FOURTH CIRCUIT FINDS NO ERROR IN REFUSAL TO STACK UIM COVERAGES

The U.S. Court of Appeals for the Fourth Circuit has affirmed a ruling in favor of State Auto Mutual Insurance Company, finding that it did not act in bad faith when it disputed the amount of available underinsured coverage. In Wilt v State Auto Mut. Ins. Co., (Nos. 97-2726 and 98-2403, 4th Cir., filed January 18, 2000), State Auto disputed the plaintiffs� attempt to stack UIM coverage.

State Auto denied that stacking was available. However, case law in West Virginia changed during the pendency of the Wilt claim and State Auto changed its coverage decisions after changes in the law while pursuing a declaratory judgment action. The plaintiffs argued that their $50,000.00 policy limits could be stacked -first to $200,000.00 and later to $400,000.00 or $1.2 million. The U.S. District Court for the Northern District of West Virginia, however, found that State Auto made every reasonable effort to keep up with the changing landscape of UIM law in West Virginia and found that because the law was in a state of flux, State Auto did not commit bad faith. This ruling was affirmed by the Fourth Circuit.

With respect to the plaintiffs� claim for attorney�s fees, the Fourth Circuit found that the plaintiffs did not "substantially prevail," finding that the declaratory judgment action� not the tort claim� was the critical inquiry as to whether the plaintiffs "substantially prevailed."

The plaintiffs, however, argued that the doctrine of "substantially prevailed" should attach to the tort action because they received an excess verdict. The Fourth Circuit held that taking into account the negotiations from the time of the accident through the trial Court�s decision as to the amount of policy limits, particularly in light of the plaintiffs� demand which was five times higher than the trial Court�s determination as to the limits of coverage, was not an indication that the plaintiffs had "substantially prevailed."

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MINERAL COUNTY JURY AWARDS $30 MILLION

On June 1, 2000, a Mineral County jury awarded $30 million in damages in a "bad faith" suit against People�s Security Life Insurance Company and Monumental Life Insurance Company. The case centered around actions of an agent concerning the payment of life insurance policy premiums. From 1992 to 1995, the Plaintiffs paid monthly premiums of $98.00 on four life insurance policies. The agent visited the Plaintiffs� home each month to collect premiums. At times the agent directed the Plaintiffs to draft checks payable to the agent personally and in instances when the Plaintiffs had insufficient funds to pay premiums it was alleged that the agent advised the Plaintiffs they could and should borrow monies against the policies. The Complaint also alleged that on various occasions the agent forged or caused to be forged the signature or one or both of the Plaintiffs on applications, loans and presented demands for premium and/or loan payments which the Plaintiffs never applied for or requested. These acts were further aggravated by the acts of the insurance carrier concerning discovery after suit was filed.

Four years after suit was filed, the Circuit Court of Mineral County entered an Order permitting the Plaintiffs to amend their Complaint to name Monumental Life as an additional Defendant and found that People�s Security had been "extremely dilatory" in responding to discovery requests and in designating a corporate representative and limited the testimony which the defense witnesses could present. Several months later, the Circuit Court heard the Plaintiffs� second Motion to Strike pleadings. During that hearing, the Court found that the Defendants� 30(b)(7) witnesses "knew little or anything about contacts between Plaintiffs and Defendants, did not have specifics about how [the agent] was paid, had no file on the case and did not even know who owned the company." More troubling, one of the 30(b)(7) witnesses admitted during his deposition that he had maintained an investigative file on the matter which contained notes of conversations with one of the Plaintiffs and other documents. One of the 30(b)(7) witnesses testified that a supervisor ordered the file destroyed after suit was filed.

As a result the Court entered sanctions finding that the Defendant�s failure to properly participate in discovery "has been due to willfulness, bad faith and fault of the Defendant and not an inability to comply and further finds that the extreme conduct of the Defendant justifies the extreme remedies sought." Thus, the Court granted the Plaintiffs� Motion to Strike pleadings and entered default judgment on liability and punitive damages. The Court�s Order reads:

This insurance company has arrogantly thumbed its nose at the Court, their former policyholders and their counsel. The Court in making this ruling is also exercising its inherent power to assure fairness in judicial proceedings and is hoping to deter such arrogant conduct by other Defendants in the future.

The case then proceeded to trial in June. At the end of the evidence the jury was directed that liability had been determined and that the jury was only to determine the amount of compensatory and punitive damages. The jury returned a verdict of $150,000.00 in compensatory damages, $5 million for embarrassment, aggravation and inconvenience and $25 million in punitive damages.

