Resources

Conflict Arises for Assisting In-House Counsel

Tue, 10 Oct 2023 18:45:28 GMT

The Fifth Circuit revived legal malpractice claims lodged by an aerospace firm that complained its outside counsel assisted two of its in-house attorneys with gender discrimination claims. The company counterclaimed in the suit filed by its former attorney and asserted third-party claims against its outside counsel and the firm’s partner for conspiracy to breach, and breach of, their fiduciary duties, unjust enrichment and conversion. While not all of the claims survived, the court overrode summary judgment on the claims regarding conduct related to another in-house attorney and the plaintiff. It also allowed the company’s claims for misappropriation of confidential client documents to advance.

Policy Exclusion on Damages Also Gets Carrier Off the Hook

Tue, 10 Oct 2023 18:44:16 GMT

After a jury awarded a former client damages of nearly $1.5 million for conversion, civil theft, and prejudgment interest against her attorney, his professional liability insurer filed a declaratory judgment action seeking a ruling it was not obligated to defend or indemnify him. The Second Circuit affirmed the district court’s determination the carrier had no duty to defend and the damages awarded in the underlying action were not covered by the policy. The client’s lawsuit sought to recover disputed legal fees the attorney had transferred from an escrow account to a personal account in his and his wife’s names while the dispute over the legal fees was on appeal in state court. Thus the client was not seeking damages in connection with the performance of legal services. Another wrinkle, the claim was subject to a policy exclusion providing that damages do not include “punitive or exemplary amounts” or the “multiplied portion of multiplied awards.”

Employer Email Ban Aligns with Federal Law

Tue, 10 Oct 2023 18:43:18 GMT

Reversing its 2014 decision in Purple Communications, the National Labor Relations Board (NLRB) ruled an employer’s policy banning the use of its email system for non-business purposes did not violate federal labor law. The NLRB held “employees have no statutory right to use employer equipment, including IT resources for [NLRA] section 7 purposes.” Notwithstanding this decision, it remains unlawful for employers to maintain polices for work email that treat union discussions differently than other non-work communications. The NLRB highlighted the exception that would allow workers to use company email for union business when it is “the only reasonable means for employees to communicate with one another.”

Equitable Extension Not Always Available

Tue, 10 Oct 2023 18:42:03 GMT

An auto dealership sought relief from its former executive alleging he had been a minority owner of the dealership, sold his interest back to the dealership and the repurchase agreement contained an anti-raiding restrictive covenant prohibiting him from hiring or soliciting the dealership's employees or encouraging them to leave which he breached by hiring three employees. The court found the former executive breached the covenant and extended the length of the restrictive covenant by one year. On appeal, in a case of first impression, the court held it would exercise its discretion to consider the appeal despite the threat of mootness. While the anti-raiding covenant was more appropriately deemed to arise within the sale of the business rather than the employment context, the dealership's interest in preventing its former executive from raiding its key employees was reasonable thus the anti-raiding covenant was enforceable. Nevertheless, the trial court abused its discretion by extending the length of the covenant. Although the appeals court found awarding such equitable relief may be proper; it is only proper if the party seeking the expansion has demonstrated that monetary damages would provide inadequate relief.

Former Employer Loses Bid to Compel Arbitration

Tue, 10 Oct 2023 18:40:59 GMT

A blind employee sued her former employer for disability discrimination under the Missouri Human Rights Act. She claimed her employer constructively discharged her by refusing her request for a reasonable accommodation allowing her service dog to accompany her to work. The former employer unsuccessfully moved to compel arbitration and stay the litigation. Considering the question for the first time, the Missouri Supreme Court held there was nothing to suggest the trial court erred in finding the former employee did not assent to the arbitration agreement that was contained in hiring paperwork. Abrogating prior case law, the court determined there was not clear and unmistakable evidence of the existence of the former employee's agreement to any delegation provision. Consequently, the lower court could not delegate the matter to an arbitrator whose existence depended upon the agreement.

High Court Sends Stock Drop Case Back for Further Consideration

Tue, 10 Oct 2023 18:39:17 GMT

Participants in an employee stock ownership plan (ESOP) filed a putative class action alleging that plan fiduciaries breached their duties of prudence and loyalty under the Employee Retirement Income Security Act (ERISA) in handling inside information, also known as a stock drop suit. The Southern District of New York dismissed the complaint for failure to state a claim and the Second Circuit reversed handing a rare victory over 401(k) plan sponsors to participants. The U.S. Supreme Court declined to act on the case vacating and remanding the appeals court ruling. In sending it back to the Second Circuit, the Court held the parties' briefing focused primarily on matters the Court of Appeals had not considered. The Supreme Court was asked to determine if the more-harm-than-good standard "can be satisfied by generalized allegations that the harm of an inevitable disclosure of an alleged fraud generally increases over time," the per curiam opinion said.

