Barger & Wolen and Hinshaw & Culbertson Announce Merger

Combined Firms Create Powerhouse Insurance Practice with 120 Attorneys Dedicated to Serving the Insurance Industry

  

Chicago and Los Angeles — September 2, 2014 — Barger & Wolen and Hinshaw & Culberston, a national law firm with 460 lawyers in 22 offices around the country, announced today they will combine forces. The merger creates one of the largest insurance law practices in the United States with 120 full-time attorneys dedicated to providing legal counsel to insurance companies and financial services firms that shape the insurance industry.

The partner votes took place on August 28, 2014, and the merger will become effective on October 1, 2014. The combined firm will keep the name Hinshaw & Culbertson and have over 500 attorneys in 11 states as well as London.

Click here for the full press release. For more information, contact Heather Morse.  

 

Esquenazi decision interprets the Foreign Corrupt Practices Act

By David McMahon and Robert G. Levy

Companies doing business internationally no doubt have heard about the rise in claims brought by government agencies against companies and individuals under the Foreign Corrupt Practices Act (FCPA). Our last article focused on ways expenses in defending against such claims — often substantially greater than the amount for which the claims are ultimately resolved — can be contained.

A new decision, U.S. v. Esquenazi, was issued by the 11th Circuit on May 16, 2014, that carefully examines the tests required to determine whether in a given situation the FCPA has, or has not, been violated. The decision, a rare one despite the burgeoning number of prosecutions under the FCPA, clarifies but yet does not simplify what the applicable criteria for prosecution and conviction are. Pertinent to the role of corporate counsel overseeing the defense of such investigations and prosecutions, the decision in fact demonstrates just how wide ranging and fact intensive such an investigation and prosecution might become.

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Originally published by InsideCounsel, July 15, 2014

California Insurers Asked to Submit Diversity Information About Boards of Directors

by Robert Hogeboom & Samuel Sorich

The California Department of Insurance (“CDI”) has issued a notification to insurers with 2013 written premiums of $100 million or more in California to complete and submit the CDI’s Governing Board Diversity Survey.

Among other questions, the Survey asks the insurers to report on the number of directors who identify themselves as a man or a woman, how many are comprised from seven different ethnic group categories, and how many are a disabled veteran, lesbian, gay, bisexual, and/or transgender.

Completed surveys, including an affidavit on the data, are to be submitted to the CDI by August 12, 2014. All surveys will be posted on the CDI website by October 1, 2014. The notification advises that survey results will be posted on the CDI’s website and that “[f]ailure to submit a complete report or submit a report by the due date will be noted,” which we presume will be noted on the CDI website.

The Survey stems from a recommendation put forward by the CDI’s Diversity Task Force which was created shortly after the Commissioner office.

Several existing statutes require insurers to submit reports or respond to data calls on other somewhat related topics:

Insurance Code section 926.2 requires each insurer admitted in California to provide information on all its community development investments and community development infrastructure investments in California.

Insurance Code section 926.3 requires each admitted insurer writing $100 million or more in annual premiums in California to file policy statements expressing goals for community development investments and community development infrastructure investments.

Insurance Code section 927.2 requires each admitted insurer writing $100 million or more in annual premiums in California to submit reports on minority, women, and disabled veteran-owned business procurement efforts.

In contrast, there is no statute which specifically states a requirement to report on the diversity of insurance companies’ boards of directors. The department’s notification to insurers does not cite the statutory authority for the Survey.

For copies of the report or questions, please contact Robert W. Hogeboom at rhogeboom@bargerwolen.com or (213) 614-7304.

Recent Victory on Behalf of Medical Supplement Insurers against California Department of Insurance

As a result of the filing of a Writ of Mandate and Declaratory Relief Action by Barger & Wolen LLP Senior Regulatory Counsel Robert W. Hogeboom and Litigation Partner John Holmes, the California Department of Insurance (“CDI”) agreed to cease and desist its practice of requiring insurers to file and pay fees on insurer notices to policyholders policyholder “notices” in connection with Medicare supplement policies. Further, the CDI agreed to refund to each of the plaintiff insurers in the suit all filing fees that had been paid to the CDI since 2012.

