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Poole & Shaffery, LLP

September 2013

Poole & Shaffery, LLP is a full service business firm with attorneys who focus on a variety of different areas of litigation, counseling and transactional services, including: bankruptcy, business litigation, business transactions, commercial litigation, construction law, construction defect claims, employment and labor law, environmental law, government affairs, intellectual property matters, insurance law, land use, non-profit and tax-exempt organizations, product liability, premises liability, real estate law, and toxic torts.

Disclaimer: The articles contained herein are intended for general information purposes only. Nothing contained in this document is legal advice, nor should it be relied upon as such.

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By: Samuel R.W. Price

Can the sender of an electronic communication be liable to persons injured in a motor vehicle accident caused by the recipient of that communication? One court says yes. And employers should take note.

In what is believed to be the first case in the nation to confront the question, a New Jersey Appellate Court recently held that, under certain conditions, a person who sends a text message may be held personally liable for a motor vehicle accident caused by the recipient of that message. [Kubert v. Best, (N.J. Ct. App. Aug. 27, 2013) No. A-1128-12T4.]

The case involved an auto accident where the driver, who was texting, drifted across the center line dividing oncoming traffic and collided with a motorcycle. Espousing a novel theory, the plaintiffs' attorneys sued not only the driver but his friend, with whom he had been texting immediately prior to the time of the accident. While the case against the driver settled, the friend moved the court for summary judgment in her favor, arguing that she did not have a legal duty to the plaintiffs and, therefore, could not be found liable to them for any purportedly negligent actions. The trial court agreed, and plaintiffs appealed the decision.

The appellate court disagreed with the trial court, concluding that "a person sending text messages has a duty not to text someone who is driving if the texter knows, or has a special reason to know, the recipient will view the text while driving." (Opinion at 11.)

The court examined the question by analogizing the issue to the situation in which a passenger knowingly distracts a driver. In such situations, case law confirms that a passenger in a motor vehicle has a duty not to interfere with the driver's operations and can be held liable for such interference. Given this, the court went a step further, concluding that the passenger could also be liable for indirect distraction by urging the driver to take his eyes off of the road to observe a distracting object, "but only if the passenger's conduct is unreasonably risky because the passenger knows, or has special reason to know, that the driver will in fact be distracted and drive negligently as a result of the passenger's actions." (Opinion at 24.) The limiting factor, then, is the foreseeability of the risk.

Examining foreseeability, the court held that the "sender should be able to assume that the recipient will read a text message only when it is safe and legal to do so, that is, when not operating a vehicle. However, if the sender knows that the recipient is both driving and will read the text immediately, then the sender has taken a foreseeable risk in sending a text at that time. The sender has knowingly engaged in distracting conduct, and it is not unfair also to hold the sender responsible for the distraction." (Opinion at 25.) The court further determined that when the defendant's actions are 'relatively easily corrected' and the harm sought to be prevented is serious, it is fair to impose a duty." (Opinion at 27.)

It seems likely that the Kubert decision will extend to other forms of the other forms of instant communication we engage in on our mobile telephones, such as emails. Especially as the plaintiffs' bar has expressed excitement about the court's ruling.

This should be a particular concern for employers. While employers have long faced vicarious liability for accidents that occur when an employee is acting within "the course and scope of employment," this case could signal a significant expansion of liability for an employer. In today's electronic age, employers regularly communicate with their employees through various forms of technology, including text and electronic messages. Thus, for example, the email sent to an employee, who the employer knows to be driving home at the end of the day, could expose the employer to liability for any accident that may result.

As such, employers should take note and ensure that they have express, well-defined policies in place that prohibit any and all texting or emailing while driving. Additionally, employers should also enact a policy that advised employees (at least those who are non-exempt) that any business related emails or text should only be handled during "on-the-clock" time." Although neither policy will completely shield a business-owner from exposure, it is one step toward preventing a liability-inducing incident. As always, employers should consult with competent legal counsel in drafting workplace policies.

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By: Chris S. Jacobsen

For years, small companies have been constrained in the ways that they may reach out to potential investors. Most are not in a position to undertake the expenses and effort required for a public offering of their securities and the rules of the Securities and Exchange Commission ("SEC") often limited the ability of these small companies to reach out to potential private investors. Commencing September 23, 2013, new SEC rules may soon be bringing investment solicitations to your email boxes and your favorite social networks.

Rule 506 of SEC Regulation D establishes a safe harbor for private securities offerings. The Rule provides that, so long as a company complies with the Rule's exemption requirements, it is permitted to raise an unlimited amount of money. Up to now, the primary requirements of Rule 506 have been as follows:

  • The company cannot use general solicitations or advertising to market its securities.
  • The company can sell its securities to an unlimited number of "accredited investors" and up to 35 other non-accredited purchasers; however, each non-accredited purchaser, either alone or with a purchaser representative, must have sufficient knowledge and experience to be capable of evaluating the merits and risks of the investment.
  • Companies can decide the scope of information to be provided to accredited investors (subject to the antifraud prohibitions in the federal securities laws), but must give non-accredited investors disclosure documents similar to those required in registered offerings.

