Twin City defined interrelated wrong acts as any “Wrongful Acts that have
as a common nexus any fact, circumstance, situation, event, transaction, goal,
motive, methodology, or cause or series of causally connected facts, circumstances,
situations, events, transactions, goals, motives, methodologies or causes.”
Sandberg’s refusal to answer questions on behalf of Villalobos, it argued, was
considered an interrelated wrongful act. The insurer sought declaratory judgment
in court that it did not have the duty to defend Permatron in the underlying suit.
Permatron filed a counterclaim alleging breach of contract.
The court reviewed policy language. In order for coverage to kick in, Permatron
needed to notify Twin City of Villalobos’s claim within 180 days. Reviewing the
underlying suit, the court saw that from Villalobos initial claim on Sept. 3 to the
point of contact between Permatron and Twin City was 300 days — well beyond
the policy requirement.
Permatron argued Villalobos’ amended claim would fall under the 180-day
rule, but Twin City said the amended claim violated the interrelated wrongful acts
clause, because Sandberg was a named defendant in the suit.
SCORECARD: The court ruled in favor of Twin City Fire Insurance Company,
saying the insurer was not responsible for the Villalobos suit or any related
claims stemming from that suit.
TAKEAWAY: Waiting until an underlying suit progresses can only hurt an
insured. Open communication with an insurer from the beginning and timely
reporting of claims can go a long way.
INSURER ON THE HOOK FOR TRADE SECRET VIOLATIONS
When bernadette ruby left her employer, Extended Stay America Inc. and ESA Management, for a job at WoodSpring Hotels, she did not know the legal hubbub she’d bring with her.
ESA sued Ruby, WoodSpring and Michael Docteroff, claiming “Ruby, with
the help of ESA’s IT consultant Docteroff, allegedly obtained and distributed
confidential and competitively sensitive ESA-electronically stored information,
including an ‘ESA Sales Spreadsheet,’ to WoodSpring’s sales team.”
This data, ESA claimed, held extensive customer and market-specific information
that could give WoodSpring an unfair competitive edge over ESA. The suit listed
11 specific counts of action against the
defendants, including violations of various
trade secrets acts. One count specifically
alleged Docteroff’s violation of the federal
Computer Fraud and Abuse Act (CFAA).
WoodSpring held a D&O insurance
policy through National Union Fire
Insurance Co. When the ESA suit was
brought against WoodSpring, the hotel
turned to National Union to defend
litigation under the D&O policy, which had a $10 million limit and a $50,000 self-insured retention.
National Union denied the claim, stating that the counts of sharing trade secrets
against WoodSpring were excluded in its D&O policy. It did state, however, that it
would advance Ruby’s defense costs subject to a reservation of rights.
Meanwhile, mediation on the underlying suit was reached, and WoodSpring
settled in the amount of $1,160,000. Ruby would have to pay ESA $40,000.
WoodSpring filed a complaint against National Union, stating the insurer had
a duty to pay defense costs for claims against both the hotel and Ruby. The ESA
complaint, said WoodSpring, did not specify or explicitly refer to any trade secrets
in the CFAA count, which made the supposed exclusions to the policy irrelevant.
When the court reviewed the wording of the exclusion on trade secret coverage,
it sided with WoodSpring.
WORKERS’ COMPENSATION DOESN’T COVER
Larry brooks supervised a team that preformed water and sewer line repairs for the City of Winston-Salem, North Carolina. As per state labor laws, Brooks and his team were allotted two 15-minute
breaks and a 30-minute lunch break when working an 8-hour day. As part of his
duties, Brooks was “responsible for deciding whether and when breaks would be
taken, and [was] responsible for the crew during breaks.”
One October afternoon, Brooks and
his team took lunch at a nearby gas station.
Toward the end of the break, they entered
the gas station to purchase cigarettes.
Brooks opted for an e-cigarette. He
activated the device while sitting in his
truck and immediately began coughing.
He quickly opened the truck door to
step out and get some fresh air, but his
coughing episode caused him to pass out.
Brooks landed on the cement curb, injuring his hip, back and head.
The injuries prevented Brooks from returning to work as a team supervisor,
though he was cleared for light duty work. He filed for workers’ compensation, but
the claim was denied.
During a hearing before the city’s deputy commissioner, Brooks testified his
injuries were related to an accident stemming from work-related duties. He was, at
the time of incident, responsible for the crew during their break.
The city saw it differently, and the deputy commissioner said “[Brooks’] injuries
were not the result of an injury by accident arising out of and in the course of
employment,” calling it an idiopathic reaction.
In the Court of Appeals, Brooks argued the city mistakenly denied his claim,
because it failed to conclude his injuries stemmed from a fall related to his
employment. He argued that because he was on the clock, despite it being his
breaktime, his accident and subsequent injuries stemmed from his employment.
The court looked at Brooks’ medical records, confirming his reaction to the
e-cigarette was an idiopathic condition — a condition that arises spontaneously
without a known cause. While the Workers’ Compensation Act covers certain
idiopathic maladies, it will only cover those that can be proven to stem from
Brooks’ fall stemmed from an idiopathic reaction to the substances found in his
e-cigarette, not from work-related activity, the court said.
SCORECARD: Larry Brooks will not receive workers’ compensation for an
injury that stemmed from e-cigarette use.
TAKEAWAY: Idiopathic conditions can pop up at any time, as a reaction to
outside forces or as a hidden ailment. If at work, best practice is to keep
detailed incident reports on file in case a workers’ comp dispute arises.
WRONGFUL ACTS LEAD TO DENIED COVERAGE
Hector villalobos was fired on august 27, 2014. On September 3, he filed a charge of discrimination against his former employer, Permatron Corporation.
Months later, he filed amended charges of discrimination against Permatron
based on age, national origin and unlawful conduct by the employer. Before
termination, Villalobos attempted to exercise his rights under the Workers’
Compensation Act. He said this was the reason for his termination.
In court, the allegations deepened when Villalobos amended his claim yet again
and alleged Permatron’s president, Leslye Sandberg, refused to answer questions
from prospective employers about Villalobos.
Permatron turned to Twin City Fire Insurance Company for coverage. It held
two insurance policies with Twin City, both aimed at covering liabilities stemming
from employment practices.
The insurer, however, denied coverage for the underlying suit, citing a lack of
notice. Also, Section X of the policy barred coverage for interrelated wrongful acts.
SCORECARD: The court ruled National Union has a duty to defend both
Bernadette Ruby and WoodSpring in the underlying ESA action.
TAKEAWAY: Multiple accusations against an insured can make defense
dicey, especially if one accusation is covered and another is not. Be certain to
detail coverage exclusions to avoid loopholes in court.