Declarations and Exclusions

Time Slips Away: Professional Negligence Claims Against Insurance Brokers Must Be Filed Within Two Years

Despite the best efforts of the plaintiff's attorneys to characterize them differently, the California Court of Appeal has concluded that all claims against an insurance broker for failure to purchase sufficient earthquake coverage for its client should be deemed to arise from "professional negligence." As a result, all those claims were barred because they were not filed within two years of the client's uninsured loss. The court summarizes its holding:

A company purchased earthquake insurance from a broker. The broker obtained insurance with less coverage than the company sought. After sustaining damage in the Northridge earthquake, the company submitted a claim under the insurance policy and was paid benefits in accordance with the policy as written.

The company filed this action against the broker to recover the additional benefits that would have been paid under the coverage as requested, alleging causes of action for negligence, breach of oral contract, negligent misrepresentation, and breach of fiduciary duty. The case was tried to the court, which found in the company’s favor on all causes of action and awarded compensatory damages, attorneys’ fees, prejudgment interest, and costs.

On appeal, the broker contends that the gravamen of this suit, regardless of how the causes of action are labeled, is a claim for professional negligence, and the suit is therefore barred by the statute of limitations applicable to malpractice claims against an insurance broker. We agree and reverse.

The policies of insurance in this case were purchased (or not purchased) in 1993. The Northridge earthquake occurred in January, 1994. The insurance company paid all that it owed according to the terms of its policies -- which was less than the amount of coverage that was supposed to have been procured by the broker -- in December 1994. The client's suit against the broker, asserting the various legal theories that are listed in the court's summary, was not filed until February, 1997.

In its 25-page decision, the appellate court concludes that all of the claims against the broker are subject to the general statute of limitations under Code of Civil Procedure section 339(1), which requires any "action upon a contract, obligation or liability not founded upon an instrument of writing" to be filed within two years. Whether the time is measured from the date of the earthquake itself or from the date of the insurance company's final payment of benefits, the two year period had expired by the time the complaint was filed.

The decision in Hydro-Mill Company, Inc. v. Hayward, Tilton and Rolapp Insurance Associates, Inc. (February 19, 2004), Case No. B1576765, is available at these links in PDF and Word formats.

Know Your Limitations: Extended Statute of Limitations for Personal Injury Claims is Not Generally Retroactive

In 2001, the California Legislature amended the Code of Civil Procedure to lengthen the statute of limitations for most personal injury claims from one year to two years. (Statutes of limitation limit the time in which a lawsuit must be filed once a claim has arisen. Previously, most personal injury suits in California had to be filed within one year of the date of injury. The new two year period puts California in line with the period in a large number [possible a majority] of other states.)

The extended statute of limitations came into effect on January 1, 2003, except as it applied to claims arising from the terror attacks of September 11, 2001. As to those claims -- which were in danger of becoming time-barred before the families and victims were required to elect whether to waive their rights to sue by opting in to the Federal 9/11 compensation plan -- the time extension was made retroactive.

It appeared to be clear on the face of the new statute that an ordinary (not terrorism-related) personal injury claim that was already barred as of January 1, 2003 -- i.e., claims for injuries taking place on or before December 31, 2001 -- would not be revived by the extension. The Court of Appeal for the Second District has now confirmed that analysis.

John Krupnick was injured when he slipped and fell on January 26, 2001. He did not file his lawsuit until January 8, 2003. The trial court dismissed the case, finding that it became time-barred on January 2002 and was not revived by the extension that became effective in 2003. On appeal, the court affirmed the dismissal.

The appellate decision provides a cogent primer on statutory construction, particularly the principal that the specific listing of one circumstance -- here, the specific language of the statute making the extension retroactive for a certain class of claimants (9/11 victims) -- is to be construed as showing the Legislature's intent not to apply the same rule to circumstances not listed -- everyone else.

