Category Archives: Legal Environment

Auto Insurance, Business Insurance, Business Risk, Emerging Risks, Legal Environment, Regulation, Workers Compensation

Cannabis Industry Prospects Brighten;Risks, Challenges Remain

April 20, 2021 Jeff Dunsavage Leave a comment

The future looks brighter every day for the cannabis industry.

From recent findings that cannabis components may lead to treatment or even prevention of coronavirus infection in lung cells to yesterday’s vote by the House of Representatives in favor of the Safe Banking Act, barricades to full legalization just keep falling.

This isn’t the first time the act – which would protect banks from federal penalties for doing business with cannabis-related businesses that comply with state laws – has made it through the House. It was first introduced in March 2019, and the House has approved it three times, only to have the Senate Banking Committee block its progress. But with the current Democrat majority, apparent bipartisan support, and growing public and state-government support for cannabis legalization, the fourth time just might be the charm.

Similar federal “safe harbor” legislation for the insurance industry – the Clarifying Law Around Insurance of Marijuana Act (CLAIM Act) – was introduced last month.

“More optimism”

The Drug Enforcement Agency characterizes cannabis as a Schedule I drug, defined as having “no currently accepted medical use and a high potential for abuse.” Without legislative change, banks and insurers can’t do business with business without risking running afoul of federal drug laws.

“There’s more optimism now and an assumption that they’re going to work to pass some of these bills that have been in motion for a while now, but never hit the point of actually moving forward,” said Max Meade, cannabis insurance advisor at Brown & Brown Insurance. “I’m also seeing more conversations around working to bundle some of these bills that they’ve been talking about and do a larger cannabis reform.”

As states continue to decriminalize marijuana to different degrees, one of the biggest issues facing cannabis businesses is the 280E federal tax burden, which means cannabis businesses can’t expense the normal cost of goods or anything a normal business can during the course of operation, from utilities to payroll and rent. This means marijuana businesses often pay federal income tax rates in the 65–75 percent range, compared to 15-30 percent for other businesses. They are taxed on their gross revenues, unlike all regular businesses, which pay tax only on income after their expenses.

The Small Business Tax Equity Act would provide an exception into the Internal Revenue Code to let cannabis operators – as long as they’re in compliance with state laws – make the same deductions as any other business.

Easier to operate

Passage of these laws would make it easier for cannabis-related businesses to operate. The CLAIM Act would let these businesses obtain insurance to cover the same risks of theft, damage, injury, loss, and liability as all other businesses.

“There are upwards of 30 surplus lines carriers and several managing general underwriters that currently service the cannabis industry across many lines of coverage,” the National Law Review reports. “There also is a small handful of admitted carriers that operate in California, and most recently in Arizona.”

While market capacity for property, commercial general liability, product liability and workers’ compensation coverage has expanded – these policies remain more expensive than the same coverage purchased by similar companies in other industries. Passage of the CLAIM Act would open the doors for more insurers and should bring the cost of insuring marijuana-related businesses much less expensive.

THC persistence a challenge

But challenges will remain – particularly with respect to the workplace. When marijuana was illegal under both state and federal law, employers would typically prohibit employees or employment candidates from using marijuana off-duty as a condition of employment. But as states have begun to permit medical marijuana, things have gotten a bit hazier.

No state requires companies to accommodate on-duty marijuana use. As with recreational marijuana, no state that permits medical marijuana requires employers to accommodate on-duty marijuana use, possession, or impairment. States will often explicitly state that medical marijuana laws don’t affect an employer’s drug-free workplace policy.

Does workers compensation cover a workplace accident in which the injured employee tested positive for marijuana? Persistence of THC – the main psychoactive compound in marijuana – complicates this question, and state courts have differed on this issue, depending on the individual details of each case.

THC persistence also complicates issues around impaired driving.

Health & Safety, Legal Environment

Detained in Dubaifor Getting HighLegally in Las Vegas

April 14, 2021 Jeff Dunsavage Leave a comment

A U.S. citizen is reported to have been detained in Dubai for having smoked marijuana.

In Las Vegas.

Where it’s legal.

Peter Clark, 51, had been in Dubai for one day when he fell ill with pancreatitis and was rushed to the hospital, according to the Daily Mail. Nurses took a urine sample that showed traces of the drug. As required by Dubai law, they informed the police of the results.