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CAPTIVE LAW FIRMS APPROVED IN WEST VIRGINIA

The West Virginia Lawyer Disciplinary Board has approved the use of "captive law firms" by insurance carriers. The Board found that representation by in-house counsel is acceptable but noted the potential for conflict is "significant enough" to set forth guidelines that lawyers employed by the insurance carrier must follow. Those guidelines include:

1) The lawyer and the insurance company must act according to the principle that the attorney represents the insured not the insurance company;

2) Client files must be maintained as confidential and lawyers may provide information needed by others outside the firm only in summary form. The Board specifically found that client files are not the property of the insurance company and the captive firm must take responsibility for the files and their confidentiality equal to that of a private law firm. Should a captive firm cease functioning, the Board requires the managing attorney to oversee the "proper transfer or disposal of client files in accordance with the Rules of Professional Conduct." Under no circumstances may the client files be transferred to the insurance company, but rather must be handled by a licensed member of the West Virginia State Bar;

3) A lawyer in a captive law firm must be willing to write a Shamblin letter to the carrier when circumstances would require it and must exert professional independence in all actions; and

4) The firm must disclose its affiliation with the insurance company on its letterhead, business card, phone book identifications, phone answering methods, office entrances and pleadings and must explain the relationship to each client. The only exception is a pleading or communication which may be submitted to a jury.

The Board found that if a carrier engages in policies or practice that discourage or reasonably tends to discourage an attorney from fulfilling his or her duties under the Rules of Professional Conduct, employment by a captive law firm may constitute a per se violation of the Rules of Professional Conduct. The Board concluded that a reasonable insurance company is expected to adopt written policies to protect its attorney employees from any conduct that which might discourage them from complying with their duties and responsibilities under the Rules and must provide a reasonable and meaningful grievance procedure.

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HERTZ QUALIFIES AS "INSURANCE COMPANY" FOR NON-RESIDENT DRIVERS

Self-insured automobile rental companies now fall within the definition of an "insurance company" for purposes of accepting service of process for nonresident drivers. In answering a certified question from the U.S. District Court for the Northern District of West Virginia in Korzum v Yi, (No. 26634, W.Va., filed May 5, 2000), the West Virginia Supreme Court of Appeals held that the definition of an "insurance company" in West Virginia Code �56-3-31(h)(7) includes entities such as self-insured automobile rental companies.

The case arose following a 1995 accident in Morgantown when the defendant was operating a car rented from Hertz. The defendant was a Korean national; the plaintiffs were unsuccessful in their efforts to serve him personally and the Secretary of State was also unsuccessful in an attempt to make service of process by sending the necessary documents to South Korea. Finally, the plaintiffs served Hertz. The statute defines an insurance company as "any firm, corporation, partnership or other organization which issues automobile insurance." The defendant maintained that because Hertz does not issues policies, the rental agency was precluded from qualifying as an insurance company. Justice Scott, writing for the majority, rejected this argument finding that the issuance of insurance policies is not a prerequisite to qualify as a statutory "insurance company."

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INSURERS SUED FOR SETTLING TOO FAST

Historically, insurance companies have been the target of "bad faith" actions alleging that settlements have been too slow. Now a class action has been filed in Connecticut against Nationwide and Progressive Insurance Companies alleging that insurers are paying claims too quickly.

Connecticut�s Department of Insurance has initiated a targeted market conduct examination of Nationwide Mutual Insurance Company and Progressive Northwestern Insurance Company after a suit was filed in New Haven alleging that the carriers are settling med-pay claims too fast. Connecticut has a statute which requires an insurance company to wait at least 15 days before securing a settlement agreement from a claimant. Plaintiff�s counsel have alleged that settling claims as quickly as possible is often in an insurer�s best interest because it helps cut expenses and prohibits accident victims from assessing the scope of their injuries and damages.

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JUDGE CANNOT BE DEPOSED  ABOUT HIS JUDICIAL RULINGS

Judges may not be compelled to testify concerning their mental processes employed in formulating official judgments or the reasons that motivated them in their official acts. The West Virginia Supreme Court so ruled in State ex rel. Kaufman v Zakaib, (No. 27327 W.Va., filed July 14, 2000). Judge Tod Kaufman filed a Writ of Prohibition against Judge Paul Zakaib after a defendant in a divorce proceeding in Judge Kaufman�s Court filed a lawsuit against his ex - wife�s attorney and expert witness and sought to depose Judge Kaufman. The suit against the ex - wife was assigned to Judge Zakaib. Judge Kaufman filed a Motion for Protective Order. Both Kaufman and Zakaib sit in Kanawha County. Judge Kaufman immediately filed a Writ of Prohibition to the West Virginia Supreme Court which granted the Writ finding that Judge Kaufman was not to be deposed.

Judge Kaufman initially argued that he was exempt from deposition as a "highly placed public official." The Court, however, denied this argument finding that while Judges hold special status, they would not be declared "highly placed public officials." Rather, the Court based its reasoning on the fact that an examination of a Judge would be destructive of judicial responsibility.

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404(b) WITNESSES ON THE INCREASE  Starcher says they�re like a "runaway train"

The West Virginia Supreme Court has again considered the appropriateness of 404(b) witnesses. In State v McIntosh, (No. 26849, W.Va., filed July 12, 2000), the Court considered the introduction of 404(b) witnesses in a sexual assault case and held that while 404(b) witnesses may be introduced, their testimony must be for the limited purpose of demonstrating evidence of other crimes, wrongs or acts to demonstrate proof of motive, opportunity, intent, preparation, plan, knowledge, identity or absence of mistake or accident. Furthermore, it is incumbent upon the party offering the prior bad act testimony to identify the specific purpose for which the evidence is being offered and the jury must be instructed to limit its consideration of the evidence to only that purpose.

