Coverages and Strategies

VOL. 23 NO. 1 SPRING 2009 THE QUARTERLY REVIEW OF ADVANCED RISK MANAGEMENT STRATEGIES VOL. 23 NO. 1 SPRING 2009 Coverages and Strategies Climate Change Is Heating Up D&O Liability Carol A.N. Zacharias D&O Indemnification Following Schoon v. Troy Costa N. Kensington and Wendy Williamson Cooperative Electronic Discovery in Mid-Size Cases William W. Belt, Jr., and Mark S. Yacano Marriage of Workers Compensation and EPL Insurance Donald V. Hale and Allan M. Muir, Esq. Financing Your Risk Program 2009 David F. Brauer Forecasting Mesothelioma Jessica B. Horewitz and Jorge Sirgo Insurance Strategies Side Agreements Loss Control Cell Phone Liability ISO on Enterprise Risk Management Playing a Hunch Commentary Keeping Tabs on Your Insurers Insurance Law Law and Disorder www.spcpub.com

Loss Control As the use of cell phones proliferates, potential liability for employers escalates, as well. An effective cell phone usage policy can help in defense of a claim. Cell Phone Liability for Employers JAMES NOBLE AND A.V. RISWADKAR Once considered an expensive and novel toy for the rich and technologically savvy, the cell phone has rapidly become the communication device of choice for people to stay connected to friends, family, customers, and their businesses. From teenagers to business executives, cell phones have become an important communication tool for today s fast-paced lifestyle. The convenience of cell phones for instant access to communication and for obtaining emergency help encourages many people to use them while driving. Despite the many positive benefits of wireless cell phone technology, distraction caused by cell phone use raises serious safety concerns. In addition, it may also result in employers vicarious liability exposure due to unsafe driving by employees using cell phones for business purposes while driving. Driver Distractions According to a landmark study released by the National Highway Traffic Safety Administration (NHTSA) and the Virginia Tech Transportation Institute, nearly 80 percent of all crashes and 65 percent of near-crashes involve some form of driver distraction within three seconds prior to the event. This is substantially higher than the original estimates of 20 30 percent of all crashes. The study went on to 73

74 The John Liner Review say that drivers who frequently engage in distracting activities are more likely to be involved in a crash or near-crash. 1 A driver is faced with many distractions while driving. These can include tuning a radio, eating, reading, and reaching for a moving or loose object inside the vehicle. New distractions are now emerging from the rapidly increasing use of in-vehicle electronic, navigation, and communication devices. These devices, called telematics, include cell phones, GPS route navigation systems, on-board computers that allow e-mail access, personalized Internet-based information services, and others. Employers are facing a new, emerging threat of vicarious liability for automobile accidents caused by distracted driving of their employees. Due to the rapidly increasing use of cell phones in all age groups in the Unites States, studies by NHTSA and many others are now focusing on the impact on safety of distraction caused by the use of cell phones while driving. In fact, more than 150 studies relating to cell phone distractions while driving have been released since 1995. Although there are several other types of potential distractions in a car, the use of a cell phone while driving, due to its mental engagement in interactive conversation, is receiving the most attention for causing distracted driving and having a potential adverse impact on driving safety. Recent Developments Research reports and safety studies by several reputable sources have all reported increased reaction time and distraction resulting from use of a cell phone while driving. 2 This increases the chance of a driver getting into an accident, particularly in congested traffic or inclement weather conditions. Hands-Free vs. Hand-Held Cell Phones Some of these studies have tried to make a distinction by focusing on use of hands-free versus hand-held cell phones. There have been mixed results, but for the most part, simulator and on-road studies have concluded that the use of hands-free devices did not reduce the impact on reaction time and driver distraction. While the hands-free features may address the issue of the task complexity of dialing and holding a cell phone while driving, the interactive conversation on a cell phone demands cognitive resources, and this is believed to be primarily responsible for distracted driving. There are several studies in Europe and the United States that are currently focusing on this issue. A 2003 simulator study conducted by the University of Utah reported that drivers engaged in phone conversations had significantly slower response times to traffic signals than those listening to the radio. 