Clark had last smoked marijuana days before flying from his home in Las Vegas on a business trip in the United Arab Emirates. Since being released from the hospital he has been required to stay in his hotel while awaiting a decision as to whether prosecutors will charge him.

“I was absolutely stunned to learn that I was being charged due to residual marijuana in my system,” he told the Mail. “I smoked it legally back in America long before I even got on the plane. I knew about Dubai’s strict drugs laws but never for one moment did I think something I legally did in my own country would lead to my arrest.”

Not the first time

This isn’t the first time a foreigner has been arrested in Dubai or elsewhere for legal behavior performed before arriving in the country where the same action is illegal. In 2019, U.K. citizen Laleh Shahravresh was arrested for insulting her ex-husband’s new wife in a Facebook comment, according to Detained in Dubai. Shahravresh reportedly had made the posts three years earlier when she was in London, but she and her teenage daughter were detained when they flew to the Dubai to attend a funeral.

Under the UAE’s cyber-crime laws, a person can be jailed or fined for making defamatory statements on social media. Her case eventually was settled with a fine.

It’s impossible to overstate the importance of understanding the laws and culture of countries you intend to visit. In some countries, those swimsuit selfies you posted several years ago might be deemed pornographic. In others, anti-depressants, painkillers, and even over-the-counter cough syrups are banned or have specific rules around them that could cause you problems.

In Singapore, chewing gum is illegal, except for medical use.

Even harder to anticipate, that portable safe you carry your valuables in – cleverly disguised as an iced tea can – might be lined with plaster that could be mistaken by airport security for cocaine when some of it breaks and leaks out into your luggage.

That’s what happened to North Carolina businesswoman Amanda LaRoque on the island of Roatan, Honduras in 2017. LaRoque spent 10 days in a jail cell known as “the cage” – provided only with water and whatever food or other luxuries gracious locals might bring her – before being released.

No insurance coverage, but…

There is no insurance product that will pay your legal bills if you run afoul of the law in a foreign jurisdiction. However, some travel insurers engage “assistance companies” that will refer insurers’ clients to emergency legal service providers.

Richard Atkins, a principal and legal counsel for Philadelphia-based International Recoveries LLC, is one such provider. For more than 30 years, he has operated an international 24/7 legal hotline.

“We do it for the travel insurance industry, to make sure foreign travel is safer from a legal perspective,” Atkins said in an interview. “We also do it for insurers that cover expats and business travelers, as well as for study-abroad programs.”

Atkins typically works through retainers with assistance companies and sometimes directly with insurers or their in-house assistance providers. The service involves an initial consultation with a lawyer with international experience. Sometimes, Atkins said, the matter can be handled and solved just through that call. Other times that consultation also involves a conference or individual call with or selected network lawyer in the foreign county, and many times that solves the legal problem.

“Where the consultations don’t solve the problem, we make a referral to a colleague in the foreign country,” Atkins said. “That initial call is covered, so for all of this, there is no charge to the caller. In other cases, where the individual or family have no funds to expend for a lawyer, we help obtain the services of free counsel – either court appointed or the public defender.”

Navigating legal proceedings in foreign countries is as much a matter of understanding the culture as the law. A simple matter could easily be exacerbated by missteps in etiquette or failure to demonstrate sufficient remorse or deference. Atkins described a case in which a traveler was facing incarceration for having torn up a wad of the local currency – a serious offense in Thailand.

“We were able to show that the defendant had received psychological treatment as a child for behavior that included tearing up his parents’ money,” Atkins said. “When the judge understood the man’s psychological history, he dismissed the case.”

Penny wise, pound foolish

As I’ve written previously, too few international travelers buy travel insurance – and those who do tend to purchase trip cancellation/interruption coverage only, foregoing medical/medical evacuation coverage. A report by the U.S. Travel Insurance Association (USTIA) found that cancellation/interruption coverage accounted for nearly 90 percent of benefits purchased, while medical and medical evacuation benefits accounted for just over 6 percent.

Remember Peter Clark? The headlines about him focus on the cannabis angle, but his troubles began with an unexpected hospitalization. You’re just as likely to become ill or injured abroad as you are at home – maybe more so, due to lack of familiarity with terrain and customs and sensitivity to food and climate. Why would you venture forth without providing yourself with coverage analogous to what you have in your home country?