While this issue is most routinely presented in criminal cases, it has now become an issue in insurance "bad faith" cases where plaintiffs attempt to introduce testimony of prior claimants, plaintiffs� counsel or others to demonstrate prior bad acts of the insurance carrier, presumably to demonstrate a general business practice. The McIntosh Court specifically noted that other bad act evidence must involve substantially similar conduct, in similar locations, under similar circumstances employing similar methods. In his dissent, Justice Starcher expressed his concern over the use of 404(b) witnesses analogizing the use of such witnesses to a "runaway train."

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ATTORNEY�S FEES AWARDED TO CARRIER

An insurance carrier which prevailed in proving that its insured committed arson has been awarded its attorney�s fees and costs by the U.S. District Court for the Southern District of West Virginia. In Ohio Farmers Ins. Co. v McKean, (Civil Action No. 2: 97 - 1120, S.D.W.Va., filed November 5, 1999), Judge Copenhaver found that Ohio Farmers prevailed when a jury rendered a verdict finding that the insureds caused a fire at their home. The jury also found that the defendants intentionally concealed or misrepresented facts and circumstances or made false statements or engaged in fraudulent conduct relating to their claim for insurance coverage.

The Court found that the defendants� conduct amounted to "bad faith" or fraud and therefore awarded Ohio Farmers its attorney�s fees and costs. The Court found that the West Virginia Supreme Court has not addressed this issue but that the State Court has permitted prevailing litigants to recover attorney�s fees when the opposing party has acted in bad faith. Fraud, the Ohio Farmers Court held, specifically falls within the "bad faith" exception to the general rule that each litigant bears his or her own attorney fees. During a subsequent hearing, the Court reviewed billing entries of Ohio Farmers counsel and other costs incurred during the litigation and awarded fees and costs in the amount of $63,807.98.

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ANTI-STACKING LANGUAGE UPHELD AGAIN

The West Virginia Supreme Court of Appeals continues to uphold anti-stacking language in underinsured motorist endorsements. In Cupano v West Virginia Ins. Guaranty Assoc., (No. 26650, W.Va., filed June 14, 2000) and Iafolla v Trent & Travelers Ins. Co., (No. 26558, W.Va., filed June 23, 2000), the Court found that a general policy discount satisfies the requirement of Miller v Lemon, 194 W.Va. 129, 459 S.E.2d 406(1995), of demonstrating a multi-car discount thus making anti-stacking language enforceable. The plaintiffs in Cupano and Iafolla argued that because the declarations sheet did not specifically show a multi-vehicle discount, specifically with respect to UIM coverage, that anti-stacking language should be nullified. In both instances, however, the Supreme Court disagreed. Justice Starcher filed a dissent in Iafolla arguing that the case should be remanded to the Circuit Court to make specific findings as to whether the insured was apprised of the anti-stacking language when the policy was purchased. In Iafolla, Travelers submitted an uncontroverted affidavit concerning the premium reduction for the multi-vehicle discount. This, however, did not satisfy Justice Starcher who argued it was unfair that Travelers filed an affidavit after the loss finding that an "after the fact" affidavit that "magically appears during the course of a lawsuit well after a policyholder has made a claim, is insufficient alone to support the enforceability of a policy exclusion."

Writing for the majority in Cupano, Chief Justice Maynard held that in order to show a multi-car discount on the total policy premium an insurer does not have to show that the discount was applied to the aggregate of the premium on all coverages. So long as the carrier can demonstrate a multi-car discount on at least one of the coverages so that the insured pays less for a multi-vehicle insurance policy, the anti-stacking language is enforceable. Justice Starcher filed essentially the same decent in Cupano.

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WEBSITE MAY CONFER JURISDICTION

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PLAINTIFFS LOSE MARBLES AND BAD FAITH ACTION AGAINST ALLSTATE

Martin & Seibert, L.C. in July received a defense verdict in a first party bad faith suit that has garnered attention from national media outlets, including Mealey�s Litigation Report, a leading publication in the field of insurance bad faith.

Allstate Insurance Company was named in the lawsuit brought by two West Virginia brothers whose marble collection was scattered over a Kansas highway after their pickup truck was involved in traffic accident.

Martin & Seibert shareholders E. Kay Fuller and Dale A. Buck convinced a Monongalia County Circuit Court jury that Allstate had not acted in bad faith or violated the West Virginia Unfair Trade Practices Act by paying the homeowners contents policy limits of $43,400.00 for the marbles.  Edward and Edwin Dulaney had testified that the 80-gallon marble collection, which they had scavenged from a hillside where the manufacturer had dumped them years before, was worth $800,000.  The Plaintiffs also alleged Allstate promised to secure and ship the marbles back to WV, which was denied by Allstate and its adjusters.

They sued Allstate for bad faith and promissory estoppel.  The jury found for Allstate after a four-day trial.

You can read more about this case at mealeys.com.

