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					MARTIN & SEIBERT, L.C.
                                                                           UPDATE ON THE LAW
July 31, 2003                                                                                                                               Vol. 10 No. 1

          TABLE OF CONTENTS                                                 U.S. SUPREME COURT REVERSES $145 MILLION
  Court Upholds Attorney-Client Privilege in Bad
                                                                           PUNITIVE DAMAGES VERDICT AGAINST STATE FARM
  Faith Claims.............................................page 2
                                                                                      The Supreme Court of the United States has overturned a $145
  Window on Mitchell v Broadnax Claims                                     million punitive damages verdict against State Farm finding it to be uncon-
  Narrowed................................................page 3           stitutional. In State Farm v Campbell, 538 U.S. ___(2003), the Court
                                                                           considered whether the Utah Supreme Court appropriately applied stan-
  Legal Malpractice Claims Are Not
                                                                           dards first set forth in BMW of North America, Inc. v Gore, 517 U.S. 559
  Assignable..............................................page 4
                                                                           (1996), when it reinstated a verdict against State Farm. Writing for the
  Bad Faith Claim Dismissed When Insured                                   majority, Justice Kennedy found that the due process clause prohibits the
  Won’t Cooperate in Discovery................ page 4                      imposition of grossly excessive or arbitrary punishment and instructed lower
                                                                           courts in reviewing punitive damages to consider the degree of reprehensi-
  $80 Million Verdict Returned Against GM                                  bility of the defendant’s misconduct, the disparity between the actual
  in Missouri...............................................page 4         potential harm suffered by the plaintiff and punitive damages, and the differ-
                                                                           ence between the punitive award and the civil penalties authorized or
  Landmark Mold Verdict Reduced............page 5
                                                                           imposed in comparable cases. Using these guidelines Justice Kennedy
  Court Finds Duty to Defend Sexual                                        found that the Campbell case was neither “close nor difficult.” In so doing
  Harassment Charge................................page 5                  the Court set forth new standards by which punitive damages will be
                                                                           reviewed. Specifically, courts must consider whether the harm was
  Instruction that Defendant Has Presumption                               physical rather than economic, whether the tortious conduct was an indif-
  of No Negligence is Reversible Error                                     ference to or a reckless disregard of the health and safety of others, whether
  ................................................................page 5
                                                                           the conduct involved repeated actions or was an isolated incident, whether
  Evidence of Settlement Negotiations
                                                                           the harm resulted from intentional malice, trickery or deceit or rather by
  Permitted.................................................page 6         mere accident. The Campbell Court again held that extra-territorial
                                                                           conduct shall not be admissible and that while lawful out-of-state
  Federal Court Split on Post-Suit Conduct                                 conduct may be probative when it demonstrates the “deliberateness and
  ................................................................page 6   culpability” of the defendant’s actions, the conduct must have a nexus to
                                                                           the specific harm suffered by the plaintiff.
  Wetzel County Court Upholds $39 Million
  Verdict.....................................................page 6
                                                                                    Previously the Supreme Court has refrained from setting a bright
  Independent Contractor Defense Narrowed                                  line as to an appropriate or constitutional multiplier for punitive damages.
  ................................................................page 7   However, in Campbell the Court held: “Few awards exceeding a single digit
                                                                           ratio between punitive and compensatory damages will satisfy due
  Court Refuses Bad Faith Claim After Infant                               process.” The Court further held that when compensatory damages are
  Claim is Court Approved..........................page 7                  “substantial,” an even lesser ratio would be appropriate. The Campbell
                                                                           case arose from an award of $1 million in compensatory damages for
  Court Reverses Defense Verdict........... page 7
                                                                           emotional distress and the Court concluded that in light of the substantial
   “Resident” and “Household” Ambiguous                                    compensatory damages award, punitive damages at or near the compen-
   Terms in Homeowner’s Policy                                             satory damages should suffice. The verdict has been reversed and the
  ................................................................page 8   case has been remanded to the Utah Supreme Court for reconsideration.

  Settlement Language of Check Not an                                              Justice Thomas dissented stating: “I continue to believe that the
  Accord and Satisfaction.........................page 9
                                                                           Constitution does not constrain the size of punitive damages awards.”
  Longer Statute of Limitations for Consumer
  Credit Actions Applied.............................page 9

  Verdicts of Interest..................................page 10
                                                                                                MORE INFORMATION
                                                                                        For further information on any decision, contact:
  Court Finds Special Relationship Between                                                              E. Kay Fuller, Esq.
  Bank and Borrower.................................page 11                                           Martin & Seibert, L.C.
                                                                                                          P.O. Box 1286
  Ohio Court Directs Punitive Damages to                                                             Martinsburg, WV 25402
  Charity.....................................................page 11                         (304) 262-3209 (304) 267-0731 fax
                                                                                                ekfuller@martinandseibert.com
             UPDATE ON THE LAW

                                    COURT UPHOLDS ATTORNEY-CLIENT
                                      PRIVILEGE IN BAD FAITH CLAIM

               The West Virginia Supreme Court of Appeals                    The Court found that the “free flow of
    has granted a Writ of Prohibition prohibiting Judge             information between the attorney and client equally
    Recht from ordering production of attorney-client privi-        benefits the claimant because it is this kind of com-
    leged documents and attorney-work product provided              munication which results in the settlement of most
    to a medial malpractice insurance carrier in a third-           insurance claims. . . An insurance company must
    party bad faith claim. The Court also upheld the privi-         have an honest and candid evaluation of the case
    lege concerning captive law firms defending a carrier           possibly including a ‘worst case scenario.’ A con-
    in a first party claim in State ex rel Brison v Kaufman         cern by the attorney that communications would
    and State ex rel. Nationwide v Kaufman,. (Nos. 31114            be discoverable in a bad faith suit would certainly
    and 31115, W.Va., filed June 13, 2003).                         chill open an honest communication.”

