Two Legal Aid Programs Secure Unemployment Benefits for Domestic Violence Survivors

L.S.’s abuser found her at her workplace in Georgia. She felt that she had no choice but to leave her job and escape to a domestic violence shelter with her children. Another woman, E.C., lived hundreds of miles away in Washington, D.C., but faced a similar problem. Her abuser showed up repeatedly at her workplace, and to appease him, she broke workplace rules by allowing him onto the property. She lost her job as a result.

Without the income from their jobs, L.S. and E.C.’s situations became ever more precarious. They applied for unemployment insurance benefits, but Georgia and D.C. did not approve their claims.

Both women turned to their local legal aid programs for assistance. And during the same week in June 2014, both women won their cases in their respective courts of appeals.

The attorneys for L.S. and E.C. have written about their work on these cases in our two most recent advocacy stories. Jennifer Mezey and Drake Hagner with the Legal Aid Society of the District of Columbia wrote about their work on E.C.’s case. Their challenge was to ensure that the courts interpreted D.C.’s unemployment coverage of people who lost their jobs “due to domestic violence” in such a way as to give full benefits to people in situations like E.C.’s. Lindsey Siegel and Kimberly Charles of the Atlanta Legal Aid Society wrote about L.S.’s case and their work to make sure Georgia’s unemployment insurance program considered escaping domestic violence to be “good cause” for leaving a job.

While the particular laws and facts of their cases differed, these advocacy stories show that L.S. and E.C.’s attorneys approached their cases in similar ways. Both used appellate advocacy for one client to benefit a broader group of people. Both secured an amicus brief from a domestic violence advocacy group to support their reading of the unemployment law at issue and how that law covered their clients’ actions.

Perhaps most importantly, both the D.C. and Atlanta attorneys built a robust record at the administrative hearing level. In both cases, a key part of that record was the testimony of a domestic violence expert who gave context to L.S. and E.C.’s actions and explained how abuse and fear affect a victim’s decision making.

Each of these advocacy stories is interesting on its own terms, but when read together, they paint a rich picture of the diligent advocacy that legal aid programs take to improve the lives of their clients and others in similar situations. Economic independence is often necessary for someone who has experienced domestic violence to escape the situation. Making unemployment insurance available to support survivors if the violence follows them to work can help them avoid having to choose between their safety and their economic well-being.

You Can Assign Your Bad Faith Claims in Pennsylvania

This post was written by Luke Debevec, John Ellison and Lisa Szymanski.

This week, in a 5-1 decision resolving a certified question from the U.S. Court of Appeals for the Third Circuit, the Pennsylvania Supreme Court adopted the positions advanced by Reed Smith LLP on behalf of United Policyholders, concluding that policyholders are permitted to settle claims against them by assigning to plaintiffs and other claimants their rights to both statutory and common law-based bad faith claims against their insurance companies.

The Court’s decision in Allstate Property and Casualty Insurance Co. v. Jared Wolfe, is a significant victory for policyholders in Pennsylvania who face dangerous litigation that their insurance companies refuse to defend or unreasonably refuse to settle. Faced with such bad faith conduct by its insurer, a policyholder often has no financial means of satisfying a judgment other than assigning its coverage claim against the insurer, and little interest or experience in direct litigation with the insurer. When a policyholder is victimized by an insurance company’s bad faith, a settlement that assigns the policyholders insurance claims to the plaintiff in exchange for a release that protects the policyholder from the results of the insurer’s breach is often the most practical solution. The Supreme Court’s decision recognizes the assignment remedy as a valuable and necessary tool for protecting the Commonwealth’s diverse policy-holding citizens from insurance company bad faith and a means of deterring and punishing bad faith behavior.

In Wolfe, the Court approved a federal trial court’s ruling allowing a defendant facing a punitive damages verdict arising from a drunken driving accident to assign to the victim his statutory bad faith claims against the insurance company. The jury ruled that Allstate committed bad faith by refusing to protect its policyholder when it had the opportunity, recognizing that an insurer cannot refuse to settle a case before trial merely because a verdict may eventually result in uncovered punitive damages—and then refuse to pay the punitive damages judgment resulting from the failure to settle. Gambling on a jury’s whims with the policyholder’s livelihood is not permitted. With the assigned bad faith claim, the victim of the accident can recover from the insurance company not only the resulting judgment, but also statutory punitive damages, interest and attorney’s fees the policyholder might otherwise have pursued as a result of the insurance company’s bad faith.

