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FMG Law Blog Line

Let the Music Play On: The Supreme Court of Georgia’s New Test Regarding Immunity Under the Recreational Property Act

Posted on: August 22nd, 2019

By: Jake Loken

Inviting individuals onto your property can lead to the invitation of a lawsuit. Generally, an individual injured on a landowner’s property could file a lawsuit against the landowner.

In Georgia, the legislature has carved out an exception to this general rule and granted immunity to a landowner when the property is being used without charge for recreational purposes. This immunity comes from the Recreational Property Act, and the Supreme Court of Georgia recently clarified the test to determine if this Act applies.

In Mercer Univ. v. Stofer, No. S18G1022, decided June 24, 2019, the Supreme Court explained the two-part test that should be used to determine if the Recreational Property Act applies. The facts of this case surround the injury and then death of Sally Stofer, who attended a free concert hosted by Mercer University at Washington Park in Macon, Georgia. Sally Stofer slipped while ascending stairs at the park and fell, hitting her head.

Under the Act, “an owner of land owes no duty of care to keep the premises safe for entry or use by others for recreational purposes.” Prior case law, and the lower courts in Mercer Univ. v. Stofer, said the subjective motivation of the landowner when inviting individuals onto their land must be considered when determining whether the invite was for “recreational purposes,” along with whether the landowner would receive an indirect benefit from that invitation.

The Supreme Court stated that those considerations were improper and “the key teachings of our cases can be distilled into a test that is more connected to the statutory text: the true scope and nature of the landowner’s invitation to use its property must be determined, and this determination properly is informed by two related considerations: (1) the nature of the activity that constitutes the use of the property in which people have been invited to engage, and (2) the nature of the property that people have been invited to use.”

The Supreme Court then clarified: “In other words, the first asks whether the activity in which the public was invited to engage was of a kind that qualifies as recreational under the Act, and the second asks whether at the relevant time the property was of a sort that is used primarily for recreational purposes or primarily for commercial activity.”

Any language in prior cases “suggesting that property owners’ subjective motivations may be relevant , . . . [or that the] landowner was motivated by the possibility that it would obtain indirect financial benefits” is relevant, “is disapproved.”

The Supreme Court did not rule on whether Mercer should receive immunity under the Act, but instead, returned the case to the lower court so that court could conduct the newly established two-part test to see if the Act applies to Mercer. Moving forward, the newly established two-part test will be used when determining if the Act applies to grant immunity to a landowner.

If you have any questions or would like more information, please contact Jake Loken at [email protected].

Speak Now or Forever Hold Your Peace: Construction Claim Arbitration and Res Judicata

Posted on: August 20th, 2019

By: Catherine Bednar

The Supreme Court of Connecticut recently affirmed the Appellate Court’s determination that when a property owner and a general contractor enter into binding, unrestricted arbitration to resolve disputes, the subcontractors are presumptively in privity with the general contractor for purposes of precluding subsequent litigation against them. In Girolametti v. Michael Horton Assocs., 332 Conn. 67 (June 25, 2019), Connecticut’s Supreme Court joined other jurisdictions in adopting a rebuttable presumption of privity between general contractors and subcontractors on a construction project in applying the doctrine of res judicata.

The Plaintiffs in Girolametti owned a retail store and hired the general contractor, Rizzo Corporation, to construct an expansion. After completion of the project, Plaintiffs and Rizzo entered arbitration to resolve various disputes concerning the Project, including Plaintiffs’ claims for alleged construction defects and delay and Rizzo’s claims for additional payments owed. Perhaps believing they would fare better in separate litigation, Plaintiffs abandoned the proceedings on the thirty-third day of the arbitration, which concluded two days later, and failed to present their damages claim contrary to the arbitrator’s recommendations.  The arbitrator ultimately entered an award in Rizzo’s favor.

