Declarations and Exclusions

Other Voices, Other Rooms

Herewith, the first installment of what is intended to be a regular (weekly or near-weekly) catalog of links to posts and resources on risk, insurance, liability and related topics that you might otherwise have missed:

• Guesting at Crime & Federalism, David Giacalone [formerly of ethicalEsq and now of the hybrid haiku-and-law site, f/k/a . . . .]  focuses on increasing the public value of Small Claims Courts. 

• Decs&Excs Comment: I have mixed emotions about Small Claims, myself, although on balance I agree that it is a valuable resource.  While they can and frequently do provide an effective and inexpensive method of resolving disputes (largely because they are a lawyer-free environment) Small Claims Courts can also be a source of frustration in those cases that, despite a comparatively low value -- $5,000 or less in California --  nonetheless depend on the resolution of a sophisticated legal or factual question.  For example, a low-priced claim against a doctor or other professional can be brought in Small Claims Court but is nonetheless a claim for professional negligence or "malpractice."   Generally, outside of small claims, proof of liability in such cases depends on the testimony of qualified experts addressing issues such as recognized professional standards of care and medical causation.  In Small Claims Court, the same rules of law ought to apply, but there is always the risk that the defendant professional will receive an adverse ruling based on the hearing officer's  subjective, unreviewable determination of what's "fair."  Query: Should there be, in addition to monetary limits, a short list of "subject matter" restrictions on Small Claims Court jurisdiction?

• Writing on his Insurance Defense Blog, David Stratton wonders whether Washington, D.C., will soon become the site of Coyote Liability litigation.  Coyotes appear to have joined sheep and deer as a known free-ranging peril.  Perhaps this calls for some Coyote-Deer Risk Management?

• At PointofLaw.com, James Copland discusses the 2nd Circuit's resurrection of the 'I Got Fat at McDonalds' litigation, with helpful links to the Court's opinion,  and Walter Olson links to Medpundit's analysis of recent studies on the effectiveness of California's medical malpractice reform statutes.

• New Weblog Note:  Although his practice is focused on insurance-related issues (and although he holds the CPCU designation as I do), Sacramento-area attorney Jonathan Stein has chosen another subject for his freshly-launched site, with the self-explanatory title, Adoption Weblog.  He explained his choice in his first post:

  Why did I pick this topic? Well, adoption is near and dear to my heart.  My own children are adopted. I am a practicing attorney, and while I do not practice in the family law area, I do keep an eye on adoption trends. I have spoken in favor of adoptive parent's rights, and I (along with very competent and excellent co-counsel) currently represent a birthfather in a custody case. My views are not always going to be on one side or another, but rather from what I see is best.

• And finally, because I try to maintain at least a semblance of standards of taste and quality on this site, it fell to my alter ego, the Fool in the Forest, to report the latest news concerning Insurance and Coconuts.

. . . But They Can't Hide

An intriguing bit of phrasing in this Insurance Journal headline:

Farmers Survey: Red Light Running Among Top Causes of Crashes;
Men More than Women Feel Need to Run.

No word yet on whether the study puts the blame on Bruce Springsteen.

Raising a Stink: Court Finds No Coverage for Damage from Backup of Sewer Water

With California still drying out after weeks of continuous rain, what could be more timely than an appellate decision on insurance coverage for a loss caused by sewage in the basement?

A sewer pipe ran underneath the basement of Mike’s Tailoring, serving Mike’s premises and those of a neighbor.   A clean out pipe came out vertically in Mike’s basement.  20 to 25 feet “downstream” the sewer pipe made small but fateful change in direction: solid matter caught and clogged at that point, causing the line to back up to the clean out pipe, where “”the sewer line flooded Mike’s basement, and the water, sewage and fumes accompanying the sewage damaged Mike’s property.”

