Tag: lawsuit

Is Title Inflation Putting Your Business At Risk?

Title Inflation occurs when superior-sounding job titles are given to non-superior employees. Despite recent trends, title inflation is not new. It was even a topic of conversation in a 1998 episode of Seinfeld.

ELAINE: Do you know how embarrassing this is to someone in my position?

JERRY: (Confused) What’s your position?

ELAINE: I am an associate.

GEORGE: Hey, me too.

WAITRESS (passing their table): Yeah, me too.

While having too many “Vice Presidents of This”, “Chiefs of That” and “Directors of Those” can be comical, it can also be risky. Let’s see what happened in Aleynikov v. Goldman Sachs, a case out of United States Third Circuit Court of Appeals.

This case involves a Goldman Sachs employee who was indicted for stealing computer source code before quitting his job. The employee spent over $2.3 million defending state and federal criminal charges relating to the theft, and, according to the employee, Goldman Sachs was required to cover the costs of his criminal defense. Why would Goldman Sachs possibly have to pay to defend the person who allegedly stole its own source code? Title inflation.

This employee worked as a computer programmer. He did not supervise other employees, did not transact business on behalf of Goldman Sachs and did not have any management or leadership responsibilities. Nevertheless, he was given the title of Vice President in Goldman Sachs equities division, and under its By-Laws, Goldman Sachs is required to indemnify officers for their legal expenses. (Indemnification provisions like this are commonly found in corporate By-Laws.)

The court considered a number of factors to determine whether the employee, as a Vice President, is entitled to indemnification under Goldman Sachs’ By-Laws. For example, the court noted that Goldman Sachs employs tens of thousands of employees and that approximately one-third of them hold the title of Vice President. Despite the apparent absurdity of the employee’s position, the court ruled that additional facts are needed before a final decision can be made. In other words, Goldman Sachs, the victim, still faces the possibility of having to pay the defense costs for its former employee, the perpetrator.

Though this case is extreme, it highlights a significant risk associated with title inflation. Employees must be given titles that are consistent with their functions and responsibilities because employees with artificially inflated titles, even those without criminal intentions, can create significant risks and expose businesses to substantial liability.

Additional protection can be obtained with a Directors and Officers Liability insurance policy. These policies generally protect directors and officers against monetary damages resulting from lawsuits or claims resulting from actions taken in their official capacity. While these policies do not cover all potential liabilities, such as those resulting from fraudulent or intentional acts, or those that caused by someone who is not entitled to coverage under the policy (perhaps due to title inflation?), they can provide a much needed security blanket.

Since variations among these policies can be significant, it is important to select a policy form which addresses any particular risks with appropriate coverage terms. When shopping for a Directors and Officers insurance policy, it is important to use the services of an insurance agent with substantial expertise in this field.

If you would like more information about obtaining the right insurance coverage for your business, please contact us.

A New Right of Access for Condominium Associations

Sometimes a condominium association needs to enter an owner’s unit, which is why Florida’s Condominium Act gives associations an irrevocable right of access. This right of access may only be used during reasonable hours to perform needed maintenance and repairs or to prevent damage to the common elements or to other units. However, Florida’s Condominium Act was amended on July 1, 2014 to expand an association’s right to access units that have been abandoned.

Under the new law, an association may enter an abandoned unit to:

  • Inspect a unit and adjoining common elements;
  • Make necessary repairs to a unit or to the common elements serving the unit;
  • Repair a unit if there is mold or deterioration;
  • Turn on utilities for a unit; or
  • Otherwise maintain, preserve or protect a unit and adjoining common elements.

When is a unit considered abandoned? Unless a unit owner provides the association with written notice to the contrary, a unit is presumed to be abandoned if:

  • The unit is the subject of a foreclosure action and no tenant appears to have resided in the unit for at least 4 continuous weeks; or
  • No tenant appears to have resided in the unit for 2 consecutive months, and the association is unable to contact or determine the whereabouts of the owner after reasonable inquiry.

