Protect Your Assets: What are Cyber Threats

Authors: Stephanie Hedrick and Michael P. Gould

This scenario has more than likely happened to all of us: You are quietly working on your computer, when all of a sudden a screen pops up, “Your computer has been infected.

“Last year the cost of global cyber crime was estimated to be 388 Billion USD – with an individual falling victim to a form of online crime every 19 seconds.” Lockton UK recently released a report, “Cyber Risk Decoded,” where they provide an in-depth analysis on cyber risks, a problem that is on the rise with the ever-increasing need to go digital.

The report indicated what are the main cyber risks today, showing that the majority of the data breaches were from Human Error or from a glitch in the system, most commonly stolen laptops, flash drives, emails with sensitive customer data, databases not being protected or loss of unencrypted data in transit from one organization to another. Theft, spear phishing, Hacktivism, Denial of Services (DOS), cyber-extortion, cloud computing and emerging themes were also trends in how businesses and individuals are being susceptible to cyber threats.

U.S. Supreme Court Strikes Down State Prohibition on Nursing Home Arbitration

Authors: Amy L. Miles and Marc L. Penchansky

Court invalidates West Virginia law prohibiting pre-dispute arbitration agreements in nursing home admissions contracts. This will likely impact other states who have similar prohibitions like Oklahoma.

The Supreme Court of the United States has recognized “an emphatic federal policy in favor of arbitral dispute resolution.” See KPMG LLP v. Cocchi, 132 S.Ct. 23, 25 (2011). This policy is codified in Section 2 of the Federal Arbitration Act (FAA) which makes arbitration clauses “valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.

In contrast to the federal policy, West Virginia has recognized that the public policy of that state requires its Courts not to enforce in personal injury or wrongful death suits “[a]rbitration clauses in nursing home admission agreements—which were signed prior to the alleged occurrence of negligence that resulted in the person injury or wrongful death of a nursing home resident . . .” See Brown v. Genesis Healthcare Corp., 2011 WL 2611327 (W.Va. 2011). The tension between West Virginia’s policy and the FAA was apparent when three families brought suit against West Virginia nursing homes. In each instance, a family member signed an agreement with the nursing home on behalf of the resident. Each agreement included a clause to arbitrate disputes with the nursing home. The Supreme Court of West Virginia held that the public policy of West Virginia was not preempted by the FAA. According to the State Court, “Congress did not intend for the FAA to be, in any way, applicable to personal injury or wrongful death suits that only collaterally derive from a written agreement that evidence a transaction affecting interstate commerce, particularly where the agreement involves a service that is a practical necessity for members of the public. See Brown.

Nursing Homes Can Enforce Arbitration Agreements Even After Florida Supreme Court Rulings

Author: Amy L. Miles

In two opinions released on February 17, 2012, the Second District Court of Appeal reversed a trial court order denying a nursing home and its Director of Nursing’s motions to compel arbitration. See SA-PG Sun City Center, LLC v. Kennedy, Case No. 2D11-93 (Fla. 2d DCA, Feb. 17, 2012), and Cornwell v. Kennedy, Case No. 2D11-105 (Fla. 2d DCA, Feb. 17, 2012).

The trial court had determined that the arbitration agreement was unconscionable, finding both procedural and substantive unconscionability present in the agreement. Specifically, the trial court found that the representative signing the agreement was unable to read it, did not understand the terms, and had no opportunity for the agreement to be explained to her. These findings, if supported by the evidence, amounted to procedural unconscionability. The Second District Court of Appeal, however, disagreed with the findings. The appellate court found that the trial court’s finding of procedural unconscionability was not supported by the evidence and, therefore, was error as a matter of law.

Contrary to the trial court’s factual findings, the Second District determined that the record showed the representative did not inform anyone that she could not read the agreement and, when given the opportunity, did not ask any questions about arbitration. Because the director of admissions testified that she discussed the arbitration agreement and spent twenty to thirty minutes reviewing the entire admissions agreement with the representative, the evidence could not support the trial court’s findings. The appellate court emphasized that the burden is on the party seeking to avoid arbitration to present evidence to show why it should be avoided. The representative’s argument that she was unable to read the documents was insufficient when she was not prevented from knowing their contents.

Payment but not Remittance is Required to Secure MCARE Fund Coverage

Author: Marc L. Penchansky

In order to defray escalating malpractice premiums, Pennsylvania established the Medical Care Availability and Reduction of Error (MCARE) Fund. 40 P.S. 1303.712. The MCARE Fund provides secondary coverage for professional liability claims. Participating health care providers are required to have $500,000 in primary liability coverage. The second $500,000 of liability comes from the MCARE Fund. The MCARE Fund is supported by annual assessments paid by participating health care providers. Providers pay their assessment to their primary insurer who is required to remit the payment to the MCARE Fund. There is no mechanism for a health care provider to pay their assessment directly to the MCARE Fund. 31 Pa.Code § 242.6(a)(3). Any provider who fails to pay their assessment within sixty days will not be covered by the MCARE Fund. 31 Pa.Code § 242.17(b). So this leads to the question: Will the MCARE Fund cover a provider for their loss when the provider timely paid the assessment but the primary insurance company, unbeknownst to the provider, failed to timely remit the assessment to the MCARE Fund?

