ALL SYSTEMS CHECK-UP:

Brainstorming Strategies to Help Identify & Manage Your Risk

Presented by Tamara Cook and Jim Blair of Renaud Cook Drury Mesaros, PA

The following material is intended to be the author’s summary and opinions of law in the state of Arizona. It is NOT legal advice and because interpretation depends on the particular facts and circumstances, the author cautions anyone against using the following as anything other than a general guide.

TODAY’S AGENDA Simple basics.

Lawsuits. Risk Assessment Planning.

Rapid Response – A Team Approach. Insurance.

Recordkeeping. Medicare.

Labor and Employment – A Closer Look.

WHAT IS “RISK?” 1: The possibility of loss or injury; peril. 2: Someone or something that creates or suggests a hazard. 3: Insurance - the degree of probability of loss caused by a specified hazard from a specified cause or source.

4: The chance that an investment (as a stock or commodity) will lose value.

At risk: To be in a state or condition marked by a high level of risk or susceptibility.

WHY DOES IT MATTER? Every business model has one common theme:

TO MAKE MONEY. Time is money. Inefficiencies cost time and money. Inefficiencies result in lawsuits. Lawsuits cost money, time, reputation.

LAWSUITS IN ARIZONA, 2011.

Arizona Attorney, June 2012, “Civil Verdicts, 2011” by Kelly Wilkins MacHenry.

TOP 10 VERDICTS, 2011

1. Patent infringement: $15.4M PLF and DEF both companies. Economy?

2. Defamation: $12M PLF a medical practice. PLF a patient. Internet access?

3. Personal injury: $5.9M DEF Church Organization, volunteer program. Economy?

4. Fraud, misconduct (investments): $4.4M DEF investment company. Economy?

5. Breach of Lease (commercial): $4.2M PLF and DEF both companies. Economy.

CONTINUED: 1. Personal injury/trucking case: $3.2M

Accident in OK. Admitted fault. 5 plfs. Economy? 2. Securities fraud: $1.9M

DEF investment company. Economy? 3. Breach of contract: $1.8M

PLF and DEF both companies. Economy? 4. Overdue rent (commercial): $1.8M

PLF the City of Tempe. DEF a company. Economy? 5. Unfair municipal enforcement, business interference:

$1.7M PLF a company. DEF the City of Glendale. Economy?

CONSIDER THIS: • Statewide: PLF win at trial 61% of the time.

o Range has been 56% - 66% over last 5 years.

• Federal Court generally more favorable to defendants. o 2011, Defendants won at trial 82% of the time.

• Counties: o Maricopa County/Phoenix accounts for 60% of all state verdicts.

4th largest trial court in US. o Pima County/Tucson average verdict $159,927 (lowest since tracked).

Plaintiffs win 69% of the cases tried. o Yavapai County/Prescott is favorable to defendants, winning 75% of cases tried. o Pinal County/Florence (no verdicts) by history has highest verdicts.

FILED V. TRIED • Number of suits filed since 2007 has increased by

approximately 35%. • Number of cases tried to verdict has decreased by

approximately 30% since 2009.

PUNITIVE DAMAGES. • No longer the “rage.” Only 4 punitive awards given in 2011.

• $868,750 against employer in woman’s sexual harassment/retaliation claim for being subjected to pornographic drawings.

• $90,000 in punitives against street sweeper that was speeding when it hit a passenger car.

THEY WIN, YOU LOSE. • Plaintiffs won 69% of cases tried with average award of

$953,577.

• Personal injury was 40% of all suits tried to verdict. Plaintiffs won 59% of the time.

A TAKE-AWAY • For EVERY lawsuit filed against your company, ask: Can it go to federal court? If it can, make it happen.

RISK ASSESSMENT PLAN OF ACTION

• How can you tell if a business process needs improving? o Stay current.

• Listen to company personnel, customers. • Track changes in expenditures. • Track insurance claims. • Track lawsuits. • Monitor trends in your community, industry.

IDENTIFY THE RISK AND ITS ROOT CAUSE

Risk assessment tools.

Risk assessing: 1. Identify your objective. Prioritize. 2. Ask 6 questions for each objective:

a. Who, what, where, when, why, how. b. FLOW CHARTS are excellent tools.

3. Document process changes. 4. Training and accountability. 5. Keep information on “need to know basis.” 6. Track, review, update periodically.

RAPID RESPONSE – A TEAM APPROACH

What is a catastrophic incident? Major personal injury/death. Significant damage to business/infrastructure. Public retaliation.

