Category Archives: Legal Environment

@united: Do You Have A Reputational Risk Policy?

While the social media firestorm following the forcible removal of a passenger from a United Airlines flight highlights the importance of crisis and reputation risk management, it also underscores the potential liability airlines face from balancing duties to their customers, employees and to shareholders.

USA Today reports that three things govern a carrier’s relationship with its passengers: contracts of carriage, the U.S. Department of Transportation and laws approved by Congress:

United’s dispute with a passenger forcible removed from a Sunday flight shines a spotlight on the contracts that set rules and expectations between carriers and travelers.

“Those contracts are well thought through. They are generally fair and balanced, and they reflect the market,” said Roy Goldberg, a partner at Steptoe & Johnson who practices aviation law in Washington, D.C. “As a general matter, passengers have rights, but airlines have rights, too.”

A Reuters analysis of federal data shows U.S. airlines are bumping passengers off flights at the lowest rate since 1995.

Many insurers and brokers offer reputational risk policies that include crisis management and PR services to assist companies before, during and after a crisis.

More on the story in today’s I.I.I. Daily, via the Wall Street Journal:

On April 11 Oscar Munoz, head of United Airlines, apologized for the forcible removal by the police of Dr. David Dao, a passenger, from United Express Flight 3411 in Chicago. The apology came two days after the altercation led to the widespread expression of anger on social media, including millions of angry posts in the airline’s rapidly growing market in China. Politicians in Washington, D.C., also condemned the airline’s forcible removal of a passenger. Munoz sent a message to employees of United Continental Holdings Inc. apologizing for an incident he characterized as horrific and acknowledging the general public outrage, which he said he shared. The message was in sharp contrast to Munoz’s initial response.

FAA guidance for planning and preparing for your next airline trip here.

Impact Of Collision/Crash Top Cause of Liability Loss In U.S.

Despite advances in safety, the impact of collision/crash, particularly motor-related, is the main driver of liability loss activity in the United States.

The impact of collision/crash accounted for close to half (42 percent) of the value of business liability claims in the U.S., according to the latest global claims review by Allianz Global Corporate & Specialty (AGCS).

New technology will drive a big shift in liability claims, AGCS warns. For example, the rise of autonomous driving presents new loss scenarios for insurers:

“A decline in car ownership in favor of motor fleets, car-sharing and driverless taxis could see insurers move away from providing millions of single annual motor insurance policies to drivers, instead providing large policies purchased by manufacturers, fleet owners and operators.”

The shift to product liability will require insurers to develop technical expertise and not rely on historic data and driver profiling for pricing. Allianz has already started building teams of engineers with experience in automotive and driverless technology.

(Read this Insuring California blog post for more insight on how driverless cars will change auto insurance.)

The growing “sharing economy” also raises new liability questions:

”A road traffic accident featuring an autonomous car share vehicle could involve the vehicle manufacturer, software provider and the fleet operator, as well as third parties involved in the accident. This would make liability harder to apportion and claims more complex to settle.”

AGCS Global Claims Review analyzes over 100,000 corporate liability insurance claims from more than 100 countries, with a total value of €8.85bn (US$9.3bn), paid by AGCS, and other insurers, between 2011 and 2016.

Over 80 percent of losses arise from these 10 causes:

See Insurance Information Institute (I.I.I.) information on litigiousness here.

Sugar: The Next Tobacco?

Is sugar the next tobacco? Liability insurance experts say it could be.

Excessive, but not always obvious use of sugar (also salt) in food has the potential for systemic loss, a recent Lloyd’s report found.

The potential loss scenario unfolds if excessive levels of sugar are found to be harmful by scientific studies and if courts find food producers and/or the distribution chain liable for resulting damages.

“A societal shift may make the addition of significant amounts of sugar to our food unacceptable, with liability risks affecting food manufacturers (and possibly distributors and retailers).”

A sample footprint in the report (below), starting from sugar beet and cane farming to sugar and confectionary manufacturing and spreading to various other food manufacturers, wholesalers, retailers, and food and drink outlets shows the widespread distribution of sugar and the potential impact on many customers:

“Historical data suggests that the spread would also be amplified by the presence of large corporates with large insurance cover and funds.”

