Category Archives: Regulatory Risk

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Reputational Crisis Forces Cambridge Analytica’s Closure

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Most of us are aware of the recent scandal involving Facebook and political consulting firm Cambridge Analytica, wherein the latter company obtained data from up to 87 million Facebook users and, in turn, built profiles of individual voters and their political preferences to best target advertising and sway voter sentiment. This information was used to enable Donald Trump’s campaign in the 2016 presidential election.

Right around that time it was reported that the Cambridge Analytica board of directors suspended CEO Alexander Nix. This action was taken after a whistleblower claimed Nix set up a “fake office” in Cambridge to present a more academic side to the company, and made comments to undercover reporters  that “do not represent the values or operations of the firm and his suspension reflects the seriousness with which we view this violation.”

A feature about the scandal in Risk Management’s current issue explains why the incident was not a data breach and how companies can learn from this and comply with EU’s General Data Protection Regulation (GDPR) in time for its May 25 implementation.

In the aftermath of the scandal and Cambridge Analytica’s concession that it will not be able to recover from its reputational crisis—although the company’s leadership maintains that it acted ethically—the UK-based firm and its affiliates announced on May 2 that it will be “ceasing all operations.” Excerpts from its statement are below:

Over the past several months, Cambridge Analytica has been the subject of numerous unfounded accusations and, despite the Company’s efforts to correct the record, has been vilified for activities that are not only legal, but also widely accepted as a standard component of online advertising in both the political and commercial arenas.    

Despite Cambridge Analytica’s unwavering confidence that its employees have acted ethically and lawfully, which view is now fully supported by [Queen’s Counsel Julian Malins] report, the siege of media coverage has driven away virtually all of the Company’s customers and suppliers. As a result, it has been determined that it is no longer viable to continue operating the business, which left Cambridge Analytica with no realistic alternative to placing the Company into administration.

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This once again demonstrates how attacks in the court of public opinion can cripple a business.

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Despite a fast reaction and being exonerated by a credible authority, no amount of crisis management and communication could make up for the actions of Cambridge Analytica’s leadership. It also seems that the company had not considered a business continuity plan for a reputation crisis of this magnitude.

Last year, Steel City Re CEO Nir Kossovsky wrote for Risk Management Monitor about reputational risk—reflecting on it and warning of the consequences to an organization. When public anger rises, he said, “more blame is being cast upon recognizable targets, such as CEOs.”

And while Facebook CEO Mark Zuckerberg seems to have dodged the bullets fired his way during a Congressional hearing last month (did you #deletefacebook?), Cambridge Analytica’s leadership knew that, based on its actions and the cavalcade of accusations, neither their clients nor the public would ever “like” them again.

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Prescription Opioid Risks to the Workplace Explored at RIMS 2018

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SAN ANTONIO – When the White House declared opioid use a national Public Health Emergency under federal law in 2017, businesses began reviewing their policies and making efforts to curb their employees’ abuse of the drug in its prescribed form. This escalating risk to organizations is why the business impact of prescription opioid use was such a hot topic at RIMS 2018, where a session on April 17 focused on the practical and bottom-line costs of workforce use of prescription opioids. In a session the next day, attendees learned how liability policies are responding to government-led lawsuits against opioid manufacturers, and how to prepare for similar suits brought against other industries.

New Insights into the Impact of Opioid Prescribing to Injured Workers
Data displayed on Tuesday explored opioid-related correlations between worker, industry and employer. Presenters John Ruser, president and CEO of the Workers Compensation Research Institute (WCRI) and Michael Fenlon, senior director of corporate risk management for United Parcel Service (UPS) discussed opioid-related claims and suggested evidence-based information that can encourage a return to work without the prescriptions.

The effectiveness of prescription drug monitoring policies (PDMP) was explored, and Ruser explained that a reactive shift among prescribers has meant that states obligated to adhere to these policies have fewer prescriptions written.

“This shows that the more queries there are, the bigger the drop in opioid prescribing,” he said, using Kentucky as an example of a successful PDMP. He added that Kentucky’s HB1 law mandated the use of the PDMP and has set a standard among states since it was enacted in July 2012. Between 2011 and 2013, WCRI information indicated a 10% decline in prescriptions in the state, whereas prescription levels were flat in others that did not have comprehensive opioid reforms.

Fenlon said that when he learned in recent years that opioid overdoses—almost half of which arise from prescriptions—surpassed car accidents as the number one cause of accidental death, he realized the severity of the issue and its impact on the UPS workforce.

