Monthly Archives: September 2013

An Insurance Company is Not Acting in Good Faith When it Holds Own Interests Above That of the Insured

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Kenneth Kan – September 17, 2013

With greater frequency I am getting calls from policyholders concerned their insurers’ claims investigations are more focused on finding reasons that support denial than coverage. Also, more claims are hastily or unnecessarily referred to the special investigation unit (SIU) when evidence of fraud is lacking. Most claims that end up in SIU come to a screeching halt, with no resolution in sight.

All policyholders are entitled to a full, fair, and thorough investigation of their claims. This fundamental tenet of insurance is rapidly dissipating. When an insurance company does not fulfill its obligation to conduct a proper investigation, they’re not acting in good faith.

When proving the insurance company’s failure to properly investigate a claim, it is important to determine whether the insurance company has diligently searched for and considered evidence that supported coverage of the claimed loss.1 An insurance company “must give at least as much consideration to the interests of the insured as it gives its own interests.”2 Moreover, when an insurance company” seeks to discover only the evidence that defeats the claim it holds its own interest above that of the insured.”3

In the representation of policyholders, it is vital to keep the above in mind. If the insurance company is overlooking evidence that supports coverage, then that has to be brought to their attention. Call them out on it.

1 CACI Jury Instruction No. 2332. Bad Faith (First Party) — Failure to Properly Investigate Claim.

2 Frommoethelydo v. Fire Insurance Exchange (1986) 42 Cal. 3d 208, 214-215.

3 Mariscal v. Old Republic Life Ins. Co. (1996) 42 Cal. App. 4th 1617, 1620.

via An Insurance Company is Not Acting in Good Faith When it Holds Own Interests Above That of the Insured : Property Insurance Coverage Law Blog.

Can Your Fee Dispute Rise to the Level of Unfair Competition? Maybe; but Not This Time.

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Gary Bresee – September 16, 2013

A fee dispute between Travelers, its contractor/insured and the insured’s counsel, is not your run of the mill fee dispute.  Travelers alleges the existence of an illicit rate agreement between the contractor and its lawyers whereby the lawyers allegedly billed Travelers at a higher rate than the firm actually charged the contractor/insured.  Travelers property Casualty Company of America v. Centex Homes et al. (Case Nos. 3:13-cv-00088 and 4:12-cv-00371, Northern District of California).

Centex Homes, Travelers’ insured, was represented by Newmeyer & Dillon LLP in several construction defect actions arising out of multiple housing developments.  Travelers agreed to defend Centex in the underlying cases.  However, on May 11, 2011, Travelers uncovered the existence of the illicit rate agreement between Centex and Newmeyer.  Travelers sued Centex and Newmeyer for, inter alia, fraud, breach of fiduciary duty and unfair competition.

Judge Samuel Conti recently ruled, however, that:

The unfair competition claim should be dismissed due to the lack of any impact on the general public — one of the requirements of the fraud prong of the UCL;

The fraud claim should be narrowed to include only billing invoices submitted prior to May 11, 2011 — the date Travelers discovered the illicit agreement; and

The breach of fiduciary duty claims can only apply to the period after Travelers agreed to defend Centex, since prior to that date Newmeyer owed no fiduciary duty to Travelers.

via Can Your Fee Dispute Rise to the Level of Unfair Competition? Maybe; but Not This Time. | Barger & Wolen – JDSupra.

Should Legal Codes be Copyrighted? Let’s Sue to Find Out!

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Lydia DePillis – August 7, 2013

Knowing how to build this will cost you. (Tom Jackman - The Washington Post)

Whenever you build a building, most states require you to obey thick books full of standards for all the specs that make it safe and sturdy. Those standards are developed by professional societies and trade associations, like ASTM International, whose members are contractors and equipment manufacturers and other technical experts. State and local governments then incorporate them into building codes, which have the force of law. But the standards aren’t usually replicated in full — you have to buy them from the standards development organizations, which derive most of their operating revenue from sales.

Wait a second: Why should you have to pay to read the laws you have to obey? Usually, they’re not copyrightable. For a couple years now, open government activist Carl Malamud has been posting building codes on his Web site Public.Resource.org, deliberately undermining that revenue stream. In the spring, the Sheet Metal and Air Conditioning Contractors National Association got fed up, and asked him to stop. With the help of the Electronic Frontier Foundation, Malamud sued for relief, and a few months later got a judgment in which SMACNA basically agreed to let him post a few of their older standards online.

Well, the battle just kicked up a notch. Not satisfied with that half-measure, three of the country’s biggest standards development organizations — ASTM International, the air quality group ASHRAE and the National Fire Protection Association — sued Public.Resource.org in U.S. District Court for the District of Columbia for copyright infringement. How the case proceeds could have far-reaching implications for the viability of institutions that write the rules, as well as the rights the public has to read them.

The 51-page complaint is interesting reading, going through the history of the public standards movement over the past century. It’s not just building codes — there are also standards for protective clothing, manufacturing, chemical ingredients, you name it. It’s truly a story of international progress on safety and health, and has been encouraged by governments as an efficient way to channel the knowledge of industry into detailed laws that bureaucrats wouldn’t know how to write. And it takes a long time: Most of ASTM’s standards are on a five-year development timeline, requiring the participation of hundreds of subject-matter experts. The standards development organizations contend that they wouldn’t be able to do all that work without maintaining an exclusive copyright on the end product.

The cost isn’t prohibitive; price tags on digital and printed standards usually fall between $25 and $125. And all three plaintiffs have made copies of their standards available free online in read-only format.  But Malamud argues that’s not enough: Independent developers should be able to make even more user-friendly editions of the standards, and they should be totally free. Besides, he told me during the SMACNA proceedings, many other industries have found different ways of making money in the Internet age. Why shouldn’t the one that writes rules?

