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Eastern District of Pennsylvania Finds that School District Immunity does not Extend to Teacher’s Alleged Intentional Torts

Posted on: August 19th, 2019

By: Erin Lamb

An Eastern District of Pennsylvania judge ruled that the Philadelphia School District is immune from a lawsuit wherein a special education student was allegedly choked by his special education teacher. However, District Judge Gerald Pappert also ruled that the plaintiffs, the student and his mother, will still be able to seek punitive damages against the teacher over the allegations.

Plaintiffs allege that in March 2018, a special education teacher grabbed the fifth-grade student by his neck. The teacher was allegedly irate that the student had not put his pencil back in the right place. The Complaint alleges that the teacher choked the student and repeated pushed his head and body against the schoolroom wall, during class, and in front of other students.

The student’s mother sued and has alleged the use of excessive force against her son, deprivation of equal protection, intentional infliction of emotional distress, and assault and battery. She further alleged deliberate indifference by the School District to students’ rights to be free from excessive force because of an alleged failure to adequately train, supervise, or discipline its employees.

Judge Pappert ruled that plaintiffs failed to adequately plead their failure to train claims, and that the school was immune from the intentional infliction of emotional distress and assault and battery claims. Judge Pappert noted that the School District had a policy regarding excessive force that the teacher appeared to have disobeyed and rejected the argument that that immunity extended to the teacher. Plaintiffs’ allegations were sufficient to present a range of punitive damages claims against the teacher under both Section 1983, and the allegations of intentional tort.

Plaintiffs were granted leave to amend the Complaint to attempt “one last time” to allege facts to support her allegations of deliberate indifference against the School District,  but were not granted leave to amend any other claims against the School District.

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

The Complications of Sub-limits in High Exposure Cases

Posted on: August 16th, 2019

By: Phil Savrin

Insurance coverage is essentially the transfer of risks to insurers who have pooled assets through payment of premium to cover liabilities that may arise to the insureds. As the exposures rise in value, the cost of coverage rises to meet the demands of the insurance industry.  Over the years, certain exposures have become increasingly difficult to cover, such as liabilities arising from asbestos, artificial stucco, and so-called junk faxes under the Telephone Consumer Practices Act of 1991. A single lawsuit involving these types of claims can easily exhaust the policy limit in addition to incurring significant costs of the defense.

To remain competitive while also keeping premiums affordable, some insurers offer to cover these types of claims but with a cap on the exposure through a sub-limit.  So, for example, a CGL policy that covers a bodily injury exposure up to $1,000,000 “per occurrence” might provide a reduced limit of $50,000 for a particular exposure such as a claim that involves sexual molestation or abuse. To further control the exposure, the sub-limit often includes defense costs, which could wholly eliminate the sub-limit in a case of significance.

Having a sub-limit can give the insurer an “edge” in resolving high-exposure claims where the proceeds of the policy is essentially the only recoverable asset of the insured. Even where the insured is financially solvent, a sub-limit can protect the insurer from paying more than the amount that went into the calculation of the premium. On the other hand, a sub-limit can create complications when the claimant is unwilling to accept the lower amount of coverage, or when the claimant (and/or the insured) contends that the claim does not fall entirely within the endorsement containing the sub-limit.  Once the defense costs consume the amount, the insurers may then need to determine whether to withdraw from the defense based on the exhaustion of the applicable limit or to continue to defend and consider bringing a declaratory judgment action.

This scenario can present a dilemma for the insurer; withdrawing from the defense could result in an extra-contractual claim, while continuing to defend adds unintended costs especially if a coverage action ensues. These costs may be warranted in light of the exposure presented yet incurring them over and above the sub-limit cuts against the reason for having the sub-limit in the first place.  Similarly, claimants and insureds may incur additional legal costs in litigating the applicability of the sub-limit and add uncertainty to the resolution of the claim.

In sum, although sub-limits help contain costs in high-exposure cases, careful consideration must be given to their enforcement which can present special challenges to claimants, insurers, and insureds alike.

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

Could Facebook’s $5 Billion FTC Fine for Privacy Violations be Covered by Cyber Insurance?

