“If It Walks Like A Duck . . .” – Expert Testimony Not Always Required In Realtor Malpractice Cases Where Alleged Breach Of Duty Can Be Easily Understood By Lay Persons

David W. Evans and Renata L. Hoddinott | Haight Brown & Bonesteel | March 7, 2019

In Ryan v. Real Estate of the Pacific, Inc., et al. (No. D072724, filed 2/26/19), the Fourth Appellate District reversed a trial court’s granting of summary judgment and finding that expert testimony is not required in a professional negligence action where the claimed acts or omissions are within the understanding of a lay person.

Daniel and Patricia Ryan hired Defendants David Schroedl, David Schroedl & Associates, and Real Estate of the Pacific, Inc., doing business as Pacific Sotheby’s International Realty to list, market, and sell their property. During an open house, the Ryans’ neighbor informed Defendant David Schroedl that he planned significant construction on his own property which would impact the Ryans’ property including, but not limited to, building a large addition that would obstruct the property’s westerly ocean view. Schroedl never disclosed this information to the Ryans or to the subsequent purchasers of the Ryans’ property. The day after escrow closed, the new owners’ interior decorator spoke with that neighbor who again explained his extensive remodeling plans.

Upon learning the new information, the new owners of the property immediately sought to rescind the transaction. The Ryans, based in part on Defendants’ advice, refused to rescind the transaction. The dispute then proceeded to arbitration with the new owners contending the Ryans knew and failed to disclose the construction plans for their neighbor’s property. After extensive litigation, investigation, discovery, and an arbitration hearing, the arbitrator ruled in favor of the subsequent purchasers of the property and ordered that the real estate purchase contract be rescinded. The Ryans were ordered to return the $3.86 million purchase price and title and possession for the property transferred back to the Ryans. The arbitrator further ordered the Ryans to pay damages, prejudgment interest, costs, and attorneys’ fees in excess of $1 million.

After the arbitration, the Ryans filed suit against Defendants seeking to recover the money paid as a result of the arbitrator’s award and damages caused by Defendants’ negligence. The complaint alleged six causes of action: (1) negligence, (2) breach of fiduciary duty, (3) breach of implied covenant of good faith and fair dealing, (4) equitable indemnity and apportionment, (5) common count – mistaken receipt, and (6) common count – money had and received. The Ryans’ lawsuit was based on Defendants’ knowledge of the neighbor’s construction plans and failure to inform either the Ryans or the subsequent purchasers about the plans.

Defendants moved for summary judgment arguing that the Ryans could not establish any cause of action against Defendants as they failed to designate an expert witness. Defendants contended that a party could not establish a claim for professional negligence without expert testimony to prove or disprove that Defendants’ performed in accordance with the prevailing standard of care. The Ryans opposed the motion maintaining that expert testimony was not required because of the findings of fact and conclusions of law regarding the standard of care in the prior arbitration. The trial court granted Defendants’ motion and the Ryans appealed.

On appeal, the Court held that California law does not require an expert witness to prove professional malpractice in all circumstances and that expert testimony is not required to prove or disprove a party acted in accordance with the prevailing standard of care where the negligence is obvious to laymen. The Court determined that Defendants possessed material information impacting the value of the Ryans’ property and chose to keep that information from the Ryans and from the subsequent purchasers so as to collect a commission from the sales price which would undoubtedly have been lower had the information been disclosed. The Court pointed out that any seller who hired a real estate broker to sell their home would expect that broker to share pertinent information that would adversely impact the value of the home. Because Defendants’ conduct was within the common knowledge of a layman, expert testimony was not warranted.

The purpose of expert testimony is to assist the trier of fact in understanding a technical or scientific issue that requires specialized knowledge, education or training. While it is generally good practice in any professional liability matter to retain an expert on the standard of care in that industry, the Ryan opinion is a reminder that not all professional liability actions involve a nuanced issue pertaining only to that profession and requiring expert analysis. Sometimes an act or omission is such that anyone can see it using simple common sense.

This document is intended to provide you with information about professional liability law related developments. The contents of this document are not intended to provide specific legal advice. This communication may be considered advertising in some jurisdictions.

11th Circuit Finds Duty to Indemnify Is Not Ripe until Underlying Action Is Resolved

Eric Gold | Policyholder Pulse Blog | March 28, 2019

It’s a familiar story to anyone involved in insurance claims. A policyholder is sued and tenders the claim to its insurer. The insurer agrees to defend subject to a reservation of rights, but it also asserts that policy exclusions may ultimately preclude coverage. While the underlying litigation is ongoing, the insurer files suit against the policyholder seeking a declaration that it does not have a duty to indemnify if liability is established against the policyholder in that litigation.

This common scenario often places the policyholder in the untenable position of having to defend against liability in an underlying suit, while simultaneously taking legal positions and answering discovery in the coverage action that may be at odds with its defense strategy. The insurer’s coverage action also drives up the insured’s costs and creates stress over whether the insured will be left on the hook for any judgment that is ultimately entered against it. Where liability has yet to be established against the policyholder in the first place, insureds are often left wondering why the insurer’s suit against indemnification should be allowed to move forward while they are still defending themselves in the underlying action.

