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Audit of state bar questions executive salaries, finances

Posted By Paula Collis, Thursday, May 19, 2016

The California state bar pays its executives more than the governor and has failed to present a clear picture of its finances to the Legislature, according to a state audit released Thursday.

The audit is the latest blow to the nation’s largest state bar, which has also been accused of failing to protect the public from bad lawyers and experienced years of infighting.

According to the audit, the bar’s financial reports have contained errors and lacked transparency in recent years, making it difficult for the Legislature to set appropriate attorney dues.

Read the whole story at OC Register

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Gender bias in Hollywood? U.S. digs deeper to investigate the industry's hiring practices

Posted By Paula Collis, Monday, May 16, 2016

The U.S. Equal Employment Opportunity Commission has begun quietly expanding its investigation into gender discrimination in Hollywood.

A year after the American Civil Liberties Union first urged government agencies to investigate a pattern of gender bias in the hiring of film and TV directors, and seven months after the EEOC began interviewing female directors, the government agency is now widening its circle of interview subjects to include studio executives, producers, agents, actors and male directors, according to multiple sources familiar with the investigation who declined to be identified because they were not authorized to speak publicly.

Read the whole story at LA Times

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FBI Hid Surveillance Devices Around Alameda County Courthouse

Posted By Paula Collis, Monday, May 16, 2016

Federal agents planted hidden microphones and conducted secret video surveillance at Alameda County’s Rene C. Davidson Courthouse for ten months, despite having no court warrant. The surveillance operation was part of an investigation into alleged bid rigging at foreclosed property auctions where thousands of houses and apartment buildings were sold by banks. But defense attorneys for some of the individuals accused say the FBI's surveillance tactics violated their clients' constitutional rights, and everyone else whose conversations might have been captured on tape.

Read the whole story at East Bay Express

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Legislature Backs Reviving Trial Court Reserve Funds

Posted By Paula Collis, Monday, May 16, 2016

The California legislature is quickly moving to overturn a law that's been the bane of presiding judges throughout the state since it was enacted four years ago. Pushed by Gov. Jerry Brown during the state's long-running fiscal crisis, the contentious statute had eliminated the rainy-day funds built up by local trial courts.
Those reserve funds were swept away by the Brown administration in 2013. With that money, the governor created a statewide pot from which courts could draw in an emergency, but prohibited individual courts from saving more than one percent of their unspent dollars each year.
The new bill now moving through the Assembly, AB 2458, would overturn that 2013 law and return to the previous status quo, allowing trial courts to keep a rainy-day fund for expenses over and above the day-to-day operation of the court, such as technology projects and emergencies.
The reserve funds also provide a cushion when the court budget takes a hit in an economic crisis.

Read the whole story at Courthouse News Service

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Down a justice, John Roberts looks to find compromise, avoid 4-4 ties

Posted By Paula Collis, Monday, May 16, 2016

Washington (CNN)The Supreme Court is in the home stretch of an unexpected term, racing to issue opinions in more than 30 cases, many that were impacted by the sudden death of Justice Antonin Scalia.

At the center of it all is Chief Justice John Roberts, facing perhaps one of the greatest challenges of his 10-plus year tenure -- navigating a series of issues such as abortion access, health care, affirmative action and immigration with a court comprised of four liberal and four conservative justices.

 

Read the whole story at CNN

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Nonlawyer Ownership of Law Firms Is a Bad Idea, Say Bar Groups

Posted By Paula Collis, Monday, May 16, 2016

Should non-lawyers be allowed to own stakes in law firms? A resounding “no” is the opinion of many state bar association leaders.

An American Bar Association commission is once again studying the issue and sought input from the wider legal world. Those who favor lifting the restriction say the changewould expand consumers’ access to legal services, spur innovation and reduce the cost of legal help.

But resistance to the idea remains fierce among many state bar groups, judging by comment letters they submitted in response. “There can be no doubt that the public interest and integrity of the profession is best served when lawyers are owners of law firms,” wrote the New Jersey State Bar Association’s president, Miles S. Winder.

