To prevail in a medical malpractice action the plaintiff must establish the following as to each defendant: the standard of care owed by the defendant, the defendant’s breach of the standard of care, and that said breach proximately caused the damages claimed.  Citing Gooding v. Univ. Hosp. Bldg., Inc., 445 So.2d 1015, 1018 (Fla. 1984).  The holding in Hollywood Medical Center, Inc. v. Alfred, Nos. 4D09-4878 and 4D10-1003 (Fla. 4th DCA 2012) highlights the importance of the third element. Hollywood Medical Center (hereinafter “HMC”) appealed a final judgment in favor of the plaintiff and argued the trial court erred in denying their motion for directed verdict, as the plaintiff failed to prove that any negligence on the part of HMC’s nursing staff affected Ursuline Alfred’s outcome, or that had the negligence not occurred, Alfred more likely than not would have survived.

Alfred presented to HMC after having suffered a mal seizure.  HMC nursing personnel evaluated Alfred 8 minutes after she arrived to the emergency room.  They recorded her vital signs and described her as a level 2 patient; however, her vital signs corresponded to a level one patient, meaning she required the most intensive care.  The emergency room physician simultaneously presented at bedside and ordered medication to prevent another seizure.  Thereafter, Alfred went into full cardiac arrest and was pronounced dead 38 minutes after arriving at the hospital.

Plaintiff’s experts opined Alfred suffered a pulmonary embolism, which she could have survived had the physician intubated Alfred upon his initial evaluation.  With respect to the nursing care, Plaintiff’s expert opined nursing personnel fell below the standard of care when they failed to take Alfred’s vital signs immediately upon presentation to the hospital, characterizing her as a level 2 patient, and failing to question the physician’s choice of drug treatment.

HMC moved for directed verdict as to its vicarious liability for the physician and its nursing staff.  HMC argued the plaintiff failed to prove that the nursing staff’s breach in the standard of care caused Alfred’s death.  Plaintiff only proved the physician’s failure to intubate contributed to Alfred’s death.  No one testified the nurses’ failure to act adversely affected Alfred’s outcome.  Without such testimony as to causation, the defendant is entitled to a directed verdict.  A plaintiff in a medical malpractice action must show more than a decreased chance of survival because of the defendant’s conduct.  Rather, the evidence must show the acts or omissions adversely affected the patient’s outcome.

Practice Note:

If there are several possible causes of injury to the plaintiff, and the evidence does not eliminate the non-negligent causes, the plaintiff has not met his burden of proof.

For further assistance or questions, please contact:

·         Paula Parisi (email to: paula.parisi@csklegal.com; 813-864-9311)

Partner in Cole, Scott & Kissane, P.A.’s Medical Malpractice Group.

CSK Construction Division – January 2012 Legal Spotlight

Happy New Year!  This Month’s Construction Law Email Blast will focus on recent changes to Florida’s licensure requirements applicable to mold assessors and remediators and contractors in general.

FLORIDA LEGISLATURE CRACKS DOWN ON UNLICENSED

PRACTICE OF MOLD ASSESSORS AND MOLD REMEDIATORS

Starting on July 1, 2011, the Florida Legislature began the full enforcement of the unlicensed practice of mold assessors and mold remediators.  This means that anyone holding themselves out to be a mold assessor or mold remediator needs to be licensed through the Department of Business and Professional Regulation (“DBPR”) before he or she can engage in this type of business practice.  As set forth in Chapter 468 of the Florida Statutes, the legislature intends to prevent damage to real and personal property to avert economic injury to residents in Florida, and to regulate persons and companies that hold themselves out to the public as qualified to perform mold-related services.  See § 468.84, Florida Statutes.

The requirements mandated by the DBPR for licensure under this Statute include, but are not limited to: (i) applicants passing a licensing examination; (ii) applicants producing documented training in water, mold, and respiratory protection; (iii) applicants submitting proof of continuing education requirements for application renewal, and (iv) applicants maintaining insurance requirements for both mold assessors and mold remediators.  A mold assessor is required maintain general liability and errors and omissions for both preliminary and post-remediation mold assessment insurance coverage of at least $1 million, and mold remediators are required to maintain a general liability insurance policy in an amount not less than $1 million, that includes specific coverage for mold-related claims.  See § 468.8421, Florida Statutes.

Unlike § 489.128, Florida Statutes, which provides that contracts entered into on or after October 1, 1990 by unlicensed contractors are unenforceable in law or in equity, this statute does not specifically preclude unlicensed assessors and remediators from recovering in law or in equity.  However, the statute does create a basis for a common law defense against unlicensed mold assessors and remediators. Because the statute subjects unlicensed mold assessors and remediators to criminal penalties, one can argue that the unlicensed assessor or remediator is engaged in illegal activity under § 468.8419(3), Florida Statutes, and, therefore, should be denied any legal or equitable relief.

The licensing statute and common law defense are important to defense counsel and liability carriers for at least two reasons.  First, in underwriting, it is important to verify the licensure of the potential insured to minimize the insured risk.  Though the illegal activity of the unlicensed individual may not be covered, the negligence of the business entity in allowing the unlicensed individual to assess or remediate may be covered.

Second, for counsel defending an assessor or remediator, it is equally important to verify the insured’s licensure or become aware early in the representation of the insured’s unlicensed status and the implications for the defense.  Note that an unlicensed contractor may be barred from asserting legal or equitable defenses and pass through claims, in addition to being unable to recover money due for services rendered or work performed.

