ARTICLES IN THIS ISSUE
1- Court Prohibits Offensive Use of Collateral Estoppel
of Prior "Bad Faith" Findings
Prepared August 31, 2005
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The West Virginia Supreme Court of Appeals has held that collateral estoppel will not apply in a "bad faith" claim to establish an insurance carrier's general business practice where there is credible evidence in the record that the insurer altered its general business practice between the time of an initial finding of a general business practice finding and the time that a subsequent claim was handled. In answering certified questions from the Circuit Court of Greenbrier County, the Court so held in Holloman vs. Nationwide Mut. Ins. Co.,(No. 32286, W. Va., filed June 21, 2005).
The issue arose when the Plaintiff in a third party "bad faith" claim against Nationwide attempted to utilize the Supreme Court's opinion of Dodrill vs. Nationwide, 201 W. Va. 1, 491 S.E. 2d 1 (1997), to establish the general business practice prong of her burden of proof. The Circuit Court of Greenbrier County certified the question: "Is application of the doctrine of collateral estoppel appropriate in the present action based upon the adjudication in Dodrill vs. Nationwide Mutual Insurance Company, 201 W. Va. 1, 491 S.E. 2d 1 (1997), upholding the findings that Nationwide Mutual Insurance Company violated West Virginia Code §33-11-4(9)." The Circuit Court answered no; the Supreme Court agreed.
The Circuit Court reached its decision, in part, on an affidavit of Nationwide's Director of Casualty Claims for West Virginia which outlined changes to Nationwide's claims organization and business practices after the Dodrill decision. The Plaintiff offered no evidence in reply.
In his first opinion, newly elected Justice Brent Benjamin noted that the offensive use of collateral estoppel is disfavored in West Virginia and concluded that before collateral estoppel can be utilized the legal issues presented and controlling facts must be identical. While the legal issue - violation of the Unfair Claims Settlement Practices Act as a general business practice- may be identical in the Dodrill and present actions, the Court found that the controlling facts were not identical. The Court further found the Plaintiff's arguments that the passage of time would not bar the application of collateral estoppel to be "unpersuasive" and specifically found that a company's general business practice is often " a fluid process reacting to changes in the legal and economic environments ... To find that a single jury conclusion that an insurer's handling of a single claim indicated a general business practice of UTPA violations, conclusively establishes, for all time, an element of a statutory cause of action is not plausible." The Court further held that the controlling facts supporting a general business finding will not be identical if there is credible evidence that the insurer changed its business practices between the time of a prior finding of a general business practice and the time the claim at issue was handled.
Martin & Seibert, L.C. submitted an amicus brief on behalf of five insurance carriers in favor of Nationwide's position which prevailed at the Supreme Court.
The West Virginia Supreme Court of Appeals has overturned Summary Judgment in favor of Erie and found simultaneous coverage under two auto policies in Satterfield v. Erie Ins. Property and Cas., (No. 32511, W.Va., filed June 30, 2005).
The issue arose when a guest passenger sought insurance proceeds from the tortfeasor's personal auto liability policy and a commercial auto policy relying upon the "newly acquired auto" clause in the commercial auto policy. The Circuit Court of Pleasants County granted Summary Judgment to Erie finding that the vehicle in question which was purchased by the tortfeasor and her father five days before the accident was identified on the family auto policy and therefore did not qualify as a newly acquired auto on the commercial policy. The commercial auto policy contained an exclusion that extends coverage to "autos you acquired during the policy period." The only condition imposed to extend coverage is that the insured inform Erie about newly acquired autos during the policy period in which the acquisition takes place. Erie maintained that once the "newly acquired vehicle" was expressly included as an insured vehicle under the family auto policy it lost its status as a "newly acquired vehicle" under the commercial policy.
The Supreme Court disagreed extending coverage under both policies finding that Erie failed to include language in the commercial policy that expressly terminated coverage or required an election between policies. The Satterfield Court specifically held that West Virginia requires that exclusions be stated in clear and unambiguous fashion. The Court ruled that no interpretation of the policy was required to conclude that coverage existed under both policies.
In answering a certified question from the Fourth Circuit, the West Virginia Supreme Court of Appeals has held that a Defendant may not pursue a separate cause of action against a joint tortfeasor for contribution after judgment has been rendered when the joint tortfeasor was not a party in the underlying case and the Defendant did not file a third party claim. The Court reached this decision in Lombard Canada Ltd. v. Johnson, et al., (No. 31686, W. Va. filed May 11, 2005).
The issue arose following a trucking accident on Interstate 81 when a truck owned by a Canadian Corporation was hauling an oversized load and struck an overpass bridge in Berkeley County. By statute, the trucking company was strictly liable to the State. The trucking company's insurer, Lombard Canada, entered into a settlement agreement with the State and the State released the trucking company and its insurer. Thereafter, the insurer filed a subrogation claim in the Northern District of West Virginia against the escort vehicle that accompanied the truck seeking contribution. The Complaint alleged that the escort vehicle was negligent in failing to lead the truck off the interstate as required by the terms of the permit, thus causing the truck to strike the bridge. At trial, the jury apportioned fault between the trucking company and the escort vehicle 75% and 25%, respectively. The escort vehicle driver appealed to the Fourth Circuit which certified a question to the West Virginia Supreme Court. In answering the certified question the Supreme Court held that a defendant may not pursue a separate cause of action against a joint tortfeasor for contribution after judgment has been rendered in the underlying case, when the joint tortfeasor was not a party of the underlying case and the defendant did not file a third party claim pursuant to Rule 14(a) of the West Virginia Rules of Civil Procedure.
The Court reached the same decision in Charleston Area Med. Center, Inc. v. Parke-Davis, (No. 31685, W.Va. filed May 11, 2005).
Martin & Seibert, L.C. represented Lombard Canada in this proceeding at trial, before the Fourth Circuit and before the West Virginia Supreme Court of Appeals.
