Tag: Law

The Aftermath of a Data Security Breach

Data security breaches clearly pose a significant risk to organizations that collect or maintain customers’ personally identifying information in electronic format. Unfortunately, too many organizations do not fully understand the risk.

Here is confirmation that a data security breach can be a huge problem.

700      Approximate number of Barnes & Noble locations nationwide

63        Number of locations with tampered credit and debit card PIN pad devices

3          Number of days before a federal class-action lawsuit was filed

THREE whole days before any action was taken!!!

Although federal or state law may require a business to notify those affected by a data security breach, can that business also be held liable to individuals who had their identities stolen because of the breach? The Eleventh Circuit Court recently joined other courts in holding that a business may be liable to an individual if there is a sufficient link between the data security breach and the identity theft.

Though bare allegations of time and sequence are usually insufficient, the Court held that a link between a breach and identity theft can be established by showing that:

  • The individual gave the business his personal information.
  • The personal information used to steal the individual’s identity was the same information lost in the breach.
  • The identity fraud incidents began within a reasonable period of time after the breach.
  • The individual had not previously suffered any such incidents of identity theft.

Under these facts, the Court held that the individuals have sufficiently stated a claim for damages and that their lawsuit could proceed. This means that the business is likely in for a long and expensive legal battle.

Since it is impossible to eliminate the risk of a data security breach, insurance should be used to limit it.

Various insurance products protect against privacy injuries resulting from security breaches, such as identity theft. Insurance may also help cover the often substantial cost of complying with security breach notice laws. Given the variety and complexity of these products, an experienced insurance agent should be consulted to ensure that proper coverage is obtained and that no gaps remain.

If you would like to learn more about insuring against data security breaches, contact us .

The Supreme Court’s Ruling on Health Care Reform: Is it All Good or All Bad?

On the last day before summer recess, the United States Supreme Court handed down its ruling in the much anticipated “ObamaCare” case. Despite being difficult to follow without the assistance of a roadmap, the result of the nearly 200-page ruling is that health care reform will proceed largely as planned. In the aftermath, many are left wondering, what now?

Ordinarily there is little disruption when the Supreme Court upholds a law because the status quo has been preserved. This is far from the case with the Patient Protection and Affordable Care Act (Act). The political excitement and division surrounding the Act left many unsure about whether looming changes to our health care system would ever become a reality.

Consequently, many are now desperately behind in terms of planning and preparing for the (apparently?) inevitable changes. In other words, it is crunch time for those who were expecting the Supreme Court to strike down ObamaCare.

To stay current, employers and individuals must become familiar with the changing landscape. Specifically, it is important to posses a minimum understanding of the current and future changes under the Act, such as:

  • the requirement that all individuals, with some exceptions, have health insurance;
  • the prohibition of lifetime benefits limits based on dollar amounts;
  • the prohibition of coverage rescissions or cancellations, except in cases of fraud or intentional misrepresentation;
  • the requirement that dependent insurance coverage continue up to the age of 26;
  • the prohibition of pre-existing condition exclusions for dependent children under the age of 19; and
  • the limitation on medical expense contributions to flexible spending accounts to $2,500 per year.

For individuals, many of the Act’s provisions require little or no preparation. The same cannot be said for employers, since various requirements under the Act require preparation, such as:

  • Mandatory Offer of Coverage: Employers with 50 or more employees may be assessed a $2,000 penalty (or tax, according to the Supreme Court) per full-time employee (in excess of 30 employees) if they do not offer coverage and if they have at least one employee who receives a premium credit through an exchange. Such employers offering coverage but having at least one employee receiving a premium credit through an exchange may face a $3,000 penalty for each full-time employee.
  • Automatic Enrollment: Employers with more than 200 employees are required to automatically enroll their employees into employer-offered health insurance plans; however, employees may be able to opt out of coverage.
  • Nondiscrimination Requirements: Under the Act, certain non-grandfathered group health plans (other than self-insured plans) cannot discriminate in favor of highly compensated employees in terms of benefits, eligibility or premium subsidies. Violations can result is severe penalties and taxes. (Note: Implementation of the nondiscrimination requirements has been delayed to allow for the issuance of additional guidance.)
  • Health Insurance Exchanges: Exchanges will provide marketplaces for individuals and small employers with up to 100 employees to directly compare available private health insurance options on the basis of price, quality, and other factors.
  • Tax Reporting Requirements: The Act requires employers to report the value of health care benefits on employee’s W-2 tax statements.

It is worth noting that not all of the Act’s provisions survived judicial scrutiny. For example, the Supreme Court limited the expansion of Medicaid by giving states some flexibility to not expand their Medicaid programs without paying the same financial penalties set forth in the Act.

Despite the Supreme Court’s landmark ruling, significant questions remain about how various provisions of the Act will be implemented, maintained and enforced. This makes it vitally important for businesses to maneuver through the developing law and stay ahead of the curve.

