On August 22, 2012, the Securities and Exchange Commission (the “SEC”) adopted rules (the “Conflict Minerals Rules”) to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act to require certain companies to publicly disclose their use of conflict minerals (gold, tantalum, tin and tungsten) that originated in the Democratic Republic of the Congo or any of its adjoining countries, collectively referred to as the “covered countries.” (1)  These new rules impose additional disclosure obligations on affected companies that use conflict minerals in their products.

The Conflict Minerals Rules apply to a company if it files annual reports with the SEC under the Securities Exchange Act of 1934 (a “Registrant”) and if conflict minerals are “necessary to the functionality or production” of a product manufactured or contracted to be manufactured by the Registrant. If required, a Registrant will file a conflict minerals report on the SEC’s new Form SD (specialized disclosure) by May 31, 2014 (for the 2013 calendar year) and annually on May 31 every year thereafter.

The Conflict Minerals Rules require that all Registrants undertake a three-step analysis to determine whether disclosure is required, and to what extent. Below is a summary for general information regarding the principal requirements of the Conflict Minerals Rules.
 

Continue Reading SEC Adopts Rules for Disclosing Use of Conflict Minerals

The label says the milk is expired, but can you really drink it?  The U.S. Citizenship and Immigration Service (USCIS) announced through its website that employers should continue to use the current I-9 form after August 31. The current I-9 form was revised August 7, 2009 and “expires” on August 31, 2012. The USCIS announced that employers should continue to use the current form even after the August 31, 2012 expiration date has passed, and USCIS will provide information about a new form as it becomes available.

The Municipal Securities Rulemaking Board (“MSRB”) requires a dealer to disclose to its customers all material information about a proposed transaction that is known to the dealer as well as material information about the security that is available to the market from established industry sources. Since 2002, dealers have distinguished their disclosures based on different capabilities of certain institutional investors as well as different types of customer-dealer relationships. Sophisticated Municipal Market Professionals (“SMMPs”) are institutional customers capable of independently evaluating investment risks and values of municipal securities and recommendations from municipal securities dealers. In the last 10 years, the amount of information publicly available about municipal bonds has significantly increased, making material facts about municipal bonds easier to discern. Thus, the MSRB proposed simplifying the analysis used to determine whether certain institutional customers qualify as SMMPs.

As revised, an SMMP is an institutional customer (1) that the dealer has a reasonable basis to believe is capable of evaluating investment risks and market value independently, and (2) that affirmatively indicates it is exercising independent judgment in evaluating the recommendations of the dealer. In order to satisfy the “reasonable basis” requirement, the dealer must consider the amount and type of municipal securities owned or under management by the institutional customer. The institutional customer may affirmatively indicate its independent judgment orally or in writing, and may provide the affirmation on a trade by trade basis, a type of obligation basis, or on all potential transactions.

When the dealer has reasonable grounds to conclude that the institutional customer is an SMMP, the dealer’s obligation to ensure disclosure of material information available from established industry sources is deemed fulfilled. Of course, the dealer is still prohibited from engaging in deceptive, dishonest, or unfair practices.

Dealers must also have a reasonable basis for recommending a particular security or strategy and have reasonable grounds for believing the recommendation is suitable for the customer. Dealers fulfill this obligation in different ways, depending on the nature of the customer and the specific transaction. When the dealer has reasonable grounds to conclude that an institutional customer is an SMMP, its suitability requirement is deemed fulfilled.

Natural persons can also be considered institutional investors. Under the new definition, the threshold amount for natural persons to be considered institutional customers dropped from $100 million to $50 million.

The new definition became effective July 9, 2012.

In Apple Inc. v. Samsung, et al., the United States District Court for the Northern District of California reiterated the importance of preserving electronically stored information.  The court held that Samsung’s failure to disable its auto-delete function for employee e-mails demonstrated a conscious disregard for its obligation to preserve evidence.  The court sanctioned Samsung and held that Apple was entitled to an adverse inference instruction, albeit rebuttable, that the evidence lost was both relevant and favorable to plaintiff.  Most interesting was the court’s discussion of an employer’s duty to confirm that its employees comply with a legal hold issued in the face of litigation.  The court was critical of Samsung, and explained that Samsung, “in effect . . . kept the shredder on long after it should have known about this litigation, and simply trusted its custodial employees to save relevant evidence from it.”

For a review of the court’s order, see the order here.

“Broker’s brokers” are intermediaries between selling dealers and bidding dealers of municipal securities.  They provide secondary market liquidity in the municipal securities market, which helps ensure that retail investors receive fair and reasonable pricing of municipal securities. One way that broker’s brokers bring buyers and sellers together is through a “bid-wanted,” in which the broker’s broker seeks bids from dealers for a particular bond that another dealer wishes to sell.  The Municipal Securities Rulemaking Board (“MSRB”) has established a new rule designed to promote fairer results in these transactions.

