The Law

Legal Spotlight

A look at the latest decisions impacting the industry.
By: | November 2, 2015 • 6 min read

Court: Misrepresentation Voids Claim

An 18-year-old employee of Sky High Athletics in Nevada attempted to do a backflip when being trained as a trampoline instructor and broke his neck, leaving him a quadriplegic.


Sky High, which runs trampoline-lined fitness centers, filed a workers’ compensation claim for the worker with Companion Property and Casualty Group, which agreed to provide benefits.

After an investigation, however, Companion discovered that, contrary to statements on the fitness center’s application, employees routinely used the trampolines at the center. The application stated that employees were stationed at the front desk and dining area, and “they do not teach nor are they out on the trampolines,” according to documents.


112015_legal_trampoline230x300In November 2012, Companion sued Sky High, claiming it misrepresented information in its workers’ compensation application, according to documents. Sky High countered that Companion knew employees used the trampolines because they had already paid benefits for such injuries. It filed counterclaims against the insurer for delaying payments to the employee.

After a trial in U.S. District Court for the District of Nevada, a jury decided on Sept. 21 that Sky High made a “negligent misrepresentation” to the insurance company, but ruled that Companion was also negligent in the case.

It ordered Sky High to pay $8 million in damages to Companion for making false statements, but decreased the amount by 40 percent, due to Companion’s own negligence in the case.

That reduced the award to $4.8 million, which was further reduced to $3.49 million because of some setoffs in the case, according to published reports.

The brokers involved in the case were also sued by Companion, but reached a settlement prior to trial.

Scorecard: The fitness center must pay $3.49 million for misrepresentations in its workers’ compensation insurance application.

Takeaway: False statements on insurance applications will void coverage.

Insurers Unable to Recoup $132.5 Million

On Sept. 12, 2008, Robert Sanchez, engineer of a passenger train owned by Metrolink and operated by Connex, ran through a red signal in the Chatsworth area of Los Angeles because he was distracted by text messages on his cell phone, according to a federal investigation.

The train collided with a Union Pacific freight train, injuring more than 100 people and killing 24, including Sanchez.

Lloyd’s of London and other insurers paid out $132.5 million from excess railroad claims made policies issued to Metrolink and Connex, and other layers of excess insurance totaling $146 million, over a $4 million self-insured retention.


Subsequently, the insurers filed suit seeking reimbursement from Connex, and its parent company, Veolia Transportation Inc., claiming the policies excluded coverage for bodily injury “which the insured intended or expected or reasonably could have expected.”

The insurance companies argued that the railroad had knowledge of “multiple violations” of its no-cell-phone-usage policy by train employees and that such a disaster “reasonably could have been expected,” according to court documents.

In dismissing the case on Sept. 18, Los Angeles Superior Court Judge Elihu Berle said that argument was not sufficient under New York law, under which the case was tried.

The insurers’ argument “fundamentally fails to meet the more stringent New York standard, which requires that a reasonable person in [the railroads’] position would know that the injuries and damage resulting from the Chatsworth accident would flow immediately and directly from [the railroads’] intentional acts.”

He noted that neither Sanchez nor any other Connex engineer ever previously caused injury or damage because of a violation of the cell phone policy, and that Connex was not aware of the cell phone violation until the National Transportation Safety Bureau investigation.

At the same time, Berle dismissed a suit by the railroads against the insurance companies, arguing breach of contract, bad faith and fraud because the litigation was filed after a “policy release and agreement,” which “released all of the claims [insurers] had against [the railroads] at the time.”

The court ruled the claims in the lawsuit filed by the insurers fell within the scope of the agreement.

Scorecard: The insurers will not be reimbursed for $132.5 million in claims following the train crash.

Takeaway: An intentional act, even if it ultimately causes damage, is considered accidental under New York law unless the damage flows “directly and immediately from the act.”

Insurers Need Not Defend in Spyware Case

On July 30, 2010, Crystal and Brian Byrd leased a laptop computer from Aspen Way, a rent-to-own franchisee of Aaron’s Inc. On Dec. 22, 2010, an Aspen Way store manager came to repossess the computer, under the mistaken impression that the couple’s account was delinquent.

112015_legal_spotlight230x300The store manager showed Brian Byrd a picture taken with the computer’s webcam that showed Byrd using the computer, and the Byrds later discovered that Aspen Way had installed spyware known as “Detective Mode” on the computer.

Detective Mode gave Aspen Way access to private emails, keystroke logs for user names and passwords, financial information and personal photos, according to court documents.

