Snow: A Skier’s Delight, a Rooftop’s Demise

As winter approaches and snow and ice begin to cover parts of the nation, property owners in the affected areas will begin to rely upon snowmelt systems to keep roofs free of snow and ice. In recent years, to avoid the eyesore of heat cable running along the rooftop, snowmelt systems that can be installed underneath roofing shingles have been developed.

These hidden snowmelt systems, however, can turn a snow laden roof into a ball of fire. The components of the system are relatively simple: a conductive material capable of generating heat (typically resembling a mesh screen or traditional heat cable), a power source and an activation device. When the device detects the presence of snow on the roof, current flows through the conductive material which then generates heat to melt the snow or ice.

Although the components of the snowmelt system are simple, installation of the system is technical. Care must be taken to avoid penetrating the conductive screen or cable and any metal flashing or drip edge material with roofing nails or other fasteners. If that happens, a short in the system can follow and areas of high resistant heating can ignite combustible roofing materials.

Oftentimes, manufacturers will include safety mechanisms to de-energize an electrical system if a short is detected. At least one manufacturer of these snowmelt systems, however, has failed to include any ground fault protection in its system, claiming that its internal calibration system detects any ground faults. Not only does the lack of ground fault protection violate the National Electric Code, but the internal calibration system is not fool-proof as the short can be programmed into the system if the calibration is done while there is a penetration present that is causing a short.

If you have a fire loss and the potential cause is not readily apparent, be sure to look under the shingles for this potential ignition source. The cause of the fire may be attributable to defects in the product, the installation of the system, or a combination of the two, so be sure to invite the manufacturer and any installer to a joint scene examination. Additionally, it would be prudent to determine if any roofing repairs were done following the original installation of the system as a subsequent roofer may be unaware of the danger lurking beneath the roof’s covering. Following a scene inspection, the artifacts should be examined in a lab, where an x-ray can highlight any penetrations through the mesh and metal flashing, which results in the short. The control panel, transformer and activation device should also be collected to avoid potential spoliation arguments and solidify your theories of recovery against the responsible parties.

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Fire Prevention Week – Reflection on the Great Chicago Fire of 1879

As part of Fire Prevention Week (October 7-13), it is timely to reflect on NFPA’s video on the Great Chicago Fire of 1879.  The link to the video can be found here.  While many lessons have been learned in fire prevention, fire spread, insurance coverage, and subrogation recovery since 1879, there are still many challenges and legal issues when it comes to catastrophic fire incidents. We encourage subrogation professionals to take a moment this week to learn what fire prevention programs are taking place in your area.  As one example, our San Diego office showed support for the San Diego Fire Rescue Foundation this weekend in their charity 5k run.  Check out NFPA’s Fire Prevention Week’s website for more information.

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Oregon Supreme Court Clarifies Product Liability Statute of Repose

In a 2014 blog post, I reported on Oregon’s expanded product liability statute of repose (“SOR”). The point of that previous blog post was that in 2009 the Oregon legislature made an important revision to 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, 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, the claim in Oregon is not barred. Interestingly, 5 states have SORs longer than Oregon’s and 32 states do not have product liability SORs at all. A question therefore existed regarding what SOR time period to apply if the state where the product was manufactured/imported does not have a SOR.

In Miller v Ford Motor Co., the Oregon Supreme Court was recently asked to resolve this issue. The case was heard on certification from the Ninth Circuit Court of Appeals. In order to determine how to interpret the statute, the Oregon Supreme Court analyzed the legislative history of ORS 90.305. In a well-reasoned decision, the Oregon Supreme Court adopted Miller’s interpretation of the statute and held that under ORS 30.905(2), when an Oregon product liability action involves a product that was manufactured/imported in a state that has no statute of repose for an equivalent civil action, then the action in Oregon also is not subject to a statute of repose (Miller v. Ford Motor Co., June 7, 2018, Nelson, A.). The Court noted that Oregonians in Miller’s position already could sue in the state of manufacture if that state’s statute of repose—or lack thereof—permitted it. The Court held that it was not the legislature’s intent to significantly expand liability, but to allow Oregon plaintiffs to bring their claims involving out-of-state manufacturers in Oregon courts. Allowing an Oregon plaintiff to bring the same action in Oregon that could be brought in the state of manufacture met this goal.

Thus, subrogating carriers in Oregon that have cases involving products more than 10 years old are no longer time barred if the state where the product at issue was manufactured/imported has no statute of repose.