In reaching its decision, the Supreme Court approvingly quoted United Policyholders’ explanations of the public policy goals supporting assignment of statutory bad faith claims. As explained by United Policyholders, the Legislature provided the bad faith statute’s remedies “to overcome insurance companies’ inherent advantages in litigation expertise and resources to engage in coverage litigation.” Agreeing with United Policyholders, the Court noted that permitting assignment of both statutory and common law based claims supports the public policy favoring settlements and good faith settlement negotiations; deters bad faith behavior by insurance companies; furthers the Legislature’s goal of punishing bad faith; and avoids “splitting” of statutory and common law bad faith claims.

The Court recognized that many policyholders facing substantial liability claims are essentially judgment proof, but may still suffer substantial harm from bad faith, such as impaired credit ratings and the results of insolvency proceedings. In those situations an assigned insurance claim may be the only significant asset available to settle a case that insurers refuse to settle. The Court agreed that, “the right to make assignments protects the most financially vulnerable policyholders from opportunistic breaches by their insurance companies at the crucial moments when policyholders rightfully expect their insurers to protect them as their fiduciaries.”

The Court used these public policy rationales together with principles of statutory construction to determine the Legislature that enacted the Pennsylvania bad faith statute, Section 8371, would not have intended to limit bad faith remedies, including the right to assign such claims, already available at common law. As United Policyholders observed, when the statute was enacted in 1990, the General Assembly was aware that assignment of common law bad faith claims had already been permitted in the Commonwealth by the Supreme Court for over twenty-five years, yet the statute did not disturb this practice. The strong and deterrent bad faith remedies permitted by the Legislature, particularly awards of punitive damages and attorney’s fees, demonstrate the Legislature’s emphatic desire to serve the public’s interest in preventing and punishing bad faith conduct by insurance companies, in addition to compensating policyholders.

As a result of this opinion, policyholders and insureds in Pennsylvania now have greater resources to protect themselves from insurance company bad faith. Defendants in litigation who are victims of insurance company bad faith and the plaintiffs making claims against them may now have greater confidence that a settlement including an assignment of insurance rights and bad faith claims will be enforceable. Insurance companies, likewise, will need to be more diligent to ensure that their coverage determinations and settlement decisions are reasonable and made with due regard for the interests of their policyholders and insureds, who are their fiduciaries.

Luke E. Debevec, John N. Ellison and Lisa A. Szymanski of Reed Smith LLP represent policyholders in insurance coverage litigation and submitted the brief for amicus curiae United Policyholders, which speaks for insurance consumers in Pennsylvania and throughout the United States. United Policyholders was also represented by Andrew J. Kennedy of Colkitt Law Firm, P.C., and Amy Bach and Dan Wade of United Policyholders.

Senator Patrick Kennedy and Public Respond to Anthem’s Behavior in CBS’ 60 minutes segment, ‘Denied’

On Sunday December 14, 2014, CBS’ 60 minutes reported on the tragic and avoidable death of 15 year old Katherine West.

Katherine suffered from a severe eating disorder and major depression. She was admitted to Veritas Collaborative Eating Disorder Treatment Center (“Veritas”) in October 2013. Katherine was an insured under an Anthem health insurance plan. Initially, Anthem authorized her treatment. Six weeks later, however, despite protests from the treatment team which included a psychiatrist, a pediatrician, a psychologist, a dietitian, nurses and numerous other eating disorder professionals, Dr. Timothy Jack, a psychiatrist working for Anthem, who never met Katherine, denied any further treatment for her on the basis that it was not medically necessary. Her treatment team warned Dr. Jack that Katherine was not yet ready to discharge and that the likelihood of her purging again was extremely high. Dr. Jack and Anthem ignored this warning.

Unable to pay for Katherine’s continued treatment, which cost upwards of $1000 per day, Katherine’s parents were left with no choice but to take her home. Six days later, Katherine’s mother Nancy found her dead in her bed. She had died of heart failure due to complications from her purging which resumed after she left Veritas.

The 60 minutes segment highlighted that this unfair, and rather unbelievable practice of insurance companies. This is something that we, at Kantor & Kantor see day after day. Partner Lisa Kantor specializes in fighting for appropriate treatment for those suffering from eating disorders.