3 Another driver study in the United Kingdom that simulated distracted driving reported that using a cell phone while driving has a greater adverse impact on reaction time and stopping distances than driving under the influence of alcohol. 4 Call for a Ban on Cell Phone Use While Driving In a statement released in January 2009, the National Safety Council (NSC) called for a nationwide ban on cell phone use while driving. The statement equated talking on the cell phone to drinking and driving, which has been socially unacceptable for many years. 5 This builds on previous NSC statements about multitasking that a driver s first responsibility is the safe operation of the vehicle and that best practice is not to use electronic devices including cell phones while driving. 6 Emerging Business Liabilities With the growing use of cell phones for business purposes, employers are facing a new, emerging threat of vicarious liability for automobile accidents caused by distracted driving of their employees. A company may not be directly liable for its employees actions, but it can be held vicariously liable for dangerous behavior and negligent actions of their employees while conducting company business. The precedent was set many years ago for vicarious liability cases when pizza delivery drivers, encouraged by the 30-minute pizza delivery promise of the pizza maker, displayed allegedly negligent and dangerous driving behavior. 7

Vol. 23, No. 1, Spring 2009 75 Two recent court verdicts ruled that employers might be held vicariously liable if they permit employees to use cell phones for business purposes while driving. Bustos v. Dyke Industries, Inc., in Dade County, Florida, was the first vicarious liability case to bring a verdict for the plaintiff, and the jury awarded the plaintiff $16 million in December 2001. 8 In Yoon v. Wagner, et al., a court in Virginia allowed a claim of $30 million for vicarious liability against the California-based law firm, Cooley Godward LLP, to proceed to trial. 9 Although both are trial court verdicts that may be modified or reversed on appeal, these cases indicate an emerging trend in motor tort cases associated with vicarious liability for distracted driving and higher awards for the plaintiff. Large Court Settlements Other cases include these: In 1999, Solomon Smith Barney settled a case for $500,000 in a suit brought by the family of a motorcyclist who died in an accident involving a stockbroker who was reportedly using a cell phone for business purposes. 10 In 1996, the State of Hawaii reportedly paid $1.5 million for an accident involving a pedestrian who suffered permanent brain damage after being struck by a motorist using a cell phone. 11 In one recent court settlement, International Paper Company reportedly paid $5.2 million to a Georgia woman for a rear-end collision accident involving employee use of a company-issued cell phone while driving. 12 It is interesting to note that the company had a policy that required use of a hands-free cell phone while driving. There are reportedly numerous additional cases pending and in litigation. Major Factors in Large Jury Awards Two major factors will lead to larger awards in jury cases in the near term. First, the public sees cell phones and distracted driving as a serious problem. In the 2008 survey published by the AAA Foundation for Traffic Safety, 82 percent of drivers rated distracted driving as a serious problem (although half of those same drivers admitted talking on a cell phone and driving in the last 30 days). 13 Second, public sentiment toward business in general has soured with the latest economic downturn. Reports of large executive bonuses and financial malfeasance coupled with large employment cuts have lead to a somebody must pay mentality. This makes juries much less sympathetic to known but uncontrolled risks. In this negative environment, steps must be taken to reduce the exposure of distracted driving. The potential hazard of distracted driving is clearly recognized, but the actual risk of harm is still a matter of controversy. Legislative Ban Since the town of Brooklyn, Ohio, (the first jurisdiction to mandate seatbelt use) banned use of cell phones while driving in 1999, many more municipalities (e.g., Chicago; Washington, D.C.; and others) and U.S. states (New York, New Jersey, Connecticut, Utah, Virginia, and Washington) have passed restrictive laws to regulate use of cell phones while driving. In addition, as of 2008, 17 states have banned or restricted use of cell phones while driving by young drivers. This is consistent with high-risk driving and high use of cell phone and texting in this age group. Diversity of these regulations range from an outright ban on use of hand-held cell phones for all drivers to permitting exception for emergency purposes and also limited exception for professional drivers. Some allow handsfree accessories and features such as voice-activated dialing and others ban texting (DWT driving while texting). Sixteen states ban use of a cell phone by bus drivers when passengers are present. 14 A new hands-free law went into effect in California on July 1, 2008, banning use of hand-held cell phones while driving. Although California law does not forbid texting, it completely bans use of cell phones by drivers under 18 years of age. The law also bans use of other hand-held communication devices and laptop computers. 15 Since many states and local jurisdictions are considering similar restrictions, details of regulations and current information regarding individual states should be obtained from reliable sources, such as Governors Highway Safety Association. 16 International Law Internationally, many countries, including most

