Declarations and Exclusions

An Accidental Tourist: U.S. Supreme Court Finds Airline Liable for Death of Passenger From Second-Hand Smoke Exposure

This week, a divided Court weighed in on the question of what constitutes an "accident" under the Warsaw Convention, the international treaty governing the responsibilities and liabilities of international air carriers. In an opinion by Justice Thomas, the Court concluded that the repeated refusal of a flight attendant to relocate a passenger away from the aircraft's smoking session constituted an "accident," so that the airline can be held liable for the passenger's death as a result of an acute asthmatic reaction to cigarette smoke.

Here is the summary of facts set forth in the Court's Syllabus to the case:

Under Article 17 of the Warsaw Convention (Convention), an air carrier is liable for a passenger’s death or bodily injury caused by an “accident” occurring on an international flight. 'Accident' refers to an 'unexpected or unusual event or happening that is external to the passenger', not to 'the passenger’s own internal reaction to the usual, normal, and expected operation of the aircraft.' Air France v. Saks, 470 U. S. 392, 405, 406. While Rubina Husain (hereinafter respondent) and her husband, Dr. Hanson, were traveling overseas, she requested that petitioner Olympic Airways provide seats away from the smoking section because Dr. Hanson had asthma and was sensitive to secondhand smoke. After boarding, they discovered that their seats were only three rows in front of the smoking section. A flight attendant refused respondent’s three requests to move Dr. Hanson. As the smoking noticeably increased, Dr. Hanson walked toward the front of the plane to get fresher air. He then received medical assistance but died. Respondents filed a wrongful-death suit in state court, which was removed to federal court. The District Court found petitioner liable for Dr. Hanson’s death, and the Ninth Circuit affirmed, concluding that, under Saks’ definition of “accident,” the flight attendant’s refusal to re-seat Dr. Hanson was clearly external to him, and unexpected and unusual in light of industry standards, Olympic policy, and the simple nature of the requested accommodation.

The Supreme Court majority agrees with the lower courts that the flight attendant's conduct constituted an "accident" and that the airline is liable under the Warsaw Convention even though the principal cause of death was in fact Dr. Hanson's physical reaction to what were then "normal" operating conditions, i.e., the presence of a smoking section.

The decision and opinions in Olympic Airways vs. Husain (February 24, 2004), Case No. 02-1348, can be accessed at this link in PDF format.

Tribal Workers' Compensation Insurance: Updates and Supplements

The California Department of Insurance continues to express concern over Native American tribes providing "alternatives" to workers compensation insurance to non-tribal employers through "employee leasing" arrangement. (Earlier coverage here.)

Now Business Insurance magazine reports that legislation has been introduced in Sacramento to authorize and regulate the practice:

Tribes across the nation have created temporary staffing or leasing agencies. Some argue that immunity from state regulation allows them to provide employers off their reservations with temporary workers covered under tribal work comp statutes. States increasingly are seeking to regulate or halt the activity.

Under Assembly Bill 2780, a federally recognized Indian tribe would have to meet a number of requirements, such as obtaining state regulator approval to self-insure, or adopt a tribal ordinance governing a redress system for compensating injured employees.

The Los Angeles Times [registration required] updates the story and quotes Insurance Commissioner John Garamendi, who

. . . said he had no quarrel with Indian insurance companies as long as they were willing to submit to regulation by his department. He said the Indian-issued policies could put injured workers at a disadvantage by forcing them to take claims to tribal councils.

'You don't cut down on legal costs by denying an injured worker his day in court,' Garamendi said.

Assembly Bill 2780 as introduced is available here. Interested readers can follow the progress of this and other legislation at the official California Legislative Search site.

"Upon" Reflection: California Supreme Court Interprets Jewelers Block Coverage

By a vote of 4 to 3, what journalists would call a "sharply divided" California Supreme Court has concluded that the use of the phrase “actually in or upon such vehicle at the time of the theft” in an exception to an exclusion in a jewelers block insurance policy was ambiguous in the context of a theft that occurred while the person transporting jewelry was not in or touching his automobile, but was immediately next to it trying to diagnose a mechanical problem. Because of the ambiguity, the Court majority concludes that the loss is covered. The dissenters complain that this result puts California at odds with the majority of other jurisdictions, which interpret the provision to require that the victim be inside of or at least physically in contact with the vehicle at the time of the theft.