How do you handle catastrophic incidents? Don’t assume it won’t happen to you. No plan in place? Now is the time! Don’t be penny wise and pound foolish.

TEAM • Experienced. • Counsel that knows your

business & you trust. o Available 24,7,365

• Consultation team readily available. o Engineers. o Investigators. o IT. o Criminal counsel.

• Counsel and 1 company person at top of call list.

• Limited sharing of information.

• All activities and communications run through private counsel.

• Properly equipped. • Full access. • Cheat sheet available upon

request.

COVERAGES • Do you have it? • Do you have enough? • CGL is never enough.

o Officers and Directors o Key Person? o Under insurance? o Excess insurance? o HAZMAT? o Building? o Media? Cyber risks?

UNDERINSURED STATISTICS Many businesses are underinsured: 83% underinsured their building/structures 47% stock, content 2% business interruption 15% plant and machinery

Cyber attacks! • A risk? Ask these companies:

o Sony (100M accounts breached; est cost $200M, 58+ class action suits) o Apollo Group Inc. o Tumi Holdings o Michaels Stores Inc. o VeriSign, Verifone Systems o Google Inc. (started in China>?) o Intel

RE-EVALUATE coverage with all

KEY CHANGES: • COMPANY OWNERSHIP • BUSINESS PHILOSOPHY • BUSINESS MODEL • UPSIZE-DOWN SIZE • MERGERS AND ACQUISITIONS • “HITS” FROM LAWSUITS • CHANGES IN THE LAW

CAN YOU AFFORD NOT TO? Can you afford all the coverage you need?

FEDERAL RULES OF CIVIL PROCEDURE: RULE 34

(a) A party may serve on any other party a request… (1) To produce and permit the requesting party or its representative to inspect, copy,

test, or sample the following items in the responding party’s possession, custody, or control:

(a) Any designated documents or electronically stored information – including writings, drawings, graphs, charts, photographs, sound recordings, images, and other data or data compilations – stored in any medium from which information can be obtained either directly or, if necessary, after translation by the responding party into a reasonably usable form; or

CONTINUED… (c.) to permit entry onto designated land or other property possessed or controlled by the responding party so that the requesting party may inspect, measure, survey, photograph, test, or sample the property or any designated object or operation on it.

RETENTION/PURGE POLICIES • Ask yourself the following:

o Is your company subject to federal regulations for record keeping? • Are you strictly complying?

o What is your company policy for record keeping/purge policy? o How are records stored? Is it the best, most efficient way?

MORE QUESTIONS • If your records are stored off site, who has legal possession

of the records? Does your company own the records (or QualComm, Nextel…)?

• Who is the company’s custodian of records? o More than 1? Can you consolidate? “Need to know.”

• What is the records purge policy? o Consistent for all departments? o If not, why not? o Can you, should you streamline?

MORE QUESTIONS • Who has access to records once created? • Who can alter or delete records once created? • Close these loops! • Lock out and lock down. • How many copies are floating around?

CIRCLE OF COMMUNICATION • Know the flow of information.

o What, who, when, where, how, why.

• Streamline the flow of information. • “NEED TO KNOW” ONLY! • Every person who has knowledge is a risk and deponent.

EXAMPLE • Catastrophic incident resulting in death of adverse person

from product failure allegedly at the hands of an untrained, unsupervised employee. o Who needs to know about the event? o Who needs to participate in the investigation? o Who needs to participate in risk assessment? o Must safety get involved with personnel decisions? o Must HR get involved in safety assessment?

SETTLING CASES? • Settlement ends a risk.

• Or does it??

FEAR OF MEDICARE • Medicare is going broke. They want their money back - NOW.

• If Medicare paid for treatment and care and there is a

responsible third party (you), Medicare is legally entitled to full reimbursement.

• If Medicare will end up paying for future treatment and care, Medicare is entitled to a set-aside to cover those costs.

• Pricey penalties for Extreme liability risks for delayed or non-payment.

• Know the law. 42 CFR §1395(y), 42 CFR §411, et al.

MANDATORY LANGUAGE TO AVOID SET-ASIDES

• “In the September 30, 2011 alert, CMS also provided some direction regarding liability Medicare set-asides (LMSA). CMS states that an LMSA is not required if the plaintiff ’s treating physician “certifies in writing that treatment for the alleged injury related to the liability . . . ‘settlement’ has been completed as of the date of the ‘settlement,’ and that future medical items and/or services for that injury will not be required.”

Sedgwick, CMS Bulletin, October 2011.