Those continuing to hold out hope for some kind of legislative or judicial relief from the Act should not delay their preparations any further. The time is now. Those needing to adapt their practices to comply with the Act should begin doing so immediately; otherwise, they may soon find themselves drowning in the coming sea of change.

At Setnor Byer Insurance & Risk, we are committed to guiding you through what is sure to be a bumpy ride. Check back with us periodically for future informational updates. If you have specific questions about the Act or if you are ready to take action and would like to see how Setnor Byer Insurance & Risk can help, contact us.

Don’t Let Service Animals Take a Bite Out of the Condominium Association’s Bank Account

Many condominium associations have policies that prohibit or regulate the ownership of pets. For the most part, associations have become adept at dealing with those having pets and those requesting permission to have a pet. However, as a recent lawsuit filed by the Justice Department in Utah shows, things are very different when the pet in question is a service animal.

Service animals perform tasks for people with disabilities, such as assisting the blind. With increasing frequency, service animals provide necessary assistance to those suffering from depression, anxiety, and Post Traumatic Stress Disorder (PTSD). Contrary to what many believe, service animals are working animals, not pets.

The lawsuit filed by the Justice Department involves a disabled combat veteran’s request for permission to keep his dog, a labradoodle, in the condominium unit he was renting with his wife. According to a prescription from a doctor at the Veteran’s Administration and a letter from his psychotherapist, the dog helps the veteran cope with the effects of depression and anxiety disorder.

The condominium association had a comprehensive policy for allowing pets, including additional procedures for processing requests for service animals. The veteran was required to provide proof that the dog was medically necessary, execute a medical release, obtain liability insurance, complete the pet registration forms, and pay a $150 pet registration fee.

The veteran steadfastly refused to pay the pet registration fee. Despite numerous communications among the parties, the condominium association refused to grant the veteran permission to keep the dog. The association also levied numerous fines against the owner of the unit.

The veteran’s lease was not renewed due to his refusal to pay the fees and fines. Though the association ultimately waived the fines imposed against the unit owner, the pet registration fee was deducted from the veteran’s security deposit.

The veteran filed a complaint with the Department of Housing and Urban Development (HUD). HUD, in turn, filed a Charge of Discrimination against the condominium association, the property management company, and the on-site property manager (Defendants), alleging:

  • The Defendants violated the Fair Housing Act (FHA) by discriminating against the veteran in the terms, conditions, or privileges of the rental of a dwelling, by refusing to make a reasonable accommodation to modify their pet policy, when such accommodation was necessary to afford the veteran an equal opportunity to use and enjoy the dwelling;
  • The Defendants violated the FHA by making housing unavailable to the veteran because of his disability;
  • The Defendants violated the FHA by imposing a fee and fines for the veteran’s service animal;
  • The Defendants violated the FHA by maintaining a discriminatory policy requiring those with certain disabilities to go through additional steps to obtain an accommodation necessary for equal enjoyment of the property;
  • The Defendants violated the FHA by insisting that the veteran consent to the release of his private medical information when it was not necessary to grant a needed accommodation; and
  • The veteran and his wife suffered damages, including relocation costs, loss of a portion of their security deposit, the cost of liability insurance, other miscellaneous costs, physical and emotional distress, anxiety, and inconvenience.

Upon receiving the Charge of Discrimination, the condominium association elected to have the case heard in federal court. Shortly thereafter, the parties entered into a consent decree, or settlement, requiring the Defendants to:

  • Pay the disabled veteran $20,000;
  • Attend fair housing training;
  • Implement a new reasonable accommodation policy that does not charge pet fees to owners of service or assistance animals or require them to purchase liability insurance; and
  • Comply with various notice, monitoring and reporting requirements.

This was a costly and humiliating loss to the Defendants. Fortunately, other condominium associations can benefit from this lawsuit by learning the same lesson without having to pay the same price.

Optimally, this lawsuit will compel association board members to become familiar with the laws protecting those in need of reasonable accommodation, such as service animals. At a minimum, however, board members must recognize that a request for permission to keep a service animal must be treated differently than other requests.

This recognition will alert the board to proceed cautiously and seek guidance or counsel to avoid unlawful conduct on the part of the association. Otherwise, the education of other condominium associations may come at the expense of your association.

If you have any questions about the information contained in this article, or if you would like to discuss how we can serve you and your association, please contact us.

Additionally, clients of Setnor Byer’s Condominium Program enjoy access to various risk management services, such as Setnor Byer’s Risk Management Group and Unit Owners’ Report Line, as well as our affiliate’s Board Member Education Certification, which has been approved by the Division of Florida Condominiums, Timeshares, and Mobile Homes.