In a recent decision, the U.S. Court of Appeals for the Eleventh Circuit gave a clear answer to this question, finding under Florida law that the duty to indemnify is not ripe for decision until the underlying lawsuit is resolved or the insured’s liability is established. While the decision does not alter an insurer’s obligation to defend, it makes clear that coverage questions regarding indemnity must wait until liability is resolved.

In Mid-Continent Casualty Co. v. Delacruz Drywall Plastering & Stucco, Inc., Mid-Continent agreed to defend Delacruz in an underlying state court action brought by a general contractor, who asserted that Delacruz performed defective work in connection with the construction of a community of single-family homes in Fort Myers, Fla. While that underlying lawsuit was pending, Mid-Continent filed a coverage action in federal court seeking a declaration that it had no duty to indemnify Delacruz and no duty to defend or indemnify the general contractor. The federal court denied summary judgment and dismissed Mid-Continent’s complaint without prejudice, finding that Mid-Continent’s duty to indemnify was not ripe for a decision.

On appeal, the Eleventh Circuit affirmed, quoting a decision of the former Fifth Circuit, which held that the claim was not ripe “because the issue ‘might never arise’” where “the damage suits had never been tried, no one had yet paid or become legally liable to pay,” and no party could state whether anything would be paid in the future. While the court acknowledged an exception to this rule when “the court can determine that the allegations in the complaint could under no circumstances lead to a result which would trigger the duty to indemnify,” the court held that the exception was not binding and refused to address the issue because Mid-Continent had failed to raise the argument in the lower court.

The court also rejected Mid-Continent’s argument regarding the lower court’s alleged failure to address the duty to defend. Noting that “the duty to defend is broader than the duty to indemnify, and ‘courts must look to the underlying complaint to determine the duty to defend, not the true facts of the cause of action against its insured,’” the court found that Mid-Continent failed to seek affirmative relief on the duty to defend and, while it might be ripe, it was not at issue in the operative complaint. Accordingly, the court dismissed Mid-Continent’s complaint without prejudice.

The Eleventh Circuit’s opinion has positive implications for policyholders. For example, the decision stops insurers from unnecessarily expanding the scope of a coverage action to include the policyholder’s ultimate liability in the underlying suit. This will keep discovery and expert costs down at the outset and focus the parties on the duty to defend, which is both significantly broader than the duty to indemnify and a substantively different analysis, one that only requires the policyholder to show a potential for coverage based on the allegations in the underlying complaint and the terms of the insurance policy. The court’s ruling also protects policyholders from having to take positions in the coverage action regarding indemnification that may be inconsistent with their strategy in the underlying action to deny liability.

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Reservation of Rights Letter: What You Should Know
Les Robertson | Robertson & Associates and Dermot Leech | SF RE/Allianz

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James Wideikis | Much Law and Andrew Witik | Litchfield Cavo

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Judicial Panel – Complex Construction Defect Litigation – 
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Hon. Jean Golden | Cook County Judge, Hon. Brigid Mary McGrath | Circuit Court of Cook County and Hon. Stuart Nudelman | ADR Systems

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What to Do Before OSHA Comes Knocking

Parker Rains | Construction Executive | December 3, 2019

Every year, the U.S. Occupational Safety and Health Administration (OSHA) inspects workplaces around the country for safety and occupational hazards. In 2017 alone, OSHA conducted 32,408 inspections – more than half of which were unprogrammed inspections.

There are six reasons OSHA might come knocking on the door. They are (in order of priority): 

  1. imminent danger situations;
  2. severe injuries and illnesses;
  3. worker complaints;
  4. referrals;
  5. targeted inspections; and
  6. follow-up inspections.

OSHA determines which workplaces are the most hazardous by using the Days Away, Restricted or Transferred (DART) rate, a measurement of workplace injuries and illnesses that result in time away from work, restricted job roles or permanent transfers to new positions. Companies with a rate of seven or higher are immediately listed on OSHA’s inspection list.

To calculate the company’s DART rate using this formula: (N/EH) x 200,000, where “N” is the number of cases involving days away from work, restricted work activity or job transfers due to an incident and “EH” is the total number of hours worked by all employees in the calendar year.

During an inspection, OSHA’s compliance safety and health officers scrutinize nearly every component of a company’s health and safety programs, including the working conditions, written policies and procedures, employee trainings, record keeping requirements, documentation of routine safety inspections and more. When companies are not well prepared, an investigation can result in hefty fines and penalties.

