Law – Page 3 – Setnor Byer Insurance & Risk

To Tell the Truth: The Consequences of Lying on an Insurance Application

Completing an application for insurance can be time-consuming and tedious. Nevertheless, the application is important because an insurance company will use an applicant’s answers to determine whether to offer insurance and how much to charge. In making these determinations, insurance companies generally have the right to rely on an applicant’s answers without conducting their own investigation. However, insurance companies may be entitled to deny coverage to those who provide false or incorrect information on their application. Since a denial of coverage can be devastating for an insured, it is important to understand what is required of insureds when they are completing their insurance applications.

Pursuant to statute, information provided by an insured in an application for insurance is a representation rather than a warranty. For example, Florida’s statute states that, “any statement or description made by or on behalf of an insured…in an application for an insurance policy…, or in negotiations for a policy…, is a representation and is not a warranty.” Georgia’s statute similarly provides that “all statements and descriptions in any application for an insurance policy…shall be deemed to be representations and not warranties.”

Additional examples of similar statutes can be found in North Carolina’s Insurance Law (statements in application are not warranties) and Pennsylvania’s Insurance Company Law (statements in applications deemed representations, not warranties). Note that each state’s statutes should be reviewed for variations in wording, interpretation, and application.

The purpose of these provisions is to prevent an insurance company from claiming that any misstatement, regardless of significance, constitutes a breach of warranty that would entitle the insurance company to deny coverage. Rather, such statutes typically permit an insurance company to deny coverage only if the misrepresentation, omission, concealment of fact, or incorrect statement, is significant enough to warrant such a harsh result.

Consider Florida’s statute, which states that an insurance company can deny coverage under a policy only if:

the misrepresentation, omission, concealment, or statement is fraudulent or is material either to the acceptance of the risk or to the hazard assumed by the insurer; or
if the true facts had been known to the insurer pursuant to a policy requirement or other requirement, the insurer in good faith 1) would not have issued the policy or contract; 2) would not have issued it at the same premium rate; 3) would not have issued a policy or contract in as large an amount; or 4) would not have provided coverage with respect to the hazard resulting in the loss.

Judicial opinions interpreting this statute note that undisclosed information submitted in a policy application is generally material if the insurer would have altered the terms of the policy had the true facts been known, or if the true facts would have served as a basis for denying the policy application. If an insurer can establish materiality, then the insurance policy will be void ab initio, which means that the policy is rendered null and void from the date of inception as if the policy never had any legal validity. In such cases, there would be no coverage because the insurance company has an absolute defense to enforcement of the policy.

The manner in which an insurance company can establish the materiality of a misrepresentation, omission, concealment, or statement may vary depending on the particular facts. In one case involving the failure to list all residents in a home, a court referenced an insurance underwriter’s statement that “the unknown risk would have resulted in a higher premium.” In another case wherein the insured’s failure to disclose a prior bankruptcy was deemed material, underwriting standards were used to establish the insurance company’s policy of declining applicants who demonstrate a pattern of financial irresponsibility. Alternatively, a court ruled that since the matters relevant to the applicant’s omission were excluded under the policy anyway, the insurance company could not satisfy the materiality requirement. Given the flexibility of the statutory language, there are few hard and fast rules in this context.

It is important to note that under the Florida statute, an insurance company does not need to establish that the applicant’s misrepresentation, omission, concealment, or statement was done intentionally or even with knowledge of correctness or untruth. Rather, the insurance company need only establish materiality. This means that even those making innocent mistakes can be denied coverage under the statute.

If an insurance company is able to establish materiality, then the policy will be considered null and void regardless of whether the insurance company adhered to Florida’s claims administration statute or complied with Florida’s statutory notice of cancellation procedures. Additionally, since Florida law presumes that a person who signs a policy application does so with the intent to authenticate it, an applicant cannot argue that he or she did not read the application in its entirety before signing it.

Upon discovering that an application for insurance was incomplete or inaccurate, an insurance company will likely investigate the application’s deficiencies to determine whether they are sufficiently material to cancel the policy. This possibility of being denied insurance coverage should be incentive enough for insureds to take the time and make the effort to complete an application for insurance truthfully and accurately.

If you would like more information about applying for or obtaining insurance, or if you would like to discuss your specific insurance needs, please, contact us.

Florida Public Adjusters are Being Adjusted Legislatively

Those who have suffered a property loss often describe the experience of dealing with their insurance company as traumatic and confusing. This is particularly true of the claims adjustment process, wherein the insurance company investigates the claim to determine how much money the insured is owed. Consequently, many insureds use a public adjuster to assist them through the process of getting their insurance claims resolved.

While a company adjuster is employed by the insurance company, and an independent adjuster is contracted by the insurance company, a public adjuster works directly for the insured or other claimants for the purpose of negotiating and reaching a positive settlement with an insurance company. In many instances, public adjusters are successful in their efforts.

According to a January 2010 report prepared by the Office of Program Policy Analysis & Government Accountability (OPPAGA), which is the Florida Legislature’s research arm, policyholders represented by public adjusters typically received higher settlements than those without public adjusters.

