The Law

Legal Spotlight

A look at the latest decisions impacting the industry.
By: | May 2, 2017 • 4 min read

Losses Due to Emails Not Covered

On june 4, 2012, an employee of accounting firm Taylor & Lieberman (T&L) received an email from a client requesting a wire transfer to a bank account in Malaysia in the amount of $94,280.

After complying with those instructions, she received another email the next day, requesting an additional $98,486 be wired to a bank in Singapore. The employee again complied. A third email request, in the amount of $128,101, raised suspicions because of a different email address.

A phone call confirmed that all three emails were fraudulent. T&L was able to recover nearly all of the monies from the first transfer, but none from the second.

The accounting firm used its own funds to reimburse the client and then sought reimbursement under its crime coverage with Federal Insurance Co., which denied the claim on June 13, 2012.

Two years later, the U.S. District Court for the Central District of California ruled the firm was not entitled to coverage. On March 9, the U.S. 9th Circuit Court of Appeals agreed.

The policy, the court ruled, provided coverage for “an insured’s direct loss ‘resulting from forgery or alteration of a financial instrument by a third party.’ ” In this case, there were no financial instruments, just emails instructing the firm to wire money.

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The court also dismissed T&L’s argument that the claim was covered by computer fraud coverage because the emails were an unauthorized entry into its system.
“The ‘mere sending’ of emails does not amount to actionable trespass to a computer system,” ruled the 9th Circuit, which dismissed the case.

Scorecard: The accounting firm’s claim for $98,486 was denied.

Takeaway: The “common sense reading of the policy” contradicted the accounting firm’s arguments, the court ruled.

Insurer Must Pay for Appeal

On dec. 13, 2011, a federal grand jury indicted Mitchell Stein on 14 counts of mail, wire and securities fraud, saying he artificially inflated the stock of Heart Tronics (also known as Signalife), a medical device company.

On Dec. 20, 2011, the SEC filed a civil suit against Stein and Heart Tronics for securities fraud and falsification of records.

Stein, a founder of the company who called himself its “chief creative architect,” was found guilty of the criminal charges, sentenced to 17 years in prison and ordered to repay $5 million in “illegally-gained profits” on May 20, 2013. The SEC action resulted in Stein being ordered to pay $5.4 million.

After his criminal conviction (which subsequently was remanded for resentencing earlier this year), Stein sought defense for an appeal from Houston Casualty Co., which had issued a $5 million directors and officers policy in November 2007.

HCC denied the claim, saying the policy provided coverage only until a “final determination,” which it said was the conviction. It also argued that Stein was not an officer or director of the company.

Stein filed suit, and lost in the Superior Court of Los Angeles County. That decision was reversed by the California Court of Appeal, Second Appellate District, on March 8.

Even though Stein denied being an officer of the company in other court proceedings, his statements “do not contradict” the argument that Stein was the functional equivalent of an officer or director during the HCC policy period, the court ruled.

It also said the policy defined a claim as “any civil or criminal proceeding, and expressly included ‘an appeal from any such proceeding.’ ”

Scorecard: The insurance company must pay for the costs to appeal the conviction.

Takeaway: A “thing that is ‘final until reversed’ is not final,” the court ruled.

Maritime vs. State Law

In february 2011, peter savoie and matt delahoussaye used a crane barge to attempt to dislodge solid objects from inside an offshore well in the Atchafalaya Basin in Louisiana.

Savoie was preparing to disconnect the hydraulic gate valve from the crane when the crane came toward him and knocked him off balance. He tried to clutch the crane, but lost his grip and fell about 8 feet, resulting in a “crush-type injury to the right lower extremity.”

Savoie eventually settled his claims against his employer, Specialty Rental Tools & Supply (STS). The master services contract (MSC) had required STS to indemnify Apache Corp., which had hired STS to perform the “flow-back process” on its fixed production platform.

The MSC stated it should be enforced under maritime law unless it was inapplicable.

Even though the injury case was settled, crane owner Larry Doiron Inc. and crane operator Robert Jackson, both of whom are part of Apache, sought a court ruling that would “enforce their contractual right to defense and indemnification” under admiralty law.

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Zurich American Insurance Co., which had issued the policy for the MSC, argued the indemnity provision was void under the Louisiana Oilfield Indemnity Act.

The U.S. District Court for the Western District of Louisiana agreed with Doiron and Jackson that it had a right to defense and indemnity, and that state law did not apply. On appeal by STS, Zurich and Oil States Energy Services, the U.S. 5th Circuit Court of Appeals on Feb. 23 agreed.

While flow-back activities have little to do with traditional maritime activity, it ruled, a vessel was necessary to do the work.

Scorecard: The insurer must defend and indemnify the barge owner.

Takeaway: Because the operation could not be completed with the vessel’s crane, the case was decided under maritime law.

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

More from Risk & Insurance

More from Risk & Insurance

R&I Profile

Achieving Balance

XL Catlin’s Denise Balan stays calm and focused when faced with crisis.
By: | January 10, 2018 • 6 min read

In the high-stress scenario of kidnap or ransom, the first image that comes to mind isn’t necessarily a yoga mat — at least, not for most.

But Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin, who practices yoga every day, would swear by it.

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“I looked at these opposing aspects of my life,” she said. “Yoga is about focus, balance, clarity of intent. In a moment of stress, how do you respond? The more clarity and calmness you maintain, the better positioned you are to provide assistance in moments of crisis.

“Nobody wants to be speaking to a frenetic person when either dealing with a dangerous situation or planning for prevention of a situation,” she added.

“There’s a poem by [Rudyard] Kipling on that,” added Balan’s colleague Ben Tucker. “What it boils down to is: If you can remain calm, you can manage through a crisis a lot better.”

