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Posts Tagged ‘breach of contract’

Court Rules No Coverage For Pa. Law Firm’s Malpractice Suit

Posted on: November 26th, 2018

By: Barry Brownstein

An insurer does not have to cover a Pennsylvania law firm in a professional malpractice suit that a client filed after the firm allegedly used privileged information to benefit its attorneys’ side business in a real estate development.

The United States District Court for the Western District of Pennsylvania granted Westport Insurance Corp.’s motion for summary judgment in its case against Hippo Fleming & Pertile Law Offices (“HFP”) and attorney Charles Wayne Hippo Jr., agreeing with the insurer that the dispute over a shopping center development was exempted from coverage by the outside businesses exclusion in the firm’s professional liability policy.

Gregory Morris and Morris Development, one of HFP’s longtime clients, alleged that HFP had used information disclosed to the firm under attorney-client privilege to benefit a project by its side businesses, Templar Development and Templar Elmerton. Westport’s insurance policy contained a clear and unambiguous exclusion for lawsuits stemming from any of the policyholders’ outside businesses, and Hippo had not disclosed his involvement in the Templar companies when applying for the policy.

HFP argued that since the underlying lawsuit’s first two allegations of legal malpractice and breach of contract stemmed from the firm’s attorney-client relationship to Morris, Westport had a duty to defend them under the professional liability policy. The court, however, said it was Hippo’s dual role that gave rise to the claims against him.

The court emphasized that the plain language of the complaint in the underlying suit entirely discredits defendants’ argument that counts I and II are based solely on HFP’s role as Morris’s attorney. Counts I and II of the complaint allege that Hippo committed legal malpractice and breach of contract by simultaneously acting as Morris’s attorney and a competing real-estate developer. Therefore, the court held that Westport has no duty to defend because each claim in the underlying suit falls unambiguously within the policy’s outside business exclusion.

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

The Cannabis Industry Takes Another Step Towards Mainstream

Posted on: November 12th, 2018

By: David Molinari

In 1996, the People of the State of California first passed an initiative to legalize medicinal cannabis. The legislature toyed with drafting the statutory framework regulating the medical cannabis industry. Finally, in 2014 the first “legal” medicinal dispensaries began to open throughout the state. The economic impact of medicinal cannabis was so significant that four years later recreational cannabis was overwhelmingly voted into existence. The cannabis industry has elbowed its way to the table claiming a seat alongside tech industry, manufacturing industry and agricultural industry. One tell-tale sign that the cannabis industry has taken steps toward mainstream, its “inventory” is an insurable commodity under a commercial property and general liability insurance policy.

Green Earth Wellness Center operated a retail medical marijuana business and an adjacent growing facility. Atain Specialty Insurance Company issued Green Earth a commercial property and general liability insurance policy. A wildfire broke out and advanced toward Green Earth’s business. Although the fire did not destroy the business, smoke and ash from the fire overwhelmed Green Earth’s ventilation system; causing damage to Green Earth’s marijuana plants. Green Earth made a claim under the policy for loss of its inventory due to the smoke and ash which Atain denied.

Separately, thieves entered Green Earth’s growing facility and stole some of the marijuana plants. Again, Green Earth made a claim under its policy and again Atain denied the claim. Green Earth eventually commenced an action for breach of contract and bad faith. Atain filed a Motion for Summary Judgment raising, among other issues, that in light of federal law and federal public policy, it was illegal for Atain to pay damages to marijuana plants and products. Atain argued that the application of an exclusionary provision in the policy for contraband or property in the course of an illegal transportation or trade requires that coverage be denied; even if the policy would otherwise have provided coverage.

The Court noted that the policy itself did not define the term “contraband.” The Court acknowledged application of federal law, particularly 21 U.S.C. 841(a)(1) that makes possession of marijuana for distribution a federal crime. However, the Court took note that such a federal prohibition has become more “nuanced” as an increasing number of states have enacted regulations for medicinal and recreational cannabis. Enforcement of the Controlled Substance Act in states that have enacted statutes regulating use and distribution is at times ambivalent and erratic. Other than pointing to the federal criminal statutes, Atain offered no evidence that the application of existing federal public policy would result in criminal enforcement against Green Earth. Atain also failed to assert Green Earth’s operations were in violation of state law.

