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CM Report Vol 4_2004

VIEWS: 12 PAGES: 48

  • pg 1
									2004                                                                                                                         Volume 4
 A summary of significant recent developments in the law focusing on substantive is-
 sues of litigation and featuring analysis and commentary on special points of interest.


             FERRINI’S                                                 I       N            S           I       D             E

             SIDEBAR                                           CASUALTY UPDATE
                                                               An Issue Of First Impression: Appellate Court Holds
                                                               That The Amendment To Illinois Code Of Civil Proce-
       Illinois Resists Judicial Activism                      dure § 2-1117 Cannot Be Retroactively Applied
                 On Gun Control                                by Ann C. Chalstrom......................................................4




I
                                                               Settling Defendants Do Not (Or Do They?)
      n City of Chicago v. Beretta USA, 2004 Ill.              Belong On Federal Verdict Forms
      LEXIS 1665, the plaintiff City asserted a claim          by Paul D. Kerpan..........................................................6
      of public nuisance seeking to hold manufactur-
      ers, distributors and dealers of handguns respon-        CLAUSEN MILLER NEWS……………….....................8
sible for the costs of emergency medical services, law
enforcement, prosecution of violators of gun control           ON THE LITIGATION FRONT…..………...................12
ordinances and related expenses. The Illinois Supreme
Court summarized the basis for ordering dismissal of           PRACTICE GROUP ARTICLES
the claim as follows:                                          Business Practice Group
                                                               Judicial Hostility Toward Non-Competition
“Litigation should not be used to achieve legisla-             Agreements Leaves Form Users Vulnerable
tive goals.”                                                   To Competition
                                                               by Brian E. DeVilling.....................................................14
This decision will have impact far beyond Illinois’
                                                               Casualty
borders. The Court analyzed all elements of the                Illinois Supreme Court Hears Arguments As
public nuisance claim and found that claim lacking             To Plaintiff's Damages: Can An Injured Plaintiff
in several respects. Foremost, manufacturers and               Claim The Full Amount Of Medical Bills Or Only
                                                               The Reduced Amount Paid By Her Health
distributors owe no duty because they lawfully sell
                                                               Insurance Carrier?
a nondefective product. Any other result would be              by Kathleen A. Johnson................................................16
an unprecedented expansion of the law impacting
countless other lawful commer-
                                   continued on page 3                                                         continued on next page

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 2004 Clausen Miller P.C.
    INSIDE                   continued from page 1


New York Casualty Update: Appellate
Division Allows "Second Hand Asbestos"
Case To Proceed
By Melissa A. Murphy-Petros...................................17

Iowa Supreme Court Holds That Physical
Injuries Are Unnecessary To Maintain Claims
For Negligent Hiring, Supervision Or Retention
                                                                                           REPORT STAFF
by Anthony P. Ulm……………..................................19
                                                                                           Editor-In-Chief
Employment Law                                                                            Melinda S. Kollross
Alert: Corporate Counsel And Human
Resource Professional
by James S. Barber..................................................21
                                                                                           Assistant Editor
                                                                                       Melissa A. Murphy-Petros
First-Party Property
Texas Supreme Court Rules On Meaning Of                                                  Case Notes Editor
"Like Kind And Quality" And On The Application
Of The Statutory Penalty Provided By The
                                                                                       Melissa A. Murphy-Petros
Texas Insurance Code, Article 21.55
by Mindy M. Medley..................................................24          Senior Advisor and Editor Emeritus
                                                                                          Edward M. Kay
Insurance Litigation / Reinsurance
An Insurer Waives Its Right To Compel
Arbitration Where It Invokes The Judicial                                              Feature Commentators
Process To The Prejudice Of Its Opponent,                                                  James T. Ferrini
Despite A "No Waiver" Of Arbitration Clause                                              Kimbley A. Kearney
by John F. Brennan...................................................26

Liability Insurance Coverage
                                                                                  Case Notes Contributing Writers
CGL Coverage Denied For Defective                                                       Melinda S. Kollross
Concrete As A "Business Risk"                                                        Melissa A. Murphy-Petros
by David J. Roe........................................................28              Barbara I. Michaelides
"Assault And Battery" Exclusion Not Applicable
                                                                                           Colleen Brown
To Negligent Hiring And Supervision Allegations                                          Ann C. Chalstrom
by Agelo L. Reppas...................................……........30                          Agelo Reppas
                                                                                          Paul V. Esposito
CILCO Decision-Expenditures In Response
To Strict Liability Regulations Constitute                                               Paula Carstensen
"Damages" Under Excess Liability Policies                                               Keith G. Flanagan
by Colleen A. Brown.................................................32                  Timothy G. Savage
Subrogation
How "What We Learned In Little League"                                      The CM REPORT OF RECENT DECISIONS is provided
Paves The Way For Winning Litigation!                                       as a general information source and is not in-
by Dean S. Rauchwerger……..................................35                tended, nor should it be considered, the rendition
                                                                            of legal advice. Please contact us to discuss any
CASE NOTES………………………........……......40                                       particular questions you may have.




2                                                                                                         www.clausen.com
    FERRINI’S
    SIDEBAR cont.
cial enterprises to address societal nomic loss doctrine precludes          to the right in Beretta may be a
problems. The Court gave the fol-    recovery for commercial expec-         precursor of things to come. The
lowing illustration: manufactur-     tations -- even where there is no      Illinois Fifth Appellate District en-
ers of cellphones might be legally   contractual relationship between       compasses Madison and St. Clair
responsible for dangers posed by     plaintiff and defendant. The rule      Counties, noted hotbeds of judicial
distracted drivers. Moreover, in     is based on the speculative nature     activism well known for their fa-
the view of the Court, there can-    and potential magnitude of dam-        vorable treatment of plaintiffs in
not be an unreasonable interfer-     ages. The Court supported its          class actions. The Supreme Court
ence with public rights where, as    analysis with its invocation of the    judge from that district has, to my
in this case, the activity is con-   “municipal cost recovery rule,”        memory, never been conservative.
trolled by a comprehensive set       which is based upon a separation       A recent turnabout has occurred.
of administrative or legislative     of powers rationale. Public expen-     In a hotly contested election which
regulations. In sum, compliant       ditures made in the performance        has, on both sides, been one of the
conduct is reasonable conduct.       of governmental functions are not      most expensive judicial campaigns
                                     recoverable in tort. The legislature   in history, the Republican jurist,
Gun dealers have no responsibil- is the custodian of governmental           Lloyd A. Karmeier, defeated the
ity because there is no proximate fiscal matters.                           Democratic candidate, former
causation. There are two predi-                                             Justice Maag. We look forward
cates to proximate causation: the On the same date it issued                to Justice Karmeier’s work on the
conduct must be the cause in fact Beretta, the Illinois Supreme             Court.
and the legal cause -- and this lat- Court ordered the dismissal of a
ter requirement is not met unless like claim brought by the special         A Further Personal Note
the defendant’s conduct is closely administrators for surviving fam-
tied to the plaintiff’s injury. The ily members of those killed by il-      I am pleased to advise that the
injury must be such that a reason- legal firearms. In Young v. Bryco        new co-chairs of the Clausen
able person would see that injury Arms, 200 Ill. LEXIS 1664, the            Miller Appellate Practice Group,
as a likely result of their conduct. claimed harm was held to be the        CM partners Ed Kay and Melin-
It is important to note that in this aggregate result of numerous in-       da Kollross, will author future
case plaintiff alleged numerous cidents by third parties not under          editions of this column. This
sales transactions occurring over defendants’ control.                      is consistent with my election,
time and in multiple locations by                                           in January 2004, to assume an
businesses with no ties to each A Personal Comment                          “of counsel” role with the firm
other. This thus was not a case                                             that enables me to devote my
of an alleged single sale. Under In a plea consistent with the              full energies to litigating high
those circumstances reasonable Court’s recognition of its limited           profile cases.
retailers would not foresee the role, Justice Freeman and other
creation of a nuisance as a result members of the Court urged the           I continue to be available to meet
of their conduct.                    legislature to address concerns        your needs and will submit a col-
                                     such as those presented by the         umn for this publication on such
The claim also failed on the issue plaintiff’s allegation that some         occasions as I find a subject of
of recoverable damages. The dam- gun dealers were willing to serve          particular interest. ♦
ages sought are economic damages customers who likely intended to
because they were incurred in the circumvent the law.                               James T. Ferrini
absence of harm to the plaintiff’s                                               jferrini@clausen.com
person or property and the eco- The Illinois Supreme Court’s turn

www.clausen.com                                                                                                3
     CASUALTY UPDATE


    An Issue Of First Impression: Illinois Appellate Court
     Holds That The Amendment To Illinois Code Of Civil
     Procedure § 2-1117 Cannot Be Retroactively Applied
                                              by Ann C. Chalstrom
                                            achalstrom@clausen.com




T
           he Illinois Appellate    A-3 through A-2’s top hatch              Analysis
           Court, First District    (as opposed to loading through
           holds in case of first   valves at the bottom of the tank-        At the time of plaintiff’s injury,
           impression that the      er) when a ball of fire knocked          the jury’s verdict and the trial
June 4, 2003 amendment to Il-       plaintiff off A-2 to the ground,         court’s entry of judgment, § 2-
linois’ joint and several liabil-   severely burning plaintiff.              1117 of the Code of Civil Proce-
ity statute (735 ILCS 5/2-1117)                                              dure provided as follows:
cannot be retroactively applied.    On April 28, 1999 plaintiff filed
Carollo v. Al Warren Oil Co.,       his initial complaint (followed
                                    by an amended complaint in                 [I]n actions on account of
Inc., et. al, 2004 WL 2715547.
                                    2002) alleging both strict prod-           bodily injury or death or
(Ill. App. Nov. 24, 2004).
                                    ucts liability and negligence              physical damage to prop-
Facts                               against defendants, essentially            erty based on negligence,
                                    for defendants’ alleged failure to         or product liability based
Plaintiff worked for Premier        install safety devices on A-2 and          on strict tort liability, all
Fuel & Cartage, Inc. for whom       A-3. Defendants brought a third-           defendants found liable
he drove a tanker truck to and      party action against Premier for           are jointly and severally
from McCormick Place and            contribution alleging Premier’s            liable for plaintiff’s past
from which he refueled small        failure to properly train plaintiff in     and future medical and
vehicles. Plaintiff drove and       refueling procedures. On the eve           medically related expenses.
refueled smaller vehicles from      of trial defendants dismissed Pre-         Any defendant whose fault,
tanker truck A-2, which, in         mier from the lawsuit pursuant to          as determined by the trier
1993, Premier had purchased as      a settlement agreement. Plaintiff          of fact, is less than 25% of
a used tanker from defendants Al    tried his negligence claim against         the total fault attributable
Warren Oil Co., Inc., and Altom     defendants. On October 2, 2002             to the plaintiff, the defen-
Transport, Inc.                     the jury returned its verdict              dants sued by the plaintiff,
                                    awarding plaintiff damages and             and any third party defen-
On May 13, 1998, plaintiff was      allocating fault as follows:               dant who could have been
injured in an explosion at work.                                               sued by the plaintiff, shall
Plaintiff was refueling A-2 from            Plaintiff:    15%                  be severally liable for
a larger tanker truck, A-3, also            Warren:       15%                  all other damages. Any
owned by Premier and which it               Altom:        18%                  defendant whose fault, as
had purchased as a used tanker              Premier:      52%                  determined by the trier of
from defendants. Plaintiff was                                                 fact, is 25% or greater of
loading gasoline into A-2 from                                                 the total fault attributable

4                                                                                          www.clausen.com
  to the plaintiff, the defen-           plaintiff’s non-economic dam-           making defendants Warren and
  dants sued by the plaintiff,           ages, and jointly and severally         Altom each only severally liable
  and any third party defen-             liable for his medical expenses.        for their proportionate share of
  dants who could have been              Plaintiff appealed, contending          plaintiff’s nonmedical damages.”
  sued by the plaintiff, shall           that Premier should not have been
  be jointly and severally li-           included in the allocation of fault,    Plaintiff is currently petitioning
  able for all other damages.            and filed his initial appellate brief   the Illinois Supreme Court for
                                         on April 10, 2003.                      review.
Therefore, § 2-1117 makes a
defendant-tortfeasor only sev-           In response to Unzicker, the       Learning Point: The inclusion
erally liable for plaintiff’s non-       newly elected Illinois legisla-    of plaintiff’s employer on the
economic damages (i.e. pain and          ture amended section 2-1117        verdict form can mean the differ-
suffering) when its percentage of        by specifically providing that a   ence between a defendant being
fault for plaintiff’s injuries is less   “plaintiff’s employer” should not  jointly and severally responsible
than 25% of the total fault - - as       be considered in the allocation of for an entire judgment on non-
both Warren and Altom                                                                 economic damages and
                                             Ann C. Chalstrom is a senior as-
were here.                                                                            only severally respon-
                                             sociate in CM’s Appellate Prac-
                                             tice Group. She has prosecuted sible for its propor-
On November 21, 2002,                        and defended appeals in the U.S. tionate share of non-
the Illinois Supreme                         Court of Appeals for the Sixth and economic damages.
Court decided Unzicker                       Seventh Circuits, as well as state Therefore, in all cases
                                             appellate courts in Illinois, Indiana,
v. Kraft Food Ingredi-                                                                where the cause of ac-
                                             Louisiana, Minnesota, Ohio and
ents, Corp., 203 Ill. 2d                     New York. Ms. Chalstrom has a tion accrued (usually
64 (2002), which held                        B.A. in economics from Illinois a tort cause of action
that plaintiff’s employer Wesleyan University and a J.D. from The University accrues when plaintiff
should be “considered in of Illinois (Urbana-Champaign) College of Law.               suffers injury) prior to
the division of fault un-                                                             the effective date of
der section 2-1117” because the     total fault (i.e. “any third party the amendment to 2-1117 (June
plaintiff’s employer is a “third defendant except the plaintiff’s 4, 2003) defense counsel should
party defendant who could have employer . . . .”). Pub. Act No. tender a verdict form including
been sued by the plaintiff.” The 93-0010. The amendment pro- plaintiff’s employer in the allo-
Unzicker court concluded that vided that the Act “takes effect cation of total fault for purposes
“[t]he clear legislative intent be- upon becoming law,” which of 2-1117.
hind section 2-1117 is that mini- was June 4, 2003. The Carollo
mally responsible defendants appellate court held: “This statu- Editor’s Note: CM appellate
should not have to pay entire tory amendment is a substantive attorneys Jim Ferrini and Ann
damage awards. The legislature [and not a procedural] change. Chalstrom briefed this case
set the line of minimal responsi- We agree with the defendants, before the Illinois Appellate
bility at less than 25%.”           for the reasons stated in their Court, and Ann Chalstrom pre-
                                    brief and their sur-reply brief, sented oral argument. Please
The Carollo trial court thereaf- that this statutory amendment contact Ann Chalstrom at
ter entered judgment pursuant to is not retroactive and does not achalstrom@clausen.com to ob-
Unzicker determining that both apply to the instant case. Thus, tain a copy of the opinion and/or
Altom and Warren were each the trial court correctly included briefs in this matter. ♦
only severally liable for their re- Premier in allocating fault for
spective proportionate share of the purposes of section 2-1117,

www.clausen.com                                                                                                  5
    CASUALTY UPDATE



          Settling Defendants Do Not (Or Do They?)
              Belong On Federal Verdict Forms
                                            by Paul D. Kerpan
                                          pkerpan@clausen.com




T
          he U.S. Court of Ap- was equipped with gates, bells ligent. After plaintiff’s damages
          peals for the Seventh and flashing lights. The driver’s were reduced by plaintiff’s con-
          Circuit Court recently vehicle struck the plaintiff-rail- tributory negligence, they were
          decided a case that will road employee, causing signifi- further reduced by the $100,000
negatively impact on defendants cant injuries. Plaintiff filed suit settlement from the driver, result-
who seek to limit their exposure under the Federal Employers’ ing in a net award to plaintiff of
to damages based upon the pro- Liability Act (FELA) against $125,000.
tections afforded in statutes on his employer, Iowa Interstate
joint and several liability and Railroad. He also sued the Analysis
contribution. The decision also driver for negligence under Il-
increases the chances for an linois state law. Plaintiff settled Applying Illinois law, the dis-
economically viable defendant with the driver for $100,000 and trict court followed five steps
to be found jointly liable for all went to trial solely against the in allocating fault and applying
damages when plaintiff                                                                the various applicable
                                               Paul D. Kerpan is an attorney with
settles with a defendant                       Clausen Miller P.C. who concen- set-offs: (1) ascertain
who has insufficient in-                       trates his practice in the areas the full amount of
surance coverage and                           of plaintiff subrogation, casualty damages suffered by
then proceeds to trial                         defense and professional liability. plaintiff; (2) ascertain
                                               A former clerk for Illinois Supreme
against the less culpable                                                             plaintiff’s comparative
                                               Court Justice James Dooley, Mr.
defendant. In Schadel v.                       Kerpan has extensive trial experi- fault with respect to the
Iowa Interstate R.R., Ltd.,                    ence from his tenure with the Cook non-settling railroad;
381 F.3d 671 (7th Cir.), the                   County State’s Attorney’s Office. (3) compute net dam-
court ruled that the settling He also spent five years representing plaintiffs in ages due to plaintiff
defendant did not belong major personal injury litigation.                            after reducing the total
on the federal jury verdict          railroad. At trial, the jury was       for his comparative fault; (4) ap-
form and therefore the jury was permitted to hear evidence of ply a pro tanto reduction to the
not permitted to allocate a per- the driver’s negligence, but was net sum, representing the amount
centage of fault to the settling not told about the settlement. paid by the settling driver; and
defendant.                           Over the railroad’s objection, (5) assess the balance against
                                     the jury was instructed to assess the non-settling defendant. On
Facts                                only the fault of the plaintiff and appeal, the railroad argued – as it
                                     the railroad, but not the fault of did below – that the district court
In Schadel, the settling de- the driver. The jury found total should instead have considered
fendant (the “driver”) crashed damages of $450,000 and found the fault of the settling driver by
through a railroad crossing that plaintiff 50% contributorily neg- following four different steps:


6                                                                                        www.clausen.com
(1) ascertain the full amount of       as he was able to prove that       This comment suggests several
damages suffered by plaintiff; (2)     the railroad was negligent         things. First, the court recog-
ascertain the comparative fault of     in whole or in part, and his       nized that good faith settlement
all parties involved, both settling    injuries were caused by            hearings might not necessarily
and non-settling; (3) compute net      that negligence.                   ensure that settlements are pro-
damages due from the non-set-                                             portionate to the settling defen-
tling railroad by taking its per-    Learning Point: The court            dant’s likely liability. The court
centage from the total; and (4)      closed its opinion with some         also recognized that permitting
assess that amount against the       interesting dicta (remarks not       a non-settling defendant to ob-
non-settling railroad.               essential to its determination of    tain contribution from a settling
                                     the case and not legally authori-    defendant would “accurately” al-
The Seventh Circuit, recognizing tative). Noting that the railroad        locate all parties’ responsibility.
that application of the railroad’s did not appeal the dismissal of        The court seems to imply that
analysis would reduce the rail- its contribution claim against the        non-settling defendants may be
road’s liability to plaintiff, found driver, the court stated that it:    entitled to more relief than was
that the district court’s analysis                                        obtained under the circumstances
was the correct approach in             therefore [had] no occa-          in Schadel.
FELA actions because FELA               sion to decide whether the
specifically provides that rail-        FELA requires this type           Schadel also left unresolved the
road common carriers are jointly        of immunity for a settling        question of whether, in diversity
and severally liable for injury         defendant, or if a settling       cases where state substantive law
or death resulting in whole or          defendant must take into          applies, the Seventh Circuit will
part from their negligence. (45         account the possibility of        follow a similar analysis. Al-
U.S.C. §51) In other words, the         a claim for contribution or       though the Seventh Circuit de-
Seventh Circuit reasoned, the           indemnity. . . .[A] bar on        cided in Freisingler v. Emro Pro-
statutory text of FELA does not         such actions would tend           pane Co., 99 F.3d 1412 (1996),
permit the reduction of a dam-          to encourage settlement. .        a diversity case, that a defendant
ages award for the contribution         . .[A] fairness hearing like      who settled did not belong on the
of non-FELA defendants to the           the one held here ought to        jury verdict form for allocation
plaintiff ’s injuries. Instead,         catch settlements that are        of total fault, the district courts in
FELA only permits a reduction           grossly disproportionate          the Northern District of Illinois
in damages for the plaintiff-           to the settling defendant’s       are not following this rule. For
employee’s own negligence (45           likely liability, but. . .there   example, the courts in Costello
U.S.C. §53):                            are limits to these hearings      v. U.S., 1998 WL 341615 (N.D.
                                        as well. On the other hand,       Ill. 1998), and Dowe v. National
   [U]nder the FELA, [the               permitting contribution or        Railroad Passenger Corp., 2004
   railroad] was respon-                indemnity would have              WL 887410 (N.D. Ill. 2004), both
   sible for the full amount            the effect of ultimately          refused to follow Freisingler on
   of [plaintiff]’s injuries,           allocating responsibility         this point.
   reduced only by the part             accurately. The question
   attributable to [plaintiff]’s        is far too complex for us         We will continue to monitor this
   own negligence. [Plain-              to address in the abstract,       important and changing area of
   tiff] did not even have to           even if we appropriately          the law and update our readers as
   include [the driver] as a            could do so. We therefore         new developments occur. ♦
   named defendant, as long             leave it for another day.


www.clausen.com                                                                                               7
C LAUSEN M ILLER N EWS
    Clausen Miller Is Pleased To Announce Its New
       President, 28-year CM Veteran Litigator,
      Partner, Shareholder And Director Jim Hoey

                                  To execute on this mission and        We are global thinkers; we have
                                  purpose, we have a distinctive        agreements, associations, and
                                  firm culture. We are competitive;     relationships with firms through-
                                  we want to win for our Clients.       out Europe and other continents.
                                  We are learned; we stay current       We appreciate that many of our
                                  with new developments in the          Clients do business throughout
                                  law and are constantly receiv-        the world.
                                  ing education through both ex-
                                  ternal and internal sources. We       We conduct ourselves with hon-
                                  are aggressive in pursuing our        esty and integrity. We treat all
                                  Clients’ rights, and at the same      persons with dignity and respect.
                                  time professional and courteous       We are diverse, yet united in our
                                  to all with whom we work. We          mission and purpose. We hire
                                  are creative; the law is an ever      highly educated individuals
                                  -evolving subject matter as our       who understand the importance
                                  lives change through technology       of good client service and that
                                  and otherwise. We brainstorm          the Clients’ interests are para-
 PRESIDENT’S MESSAGE creative solutions and seek the                    mount.




I
                                  best results for our Clients by as-
       am honored to have been serting creative legal theories.   Finally, we understand that you
       elected President of Clau-                                 have choices when it comes to re-
       sen Miller, PC by my We are trial attorneys; we are        tention of legal counsel. That is
       colleagues. I would like courageous and willing to take    why we take nothing for granted,
to tell you about our Firm’s mis- risks when it serves our Clients’
                                                                  and we strive to be the best ev-
sion and purpose and about my needs and desires. We are cre-      ery day. Thank you for choosing
colleagues.                       ators of new law; we appear as  Clausen Miller. We appreciate
                                 appellate advocates in courts of your business and the opportu-
Our mission and purpose is to appeal throughout the country. nity to be of service to you.
provide pre-eminent legal ser- We are active listeners; we strive
vice to our Clients as advocates not only to solve but anticipate
and counselors. Our Clients’ our Clients’ problems.
interests are our number one
priority.

8                                                                                    www.clausen.com
                                                                   C LAUSEN MILLER NEWS

            Ed Kay And Melinda Kollross
     Co-Chair Clausen's Appellate Practice Group
Clausen Miller is pleased to          Liability Defense, among others.      in the States of Illinois and New
introduce the new co-chairs           Ed is admitted to practice before     York and before the United States
of its 12-attorney Appellate          the Illinois Supreme Court, the       Courts of Appeal for the Third,
Practice Group:                       United States Supreme Court, the      Sixth, Seventh, Tenth and Elev-
                                      Federal Courts of Appeal for the      enth Circuits as well the United

                 E    dward M.
                      Kay is a se-
                 nior partner and
                                      First, Second, Fifth, Sixth, Sev-
                                      enth, Ninth, Tenth and Eleventh
                                      Circuits and the District Court for
                                                                            States District Courts for the
                                                                            Northern District of Illinois and
                                                                            the Northern District of Indiana.
                 director at Clau-    the Northern District of Illinois.    She is also admitted to practice
                 sen. Upon gradu-     He is a member of the Illinois        before the United States Supreme
                 ation from law       Appellate Lawyers Assoc. and          Court and has helped litigate two
                 school, Ed served    served as a director for the 1993-    cases in that esteemed venue.
                 for eight years as   1995 term. Ed is also a fellow of
an Assistant At-torney General in     the American Academy of Appel-        Melinda is editor-in-chief of
the Civil Appeals Division of the     late Lawyers. Ed may be reached       Clausen Miller’s quarterly CM
Illinois Attorney General’s Office.   directly at ekay@clausen.com.         Report of Recent Decisions and
During his tenure as an Assistant                                           an assistant editor of the CM
Attorney General, Ed individually                                           Report-New York. She is a
prosecuted over 150 appeals at all
state and federal appellate court
levels. These appeals involved a
                                      M       elinda
                                              Kollross
                                      is a senior part-
                                                                            frequent author and lecturer on
                                                                            appellate practice and other liti-
                                                                            gation topics. Her most recent
variety of matters, including sev-    ner at Clausen                        publication is a chapter on post-
eral in the business tax and labor    specializing in                       trial motions in DRI’s Defense
law areas.                            trial monitoring                      Lawyer's Guide To Appellate
                                      of high exposure                      Practice (2004).
Ed joined Clausen in 1987 and         cases, post-trial
now concentrates his practice         and appellate litigation nation-      Melinda graduated with highest
in extensive trial monitoring         wide. Her appellate work spans        honors from DePaul University
of high profile cases, including      all areas of firm practice, includ-   in 1989 (B.A.) and received her
dispositive trial motion practice,    ing commercial, first-party prop-     Juris Doctor with high honors
post-trial and appellate litiga-      erty, liability insurance coverage    from Chicago-Kent College of
tion nationwide. He has briefed       and liability defense. Melinda is     Law in 1992. Upon graduation,
and orally argued cases in all        a member of the Illinois State Bar    Melinda was inducted into the
CM practice group areas, in-          Assn., the Chicago Bar Assn., the     Order of the Coif, the premier
cluding Admiralty / Maritime,         Illinois Appellate Lawyers Assn.,     national legal honor society.
Casualty Defense, First-Party         the New York State Bar Assn. and      You may contact Melinda direct-
Property Insurance, Subrogation       the Defense Research Institute        ly at mkollross@clausen.com.
/ Loss Recovery, and Products         (DRI). She is licensed to practice

www.clausen.com                                                                                             9
C LAUSEN MILLER NEWS

            Belgian Firm
               Joins
        Clausen Miller Europe


C
        lausen Miller Europe         and in over 50 countries spread and services sectors: insurance,
        is pleased to introduce      across five continents. Lan-    agricultural and food business,
        its newest member, the       guages spoken and written in    automobile sector, banks, ac-
Belgian law firm of van Cut-         the partnership include English,counting firms, building industry,
sem-Wittamer-Marnef & Part-          French, Dutch, German, Italian  metal constructions, chemical
ners. The van Cutsem firm was        and Turkish.                    industry, cement and concrete
founded in 1976 and now boasts                                       industry, real estate, computer
twelve partners, seventeen asso- The partnership’s main activities firms, steel industry, advertis-
                                 cover business law, commercial ing and press agencies, tobacco
ciates and a staff of twelve other
employees. The firm is located   law, contracts, insurance law, industry, textile, restaurants and
in Brussels at 137 avenue Louise banking and finance, E C law, hotels, transportation, public
(Tel: +32 2 543 02 27; Fax: +32  competition law, distributorship, offices and semi-public institu-
5 538 13 78).                    franchising, agency, trade prac- tions etc.
                                 tices, real estate and construction
For the past 25 years, van law, intellectual property, media For more information on Clau-
Cutsem-Wittamer-Marnef & law, labor and social security sen Miller Europe or the van
Partners has been providing le- law, companies and corpora- Cutsem firm, please contact
gal advice and negotiating and tions, mergers and acquisitions, Mr. Stephen Marcus directly at
pleading cases in observance of computer law and arbitration and smarcus@clausen.com.
the essential values of the pro- litigation.
fession: independence, expertise
and loyalty. Van Cutsem has es- Van Cutsem’s clientele has both
tablished special links with law a national and international
firms in Wallonia and Flanders background and represents the
(2 regions of the Belgian State) major industrial, commercial




10                                                                                  www.clausen.com
                                                                      C LAUSEN MILLER NEWS
 Tom Ryerson And Ivar                  group of 60 attorneys was charged       topic was “Measure of Damage
Azeris Close Major Condo               with helping to define and planning     in the Mega-Loss: What if Like
   Development Deal                    the future of the legal profession in   Kind and Quality Doesn’t Exist?”
                                       Illinois. Presentations were made       For more information on this top-
                                       by a legal futurist, a demographer,     ic, please contact Clark directly
                                       and an economic consultant. Par-        at cshirle@clausen.com.
                                       ticipants then met in small groups
                                       to analyze the data which was pre-
                                       sented and to discuss such catego-        Jim Hoey To Speak At
                                       ries as competition from outside the    Upcoming DRI Conference
                                       profession, public perception, and

Tom Ryerson          Ivar Azeris
                                       new and different ways to deliver
                                       legal services. At the conclusion
                                       of the conference, the core group
                                                                               C    M president Jim Hoey is a
                                                                                    featured presenter at DRI’s
                                                                               Insurance Coverage and Claims

C    M partners Tom Ryerson            voted on the best initiatives for the   Institute scheduled for April 7-8,
     and Ivar Azeris repre-            organized bar to implement to help      2005 at the Intercontinental Chi-
sented Regent Street LLC in            secure a bright future for the legal    cago. He will address the Prop-
commercial finance and real            profession in Illinois.                 erty Coverage and Claims Track
estate acquisition closings for                                                                 on the topic of
a large condominium develop-           Ms. Walker is a past president                           Current Issues
ment in Glen Ellyn, Illinois.          of the Women’s Bar Association                           in Concurrent
The deal involved two years of         of Illinois. She serves on the                           Causation. The
municipal zoning and planning          Illinois Supreme Court Com-                              session will
hearings followed by negotia-          mittee on Professionalism by                             examine the is-
tions for financing from owners,       appointment of Chief Justice                             sue of efficient
conventional lenders and mez-          McMorrow. She also serves on                             proximate cause
zanine financiers.                     the board of directors for the Il-      and what it means in different
                                       linois Bar Foundation.                  jurisdictions. The enforceabil-
                                                                               ity of anti-concurrent causation
  Deb Walker Addresses                                                         provisions will be reviewed.
   Future Of The Legal                    Clark Shirle Presents                Further, Jim will examine the
   Profession In Illinois                   At ABA Program                     issue of ensuing losses: What is
                                                                               an ensuing loss, water damage

                 A     long with
                       59 other        O    n December 1, 2004, CM
                                            partner Clark Schirle
                                       spoke and presented a paper at
                                                                               and mold claims ensuing losses
                                                                               and construction defect and other
                                                                               related issues. Please feel free to
                  lawyers from
                  throughout the       the ABA’s Property Insurance            contact Jim directly if you desire
                  state of Illinois,   Law Commit-                             information on the conference
                  CM partner Deb-      tee’s Regional                          (jhoey@clausen.com).
                  ra Walker was        Program on Ter-
                  recently selected    rorism, Technol-
to participate in the ISBA Future      ogy and Han-
of the Profession Conference, held     dling the Mega
December 9th and 10th at the Sher-     Loss in New
aton Hotel in Chicago. The core        York. Clark’s

www.clausen.com                                                                                                11
ON THE LITIGAT ION
                                                  Front
 Tyler Lory And Lee Ann               to affirm summary judgment for         concerning allegations of delayed
 Galowich Win Summary                 our insured, a psychiatric hos-        diagnosis of an intervertebral disc
    Judgment In D&O                   pital, in a medical malpractice        infection causing lower limb neu-
     Coverage Case                    action. In Elliott v. Long Island      rological deficits in the patient.
                                      Home, 784 N.Y.S.2d 615, plain-         CM attorney Denis Sheehan’s

I  n Evanston Ins. Co. v. Work
   and Well, Inc., Tyler Lory, a
partner in our New York office,
                                      tiff alleged that our insured failed
                                      to properly monitor her mother, a
                                      hospital patient who fell after try-
                                                                             research and motions concerning
                                                                             the plaintiff’s expert’s lack of qual-
                                                                             ifications provided us wide latitude
and Lee Ann S. Galowich, an           ing to stand up unassisted. CM         in cross examination. Denis’ re-
associate in our Chicago of-          moved for summary judgment, a          search also convinced the judge
fice, convinced a federal district    motion which plaintiff opposed         to give the IPI 15.01 short form
court judge on their briefs alone     by relying on the expert opinion       jury instruction, which helped the
to grant summary judgment             of a registered nurse to establish     defense effort tremendously. ♦
in favor of CM’s insurer. The         the standard of care and defen-
court found that our insurer was      dant’s alleged breach of it instead      Jack Fassnacht Wins
not liable to provide a defense or    of the opinion of a doctor. The           Appeal Before The
indemnification to both plaintiff     trial court granted CM’s motion         Board of Patent Appeals
and defendant insureds in the         and the appellate court affirmed.        and Interferences For
underlying action involving           The appellate court agreed that         New Cancer Preventative
the buyout of plaintiff’s interest    plaintiff’s evidence was insuffi-             Compound
in defendants’ company. The           cient to establish that defendant
court held that our insurer was
not liable pursuant to an “in-
                                      breached the standard of care be-
                                      cause “the plaintiff’s purported       C    M attorney Jack Fassnacht
                                                                                  recently obtained a favor-
                                                                             able decision from the Board of
sured versus insured” exclusion       expert was not a medical doctor
in a directors and office liability   and lacked the qualifications to       Patent Appeals and Interferences
policy that precluded coverage        render a medical opinion as to         (BPAI) of the United States
for any claim brought by one          the relevant standard of care, and     Patent and Trademark Office
insured against another insured.      whether the defendants deviated        overturning the rejection of a
Finding all the underlying parties    from such standard.” ♦                 client’s patent application for the
were insureds, the court applied                                             anti-cancer compound 1 alpha-
the exclusion to bar coverage for                                            hydroxyvitamin D5. A patent is
                                          Ryerson Wins Again
the underlying action. ♦                                                     expected to issue in 2005. Jack
                                                                             successfully argued in his appeal
     Appellate Department
            Victory
                                      T
                                   om Ryerson, managing part-
                                   ner of CM’s Wheaton, Illinois
                              office, has scored another defense
                                                                             brief that the claimed compound
                                                                             exhibited unexpectedly lower
                                                                             calcemic activity than its closest
                              win. A Dupage County jury re-

