TIPS 75th Anniversary

 

The Tort & Insurance Law Jounal

Spring 1999
Volume 34 Issue 3

Table of Contents

Admissibility of Managed Care Financial Incentives in Medical Malpractice Cases
Paul R. Sugarman and Valerie A. Yarashus

Demystifying Spoliation of Evidence
Jeffrey S. Kinsler and Anne R. Keyes MacIver

The Risk of Negligence Liability for Trade Associations Engaged in Standards Setting or Product Certification
Robert C. Feldmeier

Unauthorized Settlement Agreements in a Reservation of Rights Context
Benjamin A. Kahn and Ronald H. Nemirow

The Fiduciary Exception to the Attorney Client Privilege
Craig C. Martin and Matthew H. Metcalf

Coverage for Natural and Unnatural El Niños
Walter J. Andrews and Robert E. Johnston

Challenging Insurance Coverage for Year 2000 Computer Failure Claims
Michael P. Murphy and Aidan M. McCormack

Is There a Better Standard than the Zone of Danger Test for Negligent Emotional Distress Claims under the Federal Employers' Liability Act?
William T. Krizner


Abstracts

Coverage for Natural and Unnatural El Niños 34 Tort & Ins. L.J. 861
By: Walter J. Andrews and Robert E. Johnston
This article considers the issues that are likely to occur in coverage disputes under CGL contracts and discusses how those issues may by complicated by catastrophic natural or man-made disasters. Among the problems discussed are the requirements for actual property damage under a CGL policy; the trigger of coverage issue (when does the property damage occur?); whether the loss resulted from a fortuitous event or was expected; and the exclusions that are standard in most CGL policies, including those for faulty workmanship, use of "your product," damage to the insured's work, design errors, and the so-called sistership exclusion. The question of insurance coverage for damages caused by natural and man-made disasters is an area in which there has not been much litigation. Litigation of coverage claims stemming from disasters is likely to increase, however, given the impact of weather generated byEl Niños, the potential effects of La Niños, and uncertainties surrounding computer conversions to the year 2000. It is also likely that application of the CGL contract to disaster-related damage will become much more prevalent.

The Risk of Negligence Liability for Trade Associations Engaged in Standards Setting or Product Certification , 34 Tort & Ins. L.J. 785
By: Robert C. Feldmeier
This article examines Snyder v. American Ass'n of Blood Banks and FNS Mortgage Service Corp. v. Pacific General Group, Inc., as well as prior decisions that discussed liability for negligent standards development and product certification. In Snyder, the New Jersey Supreme Court held that the American Association of Blood Banks (AABB) could be held liable for negligently developing the standards followed in the blood banking industry. In reaching its holding, the court found that the AABB owed the plaintiff a duty of due care in developing blood banking industry standards. Snyder is the most significant recent decision to hold that a trade association owes a duty of care to consumers in connection with standards development. In contrast, other courts have held that trade associations do not owe such a duty of care. In FNS Mortgage Service Corp. v. Pacific General Group, Inc., a California appellate court held that the International Association of Plumbing and Mechanical Officials (IAPMO) could be held liable for negligently certifying that piping complied with its uniform piping code. FNS Mortgage is the first reported decision to hold that a trade association owes a duty of care to consumers in connection with product certification. After a detailed analysis of both cases, the author covers the issues that courts should consider in determining whether trade associations should be subject to these types of claims.

Unauthorized Settlement Agreements in a Reservation of Rights Context, 34 Tort & Ins. L.J. 799
By: Benjamin A. Kahn and Ronald H. Nemirow
This article examines an emerging trend in the law surrounding "duty to cooperate" clause (in which an insured agrees to cooperate with the insurer in the defense and settlement of litigation) and "refusal to pay" provision (in which an insured refrains from assuming any obligations) within the context of unauthorized settlement agreements. Discussed in detail is a leading case in this area, United Services Automobile Ass'n v. Morris. In Morris, the Arizona Supreme Court held that when an insurer defends an insured under a reservation of rights, the insured may enter into an unauthorized settlement agreement with a third-party plaintiff with prior notification to the insurer and as long as the unauthorized settlement agreement is prudent, fair, and not tainted with fraud or collusion. Morris creates at least five new problems, according to the authors. First, it relies on a reservation of rights letter as the triggering event that allows an insured to enter into an unauthorized settlement agreement, which is unworkable and does not accord with widely established tenets of insurance law. Second, Morris is internally inconsistent insofar as it punishes an insurer for fulfilling what Morris admits are an insurer's policy obligations. Third, Morris ignores the insurance policy itself, especially the terms of insurance, limits, and exclusions. Fourth, the Morris qualifications on an insured's right to enter into an unauthorized settlement agreement are vague and impractical. Finally, by encouraging satellite litigation, Morris actually impedes justice and distorts the truth-seeking function of the courts. However imperfect, the Morris framework has persisted and may even prevail. At least five federal circuits and courts in two other states have adopted Morris in part for the proposition that an insured can enter into an unauthorized settlement agreement despite the insured's duty to cooperate and refusal to pay obligations.