On December 16, 2014, following the 60 minutes segment, former Senator Patrick Kennedy spoke about the tragedies that arise when insurance companies wrongfully deny patients the mental health treatment that they need.

Members of the Parity Implementation Coalition applauded the segment in a press release issued yesterday.

Andrew Sperling, Director of Federal Advocacy for the National Alliance on Mental Illness also came out in support of the segment: “Our members stand with the millions of individuals and families who face insurance discrimination as a result of living with a mental or addictive disorder.”

Outraged, the public has taken to social media to condemn Dr. Jack and Anthem. While Dr. Jack’s actions are reprehensible, his compensation from Anthem, estimated at roughly $25,000 per month and a denial rate for treatment of 92% suggests that he doing exactly what he is paid to do.

Some 24 million people, or 7.6% of the United States population, suffer from an eating disorder. As highlighted by this story, eating disorders kill. In fact, eating disorders have the highest mortality rate of any mental disorder.

If you or someone close to you is suffering from an eating disorder, we encourage you to seek help immediately. If you or someone you know are having trouble getting your insurance company to pay for your treatments or other benefits, call us for a free consultation. 800-569-6013

California Court Upholds In-House Counsel Privilege

By Terrence P. McAvoy and Michael G. Ruff

Brief Summary

In Palmer v. Superior Court California's Second District Court of Appeal upheld the in-house counsel privilege for communications concerning a dispute with a current client and, in doing so, declined to adopt the "fiduciary duty" and the "current client" exceptions to the attorney-client privilege.

Complete Summary

Plaintiff brought a malpractice claim against an attorney and her firm as a result of their short-lived representation of him in an invasion of privacy claim. Two months into the representation, plaintiff began sending emails expressing dissatisfaction with the firm's billings and representation. Nevertheless, plaintiff stated that he continued to rely on defendants for legal advice about his matter. Shortly thereafter, plaintiff filed a malpractice action against defendants and substituted new counsel in the underlying litigation.

During the time of representation, the attorney consulted with other attorneys in her firm — the firm's general counsel, claims counsel, and another "deputized" attorney. The firm did not bill plaintiff for any of the other attorneys' time. In response to deposition questions and discovery requests, the attorney invoked the attorney client privilege for internal communications between the attorney and other firm lawyers acting in their capacity as counsel for the firm and/or documents prepared in anticipation of litigation. Plaintiff filed a motion to compel, which the trial court granted. Defendant filed a petition for writ of mandate or prohibition, requesting the trial court to set aside its order and enter a new order denying the motion to compel.

On appeal, plaintiff cited mostly federal authorities — district court and bankruptcy decisions — that have adopted what have been termed the "fiduciary" and the "current client" exceptions to the attorney-client privilege. The underlying premise for both exceptions is that an impermissible conflict is created when a lawyer advises another lawyer from the same firm regarding an issue with a current client. In this circumstance, the attorney client privilege is subordinate to an attorney/firm's ethical and fiduciary duties to its client.

Defendant cited a number of state supreme courts that rejected the exceptions' application, including Massachusetts, Georgia, and Oregon. The Palmer court found the Oregon Supreme Court's decision in Crimson Trace Corp. v. Davis Wright Tremaine LLP, 355 Or. 476, 326 P.3d 1181 (Or. 2014) persuasive. The attorney-client privilege in both states was created by statute, neither of which provided for the "fiduciary duty" nor the "current client" exceptions. The Palmer court, like the court in Crimson, declined to adopt implicit exceptions to those enumerated in the statute.

The court explained that it was not a foregone conclusion that an attorney's consultation with in-house counsel regarding a client dispute will necessarily be adverse to the client. Seeking legal advice to determine how best to address the potential conflict is appropriate whether that advice comes from in-house counsel or outside counsel. Notably, the court stated although certain internal communications may be privileged, there remains a duty of disclosure. The court explained: "Preserving the privileged nature of [the] communications does not affect a law firm's duty to provide a client with full and fair disclosure of facts material to the client's interests."