Plaintiffs then pursued two lawsuits against Rizzo and five subcontractors collectively, which focused on the design and construction of the building.  All defendants moved for summary judgment on the grounds that Plaintiffs’ claims had or could have been raised and resolved during the arbitration and were therefore barred. The trial judge granted Rizzo’s motion for summary judgment, but denied the subcontractors’ motions, holding the subs were not parties to the arbitration and not in privity with Rizzo. The Appellate Court reversed and granted summary judgment to the defendants.

In affirming the Appellate Court’s decision, the Supreme Court of Connecticut explained that “[w]hen applying the law to complex endeavors such as large-scale commercial construction, it often is desirable to adopt default rules, whether in the form of legal presumptions or standardized contracts.” The court reasoned the new default rule was an efficient and fair tool for resolving construction disputes.  A presumption of privity makes sense because not only is the general contractor in privity of contract with its subcontractors, but the general contractor is also responsible for the work of the subcontractors.  The court noted that absent a default rule, a property owner could relitigate its failed claims against the general contractor by bringing piecemeal, fact-intensive claims against subcontractors. The court also recognized that the default rule (which parties may contract around if they choose) is beneficial to both property owners and contractors by, resolving all outstanding disputes involving work on a project in the context of an owner-general contractor arbitration.

Having adopted the rebuttal presumption of privity between general contractors and subcontractors for the purposes of res judicata, the court found the facts and circumstances in the Girolametti case did not support an exception to the default rule. The court found the Plaintiffs reasonably should have understood the arbitration with Rizzo was the proper forum for addressing any claims against the subcontractors which were foreseeable at the time. In particular, the court pointed to the parties’ use of a standard form owner-contractor construction contract for their prime contract as evidence of their intent to abide by industry norms, making the general contractor responsible for all subcontractor work not separately contracted by the owner. The contract also contained a broad, unrestricted arbitration provision.

The Connecticut Supreme Court’s decision in Girolametti serves as a reminder to parties engaged in complex construction disputes to carefully consider the scope of their arbitration provisions and evaluate the potential need to add claims and join third parties.

If you have any questions or would like more information, please contact Catherine Bednar at [email protected].

Eastern District of Pennsylvania Finds that School District Immunity does not Extend to Teacher’s Alleged Intentional Torts

Posted on: August 19th, 2019

By: Erin Lamb

An Eastern District of Pennsylvania judge ruled that the Philadelphia School District is immune from a lawsuit wherein a special education student was allegedly choked by his special education teacher. However, District Judge Gerald Pappert also ruled that the plaintiffs, the student and his mother, will still be able to seek punitive damages against the teacher over the allegations.

Plaintiffs allege that in March 2018, a special education teacher grabbed the fifth-grade student by his neck. The teacher was allegedly irate that the student had not put his pencil back in the right place. The Complaint alleges that the teacher choked the student and repeated pushed his head and body against the schoolroom wall, during class, and in front of other students.

The student’s mother sued and has alleged the use of excessive force against her son, deprivation of equal protection, intentional infliction of emotional distress, and assault and battery. She further alleged deliberate indifference by the School District to students’ rights to be free from excessive force because of an alleged failure to adequately train, supervise, or discipline its employees.

Judge Pappert ruled that plaintiffs failed to adequately plead their failure to train claims, and that the school was immune from the intentional infliction of emotional distress and assault and battery claims. Judge Pappert noted that the School District had a policy regarding excessive force that the teacher appeared to have disobeyed and rejected the argument that that immunity extended to the teacher. Plaintiffs’ allegations were sufficient to present a range of punitive damages claims against the teacher under both Section 1983, and the allegations of intentional tort.

Plaintiffs were granted leave to amend the Complaint to attempt “one last time” to allege facts to support her allegations of deliberate indifference against the School District,  but were not granted leave to amend any other claims against the School District.

If you have any questions or would like more information, please contact Erin Lamb at [email protected].

