Insurance Defense Blog

Maryland federal court decision on broker's failure to procure insurance

 In a recent case, a homeowner brought suit in Maryland federal court against her insurance broker for negligence, breach of fiduciary duty, negligent misrepresentation, intentional misrepresentation, and fraud, after her house sustained fire damage when the contents of the house were not insured.  The Court threw out the breach of fiduciary duty and fraud counts, but held that the defendants had not submitted enough evidence to prevail on the affirmative defense that insurance would not have been available on the property.

 

The house had been insured by Chubb, but Chubb cancelled the policy for nonpayment after having insured it for years.  Subsequently the bank holding the mortgage ordered lender-placed insurance coverage on the house.  The bank notified the homeowner that the lender-placed insurance would not only cost more, but does not provide any coverage for loss or damage to personal property and provided limited coverage in other respects.

 

A couple of months later, the homeowner, who had been traveling, and having realized that the Chubb policy had been canceled, asked her insurance broker, whom she had known for several years and had become good friends with her, to see what could be done, and send him a package of materials concerning the lender-placed insurance.  Upon receipt of the package, the broker passed it to a customer service representative of his firm, and gave instructions to find a new insurance policy for the client.  The customer service representative initiated steps to find a new insurance policy, but delayed on following up.  Unfortunately, 27 days after the broker received the package from the client, a fire broke out in the homeowner's garage and caused extensive damage to the house and its contents.  The lawsuit followed.

 

The defendants moved for summary judgment on the breach of fiduciary duty claim.  The Court agreed that in this case, the breach of fiduciary duty does not constitute a stand alone nonduplicative cause of action.  The Court held that any purported breach of fiduciary duty for monetary damages cannot, standing alone, constitute a separate and distinct cause of action under Maryland law for a tort called breach of fiduciary duty.  The Court stated that the broker may have owed a fiduciary duty to the homeowner, and the alleged breach of fiduciary duty may buttress plaintiff's negligence claim; but it simply does not rise to a cause of action of its own.

 

The defendants also moved for summary judgment on the grounds that given the underwriting rating of the house and Chubb's previous cancellation for nonpayment, no insurer would have provided plaintiff with an insurance policy, and therefore the defendants' actions were not the cause of the homeowner's injuries.

 

The Court denied the motion for summary judgment on those grounds.  The Court noted that under Maryland law, a plaintiff does not need to show that an insurance policy was obtainable in order to prove that a broker's failure to procure such a policy caused her loss.  Instead, the availability of insurance is assumed unless the defendant proves its unavailability as an affirmative defense.  The Court stated that the burden of proof on the issue of nonavailability of insurance coverage is on the defendants.  Further, in order to discharge that burden, the defendants must do more than show that a particular insurer cannot supply insurance.  Finally, if a reasonable fact finder can draw an inference that insurance was available, even if plaintiffs do not provide any evidence on the point, summary judgment for the defendants is inappropriate. 

 

Here, the defendants did not foreclose the possibility that the homeowner could have secured an insurance policy, because the house had been insured for years with Chubb, insurance might have been available from AIG, and finally, a jury could have inferred that the homeowner would have been able to secure a policy from the fact that the bank was able to obtain lender-placed insurance.

 

The Court also raised an issue concerning the negligent misrepresentation count.  A cause of action for negligent misrepresentation may arise when a defendant misrepresents past or existing facts, however, a promissory statement, such as a promise to obtain insurance, generally cannot form the basis of a negligent misrepresentation claim. 

 

The Court granted summary judgment as to the homeowner's fraud claims.  When a plaintiff bases a fraud claim on a defendant's unfilled promise, the plaintiff must prove at trial that the defendant made the promise with a present intention not to perform it.  The homeowner could not meet that burden here, because the defendant broker did initiate steps to replace the insurance.

