.
  • Consulted legal counsel with experience in reductions in force, if termination of employment is contemplated.
  • Used the program closure as an opportunity to restructure and reorganize.
  • Involved and trained administrators and staff involved in communicating messages to affected employees, students, and community.
  • Established provisions to help and support terminated employees as well as those remaining in positions at the university.
  • Included guidance in the employee handbook along with a workable definition of financial exigency, if faculty termination is being considered.
  • Stated in the student handbook that the institution reserves the right to terminate and reduce programs when deemed necessary.
  • Established a plan to "teach out" enrolled students by enabling them to complete their academic program before it closes, or assisting in their transfer to other institutions.
  • Recognized that closing a program is not inexpensive, but if done well, reputational damage can be minimized, and you can focus on the institution's ongoing mission.

Managing the Ultimate Risk

While broad changes have been made in the technological, legal, and regulatory environments in which institutions operate, and in the role of the business officer, many risks facing colleges and universities have remained remarkably consistent over the past 25 years. In the early days of UE, important issues included campus crime, athletics, employment liability, Title IX, sexual harassment, and alcohol. These remain as constants on UE's radar screen, although they have evolved or taken somewhat different shape, thanks to such developments as the Department of Education's new interpretation of Title IX
articulated in the 2011 "Dear Colleague Letter," headlines about concussions, and Clery Act updates.

Remember that developing a crisis response plan is only the beginning, not the endgame. Critical to successful planning and response is to practice, practice, practice.

As campus risks have evolved in number and complexity, the role of risk management on campus has undergone a quiet evolution. Twenty-five years ago, risk management was about the insurance purchase. In fact, UE was born out of the risk manager's inability to place insurance with commercial carriers in the mid-1980s. As the years passed, and the risk management function grew in sophistication, institutions initiated and expanded safety committees, then adopted full-scale ERM. The emphasis today is on engaging the entire campus community, including the board, in addressing risks and preventing bad things from happening, while encouraging entrepreneurial ventures and protecting the institution's reputation.

Given higher education's increasing risk profile and expanded risk management capability, one of the most important changes is an institution's planning and response to the wide range of crises that can occur. Risk management now lends critical leadership skills as institutions plan for, and respond to, high-level, broad-impact risks. The crisis planning and response process is the ultimate risk management process designed to protect an institution's ultimate asset: its reputation. And that is an arena in which UE has seen plenty of poor execution; institutions can, and must, do better.

As noted earlier, the environment has changed and these changes place additional pressure on an institution's ability to respond appropriately. First, more is required. With every large-scale event—9/11 tragedy, Hurricane Katrina, the Virginia Tech massacre—the federal government raises the bar for crisis readiness through the issuance of regulation, guidance, and funding. The Federal Emergency Management Agency, Department of Homeland Security, and Department of Education are all players in this space, and together now require educational institutions to regularly update plans, conduct audits, train responsible staff members, and coordinate their plans with those of local and state governments to assure a response that is well-integrated with other first-responder agencies.

Another pressure for educational institutions results from Google and the Information Age. All things are knowable (just Google it) and, in turn, the appetite for information is seemingly insatiable. Constituencies of higher education demand information instantly, often well before the facts are clear or the institution has had time to consider all possible options for responding. And finally, the compressed news cycle also adds tremendous pressure to respond. 

We've gone from the nightly network news to CNN to the Web, phone, or tablet: the 24/7/365 media machines. We used to have the luxury of 24 hours—the time it took for media outlets to update their stories—to craft a message or response. Today, the time it takes the audience to process content and react is far more relevant to the updates that an institution is expected to provide, with media analysts concluding that we need to gain comfort in responding to the five-minute news cycle.

In this environment, the popular motto, "Be prepared," is the mandate now. To ensure that colleges and universities have done all they can to prepare for the unexpected, consider the following lessons from UE's experience:

No institution is immune. As an insurer of hundreds of colleges and universities, UE knows that no one thinks that they will have a crisis or catastrophe. Sadly, we also know how wrong that kind of thinking is. UE has learned that crises-events that threaten to materially damage an institution's reputation or financial strength-are not predictable, but they are inevitable. So know that, and plan for it. Risk management is a powerful discipline, but to the extent it causes an institution to define "crises" too narrowly and focuses planners and responders on containing, mitigating, and minimizing threats, it will result in deficient plans and ad hoc responses. The best preparation is achieved by maximizing the potential threat, considering all the worst-case scenarios, and defining "crises" broadly so that an institution reacts promptly and fully to the crisis at hand.

