PROFESSIONAL LIABILITY MAGAZINE Developments | Decisions | Defenses
Supreme Court to Decide if LGBT Workers Are Protected from Employment Discrimination
ALSO INSIDE: The Danger in Delaying Reporting Claims Best Practices for Successful Fee Collection Judge Throws Out NFL Player’s Workers’ Compensation Claim Attorney Advertising
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PLM | SUMMER 2019
Contents INSIGHT A quarterly magazine on emerging developments, decisions, and defenses in professional-negligence law and claims management
EDITORS Management and Professional Liability Co-Chairs
5 | Ethical Issues Surrounding Arbitration Provisions in Attorney Retainer Agreements COVER STORY
Jonathan S. Ziss 267.519.6820 firstname.lastname@example.org
6 | Supreme Court to Decide if LGBT Workers Are Protected from Employment Discrimination
Peter J. Biging 646.292.8711 email@example.com
TEAM LEAD Martha P. Brown firstname.lastname@example.org
CONTRIBUTORS Matthew S. Marrone email@example.com Colleen M. Murphy firstname.lastname@example.org Joseph A. Oliva email@example.com Joanne J. Romero firstname.lastname@example.org Sean T. Stadelman email@example.com Colin B. Willmott firstname.lastname@example.org
8 | Fidelity Bond’s Termination Clause Triggered by Dishonest Acts 9 | Pennsylvania Superior Court Finds Credentialing File Not Protected by Peer Review Protection Act SPOTLIGHT 10 | A Word to the Wise for Insurance Agents and Brokers Who Are Asked to Hold Off on Reporting Claims: There’s Danger in Delay 12 | Common Practices That Can Put Insurance Agents and Brokers Front and Center in a Late Notice Claims Denial 13 | E&O Loss Control Tips Regarding Claims Reporting
INSIGHTS 14 | Best Practices for Successful Fee Collection
Robert L. Kaiser
15 | From Streets Gangs to Churchill
CHIEF DESIGNER Jeremy Dolph
You have a wide variety of options if you’re looking for a good summer read
CROSSOVER 16 | California Judge Throws Out Former-NFL Player’s Workers’ Compensation Claim for Lack of Jurisdiction 17 | New Trial Ordered for Heavy-Equipment Manufacturer Found Liable in Man’s Death
Summer 2019 | 3
Breaking News • Trends and Legal Developments • Regulations and Decisions • Best Practices Resources
Professional Liability Matters Your online source for the latest news and updates impacting the professional liability community. At Professional Liability Matters, our attorney-first writers discuss a wide range of industries including: • Finance • Medicine • Architecture • Law and Construction • And More • Real Estate Whether you’re an industry professional, insurer, or liability attorney, Professional Liability Matters has you covered.
Ethical Issues Surrounding Arbitration Provisions in Attorney Retainer Agreements BY MATTHEW S. MARRONE There’s a common belief among lawyers that it’s better to have disputes resolved through private arbitration rather than in court. Juries are unpredictable, and judges can be too. Litigation in court can be long and costly, and private arbitration may seem a more desirable alternative. The lawyers can choose the arbitrators, who presumably are more of a “known quantity” in terms of their legal acumen. Arbitration proceedings typically have a more truncated discovery period. The arbitration result is binding, which avoids an even lengthier and more unpredictable appeal in the court system. For these reasons, many lawyers insert provisions in their retainer agreements to require clients to raise any disputes related to the lawyers’ representation in an arbitration forum instead of court. This article will not debate the relative merits of arbitration as opposed to litigation. However, we will note there is often a benefit to multiple decision-makers (e.g., a judge making legal decisions, and a jury of six, eight, or 12 members rendering a verdict) as opposed to just a single arbitrator, and appellate courts provide a valuable error-correcting function if any of the lower court decision-makers do something wrong. Instead, this article will focus on whether such provisions are enforceable, or even ethical. A recent trial court decision from the Philadelphia Court of Common Pleas addressed this very issue. In that case, the judge considered the retainer agreement of a prominent large law firm to represent a medical equipment company and the company retained the firm to renegotiate a licensing agreement. The company signed a retainer agreement, which included a broad arbitration provision stating that any “dispute, controversy, or claim arising out of or relating to (the firm’s) fees, costs, billing practices or (the) engagement … will be submitted to mandatory binding arbitration before a single arbitrator in Minneapolis, Minnesota.” goldbergsegalla.com
The company subsequently sued the firm for legal malpractice in the Philadelphia Court of Common Pleas. The firm invoked the arbitration provision, and sought to dismiss the case and force the client to bring the claim before an arbitrator in Minneapolis. The judge summarized longstanding legal precedent which states arbitration clauses in contracts are to be afforded great deference. However, the judge also cited the Rule of Professional Conduct, which states “a lawyer shall not make an agreement prospectively limiting the lawyer’s liability to a client for malpractice unless the client is independently represented in making the agreement.” The judge concluded that the retainer agreement failed to reasonably disclose the prospective limitations the firm was placing on its own liability for malpractice. He ruled that the client was not given sufficient objective information to understand that its attorneys were prospectively limiting their own liability for malpractice (i.e., by forcing the client to bring its claim in Minneapolis before a single arbitrator, rather than in Philadelphia before a judge and jury—with subsequent appellate court protection) without telling the client it had a right to first consult independent counsel. The judge found the arbitration clause to be invalid. In our opinion, this judge made the correct ruling. The right to a trial by jury, and the correlative right to the protection that appellate courts provide, is a right all clients enjoy. If an attorney wishes for a client to relinquish this right as a condition of engagement, the attorney is obligated to clearly advise the client of this condition and advise them of their right to have the agreement reviewed by an independent counsel of their own choosing. Failing to do so—and then seeking to invoke the arbitration provision—will risk the ire of a judge finding the provision to be “unconscionable” as the judge in the foregoing case did. This could even subject the attorney to a disciplinary proceeding, if the judge feels the conduct is unethical and should be reported to relevant disciplinary authorities. Summer 2019 | 5