To keep the company off OSHA’s list, here are four tips to help prepare for an OSHA inspection:

  1. Educate the team. It’s not uncommon for OSHA compliance safety and health officers to hold interviews with employees during an inspection, so it’s important that every employee understands what the process might look like. Some insurance companies provide free consultations on OSHA preparedness and can send a representative to train managers and team members who might be involved in the inspection. Be sure to discuss this possibility with the company’s broker.
  2. Assign an inspection oversight committee. Gather a group of employees who will be responsible for escorting the inspector around the worksite. These team members should be fully vetted on the company’s safety procedures. For example, it’s important that they make sure records are easily accessible during an inspection, coordinate interviews with employees if the inspector asks, take notes and photographs during the inspection to note any citations that will need to be corrected, among other things. 
  3. Get paperwork in order. OSHA inspectors will request company records of all work-related injuries and illnesses. Make sure OSHA 300 logs are organized and updated regularly – well before an inspection is even suspected. Train employees on how to log incidents with accurate and detailed information in case inspectors have any questions about an incident. 
  4. Practice proactivity. The best way to be prepared for an OSHA inspection is to conduct a run through or test every so often to identify potential health and safety issues that an OSHA inspector might find. This way company personnel can catch issues before an inspector does and correct them immediately. Being cognizant of how the company is keeping up with health and safety protocols, and fixing those snags along the way, may eradicate any problems that would warrant an inspection in the first place.

While a surprise OSHA inspection – or even a planned one – can be nerve-wracking, don’t treat it like a fire drill. Eliminate some of the stress by following the tips mentioned above so the company is ready if and when OSHA comes knocking.

Insurance Company’s Long Duration of Negotiations and Stalling Tactics Supports Plaintiff’s Claim for “Bad Faith”

Christina Phillips | Property Insurance Coverage Law Blog | December 22, 2018

Illinois’ solution to an insurance company’s delay, deny and defend tactics is section 155 of the Illinois Insurance Code, which provides an extra-contractual remedy to policyholders whose insurer’s refusal to recognize liability and pay a claim under a policy is vexatious and unreasonable.1 Section 155 of the Code is intended to aid the insured and to discourage insurers from profiting by their superior financial positions while delaying in the payment of contractual obligations.2

The Appellate Court of Illinois in Charter Properties, Inc. v. Rockford Mutual Insurance Company,3recently affirmed the trial court’s finding that the insurer’s delay in paying the insured’s claim supported an award of sanctions under section 155 of the Code.

Szechwan Garden was a tenant operating a restaurant within the building owned by Charter Properties. In August 2011, the building collapsed. Rockford stipulated that the policies of insurance covered the collapse, but the parties disagreed over the amount of the loss including the amount of lost rental income because Szechwan Gardens was closed for nearly 49 weeks. Five and a half years after the loss, a jury found that Rockford owed Charter Properties additional monies for lost rental income and building damage. A separate trial was held on Charter Properties’ claim for Section 155 (“bad faith”) relief.

While Rockford made two smaller payments within the first four months of the loss, it made no further payments until March 2012 when Charter Properties filed a complaint with the Illinois Department of Insurance. In June 2012, Rockford returned Charter Properties’ sworn statement in proof of loss. The basis for its rejection was twofold: first, it asserted that the proof was premature because the repairs had not been completed and directed plaintiff to give notice when the repairs were completed so it could conduct a final inspection and determine the costs incurred; and second, it alleged the proof was excessive. Following the rejection of the proof, Rockford’s adjuster admitted that he stopped working on the matter, without completing an inspection or estimate of the damages.

Ultimately, Rockford made its final payments in June 2013, which was seven months after suit was filed, 1 year and 10 months after the loss, and 11 months after Szechwan Garden reopened for business.

Charter Properties’ expert witness testified at trial that the adjuster’s job on behalf of Rockford was to prepare a damage estimate for the building and personal property, but that he failed to do so. Without a complete estimate, the defendant could not calculate its liability, which resulted in a breach of contract. In other words, the policy placed the burden of determining liability on Rockford, but Rockford improperly tried to shift that burden to plaintiff. Rockford presented no expert testimony to rebut Charter Properties’ expert. Instead, Rockford simply argued that the proof was excessive, and therefore a bona fide dispute existed.

The appellate court affirmed the trial court’s finding that the plaintiff encountered unnecessary difficulties from Rockford’s withholding of policy benefits. Specifically, the court pointed to the uncontroverted testimony from plaintiff’s expert who opined that Rockford should have completed the inspection and promptly adjusted the claims but did not do so. It also noted that section 919.50 of the Code required the insurer to either affirm or deny liability within a reasonable time and to offer payment within 30 days after affirmation of liability or offer a written explanation for the offer or denial. Rockford failed to offer a written explanation for the denial and failed to complete an investigation and determination of liability.

The appellate court agreed that Rockford’s long duration of negotiations, stalling tactics, and delayed payment supported the conclusion that Rockford’s conduct was unreasonable and vexatious. The court concluded that plaintiff’s expert opinion comported with common sense that an insurer owes a duty of good faith and fair dealing to provide an estimate, so the insured can proceed knowing the scope of coverage.
1 Cramer v. Insurance Exchange Agency, 174 Ill. 2d 513, 519 (Ill. 1996).
2 Myrda v. Coronet Ins. Co., 221 Ill. App. 3d 482, 491 (Ill. App. 2d Dist. 1991).
3 Charter Properties, Inc. v. Rockford Mut. Ins. Co., 2018 IL (2d) 170637 (Ill. App. Nov. 8, 2018).