Businesses address their liability concerns through many types of risk management, of which insurance is an important component, according to the Insurance Information Institute.

A Swiss Re study indicated that the United States in 2013 had the largest commercial liability insurance market in the world both in premium volume ($84 billion) and as a percentage of Gross Domestic Product (0.50 percent).

Case Of The Missing Comma

Grammarians and legal eagles among you will want to read about how a punctuation mark known as the Oxford comma is the crucial factor in a class action involving overtime pay for truck drivers.

This is just one of the items covered in our Insurance Information Institute (I.I.I.) Daily newsletter today, a must-read publication for anyone in and around the insurance industry. (Sign up by emailing daily@iii.org).

Citing the New York Times, the I.I.I. Daily reports that on March 13 the U.S. Court of Appeals for the First Circuit handed down a lengthy court decision that is seen as a grammar lesson that could lead to an estimated $10 million loss for a dairy company in Portland, Maine.

The backstory: In 2014 three truck drivers filed a lawsuit seeking more than four years of overtime pay they alleged that Oakhurst Dairy had denied them unfairly. Under Maine law, workers have to be paid 1.5 times their normal rate for each hour worked in excess of 40 per week, with some exceptions.

Punctuation refresher: Grammarians are very polarized about whether a comma should be placed before the last of a series of items in a list, and some insist on what is referred to as the Oxford comma, one preceding the final item, while others habitually omit it. The absence of the comma can change meaning.

Comma in question: The state law involved in the case says that overtime rules do not apply to “The canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of: 1) Agricultural produce; 2) Meat and fish products; and 3) Perishable foods.” The question before the court was whether the law intended to exempt distribution of the three categories or packing for their shipping or distribution.

The decision: The appeals court ruled in favor of the drivers, after finding that the absence of a comma after “shipment” led to uncertainty about whether the law exempts applies to delivery drivers who distribute perishable foods, although they do not pack them. The appeals court reversed a lower court decision that denied truckers overtime.

If you’re surprised at the $10 million difference a comma can make, consider how important it is to draft insurance contracts and policy language that use words and punctuation correctly. This Deepwater Horizon coverage dispute is a good example.

Minimizing Human Error At The Oscars

One week since we were left scratching our heads following the botched best picture announcement at the 89th Academy Awards ceremony, the liability ripples from an apparent act of human error continue to spread.

Just to recap: the mix-up occurred after a PricewaterhouseCoopers partner mistakenly handed presenter Warren Beatty the wrong envelope for the best picture award.

As the LA Times reported early on, the mistake instantly turned into a public relations nightmare for the accounting firm which has handled the balloting process for the Academy Awards for 83 years.

For its part, PwC quickly moved to mitigate damage to its brand, issuing an apology and accepting full responsibility for the mixup.

Brian Cullinan and Martha Ruiz, the two PwC partners involved, have been permanently removed from all Academy activities. PwC said the partners did not follow through protocols for correcting the error quickly enough.

Whether or not the Academy will terminate its contract with PwC, industry lawyers say there are a number of potential liability issues that could arise, per this article by The Hollywood Reporter.

Others say public perception and doubts about PwC’s expertise could be a costly risk factor going forward.

As the fallout continues, the two PwC accountants involved now need security protection due to the public backlash.

While this human error did not happen in the process of crunching the numbers, it does highlight how important it is for businesses to manage their professional liability risks.

Insurers have developed professional liability policies to meet the unique needs of a wide range of industries. Crisis response and helping businesses to protect their reputation are among the services insurers provide.

Uber Case Highlights Employment Liability Risk

By now you’ll have read the troubling tale of alleged workplace sexual harassment as told by a former Uber employee on her personal blog.

As the LA Times reports, Uber CEO Travis Kalanick has called in former U.S. Attorney General Eric Holder to conduct an independent investigation and claimed that the blog post was the first he knew of the incident.

The allegations are a warning to the tech industry and its so-called rockstar culture, the LA Times notes.

The New York Times goes into more detail here.

In a statement issued following a meeting with Kalanick and staff to discuss diversity and inclusion, Uber board member Arianna Huffington said:

“I view it as my responsibility to hold the leadership team’s feet to the fire on this issue.”

