…are they employees or are they contractors?November 15th, 2020
Property-Related COVID Claims Update:
I promised an update on the property-related COVID claims. It is coming! I’ve been focused on SPACs, the deSPAC process, and their respective interplay with D&O insurance. Do you know what all those letters stand for?
An Update on one of the Gig Economy’s Thorniest Issue:
As mentioned in an earlier post, one of the biggest conundrums facing businesses in the gig economy is the classification of their workers; are they employees or are they contractors? This issue has been a hot button one for years, with big names like Uber and Lyft fighting like “h” “e” “double hockey sticks” to keep their drivers classified as contractors. Courts throughout the country have often disagreed. Some state legislatures have taken steps to force reclassification. In California, for instance, a law known as AB 5 went into effect at the beginning of 2020. The law was “intended to grant (gig-economy workers) full employment, including minimum wage protections, health care and such benefits as unemployment and sick leave” if certain criteria were met. Ride-hailing and delivery app companies worked together to introduce and fund (to the tune of a whopping $200M campaign) a state ballot measure designed to except drivers from AB 5. That ballot measure, Proposition 22, passed by well over 50% earlier this week. As expected, shares of Uber and Lyft jumped the day after the election.
Solera Appeal—Appraisal Action is Not a Securities Claim:
D&O insurers and brokers have been closely following a coverage dispute making its way through the Delaware courts. The case, In re Solera Insurance Coverage Appeals, involved one central question: Is an appraisal action under 8 Del C. §262 a “Securities Claims” for purposes of coverage under Solera’s public company D&O policy? Specifically, “(t)he threshold question is whether the (a)ppraisal (a)ction is a Securities Claim because it is a ‘claim…made against [Solera] for any actual or alleged violation of any federal, state, or local statute, regulation, or rule or common law regulating securities, including but not limited to the purchase or sale of, or offer to purchase or sell, securities…’” Despite the fact that the lower court found that the definition of Securities Claim in Solera’s primary D&O policy contemplated appraisal actions, the Supreme Court found it did not.
As most readers are aware, in Delaware, target company shareholders who disagree with the valuation of their shares in connection with a transaction (in Solera’s case, the company was purchased by a private equity firm), are statutorily permitted to petition the court to appraise the fair value of their shares. Although appraisal actions are similar to bump-up claims (law suits brought by the target company shareholders against the company’s directors for breaches of duty resulting in lower than optimal consideration for their shares) in that they both are attempting to revalue the price offered for shares in a transaction, according to the Delaware Supreme Court, the appraisal actions do not allege a violation of law, and therefore does not trigger a standard D&O policy. The court concluded that “the plain meaning of the word ‘violation,’…involves some element of wrongdoing, even if done with an innocent state of mind.” An appraisal is a creature of a statute, and “…is a remedy that does not involve a determination of wrongdoing.”
What next? Well, the “fix” to this quandary is to specifically negotiate appraisal related wording into the D&O contract. The question, however, is do directors and officers want their run-off D&O coverage eroded by corporate costs that are typically assumed by the purchasing company?
The Morning After…
You know the way you feel when January 2nd (of a non-COVID year) rolls around? Exhausted, bloated and behind, yet committed to the new year. Or maybe exhausted, bloated and behind while wary of the new year? Or maybe just exhausted, bloated and behind?
This morning, Wednesday morning, November 4, 2020, I feel just exhausted, bloated and behind. For months, I have been heading towards election day the same way many head towards the holidays….all-in. All-in for me meant being well-versed on both sides, consuming large amounts of information so I could make “good choices”, traveling to a swing state to work as a poll observer and neglecting my physical and emotional health to pack it all in. A challenging awesome job, plus three high-schoolers, plus COVID, plus the election equaled less exercise and, for me, tons of tootsie rolls.
This morning, I woke up feeling the election hangover…and I stopped drinking years ago. Do you feel the hangover too? It doesn’t feel good. No matter which side you’re on. It feels uneasy and uncertain. Which is the way much of 2020 has felt. I don’t know what I was expecting. Maybe naively a little more kumbaya? But, we always wake up after the holidays a little grumpy with bills to pay and a few pounds to take off. This morning, I paid outstanding parking tickets and swore off candy (for the umpteenth million time…but this time I mean it!).
I’m taking a break from all of it. I’m not going to bury my head, but I’m going to focus more on what’s right in front of me, repeating the Serenity Prayer, and reminding myself that what I must consistently strive for is that elusive “wisdom to know the difference” between what I can change and what I can’t.
Faiz Siddiqui and Nitasha Tiku, California voters sided with Uber; denying drivers benefits by classifying them as contractors, The Washington Post, November 4, 2020.
Michael Lotito, James Paretti, r., Bruce Sarchet, AB5: The Aftermath of California’s Experiment to Eliminate Independent Contractors Offers a Cautionary Tale for Other States, JDSupra, March 10, 2020.
In re Solera Insurance Coverage Appeals, case numbers 413, 2019 and 418, 2019 before the Supreme Court of the State of Delaware, October 23, 2020.
Jeff Sistrunk, Del. Justices Sink Solera’s Bid For Appraisal Action Coverage, Law360, October 23, 2020.
CARRIE O’NEIL, ESQ.
Senior Vice President & Claims Counsel