Importantly, the Palmer court noted that the privilege only attaches where the firm establishes a "genuine attorney-client relationship." The Palmer court relied upon the Massachusetts Supreme Court's decision in RFF Family Partnership, LP v. Burns & Levinson, LLP, 465 Mass. 702 (2013) in making this determination: 

(1) the law firm must have designated, either formally or informally, an attorney or attorneys within the firm to represent the firm as in-house or ethics counsel…;  (2) where a current outside client has threatened litigation against the law firm, the in-house counsel must not have performed any work on the particular client matter or a substantially related matter;  (3) the time spent on the in-house communications may not have been billed to the client;  and (4) the communications must have been made in confidence and kept confidential.

Ultimately, the court found that based on the facts, certain communications at issue were not privileged because they were between lawyers in the firm who were handling the case for the client.

Significance of Opinion

This decision is significant because the issue of whether California should adopt the "fiduciary" or "current client" exceptions in the context of intra-firm communications was one of first impression for a California appellate court. In rejecting those exceptions, the decision reinforces the in-house counsel privilege in California courts — an increasingly important safeguard as firms continue to grow and become more inclined to rely on in-house counsel for day-to-day ethics and claims advice.

For more information, please contact Terrence P. McAvoy or Michael G. Ruff.

Originally posted by Hinshaw & Culbertson's Lawyers for the Profession® Alert

Kantor & Kantor Helps Cancer Patient Get Life Saving Treatment

Kantor & Kantor recently helped a client who had been denied health insurance coverage for his life saving cancer treatment.

Our client was a participating member of the U.S. Jesco International, Inc. Health and Welfare Plan (Plan). During the relevant time, the Plan was funded via the purchase of a group health insurance policy from Blue Cross Blue Shield of Texas (BCBS). At all times our client lived in California, was a California employee, and received his medical care in California. Our client participated in the Anthem Blue Cross of California PPO Network, and his claim was administered by Anthem.

Premiums for health benefits under the Plan were paid 50% by our client and 50% by his employer Jesco. Our client’s premiums were paid by weekly deductions from his paychecks.

In July of 2013, our client was diagnosed with a rare form of cancer, large cell lymphoma. He began immediate intensive chemotherapy. The cancer and the treatment of the cancer left our client totally disabled. Our client was deemed totally disabled as of July 11, 2013 and awarded California State Disability Insurance benefits by the State of California’s Employment Development Department. He has been re-approved by the State for total disability benefits through July 2014.

In January 2014, our client underwent a stem-cell transplant at the UCLA Ronald Reagan Medical Center. The procedure was pre-approved by the transplant coordinator assigned by Anthem. In the end, our client made claims for health benefits totaling more than $350,000.

In March 2014, BCBS notified our client that while his procedures had been pre-authorized by Anthem, his claims for the transplant treatments were being denied. BCBS stated that the group health insurance policy had been terminated retroactive to January 1, 2014 due to a lack of payment of premiums owed by Jesco. Our client had no reason to know that Jesco had not paid all premiums necessary to keep the coverage in force.

California and Texas have laws regulating insurance which provide for mandatory continued group health insurance coverage for disabled insureds in the event of the termination of their health insurance policy. California Insurance Code § 10128 et al mandates up to a year of continued health insurance coverage for treatment of the disabling condition. Texas Insurance Code § 1252 et al also provides a reasonable extension of benefits for expenses incurred in treating the condition causing the disability. The extension must provide coverage for the lesser of 90 days or the duration of the disability. Both laws are saved from ERISA preemption. 29 U.S.C. § 1144(b)(2)(A). The medical claims at issue were for treatment received during the extension period mandated by both insurance laws.

Our client hired us to fight for his rights. On March 25, 2014, Kantor & Kantor appealed the denial of his medical insurance benefit claims. We explained to BCBS the factual circumstances for the termination of our client’s coverage and explained that he was entitled to mandatory continued coverage of treatment for is disabling cancer by virtue of insurance law.

In response, BCBS stated: “As this is a group policy, and the [sic] chose not to pay their premiums, we cannot extend coverage to the member.” There was no discussion of any issues raised in the appeal letter or any reference to any insurance code provision.

On April 29, 2012, Kantor & Kantor appealed again. We noted the lack of a full and fair review and lack of meaningful communication by BCBS. We directed BCBS to both the California and Texas laws regulating insurance. We provided proof our client was totally disabled, copies of the text of Cal Ins. Code § 10128.2 and Texas Ins. Code § 1252.102, and the Ninth Circuit’s decision in Miller v. Northwestern National Life Ins. Co., 915 F.2d 1391 (9th Cir. 1990) - which held laws such as those at issue are saved from ERISA preemption.

