Insurance Law

In today’s connected society, it’s difficult to escape the necessity of joining the world of social media networking. For attorneys, social media may provide fast, easy, and economical means of reaching clients and potential clients and advertising their services. “Victory in court today! Contact me for a free consultation,” and “Just won a million dollar verdict! Tell your friends to check me out,” are examples of common social media postings utilized by attorneys to spread the word of their success and appeal to clients. But are such postings subject to the Rules of Professional Conduct regarding advertising? This was the issue recently decided by The State Bar of California Standing Committee on Professional Responsibility and Conduct.

The Rules of Professional Conduct and the Business and Professions Code place numerous requirements and restrictions on attorney advertisements and communications. Rule 1-400 of the Rules of Professional Conduct entitled “Advertising and Solicitation” provides detailed requirements with which attorney advertising must comply. However, despite its title, it speaks in terms of “communications” rather than specifically “advertisements.” The rule defines a “communication” as “any message or offer made…for professional employment…directed to any former, present, or prospective client.” Furthermore, the Business and Professions Code defines an advertisement as any “communication…that solicits employment of legal services.” Therefore, when it comes to social media postings, because such postings are technically communications, they must be carefully analyzed to ensure that the rules are complied with. Despite the fact that these rules do not specifically refer to Facebook or Twitter postings, “there is little doubt that the restrictions [of the rules] indeed apply to computer-based communications.” (The State Bar of California Standing Committee on Professional Responsibility and Conduct, Formal Opinion no. 2012-186.) In light of the foregoing, it was determined by the Standing Committee that the real issue when determining whether a Facebook or Twitter posting constitutes a communication within the meaning of the rules is whether the statement “concern[s] the availability of professional employment” of an attorney. (Rule 1-400(A).)

For example, a Facebook posting stating, “Case finally won! Celebrating tonight,” does not seek employment by the attorney. Whatever the attorney’s subjective intent when making the statement, it does not constitute a communication for purposes of the rules. In contrast, the statement “Victory in court today! My client is delighted. Contact me for a free consultation,” suggests the availability of professional employment and is therefore subject to the rules. This statement furthermore violates Rule 1-400(E), Standard 2 by containing a client testimonial (“[m]y client is delighted!”) without an express disclaimer.

Any social media posting that seeks professional employment and is therefore subject to the rules must comply with the advertising requirements that apply to such communications. Rule 1-400, Standard 5 requires that the communication bears the word “advertisement” or “newsletter”, or other words to that effect. Additionally, any such communication must be retained by the attorney for two years; this rule has been specifically extended to include “electronic media” by Rule 1-400(F).

While the social media outlets may provide personalized, informal contact with friends and business contacts, it should be remembered by all attorneys that the informal arena does not relieve the attorney of his or her ethical obligations. So, before you press “send” on your tweet, don’t forget to check your statements to ensure they are in compliance with the Rules of Professional Conduct.

*This was originally posted on May 7 on Jampol Zimet LLP’s Insurance Defense Blog. Read the original post here.

Categories: Insurance Law | Social Media

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In almost every case that crosses our desks these days, plaintiffs make an offer of settlement and set a time limit for acceptance, striking fear in the heart of my clients who then ask: will a court find that we acted in bad faith by refusing to settle within the time limit? The seminal case on this issue is Southern General Ins. Co. v. Holt, 262 Ga. 267, 416 S.E.2d 274 (1992). In Holt, the plaintiff’s attorney made a time-limited settlement offer for policy limits of $15,000. The plaintiff’s attorney advised the insurer the plaintiff’s medical bills totaled more than $10,000 and the lost wages exceeded $5,000. The letter included a doctor’s report indicating the plaintiff had a herniated disc, and included medical bills totaling over $6,000. The plaintiff’s attorney later sent proof of additional expenses of over $4,000. In a last letter to the insurer, the plaintiff’s attorney extended the offer to settle within policy limits for five additional days and included in the letter a certified copy of the plaintiff’s complete medical records. The insurer neither sought more time to evaluate the claim nor responded to the offer before it expired. The insurer offered to settle the case within limits only after the plaintiff’s attorney had withdrawn the offer. A jury returned a verdict in favor of the plaintiff for $82,000. The insured assigned to the plaintiff her claim against the insurer for negligent or bad faith refusal to settle within the policy limits. The plaintiff in this suit sought the excess of $67,000, plus interest.

In the affirming the judgment for the amount of excess, the Georgia Supreme Court first noted the insurer may be liable to its insured for failing to settle a claim “where the insurer is guilty of negligence, fraud, or bad faith.” 262 Ga. at 268. While reiterating the equal consideration rule, the Court further stated “[a]n insurance company does not act in bad faith solely because it fails to accept a settlement offer within the deadline set by the injured person’s attorney.” Id. at 269. The Court, however, rejected the insurer’s argument “that an insurance company has no duty to its insured to respond to a deadline to settle a claim within policy limits when the company has knowledge of clear liability and special damages exceeding the policy limits.” Id. (emphasis in the original). The Court found the insurer did more than simply fail to settle within the time frame set by the plaintiff’s attorney. The insurer had information, including medical bills and documented lost wages, which showed special damages alone, exceeded the limits of the insured’s policy. The insurer’s claims representative acknowledged he had the information, but he testified he needed medical documents to support it. The Court noted, however, that neither the claims representative nor the claims manager requested an extension of time to evaluate the plaintiff’s claim. Thus, there was some evidence for the jury to conclude the insurer did not give equal consideration to the interest of its insured.