Litigation Funding Puts Attorneys in Hot Water

Tue, 10 Oct 2023 18:23:12 GMT

A client sued his lawyers alleging legal malpractice, breach of contract and seeking an accounting in conjunction with their engagement to collect no-fault insurance proceeds on his behalf. He complained the law firm commenced various collection actions and, after collecting those proceeds, remitted them to three different companies that had agreed to advance money in anticipation of reimbursement from the no-fault proceeds. The law firm sought to uphold dismissal of the claims based on various releases signed by the plaintiff related to the payment of funds to the agents. However, the appellate court reinstated the claims for legal malpractice and accounting because the defendants did not establish the releases unambiguously encompassed these causes of action.

Federal Law Doesn’t Preempt State Cannabis Law

Tue, 10 Oct 2023 18:19:39 GMT

An employee experienced a severe back injury at work. While his workers’ compensation claim was pending he began to treat his injuries with marijuana which was available through New Jersey’s Compassionate Use Medical Marijuana Act (MMA). At trial the employer stipulated the employee experienced a compensable injury, but left the court to consider whether the employee was entitled to reimbursement for costs associated with using medical marijuana. The trial court found the costs reimbursable as related to his work injuries. Deciding as a matter of first impression, the Appellate court ruled an employee’s costs to use medical marijuana to treat his chronic pain caused by an on-the-job injury can be legally reimbursed by his employer despite federal laws against cannabis which do not preempt the MMA.

Court Defines “Direct Physical Loss”

Tue, 10 Oct 2023 18:17:45 GMT

A Maryland federal district court ruled an insurer must indemnify its insured under its businessowner’s policy for costs incurred in a ransomware attack. The insured’s server stores art, logos and designs, graphic arts, shop management, embroidery and webstore management software. A ransomware attack locked down access to its art files and other data contained on the server, and nearly all of its software. After paying the ransom in bitcoin, the hacker still refused to release the software and data. The company hired a security company to replace and reinstall the software and install protective software which slowed the system and resulted in an efficiency loss. Its art files were permanently lost. The insurer argued there was no coverage because the insured only lost data, an intangible asset, and could still use its computer system to operate its business, thus it did not experience “direct physical loss” as covered by the policy. The court rejected this argument holding the plain language of the policy contemplates that data and software are covered and can experience “direct physical loss or damage.”

Listing of Occupations Key to Court’s Decision

Tue, 10 Oct 2023 18:16:53 GMT

A municipal government brought a declaratory judgment alleging its insurer had defense and indemnity obligations under commercial general liability (CGL), linebacker and umbrella insurance policies for federal court judgments entered against the county in civil rights litigation relating to law enforcement services in criminal matters. The underlying case involved litigation filed by six wrongfully convicted individuals in a rape and murder case. As matters of first impression the Nebraska Supreme Court held the policies' professional services or professional liability exclusions did not apply to acts of law enforcement, and the exclusions did not apply to acts of sheriff's deputy who was also a psychologist. Law enforcement was not on the list of professions, but instead appears as one of five specified categories of occupations under the occupation liability exclusions. Additionally, the fact that the umbrella policy lists law enforcement as an occupation rather than a profession was particularly compelling to the court.

Delaware Court Sets New Precedent

Tue, 10 Oct 2023 18:15:27 GMT

Six excess insurers sought declaratory judgment to disclaim coverage for two settlements arising from alleged breaches of D&O policies by an insured corporation and its director. The Delaware Superior Court initially determined both settlements constituted “Loss” under the policies, but deferred the issues relating to subrogation, allocation and exhaustion. The court later heard argument on the allocation standard that applies to the policies. The insured director advocated adoption of the “larger settlement rule” to determine how any indemnifiable loss under the settlements should be allocated between covered and uncovered loss. The carriers countered that this rule did not apply because the allocation provision in the primary policy expressly required an allocation between covered and uncovered loss.

Tackling this quandary for the first time, the Delaware Superior Court held the “larger settlement rule” governs where, (i) a settlement resolves, at least in part, insured claims, (ii) the parties cannot agree as to the allocation of amounts attributable to covered versus non-covered claims, and (iii) the policy’s allocation provision does not prescribe a specific allocation method.

