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Archive for the ‘LawLine’ Category

Caps on Medical Malpractice Awards- How Much is Too much?

Posted on: August 5th, 2014

By: Taryn M. Kadar

Monetary caps on medical malpractice awards are commonplace in many states throughout the country. In today’s highly litigious environment, these monetary caps help limit the exposure a doctor or hospital may have in a medical malpractice suit. While some states such as Florida and Georgia have declared non-economic caps on damages to be unconstitutional, states such as California are currently considering whether to raise the cap on medical malpractice awards from $250,000 to $1.1 million. This significant raise ensures that both patient advocates and health care professionals will have a hand in the debate.

Patient advocates argue that raising the cap will help deter medical negligence. While opponents believe that a higher cap will raise healthcare costs and limit patient access to care. Further, doctors in California would need to spend more on medical malpractice insurance which may also hinder patient care.

How would this significant raise in the monetary cap amount impact the medical community in California? It is up to California residents to decide, as the issue has been approved for the ballot in November 2014. However, the debate is an important one, as other states may follow suit and consider raising its medical malpractice award caps.

EEOC’s New Enforcement Guidance On Pregnancy Expands Interpretation of Existing Law

Posted on: July 22nd, 2014

By: Amanda McCallum Cash

After a 3-2 vote, on July 14, 2014, the EEOC issued its first Enforcement Guidance on pregnancy in over 30 years. While the new guidelines cover a number of pregnancy-related topics that all employers should consider, two hot topics in the recent Guidance are (1) light duty for pregnant employees and (2) health insurance coverage for contraception.
For employers, the EEOC’s newly issued Guidance on light duty for pregnant employees is particularly noteworthy because many employers currently have policies providing light duty for employees only if they are injured on the job or are disabled within the meaning of the Americans with Disabilities Act. According to the EEOC’s recent Guidance, however, employers may violate the Pregnancy Discrimination Act if they do not change these policies. The Guidance provides that employers should provide light duty to pregnant employees to the same extent it is granted to other employees who are “similar in their ability or inability to work.” The Guidance is seen by many as a requirement to provide “reasonable accommodations” to non-disabled, pregnant employees.

Notably, the Supreme Court will take up a similar issue in its next term in Young v. United Parcel Service and determine the extent to which an employer must accommodate a pregnant, but non-disabled employee. In light of the impending decision by the Supreme Court, many have questioned the timing of the EEOC’s Guidance, as the Supreme Court’s decision could quickly overwrite the EEOC’s Guidance on this topic.

In another sharply criticized move, the EEOC’s Guidance also warns employers that they may violate Title VII if they provide health insurance coverage that excludes coverage of prescription contraceptives. Because contraceptives are only available for women, the EEOC’s position is that a health insurance plan excluding contraceptives is discriminatory. As many are aware, however, in Burwell v. Hobby Lobby Stores, Inc., the Supreme Court recently held that a private, closely held corporations could refuse to provide contraception coverage if it violated religious beliefs. Although the EEOC acknowledges this decision in a footnote, it sidesteps how the Burwell decision would affect the EEOC’s interpretation of this issue.
While these two topics in the Guidance have garnered significant attention thus far, the EEOC’s Guidance on pregnancy touches on numerous other issues that may impact employers’ workplace policies. Employers would be wise to review the entirety of the EEOC’s Guidance on pregnancy and consult with legal counsel about any changes that may need to be made to workplace policies and practices. Please check back for additional analysis and updates on the EEOC’s new Enforcement Guidance on pregnancy.

Courts Continue to Question Protections Afforded By Iconic Business Judgment Rule – Georgia Joins the Trend

Posted on: July 21st, 2014

By: Michael Wolak, III

The business judgment rule is an iconic fixture in American corporate jurisprudence reflecting a strong judicial reluctance to question the business judgments of directors and officers.  In its classic form, the business judgment rule insulates a company’s directors and officers from liability for negligence in the discharge of their fiduciary duties for mistakes in the exercise of honest business judgment.  The rule’s underlying rationale is that it is not the function of courts to second guess the business decisions of those who are entrusted with management of the affairs of the corporation, if they arrive at a decision for which there is a reasonable basis, they act in good faith and exercise independent judgment, and are uninfluenced by any consideration other than what they honestly believe is in the best interests of the corporation.