This very scenario played out for the facility sued in Scampone v. Grane Health Care, et al, 11 A.3d 967 (Pa. Super. 2010), allocatur granted, 15 A.3d 427 (2011). As noted in an earlier blog entry, the Scampone matter concerns allegedly deficient care provided at a nursing facility. The facility, Highland Park Care Center, timely paid its assessment to its primary insurer but the carrier did not remit the assessment within the required sixty days. After the facility was sued, the primary insurer submitted a request to the MCARE Fund for excess coverage for the facility. The MCARE Fund denied the request because the assessment was not paid on time.

A Hearing Examiner found that the MCARE Fund was required to provide coverage to the facility. The Hearing Examiner noted that the facility did everything right and that the late Assessment was the “result of the MCARE Fund’s ‘collection and remittance’ system whereby medical care providers are directed to pay the carrier but they are not warned or otherwise notified of a carrier’s failure to remit the assessment on time.” See Highland Park Care Center v. Medical Care Availability and Reduction of Error (MCARE) Fund, — A.3d —, 2012 WL 280576, *1 (Pa.Cmwlth., 2012) (publishing prior unpublished opinion).

The MCARE fund appealed to the Commonwealth Court asserting that the Hearing Examiner’s ruling was contrary to applicable statutes, regulations and state law. In Highland Park Care Center, the Commonwealth Court agreed with the Hearing Examiner. The Court ruled that the statute requires only payment of the assessment with sixty days. Id. at *2. The act of remittance from the primary insurer to the MCARE Fund is a separate act that does not bear on coverage. Id.

This case is a common-sense result. With all the i’s that providers must dot and t’s they must cross, it is refreshing to see that providers will not now be required to track their payment and assure that their carrier was compliant.

. . . And the Sky is Blue: Study Shows that Plaintiffs Prefer to File Civil Cases in Philadelphia

Author: Marc L. Penchansky

UPDATE: On February 15, 2012, the Court of Common Plea in Philadelphia County announced changes to the CLC. The Honorable Judge John W. Herron entered General Court Regulation No. 2012-01. The Order eliminated reverse bifurcation in mass tort and asbestos cases unless agreed upon by the parties. The order further limited consolidation in mass tort cases. Out-of-state counsel admitted pro hac vice may only try two mass tort cases a year in Philadelphia. The Court also asked out-of-state asbestos plaintiffs to seek other venues to file their claims in order to resolve a backlog of asbestos cases in Philadelphia.

Earlier this month, the International Center for Law and Economics issued an appendix to its previously published study entitled Are Plaintiffs Drawn to Philadelphia’s Civil Courts? An Empirical Analysis.” It is likely that many Philadelphia area attorneys did not need to break the spine of the study or await the publication of the appendix to answer the title’s question – yes, plaintiffs are attracted to the Philadelphia court system. Indeed, the American Tort Reform Foundation had already labeled Philadelphia with the attention-getting moniker, America’s Number One Judicial Hellhole.

The principal study found that Philadelphia courts had a larger caseload than expected. Further, the study found that Philadelphia plaintiffs overwhelmingly preferred jury trials and were less likely to settle. (p. 2). The preference for Philadelphia as venue for civil cases became particularly apparent when Pennsylvania restricted venue in medical malpractice cases. In 2003, the Supreme Court of Pennsylvania required medical malpractice lawsuits to be filed in the county where the cause of action arose. See Pa.R.C.P. 1006(a.1). The filings of medical malpractice cases in Philadelphia declined 64.9 % from 2000 through 2010. (p. 29). Other Pennsylvania counties observed only a 28.2 % decline during that same time period. (p. 29).

The study also focused on the Complex Litigation Center (CLC). The CLC was the nation’s first courthouse “designed exclusively for complex multi-filed Mass Tort cases . . .” According to the authors, the CLC actively sought to recruit the filing of lawsuits in Philadelphia. (pp. 8-9). The CLC accomplished this by offering to plaintiffs quick and rather rigid trial dates. (p. 9). Further, the CLC required only federally mandated minimum contacts to establish jurisdiction and was permissive in permitting venue. (p. 9). When these attributes are coupled with Philadelphia’s reputation as a big-verdict forum, the hope was that Philadelphia would become attractive to Plaintiffs’ attorneys and “tak[e] business away from other courts.” (pp. 8-9).