The Byrds filed a class-action lawsuit alleging a violation of the U.S. Electronic Communications Privacy Act (and some other claims that were later dismissed) against Aaron’s and Aspen Way (collectively called Aspen Way) in May 2011.

They said their computer was accessed nearly 350 times and that the information was “transmitted via unencrypted email and forwarded to unknown persons and locations.”

Aspen Way sought defense and indemnification from Hartford Fire Insurance Co. and three Liberty Mutual Insurance Corp. subsidiaries, which had issued primary and umbrella policies. All agreed to defend under a reservation of rights.

The insurers sought a court judgment that they need not defend Aspen Way, and on Sept. 25, the U.S. District Court for the District of Montana, Billings Division, ruled in their favor.

The court ruled that coverage was triggered in all of the policies by the allegations of “personal and advertising injury,” which was defined as injury arising out of publication “of material that violates a person’s right of privacy.”

However, because a Recording and Distribution Exclusion precluded coverage for any “violation of a federal statute that prohibits the transmitting or distribution of material or information,” the court ruled defense and indemnity was not covered.


The court also ruled the insurance companies did not owe a duty to defend Aspen Way in a Washington State lawsuit, which was settled in February 2015, when Aspen Way entered into a consent decree that required it to pay $150,000 to the state and agree not to install any such software, while not admitting any violations of the state’s Consumer Protection Act and Computer Spyware Act.

Scorecard: The insurers need not pay to defend or indemnify Aspen Way. The Liberty Mutual subsidiaries may be due reimbursement of funds they paid for defense already, depending on further court proceedings.

Takeaway: Although Aspen Way argued the exclusion was ambiguous due to the phrase “arising directly or indirectly out of any action or omission,” court rulings determined that a policy term is not automatically invalidated because it is found to be ambiguous.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Absence Management

Establishing Balance With Volunteers

It’s good business to allow job-leave for volunteer emergency responders, whether or not state laws apply.
By: | January 10, 2018 • 7 min read

If 2017 had a moniker, it might be “the year of the natural disasters,” thanks to a phenomenal array of catastrophic or severe events— hurricanes, tornadoes, wildfires, ice storms and floods.


Combined with smaller-scale fires and other emergencies, these incidents tax the resources of local and state emergency services, often prompting the need to call volunteer emergency responders into action.

But as lean as most organizations are already running, volunteer activities can sometimes cause friction between employees and employers. Handling conflicts the wrong way can potentially lead to legal headaches, harm employee morale and batter a company’s reputation.

State by State Variations

Most employers are aware of the various federal and state leave laws protecting their employees, including family and medical leave, pregnancy leave and military leave. But leave laws that protect the livelihoods of volunteer emergency responders are more likely to fly under the radar of some HR managers and risk managers.

Such laws don’t exist in every state, but more than 20 states do have some type of law in place to protect volunteers including emergency responders, firefighters, disaster workers, medical responders, ambulance drivers or peace officers.

Marti Cardi, vice president of Product Compliance for Matrix Absence Management

The laws vary broadly. Nearly all specify that such leave be unpaid, and that employees disclose their volunteer status to employers and provide documentation for each leave. But there is a spectrum of variations in terms of what may trigger an eligible leave. Some, for instance, apply for any emergency that prompts a call from the volunteer’s affiliated responder group. Others may require a government declaration of emergency for the law to be triggered.

While many of the laws do not explicitly require employers to let employees leave work when called to an emergency during a shift, most specify that an employee may be late or even miss work entirely without facing termination or any other adverse employment action.

Some states mandate a maximum number of unpaid leave days that a volunteer can claim. But others may place more significant burdens on employers. In California, for instance, employers with 50 or more employees are required to grant up to 14 days of unpaid leave for training activities in addition to any leave taken to respond to emergency events. For multistate employers, keeping on top of what obligations may apply in each circumstance can be a challenge.

Significant Risks

Large or mid-sized employers may rely on absence management providers to keep them in compliance. For smaller employers though, it may be as simple as looking up a state’s law via Google to find out what’s required. However, checking in with the state department of labor or the company’s attorney may be the best way to get the correct facts.

“I would caution that just because you don’t find something [on the internet], it doesn’t mean it’s not there,” said absence management and employment law attorney Marti Cardi, vice president of Product Compliance for Matrix Absence Management.

For example, Cardi said, an obscure Texas law provides job-protected leave for volunteer ham radio operators called into service during an emergency.

