Maryland Business Litigation Lawyer Blog

Liability insurance policies sold to businesses, and individuals, are often “occurrence”-based policies that provide coverage for specific events, or “occurrences,” that take place during a covered period (regardless of when a lawsuit based on those events is filed). This seems easy enough on the surface, but “occurrence” policies have given rise to legions of legal opinions concerning arguments as to whether a coverage-triggering “occurrence” or “occurrences” took place, and if so, when the “occurrence(s)” took place. As most businesses purchase commercial policies of relatively short duration, one or two years, policyholders oftentimes argue that separate occurrences took place over multiple consecutive policy periods – in order to “trigger” coverage under multiple policies. Insurers typically respond, if the facts support such a response, that there was no “occurrence” at all, and therefore coverage is not triggered under any of the potentially applicable policies – or alternatively, that there was only one “occurrence,” triggering coverage under only one policy.

Time and again courts have been asked to identify whether one or more “occurrence(s)” have transpired, and then to place those occurrence(s), should they be found to exist, into one or more policy periods. These tend to be thorny issues in commercial insurance cases, particularly when construction companies or related entities are seeking insurance coverage. The kaleidoscope of caselaw interpreting “occurrence”-based liability policies in the construction context has been built brick by brick (my apologies), or opinion by opinion. Just last month, the Fifth Circuit laid additional foundation for certain of these claims, holding that protection for “ongoing operations” does not cover defects that cause damage after work is completed.
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When an injured party has insurance coverage, it’s a tricky thing figuring out what a jury should know about that insurance during trial. It can be even trickier when the insurer is an actual party, standing there fully represented in the courtroom. At least in Maryland, however, where insurance isn’t an issue in the case, the jury doesn’t have to know why the insurer’s involved.

In the recent case of Keller v. Serio & GEICO Ins. Co., Court of Appeals of Maryland, Case No. 48, September Term 2013, the plaintiff, Ms. Keller, got into a fender-bender and then went home. After talking to her attorney, Ms. Keller decided to check herself into the hospital. Five years, and more than $27,000 in medical bills later, she sued the other driver, Mr. Serio, in the Circuit Court for Baltimore County and notified her insurer, GEICO of a claim for underinsured-motorist coverage (“UM” in common insurance parlance) under that policy. GEICO then intervened in the lawsuit on the chance that an award might trigger the UM coverage.
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Reinsurance is a great way for insurance companies to manage their risk. An insurer issues a policy with a million dollars in liability limits, and then cedes, by way of example, 75% of that risk, or $750,000 to a “reinsurer.” The reinsurer charges a small premium based on its actuarial bet that most claims will never exceed $250,000. The insurer is likewise pleased to pass of the majority of the risk for a small portion of the premium it collected. It is critical to remember, however, that the fundamental tenet of all insurance transactions, including reinsurance transactions, is risk transfer. If no risk of loss is transferred from the insurer to the reinsurer, there is no reinsurance transaction.

This precise problem was addressed recently by a federal district court in Menichino v. Citibank, N.A., 2014 WL 462622 (W.D. Pa., Feb. 4, 2014). By this opinion, a claimant was found to have successfully articulated a RESPA (“Real Estate Settlement and Procedures Act (“RESPA,” for short)) cause of action against Citibank by alleging that Citibank charged fees for reinsurance but did not accept any risk. Citibank is also facing claims for unjust enrichment. While these are merely allegations, and none of these facts have been proven, the claimant’s lawsuit survived the preliminary motions stage, and provided all reinsurers a reminder to carefully consider risk transfer in structuring its transactions.
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As governments get increasingly involved in regulating telecommunications advertising, it is more important than ever for companies to be legally savvy about their mass-marketing techniques. Insurers are well aware that violations of mass-marketing laws have the potential to result in huge class action verdicts, so carriers tend to be vigilant in defending against claims for insurance coverage for these suits. A recent case from Illinois provides insurers with additional ammunition to use in effectively disclaiming such coverage.

