WHITE SULPHUR SPRINGS, W.VA.–A corporation's failure to plan for a pandemic caused by the avian flu virus could result in a shareholders' suit, a risk assessment consulting firm warned an insurance conference here.
Executives of Firestorm, based in Roswell, Ga., gave that cautionary advice yesterday during the 93rd annual Insurance Leadership Forum of the Council of Insurance Agents & Brokers.
To make their point, three Firestorm officers–Harry W. Rhulen, chairman and chief executive officer; James W. Satterfield, president and chief operating officer; and Don Huggins, chief security officer–staged a mock securities trial of a corporation for failure to plan for an outbreak of avian flu virus, clinically named the H5N1 strain.
They chose the avian flu, said Mr. Satterfield, because it is a threat that has not gone away, but has dropped off the radar screen of many corporations as a potential risk.
"It can become a catastrophe [for business] and it is a well-known threat that is growing everyday," he said. He added that it is also a threat that many do not realize still exists, and few are planning to deal with should it develop.
Mr. Huggins presented statistics that indicate that in 1918 a pandemic produced numerous deaths–between 20- and 40 million estimated worldwide–and illness that crippled companies and may have altered the course of history.
In part, Mr. Huggins said, the pandemic outbreak in Europe may have been responsible for the German army's inability to field an adequate number of troops during World War I, paving the way for the eventual defeat of Germany.
Evidence indicates that a pandemic occurs once during a 40-year period, and it has been 38 years since the last one, Mr. Satterfield added. But in 1918, the flu took months to spread.
Advancements in technology, making travel easier, could mean an individual who is infected with the virus in Hong Kong could spread the disease globally to the United States within 18 hours, said Mr. Huggins.
A global pandemic outbreak was avoided in 1997 by the government in Hong Kong after three individuals were discovered with the flu and the nation quickly quarantined those people and infected animals, Mr. Huggins noted.
Using historical data from 1918, the executives pointed out that the result of an onslaught of the avian flu could mean a loss of 40 percent of a company's workforce, which would translate into a staggering increase in disability and severance payments by a business.
Added to that, they said corporations could see losses in worker productivity that do them serious harm.
The audience listened during the mock trial to a cross examination of an executive concerning loss in productivity and the increased effect of insurance costs on the company's bottom line. Testimony revealed that the corporation saw a precipitous drop in its stock price.
Under the mock trial scenario, because the company failed to plan for this disaster, it opened the door to a suit and, for insurers, directors and officers claims.
Mr. Rhulen said the bigger picture is that in order to avoid litigation, companies need to discuss the potential for disasters and, at the least, show in board meeting minutes that there was some discussion of the problem.
"You have to be able to show that you exercised some business judgment on the issue," he said.
Mr. Satterfield said companies are not planning for disasters, or at least discussing the potential for a catastrophic interruption to their business and making preparations for their companies in a time of crisis.
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