In rejecting Atain’s public policy and illegality defense to coverage for inventory damage, the Court turned to the parties’ intention regarding coverage of Green Earth’s marijuana. The evidence suggested that the parties mutually intended to include coverage for the marijuana plants constituting Green Earth’s inventory. Atain drafted the medicinal marijuana dispensary supplemental application form that asked several questions about inventory: Such as, how much inventory is displayed to customers, how much inventory is kept on the premise during non-business hours and whether the inventory is stored in a locked safe. Before entering the policy, Atain knew Green Earth was operating a cannabis business. Atain knew or should have known at the time of the policy inception that federal law (at least nominally) prohibited such a business; but Atain nevertheless elected to issue the policy and collect premiums.  Atain never sought to disclaim coverage for Green Earth’s inventory before the claims were made. By issuing the policy and taking premiums, it was clear that the carrier would not raise the contraband exclusion to marijuana inventory.

The Court assumed Atain had legal counsel and obtained opinions and assurances from its own legal counsel before embarking on the business of insuring marijuana operations. The Court viewed the case as a breach of contract action. Atain, through its policy, made contractual promises and then breached them refusing to entertain Atain’s argument that the Court must declare the policy unenforceable as against public policy. It was irrelevant under the Court’s analysis that possession and sale of marijuana was a federal crime or that marijuana should under a public policy argument be determined an uninsurable commodity.

The lesson for insurers: the cannabis industry is an expanding multi-billion-dollar industry where entrepreneurs will spend money on insurance premiums to protect its investment and inventory. A carrier entering a policy knowing the insured’s business is cannabis very well may be obligated to cover claims or face the risk of damages for breaching the policy.

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

Non-Disclosure Provisions – Who Is Bound?

Posted on: September 5th, 2018

By: Josh Ferguson

A California Appellate Court recently ruled that the non-disclosure and confidentiality terms of a settlement agreement bind only the parties, and not counsel, unless specifically stated otherwise.

The case involved Monster Energy Company suing Bruce Schecter and R. Rex Parris Law Firm for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) unjust enrichment, and (4) promissory estoppel. Monster Energy Co. v. Schechter, No. E066267, 2018 Cal. App. LEXIS 711 (Cal. Ct. App. Aug. 13, 2018).   Those claims were based on Defendants disclosing terms of settlement to a news outlet in violation of the executed settlement agreement.  Monster pointed out that the plain terms of the settlement agreement bound the attorneys to the confidentiality provision. The Court of Appeal of the State of California, Fourth Appellate District acknowledged “ the confidentiality provisions of the settlement agreement did at least purport to bind the Attorneys.” The terms provided, “Plaintiffs and their counsel agree that they will keep completely confidential all of the terms and contents of this Settlement Agreement … .” They also stated, “Plaintiffs and their counsel of record … agree and covenant, absolutely and without limitation, to not publicly disclose” the provisions of the settlement agreement. Finally, the agreement said, “the Parties and their attorneys … hereby agree that neither shall make any statement about the Action … in the media … .”

However, the court ultimately opined that was not the issue.  They stated the issue is not one of contractual interpretation. A party cannot bind another to a contract simply by so reciting in a piece of paper.  No matter how clearly the contract provided that the Attorneys were bound, they could not actually be bound unless they manifested consent. In this case, that did not happen.

The settlement agreement identified the “Parties” as the Fourniers and Monster. The Attorneys then signed under the words, “Approved as to form and content.”  The signature block identified them as “Attorneys for [the Fournier] Plaintiff[s].” The court went on to say that “The only reasonable construction of this wording is that they were signing solely in the capacity of attorneys who had reviewed the settlement agreement and had given their clients their professional approval to sign it. In our experience, this is the wording that the legal community customarily uses for this purpose.”

The moral of the story is that if you want to bind someone to a provision, you need to get them to explicitly agree to same and require their execution.

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

Insuring Against Rule 68 Offers of Settlement

Posted on: June 28th, 2018

By: Matt Grattan

One tool defense lawyers in Georgia frequently use to induce settlements is an offer of settlement under O.C.G.A. 9-11-68.   Rule 68 allows either party to a tort action to serve a written offer to settle the claim, so long as the offer is made within a certain time and satisfies several other elements under the statute.  If a Rule 68 offer is properly made by a defendant and rejected, that code section allows a defendant to recover its post-rejection attorney’s fees and expenses from a plaintiff in the event the plaintiff does not recover at least 75% of the offered amount at trial.

It is easy to see how the fee-shifting provision in Rule 68 can provide defense attorneys with leverage during settlement negotiations.  Simply put, it forces plaintiffs to put some skin in the game.  Because paying the defendant’s attorney’s fees and costs can significantly reduce or even eliminate a plaintiffs’ award at trial (and in turn a plaintiffs’ attorneys’ fees), plaintiffs may be more inclined to settle rather than face such risks at trial.