Women and Minorities Protected by Ban

Tue, 10 Oct 2023 18:14:00 GMT

A local chamber of commerce sued the city alleging an ordinance prohibiting employers from inquiring about a prospective employee's wage history and relying on wage history to determine salary violated the employers' First Amendment free speech rights. The trial court issued an injunction in favor of the employers, but the Third Circuit rolled it back. After hearing testimony, the appellate court held the city’s reasons for restricting commercial speech in this way justify the salary history ban. Research has shown salary history inquiries contribute to the suppression of the wage potential for women and minority applicants. Now the law in Philadelphia, hailed by diversity and inclusion advocates, aligns with New York, New Jersey and California.

Court Keeps Lid on Plaintiffs’ Recoveries

Tue, 10 Oct 2023 18:10:17 GMT

During a protracted legal battle, the family of a man who died in a devastating bus crash fought to lift the $750,000 state cap on noneconomic damages. They asserted the amount of money awarded in a wrongful death case should not be dictated by a law but rather by a jury that hears the evidence and testimony. The Tennessee Supreme Court accepted certification of questions of law regarding the constitutionality of Tennessee’s statutory cap on noneconomic damages. The Court ruled the law does not violate the state constitution, the cap is consistent with prior case law that upheld statutes limiting remedies available at common law and statutes abolishing common law causes of action.

Plaintiffs Win Battle in High Court on Limitations Issue

Tue, 10 Oct 2023 18:08:49 GMT

A retirement plan participant sued his former employer alleging the employer invested in multiple alternative investments in violation of the Employee Retirement Income Security Act (ERISA). The employer argued the Act’s three-year statute of limitations barred the suit because the investments were included in disclosures to the employees. The employee countered he could not have had actual knowledge because he did not recall reviewing the key disclosures. After ping-ponging up to the nation’s highest court, the justices held that to meet the “actual knowledge” requirement triggering ERISA's three-year limitations period a plaintiff must in fact have become aware of the information, and so a plaintiff does not necessarily have “actual knowledge” of information contained in disclosures that he receives but does not read or cannot recall reading. Employers may close this loophole by providing electronic disclosures and requiring plan participant acknowledgement. A potential bright spot for employers—having to establish disclosure may destroy the common questions of law and fact required for class certification.

Insured’s Knowledge and Consent Key to Decision

Tue, 10 Oct 2023 18:01:47 GMT

The VP of Finance/CFO of a company wired monies totaling over a million dollars purportedly to its Russian supplier but fell victim to a fraud scam. The company’s insurer, AXIS, provided fidelity/crime coverage. The company sought coverage under computer transfer fraud (policy limits of $1,000,000) or funds transfer fraud (policy limits of $1,000,000). The insurer determined the loss was covered only under social engineering fraud and tendered the policy limits of $100,000. The federal district court in Mississippi agreed with the carrier. It found the fraudulent email did not manipulate the insured’s computer system to automatically transfer the funds. Even if the direct causation requirement was met, there would be no coverage because the company had knowledge of and consented to the transfer, the money was not obtained through a hack. In fact three employees had approved the wire transfers. Similarly, the court found the “no knowledge or consent” requirement was not met to implicate the funds transfer fraud coverage. This case offers a different perspective on these coverages for cyber crime than other courts.

D.C. Circuit Upends Med Mal Jurisprudence

Tue, 10 Oct 2023 17:58:50 GMT

A patient sued hospital operators alleging they violated the D.C. Consumer Protection Procedures Act (CPPA) by making a material misrepresentation of the services provided when they failed to inform her that a first-year resident, not the board-certified surgeon she selected, would be performing her surgery. The court sent reverberations through the annals of medical malpractice jurisprudence when it reversed summary judgment in favor of the hospital. It held the burden of proof for a consumer protection claim against health care providers is the same as in a general consumer protection claim. The court unequivocally rejected the argument that a consumer must show an entrepreneurial nexus or motive to pursue a consumer protection claim against a health care provider. It found a CPPA claim against medical providers did not blur the line between CPPA claims and traditional medical malpractice claims. This decision exposes medical defendants to liability under the CPPA for treble damages and attorney’s fees.

Settling Employee Still “Aggrieved”

Tue, 10 Oct 2023 17:56:37 GMT

An employee filed a complaint against his former employer alleging individual and class claims for wage and hour violations and seeking civil penalties under Labor Code Private Attorneys General Act (PAGA). The employee settled the individual claims and the former employer sought summary adjudication arguing the employee was no longer an “aggrieved employee” and lacked standing to sue under PAGA. On appeal before the California high court was this question of first impression: Do employees lose standing to pursue a claim under PAGA if they settle and dismiss their individual claims for Labor Code violations? The Court said “no” and held the employee was an “aggrieved employee” with standing to maintain a claim for PAGA penalties. Accordingly, the defense of claim preclusion did not apply.

