RECENT DECISIONS

Default Judgment Upheld - Insurer Responsible for Judgement Under MCS-90

Hawthorne v. Lincoln General Insurance Company, 2009 WL 1035293 (E.D. Mich., 2009)

In Hawthorne v. Lincoln General Insurance Company, an individual injured in an accident with a semi-truck filed suit against the owner of the vehicle, Ingram Trucking. Plaintiff obtained a default judgment for $942,000 against the Ingram. Ingram failed to pay the judgment and plaintiff filed suit against Lincoln General, Ingram’s insurer, for satisfaction of the judgment pursuant to the MCS-90 Endorsement. Under the MCS-90 Endorsement, an insurance company agrees to pay, within the limits of liability contained in its policy, any final judgment recovered against the motor carrier for public liability resulting from negligence and the operation, maintenance, or use of an insured motor vehicle.

Plaintiff filed a motion for summary judgment arguing that it satisfied the criteria of the MCS-90. Defendant, Lincoln General, argued that plaintiff failed to satisfy his burden of proving negligence. The Court held that the default judgment plaintiff obtained against Ingram Trucking is a final judgment recovered against the insured for injuries resulting from negligence. Lincoln General was obligated to satisfy the judgment under the MCS-90 Endorsement.

US Supreme Court Allows Punitive Damages for Failure to
Pay Maintenance and Cure

Atlantic Sounding Co., Inc. et. al. v. Townsend, 557 U.S. ____ (2009)

On June 25, 2009, the Supreme Court decided the question of whether a Jones Act seaman who was denied maintenance and cure could sue for punitive damages.  The Court concluded in a 5-4 decision that punitive damages, a longstanding part of maritime law, are allowed for an employer’s willful and wanton failure to pay maintenance and cure.

The case arises from a circuit split.  The Eleventh Circuit has held that a seaman denied maintenance and cure can seek punitive damages, while the Fifth Circuit has held the seaman is only entitled to attorneys’ fees in proving maintenance and cure.  The Supreme Court, continuing its interest in punitive damages cases (see. e.g. Exxon Shipping Co. v. Baker, last year’s pronouncement allowing punitive damages in the maritime context but limiting them to an amount equal to or lesser than compensatory damages), sided with the Eleventh Circuit.  The Court held that maritime law has long allowed punitive damages and no law overturned this rule. 

Prospectively, employers will likely be reluctant to deny maintenance and cure because willful or wanton failure to pay may be comparatively easy to prove.  Maintenance and cure is owed to every seaman ill or injured in the service of the vessel, regardless of negligence.  See. e.g. Bertram v. Freeport McMoran, Inc., 35 F.3d 1008, 1017 (5th Cir.1994).  The one noteworthy exception is a seaman who fraudulently conceals a pre-existing injury.  See McCorpen v. Cent. Gulf S.S. Corp., 396 F.2d 547, 549 (5th Cir. 1968). 

The majority decision was carried by the Court’s liberal block and written, surprisingly, by, Justice Thomas.  The dissent, authored by Justice Alito, would have the framework in Miles v. Apex Marine, 498 U.S. 19 (1990) govern.  Looking for uniformity, as Miles suggests, the dissent contends that Congress did not specifically allow punitive damages.  Precedent allows punitive damages in the maritime law context, but not in the maintenance and cure context.  The dissent suggests that claimants will only be able to prove entitlement to punitive damages when they are personally injured because of the failure to pay maintenance and cure.  The standard to prove “willful and wanton,” and the injury the plaintiff must show, will likely be a contested issue in the circuits. 

“Sudden Emergency Doctrine” Upheld To Bar Recovery in Auto Accident

Loyd v. Lancer Ins. Co., 2009 WL 81111 (La. App. 2d Cir.)

Five motorcyclists in a process were passing a Freightliner tractor with a 78,000 pound load on I-20 in Webster Parish. When the first motorcycle rolled over, the second motorcyclist and his passenger (the plaintiffs) slowed down and pulled to the shoulder in front of the tractor. The tractor also moved to the shoulder, but the tractor driver could not stop quickly enough, colliding with the second motorcycle.

Lancer, the tractor’s insurer, filed a Motion for Summary Judgment on liability, arguing that the sudden emergency doctrine—that a person in imminent peril is not negligent if he does not have time to decide on the best course of action—barred recovery. The trial court first denied the Motion based on the plaintiffs’ expert’s affidavit. After the expert’s deposition, the Motion was re-urged and granted, based in part on the plaintiffs’ expert’s testimony, noting that the driver was faced with a sudden emergency.

