CLOSE X
RSS Feed LinkedIn Instagram Twitter Facebook
Search:
FMG Law Blog Line

Posts Tagged ‘#lawsuit’

Limitations On Directors & Officers’ Liability Coverage

Posted on: December 20th, 2018

By: David Molinari

Directors and Officers (D&O) Liability Insurance is insurance coverage intended to protect individuals from personal losses if they are sued as a result of serving as a Director or Officer of a business or other type of organization. Directors and Officers policies may also cover legal fees and other costs the organization may incur as a result of such a lawsuit. Directors and Officers Liability Insurance applies to anyone who serves as a Director or Officer of a for-profit business or a non-profit organization. D&O policies can take on different forms depending on the nature of the organization and the risk organizations face. D&O Insurance is a specialized form of coverage for claims based on acts committed in corporate capacities; and the corporation obligation to indemnify its Directors and Officers for such claims.

The availability of such insurance is an important factor recruiting or attracting persons to serve as Directors and Officers of corporations. So important that such insurance is provided by statute.  In California, California Corporation Code Section 317 allows for a corporation to purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in their official capacity; or arising out of the agent’s status, whether or not the corporation would have the power to indemnify the agent against the liability. However, the existence of Directors and Officers coverage has limits. California Corporation Code permits a corporation to purchase Directors and Officers Insurance, it does not require an entity to do so.  The Corporation Code does not authorize an insurance company to cover a risk that it could not or does not lawfully cover. A Directors and Officers Liability policy is not an incentive for leaders of a business to increase risky behavior or an incentive to adopt aggressive negotiation strategies, policies or interpretations or their contracts and arrangements in the belief that if their actions are rejected by the courts, the insurance company will pick up the tab.

One distinction where coverage is unavailable; yet individuals in positions of management, decision and control mistakenly believe they are covered, is in situations where the loss arises from nothing more than a breach of contract the corporation entered. Directors and Officers liability policies are seen as safety nets affording management the ability to shift risk for unsuccessful business decisions and deals to an insurance carrier.

Directors and Officers policies typically exclude coverage for breach of contract. The policies generally limit coverage to liability that arises from errors committed in the officers’ or directors’ official capacity.  This limitation effectively excludes contract liability because an officer acting in their official capacity cannot be held individually liable for breach of a corporate contract. The limitation protects against making an insurer an unwitting investor in a corporation’s dealings.

Often directors or officers seek coverage of claims by focusing upon broad language in policies that define a “loss” but ignore the conditions on how that loss arose. Under Directors and Officers policies, the issue is whether the loss resulted from a wrongful act. Policies only cover losses resulting from wrongful acts, whether actually committed or merely alleged. Suffering a loss does not include judicial enforcement of contractual obligations. An officer or directors’ decision to refuse to make payments under a contract because of a dispute with the contracting party does not give rise to a loss caused by a wrongful act. Even though an officer or director’s actions in precipitating the breach may have been careless, such a loss is not covered by a policy. If that were the case, any default arising from a mistaken assumption regarding a company’s contractual liability could transform a contract debt into an insured event. Refusing to pay a debt, even in reliance upon erroneous advice of counsel, would convert a contractual obligation into damage arising from a negligent omission. That result would make the insurance company a defacto party to a corporate contract and potentially require a carrier to pay a full contract price, with interest while letting the corporation completely off the hook for its voluntarily assumed obligations.

No insurer reasonably expects the benefits of a professional liability policy are available to cover a contract price for a business deal gone wrong.  Such expectations would expand the scope of an insurer’s liability enormously and unpredictably, creating a moral hazard problem by encouraging corporations to risk breaching their contractual obligations believing in the event of a suit, the D&O carrier would ultimately be responsible for paying the debt.

Recruiting qualified individuals into directors and officers positions in for-profit and non-profit organizations often requires additional benefits to entice acceptance of added responsibilities in corporate governance and decision making. In the non-profit realm, often individuals are volunteers, so additional benefits are often thought to be needed to recruit and fill these positions.  Directors and Officers Liability policies offer enticement and protection for assuming increased responsibilities. Yet, the existence of director and officer liability policies and the protections they afford should not encourage the opportunity to take greater risks in negotiations or contracting. Adopting a risky business strategy should not be undertaken in the misbelief that if the business deal goes wrong, insurance benefits are available to protect against the loss.

If you have any questions or would like more information, please contact David Molinari at [email protected].

Dealing with Nonparty Document Requests

Posted on: December 4th, 2018

By: Ze’eva Kushner

As an executive or business owner, at some point you may receive a request to produce documents relating to your business from a party to a lawsuit that does not involve your company.  There are a variety of potential issues that you should consider once this lands on your desk.

The Georgia Civil Practice Act allows parties to a lawsuit to serve requests for production of documents on nonparties as part of the process of gathering information relevant to the subject matter of the case.  (O.C.G.A. § 9-11-34 (c)).  Ordinarily, your deadline to respond to such a request falls 33 days after the request was put in the mail or emailed to you.  But what happens if the request is mailed to your company’s registered agent, and he or she does not get it to you in time for you to gather the documents and respond by the deadline?

