Timothy A. Shimko & Assocs. Co., L.P.A.

CURRENT ISSUES

February 2004

Have payments under your disability policy been terminated?

In 2001, a Florida jury ordered the Unum Provident Corp. to pay one its insureds $36.7 million in damages for terminating payments under his disability policy. The insured, an ophthalmologist alleged that Unum had rejected his claim in bad faith solely to save money. In January of last year, a California jury followed suit and awarded a physician there damages in the amount of $31.7 million. Of that award, $30 million was for punitive damages.

The insured in the California case filed his action after Unum cancelled payments under a long-term disability policy he had had with Unum since the early 1980s. Though the insured’s doctor had certified that he was disabled, Unum disagreed with the doctor’s diagnosis and prognosis and terminated the insured’s benefits. Unum was found to have acted in bad faith by refusing to pay the legitimate disability claim.

Unum Provident is presently facing hundreds of lawsuits from its insureds alleging that Unum abuses its policyholders by refusing to pay legitimate disability claims for the sole purpose of adding to Unum’s profits. Unum Provident Inc. is not the only disability insurer to have adopted this heartless practice. This office has been contacted by and represents a number of clients that have had their disability policy payments terminated in bad faith by Unum and other disability insurers.

If you are receiving payments under a disability policy and your insurer has threatened to terminate your benefits or if it has already done so, you may have rights that are being violated. Employers that procure long term disability policies for their employees may also be impacted when such benefits are terminated (especially when considering the effects of the Ohio Supreme Court’s decision in Coolidge v. Riverdale, see topic below). To learn what your rights are, or how this will impact your business please feel free to contact us.

Supreme Court of Ohio alters employers’ right to discharge absent employees

In a decision that radically changed the law in Ohio, the Supreme Court ruled that public policy now prohibits an employer from terminating employees for absenteeism when such absenteeism was caused by an allowed industrial injury and if the employee is receiving temporary total disability compensation. The immediate consequence of this decision ought to be that employers will have to review and modify their absenteeism policies.

As a result of the holding in Coolidge v. Riverdale Local School District, 100 Ohio St.3d 141 (2003), employers that have policies that provide that employees may be terminated after being absent from work for a specific length of time regardless of the reasons for the absence will have to change those policies. Ms. Coolidge was a second grade teacher that was assaulted and seriously injured by one of the school’s students. Almost two years after she sustained her injuries she had still not returned to work. The school board voted to terminate her employment for absenteeism in a manner consistent with long standing school board policy. At the time of her termination, Ms. Coolidge was still receiving temporary total disability payments.

The Ohio High Court noted that “the overriding issue in this case is whether public policy embodied in the Workers’ Compensation Act protects an employee who is receiving TTD compensation from being discharged solely because of disabling effects of the allowed injury, that is, absenteeism and inability to work.” The Court unanimously noted that it did.

The effects of this decision may be extremely far reaching. First and foremost, in Ohio, a wrongful discharge in violation of a public policy is a tort action, which can expose the employer not only to compensatory damages, but to punitive damages, as well. As a result, recently terminated employees should be seeking out counsel to have their new found rights pressed, and employers should be seeking counsel to revamp their absentee policies and to initiate damage control procedures for the lawsuits that are likely to follow.

If you are an employee that has been recently terminated, or if you are an employer that has been or will be affected by this change in law, and if you have more questions, please feel free to contact us with your questions.

White collar crime prosecutions are trending up

If you are curious as to why “white collar crime” has become a hot topic in the media, it is because it has become a hot topic in the U.S. Dept. of Justice, and in the offices of district attorneys throughout the 50 states. Commonly, white collar crime is understood to mean crimes of a financial nature committed by corporate officers and directors within a business setting. Over the last two to three years, Congress has enacted laws and numerous federal regulatory agencies have adopted policies and regulations placing the corporate executive squarely within the government’s cross-hairs.

