By Melissa Walker, Asst. Attorney General, NC Department of Justice

I carefully plan my work day in hopes of not having to be alone in the office after hours or when most people aren’t working. I call my spouse/parent/roommate before I leave my building and walk to the parking deck so someone knows where I am and what I am doing. I walk to the car with my keys out and ready so I don’t have to spend time looking for them and not paying attention to my surroundings. Usually, I have the metal piece of the key between my first two fingers so I can use it as a weapon if I were attacked. Before I get in my car, I look in the back seat to make sure no one is in my car. 

I don’t schedule repair people to come to the house when I am home alone. I don’t answer the door when I am home alone.  I don’t tell callers I am home alone. 

I don’t wear headphones when I go running. I tell my spouse/parent/roommate my intended path before I leave the house. If I deviate at all, I let someone know where I am. 

These things may sound like standard safety tips or maybe the practices of a hyper-paranoid individual. In fact, I would venture to say, they are more likely the standard practices of half our population – practices that are done routinely without much further thought. I would also bet these are practices that would never even cross the minds of the other half of our population.  Go ahead.  Ask your spouse or significant other. What precautions do they take, or are these types of safety precautions not even on their radar? 

#MeToo is a viral hashtag that began in October 2017, following the Harvey Weinstein sexual abuse allegations. The #MeToo Movement was popularized by several high profile American celebrities and intended to highlight the prevalence of sexual assault and sexual harassment, especially in the workplace. Although the hashtag went viral in 2017, the roots of the Movement go back as early as 2006, when Tarana Burke began using the phrase to raise awareness of the pervasiveness of sexual abuse and assault in society.  Recently, the impact of the Movement was returned to the media spotlight with the sexual assault claims and courageous testimony of Dr. Christine Blasey Ford during the confirmation hearings of then Supreme Court nominee Brett Kavanaugh.    

So, beyond becoming a more educated, well-rounded individual, why is this relevant to you, your practice of law, and the North Carolina Association of Defense Attorneys (NCADA)?  The short answer:  diversity and the business case for diversity.  The Diversity Committee of NCADA strives to highlight topics that are relevant to your practice, but also topics that contribute to the enrichment of our profession as a whole.  Last year, the Diversity Committee presented topics focusing on race relations.  This year, we are highlighting topics addressing gender differentials.  The Committee selected both of these topics in furtherance of the business case for diversity. 

A recent online survey suggests that 81% of women and 43% of men have experienced some form of sexual harassment in their lifetime.  A 2017 Survey Report found at the Center for Disease Control (CDC) represents that one in three women and one in six men have experienced some form of contact sexual violence in their lifetime.  A 2010 Summary Report found at the CDC represents that one in five women and one in 71 men will be raped at some point in their lives, while a 2001 Violence in the Workplace study shows that eight percent of rapes occur while the victim is at work. 

Think of ten women in your workplace. Statistically speaking, eight of those ten women have experienced some form of sexual harassment and two of those women have been raped. The statistics are staggering; but again, why is this relevant here?

Research shows that the disparate impact of sexual assault and sexual harassment on women in the profession forces women out of jobs and affects their career attainment.  Not only does the employer lose out on a qualified, diverse employee and their investment in that employee’s training and skills, but employers also face an increased turnover rate and a potentially hostile work environment from harassment claims that can lead to absenteeism, decreased morale, animosity, stress, and low productivity among staff. 

Expensive lawsuits can result when companies fail to adequately prevent sexual harassment or when a company fails to properly handle a sexual harassment claim.  In the past several years, jury awards in sexual harassment claims have been significant.  In one claim, filed by the EEOC involving a rape and sexual harassment allegation against three male supervisors, the jury awarded the plaintiffs $17.4 million dollars.  In another case against a global CEO from New York, a jury awarded a former employee $18 million dollars for retaliation, after the CEO’s unwanted sexual advances were refused. 

Ultimately, the impact of sexual harassment and sexual assault affect a business’s bottom line, as illustrated by the business case for diversity.  Today’s clients demand a diverse workforce; yet, many employers struggle with the recruitment and retention of qualified, diverse applicants.  The impact of sexual assault and harassment on a diverse workforce remains one of many factors in this continual struggle. 

As the Diversity Committee continues to develop and explore this topic at upcoming CLEs, events, and publications in 2019, we hope you will engage with us as we endeavor to create a more diverse and enriched profession. 

Specific questions on these topics?  Ideas for future topics?  Please let us know!  MelissaKWalker6@gmail.com

Opening the Pod Bay Doors to Assessment of Risk and the Future of Commercial Automobile Coverage

By William A. Bulfer and Brian M. Love

Among other things, autonomous programs that can “learn” through shared data retention and cooperative analysis are likely to eliminate risk on certain fronts, while creating new risks on others.

Early in 2018, the senior vice president and chief economist of the American Trucking Association issued what he referred to as his “warning shot to the industry.” John Kingston, ATA’s Costello Projects Out the Driver Shortage, and It’s a Big Number, Freight Waves (Apr. 3, 2018), https://www.freightwaves.com. The supply of truckload drivers in the United States over the next eight years is projected to be woefully inadequate. Unless something changes, there could be a shortfall of 175,000 drivers by 2026.

For an industry realizing more than $700 billion in annual revenue, the need for increased capacity is ripe for substantial investment. Technology that can produce greater efficiency and reduce risk has been in place for years and continues to be developed. While we are not yet living in a world where Hal 9000 from 2001: A Space Odyssey is driving tractor trailers, smaller scale artificial intelligence in the form of GPS, electronic logs, and crash-data retrieval is already widespread and soon to be mandatory. Fully autonomous vehicles have progressed to the development phase, with driverless pilot programs already in operation. As this trend continues, issues relating to insurability and allocation of risk are sure to follow.

The present and future use of artificial intelligence in the trucking industry raises many questions. From the standard ISO commercial auto coverage forms and the associated MCS-90 endorsement, to commercial general liability and cyber liability forms, the expansion of artificial intelligence into an industry as diverse and widespread as trucking is a critical issue for both commercial auto carriers and the broader insurance market alike. This is particularly true given the possibility of risk transfer, allocation, and apportionment, as well as the Federal Motor Carrier Safety Administration’s heavy oversight of the industry. Whether it should continue with the current regulatory and insurance standards, merge into other sectors of insurance, or begin an entirely new insurance and regulatory scheme is one of the most pressing issues in the trucking industry.

Historical Context

While the advancements discussed here are relatively new, the concept of technological advances working their way into the transportation sector is not. As stated by U.S. Secretary of Transportation Anthony R. Foxx in the U.S. Department of Transportation’s 2016 Federal Automated Vehicles policy, “Technology in transportation is not new. In fact, the airplane, the automobile, the train and the horse-drawn carriage all introduced new opportunities and new complications to the safe movement of people and goods.” U.S. Dept. of Transportation, DOT HS 812 329, Federal Automated Vehicles Policy (2016). Automation in vehicle movement is simply the next logical step in the evolution of vehicular technology.

Though this article focuses on the commercial trucking sector, no discussion of artificial intelligence in a vehicular context can be had without some discussion of passenger automobiles. Historically, advances in vehicular safety have largely started in the consumer auto sector and have worked their way into the trucking sector. From early advances in seat belt technology to the modern crash avoidance systems, advancements within the consumer sector that add value to trucking are routinely implemented and further developed. In doing so, these advances generally facilitate safety and efficiency.

Safety

Of the 37,461 lives that were lost on U.S. roadways in 2016, nearly 10 percent involved large trucks. Nat’l Highway Traffic Safety Admin., Traffic Safety Facts 2016 Data (May 2018). Safety concerns are not, however, limited to the public’s encounters with large trucks on the road. More truck drivers (852) were killed while working than any other single occupation in 2016. Mark Baumgartner, Most Deadly Occupation: Truck Driver, ABC News, https://abcnews.go.com.

The introduction of artificial intelligence is projected to reduce and eventually remove the opportunity for driver error, which will increase safety for drivers and the motoring public alike. According to a study by the Insurance Institute for Highway Safety, Google’s driverless vehicles, which have covered more than two million miles, have been involved in less than 20 collisions, none of which were caused by autonomous vehicle system failure. Ins. Inst. for Highway Safety, Special Issue: Autonomous Vehicles, Status Report, Vol. 53, No. 2 (2016).

In October 2015, the University of Michigan released a study that found that self-driving vehicles were not at fault for any of the crashes in which they were involved. Brandon Schoettle & Michael Sivak, A Preliminary Analysis of Real-World Crashes Involving Self-Driving Vehicles (Univ. of Mich. Transp. Res. Inst., Report No. UMTRI-2015-34, Oct. 2015). In a July 2018 white paper, Travelers noted a series of 2017 reports from KPMG that estimated “a 90-percent reduction in accident frequency by the year 2050.” Travelers Inst., Insuring Autonomy: How Auto Insurance Can Adapt to Changing Risks (White Paper, July 2018), https://www.travelers.com/travelers-institute. Stated simply, the introduction of artificial intelligence and autonomous vehicles will make trucking safer.