The West Virginia Supreme Court of Appeals has held that a portion of the Medical Malpractice Statute is unconstitutional. West Virginia Code §55-7B-6d requires judges to instruct a jury that it should endeavor to reach a unanimous verdict, but if it cannot reach a unanimous verdict, that it may return a majority verdict of 9 of the 12 members of the jury. The Supreme Court in Louk v. Cormier, (No. 31773, W.Va., filed July 1, 2005), found that this provision of the Medical Professional Liability Act conflicts with Rule 48 of the West Virginia Rules of Civil Procedure. Rule 48 permits parties to stipulate that a verdict of a stated majority of the jurors may be accepted. Writing for the majority, Justice Davis held that there is no ambiguity in Rule 48, and that the only method by which a jury may return a non-unanimous verdict is by stipulation and held that the non-unanimous provision of §55-7B-6d stripped litigants of their rights. Justice Davis wrote that the Supreme Court, "is quite sensitive to the need for reform in medical malpractice litigation," but concluded that the Legislature "cannot remove that which was not in its power to give."
The Louk Court concluded that the provisions of §55-7B-6d were enacted in violation of the Separation of Powers Clause of the West Virginia Constitution and held that the statute-in its entirety-is unconstitutional and unenforceable because of a 2001 amendment to the Act which states that if any portion of the amendment is held invalid, then, "not withstanding any other provision of law, every other provision of said House Bill 601 shall be deemed invalid and of no further force and effect. Nonetheless, Justice Davis held this the provision was actually a non-severability provision and determined that despite explicit language, "Courts all but ignore" these clauses and apply their own tests and presumptions to determine severability. Therefore, the Louk Court held that the non-severability in the Act "is construed as merely a presumption" And held that under its principles of statutory construction it would not defer as a matter of course to severability provisions but would instead engage in an "independent analysis" to determine legislative intent. Therefore, the Court ruled that the provisions of the Medical Professional Liability Act with respect to non-unanimous verdicts is unconstitutional; the Court, however, maintained the constitutionality and validity of the remainder of the legislation including West Virginia Code §55-7B-5, which prohibits "bad faith" claims against medical malpractice insurers. The Court specifically found that this provision was independent and did not encroach upon the Court's authority under the rule-making clause.
In his dissent, Justice Maynard argued that the Court should not strike down a statute passed by the legislature simply by using its own "judge-made rules." "This ruling not only invalidates important provisions of the medical malpractice reform package but also serves as a warning that this Court has the absolute power to declare null and void any part of the entire reform package," he wrote.
Four days later in Ainchman vs. Gillette, (No. 31760, W.Va., filed July 5, 2005), the Court reviewed another portion of the statute, specifically the pre-suit notice of claim. Writing for the majority, Justice Starcher began his discussion, stating "we assume arguendo that this statute is constitutional." The Ainchman Court ultimately held that before a defendant in a medical malpractice suit can challenge the legal sufficiency of a plaintiff's pre-suit notice of claim or screening certificate of merit the Plaintiff must have been given written and specific notice of and an opportunity to address and correct any defects and or errors that might otherwise bar a medical malpractice suit.
On August 18, the Illinois Supreme Court reversed a $1 billion judgment against State Farm stemming from a national class action over the use of non-Original Equipment Manufacturer (OEM) parts. In rendering its decision, the court held that the trial court erred in giving the suit class action status.
The class consisted of State Farm policyholders who contested the insurer's practice of using non-OEM parts to repair policyholders' vehicles in every case where such parts were available. Plaintiffs alleged this was a breach of contract because State Farm failed to restore their vehicle to pre-loss condition claiming non OEM parts were categorically inferior. The class also argued the practice violated Illinois consumer law. The trial court concluded that Illinois law could be applied to all class members nationwide and certified a national class of approximately 4.7 million claimants.
A jury found State Farm had breached its contractual obligations and the trial court entered judgment for $1,186,180,000.00. An intermediate appellate court reduced the verdict by $130 million. On appeal, State Farm argued that individual questions predominated over any purported common questions thus precluding class status. The Illinois Supreme Court agreed in Avery v State Farm Mut. Auto Ins. Co., (No. 91494, Ill, filed August 18 ,2005). The Avery Court held that the trial court erred in concluding that the operative language in State Farm's various policies could be given a uniform interpretation and found there was no evidentiary support for the conclusion that all State Farm policies are uniform.
The Supreme Court also concluded that the trial court also erred in granting national class action status when there existed only one named plaintiff from Illinois, and he was not able to prove that he suffered any damages as a result of the State Farm's actions.
The West Virginia Supreme Court of Appeals has upheld the denial of unemployment benefits to an employee of Thomas Memorial Hospital when it was determined that the employee stole food from the hospital cafeteria in Herbert J. Thomas Memorial Hospital vs. Board of Review of the West Virginia Bureau of Employment Programs, et al., (No. 32054, W. Va., filed June 10, 2005). The Court concluded that the former employee's actions amounted to theft and determined that the theft of food items constituted gross misconduct and was the basis of the termination. Therefore, unemployment compensation benefits were denied. Pursuant to W. Va. Code § 21A-6-3(2) an individual discharged for gross misconduct is disqualified from receiving unemployment compensation benefits and shall remain disqualified for benefits until he has worked for at least 30 days in covered employment.
In a dissenting opinion, Justice Starcher attacked the hospital and its counsel stating "Mr. Kirk [plaintiff] was fired for taking food at work without paying for it. Oh, my God! It is not as if this is the first time such an act ever occurred." Justice Starcher accused the hospital of being determined to "send a message" and further stated: "I note that the lawyer who apparently led Thomas Memorial Hospital to this stunning victory over a 'food stealing janitor' (who had no lawyer) was treasurer of the Christian Legal Society when he was in law school. I wonder what a certain Carpenter's reaction would be to a decision that gave the maximum possible penalty to a janitor who took food at work without paying." (Emphasis in original).
