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

Practitioners and judges frequently use the terms subrogation and contribution interchangeably. This is legally incorrect and, as one insurance company recently learned, the distinction between the two concepts can be fatal.

In American States Insurance Company v. National Fire Insurance Company of Hartford 2012 DJDAR 197, an insurance carrier attempted to subrogate against another carrier to recover defense and indemnity costs incurred on behalf of the same insureds. The trial court determined that the action was barred by the two year statute of limitations for equitable contribution. The carrier then attempted an "end run" by amending its complaint to assert a cause of action for equitable subrogation. The Court of Appeal held that the sustaining of a demurrer to the amended complaint on the grounds that the underlying case was one for equitable contribution and, therefore, was time-barred.

The Court of Appeal distinguished equitable contribution from equitable subrogation. It held that equitable contribution is the right to recover not from the party primarily liable for the loss, but rather from a co-obligor who shares liability with the party seeking contribution. Conversely, equitable subrogation is a purely derivative cause of action and may only be asserted against the wrongdoer who caused the loss incurred by the insured.

The moral of the story-it is essential to properly identify whether a case is for equitable contribution or equitable subrogation. The statute of limitations differs for the two causes of action and may time-bar an otherwise properly pled claim!
 

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When someone is injured or property is destroyed because a manufacturer did not warn about known dangers you may think your case is a slam dunk. But before you start your victory dance, make sure you can prove that the warning would have been read. Recently, the California Court of Appeal for the Fifth District overturned a jury verdict in excess of $12 million because the plaintiffs did not prove that the failure to warn caused their injuries.   Huitt v. Southern California Gas Company (2010) 188 Cal.App.4th 1586.   In Huitt, two plumbers were injured in a gas explosion due to a phenomenon called "odor fade" whereby the odorant added to natural gas was absorbed into new piping. Without the odorant the plumbers were unaware of the presence of natural gas. The plaintiffs argued that the gas company had a duty to warn that new pipes absorb the odorant. 

The appellate court found that even if the gas company had issued a warning, there was no evidence that the plumbers would have become aware of the warning. The court distinguished this case from those dealing with products such as cigarettes, where a warning can be placed directly on the product. In contrast, natural gas cannot be seen and has no packaging. The court found that the plaintiffs did not prove how the gas company could have delivered an effective warning. Examples offered at trial were a notice included in the customers' bill or a posting on the company website. However, in these hypotheticals there is no evidence that the plumbers would have received the warnings.   The court reasoned that even if there had been a warning there is no evidence that the accident would have been avoided. Therefore, it does not make sense that a lack of warning caused the plaintiffs' injuries. The court ultimately held that recovery was precluded because the plaintiffs failed to establish that a timely warning issued by the gas company would have prevented the accident. 

In conclusion, it is not enough to prove that the manufacturer knew of a dangerous condition and did not warn of it. A plaintiff must also prove that the lack of warning actually caused the harm.

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Louisiana. Home of the Big Easy, Mardi Gras and drive-thru daiquiri bars. Louisiana is also home to a unique legal system called the civil code system, which the Pelican State inherited from French and Spanish settlers. Basically, a civil code legal system means that most of Louisiana law originates from codes and statutes, rather than from judge-made law (common law). For this reason, handling subrogation matters in Louisiana can present unique challenges, but it can also provide opportunities not found in common law states.

In general, I found that Louisiana law is more supportive of subrogation actions than common law jurisdictions. For example, a subrogated carrier may assert claims against a defendant for causes of loss that are not covered under the policy. See Independent Fire Insurance Co. v. Kline, 454 So.2d 418, 419 (La. App. 3rd Cir. 1984). In Kline, the insured’s carport collapsed during high winds. Damages caused by high winds were covered under the insured’s policy. The subrogated insurer (that paid under the policy) sued the contractor that built the carport for construction defects. Defects in construction were not covered under the homeowner’s policy. The contractor-defendant asserted that the subrogated insurer did not have subrogation rights because the claims asserted in the petition were not covered losses under the homeowner’s policy. On appeal, the 3rd Circuit Court noted that the subrogation agreement assigned “all claims” to the insurer. The Court reasoned that the term “all claims” included all the claims that could have been asserted by insured against any potential defendant, including those claims not covered under the insurance policy. The Court returned the case to the trial court for a trial on the issue of causation (high winds or construction defects).

Another important difference in Louisiana is the general acceptance of subrogation rights arising from settling third-party liability claims. In general, Louisiana permits a liability insurance carrier to subrogate against a third-party tortfeasor after settling the plaintiff’s claims. Many times, this situation presents itself in environmental contamination or personal injury cases. In general, the settling plaintiff assigns his/her subrogation rights to the liability carrier through the settlement agreement and release, thereby granting the settling carrier conventional (contractual) subrogation rights.

While the vast majority of Louisiana law is conceptually the same as common law jurisdictions, a major difference is in the terminology. For example, a statute of limitations is referred to as “prescription,” and a statute of repose is referred to “peremption.” As I joked with my colleagues after obtaining my Louisiana bar license last year, the Louisiana bar should provide a Louisiana-to-common-law dictionary for those of us who started our practice at the common law.  Once the differences and opportunities in Louisiana are understood, as they say in Cajun country: Laissez les bon temps rouler—Let the good times roll.

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A fire occurs in a garbage can causing damage to a home. Joe and John Smith, construction workers installing hardwood flooring in the home on and prior to the date of the fire, admit that they smoke each day near the job site. They further admit that they typically extinguish and then discard their cigarettes in the same garbage can where the fire began, including doing so on the date it occurred. The garbage can itself is almost completely destroyed in the fire, and no trace of any cigarettes are found. No witnesses saw the fire begin, and nobody saw the Smiths discard a smoldering cigarette in the garbage can. Finally, no evidence can be shown to exclude the possibility that a third-party, as opposed to the Smiths, left a smoldering cigarette in this garbage can. Think these facts are insufficient to prove that Joe and John caused the fire in a civil case? You may be surprised.

The hypo given above describes the essential facts in the California Court of Appeals case of Garbell v. Conejo Hardwoods, Inc. (LC076832). The Second Appellate District in Garbell reaffirmed the established tenet of California law that Plaintiffs in civil cases do not need to prove causation with absolute certainty, but rather only need to show that their theory is probable given the evidence at hand. In reaffirming this principle, the Garbell court rejected the Defendant's contention that expert testimony was required to establish every link in the chain of causation, and instead held the expert investigator's process of elimination based analysis to be sufficient.

The fire investigator in Garbell concluded that the fire began in the garbage can and eliminated all causes of the fire except for a smoldering discarded cigarette or spontaneous combustion. The court directed a verdict in favor of the defense on the spontaneous combustion theory, leaving the jury only the discarded cigarette theory of causation to consider. Since the investigator could not testify if it was more likely than not that the smoldering cigarette belonged to one of the Defendant's workers rather than some other third-party, the defense argued that there was insufficient evidence that the Defendant was responsible. The jury disagreed by ruling for the Plaintiff, and the court upheld the jury's finding permitting the jury to draw reasonable inferences from the evidence that the Defendant was to blame.

The end result of this case provides two valuable lessons. First, the next time you can't affirmatively prove causation, don’t be dismayed, a process of elimination based analysis may be sufficient to prove your theory. Second and equally important, expert testimony, such as the fire investigator's above, is substantially more likely to be admissible in courts (such as in California state court) following the Kelly/Frye "general acceptance test" governing the admissibility of expert opinions, as opposed to Daubert (followed in federal court and in some states) whereby the test for admissibility of expert opinions is much more stringent. It is unlikely that the investigator's process of elimination based analysis in Garbell was tested or peer-reviewed, which are both significant factors that would be considered in determining the admissibility of this testimony under Daubert, unlike under the applicable Kelly/Frye standard where the theory must only be shown to be generally accepted in the particular field. Therefore, it's always important to analyze the expert opinions needed to establish your case in weighing whether to file in a court following Daubert as opposed to Kelly/Frye, as a court applying Daubert just might require your expert to prove those additional missing links in the chain.
 

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In February 2011, the Oregon Court of Appeals reaffirmed that the doctrine of "inverse condemnation" is alive and well in Oregon. Inverse condemnation claims do not require a showing of negligence, and instead arise by showing that a government actor (e.g. a city) “substantially interfered” with an owner’s right to use his or her property, and that therefore the owner is owed “just compensation” under the Constitution (in this case, Article I, Section 18 of the Oregon Constitution—the “Takings Clause”). The case, Dunn v. City of Milwaukie (CV07040247), stemmed from property damage caused when a municipal sewer system backed-up into a home. The City, at the time, had been “hydrocleaning” a nearby sewer (blasting high-pressure water from a tanker), allegedly causing the backup. While this cleaning was taking place, sewer water shot from bathroom fixtures into the home and caused substantial property damage throughout.

The Court of Appeals affirmed the trial court's $55,000 award based on the homeowner's inverse condemnation claim. In its decision, the Dunn Court rejected arguments from the City that it did not "intend" to harm the plaintiff, and that since the damage was repairable, that there was no "substantial interference" with the homeowner’s property rights. The Dunn case is a recent reminder of the subrogation opportunities that may arise in property damage cases stemming from government work or municipal systems. Even where a case does not involve negligent work performed by a municipality (or other government actor), a subrogating carrier may still pursue a recovery case if it can demonstrate that the government impeded its insured’s property rights.
 

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Georgia has a statute of repose for claims involving defective products. O.C.G.A. §51-11-11(b)(2) states that “no action shall be commenced pursuant to this subsection with respect to an injury after ten years from the date of the first sale for use or consumption of the personal property causing or otherwise bringing about the injury.” [Emphasis Added]  Prior to 2006, based upon this statute, products claims were brought against product manufacturers within ten (10) years after the product was purchased by the first consumer or user. However, in 2006 the ruling in Johnson v. Ford Motor Company changed the game. In Johnson, the Georgia Court of Appeals held that a claim involving damage caused by a product’s component part must be filed within 10 years after the part was incorporated into the final design of the product by the manufacturer.

In Johnson, the plaintiff suffered property damage when her Lincoln Town Car erupted into flames inside of her neighbor’s garage. The fire spread from the neighbor’s home to the plaintiff’s home. The plaintiff alleged that the vehicle’s speed control deactivation switch failed and caused the fire. The plaintiff sued the vehicle and the switch manufacturers to recover the damage to her property. The Court upheld the lower court’s grant of summary judgment in favor of the manufacturers and held that the 10 year statute of repose began to run “when Ford installed the switch in the car and the car became operable.” The Court reasoned that “when the car was driven off the assembly line, the starter had been actively placed in use, was in fact being used, and did not require purchase from the end user or consumer to be used for its “intended purpose.”

On February 7, 2011, the Georgia Supreme Court issued a ruling resolving the controversial issue raised in the Johnson case. See Campbell v. Altec Industries Inc., 288 Ga. 535 (2011). In Campbell, the Eleventh Circuit certified the following question to the Georgia Supreme Court: “In a strict liability or negligence action, does the statute of repose in O.C.G.A § 51-1-11 begin running when (1) a component part causing an injury is assembled or tested, (2) a finished product, which includes an injuring component part, is assembled, or (3) a finished product, which includes an injuring component part, is delivered to its initial purchaser?”

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Today the Consumer Product Safety Commission announced a voluntary recall of 4.8 million Lasko box fans. The recall notice reports “an electrical failure in the fan’s motor poses a fire hazard to consumers.” The CPSC cites a “barn fire resulting in extensive property damage” as a basis for the recall. This barn fire turned into a large and successful subrogation case handled by Cozen O’Connor.

The case involved a massive barn fire at a breeding farm in Hondo, New Mexico. Six world class race horse breeding stallions were killed in the fire and the barn itself was totaled. Cozen O’Connor represented over sixty sophisticated horsemen clients who had ownership interests in the stallions, and their insurers. The insurers for the horses and the barn went to great lengths to preserve the fire scene, and as a direct result of their diligence the experts were able to examine each electrical device in the barn and identify the fatal flaw in the Lasko fan motor. The matter was aggressively litigated in Federal Court in New Mexico, and was favorably resolved prior to trial.
 

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Residential construction defects are common occurrences in Illinois where numerous homes and condominiums quickly went up before the housing bubble burst.  Illinois' expansion of the economic loss doctrine has made alleging tort theories against builders and vendors (those that sell) of houses very difficult.  Nonetheless, there may be express or contractual warranties from the builder providing an avenue of recovery.  In the event those express warranties have expired, Illinois implied warranty of habitability can play a pivotal role in pursuing recovery from builders and vendors of homes. 

The implied warranty of habitability is a consumer protection warranty of public policy.  The rationale behind the warranty is that home buyers do not have the ability to detect latent defects in the homes they are purchasing.  They rely on builders and vendors to properly construct the home and, for that reason, builders and vendors should be liable for the repair costs for a defective home.  The warranty continues to expand and is actionable against a builder or a vendor of a home or a landlord in a rental situation.  The warranty can be used as a remedy for tenants, home buyers and successive purchasers. 

Another benefit of the implied warranty of habitability is that it is very difficult to disclaim.  The builder or vendor has the burden to prove that the warranty was disclaimed specifically by name, that the disclaimer was conspicuous and fully discloses the consequences of its inclusion, and that an agreement regarding the disclaimer was actually reached with the buyer.  Because of the strict disclaimer rules, many Illinois courts invalidate purported disclaimers.

Even with the expansion of economic loss in Illinois, an implied warranty of habitability cause of action allows subrogated insurers to avoid the economic loss pitfalls.  It has increasingly become one of the prime means in Illinois to pursue builders and/or vendors for latent defects.

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Many states, including Pennsylvania, recognize that once a property insurer has paid its insured for a property damage loss, that insurer owns a separate and independent cause of action against the tortfeasor responsible for causing the damage. See State Farm v. Ware's Van Storage, 953 A.2d 568 (Pa. Super 2008). In Ware's Van Storage, State Farm's insured filed a lawsuit seeking compensation for his personal injuries arising out of a truck accident; he did not make a claim for his property damage deductible or any uninsured property damage. State Farm commenced a subrogation action seeking recovery of the amount it paid its insured for property damage arising out of the accident. State Farm did not include the insured's deductible interest of other uninsured claims in its complaint. The defendants in the State Farm case filed preliminary objections in the nature of a demurrer asserting that State Farm had waived its subrogation claim because its insured had already filed a complaint seeking damages arising out of the same transaction or occurrence. The Court concluded that under Pennsylvania law, the subrogated insurer and its insured are not compelled to assert their related claims in a single action. "State Farm's insured, once reimbursed for its property damage under the terms of the insurance policy, has no further interest in pursuing that claim… Once payment is made, the unity of the insurer's interest with that of its insured is eliminated, rendering the parties' interest in litigation qualitatively dissimilar." State Farm and its insured were not subject to the compulsory joinder of their cases and were permitted to maintain separate causes of action for their separate claims. However, the Court noted that if State Farm had included the insured's deductible or any uninsured property damage claim, or if the insured had included a claim to recover its deductible or other property damage in his complaint, the causes of action would have to be consolidated and could not proceed as separate cases.

Other courts have held that all damages resulting from an "indivisible" cause of action must be addressed in one proceeding. See, e.g., Simpson v. Robert's Express Inc., 182 A.2d 449 (NH 1962); Federal Ins. Co. v. Cheoy Lee Shipyards, Ltd., 210 W.L. 255 7484 (S.D. FL 2010). In Simpson, the plaintiff was injured in an automobile accident that also caused damage to his insured vehicle. The Court determined that since the personal injury and property damage arose out of the same accident, it constituted a single cause of action that could not be split between the insured and his insurer. The Court concluded that the insurer knew about the insured's personal injury lawsuit and should have intervened in that case to recover its property damages. Instead, after the injured plaintiff obtained a verdict, the vehicle insurer filed a claim for property damage arising out of the same accident. The Court held that the subrogation claim was barred by the insurer's failure to intervene in the insured's personal injury case. The Court noted, however, "[i]f a subrogation claim becomes barred by a judgment because of the insurer's failure to intervene owing to non-culpable ignorance of the pendency of suit, the insurer may be entitled to have judgment vacated."

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Although issues between primary and excess carriers regarding who is entitled to what in a subrogation recovery do not arise often, when they do they can involve substantial sums and interesting issues. Last fall the United States Court of Appeals for the Eighth Circuit addressed such issues under Missouri law. The underlying case involved an explosion in 1999 that caused $452 million in total losses. The incident raised issues relating to coverage, damages, allocation between insured and uninsured losses, and priority of recovery between primary and excess carriers. Travelers Property Casualty Ins. Co. v. National Union Ins. Co., 621 F.3d 697 (8th Cir. 2010).

The insured had $200,000,000 in primary coverage and $100,000,000 in excess coverage. It submitted a claim of $285,000,000 to its insurers and claimed significant uninsured losses not covered by its policies. After the explosion, the insured invited the insurers to discuss potential litigation against third parties and the allocation of litigation expenses and recoveries, including its independent claims for uninsured losses. The excess insurer declined to participate as it was not clear that the loss would exceed the primary layer. The insured and the primary carrier entered into an allocation agreement for recoveries and expenses between them at 45% - 55% respectively. The insured invited the excess carrier to join the agreement after it was signed. The excess carrier declined.