Supreme Court to Decide if LGBT Workers Are Protected from Employment Discrimination
BY COLIN B. WILLMOTT For roughly 10 years, Gerald Bostock worked as a child welfare services coordinator for Clayton County, Georgia, with happy results. Bostock was widely praised, and his boss gave him consistently positive reviews. Then Bostock began participating in a gay softball league and people started criticizing and disparaging him for it, as well as for his sexual orientation, and his employer suddenly soured on him. Clayton County told Bostock it intended to conduct an internal audit of the program funds he managed and then fired him for “conduct unbecoming of its employees.” In 2016, about three years after filing a complaint with the Equal Employment Opportunity Commission, Bostock sued Clayton County for allegedly discriminating against him because he’s gay, leading to an 11th Circuit decision that states federal law does not prohibit discrimination on the basis of sexual orientation. Now the Supreme Court has agreed to weigh in on Bostock v. Clayton County, Georgia and two other employment-discrimina6 | PLM
tion cases that together could decide whether federal employment-discrimination laws protect LGBT employees. At issue in all three cases is how to interpret the language of Title VII of the 1964 Civil Rights Act, which prohibits employment discrimination “because of… sex.” The question is whether this encompasses sexual orientation and identity. The trio of cases don’t all arrive at the same answer. Besides Bostock, they are: Zarda v. Altitude Express, Inc., a sexual-orientation claim brought by a skydiving instructor who was fired after a woman complained that he had told her she needn’t be concerned about jumping in tandem with him because he’s gay. In this case, the Second Circuit said federal law did apply to discrimination claims based on sexual orientation. Though the court acknowledged that such claims historically were not allowed under Title VII of the 1964 Civil Rights Act, it noted that legal doctrines evolve and that the Equal Employment Opportunity Commission had determined in 2015 that sexual orientation is inherently a sex-based consideration. In particular, the Second Circuit reasoned that sexual orientation is a subset of sex discrimination. “[B]ecause one cannot fully define a person’s sexual orientation without identifying his or her sex, sexual orientation is a function of sex,” the court noted.
EEOC v. R.G. & G.R. Harris Funeral Homes, Inc., an employer’s decision to fire an employee based on their transgender status was found to be a violation of Title VII. The employer in Funeral Homes was a funeral director and the employee was a transgender woman, who was born male. When the employee began her employment with the funeral home she presented herself as a man, however, on July 31, 2013, the employee provided the owner of the funeral home with a letter indicating that she was struggling with gender identity and intended to have sex reassignment surgery. The owner of the funeral home indicated it was “not going to work out” and offered a severance agreement if she agreed not to say or do anything. When the employee refused, she was fired. Notably, the funeral home’s owner had religious objections to a person “denying” their sex. Ultimately, the Sixth Circuit held that discrimination on the basis of transgender and transitioning status violated Title VII. In so holding, the court noted that “it is analytically impossible to fire an employee based on the employee’s status as a transgender person without being motivated, at least in part, by the employee’s sex.” Further, the Sixth Circuit rejected the funeral home’s attempt to use the Religious Freedom Restoration Act as a defense. Employers should monitor these decisions closely as increased litigation should be expected if the Supreme Court determines goldbergsegalla.com
discrimination based on sexual orientation and/or transgender status are prohibited under Title VII. This is especially true in state and federal circuits, which currently do not provide protections for those classes. On the other hand, if the Supreme Court declines to extend those protections under Title VII, employees would no longer be able to advance similar claims at the federal level. Instead, claims for discrimination based on sexual orientation and transgender status would retreat to the domain of the states which may afford broader protections than those provided by Title VII. The ultimate result of these decisions may not have as great an impact with respect to insurance coverage since the definition of “discrimination” in employment practices liability policies are generally broad and certain policy forms already include claims for discrimination based on sexual orientation and transgender status. Regardless of the outcome, these rulings are highly anticipated, especially considering the change in the Supreme Court’s makeup over the past few years. Depending on the result of the 2020 elections, it would not be surprising to see legislative action in the event Supreme Court limits any extension of Title VII.