For example, the typical payment to a policyholder represented by a public adjuster for property damage caused during the 2004 Florida hurricane season was $22,266. In contrast, typical payments for policyholders who did not use a public adjuster were $18,659. For claims related to the 2005 hurricanes, the difference in payments was larger–claims processed with the assistance of a public adjuster resulted in payments that were 747% higher. However, as noted in the report, since policyholders pay public adjusters a percentage of their settlement, the net settlement is lower than these amounts.

Based on these statistics, many insureds and claimants believe public adjusters provide an invaluable service. Insurance companies, however, tend to see things a bit differently. Indeed, the OPPAGA report describes the conflicting viewpoints between insurance companies and public adjusters. According to the report, public adjusters believe they are the only advocates exclusively representing policyholders, whereas insurance companies believe public adjusters insulate policyholders and create distrust between the insurance company and the policyholder.

In the context of claims settlement practices, public adjusters believe that since insurance companies are loyal to their shareholders, they are not motivated to provide full compensation to their insureds. Insurance companies, on the other hand, believe that public adjusters make it difficult for insureds to complete all repairs to their property because a portion of the settlement amount must be paid to the public adjuster. These are but a few of the conflicting points of view between insurance companies and public adjusters.

During the 2011 Florida legislative session, the insurance industry lobbied for changes to the laws governing the manner in which public adjusters do business. As a result, several changes have been made to Florida’s Insurance Adjusters Law, including the following:

Compensation Limits (F.S. §626.854–Effective June 1, 2011)

If a public adjuster reopens a claim or files a supplemental claim seeking additional payment for a claim that was previously paid or settled, then the public adjuster’s compensation for any such reopened or supplemental claim may not exceed twenty percent (20%) of the reopened or supplemental claim payment.

If a claim is based on an event that causes the Governor to declare a state of emergency, then a public adjuster’s compensation cannot exceed ten percent (10%) of the amount of paid by the insurance company for such a claim. However, under the amended law, after one year, the ten percent limit on the public adjuster’s compensation is increased to twenty percent.

Advertising Limitations (F.S. §626.854(8)(a)–Effective January 1, 2012)

Florida’s Insurance Adjusters Law was amended to add various restrictions on the manner in which public adjusters, or anyone on their behalf, circulate or disseminate any advertisement, announcement, or statement. Section 626.854(8)(a) provides that the following statements, made in any public adjuster’s advertisement or solicitation, are considered deceptive or misleading:

A statement or representation that invites an insured policyholder to submit a claim when the policyholder does not have covered damage to insured property;
A statement or representation that invites an insured policyholder to submit a claim by offering monetary or other valuable inducements;
A statement or representation that invites an insured policyholder to submit a claim by stating that there is “no risk” to the policyholder by submitting such claim; and
A statement or representation, or use of a logo or shield, that implies or could mistakenly be construed to imply that the solicitation was issued or distributed by a governmental agency or is sanctioned or endorsed by a governmental agency.

Advertising Limitations (F.S. §626.854(8)(b)–Effective January 1, 2012)

The amended law provides that public adjusters must include a disclaimer on all “written advertisements,” which consists of only newspapers, magazines, flyers, and bulk mailers. The following disclaimer, which is not required to be printed on standard size business cards, must be added in bold print and capital letters in typeface no smaller than the typeface of the body of the text to all written advertisements by a public adjuster:

“THIS IS A SOLICITATION FOR BUSINESS. IF YOU HAVE HAD A CLAIM FOR AN INSURED PROPERTY LOSS OR DAMAGE AND YOU ARE SATISFIED WITH THE PAYMENT BY YOUR INSURER, YOU MAY DISREGARD THIS ADVERTISEMENT.”

Scheduling Limitations (F.S. §626.854(14)–Effective January 1, 2012)

Under the amended law, a representative of the insurance company, including a company adjuster, independent adjuster, attorney, or investigator, that needs access to an insured or claimant or to the insured property that is the subject of a claim must provide at least 48 hours’ notice to the insured or claimant, public adjuster, or legal representative before scheduling a meeting with the claimant or an onsite inspection of the insured property. The insured or claimant may deny access to the property if the notice has not been provided. The insured or claimant may also waive the 48-hour notice.

General Standards for Public Adjusters (F.S. §626.854(15)–Effective January 1, 2012)

The amended law includes various provisions requiring that public adjuster provide notice to the insurer. The law generally provides that a public adjuster must ensure that prompt notice of property loss is submitted to the insurer, that the public adjuster’s contract is provided to the insurer, that the property is available for inspection, and that the insurer is given an opportunity to interview the insured directly about the loss and claim. The law includes a catchall provision stating that the insurer must be allowed to obtain necessary information to investigate and respond to the claim.

Additionally, the insurer may not exclude the public adjuster from its in-person meetings with the insured, and the insurer shall meet or communicate with the public adjuster in an effort to reach an agreement as to the scope of the covered loss under the insurance policy. A public adjuster may not restrict or prevent an insurer’s representative from having reasonable access at reasonable times to an insured or claimant or to the insured property that is the subject of a claim.

