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FMG Law Blog Line

Archive for December, 2018

A Holly(cal) Jolly (Almost) Christmas

Posted on: December 28th, 2018

By: Zach Moura

In what is sure to be the beginning of a slew of cases litigating coverage for injuries caused by drones, the U.S. District Court for the Central District of California recently issued an opinion denying coverage under an aircraft exclusion in the drone operator’s Commercial General Liability (CGL) policy. Philadelphia Indemnity Insurance Company v. Hollycal Production, Inc., et al., 5:18-cv-00768.

The accident at issue occurred when Hollycal Production (“Hollycal”) used a drone to photograph an event. The drone collided with one of the attendees, Darshan Kamboj, blinding her in one eye. Ms. Kamboj subsequently filed suit against Hollycal, its owner, and the Hollycal employee that operated the drone. Hollycal tendered the defense of the suit to Philadelphia Indemnity Insurance Company (“Philadelphia”) under the CGL policy on which Hollycal was an additional insured. Philadelphia agreed to defend Hollycal under a reservation of rights, and then filed a declaratory judgment action seeking a determination that it had no duty to defend or indemnify Hollycal for the Kamboj suit.

Philadelphia moved for summary judgment, in part on the basis that the Aircraft exclusion in the Policy excluded coverage in pertinent part for bodily injury or property damage “arising out of the ownership, maintenance, use or entrustment to others of any aircraft, ‘auto’ or watercraft owned or operated by or rented or loaned to any insured.” Because “aircraft” was not a defined term in the policy, the Court looked to the Merriam-Webster’s Collegiate Dictionary definition of the word, along with the definition included in 49 U.S.C. § 40102(a)(6) and 14 C.F.R. § 1.1. The Court concluded that a “drone … is an aircraft under the term’s ordinary and plain definition.” Accordingly, the Court found that the Kamboj suit was excluded from coverage and Philadelphia had no duty to defend or indemnify Hollycal.

Drone operators will need to carefully review their insurance and ensure that they have appropriate coverage in place for their drone operations. As this matter makes clear, and as reinforced by recent reports of a drone striking the nose of an Aeromexico plane, an October near-miss of a drone by a passenger plane near London Heathrow, and the shutdown of London Gatwick airport last week because of suspected drone activity, there is substantial exposure arising from drone operations. Without the right insurance, operators may be left disastrously exposed.

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

Who is Protected by Privilege?

Posted on: December 27th, 2018

By: Matthew Jones

In the recent case of Day v. Johns Hopkins Health Sys. Corp., the U.S. Court of Appeals for the Fourth Circuit answered this question in the context of expert witnesses facing RICO violations. In the Day case, an expert witness testified that the evidence he reviewed regarding the coal miners’ claim for Black Lung Benefits Act benefits did not support those claims. After the claim was denied, the Center for Public Integrity alleged that the radiology unit at Johns Hopkins were much less likely to find cases of black lung disease than other doctors.

On appeal, it was argued that the expert witness misled the Court and the miners as to the standards he was applying, which amounted to a systematic violation of international standards. However, the Fourth Circuit reiterated the “absolute” nature of the litigation privilege for those witnesses who “aid the truth-seeking mission of the judicial system.” One important goal of this privilege is to prevent future witness participation deterrence or to be undermined by subsequent actions for damages arising out of the witness’s testimony.

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

Employers Beware – Social Security No-Match Letters are Making a Comeback

Posted on: December 26th, 2018

By: Layli Eskandari Deal

Like a bad penny, the Social Security no-match letters will once again turn up and wreak havoc on employers. It is anticipated that employers will once again start receiving these no-match letters, officially called the “Employer Correction Request Notice,” in the Spring of 2019. The SSA will start notifying employers if the W-2 (Wage and Tax Statements) information contains a social security number and a name that do not match.

These no-match letters have been around for a while, but SSA has not issued them consistently. The idea behind these letters is to notify employers when there is a mismatch between the name and the social security number provided and the SSA records. This can happen for a variety of reasons such as simple human error in imputing the information (such as misspelled name or transposed numbers). Of course, this can also result from an employee providing a false social security number or using another individual’s social security number.

On its face, it seems logical that the SSA would want to correct any mismatched information in an individual’s account. However, U.S. Immigration and Customs Enforcement (ICE) has indicated that there is a duty by the employer to investigate the reasons for the discrepancy. ICE has warned that these letters, if uninvestigated, can lead to a finding of “constructive knowledge” of unauthorized employment during an audit.

Unfortunately, employers are stuck in the middle. SSA states that the no-match letters are not addressing unlawful employment but, on the other hand, ICE is indicating that they can use these letters to show constructive knowledge.

So, what should employers do if they receive a no-match letter?

