Here Comes the Appraisal Clause, Here Comes the Appraisal Clause

On May 6, 2011, the Texas Supreme Court addressed the issue of whether a showing of prejudice is required in order to establish waiver of the right to demand an appraisal under an insurance policy.

Grubbs Infiniti made a claim for hail damage under its property coverage with Universal Underwriters of Texas, and after Universal made some payments, a dispute arose as to the extent of the damage. Months later, Grubbs claimed underpayment and sued for breach of contract and bad faith. In response, Universal invoked the policy’s appraisal clause seeking an appraisal of the loss. Grubbs claimed that Universal had waived its right to an appraisal by not invoking it sooner, so Universal moved to compel an appraisal and to abate all proceedings during the interim.

After the trial court denied the motion, Universal petitioned the Supreme Court for mandamus relief. The Court held that mere delay is insufficient to establish waiver of an appraisal clause; the party claiming waiver must also show prejudice. In Re Universal Underwriters of Texas Insurance Company, 54 Tex.Sup.Ct.J. 931 (Tex. 2011) (the Court also declared that mandamus relief is appropriate to enforce an appraisal clause).

Once again the Texas Supreme Court has required a showing of prejudice by a party claiming forfeiture of rights and benefits under an insurance policy, expanding the prejudice rule for the first time to appraisal clauses, stating that “Our failure to explicitly require prejudice is more a function of the paucity of cases in which we have addressed waiver of appraisal than its inapplicability to the doctrine.”


Is Your Company’s Social Media Launch Ahead Of Its Compliance Program

Many businesses are still coasting along enjoying the marketing advantages of social media without making sure they have a good compliance program in place. For every company with a Facebook fan page or Twitter account roughly 65 percent would admit they do not have a social media policy. For companies with a social media policy, many of those policies have been lifted from online samples that may be over broad, and include provisions that have been challenged with some success in court.

“Penny wise and pound foolish,” companies are not having their social media business practices reviewed by knowledgeable legal counsel. Companies invest time and money putting together a Facebook fan page that is promoted throughout the company without training their employees on the Do’s and Don’ts of posting comments on the fan page, or using social media in general.

Another risk of social media was highlighted by settlements that the FTC reached with Twitter and Google concerning shortcomings in their privacy guidelines. The consent decrees reached by each of the companies highlight how seriously the FTC takes the safeguarding of consumer information. In the case of Twitter, the FTC put the responsibility for hackers gaining administrative access to Twitter personal accounts on Twitter. One hacker gained access to non-public information such as users email addresses and mobile phone numbers. The same hacker changed the passwords for approximately 45 high profile Twitter users including President Obama and sent phony tweets from those accounts.

The hacker found his way into the system because Twitter did not have a feature that is commonly used with online stock brokerage accounts where the system will lock you out after a few unsuccessful attempts to enter the correct password. The hacker used an automated password guessing tool which submitted thousands of guesses until finding the correct password. The FTC identified other shortcomings in Twitter’s security system including: (1) Not requiring that passwords be unique and different from what a Twitter employee, who also had administrative control of the Twitter system, used to access third-party programs and networks; (2) not requiring periodic changes of administrative passwords; and (3) not requiring that Twitter passwords in personal email accounts be stored encrypted instead of the plain text that some Twitter employees used.

The FTC framed the complaint as Twitter not living up to its representations to consumers on its security practices. Twitter’s privacy policy stated, “Twitter is very concerned about safeguarding the confidentiality of your personally identifiable information. We employ administrative, physical, and electronic measures designed to protect your information from unauthorized access.”

Twitter settled with the FTC and agreed, among other things, to establish and maintain a comprehensive information security program so that nonpublic consumer information cannot be hacked into. This security information program will be assessed by an independent third-party auditor every other year for the next ten years. Twitter must also maintain records regarding its privacy practices and policies. Each violation of the settlement order may result in a civil penalty up to $16,000.

The recent Google Buzz settlement is a perfect example of a company forgetting to read and take into account its own privacy policy. Google’s Gmail privacy policy assured users of its email service that the information was being stored for the user’s purposes, and that Google would seek permission in advance of using the user’s personal information for a different purpose.

In launching Google Buzz, a social networking platform that Google hoped would compete with Facebook, the FTC alleged that Google tried to create instant networks of friends for its users by pulling from their email contact lists without considering this information may be very sensitive to the individual users (imagine, clients of therapists and attorneys, abusive ex-husbands, children and job recruiters).

As a result, Google has had to enter into a comprehensive settlement that goes beyond the current regulatory requirements, and will likely hamstring Google’s efforts to compete with Facebook and other social networking sites that are not subject to similar restrictions. Among other things, Google must get affirmative consent to any new or additional uses of previously collected data. Google must also implement a comprehensive privacy program that is reduced to writing, and includes an employee designated to manage the privacy program; and implement privacy controls and procedures with regular audits to make sure it is effective. Every two years, Google must have an independent auditor review the privacy program and prepare a written report. Google must comply with this comprehensive privacy program for 20 years, and that time period can be extended if Google violates the settlement consent order.

