Employee’s Negligence Trumps Owner of Premise’s Knowledge of Dangerous Condition Creating Triable Issues of Fact

In premise liability cases, a tried and true defense to a customer’s slip and fall action was to argue that the spillage or other dangerous condition happened before the business knew about the spill or other condition that caused or contributed to the customer’s injury.

Recently, a California appellate reversed summary judgment in favor of a defendant jewelry store when the plaintiff established an inference that the business owner or its employees may have caused cleaning fluid to have been spilled on a backroom floor that was only accessible to plaintiff to the defendant store owner’s employees. The appellate court found that when the employee can show sufficient facts to create a reasonable inference that the store owner or the store’s employees caused the dangerous condition, notice of the condition is presumed, thereby preventing summary judgment.

The appellate court admitted that the facts were unusual in that the typical case, the customer has no idea who caused the spill and cannot prove that it is more reasonable to believe the store’s employees, as opposed to another customer, caused the dangerous condition.

Why the case certainly does not mark the end of the defense of lack of notice, it does make defending premises liability claims more difficult where the plaintiff can show either that the store or a store employee caused the dangerous condition or can at least show that a reasonable inference could be drawn that a store employee, as opposed to a third party, caused the dangerous condition.

And just because summary judgment was defeated does not necessarily mean that the trier of fact will find for the plaintiff. If the store is able to show at trial that more than just store employees had access to area the where plaintiff and had access to the cleaning fluid plaintiff slipped on, the store owner may still be able to defense the claim on the merits.

But the case does serve as a reminder of the importance of a thorough fact investigation into the accident. The more people that had access to the area where the fluid was or who could have spilled the fluid, the less likely a court would find a “reasonable” inference existed that a store employee caused the dangerous condition. And, in cases where it is clear that the employee caused the spill that the customer slipped on, the claim will likely be decided on agency or “respondeat superior” rather than on notice. There, the issue will be how reasonable and how quick the store’s response was to clean up the spill and whether there were adequate warnings, as these defenses will decide the case over a claim that the store lacked sufficient notice of the dangerous condition. In sum, employees can be more dangerous than you think to the defense of slip and fall claims.

When Should An Insurer Deny Coverage For The Insured’s Unconsented To Settlement With The Claimant? Not When The Insured Is Settling Only Uncovered Claims

Most standard liability policies contain a clause either as a condition of coverage or as an exclusion that the insured cannot make a “voluntary” payment to settle claims without the insurer’s consent. Sounds relatively simple, right? Not really. The paradigm case where an insurer will be well within its rights to deny coverage for the insured’s voluntary payment is where the insured settles a covered claim without tendering the claim to the insurer first but then demands that the insurer reimburse the insured for the settlement. Unlike other “notice” provisions, in California, the insurer is not required to show prejudice before standing on the voluntary payments clause to deny coverage. Because an insurer is not required to show prejudice from late notice of the tender of indemnity for voluntary settlement payments, California courts have denied coverage for voluntary payments and settlements made post tender and while the insurer was defending the claim.

One might think then that anytime an insured settles a claim, pre or post-tender, the insurer could deny coverage. The answer? Sort of. Why? It depends on what the insured is settling. The following example illustrates the problem. Say the insurer is defending covered and uncovered claims under a reservation of rights, and is also reserving its right to seek reimbursement for defending uncovered claims as authorized by the California Supreme Court’s Buss decision. A mediation is scheduled and the insured and the insurer are participating in the mediation. The insured is worried about a large uncovered judgment being entered against. You, the claims adjuster, believe you have a good chance of defensing the covered claims or obtaining a result far less than the plaintiff’s demand. You offer nothing towards the settlement of the non-covered claims. The insured ponies up his own dough to effect a settlement with plaintiff for all the non-covered claims because the insured is afraid of:

(1) A massive judgment for which there is no insurance coverage as per the insurer’s reservation of rights letter; and

(2) A second lawsuit by the insurer for reimbursement for the defense of the uncovered claims.

Presently, no California state court has addressed this exact factual scenario, despite this becoming a more common situation. Do you believe you could justifiably deny all coverage to the insured if the insured settled only the non-covered claims, thereby leaving only the covered claims to be litigated?