  1. If a letter is received, don’t assume the worst. There may be a simple reason for the mismatch.  Remember, these letters are not providing any information regarding the employee’s employment authorization or immigration status.
  2. Communicate with the employee.  Let the employee know a letter was received and ask then to verify their information.  Give your employee a reasonable period of time to resolve the discrepancy with the SSA. SSA has provided a sample letter to give to employees.
  3. Follow up with your employee and review any documents that they may provide to you. Submit any employer or employee corrections to the SSA.

This year, ICE’s Homeland Security Investigations launched 6,848 worksite investigations. The number of employer I-9 audits has gone up from 1,360 to 5,891 (comparing fiscal year 2017 to 2018). As ICE ramps up their enforcement efforts in 2019, it is necessary for employers to create a plan to address no-match letters with their employees, as well as, making sure that their I-9s are compliant.

For additional information related to this topic and for advice regarding how to navigate U.S. immigration laws, please contact Layli Eskandari Deal of the law firm of Freeman Mathis & Gary, LLP at (770-551-2700) or [email protected].

Department of Education Proposes New Title IX Regulations Regarding Proper Response To Complaints of Sexual Misconduct

Posted on: December 21st, 2018

By: Bill Buechner

The Department of Education (“DOE”) recently issued proposed regulations regarding how elementary and secondary schools and institutions of higher education should respond to complaints of sexual harassment and sexual assault. As a whole, the proposed regulations seek to strengthen the due process protections for students accused of sexual harassment and/or sexual assault, while at the same time proposing measures that the DOE believes would encourage students who believe they are victims of sexual harassment and/or sexual assault to report the conduct and seek measures that would preserve or restore their access to an educational program or activity.

The proposed regulations follow the DOE’s decision in 2017 to rescind the 2011 Dear Colleague Letter and the 2014 Questions and Answers on Title IX and Sexual Violence guidance previously issued by the DOE under the Obama Administration. At that time, the DOE also issued temporary guidance set forth in its Questions and Answers on Campus Sexual Misconduct, while also stating that it intended to promulgate regulations addressing these issues.

The proposed regulations, as well as an executive summary and an in-depth explanation of the rationale for the proposed regulations have been published in the Federal Register at 83 FR 61462 and may be reviewed here. Briefly discussed below are the most significant proposed provisions:

  1. Narrowed Definition of Sexual Harassment

The proposed regulations would define sexual harassment as including (a) quid quo pro harassment (promising education benefits in exchange for an individual’s participation in unwelcome sexual conduct); (b) sexual assault, as defined by existing Clery Act regulations; and (c) “unwelcome conduct on the basis of sex that is so severe, pervasive, and objectively offensive that it effectively denies a person equal access to the recipient’s education program or activity.” In contrast, the 2011 Dear Colleague Letter defined sexual harassment as “unwelcome conduct of a sexual nature.” The DOE explains that its proposed definition of sexual harassment is consistent with Supreme Court precedent assessing Title IX liability in private litigation and would provide a uniform standard. The DOE also emphasizes that Title IX is only violated when sex discrimination has the effect of denying access to an educational program or activity.

  1. Deliberate Indifference Standard

The proposed regulations state that a school would only be subject to Title IX liability if it responds to known sexual harassment in a way that is deliberately indifferent. The proposed regulations define deliberate indifference as “clearly unreasonable in light of the known circumstances.” The DOE explains that this standard of liability tracks the standard set forth in Supreme Court precedent addressing the liability of parties in private litigation. Prior guidance and the DOE’s Office of Civil Rights prior enforcement practices took the position that a school’s response should be judgment under a reasonableness standard.

  1. Actual Notice Requirement

The proposed regulations also would provide that a recipient must have actual knowledge of conduct that constitutes sexual harassment in order to be subject to Title IX liability, as opposed to the imputation of knowledge through constructive knowledge or respondeat superior. Actual notice is defined as knowledge by an official who has authority to institute corrective measures on behalf of the recipient. The proposed regulations also define actual knowledge as notice of sexual harassment to a school’s Title IX Coordinator or (at the elementary and secondary school level) a teacher.

  1. Two-Track Complaint Procedures

The proposed regulations would create a two-track complaint procedure, out of recognition that, for a variety of reasons, a complainant may not want to a file a formal complaint.  A complainant may notify the school (verbally or in writing) of conduct that could constitute sexual harassment without filing a grievance or pursuing charges against the alleged perpetrator.  If the complainant chooses this option, the school would not be obligated to investigate the allegations, but would be obligated to provide supportive measures, including a non-exhaustive list of measures such as counseling, extension of deadlines for completing course work, campus escort services, mutual restrictions on contact between the parties and changes in work or housing locations.   The supportive measures are to be non-disciplinary and non-punitive and reasonably available without cost or charge, and would be intended to restore or preserve the complainant’s access to his or her education. Colleges that provide these supportive measures and respect a complainant’s wishes not to file a formal complaint would be entitled to a safe harbor against a finding of deliberate indifference.