The Circuit Court of Kanawha County has now held that reserve information in a claim file is not discoverable information. The Court so ruled in Harvey v Hartford Fire Ins. Co., Civil Action No. 03-C- 1656 in adopting a recommendation of a Discovery Commissioner.
The Discovery Commissioner found and the Circuit Court agreed that reserve documents are protected from disclosure pursuant to the work product exception and that insurance companies set reserves for regulatory purposes and that reserves are "a guesstimate by the insurance company as to, among other things, the present sense impression of the insurance adjuster and his cohorts of the litigation value of a case, thus the loss reserves would qualify as privileged information under a theory of the work product doctrine." The Court concluded, therefore, that the information was properly withheld from the plaintiff in the "bad faith" litigation.
This decision is in line with an Order of the US District Court for the Northern District of West Virginia in Barrett v Hartford Ins. Co. of the Midwest, Civil Action No. 5:03-CV-157, which held that reserve information is irrelevant in a "bad faith" action finding that while an insurance company is required by regulators to set reserves, reserves are "set in a generalized manner." Thus lacking any individuality to the claim presented, Magistrate Seibert found that the information was not necessary to the prosecution of a "bad faith" claim.
Martin & Seibert, L.C. represented Hartford in both cases.
The West Virginia Supreme Court of Appeals has upheld Summary Judgment in favor Motorists Mutual Insurance Company in a declaratory judgment action challenging exclusions in a commercial general liability policy. The Summary Judgment was affirmed in Luikart vs. Valley Brooke Concrete and Supply, Inc and Motorists Mut. Ins. Co., (No. 31867, W. Va., filed May 10, 2005). The issue arose following a one vehicle fatal accident and the filing of a wrongful death action claiming a deliberate intent violation under the West Virginia Worker's Compensation Act. The employer of the decedent, Valley Brooke, was insured by Motorists Mutual. Motorists Mutual defended Valley Brooke under a reservation of rights and filed a declaratory judgment action seeking a determination it had no duty to defend or to indemnify based upon the expected or intended injury exclusion of the policy, Worker's Compensation laws and employer's liability exclusions. The Plaintiff conceded that the policy language is clear and unambiguous but argued that the exclusions were never disclosed to the insured and were therefore unenforceable and that Motorists had a duty to offer "stop gap coverage" to the employer.
With respect to disclosure of exclusions, the West Virginia Supreme Court has consistently held that exclusionary language must be conspicuous, plain, and clear and imposes a duty on insurers to bring exclusions to the attention of the insured. Finding that the exclusionary language was set apart from other language in a policy with a bold face subheading entitled "Exclusions," the Court determined that the use of bold faced language was indeed conspicuous. The Court also concluded that Motorist Mutual had sufficiently disclosed the exclusions to its insured.
The Plaintiff next argued that Motorists Mutual had a duty to offer "stop gap" coverage which would provide coverage for claims made against a business by insured employees whose claims are not generally compensable under Worker's Compensation. The Court also rejected this argument finding that an insurer has no statutory duty to offer "stop gap" coverage. The Court also considered the reasonable expectations doctrine and again reiterated that the doctrine is generally limited to those instances when policy language is ambiguous. In limited circumstances it may be applied where policy language is clear and unambiguous.
Finding that the exclusionary language was agreed upon by the parties to be clear and unambiguous on its face, the Court declined to apply the doctrine of reasonable expectations. Significantly, the Court held that the terms and conditions of coverage including exclusions were not only discussed but were read by the insured and therefore the doctrine of reasonable expectations would not apply and Summary Judgment was upheld.
In answering a Certified Question from the Fourth Circuit Court of Appeals, the West Virginia Supreme Court has interpreted the term "occurrence" in a general liability policy, finding that the policy would provide coverage for suicides of two inmates at the Randolph County Jail. In Columbia Cas. Co. vs. Westfield Ins. Co., (No. 31941, W.Va. filed, June 10, 2005) the court considered the Westfield policy issued to the Randolph County Commission after Columbia Casualty which had issued a liability policy to the sheriff defended and settled both claims. Thereafter, Columbia sued Westfield in the U.S. District Court for the Northern District of West Virginia seeking a declaratory judgment that Westfield had wrongfully denied coverage to the Commission and that Westfield was therefore liable to Columbia for a portion of the money expended in defending and settling the two suits.
The District Court concluded that the deaths by suicide were not "occurrences" which would trigger coverage under the Westfield policy and granted Summary Judgment to Westfield. On appeal, the Fourth Circuit certified the question to the West Virginia Supreme Court. The Supreme Court determined that the Westfield policy would provide coverage. The Westfield policy defines an occurrence as "an accident," including continuous or repeated exposure to substantially the same general harmful conditions." The term "accident" is not further defined in the policy.
Writing for the majority, Justice Starcher held that whether the suicides were "accidents" should be answered by applying the terms of the insurance policy to and from the perspective or standpoint of the insured - the County Commission. Thus, the Court concluded that from the perspective or standpoint of the Randolph County Commission, the suicides were not deliberate, intentional, expected, desired or foreseen and were "accidents," thus covered claims.
A circuit judge has dismissed a libel lawsuit filed by former State Supreme Court Justice Warren McGraw against former state Democratic Party Chairman George Carenbauer and West Virginia Media Holdings, which owns a Charleston television station, finding that television ads used in the 2004 Supreme Court campaign were true and therefore not defamatory. The lawsuit is still pending against Don Blankenship, chairman of Massey Energy Co., who has not filed a Motion to Dismiss yet.
The lawsuit was filed after Brent Benjamin defeated McGraw, a Democrat, 53 percent to 47 percent, to become the first non-incumbent Republican to win a state Supreme Court seat in West Virginia in 80 years. It has been reported that Blankenship spent $3.5 million on anti-McGraw ads. The group "And for the Sake of the Kids" who retained Carenbauer spent more than $2 million in advertising.
In his opinion, special judge Alan Moats wrote: "The court does have serious concerns about the tenor and tactics utilized in this judicial election and how the integrity and independence of the judiciary as an institution in this state will be adversely impacted if such tenor and tactics continue in future elections...However, that issue is not properly before this court."