A public adjuster may not act or fail to reasonably act in any manner that obstructs or prevents an insurer or insurer’s adjuster from timely conducting an inspection of any part of the insured property for which there is a claim for loss or damage. However, the public adjuster representing the insured may be present for the insurer’s inspection, but if the unavailability of the public adjuster otherwise delays the insurer’s timely inspection of the property, the public adjuster or the insured must allow the insurer to have access to the property without the participation or presence of the public adjuster or insured in order to facilitate the insurer’s prompt inspection of the loss or damage.

Licensed Contractor Limitations (F.S. §626.854(16)–Effective January 1, 2012)

Under the new law, a licensed contractor or subcontractor, may not adjust a claim on behalf of an insured unless licensed and compliant as a public adjuster. However, the contractor may discuss or explain a bid for construction or repair of covered property with the residential property owner who has suffered a loss or damage covered by a property insurance policy, or the insurer of such property, if the contractor is doing so for the usual and customary fees applicable to the work to be performed as stated in the contract between the contractor and the insured.

Contract Requirements (F.S. §626.8796(2)–Effective January 1, 2012)

The amended law creates section 626.8796(2), which deals with required contractual provisions. Under the new law, a public adjuster contract relating to a property and casualty claim must contain: the full name, permanent business address, and license number of the public adjuster; the full name of the public adjusting firm; and the insured’s full name and street address, together with a brief description of the loss.

Additionally, the contract must state the percentage of compensation for the public adjuster’s services; the type of claim, including an emergency claim, nonemergency claim, or supplemental claim; the signatures of the public adjuster and all named insureds; and the signature date. If all of the named insureds signatures are not available, the public adjuster must submit an affidavit signed by the available named insureds attesting that they have authority to enter into the contract and settle all claim issues on behalf of the named insureds.

This new statutory section provides that an unaltered copy of the executed contract must be remitted to the insurer within 30 days after execution.

Finally, as of publication of this article, there is a development regarding a current provision of Florida’s Insurance Adjusters Law. Under section 626.854(6), a public adjuster may not directly or indirectly initiate contact or engage in face-to-face or telephonic solicitation, or enter into a contract with any insured or claimant under an insurance policy until at least 48 hours after the occurrence of an event that may be the subject of a claim under the insurance policy, unless contact is initiated by the insured or claimant.

On December 29, 2010, a Florida appellate court held that the 48-hour limitation constitutes an unconstitutional prohibition against the free speech rights of public adjusters. The case is currently pending before the Florida Supreme Court. Depending on how the Court rules in this case, the 48-hour limitation may be removed from the current law.

If you would like more information about dealing with a claim, please, contact us.

Maximizing Protection by Pairing Ordinance and Law Insurance with Business Interruption Coverage

Building ordinances and laws (building codes) are upgraded regularly to improve a structure’s resistance to windstorm, earthquake, fire, and collapse. Since some of these changes apply to new construction on a go-forward basis, it is not uncommon for older buildings to increasingly depart from current code requirements over time. Since it can be expensive to update an older building to comport with current building codes, building owners must have a plan to cover the cost. Even though ordinance and law insurance may contribute to the cost, the number of owners electing to forego such coverage is surprisingly high.

Ordinance and Law insurance is designed to pay for the extra expense of rebuilding to comply with ordinances or laws, such as building codes, which did not exist at the time the building was originally built. If an owner is required to rebuild pursuant to new codes, the cost is virtually certain to exceed the cost of merely restoring the building back to its pre-loss state.

Unfortunately, it is not uncommon for inexperienced building owners to first learn of this possible expense until after experiencing a property loss, since the loss is often the trigger for the property owner’s obligation to bring the property up to current code. For example, if an older building suffers severe structural damage from a fire, the property owner may be required to implement current building codes in the repair or reconstruction of the property. Since this can be a very expensive proposition, the value of obtaining ordinance and law coverage is obvious.

Although ordinance and law coverage is an important part of a building owner’s insurance program, it does not necessarily protect against all risks associated with bringing a building up to code. What about losses caused by delays in rebuilding the property caused by the need to comply with the current building code?

For example, consider a building damaged by fire. Restoring the building to its pre-fire condition without fixing any code violations would take one month, whereas correcting all of the code violations would extend the restoration by three months. The building owner would be out of business for an additional three months by virtue of complying with new building codes. Even in the best of circumstances, such a suspension of operations can cause severe financial hardship. However, there is a type of insurance coverage designed to protect building owners against such a loss—business interruption coverage, which can be obtained in conjunction with ordinance and law insurance.

Business interruption insurance generally covers reductions in net income and provides a business with the funds needed to pay normal operating expenses during periods of time when a business unable to continue its operations. Such coverage is often critical in the event of a lengthy property closure because expenses do not stop. Indeed, payroll, mortgage/rent payments, money owed to suppliers, taxes, and other continuing expenses must be met, and business interruption insurance may keep badly needed capital flowing when it is needed the most. However, if business interruption coverage is rejected, a property owner will be required to either fund the continued business operations or survive without the income those operations generate.

