The Law

Legal Spotlight

A look at the latest court decisions impacting the insurance industry.
By: | January 10, 2018 • 5 min read

No Bone for Dog Groomer

Woofbeach, a dog grooming facility in Illinois, was not pleased to see Beach for Dogs pop up in the greater Chicago area. It was particularly upset when Beach for Dogs installed a sign in front of its door, displaying a dog on a beach with a palm tree.

For Woofbeach, the sign was eerily similar to its own; the company sued for trademark infringement.

A former Woofbeach customer and the Beach for Dogs founder, Steven Holland, stole elements from Woofbeach’s logo without authorization and created his own business with similar goals, alleged Woofbeach.

The suit further claimed that the Beach for Dogs logo construction confused customers into assuming affiliation between the two businesses.

To address its legal fees, Beach for Dogs turned to Sentinel Insurance Co. for defense coverage, but Sentinel refused.

The liability policy Beach for Dogs obtained from Sentinel contained a broad intellectual property (IP) exclusion that barred coverage for any claims arising out of alleged infringement, such as copyright or trademark, said Sentinel.

The insurer sought a ruling to confirm its position in the Woofbeach suit.

However, Beach for Dogs argued the policy also held a limited exception to the IP exclusion when a suit alleges only that a policyholder infringed on another’s copyright, slogan or its title in its advertising.

Therefore, the groomer argued, the limited exception on advertising should restore coverage from the insurer.

Sentinel countered that Beach for Dogs was attempting to rewrite the Woofbeach complaint, “arguing that there are allegations of copyright infringement,” yet “there are no factual allegations of copyright infringement in the Woofbeach suit.”

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The suit, instead, was specific to trademark infringement and unfair competition due to the similarities in business type and signage.

Additionally, the suit was not about advertising; it was about stealing the logo design. Sentinel argued that the term advertising referred to a wide distribution of the logo, but Woofbeach was suing specifically over the sign above Beach for Dogs’ door.

“By the express language of the IP exclusion, the existence of the trademark allegations precludes coverage for the entire underlying lawsuit,” said the judge.

Scorecard: Sentinel Insurance Co. need not defend Beach for Dogs in the trademark infringement and unfair competition suit filed by Woofbeach.

Takeaway: In the tricky world of copyright, trademark and advertising, best practice is to determine the line drawn between each. Know where subsidiary categories fall and outline what is and is not covered.

Data Leak Wasn’t ‘Published’

Software developer Innovak International Inc. was the target of a data breach.

Innovak designs, develops and sells software systems to schools across the U.S. The breach leaked personal private information, including social security numbers, addresses, employment and spousal information.

Several individuals affected by the breach filed a putative class action suit, claiming that Innovak failed to adequately protect their information, along with failing to disclose the breach in a timely manner.

They also claimed to suffer “psychic injuries,” including stress, nuisance, loss of sleep and worry.

Innovak informed its insurer, The Hanover Insurance Company, of the impending class action, asking for defense coverage under a personal and advertising injury claims policy.

Hanover reviewed its injury claims policy and noted that the insurer had “no duty to defend the insured against any ‘suit’ seeking damages for ‘personal and advertising injury’ to which this insurance does not apply.”

The policy further defined a ‘personal and advertising injury’ as a bodily (including mental) injury stemming from oral or written publication, in any manner, that violated a person’s right of privacy.

Hanover notified Innovak it would not cover costs for defense, because Innovak did not publish the material leaked in the breach. Instead, negligence led to the loss of information.

The court reviewed the underlying class action before turning to the policy. The class action alleged gross negligence, recklessness and/or wantonness against Innovak for its “failure to provide adequate security to protect their PPI.”

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The underlying action never alleged that Innovak published the stolen material. This, said the court, excused Hanover from covering the underlying class action, because it was explicitly excluded in its personal and advertising injury claims policy.

Scorecard: When reviewing the underlying class action, the court deemed that the claimants never alleged Innovak published their information. Hanover does not have to cover the defense.

Takeaway: Defense or indemnification coverage can be affected by the allegations included or omitted in an underlying claim. It would be wise to review the wording in any underlying suit before heading to court.

Insurer Liable for $9 Million

A Wisconsin trucking company, Rogers Cartage Co., hauls bulk liquid chemicals across the country. It was hit with two environmental contamination lawsuits over its alleged practices at a former truck cleaning facility.

Rogers settled both suits for nearly $9 million. It sought indemnification for the settlements through its insurer, however, the trucking company ran into a slight problem: The contamination happened in the early 1960s.

Travelers Indemnity Co. wrote a general liability policy for Rogers between 1960 and 1961 and another from 1965 to 1986 — with written documentation to back up the coverage — yet both the insurer and the trucking company could not find a policy written for 1961 to 1965.

Travelers did not believe it needed to cover indemnification for the lawsuits. It said there was a lack of evidence of its coverage at that time.

During the court hearing, Rogers argued that the bookend policies clearly showed it had been covered by Travelers during the 1960s, meaning the insurer should provide legal coverage for the underlying suits.

Travelers countered that, because both the insured and its own records did not have proof of coverage, then it likely did not cover Rogers during the period in which it was facing environmental contamination suits.

Rogers came back with copies of the policies it possessed, examples of Travelers policy paperwork from the time period in question, a certificate of insurance from 1962 and a letter from a Travelers claims adjuster referencing renewal numbers on the bookend policies.

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“Travelers has not offered any affirmative evidence to rebut, undercut or discount Rogers’s evidence that the disputed policies contained the same coverage and endorsements as the bookend policies and specimen policies,” said the judge.

The court ruled in favor of Rogers.

Scorecard: Despite being unable to procure a written policy, Travelers is on the hook to pay $9 million in indemnification.

Takeaway: Accurate and precise documentation will lead to positive results on the insurer’s side. Lack of documents leaves too many open doors for a court to second guess.

Autumn Heisler is a staff writer at 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.

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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.”

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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.

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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]