BCBS upheld the denial of benefits based on the following rationale: “The member’s health care benefit plan, US Jesco International LTD coverage termed [sic] effective 01/01/2014. During the time the group coverage was in effect, the group had Mr. Kimsey listed as actively employed, not a disabled employee.” BCBS did not address the applicability of the California or Texas insurance laws providing for mandatory coverage or the Ninth Circuit authority indicating the laws were saved from ERISA preemption. BCBS confirmed that Mr. Kimsey’s appeals had been exhausted.

Kantor & Kantor immediately filed a lawsuit against BCBS in Federal Court asserting breach of the ERISA contract and seeking equitable relief. BCBS hired a large multi-national law firm to represent its interests, Foley & Lardner LLP. Foley answered the complaint for BCBS by stating that BCBS’s real name is Health Care Service Corporation (HCSC), a mutual legal reserve company doing business as Blue Cross and Blue Shield of Texas. In HCSC’s answer to the lawsuit it claimed 23 affirmative defenses: failure to state a claim, lack of standing; barred by statute of limitations; laches; estoppel/ratification/waiver; negligence/failure to exercise reasonable care; no coverage; no coverage/exclusions & limitations; benefit plan provisions bar claims; no proximate cause; excuse, failure of condition precedent, concurrent, or subsequent; failure to mitigate damages; failure to perform and material breach; full performance; set-off/recoupment; contributory fault; consent; unclean hands; impossibility of performance; failure to provide sufficient notice/proof of loss; failure to exhaust administrative remedies; limitation of remedies under ERISA; and reservation of affirmative defenses.

Within days of HCSC’s assertion of these defenses Kantor & Kantor had evaluated them and written a letter explaining why none of the defenses were properly pled. Kantor & Kantor drafted a motion to strike all the defenses and sent it to the attorneys at Foley. Confronted with the law, HCSC agreed to file a new answer that did not have these affirmative defenses. Where HCSC had previously blamed our client for its failures, HCSC now blamed Jesco.

Kantor & Kantor then began pressing HCSC on the merits of its decision to deny our client’s health insurance claims. Kantor & Kantor made it clear to HCSC why it was going to lose in court. At the first opportunity, Kantor & Kantor presented the facts and law to the judge overseeing the case.

The court was persuaded by Kantor & Kantor’s advocacy, telling HCSC’s attorneys in open court “You might want to really sort of think about whether or not you want to come back here after you have a chance to look at the law and see what the law is in California. Because I don’t care what the standard of review is here, I think you guys are on pretty slim ground....considering what the facts are in this case and what the law is in California and Texas.” A copy of the transcript for the hearing can be found here.

Ten days later Kantor & Kantor received a letter from BlueCross BlueShield of Texas. The letter stated “having further reviewed the matter and the materials available to it, BCBSTX overturns the denial based upon the application of the terms of the plan and Texas law….”

Potentially Fraudulent Insurance Company Practices Are Exposed In Superstorm Sandy Litigation

This post was written by Jay Levin and Jennifer Katz.

[This article was first published on and is reproduced with permission. Copryright 2014, International Risk Management Institute, Inc.]

We recently marked the two year anniversary of Superstorm Sandy. With that anniversary came an influx of litigation in response to insurance companies denying or overly limiting coverage. That litigation recently revealed highly questionable practices within the industry.

Most striking is the opinion in Raimey v. Wright National Flood Insurance Company, Case No. 1:14-MC-00041-CKP-GRB-RER (E.D.N.Y. Nov. 7, 2014). There United States Magistrate Judge Gary R. Brown exposed “reprehensible [and possibly widespread] gamesmanship” by a professional engineering firm, U.S. Forensic, retained by Wright National Flood Insurance to investigate damage to the Raimey home following Superstorm Sandy.