Although ordinance and law insurance provides valuable protection against potentially debilitating expenses, combining it with business interruption coverage fills a potentially significant gap in a building owner’s insurance portfolio. The combination of the two increases the likelihood of surviving not only the initial property loss, but the protracted suspension of operations resulting from the obligation to rebuild in accordance with current building codes.

While the decision to obtain ordinance and law insurance and business interruption coverage should be easy, understanding specific policy provisions and terms may be more difficult. Since there may be variations among different policy forms, it is important that you consult with an experienced insurance agent to discuss your options.

If you would like more information about ordinance and law insurance and business interruption coverage, please contact us.

Professional Liability for Lawyers

Is lawyers’ professional liability insurance necessary for a small law firm?

Professional liability insurance is vital for all law firms, no matter the size or the nature of the law firm’s practice. Lawyers’ professional liability insurance covers direct loss and expense to a lawyer or law firm arising from claims for alleged neglect, error or omission in the performance of services in a professional legal capacity.

Law firms are increasingly the target of client claims and lawsuits. Oftentimes this is the result of unreasonable client expectations. Sometimes this can be the result of real error on the part of a lawyer or firm. Even if a claim or suit is frivolous, a law firm needs professional liability insurance in order to protect itself.

One product that is available for small law firms is Travelers 1st Choice for Small Law Firms. This is an insurance product that offers protection for the professional liability exposures faced by law firms with 10 or fewer attorneys. Covered professional legal services include services by lawyers, arbitrators, mediators, notary publics and real estate title insurance agents. Key features include coverage for current and former partners and associates, personal injury coverage, deductibles as low as $1,000, loss only and aggregate deductibles available, duty to defend provision, expense reimbursement up to $10,000 and extended reporting provisions.

For more information regarding this or other lawyers’ professional liability programs or for general information regarding professional liability insurance for lawyers, please don’t hesitate to inquire.

Florida’s New Transitory Foreign Substance Law: Altering the Landscape in Slip-and-Falls?

Whether you operate an amusement park, a restaurant, or a grocery store, the thought of a customer slipping and falling on the premises can cause an unsettling, if brief, feeling of panic in proprietors who invite the public onto their premises for the purpose of doing business. Since a slip-and-fall case can easily result in a significant judgment for damages, business owners are right to be concerned. However, while business establishments should remain proactive in preventing a dangerous condition on the premises, a new Florida law defining the scope of liability for transitory foreign substances may operate to protect against successful slip-and-fall lawsuits.

In order to understand the ramifications of the new Florida law, a brief history of transitory foreign substance liability is helpful. Prior to 2001, when a person slipped and fell on a transitory foreign substance, such as food, water, or grease, the injured person had to prove that the business had actual or constructive knowledge of the dangerous condition and that the condition existed for such a length of time that in the exercise of ordinary care, the premises owner should have known of it and taken action to remedy it.

In 2001, the Florida Supreme Court rendered its opinion in Owens v. Publix Supermarkets, Inc., and changed the standard of proof in slip-and-fall cases. The Court found that premises liability cases involving transitory foreign substances are appropriate cases for shifting the burden to the premises owner or operator to establish that it exercised reasonable care under the circumstances, thereby eliminating the specific requirement that the customer prove that the store had constructive knowledge of the transitory foreign substance. Thus, under this new standard, the existence of a foreign substance on the floor of a business premises that caused a customer to fall is not a safe condition, and the existence of that unsafe condition creates a rebuttable presumption that the premises owner did not maintain the premises in a reasonably safe condition.

Unhappy with this ruling, the Florida legislature adopted Florida Statute section 768.0710 in 2002. This statute recognized that a business owner owes a duty of reasonable care to its customers to maintain the premises free from transitory foreign objects or substances that might foreseeably give rise to loss, injury, or damage. However, rather than force the premises owner to prove that it acted reasonably, the statute required the plaintiff to prove that: the business owed a duty to the plaintiff; the business acted negligently by failing to exercise reasonable care; and the failure to exercise reasonable care by the business was the cause of the loss, injury, or damage. By enacting this statute, the legislature effectively overruled the Florida Supreme Court’s decision in Owens.

However, remaining dissatisfied with the manner in which Florida courts were dealing with transitory foreign substance liability cases, the Florida legislature repealed section 768.0710 in 2010, and enacted Florida Statute section 768.0755. According to the legislature, the purpose of this new transitory foreign substance statute is to approximate the law with respect to slip-and-fall suits as it existed before the Court’s Owens decision.

Effective July 1, 2010, the newly-enacted section 768.0755, entitled “Premises liability for transitory foreign substances in a business establishment,” provides that if a person slips and falls on a transitory foreign substance in a business establishment, the injured person must prove that:

the business establishment had actual or constructive knowledge of the dangerous condition; and
the establishment should have taken action to remedy it.

Additionally, the statute provides that a plaintiff may prove constructive knowledge by circumstantial evidence showing that:

the dangerous condition existed for such a length of time that, in the exercise of ordinary care, the business establishment should have known of the condition; OR
the condition occurred with regularity and was therefore foreseeable.