In order to expand the market of investors for small companies, the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") directed the SEC to modify Rule 506 to eliminate the prohibition on general solicitations and advertising for certain private offerings. Accordingly, the SEC's new rules going into effect on September 23, 2013, eliminate that prohibition for offerings in which the purchasers are all accredited investors (or reasonably believed by the issuer to be accredited investors) and the issuer takes "reasonable steps" to verify that the purchasers are all accredited investors.

Under existing Rule 501, a person qualifies as an accredited investor if he or she has either: (a) an individual net worth or joint net worth with a spouse that exceeds $1 million (excluding primary residence); or (b) an individual annual income that exceeds $200,000 in each of the two most recent years or a joint annual income with spouse exceeding $300,000 for those years, and a reasonable expectation of the same income level for the current year. Revised Rule 506 provides a non-exclusive list of methods on which an issuer may rely in verifying that the above standards are met. The possible methods include: (i) for income qualification, reviewing any IRS forms that report the income of the purchaser for those years and obtaining a written representation of the purchaser of his expectation of reaching the necessary income level for the current year, (ii) for net worth qualification, reviewing (with respect to assets) bank and brokerage statements, certificates of deposit, tax assessments and independent appraisal reports, and (with respect to liabilities) a consumer report from at least one of the national consumer reporting agencies, or (iii) obtaining a written confirmation from a registered broker-dealer, registered investment advisor, licensed attorney, or certified public accountant that such entity or person has taken reasonable steps to verify the purchaser's accredited status.

Currently, purchasers are generally able to self-certify that they are accredited investors. As a result, the success of the revised Rule in meeting its goal of increasing investment in small companies may well depend upon the willingness of private investors to respond to general solicitation offerings that will require them to make specific disclosures on their personal finances. In the meantime, expect to begin seeing new investment solicitations in all media venues.

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By: Michael S. Little

In April 2013, the Insurance Services Office ("ISO") made significant changes to its Commercial General Liability coverage forms which will have a significant impact upon the scope and breadth of Additional Insured ("AI") coverage afforded under commercial agreements, particularly in the construction industry. The new 2013 ISO AI endorsements are designed to align more closely with typical terms in commercial contracts that require parties to obtain additional insured coverage and varying changes in state laws and policies governing contractual risk transfer and indemnification obligations.

The new terms in ISO's 2013 AI endorsements will impact a number of commercial industries and the extent of coverage afforded in the following three ways:

  1. The breadth of Additional Insured coverage afforded will be restricted to the extent permitted by law;
  2. The scope of Additional Insured coverage will be limited to the extent of coverage required by contract; and
  3. The Limits of Insurance will be confined by the amount of insurance required by the governing contract or agreement.

Breadth of Additional Insured Coverage Restricted to the Extent Permitted by Law

For the past few years, several states, including California, have enacted aggressive laws which limit the scope of risk transfer and permissible indemnity in construction and commercial contracts. Going further, many states have also prohibited contracting parties from sidestepping these anti-indemnity laws by requiring broad additional insured coverage as a condition in the contract.

While courts would not enforce an additional insured endorsement that ran counter to its anti-indemnity laws, the 2013 changes to the AI endorsement seek to make it clear that the reach of additional insured coverage will not extend beyond the varying anti-indemnity laws enacted in several states. As such, the 2013 endorsement adopts language that "[t]he insurance afforded to such additional insured only applies to the extent permitted by law."

The Scope of Additional Insured Coverage Limited to Extent of Coverage Required by Contract

Historically, contractual terms requiring additional insured insured coverage were written to benefit the "upstream" contractual party (i.e. owners, developers and general contractors) and vary as to their terms from simple (i.e. "add ________ as an Additional Insured") to more complex (i.e. "add ________ as an Additional Insured for Lot # _____ and for ongoing operations only). With the varying terms utilized in underlying commercial and construction agreements, the 2013 ISO language seeks to track with the terms of these agreements by limiting insurance coverage afforded such additional insured to "that which is required by contract or agreement to provide for such additional insured." This seemingly insurer driven language attempts to ensure that the scope of additional insured coverage will not be broader than the scope of additional insured coverage agreed to by the parties in the underlying contract.

Limit of Insurance Confined to Amount of Insurance Required by the Contract

As with the scope of coverage discussed above, the 2013 ISO AI endorsement changes also attempt to restrict an insurance carrier providing AI coverage from providing greater Limits of Liability to the additional insured than required by the underlying contract. The new ISO language states that the most the insurance carrier will pay on behalf of the additional insured is the amount of insurance "required by the contract or agreement."

In the past, an insurance carrier with a $5M in primary policy limits may have been required to afford $5M in coverage to an additional insured under a broadly worded AI endorsement even though the underlying contract only entitled the additional insured to $1M in additional insured coverage.

If the underlying contract is silent as to the limits of available coverage for additional insureds, the ISO 2013 form restricts the limits of coverage to the amount "available under the applicable Limits of Insurance shown in the Declarations."

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