Subrogation & Recovery Law Blog : Insurance Subrogation Lawyer & Attorney : Cozen O'Connor Law Firm : Property Damage & Insurance Commentary

A recent 5th Circuit Court of Appeals case held that spoliation of evidence may not necessarily be fatal to a product liability claim. The case, A.K.W. v. Easton-Bell Sports, Incorporated, et. al, 11-60293 (October 18, 2011) stemmed from a head injury to a minor, “A.K.W.”, that occurred during football practice while A.K.W. was wearing a helmet manufactured by Defendant Ridell. On the final play of practice, A.K.W. stepped up to tackle the opposing quarterback and was joined in that tackle by two additional defenders. All of the players involved in the tackle landed on top of A.K.W.; his head was the first to hit the ground. Shortly after practice, A.K.W.’s right eye blurred and he collapsed on the field.  His coaches removed the helmet, which was later lost. A.K.W. was subsequently diagnosed with a carotid artery tear that rendered him partially paralyzed.

A.K.W., through his mother, filed suit against various manufacturers of football helmets in Mississippi State Court claiming that his helmet was defectively designed due to the padding. The matter was removed to Federal Court which applied Mississippi substantive law including the Mississippi Products Liability Act (MPLA). The MPLA sets out three elements for a defective design claim: (1) the product was defectively designed; (2) the design defect made the product “unreasonably dangerous”; and (3) the design defect caused the injury. Mississippi common law further requires that plaintiffs prove that at the time of the injury, the product was in substantially the same condition as when it left the defendant’s control.

A.K.W. was unable to produce the helmet he was wearing at the time of the injury.  He testified that he was wearing a Riddell helmet at the time; however, there were four (4) different types of Riddell helmets in use by the team. Ridell filed a motion for summary judgment contending that A.K.W. was unable to prove that the helmet he was wearing was in substantially the same condition as when it left the defendant’s control. A.K.W.’s expert assumed that the football helmet was in perfect condition as if it just left the defendant’s control. The expert opined that all four types of Riddell helmets were defective per se upon leaving the manufacturer. Plaintiff argued that since the comparison product for the feasible design alternative is not the exact, individual product involved in the injury, proof as to substantial similarity is unnecessary. The appellate court reversed the trial court’s grant of summary judgment, holding that because the opinion of A.K.W.’s expert was not based on the actual helmet, there was no need for A.K.W. to have produced the actual helmet. Where an expert opinion about defect is based upon a perfect condition product that is straight from the manufacturer, and that opinion applies to all potential products that could have caused the injury, there is no requirement to produce the actual product that caused the injury.
 

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There is a common misperception that a subrogee may never recover more than the amount of its subrogation interest. While it can be challenging to even make a 100% recovery, sometimes there are opportunities available to make a super-recovery – one in excess of the subrogation interest. 

The simplest way to recover more than the amount of the verdict is to seek taxable costs such as filing fees, witness fees, transcription fees, and expert preparation and testimony expenses. Whether, and which, costs are taxable vary from jurisdiction to jurisdiction, but taxable costs are usually fairly limited and will not include all litigation expenses.

A number of jurisdictions allow for statutory pre-judgment interest on the amount of the judgment. Historically, recoverable pre-judgment interest has been as large as 12% per annum (e.g., Florida), but it is much more modest in this economy. Since the discovery process often takes several years before proceeding to trial, a pre-judgment interest award can be a very significant percentage of the gross recovery.

In cases in which there are multiple defendants, consider settling with one or more, but less than all, of the defendants. In some jurisdictions (i.e., Minnesota), by doing so, the plaintiff “assumes the fault” of the settling defendants and is limited to recovering at trial from the non-settling defendants no more than their own percentage of the damages as allocated by the jury. However, if the amount of the partial settlement exceeds the settling defendants’ share of the damages allocated to them at trial, the plaintiff may recover more than its subrogation interest even before consideration of pre-judgment interest and taxable costs. While this methodology is not without risks and requires a keen understanding of the strengths and weaknesses of the case, we recently used this strategy to obtain a 120% recovery of a client’s subrogation interest.

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An Illinois Appellate Court recently issued an opinion which may make subrogating against a negligent tenant more challenging. Auto Owners Ins. Company a/s/o John Ellis v. Thomas Callaghan, 952 N.E.2d 119 (Ill.App.3d 2011) involved a landlord’s carrier that sued a tenant who was leasing a house. The plaintiff insurer alleged that the tenant was negligent in starting a fire that caused over $250,000 in damages to the house. The tenant filed a motion to dismiss the lawsuit based on Illinois’ implied coinsured doctrine. The trial court granted the tenant’s motion and the Third District Appellate Court affirmed.

