Recent Illinois Case Provides Insight on Avoiding Implied Co-Insured Doctrine

tenant.1The Illinois supreme court case Dix Mut. Ins. Co. v. LaFramboise is often used to argue against landlord-tenant subrogation claims in Illinois. Under Dix, tenants are considered co-insureds under a landlord’s property insurance policy by virtue of making rent payments unless the lease clearly says otherwise. Because an insurer can’t pursue subrogation from an insured, Dix is regularly used as a defense to subrogation claims in situations where a tenant negligently damages a landlord’s property.

A recent unpublished opinion from Illinois’ Second District Appellate Court highlights lease terms that may overcome the obstacles to recovery posed by Dix. In Pekin Ins. Co. v. Murphy, the defendant tenants neglected a clogged toilet. The trial flushed the plaintiff’s subrogation lawsuit citing Dix. According to the appellate court, however, the lease “clearly allocated [to the defendants] the risk of water damage caused by defendants’ misuse and neglect of the premises.” The appellate court based its conclusion on clauses in the lease that (1) required the tenants to repair damage to the property resulting from their misuse or neglect and (2) required the tenants to maintain general liability insurance for property damage occurring on the property. Reinstating the plaintiff’s case, according to the court, was “consistent with the notion that subrogation . . . ‘designed to place ultimate responsibility for the loss upon the one on whom in good conscience it ought to fall and to reimburse the innocent party who is compelled to pay.’”

The lesson: be certain to thoroughly review the lease before flushing your next potential subrogation claim against a tenant in Illinois. Pekin v. Murphy illustrates lease language that an Illinois court may find unambiguously defeats the notion that the tenant is a coinsured under a particular lease.

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Establishing the Cause of a Fire Through Process of Elimination

process of elimination.1Establishing the cause of a fire through the process of elimination has been a hot topic in recent years, both among subrogation professionals as well as inside the National Fire Protection Association (NFPA).  In 2011, NFPA explicitly rejected negative corpus as a reliable methodology in fire investigation.  Specifically, NFPA 921-18.6.5 (2011) provided:

Inappropriate Use of the Process of Elimination.  The process of determining the ignition source for a fire, by eliminating all ignition sources found, known, or believed to have been present in the area of origin, and then claiming such methodology is proof of an ignition source for which there is no evidence of its existence, is referred to by some investigators as “negative corpus” …. This process is not consistent with the Scientific Method, is inappropriate, and should not be used because it generates un-testable hypotheses and may result in incorrect determinations of the ignition source and first fuel ignited. Any hypothesis formulated for the casual factors (e.g., first fuel, ignition source, and ignition sequence), must be based on facts. Those facts are derived from evidence, observations, calculations, experiments and the laws of science. Speculative information cannot be included in the analysis.

The NFPA’s rejection of negative corpus sparked much debate and discussion in the fire investigation community.  In the 2014 version of NFPA 921, the NFPA added information to better clarify its actual intent.  Although continuing to reject the use of negative corpus, the 2014 version of NFPA 921 recognizes that the process of elimination is appropriate in certain situations.  Specifically, NFPA 921-19.6.5 (2014) inserts three sentences addressing the appropriate use of the process of elimination:

Appropriate Use.  The process of elimination is an integral part of the scientific method.  Alternative hypotheses should be considered and challenged against the facts.  Elimination of a testable hypothesis by disproving the hypothesis with reliable evidence is a fundamental part of the scientific method.

Section 19.6.5 goes on to state that “the process of elimination can be used inappropriately.”  The remainder of Section 19.6.5 includes the exact language of Section 18.6.5 (2011), rejecting the use of negative corpus as a reliable methodology in fire investigation.

It is important for the subrogation professional to recognize that the process of elimination remains a viable method for determining the cause of a fire in the appropriate circumstances.  Because the 2014 version of 19.6.5 is so recent, it is impossible to determine the courts’ likely interpretation as to what those “appropriate circumstances” are.  We will continue to update this blog as the courts begin to address the application of Section 19.6.5 in future cases.

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Mobile Device Discovery

Cell Phone.1Smartphones and tablets have radically transformed the practice of law in recent years. People are using their mobile devices more frequently today for both business and their personal lives than ever before. However, for many litigators, mobile device discovery remains an unexplored frontier. The proliferation of smartphones and tablets has changed the face of a party’s electronic discovery obligations. Mobile device data can provide critical evidence in various practice areas.