C   M partner Melissa Mur- cently returned a verdict in favor                vitamin D analogue, rendering
    phy-Petros recently per- of our physician client after just              the claimed compound non-ob-
suaded the New York Appellate 45 minutes of deliberation. This               vious and therefore patentable.
Division – Second Department was a medical malpractice case                  The vitamin D5 compound has


12                                                                                          www.clausen.com
                                                         LITIGATION                     Front
been featured in two articles        tation and granted the insurer’s     The Seventh Circuit reversed
in the Journal of the National       cross-motion for summary judg-       the district court’s ruling errone-
Cancer Institute. The client is      ment, finding “the insurance         ously permitting another insurer
continuing its research into the     company’s position and calcu-        to obtain half the benefit of a
efficacy of vitamin D5 in the pre-   lation are correct.” The court       $2 million SIR under Zurich’s
vention and treatment of cancer,     held that, though it was a renewal   policy, thereby affording Zurich
particularly breast cancer, with     policy, the policy at issue was a    a $1 million credit on amounts
partial funding from the United      new one, the applicable incep-       owed to the other insurer. The
States Army Medical Research         tion date was the inception date     court also adopted Melinda’s
and Material Command. ♦              of the new policy, and the limit     argument against the award of
                                     of insurance on the new policy,      attorney fees to the insured in
                                     which had not changed from the       a DJ action governed by Illinois
  Hoey And Fahey Obtain              original policy, was the limit to    law. The Seventh Circuit holds
  Summary Judgment For               which the inflation guard cover-     that Green v. J.C. Penny Auto Ins.
Insurer Regarding Inflation          age was to apply. Adopting one       Co., 806 F.2d 759 (7th Cir. 1986),
     Guard Provision                 of Clausen Miller’s arguments,       which granted such fees under Il-
                                     the court pointed out that if the    linois common law, is no longer
C    lausen Miller partners
     James M. Hoey and Mar-
garet Hupp Fahey recently
                                     insured had wished to increase
                                     the stated value in the new policy
                                                                          authoritative as Illinois appellate
                                                                          courts now uniformly hold that
                                     at the time of renewal the insured   the insured is not entitled to at-
obtained summary judgment for        could have done so, but did not.     torney fees incurred in prosecut-
an insuer in a dispute over the      After the insured’s deposition       ing a DJ action absent vexatious
application of an inflation guard    established that the insured had     and unreasonable conduct by the
provision. The insured moved         no knowledge of his limits or the    insurer giving rise to a statutory
for summary judgment seeking         inflation guard protection under     claim under Section 155 of the
to apply the annual increase of      his policy prior to the fire, the    Illinois Insurance Code. ♦
10% under an inflation guard         insured’s counsel was forced to
provision to the limit of insur-     abandon at oral argument the           Neil Ekblom’s Winning
ance for a building that was         “reasonable expectations” argu-           Streak Contiues:
destroyed by fire. The insured       ment advanced in its motion for      Nine Consecutive Defense
insisted that the 10% annual         summary judgment. ♦                   Verdicts For CM Clients
increase should begin from the
1997 inception date of the origi-
nal, three-year policy, and not
the 2000 inception date of the
                                        Melinda Kollross
                                    Obtains $1 Million-Plus
                                    Reduction In Judgment
                                                                          I  n Farrell v. Gelwan, No. 30833/
                                                                             01 (Queens, N. Y.), plaintiff al-
                                                                          leged vision loss and blindness as
applicable renewal policy. The For Insurance Client And                   a result of surgery at Beth Israel
insured argued that there was no Establishes New Seventh                  Hospital. CM partner Neil H.
change in the policy number, that   Circuit Law On Attorney               Ekblom, representing the de-
he had never received the re-          Fees In DJ Actions                 fense, argued that the vision loss
newal policy, and that to use the                                         and blindness were not in any
renewal inception date resulted
in a “decrease” in his coverage
at the time of the renewal.
                                     C M partner Melinda Kollross
                                       recently obtained a double
                                  victory for her insurance client
                                                                          way, shape or form related to the
                                                                          surgery. Further, Neil presented
                                                                          expert witnesses who testified
                                  in Taco Bell v. Zurich, 389 F.3d        that plaintiff’s alleged surgical
The court rejected this interpre- 1069 (7th Cir. Nov. 5, 2004).
                                                                                           continued on page 38


www.clausen.com                                                                                            13
     BUSINESS PRACTICE GROUP



 Judicial Hostility Toward Non-Competition Agreements
     Leaves Form Users Vulnerable To Competition
                                        by Brian E. DeVilling
                                       bdevilling@clausen.com




N
            on-competition          would use commercial forms or        When a contract contains an
            agreements are es-      pre-existing agreements. All         unenforceable provision, courts
            sential to protect a    states that enforce non-compe-       will generally enforce the re-
            company’s customer      tition agreements permit only        mainder of the contract and
base from unfair competition. To    “reasonable” limitations on com-     reform the provision at issue to
save time and money, many com-      petition. Courts differ widely in    make it enforceable. The “blue
panies have turned to commercial    defining what is “reasonable.”       pencil” rule avoids the undesir-
forms and pre-existing agree-       Courts in some states uphold         able result of voiding an entire
ments in drafting non-competi-      four-year unlimited geographic       agreement because of problems
tion agreements. However, the       restrictions, while others refuse    isolated to discrete contractual
law governing non-competition       to uphold restrictions longer than   provisions. Companies might
agreements varies dramatically      one year and require that geo-       be tempted to rely on form or
by state, and there is a general    graphic restrictions be tailored     pre-existing non-competition
judicial hostility toward agree-    precisely to an employee’s ter-      agreements, believing that a
ments that restrain trade. As a     ritory. Many states require that     court will reform the agreement
result, courts may void an over-    additional consideration support     if it is overbroad.
broad form non-competition          a non-competition agreement,
agreement entirely if the agree-    while others hold that continued     Many courts refuse to “blue
ment does not comply strictly       employment alone is sufficient       pencil” restrictive covenants,
with state law. Companies that      consideration. Some courts           however, to discourage compa-
unwittingly use overbroad com-      uphold agreements prohibiting        nies from intentionally drafting
mercial forms or pre-existing       employees from soliciting exist-     onerous restrictions. As one
agreements thus leave themselves    ing clients, but void agreements     court reasoned:
vulnerable to competition from      that prohibit general competi-
former employees, particularly      tion in the same industry. Many        For every covenant that
when form agreements are used       states impose strict statutory re-     finds its way to court, there
in foreign states.                  quirements on non-competition          are thousands which exer-
                                    agreements. Others refuse to           cise an in terrorem effect
A. Differences in State Law on      uphold non-competition agree-          on employees who respect
Non-Competition Agreements          ments altogether.                      their contractual obligations
                                                                           and on competitors who fear
The differences in state law        B. “Blue Pencil” Rules and             legal complications if they
concerning non-competition          Choice of Law Provisions               employ a covenantor, or
agreements are too numerous to      Will Not Save an Overbroad             who are anxious to maintain
catalog in this article, but must   Form Agreement from Con-               gentlemanly relations with
be appreciated by companies that    trary State Law                        their competitors. Thus, the

14                                                                                    www.clausen.com
  mobility of untold numbers          ence of a contractual choice of        agreement altogether.
  of employees is restricted          law provision. See Restatement
  by the intimidation of re-          (Second) of Conflict of Laws, §        C. Effect of Form Agree-
  strictions whose severity           187 (1971). Nearly every court         ments: Leaving Companies
  no court would sanction. If         that has decided the issue has         Unprotected and Minimiz-
  severance is generally ap-          held that enforcement of restric-      ing Deterrence
  plied employers can fashion         tive covenants is a matter of fun-
  truly ominous covenants             damental public policy. See e.g.     Absent a carefully drafted,
  with confidence that they           DeSantis v. Wackenhut Corpora-       enforceable non-competition
  will be pared down and              tion, 793 S.W.2d 670, 680 (Tex.      agreement, companies will be
  enforced when the facts             1990)(citing seventeen cases         left to rely only on trade secret
  of a particular case are not        from other jurisdictions holding     laws to protect themselves from
  unreasonable. This smacks           restrictive covenants to involve     unfair competition. Trade secret
  of having one’s employee’s          fundamental public policy).          laws provide far less protection
  cake, and eating it too.                                                    than non-competition agree-
                                                    Brian E. DeVilling is an
                                                    associate with Clausen
                                                                              ments, however. While trade
Richard P. Rita Personnel                           Miller P.C. focusing secret laws can prevent an em-
Services Intern., Inc. v. Kot,                      on products liability, ployee from misappropriating
191 S.E.2d 79 (Ga. 1972).                           medical malpractice / sensitive financial, technical,
                                                    health care, business and sales information, they
                                                    / commercial litigation
Because of this judicial hostil-                    and casualty / liability
                                                                              cannot keep an employee
ity, overbroad restrictions can                     defense. Mr. DeVilling from competing against his
nullify an entire agreement and                     has earned a B.A. from or her former employer to the
leave an unsuspecting business the University of Michigan and holds extent that a non-competition
with little protection from unfair a J.D. from Loyola University Chicago agreement can. Additionally,
                                   School of Law.
competition.                                                                  trade secret cases are far more
                                       These courts have universally          costly to litigate than breach of
Nor can a choice of law provision refused to apply choice of law contract cases.
protect companies from such ju- provisions in restrictive covenants
dicial hostility. Form agreements and left companies vulnerable to Unenforceable form agreements
can and should contain a choice the forum state’s law.                     will also leave employees unde-
of law provision providing for                                             terred from forming or joining
resolution of claims under the While a choice of law provision competing enterprises. Com-
law of a state receptive to non- may provide added protection panies have long relied on non-
competition agreements. A when a lawsuit is brought in competition agreements for their
choice of law provision is not a the contractually chosen state, it deterrent effect on competitors
panacea, however, and often will provides minimal protection at and potential defector employees.
not save an overbroad agreement best when a lawsuit is brought An employee will be less likely to
from laws of a forum state that by an employee in another state. leave a business and form a com-
are more restrictive than those of A court in a foreign state will, at peting enterprise if he or she faces
the contractually chosen state.        the very least, refuse to uphold the prospect of litigation over a
Courts refuse to enforce the laws limitations that are impermis- restrictive covenant.
of other states that are “contrary sible under the state’s law, and,
to a fundamental policy” of the as discussed above, may void the However, companies should ex-
forum state, despite the pres-                                                                continued on page 38


www.clausen.com                                                                                                15
        CASUALTY



     Illinois Supreme Court Hears Arguments As To Plaintiff’s
     Damages: Can An Injured Plaintiff Claim The Full Amount Of Medical
Bills Or Only The Reduced Amount Paid By Her Health Insurance Carrier?
                                          by Kathleen A. Johnson
                                          kjohnson@clausen.com




T
            he Illinois Supreme       mary judgment and found that         by Blue Cross/Blue Shield – they
            Court recently heard      the lower amount -- $13,577.97       argued simply that the rule did
            arguments in Arthur v.    – would compensate plaintiff         not apply to the $5,777.28 which
            Catour, 803 N.E.2d 647    fully for her damages, would         Blue Cross/Blue Shield did not
(3d Dist. 2004), a case involving     not punish the defendants, and       pay and for which plaintiff was
the issue of whether a plaintiff in   would not bestow a windfall          not responsible, an argument
a personal injury case is allowed     upon the plaintiff.                  which the majority rejected:
to claim as damages the total
amount of her medical bills or        Analysis                                 Plaintiff was billed over
only the discounted amount paid                                                $19,000 and, but for her
to her medical providers by her       The appellate court reversed             insurance coverage, she
health insurance carrier pursuant     with one justice dissenting. The         was liable for that amount.
to its contractual agreements with    majority found that the collat-          Limiting plaintiff’s dam-
the providers.                                                                 ages to the amount paid by
                                  Kathleen A. Johnson is a senior as-          her insurer confers a signif-
                                  sociate with Clausen Miller, P.C. who
Facts                                                                          icant benefit of that cover-
                                  practices primarily in the area of liabil-
                                  ity insurance coverage analysis and          age on the defendants. This
Plaintiff Joyce Arthur broke      defense litigation. Ms. Johnson has a        result is directly contrary to
her leg when she stepped          B.A. from Elmhurst College and a J.D.        the collateral source rule’s
into a hole at defendant’s        from The John Marshall Law School.           goal of ensuring that the
farm while attending an auc-                                                   wrongdoer should not
tion; her medical bills totaled       eral source rule applied and that
                                                                               benefit from the expendi-
$19,355.25. Plaintiff’s health        defendants could not “benefit”
                                                                               tures made by the injured
carrier, Blue Cross/Blue Shield,      from the contracts between Blue
                                                                               party or take advantage of
paid the providers a reduced          Cross/Blue Shield and plaintiff’s
                                                                               contracts or other relations
amount of $13,577.97 pursuant         medical providers. Under the
                                                                               that may exist between
to its contracts with them. The       collateral source rule, benefits
                                                                               the injured party and third
balance of $5,777.28 was simply       received by an injured party
                                                                               persons. (citations omit-
“wiped out” as neither plaintiff      from a source independent of
                                                                               ted; italics in original)
nor her health carrier were re-       the wrongdoer do not diminish
sponsible for it.                     plaintiff’s damages. Defendants The dissent opined, stating that
                                      did not dispute that the collat- the collateral source rule ap-
The trial court granted defen-        eral source rule applied to the plies only to benefits actually
dants’ motion for partial sum-        $13,577.97 which was covered
                                                                                             continued on page 39


16                                                                                        www.clausen.com
                                                                                       CASUALTY




  New York Casualty Update: Appellate Division
Allows “Second Hand Asbestos” Case To Proceed
                                      by Melissa A. Murphy-Petros
                                     mmurphy-petros@clausen.com




T
           he New York Appellate     to asbestos dust.                     Analysis
           Division – Second De-
           partment has allowed a    Plaintiff filed suit seeking dam-     The Appellate Division re-
           personal injury action    ages for her injuries on the theory   versed and reinstated plaintiff’s
to proceed on a theory of “sec-      that the Port Authority was neg-      complaint, finding that the Port
ond hand” asbestos exposure.         ligent in failing to warn its em-     Authority in fact owed plain-
In Holdampf v. A.C.&S., Inc., et     ployees and “other persons who        tiff a duty of care. In so do-
al., 2004 WL 2749487, the court      were reasonably and foreseeably       ing, the court rejected the Port
held that an employer has a duty     known to come into contact with       Authority’s sole basis for sum-
to protect non-employees from        the asbestos-containing prod-         mary judgment – its opinion in
“second hand” asbestos                                                             Widera v. Ettco Wire and
                                             Melissa A. Murphy-Petros is a
exposure where the em-                       partner in CM’s Appellate Prac-
                                                                                   Cable Corp., 204 A.D.2d
ployer knows or should                       tice Group. She specializes in 306 (2d Dep’t 1994). In
know that such exposure                      post-trial and appellate litigation Widera, the plaintiff was
is likely to occur.                          nationwide, and is admitted to injured in utero when
                                             practice in the States of New she was exposed to toxic
                                             York and Illinois, as well as in
Facts                                        the U.S. Supreme Court and
                                                                                   chemicals as her preg-
                                             the U. S. Court of Appeals for nant mother washed her
Plaintiff’s husband was                      the Second, Sixth, Sev enth, father’s work clothes that
employed by the defen- and Ninth Circuits. An experienced New York had become contaminated
dant Port Authority of appellate practitioner, Ms. Murphy-Petros holds at his place of employ-
                            a B.A. from Indiana University, an M.A. from the
New York and New Jer- University of Notre Dame, and a J.D. from Loyola ment. The Widera court
sey for 30 years, during University Chicago School of Law.                         found that the father’s
which time he was ex-                                                              employer owed no duty
posed to asbestos on the             ucts” against the dangers asso- of care to plaintiff because
job. Although the Port Authority ciated with exposure to asbestos. plaintiff was neither an em-
provided laundry services to its The trial court granted summary ployee nor employed in any
employees, plaintiff’s husband judgment to the Port Authority other capacity at the worksite at
did not use them. Instead, he on the ground that it owed no which the initial contamination
routinely took his work clothes duty of care vis a vis asbestos occurred. The Holdampf court
home for plaintiff to wash there. exposure to any non-employee, found that Widera was not con-
In 2001, plaintiff was diagnosed including plaintiff.                      trolling because “it involved the
with mesothelioma, a fatal cancer                                          unique question of a tortfeasor’s
known to be caused by exposure                                             liability to an infant for injuries

www.clausen.com                                                                                            17
occurring while in utero:”
                   utero:”       The court then found that em- hand” exposure to asbestos:
                                 ployers, such as the Port Author-
   This added wrinkle altered    ity, owe a duty of care to protect  Plaintiffs have alleged that
   the duty analysis in a fun-   non-employees from exposure to      the Port Authority’s provi-
   damental way since the        dangerous substances where it is    sion of laundry service for
   Widera court was required     reasonably foreseeable that such    its employees’ dirty work
   to determine whether a        exposure could occur. The court     clothes creates a strong
   defendant owed a duty of      based its finding upon several      inference that it was aware
   care to a plaintiff who was   decisions from the federal courts   of the risk of employees
   not even born at the time     and other state appellate courts    bringing home asbestos-
   of its negligent conduct.     which hold employees have such      contaminated clothing. In
   While current precedent       a duty in circumstances similar to  addition, the Port Author-
   permits surviving infants     those here. See, e.g.: Kowalski v.  ity documents revealing
   to recover for injuries       Goodyear Tire & Rubber Co., 841     discussions of the dangers
   occurring while in utero,     F. Supp. 104 (W.D.N.Y. 1994)        of airborne asbestos to the
   the Widera court clearly      (plaintiff’s cancer caused by ex-   area surrounding the World
   was concerned about the       posure to chemicals on husband’s    Trade Center raise an issue
   potential extension of a      work clothes); Fuller-Austin In-    as to defendant’s contem-
   duty to a limitless class of  sulation Co., Inc. v. Bilder, 960   poraneous knowledge of
   plaintiffs, born or unborn,   S.W.2d 914 (Texas Ct. App. 1998)    the risk of off-premises
   in determining that no duty   (plaintiff exposed to asbestos dust exposure to bystanders.
   existed in that case (Widera, brought home on stepfather’s        Finally, plaintiffs note that
   at 307 [“[n]or does our re-   work clothes); Anchor Packing       the precise manner in which
   search reveal a reported      Co. v. Grimshaw, 692 A.2d 5         the harm occurred need not
   case from any jurisdiction    (Ct. Spec. App. Md. 1997) (risk of  be foreseeable, so long as
   where an employer’s duty      plaintiff’s household exposure to   the harm which occurs
   has been interpreted to       manufacturer’s asbestos product     is within the reasonably
   extend to a person, such      was not unforeseeable as a mat-     foreseeable hazards that
   the infant plaintiff, who is  ter of law). As further support     the duty exists to prevent. .
   injured in the manner al-     for its decision, the court noted   . .[I]t was sufficient in this
   leged herein”]). Because      that it has long been established   case for plaintiff[] to have
   Widera considered the duty    in New York that a landowner        raised an issue of fact as to
   question in the context of    may be subject to liability for the whether the Port Authority
   liability for injuries occur- negligent discharge of dangerous    knew or should have known
   ring in utero, and that issue substances which injure third par-  of the danger of asbestos
   is not present in this case,  ties regardless of any employer-    exposure through cloth-
   Widera does not control the   employee relationship.              ing, and in our opinions
   outcome here.                                                     [she has] achieved that.
                                 Finally, the court found that
The court characterized any plaintiff had presented sufficient Learning Point: In concluding
contrary reading of Widera as evidence to create a triable ques- that the Port Authority owed
“a narrow view of common-law tion of fact as to whether the Port plaintiff a duty of care, the Sec-
negligence principles.”          Authority had actual or construc- ond Department was careful to
                                 tive notice of the risk of “second
                                                                                   continued on page 39


