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					2006                                                                                                                                 Volume 3
 A summary of significant recent developments in the law focusing on substantive
 issues of litigation and featuring analysis and commentary on special points of interest.


                                                                                      INSIDE
      SIDEBAR                                                  Casualty Update
                 Edward M. Kay                                 U.S. Supreme Court Finds Building Owners Must Protect Their
                                                               Customers From The Negligence Of Others... Even Bad Drivers
                Melinda S. Kollross                            by Kathleen A. Johnson...................................................... 5

 ILLINOIS APPELLATE COURT FIRST DIS-                           Environmental
  TRICT ISSUES OPINION PROTECTING                              No Right Of CERCLA Contribution For Potentially Responsible
                                                               Parties Who Engage In Voluntary Cleanups
 THE ASSETS OF DEEP-POCKET DEFEN-                              by Ilene M. Korey................................................................. 7
DANTS IN LITIGATION BY PUTTING TEETH
                                                               Clausen Miller News ................................. 8
    INTO TORT REFORM LEGISLATION
                                                               On The Litigation Front ............................ 10
On August 23, 2006, the Illinois Appellate Court
sitting in Chicago, which governs cases tried in               PRACTICE GROUP ARTICLES
                                                               Admiralty
Cook County, issued an opinion putting teeth into              Seventh Circuit Proposes Better Test For Admiralty Jurisdiction But
a piece of tort reform legislation that will protect           Applies Extension Of Admiralty Jurisdiction Act
“deep-pocket” defendants during litigation. In                 by Kimbley A. Kearney..................................................... 12
Ready v. United/Godecki Services, Inc., 2006 WL                Fifth Circuit Refuses To Recognize Exception To Economic
2434935, the Appellate Court ruled that plaintiffs             Damage Rule
can no longer settle-out with more culpable parties            by Kimbley A. Kearney..................................................... 14
leaving the “deep-pocket” defendants to bear the               Bad Faith
brunt of a non-economic (non-medical) damage                   California Supreme Court Holds Assignee Can Recover Brandt
award. Instead, the “deep-pocket” defendants will              Fees
                                                               by Jay D. Harker............................................................... 16
now be entitled to have a jury allocate fault to those
more culpable settling defendants, protecting the              Employment
“deep-pocket” defendant from paying the entirety               Employee In Illinois Cannot Bring A Claim For Retaliatory
                                                               Discharge Based On Employer's Refusal To Renew A Fixed-Term
of the damage award.                                           Employment Contract
                                                               by Anthony P. Ulm ........................................................... 18
                                                                                                                     continued on next page

                                  continued on page 3
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 2006 Clausen Miller P.C.
                         INSIDE

                                                                                                    REPORT STAFF
    Retaliation Standard Established By Supreme Court
    by James S. Barber ........................................................... 20

    First-Party Property
    Texas Supreme Court Holds That Exclusion For "Loss Caused                                            Editor-In-Chief
    By Mold" Does Not Provide Coverage For Mold Stemming                                                Melinda S. Kollross
    From Small Roof And Window Leaks
    by Mindy M. Medley......................................................... 23
                                                                                                         Assistant Editor
    Insurance Coverage Litigation                                                                    Melissa A. Murphy-Petros
    Clausen Miller Victory Makes New Law: Time Limits For
    Challenging Arbitration Award Do Not Bar Insurer From
    Asserting Policy Limits Defense That Was Not Arbitrated
                                                                                                      Case Notes Editor
    by Agelo L. Reppas ........................................................... 25                Melissa A. Murphy-Petros
    Liability Insurance Coverage                                                              Senior Advisor and Editor Emeritus
    As A Matter Of First Impression, Illinois Selective Tender Rule
    Does Not Require An Insured To Vertically Exhaust Concur-                                           Edward M. Kay
    rent Insurance Policies And Deselected Primary Insurers Must
    Answer For A Loss Before An Excess Policy Must Respond
                                                                                                    Feature Commentators
    by Ilene M. Korey.............................................................. 27
                                                                                                        James T. Ferrini
    Liability Insurance Coverage/                                                                     Kimbley A. Kearney
    Environmental
    Nebraska And Oregon Supreme Courts Find In Favor Of Insur-
    ers In Two Separate Pollution Cases                                                         Case Notes Contributing Writers
    by David J. Roe ................................................................. 29              Melinda S. Kollross
                                                                                                    Melissa A. Murphy-Petros
    Litigation
    California Supreme Court Holds That A Withdrawing Plaintiff
                                                                                                     Barbara I. Michaelides
    Does Not Have To Pay Fees If An Anti-SLAPP Motion Has                                              Colleen A. Brown
    Not Yet Been Filed                                                                                  Agelo L. Reppas
    by Ian R. Feldman............................................................ 31
                                                                                                        Paul V. Esposito
    Subrogation                                                                                       Paula M. Carstensen
    Federal Tort Claims Act: Pursuing Uncle Sam's Deep Pockets                                         Keith G. Flanagan
    By Unlocking The Right Doors
                                                                                                     Chip G. Schoneberger
    by Dean S. Rauchwerger, Allison K. Ferrini
    & John F. O’Brien ........................................................... 33                   Valerie L. Witmer

    Railroad Subrogation And Third Party Recoveries - "Getting
    Back On Track"
                                                                                           The CM Report of Recent Decisions
    by Dean S. Rauchwerger & Michael S. Errera ........... 35                              is provided as a general information source
    Case Notes ........................................... 38
                                                                                           and is not intended, nor should it be consid-
                                                                                           ered, the rendition of legal advice. Please
                                                                                           contact us to discuss any particular ques-
                                                                                           tions you may have.



2                                                                                                                       www.clausen.com
                                                                           S I D E B A R cont.
The Statute --                        The Attempts to                       The Ready Facts: Sharp
Section 2-1117                        Limit Section 2-1117                  Practices Exemplified
Section 2-1117 was enacted as         The plaintiffs’ bar sought to         In Ready, plaintiff sought wrong-
part of the Tort Reform Act of        limit the effect of Section 2-        ful death damages when her
1986, that minimally responsible      1117, claiming that it only ap-       husband was killed assisting
defendants should not have to         plied to defendants remaining         in a pipe-refitting project at his
pay entire damage awards. The         in the lawsuit at the time the        employer’s plant. A general con-
legislature set the line of minimal   jury reached a verdict. The trial     tractor, BMW, was retained by
responsibility at less than 25        tactics were simple: the most         decedent’s employer, Midwest
percent. A defendant found less       culpable defendants usually had       Generation, to make the pipe
than 25 percent at fault would        the least amount of wealth or         refitting repairs. BMW retained
only pay that portion of any          insurance. Plaintiffs would settle    a subcontractor, United/Godecki,
non-economic damage award,            with these defendants for as          to erect the scaffolding. BMW
although that defendant still         much as they could pay or their       was to provide an external crane
remained liable for payment of        minimal policy limits and then        and the scaffolding had to be lift-
the entirety of any award for past    target the wealthy, deep-pocket       ed using an internal hoist at the
and future medical expenses. A        defendants who were usually           Midwest plant. Decedent, who
defendant found 25 percent or         the ones least at fault. Having       was in charge of safety, directed
greater at fault would pay 100        dismissed the more culpable           the United/Godecki workers in
percent of all damages.               defendants through settlement,        lifting the trusses, and while one
                                      plaintiffs argued that their fault    of the beams was being lifted, it
                                      could not be determined by a          fell killing the decedent.
                                      jury because they were not in the
                                      lawsuit at the time of verdict.       Plaintiff sued United/Godecki,
                                                                            decedent’s employer Midwest,
                   MeLindA S. KoLLroSS is a Clausen Miller                  and BMW. After settling with
                   partner and co-chair of the Appellate Practice
                   Group. Specializing in post-trial and appellate liti-    both BMW and Midwest for
                   gation nationwide, Melinda is admitted to practice       $1.1 million, plaintiff turned
                   in both New York and Illinois, as well as the U.S.       her attention to United/Godecki
                   Supreme Court and U.S. Courts of Appeal for the          seeking over $20 million, and
                   Third, Sixth, Seventh, Ninth, Tenth and Eleventh         successfully persuading the trial
                   Circuits. Melinda has litigated over 100 federal and
                   state court appeals and was named a 2005 and 2006        court to keep out any evidence
                   Illinois Super Lawyer in appellate practice.             of the fault of Midwest or BMW
                   Contact: mkollross@clausen.com                           in causing the accident because
                   edwArd M. KAy is a Clausen Miller partner                of plaintiff’s settlement with
                   and co-chairs the Appellate Practice Group. He is        those defendants. Had BMW
                   AV rated (Preeminent) by Martindale-Hubbell and          provided the external crane to
                   has been chosen as a Leading Illinois Appellate          lift the trusses on the day of the
                   Attorney. Ed has over 26 years experience in             accident, plaintiff’s decedent
                   trial monitoring and post-trial/appellate litigation
                   which he regularly brings to bear in significant         would never have been killed
                   cases nationwide. Ed has prosecuted over 250             because he would not have been
                   appeals and owns a perfect 5 and 0 record in ap-         involved in lifting those trusses,
                   peals he argued before the Illinois Supreme Court.       but the jury was not allowed
                   Contact: ekay@clausen. com                               to hear this evidence nor allo-

www.clausen.com                                                                                              3
    S I D E B A R cont.
cate any fault to BMW. Also,          no longer be allowed to create
decedent’s employer, Midwest,         “fictional accounts” of accidents
had an extensive safety manual        by keeping from a jury evidence
which decedent and several other      of a settling defendant’s fault, as
co-workers violated on the day of     happened in Ready. Plaintiffs
the accident; but like BMW, the       attorneys will not long be able to
jury never heard any evidence         settle on the cheap with the most
regarding that manual nor was         culpable defendants, holding the
allowed to allocate fault to Mid-     least culpable but “deep-pocket”
west. The jury returned a $14         defendant hostage, making un-
million verdict against United/       reasonable settlement demands.
Godecki -- the sole remaining         Defendants who have only mini-
defendant plaintiff’s counsel         mal liability for an accident can
targeted after settling with the      decide to reject unreasonable
more culpable parties.                settlement demands in favor of
                                      litigation, well knowing that
                                      the jury will be apportioning
The Ready opinion: The                fault to all those responsible for
Appellate Court rebuffs               plaintiff’s accident -- and not just
Plaintiffs’ Tactics                   the last remaining defendant at
The Appellate Court sided with        the time of verdict. The Appel-
United/Godecki in its view that       late decision in Ready has put
the tort reform legislation re-       teeth back into the tort reform
quired an apportionment of fault      legislation.
as to all defendants--even those
defendants who settled with the       Ready was briefed by Edward M.
plaintiff and were no longer in       Kay, Barbara I. Michaelides,
the suit at the time of verdict.      Paula M. Carstensen and Paul
According to the Court, “defen-       V. Esposito, all members of
dant who settles with the plaintiff   the Appellate Practice Group at
is still a defendant sued by the      Clausen Miller P.C. in Chicago,
plaintiff.” This interpretation       Illinois. Ed Kay orally argued
of the statute is consistent with     Ready to the Illinois Appellate
the purpose of this tort reform       Court, First District on July 12,
legislation: to protect minimally     2006. 
culpable defendants from paying
entire damage awards.


Ramifications
Ready will change the way
litigation is conducted in Illi-
nois. Plaintiff’s attorneys will


4                                                                            www.clausen.com
                                                                       CASUALTY UPDATE
  illinois supreme Court finds building owners must
    proteCt their Customers from the negligenCe of
               others... even bad drivers
                                       by Kathleen A. Johnson
                                       kjohnson@clausen.com

In a split decision, the Illinois franchisee failed to exercise due    ence or known fact, that places
Supreme Court has held that       care in the design and construc-     of general public resort are also
a premises owner has a duty       tion of the restaurant and that      places where what men can do,
to protect its invitees from the  this was a proximate cause of the    they might. One who invites
negligence of third persons and   decedent’s injuries and death.       all may reasonably expect that
that the imposition of this duty  The trial court granted Burger       all might not behave, and bears
does not require notice of a pri- King’s motion to dismiss on the      responsibility for injury that fol-
or, similar incident of negligent ground that plaintiff failed to      lows the absence of reasonable
third-party conduct. Marshall     state a cause of action because      precaution against that common
v. Burger King Corp., 2006 WL     Burger King had no duty to pro-      expectation.” Based on the al-
1703488. This is a substantial    tect decedent from this particu-     legations of the complaint, the
change in the law with far reach- lar injury. The appellate court      majority concluded that “the
ing implications for premises li- reversed, finding that the allega-   duty of care that a business in-
ability cases.                    tions of the complaint suggested     vitor owes to invitees to protect
                                  precautions, such as modifica-       them against the unreasonable
Facts                             tions to the restaurant’s build-     risk of physical harm is clearly
Decedent was eating inside a ing and parking lot designs, that         applicable to this case. The
Burger King restaurant when may fall within the duty of rea-           complaint alleges that while the
the driver of a car attempting to sonable care a premises owner        decedent was a customer at a
back out of the parking lot lost owes to its invitees.                 restaurant owned and operated
control of the vehicle, hit the                                        by defendants, he was injured
sidewalk next to the restaurant, Analysis                              by the negligent act of a third
became airborne and crashed A majority of the Illinois Su-             person - namely, Fritz’s act of
through the window killing the preme Court affirmed the appel-         driving her car into the restau-
decedent. His estate sued Burg- late court, finding that “[p]laces     rant. Defendants’ business, a
er King, the franchisee, and the to which the general public are       restaurant, is undoubtedly of
driver of the car. Plaintiff al- invited might indeed anticipate,      such a nature that it places de-
leged that Burger King and its either from common experi-              fendants in a special relation-
                                                                       ship with their customers, as it
                    KAThLeen A. JohnSon is a senior                    is an establishment open to the
                    associate with Clausen Miller, P.C. who            general public for business pur-
                    practices primarily in the area of liability
                                                                       poses.”
                    insurance coverage analysis and defense
                    litigation. Ms. Johnson has a B.A. from
                    Elmhurst College and a J.D. from The John          The majority further found that
                    Marshall Law School.                               this duty of care is imposed
                                                                       upon premises owners regard-
                                                                       less of whether similar specific

www.clausen.com                                                                                          5
    CASUALTY UPDATE

incidents have occurred in the       tee from an out-of-control ve-      their customers’ safety? Or is
past, reasoning that all acci-       hicle, then such a duty exists      the court acknowledging what
dents involving automobiles are      for every business which owns       has become a more prevail-
reasonably foreseeable: “[I]t        a building that abuts a road or     ing attitude, i.e., that business
is reasonably foreseeable that,      parking lot.                        owners cannot avoid owing a
given the pervasiveness of auto-                                         duty to the very customers they
mobiles, roadways, and parking       As a recent Chicago Tribune         invite into their stores, given
lots, that business invitees will,   article noted, the construction     the number of automobiles and
from time to time, be placed at      of buildings is presently in an     drivers on the road, and should
risk by automobile-related ac-       “anxious age.” Blair Kaiman,        prepare for the possibility of an
cidents. *** [W]hat is required      “Architecture in an Anxious         accident no matter how remote?
to be foreseeable is the general     Age,” Chicago Tribune, Sep-         In either event, Illinois business
character of the event or harm       tember 10, 2006, Sec. 1 at 4.       owners must beware…if you in-
*** not its precise nature or        Now, following the Marshall         vite the public onto your prem-
manner of occurrence.”               opinion, Illinois business own-     ises, you may be responsible for
                                     ers not only have to deal with      the negligent conduct of third
Learning Point: The dissent          the anxiety of terrorism but also   parties. Proper design and con-
opined that “the majority’s          must design and build safer         struction of the building should
holding is exceptionally broad       buildings to protect their cus-     take into account the possibility
and has the potential to alter       tomers from the negligence of       of bad drivers. Business owners
substantially the function and       third parties. By shifting the      will have to “think outside the
appearance of every city in the      burden to anticipate these events   box” to make sure that the once
state.” The dissent concluded        to the business owner, the ques-    the doors are open, that it is safe
that if there is an affirmative      tion becomes this: has the court    both inside and outside of the
duty to protect a business invi-     made all landowners insurers of     business. 