Efficiency

Autonomous vehicle technologies can increase efficiency and flexibility with industry supply chains and logistics operations. A combination of autonomous vehicles and other smart technologies can reduce labor costs and increase equipment and facility productivity. Moreover, once it is automated fully, a lean supply chain may help reduce overall load sizes and stock by leveraging smart distribution technologies and smaller autonomous vehicles.

Through the “internet of things” communication between logistics units and operating units with automated decision making and coordination is increasingly possible. As data is collected, it can be stored, and more importantly, evaluated and shared, to increase efficiency throughout the trucking marketplace. As the trucking industry moves toward more complete automation, the demand for drivers will correspondingly decrease to some extent, reducing the present driver shortage severity. If human truck drivers are ultimately displaced by artificial intelligence, efficiency will increase even more by reducing the downtime currently required by human operators.

Levels of Autonomy

The Society of Automotive Engineers (SAE) has published an accepted standard identifying five levels of motor vehicle automation. Taxonomy and Definitions for Terms Related to On-Road Motor Vehicle Automated Driving Systems, SAE J3016 (2016). Each level is based the extent of driver involvement in relation to the automated system:

SAE Level 0: the human driver does everything.

SAE Level 1: an automated system on the vehicle can sometimes assist the human driver conduct some parts of the driving task.

SAE Level 2: an automated system on the vehicle can actually conduct some parts of the driving task, while the human continues to monitor the driving environment and performs the rest of the driving task.

SAE Level 3: an automated system can both actually conduct some parts of the driving task and monitor the driving environment in some instances, but the human driver must be ready to take back control when the automated system requests.

SAE Level 4: an automated system can conduct the driving task and monitor the driving environment, and the human need not take back control, but the automated system can operate only in certain environments and under certain conditions.

SAE Level 5: the automated system can perform all driving tasks, under all conditions that a human driver could perform them.

The National Highway Traffic Safety Administration (NHTSA) Federal Automated Vehicles Policy incorporates the five-level classification in SAE J3016 and projects that level five automation will be achieved by 2025, noting,

Fully autonomous cars and trucks that drive us instead of us driving them will become a reality. These self-driving vehicles ultimately will integrate onto U.S. roadways by progressing through six levels of driver assistance technology advancements in the coming years. This includes everything from no automation (where a fully engaged driver is required at all times), to full autonomy (where an automated vehicle operates independently, without a human driver).

As integration continues, the risk of driver error will necessarily decrease and the application of traditional insurance models will result in new challenges.

Existing and Emerging Technologies

With the trucking industry bringing in hundreds of billions of dollars each year, the use of artificial technology is limited more by capacity than demand. As a result, research and development have increased. Motor carriers and vendors for the trucking industry similarly are continually looking to create and implement artificial intelligence to increase efficiency, safety, and ultimately, profitability.

When considering artificial intelligence it is tempting to think of Hal subsuming the role of humans. The reality, however, is that artificial intelligence has been part of daily life in the trucking industry for some time. Current technologies include radar sensors, onboard cameras, laser distance measuring (LiDAR), GPS systems, and the interactive technology that integrates these systems into a single truck. Crash-data retrieval systems and associated technology make driving a truck and reacting to acute risk safer. When a collision does occur, the data can be analyzed and learned from, improving safety and accurate risk apportionment.

Artificial intelligence also helps with logistics, through electronic logging (ELD) and the use of systems that track everything from breaking, to traffic patterns and sleeping habits of drivers. Indeed, the use of ELDs has been so universally accepted as positively affecting safety and efficiency that Congress has mandated their implementation as part of its Moving Ahead for Progress in the 21st Century Act. Other technologies such as blind-spot monitoring, automatic emergency braking (crash-eminent braking), forward collision warning systems, following distance-monitoring systems, pedestrian automatic-emergency braking systems, and lane-keeping support are similarly being placed in power units with increased frequency.

Current Regulatory Climate

Overlaying the insurance challenges as the trucking industry becomes more autonomous is the question of how regulatory and legislative changes will affect future risk handling. The Federal Motor Carrier Safety Administration (FMCSA) requirement for insurance and application of the MCS-90 endorsement are bound to affect future claims in the autonomous sector. At the same time, federal and state efforts to understand and to legislate in the autonomous-use arena are already taking place.

U.S. Department of Transportation – National Highway Traffic Safety Administration

In September of 2017, the U.S. Department of Transportation’s NHTSA updated its “Federal Automated Vehicles Policy.” The policy sets forth guidelines and policies for vehicle performance, current and future federal regulatory tools, and model state policies.

The NHTSA envisions that autonomous vehicle technology will be regulated at the federal level, while the states would be responsible for licensing drivers, registering autonomous vehicles, enacting and enforcing traffic laws, conducting safety inspections on autonomous vehicles, and regulating autonomous vehicle insurance and the allocation of liability.

The NHTSA has promulgated model state policies governing highly automated vehicles (HAVs). In creating the model state policies, the NHTSA’s goal is to avoid a “patchwork of inconsistent laws and regulations” among the states. To this end, the NHTSA makes certain recommendations for state-level regulations on HAVs, such as who must carry motor vehicle insurance and who is the “driver” of an HAV for purposes of determining accident fault. For example, the NHTSA recommends that states consider a human to be the “driver” of a vehicle when the “human is primarily responsible for monitoring the driving environment (generally SAE Levels 1-2)” for purposes of traffic laws. Such a bright-line rule becomes more difficult to apply as the extent of autonomy increases beyond SAE Levels 1–2 toward a fully autonomous vehicle.

As a consequence, the NHTSA has recognized that a comprehensive regulatory framework is not practical at present and could have unintended consequences. State laws and regulations allocating tort liability could eventually have a significant effect on consumer demand and acceptance of HAVs, the rate at which HAVs are deployed, and the cost of insuring operation of HAVs. The NHTSA thusly foresees that in the future, the states “may identify additional liability issues and seek to develop consistent solutions” and that it “may be desirable to create a commission to study liability insurance issues and make recommendations to the States.”

Federal Motor Carrier Safety Administration

On April 24, 2017, the FMCSA held a public listening session to solicit information relating to the design, development, testing, and integration of automated driving system-equipped commercial motor vehicles. Highly Automated Commercial Vehicles Public Session, 82 Fed. Reg. 18,096 (Apr. 17, 2017). September 2017 policy expressed the belief that FMCSA regulations would require that “a trained commercial driver must be behind the wheel at all times, regardless of any automated driving technologies available on the commercial motor vehicle, unless a petition for a waiver or exemption has been granted.” Request for Comments on Federal Motor Carrier Safety Regulations on the Safe Testing and Deployment of Automated Driving Systems-Equipped Commercial Motor Vehicles, 83 Fed. Reg. 12,933,  12,935 (Mar. 26, 2018).

The FMCSA has encouraged states to “work together to standardize and maintain road infrastructure including signs, traffic signals and lights, and pavement markings” so as to better enable the application of artificial intelligence across state lines.” . Volpe Nat’l Transp. Sys. Ctr., Review of the Federal Motor Carrier Safety Regulations for Automated Commercial Vehicles: Preliminary Assessment of Interpretation and Enforcement Challenges, Questions, and Gaps, No. FMCSA-RRT-17-013, (Mar. 2018). A few states, including California, already have laws in place allowing for the testing of autonomous vehicles on public roads. Cal. Code Regs. Title 13, § 227.00, et seq. (2018).

Application of the Traditional Insurance Model

In the trucking context, the traditional insurance model is based on negligence, or more plainly stated, driver error. Semi-autonomous operation has already been shown to reduce the margins of error, and as discussed above, greater implementation of artificial intelligence has the potential to remove virtually all operator error.

As this trend continues, insurance practices and markets will face new challenges and a new paradigm for insurance and risk transfer. These challenges are complicated further in the trucking sector with the application of the MCS-90 Endorsement for Motor Carrier Policies of Insurance for Public Liability under Sections 29 and 30 of the Motor Carrier Act of 1980.

The Present Paradigm—Commercial Auto Policy and the MCS-90

In most cases, the party at fault for an auto accident is the driver. In a world of autonomous vehicles, however, it is foreseeable that liability will shift to the manufacturers of autonomous vehicles, suppliers of their components, and data service providers. At what point will liability shift away from the driver?

The insuring agreement under the standard ISO commercial auto form provides coverage for “all sums an ‘insured’ legally must pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies, caused by an ‘accident’ and resulting from the ownership, maintenance or use of a covered ‘auto’.” This raises the question of whether an accident involving an autonomous vehicle would be covered. The answer to this question depends on whether the autonomous vehicle is an “auto,” and whether the accident resulted from the insured’s “maintenance or use” of the autonomous vehicle.