The Complications of Sub-limits in High Exposure Cases

Posted on: August 16th, 2019

By: Phil Savrin

Insurance coverage is essentially the transfer of risks to insurers who have pooled assets through payment of premium to cover liabilities that may arise to the insureds. As the exposures rise in value, the cost of coverage rises to meet the demands of the insurance industry.  Over the years, certain exposures have become increasingly difficult to cover, such as liabilities arising from asbestos, artificial stucco, and so-called junk faxes under the Telephone Consumer Practices Act of 1991. A single lawsuit involving these types of claims can easily exhaust the policy limit in addition to incurring significant costs of the defense.

To remain competitive while also keeping premiums affordable, some insurers offer to cover these types of claims but with a cap on the exposure through a sub-limit.  So, for example, a CGL policy that covers a bodily injury exposure up to $1,000,000 “per occurrence” might provide a reduced limit of $50,000 for a particular exposure such as a claim that involves sexual molestation or abuse. To further control the exposure, the sub-limit often includes defense costs, which could wholly eliminate the sub-limit in a case of significance.

Having a sub-limit can give the insurer an “edge” in resolving high-exposure claims where the proceeds of the policy is essentially the only recoverable asset of the insured. Even where the insured is financially solvent, a sub-limit can protect the insurer from paying more than the amount that went into the calculation of the premium. On the other hand, a sub-limit can create complications when the claimant is unwilling to accept the lower amount of coverage, or when the claimant (and/or the insured) contends that the claim does not fall entirely within the endorsement containing the sub-limit.  Once the defense costs consume the amount, the insurers may then need to determine whether to withdraw from the defense based on the exhaustion of the applicable limit or to continue to defend and consider bringing a declaratory judgment action.

This scenario can present a dilemma for the insurer; withdrawing from the defense could result in an extra-contractual claim, while continuing to defend adds unintended costs especially if a coverage action ensues. These costs may be warranted in light of the exposure presented yet incurring them over and above the sub-limit cuts against the reason for having the sub-limit in the first place.  Similarly, claimants and insureds may incur additional legal costs in litigating the applicability of the sub-limit and add uncertainty to the resolution of the claim.

In sum, although sub-limits help contain costs in high-exposure cases, careful consideration must be given to their enforcement which can present special challenges to claimants, insurers, and insureds alike.

If you have any questions or would like more information, please contact Phil Savrin at [email protected].

Could Facebook’s $5 Billion FTC Fine for Privacy Violations be Covered by Cyber Insurance?

Posted on: August 14th, 2019

By: Isis Miranda

A similar question was posed to me recently at a conference where I was speaking about the GDPR (European General Data Protection Regulation): “Could my company just buy insurance instead of worrying about whether our China-based venders are complying with the GDPR?” The audience chuckled. But the question raises important and complex issues, one of which is whether civil fines are insurable and, more importantly, whether they should be.

Record-breaking fines recently announced by the FTC (Federal Trade Commission), including $5 billion against Facebook and up to $700 million against Equifax, and proposed fines by the ICO (the UK’s Information Commissioner’s Office), including £183 million against British Airways and £99 million against Marriott, combined with the advent on the horizon of the CCPA (California Consumer Privacy Act), a sweeping GDPR-like privacy law, has increased anxiety over the insurability of these fines.

Traditional insurance policies generally do not cover regulatory fines, but many cyber policies do. These insuring provisions, which typically provide coverage for civil fines and penalties levied by any regulator worldwide arising from a data breach “where insurable by law,” have yet to be scrutinized by a court. Uncertainty over whether courts may void these policy provisions as being contrary to public policy prompted the Global Federation of Insurance Associations to request assistance from the OECD (Organisation for Economic Co-operation and Development), explaining that “there is international confusion as to the insurability of fines and penalties” and stating that “OECD work to clarify this issue would benefit consumer and insurer contract certainty.”