This is not the first time that the ridesharing company has been in the hot seat for behaving badly, as discussed in this earlier blog post.

Charges of sex discrimination, including sexual harassment and pregnancy discrimination accounted for 26,934, or 29.4 percent of all job bias charges reported to the U.S. Equal Employment Opportunity Commission (EEOC) in 2016.

As the Insurance Information Institute (I.I.I.) notes, the number of employee lawsuits has increased in recent years, and any size business is vulnerable to this type of risk.

Employment Practices Liability Insurance (EPLI) provides important financial protection to businesses against claims or lawsuits filed by employees, former employees, or potential employees.

EPLI covers legal costs, settlements and judgments that arise from claims of: discrimination (age, sex, race, disability, etc.); wrongful termination of employment; sexual harassment and other employment-related allegations and lawsuits.

In addition to insurance protection, I.I.I. says businesses should take key steps to reduce the risk of an employee lawsuit, such as creating clear workplace practices on employment practices and educating management and employees.

A recent Insurance Journal article took a look at what to expect in EPLI in 2017.

Hatching A Lawsuit? Protect Your Business With Insurance

If you didn’t think suing over Santa was bad enough shed a tear over the unfortunate case of the Hatchimal.

For those of you who aren’t familiar with the latest toy craze (or weren’t lucky enough to find one under the Christmas tree), the Hatchimal is basically an interactive stuffed animal that hatches from an egg.

Created by toy maker Spin Master Corp, each Hatchimal learns how to walk, talk and play games as it goes through the five stages of its life: egg, hatching, baby, toddler and kid.

Cute, right? Yes, but…

What if your Hatchimal fails to hatch?

For my sons, the case of the unhatching Hatchimal was remedied simply by a cuddle and some (admittedly overly exuberant) help breaking open its shell.

But as Business Insurance reports, the failure to perform has led one disappointed parent—Jodie Hejduk of Bakersfield, California, to file a lawsuit seeking class action against Spin Master Corp.

The complaint, filed in U.S. District Court in the Eastern District of California charges Spin Master with spoiling the holidays and false advertising after the toy Hedjuk purchased for her daughter failed to hatch.

The suit alleges the hottest toy of the season which retails at $50-$60 was so hard to find that some were selling on the black market for $350:

“For the few children who were lucky enough to receive a Hatchimal, many were left disappointed when their Hatchimal failed to live up to its name. Despite Spin Master’s representations that the toy would “hatch”, many Hatchimals did not hatch.”

The suit asserts violations of the California Consumer Legal Remedies Act, Unfair Competition Law and False Advertising Law. It also brings claims for unjust enrichment, breach of express warranty and injunctive relief.

A note on Spin Master’s website says:

“We have had more than a million successful hatches since we first launched Hatchimals on October 7th and we are still hard at work making sure that everyone has a magical hatching experience. We are 100% committed to bringing the magic of Hatchimals to all of our consumers.”

Spin Master also offers some troubleshooting tips on its Support/FAQs page.

And here’s the must-watch video on how to hatch your Hatchimal:

Businesses address their liability concerns through many types of risk management, of which insurance is an important component, according to the Insurance Information Institute (I.I.I.). See I.I.I. facts and statistics on litigiousness.

Women’s Marches And Insurance

The Women’s March on Washington has inspired a grassroots movement of tens of thousands who will show their solidarity in sister marches held in cities across the country on January 21, the day after the inauguration of U.S. president-elect Donald Trump.

All 50 states and Puerto Rico are confirmed to have at least one grassroots-led march on that day, with more than 500,000 people expected to march across the U.S. and in 55 cities around the world.

For volunteer organizers of sister marches, what began with a simple Facebook posting in many cases has grown into a much bigger event for which organizers have taken on not just leadership responsibility, but potential liability consequences too.

Notwithstanding the rights of individuals to come together in peaceful protest, there’s the potential for claims for bodily injury or property damage in the event a march becomes less peaceful than expected.

What this means is that local volunteer organizers may want to explore their insurance options.

For example, many (but not all) municipalities require individuals or groups using public property to purchase liability insurance as part of the application process for a permit to hold an event.

This issue is already a hot topic in Phoenix, Arizona, where under state regulation, organizers of the sister march are required to secure some $2 million in liability insurance, per this AZCentral.com report.

