Category Archives: insurance

Guest Post: Insurance Fraud is No Laughing Matter

(This guest post was written by Kevin Wheeler, an associate attorney at Schlichter & Shonack, LLP.  Thanks to Steven Jones for sending in the question, and thanks to Kevin for a great guest post!)


Cameron Kaiser tries to play the Joker

I. Introduction 

In episode 41 of Batman the Animated Series, Cameron Kaiser, a casino mogul, opens up a brand new casino, “Joker’s Wild.” Gotham is shocked to see the casino is themed after one of Gotham’s most notorious villains. However, after some investigation by the world’s greatest detective, it is discovered that *spoiler alert* the Joker theme was part of an elaborate scheme to bait the Joker into destroying the hotel. Mr. Kaiser’s overspending on the casino had left him on the verge of bankruptcy, so he hatched this plot to collect the insurance money. Despite Mr. Kaiser doing everything he could to facilitate an attack on the casino, including assisting the Joker in escaping from Arkham Asylum and even letting the Joker deal in his casino, in the end, Batman is able to thwart Mr. Kaiser’s plans and lock the Joker back in Arkham to escape another day.

The topic of this article is whether Mr. Kaiser is liable for insurance fraud. This article will not focus on Mr. Kaiser’s ability to obtain insurance against an attack by the Joker, as that was discussed in a previous post. Instead the focus will be on the legal ramifications of intentionally baiting the Joker with the “Joker’s Wild” theme. As Mr. Kaiser would contend, “The joker is a classic symbol, long associated with cards and games, [he] can’t help it if there is a passing resemblance to some criminal fruit cake.”

Insurance fraud is an issue affecting everyone. At its core, the insurance business is simply the market of risk. Insurers take upon themselves the risks of their insureds, who in return pay the insurers insurance premiums. This system works because the insurers are able to assess the risks and distribute the costs evenly amongst all of their insureds. Fraudulent claims change the risk assessment for insurance companies. Insurance companies are forced to transfer the additional burden onto their insureds in the form of increased insurance premiums.

Each state has enacted its own statutory scheme to prevent and punish insurance fraud. Generally, when dealing with Gotham city this blog has applied New York law, I will continue in this tradition and use New York law in my analysis.

II. Insurance Fraud

New York Penal Law § 176.05 defines the commission of a fraudulent insurance act as taking place when a person “knowingly and with intent to defraud, presents, causes to be presented or prepares with knowledge or belief that it will be presented to or by an insurer, self-insurer or purported insurer or purported self-insurer, or any agent thereof, any written statement as part of… a claim for payment or other benefit pursuant to an insurance policy which he knows to: (i) contain materially false information concerning any fact material thereto; or (ii) conceal, for the purpose of misleading, information concerning any fact material thereto.” NY CLS Penal § 176.05.

On its own, the commission of a fraudulent insurance act constitutes insurance fraud in the fifth degree and is a misdemeanor. Insurance fraud rises to the level of a felony, when in addition to a fraudulent insurance act, the defendant also “wrongfully takes, obtains or withholds, or attempts to wrongfully take, obtain or withhold property,” the value of which determines the severity of the offense. NY CLS Penal §§ 176.05-176.30. Wrongfully taking insurance proceeds from the destruction of a $300 million casino would classify as insurance fraud in the first degree. NY CLS Penal § 176.30.

A. Knowingly and With Intent to Defraud

The first element of insurance fraud is that the fraud is committed knowingly and with the intent to defraud. “A person acts intentionally with respect to a result… when his conscious objective is to cause such result… A person acts knowingly with respect to conduct… when he is aware that his conduct is of such nature.” NY CLS Penal § 15.05. The question before us is whether Mr. Kaiser knew that his actions would result in a fraudulent act, and committed those actions with fraud as the intended result. Because direct evidence of a defendant’s mental state is rare, circumstantial evidence is sufficient.

Here, there is likely enough circumstantial evidence to show Mr. Kaiser acted with the requisite culpable mental state. The Joker and his crimes are well known to the citizens of Gotham city. Knowing of Joker’s tendencies toward destruction, Mr. Kaiser aided the Joker in his escape from Arkham Asylum on the same day the Joker’s Wild casino was unveiled. Mr. Kaiser clearly knew that the Joker would seek to destroy the casino and that thereby Mr. Kaiser could collect the insurance money. Similarly, this evidence shows that Mr. Kaiser’s acted with intent to defraud. There is no other reason Mr. Kaiser would help the Joker escape and even allow the Joker to act as a dealer in the casino.

Mr. Kaiser’s aid to the Joker is not the only evidence of his culpable mental state. We also discover through Batman’s sleuthing that the original theme for the casino was a medieval theme. As Mr. Kaiser is sure to argue, the joker is a perfectly reasonable theme for a casino, so the change in theme was innocent. The theme change, however, was recent enough to the opening that instead of a complete remodel, they simply placed joker wallpaper on top of knight wallpaper. This shows that it was not planned to be the theme of the casino, which puts into question his motive behind the switch. Combine that with the history of the Joker in Gotham city and his intentions become more clear.

