March 2012
When an employee gets hurt at work, or at least claims that they did, it can be a very stressful time for employers. Sometimes the injury is obvious, the employee is not exaggerating, and the employee simply wants to go back to work as soon as possible. Other times there are conflicting stories about whether an injury actually occurred or whether the injury is as severe as claimed.
In addition to following the applicable reporting requirements, there are several things employers can do to help develop a stronger defense.
1. Write Down The Facts
When you find out that an employee intends to file, or has filed a claim for injury, write down all the facts you know. Talk to any witnesses who might have seen the accident happen. If the employee has not retained an attorney, speak with them. Find out what happened, when, what the conditions were, who was present, and any other facts you believe are relevant.
Be objective when you are discussing this. Your role is to gather information, not argue the case. You want to be careful to avoid a situation where your employee could claim that you discriminated against them for filing or threatening to file a workers' compensation claim. In California, your insurance company has 90 days to admit or deny a claim from the employer's first date of knowledge, so this information will be very important.
2. Make A Timeline Complete With Relevant Documents
Sometimes a workers' compensation claim is filed soon after an employee is denied a promotion or raise, is placed under disciplinary warning, or has an interpersonal conflict with a co-worker or supervisor. This information is highly relevant, particularly when many cases filed for injury to other parts of the body systems eventually include a psychiatric component.
In many cases, if a person claims psychiatric injury and the defense can demonstrate that it is at least partially related to a good-faith personnel action, the degree of permanent disability or even compensability of the psychiatric portion can be challenged.
Keep any doctor's notes, job applications with applicable history, disciplinary warnings, wage information, notes, and other documentation and present it to your claims adjuster or the insurance defense attorney. Include everything you have. A separate timeline will also be useful in defending your claim.
We are all familiar with the various classes of people provided for by both the Federal and State fair employment practices acts. These include the traditional race, gender, age, disability and many more too numerous to be listed here. Well, hold on to your hats as there seems to be a new one being added. It now seems that the unemployed are being added to the list.
The unemployment rate seems to be on the decline, i.e. around 8.3% still without jobs. However, this is still 3% higher than when the financial "fit hit the shan" almost 4 years ago. Obviously, when the ranks of the unemployed are high, employers who are looking to hire are inundated with candidates. So much so that some employers are now disqualifying qualified applicants by advertising that "the unemployed" need not apply.
In light of this phenomena in job advertisements, Congress in their usual, under-informed method of operating, as well as several states, have begun the process of amending their anti-discrimination laws to add "unemployed status" as a covered class. New Jersey has already passed such legislation and believe it or not, the California legislature is also considering a bill. I can only wonder if this tendency to stupidity will ever end. In the meantime, be forewarned ...
Can You Refuse To Hire A Felon?
Suppose you are looking to hire someone for a sensitive position? One where the person hired will handle large amounts of money and/or materials. Your normal practice is to conduct a criminal background check on all applicants. What do you do when during your initial telephone interview, the applicant reveals a significant criminal felony conviction for the distribution and sale of narcotics, she/he has served time, and is now on probation?
Most employers would normally reject this applicant out of hand. The basis for your decision would be two-fold. First is the timing of the recent conviction with the second being the very nature of the offense. The person you are looking to hire could be responsible for large amounts of money, merchandise or even supplies. You conclude that if this person is willing to sell drugs for money, they are too a high a risk for you to hire them. However, like the situation with the "unemployed" person noted above, don't be so hasty to act.
In this case (it is real), the applicant filed a charge of discrimination with the Equal Employment Opportunity Commission (EEOC) alleging race discrimination. Your initial reaction, which was mine as well, is "You have got to be kidding."
You conducted the interview over the phone so that you could not see what race the person was. Secondly, your decision to not hire was based on a legitimate business reason. You would think this would be more than enough to defend your position. Well, it was not ...
