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

2. 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. 3 Existing Executive / Board Challenges Existing Executive / Board Challenges New Executive / Board Challenges New Executive / Board Challenges New Liability Exposures New Liability Exposures Corporate Compliance Plans Corporate Compliance Plans Defending Employment Litigation Defending Employment Litigation Corporate Governance Corporate Governance HIPPA HIPPA Cyberliability / Information Security Cyberliability / Information Security Existing Executive / Board Challenges Existing Executive / Board Challenges New Executive / Board Challenges New Executive / Board Challenges New Liability Exposures New Liability Exposures Corporate Compliance Plans Corporate Compliance Plans Defending Employment Litigation Defending Employment Litigation Corporate Governance Corporate Governance HIPPA HIPPA Cyberliability / Information Security Cyberliability / Information Security AGENDA

4. 4 Existing Executive/Board Challenges

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

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

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

8. 8 New Executive/Board Challenges

9. 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. 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 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. 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. 10 Selecting/Retaining Board Members Impact of Enron Impact of Enron Need for Independence / No Potential Conflict of Interest Need for Independence / No Potential Conflict of Interest Insurance Coverage Available or Adequate Insurance Coverage Available or Adequate Impact of Enron Impact of Enron Need for Independence / No Potential Conflict of Interest Need for Independence / No Potential Conflict of Interest Insurance Coverage Available or Adequate Insurance Coverage Available or Adequate

11. 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. 12 Risk Transfer Availability Mold Mold Small Pox Vaccines Small Pox Vaccines Terrorism Terrorism HIPAA HIPAA Cybersecurity Cybersecurity Mold Mold Small Pox Vaccines Small Pox Vaccines Terrorism Terrorism HIPAA HIPAA Cybersecurity Cybersecurity

13. 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 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. 14 Carrier Solvency Issues Price Shopping Has Its Consequences Price Shopping Has Its Consequences Potential D&O Exposures Potential D&O Exposures Contractual Issues - Malpractice Contractual Issues - Malpractice Price Shopping Has Its Consequences Price Shopping Has Its Consequences Potential D&O Exposures Potential D&O Exposures Contractual Issues - Malpractice Contractual Issues - Malpractice

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

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

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

18. 18 Corporate Governance and Director Scrutiny “ 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

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

20. 20 Corporate Governance and Director Scrutiny “ 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

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

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

23. 23 1. 1.Virus 2. 2.Theft of Intellectual Property 3. 3.Security 4. 4.Privacy 5. 5.Piracy 6. 6.Downstream Liability 1. 1.Virus 2. 2.Theft of Intellectual Property 3. 3.Security 4. 4.Privacy 5. 5.Piracy 6. 6.Downstream Liability 21 st Century Cyber Perils

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

25. 25 Exposure Analysis   Market Capitalization1.06 Billion   Annual Revenue919 Million   On-line Revenue103 Million   Intangible Assets 47 Million   Patents185   Employees 4,757   I.T. Employees200 Exposure Analysis   Market Capitalization1.06 Billion   Annual Revenue919 Million   On-line Revenue103 Million   Intangible Assets 47 Million   Patents185   Employees 4,757   I.T. Employees200 Sample Risk Quantification Factors for Healthcare Institution

26. 26 Risk Control   Network Size4,376 Machines   Websites50   Subsidiaries23   I.T. Investment (00-01)$120 Million   I.T. Security Investment$5 Million   I.T. Security Employees3   Software ApplicationsMicrosoft Risk Control   Network Size4,376 Machines   Websites50   Subsidiaries23   I.T. Investment (00-01)$120 Million   I.T. Security Investment$5 Million   I.T. Security Employees3   Software ApplicationsMicrosoft Sample Risk Quantification Factors for Healthcare Institution

27. 27 Loss Quantification   Virus Incidents5,000   Hacking Incidents50   Hacking Incidents Resulting In Financial Loss21   hacking Incidents Resulting In Brand Value Loss10   Intellectual Property Theft Incidents65   Historical Benchmarking of Limits$50mm Loss Quantification   Virus Incidents5,000   Hacking Incidents50   Hacking Incidents Resulting In Financial Loss21   hacking Incidents Resulting In Brand Value Loss10   Intellectual Property Theft Incidents65   Historical Benchmarking of Limits$50mm Sample Risk Quantification Factors for Healthcare Institution

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

29. 29 INFRINGEMENT AWARDS Excess of $1 Million 197519801985199019952000 5 10 15 20 25 30 Year Millions

30. 30 QUESTIONS & ANSWERS