There is also evidence of financial motivation to commit fraud. Mr. Kaiser basically bankrupted himself on this casino. He would not likely be able to make back the money he spent on the casino, no matter the theme. Choosing the Joker’s Wild theme in Gotham, however, would also likely be seen as a poor business decision. At the unveiling, the citizens of Gotham are disgusted by the choice of theme. Given the traumatic experiences most of them have likely had with the Joker, it would be foreseeable that this particular theme would cause potential patrons to avoid the casino.

These circumstantial facts taken together likely show that Mr. Kaiser knew that choosing the Joker’s Wild theme as well as breaking the Joker out on the same day as the unveiling would likely result in the destruction of the casino. Despite the known result, Mr. Kaiser still themed his casino after the Joker and broke the Joker out of the asylum which, combined with Mr. Kaiser’s financial state, shows an intent to defraud.

B. Prepares a Statement Concealing a Material Fact

The next element of the crime of insurance fraud is preparing a statement concealing a material fact. Here, Mr. Kaiser has obviously not presented or even prepared any sort of written statement, as he was foiled by the caped crusader before his scheme could be accomplished. Mr. Kaiser is not off the hook, however.

The absence of a written statement will not preclude a prosecution for attempted insurance fraud. In People v. Vastano (App.Div. 1986) 117 A.D.2d 637, 637 [498 N.Y.S.2d 87, 87], the court found sufficient proof of attempted insurance fraud even though no claim had been submitted. In that case the defendant plotted out a crime of insurance fraud in which he arranged to have the car of one of his coconspirators disposed of; so they could split the insurance money. The coconspirator, however, never reported the car stolen to the insurance company. The court held that “The necessary overt act for an attempt need not be the final one towards the completion of the offense. Whenever the acts of a person have gone to the extent of placing it in his power to commit the offense unless interrupted and nothing but such interruption prevents his present commission of the offense, at least then he is guilty of an attempt to commit the offense.” People v. Vastano, 117 A.D.2d at 637.

Here, Mr. Kaiser has acted to the extent that he would “commit the offense unless interrupted and nothing but such interruption prevents his present commission of the offense.” Batman was the interruption that both prevented the destruction of the hotel and the insurance fraud. Similar to the Vastano case, Mr. Kaiser had almost completed his portion of the fraud. Without Batman’s “interruption” the Joker would have destroyed the casino, and Mr. Kaiser could have collected the insurance money.

III. What If Mr. Kaiser Had Not Helped the Joker?

If we change the episode slightly, this time removing Batman’s interruption and Mr. Kaiser’s aid to the Joker. What would be the result if Mr. Kaiser, had simply realized he had spent far too much on the Casino, and simply changed the theme to Joker’s Wild knowing the Joker would destroy it. Here, the facts are a little closer as Mr. Kaiser is no longer an accomplice to the arson of the casino. However, he is still would likely be guilty of insurance fraud if he seeks to collect the insurance money on the destroyed casino.

“The essence of insurance fraud is the filing of a false written statement as part of a claim for insurance.” People v Alfaro, 108 A.D.2d 517, 520, affd. 66 N.Y.2d 985; see also People v. Michael (App.Div. 1994) 210 A.D.2d 874 [620 N.Y.S.2d 637], holding that although the defendant was found not guilty of arson, it did not mean that she could not be convicted of third degree insurance fraud where proof was overwhelming that defendant was aware that fire was intentionally set to collect on insurance policy.)

Even if Mr. Kaiser had simply changed the theme of the casino in order to entice the Joker to destroy it, he would have to either a) misrepresent or conceal his change of theme, or b) report the change of theme to the insurance company.

If Mr. Kaiser elected to simply misrepresent or conceal the change of theme, then he would be committing “the essence of insurance fraud” by filing a false written statement as part of a claim. Even if his policy would have covered the loss of the casino had he been truthful, he would still be guilty of insurance fraud. In People v. Stevens, the defendant falsely reported to her insurer that her truck had been stolen, when in fact it had been driven into a pond. The court in that case held that “The commission of the crime of insurance fraud is not dependent upon whether the insured is ultimately entitled to be paid under the policy; it is committed when the insured knowingly files false information with the carrier in an attempt to collect under the policy.” So any material misrepresentation or concealment to an insurance company constitutes insurance fraud.

So what if Mr. Kaiser was truly innocent, and had changed the theme of the casino, not to bait the Joker, but because he truly believed that “The joker is a classic symbol, long associated with cards and games.” New York and other states require that all insurers must obtain an anti-arson application for all property insurance policies covering peril of fire or explosion. NY CLS Ins § 3403. An anti-arson application is an application for insurance or renewal of insurance, that includes certain questions that the applicant must answer in addition to the basic information normally supplied to an insurer. NY CLS Ins § 3403(a). This information includes financial and background information about the property and the applicant. NY CLS Ins § 3403(c).