6                                                                                      www.clausen.com
                                                           ENVIRONMENTAL UPDATE
     no right of CerCla Contribution for potentiallY
      responsible parties who engage in voluntarY
                        Cleanups
                                           by Ilene M. Korey
                                         ikorey@clausen.com

In E.I. DuPont de Nemours and       ruling that the U.S. must con-       result of a civil action. “[T]he
Co. v. U.S., 2006 WL 2474339,       tribute to a share of the clean      import of Congress’ scheme (an
the U.S. Court of Appeals for       up costs under the Comprehen-        express desire to oversee clean-
the Third Circuit held that con-    sive Environmental Response,         ups via settlements and other
tribution under CERCLA §113         Compensation and Liability Act       enforcement actions, the explic-
for environmental cleanup costs     (“CERCLA”), 42 U.S.C.§ 9601          it promise of contribution as an
is not available to potentially     et seq.                              incentive for PRPs to enter into
responsible parties (PRPs) who                                           negotiated cleanup agreements,
engage in voluntary environ-        The district court granted sum-      and the desire for quality-con-
mental cleanups.                    mary judgment for the govern-        trol standards for safe, effective,
                                    ment, and the Third Circuit          and reliable cleanups) is consis-
In DuPont, the plaintiffs were      affirmed. The Third Circuit          tent with the EPA’s wariness of
owners and operators of indus-      reasoned that the intention of       wholly voluntary and unregulat-
trial facilities located through-   Congress in creating CERCLA          ed cleanups. * * * CERCLA’s
out the Unites States who admit-    § 113(f), CERCLA’s contribu-         purpose was never to encour-
ted that they were responsible      tion provision, was to create an     age wholly unsupervised pri-
for some of the hazardous waste     exclusive remedy and eliminate       vate remediation activities, but
contamination at these sites and    independent common law rem-          rather to facilitate government-
voluntarily cleaned them. The       edies of contribution. The court     sponsored cleanups.” Because
sites had also been owned or        then refused to reconsider its       plaintiffs here had voluntarily
operated by the United States       holdings in previous cases and       cleaned up the sites without be-
at various times during World       reiterated that a PRP who volun-     ing subject to an enforcement
War I, World War II, and/or the     tarily cleans up a contaminated      action or a negotiated clean up
Korean War. Alleging that the       site may only seek contribution      agreement, they were precluded
United States was also respon-      from other PRPs when it has          from seeking contribution from
sible for some part of the con-     been the subject of a civil action   the United States.
tamination, plaintiffs sought a     or has been adjudged liable as a
                                                                         Learning Point: This decision
                   iLene M. Korey is a partner with Clausen              emphasizes the reward and pref-
                   Miller P.C. She concentrates her litigation
                                                                         erence for negotiated clean ups
                   practice in the areas of liability, professional
                   liability, insurance coverage and commercial          that are supervised by the EPA.
                   litigation. Ms. Korey is an arbitrator for the        A voluntary clean up without
                   Cook County Mandatory Arbitration Program             a negotiated consent decree or
                   and the National Futures Association. Ms.             other agreement may be at the
                   Korey received a B.S. from the University of
                                                                         peril of a polluting party. 
                   Colorado and obtained her J.D. from DePaul
 University College of Law.




www.clausen.com                                                                                           7
Clausen Miller NEWS
DEBRA WALKER PRESENTS                    PARTNER SUSAN                      KEITH FLANAGAN
    GRANT CHECK                         GUMMOW HOLDS                      ARTICLE PUBLISHED IN
TO JUVENILE COURT AD-                    BANKRUPTCY &                      ABA/TIPS FIDELITY &
VOCATES OF HANCOCK                      INSURANCE LAW                      SURETY COMMITTEE
       COUNTY                               SEMINAR                            NEWSLETTER

Clausen Miller partner Debra                         CM partner Su-                      CM attorney
Walker, a member of the Il-                          san Gummow                          K e i t h F l a n-
linois Bar Foundation (“IBF”)                        recently part-                      agan’s article
board of directors, recently pre-                    nered with Da-                      “C a n an I n-
sented a grant to Juvenile Court                     vid Bart of RSM                     sider Recover
Advocates of Hancock County.                         McGladrey Inc.                      Against its Own
It was the first ever IBF grant                      and presented                       Payment or Per-
check to a Hancock County or-                        a unique semi-                      formance Bond?
ganization. Debra is a native of       Susan n.K.    nar to the Toxic      Keith G.      The Effect of the
                                        Gummow                             Flanagan
Carthage, Illinois, the county                       Torts Group of                      Principal’s Pro-
seat of Hancock County, and         a major insurer. The seminar        prietary Interest in the Claimant
was delighted to make this pre-     addressed the various ways in       on the Surety’s Payment and
sentation at a press conference     which the filing of bankruptcy      Performance Bond Liability”
held in the courthouse there.       by an insured or other entity can   was published in the Summer
The story was covered in the        impact an insurance company.        2006 edition of the ABA/TIPS
Hancock County Journal-Pilot.       The program was designed to ed-     Fidelity & Surety Committee
Debra was also featured in an       ucate the insurance professional    Newsletter. To obtain a copy
interview on the KHQA televi-       on the basics of bankruptcy and     of this informative article,
sion station's (Quincy’s CBS af-    it provided them with a working     please contact Keith direct-
filiate) 6 pm and 10 pm evening     knowledge of the various issues     ly at kflanagan@clausen.com.
news as well as Quincy radio        that may arise in a bankruptcy
station WTAD.                       proceeding. The seminar was               STERN AND
                                    approved for 3 hours of New            RAUCHWERGER TO
                                    York CLE credit. If you are           SPEAK AT UPCOMING
                                    interested in having Ms. Gum-          NASP CONFERENCE
                                    mow present this seminar at
                                    your company, please contact        CM partners Robert Stern
                                    her at sgummow@clausen.com          (New York/New Jersey) and
                                    or (312) 606-7802.                  Dean Rauchwerger (Chi-
L to r: JCA volunteer Carolyn                                           cago) have been selected to
Griffiths, Attorney Debra Walk-                                         speak at the November 2006
er and JCA executive director                                           conference of the National As-
        Nancy Bernhardt                                                 sociation of Subrogation Pro-
                                                                        fessionals (“NASP”) in Orlan-
                                                                        do, Florida. More than 1,000
                                                                        subrogation professionals are
                                                                        expected to attend this year’s
                                                                        Conference. Robert will be

8                                                                                     www.clausen.com
                                                Clausen Miller NEWS
                                    Committee’s Mid-Winter meet-        the many regulations enforced
                                    ings. To learn more about Jim’s     by the Consumer Product Safety
                                    “best of” presentation, please      Commission (CPSC). The au-
                                    contact him directly at jbarber@    thors highlight that a product
                                    clausen.com.                        manufacturer’s liability exposure
                                                                        frequently involves post-sale
                                    RAUCHWERGER, ERRERA                 duties of disseminating current
                                      & FERRINI PUBLISH AN              warnings, safety bulletins, and
  robert A.         dean S.
                                      ARTICLE IN COLUMNS                other product information, as
   Stern          rauchwerger
                                    DRUGS & SUPPLEMENTS:                well as implementing corrective
speaking on a panel about Al-                                           actions, such as product recalls.
ternative Dispute Resolution          PRODUCT SUPPLIER’S
                                                                        The article further discusses the
processes and techniques as a       LIABILITY ExPOSURE FOR
                                                                        CPSC’s broad regulatory author-
means to avoid jury trials. Dean       NONCOMPLIANCE                    ity, practical insights from the
will be addressing the param-        UNDER THE CONSUMER                 CPSC Recall Handbook, poten-
eters and hurdles of pursuing        PRODUCT SAFETY ACT                 tial civil and criminal penalties,
claims against the United States                                        strategic litigation insights, spe-
under the Federal Tort Claims                                           cial “packaging” criteria, and the
Act. If you are interested in at-                                       interplay between the CPSC and
tending this year’s Conference,                                         the Food and Drug Administra-
please contact Robert or Dean.                                          tion (FDA).
If you are attending, they look
forward to meeting you at the                                           Should you have any questions
Conference.                                                             on a product supplier’s poten-
                                                                        tial liabilities under the CPSA,
     JIM BARBER      Allison K.  Michael S.
                                                                        please do not hesitate to con-
  CLE PRESENTATION    Ferrini      errera
                                                                        tact any of the authors. If you
EARNS ABA ACCOLADES CM partner Dean Rauch-                              are interested in an in-house
                                    werger and associates Michael       client educational seminar on
                The co-chair of     Errera and Allison Ferrini          the CPSA/CPSC and related
                the ABA Labor       published a timely article in       issues, please contact CM
                & Employment        Columns Drugs & Supplements         partner Dean Rauchwerger
                Committee’s         periodical, June 2006 edition,      (drauchwerger@clausen.com).
                National Pro-       entitled, “A Product Supplier’s
                grams CLE           Liability Exposure for Non-           FLANAGAN PRESENTS
                Committee re-       compliance With its Obligations         PAPER ON MONEY
                cently informed     Under the Consumer Product           LAUNDERING LIABILITY
   James S.     CM partner Jim      Safety Act and Related Alter-
    Barber      Barber this his     native Statutory Authorities.”      CM associate Keith Flanagan
presentation at the ERR Mid-        This article provides an insight-   presented a paper, "Just Because
Winter meeting was selected         ful overview of the obligations     Its Laundered, Doesn't Mean Its
as one of the best presentations    of product manufacturers and        Clean: Bank Liability for Money
made by a panel at all of the       suppliers under the Consumer        Laundering and Fraudulent Wire
ABA Labor and Employment            Product Safety Act (CPSA) and       Transfers" at this year's National

www.clausen.com                                                                                          9
Clausen Miller NEWS
Bond Claims Association An-                                               Plaintiff’s attorneys refused to
nual Meeting. The conference,
attended by close to 200 insur-
                                           ON THE                         amend their complaint, and the
                                                                          members of the jury comment-
ance company representatives,         LITIGATION FRONT                    ed after the verdict that from the
attorneys and consultants, was                                            opening statements they under-
held from October 11 - 13, 2006                                           stood our client and co-counsel's
in Pinehurst, North Carolina.                                             client were not the proper par-
                                         ERRERA SECURES
                                       NOT LIABLE VERDICT                 ties involved with the plaintiff’s
Keith's paper and presentation                                            claimed injuries and were not
included an analysis of bank li-        INVOLVING TORN
                                                                          responsible for the road condi-
ability for money laundering and      ROTATOR CUFF INJURY                 tions.
fraudulent wire transfers under
the Money Laudering Control                           Following four
                                                                               CM OBTAINS
Act of 1986, Article 4A of the                        days of testi-
Uniform Commercial Code, as                           mony, a Cook        $29,000,000 VERDICT IN
well as under federal transac-                        County       jury    MISSOURI FIRE CASE
tion reporting and recordkeeping                      returned a not
regulations, and under various                        liable verdict
common law theories of liability.                     after only forty
The presentation also addressed                       minutes of de-
how fidelity insurers can use this      Michael S.    liberations in
information both in handling              errera      a case tried by
claims brought by their insureds,    CM attorney Michael Errera.
and when pursuing subrogation        The case involved a plaintiff’s
against banks for their roles in     claim she was thrown off her
such transactions.                   bicycle after hitting construc-         James F.         James J.
                                                                              Smith           Bigoness
                                     tion debris left on a roadway
 KIM KEARNEY PRESENTS                by a waste hauling client. The       A St. Francois County, Mis-
   U.S. MARITIME LAW                 plaintiff’s injuries included a      souri jury returned one of
        SEMINAR                      complete tear of her rotator         Missouri’s largest tort ver-
                                     cuff, which necessitated surgery     dicts in favor of Clausen Mill-
               On October            and more than one year of reha-      er client, Newell Rubbermaid
               4, 2006 CM            bilitation. Mike defended the        d/b/a Little Tikes, in the amount
               partner and           case on three grounds: 1) the ac-    of $29,000,000 in a case tried
               Uniformity of         cident was due to the plaintiff’s    by CM partners Jim Smith and
               Maritime Law          inattention while riding her         Jim Bigoness and assisted by
               Committee             bicycle; 2) the client’s waste       Richard Strawbridge. The case
               Chair Kim             hauling trucks had not been at       arose from a September 8, 1998
               Kearney gave          the construction site in the prior   fire that completely destroyed
  Kimbley A.   a Continuing          month; and, most significantly,      the storage and production ar-
   Kearney     Legal Educa-          3) a non-party hauled construc-      eas of the Farmington, Missouri
               tion seminar on       tion materials on the roadway        factory which manufactured
Recent Developments in U.S.          on the day of the accident.          Little Tikes playground equip-
Maritime Law at the Maritime                                              ment. The jury awarded Little
Law Association's conference in                                           Tikes damages for replacement
San Francisco.