The decision in Krupnick v. Duke Energy, (Feb. 18, 2004), Case No. B168117, can be found at these links in PDF and Word formats.

NOTE: While the statute of limitations has been extended to two years in most personal injury cases, that extension does not apply to all such claims. Types of claims for which separate specific limitations periods are established -- such as medical malpractice claims -- remain subject to their own, often shorter limitations period. Consult your attorney, not this weblog, in your particular case.

Noted in Brief

Expert Witnesses; Medical Malpractice:
The need for expert witnesses to be able to articulate reasons for their opinions is emphasized in Jennings v. Palomar Pomerado Health Systems (January 8, 2004), Case No D040393 (opinion at these links in PDF and Word formats). In a medical malpractice case arising from a post-surgical infection, the court of appeal found that the plaintiff’s expert witness had no basis other than speculation for concluding that the infection in one location had been caused by the defendant’s negligent failure to remove a retractor from another, unrelated location.

Motion Procedure:
California’s 4th District Court of Appeal has disapproved language in one of its own earlier decisions and has reemphasized that parties have a right to a hearing and opportunity to present oral argument when any party presents a motion for summary judgment. No matter how thoroughly the trial court has considered the motion in coming to a tentative decision, that decision may not be made final without the opportunity for argument. Brannon v. Superior Court of San Diego County (January 13, 2004), Case No. D042907 (opinion at these links in PDF and Word formats).

Contracts; Entertainment Law:
In a dispute over the payment of merchandising royalties between the Walt Disney Company and Gary K. Wolf, the author of the book that formed the basis for Who Framed Roger Rabbit? the 2nd District Court of Appeal has vacated a partial summary judgment in Disney’s favor. The appellate court concludes that there are genuine factual issues requiring trial in order to determine which of the parties is correct concerning the interpretation of the term “gross receipts” in the royalty agreement. Wolf v. Superior Court of Los Angeles County (January 21, 2004), Case No. B169265 (opinion at these links in PDF and Word formats).

"D'oe!" -- Defendants' Active Participation in Case Precludes Claim of Untimeliness

We have reported previously on cases in which an appellate court refuses to relieve an attorney from the consequences of a procedural error. (Several examples are summarized here.) In contrast, the Court of Appeal for the Fourth District has stepped in at the last moment to salvage a claim that might very well have been deemed time-barred due to an omission of the plaintiff's attorney.

In brief, the original complaint filed in this case included several "Doe" defendants -- parties whose identities were not precisely known to plaintiff's counsel at the outset, and who were therefore sued initially under fictitious names. Counsel filed an amended complaint, leaving out any mention of the "Doe" defendants -- which under California law had the effect of dismissing them from the case. He then identified and served the "Doe" parties with the original (superceded) complaint.

Having no idea that the allegations against them had been dropped in the amended version, the "Doe" defendants appeared and actively litigated the case. Plaintiff's counsel then sought to file a second amended complaint, whereupon the former "Doe" parties learned of the existence of the previous Doe-dropping amendment. They persuaded the trial court to dismiss the case against them, because it technically did not exist at the time they had actually been served.

On appeal, the court concluded that the "Doe" defendants really weren't parties when they were served, but held that their own conduct in actively participating in the litigation bars them from now asserting they weren't brought in to the case in a timely manner. No doubt the plaintiff's attorney was relieved to read the second paragraph in this excerpt from the appellate court's opinion:

In essence, the trial court ruled that, even though the new defendants had participated in the action for over a year, filing not only answers but also cross-complaints and even a motion for summary judgment, they had never really been parties at all. Moreover, it was too late to make them parties. The plaintiff’s procedural gaffes precluded it from any recovery against them.

By and large, we agree with the trial court’s reasoning -- as far as it went. We will hold, however, that the new defendants waived any objection to their joinder by filing answers and thereby making a general appearance. Their waiver was effective even though they had no reason to suspect, at the time, that they had not been properly joined. Thus, the action was commenced against them, for purposes of the statute of limitations, not later than when they filed their answers. We cannot say, as a matter of law, that the applicable statutes of limitations had run by that date. Hence, we will reverse.