Several cases over the past few years, however, reflect a judicial trend towards questioning, and in some instances diluting, the scope of the rule’s protections.  For example, while most jurisdictions have uniformly applied the business judgment rule to both directors and officers, federal district courts in California have continued to follow the 2011 decision in F.D.I.C. v. Perry, 2012 WL 589569 (C.D. Cal. Feb. 21, 2012), which held that California’s common law and statutory business judgment rule applies only to directors, not officers.  See, e.g., F.D.I.C. v. Faigin, 2013 WL 3389490 (C.D. Cal. July 8, 2013).  The Perry court observed that California’s statutory codification of the business judgment rule does not mention “officers” and concluded that the legislative history suggests that the exclusion of officers was intentional because officers are more knowledgeable of the company’s operations and affairs than directors.  The hallmark of the business judgment rule, however, is that courts are not equipped to second guess the business decisions made by those who manage the company’s affairs, which includes directors and officers.  Thus, the underlying rationale for the rule clearly applies to both directors and officers.

Other courts continue to clarify and limit the scope of protection afforded by the business judgment rule.  For example, directors and officers typically could prove that a challenged decision was made with the requisite due diligence with evidence that they engaged the advice of outside consultants or experts to assist them in making an informed decision.  The Third Circuit Court of Appeals, however, reversed the grant of summary judgment to directors of a failed non-profit based on application of Pennsylvania’s business judgment rule, despite similar evidence of due diligence.  In Official Committee of Unsecured Creditors v. Baldwin, et al., 659 F.3d 282 (3d Cir. 2011), the district court relied on evidence showing that the directors engaged the advice of outside counsel and considered several options before making the challenged decision to file bankruptcy.  While acknowledging that this evidence could support application of the business judgment rule, the Third Circuit reversed and held that plaintiffs presented evidence demonstrating that the Board received several red flags as to the diligence and competence of two senior officers it relied on in making the decision to file bankruptcy, and eschewed a viability study.  This opinion underscores the need for directors and officers to ensure that each and every component of their decision is fully informed by all material facts available to them.

Georgia has now joined this growing trend of judicial questioning and clarification of the business judgment rule’s protections.  On July 11, 2014, the Georgia Supreme Court in F.D.I.C. v. Loudermilk, et al., (Case No. S14Q0454) answered the following question certified by Judge Thomas W. Thrash of the Northern District of Georgia:  Does the business judgment rule in Georgia preclude as a matter of law a claim for ordinary negligence against the officers and directors of a bank in a lawsuit brought by the FDIC as receiver for the bank?  In a comprehensive opinion written by Justice Keith R. Blackwell, a unanimous Georgia Supreme Court answered this question with a qualified negative, holding that “the business judgment rule precludes some, but not all, claims against bank officers and directors that sound in ordinary negligence.”  In enunciating a more “modest” business judgment rule, the Court first reaffirmed that the business judgment rule is a settled part of Georgia common law and that the rule has not been abrogated by Georgia statutory law.  While the Court made clear that the business judgment rule precludes ordinary negligence claims against officers and directors concerning “only the wisdom of their judgment,” the rule is not an absolute bar to ordinary negligence claims alleging that the challenged decision was made without deliberation or requisite due diligence, or in bad faith, thereby overruling Flexible Products Co. v. Ervast, 284 Ga. App. 178, 643 S.E.2d 560 (2007) and Brock Built, LLC v. Blake, 300 Ga. App. 816, 686 S.E.2d 425 (2009), which recognized an absolute bar against all claims premised on a want of ordinary care.  Although Loudermilk involved only bank officers and directors, the Court emphasized its desire to avoid “needless uncertainty” and overruled Flexible Products and Brock Built as to bank and non-bank officers and directors.

Whether other jurisdictions will be informed by the Georgia Supreme Court’s decision remains to be seen, but we can likely expect the FDIC and other plaintiffs litigating outside of Georgia to urge their respective courts to adopt the Georgia decision or to look to it for persuasive authority and guidance.  Here in Georgia (or cases in which Georgia law governs), the immediate impact of the decision is that it will now be more difficult for directors and officers to have ordinary negligence claims dismissed at an early stage, especially since sophisticated plaintiffs will not likely challenge merely the wisdom of the business decision.  Directors and officers may feel pressured to settle early to avoid the expense of discovery and protracted litigation, as well as the related risk and uncertainty of defending against mere negligence claims, as opposed to the higher standard of gross negligence.  In the meantime, any future expansion of the protections afforded to officers and directors in Georgia will have to be provided by the Georgia legislature.