Although this new statute may operate to make it more difficult for an injured customer to successfully sue a business establishment for a slip-and-fall incident, owners and operators of business establishments must still observe their duty to prevent dangerous conditions from occurring. The new statute by no means alleviates a business establishment from its duties in this regard. Moreover, the statute’s constructive knowledge provision could allow a plaintiff to prevail in a slip-and-fall case if the business owner or operator fails to routinely inspect the premises for hazardous conditions.

The lack of any judicial opinions applying this new statute makes it impossible to predict the precise manner in which it will impact the law of transitory foreign substances. Nevertheless, the law clearly preserves a claimant’s right to sue for damages resulting from a slip-and-fall, as well as a business establishment’s duty of care in this regard. Regardless of whether this new law is seen as a victory for business owners and an obstacle for plaintiffs, those who operate business establishments wherein people are invited onto the premises would be wise to continue their preventative efforts as though the law had not changed. Reducing your commitment to maintaining a safe business establishment would be shortsighted, and it could serve to transform the cause of those moments of panic from imagined to real.

For more information about managing the risks associated with slip-and-fall liability, contact us.

Oh No, I Have Been Served! – Unlawful Discrimination Lawsuit

The day was progressing like any other – putting out fires, monitoring production, cultivating new business – until the receptionist announced the presence of an unexpected visitor. The hand you held out for an introductory shake was met with a bundle of paperwork. The confusion created by the unanticipated delivery was momentarily clarified when the visitor mumbled a few parting words: “You’ve been served.”

A brief scan of the documents revealed that a former employee filed a lawsuit in federal court alleging unlawful discrimination. The expected stream of emotions soon followed: bewilderment, denial, fear, anger, and finally pragmatism. Something needs to be done, and since an answer to the complaint must be filed within 20 days, contacting an attorney must be near the top of the list.

Unfortunately, defense attorneys do not typically handle cases on a contingency-fee basis. Rather, they bill their time hourly, and while many attorneys provide a complimentary phone call, the meter typically starts running shortly thereafter. Clients are ordinarily expected to cut a substantial retainer check before any steps are taken to mount a defense.

Needless to say, defending against an employment practices lawsuit, such as one alleging discrimination or harassment, is a costly proposition. Even if the employer wins the lawsuit, the outcome of the experience will likely be viewed as a loss. The bill for attorneys’ fees alone will invariably cause financial harm to an organization. For those already struggling through difficult economic times, the harm may be irreversible.

The employer in this hypothetical situation has no choice but to deal with the imminent present since nothing can be done to change the past. However, for those cringing at the thought of personally experiencing this situation in the future, there is one thing that can be done to alter the experience – obtain employment practices liability insurance (EPLI).

EPLI protects employers in the event of such workplace claims as discrimination, wrongful termination, and sexual harassment, as well as other civil wrongdoings, such as wrongful demotion, failure to promote and discrimination by third parties (i.e., clients). Generally, a policy covers eligible losses stemming from such causes of action, as well as associated litigation costs, including attorneys’ fees. And the insurance company will provide the services of attorneys who specialize in defending against such claims, thereby significantly increasing the likelihood that employers will prevail in the event litigation does occur.

Yet, despite these obvious and valuable benefits, many organizations choose to forego purchasing EPLI. Those responsible for protecting their organization from the risk of loss have plenty of reasons for deciding not to purchase EPLI. However, upon closer examination, it is clear that the security afforded by these reasons is illusory. Let’s take a look at a few.

None of my employees would ever sue me. Let’s assume that this is true (although we know it isn’t). Did you know that several equal employment opportunity laws, such as Title VII and the Americans with Disabilities Act, also protect applicants? While some organizations may take comfort in the belief that their employees would never sue, such a perception does not address, much less protect against, the possibility of an employment practices lawsuit being filed by an applicant. Needless to say, those relying on the charity of strangers for security have a significant hole in their risk management umbrella.

Our organization complies with all employment laws. There is little doubt that most organizations have every intention of complying with applicable employment laws, and that they, in fact, make a good faith effort to do so. Unfortunately, this reasoning incorrectly assumes that lawsuits are only filed by those who were actually victims of an unlawful employment practice. In reality, many employers are ultimately found to have not violated the law, yet they were still required to defend their actions in court. Undertaking a defense is expensive, and from a purely economic standpoint, vindication through the judicial system is rarely worth the price of admission.

It can’t happen to me. Clearly, this age-old rationalization is as wrong in this context as it is in everyday life. According to the Equal Employment Opportunity Commission, the number of employment related claims is on the rise. Hence, it is not only happening, but it is happening in greater numbers. While this increase in claims may be attributed to several factors, including a struggling economy or corporate cutbacks in HR training and monitoring, there is good reason to believe that the increase will continue well into the future.

Consider that the ADA Amendments Act broadened the scope and applicability of the Americans with Disabilities Act. Since more people qualify as disabled under the amended law, more people will be entitled to the ADA’s protection. In practice, this signals the existence of a new and significant risk exposure – an ADA lawsuit – that may not have previously existed. Therefore, the likelihood of falling victim to an employment practices lawsuit is greater now than it was then.