The ISO commercial auto forms generally define “auto” as “ [a] land motor vehicle, ‘trailer’ or semitrailer designed for travel on public roads” or “[a]ny other land vehicle that is subject to a compulsory or financial responsibility law or other motor vehicle insurance law where it is licensed or principally garaged.” The definition of “auto” excludes “mobile equipment.” The definition of “mobile equipment” excludes “[l]and vehicles subject to a compulsory or financial responsibility law or other motor vehicle insurance law.” Noticeably absent from the ISO commercial auto form is the mandate that an auto be operated by a human. Without some clarification on this point, questions regarding the applicability of the terms “auto,” “maintenance,” and “use” will likely become a source of coverage litigation for years to come.

In litigated cases involving property damage and personal injury, the present system that facilitates (relatively) prompt resolution of claims and compensation to victims is likely to become slower due to the introduction of these coverage questions. Still, without moving to a no-fault system, it is difficult to see how these increasingly complicated issues with regard to fault and insurability can be quickly streamlined. As a result, legislative action or movement within the current insurance framework presently represent the two most likely solutions.

Under the majority view, the terms of the MCS–90 endorsement supersede the terms of an underlying insurance policy so as to determine the relationship between an injured member of the public and the MCS–90 insurer. Carolina Cas. Ins. Co. v. Yeates, 584 F.3d 868, 878–79 (10th Cir. 2009). While the majority of cases conclude that the MCS–90 endorsement only operates to protect the public and does not alter the relationship between the insured and the insurer, the practical effect on trucking insurers, even as artificial intelligence becomes more prevalent, is likely to be an immediate obligation to indemnify when public liability risk is involved.

The MCS-90 endorsement applies to and provides coverage for public liability risk as follows:

In consideration of the premium stated in the policy to which this endorsement is attached, the insurer (the company) agrees to pay, within the limits of liability described herein, any final judgment recovered against the insured for public liability resulting from negligence in the operation, maintenance or use of motor vehicles subject to the financial responsibility requirements of Sections 29 and 30 of the Motor Carrier Act of 1980 regardless of whether or not each motor vehicle is specifically described in the policy and whether or not such negligence occurs on any route or in any territory authorized to be served by the insured or elsewhere.

The MCS-90 endorsement also states,

It is understood and agreed that no condition, provision, stipulation, or limitation contained in the policy, this endorsement, or any other endorsement thereon, or violation thereof, shall relieve the company from liability or from the payment of any final judgment, within the limits of liability herein described, irrespective of the financial condition, insolvency or bankruptcy of the insured.

The broad scope of coverage, “resulting from negligence in the operation, maintenance or use of motor vehicles,” absent legislative reform, may thus implicate commercial auto coverage, even if liability is not directly attributable to the driver or motor carrier.

Collectively, new technologies have had positive effects on logistics, truck function, and driver function with corresponding safety, efficiency, and environmental benefits. Developing technologies are expected to bring increasing vehicle autonomy and continued, positive results. Refinement of current technology and development of new technologies continues and compounds. The ability of autonomous programing to “learn” through shared data retention and cooperative analysis is likely to eliminate risk on certain fronts, while creating new risks on others.

While the frequency and severity of collisions are likely to be reduced, for example, the cost of a claim that does arise may well increase. Property damage to artificial intelligence systems is likely to be more expensive. Arguments regarding causation and risk transfer may increase the cost of litigation. Previously inapplicable areas of risk that may be more unfamiliar to the industry will need to be considered.

Product Liability Paradigm

As the spectrum of autonomous involvement gravitates toward level five on the SAE scale, the traditional model of risk will become more difficult to apply. On one hand, the number of expected incidents, and thus, the comparable cost and need for auto liability insurance will be reduced. On the other hand, when loss does occur, it is more likely to be caused by the failure of an autonomous system rather than operator error. To be certain, there is generally a “human” component to motor vehicle negligence. Even in a fully autonomous situation, it remains to be seen whether the human driver will have a duty to pay attention and intervene to avoid an accident. The level and timing of human involvement could eventually fall outside of the traditional operator framework. In such circumstances, the product liability paradigm may offer an alternative.

As artificial intelligence is incorporated, the manufacturers and suppliers of its systems and components will become increasingly be intertwined with their maintenance and use. This integration will occur over time, so operator involvement both in and outside of the cab will remain a reality for the foreseeable future. It is also likely that insurance for the manufacturers of these systems will remain under commercial general liability, where it currently exists.

In the future, however, new tangential risks are likely to emerge. These risks include the addition of motor carriers and their drivers as additional insureds and the need to protect against new cyber risk as data is collected and shared. While the current insurance framework is likely to be capable of addressing this risk, planning for it requires an in-depth understanding of the technologies being implemented.

Critics of a shift to the product liability paradigm have suggested that “alternative risk transfer mechanisms like product liability are not structured to be primary, comprehensive solutions.” Travelers Inst., supra. In support of this challenge, Travelers points out the complex nature of product liability lawsuits and regulatory overlay compared with what it identifies as existing compensation systems and the unique position of the auto insurance to address this risk. Id.

Given the nature of the prospective risk associated with increased autonomy and involvement of artificial intelligence, a case can be made that adherence to the current commercial auto liability paradigm and moving toward a products-based risk transfer both have merit, Likewise, both are challenging to foresee implementing in the future. Ultimately however, the argument over their applications may be the insurance equivalent of “fighting the last war.” If one were to apply a product liability model to the current auto structure it is easy to see how the compensation system would grind to a halt. At the same time, the data produced thus far suggests a drastic reduction in incidents so that the remaining losses may well require the level of engagement and sophistication typically reserved presently for the product liability sector.

Insurance for a Future with Commercial Autonomous Vehicles

Perhaps more than any other issue, the confluence of autonomous and semi-autonomous vehicles with the present non-autonomous motoring public is where the rubber meets the road. It is unknown how humans will interact with artificial intelligence operating in their environment. It also remains to be seen how the insurance industry will adjust and evolve.

In making its recommendation pertaining to liability insurance, the Federal Automated Vehicles Policy, as updated in September of 2017, notes, “rules and laws allocating tort liability could have a significant effect on both consumer acceptance of HAVs and their rate of deployment. Such rules also could have a substantial effect on the level and incidence of automobile liability insurance costs in jurisdictions in which HAVs operate.”

Driver error plays a role in most motor vehicle crashes in the United States. In the future, a reduction in losses arising from motor vehicle accidents due to the introduction of artificial intelligence should correspond to lower premiums for commercial and personal auto liability policies. Moreover, if there is a shift in the allocation of tort liability toward a product liability model, then it is conceivable that the auto insurance industry could at some point in the future become a thing of the past. In this scenario, risk might be borne by insurers writing commercial general liability coverage to auto manufacturers.

The risk associated with introducing artificial intelligence is not limited to physical injury and property damage. Data security and personal privacy will certainly become sources of potential risk and corresponding insurability as artificial intelligence is implemented. With the cost of a data breach in the United States averaging just under $8 million, the prospective cost of insuring this new technology is sure to rise as well.

Conclusion

Even as new regulatory and insurance solutions are being forged, some of the projected challenges of new technology are already here today. Artificial intelligence is present in one way or another in every commercial motor vehicle presently operating. Though Hal is not refusing to open the pod bay doors, there are and will continue to be problems that relate to the implementation and expansion of technology in commercial vehicles. Addressing these changes on an ongoing basis and with a clear understanding that the future will look decidedly different than today represents the best opportunity for government, the trucking industry, and the insurance sector to identify areas in need of modification, regulation, or wholesale change.

The authors would like to acknowledge the significant contributions of their silent partner, an industry professional who, because of company policy, is not able to be named as an author. 

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This article is reprinted with permission from the October 2018 Issue of For the Defense, the publication of DRI.

Maithilee K. Pathak, PhD, JD

Much has been written about conspiracy theories in the American psyche, some of which are classic (e.g., assassination of JFK, Roswell), others comical (e.g., the Earth is flat), and others pernicious (e.g., Sandy Hook never happened). More people believe in conspiracy theories than you might think. Did you know that roughly one-third of jurors (34%) agree with the statement that “the 1969 moon landing was faked”? 1

The Age of Trump has given conspiracy theories room to flourish, in part because of ubiquitous access to the internet, daily harangues about “fake news,” and the viral nature of social media platforms (e.g., Twitter). As an increasing amount of substantive material is characterized as “fake,” a decreasing amount of truly fringe material is dismissed as wholly outlandish and incredible. Thus, conspiracy theories take on a patina of legitimacy—or at minimum, plausibility. People are left wondering what information is reliable and trustworthy, and what is actually “fake.” As a litigator, why should you care?

