an officer or director of the company.
Stein filed suit, and lost in the Superior Court of Los Angeles County. That
decision was reversed by the California Court of Appeal, Second Appellate
District, on March 8.
Even though Stein denied being an officer of the company in other court
proceedings, his statements “do not contradict” the argument that Stein was the
functional equivalent of an officer or director during the HCC policy period, the
It also said the policy defined a claim as “any civil or criminal proceeding, and
expressly included ‘an appeal from any such proceeding.’ ”
SCORECARD: The insurance company must pay for the costs to appeal the
TAKEAWAY: A “thing that is ‘final until reversed’ is not final,” the court ruled.
MARITIME VS. STATE LAW
In february 2011, peter savoie and matt delahoussaye used a crane barge to attempt to dislodge solid objects from inside an offshore well in the Atchafalaya Basin in Louisiana.
Savoie was preparing to disconnect the hydraulic gate valve from the crane
when the crane came toward him and knocked him off balance. He tried to clutch
the crane, but lost his grip and fell about 8 feet, resulting in a “crush-type injury
to the right lower extremity.”
Savoie eventually settled his claims against his employer, Specialty Rental
Tools & Supply (STS). The master
services contract (MSC) had
required STS to indemnify Apache
Corp., which had hired STS to
perform the “flow-back process” on
its fixed production platform.
The MSC stated it should be
enforced under maritime law unless
it was inapplicable.
Even though the injury case was
settled, crane owner Larry Doiron
Inc. and crane operator Robert
Jackson, both of whom are part of Apache, sought a court ruling that would “enforce
their contractual right to defense and indemnification” under admiralty law.
Zurich American Insurance Co., which had issued the policy for the MSC,
argued the indemnity provision was void under the Louisiana Oilfield Indemnity
The U.S. District Court for the Western District of Louisiana agreed with
Doiron and Jackson that it had a right to defense and indemnity, and that state law
did not apply. On appeal by STS, Zurich and Oil States Energy Services, the U.S.
5th Circuit Court of Appeals on Feb. 23 agreed.
While flow-back activities have little to do with traditional maritime activity, it
ruled, a vessel was necessary to do the work.
LOSSES DUE TO EMAILS NOT COVERED
On june 4, 2012, an employee of accounting firm Taylor & Lieberman (T&L) received an email from a client requesting a wire transfer to a bank account in Malaysia in the amount of $94,280.
After complying with those instructions, she received another email the
next day, requesting an additional
$98,486 be wired to a bank in
Singapore. The employee again
complied. A third email request,
in the amount of $128,101, raised
suspicions because of a different
A phone call confirmed that all
three emails were fraudulent. T&L was able to recover nearly all of the monies
from the first transfer, but none from the second.
The accounting firm used its own funds to reimburse the client and then
sought reimbursement under its crime coverage with Federal Insurance Co.,
which denied the claim on June 13, 2012.
Two years later, the U.S. District Court for the Central District of California
ruled the firm was not entitled to coverage. On March 9, the U.S. 9th Circuit
Court of Appeals agreed.
The policy, the court ruled, provided coverage for “an insured’s direct loss
‘resulting from forgery or alteration of a financial instrument by a third party.’ ”
In this case, there were no financial instruments, just emails instructing the firm
to wire money.
The court also dismissed T&L’s argument that the claim was covered by
computer fraud coverage because the emails were an unauthorized entry into its
“The ‘mere sending’ of emails does not amount to actionable trespass to a
computer system,” ruled the 9th Circuit, which dismissed the case.
SCORECARD: The accounting firm’s claim for $98,486 was denied.
TAKEAWAY: The “common sense reading of the policy” contradicted the
accounting firm’s arguments, the court ruled.
INSURER MUST PAY FOR APPEAL
On dec. 13, 2011, a federal grand jury indicted Mitchell Stein on 14 counts of mail, wire and securities fraud, saying he artificially inflated the stock of Heart Tronics (also known as Signalife), a medical device company.
On Dec. 20, 2011, the SEC filed a civil suit against Stein and Heart Tronics
for securities fraud and falsification of records.
Stein, a founder of the company who called himself its “chief creative
architect,” was found guilty of the criminal charges, sentenced to 17 years in
prison and ordered to repay $5 million in “illegally-gained profits” on May 20,
2013. The SEC action resulted in Stein being ordered to pay $5.4 million.
After his criminal conviction (which subsequently was remanded for
resentencing earlier this year), Stein sought defense for an appeal from Houston
Casualty Co., which had issued a $5 million directors and officers policy in
HCC denied the claim, saying the policy provided coverage only until a “final
determination,” which it said was the conviction. It also argued that Stein was not
SCORECARD: The insurer must defend and indemnify the barge owner.
TAKEAWAY: Because the operation could not be completed with the vessel’s
crane, the case was decided under maritime law.