Author: inswebkit

A few years ago, in a relatively small town in a quiet (not known for big lawsuits) area of the country, an Ob/Gyn (Obstetrics and Gynecology) doctor opened his new practice.  In helping the community while beginning to raise his family, he earned $300,000 in his second year.  Only seven years later, his malpractice insurance cost $300,000-and he had not reported a single claim!

Jury awards for medical malpractice in the U.S. have reached dizzying heights, prompting young doctors to flee states like Florida, New Jersey, Pennsylvania and others. For example, a March 20, 2003 article in the Pittsburgh Tribune-Review reported that the number of practicing doctors in the state, younger than 35, had fallen from 12.4% in 1989 to a mere 4.7% in 2000.  Other states report similar rates of defection.

Two other adverse results are astronomical insurance premiums for malpractice insurance, especially for thoracic and neurosurgeons, anesthesiologists and other specialists, and equally skyrocketing costs for healthcare (malpractice premiums alone can’t cover the claims).  Now the gloves are off, and several states have introduced legislation to cap pain-and-suffering awards at $250,000, though no one seems to be able to say how that figure is calculated.  There are mountains of data, of course, to support arguments for outright caps, no caps, graduated award tables and other approaches to the issue.  In many cases, it’s the same data.

How much is pain worth?  A 20 year old, maimed or disfigured for life through a doctor’s error, who gets a $250,000 award and lives to age 77 (life insurance table), has been awarded $12. a day or $8. a day after the attorney took 33%.

How much was Jesica Santillan worth?  Jesica died in the esteemed Duke University Medical Center in February 2003, after doctors transplanted lungs and a heart that were an obvious mismatch.  You might argue that she was an illegal immigrant whose parents smuggled her into the country to get medical care not available to her in Mexico.  But doctors could easily have made the same mistake to a Rhodes Scholar or Nobel Laureate.  Some argue that a person is a person, that all lives have the same value.  The passion on every side of the issue-and there are more than two sides-is sincere.

California passed MICRA, the Medical Injury Compensation Reform Act, in 1975, setting a $250,000 cap on non-economic damages.  $250,000 1975 dollars are worth $84,000 today.  Adjusted for inflation, the MICRA “cap” should be $897,000 today.

Another critical element to the malpractice mosaic is the fee structure attorneys enjoy.  It’s an element under siege.  Should an attorney get a third or half of a jury award?  There may not be an all-purpose answer to the question.  Litigating a complex medical claim can be very time-consuming for attorneys, paralegals, and the experts hired to provide expert testimony.  Obviously, all the money in that fee doesn’t wind up in one lawyer’s pocket.  Defense is equally expensive, and those costs are borne by the malpractice carrier.  Lawyers who file frivolous suits cloud the picture even further.

Proposals abound to deal fairly with this complicated aspect of our culture.  Some advance sliding scale fees for attorneys; some propose different caps for different injuries.  New ideas appear almost daily.  But “local” climates prevail, as they have in other instances.  For example, you might suffer a malpractice injury in a Minnesota hospital, but you’re allowed to sue in your home state of Texas, which may be a friendlier jurisdiction.

Answers are neither fast nor easy, but with the problem out in the open in so many states, fair, rational solutions that reach across state lines and political ideologies may at least be on the horizon.

It seems as though virtually anything created can be patented, copyrighted, trademarked or otherwise protected.  Oddly enough, even with patent protection there is danger. It is easy to believe that if you hold a patent, copyright or trademark you cannot possibly infringe on someone else’s intellectual property – but that’s not true. George Harrison certainly had a copyright on his song “My Sweet Lord” but that didn’t prevent highly publicized and successful litigation against him due to its similarity to the old Shirelle’s hit “He’s So Fine” in the 1970’s.

With an average cost of $1.2 million to litigate, patent infringement trials weigh in as one of the most expensive types of litigation in the US today.  What was once the realm of the individual like Ben Franklin or Thomas Edison, or the very nearly individual (think Wright Brothers), has now become big business.  IBM, which annually tops the list of companies applying for and receiving patents, has received over 22,000 patents from 1993 to 2002, with patents accounting for about $10 billion in royalties during that ten year period according to the company’s website.  Complicating matters is the relatively recent innovation in its own right of the “Business Method Patent.”   Examples of these controversial patents are Amazon’s Internet shopping cart, or the “reverse auction” process that Priceline created and patented.