The improvements entailed with the change of theme of the casino would also need to be insured. Therefore, Mr. Kaiser would have had to complete an anti-arson application for the improvements. During the application process, the property would need to be appraised and inspected. During these inspections, the insurance company would likely find out the nature of the improvements. If Mr. Kaiser were honest in this anti-arson application concerning his financial condition and the financial condition of the property, and the insurance company still chose to insure him, then a court would likely find that the insurance company accepted the risk of the Joker destroying the casino and Mr. Kaiser could collect. All that being said, an insurance company is not likely to insure a Joker’s Wild casino in Gotham.


The Flash and Property Rights

More mailbag questions today, this one inspired by this scene in The Flash Vol. 3, #2.  Charles asks:

Now, what the Flash does here is pretty freaking cool, but as you can see in my tags… what happens afterwards? Who owns that building? Do the tenants have to pay rent? Is there going to have to be a contract worked out between the landowners and the Flash? Even if it passes code, will it still be approved for someone to live in because the Flash, from all appearances, isn’t a certified home builder?

There are a lot of questions here, but let’s start at the beginning.

I. Who Owns the Building?  And What About Rent?

Regardless of the prior ownership situation, it’s clear that The Flash is offering the building as a gift.  Acceptance of that gift won’t require a contract (indeed gratuitous transfers are a classic example of a situation in which a contract does not exist).  Whether the owner will accept that gift is the real question.

If the owner of the prior building is the same as the owner of the land it sat on, then they’re unlikely to turn down a nice new building (assuming we can handwave any building code issues).  But if the landowner is not the same as the building owner, then the landowner might have welcomed the opportunity to terminate their agreement with the building owner, perhaps to consolidate lots, rezone the property, redevelop, or simply to sell or lease to someone else.  They might not be so keen on the new building.

It is also possible that the building and land were owned by the tenants themselves, which would probably simplify matters.

In any event, the tenants would almost certainly have to continue to pay rent.  They might not have to renegotiate their leases.  Apartment lease agreements commonly refer to a unit at an address, not to a specific building.  They also typically have clauses dealing with the destruction of the building, but from what I’ve seen of lease agreements it’s entirely possible that the tenants would have a right to continue to lease a unit in the new building (assuming the building owner accepted the gift, etc).

II. Building Code and Permit Issues

Now we start getting into the real problems.  In addition to The Flash (presumably) not being a licensed contractor, he certainly didn’t pull the required permits for rebuilding.  There may not be much legal leeway for the building to be approved without those licenses and permits.  And there are good reasons for this: we’re given to understand that The Flash did a good job of rebuilding, but what if he missed something?  It might not be so easy for the injured party to haul him into court.

And moreover, although the tenants ask “where are we going to live now?”, unless there’s a housing shortage the answer is “another apartment, since you can terminate the lease for the now non-existent one.”  To the extent that their property was destroyed, well, that’s what renter’s insurance is for.  Now, they may not have had insurance, and finding and moving into a new place is costly.  But it seems to me that The Flash could have more easily (and legally) used his powers to quickly make a bunch of money and then just given that to the tenants.  That might be more realistic, but it wouldn’t be very fun.

III. Conclusion

More questions remain: where did he get the building materials?  How did he pay for them?  If he could buy a building’s worth of materials, why not just give the tenants the money?  But the bottom line seems to be that even if he could convince the landowner to accept the gift of the building and the city to approve its construction, it probably wasn’t the best way to handle the situation.  It did make for an awesome comic book scene, though.

Mutant Discrimination: GINA, Genetics and How Professor Xavier is Breaking the Law

This guest column was contributed by Dan Vorhaus, an attorney at Robinson, Bradshaw & Hinson, P.A. and Editor of the Genomics Law Report.

Previous posts here at Law and the Multiverse have discussed the status of mutants under several of our nation’s anti-discrimination laws, including the applicability of constitutional protections afforded by the Equal Protection and Due Process clauses of the 14th amendment and statutory protections afforded by the Americans with Disabilities Act (ADA).

There remains, however, one key piece of important anti-discrimination legislation that has yet to be considered in evaluating the legal protections afforded mutants under the law: the Genetic Information Nondiscrimination Act, or GINA.

I. GINA and Mutant Genetics: A Primer.

GINA represents a historic achievement. Enacted in 2008 after 13 years of debate, many have called it the “first civil rights bill of the 21st century.” Five years later it remains the first and only piece of federal legislation to specifically address the use and effects of genetic information.

Broadly speaking, GINA is divided into two parts. Title I of GINA prohibits health insurers from using genetic information to deny coverage or to set premiums or payment rates. Title II prohibits employers from requesting genetic information or using genetic information in hiring, firing and other employment-related decisions.

GINA’s unique focus on genetic information makes the law of particular relevance to mutants. “Mutants,” as we now know thanks to decades of research by devoted and largely off-panel comic book scientists, are individuals who possess at least one mutated copy of the so-called “X-Gene.” The gene appears to promote the development of superhuman powers and abilities, typically post-puberty.

While much remains unknown about the X-Gene’s structure and function, scientists specializing in mutant genetics have isolated its protein product(s) as evidenced by the deployment of mutant suppression drugs in X-Men: The Last Stand (the drug in question is derived from the mutant Leech). From this we can extrapolate that the location of the X-Gene in the Homo sapiens genome is known and, importantly, that mutations within the gene can be identified through genotyping or even targeted sequencing of the X-Gene itself.