Before reading this, you should know that the right answer in Texas is often the wrong answer in other jurisdictions. This can be particularly true in the case of liability policy limits demands. When we talk about liability policy limits demands, we are talking about demands by third-party claimants against a liability policy for the limits of the policy. In Texas, we call these "Stowers" demands when they are done correctly.
The Texas Supreme Court established the Stowers doctrine in 1929 when a lady riding in a taxi was injured in downtown Houston when her taxi struck a commercial truck that was broken down on the side of the street. The commercial truck's liability insurer refused to pay her claim, which would have been significantly below its $2,500 policy limits. So she sued the business that owned the commercial vehicle and obtained a judgment in excess of the policy limits. The insurer then refused to pay the judgment. Ultimately, the Texas Supreme Court determined that the insurer was responsible for the entire judgment because the insurance carrier had an opportunity to settle the claim within policy limits and it acted unreasonably. Thus, the Stowers doctrine was born.
Technically, a demand will not activate the Stowers duty unless three prerequisites are met, i.e. (1) the claim against the insured is within the scope of coverage; (2) the amount of the demand is within the policy limits; and (3) the terms of the demand are such that an ordinary prudent insurer would accept it, considering the likelihood and the degree of the insured's potential exposure to an excess judgment.
When Are Stowers Demands Sent?
Practically speaking, Texas insurers will receive a Stowers demand in every third-party claim file they have in Texas in which the claimant is represented by an attorney regardless of its validity. Why? There are two reasons for this: (1) claimant's attorney are counting on the insurer panicking when they see Stowers causing a knee-jerk reaction to pay the claim; and (2) they are hoping the insurer will blow it on claims that exceed the policy limits because they want the entire damage model paid, not just policy limits.
To avoid either of these pitfalls, good claim handling will appropriately address these demands. Good claim handling will do so because it will evaluate the damages exposure, assess the coverage, explore other insurance issues, and track the demand's timing. Through the good claim handling, the insurer will do what the Stowers insurer did not do — it will act reasonably.
If employers could have influence over their cost of workers' compensation insurance, wouldn't they want to know how?
If insurance agents would help their employer clients lower their costs, wouldn't that be a valuable service?
Most employers consider the renewal date of their workers' comp policy to be the most important annual date for their policy. Unfortunately, employers have been misinformed by the insurance community and this is not the most important annual date.
Yes, the renewal date is when the incumbent carrier offers a new 12-month policy with their rates. This is also the date when the employer's new Experience Modification is used to modify the rates the employer will pay. The Experience Modification is an important factor that rewards (lowering the Ex-Mod) for employers with little or no claims and penalizes (raises the Ex-Mod) for those employers who have had greater than expected claims for the employer's industry and size.
The application of the Experience Modification is a State process that applies to employers who meet a minimum annual premium. One of the goals of the Experience Modification process is to promote low claims activity and to provide a means to compare that success between employers.
The most important annual date to employers is the review and evaluation of all claims information from the employer's workers' compensation carriers before this data is presented to the California Workers' Compensation Rating Bureau. This data determines the Experience Modification that in turn calculates what the final rates the employer's incumbent, or any other insurance company, can offer when the policy renews. This event occurs approximately six months into the employer's policy term. The information provided includes payroll (per classification) and the actual value of each claim the employer may have incurred over the last 4 years. All insurance companies are obligated to use this Experience Modification factor.
Facebook Frenzy Over Password Privacy Misses the Bigger Legal Point: Most Social Networking Profile Content is Off Limits for Hiring Decisions
Unless you took an early Spring Break on a deserted island over the last week, you've seen the explosion of media stories surrounding the practice by some employers of asking applicants for their Facebook passwords in order to view a profile (or Wall) that is set for viewing only by the individual's "friends," and therefore not publicly accessible.
The reaction was swift and almost universal condemnation of the practice as an invasion of privacy. One law professor likened it to asking for the applicant's house keys, in order to have a look around their personal living space.