Two suits were pursued: one by the insured against the primary carrier on the amount of damage covered by the primary policy and a subrogation action pursuant to the allocation agreement. One defendant in the subrogation action settled for $126,000,000 and the proceeds were split according to the agreement. The case went to trial against the remaining defendant and the jury returned a verdict of $452,000,000 in total damages. After appeal, the defendant was responsible for $97,000,000. After rulings by the trial court in the coverage litigation, the primary carrier paid its $200,000,000 limit, and the excess insurer agreed to pay $10,000,000 to the insured to resolve the coverage suit. In a settlement agreement the parties reserved issues regarding the excess insurer's subrogation rights due to the pendency of the appeal of the subrogation verdict. After the appeal of that action was decided, the excess carrier sough recovery of its $10,000,000 in federal district court. After rulings on motions for summary judgment were appealed, the Eighth Circuit issued its opinion.

The Court ruled that the excess carrier was entitled to a priority interest in the subrogation proceeds representing insured losses. The excess carrier waived any right to contest the insured's designation of its own recovery as uninsured losses for failing to participate and allowing the insured and primary carrier to incur expenses in pursuit of recoveries. The excess carrier therefore had no priority against the insured to recover uninsured losses under state law or the insurance policy. The excess policy, however, clearly provided it priority in the subrogation provision. The subrogation provision in the primary policy was, at best, silent on the issue. The Court specifically acknowledged that the result under the policies was consistent with the recognized industry practice of "last in first out" for pure excess insures. That practice recognizes the realities of the risks bargained for and premiums received.

This opinion is a good place to start when dealing with issues relating to primary and excess disputes on subrogation recoveries.
 

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Has your cause and origin investigator concluded that a carelessly discarded cigarette started a fire? If so, you should determine the location from which and manner in which the cigarettes were bought. If the cigarette at issue was not “fire safe”, there may be a small time-frame left within which to pursue a subrogation claim against internet retailers for selling an illegal cigarette within your insured's state.

New York was the first state to adopt a fire safe cigarette requirement. The state of New York passed legislation on August 16, 2000 that called for all cigarettes sold in the state of New York to have reduced ignition propensity by July 2003.

The tobacco industry, which had for decades actively opposed passage of state and federal requirements for cigarette fire safety standards, argued that it was not technically feasible to manufacture such a cigarette. In direct response to the proposed rule-making, Brown & Williamson Tobacco Corp., R J Reynolds Tobacco Co., Specialty Tobacco Council directed a comment in opposition to the legislation and the proposed standard. The tobacco companies’ objected that “[i]t has not been demonstrated that the performance standard specified in section 4 of the proposed rule will impact real world fire scenarios.” Assessment of Public Comment – Fire Safety Standards for Cigarettes. 2003.

The State administrative agency rejected the tobacco companies’ position, responding:

Large changes in ignition strength test results can be expected to reflect significant changes in fire risk. There is reason to expect that compliance with the performance standard specified in section 429.4 of the proposed rule will result in a significant reduction in cigarette-initiated fires. Reducing the heat output and the burning time of a cigarette will reduce the likelihood that it will ignite a fire.

New York set a minimum performance requirement for cigarettes which are to be tested in accordance with the American Society of Testing and Materials standard E2187-02b. The standard requires a lit cigarette to be placed on ten layers of standard filter paper in a draft-free environment and then observed to determine whether or not the tobacco column burns through its full length. A brand is in compliance if no more than 25 percent of the 40 cigarettes tested in a trial exhibit full length burns. 

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Punxsutawney Phil may have predicted an early spring in 2011, but by no means have we seen the end of claims involving pipe freeze-ups and storm-related roofing collapses for the season. Despite the fact that Old Man Winter is not a viable subrogation target, there may be more subrogation potential in these claims than you think. In these situations, it is imperative to involve subrogation counsel from the outset of the investigation.

Too often, media outlets will assign adjectives to winter weather that lead us to believe it was of an intensity observed only once in a decade, century or lifetime. Rather, it is more often the case that these are average storms for the season and the region. The winds, temperatures and precipitation levels usually are not outliers but instead are within the standard deviation of a winter storm for that region. It is more likely than not, for example, that the amount of snow on the roof which caused it to collapse was actually within the “factor of safety” in the roof’s design specification or local building codes.

Because you will likely face many more of these claims throughout the rest of this winter season, here are a few helpful tips and reminders as you conduct your investigations through the remainder of the season:

1. Preserve the Loss Site.  It is all too easy for your target to defend against a subrogation claim based upon the fact that the loss site was spoliated before they had a chance to inspect it. When a loss like a pipe freeze up or structural collapse occurs, it is often catastrophic. Time is therefore of the essence to begin repairs and/or return the structure to a safe condition. For that reason, tip #1 should be undertaken in conjunction with tip #2, 3 and 4.
 

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On January 20, 2011 the U.S. Consumer Product Safety Commission (“CPSC”) announced a voluntary recall of Propane (LP) Gas, manufactured by Aux Sable Liquid Products of Morris, Illinois.  The affected propane was sold in portable cylinders and delivered to storage tanks.  The problem with this estimated 700 rail car units of propane gas is that some of the propane did not have sufficient levels of the odorant that should be added to propane to help alert consumers to a gas leak. Without the proper levels of odorant, a clear hazard is created in that failing to detect leaking gas can present fire, explosion and thermal burn dangers to consumers.

According to the CPSC, the recalled propane was sold to propane retailers in Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Tennessee, Vermont and Virginia from February 25, 2010 through September 30, 2010.  The CPSC has encouraged consumers in the affected states who purchased propane gas during the aforementioned timeframe to contact Aux Sable to arrange for a free inspection and exchange.

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On March 11, 2011, the Consumer Product Safety Commission (“CPSC”) will officially launch a new website which offers a forum for consumers to register complaints about product-related safety issues. The database, located at http://saferproducts.gov/ will register complaints of injury or of potential harm filed by consumers, safety groups, health care professionals and other interested parties; non-safety product quality and performance complaints will not be included. Other information traditionally promulgated by CPSC, such as recall notices, will also be published in the database. It is further indicated that the database will provide automated email alerts to subscribers regarding new complaints and recalls.

Previously, product safety issues were publicly reported by the CPSC only after the body of safety complaints regarding a particular product reached the critical mass necessary for a recall. With the introduction of this database, subrogated insurers will be able to discover reported product deficiencies before they result in a recall or even if no recall ever issues.

Because participation in the complaint registration process is not limited to consumers, insurers affected by product failure should also be able to file complaints. If insurers are active in adding loss-causing product defects to the database, the depth and breadth of aggregated product hazard knowledge will grow exponentially, making the new database a more and more valuable resource over time.
 

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It is as commonplace and disconcerting as ordering specialty food at a fast food restaurant and receiving what they commonly serve. You don't get what you want.

In litigation, product manufacturers, builders and providers of products and ideas are seldom producing background information on those items and ideas without first requiring that the requesting party execute a "confidentiality agreement" which cloaks not only the attorneys and parties, but their experts and consultants as well. These agreements are required as a pre-requisite to the production of any materials which the party required to produce claims is either trademark, proprietary, confidential or trade secret information.

Further, manufacturers and companies are withholding vital information until the requesting party either executes a confidentiality agreement or seeks an order from the Court compelling the production of this information.

In a recent unpublished* California Appeals Court Decision, the Court in Seahaus La Jolla Owners Association vs. Superior Court of San Diego County [San Diego County Superior Court 37-2009-00095253-CU-CD-CTL] [*unpublished decisions can neither be relied upon or cited, but serve as illustration of examining of legal issues] addressed the circumstance of a builder not providing testing data concerning construction materials to a Homeowner's Association which had sued for construction defect of a condominium project. The Appellate Court in examining the facts of the matter, deduced that the trial court owed a duty to formulate an appropriate protective order based upon the interests of the parties and that ordering a party to execute a confidentiality agreement was an abuse of the trial court's discretionary powers.

Hence, ultimately, the Court placed the burden on the party demanding the confidentiality order to establish the need and basis for that claim. Reviewing this decision, it would appear that this vision by the Court at the very least requires that the party seeking the claim of confidentiality must take the initiative by seeking a protective order or by providing evidence at a motion to compel, that the confidentiality claims are valid and supported by potential adverse consequences to the party seeking to protect the information.

While the opinion is unpublished and cannot serve as precedent in this area, it nonetheless demonstrates that product manufacturers, builders and providers of products cannot, without substantive proof, immediately assert and require that litigants execute confidentiality agreements as a precursor to obtaining discovery data. The ubiquitous nature of these agreements, which extend to cloak lawyers, agents, experts and consultants, have far-ranging and perpetual ramifications that affect all items produced in discovery and may ultimately prove to be unwarranted if challenged by Court review.
 

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 The prevailing laws in the Middle East are generally based on, and utilize elements of, Shari’ah, The Koran and the Hadith together with what is termed as Latin law, influenced by Egyptian Napoleonic Code style law. The concept of insurance is not contradictory to Islam, the payment of blood money by an individual to a deceased’s family has been common through the ages. Further, the concept of risk mitigation, by using what can be termed as the law of large numbers, is common practice in Islam. One of the explanations often cited for the low uptake for conventional insurance (or what is termed as Islamic insurance or Takaful) in the Middle East is that insurance is viewed by many to be considered impermissible. It inherently contains elements of gharar (uncertainty) or, to put it into context, trading in risk, which is addressed in Shari'ah law.

Insurance law in the UAE was codified following the enactment of Federal Law No.6 of 2007 (the "2007 Law”), which created the UAE Insurance Authority ("IA"). The precise application of the 2007 Law is ongoing, and is adopted from Jordanian insurance law.  Currently, the 2007 Law is very grey in its application and far from an all-encompassing regulatory system for conducting insurance activities in the UAE.

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The U.S. Court of Appeals for the Ninth Circuit has recently issued an opinion holding that a subrogating insurer can sue a defendant for negligence for damage to property even though the subrogating insurer and the defendant were not in privity of contract.  This opinion provides guidance on privity of contract as well as economic loss issues.

In Affiliated FM Ins. Co. v. LTK Consulting Servs, Inc., Affiliated FM Insurance Company (AFM) was subrogated to the rights of its insured, Seattle Monorail Services Joint Ventures (SMS), for a fire that damaged the Seattle monorail. SMS sued LTK asserting that LTK had provided negligent design advice to SMS, which ultimately caused the fire. LTK challenged AFM’s interest in the Monorail System because SMS only had a contractual right to operate on the property owned by the City of Seattle. LTK argued it was not in privity of contract with SMS, and therefore AFM could not sue LTK. The Ninth Circuit Court of Appeals certified the issue to the Washington State Supreme Court, who concluded that SMS had legally protected interests in the monorail and that LTK, having undertaken its engineering services, had assumed a duty of reasonable care. The Court concluded that LTK’s duty encompassed SMS’s legally protected interests in the monorail, and therefore AFM was free to subrogate and sue LTK for negligence.
 

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The Expedited Jury Trials Act (ETA) Assembly Bill 2284 became effective in California state trial courts.  Additional rules implementing the program are being prepared by the California Judicial Council.  AB 2284 provides for expedited jury trials in civil cases where both parties agree.   The trials scheduled pursuant to the ETA will be heard on a date certain.  Only eight jurors are required.  Both parties will only have three peremptory challenges each against those jurors.  Each party will have three hours to present their testimony and arguments.  The goal of the program is to conclude a civil trial as close to one day as possible.

The rationale behind the bill is to address the ever increasing delays in getting a civil case to trial.  Limiting the length of trial testimony and argument should make the trial less costly.  Further, shortening the trial to roughly one day will be less burdensome on jurors time away from work.  However, the bill provides that the parties waive all rights to appeal  except as provided for in the ETA.

In the right situation, where the parties cannot agree to resolve a disputed matter, certain simplified cases should be considered for ETA.  Of course the other party must agree to participate to trigger the ETA program. 

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As Lord Mansfield ruled in one of the oldest English authorities on subrogation, payment of the loss by an insurer to its insured does not affect the liability of the wrongdoer. He set forth the basic principle as follows:

“Every day the insurer is put in the place of the insured … The insurer uses the name of the insured … I am satisfied that it is to be considered as if the insurers had not paid a farthing”.

So what was a sophisticated Court in South Africa thinking when, earlier this year, it came to the conclusion in Nkosi v. Mbatha (AR 20/10) [2010] that a third party is able to raise the insurer’s indemnification as a defence to the related proceedings brought in the name of the insured?

In Nkosi, the plaintiff, having been involved in a car accident, was indemnified by her insurers in the sum of SA Rand 16,000 (approximately £1,500). A subrogation action was started but only during cross-examination did the plaintiff declare to the Court that she was proceeding on behalf of her insurers. When asked to give particulars, she refused (no doubt with her Lord Mansfield “Book of Quotes” in hand) on grounds that such information was irrelevant.

It seems that both the first instance Magistrate’s Court and then the Court of Appeal in Pietermaritzburg – both of which would be familiar with English common law as South African law is partly based on its principles – were annoyed by the plaintiff’s conduct finding – incorrectly in our submission - that subrogation was a fact that had to be specifically pleaded and proved to the court.

Fortunately, a very recent decision of a South African court suggests that there has been an appropriate judicial reaction to the Nkosi case. In Smith v Banjo (AR290/10) (12th November 2010) the KwaZulu-Natal Provincial Appeal Court ruled that the involvement of the insurer in a lawsuit is irrelevant and it is, therefore, not necessary to plead such involvement. It found Nkosi to be “clearly wrong” and “not binding on future courts”. Whilst it is pleasing that the South African Courts have remedied a poor decision the fact that the decision in Nkosi was ever made (and supported on appeal) goes to show how there is always a litigation risk. Thankfully now, the South African courts are again “satisfied that it is to be considered as if the insurers had not paid a [Rand]”.
 

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Seasoned subrogation professionals do not need to be told how important it is to attempt to afford potential adversaries the opportunity to inspect a loss site before the site, and evidence on the site, has been significantly altered or disturbed. Making such entreaties to an experienced practitioner essentially amounts to “preaching to the choir”.

However, even the seemingly well-developed body of case law regarding spoliation occasionally finds new frontiers to cross. Until recently, the worst-case scenario in spoliation litigation seemed to be the ominously-named “terminating sanction”, which would result in dismissal of a claim. However, in September 2010, a U.S. Magistrate Judge in Maryland (aptly surnamed “Grimm”) attempted to up the ante and impose sanctions upon a spoliator which could potentially have included up to two years’ imprisonment. Victor Stanley, Inc. v. Creative Pipe, Inc., (D.Md. C.A. No. MJG-06-2662, September 9, 2010).

It is important to note that the conduct at issue in the Victor Stanley case involved a defendant’s willful and methodical destruction of electronic records during the course of litigation, in violation of several specific court orders. The defendant and his cronies were so inept in their attempts to destroy information and then cover up their tracks that Magistrate Judge Grimm dubbed them “The gang that couldn’t spoliate straight”. Such conduct is clearly not even remotely akin to an insurer’s asserted failure to preserve a loss site, or artifacts from the site, to the satisfaction of an eventual defendant in a subrogation claim.

It is equally important to note that, upon appeal from Magistrate Judge Grimm’s Order, the U.S. District Judge’s brief opinion held that imprisonment was not an appropriate sanction under the circumstances (the Court upheld the imposition of a default judgment and assessment of $337,000 in attorney’s fees and costs and left open the possibility of civil contempt penalties - - including imprisonment - - if the monetary penalties were not promptly paid). Nevertheless, Magistrate Judge Grimm’s 89-page Memorandum, Order and Recommendation includes a thorough dissertation on the evolution of spoliation law in the federal courts and a facially plausible discussion regarding selection of sanctions that are proportionate both to the degree of misconduct at issue and to the prejudice to the adversary. This discussion ultimately leads to the Magistrate’s Judge’s endorsement of jail time as an appropriate sanction for discovery misconduct.

Although not pertinent to the facts of the Victor Stanley case, Magistrate Judge Grimm’s analysis leaves open the possibility that a negligent spoliator whose conduct causes great prejudice could be subjected to harsher sanctions than an intentional spoliator whose actions cause little or no prejudice. It is therefore not beyond the pale that an even harsher sanction than the so-called “terminating sanction” could still be in the offing in an appropriate future case.
 

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As in the United States, experts in England and Wales often play a fundamental role in litigation. Their opinions influence whether a case is brought, case strategy and settlement decisions. Experts currently have limited immunity for claims of professional negligence. This immunity extends to evidence given by the expert in court and to work which is preliminary to giving such evidence. This immunity has applied even where an expert has been dishonest with the parties or the court. The rationale is that an expert witnesses should be free to give evidence in court without fear of being sued by a party whose case is lost.

This issue recently came under scrutiny in Jones v Kaney [2010] EWHC 61. The extent of immunity will be considered by the Supreme Court in January 2011, after permission was granted for a “leap-frog appeal”.