The decision was upheld on appeal. The driver had three to four seconds to react when the first motorcycle rolled over. Under the circumstances, even though hindsight might have provided a better course of action, the Second Circuit found that, as a matter of law, the driver’s actions were reasonable under the sudden emergency doctrine. Therefore, summary judgment was appropriate.

Fifth Circuit Upholds Insured’s Claim of Loss and Penalties Against Insurer for Failure to Pay

Grilletta v. Lexington Ins. Co., 2009 WL 46886 (5th Cir.)

One of a slowly dwindling group of cases based on Katrina, Grilletta required the Fifth Circuit to rule on insurance coverage when a house on the southeastern shore of Lake Ponchatrain was swamped with water during the hurricane.

Plaintiffs obtained a homeowners’ insurance policy from Lexington that included wind damage, but excluded water damage (defined as damage caused by “flood, surface water, waves, tidal water, overflow from a body of water, or spray from any of these, whether or not driven by wind.”

The outside adjuster said the damage was wind-related and recommended paying policy limits of $400,000 for the house and $140,448 for its contents. Lexington hired an engineering firm, which determined the wind may have damaged the roof, doors, and windows, but the storm surge would have driven water into the house. Lexington then paid $191,674.58 for the house and $119,380.80 for the contents.

The trial was an instance of dueling experts, turning on the burden of proof. Lexington had the burden to prove the water exclusion prevented coverage, but it had not met its burden. As the experts presented a factual question, the Fifth Circuit did not disturb it under the “clear error” standard.

The district court also awarded penalties of 25% of the initial payment for Lexington’s arbitrary failure to pay within the thirty-day window following a proof of loss. The District Court held that the penalty only applied to the initial payment, which Lexington had no basis to challenge (as opposed to the full $400,000 policy limits, which were disputed). The Fifth Circuit reversed, finding that under La. Rev. Stat. Ann. § 22:658, failure to pay the undisputed part of a claim subjected the insurer to a penalty for the entire claim.

The full text of the opinion can be found here:

But-For Causation in Toxic Tort Cases Strictly Applied

In Wilcox ex rel. Estate of Wilcox v. Homestake Mining Co., 2008 WL 4697013 (D.N.M. 2008)

A New Mexico district court faced the question of how much proof is enough to establish causation for summary judgment purposes in toxic tort cases. The plaintiffs alleged that Homestake Mining had released radioactive substances from their uranium mine, causing plaintiffs’ cancer. Homestake moved for summary judgment, alleging that plaintiffs could not establish sufficient proof that their cancer was caused by Homestake’s negligence under “but-for” causation—that is, but for defendant’s negligence, plaintiffs would not have suffered an injury.

The plaintiffs’ experts first claimed that Homestake’s negligence was likely a substantial factor in causing plaintiffs’ cancer. Facing summary judgment, the plaintiffs obtained new, somewhat stronger affidavits from their experts, who now stated that Homestake’s negligence was a substantial factor. The court deemed this insufficient, holding plaintiffs to a higher standard. It ruled that “specific evidence that exposure to the defendant's waste caused the plaintiffs' conditions is required.” The court explained that there was no expert testimony that defendants’ negligence was a but-for cause of cancer, so plaintiffs could not carry their burden. To meet their burden in toxic tort cases, a plaintiff must show both (1) that he or she was exposed to chemicals that could have caused his injury (general causation); and (2) that the exposure did cause the injuries (specific causation). Here, plaintiffs did not meet the second requirement.

The Court looked skeptically on the plaintiffs’ attempts to reform their experts’ testimony to meet the burden of proof. Noting that toxic tort cases are won and lost on causation, the court looked at the plaintiffs’ admission that it was impossible to determine the precise cause of their cancer. Without more proof, the claim was denied. Plaintiffs’ appeal to the Tenth Circuit, filed November 20, 2008, is pending.

Fifth Circuit Upholds Limitation of Liability and 50% Liability for Owner of a Negligently Unlit Platform in Allision

On the morning of October 4th, 2004, the Omega Protein vessel F/V GULF SHORE allided with an unlit oil platform in the Gulf of Mexico owned by Samson Contour Energy E&P L.L.C. Omega filed a limitation of liability proceeding: In Re Omega Protein, Inc., 548 F.3d 361 (5th Cir. 2008). The Omega vessel, when part of its refrigeration system ceased functioning, changed its course. While the captain was deciding on his next course of action, the vessel hit Samson’s platform. Judge Minaldi of the Western District of Louisiana had found Omega and Samson equally liable. She allowed Omega to limit its liability to the value of the vessel, pursuant to 46 U.S.C. § 30505.