The lawsuit centered on two broadcast ads that criticized McGraw for his vote in a case involving a sexual predator. As a public figure, McGraw was required to prove that information in the ad was false and that the ads were run with reckless disregard of whether they were false. The trial judge found that the language in the ads was true. Moats also found the term "radical" which was used in the ads to describe McGraw was constitutionally protected free speech.
McGraw was represented by former Supreme Court Justice Richard Neeley.
The West Virginia Supreme Court has again extended the 120-day time period provided for in Rule 4(k) of the West Virginia Rules of Civil Procedure to effect service of process. In Burkes vs. Fas-Check Food Mart, Inc., (No. 31777, W. Va., filed June 24, 2005), the Supreme Court reversed the finding of the Circuit Court of Kanawha County finding that good cause existed to extend the time to serve and granted Plaintiff the right to reinstate her case. The issue arose following a slip and fall at a convenience store. The Plaintiff filed suit but misnamed the Defendant, a domestic corporation, in her Complaint. The Plaintiff sought to serve her Complaint through the West Virginia Secretary of State, but because the Defendant was improperly identified, service was rejected by the Secretary of State. The Plaintiff then attempted to serve an Amended Complaint against another corporation which was not authorized to do business in West Virginia and again service was rejected by the Secretary of State. The Plaintiff then filed a Second Amended Complaint naming yet another Defendant based upon information provided by the president of the company which the Plaintiff was attempting to sue. The Secretary of State accepted service of this Complaint and forwarded the pleading by certified mail to the Defendant. The certified mail was returned as unclaimed with "other" marked as the only explanation for the return. The Defendant did not fail to accept or refuse to accept the certified mailing and therefore service of process was again not accomplished. Thereafter, the Circuit Court of Kanawha County dismissed the Complaint, without prejudice, for failure to serve within 120 days of the filing. Nineteen days later the Plaintiff filed a Motion to reinstate, arguing that service was sufficient and that good cause existed to expand the time to serve. The West Virginia Supreme Court found good cause did exist to extend the time in which to perfect service of process.
Pursuant to W. Va.Code §31-1-15 and §31D-15-1510 service of process on a corporation is insufficient where process is mailed, by registered or certified mail, to an authorized corporation's listed agent by the Secretary of State and is neither accepted nor refused by the agent and the mail is returned undeliverable. The Court determined that service of process or a notice upon a domestic corporation through the Secretary of State is likewise insufficient when registered or certified mail is neither accepted nor refused by an agent or employee of the corporation. Because the mailing was returned with "other" marked, the Court found that it had not been refused by the corporation and therefore the corporation had not been properly served. However, the Court considered whether good cause existed to extend the time available for the Plaintiff to serve.
The Court held that under Rule 4(k), if a Plaintiff fails to serve a Summons or Complaint upon a defendant within 120 days, the Circuit Court should dismiss the action, without prejudice. However, a Court can extend the time for service if the Plaintiff shows good cause. Factors which courts should consider are: 1.) whether the Defendant evaded service; 2.) whether the Defendant knowingly concealed a defect in service; 3.) whether the statute of limitations has expired, and 4.) whether the Defendant has been prejudiced by the failure to serve. The Burkes Court held that the Circuit Court made no effort to consider these options and found the Plaintiff had made several attempts to serve the Defendant going so far as contacting the Defendant's President and designated agent and held while the Plaintiff or his attorney bears the responsibility to see that an action is properly and timely instituted, "a Plaintiff is not required to shoot with precision at a moving target."
The U.S. District Court for the Northern District of West Virginia has now adopted rationale of the Southern District of West Virginia that citizenship of a nominal party is irrelevant in determining diversity for purposes of federal court jurisdiction. In Beabout v State Farm Mut. Auto. Ins. Co., Civil Action No. 5:04-CV-95, Judge Stamp found that the citizenship of the tortfeasor was irrelevant given that the Amended Complaint was a "bad faith" claim against State Farm, an out-of-state defendant, and concluded that diversity of citizenship existed between a West Virginia plaintiff and State Farm.
The Court also ruled that Rule 6(a) of the Federal Rules of Civil Procedure permits a party to extend the time of filing a Notice of Removal when the deadline falls on a non-judicial day and permitted State Farm to voluntarily submit to jurisdiction of the Court in order to remove the case before the expiration of one-year of the pendency of the underlying suit expired, even when the one-year deadline fell on a non-judicial day.
In considering the amount in controversy, the federal Court also found that a court need not leave common sense behind when considering this issue. In Beabout, State Farm attached to its Notice of Removal documents routinely submitted by the plaintiff's counsel listing the firm's "successes" in negotiating large bad faith settlements. Given that the lowest settlement on the list was $225,000.00, State Farm argued that the amount in controversy exceeded $75,000.00 without conceding that this case was actually worth that much. The Court agreed and denied the Motion to Remand and the subsequent Motion for Reconsideration. Martin & Seibert, L.C. represents State Farm in this matter.
West Virginia Governor Joe Manchin has appointed Fairmont lawyer G. Patrick Stanton, Jr. to serve as Director of the West Virginia Office of Consumer Advocacy, a state office expanded through insurance reform legislation approved during the 2005 legislative session.
The Office of Consumer Advocacy will represent the interest of insurance consumers before the West Virginia Insurance Commissioner at administrative hearings which replace the third party private cause of action under the Unfair Claims Settlement Practices Act. The Consumer Advocate may also intervene in other cases as well.
"Pat Stanton will do an outstanding job in leading an office that is tasked with the important mission of ensuring West Virginia's insurance consumers have the protections that are guaranteed to them by law," the Governor said. "I am pleased that we are achieving comprehensive insurance and civil justice reform in our State without sacrificing the protection of our consumers."
In accepting his appointment, Mr. Stanton stated: "The legislature, with the guidance of the governor, has provided for much needed tort reform. However, this administration and the Office of Consumer Advocacy will not tolerate any abuse under those statutes."