Mike’s property insurance policy covered “water damage” among its “specified causes of loss,” but contained two potentially relevant exclusions.  The first exclusion eliminated coverage for damage “caused directly or indirectly” by “water” stated to include: “Water that backs up from a sewer or drain. . . .”   The second exclusion eliminated coverage for discharge, etc., of “pollutants,” but contained an exception: the exclusion did not apply to such a discharge if it was caused by one of the “specified causes of loss.”   The insurer contended that the damage was not covered because it resulted from a “back[] up from a sewer or drain.”   Mike’s contended that there was coverage because the loss included damage from “pollutants” (sewage, sludge, etc.) and was not excluded because the pollutants accompanied a “specified cause of loss” (water).

The Court of Appeal, reversing a judgment in Mike’s favor, agreed with the insurer: because the loss was unavoidably related to “water that backs up from a sewer or drain,” reasoned the court, the fact that that water also contained “pollutants” did nothing to defeat the operation of the relevant exclusion:

As explained, the trial court found the sewer backup exclusion inapplicable because it found the damage was caused by ‘pollutants’ rather than water.  Notwithstanding this determination, the trial court also stated: (1) the loss was ‘caused by water, waste, and sewage;’ (2) the sewer pipe conveyed ‘waste-water . . . and that water contained many pollutants;’ (3) the sewer line contained water and sewage, and the contents of the sewer line was forced up the clean-out pipe into Mike’s basement and flooded the basement; and (4) the leakage of water constituted a ‘“specified cause of loss” in the form of  "water damage” . . . .’

The phrase ‘[w]ater that backs up from a sewer or drain’ is facially unambiguous.  It is unreasonable to assume that water in a sewer will be free from waste, contaminants, and other noxious substances that are commonly referred to as sewage.  A lay person reading the policy would assume that a backup of water from a sewer would contain both water and contaminants.  No reasonable person would assume that water backing up from a sewer would be pure water.  It is also unreasonable to assume the term ‘sewer,’ which is facially unqualified, has a latent, technical meaning which limits its application to the public portion of the sewer line.

The decision in Penn-America Ins. Co. v. Mike's Tailoring (Jan. 11, 2005), Case No. C046333, 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.]

Landslides and Litigators

Within the comparatively small area that it has affected, the landslide north of Los Angeles at La Conchita  -- with at least ten dead, several others still missing and more left homeless -- is nearly as devastating as the Asian tsunami.   It is something of a cliché to suggest that "Where There's a Tragedy, There's a Lawsuit," but La Conchita may yet provide a fresh example.

Although no one died, the town of La Conchita sustained significant property damage in 1995 when the same hillside collapsed.  That slide did produce litigation, directed against the avocado grower at the top of the hill.  As the Sacramento Bee reports:

La Conchita residents tried to blame irrigation at the La Conchita Ranch Co. atop the hill for the 1995 slide. One group of residents settled a lawsuit before trial, and another case ended with the judge ruling irrigation hadn't caused the slide. The ranch has continued to irrigate the crops at the top of the hill.

The Los Angeles Daily Journal, our local legal newspaper, had a more extensive report yesterday on the prior litigation and the prospects for more.  [No link; the DJ does not make its stories available online to non-subscribers.]  Representative excerpts from that story:

Robert Brace, a partner at Santa Barbara's Hollister & Brace, who lost a friend in Monday's tragic slide, represented more than a 100 residents in a negligence suit against La Conchita Ranch Co. after a 600,000-ton slab of earth slid into the town in March 1995, leveling nine homes but sparing lives.

Brace argued the overirrigation of citrus and avocado crops atop the bluff contributed to instability within the hill, while the heavy rains brought on by El Nino that year were simply 'the straw that broke the camel's back.'

* * *

Ranch lawyer Frank Sabaitis of Los Angeles' Sabaitis O'Callaghan said Brace's claim that overirrigation had reactivated ancient landslides didn't hold water, and Ventura Superior Court Judge Henry Walsh ruled the ranch could not be held liable for future slides based on that premise.