Vague Allegations Support Possible Wrongdoing After Policy in Place

Tue, 10 Oct 2023 17:55:18 GMT

A law firm and its named partner were faced with a legal malpractice lawsuit brought by one of the firm’s clients after the attorney failed to timely accept a demand to settle a personal injury case as instructed, causing the case to go to trial with a verdict against the client in excess of $5.5 million. The firm’s professional liability insurer sought declaratory judgment arguing it had no duty to defend based on the Prior Knowledge Condition in the policy. The Fifth Circuit affirmed the insurer’s duty to defend finding Prior Knowledge Condition did not relieve it of the duty to defend where the underlying complaint made allegations of wrongdoing at an unspecified time. The court found that the firm’s alleged failure to accept the settlement demand occurred prior to the policy period but noted the complaint made additional, general allegations of wrongdoing by the firm at an unspecified time that could have been after the policy inception.

Business Liability Insurance Considerations In The Time Of Covid-19

Tue, 10 Oct 2023 17:53:47 GMT

The global pandemic has taken everything we know and turned it on its head. The insurance industry entered the new decade with stronger portfolios that reflected the bull market and stocks hitting an all-time high in addition to innovation driving more efficiency, predictability and risk mitigation. Today the industry is facing, legislative action to amend property policies opening-up a floodgate for business interruption coverage for which insurers have not rated, nor collected premium, mandatory extended grace periods for premium collection and cancellation in addition to the inevitable claims related to the pandemic. The precedent that might be set by legislative or regulatory action that materially changes an insurance policy and a carrier’s exposure is chilling.

At PLAN, we have considered where the fallout will land for our members in Professional and General Liability. In looking at the categories that are of interest, Coverage/Bad Faith, Professional Liability/E&O, Financial Institutions, Cyber/Cybercrime, D&O, ERISA/Fiduciary and EPL/Labor & Employment, here’s what we are seeing.

Coverage/Bad Faith

In the Coverage/Bad Faith arena we are seeing insurers scouring their policies for language in their exclusions that would bar coverage for COVID-19 related claims. Under a commercial general liability (CGL) policy, allegations that an insured caused injury to a customer, guest or third party harm by failing to exercise reasonable care in implementing, enforcing or warning of the risk of potential exposure to the coronavirus could be covered absent a specific exclusion addressing virus or pandemic.

Professional Liability/E&O

Professional Liability/E&O carriers could have similar exposure. This will be particularly true for health care providers, and a sore spot in the long term care field. Residential facilities face a barrage of bad-to-worse choices involving staffing, new admissions and readmissions. Key defenses on behalf of the insured would focus on duty and causation in face of an unprecedented global pandemic when federal, state and local public health guidelines and directives defining duty and the standard of care are frequently evolving and changing.

Other professional service providers on the frontlines may face liability claims as well. For instance, insurance brokers might be brought into a coverage dispute related to a claim denial based on the pandemic. A financial advisor managing a portfolio that has just gone up in smoke might face a claim by a client seeking to recover some of their wealth. This reflects the range of exposure resulting from COVID-19 that may be covered depending on the type of professional service provided.

See an example of a recently decided case where a business sued a hospital alleging it negligently failed to prevent transmission of the Ebola virus to a nurse through improper attention to precautions and training which caused the shop to close after she visited and later became ill. The Texas Supreme Court affirmed dismissal because expert medical testimony was necessary to prove the claim under the health care liability statute.

Insurers must be mindful of being hasty in denying claims without investigation and giving rise to a bad faith claim. In Illinois, an insured restaurant group sought coverage for business interruption of its businesses and was denied, sometimes within hours of making the claim, and by cursory communication. Its insurer is now facing a bad faith claim for failure to investigate.

Big Onion Tavern Group, LLC et al v. Society Insurance, Inc., 1:20-cv-02005 (March 27, 2020).

Financial Institutions

Financial institutions may be exposed to liabilities that arise under Professional Liability and E&O policies that could impact claims against financial advisors or money managers as discussed above.

Cyber/Cybercrime

With work-from-home being the new normal for the time being, cyber scams specifically related to the pandemic are on the rise. It is likely this rise in activity will result in a proliferation of claims. Again, without a specific exclusion, these claims will likely be covered.

D&O

Directors and officers could also get into the sightlines of shareholders who have seen their portfolios plummet. Companies are likely to be scrutinized for the substance and timeliness of responses to COVID-19, communication and efforts to reduce losses as information came to light. The Securities Exchange Commission (SEC) has given some extensions of filings required under the Exchange Act and encouraged public companies and their auditors to disclose the anticipated impact of the outbreak on the company to investors. [https://www.sec.gov/news/press-release/2020-53 , https://www.sec.gov/rules/other/2020/34-88318.pdf].