The District Court found that Samson was negligent in failing to maintain operational lights on its fixed structure. Omega employees and captains testified that the lights and horn on Samson’s platform were malfunctioning. While Samson employees testified the lights were functional, the court found negligence in Samson’s failure to maintain monthly repair logs. It further noted the possibility that Samson had repaired the lights immediately after the collision. In most allision cases (a collision between a vessel and a fixed structure), the vessel is presumed negligent. In the instant case, because the platform did not have working lights, the vessel was not presumed to be negligent and Samson had to prove negligence on Omega’s part.

Omega’s captain was liable because he failed to keep a proper lookout. He turned on lights in the vessel and used his cell phone, hindering vision at night. He did not adequately use his radar. Therefore, the Court divided liability equally between plaintiff and defendant. For limitation purposes, Omega proved it did not have knowledge or privity of Stewart’s actions because Stewart was properly licensed, with twenty years’ accident-free experience. Therefore, Omega could limit liability to the value of the F/V GULF SHORE.

Samson argued that the standard on appeal should be de novo as a question of law, but the Fifth Circuit disagreed, looking at the district court’s conclusions as a matter of fact, reversed only if clearly erroneous. Even though Omega had failed to train its captain perfectly and had arguably insufficient navigational equipment—which the Fifth Circuit called less than “the most prudent way to run a ship”—Omega did not have to provide a perfect vessel, merely a seaworthy vessel, to prove its entitlement to limitation of liability.

Texas Update on an Insurer’s Duty of Good Faith: When an Occurrence Outside the Policy Period Can Lead to Treble Damages

Insurance Corp. of Hannover v. Polk, 262 S.W.3d 120 (Tex.App.-Eastland 2008)

The Texas Court of Appeals ruled on the standard an insurer must meet to comply with its duty of good faith and fair dealing under the Texas Insurance Code. An insured racehorse died of colitis that manifested after the policy period had terminated. When Hannover denied coverage, Polk, the owner, filed suit.

The horse, Smart Score, suffered two broken knees during a race and underwent surgery. The X-rays revealing the broken knees were taken on May 31, 2003, while the policy expired June 28, 2003. A clause in the insurance contract extended coverage for death occurring within thirty days after June 28, 2003 “as the result of any accident occurring, or illness or disease manifesting itself, during the policy period.” A veterinary surgeon operated on both knees during the thirty day extension. After the surgery but still within the extension period, Smart Score contracted colitis and had to be put down. Hannover denied coverage, claiming that colitis was unrelated. The court, hearing testimony that stress from the surgery caused the colitis, disagreed and found coverage. The veterinarian performing the surgery, however, had testified that the colitis was unrelated and Smart Score was in good shape after the surgery.

The court also found that Hannover violated its duty of good faith and fair dealing, abridging Section 541.060 of the Texas Insurance Code. The plaintiff-horse owners recovered the $40,000 policy limits, $80,000 for Hannover’s knowing violation of the duty of good faith, and $52,507.04 in attorney’s fees through trial. The trial court found, and the appellate court upheld, that the insurer denied coverage too hastily, without determining whether the colitis was caused by the surgery. In the face of “knowingly” violating its duty of good faith, the actual damages were tripled. The final award for breach of a $40,000 policy came to $181,808.95.

Fifth Circuit Upholds Recovery For Jones Act Seaman,
Despite Concealment of Past Injuries

Johnson v. Cenac Towing, Inc., 2008 WL 4330553 (5th Cir). 

In Cenac Towing, the Fifth Circuit holds that a Jones Act seaman who knowingly hides a pre-hiring medical condition on his application does not lose his cause of action, though his concealment can be a source of comparative negligence.  Further, the Court holds that when an insurance policy paid for by an employer covers only non-work injuries, it is a collateral source. 

Johnson injured his back and neck when he was carrying a 175-pound hose aboard a barge with a coworker.  Johnson’s coworker tripped and dropped his part of the load; under the increased weight, Johnson claimed, his back was hurt.  On his employment application, Johnson had not disclosed two previous injuries with previous offshore companies.  On both occasions, he had sued his employer and collected damages.  At the trial level, Judge Vance held that Johnson’s nondisclosure did not prevent recovery, nor did it constitute comparative negligence.  The Fifth Circuit, citing McCorpen v. Cent. Gulf S.S. Corp., 396 F.2d 547 (5th Cir. 1968), upheld Johnson’s recovery, but found his nondisclosure could be considered comparative negligence. 

