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Posts Tagged ‘First Circuit’

First Circuit Affirms Ruling That Third-Party Administrator Responded Reasonably To Settlement Offers Within Policy Limits

Posted on: April 9th, 2019

By: Bill Buechner

We recently posted a blog (see here) concerning an appeal to the First Circuit Court of Appeals from a Massachusetts district court decision finding that a third-party administrator (Sedgwick) did not violate the Massachusetts Consumer Protection Statute, Chapter 93A, or the Insurance Practices Statute, Chapter 176D, even though it did not make any offer to settle a wrongful death claim before trial and did not accept settlement offers within the policy limit for a negligence claim for pain and suffering. Our previous blog noted that the “insurance coverage bar will be paying close attention when the First Circuit issues its decision.” The First Circuit very recently issued its decision affirming the district court’s judgment in favor of Sedgwick. Calandro v. Sedgwick Claims Mgmt. Servs., ___ F.3d ____, 2019 U.S. App. LEXIS 7913, 2019 WL 1236927 (1st Cir. March 18, 2019). Notably, former Supreme Court Justice Souter was on the panel.

In the underlying case, Genevieve Calandro fell from her wheelchair at a nursing home (Radius Danvers) and subsequently died in August 2008 at a hospice facility after being taken to the hospital. The estate filed suit for wrongful death and negligence against Radius and later added as a defendant Radius’s medical director, who was also Calandro’s attending physician. While the underlying case was pending, the estate made settlement offers for $500,000 on October 12, 2011 and November 12, 2013 and for $1 million in April 2014 and July 3, 2014, which was the policy limit for the nursing home’s policy. The most that Sedgwick offered before trial was $300,000, which the estate declined.  The underlying case went to trial in July 2014, and the jury awarded $1,425,000 in compensatory damages and $12,514,605 in punitive damages. The estate then sued Sedgwick to recover these amounts and more. The district court, after a bench trial, concluded that liability was never “reasonably clear” on the wrongful death claim as required by the statute, and that Sedgwick made timely and reasonable offers on the negligence claim for pain and suffering.

Rejecting the estate’s appeal, the First Circuit held that the district court did not clearly err in finding that liability on the wrongful death claim was never “reasonably clear” before trial on the wrongful death claim. The First Circuit noted that an independent adjuster hired by Sedgwick stated in its initial report in October 2011 that the cause of death seemed to be related to ongoing medical conditions and not necessarily Radius’s negligence, but that there were missing documents and witnesses he had not yet been able to locate and interview. Under these circumstances, the First Circuit concluded that it was reasonable for Sedgwick to continue to investigate (which it did) “rather than roll over and concede that Radius’s negligence was the cause of death.” Id. at *13.   The estate argued that liability on the wrongful death claim became reasonably clear in May 2013 when the estate’s expert presented his opinion as to causation. The district court credited the testimony of Radius’s defense counsel, who was retained by Sedgwick, that only an outline of the estate’s expert’s anticipated testimony was provided in May 2013, and that the estate’s expert’s full report explaining his reasoning as to the cause of death was not provided until late April 2014. The First Circuit also emphasized that Sedgwick received a report from its own expert in May 2014 that reached materially different conclusions on the causation issue than the estate’s expert did. Id. at *15. In addition, the First Circuit noted that the verdict form included a question as to causation, which indicated that Sedgwick never conceded the causation issue, and internal Sedgwick correspondence shortly before trial stating that, in light of comorbidity issues often affecting elderly and infirm people like Calandro, “we have a strong argument for causation.” Id. at *16 n.5.

As to the negligence claim for pain and suffering, the First Circuit held that that the evidence supported the district court’s conclusion that Sedgwick conducted a good faith investigation, and noted that Sedgwick retained a qualified investigator almost immediately after it learned of the claim. Id. at *18-19. Furthermore, the First Circuit upheld the district court’s findings that the settlement offers were reasonable and prompt after liability on this claim became reasonably clear in February 2014. On February 6, 2014, in response to the estate’s $500,000 offer made on November 12, 2013, the defendants made a joint settlement offer of $275,000 and indicated that they had “some room to move.” Id. at *5, 20. A day later, defense counsel wrote a report to Sedgwick in which he predicted a verdict against the defendants in the range of $300,000 to $500,000.  Id. at *5. The First Circuit explained that, “especially given the difficulties inherent in placing a dollar value on intangibles such as pain and suffering,” the district court did not clearly err in finding this settlement offer reasonable.  Id. at *20. The First Circuit also noted that the defendants made an offer of $300,000 in May 2014 after the estate increased its settlement demand to $1 million in April 2014, and that Sedgwick made an offer of $250,000 on behalf of Radius a few days before trial.  Id. at *20-21.