Except in cases of emergency, an association must wait 2 days after giving the owner notice of its intent to enter the abandoned unit. This notice must be mailed or hand-delivered to the owner’s address of record and may be given electronically if the unit owner previously consented to receive electronic notices from the association.

Any expenses incurred by the association can be charged to the unit owner, and if a unit owner fails to pay, the association may use its lien authority to collect. An association may also ask a court to appoint a receiver to lease out an abandoned unit so that the rental income can be used to offset the association’s costs and expenses of maintaining, preserving and protecting the unit and the adjoining common elements, which can include:

  • The costs of receivership
  • Unpaid assessments
  • Interest
  • Administrative late fees and costs
  • Reasonable attorney fees

This expanded right of access to abandoned units applies even if the condominium documents, such as the bylaws or declaration, do not provide the authority to do so. Under the new law, the decision to enter an abandoned unit is at the association’s sole discretion. Nevertheless, associations should proceed cautiously to make sure all formalities are observed and to minimize the risk of a lawsuit by the unit owner.

Setnor Byer Insurance & Risk’s Condominium Program provides clients with 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 online Board Member Education, which has been approved by the Division of Florida Condominiums, Timeshares, and Mobile Homes to satisfy Florida’s new board member education training.

If you would like to discuss how Setnor Byer Insurance & Risk can serve you and your association, please contact us.

Settling Insurance Claims: Good Faith or Bad Faith?

Insurance companies have a general duty of good faith when settling the claims of their policyholder. This duty of good faith can come from statute, common law, or both. For example, in addition to having a common law duty of good faith, insurance companies in Florida have a statutory duty to act fairly and honestly toward their insureds. Insurance companies that fail to act in good faith may end up in court defending a claim for bad faith.

Contrary to what many believe, it’s not bad faith for an insurance company to deny a claim that is not covered under a policy or to defend a claim subject to a reservation of rights. So what does it mean to act in good faith? According to one court, the duty of good faith requires insurance companies to investigate the facts, give fair consideration to settlement offers that are not unreasonable, and settle, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so.

Those damaged by an insurance company’s failure to act in good faith may be able to sue the insurance company for bad faith. Bad faith claims can be first-party or third-party.

A first-party bad faith claim occurs when an insurance company is sued by its insured for refusing to settle the insured’s own claim in good faith. First-party claims typically involve allegations that the insurer improperly denied coverage, underpaid a loss or delayed payment without adequate justification. A common example of a first-party bad faith claim is when an insured is involved in an accident with an uninsured motorist and does not reach a settlement with his or her own uninsured motorist liability carrier for costs associated with the accident.

A third-party bad faith claim arises when an insured is exposed to liability in excess of insurance coverage because the insurer failed in good faith to settle a third party’s claim against the insured within policy limits. Third-party bad faith claims often arise in situations where there is clear liability on the part of the insured, severe injury to the third party, and minimal policy limits available.

Assume, for example, an insured with $100,000 of automobile liability coverage runs a red light and injures a pedestrian. Despite the pedestrian’s significant injuries and the insured’s clear fault, the insurance company rejects the pedestrian’s reasonable $90,000 settlement offer. The pedestrian goes to court and is awarded $200,000 in damages. By failing to act in good faith and settle the case within the $100,000 policy limit, the insured is liable for the excess judgment amount of $100,000.

In this example, the insured could file a third-party bad faith claim against its insurance company. The injured pedestrian may also be able to sue the insurance company, either directly if permitted by applicable law, or through an assignment of the insured’s rights. Note that in some jurisdictions insurance companies are entitled to notice before a lawsuit can be filed. In Florida, for example, those wanting to file a bad faith claim must give the insurance company 60-days’ notice before filing a lawsuit.

The claims settlement process can be long, complicated and stressful, even when the insurance company is handling the process in good faith. Since bad faith claims, particularly those involving third parties, can be very complex, it helps to have a reputable and experienced insurance agent to guide you through the claims process.

If you have any questions or would like to discuss your insurance options, please contact us.