Under the new rule, broker’s brokers are required to make reasonable efforts to obtain a fair and reasonable price for the selling dealer, in light of prevailing market conditions.  The broker’s broker must use the same care and diligence as if the transaction were being done for its own account.  Thus, it is required to disseminate a bid-wanted widely and make a reasonable effort to reach bidding dealers with specific knowledge of the issue or known interest in comparable securities.  There is a safe harbor:  if a broker’s broker conducts bid-wanteds in the manner described by the rule, it satisfies its pricing duties.

The rule also imposes new record-keeping requirements.  Broker’s brokers must keep records of bids, offers, changed bids and offers, time of notification to seller of high bid, policies and procedures concerning bid-wanteds and offerings, and any joint representation agreements of bidders and sellers.

The new rule becomes effective December 22, 2012.

The Municipal Securities Rulemaking Board (“MSRB”) is seeking comments on a possible proposal to require underwriters and municipal advisors to disclose whether they have made or received certain payments in connection with new issues of municipal securities. The MSRB is concerned about conflicts of interest that impede the ability of municipal market professionals to act fairly and objectively. Public disclosures of these payments could alert investors and other market participants to possible conflicts of interest and provide municipal entities (and the public) with useful information to select competent and conflict-free underwriters and municipal advisors, all of which bolsters confidence in the integrity of the municipal securities market. Accordingly, the MSRB is considering requiring disclosure by underwriters and municipal advisors of any payments, credits, quid pro quo arrangements or other financial incentives provided to any party (including municipal entities) and received from any party other than a municipal entity.

Possible underwriter disclosures include:

  • Any financial incentives received by the underwriter from any third-party for recommending a municipal securities financing (a “new issue transaction”) to the municipal entity;
  • Any financial incentives received by the underwriter from any third-party for recommending that any third party play a role in connection with a new issue transaction;
  • Any other financial incentives received by the underwriter from any third-party in connection with a new issue transaction; and
  • Any financial incentives paid by the underwriter to any third-party recipient in connection with a new issue transaction, including financial incentives paid for the purpose of obtaining or retaining any such new issue transaction.

Possible municipal advisor disclosures include:

  • Any financial incentives received by the municipal advisor from any third-party for recommending any municipal financial product or the issuance of municipal securities (an “advised transaction”) to the municipal entity;
  • Any financial incentives received by the municipal advisor from any third-party for recommending that any third-party play role in connection with an advised transaction;
  • Any other financial incentives received by the municipal advisor from any third-party in connection with an advised transaction;
  • Any financial incentives received by the municipal advisor from any party to conduct a solicitation of a municipal entity to obtain or retain an engagement in connection with municipal financial transactions, the issuance of municipal securities or the provision of investment advisory services (a “solicitation”), including any payment made by the party on whose behalf the municipal advisor makes the solicitation; and
  • Any financial incentives paid to the municipal advisor to any third-party in connection with an advised transaction or any other engagement to provide advice as a municipal advisor, including financial incentives paid for obtaining or retaining any such advised transaction or engagement.

Comments are due by July 31, 2012.

The purpose of this post is to provide insureds with general information that will assist them in recognizing important facts and issues related to insurance coverage of environmental disasters. The primary areas addressed include (1) understanding the general types of potential insurance coverage; (2) recognizing environmental disasters; (3) deciding what to do once an environmental disaster is discovered to improve the possibility of insurance coverage and finally, (4) long term plans to improve coverage of potential future environmental disaster claims.

Insurance Policies

Insurance Coverage for Environmental Disaster Coverage is a complicated subject that must consider many different issues over many different timelines and many different jurisdictions with many different types of hazards. Understanding what an environmental disaster is and recognizing that one has occurred is the first thing an insured must do. Until the insured has recognized that an environmental disaster has occurred, it cannot ask the insurer for coverage and it cannot provide notice and coverage cannot be triggered. There are many different types of environmental disasters, a brief review of the history of the pollution exclusion in general liability policies provides some prospective as to how insurers look at environmental disasters and coverage.

Early standard general liability policies issues prior to 1966 contained insuring agreements that provided coverage for injury (caused by accident). The standard insurance service organization (ISO form) which is a general liability form used by most insurers was revised in 1966 to provide coverage for an “occurrence” with neither “expected” nor “intended” by the insured and specifically included continuous or repeated exposure to substantially the same conditions in its coverage. As a result of these changes, claims related to environmental damages increase dramatically. Insurers using the standard form added a mandatory endorsement in 1970 (ISO Form 00020173 1973) that excluded coverage using the following language:

“Bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke vapors, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water.”