If the judicial trend towards limiting the business judgment rule’s protections continues, directors and officers will continue to face increased liability exposure.  Whether or not this trend is short-lived, directors and officers should take appropriate steps to maximize the applicability of the business judgment rule to their future decisions, with the view that every business decision will be scrutinized in the future by disgruntled shareholders or creditors.  These steps should include, but are not limited to:

  • Ensuring that each decision is made with due consideration of the interests of shareholders, creditors, and other interested parties
  • Ensuring that each decision has the benefit of outside expert or other professional advice
  • Ensuring that all available material facts are considered and the decision is informed by those facts
  • Ensuring active participation by all directors, especially independent/outside directors
  • Ensuring that all available options or alternative transactions are considered
  • Ensuring that each decision is the product of active and comprehensive deliberation
  • Ensuring that board minutes and other documents accurately memorialize the deliberations, considerations, judgment-calls, rejected alternatives, and written materials that inform the decision

New HIPAA Rule Brings Sweeping Changes

Posted on: May 2nd, 2013

By: David Cole

The wait is over. The new HIPAA omnibus rule that the Department of Health and Human Services (“HHS”) Office for Civil Rights (“OCR”) issued in January officially took effect on March 22, 2013. The deadline for compliance with most provisions is 180 days later on September 23, 2013. This means that covered entities, business associates, and subcontractors have limited time to ensure compliance. As discussed below, taking proper steps now is important, because the new rules implement a number of significant changes to HIPAA that expand the types of entities responsible for protecting patient data and reporting data breaches.

Extension to Business Associates

One of the biggest changes is that business associates are now directly responsible for complying with the Privacy Rule and Security Rule of HIPAA. A “business associate” is a person or entity that performs certain functions or activities that involve the use or disclosure of protected health information (“PHI”) on behalf of, or provides services to, a covered entity. These functions and activities include claims processing, data analysis, billing, benefit management, or services such as legal, actuarial, accounting, and financial.

In addition, the new rule adds “subcontractors” to the definition of “business associate,” which means that subcontractors that perform functions for or provide services to a business associate are also deemed business associates when they create, receive, maintain or transmit PHI on behalf of the business associate.  This broad, new definition means that any subcontractor, no matter how far removed from the original contractor, is considered a HIPAA “business associate” if it handles PHI.

Because the new rule applies the HIPAA Privacy Rule directly to business associates, both business associates and their subcontractors must now make “reasonable efforts” to limit their use, disclosure, and request for PHI to the “minimum necessary to accomplish the intended purpose of the use, disclosure, or request.” This will likely change the flow of PHI from business associates and subcontractors by making these organizations focus on the specific PHI they need to use, disclose, or request in order to perform their services.

The new rule also makes business associates and their subcontractors directly responsible for the HIPAA Security Rule. As a result, business associates and their subcontractors must develop comprehensive, written HIPAA security policies and procedures. They also must implement the specific administrative, physical, and technical safeguards of the data that is required by the Security Rule. In addition, business associates must now enter into written contracts with subcontractors that contain specific provisions required by the HIPAA Privacy and Security Rules, whereas they previously were only required to “ensure” that subcontractors agree to the same restrictions on the use and disclosure of PHI.

Breach Notification

The new rule also changes the requirements for breach notifications. Previously, the rules defined a “breach” as occurring only when the compromise of PHI presented a “significant risk of financial, reputational, or other harm to the individual.” This harm threshold will remain in effect until the interim compliance period ends on September 23, 2013. After that time, a new definition of breach will come into play.

Under the new rules, HHS eliminated the harm threshold and replaced it with a standard under which any use or disclosure of PHI that is not allowed by the Privacy Rule is presumed to be a reportable breach unless the covered entity or business associate can demonstrate, through a documented risk assessment, that there is a “low probability” that the PHI has been compromised. This risk assessment must include consideration of the following four factors: (1) the nature and extent of the PHI involved, including the types of identifiers and the likelihood of re-identification; (2) the unauthorized person who used the PHI or to whom the disclosure was made; (3) whether the PHI was actually acquired or viewed; and (4) the extent to which the risk to the PHI has been mitigated.