Changes to Florida’s Personal Injury Protection (PIP) Coverage Requirements Become Effective on July 1, 2012

Florida’s Motor Vehicle No-Fault Law requires motorists to carry at least $10,000 of no-fault insurance. This insurance requirement, known as personal injury protection (PIP) coverage, has existed in Florida since 1972. To make sure that those injured in an auto accident quickly get money to treat their injuries, the law requires a driver’s insurance company pay up to $10,000 for medical bills and lost wages, no matter who is at fault.

Despite its intent, many believe the PIP law was doing more harm than good. A 2011 report prepared by Florida’s Office of Insurance Regulation noted that over the past several years the frequency and severity of PIP claims has increased significantly, even though the number of Florida drivers has remained stable and the number of accidents has decreased.

According to the report:

  • The number of PIP claims opened or recorded in 2010 increased by 28 percent since 2006.
  • From 2006-2010, the number of PIP lawsuits against insurers pending at year end increased by 387 percent.
  • From 2008 to 2010, PIP benefits paid by insurers increased by 70 percent ($1.43 billion to $2.37 billion).
  • Based on current trends, a 19 percent increase in PIP claims paid, a nine percent increase in claim severity, and a 29 percent increase in pure premium can be expected this year.

Touted as a measure to reduce insurance premiums and combat fraud (Florida ranks first nationally in staged accidents), House Bill 119 was passed by the Florida legislature on March 9, 2012. The bill’s new measures take effect on July 1, 2012.

House Bill 119 includes many significant changes to the current law, including:

  • Requiring those injured in motor vehicle accidents who are seeking no-fault medical benefits to receive initial treatment and care within 14 days from specified providers;
  • Making up to $10,000 in medical benefits available for emergency medical conditions and up to $2,500 for non-emergency medical conditions;
  • Requiring insurers to make rate filings by October 1, 2012, and January 1, 2014, decreasing premium rates by at least 10 percent and 25 percent, respectively;
  • Providing that the PIP funeral benefit of $5,000 is in addition to medical and disability benefits;
  • Excluding massage and acupuncture from covered medical benefits;
  • Requiring health care clinics that seek PIP reimbursement to be licensed, with specified exceptions;
  • Authorizing a direct-support organization to combat motor vehicle insurance fraud;
  • Amending the PIP schedule of maximum charges, requiring insurers to include the schedule in their forms, and permitting the use of Medicare coding policies;
  • Providing that an insurer’s failure to timely pay PIP claims as a general business practice is an unfair and deceptive trade practice;
  • Tolling the PIP payment period when fraud is reasonably suspected;
  • Requiring insureds to comply with all policy terms, including requests for examination under oath;
  • Creating a rebuttable presumption that the failure to appear for two mental or physical examinations constitutes an “unreasonable refusal” to submit to examination;
  • Prohibiting the use of contingency risk multipliers; providing guidelines for judges to consider in determining whether the amount of an attorney fee award is appropriate;
  • Revoking the license of health care practitioners found guilty of insurance fraud for five years;
  • Amending crash report forms;
  • Specifying certain actions that constitute fraud; and
  • Appropriating $200,000 from the Insurance Regulatory Trust Fund to retain an independent consultant to determine the expected savings from this legislation.

Proponents of the bill state that it adequately targets those items driving PIP costs, and, consequently, that consumers should realize savings on their no-fault premiums. However, it is uncertain whether House Bill 119 will achieve such a result.

Though insurers are required to submit rate filings reflecting decreased premiums over the next few years, the bill requires those failing to sufficiently reduce their premiums to submit a detailed explanation of the insurer’s failure to achieve the required rate reduction. The extent to which these explanations will be scrutinized by regulators remains to be seen.

As is often the case with new laws, time is needed to determine whether actual reform will follow the legal reform.

If you would like more information about PIP reform, or if you would like to discuss any other insurance or risk management matters, please contact us.

Contract Litigation Insurance: Focus on the Principle Rather than the Principal

Unfortunately, the concepts of right and wrong often may not influence the decision to breach a contract. This is particularly true during difficult economic times when parties to a contract often use the threat of litigation to forcibly renegotiate the terms of their agreements. Needles to say, when asking a party to honor their contract, it is unsettling to hear someone respond with “sue me.”

Though litigation may be a necessary evil in today’s business environment, it is disruptive to business itself. Lawsuits often bring about harmful and potentially devastating side effects, such as damage to reputation, increased costs of production, decreased ability to obtain credit, disruption of growth opportunities, and overall uncertainty.

Typically, the greatest burden of litigation involves attorney’s fees. Many contracts contain a provision stating that the prevailing party in a contract dispute is entitled to have its attorney’s fees paid by the losing party. Similar “fee shifting” or “loser pays” provisions are also found in many state and federal statutes.