While the momentous events of the 2011 show that social media has the capacity to affect great political and social change, the very penetration of such media into the day to day lives of the population also carries with it unanswered questions in the areas of defamation and related torts.  The same social media platforms – Facebook, Twitter, YouTube, and the like – that aided in toppling governments throughout the Middle East and allowed Western audiences an unprecedented and unfiltered glimpse into the events reshaping a region[1] can, unfortunately, also just as easily be the vehicle for the type of speech and disclosure that can give rise to civil liability and may trigger insurer duties to defend and indemnity.[2]

            This article will examine the initial coverage questions and determinations that must be made when defamation – and specifically defamation involving social media – is tendered for defense and indemnity coverage under a commercial general liability (CGL) policy.   As defamation causes of action are nearly always defined solely by state law,[3] it is important to note that many coverage decisions in this area should pay careful consideration to the specific state’s pleading and evidentiary requirements for a given defamation action.  As will be discussed in greater detail below, the pleading requirements of a given state’s defamation jurisprudence may make any CGL coverage determination for defamation claims within that state a straightforward matter but, more likely, a case-by-case and fact-by-fact analysis would appear to be the more prudent course.

            As an initial consideration, it should be determined whether the alleged “defamatory communication” occurred while the employee was acting “within the course and scope” of their employment.[4]  While this would appear to be a relatively straightforward question, the recent trend towards remote work – especially for a more information-based work force – may blur this otherwise clear distinction.  Suffice to say, consideration of not only where and when the allegedly defamatory communication was made, but also what other activities in which the insured was engaged, will likely be necessary.

            Second, it is critical to consider whether the injuries or damages claimed in any defamation suit could be considered an “occurrence” under either Coverage A or Coverage B of a given CGL policy.  With regard to Coverage A[5] for “Bodily Injury,” the determination will likely require an analysis of the state-specific jurisprudence, and the specific allegations of the defamation complaint.  Initially, it should be noted that some states do not consider the posting of a defamatory statement on the internet to be an “occurrence,” as that term is generally defined for Coverage A purposes, as the act of posting such a statement on the internet is intentional, and accordingly, not an “accident” as required for coverage.[6]  This interpretation, however, is far from universal.  Other jurisdictions have held that, while the actual statement or communication may be a volitional act, that defamation itself is a tort that does not require “intent” – put another way, these jurisdictions have held that it is possible to negligently or recklessly defame a person or entity.[7]  The question of whether defense or indemnity under Coverage A will also require the claims professional to examine whether the particular defamation claimant has alleged “bodily injury.” Many jurisdictions have held that simple reputational harm or “emotional distress,” without some physical manifestation, is generally not enough to constitute a “bodily injury” under Coverage A and, accordingly, the specific symptomatology alleged by the claimant – if any – should be carefully examined and the specific law of that jurisdiction considered.[8]

            Consideration of whether a particular defamation injury or harm is covered is somewhat more straightforward under Coverage B for “Personal or Advertizing Injury.”  Gone is the requirement of a “bodily injury,” and further, the general definition of a “Personal or Advertizing Injury” expressly includes defamation in the form of libel and slander.[9]  Accordingly, if an injury does not trigger coverage under Coverage A, it will likely still trigger Coverage B.  Nevertheless, certain standard exclusions may nevertheless apply.

            First, it should be noted that the standard “co-employee exclusion” will generally work to exclude coverage when one employee defames another employee.  This exclusion is generally available not only when the defamatory statement occurred at the place of work, but also when the communications giving rise to the claim “arose from” the employment of the parties.[10]  Next, the claims professional should consider the “expected and intended acts” exclusion, which excludes from coverage any harm or injury which was intentionally inflicted, or was of the “same general type” of an intended harm or injury.[11]  However, with specific regard to defamation, several courts have held that the harm or injury that results from a libelous or slanderous statement is often an unintended consequence and, accordingly, the allegations of the particular complaint – as well as the individual state requirements for defamation discussed above – should be carefully examined before availing oneself of this exclusion to avoid coverage.[12]

            The next two exclusions to carefully consider both depend on the knowledge and intent of the defaming speaker or publisher: the “knowing violation of rights of another” exclusion and the “material published with knowledge of falsity” exclusion.[13]  In both of these cases, the claims professional must look closely at the allegations of the complaint or claim itself, as an allegation of intentional conduct alone may serve to avoid coverage,[14] but a claim that states the defaming publisher or speaker “knowingly, recklessly, or negligently” defamed another would likely trigger coverage, regardless of the above-discussed exclusions.[15]  Accordingly, application of these two exclusions again requires an examination of the applicable state laws of defamation, in order to determine whether “intent” is an essential and required element of proof.

            Finally, Coverage B contains a relatively new and untested exclusion, that may have great relevance to defamation claims in the social media context.  Specifically, the “electronic chatroom or bulletin board” exclusion avoids coverage for personal or advertizing injury arising from a web-based publication that “the insured hosts, owns, or over which the insured exercises control.”[16]  While it does not appear that this particular exclusion has been challenged in the courts as of the date of this article, it would nevertheless appear that a compelling argument could be made that an “insured’s” postings within the social media sphere would not give rise to a covered loss, as these types of “electronic chatrooms or bulletin boards” are presumptively within the control of the person who “owns” to them.  While the “electronic chatroom and bulletin board” nomenclature is somewhat antiquated, it would nevertheless appear to contemplate and allow a denial of coverage for defamation for an insured’s posts on their own personal site, but potentially not for posts or “comments” left on another’s personal site.

            In the ever-shifting and evolving environment of social media, it can be challenging to understand the implications and possible coverage scenarios that can emerge from online activity and commentary.   The rapid and pervasive expansion of social media into the day-to-day lives of the populations domestically and abroad appears to be merely the beginning of an overall trend of interconnectivity, which could lead to a higher level of discourse, but which could just as easily lead to a proliferation of defamation and privacy claims.  Further, the defamation jurisprudence generally differs between jurisdictions and, accordingly, must be considered on a state-by-state basis.  Therefore, it remains of critical importance for the claims professional to fully familiarize themselves with the local authority when determining coverage questions for defamation causes of action under CGL policies.