Contrary to popular belief, however, intellectual property is not the patent or copyright that one applies for, but rather the idea behind it.  The registration process, be it copyright, patent, or other method, is merely a form of evidence or proof of the origin of the idea, and its timeline.   The piece of paper that one might receive acknowledging a copyright is merely a statement that the Office of Copyrights has not received anything else prior to the submission of the material that resembles it enough to call into question the authenticity of the work.   Conceivably, one may apply for and receive a copyright or patent for a piece of work and yet be sued.  But where’s the coverage you say?  Good question.  The answer is – it depends.

Take the Recording Industry Association of America’s litigation against numerous individuals in the summer of 2003.   Would your homeowners’ policy apply if you were sued for negligent supervision of your teenager leading to the illegal uploading of music to the Internet?  The answer is probably “no” because there is no bodily injury or property damage (theft of intellectual property is unlikely to be perceived as a form of property damage), and the policy is not designed to respond to pure financial loss claims.   So in a personal sense, you are probably out of luck.

For businesses the news is not as grim.  In a business scenario, the CGL has often been called upon for coverage in patent, copyright and trademark infringement cases.   If there is coverage to be found, it is the Advertising Injury portion of the policy but the catch is that the offense must then occur in the course of advertising one’s product, and not, for example, in the delivery of the product.  So although a computer-consulting firm may infringe on another firm’s copyright or patent (source code is patentable), it is probably not covered under the CGL because the offense did not occur while advertising the firm’s services.

The good news is that there are an increasing number of products that are available for intellectual property coverage in the course of business operations.   Patent Infringement Liability Insurance is available from a select few niche insurance markets, though premiums are usually high, and coinsurance and retentions can be steep too.  Professional Liability for technology consultants and other companies with an intellectual property exposure can often be endorsed to cover copyright or trademark infringement, though usually not patents.  Advertising agencies or media businesses may find intellectual property coverage available for their operations as well.  If you are concerned about your intellectual property exposure, you need to talk to your agent to see what coverages are available.  Another good idea would be to speak to a lawyer who is well-versed in intellectual property law to learn what steps you should be taking to protect your intellectual property and minimize the risk of infringement.

Depending on whom you talk to, the Sarbanes-Oxley Act of 2002 was either a panacea to cure the ailing stock market and restore trust in Corporate America or a shot to the bow of America’s capitalist vision.  Just what is Sarbanes-Oxley and whom does it affect?

Sarbanes-Oxley is a complex patchwork of legislative reform of the American system of corporate governance, legal counsel and financial oversight of publicly traded companies.

Among the key implications of the Act:

—      CEOs and CFOs must certify the financial reports of their companies and face stiffer penalties for knowing or willful violations, including personal liability for noncompliance.

—      Added disclosures are required on the company financials.

—      The SEC must adopt new rules requiring that independent audit committees be created that are authorized to engage advisors.

—      New criminal and civil penalties for directors and officers for, among other things, destroying or changing records and knowingly executing a scheme to defraud investors.

—      Takes away some of the self-policing capability of the accounting industry by creating a five member Public Company Accounting Oversight Board, which is overseen by the Securities Exchange Commission.

—      Similar to the effect on the accounting profession, the legal profession is hit with new regulations, some of which run counter to the self-policing activities of the state bars and presents lawyers with the conundrum of trying to comply with the law while retaining a main cornerstone of the legal profession – attorney client privilege.

 

Some say Sarbanes-Oxley has had a chilling effect on the American Dream.  Where the rallying cry of the ’90’s was “Go public!,” Sarbanes-Oxley might have turned that into “Go private!” for the future, particularly for the small public companies for whom the new regulations create a cash drain.   But, despite the lure of going private, some insurance industry and legal experts theorize that Sarbanes-Oxley’s effect on public company accounting will put a new onus on private companies as well.  They recommend that private companies follow some of the same rules on a voluntary basis to avoid potential common law negligence.