10                                                                                      www.clausen.com
                                                                                             On The
                                                              Litigation FRONT
of the destroyed equipment and      degrees when lit. Jim Bigon-       tified as an expert in the cause
inventory, reconstruction of        ess and Jim Smith and local at-    and origin of fires in over 300
the destroyed plant, and loss of    torney Tom Burcham proved          cases, testified for the defense
business income during recon-       that the defendant should have     that a fallen light was not the
struction.                          attached a safety chain to the     cause of the fire. CM attorneys
                                    light fixture which would have     offered the testimony of State of
The defendant was Entergy Sys-      prevented the fallen light from    Missouri fire marshals who con-
tems and Service, Inc., who had     coming into contact with and ig-   cluded that a high pressure sodi-
contracted with Little Tikes to     niting combustible products on     um light had fallen and ignited
install an energy saving device     the floor of the plant.            cardboard boxes and polyethyl-
in each of the plant’s overhead                                        ene products on the floor, even
high pressure sodium lights, and    The defendant disputed the though they had categorized
to correct any defects found in     cause of the fire and claimed the cause as “undetermined” in
the lighting system. High pres-     that it did not owe a duty to in- their reports.
sure sodium lights are used ex-     stall safety chains, especially
clusively for industrial lighting   since Little Tikes did not have Defendant did not make a settle-
and it was known by the de-         the chains installed when the ment offer before trial. The jury
fendant that the lights could be    plant was built five years before. took just over an hour to reach a
dangerous if they were to fall      Kansas City Fire Chief Richard verdict.
because the bulb reached 2000       “Smokey” Dyer, who had tes-




www.clausen.com                                                                                      11
 ADMIRALTY
 seventh CirCuit proposes better test for admiraltY
   JurisdiCtion but applies eXtension of admiraltY
                  JurisdiCtion aCt
                                         by Kimbley A. Kearney
                                         kkearney@clausen.com
In Tagliere v. Harrah’s Illinois       common sense but that it              ship between the activity
Corp., 445 F.3d 1012 (7th Cir.         be clear.                             giving rise to the incident
2006), the Seventh Circuit was                                               and traditional maritime ac-
called upon to decide whether a      Writing for the Seventh Circuit,        tivity,’ Sisson v. Ruby [497
personal injury claim involving      Judge Richard A. Posner pro-            U.S. 358, 364, 1990 AMC
a casino boat patron’s fall from a   posed that the existence of admi-       1801 (1990)], that is used
slot machine stool fell within its   ralty jurisdiction in each case be      to determine jurisdiction un-
admiralty jurisdiction or whether    decided on the basis of “whether        der Section 1331(1), which
it would be governed by Illinois     admiralty law or state law would        confers but does not define
tort law and accordingly be time     make a better fit with the particu-     admiralty jurisdiction.
barred. Before undertaking its       lar circumstances of the accident
analysis of the jurisdictional is-   that had given rise to the suit.”     Applying the Extension of Ad-
sue, the Court noted:                He acknowledged, however,             miralty Jurisdiction Act, the
                                     that this approach “would make        Seventh Circuit concluded that
  The accident in our case           the determination of jurisdic-        the district court erred in dismiss-
  had nothing to do with the         tion hopelessly uncertain. It is      ing the case for lack of admiralty
  fact that the casino was on        not a price worth paying for the      jurisdiction where it had not been
  a boat afloat on a navigable       slightly better match of law to       shown that the casino boat was
  stream rather than sitting on      fact that would result.”              permanently, rather than merely
  dry land. And so whatever                                                indefinitely moored when the
  distinctive rules of liability     Ultimately, the Seventh Circuit       accident occurred. In Stewart v.
  admiralty courts have de-          applied the Extension of Admi-        Dutra Constr. Co., 543 U.S. 41,
  veloped would be no better         ralty Jurisdiction Act, 46 U.S.C.     2005 AMC 609 (2005), the Su-
  suited, and perhaps would          App. § 740, which extends ad-         preme Court held that a “vessel”
  be worse suited, to the reso-      miralty jurisdiction to “all cases    is any craft practically capable of
  lution of this accident case       of damage or injury, to person        transportation over water. The
  than ordinary state tort law       or property, caused by a vessel       Seventh Circuit concluded that,
  would be. There is, there-         on navigable water.” The Court        after Stewart, the casino boat
  fore, common-sense appeal          stated that the Act:                  would have to be permanently
  to the district court’s ruling                                           incapacitated from sailing in
  that the suit is not within the      provides a clear and simple         order for it to no longer be a
  admiralty jurisdiction.              jurisdictional test for cases       “vessel” for purposes of admi-
                                       like this, in contrast to the       ralty jurisdiction. Thus, if the
           *    *    *                 vague ‘maritime nexus’ (or          Tagliere casino boat is found to
                                       ‘connection’) test [where]          be only indefinitely moored, the
  But the most important re-           ‘the party seeking to invoke        slot machine accident will fall
  quirement of a jurisdictional        maritime jurisdiction must          within admiralty jurisdiction.
  rule is not that it appeal to        show a substantial relation-


12                                                                                        www.clausen.com
                                    ADMIRALTY




Learning Point: Tagliere reflects
a judicial desire for a simpler
test for admiralty jurisdiction.
The Seventh Circuit indicated
that it viewed the Extension of
Admiralty Jurisdiction Act as
an independent basis of federal
jurisdiction “which provides a
clear and simple jurisdictional
test” and chose to apply the Act
instead of the Sisson v. Ruby
test. Courts following Tagliere
may take a sweeping view of
admiralty jurisdiction and extend
it to include anything done on
navigable waters by a vessel,
her crew, her passengers, or by
others to them, regardless of
whether the incident has any con-
nection to traditional maritime
activity. It remains to be seen
whether the admiralty courts will
trend toward this expansive view
of jurisdiction. 


www.clausen.com                             13
 ADMIRALTY
      fifth CirCuit refuses to reCogniZe eXCeption to
                   eConomiC damage rule
                                      by Kimbley A. Kearney
                                      kkearney@clausen.com

The Fifth Circuit recently reiter-nomic loss unaccompanied by by the commercial fishermen in
ated its longstanding rule: “It isphysical damage to proprietary Union Oil because damage to the
unmistakable that the law of this interest were not recoverable in swing bridge “would disrupt the
circuit does not allow recovery ofmaritime tort. Robins Dry Dock only means of ingress and egress
purely economic claims absent     & Repair Co. v. Flint, 275 U.S. to Cypremore Point, effectively
physical injury to a propriety    303, 1928 AMC 61 (1927); State cutting off all means of transpor-
interest in a maritime negligence of La. ex rel Guste v. M/V TES- tation to and from the island.”
suit.” In re Taira Lynn Marine    TBANK, ETC., 752 F.2d 1019,
Ltd. No. 5, LLC, 444 F.3d 371,    1985 AMC 1521 (5th Cir. 1985) Analysis
377, 2004 AMC 1886, 1888 (5th     (en banc). However, in Union The Fifth Circuit reversed the
Cir. 2006), citing Robins Dry     Oil Co. v. Oppen, 501 F.2d 558, district court, declining to recog-
Dock & Repair v. Flint, 275 U.S.  559 1975 AMC 416 (9th Cir. nize a “geographic exception” to
303, 309 (1927).                  1974), the Ninth Circuit upheld the TESTBANK rule. The court
                                  that rule but carved out a spe- also rejected the district court’s
Facts                             cific exception for commercial position that the viability of
Taira Lynn involves the allision fishermen harmed economically economic damage claims should
of the barge MR. BARRY and by an oil spill, concluding that be determined on a case-by-case
T/B/ KIRBY with the Louisa the fishermen were foreseeable basis with consideration given to
swing bridge in Louisiana. The plaintiffs.                            the number of claimants.
cargo aboard the barge, a gas-
eous combination of propylene Based primarily on the Ninth In considering whether the
and propane, was released into Circuit’s exception for com- claimants had sustained physi-
the atmosphere as a result of the mercial fishermen, the district cal injury sufficient to survive
allision. Because of the chemi- court rejected TESTBANK’s the TESTBANK rule, the Fifth
cal discharge, the Louisiana bright-line rule. In the opinion Circuit rejected the proposition
State Police ordered a mandatory of the district court, the injuries that the presence of gasoline
evacuation of all homes and busi- suffered by the residents and on property owned by certain
nesses within a certain radius of businesses in the geographic area claimants was sufficient to con-
the release. Numerous business of the allision were just as fore- stitute property damage because
owners brought claims against seeable as the injuries suffered
the defendants for losses arising
                                                     KiMBLey A. KeArney is a partner with
out of the accident and the sub-                     Clausen Miller who concentrates her practice in
sequent evacuation.                                  the areas of admiralty and maritime law, com-
                                                    mercial and employment litigation and appellate
The United States District Court                    law. Ms. Kearney is a Proctor in Admiralty. She
for the Western District of Loui-                   received her B.S. from St. Mary's College and
                                                    her M.B.A. and Juris Doctor, cum laude, from
siana recognized that under ex-                     Tulane University.
isting Supreme Court and Fifth
Circuit precedent, claims for eco-

14                                                                                www.clausen.com
                                                               ADMIRALTY

                                                  Liability Act (“CERCLA”),
                   the claimants had not shown that
                  the gas had physically damaged  42 U.S.C. §§ 9601 et seq., and
                                                  the Oil Pollution Act of 1990
                  their property or caused personal
                  injury. The Fifth Circuit also  (“OPA”), 33 U.S.C. § 2702. The
                                                  CERCLA claims were precluded
                  rejected the claims of plaintiffs
                  whose frozen seafood spoiled    because none of the claimants
                  because law enforcement au-     alleged that they incurred costs
                                                  in acting to contain the gaseous
                  thorities shut off electricity dur-
                                                  cargo. The OPA claims failed
                  ing the evacuation and plaintiffs
                                                  because there was no direct in-
                  who lost materials as a result of
                  interruption in manufacturing   jury to claimant’s property as a
                  runs during the power shutdown. result of a pollution incident.
                                                  .
                  The court reasoned that the alli-
                  sion “did not physically cause  Learning Point: The Robins
                                                  Dry Dock rule is alive and well in
                  the disruption in electrical power
                                                  the Fifth Circuit and the major-
                  nor did it physically impact [the
                  manufacturer’s] facilities.” Anyity of admiralty courts that have
                                                  resisted efforts to “chip away”
                  damage suffered by the plaintiffs
                                                  at its rule against the recovery of
                  was caused by loss of electricity,
                  “not because of contact with theeconomic damage without physi-
                  barge, the bridge or the gaseouscal injury. Few exceptions to
                  cargo.”                         that rule have been recognized.
                                                  Where the rule threatens recov-
                  The Fifth Circuit also reversed ery for substantial economic loss,
                  denial of summary judgment an admiralty practitioner should
                  on claims asserted under The be consulted to attempt to care-
                  Comprehensive Environmental fully frame the facts of the case
                  Response, Compensation and into a recognized exception. 




www.clausen.com                                                                   15
BAD FAITH
       California supreme Court holds assignee Can
                   reCover brandt fees
                                             by Jay D. Harker
                                           jharker@clausen.com

Introduction                         Brandt fees is that policy ben-      own behalf. It held that since the
Five Star Dye House, Inc. (Five      efits should not be reduced by       insurer that refused to defend had
Star) obtained a judgment against    fees required to obtain them in a    no duty to the assignee to pay
Luis Sanchez (Sanchez). San-         tort (bad faith) action. The Es-     policy benefits to anyone, Brandt
chez then assigned to Five Star      sex holding changed California       fees could not be construed as the
his rights against Essex, which      law, in that the California Court    assignee’s own tort damages.
had denied Sanchez’s tender          of Appeal had decided in Xebec
of defense. In return, Five Star     Development Partners, Ltd. v.        The Essex court parted ways
“agreed to delay execution on        National Union Fire Ins. Co., 12     with Xebec by holding that the
the judgment in the underlying       Cal. App. 4th 501 (1993), that       prospective right to claim Brandt
action until the claims against      Brandt fees were not available       fees is part of the assignment of
Essex for the judgment amount        to an assignee.                      rights against the insurer that has
were exhausted.”                                                          wrongfully refused to defend.
                                     Analysis                             The Essex court held that Brandt
In the subsequent declaratory        The rationale of the Xebec court,    fees are a form of compensatory,
relief and bad faith action, the     in deciding Brandt fees were not     economic damages. They are not
California Supreme Court held        available to the assignee, was       awarded as personal damages
that the prospective right to re-    premised on certain aspects of       or punitive damages. They are
cover “Brandt fees” in bad faith     assignment law and tort law. An      awarded, despite the American
actions is assignable. Essex Ins.    assignee stands in the shoes of      Rule against recovery of attorney
Co. v. Five Star Dye House, Inc.,    its assignor. As such, the Xebec     fees in the absence of a statu-
38 Cal. 4th 1252 (2006). Brandt      court had held that since the as-    tory or contractual provision for
fees are attorney fees incurred in   signors had not incurred Brandt      them, to make the insured whole
obtaining policy benefits in the     fees themselves, their assignee      in a tort lawsuit. An assignee
course of a bad faith lawsuit;       had no right to claim such fees.     seeking to recover Brandt fees is
the term derives from Brandt v.      And, the Xebec court held that       merely seeking “to recover as tort
Superior Court, 37 Cal. 3d 813       the assignee did not have the        damages . . . the monetary value
(1985). The concept behind           right to claim Brandt fees on its    of the policy benefits wrongfully
                                                                          withheld.” The right to such
                  JAy d. hArKer is a resident partner in                  fees is therefore assignable, or
                   Clausen Miller P.C.'s Irvine, California office. His   may be considered part of the
                   primary practice area is insurance subrogation.        policyholder’s assignment.
                   In one recent, multi-million dollar matter, Mr.
                   Harker assisted his subrogation client in
                   obtaining a judgment against a third-party             At first glance, there may seem
                   defendant and assignment of rights against             to be a breakdown in the logic of
                   that defendant's liability carrier. Then, in a         the Essex court. After all, Brandt
                   subsequent declaratory relief action, he obtained      fees are only recoverable in bad
                   a summary judgment ruling that the liability
                                                                          faith actions, not in policy dis-
policy covered the claim and that the judgment was binding on
the liability carrier.                                                    putes involving mere breach of

16                                                                                      www.clausen.com
                                                                                         BAD FAITH

contract. This suggests that the “punishment” may be one of the            in a particular type of tort case,
true purpose of Brandt fees must, underlying policy objectives of          as opposed to personal damages
in part, be punishment for the tort law in general.                        or punitive damages, it followed
fact that bad faith has been com-                                          that Brandt fees are assignable.
mitted. Viewed in that light, the
right to Brandt fees would seem                                            Learning Points: The Essex de-
to fall within the same bucket                                             cision illustrates how both gen-
as punitive damages, and not be                                            eral principles of law (such as the
assignable.                                                                objective of tort damages vs. the
                                                                           objective of contract damages, or
It remains true, however, that                                             the California policy in favor of
Brandt fees are a form of com-                                             assignability of property rights)
pensation. They compensate                                                 and specific points of law (such
the policyholder that success-                                             as the purpose of Brandt fees as
fully pursues a bad faith action                                           explained by the Brandt court)
for the attorney fees incurred in                                          may mesh together to lead to a
pursuing that action, and thereby                                          particular result. When a court
prevent a de facto reduction in                                            perceives one party’s position as
policy benefits. This is unlike                                            being the best fit with the law as
punitive damages, which do not                                             a whole, at all levels, that party
compensate the claimant for loss                                           has an advantage. Sometimes
incurred.                                                                  lawyering makes the difference
                                                                           in this regard.
Ultimately, the result of Essex re-
flects the fact that Brandt fees are                                      The way that the particular as-
compensatory damages. While                                               signment agreement in Essex
they may only be recovered in a                                           was structured is also interesting.
case where bad faith is proven,                                           The judgment creditor, Five Star,
they are still compensatory dam-                                          “agreed to delay execution on
ages. This is consistent with                                             the judgment in the underlying
general law that the purpose of                                           action until the claims against
tort damages (such as damages in                                          Essex for the judgment amount
a bad faith action) is to make the                                        were exhausted.” With this type
tort victim whole and put them                                            of assignment, the Essex court
back in the position they were                                            was aware that its decision would
in before the tort was commit-                                            affect Essex’s policyholder (San-
ted. In contrast, the purpose of       The Essex court noted Califor- chez), and language in its deci-
contract damages (such as dam-         nia’s strong policy in favor of sion reflects that awareness (“all
ages for the mere breach of the        assignability of property rights, sums recovered from Essex,
insurance contract) is to provide      stating “[w]e start from the prop- including Brandt fees, will be
what is due under the contract.        osition that assignability is the credited against the judgment in
This basic difference between          rule.” Viewed as compensatory, the underlying action, directly
tort damages and contract dam-         economic damages recoverable reducing Sanchez’s liability to
ages reflects that some degree of                                         Five Star"). 

www.clausen.com                                                                                            17
 EMPLOYMENT
    an emploYee in illinois Cannot bring a Claim for
 retaliatorY disCharge based on an emploYer's refusal
      to renew a fiXed-term emploYment ContraCt
                                              by Anthony P. Ulm
                                              aulm@clausen.com