Calandro construed a state statute that differs from the common law bad faith failure to settle claim recognized in most jurisdictions,  and it applied a very deferential clear-error review to the factual findings of the district court after a bench trial. Nevertheless, Calandro provides some helpful reminders to claims professionals and attorneys responding to settlement demands within policy limits and defending bad faith failure to settle claims. First, while the facts themselves of course are critical, the procedural steps taken by a claims professional may often be significant as well.  In this case, the First Circuit emphasized the fact that Sedgwick retained a qualified and independent investigator almost immediately after receiving notice of the claim, that the investigator provided his initial report within two weeks raising the causation issue, and that Sedgwick continued to investigate the claim throughout the case. Second, courts will not expect insurers and claims professionals to “roll over” if there is a reasonable defense to liability at the time a settlement offer within policy limits is made or if the evidence available at that time is not sufficiently developed to make a reasonable assessment as to liability. Third, sensitive information such as internal correspondence or emails and reports from defense counsel may become critical evidence in defending a bad faith failure to settle claim. In finding that liability for the wrongful death claim was not reasonably clear, the First Circuit in Calandro cited internal Sedgwick correspondence within a week of trial expressing confidence in the causation defense. The conclusion that Sedgwick’s settlement offers on the pain and suffering claim were reasonable was supported by the fact that its settlement offers were close to or within the verdict range predicted by defense counsel in his report to Sedgwick.

Nevertheless, insurers and claims professionals should recognize that the actions of the third-party administrator in Calandro likely received much more thorough and sympathetic consideration from the district judge who served as the fact-finder than most juries may have provided.

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

First Circuit Court of Appeals to Decide Dispute Involving Handling of Settlement Demands within Policy Limits

Posted on: March 15th, 2019

By: Ben N. Dunlap

A claimant’s demand to settle a case within the limits of a defendant’s liability insurance policy can lead to a variety of outcomes driven by the particular allegations, evidence, liability and damages evaluations, procedural posture, and law of the jurisdiction.

In one case addressing these issues, the First Circuit Court of Appeals is considering arguments that a third-party claims administrator failed to make a reasonable settlement offer when liability became “reasonably clear” in an underlying suit alleging wrongful death and negligence against a nursing home.  In Calandro v. Sedgwick Claims Management Services, the First Circuit recently heard arguments by the estate of Genevieve Calandro, seeking to revive claims under the Massachusetts Consumer Protection Statute, Chapter 93A, and Insurance Practices Statute, Chapter 176D, arising from the settlement of the underlying lawsuit. Sedgwick was the third-party claims administrator handling the estate’s claim against the nursing home. With policy limits of $1 million, in the course of the litigation the estate had made demands of $500,000 (twice) and $1 million (again twice). Sedgwick’s best pre-trial offer was $300,000, which the estate declined.

In 2014, a jury awarded the estate $1.4 million in compensatory damages and $12.5 million in punitive damages. After the trial in the underlying suit, the estate served a demand letter on Sedgwick seeking $40 million under Chapters 93A and 176D, alleging the claims administrator had failed to make a reasonable offer of settlement once liability of the nursing home became “reasonably clear.” Sedgwick offered $2 million in response. The estate then filed suit against Sedgwick in Massachusetts federal court alleging unfair settlement practices in violation of Chapters 93A and 176D.

After a bench trial, the Court concluded Sedgwick did not violate Chapters 93A or 176D because it made two “reasonable” offers to settle the estate’s pain and suffering claims prior to trial, and Sedgwick had no obligation to make an offer to settle the wrongful death claim, because causation was fairly disputed and therefore liability on that claim was not “reasonably clear” at any point in the litigation.

The estate argues on appeal that the trial Court misconstrued the significance and timing of the evidence available to Sedgwick as it was evaluating the underlying case, focusing on a particular expert report disclosed by the estate in 2013. Based on the report, the estate argues liability should have been “reasonably clear” long before Sedgwick made an initial pre-trial offer. Sedgwick argues the Court correctly concluded liability was not “reasonably clear,” in part because the estate’s expert report was not disclosed in full until the spring of 2014.

The insurance coverage bar will be paying close attention when the First Circuit issues its decision.

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

A Series of Particular Events: Foreseeability and the First Circuit

Posted on: February 6th, 2019

By: Thomas Hay

A three-judge panel on the First Circuit denied Omni Hotel’s petition for review of their decision to overturn a lower court ruling that awarded summary judgment to Omni and reinstated a negligence charge filed by a man who was beaten, and his arm broken by a group of individuals in Omni Hotel’s Providence, Rhode Island hotel lobby. The First Circuit held that the development of a particular sequence of events can, without more, render future harm foreseeable.

The First Circuit’s opinion effectively broadened the duty of care imposed on hotels to protect guests and members of the public against spontaneous criminal conduct by a third party.

The plaintiff lived in a condominium complex adjoining the hotel. He had access to and regularly used the hotel’s services and amenities. On the night in question, hotel security had evicted from the premises a group of youths whose partying had caused a disturbance. Some of the evicted group returned outside the hotel with a case of beer and attempted to pick a fight with a passer-by which was seen by the hotel’s valet. A number of the group would later reenter the hotel’s lobby and proceed to beat the plaintiff resulting in the breaking of his arm.

