Declarations and Exclusions

Emotional Rescue: Appellate Court Remains Skeptical Toward Emotional Distress Recovery in Legal Malpractice Cases

Under current California law, emotional distress damages are generally not permitted in legal malpractice cases because the courts regard most such claims [rightly, in the view of Decs&Excs] as involving purely economic losses.  An innocent criminal defendant, wrongly convicted through the defense attorney's negligence, is virtually the only victim of legal malpractice permitted to recoup damages for the emotional consequences of a lawyer's errors [again rightly, in the view of Decs&Excs].

But what about cases in which the emotional content runs unavoidably high, such as bitter marital dissolutions?  Can't the attorney be held liable for the emotional damage to the client that may inevitably arise from the mishandling of that sort of case?  Not under current law, and the most recent indication is that that rule is not about to change:

Walter Olson at Overlawyered points to a report on an unpublished order of the First District Court of Appeal in San Francisco, declining to make an exception to the usual rule on non-recovery for emotional distress, even in a divorce case in which the client alleged that the attorney had "made mistakes that turned his life upside-down and left him wondering if his new marriage was legitimate."

[The client,] Rinaldi accuses [his former attorney] Pisano of giving him bad advice and failing to serve his first wife with certain papers during their divorce proceedings. On top of at least $147,000 in compensatory damages, he sought unspecified damages for emotional distress in his suit, which was filed in August. The turmoil arose, Rinaldi says, when his first wife went to court to revisit the division of property -- two years after their 2001 divorce and a year after Rinaldi had remarried. He and his then-pregnant new wife 'were extremely concerned that they were not legitimately married and that their baby was illegitimate,' asserted Rinaldi's malpractice attorney, Meis & Alexander associate Quinton Cutlip, in his briefs.

Procedurally, the trial court denied the attorney-defendant's motion to strike out the claims for emotional distress.  The defendant petitioned the Court of Appeal for a writ of mandate to require the trial court to grant the motion.  The appellate court has issued an alternative writ, essentially ordering the trial court to grant the motion and to strike out the emotional distress claims unless the trial court -- or more likely the attorneys for the client-plaintiff -- persuade the Court of Appeal there is good cause not to do so.  Opposition to the writ is scheduled to be filed by February 1, at which point the appellate court can either issue its final order or set the matter for argument.  In either case, the Court may still issue a published decision.

The argument in favor of permitting emotional distress damages will likely focus in the proposition that certain types of cases, such as marital dissolutions, are so inherently emotional that it is compellingly foreseeable to the attorney that his or her mistakes may be emotionally devastating to the client.  That sort of foreseeability argument has generally been rejected in recent California decisions, as aptly summarized in Lawson v. Management Activities, Inc. (1999) 69 Cal.App.4th 652, 656:

To borrow a phrase from Blake, if tort damages were available for anything which could foreseeably cause our fellow human beings emotional distress, then ‘who can stand?’ No one, saint or sinner, can go through life without ‘negligently’ inflicting emotional distress on others.

Interested readers can follow the progress of this newest case [Pisano v. Superior Court, Appellate Case No. A108300] on the Court of Appeal's docket.

Addendum: David Giacalone comments (scroll to bottom of post).

Res Ipsa Grinchitur

What do you do when you are an attorney ready for Christmas vacation and your worthy opponent insists you must stick around and litigate a dispute over production of documents?  If you are Texas attorney Michael P. Lynn, you file a rhyming brief à la Seuss.

Ho Ho Ho.

[Cross-posted to a fool in the forest.]

New California Legislation Becomes Law on Jan. 1

Except when passed as "urgency legislation," new statutes become law in California on the next January 1 following their passage.  With that date fast approaching, Insurance Journal summarizes this year's crop of new insurance-related statutes.

They Do Things Differently There: New York Further Expands Insured's Right to Attorneys' Fees in Declaratory Relief Litigation

The so-called "American Rule" governing a litigant's right to recoup attorneys' fees requires the prevailing party in litigation to pays his or her own lawyers; the prevailing party does not get to claim reimbursement for those expenses from the defeated opponent unless a specific agreement (such as an attorneys' fee clause in a contract) or an express statute authorizes an award of fees.  In California, the "Brandt" doctrine will occasionally permit in insured to recover some attorneys' fees as an element of damages in a later "bad faith" case -- Decs&Excs discussed the doctrine here earlier this year -- but California generally adheres to the American Rule and generally requires the insured to bear the legal expense of defending against an insurer's declaratory relief action contesting coverage, even when the insured prevails.