             In State ex rel. Medical Assurance of W.Va.,                       Finally the Court held that footnote 8 of
    Inc. v Recht, (No. 30840, W.Va., filed Apr. 30, 2003),          Honaker v Mahon, 210 W.Va. 53, 552 S.E.2d 788
    the Circuit Court of Ohio County ordered all docu-              (2001), is inapplicable when determining the appro-
    ments contained in Medical Assurance’s file to be               priate legal standard to discover documents in a
    produced, thus, waiving all attorney-client privileges          bad faith case. Footnote 8 states in part: “An in-
    and overruling any assertion of attorney-work prod-             surance company owes its own policyholders a duty
    uct. The only documents which may have been ex-                 . . . to refrain from statutory unfair claim settlement
    empt were documents shared only between defense                 practices. . . [T]hese duties are not delegable and
    counsel and the defendant physician.                            insurance companies are therefore responsible for
                                                                    the actions of the attorneys they employ.”
               On appeal, however, the West Virginia Su-
    preme Court prohibited the production of the privi-                     This firm participated in the briefing in this
    leged and work-product materials. Writing for the               matter on behalf of amici Nationwide Mutual Insur-
    majority, Justice Maynard held that neither the attor-          ance Company, Progressive Paloverde Insurance
    ney-client privilege nor the work-product protection            Company and American Insurance Association.
    of defense counsel is negated simply because docu-
    ments were received and/or reviewed by the                               In Brison, the Circuit Court of Kanawha
    defendant’s insurance carrier. In so holding, the               County held that once a first party bad faith suit
    Court specifically refused a balancing test to deter-           was filed, the insurance carrier’s attorney-client
    mine the discoverability of privileged materials be-            privilege with its counsel in the underlying case was
    cause it is inconsistent with Rule 26 of the West               automatically waived. The Supreme Court rejected
    Virginia Rules of Civil Procedure which states that             this holding that the traditional attorney-client
    privilege materials are not discoverable. The Court             privilege should be applied. Justice McGraw,
    also rejected a balancing test finding that such a              writing for the majority, held that where the
    test is unknown to the common law. The Court spe-               interests of an insured and his or her insurance
    cifically relied upon footnote 21 of State ex rel. Allstate     company are in conflict with regard to a claim for
    v Gaughan, 203 W.Va. 358, 508 S.E. 2d 75 (1998),                UIM coverage and the insurance company is repre-
    which states: “When the [attorney-client] privilege is          sented by counsel, the bringing of a related first-
    applicable. . . it is absolute.” Finally the Court con-         party bad faith action by the insured does not
    cluded that prohibiting disclosure of privileged mate-          automatically result in a waiver of the company’s
    rial will advance the policy of the Unfair Trade Prac-          attorney-client privilege concerning the UIM claim.
    tices Act.



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2   July 2003
                                                               UPDATE ON THE LAW

              WINDOW ON MITCHELL V BROADNAX CLAIMS NARROWED

          In a sweeping decision, the West Virginia        cifically stated, however: “We make no
Supreme Court of Appeals has narrowed the window           determination, however, as to the success of such
of time in which policyholders may challenge insur-        claims in light of the Commissioner’s responsibility
ance policy language. In Findley v State Farm Mut.         to evaluate the propriety of premiums as an essential
Auto. Ins. Co., (No. 30842, W.Va., filed Dec. 6, 2002),    and integral part of its function to approve insurance
the Court was called upon to review a class action         forms used in this State.” The Court concluded that
challenging revisions to State Farm’s underinsured         the plaintiff did not have standing to asserts claims
motorist endorsement pursuant to the dictates of           pursuant to Mitchell because the exclusionary
Mitchell v Broadnax, 208 W.Va. 36, 537 S.E. 2d, 882        language she challenged was not incorporated into
(2000). In Mitchell, the West Virginia Supreme Court       her policy during this two year window.
held that when an insurer incorporates, into a policy
of motor vehicle insurance, an exclusion pursuant to                 The Court also considered the plaintiff’s
W.Va. Code §33-6-31(k), the insurer must adjust the        challenge to anti-stacking language. Relying upon
corresponding policy premium so that the exclusion         Syl. Pt. 1 of Payne v Weston, 195 W.Va. 502, 466
is “consistent with                                                                        S.E. 2d 161 (1995), that
the          premium                                                                       states: “There is no
charged.” In re-              The holdings of Mitchell v. Broadnax apply                   common law right to
sponse to Mitchell,           only to those exclusions to insurance                        stack coverage available
the West Virginia                                                                          for multiple vehicles
                              coverage incorporated into policies of
Legislature, in its                                                                        under the same policy
2002         session,         motor vehicle insurance on or after                          or under two or more
amended W.Va.                 February 18, 2000, to the date of the                        insurance policies. The
Code §33-6-30 find-           Legislature’s amendments, i.e., June 5, 2002.                right to stack must
ing inter alia that spe-                                                                   derive from the insur-
cific line item pre-                                                                       ance contract itself or
mium discounts or rate adjustments corresponding           from a statute,” the Court specifically precluded stack-
to any exclusion, condition, definition, term or limita-   ing of liability and underinsured coverage from the
tion in any policy of insurance was not intended. The      same vehicle as well as stacking of underinsured
statute specifically stated that the amendment was         coverage from multiple policies. The issue of whether
intended to clarify the law and correct a misinterpre-     an insured could recover liability and underinsured
tation and misapplication of the law as expressed in       motorist coverage from the same policy was also
Mitchell v Broadnax.                                       addressed during the same term of Court in the case
                                                           of Cantrell v Cantrell, (No. 30850, W.Va., filed Apr.
          Martin & Seibert, L.C. represented interve-      21, 2003). In Cantrell the Court held: “When an
nor Nationwide Mutual Insurance Company in this            insurer issues an automobile insurance policy which
case.                                                      provides both liability and underinsured motorist
                                                           coverage, but which policy contains what is commonly
          State Farm argued that the statute should        referred to as a ‘family use exclusion’ for the
be applied retroactively so as to preclude the plaintiff’s underinsured motorist coverage, and when, in a
claim. The Supreme Court, however, disagreed find-         single-car accident, the passenger/wife receives
ing the amendment to W.Va. Code §33-6-30(b - c) to         payment under the liability coverage for the negligence
be substantive in nature, thus requiring prospective       of the driver/husband, such exclusion is valid and not
application. Next the Court considered a standing          against the public policy of this State. That
issue and determined that the holdings of Mitchell         exclusion which excludes from the definition of
were also to be applied prospectively. Therefore, the      ‘underinsured motorist vehicle’ any automobile owned
Court held as a matter of law that the holdings of         by or furnished for the regular use of the insured or a
Mitchell which permit insureds to sue insurers to en-      relative has the purpose of preventing underinsured
force the requirements of W.Va. Code §33-6-31(k)           coverage from being converted into additional liability
apply only to those exclusions incorporated into poli-     coverage.”
cies of motor vehicle insurance between February 18,
2000 and June 5, 2002 - from the date of the Mitchell                The Plaintiff’s subsequent Petition for Writ
decision to the effective date of the Legislature’s        of Certiorari to the Supreme Court of the United States
amendment to W.Va. Code §33-6-30. The Court spe-           has also been denied.