The decision in Fireman's Fund Ins. Co. v. Sparks Construction Co. (January 8, 2004), Case No. E033 453, can be found at these links in PDF and Word formats.

Laboring Under a Misconception -- Court Declines to Create "Union Member-Union Representative Privilege"

In the context of a wrongful termination dispute against his former employer, American Airlines, Jawad Alamad asserted that he had been the victim of racial discrimination relating to his Middle Eastern background. Alamad's union representative Richard DiMarco testified in deposition that the testimony of other American mechanics favorable to the employer had been "coerced," but he refused to provide any details of the coercion, claiming that the information had come to him in his capacity as a union representative and was therefore privileged. American sought to compel the testimony, but the trial court concluded that DiMarco was entitled to assert a "union member-union representative privilege" and to decline to disclose the information. American sought the assistance of the Court of Appeal, which concluded that no such privilege currently exists under California law.

The Court of Appeal emphasizes that evidentiary privileges are fundamentally established by statute. No statute explicitly recognizes the privilege DiMarco asserted, nor did the Court find that such a privilege could be implied by the terms of related statutes governing labor relations issues. Absent a statutory privilege, Cal. Evidence Code section 911 declares that "[n]o person has a privilege to refuse to disclose any matter or to refuse to produce any writing, object, or other thing." The Court also noted that the recognition of such a privilege "could severely compromise the ability of employers to conduct investigations pertaining to claims of harassment, discrimination, unlawful conduct, or other employer rules violations, all to the detriment of union members." While the Legislature is certainly empowered to create the privilege in question, it has not done so and the Court declines to recognize such a privilege.

To summarize, this case presents a backdrop of competing social policies: a union member’s right to organize and collectively bargain, a union’s obligations to its members, an employer’s duty to ferret out discriminatory practices and its right to defend itself in litigation, and a search for truth in the adversarial process. To this backdrop, we add the overlay of Supreme Court and legislative mandate that courts are not free to create new evidentiary privileges. The Legislature is particularly well suited as the forum to give appropriate weight to these contending policies, and, accordingly, we decline real parties’ invitation to create judicially a new privilege.

The decision in American Airlines Inc. v. Superior Court (December 29, 2003), Case No. B162513, can be found at these links in PDF and Word formats.

A Day Late and $3.00 Short -- Lack of Sufficient Filing Fee Bars Last Minute Medical Malpractice Claim

When little things go wrong, large and unpleasant consequences may follow. A cautionary tale:

An attorney in San Diego representing the potential plaintiff in a medical malpractice case to be venued in San Francisco submitted the complaint for filing two days before the statute of limitations was set to expire. Unfortunately, the filing fee check the attorney submitted with the complaint was in an amount $3.00 less than required by local court rules. The court clerk rejected the filing. Counsel did not learn of the rejection until after the statutory time to file had expired. The complaint was accepted with a new fee check, but the defendants were ultimately able to obtain a dismissal on the basis of the statute of limitations. Confronted with these facts, the Court of Appeal is sympathetic to the plaintiff's plight, but ultimately unable to come to her aid:

Benjamin Franklin described the snowballing consequences of inattention to a small detail—'For want of a nail, the shoe was lost; for want of a shoe the horse was lost; and for want of a horse the rider was lost.' (Oxford Dict. of Quotations (2d ed. 1955) p. 211.) In this case the missing nail is a check that was $3 short of the amount required to file a complaint for medical malpractice that allegedly caused the death of the plaintiffs’ infant child. The harsh but unavoidable result is that we affirm the trial court’s dismissal of the complaint because it was not filed before the statute of limitations ran.

