QUARTERLY - The Federation of Defense and Corporate Counsel

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QUARTERLY
FDCC
AN INTRODUCTION TO THE CLASS ACTION FAIRNESS ACT OF 2005
William C. Roedder, Jr.
THE SUPERSIZING OF AMERICA: OBESITY’S POTENTIAL IMPLICATIONS FOR THE
INSURANCE INDUSTRY
Helen Johnson Alford and James W. Lampkin II
MALINGERING OF PSYCHIATRIC PROBLEMS, BRAIN DAMAGE, CHRONIC PAIN,
AND CONTROVERSIAL SYNDROMES IN A PERSONAL INJURY CONTEXT
Steve Rubenzer
LIFE AFTER BALLARD: MOLD LITIGATION IN THE NEW MILLENNIUM
W. Stephen Benesh
TAKING THE LAST STEP IN INSURANCE LAW’S MOST SIGNIFICANT EVENT: THE
END OF FIRST-PARTY INSURANCE BAD FAITH IN CALIFORNIA
John Cross
WATER SPORTS AND RECREATIONAL LIABILITY ISSUES (COME ON IN, THE WATER’S
FINE!)
David M. Louie and Rhonda L. Ching
FDCC QUARTERLY VOLUME 56 INDEX
VOL. 56, NO. 4
SUMMER, 2006
FEDERATION OF DEFENSE AND CORPORATE COUNSEL
PRESIDENT
BOARD OF DIRECTORS
DAN D. KOHANE
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E-mail: [email protected]
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2006-2008
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EXECUTIVE DIRECTOR
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FDCC QUARTERLY
EDITORIAL OFFICE
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Editor-in-Chief
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Associate Editor
Prof. Christine M. Wiseman
Vice President for Academic Affairs
Creighton University
Student Editors
Krisstina L. Ebner
Pamela M. Heinrich
Benjamin W. Proctor
QUARTERLY
FDCC
SUMMER, 2006
VOLUME 56, NUMBER 4
CONTENTS
AN INTRODUCTION TO THE CLASS ACTION FAIRNESS ACT OF 2005
William C. Roedder, Jr. ........................................................................................... 443
THE SUPERSIZING OF AMERICA: OBESITY’S POTENTIAL IMPLICATIONS
FOR THE INSURANCE INDUSTRY
Helen Johnson Alford and James W. Lampkin II .................................................... 465
MALINGERING OF PSYCHIATRIC PROBLEMS, BRAIN DAMAGE, CHRONIC PAIN,
AND CONTROVERSIAL SYNDROMES IN A PERSONAL INJURY CONTEXT
Steve Rubenzer ........................................................................................................ 499
LIFE AFTER BALLARD: MOLD LITIGATION IN THE NEW MILLENNIUM
W. Stephen Benesh .................................................................................................. 525
TAKING THE LAST STEP IN INSURANCE LAW’S MOST SIGNIFICANT EVENT:
THE END OF FIRST-PARTY INSURANCE BAD FAITH IN CALIFORNIA
John Cross .............................................................................................................. 545
WATER SPORTS AND RECREATIONAL LIABILITY ISSUES
(COME ON IN, THE WATER’S FINE!)
David M. Louie and Rhonda L. Ching .................................................................... 591
FDCC QUARTERLY VOLUME 56 INDEX .............................................................................. 623
Cite as: 56 FED’N DEF. & CORP. COUNS.Q. ___ (2006).
The Federation of Defense & Corporate Counsel Quarterly (USPS 189-180) (ISBN 0887-0942)
is published quarterly for $60.00 per year by the Federation of Defense & Corporate Counsel,
Inc., 11812 North 56th Street, Tampa, FL 33617. Periodicals postage paid at Tampa, Florida and
additional mailing offices. POSTMASTER: Send address changes to the Executive Director,
11812 North 56th Street, Tampa, FL 33617.
No article may be reproduced without the express written permission of both FDDC and the author.
Copyright, 2006, by the Federation of Defense & Corporate Counsel, Inc.
FDCC
2007
Winter
Meeting
Planning is well underway. The
venue is beautiful, rooms are
luxurious and the meeting and
greeting spaces are wonderful.
You will find this a great place
to relax and enjoy time with
your FDCC friends.