                                                                                                       July 2003      3
                  UPDATE ON THE LAW
                           LEGAL MALPRACTICE CLAIMS ARE NOT ASSIGNABLE

         Answering certified questions from two Circuit Courts, the West Virginia Supreme Court of Appeals has held that legal
malpractice claims are not assignable finding that an assignment is contrary to public policy. The Court answered these
questions in the consolidated cases of Delaware CWC Liquidation Corp., et al. v Martin and Garletts v Aitcheson. (Nos. 30985
and 31113, W.Va., filed May 22, 2003). In so doing, the West Virginia Supreme Court joined a majority of courts in the country
in concluding that legal malpractice claims are not assignable. Most courts view the attorney-client relationship as a personal
one which the CWC Court held as the most compelling public policy reason for prohibiting the assignment of legal malpractice
claims. The Court reiterated the sanctity of the confidential relationship and held that it must take affirmative steps to preserve
and protect such attorney-client relationships. The West Virginia Court relied upon the California Court of Appeals in stating:


                 The assignment as such claims could relegate the legal malpractice action to the market
                 place and covert it to a commodity to be exploited and transferred to economic bidders who
                 have never had a professional relationship with the attorney and to whom the attorney has
                 never owed a legal duty, and who have never had any prior connection with the assignor or his
                 rights. . .The almost certain end result of merchandising such causes of action is the lucrative
                 business of factoring malpractice claims which could encourage unjustified lawsuits against
                 members of the legal profession. . .




                               4TH CIRCUIT DISMISSES BAD FAITH CLAIM
                            WHEN INSURED WON’T COOPERATE IN DISCOVERY

         The Fourth Circuit U.S. Court of Appeals has upheld dismissal of a breach of contract/bad faith claim against Hartford
Casualty Insurance Company finding that the insured’s failure to cooperate in discovery, including failure to timely disclose the
basis of its bad faith claim, would bar the claim. The Fourth Circuit affirmed the dismissal in Hartford Cas. Ins. Co. v MCJ
Clothiers, Inc., et al., (No. 02-1433, 4th Cir., decided December 27, 2002). Hartford initially filed a declaratory judgment action
against its insured seeking a ruling it had no duty to provide coverage on a fire loss. The insured counter-claimed for breach of
contract and bad faith. The insured refused to participate in discovery and the trial Court sanctioned the insured by striking
witnesses and then granted Hartford summary judgment on the breach of contract claim. Thereafter, the Court dismissed the
bad faith claim finding that the insured had failed to disclose the basis of the claim.

        On appeal the Fourth Circuit fould that MCJ had not proffered sufficient testimony regarding damages, had not proffered
the owner for a deposition, and found that failure to timely disclose the basis of the bad faith claim during discovery would bar the
claim. The Court finally found that disclosure five weeks after the close of discovery was prejudicial to Hartford and thus affirmed
the grant of summary judgment.




                                         $80 MILLION VERDICT RETURNED
                                             AGAINST GM IN MISSOURI

          A Missouri jury has awarded a plaintiff $80 million for a sudden acceleration case against General Motors after her car
allegedly sped out of control while backing down her driveway leaving the plaintiff in a vegetative state. The jury awarded $30
million in compensatory damages and $50 million in punitive damages against GM for a defect in the car’s cruise control. GM
contends that the plaintiff hit the accelerator instead of the brake and that there was nothing wrong with the vehicle. Plaintiff’s
counsel, however, maintains that the September 2, 2000 accident was the result of a design problem with the cruise control
mechanism on the 1993 Oldsmobile Cutlass. During the trial, plaintiff’s counsel presented eight witnesses who were allegedly
involved in similar sudden acceleration accidents. This is believed to be the largest known verdict in a case over sudden
acceleration of a motor vehicle. GM is appealing.