The action was filed on behalf of five Torchmark Group insurers who issue Medicare supplement insurance policies in California. Under California Insurance Code (“CIC”) § 10192.14(c), each insurer is required to submit an annual rate filing for each Medicare supplement product to demonstrate compliance with a minimum lifetime loss ratio requirement.   

Since June 2012, the CDI has required insurers which issue Medicare supplement policies to file and seek approval for each form of “notice” to policyholders. The term “notice” was broadly defined by the CDI to include invoices, friendly reminder letters, changes in premium, lapse notices, etc. The CDI alleged that all of these notices were “policy forms” subject to approval under CIC § 10192.15(a). Each notice was subject to a filing fee of $460. 

The CDI also withheld approval of rate filings pending the filing of notices and payment of filing fees notwithstanding that actuarial approval had been given. The notice filing fees alone aggregated approximately $15,000 each year for the plaintiff insurers. 

A Writ of Mandate and complaint for Declaratory and Injunctive Relief was filed against the CDI alleging that the notices were not “policy forms” within the meaning of CIC § 10192.15(a). Further, we alleged the CDI had no authority to disapprove a rate filing based on failure to file notices for approval. 

Prior to a hearing on the action, the CDI agreed to discontinue the notice filing requirements and fee charges. The CDI also agreed to refund all filing fees that had been previously collected.

 

 

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Which Insurance-Related Bills Met the California Deadline for Passage?

The deadline for California Assembly and Senate bills to pass their respected houses was May 30, 2014. Bills that met the deadline are eligible for enactment this year.

Bills that met the May 30 deadline will now be considered by the opposing house, with the regular legislative session ending on August 31.

Here are summaries of noteworthy insurance-related bills that met the May 30 deadline for passage.

Assembly Bills

AB 1234 would exempt from discovery or from admission in civil litigation information pertaining to an insurer that is a member of an insurance holding company system when that information is included in a registration statement or obtained by or disclosed to the insurance commissioner in the course of an examination or investigation.

AB 1804 would require private passenger auto insurers, homeowners insurers, and insurers providing individual disability income insurance policies to maintain a process which allows an insured to designate an additional person to receive notice of lapse, termination, expiration, non-renewal, or cancellation of a policy for nonpayment of premium.

AB 2064 would revise the disclosure language which must be included in a homeowners insurer’s mandatory offer of earthquake insurance. AB 2064 also would increase the statutory cap on the California Earthquake Authority’s operating expenses from 3% of its premium income to 5% of its premium income.

AB 2128 would extend the sunset date on statutory provisions relating to the Department of Insurance’s California Organized Investment Network (COIN) program from January 1, 2015, to January 1, 2020.

AB 2293 would require a transportation network company to advise its participating drivers of the company’s insurance coverage and limits of liability. AB 2293 defines a “transportation network company” as an organization “that provides prearranged transportation services for compensation using an online-enabled application or platform to connect passengers with drivers using their personal vehicles.” AB 2293 provides that a transportation network company’s insurance policy is the primary policy coverage and that a transportation network company’s policy shall apply in the event of a loss or injury when a participating driver logs on to a transportation network company’s application program.  

AB 2734 would make changes to the Insurance Code which the Assembly Insurance Committee characterizes as “noncontroversial.” Among other changes, AB 2734 would 1) increase from $5,000 to $20,000 the threshold which triggers the obligation on a surplus lines broker or insurer to make tax payments in quarterly installments, 2) clarify what constitutes a “California business” for purposes of insurers’ duty to file information with the insurance commissioner concerning procurement contracts with minority, women, and disabled veteran-owned businesses, and 3) change the annual data call on private passenger auto insurance information to an every-other-year data call.