On October 13, 2011, the Security Exchange Commission, Division of Corporations, released “new guidance” to the shareholder disclosure requirements of publicly traded companies.  Specifically, the SEC noted the significance of “cyber risks” in the scheme of assessing the overall risks and liabilities of a business.  The rationale for recommending the inclusion of cyber risks relied heavily upon the breadth of exposure they can entail, including:

Remediation costs that may include liability for stolen assets or information and repairing system damage that may have been caused. Remediation costs may also include incentives offered to customers or other business partners in an effort to maintain the business relationships after an attack; Increased cybersecurity protection costs that may include organizational changes, deploying additional personnel and protection technologies, training employees, and engaging third party experts and consultants; Lost revenues resulting from unauthorized use of proprietary information or the failure to retain or attract customers following an attack; Litigation; and Reputational damage adversely affecting customer or investor confidence.[1]

What is the effect of this new guidance?  If nothing else, it certainly demonstrates near codification/recognition of the substantial impact any cyber security breach can have on the financial operation of a company.  Only time will tell if alleged failures to adequately disclose cyber risk or cyber incidents in accord with these recommendations will open the door to new investor/shareholder claims of insufficient and/or misleading disclosures.

By:  Sherry M. Schwartz

Title 17 of the United States Code is the cornerstone of US copyright law.  Modernization of this Act has been required to account for the massive transmission of intellectual property via the internet.  As many websites are interactive – invite interactive/third party comments, publications, and content – online service providers are concerned regarding the level of oversight required when monitoring the constant influx of third party material.

In the interest of encouraging such interactive websites, including the global dissemination of information and view points, certain safe harbor provisions were included in Title 17 via the Digital Millennium Copyright Act. See 17 USC 512(c)(providing protection of online service providers concerning content provided by third parties).  Specifically, the DCMA affords a safe harbor for online service providers; entities engaged in providing a forum for online communications and content.  The Safe Harbor Provision, 17 USC 512(c) offers a complete bar to monetary damages and injunctive (subject to certain exceptions). More significantly, it does not require that the OSP (online service provider) actively monitor the content published by third parties.

There are four safe harbor provisions set forth in Chapter 5.  To illustrate, the breadth of protection, we will focus on 512(c) stating in pertinent part:

(1)   In general.-A service provider shall not be liable for monetary relief…, if the service provider-

(A)(i) does not have actual knowledge that the material or an activity using the material on the system or network is infringing;

(ii) in the absence of actual knowledge, is not aware of facts or circumstances from which infringing activity is apparent;

(iii) upon obtaining knowledge, acts expeditiously to remove or disable access to, the material…

Other conditions must be met, and the alleged victim must sufficiently notify the OSP of the exact content that is infringing.  The requisites as to the notice – commonly referred to as the “take down notice” – are set forth in section 512(c)1.

The breadth of this protection is evident in its application.  In this vein, consider  the landmark decision rendered in Viacom v. YouTube. This case involved Viacom’s/Plaintiff’s claim that YouTube/Google permitted third parties to download and disseminate certain sitcoms subject to Viacom’s copyrights.  Plaintiff/Viacom sued YouTube and Google for “knowingly” [1] permitting same.

Although Viacom presented evidence that defendants took active measures to facilitate the transmissions[2], Defendant, YouTube and Google, prevailed on summary judgment; in pertinent part, the court held that the safe harbor provision provided absolute immunity for unknowingly permitting third parties to download and disseminate videos subject to Viacom’s copyright.

The Viacom case exemplifies the burden placed on a plaintiff to establish actual knowledge sufficient to overcome the protection of safe harbor protections when the website provider acts in good faith to take down infringing content upon notice of same.  In light of the immunity provision, and this particular opinion, one might assume that the legislature wants to encourage the interactive nature of websites, and deter the implication that the “innocent” platform provider is responsible for questionable third party conduct.

The term “cat’s paw” is derived from the Aesop’s fable, “The Monkey and The Cat,” where a devious monkey induced a cat to pull roasting chestnuts from a fire for both he and the cat to share. In doing as asked, the cat burned its paws, while the monkey ate the chestnuts from the cat unscathed, leaving her with nothing to eat.  The moral of the story being, do not be fooled into performing or accomplishing another’s tasks.  In employment discrimination cases, a “cat’s paw” scenario is presented when a biased employee or manager, who lacks decision making power, dupes a formal decision maker into making an adverse employment decision.

This “scheme” may subject the employer to an employment discrimination action, and is likely to occur where there is simply a “rubber stamping” without a complete investigation, which is necessary for the employer to purrr-tect itself from employment discrimination liability.

In Staub, Plaintiff, working as an angiography technician, sued his former employer alleging discrimination under the Uniformed Services Employment and Reemployment Rights Act (“USERRA”),¹ asserting that two of his supervisors, Janice Mulally and Michael Korenchuk, were hostile towards his military obligations.² Id. at 1189-90.  Plaintiff also alleged that in January 2004, Mulally issued him a disciplinary warning for purportedly violating a company rule requiring him to stay in his work area whenever he was not working with a patient, which included a directive requiring him to report to Mulally or Korenchuk when his cases were completed. Id. at 1189.  Upon receipt of a report from Korenchuk, indicating Plaintiff failed to comply with the above-mentioned directive, the company’s Vice President of Human Resources (“V.P.”) made the decision to terminate Plaintiff. Id. Plaintiff did not contend that the V.P. was motivated by hostility; however, he did assert that both Mulally and Korenchuk’s actions were motivated by anti-military hostility, and that their actions led to his eventual termination. Id. at 1190.