With the identification of the X-Gene and the subsequent decline in cost of genomic sequencing technology, there are a number of scenarios in which a genetic test to “diagnose” a mutant at an early stage, particularly before he or she has developed any superhuman (and frequently super-destructive) abilities, might be desirable. But in light of GINA’s passage, are such genetic tests legal?

II. Mutant Discrimination in a Post-GINA World.

We start with a pair of scenarios in which genetic testing for the X-Gene might be of interest.

First, a health insurer could require applicants to submit to testing in an attempt to screen in individuals with beneficial mutations (e.g., those resulting in unique healing abilities) or screen out individuals with X-Gene mutations capable of generating catastrophic levels of claims exposure (e.g., as a result of an at-times-uncontrollable ability to rearrange matter), thereby helping to more accurately project the insurer’s exposure.

Second, an employer might use the X-Gene test to gain valuable insight about a prospective hire. For instance, a research laboratory might use the X-Gene diagnostic test to double-check that the reserved but well-qualified physicist it is considering for an open position won’t demolish the lab – and everyone and everything within it – if an experiment goes awry.

Prior to GINA’s passage, testing in either scenario would have at least been arguably permissible, although various other anti-discrimination laws, including those discussed in previous posts, might have served as the basis for an effective challenge. Post-GINA, however, the analysis is crystal clear: both of the above examples of X-Gene screening are illegal.

The text of the statute itself offers no ambiguity:

  • A health insurer “...shall not request, require, or purchase genetic information for underwriting purposes.” (§ 101)
  • It is unlawful for an employer “to fail or refuse to hire, or to discharge, any employee, or otherwise to discriminate against any employee with respect to the compensation, terms, conditions or privileges of employment of the employee, because of genetic information with respect to the employee.” (§ 202)

 Although Congress did provide limited exceptions to the general prohibition on requesting and using genetic information in the insurance and employment contexts, none of the exceptions are targeted at mutants, tests specifically designed to test for X-Gene mutations or are otherwise applicable to the scenarios discussed above.

III. Professor Xavier and Pro-Mutant Genetic Discrimination

While GINA may operate to protect mutants from certain forms of genetic discrimination, we should not forget that the statute is crafted broadly and protects against the misuse of any individual’s genetic information. In other words, just as mutants are protected by GINA, so too are they bound by it.

Consider the case of Professor Xavier’s world-renowned school, variously referred to as “Xavier’s School for Gifted Youngsters” and the “Xavier Institute for Higher Learning.”

While little is known of Xavier’s closely-guarded school, it appears to satisfy the definition of an employer subject to Title II of GINA. (GINA applies to all private employers with 15 or more employees. With roughly a dozen identified faculty members, and likely additional faculty members and administrative and support staff on the payroll, Xavier’s school likely crosses the 15-person threshold.)

Xavier’s school also has an unbroken track record of employing mutants as faculty. While it may seem logical and even desirable to employ mutants in a school dedicated to the education and training of mutants, GINA prohibits the use of genetic information in hiring and other job-related decisions without exception. Even in situations where genetic information might appear to be a legitimate criterion for assessing fitness to perform a particular job, GINA forbids its use by an employer.

Of course, it is highly unlikely that Xavier requires prospective faculty members to submit to a traditional genetic test as a condition of their application and/or hiring. In addition to his well-known psionic powers which allow him to identify mutants using only his mind, many or all of the individuals applying to work at the school have manifest mutant powers. Nevertheless, GINA is clear that genetic information, however acquired, may not be used “in regard to hiring, discharge, compensation, terms, conditions, or privileges of employment.” 29 CFR § 1635.4. No matter how he comes by the information, if Xavier is indeed using genetic information in employment-related decisions, this would be a clear violation of GINA.

Since none of Xavier’s existing faculty members are likely to bring a discrimination claim, how might one arise? The most likely scenario: a gifted but non-mutant individual, perhaps one even possessed of other superpowers derived from, for example, an alien genesis or technological enhancements, seeks a position at Xavier’s school as an instructor but is turned away. Such an individual would be well-positioned to bring a successful genetic discrimination claim under GINA against Professor Xavier and his school. The Equal Employment Opportunity Commission (EEOC), the federal agency responsible for enforcing Title II of GINA, provides detailed instructions for filing just such a charge.

As with any new piece of legislation, it will take some time before GINA’s full implications for both mutants and humans become clear. Final regulations for Title II of GINA were published in 2010, but public examples of GINA-in-action remain few and far between, and illustrate the many uncertainties and difficulties of enforcement.  For example, given the EEOC’s difficulty subpoenaing documents from Nestle in a recent enforcement action, one can only imagine the considerable challenges that would await the Commission in attempting to gather the evidence needed to successfully establish a claim of discrimination under GINA.