76 The John Liner Review European Union countries, the United Kingdom, Australia, Switzerland, Japan, Singapore, South Korea, India, South Africa, and others restrict use of cell phones while driving. Since initially passing the law to ban use of cell phones while driving, the United Kingdom has toughened the law by increasing the penalties and adding a threat of a jail term and even fines for employers under certain circumstances. 17 The prudent practice for a company is to consider developing a cell phone usage policy and implementing it uniformly. Controversy Due to Lack of Undisputed Data The potential hazard of distracted driving from cell phone use is clearly recognized, but the actual risk of harm (function of likelihood and severity) is still a matter of controversy and debate among researchers studying human factors. Although simulator studies and other human factors research have clearly demonstrated the increased reaction time and adverse safety impact of distracted driving, undisputed field data are difficult to collect. 18 Enforcement Issues In the absence of reliable and undisputed field data, NHTSA and state regulatory agencies are unlikely to act decisively. Approximately 30 states have started collecting cell phone use data as part of accident crash reports and have started reviewing cell phone use just prior to the actual accident. Although enforcement of existing regulations will reduce accidents and save hundreds of lives, enforcement is a major challenge. Experts recommend a strong public education effort to supplement the enforcement of these regulations. The enforcement of these regulations also varies by jurisdiction. Fines typically are in the range of $100 for a violation. In New Jersey, cell phone use and driving while texting are considered a primary offense, whereas in Washington, they are considered secondary offenses that require the driver s being pulled over for a more grievous violation before ticketing for a cell phone violation. New York has increasing fines after $100 for the first violation. Although legislative restrictions are likely to complicate the issue of cell phone liability and litigation, the question that remains is: How will current laws be enforced? Unless the enforcement is strong enough, it is not likely to discourage drivers from using a cell phone while driving. The prudent practice for a company is to consider developing a cell phone usage policy and implementing it uniformly in order to manage this risk proactively in their fleet operations for sales, delivery, maintenance, and heavy vehicles. Corporate Policy The primary goal of any corporate policy should be to proactively prevent an undesired outcome for the organization. Having a policy in place regarding distracted driving and cell phone usage does not necessarily guarantee a successful defense in every case. However, such a policy will help reduce the exposure and, more importantly, send a clear safety message to employees. Experts believe that a company with a well-written policy is clearly in a much better defensive position than a company with no policy at all. Approaches to a Corporate Policy Here are some possible approaches and options to consider in the development of a policy on distracted driving and cell phone use by employees: total ban on use of all cell phones and communication devices; total ban on use of all wireless communication devices; permissive use only in an emergency, with a statement regarding safe usage, such as, Pull over to make a call safely, etc.; ban on hand-held phones but permissive use of hands-free devices (many U.S. cities and municipalities, such as New York City and Chicago, have passed such laws); restrictive policy limited to use of cell phones in company vehicles only (no reference to rental or