A jury initially ruled in favor of Plaintiff, finding that Plaintiff’s military status was a motivating factor in the decision to discharge him, only to be reversed by the Seventh Circuit. Id. Ultimately, the Supreme Court reversed the Seventh Circuit’s decision, incorporating the tort law concept of proximate cause. Id. at 1191-93.  The Court held that “if a supervisor performs an act motivated by anti-military animus that is intended by the supervisor to cause an adverse employment action, and if that act is a proximate cause of the ultimate employment action, then the employer is liable under USERRA.” Id. at 1194.  Additionally, an employer would be liable only when the supervisor acts within the scope of his employment, or when acting outside the scope of his employment and liability would be imputed to the employer under traditional agency principles. Staub v. Proctor Hospital, 131 S.Ct. 1186, 1194 (2011); Burlington Industries, Inc. v. Ellerth, 524 U.S. 742, 758 (1998).

Consequently, this decision is likely to increase employer accountability for the actions and recommendations of lower-level non-decision making supervisors.  As such, in order to be purrr-tected, employers must be alert and undertake investigations to ensure that adverse employment actions are taken only after an independent, objective evaluation of all factors.  This may require employers review prior discipline imposed and closely scrutinize the reasons given by supervisors for the suggested employment action.  The challenge for employers is that it seems to be practically impossible to review an employee’s performance without seeking input from that employee’s supervisor.  The “cat’s paw” theory highlights the importance of employers conducting diligent and independent investigations prior to terminating employees, as merely undertaking a “paper review” of an informer’s recommendation, without performing an independent investigation, will not be sufficient to shield an employer from liability if the recommendation is racially motivated.  The decision presumably raises the bar for employers hoping to avoid liability for employment decisions prompted by discriminatory animus, even when an unbiased decision maker made the final call after an impartial investigation.

In the wake of The Staub decision, although increasing employer accountability, the Court did provide some guidance on how an employer may avoid liability in “cat’s paw” cases, explaining that if the employer’s investigation results in an adverse employment action for reasons unrelated to the supervisor’s original biased action, the employer will not be exposed to liability. Staub, 131 S.Ct. at 1193.  Additionally, requiring the Plaintiff to establish that the non-decision maker (the individual alleged to have discriminatory motives) actually intended to cause the adverse employment action certainly raises the bar for Plaintiffs attempting to avoid summary judgment.  Furthermore, the Supreme Court did not address whether an employer would be liable if a co-worker, rather than a supervisor, committed a discriminatory act that influenced the employment decision. Id. at 1194.  Such decision may provide employers with a defense if it is a co-worker’s alleged discriminatory intent that is at issue.³

1              The purpose of USERRA is “to ensure that persons who serve or have served in the Armed Forces, Reserves, National Guard or other “uniformed services:” (1) are not disadvantaged in their civilian careers because of their service; (2) are promptly reemployed in their civilian jobs upon their return from duty; and (3) are not discriminated against in employment based on past, present, or future military service.”  See 38 U.S.C. § 4301.

2              While employed by Proctor, Plaintiff was a member of the United State Army Reserve, which required him to attend drill one weekend per month and train full time for two to three weeks per year.  Staub, 131 S.Ct. at 1189.

3              The Court noted that Plaintiff took advantage of Proctor’s grievance process, yet expressed no view as to whether Proctor would have an affirmative defense if he did not.

According to the statute, for personal lines and commercial residential policies, at the time a first-party claim is “filed,” an insurer shall notify all first-party claimants of their right to participate in the statutory mediation program.² The statute defines the term “claim” as “any dispute between an insurer and an insured relating to a material issue of fact.”³ The failure to meet the notice requirements of the statute has been successfully used by insureds to argue that their insurer waived its right to invoke appraisal.

However, the statute lists the following exceptions in which an insurer is not required to give notice of the mediation program:

Where the insurer has a reasonable basis to suspect fraud;

Where there is no coverage under the policy based on the agreed facts as to the cause of the loss;

Where the insurer has a reasonable basis to believe that the claimant has intentionally made a material misrepresentation of fact that is relevant to the claim, and the entire request for payment of a loss has been denied on the basis of the material misrepresentation; or,

Where the amount in controversy is less than $500, unless the parties agree to mediate a dispute involving a lesser amount.⁴

In Florida Ins. Guar. Ass’n, Inc. v. Shadow Wood Condominium Ass’n, Florida’s Fourth District Court of Appeal discussed the applicability of the statute, in the context of a successor to an insolvent insurer who appealed an order denying its request to compel appraisal.⁵ In its affirmance of the lower court’s order, the Fourth District held that the insolvent insurer failed to comply with the notice requirements of the statute, and the insured – a condominium association – was not required to submit to the loss appraisal process.⁶ The Court emphasized the legislative purpose behind the statute in arriving at its ruling as follows:

There is a particular need for an informal, nonthreatening forum for helping parties who elect this procedure to resolve their claims disputes because most homeowners’ and commercial residential insurance policies obligate insureds to participate in a potentially expensive and time-consuming adversarial appraisal process prior to litigation. The procedure set forth in this section is designed to bring the parties together for a mediated claims settlement conference without any of the trappings or drawbacks of an adversarial process.⁷

Separately, the statute states that “[t]he department shall adopt by rule a property insurance mediation program to be administered by the department or its designee,” and “shall prepare a consumer information pamphlet for distribution to persons participating in mediation.”⁸ The Department of Financial Services has implemented Florida Administrative Code Rule 69J-166.031.  The Rule requires that the insurer give notice within five (5) days of the insured’s “filing” a first-party claim.  Although “filing” is not defined in the statute or the rule, the Court’s ruling in Shadow Wood suggests that the time period may start at the time the insurer first receives notice of the insured’s claim.⁹ Thus, based upon the language of the Rule promulgated by the Department of Financial Services pursuant to the statute, insurers should provide the statutory notice within five (5) days of receiving notice of the insured’s claim.¹⁰

Rule 69J-166.031 of the Florida Administrative Code sets forth the following notice requirements:

The Notice shall be in writing and shall be legible, conspicuous, printed in at least 12-point type, and printed in typeface no smaller than any other text contained in the notice.

