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Archive for October, 2018

The Bad Faith Trap: Evidentiary Concerns In Defending “Failure To Settle” Claims

Posted on: October 19th, 2018

By: Phil Savrin

It is commonly known in our industry that even an insurer that has accepted coverage for a liability claim can nevertheless be exposed to liability beyond the limits of the policy if it fails to settle the claim. The reason for this rule is that an insurer’s contractual agreement to protect the insured’s financial interest extends to safeguarding the insured from a judgment outside the monetary coverages of the policies. Many courts hold that the insurer cannot “gamble” with the insured’s money, which it could be doing in circumstances where the liability exposure exceeds the limits of the policy. As with many such aspirations, however, the devil is in the details in terms of how the rule is applied.

The easy case is where the insured is clearly liable for the claim asserted and the damages clearly exceed the limits of the policy. In that circumstance, it is only a matter of time before a judgment is entered in excess of the limits of the policy. At the other end of the spectrum, where it is clear that the insured is not liable – or that the damages are clearly within the limits of the policy – the insurer is “gambling” with its own funds and should not be exposed to an extra-contractual claim. The challenging case falls between these two extremes, where a jury is not expected to find liability, or award damages exceeding the policy limits, but might do so.

However the insurer may have gotten there, if it is facing an extra-contractual claim then it is likely that the unanticipated has occurred. For this reason, clever (some might say crafty) attorneys may try to make the offer difficult to accept or may not provide full and complete information, with the goal of setting up the insurer for a bad faith claim down the road or gaining leverage during settlement discussions. This tactic may be employed particularly where the limits are woefully insufficient such that there is no other means of a financial recovery.

To counter these efforts, any demand for policy limits should be regarded as the time bomb that it is. If the decision is made not to accept the demand, an explanation should be provided as to why liability or damages are uncertain as well as coverage concerns that may need to be taken into consideration. If applicable, the response to a demand can include requests for evidence or witnesses to be produced for examination and leave open the possibility of further settlement discussions as the investigation proceeds. The letter should be prepared as though it is being presented to a jury, for that may be precisely its purpose; because hindsight is 20-20, being able to clearly reconstruct the “lay of the land” is critical to defending the reasonableness of the decision at the time it was made in these challenging situations.

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

YMCA Owes No Duty To Provide Or Use AEDs When Renting Field To Private Soccer Club

Posted on: October 17th, 2018

By: Carlos Martinez-Garcia

California’s Fourth District Court of Appeal recently affirmed the trial Court’s order granting summary judgment in favor of the YMCA, disposing of a wrongful death lawsuit involving a patron who died of a heart attack on their property. The appellate court agreed YMCA had no statutory or common law duty to provide or utilize AED devices to an adult experiencing cardiac arrest, when that adult is a permissive user of the facility whose independent soccer club rented an outdoor portion of YMCA’s soccer field.

Decedent Mr. Adeal Jabo was a member of a private soccer league (“The League”) which rented the YMCA’s enclosed soccer field independent of the YMCA’s memberships. The YMCA had defibrillator AEDs on its premises and regularly took AEDs to YMCA-led sport events, however, it did not bring AEDs to the League games since the games were independent of the YMCA. Mr. Jabo experienced cardiac arrest after a League game, later dying from the attack. Mr. Jabo’s on site medical care was limited to CPR despite AED devices available at the front desk of the YMCA.

The presence and use of AEDs at facilities are governed by CA Health & Safety Code section 104113 and Civil Code sections 1797.196 and 171421. “Health Studios” are required to acquire, maintain and train personnel on the use of AEDs.

Although the Appellate Court held the YMCA was a “health studio” towards its members, in this case it was renting a field to a nonmember League that did not choose to accept YMCA’s membership or regulatory practices. The Court narrowly construed the statutory language that imposes duties on Health Studios to its members. Consequently, the YMCA did not bring itself within the statutory definitions and duties applicable to “health studios” that are required to supply AEDs to ensure the safety of its members.

Next, the Court looked at Civil Code 104113, which outlines duties related to AEDs, and also grants immunities for not only the use of AEDs, but also their nonuse. The Court held that as a matter of law, Civil Codes 1797.196 and 171421 did not impose a duty on the YMCA’s employee to apply and activate an AED given the ‘nonuse’ portion of the statute, even though the YMCA had an AED on site to promote the safety of its members and other patrons on site.

Lastly, the Appellate Court determined that the YMCA had no common law duty to supply and implement an AED, because it did not take any action to increase risk of injuries to the Soccer League members, and the YMCA merely rented a portion of its property for the League’s independent use. Imposing a common law duty on the YMCA would improperly broaden the Legislative’s intent.

If you have any questions or would like more information, please contact Carlos Martinez-Garcia at [email protected].

Women On Board

Posted on: October 16th, 2018

By: Rebecca Smith

Nearly one-quarter of California-headquartered publicly held domestic or foreign corporations have no female directors.  No later than the close of the 2019 calendar year, those companies will need to add at least one.  Senate Bill 826 (SB 826) signed by Governor Brown on September 30, 2018 has mandated this change.  And, if the board of directors of a corporation is larger than four board members, the required number of women on the board increases.  If the number of directors is six or more, the corporation must have a minimum of three directors, if the number of directors is five, the corporation shall have a minimum of two directors.  Corporations will be allowed until the close of the 2021 calendar year to add the additional female directors beyond one.