And while you’re less likely to be arrested than to get sick or injured, the consequences of legal trouble in a foreign country can be extreme. If you’re planning to travel abroad, buy the medical coverage and ask about emergency legal assistance.

Homeowners Insurance, Legal Environment

Dog bite claims fell 4.6 percent in 2020 despite pandemic pet adoption surge

April 8, 2021 Maria Sassian Leave a comment

Pandemic-related lockdowns have led many people to bring new furry friends into their homes.

A survey from the Insurance Research Council (IRC), found that 21 percent of homeowners reported adopting a dog in 2020.

Despite the increase in the number of dogs in American homes, homeowners dog bite (and related injury), claims fell overall by 4.6 percent in 2020 from the previous year, to 16,990 from 17,800 nationally, according to Triple-I and State Farm analysis.

March had the most dog-related injury claims last year, when people first went into lockdown at the start of the COVID-19 pandemic, according to State Farm. Dog bites were up 21.6 percent from the previous March, likely due to dogs dealing with owner stress, disruption in routines and more people around the house throughout the day. Experts fear another disruption—this time cause by the easing of restrictions for activities outside the home—could lead to another spike in bites.

Though the overall number of claims decreased, the total cost of claims increased by 7.1 percent to $853.7 million, up from $796.8 million in 2019. And the average cost per claim increased 12.3 percent to $50,245, up from $44,760 in 2019.

Dog bite related claims costs have been climbing for years. The average cost per claim nationally has risen 162 percent from 2003 to 2020, due to increased medical costs and the upward trend in the size of settlements, judgments, and jury awards.

Claims costs are attributable not only to dog bites but also to dogs knocking down children, cyclists, and the elderly, which can result in costly injuries.

The latest Triple-I dog bite claim figures are released in conjunction with National Dog Bite Prevention Week, an event held each year to help reduce the number of dog bites.

Children are particularly at risk for dog bites and are more likely to be severely injured, so it’s essential for parents to teach their kids to be safe around strange dogs and their own pets.

Dog training is, of course, key to preventing dog bites and related injuries for everyone, and National Dog Bite Prevention Week’s organizers offer many practical tips. This year, dog experts are particularly focused on re-socializing animals that have been isolated along with their humans for the past year.

To provide more tips for pet owners, members of the National Dog Bite Prevention Week Coalition— which includes the American Veterinary Medical Association (AVMA), State Farm, Insurance Information Institute (Triple I), American Humane and Victoria Stilwell Positively— will be hosting a Facebook Live event on Monday, April 12, at 1 p.m. Eastern.

Triple-I recommends that you check your homeowners or renters insurance policy to be sure it covers liability for dog bites and related injuries. Click here for more details about dog bite liability insurance.

Nevada Class Actions Against Auto Insurers Risk Hurting Policyholders

March 9, 2021 Jeff Dunsavage Leave a comment

Class action lawsuits filed in Nevada last month against 10 auto insurers are more likely to hurt policyholders than help them.

The suits contend that discounts, rebates, and policyholder dividends provided in 2020 – amounting to about $14 billion nationally – were not “meaningful” and that the rates charged violate state law against excessive premiums. The $14 billion figure does not include the more than $280 million in philanthropic contributions the industry has also made during COVID-19 to support communities.

The fact is, auto insurance premium rates fell nationally in 2020 for the first time in a decade. Insurers’ net income after taxes fell 26.1 percent through the third quarter of 2020, compared with the same quarter the previous year. A major factor was the pandemic-related discounts granted in 2020.

“The rate is lower because people are driving less,” said Triple-I chief actuary James Lynch, noting that during a lockdown period in the spring driving was down as much as 50 percent. Fewer cars on the road should lead to fewer accidents, and this expectation is what led insurers to proactively provide discounts and other policyholder benefits during the pandemic. Many auto insurers have built these discounts into premium rates for 2021, Lynch said.