We are a small operation so we don’t have to worry about employee lawsuits. While employee lawsuits brought against large companies make the headlines, smaller operations should be equally concerned about being sued for an unlawful employment practice. Compared to large corporations, many smaller organizations operate casually and informally. While a collegial atmosphere can make for a more relaxed workplace, it may increase the likelihood that behaviors are not properly monitored or that policies are non-existent or loosely applied. Moreover, smaller organizations often do not have the budget or infrastructure to ensure the proper handling of human resources. Since these factors almost invariably lead to lawsuits, smaller organizations are prime candidates for EPLI.

We have an excellent HR department that ensures compliance with all equal employment opportunity laws. While placing an emphasis on human resources can go a long way toward reducing the risk of being sued for an unlawful employment practice, it is by no means a guarantee. Two things merit discussion on this point. First, unlawful employment practices occur despite top-notch HR departments. Consider that a well-known, publicly traded clothing retailer paid approximately $50 million to settle a class-action discrimination lawsuit despite what was surely a well-qualified HR department. Furthermore, it is important to acknowledge that efforts of the HR department do not always filter down to the entire workforce.

Second, in some situations, the risk of violating an equal employment opportunity law cannot be reduced by the HR department. The recent amendments to the Family & Medical Leave Act’s regulations provide a good example. Until the precise scope and applicability of the regulations are determined by the courts, employers are operating with their best guess as to what the regulations actually require. Unfortunately, this means that some employers, regardless of the quality of their HR department, must defend their actions in court, often at great expense. This reality underscores the importance of EPLI.

There is no room in the budget for EPLI. Certainly, budgetary constraints are always a valid consideration. While many view the premium for EPLI as the budgetary figure worthy of consideration, the real figure is the amount that will have to be paid out in the event a lawsuit is filed. How do the attorney’s fees and the plaintiff’s judgment fit into the budget? A realistic approach to the budget should consider the potential cost of not obtaining EPLI rather than the cost of the premium. When such a calculation is undertaken, purchasing EPLI is almost always considered a smart investment.

Although there are many reasons for not purchasing EPLI, once a lawsuit is filed, all of those reasons lose whatever merit they may have once had. There is a world of difference between personally dealing with (and paying for) the defense of an employment practices lawsuit versus forwarding the papers to the insurance company. One option is not only cheaper, but it provides a peace-of-mind that allows the organization’s focus to remain on the continued successful operation of the business. Needless to say, the alternative is much, much worse.

If you would like more information about EPLI, please contact us.

Ordinance and Law Coverage

Did you know that, following a major disaster, some of your rebuilding expenses may not be covered by your property insurance? The costs of demolishing an undamaged portion of a building or of improving a structure to bring it up to code are specifically excluded under most property policies. Yet often, building codes and ordinances require that such measures be taken to bring a building into compliance with current law.

Buildings are constructed to meet or exceed the codes in effect at the time of their construction. But as buildings age, those codes often become obsolete as construction standards change in an ongoing effort to improve the fire safety, structural integrity, and energy efficiency of buildings. Enforcement of these new standards is triggered when an insured building experiences a covered loss, such as a fire or hurricane, and the structure must be rebuilt according to current, and stricter, codes. So how do you protect yourself from the burden of financing the additional costs of bringing your structure up to code? By adding Ordinance and Law Coverage to your current property insurance. Ordinance and Law insurance consists of three separate coverages: 1) loss to the undamaged portion of the building; 2) increased demolition costs; and 3) increased costs of construction. To learn more about Ordinance and Law Coverage and the benefits of adding this valuable coverage to your current property policy, please contact our office.

Enforcing Condo Use Restrictions: A Potential Legal Minefield for Board Members

Condominium communities offer unique benefits to their residents that may not be otherwise available to those opting for “traditional” homeownership. However, in exchange for these benefits, unit owners must give up a certain degree of freedom of choice that they might otherwise enjoy in separate, privately owned homes. Although it is a tradeoff that many willingly accept when they purchase a unit, abusive condominium associations can cause owners to regret their decisions.

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Limitations on unit owners’ freedoms typically take the form of use restrictions, which, according to one state court, are necessary because “condominium owners live in close proximity and use facilities in common.” These restrictions can range from making the clubhouse a “shoes only” facility to requiring that the board approve the sale of a unit.

According to the Supreme Court of California, use restrictions are an inherent part of any common interest development and are crucial to the stable, planned environment of any shared ownership arrangement. However, despite the need for use restrictions, condominiums have nevertheless become famous, or perhaps infamous, for the manner in which they enact and enforce these restrictions.

Headlines and punch lines have earned abusive condominium association members the unflattering moniker “condo commandos.” Increasingly, however, these individuals are gaining yet another title – that of a defendant. Condominium residents fed up with the abusive tactics employed by some unit owners are routinely seeking recourse in the courts. And since infighting can be as damaging to the community as it is to an association’s balance sheet, condominium boards must be familiar with their powers, as well as the limitations on those powers, to enact and enforce use restrictions.