There is a strong likelihood that this new law will be challenged in the courts.  The first argument being made is that the law will displace an existing member of the board of directors solely on the basis of gender.  The new law has attempted to address this by indicating:  “A corporation may increase the number of directors on its board to comply with this section.”  The argument being made is that the law focuses too narrowly on gender instead of other aspects of diversity, including race and sexual orientation.  The government may have to prove not only that there is disparity in board representation among men and women, but also that such a divide is a sufficient reason to create a special law for women.

The other issue in the forefront is to which companies the law will apply.  While the statute provides that the companies will be determined by the location of the principal executive offices according to the corporation’s SEC 10-K form, challenges are being made that the law should not apply to businesses headquartered in California, but incorporated elsewhere.  The new Section 2115.5 of the Corporations Code has attempted to address this issue by indicating that the new requirements shall apply to a foreign corporation that is a publicly held corporation to the exclusion of the law of the jurisdiction in which the foreign corporation is incorporated.  That being said, the “internal affairs doctrine” may provide a basis for the challenge.  The internal affairs doctrine, a choice of law rule in corporation law, provides that the internal affairs of a corporation will be governed by the corporate statutes and case law of the state in which the corporation is incorporated.

So what happens if a company does not comply:  A fine of $100,000 for a first violation, and a fine of $300,000 for a second or subsequent violation.  For purposes of imposing the fine, each director seat required by the section to be held by a female, which is not held by a female during at least a portion of the calendar year is considered a violation.  For the time being, California companies with their principal executive offices in California should start to think about how to comply with the law by the end of 2019 and stay tuned for any changes.

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

An Examination of the Interpretation of Free Recreation

Posted on: October 15th, 2018

By: Kevin Stone

In Georgia, if property is open free of charge for recreational purposes, the landowner is normally immune from liability for injuries occurring on the property.  A court can decide this as a matter of law without sending the case to a jury.  When sales occur on such property, however, a court may require a jury to decide whether the property’s use is “purely recreational,” rather than commercial.  This creation of a jury issue exists even if the sales are by private vendors and the landowner receives no payment.

For example, the Court of Appeals recently found that a free concert—at which concert-goers had the option of buying concessions from outside vendors (that did not pay the property owner), and where the event may have created a marketing benefit for the landowner—was considered to have both recreational and commercial purposes.  The result being that a jury, not a judge, had to resolve the issue of the property owner’s primary purpose for the property.  This interpretation of the law allows a commercial classification even though property is open for free for recreation.

This seems at odds with the purpose of the Recreational Property Act: “to encourage property owners to make their property available to the public for recreational purposes.”  In a concurrence, Chief Judge Dillard made the keen observation that a fair interpretation of the Act strongly suggests that the only relevant economic consideration is whether an admission fee is charged.  In such a case, the immunity would apply.

The Georgia Supreme Court has decided to weigh in and granted certiorari on these issues.  The Court’s examination will provide clarification for landowners who allow free access for recreation but also allow the public the option of making purchases.  We will continue to follow this case and keep you updated with the Court’s explanation.

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

Facebook And Association Criticism: How To Address Unfounded Allegations Against An Association And Its Board

Posted on: October 12th, 2018

By: Jonathan Romvary

How far can a Board go in fighting against what they believe is unfair homeowner criticism? Can they publish a formal response to unfounded allegations? How should Associations address online criticism on unofficial Facebook groups created by dissatisfied homeowners?

These issues were partially addressed in a recent unpublished California Appeals Court decision in Kulick v. Leisure Village Association (2018). Kulick involved two consecutive lawsuits between a homeowner who was anonymously publishing an unofficial newsletter that was highly critical of his Homeowner’s Association, the Association’s Board and its attorneys. Unfortunately for the homeowner, the HOAs rules specifically prohibited the dissemination of anonymous publications to the Association’s members and the Association successfully filed suit against the homeowner for breaching the Association’s covenants, conditions and restrictions (CC&Rs) and was awarded more than $125,000.00 including punitive damages.

After losing his appeal, and apparently not learning from the prior lawsuit, the homeowner began republishing his anonymous newsletter criticizing the Association’s Board, this time asserting that the Board and its officers committed perjury, extortion, obstruction of justice, racketeering, and lying and cheating. The Association’s attorneys responded to the most recent allegations by distributing an official letter to all of the homeowners addressing the allegations as a “reckless communication” containing “unfounded, inaccurate, and spiteful allegations” against the Association and detailing the prior lawsuit against the homeowner. Feeling attacked by the HOA, the homeowner filed a lawsuit against the Association for, among other things, defamation. The HOA defended itself saying its actions were protected under California’s anti-SLAPP laws which are designed to protect defendants who have been sued for acts in furtherance of a constitutionally protected right of free speech or petition. The trial court agreed, finding that the Association’s letter constituted “protected activity” as a public writing relating to an issue of public interest to the Association’s homeowners’, i.e. the lawsuit between the Association and homeowner. Ultimately the California Appellate Court upheld the trial court’s ruling.

From Kulick, it is clear that Associations may respond to individual criticisms that are not legally permissible (e.g. false assertions of fact, etc.) and have certain rights against defamation published by its members. However, it remains unclear to what extent Associations can restrict alternative forms of publications, such as Facebook community groups or anonymous Twitter accounts. In the age of Facebook, where publishing and distribution is free and easy, Associations must remain vigilant. False accusations and anonymous publications can cause significant disruption to the operation and reputation of an Association. Associations should be alert for publications containing false assertions or publications that purport to be official communication and should address any statements that defame the association, its board of directors, managing agent, or employees.

If you have any questions on how your Association can be proactive and protect itself against unofficial homeowner publications or would like more information, please contact Jonathan Romvary at [email protected].