The Court summarizes the facts that gave rise to the claim:

The facts in this case are simple and essentially undisputed. On February 17, 2000, Brian Callahan, a jewelry salesman, left his home with two “hard cloth garment bags” containing jewelry (some of which belonged to E.M.M.I. Inc., a manufacturer and marketer of jewelry) in the trunk of his vehicle. Shortly after driving away from his home, he heard a clanking noise emanating from the rear of the vehicle. Callahan stopped on the side of the road to investigate the source of the noise, got out of the car and closed the car door but left the engine running. He walked to the rear of the vehicle and, as he crouched down to visually inspect the exhaust pipes, he felt someone pass quickly by him. When he looked up, he saw an individual get into his car and drive away. Callahan was no more than approximately two feet from the car during the entire time he was outside the vehicle until the time of the theft. The police subsequently found the vehicle, but the jewelry was missing.

Under the long-established terms of a typical "jewelers block" insurance policy, a theft that occurs while the jewelry is being transported is covered by the policy only if the courier from whom the jewels are taken is "actually in or upon" the vehicle. The insurer in this case denied the claim, because Callahan had exited the automobile and was not literally "in" it or "upon" it when the thief struck.

In the course of an extensive analysis -- with repeated reference to dictionaries, rules of contractual construction and the long and occasionally obscure history of jewelers block insurance -- the majority concludes that the policy language is ambiguous and operates to defeat the "reasonable expectations" of the insured.

Presented with such an alternative, we do not believe a reasonable insured would construe the exception to the vehicle theft exclusion to mean that the insured must be either inside or on top of the vehicle, or that the term “upon” applies solely to motorcycles. An insured using an automobile would not expect coverage to vanish when engaged in routine and necessary activity such as stepping out of the car to retrieve the jewelry from the backseat or trunk. Had the insurer intended the phrase “or upon” to apply solely to the use of motorcycles or other means of transportations such as ships and trains, it could, and should, have made this intention clear to the insured.

By similar logic, the Court rejects the insurer's argument that a "theft" does not occur unless the jewels are taken by "force or intimidation, . . . not by stealth." As there is no express definition of "theft" in the policy, the Court declined to adopt a restrictive interpretation.

Jewlers block insurance, in California at least, now joins horseshoes and nuclear war as an activity in which "close" is good enough.

The decision, with dissents, in E.M.M.I. Inc v. Zurich American Insurance Company (February 23, 2004), Case No. S109609, can be found at these links in PDF and Word formats.

Because I Could Not Stop for Death: Trial Court Abused Its Discretion in Refusing Continuance After Death of Plaintiff's Attorney

The Court of Appeal for the Second District has ordered the continuance of a trial for six months and the reopening of discovery after the trial judge refused to do so. The opening paragraph of the appellate court's decision begins with a firm statement of the obvious:

If plaintiff's counsel's serious physical illness and its debilitating effects culminating in death during the final stages of litigation are not good cause for continuing a trial and reopening of discovery, there is no such thing as good cause. A plaintiff in a personal injury action is not chargeable with the continued good health of his or her attorney. Forcing such a plaintiff to trial without counsel or adequately prepared counsel is not likely to ensure fairness, the overall policy of the law.

Briefly, counsel for plaintiff in a personal injury case was suffering from advanced pancreatic cancer. Based on his ill health, he obtained an order continuing trial for three months. Counsel died one month later. The plaintiff sought and obtained new counsel, who needed time to prepare for trial. When new counsel made that request, the trial court refused to grant any but the briefest of continuances -- the new date conflicted both with counsel's schedule and with plaintiff's own impending surgery -- and refused to reopen discovery to permit new counsel to prepare for trial. In granting plaintiff's petition for a writ, the Court of Appeal finds that the trial judge abused his discretion as a matter of law.

