Judicial Notice of Internet Evidence

websites.1With the explosion of the Internet over the past 20 years, some practitioners would say it was only a matter of time before courts started to take judicial notice of Internet evidence. With the proliferation of websites whose content is monitored for accuracy, more and more courts are doing just that. Courts are now willing to take judicial notice of evidence that can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned pursuant to Fed. R. Evid. 201(b)(2). Of course, whether or not the court will take judicial notice of evidence from the Internet will largely depend on the website where the evidence was located.

I. GOVERNMENT WEBSITES

Federal, state and municipal websites, including those of governmental agencies, are considered self-authenticating under Fed. R. Evid. 902(5), which provides that “official publications” are self-authenticating. Fed. R. Evid. 902(5) defines “official publications” to include “a book, pamphlet or other publication purporting to be issued by a public authority.” Although electronically stored information (“ESI”) is not specifically mentioned in the Rule, courts have held that ESI is included in the phrase “other publications.” See, e.g., Williams v. Long, 585 F. Supp. 2d 679, 688 n. 4 (D. Md. 2008) (Rule 902(5) provides for self-authentication of “other publications” and it is the act of posting information on the Internet by a qualifying public authority that is the act of publication). As a general rule, because records and information located on government websites are self-authenticating under Fed. R. Evid. 902, the courts will typically take judicial notice of the content on the government’s website. Newton v. Holland, 2014 WL 318567 (E.D. Ky. Jan. 29, 2014). That includes judicial notice of the content on federal, state and municipal agencies’, departments’ and other entities’, including government-owned corporations’ websites. (citations omitted). Courts have also taken judicial notice of the content of foreign governments’ websites, particularly to establish the law of the relevant foreign jurisdiction. United States v. Broxmeyer, 699 F. 3d 265, 296 (2d Cir. 2012). Courts commonly take judicial notice of website data compiled or generated by a governmental entity for the truth of the matters asserted, provided that the facts at issue are not subject to reasonable dispute.

II. NON-GOVERNMENTAL WEBSITES

Although courts are generally reluctant to take judicial notice of evidence from non-governmental websites, there are still many circumstances in which judicial notice of non-governmental websites is appropriate. One example would be the website of a corporate or other private-sector organization. Whether a court will take judicial notice of the content of the corporate or other private-sector organization’s website mainly depends on the nature of the content at issue and the purpose for which judicial notice is taken. Corporations that are subject to federal security laws are also subject to civil and criminal penalties for false statements in their descriptions of financial conditions and business operations that are contained on their websites. Courts have taken judicial notice of such information to determine whether the corporation is large or small, or sophisticated or unsophisticated, or is engaged in a particular line of business. Liberty Mut. Ins. Co. v. Consol. Elec. & Tech. Assocs. Corp., 2007 WL 118938 (E.D. Mich. Jan. 10, 2007). Judicial notice of that type of information is premised on the presumptive truthfulness of published information whose accuracy is subject to criminal and civil sanctions. When it is offered or used against the party publishing the information on its website, the presumption is enhanced by the same circumstantial guarantees of accuracy that give rise to the hearsay exception for party admissions. The courts have also taken judicial notice of the content on a corporation’s website based on the corporation’s strong motivation to ensure the accuracy of that information. Judicial notice has been premised on the presumptive truthfulness of information that is vital to a commercial establishment’s survival. Again, when such information is offered or used against the party publishing it on their website, the presumption of accuracy is enhanced by the same circumstantial guarantees of accuracy that give rise to the hearsay exception for party admissions.

III. TRUSTED JUDICIALLY NOTICED WEBSITES

There are certain websites and types of websites that courts turn to repeatedly to take judicial notice. Many courts have taken judicial notice of the reliability and accuracy of Google Maps, MapQuest and similar websites for the purpose of determining both locations and distances. (citations omitted). Courts routinely look to internet calendars to take judicial notice of the particular days of the week that are relevant to when certain events occurred on past dates. Local 282, Int’l. Bhd. of Teamsters v. Pile Found. Constr. Co., 2011 WL 3471403 (E.D.N.Y. Aug. 5, 2011). The courts have also recently started to take judicial notice of the accuracy and reliability of global positioning system (GPS) data. United States v. Brooks, 715 F 3d 1069, 1078 (8th Cir. 2013). IV. CONCLUSION Although courts are far from taking judicial notice of content contained on Facebook and other social media sites, they have come a long way from the days when information from the Internet was deemed insufficiently trustworthy to satisfy a hearsay exception. As the Internet continues to spread throughout our daily lives, we can be certain that judicial notice of evidence from that medium will continue as well.