The first paragraph of the Notice shall contain the following statement: “The Chief Financial Officer for the State of Florida has adopted a rule to facilitate the fair and timely handling of residential property insurance claims. The rule gives you the right to attend a mediation conference with your insurer in order to settle any claim you have with your insurer. An independent mediator, who has no connection with your insurer, will be in charge of the mediation conference. You can start the mediation process after receipt of this notice by calling the Department of Financial Services at 1(877)693-5236. The parties will have 21 days from the date of the notice to otherwise resolve the dispute before a mediation hearing can be scheduled.”

The Notice shall include detailed instructions on how the insured is to request mediation, including the address, phone number, and fax number for requesting mediation through the Department.

The Notice shall state that the parties have 21 days from the date of the notice within which to settle the claim before the Department will assign a mediator.

The Notice shall include the insurer’s address and phone number for requesting additional information.

The Notice shall state that the Administrator will select the mediator.

The Notice shall refer to the parties’ right to disqualify a mediator for good cause and paraphrase the definition of good cause as set forth in paragraph (7)(e) of the Rule.

The Notice Shall indicate that the insured is to notify the mediator 14 days before the mediation conference if the insured will bring representation to the conference, unless the insurer waives the right to the notice of representation.

In conclusion, if an insurer values its appraisal provision and wants to preserve its right to make use of the provision, the insurer must timely provide sufficient statutory notice to its insureds pursuant to §627.7015, Florida Statutes, and Rule 69J-166.031, F.A.C. (2009).

1              §627.7015(7), Florida Statutes

2              §627.7015(2), Florida Statutes.  The alternative procedure for the resolution of disputed sinkhole claims, as set forth in §627.7074, Florida Statutes, supersedes the alternative dispute resolution process §627.7015, Florida Statutes.  See §627.7074(3), Florida Statutes (3).

3              §627.7015(9), Florida Statutes.

4              §627.7015(9)a-d, Florida Statutes.

5              26 So. 3d 610 (Fla. 4th DCA 2009).

6              Id. at 611.

7              Id. at 612-13.  See also, QBE Ins. Corp. v. Dome Condo. Ass’n, 577 F. Supp.2d 1256 (S.D. Fla. 2008) (holding that the statute puts the responsibility of notification on the insurer).

8              §627.7015(2), (8), Florida Statutes.

9              See Shadow Wood, 26 So. 3d at 613, fn.2 (stating that the insolvent insurer did not give the statutory notice at the time the insurer filed its claim, shortly after Hurricane Wilma, and noting that the successive insurer failed to give notice when it took over the claim from the insolvent insurer).

10           However, under Rule 69J-166.031, F.A.C. (2009), an insurer is not required to provide statutory notice when no payment has been made for a covered loss because the insurer concludes the amount of covered loss is less than the insured’s deductible.

Financial institutions are required by the GLBA to “establish appropriate standards” to safeguard customer’s personal financial information, in order: “(1) to insure the security and confidentiality of customer records and information; (2) to protect against any anticipated threats or hazards to the security or integrity of such records; and (3) to protect against unauthorized access to or use of such records or information which could result in substantial harm or inconvenience to any customer.”²

In response to this directive, the Federal Trade Commission (FTC) promulgated the Safeguards Rule, which requires financial institutions subject to FTC jurisdiction to adopt safeguards against disclosure of customers’ personal information.³ The FTC’s Safeguards Rule is intentionally broad to allow flexibility for the broad range of businesses covered by the Rule.  It provides a “framework for developing, implementing, and maintaining the required safeguards, but leaves each financial institution discretion to tailor its information security program to its own circumstances.”⁴ The Rule requires each covered financial institution to implement steps including, but not limited to, designating employees to coordinate the safeguards in order to ensure accountability; identifying and assessing the risks to customer information in each relevant area of the company’s operation; and designing and implement information safeguards.⁵

CAUSES OF ACTION

Plaintiffs have attempted to bring suit under the GLBA for businesses’ alleged violations of the GLBA.  However, it has been consistently held that the GLBA does not provide for a private right of action.⁶ In fact, by its very terms, the GLBA can only be enforced by “the Federal functional regulators, the State insurance authorities, and the Federal Trade Commission.”⁷ Courts have held that, although the GLBA does not provide for a private cause of action, it does set forth identifiable standards, the breach of which may be used to satisfy an element of a common law negligence per se cause of action.⁸

Although case law indicates that a Plaintiff may bring an action in negligence per se based upon an alleged violation of the GLBA, defense counsel may defend against such a claim by utilizing a Motion for Summary Judgment establishing that the covered financial institution had written security policies in place to protect consumers’ financial information.  In Guin v. Brazos Higher Educ. Serv. Corp., Inc., No. CIV. 05-668 RHK/JSM, 2006 WL 288483 (D. Minn. Feb. 7 2006), Plaintiff alleged that Defendant owed a duty under the GLBA to secure Plaintiff’s private information, and the duty was breached by allowing an employee to keep nonencrypted private data on his laptop.  The court found that Plaintiff did not present sufficient evidence to support the claim that Defendant had breached a duty established by the GLBA, based upon the fact that Defendant had “written security policies, current risk assessment reports, and proper safeguards for its customers’ personal information as required by the GLB Act.”⁹

A negligence per se claim may also be defended against through a Motion to Dismiss based upon the Economic Loss Rule, which states that purely economic losses are not recoverable in negligence absent personal injury or property damage. A recent landmark case involving corporate giant TJ Maxx involved claims of negligence, which the court dismissed based upon the economic loss rule.¹⁰ In that case, TJ Maxx issued credit cards to consumers, who then used those cards to purchase goods at TJ Maxx stores. TJ Maxx discovered that hackers had stolen personal and financial information of consumers who used the credit cards.  The Plaintiffs formed a class action lawsuit against TJ Maxx to recover their costs and alleged various counts, including negligence.¹¹

The Plaintiffs argued that their claims were not barred by the economic loss rule because they experienced property damage in that the compromised credit cards could no longer be used and that card verification codes were lost.  The court disagreed with Plaintiffs’ position on the basis that the cost of replacement cards is an economic loss, and dismissed the negligence count.¹² Thus, to the extent the state recognizes the economic loss doctrine, actions based upon the theory of negligence per se may be disposed of at the Motion to Dismiss stage.