In Krum v. Chicago National             Plaintiff sued defendant for         “discharge,” and that his cause
League Ball Club, Inc., 365 Ill.        wrongful discharge, alleging         of action was not preempted by
App. 3d 785, 851 N.E.2d 621             that he was terminated in retali-    the Whistleblower Act.
(1st Dist. 2006), the Appellate         ation for informing defendant’s
Court of Illinois, First District,      general manager that defendant’s     Analysis
held that an employee could not         head athletic trainer was not li-    In its decision, the appellate
maintain a retaliatory discharge        censed under the Act. The trial      court first noted that: “[t]o state
claim against an employer for           court granted defendant’s motion     a cause of action for retaliatory
its refusal to renew a fixed-term       to dismiss, holding that plain-      discharge, a plaintiff must plead
employment contract.                    tiff’s retaliatory discharge claim   the following elements: (1) that
                                        was preempted by the Illinois        he or she has been discharged;
Facts                                   Whistleblower Act (740 ILCS          (2) in retaliation for his or her
Plaintiff worked as an assistant        174/1 (West 2004)), and that         activities; and (3) that the dis-
athletic trainer for defendant          based on his pleadings, plaintiff    charge violates a clear mandate
from 2001 through 2004, and             was unable to maintain a cause       of public policy. Stebbings v.
was licensed pursuant to the Il-        of action against defendants pur-    The University of Chicago, 312
linois Athletic Trainers Practice       suant to the Whistleblower Act.      Ill. App. 3d 360, 365, 244 Ill.
Act (“the Act”). Defendant’s            The court also noted that even       Dec. 825, 726 N.E. 2d 1136 (1st
head athletic trainer was not           if plaintiff’s claims were not       Dist. 2000).” The court went
licensed under this Act. In             preempted by the Whistleblower       on to discuss how the common
August 2004, plaintiff advised          Act, his complaint would still be    law tort of retaliatory discharge
defendant’s general manager “of         dismissed because he could not       is a very narrow exception to
numerous improper events that           meet the elements necessary to       the Illinois doctrine of “at-will
had occurred during the course          maintain a retaliatory discharge     employment,” which means that
of the athletic trainers’ duties, in-   claim under Illinois law. Plain-     an employment relationship can
cluding the head athletic trainer’s     tiff appealed, contending that       be terminated by either party
failure to have a license pursuant      the failure to renew his employ-     “at-will” in the absence of an
to the Athletic Trainers Practice       ment contract did constitute a
Act.” On or about October 13,
                                                          AnThony P. ULM is an associate in the
2004, defendant “terminated”                              Chicago office of Clausen Miller P.C. His
plaintiff, but continued to pay                           practice areas include fidelity & surety, probate,
him his salary, pursuant to the                           casualty / liability defense, medical malpractice
terms of his employment con-                              / health care and professional liability. Mr. Ulm
                                                          received a B.A. from the University of Illinois
tract, until December 17, 2004,
                                                          at Urbana-Champaign and a J.D. from the
the date the contract expired.                            Southern Illinois University School of Law.



18                                                                                         www.clausen.com
                                                                            EMPLOYMENT LAW

employment contract or agree-         sation Act prohibits retaliatory      renew an employment contract.”
ment which specifies otherwise.       action against an employee for        In other words, plaintiff was un-
Palmateer v. Int'l Harvester Co.,     filing a workers’ compensation        able to satisfy the “discharge”
85 Ill. 2d 124, 421 N.E.2d 876        claim (820 ILCS 310/4(h) (West        element of the tort of retaliatory
(1981); Martin v. Federal Life        2004)).                               discharge. Given its ruling on
Ins. Co., 109 Ill. App. 3d 596 (1st                                         this particular issue, the court
Dist. 1982). Based on this well-      The Athletic Trainers Practice        found it unnecessary to examine
established Illinois precedent,       Act, on the other hand, which is      whether the Whistleblower Act
the court observed that it was        the statute upon which plaintiff’s    preempted plaintiff’s claims.
“constrained to interpret the ele-    suit was brought, does not con-
ments of the retaliatory discharge    tain any provisions prohibiting       Learning Point: Krum rein-
cause of action narrowly.”            retaliatory employment conduct.       forces prior Illinois case law that
                                      Accordingly, the court held           has repeatedly refused to enlarge
In support of his argument on ap-     that plaintiff had not pled any       the scope of the tort of retaliatory
peal, plaintiff cited several cases   statutory language which could        discharge. Although this deci-
recognizing retaliatory discharge     support his retaliatory discharge     sion is positive for employers,
actions based on an employer’s        claim. In affirming the dismissal     it is critical that they be aware
refusal to recall or rehire an        of plaintiff's complaint, the court   of all the elements of this tort.
employee. However, the court          reasoned that since Illinois case     Familiarity with these elements
noted that all of the retaliatory     law “has consistently sought to       will assist an employer in under-
discharge claims in these cases       restrict the common law tort of       standing how to terminate an em-
were brought pursuant to various      retaliatory discharge... absent a     ployee without violating Illinois
statutes that contained language      statutory basis, contractual em-      law. This should, in turn, reduce
prohibiting retaliatory failure to    ployees, such as [plaintiff], can-    the likelihood of retaliatory dis-
recall or rehire. For example,        not bring a claim of retaliatory      charge claims being brought by
the Illinois Workers’ Compen-         discharge when employers fail to      former employees. 




www.clausen.com                                                                                              19
 EMPLOYMENT LAW
     retaliation standard established bY supreme Court
                                         by James S. Barber
                                        jbarber@clausen.com

Introduction                        in the Burlington Northern case job description as a track laborer
Q. Can an employer reassign an will open the flood gates to even included operation of the fork lift
employee to different tasks with- more retaliation claims.            among her job duties.
in his or her job description with-
out fear of a retaliation claim?     Case in a nutshell               A few months after assuming the
                                                                      fork lift responsibilities, White
                                     Retaliation:                     complained that her immediate
Q. Is an employer who reinstates • Is conduct which would
an employee with back pay pro-                                        supervisor had repeatedly told
                                       dissuade a reasonable em-      her that women should not be
tected from a retaliation claim?       ployee from supporting or      working in the department and
                                       filing a complaint.            that the supervisor made insult-
Q. Is an employer protected
                                     • Does not necessarily have      ing and inappropriate remarks
from a retaliation claim if the
                                       to rise to the level of deny-  about White in front of male col-
conduct is outside the work-
                                       ing employment, promo-         leagues. The supervisor was sus-
place?
                                       tion, compensation or          pended for ten days and ordered
On June 22, 2006, the United           termination.                   to attend a sexual harassment
States Supreme Court, in the         • Can consist of conduct         training session. At the same
Burlington Northern Santa Fe           which occurs outside the       time, White was removed from
Railroad v. White decision, an-        workplace.                     her fork lift duty and assigned to
swered “No” to all three of the                                       the more standard track laborer
above questions. In doing so, Facts                                   tasks.
the Court resolved a division In the Burlington Northern case,
of opinion among the Appel- the plaintiff, Sheila White, was Procedural History
late Courts across the country hired as a “track laborer.” At a White filed a charge of discrimi-
as to what conduct constitutes prior employer, White had oper- nation with the EEOC. Two
actionable discriminatory retali- ated a fork lift and when another months later she filed a second
ation. The Court also may have employee at Burlington who op- charge for retaliation claiming
expanded the scope of retaliation erated a fork lift for the railroad that her supervisor had placed her
claims which an employee can was reassigned, White was given under surveillance and monitor-
bring in the future.                the additional responsibility of ing. A few days after the second
                                    operating the fork lift. White’s charge was filed, she engaged in
rise in retaliation Claims
Retaliation claims nationwide                           JAMeS S. BArBer is a partner with Clausen
                                                     Miller and head of the Employment Practice
are on the rise. Over one quarter                    Group. He counsels and represents clients in
of the EEOC’s docket consists                        the areas of employment policy, contracts and
of retaliation claims. In 2004                       employment litigation. Mr. Barber received his
alone, there were 20,000 retalia-                    M.B.A. from DePaul University and his J.D. from
tion claims actually filed. Some                     DePaul University College of Law.
employment law observers an-
ticipate that the Court’s decision


20                                                                                  www.clausen.com
                                                                           EMPLOYMENT LAW

a disagreement with a supervisor      for retaliation or not depended      concluded that by taking away
about what truck should transport     on which of the federal Appellate    White’s more prestigious re-
her from one location to another      Circuits your company was lo-        sponsibility of operating the fork
and White was suspended for 37        cated in and/or where the alleged    lift, Burlington would dissuade a
days without pay. After an inter-     incident occurred. The issue was     reasonable worker from filing a
nal grievance process, White was      whether the retaliation must have    discrimination charge.
reinstated to her track laborer       a materially adverse effect on
position and awarded back pay         the terms, conditions or benefits    Next, Burlington argued that the
for the 37 days. White filed yet      of employment? Or, whether a         37-day suspension without pay
a third charge alleging that the      less restrictive standard applied    lacked statutory significance
suspension also was retaliatory.      such as conduct that would dis-      because Burlington ultimately
A jury ultimately awarded White       suade a reasonable employee          reinstated White with back pay.
$43,500.00 in compensatory            from complaining? The Supreme        Again, the Court disagreed. The
damages including $3,250.00 in        Court opted for a less restrictive   Court, in part, ruled that even
medical expenses.                     standard.                            if the employee is eventually
                                                                           reinstated with back pay: “A
Upon review, the United States        Supreme Court’s decision             reasonable employee facing the
Court of Appeals for the Sixth                                             choice between retaining his
                                     Workplace Conduct,
Circuit affirmed the judgment.                                             job (and paycheck) and filing a
                                     Burlington:
But the court was divided on                                               discrimination complaint might
                                     In the Supreme Court, Burlington
what standard to apply in the                                              well choose the former.”
                                     first argued that the reassignment
determining what constitutes
                                     of the employee, White, to her
actionable discriminatory retali-                                          Non-Workplace Conduct:
                                     other duties as a track laborer
ation. However, in spite of its di-                                        However, as stated earlier, the
                                     was not retaliation. Burlington
vision on what standard to apply,                                          Court went further. The Court
                                     reasoned that White’s job de-
the Sixth Circuit majority held                                            went on to observe that an em-
                                     scription had always included
that there had been a materially                                           ployer also can “effectively
                                     both her former duties as a track
adverse change in the terms and                                            retaliate against an employee
                                     laborer and her recent fork lift
conditions of White’s employ-                                              by taking actions not directly
                                     duties. Therefore, her reassign-
ment and, therefore, that White                                            related to his employment or by
                                     ment did not effect the terms
had been a victim of actionable                                            causing him harm outside the
                                     and conditions of her job. The
retaliation.                                                               workplace.” By way of example,
                                     Supreme Court disagreed. The
                                                                           the Court referred to two earlier
                                     Court stated that whether the
Pre-Burlington,                                                            cases before the Court in which
                                     employer’s challenged action
Companies Vulnerable To              was retaliatory should be de-
                                                                           employers had engaged in retal-
Differing Standards                  termined by whether the action
                                                                           iatory conduct against employees
                                                                           outside the workplace. In one
 The Sixth Circuit was not alone was material to a “reasonable
                                                                           of those cases, the employer
in its uncertainty about the stan- employee.” That is, would the
                                                                           had refused to investigate death
dard to apply to retaliation claims. employer’s action have “dis-
                                                                           threats made against an employee
Other Appellate Courts across suaded a reasonable worker from
                                                                           and his wife. In another earlier
the country also differed.           making or supporting a charge
                                                                           case, an employer had filed false
                                     of discrimination?” To be sure,
                                                                           criminal charges against an em-
Prior to the Supreme Court’s the Court stated, reassignment of
                                                                           ployee.
ruling in the Burlington case, job duties is not automatically
whether a company was liable actionable. However, the Court

www.clausen.com                                                                                           21
 EMPLOYMENT

ray of hope For                     ployee” standard, that standard        Practice Tips Checklist
employers?                          may be clouded by the fact that        What can you do to protect
Can a ray of hope be found for      the reasonable employee is to          your companies? Here are
employers in the Court’s deci-      be judged from the perspective         some practical tips.
sion? Perhaps so; the Court         of the person in the plaintiff’s
stated that it was setting an       position. Conduct should be            √ Advise supervisors of
“objective standard” which is       judged from “the perspective             the implications of the
                                    of a reasonable person in the            Burlington case in their
judicially administrable rather                                              reassignment decisions.
than a standard based on subjec-    plaintiff’s position,” considering
tive feelings. Under the Supreme    “all the circumstances.” What
                                                                           √ Require supervisors to
Court’s ruling, lower courts will   this means will have to be fought        report changes in job tasks
have to consider what the reac-     out in the trenches of litigation        to upper level management.
tion of a reasonable employee       as employers seek to apply the
                                    Burlington decision to everyday        √ Make it clear to supervisors
would be when determining who                                                that such changes could be
would be dissuaded from making      situations. Thus, whether it is
                                    an automatic ticket to a jury will       construed as retaliation.
or supporting a charge of dis-
crimination. Not considered are     take time to determine.                √ Independently monitor
the subjective feelings or reac-                                             reassignments and changes
tions of a particular employee.     Also open is the question of             in responsibilities.
                                    what non-workplace conduct
                                                                           √ Emphasize that conduct
The court also stated that in order the courts will consider to be           outside the workplace could
to constitute actionable retalia- within the purview of retaliation.         be construed as retaliatory.
tion the action must constitute a Will the lower courts limit such
material adversity. That materi- conduct to incidences similar to          √ Amend company policies
ality test, the Court stated would those mentioned in the Supreme            to specifically prohibit
                                                                             retaliatory conduct outside
separate out significant claims Court’s opinion? Or, will the                the workplace.
from the trivial:                   lower courts take a more expan-
                                    sive or more restrictive interpre-
                                                                           √ State in policies and
   Title VII, we have said, does    tation?                                  job descriptions that re-
  not set forth a general civil-                                             assignment or additional
  ity code for the American         There also is some speculation           responsibilities may be
                                    about whether, in future deci-           temporary depending on
  workplace… . An employ-                                                    company needs.
                                    sions, the courts might apply the
  ee’s decision to report dis-
                                    Burlington standard to Ameri-
  criminatory behavior cannot                                              √ Remind supervisors
                                    cans with Disabilities Act claims
  immunize that employee                                                     that employees who
                                    or to Age Discrimination in Em-          lodge discrimination
  from those petty slights or
                                    ployment Act claims. Similarly,          complaints are not to
  minor annoyances that often       there are questions about whether
  take place at work and that                                                face reassignments or
                                    state or local civil rights agencies     changes in responsibilities
  all employees experience.         might apply the Burlington stan-         without upper management
                                    dard to their respective state or        approval.
what does                           local statutes. 
The Future Hold?                                                           √ Require documentation of
While the Supreme Court has                                                  routine managerial matters
                                                                             such as scheduling and
turned to a “reasonable em-
                                                                             performance reviews.