The issues raised in Holt have percolated through Georgia courts for the past twenty years. Most recently, the Georgia Court of Appeals ruled that Plaintiff’s policy limit demand, without an agreement to assure satisfaction of hospital liens, constituted an excess demand. See Southern General Ins. Co. v. Wellstar Health Systems, Inc., 315 Ga. App. 26, 34 (2012). The Court noted that “had Southern General verified the validity of the liens, made payment directly to Wellstar, and then paid the remainder of its policy limits to Plaintiff, Southern General would have created a safe harbor from liability under Holt and its progeny.” Unfortunately, Southern General had not done so.

As those of us in the insurance defense business know, Holt demands have been abused by some in the plaintiffs' bar who attempt to extract large settlements by setting short time frames for responses to their demands. The General Assembly took note and last term considered HB 1175 which proposed giving insurers a minimum of 60 days to respond to offers of settlement before being subjected to a bad faith claim. Additionally, the Bill mandated that such offers include full and complete copies of the claimant’s relevant medical records. After various groups, including the plaintiffs' bar, made their “contributions” to the Bill, it became too unwieldy to come up for a full chamber vote.

The issue of Holt demands has resurfaced before the General Assembly in 2013 – with both sides of the bar coming together in an attempt to create a standardized practice for communicating settlement offers which provides the defense with all pertinent information as well as the time with which to provide a considered response. While they have fallen a bit shy of the goal, there is at last some light at the end of the tunnel.

A secret group (really) of plaintiffs’ and insurance defense lawyers appointed by the Speaker of the House recently negotiated House Bill 336, which would give insurers at least 30 days to respond to a settlement offer submitted prior to the filing of a lawsuit, before a bad faith claim could be brought. HB 336 would also require that all settlement demands include (1) the specific time period in which the demand must be accepted; (2) the amount of the demand; (3) the identification of all parties the claimant would release; (4) the type of release; and (5) the specific claims to be released. Significantly, HB 336’s application will be limited in its application to claims of personal injury or death arising out of the use of a motor vehicle. Finally, while HB 336 does not require plaintiffs to produce all of their related medical records with their initial demand, it does allow insurers to seek clarification regarding the facts of the case, liens, standing to release the claims, medical records and bills, without these requests constituting a counter-offer.

Those in the know anticipate that HB 336 will move through the House Judiciary Committee unscathed due to its “bipartisan” support. At least HB 336 is a step in the right direction.

This blog was originally posted on the Georgia Insurance Defense Lawyer Blog on February 26. Click here to read the original post.

Categories: Insurance Law | State Supreme Court

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It should be axiomatic that an insurance company is entitled to determine for itself what risks it will accept, and therefore to know all the facts relative to the applicant’s physical condition. “It has the unquestioned right to select those whom it will insure and to rely upon him who would be insured for such information as it desires as a basis for its determination to the end that a wise discrimination may be exercised in selecting its risks.” (Robinson v. Occidental Life Ins. Co. (1955) 131 Cal. App. 2d 581, 586 [281 P.2d 39].

When an insurer rescinds a policy of insurance because it was deceived by the insured the beneficiary of the policy will do almost anything to obtain the benefits of the policy. In Ronald Smith, Successor Trustee Under the James W. Coops Trust v. Pruco Life Insurance Company of New Jersey, No. 12-3071-cv (2d Cir. 03/19/2013) the Second Circuit Court of Appeal was asked to overturn the rescission of a life insurance policy.

FACTS

Ronald Smith appealed the district court’s entry of judgment, following a bench trial, in favor of defendant-appellant Pruco Life Insurance Company of New Jersey (“Pruco”). Smith sought to recover benefits as the beneficiary of a term life insurance policy upon the death of the insured, Michael Coops. Relying on an application for benefits attached to Coops’s policy at the time of delivery, the district court concluded that the policy never became effective because of Coops’s failure to disclose a cancer diagnosis, and that Smith was therefore not entitled to a benefit. Smith conceded that the application contained information Coops knew to be untrue when the policy was delivered, and that Pruco would not have issued the policy had the information been correct.

Smith alleged that he was the beneficiary of a $1 million insurance policy issued by Pruco on the life of Michael Coops; that Michael Coops had died; and that Smith was therefore entitled to a payment from Pruco of $1 million plus interest from the date of Coops’s death. Following a bench trial the district court entered judgment in favor of Pruco holding it was entitled to rescind the policy because of a material misrepresentation made by Coops in securing the policy and Smith was therefore not entitled to a benefit. Smith now appeals the district court judgment.

The material facts were not disputed. Coops applied by telephone for a term life insurance policy from Pruco in July of 2007; a Pruco employee recorded the information Coops provided. On or before September 7, 2007, Coops was diagnosed with Stage IV colon cancer. Subsequently, on September 29, 2007, Pruco delivered the life insurance policy to him. The policy contained the following statement: “This policy and any attached copy of an application, including an application requesting a change, form the entire contract.”