Perhaps the most remarkable portion of the appellate decision is the description of events at the hearing on the second motion to continue the trial. Both the judge and defense counsel are portrayed as almost irrationally firm in their positions, refusing to grant any quarter in light of the plaintiff's unusually difficult position.

Real party [i.e., the defendant] opposed the continuance, arguing the trial date had already been continued once to accommodate [attorney] Stewart's illness. Real party asserted he would be 'at a disadvantage' if petitioner designated additional experts because costs would increase. He also claimed petitioner had unreasonably delayed finding new counsel. Real party concluded by asserting: '[I]t is obvious that plaintiff would not be injuriously affected by denial of the continuance. The time of the court should not be wasted by failure of plaintiff and counsel to be prepared and for plaintiff to shop around for attorneys.'

At the hearing, the trial court noted that it continued the first trial date for three months due to Stewart's illness and said: 'And now a month after he dies, you come in and ask for more time. That could have been done better.' Petitioner explained that he learned of Stewart's death on September 29, 2003, and that he started looking for a new lawyer that day. He denied real party's claims he had 'known for months' that Stewart was terminally ill. Real party contended petitioner should not be permitted to supplement his expert witness list because the terminally ill Stewart had missed the deadline to do so: 'That was his decision as attorney. You can't change that after you die. That will prejudice my client.' Without requiring real party to provide any additional explanation of the potential prejudice, the trial court continued the trial date to January 26, 2004, and denied the request to reopen discovery. The trial court apparently did not consider that Rosenberg was unable to start trial on that date, or that petitioner was scheduled for spinal surgery December of 2003.

Tough crowd.

The decision in Hernandez v. Superior Court (February 23, 2004), Case No. B171030, can be found at these links in PDF and Word formats.

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.

Reform Follows Function? Commissioner Continues Quest for Workers' Compensation Reform; Governor Takes Additional Initiative

Governor Arnold Schwarzenegger and Insurance Commissioner (and former gubernatorial candidate) John Garamendi continue to pursue their separate, somewhat parallel tracks toward providing California employers with relief from the bogglingly high price of workers' compensation insurance. The San Mateo County Times reports on the mixed results of the first round of reform efforts:

While much attention is on the second package of reforms, Garamendi noted that insurers still have a long way to go in lowering premiums to match a projected $5.5 billion in annual cost savings included in the first set of reforms. Based on the savings, Garamendi had sought a premium decrease of 14.9 percent in January. But, on average, premiums have decreased by only 3.6 percent.

The Governor's package of reforms is undergoing hearings in the Legislature, with the Governor pushing for near-immediate passage with the threat of taking the issue to voters in the form of a ballot initiative. Commissioner Garamendi, meanwhile, offers his own counter-proposal. The Sacramento Bee's Dan Walters highlights the somewhat awkward position in which the Democratic Commissioner finds himself:

The Legislature's dominant Democrats are closely allied with two of the major workers' comp factions, labor unions and attorneys who represent applicants for benefits. They agreed to last year's mild workers' comp reform that took financial bites out of doctors and other medical care providers but claim that rapacious insurers have failed to reduce rates by the several billion dollars in supposed savings. Insurers, meanwhile, contend that they can't reduce rates because they're still losing money and have some support from Insurance Commissioner John Garamendi, who is opposing the union-lawyer demand for direct regulation of workers' comp rates but wants to bring back minimum premiums to stop cutthroat competition.

Garamendi is being caught in the middle between the Democrat-union-lawyer alliance and the Schwarzenegger-employer-insurer coalition that wants changes in permanent partial benefits and no one, except himself, is backing his middle-ground approach.

Commissioner Garamendi's Workers' Compensation Information page on the Department of Insurance website provides links to a wealth of material -- much of it, admittedly, press releases -- on the Commissioner's approach to the problem. If you have the interest and the wherewithal to analyze it (which is more than Decs & Excs will claim, given that workers' compensation is not a field in which we claim any expertise), you can access the Commissioner's proposed legislative package -- modestly entitled The Garamendi Plan -- in its entirety, or just peruse the four-page summary version.

