Emerging Liability Issues for Healthcare Executives Medical Professional Liability Symposium

1. Healthcare Executive Liability Emerging Liability Issues for Healthcare Executives Medical Professional Liability Symposium March 11 – 12, 2003 Chicago, IL Moderator: James M. Fasone, ARM Senior Vice President

2. DISTINGUISHED PANELISTS • Susan Huntington, PA, JD, Senior Vice President Chubb Specialty Insurance • Robert K. Neiman, Esq., Partner, Litigation Sachnoff & Weaver • Michael Flanagan, Managing Director, Technology & Finance- Silicon Insurance

3. AGENDA • Existing Executive / Board Challenges • New Executive / Board Challenges • New Liability Exposures • Corporate Compliance Plans • Defending Employment Litigation • Corporate Governance • HIPPA • Cyberliability / Information Security

4. Existing Executive/Board Challenges

5. Employment Liability • Class Action Litigation • Wage/Hour Litigation • Physician/Staff Member Lawsuits • Unionization/Labor Issues

6. Sources of Revenue Strategic Alliances/Partnerships Solvency or Cash Flow Issues Financial Challenges

7. Legacy exposure New ventures or revenue sources Corporate Duties Fraud and Abuse Exposures

8. New Executive/Board Challenges

9. Selecting/Retaining Board Members McKinsey & Company recently surveyed nearly 2000 directors and found that 25 percent had declined or left a board seat in the past year due to concerns about legal liability. - USA Today, 7/31/02 “Boards Demand More Time, Vigilance, Accountability

10. Selecting/Retaining Board Members • Impact of Enron • Need for Independence / No Potential Conflict of Interest • Insurance Coverage Available or Adequate

11. Selecting/Retaining Board Members “ President Bush said today that he is ready to send corporate CEOs to prison and to the tough ones. You know, the ones that only have nine golf holes and not the full eighteen.”- Jay Leno

12. Risk Transfer Availability • Mold • Small Pox Vaccines • Terrorism • HIPAA • Cybersecurity

13. The biggest concern for entrepreneurs and small business enterprises the past three months is insurance- both its cost and its availability. - National Federation of Independent Business

14. Carrier Solvency Issues • Price Shopping Has Its Consequences • Potential D&O Exposures • Contractual Issues - Malpractice

15. “ We do not deal much in facts when we are contemplating ourselves.” – Mark Twain Corporate Compliance Plans

16. Committee Meetings Implementation of Compliance Objectives Outside/Independent Audit Issues Investigation of Compliance Issues Corporate Compliance Plans

17. Harassment & Discrimination Policies and Procedures Employee Training/Education Proper Investigation of Employment Matters Board Accessibility to HR Defending Employment Litigation

18. “ Why have intelligent and decent directors failed so miserably? The answer lies not in inadequate laws- it’s always been clear that directors are obligated to represent the interests of shareholders- but rather what I’d call “boardroom atmosphere.” - Warren Buffet: 2003 Letter to Shareholders Corporate Governance and Director Scrutiny

19. Back to Basics: D/O Fiduciary Duties Due Diligence in Executive Hiring Independence of Third Parties Outside Auditor Scrutiny Executive/Board Open Door Policy Corporate Governance and Director Scrutiny

20. “ The current cry is for “independent” directors. It is certainly true that it is desirable to have directors who think and speak independently- but they must also be business-savvy, interested and shareholder oriented”. - Warren Buffet; 1993 Letter to Shareholders Corporate Governance and Director Scrutiny

21. HIPPA Policy and Training HIPPA Compliance Officer Appropriate Business Agreements Firewall Protection HIPPA Legislation

22. How do you protect yourself against a digital Pearl Harbor? 21st Century Cyber Perils

23. Virus Theft of Intellectual Property Security Privacy Piracy Downstream Liability 21st Century Cyber Perils

24. Equation: Threat x Vulnerability x Cost = Total Risk Net Result: Cyber Exposure & Limits Analysis QUALITATIVE ANALYSIS“Secret Sauce”

25. Exposure Analysis Market Capitalization 1.06 Billion Annual Revenue 919 Million On-line Revenue 103 Million Intangible Assets 47 Million Patents 185 Employees 4,757 I.T. Employees 200 Sample Risk Quantification Factorsfor Healthcare Institution

26. Risk Control Network Size 4,376 Machines Websites 50 Subsidiaries 23 I.T. Investment (00-01) $120 Million I.T. Security Investment $5 Million I.T. Security Employees 3 Software Applications Microsoft Sample Risk Quantification Factors for Healthcare Institution

27. Loss Quantification Virus Incidents 5,000 Hacking Incidents 50 Hacking Incidents Resulting In Financial Loss 21 hacking Incidents Resulting In Brand Value Loss 10 Intellectual Property Theft Incidents 65 Historical Benchmarking of Limits $50mm Sample Risk Quantification Factors for Healthcare Institution

28. 3 LEVELS OF VENDOR PROTECTION Industry Best Practices (ISO17799 Certification) Contractual Risk Transfer Creation of MSN Network Insurance Product 360o CyberRisk Management

29. INFRINGEMENT AWARDSExcess of $1 Million Millions 30 25 20 15 10 5 1975 1980 1985 1990 1995 2000 Year

30. QUESTIONS & ANSWERS