Summer 2019 | 7
CASE NOTE Starr Insurance Holdings, Inc. v. United States Specialty Insurance Company, Index No. 652164/2016 (N.Y. Supr. Ct. 2019)
Fidelity Bond’s Termination Clause Triggered by Dishonest Acts BY JOSEPH A. OLIVA
The insurance company discovered that GWG was having cash flow problems. As a result, GWG started commingling funds from The New York Supreme Court recently held that a its general operating account with the funds forwarded by the intermination clause in a fidelity bond was triggered surance company to pay warranty claims as well as the funds colby an insured’s knowledge of dishonest acts prior to lected in premium. Indeed, the insurance company determined the inception of the bond. The court acknowledged that over $747,000 was missing from the trust account that was that a fidelity bond insures losses caused directly supposed to be used solely for warranty claims insured by the from dishonest or fraudulent acts by an employee. However, fidel- insurance company. The insurance company learned that GWG was raiding the purported claims account by ity bonds do not cover losses from breaches of diverting funds from that account to its general contract and fiduciary duties arising from fraudIMPACT: This case operating account to assist with its cash flow ulent acts of which an insured is aware prior to reinforces the principle problems and recycle claim funds from the inthe purchase of the bond. that knowledge of surance company to pay premiums. dishonest acts prior In Starr Insurance Holdings, Inc. v. United States After the insurance company discovered these to the inception of the Specialty Insurance Company, an insurance dishonest acts by GWG, it purchased a fidelity bond will trigger the company insured warranty contracts purchased bond. Thereafter, GWG collapsed and was untermination clause of by consumers of electronic products. The insurable to forward any additional premium paythe bond. ance company contracted with Global Warranty ments to the insurance company. After GWG’s Group LLC (GWG), a managing general agent/ collapse, the insurance company made a claim broker, who both sold these service contracts under its fidelity bond, seeking indemnity for loss resulting diand loss/theft insurance through its network of dealers, and also rectly from dishonest or fraudulent acts committed by its “emadministered all claims arising from those contracts. The insur- ployee,” GWG. While the court questioned whether GWG was an ance company required GWG to set up a separate trust account employee under the fidelity bond, its attention was drawn to the to be used solely for claim funds furnished by the insurance com- termination provision in the bond. It was because the insured inpany to GWG as it administered claims. The insurance company surance company knew of the dishonest acts which gave rise to also required GWG to remit premiums collected on the warranty its claim under the fidelity bond before the bond period, which contracts within 60 days of the sale of the contract. resulted in the bond being terminated upon inception.
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Pennsylvania Superior Court Finds Credentialing File Not Protected by Peer Review Protection Act BY SEAN T. STADELMAN Recent medical-malpractice suits have pitted plaintiffs who request their doctors’ personnel records against Pennsylvania’s Peer Review Protection Act, which seeks to keep those records confidential and unflinchingly honest, ensuring quality care. The Pennsylvania legislature passed the Peer Review Protection Act in 1964 to protect from discovery in legal cases the work and findings of a medical facility’s peer-review committee. But in 2018 the Pennsylvania Supreme Court held in Reginelli v. Boggs that the law did not apply to a supervising professional’s performance file on an emergency-room doctor. And this year, on May 23, the Pennsylvania Superior Court followed Reginelli in the case of Est. of Krappa v. Lyons, D.O., holding that the un-redacted credentialing files of two treating physicians were fair game for inspection by the plaintiffs. The Peer Review Protection Act does not shield credentialing materials, the Pennsylvania Superior Court ruled, because the credentialing committee did not qualify as a peer-review committee. In Krappa, the estate of a patient sued a hospital, a doctor, and others alleging that a delayed cancer diagnosis led to the death of Leonard Krappa. The trial judge in that case granted the plaintiffs’ request for the complete and un-redacted credentialing files of the two treating physician, but the medical center refused to produce them, arguing that they were protected by the peer-review act.
Reginelli is a medical-malpractice suit brought by the estate of a woman whose family claimed she died because she was misdiagnosed. The dispute stemmed from a January 2011 incident in which Eleanor Reginelli was transported by ambulance to an emergency room for what she described as gastric discomfort. She died of a heart attack several days after the hospital treated and released her. The justices in the Reginelli case ruled that documents sought by the plaintiffs were only covered under the PRPA if they are generated by “peer review committees” of organizations that are regulated by the state to operate in the health care industry. The hospital had argued that the credentialing records “were generated for quality improvement purposes and maintained exclusively by the committee” and were therefore protected under the PRPA. Notably, the Superior Court in Pennsylvania and the Supreme Court in Reginelli made factual determinations that the files at issue consisted of credentialing materials. Health care institutions conducting credentialing and peer review should work with outside counsel to ensure any components of credentialing files that derived from a peer review committee are not produced in discovery. Also somewhat notably, the courts addressing this issue seem to focus on the fact that there were distinct credentialing and peer review committees at the institutions involved. A way to protect credentialing files may be to have consistency between committees or combine them.
