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Legal Report September 2015


Insurance. Connecticut’s Supreme Court affirmed a lower court’s decision to refuse insurance coverage for more than $6 million in losses from an incident that compromised the sensitive information of 500,000 IBM employees. 

In February 2007, an Executive Logistics Services (Ex Log) van was dispatched to move computer tapes from an IBM facility in New York to another location. During the transport, a cart containing approximately 130 computer tapes fell out of the back of the van and was removed by an unknown individual. The tapes were never recovered, and the information on them was never published.

The tapes contained employment-related data for 500,000 past and present IBM employees, including Social Security numbers, birthdates, and contact information. After discovering that the tapes were lost, IBM notified potentially affected employees and created a call center to answer questions about the lost data. It also provided affected employees with one year of credit monitoring to prevent identity theft.

IBM claimed the mitigation measures cost $6 million, and negotiated a settlement with Recall Total Information Management—the company that contracted the Ex Log van—to cover the entire loss.

Recall and Ex Log notified their insurance providers, Federal and Scottsdale insurance companies, which declined to participate in the settlement negotiations with IBM or provide coverage for the costs of the settlement under their policies. Recall and Ex Log then filed suit against the insurance providers, alleging breach of contract.

They claimed that the loss of the tapes constituted a “personal injury,” defined by their policies as an “injury…caused by an offense…of electronic, oral, written, or other publication of material that…violates a person’s right to privacy.” In contrast, the insurance providers said the plaintiff’s loss was not covered by the policies because the information was never disclosed, thus no injury occurred.

A trial court sided with the insurance companies and an appeals court affirmed its ruling, concluding that the loss of the tapes did not “constitute a ‘personal injury’ as defined by the policies because there had been no ‘publication’ of the information stored on the tapes resulting in a violation of a person’s right to privacy.”

The case ultimately reached the Connecticut Supreme Court, which upheld the lower court’s ruling. (Recall v. Federal Insurance, Supreme Court of Connecticut, No. 19291, 2015)

Discrimination. A nonprofit engaged in pregnancy discrimination when it enforced a “no pregnancy in the workplace” policy by firing a pregnant employee, a federal judge ruled.

United Bible Fellowship Ministries, Inc., is a Houston-based nonprofit that provides housing and residential care to clients with disabilities. Sharmira Johnson began working for United as a resource technician providing home care assistance to elderly and disabled individuals in the fall of 2010. In March 2011, she became pregnant.

Approximately a month later, Johnson’s program director Dolores Moss called Johnson into her office and asked if she was pregnant. Johnson confirmed that she was. Moss then typed a memo in front of Johnson with the subject line “Relief of Duty Due to Pregnancy,” according to court documents. 

In the memo, Moss wrote that “in accordance with the Policy of Pregnancy in the Workplace, you understand that you will be relieved of duty pending your pregnancy and that upon your delivery you will be eligible for rehire for any direct care position that we have available at that time.” 

Prior to meeting with Moss, Johnson was not aware of United’s pregnancy pol­icy, which prohibited continued employment of any employee who became pregnant and refused employment to any pregnant applicants for resource techni­cian positions. United said it enacted the policy to “ensure the safety of the mother and unborn child/children during pregnancy…due to the high risk of injury to the mother…by a physically aggressive client.”

Johnson requested a transfer to another position, but Moss fired her immediately without pay. A few days after her termination, Johnson was rushed to an emergency room where she miscarried.

She then filed a claim with the U.S. Equal Employment Opportunity Commis­sion (EEOC), alleging that United had violated Title VII of the Civil Rights Act. The EEOC then filed a lawsuit on her be­half against United after prelitigation settlement attempts were unsuccessful, charging that it violated federal law by enforcing an unlawful “no pregnancy in the workplace policy” when it fired Johnson.

The case went to U.S. District Court where United admitted that Johnson had performed her job well and had no medical restrictions or other impediments in her ability to carry out her job functions. Instead, it had fired her solely because she was pregnant, and United argued that the termination was legally justifiable to ensure Johnson’s safety, the safety of her unborn child, and the safety of United’s clients.

Judge Vanessa D. Gilmore ruled in favor of Johnson. She found that United recklessly failed to comply with Title VII despite holding a contract with the Texas Department of Aging and Disability Services, which required United to comply with antidiscrimination laws.

Gilmore awarded Johnson $24,764 in back pay and overtime with interest, plus out-of-pocket costs. Gilmore also found that Johnson had suffered emotional pain and mental anguish as a result of United’s actions, and that it had acted with malice or reckless indifference to Johnson’s federally protected rights, awarding her an additional $50,000 in punitive damages. (EEOC v. United Bible, U.S. District Court for the Southern District of Texas, No. 4:13-cv-2871, 2015).


Workplace safety. The Occupational Safety and Health Administration (OSHA) released guidance explaining that all employees—including transgender employees—should have access to restrooms in the workplace that correspond to their gender identity. 

“Restricting employees to using only restrooms that are not consistent with their gender identity, or segregating them from other workers by requiring them to use gender-neutral or other specific restrooms, singles those employees out and may make them fear for their physical safety,” according to the guidance, which is not a legally binding standard. “Bathroom restrictions can result in circumstances where employees avoid using restrooms entirely while at work, which can lead to potentially serious physical injury or illness.”

The guidance explains that employees should determine the restroom they find “most appropriate and safest to use,” and that they need not provide documentation to validate their gender identity.​


Trafficking. President Barack Obama signed legislation into law that is designed to combat human trafficking in the United States.

The law (P.L. 114-22) expands the definition of child abuse under the Victims of Child Abuse Act of 1990 to include human trafficking and the production of child pornography. It also expands prosecution to include individuals who patronize or solicit people for a commercial sex act, “making traffickers and buyers equally culpable for sex trafficking offenses,” according to the law.

Additionally, the measure creates the Domestic Trafficking Victims Fund, which will award grants to states and localities to combat trafficking, provide protection and assistance for victims of trafficking, develop and implement child abuse investigation and prosecution programs, and provide services for victims of child pornography.



Corruption. Mexico’s Congress of the Union passed an anticorruption law that strengthens oversight of public officials and designates a special prosecutor to tackle corruption. 

Under the law, audits of government spending will occur more frequently and at the state level, and the head of the Public Administration Ministry will be approved by Mexico’s congress. 

The new measure also grants powers to Mexico’s Federal Audit Office and the Public Administration Ministry. It also creates a special court to oversee corruption-related issues.

The law must be approved by a majority of the states before it can be enacted.