Posted on: August 14th, 2019

By: Isis Miranda

A similar question was posed to me recently at a conference where I was speaking about the GDPR (European General Data Protection Regulation): “Could my company just buy insurance instead of worrying about whether our China-based venders are complying with the GDPR?” The audience chuckled. But the question raises important and complex issues, one of which is whether civil fines are insurable and, more importantly, whether they should be.

Record-breaking fines recently announced by the FTC (Federal Trade Commission), including $5 billion against Facebook and up to $700 million against Equifax, and proposed fines by the ICO (the UK’s Information Commissioner’s Office), including £183 million against British Airways and £99 million against Marriott, combined with the advent on the horizon of the CCPA (California Consumer Privacy Act), a sweeping GDPR-like privacy law, has increased anxiety over the insurability of these fines.

Traditional insurance policies generally do not cover regulatory fines, but many cyber policies do. These insuring provisions, which typically provide coverage for civil fines and penalties levied by any regulator worldwide arising from a data breach “where insurable by law,” have yet to be scrutinized by a court. Uncertainty over whether courts may void these policy provisions as being contrary to public policy prompted the Global Federation of Insurance Associations to request assistance from the OECD (Organisation for Economic Co-operation and Development), explaining that “there is international confusion as to the insurability of fines and penalties” and stating that “OECD work to clarify this issue would benefit consumer and insurer contract certainty.”

Answering this question is no easy task. Starting with the question of whether these fines are insurable, one immediately finds that there are no legislative pronouncements or court decisions addressing the issue in the context of a cyber policy that expressly provides coverage for regulatory fines. And efforts to predict how a court might rule once the issue is raised, as it inevitably will be, are stymied by the disarray of the current case law in the related areas of punitive and statutory damages. This diversity of opinion reflects the complexity of the underlying question – whether such fines should be insurable. Courts struggle with questions, such as who should decide – legislators, judges, insurance companies? And what criteria should be applied in making the decision? Should the decision apply to all civil fines and penalties issued pursuant to a given regulation or should the issue be decided on a case-by-case basis for each violation?

In the U.S. the decisions of courts across the country regarding the insurability of punitive damages are, well, all over the map. These decisions vary in their approach to reconciling the language of the insurance policy at issue with public policy considerations in the approximately 20 states that prohibit insurance for directly assessed punitive damages, including decisions that:

  1. prohibit insurance for punitive damages, even if the policy expressly provides coverage;
  2. prohibit insurance for punitive damages, unless the policy expressly provides coverage;
  3. do not prohibit insurance for punitive damages but do not interpret policies as covering them, unless expressly included; and
  4. do not prohibit insurance for punitive damages and interpret policies as covering them, unless expressly excluded.

It is unclear whether courts will address coverage for fines and penalties in similar fashion. States that do not prohibit punitive damages could, nonetheless, place restrictions on insurance for civil fines and penalties beyond existing limits on insuring intentional conduct. And vice versa. Thus far, a few courts have applied the prohibition on punitive damages to civil fines and penalties without addressing the distinctions between the two. For example, in City of Fort Pierre v. United Fire and Casualty Company, 463 N.W.2d 845 (S.D. 1990), the federal government sued the City of Fort Pierre seeking civil penalties due to violations of the Clean Water Act of 1977. The South Dakota Supreme Court held that the civil penalties were punitive in nature and thus precluded from being covered under the City’s insurance policy. A dissenting justice disagreed, stating: “Before punitive damages may be awarded, malice on the part of the party from whom the punitive damages are sought must be shown. No similar requirement exists for the imposition of the civil penalty. Therefore, the civil penalty the United States sought to have imposed upon the City of Ft. Pierre cannot be equated to punitive damages.” Similarly, in Bullock v. Maryland Casualty Company, 85 Cal. App. 4th 1435 (Ct. App. 2001), the California Court of Appeal held that civil fines are not insurable without addressing the fact that the public policy prohibiting insurance for punitive damages was expressly limited to punitive damages that were assessed upon a finding of fraud, oppression or malice. City Products Corporation v. Globe Indemnity Company, 88 Cal. App. 3d 31 (Ct. App. 1979). It will be interesting to watch how the case law evolves as coverage battles involving cyber policies that expressly provide coverage for fines and penalties percolate through the courts.