Like any evidence, the starting point to determine whether to collect mobile device data is assessing the potential relevance of the data in light of the facts of your case. Typically, smartphones and tablets can store Short Message Service (SMS) and Multimedia Messaging Service (MMS) data, also known as text messages. The devices also store contacts/phone books, call history, memos/notes, calendars/date books, task lists, voicemail, e-mail, pictures, video and audio files, and application data. Additional data can be stored on a Secure Digital (SD) or microSD media cards. Media cards are typically used for overflow storage of photos, but can also save documents, audio/video and other types of files. The highest volume of mobile phone data collection is generated by routine corporate discovery of text messages. This is an inevitable consequence of text messaging supplanting e-mails as a primary means of business communication for many smartphone users. How a party’s employees and/or representatives use their mobile devices will determine the value of collecting that party’s mobile device data. A forensic analyst should be retained to ensure your collection of mobile device data is thorough and complete.

There are three commonly used mobile device collection programs by forensic analysts. They are Cellebrite, Mobile Phone Examiner, and Oxygen Forensic. Unfortunately, there are still technical limitations on mobile device data collection even with these programs. The forensic collection program must be able to “support” the phone or tablet it is analyzing in order to copy data from it. The data collection process can be hampered or slowed until a software manufacturer issues an update to their programs when data from newer smartphones or tablets is being collected. Most of the forensic collection programs also do not support older mobile devices since the software manufacturers determined it was not feasible or profitable to invest the time and expense to write software for what they considered to be outdated or obsolete devices. One other issue with the forensic collection programs is being able to copy some, but not all of the available data. The most significant example of this is the iPhone. The Apple iOS has a built-in file system encryption that limits what data types can be copied. Most notably, the inaccessible data on the iPhone includes e-mail and deleted photos. However, we can expect that as the mobile device technology advances, so will the forensic collection programs.

One of the unique challenges of mobile device discovery is the risk of inadvertent spoliation. Older model mobile phones have small storage capacity and as a result, data is routinely overwritten with normal usage. For example, moderate text messaging can fill up all the available SMS space in just a few weeks. Even less storage space is allocated to other types of data like call history. Once the storage space is filled, the device will automatically overwrite the space with new data. The risk of spoliation is lower with smartphones, but even the latest model smartphone has far less storage capacity than a computer.

Another challenge of mobile device discovery is the issue of ownership and control in a “bring your own device” to work world. Many companies allow employees to use their personal devices for business communications without addressing the ramifications for e-discovery in a “bring your own device” policy issued by the company. In fact, there are many companies that do not even have a “bring your own device” policy in place. Co-mingling personal and business communications obviously raises privacy issues that should be addressed in a “bring your own device” policy at work.

Data collected from smartphones and tablets is already critical in many cases, and it is only going to continue to grow in importance as more and more people use their mobile devices for both business and personal applications. Understanding the legal and technical underpinnings of mobile device discovery is vital in an e-discovery world.

 

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Obtaining Weather Data in the Internet Age

Sweather.1o far the Winter of 2014-15 has spared much of the country from the misery of last winter, but we still have a way to go. As we have just passed the halfway point of the four month season, it’s a good time to look at collecting weather data for subrogation claims where weather may be a contributing factor. Whether looking for temperature data, rainfall, snow totals, or hail, the subrogation professional will at some point have to find and interpret data. Subrogation counsel will have the added responsibility to make sure the evidence is admissible at trial if the case is pursued. Before the internet, the task took more time and there were fewer options. While John’s Weather Forecasting Stone would not have been the best option, it does have a certain elemental simplicity to it.

Fortunately, when a loss comes in today where weather data is necessary, there are many options to get basic data. As a general rule, you should obtain data from a source that was as close to your site as possible. When necessary, a meteorologist can be retained and relied upon to gather the data. Most cases, however will likely only require the records to examine. Below are some helpful websites that provide weather information:

1. For detailed historic weather information, go to:

www.wunderground.com

Put in the ZIP Code or location you want to inquire about in the space provided and click “search”. When you get to the page for that location, scroll down to the “Almanac” section and click on the link for “Almanac for (current date)”. When you get to the almanac page, you can select any date going back to 1942. For any given date, you can get precipitation, wind speed (both sustained and gust), temperatures, humidity, averages and record for the date. You can get this data presented in weekly or monthly form as well as by date. The site will generally give you the call sign for the airport from which the weather data is obtained, making it easier to determine just how far from a particular loss site the weather data was obtained.