* * *

Brace said he wasn't yet sure if liability suits, which could easily top eight figures due to the fatalities and community destruction, would be filed against the county.  But while he conceded that residents deserved at least some blame for sticking around after the first slide, Brace said the activities atop the hill should not be forgotten.

'That town should never have been there in the first place. It's a dangerous spot to be,' he said.  'But once you have those facts, you don't want to water the landslide [area].  If there was any question that irrigation may cause a landslide, then you shouldn't irrigate.

'It was crazy for the people to continue to live there, but crazier for the ranch to keep irrigating that hill.'

The potential target for new litigation is the County of Ventura, which installed motion sensors and a retaining wall -- as well as warning signs throughout the community -- after the 1995 slide.  The sensors reportedly did not sound an alert in advance of Monday's collapse, and the retaining wall came down with the rest of the slope. 

In the DJ story, an unnamed county official is quoted asking rhetorically: "[W]hen you get a year's worth of rain in a week, how do you defend against that?"  To which one can only counter: What are the odds that at least one expert witness out there is preparing even now to provide an answer to that question in court?

Alternative Careers for Claims Professionals

If you are an insurance claims professional or otherwise involved in the claims process and you find yourself in Southern California on March 15 and 16, 2005, you could do worse than attending the 17th Annual Combined Claims Conference.   

As the agenda indicates, the Conference will offer three tracks of educational programs -- one each for property, liability and workers compensation issues -- covering all the hottest claims topics: earthquakes, mold, fraud . . . you name it -- even an opportunity to work on your golf game.

The closing program will be of particular interest to those affected by the tight job market, as it will provide attendees with access to a potentially lucrative new skill set:

• 4:00 pm to 4:30 pm:  LIVE Car Stripping Demonstration
  Hey Dude! Where's My Car?
  See how quickly a vehicle can be turned into parts!

Register now!

More Reports on the Cost of Torts

President Bush's speech earlier this week in Madison County, Illinois, (see below) has kept attention focused on the cost of medical malpractice insurance and on proposals to modify the tort liability system.  Each side in this battle has its favored method for calculating how much current approaches are or are not costing.  Here are two more recent contributions to the argument:

Ted Frank at PointofLaw.com accuses David Brock's Media Matters for America [MMFA] of mis-reporting when MMFA accuses the Washington Post of mis-reporting:

MMFA complains that the Post discussed the debate over whether malpractice reform would reduce malpractice insurance rates without resolving it.  MMFA contends that the question isn't debatable: the Bush administration is wrong.  Why?  MMFA quotes the [Congressional Budget Office] on health insurance rates.  Unfortunately, doctors can't get malpractice insurance by buying health insurance.

Meanwhile, Business Insurance magazine reports on Tillinghast's 2004 update of its annual review of U.S. tort costs.  Among the findings:

• Tort costs grew by 5.4% in 2003, slightly greater than the 4.9% growth rate of the economy as a whole.  This is a lower rate of growth than was seen in 2001 and 2002.  "The U.S. tort system cost $246 billion in 2003, which translates to $845 per person, or $35 per person more than in 2002. This compares to a cost of $12 per person in 1950 (not adjusted for inflation)."

• "Over the last 50 years, tort costs in the U.S. have increased more than a hundredfold.  In contrast, overall economic production (as measured by GDP) has grown by a factor of 37 and population has grown by a factor of less than two."

• "Since 1975 (the first year for which insured medical malpractice costs were separately identified), the increase in medical malpractice costs has outpaced
  increases in overall U.S. tort costs.  Medical malpractice costs have risen an average of 11.8% per year, compared to an average annual increase of 9.2% per year for all other tort costs."

• "While it is impossible to accurately predict future increases in tort costs, it
  does seem reasonable to assume that, without sweeping structural changes to
  the U.S. tort system, annual increases will be in the 5% to 8% range for the
  next several years.  At this rate of increase, tort costs could approach $1,000 per U.S. citizen by 2006 -- representing a new quadruple-digit benchmark."

Quotations are taken from the executive summary; all italics are in the original.  The full report, with an expanded discussion and numerous charts, is available through Tillinghast's site in PDF format.

