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Archive for March, 2021

The Third Round Of COVID-19 Relief And How It Could Impact Employers

Posted on: March 19th, 2021

By: Bill Catto and Brittany Kurtz

While most Americans are checking their bank accounts for a stimulus check, employers should be aware of the extensions and expansions of the latest COVID-19 legislation allowing for additional tax credits for voluntarily providing COVID-19 paid sick and family leave.

On March 11, 2021, the President signed the American Rescue Plan Act into law and with it extended potential tax credit for employers. The 2021 Consolidated Appropriations Act (CAA) gave employers the option to decide whether their company would provide paid leave, which was originally mandated under the Families First Coronavirus Response Act (FFCRA) and expired December 31, 2020.  The American Rescue Plan Act extends CAA’s voluntary decision allowing employers to offer paid leave and receive tax credits for employees leave between March 31, 2021 and September 30, 2021. In addition to providing paid sick and family leave related to COVID-19 symptoms, the American Rescue Plan Act expands qualifying reasons for leave, including receiving immunization related to COVID-19 and recovering from any injury, disability, illness or condition related to receiving that vaccination. The latest law also allows tax credit for paid leave when an employee is seeking or awaiting the result of a diagnostic test or medical diagnosis for COVID-19 or if their employer has requested such a test or diagnosis.

In addition to the expansion for potential voluntary tax credits to the employer, the American Rescue Plan Act includes non-discrimination language and disqualification for receiving the credits should an employer discriminate and withhold paid leave to its employees based upon compensation level, full-time employee status or employees on the basis of tenure with the company. Employers must uniformly provide paid sick and family leave related to COVID-19 symptoms, testing and immunization to all employees to be eligible for the associated tax credits. The Act calls for an all or nothing approach as it relates to the paid leave and receipt of tax credits.

Another potential tax credit for employers includes voluntarily providing an additional ten (10) days of FFCRA paid sick leave beginning April 1, 2021. While employers are not required to provide the additional ten (10) days, they would be eligible for additional credits by doing so.

The American Rescue Plan Act provides voluntary tax credits for employers. However, they should remain on alert for new legislation focused on mandating additional protections for employees related to COVID-19 as referenced during the campaign of the current Administration.

For more information, please contact Bill Catto at [email protected].

NYSDFS’s Cyber Insurance Risk Framework Responds to the “Urgent Challenge” of Managing Cyber Risk

Posted on: March 16th, 2021

By: Curt Graham

New York’s Department of Financial Services (“DFS”) recently issued its Cyber Insurance Risk Framework which details seven best practices for managing cyber insurance risk. The Framework can be found here. One of the primary drivers for this guidance is the rise in the frequency of ransomware attacks, with the global cost of ransomware estimated to be $20 billion in 2020 alone.

The DFS joins the Office of Foreign Assets Control (“OFAC”) in recommending against making ransom payments in the event of a ransomware attack. Several justifications are offered for this recommendation. First, there is no guarantee that a victim will regain access to their data even if the ransom is paid. Second, ransom payments will almost certainly be used to fund more sophisticated attacks. Third, carriers and their policyholders risk violating OFAC sanctions if a ransom is paid.

The DFS’s bulletin also points out various deficiencies in the way cyber risk is currently assessed and priced by the insurance industry. In response, the DFS’s Framework identifies seven practices that all authorized property and casualty insurers writing cyber insurance should utilize. These include establishing a formal cyber insurance risk strategy, managing and eliminating exposure to silent cyber insurance risk, evaluating systematic risk, rigorously measuring insured risk, educating insureds and insurance producers, obtaining cybersecurity expertise, and requiring notice to law enforcement. Additional details relating to each practice can be found in the link above.

This Framework applies to all carriers writing insurance in New York. But its reach is far greater, as the DFS’s regulations also require regulated insurers to vet the cyber readiness of their vendors who may be located outside of New York. Given the vast reach of these regulations, any entity doing business with a DFS-regulated entity is well served by keeping an eye on DFS guidance such as the Cyber Insurance Risk Framework.

If you have questions or would like more information, please contact Curt Graham at [email protected].