In June, the West Virginia Insurance Commissioner released proposed revisions to Rules promulgated under the Unfair Trade Practices Act, 114 CSR Series 14. The proposed changes significantly reduced the time for insurers to respond to inquiries from claimants and/or the Commission, imposed additional duties on insurers and in many instances imposed duties to third parties greater than those contractually owed to first parties and which may be contrary to West Virginia law.
The industry responded to the proposed amendments and on July 29, 2005, the Commissioner released revisions which will now be considered by the Legislature's Rule Making Committee. In the revisions, the Commission restored the 15 working-day rule for responses.
The most significant revisions in the form now under consideration by the Legislature include a definition of the term "egregious act" which seems to blur the line of the burden of proof and does not contemplate at what stage of proceedings the Commission may make such a finding. Other proposed changes include the imposition of additional file documentation requirements; the requirement that denials be in writing; standards for the Commissioner to determine whether an offer is "unreasonably low"; and a requirement that all insurers adopt and provide claims personnel written standards for the prompt investigation and processing of claims.
Martin & Seibert, L.C. has been heavily involved in analyzing proposed changes, proffering alternative language or standards and in monitoring the progress of the proposed changes through the rule making process. Our attorneys are available to provide additional analysis and advice to insurers concerning the impact of proposed changes and to assist in training claims personnel to comply with any rule changes.
In addition to these rule changes, the Commission is charged with promulgating procedural rules for the administrative complaint process created during the 2005 Legislative session in lieu of private causes of action for third party "bad faith" claims. No such rules have yet been promulgated by the Commission.
The West Virginia Supreme Court has determined that a Plaintiff's claim of damages for loss of earnings or impaired future earning capacity should be based upon gross earning and should not be reduced because of any income tax or other "paycheck type" deduction." Whether an insurance carrier who settles a claim for net, after-tax wages rather than gross wages has violated the West Virginia Unfair Trade Practices Act is ordinarily a question of fact for a jury and it was improper for the Circuit Court of Ohio County to rule as a matter of law that an insurance carrier who settled for net rather than gross wages violated the Act the Court held in Hicks vs. Jones, et al., (No. 31754, W.Va., filed July 8, 2005).
The issue arose when a Plaintiff involved in a motor vehicle accident with a Liberty Mutual insured presented a lost wages claim. Liberty Mutual honored the claim but took a 20% deduction on the payment for taxes. The Plaintiff sued Liberty Mutual alleging fraud, violation of the UTPA outrageous conduct and sought class action status. The Circuit Court, on cross motions for summary judgment, concluded as a matter of law that a West Virginia personal injury claimant is entitled to receive gross lost wages without any reduction for taxes or other items deductible from a claimant's paycheck and further concluded that any such deduction was a violation of the UTPA as a failure to make a fair and equitable settlement offer when liability was reasonably clear.
Writing for the majority, Justice Starcher held that in fixing damages for accrued loss of earnings or impairment of future earning capacity because of personal injuries, that tax consequences of the award should not be taken into consideration.
However, the Court overruled a portion of the trial court's Summary Judgment Order in which it made a blanket conclusion that the actions of the insurance carrier violated the UTPA holding that the reasonableness of an insurance company's conduct is ordinarily a question of fact for a jury. Justice Starcher found that terms encompassed within the Act such as "fair" and "equitable" are synonymous and subjective and concluded that what constitutes a "fair and equitable settlement" under West Virginia Code §33-11-4(9)(f) is a settlement made impartially, honestly, and free from prejudice, self interest or improper influence. "Before a trial court may find that an insurance company has violated the Act as a matter of law, it must first determine that the insurance company's offer of settlement, unquestionably, was made without regard to the aforementioned circumstances of the parties; otherwise, the determination should be left for jury resolution," the Court held.
Martin & Seibert, L.C., submitted an amicus brief in this matter on behalf of the West Virginia Chamber of Commerce.
In resolving discovery disputes, the West Virginia Supreme Court of Appeals held in Cattrell Companies, Inc. vs Carlton, Inc., et al; (No. 31730, W. Va., filed May 10, 2005), that when a party has obtained an Order compelling discovery, that party has a duty to act in good faith with the opposing party to clarify what is sought to be produced under the Order. The Court also held that a party moving for sanctions under Rule 37(b) of the West Virginia Rules of Civil Procedure must file with the Motion to Compel an affidavit certifying that the attorney has conferred with opposing counsel and worked in good faith to resolve issues but was unsuccessful.
The dispute in Cattrell arose following several attempts to seek production of documents in a breach of contract case from a construction project where ultimately the Circuit Court of Tyler County granted a Motion to Compel, later granted a Motion for sanctions, struck defenses and entered Default Judgment against the Defendants, awarding damages and pre-judgment interest of more than $750,000.00. On appeal, however, the Supreme Court overturned the discovery sanctions finding that the Plaintiffs did not act in good faith when the Defendants sought clarification of the discovery request. The Supreme Court held that the sanction imposed was improper and that the Defendants had acted in good faith in attempting to comply with the Order. The Court found that the Plaintiffs, as the beneficiary of the Order compelling discovery, "did everything possible to prevent [Defendants] from complying therewith. Therefore, the Cattrell Court determined that it was an abuse of discretion for the trial court to impose sanctions.
In addition to the discovery sanctions, the trial Court struck defenses when Defendants failed to appear for a deposition and cancelled the deposition just prior to the scheduled date. The Cattrell Court held that under appropriate circumstances a party may be sanctioned for failing to attend a deposition notwithstanding the fact that the party cancelled the deposition. The factors to be considered in determining whether sanctions are appropriate are: 1) the timing of the cancellation and 2) whether good cause for the cancellation has been shown.