Tucker, who works side by side with Balan as head of U.S. terrorism and political violence, XL Catlin, has seen how yoga influences his colleague.

“The way Denise interacts with stakeholders in this process — she is very professional and calm in the approach she takes.”

Yin and Yang

Sometimes seemingly opposite or contrary forces may actually be complementary and interconnected. In Balan’s life, yoga and K&R have become her yin and yang.

She entered the insurance world after earning a juris doctor degree and practicing law for a few years. The switch came, she said, when Balan realized she wasn’t enjoying her time as a commercial litigator.

Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

In her new role, she was able to use her legal background to manage litigation at AIG, where her transition from law to insurance took place. She started her insurance career in the environmental sector.

In a chance meeting in 2007, Balan met with crisis management underwriters who told her about kidnap and ransom products.

She was hooked.

Because of her background in yoga, Balan liked the crisis management side of the job. Being able to bring the calmness and clearness of intent she practiced during yoga into assisting clients in planning for crisis management piqued her interest.

She then joined XL Catlin in July 2013, where she built the K&R team.

As she became more immersed in her field, Balan began to notice something: The principles she learned in yoga were the same principles ex-military and ex-law enforcement practiced when called to a K&R-related crisis.

She said, “They have a warrior mentality — focus, purpose, strength and logic — and I would say yoga is quite similar in discipline.”

“K&R responders have a warrior mentality — focus, purpose, strength and logic — and I would say yoga is quite similar in discipline.” — Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

Many understand yoga to be, in itself, one type of meditation, but yoga actually encompasses a group of physical, mental and spiritual practices. Each is a discipline. Some forms of yoga focus on movement and breathing, others focus on posture and technique. Some yoga is meant to relax the mind and create a sense of calmness; other yoga types make participants sweat.

After having her second child and working full-time, Balan wanted to find something physical and relaxing for herself; a friend suggested yoga. During her first lesson, Balan said she was enamored with it.

“I felt like I’d done it all my life.”

She dove into the philosophy of yoga, adopting the practice into her daily routine. Every morning, whether Balan is in her Long Island home or on a business trip, she pulls out her yoga mat to practice.

“I always travel with my mat,” she said. “Daily practice is the simplest form of connection to routine to maintain my balance — physically and mentally.”

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She said the strangest place she has ever practiced was in Lisbon. She was on a very narrow balcony with a bird feeder swarming with sparrows overhead.

After years of studying and practicing, Balan is considered a yogi — someone who is highly proficient in yoga. She attends annual retreats with her yoga group, where she is able to rejuvenate, ready to tackle any K&R event when she returns.

In 2016, Balan visited Tuscany, Italy, where she learned the practice of yoga nidra, a very deep form of meditation. It’s described as the “going-to-sleep stage” — a type of yoga that brings participants to a state of consciousness between waking and sleeping.

“It awakens a different part of your brain,” Balan commented. “Orally describing it doesn’t quite do it justice. One has to practice Nidra to fully understand the effect it has on your being.”

Keeping a level head during a crisis is key in their line of business, Tucker said. He can attest to the benefit of having a yogi on board.

“I’ve seen her run table-top exercises where there is this group of people in a room and they run an exercise, a simulation of a kidnap incident. Denise is very committed to what we’re doing,” said Tucker.

“She brings that energy. She doesn’t get flustered by much.”

Building a K&R Program

When Balan joined XL Catlin, she was tasked with creating the K&R team.

Balan during a retreat in Sicily, Italy, 2017

She spent time researching and analyzing what clients would want in their K&R coverage. What stuck out most to Balan was the fact that, in these situations, the decision to purchase kidnap and ransom cover is rarely made because of desire for reimbursement of money.

“I asked why people buy this type of coverage. The answer was for the security responders,” she said.

“These are the people who sit with the family. They’re similar to psychologists or priests,” Balan further explained. “Corporations can afford to pay ransom. They buy [K&R] because it gives them access to these trained and dedicated professionals who not only provide negotiation advice, but actually sit with a victim’s family, engaging deep levels of emotional investment.”

“I’ve learned to appreciate all moments in life — one at a time. The ability to think clearly and calmly guides my work, my practice and my personal life.” — Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

Balan described these responders as people having total clarity of purpose, setting their intentions to resolve a crisis — a practice at the very heart of yoga. She knew XL Catlin’s new kidnap program would put stock in their responders.

“I’ve worked closely with the responders to better understand what they can do for our clientele. These are the people who run into danger — warrior hearts married to dedication to our clients’ best interests.”

But K&R is more than fast-paced crisis and quick thinking; Balan also spent a good deal of time writing the K&R form and getting the company’s resources in order. This was a huge task to tackle when creating the program from the ground up.

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“A lot of my day-to-day is speaking with brokers and finding ways to enhance our product,” she said.

After a few months, she was able to hire the company’s first K&R underwriter. From there, the program has grown. It’s left her feeling professionally rewarded.

“People don’t often get that opportunity to build something up from scratch,” she said. “It’s been an amazing experience — rewarding and fun.”

“She brings groups of people together,” said Tucker. “She’s created a positive environment.”

Balan’s yogi nature extends beyond the office walls, too. Her pride and joy, she said, are her kids. And while it may seem like two large parts of her life are opposite in nature, Balan’s achieved balance through her passions.

“[Yoga] has given me the ability to see beyond only one aspect of any situation” she said. “I’ve learned to appreciate all moments in life — one at a time. The ability to think clearly and calmly guides my work, my practice and my personal life.” &

Autumn Heisler is a staff writer at Risk & Insurance. She can be reached at [email protected]