Accidents down, fatalities up

Accidents did decline in 2020; unfortunately, traffic fatalities and claims increased. According to the National Highway Traffic Safety Administration (NHTSA), fatalities rose 4.6 percent in the first nine months of 2020, despite overall vehicle miles traveled having decreased. Fatalities in the third quarter of 2020 were 13 percent higher than in the same period of 2019 – the largest such increase in more than a decade. This suggests that driver behavior deteriorated rapidly and significantly during the pandemic.

The 2020 premium reduction would have even been larger, Lynch said, “if people had slowed down.”

Claims rising faster than premiums

Even before COVID-19, auto damage claims were rising faster than general inflation, and auto insurance premium increases trailed inflation. Fatalities had been declining as cars became safer – but safety technology is expensive, making repairs more costly and driving up the size of policyholder claims.

The 2020 trend of increasing fatalities could worsen as traffic volume returns to pre-COVID levels. Data show that many motorists who substantially increased their driving speed when traffic was 50 percent below normal have not slowed down as traffic increased, Lynch said.

“The concern is that frequency patterns will return to the norm, but fast driving will keep claim severity high, putting upward pressure on rates,” Lynch said.

The salient point is this: Insurers have kept their promises to pay claims, given $14 billion back to policyholders, and generously supported communities through philanthropy – even as rising accident severity during the pandemic dented their net incomes. Defending themselves against frivolous litigation will only add to their expenses, and lower premiums are unlikely to be the result.

Business Risk, Insurance Industry, Legal Environment, Risk Management, Webinars

Experts discuss social inflation in a Tobin College of Business webinar

February 11, 2021 Maria Sassian Leave a comment

Social inflation – increasing insurance claims costs related to legislative and litigation trends – may be spreading beyond the United States, attendees were told at a webinar with the Greenberg School of Risk Management of St. John’s Tobin College of Business.

The webinar, held on February 10, was aimed to help lawyers and claims professionals understand the phenomenon, which is characterized by claims costs rising faster than general economic inflation can explain.

Annette Hofmann, Ph.D., professor of actuarial science at the Maurice R. Greenberg School of Risk Management, Insurance and Actuarial Science, pointed out that “though it is largely a U.S. issue, there are signs of social inflation in other countries with potential for further international contagion, albeit not to the same degree as in the U.S.”

She added that the impact of social inflation in the U.S. has been most evident in commercial auto liability insurance.

“Litigation finance, societal attitudes toward corporations and large jury payouts are all behind the phenomenon,” according to James Lynch, Chief Actuary of Triple-I and one of the presenters.

In his presentation, Lynch showed how incurred losses in commercial auto liability have been climbing steeply since 2010.

Lynch said Triple-I studied the link between social inflation and trends in actuarial data (rising loss development factors) by focusing on long-tailed liability lines including Commercial Auto, Medical Malpractice and Other Liability.

He said actuaries look at the pattern of reported losses – the sum of claims experts’ estimates of every known loss. Even if the ultimate amount of claims rises or falls from year to year, the pattern of emergence should stay the same. That hypothesis is at the core of standard actuarial practices.

In this case, it is increasing.

One interesting offshoot of this work is that actuaries can also predict how much in losses will be reported in any 12-month period. The chart on the right shows how actuaries analyzing countrywide data have not been able to do this in commercial auto. And this is not just happening in auto, medical malpractice occurrence, and other liability are seeing the same effect.

Lynch went on to discuss some of the potential reasons behind large jury payouts. One explanation is the darker view of life that people have. Confidence in government has plummeted, incomes and life expectancy have declined, and Google Trends indicates that searches for the word “dystopia” have increased by over 400 percent from 2005 to 2020.

In the meantime, Lynch and another presenter, Julie Campanini of Magna Legal Services, noted that huge amounts of money have been normalized by billion-dollar lottery jackpots, sky-high celebrity net-worth, and news reports of “nuclear” awards verdicts.

Other speakers included:

Jonathan E. Meer, partner at Wilson Elser, who spoke about the state of tort reform.
Jeff Cordray, a vice president and economist at Christensen Associates, who discussed the importance of determining economic damages, particularly when there is a potential for punitive damages in a case.

To view the slides from the webinar click here.

Business Risk, Insurance Industry, Legal Environment

Study: Most Americans disapprove of COVID-19 lawsuits, prefer government aid for small businesses

February 1, 2021 Maria Sassian Leave a comment

The vast majority of Americans believe COVID-19 relief should come via public policy solutions — and not litigation — according to polling released last week by the American Tort Reform Association (ATRA).