Although you, as a nonparty, have an obligation to respond or object to the request for documents by the deadline, the party who sent you the request cannot just run to court if you miss the deadline to obtain an order compelling you to produce the documents.  Instead, they have to make a good faith effort to work with you regarding any issue or dispute stemming from the document requests.  This means that you should expect a phone call from the attorney to find out the reason for the delay.

When you receive the call from the attorney who requested the documents, it is a good opportunity to discuss the types of documents that are being sought, potentially narrowing the topics and thus reducing your burden.  Additionally, you may request reimbursement of reasonable copying costs and additional time to produce the documents.

If you have any questions or would like more information, please contact Ze’eva Kushner at [email protected].

Protecting In-House Correspondence from Disclosure: The Troublesome “CC”

Posted on: November 28th, 2018

By: Jake Carroll

Commercial disputes present complex issues of causation—what caused the accident, who is responsible, what is impacting company revenue. But before the dispute even arises, in-house attorneys are frequently copied on correspondence with team members and employees evaluating and offering opinions on causation, performance, and potential costs. Then, when the dispute or accident ends up in litigation, the materials prepared by the employees are sought in discovery.

For example, what if an engineering firm learns that one of its employees improperly installed a part of the anti-corrosion system for a pipeline. The employee’s supervisor prepares an email detailing all instances of improperly installed systems in the last four (4) years by the employee and decides to cc in-house counsel. Is this email protected from disclosure if a lawsuit arises from the improperly installed pipe system?

Claims of privilege and work product are often asserted when an in-house attorney is included as a secondary recipient—or CC—on an email, raising the question of what exactly is covered by the attorney-client privilege and work-product doctrine. Resolving these issues can be costly in their own right, and have the potential to derail an otherwise straightforward dispute.

While there are some exceptions, the general rule is that the communications where in-house attorneys are only CC’d are not protected from disclosure under either the attorney-client privilege or the work-product doctrine.[1]

The attorney-client privilege protects confidential communications that are sent for the purpose of securing legal advice.[2] However, when an email is neither addressed to the in-house attorney, nor sent directly to the attorney, it is unlikely that the privilege applies.[3] Similarly, the work-product doctrine protects correspondence or reports prepared in anticipation of litigation.[4] When an in-house attorney is only CC’d on correspondence, the emails are neither work performed by the in-house attorney, nor work prepared at the direction of the in-house attorney.[5] Additionally, many of these emails are typically sent prior to litigation and are not protected.

Businesses would do well to remember that simply copying your in-house attorney on an email will not shield its disclosure during discovery. The impact of this fact is far-reaching. In the example above, not only would the other side have an admission regarding the mislaid pipe from the supervisor, the email has also identified other projects where the business may be vulnerable to suit to a plaintiffs’ attorney.

If a company wishes for correspondence to be protected from disclosure, the following tips, though not exhaustive, are helpful:

  1. The sender of the email should direct correspondence to in-house counsel in a separate email—not by CC—and for the express purpose of seeking legal advice on a potential issue. For example, starting the email with “legal advice needed” or “request for legal advice” will go a long way to preserving the privilege and are more effective than “I have a question” or “see below.” Such requests should also be addressed specifically to the in-house attorney or an attorney on the legal team, rather than being directed to other employees with just a cc to the lawyer.
  2. To protect the privilege when using emails, avoid communications with both business and legal purposes as much as possible.
  3. Limit long email chains. Besides being good business practice, in-house counsel should not let privileged discussions continue in a long email chain. Inevitably, as the discussion continues, the topic may stray away from the original question and new people may be added to the email string—risking the privilege protection.

Protecting the attorney–client privilege and work-product privilege requires sound policies and procedures, a properly trained workforce and constant vigilance from the in-house attorney. But business that put procedures in place on the front end will find it well worth their time if and when a dispute arises.

If you need help with this issue, or any other commercial law questions, Jake Carroll practices construction and commercial law, is licensed to practice in Georgia and Florida, and is a member of Freeman Mathis & Gary’s Construction Law and Tort & Catastrophic Loss practice groups. He represents corporations and manufacturers in a wide range of litigation and corporate matters involving breach of contract, business torts, and products liability claims. He can be reached at [email protected].

 

 

