Charter School Insurance Claims Scenarios

At Charter School Insurance Alliance, we feel that by learning from the claims others have experienced, you will be better prepared for the risks your company faces. We have compiled various claims other schools have experienced to show how having the proper insurance coverage in place can protect you from disaster and litigation that could be financially devastating.

Below you will see a description of the claim and settlement amount. All of the claims are real; the names have just been changed to maintain confidentiality.

Claims Scenarios

General Liability

Claim #1

Description of Event: During a private party for which a school was rented, a 55-year-old man fell and broke his hip. An investigation of the incident revealed that a leaky roof left a small accumulation of water on the floor, causing the man to slip and fall. The injured party filed suit.

Resolution: The school was liable for the $250,000 verdict.

Description of Event: A library was hosting a special event to honor a local writer. A guest became intoxicated at the party and fell down a staircase and sustained serious head injuries. The patron sued, and the library was found liable under the state’s dram shop laws.

Claim #2

Resolution: Claim Value: $2,000,000

Description of Event: A university produced an advertisement for an upcoming special event, using a photograph of a prominent scholar obtained from a book publisher. The university was unaware that the scholar had not signed a photograph release. The scholar sued the university alleging invasion of privacy.

Resolution: The university was found liable for $425,000.

Crime

Claim #1

Description of Event:
A school’s controller had check-signing responsibility as well as access to the organization’s checking account. During his employment, the employee set up a fictitious firm that allegedly provided financial services to the organization. The loss wasn’t discovered until after the employee had left the organization and was caught doing the same thing to his next employer, at which time he admitted that he had established the phantom firm for the sole purpose of stealing from his employer.

Resolution: A thorough investigation determined that the controller had taken nearly $600,000.

Claim #2

Description of Event: The CFO and member of the board of directors of a school had full access to his company’s accounts. Over several years, this trusted employee gave himself unauthorized salary increases, bonus checks, and expense allowances. The fraud was discovered when an outside consulting firm conducted a thorough audit.

Resolution: The CFO embezzled more than $700,000.

Claim #3

Description of Event: The payroll clerk for a large school added several relatives to the payroll. He faithfully deposited paychecks into the phony employees’ bank accounts for nearly three years before he left the station and the new payroll clerk discovered the scheme.

Resolution: The school determined that the crooked clerk had made phony payroll payments totaling more than $300,000 to his relatives.

Employment Practices

Claim #1

The Facts: ABC Corporation is a school located in California. Mary was hired by ABC as clerical staff and worked for approximately three years. She told her boss that she was pregnant and would be taking a four-month maternity leave.

Several months later, ABC decided that they needed a reduction-in-force and Mary was one of three employees that were let go. However, she was terminated one month prior to her scheduled maternity leave. Mary filed a lawsuit alleging wrongful termination and pregnancy discrimination and sought lost wages and compensation for emotional distress.

Risk Factors: During discovery, ABC learned that Mary’s supervisor had told her the company had a previous bad experience with a pregnant employee. This employee said that she was coming back after her leave but did not and left them with an empty position. The case proceeded to trial and the jury sympathized with Mary who became very emotional on the stand and spoke about how she loved her job.

The Bottom Line: Due to the supervisor’s statement and the close proximity in the timing of the termination to Mary’s scheduled leave, the jury rendered an award in the amount of $500,000. In addition, under California state law, ABC Corporation must pay an additional $175,000 to cover Mary’s attorney fees. On top of that, ABC paid $200,000 to its own attorney to defend the case. In the end, ABC was out-of-pocket $875,000.

Claim #2

The Facts: RST, LLC is a medical clinic specializing in internal medicine and diagnosis. John was employed as a Medical Lab Technician for two years. He made internal complaints as well as a state complaint alleging that RST was improperly billing Medicare/Medicaid. Shortly thereafter, RST decided to fire John since he received a negative rating in his second performance review and co-workers found him difficult to get along with. The state issued a determination with regard to the improper billing and found no merit to John’s allegations.