One consequence of the “What’s-fake-what’s-real?” conundrum is an erosion of public confidence in both corporations and institutions; many people today doubt the integrity of large companies, regulatory and law enforcement agencies (e.g., EPA, FDA, FBI, local police) and the legal system (e.g., attorneys, legislators, and judges alike).

The degradation of confidence in corporations has profound implications for corporate litigants for multiple reasons. For example, jurors are increasingly inclined to discount expert testimony (e.g., jurors conclude that “both sides just have their hired guns,” and/or that “statistics can lie”). Jurors are also more likely to hold companies to idealistic standards of conduct, reasoning that they should do more than meet government standards (e.g., jurors cynically argue that “regulations are determined by company lobbyists”).

In today’s jury climate, jurors simultaneously feel powerful and powerless.

In what way do jurors feel powerful? The internet provides infinite access to information, and information is empowering. “Google” is a verb in the American lexicon. Access to information leads people to confidently conclude, “I can do this!” regardless of what “this” is. People today believe they can renovate their homes, cook gourmet meals, evaluate the safety and efficacy of medications—and solve complex lawsuits. Jurors are confident that they can put information together and “figure it out.”

In what way do jurors feel powerless? Recent media coverage on the mood and psychology of “average Americans” says many feel embattled, abandoned and vulnerable. Pollsters report increased anxiety, disillusionment, unhappiness and distrust in the general population. Jurors’ number one concern is government corruption and pollution and climate change rank among the top 10. 2 Jurors feel they are subject to the whims of powerful corporations perceived to be in control.

Why should corporate litigants be concerned about today’s jury climate?

Increased anxiety and fear provide fertile ground for Ball and Keenan’s reptile strategy to take root.3  The reptile framework generally involves arguing that: (1) the defendant violated a fundamental “safety rule” of operating in society, one which is virtually impossible to controvert; (2) the defendant’s conduct endangered the plaintiff and, left unchecked, endangers the community at large; (3) the plaintiffs need and deserve compensation; and (4) it is incumbent on jurors to render a large award and send a message to the defendant to safeguard the community. The reptile strategy activates jurors’ fears. Plaintiffs advancing the reptile strategy essentially argue that the defendant company acted negligently (e.g., by rejecting industry norms, etc.) and endangered everyone in its ambit. The plaintiffs argue that the only way to get the company “back in line” is to hit it with a huge verdict, thereby negating the company’s cost/benefit analysis. Jurors are implored to correct the errant behavior of the defendant rule-breaker through 8, 9 or 10-digit verdicts (or more).

What must corporate defendants do to prevail in court?

Defense attorneys must do more than merely “respond” to the plaintiffs’ claims. They must provide an alternative explanation for the bad outcome that upends the plaintiff narrative.

Imagine a product liability suit arising from an accident involving an overturned golf cart, a teenage driver (“RJ”) and severe leg injuries to a 10-year-old girl (“MJ”). RJ had been driving his sister around on his grandfather’s farmland when he lost control of the cart, veered off the dirt road and tipped the vehicle into a shallow trough. MJ extended her leg to brace herself as she tumbled from the bench seat and ultimately found her ankle pinned under the cart. MJ’s parents filed suit against the cart manufacturer, alleging design defect based on the absence of a foot guard (i.e., estimated production cost per unit: $2.50) and inadequate warnings (i.e., estimated cost per unit: pennies).

This plaintiff storyline has the thematic components necessary for a compelling case at trial: a sympathetic victim (MJ), a villainous company (the multibillion-dollar cart manufacturer) and customer betrayal (the company put profits over safety).

The defense might argue that the owner’s manual clearly stated the importance of keeping arms and legs inside the vehicle at all times and the obvious risk of overturning when operating at excessive speeds and/or on uneven terrain. The company might also argue that the cart design met or exceeded all industry standards, had a solid safety record, etc. These are good defense arguments, and they are likely necessary to win the case, but they alone are probably insufficient to overcome the reptile framework.

Subject to the reptile tactics in depositions, witnesses would likely be asked questions like, “Wouldn’t you agree that a design engineer has a responsibility to avoid needlessly endangering the public?” and “Wouldn’t you agree that it is always better to be safe than sorry?” An unprepared design engineer would likely feel compelled to concede both points, creating a suboptimal pre-trial record and reinforcing idealistic expectations of the company.

Defense counsel must provide an affirmative story that advances the defense case and motivates jurors to argue it in deliberations. The concepts of knowledge and control are key to doing this.

Jurors apportion blame in all cases by assessing each party’s level of knowledge and control over the circumstances precipitating the lawsuit. The greater the level of knowledge and control ascribed to your client, the more likely you are to lose.

As compared to the injured girl, the golf cart manufacturer will surely be perceived as having superior knowledge and control. After all, the company had engineers trained to improve cart stability, account for human reflexes, etc., and the company certainly had 100% control over its profit margins. But, all product manufacturers are not doomed in every case. Why? Jurors are complicated and generally sensible.

Jurors invariably bring to the courtroom the attitudes and experiences that influence the way they hear, process, remember and recall information. People can hold two seemingly countervailing perceptions at the same time. For example, a person may think it is wrong to kill, but killing in self-defense may be justified. Similarly, a person may harbor some anti-corporate views, but also espouse personal responsibility and accountability. So, even in the face of jury venires that appear rabidly anti-corporate, litigators should assume that jurors harbor some predispositions that are defense-friendly.

Litigators must identify predispositions favoring the defense and leverage them at trial. Jurors must be armed with specific evidence to argue your case and, importantly, be motivated to do so in deliberations.

Many common juror predispositions favor product manufacturers. For example, the vast majority of jurors believe that most accidents are due to human error, not defective products, regardless of the product at issue.4 The majority of jurors also believe that student drivers should be trained and supervised, and statistics consistently show that teens are high-risk drivers. Furthermore, most jurors believe product owners should not modify or disable safety systems on equipment (e.g., remove restraints, rails or seatbelts).

The golf cart manufacturer can prevail at trial by elevating the knowledge and control that the jurors ascribe to other parties closer to the incident. This might include bringing out the following case facts in the opening:

• RJ liked racing ATVs with his cousins whenever he visited his grandfather’s farm.
• This golf cart was very different from the ATVs RJ was accustomed to riding—i.e., it did not have big, fat tires designed for rough terrain, it did not have a low-center of gravity, etc.
• RJ had had never driven this golf cart, or any other cart like it.
• RJ had not taken any safety courses related to operating golf carts.
• RJ had also not completed driver training and did not have a driver’s license.
• Grandpa had declined to participate in the dealer’s free introductory class on maintaining and operating the cart, including risks associated with speeding, uneven terrain, etc.
• Grandpa had removed a safety net that snapped into place on either side of the vehicle to facilitate passengers getting in and out.
• Mom and Dad had allowed RJ to operate the cart without adult supervision, and they allowed MJ to accompany him.
• Mom and Dad had told RJ that they would follow them home about 15 minutes later.

After all, the accident may not have happened if any one of these factors had been reversed. To be clear, the manufacturer cannot win by merely attacking 15-year-old RJ for having maimed his little sister. But, by asking “Who was in the best position to have averted this crash?” the company can reframe the case from “innocent child victimized by greedy corporation” to “tragic accident involving a safe product used improperly.”

Jurors will reconsider the merits of the plaintiffs’ overly simplistic victim/villain storyline if the company can: (1) elevate the knowledge and control of the people closest to the incident; and (2) assuage jurors’ fears that the company is operating “off the rails,” without regard for the safety of customers and the community. This is true even in today’s jury climate which is rife with fear, anxiety and idealistic expectations. Granted, jurors often grumble about getting seated on a jury—after all, it can be inconvenient, disruptive, stressful, expensive, etc. But, once seated and sworn, jurors become emotionally invested in “figuring it out”—in reaching the right conclusion. Play your cards right, and jurors will reach your conclusion.

About the author
Maithilee Pathak Phd., JD, is a partner at R&D Strategic Solutions. She has devoted her professional career to understanding jury-decision-making in complex risky cases. She develops compelling conceptual and visual strategies for trial to help her clients win. Dr. Pathak obtained her doctorate from the University of California, Irvine, and her law degree from the University of Nebraska, Lincoln.

Endnotes:

1 Based on data collected by R&D Strategic Solutions in 18 venues across the nation (N=681)

2 America's Top Fears 2017, Chapman University Survey of American Fears, October 11, 2017

3 David Ball and Don Keena, "Reptile: The 2009 Manual of the Plaintiff's Revolution"

4 R&D Research has consitently found 80-90% of mock jurors agree that accidents are more likely due to human error than product defect in cases involving tires, vehicles, appliances and more.

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This article is reprinted with permission from the Georgia Defense Lawyers Association Journal.

