Tag: Insurance

May is Motorcycle Safety Awareness Month: Please Drive and Ride Safely

May is Motorcycle Safety Month, which highlights the need for all drivers to be especially aware of motorcycles as well as all vehicles on the roads. With the recent beautiful weather, I’ve seen and heard more motorcycles in the last week than I have in months. Please be especially vigilant and respectful of others as you drive, whether you are on a bike, in a car, or truck.

Because we don’t see as many motorcycles during the winter months, we are not as sensitive to their presence and often simply do not “see” them. Many crashes occur when a car or truck makes a left turn in front of a bike or pulls out of a driveway or side street in front of one. Please, expect that more motorcycles will be out now and look twice or even three times before making a turn or pulling into a street. Also, be even extra careful when driving after dark as the single headlight may confuse you or look farther away than it actually is.

Motorcycles come in all shapes and sizes. Some are small enough to be blocked by your windshield pillars or rear view mirror. They may travel in your blind spots and be unseen and unheard by you.

Please do not rely on your hearing to warn you of an approaching motorcycle. While we may associate the sound of a bike with the presence of one, most of the sound we hear occurs after the bike has passed. Depending on its speed, a bike may “sneak” up on you from behind or from a side road. Rely more on your vision and extra effort to be sure you can make a maneuver or turn safely.

Also, we bikers must be very careful and respect all drivers on the road. Many of us have not ridden for a few months, and I recommend we all take it slow and easy during our first few decent rides of the spring. Make sure your bike is in good physical shape and do a thorough check to be certain everything is functioning properly before riding. Also, make sure to wear the proper gear. Make sure you dress warmly enough for the ride in cool air. Wear the proper helmet if you are riding in New Jersey or another state which requires one. Consider attending a rider safety refresher course if you have not had one in a while. While riding, remember that often the roads have more gravel and debris on them from spring rains so be mindful when riding on curving roads where you may not see a hazard until you are upon it. Ride at a safe speed for both the conditions and how you are feeling as well as your expertise. Always keep a safe distance from other bikes and vehicles.

All, please understand that bikers are taught to drive defensively and to assume others will not see them. Therefore, riders drive in the portion of the lane where it is most visible to other drivers. However, we riders want to be seen, we do not want to be invisible to anyone. We are not being obnoxious, rather we are practicing safe riding.

Both motorcyclists and motorists should recognize the dangers of driving at all times. By practicing a little more vigilance and looking twice, we can all stay safe on the roads.

COPYRIGHT © 2020, STARK & STARK

For more on road safety, see the National Law Review Utilities & Transport law section.

Social Distancing During Wedding Season: Mitigating Loss and Securing Insurance Coverage

In a typical year, March flowers hint at wedding showers soon to be celebrated.  But 2020 is not a typical year.  As travel and crowd size restrictions continue to tighten, the wedding industry—which relies on large gatherings of people, many of whom travel for the occasion—has been and will continue to be significantly impacted.  And wedded bliss is big business; as reported by NPR, “Americans spent $54 billion on more than 2 million weddings” in 2019.

As my colleagues have noted, insurance may be an invaluable resource to businesses impacted by the coronavirus and related restrictions.  How does this apply to the wedding industry, including venues, event planners, photographers, videographers, caterers, musicians, florists, and potentially airlines, hotels, and online travel vendors?

For all such businesses, vendors’ own losses (also known as “first-party claims”) may be covered by the following types of insurance:

  • Property Insurance, which can apply when a property cannot be used for its intended purpose, even absent structural damage or destruction. Thus, for example, the contamination of a wedding venue, rehearsal dinner site, church, photography studio, or other location due to the presence of coronavirus may be covered.
  • Business Interruption Insurance, which is designed to reimburse policyholders for profits lost due to a covered risk. Such insurance may apply both for amounts lost while a company is out of operation and while the company has resumed operation and is working back up to full capacity.
  • Contingent Business Interruption Insurance, which covers loss sustained by one company as a result of impacts on a third party, such as a supplier. For example, loss may be sustained by a domestic wedding vendor because a dress ordered from China will be delivered late due to restrictions in place there.  And given how many vendors can work together on a single wedding, this coverage type could conceivably apply to more than one loss in connection with a single event.
  • Business Income Insurance, which may apply to loss of income that results from governmental orders that limit the business’s ability to operate. Although such coverage often is time-limited, how those limits apply will—as always—be subject to specific policy language and facts.
  • Event Cancellation Insurance, which generally applies when loss results from a cause “beyond the insured’s control.” Although this coverage typically is discussed in the context of concerts and the like, if contained in vendors’ policies, it could apply to wedding-related losses as well.

Regardless of the insurance type, vendors would be wise to keep records of how virus-related restrictions impact their business.  Those facts will be key to any claim.

