Articles Posted in Contracts

On December 9, 2013, STSW lawyers Bill Sinclair and Ned Parent obtained a half million dollar judgment in a complex construction arbitration before the American Arbitration Association. After pre- and post-arbitration briefing and a four-day hearing before Arbitrator J. Snowden Stanley, which included a comprehensive site visit and fact and expert witness testimony, Sinclair and Parent convinced Mr. Stanley that their client, the Edgewood American Legion Service Post 17, should receive money and credits from the architect and general contractor who failed to complete a re-build of the Legion’s hall in Edgewood, Harford County, Maryland.
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Is intending to settle a case the same thing as actually settling? As the Court of Special Appeals of Maryland recently confirmed, it can be. In its decision earlier this month in Falls Garden Condo. Ass’n, Inc. v. Falls Homeowners Ass’n, No. 0443, September Term 2012, the Court applied state contract interpretation principles to a “letter of intent” memorializing a settlement agreement, construing the document as a valid “executory accord” that precluded the Appellants’ ability to pursue its claims. The ruling is a reminder that, when a party doesn’t want to be bound by a recording of an agreement, it better make sure the agreement says so.

In Falls Garden Condo. Ass’n, condominium complex Falls Garden used 65 adjacent parking spaces for 23 years before finding out that they actually belonged to a neighboring residential community, The Falls. Falls Garden sought a declaratory judgment that it owned the spaces by adverse possession or, alternatively, by obtaining an easement. As trial neared, the parties negotiated a possible settlement, and eventually executed a letter of intent “meant to memorialize certain aspects of a formal Settlement Agreement and separate Lease to be entered into” between the parties. The letter provided that The Falls would lease the spots to Falls Garden at $20 a month for each spot, provided that The Falls’ homeowners’ association approved. After the association accepted the plan, its attorneys drafted a proposed 99-year lease and submitted it to Falls Garden.
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A Vice President at Microsoft has been credited with saying that “litigation is the basic legal right which guarantees every corporation its decade in court.” While the Microsoft executive was clearly speaking with tongue planted firmly in his cheek, years-long litigation is not only time-consuming, it is extraordinarily expensive. That is why the Silverman, Thompson, Slutkin & White, LLC Business Litigation Group subscribes to the guiding principle, borrowed from Sun Tzu’s The Art of War, that “the supreme art of war is to subdue the enemy without fighting.” When companies are named in frivolous lawsuits, they turn to STSW to aggressively turn the tables. A company that has been harassed with a frivolous lawsuit is not without options.

One option is to countersue to recover attorneys’ fees spent on the frivolous litigation. Maryland Rule 1-341 states that “[i]n any civil action, if the court finds that the conduct of any party in maintaining or defending any proceeding was in bad faith or without substantial justification” the court may order that the offending party pay the expenses and attorneys’ fees “incurred by the adverse party in opposing it.” For a target of such legal harassment who pays out of pocket, the Rule is clear enough. There are, however, nuances in its application when an insurance company pays to defend the target company from the baseless suit.
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In its early years, malpractice insurance coverage was often provided through “occurrence”-based policies that provide coverage for specific events, or “occurrences,” that happened during the policy’s effective period. When a professional malpractice claim was made under one of these policies, however, it was often difficult to define the boundaries of the “occurrence” of the negligent act, particularly when services were provided to the client long in the past or were part of a years-long relationship. If the “occurrence” extended over multiple policy periods, then multiple insurers were arguably responsible for covering the occurrence, unless a single insurer was unlucky enough to have issued multiple policies whose separate limits were arguably triggered by the single, years-long, occurrence. In order to minimize their exposure, exercise greater control over their exposure, and for other reasons, malpractice insurers have more recently begun issuing more “claims made” policies.
In contrast to “occurrence”-based policies, which typically cover insureds for any occurrence which takes place during the effective period regardless of when the claim is filed, “claims made” coverage protects the insured from claims made against it only during the effective period of the contract; in effect, the filing of the claim during the policy period is itself the coverage trigger.
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Maryland law requires that property and casualty insurers who are investigating an insurance claim must send the insureds a written update on the status of the claim every forty-five (45) days. COMAR 31.15.07.04. Specifically, the Maryland regulation provides that if an insurer has not completed its investigation of a first-party claim (this generally means that you made the claim under your own policy) within 45 days of notification, the insurer must promptly notify the first-party claimant, in writing, of the actual reason that additional time is necessary to complete the investigation.

Notice must also be sent to the first-party claimant after each additional 45-day period until the insurer either affirms or denies coverage and damages.
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When the relationship between an insurance company and a managing general agent terminates in Maryland, it is typically the agent that owns the “expirations” (or “book of business”) – i.e., the policyholders’ contact information that may be used to solicit further business upon expiration of those policies. Maryland’s rule is consistent with the general weight of authority in the country that under the “American agency system,” the agent is the owner of expirations upon termination of the insurance agency relationship, particularly when such ownership is provided for by contract.

As for Maryland, Md. Code, Ins. Art. § 27-503 prevents insurance purchasers from losing their insurance when their agency relationship is terminated between their agents and the insurers. Upon the termination of that relationship, the statute grants ownership of expirations to the insurer, but requires the insurer to renew the agent’s policies through the agent for at least two years or until the policies are placed elsewhere. See Md. Code, Ins. Art. (“IN”) §27-503(b)(3). This is known as the “renewal rule.”
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Most insurance policies provide for “subrogation.” Subrogation is triggered whenever an insurance company pays out an amount to a policyholder for harm caused to the policyholder by a third party. If the insurer can prove that the third party was at fault, the insurance company can typically file a “subrogation” lawsuit against the third party to recover the money it paid out to the policyholder. To use a simple example, if a third party sets fire to a business’s office, and the business’s insurance company pays the business the amount of its fire loss, then the insurance company can typically sue the arsonist in a “subrogation” action to recover the amount that it paid to the business.
“Subrogation” is defined by everyone’s favorite legal dictionary as “the substitution of one person in the place of another with reference to a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim.” Black’s Law Dictionary 1467 (8th ed.2004).
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There is a critical federal statute that all insurance litigators should be aware of when their case is “removed” from a State trial court to a federal court. Insurance companies often remove State court cases to the federal system to take advantage of what they apparently believe is a strategic advantage. Although this perceived advantage may or may not exist, all aggressive insurance attorneys should know how to fight back.

First, you should know that there is a presumption against federal court jurisdiction. By statute, a federal district court must send any case that lacks subject-matter jurisdiction back to State court. 28 U.S.C. §1447(c). And although a plaintiff usually has only thirty days to object to a defendant’s “removal” of a State case to federal court, an objection based on the federal Court’s lack of subject matter jurisdiction can be raised at any time before final judgment, even in the middle of a trial. 28 U.S.C. §1447(c). Federal courts routinely make thorough examinations of subject matter jurisdiction early in a case in order to avoid wasting resources on a case that ultimately needs to be sent back to State court.
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To the surprise of many commercial litigators, Maryland does not recognize an independent breach of fiduciary duty claim. The Court of Special Appeals recently stated “In a claim for monetary damages at law … an alleged breach of fiduciary duty may give rise to a cause of action, but it does not, standing alone, constitute a cause of action.” Wasserman v. Kay, 197 Md. App. 586, 631 (2011).