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A Contract’s Fine Print: Find the Devil in the Details

Contracts are an essential part of doing business. Regardless of size or industry, contracts with customers, vendors, suppliers, service providers or independent contractors are an important part of a business’s operations. While good contracts can help manage risk and maintain good working relationships, bad contracts can be incredibly harmful. This is why every business must proceed cautiously when negotiating and signing contracts.

Ideally, an attorney will be consulted when negotiating or signing contracts. The reality, however, is that many businesses handle their own contracts. Though it may be easy for some to identify and understand a contract’s main provisions, like cost, volume, part numbers, etc., the devil is in the details, which, in the case of contracts, is the fine print.

Every provision in a contract has a purpose, including those found in the fine print. Despite being underemphasized, they are often important when defining a contractual relationship, particularly when things go wrong. The following provisions, for example, are not only commonly used, but commonly overlooked.

Forum (Jurisdiction) Selection: A contract may require that any lawsuits involving the contract be filed in a specific forum or jurisdiction (county, state, country). This may not be a problem if a business is located in the jurisdiction specified in the contract. However, it may be a huge problem if, for example, a Florida business is required to file a lawsuit in Alaska. Despite having the legal right to enforce the contract, the increased complexity and cost of filing a lawsuit in another jurisdiction makes it practically impossible for many businesses to do so, particularly when relatively small amounts of money are involved.

Choice of Law: Similar to a forum selection clause, a choice of law provision specifies which state’s law will be used to interpret and enforce the contract. These clauses can be significant because laws may vary from state to state. For example, one state may have more favorable consumer protection laws, while another makes it more difficult to recover damages. It is important to know if and how a choice of law provision may affect any contractual rights or remedies.

Integration (Merger) Clause: Contracts typically contain a provision stating that the contract represents the full and final agreement and supersedes any other agreements, oral or written. With an integration clause, any verbal or written conversations, brochures, promises, representations or statements that are not included in the contract are not part of the contract. This may become an issue when a business is not receiving what the salesperson promised before signing the contract. Expectations, obligations and requirements must be included in the contract to be enforceable under the contract.

Assignment: A contract may allow one or both parties to assign their rights, duties or obligations to a third party. This can create a problem if there is an expectation that a specific person or company will be performing under the contract. If, for example, a business wants only a specific vendor to do a job, the contract must state that the vendor cannot assign its obligations under the contract to someone else. Otherwise, a business may find that the person they contracted with isn’t the person they end up working with.

Evergreen Clause: Contracts are typically entered into for a specific period of time (term). A contract with an evergreen clause will automatically renew for a new term unless notice of termination is given by either party, usually within a specific period of time. For example, a one year contract will automatically renew for another year unless written notice of termination is given at least 60 days before the end of the yearly term. Businesses that fail to discover and comply with an evergreen clause may be stuck in a contract they no longer need or want.

Dispute Resolution: Contracts may require that disputes be resolved through arbitration rather than by filing a lawsuit. Depending on the nature of the contract, this requirement can significantly affect the resolution of disputes and the apportionment of damages.

Indemnification Clause: Indemnification clauses are used to allocate risk and responsibility among the parties to a contract by requiring one party to compensate the other for specific liabilities or losses arising out of the contract. Since these clauses commonly require a party to assume liability that would not otherwise exist, they must be reviewed carefully and understood completely. Indemnification clauses often end up being the most significant provision in a contract when something goes wrong.

Insurance Requirements: Many contracts include specific insurance requirements. For example, a contract may require a party to have general liability or workers’ compensation insurance, or it may require that one party be given Additional Insured status under the other party’s insurance policies. Contracts often require proof of insurance before work can begin or payment is made. It is important to identify and comply with any contractual insurance requirements.

Despite the benefits of using an attorney to negotiate and review contracts, particularly complex or high-value contracts, many businesses take a do-it-yourself approach. Nevertheless, given the increased risk of harm caused by bad contracts, businesses should never sign a contract without reading and understanding every provision, including those in fine print.

If you have any questions or would like to discuss how Setnor Byer Insurance & Risk can help identify and protect against various business risks, please contact us.

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