Answering this question is no easy task. Starting with the question of whether these fines are insurable, one immediately finds that there are no legislative pronouncements or court decisions addressing the issue in the context of a cyber policy that expressly provides coverage for regulatory fines. And efforts to predict how a court might rule once the issue is raised, as it inevitably will be, are stymied by the disarray of the current case law in the related areas of punitive and statutory damages. This diversity of opinion reflects the complexity of the underlying question – whether such fines should be insurable. Courts struggle with questions, such as who should decide – legislators, judges, insurance companies? And what criteria should be applied in making the decision? Should the decision apply to all civil fines and penalties issued pursuant to a given regulation or should the issue be decided on a case-by-case basis for each violation?

In the U.S. the decisions of courts across the country regarding the insurability of punitive damages are, well, all over the map. These decisions vary in their approach to reconciling the language of the insurance policy at issue with public policy considerations in the approximately 20 states that prohibit insurance for directly assessed punitive damages, including decisions that:

  1. prohibit insurance for punitive damages, even if the policy expressly provides coverage;
  2. prohibit insurance for punitive damages, unless the policy expressly provides coverage;
  3. do not prohibit insurance for punitive damages but do not interpret policies as covering them, unless expressly included; and
  4. do not prohibit insurance for punitive damages and interpret policies as covering them, unless expressly excluded.

It is unclear whether courts will address coverage for fines and penalties in similar fashion. States that do not prohibit punitive damages could, nonetheless, place restrictions on insurance for civil fines and penalties beyond existing limits on insuring intentional conduct. And vice versa. Thus far, a few courts have applied the prohibition on punitive damages to civil fines and penalties without addressing the distinctions between the two. For example, in City of Fort Pierre v. United Fire and Casualty Company, 463 N.W.2d 845 (S.D. 1990), the federal government sued the City of Fort Pierre seeking civil penalties due to violations of the Clean Water Act of 1977. The South Dakota Supreme Court held that the civil penalties were punitive in nature and thus precluded from being covered under the City’s insurance policy. A dissenting justice disagreed, stating: “Before punitive damages may be awarded, malice on the part of the party from whom the punitive damages are sought must be shown. No similar requirement exists for the imposition of the civil penalty. Therefore, the civil penalty the United States sought to have imposed upon the City of Ft. Pierre cannot be equated to punitive damages.” Similarly, in Bullock v. Maryland Casualty Company, 85 Cal. App. 4th 1435 (Ct. App. 2001), the California Court of Appeal held that civil fines are not insurable without addressing the fact that the public policy prohibiting insurance for punitive damages was expressly limited to punitive damages that were assessed upon a finding of fraud, oppression or malice. City Products Corporation v. Globe Indemnity Company, 88 Cal. App. 3d 31 (Ct. App. 1979). It will be interesting to watch how the case law evolves as coverage battles involving cyber policies that expressly provide coverage for fines and penalties percolate through the courts.

Now to the question we started with. Without knowing the contents of Facebook’s insurance policy, we can only speculate as to its terms, including which state’s laws would apply to interpret the policy. But we would not be going out on a limb by saying that the $5 billion FTC fine likely exceeds policy limits. Facebook will not garner much sympathy, given that it inarguably violated the FTC’s 2012 order and can readily afford the $5 billion fine. And there is concern that allowing companies to obtain insurance to cover civil penalties for violating data privacy and security statues would discourage them from making the investments necessary for compliance. But the reality is more nuanced. Small- and medium-sized businesses, in particular, benefit from the data security assessments, cyber risk consulting services, and preferred vendors that are made available by many cyber insurance carriers, which serves to increase compliance with related statutes. See, e.g., Kyle D. Logue & Omri Ben-Shahar, “Outsourcing Regulation: How Insurance Reduces Moral Hazard” (Coase-Sandor Institute for Law & Economics Working Paper No. 593, 2012). These issues will, no doubt, continue to be debated for many years to come.

Amidst all this uncertainty, one thing is sure: the future will be fascinating.

If you have any questions or would like more information, please contact Isis Miranda at [email protected].