Nonetheless, the law of GINA is clear, and the coming years may require the Commission and other regulatory bodies to overcome those challenges in order to appropriately enforce GINA both for and against the mutant population. Count on Law and the Multiverse and the Genomics Law Report to continue to keep you apprised of all the latest in GINA, mutants and genetic discrimination law.

The Avengers: Who’s Gonna Pay for That?

As some have already noted, the damage done to Midtown Manhattan in The Avengers could easily top $160 billion, all told (here’s the original source of that estimate).

That’s a lot of money. By comparison, as the link notes, the total impact of the September 11th attacks was about $83 billion and Hurricane Katrina cost about $90 billion. This is about as much as the two of those put together.

So… who’s gonna pay for all that?

Well, we talked about this subject generally back in December 2010, and the analysis has changed little since then. But The Avengers gives us a chance to apply those general principles to a particular set of facts. Continue reading

Superman: Grounded (# 707): Theft, Necessity, Insurance, and Mitigation of Damages

The second hardcover volume of Superman: Grounded came out in December, and the very first issue, Superman # 707, contains a doozy of a legal conundrum.

Here’s the setup. Superman is in Des Moines, Iowa, saving people and basically doing his thing. He’s on his cell phone (Yes, he’s using a cell phone. No, it doesn’t make any sense for him to be doing so.) with Lois, when the chemical plant she’s at has a fire. He hears it and flies over. He puts out the fire with water from a nearby creek, but notices that the fire has caused structural damage to the plant, which is likely to collapse and possibly even reignite. So, seeing a passing truck full of steel bars, he ganks a bunch of them and uses them to shore up the building. The driver of the truck says, and I quote, “Hey, Superjerk, you can’t just take those!” Which is probably true. Superman’s response is “I assure you, sir, it’s for a good cause.” Which is as may be, but doesn’t change the fact that Superman has likely stolen at least several thousand dollars worth of goods. Continue reading

Xavier’s School for Gifted Plaintiffs

Xavier’s School for Gifted Youngsters (aka the Xavier Institute) has existed in several most versions of the X-Men as a place of safety for young mutants, a training ground for future X-Men, and a private school.  These purposes are somewhat in tension, however, and students are sometimes injured either in the course of instruction or because of attacks on the school.  That leads to today’s question from Frank, who asks: “Is Professor X responsible for minor students in a parental capacity? What happens when one of them is injured or killed while at school?”

There are a few different aspects to this question.  First there’s the question of the school’s institutional liability, and second there’s the question of Professor X’ (and the teachers’) personal liability.

I. Institutional Liability

Xavier’s School is a private school in New York.  It’s usually written as a charitable school.  In some states this would entitle it to a certain degree of immunity, but New York (unlike, e.g., New Jersey) rejected the doctrine of charitable immunity several decades ago.  Bing v. Thunig, 2 N.Y.2d 656 (1957). So if the school can be sued, what could it be sued for?

The most likely cause of action is negligence: negligently allowing students to take part in dangerous activities, negligently failing to prevent superpowered students from harming one another, negligently failing to protect the students from outside threats, etc.

Normally one isn’t liable for failing to protect someone else from harm, but certain special relationships (e.g. parent/child) can create a duty to rescue, protect, or supervise.  Schools have such a relationship with students:

Schools are under a duty to adequately supervise the students in their charge and they will be held liable for foreseeable injuries proximately related to the absence of adequate supervision.  Schools are not insurers of safety, however, for they cannot reasonably be expected to continuously supervise and control all movements and activities of students; therefore, schools are not to be held liable for every thoughtless or careless act by which one pupil may injure another.  A teacher owes it to his or her charges to exercise such care of them as a parent of ordinary prudence would observe in comparable circumstances.  The duty owed derives from the simple fact that a school, in assuming physical custody and control over its students, effectively takes the place of parents and guardians.

Mirand v. City of New York, 84 N.Y.2d 44, 49 (1994).  So while a school may not be liable for every injury caused by a student, it will be liable if the injury was the result of inadequate supervision.  What’s more, since Xavier’s is a residential school, this duty is basically continuous, because “Ordinarily, the duty of care imposed on a school district, and in this case a private school, terminates upon a student’s release from their physical custody.”  David XX v. Saint Catherine’s Center for Children, 699 N.Y.S.2d 827, 830 (App. Div. 1999).

So the school’s liability will ultimately come down to whether the teachers and staff acted reasonably and whether the injury was foreseeable.  If the teachers follow all the right protocols but a superpowered delinquent blows up the school, well, that’s tough.  Similarly, a random attack by evil mutants may be unforeseeable, so it doesn’t really matter whether the school took reasonable precautions to protect the students from such an attack or not.

II. Personal Liability

“A school district, like any other employer, may be held vicariously liable under the doctrine of respondeat superior for a tort committed by an employee in the course of the performance of the employee’s duties.”  Mary KK v. Jack LL, 611 N.Y.S.2d 347, 348 (App. Div. 1994).  Of course, the employee is also still liable (and the employer can turn around and seek compensation from the employee for any damages the employer has to pay out), but most plaintiffs prefer to sue the party with deeper pockets.