Sarbanes-Oxley’s exacting standards have had a dramatic impact on the Directors and Officers Insurance market, which was already reeling from the effects of corporate scandals, and the shrinking of capital in the reinsurance marketplace that was sharpened by the effects of 9/11.  Rates have gone up dramatically and capacity has shrunk, leaving some companies underinsured when they need it most.

Accountants, particularly CPAs that do public audit work, have felt similar effects.  Fewer companies today are willing to write Accountants Professional Liability for such firms.  The same goes for law firms that specialize in securities law.

Perhaps the most disconcerting aspects of Sarbanes-Oxley, at least for corporate officers, are the punitive provisions for knowingly or willfully committing “white-collar” crimes.   The problem with discerning the effects of these provisions is the difficulty in assessing culpability.   It is possible that fingers might point at parties, who should have known what was going on during their watch, but did not “knowingly” or “willfully” perpetrate a fraud.  The line between benign incompetence and intentional acts might be blurry at times, but directors and officers still face the risk of being caught in the maelstrom of public outrage.

The best advice that anyone can be given, who is entertaining the notion of becoming a board member of a public corporation, is think twice.  Make sure you know that the company has adequate D & O Insurance with a reputable carrier, and the coverage provides defense against fraud allegations until guilt is proven (in many cases the insurer will settle out of court before guilt becomes a factor in coverage determination).  Moreover, make sure that the limits are adequate for the size of the company.  Although there is no one rule of thumb for adequate limits, most public companies should have at least $25 million in coverage to afford adequate protection. The Microsoft’s and IBM’s of the world should obviously carry much more.

Private companies can purchase D & O Insurance too, often at more reasonable prices, and with a host of other pertinent coverages such as Employment Practices Liability, Kidnap & Ransom, Fiduciary Liability and sometimes-even Professional Liability comprised under one insurance program.   Whether you purchase on a package basis or a la carte, if you have not looked into D & O Insurance before, now may be the right time.

Navigating the winding straits of various state workers’ compensation systems can be difficult to do for companies traversing state lines, but what if the company employs people at sea?  If your business employs dockworkers or seamen of any sort, there are two acts you should be aware of.

The Jones Act (1920) – The Jones Act is a set of cabotage, or “admiralty” laws.  Cabotage defines who has the right to engage in air, rail, truck or waterborne transportation in a country and its coastal waters.  The Jones Act focuses on the latter.

Modeled in part after the Federal Employers Liability Act, which provides benefits to rail workers, the Jones Act governs the liability of vessel operators and marine employers for the work-related injury or death of an employee.  The Jones act provides heightened legal protections to seamen because of their exposure to the perils of the sea but does not define the term “seamen.”  Federal court decisions have narrowed the definition to exclude land-based workers, though.  Workers on offshore oil rigs, ships, barges, riverboat casinos, tug boats, shrimp boats, fishing boats, trawlers, tankers, crew boats, ferries and water taxis are among those who are eligible for Jones Act relief if injured.

The Longshore and Harbor Workers’ Compensation Act (1927), a companion of sorts to the Jones Act, provides scheduled pay for injury or death, to a broad range of land-based maritime workers, excluding those covered under The Jones Act.  Usually, employees who load or unload vessels, build or repair ships, and stevedores are among those eligible for LHWCA status.  Unlike The Jones Act, which is not administered by a federal or state agency, The Department of Labor administers LHWCA.

Although differentiating among employees eligible for consideration under the two acts seems simple, much litigation has ensued over the years since the two acts came into being, because “the myriad circumstances in which men go upon the water confront courts not with discrete classes of maritime employees, but rather with a spectrum ranging from the blue-water seamen to the land-based longshoreman.” Brown v. ITT Rayonier, Inc., 497 F.2d 234, 236 (CA5 1974)

Broad P & I (Protection and Indemnity) policies, Maritime Employers Liability and Maritime Workers’ Compensation products are available to cover Jones Act or LHWCA liability.  Some products combine coverage for state workers’ compensation acts and Jones Act or LHWCA exposures.  There are also policies available for employers with no “known” Jones Act exposure.

Although coverage for the liability imposed by employers under these acts may be more expensive than state workers’ compensation coverage, there may be penalties for non-compliance.  LHWCA, for example, imposes a fine of up to $10,000 and/or imprisonment of up to a year.  Talk to your agent to discuss your exposures and to see what options are available.