Thursday, March 7, 2013

ERM/BC/COOP: Is it truly true?

Another case for enterprise risk management

An article on Mondaq's Consumer Law page ( notes "The past several years have seen an increase in the amount of litigation involving the labeling, marketing and advertising of food and beverages. Typically, the suits are filed under state consumer fraud statutes and allege that consumers would not have purchased the product or paid the price that they did had they known the truth behind the representations made. As a result of this litigation, a body of law regarding consumer protection claims premised on food mislabeling has begun to develop.

As if proving the point, an articles in the Detroit (MI) News, headlined "McDonald's settles Dearborn lawsuit over Islamic diet rules" ( notes that "McDonald's and one of its franchise owners agreed to pay $700,000 to members of the Muslim community to settle allegations a Detroit-area restaurant falsely advertised its food as being prepared according to Islamic dietary law."

The Mondaq article reports that "The Dannon Company agreed to pay $45 million to settle a class action pertaining to its labeling of Activia yogurt. In related litigation, Dannon agreed to pay $21 million to settle claims brought by attorneys general from 39 states." The article went on to cite several other misleading label issues.

THE QUESTION: Could a risk management practitioner have prevented damages to the corporate bottom line and image?

The answer is "Maybe."

    * IF the practitioner had access to the executive suite.

    * IF the practitioner worked in partnership with the organizations' legal, PR, and associated departments.

    * IF the practitioner recognized the issue; for example, the practitioner would have to be at least aware of hallal (Muslim dietary laws) requirements; in the case of McDonalds, it would help if the practitioner was aware of a similar issue in India ( and, closer to home, in King County (Seattle) WA (

In the above instances, food product labeling cost the organizations millions of dollars and a severe hit to their image, albeit probably only a temporary hit.

False labeling and false advertising are hardly limited to the food industry.

In an article titled "Insurance Coverage For False Advertising Claims" by McCarter & English, LLP partner J. Wylie Donald at ( discussing an academic issue: "Law schools, graduate schools and trade schools are under fire for supposed false advertising in connection with their employment data. Unable to find work, recent graduates are filing (or preparing to file) suit, claiming that they were induced to enroll by intentional or negligent misrepresentations regarding the value of their degree and the career opportunities that awaited them - allegedly despite the economic downturn."

Banks and insurance companies also are frequent targets of false advertising suits. Clothing manufacturers and retailers are targets of false advertising claims, as in

"Eleven retailers face potential civil and criminal penalties for real fur sold as faux,"

"Bestul: Scent Lok Found Guilty of False Advertising,"

Even people may be sued for false advertising.

In an article headlined "Lance Armstrong and his publishers being sued by California men claiming books cyclist wrote were fraudulent" ( Daily news of New York reports that "Two California men sued Armstrong and his publishers on Tuesday, claiming the disgraced athlete committed fraud and false advertising when he claimed in his best-selling memoirs that he did not use banned drugs when he returned to the Tour de France after battling cancer."

All is not lost

Attorney Donald recommends that "Those in charge of the risk management functions of any trade, professional or academic institution should always be assessing whether their insurance matches their risks given the current litigation and regulatory climate. (Emphasis mine) A new risk has emerged: alleged placement data reporting misrepresentation. Prudence dictates that relevant policies be identified and applied. Questions about coverage should be resolved. At renewal, this risk needs to be explored further and addressed.

These cases are not just about money. They are also about something more. Protection of an institution's reputation is, rightfully, one of the highest priorities. It is fundamental to attracting students, faculty and philanthropic donations, whether from alumni or from others."

While Donald advises that "The time to act is now by taking a fresh look at relevant insurance policies to see what it covers, and by asking the right questions of insurance brokers and advisers" I would suggest that while insurance is a necessity, it is better - and in the long run less expensive - to avoid "falsie" issues in the first place.

As insurance claims are filed, insurance premiums increase (for the insured and, usually, for all others in the same "class"); executives are forced to take time away from their "real" jobs to give depositions (best case) or appear in court (worst case). Finally, the insurance may not cover all the damages and the organization may have to sue insurer to pay the claim.

Look at Lanham Act

The law firm of Neal & McDevitt LLC put together a file that seems to be a PDF version of a PowerPoint (or similar) presentation. The presentation, titled "Recent Trends in False Advertising Law" ( provides an interesting look at recent cases in a variety of industries.

Another false advertising sites of interest: Winston & Strawn’s Advertising and Promotions Law practice,

AN ASIDE: The Lanham Act requires that bloggers disclose any “material connection” to an advertiser (via financial ties, freebies, etc.). I have no direct connection to any of the organizations mentioned above.

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