Read the whole story at WSJ

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Trump's white separatist delegate William Johnson was once almost voted in as an L.A. judge

Posted By Paula Collis, Monday, May 16, 2016

You already know all about William Johnson, the white nationalist who was selected as a Donald Trump delegate to the Republican National Convention. That is, you already know about him if you keep up with Los Angeles judicial elections.

Mother Jones magazine broke the news Tuesday that Johnson had become a convention delegate pledged to Trump. The Trump campaign quickly issued a statement that Johnson's inclusion was due to a computer error, but state officials said it was too late to remove him. Mother Jones later reported that Johnson said he would resign as a delegate.

Read the whole story at LA Times

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The State Bar's Discipline System Is Broken

Posted By Paula Collis, Friday, May 13, 2016

Once again, calls to "de-unify" the bar have grown louder, including voices in the legislature, which determines the bar's budget. To most, de-unification means taking discipline away from the State Bar.

The idea makes some sense. After all, today's discipline system faces most of the same problems and challenges that have existed for decades. And the lack of continuity—acting chief trial counsel Gregory Dresser, who began on May 9, is the fifth head prosecutor in the last seven years—doesn't help.

Jayne Kim, who became chief trial counsel in late 2011, resigned effective May 6. She'd been battered and bruised by a lawsuit by former executive director Joe Dunn, who blamed his firing on her, accusations from high-profile lawyer Tom Girardi that he has been targeted by the bar because he represents Dunn's former executive assistant, also fired; and a recent vote of no-confidence from her own trial attorneys.

Read the whole story at The Recorder

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Insurance Law News: Equitable Subrogration in Broker Negligence Case - AMCO Ins v. All Solutions Agency

Posted By Colin G. McCarthy, Wednesday, May 11, 2016

This blog post has been cross posted from the Insurance Section Blog.

 

Mr. Colin G. McCarthy

Robinson & Wood, Inc. 

 

The issue in Amco v. All Solutions, 2016 Cal. App. Lexis 96 was whether the trial court was correct in granting summary judgment to an insurance company defendant on the grounds of the doctrine of superior equities, when sued by the assignees of a client when the assignees do not have a relationship with the insurance company.  The appellate court overturned the summary judgment on the grounds that the assignee was not a surety entitled to subrogation.

 

A fire in a commercial building started in an Indian restaurant adjoining one of the assignees' Japanese restaurant in Sonoma County.  The fire started because of the negligence of the owner of the Indian restaurant.  That restaurant owner sustained almost $500,000 in damages and the fire damaged the Japanese restaurant.  AMCO insured the Japanese restaurant, which it paid and then filed a subrogation action against the owner of the Indian restaurant.  Meanwhile, the owners of the Japanese restaurant sued the owners of the Indian restaurant and there was stipulated judgment of $194,000 and assigning rights against the broker.  Before the fire, the owner of the Indian restaurant received a notice of non-renewal, and he communicated with his broker regarding the notice.  What was said was disputed, with the owner claiming he told his broker to get him insurance and the broker denied it. AMCO filed suit against the broker as an assignee of rights of the owner of the Indian restaurant as well.  In granting summary judgment to the broker, the trial court stated that both had to show that their equitable right to subrogation was superior in position to that of the broker.

 

California allows that an agent who negligently fails to procure requested coverage will be liable to the client in tort for proximately caused damages.  California also allows assignment of claims unless they were to"rongs done to the person, the reputation, or the feelings of the injured party, and to contracts of a purely personal nature, like promises of marriage."  (Citing to Rued v. Cooper, 109 Cal. 682, 693 (1893).  The appellate court then observed that Cal. Civ. Code §§953 and 954 have removed many of the restrictions in assigning claims. Thus recently the California Supreme Court ruled that a cause of action is transferable by its owner if it arises out of a legal obligation or a violation f a property right." (Citations omitted).  The case of Troost v. Estate of DeBoer, 155 Cal. App. 3d 289 (1984) held that broker negligence claims were assignable. 