Summer 2019 | 9
A Word to the Wise for Insurance Agents and Brokers Who Are Asked to Hold Off on Reporting Claims: There’s Danger in Delay BY COLLEEN M. MURPHY AND JOANNE J. ROMERO Insureds buy insurance to have protection should a claim occur. Once a loss has been incurred, they often turn to their insurance agent or broker to assist in the claims submission process. What may be a difficult time for the insured can be made more difficult if the insurance agent or broker does not appropriately handle the reporting of the incident, accident, occurrence, circumstance, or claim. If not handled appropriately and in a timely fashion, the reporting of an insured’s claim can quickly turn into an errors and omissions insurance (E&O) claim for the insurance agency. Delays in reporting claims have resulted in E&O lawsuits against insurance agents and brokers have arisen under both claims made and occurrence policies. Many types of professional liability insurance can be written on a claims-made form, most notably directors and offices (D&O) and employment practices liability (EPL) policies. A claims-made form affords coverage for “claims” first made during the policy period or the extended reporting period (ERP), regardless of when the occurrence took place. A pure claims-made form requires claims to be reported “as soon as practicable” or promptly, which does not necessarily have to be during the policy term. The more prevalent “claims made and reported form” requires the claim and reporting of the claim to the insurer both take place during the same policy term or the ERP. Failure to report the claim within the requisite reporting period will void the claim. An occurrence-based policy affords coverage for a loss that occurred during the policy period, regardless of when the claim was made against the insured. Common examples include commer10 | PLM
cial general liability policies, homeowners, and auto insurance. Most liability policies (both claims-made and occurrence-based policies) have timely notice provisions requiring the insured to provide notice of the claim to the insurer immediately, as soon as reasonably possible, or as soon as reasonably practicable. The purpose of timely provisions is to allow the insurer to investigate as early as possible, and to defend or settle the claim. Timely notice provisions are often considered conditions precedent to coverage and, if not complied with, can generate a late notice defense by the insurer causing the insured to potentially lose coverage. The law—with respect to late notice, includes whether and when a carrier has to show they were prejudiced by the untimely notice, and what may count as a reasonable excuse by the insured for the delay—varies from jurisdiction to jurisdiction. Further, property policies generally require that the insured promptly report the loss within a reasonable time, so that the insurer can investigate and appropriately evaluate the claim. Regardless of the law of the particular jurisdiction, an agent or broker embroiled in a late notice denial has already, in effect, lost. A late notice denial could easily negatively impact business relationships with the insured and/or the insurer. Even if an E&O action is not immediately started against the insurance agency, someone from the agency may be subpoenaed to testify as a non-party witness in a declaratory judgment action brought by or against the insurer with respect to the underlying claim. The prudent insurance agent or broker will want to get an experienced E&O attorney involved to help prepare and defend the agency’s interests at the non-party deposition, which will result in the expenditure of the agency’s time and resources, as well as an unwanted business headache. It also may be time to report a notice of circumstances or a claim under the insurance agency’s own E&O policy—and the prudent insurance agent or broker would be wise to consult the E&O’s policy on reporting terms, an E&O attorney, or E&O claims representative for guidance. While laws regarding duties of insurance agents and brokers vary from jurisdiction to jurisdiction, it is important to realize that if a claim is reported to them, the agent or broker may be viewed as having a duty or having assumed a duty to report the claim to all potentially applicable insurers, including, in some instances, all layers of insurance. What should be straightforward claims goldbergsegalla.com
reporting can go awry when the insured reports the claim to the insurance agency, but tells the agency to hold the claim to wait to see if it develops into something that the insured wants to report. First off, you should ask yourself if the insured doesn’t want it reported (yet) to the insurer(s), then why are they reporting it to you? If the insured changes their mind about reporting or the nothing claim develops into a claim that would have been covered but didn’t because of a late notice defense, then the insured will look to the agency and its E&O policy as substitute coverage. Some agents are willing to play this role for the insured, thereby taking on the associated E&O risk. Some agents feel comfortable in this gray area of claims reporting based on the unfortunate view that they don’t have to immediately provide notice of a claim because they believe, sometimes mistakenly, that they are the agent of the insurer and that notice to the agent is notice to the insurer. Although the concept of the impact of their agency status may be valid, agents who take this cavalier view of claims reporting do so at their own peril. Agents and brokers who make the decision to wait to provide notice of a loss—for a number of reasons, including at the insured’s request or it was mistakenly thought the loss would fall within the insured’s self-insured retention—delay at their own peril. First, many liability policies require written notice of claim as a condition precedent to coverage. If the insurance agent received only oral notice of the claim, such notice may still be insufficient to satisfy the condition precedent of the policy that written notice of a claim must be supplied to the insurer. Second, many agency agreements state insurance agents are not authorized to waive policy provisions. (Written notice of a claim must be supplied.) Moreover, agency agreements have provisions requiring agents to promptly report losses and claims to the insurer, as well as indemnification provisions running from the agent to the insurer. Even if the insurer cannot prevail against the insured in late notice defense because its agent had prior notice of the claim, the insurer may bring a claim against the agent, particularly when the agent’s failure to timely report the claim has prejudiced the insurer, for example, in its ability to conduct an adequate investigation, or to raise exclusions in a timely issued disclaimer. Summer 2019 | 11