Risk Factors: John was terminated while the state was conducting its investigation of RST. Thus, even though RST was found innocent of any improper billing, it still faced a retaliation claim from John for making such complaints and then being fired.

The Bottom Line: RST,LLC incurred defense costs of $150,000 in defending John’s retaliation claim and then settled the matter prior to trial for $30,000. Defense costs in this matter were high due to the need to review voluminous billing records during discovery.

Directors & Officers

Claim #1

Description of Event: A private high school, experiencing severe financial difficulties, entered into a strategic business alliance with a third party. Under the agreement, the third party would manage the day-to-day operations of the school and eventually acquire it. The contemplated sale was unsuccessful and the school filed for bankruptcy protection. The creditors sued the school’s directors and officers alleging mismanagement in the period prior to insolvency, as well as breach of fiduciary duty in not accepting a competing offer to sell, which was not subject to financing contingencies. The defendants argued that the competing offer would not have satisfied outstanding obligations and would certainly have forced a bankruptcy filing. The defendants also argued that their decision to accept the chosen offer was protected under the business judgment rule.

Resolution: The parties negotiated a settlement with the creditors in excess of $3 million and incurred over $2 million in defense costs.

Claim #2

Description of Event: After a school filed for bankruptcy. a group of creditors sued each member of the board of directors for breach of fiduciary duty, alleging that a series of improper distributions reaching nearly $2 million was made by the board members, which caused the school’s insolvency, violating several state statutes. Specifically, the plaintiffs alleged breaches of the fiduciary duties of loyalty and care and violations of state non-profit laws. The plaintiffs also sought to have the court certify them as representatives of a class of unsecured creditors. The plaintiffs sought more than $2 million in damages, plus attorneys’ fees and costs.

Resolution: The case settled for approximately $250,000. In addition, defense expenses and forensic accounting costs totaled more than $300,000.

At Charter School Insurance Alliance, we feel that by learning from the claims others have experienced, you will be better prepared for the risks your company faces. We have compiled various claims other schools have experienced to show how having the proper insurance coverage in place can protect you from disaster and litigation that could be financially devastating.

Below you will see a description of the claim and settlement amount. All of the claims are real; the names have just been changed to maintain confidentiality.

Claims Scenarios

General Liability

Claim #1

Description of Event: During a private party for which a school was rented, a 55-year-old man fell and broke his hip. An investigation of the incident revealed that a leaky roof left a small accumulation of water on the floor, causing the man to slip and fall. The injured party filed suit.

Resolution: The school was liable for the $250,000 verdict.

Description of Event: A library was hosting a special event to honor a local writer. A guest became intoxicated at the party and fell down a staircase and sustained serious head injuries. The patron sued, and the library was found liable under the state’s dram shop laws.

Claim #2

Resolution: Claim Value: $2,000,000

Description of Event: A university produced an advertisement for an upcoming special event, using a photograph of a prominent scholar obtained from a book publisher. The university was unaware that the scholar had not signed a photograph release. The scholar sued the university alleging invasion of privacy.

Resolution: The university was found liable for $425,000.

Crime

Claim #1

Description of Event:
A school’s controller had check-signing responsibility as well as access to the organization’s checking account. During his employment, the employee set up a fictitious firm that allegedly provided financial services to the organization. The loss wasn’t discovered until after the employee had left the organization and was caught doing the same thing to his next employer, at which time he admitted that he had established the phantom firm for the sole purpose of stealing from his employer.

Resolution: A thorough investigation determined that the controller had taken nearly $600,000.

Claim #2

Description of Event: The CFO and member of the board of directors of a school had full access to his company’s accounts. Over several years, this trusted employee gave himself unauthorized salary increases, bonus checks, and expense allowances. The fraud was discovered when an outside consulting firm conducted a thorough audit.

Resolution: The CFO embezzled more than $700,000.