In Jones, Dr. Kaney was hired by the claimant, Mr. Jones, to prepare an expert medical report regarding personal injuries he suffered following a traffic accident. Dr. Kaney initially opined that Mr. Jones suffered from post traumatic stress disorder (PTSD). The defendant’s expert disagreed, believing that Jones had exaggerated his physical symptoms. The experts later discussed the case and prepared a joint statement, signed by both experts, saying the claimant was deceitful. Although Dr. Kaney later tried to retract the statement, the court refused and the claim settled for a considerably smaller sum than originally sought. Jones then brought proceedings for negligence against Dr. Kaney, who sought to have the case struck out on grounds of her immunity from suit, applying the Court of Appeals’ decision in Stanton v Callaghan [1999] 2 WLR 745.

Mr. Jones argued that Stanton is no longer good law for two reasons: (1) the immunity can no longer survive in light of the House of Lords’ decision in Arthur Hall v Simons [2000] 3 WLR 543 (where a barrister’s immunity from suit was abolished); and (2) the expert witness immunity is inconsistent with Article 6 of the European Convention on Human Rights, the right to a fair trial.

The Judge found in Dr Kaney’s favour, considering himself bound by Stanton, but said:

“although I conclude that Stanton v Callaghan remains good law, I have doubts as to whether it will continue to remain so for the reasons canvassed by the Claimant…. I conclude that there is a substantial likelihood that on re-examination by a superior court, with the power to do so, it will emerge that public policy justification for the rule cannot support it”.

With permission for the appeal having been granted, there is a possibility that experts’ immunity will be severely curtailed, if not altogether abolished.
 

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In a decision consistent with other jurisdictions, the Washington State Court of Appeals held that if an insurer denies coverage and its insured settles with the tortfeasor, the insurer's subrogation rights can be terminated by that settlement. Further, the settlement does not breach the policy's impairment of recovery rights provision. Vision One LLC v. RSUI, --- P.3d --- (October 19, 2010, Division II)

In Vision One, shoring equipment supporting a poured concrete slab collapsed during the construction of a condominium complex. Vision's insurer denied the insurance claim and Vision sued the carrier for breach of contract, bad faith, and violations of the Consumer Protection Act. Vision also sued the contractor for supplying the shoring equipment. Vision settled with the contractor and the settlement released the contractor from liability. The insurer moved to dismiss the breach of contract claims by arguing that Vision breached the insurance contract by impairing the insurer's subrogation rights against the tortfeasor. The trial court denied the motion and the Court of Appeals affirmed.

The Vision insurance policy provided: "If by any act or agreement after a 'loss' you impair our right to recover from others liable for the 'loss', we will not pay you for that 'loss.'" There were no Washington cases on point. Looking to other jurisdictions, the Court found many agree that when an insurer denies liability and the insured settles, the insurer is estopped from claiming that the insured breached the policy by impairing the insurer's recovery rights. The explanation in Stephens v. State Farm Mutual Auto Insurance Co. was persuasive: "…admittedly the subrogation rights of the insurer could be compromised by a settlement. However the denial is a breach of contract on the part of the insurer and its breach should, by rights, relieve the insured of the punitive effects of his failure to comply with the consent provisions of the insurance policy."

The Court felt it important to note that in Vision One the insured settled with the tortfeasor only after the carrier denied the claim. This was not a case where (1) the tortfeasor knows of the insurer's payment and right of subrogation, (2) the insurer does not consent, and (3) the settlement does not exhaust the tortfeasor's assets. (Leader National subrogation rights not extinguished) or where the insured breached the contract first by settling and extinguishing the insurer's recovery rights before submitting an insurance claim (Kalamazoo subrogation rights not extinguished). The Court concluded in Vision One that if the insurer properly denied the claim, the insurer is not harmed by the settlement. However, if the insurer improperly denied the claim, then the carrier breached the contract first.

The import of the case is that an insured in Washington may waive its carrier's subrogation rights.  Accordingly, subrogating carriers should act quickly in pursuing subrogation and making third parties aware of their claim. Otherwise, what initially could have been a viable subrogation case may turn into a recommendation to close. 

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Most commercial and residential properties using natural gas have gas riser pipes which connect the primary distribution service line to the natural gas meter. Although the gas riser connects the utility’s distribution line to the utility’s meter, these risers are typically installed by a sub-contracting plumber during original construction. For this reason, the riser often belongs to the property owner, not the utility.

Most gas risers consist of a polyethylene tubing inside of a rigid conduit with metal or plastic connectors on both ends. Gas risers are only used in natural gas systems. Liquid propane gas systems utilize copper or black iron pipe to connect the local supply tank directly to the meter.

A natural gas leak originating at a gas riser typically manifests itself in one of two ways: 1) the leaking gas travels through the soil, accumulates in the sump pit or crawlspace, and finds an ignition source which causes an explosion; or 2) the leaking gas migrates up to the surface of the soil and finds an ignition source, resulting in a fire at ground level. Because the gas leak begins underground, oftentimes it is simply overlooked as a potential ignition source.  

Gas leaks can originate at gas risers due to both manufacturing defects and installation errors. A common failure method is the over-tightening of the plastic connectors during installation. The over-tightening results in a damaged connector which eventually leaks. Manufacturing defects can occur in a variety of ways ranging from improper materials to anomalies in the riser construction. It is important to quickly identify the cause of the leak in order to avoid any potential claims being barred by the applicable statutes of repose. Asking your expert the difficult questions early on will help to streamline recovery efforts down the road.

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Cozen O'Connor recently handled the first trial to go to a jury on the issue of strict liability against a manufacturer of CSST (corrugated stainless steel tubing). We are pleased to announce that, following an eight day trial conducted by Mark Utke of our Philadelphia office, the jury found CSST to be a defective product and imposed strict liability against Omegaflex, one of the major manufacturers of CSST.   Mark represented Terence and Judith Tincher, as well as their property insurance carrier, for both subrogated and uninsured losses. The jury awarded 100% recovery of both the subrogated and uninsured losses, for a total judgment that will exceed $1,000,000.  Tincher v. Omegaflex involved a CSST line that was installed in 1998 and failed from the effects of indirect lightning in June of 2007, and was tried in the Common Pleas Court of Chester County, Pennsylvania.

Recipients of our Subrogation Alerts and readers of the blog know of the issues arising from the development of CSST.  Since 1988, CSST has been used in industrial, commercial and residential construction to transport pressurized propane and natural gas.  The tubing walls are flexible and only approximately 10 mils thick (the equivalent of four sheets of paper), making CSST extremely vulnerable to the energy from indirect lightning strikes.  While seeking to go to ground, the energy can result in a perforation in the tubing. When this occurs, an arc ignites the pressurized gas and causes a blow torch effect, which typically results in a significant fire. CSST failures are annually responsible for millions of dollars in property damage across the United States, and hundreds of claims are pending against the various manufacturers of CSST.

Omegaflex sells a brand of CSST known as TracPipe, which first came on the market in 1996, as a replacement for traditional black iron pipe.  To date, over 750 million feet of this product has been sold across the country.  The purported advantages of TracPipe are its flexibility, ease of installation, and ability to reduce the incidents of gas leaks.  At trial, Omegaflex argued TracPipe’s ability to survive natural disasters, such as earthquakes and tornadoes, far outweighed any disadvantage associated with  the product, including its vulnerability in confronting indirect lightning strikes.  Omegaflex also argued that a properly bonded CSST system could withstand the energy produced from an indirect lightning strike.  Omegaflex's failure to ever  test TracPipe’s ability to withstand such energy, when properly bonded, proved fatal to its defense. 

The National Electric and Fuel Gas Codes both contain bonding requirements for household gas and electric systems.  However, these codes are intended to address life safety issues arising from stray electric current, as opposed to the dissipation of the energy created by an indirect lightning strike.  Despite this, CSST manufacturers, as an industry, argue that compliance with these code requirements demonstrates their products to be safe.  However, the National Fire Protection Association is currently evaluating the effectiveness of bonding as it relates to CSST and has considered recommending a complete ban on the sale of CSST, absent a demonstration by the industry that bonding can be a safe and effective means of safely dissipating the electrical energy created by an indirect lightning strike.

The Tincher verdict, significant on its own, has the potential to impact cases against Omegaflex beyond Chester County, Pennsylvania. A viable argument exists to extend the principles of collateral estoppel to apply to other cases against the manufacturer in other jurisdictions, involving similar facts and claims of defect. The defective nature of the product would no longer be an issue for the jury to decide, given the prior determination by the Tincher jury. 

For additional information, please feel free to contact either Mark Utke or any of  the 130 subrogation attorneys at Cozen O’Connor.

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On September 17, 2010 Lennox International, Inc. sent a letter to all of its constituent regional organizations as well as its licensed dealers, installers and repair technicians placing a “Product Hold” on a series of residential air conditioning units. According to the letter, Lennox air conditioning units manufactured between July 1, 2010 and September 16, 2010 starting with serial numbers 1910G, 1910J, 5810G, and 5810J represent a serious fire hazard during installation. As part of the standard installation, the suction lines on the units must be brazed. Due to the configuration of the suction lines, one of the refrigerant valves can overheat and crack from the heat generated by the brazing. As a result, refrigerant escapes and the oil in the refrigerant can ignite. There are several reported cases of the fire spreading to the home causing significant property damage. It is believed that Lennox has not issued a full recall of these units because it is trying to develop a fix for the problem so that units that have been released into the supply chain can still be utilized at a later date. 

Clearly any fire involving an HVAC unit reported between July 1 and September 16 should be scrutinized to determine if a Lennox unit was involved and, if so, whether a “held” unit was the culprit. If it is determined that a “held” unit was the culprit, Lennox should be considered as a potential defendant. Second, there is at least one known case of this type of fire occurring after the “hold” was issued. Any installer that fails to heed Lennox’s warning not to install the product could open itself to liability, depending on the laws of the state where the fire occurs.

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 On July 6, 2010, the National Fire Protection Association (NFPA) issued a safety alert recommending that residential fire sprinkler systems containing antifreeze be drained and the antifreeze be replaced with water. While NFPA emphasized that residential sprinklers remain reliable and effective, a recent fire incident involving a sprinkler system containing a high concentration of antifreeze solution raised concerns surrounding the combustibility of antifreeze solutions in residential sprinkler systems. The subject incident involved a grease fire in a kitchen where a sprinkler system with a reported 71.2% concentration of antifreeze deployed. The fire resulted in a single fatality and serious injury to another individual.

Following this incident, NFPA initiated a research project in conjunction with the Fire Protection Research Foundation. The initial test results showed that antifreeze solutions consisting of 70/30% glycerin and 60/40% propylene glycol may provide an unacceptable risk of harm to occupants in certain types of fire scenarios, in particular kitchen grease fires. There were successful tests where kitchen grease fires were extinguished or contained with a 50/50% glycerin solution, but NFPA felt there should be additional testing to more fully understand if there is a risk associated with a 50/50% glycerin solution. Further testing on antifreeze is planned in the future.

Potential fire spread issues, such as the aforementioned, should always be considered when evaluating a case for subrogation potential. 

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The U.S. Chemical Safety Board (CSB) called for a ban on cleaning out debris from gas piping using pressurized natural gas. “Gas blow” is an industry-wide practice and is now described as an “inherently unsafe activity.”

CSB called for the ban after investigating a tragic explosion at Kleen Energy in Middleton, Connecticut, that killed six workers. After that investigation, CSB called upon the Occupational Safety & Health Administration (OSHA) to issue Federal regulations prohibiting the release of flammable gas to clean fuel pipes. Furthermore, the CSB sought changes to major voluntary standards from the National Fire Protection Association and the American Society of Mechanical Engineers to amend their codes and standards to require safer methods of cleaning fuel gas piping.

Connecticut Governor M. Jodi Rell issued an executive order banning the use of natural gas blows during power plant construction in that state. The Governor’s spokesperson indicated making that change will save lives.

CSB also issued letters to 49 states, warning of the hazards associated with gas blows and urging state officials to enact necessary changes in their state regulations and codes to prohibit gas blows at power plants and similar facilities.  Keep proper gas line maintenance procedures in mind when evaluating gas line failure subrogation matters. 

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Defective car cases can be challenging to pursue.   When the car is subject to a recall, recovery potential usually improves.  If the vehicle’s owner knew about the recall and had the repairs done, do not despair—many times those repairs are inadequate.

One example is the defective Ford speed control deactivation switches.   The switches have been the subject of recalls since 1999 and continuing through to 2009.   However, on February 2, 2008, Ford issued a "recall of the recall" as to 225,000 of its previously recalled cars that had supposedly been "fixed."   The problem, as portrayed by Ford, was that a certain batch of fused wiring jumper harnesses installed in vehicles had "defective fusing."   Sources would later say that the problem was also an ambiguity in the service instructions, causing technicians to make mistakes in executing the fix.

Another example is the recall campaign for the 2001-2004 Mazda Tributes, which described the problem with the ABS modules as follows:

What is the problem?
…. [T]he Anti-lock Brake System (ABS) Module connector may have missing or dislodged wire seals.  This condition could allow contamination to enter the module connector creating a potential for an electrical short.  …. This condition could occur either when the vehicle ignition switch is in the off position or while the vehicle is being operated.

This recall fails to explain the root cause of the defect and how that problem is addressed by the “fix”.  Rather, significant discretion is given to the service technician to decide whether to repair or replace the harness connector (“as appropriate”) and the connector to the ABS module, which gives much opportunity for human error.

In sum, the fact that recall work was done does not necessarily destroy your subrogation case.  In fact, it may open up more questions about the effectiveness of the recall and provide an additional theory of liability in certain circumstances.

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Subrogating the discarded cigarette case can burn out quickly or really catch fire.  If your insured caused it, subrogation may be a problem.  But when a defendant causes it, potential subrogation, right?  Perhaps.  Take, for example, the case of a store clerk who throws a discarded cigarette on the pine needles that serve as a landscaping bed outside the building while on a smoking break.  The clerk works for a business that runs a store.  You insure the neighboring building.  Clear winner against the clerk’s employer?

Not so fast.  You still need to prove the employee’s smoking was done “in the course and scope of employment” for an employer to be held vicariously liable for the acts of the employee.  

The “Furtherance of Employer’s Interests” Test

Is smoking a cigarette in furtherance of an employer’s interests?  That is the standard applied by most courts when determining if the act was in the course and scope of employment.  See, e.g., Lange v. National Biscuit Co., 297 Minn. 399, 211 N.W. 2d 783 (1973); Minamayor Corp. v. Paper Mill Suppliers, Inc., 297 F. Supp. 524, 526 (E. D. Pa. 1969); Edgewater Motels, Inc. v. A. J. Gatzke, 277 N.W.2d 11; 1979 Minn. LEXIS 1381 (Minn. 1979).

Case By Case Basis: Factors to Consider

Courts have found smoking to be considered in furtherance of the employer’s interests depending on the circumstances.  Factors relevant to the analysis include:

- Whether the smoking occurs substantially within authorized time and space restrictions.

- Whether the smoking is a minor deviation from the employee's work-related activities .

- Whether the employer's assent was given or may be fairly assumed.

- Whether the smoking was known to occur or reasonably expected.

Application

Knowing to address these issues early will help you analyze more thoroughly the potential vicarious liability of the defendant.  It may also help develop potential spread theories, even if it turns out the smoking was outside the course and scope or was done by a customer or passerby or even your own insured.  For example, if the store owner knows customers or passersby regularly discard cigarettes in the area, the store owner might be liable for failure to provide cigarette towers or failure to select landscaping less combustible than the pine needles used in our fact pattern.  Questions to pose of the store clerk and employer might include:

- Did you smoke in a designated area at the designated time?

- Who created the area and time designations?

- Did you have available a designated trash container for the cigarettes?

- Did you use such containers and, if not, why not?

- Are customers or passersby known to smoke outside the store?

- Was your employer aware of such customer smoking?

- Where does such customer or passerby smoking occur?

- What steps were taken to mitigate potential hazards from such smoking?

- Who selected the pine needles as landscaping and why?

When investigating the claim, these questions should be asked early, when witnesses are still available and their memories still fresh.  It may mean the difference between your case smoking out or burning bright.

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On September 17, 2010 Lowe’s Home Centers, Inc. settled a class action lawsuit brought in the United States District Court for the Western District of North Carolina by consumers who contracted with Lowe’s for the installation of clothes dryers in their homes and businesses. The lawsuit alleged that the “skilled, trained, experienced [and] equipped” installation technicians employed by Lowe’s used metal foil ducts to vent the dryers, in clear contravention of the dryer manufacturers’ instructions. The operative complaint cited a warning specifically instructing consumers and installers “[d]o not use a metal foil vent” and further cautioning “[f]ailure to follow these instructions can result in death or fire.” This warning was included with the clothes dryers installed by Lowe’s—either on the dryer itself or in the product instruction manual—and was uniformly ignored by the Lowe’s installers. 