Coops was presented with two copies of the application when the policy was delivered to him on September 29, 2007. The first was physically attached to the policy; the second was not. Coops made two changes to the latter copy, first correcting an error in his billing address, and second, signing and dating the application, thereby attesting that: (1) “[t]o the best of [his] knowledge and belief, the statements in [the] application [were] complete, true and correctly recorded,” and (2) he would “inform the Company of any changes in [his] health, mental or physical condition, or of any changes to any answers on [the] application, prior to or upon delivery of [the] policy. A representative of Pruco also signed that copy of the application. Pruco retained the signed and amended version of the application, while Coops retained the version that was attached to his policy.

Coops never informed Pruco of his cancer diagnosis or treatment or attempted to amend or supplement the information in the application, which indicated that he had not been diagnosed with cancer. The parties agreed that Pruco issued the policy only because it did not know of the diagnosis prior to, or at the time of, delivery on September 29, 2007. Coops paid premiums until he died on April 28, 2009. Following his death, Pruco learned for the first time that Coops had been diagnosed with colon cancer before the policy was delivered. Pruco rescinded the policy, relying on New York law that permits an insurer to rescind an insurance policy ab initio (from its inception) if the insured made a material misrepresentation when he or she secured the policy. It denied Smith’s claim for a death benefit and returned Coops’s premium payments.

The district court held a bench trial at which the primary disputed issue was whether the court could consider the application attached to the policy in determining whether Coops had made a misrepresentation to Pruco.

ANALYSIS

Smith focuses on the term “true copy” of the application used in the New York statute. He presumes the application for insurance sought to be introduced in evidence is the one that bears Coops’s signature, and argues that a “true copy” of that application was not attached to the policy, as the version that was attached was unsigned and did not reflect Coops’s correction of his billing address.

Under the statute insurance companies are obligated to set forth in each policy issued the entire agreement, as well as every statement or representation which induced its making, and upon which the company relied, if it is to be available as a defense. The statute was created to protect the insured or his or her beneficiary by providing the insured with the opportunity to examine those writings, including applications that may be relevant to the policy and, particularly in the case of applications, affording an opportunity to correct any incorrect statements. By allowing the insured to review, understand and correct at the time of delivery any information that the insurance company might raise as a defense to coverage is to ensure that interested persons may avoid either being misled as to the insurance protection obtained or paying premiums for years in ignorance of facts nullifying the supposed protection.

In this case, it is undisputed the unsigned copy of the application was attached to the policy at the time of delivery. Coops had an opportunity to review and correct the terms, conditions and other information contained therein, and that information therefore could be, and indeed was, incorporated into the contract between Pruco and Coops. The precise document that was attached to the policy makes clear that the policy would not become effective unless and until it was delivered and accepted, Coops’s health remained as stated in the application, and the first premium was paid.

Because the representations, terms and conditions on which Pruco seeks to rely were expressly incorporated into the policy and were attached to that policy at the time of delivery, they may be considered in evidence.

Because the Second Circuit concluded that the application was properly admitted as evidence at the bench trial, Pruco could rely on it to establish that the contract could not come into effect unless and until those conditions were satisfied. [Stipcich v. Metro. Life Ins. Co., 277 U.S. 311, 316 (1928)] where the U.S. Supreme Court held that both by the terms of the application and familiar rules governing the formation of contracts no contract came into existence until the delivery of the policy, and at that time the insured had learned of conditions gravely affecting his health, unknown at the time of making his application. In Stipcich the Supreme Court observed that “[i]nsurance policies are traditionally contracts uberrimae fidei and a failure by the insured to disclose conditions affecting the risk, of which he is aware, makes the contract voidable at the insurer’s option.” Insurance companies seek a wealth of health history information from applicants because that information is extremely important to the underwriting decision.

I agree, also, with the Third Circuit’s decision in New York Life Ins. Co. v. Johnson, 923 F.2d 279 (3d Cir. 01/15/1991), where it explained why an innocent beneficiary could receive no benefits if grounds for rescission exist that may have affected the Second Circuit’s decision in this case. It said:

While a court might sympathize with a beneficiary who does not receive the proceeds of a policy obtained by the insured’s fraud, there are strong reasons of public policy supporting the rule … If the lie is undetected during the two year contestability period, the insured will have obtained excessive coverage for which he has not paid. If the lie is detected during the two year period, the insured will still obtain what he could have had if he had told the truth. In essence, the applicant has everything to gain and nothing to lose by lying. The victims will be the honest applicants who tell the truth and whose premiums will rise over the long run to pay for the excessive insurance proceeds paid out as a result of undetected misrepresentations in fraudulent applications (Emphasis added.)

Misrepresentation of material facts in an application for insurance known to the insured before the policy’s inception is fraud and since the insurer was deceived in the inception the policy must be voided.