 

The Court also granted summary judgment on the homeowner's claims for emotional distress.  Generally, emotional distress attendant to property damage is not compensable under Maryland law.  This is because the courts consider injury resulting from a mere damage to property as an unusual and extraordinary result and not contemplated as a natural and probable consequence of the tortious act to the property.  In Maryland, a plaintiff cannot ordinarily recover for emotional injuries sustained solely as a result of negligently inflicted damage to the plaintiff's property.

 

Allstate takes a former adjuster to court

In Allstate Insurance Company v. Warns, No. CCB 11-1846 (D. Md. Feb. 29, 2012), Allstate brought suit against one of its former adjusters who left the company and a short time later was hired by a plaintiffs' law firm with litigation pending against Allstate insureds.  This opinion, which denied most of the defendant's dispositive motions, marks the conclusion of an initial skirmish in what promises to be a quite a battle.

The defendant adjuster had worked for Allstate for 33 years, and for at least the last five years of that allegedly had handled only lead paint poisoning cases.  About a month after her resignation, she started working for a plaintiffs' law firm which specializes in lead paint cases.  Allstate alleged in its lawsuit that the adjuster removed confidential information from the company before she left, and that 68 new lead paint cases had been filed against Allstate's insureds in the year following the adjuster's departure. 

Represented by the law firm  of SNR Denton, Allstate in its complaint alleged breach of fiduciary duty, and breach of contract based on the language in Allstate's Code of Ethics.  Allstate sought compensatory and punitive damages, as well as injunctive relief, including an injunction ordering the adjuster to cease working for the plaintiffs' law firm or any other attorney representing plaintiffs in lead paint litigation.

The adjuster filed a motion to dismiss or for summary judgment, denying all the allegations, and averring that at the plaintiffs' law firm, she only works on cases in which Allstate does not provide insurance coverage for the defendant.

The Court granted the motion for summary judgment on the punitive damages claims, and denied the motion as to all other claims.

Concerning the breach of fiduciary duty claim, the Court stated that although there is no authority which expressly creates an independent cause of action for a breach of the duty not to misappropriate or disclose confidential information after the termination of the employment relationship, the weight of authority in both Maryland and other states suggests that such a cause of action may lie.  However, the Court observed that under the leading Maryland precedent, Kann v. Kann, 690 A.2d 509, 521 (Md. 1997), and its progeny, courts have limited independent causes of action for breach of fiduciary duty to those seeking equitable relief.  Thus, as a result of a successful common law breach of fiduciary duty, Allstate may be given injunctive relief, but punitive damages are not available, and any claim for compensatory damages will have to be supported by a successful breach of contract action.

The Court recognized, but did not reach, the issue whether the Maryland Uniform Trade Secrets Act (MUTSA) preempts at least some common law claims for breach of fiduciary duty, as it is the exclusive remedy for civil claims based on misappropriation of trade secrets. 

The Court found that there were enough factual allegations concerning the Allstate Code of Ethics for the breach of contract claim to survive the defendant's dispositive motion at this stage of the proceedings.  However, the Court pointedly observed that there was no allegation that the defendant adjuster had ever signed the Code of Ethics or that the Code of Ethics had been incorporated by reference into a contract of employment.

Finally, the Court denied Allstate's motion for a preliminary injunction, and denied Allstate's motion to place record materials under seal since redaction provides sufficient protection.

Impact: As a result of this lawsuit, Plaintiffs' law firms will likely be a little more cautious about hiring former insurance adjusters.  Insurers, for their part, may take a look at their employment contracts to tighten up the restrictive convenants. 

A plaintiffs' lawyer, Ron Miller, Esq., has an interesting take on this case on the Maryland Injury Lawyer Blog.

"Come on . . . come on . . . I have not tasted blood in a long time."

In this case a security guard allegedly had repeatedly confronted an African-American and Muslim family in a shopping mall, ordering the mother to remove her traditional Muslim headgear or be forcefully removed.  In the second confrontation, the security guard allegedly pulled a knife while violently yelling, among other things, "Come on . . . come on . . . I have not tasted blood in a long time."  (The security guard eventually plead guilty to criminal charges of second degree assault and assault with a dangerous weapon.) 