The Ninth Circuit Court of Appeals said no, in a case involving Tosco oil refineries in the context of worker’s compensation insurance for claim arising out of the Northern District of California. (See Travelers Prop. Cas. Co. of America vs. ConocoPhillips Co. [Tosco] (9th Cir. (Cal.) 2008) 546 F.3d 1142, 1146.) The Ninth Circuit recognized that in ever case where a California court denied coverage for the insured’s breach of the “no voluntary payments” clause of the policy, the insured was seeking reimbursement for the settlement of covered claims, thereby denying the insurer the right to defend the claim as the insurer saw fit. (Recall that though insurer’s have a duty to defend in liability insurance, it always described as the “right” and duty to defend.) In the Tosco case, the insurer denied coverage for the covered claims it was defending because the insured had settled the non-covered claims that the insurer was defending under a reservation of rights. Tosco was not seeking reimbursement for its settlement of the non-covered claims, but merely sought the continued defense and indemnity for the admittedly covered claims. The Ninth Circuit found that Tosco’s insurer could not rely on the no voluntary payments coverage provision to deny Tosco coverage for the insured claims. (The court also found that the insured didn’t technically “pay” money to the claimant but did not take an authorized “credit,” which the court also found did not technically qualify as a “payment” so as to amount to a breach of the policy’s “no voluntary payments” exclusion.)

Even the California state cases that have denied coverage for breach of the “no voluntary payments clause” recognize an exception to the insurer’s ability to lawfully deny coverage where the insured “faces a situation requiring an immediate response to protect [the insured’s] legal interests.” (Truck Ins. Exch. vs. Unigard Ins. Co. (2000) 79 Cal.App.4th 966, 977, fn. 15.) 

The above fact pattern is snake pit to the unwary. Relying on the “no voluntary payments” clause to deny coverage for the covered portion of the claim is a high risk proposition. The insured will argue that he or she was forced to settle to avoid a large uncovered judgment and to avoid a subsequent Buss action. There is little equity in arguing to a judge or jury that the insurer has the legal right to:

(1) Bar the insured from capping the insured’s personal, non-covered liability exposure; and

(2) Run up defense costs and fees on the uncovered claims only to seek reimbursement for defending the non-covered claims in addition to the insured having to pay the claimant the uncovered portion of the judgment.

“That dog don’t hunt.” It will likely result in a successful breach of contract/insurance bad faith action because it won’t look like the insurer gave at least as much consideration to the insured’s interests as the insurer gave itself. The solution? Don’t deny all coverage if the insured wants to settle claims you are disclaiming coverage for. But, do remind the insured that the insurer has no obligation to reimburse the insured for settling non-covered claims. There may even be times when it would be worth making a small costs of defense contribution to resolve non-covered claims, thereby eliminating the need for independent or Cumis counsel.

Hotel Liability For Not Supplying Bath Mats—Lack of Similarity of Past Accidents Supports Summary Judgment

 

By John Armstrong

A recent case out of California’s Fourth District Court of Appeal involving Omni Hotels shows that a good investigation helps support summary judgment—even in California where such summary disposition  of cases are hard to come by.

For adjustors involved in hotel claims, however, it is the last two pages of the opinion that are of interest. The trial court granted summary judgment for defendants that a hotel was not liable for premises liability or under any of the products liability theories advanced for failing to supply bath mats. The trial court however granted plaintiff a motion for new trial on whether the hotel was negligent in either not investigating further or not communicating more widely within the hotel chain the reports of bathtub accidents at Omni hotels. 

The appellate court affirmed the summary judgments, but reversed the trial court’s grant of a new trial to plaintiff based on plaintiff’s evidence of past accidents. The appellate court looked at the hotel incident reports and determined that these did not show the required “substantially similar accidents” and lacked detail about the conditions of or in the bathtubs, and lacked details about the medical conditions of the guests who were reported to have fallen in the hotel’s bathtubs. The court found the reports only provided “speculative or conjectural evidence” that Omni knew or had reason to know of a dangerous condition surrounding its hotel bathtubs.

The court also rejected the argument that hotel’s past reports of bathtub accidents necessarily put on the hotel on a “heightened duty of inquiry” to find out from the bathtub manufacturer, Kohler, if Kohler was aware of similar incidents with its bathtubs. Though the plaintiff alleged he could bring “ample” evidence that Omni had both actual and constructive knowledge that tubs in its hotels were dangerously slippery, he failed to support these claims with anything but his anecdotal witness testimony and opinions. The appellate court found this evidence insufficient to create triable issues of fact.

The lesson? Courts are looking at the foundation of expert declarations mare carefully to see if the evidence relied on is legally sufficient to support having a trial. The appellate court recognized that bathtubs are inherently slippery, meaning that for a plaintiff to impose liability against the hotel, he’d have to prove that either the hotel made dangerously more slippery or was on notice that its tubs were more slippery than other tubs—a very difficult burden. Usually, if there is a clash of expert declarations, most courts will hold a trial and let the jury decide, which is probably why the trial court granted the motion for new trial. The appellate court reversed however because it carefully examined plaintiff’s evidence and found that it was not legally or logically compelling to prove the claim that Omni knew its Kohler tubs were more slippery than other tubs—“even if” the hotel had other reported tub accidents. Implicit in the court’s decision was that it would be likely for any large hotel chain to have tub accidents since they are slippery and since the general public, including persons with a variety of medical conditions, could cause or contribute to causing tub accidents.