SCIENTIFIC METHOD APPLIED TO ACCIDENT RECONSTRUCTION

Biomechanical analyses have long played a role in vehicle accident investigation, typically performing injury analysis and the determination of occupant kinematics and impact forces to the body. Here, we explain how the scientific method can be adapted to accident reconstruction from a biomechanical and human factors perspective, incorporating by reference various aspects of accident investigation and engineering analyses for the purpose of testing hypotheses.

Determining what happened in an accident to a reasonable degree of scientific or engineering certainty is driven by a process of accident reconstruction that utilizes biomechanics, injury analysis, and human factors as critical analysis components. The process utilizes the scientific method as a framework for testing compatibility or consistency of different aspects of data or information that has been gathered about an accident (Fig. 1). Preliminary information provides context for understanding the general circumstances surrounding the 

accident and guides the overall direction of scientific inquiry. From this information, hypotheses can be generated about specific occurrences or a sequence of events. Usually, these hypotheses are posed as “testable” statements (formulated as either a null hypothesis or in the affirmative) or as questions, where the answer meaningfully directs the analysis toward conclusion. Many times, answers are most useful when they are exclusionary, in that a specific event or sequence can be ruled out. The most important step is ‘testing’ the hypotheses. In this step, a protocol or technique is devised that will identify and gather the appropriate data to analyze to either support or refute the testable statements, or answer the questions. In investigating accidents that have already occurred, these tests may be physical experiments and/or demonstrations of scientific principles, but routinely this is not a practical approach. This is particularly true in human injury analysis where physical experiments can be problematic or impractical. Instead, analyzing research literature (often regarding previously published physical experiments) and other sources of information is the most common way to test these hypotheses. Reasonable care should be used with witness data. In situations where the witness’s version of events is in conflict with the laws of physics or the verifiable physical evidence, those aspects of the testimony must be rejected.

DATA ORGANIZATION

In utilizing the scientific method, a multitude of data from various sources is obtained in order to test the working hypotheses. To ensure it is useful and complete, this data must be organized and considered in a systematic way. One method is a modified Haddon matrix, where the ‘man’-related data is separated into injury data and human factors data, and both are potentially modified by medical factors (Fig. 2). Data are separated into the temporal categories: Before, During, and After the accident, if deemed appropriate for the specific accident reconstruction. The categories provided in the columns of Figure 2 are discussed further below.

Injury As Physical Evidence

The focal point of this method is using the ‘man’-related data, and in particular the injuries, as physical evidence that must be reconciled in order to have an accurate accident reconstruction. The injuries (and other human interactions) in the accident are used as a signature of the where, how, and when the person was placed within the accident sequence. The biomechanical physical evidence can be just as essential as the other physical evidence gathered relating to the product/machine and accident environment (Fig. 2, Col. 1).

To apply this method, the injuries are described by type, location, appearance, and severity from a review of the medical records (which may include review of X-rays, CTs, and MRIs), photographs, witness statements, medical examiner reports, and other similar sources. Second, the injury mechanism for each injury is determined. Injury mechanism information is often ascertained through comparison with specific data documented in the injury research literature. The mechanism provides information about the nature of energy transferred to the body (e.g. mechanical, thermal, electrical) and describes the specific method and means required to create the injury. For example, a spiral fracture of a long bone requires a torsional force component applied about the long axis of the bone. For a mechanically mediated injury, describing the body movements and the forces on and within the body that create the injury allows for an understanding of necessary physical interaction of the human body with the environment. Finally, determining the injury threshold or human tolerance for a particular type of injury can be important in accident analyses, since it provides context to the severity of the incident and the magnitude of force, acceleration, deflection etc. that typically produces injury. For many injury mechanisms, normal biomechanical tolerance has been established in the injury research literature, and provides a comparison to the specific injury or event being analyzed. In many cases, comparison of the accident exposure characteristics is made with biomechanical data from activities of daily living or voluntary human exposure research (see Medical Factors section below in situations where relevant pre-existing conditions/injuries exist).

In accidents where multiple injuries have been received, their pattern and distribution create a ‘constellation of injuries’ that can provide a unique insight to the accident. The steps are repeated for each injury, and those with similar mechanisms or locations are matched. Even what are typically considered minor or superficial injuries can provide important evidence to properly place a person in the reconstruction of an accident scenario.

Human Factors

Human factors data can be another critical component in the accident reconstruction. Human factors is a discipline that evaluates how people interact with their environment and encompasses physical and psychological aspects of human performance, capabilities, characteristics, and interfacing with tools, machines, and the environment. From an accident reconstruction perspective, this application is typically focused on the events leading up to and during the accident sequence in order to evaluate what and how it happened, and in some cases why (Fig. 2, Col. 2). Where appropriate, an individual’s anthropometry should be identified, including one’s height, weight, and segment lengths, which are all aspects of physical evidence that are relevant for addressing a person’s position, posture, and fit within the accident environment. Anthropometric and human factors data are available that describe a wide range of human measurements and provide context for accident specific evaluations. Surrogate studies are an additional means by which human factors considerations can be addressed.

Medical Factors

Important to note are medical factors that could be potential modifiers of both the injury and human factors aspects (Fig. 2, Col. 1 & 2). A person’s health and/or medical condition may have a direct influence on their ability to resist trauma. The presence of disease or other pre-existing conditions, and the use of alcohol, drugs, or medications can have an impact on a person’s physical capabilities as well as their sensory perception and reaction. In these situations, an aspect of the analysis may include a determination of potential exacerbating influences, and whether a particular event is a significant contributor to the existing condition. This determination must follow the same methods described herein. In these circumstances, the mechanism of injury must still be present (e.g. the appropriate direction of force, acceleration, etc.), and comparison of an event with reasonable activities of daily living may be useful.

Product/Machine and Environment

Similarly, data must be gathered about other accident circumstances in order to put the injuries and human factors into context (Fig. 2, Col. 3 & 4). The geometry and layout of the accident site create physical evidence in the form of constraints, boundaries, and specific conditions (e.g. lighting, slip resistance). In accidents where products or machinery are involved, a description or knowledge of such things as the size, shape, materials, construction, controls, movement/action directions, speeds, and other characteristics of the equipment is important to understand the potential human interactions. Particular attention is given to documenting the damage, failed components, and/or witness marks that resulted from the accident. This gives key physical evidence about the nature of physical interaction between the man, machine, and environment. A range of failure analysis techniques are available to determine these interactions. In cases involving vehicles, the analysis can include a determination of the vehicle kinematics, as well as an assessment of the principle direction of force (PDOF) and velocity change (delta V) experienced. This information can then be used to determine occupant kinematics. It is not the intent of this paper to describe all the detailed analyses that are conducted on the product/machine or environment, but the data from these components is key to the accident reconstruction.

TEST AND ANALYSIS OF THE DATA

At the root of every accurate and complete accident reconstruction is consistency with the laws of physics and accounting for all the available physical evidence. When analyzing the data gathered and developed from the man, product/machine, and environment, the physics of all interactions between and within these groups must be consistent. This is identified in the bottom row of Figure 2. By regarding the injuries as physical evidence, they become not just an outcome of the accident, but an additional component (resource) to use in testing accident reconstruction hypotheses. In situations where there are inconsistencies between the available information, one must side with the physical evidence. Where there are apparent inconsistencies in the physical evidence, the data must be reexamined to resolve them. In this sense, the process can be iterative.

By following this method, the biomechanical accident reconstruction conclusions are founded in science and consistent with the laws of physics. Not all reconstructions will lead to a single answer. The available data that are gathered or developed may not be able to exclude all possibilities but one. This is usually a function of the ability to gather or develop sufficient data for this purpose. These efforts still have tremendous value, since knowing what did not happen can be just as important as knowing what did happen.

*This article is adapted from the following peer reviewed publication. Please refer to the publication for additional details and case examples.

Knox EH, Mathias AC, Stern AR, Van Bree MP, Brickman DB. “Methods Of Accident Reconstruction: Biomechanical And Human Factors Considerations.” Proceedings of the AMSE 2015 International Mechanical Engineering Conference and Exposition. Houston, Texas: November 13-19, 2015.

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Fall Protection for Buildings: Usage, Responsibilities, and Risk 
By: Robert N. Kenney, P.E. and Nila Abubakar, P.E.

OSHA’s recent “at-height” work protection rule, 29 CFR 1926.501 states that it is not just the Contractor that is liable for worker fall risk. Building Owners also are liable for providing safe “at-height” work protection.

The construction industry represents the largest amount of fatality work by volume and rate (Bureau of Labor and Statistics, 2015 data). Fall risks are present everywhere, especially since we are all affected by gravity. Falls account for 40% of construction fatalities. To provide appropriate fall protection, it helps to evaluate usage, responsibilities and risks from the perspective of hazard preventative measures.