  4      July 2003
                                                                         UPDATE ON THE LAW
                                                             LANDMARK MOLD VERDICT REDUCED

                                            A $33 million mold case in Texas sparked an insurance crisis with respect to such
                                      claims. The Texas Court of Appeals, however, has now reversed $17 million of the award
                                      finding insufficient evidence to support a finding that Fire Insurance Exchange “knowingly”
                                      breached its duty of good faith and fair dealing, that the carrier failed to appoint a competent
                                      independent appraiser or that the appraisal decision was fraudulent. Melinda Ballard and
    MOLD GRAPHIC                      her husband, Ronald Allison, sued their homeowner’s carrier, a subsidiary of Farmers
                                      Insurance, for allegedly mishandling a mold claim. The trial court verdict was in excess of
                                      $33 million which included $5 million for mental anguish and $12 million for punitive
                                      damages. The Texas Court of Appeals reversed the mental anguish and punitive awards
                                      finding insufficient evidence of unconscionability or fraud. The Appeals Court however,
                                      found sufficient evidence to uphold the jury’s finding that the insurer breached its duty of
                                      good faith and fair dealing and committed a Deceptive Trade Practices Act violation. The
                                      issue of attorney fees was remanded to the trial court for further proceeding.

         Meanwhile, Ms. Ballard has filed a libel claim against Farmers alleging that it made a defamatory statement suggesting
she engaged in insurance fraud. Ms. Ballard alleges that in October, 2002, an article in the Austin American - Statesman
quoted a Farmers’ spokesman as stating that Ms. Ballard was to blame for “whipping up public hysteria and distorting facts
about mold to advance her own interests.” In response, Farmers issued a press release inviting further inquiry claiming that
Ballard submitted inflated repair bills, that the Court excluded such evidence and allowed the jury to believe that the inflated bids
were legitimate and excluded evidence that Ballard “intentionally obstructed Farmers’ efforts to adjust her claim.”




                  COURT FINDS DUTY TO DEFEND SEXUAL HARASSMENT CHARGE

          The West Virginia Supreme Court of Appeals has reversed summary judgment in favor of an insurance carrier finding
that it had a duty to defend an employee accused of sexual harassment and molestation under a commercial general liability
policy in Tackett v American Motorist Ins. Co., (No. 30633, W.Va., filed Feb. 28, 2003). American Motorist denied a defense to
the assistant-manager of Gadzooks, a clothing retailer with a store in the Huntington Mall. Mr. Tackett was the assistant store
manager sued by a 15 year-old female and her parents alleging that she had been harassed and molested while in the store.
American Motorist insured the store but denied a defense to Tackett relying upon its intentional injury exclusion. The Circuit
Court of Cabell County agreed; the West Virginia Supreme Court, however, disagreed finding that the Complaint alleged suffi-
cient facts to meet the definition of “personal injury” within the policy. The definition of “personal injury” included inter alia, the
wrongful eviction from, wrongful entry into or invasion of the right of private occupancy of a room, dwelling or premises that a
person occupies by or on behalf of its owner, landlord or lessor. The Complaint alleged that the store manager entered the
dressing room and inappropriately touched the minor plaintiff. The Court found that because the policy did not contain an
intentional act exclusion applicable to personal injury coverage, that American Motorist wrongfully denied a defense.

        The Court held that insurance coverage for personal injury is a “rather broad concept.” Furthermore, the Court
concluded that to the extent the assistant store manager was obligated to retain personal counsel, that he was entitled to
recover the expenses of litigation including costs and attorney fees.



                              INSTRUCTION THAT DEFENDANT HAS
                      PRESUMPTION OF NO NEGLIGENCE IS REVERSIBLE ERROR

         The West Virginia Supreme Court, in reviewing jury instructions in a medical malpractice case, has held that when a
jury charge in a negligence action includes an instruction concerning the plaintiff’s burden of proof, it is reversible error for the
Court to also include an instruction informing the jury of a presumption that the defendant acted in accordance with the
appropriate standard of care or duty. The issue arose in Matheny v Fairmont General Hospital, Inc., et al., (No. 30256, W.Va.,
filed Dec. 6, 2002).

        The Circuit Court of Marion County instructed the jury there was a presumption in favor of the hospital that it had acted
appropriately and that the plaintiff bore the burden of proof by a preponderance of the evidence that the hospital was negligent.
The Supreme Court found this to be reversible error warranting a new trial.

                                                                                                                  July 2003       5
                 UPDATE ON THE LAW

               FEDERAL COURTS SPLIT ON                                         EVIDENCE OF SETTLEMENT
                  POST-SUIT CONDUCT                                            NEGOTIATIONS PERMITTED