Facebook's website focused exclusively on the potential privacy issue: The company strongly condemns the trend and urges users of the service never to share account information: "The most alarming of these practices is the reported incidences of employers asking prospective or actual employees to reveal their passwords. If you are a Facebook user, you should never have to share your password, let anyone access your account, or do anything that might jeopardize the security of your account or violate the privacy of your friends. We have worked really hard at Facebook to give you the tools to control who sees your information."
Two U.S. Senators who just happened to be interviewed on National television on Sunday morning (March 25, 2012), called openly for a formal investigation by the U.S. Justice Department to determine whether asking applicants for their password violates the Federal Stored Communications Act. They also called upon the Equal Employment Opportunity Commission to investigate whether the practice itself (presumably just asking for the applicant's password or viewing his/her social networking profiles) runs afoul of discrimination laws. There are rumblings about Congressional hearings and proposed legislation to ban this approach to the pre-employment process.
Turning to the Internet for information about job applicants isn't new. Public and private sector employers often perform Google searches for information on potential new hires and draw tidbits from many sources, including social networking sites. In a study last year of 300 hiring managers and recruiters, Palo Alto-based social networking monitoring service Reppler reported that 76% of hiring managers look at applicants' public Facebook profiles. An additional 56% are looking at Twitter.
Whether the practice of asking applicants for their Facebook passwords is legal or even advisable will be debated thoroughly in the weeks to come. The current Facebook frenzy about password privacy misses entirely the reality for hiring managers and Human Resources professionals: much of the information they are likely to see on an applicant's social networking profiles is simply off limits in any hiring decision. And, this is true even for information that is publicly available.
Under the laws enforced by the Federal Equal Employment Opportunity Commission (EEOC), it is illegal to discriminate against an applicant or employee because of that person's race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information. An employer may not base hiring decisions on stereotypes and assumptions about a person's race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information.
The California Fair Employment and Housing Act (FEHA) also prohibits employment practices that discriminate against applicants or employees on the basis of race, religious creed, color, national origin, ancestry, physical disability (including HIV-positive status) or mental disability, medical condition (specifically cancer-related conditions and genetic characteristics), genetic information (added in 2012), marital status, sex (including pregnancy, childbirth, or related medical conditions, and gender), age (40 years and older), sexual orientation, and gender identity or expression. It includes discrimination based on a perception that a person is a member of a protected class or is associated with a person who is, or is perceived to be, a member of a protected class.
In today's economy, many companies have been forced to downsize their workforce in order to cut costs. Common sense would indicate that terminating the employees with the highest salaries might be the best method for dealing with the economic reality. Cutting those with the highest salaries may make it possible to save more jobs.
When one California company recently faced this situation, it determined that the most cost effective and simplest method would be to terminate the highest paid employee in each of its four departments. The company did not use any additional criteria in making its decision to layoff the four employees, who just all happened to be over 40 years of age. The workload of the laid off employees was absorbed by the younger, existing employees that worked for less pay. The company did not realize that using salary as the sole basis for terminating the employees would subject it to age discrimination claims under California's Fair Employment and Housing Act (FEHA). Without employment practices liability insurance in place, this could be a costly mistake.
Both the federal Age Discrimination in Employment Act (ADEA) and California's Fair Employment and Housing Act prohibit an employer from discriminating against employees who have reached their 40th birthday. The Fair Employment and Housing Act, however, provides greater protection and broader remedies than the Age Discrimination in Employment Act. The Fair Employment and Housing Act prohibits discrimination in salary, employment benefits and other "terms and conditions of employment" and permits emotional distress damages, punitive damages and has no statutory limit on damage awards.