“Once someone gets to that third or fourth script, you can see how it leads to a vicious cycle,” he said. “We need to take ownership of this—in the workers comp space as well as the healthcare side.”

He noted that UPS’ overall pharmacy spend is about 7% of its total medical costs per year for lost-time (LT) patients, with opioids comprising about 22% of that amount. UPS employs more than 454,000 workers, and Fenlon said the company continually pays close attention to the LT patients who are the higher-risk group, with three or more scripts. He added that the collaboration of drug formularies, third-party administrators and UPS case supervisors has contributed to the 44% decrease of the higher-risk group between 2013 and 2017.

Both presenters conceded, however, that injured workers will likely get the medication they need, even if it is not in the form of opioids. “Those who are worried about pain management are noticing the trend in the decline of opioid prescriptions in some areas and ask: ‘What’s the alternative?’” Ruser said. “While there was a drop in that drug, there was an increase in the amount of NSAIDs [nonsteroidal anti-inflammatory drugs]. Clearly, that’s what these prescribers are shifting to, so it’s not that these injured workers are not receiving pain meds.”

Members may access this PowerPoint presentation by logging in at the RIMS 2018 session handout page.

Opioid Lawsuits: A Tsunami of Litigation and Associated Coverage Issues
The topic shifted from boardrooms to courtrooms the next day, as current and pending multidistrict litigations filed by various governments (local, city and state) were examined. Covington & Burling LLP Partner Anna Engh and Marsh Managing Director John Denton (pictured below) discussed insurance policies’ responses to lawsuits and provided insight as to how to prepare should similar suits be brought against other industries.
Manufacturers, distributors, retailers, prescription benefit managers, doctors and clinics are all seemingly in the crosshairs of local municipalities and governmental entities, Engh noted.

“The main focus against the manufacturers is of alleged misrepresentation of the addictive nature of opioids. With respect to the distributors, it is the failure to report and detect suspicious orders, or failing to have controls in place for their diversions,” Engh said. “You’ll see negligence pled in different ways, like common-law negligence, and also pled as violations of states’ controlled substance acts.” She added that public nuisance and RICO claims (Racketeer Influenced and Corrupt Organizations Act) also appear on the dockets.

With nearly 500 claims against pharmaceutical companies, distributors and pharmacies consolidated in Ohio alone, Denton said that the volume of work involved is daunting for insurance, risk and legal professionals.

“That’s thousands of pages of pleadings coming in every month. It’s a very difficult burden,” he said. “I think a lot of companies are tendering them to as many policies as possible. Hopefully, a lot of insurance carriers will be understanding of this. And a lot of this will be sorted out later, either through discussions with the carriers or litigation.”

Denton added that because there is no federal judicial precedent on insurance suits, the progress on such matters will continue to be slow.

“Insurance coverage issues are typically an issue of state law. And with lawsuits in nearly every state, it would be nice to have a [United States] Supreme Court decision on some of these coverage issues, and that would bind everybody,” he said. “But the reality is that’s not going to happen. There will be decisions in multiple states so it may take some time before these issues get sorted out.”

Black Coffee Blues

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If a new court decision in California is enforced, baristas will have to place another label on cups next to customers’ names—a cancer warning.

Last week, a Los Angeles Superior Court proposed a decision against coffee makers in a lawsuit that has been brewing in courts for years. The Council for Education and Research on Toxics claim that by selling coffee with trace amounts of acrylamide—a chemical classified as a carcinogen, but one that occurs naturally from the roasting process—retailers are exposing consumers to a health hazard. This would ultimately put sellers in violation of California Proposition 65, the Safe Drinking Water and Toxic Enforcement Act, which requires businesses that expose customers to hundreds of chemicals to post warning labels notifying them as such.

In his proposed decision, Los Angeles Superior Court judge Elihu Berle wrote:

“Since defendants failed to prove that coffee confers any human health benefits, defendants have failed to satisfy their burden of proving that sound considerations of public health support an alternate risk level for acrylamide in coffee.”

Should the decision go into effect, businesses that fail to provide the warning notice will be subject to a fine of up to $2,500 a day for each violation.

This news has California’s coffee drinkers, sellers and roasters boiling. After all, people have been imbibing the dark nectar of the gods for hundreds of years and very few, if any, causal connections have been made between it and cancer.

On March 29, the National Coffee Association (NCA) released a statement in response to the ruling and dispelled the notion that coffee can be cancerous:

The industry is currently considering all of its options, including potential appeals and further legal actions. Cancer warning labels on coffee would be misleading. The U.S. government’s own Dietary Guidelines state that coffee can be part of a healthy lifestyle. The World Health Organization (WHO) has said that coffee does not cause cancer. Study after study has provided evidence of the health benefits of drinking coffee, including longevity—coffee drinkers live longer.