 

The broker argued that these assignees were barred because they had no right of subrogation directly against the broker and cited to a 1938 California Supreme Court case as support.  Further, there are five elements which an insurer must prove in an equitable subrogation case, including that the loss be shifted from the insurer to the party to be charged "whose equitable position is inferior to that of the insurer."  (Citations omitted).  That is the "rule of superior equities", the purpose of which is to prevent an insurer which has accepted  premiums for issuing the policy should not be able to shift the loss to an innocent party, even if that party between itself and the insured would be liable.  In some instances, equitable subrogation principles will bar a contractual assignee from recovering on an assignment.  The appellate court read the cases in that regard as limiting the assignment only where the assignee is a surety which is not entitled to subrogation.  The owners of the Japanese restaurant were not surety's that made payments on behalf of another. So the doctrine did not apply to them.  AMCO did once occupy the role of equitable subrogee but not as to the owner of the Indian restaurant, but with its insured the owners of the Japanese restaurant.  So it was also allowed to take assignment and pursue equitable subrogation against the owner of the Indian restaurant.  

 


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Insurance Law News: Comment: The Insurance Progeny of Cyber Disasters May Be Coming of Age

Posted By Dean A. Pappas, Wednesday, May 11, 2016

This blog post has been cross posted from the Insurance Section Blog.

 

By Dean A. Pappas

Ropers, Majeski, Kohn & Bentley

 

Disasters beget Standards

The insurance industry was a driving force in the development of modern comprehensive standards and codes relating to the design and construction of buildings.  Following analysis of the fire damage triggered by the 1906 San Francisco Earthquake and other major fires, the National Board of Fire Underwriters (whose successors in interest were eventually integrated into the Insurance Services Office, Inc.) recognized the need for more comprehensive standards and codes.  Initially, building codes dealt mainly with structural safety under fire or earthquake conditions. Comprehensive codes have grown into documents setting minimum requirements for structural stability, fire resistance, means of egress, lighting, ventilation, and other many other subjects. 

 

Similar forces appear to be driving the creation of cyber security standards.  Cyber conflagrations have spread from Excellus BlueCross BlueShield, TalkTalk, Sony, Target, Avid Life Media (owner of Ashley Madison) and many other businesses and entities, public and private.  In light of these disasters, big and small, and evolving market forces, regulatory developments are occurring.  For example, in October 2015, the National Association of Insurance Commissioners adopted a cyber-security “Bill of Rights” that heightens the cyber security obligations of insurers to policyholders.[1] On a larger scale, the U.S. Department of Justice and the Federal Trade Commission have proposed industry-specific guidance on what constitutes a strong cyber security preparation and response plan.[2]  This regulatory trend is not being ignored by publicly traded companies.  A survey of a sample of directors and officers across publicly traded companies conducted in September and October 2015 by the NYSE Governance Services, in partnership with cyber security firm Veracode, found that 72% of the survey participants expected more cyber regulation in the near future.[3]

 

Standards beget Risks

Commercial policyholders have now been collecting and storing data electronically for decades.  Recent and developing standards are increasing exposure to third-party losses and claims.  The frequency, sophistication, and breadth of cyber-attacks related to the stored electronic data continue to grow.  Every new regulatory standard creates a potential foothold for a party injured by a disclosure of personally identifiable information (PII) to establish a breach of a standard of care.  These forces combine to foreshadow a firestorm of third-party claims.

 

Liability claims will not be limited to those asserted by the victims of the disclosure of PII against the insured company.  Claims and suits against directors and officers arising out of alleged failure to protect personal data files are becoming common.  A subject of these claims will include alleged failure to implement controls and procedures consistent with the developing standards and regulations.  Targets of these claims will increasingly include an insured’s chief information officer (CIO) and chief information security officer (CISO).  These claims and suits will not merely arise from the action or inaction alleged to have allowed the cyber security breach to occur, they will likely sweep in wrongful acts during and following cyber events.  Commercial policyholders will be expected to be prepared to respond to a cyber security breach.  Mismanagement of the response to cyber events will be the basis for a second layer of claims against companies and their directors and officers.  

 

In addition to the increased frequency of losses due to cyber attacks, the nature of policyholder’s resulting losses is significantly evolving.  First party risks are not limited to the costs of restoring data and indemnifying business interruption losses.  A recent study concluded that at least 88% of the S&P’s market value consists of goodwill and intangible assets such as reputation.  In comparison, only 17% of market value was goodwill and intangible assets in 1975.[4]  Policyholders now face potentially catastrophic reputational harm triggered by cyber events.  Such cyber events include an attack causing denial or interruption of services in addition to the stigma of being perceived as an untrustworthy protector of PII.  