The Supreme Court found that the striking of defenses was too harsh a sanction and held that dismissal and default are drastic sanctions which should be imposed only in extreme circumstances. A Circuit Court may impose the sanction of dismissal or default judgment only if the Court finds that the party's failure to attend a deposition was due to willfulness, or bad faith. Once such a finding has been made the Circuit Court must then weigh the following factors to determine if default judgment or dismissal is appropriate: 1) the degree of actual prejudice to the other party; 2) the effectiveness of less drastic sanctions; and 3) any other factor that is relevant under the circumstances presented. The Supreme Court found willfulness and bad faith for the late cancellation and imposed as sanctions the Plaintiffs' costs and attorney's fees in connection with the cancellation of the depositions, attorneys fees and costs incurred in seeking sanctions, all fees and costs of the appeal and directed the trial Court to establish an expedited discovery schedule requiring depositions to be conducted within 30 days and to be conducted in West Virginia.
In a dissenting opinion Justice Maynard has called into question acts of his fellow justices on the West Virginia Supreme Court in soliciting affidavits of a party to be filed after oral arguments and utilizing the affidavits in deciding the outcome of a case. The issue arose in Napoleon S. and Linda S. vs. Walker, (No. 32046, W.Va., filed June 10, 2005), an abuse & neglect case, whereby the Supreme Court reversed the Circuit Court of Harrison County and remanded a case for entry of an Order requiring that an infant be placed with his grandparents for adoption. The majority opinion, written by Chief Justice Albright, quotes extensively from affidavits of the grandparents which acknowledge that their son, the biological father of the child to be adopted, caused serious physical injuries to the child. In his dissent, Justice Maynard wrote: "Also troublesome is the fact that the majority's decision is based, at least in part, on affidavits submitted by appellants to this Court on appeal. Astonishingly, the affidavits were filed after oral argument in this case and after being solicited by one or more justices of this Court. To solicit the affidavit during oral argument, to permit them to be filed post argument without any stipulation from the opposing party (talk about trial by ambush!); to consider them; and to rely on them in deciding this case is a fugitive procedure unknown to our law, one that outrageously violates our rules of evidence and appellate procedure, and one that is grossly unfair to the losing litigants. This is third world justice and no other Supreme Court in the United States would allow such a brutally unjust procedure. However, even if these affidavits were submitted, it is clear to me, and it should be clear to the majority, that they have absolutely no evidentiary value." (emphasis in original).
In a concurring opinion Justice Starcher pointed out that there is but a single dissenter to the Court's ruling and acknowledged that the acceptance of affidavits post-argument is a practice rarely employed by the Court but held "because this was a pivotal and dispositive issue in this case affidavits regarding the grandparent's intent provided additional explanation of assistance to this Court."
The West Virginia Supreme Court, in interpreting policy language, has permitted an insurance carrier to recoup medical expenses from an insured's recovery against a negligent third party. When the policy allows the insurer to seek "reimbursement" and the insured's recovery duplicates the medical expense payments, the carrier may seek recovery even if the tortfeasor is insured by the same company. The Court reached this conclusion in answering certified questions in Ferrell v. Nationwide Mut. Ins. Co., (No. 32050, W.Va., filed July 8, 2005).
The case began following a January 19, 2002 automobile accident between two Nationwide insureds. Nationwide payed its insured under its medical payments coverage identified as "family compensation coverage." Thereafter, the Plaintiff presented a claims for damages against the tortfeasor who was also insured by Nationwide. Nationwide attempted to settle the third party liability claim but refused to waive its right of reimbursement for medical payments made. As a result, the Plaintiff filed a Declaratory Judgment action which resulted in a certified question from the Circuit Court of Mercer County.
After reformulating the question, the Court concluded that in the absence of a conflict of interest with its insured, when an insurance policy allows an insurance company to seek "reimbursement" of medical expense payments to an insured from any recovery obtained from a third party and the insured obtains such a recovery from a third party that duplicates medical expense payments previously made and when the insurance company is also the liability insurer of the third party, then the insurance carrier may seek reimbursement from the insured.
The West Virginia Supreme Court has upheld the dismissal of an alleged "John Doe" claim against Allstate. The issue arose in Collins vs. Heaster and Doe, (No. 31971, W.Va., filed June 21, 2005), which rejected the Plaintiff's attempt to allege that implied consent should be presumed for John Doe to move an otherwise unoccupied vehicle out of the "zone of danger" of a fire." The case began when a paramedic responded to a fire in Harrison County on March 7, 2000. Shortly after arriving at the scene he was struck by a vehicle owned by the homeowner which was presumably being moved away from the fire by a neighbor. The driver of the vehicle is unknown. The Plaintiff filed suit against the homeowner alleging that John Doe negligently drove a vehicle with the implied consent of the homeowner and alleged that the homeowner negligently failed to exercise reasonable care thus proximately causing the Plaintiff's personal injury. Allstate, the liability carrier of the homeowner, filed a Motion to Dismiss arguing that there was no statutory provision authorizing a third party "John Doe" claim. The Circuit Court granted Allstate's Motion to Dismiss there was no support in West Virginia law for the assertion of a third party "John Doe" liability claim. The Supreme Court agreed, finding no decision from any jurisdiction which would support such a cause of action for implied consent. The Court also relied upon West Virginia Code §33-6-31, which limits "John Doe" claims to first party uninsured motorist claims.
In a case successfully litigated by Martin & Seibert, L.C., the West Virginia Supreme Court of Appeals has refused to permit a Plaintiff to assert a spoliation of evidence claim against Nationwide Mutual Insurance Company finding that the liberality permitted for the amendment of pleadings does not entitle a party to be dilatory in asserting claims or to neglect his or her cause of action. The West Virginia Supreme Court denied a Petition for Writ of Mandamus in State ex rel Vedder vs. Zakaib, (No. 32266, W.Va., filed May 16, 2005). The claim arose from an uninsured motorist claim following a 2001 automobile accident. Soon after the claim was opened, counsel for the petitioner requested that Nationwide maintain the vehicle-which was deemed a total loss-in order to permit the petitioner to assert a product liability claim against Toyota. Nationwide, however, sold the car to a salvage yard and so notified counsel for the petitioner in January 2002; however, no action was taken to amend the complaint or to assert a cause of action against Nationwide for two years. The Circuit Court of Kanawha County refused to permit the petitioner to amend her Complaint finding that the Plaintiff was dilatory in asserting or investigating a possible spoliation of evidence claim.