2. This site provides free temperature data for 7 day periods:

http://weathersource.com/past-weather/weather-history-reports/free?gclid=CN6Jrp_xtMMCFUwV7AodES8A2w

3. If you ever need to track the amount of hail at a given location, this paid service has a minimal cost but can be very helpful.

https://www.weatherfusion.com

There are other sites that provide information that can be helpful for investigating a loss. The trial lawyer must be aware, however, that if the case goes to trial, the data is only helpful if admitted as evidence. There are several ways to ensure admissibility. Federal Rule of Evidence 902 (4) for Certified Copies of Public Records can be used for “self-authenticating” in conjunction with records obtained from the National Oceanic and Atmospheric Administration or other recorded or official records. The NOAA has a website with information on how to obtain certified weather data and the costs. If using an expert, and the records are not official or public records, he can testify how he obtained the records and lay the proper foundation. Technically, the records themselves are hearsay and must satisfy a level of trustworthiness to be admitted at trial. If the records themselves aren’t admissible, he may still be able to give an opinion under Federal Rule of Evidence 703 if an expert in his field would reasonably rely on this type of data in forming an opinion. The safest course is self-authentication as the records are admissible without any testimony to lay the foundation.

As with many things in life, the internet has made gathering information easier but making sure it is reliable and can be used at trial is still an issue.

 

 

 

 

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A Deal Is Not A Deal, Until It’s A Deal

CSignature.1alifornia Code of Civil Procedure section 664.6 was enacted in 1981 to provide a summary procedure to enforce settlements. That statute provides that a settlement may be enforced by motion either when an agreement is signed by all parties outside the presence of the court or when the settlement terms are placed on the record in open court. Notwithstanding its simplistic language, that code section continues to spawn a litany of appellate decisions.

The latest case interpreting that code section, J.B.B. Investment Partners, LTD. V. R. Thomas Fair 2014 DJAR 16071, held that an automatically generated e-mail signature was insufficient to comply with the terms of that statute. The Fair case arose in the context of an alleged Ponzi scheme involving Arizona real estate. Plaintiffs contended that defendants had made fraudulent representations and omissions to induce their investment in apartments.

Prior to instituting litigation, numerous e-mail negotiations were exchanged in an attempt to resolve those disputes. Based on Fair’s electronic signature at the end of one of those e-mails, plaintiffs asserted that a settlement had been reached. The trial court enforced the purported settlement under California’s Uniform Electronic Transactions Act (UETA) contained in California Civil Code section 1633.1 et seq. and under the “common law of contract.” The appellate court reversed, holding that Fair’s printed name on an e-mail was ineffective to constitute an enforceable settlement under 664.6.

While acknowledging that under UETA an electronic signature can suffice under certain circumstances, the Court of Appeals noted there was no meeting of minds at the time Fair printed his name on the subject e-mail. Further, the Fair court emphasized there was no evidence that the parties consented to conduct the transaction by electronic means as required by UETA . To the contrary, the appellate court found at the time of the subject e-mail there were still a number of settlement terms yet to be finalized. The Court of Appeals also concluded that the e-mail signature was insufficient under contract law to bind Fair, as the record was devoid of evidence demonstrating that Fair intended to execute a settlement agreement by electronic means.

The moral of the Fair case-All is Fair in Love, War and Contracts! To quote movie mogul Samuel Goldwyn, an oral contract is not worth the paper it is written on!

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Oregon’s Revised and Expanded Product Liability Statute of Repose

hourglass.1Oregon, like many states, has a statute of repose (“SOR”) that sets a time frame in which product liability lawsuits must be filed. Prior to 2009, ORS 30.905(2), the statute governing Oregon’s SOR, set an 8 year limitation period that started to run when the product was first purchased for use or consumption. The rule was clear: if a lawsuit was not filed 8 years from that date, it was time barred. Simply stated, case closed.

In 2009, the Oregon legislature revisited its SOR. First, the legislature extended the SOR from 8 years to 10 years. Second, and more importantly, the legislature added a “look away” provision which allows a claimant to extend the SOR further if the state where the product was made or imported into has a SOR longer than 10 years.

