Author: inswebkit

The Malpractice Cap: Order in the Court?

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.

SUVs and Your Teenager – A Bad Combination

By now, most of us are aware that SUVs have a greater chance of rolling over in a single vehicle accident than cars.  You’re also probably aware of what type of vehicle your teenager wants to drive.  But before you purchase a SUV for your teen, you should be aware of the increased safety danger they pose for inexperienced drivers.

A University of Michigan Transportation Research Institute study recently looked at SUV rollover tendencies in conjunction with teen driving habits to conclude that a SUV may not be the safest vehicle for your teenager.  Between 1999 and 2001, 37% of SUV drivers under age 25 were involved in single vehicle accidents that resulted in a rollover.  Compare that to the 30% rollover rate in single vehicle accidents among all drivers and you can readily see the safety concern.

Parents commonly think that with SUV’s height and weight being greater than a regular car, their teenager will be better protected behind the wheel.  The facts show otherwise.  Putting your teen in a SUV may actually compromise their safety.

A common type of accident for young drivers is one where a single vehicle runs off the road.  This type of accident usually involves a change in grade or road surface, causing the vehicle to begin to roll over.  A SUV’s higher center of gravity, coupled with a teenage driver’s lack of experience behind the wheel increases the chance for a serious accident in this scenario.

Federal data indicates that in 2003, 6.4% of drivers on the road were teens, yet they were 14% of drivers involved in fatal accidents.  Of the almost 4,000 under 20 year-old drivers killed, 53% were not wearing seat belts and almost 31% had been drinking.  In response, most states have instituted graduated licensing for young drivers.  While this has helped curb the number of accidents involving teen drivers, the type of vehicle your teen drives can further reduce those numbers.

The Michigan study noted that almost half of SUV rollovers start with a sideways slip and loss of control.  This type of scenario is more difficult for a young driver to negotiate successfully due to their lack of experience.  Electronic stability control may help correct a sideways slip, but not all SUVs are equipped with that feature.  In addition, the study found that a greater chance of rolling over exists if the driver was drinking, had two or more passengers, was driving through a curve, or was traveling on a high-speed road.

When considering a vehicle for your teenager, the safest car is the one they don’t want to drive – a large, low-power car.  Whatever type of vehicle you choose for your teen, it is important to consider the conditions your child will likely come across and their ability to react to those conditions.  If you do choose a SUV, consider providing your child with the additional resource of a defensive driving or accident-avoidance course.  The money you spend educating and protecting your teen will be worth it in the face of the elevated risks they face by driving a SUV.

Intellectual Property Liability Is Everywhere – But Where Is The Coverage?

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.

Do Not Fall Prey to a Staged Auto Accident

As if it wasn’t painful enough to be found at fault in an auto accident, imagine finding out that it was not an “accident” after all.  Each year thousands of drivers become victims of staged auto accidents, and most never realize it.  Criminals plan the accident to appear as the innocent driver is at fault, and then file claims for vehicle damage and personal injury to the at fault driver’s insurance company.

The CPCU Society and the National Insurance Crime Bureau offer the following safety tips to help avoid these scams:

  • When driving look beyond the car in front of you. If you see traffic slowing, start applying the brakes – don’t wait for the car in front of you to brake first.
  • Allow plenty of space between your car and the car ahead of you so you have time to react to sudden stop.  The general rule is one car length for every ten miles per hour traveled.
  • Be especially careful when turning into a lane that allows for two vehicles to turn left simultaneously. People committing staged collisions often prey on cars that cross the center line, purposely sideswiping the victim’s car.
  • Call the police to the scene and get a police report, even if damage is negligible. If the police report describes the resulting damage as minimal, it will be harder for the criminal to inflict further damage to their car afterwards and collect a larger claim.
  • Carry a disposable camera in your glove compartment and take as many pictures of the other car and its passengers as possible.
  • If you suspect a scam, call the NICB hotline at (800) TEL-NICB.

Sarbanes Oxley – Making the Corporate Jungle Safer?

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.

Tips to Reduce Insurance Premiums for Your Teenage Driver

While most parents would prefer to keep their teenagers off the road, you probably won’t have much success encouraging them to withhold from getting that long awaited ticket to freedom.