The moral? You can get summary judgment granted in California when the plaintiff’s expert’s opinions are based on anecdotal evidence, educated guesses, or are otherwise lacking foundation.  

Alternative Fee Agreements-As Good Or As Bad As You Make Them

By John Armstrong

We are in an ever changing business environment. The practice of law and the handling of claims today moves literally light years faster than before with the use of email, mobile phones, ipads, and netbooks. We’re plugged in everywhere we go, and can virtually be at the office while vacationing in Hawaii.

The Billable Hour

The billable hour is still the main style of fee agreement, largely because both claims adjustors and law firms understand this basic formula: The law firm charges an agreed upon hourly rate for partners, associates, and paralegals, the time is billed in one-tenth of an hour increments (the “0.1” or every six minutes), each timekeeper must record what activity was done, and frequently is also required to “code” the work with both a task an activity.

But there are alternatives to the “billable hour” described above. It can be mutually beneficial or a train wreck. The difference? How much is discussed up front so that each side, insurer and law firm, understand what’s expected. This post discusses the main alternative fee arrangements this writer has seen and been a part of, and I will discuss the pros and cons of each.

The “Flat Fee”

In complex cases, such as construction defect cases, usually the insurer insuring a large number of subcontractors will request a “flat fee” per file. That is, the insurer will send a large number of files but will only be charged a single attorney’s fee for each file (the insurer ordinarily covers hard costs, like court reporter fees and filing fees too). This arrangement can work well but two problems usually arise. First, the insurer may not send enough files to warrant the volume discount. This can be hard to do unless the claims adjuster consistently has a steady flow of a known number of files. Too few files, and the idea of volume pricing is out the window. Second, there has to be a mechanism to get a file out of the “flat fee” arrangement if a flat fee suddenly requires more work, such as a large number of depositions or extensive law and motion. Often, this happens when a flat fee subcontractor file becomes the target defendant whose work primarily caused the plaintiff’s damages. At that point, both the plaintiffs’ counsel and the general contractor’s counsel team up on the culpable subcontractor who is now facing a two-front war—not really a good candidate for flat fee work. On the other hand, if you represent the electric door knob polisher, odds are the insurer and law firm are safe in keeping this subcontractor in the flat fee arrangement.

Another variety of the “flat” fee is where a the law firm get a flat fee per month during the life of the file. This may make financial sense where the insurer and defense counsel believe that there is going to be a lot of litigation and where it is unlikely that the case will settle until closer to trial. This requires some sophistication on both the law firm’s and on the adjuster’s part in that the flat fee per month should be enough to cap what would be expected overages in certain months while generating enough income for the firm that the file gets appropriately staffed. The law firm benefits by being able to plan that it will get X amount of fees each month, and the adjuster knows that the fees will never exceed X per month.

The Contingency Case

This usually occurs in the subrogation cases. However, if you have a file where the insured has attorney’s fees clause in its favor, and it appears objectively likely to both the insurer and defense counsel that the insured is likely to prevail and there is another insurer or a solvent plaintiff who could pay attorney’s fees, then such a defense file may be ripe for a contingency or “blended” fee, that is a guaranteed lower hourly rate plus the right to recover fees if the defense counsel are successful. These type arrangements work only when there is a candid, upfront discussion regarding how fees will be split, what costs the insurer will pay on monthly basis, and which will come out of the recovery, if any. And, of course, different percentages can be negotiated, such as a lower percentage if counsel obtains a recovery without having to file suit, and a greater percentage if counsel has to file suit, and a higher percentage if the case has to be taken to trial or settles at trial. Where things go wrong is when there is no clarity on who is paying for costs, what percentage recovery occurs at which point time, etc.

The Blend

Alternative fee agreements have few limits. You can be as creative as you want. It is possible to blend the billable hour, with a modified flat feet, with a contingency component. If your bold enough to move from the billable hour, its best to thoroughly discuss the litigation and trial plan in advance. I would also recommend requesting a billable hour defense budget, because this will provide information on what type of alternative fee agreement might be best for the case. In sum, alternative fee agreements can work, but they do require more work and thinking at the front-end so that insurer and counsel knows what’s expected from each other.