The recently released Appendix to the report collected data from mass tort cases filed in Philadelphia. The author tried to ascertain plaintiffs’ home addresses and the locations of the alleged injuries. In 1357 cases, the author learned the home address of the plaintiff and/or the injury location. In 67.2 % of those suits, no connection between Pennsylvania and the plaintiff was apparent (App. at p. 2). Only 13.3% of those cases were filed by plaintiffs who live or were allegedly injured in Philadelphia. (App. at p. 2).

When only home address is considered, 72.8 % of plaintiffs reside out-of-state while a mere 6.1 % of plaintiffs report Philadelphia home addresses. (App. at p. 2). In those cases where evidence of the site of the alleged injury was available, only 35.8% alleged injury in Philadelphia and another 33.1% alleged injury in another Pennsylvania county. When asbestos cases are removed from the calculations, the numbers are more startling. Only 16% of the injuries were located in Pennsylvania and 12% were located in Philadelphia. (app. at pp. 4 and 5).

Warfel v. Universal: The Case of the Vanishing Evidentiary Presumption of Fla. Stat. § 627.7073

Authors: Judd Goodall and Christopher Borzell

The Florida Legislature has mandated that under certain circumstances, an insurance company is required to engage a licensed Professional Engineer or Professional Geologist to conduct sinkhole testing as provided in Fla. Stat. § 627.7072 and in accordance with § 627.7073[FN1]. As insurance companies do not typically have Professional Engineers or Geologists on staff, the carriers rely upon the findings and recommendations of these professionals when the carriers make their claims decisions[FN2]. If an insurance company denies a sinkhole claim based on the professional opinions of engineers or geologists, then the carrier should not be held liable on a breach of contract claim as long as its reliance upon the engineer of record and the subsequent denial were both in good faith. The legislature clearly contemplated this when it enacted § 627.7073 in 2005:

§ 627.7073(1)(c) The respective findings, opinions, and recommendations of the engineer and professional geologist as to the verification or elimination of a sinkhole loss and the findings, opinions, and recommendations of the engineer as to land and building stabilization and foundation repair shall be presumed correct. (2005)

After all, it really seems to be a matter of common sense…how could an insurance company be liable in a breach of contract action when it made a good faith denial based upon professional opinions of engineers and geologists, as is required by law pursuant to Florida Statutes? This was challenged at the conclusion of trial in Pasco County Florida and the issue made its way to the Florida Supreme Court. The Court’s analysis, in Universal Insurance Company of North America v. Warfel,[FN3] focused heavily on the Florida Evidence Code[FN4] as it applies to litigation. However, more focus should have been placed on timing, i.e., at the time of the claims decision, the report “shall be presumed correct,” thereby providing a statutory protection to the insurance company should it be sued in a breach of contract claim based upon the carrier’s reliance upon the “recommendations of the engineer.”

Putting Some Teeth into the Corporate Negligence Doctrine: Pennsylvania Considers Whether Dental Services Organizations can be Found Liable Under the Corporate Negligence Doctrine

Author: Marc L. Penchansky

In Thompson v. Nason Hospital, 527 Pa. 330, 591 A.2d 703 (1991), the Supreme Court of Pennsylvania held that hospitals could be found liable under the then emerging theory of corporate negligence. The corporate negligence doctrine recognizes four non-delegable duties that a hospital owes directly to the patient. The four duties include the following:

• a duty to use reasonable care in the maintenance of safe and adequate facilities and equipment;
• a duty to select and retain only competent physicians;
• a duty to oversee all persons who practice medicine within its walls as to patient care; and
• a duty to formulate, adopt and enforce adequate rules and policies to ensure quality care for the patients.

Id. at 707. The basis for adopting these new standards was the “corporate hospital’s role in the total health care of its patients.” Id. at 708.

The dissent in Thompson felt that the majority was instituting a “deep pocket theory of liability, placing financial burdens upon hospitals for the actions of their own employees.” Id. at 709. The dissent also predicted that corporate negligence liability would not be constrained to hospitals alone. So far that prediction has held true.

When a court is asked to permit liability for corporate negligence against a new type of entity, the court conducts an analysis of whether the entity provides comprehensive care to its patients. A series of precedents has eroded the meaning of comprehensive care and has permitted corporate negligence to apply to entities that provide something less than total care. For example, the Superior Court extended corporate negligence to Health Maintenance Organizations (HMO) despite the fact that HMO’s do not practice medicine. See Shannon v. McNulty, 718 A.2d 828 (Pa.Super, 1998). In Scampone v. Grane Healthcare, Co., 11 A.3d 967 (Pa. Super., 2010), allocatur granted, 15 A.3d 427 (Pa., 2011), the Superior Court applied corporate negligence to nursing facilities and their management companies despite the fact that those entities did not have staff physicians. See id. at 976.

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