Vendors also may seek coverage for claims filed against them if, for example, they provided services for a wedding that occurred before restrictions were put in place and attendees were exposed to the virus.  Such third-party claims potentially could be covered by General Liability Insurance, Workers’ Compensation Insurance, and Employers’ Liability Insurance.

When submitting a claim for first- or third-party losses, policyholders should expect insurers to reserve rights or deny claims based on limitations in the policies that may, on their face, appear to apply.  However, policyholders should never accept at face value an insurer’s reservation or denial.  For one thing, limitations on coverage are construed narrowly, and whether they apply depends on specific policy language and facts.  For another, if reasonable people could read a coverage limitation differently, the policy is ambiguous, and will be construed in favor of coverage.

Finally, regardless of the type of insurance, a key factor for the wedding industry will be mitigation, or minimizing loss.  Common law and many insurance policies require policyholders to try to minimize the negative impact of an event on their business.  For wedding vendors, this might mean accommodating couples by postponing services.  That, in turn, means that vendors ultimately will receive payment, but only after a gap in income.  In an industry that tends to be locally based and relies on word of mouth, this approach is a smart business practice.  And, in some instances, insurers may reimburse policyholders for both the amount they spend to minimize loss (e.g., costs associated with finding a new date and dealing with associated logistics), any income they lose during the “gap” period that they are unable to defer, and the opportunity costs resulting from weddings being rescheduled when others might otherwise have taken place.  In short, working with your clients to save their big day might be the right choice in more ways than one.

© 2020 Gilbert LLP

ARTICLE BY Jenna A. Hudson of Gilbert LLP.
For more on COVID-19 impacts on various industries, see the National Law Review Coronavirus News section.

Coronavirus and Commerce: Possible Insurance Implications

The coronavirus pandemic and its consequences are spreading throughout the world at an alarming rate.  Governments at all levels and the private sector are scrambling desperately to mitigate these consequences even as new closures, stricter quarantines, and fresh fears develop on an hourly basis.

While some industries are more directly impacted than others (e.g., airlines and hospitality), the economic losses associated with coronavirus cut across sectors and are reverberating throughout the economy.  As companies look to mitigate coronavirus-related losses, they should carefully review their insurance policies to determine whether they provide coverage for losses associated with the disease.  While coverage will ultimately turn on the specific terms of the relevant insurance policies and the precise nature of the losses, a number of insurance lines may provide relief.

First-Party Property Insurance – Business Interruption Insurance

Business interruption insurance is a common component of commercial property insurance policies.  In general, business interruption insurance covers loss of income that a business suffers after an interruption of their business operations.  Often, business interruption coverage is triggered as a result of “direct physical loss of or damage to” insured property as a result of an otherwise covered peril.  Depending on the specifics of the claim, a dispute may ensue as to whether “physical loss” occurred as a result of the coronavirus.  The term “physical loss” has been the subject of litigation in many jurisdictions and the outcome of such disputes is not uniform.  Property that becomes unusable or uninhabitable as a result of the coronavirus may be sufficient to satisfy the requirement of “physical loss.”

Some property insurance policies also include contingent business interruption coverage.  Contingent business interruption insurance provides insurance for lost earnings resulting from a third-party supplier or distributor shutdown directly impacting the policyholder’s operations.  Typically, contingent business interruption insurance requires that the type of damage sustained by the third party be a covered type of loss for the policyholder.  Contingent business interruption insurance is often marketed to businesses such as hotels, restaurants, or food vendors that derive business from nearby properties that draw large crowds (e.g., sports stadiums).  Given cancellation of sporting events and conferences, this coverage could potentially be significant.

Specialized Insurance Policies

There are many types of insurance that provide specialized coverages.  For example, trade disruption insurance is political risk insurance that covers loss of gross earnings and extra expenses resulting from delay or failure of materials to arrive due to actions or inactions of a foreign government.  As the coronavirus and the response thereto continue to evolve, potential governmental restrictions on travel and trade will continue to be fluid.  This is just one example of more specialized insurance that could come into play.  Companies should be sure to evaluate all potentially applicable policies (or sublimits within policies) that may respond to coronavirus-related losses.

Commercial General Liability Policies

Commercial general liability insurance typically provides coverage for “all sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which th[e] insurance applies.”  This is coverage for third-party claims against the company.  Although causation may be difficult for plaintiffs to prove based on the specific facts, an important aspect of commercial general liability insurance is that it provides defense for third-party claims and the insurer’s duty to defend is broader than the insurer’s duty to indemnify.

Given the nature of coronavirus, it is not difficult to envision scenarios in which individuals assert claims against companies alleging that they were exposed to coronavirus as a result of negligent behavior by company employees.  Companies should turn to their commercial general liability insurer for both defense and, if ultimately necessary, indemnity of such claims.