ORS 30.905(2), as amended in 2010, now reads as follows:

A product liability civil action for personal injury or property damage must be commenced before the later of:

(a) Ten years after the date on which the product was first purchased for use or consumption; or
(b) The expiration of any statute of repose for an equivalent civil action in the state in which the product was manufactured, or, if the product was manufactured in a foreign country, the expiration of any statute of repose for an equivalent civil action in the state into which the product was imported.

Accordingly, if a product in Oregon is more than 10 years old, the “look away” language in subsection (b) above requires that a determination of the SOR for the State in which the product was manufactured or imported into be made in any product liability claim. If the manufacturing/importing state has a SOR longer than 10 years or no SOR at all, the claim in Oregon may not be barred. Interestingly, 5 states have SORs longer than Oregon’s and 32 states do not have product liability SORs at all. A question therefore exists regarding what SOR time period to apply if the state where the product was manufactured does not have a SOR. In this situation, manufacturers argue that if the state where the product was made has no SOR, Oregon’s 10 year SOR applies. Claimants whose product is beyond the 10 year statute argue that if the state where the product was made has no SOR, the time period is indefinite.

In revising ORS 30.905, the Oregon legislature debated the pros and cons of the proposed changes to the SOR extensively. An examination of the debates suggests support for the argument that the legislature did, in fact, contemplate that claimants would benefit from an expanded and/or indefinite SOR if the look away state does not have a product liability SOR. The Legislative News Release that was issued once the bill was passed is telling:

This Senate passed legislation this morning that keeps courtroom doors open for consumers harmed by dangerous products that are greater than 8 years old. SB 284 increases the statute of ultimate repose – age of a defective product – for product liability actions from its current limit of 8 years to 10 years. The bill also includes a “look away” provision to the state of manufacture, giving the injured party the length of time allowed in the state where the product was originated.

Oregon Legislative News Release, 5/26/2009 (underlining added).

As you can see, determining exactly when Oregon’s product liability SOR runs is not as straightforward as it might seem.  This blog will be updated should any further developments occur that provide clarity to exactly how to interpret the “look away” provision.

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Colorado Homeowners Protection Act Overrides Subrogation Waiver

Home Protection.1The Denver office of Cozen O’Connor recently arbitrated a construction defect caused subrogation loss which occurred during a remodel of a high end vacation residence where the insured and the general contractor had entered into an AIA form agreement, including the standard general conditions. As expected, the general contractor raised the subrogation waiver contained in the AIA agreement as a complete bar to the subrogation claim and, alternatively, the waiver of consequential damages provision in the AIA agreement as a bar to recoverable damages.

Cozen O’Connor argued, pursuant to the Homeowners Protection Act of 2007 (“the HPA”), the AIA waiver of subrogation was void as against the public policy of the State of Colorado and that any waiver of damages was void unless consistent with the language of the HPA. The HPA’s stated purpose was to preserve Colorado residential property owners’ legal rights and remedies. It further provided that “in any civil action or arbitration proceeding described in section 13-20-802.5(1), any express waiver of, or limitation on, the legal rights, remedies or damages provided by the ‘Construction Defect Action Reform Act’, this part 8 . . . are void as against public policy.” C.R.S. § 13-20-806(7)(a). This subsection only applies to the legal rights, remedies or damages of claimants asserting claims arising out of residential property. C.R.S. § 13-20-806(7)(c). “Claimant” is defined as a person (other than the attorney general) who asserts a claim against a construction professional that alleges a defect in the construction of an improvement to real property. C.R.S. § 13-20-802.5. By definition, Claimant would include a subrogating insurance carrier.

In addition, C.R.S. § 13-20-806(7)(a) provides that any effort by a contractor to expressly waive or limit a Claimant’s damages for a construction defect by agreement is void as a matter of law. Pursuant to CRS § 13-20-802.5, damages to real property and for loss of use (allowed living expense) are specifically permitted by CRS § 13-20-802.5 and cannot be waived.

The Arbiter ruled that both the AIA subrogation and consequential damage waivers were void as a matter of law. We believe that this is the first time that the interplay between the HPA and subrogation waivers and contractual limitations of liability has been addressed by an Arbiter or the Colorado courts. The HPA provides a strong argument when faced with AIA contractual defenses in a residential subrogation loss caused by a construction defect.