[1] Minebea Co. v. Papst, 228 F.R.D. 13, 21 (D.D.C. 2005) (“A corporation cannot be permitted to insulate its files from discovery simply by sending a ‘cc’ to in-house counsel.”) (quoting USPS v. Phelps Dodge Refining Corp., 852 F.Supp. 156, 163-64 (E.D.N.Y.1994)).
[2] See e.g. Upjohn Co. v. U. S., 449 U.S. 383, 394-95 (1981).
[3] Id. at 394; In re Seroquel Prods. Liability Litig., 2008 U.S. Dist. LEXIS 39467, 2008 WL 1995058, at *4 (May 7, 2008) (explaining that “[t]here is general agreement that the protection of the privilege applies only if the primary or predominate purpose of the attorney-client consultation is to seek legal advice or assistance”) (quoting Paul R. Rice, Attorney-Client Privilege in the United States § 7:5).
[4] The work-product privilege is derived from the United States Supreme Court’s ruling in Hickman v. Taylor, 29 U.S. 495, 510-11, 67 S. Ct. 385, 393 (1947), and is codified in Fed. R. Civ. P. 26(b)(3).
[5] See Cox v. Adm’r U.S. Steel & Carnegie, 17 F.3d 1386, 1421-22 (11th Cir. 1994), opinion modified on reh’g, 30 F.3d 1347 (11th Cir. 1994) (recognizing that the work-product privilege protects from discovery “materials that reflect an attorney’s mental impressions, conclusions, opinions, or legal theories” that were prepared in anticipation of litigation and intended to remain confidential); cf. Hickman, 329 U.S. at 511, 67 S.Ct. at 393; Upjohn, 449 U.S. at 399, 101 S.Ct. at 687.

Federal Court Finds Exclusions in HOA GL Policies Applicable to Wrongful Death Suit

Posted on: September 7th, 2018

By: Peter Catalanotti

Colony Insurance issued a commercial general liability policy to The Courtyards at Hollywood Station Homeowners Association Inc. (“HOA”) that operates an apartment complex in Florida. Great American Alliance Insurance issued an umbrella policy to the HOA.

Two tenants were killed in their sleep by carbon monoxide poisoning at a unit in the complex.

The mother of one of the tenants filed a wrongful death suit in state court alleging that the deaths were caused by a car fumes that traveled through the HVAC of the complex.

The insurance carriers filed a declaratory relief lawsuit in federal court arguing that they are not obligated to cover the wrongful death suit because of a total pollution exclusion.

Both policies contain an exclusion that the policy does not provide for coverage for “bodily injury which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time.”

The exclusion contains an exception whereby it does not apply to bodily injury caused by “smoke, fumes, vapor or soot produced by or originating from equipment that is used to heat, cool or dehumidifier the building.”

The HOA argued that the exception should apply because the carbon monoxide seeped through the AC vents.

In July 2018, the Court granted plaintiffs’ motion for summary judgment.  The Court found that the complaint “only lists the motor vehicle left running in the garage as a potential source of the carbon monoxide, and the Court cannot infer any other sources to create a duty to defend” (emphasis added).

According to the Court,

Since the source is unknown, Defendants would have the Court find that the carbon monoxide may have been produced by or originated from the building’s heating, cooling, or dehumidifying equipment, so the Exception could potentially apply. However, Plaintiffs’ duty to defend Courtyards HOA cannot arise from an inference that the carbon monoxide could have been produced by, or originated from, equipment used to heat, cool, or dehumidify the Unit.

The Court ultimately found that the facts alleged do not fall within the exception. Therefore, the carriers had no duty to defend in the underlying wrongful death action.

Colony Insurance Co. et al. v. The Courtyards at Hollywood Station Homeowners Association Inc. et al., Case #17-62467, in the U.S. District Court for the Southern District of Florida.

If you have any questions or would like more information, please contact Peter Catalanotti at [email protected].

EEOC Settlement With Florida Hotel Is A Reminder To Be Careful In Implementing A Mass Termination Program

Posted on: August 1st, 2018

By: Jeremy Rogers

Recently, the EEOC announced a settlement in a lawsuit brought against SLS Hotel in South Beach.  The lawsuit, filed in 2017, followed an investigation into charges made by multiple Haitian former employees who had been terminated in April 2014. They worked as dishwashers in three separate restaurants located in the SLS Hotel.  They alleged that they had been wrongfully terminated in violation of Title VII of the Civil Rights Act on the basis of race, color, and/or national origin. All told, there were 23 dishwashers fired on the same day in 2014, all but 2 of which were Haitian.  On the date of termination, each terminated employee was called into a meeting with the HR department and fired.  When fired, they allege, they were told that they must sign a separation and final release in order to receive their final paychecks.  Prior to termination, they claim that they had been subjected to considerable forms of harassment including verbal abuse (they assert they were called “slaves”), being reprimanded for speaking Creole among themselves while Latinos were allowed to speak Spanish, and being assigned more difficult tasks than non-Haitian employees.

What makes this case interesting is that SLS had re-staffed these positions using a third-party staffing company. The new staff supplied by the staffing company were primarily light-skinned Latinos. The new staff also included at least one employee who had been terminated by SLS, but that individual was also Latino.  Articles about this case from when it was filed show that the EEOC took the position that SLS was attempting to hide their discrimination behind the use of the staffing company. SLS, for their part, asserted that they had made the decision to change to the use of a staffing company 2 years before the mass termination. Despite this, the district director emphasized once again, when the EEOC announced the settlement, that the EEOC will not allow companies to hide behind business relationships to engage in discriminatory practices.  This was, according to the EEOC, just such a case.

So how egregious did the EEOC believe this case to be?  They accepted settlement on behalf of 17 workers for the sum of $2.5 million, which works out to just over $147,000.00 per employee if split equally.

If you have any questions or would like more information, please contact Jeremy Rogers at [email protected].