The warnings accompanying the dryers are not the only indication of the danger associated with the use of a metal foil duct. The United States Consumer Product Safety Commission, in a June, 2003 publication entitled Overheated Clothes Dryers can Cause Fires, warned that “foil type duct can more easily trap lint and is more susceptible to kinks or crushing, which can greatly reduce the airflow.” Lint build-up in, and reduced airflow through, dryer ducts are among the leading causes of dryer-related fires. Thus, even in the absence of manufacturer instructions warning against the use of a metal foil duct, the Lowe’s installation practice constituted a clear deviation from the standard of care applicable to professional appliance installers.

It is currently unknown how many fires have been caused by the use of metal foil ducting, and the class action suit did not seek damages for such fires. Rather, the injury alleged in the lawsuit was the improper installation itself, and its creation of a dangerous condition which could lead to fire, injury or death. Thus, the settlement of the class action will not adversely impact a subrogating insurer’s ability to recover against Lowe’s where the defective mode of installation causes a fire.

The practice of using metal foil duct to vent clothes dryers is likely not limited to dryer installations performed by Lowe’s.  As such, a subrogating insurer investigating a fire originating in the area of a clothes dryer should be alert to this installation issue, even where the dryer was installed by a party other than Lowe’s. Additionally, where the cause of action relating to a foil duct installation is time-barred by statute, product liability causes of action against the foil duct manufacturer or seller may provide additional, unbarred avenues for subrogation recovery. 

Cozen O'Connor’s subrogation attorneys are committed to working with experts and adjusters to identify and recover on losses caused by metal foil dryer ducts. If an insurer believes that a fire loss involved metal foil ducting, it should contact Cozen O’Connor immediately for our assistance in taking advantage of the favorable recovery picture highlighted by the Lowe’s class action. 

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If you live in the southwest, then you have probably looked into different ways to keep your house or business cooler without raising you air conditioning bills.  One solution which has increased in popularity over the past couple of years is the installation of a reflective radiant barrier. Radiant barriers can be used in residential, commercial, and industrial buildings. Radiant barriers reduce summer heat gain and winter heat loss, which helps lower heating and cooling costs.  The potential benefit of attic radiant barriers is primarily in reducing air-conditioning cooling loads in warm or hot climates.

The two most common types of radiant barriers on the market today are radiant barrier coatings and radiant barrier foil coverings. Radiant barrier coatings (latex paint mixed with aluminum) are typically sprayed on the underside of the roof decking. Radiant barrier foil coverings usually consist of a thin sheet or coating of a highly reflective material, usually aluminum, applied to one or both sides of the substrate. Common substrates include kraft paper, plastic films (scrim), cardboard, plywood sheathing, and oriented strand board. Reflective radiant barrier foil products can be installed between the roof sheathing and attic floor insulation, in wall cavities, and around door openings, water heaters, and pipes.

While the potential benefits of radiant barrier foil coverings are well known and advertised, the potential risks are much less well know. It should come as no surprise that the aluminum laminate used in the reflective radiant barrier covering is an excellent conductor of electricity. When grounded, through incidental contact with the homes grounded electrical lines, plumbing lines, junction boxes or recessed light fixtures, it can effectively conduct electricity throughout the entire attic space. Because reflective radiant barriers are installed either on the attic floor or between the roof sheathing, the potential exists for them to become energized through contact with exposed or damaged residential wiring, as well as through a direct lightning strikes on the chimney cap, metallic roof penetrations, attic vents, and flashings. When a radiant barrier becomes energized and current begins to flow through it, intense heating can occur at the connection points. The intense heating at those connection points has the potential and often does ignite the various combustible substrate materials upon which the aluminum is mounted or laminated. The greater the amount of current flowing through the system (i.e. typical 120v residential wiring vs. lightning), the greater the risk of fire.

Over the past year, we have identified a number of radiant barrier fires with good recovery potential.  It should be noted that radiant barrier losses are not always easy to identify  because they can occur virtually anywhere along the energized radiant barrier foil, not just at the point where it becomes energized.  That being said, we continue to work closely with our experts to identify, understand and evaluate these losses.  If you believe that you have a loss potentially involving a radiant barrier, Cozen O'Connor stands ready to assist in evaluating all aspects of the loss for third-party opportunities.

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Following up on our report of July 9, 2010, Cozen O'Connor has learned that the National Fire Protection Association (NFPA) has issued tentative interim amendments to three of its standards, banning the use of antifreeze in sprinkler systems in new construction of residences and in the dwelling unit portions of other occupancies.  As previously reported by our blog, the NFPA, in conjunction with the Fire Protection Research Foundation, tested antifreeze solutions in sprinkler systems with varying percentages of glycerin and propylene glycol.  Those tests were followed by additional testing and research which concluded that antifreeze solutions with concentrations of propylene glycol exceeding 40% and concentrations of glycerin exceeding 50% have the potential to ignite when discharged through automatic sprinklers.  Based on these results, NFPA has determined that antifreeze solutions of propylene glycol exceeding 40% and glycerin exceeding 50% are not appropriate for use in residential fire sprinkler systems.  NFPA's Standards Council, the body that oversees the NFPA standards development process, has issued amendments to NFPA 13, Standard for the Instillation of Sprinkler Systems; NFPA 13D, Standard for Installation of Sprinkler Systems in One- and Two-Family Dwellings and Manufactured Homes; and NFPA 13R, Standard for Installation of Sprinkler Systems in Residential Occupancies Up To and Including Four Stories in Height.  For now, and until any further action by NFPA consensus standards committees, NFPA sprinkler standards prohibit the use of antifreeze in new residential fire sprinkler systems.

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On December 1, 2010, Federal Rule of Civil Procedure 26 will be amended to exempt draft expert reports and certain categories of attorney/expert communication from discovery. In practice, this amendment will liberalize the communications your attorney can have with your testifying expert and reduce expenses that are incurred to comply with the Rule as it is currently written.

Current Rule
Under the current version of Rule 26, along with a written expert report a party must disclose “the data or other information considered by the witness in forming [his opinions]”. That “other information” would essentially be everything the expert read, looked at, or wrote down. Practically speaking, parties go to great lengths to conduct phone conferences with their testifying experts so nothing will be put in writing. In many cases a party will hire separate “consulting only” experts to assist in development of case theories. As written, the Rule has become a situation of form over substance.

Amended Rule
The amendment to Rule 26 requires that only the “facts and data considered by the witness” is discoverable. The Rules Committee has specifically stated that a primary purpose of the amendment is to extend the work-product privilege to draft expert reports. It will also allow for more natural communication between attorney and expert.[1] Under the amended rule, an attorney and expert will be able to speak and email much more freely about the development of the case and craft a report that truly captures the substance of the expert’s opinions.

In Subrogation Practice
In a subrogation case, experts are widely used. Expert reports are often prepared early on so the handling adjuster has something in writing for the file. Under the current Rule, the problem with the pre-litigation expert report is that as new or additional facts are developed through discovery, the report becomes obsolete or even incorrect. It is always challenging to receive a case with good subrogation potential but a poor expert report. You are forced to either hire a new expert (who likely will not have the benefit of firsthand information gathered when the loss was fresh) or produce the damaging report. Discovery of the early draft provides an opportunity for opposing counsel to impugn the credibility of your expert in deposition or trial. The Rule as amended can add value to an otherwise strong subrogation case, as well as save expenses by not having to jump through hoops to comply with the Rule as it is currently written.

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The subrogating carrier of a unit owner or condominium association to pursue subrogation against another condominium unit owner, renter and/or member of the household of the unit varies by jurisdiction. 

Unlike most jurisdictions, the state of Missouri utilizes a statute which requires policies covering condominium properties to waive subrogation against unit owners and members of their household.  The reasoning behind the statute is that the property insurance premium on the building and common areas paid by and through the association, which is funded by the assessment monies of the unit owners, all of whom have an ownership interest in the common elements.  Therefore, the association members all benefit from the insurance protection on the common elements versus the individual protection afforded on personal condominium property or contents and on the use of the property by and through a separate condominium policy issued to a unit owner.  From this statute, policies issued to condominium associations in Missouri now commonly contain a “Condominium Association Coverage Endorsement,” which essentially precludes carriers from recoveries against a unit owner and/or its liability policy.  In fact, the endorsement trumps the terms of the condominium by-laws, regulations and building rules, which were traditionally documents that dictated subrogation opportunities under these circumstances. 

Despite the statute, subrogation may still be viable in Missouri when presented with similar facts.  In a different coverage scenario, where a property insurance carrier has provided separate condominium coverage to a unit owner, successful recovery efforts have been achieved in Missouri as to the unit owner’s loss of personal property and as to the loss of the use of the property.  In these cases, successful arguments have been made that the statute does not apply because (1) there is no joint interest in the insured property of a separate owner against another owner and (2) there is no sharing of the risk.  This model remains a viable avenue to pursue in Missouri by subrogated carriers when the insured is a unit owner, and many policies of insurance include arbitration clauses or provisions that facilitate the adjudication of these claims under this particular setting.

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Defectively manufactured drywall has been in the news for the past two years. Recently, there have been a string of favorable rulings, verdicts, and settlement for those damaged by the defective drywall. 

On May 10, 2010, in the case of Germano et al. v. Taishan Gypsum, Judge Fallon, who is presiding over the Multi District Litigation, entered a default judgment in favor of the plaintiff homeowners and awarded in excess of $2.6 million in damages against Taishan Gypsum Company. Presently, Taishan Gypsum is appealing the entry of the default judgment. 

On May 10, 2010, in the case of Hernandez v. Knauf Gips KG, et al, Judge Fallon entered a judgment in favor of the plaintiff homeowners and awarded $164,049.64 against Knauf Plasterboard Tianjin Company, Limited, plus reasonable attorneys’ fees, costs of the action, and interest from the date the judicial demand until paid. 

Two other federal lawsuits filed against Chinese drywall manufacturer Knauf have been settled. The suits were brought by Paul Clement and Celeste Schexnaydre, who own a home near New Orleans, Louisiana, and John Campbell, who owns 21 contaminated apartments in Slidell, Louisiana. The agreements were reached following a June 18th conference with Judge Fallon. Knauf agreed to pay to remediate the homes, pay at least $25,000 to store furniture, pay for apartment rental while homes were rebuilt, pay at least $15,000 to replace damaged appliances and personal property, and pay attorneys’ fees.  Additionally, Knauf agreed to pay Campbell for lost rental income, and to replace and test the drywall in one apartment while negotiating about the remediation of additional apartments.

On June 22, 2010, in the nation’s first Chinese drywall jury trial, a Florida jury found in favor of a homeowner and awarded $2.47 million against Banner Supply, which was found liable on the grounds of negligence, public nuisance and violation of Florida’s Deceptive and Unfair Trade Practices Act. Banner was found 55 percent responsible. Under Florida law, non-defendants in the case were also apportioned responsibility: Chinese drywall manufacturer Knauf Plasterboard Co. was found 35 percent at fault, and a Chinese exporter and a Miami importer, were each held 5 percent responsible. The jury unanimously awarded the homeowners $494,443 for remediation costs; $9,984 for replacement costs for personal property; $169,268 for temporary housing costs and moving expenses; $20,775 for cleaning costs; $3,320 for additional utilities costs; $920 for storage costs; $6,651 for additional interest on credit cards; $1.7 million for loss of enjoyment; and $60,000 for diminution of the value of their house.

Finally, Lowe’s Companies, Inc, the nation’s second largest home improvement store chain has agreed in principal to a national settlement of claims involving defective drywall. Lowe’s has agreed to pay $6.5 million (primarily in gift cards) to those affected by the defective drywall Lowe’s sold. The amounts paid to each affected customer will depend upon the total amount of documentation, which should include proof of purchase, defects, and damages. 

The Consumer Product Safety Commission has received a total of 3,296 complaints from homeowners in 37 states plus the District of Columbia, American Samoa, and Puerto Rico who claim to have been damaged by defective drywall made by a variety of companies. The cause of the problem is still highly debated and unknown by the various entities testing and inspecting the products. However, despite the unknown and debated cause of the defect, plaintiffs are prevailing against the manufacturers, distributors, installers, and sellers of the defective drywall.

For more information, please feel free to contact one of our offices.

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Have you ever experienced this scenario: Your expert has identified the cause of a loss in the United States, but the manufacturer of the failed product is overseas? If so, then you have to start thinking about issues such as how you will serve process on the overseas defendant and will the foreign defendant be subject to personal jurisdiction in the United States? Congress is currently reviewing a bill designed to circumvent much of the frustration with serving process and obtaining jurisdiction over foreign manufacturers. Currently, in order to obtain jurisdiction in the United States over an overseas product manufacturer, you have to prove that the overseas defendant has sufficient contacts with the state in which you are filing suit. To prove sufficient contacts exist you have to gather as much information as you can on the defendant's contacts with your forum state, including:

•           Does the defendant have office/property/bank accounts in your forum state?
•           Does the defendant regularly ship products to the forum state?
•           Does the defendant advertise to ship products to the forum state?  

Often the foreign defendant may have little or no contacts with the forum state, preventing you from filing suit in the U.S. However, Congress is looking to make it easier for plaintiffs to both serve foreign defendants and obtain jurisdiction over them in a U.S. Court. The bill titled "Foreign Manufacturers Legal Accountability Act" is currently under review by Congress and is expected to pass in the near future. It requires foreign manufacturers of products/goods shipped to the United States to establish an agent in at least one U.S. State to accept service of process on behalf of the manufacturer. In addition, the bill requires that the foreign manufacturer consent to personal jurisdiction in the State or Federal courts of the State in which the registered agent is located. Congress' attempt to create personal jurisdiction over foreign manufacturers by statute is arguably inconsistent with the Due Process Clause of the Constitution from which our current personal jurisdiction standard was born. However, Congress did wisely include a provision that the State in which the registered agent is located be a state "with a substantial connection to the importation, distribution, or sale of the products of such foreign manufacturer or producer." This allows for the argument that the foreign manufacturer is conceding to sufficient minimum contacts with state in which the registered agent is located because the foreign manufacturer is picking the state it has sufficient contacts with to be the location for the agent. It is likely that the Supreme Court will eventually get involved in the issue. But if the current bill is passed and upheld by the Supreme Court we can expect the floodgates to open against foreign manufacturers since personal jurisdiction would be automatically established in the State in which the foreign manufacturer's registered agent for service of process is located. 

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PTAC fires are causing a recent stir in apartment complexes and hotels. What is a PTAC, you ask? PTAC's are Packaged Terminal Air Conditioners/Heat Pumps. They are self contained machines installed through the wall with a sub unit for each room, which can be controlled independently. The units normally have the ability to heat as well as cool.

In December 2009, the U.S. Consumer Product Safety Commission recalled about 30,000 Amana-brand, Comfort-Aire, and Century-brand PTAC units manufactured by Goodman Manufacturing. The recall covers units manufactured from February 2007 to April 2008.

According to the recall, the problem with the units appears to be overheating where the power cord connects to the power supply, causing a burn or fire hazard.  However, due to the relative newness of these fires, the specific problem is still unclear and a case-by-case evaluation should be employed. The power cords are manufactured by Tower Manufacturing, a U.S. Corporation. The circuit boards are manufactured by Everex Communications, also U.S. based. 

Goodman has also implemented a voluntary corrective action program (“CAP”) in which they provide new replacement power cords for the recalled units. However, it has been reported that these replacement cords have also been subject to failures/fires. With 30,000 units subject to the recall, and the potential of the corrective action program being unsuccessful, there will likely be more subrogation opportunities with fires involving PTACs.  

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On July 29, 2010, the California Court of Appeals, Fifth District, held that an insurer waived its right to equitable subrogation when it entered into a settlement without identifying its insured or apportioning payment.  The case arose from a complicated personal injury action, causing the trial court to comment that "this is one of the most screwed up cases I've ever seen."  The court of appeals responded that  "we heartily agree."

Essex Insurance Company had defended a personal injury action on behalf of the individual who had hired the plaintiff.  That plaintiff was injured when he stepped on a nail while moving a refrigeration unit in a restaurant.  After making payment to the plaintiff, Essex sought recovery from a doctor whose alleged malpractice had resulted in plaintiff suffering two amputations.  The court of appeal denied Essex equitable subrogation, explaining that it only had the right to assert claims for monies paid out on behalf of its insured.  Since Essex failed to spell out the amounts paid on behalf of its insured, as opposed to payments on related claims, the court found that neither equitable subrogation nor indemnification were available.

The lesson of the Essex case is simple.  In order to preserve equitable subrogation and/or indemnity rights, the insurer must carefully craft all settlement documents and releases.  The court will not attempt to glean what amounts are made on behalf of the insured, as opposed to bad faith or fraud claims.  The Essex case reiterates the most basic tenet of subrogation-you can only stand in the shoes of your insured for payments made on its behalf.   

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As its name suggests, the National Fire Protection Association’s goal is to protect against fires. It is therefore not surprising that the number of fires involving corrugated stainless steel gas tubing over the last few years has caught the NFPA’s attention. In the fall of 2009, the NFPA formed a CSST Task Group. The Task Group was entrusted with the job of taking a closer look CSST’s potential for failure when confronted with energy from direct and indirect lightning strikes. The CSST Task Group has now met, submitted a report and has been discharged.