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DRIVERS INVOLVED IN UM CASES ARE NOT INDEPENDENT WITNESSES

In a case successfully argued by this firm, the West Virginia Supreme Court of Appeals has held that the operator of an insured vehicle which collides with another vehicle is not a disinterested witness who can provide corroborative testimony in an uninsured motorist claim. In Dunn v Allstate, (No. 26433, W.Va., filed December 13, 1999), the Supreme Court expanded the application of the doctrine first set forth in Hamric v Doe, 499 S.E.2d 619(1997), which permitted recovery of uninsured motorist benefits absent physical contact so long as independent third-party evidence establishes a nexus between the phantom vehicle and the insured. Although the Court was willing to expand the Hamric exception, it held that one of the drivers involved in the incident did not qualify as a disinterested witness. Charles Dunn, an Allstate insured, was struck by a vehicle driven by Michael Mace which crossed the center line and hit him. Mace alleged that a John Doe vehicle forced him to cross the center line thus hitting the plaintiff�s vehicle.

The Court easily agreed to expand the Hamric exception to include potential defendants who are taking evasive action to avoid a John Doe driver, finding that the pivotal concern is whether the John Doe vehicle "sets in motion a sequence of events that is found to have proximately caused the accident for which uninsured motorist benefits are being sought." Thus the Court extended the Hamric exception finding it would exist when an insured can establish "by independent third-party evidence that , as a result of the immediate evasive action of a third-party taken to avoid direct physical contact with an unknown vehicle, contact between the third-party�s vehicle and the insured�s vehicle resulted." Having expanded the doctrine, however, the Court held in Dunn that the driver who actually struck the plaintiff�s vehicle was not a disinterested witness. Allstate successfully argued that by shifting liability to the unknown John Doe driver, the defendant could either reduce or eliminate his liability for the accident. In so doing, the driver, "utterly fails to meet the high standards set by this Court in Hamric which demands that the testimony of the corroborative witness must be absolutely and totally independent and reliable." Simply put, the Court held, Mr. Mace�s role in the accident prevented the Court from viewing him as "a witness capable of proffering evidence that is simultaneously free of taint or suspicion."

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COURT REFUSES TO REDUCE VERDICT OR GRANT NEW TRIAL
DESPITE VIDEO TAPE REFUTING PLAINTIFF�S ALLEGATIONS

The West Virginia Supreme Court of Appeals has reinstated a $2.6 million medical malpractice verdict returned in the Circuit Court of Berkeley County. In Gerver v Benavides, (No. 26355, W.Va., filed December 13, 1999), the Circuit Court vacated the verdict when the defendant provided a video tape with post-trial motions arguing that newly discovered evidence demonstrated fraud and misrepresentation by the plaintiff who alleged that he was in debilitating pain following a vasectomy performed by the defendant physician. The video tape showed the plaintiff engaging in a variety of non-strenuous activities. Upon reviewing the tape the Circuit Court found that it amounted to "proof of misrepresentation and sufficiently calls into question the credibility of the plaintiff as to merit a new trial in the interest of justice." The Supreme Court, however, reversed finding that the Circuit Court�s conclusion that the surveillance tape discredited and impeached the plaintiff�s testimony was an improper basis for setting aside the verdict because Rule 60(b)(3) of the West Virginia Rules of Civil Procedure requires proof of intentional deception or misrepresentation by "clear and convincing evidence." The Court also found that the trial Court should have granted an evidentiary hearing to the plaintiff to refute the tape or allegations made by the defendant in post-trial motions.

The Court also overturned the Circuit Court�s granting of a new trial based upon its finding that the plaintiff had failed to prove lost future earning capacity, holding that the plaintiff introduced evidence through his physician such that a jury could find that the plaintiff suffered from a permanent injury which would then permit the jury to determine lost future earning capacity.

Finally, the Court refused to reduce the verdict to the $1million cap under West Virginia Code �55-7B-8 finding that the defendant had failed to preserve as error the trial Court�s combination of instructions and verdict form with respect to general and special economic type damages. The Circuit Court had instructed the jury it could return a verdict for "general damages" defined as future medical expenses, past and future physical pain and suffering, loss or impairment of future earning capacity and benefit and loss of capacity to enjoy life and to function as a whole man. The verdict form contained only one line for the jury to assess general damages to which the defendants did not object. The Court held that when a litigant seeks to make procedural distinctions between special and general damages, the litigant bears the burden of insuring that the Circuit Court distinguishes between the type of damages on the verdict form. W.Va. Code �55-7B-8 provides a $1,000,000.00 cap for general damages. However, finding that the defendants did not object to the merging of instructions in the verdict form combining the two types of damages, the Court would not presume that error occurred.

Justice Maynard dissented holding: "God forbid that a trial actually be a search for the truth!" Justice Maynard accused the majority of manipulating "arcane points of law to reinstate a verdict in excess of $2,000,000.00 to a plaintiff who most likely is perpetrating a fraud on the trial Court."

