Cliff Rudolph's Insurance Blog

Social Media's Dirty Little Liability Secret for Employers

 

 

You can’t attend a Human Resource, Marketing, or Legal conference these days without a discussion on social media.  My wife and I have toddler age twin boys, and I relate social media for employers to organic chocolate milk… It's organic, has milk, and the brand we purchase even advertises DHA and Omega 3’s! Did I mention it was milk? Truth is, we limit the boys to one glass a week and they get plenty of exercise (running away from mom and dad).  Similarly, Social Media for your organization is probably a good idea, but it’s important to put some policies and procedures in place and be consistent in your enforcement. 

 

Social Media's dirty little secret? You and your employees are probably not covered by your General Liability policy.

 

I often peruse updates of organizations that I follow on a well known social networking/professional networking site.  Recently I came across an individual commenting that he was considering organizing a flash mob as a way to raise awareness of his organizations industry.  Basically, an individual responsible for organizational development and a vibrant social media user was gathering input on whether or not people would be willing to participate in an organized flash mob.  A flash mob, as defined by wikipedia, is a large group of people who assemble suddenly in a public place, perform an unusual and pointless act for a brief time, and then quickly disperse. 

 

While I thought it a great way to reach a specific demographic, I immediately cringed once I put on my risk management hat. I immediately started considering the impact of a recent FTC ruling and guidelines (FTC 16 CFR Part 255 Guides Concerning the Use of Endorsements and Testimonials in Advertising) related to potential liability imposed on employers for social media comments, regardless of the employers’ knowledge.  While I doubt this industry group's flash mob would turn ugly similar to the event that occured in Philadelphia back in February of 2010 (a group of 150 teenagers involved in a flash mob leading to 16 arrests), I was concerned that lawsuits could be tendered to the employer of the organizer.  And as we'll discuss, more than likely, this wouldn't be covered by the employers General Liability policy.

 

The landscape of business communication and the law governing social media is changing rapidly.  It's important that employers speak with their attorney and understand the social media liability issues facing their organization.  I would suggest that you consider reading an article published in The National Law Journal, “Social Media Permeate the Employment Lifecycle” .  The liability facing employers is real, and It's worth noting that on March 16, 2010 the first lawsuit alleging unlawful conduct via social media due to a former employee's restrictive covenant was filed.  In the lawsuit, TEKsystems sues three of its former employees and their new employer, Horizontal Integration, Inc.  Also, another interesting lawsuit occured in 2009 when the owner of Pizza Kitchen was sued for defamation after posting disparaging remarks on Facebook about a marketing firm it was utilizing. 

 

In the same ruling from the FTC above, they suggest that employers institute an appropriate policy governing social media participation by employees:

 

“if the employer has instituted policies and practices concerning ‘‘social media participation’’ by its employees, and the employee fails to comply with such policies and practices, the employer should not be subject to liability. The Commission agrees that the establishment of  appropriate procedures would warrant consideration in its decision”

 

Tom Bell an attorney with Perkins Coie, in an article published in Computerworld states:

 

"Companies are entitled to free speech, but their commercial speech is less protected. The lower protection comes in the form of a higher standard of care for truth and accuracy. So, when company employees participate in social media on behalf of their employer, they subject the company to the same risks as a newspaper or individual, but with less protection."

 

Furthermore, he suggests:

 

"In order to mitigate these risks, companies need to prepare their employees. A social media policy is part of that preparation. Such policies are about labor law, but also about advertising, marketing, public relations, product liability and other activities that carry legal implications."

 

So once you’ve committed the organization to the slippery slope of social media and have developed your policies and procedures, now it’s time to turn to the subject no one is talking about!  Your General Liability policy will most likely NOT respond to a 3^rd party claim or injury resulting from your blog or social media page.  For example, the standard General Liability policy (ISO CG00 01 12 07) will exclude injury "arising out of an electronic chat room or bulletin board the insured hosts, owns, or over which the insured exercise control" (ISO CG00 01 12 07).  As well as Personal and Advertising injury "arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights" (ISO CG00 01 12 07).  This includes data privacy breaches and claims resulting from a data privacy breach. You will want to speak with your attorney to decide how a social media site that an employee owns or controls would be considered relative to a defamation lawsuit against your organization stemming from that employees "tweet", but I can say with confidence that most General Liability policies do not contemplate this risk.

 

So what is the solution?

Don't be caught by surprise! Twitter, Blogs, Facebook and other social media exposures are soon becoming just another part of an organizations daily operation.  And while the organization may not be specifically involved in Social Media, what about your employees? Social Media needs to be carefully considered in your risk management program. 