But as the quote suggests, the employer is only liable under certain circumstances.  As the Mary KK court said, “What constitutes the scope of employment is generally a jury question, but” there are some guidelines.  “An act falls within the scope of an employee’s duties when the employee is doing his master’s work, no matter how irregularly, or with what disregard of instructions. On the other hand, there is no respondeat superior liability for torts committed for personal motives unrelated to the furtherance of the employer’s business.”  Murray v. Watervliet City School Dist., 515 N.Y.S.2d 150, 152 (App. Div. 1987).  More specifically, courts and juries look at factors such as:

the connection between the time, place and occasion for the act; the history of the relationship between employer and employee as spelled out in actual practice; whether the act is one commonly done by such an employee; the extent of departure from normal methods of performance; and whether the specific act was one that the employer could reasonably have anticipated

Riviello v. Waldron, 47 N.Y.2d 297, 303 (1979).  Sometimes the school might be vicariously liable, but it won’t be liable for the actions of “rogue” (no pun intended) employees.

III. Conclusion

We certainly hope Xavier’s has a serious insurance policy (or three).  Not only could it be sued, but it’s a magnet for serious injuries.  Waivers can help for voluntary activities, but not there are limits to what can be waived.  Of course, if the school goes beyond negligence and into the realm of gross negligence or intentional misconduct then its insurer may not cover it at all.

Superhero Corporations I: Vicarious Liability

There are several superhero characters that also happen to be executives of major corporations. Batman, as Bruce Wayne, is the head of Wayne Industries. Tony Stark runs Stark Industries. Reed Richards is in charge of the Fantastic Four’s corporate activities. The list goes on.

A question we haven’t talked about much yet is whether the activities of our heroes can cause liability for their respective corporations and vice versa. There are distinct issues here. The first is “respondeat superior” a Latin phrase meaning “Let the master answer” which is a species of vicarious liability, and “piercing the corporate veil“. The former can create liability for employers as a result of the actions of employees. The latter can create personal liability for executives and owners of a corporation for actions of the corporation. As one can see, these might be issues for our heroes. This time, we’re going to take a look at respondeat superior.

I. Basic doctrine

The basic concept here is that if an employee does something wrong while in the service of his employer, the employer is responsible even if the employer did not directly authorize the action. The most common example is if an employee is driving at the behest of his employer and gets in an accident. If the employee is still within the “course and scope” of his employment, the employer will be liable.

This may at first seem a little unfair, as what we’ve got here truly is “vicarious liability,” i.e. one person being liable for the actions of another. But there are two main justifications for the doctrine. First, if an employee is acting on behalf of his employer and screws something up, it seems a little unfair to let the employer off without any consequences. The employer certainly stood to benefit by having the employee make the trip, so it only stands to reason that they should also bear the risk of that trip. Second, a person acting on behalf of his employer has the potential to get in far, far more trouble than acting on their own. Returning to the driving example again, an eighteen-wheeler can cause vastly more damage than even a big SUV, but most people don’t use eighteen-wheelers to commute. There’s just no cause for an individual to use one of those things in most circumstances, as almost nothing a private individual might want to do requires moving that much stuff around. But businesses can and do need that kind of hauling capacity and so regularly put those vehicles on the road. The risk there is not just to other drivers, but to the owner of whatever stuff is in the trailer. Same goes for moving things around a warehouse: it’s entirely possible for a single trip with a forklift to be worth more than the employee operating it will make this year and next. So the other reason for making employers responsible for the torts of their employees is that employers (or their insurers) are the only ones likely to be able to afford to pay for said torts.

This is true even with insurance, by the way. Most personal auto carriers don’t even sell policies with limits in excess of $300,000 per person, but $1 million is pretty much the default commercial auto liability limit. And it goes up from there. Commercial excess policies with $25 million limits are pretty commonplace, but personal umbrella policies rarely go beyond $1 million.

One last thing to understand here is the distinction between corporate and personal assets. Take Tony Stark as an example. He’s the single largest shareholder in Stark Industries, so he “owns” a significant chunk of the company. But that isn’t the same thing as owning corporate assets. Stark has an interest in the company and as a shareholder has the right to vote on corporate actions. But he does not have any interest in corporate assets as such. This is part of how corporations work. So when we talk about respondeat superior, we mean that a plaintiff can sue Tony directly and potentially get his stock in the company, as those are his personal assets, but also sue the company directly, and have access to corporate assets. So depending on the size of the verdict, it’s theoretically possible for a plaintiff to wind up both owning a company and being owed a big check from the company. This isn’t likely to happen to any of the characters we’re talking about, as Wayne Industries etc. are all worth billions, but it’s not that uncommon an occurrence in small businesses with few assets.

II. Respondeat superior and superheroes

With that basic explanation of the doctrine, let’s turn our attention to whether superhero executives can create liability for their corporations. The answer here is going to be highly fact specific, turning mostly on whether or not the superhero was acting on behalf of the corporation at the time. Fortunately, our superheroes form something of a spectrum illustrating almost the entire spread of possibilities here.