Now to the question we started with. Without knowing the contents of Facebook’s insurance policy, we can only speculate as to its terms, including which state’s laws would apply to interpret the policy. But we would not be going out on a limb by saying that the $5 billion FTC fine likely exceeds policy limits. Facebook will not garner much sympathy, given that it inarguably violated the FTC’s 2012 order and can readily afford the $5 billion fine. And there is concern that allowing companies to obtain insurance to cover civil penalties for violating data privacy and security statues would discourage them from making the investments necessary for compliance. But the reality is more nuanced. Small- and medium-sized businesses, in particular, benefit from the data security assessments, cyber risk consulting services, and preferred vendors that are made available by many cyber insurance carriers, which serves to increase compliance with related statutes. See, e.g., Kyle D. Logue & Omri Ben-Shahar, “Outsourcing Regulation: How Insurance Reduces Moral Hazard” (Coase-Sandor Institute for Law & Economics Working Paper No. 593, 2012). These issues will, no doubt, continue to be debated for many years to come.

Amidst all this uncertainty, one thing is sure: the future will be fascinating.

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

 

To Everything There Is A Season – And A Causation Analysis

Posted on: August 14th, 2019

By: Marc Shrake

Late last week the National Oceanic and Atmospheric Administration (NOAA) issued its annual mid-season update to the 2019 Atlantic hurricane outlook (https://www.noaa.gov/media-release/noaa-increases-chance-for-above-normal-hurricane-season).  The NOAA upped its prediction to 5-9 hurricanes, which are expected to develop out of a projected 10-17 named storms.  An average hurricane season, which runs through November 30, produces 12 named storms of which 6 become hurricanes, including 3 major hurricanes.

So far this year we have seen two named storms (one of which strengthened into Hurricane Barry), well over 1,000 tornadoes throughout the United States, major earthquakes in California, extensive flooding, and other major events that destroyed property.

Natural and man-made disasters activate the world of insurance as insurance policies are reviewed, damage is evaluated, and claims are prepared and analyzed.

Among the many issues is whether loss or damage is covered under a property insurance policy.  Such claims inevitably raise the issue of “causation,” which involves first and foremost figuring out “what happened.”  For example:

  • During a storm, flood waters enter through the ground floor windows and spill downstairs while the sewer pipe backs up into the basement.
  • Civil war rebels fight in the countryside and occupy commercial property abandoned by foreign businesses, while local civilians see the lack of security and take every piece of usable property they can get their hands on.
  • Within a few months of a wildfire on a hillside, torrential rains roll in and soak the fresh ground, and the earth falls off the hillside.

Whether dealing with an “all risk” property insurance policy (under which losses to covered property caused by any and all perils are covered unless the loss is caused by a peril excluded by the policy) or a “named peril” policy (under which losses to covered property are covered if caused by a peril listed as a covered peril), the coverage question focuses on what peril or perils caused the physical damage.

And so the fun begins.  The question requires determining whether more than one peril was at work, what those perils were, whether those perils worked independently of or in sequence with one another, what loss or damage is present, and what damage was caused by each peril.

If an identified peril causes separately-identifiable damage or loss, then a multiple cause issue is not present.  For instance, if a house is destroyed in a hurricane, and identifiable physical damage was caused by wind (not an excluded peril) and other identifiable damage by flood (an excluded peril), then it is not necessary to delve into the legal aspects of multiple cause analysis.

But if (and only if) multiple, independent perils work contemporaneously to cause the same loss, the game changes.  The law in most jurisdictions requires finding the most significant, or “efficient,” cause or “the dominant and efficient cause” of direct physical loss or damage, or the “predominating cause.”  If the “efficient proximate cause” of the loss is not an excluded peril, then the loss is covered.  No coverage exists for a loss if the covered risk was only a remote cause of the loss, or conversely, if an excluded risk was the efficient proximate cause of the loss.

