Picture Courtesy Animal House
The Nationals control the local chapters through mandatory insurance coverage only available to the National which comes from a National owned insurance trust or wholly owned broker. The entire structure is controlled by the Nationals. All the insurance premiums are paid by the undergraduate men to fraternity owned entities at rates that provide substantial excess income with which to pay extensive staffs.
Separate corporations are present to own the real estate. This is to avoid liability and take the fraudulent position that the corporations merely are landlords, not alumni controlled and owned supervisory entities subject to the all-fraternity entity risk management code.
The Nationals are the only ones with actual insurance. This is structured so that the undergrads and chapters are only covered by minimal coverage on an eroding policy or coverage is withdrawn the moment notice of any risk management violation is received. The National however, is covered by substantial funded self-insured retention, two million general liability, and four million or more in excess liability coverage. Again, this is fully paid for by the undergraduates who receive next to no benefit. The intent is to leave the poor victim of fraternity atrocities with no or minimal coverage, or worse to capture the parents homeowners policy.
The Nationals employ chapter consultants to maintain order, this is their inspection force. What we really have is basically a franchise, with the National the franchisor and the undergrads franchisees. Next, there is a volunteer network of alumni in place ranging from the chapter to the region to the National. There is a uniform risk management code regarding alcohol and parties.
Then there are the two fraternity trade associations tying this all together, the Fraternity Executives Association (FEA trade association for the management) and the North American Interfraternity Conference (NIC trade association for most of the member fraternities). A third organization, Association of Fraternity Advisors (AFA) consists of the “Greek Life” staff at basically every college or university in the country which mandates insurance and the universal risk management code be in place at every campus.
Background on the ” Risk Management” Enforcement and Sanctions in the “Fraternity Industry”
The Fraternity “Industry” has self-imposed top-down regulation from the top to the bottom. The Industry barely survived the Sixties and Seventies. Sex, drugs and rock & roll became the theme on campus. It was not clear where fraternities fit.
The Vietnam War had distanced the mainline fraternities from the new wide-open campus culture. The national drinking age was 18 for a few years, single gender housing in the fraternities was not preferable to the freedom of apartment living. Fraternity housing was viewed as restrictive rule following living and was not preferred. Fraternity houses were going vacant and being sold at absurdly low prices as co-ops and other group living facilities.
The “National” organization of the fraternity was pretty much non-existent. The real estate of the typical local chapter was owned by local alumni. The average chapter
was over 75 years old with significant alumni to support it. Insurance was obtainable for a nominal amount per year. The national organization consisted of an executive secretary, usually a very senior alumnus, and perhaps a couple of chapter consultants who would travel the Greek world, visiting chapters while cursorily checking in with the undergraduates and alumni.
The Nationals only sources of revenue were the undergraduate dues, voluntary alumni dues and sale of pins and other membership material. The fraternities were competing on campus to lower costs and attract more members than their competition. The fraternities were basically indistinguishable from each other, the only difference was cost.
However, in 1979 the film Animal House brought instant change and attraction back to the fraternity world for all the wrong reasons. Suddenly, fraternities became beacons for irresponsible young undergraduates. No longer were fraternities looked at as the square guys with the weird rituals; no more Revenge of the Nerds, the new legacy was wide open, Old School and Neighbors were the new exemplars of fraternity life!.
The National chapter, technically the home office, was caught totally by surprise. Animal House, plus short time nation-wide 18-year-old drinking, brought fraternities to a new low. At this point insurance was something that the national bought for a couple of grand and the more affluent chapters with alumni associations would also obtain for a little less.
Lawsuits against the National were unheard of. Lawsuits if they happened would go against the chapter or individuals therein. The situation changed, and quickly. When I stepped down as Executive Director of Delta Kappa Epsilon in 2009, our insurance premium was over $175,000 with an additional $25,000 self-insured retention and had reached over $300,000 before we became a member of FRMT described in Chapter 2.
In 1987, at a Fraternity Executives Association (FEA) Annual Meeting that I attended, we as a body learned that Maurice Littlefield, the Exec of Sigma Nu, was being named in a hazing suit at a local chapter that included, the Chapter, the National, and Mr. Littlefield and his wife personally. The meeting was chaired by Durward Owen, the Executive Director of Pi Kappa Phi who, together with Ned Kirklin, an insurance broker, was working on a solution to risk management problems.
Following this meeting a system wide risk management code known as FIPG was developed. As put in the FIPG Manual:
“With parties and behavior out of control, it was only a matter of time before people began seeking compensation for injuries or deaths, not to mention the response from municipal authorities, college and university administrators, neighbors and parents. Tort law in the United States was continuing to shift to the plaintiff’s side of the courtroom. Comparative negligence—the concept that a plaintiff could be negligent and still pursue recourse against a defendant—was becoming the standard.
Lawsuits… began to increase rapidly. By 1986, men’s national fraternities were ranked as the sixth worst risk in the insurance industry, and number seven was hazardous waste disposal companies. Insurance companies responded quickly. The cost of policies offered to Greek letter organizations began to soar, while the coverage available plummeted. Many underwriters simply dropped the policies and walked away from the Greek business.
One of the editors of this manual recalls a meeting in the spring of 1989 with representatives of the large liability insurance company that insured his fraternity. He had been appointed CEO late in 1988 and had little grasp of the nuances of the insurance industry. The meeting had been called by representatives of the company after three lawsuits were filed in rapid succession that involved three different chapters.
When your editor naively suggested that an increase in the premium or the deductible might help the situation, he was informed that the representatives were not there to negotiate terms. They were there to inform a long-time client (the fraternity) that the policy would be cancelled as of the following June.