 

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The Insured Was On Vacation When…

After handling any sizeable amount of subrogation claims involving water damage, you may have asked yourself, “why is the insured always on vacation when a loss occurs?” In fact, most of the loss descriptions on the Notice of Loss will start with the sentence, “The insured was on vacation when…” It seems by a superficial look that whether the insured leaves the home for a weekend getaway or long vacation that is the time the water loss will occur. While coincidence and cosmic phenomenon may play a role, there are more practical reasons for these events.

A large portion of water losses involve a failed water line. The causes of these losses range from improper installation, material defects, surges in water pressure, etc. While water pressure surges may be rare occurrences, these others are not. Whether the insured is at home or not, water is always flowing through the plumbing and adding pressure to the water lines, hoses, filters, etc. If a water line is improperly installed or there is a defect in the material of the water line or its connections, the water line is bound to fail at some point in time. Of course the most obvious reason for the loss is that the insured was not at home to observe any imminent issues with the water line and preempt significant water damage. When the water line fails while the insured is at home, the insured has ample opportunity to turn off the water and have the water line repaired. Water line failures do otherwise seem relatively opportunistic.

In reviewing failed water line loss, the primary targets for liability are the third party installers, plumbers, maintenance workers, product manufacturers, and negligent users. However, with the idea that the occupants are often away from the home when the losses occur, there is a potential liability claim against the occupants for failing to turn off the water before a long trip away. Some lease agreements and homeowner association policies advise occupants to turn the water off in the residence if the occupants will be away for a period of time (usually longer than 3 days). These types of policies recognize the potential water issues that may arise while the occupants are away and places some responsibility on them to adhere to the rules and prevent potential property damage. These policies are more prevalent in condominium complexes. Reliance on such policies is not a guarantee of subrogation recovery, but one avenue to investigate.

 

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High Court in England and Wales Rules on Waivers of Subrogation in Construction Project

High Court in England and Wales holds that project insurers can bring a subrogation claim against a sub-contractor on a project where the sub-contractor has expressly agreed to obtain separate insurance cover for the project.  Haberdashers’ Aske’s Federation Trust v Lakehouse Contracts & Ors [2018] EWH 558 (TCC)

It is common practice in the construction industry for the contracting parties on a project and the sub-contractors to be covered jointly for specified loss and damage by project insurance (often referred to as Contractors’ All Risk insurance). The project insurance will cover specified loss or damage arising whether caused by one party’s fault or not, so as to avoid potential litigation between the parties.

Such was the case in these proceedings, where it was a term between the main contractor (and First Defendant), Lakehouse Contracts Ltd (“Lakehouse”), who had been contracted by the Claimants to undertake major work at a school, that project insurance would be taken out to cover the parties and the sub-contractors, and that the project insurers would waive all rights of subrogation against any insured party.
Lakehouse subsequently entered into a number of sub-contracts, including with the Second Defendant, Cambridge Polymer Roofing Ltd (“CPR”) who were to carry out roofing works. It was an express term of that sub-contract that CPR would obtain its own liability insurance for £5 million.

Following hot works undertaken by CPR, a fire broke out causing extensive damage to the building, its contents and the works totaling £11 million. The Claimants subsequently issued proceedings against Lakehouse and a settlement of £8.75 million was paid by the project insurers. The project insurers then sought to recover £5 million (being the policy limits of CPR’s policy) from CPR by way of a subrogated claim in the name of Lakehouse.

CPR’s insurers argued that CPR was a co-insured under the project insurance because the project policy was effectively a standing offer by the project insurers to cover anyone who subsequently became a sub-contractor on the project as a co-insured, and therefore Lakehouse was barred from pursuing a subrogation claim against those sub-contractors.

The project insurers accepted that the sub-contractors who Lakehouse contracted with, both before and after the inception of the project policy, would be covered under the project policy, however they argued that there was an exception to this position in the case of CPR, as there was an express term in the sub-contract that required CPR to take out its own liability insurance. As a result, CPR were not co-insureds under the project insurance, and the project insurers were therefore free to pursue them by way of a subrogated claim.

After analysing the ways in which cover becomes available to a sub-contractor under a Project Insurance policy, the Judge agreed with the project insurers that the project policy is a standing offer to insure unnamed contractors who, on the execution of a relevant sub-contract, become co-insureds and beneficiaries of the project policy and are implicitly protected from subrogation claims brought by the main contractor. In examining the contention that CPR was nevertheless still liable, the Judge held that regardless of any “standing offer”, the intention of the parties is key. In this instance, the express term in the sub-contract requiring the sub-contractor to obtain its own insurance meant the sub-contractor would have intended to rely on its own insurance rather than the project insurance. CPR had no right to rely on a waiver of subrogation clause under the project policy.