Vol. 23, No. 1, Spring 2009 77 leased vehicles); or broad restrictive policy on business use of company-issued cellular phones and wireless devices (even in personal vehicles). Considerations in Formulating a Policy Although experts are divided on the specific provisions and enforcement of such company policies, many experts are suggesting consideration of the following points when developing a corporate policy on in-vehicle cell phone usage. The policy must balance business needs with the realities of driving safety and the potential for high legal liability risks. A proactive, balanced policy will demonstrate an organization s commitment to safety and the prevention of accidents and will help with a defense in case of litigation. Before developing any policy, a review of current cell phone usage and practices in light of business needs and environment should be conducted. There are very few compelling reasons for employees to talk on a cell phone while driving. It may be prudent to ban the use of cell phones and other distractions while driving. The strongest policies have prohibited use of company-issued cell phones completely while driving a company or rental vehicle. Some companies even require employees to turn the cell phone off while driving. Some companies have considered expanding restrictions or bans on use of pagers, digital assistants, laptop computers, and other electronic communication devices, in addition to cell phones. A less restrictive policy may permit use of cell phones with hands-free devices in limited circumstances. Guidelines may limit prolonged conversations, particularly in adverse weather and traffic conditions. Some policies may allow emergency usage with some guidelines, such as reporting car trouble or an accident or in case of an imminent danger. The policy should be clearly articulated, broadly communicated, and uniformly enforced. If a company is providing cell phones, employees should be required to sign and acknowledge the receipt of the corporate policy. Some companies have chosen to place a warning sticker on company-provided cell phones reminding employees about the dangers of distracted driving. If a company is providing cell phones, employees should be required to sign the corporate policy. Training Component Some companies have included a training component (including a booklet, online training, etc.) to supplement and reinforce their policy. It is also important to ensure proper documentation by means of a written sign-off of employee acknowledgement of the policy information and any training provided. Even more effective is electronic assessment of policy knowledge and verification of policy understanding. Awareness training should be part of a new employee orientation program or when a company car or cellular phone or other wireless communication devices are assigned to an employee. This may be particularly important if use of cellular phones and wireless communication is essential for the job. Due to practical difficulties and challenges in enforcing a cell phone use policy, employees have to realize the seriousness of management policy to ensure compliance and their own safety. Leadership Component Leadership is an important component of successful policy implementation. Periodic coaching and reminders from managers are essential tools for reinforcing the policy. Allowing employees to participate in conference calls while driving must be discouraged. Managers should be held accountable for policy enforcement. Enforcement Component Whether a total ban or a less restrictive cell phone usage policy, uniform and consistent application of

78 The John Liner Review policy is important, including disciplinary action for any violations. Disciplinary actions at some companies have ranged from a written reprimand for the first violation to more serious disciplinary actions to ensure uniform enforcement of the policy. This has some similarities with enforcement challenges for a corporate policy on driving a company vehicle while intoxicated. Conclusion Employment-related law for this emerging liability is still evolving. Research on this issue by NHTSA, universities, and the automobile and wireless communication industries probably has a long way to go before such research can provide any conclusive guidelines. In the meantime, a wait and see approach is probably not prudent risk management in light of the emerging trends in litigation and large settlements. Accidents involving distracted driving by an employee require a plaintiff to prove that the accident was caused by the cell phone use and also that the conversation was business-related. For this reason, cell phone records are commonly scrutinized during the discovery process. It is unlikely that a jury will be sympathetic to a business in the absence of a corporate policy on cell phone use or when presented evidence of company policies and practices that condone or even encourage cell phone usage for increased productivity. Experts recommend efforts towards stronger awareness of the risk of employer liability among employees and a balanced cell phone usage policy that considers the realities of the business environment and can realistically be enforced uniformly. These steps will help demonstrate an organization s commitment to safety and the prevention of accidents. Additional Information 1. National Safety Council, Multitasking Statement, available at https://www.nsc.org/news/ policy/multitasking.aspx. 2. National Highway Traffic Safety Administration, Cell Phone Use Publications. Overall results for 2000, 2003, 2005, 2007, 2008 available at http:// www.nrd.nhtsa.dot.gov/cats/listpublications. aspx?id=20&showby=category. 