Though confident litigants often rely on such provisions to justify their decision to litigate, attorney’s fees are only awarded after victory has been declared by judge or jury. Thus, there remains a significant risk of having to pay an opponent’s attorney’s fees.

However, for those seeking some certainty surrounding legal fees associated with engaging in contract litigation, an insurance product offered by Zurich may be the answer.

Zurich’s Contract Litigation Insurance is designed to insure a plaintiff or defendant in a contract-based lawsuit against the risk of paying their adversary’s attorney’s fees if unsuccessful in prosecuting or defending their contract claim.

Zurich’s Plaintiff Contract Litigation Insurance and Defendant Contract Litigation Insurance can offer various benefits to individuals and businesses, such as:

  • Reducing the financial exposure of litigation;
  • Increasing settlement negotiation power;
  • Providing greater budget certainty;
  • Supporting attorney best practices in litigation;
  • Tiered pricing that is tied directly to the increased level of risk of a lawsuit; and
  • Claims handled by former practicing attorneys who understand an insured’s needs and litigation best practices.

As with any insurance policy, it is important to understand the extent and nature of the coverage, as well as any limitations or exclusions from coverage. Consider the following highlights of Zurich’s Contract Litigation Insurance:

  • For Plaintiff Contract Litigation Insurance, policies must be purchased within 60 days of filing of a contract-based complaint; for Defendant Contract Litigation Insurance, policies must be purchased within 60 days of service of the lawsuit.
  • Upon being deemed the prevailing party in a contract lawsuit, policies will pay reasonable attorney’s fees, as determined by the court. This may also occur in tort or statutory claims provided the court finds they were intertwined with the contract claims for purposes of any award of attorney’s fees.
  • Policies are subject to exclusions and non-coverage caveats, including: (1) “bad boy” fraud; (2) no fees awarded if there is a resolution other than a merits-based prevailing party determination; (3) no fees awarded for post-rejection fees incurred after rejection of an offer of judgment (or similar device) under applicable rules of procedure (although pre-offer fees may be covered); and (4) no fees awarded if they are based on discovery sanctions or bad faith conduct sanctions.
  • The insurance company reserves the right to appoint, at its own expense, counsel to oppose a fee petition or represent the client in an appeal of a fees award.
  • The insurance will follow if the plaintiff is compelled to arbitration by defendant; however, the insurance coverage will not remain if plaintiff compels arbitration or if the defendant under a Defendant Contract Litigation Insurance policy compels arbitration.

The cost of engaging in litigation is oftentimes the determinative factor in deciding whether to enforce or defend one’s contract rights in court. As a result, a party to a contract may elect not to file a breach of contract lawsuit for purely financial reasons despite having a winning case. Moreover, if the loss resulting from a breach of contract is small compared to the costs of filing suit, a party is vulnerable to abuse simply because the other party to the contract knows it is not worth pursuing in court.

When applicable, Contract Litigation Insurance allows a party to a contract dispute to focus on the merits of the case, rather than the attorney’s fees associated with pursuing the case.

If you would like to learn more about Contract Litigation Insurance, or if you would like to discuss how we can help you in identifying and controlling your business risks, please contact us.

Florida Supreme Court Provides another Reason to Consider the Financial Strength of Your Insurance Company

On numerous occasions, we have discussed the importance of obtaining insurance from a financially secure insurance company. Though there are already many reasons to avoid doing business with financially unstable insurance companies, the Florida Supreme Court recently provided another.

In Petty v. FIGA, the insured had to sue her insurance company to collect payment on a valid hurricane claim. During the lawsuit, the insurance company became insolvent, and the Florida Insurance Guaranty Association, or FIGA, became responsible for handling her claim pursuant to the Florida Insurance Guaranty Association Act.

The FIGA Act was enacted to protect claimants and policyholders from the financial loss and excessive delays that result when an insurance company becomes insolvent. Subject to the FIGA Act’s provisions and limitations, once an insurance company becomes insolvent, FIGA becomes obligated to the extent of an insured’s “covered claim.”

In this case, the Court had to determine whether the insured’s statutory claim for attorney’s fees qualifies as a covered claim that FIGA was obligated to pay. The insured’s claim for attorney’s fees was based on a provision of the Florida Insurance Code providing that an insured will be entitled to an attorney’s fee award when coverage is disputed by the insurance company and the insured ultimately prevails in court.

The purpose of this statute is to discourage insurance companies from contesting valid claims, and to reimburse insureds for their attorney’s fees when they must enforce their contract with their insurance company in court. Since the plaintiff successfully sued her insurance company to get her claim paid, she was entitled to her attorney’s fees under this statute.

However, once FIGA stepped in for the insolvent insurance company, the insured’s entitlement to her attorney’s fees was jeopardized. If her claim fails to qualify as a “covered claim” under the FIGA Act, then the insured will not be able to collect her attorney’s fees.