A condominium association’s authority to enact and enforce use restrictions may come from the condominium’s declaration (or some other document of condominium creation), the condominium’s bylaws, a state’s condominium statutes, and judicial pronouncements. Regardless of the source of an association’s powers, however, an association’s authority is not absolute.

Notwithstanding jurisdictional variations, a condominium’s governing board is generally free to enact use restrictions as long as the restrictions represent good-faith efforts to further the purposes of the condominium, are consistent with the condominium’s governing documents, and comply with public policy. Broadly stated, a condominium’s governing body cannot enact rules bearing no relationship to the health, happiness, and enjoyment of life of the various unit owners.

It follows, then, that the power of a condominium’s governing body to enact use restrictions can be limited when the action is unreasonable, arbitrary, capricious, or discriminatory. Accordingly, in addition to having the requisite authority to enact a specific use restriction, a condominium’s governing body must make sure that any such restriction is not only reasonable but also has been enacted in good faith.

The power of a condominium’s governing body to enforce its use restrictions may also be governed by the “arbitrary and capricious” standard. One court has stated that in order for a governing body to declare that a unit owner has violated a use restriction, it must do so uniformly, in good faith, and not in an arbitrary or capricious manner. In one case, a Florida court held that a use restriction is unenforceable if it has been unreasonably or arbitrarily applied.

An Illinois court adopted a reasonableness test that requires a determination of whether enforcement of a use restriction:

Is arbitrary or capricious, considering whether it promotes the safety and enjoyment of the condominium;
Is non-discriminatory and even-handed;
Is enforced in good faith for the common welfare of unit owners;
Creates potential hardship on unit owners; and
Has been reasonably implemented.

These limitations make clear that the authority of a condominium’s governing body to enact and enforce use restrictions is not absolute.

Condominium unit owners make up a democratic sub-society of necessity that has been described as a quasi-government. They elect their representatives with the expectation of being treated fairly and reasonably. However, even though they consent to having restrictions placed upon the use of their property for the benefit of the condominium as a whole, they have in no way consented to arbitrary or capricious restrictions that achieve no positive benefit. Those who participate in the government of their condominium must keep this in mind when they are called upon to enact or enforce a use restriction. Otherwise, they may discover how quickly they can go from being power-wielding “condo commandos” to defendants arguing their case before a judge.

Rising Costs, Falling Revenues: When Condominium Boards Must Raise Annual Assessments

Condominium unit owners have common interests that go beyond just the use of the pool and the clubhouse. Because residents share the expenses associated with condominium living, they have a vested interest in the financial health of their fellow unit owners, specifically their ability to pay their share of those expenses. While taking an active interest in a neighbor’s financial status may seem intrusive, it is a natural consequence of living in a condominium community, where the success of the whole is to a large extent dependent upon the resources of each unit owner.

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In prosperous economic times, such a communal living arrangement benefits individual owners because the pooling of funds allows them to enjoy amenities they might not be able to afford on their own. However, in times of economic hardship, residents’ financial interdependence can work against the well-being of the condominium community. Today, perhaps as never before, condominium residents are feeling the pain of their neighbors’ financial struggles.

The current slump in the national housing market has hit condominium communities especially hard. Despite their best efforts, many unit owners simply cannot afford their assessment payments. Making matters worse is the fact that condominium associations may not receive assessment payments from residents whose units are in foreclosure. Moreover, many speculators who purchased multiple units with an eye towards “flipping” them for a quick profit have disappeared, along with their checkbooks. Whatever the reasons, the result is that many condominium associations are not receiving the revenues required to manage and maintain condominium property.

With fewer residents contributing to fixed (and often rising) maintenance costs, many condominium associations have no choice but to increase the assessments charged to residents who can pay. However, before a condominium association board can take such action, members must know and abide by all applicable rules that govern the process of substantially increasing unit owners’ assessments.

Recognizing that costs and expenses may increase over time, many state condominium statutes allow association boards to adopt yearly budgets calling for annual assessments that are modestly higher than those of the preceding year without having to take any extraordinary steps, such as getting unit owners’ approval. However, if an annual budget includes an assessment significantly higher than last year’s, then a board may have to take additional steps to ensure that the budget is approved.

In California, for example, a board of directors of a condominium association may not impose a regular assessment that is more than 20 percent greater than the regular assessment for the association’s preceding fiscal year unless the board obtains the approval of the owners. To win approval for the increased assessment, the board must hold a properly conducted meeting attended by a quorum of unit owners (in this situation, more than 50 percent of the owners) who cast a majority of votes in favor of the increase.

Similarly, in Maryland, special procedures are required for any expenditure that would result in an assessment increase for the condominium’s current fiscal year that exceeds 15 percent of the previously adopted budget assessment. In such cases, the increased amount must be approved by an amendment to the budget that has been adopted at a special meeting. Both the Maryland and California statutes make limited exceptions for emergency expenditures that might be needed to prevent a significant increase in risk of damage to the condominium if a situation is not addressed promptly.