Noting that "[a]n unbroken line of decisions by our Supreme Court holds that it is mandatory for court clerks to demand and receive the fee required by statute before documents or pleadings are filed", the court reluctantly rejected plaintiff's argument that the $3.00 shortfall was a trivial defect that should not preclude the complaint from being deemed to have been filed when it arrived in the courthouse.

Three practical safety tips for attorneys can be drawn here:

♣ Try to avoid filing complaints at the last moment before the expiration of a statute of limitations. [There is much less room for error when the time to correct a mistake or to respond to a surprise development is so short.]

♣ Be extra cautious when filing in a court at a distance from your own local practice. [Again, reaction times slow when the problem is developing hundreds of miles away. If the case were being filed in San Diego rather than San Francisco, the San Diego attorney would probably still have had time to submit the extra fee.]

♣ Always double-check the procedural details of the local rules of the court in which you are filing. [The precise reason the fee check came up short here is not stated, but one possible cause is an assumption that the fee in San Francisco was the same as in San Diego. As 'twas said of old: "When you assume, you make an ass of you and me." (Ass u me - get it?)]

The sad story can be read in the decision in Duran v. St. Luke's Hospital (December 16, 2003), Case No. A102182, at these links in PDF and Word formats.

Punitive Damages Redux (but not Reduced): $1.7 Million Award Affirmed on Post-Supreme Court Review

In another case on remand from the U.S. Supreme Court, the Court of Appeal for the Second District has affirmed a $1.7 Million punitive damage award, even though the compensatory damage award was only $5,000. The latest case does not engage in the sort of conceptual review of punitive damage theory on which we recently reported.

In 1996 plaintiff Lionel Simon was attempting to purchase a building in downtown Los Angeles from Sao Paolo Bank. Through the course of elaborate negotiations, as the court summarizes the evidence, the Bank's representative led Simon to believe he was the only potential purchaser. At the last moment, the Bank backed out of the deal and sold to another buyer.

In the original trial, the jury found that Simon had been defrauded, but it also found that he had no enforceable contract with the Bank and refused to compel the sale of the building to him. The jury awarded compensatory damages, based on Simon's "out of pocket" loss in the transaction, of only $5,000. However, it also awarded punitive damages for the Bank's fraudulent conduct of $2.5 million. The trial court reduced that to $250,000, which Simon refused to accept. The court then granted a new trial on the amount of punitive damages, and the second jury awarded $1.7 million.

The state Court of Appeal affirmed the award. The U.S. Supreme Court took the case up long enough to send it back to the Court of Appeal for review in light of its 2001 punitive damages decision in Cooper Industries v. Leatherman. The Court of Appeal affirmed the award a second time. Another petition to the U.S. Supreme Court resulted in yet another remand to the Court of Appeal, this time in light of the April 2003 decision in State Farm v. Campbell. On remand, the Court of Appeal has affirmed the award for the third time.

In Campbell, the U.S. Supreme Court strongly suggested that punitive damage awards that exceed a "single-digit ratio" to the compensatory damages awarded may be consitutionally suspect. Sao Paolo Bank argued that the award against it must be reversed or reduced, because it is some 340 times the amount of the $5,000 compensatory damages. The wrinkle added by the Court of Appeal is to distinguish between the minimal damages that the jury awarded -- which was based on the relatively small amount the Simon was out of pocket in pursuing a contract he ultimately could not have enforced -- and the amount of harm Simon suffered, which it found to be much greater:

Because he lost out on the purchase contract, Simon also lost out on the difference between the price he had negotiated and the higher value of the building he was trying to buy. Had he not been misled, and had he been able to close the deal on the terms he was led to believe Sao Paolo Bank would accept, Simon would immediately have gained a profit, on paper, of some $400,000. Even though he could not legally recover that additional $400,000 as damages, he was nonetheless injured to that extent, or so the Court reasons. Add in the $5,000 in damages he received and "the amount awarded here, $1,700,000, is only $80,000 mor than a 1 to 4 ratio [sic] given the actual harm of $405,000 . . ." and thus passes constitutional muster.

