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Outside Magazine July 2002

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Risk (Cont.)


	Illustration by Dan Winters and Gary Tanhauser

NINE MONTHS LATER, RO'S WIDOW, 31-year-old Hiroko Ro, sued Lowe, Creamer, and San Juan Mountain Guides, the sponsor of Lowe's seminar, charging gross negligence and asking for general and special damages totaling $10 million. The case—one of a handful of sizable outdoor liability claims that go to trial in the United States in a typical year—will get its first hearing in late June, at the federal district court in Denver.

Ro v. San Juan Mountain Guides is fascinating on a couple of levels. Like any large liability suit, Hiroko Ro's courtroom claim could have immediate, tangible reverberations if she wins. Colorado climbers are worried about the future of the Ouray Ice Park, a unique, volunteer-run ice-climbing area that charges no fees and operates on the patchwork of U.S. Forest Service, county, city, and private land that is Uncompahgre Gorge. Though a multimillion-dollar

Insurers are running for cover. "Up to 70% of the carriers once involved in outdoor recreation coverage are either no longer involved in it or are reducing their exposure," says one insurance executive.

verdict wouldn't force the park to close—it's operated by Ouray County and is protected under the Colorado Recreational Use statute, which limits the park's liability to $400,000 in case of a lawsuit—it could adversely affect the 35 guides who operate there.

"A favorable judgment for Hiroko Ro would make their insurance premiums skyrocket," says Ouray Ice Park president Erin Eddy, 33. "And if they go up, it might stop them from guiding in our park."

If Ro prevails, the impact of her suit could be felt well beyond Colorado's borders, in large part because the sheer size of the award she's seeking dwarfs any recent outdoor liability decisions, but also because it has arrived at a time when outdoor guides are grappling with an equally serious problem: their difficulty in obtaining affordable liability insurance at all.

People like Jeff Lowe and companies like San Juan Mountain Guides don't have $10 million to pay Hiroko Ro, so by necessity they carry liability insurance in the event of a future lawsuit. Both are covered by Colorado Western Insurance Company in Wheat Ridge. In normal times, when the economy is on an even keel, a company like Colorado Western is not averse to insuring high-risk activities because it's making money in two different ways.

The most familiar is the combined ratio, or "float"—the profitable difference between premiums taken in and benefits paid out. Less obvious, but more important, is the financial power of the stock market. During the bull market of the 1990s, insurers lowered their premiums and were more eager to cover sketchy ventures in order to increase the amount of investment capital they hauled in. Even if they collected, say, $100 in premiums and paid out $105 in benefits, their investments were sometimes returning a booming 25 percent—$25 on that $100 premium—so they realized a 20 percent profit.

The events of September 11 helped put an end to all that, at least for the foreseeable future. An insurance industry already experiencing acid reflux with every drop of the Dow went on an all-Tums diet when the World Trade Center fell. After peaking at $336.3 billion in 1999, the industry saw its net worth fall to $289.6 billion by the end of 2001, according to the Insurance Information Institute. The insurers who backed the WTC spread their risk through a worldwide network of reinsurers, so nearly every insurance company will pay a little piece of the estimated $50 to $70 billion that add up to the largest property claim in history.

The upshot is a stingy insurance market, which immediately affects high-risk ventures. The last time outdoor companies encountered such a harsh climate was in the mid-1980s, when a similar mix of liability fright and stock-market droop threatened the health of the adventure industry. By 1986, a spate of liability-run-amok court judgments—like the $650,000 paid to a suicidal man who sued the New York City Transit Authority because the subway train he jumped in front of failed to slow down—had so spooked insurers that some companies couldn't find liability coverage at any price. Then came Black Tuesday—October 19, 1987—when the stock market tanked, deepening the crisis.

"When times were good, a number of insurers came in offering cut-rate policies," recalls Exum Mountain Guides partner Peter Lev, 62. "When times got tough, they folded and left a lot of folks without insurance."

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