MEMORANDUM by pengxuebo


                                 UNIVERSITY OF HAWAI‘I



                                          October 6, 2006

TO:            Vice Chancellors/Directors of Administrative Services
                           Milton Higa          Steven Nakasone
                           Kenneth Kato                Gary Nitta
                           Mark Lane            David Tamanaha
                           Michael Leialoha

SUBJECT:       Risk Management

In trying to gather information required in the “Guidelines for Standard III.D, Financial
Resources Review,” I received the following from Kari Wilhelm, Director of Risk
Management, addressing this issue.

        The best way to answer your question is to provide a narrative explaining both
        the State's insurance program and the University's risk management program
        because the community colleges are covered under both.

        The State of Hawaii Risk Management Office purchases property, general
        liability and crime insurance. It also provides self-insured "no-fault" auto
        coverage. The State's property insurance covers perils such as windstorm,
        flood, earthquake and terrorism. The State pays the deductible for the property
        insurance. All State agencies, including the University and all the community
        colleges are covered by these policies.

        The State has liability insurance that covers bodily injury and property damage,
        personal and advertising injury, products and completed operations, and
        employment practices. However, the State's liability coverage has a $4 million
        self-insured retention. If the University were to make a claim under this policy,
        the $4 million SIR would be the University's responsibility. The State will not pay
        the SIR on UH's behalf. Up until September 1, 2006, the University was self-
        insured from the $4 million SIR.

        The State's auto coverage provides the statutory requirements for automobiles.
        UH pays the State for this coverage for the fleet vehicles. Collision and

           2327 DOLE ST REET • HONOLULU, HAW AI'I 96822 • TEL (808) 956 -6023 • FAX ( 808) 956 -3763


comprehensive coverage may be purchased at an additional cost. UH
purchases this extra coverage. All UH vehicles, including the vehicles assigned
to the community colleges are covered by the State's auto policy. The State's
policy will cover auto liability claims up to $20,000 or over $4 million. As with the
general liability coverage, the University was self-insured for the gap between
$20,000 and $4 million prior to September 1, 2006.

The Risk Management Special Fund (HRS 304-6.2) was created in part, to
address these self-insurance obligations. The RMSF is funded through
assessments of all 10 UH campuses. The assessment is based upon the
numbers of students, employees, autos and stadium/theater capacity at each
campus. The goal is to have sufficient funds to meet all legal expenses, pay
settlements and judgments, pay the premiums for systemwide insurance and to
pay the SIR for the State's and University's policies. There is currently
approximately $2.2 million in the RMSF. We have not yet assessed the
campuses for FY 06-07.

The RMSF is used for the benefit of all campuses. We do not have a separate
fund for the community colleges alone. The goal is to have a $3 million reserve
after 5 years (by 2008). We are on track to meet that goal.

Effective September 1, 2006, the entire University (including all the community
colleges) is covered by a general liability policy and an excess auto liability
policy. The University purchased these policies from Lexington. The general
liability policy covers the torts of University employees that occur within the
course and scope of employment. It covers premises liability claims, failure to
provide security, law enforcement liability, limited coverage for students involved
in off-campus internships, and incidental medical malpractice at the health
clinics. We have also purchased an excess auto liability policy. The policy
limits for the GL coverage is $5 million, with a $50,000 self-insured retention.
With this coverage plus the State's GL policy, UH has coverage up to $10
million. The limits on the excess auto insurance policy is also $5 million.

The Office of Risk Management also purchases Educators Legal Liability,
Employment Practices Liability and Directors and Officer coverage. These
policies cover the entire University system, including all the community colleges.
Educators Legal Liability covers claims such as failure to education, negligent
instruction, defects in tenure process, improper academic guidance or
counseling, FERPA violations or failure to grant due process. Employment
Practices Liability covers all employees for claims such as
harassment, employment related defamation, wrongful discipline, negligent
evaluation, employment discrimination, wrongful termination, and civil rights
violations. Directors & Officers liability covers any error, misstatement,
misleading statement, act, omission, neglect or breach of duty by a director or
officer of the University. The SIR for these policies is $250,000. The SIR is
paid by the RMSF.

      We are currently working with an actuary to determine whether any changes
      should be made to the assessment. Preliminarily, the actuary has confirmed that
      the current method of assessment is valid.

      The University does not have a written policy regarding the Risk Management
      Special Fund because I am still working on it.

Please use this information to address the risk management questions.

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