The law on “efficient proximate cause” or “predominant cause” or the “closest cause” varies by jurisdiction.  Some look to the last cause in the chain of causation.  Other courts look to the first cause which sets the others in motion.  Others try a pragmatic-sounding approach:  “the causation inquiry stops at efficient physical cause of the loss; it does not trace events back to their metaphysical beginnings.”  At least one jurisdiction determines proximate cause by looking to the reasonable expectations of the contracting parties, noting that “proximity and remoteness are relative and changing concepts.”

The minority of states that have not adopted the “efficient proximate cause” standard apply other rules.  Some have adopted the “concurrent cause” rule, which is that if any one of several non-remote causes of the same loss is a non-excluded peril (or a specified peril under a named peril policy), then the loss is covered.  Coverage is found to exist simply if the loss would not have occurred but for the operation of a covered cause.  It is not necessary, to determine the “predominant cause,” the initial cause, or the cause that set the others in motion.

Also to be considered are “anti-concurrent causation” provisions.  An example:  “We do not cover loss to any property resulting directly or indirectly from any of the following perils . . . . Such a loss is excluded even if a covered peril or event contributed concurrently or in any sequence to cause the loss.”  These clauses override the “efficient proximate cause” doctrine and exclude coverage if even just one of the causes of loss is an excluded peril, even if a covered peril contributed to the loss.  Many states enforce such language, but some states have overridden “anti-concurrent causation” provisions and imposed by statute the “efficient proximate cause” rule in all policies, and other courts have declined to apply anti-concurrent causation provisions.

Additionally, “ensuing loss,” or “resulting loss,” provisions come into play if two different losses come out of a sequence of perils.  This provision is typically an exception to an exclusion:  “This ‘policy’ does not cover the following, but if physical loss or damage not otherwise excluded by this ‘policy’ to Insured Property at Insured Location(s) results, then only such resulting physical loss or damage is covered by this ‘policy.’”  It applies when damage caused by an excluded peril is part of a chain of events that enables a covered peril to damage other property:  excluded peril causes excluded damage, which enables a covered peril, which causes ensuing damage that, under the exception, is not excluded.

A property insurance claim raises many questions, such as “what does the policy say” to “what is the law of the jurisdiction.”  But when a property insurance claim is presented following a series or confluence of events, to determine physically what actually happened is of paramount importance.  Working through the facts can take an insurance professional through the worlds of science and history and industry and turn out to be some of the most interesting work in the business.

If you have any questions or would like more information, please contact Marc Shrake at [email protected]

From the Windows to the Walls: California Homeowners Consider Earthquake Coverage

Posted on: August 12th, 2019

By: Kristin Ingulsrud

Californians witnessed a series of earthquakes over the recent Fourth of July Weekend, prompting a ten-fold increase in visits to the California Earthquake Authority’s (“CEA”) website.

The CEA is California’s primary earthquake insurer, created after the devasting 1994 Northridge Earthquake, which measured in at a magnitude of 6.7 and caused $20 billion in damages.  The recent earthquakes measured at 7.1 and 6.4 magnitudes, but were centered in a less urban area—insurance payouts are estimated at less than $1 billion.

Geological research known as the Uniform California Earthquake Ruptured Forecast predicts an increasing likelihood of additional large earthquakes.  So why do only 13% of California homeowners have earthquake insurance?

There’s the cost—earthquake coverage adds an average of $800 a year in premiums.  Many Californians also have sizeable mortgages to consider, reasoning that more of the risk is carried by the bank.  Deductibles are high, ranging from 5% to 25%.  Typical damages from an earthquake may be less than the standard 15% deductible, making it reasonable for some homeowners to self-insure.  Some residents may decide they are better served by investing their money into safety upgrades.

Even given these variables, it is still surprising that only 13% of California homeowners carry earthquake insurance.  It remains to be seen whether the recent Ridgecrest earthquakes will serve as a wake-up call sufficient to increase the rates of earthquake coverage among California homeowners.

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