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STUDY SHOWS CLAIMANTS GET HIGHER SETTLEMENTS WITHOUT ATTORNEYS

Considerable media attention has been focused recently on programs of insurance carriers attempting to settle claims without the involvement of attorneys. The Insurance Research Council has recently conducted a study which concludes that auto insurance claimants who hire attorneys are less satisfied with the total settlement dollars received. The I.R.C. study further concludes that represented claimants net fewer dollars on average then non-represented claimants. The study entitled Paying for Auto Injuries: A Consumer Panel Survey of Auto Accident Victims, was based on the report of nearly 6,000 persons who were injured in auto accidents in the past three years. The Council conducted similar studies in 1977, 1986 and 1992. The latest study also concludes that claimants who hire attorneys experience higher average medical wage and other expenses while paying an estimated 32% of their gross settlements in legal expenses. Non-represented claimants received on average $832.00 more than claimants who were represented.

Elizabeth A. Sprinkel, Senior Vice-President of I.R.C., has stated: "Even when multiple sources of recovery are considered, represented claimants still net fewer dollars compared to non-represented claimants." The study also shows that represented claimants experience longer delays in receiving settlements.

The study has also demonstrated that auto injuries are becoming less severe. Claimants are reporting fewer serious injuries, less hospitalization, less absence from work and decreased medical treatment when compared to the 1992 and earlier studies.

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INSUREDS NOT RELEASED IN INTERPLEADER ACTIONS

In a case of first impression, the West Virginia Supreme Court of Appeals has held that a plaintiff is not restricted from pursuing suits against an alleged tortfeasor personally despite receiving proceeds from an interpleader action. In Oak Cas. Ins. Co. v Lechliter, (No. 26208, W.Va., filed December 3, 1999), the Court held that interpleader actions filed by insurance companies do not foreclose the possibility that claimants may also proceed against the tortfeasor individually and held that it was error for the Circuit Court to require the claimants to release the insured when her insurance carrier filed an interpleader action.

The issue arose after an Oak Casualty insured was involved in a multi-vehicle accident. Oak Casualty interplead the $40,000.00 liability policy limits. Two of the four claimants signed Releases when they obtained their portion of the liability proceeds. The other two claimants, the insured�s minor children, refused to provide a Release to their mother. The Circuit Court of Mineral County ordered the minors to provide a Release to the insured. On appeal, however, the Order was reversed. The children alleged that their mother, unemployed and now without transportation, may later become employed, inherit assets or win the lottery and that it was therefore prejudicial to their interests to foreclose a potential source of recovery in the future.

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BAD FAITH EXPANDED IN WEST VIRGINIA AGAIN

The West Virginia Supreme Court continues to expand the application of the Unfair Claims Settlement Practices Act and has held that it applies to an insurance policy that provides an insured with life insurance annuities. American United Life Insurance Company, through a master annuity contract with the West Virginia Hospital Association, contracted in 1971 to provide insurance annuities for pension plans of hospitals throughout West Virginia. Stonewall Jackson Memorial Hospital participated in the contract. A dispute arose in 1995 when the hospital attempted to withdraw its $5.25 million in contributions to the group plan. The insurer withheld penalties as per an amendment to the plan made after the hospital began making contributions. As a result, the hospital sued alleging breach of contract and "bad faith." Summary judgment was thereafter granted to the insurer on the "bad faith" count and a verdict of $252,000 was awarded on the breach of contract count.

Summary judgment, however, was overturned by the West Virginia Supreme Court in Stonewall Jackson Memorial Hospital v American United Life Ins. Co., et al, (No. 25832, W.Va., filed December 6, 1999), when the Court found that the master annuity contract was a policy of insurance subject to the Act.

However, the Court found that the hospital failed to meets its burden of proving a general business practice on the part of the insurer of violating the Act and held that the Court�s award of summary judgment was appropriate on those grounds. The Court�s opinion also references in a footnote cases involving the defendant insurer from other jurisdictions which also implicitly states that such information outside of West Virginia may be relevant, therefore, discoverable, which would obviously impose a significant financial burden upon insurance carriers in discovery to produce such information. The opinion is silent as to whether the plaintiff acquired the information about other cases from independent sources or whether the Circuit Court had ordered the production of such information by the defendant. This firm successfully argued that discovery of claims in other jurisdictions is overly broad, irrelevant and financially burdensome. We have also argued that such discovery is unconstitutional and violative of the U.S. Supreme Court�s opinion of BMW v Gore.

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CGL POLICIES NOT EQUAL TO BUILDERS RISK POLICIES - Exclusions Upheld

The West Virginia Supreme Court of Appeals in interpreting a commercial general liability policy of insurance has held that CGL policies do not provide protection for poor workmanship. The issue arose in Erie Ins. Prop. & Cas. Co. v Pioneer Home Improvement, Inc., (No. 26216, W.Va., filed December 10, 1999). A dispute arose when the Erie insured terminated work operations on a customer�s property and the customer refused to pay the balance of the contract. After the insured filed a Mechanics� Lien against the customer, the customer filed a lawsuit alleging breach of contract and slander of title against the insured. The insured sought a defense and indemnification from Erie. Erie was granted summary judgment in a declaratory judgment action and after a verdict was returned against the insured, the insured filed a Motion to Alter or Amend the Judgment on the issue of whether Erie had a duty to indemnify or defend.