Only time will tell, but the CSST Task Group report may have a far ranging impact in both the construction and CSST industries. First, one of the main issues that the Task Group reviewed was whether bonding of CSST, as set forth in the present edition of the National Fuel Gas Code (NFPA 54), was enough to prevent lightning-induced CSST fires. The Task Group reports that it sought research supporting the continued use of the current CSST bonding requirements of NFPA 54. To this end, the Task Group specifically asked manufacturers of CSST to provide research performed by them on their behalf in this regard. The information the Task Group received in response was of “limited value” and “did not provide enough information to ascertain that the proposed bonding remedy will provide adequate protection from lightning induced surges.” The minutes of the Task Group meeting further reveal that at least one of the members observed failed CSST gas lines even in instances where the CSST was bonded per NFPA 54 and the manufacturer’s recommendation.

As a result of the Task Group’s work, the NFPA has decided that further review of CSST is warranted before the next version of NFPA 54 is published in 2014. Among other things, the NFPA is now looking to validate whether bonding of CSST is an adequate solution to the lightning exposure problem or if there are other alternative methods of installation that will make the product safe. 

Could this be the end of CSST as means of delivering gas products? Or, could this be the start of a movement to make CSST a genuinely safe product? The NFPA appears serious about making sure this product is safe. An Action Report dated June 23, 2010 concluded with these words of warning: 

Over the next full revision [of NFPA 54] currently scheduled to be in the Annual 2014 revision cycle, the industry and others advocating the continued use of CSST in gas piping systems shall validate the safe use of the product through independent third-party validated research and testing that can be reviewed and evaluated by the standards developers in a timely way… [I]t is incumbent upon the manufacturers or others promoting the use of CSST in gas piping systems to provide independently validated and reliable technical substantiation demonstrating the CSST can safely be used. If such substantiation is not provided, the Technical Committee on the National Fuel Gas Code must consider prohibited the use of CSST in NFPA 54. In addition, should the issues not be reasonably addressed by the end of the next full revision cycle, Annual 2014, the Council may take action as it deems appropriate up to and including prohibition of the use of CSST in NFPA 54.

For many who have already lost their homes due to lightning-induced CSST fires, these developments have already come too late. But for now, NFPA appears poised to act. Hopefully, we all will be safer for it.

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The old saying “the devil is in the details” has particular application when trying to prove a contents claim to opposing counsel or at trial. Insurance policies provide for actual cash value and replacement cost value and, with limited exceptions, the law provides for cost to repair or replace unless it exceeds fair market value. A typical claim will usually involve hundreds of individuals items purchased over a number of years that all have to be accounted for and properly priced.

Normally the homeowner, alone or with the help of a public adjuster, compiles a list and hopefully provides the relevant information relating to the item, purchase date, price, condition before the loss, and condition after the loss. The company or independent adjuster will have checked that list or prepared his or her own list. In some cases, however, all of the information may not have been obtained originally or the other side disputes one or more of the above.

While outside help may not be possible for several of the items above because that knowledge belongs exclusively to the insured, there are certain resources to consider which may assist in supporting a contents claim: (1) online data bases of historical products; (2) information from national retailers, internet participants, and distributors; (3) a highly specialized evaluation team; and (4) the ability to have multiple specialists simultaneously on a claim.  The list is not exhaustive, but may assist in ascertaining values for hard to find items and, ultimately, proving that the claim being submitted is reasonable.

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On July 13, 2010, the Appellate Court of Connecticut affirmed a $664,373.02 verdict issued by a trial court sitting non-jury in 2007. Utica Mutual Ins. Co. v. Precision Mechanical Services, Inc. The case arose from a fire at the Commons Condominium Complex in Branford, Connecticut. An employee of the defendant was installing a shower diverter in one of the units. He was a licensed plumber soldering pipes when he ignited insulation in the wall. In November of 2007, the trial court, sitting non-jury, awarded Utica Mutual $664,373.02 after three days of trial.

On appeal, defendant argued that plaintiff failed to offer expert testimony regarding the standard of care, improperly excluded defense experts, and plaintiff did not sustain its burden of proof on damages. The three judge appellate panel rejected each contention. With respect to the first issue, the court determined that the question of whether a reasonable person should operate a torch within the vicinity of combustible materials did not go beyond the field of the ordinary knowledge and experience of the fact-finder and therefore held that expert testimony was not required to determine if the defendant’s performance complied with the requisite standard of care. The trial court allowed one defense expert to testify, but then refused to consider the testimony when deciding the case. The defense expert testified that the damages had been greatly enhanced by the lack of fire stops in the condominiums. The appellate court held that the trial court reasonably concluded that it should not consider his testimony or any evidence that the fire spread due to an alleged lack of fire stops, given the defendant’s failure to apprise the plaintiff of its claim through an affirmative pleading. The defendant had not raised contributory negligence as a defense in its answer or any other pleading.

With respect to damages, the appellate court found that Utica Mutual had presented the testimony of its insurance adjuster, who had more than fourteen years of experience in the profession, and was sent a written form by the public adjusters representing the Commons that detailed line by line the areas that had to be repaired. Utica’s adjuster had also retained a contractor to determine the scope of the damages. The contractor prepared a final report that concluded that the repair costs were $676,842.67. Utica paid the Commons $664,373.02 because of the insured fire loss and received a subrogation receipt from the Commons stating that amount had been paid. The Connecticut Appellate Court determined that such evidence afforded a sufficient basis for determining with reasonable certainty that the plaintiff’s damages were $664,373.02. The court also awarded 6% interest from July 9, 1997, when Utica Mutual received the subrogation receipt. The decision represents a complete and total victory for the subrogating carrier.  

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Subrogation professionals should be aware of a recent opinion in New York where computer fire modeling utilized by the defendant's expert was held to be inadmissible.   In Santos v. State Farm Fire & Casualty Co., No. 000790/07 (N.Y.Sup. Ct. Jun. 28, 2010), a trial court held that the defendant had not presented sufficient evidence that computer fire modeling was generally accepted as reliable in the fire investigation community. 

In larger fire losses, computer fire modeling can be a useful tool that fire experts use to assist in evaluating hypotheses related to fire origin and fire spread.  Fire modeling is also used for illustrative purposes, such as presenting an origin and cause investigator's opinions to a jury.  Although they can be helpful, fire models have their limitations.  NFPA 921, the recognized guide for fire investigations, cautions: "[t]o conduct valid modeling and testing it is important that the investigator gather data that is as accurate and complete as possible."  Fire models are generally only as good as the accuracy of the data that is used in the model. 

The Santos decision is surprising in light of the fact that several federal courts have held that fire modeling is reliable.  For an expert opinion to be admissible in federal court, the opinion must pass the rigors of the Daubert standard.  In federal court, expert testimony must be both relevant and reliable, which entails a preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and can be applied to the facts at issue. 

In state courts in New York, expert opinions must pass the Frye test, which is viewed as a more liberal standard than Daubert.  Under the Frye test, expert testimony based on scientific principles or procedures is admissible only if a principle or procedure has gained general acceptance in its specified field.  Here, the court found that the defendant only presented evidence that computer fire modeling was generally accepted in the regulatory and design community, but failed to meet the burden of demonstrating that modeling is generally accepted in the fire investigation community. 

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On June 7, 2010, in a unanimous decision, the United State Supreme Court reversed the Eleventh Circuit in Krupski v. Costa Crociere S.p.A., holding that relation back under Fed. R. Civ. P. 15(c)(1)(C) depends on what the party to be added knew or should have known, not on the amending party's knowledge or timeliness in seeking to amend the pleading.

In Krupski v. Costa Crociere S.p.A, Petitioner Krupski sought compensation for injuries she suffered while on a cruise.  Her passenger ticket, which was issued by Coast Cruise Lines and listed respondent Costa Crociere S.p.A. as the carrier. In addition, it required written notice of the claim to the carrier or its agent, required any lawsuit to be filed within one year of the injury and designated a specific federal district court as the exclusive forum for such suit. The front of the ticket listed Costa Cruise’s Florida address and made references to “Costa Cruises.”

After Krupski’s counsel notified Costa Cruise of her claims but did not reach a settlement, Krupski filed a diversity negligence action against Costa Cruise.   During the next few months the limitations period expired and after this limitations period had ended, Costa Cruise brought Costa Crociere's existence to Krupski's attention three times, including in its responsive pleading and a motion for summary judgment. 

Krupski responded and moved to amend her complaint to add Costa Crociere as a defendant. The district court allowed Krupski to amend her complaint and dismissed Costa Cruises.  Later the court dismissed Costa Crociere (who had the same attorney as Costa Cruises to represent its interests) on the basis that the amended complaint did not satisfy the requirements of Federal Rule of Civil Procedure 15(c), which governs when an amended pleading "relates back" to the date of a timely filed original pleading and is thus timely even though it was filed outside an applicable limitations period.

The Rule requires that within the Rule 4(m) 120-day period for service after a complaint is filed, the newly named defendant “knew or should have known that the action would have been brought against it, but for a mistake concerning the proper party’s identity.” Rule 15(c)(1)(C)(ii). The District Court found this condition pivotal to Krupski’s attempt to relate back. The District Court held that she had not made a mistake about the proper party’s identity because, although Costa Cruise had disclosed Costa Crociere’s role in several court filings, she nonetheless delayed for months filing an amended complaint. The Eleventh Circuit agreed, finding that Krupski either knew or should have known of Costa Crociere’s identity as a potential party because she furnished the ticket identifying it to her counsel well before the limitations period ended. It was therefore appropriate to treat her as
having chosen to sue one potential party over another. Moreover, the 11^th Circuit Court held that the relation back was not appropriate because of Krupski’s undue delay in seeking to amend the complaint.

The Supreme Court reversed the 11^th Circuit Court’s holding in a decision authored by Justice Sotomayor.  The Supreme Court found that Krupski made a mistake in failing to name Costa Crociere, despite being aware of its existence, and that her undue delay in amending the complaint has no bearing on whether the amended complaint relates back under Rule 15(c).  The language in Rule 15(c) results in a remarkable distinction with discretion offered under Rule 15(a), which does allow a court to consider delay in deciding whether to grant a motion to amend a pleading to add a party or a claim.  The question under 15(c) is what the prospective defendant reasonably should have understood about the plaintiff's intent in filing the original complaint against the first defendant.  The plaintiff's post-filing conduct is otherwise irrelevant to whether an amended complaint relates back.  Thus, The Supreme Court’s holding illustrates that the relation back under Rule 15(c)(1)(C) depends on what the party to be added knew or should have known, not on the amending party’s knowledge or timeliness in seeking to amend the pleading.

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A California court recently held that an insurer had a duty to preserve an allegedly defective tire for use as evidence in the insured's product liability case.  Cooper v. State Farm Mutual Auto. Ins. Co., 177 Cal.App.4th 876 (2009,  4th Dist., Div. 2).  Plaintiff Bryan Cooper, an insured of State Farm, was involved in a single car accident allegedly caused by tread separation of a tire.  State Farm acquired possession of the vehicle and tire after the claim was paid to Plaintiff.  State Farm's expert concluded that the tire was defectively manufactured.  State Farm notified plaintiff of its expert opinion and promised Plaintiff it would retain the tire.  Plaintiff sued the tire manufacturer.  Before Plaintiff's litigation against the manufacturer was resolved, State Farm disposed of the car and tire.

The appellate court held that Plaintiff could legally bring an action against State Farm for the destruction of the tire.  The court concluded that Plaintiff set forth a case because he relied on State Farm's promise to preserve the tire, the expert opinion created an inference that the tire was defective, and Plaintiff's damages could be reasonably ascertained.

California does not recognize an independent tort for intentional spoliation of evidence. Cedars-Sinai Medical Center v. Superior Court (1998) 18 Cal.4th 1, 74 Cal Rptr.2d 248 and Temple Community Hospital v. Superior Court (1999)20 Cal.4th 464, 84 Cal.Rptr.2d 852.  The Cooper court shows that an insurer may still be liable for destruction of evidence on theories of promissory estoppel or voluntary assumption of a duty.  In other words, the Court is not saying an insurer, in general, must preserve evidence.  But, it is saying that once the insurer promises to preserve evidence it may be liable for breaking that promise.

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The fire loss involves your insured’s fireplace. The fire originally starts in the fireplace, but spreads to nearby combustibles, catching the structure on fire. Is there a subrogation case? 

Once a fireplace loss comes in, thorough analysis of the fireplace system needs to take place. Generally, fireplaces are masonry built of bricks, blocks, or stone and mortar. The other fireplace type is a light-weight metal chimney and metal firebox. Hybrids exist, so careful examination of the fireplace is necessary. Masonry fireplaces are massive structures. Due to their weight, settling or movement are common problems to be evaluated. Settling often occurs where the firebox meets the facing. Specifically, where the fire brick meets the facing. That weak spot can permit fire to travel to adjacent combustibles. Fireplace fires burn up to temperatures of 2,000 degrees, easily igniting inappropriately exposed combustibles. The firebox itself needs to be checked. The joints in the firebox expand and contract. Those need to be checked to insure that they did not fail, permitting the fire to escape.

Factory-built fireplaces are commonplace today. They have become readily available in the last 25 years.  Most are made of metal and are sold as complete systems with a specific chimney.  Installation manuals need to be obtained to make sure the original installation of these factory-built fireplaces was correct. Applicable codes insist that factory-built fireplaces be installed in accordance with the manufacturer’s specifications/listing. Clearances (usually two-inch air space) is required from nearby combustible framing. If the clearance is not correct, nearby wood will dry out over time and lower the ignition temperature of the adjacent combustible framing. Called pyrolysis, if this process continues unabated, a fire will likely result.

As to all fireplaces, what material was burned is important to determine. What was the quantity used? Was over-firing a contributing factor? Areas to be examined include but are not limited to the foundation, ash dump, hearth, firebox, lintel, damper, smoke shelf, smoke chamber, flashing, flue, crown, spark arrestor, and cap. Additionally, review sweep records on the fireplace. Was the fireplace maintained? When was the last sweep work done? What repairs have been made to the fireplace? Was the fireplace fireblocking done correctly? All these factors and others need to be properly evaluated to determine if a fireplace loss has subrogation potential.

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The recent California Appellate Court decision of Interstate Fire & Casualty Insurance Company v. Cleveland Wrecking Company (2010) 182 Cal.App.4^th 23, illustrates that under the right circumstances, a liability insurer can subrogate against a third party to recover amounts paid to resolve a first party personal injury claim. The case involved a construction site personal injury claim by an employee of Subcontractor A. The employee filed a personal injury claim against General Contractor and Subcontractor B. Both Subcontractor A and Subcontractor B had contracts with General Contractor, requiring each subcontractor to defend and indemnify General Contractor for any claims arising out of the subcontractor’s operations, and required each subcontractor to name General Contractor as an additional insured under their general liability insurance policy. Subcontractor A procured the liability insurance and named General Contractor as an additional insured. Subcontractor B did not. General Contractor tendered its defense to both subcontractors. Subcontractor A and its insurer, Interstate, accepted the tender. Subcontractor B rejected the tender. Ultimately, General Contractor, through Interstate, as well as Subcontractor B, resolved their claims with the injured employee and filed good faith settlement motions approving the settlements which, under California law, barred any claims for equitable contribution. Thereafter, Interstate filed a subrogation action against Subcontractor B, claiming Subcontractor B breached its contract with Interstate’s additional insured, (General Contractor), by failing to defend and indemnify General Contractor for the claims brought by Subcontractor A’s employee. The trial court dismissed Interstate’s complaint determining Interstate had no rights of subrogation against Subcontractor B, as Subcontractor B’s alleged breach of the contract did not cause any damage to the General Contractor, and the good faith settlement barred any claims of negligence against Subcontractor B for causing the loss. 

The California Court of Appeal reversed the trial court’s ruling, holding that Interstate had a right of subrogation against Subcontractor B, based on Subcontractor B’s alleged breach of the indemnity provisions in the contract with General Contractor. The court acknowledged that the good faith settlement determination did, under California law, bar any equitable contribution claim based on the comparative negligence of Subcontractor B in causing the injury. However, the court held the contractual claim for indemnity survived the good faith settlement determination, and that Interstate, as the insurer, could step in the shoes of its insured, General Contractor, to pursue the claim. The court extensively reviewed and discussed many of California’s subrogation cases spanning the past 40 years and concluded that the equities of the insurer were superior to that of Subcontractor B, and that there was no basis to prevent the insurer from pursuing its claim for breach of the indemnity provisions within the contract. 

The lesson learned from the case is where a defendant or cross-defendant is not willing to contribute its fair share or acknowledge responsibility under a contractual indemnity agreement, a subsequent subrogation action against the non participating defendant may be a viable option. As the Interstate case illustrates, even if one of the defendants participates in the settlement, but fails to live up to all of its contractual responsibilities, a viable subrogation claim may exist, pending the provisions in the parties’ contracts, and the specific facts of the case.