The decision in Simon v. Sao Paolo U.S. Holding Company, Inc. (Dec. 2, 2003), Case No. B121917, can be found at these links in PDF and Word formats.

Who Do You Believe? -- Court Rejects Daubert Requirement for Threshold Showing of Reliability of Expert Opinion Under California Law

The U.S. Supreme Court’s “Daubert rule” restricting the admissibility of freshly-minted scientific opinions under the Federal Rules of Evidence has no applicability to issues of medical causation under California state law, the Court of Appeal for the Second District has held.  Moreover, the alternative Kelly (or Kelly-Frye) rule only restricts evidence based on new scientific techniques or equipment, and does not restrict the presentation of expert opinions proposing new theories of causation.

Plaintiff Michael Roberti, a minor on whose behalf suit has been filed by his mother, maintains that he was injured and suffers from autism as a result of exposure to the pesticide Dursban while his mother was pregnant with him and after his birth.  The suit contends that the pesticide contractor, Andy’s Termite & Pest Control, should be held liable for those injuries.  At the time of trial, Andy’s moved to exclude the testimony of all of the plaintiff’s medical expert witnesses, on the ground that their assertions of a medical connection between Dursban exposure and autism was speculative and does not enjoy the support of the scientific community at large.  The trial judge granted that motion and, because plaintiff no longer had any means of showing that his injury was caused by Andy’s, entered judgment in favor of the defendants.  The Court of Appeal has reversed that judgment.

The defendants relied in large part on the rule in People v. Kelly (1976) 17 Cal.3d 24, in which the California Supreme Court required a preliminary showing that the use of a new scientific technique or of new types of testing equipment had gained widespread acceptance in the relevant scientific community.  That rule, however, does not apply to bar expert opinions that involve drawing new conclusions from the use of existing methods or equipment:

Plaintiff’s experts based their opinion testimony upon research papers and studies (primarily those conducted on animals) in peer-reviewed journals regarding Dursban and its effects, and to some extent upon physical examination of plaintiff using techniques that are generally accepted in the relevant medical community.  They did not rely upon any new scientific technique, device, or procedure that has not gained general acceptance in the relevant scientific or medical community.  Rather, it was the theory of causation, that Dursban caused plaintiff’s autism, that has not gained general acceptance in the relevant medical community.  The Kelly test is not applicable even though the proffered evidence presents a new theory of medical causation.

Rather than excluding plaintiffs’ expert witnesses, the proper approach was to permit them to testify and to permit the jury, based on defendants’ opposing evidence and argument, to determine whether those experts’ opinions should be believed.

As a secondary position, Andy’s argued that even if the Kelly rule did not apply, California should follow the rule applicable in federal cases under the U.S. Supreme Court’s decision in Daubert v. Merrell Dow Pharmaceuticals, Inc. (1993) 509 U.S. 579, which “subjects all expert scientific and technical opinion testimony to a threshold reliability test.”  The Court of Appeal refused to adopt that position, concluding that the California Supreme Court has, at least by implication, declined to apply the Daubert rule to expand or supercede the more limited Kelly rule.  The trial court’s exclusion of all of plaintiff’s medical causation testimony was thus in error, and the court remands the case for trial.

The decision in Roberti v. Andy’s Termite & Pest Control, Inc. (Nov. 26, 2003), Case Nos. B158393 & B160331, can be found at these links in PDF and Word formats.

A Sea Change in Punitive Damages: Court of Appeal Reduces Punitive Award By 90%+ on Remand from U.S. Supreme Court

In a further consideration of the impact of the U.S. Supreme Court’s decision in State Farm v. Campbell (April 2003), a California Court of Appeal has concluded that the fundamental underpinnings of California punitive damage law must be reconsidered.  As a result of such a reconsideration, the court has directed the reduction of a punitive damage award against the Ford Motor Company from $290 Million to $23,723,287.