Our theme will be “Yesterday, Today and Tomorrow” and
we will have elements of each throughout the week.
February 25 - March 4, 2007
Fairmont Scottsdale Princess
Scottsdale, Arizona
CLASS ACTION FAIRNESS ACT
An Introduction to the Class Action
Fairness Act of 2005
William C. Roedder, Jr.
I.
STATUS OF CLASS ACTIONS PRIOR TO FAIRNESS ACT PASSAGE
Although this section will focus on Alabama, its changing attitude regarding class
actions is not atypical of other jurisdictions in the United States. Not long ago, Alabama
was a venue favored by plaintiffs’ counsel for the filing of class actions and the site of very
large verdicts.1 However, even prior to the Federal government’s implementation of the
Class Action Fairness Act (“the CAFA”), the judiciary of the state of Alabama took substantial measures to eliminate the inequities that existed previously in the landscape of
Alabama class actions. The Alabama judiciary has since utilized heightened scrutiny of
class certifications as the mechanism to police class actions, thereby destroying the class
action before it has a chance to form. Heightened scrutiny has been especially prevalent
when plaintiffs attempt to certify a class seeking to recover damages pursuant to Alabama
Rule of Civil Procedure 23(b)(3).
In order to certify a class under Rule 23(b)(3), Alabama law requires that the claims of
the class members contain a common question that predominates over individual questions; in addition, the class action must be the superior method of resolving all the claims.
Recent Alabama Supreme Court decisions have refused to certify class actions for a myriad
1
Leonard Nelson, Is Alabama a Jurisdiction out of Control? - That Depends, 27 CUMB. L. REV. 987
(1996-97).
443
FDCC QUARTERLY/SUMMER 2006
William C. Roedder, Jr. is with McDowell Knight Roedder &
Sledge, L.L.C., in Mobile, Alabama. His practice includes
the defense of all types of civil litigation. Mr. Roedder graduated from Cumberland School of Law, cum laude, and is a
past president of the Federation of Defense and Corporate
Counsel. He served on the Board of the Defense Research
Institute and is currently President-Elect of Lawyers for Civil
Justice. Mr. Roedder is listed in “The Best Lawyers in
America” and “Who’s Who in America.”
of reasons. Claims for fraudulent suppression,2 breach of fiduciary duty,3 conspiracy,4 and
unjust enrichment5 have been reversed for failing to satisfy the predominance requirement.
Alabama courts also have refused to certify classes where the defendants offer defenses6 or
counterclaims7 that may be unique to individual plaintiffs. By eliminating class actions at
the certification stage, the Alabama judiciary has made significant progress in creating a
state forum that is fast becoming more fair and equitable for corporate defendants.
II.
OVERVIEW OF THE FAIRNESS ACT
President Bush signed the Class Action Fairness Act into law on February 18, 2005.8
The purpose of the law was to correct current problems with existing class action litigation,
which largely occurs in state courts. Congress viewed the major problems as those associated with “magnet” state courts and copy-cat litigation.9
2
See Regions Bank v. Lee, 905 So. 2d 765 (Ala. 2004).
3
Id.
4
Funliner of Ala., L.L.C. v. Pickard, 873 So. 2d 198 (Ala. 2003); Avis Rent A Car Systems, Inc. v.
Heilman, 876 So. 2d 1111 (Ala. 2003).
5
Id.
6
U-Haul Co. of Ala., Inc. v. Johnson, 893 So. 2d 307 (Ala. 2004).
7
Gen. Motors Acceptance Corp. v. Massey, 893 So. 2d 314 (Ala. 2004).
8
Pub. L. No. 109-2, 119 Stat. 4-14 (2005).