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The Third District Court of Appeal of Florida recently brought us closer to clarity on Florida's approach to when a landlord's insurer can sue a tenant.  State Farm of Florida Ins. Co. v. Loo, 2010 WL 445945 (Fla. 3d DCA Feb. 10, 2010).  For the most part, jurisdictions adopt one of three approaches in this context:

                (1) The Sutton Approach ("Anti-Subrogation Rule"): Under this approach, a jurisdiction adopts a bright-line rule barring a landlord's insurer from bringing a subrogation case on the ground that the tenant is deemed an "implied co-insured." Thus, an insurer may not subrogate against its own insured.  The policy behind this approach is that "when fire insurance is provided for a dwelling it protects the insurable interests of all joint owners including the possessory interests of a tenant absent an agreement by the latter to the contrary." Sutton v. Johndahl, 532 P.2d 478 (Ct. App. Ok. 1975). This is the majority rule.

                (2) The Anti-Sutton Approach: The converse of the Sutton Approach is the order of the day in these jurisdictions.  Essentially, absent an express or implied agreement to the contrary, these jurisdictions presume subrogation is permissible. This is the minority rule.

                (3) The Case-by-Case Approach: This is an approach that places great emphasis on the lease provisions in order to determine the intent of the parties as to which party should bear the risk of loss.  This is often referred to as a "middle of the road" approach.

Until recently, it was unclear which of these approaches Florida was applying.  Even today, the Florida Supreme Court has not formally adopted or rejected any.  Instead, the approach in Florida has evolved from a number of different decisions from various Appellate Courts.  The first attempt made to articulate this doctrine came in 1980 when the Third District Court of Appeal held that "a limitation of liability for one's negligent acts cannot be inferred unless such intention is expressed in unequivocal terms."  Tout v. Hartford Accident & Indem. Co., 390 So. 2d 155 (Fla. 3d DCA 1980).  Two subsequent cases revealed an evolution in Florida toward Sutton without a specific adoption of the approach.  See, gen., U.S. Fire Ins. Co. v. Norlin Indus., Inc., 428 So.2d 325 (Fla. 1st DCA 1983); Continental Ins. Co. v. Kennerson, 861 So.2d 325 (Fla. 1st DCA 1995). 

However, the evolution toward Sutton was halted in Loo, supra.  Without overturning Tout or its progeny, the Court in Loo formally adopted the case-by-case approach pointing out that the Tout line of cases looked to the lease provisions to determine the intent of the parties as to who should bear the risk of loss.  In sum, for subrogation against a tenant to proceed, the lease must not contain "unequivocal terms" that the tenant is a co-insured.  Unequivocal terms are those that either (1) exculpate the tenant from liability for its own negligence, (2) require the landlord to maintain insurance for the benefit of the tenant, or (3) shift any risk of loss incurred as the result of the tenant's negligence to the landlord.

Perhaps one day the Supreme Court of Florida will weigh in on this issue with a formal adoption or rejection of one of the three approaches.  Until that day, subrogation against a tenant will be guided by the lease document's unequivocal (or lack thereof) articulation of the intent of the parties as to risk of loss.

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Have you ever experienced the following all-too-common frustrating subrogation scenario:  Your cause and origin expert determines that a fire started from a particular product but, after destructive examination of the product, your engineer is unable to identify the defect which caused the product to fail.  Even though you cannot identify the specific defect, you are not necessarily out of luck. 

Courts in a number of states have long recognized that fires destroy direct physical evidence of a defect and therefore allow the product defect case to be presented with circumstantial evidence via a Malfunction Theory.  Under the Malfunction Theory, if one can prove the following elements then a  product liability claim still may exist:

1) The product is only a few years old;

2) The fire started inside the product;

3) Alternative ignition sources have been eliminated as a potential cause of the fire;

4) Your expert can explain how the product "could" have caused the fire even though the exact cause is unknown; and

5) The product was not misused. Often you can prove that the product was not misused if the fire started in an area where the insured did not have access to misuse it, i.e., the motor area of a microwave, the compressor area of a refrigerator, etc.  However, even if the insured had access to the area of the product where the fire occurred, you can still circumvent the misuse element by showing that the insured actually did not access this area or the insured's access of the area of origin was unrelated to the fire. 

The next time a product causes a fire, but the specific defect cannot be identified, do not rush to close the file.  Instead, check to see if your jurisdiction recognizes the Malfunction Theory.  If so, it could turn your dead-end products claim into a functional theory of liability. 

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In the multi-district litigation arising out of Chinese manufactured drywall, Judge Fallon of the United States District Court for the Eastern District of Louisiana issued an Opinion on April 8, 2010 finding in favor of plaintiff homeowners and awarding in excess of $2.6 million in damages against Taishan Gypsum Company. 

Additionally, Judge Fallon found that based upon the Findings of Fact and Conclusions of Law, that “scientific, economic, and practicality concerns dictate that the proper remediation for the Plaintiff-intervenors is to remove all drywall in their homes, all items which have suffered corrosion as a result of the Chinese drywall, and all items which will be materially damaged in the process of removal.”

In the written Opinion, Judge Fallon cites to the Cozen O'Connor's Chinese Drywall Litigation: Subrogation White Paper (2009) as an authoritative text in numerous places in his findings of fact.

For more information on the multi-district litigation arising out of the Chinese manufactured drywall, or to get a copy of the Cozen O’Connor Chinese Drywall Litigation Subrogation White Paper, please feel free to contact one of our offices.

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The United States Court of Appeals for the Ninth Circuit recently explained the limited applicability of California’s “made-whole” rule which may preclude an insurer from recovering any third party funds unless and until the insured has been made whole for the loss. 

In Chandler v. State Farm Mutual, the court opined that “an insurer is permitted to recoup a payout from a third-party tortfeasor’s insurance company before the insured has sued the third-party tortfeasor, and without first making the insured whole.” A two-party automobile accident provided the factual background for the court’s decision. The subrogating carrier's insured’s car sustained damages after another driver rear-ended the vehicle. As a result of the accident, the insured incurred $317.45 in rental car expenses while his car underwent repairs. The subrogating carrier paid 80% of these rental car expenses as required by the insurance policy, leaving its insured with $63.49 in out-of-pocket expenses.

After its payment, the carrier exercised its subrogation rights and settled with the third-party tortfeasor’s insurer. Subsequently, the insured requested reimbursement from the tortfeasor’s insurer for his $63.49 in out-of-pocket expenses, which that insurer rejected. Then, the insured sought to recover his out-of-pocket expenses from his own insurance (subrogating) carrier, which was also denied because the carrier had paid the full amount due under the policy.  After additional benefits were denied, the insured initiated an action against his insurance carrier claiming violations of California’s Unfair Competition Law, conversion, unjust enrichment, and declaratory relief. As the court noted, all of the claims essentially hinged on the applicability of the "made-whole" rule.

The court rejected each of the insured’s arguments and dismissed all claims against the insurance carrier because the "made-whole" rule did not apply. The court’s reasoning supported the policy considerations for both subrogation and the made-whole rule. First, where the insured has not yet sought to recover from the third-party tortfeasor, nothing indicates that the insured will not be made whole if he decides to initiate a suit. Moreover, allowing the insurer to subrogate furthers the fundamental purpose of subrogation: to hold third-party tortfeasors accountable for the injuries they inflict. If a carrier could not immediately subrogate, as the court explained, this purpose would be frustrated and the risk of loss would be placed on the insurer whenever the insured does not attempt to recover from the third-party tortfeasor. Finally, if an insurer was required to make its insured whole before subrogating against potentially responsible third-parties, it would remove the insured's incentive to pursue its claims and would obligate the insurer to pay for more than the express terms of the insurance policy require.

Based on the court’s conclusion and reasoning, an insured’s failure to bring its own action does not prevent the insurer from subrogating to the insured’s claim before the insured has been made whole. The court’s holding bolsters a subrogating carrier’s argument that subrogation rights may be exercised immediately upon payment and cannot be prejudiced by an insured’s inaction.

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Legal reform is slowly but surely sweeping Mexico’s legal system. Mexico’s centuries-old legal system is being transformed into a system where oral trials will be publicly presented to the assigned judge. This new system will require judges to hear evidence orally, instead of through written briefs and memorandum.  The oral system will allow more transparency and accountability to the judges who have traditionally rendered their decisions without much public scrutiny.

Subrogation cases will greatly benefit from the new oral system, where the complexity of fire burn patterns, spread issues, and other scientifically technical evidence will be better explained through expert witnesses testifying before the judge in order to present their opinions. This will truly provide a refreshing dimension to litigating subrogation cases throughout Mexico.  

This new system is expected to be fully implemented throughout Mexico’s 31 states by 2016. So far, Chihuahua, Nuevo Leon, Oaxaca, Zacatecas, State of Mexico, and Baja California, have already began to have oral trials. Slowly but surely, the rest of the country will implement this new system that is expected to bring renewed confidence to Mexico’s legal system. 

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Subrogation cases are often won, and lost, within the first few days of the incident.  Consider employing the following steps to maximize your recovery potential:

1. Get an attorney and experts involved immediately.  If possible, have your attorney involved from the start.  This gives the attorney an opportunity to inspect the scene, secure evidence and interview witnesses. Your attorney should also know what experts are needed based on the facts of the loss. Further, your attorney should know how these experts perform at deposition and in trial. 

2. Keep the accident scene intact - as long as possible.  Do not order the bulldozer in right away, or start debris cleanup, until your expert and attorney have had a chance to assess the scene and determine what possible target defendants may exist.

3. Balance cleanup efforts with the investigation.  It is important to make sure that the damaged property gets back on its feet right away. However, when feasible, try and provide a reasonable time period for experts and potentially responsible parties to inspect the accident scene.

4. Put the target defendants on notice right away. When possible, give target defendants an opportunity to inspect the scene in its original condition.  This may assist in avoiding spoliation arguments down the road.

5. Preserve the evidence.  Do not throw anything away.  Allow your experts and/or your attorney to inspect the scene and determine what to preserve.  If in doubt as to whether to store a piece of evidence or dispose of it, err on the side of caution and store it.

By following these simple steps you will be ahead of the curve and well on your way to maximizing recovery for your subrogation claim.

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At the end of last year the United States Supreme Court granted certiorari in two consolidated cases, Kawasaki Kisen Kaisha v. Regal-Beloit Corporation, No. 08-1553, and Union Pacific Railroad Company v. Regal-Beloit Corporation, No. 08-1554, to determine whether the inland portion of an intermodal shipment is subject to the Carmack Amendment even when no separate domestic bill of lading is issued. The specific question presented in No. 08-1553 is: “Whether the Carmack Amendment to the Interstate Commerce Act of 1887, which governs certain rail and motor transportation by common carriers within the United States, 49 U.S.C. §§ 11706 (rail carriers) & 14706 (motor carriers), applies to the inland rail leg of an intermodal shipment from overseas where the shipment was made under a ‘through’ bill of lading issued by an ocean carrier that extended the Carriage of Goods by Sea Act (COGSA), 46 U.S.C. § 30701.  Note, to the inland leg, there was no domestic bill of lading for rail transportation, and the ocean carrier privately subcontracted for rail transportation.” The Supreme Court previously determined that a through bill of lading could control inland transportation in Norfolk Southern Railway v. Kirby, 543 U.S. 14 (2004), but that decision only addressed the application of state law to a bill of lading that extended COGSA inland, where COGSA and the state law conflicted.  It did not consider the ramifications of the Carmack Amendment, and the United States Courts of Appeals have split in their treatment of the competing principles under COGSA and the Carmack Amendment.

The two cases currently pending before the Supreme Court concern the proper forum for suits over damage to cargo being delivered to the United States from China, where the cargo was damaged when the United States rail carrier’s train derailed in Oklahoma on the inland domestic leg of the international multimodal or intermodal shipment. Regal-Beloit, other shippers and their subrogees brought suits against the rail carrier and the ocean carrier in the United States. The carriers argued that the suits were required to be litigated in Japan based on a forum selection clause in the ocean carrier’s bill of lading that was proper under COGSA. The issue essentially came down to whether the contractual provisions in a bill of lading can control over the default statutory rules set forth in the Carmack Amendment when a loss occurs on the United States on the inland leg of an international intermodal shipment. The Ninth Circuit Court of Appeals determined that “the contractual extension of COGSA to the inland leg cannot supersede the requirements imposed by the Carmack Amendment unless the parties properly agree to opt out of Carmack. Regal-Beloit Corp. v. Kawasaki Kisen Kaisha Ltd., 557 F.3d 985 (9th Cir. 2009). The carriers appealed this decision to the United States Supreme Court.

The carriers’ briefs on the merits were filed on December 23, 2009, and the respondents’ briefs were filed on February 12, 2010. Four amicus briefs were filed in support of the carriers, including one for the United States filed by the United States Department of Justice. The Transportation & Logistics Council, Inc., a non-profit organization representing shippers nationwide, and the American Institute of Marine Underwriters filed an amicus brief in support of the respondents. Oral argument has been set for Wednesday, March 24, 2010. The Supreme Court should issue its decision within two to three months after oral argument.

The Supreme Court’s decision could have a significant impact on the amount of damages recoverable against a carrier involved in an international shipment. While COGSA permits carriers to limit their liability to $500 per package, a plaintiff suing under the Carmack Amendment is entitled to the actual loss or injury to the property if the carrier has not effectively limited its liability by a written declaration or agreement. Check back with the Subrogation & Recovery Blog for the latest news regarding the Supreme Court’s upcoming decision.

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The Freedom of Information Act (“FOIA”) can be a useful tool that subrogation professionals can employ to effectively gather information to build a successful products liability claim. In cases where a loss is caused by a defective product, a simple FOIA request to the Consumer Products Safety Commission (“CPSC”) can produce a veritable treasure trove of documents of reported incidents involving a particular product. 

The CPSC tracks all complaints it receives about safety issues involving products sold in the United States. The complaints can come from a variety of sources, including local, state, or federal government agencies, as well as from consumers who contact the CPSC’s hotline. Depending on the number of incidents and the magnitude of the risk to consumers, the CPSC may launch an in-depth investigation (“IDI”) of a particular product.

Subrogation professionals investigating a potential products liability claim can utilize the CPSC’s website and FOIA requests to assist in determining whether there have been issues with a particular product. A FOIA request can produce incident reports and IDI reports relating to the product in question. To find out whether a product has been recalled, you can conduct a search at the CPSC website at http://www.cpsc.gov/cpscpub/prerel/prerel.html. 

There are several ways to submit a FOIA request to the CPSC. The CPSC accepts submissions via mail, facsimile, and even by email. Here is the CPSC’s contact information for FOIA requests:

FOIA Requester Service Center
US Consumer Product Safety Commission
4330 East West Highway, Room 502
Bethesda, MD 20814
Tel. (301) 504-7923
Fax. (301) 504-0127
cpsc-foia@cpsc.gov

It is important to note that the individual making the request is responsible for the cost of reproducing the documents, although there are times when the CPSC will waive the fee. In any event, the cost pales in comparison to the cost of filing suit and obtaining the documents through discovery.  Additionally, the manufacturer of the product is afforded an opportunity to correct or challenge any of the requested information, and the manufacturer can block disclosure of incident reports where they can prove inaccuracies with supporting documentation.  There are also other rare instances where manufacturers can prevent disclose if the requested information contains trade secrets and confidential commercial or financial information. To read more about FOIA requests and about what information is available, go to the CPSC’s Guide to Public Information at http://www.cpsc.gov/about/guide.html#Introduction. 

Finally, be on the lookout for a searchable database, which the CPSC is in the process of developing. The database was mandated by Consumer Product Safety Improvement Act  of 2008. It is anticipated that the database will be online at www.saferproducts.gov in March 2011.

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The Oregon Court of Appeals once again affirmed the viability of negligent construction claims while delivering another blow to the Economic Loss Doctrine.  In Cowan v. Nordyke, 232 Or.App. 384 (2009), plaintiff purchased a home from a Professional Home Designer (PHD).*  Of course, the home was not without problems, including water intrusion.  Plaintiff filed suit against the PHD claiming negligent design of the home and that the PHD's conduct fell below the standard of care for a reasonably prudent professional home designer.  The PHD’s motion for summary judgment was granted as Oregon does not recognize a tort for "professional negligence" by a PHD.  After attempts to amend the complaint to allege general negligence proved unsuccessful, plaintiff filed an appeal. 
While the Oregon Court of Appeals affirmed that Oregon does not recognize "professional negligence" by a PHD, it reversed on the issue of allowing a claim against a PHD for general negligence. In reaching its decision, the Court explained that Oregon deviates from traditional negligence concepts of "duty, breach and causation."  In Oregon, liability rests on whether the defendant's conduct unreasonably created a foreseeable risk of harm to the plaintiff.  Foreseeability applies unless the parties invoke a "status, relationship, or particular standard of conduct that limits the defendant's duty."  Here, the PHD argued that the foreseeability standard did not apply because its duty to plaintiff was defined and limited by its status as an unlicensed contractor and an "owner builder," rather than a "builder-vendor."  The PHD further contended that there were adequate contractual protections for plaintiff and that it need only disclose that it built the house and to disclose known defects.  The court was not swayed and correctly held that that being an unlicensed contractor did not provide a shield to limit liability.  The Court reasoned that a jury can determine whether damages sustained by a plaintiff are reasonably foreseeable.  With regard to contractual protections and the disclosure of defects, the Court agreed that the required disclosure might provide sufficient protection for known defects.  However, the Court recognized that not all latent defects "come to light" while the builder occupies the home.  Therefore contractual disclosure is not an adequate substitute for holding a builder liable under the general negligence standard.