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Responsibility of Electric Utilities to Trim Trees and Other Vegetation

It is hard to believe that summer is coming to an end and storm season will be upon us. It is never too early to be prepared for the property losses caused by high winds and winter storms. This blog explores the duty of electric utilities to trim trees and other vegetation around power lines.

Often utility lines are downed by tree limbs that fall on the power lines during ice storms and high wind events. In turn, the downed lines send electrical surges into residences and businesses, which may cause a fire. Many subrogation professionals fail to seek recovery in such cases believing that downed electrical lines are an act of God or that the local utility did not have a duty to actively inspect for and remove vegetation that may pose a threat to the electrical distribution system. Before closing such a case, one should be mindful that most states have adopted the National Electric Safety Code (“NESC”). The NESC is a national industry standard for the safety of utility lines. The NESC requires electric utilities to prune trees away from power lines and other electrical equipment. Rule 281 of the NESC, found in the NSB Handbook 81 provides:

Where trees exist near supply-line conductors, they shall be trimmed, if practicable, so that neither the movement of the trees nor the swinging or increased sagging of conductors in wind or ice storms or at high temperatures will bring about contact between the conductors and the trees.

National Electric Safety Code, NBS Handbook 81 (National Bureau of Standard, 6th Edition 1961).

Many states require utilities to proactively inspect for and remove vegetation that pose a risk to wires. For example, in New Jersey, utilities are required “to perform vegetation management on vegetation that pose a threat to its energized conductors at least once every four years.” New Jersey Administrative Code 14:5-9.4(b). The utility is also required to remove all vegetation that is close enough to the electrical line to “affect reliability or safety” once the utility becomes aware of the threat. N.J.A.C. 14:5-9.4(c).

In sum, when deciding if a utility should have or could have prevented a fire caused by a downed line, at the very least, the subrogation professional should check the NESC and the state code to determine if the utility complied with the mandatory vegetation control requirements. This is in addition to inverse condemnation arguments, where applicable, as this site has written about previously.

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Discovery of Initial Claims Investigation Documents

A recent opinion out of the United States District Court for the Eastern District of Pennsylvania illustrates the ongoing and vexing problem of determining whether documents created during an insurer’s early claims investigation are protected from disclosure in subsequent litigation under an attorney-client or work-product privilege.

In Henriquez-Disla v. Allstate Prop. and Cas. Ins. Co., 2014 WL 2217808 (E.D.Pa. May 29, 2014), a homeowner filed an insurance claim following an alleged theft at the home. The insurer conducted a preliminary coverage and subrogation investigation and ultimately retained counsel within one month of the loss. Counsel later conducted an examination under oath of the insured. The claim was ultimately denied when the insurer determined that the claim was fraudulent.

In the ensuing “bad faith” lawsuit brought by the insured against the insurer, the insured sought production of claims log entries, emails and other documents that included communications with counsel before suit was filed as well as materials relating to the insurer’s subrogation investigation including a cause and origin report (interestingly, the court described the cause and origin report as having been commissioned as part of the subrogation investigation and not as part of the coverage review). The insurer resisted producing these materials and the homeowner brought a motion to compel discovery.

The court ordered production of the early communications with counsel that collected factual information only, and did not contain legal advice, finding that the “collection of information for the EUO’s, are part of the ordinary business function of claims investigation and therefore fall outside the attorney-client privilege.” With respect to the insurer’s materials relating to subrogation, including the cause and origin report, the court likewise ordered that these be produced, finding that such information was part of the “ordinary business functions in claims investigation” and was not protected by a work-product privilege.