Florida takes a slightly different approach. Annual budgets requiring unit owner assessments that exceed 115 percent of assessments for the preceding fiscal year necessitate the special procedures. In such cases, the board must conduct a special meeting of unit owners to consider a substitute budget if the board receives, “within 21 days after adoption of the annual budget, a written request for a special meeting from at least 10 percent of all voting interests.” Upon receiving such notice, the board must conduct the meeting within 60 days after adopting the annual budget; furthermore, the board must comply with the statutory requirements that apply to the process of notifying unit owners of the meeting.

Illinois adopts an approach similar to Florida’s. Unit owners are permitted to petition a board to call a meeting to reconsider a budget if the adopted budget would result in a sum of all regular assessments payable in the current fiscal year in excess of 115 percent of the sum that was payable during the preceding fiscal year.

Each state’s laws have specific requirements that apply to the adoption of the annual budget, including the imposition of regular and special assessments. These statutes may govern, among other matters, the manner in which unit owners are notified of meetings, the timing of the meetings, quorum requirements, unit owners’ right to speak, and voting procedures. Because these requirements may vary significantly by state, board members must make sure they comply with all applicable regulations.

In troubled economic times, condominium boards must do whatever they can to manage and maintain a community. In some situations, a board’s fiduciary duty to unit owners necessitates a significant increase in the assessments charged to unit owners. However, by complying with all the requirements that govern such a course of action, condominium boards can ensure that already bad times do not become even worse.

When Duty Calls, How Should Your Establishment Respond?

The Saturday night crowd in the popular restaurant is larger than usual. Guests are enjoying cocktails and conversations at the bar while waiting for a table. Food preparers are busy, but activity in the back of the house is going smoothly. Suddenly, a diner, in obvious distress, clutches his throat, seemingly unable to breathe. After a few tense moments, another member of the choking victim’s party gives his companion a few sharp blows to the upper back, dislodging the food that had caused the obstruction. Suffering from nothing more than some residual anxiety and a minor case of embarrassment, the diner appears no worse for wear.

The proprietor and staff breathe a collective sigh of relief, thankful that a calm, quick-thinking patron prevented what could have been a tragedy. Nevertheless, the incident raises an important question that all restaurant owners and operators must answer: What duty does a restaurant have to help a choking patron?

Generally speaking, the duty one individual owes to assist is necessarily relational. In other words, determining whether or not a duty is owed typically depends on the relationship between the individuals in question. For example, moral obligations aside, an individual who randomly comes across a stranger in need of assistance is generally under no legal obligation to render assistance to the distressed individual. However, if the law determines that a relationship does exist between the actors, then it may find that there is a legal duty to provide assistance.

In the restaurant context, a legal relationship does exist between the restaurant and its patrons because patrons are specifically invited to enter the restaurant’s premises for a purpose – buying and eating food – that is directly related to the restaurant’s business. Legally, this makes restaurant patrons invitees of the restaurant, as opposed to licensees (e.g., social guests) or trespassers. Once the relationship between the parties has been established, the duty a restaurant owes to its patrons can be determined.

Generally, a proprietor, a restaurant in this instance, is under an ordinary duty of care to render aid to an invitee after the proprietor knows or has reason to know that the invitee is ill or injured. In the context of choking patrons, courts have held that a restaurant must summon medical assistance within a reasonable time upon learning that a patron is choking.

Additionally, in the context of rendering first aid, courts have generally held that a restaurant is not under a duty to provide advanced first-aid, such as the Heimlich maneuver, to a choking patron. However, it is important to note that several states have enacted statutory provisions that may add to, or change, a restaurant’s obligations to choking patrons.

For example, Georgia’s statute requires the state’s Department of Human Resources to print and distribute notices explaining the proper procedure to be taken to assist or aid persons who are choking. Food service establishments are required to post and maintain these notices in conspicuous places on the premises. Like many other such statutes, Georgia’s provides immunity to any person who renders good faith emergency aid, without any charge, to persons who are choking.

Florida’s statute provides that a food service establishment must post a sign illustrating and describing the Heimlich maneuver. Additionally, the statute makes each food service establishment responsible for familiarizing its employees with the method of rendering such assistance. However, the statute expressly states that it does not impose a legal duty to render emergency assistance to a choking individual. Florida’s statute, like Georgia’s, also provides immunity to those who choose to render aid.

Oregon goes one step further by requiring food service employees in restaurants to be trained, within a reasonable time after hire, to administer emergency first aid to relieve any person choking on food particles. The Oregon statute contains an immunity provision similar to that found in the Georgia and Florida statutes.

The importance of being intimately familiar with any and all applicable state statutes or local regulations regarding choking patrons cannot be overstated. Owners and operators of restaurants should consult with a licensed attorney in every jurisdiction where their establishments operate to ensure strict compliance with the law.

Regrettably, the benefits of such compliance may become evident all too soon because, when it comes to choking, a situation can turn tragic in the blink of an eye. However, by making every effort the law demands, you not only decrease the likelihood of legal liability, but you also increase the likelihood that your patrons will enjoy pleasant and safe dining experiences.