SEC and FINRA Release 2021 Examination Priorities

Posted on: March 15th, 2021

By: Chad Weaver and Tyler Jacobs

On March 3rd, the SEC Division of Examinations announced their 2021 examination priorities. Earlier this year, on February 2nd, FINRA released a report of Examinations and Risk Monitoring to provide insight to member firm’s compliance programs.

Unsurprisingly, there is significant overlap between the priorities of the two securities regulatory bodies. Both the SEC and FINRA look to address the news industry risks created by the COVID-19 pandemic. For example, cybersecurity concerns in a remote work environment, Paycheck Protection Program loans for registered representatives, and how municipal advisors may have adjusted their practices.

Additionally, ensuring Regulation Best Interest (“Reg BI”) compliance is a top priority in 2021 for both regulators. FINRA highlights it will investigate: if the firms have policies, procedures and controls in place to assess recommendations using a best interest standard, if firms provide adequate Reg BI training, and if firms have policies, procedures and controls in place regarding the filing, updating, and delivery of Form CRS. The SEC adds, “[t]he Division will focus on compliance…[and] will examine whether firms are appropriately mitigating conflicts of interest…”

Other common priorities between the SEC and FINRA include: variable annuities, compliance with best execution in a zero commission environment, protecting retail senior investors, anti-money laundering, and liquidity. FINRA also prioritizes the vendor display rule, market access, and data breaches. Whereas, the SEC emphasizes FinTech, ESGs, and the London Inter-Bank Offered Rate Transition.

Overall, it appears the SEC is seeking to address the evolving risks in the industry such as concerns related to climate change and digital currencies. On the other hand, FINRA will focus on familiar issues such as communications with the public and cybersecurity risks.

A full list of the 2021 priorities for the SEC Division of Examination and FINRA can be found online at: https://www.sec.gov/files/2021-exam-priorities.pdf and https://www.finra.org/rules-guidance/guidance/reports/2021-finras-examination-and-risk-monitoring-program

If you have questions or would like more information, please contact Chad Weaver at [email protected] or Tyler Jacobs at [email protected].

Invoking the Separation of Witnesses Rule: The Court of Appeals of Kentucky Clarifies KRE 615 in Skarupa v. Owensboro Health Healthpark

Posted on: March 15th, 2021

By: Tia Combs

As Kentucky looks to reopen its courts for jury trials on May 1, 2021, practitioners looking to brush up on their trial skills may want to take note of Skarupa v. Owensboro Health Healthpark, 583 S.W.3d 33 (Ky. Ct. App. 2019) which explains the court’s interpretation of KRE 615. 

Skarupa sought a massage at Owensboro Health on March 2, 2012 for pain and tightness in her neck and shoulders. Id. at 34. A month later, Skarupa suffered a stroke which left her partially paralyzed, unable to speak or walk, and blind in her left eye. Id. Skarupa, with the help of OT and PT, was able to recover her ability to walk and speak but remains blind in her left eye and cannot return to her work as a nurse. Id. Just under a year after her massage, Skarupa filed an action against Owensboro Health and the massage therapist, alleging that the massage she had in March 2012 caused a dissection of her left and right carotid arteries and her ensuing stroke. Id.

In support of her theory of the case, the Plaintiff produced two expert witnesses, one a vascular surgeon and one a licensed massage therapist. Id.  Both testified by video deposition prior to trial. Id. These witnesses were countered by the defense’s three experts: a licensed massage therapist, a medical doctor, and vascular surgeon. Id. Prior to trial, the Plaintiffs’ motion for separation of witnesses pursuant to KRE 615 was granted. Id. The matter proceeded to trial in February 2018. Id.

At trial, it was revealed that all defense expert witnesses had, to some extent, reviewed the depositions, some videotaped, of the Plaintiff’s witnesses. Id. The Plaintiff cried foul, arguing that this review was a violation of KRE 615 and that the Defendants’ witnesses should not be permitted to testify and, later, that the Plaintiff was entitled to directed verdict because the testimony of the Defendants’ experts was not admissible. Id. Both motions were denied by the trial court. Id. at 35. A verdict was returned in favor of the Defendants, and the Plaintiff appealed. Id.