Unfortunately, because teenagers are at a higher risk for traffic accidents and tickets, their insurance rates can easily be 50 to 75 percent higher than their parents.  Furthermore, premiums for teenage drivers generally won’t be significantly reduced until they turn 25, get married or both.  In the meantime, they’ll stand to save money by having themselves added to your insurance policy instead of getting their own policy.

Here are some ways to reduce car insurance premiums, courtesy of the Independent Insurance Agents of America:

  • Make sure your teen stays in school and studies to make good grades. Many insurers offer discounts to good students.  A “B” average or better in school carries a lot of weight in keeping insurance costs down.
  • Sign up your teen for a supplementary driver’s education course.  Many insurers will offer a discount to offset your investment.
  • If your teen will be driving a family car, designate one vehicle he or she will drive.  Otherwise, the insurance company will calculate the premium based on the highest risk vehicle covered by your policy.
  • Consider a higher deductible. Moving from a $250 to $500 or $1,000 deductible can save you 10 to 20 percent on your premium.  Consider whether you can absorb the extra out-of-pocket expense in the event of an accident.
  • Reward safe driving.  More than anything else, an accident- and ticket-free driving record will keep your premiums at their lowest.

Keeping Up with the Jones and the Longshore and Harbor Workers’ Compensation Act

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.

Trading Places – When It Becomes Necessary to Tell Your Elderly Parents to Stop Driving

There sometimes comes a point in the relationship between adult children and their parents that you begin to notice a shift in power.  Suddenly, the people whose favorite words were “because I said so” are the ones being counseled on their decisions.  Role reversal is an extremely difficult change for parents, but it is no less intense for the adult child.  One of the areas this shift becomes the most unpleasant is when the child needs to tell a parent they should no longer be driving.

Driving often equates to independence.  Take away the keys and you limit personal freedom.  Obviously when faced with the option of not being able to come and go as they choose, often the result is the parent chooses not to go down without a fight.  Still, there are warning signs that a parent has arrived at that fork in the road when it becomes necessary to find other ways of getting around.  AARP lists the following warning signs:

  • Changing lanes without signaling
  • Going through stop signs or red lights
  • Reacting slowly
  • Problems seeing road signs or traffic signals
  • Straying into other lanes
  • Going too fast or too slow for safety
  • Exhibiting problems making turns at intersections, especially left turns
  • Performing jerky stops or starts

If you see these signs on a consistent basis, it is necessary to have that dreaded, forthright discussion with your parents.  When you decide it’s time, there are a few basic rules to follow.  The first is watching your approach.  Things may get loud, but avoid using a nasty tone, criticizing them, or making them feel inadequate.

Don’t make discussion of their deteriorating driving abilities a head on collision.  Try bringing it up indirectly by mentioning you read an article about problems older drivers have or perhaps you know of someone who decided to stop driving.  Ask them if they’ve noticed changes in their own abilities.  Then talk about ideas of how they can get around and not feel housebound.  This will necessitate having an action plan in place with family and friends as to who will be available to drive your parents to their regular activities. Get everybody involved so that it isn’t just the responsibility of one or two drivers.  Also, include in that plan any public, private and community transportation services available.  Be sure to investigate public buses, subways, taxis, private drivers for hire, senior transportation services and volunteer driver services.

Be understanding if your parents resist change.  It may require more than one discussion to finally get them to relinquish the keys.  However, you do need to remain firm without being harsh.

Finally, if your parents insist on continuing to drive, ask their doctor, their clergy, or a close family friend to speak with them.  Sometimes it’s easier for parents to accept advice from an outside source than it is for them to accept it from their children. AARP notes on their web site that, “As a last resort, you can contact the local Department of Motor Vehicles and report unsafe driving.  Most states will contact older adults and have them take a driving test, revoking their license if necessary.”

Environmentally Friendly Insurance for Small Business

If you’ve ever considered owning a small business, or are considering owning one, you’ve probably heard all the usual advice.  Make sure you have enough capital.  Only let family run the cash register.  Don’t take in a partner without an ironclad contract.   Location, location, location.