Conclusion

The coronavirus pandemic is an evolving threat with catastrophic human and economic consequences.  While the first priority of companies should be the safety of their employees and customers, they should also look to mitigate the economic impact of the disease, including utilizing insurance tools as applicable.  While coverage will ultimately depend on the specific facts associated with the loss and the relevant policy language, companies would be well served to review all of their potentially applicable coverages, including but not limited to those discussed above.

© 2020 Gilbert LLP

Wisconsin Supreme Court: “Retroactive Defense” Can Satisfy An Insurer’s Duty to Defend

The Wisconsin Supreme Court has issued numerous decisions over the past few years regarding an insurer’s duty to defend its insured under liability insurance. On February 13, 2020, the Court added Choinsky v. Germantown School District, Case No. 2018AP116, 2020 WI 13, where it clarified one of the four recognized procedures for insurance carriers to contest coverage while avoiding a breach of the duty to defend.  The four procedures are: (1) defend under a reservation of rights; (2) defend under a reservation of rights but seek a declaratory judgment on coverage; (3) enter into a nonwaiver agreement with the insured where the insurer preserves its right to contest coverage; and (4) file a motion to bifurcate and stay the liability determination until coverage is determined.  Choinsky addressed a wrinkle to option 4, where the insurer files the appropriate motions but the circuit court denies the stay.

In Choinsky, retirees of the Germantown School District brought a class action in 2013 after a District decision caused them to lose their long term care benefit.  The retirees alleged breach of contract, breach of implied contract, breach of the duty of good faith and fair dealing, and promissory estoppel.  The District tendered the defense to its insurer, which the insurer denied a week later.  Then, following option 4, the insurer promptly moved to intervene in the pending suit, to bifurcate the coverage and liability issues, and to stay a liability determination until coverage was decided.  Almost three months later, the circuit court granted the motion to intervene and bifurcate, but denied the motion to stay.  The insurer then agreed to retroactively defend from the date of tender until coverage was resolved.  As a result, the District had to defend itself on both coverage and liability for approximately five months and was later reimbursed only for its attorney fees on the liability defense.

After two motions by the insurer for summary judgment were denied, coverage was tried to a jury in April 2016.  The jury found that the District decision makers had acted negligently, and the circuit court accordingly determined that there was a duty to defend.  After the liability trial resulted in a jury verdict in favor of the District, the District moved again for attorney fees it incurred in proving coverage pursuant to Elliott v. Donahue, 169 Wis. 2d 310, 485 N.W.2d 403 (1992), and Newhouse v. Citizens Security Mutual Insurance Co., 176 Wis. 2d 824, 501 N.W.2d 1 (1993).  The circuit court denied that motion, reasoning that since the insurer had followed a judicially-sanctioned approach to the coverage determination, it could not be held liable for breach of contract.  The Court of Appeals affirmed.

The District argued to the Supreme Court that its insurer should be on the hook for the fees the District expended in proving coverage because the insurer initially refused to defend and cannot cure that choice by agreeing to defend six months later.  It further argued that there was a breach since the insurer didn’t start paying defense fees for almost one year after tender.  The Supreme Court held that the insurer had taken “timely” action when it responded to the tender within one week and when the insurer sought to intervene in the liability case.  The Court said that the time it took the circuit court to decide the motion for stay and then the denial of a stay caused the problem, and urged circuit courts to give these issues priority on their dockets.

The Court also concluded that any damage to the District for the insurer’s initial coverage denial was remedied by the insurer reimbursing for attorney fees retroactive to the date of tender, stating that in the situation presented “the insurer must defend its insured under a reservation of rights so that the insured does not have to pay to defend itself on liability and coverage at the same time.  Additionally, the insurer must reimburse its insured for reasonable attorney fees expended on a liability defense, retroactive to the date of tender.” 2020 WI 13, ¶ 19.

In his dissent, Justice Kelly criticized the majority: “I don’t agree, however, that an insurer can buy its way out of its breach of [the duty to defend] by reimbursing its insured for defense costs.” 2020 WI 13, ¶ 47.  He noted that the District did not receive a defense for over 5 months, and he called the retroactive payments a new concept that will incentivize insurers to refuse the duty defend between tender and resolution of coverage issues.  In doing so, the insurer “risks nothing doing so because, in the worst case, it simply pays for the defense it refused to provide.” 2020 WI 13, ¶ 56.

All coverage matters are fact-specific, and time will tell how prophetic Justice Kelly’s warning turns out to be.  The insurer in Choinsky acted in a timely fashion by responding within weeks of tender.  If an insurer takes a longer time to respond, a court might come to a different conclusion.  And while the Supreme Court again “encouraged” all circuit courts to decide motions to bifurcate and stay expeditiously, that is not always possible.  Some motions can, for one reason or another, take longer than in Choinsky and some types of claims really can’t be stayed. Environmental cases, for example, can be triggered by a “responsible party” letter from the Environmental Protection Agency or the Wisconsin Department of Natural Resources.  Johnson Controls, Inc. v. Employers Ins. of Wausau, 2003 WI 108, ¶ 92, 264 Wis. 2d 60, 665 N.W.2d 257.  It is difficult to imagine how an environmental investigation could be stayed while coverage is decided.