There are various pieces of administrative precedent and case law in different courts that support either side. Essentially, though, it’s a question of principle vs. practicality: Code is law, Malamud says, and it’s owned by the public. But good code is also expensive, the standards development groups maintain, and charging for copies is the least bad way to pay for it. The complaint reads:

Depriving Plaintiffs and other SDOs of this important, independent source of revenue would substantially diminish the quality of future standards, including those in the health and safety areas which are most suitable for use by government entities. To the extent that Plaintiffs were able to continue their standards development activities without copyright revenues, they could be forced to rely on funding from interested parties, or to charge fees to participate in the process of developing the standards, which would inhibit the participation of small businesses, consumers, academics, and other important stakeholders in the standards development process.

Most copyright disputes involve some question of whether creators should be compensated for their work, thereby fostering more of it. But this one is unusual in running up against the fundamental right to ownership of the laws you have to obey. The court will have a tricky job in balancing the two.

via Should legal codes be copyrighted? Let’s sue to find out!.

Mechanic’s Lien Waivers: Understand What You Are Waiving

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Eric Radz and Paul Sugar – September 18,2013

In Maryland and elsewhere, a mechanic’s lien safeguards a contractor’s entitlement to payment on a private project. It is a statutory device that, if properly pursued, provides a contractor a security interest in the real property improved by the contractor. While a project is under construction, an owner almost always requires that the general contractor and its subcontractors execute and deliver a partial waiver of lien as a condition of receiving a progress payment. The partial lien waiver may either be unconditional, which means the waiver is effective whether or not the contractor is paid, or conditional, which means that the waiver is effective only if the contractor is paid. The Maryland lien statute, however, does afford contractors protection by prohibiting waivers in executory contracts (i.e., before the work is performed) of the right to claim a mechanic’s lien or to sue on a contractor’s bond.

Generally, by executing a partial lien waiver, a contractor surrenders certain rights to a mechanic’s lien. In addition to whether or not the partial waiver is conditional or unconditional there remains the key question as to precisely what lien rights has the contractor surrendered.

Lien waivers may waive liens either to the extent of payment (“waiver of payment”) or to the extent of work performed (“waiver of performance”). The waiver of payment is preferable from the contractor’s perspective because the waiver is limited to the amount of payment received and it does not extend to work performed for which the contractor has not yet been paid.

A lien waiver of performance will typically say that the contractor waives any right to a lien for all work it has performed through a certain date. By signing a lien waiver of performance the contractor gives up its right to pursue a mechanic’s lien for additional payment for work performed before the date specified in the lien waiver even if the contractor has not been fully paid for that work. This may include, for example, waiving a lien for claims previously submitted to but not paid by the owner.

It can get worse. The performance lien waiver also may include a release of liability by the contractor of the owner for all work performed before the specified date. The consequence can be that the contractor who has a contract with the owner not only gives up its right to a mechanic’s lien but also it releases the owner from an action for breach of contract or other causes of action.

In short, a contractor and its subcontractors should sign a partial lien waiver for a progress payment only if it (1) is conditioned upon receiving payment, (2) waives a lien only to the extent of the amount of payment received and not for work performed, and (3) does not include a release of liability of the owner. If a contractor remains unpaid at the end of a project for work it performed, it will be glad it followed these steps.

via Mechanic’s Lien Waivers: Understand What You Are Waiving | Ober|Kaler – JDSupra.

Conditions Precedent to Dispute Resolution: a Help or a Hindrance?

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Stanley A. Martin – September 9, 2013

The AIA A201 General Conditions posit the architect’s decision on a claim as a condition precedent to arbitration of that claim.  A recent New York appellate decision demonstrates why this clause, employed as a roadblock many years after the dispute arose, should be modified by the AIA.  In 2013, a party has been told by the appellate court that it must submit its 2005 dispute to the architect before it can proceed to arbitration.  Common sense has flown out the window!

If not modified by the parties, here’s how the A201 provides for resolution of disputes. First, the ‘Initial Decision Maker” (which normally defaults to the project architect) must render a decision.  This decision is a condition precedent to mediation, and mediation is a condition precedent to arbitration.[1]  Thus, arbitration cannot go forward, except for certain specified exceptions, unless the architect has issued a decision on the dispute or has failed to do so for 30 days.

So a landscape contractor whose dispute arose in 2005, and who sought arbitration in 2011 (there is no explanation for that delay in the record) has been told in 2013 that arbitration is stayed, as the claim was never submitted to the architect for a decision.[2]  One can argue that an architect’s decision during the project will help the change order and claim process flow more smoothly, but there is no logic – other than strict adherence to a clause that no longer serves a useful purpose – to extend this requirement to disputes that continue long after the project has been completed.  It would appear that this condition has been insisted upon by one party mostly to obtain leverage over the other party.

This case arose under the 1997 version of the AIA documents.  Although the 2007 version modified the dispute resolution provisions, and relocated those provisions within the document, the condition precedent terms remain.  The current version provides that “an initial decision shall be required as a condition precedent to mediation of any Claim arising prior to the date final payment is due, . . .”[3]  Unfortunately for the landscape contractor, the dispute presented to arbitration in 2011 surfaced in 2005 prior to final payment, so the same situation could have arisen under the current language.  Many attorneys and parties choose to modify this clause during contract negotiations, and some courts have adopted a more common-sense approach to this situation for a post-project dispute.  But the AIA should drop the never-ending condition on its own.  Disputes should be made easier, and not more protracted, to resolve.

via Conditions precedent to dispute resolution: a help or a hindrance? – Lexology.