DAMAGES/EXPOSURE

The GLBA does not specify fines to be imposed upon violation of the Act.  However, potential exposure for businesses can be significant, as evidenced by the multimillion dollar settlement resulting from the TJ Maxx case.  The Plaintiffs settled with TJ Maxx for compensation to those injured, agreeing to implement a credit monitoring plan, institute identity theft insurance, and providing $6.5 million in attorneys’ fees and costs. TJ Maxx settled with 41 state Attorneys General for $9.75 Million and an agreement to fund state data protection and prosecution efforts.  The details of the information security program adopted by TJ Maxx are stringent, and require detailed levels of security. ¹³

In 2005, the first two instances of the FTC’s enforcement of the Safeguards Rule resulted in non-monetary settlements.  In these cases, the FTC issued a Complaint charging two mortgage companies with violation of the FTC’s Safeguards Rule for not having reasonable protections for consumers’ private information. The parties thereafter executed an Agreement Containing Consent Order, where the companies agreed to implement an assessment and report from a third-party professional, using procedures and standards that set forth security program safeguards appropriate for the businesses’ size and function.¹⁴

Thus, potential exposure for businesses in failing to implement security measures could entail significant monetary settlements/damages, as well as significant costs in implementing security plans that are likely more stringent than if implemented without the intervention of lawsuits and settlements.  The aforementioned discussion demonstrates the potential exposure to lawsuits, damages, and settlements under the emerging cyber security laws, and highlights the importance of proactively implementing security measures to protect not only consumer nonpublic information, but the time and resources of all involved.

1              Gramm-Leach-Bliley Act of 1999, Pub. L. No. 106-102, 113 Stat. 1338 (1999) (codified in scattered sections of 12 and 15 U.S.C.). The GLBA applies to “customers,” including “any person (or authorized representative of a person) to whom the financial institution provides a product or service, including that of acting as a fiduciary.” The “financial institutions” consist of “any institution engaged in the business of providing financial services to customers who maintain a credit, deposit, trust, or other financial account or relationship with the institution.”

2              15 U.S.C. §6801(b).

3              16 C.F.R. §314, Standards for Safeguarding Customer Information; Final Rule.

4              16 C.F.R. §314.4.

5              Id.

6              See 15 U.S.C. §6805; Dunmire v. Morgan Stanley DW, Inc., 475 F.3d 956, 960 (8th Cir. 2007) (“[n]o private right of action exists for an alleged violation of the GLBA”); Lentz v. Bureau of Med. Econ. (In re Lentz), 405 B.R. 893, 899 (Bankr.N.D.Ohio 2009) (“courts have consistently held there is no private right of action created by Congress in the GLBA”); French v. Am. Gen. Fin. Servs. (In re French), 401 B.R. 295, 310 (Bankr.E.D.Tenn.2009) (“[by its very terms, the Gramm-Leach-Bliley Act does not provide a private right of action”).

7              15 U.S.C. § 6805(a).

8              See Nicholas Homes, Inc. v. M & I Marshall & Ilsley Bank, N.A., 2010 WL 1759453 (D.Ariz., Apr. 30, 2010) (“The Court agrees that, although the GLBA does not provide for a private cause of action, it also does not preclude a common law cause of action.”), and Basham v. Pacific Funding Group, 2010 WL 2902368 (E. D.Cal., July 22, 2010) (“[T]he violation of a statute can be used to satisfy an element of a negligence cause of action.”).

9              Guin v. Brazos Higher Educ. Serv. Corp., Inc., No. CIV. 05-668 RHK/JSM, 2006 WL 288483, at *4 (D. Minn., Feb. 7, 2006).

10           In re TJX Companies Retail Security Breach Litigation, Civil Action No. 07-10162-WGY (D. Mass., Dec. 18, 2007).

11           Id.

12           Id.

13           Tara M. Desautels and John L. Nicholson, Pillsbury Winthrop Shaw Pittman LLP, TJ Maxx Settlement Requires Creation of Information Security Program and Funding of State Data Protection and Prosecution Efforts (2009), http://www.pillsburylaw.com/siteFiles/Publications/7F4F43B367B5276B0CFA6D13CFF4044C.pdf.

14           http://www.ftc.gov/opa/2004/11/ns.shtm.

According to the 2010 data released by the EEOC, all major categories of charge filings in the private sector increased.¹ These include charges alleging discrimination under Title VII of the Civil Rights Act of 1964, as amended; the Equal Pay Act; the Age Discrimination in Employment Act; the Americans with Disabilities Act; and the Genetic Information Nondiscrimination Act (GINA).

Fiscal year 2010 marks the first time that the EEOC was enforcing the GINA, and received 201 charges under this statute.  Under Title II of GINA, it is illegal to discriminate against employees or applicants because of genetic information.² Genetic information includes information about an individual’s genetic tests and the genetic tests of an individual’s family members, as well as information about the manifestation of a disease or disorder in an individual’s family members (i.e. family medical history).³

Also, in 2010, for the first time ever, the EEOC reported that retaliation claims under all statutes surpassed race discrimination claims as the most frequently filed Charge.  Historically, race had been the most frequently filed charge since the EEOC became operational in 1965.  This is important, as retaliation charges can be some of the most difficult charges to defend.

The 2010 year-data also showed that the EEOC filed 250 lawsuits.⁴ Moreover, the EEOC secured the highest level of monetary relief ever obtained in any given fiscal year, over $404 million in monetary benefits from employers, through its combined enforcement, mediation and litigation programs.  The mediation program showed particular gains, ending the year with a record 9,370 resolutions, which is an increase of 10% from 2009.