Update [01/10/05]:  Also at PointofLaw.com, more on the Tillinghast report, with reaction from the Washington Post, posted by James R. Copland.

Punitive Damages in Contract Cases? Say It Isn't So! [It Isn't.]

Walter Olson is concerned:

J. Craig Williams sounds the alarm about a new California Supreme Court opinion (authored, whether curiously or not, by libertarian-admired Justice Janice Rogers Brown) which would seem to open a door for lawyers to start claiming punitive damages in contract disputes.

Hold on to your towels and don't panic, gentlemen: there appears to be a good deal of overstatement going around about the Court's year-end decision in Robinson Helicopter Company v. Dana Corporation.  While that decision may well mean that punitive damages will become an issue in some cases that also involve breach of contract claims, it does not stand for the proposition that one can recover punitive damages for breach of contract.  Decs&Excs' summary and analysis of the decision continues in the extended body of this post, below.

For those who want to read it for themselves, the decision in Robinson Helicopter Company, Inc. v. Dana Corporation (December 23, 2004), Case No. S114054 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.]

Update [01/11/05]:  Timothy Sandefur of the Pacific Legal Foundation, guest-posting at Crime & Federalism, is also interested in the possible consequences of this case, in which he participated by filing an amicus brief.

The Bushes of Madison County

In the continuing debate over tort reform, Madison County, Illinois, is the designated poster child for those who favor tighter standards for the certification of tort class action lawsuits.  The business-oriented American Tort Reform Association ranks the county Number One in its annual listing of so-called "Judicial Hellholes®".

President Bush has identified tort reform and liability containment as a priority in his second term.   Today at PointofLaw.com, James Copland reports that the President will be paying a personal visit to Madison County this Wednesday, to call attention to the problems he perceives there and to call for a Congressional exorcism of the resident demons.   Says the linked story in the St. Louis Post-Dispatch:

Presidential visits typically are arranged to highlight a success story, such as an overachieving Head Start program or a thriving small business. But Wednesday's presidential visit - the first to Madison County by a sitting president since Jimmy Carter stopped in Alton during a 1979 Mississippi River cruise - appears to be based on the county's reputation in some circles as a haven for so-called frivolous lawsuits.

Bush's appearance will be an invitation-only event at Collinsville's Gateway Center.  It was arranged just two weeks after the American Tort Reform Association ranked Madison County for the second year as the nation's top "judicial hellhole."  The group ranked St. Clair County second.

Whether the distinction is deserved or not - and there is no shortage of debate on the subject - no one in Madison or St. Clair counties would admit to being thrilled that the area will be portrayed in the national media this week as a symbol of what's wrong with the nation's courts.

One suspects that the invitation-only audience will not include vocal defenders of the good name of Madison County and its judiciary, such as local litigator Evan Schaeffer of Notes from the (Legal) Underground, whose Madison County apologia are available in his weblog's Tort "Reform" Archive.  If only because his writing is never less than entertaining (and is often much, much more), we can hope that Evan will be able to provide a report on the President's visit despite being compelled to keep his distance from the event itself.

Presidential interest may have been signaled first when Madison County was singled out in comments by Yale Law School Professor George Priest at the December 15, 2004, White House conference on "lawsuit abuse."  Professor Priest's remarks (and the President's approving noises thereon) can be read in the official White House transcript, accessible here.

[A personal note: Before he joined the law faculty at Yale, Professor Priest spent two years teaching at UCLA School of Law where, in 1980, he presided over my second-year "Remedies" course.  In retrospect, I have decided that he did a fine job, although his approach to the subject was rather too theoretical for my tastes at the time.  Live and learn.]

Update [01/05/05 1700 PST]: On the day of the presidential visit, Evan Schaeffer graciously extends space to a pro-reform guest, Allen Adomite (Evan promises his own comments later), while  Professor Bainbridge ponders the scope of the President's mandate, if any, on tort reform issues.