22                                                                                     www.clausen.com
                                                               FIRST-PARTY PROPERTY
teXas supreme Court holds that eXClusion for "loss
Caused bY mold" does not provide Coverage for mold
   stemming from small roof and window leaks
                                          by Mindy M. Medley
                                         mmedley@clausen.com

In Fiess v. State Farm Lloyds, the    their house. The insureds sent     judgment in the United States
Texas Supreme Court addressed         samples of the mold to a labora-   District Court for the Southern
the Fifth Circuit’s certified ques-   tory for analysis. The laborato-   District of Texas. The insureds
tion asking whether “the ensuing      ry’s examiner determined that      appealed. The Fifth Circuit re-
loss provision contained in Sec-      the mold samples consisted of      versed in part, and certified the
tion 1-Exclusions, part 1(f) of the   stachybotrys mold. Upon fur-       insurance coverage question to
Homeowners Form B (HO-B) in-          ther examination, the examiner     the Texas Supreme Court.
surance policy, … when read in        concluded that Tropical Storm
conjunction with the remainder        Allison had caused some of the     Analysis
of the policy, provides coverage      mold contamination, but that a     The policy provision at issue in
for mold contamination caused         “significant percentage” of the    Fiess states that State Farm does
by water damage that is other-        mold had actually been caused      “not cover loss caused by: …
wise covered by the policy …”         by roof leaks, plumbing leaks,     mold or other fungi. … We do
2006 WL 2505995 (Tex.). The           heating, air conditioning and      cover ensuing loss caused by col-
Court answered this question in       ventilation leaks, exterior door   lapse of the building or any part
the negative stating: “…[W]e          leaks, and window leaks that       of the building, water damage or
cannot hold that mold damage          existed prior to Tropical Storm    breakage of glass which is part
is covered when the policy ex-        Allison.                           of the building if the loss would
pressly says it is not.”                                                 otherwise be covered under this
                                      The insureds submitted a claim     policy.” The Texas Supreme
Facts                                 to their insurer, State Farm       Court divided this provision into
In 2001, the insureds’ home           Lloyds (“State Farm”). State       four discrete sections and then
suffered flood damage as a re-        Farm issued payment in the         analyzed each.
sult of Tropical Storm Allison.       amount of $34,425 under a
When the insureds removed             reservation of rights, and the     First, the court considered the
drywall that had been damaged         insureds, believing this payment   language, “We do not cover loss
by the flood, they discovered         to be inadequate, filed suit in    caused by mold.” Relying on
black mold growing throughout         state court. State Farm removed    standard contract interpretation
                                      the case, and obtained summary     principles, the court stated that it
                                                                         is “hard to find any ambiguity”
                 Mindy M. MedLey is an associate in
                 Clausen Miller’s Property practice group where          in this provision: “[w]hile the
                 she concentrates her practice on first-party            ensuing loss clause that follows
                 coverage issues which commonly consist of fire          may be difficult to parse … few
                 losses, flood damage and most recently, mold            ordinary people would imagine
                 contamination. Ms. Medley received her J.D. and
                                                                         that it changes the meaning of
                 B.A. from Washington University.
                                                                         the … sentence to read ‘We do
                                                                         too cover loss caused by mold.’”


www.clausen.com                                                                                           23
 FIRST-PARTY PROPERTY

(emphasis in original) The court      [A] policy exclusion for ‘mold’    biguous, courts must enforce the
also rejected the interpretation      cannot be disregarded by simply    contract as made by the parties,
advanced by the Texas Depart-         deeming all mold to be ‘water      and cannot make a new contract
ment of Insurance (“TDI”) be-         damage.’”                          for them, nor change that which
cause the TDI’s interpretation                                           they have made under the guise
created an ambiguity where none       Finally, the court considered the of construction.’” 
is actually present: “neglecting      meaning of “if the loss would
what this policy says in favor        otherwise be covered under this
of what the Department says it        policy.” The insureds argued
intended would raise a host of        that this provision canceled the
… problems.”                          policy’s mold exclusion. The
                                      Supreme Court of Texas, how-
Second, the court analyzed the        ever, disagreed, holding that
language, “We do cover ensuing        if this provision canceled the
loss caused by water damage.”         mold exclusion, it would also
The court specifically declined       effectively cancel the policy’s
the opportunity to overrule           other twenty-two exclusions.
Lambros v. Standard Fire Ins.         The court refused to rewrite the
Co., 530 S.W.2d 138 (Tex.Civ.         policy: “[b]ut those exclusions
App.-San Antonio 1975), writ          are part of the policy; a policy
ref’d, instead applying Lambros       without exclusions for rust, rot,
to the ensuing loss clause and        mold, wear and tear, and termites
stating: “[t]he part of the ensuing   is simply a different policy. This
loss clause at issue in Lambros is    would be policy ‘construction’ in
indistinguishable from the part at    the architectural rather than the
issue here. … If Lambros is still     legal sense.”
the law, then this [ensuing loss]
clause too applies only to losses     Learning Point: In sum, the
caused by an intervening cause        Texas Supreme Court in Fiess
(like water damage) that in turn      was admittedly faced with a
follow from an exclusion listed       “crisis” regarding Texas citi-
in paragraph 1(f).” (emphasis         zens’ insurance claims related
added)                                to the presence of mold. The
                                      court, however, avoided the op-
Third, the court evaluated the        portunity to find an ambiguity
language “caused by water dam-        in a standard insurance policy,
age.” Noting that the policy’s        and instead relied on established
ensuing loss provision only pro-      rules of contract interpretation to
vides coverage for those losses       uphold enforcement of the mold
which ensue from water dam-           exclusion as written, stating:
age, the court held that the term     “[f]or more than a century this
“water damage” “must refer to         court has held that in construing
something more substantial than       insurance policies ‘where the
every tiny water leak or seep. …      language is plain and unam-


24                                                                                    www.clausen.com
                                        INSURANCE COVERAGE LITIGATION
          Clausen miller viCtorY makes new law:
      time limits for Challenging arbitration award
     do not bar insurer from asserting poliCY limits
              defense that was not arbitrated
                                            by Agelo L. Reppas
                                           areppas@clausen.com

Introduction                          During the policy period, plain-      acknowledged his agreement
The Illinois Appellate Court re-      tiff pedestrian was hit by an         with the letter and further stated,
cently forged new law in holding      underinsured motorist. The            “We will not disclose insurance
that the time limits for moving       driver was insured by American        limits or coverage dispute.”
to vacate, modify, or correct an      Family Insurance, which paid
arbitration award do not apply to     plaintiff $100,000, the limit of     A few months later, the mat-
an insurer’s policy limits defense    the driver’s policy. Plaintiff then  ter was arbitrated. The award
that has been reserved from ar-       submitted a claim to Atlantic        stated, “We find for [plaintiff],
bitration. Shultz v. Atlantic Mut.    Mutual seeking payment for the       and against Atlantic Mutual,
Ins. Co., No. 1-05-0749, 853          remainder of his damages under       in the amount of $925,000 and
N.E.2d 94 (Ill. App. 2006).           the UM/UIM coverage section.         with a set off of $110,000, leav-
                                      Plaintiff demanded arbitration       ing a net award in the amount of
Facts                                 after Atlantic Mutual paid him       $815,000.” Atlantic Mutual paid
                                      $10,000 for medical expenses,        plaintiff $390,000, representing
Defendant Atlantic Mutual is-         less than his claimed damages.       the $500,000 policy limit less the
sued plaintiff an automobile                                               $10,000 medical expenses pay-
policy with $500,000 in unin-         Before the arbitration, Atlantic ment and the $100,000 American
sured/underinsured motorist           Mutual’s counsel faxed plain- Family Insurance payment.
(“UM/UIM”) coverage and $2            tiff’s counsel a letter stating that
million in personal umbrella li-      by going forward with arbitra- Plaintiff then sought to confirm
ability coverage. The UM/UIM          tion, Atlantic Mutual was not the entire arbitration award, less
portion of the policy contained       waiving its coverage defenses. Atlantic Mutual’s $390,000
an arbitration clause, stating        Specifically, Atlantic Mutual payment. Plaintiff argued that
that the insured could demand         maintained its position that the Atlantic Mutual had waived its
arbitration if a dispute arose con-   policy provided a maximum of policy limits defense by failing
cerning whether and how much          $500,000 in coverage for plain- to challenge the award within 90
Atlantic Mutual was obligated         tiff’s claim. Plaintiff’s counsel days, as required by the Illinois
to pay. The arbitration section
contained a trial de novo clause,                       AGeLo L. rePPAS is an associate in the
which provided that an award in                         Appellate Practice Group of Clausen Miller’s
excess of the minimum statutory                         Chicago office. She holds a B.A. and B.S. from
limit for bodily injury liability                       the University of Iowa and received her J.D. from
was binding if neither side de-                         Washington University School of Law.
manded a trial within 60 days.




www.clausen.com                                                                                             25
 INSURANCE COVERAGE LITIGATION

Arbitration Act, and failing to       limits defense or considered any     The Shultz plaintiff’s maneu-
demand a trial de novo within 60      evidence in that regard. Thus,       vering, had it been successful,
days, as required by the policy.      the Arbitration Act’s time limit     would have allowed him to
The trial court granted summary       for challenging an award did not     recover nearly twice the policy
judgment for Atlantic Mutual,         apply: issues not submitted to       limits — in plain contravention
finding that it could raise its       arbitration are not subject to the   of the parties’ contractual agree-
policy limits defense for the first   Act’s requirements.                  ment. Plaintiff seized on the
time in the confirmation proceed-                                          somewhat vague wording of the
ing. The Illinois Appellate Court   For the same reasons, the court        arbitration award, which stated
affirmed.                           rejected plaintiff’s argument          merely that the arbitrator found
                                    that the policy’s trial de novo        “against Atlantic Mutual…in the
Analysis                            provision independently barred         amount of $815,000.” Absent
As a matter of first impression, the coverage defense. What was            extrinsic evidence that the cov-
the appellate court held that the rendered final and binding by            erage defense had been reserved
Arbitration Act’s 90-day time confirmation of the award was                from arbitration, the award could
limit for moving to vacate, mod- the arbitrator’s determination            have been read as a determina-
ify, or correct an award does not of damages, not a determination          tion of liability. Thus, in an
apply to an insurer’s policy limits of Atlantic Mutual’s liability         abundance of caution, defense
defense where the defense has beyond the policy limits.                    counsel should move to clarify
been reserved from arbitration.                                            such awards to specify that the
The court reasoned that cover- Learning Point: Shultz is a                 arbitrator determined damages
age disputes are not included in new illustration of the principle         only.
arbitration provisions of unin- that issues not arbitrated are not
sured motorist coverage. Rather, governed by either statutory or            Editor’s Note:
arbitration in such instances is policy arbitration provisions.
limited to a determination of the Where there is a clear reservation        This significant insurance
uninsured motorist’s liability of a coverage defense from arbi-             victory was obtained by CM
and the extent of the insured’s tration, and the insurer does not           partner Michelle Valencic in
damages.                            challenge the amount of damages         the trial court and success-
                                    as determined by the arbitrator,        fully defended by CM partner
Further, the parties had specifi- the insurer can raise the defense         Melinda Kollross and se-
cally agreed that only the issue of for the first time in a confirma-       nior associate Agelo Reppas
damages would be submitted to tion proceeding.                              of CM’s Appellate Practice
arbitration, and the arbitrator had                                         Group before the Illinois Ap-
not actually decided the coverage                                           pellate Court, First District.




26                                                                                       www.clausen.com
                                           LIABILITY INSURANCE COVERAGE
  as a matter of first impression, illinois seleCtive
tender rule does not reQuire an insured to vertiCallY
    eXhaust ConCurrent insuranCe poliCies and
deseleCted primarY insurers must answer for a loss
        before an eXCess poliCY must respond
                                          by Ilene M. Korey
                                        ikorey@clausen.com

Kajima Construction Services,      own primary insurer paid the re-    The selective tender (or targeted
Inc. v. St. Paul Fire and Marine   maining $1 million. Kajima and      tender) doctrine is a rule recog-
Ins. Co., 2006 WL 2662703 (Ill.    its carrier then sought recovery    nized by Illinois courts whereby
App.).                             of the $1 million from St. Paul’s   an insured covered by multiple
                                   excess policy. The trial court      concurrent policies has the right
Facts                              granted summary judgment to         to choose which insurer will
General contractor Kajima Con- St. Paul, finding that all primary      defend and indemnify it with re-
struction Services, Inc. and insurance policies had to be              spect to a specific claim. Once an
its insurer brought a declara- exhausted prior to reaching any         insured instructs an insurer not
tory judgment action against its excess policies.                      to involve itself in the defense
subcontractor’s insurer, seeking                                       or indemnification of a specific
reimbursement of an indemnity Analysis                                 claim, the insurer is relieved
payment made to settle a bodily The Illinois Appellate Court           of its obligation with respect to
injury lawsuit filed against it by affirmed, finding as a matter of    that claim. Horizontal exhaus-
an employee of the subcontrac- first impression that the selective     tion involves an insured who
tor. Kajima was named as an tender rule does not supersede             has multiple primary and excess
additional insured on primary well-settled principles of Il-           policies covering a common
and excess policies issued to the linois law regarding horizontal      risk. If a covered claim occurs,
subcontractor by defendant St. exhaustion.                             horizontal exhaustion requires
Paul Fire and Marine Insurance                                         the insured to exhaust all primary
Company. Kajima made a “tar- The court reached its conclusion          policy limits before invoking
geted tender” to St. Paul. When by first reviewing the nature          any excess coverage. Vertical
the injury action settled for $3 and purposes of the selective         exhaustion, by contrast, allows
million, St. Paul paid its primary tender, horizontal exhaustion,      an insured to seek coverage from
limits of $2 million and Kajima’s and vertical exhaustion theories.    an excess insurer as long as the




www.clausen.com                                                                                       27
 LIABILITY INSURANCE COVERAGE


 insurance policies immediately        Learning Point: This decision
 beneath that excess policy (as        is significant because it is the
 identified in the excess policy’s     first case addressing horizontal
 declarations page), have been         exhaustion among concurrent
 exhausted regardless of whether       primaries in a construction
 other primary insurance may           setting. It is also noteworthy
 apply.                                because the court characterized
                                       horizontal exhaustion as a well-
 The court noted that the require-     settled principle of Illinois law,
 ment of horizontal exhaustion         and the Illinois Supreme Court
 has been addressed and applied        has never squarely addressed
 by several Illinois courts. In        horizontal exhaustion in either
 each of those cases, the court        an environmental or construc-
 held that the insured must first      tion setting.
 exhaust all available primary
 insurance policies before an
 excess policy could be invoked.
 The court noted further that no
 Illinois case “has either applied
 or favorably commented on the
 vertical exhaustion theory.”

 Based on the widespread accep-
 tance in Illinois of horizontal ex-
 haustion and the accompanying
 rejection of vertical exhaustion,
 the court “decline[d] plaintiffs’
 invitation to apply the vertical
 exhaustion rule here. In our
 view, the selective tender rule
 should be applied to circum-
 stances where concurrent prima-
 ry coverage exists for additional
 insureds. *** To the extent that
 defense and indemnity costs
 exceed the primary limits of the
 selected insurer, the deselected
 insurer or insurers’ primary
 policies must answer for the loss
 prior to invoking coverage under
 an excess policy.”