For now, under Choinsky it appears acceptable that an insured may be forced to defend itself on two fronts for five months– however there is no set rule and, as a result, could that mean that 10 or even 12 months is acceptable?  What if a dispute then arises over the reasonableness of fees and that dispute lasts a year and there is no payment for 24 months?  There is room to test the limits, but Choinsky suggests a safe harbor for insurers of at least a few months if insurers file “timely” bifurcation and stay motions.  Insureds should be aware of Choinsky and push to minimize the time they subject to simultaneously defending coverage and liability.

© 2020 Davis|Kuelthau, s.c. All Rights Reserved

Can U.S. Companies Insure Against A Trade War?

The recent trade deal between the U.S. and China was welcome news for U.S. companies with investments in China.  The tenuous relationship between the countries, however, continues to cause substantial uncertainty for U.S. investors.  Their concerns are not unique to China—the Trump Administration has taken an aggressive trade stance even with nations usually considered friendly, including Brazil, Argentina, and France.

A growing number of companies are turning to political risk insurance to protect their foreign investments.  Such policies typically cover a variety of commercial losses stemming from political events, including expropriation, political violence, or currency conversion restrictions.

Are political risk policies a valuable tool in a company’s arsenal for mitigating the uncertainties of doing business in China or other countries embroiled in a trade war with the United States?  The answer depends, in large part, on the specific wording of the policy at issue.  There is no standard political risk policy form, and jurisprudence on such policies is extremely limited.  Potential policyholders must evaluate their needs carefully and be strategic during policy placement to ensure they are maximizing potential coverage.  For example:

Expropriation:  Political risk policies may cover losses stemming not only from a government’s outright nationalization or expropriation of a policyholder’s assets, but also from more subtle forms of unlawful discrimination against foreign entities.  The bounds of such coverage, however, are not always clear.  Many policies exclude incidental damages arising from lawful or legitimate acts of governance, which may give rise to disputes between policyholders and insurers as to the nature and motivation of a particular governmental act.

For example, the Chinese Government imposed tariffs and restrictions on U.S. companies doing business in China throughout 2019.  A policyholder seeking coverage for losses suffered due to these measures would argue that the restrictions were retaliatory acts in response to the U.S.-China trade war, meaning that its damages arose from covered acts of discrimination in violation of international law.  An insurer seeking to limit its coverage obligations may argue that China imposed these restrictions based on its view that the companies had violated market rules or otherwise damaged the interests of Chinese companies for noncommercial reasons—in other words, that these were legitimate act of governance taken in the public interest.

Given the lack of case law on the intended scope of expropriation coverage and the fact-intensive nature of disputes over the legitimacy of a particular governmental act, companies should seek to include the broadest possible definition of “expropriation” in their policy and to clarify the bounds of any exclusions.

Political Violence:  In addition to coverage for expropriation and related governmental acts, political risk policies also may provide coverage for losses stemming from physical damage to property due to protests, riots, or other acts of violence intended to achieve a political objective.  While U.S. investors may not commonly associate trade wars with physical violence, recent protests and riots over economic issues in countries such as Chile and Ecuador demonstrate the potential for severe economic turmoil (a common result of any trade war) to cause such violence.  As a result, U.S. companies with warehouses, offices, or other property in countries facing aggressive trade restrictions by the U.S., or in any nation suffering from substantial economic uncertainty, may find such coverage appealing.

The potential benefit of political violence coverage may depend, in large part, on how a policy proposes to determine the value of any damaged property or resulting financial losses.  Potential policyholders should ensure, for example, that a loss is valued pursuant to objective accounting standards and/or by a neutral third-party, as opposed to the insurer, who may have an interest in minimizing its liability.

Currency Inconvertibility:  A third component of political risk insurance is currency inconvertibility coverage—i.e., coverage for losses arising from a policyholder’s inability to convert currency due to exchange restrictions posed by a foreign government.  For example, such coverage might apply if a policyholder is unable to obtain repayment of a loan to a Chinese entity because of new restrictions by the Chinese Government on conversion of local currency to U.S. dollars or the transfer of funds to U.S. banks.  U.S. companies with investments in countries facing particularly extreme economic instability, such as Venezuela, may benefit most from such coverage, as those countries are most at risk for collapse of their currency exchange system.