A number of municipalities also offer tenant user liability programs (so-called TULIP programs) that enable organizers of certain public events on city property to more easily obtain event liability insurance.

Legal Fallout From Oakland Warehouse Tragedy

Filing of the first lawsuits in connection with the December 2 Oakland warehouse fire that killed 36, underscores the importance of managing legal risks that arise from disaster.

The fire was the deadliest in the United States since a 2003 nightclub fire in Rhode Island that killed 100.

Civil complaints were filed Friday on behalf of families of two students who died in the blaze against a number of people, including the building’s owner and those who transformed the space into an artist community that was home to 20 people but not permitted for residential use, promoters and those involved with the event.

Separate claims were also filed against employees of Oakland city and Alameda County departments.

The Wall Street Journal reports that the city of Oakland has come under increasing scrutiny since the Dec. 2 fire for failing to prevent the blaze. City officials have said no building inspector had been in the warehouse for the past three decades even though complaints had been made for years.

Although state law provides a broad liability shield for local governments for failing to conduct building inspections, the immunity is “not insurmountable,” according to the lawyer representing families.

Criminal charges may also follow.

Among the lawsuits’ allegations, according to CNN:

—“The interior of the approximately 10,000-square-foot Ghost Ship was a death trap, which contained a maze of makeshift rooms, alcoves and partitions. It was cluttered with carvings, mannequins, paintings, artwork, scraps of wood, pianos, furniture, tapestries and at least one recreational vehicle trailer, which were kindling for the fire.”

and

—The building contained insufficient smoke alarms, fire extinguishers, sprinklers, exit signs and emergency lighting.

The Insuring California blog post Can cities and artists work together to create safe spaces for venues? explores some of the other factors contributing to the deadly blaze.

U.S. fire departments responded to an estimated average of 1,210 fires in warehouse properties per year (excluding refrigerated or cold storage), which represents less than 1% of all structure fires, the National Fire Protection Association (NFPA) reports.

These fires caused an annual average of $155 million in direct property damage, three civilian deaths, and 19 civilian injuries.

Fires that were intentionally set and fires caused by electrical distribution and lighting equipment are the leading causes of warehouse fires, according to the NFPA (below).

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NFPA notes:

“Warehouses present special challenges for fire protection because their contents and layouts are conducive to fire spread and present obstacles to manual fire suppression efforts.”

More on structure fires available in the Insurance Information Institute’s facts and statistics on fire.

‘Tis The Season…For Lawsuits

In true holiday spirit we just got our kids to the mall to see Santa this week. Its an annual tradition, a visit that helps keep the magic alive in our all-too-knowing six and four-year olds’ minds and more importantly yields the holiday photo that keeps on giving throughout the years.

Every year Santa faces a barrage of questions. This year was no different. Our six year-old started: “Santa, I have a question. How come you know I want a two-wheeled scooter?”

Luckily, the letter from the North Pole had arrived a few days earlier telling him he had made the Nice List and that Santa knew from our elf Chippy just what he was wishing for.

This was confirmed by Santa at the mall who said: “Because you’ve been good and it’s magic.”

But what if the conversation had gone a different way?

Sometimes magic confronts reality and a lawsuit ensues, reminding us what’s at stake for Santa and the mall this Christmas.

Take this post over at Randy Spencer’s Open Mic published in the latest issue of online newsletter Coverage Opinions (edited by attorney Randy Maniloff of White and Williams LLP)

In the post, Court Holds a Mail Santa Liable: Damages Owed For Failure To Deliver A Toy Fire Truck, Randy Spencer – the only stand-up comic to specialize in insurance – tells of a Montana trial court that found a mall and its Santa liable for a child’s emotional injuries after promising a toy that was not left under the tree come Christmas Day.

How much damages did the court award in this case? $95,000.

All of which is a timely reminder that Santa (and the malls that embrace the Christmas spirit) need insurance too.

Which is why the Insurance Information Institute (I.I.I.) urges St. Nick to review his insurance policies to be sure he’s got the right insurance coverage with its Santa’s Insurance Wish List.

And we suggest the I.I.I.’s business insurance checklist would make a great stocking stuffer in this case.

All the best for a happy and safe holiday season!