28                                                                          www.clausen.com
           LIABILITY INSURANCE COVERAGE/ENVIRONMENTAL

nebraska and oregon supreme Courts find in favor of
     insurers in two separate pollution Cases
                                           by David J. Roe
                                          droe@clausen.com


The high courts of both Nebraska   neath the facility and continued that the insurance did not apply
and Oregon have recently ruled     to spread to the ground water to bodily injury or property dam-
in favor of insurers in two pol-   under adjacent property. Over age arising out of contaminants
lution cases.                      the years, Dutton also placed the or pollutants. The exclusion also
                                   solvents and some sludge-filled stated, however, that it did not
                                   degreaser fluid in sealed metal apply if the discharge, dispersal,
POLLUTION OCCURRING drums and deposited the solvents release or escape was “sudden
  OVER 30 YEARS IS NOT and drums in the local landfill in and accidental.” The trial court
           “SUDDEN”                conformity with then-existing granted summary judgment to
                                   law. The contaminants were the insurers, reasoning that the
In a case of first impression, the later released in the landfill.      terms “sudden” and “accidental”
Nebraska Supreme Court held                                             were unambiguous and that, re-
that an event occurring over a     Dutton was required to clean gardless of the fact that Dutton
period of time is not “sudden” up the contamination by the may not have anticipated the
as that term is used in an insur- U.S. Environmental Protection pollution, the leakage from the
ance policy. Instead, “sudden” Agency (EPA) and incurred Dutton plant over a period of 17
refers to the temporally abrupt costs and expenses relating to years and spillage in the landfill
release of pollutants into the the cleanup of the environmental for a period of 29 years were nei-
environment. Dutton-Lainson damage. Dutton filed suit against ther “sudden” nor “accidental.”
Co. v. Continental Ins. Co., 716 its insurers, seeking indemnifica-
N.W.2d 87 (Neb. 2006).             tion for its defense against the Analysis
                                   EPA's investigation and the en- Nebraska’s Supreme Court noted
Facts                              vironmental cleanup. Several of that the sudden and accidental
                                   its policies contained a qualified
In Dutton-Lainson Co., plain- pollution exclusion which stated exception to the standard pollu-
tiff Dutton-Lainson Company
(Dutton) used various solvents                         dAVid J. roe is a partner with Clausen Miller
to clean its machines and parts                        P.C. who practices in the areas of Liability and
in its manufacturing process.                          Casualty Insurance Coverage and Commercial
                                                       Litigation. Mr. Roe graduated cum laude from
The cleaning solvents contained                        Michigan State University-Detroit College of
trichloroethylene (TCE) and                            Law. He is admitted to the State Bar of Michigan
“1,1,1, trichloroethane” (TCA).                        and the State Bar of Illinois. He has taught
Dutton's regular manufacturing                         business law and has served on the Executive
operations caused the TCE and                          Council of the State Bar of Michigan, Young
                                                       Lawyer’s Section. He is currently a Co-Editor
TCA to spill onto the concrete of “The Policy,” the Illinois State Bar Association’s publication on
floor of its operating premises insurance law. Mr. Roe has authored numerous legal guides and
which seeped from the concrete manuals including “The Southern Illinois University Law Journal,
floor into the ground water be- Survey of Law: Insurance” for 2002 and 2003.


www.clausen.com                                                                                     29
  LIABILITY INSURANCE COVERAGE/ENVIRONMENTAL

tion exclusion clause has been        have understood it to mean. A        Facts
the subject of copious litigation.    reasonable person in the posi-     In Schnitzer, the plaintiff owned
It found that since the “sudden       tion of the insured would have     property in Portland near the
and accidental” exception to the      understood the term “sudden,” as   Willamette River. The plaintiff's
pollution exclusion clause was        found in the context of the quali- property was environmentally
expressed in the conjunctive,         fied pollution exclusion, to refer contaminated as a result of indus-
both requirements must be met         to the objectively temporally      trial and chemical manufacturing.
for the exception to become           abrupt release of pollutants into  Most of the contaminants were in
operative.                            the environment.                   the soil, but the groundwater also
                                                                         contained some contamination
In various jurisdictions, courts      Learning Point: New deci- above the background levels.
have disagreed as to whether          sions arise every day on seem- The Oregon Department of En-
“sudden” refers to something          ingly simple policy terms such vironmental Quality (“DEQ”) di-
temporally abrupt from an ob-         as “sudden.” We sometimes vided the property into three sites
jective standpoint, something         take it for granted that terms are and issued Records of Decision
unexpected from the subjective        well settled when they have been directing the plaintiff to remedy
standpoint of the insured, or         the subject of copious litigation. environmental contamination on
whether the term is ambiguous.        This decision reminds us of the two of the three sites.
Several courts have noted that        need to research every jurisdic-
recognized dictionaries differ as     tion in order to determine if an Plaintiff sued its insurers seeking
to the meaning. After reviewing       issue has been resolved. Every indemnification for the costs that
numerous decisions announced          case is unique and the law in each it incurred in complying with
on both sides of the issue, the Ne-   jurisdiction should be examined the DEQ’s orders. Plaintiff’s
braska Supreme Court adopted          as early in the claims handling policies contained a number
the view expressed by several         process as is possible. As cases of exclusions from coverage,
courts that it could not reason-      move forward, a coverage opin- including an exclusion for prop-
ably call “sudden” a process          ion should be periodically re- erty damage to “property owned
that occurs slowly and incre-         quested in order to stay apprised or occupied by or rented to
mentally over a relatively long       of the changing law.               the insured[.]” The trial court
time, no matter how unexpected                                             granted summary judgment to
or unintended the process. The         POLLUTION CLEAN-UP                  the insurers and the appellate
Nebraska Supreme Court agreed          COSTS FOR PROPERTY                  court affirmed.
that it was incongruous to think      OWNED BY THE INSURED
of a leakage or seepage that oc-         ARE ExCLUDED                      Analysis
curs over many years as happen-
ing suddenly. In so finding, the                                           The Oregon Supreme Court
                                      The Oregon Supreme Court             affirmed the appellate court, re-
Court held that under the terms       has held that pollution clean-up
of the policy at issue, an event                                           jecting plaintiff’s argument that
                                      costs for the property owned         the DEQ required it to clean up
occurring over a period of time       by the insured are excluded
was not sudden. The language                                               groundwater -- property owned
                                      under a general liability policy.    by the State of Oregon -- as op-
of an insurance policy should be      Schnitzer Investment Corp. v.
considered in accordance with                                              posed to its own property. The
                                      Certain Underwriters At Lloyd's      Supreme Court found that the
what a reasonable person in the       Of London, 137 P.3d 1282 (Ore.
position of the insured would                                              DEQ did not require plaintiff to
                                      2006).
                                                                                     continued on page 37

30                                                                                      www.clausen.com
                                                                                     LITIGATION
California supreme Court holds that a withdrawing
 plaintiff does not have to paY fees if an anti-slapp
            motion has not Yet been filed
                                             by Ian R. Feldman
                                          ifeldman@clausen.com

In S.B. Beach Properties v. Rich-     Within three weeks after the         dismissal,” in virtually any case
ard A. Berti, 2006 DJDAR 9913,        lawsuit was filed, the defendants    that “might possibly be related
the California Supreme Court          notified the court that they were    to the interests sought to be pro-
recently held that defendants         preparing to file an anti-SLAPP      tected.”
who do not file an anti-SLAPP         motion. A week later, the plain-
motion before plaintiff’s volun-      tiffs voluntarily dismissed their    The Court of Appeal reversed,
tary dismissal may not recover        entire complaint with prejudice.     relying on cases holding that a
attorney fees and costs pursuant      The next day, defendants tried       dismissal of the complaint after
to California Code of Civil Pro-      to file an anti-SLAPP motion,        the anti-SLAPP motion is filed,
cedure § 425.16(c).                   including a notice of a request      but prior to a hearing on the mo-
                                      for attorneys fees and costs. The    tion, does not deprive the court
Procedural Background                 court clerk refused to calendar      of jurisdiction to award fees and
The plaintiff, a real estate de-      a hearing because the plaintiffs     costs under the anti-SLAPP stat-
velopment company, sued three         already dismissed the action.        ute. The Court of Appeal con-
limited partners of the company       The defendants then filed a mo-      cluded that the “purpose of the
for breach of fiduciary duty, ac-     tion to recover attorney fees        anti-SLAPP statute will not be
cusing them of trying to thwart       and costs under the anti-SLAPP       achieved if an offending plaintiff
the company’s efforts to develop      statute and Code of Civil Proce-     can avoid sanctions simply by
property in Santa Barbara’s           dure §1033.5(a)(10). The court       dismissing his complaint before
main downtown shopping area           denied the motion on the grounds     the defendant files his motion.”
on State Street. The defendants       that it could not award fees given
claimed that the lawsuit was          that the case was dismissed be-      discussion & Analysis
filed in retaliation for their con-   fore the motion was filed. The       Code of Civil Procedure
tinued demands for audits of the      court stated that awarding fees      §425.16(b)(1) provides that
company’s records.                    “would inevitably open the door
                                      to judicial intervention, after          A cause of action against
                                                                               a person arising from any
                    iAn r. FeLdMAn is a partner in Clausen Mill-               act of that person in fur-
                    er's Irvine, California office, where his practice         therance of the person’s
                    areas include professional and casualty liability          right of petition or free
                    defense, products liability and commercial liti-
                                                                               speech under the United
                    gation. Ian earned a B.A. from the State Univer-
                    sity of New York at Binghamton and holds a J.D.            States or California Con-
                    from Hofstra University School of Law.                     stitution in connection
                                                                               with a public issue shall be
                                                                               subject to a special motion
                                                                               to strike, unless the court


www.clausen.com                                                                                           31
  LITIGATION

     determines that the plain-      generally file the anti-SLAPP
     tiff has established that       motion within 60 days of service
     there is a possibility that     of the complaint. Lastly, accord-
     the plaintiff will prevail      ing to the Court, the holding has
     on the claim.                   the added benefit of discouraging
                                     prolonged litigation solely over
Section 425.16(c) further pro- issues of fees and costs.
vides that “a prevailing defen-
dant on a special motion to strike Learning Point: Whether the
shall be entitled to recover his or Court’s bright-line rule will en-
her attorney’s fees and costs.”      courage people who might have
                                     been deterred from filing merit-
The Supreme Court reasoned less suits to file those suits, only
that once the plaintiffs dismissed to withdraw them before an anti-
the action, no lawsuit existed for SLAPP motion is filed remains
the defendants to move against an open question and one that
pursuant to Section 425.16(c) may not be capable of objective
and thus, they did not “prevail” measurement. Nevertheless, the
on the motion as required by the ruling represents a significant
express language of the statute. financial burden on SLAPP
Additionally, the Court rejected defendants. The defendant will
the defendants’ reliance on the incur legal fees and expenses in
general rule that a voluntary preparing the anti-SLAPP mo-
dismissal does not deprive the tion, before the voluntary dis-
trial court of jurisdiction over missal of the action. Within the
collateral statutory rights, includ- insurance context, given that the
ing the right to statutory costs motion must be filed at an early
and fees, because the defendants’ procedural juncture, the insured
request was based on a claimed bears the burden of these costs
entitlement arising from their as they will likely fall within
success on a motion they did deductible amounts.
not file.
                                     We will continue to update our
Further, the Court concluded readers as new developments oc-
that the holding would provide cur in anti-SLAPP litigation. 
the plaintiff with the freedom to
reconsider the wisdom of their
actions without penalty before
defendants have incurred clearly
identifiable and recoverable
legal fees. At the same time,
defendants are expeditiously
relieved of the burden a SLAPP
suit imposes, because they must


32                                                                       www.clausen.com
                                                                                 SUBROGATION
  federal tort Claims aCt: pursuing unCle sam's deep
        poCkets bY unloCking the right doors
   by Dean S. Rauchwerger                     Allison K. Ferrini                   John F. O'Brien
 drauchwerger@clausen.com                   aferrini@clausen.com                jobrien@clausen.com

  A king can do no wrong …                                              do no wrong” - Rex non potest
                                       tive that the U.S. be considered a
  unless it runs into an ace.          significant recovery target.     peccare. This traditional princi-
        - Anonymous                                                     ple remained steadfast until 1946
                                       B. The King Can                  when Congress enacted the Fed-
Big recovery opportunities exist       do no wrong                      eral Tort Claims Act (FTCA), 28
for pursing federal tort claims        Historically, the sovereign has U.S.C. §§ 1346(b) & 2671-2680.
against the United States. This        been immune from liability, ir- Prior to the FTCA’s enactment,
article provides a general over-       respective of wrongdoing, under the sole remedy for a private
view of the sizeable subrogation       the principle that “the King can individual to recover from the
and recovery potentials involving
“Uncle Sam” and the complexi-
ties of developing claims under                           deAn S. rAUChwerGer is a partner with
                                                          Clausen Miller PC concentrating his practice in
the Federal Tort Claims Act.                              the handling of complex, multi-million dollar
                                                          litigation matters on a national basis in both
A. Uncle Sam’s                                            Federal and State Courts. Mr. Rauchwerger has
Big Footprint                                             considerable experience in multi-party matters
                                                          involving fire/explosions, business disputes,
Not only does Uncle Sam have                              product liability, toxic tort and mass disaster.
deep pockets, his footprint is ever                       Mr. Rauchwerger earned his B.A. and J.D. from
present in our socio-economic                             Washington University in St. Louis.
fabric. For example, the federal
                                                         ALLiSon K. Ferrini is an associate in the
government owns approximately                          Chicago office of Clausen Miller, P.C. She was a
29% of all land in the U.S. and                        2004 summer associate and joined the firm after
more than 654 million acres                            graduating from law school. Prior to her arrival
worldwide. The U.S. employs                            at CM, Ms. Ferrini spent nearly four years as a
roughly 2.7 million civilians and                      contract negotiator and contracting officer for
                                                       the Department of Navy and the Office of Naval
2.3 million military personnel.                        Research. Ms. Ferrini has a B.A. with honors
Under the VA healthcare aus-                           in political science from the Schreyer Honors
pices alone, there are over 150                        College at The Pennsylvania State University
medical centers and 1,300 oper-         (May 2000) and a J.D. from Loyola University Chicago-School of
ating sites of care, providing care     Law (January 2005).
to more than 5.3 million people                          John F. o’Brien is a first year associate in
each year. The U.S. also owns                            the Chicago office concentrating his practice in
and operates countless vehicles,                         the areas of professional liability, employment
leading to additional exposure.                          law, commercial litigation and subrogation.
For example, the Postal Service                          Mr. O’Brien earned a B.M. from Northwestern
                                                         University, a M.M. from the University of Illinois
owns over 200,000 vehicles at                            and a J.D. from University of Illinois College of
7,600 locations. In light of these                       Law.
staggering statistics, it is impera-


www.clausen.com                                                                                           33
 SUBROGATION