Hazards and required fall protection can be evaluated based on a hierarchy of fall protection. This hierarchy helps determine what equipment may be necessary to complete a task as well as provide direction on associated risks. The hierarchy ranks fall protection from no risk, to limited risk, to high risk.

1. Hazard / Fall Elimination – This is the ideal method for fall protection. By eliminating the need to do work at height, the fall risk is eliminated. Work can be performed from the ground utilizing drones, telephoto lenses or equipment affixed to an extendable pole.

2. Passive Fall Protection – Separates the worker from a fall risk or hazard by use of hole covers or the use of Guardrail systems.

Examples of Guardrails:

3. Fall Restraint – If hazards cannot be eliminated for the worker, a fall restraint that includes securing a worker to an anchorage with a tether could be used to reduce the possibility of a worker falling over a free edge. Work that is routinely performed with predictable paths, such as gutter maintenance, benefits from this sort of fall protection. It is also required per OSHA 1910.28: The employer must ensure that each employee on a walking-working surface with an unprotected side or edge that is 4 feet or more above a lower level is protected from falling by one or more of the following - Guardrail systems; Safety net systems; or Personal fall protection systems, such as personal fall arrest (PFAS), travel restraint or positioning system.

4. Fall Arrest – Often used interchangeably with fall restraint, fall arrest systems differ in that they allow freedom of movement to perform activities. In the event of a fall, fall arrest systems safely stop a falling individual before they come into contact with the ground or surface below. An anchorage for fall arrest, positioning, restraint, or rescue systems must be capable of supporting the potential fall forces that could be encountered during a fall. For fall arrest systems to be certified, the minimum design force considered to be a static load is equal to 5,000 pounds or 2x (i.e. twice) the maximum arresting force. These tie-off points must be “certified” by a registered professional engineer or other “qualified” person as defined below. Alternatively, a non-certified anchorage can be determined by a competent person.

One key addition is that a tethered system must also have a separate fall arrest line. Thus, a “certified” building davit for a typical swing stage or swing chair will need to have a certified davit or tie-off anchor and a separate “certified” fall arrest line tie-off point directly connected to the individual(s) on the swing stage or chair.

Examples of Building Anchorages:

5. Administrative Controls – Involves use of signals and warnings to indicate the presence of fall hazards. These controls include safety monitors, warning lines and restriction access codes. These controls prove to be the most ineffective form of fall protection.

Rules, Regulations, and Standards

OSHA 1926 provides Safety and Health Regulations for Construction. The most frequently cited serious violations of OSHA 1926, Subpart M are:

1. Failure to protect workers from falls of 6 feet or more off unprotected sides or edges, e.g. floors and roofs.

2. Failure to protect workers from falling into or through holes and openings in floors and walls.

3. Failure to provide guardrails on runways and ramps where workers are exposed to falls to a lower level of 6 feet or more.

ANSI Z359, the “Fall Protection Code,” is the voluntary consensus standard and is written in language that can be adopted by local jurisdictions. The intention of this code is that employers whose operations fall within the scope and purpose of the standard will adopt its guidelines and requirements. In this document, the following definitions are provided:

Section 3.2.3, “Qualified Person” (partial):

• Responsible for supporting the fall protection system.
• Expertise in system design, structural analysis, anchorage certification, compliance with fall protection standards.
• Supervises the design, selection, installation, and inspection of certified anchorages and horizontal lifelines.

Section 3.2.4, “Competent Person” (partial):

• Responsible for the supervision, implementation, and monitoring of the fall protection program.
• Knowledgeable through experience and training of applicable fall protection regulations, standards, equipment, and systems.
• Conducts a fall hazard survey to identify fall hazards before Authorized Persons are exposed to those hazards.
• Has the authority to stop work immediately due to unsafe conditions.
• Verifies that Authorized Persons are adequately trained.
• Supervises the selection, installation, use, and inspection of “non-certified” anchorages.

Section 3.2.4, “Authorized Person” (partial):

• Has a working understanding of (and potentially is certified for) the employer’s fall protection policies and procedures.
• Properly inspects and uses fall protection equipment and systems.
• Informs the Competent Person regarding unsafe conditions.

The goal of building owners and property managers is to mitigate risk and liability for work performed on their property by Contractors and by the Owner’s in-house staff. To perform this, responsibilities include:

• Providing a Use Plan.
• Providing “certified” building anchorages.
• Providing fall protection training to in-house personnel (Authorized).
• Having a Competent Person on staff.

The goal of Contractors is to mitigate risk and liability for their Employees performing work for the contracting company. To perform this, responsibilities include:

• Provide an Access Plan.
• Provide proper tools and equipment, including PPE.
• Provide fall protection training to employees (Authorized).
• Have a Competent Person on staff.
• Have a Qualified Person on staff or retain one as necessary.

In summary, skilled safe access requires a holistic approach for proper execution. Roles and responsibilities must be defined and access plans must be in place. Trained and certified personnel using proper equipment are necessary to mitigate risk.

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by Michael W. Mitchell, Smith Anderson, LLP

What is easier to do in Alaska, Arizona, California, Hawaii, Idaho, Illinois, Indiana, Kentucky, Michigan, Montana, Nevada, Ohio, Oregon, Tennessee, Washington state, Washington, D.C., and Wisconsin than it is to do in Arkansas, Connecticut, Iowa, New York, Maryland, Minnesota, Missouri, Nebraska, North Carolina, North Dakota, South Carolina, South Dakota, Vermont, Virginia, and West Virginia? (Don't worry, this rhetorical question is safe for work!)

Plaintiffs in the former jurisdictions can sue for a data breach even if they have not suffered any actual injury. Plaintiffs in those jurisdictions need only allege that there is an increased risk of future identity theft from the data breach.

But in the latter jurisdictions, plaintiffs must go further and allege an actual injury from the breach, such as fraudulent charges on existing debit or credit card accounts or the opening of fraudulent financial accounts using the stolen personal information. Otherwise, they cannot establish "Article III standing" and the claim cannot survive a motion to dismiss.

Why does this matter? Because class action plaintiffs who can survive a motion to dismiss have much greater leverage for settlement. A class action case that cannot be dismissed prior to discovery can command some settlement value just on the discovery costs alone.

The Sixth Circuit in Galaria v. Nationwide Mutual Insurance (6th Cir. 2016), the Seventh Circuit in Remijas v. Neiman Marcus (7th Cir. 2015) and Lewert v. P.F. Chang’s China Bistro (7th Cir. 2015), the Ninth Circuit in Krottner v. Starbucks Corp.(9th Cir. 2010) and In re Zappos.com (March 2018), and the D.C. Circuit in Attias v. CareFirst (D.C. Cir. 2017), have applied the lower standard for standing on a data breach claim.

The Second Circuit in Whalen v. Michaels Stores (2d Cir. 2017), the Fourth Circuit in Beck v. McDonald (4th Cir. 2017), and the Eighth Circuit in In re SuperValu Customer Data Security Breach Litigation (8th Cir. 2017), have found that general allegations of an increased risk of identity theft from a data breach alone are not enough of an injury in fact to establish standing. These Circuits have held that plaintiffs also must allege an actual injury.

The U.S. Supreme Court seems unimpressed by this disagreement between multiple federal courts of appeal, because the Supreme Court passed on the opportunity to resolve this split in legal precedent across the country when it recently denied an appeal from the D.C. Circuit's CareFirst decision.

Side bar: The Ninth Circuit's opinion in In re Zappos.com cites to a U.S. Supreme Court decision from 1824 to reject one of Zappos' arguments. Who says old law is of no value in the world of modern technology?

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This article was originally posted by Mike Mitchell on LinkedIn

by Michael W. Mitchell, Smith Anderson LLP 

Three years ago, I co-authored a case summary (here) about a U.S. Supreme Court decision applying "ordinary principles of contract law." See M&G Polymers USA, LLC v. Tackett, 135 S.Ct. 926 (2015). I thought Tackett was worth a short article because it is unusual to see a U.S. Supreme Court case on contract law.

In Tackett, the Supreme Court vacated a Sixth Circuit decision because that court had failed to apply ordinary principles of contract law to a collective bargaining agreement. The issue in Tackett was whether the agreement, governed by The Employee Retirement Income Security Act of 1974 (ERISA), granted lifetime health benefits to employees even in the face of the agreement’s three-year term. In a prior case, International Union, et al v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983), the Sixth Circuit had adopted its “Yard-Man” inference, pursuant to which courts in the Sixth Circuit could construe the grant of health care benefits in a collective bargaining agreement as vested and interminable despite express language setting an expiration date on the entire agreement itself.