9
S. REP. NO. 109-14, 109th Cong., 1st Sess., at 13-14 (2005).
444
“Magnet” state courts are those in which plaintiffs’ attorneys are allowed to certify
virtually any class. These “magnet” state courts abridge the due process rights of corporate
defendants and ignore or override the laws of other states that should apply to the class
claims.10 The CAFA legislation is designed to expand the removal of interstate class actions
from state court to federal court on diversity jurisdiction grounds.11
Congress also sought to eliminate inefficient copy-cat litigation in state courts. Copycat suits occur when plaintiffs’ attorneys file numerous class actions in various state courts
against the same defendant, asserting virtually the same claims. Because the cases are in
different state court systems, they cannot be consolidated. Therefore, the claims proceed
simultaneously against the same party, which must defend itself against virtually the same
claims in multiple forums. The result is duplicative work, potentially inconsistent results,
inefficiencies and abuses. If the class actions are removed to federal court, however, federal court jurisdiction over all allows the cases to be coordinated in a multidistrict litigation
proceeding.12 By making it easier for defendants to remove class actions to federal courts,
defendants can utilize mutidistrict proceedings, resulting in huge savings in cost and time.
The CAFA involves four major components. First, the CAFA implements a “consumer
class action bill of rights” that seeks to protect plaintiffs from unfair class settlements. The
second component, the heart of the CAFA, expands federal diversity jurisdiction. Third,
the CAFA creates narrow exceptions which allow some class actions to remain in state
courts. Finally, the CAFA alters the rules governing removal to ensure that defendants are
allowed to invoke the newly-created federal court jurisdiction. The following sections provide an overview of these four components. After discussing the CAFA substance, the
article moves to analyze some of the significant questions that remain for the federal courts
to decide.
A. Consumer Bill of Rights
Section Three of the CAFA creates a “consumer class action bill of rights” directed at
protecting class plaintiffs from unfair settlements.13 These enactments are intended to prevent many common class action abuses and to encourage greater judicial scrutiny of class
action settlements.14 To that end, the “consumer class action bill of rights” implemented
four new statutory provisions. The following is a brief analysis of these changes.
First, Congress implemented heightened scrutiny of “coupon settlements.” “Coupon
settlements” are settlements in which class members receive coupons to substitute for or
augment monetary relief.15 As evidence of current state court abuses, Congress cited the
10
Id. at 21-22.
11
Id. at 5.
12
28 U.S.C. § 1407 (2004).
13
Pub. L. No. 109-2, § 3.
14
S. REP. NO. 109-14, at 30.
15
28 U.S.C. § 1712 (2004).
445
example of a Texas class action that was settled by providing Blockbuster customers with
coupons for free movie rentals, while the attorneys were compensated $9.25 million in fees
and expenses.16 In order to remedy these abuses, Congress delineated certain guidelines
governing the calculation of attorneys’ fees in class settlements. Most notably, attorneys no
longer are allowed to calculate fee awards on the basis of the gross amount of coupons the
class is awarded. A percentage-based fee may be calculated only on the basis of the coupons actually redeemed by members of the class.17 In addition to percentage-based compensation, Congress endorsed the continued use of the lodestar method, with a multiplier
when appropriate.18 Finally, before a coupon settlement is approved, the Act requires a
written finding that the settlement is “fair, reasonable, and adequate.” (It should be noted
that Fed. R. Civ. P. 23(e) already requires a court to make this determination).
Secondly, before a court may approve a settlement requiring class members to pay a
fee to class counsel resulting in a net loss to class members, it must find that the nonmonetary benefits to the class outweigh the monetary loss.19 This section of the Act was
implemented to remedy the inequities that occurred in the infamous case of Hoffman v.
BancBoston.20 That case involved a national class action brought in Mobile, Alabama, alleging that defendant wrongfully required class members to keep unnecessary surplus funds
in their escrow accounts. There was never any dispute that the defendant was obliged to
return the surplus to the class members at a future date; the sole issue was the propriety of
the defendant’s action in holding the surplus for the length of time that it did. A Mobile,
Alabama circuit court approved a settlement in which each class member received an interest payment up to $8.76, depending on the amount of surplus in the individual’s account
and the excessive time the individual was required to maintain the surplus.21 The approved
attorneys’ fees totaled $8.5 million and were paid directly out of the class members’ accounts. The fee was calculated as a percentage of the entire surplus held by the defendant
and not as a percentage of the interest payments actually paid to the class members. As a
result, the escrow accounts of many class members actually were debited in excess of the
16
S. REP. NO. 109-14, at 30 (citing Scott v. Blockbuster, Inc., (No. DI62-535, Jefferson County, Texas,
2001)).