Insurance Department Expresses Reservations Over Tribal Workers' Compensation Alternatives

The Los Angeles Times, in a report entitled Tribal Insurer in State Probe (link requires registration) profiles a controversy between the California Department of Insurance and "employee leasing" companies operated by Indian tribes. The tribes are offering their companies' services to non-tribal businesses as a means for those businesses to avoid the still sky-high cost of obtaining workers' compensation insurance:

Tribal executives, anxious to protect a lucrative new business, are battling on legal, legislative and regulatory fronts. They've hired lawyers, lobbyists and public relations experts to try to convince the governor's office and lawmakers that they have come up with a practical alternative to a $29-billion-a-year workers' comp system that is widely criticized as broken.

The Fort Independence Indians say their approach can save employers money on insurance premiums while providing workers with first-class benefits by reducing fraud, cutting down on paperwork and removing lawyers from the claims-appeal process.

"Frankly, we think we can provide a viable model," said John Peebles, the tribe's lawyer in Sacramento.

The tribe, through a reservation-based company called Independent Staffing Solutions, "leases" workers to small businesses. That enables the businesses to save money by having a third party take care of many worker-related tasks, such as processing payroll checks, paying taxes and handling claims from injured workers.

And the premiums for the workers' comp insurance that Independent Staffing provides for the leased workers are 20% to 50% below those charged by traditional insurers or the state-run insurance pool. Those savings are a powerful lure to small businesses whose workers' comp premiums have doubled or tripled over the last four years.

Independent Staffing says it has 125 clients that employ 3,000 to 4,000 workers around the state in high-risk, hard-to-insure businesses, mainly in construction-related trades.

* * *

State officials contend that Indian-provided coverage clearly violates laws requiring employers to provide proof of coverage from a state-licensed insurance company or, alternatively, to present a certificate that they meet state financial requirements to be self-insured.

Tribal providers are careful not to describe their products as actual workers' compensation insurance, given that they lack the backing of state-licensed insurance companies. They refer to their coverage as "occupational indemnity, medical benefits through a tribal staffing model." The distinction is lost on most potential customers, regulators contend.

What's more, regulators note, Indian programs do not participate in a state-backed pool that ensures sufficient funds are available to pay benefits to injured workers if their employer's insurance company becomes insolvent. Tribally covered workers also do not enjoy the same rights to legal representation or to take appeals for denied claims to the state Workers' Compensation Appeals Board, state labor regulators point out.

The tribal companies assert that they are operating within the law, based upon their tribal sovereignty rights under the U.S. Constitution. The argument is not dissimilar to those raised in connection with disputes over operation of tribal gambling casinos.

The precise structure of these arrangements is not as clearlyl described as one might wish in this article, but the Insurance Department's concern seems principally to be that while these arrangements are a lot like workers' comepensation insurance, they aren't actually workers' compensationn insurance. There is thus no guarantee of injured workers receiving the benefits to which they are entitled, employers are not actually in compliance with their obligations to maintain coverage and, perhaps most troubling, the Department has no oversight powers over the tribal insurers to confirm their solvency. Employers' use of these arrangements serves to emphasize just how desperate some are becoming in their search for affordable compensation coverage.

Medical Malpractice -- Oregon Proposal Takes Aim at Legal Fees; Senator Frist Pushes to Federalize Caps on Damages

David Giacalone's ethicalEsq reports on a medical malpractice reform proposal possibly moving toward the ballot in Oregon. While many such proposals take the approach of capping or restricting the amount of damages that can be awarded against a negligent doctor, the Oregon proposals seek to limit the portion of those damages that can be claimed as fees by the plaintiff's attorney. The potential ballot initiative -- already being challenged even before being circulated to obtain necessary voter signatures -- proposes to limit attorneys' contingent fees to 20% of the first $500,000 of any medical malpractice recovery, i.e., a "cap" on fees at $100,000.