Retailers have some options in reaction to the developments. Last year, Bloomberg reported that the “few coffee sellers that have settled rather than keep fighting,” were hopeful that “people in California are so accustomed to seeing the signage that they will tune it out.” In October 2017, Starbucks and some other retailers preemptively placed warnings signs in stores—which may serve as a hedge against fines for millions of cups of coffee sold over several years.

Sellers could create cups specially marked for California sales, which may disrupt its supply chain and increase costs. They could also opt not to sell in California at all, which is unlikely, since the state’s economy is booming with coffee suppliers. With nearly 75% of California’s population being older than age 18, millions of dollars in per-cup sales may hang in the balance.

The decision is not final, however. In the NCA’s statement, president and CEO William “Bill” Murray said: “Coffee has been shown, over and over again, to be a healthy beverage. This lawsuit has made a mockery of Prop 65, has confused consumers, and does nothing to improve public health.”

For further insight into the unintended consequences of Proposition 65 and other well-intentioned regulations visit here.

Amtrak Positive About Meeting PTC Deadline

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Earlier this month, Amtrak President Richard Anderson told the House railroads subcommittee that his company is on target to complete installation of positive train control (PTC) on the infrastructure it controls and on all of its equipment by the Dec. 31, 2018 federal deadline. He warned, however, that trains without PTC by the deadline could not use Amtrak’s tracks.

“We believe that PTC should ultimately be in place for all Amtrak routes and, as a matter of U.S. policy, PTC should be required for all passenger rail trips in America,” Anderson told the House Subcommittee on Railroads, Pipelines and Hazardous Materials.

PTC is designed to eliminate human error by using four components: GPS satellite data, onboard locomotive equipment, the dispatching office and wayside interface units. The system communicates with the train’s onboard computer, allowing it to audibly warn the engineer and display the train’s safe braking distance based on its speed, length, width and weight, as well as the grade and curvature of the track, according to railroad operator Metrolink.

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If the engineer does not respond to the warning, the onboard computer will activate the brakes and safely stop the train.

Anderson’s testimony poses a challenge for major transportation providers like NJ Transit, whose trains run on the Northeast Corridor east of the Hudson River tunnels to New York City. Committee members have noted that NJ Transit “hasn’t even started” the process of installing PTC, while the company’s spokeswoman maintains that despite delays attributed to software compatibility, she believes they can meet the deadline. According to a Federal Railroad Administration progress report, 8% of NJ Transit’s locomotives and none of its tracks were updated with PTC as of the end of 2017.

After Congress passed the PTC Enforcement and Implementation Act of 2015 it also authorized the FAST Act, which allocated $199 million in PTC grant funding and specifically prioritized PTC installation projects for Railroad Rehabilitation and Improvement Financing funding. The Association of American Railroads estimates that freight railroads will spend $10.6 billion implementing PTC, with additional hundreds of millions each year to maintain. The American Public Transportation Association has estimated that the commuter and passenger railroads will have to spend nearly .

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6 billion on PTC.

“Without PTC, the system is too vulnerable to single points of failure, many of which are dependent upon the memory of a single human being interacting with a big, complicated system,” Anderson said. “When an engineer loses situational awareness or forgets a rule, we have no systems to assist them and help them prevent that error.”

He also noted that Amtrak is taking additional steps, such as installing inward-facing cameras. “These cameras monitor locomotive and engineer performance and are installed in Amtrak trains along routes in the northeast, midwest, and west and we are actively working to install them on Amtrak trains nationwide. Reviewing the data from these cameras, coupled with the data from our efficiency testing programs, provides us an excellent view of operational issues to be addressed in future training programs.”

Efforts to upgrade train technology has been a nationwide priority. The most recent major derailment occurred on Dec. 18, 2017 when an Amtrak train derailed near Tacoma, Washington, killing three passengers and injuring about 100. That crash was the result of excessive speed in a steep curve, which experts suggested could have been prevented with PTC’s automatic braking technology. Amtrak Train No. 501, on its inaugural run, was traveling 80 miles per hour in an area limited to 30 miles per hour when it derailed on an overpass, sending the train’s 12 coaches and one of its two engines careening onto the highway below.

As previously reported in Risk Management, a similar derailment in Philadelphia in May 2015 that killed eight, was also blamed on excessive speed and could have been avoided if PTC had been in place.