This case demonstrates that while early retention of counsel is an important factor considered by the courts in determining the applicability of attorney-client and work-product privileges, it is not the only factor, and that if ordinary claims functions are assigned to counsel, the factual information collected by counsel may ultimately be discoverable. Similarly, subrogation materials collected in the ordinary course of claims investigation, and not in anticipation of litigation, are likewise at risk of being discoverable.

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Admissibility of Design Changes in Product Liability Cases

Most people have heard the old adage, “If it ain’t broke, don’t fix it.” But, is the opposite true? If something was fixed, does that suggest it was broken in the first place. In many cases, evidence that a product’s design was changed can be compelling evidence that the original product was defective. Many states have evidence rules which prohibit introduction of subsequent remedial measures. For example, in California the evidence code states: When, after the occurrence of an event, remedial or precautionary measures are taken, which, if taken previously, would have tended to make the event less likely to occur, evidence of such subsequent measures is inadmissible to prove negligence or culpable conduct in connection with the event.

The policy of encouraging safety measures is the primary reason for the rule. Many states have similar rules. However, there is an important exception recognized by California and 14 other states. The evidentiary rule in California is limited to negligence cases. In strict liability products cases, the subsequent remedial measures are admissible. California courts addressing this issue have held that excluding evidence of remedial measures in the strict liability context would be contrary to the public policy of encouraging distributors of mass-produced goods to market safer products. Schelbauer v. Butler Manufacturing Co. (1984) 35 Cal 3d 442.

Evidentiary rules on this issue vary from state to state. If you have a subrogation case that involves a product, it is worth checking into the evidentiary rule in your state on this issue. The following states allow admission of subsequent remedial measures in strict liability product defect cases: Alaska, California, Colorado, Connecticut, Georgia, Hawaii, Iowa, Massachusetts, Missouri, Nevada, Ohio, Rhode Island, South Carolina, Wisconsin and Wyoming.

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Effectively Connecting With A Jury In A Subrogation Trial

Consider this hypothetical:

It is 2 a.m. on a Monday morning. John and Jill Smith are fast asleep in the master bedroom while their kids are asleep down the hall. John awakes to the noisy smoke detector and the smell of smoke coming from their master bathroom. John goes to the bathroom to see what is happening. He opens the bathroom door and sees flames raging from the ceiling fan. John yells to his wife to gather the kids and run to safety while he helplessly tries extinguishing the fire with a fire extinguisher. The fire grows beyond John’s control. John gives up the fight then joins his family in the front yard. John and his family watch their home burn and watch as countless family heirlooms and memories are taken down by the flames.

Anne Amazing from Anyday Insurance arrives at the scene after the fire. Anne ensures the Smiths that they will have a warm place to stay while their home is rebuilt. While the sentimental value of the items cannot be replaced, Anne Amazing provides compensation to the Smiths so that they can begin rebuilding their life. While the wounds still exist, the Smiths can begin to live again.

Forensic investigation determines that the fire was started by a defective Fireprone Fan. Fireprone refuses to take responsibility for their actions and chooses to drag the Smiths and Anyday through contentious litigation. The cause of the loss is clear. The scope of the damages is clear. Regardless, Fireprone has taken Anyday to the eve of trial. Anyday Insurance contacts their subrogation counsel to discuss trial authority. The subrogation specialist Rachel Recovery is nervous. She informs counsel that her superiors are afraid of the jury bias against insurance companies. Even though Anyday has a very strong case, Rachel’s supervisor advised her to accept Fireprone Fans offer for 50% of the claim. Believing in her case but needing reassurance, Rachel asks the following question to subrogation counsel: Should I take the money or can you win this trial?

Many studies show that jurors tend to be biased against insurance companies. In fact, everyday experience confirms that this bias exists. However, juror bias should not prevent you from receiving a good result at trial. In fact, you can counteract juror bias if you conduct an effective voir dire. During voir dire, you must not only ask the right questions, but you must listen to every answer carefully. Even subtle answers that are unrelated to the topic of insurance can show that a juror would be biased against your client’s cause.