Most notable of these recent activities was the passage of the Sarbanes-Oxley Act, which requires the Chief Executive Officers and Chief Financial Officers of publicly traded companies (regardless of size) to certify that periodic and annual reports issued by the company comply with § 13(A) or § 15(d) of the Securities Exchange Act of 1934 and that the reports fairly present the true financial condition of the company. “Knowingly” making a false certification can result in a 10 year jail sentence and a $1 million fine; and “willingly” making a false statement can result in a 20 year sentence and a $5 million fine.

The Sarbanes-Oxley Act also created 18 U.S.C. § 1519 which makes it unlawful to destroy or alter documents so as to make them unavailable in an official proceeding when done with the intent to obstruct a Federal investigation or bankruptcy case, even where there is no pending “proceeding.” The scope of this statute requires publicly traded companies to establish reasonable document retention and destruction policies and to adhere to them. A violation of this section will subject the company and the individual or individuals involved to obstruction of justice charges that can result in fines and imprisonment of up to (20) years.

The SEC also got into the act of pulling corporate executives into line by publishing SEC Release No. 34-47890 making it unlawful for corporate officers, directors, and those acting under their direction to improperly influence or intimidate the company’s auditors. Violations may bring with them civil and criminal penalties and may subject the offenders to cease and desist orders and injunctions.

Also gaining wider acceptance in the executive branch and in the Dept. of Justice is the strategy of charging corporations with crimes. To that end, President Bush created the Corporate Fraud Task Force to combat corporate fraud, punish corporate wrongdoers and to help restore investor confidence. Last July, the White House issued a press release, (www.whitehouse.gov\news\releases\20030722) in which it publicized that in the first 10 months of operation, federal prosecutors: 1) had obtained over 250 corporate fraud convictions, and of the convictions that were obtained, twenty-five (25) or more of them involved chief executive officers; 2) had indicted 354 other corporations and individuals with corporate fraud of one variety or another; 3) were investigating 500 other possible corporations and officers; and 4) had obtained restitution or levied fines exceeding $85 million.

With like mind, Larry Thompson, the Deputy Attorney General issued a Justice Department memorandum revising the guiding principles for prosecutors to follow when deciding to charge a corporation criminally. Of the nine or so new guidelines, critical among them are those dealing with the existence and the application of a corporation’s compliance programs. The importance of this factor is underscored by the sentencing provisions adopted by the United States Sentencing Commission in 1991,(www.ussc.gov\2003quid\2003quid.pdf) which substantially increased the financial penalties for corporations whose employees have been found to have committed unlawful conduct. In the application of those sentencing provisions, the existence of an effective program to prevent and detect violations of law can result in a significant subtraction of points, which can have the effect of mitigating any sentence and minimizing any fine or penalty.

Though the efforts of the federal government in attempting to curb corporate crime have gained the most notoriety, primarily because they have involved publicly traded companies, make no mistake about it; each of the 50 states has laws on their books which can bring the officers of both publicly traded and privately held companies to their knees. One need only look to the state of New York to understand what a motivated attorney general can do with state laws that have been in existence for decades. Furthermore, recent events have provided minority shareholders and investors in both privately held and publicly owned companies with new found new ammunition to combat what they have long perceived as inequities originating from the board room.

What does all of this mean for the commercial world? First, where ten years ago corporate officers had little or no personal exposure for the unlawful acts of their companies, they have now become primary targets. Under the theory of turn around is fair play, now corporations and corporate executives can be criminally liable and civilly responsible for the acts of other officers and employees of the corporation.

The end result is that whether you are a disenchanted minority shareholder or an investor or an employee whose 401K went south, there are new standards and requirements to which those who occupy the board room are now accountable. Civil lawyers are daily becoming more aware of the new resources available to them to fight corporate malfeasance. Where a corporate officer once thought he or she had discretion, such may no longer be the case. The scrutiny under which executives are now operating has heightened to the point where it has become necessary to have their attorney’s telephone number on speed dial.

For more information on this topic, please feel free to contact us.