 

Insureds are increasingly becoming the targets of hacking or malware.  Hackers, for example, have stepped up invasions employing ransomware to lock up an organization’s data and hold it hostage until a ransom is paid.  Specialty insurer Beazley recently confirmed that this trend is borne out by its data which shows that breaches involving ransomware among its clients more than doubled in 2015.  Beazley also observed that the trend appears to be accelerating in 2016.[5]   

 

Risks beget Insurance

While the existence of cyber security and data privacy insurance is not a recent development, the birth rate of policies covering these risks is rapidly increasing.  In a study of 100 U.S. middle-market companies and large corporations, 85% said that they purchase cyber security and data privacy insurance.[6]  The cyber insurance market has been projected to triple to about $7.5 billion in the next five years.[7]  Some industry observers expect premiums to reach $20 billion by 2025.[8] 

 

Obtaining cyber insurance has proved challenging for many companies.  For example, insurance products applicable to a policyholder’s loss of business because of reputational harm caused by a data breach are in their infancy and are not available from many insurers.  Almost half of the companies purchasing cyber insurance reported that the biggest challenges they faced when purchasing coverage was finding a policy to fit the company’s needs (47%) or the cost (42%).[9]  In its 2016 Market Realities report, Willis North America offered observations about the cyber insurance industry including the following:

 

  • Cyber renewals are seeing primary premium increases of up to 15% for most buyers and up to a 150% for point of sale (POS) retailers and large health care companies.

  • Excess cyber losses have caused a few markets to stop writing large accounts and others to increase their premiums significantly in upper layers of $75M+ placements.

  • Underwriting requirements continue to rise including conference calls with third-party security experts.

  • Insurers are also increasing retentions, reducing capacity and exiting certain sectors.

  • First-time buyers (except for POS retailers and large health care organizations) will continue to see a marketplace with favorable terms, conditions and pricing, though not as favorable as in the past, given the shifting competitive environment and paid losses.[10]

 

A lack of concrete actuarial data about cyber risk and incidents has been an obstacle for standardization of cyber insurance products.[11]  Cyber products developed by insurers have been more customized than other insurance policies and also more costly.[12] The Department of Homeland Security is exploring the possibility of a unified cyber incident data repository where companies can share information about cyber attacks anonymously.[13]  The repository may strengthen underwriting and promote uniformity in available insurance products. 

 

In addition to cyber insurance policies, coverage gaps for some cyber-related damage and injury may be addressed by “difference in conditions” coverages (Cyber DIC Coverage).  Cyber DIC Coverage is generally designed to apply to a cyber-related loss that would have been covered by a company’s non-cyber policies but for cyber-related exclusions or limitations. 

 

The involvement of insurers has not been limited to developing cyber insurance coverages.  Insurers, particularly large insurers, have developed products and programs designed to assist insureds in training and compliance efforts, threat intelligence assessment, and the coordination of a breach resolution.

 

Insurance begets Claims

The firestorm of cyber insurance claims is just beginning.  Nearly half of the companies in the study of 100 U.S. middle-market companies and large corporations that had purchased cyber and data privacy insurance reported having to file a claim with their insurer.[14]  Beazley says that its breach response unit handled 60% more data breaches in 2015 than in 2014 in the U.S.[15] 

 

In light of the lack of standardization of cyber insurance policies, it is important to review the entire policy that relates to a particular claim.  Policies may, for example, include specific conditions regarding the policyholder’s adherence to certain loss prevention standards prior to a loss.  These policies typically include several distinct insurance coverages with separate insuring clauses and related provisions.  Coverages may be subject to substantial deductibles or self-insured retentions.  Similarly, subsets of covered risks may be subject to specific sublimits.  Cyber DIC Coverage will also likely include conditions such as a requirement that the non-cyber insurer issue a written denial of coverage based on a cyber-related exclusion in order to trigger coverage. 

 

Claims beget Coverage Litigation

The companies examined in the Wells Fargo survey with cyber coverage losses overwhelmingly reported that they were satisfied with their coverage and how their claim was handled (96%).[16]  This is likely the result of the fact that cyber policies were specifically designed for these risks.  This landscape may change over time. 