Three members of the Romo family were killed and three others were seriously injured when their 1978 Ford Bronco rolled over while trying to avoid another vehicle.  The Bronco’s metal roof structures collapsed and its fiberglass structures shattered.  In the original trial, the jury awarded the various family members and the estates of the deceased victims compensatory damages of approximately $5 Million and punitive damages of $290 Million.  In a prior appeal, the Court of Appeal affirmed that verdict. Following its decision in Campbell, the U.S. Supreme Court granted review; it then remanded the case to the state Court of Appeal to reconsider the punitive damage award in light of Campbell.  (Our report on a prior California consideration of the impact of Campbell can be found here.)

Although the Court of Appeal disclaims any intent to “write a treatise on the subject of punitive damages,” the Court’s 30-page decision does essentially that.  The Court first looks to the historical development of punitive damage law in California.  Initially, the rationale underlying punitive damages was to impose additional punishment for private wrongs, i.e., the particular wrongdoing that had harmed the plaintiff(s) in a particular case.  That philosophy changed “in the era of products liability litigation.”

In cases of mass-produced consumer goods or company-wide practices of large insurers, outrageous or malicious wrongdoing was no longer simply an affront to the dignity of a single victim. Instead, the affront was to all affected by the goods or services or, given the reach of the misconduct, the affront was viewed as one to society as a whole.  In this view, because the ‘wrong’ was directed beyond the immediate plaintiff, punitive damages awards needed to be based on the overall scope of the wrong in order to deter the mass torts.

This is the approach that the court determines was rejected by the Supreme Court in Campbell.  “[A]s a matter of due process under the federal Constitution, the court adopted the more limited, historically based view of punitive damages.”  As a result,

the legitimate state goal that punitive damages may seek to achieve is the ‘condemnation of such conduct’ as has resulted in ‘outrage and humiliation’ to the plaintiffs before the court; it is not a permissible goal to punish a defendant for everything else it may have done wrong.

Because the $290 Million punitive award could be explained only as a means of punishing Ford for its entire course of conduct in connection with Bronco rollover risks -- the plaintiffs' attorney had argued memorably at trial that the jury should return an award “large enough to force Ford to recall all remaining 1978-1979 Broncos still on the road and ‘crush them to dust’” -- the Court of Appeal conditionally reduced the punitive damage award to $23,723,287.  If the plaintiffs do not accept that reduction, the case is remanded for a new trial strictly on the punitive damages issue.

The opinion in Romo v. Ford Motor Company (November 25, 2003), Case No. F034241 can be found at these links in PDF and Word formats.

When Procedural Policies Collide: Right to Seek Summary Judgment Trumps Policy of Speedy Disposition of Cases

Responding to a request for publication -- previously reported at The Southern California Law Blog -- the Court of Appeal for the Fourth District has directed the publication of its decision in Polibrid Coatings, Inc. v. Superior Court (Sept. 24, 2003), Case No. G032459.

In that case the Court concludes that when a conflict arises between (1) a party's right to seek resolution of a case by means of a motion for summary judgment and (2) the courts' stated policy of bringing as many cases as possible to conclusion within two years of filing, it is the latter policy that must bend. The need for flexibility in this regard has been heightened by the Legislature's extension of the required notice period prior to a summary judgment hearing from the former 28 days to at least 75 days.

In the case before the Court, defendant Polibrid had only been brought into the litigation 14 months after the case had commenced. The appellate court emphasized the need for basic fairness in proceedings:

We think it plain that in a case where a litigant is brought into litigation after 14/24ths of the time to litigate it has passed, these factors would dictate at least enough time for that party to reasonably complete discovery and bring a summary judgment motion.

The decision -- with the order for official publication, making it citable as precedent -- can be found a these links in PDF
and Word formats.