Common Practices That Can Put Insurance Agents and Brokers Front and Center in a Late-Notice Claims Denial Below is an overview of some of the situations in which agents and brokers have held off providing notice, unwittingly assuming a risk of an E&O claim. Honoring an insured’s request to hold a claim Another fairly common claims situation that can morph into an E&O claim involves an agent or broker who complies with an insured’s request (motivated by keeping loss history and premiums down) to hold off reporting a claim to the insurer because the insured was letting the agent or broker “for informational purposes only.” Agents or brokers who have fulfilled such insured requests are allowing the insurance agency’s E&O policy to become substitute coverage for that insured should the claim take an unexpected turn or otherwise develop unfavorably. The agency should be equally as mindful of its own E&O deductibles, loss history, and renewal premiums. Gathering more information before reporting A common example of an E&O claim resulting from late notice involves agents and brokers holding off on providing notice of claim while they develop more information. Significant time can go by while gathering facts, during which time the agent or account representative may simply forget to report the claim. Waiting to see how the claim develops before reporting Agents and brokers have held liability claims to see how the claim develops before reporting. For example, E&O claims have resulted from an agent holding off reporting a claim due to the misunderstanding that the potential claimant was reportedly not injured. Agents and brokers have also neglected to put umbrella excess insurers on notice while they monitor the claim to see if it is going to reach the excess layer. Agents and brokers are not in a position to monitor an insured’s exposure in what can be complex litigation. Also, some agents have advised that they hold off reporting to the umbrella excess insurers because such insurers have pushed back asking why the claims was reported to them (and implying that it should not have been reported). Report the claims to such insurers anyway, or it will be your agency’s E&O policy and reputation on the line. Again, a broker may be called to demonstrate that it had a reasonable good faith belief that excess insurance would not provide coverage. For example: • Martin Assoc., Inc.v.Illinois Nat. Ins. Co.,1 (obligation to notify excess carrier, was triggered once the possibility that the
1 2 3 4
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underlying personal injury action would exceed insured’s $1 million primary coverage). • Illinois Nat. Ins. Co.v.Banc One Acceptance Corp.,2 (holding that defendant did not establish that delay in giving notice to excess carrier of the accident and subsequent lawsuit “was reasonably founded upon a good-faith belief of non-liability” and noting that “the insured must give notice of ‘an unreasonable-even sanctionable-assertion of liability’”). • Morris Park Contr. Corp.v.Natl. Union Fire Ins. Co. of Pittsburgh,3 (“Morris Park succeeded in raising issues of fact and credibility regarding whether any period of delay in notifying National Union of the claim was based on its initial reasonable, good-faith belief that the excess insurance would not be triggered in this case”). • c.f. Landmark Am. Ins. Co.v.Deerfield Constr., Inc.,4 (in action where broker was sued for failing to notify excess carrier of claim, the court held that insured had not established that a broker has a duty to provide notice of claims to insurers under relevant statute). Attempting to figure out if the claim would be covered before reporting E&O claims have also arisen out of an agent or broker’s decision to hold a claim, including for an extended time period while he or she attempts to investigate and analyze whether the claim is covered under the policy’s insuring clause and/ or if coverage may be excluded. This approach is fraught with peril. Claims investigations can take time and resources, and there are twists and turns along the way. Most importantly, it is for the insurer to make those claims determinations. Even a claim that at first blush appears to the agent to not be covered under the policy may garner some element of coverage, or in the case of a liability policy, a courtesy defense under a reservation of rights in a close call. E&O claims have also been filed against insurance agents by insurers who were deemed precluded from raising certain policy exclusions because the insurer’s disclaimer was found to be untimely when notice was measured, not from the time that the carrier ultimately received notice of loss, but from the time the insurance agent received the loss on its behalf. Also, the agent or broker’s coverage determinations could be faulty. In any event, a broker would have to demonstrate that it engaged in reasonably diligent efforts to ascertain coverage.
Martin Assoc., Inc.v.Illinois Nat. Ins. Co., 137 AD3d 503, 503 (1st Dep’t 2016), lv to appeal denied, 27 NY3d 910 (2016) Illinois Nat. Ins. Co.v.Banc One Acceptance Corp., 05CV1260NAMDRH, 2008 WL 5423262, at *11 (N.D.N.Y. Dec. 29, 2008) Morris Park Contr. Corp.v.Natl. Union Fire Ins. Co. of Pittsburgh, PA, 33 AD3d 763, 766–67 (2d Dep’t 2006) c.f. Landmark Am. Ins. Co.v.Deerfield Constr., Inc., 15 C 1785, 2016 WL 2977274, at *8 (N.D. Ill May 19, 2016)
E&O Loss-Control Tips Regarding Claims Reporting • Mount Vernon Fire Ins. Co.v.Abesol Realty Corp.,5 (excusable delay may have existed because insureds were justifiably ignorant of the available coverage at the time they learned of the lawsuit and broker undertook reasonably diligent efforts to identify and notify relevant insurers). • c.f. GJF Const., Inc.v.Sirius Am. Ins. Co.,6 (“While a justifiable lack of knowledge of insurance coverage may excuse a delay in reporting an occurrence” reasonably diligent efforts to ascertain whether coverage exists must be made). • Rockland Exposition, Inc.v.Marshall & Sterling Enterprises, Inc.,7 (insured’s good faith belief that it would not be liable did not excuse delay in reporting claim to broker; “what is at issue is not whether the insured believes he or she will ultimately be found liable for the injury, but whether he or she has a reasonable basis for a belief that no claim will be asserted against him or her”). • Pitzer Coll.v.Indian Harbor Ins. Co.,8 (Insured failed to demonstrate reasonably diligent efforts were made to ascertain coverage “given plaintiff’s institutional status, its possession of the policy, its institutional knowledge of the policy’s terms, and the amount of time it took for its responsible personnel to even investigate the scope of the policy’s coverage”). Failing to promptly tender pleadings Finally, the failure of insurance agents and brokers to promptly provide notice of suit and/or tender pleadings has generated E&O lawsuits where the insurer or the insured has been damaged. This can occur when the account representative, who has already reported the pre-suit claim, does not recognize that the summons and complaint also needs to be sent to the carrier. • Kennedy Univ. Hosp. v. Darwin Nat’l Assurance Co.,9 (holding that, even though the insured provided notice of circumstances that might lead to a claim, coverage denial was proper because the insured failed to notify the excess insurer of the actual claim and a subsequent settlement offer). • First Horizon Nat’l Corp. v. Houston Cas. Co.,10 (even if notice of a potential claim was timely, it was insufficient to provide notice of an actual claim). 5 Mount Vernon Fire Ins. Co.v.Abesol Realty Corp., 288 F Supp 2d 302, 316 (E.D.N.Y. 2003) 6 c.f. GJF Const., Inc.v.Sirius Am. Ins. Co., 89 AD3d 622, 625 (1st Dep’t 2011) 7 Rockland Exposition, Inc.v.Marshall & Sterling Enterprises, Inc., 138 AD3d 1095, 1098–99 (2d Dep’t 2016) 8 Pitzer Coll.v.Indian Harbor Ins. Co., CV 13-5863-GW(EX), 2014 WL 12558276, at *7 (C.D. Cal. May 22, 2014) 9 Kennedy Univ. Hosp. v. Darwin Nat’l Assurance Co., 160cv02494 (RBK/JS), 2017 WL 1352208 (D.N.J. Apr. 7, 2017) 10 First Horizon Nat’l Corp. v. Houston Cas. Co., No. 15-cv-2235-SHL-dkv (W.D. Tenn. June 23, 2017)