Key takeaways from the poll include:

59% say those harmed by the pandemic should get assistance from policies passed by elected officials, versus just 7% who say they should get payouts from lawsuits;
74% say small businesses affected by COVID-19 should be supported by government grants or loans versus 6% who say lawyers should help small businesses pursue legal claims.

More information on the polling results is available on ATRA’s website.

For information on the principles the broader insurance industry has put forth for a government-backed pandemic policy solution, click here

Emerging Risks, Legal Environment

What Is Social Inflation? What Can InsurersDo About It?

January 25, 2021 Jeff Dunsavage Leave a comment

A recent study by the Geneva Association on the topic of “social inflation” addresses the challenges of defining and quantifying the phenomenon. More important, it takes on the question of what insurers and reinsurers can actually do about it.

“Social inflation is a term that is widely cited in insurance debates but it is often ill-defined or at best only loosely explained,” the report begins. Broadly speaking, it “refers to all ways in which insurers’ claims costs rise over and above general economic inflation.”

Actuaries typically label such growth in claims costs “superimposed inflation,” the study says, but their measures “may not adequately account for advances in medical technology, which create new therapies, change the costs of treatment, and increase the lifespan of seriously injured claimants,” as well as other considerations.

More narrowly, the report says, “social inflation refers to legislative and litigation developments which impact insurers’ legal liabilities and claims costs.”

The definitional difficulties are well illustrated in the rendering below, from the study.

Understanding what drives these costs – and whether they are temporary phenomena or a long-term trend – is essential to adequately pricing insurers’ exposures and enabling them to pay claims.

Major drivers, possible solutions

Rollbacks in tort reforms stemming from past insurance availability and affordable crises have been implicated by some for driving social inflation. The report finds that any such correlations are “weak at best.”

More significant, the study found, are shifting judge and jury attitudes in ways favorable to plaintiffs; growing anti-corporate bias; and aggressive tactics used by plaintiff attorneys, including third-party litigation funding.

What can insurers do to battle social inflation? The report suggests four areas of focus:

Engage in the public-policy debate to promote legislative changes that further level the playing field between plaintiffs and defendants;

Get better at defending against aggressive and increasingly well-armed plaintiffs’ attorneys;

Upgrade underwriting to reduce opportunities for claims surprises. “Insurers need better early-warning systems,” the report says, drawing on information from across their organizations, their own and competitor liability cases, and data from social and digital media;

Develop products with an eye toward mitigating social inflation. Given the scale of potential liability exposures, the report says, “co-participation arrangements” to share risks among reinsurers could help maintain and even expand the boundaries of insurability. Parametric insurance also might have a role to play.

More on social inflation, from the Triple-I Blog

LITIGATION FUNDING RISES AS COMMON-LAW BANS ARE ERODED BY COURTS

SOCIAL INFLATION AND COVID-19

LAWYERS’ GROUP APPROVES BEST PRACTICES TO GUIDE LITIGATION FUNDING

IRC STUDY: SOCIAL INFLATION IS REAL, AND IT HURTS CONSUMERS, BUSINESSES

FLORIDA’S AOB CRISIS: A SOCIAL-INFLATION MICROCOSM

Legal Environment

Litigation Funding Rises as Common-Law Bans Are Eroded by Courts

December 29, 2020 Jeff Dunsavage Leave a comment

Litigation funding – the practice of third parties financing lawsuits in exchange for a share of any funds the plaintiffs might receive – was once widely prohibited. As these bans have been eroded in recent decades, the practice has grown, spread, and become a contributor to social inflation: increased insurance payouts and loss ratios beyond what can be explained by economic inflation alone.

Social inflation is a broad term that insurers use to describe these rising expenses. Litigation funding is just one factor driving it.

The relevant legal doctrine – called “champerty” or “maintenance” – originated in France and arrived in the United States by way of British common law. The original purpose of champerty prohibitions, according to an analysis by Steptoe, an international law firm, was to prevent financial speculation in lawsuits, and it was rooted in a general mistrust of litigation and money lending.

The erosion of champerty prohibitions can be traced to the early 1990s in the United Kingdom and Australia.