The Kentucky Court of Appeals reviewed several Kentucky cases interpreting KRE 615 and federal cases based on the identical FRE 615.  The court of appeals concluded that KRE “only requires sequestration of witnesses prospectively from the point in time that the rule is invoked.” Id. at 36. The court further explained that while a timely filed motion invoking KRE 615 requires separation ofwitnesses, a motion filed after a witness has already heard another witness’s testimony is not timely. Id. In Skarupa, the Plaintiff did not move under KRE 615 until after the Defendants’ expert witnesses had already reviewed the testimony of other witnesses. Id. As such, the court of appeals held that the trial court had not erred in allowing the Defendants’ witnesses to testify and that the defense’s verdict should stand. 

For more information, please contact Tia Combs at [email protected].

FIU Footbridge Collapse Case Dismissed as “Shotgun Complaint” Fails to Differentiate Between Defendants

Posted on: March 12th, 2021

By: Tom McCraw

The US District Court for the Southern District of Florida recently dismissed a complaint without prejudice because the plaintiff failed to allege distinct conduct by the multiple defendants.  Instead, the plaintiff alleged facts concerning the defendants collectively, failing to satisfy the pleading requirements of the Federal Rules of Civil Procedure 8(a)(2) and 9(b).

The case arose from the fatal collapse of the footbridge at Florida International University (“FIU”) in March 2018. FIU had retained Magnum Construction Management, LLC (“Magnum”), as the design-build entity for the project. Magnum in turn retained FIGG Bridge Engineers, Inc. (“FIGG”), to perform all engineering services concerning the bridge.  Magnum also retained the Louis Berger Group, Inc. (“Louis Berger”), to conduct a peer review of FIGG’s designs. 

After the bridge collapsed, FIU settled with Magnum and other parties including Magnum’s surety, Travelers.  As part of that settlement, FIU assigned to Travelers any claims it had against any non-settling parties, including the defendants to this lawsuit.  Travelers then assigned to Magnum its rights against Louis Berger. 

Magnum brought claims for negligence and negligent misrepresentation against four defendants:  WSP USA Solutions, Inc.; Louis Berger U.S., Inc.; Louis Berger; and Amman & Whitney, Inc.  Magnum alleged that the defendants had misrepresented that they were pre-qualified to perform the peer review of FIGG’s designs for the bridge as required by state law, and that they failed to perform the peer review properly pursuant to federal law.  Magnum also sought contribution and equitable subrogation to recover the settlement paid by Magnum and Travelers to FIU.   

Magnum’s complaint, however, referred to the defendants collectively as “Louis Berger,” and did not include any “individualized allegations” delineating specific claims as to conduct by the particular defendants.  Moreover, the complaint alleged that Louis Berger was an entity separate and distinct from the other defendants.  The defendants moved to dismiss the complaint as a “shotgun pleading,” among other things – including the fact that Louis Berger was the only defendant retained by Magnum to perform the peer review of FIGG’s designs for the project.  Magnum objected, noting that the four defendants were all merged or successor entities to each other, such that reference to them collectively as “Louis Berger” was appropriate.

The court granted the defendants’ motion, holding that the complaint was indeed a “shotgun pleading” failing to “give the defendants adequate notice of the claims against them and the grounds upon which each claim rests.”  The court was unpersuaded by Magnum’s argument that the defendants “had no separate and distinct corporate identities” in light of the fact that Magnum’s own “allegations in the Complaint state otherwise.”  Having failed to allege the interrelationship of the defendants in the complaint, Magnum’s collective treatment of them as a single entity – without any differentiation between them – was its undoing.  The court dismissed the case but gave Magnum leave to amend its complaint within 14 days.  See Magnum Construction Management, LLC v. WSP USA Solutions, Inc., et al., Case No. 20-24684-CIV ALTONAGA/Torres, March 2, 2021.

The Magnum decision is instructive not only to plaintiffs as to the perils of poorly pleaded allegations, but also to the defense bar as an illustration of the avenues of dismissal when the complaint is so scattershot as to fail to state a claim upon which relief can be granted.

For more information, please contact Tom McCraw at [email protected].