A poor response can be as damaging as the initial crisis. For nearly 20 years, UE has advocated a "cool head, warm heart" approach to responding to incidents, meaning that institutions must care and show compassion for the people affected by a crisis. At the same time, every college and university has established a wondrous web of institutional policies and procedures that should be used to guide decision making in a crisis, to ensure a rational response that is consistent with the way the institution has defined itself and its mission.

A crisis response plan is a living document. Remember that developing a crisis response plan is only the beginning, not the endgame. Critical to successful planning and response is to practice, practice, practice. Don't overengineer the plan and underperform the practice. In fact, institutions can break tradition by spending 
80 percent of their time practicing the plan and 20 percent developing it, rather than the other way around. The majority of practice sessions should be focused on activating the plan. What types of events will precipitate plan implementation? Who makes the call? Who activates the plan? That first step is a crucial one; make sure there is clarity here.

Hire expert media relations consultants now—before a crisis hits. Crisis communication is a separate, distinct, and key consideration. When responding to a crisis, institutions need a professional to help disseminate information and meet the demand for transparency. Don't rely exclusively on internal resources. Even institutions with large public affairs offices, or senior-ranking public affairs professionals, would be well-advised to hire an expert crisis response firm. Handling a local news outlet is one thing; responding to several national news trucks parked on campus requires different skills and training. Best practice is to establish that relationship with an outside firm now, before a crisis hits. A firm that understands the institution and its culture is better positioned to respond effectively to the immediate crisis. UE has compiled a list of crisis communications firms that have expertise in serving education (for details, go to  

Remind the president and senior-level administrators of their roles. When a crisis hits, there is incredible pressure for the college or university president to take the stage and demonstrate that circumstances are under control, appropriate actions have been taken, and certain decisions have been made. If and when a president or other high-level administrator appears, he or she must convey a message that is anchored to the institution's values and demonstrate how the response is consistent with the college's mission, policies, and procedures, and not rush to be prosecutor, judge, and jury. Communications experts serving education agree that institutional messages anchored to values mean a lot in a crisis.

Emerging Trends

While we can't imagine being able to foretell the next 25 years in education, here are some areas that United Educators is watching:

  • Changing rules related to transparency and privacy; expectations on what institutions share about their operations, risks, and finances.
  • Community engagement and involvement around important issues; training students and administrators as essential participants in protecting the campus.
  • Cultural adaptations on campuses as institutions become more global—inviting more overseas students and opening programs abroad.

We know business officers are good at solving their own problems; take the dozen or so business officers who founded UE 25 years ago as an important example. So we have no doubt that in this environment of increased expectations and scrutiny, rush to implement entrepreneurial ventures, and need to protect the institution's reputation, the business officer will lead the way in helping institutions adapt, evolve, and succeed for the long term.

JANICE M. ABRAHAM is president and CEO; ROBB JONES is senior vice president and general counsel for claims management; and CONSTANCE NEARY is vice president for risk management, United Educators, Chevy Chase, Maryland.

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Looking Back

Over the past 25 years, tort liability has expanded, statutory obligations—state and federal—have increased, and the regulatory/compliance risks have grown in a host of areas that touch nearly every corner of the campus. All of these have evolved into a constellation of risks that have dramatically changed the way institutions serve students, faculty, and staff.

Compare today's environment to the way it was in 1987:

  • In loco parentis was considered "dead," students were considered to be adults, and few courts thought that institutions were responsible for guaranteeing students' safety.
  • There were no jury trials for employment discrimination cases.
  • Title IX did not apply to student-on-student sexual assault.
  • The Reagan Revolution was in its seventh year and, although the Education Department hadn't been eliminated, most thought that the United States was on a deregulation trend.
  • The Clery Act didn't exist and schools didn't devote a large part 
of their time to worrying about how to respond to crime on campus.
  • No one would have expected colleges and universities to play a large role in providing mental health counseling.
  • The term cyberliability hadn't been coined.
  • The Higher Education Act occupied 179 pages in the statute books, versus 435 today.