The Court’s decision was based on its interpretation of the seminal case outlining the implied coinsured rule in Illinois, Dix Mutual Ins. Co. v. LaFramboise, 597 N.E.2d 622 (Ill. 1992). This Illinois Supreme Court case set forth the rule regarding tenant liability: “although a tenant is generally liable for the fire damage caused by his negligence, if the parties intended to exculpate the tenant from negligently caused fire damage, their intent will be enforced.” Because the language can vary, the courts were to interpret the lease “as a whole so as to give effect to the intent of the parties.” The Dix court ruled that the Defendant in that case was afforded implied coinsured status. A key factor in the decision was a provision in the lease requiring the landlord to maintain property insurance, which the court construed as the parties’ intent that property insurance would cover losses to the property. The court held that the tenant’s rent payments contributed to the premium for the property insurance, making the tenant an implied coinsured. Further, in the Dix lease, there was no provision making the tenant responsible for damages that he caused.

The lease in Auto Owners contained no provision regarding insurance. It did contain a provision stating that the tenant’s security deposit would pay for any damages that the tenant, their guests or invitees may inflict upon the dwelling unit, and that the tenant’s liability is not limited to the amount of the security deposit. Despite these differences, the Auto Owners court ruled that there was no provision in the lease that imposed liability upon the tenant for fire damage. The court further found that by the tenant’s payment of rent, he obtained the status of a coinsured under the landlord’s policy, and could not be sued for fire damage by the landlord or its insurer. The Auto Owners court distorted the rule in Dix. Instead of applying the rule that the tenant is liable unless the lease demonstrates intent to exculpate the tenant from liability, Auto Owners suggests that the rule is that the lease provision needs to place liability on a tenant. Further, even though there was no mention of insurance in the Auto Owners lease, the holding suggests that the tenant can be considered an implied coinsured if the landlord has property insurance.

It is still viable for a landlord’s insurer to pursue a tenant in subrogation in Illinois. However, Auto Owners may signal a trend that certain additional factors will need to be demonstrated to subrogate against a negligent tenant.

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A substantial body of law has emerged supporting the position that a plaintiff is entitled to recover the cost of conforming to updated building codes in repairing property damaged by a defendant's negligence. Florida, Illinois, Missouri, Massachusetts, Minnesota, and Wisconsin all have authority affirming the recovery of code upgrade costs. The costs of code-compliance are recoverable because:

(1) including such costs allows property owners to be placed in the position they occupied before the loss, by restoring the building to a condition in which it can be re-occupied;

(2) the upgrade expenses would not have been incurred but for the defendant’s negligence; and

(3) any other outcome would penalize property owners for the tortfeasor's negligence.

A minority of jurisdictions refuses to include expenditures for code upgrades in the cost of repairs. (West Virginia, Mississippi and Colorado) As such, recovery of such costs as repair damages would unduly and unjustifiably enrich the plaintiff and require the defendant to pay a sum greater than that resulting proximately from his negligence.

In jurisdictions that have not yet addressed the issue, a strong argument can be made for following the path taken by the majority. That argument proceeds as follows. Either the defendant or plaintiff must bear the cost of code upgrades. That is, either a defendant will be forced to pay for more damage than it actually caused, or a plaintiff will not receive compensation that fully restores the use of its property. As such, one party will be treated somewhat inequitably. It seems more appropriate, however, for the defendant to bear that cost. The 'but for' rationale is critical in this regard. If not for the defendant's negligence, the plaintiff's code upgrade costs would not have been incurred. As such, equity seems to favor the party necessitating the costs bearing those costs. A plaintiff should not be penalized, by having to bear the code upgrade costs, for a defendant's negligence.

Including code upgrade costs in a plaintiff's damage award is generally consistent with the underlying purpose of assigning an award sufficient to compensate the plaintiff. If the cost of code upgrades is not included in a plaintiff's damage award, the plaintiff is not made whole without additional expenditure of its own funds. That is, the plaintiff is unable to return its property to its pre-injury use without the code upgrades. If the plaintiff is denied the code upgrade expenses, the plaintiff is denied completely-restored use of its property, and it has not been fully compensated for its injury.

In response, a defendant seemingly would argue allowing recovery of the cost of code upgrades provides the plaintiff with a windfall. Were a plaintiff to attempt to prove its damages, including the cost of code upgrades, using the repair measure, the defendant's most effective response would be to use the difference in fair market value measure to demonstrate the plaintiff's damages were actually of a lesser amount. Additionally, if including code upgrades drives the cost of repairs above the property's pre-injury market value, a defendant could assert a plaintiff's recovery may not exceed the value of its property prior to the injury. A defendant making these arguments, supported by the Colorado, Mississippi, and West Virginia decisions, would argue the policy of fashioning equitable damage awards requires the defendant pay for no more than the damages directly caused by its negligence.

As such, in jurisdictions where the issue has not yet been addressed, arguments can be made both for and against allowing a plaintiff to recover the cost of code upgrades in its damages. A majority of the jurisdictions to have addressed the issue allow recovery of such costs. Additionally, allowing recovery of code upgrade costs is consistent with the general principles underlying damages jurisprudence. Accordingly, the argument that such recovery should be permitted seems one worth making.
 

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