Cardi said employers should task HR to investigate the laws in each state the company operates in, and to ensure that supervisors are educated about the existence of these laws.

“If a supervisor is told by one of his or her employees, ‘Sorry I’m not coming in today … I’ve been called to volunteer firefighter duty for the [nearby region] fire,’” she said, you want to be sure that the supervisor knows not to take action against the employee, and to contact HR for guidance.

“Training supervisors to be aware of this kind of absence is really important.”


An employer that does terminate a protected volunteer for responding to an emergency may be ordered to pay back wages and reinstate the employee. In some cases, the employee may also be able to sue for wrongful termination.

And of course, “you don’t want to be the company in the headlines that is getting sued because you fired the volunteer firefighter,” she added.

If an employer bars a volunteer from responding, the worst-case scenario may be a third-party claim. Failure to comply with the law could give rise to a claim along the lines of “‘If you had complied with your statutory obligation to give Jane Doe time to respond, my loved one would not have died,’” explained Philadelphia-based Jonathan Segal, partner at law firm Duane Morris and managing principal of the Duane Morris Institute.

“That’s the claim I think is the largest in terms of legal risk.”

Even if no one dies or is seriously injured, he added, “there could still be significant reputational risk if an individual were to go to the media and say, ‘Look, I got called by the fire department and I wasn’t allowed to go.’”

The Right Thing to Do

What employers should be thinking about, Segal said, is that whether or not you have a legal obligation to provide job-protected leave for volunteer responders, “there’s still the question of what are the consequences if you don’t?”

Employee morale should be factored in, he said. The last thing any company wants is for employees to perceive it as insensitive to their interests or the interests of the community at large.

“Sometimes employers need to go beyond the law, and this is one of those times,” — Jonathan Segal, partner, Duane Morris; managing principal, Duane Morris Institute

“How is this going to resonate with my employees, with my workforce, how are people going to see this? These are all relevant factors to consider,” he said.

There’s an argument to be made for employers to look at the bigger picture when it comes to any volunteer responders on their payroll, said Segal.

“Sometimes employers need to go beyond the law, and this is one of those times,” he said. “Think about the case where’s there’s not a specific state law [for emergency responders] and you say to a volunteer, ‘No, you can’t leave to deal with this fire’ and then people die. You as an employer have potentially played a role, indirectly, because you didn’t allow the first responder or responders to go,” he said.

The bottom line is that “it’s the right thing to do, even if it’s not required by law,” agreed Cardi.

“I feel that companies should have a policy that they’re not going to discipline or discharge someone for absences due to this kind of civic service, subject to verification of course.”

Clear Policy

While most employers do strive to be good corporate citizens, it goes without question that employers need to guard their own interests. It’s not especially likely that volunteer responders will try to take advantage of the unpaid leave allowed them, but of course, it could happen.

That’s why it’s important to have policies that are aligned with state laws. Those policies could include:

  • Notifying the company of any volunteer affiliations either upon hire or as soon they are activated as volunteers.
  • Requiring that employees notify a supervisor as soon as possible if called to an emergency (state requirements vary).
  • Requiring documentation after the event from the head of the entity supervising the volunteer’s activities.

If at some point it becomes excessive – someone has responded to emergencies five times in nine weeks, then it’s time to examine the specifics of the law and have a discussion with the employee about what’s reasonable, said Segal. It may also be time to ask specifics about whether the person is volunteering each time, or are they being called.


In some cases, the discussion may need to be about finding a middle ground, especially if an employee has taken on an excessively demanding volunteer role.

“We encourage volunteers to pick the style that best fits their schedule,” said Greta Gustafson, a representative of the American Red Cross. “Disaster volunteers can elect to respond to disasters locally, nationally, or even virtually, and each assignment varies in length — from responding overnight to a home fire in your community to deploying across the country for several weeks following a hurricane.

“The Red Cross encourages all volunteers to talk with their employers to determine their availability and to communicate this with their local Red Cross chapter.”

Segal suggests approaching it as an interactive dialogue — borrowing from the ADA. “Employers may need to open a discussion along the lines of ‘I need you here this week because this week we have a deliverable on Friday and you’re critical to that client deliverable,’” he said, but also identify when the employee’s absence would be less critical.

No doubt there will be tough calls. An employer may have its hands full just trying to meet basic customer needs and need all hands on deck.

“That may be a situation where you say, ‘First let me check the law,’” said Segal. If there’s a leave law that applies, “then I’m going to need to comply with it. If there’s not, then you may need to balance competing interests and say, ‘We need you here.’” &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]m