Categories: Insurance Law

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Plaintiff Susan Early was allegedly injured while a passenger on one of Carnival Corporation’s ships. A claim was initiated, then (apparently) resolved. The mediator in the matter filed his report on November 21, 2012. That report stated that the parties had settled subject to the condition that the Court retain jurisdiction to enforce the terms of the settlement and determine the issue of a possible LMSA if one were needed. Early motioned the Court for Determination of Whether a Medicare Set Aside is Required. The terms of the settlement negotiations were:

1) Carnival will pay Early an undisclosed sum;

2) Each party will pay its own attorney’s fees and costs;

3) Early will execute a release for Carnival;

4) Carnival will be responsible for the mediator’s fees; and

5) The parties DISAGREE on whether an LMSA was required, but agree to submit the issue to the Court and to abide by its determination.

Early’s motion argued that an LMSA was not required under the Medicare Secondary Payer (“MSP”) Act. Carnival filed its response, urging the Court to conclude that an LMSA was required.

Analysis.

The Court begins by providing a succinct recitation of the MSP Act. Then, the Court describes how MSA analysis has emerged as means to address the future medicals issue. After detailing what actually constitutes a settlement in Florida, the Court turns to the question of whether the parties have an agreement to settle the claim.

The Court concludes that the parties agreed on four out of five essential terms. The term the parties could not agree upon was the LMSA issue, and asked the Court to fill in the blank on their behalf. The Court declined the opportunity to do so.

The Court distinguished this fact pattern from two others which appear routinely in other opinions addressing LMSA issues: 1) cases where the parties have a settlement agreement and agree that an LMSA is required, but cannot obtain review and approval of the LMSA from the Centers for Medicare & Medicaid Services (“CMS”); and 2) cases where the parties have a settlement agreement but disagree as to whether those terms included the creation of an MSA. Here, the parties did not ask the Court to enforce a settlement agreement; they asked the Court to assist with a critical term of a potential settlement agreement. While the Court noted the “conscientious and diligent” efforts of counsel to uncover the issue, it was not within the Court’s dominion to gap fill with respect to this essential term of the potential settlement agreement.

Takeaway.

This case is another example of the LMSA issue derailing what is (otherwise) a perfectly acceptable settlement agreement. These issues should become much less obtrusive after CMS issues final guidance about liability settlements and future medical expenses under the MSP Act. That guidance is expected to be released later this year. Until then, the best approach is to proactively address the issue, and evidence exactly how you have arrived at your conclusion on the future medicals issue. That approach, coupled with the Court’s conclusion in Guidry v. Chevron , highlights the importance of utilizing a formalized approach to MSP compliance. When addressing future medicals issues under the MSP Act, a formalized approach will yield complaint results every time.

Having a formalized settlement process that integrates these core concepts will achieve efficiencies and enhance the effectiveness of settlement programs while ensuring closure on the file. Such a formalized settlement process should take into account the timing and coordination issues which may hinder successful LMSA analysis. Thus, screening a case up front to verify entitlement and identifying a claimant as an MSA candidate early on is the proper launching point for any LMSA analysis. As parties move towards resolution and identify the prospective gross award, they can then determine (consistent with CMS’s basic rules issued in the workers’ compensation settling) if a future medical allocation exists within the gross award, either in the form of a specific carve out or implicitly contained within the one undifferentiated lump sum.

The DRI MSP Task Force continues to track relevant judicial opinions and guidance from CMS in order to ensure compliance for you and your clients. We continue to stress the importance of utilizing a formalized approach in addressing the LMSA issue on every single claim, as that process will, in and of itself, ensuring compliance on the LMSA issue.

[1] Early v. Carnival Corporation, No. 12-20478-CIV-Goodman (S.D. Fla. February 7, 2013).

[2] 42 U.S.C. §1395y(b)(2).

[3] The Court cites to a recent article published by the American Bar Association which was co-authored by John V. Cattie, Jr., DRI MSP Task Force Vice Chair. See also Medicare Set-Aside Arrangements Under the Medicare Secondary Payer Act, 42 The Brief, n. 10, Fall 2012.

[4] Guidry, et al. v. Chevron USA, Inc., Civ. No. 6:10-cv-00868, 2011 U.S. Dist. LEXIS 148942 (W.D. La. December 28, 2011).

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The recent experience of the passengers the Carnival Triumph debacle once again raises the question of remedies sought and available for cruise passengers who suffer harms while at sea. As with the Costa Concordia shipwreck a year ago, and with most hospitality-related providers, there are limitations on how and what guests can recover. Forum selection clauses, of a similar type to what most of our clients use, frequently limit where suits can be brought. For cruise passengers, who frequently travel from another location to the port city, the limitation on permissible fora can be an insurmountable hurdle to bringing suit. For the passengers on the Triumph, any claims face the additional obstacle that recoveries are likely limited to only those individuals who suffered some physical harm as a result of the incident.

These limitations are once again causing outrage among some who believe that the recourse of cruise passengers is too limited. But before jumping on that bandwagon, it is important to consider the consequences of opening the floodgates to more claims. For example, invalidating the forum selection clauses on cruise ship agreements could also open up hospitality providers like ski resorts or amusement parks, to claims far outside their operating jurisdictions.