A U.S. Forensic engineer visited and photographed the Raimey home following Sandy and prepared a report detailing his conclusion that the home had been damaged beyond repair. The report specifically noted that the structural damage was the result of “hydrodynamic forces associated with the flood event of October 29, 2012” and that repair was “not economically viable.” That report, however, was subsequently re-written under the guise of “peer review” by another U.S. Forensic engineer who relied solely on photographs. The new report reached the opposite conclusion -- that the home was not structurally damaged by hydrodynamic forces from the flood and the damages were the result of “long-term” deterioration. The insurance carrier denied coverage based on the latter report, and never produced the earlier report. The Court found that the insurer’s failure to reveal the existence of the earlier report, let alone the report itself or any drafts and communications concerning the preparation of the reports, was particularly “reprehensible” because the insurer had been “under unequivocal and repeated Court direction to produce all expert reports, photographs, and written communications that contain any description or analysis of the scope of loss or any defenses under the policy.” As a result of this conduct, the Court ordered all defendants in “any” Hurricane Sandy case to provide plaintiffs with copies of “all reports … plus any drafts, redlines, markups, reports, notes, measurements, photographs and written communications related thereto – prepared, collected or taken by any engineer, adjustor or other agent or contractor affiliated with any defendant, relating to the properties and damage at issue in each and every case, whether such documents are in the possession of defendant or any third party.” This Order was resisted by the insurance companies in motions for reconsideration, which motions were denied in a strongly worded Order on December 8, 2014. The Court will hold another evidentiary hearing to address the fact that the misconduct does not appear to be limited to the Raimey claim.

A similar practice was alleged in two other cases, Dweck v. Hartford Insurance Company of The Midwest, No.: 1:14-cv-06920-ERK-JMA (E.D.N.Y.) (filed on Dec. 3, 2014), and Shlyonsky v. HiRise Engineering, P.C., No.: 1:14-cv-07136-RJD-MDG (E.D.N.Y.) (filed on Dec. 5, 2014). In both cases the policyholders allege that a New York licensed engineer inspected their homes after Sandy and found substantial flood damage.

The Raimey case, in particular, has enraged a community still struggling to re-build after Sandy. It has generated intense interest from New Jersey Senators Robert Menendez and Cory Booker who, on November 14, 2014, jointly wrote to FEMA as the party “ultimately responsible for [the Write Your Own (WYO) insurance companies’] behavior.” The Senators highlighted FEMA’s “unbalanced penalty structure” that punishes WYOs for overpaying on claims which results in “aggressive[]” practices to reduce the payments to policyholders. The Senators characterized the Raimey opinion as the “smoking gun of a pervasive and intentional effort to lowball disaster victims …” and based on “FEMA’s lack of oversight or tacit encouragement of these procedures, WYO insurance providers continue to engage in these highly questionable practices.” The Senators seek to have FEMA conduct a full investigation into the “pervasiveness” of the concealed report alterations and report to Congress on its findings with a plan for increased “transparency” and consumer protections. They further seek to have WYOs “comply with the New York Court order [Raimey] for New Jersey cases and fully disclose to policyholders each variation of adjuster and engineering reports on the assessment of the policyholder’s damage with relation to the policyholder’s coverage, including an explanation of why an additional report was ordered” as well as sanctions and penalties imposed against wrongdoers.

FEMA responded by committing to reform the claims process and called on the WYO insurers to comply with Judge Brown’s Order. FEMA will now reopen and reconsider some 270 appeals of claim denials and take administrative action to ensure that WYO carriers are penalized equally for under-payment and over-payment on flood claims. FEMA further agreed to appoint an advocate to help policyholders through the Sandy claims and appeals process.

Policyholder counsel in Sandy cases need to recognize what may be going on and conduct thorough expert discovery to make certain that there has been no misconduct similar to that in Raimey and, allegedly, in Dweck and Shlyonsky. Expert reports are the cornerstone of all property insurance claims, not just flood claims. As a result, the contents and supporting documentation should be carefully examined.

Deputy Secretary of Treasury Encourages Financial Institutions

This post was written by Courtney Horrigan and Caitlin Garber.

Top-ranking U.S. officials continue to stress the importance of securing adequate protection in the event of cyberliability losses. Most recently, those efforts have been directed to financial institutions, an industry particularly susceptible to cyber attacks. On December 3, 2014, United States Deputy Secretary of the Treasury, Sarah Raskin, delivered a speech at the Texas Bankers’ Association Executive Leadership Cybersecurity Conference wherein she provided banks with a simple checklist to consider before a cyber attack occurs. Notably, one item on the Deputy Secretary’s checklist was cyberliability insurance – coverage at which the Deputy Secretary recommended all banks take a hard look.