With these scenarios in mind, agency principals should review these E&O tips with agency personnel. 1. Promptly provide notice of claims, occurrences, accidents, incidents, and lawsuits to all potentially involved insurers and layers. Let the insured know that you will be doing so. Do not hold a claim at the request of an insured. If you are an agent of the insurer, explain to the insured that you are required to report the claim. If you are acting as an insurance broker with no agency relationship with the insurer(s), explain to the insured the consequences of a late notice denial. 2. Do not “hold” a claim while you analyze coverage or gather facts, documents, medical records, etc. Promptly report the claim to all potential insurers and layers. 3. Do not hold off reporting a claim to an umbrella excess insurer while you attempt to “monitor” the underlying claim and or lawsuit to see if it will go into the excess layer. 4. Have the insured promptly review the reporting form for accuracy, and document the agency management system, so that the agency is not faulted for incorrectly describing the claim resulting in denial. This is of particular importance in a first-party property claim. 5. Handle summonses and complaints with special care, as there are time limits under the law for response. In addition, insurance policies have conditions precedents, which not only include timely reporting of the claim, but also timely tender of the suit papers. Have the insured email to the agency the complaint with all attachments as well as hand deliver or mail the original. Immediately provide the pleadings to the involved insurers and confirm that they are received. 6. Make certain that the insurance agency timely reports E&O claims against the agency under its E&O policy. Do not wait and see the approach, or try and resolve the claim on your own. Your communications may be construed as admissions which may potentially vitiate your E&O coverage. In addition, an experienced E&O attorney can strategically develop a comprehensive approach including helping identify coverage arguments to assist in resolving the underlying claim with the involved insurers, without prejudice to the agency’s interests.
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Best Practices for Successful Fee Collection BY JONATHAN S. ZISS This article is reprinted with permission from the Pennsylvania CPA Journal, a publication of the Pennsylvania Institute of Certified Public Accountants. Ask any lawyer who routinely represents CPAs, “What is the No. 1 mistake CPAs make that gets them into trouble with their clients?” The answer almost invariably will be, “Suing clients for fees.” Why this is, and whether it ought to be so, is not the point. Know that there are best practices that, if adhered to, will greatly reduce the incidence of fee-related malpractice claims while at the same time improving your collection efforts. The best way to avoid a collection problem in the first place is to ensure good communication. This includes communicating your billing and collection policies in your engagement letter, including stop-work and disengagement provisions. Good communication helps you set expectations. Letting your clients know that you expect to be paid for services rendered, on time and in full, is an especially important expectation to set. Having staked your position, you will need to walk the walk. That is, bill on a timely basis. You do not want fees to build up to a level that might form an unpleasant surprise for the client when she or he first sees your bill, triggering passive-aggressive behavior (like delaying payment). In addition, you do not want your work in progress to reach the point where you can no longer walk away from the account receivable once it has been billed. Even with timely billing and good communication surrounding your billing and payment policies, collection issues are inevitable. A leading insurer of CPAs counsels a three-step approach. This involves a series of letters that politely, yet firmly, notifies the client and, if necessary, escalates the situation. The first letter simply notes the nonpayment of fees owed, requests payment, and asks whether there is any reason for the delay. Polite. Professional. The second letter is the same as the first (“We write to you again concerning …”). The third letter summarizes the lack of payment and lack of response to the first two letters, and it requests a phone call to discuss payment arrangements. It will also include a deadline, noting that, if no call is received by that date, a demand for arbitration will follow. Let us backtrack on the subject of alternative dispute resolution (ADR). ADR involves mediation and/or arbitration. In the most 14 | PLM
general terms, mediation is a facilitated discussion, hosted by a neutral mediator, focused on reaching a binding agreement to resolve a dispute. Arbitrators act as judge and jury; their role is not to facilitate a settlement. Arbitration involves a formal hearing, at the end of which is a final and binding decision. To bring ADR into the equation, have an ADR clause in your engagement letter and signed by the client. ADR is extremely popular because civil litigation is slow, costly, and fraught with variables that can make the process unpredictable both in terms of expense and time. For something like collection of fees, ADR is widely understood to be a suitable forum. A malpractice claim can also be sensibly mediated, but only in rare occasions would binding arbitration be preferred. Despite its inefficiencies and other imperfections, civil litigation has its appeal when it comes to managing and litigating complex disputes, such as tax or audit malpractice. Hence, ADR clauses can be drafted to require mediation for all disputes and binding arbitration for fee disputes only. Suing for fees carries the high probability of a countersuit by the client, in which allegations of malpractice are cited as to why the fees are not owed. There may also be damages sought above and beyond the unpaid fees. Litigation over unpaid fees, therefore, nearly always results in the practitioner spending more in attorney fees and lost revenue/time than the value of the claim. The professional liability insurance industry has developed strong incentives for policyholders (including discounts on premiums) to use ADR and to not sue clients for fees—at least not without first taking a time-out and conferring with the insurance carrier about the situation. Check your policy carefully for terms and conditions that may pertain to resolving fee disputes before you take any action. Note that use of collection agencies does not change the fundamental dynamic. Too much pressure brought to bear can result in a claim asserted in reaction, even if only in the form of a notice letter from an attorney asserting professional negligence. Collection agencies, when used, should work in close and thoughtful coordination with the practitioner. The topic of client selection is immediately adjacent to the topic of chasing receivables. Most practitioners are already well-versed in this topic, so I will simply note in passing that an ounce of prevention is better than any ADR clause. Be vigilant with your fee collections, but remain patient. Only act upon a well-thought-out plan that integrates with your engagement letter.