It is worth noting that in this case, the subrogating project insurers only sued CPR for £5million (being CPR’s indemnity under its own insurance policy) rather than the full £8.75 million it had paid out under the policy. However, the Judge indicated that the £3.75 million which fell outside the scope of CPR’s own cover would not have been recoverable from CPR, because it would not have been the intention of the parties to expose the sub-contractor to the whole liability for losses arising out of the occurrence of an insured event under the project policy, without regard to the sub-contractors own insurance policy.

Comment: This Court’s finding serves as useful guidance on the question of whether or not a sub-contractor is a co-insured on a Contractors’ All Risk policy and whether the policy insurers can subrogate against that particular sub-contractor. It comes as welcome news for subrogating insurers, who have now been given the means to circumvent their way around a defence of co-insurance in subrogated claims against sub-contractors, if they can demonstrate that such a defence would be contrary to the express terms of the sub-contract. However, the decision will be unwelcome news for sub-contractors who will want to avoid any specific insurance obligations in the sub-contracts, or at least ensure that the terms of the sub-contracts are consistent with any Contractors’ All Risk policies in place so that they are considered to be co-insured.

The official transcript can be found here:
http://www.bailii.org/ew/cases/EWHC/TCC/2018/558.html

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Proof of Purchase: Need Adequate Support that an Alleged Seller Indeed Sold the Defective Product

A recent opinion from the U.S. District Court for the Northern District of Alabama highlights how the failure to identify the seller of a defective product can lead to dismissal.

In Jackson v. Wal-Mart Stores, Inc., No. 2:17-cv-00634-AKK (N.D. Ala.) the court was faced with a plaintiff who was severely burned when a gasoline container exploded and caught fire. At the time, the plaintiff was burning a small pile of debris in his backyard and poured gasoline from the container onto the flames. This led to an ignition of the gasoline inside the container.

The plaintiff properly identified the manufacturer of the container as Blitz USA, Inc. The specific defect alleged was the containers lacked a flame-arrestor to prevent ignition, which allowed the gasoline to ignite and explode. However, the manufacturer entered bankruptcy several years prior, in part, because of liability arising from similar lawsuits and the plaintiff would be unable to recover from it.

Without a viable manufacturer to pursue, the plaintiff focused his attention on the presumed seller, Wal-Mart. However, Wal-Mart challenged its liability and claimed that the plaintiff was unable to plausibly establish that the subject container was indeed purchased from Wal-Mart, instead of some unknown seller. The court was faced with deciding whether there were sufficient facts to establish more than a “mere possibility” that the container was purchased from Wal-Mart. Ultimately, the plaintiff failed to meet its burden.

The facts the plaintiff relied on to support his contention were shaky at best. In providing a history of the subject container, the plaintiff explained that it was given to him by his father who allegedly purchased it from Wal-Mart. The only support he could provide that his father purchased it from Wal-Mart was (1) Wal-Mart sold the containers during the relevant time period; (2) his father purchased “everything” from Wal-Mart; and (3) Wal-Mart was the only seller within 40 miles of where his father lived who sold the type of container at issue. Importantly, the plaintiff did not testify that his father claimed to purchase it from Wal-Mart, but was instead relying entirely on circumstantial evidence for this contention. Recognizing that the container could have been purchased from another retailer near his home, or before the father moved to the town, or borrowed from someone else and never returned, the court determined that the plaintiff failed to show that it was more than a “mere possibility” that Wal-Mart was the seller.

At the end of the day, it’s important to recognize that a plaintiff requires some reasonable evidence to support a contention that a certain seller did in fact sell the product. Here, we see an extreme example of a plaintiff lacking meaningful support for claiming who sold a particular product. This case highlights the importance of building a strong foundation when alleging the product was purchased from a certain seller.

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Utah – Filing Suit in Name of Carrier Confirmed

In July of 2016 Leslie Hulburt and I reported that the Utah Appellate Court recently issued a decision, if read out of context, could be used to suggest that a subrogation case in Utah must be brought in the name of the insured. See Wilson v. Educators Mut. Ins. Ass’n., 2016 UT App 38.  The Wilson court was considering a case where subrogation was being sought by an insurer that had made medical payments to a victim in a car accident. The negligent driver had a policy limit of $100,000. In addition to the subrogating carrier, the victim’s parents had claims against the driver.

A petition for review of the Wilson decision was been submitted and granted by the Utah Supreme Court.  The Supreme Court reversed the Appellate Court in a published decision on September 28, 2017.  The Court discussed and upheld Equitable and Contractual Subrogation rights of the insurer.