Federal and state employment laws are unique and complex.  Employees are filing EEOC Charges in record numbers.  Thus, it is important for employers to be knowledgeable about the substantive law, while remaining proactive as to preventing such claims from being filed.  Employers should ensure that they have internal policies in place to deal with claims of discrimination.  Management training is also an essential element of prevention.

1              www.eooc.gov.

2              42 U.S.C. § 2000ff.

3              Id.

4              www.eooc.gov.

The “Structural Damage” Definition

In the Bill, sinkhole loss is only verified if a professional engineer or geologist issues a written report and certification stating that, among other things, “structural damage to the covered building has been identified within a reasonable professional probability,” and “the cause of the structural damage is sinkhole activity within a reasonable professional probability.”  Fla. Stat. § 627.7073(1)(a)(1-2) (emphasis added).  The following provisions of Fla. Stat. § 627.7076(1), in pertinent part, clarify the terms “structural damage”:

(2) As used in ss. 627.706-627.7074, and as used in connection with any policy providing coverage for a catastrophic ground cover collapse or for sinkhole losses, the term:

* * *

(d) “Primary structural member” means a structural element designed to provide support and stability for the vertical or lateral loads of the overall structure.

(e) “Primary structural system” means an assemblage of primary structural members.

* * *

(k) “Structural damage” means a covered building, regardless of the date of its construction, has experienced the following:

1. Interior floor displacement or deflection in excess of acceptable variances as defined in ACI 117-90 of the Florida Building Code, which results in settlement related damage to the interior such that the interior building structure or members become unfit for service or represents a safety hazard as defined within the Florida Building Code;

2. Foundation displacement or deflection in excess of acceptable variances as defined in ACI 318-95 or the Florida Building Code, which results in settlement related damage to the primary structural members or systems from supporting the loads and forces they were designed to support to the extent that stresses in those primary structural members or primary structural systems exceeds one and one-third the nominal strength allowed under the Florida Building Code for new buildings of similar structure, purpose, or location;

3. Damage that results in listing, leaning, or buckling of the exterior load bearing walls or other vertical primary structural members to such an extent that a plumb line passing through the center of gravity does not fall inside the middle one-third of the base as defined within the Florida Building Code;

4. Damage that results in the building, or any portion of the building containing primary structural members or primary structural systems, being significantly likely to imminently collapse because of the movement or instability of the ground within the influence zone of the supporting ground within the sheer plane necessary for the purpose of supporting such building as defined with the Florida Building Code; or

5. Damage occurring on or after October 15, 2005, that qualifies for “substantial structural damage” as defined in the Florida Building Code. (emphasis added).

As discussed below, this definition provides the foundation for some of the more significant changes in how Florida requires insurers to investigate sinkhole claims.  Ultimately, the applicability of this provision will hinge on insurers’ particular policy language and the outcome of insureds’ potential arguments related to waiver, ambiguity, and retrospective application of the statute.  By using language such as “physical damage” rather than structural damage, many insurers’ sinkhole provisions provide greater coverage than the Bill requires.  Accordingly, until insurers revise their policies to mirror the Bill, Plaintiffs’ attorneys will argue the “structural damage” portions of the Bill are irrelevant to these policies.  With time, however, the Bill’s clarification of “structural damage” should provide insurers relief against the previously unsettled definition.

Neutral Evaluation

The Bill includes substantial changes and clarifications to the Neutral Evaluation procedure.  Prior to the Bill, when the parties initiated the process, they each had three strikes to attempt to obtain the neutral evaluator of their preference.  In addition, the Neutral Evaluation process was limited to determining causation and the subsurface stabilization repair protocol.  As noted below, the Bill attempts to expedite Neutral Evaluation as well as provide the process with a more comprehensive reach.

Regarding the timing issue, Fla. Stat. § 627.7074(7)(b) provides that, if the parties cannot agree to a neutral evaluator in 14 days, the department will appoint a neutral evaluator.  In addition, (7)(b) limits the parties’ strikes “without cause” to 2.  Furthermore, rather than the prior language arguably requiring the neutral evaluation to occur within 45 days of the request, Fla. Stat. § 627.7074(7)(c) provides “[t]he neutral evaluator shall make reasonable efforts to hold the conference within 90 days after the receipt of the request by the department.”  Further, “[f]ailure of the neutral evaluator to hold the conference within 90 days does not invalidate either party’s right to neutral evaluation or to a neutral evaluation conference held outside this timeframe.”  “Regardless of when noticed,” any court proceeding is stayed until 5 days after the filing of the neutral evaluator’s report with the court.  Fla. Stat. § 627.7074(10).  Ultimately, the legislature appears to be clarifying the scheduling issues associated with Neutral Evaluation to avoid insureds’ attempts to avoid later submissions based solely on timing technicalities.

The Bill also allows Neutral Evaluation to stretch across all repair components of a sinkhole loss claim.  Fla. Stat. § 627.7074(2) adds above ground repairs as a component the neutral evaluator must determine.  In addition, the neutral evaluator must determine whether sinkhole activity caused “structural damage” under the clarified definition discussed below.  Fla. Stat. § 627.7074(12).  The legislature also provided the neutral evaluator’s report and testimony shall be admitted in any subsequent action, including litigation.  Overall, it appears the Legislature has added a more comprehensive approach to neutral evaluation and clarified how it should be applied in litigation.

Investigating and Providing

Coverage For Sinkhole Claims

The Bill provides a new time limitation for filing sinkhole claims.  Pursuant to Fla. Stat. § 627.706, insureds must report sinkhole claims “within 2 years after the policyholder knew or reasonably should have known about the sinkhole loss.”  Fla. Stat. § 627.706(5).  For existing claims, insurers can anticipate that insureds and their representatives will argue this limitation is not consistent with the policy’s requirement for “prompt notice.”  Accordingly, until policies have been renewed to mirror this language, this provision might not have much significance as it could be construed as providing a different standard than the policy.  In addition, the “reasonably should have known” language will be difficult to define considering most reported sinkhole claims result in engineers finding multiple causes of damage.  Nevertheless, to some extent, the ultimate aim of this provision is to allow insurers to restrict insureds from backdating their sinkhole claims.

