The Law

Legal Spotlight

A look at the latest decisions impacting the industry.
By: | August 3, 2015 • 5 min read

Florida Workers’ Comp Law Upheld

In 2010, Julio Cortes sued his employer Velda Farms after being injured while operating equipment. He alleged the company was negligent and should not be permitted to claim immunity under the Workers’ Compensation Law because the injury claim had been denied by Velda Farms and its insurer.

CombineThe Cortes lawsuit was amended in 2012 to argue the state’s workers’ comp law was unconstitutional, although the State of Florida was never added as an additional defendant to the lawsuit.

Several months later, Florida Workers’ Advocates (FWA) and the Workers’ Injury Law and Advocacy Group (WILG) intervened in the lawsuit. In 2013, Velda Farms voluntarily dismissed its defense of immunity — later being removed from the case — and sought to dismiss the claims.

A trial court concluded that WILG and FWA “lacked standing” to pursue claims of unconstitutionality.

Later, however, Elsa Padgett, who had been injured in 2012 while working for Miami-Dade County, sought and received permission to intervene in the case, seeking a judicial ruling on whether the state’s workers’ comp law was her “exclusive remedy.”

The state advised the court, upon its request, that it was not a party to the action, and stated the court lacked jurisdiction to rule the law unconstitutional. After the court struck the law down, the state appealed to the state’s Third District Court of Appeal, which reversed the decision.


On June 24, the appeals court ruled the constitutionality question became moot when Velda Farms left the proceedings, that the state was never a party to the lawsuit and that FWA and WILG had no standing to pursue the case “based exclusively on a predecessor plaintiff’s subsequently dismissed claim.”

Scorecard: Employers are immunized from lawsuits related to covered, work-related injuries.

Takeaway: The Florida Workers’ Compensation Law remains the exclusive remedy for injured workers.

Insurer Has No Duty to Defend

Global Fitness operated a regional chain of fitness centers, and contracted with data company Federal Recovery Acceptance Inc. (FRA) to process member accounts and transfer members’ monthly fees to Global.

08012015_legal_spotlight_workoutGlobal obtained credit card and other information from its members and uploaded the data to FRA’s encrypted website for FRA to manage the electronic billing. For security purposes, only FRA retained the billing data.

After Global entered into an asset purchase agreement (APA) with LA Fitness, it requested the return of member account data. It was agreed that FRA would retain members’ banking and credit card information until the LA Fitness deal was near closing.

But later, FRA refused to return the data. FRA issued several “vague demands for significant compensation” above and beyond the terms agreed to in its contract with Global, according to the legal documents. FRA also refused to transfer some member fees until the matter was resolved.

Global claimed FRA’s position was unjustified, and that the delay threatened its ability to comply with its obligations under the APA with LA Fitness, causing a decreased purchase price.

Global sued FRA for tortious interference, promissory estoppel, conversion, breach of contract, and breach of the implied covenant of good faith and fair dealing.
FRA, which had a cyber policy with Travelers, sought a defense under that policy, which included liability for any “error, omission or negligent act relating to the holding, transferring or storing of data.”

Travelers provided a defense under a reservation of rights, while seeking a judicial declaration on its duty to defend FRA.

The U.S. District Court for the District of Utah determined on May 11 that there was no duty to defend.

It held that Global’s complaint did not allege that FRA withheld the data as the result of an error, omission, or negligence. On the contrary, it ruled, “Global alleges that Defendants knowingly withheld this information and refused to turn it over until Global met certain demands.”

Scorecard: Travelers had no duty to defend Federal Recovery Acceptance Inc.

Takeaway: Although the insurer prevailed in this case, other jurisdictions have ruled that an error need not be negligent for coverage to be available.

Policy Did Not Cover Settlement Negotiations

In 2007, computer tapes containing personal information of current and former employees of International Business Machines (IBM) fell off an Executive Logistics Services LLC (ExLog) truck.

08012015_legal_spotlight_tapeExLog had been contracted to provide transportation services for Recall Total Information Management Inc., which had a contract with IBM to transport and store such tapes.

Although the information on the tapes, which were retrieved by an unknown individual, has never been used, IBM had more than $6 million in losses resulting from the event, including providing identity theft services to employees.
In “informal negotiations,” IBM sought reimbursement from Recall and ExLog.

Federal Insurance Co. had issued ExLog a commercial general liability policy, and Scottsdale Insurance Co. had issued ExLog an umbrella liability policy. Both policies named Recall as an additional insured.

Both insurers declined to participate in the negotiations or provide coverage to the companies, who then sued the insurers claiming breach of duty to defend as well as seeking coverage for claims made by a third party.


Both a trial court and appellate court ruled in favor of the insurers. On May 26, the Connecticut Supreme Court agreed with the lower courts, which had found that the loss of the computer tapes was not a “personal injury,” which was defined in the policies as electronic, oral, written or “other publication of material that … violates a person’s right of privacy” — because there was no publication of the information.

In addition, the court ruled there was no breach of duty to defend because the settlement negotiations did not involve a lawsuit or “other dispute resolution proceeding.”

Scorecard: The insurance companies did not need to provide more than $6 million in coverage for losses.

Takeaway: Informal settlement negotiations did not trigger the insurer’s duty to defend the policyholder.

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

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.


That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.


Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

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