Johnson had been paid, “inexplicably,” the Court found, from an employer-paid insurance policy that covered only non-work injuries.  Cenac argued this was a not a collateral source, so Cenac should be entitled to a set-off.  To hold otherwise, Cenac would have to pay twice for the same injury—once in insurance premiums, the second time in the lawsuit.  Non-work insurance plans are typically not collateral sources because the employer would not be liable for a non-work injury.  Finding that the plan covered exclusively non-work injuries, the inexplicable payment for a work injury did not entitle Cenac to reduce its damages by the amount of the insurance payments.

Supreme Court Sets Cap on Punitive Awards under Maritime Law;

Court Split on Vicarious Liability

On April 26th, 2008, the U.S. Supreme Court held in the case of Exxon Shipping Co. v. Baker that maritime punitive awards can be no greater than the value of the compensatory award. Justice Alito, citing ownership of Exxon stock, recused himself. The Court remanded the case to the Ninth Circuit to lower the $2.5 billion punitive award to an amount no greater than the $507.5 million compensatory award. The Court also discussed the propriety assessing punitive awards based on a ship owner’s liability under agency theory for the actions of the ship’s captain. The eight justices hearing the case split evenly. Therefore, the Ninth Circuit’s decision, granting punitive damages on this ground, stands.  For a more detailed summary of this case, please click here.

Expert's Testimony Excluded for Failure to Provide Basis for Opinion

The U.S. Fifth Circuit Court of Appeals upheld a decision of the a Mississippi Federal District Court to exclude an expert’s testimony in a maritime toxic tort case because studies relied upon by the expert failed to give an adequate basis for his opinion.

In Knight v. Kirby Inland Marine, Inc., tankermen/plaintiffs developed different types of cancer as an alleged result of their on-the-job exposure to various chemicals, including benzene.  Plaintiffs filed suit against their employer/shipowner alleging their medical conditions were caused by their exposure to benzene.    Plaintiffs’ epidemiologist, relying upon over fifty studies for his conclusion, testified benzene was the cause of the plaintiffs’ cancers.  The District Court excluded all of the studies offered by plaintiffs’ epidemiologist, finding most of the studies he relied upon failed to isolate benzene as the cause of their cancer.  The other studies used by plaintiffs’ expert were found to be statistically insignificant, and therefore the Court concluded plaintiffs’ expert’s testimony failed to satisfy Daubert.

Under Daubert and Federal Rule of Evidence 702, a district court has broad discretion to determine whether a body of evidence relied upon by an expert is sufficient to support that expert’s opinion.  Notably, the court stated “…in epidemiology hardly any study is ever conclusive, and we do not suggest that an expert must back his or her opinion with published studies that unequivocally support his or her conclusions.”  The court went on to state, “Nonetheless, the expert’s testimony must be reliable at each and every step or else it is inadmissible. ‘The reliability analysis applies to all aspects of an expert’s testimony: the methodology, the facts underlying the expert’s opinion, the link between the facts and the conclusion, et alia.” (Knight v. Kirby Inland Marine, Inc. 482 F.3d 347, 2007 A.M.C. 743, (C.A. 5 (Miss.) 2007)).

MS Judge Cuts Punitive Damage Award in Hurricane Litigation

Judge L. T. Senter awarded a Biloxi, Mississippi couple $224,000.00 for the loss of their home in Hurricane Katrina. THe jury awarded the couple an additional $2.5 million in punitive damages against State Farm. Judge Senter cut the punitive damages award to $1 million. He believed the award had been too high given the damages the couple actually suffered. For more information, click here to read the Business Insurance article on the case (Broussard v. State Farm Fire & Cas. Co., 2007 WL  268344 (S.D. Miss.  2007)).

U.S. Supreme Court Relaxes Causation Standard and FELA and Possibly Jones Act

In Norfolk Southern Railway Co. v. Sorrell, the Supreme Court held the same relaxed causation standard, which applies to the plaintiff's Federal Employers' Liability Act negligence claim against his employer, applies to the employer's defense as to the plaintiff's contributory negligence. The court concluded FELA does not abrogate the common law approach and the same standard of causation applies to railroad negligence under Section 1 as to plaintiff contributory negligence under Section 3.

Since the Jones Act expressly incorporates by reference the FELA liability standard, this case's holding should apply with equal force to the contributory negligence defense asserted in Jones Act liltigation, whether in state or federal court.

While many maritime defense lawyers have successfully taken this position in jury charge conferences for years, until now there was not a U.S. Supreme Court decision which expressly articulated this concept. (Norfolk Southern Railway Co. v. Sorrell, 127 S.Ct. 799 Decided Jan. 10, 2007).