Not so in New York:  In a 1979 decision -- the delightfully named Mighty Midgets case -- that state's highest court, the New York State Court of Appeals, held that when an insurer denies coverage and brings a declaratory relief action and the insured prevails, the insured is entitled to recover the attorneys' fees incurred in defending against the coverage action.

The insurer in Mighty Midgets declined to provide a defense under a liability policy, and some later courts have suggested that the failure of the insurer to defend at all was the principal ground for the award of attorneys' fees in the earlier case.  Now Business Insurance reports that the Court of Appeals, in response to a question posed by the 2nd Circuit U.S. Court of Appeals, has reaffirmed and expanded the Mighty Midgets doctrine, holding that an insured who successfully defends against a declaratory relief action is entitled to recover attorneys' fees, even if the insurer has been performing its obligations to defend. 

In the case before the 2nd Circuit, the insurer had been providing a defense to the insured in the underlying action, subject to a reservation of the insurer's right to withdraw from the defense if and when it obtained a favorable ruling in its declaratory relief case.  "The reasoning behind Mighty Midgets," says the New York Court, "is that an insurer's duty to defend an insured extends to the defense of any action arising out of the occurrence, including a defense against an insurer's declaratory relief action."  Applying that logic, it makes no difference whether the insurer performs or not while pursuing declaratory relief; the insured who successfully defends against the declaratory relief action is entitled to attorneys' fees in either case:

        In the instant case, it is undisputed that Shelby, a named insured under the policy, was cast in a defensive posture by U.S. Underwriters in their dispute over whether the insurer had a duty to defend and indemnify Shelby in the underlying personal injury action.  Further, it is undisputed that Shelby successfully defended against the insurer's summary judgment motion and thereby prevailed in the matter.

        Based on Mighty Midgets, Shelby is entitled to recover attorneys' fees.  We hold that under Mighty Midgets, an insured who prevails in an action brought by an insurance company seeking a declaratory judgment that it has no duty to defend or indemnify the insured may recover attorneys' fees regardless of whether the insurer provided a defense to the insured.   Given that the expenses incurred by Shelby in defending against the declaratory judgment action arose as a direct consequence of U.S. Underwriters' unsuccessful attempt to free itself of its policy obligations, Shelby is entitled to recover those expenses from the insurer.   In other words, Shelby's recovery of attorneys' fees is incidental to the insurer's contractual duty to defend.

(Emphasis added.)

At least temporarily, the New York Court of Appeals' decision in U.S. Underwriters Insurance Co. v. City Club Hotel, LLC, et al., (Dec. 16, 2004), can be found at this link in PDF format.

"Long-Winded" but Enforceable: Statute Mandates Coverage for Life Insurance Applicant Killed While His Application Is Being Processed

The Third District Court of Appeal in Sacramento addresses a persistent problem in life insurance law: When an applicant for life insurance dies between the submission of the application and the issuance of the policy, must the insurer pay?  Here, the issue is complicated by the fact that the insurer had already taken steps to withdraw temporary coverage during the application process.  The appellate court majority finds that a somewhat obscure statute -- Insurance Code §10115 -- requires the insurer to pay the death benefit in the circumstances of the case.

Michael Hodgson applied for $500,000 of life insurance coverage through Banner Life Insurance Company.  He submitted a check for payment of the first premium with his application.  At the time of the application, the insurance agent provided Michael with a "conditional receipt" or binder, granting coverage during the time that the application was being processed.  When the application and check were received by Banner Life, it immediately notified the agent that the company's procedures did not allow a grant of temporary coverage when the applicant sought coverage greater than $250,000.  Through the agent, Banner Life returned Michael's check and gave written notice that there would be no temporary coverage provided, although it would continue to process the application.  At the conclusion of the underwriting process, Banner Life approved the application for coverage of $500,000.  Five days earlier, however, Michael had been involved in an automobile accident and sustained injuries the ultimately proved fatal.  His wife and children sought payment under the life insurance policy, but Banner Life refused, on the ground that it had extended no temporary coverage and that the actual policy had not yet been issued at the time of Michael's accident.  In subsequent litigation, the trial court granted summary judgment in the insurer's favor; the Court of Appeal reverses that decision.

