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 the digital producer and a staff writer at 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]