To determine the insured’s entitlement to her attorney’s fees, the Court focused on the meaning of “covered claim.” The FIGA Act defines a covered claim as “an unpaid claim…which arises out of, and is within the coverage, and not in excess of, the applicable limits of an insurance policy to which this part applies….”

From this definition, the Court concluded that a covered claim must possess two distinct characteristics: 1) it must arise, or originate, from an insurance policy; and 2) it must be within the coverage of, or be included within the risks taken on and losses protected against in, an insurance policy.

The parties conceded that the first characteristic existed since the insured’s claim clearly arose from her underlying insurance policy. However, to recover her attorney’s fees, the insured’s claim for fees must also be within the coverage of her underlying insurance policy.

Since the insured’s underlying insurance policy did not expressly give her the right to collect attorney’s fees through the relevant statute, the Court held that her claim for attorney’s fees was not a covered claim under the FIGA Act.

The Court rejected the insured’s argument that the statutory provision authorizing the award of attorney’s fees is implicitly covered by her insurance policy, noting that, “there is a clear difference between an obligation to pay fees that are imposed by operation of law upon a party due to its behavior under the insurance contract and an obligation imposed upon a party by an express provision for which the party contracted.”

Accordingly, the Court held that because the insured’s otherwise valid entitlement to attorney’s fees does not qualify as a “covered claim,” FIGA is not obligated to pay the insured’s attorney’s fees.

The insured in this case is one of the (too) many who have had the misfortune of suffering the consequences of doing business with financially weak or unstable insurance companies. Rather than consider the financial strength of a prospective insurance company, many insureds focus solely on the premium. However, when an insurance company becomes insolvent, the significance of premiums, deductibles, coverage limits, policy terms, and exclusions virtually vanish.

Suffering a loss is a headache enough, and electing to insure with a financially weak or unstable insurance company can only make matters worse. Though the cost of insurance is often the primary factor in selecting an insurance company, the financial strength of the insurance company should not be too far down on the list of things to consider.

If you would like more information about the financial strength of your current or prospective insurance company, or if you would like to explore the possibility of insuring with a financially secure insurer, please contact us.

Using Rental Agreements to Limit Liability Exposures Facing Self-Storage Facilities

As with any business, self-storage facilities must take affirmative steps to protect the bottom line. Unfortunately, too many self-storage facilities overlook perhaps the most important and effective step of all–using the rental agreement to limit their liability exposure.

Though it is virtually impossible to completely insulate a business from liability, there are various contractual provisions that are designed to eliminate, or at least limit, the exposures faced by self storage facilities. The challenge is to ensure contractual provisions are drafted in a manner that comports with a facility’s particular situation and business practices, as well as any applicable laws.

Though situational and jurisdictional variations typically undermine the effectiveness of boilerplate or one-size-fits-all templates, self-storage facilities should consider incorporating some or all of the following protections in their rental agreements.

Limitation and Release of Liability

A limitation of liability clause is designed to contractually allocate each party’s risk in reasonable proportion to the benefits derived from the contractual relationship. Without such a clause, a self-storage facility may suffer liabilities that far exceed revenue. The overall purpose of the clause is to clarify and establish that the property is being stored at the sole risk of the tenant.

Depending on the circumstances, different approaches can be taken when drafting a limitation of liability clause. For example, a clause may place a maximum limit on the value of property that a tenant may store in a unit, or it may provide that the parties agree to a fixed value for the property, which can be based on weight, size, or some other factor. Another option is to limit the liability of a self-storage facility to the amount of rent paid by the tenant.

In addition to limiting liability, a rental agreement should stipulate that the tenant has agreed to release the facility from liability in the event of loss or injury. A release provision must be drafted clearly and must state that the release of liability applies to the tenant and to any person authorized to enter the premises by the tenant. To provide the broadest applicability, the release of liability should cover injuries or losses regardless of whom or what is involved.

It is important to understand that the extent to which a party may contractually limit or be released from its liability may be restricted, or otherwise governed, by various state laws. Contractual provisions designed to release a party from the damages caused by its own negligence, or exculpatory clauses, illustrate this point.

Florida and Connecticut courts have held that although exculpatory clauses are disfavored, they will be enforced if properly drafted. An exculpatory clause must clearly and unequivocally state that it releases a party from liability for its own negligence so that an ordinary and knowledgeable party will know what he or she is contracting away. Though some courts state that using the word “negligence” is not necessarily required, it is advisable to do so.

For example, in enforcing an exculpatory clause in a personal injury case, the Supreme Court of Connecticut relied on the fact that the agreement “refers to the negligence of the defendants three times and uses capital letters to emphasize the term “negligence.”

In New York, however, a state statute requires that such a provision be treated differently by the courts when a contract involves real property. Pursuant to this statute, a contractual provision exempting a landlord from liability for the landlord’s negligence is deemed to be void as against public policy. So, even if the lease contained an exculpatory clause addressing the facility’s negligence, it would likely be deemed unenforceable in New York.