The Court found that the law of equitable subrogation, the insurer’s right to stand in the shoes of the insured after payment is made, is well established in Utah.  This principal was reaffirmed by Utah Code section 31A-21-108 which states that “subrogation actions may be brought by the insurer in the name of the insured.”  The Court went on to say that this statute does not prohibit an insurer from suing in its own name.  However, equitable subrogation places limits or conditions on the insurer such as the insured’s “right to first recovery (made whole)” and “splitting a cause of action.” These limitations can be modified by contract.

The Court found that an insurance contract between the insured and insurer can modify equitable subrogation limitations by allowing the insurer to sue in its own name and proceed with recovery before the insured is made whole.

The take away – insurers can sue in their own name or that of the insured in the State of Utah.

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Negotiation Strategies for Subrogation Cases Simplified from a Toddler’s Point of View

Toddlers are indeed the best of the best when it comes to negotiating. Every parent is put to the test when it comes to enforcing the rules and avoiding temper tantrums. Even the savviest of attorneys have caved when dealing with their kids. There are some lessons we can learn from these little, but fierce negotiators.

First is the slow game. This is when the parties are very far apart on coming to terms on a settlement and one party is only moving in the smallest of increments towards a compromise. This is similar to the toddler who keeps asking for another bed time story. Of course, the toddler wants to drag out bedtime as long as possible. It doesn’t seem like he has a number of stories in mind, except the infinite “one more.”

It is Plaintiff’s counsel’s role to identify and understand the approach in order to play it successfully. Plaintiff must not make large jumps in negotiating. Plaintiff’s counsel must demand that Defendant reiterate and clarify his position at each step. Most importantly, Plaintiff must have patience. If the Defendant wants to take it slow, with patience, you might get to your goal.

The second toddler strategy is when they only take a couple bites of their vegetables at dinner, but refuse to eat them all. In cases where liability is unclear, evidence is missing or has been spoiled, persons of interest are unavailable, and/or there are other legal bars, evidentiary issues, or time limits to prevent a full recovery, obtaining some recovery, even if nominal, is a win. Especially considering the costs to the client.

Some Defendants recognize that litigating the matter is not worth their time, but that some liability for the loss can be placed in their corner. If the Defendant offers a nominal settlement (i.e., cost of defense offer), Plaintiff’s counsel will advise the client on the costs and benefits of pushing the case further. Plaintiff’s counsel never wants to needlessly waste a client’s money, time, or resources on litigation where there are significant weaknesses in a case.

Lastly, if a Defendant digs his heels in, standing firm on denying liability, this is basically the toddler equivalent- the “nut-uh” defense. While the Defendant can sit at a mediation with his arms folded across his chest, Plaintiff’s counsel will lay out on the table a well prepared case of facts, evidence, and charm. With articulating the theories of liability, presenting the evidence step by step, providing expert reports, photographs, diagrams, etc., Plaintiff’s counsel can successfully convince the mediator of Defendant’s liability without another word uttered from the Defendant.

Just like a parent equipped with a bag of treats, subrogation counsel has mastered these negotiating strategies; however, communication with the client is key.

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“What’s in a name?” William Shakespeare, Romeo and Juliet, act 2, sc. 2

The United States Congress passed the Carriage of Goods by Sea Act in 1936. The purpose of COGSA was to establish a standardized set of definitions and rules to govern the terms and conditions used in ocean bills of lading. One of its key provisions, Section 4(5) limits a vessel’s liability for lost or damaged cargo to USD 500 on a per “package” basis; however COGSA failed to define the term “package.”

Generally, when a bill of lading unambiguously describes a unit of packaging that can be reasonably construed as a package, a court will accept the bill of lading’s package definition as a COGSA package. Litigation issues arise, however, when bills of lading are unclear, imprecise, or ambiguous. Shippers and carriers have been heavily litigating this issue in the 80 years ever since COGSA was passed. Furthermore, inasmuch as it was written decades before the rise of containerized transport, COGSA simply does not address whether ocean containers themselves are “packages.”

Typically, the Second Circuit, the leading circuit on this issue, did not recognize containers as packages. Beginning with Judge Friendly’s pronouncement that containers rarely qualify as packages more than four decades ago, the Second Circuit views any claim that a container is a COGSA package with considerable scepticism. Monica Textile Corp. v. S.S. Tana, 952 F.2d 636, 1992 AMC 609, (2d Cir. 1991); Leather’s Best, Inc. v. S.S. Mormaclynx, 451 F.2d 800, 1971 AMC 2383 (2d Cir. 1971) (Friendly, C.J.). As a result, courts following the Second Circuit’s analysis will see little persuasive power in a bill of lading’s boilerplate statement that ocean containers will be considered COGSA packages. See generally Monica Textile Corp., 952 F.2d 636. In addition to boilerplate pronouncements, the factual circumstances behind how individual items are “wrapped, bundled, or tied” inside the container will not, without more, sway courts following the Second Circuit to rule that ocean containers are COGSA packages. Mitsui & Co., Ltd. v. Am. Exp. Lines, Inc., 636 F.2d 807, 822, 1981 AMC 331 (2d Cir. 1981) (Friendly, C.J.).