The proposed regulations recognize that, at the elementary and secondary school level, it may be necessary in some instances for a Title IX Coordinator to file a formal complaint even if the complainant does not to file one.   At the college level, a Title IX Coordinator would be obligated to file a formal complaint if the school has actual knowledge regarding reports by multiple complainants of conduct by the same respondent that could constitute sexual harassment.

The complainant may also submit a formal complaint in writing alleging sexual harassment and requesting that the school activate its grievance process.   The formal complaint must be signed by the complainant or the Title IX Coordinator.   Schools that follow the proposed regulations’ procedures for responding to a formal complaint would be entitled to a safe harbor against a finding of deliberate indifference.

  1. Notice of Allegations

The proposed regulations provide that, if a formal complaint is filed, the school must provide written notice to the parties who are known.   The written notice must include, among other things, identities of the parties involved in the incident, the conduct alleged, the date and location of the alleged incident and a statement that the respondent is presumed not responsible for the alleged conduct and a determination regarding responsibility will be made at the conclusion of the grievance process.

  1. Other Due Process Protections

The proposed regulations would give the parties the right to inspect any documents or evidence collected by the school during the investigation.   Parties would also have the right to review the initial draft of the investigation report prepared by the investigator and provide a written response for the investigator’s consideration before completion of the investigation report.   The proposed regulations would also give each party equal opportunity to have an advisor of his or her choice present at various stages of the grievance process, subject to restrictions that would be equally applicable to each party.   In addition, the proposed regulations would require that the investigator, coordinator and decision-maker not have a conflict of interest or bias against the complainant or respondent.   The proposed regulations would require live hearings for colleges and would allow (but not require) live hearings for elementary and secondary schools.

  1. Right of Cross-Examination

One of the more controversial issues is whether a respondent should have the right to cross-examine the complainant.  The proposed regulations answer this question by stating that due process requires a right to cross-examination of both parties.   However, the proposed regulations provide that, at the college level, the cross-examination must be conducted by the party’s advisor rather than the party.  Also, the proposed regulations would allow either party to request that the parties be placed in separate rooms during cross-examination while observing the questioning live via technological means.   Moreover, the proposed regulations mirror rape shield laws in prohibiting questions regarding the complainant’s sexual history, except the complainant’s history with the respondent to show consent, or to show that someone other than the respondent engaged in the alleged conduct.

At the elementary and secondary school level, the proposed regulations recognize that cross-examination of the parties during a live hearing may not be appropriate.  If school officials determine that a live hearing is not appropriate, the proposed regulations provide that each party must be allowed to pose written cross-examination questions to the opposing party or to witnesses through the decision-maker, including questions challenging credibility and follow-up questions.

  1. 8. Standard of Proof

Another controversial issue is what standard of proof is required to establish that a complainant was the victim of sexual harassment or sexual assault.  The 2011 Dear Colleague Letter stated that a preponderance of the evidence standard (meaning more likely than not) was appropriate because this is the standard in most civil cases.   The proposed regulations state that schools may decide whether to apply a preponderance of evidence standard or a clear and convincing evidence standard (meaning it is highly probable or reasonably certain that the alleged conduct occurred).   However, the proposed regulations would allow schools to apply the preponderance of evidence standard only if that standard is applied to (1) other student conduct code violations that carry the same disciplinary sanction; and (2) respondents who are employees, including faculty.

  1. Written Determination

The proposed regulations would require that the decision-maker issue a written determination that includes findings of fact and rationale for the conclusion as to each allegation.  The proposed regulations would require an objective evaluation of all the relevant evidence and would prohibit credibility determinations based on a person’s status as a complainant, respondent or witness.  The proposed regulations would require the written determination to state any sanctions imposed against the respondent and any remedies provided to the complainant to restore or preserve access to the school’s education program or activity.   Most importantly, the proposed regulations state that a school will not be found to be deliberately indifferent simply because the DOE would have reached a different conclusion based on its own weighing of the evidence.  The proposed regulations provide that the decision-maker must be a different person than the Title IX Coordinator and the investigator.

  1. Appeal

The proposed regulations would allow (but not require) schools to offer an appeal for an aggrieved party.  However, if an appeal is made available, it must be made available to both parties.   The proposed regulations provide that the decision-maker on appeal must be different that the Title IX Coordinator, the investigator or the initial decision-maker.

  1. Informal Resolution

The 2011 Dear Colleague Letter prohibited alternate dispute resolution in instances of alleged sexual assault.   The proposed regulations would permit informal resolution, such as mediation, if the parties provide their written consent.  The proposed regulations would require notice as to the requirements of the informal resolution process, including the circumstances under which it would preclude the parties from resuming a formal complaint arising from the same allegations, and other consequences resulting from participation in the informal resolution process.

As stated above, these are only proposed regulations.  The public will have until January 28, 2019 to submit comments.  After receiving and reviewing these comments, the DOE will promulgate final regulations.

For additional information, please do not hesitate to contact Bill Buechner at [email protected].

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].