As we are already seeing, many companies are adjusting their earnings projections, so the possibility of a stock drop after an announcement relating to the effect of COVID-19 is certainly plausible. Securities litigation alleging disclosure deficiencies, breach of fiduciary duty and corporate mismanagement, may trigger coverage under D&O insurance policies.

ERISA/Fiduciary

Similar to the dangers presented for directors and officers, so goes the exposure of fiduciaries who have responsibility for employee benefit plans which well-being is subject to market volatility incited by the pandemic. Employees may make fiduciary claims related to the handling or mishandling of fiduciary responsibilities as expectations form around the appropriate response to the consequences of the pandemic.

EPL/Labor & Employment

Changes abound in the rules and guidelines for employers like, who is essential, workplace safety, discrimination and harassment, working remotely and virtual meetings. In addition to the inevitable workers’ compensation claims, discrimination and harassment claims covered under EPL insurance could arise. Employers may seek coverage under their EPL policies for claims by employees alleging discrimination or harassment against protected classes as a result of human resources policies implemented in response to the outbreak. Employers should also be aware that the Americans with Disabilities Act (ADA) protects employees from certain inquiry relating to COVID-19 and HR staff should be fully educated to avoid EPL claims under the ADA. This also requires a balancing act in protecting other workers and providing a safe workplace for everyone.

Conclusion

The future is uncertain. Insurers can expect pressure from regulators to spread the risk and the pain of this pandemic as we are seeing in the recent measures announced by various states. The standards under which our insureds will be measured is a target moving at lightning speed. As the economy comes back to life (roars hopefully), regulators will be scrutinizing insurer’s financial stability. Reinsurers and board members will be pushing for pandemic exclusions in all policies from this point forward. Any oversight will include an expectation that businesses have in place written plans, i.e. preparedness, remote workplace, disaster recovery, to more swiftly and efficiently navigate such remarkable circumstances. This crisis will inform our future and promote positive change.

Failure to Formally End Representation is Key

Tue, 10 Oct 2023 17:47:32 GMT

A nanotechnology company, Quantum Materials Corp., cried foul claiming conflict of interest and deceptive business practices when its law firm represented lenders in a legal action against it while also allegedly representing the company. Quantum retained the firm as corporate counsel in 2016, however they stopped sending work to them. The company claims the representation never formally ended. When Quantum’s dispute with its lenders erupted and the firm represented the lenders, the firm stated that the company “had ever been or was currently a client of theirs.” The underlying suit seeks punitive damages of up to $100 million. On interlocutory appeal, the Texas Appeals Court held the claims the firm breached its fiduciary duty and engaged in deceptive trade practices could proceed but the legal malpractice claim could not. Rather the panel determined the malpractice claim is “in substance” a claim of breach of fiduciary duty.

Federal Forum-Selection Clause in Securities Act Claims Are Valid

Tue, 10 Oct 2023 17:44:24 GMT

Purchaser of shares of stock in multiple Delaware corporations that launched initial public offerings brought a putative class action against the corporations seeking a declaratory judgment that the federal forum provisions (FFPs) in the certificates of incorporation, which designated federal courts as the exclusive forum for resolution of claims brought under the Securities Act of 1933, were facially invalid. The Delaware high court reversed a decision of the Delaware Court of Chancery and affirmatively endorsed the enforceability of the FFPs calling them, facially valid under a Delaware statute governing contents of certificate of incorporation, not in violation of the policies or laws of Delaware and consistent with full faith and credit principles. Experts agree this decision will have broad implications for securities litigation especially as other states consider whether to follow Delaware’s lead.

Data Privacy Violation Constitutes Personal Injury

Tue, 10 Oct 2023 17:43:11 GMT

A customer filed a proposed class action alleging that a business violated her rights under the Illinois Biometric Information Privacy Act by disclosing her fingerprint data to an out-of-state third party vendor without her consent. At issue was whether the plaintiff’s allegations potentially fall within the business owner’s liability policies' definition of "personal injury." The defendant’s carrier agreed to defend the claim under a reservation of rights and later filed a declaratory judgment. The court held the underlying claims fell under coverage for personal injury because of a “publication which violates a person’s right to privacy.” The violation of statutes exclusion in the policy bars coverage for violations of statutes that regulate methods of communication. However since the complaint alleges a violation of the Act, this exclusion does not apply. Notwithstanding this ruling, the bad faith claim was unsuccessful since there is a bona fide dispute as to whether the business would be entitled to coverage under the policy’s data compromise endorsement.