SIMPLE STARTING CHECK LIST • Determine PLF’s Medicare eligibility. • Get conditional payment summary from CMS. • Report on settlement, judgment or award. • Pay any CMS demand within 60 days of funding. • Consider future care costs and the best way to

“protect the interests of CMS”

RELEASE REQUIREMENTS • Get CMS prior approval of any compromise of their right of

recovery. In writing. • Include all indemnification/hold harmless language

(although law says TPP cannot contract away obligation to pay).

• Make separate check payable to CMS.

BAD NEWS • Failure to report:

o $1000/day for each claimant/plaintiff

• Failure to protect CMS’s interests: o Double damages o Counsel exposed to legal malpractice o Possible termination of benefits to claimant/plaintiff o CMS will go after insurers, counsel before PLF

ATTORNEY ETHICS • Obligation to notify CMS when settlement funds are

received in a case in which Medicare payments were made to treat the underlying injury

• Rule 1.15(d) “a lawyer shall promptly deliver to the client

or third person any funds or other property that the client or third person is entitled to receive.”

• An attorney can violate Rule 1.15 by failing to notify and

honor CMS’s reimbursement right even if the attorney was not aware of CMS’s interest since the attorney “should have known” that Medicare would have a lien

STAY CURRENT • www.cms.hhs.gov/mandatoryinsrep

MINIMIZING RISK IN THE LABOR &

EMPLOYMENT AREA

Presented by JIM BLAIR

RENAUD COOK DRURY MESAROS, PA

UPDATED/LAWFUL EMPLOYMENT MANUAL

• Keep it accurate • Train around it • Keep it updated • RCDM problem • Cannot “retaliate” versus groundless

complaint

CAREFUL/THOROUGH INVESTIGATION PROCESS

• Develop a process that works for you before problems arise

• Involve HR or counsel or both?

• Include the “victim”

THOROUGH/ACCURATE EMPLOYEE REVIEW PROCESS

• Be fair and brutally honest

• Be critical of your poorer performers

OPEN DOOR POLICY

• Everybody says they have one

• Make sure yours encourages communications

EMPLOYEE HIRING POLICY

• Thorough, consistent, and lawful

• Keep it up-to-date with changing laws

• Hearing impaired applicant example

A TRAINED CHAIN OF COMMAND • Regular/frequent training

• Communicate between offices

• Vision impaired example at large multi-office retailer

• Get your managers involved

• Managers will see potential problems before they become real problems

• Identify and communicate with employee “bullies”

EXPECTING THE UNEXPECTED

• No matter how good your procedures and your manual are, you will encounter the unanticipated

• Deal with it quickly and fairly

EMBRACE TITLE VII

• It’s not a question of tolerating federal law

• It’s a matter of attitude

KNOW THE EEOC/LABOR DEPT. PROCEDURES AND POLICIES

• RCDM experiences at the charge/ conciliation/ position statement/ investigation stages

CAREFUL/THOUGHTFUL ARBITRATION PROCESS

• Arbitration agreement at hiring?

• Who pays to arbitrate?

• Use the company’s arbitrator?

• Arbitration may be expensive/slow?

ENFORCEABLE RESTRICTIVE COVENANTS/NON-COMPETE

AGREEMENTS • Proprietary materials/confidentiality/

preventing raids on employees are readily enforceable

• Time constraints must be narrow, i.e., no longer than time to replace/train

• Geographic restraints are very limited

EMPLOYEES VERSUS INDEPENDENT CONSULTANTS

• See Santiago v. Phoenix Newspapers, Inc., 164 Ariz. 505, 794 P.2d 138 (1990)

BACKGROUND CHECKS

• Too much/specific information can be basis for liability

• Too little information can be basis for liability

• Lack of appropriate background check can expose employer to third-party liability

BACKGROUND CHECKS

• How well did you know that person?

• How well did you check his/her reference on the way in?

• Just provide dates of employment?

POLYGRAPH TESTS

• 1988 federal law governs

• Comply carefully or you will expose your company to liability

DRUG AND ALCOHOL TESTS • 75% of all drug users are employed

• They are 10 times more likely to miss work

• 3.6 times more likely to be involved in on-the-job accidents

• 5 times more likely to file worker’s compensation claims

DRUG AND ALCOHOL TESTS • 33% less productive

• 1994 statute – A.R.S. § 23-493 et seq. (codifies private employers’ right to test for drugs and alcohol, provides procedural safeguards for employees, and limits ability of employees to sue employers after adverse decision)

ALL SYSTEMS CHECK-UP:

Brainstorming Strategies to Help Identify & Manage Your Risk

Presented by Tamara Cook and Jim Blair of Renaud Cook Drury Mesaros, PA