18                                                                              www.clausen.com
                                                                                        CASUALTY



  Iowa Supreme Court Holds That Physical Injuries
 Are Unnecessary To Maintain Claims For Negligent
         Hiring, Supervision, Or Retention
                                             by Anthony P. Ulm
                                             aulm@clausen.com




I
      n Kiesau v. Bantz, 686           ed summary judgment for the          a genuine issue of material fact
      N.W.2d 164 (Iowa 2004), the      County and Sheriff Davis. The        existed as to whether she could
      Supreme Court of Iowa held       court held that because Kiesau       be awarded punitive damages
      that an injured party does not   had not sustained physical in-       against Davis for negligent hir-
need to suffer a physical injury in    jury, she could not bring claims     ing, supervision, or retention.
order to bring a claim against its     for negligent hiring, supervision,
employer for negligent hiring, su-     or retention against the County      Analysis
pervision, or retention. The Court     or Davis. The court further held
also held that a county sheriff was    that when looking at the parties’    Physical Injury Not Required
not immune from punitive damage        respective arguments in a light
awards in claims for negligent hir-    most favorable to Kiesau, she was    The trial court dismissed Kiesau’s
ing, supervision, or retention.        not entitled to punitive damages     negligent hiring, supervision, and
                                       against Davis as a matter of law.    retention claims based on Graves
Facts                                                                       v. Iowa Lakes Community Col-
                                       At trial, the jury awarded Kiesau    lege, 639 N.W.2d 22 (Iowa 2002),
Defendant Tracey Bantz, a deputy       compensatory damages for defa-       which held that such claims could
sheriff for the Buchanan County        mation and invasion of privacy       not be maintained absent resulting
Sheriff’s Department in Iowa, al-      in the amount of $96,000 and         physical injuries. Kiesau asked
tered the photograph of plaintiff      $60,000 in punitive damages.         the Iowa Supreme Court to over-
Crystal Kiesau, a fellow officer       Both Kiesau and Bantz appealed.      rule Graves on this point.
in the Department, to portray her      The Iowa Supreme Court af-
in a sexually explicit manner.         firmed the judgment against   The Court first noted that claims
Bantz e-mailed and also showed                                       of negligent hiring, supervision,
                                       Bantz stating that the trial court
the altered photograph to other                                      or retention permit a plaintiff to
                                       correctly instructed the jury, and
individuals. When Kiesau dis-                                        recover damages against his or her
                                       that the substantial weight of the
covered what Bantz had done, she       evidence supported the verdictemployer when a co-employee’s tor-
sued him for invasion of privacy       against Bantz on the issues oftious conduct is outside the scope of
and defamation. She also sued          defamation, compensatory dam- employment, due to the fact that the
Buchanan County and Sheriff            ages, and punitive damages.   employer’s conduct in some way fa-
Leonard Davis for negligent hir-                                     cilitated the wrongful acts on the part
ing, supervision, and retention. Kiesau argued on appeal that her of the co-employee. Island City Fly-
                                 claims for negligent hiring, super- ing Serv. v. Gen. Elec. Credit Corp.,
All defendants moved for sum- vision, or retention could stand 585 So.2d 274, 278 (Fla. 1991). The
mary judgment. The trial court without a showing of physical Court also cited its holding in Schoff
denied Bantz’s motion but grant- injury. She also contended that v. Combined Ins. Co. of America,

www.clausen.com                                                                                            19
604 N.W.2d 43 (Iowa 1999), that          The Court further stated that ap-  and reckless. Iowa Code § 670.12.
a wrongful act must be committed         plication of Graves could lead     Here, the Supreme Court noted
by a co-employee for plaintiff to        to illogical and absurd results.   that the record was clear that
maintain a claim for negligent hir-      For example, if an employer’s      Davis had become aware of
ing, supervision, or retention against   negligent hiring, supervision,     Bantz’s behavior on numerous
its employer. As such, plaintiff had     or retention led to an employee    prior occasions from various
to prove that the wrongful act of the    committing battery against one     high ranking officials in his de-
co-employee caused a compensable         individual, but merely assault     partment. However, despite this
injury, in addition to showing that      against another, only the battered awareness, Davis never took any
the negligent hiring, supervision,       individual could recover dam-      meaningful disciplinary measures
or retention by the employer of          ages against the employer under    against Bantz. The Court felt
the tortfeasor employee caused the       the theories of negligent hiring,  that this could have facilitated
injuries.                                supervision, or retention.         Bantz’s tortious conduct against
                                                                                  Kiesau. As such, the Court
Surprisingly, the Iowa Su-                      Anthony P. Ulm is an associate held that a genuine issue
                                                in the Chicago office of Clau-
preme Court admitted that it                                                      of material fact existed as
                                                sen Miller P.C. His practice
apparently did not consider                     areas include fidelity & surety, to whether Davis engaged
its holding in Schoff when it                   probate, casualty / liability de- in willful, wanton, or reck-
decided Graves (negligent                       fense, medical malpractice / less misconduct by not
supervision claim dismissed                     health care and professional disciplining Bantz after
                                                liability. Mr. Ulm received a
because plaintiff failed to as-                                                   he became aware of his
                                                B.A. from the University of Il-
sert physical injuries) since linois at Urbana-Champaign and a J.D. from the problematic behavior. The
requiring a physical injury Southern Illinois University School of Law.           Court accordingly reversed
was inconsistent with the ex-                                                     the award of summary judg-
pansive description of the required   The Supreme Court concluded ment for the County and Davis
conduct of the tortfeasor employee that the trial court erred in grant- on plaintiff’s punitive damages
set forth in Schoff. Therefore, the ing Buchanan County’s and Da- claims.
             Schoff
Court decided to re-examine vis’s motions for summary judg-
Graves with respect to the physi- ment on the grounds that Kiesau Learning Points: Since physical
cal injury requirement.               did not suffer a physical injury. injuries are no longer required in
                                      In doing so, the Court overruled order to bring claims of negligent
The Court observed that Section its previous decision in Graves hiring, supervision, or retention, it
213 of the Restatement (Second) that a claim of negligent hiring, will be easier for employees in Iowa
of Agency does not require that supervision, or retention requires to maintain such lawsuits. Further-
an injured litigant must suf- a resulting physical injury.                  more, high ranking officials in Iowa
fer a physical injury in order                                              municipalities, such as sheriffs, are
to recover damages based on Punitive Damages Available not immune from punitive damage
negligent hiring, supervision, or Against Sheriff                           awards if it can be shown that they
retention. The Court also looked                                            acted with malice, or willful, wan-
to several federal cases applying     Although Buchanan County was ton and reckless conduct, in the
Texas, Kentucky, and Tennessee immune from punitive damages course of their work duties. As
law which essentially held that under Iowa statutory law, Davis Kiesau makes clear, employers in
physical injuries were not a pre- had no such immunity if it could be Iowa must be increasingly vigilant
requisite for recovery of dam- shown that in the course of his work with respect to the actions and
ages based on torts of negligent duties, he engaged in conduct which conduct of their employees, or the
hiring, supervision, or retention. was malicious, or willful, wanton, consequences can be severe. ♦

20                                                                                          www.clausen.com
                                                                           EMPLOYMENT LAW



                                                               ALERT:
                                          Corporate Counsel And Human
                                              Resource Professional
                                                          by James S. Barber
                                                         jbarber@clausen.com



I. Introduction                    The results of that case are a      lawsuit. Back in August of 2001,
                                   nightmare for corporate counsel     UBS’s in-house attorneys gave
Q. What can happen, when de- and for human resource profes-            oral instructions to employees
    spite company instructions, sionals and their companies. As        not to destroy or delete relevant
    employees delete e-mails discussed below, companies                documents or information and
    related to another employee’s and their attorneys have been        to segregate such information in
    discrimination claim?          put on notice of a high standard    separate files. The instructions
                                   regarding document retention in     pertained to electronic and hard
A. The court can enter penal- this court decision.                     copy files but did not specifically
    ties (sanctions) including                                         refer to “backup tapes” on which
    payment for re-deposing “What is true in love is equally           the company stored deleted in-
    witnesses, restoring deleted true at law: Lawyers and their        formation. Also in August 2001,
    information, attorneys’ fees clients need to communicate           UBS’s outside counsel met with
    and a negative inference in- clearly and effectively with one      several key players in the litiga-
    struction to the jury.         another to ensure that litigation   tion and reiterated UBS’s instruc-
                                   proceeds efficiently.” - Judge      tions reminding the key players
Because of their importance, Scheindlin                                to preserve relevant documents,
we have been tracking a federal                                        including e-mails. In February,
judge’s rulings about “electronic II. Facts                            after Zubulake filed her federal
discovery.” Over four prior opin-                                      lawsuit, UBS put its “do not de-
ions, Federal Judge Scheindlin A. Background                           stroy e-mails” instruction into
has exercised considerable                                             writing.
judicial patience but now has Laura Zubulake was an equities
slammed down the gavel. Zubu- trader for a securities firm of          B. Procedural History
lake v. UBS Warburg L.L.C. (July UBS Warburg L.L.C. (“UBS”).
20, 2004). The case illustrates Zubulake filed a charge of gender      The current decision is actually
the danger when an employee discrimination with the EEOC               the fifth in a series of decisions
presses the delete button on their in August of 2001. In Febru-        related to Zubulake’s attempt
computer.                          ary of 2002, Zubulake filed a       to track down e-mails that had
                                   federal lawsuit. However, well      been deleted by UBS employees
Corporate Counsel and HR before that, in April 2001, UBS               despite the instructions of its at-
On Notice                          employees were on notice that       torneys. In the fifth decision,
                                   Zubulake intended to bring a        the court ordered that witnesses


www.clausen.com                                                                                        21
be re-deposed at the company’s    employees deleted information     that litigation. Failure to do so, or
expense.                          that was only later recovered off destruction of the information is
                                  of non-missing, backup tapes,     called “spoliation.” When there
C. Zubulake V                     thus showing intentional deletion is evidence of “spoliation,” the
                                  of e-mails despite instructions tocourt can enter sanctions includ-
As a result of the re-deposing    the contrary. One such e-mail     ing money damages and in certain
of UBS employees, Zubulake        indicated that Ms. Zubulake had   circumstances, issue an “adverse
learned about even more de-       said that “all she wanted is to beinference instruction” to the jury.
leted e-mails and about exist-    treated like the other guys on theAn adverse inference instruction
ing e-mails on UBS’s active       [trading desk].” In another e-    advises the jury that if they find
computer servers that had         mail the alleged discriminator’s  that the company could have pro-
never been produced, despite      supervisor, Hardisty, warned      duced material evidence, the jury
Zubulake’s request (which were    Chapin about his management of    can infer that the evidence was
now two years old). Zubulake      Zubulake and reminded Chapin      unfavorable to the company. In
also presented evidence that      that Zubulake could be a “good    an earlier decision, Zubulake IV,IV
some UBS employees did not        broker.”                          the court had said that if a com-
produce documents to counsel                                        pany reasonably “anticipates”
which also hindered her inves-    F. Retained But Not               litigation, then it has to suspend
tigation for two years.              Produced E-Mails               routine document retention
                                                                    and the company’s destruction
D. One E-Mail Never Produced      During the re-deposing of certain policy and put in place a “litiga-
                                  key witnesses, a Ms. Kim testi- tion hold” to ensure it preserves
The key alleged “discriminator”,  fied that she was never asked to relevant documents.
Mr. Chapin, deleted several e-    produce her e-mail files regard-
mails. One was not recoverable    ing Zubulake to legal counsel and Judge’s Postscript:
and therefore was lost entirely.  that she in-fact did not produce
                                                                    “The subject of the discovery of
From other e-mail communica-      them. Among the documents in
                                                                    electronically stored information
tions it appeared that the lost   Kim’s computer records was a
                                                                    is rapidly evolving. When this
e-mail would have contained a     conversation in which Zubu-
                                                                    case began more than two years
verbatim quotation of a conver-   lake complained about the way
                                                                    ago, there was little guidance...
sation between the Plaintiff Zu-  women were treated at UBS. In
                                                                    Much has changed in that time.
bulake and a co-worker related to another, two key players dis-
                                                                    There have been a flood of recent
her lawsuit. Also, after two yearscussed termination of Zubulake
                                                                    opinions - including a number
of litigation and discovery, many and that they should have fired
                                                                    from appellate courts... .”
backup tapes during the time rel- her sooner.
evant to the lawsuit were missing
                                                                        A. What To Expect From
and it was impossible to know if III. Legal Standard
                                                                            Your Attorneys. What
they were lost entirely.
                                                                            You Also Must Do To
                                   The court in earlier Zubulake de-
                                                                            Comply.
E. Many E-Mails Deleted And cisions had explained that when a
    Only Later Recovered           company is aware of foreseeable
                                                                        The court said that UBS’s le-
                                   litigation or pending litigation, it
                                                                        gal counsel was not blameless.
Despite UBS’s counsel’s instruc- has a duty to preserve property
                                                                        Counsel had failed to inform
tions to preserve all e-mails, key for another’s use as evidence in


22                                                                                   www.clausen.com
certain key players to put docu-      Counsel also will have to          tive inference instruction” to
ments on “litigation hold.” The       make more frequent follow-         go to the jury. In essence, the
court spelled out many steps for      up on-site inspections. These      court advised that if the jury
the attorneys to follow. And, put     and more should be expected        felt that material facts rel-
companies and their attorneys         from counsel in the future,        evant to the controversy had
on notice of the obligations to       and of the companies and           not been produced despite the
cooperate and to comply. From         human resources department         company having control over
here on, attorneys must do the        themselves.                        the facts, then the jury could
following:                                                               infer that the information
                                    IV. Conclusion -- Worse              which UBS did not produce
1. Counsel’s duty to locate rele-       Case Scenario Occurred!          would have been unfavorable
    vant information. The court                                          to UBS.
    said that legal counsel must Because these procedures were
    become fully familiar with not followed, a nightmare, worse
    his or her client’s document case scenario took place. UBS PRACTICE TIPS
    retention policies. Legal was ordered to:
                                                                        Require key employers to sign
    counsel also must become
                                                                        an acknowledgement that he/
    familiar with the client’s 1. Restore and produce relevant
                                                                        she:
    data retention “architec-           documents from backup
    ture”, which means talking          tapes;
                                                                          Has not deleted or destroyed
    to information technology
                                                                          relevant information.
    personnel. Further, counsel 2. Pay for re-deposing of key
    must interview each em-             employees related to newly
                                                                          Will in interviews, with the
    ployee who is a key player          discovered e-mail and infor-
                                                                          company’s legal counsel, dis-
    in the alleged incidents;           mation restored from backup
                                                                          close all relevant documents
                                        tapes;
                                                                          and electronic data. ♦
2. Counsel’s continuing duty
    to ensure preservation. 3. Pay all reasonable expenses
    Both the company and its            including attorneys’ fees in-
    legal counsel have a duty           curred by Zubulake;
    to retain information identi-
    fied as potentially relevant 4. The court prepared a “nega-
    and the information must be
    produced in full response to                                  James S. Barber is a part-
    an opposing party’s requests.                                 ner with Clausen Miller
    Furthermore, if new informa-                                  and head of the Employ-
    tion is discovered, the com-                                  ment Practice Group. He
    pany and their attorneys must                                 counsels and represents
                                                                  clients in the areas of
    immediately supplement, i.e.,                                 employment policy, con-
    update previously incor-                                      tracts and employment
    rect responses. As a result,                                  litigation. Mr. Barber
    legal counsel will probably                                   received his M.B.A. from
    periodically resend to you                    DePaul University and his J.D. from De-
                                                  Paul University College of Law.
    “litigation hold instructions.”