In Windmill Nursing Pavilion v. Cincinnati Ins. Co., 2013 IL App (1st) 122431, Unitherm, Inc., a company selling a garment-labeling system, sent nearly 75,000 unsolicited faxed advertisements that allegedly violated the federal Telephone Consumer Protection Act, 47 U.S.C. § 227 et seq. Because the TCPA provides for $500 in liquidated damages for each unsolicited faxed advertisement, Unitherm faced more than $37 million in liability for its ill-advised marketing strategy.
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Plaintiffs rarely enjoy having their case jettisoned from court and onto the arbitration table – whether right or wrong, arbitration has a decidedly pro-defense rep that makes plaintiffs’ attorneys do just about anything to avoid it. But as shown in the recent Court of Special Appeals of Maryland case of Gordon v. Lewis, No. 1505, Sept. Term 2011, arbitration isn’t always a graveyard for meritorious claims, and plaintiffs can even score punitive damages that are quite hard to overturn. Simply put, courts are loath to revise an arbitrator’s decision, even when it involves an exemplary award.

In Gordon, appellant Kathy Gordon, a financial advisor, advised the appellees, her clients, to invest a quarter of a million dollars in a Somerset County real-estate venture that, coincidentally, just happened to be owned by her son. The clients received supposedly secured promissory notes that assured repayment, but that never actually happened, even while Gordon repeatedly stated that high rates of interest were being earned. Meanwhile, unbeknownst to the investors, the development company had actually gone belly-up into bankruptcy. When the clients eventually discovered this important little detail, they weren’t too pleased that their notes were – despite what they had been told – completely unsecured. In other words, it was nice knowing you, 250 grand.
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Companies and individuals who are weighing the “pros” and “cons” of entering into arbitration agreements consider a whole host of factors in making this complex, and significant decision. Arbitration is often a good choice for parties who have a strong desire to keep their disputes confidential. An arbitration is also typically resolved faster than a civil lawsuit, usually with streamlined discovery and motions practice, resulting in the added benefit of lower litigation costs. Parties who choose arbitration typically prioritize these anticipated benefits over what is typically more exhaustive collection of information and presentation of issues in a civil lawsuit.
When a party chooses arbitration, however, it is critical that counsel express that choice with absolute clarity in a written agreement. A new decision from Maryland’s top court holds that after a civil lawsuit is filed, and a responding party is unsuccessful in moving to compel the arbitration it thought was agreed to, there is no immediate appeal of the denial of the motion to compel arbitration. Instead, the party must add the denial of the motion to compel arbitration to issues raised on appeal after trial.
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Companies often develop complimentary services that can enhance the consumer experience and build customer loyalty to their brand. Shrewd businesses recognize that these freebie benefits should come attached with exculpatory and indemnification agreements, so a courtesy for customers doesn’t end up being a colossal burden of additional liability. Even when faced with heartbreaking injuries to a small child, Maryland’s highest court recently ruled that exculpatory agreements are binding on children in Maryland, creating new law on an issue of first impression in BJ’s Wholesale Club, Inc. v. Rosen, No. 99, Sept. Term 2012.

The stage for the case was set when the Rosens permitted their 5-year-old son, Ephraim, to play at a free “Incredible Kids Club” area at a BJ’s Wholesale Club in Owings Mills, Maryland. Before Ephriam was permitted to play, Mr. Rosen had to execute an agreement releasing and indemnifying BJ’s from any related injuries that might arise. Cut to 15 months later, when Ms. Rosen returned to BJ’s to do a little shopping. Mrs. Rosen again dropped Ephraim off at BJ’s Incredible Kids Club, which featured a large toy hippopotamus to climb on.
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Many of you have seen the following disclaimer made in connection with films or books: “All characters in this book are fictitious, and any resemblance to real persons, living or dead, is coincidental.” The line between fact and fiction may not always be so clear, however, as Maryland’s Court of Special Appeals discovered in addressing the issues raised in Publish America, LLP v. Stern, No. 2965, September Term 2010.

Stern was a librarian at the Ludington Library in Ludington, Michigan. During her tenure at the Library, Stern developed a manuscript about some of the interesting people in her community. In 2008, Publish America offered to publish Stern’s manuscript. Publish America insisted that Stern either obtain waivers from the people appearing in the book or appropriately “fictionalize the work.” Publish America’s concern was that the book disparaged real-life people who were recognizable within Stern’s community. Publish America instructed Stern to “make sure that all names, places, and events have been changed” so as to truthfully comply with the disclaimer and to “take care that there are no real-life people that are in the least bit recognizable.” Stern agreed to fictionalize her characters, and she even confirmed via e-mail that she had done so.
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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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