Claim #3

Description of Event: The payroll clerk for a large school added several relatives to the payroll. He faithfully deposited paychecks into the phony employees’ bank accounts for nearly three years before he left the station and the new payroll clerk discovered the scheme.

Resolution: The school determined that the crooked clerk had made phony payroll payments totaling more than $300,000 to his relatives.

Employment Practices

Claim #1

The Facts: ABC Corporation is a school located in California. Mary was hired by ABC as clerical staff and worked for approximately three years. She told her boss that she was pregnant and would be taking a four-month maternity leave.

Several months later, ABC decided that they needed a reduction-in-force and Mary was one of three employees that were let go. However, she was terminated one month prior to her scheduled maternity leave. Mary filed a lawsuit alleging wrongful termination and pregnancy discrimination and sought lost wages and compensation for emotional distress.

Risk Factors: During discovery, ABC learned that Mary’s supervisor had told her the company had a previous bad experience with a pregnant employee. This employee said that she was coming back after her leave but did not and left them with an empty position. The case proceeded to trial and the jury sympathized with Mary who became very emotional on the stand and spoke about how she loved her job.

The Bottom Line: Due to the supervisor’s statement and the close proximity in the timing of the termination to Mary’s scheduled leave, the jury rendered an award in the amount of $500,000. In addition, under California state law, ABC Corporation must pay an additional $175,000 to cover Mary’s attorney fees. On top of that, ABC paid $200,000 to its own attorney to defend the case. In the end, ABC was out-of-pocket $875,000.

Claim #2

The Facts: RST, LLC is a medical clinic specializing in internal medicine and diagnosis. John was employed as a Medical Lab Technician for two years. He made internal complaints as well as a state complaint alleging that RST was improperly billing Medicare/Medicaid. Shortly thereafter, RST decided to fire John since he received a negative rating in his second performance review and co-workers found him difficult to get along with. The state issued a determination with regard to the improper billing and found no merit to John’s allegations.

Risk Factors: John was terminated while the state was conducting its investigation of RST. Thus, even though RST was found innocent of any improper billing, it still faced a retaliation claim from John for making such complaints and then being fired.

The Bottom Line: RST,LLC incurred defense costs of $150,000 in defending John’s retaliation claim and then settled the matter prior to trial for $30,000. Defense costs in this matter were high due to the need to review voluminous billing records during discovery.

Directors & Officers

Claim #1

Description of Event: A private high school, experiencing severe financial difficulties, entered into a strategic business alliance with a third party. Under the agreement, the third party would manage the day-to-day operations of the school and eventually acquire it. The contemplated sale was unsuccessful and the school filed for bankruptcy protection. The creditors sued the school’s directors and officers alleging mismanagement in the period prior to insolvency, as well as breach of fiduciary duty in not accepting a competing offer to sell, which was not subject to financing contingencies. The defendants argued that the competing offer would not have satisfied outstanding obligations and would certainly have forced a bankruptcy filing. The defendants also argued that their decision to accept the chosen offer was protected under the business judgment rule.

Resolution: The parties negotiated a settlement with the creditors in excess of $3 million and incurred over $2 million in defense costs.

Claim #2

Description of Event: After a school filed for bankruptcy. a group of creditors sued each member of the board of directors for breach of fiduciary duty, alleging that a series of improper distributions reaching nearly $2 million was made by the board members, which caused the school’s insolvency, violating several state statutes. Specifically, the plaintiffs alleged breaches of the fiduciary duties of loyalty and care and violations of state non-profit laws. The plaintiffs also sought to have the court certify them as representatives of a class of unsecured creditors. The plaintiffs sought more than $2 million in damages, plus attorneys’ fees and costs.

Resolution: The case settled for approximately $250,000. In addition, defense expenses and forensic accounting costs totaled more than $300,000.

Charter School Insurance Claims Scenarios

Claims Scenarios

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Claims Scenarios

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