www.clausen.com                                                                                      23
     FIRST-PARTY PROPERTY




Texas Supreme Court Rules On Meaning Of “Like Kind And
 Quality” And On The Application Of The Statutory Penalty
  Provided By The Texas Insurance Code, Article 21.55
                                          by Mindy M. Medley
                                         mmedley@clausen.com




I
      n Republic Underwriters        Tex claimed that its roof had       Tex rejected that offer. Republic
      Ins. Co. v. Mex-Tex, Inc.,     been destroyed and needed to        then submitted a check in the
      the Supreme Court of           be replaced. After its investi-     amount of $145,460, “an amount
      Texas considered “whether      gation, Republic “disputed the      representing what Republic’s
the commercial property insurer      amount of damage attributable       engineer had determined was
… breached its policy obligation     to hail. The roof had leaked for    the cost of replacing the … roof
to replace a damaged roof with       a long time, and months before      with an identical one, attached
one of ‘like kind and quality’,      the storm Mex-Tex had obtained      by ballast.” “Mex-Tex returned
and if so, whether the insurer’s     estimates to replace it.” Without   the check. Republic re-sent it.
tender of partial payment of the     Republic’s coverage position or     Mex-Tex re-returned it. Repub-
claim avoided, on that                                                            lic then replied that it
                                            Mindy M. Medley is an associate in
amount, the 18% per                         Clausen Miller's Property practice would hold the money
annum delay penalty                         group where she concentrates her until Mex-Tex accepted
imposed by Article                          practice on first-party coverage is- it, which Mex-Tex did
21.55 of the Texas In-                      sues which commonly consist of … as partial payment
surance Code.” 2004                         fire losses, flood damage and most of its claim.” During
                                            recently, mold contamination. Ms.
WL 2625017, 48                              Medley received her J.D. and B.A.
                                                                                  this time, Mex-Tex
Tex.Sup.Ct.J. 134 (Tex.                     from Washington University.           initiated suit against
Nov. 19, 2004). In a                                                              Republic “for breach
split decision, the majority held    approval, Mex-Tex retained a        of the policy and delay penal-
that the trial court was justified   contractor to replace the dam- ties under Article 21.55.”
in finding that Republic breached    aged roof at a cost of $179,000
the policy, but that the penalty     with one of the same kind, “but After a bench trial, the court
prescribed by Article 21.55 was      which would be fixed to the found Republic breached its duty
not properly assessed.               building mechanically rather under the policy to replace the
                                     than by ballast (that is, rocks) as roof with “like kind and quality”,
Facts                                the old roof had been.”             and that Republic was liable for
                                                                         18% interest under Article 21.55
The insured (“Mex-Tex”) no-          Republic’s first offer was for on the amount of $179,000, the
tified Republic of damage to         $22,000: the cost it believed entire claim presented by Mex-
property it owned in Amarillo,       was necessary to repair the Tex. The court of appeals af-
Texas, after a hail storm. Mex-      “minimal hail damage.” Mex- firmed.


24                                                                                     www.clausen.com
                                      within that leeway. Mex-            payment was conditioned on a
 As defined in Article                Tex’s roofing contractor            full release and settlement. Al-
 21.55, a “claim” “means              and its expert … both tes-          though the penalty provided by
 a first party claim made             tified that the … roofs were        Article 21.55 should be assessed
 by an insured or a poli-             comparable. The only evi-           on the full amount determined to
 cyholder under an insur-             dence to the contrary was           be owed when partial payment
 ance policy or contract or           the difference in cost. …           is made conditionally, the Mex-
 by a beneficiary named in            [T]he trial court could find        Tex court determined that the
 the policy or contract that          that Republic breached the          evidence presented to the trial
 must be paid by the insur-           policy by refusing to pay           court established that Repub-
 er directly to the insured           the cost of the new roof.           lic’s partial payment was just
 or beneficiary.”                                                         that: partial. It was on this final
                                    The majority agreed with Repub-       point that the dissent opined,
                                    lic, however, that it was only li-    stating that there was evidence
Analysis                            able for the 18% interest penalty     in the record sufficient to create
                                    on the difference between Mex-        a triable issue of fact regarding
On appeal to the Texas Supreme      Tex’s claim and Republic’s pay-       whether Republic’s payment was
Court, Republic argued that “it     ment in the amount of $145,460.       indeed unconditional.
could not have breached the         As defined in Article 21.55, a
policy by offering to replace       “claim” “means a first party          Learning Point: Mex-Tex illus-
Mex-Tex’s roof with an identi-      claim made by an insured or a         trates two things. First, Texas
cal one and refusing to pay for a   policyholder under an insurance       courts appear to broadly interpret
more expensive one.” Republic       policy or contract or by a ben-       “like kind and quality.” Second,
further argued that the delay       eficiary named in the policy or       if an insurer issues payment
penalty imposed by Article 21.55    contract that must be paid by the     only subject to a full release and
“should have been calculated        insurer directly to the insured or    settlement, but a court later de-
only on the $33,540 difference      beneficiary.” The Mex-Tex ma-         termines its payment fell short of
between the payment it tendered     jority interpreted “that must be      the amount that “must be paid,” a
Mex-Tex and the full amount         paid” as “the amount ultimately       Texas court, under Article 21.55,
Mex-Tex claimed …”                  determined to be owed, which          may apply the 18% interest pen-
                                    of course would be net of any         alty to the entire amount owed
The Supreme Court majority          partial payments made prior to        to the insured, despite payment
held that the policy phrase “like   that determination.”                  already made. ♦
kind and quality”:
                                    In this case, Mex-Tex received
  neither restricted nor re-        only partial payment; Republic
  quired Republic to pay for        failed to provide payment for the
  the cost to replace the roof      amount of the claim “that must
  with an identical one. The        [have been] paid.” Article 21.55,
  policy clearly allows more        § 1(3). However, the majority
  leeway than that. There           held that 18% interest on the full
  was evidence to support           amount of Mex-Tex’s claim was
  the court’s finding that          not appropriate because Mex-Tex
  Mex-Tex’s new roof was            failed to establish that Republic’s


www.clausen.com                                                                                           25
     INSURANCE LITIGATION / REINSURANCE




An Insurer Waives Its Right To Compel Arbitration Where
 It Invokes The Judicial Process To The Prejudice Of Its
 Opponent, Despite A “No Waiver” Of Arbitration Clause
                                            by John F. Brennan
                                          jbrennan@clausen.com




T
           he Fifth Circuit re-       One party to the settlement agree-   Republic did not include in its
           cently held that where     ment, Pan Atlantic Insurance         pleading any request to pursue
           an insurer relied upon     Company, assigned its rights to      its arbitration rights.
           the judicial process to    recover under the reinsurance
resolve a variety of issues and       contracts to PAICO Receivables,      The parties then engaged in full
only on the eve of trial sought                                            fledged discovery on all issues.
to invoke arbitration, it waived                                           The scope of discovery was not
any right to compel the oppos-                                             limited to the issue of whether the
ing party to engage in arbitration.                                        assignment was valid. Republic
Republic Ins. Co. v. PAICO Re-                                             successfully resisted efforts of
ceivables, LLC, 383 F.3d 341                                               PRLLC to limit discovery to
(5th Cir. 2004). The court re-                                             the question of validity of the
fused to enforce a “no waiver”                                             assignment.
of arbitration clause.
                                                                           Days before trial was scheduled
Facts                                                                      to begin, Republic asserted for
                                                                           the first time its right to arbitrate
Republic was a party to a reinsur-                                         under the settlement agreement.
ance agreement among a group                                               The district court denied this
of various companies. An ar-                                               request and ruled that Repub-
bitration procedure resulted in                                            lic waived its right to arbitrate.
a settlement agreement which                                               The district court found PRLLC
                                      LLC (“PRLLC”). Thereafter,
further defined the rights and                                             would be prejudiced if it allowed
                                      PRLLC sought unsuccessfully
duties of the group members                                                arbitration because PRLLC in-
                                      to enforce Pan Atlantic’s rights
with respect to various reinsur-                                           curred attorneys’ fees, engaged
                                      under the settlement agreement.
ance agreements. The settlement                                            in full-fledged discovery, expert
agreement contained a clause          Republic filed a federal declara-    preparation and incurred other
allowing any party to compel          tory judgment action seeking         trial preparation expenses. The
arbitration and to resolve any        an order that the assignment to      Fifth Circuit affirmed.
disputes between the parties to       PRLLC was invalid for lack of
the agreement.                        written consent from Republic.


26                                                                                        www.clausen.com
Analysis                               arbitration is measured against         no intent to waive arbitration, the
                                       three criteria. First, prejudice        suit should seek, at least in the
In rejecting the late effort at        may be found where discovery            alternative, separate relief with
arbitration, the court applied the     included both arbitrable and            respect to compelling arbitra-
rule that waiver will be found         non-arbitrable issues. Second,          tion.
when the party seeking arbitra-        time and expense incurred in
tion substantially invokes the         defending a motion for summary     To preserve arbitration rights,
judicial process to the detriment      judgment can cause prejudice.      a litigant should seek court
or prejudice of the other party.       Lastly, a failure to timely assert approval to limit discovery to
Here, Republic answered coun-                                             the threshold issues bearing on
                                       the right to arbitrate is relevant to
terclaims, conducted extensive         the prejudice determination.       arbitration, such as whether the
                                                                          arbitration agreement is valid,
 In rejecting the late effort          The settlement agreement had a whether it should be reformed,
 at arbitration, the court             “no waiver” provision whereby or as here, whether an assignee
 applied the rule that                 the parties agreed that pursuit of is a proper party. Lastly, “no
 waiver will be found when             litigation would not constitute waiver” clauses will not prevent
 the party seeking arbitra-            a waiver of arbitration. How- a court from finding a waiver
 tion substantially invokes            ever, the court ruled that such occurred. ♦
 the judicial process to the           a provision would not prevent a
 detriment or prejudice of             court from finding that a waiver
 the other party.                      occurred. The court noted that
                                       a “no waiver” provision cannot
                                       impair a court’s exercise of its
discovery, amended its com-            inherent power to control its own
plaint, filed motions to compel,       docket.
a motion for summary judgment,
a motion in limine and filed the       Learning Points: Arbitration
required pre-trial materials be-       rights must be asserted as early
fore seeking arbitration.              as possible to give the other side
                                       notice of the intent to rely upon
The court rejected Republic’s          such a contractual provision.
argument that it was unable to         Where litigation is initiated with
assert its arbitration rights un-
til the court first declared that                                   John F. Brennan is a part-
PRLLC, as assignee, was bound                                       ner with Clausen Miller who
by the obligations of that agree-                                   concentrates his practice in
ment. Republic did not limit its                                    litigating first-party property
                                                                    claims, insurance coverage
judicial activity to that issue; in-
                                                                    and subrogation. He is admit-
stead, it engaged in discovery ad-                                  ted to practice before the bar of
dressing all issues raised by the                                   the States of Illinois and Penn-
pleadings, including PRLLC’s                                        sylvania. Mr. Brennan received
counterclaims.                                                      his B.S. from St. Joseph's Uni-
                                                  versity, and his J.D. from Northwestern Univer-
                                                  sity School of Law.
Prejudice to the party not seeking


www.clausen.com                                                                                                27
     LIABILITY INSURANCE COVERAGE




      CGL Coverage Denied For Defective Concrete
                 As A “Business Risk”
                                                by David J. Roe
                                               droe@clausen.com




I
      n Bonded Concrete, Inc. v.        exclusions in the policy in denying    tions have repeatedly held that the
      Transcontinental Ins. Co.,        the insured’s tender, including the    poor quality work of an insured
      784 N.Y.S.2d 212, the New         exclusion for property damage to       is not covered if the damages
      York Appellate Division re-       “your product.”                        relate to the correction, replace-
viewed an issue that should be                                                 ment or removal of the insured’s
well settled but continues to be        The insurer filed suit seeking a       work. If, on the other hand, the
the subject of persistent litigation    declaration that it had no duty to     insured’s work causes damage, ei-
– whether the damages resulting         defend or indemnify. The trial court   ther property damage to another
from the poor quality work of           granted summary judgment to the        or bodily injury to another, there
the insured are covered under           insurer and the insured appealed.      may be a covered “occurrence.”
a commercial liability policy.                                                 This clear coverage line can be
It has long been established as         Analysis                               blurred where the insured’s work
a general rule that poor quality                                               is incorporated into a larger proj-
                                        The appellate court affirmed the
work, faulty workmanship or the                                                ect, becoming an integral part of
                                        grant of summary judgment to
poor craftsmanship of an insured                                               that project. In such a situation,
                                        the insurer, basing its decision on
are “business risks” and not risks                                             it can be argued that replacing
                                        the well-settled rule that a CGL
contemplated in the insurer - in-                                              the whole due to damage from a
                                        insurer is not a surety for a con-
sured relationship.                                                            sub-part is covered. Because in
                                        struction contractor’s defective
                                                                               Bonded Concrete the insured pro-
Facts                                   work product. New York courts
                                                                               vided defective concrete and the
                                        and those of most other jurisdic-
                                                                               damages sought were simply the
In Bonded Concrete, the general
contractor for a school renovation                           David J. Roe is an associate with Clausen
project sued the insured for alleg-                          Miller P.C. who practices in the areas of Lia-
                                                             bility and Casualty Insurance Coverage and
edly supplying defective concrete
                                                             Commercial Litigation. Mr. Roe graduated
for use in sidewalks. The insured                            cum laude from Michigan State University-
tendered the pleadings to its insurer                        Detroit College of Law. He is admitted to
and demanded defense and indem-                              the State Bar of Michigan and the State Bar
nification. The insurer investigated                         of Illinois. He has taught business law and
                                                             has served on the Executive Council of the
the claim and advised the insured
                                                             State Bar of Michigan, Young Lawyer's Sec-
that there was no coverage for the           tion. He is currently a Co-Editor of The Policy, the Illinois
claim because the delivery of de-            State Bar Association's publication on insurance law. Mr.
fective concrete did not constitute          Roe has authored numerous legal guides and manuals in-
a covered “occurrence.” The in-              cluding The Southern Illinois University Law Journal, Survey
                                             of Law: Insurance for 2002 and 2003.
surer also relied upon a number of

28                                                                                           www.clausen.com
costs of correcting the defect – as    property or person, it may be           work or product, the damage is
opposed to damages to property         classified as poor quality work         potentially covered as an “occur-
other than the completed work          and not potentially covered. If         rence.” If the insured’s product
itself – there was no coverage.        there are allegations of damage         keeps its own use, identity or
The court rejected the insured’s       to another person or property, it       function, it is likely not part of
argument that the case fell into the   may be classified as a potentially      a larger whole. If, on the other
blurred area of products incorpo-      covered loss for the damage oth-        hand, the insured’s product is
rated into a larger whole because      er than to the insured’s product.       integrated into a larger whole
the concrete was not a component       In the third classification, a line     such that it no longer retains its
of any other larger structure, but     must be drawn somewhere be-             identity or a separate function,
instead was itself the insured’s       tween the insured’s poor quality        it is possible that damage to
product, i.e. the sidewalk.            work causing damage to property         the whole or to the value of the
                                       or person and the insured’s poor        whole beyond the value of the
Learning Point: When a tender          quality work causing damage to          insured’s product may fall in the
is received from an insured for        part of a larger whole. In the for-     third classification of damage by
coverage related to its product        mer, there is no coverage for the       a component to a larger whole
or work, three general classifi-       insured’s product and the cost of       and it may be covered under a
cations may exist: (1) covered,        repairing or replacing that prod-       liability policy. ♦
(2) uncovered and (3) the blurred      uct falls in the first classification
damage to the whole arena. If          and remains a “business risk.” In
the damage is to the product           the latter, since the property that
of the insured and no other            is damaged is not the insured’s




www.clausen.com                                                                                               29
     LIABILITY INSURANCE COVERAGE




“Assault And Battery” Exclusion Not Applicable To
  Negligent Hiring And Supervision Allegations
                                            by Agelo L. Reppas
                                           areppas@clausen.com




T
           he New Jersey appel-       Lexington Insurance Company,        L.C.S. hired counsel at its own
           late court holds that      D’Jais’ insurer, notified L.C.S.,   expense to defend the Cosgrove
           an “assault and bat-       D’Jais’ corporate parent, that it   complaint. During trial, the par-
           tery” exclusion does       was denying coverage based on       ties settled Count II for $25,000.
not relieve an insurer of its duty    the following “assault and bat-     The remaining counts were dis-
to defend and indemnify in con-       tery” exclusion:                    missed.
nection with a negligent
hiring and supervision                          Agelo L. Reppas is an as-      L.C.S. then sued Lexing-
count, even though the                          so ci ate in the Ap pel late   ton for breach of contract
complaint also alleges                          Practice Group of Clausen      for refusing to defend
                                                Mill er ’s Chi ca go office.   the negligence counts of
excluded counts. L.C.S.,
                                                She holds a B.A. and B.S.
Inc. v. Lexington Ins. Co.,                                                    the Cosgrove complaint.
                                                from the University of Iowa
853 A.D.2d 974 (N.J. Su-                        and received her J.D. from     L.C.S. submitted the cer-
per. Ct. App. Div. 2004).                       Washington Uni ver si ty       tification of its counsel in
                                                School of Law.                 the underlying action that
Facts                                                                          he settled Count II because
                                        This insurance does not                Cosgrove’s testimony was
In L.C.S., employees of D’Jais                                            equivocal concerning whether
                                        apply to “Bodily Injury,”
Bar injured a patron, Thomas                                              he was intentionally assaulted
                                        “Property Damage,” “Per-
Cosgrove, while ejecting him                                              or negligently injured.
                                        sonal Injury,” “Advertis-
from the bar. Cosgrove filed a
                                        ing Injury,” or “Medical
three-count complaint against                                             The trial court found that the “as-
                                        Expenses” arising out of
D’Jais, Larry Fore, a bouncer,                                            sault and battery” exclusion did
                                        assault and battery or out
and two other employees. Count                                            not bar coverage for the negligent
                                        of any act or omission in
I alleged that Fore assaulted                                             hiring, training and supervision
                                        connection with the pre-
Cosgrove. Count II, pled in the                                           count, and awarded L.C.S. half
                                        vention or suppression of
alternative, alleged that the three                                       its defense costs. The Appellate
                                        such acts, whether caused
employees negligently injured                                             Division affirmed.
                                        by or at the instigation of
Cosgrove. Count III alleged
                                        or direction of the Insured,      Analysis
negligent hiring, training and
                                        his employees, patrons or
supervision against the bar.
                                        other persons.                    The appellate court, noting that