Woods v. AlliedBarton Security Services, LLC, No. 11-2831 (D. Maryland Feb. 9, 2012)(unpublished) is a suit by the terrified family against the security guard, his employer, and the firm that hired them, that started off in the Circuit Court for Baltimore City.  After the action was pending for many months and the plaintiffs failed to serve the security guard, the Circuit Court dismissed the security guard as a defendant "without prejudice." 

At that point, the remaining two defendants seized their opportunity, and removed the case to federal court based on diversity jurisdiction.  By doing so, the remaining defendants would be able to try the case while pointing at an "empty chair" as the truly culpable party, and would also be able to subject the plaintiffs' damages experts to the rigors of a Daubert challenge.

The first thing that the plaintiffs did after removal was to serve the security guard with the Circuit Court summons, and then move to remand the case to State court.  The District Court denied that motion, on the grounds that such service was ineffective because the prior removal had deprived the Circuit Court of jurisdiction to re-issue the summons.

Next, the plaintiffs then moved for leave to file an amended complaint to rejoin the security guard as a party defendant.  The two other defendants opposed that motion, which gave U.S. District Judge Catherine C. Blake the occasion to review the relevant factors that a federal court will consider in deciding under Section 1447(e) whether to deny joinder, or permit joinder which destroys diversity jurisdiction and remand the action to State court.  The Court pointed out that the statute "does not allow a district court to retain jurisdiction once it permits a nondiverse defendant to be jointed in the case."

To make this discretionary decision, the District Court considers four factors: (1) the extent to which the purpose of the amendment is to defeat federal jurisdiction; (2) whether the plaintiff has been dilatory in asking for amendment; (3) whether the plaintiff will be significant injured if amendment is not allowed; and (4) any other factors bearing on the equities.  The District Court will also consider the danger of parallel suits in state and federal courts, resulting inconsistent results and judicial inefficiency, and the defendant's interest in a federal forum. 

In this analysis, courts take into consideration the strength of the substantive claim against the party to be joined.  If it is a weak or frivolous claim, then a court may infer the impermissible purpose of forum shopping.

In this case the claim against the security guard was strong, and in fact was the central claim of the case.

Further, the plaintiffs' actions in State court demonstrated that they had been interested in suing the security guard long before the case was removed to federal court and removal or remand was at issue.  The other defendants had been on notice from the outset that the suit could properly be heard in State court. 

The District Court noted that the most plausible inference is that the Circuit Court's dismissal of the security guard "without prejudice" lulled plaintiffs' counsel into believing he had time to rectify the situation before trial.  "In such a situation, the proper action is the one taken here -- for the plaintiffs to immediately notify this court of the mistake and to attemnpt to rejoin the defendant before taking unnecessary and duplicative measures in federal court."

The District Court concluded that the plaintiffs should be allowed to amend their complaint, that his joinder destroys complete diversity among the parties, and that the case must be remanded to the Circuit Court for Baltimore City.

This case is a good illustration of the counter-moves that a plaintiff can make when the defendants in a State court proceeding remove a case under diversity jurisdiction prior to service of the non-diverse defendant, and the analysis that the District Court will undertake. 

 

 

Professional reading - recent blog posts of note

From the Electronic Discovery Law Blog, an interesting summary of a San Diego legal ethics opinion barring an attorney from making an ex parte "friend request" to a represented party. Seems to be common sense.

The Drug and Device Law Blog has a good discussion of recent Supreme Court decisions concerning personal jurisdiction in products liability cases based on stream of commerce. This is required reading.

While there, also catch their post about the status and rights of private insurers who are Medicare Advantage Organizations as secondary payers.

From the Blog of the Legal Times, we have an article about how Wilmer Cutler may or may not be facing a contingent claim of $214 million arising from a patent matter. One of the managing partners of that firm says no problemo. Move along folks, there's nothing to see here.