Not Filing Suit Hampered Bankruptcy Court Intervention

Tue, 10 Oct 2023 17:42:02 GMT

Plaintiffs filed a nine-count complaint alleging accounting malpractice. They asserted they could not file their claim due to the automatic stay provisions of a separate bankruptcy case involving the hedge funds in which they had invested. Thus the applicable time period for bringing their malpractice claims was tolled and they timely filed their complaint once the bankruptcy proceedings were resolved. The Appellate Court affirmed dismissal agreeing the claim was time-barred. The applicable statute of limitations gives a claimant two years from the time they knew or reasonably should have known of the act or omission in the accountant's professional service that gave rise to their cause of action, but not more than five years after the date on which the act or omission occurred. The court found the law which tolls the statute of limitations if the action is stayed by injunction, order, or statutory prohibition, was not triggered by the bankruptcy. By not filing suit, the plaintiffs provided no opportunity for the bankruptcy court or trustee to intervene; moreover there was no specific injunction or order barring their claims.

Employer Can Bundle Authorization

Tue, 10 Oct 2023 17:29:42 GMT

In a class action complaint an employee contended his employer violated the Fair Credit Reporting Act (“FCRA”) by providing a FCRA disclosure simultaneously with other employment materials and failing to place a FCRA authorization in a standalone document. The authorization appeared at the end of the job application, and included other notices, waivers and agreements unrelated to acquiring the consumer credit report. Noting that while this was a novel approach to an alleged FCRA violation, a Ninth Circuit panel held this practice does not constitute a violation of the FCRA. The Act specifically does not prohibit the presentation of the disclosure together with other application materials. Thus the co-presentation of the disclosure and an authorization did not render the disclosure not clear or not conspicuous.

Ninth Circuit Remands Case for Trial

Tue, 10 Oct 2023 17:28:21 GMT

Users of Facebook brought a putative class action alleging multiple claims related to the company’s improper use of plug-ins to track logged-out users’ browsing histories when they visited third party websites. Plaintiffs alleged Facebook then compiled the browsing histories into personal profiles that were sold to advertisers to generate revenue, essentially monetizing users digital footprint. The plaintiffs asserted claims for violations of the, federal Wiretap Act and Stored Communications Act (SCA), the California Invasion of Privacy Act (CIPA) and Computer Data Access and Fraud Act (CDAFA) and claims under California law for statutory larceny, invasion of privacy, intrusion upon seclusion, breach of contract, breach of the duty of good faith and fair dealing, civil fraud, and trespass to chattels. The Ninth Circuit reversed dismissal and is sending the case back for a trial on the merits of the claims for violations of the substantive right to privacy codified in the Wiretap Act, SCA, and CIPA which satisfy the concreteness requirement for injury-in-fact element for Article III standing. The court also found the plaintiffs plausibly alleged a reasonable expectation of privacy, as required to state claims for invasion of privacy and intrusion upon seclusion. And notably, as a matter of first impression, simultaneous, unknown duplication and forwarding of GET requests made to a web page's server do not qualify for the party exemption from liability under Wiretap Act and CIPA. The plaintiffs, however, did fail to sufficiently allege the electronic storage element of SCA claim.

Failed Expansion Does Not Constitute Wrongdoing

Tue, 10 Oct 2023 17:26:42 GMT

Shareholders brought multiple suits against retail corporation Target and its current and former agents. The defendants allegedly made false and misleading statements related to the company’s performance and supply chain regarding its expansion into the international market, specifically Target Canada, in violation of the Securities Exchange Act as well as breached their fiduciary duties under the Employee Retirement Income Security Act (ERISA). Appealing dismissal of the case, the shareholders maintained the company executives misled investors by understating the seriousness of the problems with Target Canada and overstating their ability to fix them. The Eighth Circuit balked holding that the shareholders failed to meet the pleading standards of the Private Securities Litigation Reform Act (PSLRA).Though the international venture was a failure, this does not mean that scienter was pled adequately; moreover, the PSLRA does not allow pleading fraud by hindsight. The more compelling inference, which is fatal to the investors’ case, is that the Target executives did not understand the magnitude of the problems they faced. The Court also rejected allegations of insider selling.

Insurer Estopped from Asserting Exclusion

Tue, 10 Oct 2023 17:25:03 GMT

Unraveling what the court called a “veritable ‘comedy of errors’” a Pennsylvania appeals court has ruled against an insurer that issued a reservation of rights letter, but failed to tell its policyholder for 18 months that coverage was excluded under its policy. The underlying case involved a slip and fall in a shopping center parking lot after which the plaintiff sued several parties including a snow and ice removal company. That company’s insurer sent a letter stating it would defend the company subject to a reservation of rights but failed to mention there was a snow and ice removal exclusion in the policy. The insured sued the carrier citing “insufficient” language in the letter that bars it from raising the policy exclusion; the insurer countersued. The court found the insurer’s failure to clearly communicate the extent of the rights being reserved resulted in presumptive prejudice to its insured and estopped the carrier from asserting the exclusion.