In its opinion, the appellate court discusses at length the California cases that hold that an otherwise insurable life insurance applicant who has submitted payment of premium along with the application has a "reasonable expectation" of coverage while the application is processed, based on the insurer's retention of the premium.  The Court agrees with Banner Life's position that its actions in returning the initial premium check and in notifying Michael explicitly that it would not be extending temporary coverage operated to defeat any such "expectation."  Based on the case law, Banner Life would be permitted to deny the claim.  However, the case law is not the last word on the subject:

Insurance Code §10115 provides in part that when payment of premium is made with an application and either a receipt is given or the payment is received at the insurer's home office, and the application is thereafter approved, then the policy is effectively deemed to have been issued on the date of the original application.  Banner Life argued that the statute is inapplicable because it is "long-winded" and because the state Supreme Court had implicitly ignored it in the line of cases under which Banner had been held to have defeated any "expectation" of temporary coverage.  The appellate court disagrees: Nothing in the Supreme Court cases suggests that the court intended to invalidate the statute and "[l]ong-winded or not, we must apply section 10115 according to its terms."

Unlike the issue of temporary coverage raised when an applicant for life insurance dies before the application has been approved, . . . section 10115 addresses the issue of coverage when the application has been approved but has not been issued and delivered at the time of the insured’s death. Under the [case law], the retention of a premium payment, in light of the conditional receipt issued by the insurance company, may create a reasonable expectation of coverage in the mind of the applicant.  Section 10115, on the other hand, imposes a coverage obligation whenever the conditions for issuance of a policy of insurance have been satisfied but the formalities of issuance and deliverance have not occurred. This obligation is imposed by law and does not rest on the reasonable expectation of the parties based on the language of a conditional receipt and the acceptance of an initial premium payment.

The conditions of the statute having literally been met -- the later-returned check had been "received" at the insurer's home office and the application was ultimately approved -- the Court of Appeal concludes that the insurer is obligated to pay under the policy.

The decision in Hodgson v. Banner Life Ins. Co. (December 15, 2004), Case No. C041384 can be accessed at these links in PDF and Word formats.
[Note: The links will expire in approximately 120 days; the opinion should still be accessible thereafter by substituting "archive" for "documents" in the URL.]

The Man Who Knew Too Much: Insurer's Former Attorney/Consultant Disqualified from Testifying Against Company as Expert Witness

A well known insurance attorney, insurance fraud expert and claims practices consultant has been disqualified from testifying as an expert witness against an insurance company he represented and advised twelve years earlier.

From 1988 to 1991, attorney Barry Zalma defended 21st Century Insurance Company in claims litigation and rendered coverage opinions to the company.  He later formed an education and consulting firm, ClaimSchool, Inc., which also advised 21st Century and provided multi-week training sessions to its claims staff.  In 2001, Helen Brand filed suit against 21st Century, her insurer, claiming breach of the insurance contract and "bad faith" (breach of the insurer's obligations of good faith and fair dealing) in the investigation and adjustment of a mold-related loss to her home.  As trial approached, Brand retained and designated Zalma as an expert witness, to testify concerning the propriety of 21st Century's claims handling practices.  21st Century moved to disqualify Zalma on the ground that he had acquired confidential information during his former representation of the company.  The trial court twice declined to order the disqualification, finding in part that the passage of time (12 years) between Zalma's former engagement by 21st Century and his current engagement as its opponent's expert witness indicated there was no "substantial relationship" between the two matters.  21st Century filed an appeal from the trial court's order, and the Court of Appeal has ordered Zalma's disqualification.

The rule on attorney disqualifications in California is ostensibly a simple one:

An attorney engaged in employment adverse to a former client is subject to disqualification where a 'substantial relationship' exists between the lawyer's current employment and the lawyer's representation of the former client.

Despite the passage of time, the Court of Appeal found that the two engagements had an inescapable connection, giving rise to a presumption that Zalma was in possession of confidential information that he would not be permitted to utilize to the detriment of his former client.

[T]he undisputed evidence before the court in this case establishes the requisite substantial relationship between Zalma’s current and prior engagements to mandate his disqualification as an expert witness against his former client in this litigation. Not only did Zalma personally represent 21st Century as its attorney and supervise associates representing the company between 1988 and 1991, but Zalma’s representation of 21st Century also concerned matters substantially related to the issues in the instant case in which he has been retained to testify against 21st Century.

The two engagements arose in the same context and share numerous factual and legal elements. While an attorney for 21st Century, Zalma rendered “numerous coverage opinions on behalf of 21st Century on a variety of claims issues, including moisture intrusion, rot, and fungal infestation.” Zalma also defended 21st Century in actions by policyholders seeking coverage and/or alleging bad faith in claims handling. . . .

Moreover, using knowledge gained from consultations with 21st Century concerning its claims handling policies and procedures, Zalma taught the company’s claims adjusters how to evaluate claims for coverage under 21st Century’s homeowner’s policy and made suggestions to the company for improving its claims handling procedures. It is thus readily apparent that by virtue of the nature of Zalma’s representation of 21st Century, confidential information material to the current dispute would normally have been imparted to Zalma. As such, Zalma’s knowledge of confidential information must be presumed.