In considering the liberality of Rule 15 of the West Virginia Rules of Civil Procedure, the Supreme Court found that Courts may deny leave to amend when the moving party knows about facts on which the proposed amendment is based but omits necessary allegations from the original pleading. The Court also rejected the petitioner's argument that she could not bring the spoliation of evidence claim until 2003 when the Court recognized such a cause of action in Hannah v Heeter. The Court found that there was no legal impediment to bringing this claim earlier and concluded that even if the Court were to accept her contention she was not aware of the existence of a cause of action for spoliation until 2003, the fact remained that she waited almost an additional year before moving to amend the Complaint. This delay, the Court found, was unjustified.
In a concurring opinion, Justice Benjamin set forth a time line which he found to be "troubling" and chastised counsel for the petitioner for filing a complaint against Toyota asserting negligence and product liability despite the fact that the petitioner had never inspected nor attempted to inspect the vehicle, to determine if a valid claim existed.
The California Supreme Court recently issued two decisions affirming double digit punitive damages awards that essentially disregard the landmark decision of the Supreme Court of the United States in State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003). The Court also held that evidence showing a defendant has a practice of engaging in, and profiting from, wrongful conduct similar to that which injured the plaintiff may be considered in the analysis of whether a punitive damages award is unconstitutionally excessive.
Johnson v. Ford Motor Co., --- P.3d ---, 2005 WL 1404423 ( Cal., Jun. 16, 2005), concerned allegations that Ford concealed a vehicle's history of transmission repairs and replacements when reselling the vehicle. A jury awarded the Johnsons $17,811.60 in compensatory damages and $10 million in punitive damages. The Court of Appeal reduced the punitive damages award to $53,435.00 (roughly a 3:1 ratio). The California Supreme Court granted review.
In Simon v. San Paolo U.S. Holding Company, Inc., --- P.3d ---, 2005 WL 1404425 (Cal. 2005), the prospective buyer of an office building brought suit against the seller for specific performance of the contract, and also sought damages for breach of contract and fraud. The jury awarded the prospective buyer $5,000.00 in compensatory damages and $1.5 million in punitive damages. The seller appealed and the prospective buyer cross-appealed. The Court of Appeals affirmed and the California Supreme Court granted review.
While the Johnson Court agreed that the award of punitive damages was clearly excessive and violative of the standards set forth in Campbell, the Court criticized the intermediate appeal court's failure to consider evidence of Ford's corporate practices and procedures. The Court emphasized that a civil defendant's recidivism remains pertinent to an assessment of culpability. The Court noted that due process does not prohibit state courts from considering the defendant's illegal or wrongful conduct toward others that was similar to the tortious conduct that injured the plaintiff or plaintiffs. While acknowledging that Campbell requires proportionality between the amount of punitive damages and the actual or potential harm to the plaintiff, the Court observed that the reasonableness of this ratio depends on the reprehensibility of the conduct, which in turn is influenced by the frequency and profitability of the defendant's prior or contemporaneous similar conduct.
The Court noted that California law has long endorsed the use of punitive damages to deter the continuation or imitation of a corporation's course of wrongful conduct, and therefore allowed consideration of that conduct's scale and profitability in determining the size of award that will vindicate the state's legitimate interests. The Court concluded that Campbell did not place any limitations on the ability of California courts to take corporate profitability into account in the analysis of a punitive damages award. The California Supreme Court remanded for a new determination of the maximum constitutional award.
In Simon, the California Supreme Court offered its interpretation of the statement in Campbell that "few awards" significantly exceeding a single-digit ratio will satisfy due process. The Court opined that the Campbell holding created a presumption that ratios between punitive and compensatory damages greater than nine to one are suspect and cannot survive appellate scrutiny under the due process clause. However, the California Supreme Court noted that multipliers less than nine or 10 to one are not presumptively valid under Campbell. The Simon Court ultimately concluded that the appropriate punitive damages award was $50,000.00, 10 times the compensatory award. Although the Court did not find the defendant's conduct to be reprehensible, the Court found that the comparatively small size of the compensatory award warrants an award of punitive damages at the top of, but "not significantly beyond," the single-digit range.
The West Virginia Supreme Court of Appeals has held that dogs are personal property and that damages for sentimental value, emotional distress, or mental anguish are not recoverable in a negligence action for the death of a dog. The Court so ruled in Carbasho vs. Musulin, (No. 32288, W.Va., filed July 1, 2005). The issue arose after a June 8, 2001, automobile accident in which it is alleged that the Defendant, Michael Musulin, negligently operated his motor vehicle and struck Plaintiff, Helen Carbasho, who was walking her dog "Groucho," in an alley in Brooke County. The dog subsequently died.
The Plaintiff sued seeking damages for the loss of her dog and sought damages for loss of companionship, arguing that the "real worth" of a pet is not financial but is emotional and that the value should be determined based upon the relationship between the pet and its owner. The Circuit Court of Brooke County disagreed granting summary judgment to the Defendant finding that the measure of property damage for the loss of a pet is fair market value. The Supreme Court affirmed relying in part upon W. Va. Code §19-20-1, which has declared dogs as personal property.
Justice Starcher dissented finding that the majority opinion was "simply medieval" urging the majority to exercise its authority to change common law stating: "I am sure Groucho has a wonderful home too. I am sorry, however, that Ms. Carbasho has no remedy for her grief and emotional distress in our common law."