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Gross Negligence in Oil Well Drilling: Alberta Queen’s Bench Clarifies the Standard Required of Oil & Gas Drilling Operators

oil.1 The author of the following blog post, Robert Sottile, is an Articling Student with Cozen O’Connor.

The recent decision of the Alberta Court of Queen’s Bench in Bernum Petroleum Ltd v Birch Lake Energy Inc (Bernum)[1], outlines the requirements to establish gross negligence in losses involving the drilling and operation of oil wells.

Background

In Berunum, the plaintiff and defendant entered a joint operation agreement to develop oil wells on certain lands and to contribute proportionally to the related costs. Bernum, the operator of the drilling operations, sought to recover Birch Lake’s share of development costs in relation to a specific well. Birch Lake refused to pay its share of development costs, contending that Bernum was grossly negligent while drilling and developing the well.
Bernum and Birch Lake’s relationship in the joint operation agreement was governed by the 2007 Canadian Association of Landmen Operating Procedure (the “CAPL”), which limited Bernum’s liability to Birch Lake to cases of gross negligence or wilful misconduct. Birch Lake alleged that Bernum was grossly negligent though employing a mud system it had experienced problems with in a prior well. Birch Lake’s expert witness contended that this inadequate mud system prevented Bernum from drilling as far down as the well, which led to issues with its ability to prevent collapse.

The Court’s Description of Gross Negligence

In articulating the standard for gross negligence, the Court made reference to prior definitions in the caselaw, which included, “a…marked departure from the standards [of] reasonable companies…in a like position” and “conscious wrongdoing…or a very marked departure from the standard of care required.” The Court also looked for guidance in the definition of gross negligence in the CAPL, which defines it as,

any act omission or failure to act…by a person that was intended to cause, or was in reckless disregard of, or wanton difference to, the harmful consequences to the safety or property of another person…which the person acting or failed to act knew (or should have known) would result from such act…

After looking at these authorities, the Court stated that the unifying characteristic is the requirement that the wrongful actor have an intention to commit the grossly negligent act alleged. As a result, the Court concluded that in order to establish that a person was grossly negligent, there must be some “degree of intentionality in the act or omission.”

The Court’s Conclusion in Bernum

The Court concluded that Birch Lake failed to establish Bernum was grossly negligent in drilling the oil well. Birch Lake did not provide any evidence that the difficulties experienced in the well would have been avoided if Bernum had used a different mud system.

In the Court’s view, it was problematic that Birch Lake did not lead any evidence of the industry standards to compare the actions of Bernum. The Court noted that determining whether a particular individual acted grossly negligent must be determined in a context specific manner with reference to the oil and gas industry. Factors to be considered include that oil and gas is a “high-risk, speculative business…many things can go wrong in the course of drilling, resulting in unanticipated delays and cost overuns. Often the decisions in the course of drilling must be made quickly without time for extended consultation.”

Commentary

This decision is of importance to insurers looking to pursue subrogation for a losses relating to oil drilling and well development. While this decision outlines a very high threshold to satisfy gross negligence, it demonstrates the Court’s willingness to address the issue in the context of oil well operation and development by providing a standard required when conducting drilling operations. When assessing recovery potential for such claims, attention should be paid to the court’s comments on assessing gross negligence through a context-specific analysis of the oil and gas industry and the importance to consider industry standards.

This decision is also important for insurers looking for recovery potential from acts of gross negligence outside the oil and gas industry when a tortfeasor has limited its liability to an insured. The Court’s articulation of the standard for gross negligence will likely also be applicable to other loss scenarios when a defendant’s liability is limited by contract to acts of gross negligence.

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Watts Class Action Settlement Info – Acetal Plastic Toilet Connectors

Toilet Connector.1On August 5, 2014, a Class Action settlement has been reached with Watts Water Technologies, Inc. and Watts Regulator Co. (“Watts”) regarding toilet Connectors with coupling nuts made with acetal plastic designed, manufactured, and/or distributed by Watts between 1999 and July 2009. The settlement covers the purchase and possession of a Watts toilet connector, as well as, payments made to repair property damage suffered as a result of the failure of a Watts toilet connector.