For example, an effective question that one can ask a juror to assess their potential bias is:

Q:  Do you think just because someone is wealthy that they do not deserve compensation if they have been wronged?

Depending on their answer, you may want to think about eliminating them from your jury.

Next, you must persuasively present your case. This is easier than you think. Many defense attorneys, will take complicated and emotional issues such as the insured’s lost belongings and reduce those items to mere numbers. This effectively takes the emotional factor out of the equation and strictly focuses on the logistics. Plaintiff’s counsel in a subrogation case cannot allow the case to be reduced to a matter of dollars and cents. Instead, I recommend focusing on what your insureds lost and the actions that your clients took to compensate them for their loss. I challenge you to remember your first fire inspection. Remember the devastation that family felt when they lost their home and all of their things. That is what your case is about.

Consider the hypothetical above. If that case went to trial, I would focus on: (1) how helpless John and Jill Smith felt watching their home burn; and (2) how much better they felt after Anyday compensated them for their loss and helped them begin to rebuild their future. When the Smith’s watched their home burn down and felt like they had nothing left, Anyday came in and provided them with just compensation.

Ask the jurors, where would the Smith’s be if it were not for Anyday? The Smith’s life was devastated by a defective fan that was supposed to cool and clear steam from their bathroom, not burn their house down. Destructive testing conducted after the Smith’s home burned down showed that the defective wiring in the fan turned it into a dangerous weapon. When Fireprone’s product burned down the Smith home, Anyday Insurance was there to rebuild while Fireprone was there to litigate. Without Anyday, the Smiths would have never had the opportunity to start again and rebuild their lives. The Smith’s would have been without a home and they would have never received compensation for their lost belongings.

Without Anyday, the Smiths would have been left to seek help from Fireprone. Without insurance companies, the public would be left to fend for themselves against these dangerous products and the companies who manufacture them.

When setting up your case for the jury, make it clear that you are trying to recover from the responsible party for the harm they or their product caused. In the hypothetical, Anyday compensated the Smith’s for their loss and now seeks to make Fireprone answers for their mistakes. This is why potential bias should not be enough to scare a subrogation carrier out of taking a case to trial. Subrogation carriers are fixers. They fix what has been broken and then make the breakers take responsibility for their actions. Subrogation investigations have discovered product defects that were harming the public. A product defect gone unnoticed is another building about to burn and another injury waiting to happen. Avoid the bias by telling the jury what your client really wants: To make those responsible take responsibility for their actions. Make sure that each juror is open to listening to your client’s story. Further, make sure that you tell the actual story. I reiterate, embrace the emotional! Do not let your client’s case be diminished to dollars and cents. You should never be afraid of taking your case to trial if you use these methods.

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Principal Architect Liability

 The California Supreme Court, in Beacon Residential Community Association v. Skidmore, Owings & Merrill LLP (2014) DJDAR 8787, recently held that an architect which serves as principal architect on a project owes a duty of care to future homeowners in the design of a residential building. Such architects owe that duty of care even when they do not actually build the project or exercise ultimate control over its construction.

The trial court had sustained a demurrer in favor of two architectural firms on the grounds that architects who made recommendations, but no final decisions on construction, owed no duty of care to future homeowners with whom they were not in privity of contract. The Court of Appeals reversed, concluding that an architect under those circumstances owes a duty of care under both common law and the Right to Repair Act.

In support of its holding, the Supreme Court, like the Court of Appeals, relied heavily on the factors set forth in Biakanja v Irving (1958) 49 Cal. 2d 647 and the Bily v. Arthur Young & Co. (1992) 3 Cal. 4th 370 decision. The Court summarized its opinion by outlining the following Biakanja factors: 1. Defendants’ work was intended to benefit the homeowners living in the residential units that defendants designed and helped construct; 2. It was foreseeable that these homeowners would be among the limited class of persons harmed by the negligently designed units; 3. Plaintiff’s members have suffered injury as the design defects have made their homes unsafe and uninhabitable during certain periods; 4. There is a close connection between defendants’ conduct and the injuries suffered; 5. Significant moral blame attaches to defendants’ conduct due to their unique and well-compensated role in the project as well as their awareness that future homeowners would rely on their expertise in designing safe and habitable homes; and 6. The policy of preventing future harm to homeowners reliant on the architects’ specialized skills support recognition of a duty of care.