30                                                                                      www.clausen.com
no New Jersey court has previ-        Further NO coverage is
ously construed Lexington’s           provided if the underlying
“assault and battery” exclusion,      operative facts constitute
held that the exclusion did not       an assault and/or battery
clearly apply to the negligent        irrespective of whether
hiring, training and supervision      the claim alleges negli-
allegations. The exclusion must       gent hiring, supervision
plainly indicate to the average       and/or retention against
reader that there is no coverage      the insured or any other
                                      negligent action.
 The appellate court con-         Stafford v. T.H.E. Ins. Co., 706
 struing Lexington’s “as-         A.2d 785 (N.J. Super. Ct. App.
 sault and battery” exclu-        Div. 1998) (emphasis supplied). recognize that only “rarely” can
 sion held that the exclu-
 sion did not clearly apply                                           this allocation be achieved with
                                  The court rejected Lexington’s
 to the negligent hiring,                                             scientific certainty. Lack of cer-
                                  argument that the exclusion’s
 training and supervision                                             tainty, however, “does not justify
                                  “arising out of” language encom-
 allegations. The exclu-                                              imposing all of the costs on the
                                  passed the negligence counts.
 sion must plainly indicate                                           insurer by default.”
                                  There was no “clear nexus”
 to the average reader that       between the assault alleged in Learning Point: Insurers that
 there is no coverage for         Count I and the negligent hiring, issue policies with “assault and
 negligent acts no matter         training and supervision alleged battery” exclusions similar to
 who commits an assault           in Count III, as required to trig- Lexington’s should be aware that
 and battery.                     ger the exclusion. If a claim is intentional tort allegations alone
                                  stated in two conflicting theories, may not be sufficient to trigger
for negligent acts no matter who one of which invokes coverage the exclusion. Such exclusions
commits an assault and battery. and the other which does not, the should clearly exclude coverage
The court cited the following insurer must defend and may do for an assault or battery no matter
exclusion as one it found un- so under a reservation of rights. how the underlying complaint is
ambiguously excludes coverage                                         pled. ♦
                                  The court also approved the
for negligent hiring and supervi-
                                  trial court’s apportionment of
sion:
                                  only 50% of defense costs to
   In consideration of the pre-   Lexington, even though L.C.S.’s
   mium charge, it is agreed      trial counsel could not allocate
   that NO coverage of any        his time between the negligence
   kind (including but not        and assault claims. Although fol-
   limited to cost of defense)    lowing the general rule that an in-
   is covered by this policy for  surer’s duty to reimburse defense
   Bodily Injury and/or Prop-     costs is limited to covered allega-
   erty Damage arising out of     tions if apportionment between
   or caused in whole or in       covered and non-covered claims
   part by an assault/battery.    is possible, New Jersey courts


www.clausen.com                                                                                      31
     LIABILITY INSURANCE COVERAGE




       CILCO Decision - Expenditures In Response
        To Strict Liability Regulations Constitute
       “Damages” Under Excess Liability Policies
                                              by Colleen A. Brown
                                             cbrown@clausen.com




I
      n Central Ill. Light Co. v.       ing with the IEPA, the policy-       expenditures to investigate and
      The Home Ins. Co., 2004           holder was informed that it was      remediate the contamination at
      Ill. LEXIS 2033 (Dec. 2,          strictly liable, under state and     the MGP sites were not the result
      2004) ("CILCO"), the Il-          federal law, for environmental       of a judgment following adjudi-
linois Supreme Court found that         contamination at the MGP sites.      cation of liability or settlement
the term “damages” as used in           Moreover, the IEPA informed the      reached after the initiation of
excess liability policies included                                           an enforcement action. Rather,
expenditures by a manufacturing                                               the policyholder entered into a
gas plant facility in response to an                                          voluntary agreement with the
Illinois EPA (“IEPA”) claim for                                               IEPA. Under this agreement,
the purpose of remedying damage                                               IEPA guidelines and instructions
to property. Moreover, the court                                              governed the cleanup work.
found that the policyholder was
legally obligated to make these                                               The policyholder sought indem-
expenditures because statutes im-                                             nification from its excess insur-
pose strict liability for the claimed                                         ers for its expenditures related to
harm and because it would have                                                investigation and remediation of
been futile for the policyholder                                              the sites. Certain of the excess
to deny its liability.                                                        policies at issue stated that the
                                                                              insurers would “indemnify [the
A. Background                                                                 insured] for any and all sums
                                                                              which the insured shall by law
The policyholder owns several                                                 become liable to pay and shall
properties in Illinois that for-        policyholder that although the       pay or by final judgment be
merly housed manufacturing              IEPA could bring suit to compel      adjudged to pay, or which by
gas plants (“MGPs”). Gas was            investigation and remediation of     agreement between the Insureds
manufactured at these facilities        the sites, the policyholder could    and the Underwriters, or the rep-
from the 1850s through the 1930s        act voluntarily under the supervi-   resentatives shall be paid to any
using a process that created coal       sion of the government agency.       person, firm . . . as damages . . .
tar as a byproduct. In a meet-          The policyholder’s subsequent        to property.”


32                                                                                          www.clausen.com
Later policies contained differ-    there was no duty to indemnify.      Indemnification is provided if the
ent language. These policies        In addition, the court found that    insured is obligated to pay dam-
required the insurers to indem-     no duty to indemnify was created     ages for reasonable liability ei-
nify the policyholder “for all      by the “legally obligated to pay”    ther imposed by law or assumed
sums which the assured shall        language because “no document        under contract or agreement. The
be obligated to pay by reason of    the policyholder ever received in    Court concluded that the policy
liability: (a) imposed upon the     this matter asserted such an ob-     language, standing alone, does
Assured by law, or (b) assumed      ligation,” and the policyholder      not require the insured to have
under contract or agreement with    “initiated its involvement in the    been served as the defendant or
the Named Assured for dam-          program voluntarily by petition-     the respondent in an adversarial
ages on account of: (i) Bodily      ing the IEPA.”
Injury [or] (ii) Property Damage                                          Indemnification is pro-
caused by or arising out of each    The appellate court reversed,         vided if the insured is ob-
occurrence happening within the     distinguishing Carus by noting        ligated to pay damages
United States of America.”          that this case does not involve       for reasonable liability
                                    general liability policies and the    either imposed by law or
The ultimate net loss definition policies here do not contain the         assumed under contract
also changed in the policies over term “suit.” The Supreme Court          or agreement.
time. The earlier policies defined affirmed.
it as “the sums for which the In-
sured is liable in settlement of an C. A Lawsuit Is Not                  proceeding before the duty to
occurrence.” The later policies Required To Trigger A Duty               indemnify arises. In reach-
defined the term as “the total sum To Indemnity                          ing this conclusion, the Court
which the Assured . . . becomes                                          distinguished the facts of this
obligated to pay by reason of The insurer argued that under              case from previous decisions in
bodily injuries or property dam- certain of the policies, the lan-       which the duty to defend and the
age claims, either through adju- guage “liable to pay as damages”        duty to indemnify were at issue.
dication or compromise, exclud- connotes the need for suit and,          See, Outboard Marine Corp. v.
ing all expenses and costs.”        further, suggests that a court
                                                                         Liberty Mut. Ins. Co., 154 Ill.
                                    judgment is necessary. The
                                                                         2d 90 (1992). For example, the
B. Procedural History               Supreme Court rejected this
                                                                         Supreme Court found that the
                                    argument, finding that if a court
                                                                         fact that the term “damages” in
The circuit court granted summa- judgment is necessary to trig-
                                                                         the Outboard Marine case was
ry judgment to the insurer finding ger a duty to indemnify under
                                                                         construed to include both legal
that it had no duty to indemnity the “becoming liable to pay”
                                                                         and equitable remedies imposed
the policyholder based upon Zu- term then the “final judgment”
                                                                         by a final judgment does not nec-
rich Ins. Co. v. Carus Corp., 293 term is mere surplusage. Thus,
                                                                         essarily mean that the same term,
Ill. App. 3d 906 (1997). In Ca- the Court found that a court
                                                                         contained in a policy that does
rus, the court found that because judgment imposing damages is
                                                                         not expressly require a “suit,”
there was no suit brought against sufficient to trigger the duty to
                                                                         does not refer to “the money re-
the policyholder, the carriers had indemnify, but, under the plain
                                                                         quired to be expended in order to
no duty to defend. Moreover, the language of the policy, it is not
                                                                         right a wrong” in the absence of
Carus court found that because necessary.
                                                                         a lawsuit. The Court concluded
there was no duty to defend,


www.clausen.com                                                                                         33
that the language of the policies     damages, the payment is merely obligated to make payments does
does not expressly require that       gratuitous.                         not mean that they are paid “as
the insured’s liability for dam-                                          damages.” Damages are distin-
ages be fixed by the resolution       The Court noted that the mere guished from other sorts of pay-
of a lawsuit, either by settlement    existence of regulations and the ments by their remedial purpose.
or judgment. The Court noted          insured’s decision to voluntarily The Court highlighted that the
that in the liability insurance in-   undertake environmental clean- statute made the policyholder
dustry, when an insured admits        up is not sufficient to invoke an strictly liable for “all costs of re-
liability for an injury, funds are    insurer’s duty to indemnify. At moval or remedial action.” The
routinely paid to injured parties     a minimum, the insured must be policy limited indemnification to
in settlement of claims with-         acting in response to a claim. “damages on account of” bodily
out the necessity for a lawsuit.      Here, the Court found that the injury or property damage. Thus,
The funds paid to resolve such        policyholder was confronted the Court concluded that not all
claims are generally understood       with a claim in the form of an damages that the policyholder
to be “damages” in the usual and      assertion by the IEPA that the became legally obligated to pay
ordinary sense of the word.           agency intended to enforce the were covered by the policy.
                                      strict liability provision against
D. Policyholder Was                   owners or operators of former Learning Points: In this deci-
Legally Obligated To                  MGP sites. The IEPA threat- sion, the Illinois Supreme Court
Pay Investigation And                 ened litigation against the poli- determined that a lawsuit is not
Remediation Costs                     cyholder, which the Court found necessary to trigger a duty to
                                      sufficient to satisfy the require- indemnify. Moreover, a policy-
The insurer characterized the         ment of a claim.                    holder can be found legally ob-
policyholder’s expenditures                                               ligated to pay in the absence of
as purely voluntary and thus          E. Expenditures For                 a lawsuit when a policyholder is
asserted that the policyholder        Remedial Purposes                   remediating pursuant to environ-
was not acting under a legal          Constitute “Damages”                mental regulations that impose
obligation. The Supreme Court                                             strict liability. ♦
disagreed, finding that manda-        The insurer asserted that constru-
tory environmental regulations        ing the term “damages” apart
imposing strict liability on any      from the terms referring to a le-
owner or operator who can-            gal obligation to pay was in error.
not prove that another entity         The Court agreed that the mere
is “solely” responsible for the       fact that a policyholder is legally
contamination impose a legal
obligation of compliance. How-                                  Colleen A. Brown is an associate
ever, the Court did agree that a                                with Clausen Miller P.C. in the
policyholder should not be able                                 Insurance Liability and Environ-
to act entirely unilaterally to un-                             mental Coverage Practice Group.
dertake environmental cleanup                                   Ms. Brown was a 1998 Clausen
                                                                Miller P.C. summer associate and
and then obtain indemnification                                 joined the firm in 1999 after grad-
on the basis that they were le-                                 uating from DePaul University’s
gally obligated to do so. If no                                 College of Law.
third party asserts a right to the


34                                                                                       www.clausen.com
                                                                                 SUBROGATION




          How “What We Learned In Little League”
           Paves The Way For Winning Litigation!
                                        by Dean S. Rauchwerger
                                      drauchwerger@clausen.com



                                     batter’s confidence that he or        paratory work to give the witness
                                     she will hit the ball, irrespective   the balls to hit. What does this
                                     of its speed, twists or turns, few    mean? The lawyer must view
                                     home runs would be made, let          each witness as an essential
                                     alone “singles or doubles.”           player of the team, and needs
                                                                           to ensure that they understand
                                     Likewise, in the context of a law-    the “big picture” as well as the
                                     suit, the litigator and his or her    individual role that they play. As
                                     witnesses, fact and expert, must      the coach, the lawyer must have
                                     hold the confidence and assur-        formed a well-reasoned case the-
                                     ance that they are on the “right      ory with a common sense theme




A
                                     side” and have the power to hit       that is supported by credible
            t the beginning of       the ball. The power is the abil-      evidence. Only when the wit-
            each little league       ity to marshal persuasive case        ness agrees and adopts the case
            season, my Dad           theories, themes, testimony and       theory, themes and supporting
            taught the young         evidence. How often do we ex-         evidence is he or she in a posi-
players of baseball that winning     perience a witness, whether our       tion to step into the batter’s box
the game required the three “Cs” -   own or adverse, who suddenly          with the confidence that they can
- Confidence, Concentration and      falters and loses confidence in       and will hit the ball, even if the
Coordination. Those simple les-      their position? The slide down        cross-examiner throws a curve
sons, from many years ago, are       the slippery slope can be painful.    ball question.
the same winning ingredients of      The remedy is plain, though not
successful litigation.               easy - - the lawyer must go theBy developing a thoughtful and
                                                                    well-armed game plan with thor-
                                     extra mile to ensure that the wit-
Confidence - The Source
                                                                    ough preparation, each member of
                                     ness is up to the task, truly owns
of Power
                                                                    the team (lawyer, client, expert and
                                     their testimony and has been ef-
As in baseball, whether being        fectively prepared to be “fluidfact witness) will possess the con-
the batter, pitcher or outfielder,   and loose” in adjusting to the fidence that they are on the win-
successful litigation requires       vagaries of cross-examination. ning side. With that confidence
a strong belief and conviction                                      comes the ability to hit the ball
                                   Of course, this is no simple un- into the bleachers with conviction
that one has the power to shape
                                   dertaking and requires that your and power.
reality. Certainly, without the
                                   counsel does the necessary pre-

www.clausen.com                                                                                           35
Concentration - The                      to be developed to win?          • Are you targeting the
Power of Focus                                                            pressure points that will
                                         • Are you pursuing fo-           convince your adversary
Like the successful batter who           cused, informal discovery,       and the fact-finder that
must concentrate to hit the ball         short of costly and timely       you have the winning po-
head-on without being distracted,        formal discovery?                sition?
winning litigation requires con-
centrating one’s powers, efforts         • Are the pleadings - com-       • Are you able to punch-list
and attention on the critical legal      plaint or responsive plead-      your “winning points” that
and factual elements, the evolving       ings -strategically focused      are compelling?
and shifting issues at-hand and the      to position your side for
hot buttons that collectively make       prevailing? Does the com-        • Have you figured out
a difference in your case.               plaint assert the best legal     your adversary’s strategy,
                                         claims? As the responder,        so you have the best coun-
The need to concentrate applies          are you effectively chal-        ter-strategy?
throughout the litigation process        lenging the allegations or
- informal investigation, plead-         asserting the appropriate        • Have you considered the
ings, motion practice, discovery,        defenses?                        priorities of discovery, and
expert case development and                                               what is secondary?
trial, as well as mediation. You         • Are the discovery plead-
and your counsel must constantly         ings focused to get the          • Are you mindful of the
challenge your case activities to        documents and informa-           timing and sequence of
ensure that the efforts being un-        tion you need to prevail,        your discovery and mo-
dertaken are focused and headed          and not just following a         tion efforts?
in the right direction. Important        “cookie-cutter” approach?        • During depositions and
questions to ponder throughout                                            trial, are you listening to
the litigation journey, include:         • Is your technical case         the testimony for follow-
                                         focused or is it a shot-gun      up, and not getting glued
     • Are you focusing on what
                                         approach? Or worse yet, is       to a fixed outline?
     factually and legally needs
                                         it merely reactive?
                                                                        Only by “paying attention” to
                           Dean S. Rauchwerger is a partner             what’s happening in the litiga-
                           with Clausen Miller P.C. concentrat-         tion and the shifting evidentiary
                           ing his practice in the handling of          realities are you able to tackle
                           complex, multi-million dollar litiga-        the toughest challenges you
                           tion matters on a national basis in
                                                                        face. After all, a challenge can be
                           both Federal and State Courts. Mr.
                           Rauchwerger has considerable                 solved only once it is recognized.
                           experience in multi-party matters            With that mindset, you and your
                           involving product liability, avia-           counsel are then in a position to
                           tion, toxic tort and mass disaster.          out-think your adversary, ener-
         He also has significant experience in litigating claims
                                                                        gize your team and concentrate
         against the United States under the Federal Tort
         Claims Act. Mr. Rauchwerger earned his B.A. and                your resources to a win!
         J.D. from Washington University in St. Louis.