17
28 U.S.C. § 1712(a) (2004); see also Fears v. Wilhelmina Model Agency, Inc., No. 02-Civ. 4911(HB),
2005 WL 1041134, at * 4-5. (S.D.N.Y. May 5, 2005) (noting the strong Congressional intent in the CAFA
to reform attorneys’ fees in the tort system and the CAFA’s limitation of fee awards to actual redeemed
benefits).
18
28 U.S.C. § 1712(c) (2004).
19
28 U.S.C. § 1713 (2005).
20
S. REP. NO. 109-14, at 14-15, 32; Kamilewicz v. Bank of Boston Corp., 92 F.3d 506 (7th Cir. 1996)
(involving one disgruntled class member who unsuccessfully attempted to challenge the settlement).
21
The Unclassy Class Action, 23 No. 2 LITIGATION 3 (1997).
446
interest award obtained from the settlement, producing a net out-of-pocket loss for those
class members.22
Third, the “consumer bill of rights” prohibits class settlements that provide for greater
payments to certain members of the class based solely on their geographic proximity to the
court.23 The Senate Report makes clear that this provision is only intended to prohibit preferential treatment when there are indistinguishable claims and no legitimate legal basis
exists for differentiation.24 Accordingly, claims based on a toxic spill would clearly justify
differentiation based on a claimant’s proximity to the occurrence because claimants who
are closer to the spill likely incur more substantial damages.25 At the same time, there is
nothing in the CAFA or the Senate Report indicating that any change in law is contemplated regarding the ability of class representatives to obtain incentive awards, since these
special awards are given to induce individuals into becoming class representatives. Given
that condition, they are not based solely on geographic proximity.26
Finally, the CAFA requires defendants to send notification to appropriate state and
federal officials no later than ten days after a proposed class settlement.27 The appropriate
state official is the state official with regulatory or licensing authority over the defendant. If
no such office exists, the state attorney general is the designated recipient.28 Notice must be
sent to the appropriate state official in every state in which class members reside. Excepting
cases that involve depository institutions or other banks, the appropriate federal official
will be the U.S. Attorney General.29 Final approval of the proposed settlement may not be
ordered sooner than ninety days after all appropriate officials have received notice.30 If
these notice requirements are not met, class members may “refuse to comply with and may
choose not to be bound by” a proposed settlement.31 Although notice must be sent, the
provision explicitly states that it shall not be construed to impose any obligations, duties, or
responsibilities on the relevant officials.32 Nonetheless, Congress intended that such notice
would remedy the problem of “clientless litigation.” “Clientless litigation” occurs in many
class actions because there are numerous individual plaintiffs, each with a small financial
22
See Susan P. Koniak & George M. Cohen, Under Cloak of Settlement, 82 VA. L. REV. 1051, 1057-68
(1996) (discussing the calculation of attorneys’ fees).
23
28 U.S.C. § 1714 (2005).
24
S. REP. NO. 109-14, at 32.
25
Id.
26
See In re Synthroid Mktg. Litig., 264 F.3d 712, 722 (7th Cir. 2001).
27
28 U.S.C. § 1715(b) (2005).
28
Id. § 1715(a)(2).
29
Id. § 1715(a)(1).
30
Id. § 1715(d).
31
Id. § 1715(e)(1).
32
Id. § 1715(f).
447
stake, who fail to closely monitor the case or the settlement process.33 Although all class
members are represented by class counsel, the official notice is intended to provide a layer
of independent oversight to help ensure that the settlement is fair and equitable.34
As will be discussed in the following section, application of the CAFA will grow the
number of federal class actions. The implementation of the “consumer class action bill of
rights” ensures that once a case is removed to federal court, the individual class members
will be protected from unfair settlements.
B. Jurisdictional Change
The heart of the CAFA is its expansion of federal diversity jurisdiction in class actions.