Decs & Excs is primarily California-oriented and, although some of my best friends are Oregonians, I claim no particular insight into Oregon law. However, judging from the description in the article in The Oregonian linked by ethicalEsq?, the targeting of attorneys' fees is perhaps an unintended consequence of the apparent success of the plaintiffs' bar in eliminating a previous statutory cap on "noneconomic damage" awards in malpractice cases:

The campaign committee [proposing the ballot initiatives], Oregonians for Quality, Affordable and Reliable Health Care, proposes to limit attorneys' contingency fees to $100,000 a case on personal injury or wrongful death claims, plus expenses.

Nearly one in five Oregon doctors has stopped or plans to stop providing some services because of high liability insurance, according to a 2003 survey by the Oregon Medical Association.

Premiums have increased dramatically since an Oregon Supreme Court ruling in 1999, said Paul Phillips, the campaign manager. The court said the state's $500,000 cap on noneconomic damages awards, adopted by the Legislature in 1987, violated the right to a jury trial under the Oregon Constitution.

"We want to go back to where the system worked so well," said Phillips, a lobbyist with Pac/West Communications.

A story worth following.

Meanwhile, in Washington, Senate Majority Leader Bill Frist, himself a doctor, is reigniting his efforts to push through medical malpractice legislation at the federal level. In a February 9 interview with Insurance Journal, the Senator has this to say:

IJ: With 19 states listed as being in 'crisis mode' by the AMA, do you see things getting worse before they get better?

Sen. Frist: In 2002, only 12 states were in crisis according to the AMA so the problem is steadily growing. Because the problem is a result of excessive litigation, I don't see the situation dramatically improving until Congress passes comprehensive medical liability reform.

The good news is that Congress is starting to hear the voices of patients and physicians. Last year, the House of Representatives passed reform and, as Majority Leader, I have made medical liability reform a top priority for the Senate.

Last July we brought medical liability reform to the floor of the Senate for the first time ever as its own bill. Unfortunately, the measure—the Patients First Act—was blocked by opponents who filibustered the mere consideration of the bill. However, this was just the first attempt at this important issue. We will bring reform up again this year, and I encourage physicians and patients who have been affected by the crisis to continue to contact their senators.

IJ: Have the Senate, House, White House, etc. looked to California and the five other states that passed tort reform as a model?

Sen. Frist: Yes. The bill that passed the House last year and the Patients First Act are based on California's successful model which proves that comprehensive reform works. California passed its medical liability reform measure—MICRA—in the 1970s and the results have been dramatic. For example, total liability premiums grew in California 182 percent from 1976 to 2001 compared with 569 percent for the rest of the country. Not surprising, California's doctors and patients have been spared the nightmare facing other states.

Insurance Journal yesterday also reports (per an Associated Press account, available here) that Senator Frist will opt first for more piecemeal changes, "narrowly targeted toward limiting the liability of obstetricians and gynecologists" whose practices have been particularly hard hit by claims of professional negligence.

The advisability of "federalizing" the rules of tort liability is open to serious debate, quite apart from the debate over the merit or efficacy of the proposed reform. It also seems unlikely, at first glance, that this sort of legislation will ever emerge from the Senate in its present state, although it may well serve as one among many issues on which the parties' respective candidates for President will weigh in as the campaign progresses. As with the Oregon proposals, a story worth following.

Update: Settlement Reached in Bronco Rollover Suit

Overlawyered reports that the Ford Motor Company has settled the prominent Bronco rollover case, Romo vs. Ford Motor Company.

The original judgment in the case was approximately $295 Million, including punitive damages of $290 Million. In the wake of the U.S. Supreme Court's revisitation of punitive damages in Campbell v. State Farm, the California Court of Appeal reduced the punitive damage award from $290 Million to slightly more than $23 Million, as Decs & Excs previously reported here. The final settlement figure is reported to be $34.5 Million (some substantial percentage of which likely goes to the Romo family's attorneys for their many years of service).

The Court of Appeal's decision is unaffected by the settlement, and will remain citable for its detailed analysis of post-Campbell punitive damage analysis in California.