“By the mid-1990s, a handful of Australian states had already done away with Maintenance and Champerty offenses such that they were no longer crimes or torts,” according to an article published by Harvard Law School’s Center on the Legal Profession. “Whether this rendered litigation finance permissible, however, remained doubtful. One jurisdiction [New South Wales] notably abolished Maintenance and Champerty offenses through formal legislation.”

These moves, the article goes on to say, “produced ambiguity around the use of litigation finance arrangements, where before they were more clearly prohibited.”

England, Canada, and Australia have since largely abandoned their laws against champerty, Steptoe writes, but Ireland, New Zealand, and Hong Kong continue to prohibit certain transactions as “champertous.”

Slow to take hold in U.S.

Despite the size of the potential market, litigation funding took time to gain traction in the United States because prohibitions on champerty are left to state legislatures and courts. Some states have abandoned their anti-champerty laws over the past two decades. Others still prohibit champerty, either by statute or common law. Some, like New York, have adopted “safe harbors” that exempt transactions above a certain dollar amount from the reach of the champerty laws.

Minnesota recently became the latest state to abandon its champerty prohibition. In Maslowski v. Prospect Funding Partners LLC, the Minnesota Supreme Court held that the litigation funding agreement under consideration was champertous; however, it also held that champertous contracts no longer contravene “public policy as we understand it today.”

The court explained that the common-law prohibition against champerty was originally based on a desire to prevent abuse of the court system by individuals wealthy enough to finance lawsuits. It held that the doctrine against champerty is no longer the only or best tool for achieving that goal – and, in fact, may “increase access to justice” by enabling individuals who might not otherwise have the financial means to pursue their claims in court.

Courts drive decline of anti-champerty laws

The Minnesota Supreme Court was able to abolish the doctrine, Steptoe writes, because Minnesota’s prohibition was based on common law, rather than statute. This is in contrast to New York, where the prohibition is statutory. Re-examining it is the responsibility of the state legislature, not the courts.

As the popularity of litigation funding – along with awareness of its impact on insurers and policyholders – grows, the practice has come under increased scrutiny. The policymaking arm of the American Bar Association (ABA) recently approved a set of best practices for such arrangements.

The resolution – adopted by the ABA’s House of Delegates by a vote of 366 to 10 – lists the issues lawyers should consider before entering into agreements with outside funders. While it avoids taking a position on the use of such funding, it recommends that lawyers detail all arrangements in writing and advises them to ensure that the client retains control.

The resolution also cautions attorneys against giving funders advice about the merits of a case, warning that this could raise concerns about the waiver of attorney-client privilege and expose lawyers to claims that they have an obligation to update this guidance as the litigation develops.

Legal Environment

COVID-19-Related Litigation: A Snapshot

November 12, 2020 Jeff Dunsavage Leave a comment

At a recent webinar hosted by the American Tort Reform Association (ATRA), Cary Silverman, a partner at the law firm of Shook, Hardy & Bacon, presented a breakdown of COVID-19-related litigation drawn from his firm’s research.

The charts below are based on 4,283 complaints that – while not comprehensive – provide a useful snapshot of the types of litigation and their relative frequency. They were updated on November 8.

Contract-related cases accounted for 1,255 suits and the largest percentage. Not far behind are insurance cases – mainly involving business interruption – at 1,054 and employment cases at 910. Employment cases, Silverman said, allege wrongful termination or failure to pay employees properly during the pandemic.

Taken together, the three broad categories – contract, insurance, and employment – account for more than 75 percent of COVID-related litigation to date.

Among contract cases, the largest share is in the Miscellaneous category (278 cases), which Silverman said are general contractual disputes where performance was affected by the pandemic. The second-largest group (262) consisted of lawsuits against schools (primarily higher education), seeking refunds of tuition and fees. Next come litigation involving leases (225) and event, ticket, or other refunds (224).

Cases involving actual exposure to the coronavirus come in relatively low, at 343 (8 percent), a fact that Silverman attributes to the economic lockdown.

“As more businesses reopen, exposure cases are likely to increase,” he said.

Perhaps unsurprisingly, nearly half of those cases (164) have involved nursing homes. Cruise ship passengers account for 64 exposure claims, and suits related to exposure risk have totaled 58. At least 44 cases to date have involved employee injury or death.

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