The referenced ISO form was often used in conjunction with a carve-back in of coverage which provided: “this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.”

As you might expect, and as many of you may know, the 1970’s and 1980’s were a turbulent period for insureds and insurers who were engaged in coverage disputes under CGL policies for pollution related claims. Courts in the various jurisdictions reached different conclusions and were often at odds which made predicting coverage difficult.

The insurers, through the insurance service organization, created an absolute pollution exclusion in 1985 (See ISO form CG0021207), which excluded coverage for the following:

“Bodily injury” or property damage” arising out of the actual, alleged, or threatened discharge, dispersal, release or escape of pollutants:

At or from any premises, site or location which is or was at any time owned, occupied, or rented or loaned to, an insured[.]

“Pollutants” means solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.”

The absolute pollution exclusion lacked an exception for coverage for sudden or accidental problems and it did not provide coverage for allegations or threats of a polluting event and it also eliminated the requirement for a discharge into a foreign land, the atmosphere or water course or a body of water.

Not surprisingly, the absolute pollution exclusion was a source of significant litigation between insureds and insurers and lead to various interpretations by courts across the country. Some courts fell into a camp which accepted the insurance industry’s broad interpretation of the exclusion. Another group affords limited exclusion to damages when an undefined claim involved harm to the broader environment. Another group of courts found that the exclusion was ambiguous or required to be interpreted based on history of the exclusion and looked at the presentations of the insurance industry to the various insurance commissioners in the various states “Doer v. Mobil Oil Corporation,” 774 So.2d 119, 2000-0947, (La. 12/19/00). Knowing which state an environmental disaster is in and more importantly, what state law is going to apply to coverage, becomes very important and can be important in planning litigation as will be discussed below in some detail.

There are many types of insurance products today providing various types of coverage for environmental disasters. A review of all of the different products available is beyond the scope of this paper. Coverage ranges from limited coverage provided via endorsements to CGL policies to stand alone policy forms. Over the years, insureds have sought an expansion of coverage to avoid the gaps created by the pollution exclusions in CGL policies. In recent years there has been a significant increase in the number of carriers providing environmental coverage products compared to the limited market of even five or six years ago. Based on work with brokers over the last year or so, it appears that there are around 30 different insurers now offering some form of environmental coverage. Coverage available for environmental claims is more readily available currently on a claims made basis; although occurrence based insurance is also sometimes available.

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Continue Reading Insurance Coverage of Environmental Disasters

In its ruling of May 9, 2012, the Sixth Circuit Court of Appeals affirmed the district court’s conclusion that Maker’s Mark Distillery, Inc.’s registered trademark consisting of the signature red dripping wax seal is due protection. The Samuels Family founded the Maker’s Mark Distillery in Loretto, Kentucky, and has been producing whiskey since the Eighteenth Century. Bill Samuels formulated the recipe for the Maker’s Mark bourbon in 1953. His wife, Margie, conceived of the red dripping wax seal. The company has bottled bourbon for commercial sale under the Maker’s Mark name and has used a red dripping wax seal on the bottle since 1958. In 1985, Maker’s Mark registered a trademark for the dripping wax seal component of its trade dress which is described it as a “wax-like coating covering the cap of the bottle and trickling down the neck of the bottle in a freeform irregular pattern.”

In 1995, Jose Cuervo began producing premium tequila entitled “Reserva de la Familia.” The tequila bottle had a wax seal that was straight edged and did not feature drips. However, in 2001, Cuervo began selling its tequila in the United States in bottles with a red dripping wax seal similar to the seal of the Maker’s Mark bottle.
Continue Reading Whiskey vs. Tequila: Courts find Cuervo’s Seal Infringes Maker’s Mark Red Wax Seal Trademark

In Cannioto vs. Louisville Ladder, Inc., Civil Action No.: 09-1892 TBM (M.D. Fla. 2011), the plaintiff was severely injured when he fell off of a 24 foot aluminum extension ladder manufactured by Louisville Ladder and sold by Home Depot. The plaintiff filed suit in the United District Court for the Middle District of Florida, Tampa Division, alleging that the manufacturer and the seller were strictly liable and negligent. The plaintiffs sought $5,000,000 in damages

Cannioto alleged that he climbed the extension ladder with the intent of securing the top of the ladder to the building. While he was in the process of securing the ladder, he alleged that the bottom rail of the ladder twisted and failed. This resulted in him falling a distance of 16 to 18 feet.

Continue Reading Eleventh Circuit Finds No Inference of a Product Defect Under Florida Law When the Product Was Saved and Available for Inspection