Extending the ability of a party to recover damages for emotional “injuries” without any physical harm could also dramatically change the legal landscape. Would that allow individuals who claim to receive a “bad” dinner or view an “offensive” show the ability to recover damages for their claimed emotional injuries even without a physical harm? Even with limitations for only egregious conduct, the implications could be far-reaching for those throughout the hospitality industry and beyond.

It seems as though Carnival is attempting to thwart the legal onslaught, and possibly the push for legal changes, by offering full refunds to passengers plus cash and a voucher for future travel. We will see if it is enough. In the meantime, I wonder if those vouchers are transferrable?

Cynthia P. Arends, carends@nilanjohnson.com

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We previously discussed the troubling issues of: a)whether your company’s insurance policy(ies) actually provides coverage for claims of IP infringement, and b)which of your policies is the one(s) you should be looking to for possible coverage when you get sued for infringement.

And for a great discussion of insurance coverage for IP infringement claims generally under the “Advertising Injury” clause of a standard commercial general liability policy, see Dan Graham’s article in the DRI insurance coverage newsletter.

This week we’ll get more specific: a claim that was found by one California appeals court to be covered under a standard commercial general liability policy, and one that was found by a different division of the same appeals court not to be covered – both under the very same “advertising injury” clause of the policy.

Background

In Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc., Charlotte Russe, a clothing retailer, requested its insurance company, Travelers, to defend it in a lawsuit brought by Versatile Entertainment, Inc. (Versatile v. Charlotte Russe – the “underlying lawsuit”). Versatile is a manufacturer of “premium” clothing marketed under the brand “People’s Liberation.” In the underlying lawsuit, Versatile alleged that Charlotte Russe had harmed the People’s Liberation “brand” of “high-end” and high-priced clothing by offering Versatile’s clothing for sale at deep discounts and at “close-out” prices, amounting to a “fire sale.”

Charlotte Russe’s request that Travelers defend it in the underlying lawsuit was based on the “Advertising Injury” clause in the Travelers’ policy issued to Charlotte Russe. Travelers denied Charlotte Russe’s request. Because of the disagreement between Charlotte Russe and Travelers, Travelers filed a separate lawsuit requesting a judicial determination of whether it was required to provide coverage to Charlotte Russe (Travelers v. Charlotte Russe – the “coverage lawsuit”).

Travelers Policy Defines Advertising Injury

In the Travelers policy, “Advertising Injury” was defined in several ways. One of the definition of “Advertising injury” was, “injury . . . arising out of . . . material that . . . disparages a person’s or organization’s goods, products, or services.” In the coverage lawsuit, Travelers contended that Versatile’s allegations against Charlotte Russe in the underlying lawsuit did not amount to a claim that Charlotte Russe had “disparaged” the People’s Liberation brand. A retailer’s mere reduction of a product’s price is not, argued Travelers, a disparagement of that product. In order to satisfy the definition of “disparagement” under the policy, Travelers argued, Versatile would have to be alleging the elements of the tort of trade libel under California law against Charlotte Russe.

Trade Libel Not A Requirement for Committing Disparagement

Trade libel, in turn, requires the publication of an injurious false statement about a company or its goods or services. The trial court in the coverage lawsuit agreed with Travelers’ position on the meaning of the term “disparagement” and granted summary judgment in its favor – meaning that Travelers had no obligation to defend Charlotte Russe in the underlying lawsuit. Charlotte Russe appealed from this decision.

The California appeals court reversed, holding that Company A’s publication of an injurious false statement against Company B or Company B’s goods or services (i.e., the definition of trade libel) is not a requirement for establishing that Company A may have committed “disparagement” under the insurance policy. In other words, reading the allegations in the underlying lawsuit, Charlotte Russe may have “disparaged” the People’s Liberation brand of clothing by implication, by selling the clothing at “fire sale” prices. The gist of the underlying lawsuit, said the court, is that Versatile was accusing Charlotte Russe of impliedly telling the world that the People’s Liberation brand of clothing is not a premium, high-end line, which, according to Versatile, is false. According to the court, that is disparagement. Lastly, the court said that there was nothing in the language of Travelers’ policy that said the definition of “disparagement” is equal to the legal definition of trade libel. Accordingly, the appeals court reversed the trial court, and held that Travelers was required to defend Charlotte Russe in the underlying lawsuit. Travelers appealed this decision to the California Supreme Court, but its petition for appeal was denied.

Sister Appeals Court Comes to Opposite Conclusion

A little more than three months later, a different panel of the same California appeals court came to exactly the opposite conclusion in the case of Hartford Casualty Ins. Co. v. Swift Distribution, Inc. In this case, the issue was whether Hartford had to defend its insured, Swift, in a lawsuit brought by Gary-Michael Dahl. Dahl sells an item called the “Multi-Cart.” Swift started advertising and selling an item called the “Ulti-Cart.” Swift’s advertisements made no mention of Dahl or the “Multi-Cart.” Dahl sued Swift for patent infringement, trademark infringement, unfair competition, trademark dilution, and misleading advertising (Dahl v. Swift – the “underlying lawsuit”). Among other things, Dahl alleged that Swift’s advertisements for the Ulti-Cart “disparaged” Dahl’s Multi-Cart by implication. Swift requested that its insurance company, Hartford, defend it in the lawsuit brought by Dahl. Swift requested coverage under the “Advertising Injury” clause of the policy.