An employee may establish an age discrimination claim under both the Age Discrimination in Employment Act and the Fair Employment and Housing Act by showing that the employer engaged in disparate treatment (intentional discrimination) or that the employer's action had a disparate impact (a facially neutral policy that adversely impacts older employees). Under the Age Discrimination in Employment Act, however, an employer can defeat an age discrimination claim by showing that the employee was terminated based on reasonable factors other than age, so long as the reasonable factors were not a pretext for intentional discrimination. This is not so under the Fair Employment and Housing Act, which affords employees more protections than its federal counterpart.
The California Court of Appeals held in Marks v. Loral Corp., that employers were permitted to layoff those employees with higher salaries, even if it meant that younger employees would be retained in their place with a disparate impact on the older workers. The California State Legislature responded by rejecting the Marks v. Loral Corp. decision. The Legislature adopted a broad disparate impact theory of liability when it passed California Government Code Section 12941.1 (later renumbered 12941). That section states "the use of salary as the basis for differentiating between employees when terminating employment may be found to constitute age discrimination if using that criterion adversely impacts older workers as a group, and [the Legislature] declares its intent that the disparate impact theory of proof may be used in claims of age discrimination."
This is the first part of a six part series of articles discussing insurance coverage for claims that can be brought against individuals or companies because of the use of Social Media websites. The first part discusses the background of Social Media and claims that can be brought as a result of using social media. The second and third parts will discuss coverages potentially triggered under Coverage B — Personal and Advertising Injury and any applicable exclusions. Parts four and five will discuss bodily injury coverage under Coverage A and any applicable exclusions. Finally, part six will discuss practical applications and examples.
Additional articles in this series can be found here: Part 2 and Part 3.
Background
Social networking on the Internet has grown. These social networking website include Myspace, Facebook, Twitter, LinkedIn, YouTube, and personal websites or blogs provided by third parties including Yahoo. Facebook alone has more than 500 million active users. 50% of these Facebook active users log onto Facebook on any given day. MySpace has over 100 million users, and Twitter has over 145 million registered users.
Users can share web links, news stories, blog posts, notes, photo albums, and video. Users can also post comments on their profile, comment on other user's profiles, photos, or videos, or send messages to each other. What is posted on these social networking sites can be viewed by individuals throughout the United States and the World.
Because of the vast interaction between individuals on these social networking sites, the problems that can occur in the real world can also occur in the digital world. People can make defamatory remarks about an individual, post private information about others on the Internet, post sensitive or revealing photos or videos, make threats, cyberstalk, or engage in any number of activities that can result in criminal or civil liability.
As a result, individuals have been sued over comments posted on the Internet. Individuals or companies (when their employees engage in such activities) are tendering these claims to either the home owner's insurer or the commercial liability insurer, asserting that there is a duty to defend and/or duty to indemnify the insured as a result of their activities on the Internet. Some carriers have even explicitly agreed to cover such activities, while others have excluded them from coverage.
Whether you represent a client who has been the victim of defamatory comments on the Internet or you represent a client who is being sued for engaging in activities in the Internet, or you represent a carrier whose insured has been sued, you need to understand what coverage issues may arise when such claims are presented.
This presentation discusses both personal injury coverage issues that need to be addressed when a claim is presented under either a commercial general liability ("CGL") policy or a homeowner's policy. It also addresses the bodily injury coverage issues as well.
Boardroom protocol is being exposed every day on the internet. Does Rupert Murdoch really think we can't see beyond his prepared remarks to determine for ourselves the "tone at the top" coming from his boardroom?
Imagine what happens when 100 million people on Twitter can now get involved in the conversation happening in the boardroom from the outside in.
I know that many people in the boardroom are still on the sidelines about social media. What will it take to get your board ready to tackle their willingness to learn what is happening on the internet? Will it take seeing your company's name in the news before you add digital literacy to your director's education? I can see the incredulous look on the directors' faces when the board is called on for their oversight of digital issues.
I can only imagine a board being characterized as:
- "illiterate": showing or marked by a lack of personal knowledge with the fundamentals of a particular field of knowledge.