As with political violence coverage, a policy’s proposed standards for valuing a currency inconvertibility loss are once again crucial to maximizing a policyholder’s protection.  Policies often calculate the value of a policyholder’s loss using the foreign country’s exchange rate on the date of loss.  In such scenarios, policyholders may benefit from defining the “date of loss” as occurring the first time the policyholder is unable to convert currency, as opposed to after a waiting period has occurred or after the insured has made multiple conversion attempts.  This may minimize the risk that the value of a covered loss decreases if the exchange rate in the country plummets while the insured fulfills other conditions for coverage.

Political risk policies likely cannot insulate U.S. companies from the full impact of a global trade war or other politically-inspired disruptions.  However, U.S. businesses can maximize the benefits of such coverage through careful policy drafting and strategic evaluation of their individual risk profile.

© 2020 Gilbert LLP

ARTICLE BY Emily P. Grim of Gilbert LLP.
More on recent US trade negotiations on the National Law Review Antitrust Law and Trade Regulation page.

Reinsurance and the Death Master File

In a traditional life insurance and reinsurance relationship, a life insurance company issues a policy to a policyholder and reinsures the policy (usually via a block of business consisting of the same or similar policies) with its reinsurer either by coinsurance or on a yearly renewable term basis (or otherwise).  When the insured person dies, a death certificate is presented to the policy issuing company and the policy benefits are paid to the beneficiary.  That triggers an indemnity claim under the reinsurance contract and the reinsurer is obligated to pay its share of the policy benefits to the ceding company. Simple.

But what happens if the insured person dies, but no one files a death certificate and makes a claim against the policy?  Who gets the policy benefits?  Does the insurer get to avoid paying any benefits out on the policy or does the state have an interest in this abandoned property?  This has been a huge issue over the past several years, with regulators entering into settlements with life insurance companies about searching the Social Security Administration’s Death Master File or using some other method to determine death.  Of course, all these abandoned life insurance benefits escheat to the state when no one claims the benefits, which is why state regulators were so keen to press this issue.

In a recent case, a New York federal court had to address these issues in a petition to confirm a reinsurance arbitration award.

In Park Avenue Life Ins. Co. v. Allianz Life Ins. Co. of N.A., No. 19-cv-1089 (JMF) (S.D.N.Y. Sep. 25, 2019), the dispute was over a life reinsurer’s obligations to pay for costs and claims arising out of an agreement with regulators to pay death benefits that would be escheated to the government after a Death Master File search indicated that the insured person died.  By majority, the arbitration panel mostly found for the reinsurer (the award, which is now public on PACER, found that the reinsurer was not responsible under the coinsurance agreement for the costs and expenses associated with the Death Master File searches or regulatory dispute).  In a paragraph addressing the reinsurer’s continuing obligations, the majority made the following pronouncement:

[The reinsurer] shall continue to be obligated to indemnify [the cedent] for all death benefits paid under the terms of the [policies] covered by the Coinsurance Agreement.  Notice of any deaths can arise pursuant to claims made by Policy owners or beneficiaries, or by way of periodic searches of the Death Master File or any other death data base search tool by [either party].

The reinsurer argued that the award required reimbursement of only those death benefit payments that arise from claims made by beneficiaries.  The cedent argued that the award continued to require the reinsurer to reimburse payments that arise from claims made either by designated beneficiaries or by escheatment. Both asked the court to confirm the award based on each side’s different interpretation.

The court found that the award was susceptible of two meanings and was unable to say that one or the other of the two interpretations presented was definitively correct.  The court remanded the matter back to the arbitration panel to clarify certain questions addressing escheatment claims, but suggested that the panel should “broadly aim to underscore the meaning and effect of the award so that the court will know exactly what it is being asked to enforce.”

Notably, and consistent with the recent trend in many courts, the court denied the parties’ request to keep the arbitration award and related materials under seal.

© Copyright 2019 Squire Patton Boggs (US) LLP

For more on the topic, see the Insurance, Reinsurance & Surety law page on the National Law Review.

Claims of False Advertising and Unfair Competition Are Not Disparagement or Defamation

Most commercial general liability policies include coverage for personal and advertising injury claims by third parties.  In a recent case, the Third Circuit Court of Appeals addressed the issue of whether claims of false advertising and unfair competition brought against a competitor entitled the policyholder to a defense under its personal and advertising injury coverage.

In Albion Engineering Co. v. Hartford Fire Ins. Co., No. 18-1756 (3rd Cir. Jul. 10, 2109) (Not Precedential), the policyholder was sued by a competitor alleging claims for false advertising and unfair competition based on the allegation that the policyholder’s products were represented as being made in the US when they were really made overseas.  The policyholder sought coverage from its carrier under its personal and advertising injury coverage, particularly for publication of material that slanders or libels a person or disparages a person’s goods, products or services.  The carrier disclaimed and the policyholder brought suit seeing to enforce coverage.  The district court dismissed the complaint after summary judgment in favor of the carrier.