Brain Injury Physical, Not Mental

Tue, 10 Oct 2023 17:23:13 GMT

The City of Baltimore sought review of a decision awarding a police officer line-of-duty (LOD) disability retirement benefits after he suffered a concussion, or traumatic brain injury, while on duty with resulting memory loss and attention deficits. The Court of Special Appeals reversed, holding the officer’s incapacities were mental, rather than physical. While the earlier decision had relied on state statutes dating back to 1966, the reviewing court relied on current science and medical evidence that point to brain injuries as physical injuries. The court found a concussion may, in certain instances, lead to permanent physical incapacity qualifying a claimant for LOD disability benefits. Under this modern approach the police officer was deemed eligible for disability retirement benefits.

No Private Right of Action for Long Term Care Resident

Tue, 10 Oct 2023 17:22:05 GMT

On April 23, 2020, a resident at a nursing home facility filed an appeal in the Seventh Circuit seeking to reverse dismissal of his lawsuit claiming a violation of rights under the Federal Nursing Home Reform Act (“FNHRA”). The plaintiff named the facility and its management company. Central to the allegations is that the nursing home failed to abide by the statute in numerous respects, including by failing to attain or maintain a nursing home resident’s highest practicable level of physical, mental and psychological well-being as dictated by FNHRA. However, the district court held the FNHRA does not provide for a federal private right of action that may be redressed under § 1983 of the Civil Rights Act. Rather, federal nursing home regulations are the standards by which state and federal regulators evaluate nursing facilities for Medicaid and Medicare compliance, nothing more. With nursing homes being at the apex of the Covid pandemic, professional liability carriers will likely be watching this appeal closely.

Legal Use of Medicinal CBD Not Grounds for Termination

Tue, 10 Oct 2023 17:20:40 GMT

A civil service employee was terminated based on his use of an over-the-counter cannabidiol (CBD) to assist in pain management for his work-related injuries. He was a permanent, classified employee of the fire department with 12 ¹/₂ years of experience who had suffered a number of serious injuries during his employment and missed a year of work. Among other medications, his pharmacist recommended and his doctor approved the use of a CBD product to assist in pain management which he legally purchased from a local pharmacy. Ruling as a matter of first impression, the Louisiana Appellate Court reversed the judgment of the Commission approving his firing. The CBD product was purchased legally, was not on any list of prohibited substances and was recommended by healthcare providers. The firefighter had no record of any prior disciplinary action, thus his termination was not commensurate with the alleged infraction.

Uniformity, Efficiency and Primacy of Plan Documents Rules

Tue, 10 Oct 2023 17:14:16 GMT

A plan participant sued the plan administrator under the Employee Retirement Income Security Act (ERISA), challenging the decision to terminate his long-term disability (LTD) benefits. The Tenth Circuit concluded as a matter of federal common law a choice-of-law provision in a LTD insurance policy must be enforced because a clear, uniform rule is required to ensure plan administrators enjoy the predictable obligations and reduced administrative costs central to ERISA. The plaintiff had brought the action in Colorado, but the policy had a choice-of-law provision requiring the application of Pennsylvania law. This raised a material issue because Colorado law bans discretionary clauses in insurance policies while Pennsylvania does not. The Tenth Circuit focused on the uniformity and efficiency objectives central to ERISA and concluded that if the plan has a legitimate connection to the state which law is chosen, ERISA’s interest in efficiency and uniformity, as well as its recognition of the primacy of plan documents, compelled the conclusion that the selected law should govern as a matter of federal common law.

Notice of Claim in Application Supplement Constitutes Sufficient Reporting

Tue, 10 Oct 2023 17:13:13 GMT

A group of investors hired an attorney to help close a real estate deal. After the deal turned out to be a scam, the investors sued their attorney for legal malpractice. They won a judgment against the attorney. The attorney’s insurer had agreed to defend and indemnify her under its “claims-made and reported” professional liability policy provided that a “Claim” was made against her during the “Policy Period.” While the state court suit was pending, the carrier sought a declaration it did not have to defend or indemnify because the attorney had failed to report the claim to it during the policy period. The investors, with judgment in hand, argued the attorney timely reported the claim in a claim supplement as part of her application to renew her insurance policy; but the court ruled in favor of the insurer. Not so fast, after receiving a petition for an en banc rehearing, the court withdrew its initial opinion and agreed with the investors. However, the court declined to reach the issue of whether the attorney breached the policy notice conditions or whether any such breach may have prejudiced the insurer.