Insurance companies are well aware of this exposure and have developed innovative products to assist in covering this potential gap.  Professional, Communications, Data Privacy & Media Liability policies, in many forms are available as endorsements or stand alone products and will compliment your enterprise wide risk management program.  In many cases, coverage is relatively inexpensive with minimum annual premiums as low as $1,500. 

So drink a glass of chocolate milk, as a National Dairy Council video on YouTube points out, "Chocolate milk is the most popular milk choice among children, and it only has 60 more calories than white milk does.”  But be sure to put in place controls, and stick to them.   And while it’s easy to see the benefits of Social Media, be aware of the liabilities and whether you are self insuring those liabilities or transferring that risk via an insurance policy.

You May Be Held Personally Liable for Wage and Hour Violations

If you are in HR, are a director or officer of an organization, and/or a hiring/firing manager a recent decision by the Ninth Circuit Court of Appeals should be of significant concern.  In Boucher v Shaw (July 2009) the court held that individual managers can be held liable for unpaid wages under the Fair Labor Standards Act.

One of the most frequent claims I see are lawsuits stemming from employee related allegations of wrongful termination, workplace discrimination, workplace harassment, and wage and hour claims.

Previously it was argued that an organizations managers, officers and owners could not be personally liable for the corporation's wage and hour violations.  In Boucher vs. Shaw, Castaway Hotel Casino and Bowling Center filed for Chapter 7 liquidation bankruptcy in 2004; shortly thereafter a suit was filed for unpaid wages, vacation and holiday pay under the federal Fair Labor Standards Act(FSLA). 

 

On appeal, the Ninth Circuit held that former employees of Castaways could pursue federal wage and hour claims filed personally against the CEO, CFO and other officers of the corporation. 

 

Consider for a moment how it would effect you personally to be held personally liable for an employee related lawsuit.  Not fun.

 

This is a significant issue for all employers.  Furthermore, many organizations that purchase EPLI insurance (Employment Practices Liability Insurance) to defend and pay claims related to employee suits will be surprised to find out that the policy may not pay for claims against individuals. 

 

Insurance coverage is available on a limited basis. Many of the common carriers of EPLI--Hartford, Travelers, CNA, Chartis, Chubb offer coverage for defense, some may offer indemnity.  But it many cases coverage must be requested, and coverage varies from carrier to carrier.  Seldom will a carrier offer to pay for a claim for wages.

 

Also, it is critical to check Who Is an Insured on your EPLI policy.  While typically employees, officers, etc are considered insureds, policy language varies and you may also be faced with an insured vs insured exclusion, nullifying coverage.

 

Conclusion: Always request this coverage on EPLI policies. Be clear as to what's covered ( usually just defense) and what limit applies.

 

Here is a good article to read http://www.hartfordhelp.com/article.htm?id=2157

 

Cliff Rudolph

 

 

Bank teller fired for chasing bank robber! Does the FDIC insure against robbery?

As reported in the Seattle Times by Jennifer Sullivan.  A local Seattle bank teller, Jim Nicholson, at Key Bank was recently fired for chasing down a would-be bank robber. 

Termination seems pretty harsh considering Jim not only prevented a bank robbery, but actually held the man down until the police arrived.  Obviously, he may have been injured or injuries to others could have occurred as a result of his actions.  I imagine Key Bank has a standard operating procedure for handling a bank robbery, and Jim did not follow those procedures, putting others at risk.  But I'm still finding it hard to believe that termination was the right move for Key Bank.  Let's keep in mind that regardless of Jim, the would-be bank robber endangered lives when he walked into the bank and demanded money.

I've read many comments from readers about how monies and securities lost due to a robbery are insured through the FDIC.   First, securities are not insured by the FDIC, only deposits.  Currently, savings, checking and other deposit accounts, when combined are generally insured to $250,000 per depositor in each bank or thrift that the FDIC insures.  Secondly, the FDIC does not typically get involved in a bank robbery.  The role of the FDIC is to protect depositors in the event that a bank or thrift were to fail.  You can read more about the FDIC here.

Losses that a financial institution incurs due to a robbery are generally insured by a financial institution bond.  The typical financial institution bond will cover "loss of property resulting directly from robbery, burglary, misplacement, mysterious unexplainable disappearance, damage to or destruction of... The Definition of Property includes, money, securities, negotiable instruments, certificates of deposit, etc. 

Finally, I can't imagine that Jim will remain terminated by Key Bank for long.  Considering an already tough consumer/financial institution environment this can't be the type of publicity Key Bank is looking for. 

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added 8/4/09:

Lori Matsukawa of KING 5 has done a follow up interview here.