              A split of authority between the Federal Courts in the               The West Virginia Supreme Court of Ap-
    Northern and Southern Districts of West Virginia has arisen           peals, in denying a Writ of Prohibition, permitted
    as to whether post-suit conduct may serve as the basis of an          testimony concerning settlement offers. The Court
    Unfair Claims Settlement Practices Act claim. Judge                   denied the Writ in State ex rel. Shelton v Burnside,
    Frederick P. Stamp, sitting in the Northern District of West          (No. 30671, W.Va., filed Nov. 4, 2002), an em-
    Virginia, ruled that such information cannot serve as the             ployment law case where the employer sought to
    basis of a statutory “bad faith” claim in Larck v Wright et al.,      introduce evidence of settlement discussions ar-
    Civil Action No. 5:01CV81.                                            guing that the evidence of settlement negotiations
                                                                          was to prove the invalidity of the plaintiff’s retalia-
               However, Magistrate Judge Mary Stanley, sitting in         tory discharge claim. The plaintiff in the underly-
    the Southern District in Charleston, ruled in Mordesovitch v          ing case sought a Writ of Prohibition to prohibit
    Westfield Insurance Company, Civil Action No. 2:02-0078,              the introduction of such evidence claiming that it
    that the Unfair Trade Practices Act does not specifically             violated Rule 408 of the West Virginia Rules of
    restrict its coverage to the handling of a claim prior to the         Evidence. The Supreme Court disagreed finding
    institution of a legal proceeding. Mordesovitch was an                that the admissibility of evidence was a discre-
    underinsured motorist claim which arose when the plaintiff’s          tionary call with the trial court and that the issue
    son, a pedestrian, was killed when he was struck by a                 could be revisited on appeal.
    vehicle operated by a drunk driver who had become intoxi-
    cated at a bar. The plaintiff settled for her $300,000.00 UIM
    limits with Westfield and executed a Release and subroga-
    tion agreement. Thereafter, she obtained liability limits against
    the bar and Westfield waived its subrogation claim. The                      WETZEL COUNTY COURT
    plaintiff then filed a bad faith claim alleging that Westfield and                 UPHOLDS
    its adjuster as well at the law firm defending Westfield in the               $39 MILLION VERDICT
    underlying claim engaged in unfair trade practices by
    seeking subrogation from the settlement with the bar. In                         The Circuit Court of Wetzel County, West
    ruling on cross-motions for Protective Order and to Compel,           Virginia has denied motions for new trial or remit-
    Magistrate Stanley held that the UTPA is not specifically             titur in a $39 million third-party “bad faith” verdict.
    limited to pre-suit conduct. This ruling also implicated the          On November 5, 2002, Judge Mark Karl denied
    defendant’s Motion for Protective Order after plaintiff’s             post-trial motions of Oxford Life Insurance Com-
    counsel attempted to depose several attorneys in the firm             pany in Kocher v Oxford Life Insurance Company,
    that defended Westfield in the underlying claim. Defense              Civil Action No. 00-C-51, finding that the award
    counsel, which was the same counsel defending the bad                 was properly supported by the evidence.
    faith claim, asserted the attorney-client privilege. In that re-
    gard the Court held that Footnote 8 of Honaker v Mahon “does                    The Court found that its decision to strike
    not constitute a holding that an insurance company forfeits           Oxford’s Answer and to order sanctions after find-
    its attorney-client privilege when an insurer accuses the com-        ing repeated discovery violations, including a visit
    pany of engaging in unfair trade practices. Honaker’s Foot-           to the plaintiff’s home by the Senior Vice-Presi-
    note 8 merely states the obvious: When an attorney                    dent, was proper and did not violate the insurer’s
    purposely violates a ruling in limine to his client’s advantage,      due process rights. Furthermore, the Court found
    the client will suffer the detriment of a new trial being awarded.”   that Oxford’s conduct was reprehensible and found
                                                                          that the punitive damages award of $34 million
             In Larck, Judge Stamp ruled that once litigation             was appropriate finding that the company’s con-
    commences, the insurer must be entitled to defend both the            duct harmed not only the plaintiff but could po-
    underlying claim and the bad faith claim. To rule otherwise,          tentially harm other West Virginians. Specifically
    the Court concluded, would “convert all rejected settlement           the Court found that the harm to the plaintiff and
    offers and standard litigation tactics into bad faith claims.”        other West Virginians or anyone else who may
    The Court found it “unlikely” that the West Virginia Legisla-         purchase a disability policy from Oxford was egre-
    ture intended to extend provisions of the Unfair Claims               gious and that the $34 million punitive damages
    Settlement Practices Act to include post-suit claims.                 award was a fair amount for the jury to render.
             The issue is now before the West Virginia Supreme                     The case is now on appeal to the West
    Court.                                                                Virginia Supreme Court.


6       July 2003
                                                                       UPDATE ON THE LAW
                           INDEPENDENT CONTRACTOR DEFENSE NARROWED

         The West Virginia Supreme Court has again narrowed the independent contractor defense in Zirkle v Winkler and
Clarksburg Publishing Co. Morning Paper, (No. 30787, W.Va., filed May 22, 2003). The case arose after the Circuit Court of
Harrison County granted summary judgment to the defendant Clarksburg Publishing, publisher of the Clarksburg Exponent,
after one of its carriers was involved in an automobile accident with the plaintiff. The publishing company asserted that it could
not be held liable as a matter of law because the carrier was an independent contractor.

          The Zirkle Court concluded that the publishing company recruited and managed a fleet of more than 100 carriers to ride
the public roads to deliver newspapers and that because the publishing company undertook to perform the delivery task itself
that it would be held responsible under the doctrine of respondeat superior. The Court specifically held that the publishing
company “recruits employees and deploys this fleet to do a task in the performance of which it is reasonably foreseeable that
injury to third persons or to their property might be reasonably expected to result directly from its performance if reasonable care
should be omitted.” The Court found therefore, that it was possible that reasonable minds could differ as to whether the driver
was an independent contractor, thus, making that question one to be reserved for the jury. As a result, the Supreme Court
reversed the grant of summary judgment to the publishing company and remanded the case for trial.