On appeal, the policyholder contended that the claims in the underlying suit were essentially disparaging and defamatory.  In applying New Jersey law, the circuit court rejected the policyholder’s arguments because nothing alleged by the underlying claimant or in the extrinsic evidence discovered constituted the publication of false statements about the competitor.  Under New Jersey law, for the duty to defend to arise, the false and defamatory statement has to be made about another (in this case about the competitor’s products).  “For the suit to fall within the policy’s coverage, [policyholder] must demonstrate [competitor] brings a claim that [policyholder] (1) made an electronic, oral, written or other publication of material that (2) slanders or libels [competitor] or disparages [competitor’s] good, products, or services.” Here, said the court, the claims were about the policyholder’s own products, not about the competitor’s products.  Thus, because the policyholder had not shown that the competitor’s claims constitute disparagement or defamation claims made by the policyholder about the competitor’s products, the carrier had no duty to defend the underlying lawsuit.

 

© Copyright 2019 Squire Patton Boggs (US) LLP

Life on the B Side: Social Media Advertising Under CGL Coverage B (Part 2)

The following is Part II in our two-part series on the intersection between social media advertising and the lesser known portion of commercial general liability (“CGL”) policies—the elusive “Coverage B.”  In Part I, we examined the prevalence of social media and social media advertising in today’s society.  We also provided a brief overview of the Coverage B provisions that are likely to be implicated by social media advertising.  In Part II, we discuss these Coverage B issues in greater detail.

POTENTIAL COVERAGE B ISSUES IMPLICATED BY SOCIAL MEDIA ADVERTISING

1.   What Constitutes Advertising?

A threshold issue that could arise in cases involving social media advertising is whether the use of social media qualifies as “advertising” under the policy.  In the typical insurance policy, “Advertising Injury or Damage” is defined as including a covered offense stemming from the insured’s “advertising” efforts.  However, the term “advertising” is often left undefined.

Social media advertising raises some unique questions, particularly with respect to whether specific content constitutes “advertising.”  On the one hand, banner ads (i.e., those typically found on the top or sides of a website) are akin to traditional forms of print advertising; therefore, it is difficult to imagine that such content would not qualify as “advertising” for Coverage B purposes.  On the other hand, social media offers access to less formal means of advertising.  For instance, a business could open a Twitter or Facebook account in order to promote itself through individual postings.  Although the use of these social media platforms as a promotional tool would appear to constitute “advertising,” judges unfamiliar with social media platforms, or at least more familiar with traditional forms of advertising, might disagree.

This issue has not yet been addressed in the Coverage B context.  However, one court recently concluded that a business’s Facebook posts did not constitute advertising under the Lanham Act.  In Buckeye International v. Schmidt Custom Floors, 2018 WL 1960115 (W.D. Wis. Apr. 26, 2018), a federal judge held that Facebook posts made by one business criticizing another business did not constitute advertising under the Lanham Act because they were “individualized person-to-person communication[s].”  This ruling fails to appreciate that a business’s posts to social media accounts, particularly where the business makes those posts public without limitation, are not “individualized person-to-person communications” because they are often intended to reach large audiences or the public-at-large.  However, judges examining similar issues in a Coverage B dispute could reach similar conclusions.  Thus, educating courts about the basics of social media platforms, including how they operate and the purposes for which businesses use them, is critical in any litigation involving these technologies.

2.   #trademarkviolation

Anyone who has ever viewed a Twitter feed has surely noticed the presence of hashtags within individual Tweets.  Hashtags were originally intended as a tool to categorically arrange materials so that other users could easily search for a topic.  However, their use has quickly expanded to other social media platforms.  Today, they are often used to express humor or as a method for brand recognition.  Indeed, certain courts to-date have found that hashtags are entitled to trademark or copyright protections, despite that they were originally intended to assist with online search capabilities.  The Wall Street Journal has reported that companies are increasingly filing trademark applications for hashtags related to their companies and products.[1]

The increased protections offered for hashtags has potential Coverage B implications.  In Part I, we discussed the fact that included among the covered offenses that constitute “personal and advertising injuries” are:  (1) the use of another’s advertising idea in your “advertisement”; and (2) infringing upon another’s copyright, trade dress, or slogan in your “advertisement.”  Thus, social media advertisements employing hashtags could trigger intellectual property litigation.  And, the related defense costs and/or indemnity arising out of such litigation would potentially be covered by standard Coverage B protections.