The key to the Beacon decision is that the architects were the principal architects on the project – i.e. their design work was not subordinate to any other design professionals. It is yet additional proof that the concept of privity, if not dead, has been eroded to the point of irrelevance.

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Dispute Resolution Clauses (UK)

The New Law Journal is likely to soon feature the following article by Rob Kay discussing the very recent English case of Emirates Trading Agency LLC v. Prime Mineral Exports Private Limited [2014] EWHC 2104 (Comm).  The decision held that a clause which required parties to have friendly discussions prior to resorting to arbitration – a clause which is fairly common in contracts between Asian parties – was an enforceable condition precedent to the right to invoke arbitration. The case shows the willingness of the Court to apply decisions in support of enforceability (as in recent Australian, Singaporean and ICSID decisions).

The Facts

The applicant, ETA, agreed to purchase iron ore from the respondent, PMEPL. However, ETA failed to lift all of the iron ore expected and PMEPL raised a debit note in respect of liquidated damages pursuant to the terms of their contract. During the next shipment year ETA failed to lift any iron ore and so PMEPL served notice of termination claiming US$ 45m. They stated that if the claim was not paid within 14 days they reserved the right to refer the claim to arbitration without further notice. The claim was not settled and, in June 2010, the claim was referred to arbitration.

The Contract provided:

“In case of any dispute or claim arising out of or in connection with [this contract] … the Parties shall first seek to resolve the dispute or claim by friendly discussion. Any party may notify the other Party of its desire to enter into consultation to resolve a dispute or claim. If no solution can be arrived at in between the Parties for a continuous period of 4 (four) weeks then the non-defaulting party can invoke the arbitration clause and refer the disputes to arbitration.

All disputes arising out of or in connection with [the contract] shall be finally resolved by arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce (“ICC”). The place of arbitration shall be in London (“UK”)….

Discussions Between the Parties

In December 2009 PMEPL terminated the contract. After an exchange of communications a meeting between the parties took place in Goa (although there had been previous meetings in Dubai and Goa these were before the termination). In the meeting they discussed possibilities to avoid arbitration, but no solution was found. Another (unsuccessful) meeting occurred in March whereupon PMEPL agreed to wait for a couple of months after which they would file for arbitration.

The Arguments

ETA argued that the disputes clause required a condition precedent to be satisfied before the arbitrators would have jurisdiction to hear and determine the claim and that such condition precedent was not satisfied with the result that the arbitral tribunal lacked jurisdiction. ETA asserted that the condition precedent was “a requirement to engage in time limited negotiations” and the requirement was not fulfilled because there had not been a continuous period of 4 weeks to resolve the claims.

PMEPL argued that the suggested condition precedent was unenforceable because it was a mere agreement to negotiate, but that if it were enforceable then it had been satisfied and therefore the arbitrators had jurisdiction.

The Decision

The Judge, despite being directed to several (first instance) decisions tending towards unenforceability, found them unpersuasive and declined to follow them.

The Judge took the view that:
(i) The use of the word “shall” in the dispute resolution clause indicated that the obligation was mandatory and that friendly discussions were a condition precedent to the right to refer a claim to arbitration
(ii) The use of the word “may”, in distinction from the word “shall” in the first part of the clause, indicated that this was not a mandatory obligation
(iii) The meaning reasonably to be attributed to “for a continuous period of 4 (four) weeks” was not only for friendly discussions to resolve a dispute but also for a period of time to elapse before which arbitration may be invoked: the discussions may last for a period of 4 weeks but if no solution was achieved a party may commence arbitration; or the discussions might last for less than 4 weeks in which case a party must wait for a period of 4 continuous weeks to elapse before arbitration may be commenced.
(iv) There was obvious commercial sense for the dispute resolution clause: arbitration can be expensive and time consuming, so it was far better to try to avoid it by friendly discussions.