Under Fla. Stat. § 627.707, the legislature altered insurers’ minimum obligations with respect to handling sinkhole claims.¹ Unlike under the previous version of the statute, when appropriate the insurer can deny a claim without conducting full sinkhole testing.  Fla. Stat. § 627.707(1) requires insurers to inspect the property to determine if there is structural damage that “may be the result of sinkhole activity.”  If not, the insurer may be able to deny the claim.  However, if the insurer confirms structural damage exists but cannot identify a cause of the damage other than potential sinkhole activity, the insurer must conduct the full sinkhole testing previously provided for in Fla. Stat. § 627.707.  See Fla. Stat. § 627.707(2).

If the insured has sinkhole coverage and the insurer denies the claim without performing the full sinkhole testing, then the insured can demand full sinkhole testing.  Fla. Stat. § 627.707(4)(b).  The insured must make this demand in writing less than 61 days after he or she received the denial.  Fla. Stat. § 627.707(4)(b)(1).  Contrary to the statute prior to the Bill, the insured may be held liable for the lesser of 50 percent of the actual costs of the analysis or $2,500.00.  If the engineer or geologist finds sinkhole loss, then the insurer must reimburse the insured for these costs.  Fla. Stat. § 627.707(4)(b)(3).

There are also several changes to the payment requirements indicating the payment and repairs might be required to be based on the insurer’s expert’s report; however, the Bill might need further clarification.  If sinkhole loss is verified, then the insurer “shall pay to stabilize the land and building and repair the foundation in accordance with the recommendations of the professional engineer retained pursuant to subsection (2) … .”  Fla. Stat. § 627.707(5).  This provision now requires this payment to be “with notice to the policyholder,” rather than “in consultation with the policyholder,” as previously provided.  If the property suffers sinkhole loss, the insured “must repair such damage or loss in accordance with the insurer’s professional engineer’s recommended repairs.”  The insurer may withhold its total claims payment, not including any subsurface repairs, until the policyholder enters into a contract for the repairs “in accordance with the recommendations set forth in the insurer’s report issued pursuant to s. 627.7073.”   Fla. Stat. § 627.707(5) (a).  The insured must enter into a contract for stabilization repairs within 90 days after the insurer notifies the insured there is coverage.  Fla. Stat. § 627.707(5)(b).  This time period can be tolled by the neutral evaluation process.  The insured must complete all repairs within 12 months after entering into the contract, unless there is mutual agreement; or the claim is in the process of litigation, neutral evaluation, appraisal, or mediation.  Fla. Stat. § 627.707(5)(d).

Despite all of the text related to repairing the property in accordance with the insurer’s expert’s recommendations, Fla. Stat. § 627.707(5)(c) does not contain any change to the language that, once the contract is executed, “the insurer shall pay the amounts necessary to begin and perform such repairs as the work is performed and the expenses are incurred.”  Accordingly, once payment is required, the limitations on repairing in accordance with the insurer’s expert appear to have vanished.

Other Property Insurance  Amendments

In addition, the Bill included the following amendments, in pertinent part:

Clarifying that the statute of limitations under Fla. Stat. § 95.11 begins to run from the date of loss, rather than the date of the alleged denial or underpayment;

Fla. Stat. § 626.854:

limiting public adjuster’s compensation to 20 percent of the additional payment for reopened or supplemental claims on residential policies;

limiting compensation to 10 percent for claims during the first 12 months of a declared emergency;

defining misleading public adjuster advertising and requiring specific disclaimers in advertisements;

requiring insurers to provide 48 hours notice of inspection to insured or public adjuster before scheduling meetings for the inspections;

requiring the public adjuster to provide prompt notice and documentation to the insurer;

prohibiting insurers from excluding public adjusters from meetings for inspection with the insured;

defining limits on public adjusters’ delay obstruction by requiring them to allow reasonable access;

Fla. Stat. § 626.70132: limiting the time for filing a windstorm or hurricane claim to three years from the date of landfall or date the windstorm caused damage;  and

Fla. Stat. § 627.43141: allowing insurers, with proper notice, to change policy terms at renewal without having to non-renew and reissue a new policy.

Conclusion

Overall, the Bill shows the legislature’s agreement with insurers that sinkhole claims are a serious threat to the stability of the Florida homeowners’ insurance market.  Although the Bill makes several strides towards that end, there remain many issues that will need to be litigated to determine the Bill’s ultimate impact.  The changes to Neutral Evaluation should strengthen the overall impact; however, the limit to two strikes might trouble some insurers.  In addition, the statute of limitations for sinkhole claims requires litigating when the insured “should have known” of potential sinkhole activity, thereby placing a difficult burden on insurers to show the insured could comprehend such a science-based determination.  As a broader matter, insurers will have to make significant changes to their policy language to ensure they are afforded the protections provided in the Bill.  This is especially important considering the wave of counterarguments insureds will raise against insurers’ attempts to apply the new standards to existing and future claims.

Our firm has dozens of attorneys handling thousands of sinkhole claims, and a strong property department handling all aspects of first party property claims.  Our attorneys understand the potential impact of the Bill and the necessary tasks required to effectively represent insurers at this extremely important time.  Whether an insurer needs to revise its policy language, issue a coverage determination, or defend a lawsuit, our experienced trial and coverage attorneys can help.  Should you have any questions regarding the Bill or any other first party property issues, do not hesitate to contact us.

1              Although insurers are still required to offer sinkhole loss coverage, they can require an inspection of the property prior to issuing sinkhole coverage. Fla. Stat. § 627.706(1)(b).