36                                                                                    www.clausen.com
Coordination - The Power              the ugly aspects of the case and        develop a vulnerability for your
to Control the Game                   the exposure risks? Have you            adversary. Focus your resources
                                      and your counsel examined the           on those aspects of the case that
Baseball, like all sports, calls      shifting realities of the litigation,   you can influence and position
upon the need to coordinate the       as discovery becomes available,         to your advantage. The desire to
team’s efforts towards an achiev-     witnesses testify, court rulings        win coupled with a coordinated
able goal and to individually         issue, and been willing to adjust       strategic game plan will heighten
follow-through with the swing         your goals? Are the assumptions         your chances for achieving your
or pitch, as it may be.               you held early on still true? Have      targeted goals.
                                      you set short term and long term
Winning litigation is no different.   goals for the case?                     By honing the three “Cs” - confi-
Executing a coordinated strategy                                              dence, concentration and coordi-
is key to holding the cutting edge.   Only after facing the realities of      nation - your litigation team will
You and your counsel must have        the above inquiries are you and         be well-prepared to hit the fast
a strategic game plan. As Yogi        your counsel in a position to es-       balls and to adjust on the fly for
Berra said, “If you don’t know        tablish a strategy for achieving        the loose balls. Enjoy the litiga-
where you are going, chances are      your litigation goals. To win           tion game! ♦
you will end up somewhere else.”      at the game, that strategy must
That requires that achievable goals   be smartly coordinated so that
be set and that a flexible plan be    it controls the momentum and
formed to guide your activities.      focus of the case. Your big goal
                                      is to control and influence how
Avoiding the clutter of cliches,      the case is developed. This is
like “thinking out of the box,”       achieved by focusing on the
“being a strategic thinker” etc.,     strengths of your case. It is not
and getting down to plain talk is     necessarily a matter of who has
best. You and your counsel need       a bigger “war chest,” though it
to identify the true goals of the     always helps, rather the crux is
case: Is it to win at any costs?      to out-think your adversary stra-
How do you define a win? Is the       tegically and to coordinate your
relief sought monetary or equita-     efforts for follow-through on the
ble? If it’s simply monetary, how     necessary action items to achieve
much money do you seek? Are           your targeted end goals. Your ef-
there business considerations         forts should be prioritized.
outside the litigation that affect
how the case should be handled?       In fulfilling the third “C - co-
Are the business people moti-         ordination,” recognize that ev-
vated to do whatever it takes to      ery step along the way counts
slog through the long journey?        and that fatal landmines are
Are you willing to consider           everywhere. Take nothing for
early resolution? Has that been       granted. Every aspect of the
bluntly communicated to your          case affords an opportunity to
adversary? Have you recognized        strengthen your own position or


www.clausen.com                                                                                              37
Neil Ekblom cont. from page 13


complications were fictitious.          Joanne Sant’Angelo v. Jacque-         Jessica Rosario v. Montefiore Med-
Plaintiff demanded $975,000 and         line W. Muller, M.D., Jacque-         ical Center, No. 20344/01-Defense
asked the jury for $1,005,000. The      line W. Miller, M.D., P.C. No.        verdict, Bronx Cty. (9/30/04)
jury issued a unanimous defense         116294/01-Defense verdict,
verdict. Neil was supported by          N.Y. Cty. (1/30/04)                Patricia Farrell v. Mark J. Gel-
associates Michael T. Loffredo                                             wan, M.D., No. 30833/01-Defense
and Edward Soyka.                       Yvette Coelho Adams v. Maria verdict, Queens Cty. (11/10/04)
                                        Arnett, M.D., No. 107883/01-De-
Neil’s impressive winning streak        fense verdict, N.Y. Cty. (3/30/04) Florabelle Edwards v. An-
at CM includes the following:                                              thony M. Pisacano, M.D., An-
                                        Steven Fishman v. Eric R. Man- thony M. Pisacano M.D. P.C.
2003                                    del, M.d. and Mandel Laser New York Eye Surgery Center
Nebiaj v. Montefiore Medical            Vision, No. 122103/01-Defense No. 8161/01-Discontinued,
Center, No. 23742/98-Defense            verdict, N.Y. Cty. (4/27/04)       Bronx Cty. (12/7/04)
verdict, Bronx Cty. (2/6/03)
                                        Michael J. Fratantoro v. Robert       If you would like to learn more
Cholewinki v. Beth Israel Medical       H. Rubman, M.D. and Robert            about medical malpractice de-
Center, No. 119791/00-Defense           H. Rubman, M.D., P.C. No. L-          fense or other defense matters.
verdict, N.Y. Cty. (12/20/03)           0094802-Defense verdict, Cam-         please feel free to e-mail Neil Ek-
                                        den Cty., N.J. (6/18/04)              blom (nekblom@clausen.com)
2004                                                                          or call him at 212/805-3900. ♦


Judicial Hostility cont. from page 15


pect that an existing employee          D. Avoid the Pitfalls of the Form     and employee’s state(s), including
will obtain a legal opinion on                                                analysis of permissible time and
the enforceability of their non-        Companies must avoid form             geographic restrictions, neces-
competition agreement prior to          or pre-existing agreements in         sity and sufficiency of separate
joining or forming a competing          drafting non-competition agree-       consideration, enforceability of
enterprise. The cost of obtain-         ments. While the law on many          industry-wide competition re-
ing such an opinion is small            contracts varies little by state,     strictions, and treatment of choice
compared to the overall cost            the law on non-competition            of law provisions and overbroad
of starting a new business. An          agreement varies dramatically,        restrictions. Attorneys should
opinion that an agreement is            perhaps more than in any area         tailor the agreement accordingly,
unenforceable will increase the         of contract law.                      and include a choice-of-law pro-
likelihood that an employee will                                              vision selecting the state which is
form or join a competing enter-         Companies must accordingly rely       the most favorable toward non-
prise, while a contrary opinion         on experienced counsel in draft-      competition agreements and most
can decrease this likelihood.           ing non-competition agreements,       cost-effective in which to litigate.
An unenforceable form or pre-           particularly when the agreement       The resulting agreement should
existing agreement will therefore       involves employees in foreign         provide far more protection from
fail to provide the same level of       states. Each agreement should be      unfair competition than a form or
deterrence that a properly drafted      drafted only after careful analysis   pre-existing agreement. ♦
agreement will provide.                 of the law in both the employer’s


38                                                                                           www.clausen.com
IL Supreme Court cont. from page 16


received by the injured party           that the insurer would pay       Learning Point: This case
and that plaintiff and her medi-        her reasonable medical           goes directly to the heart of
cal providers never received the        expenses, whatever that          plaintiffs’ personal injury cases
$5,777.28 in dispute:                   amount turned out to be.         – the damages. As the major-
                                        The fact that her insurance      ity noted, across the country,
   Had the plaintiff, or more           company was able to nego-        the discounting of medical bills
   accurately, her husband’s            tiate with medical provid-       is now a “common practice in
   employer, actually con-              ers to reduce the amount it      modern healthcare.” In light of
   tracted for payment of all           would have to pay to sat-        this case, it would be prudent to
   charges at the maximum               isfy its obligation to plain-    determine the amount paid by the
   rate charged by a health             tiff was the benefit flowing     health insurance carriers so that
   care provider, I would               to the insurance company         the “reduced” amount is read-
   agree that plaintiff is enti-        from its contract with the       ily known should the Supreme
   tled to the disputed amount,         providers. In other words,       Court adopt the defense position.
   as that would have been the          the plaintiff got the benefit    The Illinois Supreme Court is
   amount she received from             of her contract when the         expected to render its decision
   the collateral source. How-          insurance company paid           in the next several months. We
   ever, the benefit of the bar-        her medical bills leaving        will monitor this important case
   gain in the plaintiff’s group        her no liability.                and update our readers when the
   health insurance policy was                                           decision is handed down. ♦


NY Casualty Update cont. from page 18


note that such a duty running           seeably come into contact          clothes, by washing the
from an employer to non-em-             with the employee’s cloth-         clothes or otherwise. This
ployees is very narrow, specifi-        ing but whose contact with         limitation is both rational
cally limited only to members of        the employee is unpredict-         and sufficiently circum-
each employee’s household:              able and generally outside         scribed by the principle of
                                        the scope of an employer’s         foreseeability. While this
   Assuming the Port Author-            knowledge, such as car             limitation is also arbitrary
   ity knew or should have              pool participants, bus driv-       in a sense, and may in fact
   known of the dangers of              ers, elevator operators, etc.,     exclude otherwise viable
   secondary exposure, it is            would stretch the concept          negligence claims, such is
   hardly a quantum leap to             of duty beyond any reason-         the unavoidable result of
   extend the duty of care              able parameters. Accord-           balancing the competing
   owed to employees to                 ingly, the scope of the Port       interests of recognizing a
   members of the employee’s            Authority’s duty should            duty where one ought to
   household who predictably            be limited to members of           be imposed and limiting
   come into routine contact            each employee’s household          any liability to a control-
   with the employee’s cloth-           who were exposed at home           lable degree.♦
   ing. . . .[E]xtending the duty       to asbestos dust from an
   to others who might fore-            employee’s workplace

www.clausen.com                                                                                           39
                     CASE NOTES
                           SUMMARIES OF RECENT CASE LAW

          ADMIRALTY                     Forum-Selection Clause            plaintiff suffered in a jet-ski ac-
                                        On Cruise Passenger’s             cident. The complaint was filed
     Another Court Concludes            Ticket Was Enforceable,           three years and two weeks after
     That Employees Aboard               Requiring Dismissal Of           the accident occurred. When
        Indefinitely Moored            Personal-Injury Action For         plaintiffs argued at trial that
     Riverboat Casino Are Not           Forum Non Conveniens              maritime law should apply, the
        Jones Act Seamen                                                  court granted the defendant’s
                                     Heinz v. Grand Circle Travel,        motion to dismiss based on the
Watson v. Ind. Gaming Co., 2004      329 F. Supp. 2d 896 (W.D. Ky.)       three-year statute of limitations
U.S. Dist. LEXIS 19445 (E.D. Ky.)                                         in 46 U.S.C. app. § 763a. The
                                     Plaintiff alleged that she was       Wisconsin Court of Appeals
Plaintiff alleged that she was       injured when an automatic door       affirmed, concluding that the
injured while employed aboard        aboard the defendant’s cruise        plaintiffs were estopped from
the defendant’s riverboat casino.    ship failed to function as the       arguing that maritime law did
The alleged injury occurred          ship sailed on the Rhine River       not apply; because the question
just two weeks after the vessel      in Germany. Defendant moved          was one of substantive law—not
became indefinitely moored           to dismiss the claim because the     jurisdiction—the plaintiffs were
due to a change in Indiana           forum-selection clause included      free to stipulate to the application
gaming law. Following recent         in the plaintiff’s ticket required   of maritime substantive law.
decisions of the Fifth Circuit,      her to litigate any disputes in
Martin v. Boyd Gaming Corp.,         Basel, Switzerland. The district     Jones Act Seamen Employed
374 F.3d 375 (5th Cir.), and the     court dismissed the complaint          Aboard Riverboat Casinos
Seventh Circuit, Howard v. S.        based on forum non conveni-           May Be Exempt From Over-
Ill. Riverboat Casino Cruises,       ens, concluding that the claim        time Provisions Of The Fair
Inc., 364 F.3d 854 (7th Cir.) (a     should have been brought in              Labor Standards Act
CM victory), the district court      Switzerland.
concluded that the defendant’s                                            Harkins v. Riverboat Servs., Inc.,
dockside casino was not a ves-         Parties May Stipulate To           2004 U.S. App. LEXIS 20860
sel “in navigation” for purposes      The Application Of Maritime         (7th Cir.)
of the Jones Act, and that because    Law, Which Is Substantive
the plaintiff had failed to prove       And Not Jurisdictional       Employees aboard a riverboat ca-
that an injury to a laborer aboard                                   sino alleged that their employer
an indefinitely moored dockside      Van Deurzen v. Yamaha Motor violated the overtime provisions
casino could potentially disrupt     Corp. USA, 2004 Wisc. App. of the Fair Labor Standards Act,
maritime commerce, the plain-        LEXIS 777 (Wis. App.)           29 U.S.C. § 213(b)(6) (“FLSA”).
tiff’s claims were not within the                                    Defendant argued that because
court’s jurisdiction under the       Plaintiffs alleged that the de- the plaintiffs were responsible
general maritime law.                fendants were liable for an for operation of the vessel, they
                                     amputation injury the minor were exempt from the overtime

40                                                                                       www.clausen.com
                                     CASE NOTES
provisions of FLSA as Jones          the danger of the dam. Sitting        primary-duty argument under
Act seamen. The Seventh              en banc, the Fourth Circuit con-      existing 4th Circuit precedent
Circuit concluded that the jury      cluded that SIAA does contain         because the plaintiff—who was
had properly characterized the       an implied discretionary-func-        the ship’s Steward—was more
plaintiffs as seamen under the       tion exception. The court based       like a seaman than a captain.
Jones Act, and that they were        its conclusion on the separation-
therefore exempt from FLSA’s         of-powers doctrine: “Were [the
overtime provisions. The court       court] to find the discretionary            ARBITRATION
acknowledged that given the na-      function exception not to be
ture of the floating casino, and     applicable to the SAA [sic], we       Insurance Company’s Refusal
its infrequent and short-term        would subject all administra-           To Admit Principle-Agency
cruises, “the application of the     tive and legislative decisions         Relationship Bars Invocation
exemption has far less urgency       concerning the public interest in          Of Arbitration Clause
than in a case involving extended    maritime matters to independent
voyages.” On the other hand, the     judicial review in the not unlikely   Peach v. CIM Ins. Corp., 816
court recognized that “admiralty     event that the implementation of      N.E.2d 668 (Ill. App.)
law guarantees employment ben-       those policy judgments were to
efits to seamen that are not guar-   cause private injuries. Such an   The trial court denied insurance
anteed by law to other workers,”     outcome is intolerable under our  company’s motion to compel
and that the casino employees        constitutional system of separa-  arbitration in a class action suit
“should have to take the bitter      tion of powers.”                  against an insurance company
with the sweet.”                                                       that sold extended protection
                                        For Primary-Duty Rule To       plans on automobiles for con-
Suits In Admiralty Act Includes          Bar Recovery, Plaintiff’s     sumer fraud, fraud, and breach
  An Implied Discretionary-             Role Aboard The Vessel         of contract. Held: Insurance
      Function Exception                  Must Be More Like A          company, which was not a sig-
                                        Captain Than A Seaman          natory to the contract could not
McMellon v. United States,                                             invoke an arbitration clause,
2004 U.S. App. LEXIS 21431           Long v. United States, 2004 U.S. where the company refused to
(4th Cir.)                           Dist. LEXIS 20881 (E.D. Va.)      take a position on whether it had
                                                                       a principle-agency relationship
Plaintiffs brought an action         Plaintiff was injured when a with the automobile dealership,
against the United States under      piece of frozen meat fell off a signatory to the contract.
the Suits in Admiralty Act, 46       shelf in the ship’s freezer and
U.S.C. §§ 741-52 (“SIAA”), for       landed on his foot. The district
injuries suffered in a jet ski ac-   court rejected the government’s             BAD FAITH
cident on the Ohio River. The        argument on summary judgment
district court rejected the gov-     that the plaintiff’s claims were      Insurer Is Obligated To
ernment’s claim that it was pro-     barred under the “primary-              Produce Claim Files
tected by an implied discretion-     duty” rule, which prohibits a            Of Other Insureds
ary-function exception similar to    plaintiff from recovering when
the one contained in the Federal     the plaintiff has breached a duty Permanent General Assurance
Tort Claims Act 28 (“FTCA”),         he has consciously assumed as Co. v. Superior Court, 19 Cal.
but found that the government        part of his employment. The Rptr. 3d 597 (Cal. App.)
did not have a duty to warn of       court rejected the government’s

www.clausen.com                                                                                       41
                                     CASE NOTES
Insured filed bad faith action          FIDELITY & SURETY               terms are used in CGL policies.
against automobile insurer, al-
leging discriminatory handling         Default Judgment Against            No Duty To Defend Faulty
of her claim file. Insured argued       Principal Binds Surety               Workmanship Claims
production of claims files of
other minority and low-income        American Safety Casualty Ins. Baker Residential Ltd. v. Travelers
insureds was necessary to show       Co. v. C.G. Mitchell Construction, Ins., 782 N.Y.S.2d 249 (N.Y. App.)
that insurer engaged in a pattern    Inc., et al., 601 S.E.2d 633 (Va.)
or practice of discriminatory                                              Residential condominium
claims handling, thus evidencing     Default judgment was entered association’s claims against
her bad faith claim. Held: In bad    against principal as a discovery condo developer that allegedly
faith action alleging discrimina-    sanction for continued failure to delivered and installed defective
tory claims handling practices,      produce its corporate designee for structural beams that deteriorated
insured is entitled to discovery     deposition. Surety was bound by from water penetration due to
of claims files of other insureds,   the default judgment where surety improper installation, flashing
but only if insured obtains autho-   had notice of claim against the and waterproofing did not arise
rization for release of files from   principal, had the opportunity to from an “occurrence” resulting
other insureds.                      defend the principal, and under in damage to property distinct
                                     an indemnity agreement the surety from the insured’s own work
                                     was attorney-in-fact of the principal product and thus insurer had no
           DAMAGES                   with the power to exercise rights or duty to defend.
                                     interests of the principal.
     Award Of $0 For Future                                                 Business Pursuits Exclusion
       Pain And Suffering                                                       Applied To Preclude
      Cannot Stand Where                LIABILITY INSURANCE                Coverage For Day Care Child
      Evidence Established                      COVERAGE                     Kicked By Boarded Horse
     Permanent Restrictions
      On Plaintiff’s Activities         Restitution Of Ill-Gotten       Maroney v. New York Cent. Mut.
                                         Funds Not Covered              Fire Ins. Co., 782 N.Y.S.2d 287
Kane v. Coundorous, 783                                                 (N.Y. App.)
N.Y.S.2d 530 (N.Y. App.)            Vigilant Ins. Co. v. Credit Suisse
                                    First Boston Co., 782 N.Y.S.2d Child in day care on insured’s
Jury’s failure to award personal 19 (N.Y. App.)                        property was kicked in head by
injury plaintiff damages for fu-                                       horse boarded at insured’s barn.
ture pain and suffering reversed Insured was not entitled to indem- Reversing the denial of summary
and plaintiff’s motion for additur nification for settlement amount judgment for the insurer, the ap-
of $250,000.00 granted where representing disgorgement pellate court (Third Department)
evidence established that plain- of funds improperly acquired holds that: (1) homeowner’s in-
tiff, who suffered a herniated disc through securities violations. surer’s disclaimer letter denying
which required multiple surger- Risk of being directed to return coverage on basis that accident
ies to treat, had resulting perma- improperly acquired funds is not occurred as a result of business
nent restrictions on his physical insurable risk and restitution of pursuits referred not just to day
activities and work activities.     ill-gotten funds does not qualify care services exclusion but also
                                    as “damages” or “loss” as those to horse boarding business; and