Several fundamental changes have been implemented which eliminate many of the former
barriers to pursuing class actions in federal court. Subject to the exceptions noted below,
the CAFA grants diversity jurisdiction over any class action in which there is minimum
diversity and more than $5 million dollars in controversy.35 Additionally, the CAFA expands the definition of class action to include certain civil actions referred to as “mass
actions.”36
1. Minimum Diversity
Longstanding United States Supreme Court jurisprudence required complete diversity
in order for a federal court to exercise federal diversity jurisdiction pursuant to the United
States Code.37 Complete diversity means that all named plaintiffs had to be domiciled differently from all defendants in order for diversity to exist. Under the CAFA, however,
federal diversity jurisdiction may be invoked where only minimal diversity exists. Minimal
diversity exists if any member of the plaintiff’s class is a citizen (i.e., domiciliary) of a
different state than any defendant.38 For corporate defendants, the citizenship analysis remains unaltered by the CAFA.39 A corporation is still deemed to be a citizen of both its state
of incorporation and the state in which it maintains its principal place of business.40 In the
great majority of class actions brought against large corporate defendants, minimal diversity will exist.
33
S. REP. NO. 109-14, 109th Cong., 1st Sess., at 33 (2005).
34
Id. at 34.
35
28 U.S.C. § 1332(d)(2) (2005).
36
Id. § 1332(d)(11)(A).
37
Id. § 1332; Supreme Tribe of Ben-Hur v. Cauble, 255 U.S. 356, 366-67 (1921).
38
Id. § 1332(d)(2).
39
S. REP. NO. 109-14, at 36; Moll v. Allstate Floridian Ins., No. 3:05CV160RVMD, 2005 WL 2007104, at
*1 n.1 (N.D. Fla. Aug. 16, 2005); Frazier v. Pioneer Americas LLC, No. 06-30434, 2006 WL 1843629, *3
(5th Cir. July 6, 2006).
40
Moll, 2005 WL 2007104, at *2.
448
2. Amount in Controversy
The rules governing amount in controversy also have been altered for class actions.
Traditionally, each individual class member was required to meet the jurisdictional minimum.41 However, under the CAFA, the amount in controversy is satisfied if the aggregate
value of all of the class members’ claims is greater than $5 million.42 With the ability to
aggregate, most class actions easily will satisfy the $5 million threshold.
3. Mass Actions
In addition to altering the amount in controversy and diversity requirements, Congress
also has redefined what constitutes a class action. Congress determined that “mass actions”
will be included within the definition of class actions capable of removal under section
1332.43 The statute defines a “mass action” as a civil action “in which monetary relief
claims of 100 or more persons are proposed to be tried jointly on the grounds that the
plaintiffs’ claims involve common questions of law or fact.”44 Congress considers a mass
action to be nothing more than a class action in disguise.45 As the result of a bipartisan
compromise, a mass action can be removed, but the federal courts will maintain jurisdiction only over those plaintiffs who have individual claims that meet the normal statutory
minimum of $75,000.46 Individual plaintiffs whose claims do not satisfy the $75,000 threshold
will be remanded to state court.47 Even if these remands reduce the number of plaintiffs in
the federal proceeding to less than 100 or the amount in controversy to less than $5 million,
jurisdiction will exist over the remaining claims. Therefore, if the jurisdictional discovery
reveals that only one out of the 100 removed claims is valued at more than $75,000, federal
jurisdiction would exist for that one claim. The remaining plaintiffs would be remanded to
state court with their claims capped at $75,000.
Although the class treatment of mass actions would appear to substantially increase
federal jurisdiction, several significant exceptions exist.
• First, claims arising out of an event or occurrence in the state where the suit is
filed, resulting in injuries in that state and contiguous states, cannot be removed.48
This provision is intended to allow suits involving environmental torts, such as
41
Zahn v. Int’l Paper Co., 414 U.S. 291, 301 (1973).
42
28 U.S.C. § 1332(d)(6) (2004); Exxon Mobil Corp. v. Allapattah Servs., 125 S.Ct. 2611, 2627-28
(2005) (recognizing the CAFA’s abrogation of Zahn).
43
28 U.S.C. § 1332(d)(11)(A).
44
Id. § 1332(d)(11)(B)(i).