Brian Krebs has published a story about cutting-edge litigation relating to the liability of a bank to a commercial customer for fraudulent wire transfers from the business's account by cyber-criminals. Cyber fraud is a huge problem and it remains to be seen how legislatures and courts deal with it.

A DRI Today post provides a helpful checklist in The Top Ten Mistakes To Avoid When Preparing Coverage Opinions.

The Insurance Defense News blog has a report concerning a successful defense of a retail store in the E.D. of Virginia against the claims of a customer who banged her head on a shelf. It was an open and obvious condition, held Judge Ellis.

In a case described by the Maryland Court of Appeals as a procedural nightmare, the Court reviews the proper procedures for settling a wrongful death case.

 

Maryland Court of Appeals decides that Rule 5-404(b) applies only in criminal matters, not in civil matters

In Ruffin Hotel Corp. of Md., Inc. v. Gasper, ___ A.3d ___ (Md. March 21, 2011), which was a retaliatory discharge case, the Maryland Court of Appeals held that it was error to instruct the jury that that plaintiff is required to prove that her opposition to the unlawful harassing conduct was a "determining" factor in the decision to terminate her employment; rather, it was only necessary for it to be a "motivating" factor in the decision.  The Court also held that a negligent hiring and retention claim was not preempted by federal law, by Maryland anti-discrimination statutes, or by the Maryland Workers Compensation Act.

Last but not least, the Court of Appeals held that Maryland Rule 5-404(b) is applicable only in criminal matters, not in a civil matter like this.  Therefore, on retrial, the trial court need only apply Maryland Rule 5-403 on the issue whether her immediate supervisor's prior history of sexual harassment is admissible:

Because the foundational requirements of FRE 404(b) are so vastly different from the foundational requirements of Md. Rule 5-404(b), we are persuaded that Md. Rule 5-404(b) should continue to be applicable only to evidence offered by the State against the defendant in a criminal case. In civil cases, whether the evidence at issue is offered by a plaintiff or by a defendant, the admissibility of relevant evidence that presents the "possibility of [unfair] prejudice is to be dealt with pursuant to [Md.] Rule [5-] 403."

From the defendant's point of view, the net result of these rulings is to lower the evidentiary standard that the plaintiff must meet, while at the same time simplifying and easing the evidentiary rules that will govern the admission of other instances of sexual harassment.

 

 

Absolute privilege in Maryland extended to attorney's verbal statements to press about a newly filed class action

In Norman v. Borison, ___ A.3d ___ (Md. April 22, 2011), the Maryland Court of Appeals held that lawyers who published copies of their state complaint to the press before it was filed in court, and made oral statements to the press about the suit, then republished filed versions of their federal complaints on the internet, were protected by an absolute privilege.  However, the Court's holding on this contained a warning that lawyers who choose to try their cases in the press may do so at some peril:

We are not prepared to say that plaintiffs are prohibited from promoting preemptively their class action suit, before they have been certified as such, or that they must avoid verbal communications to the press in doing so — provided framing the suit as a "class action" status is not shown to have been a subterfuge for funneling defamatory statements to the press. Such public promotion, under the latter proviso, is not part of the proper prosecution of most tort claims. Indeed, but for the fact that the mortgage rescue scam suit was striving to become a class action, our conclusion might have been different. The Kennedy adage retains vitality — lawyers who try their cases in the media do so at some peril. See Kennedy, 229 Md. at 99, 182 A.2d at 58.

Maryland Court of Appeals explains how to analyze possible prejudice from error in civil jury instructions

In Barksdale v. Wilkowsky, ___ A.3d ____ (Md. May 23, 2011), the Maryland Court of Appeals reversed a defense verdict in a Baltimore City lead paint poisoning case, due to prejudicial error in the jury instructions.  In doing so, the Court reviewed Maryland law as to when an error in jury instructions is reversible error, and when it is harmless error. 