- Or maybe a board will be portrayed as "ignorant": Lacking knowledge, information, or awareness about something in particular: "ignorant of social media."
Worse yet is as a board leader to know that it is true. So I ask, when are you planning to get digital and social media on your agenda? Who is going to be responsible for taking action to get it on your fall board agenda? Whatever title you have in the boardroom (board chair or lead directors), you are setting the boardroom agenda. Are you waiting for your CEO, Corporate Secretary, Corporate Counsel, Audit Committee Chair to bring resources and spend budget to get this to happen for you and your board?
Time To Learn Where Your Customers Spend Their Time
Social media accounts for 22.5 percent of the time that Americans spend online, according to "State of the Media: The Social Media Report." This is compared with 9.8 percent for online games and 7.6 percent for e-mail. You can read more in the New York Times.
This is a voluntary opportunity for you to keep your board current and relevant. If you're waiting for a regulatory push to get your boardroom thinking digitally, you may not be ready to take action and learn what is happening 24/7 on computers and mobile devices around the world.
This is the third and final installment in a three-part series of articles on the ten questions all prospective captive owners should ask themselves (or, that their financial representatives should ask them) to help in the captive formation decision making process. Part 1 in the series can be found here, and Part 2 can be found here.
Forming a captive insurance company is an incredibly big decision. To help decide if you should form a captive, please answer the 10 questions, the last three of which are presented below.
Am I comfortable placing money into a business enterprise for an extended period of time?
When forming the captive insurance company, the insured — the person forming the captive — must place money into the captive so that from day one, the captive can pay claims. While some people use jurisdictions that have a low initial capital requirement, the Internal Revenue Service will look at the captive's ability to pay the actual claims underwritten, making a low initial statutory capital requirement moot.
In addition, the captive can't do anything to jeopardize its financial position regarding the risks it has underwritten, so removing money via dividends or loans can't be considered until the captive has developed adequate reserves and surplus (usually 3-5 years minimum). So, after placing capital into the captive, you have to leave it there. Are you financially able and willing to do this?
Am I committed to lowering the cost of my risk?
Captives should be used in conjunction with an overall plan to lower the cost of insurance coverage. As such, are you ready to undertake risk minimization strategies?
For example, if your captive underwrites a cyber-risk policy, are you willing to purchase anti-hacking services from third-party vendors? If you underwrite an employment practices policy, are you willing to hire a third party human resources company to help with your internal HR policies?
This is the second installment in a three-part series of articles on the ten questions all prospective captive owners should ask themselves (or, that their financial representatives should ask them) to help in the captive formation decision making process. Part 1 in the series can be found here, and Part 3 can be found here.
Forming a captive insurance company is an incredibly big decision. To help decide if you should form a captive, please answer the 10 questions, the second three of which are presented below.
Have I seen my insurance prices increase?
Sometimes, simply being in a certain line of business can mean you see insurance costs increase despite your individual loss experience. For example, OB/GYNs have incredibly high insurance costs, simply because of the nature of their work.
And some individuals — depending on their geographic location and despite having an excellent loss history — have seen sharp increases in their premiums for certain types of coverage. For example, after Hurricane Ike in Houston, property owners saw their property premiums increase.
For people in this situation, a captive makes tremendous financial sense. Remember that most large insurance companies spend between 20 percent and 30 percent of their gross revenue on selling, general and administration expenses. Captives, in contrast, are much leaner and have far lower overhead, thereby lowering the overall cost of insurance.
As a corollary to the above point, captives can also provide stable pricing. When the public's premium for a particular line of insurance increases, a captive's may not, depending on the experience of the parent company.
Captives focus on a smaller number of insureds. Therefore, if the insureds also control their risk, they can work to prevent premiums from increasing, thereby creating a more stable pricing environment.
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Dave Dias
David Axene
Jeff Pettegrew
Jennifer Weathersbee
Mark Webb