The lesson here is that since exculpatory clauses are disfavored, they must be tailored to apply to each specific situation and to comply with any applicable laws. Thus, the use of templates or boilerplate language increases the likelihood that such a clause will be unenforceable.

Indemnification and Hold Harmless

An indemnification provision requires a tenant to compensate the self-storage facility for any damages or losses caused by the tenant which the facility may be required to pay. For example, if a third-party is injured by a hazardous condition created by a tenant, or anyone authorized by the tenant to be on the premises, then the self-storage facility may be liable to that injured party. An indemnification provision would typically require a tenant to compensate the self-storage facility for whatever amount the self-storage facility is liable to the injured party.

A hold harmless provision stipulates that a tenant agrees not to hold the self-storage facility responsible for any loss, injury, or legal liability which is caused by the tenant, or anyone invited on the premises by the tenant, or which is otherwise related to the tenant’s occupancy. If, for example, a tenant is injured while using a dolly that is made available by the self-storage facility, then the hold harmless provision would prevent the tenant from recovering against the facility.

Since indemnification and hold harmless provisions have been described as different sides of the same coin, it is not uncommon for them to be combined into a single contractual provision. Accordingly, they should be drafted with care and in a manner that is consistent with applicable laws.

Insurance

Including a requirement that tenants insure their property accomplishes two goals. First, it provides a tenant with a primary source of compensation in the event of a loss. Second, it places the burden on the tenant to see that he or she is adequately protected in the event of a loss.

An insurance clause within a rental agreement may stipulate that tenants are required to obtain sufficient insurance to cover the value of all the property stored at the self-storage facility. To the extent a tenant fails or is unable to insure his or her property, the tenant would be deemed to have self insured, thereby making the tenant solely responsible for the loss. To increase the likelihood of protection in cases involving high-value property, a rental agreement may require a tenant to show proof of insurance if the value of the tenant’s stored property exceeds a specific amount.

To maximize the protection afforded by an insurance clause, the tenant must agree to waive any subrogation rights, thereby preventing the tenant’s insurance company from coming after the self-storage facility to recover amounts paid out for the tenant’s loss. Whenever a tenant obtains insurance, self-storage facilities should require and confirm that the tenant obtained a waiver of subrogation agreement from its insurance company.

Disclaim Existence of Bailment

Bailment is the temporary placement of control over, or possession of, personal property by one person (the bailor) into the hands of another (the bailee) for a designated purpose upon which the parties have agreed. Under the law of bailment, the bailee owes a duty of care to the bailor with regards to the property, and depending on the type of bailment, the duty of care owed to the bailee can be quite strict.

To avoid being held to a potentially strict standard of care, self-storage facilities should disclaim the existence of a bailment in their rental agreement. Since a bailment is a consensual transaction requiring mutual agreement by the parties, which can be created either expressly or impliedly, a rental agreement should expressly stated that no bailment is created under the agreement.

Additionally, since a general requirement of bailment is that the bailee obtains the right to exclusive use and possession of the property, a rental agreement should state that the self-storage facility does not take care, custody, or control of the tenant’s property. In a typical situation, a tenant should have exclusive control over his or her property, and provided the tenant is not in breach of the agreement, laws, or rules, the facility is not concerned with the kind of property stored by the tenant.

Disclaim Warehouseman Status

A warehouseman, or warehouse, is an individual who is regularly engaged in the business of receiving and storing goods of others in exchange for compensation. As with bailment, carrying the distinction of warehouseman establishes a standard of care that is owed to the owner of the property.

To avoid being held to such a standard of care, a rental agreement should expressly state that the self-storage facility is not a warehouse or a warehouseman engaged in the business of storing goods for hire. A self-storage facility should also refrain from acting in a manner that would be consistent with that of a warehouseman, such as issuing documents of title for the personal property.

In addition to the foregoing clauses, there are various other contractual provisions which are designed to limit the liability exposure faced by a self-storage facility, including clauses which:

  • prohibit the storage of heirlooms or other property with sentimental value;
  • restrict the types of property or uses of storage space to exclude inherently dangerous items or activities;
  • disclaim warranties;
  • clearly establish a facility’s rights in the event of a default;
  • incorporate a facility’s rules and regulations into the rental agreement, including any modifications thereto; and
  • waive the right to a jury trial in the event of a lawsuit.

When a lawsuit results from a tenant’s loss of property or bodily injury, a court will typically start with the rental agreement when determining each party’s respective rights and obligations. Thus, it is important to draft the rental agreement so that it provides the maximum protections allowable under applicable law.