The West Virginia Supreme Court of Appeals has upheld Summary Judgment for two insurance carriers prohibiting the Plaintiff from seeking underinsured motorist coverage from either policy based upon policy language concerning residency and the terms "ward" and "foster child." The Summary Judgments were upheld in Glen Falls Insurance Company vs. Smith and GMAC Insurance Company vs. Combs, (No. 31972, W.Va., filed July 1, 2005). The consolidated appeals arose from a single vehicle accident in which the guest passenger sought underinsured motorist coverage against GMAC alleging that he was a resident of his mother's household at the time of the accident and also alleging that he was entitled to underinsured motorist coverage from Glen Falls because he was a "ward" or "foster child" of its insured alleging that he was a resident of that insured's household - which was separate from his mother's household - at the time of the accident.
Under the GMAC policy the Plaintiff was required to be a "resident of the named insureds household" at the time of the accident. It was determined he was not a resident and therefore no coverage was available.
The Glen Falls policy defined "covered person" as any family member and defined family member as a "person related to you by blood, marriage, or adoption who is a resident of your household. This includes a ward or foster child." At the time of the accident, the 22-year old Plaintiff was living with the Glen Falls insured who had previously been married to the Plaintiff's biological mother. The Plaintiff, however, was not the biological or adopted son of the Glen Falls insured. The Supreme Court concluded that a 22- year old man, with a history of adult gainful employment, cannot reasonably be considered a "ward" or "foster child" of another under the law of West Virginia, particularly where there has never been a legally recognized relationship with the purported parent or guardian. The Court further determined that the terms "ward" and "foster child" described legally recognized relationships, thus, no underinsured motorist coverage was available under the Glen Falls policy.
Justice Starcher dissented from the majority opinion with respect to the Glen Falls policy arguing that requiring a legally recognized relationship "ignored long standing precedence. It also establishes a short sighted public policy that increases insurance company profits at the expense of innocent children whose loving caretakers are ignorant of legal niceties" and characterized the Glen Falls insured as a "psychological parent." Justice Starcher included in his opinion an attack on the campaign slogan of Justice Benjamin, who wrote the majority opinion, stating: "The majority opinion is not 'For the Sake of the Kids' it is purely for the sake of insurance companies."
During this term of Court the Supreme Court also defined the term "psychological parent" in Clifford K. and Tina B. vs. Paul F., (No. 31855, W.Va., filed June 17, 2005), wherein the Court permitted a partner in a lesbian relationship the right to intervene and seek custody of biological child of the lesbian's partner who was subsequently killed in an automobile accident. The components of a psychological parent concept are the foundation of a significant relationship between child and adult, who may be but is not required to be related to the child biologically or adoptively; a substantial temporal duration of the relationship; the adult's assumption of care taking duties for and provision of emotional and financial support to the child; and the fostering and encouragement of and consent to such relationship by the child's legal parent or guardian.
In an appeal successfully argued by Martin & Seibert, L.C., the West Virginia Supreme Court of Appeals has held that the purpose of a commercial general liability policy is to insure against the risk of tort liability for physical injury to persons or property sustained by third parties as a result of the product or work performed or damages sustained by others from the completed product or finished work. Finding that faulty workmanship claims are essentially contractual in nature, those claims are outside the risk assumed by a traditional commercial general liability policy and thus summary judgment granted by the Circuit Court of Webster County was affirmed in Webster County Solid Waste Authority vs. Brackenrich and Associates, Inc. et al., (No. 31861 and 31862, W.Va. filed June 30, 2005).
Nationwide insured Brackenrich and Associates, an engineering firm hired by the Webster County Solid Waste Authority to design and supervise construction at the Webster County Landfill. Subsequently, the Solid Waste Authority sued Brackenrich and the contractor, Kanawha Stone Company, on several theories. The Circuit Court of Webster County found that none of the allegations asserted against Brackenrich fell within the definition of "occurrence" so as to trigger coverage.
The Supreme Court first analyzed the "product-completed operations hazard" provision of the policy. This provision could not be invoked, the Court held, until there was first shown to have been an occurrence. The Court held that poor workmanship standing alone does not constitute an occurrence.
The Solid Waste Authority next argued that the professional liability exclusion would be inapplicable which the Supreme Court also rejected due to the lack of an "occurrence." Specifically the Brakenrich Court held: "the inclusion in a standard commercial general liability policy of language that excludes coverage for 'professional liability' is specifically designed to shift the risk of liability for claims arising in connection with the performance of professional services away from the insurance carrier and onto the professional. Professionals wishing to insure themselves against the risk of liability in connection with the rendering of their professional services may opt to purchase separate insurance coverage, known as an errors and omissions policy." The Court also concluded that the professional liability exclusion language is valid and therefore rejected any additional argument of ambiguity of policy language.
The West Virginia Supreme Court has again considered the doctrine of "substantially prevailed" and has determined that trial courts should consider the totality of the circumstances in determining whether a Plaintiff has substantially prevailed against his or her insurance carrier when considering whether an award of attorney's fees is appropriate. In Jones v Sanger and State Farm Mut. Auto. Ins. Co., (No. 30248, W.Va., filed July 7, 2005), the Supreme Court upheld a ruling of the Circuit Court of Fayette County denying a Plaintiff's Motion for Award of Attorney's Fees and Motion for Leave to Amend the Complaint to assert a first party "bad faith" case against State Farm.
The issue arose following ten years of litigation over a two vehicle accident in Fayette County. The Plaintiff and State Farm engaged in several rounds of settlement negotiations including at least two mediations and a trial in which a defense verdict was rendered; however, the case was subsequently reversed and remanded for a new trial. The claim settled before the case was tried a second time. After settlement, the Plaintiff moved for an award of attorney's fees, to amend the Complaint alleging that he had substantially prevailed and to assert a "bad faith" claim against State Farm. The Circuit Court of Fayette County and the Supreme Court both disagreed finding: "in the final assessment of settlement, the case was not settled for an amount equal to or approximate in the amount claimed by the insured immediately prior to the commencement of the action." The Court specifically considered the ad damnum clause of the Complaint which alleged $250,000.00 in damages which it then compared to the settlement of $76,500.00.