While the lower court found that Omni had a special relationship to the plaintiff, as the “possessor of land that holds the land open to the public/member of the public,” on the issue of foreseeability, the lower court found that the hotel did not have a legal duty to protect the plaintiff from an attack spontaneously committed by third parties. Additionally, the lower court found it unforeseeable that the specific rowdy and later evicted group would spontaneously attack the plaintiff.

In the First Circuit’s review of the case, Omni cited Rhode Island cases that pertained to a “past occurrences” theory of foreseeability, whereas the plaintiff cited cases that illustrated a “sequence of events” theory of foreseeability. The First Circuit ultimately agreed with the plaintiff, saying that while it may not have been foreseeable that the group would assault the plaintiff at the time of their eviction, the attack was foreseeable by the time the group had returned and tried to pick a fight with the passer-by.

The First Circuit stated that the development of a particular sequence of events can, without more, render future harm foreseeable. According to Omni, this decision imposes an undue burden on businesses, “which will now unnecessarily face the prospect of a jury trial every time anyone is injured on their premises.”

While the implications of this case as it pertains to the liability of business owners and injuries that occur on their premises goes to be seen, hotels in the First Circuit should be wary of omitting to assist any guest or even member of the public from the actions of aggressive third parties.

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

 

Mu v. Omni Hotels Management Corp., 885 F.3d 52 (1st Cir. 2018)
Mu v. Omni Hotels Management Corp., 882 F.3d 1 (1st Cir. 2018)

The Supreme Court Weighs in on Arbitrability, But Questions Remain

Posted on: January 31st, 2019

By: Ted Peters

As reflected in a prior article, the United States Supreme Court recently agreed to take another look at the issue of arbitrability. In the case of Henry Schein, Inc. v. Archer & White Sales, Inc., the Fifth Circuit concluded that the court, and not an arbitrator, had the power to decide the threshold issue of arbitrability. In its ruling, the circuit court embraced the “wholly groundless” argument, concluding that submission of the dispute to the arbitrator was unnecessary because the assertion of arbitrability was “wholly groundless.” This decision underscored the ongoing split of authority among the lower courts wherein some courts, but not all, recognize the “wholly groundless” exception. On appeal, the appellants sought to have the Supreme Court reject the exception as inconsistent with the Federal Arbitration Act (“FAA”), the purpose of which is “to ensure that private agreements to arbitrate are enforced according to their terms.”

On January 8, 2019, newly appointed Justice Kavanaugh delivered the opinion of the court vacating and remanding the Firth Circuit’s decision. Writing for a unanimous court, Kavanaugh determined that the “wholly groundless” exception to the general rule that courts must enforce contracts that delegate arbitrability questions to an arbitrator is inconsistent with the FAA and Supreme Court precedent. Not surprisingly, the opinion revisited a number of prior cases in which the Court repeatedly held that the “agreement to arbitrate a gateway issue is simply an additional… agreement the party seeking arbitration asks the federal court to enforce, and the [FAA] operates on this additional arbitration agreement just as it does on any other.” (Opinion at p. 4, quoting Rent-A-Center, 561 U.S. 63, 70 (2010)). Kavanaugh noted that the Court had frequently rejected the argument that a claim of frivolity can derail the parties’ agreement to vest questions of arbitrability with an arbitrator and not a court. Citing Steelworkers v. American Mfg. Co., 363 U.S. 564, 568 (1960), Kavanaugh stated: “A court has ‘no business weighing the merits of the grievance’ because the ‘agreement is to submit all grievances to arbitration, not merely those which the court will deem meritorious.’”

On January 15, 2019, the Court issued a ruling in yet another case involving arbitration, New Prime Inc. v. Oliveira. Justice Gorsuch delivered the opinion of the court. In an 8-0 decision (Kavanaugh took no part in the consideration or decision of the case), the high court affirmed the First Circuit’s determination that a court should determine whether the Federal Arbitration Act’s Section 1 exclusion for disputes involving the “contracts of employment” of certain transportation workers applies before ordering arbitration. Unlike Henry Schein, which addressed the delegation of “gateway” questions of arbitrability, New Prime Inc. involved the judicial assessment of a statutorily based objection to arbitration.

But wait… there’s (one) more: Lamps Plus Inc. v. Varela, Dkt. No. 17-988. That case, argued on October 29, 2018, addresses whether the FAA forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements. An opinion is expected at any time.

Coming full circle, it is fairly clear that the high court seems to remain firm in its embrace of arbitration agreements without permitting judicial meddling, provided there is “clear and unmistakable evidence” that the parties affirmatively agree to delegate the decision of arbitrability to the arbitrator. (Henry Schein at p. 6, citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944). Yet, at the same time, the Justices appear receptive to judicial involvement as long as there is a reasonable statutory basis for it.

The takeaway? Parties to arbitration agreements should rest confident in their ability to affirmatively delegate disputes to arbitration provided that the statutory framework upon which arbitration is based leaves no basis for judicial tinkering. This may provide solace for some, but for many it leaves unanswered questions along with the risks and costs associated with uncertainty.

If you have questions or would like more information, please contact Ted Peters at [email protected].