The Court reviewed the policy at issue and noted a distinction between an "occurrence of harm risk" and a "business risk." Relying on prior decisions in West Virginia and citing cases from Minnesota, Tennessee and Maine, the Court held that a CGL policy does not insure the work or workmanship which a contractor or builder performs. "They are not performance bonds or builders risk policies," the Court held. Writing for the majority, Justice Maynard stated that CGL policies "insure personal injury or property damage arising out of the work. The �completed operations hazard� coverage applies to collateral property damage or personal injury caused by an occurrence arising out of your work that has been completed or abandoned.�" The Court further held that the products hazard and completed operations provisions of the policy were not intended to cover damage to the insured�s product or work product. Relying upon a ruling of the Supreme Court of New Jersey, the Court summarized holding that CGL policies do not provide protection for poor workmanship; instead, the policies protect an insured from liability due to personal injury or property damage to others caused by the insured�s negligence.

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INSURERS MUST NOW DEMONSTRATE "APPROPRIATELY ADJUSTED PREMIUMS" FOR EXCLUSIONS

Insurers must now demonstrate "appropriately adjusted premiums" for exclusions in insurance policies. Upon rehearing, the West Virginia Supreme Court in Mitchell v Broadnax, (No. 25539, W.Va., filed February 18, 2000), held that Anthem Casualty could not rely upon its "owned but not insured" exclusion unless it could demonstrate that a premium adjustment had taken place.

Initially, the Court upheld summary judgment to the carrier due to the exclusion above the financial responsibility mandatory minimum of $20,000. The cases arises from a wrongful death action in which the Plaintiff was a passenger in a vehicle she jointly owned with the driver which was insured by Kentucky National. The plaintiff had a separately owned vehicle insured by Anthem. The defendant was uninsured. After receiving UM limits from Kentucky national, the plaintiff sought additional proceeds from Anthem. Anthem, however, denied coverage relying upon its exclusion.

The Court first issued an opinion July 16,1999 upholding the exclusion. However, in his dissent Justice Starcher argued that owned but not insured exclusions in UM policies should be deemed "totally invalid under West Virginia law." Upon rehearing, the Court held that the exclusions valid and enforceable above the mandatory limits of UM coverage but only if the carrier can demonstrate an "appropriately adjusted premium."

The Court also cautioned the West Virginia Insurance Commissioner "to be ever watchful for exclusionary language that could prevent an insured from appreciating the true measure of coverage afforded by his/her policy of insurance." and charged the Commissioner "to be ever vigilant in safeguarding the rights of insurance consumers."

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WRONGFUL DEATH BY SUICIDE A NEW CAUSE OF ACTION

The West Virginia Supreme Court has created a cause of action for wrongful death by suicide against those who may have a duty to prevent the suicide. In Moats v Preston County Commission, (Nos. 25829 and 25830, W.Va., filed July 15, 1999), a suicidal patient ingested bathroom cleaner at the Preston County Sheriff�s Department and died eight months later. The patient�s father filed a wrongful death action against the County Commission and Valley Comprehensive Community Health Center, Inc.

Answering four certified questions from the Circuit Court of Preston County, the Supreme Court held that recovery for wrongful death by suicide may be possible where the defendant had a duty to prevent the suicide from occurring. In order to do so, the plaintiff must prove a relationship between the defendant and the decedent giving ruse to a duty to prevent the suicide. This relationship will be found, the Court held, when one party knows the other is suicidal and is placed in the "superior position of caretaker of the other who depends upon that caretaker either entirely or with respect to a particular matter." What constitutes "a particular matter" was not defined by the Court.

Obviously, this new cause of action will cause heightened responsibility on the part of health care providers, particularly in the mental health field and may impact upon insurance coverage.

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WARRANTY CONTRACT CONSTRUED AS AN INSURANCE POLICY

The West Virginia Supreme Court of Appeals has held that a service contract offering a warranty is a policy of insurance and therefore the company offering the service contract is liable for "bad faith" under WV Code �33-11-4(9). In Riffe v Home Finders Associates, Inc. et al., (No. 25178, W.Va., filed June 25, 1999), the Court held that a warranty issued by Home Security of America, Inc. was a contract of insurance because it undertook to indemnify a buyer for defects in goods or properties sold. Writing for the majority, Justice McGraw held that because Home Security offered insurance, the plaintiffs were" entitled to all the protections afforded to purchasers of insurance under our law."

The case arose after sellers of a home in South Charleston purchased a "home warranty contract" which presumably was to cover repairs to a structure and certain items of personal property located on the premises after sale of real estate by Associated Real Estate agents who are affiliated with Better Homes and Gardens Real Estate Service. The plaintiffs were the purchasers of the home who discovered significant foundation damages within a year of purchasing the home. Their claim to Home Security was denied based upon a pre-existing condition exclusion. Home Security filed a Motion for Summary Judgment after a bad faith/ breach of contract suit was filed, arguing that it sold a service contract not an insurance policy. Justice McGraw, however, disagreed, finding that the plan was a contract whereby one undertakes to indemnify another or to pay a specified amount upon determinable contingencies; thus an insurance contract. As a result, the Court held that the policy offered by Home Security is insurance.