Ruling Pending on Questions on Coverage and Notice to Additional Insureds

The United States Fifth Circuit certified the following three determinative questions of law to the Supreme Court of Texas:

1. Where an additional insured does not and cannot be presumed to know of coverage under an insurer's liability policy, does an insurer that has knowledge that a suit implicating policy coverage has been filed against its additional insured have a duty to inform the additional insured of the available coverage?

2. If the above question is answered in the affirmative, what is the extent or proper measure of the insurer's duty to inform the additional insured, and what is the extent or measure of any duty on the part of the additional insured to cooperate with the insurer up to the point he is informed of the policy provisions?

3. Does proof of an insurer's actual knowledge of service of process in a suit against its additional insured, when such knowledge is obtained in sufficient time to provide a defense for the insured, establish as a matter of law the absence of prejudice to the insurer from the additional insured's failure to comply with the notice-of-suit provisions of the policy?

On October 13, 2006 the Texas Supreme Court accepted the certified questions and the case is now pending before the Texas Supreme Court in National Union Fire Ins. Co. v. Crocker, No. 06-0868.  You can view the briefs for both sides and the amicus brief filed by Complex Insurance Claims Litigation Association in support of National Union's position at:

 http://www.supreme.courts.state.tx.us/ebriefs/files/20060868.htm

Louisiana Federal District Court: Insurer Waived Policy Defenses by Defending Without Reserving Rights

In Underwriters Insurance Co. v. Offshore Marine Contractors, Inc., 2006 WL 2128653 (E.D.La. July 27, 2006), a jack-up barge called the L/B ATLAS departed Cameron, Louisiana, collapsed and sank in 60 feet of water and was declared a CTL. The captain notified the vessel owner, Offshore Marine, there were several problems with the vessel while in transit.

Offshore Marine reported the incident to Underwriters Insurance, which had issued Hull and Machinery and P&I policies. About two months later it filed this suit, seeking a declaratory judgment that there was no coverage due to the unseaworthy condition of the ATLAS, that Offshore Marine had breached the Hull and Machinery policy’s warranty of seaworthiness, and seeking reimbursement of the payments it had made.

The court found that under Louisiana law if an insurer has knowledge of facts indicating noncoverage under its policy yet assumes or continues the insured’s defense without obtaining a nonwaiver agreement to reserve its coverage defense, the insurer has waived its coverage defenses. The court found that with evidence of noncoverage in hand from the surveyor and lawyer it had appointed, Underwriters Insurance continued the lawyer’s joint representation of Offshore Marine without a nonwaiver agreement or a reservation of rights. The court found Underwriters Insurance had thereby waived its coverage defenses. The court did not accept the insurer’s argument that it lacked “facts” of noncoverge, that it only had in hand “allegations.” The court held an insurer “does not need to know to an absolute certainty that it has a coverage defense.”

U.S. Supreme Court Limits Punitive Damage Award

In a 5-4 opinion written by Justice Breyer, the U.S Supreme Court held that the Due Process Clause does not "permit a jury to base [a punitive damages] award in part upon its desire to punish the defendant for harming persons who are not before the court (e.g., victims whom the parties do not represent)."

In the state of Oregon negligence and deceit lawsuit, a jury found that Jesse Williams' death was caused by smoking and that petitioner Philip Morris, which manufactured the cigarettes he favored, knowingly and falsely led him to believe that smoking was safe. In respect to deceit, it awarded $821,000 in compensatory damages and $79.5 million in punitive damages to respondent, the personal representative of Williams' estate. The trial court reduced the latter award, but it was restored by the Oregon Court of Appeals. The State Supreme Court rejected Philip Morris' arguments that the trial court should have instructed the jury that it could not punish Philip Morris for injury to persons not before the court, and that the roughly 100-to-1 ratio the $79.5 million award bore to the compensatory damages amount indicated a "grossly excessive" punitive award. The decision was then appealed to the U.S. Supreme Court.

The Court reasoned that (i) "a defendant threatened with punishment for injuring a nonparty victim has no opportunity to defend against the charge, by showing, for example in a case such as this, that the other victim was not entitled to damages because he or she knew that smoking was dangerous or did not rely upon the defendant's statements to the contrary"; (ii) "to permit punishment for injuring a nonparty victim would add a near standardless dimension to the punitive damages equation" and "the fundamental due process concerns to which our punitive damages cases refer*risks of arbitrariness, uncertainty and lack of notice*will be magnified"; and (iii) "we can find no authority supporting the use of punitive damages awards for the purpose of punishing a defendant for harming others." The Court made clear that, notwithstanding this holding, juries can continue to consider harm to non-parties in gauging the degree of reprehensibility of the defendant's conduct. (Philip Morris USA v. Williams No. 05-1256 (Feb 2007)).