Enforcement and Penalties

Under the new rule, HHS has retained the high penalty structure currently in effect, meaning that penalties can range anywhere from $100 to $50,000 per violation, depending on culpability, up to an annual maximum cap of $1.5 million on a per provision basis. The difference is that business associates and subcontractors are now directly liable for their violations. Of course, covered entities still can be penalized for their violations as well. In addition, HHS is now required to conduct compliance reviews if willful negligence is indicated following a preliminary review of the facts.

These are just a few of the changes made by the new HIPAA rule. In addition, the new rule includes “genetic information” as a new type of health information subject to HIPAA rules, and thus imposes restrictions prohibiting health plans from using genetic information for underwriting purposes. The new rule addresses multiple privacy issues related to uses and disclosures of PHI, such as communications for marketing or fundraising, exchanging PHI for remuneration, disclosures of PHI to persons involved in a patient’s care or payment for care, and disclosures of student immunization records.

Court of Appeals Breathes New Life into Joint and Several Liability in Georgia

Posted on: April 4th, 2013

By: Phil Savrin

For many years, the rule in Georgia was that tortfeasors could be liable jointly and severally for bodily injury or death, without apportionment unless the plaintiff was found to be some part at fault. If a plaintiff was not partly at fault, then he could collect the entire judgment from any one of the tortfeasors who would then have contribution claims among them for payment of equal shares. So, for example, a property owner who was only 1 percent at fault for an assault as compared to the assailant could nevertheless be responsible for 100 percent of a judgment.

The Georgia Legislature changed these rules measurably when it enacted the Tort Reform Act of 2005. As the name of the Act states, the statutes were intended to stem the tide of liabilities from being imposed on businesses who had become easy marks for lawsuits. In one part of the Act, the Legislature amended O.C.G.A. § 51-12-33 to require the trier of fact to apportion liability among joint tortfeasors whether or not the plaintiff was partly at fault. The statute was amended even further to allow a defendant to include culpable nonparties on the verdict form for purposes of apportionment by the jury. Consistent with these new rules, the Legislature amended O.C.G.A. § 51-12-32, which had allowed for contribution among tortfeasors who jointly caused the plaintiff’s harm. As amended, the statute provides that contribution may be enforced against joint tortfeasors as if an action had been brought against them jointly, “except as provided in Section 51-12-33.” Because that statute requires apportionment, many lawyers, judges and commentators assumed that joint and several liability had been abolished.

To paraphrase the late Mark Twain, the reports of the demise of joint and several liability may have been exaggerated. In Zurich American Insurance Company v. Heard, in a decision issued March 28, 2013, the Court of Appeals reversed a trial court’s ruling and found that a tortfeasor that settled a claim for more than another tortfeasor could sue for contribution so that each tortfeasor pays an equal share of the total amount paid. The Court found that Section 51-12-33 requires apportionment only if the tortfeasors are sued jointly. If that occurs and the jury actually apportions damages, then (and then only) would contribution be precluded. If that does not occur, however, then the “old” contribution rules of Section 51-12-32 remain in effect.

In practical terms, this latest construction of the statutes has the following implications. Unless a lawsuit is filed and it proceeds to judgment in which the jury actually apportions the liabilities, whoever pays a claim can pursue other parties for contribution in equal shares regardless of the degrees of fault the parties may have. Because any degree of fault suffices to show contribution, the defense of such a claim may be very limited and impossible to show if a payment was in fact made. In addition, there is case law that might allow a defendant to bring a third party claim against another tortfeasor prior to the main claim being resolved. If the matter proceeds to judgment, the plaintiff can then apportion liability to the third party. Alternatively, if the defendant settles, it might then pursue a contribution claim against the third party defendant. Theoretically, therefore, a defendant might be able to bring a settling party back into the case.

Depending on the circumstances of the case, indemnity by the plaintiff could provide some protection to a settling party, especially if the indemnity includes cost of defending a contribution claim. There is a chance the Supreme Court of Georgia will review the Court of Appeals’ construction of these statutes, with contribution claims among joint tortfeasors being relegated once again to the annals of Georgia jurisprudence. Unless and until that occurs, litigants and their insurers are encouraged to consider the ramifications of settling claims that may not extinguish all of the exposures presented.