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On 8/5/09 two more Seattle area Key Banks were hit by robberies:

One in W. Seattle: http://westseattleblog.com/blog/?p=19565

Another in Auburn: http://seattletimes.nwsource.com/html/localnews/2009607296_webbankrobbery.html

Cliff Rudolph

How does the Medicare, Medicaid and SCHIP Extension Act of 2007 affect your organization? If you are an RRE, have you registered yet?

The Medicare and Medicaid and SCHIP Extension Act of 2007 comes into effect in 2010.

The new act imposes mandatory reporting requirements for liability insurance (including self insured’s), no fault insurance and workers’ compensation and will impact many organizations.

Simply put; section 111 of this new Act imposes an obligation on the primary payers to identify claimants entitled to Medicare or Medicaid and report these claims to Medicare electronically.

For more information (180 pages) visit the Centers for Medicare & Medicaid Service (CMS) website.

http://www.cms.hhs.gov/MandatoryInsRep/Downloads/NGHPUserGuide031609.pdf

Who needs to report?

The key is to define if your client is likely to meet the definition of a Responsible Reporting Entity (RRE).

The best rule of thumb is:

If you pay a claimant who is Medicare or Medicaid eligible they are the RRE.

The best way to identify the RRE to answer the following:

If you are fully insured on an auto liability policy, with no deductible – The insurance company is the RRE.
If you decide not to report the claim for any reason (Concerns with increased premiums, etc.) – You are the RRE.
If you are self-insured for workers’ compensation up to $500,000, with an excess policy for claims above $500,000. You are the RRE, until the excess policy is triggered.
If you are with the State Fund for Washington Workers’ Compensation – We believe L&I is the RRE.

If you have a protection & indemnity policy for marine exposures, and it is written on a duty to indemnify basis (the insurer reimburses what the client has paid) – Some attorneys are saying you are the RRE; Marine insurers are saying that you are the RRE. This issue has not yet been addressed by the CMS. –

As you can see, there are “gray” areas. But what is certain, if you are or could be an RRE, you will need to register with the CMS during the registration period , beginning July 1 through September 30, 2009.

For more information about registration visit:

http://www.cms.hhs.gov/mandatoryInsRep/05_Computer_Based_Training.asp

A self insured organization with a Third Party Administrator (TPA) can designate the TPA to be the Reporting Agent (RA). However you are still responsible for registering and will remain responsible for the results of that reporting.

What are the consequences of not reporting if you are the RRE?

The penalty for non-compliance is $1000 per day, per claim. So it is important that you register and comply with this new law.

Will injuries due to employee wellness programs "fall" to workers compensation?

Julie Ferguson blogs about Injuries at the gym and whether they would fall under workers compensation as a result of employee compensability, incentives, and wellness. http://www.workerscompinsider.com/archives/001082.html.

She was following Roberto Ceniceros blog on a New York appeals court ruling which awarded workers compensation benefits for an injury that occured at a clients gym, whom the claimant performed contract work.  While the employer had not been compensated or required participation at the gym, it was found that the employer had encouraged the claimant to participate. http://www.businessinsurance.com/article/20090710/BLOGS02/907109997

While wellness programs have been around for decades, they continue to build steam as employers look to find ways to control employee benefit costs.  However, Julie and Roberto bring up interesting points. 

If an employer encourages, provides incentives, or in some way an employee feels they have been intimidated or coerced to participate, and an injury occurs, would workers compensation benefits be paid? If so, will underwriters rate for this? Will Workers Compensation costs go up?

Consider for a moment the opportunity for fraud... At our firm, our wellness team has organized many events including a walk-a-thon, yoga, boot camp, and many other fun activities.  But what if an employee, after work, while walking and tracking his/her miles for the walk-a-thon fell and broke his/her leg and was out for two weeks? How would anyone be certain that this was a work related injury due to the wellness program, and not just an injury he/she sustained doing general chores around the house?

Tough questions that are sure to be tested in court.  We'll have to wait and see. 

Risk Management for Employees Traveling Abroad

In many of the world’s leading danger zones -- Mexico, Ecuador, Venezuela, Brazil and Colombia -- the kidnapping of North American executives for ransom has long been a growth industry. Today, as the age of corporate globalization collides with international terrorism, U.S. companies are expanding their risks as rapidly as they broaden their reach. 

Unfortunately, while North American executives and their families are popular kidnapping targets, U.S. business has been slow to manage kidnap and ransom risks effectively. What’s the best way for employers to prepare for and mitigate losses associated with kidnappings? The international risk management experts at Parker, Smith & Feek, Inc, an Assurex Global Partner and the area’s leading commercial insurance brokerage, recommends any employer sending employees into high-risk countries purchase kidnap and ransom (K&R) insurance coverage.

You can find the rest of this article here:

http://www.psfinc.com/press/risk-management-for-employees-traveling-abroad