Oregon continues to recognize negligent construction claims grounded in general negligence.  As Oregon continues to recognize negligence in this context, it further erodes the Economic Loss Doctrine.  See also Bunnell v. Dalton Construction, Inc. (2006 (water damage to interior not economic loss) and Harris v. Suniga (2006) (damage to physical structures is not economic loss).
____________________________________________________________________________________________
* A Professional Building Designer specializes in designing light-frame buildings such as single family homes and agricultural buildings.  Unlike architects, Professional Building Designers are not legally required to pass exams or receive special licenses. 

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In Georgia, it is well known that actions for injury to real and personal property caused by any person furnishing the design or construction of an improvement to the property must be filed within eight (8) years after the substantial completion of the improvement. O.C.G.A. §9-3-51(a).  Further, an improvement to real property has been defined as a fixed alteration to the real property. Mullis v. Southern Co. Services, Inc., 250 Ga. App. 90, 296 S.E.2d 579 (1982). The Courts have held that if a component is an essential and integral part of the improvement to which it belongs, then it is itself an improvement to real property.  Therefore, in the event a claimant files an action against a contractor, architect, or subcontractor to recover damages to its real property, for example, one would surmise that he or she has eight (8) years from the date the work was substantially completed to file the claim. That is not the case insomuch as in 1994, the Georgia Court of Appeals, in effect, shortened the time period to file a claim against a contractor to recover damages to real property to four (4) years.

In Hanna, et al. v. McWilliams, et al., 213 Ga. App. 648, 446 S.E.2d 741 (1994), a homeowner brought an action against a general contractor and subcontractor to recover damages to real and personal property caused by the negligent installation of a fireplace. The Hanna Court held that the fireplace constituted an integral part of the home and an improvement. As a result, the statute of repose applied. The Hanna Court also examined whether the homeowner had eight (8) years after the substantial completion of the fireplace to bring an action against the contractors, as outlined in the statute of repose, or whether the four (4) year statute of limitations barred the claim.  The Court held, as it pertains to damages to real property, that the Plaintiff’s claims were subject to the four (4) year statute of limitations set forth in O.C.G.A. §9-3-30 and the action accrued at the time of the substantial completion of the project.  

The holdings in Hannah provide that in cases involving damages to real property, the statute of repose and statute of limitations will run concurrently after the date of substantial completion. When the four (4) year limitation for tort actions has been reached, the claimant is barred from pursuing a claim to recover damages to its real property as a result of the defect in an improvement to its land. Keep in mind that the application of Hannah is different for damages to personal property as the discovery exception to the statute of limitations applies. 

Claimant beware! Make sure you examine the dates when the repair and/or improvement was made to determine if you have a viable claim.

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As was previously reported, New York Governor Paterson has signed a bill which purports to eliminate the alleged windfall of double recoveries to plaintiffs which were alleged to have resulted from the common-law Collateral Source Rule, which enabled collateral source payors, including subrogating insurers, to recover their losses as part of the damages claimed by injured insureds.  This bill does not impact property damage subrogation claims, which was made clear beyond peradventure by a memorandum prepared by one of the previous sponsoring committees.  The language of the prior sponsor's memo is as follows:

Collateral Source and Subrogation Changes: The various collateral source provisions of the CPLR were enacted to eliminate the common law collateral source rule, which prohibited tortfeasors from reducing their obligations to a plaintiff by the amount of benefits the plaintiff receives from other sources, such as insurance. The statute's purpose is to eliminate the windfall of double recoveries to plaintiffs which often resulted from the common law collateral source rule, while still ensuring that uncompensated losses are fully compensated. Notwithstanding the trend to eliminate the windfalls that result from the common law rule, and to safeguard public monies, presently all defendants except public employers may offset against awards for future costs or expenses any amounts that would with reasonable certainty be replaced or indemnified. This bill would ensure that public employers are treated the same as private employers in tort actions. New York City estimates that it would save $14.5 million annually from this reform.

At present, there is no statutory authority that addresses or limits the extent to which a benefit provider may claim contractual reimbursement or subrogation with respect to medical expenses it has paid pursuant to an insurance contract or other agreement. Likewise, there is no statutory authority that specifies whether or under what circumstances such a benefit provider may intervene as a party in a personal injury or wrongful death action. For example, in a medical malpractice action, a health insurer which has provided coverage to the plaintiff may demand reimbursement for its expenses, often unnecessarily prolonging cases, thwarting settlement talks and making cases more expensive to litigate. Thus, it has become important that a statutory framework be established to facilitate settlement of cases and reduce expenses for litigants. This bill would preclude a benefit provider to seek reimbursement or subrogation against a settling defendant for those benefits paid to or on behalf of plaintiff, unless specifically set forth by statute.  In doing so, this bill would make the savings to defendants more tangible, and allow cases to settle more quickly and without unnecessary expense. This provision of the bill would be applicable to actions for personal injury, medical, dental, or podiatric malpractice, or wrongful death and would be inapplicable to the subrogation of property damage claims. (Emphasis added).

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The Pennsylvania Supreme Court Civil Procedural Rules Committee developed Recommendation 240 which would have amended Pa.R.C.P. 1020 to require that all claims arising from the same property loss be bought in a single action, even where there are different claimants with distinct damages.  This proposal would have overturned settled Pennsylvania appellate precedent.  Subrogation attorneys from Cozen O'Connor appeared before a committee of the Philadelphia Bar Association to voice opposition to this proposed rule change. It is of interest to note that the opposition we proffered on behalf of the subrogation community was echoed and expanded upon by representatives of the plaintiffs' personal injury bar, who also questioned the need for the proposed amendment.  All affected constituencies were united in their opposition to this unnecessary rule change, noting that there already are existing procedural mechanisms to allow parties to move for consolidation of related claims, or not, depending upon the circumstances of each case.

At this time, all reports we have received indicate that the Committee's proposal is being withdrawn.

We will continue to monitor carefully all aspects of this proposed amendment, and will report further as information becomes available.

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Where the subrogating insurer and insured both have recovery claims and are competing for a limited amount of available money from a defendant, issues arise as to who is entitled to recovery, and/or how the recovery should be divided. These issues fall within the realm of the “made whole rule”, which generally provides, that under certain circumstances (i.e. limited assets of a wrongdoing defendant, non participation of the subrogating insurer in recovery lawsuit), the insured is entitled to be “made whole” for uninsured damages from the wrongdoing defendant, before the subrogating carrier can recover from the insured (via a lien or policy provisions) or from the defendant who caused the injury.

In a recent California Supreme Court decision involving med pay reimbursement, 21^st Century Insurance Company v. Superior Court (2009) 47 Cal. 4^th 511, 213 P. 3d 972, an insured attempted to expand the scope of the made whole rule by including the insured’s attorney’s fees as part of her uninsured loss, thereby eliminating the recovery of the subrogating carrier.   

21^st Century’s insured was injured in an automobile accident. 21^st Century paid the insured $1,000 under the med pay provisions of its automobile policy. The insured hired an attorney and pursed a personal injury claim against the third party who caused the accident. The case settled for $6,000, which comprised her total damages. The insured’s attorney received a fee approximating $2,000, leaving a net recovery of $4,000. 21^st Century requested reimbursement of $1,000.  The insured argued that because her damages, including attorney’s fees, were $8,000, and her recovery was only $6,000, no reimbursement to 21^st Century was required. Thus, the question before the court was whether “made whole” included the attorney’s fees incurred by the insured.

After reviewing cases in other states and noting states are divided on the issue, the Court ruled in favor of 21^st Century, concluding that attorney’s fees should not be included as part of the insured’s damages for purposes of determining whether the insured has been made whole in med pay reimbursement cases.  Instead, the “common fund doctrine” allows the insured to reduce the amount of reimbursement to the insurer by a pro rata share of the insured’s costs and attorney’s fees. In that manner, both the insured and insurer share in the cost of recovery in proportion to their respective recoveries. The end result of the court’s decision allowed reimbursement to the insurer of $600, representing the insurer’s $1,000 payment, less its 1/6^th pro rata share of attorney’s fees and costs.

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New York Governor Paterson signed into law New York State Bill A40002, which amends CPLR 4545, New York's Collateral Source Rule.  The bill has many aspects, some of which relate to municipal health benefit plans which are not directly germane to subrogation concerns.  From a subrogation perspective, the bill both maintains existing restrictive language concerning subrogation rights, and further tightens the grounds upon which reimbursement may be obtained.

The pertinent section of the bill references "Any Action Brought To Recover Damages For Personal Injury, Injury To Property Or Wrongful Death…."   It then provides for "limitation of non-statutory reimbursement and subrogation claims in personal injury and wrongful death actions."  This section states that it shall be conclusively presumed that any settlement in a personal injury or wrongful death action does not include any compensation for the cost of healthcare services, loss of earnings or other economic loss to the extent they have been or will be reimbursed by a collateral source payer.  The only exception is when there is a right of reimbursement or subrogation that is statutorily established.

The Act does not purport to restrict rights of subrogation for property damage claims, notwithstanding the somewhat misleading reference to actions for "Injury To Property" in one of the headings.  Indeed, two separate memorandum prepared by bill sponsors explicitly stated that the bill is not applicable to property damage subrogation claims.  The bill was passed as a "program bill," with a truncated memorandum which did not contain this language, but the pertinent memoranda still comprise part of the relevant legislative history for this bill, to the extent any unfounded arguments are made regarding the intended application and scope of this bill.  We shortly will be posting one or both of the sponsor memos with this clear language.

Stay tuned for further developments regarding potential anti-subrogation legislation in other jurisdictions.

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The Economic Loss Doctrine may bar tort claims when a defective product causes injury only to the product itself and not to other property or persons. In many jurisdictions there are exceptions to the doctrine, including when the damage is caused by a “sudden calamitous event.”Recently, the Supreme Court of Tennessee considered the application of this exception.

In Lincoln General Ins. Co. v. Detroit Diesel Corp., a bus caught fire due to an allegedly defective engine. The fire did not cause personal injuries or property damage to anything other than the bus. The subrogating insurer argued that the economic loss doctrine should not bar a products liability claim because the harm was caused by a “sudden calamitous event.” The court rejected the exception, instead following a “bright line rule” completely barring tort claims when a product causes damage only to itself.  The court reasoned that certain products “expose a product owner to an unreasonable risk of injury during an abrupt and disastrous occurrence" while others "merely disappoint a product owner’s expectations.”  The court explained that it would be difficult for parties and courts to apply a rule that focuses on the degree of risk and the manner in which the product was damaged, as opposed to a rule that hinges on the harm a plaintiff actually sustains.

Despite Tennessee's reluctance to carve out an exception, many states have successfully modified the application of the Economic Loss Rule by:

1. Creating component part exceptions. (California)
2. Confining the doctrine to products liability or very similar situations. (Florida);
3. Statutorily providing for new home warranty laws against construction defects.(Connecticut, Indiana, Louisiana, Maryland, Minnesota, Mississippi, New Jersey, New York, and Virginia);
4. Statutorily providing for notice and right to repair and associated actions (California, Nevada);
5. Finding that builders have a duty in tort to act without negligence in the construction of residences (Colorado, South Carolina), or
6. Recognizing exceptions, such as an independent duties (Utah, Colorado), special relationships or foreseeability of plaintiff (Alaska, Delaware, West Virginia).

The Economic Loss Doctrine varies in its application from state to state.  If you have a large loss involving a product, it is prudent to review your jurisdiction’s interpretation of the doctrine, and exceptions to the same, prior to embarking on recovery efforts.

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“Dangerous and generally a fruitless occupation.”- Justice Akenhead

No, Justice Akenhead was not talking about being a lawyer, but stating that it is inappropriate to rank possible causes of a fire in terms of probability in order to select the most probable. 

In Fosse Motor Engineers Ltd v Conde Nast (2008), Fosse, the owner of a warehouse, asserted negligence against its tenant and an employment agency that supplied workers in the building for that tenant. A fire occurred at the warehouse when only the workers and a security guard were present. Expert evidence could not identify which of several possible causes led to the fire. The possible causes were: a cigarette discarded by either Fosse’s employees or the agency workers; an electrical fault; or arson by an intruder. Fosse claimed the fire was caused by one of the agency workers carelessly discarding a cigarette or, if it was an intruder, because a door had been left open by the agency workers allowing the intruder access.

The Judge held that although the Court might eliminate all but one of the causes of the fire, it still had to decide that the remaining cause was the most probable. The judge accepted the evidence of the agency workers that the fire was not caused by their actions and discounted the electrical cause as being improbable. That left either someone working earlier or an intruder (entering before the agency workers). The Judge found that as it was not possible, on the balance of probabilities, to determine which of the two remaining feasible scenarios was the cause, Fosse had failed to prove its case.

What’s all the Fosse about?

Fosse provides a reminder that in England & Wales the burden rests upon the claimant to overcome the evidential burden. In some respects the fact that the Judge did not choose to decide between (what he regarded as) the remaining feasible causes was academic since, in either scenario, Fosse would not have been successful. However, the fact that the Judge chose not to decide may be useful in defending claims where the exact circumstances that gave rise to the allegation are unclear: It is therefore always worthwhile looking into causation issues with a critical eye. 

In Drake v Harbour (2008), the lack of proof of an exact cause did not prevent recovery. The claimant engaged the defendant electrician to rewire her home. She was away from the property during the work when a fire started in the loft where Harbour had been working. The Court of Appeal held that the fact that the claimant was unable to demonstrate the precise mechanism that led to the fire was not a bar to recovery; if a claimant proved that a defendant was negligent and a loss was caused that was of a kind likely to have resulted from such negligence, that would ordinarily be enough to infer that it was probably so caused. Further, as Harbour was suggesting that it was not his negligence that caused the fire, then it was his burden to suggest what the probable cause was, and to properly plead it.

Harbouring doubts?

Drake suggests that where negligence can be established you do not necessarily have to show the precise mechanism as an English Court might infer that it was the defendant's negligence that caused the loss; the onus then shifting to the defendant to prove that alternative causes are at least “as likely”.

Causation considerations
These two cases highlight the importance of considering the cogency of the factual (and expert) evidence in proceedings. Drake suggests that even if you don't know the precise mechanism, if you can show that the likely causes all would have emanated from the negligence of a specified person, that suffices. If an English Court can be satisfied that a party was negligent it may not always be necessary to show the most likely cause. In Fosse, though, because the causes may have had different culprits, and because negligence could not necessarily be shown, the causation hurdle could not be overcome.

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Article I, Section 19 of The California Constitution provides that just compensation be paid when private property is taken or damaged for public use.  *STOP*  Take a deep breath.  It is not as tough as it sounds.  In fact, after reading this blog you'll likely find yourself asking "Why haven't I used inverse condemnation as a cause of action in fire cases before?".

Insurance carriers have incurred more than a billion dollars in damages arising from the California wildfires over the past few years.  The causes of these fires include arson, discarded cigarettes and failed utility equipment owned or operated by government entities or privately owned public utility companies.  When the latter are to blame, rest assured that inverse condemnation is the preferred cause of action to champion your fire subrogation case.  It's both a shield and a sword against government entities and public utilities.

The Shield:      In California, government entities require an injured party to file a claim within six (6) months of an incident to preserve a cause of action for Dangerous Condition of Public Property.  Inverse condemnation does not require the filing of any claim form and has a three (3) years statute of limitations.  Even assuming you win the race to file a timely notice, you will still need to prove the public entity or utility had notice of the dangerous condition in order to prevail under a Dangerous Condition of Public Property cause of action.  Inverse Condemnation has no requirement to prove notice of the dangerous condition.

The Sword:  A plaintiff need only prove the necessary elements of the cause of action to prevail  - (1) a public entity or privately owned utility company (2) took/damaged (3) private property for (4) public use (5) without just compensation.  [Note: Flood/levee cases have some different requirements.].  A plaintiff does not need to prove (1) negligent conduct; (2) fault on the part of the government entity or public utility; (3) that the loss was foreseeable; or (4) how or why the loss even occurred.   Moreover, liability and causation are issues to be determined by a judge, not a jury, which eliminates potential bias against insurance companies.  As if this is not enough incentive, a plaintiff that prevails under an inverse condemnation cause of action is also entitled to recover attorneys'  fees and costs.

Inverse condemnation is a recognized cause of action in many jurisdictions, though its application varies from state to state.  Still, the next time you receive a fire loss in which a government entity or privately owned public utility company is a potential defendant, look to see if the elements of inverse condemnation are met.  If so, don't be afraid to wield the sword and reap the benefits.