It now appears that Tackett has exposed a minor rift between the Sixth Circuit and the Supreme Court, because the Sixth Circuit would not take "no" for an answer in Tackett. Those who are familiar with how judges speak (and write) when they take a lawyer to the woodshed will recognize that same tone and frustration in the Supreme Court's February 2018 opinion in CNH Industrial Nv, et al v. Jack Reese, et al. In a per curiam opinion, the Supreme Court recognizes that it had addressed the same issues in Tackett only "[t]hree terms ago," and then the Court summarizes the case and its holding as follows:

In this case, the Sixth Circuit held that the same Yard-Man inferences it once used to presume lifetime vesting can now be used to render a collective-bargaining agreement ambiguous as a matter of law, thus allowing courts to consult extrinsic evidence about lifetime vesting. 854 F. 3d 877, 882-883 (2017). This analysis cannot be squared with Tackett. A contract is not ambiguous unless it is subject to more than one reasonable interpretation, and the Yard-Man inferences cannot generate a reasonable interpretation because they are not "ordinary principles of contract law," Tackett, supra, at ___ (slip op., at 14). Because the Sixth Circuit's analysis is "Yard-Man re-born, re-built, and re-purposed for new adventures," 854 F. 3d, at 891 (Sutton, J., dissenting), we reverse.

The Supreme Court makes a point of reminding the Sixth Circuit that no other circuit has made this same error: "[t]ellingly, no other Court of Appeals would find ambiguity in these circumstances . . . . The approach taken in these other decisions 'only underscores' how the decision below 'deviated from ordinary principles of contract law.'" Ouch.

In judge-speak for "this is not rocket science," the Supreme Court concludes its opinion by remarking that "[s]horn of Yard-Man inferences, this case is straightforward." The Court then shows the Sixth Circuit how it could have decided the case in about the length of a single paragraph. The Court's final jab notes that the Sixth Circuit continues to be unreasonable in its approach to collective bargaining agreements: "Thus, the only reasonable interpretation of the 1998 agreement is that the health care benefits expired when the collective-bargaining agreement expired in May 2004." (emphasis added)

The nugget of contract law, quoted from Tackett, is that "[w]hen the intent of the parties is unambiguously expressed in the contract, that expression controls, and the court's inquiry should proceed no further." Do not pass go. Do not collect $200!

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This article was originally posted by Mike Mitchell on LinkedIn

(Adapted from the presentation “The Future Is Now: Ethical Lawyer Advertising and Marketing” scheduled for the NCADA 2018 Winter Workshop on February 2, 2018)

by Martá P. Brown, Butler Weihmuller Katz Craig LLP

As young lawyers progress in their legal career, the emphasis on marketing begins to manifest itself. How to go about this task is not something they teach you in law school. It is never too early to begin thinking about how to best position yourself to attract clients. With today’s technology, it is easier than ever to reach potential clients, but easy is not always ethical.

Online Legal Service Providers

One innovative way to reach clients that is being hotly debated across the United States is the use of online legal service providers, specifically Avvo Legal Services (“ALS”) by Avvo, Inc. Avvo is an online legal services corporation founded in Seattle, Washington in 2006. Avvo uses publicly available information from the internet and state bar associations in order to create a listing of lawyer profiles, which are then given a rating based upon a proprietary system combined with reviews from clients and peers.

ALS is an online legal service introduced by Avvo to provide unbundled legal services to customers. Lawyers who agree to the ALS terms of service and participate in ALS are charged a percentage of the legal fee obtained from the potential client. The portion of the legal fee charged by ALS is called a “marketing fee.”

To use ALS, first the potential client selects a legal service such as advice session, document review, or document drafting, among others. The legal fee for the selected service is displayed on the website together with a description of the service. The potential client then provides a zip code. Nearby participating lawyer profiles are displayed and the potential client selects a lawyer. The potential client pays via credit card, and the selected lawyer is notified by Avvo. The lawyer calls the client over a designated line that is tracked by Avvo to confirm that the call was completed and the length of the call. Avvo deposits the participating lawyer’s ALS legal fees into a designated trust or operating account once a month. Avvo also collects its marketing fee by debiting the designated trust or operating account monthly.

Ethical Concerns

The North Carolina State Bar issued proposed 2017 Formal Ethics Opinion 6 (“FEO”) to address ALS and other online legal service providers used for the marketing of legal services. While the proposed FEO references ALS directly, it applies to all online legal service providers. The proposed FEO states that “a lawyer may participate in an online platform for finding and employing lawyers subject to certain conditions,” which is a rather succinct conclusion, although the ethical considerations are anything but.

N.C. Gen. Stat. § 84-5 prohibits the unlawful practice of law by a corporation, and lawyers are not allowed to assist a corporation or other person in the unauthorized practice of law pursuant to Rule 5.5(f) of the North Carolina Rules of Professional Conduct. The onus is on the participating lawyer to determine that Avvo is straight- forward in its advertising that it is not providing the legal services and is only marketing those services for properly licensed lawyers.

Rule 7.2(d) addresses Lawyer Referral Services. Lawyers participating in ALS must also be mindful that ALS provides an impartial list of the participating lawyers in the zip code selected by the potential client. If ALS or another online legal service recommends a particular lawyer, or restricts the list of lawyers, it would violate Rule 7.2(d). Moreover, the participating lawyer has to ensure complete independence of professional judgment and non-interference by the online legal service pursuant to Rule 1.8(f) and Rule 5.4(c). Because ALS is involved as a third-party, the participating lawyer cannot allow Avvo to compromise the lawyer’s professional relationship with the client.

From time to time, a fee dispute will arise between a lawyer and a client. Rule 1.5(a) restricts a lawyer from collecting a fee that is illegal or “clearly excessive.” Even though Avvo dictates the fee charged through ALS, the participating lawyer is tasked with certifying that the fee charged is not “clearly excessive” for services rendered. If a fee dispute does arise between the lawyer and the client using ALS, Avvo cannot be involved in the dispute.

One particularly troubling aspect of ALS is the potential issue of sharing a legal fee with a nonlawyer entity. Rule 5.4(a) states that the aim of the limitations on sharing legal fees with nonlawyers is “to protect the lawyer’s professional independence of judgment.” As long as Avvo’s “marketing fee” does not violate the restrictions on lawyer advertising under Rule 7.2(b)(1), and the lawyer can maintain “professional independence of judgment,” Rule 5.4(a) is not violated. However, as with many aspects of ALS, the burden is on the participating lawyer to comply with the Rules.

Lawyer Marketing efforts naturally consist of communicating available legal services to potential clients in an effort to attract legal employment. In doing so, a lawyer can run into trouble when marketing and advertising efforts become misleading and thereby violate Rule 7.1 regarding communications concerning a lawyer’s services. Using ALS or another online legal service is no different. When a participating lawyer creates a profile on ALS, the lawyer is responsible for monitoring the information on the website to confirm that the information presented is truthful and does not mislead potential clients.

Status of Proposed 2017 Formal Ethics Opinion 6

As of this writing, the North Carolina State Bar has not yet adopted proposed 2017 Formal Ethics Opinion 6. The proposal was sent back to subcommittee for further study. Several other state bars, including New Jersey, New York, Ohio, Pennsylvania, and South Carolina, have found that the ALS “marketing fee” constitutes fee sharing with a nonlawyer or an improper referral in violation of the Rules of Professional Conduct (ABA Journal, August 9, 2017). Those states would agree, when it comes to marketing, easy is not always ethical.

About the Author

Martá Brown is a Senior Associate with the Charlotte, North Carolina office of Butler Weihmuller Katz Craig LLP. His practice includes commercial litigation, liability defense, and first and third party insurance coverage matters. He is the current Chair of the NCADA Young Lawyers Committee.

by George Sanderson, Ellis & Winters, LLP

A court’s decision to impose liability for committing an unfair or deceptive trade practice in a particular case may have wide-ranging implications—even when the amount in dispute in the case itself is relatively minor.

Such is the case in Nash Hospitals, Inc. v. State Farm Mutual Automobile Insurance, Co. In Nash, the North Carolina Court of Appeals affirmed a judgment that State Farm committed an unfair and deceptive trade practice in its handling of the disbursement of settlement proceeds subject to a medical lien. Although the matter arose over a $757 hospital bill, how the case is resolved could have broader implications with how insurers handle personal injury settlements.

State Farm settles without notifying the hospital

Jessica Whitaker was involved in an automobile accident caused by another driver. She incurred medical expenses with Nash Hospitals and two other healthcare providers following the accident.

State Farm insured the driver responsible for Ms. Whitaker’s accident. State Farm negotiated a settlement with Ms. Whitaker to pay a substantial portion of her medical expenses. Ms. Whitaker did not involve counsel in her negotiations with State Farm.

State Farm sent a check to Ms. Whitaker for the negotiated settlement amount.  The check was jointly payable to Ms. Whitaker, Nash Hospitals, and the other medical providers. Ms. Whitaker was unable to negotiate the check herself because it was a joint check.