In the lead paint poisoning trial, the trial court gave an instruction regarding the joint responsibilities of landlords and tenants in keeping the property in good condition. This instruction was essentially the reading of a provision in the Baltimore City Housing Code.  The Court found that this instruction was error, because neither the plaintiff's contributory negligence nor negligence of her family members were at issue in the case.  The Court of Appeals found that this instruction was prejudicial, because it may have permitted the jury to speculate, or may have precluded a finding of liability where it was otherwise appropriate.

The Court of Appeals found that the jury instruction as to the occupant's duty to keep the dwelling in a clean and sanitary provision had no relevance to the issues at trial.  The plaintiff was a child when she lived in the dwelling, and whether or not her grandmother kept the house clean was irrelevant.  Under Maryland law, negligent acts of a parent cannot be imputed to a child, and such negligent acts that merely contribute to an injury do not necessarily rise to the level of a superseding cause.

Although there are a limited number of circumstances where prejudice is presumed, ordinarily a party in a civil case complaining of an erroneous jury instruction must show prejudice.  It is not enough, in those circumstances, to show that prejudice was possible; rather, the appellant must show that prejudice was probable.  Erroneous jury instructions which are misleading, distracting, or which permit the jury to speculate as to improper issues which are dispositive, are prejudicial.  The appellant can meet its burden of showing prejudice by showing the nature of the erroneous instruction and its relation to the issues in the case.  Based on that, the reviewing court can weigh the "materiality of the error and the potential that it poisoned the jury deliberations."

The Court of Appeals further stated that consideration of the following four factors, borrowed from a California case, are "helpful":

(1) the degree of conflict in the evidence on critical issues; (2) whether respondent's argument to the jury may have contributed to the instruction's misleading effect; (3) whether the jury requested a rereading of the erroneous instruction or of related evidence; . . . and [4] the effect of other instructions in remedying the error.

 In the case at bar, the Court of Appeals found that the error touched the heart of the litigation, and that it could not be sure that the erroneous instructions were "cured" by the correct instructions when both were presented to the jury as equals.  The Court found that the appellant carried her burden of showing prejudice.

This decision is now one of the crucial authorities to consider when analyzing the strength of an appeal based on an erroneous civil jury instruction.

 

 

 

Intra-jury pressure during deliberations with no outside influence is not enough to impeach a verdict

In Scott v. Merck & Co., No.  09-3271 (D. Md. Feb. 3, 2011), the Court denied the defense request for the Court to question a juror based on a post-verdict communication made to defendant's counsel. 

About four days after a jury returned a plaintiff's verdict in this case, one of the jurors called a representative of the defendant and left a voice mail asking for a return call.  Defense counsel returned the call for his client, and the juror stated that she felt that she had been pressured during jury deliberations to return a verdict for the plaintiff.  This communication was then reported to the Court, which requested briefing on how to proceed.

The Court ultimately decided not to question the juror.  As a threshold matter, the Court reminded counsel that under the Local Rules, no attorney or party can question a juror without permission of the Court.  Under Local Rule 107.16, no attorney or party may interview or question a juror with respect to that juror's jury service without permission from the presiding judge.  The proper procedure would have been to contact the Court and seek permission to contact the juror, before returning the telephone call.

Upon consideration of the facts as disclosed by defendant's counsel, the Court found it that it would be inappropriate the question the juror, because only intra-jury pressuring was involved.

It is well settled that a verdict may not be impeached by a juror’s testimony regarding “any matter or statement occurring during the course of the jury’s deliberations or to the effect of anything upon that or any other juror’s mind.”  Fed. R. Evid. 606(b).  A verdict may be impeached, however, by a juror’s testimony as to “extraneous prejudicial information,” “outside influence,” or “a mistake in entering the verdict onto the verdict form.”