The definition of “Advertising Injury” in the Hartford policy was exactly the same as the definition in the Travelers policy in the Travelers v. Charlotte Russe case, above. Hartford refused Swift’s request, arguing that Dahl’s allegations in the underlying lawsuit against Swift weren’t covered under the policy. To settle the dispute – just as Travelers had done against Charlotte Russe – Hartford filed a coverage lawsuit against Swift. That is, it sued Swift for a judicial determination of whether it had a duty to defend Swift in the underlying lawsuit. While Hartford’s coverage lawsuit against Swift was pending, Dahl and Swift settled the underlying lawsuit.

In Hartford’s coverage lawsuit, Swift alleged that Dahl’s claims in the underlying lawsuit came within the definition of “Advertising Injury.” The trial court ruled in Hartford’s favor, finding that, on the undisputed facts, which, in this case, were:

a) the allegations in Dahl’s complaint against Swift in the underlying lawsuit, and

b) the terms of the Hartford policy issued to Swift, there was no “disparagement” by Swift. Swift appealed.

Insurer Does Not Have to Provide Coverage

This time, the California appeals court – again, a different division of the very same appeals court that found coverage in the Travelers v. Charlotte Russe case – affirmed the trial court’s decision of no insurance coverage. The appeals court here found that Dahl’s underlying lawsuit did make a variety of allegations that Dahl and its product, the Multi-Cart, were harmed by Swift’s infringements, by its unfair competition, and by its false and misleading advertising. Nevertheless, the court found that Swift’s advertisements did not actually disparage – i.e., express an “injurious falsehood” about – Dahl or the Multi-Cart because the advertisements never mentioned Dahl or the Multi-Cart.

Swift then argued that in the underlying lawsuit Dahl had alleged that Swift’s advertisements referred to Dahl’s Multi-Cart by implication. The court found that even if this were true, Swift’s advertisements mentioned only its own product, the Ulti-Cart. Regardless of whether Swift’s conduct might constitute trademark infringement and unfair competition against Dahl and the Multi-cart, Swift’s advertisements did not disparage Dahl or the Multi-Cart.

Therefore, the appeals court held that, because Swift’s advertisements had not disparaged Dahl or the Multi-Cart, Dahl’s underlying lawsuit did not come within the Advertising Injury coverage clause of Hartford’s policy issued to Swift, and Hartford was not required to defend Swift in the underlying lawsuit.

Notably, the appeals court in Hartford v. Swift said that its sister court’s decision in Travelers v. Charlotte Russe was wrong. It said that discounted pricing (which was the operative allegation in the Versatile v. Charlotte Russe lawsuit) is not “disparagement.” It said that discounted pricing is not the same thing as the publication of an injurious false statement. The language used by the Hartford v. Swift court in expressing its disagreement with its sister court is about as clear and strong as one finds in court opinions.

Swift has appealed the coverage case to the California Supreme Court, which has not yet decided whether it will hear the case. I’m guessing the Supreme Court will take the case now that two California appeals courts have come to opposite results in interpreting the same clause in a standard insurance policy.

Takeaway

The lesson here is that claims against you or your client of patent infringement, trademark infringement, unfair competition, trademark dilution, and/or misleading advertising might not constitute “disparagement” under your insurance policy. If you sell a product, especially one that competes with other similar products on the market, you need to purchase your insurance carefully, and look for policies that will cover you for the types of claims you might face: infringement- and unfair competition-type claims by your competitors, and products liability-type claims by the purchasers of your product(s).

In the coming weeks and months, we’ll check the status of the appeal in the Hartford v. Swift case and have more to say on insurance coverage issues for intellectual property infringement claims.

Walter Judge is a litigation partner at Downs Rachlin Martin PLLC who blogs on intellectual property litigation topics. You can find his original post here.

Categories: Insurance Industry | Insurance Law | Intellectual Property

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Harvard University and the National Football League Players Association (“NFLPA”) are negotiating a deal with the NFL seeking a $100 million grant for the purpose of studying, diagnosing, and treating injuries and ailments suffered by players as a result of their football careers.

Dr. Lee Nadler, the Harvard Medical School Dean for clinical and translational research, attested to the groundbreaking nature of the proposed project, noting “[n]o one has ever studied the players [themselves] before. There have been postmortem studies looking at the brains of previous players but not the players today.”

One has to wonder how generous the NFL will continue to be – after all, the league just donated $30 million to the National Institutes of Health last year to study brain injuries in NFL alumni. Still, proponents of the Harvard study made sure to stress that this would not be simply another concussion study; instead, it would consider a whole host of health ailments potentially facing former NFL players including chronic pain, depression, heart problems, and diabetes. The scope of the proposed research is beyond anything that has been conducted to this point – preliminary estimates called for a nation-wide group of 200 NFL alumni drawn from a 1,000 person study group, with all participants being subject a wide array of medical tests.