 

There has been a minimal flare-up of cyber insurance coverage litigation.  Cyber insurance coverage litigation may be ignited as losses occur by means that were not contemplated when policy forms were drafted.  The lack of standardization of the policies may also give rise to arguments that policy language is ambiguous and must be construed in accordance with the reasonable expectation of the policyholder.[17]  As claim experience and loss data begins to be developed and analyzed, risks or types of losses within the scope of current insuring clauses that were not anticipated will be identified resulting either in the narrowing of some coverages or the addition of exclusions.  While a firestorm of claims is anticipated, a proportional increase in related insurance coverage litigation is not similarly anticipated in the near future. 

 

The insurance progeny of cyber events may be reaching adolescence but are far from maturity.  The breadth of the risks ‒ heightened by the developing standards ‒ will increase the frequency of liability claims.  The nature and scope of insurance coverages that may apply to property insurance losses and liability claims are developing.  Slight differences in policy language and the absence of legal precedent evaluating cyber insurance coverages will require that the terms and conditions of the policy be closely examined at the onset of the handling of each new claim.  Insurance coverage disputes are anticipated but not expected to be overwhelming in volume. 

 



[1] National Association of Insurance Commissioners (NAIC), NAIC Advances Consumer Bill Of Rights During Cybersecurity Awareness Month, http://www.naic.org/Releases/2015_docs/naic_advances_consumer_bill_of_rights_during_cybersecurity_awareness_month.htm

[2] U.S. Department of Justice, Best Practices for Victim Response and Reporting of Cyber Incidents, April 2015; U.S. Securities and Exchange Commission, “Cybersecurity Guidance,”  IM Guidance Update, April 2015, No. 2015-02; also NAIC, Principles for Effective Cybersecurity: Insurance Regulatory Guidance, http://www.naic.org/documents/committees_ex_cybersecurity_tf_final_principles_for_cybersecurity_guidance.pdf

[3] NYSE Governance Services and Veracode, Cybersecurity and Corporate Liability: The Board’s View (NYSE), p. 4

[4] NYSE at p. 2

[5] Beazley Group, Beazley Breach Insights 2016 shows sharp increase in hacking and malware, March 8, 2016 (Beazley Breach Insights), https://www.beazley.com/news/news/beazley_breach_insights_2016_shows_sharp_increase_in_hacking_and_malware.html

[6] Wells Fargo Insurance Services USA, Inc., 2015 Cyber Security and Data Privacy Survey: How prepared are you?, September 2015 (Wells Fargo), p. 2

[7] NYSE at p. 4

[8] Willis North America Inc., Willis Marketplace Realities 2016: Bringing The Pieces Together, October 2015 (Willis), p. 11

[9] Wells Fargo at p. 3

[10] Willis at p. 11

[11] Testimony of Thomas Michael Finan, Chief Strategy Officer, Ark Network Security Solutions, before the U.S. House of Representatives Committee on Homeland Security, Subcommittee on Cybersecurity, Infrastructure Protection, and Security Technologies, “The Role of Cyber Insurance in Risk Management,” March 22, 2016 (March 2016 Homeland Security Committee) (http://docs.house.gov/meetings/HM/HM08/20160322/104668/HHRG-114-HM08-Wstate-FinanT-20160322.pdf)

[12] Testimony of Adam W. Hamm, Commissioner, North Dakota Department of Insurance , on behalf of the NAIC before the March 2016 Homeland Security Committee (http://docs.house.gov/meetings/HM/HM08/20160322/104668/HHRG-114-HM08-Wstate-HammA-20160322.pdf)

[13] See Statement of Subcommittee Chairman John Ratcliffe, March 2016 Homeland Security Committee (https://homeland.house.gov/wp-content/uploads/2016/03/3-22-16-Ratcliffe-Open.pdf)

[14] Wells Fargo at p. 4

[15] Beazley Breach Insights

[16] Wells Fargo at p. 4

[17] See generally Minkler v. Safeco Ins. Co. of America, 49 Cal.4th 315, 321 (2010)

Tags:  cyber insurance 

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