3.   Risks Associated With Social Media Influencers

In Part I of our series, we discussed how companies were employing brand advocacy through paid social media influencers (individuals with a significant following on social media who post content about products and services in exchange for compensation (e.g., money or free products)).  Although a company’s use of social media influencers does not create any unique Coverage B issues, the use of such influencers as part of a marketing campaign is not without risks.  Social medial influencers are certainly not professional advertisers—recent studies show they are not only not aware of the rules and regulations concerning their paid posts, but may actually be consciously ignorant of those rules and regulations.[2]  Therefore, in order to minimize liability, companies seeking to utilize influencers must be dogged in (1) educating their influencers, and (2) monitoring their influencers’ content.  This is especially true given the above-referenced statistics showing social media influencers are often ignorant of advertising norms—an influencer left to his or her own devices is an influencer who could cause headaches for an insured.  However, even companies that educate influencers about advertising norms must trust these people to actually follow the rules.  By utilizing influencers, companies give up certain elements of control over the advertising that they would maintain under traditional advertising campaigns and increase the chances that an influencer could engage in acts that constitute covered offenses for Coverage B purposes.

CONCLUSION

As highlighted throughout this two-part series, the use of social media advertising raises interesting and unique issues, as well as possible liabilities to companies.  Along with these possible liabilities comes the potential for insurance coverage under policies offering coverage for “personal and advertising injuries.”  While it remains to be seen how courts will address these issues, companies should be mindful of the potential for insurance coverage.

[1] See https://www.wsj.com/articles/companies-increasingly-trademark-hashtags-1…

[2] See Jim Tobin, Ignorance, Apathy or Greed? Why Most Influencers Still Don’t Comply with FTC Guidelines, Forbes (Apr. 27, 2018 8:00 AM) https://www.forbes.com/sites/forbesagencycouncil/2018/04/27/ignorance-ap… Steven P. Mandell et al., Recent Developments in Media, Privacy, Defamation, and Advertising Law, 52 Tort Trial & Ins. Prac. L.J. 531, 560 (2017).

 

© 2019 Gilbert LLP
This post was written by Michael B. Rush and Samantha R. Miller of Gilbert LLP.
Read more insurance legal news on our Insurance type of law page.

Tours in Trouble: Rock Stars and Insurance Recovery

Touring is where profits lie for today’s successful recording artists, with considerable sums expended on venues and staging to bring an artist’s music to his or her fans. But the list of things that can go wrong before and during a tour is almost endless.

That’s why artists, tour companies, and record labels purchase various forms of tour insurance to mitigate the risk from postponements or cancelations caused by a variety of circumstances. Often, those purchasing tour insurance have considerable influence over what harms are covered and the terms under which reimbursement will be provided. Unforeseen disasters can result in losses to the tune of millions of dollars if proper insurance is not obtained and handled carefully.

Three sources of tour insurance claims are particularly important: natural disasters, terrorism, and artist illness. As we outline below, tour profitability depends upon understanding these threats and choosing effective strategies to mitigate them or avoid them entirely.

Coverage for Natural Disasters

Just like any other event, tours planned months or years in advance are susceptible to natural disasters such as earthquakes, hurricanes, and floods. However, even when tour insurance is purchased, receiving coverage for tour cancelations or postponements on this basis is not automatic.

For example, many “non-appearance” insurance policies contain exclusions that could be construed to eliminate coverage for certain kinds of disasters. One such provision is the “adverse weather” exclusion, which commonly excludes coverage for outdoor performances affected by rain, wind, or other similar meteorological incidents. Also common is language restricting coverage to certain enumerated perils and requiring that a covered peril be the “sole and direct cause” of any non-appearance. How such policy language is interpreted in the case of a hurricane or tropical storm, for instance, may make the difference as to whether an artist is compensated under his or her tour insurance policy.

Coverage for Acts of Terrorism

Just as threatening to tour profits as natural disasters are those postponements or cancelations caused by acts of terror. The attacks in Las Vegas during Jason Aldean’s performance, those in Manchester, England outside Ariana Grande’s show, and those at the Eagles of Death Metal performance at the Bataclan club in Paris, France highlight that terrorism is a very real threat to music artists.

However, even if an artist’s tour is insured, acts of terrorism are often excluded unless specifically added by an amendment to insurance policies called an endorsement, which can be quite expensive.  Moreover, terrorism coverage policy language varies, with certain provisions requiring an attack to have taken place, whereas others provide coverage if a tour is postponed or canceled based on the threat of an attack. Still other policies that purport to cover cancellations due to terrorist acts limit coverage based on how long after or how far away from an attack or threatened attack the tour is scheduled to take place. For instance, the Foo Fighters canceled the remainder of their European tour in Spain and Italy in the wake of the Paris bombing in 2015. However, the Foo Fighters’ insurers initially refused to reimburse them for these losses under their applicable tour insurance policies (which included terrorism coverage), apparently because the insurers considered the future shows too far away from the date and site of the Paris attack. After much publicity and costly litigation, the lawsuit was eventually settled on confidential terms.