The fee-shifting benefit from Rule 68, however, could potentially be diminished by companies like LegalFeeGuard.   Established in Florida in 2012 to combat that state’s offer of settlement statute, LegalFeeGuard has recently started offering insurance policies in Georgia that cover attorney’s fees and costs under O.C.G.A. 9-11-68.  LegalFeeGuard offers no-deductible policies with limits as low as $10,000 and as high as $250,000.   Policies are triggered by a judgment in a bench trial or the return of a verdict in a jury trial, and are available to plaintiffs and defendants for a wide array of cases, including personal injury, breach of contract, and intentional torts.

What does the availability of fee-shifting insurance mean for defense lawyers and their clients?  LegalFeeGuard recently launched in Georgia (and the author is unaware of any other similar companies), so it is tough at this point to determine what kind of impact fee-shifting insurance will have on litigation in Georgia.  But this is certainly a development for lawyers to keep an eye on (particularly since LegalFeeGuard claims on its website to have sold over 1,000 policies in Florida) as such insurance may persuade more plaintiffs to roll the dice and take their case to trial knowing the downside risk of paying fees and costs is reduced, if not altogether eliminated.

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

Devil Wine not a “Peril Insured Against”

Posted on: April 3rd, 2018

By: Eric P. Benedict

A California Appellate Court recently ruled that a wine dealer’s fraud was not covered under a collector’s “Valuable Possessions” property insurance policy after the collector discovered that millions of dollars in “rare” wine bottles were sold to him under false pretenses.  Over several years, David Doyle purchased nearly $18 million in what he believed to be rare, vintage wine from Rudy Kurniawan. Instead, Kurniawan had been selling Doyle his own blend, disguising it as various rare vintages. In 2013, Kurniawan was convicted of fraud and sentenced to 10 years in prison. Doyle was left with a storage facility filled with nearly-worthless wine. Doyle then filed a claim with his insurance carrier under a “Valuable Possessions” policy with a blanket limit of $19 million. In pertinent part, the policy insured against “direct and accidental loss or damage to covered property caused by an ‘occurrence.’” After the carrier denied coverage because there was no covered “loss” under the policy, the collector filed suit against the carrier for breach of contract. Doyle argued that the policy provided coverage for all insurable risks, “whether anything physical happened to the wine or not.” In response, the carrier argued that no “loss or damage to covered property” occurred because the wine was in the exact same condition that it was when it was first insured.

In Doyle v. Fireman’s Fund Insurance Company, the Court of Appeal of California agreed with the carrier and the trial court concluding that Doyle’s claim was not covered by his “Valuable Possessions” property insurance policy because the wine did not sustain any physical loss or damage. After noting that valuable goods such as rare wine were otherwise covered under the policy, the Court explained that the fraud was not a “peril insured against” under the policy. In the Court’s words, “the wine collector is stuck with the devil wine without recompense. A Shakespearean tragedy, to be sure.”

The Court of Appeal of California explained that because property insurance is, by definition, insurance of property, the “threshold requirement for a recover under a contract of property insurance is that the insured property has sustained physical loss or damage.” The Court reasoned that in the property insurance context, the word “loss” does not include claims where the insured “merely suffers a detrimental economic impact.” According to the Court, under the terms of the policy, the carrier was not insuring Doyle’s financial health or his unrealized expectations about the “vintage” wine he had amassed. The Court went on to explain that when the Doyle purchased the wine, it was already counterfeit and it remained counterfeit from the day he insured it through the day he filed his claim. Thus, no loss had occurred.

The Court then clarified that while diminution in value may be a measure of loss in the property insurance context, it is not a covered peril in and of itself. This case highlights the important distinction between covered property and covered perils in the property insurance context. While Doyle sought to insure his property against some perils, such as theft, abnormal spoilage, or fire, he was not covered by his property insurance for Kurniawan’s fraud or Doyle’s own failed investment. While Doyle claimed that the absence of a fraud exclusion in the policy evidenced coverage, the Court noted that it did not need to analyze the absence of a fraud exclusion, because the collector failed to carry his initial burden of showing that the occurrence was within the basic scope of insurance coverage.

With sympathy for consequences of Kurniawan’s actions, the Court quoted Shakespeare’s Othello and reminded Doyle that “the robbed that smiles steals something from the thief.”

If you have any questions or would like more information, please contact Eric Benedict at [email protected]