The Honorable William H. Orrick, of the United States District Court for the Northern District of California, is overseeing this Class Action. The settlement resolves the case Trabakoolas v. Watts Water Technologies, Case No. 3:12-CV-01172, which claimed that the acetal coupling nuts, instructions, and warnings on these Watts toilet connectors were defective. The lawsuit had claimed that Watts’ negligence led to the failure of the toilet connectors. Watts denied all the claims and allegations in the lawsuit. Watts maintained that the acetal coupling nuts on its toilet connectors are not defective in any respect, that the failure rate is very low and that any failures are the result of other factors (such as improper installation, misuse, or product lifespan).

The Court did not decide in favor of Plaintiffs or Watts as part of the Class Action settlement. Rather, both sides agreed to settle the case to avoid the cost and risk of a trial. Watts did not admit any fault and continues to deny any wrongdoing. As such, the settlement of the Class Action does not mean that any laws were violated.

Under the Settlement Agreement, for payment of property damage due to failure, Settlement Class Members can recover up to 25% of documented costs of repairs for property damage caused by the failure of an acetal coupling nut of a Watts toilet connector, with a minimum recovery of $4. The Claims Administrator will review claims to determine whether they are eligible and timely and pay the amount of the claims. Claims for damage that occurred from January 1, 2009, to January 1, 2012, must be submitted and/or postmarked on or before August 5, 2015. Claims for damage that occurred after January 1, 2012, must be submitted and/or postmarked on or before August 5, 2019.

The Settlement Agreement provides precise and more detailed explanations of the benefits to members of the Settlement Class, as well as, specific documentation required to submit a claim. For more of these details, please check out the class action website at www.toiletconnector.com.

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Spoliation in Texas: A New Approach

spoliation.1The Supreme Court of Texas recently revisited the concept of spoliation of evidence in Brookshire Brothers, Ltd. v. Aldridge. The case involved a slip and fall at a Brookshire Brothers grocery store. In discovery, the grocery store produced a video approximately eight minutes in length starting just before the plaintiff entered the store and concluding shortly after his fall. The plaintiff later requested an additional two-and-a-half hours of additional footage from the store cameras. The grocery store was unable to comply with that request because the footage had been recorded over almost a year earlier.

The trial court ultimately allowed the jury to hear evidence on whether the grocery store spoliated the video, submitted a spoliation instruction to the jury and allowed the jury to decide whether spoliation occurred. The jury determined that the grocery store was negligent and awarded the plaintiff damages. The court of appeals later affirmed the trial court’s judgment on the verdict, holding that the trial court did not abuse its discretion in admitting evidence of spoliation or providing the jury with a spoliation instruction.

The grocery store appealed to The Supreme Court of Texas. The Court noted that to address spoliation, trial courts must have wide discretion in remedying such conduct and in imposing sanctions to deter it. However, the court also noted that the imposition of a severe sanction (such as a spoliation jury instruction) can shift the focus of the case from the merits of the lawsuit to the alleged improper conduct of one of the parties during litigation. In order to combat this potential problem, the Court decided that greater clarity was needed regarding whether spoliation occurred, and the parameters of a trial court’s discretion to impose an appropriate remedy.

In crafting a new approach to the issue of spoliation, the court held that a spoliation analysis will involve a two-step judicial process: (1) the trial court must determine, as a question of law, whether a party spoliated evidence, and (2) if spoliation occurred, the court must assess an appropriate remedy. To conclude that a party spoliated evidence, the court must find that (1) the spoliating party had a duty to reasonably preserve evidence, and (2) the party intentionally or negligently breached that duty by failing to do so. Spoliation findings-and their related sanctions-will now be determined solely by the trial judge in order to avoid unfairly prejudicing the jury by the presentation of irrelevant facts to the merits of the underlying lawsuit.

This decision is an important one for subrogation professionals that handle claims in Texas. No longer will a party be able to assert that it will obtain a spoliation instruction without a court first determining that such an instruction is warranted as a matter of law. The other important takeaway from this decision is the fact that the spoliation must be intentional or negligent. However, the court noted that with respect to negligent spoliation, the act must so prejudice the non-spoliating party to a degree that it is irreparably deprived of having any meaningful ability to present a claim or defense. This is obviously a high hurdle to clear which should alleviate a number of the unfounded spoliation claims in Texas that subrogation professionals often encounter.

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