The Court then went on to hold that the doctrine of reasonable expectations would also apply so as to provide a "reasonable interpretation" of the policy at issue. The Court next considered the pre-existing condition exclusion in the policy finding that it was not logical nor "what a reasonable person . . . would have expected the language of their policy to mean." The Court then found that an issue of material fact existed as to what language was presented to the parties before initiating the contract so as to nullify the summary judgment in favor of Home Security. The Court next concluded that there may be a conflict between the master policy and promotional materials, which also creates a genuine issue of material fact.

The Court also overruled any argument that the real estate agent was an agent for Home Security when he sold the plan to the sellers of the property. This the Court easily overruled, finding that WV Code �33-12-23 states that any person who solicits applications for insurance in the State of West Virginia is regarded as an agent of the insurer and not the insured. The Court found that the real estate agent solicited, negotiated and affected the agreement between Home Security and the sellers of the property and in so doing acted as the agent for Home Security. Therefore, statements and representations he made to the sellers and potentially to the buyers would constitute material fact serving as another basis upon which summary judgment must be reversed.

Obviously, this case will have far reaching effects if all warranty or service contracts are to be construed as policies of insurance, thus subjecting companies with such warranty plans to potential "bad faith" exposure.

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COURT ABOLISHES CENTURIES OF LAW

No Distinction between Licensees and Invitees

The West Virginia Supreme Court of Appeals has abandoned decades of law distinguishing the duties owed between licensees and invitees and has now held that landowners or possessors of land now owe any non-trespassing entrant a duty of reasonable care under the circumstances.

In Mallet v Pickens, (No. 25807, W.Va., filed July 11, 1999), the Court went to great lengths to justify an abolition of law with respect to duties owned to business invitees and simple licensees. Previously, business invitees were owed a duty of reasonable care to maintain the premises in a reasonably safe condition. The duty with respect to licensees was less restrictive since licensee go upon the premises subject to all attending conditions. In reviewing a personal action filed between neighbors - licensees-the Court held that the dichotomy is no longer necessary and held that "established" rules must "give way as society progresses."

In determining that the distinction is an outmoded reflection of society�s values that do not comport with notions of fairness, Justice McGraw, writing for the majority of the Court, held that to not overrule the law would stand in the way of "progress." Justice McGraw wrote: "We must now overlook the fact that some of the hoary and �well-established� principles that held sway at the time the common law categories were introduced in the mid-19th Century included slavery and a lack of women�s suffrage, both of which, had they not been abandoned, would to say the least, have had a negative impact on the recent composition of this Court."

Based upon the desire to overturn centuries of law, the Mallet Court held that in determining whether a defendant in a premises liability case has met his or her burden of reasonable care under the circumstances to a non-trespassing entrant, the jury must consider:

1) the foresee ability that an injury might occur;

2) the severity of the injury;

3) the time, manner and circumstances under which the injured party entered the premises;

4) the normal or expected use made of the premises; and

5) the magnitude of the burden placed upon the defendant to guard against injury.

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NEW CAUSE OF ACTION CREATED

Medical Monitoring Costs

Now Recoverable Future Damages

The West Virginia Supreme Court of Appeals has created a new cause of action for the recovery of medical monitoring costs when it can be proven that such expenses are necessary and reasonably certain to be incurred as a proximate result of a defendant�s tortious conduct. The issue arose in Bower v Westinghouse Electric Corp. (No. 25338, W.Va., filed July 19, 1999), on certified questions from the U.S. District Court for the Northern District of West Virginia. The plaintiffs alleged they were exposed to toxic substances as a result of debris at a light bulb plant. None of the plaintiffs presently exhibit symptoms of any disease of the alleged exposure. The plaintiffs, however, filed suit alleging inter alia, negligent infliction of emotional distress seeking damages for expenses related to future medical monitoring which will be necessitated by their fear of contracting a disease from exposure to toxic chemicals.

The West Virginia Supreme Court rejected any arguments that the claim for future medical expenses must rest upon the existence of a present physical harm and held that the "injury" underlying a claim for medical monitoring is "the invasion of any legally protected interest." Therefore, the Court concluded that a plaintiff asserting a claim for medical monitoring costs is not required to prove present physical harm resulting from tortious exposure to toxic substances.

The elements to start a claim for medical monitoring expenses are: 1) significant exposure; 2) to a proven hazardous substance; 3) through tortious conduct of the defendant; 4) as a proximate result of the exposure, plaintiff has suffered an increased risk of contracting a serious latent disease relevant to the general population; 5) the increased risk of disease makes it reasonably necessary for the plaintiff to undergo periodic diagnostic medical examinations different from what would be prescribed in the absence of the exposure; and 6) monitoring procedures exist that make the early detection of a disease possible.