                                     COURT REFUSES BAD FAITH CLAIM
                                  AFTER INFANT CLAIM IS COURT APPROVED

         The West Virginia Supreme Court has upheld a release obtained through Court approval of an infant’s claim thereby
prohibiting the plaintiff from later asserting a “bad faith” claim against the settling insurance company. In Mills v Watson, Long
& Nationwide Mut. Ins. Co., (No. 30694, W.Va, filed May 22, 2003), the plaintiff, upon reaching the age of maturity, attempted to
set aside a settlement obtained on her behalf while she was a minor. The settlement was Court approved and released the
tortfeasor as well as his insurance carrier, Nationwide. The plaintiff argued that because she had not obtained policy limits that
Nationwide had made a material misrepresentation to her concerning the settlement. The Court, however, disagreed holding
that when an infant is injured in an automobile accident and the infant’s legal guardian enters into a settlement agreement with
an insurer which complies with W.Va. Code §44-10-14, the settlement is final as to that insurance company at the time the
Circuit Court approves the settlement if the insurer is released and if the insurer is unaware of any conduct which might later
serve as the basis of a “bad faith” action.

         Writing for the Majority, Justice Maynard found no indication that Nationwide misrepresented insurance policy provi-
sions when the underlying claim was settled. The Court specifically found that to adopt the argument of the plaintiff would
subject every guardian ad litem who failed to get policy limits for an infant liable to malpractice. “Moreover, any insurance
company that does not offer the policy limits to every infant claimant would be liable under the UTPA when the infant reaches
maturity. Also, such a rule would have a profound chilling effect on the willingness of insurance companies to settle cases;
would interfere with the prompt and early payment to plaintiffs who have suffered minor or non-catastrophic injuries; and would
leave open no practical or safe way to settle infant’s claims. We must have rules that foster and encourage the voluntarily and
fair resolution of disputes and quick payment of claims,” Justice Maynard wrote.


                                                    COURT REVERSES DEFENSE VERDICT

                          The West Virginia Supreme Court has reversed a defense verdict finding that instructions concerning
                           the failure to wear a seatbelt were inappropriate. In Miller v Jeffrey and Laurel Coal Co., (No. 30254,
                              W.Va., filed Oct. 25, 2002), the Court reversed a defense verdict finding that instructions
                                 concerning the fact that the plaintiff was not wearing a seatbelt constituted reversible error. The
                                    Court found that failure to wear a seatbelt has no bearing on who is at fault for an accident.
                                      Furthermore, given that the accident occurred on a private road, the Court found that the
                                      seatbelt statute, W.Va. Code §17C-15-49, was inapplicable. Because it was inapplicable
                                      the statutory reduction of damages when an individual is not wearing a seatbelt was also
                                    held to be inapplicable.

                                 Writing for the Majority, Justice McGraw wrote: “We by no means wish to discourage people
                          from wearing seatbelts. It is clear that seatbelts prevent thousands of deaths and serious injuries
                        every year. However, we also do not wish to undermine the longstanding goals of loss spreading and
                     recovery for victims that are the foundation of our modern tort system.” The case has been reversed and
remanded for new trial.

                                                                                                               July 2003       7
             UPDATE ON THE LAW


                      COURT FINDS “RESIDENT” AND “HOUSEHOLD” TO BE
                        AMBIGUOUS TERMS IN HOMEOWNER’S POLICY

                                                                  The West Virginia Supreme Court of Appeals has
                                                             held that the terms “resident” and “household” may be
                                                             ambiguous in homeowner’s insurance policies in
                                                             Farmers Mut. Ins. Co. v Tucker, (No. 30469, W.Va.,
                                                             filed Dec. 4, 2002), and has reversed summary
                                                             judgment in favor of the insurance carrier. The case
                                                             arose after a man injured by hot grease thrown by the
                                                             son of the named insured who resided in a trailer on the
                                                             insured’s property apart from the insured’s residence,
                                                             filed suit against the named insured and his son. The
                                                             suit alleged that the son was a “resident” of the insured’s
                                                             “household.”        Farmers Mutual was granted
                                                             summary judgment by the Circuit Court of Putnam
                                                             County. On appeal, however, the Supreme Court found
                                                             that the terms are “elastic” with a variety of meanings
                                                             depending upon the facts to which the phrase is to be
                                                             applied. After analyzing cases from across the country
                                                             the Court found that it is possible to show that a person
                                                             is a member of a household when that person does not
                                                             live under the same roof as other members of the house-
                                                             hold and therefore held that in a homeowner’s policy
                                                             that does not otherwise define the phrase “resident of
    your household” the phrase shall be interpreted as “a person who dwells - though not necessarily under a
    common roof - with other individuals who are named insureds in a manner and for a sufficient length of time so
    that they could be considered to be a family living together.” The factors to be considered in determining
    whether this standard has been met include, but are not limited to: 1) the intent of the parties; 2) the formality
    of the relationship between the person in question and other members of the named insured’s household; 3) the
    permanent or transient nature of that person’s residence therein; 4) the absence or existence of another place
    of lodging for that person; and 5) the age and self-sufficiency of that person.

              In addition, the Court found that these issues make this a question of fact, thus removing it from the
    purview of a summary judgment motion. In the Taylor case the Court held that the named insured’s son was 38
    at the time of the accident and lived alone in a mobile home on his father’s property. The Court found that the
    son paid no rent or security deposit to his father for use of the mobile home, signed no lease, that the son has
    no regular job apart from his duties on his father’s farm, that he had not been continuously employed elsewhere
    for more than one year, and found an inference that the insured paid for most, if not all, of the son’s living
    expense including utilities and food. Therefore, the Court believed that inferences favorable to the plaintiff could
    be drawn so that a jury could conclude that the son was a “resident” of the named insured’s “household.”