AB 2735 would set forth in statute that a homeowner who has purchased an earthquake insurance policy that does not satisfy the standard coverage requirement must be reminded by the insurer at renewal that the homeowner has the right to purchase a policy that meets the standard coverage requirement.

Senate Bills

SB 1034 would make clear that a health plan or insurer offering group coverage may not impose a separate waiting period in addition to the 90-day waiting period that the federal Affordable Care Act allows an employer to use.

SB 1205 would require the Department of Insurance’s curriculum board to develop or recommend a course of study for agents and brokers on commercial earthquake risk management.

SB 1273 would extend the sunset date on the California Low-Cost Automobile Insurance Program from January 1, 2016, to January 1, 2020. SB 1273 also would amend several statutory provisions relating to the program. Among other changes to the program, AB 1273 would repeal the $20,000 cap on the value of a vehicle insured under the program and would allow a person who has fewer than three years of driving history to qualify for coverage under the program.

SB 1446 would allow a small employer health plan or a small employer health insurance policy in effect on December 31, 2013, that does not qualify as a grandfathered health plan under the federal Affordable Care Act, to be renewed until January 1, 2015, and to continue to be in force until December 31, 2016.

Statistical Sampling in Class Action Trial Violated Defendant's Due Process Rights

In a unanimous decision, the California Supreme Court on May 29 reversed a class action verdict for a class which was based on a flawed statistical model to determine liability and damages. Duran v. U.S. Bank National Association.

In Duran, plaintiffs brought a class action to challenge U.S. Bank’s (“USB”) classification of its business banking officers (“BBO’s”) as exempt under the “outside salesperson” exemption under California Labor Code section 1171

At trial, USB sought to introduce evidence demonstrating that a substantial amount of the class members performed more than 50% of their work engaged in outside sales and thus fell within the “outside salesperson” exemption. The trial court barred this evidence and instead relied on testimony from its sample size of 21 class members to find USB liable to the entire class for misclassification.  With respect to damages, the trial court accepted the estimate of plaintiffs’ expert (with an admitted 43.3% margin of error) that each class member on average worked approximately 11.87 hours of overtime per week. 

In reversing the verdict, the Supreme Court gave a scathing review of the class action trial plan at issue, specifically, its sole reliance on evidence from a flawed statistical sample of the class and its refusal to permit litigation of relevant affirmative defenses outside of the sample.

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Cyberattacks Push Companies to Specialty Insurance Policies

Travis Wall’s article Cyberattacks Push Companies to Specialty Insurance Policies says the window is closing for obtaining coverage for cyber attacks under traditional policies.

The article, published in The Recorder on May 23 says as insures refine coverage defenses and expand exclusions for cyber events, business will have to turn to specialty cyber policies for protection against data theft or loss.

Commercial general liability (CGL) policies have two basic coverage types. Coverage A addresses "property damage" and "bodily injury." Coverage B applies to "personal injury" offenses, such as publications that invade rights of privacy. Because data breaches typically do not involve property damage or bodily injury, policyholders rely primarily on the personal injury prong.

Among other requirements, personal injury coverage applies only to claims arising from a "publication" of information. Data theft through hacking does not appear to involve a "publication" as that term is commonly understood.

Courts will not presume a publication simply because a data loss occurred. In a recent case, tapes containing confidential employee information fell out of a delivery truck. An unknown person then retrieved them but there was no evidence that employee information was publicly disclosed or improperly used.

A Connecticut appellate court rejected the argument that the data loss, in and of itself, constituted a "publication." The mere potential for disclosure was not enough—there had to be evidence that confidential information on the tapes was actually published. See Recall Total Information Management Inc. v. Federal Ins. Co., 147 Conn. App. 450 (2014).

Read the full article at The Recorder.

Read more on this topic, please visit The Recorder (subscription required).

