In a presentation at McDermott’s Employment and Employee Benefits Forum, Ted Becker and Chris Scheithauer explored the various ways that disgruntled employees file lawsuits with plaintiffs’’ lawyers. Lawsuits have been brought in cases alleging, imprudence in the management of plans, challenging fees, involving company stock, actuarial equivalence and more. They used recent cases such as, NYU, American Century Services and IBM, as examples of the various types of lawsuits and the important lessons employers can take away from them. In addition, they provided attendees with key strategies to minimize exposure to lawsuits, including demonstrating a thoughtful and deliberative decision-making process.
Looking ahead to 2019, they touched on ERISA issues to watch for including, venue/forum selection clauses in plan documents, arbitration agreements and impact on fiduciary duty claims, statute of limitations and burden of proof issues.
Recent developments in two closely watched cases suggest that companies that experience data breaches may not be able to get insurance coverage under standard commercial general liability (CGL) policies. CGLs typically provide defense and indemnity coverage for the insured against third-party claims for personal injury, bodily injury or property damage. In the emerging area of insurance coverage for data breaches, court decisions about whether insureds can force their insurance companies to cover costs for data breaches under the broad language of CGLs have been mixed, and little appellate-level authority exists.
On May 18, 2015, the Connecticut Supreme Court unanimously affirmed a state appellate court decision that an IBM contractor was not insured under its CGL for the $6 million in losses it suffered as the result of a data breach of personal identifying information (PII) for over 500,000 IBM employees. The contractor lost computer backup tapes containing the employees’ PII in transit when the tapes fell off of a truck onto the side of the road. After the tapes fell out of the truck, an unknown party took them. There was no evidence that anyone ever accessed the data on the tapes or that the loss of the tapes caused injury to any IBM employee. Nevertheless, IBM took steps to protect its employees from potential identity theft, providing a year of credit monitoring services to the affected employees. IBM sought to recover more than $6 million dollars in costs it incurred for the identity protection services from the contractor, and negotiated a settlement with the contractor for that amount.
The contractor filed a claim under its CGL policy for the $6 million in costs it had reimbursed to IBM. The insurer refused to pay. In subsequent litigation with the contractor, the insurer made two main arguments. First, it argued that it only had the duty to defend against a “suit,” and that the negotiations between the contractor and IBM were not a “suit.” Second, the insurer argued that the loss of the tapes was not an “injury” covered by the policy.
The Connecticut Supreme Court adopted both of the insurer’s arguments, and the decision highlights two key areas for any company considering whether it needs additional insurance coverage for data breaches: what constitutes an “injury” under a CGL, and when an insurer is required to reimburse a company for costs associated with an injury. First, the court held that the loss of the computer tapes was not a “personal injury” under the CGL, because there had been no “publication” of the information stored on the tapes. In other words, because there was no evidence that anyone accessed or used the stolen PII, the court found that the data breach did not constitute a “personal injury” under the policy—even though the contractor spent millions of dollars reimbursing IBM for costs associated with the data breach.
Second, the court found that the CGL policy only required the insurer to reimburse [...]
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