             Syl. Pt. 2 of the majority’s opinion, written by Justice Starcher, states: “When the words of an insur-
    ance policy are, without violence, susceptible of two or more interpretations, that which will sustain the claim
    and cover the loss must be adopted.” In her dissent Chief Justice Davis wrote: “This proposition is revolutionary
    in the area of contract interpretation. In every treatise, law review publication and every decision ever rendered
    by an American Court the rule of law has been that an unambiguous contract cannot be contorted to make it
    ambiguous. The majority in this case has deviated from all Anglo-American jurisprudence to permit unambigu-
    ous language in an insurance policy to become ambiguous so long as the contortion of the unambiguous words
    is without violence. I am simply at a loss in expressing my dismay over the majority’s decision to make every
    unambiguous insurance policy in West Virginia subject to challenge by policyholders. Under the majority
    opinion, no insurance company will ever prevail even when the clear and unambiguous terms of a policy support
    their position. This is true because Syl. Pt. 2 of the majority opinion permits a plaintiff’s attorney to contort
    unambiguous words ‘without violence’ in order to make them ambiguous. When this is done the majority has
    made crystal clear that the interpretation ‘which will sustain the claim and cover the loss must be adopted.’ “


8   July 2003
                                                                         UPDATE ON THE LAW
                                FULL AND FINAL SETTLEMENT LANGUAGE
                              ON CHECK NOT AN ACCORD WITH SATISFACTION

                                                                         The West Virginia Supreme Court in Richards v Kees and
                                                                  Allstate Ins. Co., (No. 30467, W.Va., filed October 31, 2002), has
                                                                  ruled that a settlement check which includes the language “final
                                                                  settlement of any and all claims arising from bodily injury caused
                                                                  by accident on 12/30/98” does not constitute an accord and satis-
                                                                  faction. The issue arose after a 1998 automobile accident with
                                                                  clear liability on the part of the Allstate insured. The plaintiff re-
                                                                  ceived two checks: one for property damage and another in the
                                                                  amount of $200.00. The plaintiff characterized the $200.00 check
                                                                  as payment for his “good leg work” and to cover the costs of long
                                                                  distance bills he had incurred in communicating with the adjuster.
                                                                  The check, however, contained language that it was
intended to be final settlement of a bodily injury claim.

          Upon receipt, the claimant cashed the check and later attempted to present a bodily injury claim which Allstate denied.
The claimant then filed suit and Allstate was granted summary judgment on the grounds of accord and satisfaction. The West
Virginia Supreme Court, however, reversed finding that the plaintiff - characterized as “functionally illiterate” - cashed the check
without knowledge that acceptance of the check would indicate satisfaction of his claim. The Court found that contrary to
Painter v Peavey, 192 W.Va. 189, 451 S.E. 2d 755 (1994), that Mr. Richards had not submitted any medical bills at the time he
received the $200.00 check and there had been “absolutely no discussion whatsoever between Mr. Richards and Allstate with
regard to a medical claim related to the accident.” Thus, the Court found there was no comparable evidence to demonstrate an
awareness on the plaintiff’s part with regard to the condition of full settlement of his bodily injury claim despite such language on
the face of the check. Specifically the Court held: “The absence of any submitted medical bills, the complete absence of any
discussion regarding a bodily injury claim, and the evidence of Mr Richards’s limited education and understanding all point to the
fact that Mr. Richards’ cashing of the $200.00 check did not constitute an accord and satisfaction under the facts of this case.”

         The Court noted that bad faith claims have been bifurcated and stayed pending resolution of the bodily injury claim
against the insured.




                                     LONGER STATUTE OF LIMITATIONS
                                  FOR CONSUMER CREDIT ACTIONS APPLIED

                  The West Virginia Supreme Court of                arguing a one-year statute of limitations. The plaintiff,
        Appeals has permitted consumers four years rather           however, argued that W.Va. Code §46A-5-101(1) is
        than one year in which to bring a cause of action           ambiguous and that a four-year statute of limitations
        under the Consumer Credit Protection Act with               should apply. On appeal the West Virginia Supreme
        respect to violations arising from consumer credit          Court held that the statute was ambiguous and that the
        sales or loans. The issue arose in Dunlap, et al. v         purpose of the Act was remedial in nature, requiring a
        Friedman’s, Inc., (No. 30839, W.Va., filed May 6,           liberal construction, thus a four year statute of limita-
        2003),      when       a    plaintiff    sued       the     tions.
        jewelry retailer alleging that the imposition of “other
        charges,” including credit life insurance, credit                    Writing for the Majority, Justice Albright held
        disability insurance and property insurance, in             that the purpose of the Consumer Credit Protection Act
        addition to the sale and financing charges, violated        is to protect all consumers from “unfair, illegal, or
        the Consumer Credit Protection Act. The Complaint           deceptive actions” and concluded that liberal construc-
        further alleged that the conduct by Friedman’s was          tion would compel application of a longer statute of
        part of a systematic scheme to deceive consumers            limitations. The statute begins to run either from the
        and enhance business profit. Friedman’s alleged             date of the transaction or within one year of the due
        that      the     Complaint         was     untimely        date of the last payment, whichever occurs later.




                                                                                                                   July 2003       9
              UPDATE ON THE LAW


                            VERDICTS OF INTEREST

                               $6.67 MILLION BAD FAITH VERDICT UPHELD
                                             IN CALIFORNIA

         A Federal Magistrate in San Francisco has ordered UnumProvident Corporation and Paul Revere Life Insurance
 Company to “obey the law” enjoining both from future violations of the California Unfair Business Practices Act. The
 Magistrate upheld a $7.67 million jury verdict and ordered the companies to “cease targeting customers of claims or
 claimants, employing biased doctors, destroying medical records, and withholding benefit information.”