These FTC consent orders underscore the importance of making sure companies have their social media practices reviewed by knowledgeable legal counsel, risks identified and addressed, employees trained on correct usage, and new social media marketing strategies coordinated with legal counsel.

California Court of Appeal Shines More Light on Meal and Rest Break Class Actions – Flores v. Lamps Plus, Inc.

In Flores v. Lamps Plus, Inc., the California Court of Appeal in Los Angeles joined a growing list of California appellate courts recently holding that class certification is not proper in meal and rest break cases. Significantly, the court in Lamps Plus found that California law requires employers to provide employees with meal and rest breaks, not to ensure the breaks are taken. Because plaintiffs would have to show why they missed a break — and not simply establish that they did not receive a break — the Court found that individualized inquiries were necessary to establish violations of the Labor Code, and therefore class treatment was not appropriate.

Lamps Plus had a policy requiring all non-managerial employees to take meal and rest breaks as required by California labor law and regulations, and employed a progressive discipline policy for those who violated it. The plaintiffs argued that the law required Lamps Plus to not only provide them with meal breaks, but to ensure that they actually took the breaks. The Court rejected this argument, concluding that the language in the applicable statute and Wage Order “does not mean employers must ensureemployees take meal breaks[, but r]ather, employer must only provide breaks, meaning, making them available.” The Court noted that “[t]he notion that an employer must ensure all employees take their meal and rest periods is utterly impracticable.”

This issue is pending before the California Supreme Court in a pair of closely-watched cases. We will continue to monitor this issue and report on it.

Supreme Court Continues Expansive Interpretation of Retaliation Claims

On March 22, 2011, the U.S. Supreme Court held that oral complaints are protected under the Fair Labor Standards Act’s (FLSA) anti-retaliation provisions.  In Kasten v. Saint-Gobain Performance, the Court resolved a split among the circuits as to whether the statutory term “filed a complaint” found in the FLSA encompasses oral, as well as written, complaints.  A 6-2 majority found that, while the language of the statute may be ambiguous, the intent of the FLSA compelled the conclusion that oral complaints are indeed protected.  This should come as no surprise to anyone, given how the Court has ruled in a number of cases involving retaliation claims over the past few years.

In Kasten, the employee claimed that he verbally “raised a concern” with his shift supervisor about the location of the employer’s time clocks, which he felt prevented employees from being paid for time they spent donning and doffing protective gear in violation of the FLSA.  Kasten also alleged that he told his lead operator he was “thinking about starting a lawsuit about the placement of the time clocks,” and he informed an HR employee that the company would lose if he challenged the location of the time clocks in court.

The company eventually terminated Kasten’s employment, after repeated warnings, for failing to record his comings and goings on the company’s time clocks.  Kasten, not surprisingly, contended that he was discharged because he complained orally to company officials about the location of the time clocks.  The district court entered summary judgment in the company’s favor, holding that the FLSA does not protect oral complaints, and the Seventh Circuit affirmed the decision.

The Supreme Court reversed the Seventh Circuit’s ruling, holding that oral complaints are indeed protected.  In arriving at this conclusion, the Court gave deference to the position taken by the Secretary of Labor that the phrase “filed a complaint” encompasses oral complaints, as well as written ones.  The Department of Labor articulated this position in an enforcement action years ago, and it has reaffirmed this position in subsequent briefs.

Writing for the majority, Justice Breyer set forth the minimum requirements that an oral complaint must meet in order to protect the person who made it, namely that it “must be sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute and a call for the protection.”  The Court held that this standard may be met by both oral and written complaints.

As noted above, the Kasten decision marks another expansion of the protections afforded to employees who come forward to report or complain about potential violations of the laws intended to protect them.

Most recently, in January 2011, the Supreme Court found in favor of a man who claimed that he was fired because his fiancée filed a sex discrimination claim against their mutual employer (Thompson v. North American Stainless).  In a previous term, the Court held that an employee may bring a retaliation claim under Section 1981 (CBOCS West, Inc. v. Humphries) and that a federal employee may sue for retaliation under the Age Discrimination in Employment Act, despite the lack of the term “retaliation” in either statute (Gomez-Perez v. Potter).  The Court also found in favor of an employee who claimed that she was fired after answering questions relating to another employee’s sex harassment claim (Crawford v. Metropolitan Government of Nashville & Davidson County) and held that retaliation under Title VII encompasses any employer action that “well might have dissuaded a reasonable worker from making or supporting a charge of discrimination” (Burlington Northern & Santa Fe Railway Co. v. White).