At least as the court describes it, the close ties between the past and current representations are sufficiently clear that one can only ask of Zalma's decision to accept retention as an expert in this case:  "What was he thinking?" (This is the latest in a continuing series of attorneys seemingly believing that their former representations of an insurer pose no obstacle to switching sides.  Click through for two previous  examples of disqualifications of insurers' former attorneys.)

The decision in Brand v. 20th Century Insurance Company (Sept. 1, 2004; ordered published December 1, 2004), Case No. B169913, can be accessed at these links in PDF and Word formats. [Note: The links will expire in approximately 120 days; the opinion should still be accessible thereafter by substituting "archive" for "documents" in the URL.]

Cave Canem* -- Emotional Distress Damages for Negligent Injury to Animals

Via David Giacalone comes a link to this article from the latest issue of Time magazine: Woof, Woof, Your Honor, a brief overview of the expanding horizons of litigation involving dogs and other animals.  This paragraph holds particular interest for me [see "Disclosure" below]:

Some pet cases have reaped surprisingly large awards.  Marc Bluestone of Sherman Oaks, Calif., won a $39,000 jury award last February after Shane, his mixed-breed Labrador retriever, valued by the court at $10, died just days after coming home from a two-month stay in a pet clinic.  Although the suit took five years, cost more than $300,000 in legal fees and is on appeal, Bluestone says it was all worth it: 'I can't get my baby back, but I did get justice.'

Dogs and other animals have, historically, been viewed as items of personal property, to be valued in exactly the same way as any other property.  That is, the usual measure of damages is the difference in the property's market value before and after the harm is done by the defendant: either the cost of repair or the cost of replacement, whichever is less.  The discrepancy between the dog's value ($10.00) and the jury's verdict ($39,000) represents an award of damages largely for Mr. Bluestone's claimed emotional distress at the loss of his pet.

Although a minority of states -- Hawaii and Florida among them -- have permitted an animal owner to recover damages for the owner's distress when the animal is injured through negligence, the majority of states that have considered the question have come down on the side of the established common law rule: despite the well-known emotional bonds that can and do exist between humans and their non-human companions, the distress that the human may suffer when his or her pet is injured through negligence is not a loss for which any monetary compensation will be awarded.  No published California appellate case has addressed the question, though there are several cases indicating that merely negligent loss or destruction of other types of personal property -- irreplaceable family heirlooms, for example -- will not support an award of damages for emotional distress.  The Bluestone case will likely present that question squarely as it relates to animals.

It is worth noting, before anyone leaps to the conclusion that the very real emotional consequence of injury to a pet "must" be compensated, that there are numerous situations in which those same emotional damages are denied for injury to a fellow huma.  In California, the emotional distress attendant to serious injury sustained by your child or spouse is usually recoverable only if you were a near-direct witness to that injury -- for example, by being personally present when your child or spouse is struck by a negligent motorist, as opposed to hearing about it a few minutes later -- and there is no recovery at all for direct perception of the injury of a person to whom you are unrelated by blood or marriage -- such as your long-time companion or fiancé -- no matter how close and genuine the emotional bonds between you and the other.  Spouses can recover for the loss of one another's companionship or "consortium" in California, but no similar recovery is available for the relation between parent and child.  These are largely public policy decisions: to avoid the prospect of infinite and unpredictable liability, the line must be drawn somewhere, and these are the lines the courts have elected to draw.

Also notable: The emotional distress claim in Bluestone was framed in terms of recovery for the "peculiar value" of the damaged property (the dog).  While California and other states have long permitted additional damages to be recovered when property is shown to have a particular value to its owner greater than that same property would have to someone else, the courts have generally held that "peculiar value" does not include the emotional or sentimental value of property.

For Further Reading: A newspaper report [pdf] on the Bluestone verdict being used in a course at the veterinary school at UC, Davis, and commentary on the case from the American Veterinary Medical Association.

Disclosure:  I represented a veterinarian who was briefly joined as a defendant in the Bluestone litigation.  The doctor in question had an extremely tenuous connection to the treatment of Mr. Bluestone's dog and did nothing wrong.  My client was not named as a defendant until more than four years after the case commenced, and was dismissed voluntarily prior to trial in exchange for a waiver of the right she would otherwise have to recover certain of her legal costs.

*For Further Non-Legal Reading: This post's Latin title comes from the famed mosaic warning sign found at Pompeii.  Much more information than you might expect about the particular Roman breed immortalized there can be found here.