From Street Gangs to Churchill You have a wide variety of options if you’re looking for a good summer read BY PLM Staff Summer is here—and with it, plans to get away for a welldeserved vacation. Whether you are headed to the Adirondack Mountains, the beaches of North Carolina, or California wine country, you will want to pack the essentials, including a great book. And, we are here to help. We have polled the attorneys of the Professional Liability practice group for their personal recommendations. Whether you are a fan of thrilling fiction, page-turning non-fiction stories or just interested in sports, you will not be disappointed if you bring one of these along. Gang Leader for a Day: A Rogue Sociologist Takes to the Streets by Sudhir Venkatesh (New York: Penguin, 2008) Non-fiction (sociology), 288 pages
This real-life story was written by a graduate student who walked into a housing project in Chicago, IL, and asked members of a local gang if he could follow them and write about their lives. By the end, the writer has befriended one of the leaders and is given unprecedented access to the gang’s members, hierarchy, business structure, and records. Recommended by: Andrew P. Carroll (Philadelphia) “This book provides firsthand insight into inner-city projects where gangs and the drug trade have seemingly replaced governmental entities in providing protection, resources, and employment for local residents. Written through stories told by the gang leaders, and experiences of the writer, Gang Leader for a Day provides a vivid portrait of what is usually reflected only in grim statistics and dark headlines.”
Brimstone by Douglas Preston and Lincoln Child (New York: Warner, 2014) Fiction (thriller), 461 pages
This book follows FBI Special Agent Pendergast as he investigates a series of unusual deaths that touch on the legendary horrors that befall people who make a Faustian pact with the devil: burned bodies surrounded by the stench of brimstone and singed imprints of a hoof found near victims. Recommended by: Daniel L. Gold (Miami) “The novel is page-turning fun. The exploits of Agent Pendergast are so compelling that before you know it, you will have read the whole series. A perfect read for the beach or while ensconced in a mountain resort. Just don’t look in that closet!” goldbergsegalla.com
Churchill: Walking with Destiny by Andrew Roberts (New York: Viking, 2018) Non-fiction (biography), 1,301 pages
Published in 2018, this biography draws on fresh material to bring one of the greatest leaders of our time to life. Recommended by: Ronald S. Herzog (White Plains) “Arguably the best single-volume biography of Winston Churchill. It is a compelling story about the man who saved the world from the Nazis.”
Beartown by Fredrik Backman (New York: Washington Square, 2018) Fiction (novel), 432 pages
This book tells the tale of a small town’s love affair with ice hockey, and their apparent willingness to risk everything to achieve hockey success. Recommended by: Seth L. Laver (Philadelphia) “The author uses a unique voice to describe his characters and to develop his story. The characters are complex, flawed, and fascinating. The book is about families, mistakes, and loyalty. It is exceptional.”
Sapiens: A Brief History of Humankind by Yuval Noah Harari (Canada: Signal, 2018) Non-fiction, 443 pages
First published in Hebrew in 2011, and then in English in 2014, this book surveys the history of mankind from the Stone Age to the 21st century within a framework provided by natural science. In this brief history, the author sets forth his argument that biology sets the limits of possibility for human activity, while culture shapes what happens within those bonds. Recommended by: Latha Raghavan (Albany) “This book is a history of the development and evolution of humans that is written really well, and easy to read. It is filled with philosophy, sociology, anthropology, and science. It makes you think about what it means to be human. A fascinating read!”
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Success stories about Goldberg Segalla attorneys in other areas of practice
California Judge Throws Out Former-NFL Player’s Workers’ Compensation Claim for Lack of Jurisdiction The end zone wasn’t a place Evan Moore spent much meaningful time during his brief NFL career. Nor was California, a state workers’ compensation judge has ruled regarding Moore’s claim for injuries he allegedly sustained as a player. Although Moore signed with five teams and played with three between May 2008 and his retirement in the spring of 2013, none of them was based in the Golden State, and none of the contracts Moore signed was made there. So when he filed a California workers’ compensation claim against the Green Bay Packers, Cleveland Browns, Seattle Seahawks, and Philadelphia Eagles, the judge threw it out. That California is where Moore lives and where his agent was based wasn’t enough to establish jurisdiction in that state, the judge ruled. Moore can appeal, but the judge’s decision augurs yet another successful client defense for Goldberg Segalla partner Joshua J. Roberts, a co-chair of the firm’s Sports and Entertainment practice group, which assists entertainment studios, global me-
dia companies, major league sports franchises, and related entities with all types of workers compensation concerns, as well as employment and labor, general defense, cybersecurity, patent infringement, and transactions and contracts. Josh focuses on defending and counseling clients in workers’ compensation and employment-related matters. He is a key counselor to executives in numerous major-league sports organizations and franchises, including members of the NFL, MLB, NBA, and NHL, and he regularly defends these major-league sports entities in employment and labor-related matters on trial and appeal. In the Moore case, Josh represented the Seattle Seahawks. The judge’s June 27, 2019, decision is a win for that organization as well as the other defendants but another anticlimax for Moore, who caught 63 passes for a total of 810 yards in the NFL but scored only five touchdowns. Now a FOX Sports college-football analyst, Moore claims he sustained head, neck, spine, neurological, internal, and other injuries during his playing career. The stories on this page were published originally on goldbergsegalla.com.