As a result the Judge found:

(a) The agreement was not incomplete – no term was missing; and

(b) the agreement was not uncertain – an obligation to seek to resolve a dispute by friendly discussions in good faith had an identifiable standard (fair, honest and genuine discussions aimed at resolving the dispute). The difficulty of proving a breach should not be confused with a suggestion that the clause lacked certainty; the parties had voluntarily accepted the restriction in the contract (and the court should be expected to enforce obligations which (a) have been freely undertaken; and (b) had the objective of avoiding a (likely) expensive and time consuming arbitration).

However he found that there had been “friendly discussions” at the meetings and they had lasted for more than 4 continuous weeks. As a result the arbitrators had jurisdiction to decide the dispute because the condition precedent to arbitration, although enforceable, had been satisfied.

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Does It Matter How Old My Product Is? – Statutes of Repose in Product Defect Cases

A frequent question that arises with claims involving alleged defective products is what effect, if any, the age of the product has on recovery. It’s a common misconception that simply because a product is “old,” any claim for damages caused by it are barred. However, the extent to which there could be recovery for damages resulting from a defective product depends upon whether the jurisdiction enacted any type of statute of repose for product liability cases and what that statute provides.

Statutes of repose differ from statutes of limitations and these distinctions often provide a source of confusion. The main distinction between statutes of repose and statutes of limitations is the triggering event from which the applicable period of time begins to run. A statute of limitation begins to run from the injury or the act giving rise to the injury (i.e. the date of the fire or flood in the typical subrogation case). A statute of repose begins to run from an event other than the event of an injury giving rise to the cause of action. In some cases, a statute of repose may bar an action before a cause of action even arises.

Most states have enacted statutes of repose related to construction activities (such as construction of real property). Some states have also enacted statutes of repose applicable to product liability claims which generally begin to run when the specific product is first delivered or sold to a consumer. Beyond that, every state that has a statute of repose has different and unique provisions and exceptions to how the statute applies.

A very small number of states have statutes with an absolute bar to asserting a product liability claim after a specific number of years. These statutes provide no exceptions to the rule that after a certain number of years after the product is first sold (the number of years vary), any claim is barred. More commonly are statutes which provide a number of exceptions to the absolute bar on recovery. Examples of exceptions include claims for fraud or misrepresentation. Other states have “rebuttable presumptions” whereby the court will presume that a product over ten years old is not defective until the claimant presents evidence to rebut that presumption. Finally, a few states have no statutes of repose, either because the courts have declared them unconstitutional or because they were never enacted. In those states, no matter how old the product is, the claim is not barred by any statute of repose.

Each state treats claims based on product defects very differently and that treatment is constantly subject to change by the courts. One should not assume that because a claim involves a product older than 10 years, for example, there is a legal bar to that claim. Those states that do have statutes of repose applicable to product defect cases also may have a number of exceptions that may render it inapplicable or trigger beneficial presumptions. If you have a claim involving an older product it is imperative that you review the laws of the specific jurisdiction you are in, including whether an applicable statute of repose applies.

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Subrogation and Strata Corporations in British Columbia: What You Need to Know

In British Columbia, condominiums are referred to as “strata corporations”. When a loss occurs at a strata corporation, there could be potential for subrogation. However, even though the wrongdoer may be known to the strata corporation, there are limitations on commencing an action. It is important to be aware of these limitations as proceeding otherwise could result in negative costs consequences for the insurer.

In British Columbia, prior to commencing an action, sections 171 and 172 of the Strata Property Act, SBC 1998, c 43, require a strata corporation to obtain a special resolution passed by a ¾ vote at an annual or special general meeting authorizing litigation. As well, written consent of unit owners must be obtained. Obtaining the appropriate authorizations will take a good amount of time and should be done well in advance of British Columbia’s general two-year limitation period. Therefore, should a loss occur at a strata corporation, it is best to advise a lawyer of the loss as soon as possible.

In addition, generally an insurer cannot proceed with subrogation against those named on the strata corporation policy. It is important to note that section 155 of the Strata Property Act, SBC 1998, c 43, deems “persons who normally occupy the strata lots” as named insured’s on the policy. Therefore, a tenant renting a unit from a strata unit owner could reasonably be considered to be “a person who normally occupies the strata lot”. That being the case, an insurer may not be able to pursue subrogation against a rental tenant even if the tenant caused the loss.