Pursuant to N.C. Gen. Stat. Sec. 44-50, Nash Hospitals possessed a lien on the settlement proceeds pro rata with the other lienholders. Under the statute, the lienholders’ recovery was capped at 50% of the total settlement. 

Nash Hospitals notified State Farm of its lien prior to the settlement. State Farm did not notify Nash Hospitals, however, that it had reached a settlement with Ms. Whitaker.

Nash Hospitals subsequently contacted State Farm to inquire about the status of the claim. Only then did State Farm disclose that it had reached a settlement with Ms. Whitaker and issued the joint check to her. State Farm took the position that the issuance of the joint check sufficiently protected the hospital’s lien. State Farm told the hospital to contact Ms. Whitaker directly to resolve the issue.
 
After finding out about the settlement, Nash Hospitals advised State Farm that State Farm’s failure to retain funds sufficient to satisfy its lien violated the lien statute. Nash Hospitals also pointed out that, by issuing a joint check to Ms. Whitaker that she was unable to cash, Ms. Whitaker would be forced to obtain an attorney and incur additional unnecessary expenses in order to work out how the settlements were to be divided between her and her medical providers.

Nash Hospitals sues for its shares of the settlement proceeds

State Farm did not respond to the letter. Nash Hospitals then sued State Farm for violating the medical lien statute. Nash Hospital’s complaint also included an unfair and deceptive trade practices claim.

The trial court granted summary judgment to Nash Hospitals, finding that State Farm violated both the lien statute and N.C. Gen. Stat. § 75-1.1.

State Farm appealed and the North Carolina Court of Appeals affirmed as to State Farm’s liability under both statutes. The appeals court remanded the case, however, to have the trial court recalculate the damages originally awarded.

The Court of Appeals determined that State Farm had a statutory duty to retain sufficient funds from the settlement to satisfy the lien claims and to distribute proceeds to the lienholders before disbursing to Ms. Whitaker.

With respect to the 75-1.1 claim, State Farm first challenged the hospital’s standing to bring the claim. State Farm argued that Nash Hospital lacked privity with the insurer. The appeals court rejected that argument. The court reasoned that the hospital was a third-party beneficiary of the insurance contract and was in privity with State Farm upon notifying State Farm of its asserted lien.

The court also found that State Farm’s failure to notify Nash Hospital of the settlement with Ms. Whitaker, and its direction that Nash Hospitals seek recovery from Ms. Whitaker herself, was both an unfair and a deceptive act.

The court was careful, however, to indicated that State Farm’s violation of the North Carolina medical lien statutes did not make State Farm per se liable under 75-1.1. Rather, liability stemmed from State Farm’s underlying conduct and “its failure to cure the violation absent litigation.”

The Court of Appeals directed the trial court to enter summary judgment to Nash Hospitals for a mere $971.07. Upon remand, it is possible that Nash Hospitals will also seek an attorney fee per N.C. Gen Stat. § 75-16.1.

Although it appears that State Farm will not incur a significant cash outlay in this matter, the case is likely to have broader implications to how the company handles claims settlement in order to avoid treble damages awards in the future. State Farm’s counsel indicated at argument that the insurer routinely issued joint checks and had “the . . . parties agree . . . who’s going to get what.”

Presumably because of the importance of this case to the insurer’s general practices, State Farm has sought discretionary review of the decision by the North Carolina Supreme Court (the Supreme Court has not yet decided whether to take up the case). Assuming the Court of Appeals’ decision stands, State Farm, and possibly other insurers, may need to end the practice of issuing joint checks. Those insurers apparently will also bear greater responsibility for determining how personal injury settlement proceeds should be disbursed.

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About the Author
George Sanderson is a partner with Ellis & Winters LLP.  His practice includes general commercial litigation, lender liability defense, and matters involving bankruptcy and creditors’ rights.

by Denaa J. Griffin, Yates McLamb & Weyher, LLP

Let me first speak to the bottom line: the law firm that intentionally promotes and retains ethnically, racially, and gender-diverse attorneys has a significant edge. Not groundbreaking news. The way to be most successful is to mirror the diversity of the clients and causes our legal profession serves. Law firms and organizations without this edge tend to devise single, predictable solutions and, while those law firms may be successful in some areas, the goal is always to improve and enhance the advocacy for our clients.

Diversifying our legal profession is not an easy task. As the American Bar Association’s 2017 National Lawyer Population Survey1 highlights, not much has changed in the last 10 years regarding diversity in our profession despite noble efforts to improve the same. I am optimistic most hiring partners and recruiters know that it is not enough to merely be open to the idea of hiring diverse candidates and hoping those candidates, if hired, are successful and remain with the firm or organization. I am also encouraged that most hiring partners and recruiters know the importance of taking affirmative steps to establish a diverse candidate pool for summer associates and lateral hires, providing meaningful and intentional mentorship, and ensuring that your clients also know and appreciate the benefits of having diverse attorneys at your firm or organization.

Firms and organizations must recognize, first, that the need for improvement is not going to organically correct itself. Firms and organizations must take affirmative steps in their recruitment, mentorship, and client access.

RECRUITMENT. Firms and organizations must be intentional in the recruitment of summer clerks. Let us ensure we are spreading the recruiting net far and wide when recruiting for summer associates. Did you know there is a Minorities in the Profession First-Year Summer Associates Program? Through that program, the North Carolina Bar Association's Minorities in the Profession Committee gathers minority law students from all of the North Carolina Law Schools who are in the top 10% of their class, after at least one screening interview, just for you to interview. There are other similar programs by various organizations around the State such as the Mecklenburg County Bar’s Charlotte Legal Diversity Clerkship Program. These organizations help to take the initial leg work out of intentionally diversifying your summer clerk class. A diverse summer clerk class gives firms and organizations a diverse pool from which first-year associates are groomed and ultimately chosen.

MENTORSHIP.  Intentionality also includes being deliberate about providing your ethnically, racially, and gender-diverse attorneys with mentorship, both within and outside of your firm or organization. Be intentional about that mentorship. Encourage them to serve on the Diversity Committee of the North Carolina Association of Defense Attorneys or the Defense Research Institute. Appreciate that they may want to join the Capital City Lawyers Association, the North Carolina Association of Women Attorneys, or other similar voluntary legal organizations. Mentor them. Explain the importance not only of responding appropriately to discovery requests, but also to remember to introduce themselves to the judge when appearing outside of their home county. Recruitment is only the start; resources must also be dedicated to ongoing resources beyond the initial hiring to sustain a diverse environment. Mentorship is the lynchpin in retaining diverse, talented attorneys.

CLIENT ACCESS. Intentionality also includes being intentional with bringing your ethnically, racially, and gender-diverse attorneys to meetings with your clients so that there is buy-in and a willingness from the client to also rely on your diverse attorneys’ expertise. Law firms and organizations have to continue to improve upon efforts to include their diverse attorneys in critical career development networking opportunities. Client access and having the opportunity to build those relationships is invaluable in the retention and promotion of diversity attorneys at your firm or organization.

Overall, being committed to diversifying your firm or organization must include retention efforts, mentoring, and social programs designed to foster an environment in which all of your attorneys can thrive, not just most of them. The American Bar Association in 2016 adopted a resolution urging law firms and corporations to create opportunities for diverse attorneys, including directing a greater percentage of their legal business toward minorities. We know, through various legal organizations’ research, that there has been an upward nationwide trend in the commitment from law firms to diversity and inclusion efforts. Albeit a larger problem than one firm or organization can change, there are small intentional changes each firm or organization can make with minimal cost such as, but not limited to:

• Sponsoring a minority law student/attorney networking event and having your attorneys attend;
• Developing a mentoring relationship with an attorney of a different gender, race, ethnicity, or sexual orientation; or
• Including a conversation about your firm or organization’s diversity initiatives during your retreat or organizational meeting and develop action items from that conversation.

Be sure your firm or organization does not seek diversity solely for political correctness or for some type of community service. Be diverse to be a better organization. Be diverse to put a different message out to the profession and community overall. Continue to value diversity in opinions and values for the betterment of your organization and the legal profession. Innovative thinking comes from a diverse team. In the fifty years after the Honorable Thurgood Marshall joined the Supreme Court of the United States and in the almost 34 years since the first African-American Associate Justice was appointed to the Supreme Court of North Carolina, it is important to see how far we have come and how we have to continue that progress in the future with our intentional work. As firms and organizations recognize the continued need for improvement in the legal profession, we must all work to ensure that diversity is present and thriving at all levels of the profession.

1 AMERICAN BAR ASSOCIATION, ABA NATIONAL LAWYER POPULATION SURVEY (2017).

Denaa J. Griffin is an Associate Attorney with Yates, McLamb & Weyher LLP located in Raleigh, North Carolina. She serves as a member of the Diversity Committee of the North Carolina Association of Defense Attorneys and is committed to the purposeful work of law firms and organizations in diversifying the legal profession.

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