Demystifying Spoliation of Evidence , 34 Tort & Ins. L.J. 761
By: Jeffrey S. Kinsler and Anne R. Keyes MacIver
This article examines the interplay between corporate document retention policies and spoliation of evidence, focusing on three issues encountered daily by in-house lawyers, particularly those in the manufacturing and insurance sectors. The first issue to be examined is whether a corporation may discard documents pursuant to its record retention policy when litigation is not clearly foreseeable. The general rule is that a company must preserve all documents discoverable in litigation that is pending or of which it has notice. In the absence of actual notice, a company must preserve documents that it knows or should know will be discoverable in "reasonably foreseeable" litigation. "Reasonable foreseeability" is determined on a fact-specific basis. The second issue is whether spoliation claims have become more prevalent in recent years. At least ten states now recognize an independent tort of spoliation, some of which (including California) have expanded the tort to recognize a cause of action for negligent spoliation. Even in those states that have specifically refused to adopt the independent tort, available remedies for spoliation have increased in severity. The third issue is whether a company may electronically or optically image its records and dispose of the originals as part of a document retention program. Unlike other reproduction methods (e.g., microfilm, photocopying), optically imaged documents are capable of being altered with ease and without detection. However, there are no cases, statutes, or regulations prohibiting a company from converting its records to optical or electronic images.

Is There a Better Standard than the Zone of Danger Test for Negligent Emotional Distress Claims Under the Federal Employers' Liability Act? , 34 Tort & Ins. L.J. 907
By: William T. Krizner
A new standard of recovery for negligent infliction of emotional distress claims under the Federal Employers' Liability Act has emerged during the past four years. In 1994, the U.S. Supreme Court announced a new "zone of danger test" in Gottshall v. Consolidated Rail Corp., and the Sixth Circuit recently determined in Szymanski v. Columbia Transportation Co. that the same standard is also to be applied when determining the liability of ship owners under the Jones Act. This newly adopted test creates an overly burdensome standard for both seamen and railroad workers to recover under FELA. This article presents a detailed account of the case law that created the zone of danger test currently being applied by federal courts. The article then scrutinizes the zone of danger test, reviews potential alternatives to the test, and suggests a more liberal version of the standard that both furthers the initial statutory intent of FELA and deters future employer negligence.

The Fiduciary Exception to the Attorney-Client Privilege, 34 Tort & Ins. L.J. 827
By: Craig C. Martin and Matthew H. Metcalf,
The federal courts are struggling with the proper scope and use of the fiduciary exception in litigation under the Employee Retirement Income Security Act of 1974. This article traces the expansion of the fiduciary exception to the attorney-client privilege from the common law of trusts and shareholder litigation, as in Garner v. Wolfinbarger, to those cases applying the exception to ERISA fiduciary litigation, from the 1981 Northern District of Illinois decision, Donovan v. Fitzsimmons, through the 1997 Second Circuit decision, In re Long Island Lighting Company. Examined in detail are the general principles underlying the attorney-client privilege; the development of the fiduciary exception in the common law of trusts, shareholder litigation, and ERISA. After discussing the applicability of the fiduciary exception to the work product doctrine, the article concludes with several recommendations regarding preservation of the attorney-client privilege.

Challenging Insurance Coverage for Year 2000 Computer Failure Claims, 34 Tort & Ins. L.J. 883
By: Michael P. Murphy and Aidan M. McCormack,
This article addresses insurance coverage issues for year 2000 computer failure claims, including whether coverage for such claims is barred by the requirement for fortuity, disclosure, and notification requirements; the insured's duty to mitigate damages; and specific third-party coverage issues. Among the latter are the insuring provision and the damages requirement, the impact of personal injury and property damage, and potentially applicable third-party liability policy exclusions. The problem of Y2K is relatively simple to explain. During the 1960s and 1970s, computer programs were designed to represent the "year" in a two-digit field as opposed to a four-digit field, primarily to save space in the program and increase processing speed. Thus, a computer program that required it to process information older than January 1, 1970, would contain that command as "<70"or "<1-1-70." The programming convention of using a two-digit date filed continued well into 1990s. These programs now face the prospect of receiving "00" in the two-digit date field to reflect the year 2000. The program, however, will not know whether the designation "00" refers to the year 1900 or the year 2000. The result will be that whenever a computer program with the two-digit field is asked to perform a calculation that involves a date after 1999, the program will fail to operate or fail to operate accurately, thereby exacerbating the potential for malfunction, downtime, and erroneous information.

Admissibility of Managed Care Financial Incentives in Medical Malpractice Cases , 34 Tort & Ins. L.J. 735
By: Paul R. Sugarman and Valerie A. Yarashus
The managed care industry provides financial incentives to physicians, including capitation, subcapitation, bonuses, and withhold accounts, to provide less expensive health care, a fact that often translates into less care. This article explores the admissibility of evidence of financial incentives in medical malpractice cases in which the plaintiff alleges that financial motivations caused or contributed to a physician's failure to follow applicable standards of medical care. After a brief discussion of the rise of managed care organizations (including the impetus for change from fee-for-service to managed care; the wealth, influence, and structure of MCOs; and financial incentives for physicians), the article reviews the impact of MCOs on the traditional doctor-patient relationship, the admissibility of financial incentives in traditional malpractice cases, and concludes that "physicians [must be] held accountable when their medical judgment has been improperly influenced by profits and resulted in unacceptable care." Also suggested is a framework for for arguing that evidence of financial incentives is relevant pursuant to Federal Rule of Evidence 402 and therefore should be admitted: (1) Evidence of financial motive is relevant if a plaintiff can plausibly link financial incentives to substandard care; (2) Fact finders, including juries, should receive evidence of incentives so they may determine whether financial motives influenced a physician's conduct; and (3) Although plaintiffs are not required to prove a defendant's motive in a medical malpractice case, they should be permitted to do so when there is evidence of a financial incentive to provide inadequate or improper treatment.

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