U.S. was through a private relief they were negligently or wrongly     d. The right Keys for
bill from Congress, obviously a decided. A variety of reasons,         opening the FTCA door
politically-connected endeavor. including lack of judicial exper-      Even after establishing a prima
                                   tise, undue breach of separation    facie case, the right keys are
Although the FTCA cracks open of powers, and harm to vital             needed to unlock the door to Fort
the door to U.S. liability, the national programs are cited as         Knox. Many procedural prereq-
door is not easily swung open rationales for the application of        uisites must be satisfied. The
as the FTCA is a limited waiver the discretionary function excep-      requirements for administrative
of sovereign immunity. The tion. The discretionary function            filing include: filing a written
FTCA is limited to claims “for excludes claims arising out of:         demand for a sum certain with
money damages … for injury or                                          the appropriate agency and ap-
loss of property” resulting from      act[s] or omission[s] of an      propriate documentation of the
“negligent or wrongful act[s] or      employee of the Govern-          injuries; and timely filing within
omission[s] of any employee of        ment, exercising due care,       the accrual period by the claim-
the Government while acting           in the execution of a statute    ant or authorized representative.
within the scope of his office        or regulation, whether or        It is not until these criteria are
or employment….” 28 U.S.C.            not such statute or regula-      satisfied and the administra-
§ 1346(b). What at first seems        tion be valid, or based upon     tive agency has adjudicated the
like an easy door to open, is         the exercise or performance      claim, issuing a decision or de-
often difficult to pass through       or the failure to exercise       nial, or six months have elapsed
because of the many locks that        or perform a discretionary       from the filing of a proper claim,
must be opened, such as: what         function or duty on the part     that a claimant may bring suit in
constitutes a viable claim; who is    of a federal agency or an em-    federal court.
a government employee; whether        ployee of the Government,
the employee acted within the         whether or not the discretion    e. Conclusion
scope of employment; when is          involved be abused.
the U.S. vicariously responsible                                       Given the federal government’s
for independent contractors; and 28 U.S.C. § 2680(a). The core         broad foot print, it is important to
under what circumstances can inquiry is whether government             appreciate the potential recovery
the U.S. avoid liability under the policy-making underlies the         opportunities available under the
§ 2680 statutory exceptions.       governmental decision in play.      FTCA. After all, when it comes
                                   But, if the governmental decision   to pockets, none are deeper than
C. The Frequent                    violates a mandatory require-       Uncle Sam’s. Please contact
discretionary Function             ment, statute or regulation, the    any of the authors if you have
Challenge                          discretionary function exclusion    any questions regarding FTCA
                                                                       issues. Should you be inter-
One of the toughest locks to pick, would not apply. The exclusion      ested in an in-house client edu-
in opening the door to FTCA captures only those governmen-             cational seminar, please contact
recovery, is the discretionary tal acts that are discretionary in      CM partner Dean Rauchwerger
function exception, codified at 28 nature. Not surprisingly, this      (drauchwerger@clausen.com).
U.S.C. § 2680(a). This exception exception is most heavily liti-
protects certain governmental gated.
decisions from tort challenge;
matters of policy and judgment
may not be challenged even if


34                                                                                    www.clausen.com
                                                                                SUBROGATION
  railroad subrogation and third partY reCoveries -
              "getting baCk on traCk"
                      by Dean S. Rauchwerger                  by Michael S. Errera
                    drauchwerger@clausen.com                  merrera@clausen.com

Railroads ship many commodi-            • Switching and Terminal:           I. Track Maintenance
ties, including agriculture, coal,      204 rail operators, involved         • Economic Impact: In
chemicals, and domestic and             in pickup and delivery ser-          2005, there were 1,039 ac-
foreign products.1 Given the            vices within the regions for         cidents due to track prob-
considerable volume of daily rail       linehaul companies.                  lems. Of these, there
traffic, there is a large potential                                          were 991 derailment inci-
for train accidents and derail-       Accident Frequency                     dents, resulting in damage
ments. Depending upon the             In 2005, rail carriers suffered        claims of $127,136,453.
underlying circumstances and          3,345 accidents, resulting in
causal factors in play, signifi-      damage claims of more than               • Improper or substandard
cant subrogation and third-party      $347,000,000. Of these acci-               maintenance by third
recovery opportunities may be         dents, 37.5% were due to equip-            party vendors afford
available.                            ment or track failures and resulted        significant recovery op-
                                      in derailment and damage claims            portunities.
Railroad Groups                       of more than $247,000,000. In
Various rail companies operate        2005, more than 100 different            • Inadequate track inspec-
in the U.S. – varying in size by      rail companies traveled more               tions may result in derail-
number of trains operated, loca-      than 790,000,000 track miles.              ments because of track
tions serviced, and volume of         When a railroad suffers an ac-             irregularities, including:
freight handled. As of 2005, 556      cident or derailment, potential
rail companies were operating in      damages include product losses,            • Deteriorated track
the U.S, comprising:                  damages to track and railcars,               components for fa-
                                      and lost profit/business interrup-           tigue or overloading,
  • Class I: Seven rail-              tion as well as losses from envi-
                                                                                 • Wide gauge due to
  roads with revenue of               ronmental releases or spills.
                                                                                   spike conditions, cross
  more than $289.4 million.
                                                                                   tie conditions, general
                                      Potential Subrogation and/
                                                                                   construction, or load
  • Regional Railroads:               or Third Party Recovery
                                                                                   carrying capability,
  31 railroads, covering at           Scenarios
  least 350 miles of track            A variety of scenarios exist for           • Track misalignment,
  and/or having gross rev-            which third party liability may
  enue of $40 million to              be pursued:                                • Missing or broken track
  $289.3 million each year.                                                        components, such as
                                                                                   crossties, welds, or
  • Local Linehaul: 314 rail                                                       rails, and
  operators, covering less than
  350 miles of track with gross                                                  • Unstable roadbed due
  revenue of under $40 million.                                                    to poor construction or
                                                                                   maintenance.

www.clausen.com                                                                                            35
SUBROGATION

ii. equipment Failure                     etation that is not prop-      resulting in a catastrophic inci-
  • Economic Impact: In                   erly managed near rail         dent that may have been avoided
  2005, 352 accidents were                tracks may potentially         or mitigated.
  due to equipment fail-                  lead to adverse condi-
  ure. Of these, 262 derail-              tions: sight distances         V. Potential Shipper
  ments resulted in damage                can be obstructed and             Liability
  claims of $51,524,057.                  overgrown or fallen            • Where losses occur due to im-
                                          vegetation may lead to         properly placarding, marking,
     • Railroads rely upon                improper functioning           describing or specifying of the
       equipment manufactur-              of equipment signals,          physical properties of materials
       ers to provide quality             communication lines,           being transported and their haz-
       products for use in fer-           or tracks due to interfer-     ards on the shipping manifest,
       rying freight. However,            ence or impediment.            certified contents profile or other
       equipment manufactured                                            required shipping documents,
       and sold to railroads        iV. defective equipment              the shipper faces potential li-
       is not always properly       • Premature deterioration of         ability under a variety of legal
       made or serviced. Types      hopper cars due to defective or      theories, including violation of
       of equipment failure in-     inadequate materials of con-         governmental regulations and
       clude: Broken or worn        struction, such as bolsters, side    good practice standards. Inaccu-
       equipment, such as flang-    frames, castings, or other struc-    rate and incomplete information
       es, gears, side frames, or   tural components - may lead to       about the contents being shipped
       rims, and failures from      release of cargo or derailment.      and the adequacy of special in-
       operating conditions,        Additionally, safety devices, like   structions or procedures for load-
       such as journal failures     pressure relief systems, may fail    ing and/or unloading may trigger
       due to overheating of        because of defect or otherwise,      liability. Further exposure exists
       roller bearings.
                                                      deAn S. rAUChwerGer is a partner with
iii. “Mother nature”                                  Clausen Miller PC concentrating his practice
Conditions                                            in the handling of complex, multi-million dollar
• Economic Impact: For all                            litigation matters on a national basis in both
                                                      Federal and State Courts. Mr. Rauchwerger has
railroads in 2005, 471 acci-                          considerable experience in multi-party matters
dents were due to miscellaneous                       involving fire/explosions, business disputes,
causes. Of these, 86 accidents,                       product liability, toxic tort and mass disaster.
or 18.3% of the overall total,                        Mr. Rauchwerger earned his B.A. and J.D. from
were due to “Mother Nature’s”                         Washington University in St. Louis.
involvement. Of these, 35 de-                         MiChAeL S. errerA is an associate in
railment incidents resulted in                        Clausen Miller's Chicago office with his practice
damage claims of $19,349,270.                         areas including subrogation and insurance
                                                      coverage. Mr. Errera holds a B.A. from Emory
                                                      University and received his J.D. from Stetson
     • A significant “Mother
                                                      University College of Law. He is admitted to
       Nature” condition is out-                      practice in the State of Illinois and in the United
       of-control vegetation                          States District Court for the Northern District of
       along a rail line. Veg-                        Illinois.



36                                                                                     www.clausen.com
for use of inadequate packaging   significant recovery opportuni-       parties, and appropriate develop-
or containers being provided to   ties may be available against         ment of the factual, technical and
the rail carrier, as well as tank third parties for inadequate track    liability case theories. Third-
cars and containers not properly  maintenance, defective equip-         party liabilities are obviously
maintained or placarded.          ment, inadequate vendor servic-       large in the railroad context and
                                  es, foreseeable “Mother Nature”       ensuring close coordination
Vi. Conclusion                    conditions not properly con-          between counsel and client is
Railroads are an essential compo- trolled, and shipper liabilities.     imperative to maximize the re-
nent of North American freight                                          covery potential. 
transportation, carrying more As in all recovery investigations,        1 The data referenced herein is based
than 60 percent of all freight, counsel should be retained im-          on various publicly available industry
and operate over 173,000 miles mediately to ensure evidence             and governmental sources.
of track. When accidents occur, preservation, notice to interested

Pollution Clean-Up                    damage to the groundwater, the    property owed by a third party
cont. from page 30
                                      only damage which plaintiff       may potentially be excluded from
clean up existing contamination       had to clean up was on its own    coverage pursuant to the owned
in the groundwater, but instead       property and that damage was      property exclusion. The basis
required plaintiff to remove and      excluded.                         of the claimed damages must be
cap the soil on its own property      Learning Point: Although a        thoroughly examined in order
to prevent health risks resulting     policy may potentially provide    to determine if coverage exists.
from contact with the soil. Be-       coverage for environmental con-   Even a remediation order from
cause the policy terms provided       tamination, there remain exclu-   a governmental agency may not
for indemnification only if plain-    sions within a policy which may   end the inquiry. If the impacted
tiff was legally obligated to rem-    negate coverage. Environmental    property is owned exclusively by
edy “property damage” to others’      contamination which does not      the insured, the policy’s owned
property and the DEQ's records        migrate beyond the limit of the   property exclusion should be
of decision did not legally obli-     insured’s property and does not   examined. 
gate plaintiff to clean up property   impact groundwater or other




   Attorneys At Law
                           Creative Strategies
                          Passionately Executed
                           Remarkable Results

www.clausen.com                                                                                           37
                                       Case Notes
        bad faith                       ConstruCtion                      not a proximate cause of the
                                                                          worker’s death and thus was
                                            law                           irrelevant. Plaintiff’s failure to
THIRD-PARTY CLAIMANT
                                                                          show the contractor exercised
 MAY NOT SUE INSURER                    CONTRACTOR NOT                    control over the subcontractor’s
    FOR BAD FAITH                     LIABLE FOR DEATH OF                 work defeated liability.
                                       SUBCONTRACTOR’S
Cain v. Griffin, 849 N.E.2d 507
                                        EMPLOYEE SIMPLY
(Ind.)
                                      BECAUSE IT OBTAINED                         damages
Plaintiff, injured when he fell in    A BUILDING PERMIT OR
a restaurant parking lot, sued the    HIRED AN UNLICENSED                        $1,750,000
restaurant’s CGL insurer alleg-         SUBCONTRACTOR                        JURY AWARD AFTER
ing bad faith with respect to the                                              FOUR-MONTH
insurer’s payments for medical       Recio v. GR-MHA Corp., 851            INCARCERATION WAS
expenses. Held: Although plain-      N.E.2d 106 (Ill. App.)                   UNREASONABLY
tiff was a third-party beneficiary                                             ExCESSIVE IN
to the insurance contract who        Widow of worker killed on con-
                                                                                MALICIOUS
could sue the insurer directly       struction site sued general con-
                                     tractor claiming that by obtaining
                                                                           PROSECUTION ACTION
to enforce the policy’s medical
payment coverage provision,          a building permit the contractor
                                                                          Haynes v. City of New York, 815
he could not sue the insurer         assumed a duty to comply with
                                                                          N.Y.S.2d 143 (N.Y. App.)
for bad faith. Plaintiff and the     all rules and regulations, includ-
restaurant’s insurer did not have    ing OSHA regulations regarding
                                                                          Plaintiff was misidentified as
the special relationship of an       worker safety, and thus was lia-
                                                                          drug seller and incarcerated for
insured/insurer necessary to         ble for her husband’s violation of
                                                                          four months on charges of first
impose upon the insurer a duty       an OSHA rule regarding ladder
                                                                          degree criminal sale of a con-
to deal with plaintiff in good       use. Widow further claimed that
                                                                          trolled substance before being
faith. “The relationship between     by hiring an unlicensed subcon-
                                                                          released on bail. After charges
a third-party beneficiary and the    tractor the general contractor was
                                                                          were dismissed upon discovering
insurer is not one intentionally     liable under a negligent hiring
                                                                          the misidentification, plaintiff
created by a close, fiduciary, or    theory. Held: A violation of an
                                                                          brought an action for false ar-
potentially adversarial contract     OSHA regulation (if applicable
                                                                          rest and malicious prosecution,
and, as such, is not [a] ‘special    by virtue of securing a building
                                                                          resulting in a jury verdict and
relationship.’”                      permit) can only establish a fail-
                                                                          damage awards of $250,000
                                     ure to exercise care but does not
                                                                          and $1,750,000, respectively.
                                     create a duty where none existed.
                                                                          Held: The $1,750,000 damage
                                     Likewise, the subcontractor’s
                                                                          award for malicious prosecution
                                     failure to obtain a license does
                                                                          was excessive in that it “devi-
                                     not render it an unfit or incom-
                                                                          ated materially from what would
                                     petent subcontractor as is neces-
                                                                          constitute reasonable compensa-
                                     sary for a negligent hiring claim
                                                                          tion;” remittitur to $1 million
                                     against the general contractor.
                                                                          ordered.
                                     Additionally, the subcontractor’s
                                     failure to obtain a license was