Coverage for Artist Illness

Tour events are also canceled due to artist illness. Often, an insurer’s response to a claim based on artist illness depends on the nature of the illness and what the artist said in underwriting materials submitted to the insurers.  It is not uncommon for coverage disputes to center around the accuracy of medical reports submitted by artists to insurers. For instance, Linkin Park canceled parts of a tour in 2008 due to their then-frontman’s back issues. Nickelback was forced to cancel part of their 2015 No Fixed Address tour due to polyps discovered on their lead singer’s throat  In both instances, the bands’ tour insurance claims were denied based on alleged inaccurate medical reporting in the underwriting materials submitted to the insurers. And in both cases, the bands were forced to resort to litigation based upon alleged failures to disclose existing medical issues.

Sometimes, an artist’s tour is postponed or canceled but the artist and insurers do not agree on the cause. Not surprisingly, this can lead to coverage disputes.  For example, Kanye West’s cancelation of his 2016 Saint Pablo tour resulted in two lawsuits, with West claiming he suffered a “debilitating medical condition” and his insurers insinuating the cancelation was due to drug use and mental health issues (both of which were excluded under the policy). The last of the suits ultimately settled in February 2018, but not before myriad news outlets reported on the parties’ allegations, including leaked details about West’s medical history.

Strategies to Mitigate or Avoid Coverage Threats 

These examples only scratch the surface of the many reasons a tour may be postponed or canceled, and the ways in which this can complicate insurance recovery.  Different strategies should be applied depending on individual challenges, but all involve careful scrutiny of the governing policy language.  The best time for such scrutiny is during negotiation of the policy itself, when experienced counsel can advise on coverage gaps or language that might cause trouble for touring artists.

Also key is carefully shaping the public narrative for any tour postponement or cancelation. This is particularly true in the context of postponements or cancelations where the cause may be disputed.  Effective counsel can assist in rapidly coordinating the actions of doctors, the media, and the artist to ensure a consistent message and head off potential pretextual coverage denials from insurers.

As the Ramones sang, “high risk insurance, the time is right.”

© 2019 Gilbert LLP
This post was written by Benjamin W. Massarsky and Kellyn Goler of Gilbert LLP.

Intentional Accidents: California Supreme Court Announces that General Commercial Liability Policies Apply to Negligent Hiring, Training, and Supervising Claims for Failing to Prevent Intentional Torts

In a recent decision, the U.S. Court of Appeals for the Ninth Circuit observed that under California law, there was an unresolved question as to whether a commercial general liability (“CGL”) insurance policy covers an employer-insured for negligently failing to prevent an employee’s intentional misconduct. In essence, it was unclear whether such an incident constituted an “occurrence” that only covers “accidents,” as an intentional act cannot, by definition, be an accident. Through a certified question from the U.S. Ninth Circuit Court of Appeals, the California Supreme Court answered that such insurance policies indeed cover negligent hiring, training, and supervision claims because the crux of inquiry is the insured’s negligence—not the employee’s intent.

In Liberty Surplus Insurance Corporation, et al. v. Ledesma and Meyer Construction Company, Inc., No. 14-56120 (9th Cir. Oct. 19, 2018), the insured construction company was sued because its employee sexually abused a minor. Ledesma and Meyer Construction Company, Inc. (“L&M”) had been retained by a school district to oversee the construction of a middle school. During the course of construction, an employee sexually abused a 13-year-old student. The student sued L&M alleging claims of negligent hiring, training, and supervision of the employee that committed the intentional tort.

L&M’s CGL carrier filed a declaratory judgment action in federal district court, alleging that the claim against L&M was not covered by the insurance policy because it was premised on an intentional act. The district court granted summary judgment in favor of the plaintiff insurer. It reasoned that, because the policy covered “bodily injury” that was “caused by an occurrence,” and because an “occurrence” is defined as an “accident,” the claims for negligent hiring, training, and supervision were too attenuated from the intentional injury-causing conduct to trigger coverage.

On appeal, the Ninth Circuit certified the question of coverage to the California Supreme Court. The Supreme Court rephrased the question as follows: “When a third party sues an employer for the negligent hiring, training, and supervision of an employee who intentionally inured that third party, does that suit allege an ‘occurrence’ under the employer’s commercial general liability policy?” The Supreme Court answered in the affirmative, reasoning that, “[b]ecause the term ‘accident’ includes negligence, a policy which defines ‘occurrence’ as an ‘accident’ provides ‘coverage for liability resulting from the insured’s negligent acts.’” (internal citations omitted). On the basis of this answer, the Ninth Circuit reversed the district court’s decision and remanded for further proceedings.

This decision solidifies what amounts to an expansion of insurance coverage in the Ninth Circuit over an employer-insured’s employee’s intentional acts, where the claims are premised on the employer-insured’s negligent hiring and supervision of the employee. Underwriters should take note and consider appropriate exclusions and/or pricing of premiums of insured risks in California and elsewhere in the Ninth Circuit.

 

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