On one end, we’ve got Batman. Yes, Bruce Wayne is the president and largest shareholder, and yes, he uses corporate assets to be Batman. But his activities as Batman are almost completely distinct from Wayne Industries wider corporate activities. It’s a multinational conglomerate with its fingers in almost everything, and only a tiny fraction of its resources are being redirected to Wayne for his Batman activities. More to the point, Wayne goes to some lengths to hide this from the other shareholders, who would probably vote against this sort of thing if they knew about it. Wayne Industries as such does not really stand to gain anything by Batman’s activities either, aside from the general benefit to everyone that is law and order. So in Batman’s case, it seems unlikely that what he does could subject Wayne Industries to liability, as nothing he does really seems to be within the course and scope of whatever employment he might have there.

In the middle is Iron Man. Tony Stark is the largest shareholder of Stark Industries (or something like that), and people know that he’s also Iron Man. But again, Stark Industries does a lot of things which have nothing to do with Iron Man, and Tony’s employment with the company—when he even is employed—doesn’t seem to have anything to do with being Iron Man. Granted, until he went public with his identity, Iron Man did do a lot to serve Stark Industries’ interests, e.g. protecting corporate assets, but once Stark went public, unless Stark Industries explicitly puts Iron Man on the payroll as such or explicitly puts serving as Iron Man in Tony’s job description, the case for vicarious liability is murky at best. It’s possible that it could be there, especially if Iron Man is acting in the company’s interest, but it isn’t a slam dunk case most of the time.

On the other end of the spectrum is Reed Richards and the rest of the Fantastic Four. Fantastic Four, Inc. is the corporate entity that they use to sell things based on Reed’s patents and to generally fund their activities. But that’s about it. Not only is FF, Inc.’s business pretty much entirely about the Fantastic Four, but it’s mission is pretty explicitly to let them do what it is that they do. Vicarious liability should be pretty easy to establish here.

III. Conclusion

So, as we see, respondeat superior is something that at least some superheroes are going to have to worry about. Next time we’ll take a look at the flip side and piercing the corporate veil.

Transformers: Dark of the Moon

The Fourth of July weekend is a fitting time for the release of Michael Bay’s latest round of cinematic pyrotechnics, Transformers: Dark of the Moon. It’s better than the first two, though that’s not saying all that much. And like the first two, we’re not breaking any new legal ground here either. In fact, as seemingly befits a movie which is almost entirely derivative… there isn’t a whole lot to say that we haven’t covered already. But in any case, here’s a roundup. Continue reading


So Thor is out. And it’s pretty good. I mean, it’s no Dark Knight, or even Iron Man, but neither is it The Fantastic Four (which, let’s face it, just sucked).

But you aren’t here for a review of the movie as a movie. You’re here for a review of the movie as it pertains to the legal system! At first glance, one might wonder exactly how a movie about an Asgardian major deity might have anything whatsoever to do with the American legal system. You’d be surprised! Spoilers, as always, follow after the break.

Continue reading

Supervillains and Insurance: Who’s Gonna Pay for That?

Breaking News! Superman is fighting an unidentified person in downtown Metropolis!


Didn’t this happen last week? And isn’t this all getting a bit expensive?

Most of the time when property is damaged, the property owner has insurance that will pay to restore their property to approximately the state it was in before the loss occurred. But when Doomsday goes on a rampage of destruction across at least three states or the Joker blows up half of downtown Gotham, insurer’s aren’t actually going to want to pay for that, and there is reason to believe that under the terms of standard insurance contracts, they wouldn’t have to. The reason has to do with the way insurance policies are written, which is a matter of contract as much at it is a matter of law.

So the focus of this post is not whether supervillains can get insurance, but whether standard insurance policies will pay for damage that they cause.

I. Insurance Policies and the DICE Method

First of all, insurance policies are only written for insurable risks. Generally speaking, an insurable risk is one where both the probability and magnitude of a particular kind of loss are measurable, where the occurrence of that loss is truly random, and where it is possible to transfer that risk to an insurer for an economically-feasible premium. A common example of an insurable risk is one’s house burning down. We know how often houses in a particular zip code burn down (this is what actuaries do for a living; some fun, huh?), we know what a particular house is worth, houses don’t burn down at any predictable frequency, and as it turns out, it’s possible to insure against the risk of fire for a premium which is both acceptable to the insured and profitable for the insurer. Flood is an example of an uninsurable risk. Floods do occur at random, and we know basically how often, but the magnitude of losses caused by flood are such that it is impossible to offer flood insurance at any price a homeowner can afford (more on this particular exposure later). Floods are considered “catastrophic” losses, because they cause both a high amount of damage to individual properties but also a high amount of damage to entire regions, making it impossible to adequately spread the cost to other property owners. The same is true of war, terrorism, civil unrest, revolution, etc., which is why all of those are considered uninsurable risks. Discharge of nuclear weapons, intentional or accidental, is also uninsurable. Uninsurable risks are generally excluded from insurance policies.*

When a loss occurs, the claims adjuster is going to walk through the DICE method: Declarations, Insuring agreement, Conditions, Exclusions. First, look to see if there is coverage for this kind of loss on the declarations page, i.e. coverage scheduled for this particular policy. Then, check the insuring agreement to see if the loss results from a covered peril. Then, check to see if there are any relevant conditions in the policy which are applicable. Finally, see if there are any relevant exclusions.