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A Case Example of the Negative Impact of Improperly Adjusting a Claim (U.K.)

Brit Inns Ltd v. BDW Trading Ltd is an illustrative example of where litigation (and in this case, a subrogated claim) can go wrong. Indeed, the judge said “[t]his litigation has gone wrong for everybody.” It does, though, have important aspects that can improve Claimants and Defendants approaches to subrogation claims.

Facts
A contractor caused flooding to a basement of a bar and restaurant during the course of their development work. The repairs to the basement and the subsequent losses that arose due to the closure of the business were handled by the insurers for the bar and restaurant. The claimants brought a subrogated claim for losses arising out of the defendant’s defective work. This comprised of the insurers’ claim of £660,000 and an uninsured claim, mainly loss of rent and profit, for £522,000. At an early stage liability was admitted. So far so good….

However, the claimant became unstuck when it became apparent that the loss adjusters had failed to correctly adjust the claim. The subrogated claim came under intense scrutiny and quantum could not be settled between the parties leading to a (costly) 6 day trial.

Damages – The Result
In relation to the material damage claim, the court said that where works had been completed by the time of the trial, the actual costs would almost always be the starting point of any assessment of the reasonable costs of reinstatement. In addition, where the scope of the works and their costs had been the subject of scrutiny by a third party, such as a loss adjuster, with a clear incentive to ensure that the sums paid had been kept to a minimum, the court would likely attach significant weight to the reasonableness of the sums paid out. In the instant case, however, the claim for the costs of the reinstatement works had been wholly exaggerated. It was found that invoices presented in support of the costs were unreliable, inadequate and impossible to analyze retrospectively and there was a lack of evidence of payment and checks by insurers that the work had been carried out. Indeed, at trial the adjuster conceded that there were items and invoices he had accepted but which should not have been paid! The inadequacies were such that the judge said they were “too numerous to identify comprehensively”. The Court also rejected the basis for the insurer’s assessment of the loss of profits claim, which was based on a competitor’s business, even though actual profit and loss figures were available upon which a reasonable adjustment could have been made.

The insurer, under the insured’s name, claimed about £660,000. The Court awarded just £157,467 (or 26%).
The insured claimed £522,000 as uninsured losses. The Court awarded a meager £16,403 (or 3%).

Costs – The Result
During the litigation the parties made several settlement offers. The judge endorsed the Court of Appeal’s statement in Fox v Foundation Piling Ltd that a defendant cannot expect to secure costs protection unless it makes a sufficient Part 36 offer (see author’s blog of 19 July 2011 for understanding of Part 36). As such, although the defendant had made a Part 36 offer it was not high enough to provide costs protection. For this reason, the judge awarded the Claimants their costs up until 30 May 2012, but deprived them of 40 percent of those costs because of their conduct in the claim: excluding all costs incurred in connection with the Claimants’ experts whose evidence was fundamentally flawed from the outset. As for the costs from 30 May 2012, essentially all the costs of the trial, the judge ordered the Claimants to pay the Defendant’s costs in full for the period of the trial. Furthermore, the Claimants had a smaller claim for the uninsured losses which amounted to about 10% of the total claimed. In relation to this claim the judge ordered that the Claimants pay 90% of the Defendant’s costs. In short, the Court found that it was the Claimants’ unreasonable conduct and unrealistic expectations that caused the matter to proceed to trial.

Comment
The case therefore serves as a warning that winning is not everything. In this case the Claimants spent substantially more in costs that the Defendant even had to pay them in damages. Winning on liability does not always guarantee an award of costs, even in a “loser pays” regime: the Courts will carefully consider the conduct of the parties when awarding costs.

Had the Claimant properly adjusted the loss, made a claim for a realistic figure, made a sensible offer early on and engaged with the Defendant properly, it is likely they would have recovered the majority of their costs. This case therefore serves as a reminder of the need to take early reputable advice on the merits of your claims, on both liability and damages.

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