In her speech, the Deputy Secretary stated that while new, the cyberliabity insurance market is growing, noting that “[m]ore than fifty carriers now offer some type of cyber insurance coverage…for organizations of all sizes, from small, family-owned shops to Fortune 500 companies.” Raskin described the cyberliability insurance market as “a mechanism that bolsters cyber hygiene for banks across the board.” She explained that cyberliability insurance not only provides a measure of financial support in the event of a cyber attack, but the underwriting processes associated therewith can also present banks with useful information to assess existing risk levels and the ability to identify those tools and best practices that the organization may currently be lacking.

The Deputy Secretary emphasized that the financial costs associated with cybersecurity incidents are only increasing, with losses stemming from “an array of cyber risks ranging from liability and costs associated with data breaches to business interruption losses and even tangible property damage caused by cyber events.” Raskin encouraged bank CEOs and boards of directors to consider whether their insurance is adequate based on their company’s cyber risk exposure.

For these reasons, policyholders should seek guidance from experienced coverage counsel who can undertake a review of your existing insurance program to ensure that it provides adequate protection in the event of a data breach or other cyberliability loss. If you wish to enhance your insurance program to best respond to the particular risks you face, please contact the authors of this blog post, the Reed Smith Insurance Recovery Group’s Global Practice Group Leader, Doug Cameron, or any Reed Smith Insurance Recovery Group attorney with whom you routinely work.

On the Coattails of United States v. Trek Leather, Make Sure You Have Suitable D&O Coverage

This post was written by Andy Moss and Stephen Winter.

Corporate directors and officers have a long list of things that can keep them up at night. Personal liability for civil fines and penalties arising out of negligence or even gross negligence committed in the course of their service to the company should not be one of them. But recently, in United States v. Trek Leather, Inc., 767 F.3d 1288 (Fed. Cir. 2014) (en banc), a federal appeals court held that the government could hold a corporate officer liable for a civil penalty based on gross negligence committed by the officer or his or her agents acting in the scope of their duties to the company, and without the government establishing fraudulent intent or attempting to pierce the corporate veil. Following the decision, a representative of the Department of Justice, although speaking for himself and not the DOJ, sought to downplay the effect of Trek Leather by—perhaps unwittingly—stating that the result in Trek Leather simply reaffirms long-standing government policies. In light of the decision in Trek Leather, as well as at least one Justice Department attorney’s belief that it is wholly appropriate to pursue individual directors or officers in their personal capacities for fines and penalties without even having to establish fraud or wrongful conduct by the director or officer himself or herself, a director or officer might understandably sleep a little less soundly.

For directors and officers facing similar risks, it is important to ensure that the company’s directors’ and officers’ liability (“D&O”) insurance program includes comprehensive coverage for non-indemnifiable Claims against corporate directors and officers (“Side A” coverage), including coverage for civil fines and penalties (to the extent insurable under applicable law), in the event the company is unable or unwilling to pay or indemnify for civil fines and penalties. Excess Side A-only/Difference-in-Conditions (“DIC”) policies may further provide an additional, critical backstop to personal liability. A comprehensive DIC policy may provide both excess Side A D&O coverage and also may “drop down” and serve as primary Side A D&O coverage in the event civil fines and penalties or other loss assessed against directors and officers cannot be indemnified and the company’s full-side D&O policies cannot respond to the claim due to exhaustion, insolvency or a coverage issue.

Don’t wait to ensure that your officers and directors are covered. If your company’s D&O insurance program lacks this coverage, request that your carriers extend coverage for civil fines and penalties levied against directors and officers at the company’s next renewal or placement. If your company is inheriting or potentially inheriting liabilities through a transaction or merger, assess and address these risks during negotiations, and put in place (or require the seller to put in place) adequate indemnification and insurance protections to shield directors and officers from personal liability. As the insurance maxim goes, you’ll be glad you have it when you need it.

Life, Liberty, or Ferguson

Last week we encouraged the Shriver Center community and government officials to embrace systems-thinking and implicit bias research to develop solutions and strategies to prevent deaths like that of Michael Brown. Today in the wake of yet another grand jury decision not to indict a white police officer for the death of an unarmed African American, we want to express our support and stand with the many protesters in Ferguson, New York City, Cleveland, across the country, and in the world.