3. Insurance Information Institute, Cellphones and Driving (October 2008), available at http://www. iii.org/media/hottopics/insurance/cellphones/. Endnotes 1. NHTSA, Virginia Tech Transportation Institute Release Findings of Breakthrough Research on Real-World Driver Behavior, Distraction and Crash Factors (April 2006), available at http://www.nhtsa.dot.gov/portal/site/nhtsa/m enuitem.54757ba83ef160af9a7ccf10dba046a0/. 2. See, e.g., American Automobile Association Foundation for Traffic Safety, 2008 Traffic Safety Culture Index (April 29, 2008), available at http://www.aaafoundation.org/ pdf/2008tscindexfactsheet.pdf; Glassbrenner, Donna, and Tony Jianqiang Ye, Driver Cell Phone Use in 2006 Overall Results, NHTSA (July 2007) and other NHTSA publications, available at http://www-nrd.nhtsa.dot.gov/ cats/listpublications.aspx?id=7&showby=category; Virginia Tech Transportation Institute, id.; and many others. 3. National Safety Council, Study Finds Inattention Blindness in BehindtheWheel [sic] Cell Phone Users, press release (January 7, 2003), available at http://www.nsc.org/ news/nr012703.aspx. 4. The Royal Society for the Prevention of Accidents, The Risk of Using a Mobile Phone While Driving, available at http://www.rospa.com/roadsafety/info/mobile_phone_report.pdf. 5. National Safety Council, National Safety Council Calls for Nationwide Ban on Cell Phone Use While Driving, press release (January 12, 2009), available at http://www. nsc.org/news/cellphone_ban.aspx. 6. Foran, Virginia, NSC: Cell Phone Use Distracting for Motorists, EHS Today (August 17, 2001), available at http://ehstoday.com/news/ehs_imp_34663/. 7. Parker et al. v. Domino s Pizza et al., No. 92-2056 and 92-2630 (Fl. App. Ct. 1993). 8. Alicia Bustos and Ruben Bustos v. Lazaro Leiva and Dyke Industries, Inc., Miami Dade County Circuit Court, No. 01-13370-CA-30 (2001). 9. Yoon v. Wagner et al., Loudon County Circuit Court CL 24892 (2004); Broulliard, Karin, Family Wins $2 Million in Hit-Run, The Washington Post (October 8, 2004), available at http://www.washingtonpost.com/ac2/wp-dyn/ A16109-2004Oct7. 10. Roberts v. Salomon Smith Barney Inc., et al., 02-CV-4409

Vol. 23, No. 1, Spring 2009 79 (BSJ); Corporate culture blamed in fatal car accident, Virginia Employment Law Letter (December 1999). 11. Mullins, Robert, Firms may be liable for worker use of cell phones in crashes, Silicon Valley/San Jose Business Journal (September 7, 2001), available at http://www.bizjournals. com/sanjose/stories/2001/09/10/story6.html. 12. IP settles personal injury suit for $5.2M, Memphis Business Journal (February 14, 2008), available at http://www.bizjournals.com/memphis/stories/2008/02/11/daily25.html. 13. American Automobile Association Foundation for Traffic Safety, ibid. 14. Governors Highway Safety Association, Cell Phone Driving Laws (last updated February 2009), available at http:// www.ghsa.org/html/stateinfo/laws/cellphone_laws.html. 15. Kolko, Jed, What to Expect from California s New Hands- Free Law, Public Policy Institute of California (May 2008), available at http://www.ppic.org/content/pubs/op/ OP_508JKOP.pdf. 16. Governors Highway Safety Association, ibid. 17. Countries that restrict cell phone use while driving, cellular-news (last updated December 14, 2008), available at http://www.cellular-news.com/car_bans/. 18. National Highway Traffic Safety Administration, Driver Distraction: A Review of the Current State-of-Knowledge (April 2008), available at http://www.nhtsa.dot.gov/staticfiles/dot/nhtsa/nrd/multimedia/pdfs/crash%20 Avoidance/2008/DOT-HS-810-704.pdf. James Noble has over 30 years of experience in the commercial transportation industry. He blends his in-depth knowledge of compliance and safety issues with a strong operational background to devise comprehensive programs that promote the benefits of transportation safety to Zurich and its clients. Noble currently leads a worldwide team of experts charged with sharing best practices and providing uniform services for clients around the globe. A.V. Riswadkar is a product liability director for Zurich Services Corporation. He holds a B.S. in mechanical engineering and an M.S. in industrial engineering. He has extensive consulting experience in product safety and liability prevention. His areas of expertise include identification and assessment of emerging risks for product and process safety, product warnings, and instruction manuals. Riswadkar has published numerous articles on matters related to product safety and liability in publications such as Best s Review, Professional Safety, Food Quality, Machine Design, and The John Liner Review. Riswadkar is a certified quality engineer (CQE) and certified quality auditor (CQA). He is also a certified safety professional (CSP) and holds the Associate in Risk Management (ARM) designation. Reprinted with permission from The John Liner Review, Volume 23, Number 1; Spring 2009. Copyright 2009, Standard Publishing Corp., Boston, MA. All rights reserved. www.spcpub.com