Notwithstanding the foregoing, the Second Circuit has at times ruled that containers can be packages: “if the bill of lading lists the container as a package and fails to describe objects that can reasonably be understood from the description as being packages, the container must be deemed a COGSA package.” Binladen BSB Landscaping v. M.V. Nedlloyd Rotterdam, 759 F.2d 1006, 1015, 1985 AMC 2113 (2d Cir. 1985). See also Peter Rosenbruch v. Am. Exp. Isbrandtsen Lines, 543 F.2d 967, 1976 AMC 487 (2d Cir. 1976), cert. denied, 429 U.S. 939, 1976 AMC 2684 (1976).

In an August 2017 decision in the SDNY, the rationale behind the “container=package” was again reiterated and upheld. In Mapfre Atlas Compania de Seguros S.A. a/s/o Tecnomega v. M/V Loa and Compania Chilena de Navigacion Interoceanica SA and Genshipping Corp., Docket 15 CV07876, (decision attached), District Judge Sweet looked at the Bill of Lading, and under the “No. of Pkgs.” Column, the number “1” was clearly indicated. Next, looking to the “Description of Packages and Goods” column corresponding to that single package, the Bill of Lading said “1*40’HC Container S.T.C. [Said to contain]” with “989 Pieces Computer Parts.” Since the Bill of Lading did not indicate how the computer pieces were packaged, the Court held that the container itself was one package and limited liability to $500.

Thus, in this case, the use of the word “pieces” had liability consequences amounting to thousands of dollars.

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Instant Inverse

Until recently, inverse condemnation remained a relatively arcane area of California law. A spate of wildfires, spawning litigation by homeowners and their subrogating insurers, has breathed new life into this liability theory.

Inverse condemnation is an eminent domain action initiated by the property owner, rather than the government. Essentially, it is unintended eminent domain-i.e., the defendant did not intend to condemn/damage your property, but, having done so, is now required to pay the fair market value of the damaged property. Its underpinnings are found in Article I, section 19 of the California Constitution which prohibits private property from being taken or damaged for public use without just compensation.

California law mandates that the liability issues in an inverse case be tried by the Court, reserving damages to the jury. Further, as inverse is a Constitutional remedy (as opposed to a tort theory) a finding of fault on the part of the defendant is not required in a fire case. Other than in so-called “water/flood cases” (where the rule of reasonableness applies), inverse is essentially a strict liability cause of action. Unlike a dangerous condition of public property case, an inverse condemnation case does not require the timely filing of a government claim or notice to the public entity of a dangerous condition. As an added incentive, California law statutorily permits recovery of reasonable attorney’s fees and expert costs in inverse condemnation cases.

Recognizing the Court’s role in determining inverse liability, the California legislature in 2001 enacted Code of Civil Procedure section 1260.040. That statute permits either party to move the Court for a ruling on any evidentiary or other legal issue determining the right to compensation. Procedurally, the motion must be heard no later than 60 days prior to commencement of trial on the issue of compensation and must be heard by the trial judge.

Although there is a dearth of legal authority interpreting this statute, Dina v People ex rel. Dept. of Transportation (2007) 151 Cal. App. 4th 1029 provides excellent insight into its scope. The Dina court, in affirming the granting of a motion under 1260.040, held that the Court is permitted to make a liability determination and weigh the evidence to adjudicate that issue. In so holding, the Dina court differentiated a 1260.040 motion from a summary judgment motion-i.e., a triable issue of fact will not defeat the 1260.040 motion. This distinction is, of course, extremely important as it provides the trial judge an excellent opportunity to dispose of inverse liability issues without the necessity of a bench trial with live witnesses.

Our office recently prevailed against a public utility on a 1260.040 motion in a case seeking damages in excess of $10,000,000. Now that the liability issue has been adjudicated in our client’s favor, we are in an extremely strong negotiating position at the upcoming Mediation.

In any case involving damages caused by equipment owned and maintained by a utility (power lines; transformers; water mains), an inverse condemnation cause of action should be pursued. The 1260.040 motion is an important arrow in the quiver of plaintiff attorneys in inverse condemnation cases. That arrow will likely hit the bullseye, resulting in an outstanding result for your client.

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