What you may not have heard is this one: Be careful you don’t get nailed with hazardous waste remediation and lose your shirt.

How could that happen?  You’re not opening a nuclear reactor, just an ice cream shop.

Aha!  What if the site you select for your ice cream shop ends up being in a district where the water is found to contain too many parts per million of some noxious substance or another and you have to close down or move?  Or worse, be permitted to stay, but be required by local government to hang a sign at the order window telling customers they drink your sodas at their own risk?  It has happened to a shop in the town of Finksburg, Maryland. Fortunately, the local population isn’t too concerned about that stuff in the water, and the owner didn’t have to close up shop, risking his investment and his livelihood.  But he without a doubt lost business.

That was a mild case of the ‘environmental flu.’  Others can be much worse.

Fortunately, there is insurance for that sort of thing, and having it might even help you get financing for your new venture. Originally meant for big business, ones that might easily buy a 40-acre site that was a pharmaceutical waste dump in the 1950s and is now in need of expensive remediation, secured creditor environmental insurance now comes in sizes to fit most businesses, large and small.

These policies protect both the business owner and the business owner’s lender in the event that contamination of the business site is found and must be cleaned up.  The insurance takes care of the cost of remediation, or the loan if the owner must default because of the cost of remediation.  And it also covers liability claims, including bodily injury.  Note:  These policies cover only claims based in environmental laws in effect at the time the policy was written, not claims based on later regulation and legislation.

In effect, secured creditor environmental insurance acts much like title insurance.

Title insurance includes an investigation of the real estate to make certain all previous deed transfers, survey and so on were correct.  If the investigation failed to find something that later becomes a problem, the title insurance takes care of it.

Secured creditor environmental insurance policies also require an investigation into the prior uses of the land.  If a problem is later discovered, but the investigation was conducted with due diligence, then the insurance pays for the cleanup. In all cases, the policies won’t pay off if information that results in claims has been withheld.

Unlike title insurance, secured creditor environmental insurance companies also want to know what the intended future use of the site will be.

You want to open an ice cream store?  You’d probably have no problem.  The Finksburg case is actually unusual.

Dry cleaner?  Sure, although your deductible will be fairly high, in the $1,750 range. Note, too, that managers of strip malls, where most dry cleaners are located, are beginning to require dry cleaning shop owners to have some sort of pollution liability insurance.  Cleaning up a spill at a dry cleaning store costs about $50,000 on average; the deductible will be somewhere around $10,000.

Nuclear reactor?  Get real.

Avoid Sewer and Drain Damage to Your Basement

Millions of dollars are spent every year repairing damage to basements caused by sewer and drain backups.  There are some ways these problems can be avoided, instead of having to repair the mess from a sewer or drain backup.

Make sure your drainage systems are working properly.  The downspouts from your gutters should extend beyond the foundation of your home so that water is not left to trickle down basement walls.  Along those same lines, your yard should gradually slope away from the foundation, so surface water drains directly to the street.  Keep drain lines clear, especially if your gutters connect to storm sewers.

There are several types of anti-backflow devices that can help reduce the chance of basement flooding.  Check-valve devices allow water and sewage to flow away from the drain, preventing backup into the drain.  Gate-valve devices close and shut off the flow of water and sewage, preventing backup.  Anti-backflow devices are either manually or automatically operated.

Sump pumps are another option to consider.  Single and dual-level sump pump systems are available, and a battery or generator can be used to power the pump in case of a power failure.  Sump pump systems should be checked monthly.  Check local building codes or consult your plumber to ensure your sump pump is connected properly.  Sump pumps should not be connected to your home’s waste plumbing system.

Despite your best efforts, sometimes water will still get in your basement.  Keep storage items off the floor and keep furniture on casters or shims, away from floor drains.  If your basement is finished, ensure that you consult plumbing and building professionals to design a drainage system that will prevent damage to your finished space.

Despite the amount of damage backups can cause, many homeowners’ policies do not include coverage for sewer and drain losses.  Check with your agent to determine if an additional endorsement can protect you from this costly problem.