Use of cyberinsurance continues to grow

Travis Wall was extensively quoted in an article recently published in Dell’s Tech Page One about the growing use of cyberinsurance among companies. According to an August 2013 Ponemon Institute report, 76 percent of companies believed cyberthreats represented the biggest danger to their sustainability.  

According to Wall, few companies appreciate the actual time and costs involved in responding to a data breach.

Without a cyberpolicy, companies have no protection against damages related to these risks,” says Travis R. Wall, a partner at Barger & Wolen LLP, a San Francisco-based insurance law firm and the founder of the firm’s Cyber Risk and Technology Group. “The costs can be significant for both large and small companies.”

The article goes on to discuss misconceptions small and large companies have with regard to cybersecurity issues as well as the varying cost of cyberinsurance.

Companies should weigh their needs carefully before deciding on the appropriate coverage. Insurers offer a variety of [coverage options], but not all are relevant to all companies,” Wall says.

Companies should ensure they can address their “minimum” requirements, Wall says. “All companies should have data security insurance covering the loss or theft of employees’ or consumers’ personal information,” he says. “In general, cyberpolicies exclude coverage for losses arising from an insured’s fraudulent or dishonest acts or from willful violations of laws or statutes.

For more information on Barger & Wolen's Cyber Risk & Technology practice, please contact Travis Wall.

Personal Injury Coverage Does not Apply to Data Breach

According to a Law360 report, Sony Units Denied Coverage For Suits Tied To Cyber Attack (subscription required), a New York state judge ruled last Friday in the Zurich v. Sony insurance litigation that the stealing of consumer information through a cyber attack did not constitute “personal injury” under a commercial general liability policy because third-party hackers and not the insured committed the offense.  If upheld on appeal, the decision would compliment other authority holding that personal injury coverage applies only to potential liability from the insured’s purposeful acts.  

The Sony coverage litigation resulted from a 2011 data breach. Zurich American Insurance Company and Mitsui Sumitomo Insurance Company had issued primary commercial general liability policies to Sony. In April 2011, computer hackers broke into Sony networks and stole personal and financial information of over 100 million users. 

Immediately following the breach, Sony was named as a defendant in numerous class actions. Sony tendered the defense of these actions to its insurers. Mitsui denied coverage. Zurich responded by filing a declaratory relief action in New York state court seeking a declaration that Zurich had no duty to defend.

The parties later filed cross-motions for partial summary judgment. The resolution of the motions turned on whether the data breach constituted a “personal injury” offense. Among other enumerated offenses, the policies provided coverage for a “publication, in any manner, of material that violates a person’s right of privacy”

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FTC Calls for National Data Security Standards as Proposed Legislation Stalls

In congressional testimony, the Federal Trade Commission’s Chairwoman, Edith Ramirez, recently reiterated the FTC’s call for stronger data security laws, while federal legislation concerning data security and breach notification remains in limbo.

Although the FTC is the nation’s leading privacy enforcement agency, it derives enforcement authority from a hodgepodge of statutes, many of which lack adequate remedies to compel compliance with data security and breach notification requirements.

Those laws include:

The FTC’s need to resort to multiple statutes results in uneven enforcement authority. Only the FCRA and COPPA allow the FTC to seek civil penalties for data security violations. To obtain a civil penalty for unfair or deceptive practices under the FTC Act, the agency must show that company violated a prior administrative order.

In her remarks, Chairwoman Ramirez stressed the need for uniform national standards for data security and breach notifications, stronger civil remedies, and expanded rulemaking authority under the Administrative Procedure Act enabling the FTC to respond effectively to changes in technology.

Ramirez’s statements echoed bipartisan calls for national data security standards. Despite widespread support for such standards, proponents have not been able to amass enough votes to pass a comprehensive data security law.  

There are competing proposals in the Senate – the Personal Data Privacy and Security Act, which Sen. Patrick Leahy, D-Vt., introduced for the fifth time in January 2014, and the Data Security Act, which Sen. Tom Carper, D-Del., and Roy Blunt, R-Mo. re-introduced that same month.

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