          The issue arose in Hangarter v The Paul Revere Life Ins. Co., et al. (Case No. C99-5286JL, N.D. Cal. Nov. 12,
2002,) following a February, 2002 verdict where a jury found that Paul Revere breached its contract and acted in bad
faith after it denied a disability claim of a policyholder. Ruling on post-trial motions, the Magistrate found that despite
conclusive evidence that the plaintiff was unable to return to work as a chiropractor and that her other attempts to work
had failed after 1 ½ years of paying benefits, Paul Revere, a subsidiary of UnumProvident, subjected the plaintiff to a
“biased medical examination,” re-characterized her occupation and claimed that she was not totally disabled because
she could perform some administrative tasks.




                                BOONE COUNTY JURY AWARDS DAMAGES
                                         FOR COAL DUST

          A Boone County jury has awarded $473,000.00 to residents of a coal mining community who filed a nuisance
 claim against Elk Run Coal Company. The jury found that Elk Run, a subsidiary of Massey Energy, negligently harmed
 residents and violated the State’s Surface Mining Act by allowing dust to escape the area permitted for its operation.
 The jury’s award for property damages followed a six-week trial in which more than 60 residents testified about dust
 raining down on the town of Sylvester. A real estate appraiser who testified on behalf of the plaintiffs testified that dust
 pollution had reduced the value of the plaintiffs’ property by nearly $4 million. Encompassed within the award was
 $221,000.00 for aggravation, discomfort, inconvenience and annoyance which will be divided among 111 families who
 joined in the suit. The jury did not return an award of punitive damages.




                                        LARGEST VERDICT IN VIRGINIA
                                            HISTORY RETURNED

           An Alexandria jury has awarded the largest verdict in Virginia history against an on-line tutoring company it
 found defrauded 13 investors and sales consultants. The jury awarded a $177 million verdict against Tutor Net.Com
 Inc., finding that its officers had committed federal securities fraud and common law fraud as well as a breach of
 fiduciary duty for failure to deliver shares of stock to investors. The jury also found a breach of contract and fraud with
 respect to deliver shares of stock to the company’s sales consultants.

           The company was alleged to provide on-line tutoring services and claimed that it had partnered with companies
 such as America Online® and alleged that it also had celebrity backing. In a press release issued after the verdict, one
 plaintiffs’ attorney stated: “This really should send a message to cooperate America, big and small, that corporate
 integrity had become paramount. Eight jurors struck a blow for the little guy today.”




10   July 2003
                                                                      UPDATE ON THE LAW
                                     COURT FINDS SPECIAL RELATIONSHIP
                                      BETWEEN BANK AND BORROWER

         The West Virginia Supreme Court of Appeals has expanded the special relationship doctrine to find such a relationship
between a bank and its customer. The Court so found in Glascock v City National Bank of W.Va., (No. 30595, W.Va., filed Dec.
9, 2002), finding that the bank was significantly involved in the construction of the Glascock home when the borrowers first
entered into a construction loan later converted to a traditional loan. Construction of the home in Jefferson County was deficient
and the bank obtained an independent inspector who authored a report disclosing many of the deficiencies. The bank, however,
did not disclose this report to the borrowers. The borrowers later contended that the bank had an obligation to disclose the
report before inducing them to convert the construction loan to a traditional loan. The Court concluded that where a lender
making a construction loan to a borrower creates a special relationship with the borrower by maintaining oversight of or interven-
ing in the construction process, that relationship brings with it a duty to disclose any information that would be critical to the
integrity of the construction project.

         The Court noted, however, that the bank’s retention of the report may not have harmed the borrowers and that the
borrowers may have had no choice in converting their loan. Nonetheless, a special relationship was found to exist and a duty
to disclose was therefore, imposed on the bank. The Court concluded that whether or not a special relationship exist, must be
determined on a case-by-case basis.

         “Our ruling should not be taken to mean that a traditional lender is in any way the insurer of the property that is the
subject of the loan. Nor is the lender an insurer of the work performed or of an inspection or appraisal conducted on its behalf.
Our ruling does not ask lenders to be engineers or architects or home inspectors. As we stated, the duty is defined by the risk
perceived. That the lender does not have information critical to the integrity of the construction project, then the lender, of
course, could not have a duty to disclose. . . We are simply ruling that, where a bank and a lender have a special relationship,
the bank has a duty to disclose information when the bank could reasonably foresee that withholding that information might
damage the borrowers,” the Court held.

        Justice McGraw authored the majority opinion.




                         OHIO COURT DIRECTS PUNITIVE DAMAGES TO CHARITY

                                           The Ohio Supreme Court in an unprecedented move, has upheld a bad faith punitive
                                      damages award but directed that a portion go toward creating a charitable research fund.
                                      In a 4 - 3 ruling on December 20, 2002, the Ohio Court upheld $30 million of a $49 million
                                      punitive damages award against Anthem Blue Cross & Blue Shield in Dardinger v Anthem
                                      Blue Cross & Blue Shield, et al. (No. 2001-1222).

                                          The issue arose in a breach of contract/bad faith claim after Anthem denied experi-
                                      mental cancer treatments to an insured. The Court awarded $10 million of that award to
                                      the plaintiff and permitted the payment of attorney’s fees and costs. The net amount,
                                      however, the Court determined “should go to a place that will achieve a societal goal, a
                                      good that rationally offset the harm done by the defendants in this case.” The Court
                                      created a cancer research fund at Ohio State University entitled the Esther Dardinger
                                      Fund.

      In a dissent, the Chief Justice argued that a trial judge should not have “unbridled discretion to allocate punitive
damages to his or her preferred charity.”




                                                                                                              July 2003      11
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