Take the Doomsday example again, and let’s assume that he has just leveled a private residence insured by ABC P&C by throwing Superman through it. ABC’s adjuster is first going to look at the declarations page for the insured’s homeowner’s policy. The house is insured for $100,000. So far so good. Then, he’s going to look at the insuring agreement to see if there is anything of interest there. This policy is a special perils form, which covers everything not specifically excluded, so again, so far so good. Then he’ll check conditions. The homeowner is current on his premium, gave timely notice of the claim, and is cooperating with the adjuster, so again, probably okay there.

But what’s this? Terrorism is excluded? And you didn’t buy the terrorism endorsement? Hmm. That’s going to be a problem.

It’s going to be pretty easy to argue that Doomsday is a terrorist, but even if he isn’t, it isn’t going to be difficult to fit this into either the war or civil unrest exclusions, both of which are part of every insurance policy. Any insurance defense attorney worth his salt would certainly make that argument, and it’s hard to see why it wouldn’t win. Heck, if Superman is a state actor, it might be excluded under the “civil authority” exclusion.

So sorry, Mr. Homeowner, your insurance policy isn’t going to pay for this.

II. Uninsurable Risks and Residual Pools

So what’s to be done? If we’re talking about a universe where superheros and supervillains exist and unstoppable monsters do level significant sections of town every other Tuesday, it seems probable that the legal system and/or insurance industry would take this into account. But because the magnitude of losses caused by superhero battles are so great, it seems likely that the states would have to resort to residual market mechanisms. This is how flood insurance is currently offered on a national level: the FEMA National Flood Insurance Program NFIP is pretty much the only way to buy flood insurance anymore. States have set up residual markets for both high risk drivers and properties with significant windstorm (Mississippi, South Carolina, Texas, etc.) and earthquake exposures (California) too. Basically, state legislatures have decided that even though certain kinds of risk are impossible to insure against on the open market, we want people to take those risks anyway, for a host of possible reasons. We want high-risk drivers to be insured both for their protection and for others, and denying someone permission to drive because they cannot buy mandatory insurance seems unjust. People really want to live in earthquake– and hurricane-prone areas, and those people vote, so we’re going to find some way of making that work, no matter how silly it is.

Residual markets can work in one of a number of ways. One is “assigned risk,” an approach frequently used to ensure that high risk drivers have access to at least the state minimum liability limits for personal auto insurance. Basically, every insurer that participates in the market is required to take their fair share of high risk drivers–for a high premium–as a cost of doing business in the state. They can then spread this cost to their other insureds, keeping the companies profitable. But it seems more likely that the states would create their own “Supervillain Pool” similar to the windstorm pools active in Gulf and coastal states. The way these work is that every insurance policy is charged a tax based on the premium which goes into the residual pool. The pool then reimburses property owners for damages caused by supervillain rampages, etc. Property owners would need to buy “Superhero/Supervillain Insurance” from the pool, and that premium would help too, but because this truly is an uninsurable risk, the pool will probably need to be supported by taxpayer revenue. The idea is that all but the biggest losses will be at least mostly absorbed by the pool but that the government will step in if things get really out of hand. The pool can theoretically up its rates in the years following a big loss to ensure that the government gets its money back, but this rarely happens.

Of course, while we’re modifying the law to account for superheros, it would probably also be the case that insurance companies would include some kind of “superhero/supernatural/paranormal” exclusion, shifting that exposure more directly to the residual pool, as has been done with flood, earthquake, and windstorm exposures.

III. Conclusion

A world with recognized and regular supervillain rampages would probably develop a way to insure against that sort of thing, but traditional property insurance would probably exclude such losses. States would need to create residual pools, much like the way they have for earthquake and hurricane losses.

*”Speculative risks,” i.e. risks where there is a possibility of gain and a possibility of loss–investments, basically–are also uninsurable, because the cost of insuring them would more than erase the potential gain from the transaction. These aren’t excluded by insurance policies because they wouldn’t have been covered anyway; insurers simply don’t write policies for those kinds of risks.

Commentary by James Daily:

I agree with my co-author that comic book worlds have likely developed a way to insure against attacks by supervillains and collateral damage from the response by superheroes.  However, even if the cost is evenly distributed among the risk pool, the question of net social cost remains.  In other words, are superpowers a net social good or a net social cost?  I think that, on balance, superpowers are either neutral or slightly positive.

Empirically, it seems that most versions of the DC and Marvel universes are broadly similar to our own in terms of the standard of living and technology level.  If superpowers were a net social cost we would expect one or both to be lower relative to the real world.  Indeed, if anything the technology level is sometimes higher in comic books, although advanced technology is often confined to superhero and supervillain labs.  Whatever the reason (superheroes fighting regular crime, inventions from Batman, Tony Stark, and Reed Richards), superpowers do not seem to be a net social cost.  This fact supports the civil rights claims of superpowered individuals.