However, since contractual provisions which limit a party’s liability are often the primary focus of litigation, courts will examine them closely before enforcing them against a tenant. Accordingly, it is best for a self-storage facility to retain an experienced attorney who is licensed in a particular jurisdiction to draft or review its rental agreement.

Setnor Byer’s Self-Storage Insurance Program and Risk Management Group work closely with self-storage facilities nationwide to profile risks, compare coverage options, and match our clients with an insurance program that meets their needs. If you would like more information, please contact us.

Did You Know? The U.S. Longshoreman and Harbor Worker’s Compensation Act can Apply to Injuries within the Territorial Waters of Another Country

The U.S. Longshoreman and Harbor Worker’s Compensation Act (Act) was enacted to create a uniform system to compensate longshoremen and harbor workers for workplace injuries that did not depend on the precise site of his or her injury. However, the Act states that such compensation will be provided “only if the disability or death results from an injury occurring upon the navigable waters of the United States.”

Given this apparent territorial limitation, would a longshoremen or harbor worker injured on a foreign shoreline be covered by the Act? Under the right circumstances, the answer is yes.

In one case, for example, a court held that an injury suffered by a citizen of the United States, whose employer was based in the United States, and who was living and working aboard a U.S. flagged barge, was covered by the Act, even though the injury occurred in the territorial waters off Sakhalin Island, Russia.

In this case, the court rejected the employee’s argument that the Act did not apply because his injury did not occur upon the navigable waters of the United States. The court noted that the term “navigable waters of the United States” was not defined in the Act. Importantly, the court found legal precedent supporting the position that the Act’s protection does not stop where the high seas begin, which is generally three miles offshore.

Additionally, the court cited two significant reasons to conclude that the Act applies extraterritorially. First, the court reasoned that the purpose of providing a uniform compensation system would be frustrated by limiting the Act to territorial application. Second, the court noted that the Director of the Office of Workers’ Compensation Programs of the Department of Labor, which is the policymaker designated by the Secretary of Labor to administer the Act, has consistently interpreted the Act to overcome any presumption against extraterritoriality.

Consequently, the court held that in a case which did not involve any choice of law issues, and which involved an employer, an employee and a vessel based in the United States, the employee’s workplace injury meets the Act’s situs requirements for exclusive coverage.

It is important for employers to understand that, in many cases, it is the injured employee who is arguing against the applicability of the Act. Why? Provided an employer does not fail to pay the required compensation, an employer’s liability under the Act replaces all other liability to which the employer may be subject.

If you would like more information about workers’ compensation insurance coverage, including coverage under the U.S. Longshoreman and Harbor Worker’s Compensation Act, please contact us.

Self-Storage Practice Pointer: Waivers Under the Servicemembers Civil Relief Act

When it comes to enforcing a storage lien against a delinquent servicemember-tenant, owners and operators of self-storage facilities must make sure they proceed in accordance with the Servicemembers Civil Relief Act (SCRA). The SCRA is a federal law designed “to provide for, strengthen, and expedite the national defense” by temporarily suspending various judicial and administrative proceedings that may adversely affect the civil rights of servicemembers during their military service.

Under the SCRA, “a person holding a lien on the property or effects of a servicemember may not, during any period of military service of the servicemember and for 90 days thereafter, foreclose or enforce any lien on such property or effects without a court order granted before foreclosure or enforcement.”

Simply stated, the SCRA requires a lawsuit and an order from the court before a lien can be enforced against a servicemember. Importantly, this requirement extends 90 days beyond the servicemember’s period of military service. Since this procedure is often different, and more complicated, than the procedure found in various state statutes, it is often beneficial for a self-storage facility to obtain a waiver of rights from servicemember-tenants.

It is important to understand that, although a servicemember may agree to waive the rights or protections afforded by the SCRA, there are strict legal requirements that must be followed for such a waiver of rights to be valid.

To be valid and enforceable against a servicemember, a waiver of rights that applies to the repossession, retention, foreclosure, sale, forfeiture, or taking possession of property that is security for any obligation, including self-storage liens, must meet the following requirements:

The waiver must be in writing.

The waiver must be executed as an instrument separate from the obligation or liability to which it applies. Since this requirement does not allow the waiver to be included within the lease or any other rental agreement, the waiver of rights should be made a separate, standalone document.

The waiver must be executed during or after the servicemember’s period of military service. Requiring a servicemember to add his or her serial number, or other military designation number, to the waiver may serve as preliminary confirmation that this requirement has been satisfied.

The written waiver must specify the legal instrument to which the waiver applies, such as the rental or lease agreement, and if the servicemember is not a party to that instrument, he or she must also be specified.

The written waiver must be in at least 12 point type.