Dr. Herman Taylor, one of the non-Harvard medical professionals retained for the study, stated, “Typically, when we do a test or medical study, we’re taking a snapshot. What we want to do is see the full-length movie of what happens to a player over time.”

On the issue of funding, NFLPA Executive George Atallah noted, “Given the scope of health issues that NFL players are subject to, we are committed to making sure that enough money is allocated to get answers.” However, because the research will be funded by a portion of league revenues, the actual amount the NFL is willing to put towards the study will likely not be determined until after the Super Bowl.

As originally published at Sportslawinsider.com on January 31, 2013

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A Pennsylvania district court in CAMICO Mutual Insurance Co. v. Heffler, Radetich & Saitta, LLP (E.D. Pa. Jan. 28, 2013), refused to allow an insurer access to its insured’s defense file, holding that that the insurer was not a client of the insured’s defense counsel. There, CAMICO Mutual Insurance Co. insured Heffler, Radetich & Saitta, L.L.P. (“Heffler”) which was sued for misappropriating class action settlement proceeds. In response to the suit, Heffler selected its defense counsel, and CAMICO agreed to pay defense counsel’s fees.

CAMICO filed this declaratory judgment action seeking a finding apparently regarding the available policy limits. In connection therewith, CAMICO sought production of certain documents related to the underlying lawsuit. Heffler refused, and CAMICO moved to compel. CAMICO argued the application of exceptions to the attorney-client privilege, which the parties agreed would have otherwise protected the documents from production.

CAMICO relied on the co-client exception, which concerns where two or more clients share the same attorney. CAMICO argued that the exception applied because defense counsel represented the joint interests of Heffler and CAMICO with respect to the underlying lawsuit. The district court disagreed, relying on several authorities for the proposition that the insurer is not automatically a client of defense counsel, even when it funds its insured’s defense. Further, the district court found that based on the factual record, CAMICO was not a client of defense counsel. Therefore, the district court denied CAMICO’s motion.

Notably, the district court glossed over three important issues, which merit a brief discussion here: (1) Heffler’s choice of its own defense counsel, (2) the common interest exception as an exception to the attorney-client privilege, and (3) CAMICO’s providing a defense to Heffler in the underlying lawsuit while seeking to litigate the extent of coverage.

First, that Heffler chose its own defense counsel made the arguments in favor of the co-client exception peculiar. If CAMICO had appointed defense counsel for Heffler, there probably would have been a better argument for a co-client exception.

Second, several courts recognize the common interest doctrine as an exception to the attorney-client privilege. E.g., Waste Management, Inc. v. Int’l Surplus Lines Ins. Co., 144 Ill. 2d 178, 579 N.E.2d 322 (1991). Although the district court asserted, without more, that CAMICO’s counsel did not share information with Heffler’s defense counsel, that is the point—CAMICO desired that defense counsel provide its counsel with otherwise privileged information. This may have been a legitimate exception to the attorney-client privilege. And, the Third Circuit and the Supreme Court of Pennsylvania have not taken a position on whether they will follow the Illinois Supreme Court’s interpretation of the common interest exception as set forth in Waste Management.

Third and finally, that CAMICO was not seeking a declaration that it had no duty to defend or indemnify suggests that CAMICO and Heffler could have a common interest with respect to the underlying lawsuit. Most courts that have criticized the Waste Management reject, in pertinent part, the concept that the insurer can seek to vindicate its disclaimer of coverage in a declaratory judgment action, yet have a common interest with its abandoned insured in the underlying tort action. While subject to debate, that CAMICO was merely seeking to litigate the available limits suggests that the common interest exception may be available here.

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The Zhang case is a dispute following a fire at the plaintiff’s commercial property wherein the uninsured Zhang accuses the defendant-insurer of misconduct. The first two actions in the plaintiff’s complaint consist of 88 paragraphs arguing common law allegations of misconduct by the insurance company. Then, in her third cause of action, the plaintiff incorporates these paragraphs and alleges that the defendant engaged in false advertising. That last allegation starts the case down its controversial path.

The Zhang trial court sustained the insurer’s demurrer on the grounds that an earlier Court of Appeal case, Trexton Financial Corp. v. National Union Fire Insurance Company of Pittsburgh, precluded suit under Insurance Code section 790.03 (a.k.a. Fair Claims Handling Act, FCHA). On review, the appellate court disapproved of the Textron holding and held that the allegations of false advertising permitted suit under the Business and Professions Code section 17200 et seq (a.k.a. Unfair Competition Law, UCL).

To address the appellate court’s ruling in Zhang and the difference between it and Textron, we need to understand the current law. The UCL is a set of statutory codes that allow private persons to sue businesses for five types of conduct: (1) an unlawful business practice; (2) an unfair business practice; (3) a fraudulent business act (4) unfair, deceptive, untrue or misleading advertising; or (5) other acts prohibited by later sections of the code. Insurance companies are businesses within this law. A UCL cause of action requires some “predicate” violation, meaning that the plaintiff must complain of some conduct by a business-defendant in order to bring the claim.