Here, the trial had ended before a holiday weekend, and there was a Baltimore Ravens playoff game that weekend.  The jury wanted to finish deliberations as quickly as possible.  The juror who came forward had said that the jury foreman had refused to call for certain exhibits, and that her vote that the plaintiff had been terminated for cause by the defendant was ignored by the rest of the jury.  The Court found that these factors would not be competent to impeach the jury's verdict, since there was no external influence.  The Court also noted that the jury had deliberated for three hours, and that when polled after the verdict, the complaining juror said that the verdict was her individual verdict.

 

Order compelling arbitration reversed by Maryland appellate court

In Thompson v. Witherspoon, No. 00012 (Md. App. Feb. 1, 2011), the Maryland Court of Special Appeals reversed the trial court's order compelling arbitration.  This was a case in which the signatory to a contract with an arbitration clause had successfully compelled a non-signatory to arbitrate.

Plaintiffs, who were owners and beneficiaries of a $4 million second-to-die life insurance policy purchased by their parents, brought suit against the insurer, Manulife, UBS Financial Services, and the broker who sold the policy, alleging negligent misrepresentation, deceit, conversion, negligence and breach of contract.

The policy was purchased in 1990, but in 2003 the parents established accounts at UBS.  The master account agreement contained an arbitration clause that stated that:

any and all controversies which may arise between UBS PaineWebber, any of UBS PainWebber's employees or agents and Client concerning any account, transaction, dispute or the construction, performance or breach of this Agreement or any other agreement, whether entered into prior to, on or subsequent to the date hereof, shall be determined by arbitration.

In the trial court, UBS and the broker moved to compel arbitration.  The plaintiffs argued that they were neither parties to, nor bound by, the UBS Account Agreements.  They also argued that the parents were never the owners of the Manulife policy, and that their rights in the policy do not flow from their potential status as heirs, beneficiaries, successors or assigns.  The trial court granted the motion to compel arbitration, stating in part that the plaintiffs causes of action were so intertwined with the contractual relationship between the parents and UBS that arbitration must be compelled.

On appeal, the Maryland Court of Special Appeals reversed.  The Court reasoned that the plaintiffs did not derive a "direct benefit" from the contract containing the arbitration clause, because those account agreements did not provide that the insurance policy was to be issued to the plaintiffs, and further, the policy itself was already purchased years before the parents signed the UBS account agreements.  Therefore, the plaintiffs could not be bound to the UBS arbitration clauses by estoppel.

The Court concluded that there was an insufficient factual and legal connection between the claims asserted in the complaint and the ternms of the UBS Agreements for the defendants to invoke the arbitration provisions against the plaintiffs.

This case is based on an unusual fact pattern that is unlikely to be repeated very often.  For the practitioner, the opinion is more important for the approach to the issues.  For example, in reaching its decision, the Court touched on the following important points:

• It reaffirmed its view that principles of estoppel could permit a non-signatory to a contract with a mandatory arbitration provision to enforce the arbitration clause against a signatory to the agreement when the signatory's claims rely on the written agreement.
• It reaffirmed that a court's order granting an order to compel arbitration is immediately appealable, even when one of the defendants was not affected by the order compelling arbitration.  An order compelling arbitration, even on directed at some but not all the parties, is an appealable judgment on the question of whether the issues raised in the plaintiff's suit were arbitrable.
• The Court reaffirmed that, when construing the Maryland Uniform Arbitration Act, the Maryland courts look to federal decisions interpreting the Federal Arbitration Act, and in its opinion cited, and quoted, extensive federal precedent.
• The Court agreed with the statement that all questions concerning the ambiguity of arbitration clauses must be resolved by the arbitrator, but noted that whether or not a matter is to be compelled to arbitration is an issue for the court, not the arbitrator.

 

 

 

Landowner Liability for the Criminal Acts of Third Parties - Maryland, D.C., Virginia, and West Virginia law

We have posted an article summarizing landowner liability for the criminal acts of third parties, under Maryland, D.C., Virginia, and West Virginia law.