Shareholders in Privity With Earlier Litigants

Tue, 10 Oct 2023 17:11:43 GMT

The fundamental nature of a derivative suit is that the corporation, rather than the individual shareholders, represent the real plaintiff. It is in this context the Minnesota Court of Appeals considered a matter of first impression raised in a dispute between shareholders in a closely held corporation. The appellants argued they were not parties in a prior case so res judicata cannot apply. The respondents countered that shareholders bringing a later derivative claim share privity with different shareholders from that corporation who brought a similar derivative claim. The court held under the doctrine of res judicata shareholders who bring later derivative claims share privity with different shareholders of the same corporation from an earlier lawsuit alleging derivative claims when the two suits involve claims arising from the same set of factual circumstances.

Underlying Medicaid Fraud Claim Covered

Tue, 10 Oct 2023 17:10:48 GMT

An operator of adult care facilities sought declaratory judgment that its insurer had a duty under its professional liability policy to defend and indemnify it in an underlying qui tam action claiming the operator billed Medicaid for services that were not performed. The insured claimed breach of contract, breach of duty of good faith and fair dealing and a violation of North Carolina’s Unfair and Deceptive Trade Practices Act. The issue was whether the qui tam action arose out of a “medical incident” giving rise to the insurer’s duty to defend even though the alleged false billing was not itself a “medical professional service.” The insured argued a failure to render services was a covered “medical incident” and the billing's alleged falsity was the result of failure to render services. The Fourth Circuit sided with the insured reasoning while the alleged false billing was not itself a “medical professional service,” the failure to “render medical professional services” bears a causal relationship to the billing. Thus, the false-claims-act action is covered.

Demand Made Before Policy Period

Tue, 10 Oct 2023 17:09:43 GMT

Plaintiffs sued their D&O insurer following its denial of their claim alleging breach of contract and bad faith under the Illinois Insurance Code. The underlying suit stems from the company’s 2012 sale of interests in another company. A minority investor expressed dissatisfaction with some of the proposed terms, including the purchase price, and threatened litigation if his key terms were not met. While the terms of the sale were amended and the purchase price and other key terms were modified, the amended agreement included a “reaffirmation” provision of the original agreement. In the midst of this, the company purchased the subject D&O policy on a claims-made basis for the relevant period. However, before the policy period, the insureds had received a demand email but they did not share it with their broker or their new insurer until after binding coverage. The litigation later ensued and the carrier denied coverage citing the allegations in the complaint and the emails that reflected the claims arose prior to the policy period. The Court of Appeals agreed. The denial was not unreasonable or vexatious because the claims against the insureds arose before the policy took effect, thus there was a bona fide coverage dispute.

Decision Encompasses the Rights of Transgender Persons

Tue, 10 Oct 2023 17:08:28 GMT

The U.S. Supreme Court granted certiorari in three cases involving LGBT rights under Title VII, hailing from Georgia, New York and Michigan, respectively. In the Georgia action a gay county employee sued the county alleging sexual orientation discrimination in firing him. In the New York case, a gay employee challenged termination as a skydiving instructor. In the Michigan case, a funeral home fired a transitioning, transgender employee based on gender stereotypes. The Court held that an employer violates Title VII, which makes it unlawful to discriminate against an individual “because of” the individual's sex, by firing an individual for being homosexual or being a transgender person. Justice Gorsuch unequivocally states, “An employer who fires an individual merely for being gay or transgender defies the law.” With more than half of states permitting termination based on being gay, bisexual or transgender this decision provides protection from such wrongful employment practices.

Recovered Proceeds Go To Wronged Investors

Tue, 10 Oct 2023 17:02:50 GMT

The U.S. Securities and Exchange Commission (SEC) brought a civil enforcement action against developers of a proposed proton therapy cancer treatment center alleging that developers funneled investor money received through an immigrant investor program, nearly $27 million, to themselves, marketing expenses and salaries that exceeded a small administrative fee disclosed in a private offering memorandum, and to a company under one developer's control. Despite arguments that Congress never gave the SEC authority to seek disgorgement and that it is a form of punishment that courts cannot impose for the SEC, the high court reaffirmed the agency's authority to seek disgorgement, a part of its civil enforcement arsenal aimed at returning funds acquired in fraudulent schemes to the original investors. In its 8-1 ruling the Court held the disgorgement cannot exceed the net profits of the conduct at issue. The proceeds must go to the “wronged investors.” In the most recent full fiscal year the SEC reports it has collected $1.5 billion in disgorgements and penalties and paid $1.2 billion to harmed investors.