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

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.

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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.

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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]