42                                                                                    www.clausen.com
                                 CASE NOTES
(2) exception to business pur- to defend under a CGL policy.            discipline, such as making a child
suits exclusion for “activities                                         stand in a corner, are inherently
which are usual to nonbusiness       Restaurant Owner’s Racial          injurious and, thus, some such
pursuits” did not apply where Discrimination By Refusing To             acts can be an accidental cause
child was allegedly injured be-           Serve Patrons Was             of injury for purposes of CGL
cause insured was inattentive to        Not “Wrongful Eviction”         policy. An insured’s intentional
child while engaged in her busi-           Within Meaning Of            act cannot be accidental and is
ness pursuit of leading boarded        Restaurant’s CGL Policy          not covered by a liability insur-
horse out of barn to pasture.                                           ance policy when the act is so
                                   Westfield Ins. Group v. J. P.’s      inherently injurious that it cannot
     Negligence Complaint          Wharf, Ltd., 859 A.2d 74 (Del.)      be performed without a certainty
    Alleged An “Occurrence”                                             that some injury will result.
  Under Builder’s CGL Policy       A restaurant owner’s racial dis-
   Triggering Duty To Defend       crimination by refusing to serve        Public Policy Precluded
                                   patrons was not “personal injury”    Liability Coverage For Guest’s
Gehan Homes, Ltd. v. Employ- as a “wrongful eviction” within              Death From Overdose Of
ers Mutual Cas. Co., 146 S.W.3d the meaning of restaurant’s CGL            Heroin Sold By Insured
833 (Tex. App.)                    policy. The patrons had no pos-
                                   sessary interest in the restaurant   Minnesota Fire & Cas. Co. v.
Homeowners’            complaint premises, and the coverage ap-                eld
                                                                        Greenfield, 855 A.2d 854 (Pa.)
against builder, which alleged plied to wrongful eviction from a
negligence as one of its causes room, dwelling, or premises that        Public policy precluded coverage
of action in connection with a person occupies by or on behalf          under homeowner’s insurance
home’s foundation, alleged an of its owner, landlord or lessor.         policy for insured’s liability
“occurrence” under the terms                                            for death of house guest from
of the builder’s CGL policy so         Alleged Verbal Abuse Of          overdose of heroin sold by the
as to trigger insurer’s duty to       Child Was Not Inherently          insured, whether or not the guest
defend builder, even though the         Injurious And Could Be          intended to die or the insured in-
homeowners’ allegations were         Accidental Cause Of Injury         tended her death. The policy was
based on an underlying contract                                         not designed to protect the drug
with the builder and one of the Marikar v. Peerless Ins. Co., 855       dealer, and courts will not coun-
homeowner’s allegations was the A.2d 1246 (N.H.)                        tenance the turning of illegal
intentional tort of malice. The                                         activities regarding controlled
homeowners alleged that the Alleged verbal abuse of child by            substances into money-making
contract was performed negli- owner of a pre-school and child           occasions.
gently and that the damage was care facility was not inherently
an unexpected and undesigned injurious and, thus, could be an
consequence of that negligence. accidental cause of injury for
The court concluded that both purposes of owner’s commer-
the actor’s intent and the rea- cial and general liability insur-
sonably foreseeable effect of his ance policy. The alleged abuse
conduct bear on the determina- was not certain to result in some
tion of whether an occurrence is injury. The court found that not
accidental so as to trigger a duty all acts involving some physical


www.clausen.com                                                                                         43
                                      CASE NOTES
     Inferred – Intent Rule             Developers’ Liability For          lawsuit, and ceases as soon as it
       Applies To Minors              Misappropriated Design Falls         has been shown that there is no
                                       Outside Advertising Injury          potential for coverage.
West Virginia Fire & Cas. Co.           Coverage Of CGL Policy
v. Stanley, 602 S.E.2d 483                                                 Three Year Delay In Notifying
(W.Va.)                               Shefman v. Auto-Owners Ins. Co.,          Excess Carrier Of
                                      687 N.W.2d 300 (Mich. App.)           Lawsuit Was Reasonable
Insured minor allegedly sexually
abused his minor niece. Liability     Condominium developers sued          Zurich Ins. Co. v. Walsh Constr. Co
insurer who issued homeowners’        their CGL insurer for failure        of Ill., 816 N.E.2d 801 (Ill. App.)
insurance policy to minor’s par-      to defend and indemnify in an
ents had no duty to defend or         action by a fellow developer al-     Insured sued by injured workers
indemnify minor against niece’s       leging liability for constructing    on construction site tendered its
sexual misconduct claim where         and selling homes based on a         defense to its primary carrier but
the policy contained an inten-        misappropriated design. Held:        did not give notice to its excess
tional injury/acts exclusion.         Developers’ alleged liability was    insurer despite excess policy
Rejecting the insureds’ argu-         outside the scope of advertising     language requiring notice of all
ment that a minor is inherently       injury coverage because the in-      claims “as soon as practicable.”
incapable of forming an intent to     jury did not occur in the course     Three years into litigation, and
injure another, the court held that   of advertising.                      after primary insurer became
the inferred-intent rule applies to                                        insolvent, insured notified its
minors and the minor-insured’s               Duty To Defend Is             excess insurer of the claims by
intent to injure his niece is in-          Measured At Time Third          tendering its defense. Excess in-
ferred as a matter of law due to            Party Lawsuit Is Filed         surer asserted late notice. Held:
the inherently injurious nature of                                         Notice provision in excess policy
the sexual acts.                      Safeco Ins. Co. of America v. Parks, requires notice when it is “reason-
                                      19 Cal. Rptr. 3d 17 (Cal. App.)      ably likely that the claim would
  Criminal Law Exclusion Of                                                implicate the excess insurance”
 Homeowner’s Policy Applies           Third party sued minor female regardless of actual language in
Regardless Of Whether Insured         for injuries sustained when she policy. Because the claims did
  Intends Results Of Crime            allegedly left him in an inebri- not implicate the excess coverage
                                      ated condition alongside a free- until the primary insurer’s insol-
Am. Family Mut. Ins. Group v.         way. Insurer, which provided vency, the notice was reasonable
Kostaneski, 688 N.W.2d 410 (S.D.)     homeowner’s coverage to girl’s under the circumstances.
                                      mother’s boyfriend, sought a
Homeowners’ insurer sought de-        declaration that it had no duty        Insurer Does Not Have To
claratory judgment that criminal      to defend or indemnify her be- Prove Prejudice In Order To
law exclusion barred liability        cause it knew at the time that the Avoid Coverage Where Late
coverage for injuries caused by       underlying lawsuit was initiated         Notice Is Unreasonable
insured’s felonious act of firing a   that the girl was not a member of
paintball gun. Held: Exclusion was    the insured’s household. Held: Country Mut. Ins. Co. v. Livorsi
unambiguous and applied to crimi-     Insurer’s duty to defend is mea- Marine, Inc., 2004 WL 2715453
nal conduct whether or not insured    sured by facts known to insurer (Ill. App.)
intended results of his actions.      at time of inception of third party


44                                                                                       www.clausen.com
                                      CASE NOTES
Insured delayed 21 months in no-          Physicians Are Not                      MUNICIPAL
tifying insurer of lawsuit without    Competent To Testify To The               CORPORATIONS
advancing any justification for its   Standard Of Care Applicable
admittedly late and unreason-         To Communications Between            City Not Immune For Failure
able notice. Insurer disclaimed          A Doctor And A Nurse                  Of Police Department
coverage for the late notice and                                              To Obtain Emergency
insured asserted insurer had to       Garlee v. Columbia LaGrange                Medical Services
prove prejudice in order to deny      Memorial Hospital, 813 N.E.2d
coverage. Held: Where notice          1030 (Ill. App.)                      Torres v. City of Chicago, 816
is unreasonably and inexcus-                                                N.E.2d 816 (Ill. App.)
ably late, insurer does not have      The Illinois First District Appel-
to prove prejudice. Prejudice is      late Court held that the Illinois Su- City of Chicago was not abso-
only relevant in deciding whether     preme Court in Sullivan v. Edward lutely immune from liability
notice was reasonable.                Hospital, 806 N.E.2d 654 (2004), in a wrongful death case based
                                      established a bright line rule that upon a police officer’s delay
                                      a physician who is not a licensed in requesting an ambulance for
MEDICAL MALPRACTICE                   nurse may not testify to the nursing a victim of a shooting. Held:
                                      standard of care. This rule applies Responsibility for obtaining
   Physician’s Failure To Give        even where the allegation of negli- emergency medical aid for a
   Hospital Written Notice Of         gence focuses on communications shooting victim involved no
   Determination To Remove            between doctors and nurses con- service characteristic of a police
 Decedent’s Ventilator Did Not        cerning the patient.                  function for which statutory im-
Violate Healthcare Surrogate Act                                            munity applied.
                                          On-Call Anesthesiologist
Collins v. Lake Forest Hospital,             Protected By Good                No Tort Immunity For Fire
2004 WL 2744945 (Ill.)                   Samaritan Act For Efforts           Truck Driver Driving Truck In
                                       In Attempting To Resuscitate            Non-Emergency Manner
Defendant hospital did not fail in           Child After Delivery
its duty under the Illinois Health-                                         Friday-Spivey v. Collier, 601
care Surrogate Act to participate     Neal v. Yang, 816 N.E.2d 853 S.E.2d 591 (Va.)
in decision to remove decedent        (Ill. App.)
from life support where the at-                                             Firefighter was driving fire
tending physician determined          Plaintiff sued on-call anesthesi- truck without lights and sirens
that decedent lacked decisional       ologist who answered emergency when responding to a call to
capacity but did not notify the       call for help in attempting to re- rescue an infant locked inside
hospital of his determination.        suscitate unresponsive newborn a vehicle. Firefighter failed to
                                      claiming contractual obligations yield to plaintiff motorist’s right
                                      arising by virtue of her on-call of way and collided with her ve-
                                      status defeated protection of the hicle. Held: Firefighter was not
                                      Good Samaritan Act. Held: On- entitled to sovereign immunity
                                      call status only relevant to notice; against plaintiff’s claim because
                                      where anesthesiologist had no he was operating the fire truck in
                                      prior notice of emergency, the a non-emergency manner and was
                                      Act protects her from a negli- therefore required to obey all traf-
                                      gence claim.

www.clausen.com                                                                                          45
                                   CASE NOTES
fic laws and rules of the road.         Health Club Does Not                  Economic Loss Doctrine
                                        Have A Duty To Have A                 Bars Tort Claims Against
       No Tort Immunity For           Defibrillator On Its Premises             Subcontractors For
     School Board Where Bus                                                    Faulty Workmanship
        Attendant Absent            Salte v. YMCA Of Metropli-
                                    tan Chicago Foundation, 814 Linden v. Cascade Stone Co., Inc.,
Doe ex rel. Chicago Board of Edu- N.E.2d 610 (Ill. App.)                  687 N.W.2d 823 (Wis. App.)
cation, 2004 WL 2609771 (Ill.)
                                    Health club patron who suffered a Homeowners brought breach of
School board not immune from heart attack while using treadmill, contract and tort claims against
suit under Illinois Tort Immunity sued his health club alleging it had subcontractors and their insurers
Act in personal injury action aris- a duty to have a defibrillator on its for faulty workmanship. Held:
ing from the sexual assault of a premises for use on its invitee in Economic loss doctrine barred
special education student by the event of a medical emergency. tort claims because predominant
another student on a school bus Held: Health club’s duty to its purpose of homeowner’s contract
where the bus attendant hired by business invitee is to provide level with general contractor was for
the school board to supervise stu- of first aid they were reasonably the purchase of a product, a cus-
dents on the bus was absent.        capable of providing and not all tom-built home, not services.
                                    medical care that it could reason-
          NEGLIGENCE                ably foresee might be needed by            Danger Of Diving Into A
                                    a patron.                              Shallow Aboveground Pool Is
     Being Kicked By Horse                                                Not An Open Obvious Risk To
         Inherent Risk Of                                                        An Eleven Year-Old
        Horseback Riding                PRODUCTS LIABILITY
                                                                          Bunch v. Hoffinger Industries, Inc.,
Kinara v. Jamaica Bay Riding              Contract To Upgrade             20 Cal. Rptr. 3d 780 (Cal. App.)
Academy, Inc., 783 N.Y.S.2d               Ventilation System Is
636 (N.Y. App.)                        For Services, Not Product,         Eleven year-old who was ren-
                                            For Purposes Of               dered a quadriplegic when she
Plaintiff horseback rider with 15       Economic Loss Doctrine            dove into a shallow aboveground
years of experience assumed risk                                          pool sued pool’s manufacturer
of being kicked by defendant’s Ins. Co. of N. Am. v. Cease Elec. for negligence, products liabil-
horse as she rode him on a trail Inc., 688 N.W.2d 462 (Wis.)              ity, failure to warn and breach of
ride where plaintiff heard the                                            warranty. Held: In case of first
trail guide comment at the begin- Barn owner and its property impression, court held that the
ning of the ride that the horse was insurer sued installer of failed danger of diving into a shallow
“wild” and observed the horse ventilation system for negli- aboveground pool is not an open
kicking before the incident.        gence. Held: As a matter of and obvious risk to an eleven-
                                    first impression in Wisconsin, year-old as a matter of law.
                                    installer’s contract with barn
                                    owner to upgrade ventilation
                                    system was for services, not a
                                    product. Thus, economic loss
                                    doctrine did not bar tort claims.


46                                                                                       www.clausen.com
                                     CASE NOTES
         PROPERTY                    applicable to construction-re- telephone numbers, addresses,
                                     lated actions.                    and social security numbers did
 Insured’s Failure To Provide                                          not involve the unauthorized re-
 Requisite Number Of Armed                                             lease of “private facts” required
  Guards Negates Coverage                         TORTS                to maintain an action for inva-
                                                                       sion of privacy by intrusion upon
Star City Sportswear v. Yasuda            Insurer Not Obligated        seclusion.
Fire & Marine Ins. Co. of Amer-           To Instruct Insurer To
ica, 781 N.Y.S.2d 255 (N.Y.)               Preserve Evidence              Failing To Disclose Profit
                                                                            Margin Constituted A
Insured’s property was stolen        Dardeen v. Kuehling, 2004 WL Deceptive Business Practice
in a truck hijacking in Mexico.      2745653 (Ill.)
By policy endorsement, the in-                                         Covarrubias v. Bancommer,
sured was required to transport      A homeowner’s insurer has no S.A., 814 N.E.2d 947 (Ill. App.)
property through Mexico with a       duty to instruct the insured ho-
minimum of two armed guards;         meowner to preserve evidence Money transfer service charged
there were not two armed guards      which may be relevant to a a flat rate to convert dollars to
present at the time of the hijack-   potential personal injury ac- Mexican pesos and then wire
ing. Held: Insured’s failure         tion by someone injured on the transfer the currency abroad,
to comply with policy’s armed        homeowner’s property. There is issuing a confirmation slip dis-
guard requirement was a mate-        no duty to preserve the evidence closing the retail conversion
rial breach of the policy which      absent an agreement, contract, rate without identifying the
negated coverage.                    statute, special circumstance, or wholesale rate actually paid by
                                     voluntary undertaking and the in- the currency service. Customers
                                     surance policy does not qualify brought a class action alleging a
STATUTE OF LIMITATIONS               as any of these because it is not deceptive business practice not-
                                     a contract between the parties to withstanding federal court prec-
   Tort Immunity Act Sets            the spoliation claim.             edent rejecting analogous claims.
  Statute Of Limitations For                                           Held: Failing to disclose profit
   Personal Injury Actions                    Cellular Phone           earned by currency service was a
  Arising From City Projects             Company Not Liable For        deceptive business practice.
                                        Providing Third Party With
Paszkowski v. Metropolitan                Customer Information
Water Reclamation District of
Greater Chicago, 2004 WL Busse v. Motorolla, Inc., 813
2609746 (Ill.)                N.E.2d 1013 (Ill. App.)

The one-year limitation period       Summary judgment upheld in fa-
of the Illinois Tort Immunity        vor of defendant cellular phone
Act governs personal injury ac-      company that released informa-
tions arising from the City of       tion about its customers to a third
Chicago’s deep tunnel construc-      party without permission. Held:
tion project as opposed to the       Provision of personal informa-
four-year statute of limitations     tion including customer names,


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