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New Trial Ordered for Heavy-Equipment Manufacturer Found Liable in Man’s Death The New York Court of Appeals has ordered a new trial for a global heavy-equipment manufacturer that a Queens County jury found liable in the death of a man crushed by a tree while operating a rented front-bucket loader. Defending the manufacturer this time will be Goldberg Segalla partners Brendan T. Fitzpatrick, Neil A. Goldberg, and David S. Osterman. Though the firm was not involved in the case at the time of the first trial or a failed first appeal, it was retained to pursue a second appeal and turned the case around with two important legal victories on behalf of the heavy-equipment manufacturer: Brendan, Neil, and David successfully sought leave to take the case to the Court of Appeals, which happens only about three percent of the time; and then Brendan, arguing that the lower court erred by straying from case law known as the Scarangella defense, persuaded the Court of Appeals to reverse what happened at the trial and order a new one. The Scarangella defense is named for the 1999 case Scarangella v. Thomas Built Buses, Inc., in which a school-bus driver, in response to being struck and injured by a school bus in September 1988, sued the bus manufacturer. At issue was whether the bus that hit Concetta Scarangella should have been equipped with an alarm to signal it was backing up. Scarangella, which ended in a July 1999 Court of Appeals ruling in favor of the bus manufacturer, gave rise to a defense that has been used again and again: If a person makes an informed decision not to buy a safety accessory with a product that can safely be used without it for some applications, the manufacturer cannot later be held liable if the device’s absence is alleged to be a design defect that caused the person’s injury or death.
The Scarangella defense is important for manufacturers of heavy equipment, which is designed to be easily modified to suit many uses and customers. But the case of the front-bucket loader, whose user was crushed to death after he opted not to rent accessory parts of the machine that would have formed a protective enclosure around him, diverged from the precedent-setting bus-driver case. The trial judge accepted the plaintiff’s argument that Scarangella shouldn’t apply to products sold into the rental market and the jury found both the manufacturer and the rental store liable, each for half of $1 million in damages. Though the rental store didn’t appeal the verdict, the manufacturer did. But the Appellate Division Second Department affirmed the trial court outcome with a 10-page decision that changed state law. It was soon thereafter that the heavy-equipment manufacturer retained Goldberg Segalla, setting the stage for Brendan, Neil, and David to induce a May 9, 2019, Court of Appeals decision that “no such ‘rental market’ exclusion from Scarangella… is appropriate” and defend the manufacturer when it has a second trial. Goldberg Segalla is recognized as a leader in product liability litigation and risk avoidance. Attorneys in the firm’s Product Liability practice group work together as a single integrated team, with the sole purpose of helping our clients win or avoid product liability disputes. They’ve tried product liability cases on behalf of Fortune 500 companies throughout the United States. Goldberg Segalla’s Appellate practice group also showcases what makes the firm different. Much more than a last line of defense, Goldberg Segalla’s appellate attorneys very often are key partners from the initial stages of litigation, bringing a unique skill set, trial assistance, formidable writing talents, and a global perspective to every matter.
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PRACTICAL TIPS TO MANAGE RISK Goldberg Segalla’s complimentary Global Insurance Services Webinar Series explores what insurers, reinsurers, and all types Click the linksindustry below toprofessionals view any of need the following samples of insurance to know to reducefrom risk, our craftarchive: the strongest policies, and avoid costly litigation. From E&O and D&Ofor matters to issues facingSeason: U.S. reinsurers in foreign this series Preparing the 2019 Hurricane Weathering themarkets, Storm (Part 2 of 2)offers an accessible way to learn theins and of important and current legalT.issues in the insurance industry. We explore the potential impact of Julyouts 30, 2019 | Sharon Angelino and Jared Greisman developments in state and federal law, the latest international agreements, emerging technologies, environmental disasters and other catastrophes, recent judicial decisions, and other topics relevant to the insurance industry. Preparing for the 2019 Hurricane Season: Key Topics (Part 1 of 2) Each 20-30 minute presentation followed by an interactive Q&A session—is conducted by an attorney webinar—a June 25, 2019 | Sharon Angelino and Jared T. Greisman member of Goldberg Segalla’s Global Insurance Services Practice Group, a team of more than 75 highly accomplished lawyers, which Law360 has recognized as among the largest in the United States. Our attorneys share their extensive experience insurers, reinsurers, and -all others Speed operating in the global insurance arena. ALIrepresenting Restatement of Liability Insurance Gaining or Losing Traction?
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Stay on top of the latest regulations, trends, and court cases impacting the insurance industry by reading and subscribing to our blog: www.insurerereport.com DON’T MISS OUT! Contact us at email@example.com to learn more and to: REGISTER for upcoming sessions, REQUEST a customized webinar or in-house training for your Reading the version Professional Liability Magazine? Click key each webinar to register! company, anddigital ACCESS all pastofrecordings and valuable handouts summarizing webinar points.
LIKE WHAT YOU HEAR, AND WANT TO TAKE IT TO THE NEXT LEVEL? Attorney Advertising. For informational purposes only. ©2019 Goldberg Segalla. www.goldbergsegalla.com We can expand our webinars into free, in-depth programs that qualify for CE/CLE credit, or explore other topics ranging from basic legal concepts to the most sophisticated issues in this practice area. We are ready to custom-design in-house CE/CLE presentations and workshops that suit your company’s educational interests.
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A quarterly magazine on emerging developments, decisions, and defenses in professional-negligence law and claims management.
Published on Aug 1, 2019
A quarterly magazine on emerging developments, decisions, and defenses in professional-negligence law and claims management.