In latest edition of The Wright Toolbox:
- Demise of Mandatory Arbitration in Sexual Misconduct Cases – read now
- Ukraine/Russia – Cyber Policy Exclusions – read now
Demise of Mandatory Arbitration in Sexual Misconduct Cases
In a rare show of bipartisanship last month, the United States Congress passed legislation to end the practice of compulsory arbitration in cases involving claims of sexual assault or sexual harassment in the workplace. The House of Representatives passed the bill in a vote of 335-97, with all opposing votes coming from Republicans. Two days later, the Senate unanimously approved the bill by voice vote. In the Senate, Senator Kirstin Gillibrand, a New York Democrat, and Senator Lindsey Graham, a South Carolina Republican, co-sponsored the legislation. The Biden administration has indicated that the President will sign the bill into law.
In order to gain wide-spread bipartisan support, the bill was limited only to claims of sexual assault and sexual harassment rather than including broader forms of gender and other discrimination. There is currently a House bill pending known as the Forced Arbitration Injustice Repeal or FAIR Act (H.R. 963) that if passed would make unenforceable all pre-dispute mandatory arbitration involving employment, consumer, antitrust, or civil rights disputes. That legislation does not have the broad support of the bill that just passed.
In the wake of the #MeToo movement, a number of high-profile companies had already recently begun banning forced arbitration in sexual harassment cases, including Microsoft and Wells Fargo. However, tens of millions of American workers are still subject to mandatory arbitration to resolve all disputes, including discrimination and harassment claims, pay disparity complaints, and other common employment-related disputes. Many employees do not even realize when they sign employment agreement paperwork that they are giving up their rights to resolve employment disputes in a public courtroom setting or before a jury.
In addition to the potential cost savings of arbitration vs. litigation, many employers prefer arbitration as a way to keep disputes with charged allegations such as racial or gender discrimination or harassment out of the public court system and potentially away from the press. In addition to the lack of public access to arbitration proceedings, many if not most cases of this nature that are settled during arbitration contain confidentiality provisions as a condition of settlement.
The ban on forced arbitration in sexual harassment and sexual assault cases will be effective immediately once the bill is signed into law by President Biden. It will also apply in certain consumer-related cases such as when a consumer signs an agreement in exchange for products such as ride sharing services. Many in the #Me Too movement have argued the need for this legislation because mandatory arbitration clauses in employment agreements have made it difficult to properly penalize sexual abusers for their offenses. The successful passage of the legislation was particularly welcome news to Gretchen Carlson, the former Fox News anchor whose lawsuit against Roger Ailes, the former Chairman of Fox News, first brought widespread public attention to the issue of mandatory arbitration clauses.
Ukraine/Russia – Cyber Policy Exclusions
A recent court decision from New Jersey raised an interesting question – what’s in your policy? Specifically, your cyber policy. In the New Jersey case, a major multinational pharmaceutical company was affected by a cyber attack on the Ukraine government. The cyber attack was attributed to Russia and its on-going hostilities against Ukraine, prior to its recent invasion of the country. The company sought coverage under an all risks insurance policy for the damage caused to its computer system by the attack. The insurance company denied coverage under its “acts of war” exclusion. The court rejected the insurance company’s argument finding that the cyber attack did not fit within the acts of war exclusionary language.
This raises the question as to whether state sponsored cyber attacks can fall under an acts of war exclusion. Not too long ago, it was contended that North Korea launched a cyber attack against Sony causing a massive data breach and massive damages. The United States government imposed sanctions against North Korea because of the attack, but refused to call the attack an act of war. North Korea hilariously responded to the sanctions by calling the United States an “inveterate repugnancy.”
Cyber policies are relatively new in the insurance world and as a result no strong consensus has developed regarding a standardized policy form. This means that insurance companies will each have their own manuscript polices with widely varying language and exclusions. This in turn raises the need to exercise great care in working with your insurance agent to ensure that you are purchasing the proper cyber liability policy. The differences in provisions from one cyber policy to another can be significant. It is particularly critical to be aware of the limitations and exclusions in such policies.
With the rise of state sponsored attacks and terrorist cyber attacks the act of war exclusion is one of those provisions that should be reviewed because there are broad and narrow provisions. For example, a policy’s exclusion may only preclude coverage for “declared” acts of war. So, in Sony’s case, the narrow exclusionary language provision in its policy coverage existed because the United States did not classify North Korea’s alleged actions as an act of war.
Some policies have broader exclusions which might exclude coverage for a much larger category of foreign aggressions than just officially declared wars. For example, some cyber polices exclude losses arising out of “acts of foreign enemies, [or] hostilities (whether war be declared or not).” This broader provision will include a broader group of actions in the exclusion and as a result will lead to a larger chance of denial of coverage. Therefore, in these trying cyber times it is crucial for companies to evaluate their potential exposure to cyber terrorism when obtaining cyber coverage.
If you have any questions regarding insurance coverage issues please contact an attorney in our Insurance Defense group.