The Law

Legal Spotlight

A look at the latest decisions impacting the industry.
By: | July 6, 2017 • 4 min read

Court Rules on Electronic Data Exclusion

Beginning in 2007, Country World Media Group stored boxes of taped television shows, master copies and field footage at offices used by Country World Productions in Wisconsin.

In 2014, the media group discovered that Best Built Inc., lease manager for the premises, threw the boxes of tapes and other items, valued at about $1 million, in the trash.

The media group filed suit against Country World Productions (CWP), Best Built, VHC (owner of the property) and Craig Kassner, owner of Best Built, along with their insurance companies, claiming breach of contract and negligence.

Erie Insurance Co., which provided CWP with a commercial general liability policy, denied the claim, saying that the loss of “electronic data” was excluded from the policy’s definition of property damage.

On April 27, 2016, a circuit court in Wisconsin ruled Erie did not have a duty to defend CWP against the claim because of the electronic data exclusion. It dismissed Erie from the case.
CWP appealed to the state Court of Appeals, arguing Erie was liable for CWP’s ultimate settlement with Country World Media Group, as well as for all defense costs.

The appeals court ruled on May 2 that the media group experienced a loss of both intangible electronic data contained on the tapes, as well as the physical loss of the tapes themselves.


“The loss of the physical tapes constitutes property damage, as the policy defines that term, and is therefore covered,” the court wrote in reversing the lower court decision. It ruled that Erie had a duty to defend CWP on the claims, returning the case to the circuit court to enter a judgment in CWP’s favor, and to determine damages for Erie’s breach of contract.

Scorecard: The court will determine damages owed CWP for Erie’s failure to provide a defense.

Takeaway: While the property damage coverage excluded intangible electronic property, it did not exclude the tangible physical videotapes that held the TV shows and other footage.

Court: Insurer Should Have Investigated Misrepresentations

In April 2013, Sunwest Metals Inc. suffered a catastrophic fire at its recycling facility, and filed a claim with Star Insurance Co. under its Scrap Dealers Program policy.

While nearly two-thirds of Sunwest’s revenue came from paper processing, the insurance program limited policy issuance to companies that derived no more than 15 percent of their revenue from paper and plastics.

Through its broker, Thomas Dunlap Insurance Agency, Sunwest represented that nearly all of its revenue came from metals processing, according to court documents.

After Sunwest filed a claim for fire damage, Star rescinded the policy based on Dunlap’s misrepresentations, according to court documents.

A trial in the U.S. District Court for the Central District of California resulted in a judgment in favor of Sunwest of nearly $978,000, and the court determined Star had waived its right to rescind the policy by failing to investigate evidence of misrepresentation.

The U.S. 9th Circuit Court of Appeals agreed on May 18, ruling that Star had “information that ‘distinctly implied’ material misrepresentations, and that it failed to satisfy its duty to investigate such evidence. The duty of inquiry requires an insurer to not only ask questions, but also to investigate answers.”

It noted that Sunwest’s website advertised paper and plastic recycling, and that Star had made several site inspections that noted “substantial paper processing.”

The court also ruled the district court was correct when it reduced Star’s $978,000 claims payment by $232,000, to reflect the actual loss, when taking into account the amount of the recovery Sunwest received from Dunlap for “making erroneous representations to Star.”

Scorecard: Sunwest was awarded a total of $978,000 for property damage to its recycling facility.

Takeaway: The insurance company waived its right to rescind the policy because it ignored information that “distinctly implied” a misrepresentation of facts.

Carfax Denied a Defense in Antitrust Case

In 2013, about 470 auto dealers filed suit against Carfax Inc. for $50 million, claiming that it monopolized the sale of vehicle history reports by using “exclusive dealing arrangements” (a violation of the federal Clayton Act) and by “agreements in unreasonable restraint of trade” (a violation of the federal Sherman Act).

Illinois National Insurance Co. refused to defend Carfax in the federal antitrust suit, saying the Special Risk Protector policies it issued excluded coverage for, among other things, antitrust violations, unfair competition, or violations of the Sherman Act or the Clayton Act.

Arguing that the underlying lawsuit stigmatized and disparaged its company (both covered under the policy), Carfax filed suit against Illinois National seeking a ruling that the insurer had a duty to defend, as well as repay it for any defense costs.

The auto dealers’ lawsuit was eventually dismissed, but has been appealed.


On May 16, the Supreme Court of the State of New York dismissed the lawsuit against Illinois National.

“It is this anticompetitive injury, rather than disparagement, that forms the basis of the [underlying] litigation,” the court ruled.

The court ruled Illinois National did not have a duty to defend or to contribute to any defense costs.

Scorecard: The insurance company does not have to defend Carfax.

Takeaway: The underlying lawsuit was based on antitrust allegations, which were excluded under the policy.

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]