As for the FCHA, it too is a set of statutory codes and it too sets out to stop unfair business practices; acts such as disseminating false insurance statements, making false entries into insurance reports, improperly disclosing private financial information. Unlike the UCL, the Legislature wrote the FCHA to apply specifically to insurance companies—almost exhaustively. The California Supreme Court previously ruled in Moradi-Shalal v. Fireman’s Fund Insurance Companies that private plaintiffs cannot bring actions under FCHA. The Supreme Court has not held the same when it comes to the UCL. And that is the issue at the heart of Zhang when it comes before the supreme court this year.

Like in Zhang, in Textron, the plaintiff also alleged that the insurer engaged in misconduct that violated the FCHA and brought a UCL claim. The Textron appellate court upheld the defendant’s demurrer dismissing the case and pointed out that the conduct the plaintiff complained of was similar to the conduct covered by the FCHA and therefore the plaintiff could not bring a private cause of action. The appellate court in Textron held that, because in Moradi-Shalal the Supreme Court held that FCHA does not allow a private cause of action, FCHA violations cannot be the predicate violation for a UCL claim.

The differences between Textron and the appellate decision in Zhang is FCHA violations can serve as the predicate for a UCL cause of action. Textron unequivocally disfavored such a practice, holding that a plaintiff cannot use the UCL to avoid the Moradi holding. Zhang is holding otherwise. In Zhang, the UCL claim remained even though it was an FCHA violation. Now that we have two courts of equal standing handing down opposite rulings, the California Supreme Court must make a ruling to determine which way the law goes.

There is no evidence to suggest that the California Supreme Court will alter Moradi as to the holding denying a private right of action for violations of the FCHA. However, good public policy indicates that the Zhang approach—allowing UCL claims for FCHA violations—is the right approach. As a general matter, the UCL acts to empower private citizens to enforce fair business practices when the attorney general cannot or chooses not to do so. By extending the right to cover citizens aggrieved by insurance companies, the system can better protect those that are wronged. Moreover, because a successful plaintiff recovers restitution and not damages, the results will be equitable. Essentially, private citizens will be able to file claims to force an insurer to comply with the FCHA and then recover any money or property wrongfully taken.

Posted on January 21, 2013 by jampolzimetlaw

Categories: Defense Practice | Insurance Industry | Insurance Law | Professional Liability

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We previously discussed the troubling issues of: a) whether your company’s insurance policy(ies) actually provides coverage for claims of IP infringement and b) which of your policies is the one(s) you should be looking to for possible coverage when you get sued for infringement.

For a great discussion of insurance coverage for IP infringement claims generally under the “Advertising Injury” clause of a commercial general liability policy, see Attorney Dan Graham’s article in the DRI insurance coverage newsletter.

This week we’ll get more specific: a claim that was found not to be covered under a standard liability policy. In Hartford Casualty Ins. Co. v. Swift Distribution, Inc., the issue was whether Hartford had to cover its insured, Swift, in a lawsuit brought by Gary-Michael Dahl. Dahl (we’ll call him Company B) sells an item called the “Multi-Cart.” Swift (we’ll call it Company A) started advertising and selling an item called the “Ulti-Cart.” Dahl sued Swift for patent infringement, trademark infringement, unfair competition, trademark dilution, and misleading advertising. Among other things, Dahl alleged that Swift’s advertisements for the Ulti-Cart “disparaged” Dahl’s Multi-Cart. Swift requested that its insurance company, Hartford, defend it in the lawsuit brought by Dahl. Swift requested coverage under the “Advertising Injury” clause of the policy. Hartford refused to do so, arguing that the allegations in Dahl’s suit against Swift weren’t covered under the policy. To settle the dispute, Hartford sued Swift for a legal determination of whether it had a duty to defend Swift in the Dahl lawsuit.

In the Hartford policy issued to Swift, “Advertising Injury” was defined in several ways. One of the definitions was, “injury . . . arising out of . . . material that . . . disparages a person’s or organization’s goods, products, or services.” Swift alleged that Dahl’s claims in the lawsuit against it, came within this definition of Advertising Injury. The court disagreed.

The court found that Dahl’s lawsuit did make a variety of allegations that Dahl and its product, the Multi-Cart, were harmed by Swift’s infringements, by its unfair competition, and by its false and misleading advertising. Nevertheless, it found that Swift’s advertisements did not actually disparage Dahl or the Multi-Cart because they never mentioned Dahl or the Multi-Cart. Swift then argued that Dahl’s lawsuit alleged that Swift’s advertisements referred to Dahl’s Multi-Cart by implication. The court found that even if this were true, Swift’s advertisements did not actually disparage Dahl or the Multi-Cart; Swift’s advertisements mentioned only its own product, the Ulti-Cart. Regardless of whether Swift’s conduct might constitute trademark infringement and unfair competition against Dahl and the Multi-cart, Swift’s advertisements did not disparage Dahl or the Multi-Cart.

Therefore, the court held, because Swift did not disparage Dahl or the Multi-Cart, Dahl’s lawsuit did not come within the Advertising Injury coverage clause of Hartford’s policy issued to Swift, and Hartford was not required to defend Swift in the Dahl lawsuit.

In the coming weeks and months, we’ll have more to say on insurance coverage issues for intellectual property infringement claims.

*You can find the original post here.

Categories: Insurance Law | Law Suit

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