Unless each and every legal requirement is satisfied, a waiver of rights under the SCRA will not be considered legally effective, and any self-storage facility seeking to enforce its lien against a servicemember-tenant will be required to proceed pursuant to the SCRA’s requirements. This is very important because violations of the SCRA may lead to imprisonment, injunctions, and liability for civil money penalties, monetary damages, costs, and attorneys’ fees;

Given the limitations imposed upon self-storage facilities by the SCRA, it is beneficial to obtain a waiver of rights from a servicemember-tenant. However, care must be taken to ensure that the waiver not only satisfies all of the SCRA’s requirements, but that the waiver is properly drafted to permit a self-storage facility to take prompt and appropriate action against a defaulting servicemember. Consequently, it is advisable to seek the assistance of experienced counsel.

If you would like more information about understanding and managing the risks faced by self-storage facilities, please contact us.

The Volunteer Protection Act: It Does Not Protect Those Who Rely on Volunteers

The Volunteer Protection Act of 1997 (VPA) is a federal law designed to promote volunteerism by protecting volunteers from liability if an injury occurs while they are volunteering. Many organizations relying on the services of volunteers assume that the protections afforded by the VPA extend to the organization itself. Unfortunately, this assumption is incorrect, and the consequences of this misunderstanding can be severe.

The extent to which many organizations are dependent upon the services of volunteers to sustain or complete their objectives is reflected in a survey conducted by the U.S. Bureau of Labor Statistics, which reported that approximately 62.8 million people volunteered their time in 2010. Given the scope of volunteerism, it is critical to have an accurate understanding of what the VPA does, and perhaps more importantly, does not do.

The VPA, which is designed to “promote the interests of social service…by reforming the laws to provide certain protections from liability abuses related to volunteers,” only protects those individuals who volunteer for a governmental entity or a nonprofit organization, such as a tax exempt organization described in Section 501(c)(3) of the Internal Revenue Code, or a not-for-profit organization organized and conducted for public benefit and operated primarily for charitable, civic, educational, religious, welfare, or health purposes.

Those who volunteer for a governmental entity or a nonprofit organization are generally protected by the VPA if:

  • the volunteer was, if required or appropriate, properly licensed, certified, or authorized by the appropriate State authorities to perform volunteer’s activities; and
  • the harm was caused by the volunteer’s simple negligence, rather than by willful or criminal misconduct, gross negligence, reckless misconduct, or a conscious, flagrant indifference to the rights or safety of the person harmed.

However, even if the foregoing conditions are met, a volunteer for a governmental entity or a nonprofit organization will not be protected by the VPA if:

  • the harm was caused by the volunteer operating a motor vehicle, vessel, aircraft, or other vehicle for which the volunteer is required to have an operator’s license or maintain insurance;
  • the volunteer’s misconduct constitutes a violent or hate crime, or involves a sexual offense or civil rights violation for which the volunteer was convicted; or
  • the volunteer was under the influence of intoxicating alcohol or any drug at the time of the misconduct.

While the VPA may help an organization recruit and retain volunteers, it does not protect the organization itself. In fact, the VPA provides for precisely the opposite: “Nothing in [the VPA] shall be construed to affect the liability of any nonprofit organization or governmental entity with respect to harm caused to any person.” Despite this clear language, confusion remains regarding the extent to which organizations are protected by the VPA.

One possible explanation for the confusion may be that states have enacted their own laws addressing volunteer liability. While volunteer liability laws may vary among states, sometimes significantly, they generally focus on protecting the volunteers, not the organizations.

For example, Florida’s Volunteer Protection Act, which applies to “any person who volunteers to perform any service for any nonprofit organization,” provides that if a volunteer is shielded from liability under the statute, then the nonprofit organization shall be liable for any damages. Although considerably different than Florida’s statute, Mississippi’s statute protects a “qualified volunteer,” rather than a “volunteer agency,” from liability for any personal injury or property damage.

Given this lack of protection, volunteer organizations must recognize that they face nearly identical risks as their for-profit counterparts. Simply because an organization utilizes the services of volunteers for civic or charitable purposes does not mean that the organization, or its volunteers, cannot cause injury or harm to another. Volunteer organizations do many of the same things businesses do, such as own or lease premises, perform services, drive cars, and otherwise interact with the public.

Since the activities are similar, so too are the risks. Accordingly, volunteer organizations must approach risk management in the same way as any other business: implement a risk management program designed to identify and control exposures to loss; and maintain adequate insurance coverage that will protect against such exposures, including any exposures unique to a particular type of activity.

The Volunteer Protection Act, along with similar state laws, are designed to encourage people to volunteer their time and effort to the cause of their choosing. This goal is accomplished by protecting the volunteers, not the organization. The reality is that despite their benevolent purpose, volunteer organizations are not immune to the risks and liabilities endured by virtually every other business organization. Unfortunately, the consequences of failing to minimize the risks and control the liabilities could be far greater: people often rely on charitable organizations for much more than just goods and services.

If you would like to learn more about the controlling the risks facing your nonprofit organization, please contact us.