38                                                                                      www.clausen.com
                                        Case Notes
eXCess insuranCe                            first-partY                            POLICY
                                                                              DID NOT REQUIRE
  ExCESS INSURER NOT
                                              propertY                      REIMBURSEMENT FOR
       ENTITLED TO                           insuranCe                      DIMINISHED VALUE OF
  CONTRIBUTION FROM                                                          REPAIRED PROPERTY
                                          NEGLIGENT WORK
   PRIMARY INSURER
                                         ExCLUSION APPLIES                 Sims v. Allstate Ins. Co., 851
  WHERE UNDERLYING
                                         ONLY TO NEGLIGENT                 N.E.2d 701 (Ill. App.)
    CLAIM WAS NOT
                                        WORK PERFORMED BY
     LITIGATED TO A                                                        Class action plaintiffs claimed
                                        INSURED ON INSURED
   CONCLUSION, BUT                                                         that insurer breached its policy
                                             PROPERTY
    SETTLED INSTEAD                                                        by not reimbursing its insureds
                                242-44 East 77th Street, LLC v.            for the diminished value of their
RLI Ins. Co. v. CNA Casualty of                                            repaired automobiles under the
                                Greater N.Y. Mut. Ins. Co., 815
California, 45 Cal. Rptr.3d 667                                            theory that diminished value
                                N.Y.S.2d 507 (N.Y. App.)
(Cal. App.)                                                                was a direct and accidental loss
                                      Insured property owner brought       under the policy. Held: The
Excess insurer that paid $1 mil-                                           policy requires only that dam-
                                      action to recover under business
lion to settle tort claim against                                          aged automobiles be restored to
                                      owners special property cover-
insured sued primary insurer,                                              their pre-accident condition, not
                                      age form policy for cracking, set-
which had also paid $1 million                                             their pre-accident value.
                                      tling and shifting damage caused
to settle the claim, for equitable
                                      by demolition work on adjacent
subrogation alleging that the
                                      property. Held: Neither of the
primary insurer unreasonably re-
jected the insured’s earlier offer
                                      policy exclusions asserted by              insuranCe
                                      insurer preclude coverage. The
to settle the claim for $1 million
total. Held: In the absence of a
                                      policy’s “settling, cracking”            GUARANTEE FUND
                                      exclusion is limited to damage          ENTITLED TO SET-OFF
judgment in excess of the policy
                                      caused by natural phenomena.           VICTIM’S HEALTH AND
limits, a primary carrier’s refusal
                                      The negligent work exclusion           DISABILITY INSURERS’
to settle a claim is not action-
                                      does not apply to negligent work
able. “Until judgment is actually                                                  PAYMENTS
                                      performed by someone other than
entered, the mere possibility or
                                      the insured or on property other
probability of an excess judg-                                             Roth v. Illinois Ins. Guaran-
                                      than the insured property: “[t]he
ment does not render the refusal                                           tee Fund, 852 N.E.2d 289 (Ill.
                                      only reasonable explanation of
to settle actionable.”                                                     App.)
                                      the negligent work exclusion is
                                      that it applies to negligent work
                                                                           Accident victim sought recovery
                                      by . . . the insured in planning,
                                                                           from Guarantee Fund after the
                                      designing or constructing the
                                                                           insurer of a driver that injured
                                      insured building, which results
                                                                           him became insolvent. Guar-
                                      in damage to the building.”
                                                                           antee Fund sought set-off of the
                                                                           amounts paid to the victim by
                                                                           his medical and disability insur-
                                                                           ers. Held as a matter of first
                                                                           impression: Since Guarantee

www.clausen.com                                                                                          39
                                       Case Notes
Fund is a fund of last resort and    California Penal Code §§ 549         existed as to whether insured’s
is not intended to insure other      and 550. Held: Dismissal of          notice of the occurrence– given
insurance companies, and since       plaintiff’s complaint affirmed.      four months after the incident
victim sought recovery from          Section 1871.1 was enacted           – was timely because the insured
the fund for the same injuries       to prohibit the submission of        had a good faith belief that his
that his medical and disability      fraudulent claims to insurers,       conduct was not actionable be-
insurers covered, the Guarantee      not to prohibit fraud committed      cause it “was the result of a reflex
Fund was entitled to a set-off for   by an insurer. Because “plaintiff    reaction that was triggered when
the amounts paid to victim thus      does not allege that defendant en-   [the injury plaintiff] assaulted
eliminating its responsibility to    gaged in insurance claims fraud      him.”
the victim.                          by presenting false or fraudulent
                                     claims to an insurance company,           PROFESSIONAL
                                     * * * defendant is not the proper        LIABILITY POLICY
insuranCe Claims                     subject of a lawsuit brought un-
                                     der section 1871.7.”
                                                                           INSURING AGREEMENT
    handling                                                                COVERS CONTRACT
                                                                                   CLAIM
        STATUTE
      PROHIBITING
                                             liabilitY                    1325 N. Van Buren, LLC v. T-3
     SUBMISSION OF                          insuranCe                     Group, Ltd., 716 N.W.2d 822
                                                                          (Wis.)
FRAUDULENT INSURANCE                         Coverage
   CLAIMS DOES NOT                                                  Project owner sued general con-
   SUPPORT CAUSE OF                     INSURED’S GOOD              tractor and its CGL and profes-
    ACTION AGAINST                      FAITH BELIEF THAT           sional liability insurers for breach
      INSURER FOR                      CONDUCT WAS NOT              of contract and professional neg-
 IMPROPER MARKETING                   ACTIONABLE CREATES            ligence. Held: Contract claim
AND CLAIMS HANDLING                   QUESTION OF FACT AS           was covered by professional
       PRACTICES                       TO WHETHER FOUR-             liability policy providing that in-
                                          MONTH DELAY               surer would pay loss insured was
                                                                    legally obligated to pay by rea-
State ex rel. Nee v. Unumprovi-        BREACHES POLICY’S
dent Corp., 44 Cal. Rptr. 3d 491                                    son of “wrongful act,” defined as
                                       NOTICE PROVISION
(Cal. App.)                                                         negligence in the performance of
                                                                    professional services for others.
                                   N.Y. Cent. Mut. Fire Ins. Co. v.
Plaintiff brought a qui tam action Steely, 815 N.Y.S.2d 724 (N.Y. Policy did not limit definition to
against defendant insurer, alleg- App.)                             tort claims or preclude coverage
ing that improper marketing and                                     for contract claims.
claims handling practices vio- Liability insurer sought declara-
lated Section 1871.7 of the Cali- tion that it does not owe duty
fornia Insurance Code. Section to defend underlying personal
1871.7 (Article 1 of the Insurance injury action arising out of a
Fraud Prevention Act) allows an fight between defendant insured
action to be brought against any and the injury plaintiff while the
person who submits fraudulent two men were training in a gym.
insurance claims in violation of Held: Triable issues of fact


40                                                                                       www.clausen.com
                                      Case Notes
    “YOUR PRODUCT”                  property damage. Held: Action       who admitted her to hospital; and
    ExCLUSION BARS                  governed by two-year statute of     patient admitted that whether an-
     COVERAGE FOR                   limitations applicable to actions   esthesiologist was hospital em-
  INSURED’S DEFECTIVE               based on defective and unsafe       ployee or independent contractor
       PRODUCT                      condition of an improvement to      played no role in her decision to
                                    real property. Object need not be   accept his services.
B&D Contractors, Inc. v. Arwin completely installed to qualify as
Window Sys., Inc., 718 N.W.2d “improvement to real property.”             WRONGFUL DEATH
256 (Wis. App.)                     Statute of limitations was not       DAMAGES CAP DOES
                                    subject to strict construction,        NOT APPLY TO
Contractor sued window sub- overruling Kittson County v.                     PRE-DEATH
contractor and its CGL insurer Wells, Denbrook & Assoc., Inc.,            NON-ECONOMIC
to recover for replacement of 241 N.W.2d 799 (Minn. 1976).              DAMAGES IN MEDICAL
defective windows. Held: Policy M.S.A. § 541.051.                       MALPRACTICE ACTIONS
exclusion for property damage to
insured’s product, unless caused                                        Bartholomew v. Wis. Patients
by collapse or other named per-           mediCal                       Compensation Fund & Comp-
ils, barred coverage. CGL policy
covers risk that product or work,
                                        malpraCtiCe                     care Health Servs. Ins. Corp.,
                                                                        717 N.W.2d 216 (Wis.)
once relinquished or completed,
                                            HOSPITAL NOT
will cause damage to property                                       When victim of medical mal-
                                    VICARIOUSLY LIABLE FOR
other than to product or project                                    practice dies, wrongful death
itself, not risk of defective prod-         INDEPENDENT
                                                                    statutory cap does not apply to
uct or workmanship.                         CONTRACTOR
                                                                    pre-death non-economic dam-
                                     ANESTHESIOLOGIST’S             ages, overruling Maurin v. Hall,
                                          NEGLIGENCE                682 N.W.2d 866 (Wis. 2004).
   limitations of                                                   W.S.A. § 895.04(4). Non-eco-
                                  King v. Mitchell, 819 N.Y.S.2d nomic damages in such cases
      aCtions                     169 (N.Y. App.)                   are limited by two separate caps:
                                                                    wrongful death cap (post-death
IMPROVEMENTS TO REAL Patient sued hospital and anes- claims) and medical malpractice
  PROPERTY STATUTE OF             thesiologist seeking damages for cap (pre-death claims).
   LIMITATIONS APPLIES            surgical hematoma and resulting
 EVEN WHERE DEFECTIVE paraplegia following surgery to
      OBJECT NOT YET              remove tumor in patient’s chest
 COMPLETELY INSTALLED cavity. Held: Hospital was not
                                  vicariously liable under apparent
Lietz v. N. States Power Co., 718 agency theory for anesthesiolo-
N.W.2d 865 (Minn.)                gist’s alleged negligence where
                                  patient knew some physicians at
Property owner sued installer hospital were independent con-
of utility pole support anchor tractors with hospital privileges;
that pierced natural gas line, patient knowingly sought treat-
causing explosion and ensuing ment from independent surgeon


www.clausen.com                                                                                       41
                                       Case Notes
 NO CAUSE OF ACTION                  care as a separate tort.”           ers unprotected by a back rest.
   ExISTS AGAINST                                                        Held: Spectator’s contributory
    HOSPITAL FOR                      SHOOTING FORESEEABLE               negligence barred recovery. In
     NEGLIGENT                        TO THIRD PARTY WHO AL-             actions against governmental
  CREDENTIALING OR                   LOWED SHOOTER ACCESS                entities such as a public school,
                                     TO GUNS DESPITE KNOWL-              the common law defense of
   PRIVILEGING OF
                                     EDGE OF SHOOTER’S MEN-              contributory negligence remains
     PHYSICIAN                        TAL INSTABILITY AND HIS-           applicable such that even the
                                        TORY OF VIOLENCE                 slightest degree of fault bars re-
Larson v. Wasemiller, 718
                                                                         covery, and the lack of a back rail
N.W.2d 461 (Minn. App.)
                                     Jupin v. Kask, 849 N.E.2d 829       was clearly evident to spectator.
                                     (Mass.)                             (Indiana Comparative Fault Act,
Patient who had sued physi-
                                                                         Ind. Code §34-51-2-2)
cians for medical malpractice
                                     Estate of police officer shot
also filed claim against hospi-
                                     and killed by mentally unstable      FORMER TENANT OWES
tal for negligent credentialing.
Held: As a matter of first im-
                                     young adult sued homeowner           DUTY OF CARE TO EM-
                                     with whom shooter’s father lived     PLOYEE OF SUCCESSOR
pression, Minnesota does not
                                     for negligence. The weapon was              TENANT
recognize a common law cause
                                     part of a collection owned by
of action against a hospital or
                                     the shooter’s father and stored     Dutchmen Manufacturing, Inc. v.
medical review organization for
                                     in the homeowner’s basement.        Reynolds, 849 N.E.2d 516 (Ind.)
negligent credentialing or privi-
                                     Held: Homeowner owed a duty
leging of a physician. Complex
                                     of care to the officer because      Employee of tenant injured in
policy concerns involved are best
                                     she should have foreseen the        collapse of scaffolding installed
addressed by supreme court or
                                     likelihood of injury. Although      by former tenant brought negli-
legislature.
                                     the homeowner knew about the        gence action against former ten-
                                     shooter’s history of violence and
      negligenCe                     mental instability and knew that
                                                                         ant. Held: Under Restatement
                                                                         (Second) of Torts §388, former
                                     the gun collection was stored       tenant, as original supplier of
  PARENTS LIABLE FOR                 in the basement, she gave the       a chattel (the scaffold), owed a
NEGLIGENT SUPERVISION                shooter a key to the home and       duty of care to persons unlikely
  IN JET SKI ACCIDENT                permitted his full access to the    to recognize its defective condi-
                                     property at all times.              tion, and the former tenant had
Davis v. LeCuyer, 849                                                    welded the scaffold in a manner
N.E.2d 750 (Ind. App.)               BASKETBALL SPECTATOR                that made the defect undetect-
                                     CONTRIBUTORILY NEG-                 able.
Plaintiff teen-ager was injured in   LIGENT AS A MATTER OF
a jet ski accident while riding a             LAW
jet ski owned by the parents of a
friend. Plaintiff and his parents    Funston v. School Town of Mun-
sued the friend’s parents for        ster, 849 N.E.2d 595 (Ind.)
negligent supervision. Held as a
matter of first impression: “In-     Spectator at son’s basketball
diana law recognizes negligent       game sued public school after
supervision of a minor in one’s      he fell from the top of bleach-

42                                                                                     www.clausen.com
                                       Case Notes
THEATRE’S OWN POLICY                 Employee of cleaning contrac-         lead rational persons to conclude
   IMPOSING HIGHER                   tor brought negligence action         that the refrigerator was not
  STANDARD OF CARE                   against building’s managing           defective, yet was nevertheless
  THAN LAW REQUIRES                  agent after employee slipped on       not fit to be used for its ordinary
   CANNOT ESTABLISH                  wet bathroom floor he was hired       purposes on the date of the fire,
                                     to mop. Held: Wet floor was           we are constrained to conclude
CONSTRUCTIVE NOTICE
                                     precisely the condition plaintiff     that Supreme Court erred in not
      OF HAZARD                      was hired to remedy and thus in-      granting defendants’ posttrial
                                     jury from such condition cannot       motion seeking dismissal of the
Branham v. Loews Orpheum
                                     give rise to negligence liability     complaint.”
Cinemas, 819 N.Y.S.2d 250
                                     against building defendant.
(N.Y. App.)
                                                                                      torts
Patron sued theatre owner in                produCts
negligence for injuries suffered             liabilitY                       PREPONDERANCE
when patron stumbled and fell                                                   OF RES IPSA
over child lying in theatre aisle.     VERDICT SET ASIDE                    EVIDENCE REQUIRED
Plaintiff sought to establish          WHERE JURY FINDS                     VACATUR OF JURY’S
constructive notice of the child’s                                         NON-LIABILITY FINDING
                                       REFRIGERATOR NOT
presence in the aisle by produc-                                            AGAINST DEFENDANT
                                      DEFECTIVE YET NOT FIT
ing evidence that the child had                                               AND NEW TRIAL
been there for over 20 minutes         FOR ORDINARY USE
and that the theatre’s own in-                                             Cubeta v. York Int’l Corp., 818
ternal policy required an “aisle     Bradley v. Earl B. Feiden, Inc.,
                                     817 N.Y.S.2d 409 (N.Y. App.)          N.Y.S.2d 136 (N.Y. App.)
check” for obstructions every
15-20 minutes. Held: As a                                                  Plaintiff brought action against
matter of law, theatre’s own         Purchaser of refrigerator brought
                                     strict products liability and         warehouse to recover for injuries
policy imposed a standard of care                                          sustained when 66 pound box be-
“which transcends the traditional    breach of implied warranty of
                                     merchantability claims against        ing transported by forklift fell on
common-law standard of reason-                                             him. Uncontroverted evidence
able care” and thus could not be     seller and manufacturer alleg-
                                     ing that manufacturing defect         established that the warehouse
used to establish defendant’s                                              manager was sole person to load
constructive notice of the child     in refrigerator caused fire in
                                     his home. Held: Verdict set           and operate the forklift. The
sitting in the aisle.                                                      jury returned a verdict in favor
                                     aside and complaint dismissed
                                     where defrost timer was only          of defendant. Held: Evidence
   EMPLOYEE HIRED TO                                                       so preponderated in favor of
                                     defect alleged by plaintiff with
  REMEDY DANGEROUS                                                         a finding that defendant bore
                                     respect to refrigerator, and jury
  CONDITION HAS NO                   found that implied warranty of        some responsibility that res ipsa
   CLAIM FOR INJURIES                merchantability was breached          loquitur doctrine applied so as to
  RESULTING FROM THE                 but rejected plaintiff’s claim that   warrant vacatur of jury’s defense
    CONDITION ITSELF                 defrost timer was defective and       verdict and new trial.
                                     caused the fire. “[I]nasmuch as
Waiters v. Northern Trust Co.,       it appears that there exists no
816 N.Y.S.2d 18 (N.Y. App.)          valid line of reasoning or per-
                                     missible inferences that could


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