Dr. King acknowledged that there comes a time "when silence is betrayal" as he chronicled the emotional and spiritual journey that led him to speak out against the Vietnam War. At that time, Dr. King wasn’t just speaking out against war; he recognized that he “could never again raise [his] voice against the violence of the oppressed in the ghettos (referencing his condemnation of their damaging property in protest) without having first spoken clearly to the greatest purveyor of violence in the world today: [his] own government.”

Dr. King determined that silence would be betrayal if he continued to ignore the struggles of those oppressed, the damage being done by the country’s unresolved addiction to violence, and those whose lives are irrevocably altered due to the fear of violence. 

In that spirit, we must ask ourselves, at what point does our silence and inaction rise to the point of complicity and betrayal? 

That time is now. We cannot turn our backs on the men, women, and children feeling the heartache on all sides of these tragedies. We cannot look the other way and hope that our country will somehow grow stronger as racial animus and distrust deepens. We cannot forget how violence, and the fear of violence by the police or actual criminals, imprisons people in their homes and communities and deprives people of the justice they are to be guaranteed. Many minority communities, who experience intrusive, abusive, and often illegal police practices, essentially live under a different and far less protective Constitution.     

Now is the time for us to join our brothers and sisters who courageously protest in every corner of the world. We should work together, and use our influence, talent, and democratic and legislative processes to establish transparency, accountability, training, and the compassion required to extinguish the enduring flames of fear, and distrust. Let’s also consider:

1. Improving police hiring and training by:

a. Improving hiring as it relates to people of color;

b. Taking better account of the psychoprofile of the candidates for hire;

c. Including police training on theories of implicit and subconscious bias; and 

d. Creating better scenario training for police so a larger decision tree comes to mind besides "shoot" when situations escalate. 

2. Improving police accountability by: 

a. Having police log the race of all individuals they stop to better illustrate disproportionate contact with minorities; and,

b. Requiring police body cameras that record all stops (and requiring that they notify tech immediately if there is a malfunction).

3. Improving media coverage of positive community interactions, positive outcomes of good police work, and police apologies for mistakes made.

4. Providing ways for trusted community members to have the authority to work with police and respond more efficiently to the needs of their neighborhoods. 

While these kinds of improvements are critical, a framework focused only on improving police accountability and community relations will fall short of advancing systemic change. Just as Dr. King worked on many fronts, including racial discrimination in public accommodations and housing, education, and job inequality, so too must the legal aid community continue its efforts to address the multiple issues that impact access, opportunity, and equality. For example, by

  • targeting economic and workforce development efforts in communities principally composed of people in the lowest economic quartile (no trickle down, direct action) and teaching all interested the 21st century skills necessary to get jobs in burgeoning sectors (tech, healthcare); 
  • increasing education funding and allocating funds so schools that serve communities with greater needs are supported; 
  • overcoming and remedying entrenched residential racial segregation existent in Ferguson and communities throughout the United States that deprive communities of color of a meaningful and equal opportunity to succeed; and 
  • strategically advancing economic development of those communities to advance real community revitalization.

Now is the time for members of the legal aid community to support protesters’ efforts and to make sure our work is designed to ensure an America that honors Her promise to all of “Life, Liberty, and the pursuit of Happiness.”

Carol Ashley, Vice President of Advocacy, and Kate Walz, Director of Housing Justice, contributed to this blog post. 


Insurance Regulator Too ‘Aggressive,’ Insurers Say

Four insurance companies sued the California Department of Insurance, claiming the agency has become "increasingly aggressive" in its efforts to enforce the state's Unfair Insurance Practices Act.

The companies say the department is trying to enforce the UPA beyond the scope of the original statute, by wanting to impose "millions of dollars in monetary penalties" against insurance companies.

In statute form, the UPA outlines 16 unfair claims settlement practices that companies must avoid in order to be compliant with the law. Prohibited practices include misrepresenting pertinent facts or policy revisions to clients, compelling insured clients to pursue litigation to recover amounts due, and attempting to settle a claim for less than a "reasonable" amount.

But the four plaintiffs known as the Torchmark group of companies said the department has been adding to the original 16 practices, creating 25 "categories of acts" that outline specific conduct to be followed or prohibited in the settlement of claims.

The Torchmark group includes Globe Life and Accident Insurance Company, American Income Life Insurance Company, United American Insurance Company and United Investors Life Insurance Company and is represented in the suit by Robert Hogeboom of the Los Angeles firm Hinshaw & Culbertson.

READ MORE at Courthouse News Service