The Court held that in proving prong two, the plaintiff must present scientific evidence demonstrating a probable link between exposure to a particular compound and human disease. With respect to the fourth prong, the Court held that the plaintiff is not required to show that a particular disease is certain or even likely to occur as a result of exposure. All that must be demonstrated is that the plaintiff has a significantly increased risk of contracting a particular disease. No particular level of quantification is necessary, the Court held, to satisfy this requirement.

With respect to the necessity of diagnostic testing the Court held that while there must be some reasonable medical basis for undergoing diagnostic monitoring, factors such as financial costs and the frequency of testing should not be given significant weight and held that the subjective desires of a plaintiff for information concerning the state of his or her health is to be considered. Finally, the Court held that a plaintiff should not be required to show that a treatment currently exists for the disease that is the subject of medical monitoring.

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DISCIPLINARY BOARD RULES THAT BILLS SHOULD NOT BE
SUBMITTED TO OUTSIDE AUDITORS

The West Virginia State Bar Lawyer Disciplinary Board has issued an ethics opinion that defense attorneys may not submit billing invoices to outside auditors without consent of the insured.

Legal Ethics Opinion 99-02, issued July 9, 1999, states that the insured is the primary client and the insured�s interests must be protected. Disclosure of billing statements without consent, the Board held, violates the attorney-client privilege. Specifically, the Board found that legal bills "particularly the itemized bills which insurance companies often require, contain information about legal work done for client, and therefore contain information relating to the representation." The Board held that the disclosure of bills to outside auditors, reviewers or similar entities "constitutes a release of confidential information." Looking at the situation from the insured�s perspective, the Board found that submission of bills to outside auditors "does nothing to further the progress of her/her case and the representation."

Bills may still be submitted to auditors, the Board held, but only after informed consent and consultation between the insured and defense counsel. In order to qualify as informed consent, the Board requires" full disclosure" by the lawyer to the insured. This is deemed to include an elaboration on and examples of the type of information which is induced in bills. The lawyer is now required to explain the potential effects, if any, of relating the information to third parties. The Board specifically cited as an example that information on the bill could "correlate to a disputed coverage issue or something detrimental to the insured�s interest." In those instances, the Board advised that the lawyer should advise against the release. The lawyer is also required to "consider any legal consequences to the insured, such as whether the release could waive the attorney-client or work product privileges and should advise the insured accordingly."

The Board further advised that if the insurance company has previously obtained consent from the insured, that the lawyer should nonetheless consult with the insured and should obtain separate consent for the release. Finally, the Board recommended that attorneys request that insurers cease releasing confidential information to third parties.

Many insurance companies have begun to utilize outside vendors to audit legal bills. It is this firm�s position that consistent with this Ethics Opinion, that such activity should cease and that attorneys must consult with each client individually before submitting invoices to the outside agencies. The issue of production of attorney�s bills in "bad faith" litigation has also recently arisen and in light of the Board�s finding that the bills are attorney-client privileged material, such privilege should be asserted with respect to any such discovery requests.

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"BLACK BOX"

 The New "Eyewitness" to Automobile Accidents

General Motors, as well as most other major automobile manufacturers, has developed a new generation of "black box" data recorders for its automobiles. These data recorders, much like the data recorders found on aircraft, record and preserve basic information about the operation of an automobile just prior to an accident.

Most high-end 1999 GM automobiles now have a Sensing and Diagnostic Module (actually housed in a silver box the size of a videocassette under the driver�s seat) which stores information about braking system activation , vehicle speed, engine speed, gas pedal position, seat-belt status, and air-bag deployment for each of the last five seconds before an automobile accident. Other manufacturers have developed similar devices which record similar information.

This information can be downloaded by manufacturer technicians and used to determine a great deal about the circumstances and severity of an automobile accident. Software which allows greater access to the information stored in a automobile�s black box should be available to consumers by the beginning of September 1999, at a cost of a few hundred dollars.

While many automobiles do not have the more sophisticated Sensing and Diagnostic Module developed by GM, at least 6 million automobiles manufactured since 1990 have some version of a black box. Data recorders are an outgrowth of airbag research and development and increased computerization of automobiles. Presently, data housed in an automobile�s braking/ABS computer, traction control/AWD computer, airbag/SRS computer, or on-board navigation/GPS computer may be preserved and retrieved by manufacturers.

As black box technology continues to develop and as access to the information stored in these data recorders becomes more readily accessible, many legal questions will arise. Who owns black box data? How may black box data be used? Is black box data reliable? How can black box data be used to reconstruct an automobile accident? Is black box data admissible in court? Will an expert be permitted to rely on such data? These are just a few of the legal questions that must be resolved.

Undoubtedly, the continuing development of black box technology will have an impact on Martin & Seibert, L.C. and its clients who evaluate and litigate automobile accidents. Black box data could eliminate the need to rely solely upon the testimony of biased parties or witnesses to an automobile accident. It could also eliminate much of the guesswork involved in automobile accident reconstruction.

If you have questions about black box data recorders or how black box technology may impact your business, you may contact any member of the Martin & Seibert, L.C. Litigation Department for more information.

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