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In Canada, the right of subrogation is a product of the common law, although it may be modified by statute or contract. Unlike in the United States, Canadian common law provides that an insurer may sue only in the name of the insured in relation to a subrogated claim .That rationale has its roots in the need to provide a process by which the insurer would be able to exercise its subrogated rights. Historically, insureds were required to take all steps within their power to reduce a loss for which they had received indemnity, including exercising legal remedies against third parties. Since those remedies were personal to the insured, however, they could only be exercised in the name of the insured as a matter of procedural law. The common law did not provide a method whereby a person could be compelled to commence an action against another; therefore insurers had to apply to the Chancery Court to compel an insured to allow his or her name to be used for legal proceedings against third persons in order to reduce the loss.

The tenet still holds true today, and is illustrated by an exception to the rule discussed in the Ontario Court of Appeal case of Freudmann-Cohen v. Tran, 2004 CanLII 34765 (Ont. C.A.) . In Freudmann-Cohen, the plaintiff was injured in a motor vehicle accident when her car was struck by another vehicle. Since the driver of the offending vehicle was underinsured, the plaintiff asserted a claim under her own automobile insurer for underinsured motorist coverage. Her insurer, Zurich, subsequently learned that the defendant had been delivering pizza for Pizza Nova franchise at the time of the accident and that the franchisee had insurance coverage. It then issued a third party claim in its own name against the defendant pursuant to Rule 29.01 of Ontario's Rules of Civil Procedure, which states that: "A defendant may commence a third party claim against any person who is not a party to the action and who...should be bound by the determination of an issue arising between the plaintiff and the defendant." Zurich argued that Rule 29.01 constitutes a procedural scheme, with the force of regulation, which overrides the normal subrogation principle requiring an insurer claiming a subrogated right to sue in the name of the insured in circumstances such as these.

The Ontario Court of Appeal agreed, and held that the subrogation principle obliging the insurer to sue in the name of the insured is a procedural requirement itself, as opposed to a substantive obligation. While subrogation is a matter of substance rather than form, this aspect of subrogation is a matter of the procedure to be followed in the exercise of the substantive right of subrogation. The court noted however that:

"[t]he fact that Zurich has resorted to the third party procedure to put its subrogated claim on behalf of the plaintiffs in play in the action does not mean that Zurich is asserting the plaintiffs’ claim against Pizza Nova in Zurich’s own name. As I have earlier pointed out, rule 29.01 merely provides a mechanism whereby the defendant Zurich may ensure that an issue regarding which the third party should be bound is determined in the action; it is not necessary that that issue arise out of a claim whereby the defendant says the third party is or may be liable to the defendant. In my view, Zurich is entitled to resort to the third party rule in its own name in these circumstances."

As this case demonstrates, the right of an insurer to bring a subrogated action is derivative; that is, it merely a right to make such claim for damages as the insured himself could have made. For this reason, the general rule still holds in Canada that a subrogated action must be brought in the insured's name, rather than that of the insurer.

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Unlike in the United States, one of the most frustrating problems for subrogators in England is that they are not able to obtain a third party’s insurance policy in order to ascertain how deep their opponents pockets are before pursuing a recovery action. 

This tactical advantage was effectively nailed closed (for now) following the court’s decision in the West London Pipeline and Storage Limited v. Total UK Limited (2008).  In that case, Total was seeking contribution from a third party (TAV) following the largest peace time explosion in Europe at the Buncefield oil depot in 2006.  Relying on the court’s controversial decision in Harcourt –v- Griffin (2007), Total made an application to the court under CPR Part 18 for information and the disclosure of TAV’s insurance information.  Total argued that the information was relevant to the issues in dispute and necessary for the efficient management of the case. 

Unfortunately for subrogators, TAV successfully argued that the court did not have jurisdiction to order disclosure of its insurance information, as it was not relevant to any issue in the case.  Agreeing with TAV, the court took the view that although they understood the claimant’s desire to know whether a Defendant is worth suing, the court was also keen to avoid the promotion of “deep pocket” or “speculative” litigation before English courts.   

Although the Total decision has been adopted by most courts in England, the argument that an insurance policy is a private matter between the insured and insurers has not extended to After-The-Event (“ATE”) insurance policies.  These are specific policies which some claimants take out to combat the loser pays rule, which is embedded in English litigation.  Claimants use ATE policies to cover their liability to pay a Defendant’s legal fees and disbursements, if their case is unsuccessful.   In the recent decision of Barr & Oths –v- Biff Waste Services Ltd [2009], the court took the view that such insurance policies are disclosable.  Among other things, the court held that there was a difference between liability insurance, which may have been in place for many years before the event giving rise to the litigation, and an ATE insurance policy that was probably taken out for the sole purpose of allowing a claimant to pursue litigation, which would otherwise not be possible.  As an ATE policy is a vital component to the litigation itself, its disclosure can be distinguished from the court’s decision in the Total case.

While the theory surrounding both decisions may seem sound, one cannot help but feel that just as a Defendant in England does not want to defend a claim for fear of being unable to recover its costs, a claimant does not want to obtain an empty judgement.  Surely as the “cards on the table” approach is the overriding objective of the Civil Procedure Rules, wouldn’t it be in all parties interest to save time and costs by knowing where they stand from the outset of any case?

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Measure of Damages

A critical part of any subrogation analysis is the determination of what damages are legally recoverable from a potentially liable third party. Unique to equine claims, the owner of the horse will often choose to insure the horse for less than its fair market value to avoid higher premiums. For this reason, the insured value rarely, if ever, equates to what is legally recoverable. In most jurisdictions, the fair market value of the horse is the proper measure of damages. To prove fair market value at trial, there must be a well supported opinion given by a qualified expert in the field. Although a third party may be liable for injuring the horse and rendering it incapable of performing its intended purpose, the horse may still have a significant residual value as a breeding horse or performing a new purpose. That residual value will likely be subtracted from the overall damages recoverable through litigation. In today’s climate of frequent expert challenges, choosing the right expert who can properly evaluate these issues is essential.

In addition to seeking the fair market value of the horse, an owner often asks whether he or she may seek pain and suffering or emotional distress damages for their loss. In the vast majority of jurisdictions, these types of damages are not recoverable because there is no physical manifestation of an injury to the policy holder. The owner will be limited to economic damages, which may include a claim for business interruption, loss of future breeding rights or loss of future value. 

First Dollar Out

With many horses being underinsured, first dollar out questions often arise in equine subrogation claims. It is important to be aware of the policy language and any first dollar out rules in your jurisdiction. In addition, there is no penalty for underinsuring a horse.   A proration agreement is one way to effectively handle what could be a sticky situation with the insured after litigation begins.  Such an agreement also provides a platform for the carrier and the policy holder to discuss the actual recoverable damages before litigation ensues. Having these discussions up front helps to manage the sometimes unreasonable expectations of the policy holder who is devastated by the loss of their equine companion. 

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In recent years, technology and the internet have fostered a new trend in social media with websites such as Youtube, Facebook, and Twitter.  This undeniably stems from the desire for instant information.  How can technology and the internet assist in maximizing subrogation cases?  Consider these examples:

Youtube/Online Video:  Recently I received a new fire loss days after the fire occurred.  I began searching online for information and came across multiple Youtube videos of the fire still burning.  Some of the videos were taken from a helicopter by a major news organization and others were local/online reporters and bystanders documenting the fire spread.  One video even included an interview with the local fire department chief discussing the status of the fire.  These videos can be used to assist fire cause and origin investigators in their evaluation of where the fire started, how it spread and even identifying witnesses. 

E-Mailing Notice Letters:  The process of placing a potential defendant on notice of a new loss, and receiving a response, can often take weeks.  However, most companies have websites with e-mail contact information.  By utilizing their e-mail addresses, you can ensure (1) reasonable notice and (2) faster notification to liability carriers.  Further, you can activate the "Return Receipt" feature on your email to verify that the notice was actually received.  

Video-Conferencing:  Whether you are conducting a roundtable conference with subrogation counsel, interviewing an insured or even listening to a deposition, a simple telephone call may not always provide all of the details.  If a picture is worth a thousand words then video-conferencing is the equivalent of a dictionary.  Video-conferencing allows you to assess facial expressions and body language.  In essence, it puts you in the room.  Video-conferencing is readily available in most law firms and there are many inexpensive alternatives available, such as Skype which allows video calls over the internet to other Skype users. 

These are just a few examples of how technology and the internet can assist in maximizing subrogation recoveries. These tools should be utilized for effective and efficient handling of subrogation losses.

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Subrogation cases often involve the pursuit of manufacturers in foreign countries.  Generally, service of process on those foreign manufacturers must be made pursuant to the requirements of the Hague Convention.  These requirements are time-consuming and costly, however, according to a recent California Appellate Court decision they may not always be necessary.

In Yamaha Motor Co., Ltd. v. Sup. Ct., the California Court of Appeal recently held that under certain circumstances a party may serve a foreign corporation by serving the corporation's American subsidiary.  The court considered factors including whether (1) there is ample regular contact between the local representative and the foreign defendant, (2) the likelihood that the local representative will notify the foreign defendant of the service, and (3) the overall relationship between the two companies.

The court concluded service on Yamaha-Japan was effectuated via service on Yamaha-American as this domestic entity was the “general manager in this state” and was the American face of the Japanese company.  Yamaha-America had (1) an exclusive arrangement to sell the foreign manufacturer's products, (2) provided warranty service and English owner manuals, (3) performed testing and marketing, and (4) received complaints about the manufacturer's products.  As a result, the court concluded that service of Yamaha-American was effective service for Yamaha-Japan under California law.  

Cases involving service of process on foreign manufacturers should be evaluated on a case-by-case basis to determine whether service on its American subsidiary will suffice.  If so, it will save time and money in the pursuit of your subrogation recovery.

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One of the first things to do upon receipt of a new subrogation loss involving a product is to check to see if there are any recalls of that product.  Ultimately, if your cause and origin investigator determines the product is the cause of the loss, the recall can greatly strengthen your subrogation case.  It provides effective cross-examination of the manufacturer’s employees and experts, as well as substantial leverage in settlement discussions. 

The United States Consumer Product Safety Commission (“CPSC”) regularly advises the public of product recalls and is an excellent resource.  Recently, the CPSC issued the following product recalls which may be relevant to future subrogation claims:

On July 30, 2008, Frigidaire announced a voluntary recall of clothes washers due to a fire hazard.  An internal defect in the washers’ drain pump case overheats and presents a fire hazard.  This recall involves several models within the six brands manufactured by Frigidaire which were sold nationwide between February 2009 and May 2009.  The Frigidaire brands subject to this recall include Crosley, Frigidaire, Kelvinator, Kenmore, Wascomat and White-Westinghouse. 

On July 21, 2009, Fiesta Gas Grills announced a voluntary recall of its Blue Ember grills, which are fueled by propane.  These gas grills are manufactured by Unisplendor Corporation and Keesung Corporation, both in China. Fiesta is the national importer.  The hose of the gas tank can get too close to the firebox, exposing it to heat and creating a fire hazard. The grills were sold nationwide between November 2006 and June 2007 and in Canada between November 2006 and May 2009. 

On August 11, 2009, Griffin International issued a voluntary recall on Wii battery recharge stations.  Psyclone Essentials and React Wii 4-dock battery recharge stations are recalled due to a fire hazard. The battery pack can overheat, creating a fire hazard. The battery packs subject to this recall were sold at Target, Toys R Us and on amazon.com from January 2008 to July 2009.

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 Just like property damage claims, it is vital to hire the right experts and conduct a thorough and timely investigation. But unlike a typical property damage claim, with equine mortality claims it is often impractical and difficult to maintain the deceased horse for days or weeks to allow for all interested parties to retain experts and examine the horse. Many times, the board of health will not allow the horse to be retained. Nonetheless, immediate notice should be given in writing to any potentially responsible third parties. DNA samples should be collected and preserved to prove that the deceased horse is in fact the insured horse. If it is believed that a third party caused the death, it is also recommended that a full post mortem examination be conducted at either a university or a diagnostic laboratory in order to conclusively establish the cause of death. Photographic documentation and the appropriate records from an equine veterinarian are also helpful in combating any claims of spoliation.

In an equine injury situation, a veterinary expert will be necessary to causally connect the potential defendant’s conduct to the injury. Similar to a personal injury case, the right medical experts and records are needed to support such a claim. Notice to responsible third parties should be given immediately, and the injury should be properly documented with photographs, x-rays, blood tests, or the like. Taking things a step further, the subrogation professional may wish to consult with the veterinarian before a report is finalized to make sure the report is thorough, admissible at trial, and easily understood by an opposing adjuster, judge or jury.

Consideration should also be given to whether the treating veterinarian is qualified to serve as a litigation consultant and testify at trial. Many veterinarians, like medical doctors, may be hesitant to testify against others in their industry. When there is a potential malpractice claim against a veterinarian, this issue should be addressed up front with the treating veterinarian. If a new expert is needed, it is best to give him or her an opportunity to examine the horse in question as close as possible to the time of the injury. Often times the insurance company will hire a separate veterinarian to avoid any conflict of interest for the insured’s veterinarian, which gives the subrogation professional a choice of experts.

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The Rules of the Road have changed, literally, with the bankruptcy filings of Chrysler and GM. Their restructurings have moved through the bankruptcy court at a dizzying pace.  The sale of substantially all of Chrysler’s assets to Fiat was approved in June, and in mid-July, a judge approved the sale of GM's most-valuable assets to a new company, majority owned by the federal government.  These reorganizations are structured as asset sales to new entities "free and clear" of tort claims arising from vehicles manufactured and sold pre-bankruptcy.

Through this process, the automakers are eliminating thousands of dealers and leaving tort claimants to recover just pennies on the dollar through the bankruptcy court because Chrysler and GM for all intents and purposes were self-insured for products defect claims.

Chrysler already has obtained bankruptcy court approval of its "free and clear" sale that purports to prohibit the assertion of all current and future claims involving a vehicle it sold pre-bankruptcy against "new" Chrysler.  GM’s treatment of tort claims is somewhat different. Bowing to political pressure, "new" GM has agreed that it would accept liability for all claims involving GM cars that were sold prebankruptcy, so long as the accident occurred after the June 1, 2009 filing of GM’s bankruptcy petition. As with Chrysler, however, claims arising from pre-bankruptcy accidents would still get paid in nearly-worthless "bankruptcy dollars." 

The terms of the sale leave a large group of tort claimants and insurer subrogees largely out of luck in pursuing claims against Chrysler and GM.  While claims which involve cars sold pre-bankruptcy can still be brought against "new" GM if the accident occurred after the June 1 filing of the bankruptcy petition, insurers will find that most other subrogation claims, like those of the tort claimants, will be relegated to the bankruptcy court to be processed as nearly-worthless, unsecured bankruptcy claims.

While "new" GM has accepted some liability for these types of claims, "new" Chrysler has not.  Thus, it is likely that despite the terms of the bankruptcy court order which prohibits the assertion of current and future claims against Chrysler, future claimants will attempt to assert successor liability claims against "new" Chrysler.  In addition to challenging this portion of the bankruptcy court's order in Chrysler, many of these claimants will seek other sources of recovery, such as dealers and suppliers; potentially exposing their insurers to risks they did not foresee underwriting.

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The recent tragedy in Florida involving the sudden and untimely death of twenty-one polo ponies raises issues about equine subrogation possibilities. In that matter, a supplement is suspected in the death of polo horses. Because a horse cannot be “preserved” for inspection as with typical property losses, particular attention must be paid up front to protect any subrogation claim. This thread will routinely provide helpful tips for the adjuster and subrogation professional with regard to equine claims.

Theories of Equine Law Recovery

There are many potential third parties to look to for a recovery in an equine loss. If the horse is injured or killed, the question is what caused the injury or death. Assuming the stable owner is not the owner of the horse, the stable owner may be a potential target. If the barn or the grounds presented a dangerous condition that caused the injury or death, a premises liability case may exist. Before going too far down this road, the boarding agreement must be obtained and examined for any waivers of liability or waivers of subrogation. The stable will often carry a care, custody and control policy, or “CCC policy,” that covers any horses that are injured while in the care of the stable. Be sure to check policy limits, however, because some policies only pay a limited amount per horse and may have a low aggregated limit.

Another potential target is the treating veterinarian. If the treating veterinarian fails to properly treat or diagnose a condition that leads to the deterioration of that condition and permanent lameness or injury, a subrogation claim may be viable. Likewise, trainers may also be potential targets for failing to recognize a problem or failing to timely seek veterinary assistance. If the trainer does not address an injury, or disregards a veterinarian’s advice, the horse could suffer additional injury or permanent lameness if pushed to exercise and work. This is properly the subject of expert testimony—thus it is critical to have an consulting veterinarian or trainer to advise whether treating veterinarian and/or the trainer failed to meet the standard of care which was the proximate cause of the injury. 

Product manufacturers, including drug companies, are another potential target. There can be any number of ways a defective product could kill or injure a horse - from a defective heater causing a barn fire, to a horse-trailer tire blowing out and causing an accident. In a fire situation, local codes should be reviewed to determine whether any fire suppression system should have been installed and maintained by the stable manager. Thinking creatively about possible theories of recovery in the early stages is invaluable to know what parties to place on notice and what evidence and documentation should be retained.

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