45
46
151 CONG. REC. H729; § 1332(d)(11)(B)(i).
47
S. REP. NO. 109-14, at 47.
48
28 U.S.C. § 1332(d)(11)(B)(ii)(I) (2005).
449
chemical spills, to remain in the state in which the accident occurred.49 Although not clearly supported by the language of the exception, the Senate Report suggests that this exception would not apply to mass actions involving
products liability or insurance fraud claims. The Senate Report suggests that
the separate sale of the same product would not qualify as an “event,” and the
injuries resulting from the alleged conduct would extend over more than one
state.50
• If a defendant seeks to consolidate cases for trial and then attempts to remove
the action to federal court, jurisdiction will be denied. Actions by the defendant
to join the claims will prohibit the defendant from removing the case.51
• The third exception prohibits removal of claims brought “on behalf of the general public pursuant to a state statute.”52 This exception is narrowly drawn; it
essentially applies only to claims brought pursuant to the California Unfair
Competition Law on behalf of the general public.53 It would not apply to other
states’ consumer fraud laws because no other state has a “general public” provision.54
• The final exception exempts removal of claims that have been joined or consolidated for pretrial proceedings.55 This exception allows states to utilize pretrial coordination without a concern that the cases suddenly will become removable to federal court.
C. Exceptions to Minimal Diversity
While the purpose of the CAFA was to ensure that more interstate class actions are
brought in or removed to federal court, Congress also sought to allow truly local actions to
remain in state court. Exceptions to minimal diversity were enacted for this purpose. These
exceptions involve the home state, the local controversy, the state action, the limited scope,
and the securities and corporate governance exceptions.
49
S. REP. NO. 109-14, at 47.
50
Id.
51
28 U.S.C. § 1332(d)(11)(B)(ii)(II) (2005).
52
Id.
53
S. REP. NO. 109-14, at 47.
54
Id.
55
28 U.S.C. § 1332(d)(11)(B)(ii)(IV) (2005).
450
1. Home State Exception
The home state exception examines actions that are filed against defendants in their
home states. A corporation has up to two home states—the state of its incorporation and the
state in which it maintains its principal place of business. Under the prior version of section
1332, if any defendant was a resident of the state where the suit was filed, the action could
not be removed. The rationale for the prior version considered that an in-state defendant
was unlikely to suffer the local prejudice that compelled the original creation of diversity
jurisdiction. As a result of the CAFA, class actions brought in the state where all the primary defendants reside now are divided into three categories based solely on a numerical
breakdown of the citizenship of the putative class. The resulting ability to remove depends
upon the category into which the case falls.
First, if two-thirds or more of the putative class members and all primary defendants
are citizens of the forum state, the federal court must decline jurisdiction.56 Plaintiff’s counsel cannot “gerrymander” the class by including only forum state members (thereby avoiding federal jurisdiction), because defining the class to include only members of the forum
state will prove beneficial only if all the primary defendants are also citizens of that state.
For example, in order to prohibit a large pharmaceutical company from removing a class
action based on a defective drug, the complaint would have to be filed against a corporate
defendant in its home state and define the class so that two-thirds or more of its members
are from that state.
The home state exception is a narrow exception that will apply to defeat federal jurisdiction only if virtually all of the parties are local, such that local interests presumably will
predominate.57 Moreover, this exception does not allow magnet state courts to retain jurisdiction over large out-of-state defendants.
Conversely, if less than one-third of the putative class members are citizens of the state
in which the suit was filed, the home state exception does not apply. Federal jurisdiction
will exist notwithstanding the fact that the defendant may be a citizen of the forum state.58
Finally, if more than one-third but less than two-thirds of the putative class members
and all the primary defendants are citizens of the state in which the suit was filed, the home
state exception vests the federal district court with discretion to accept or decline diversity
jurisdiction “in the interests of justice and looking at the totality of the circumstances.”59
Congress provided six factors to guide the district court in exercising its discretion. The
factors are intended to weigh whether the claim raises interstate concerns and should re-
56
Id. § 1332 (d)(4)(B).
57
S. REP. NO. 109-14, at 36.
58
Id.
59
28 U.S.C. § 1332(d)(3) (2005).
451
main in federal court or whether it is a truly local action, involving local plaintiffs and local
laws, that is better suited for state court. The six factors are: (1) “whether the claims asserted involve matters of national or interstate interest;”60 (2) “whether the claims asserted
will be governed by laws of the state in which the action was originally filed or the laws of
other States;”61 (3) “whether the class action has been pleaded in a manner that seeks to
avoid Federal jurisdiction;”62 (4) “whether the action was brought in a forum with a distinct
nexus with the class members, the alleged harm, or the defendants;”63 (5) whether the number of putative class members who are citizens of the forum state “is substantially larger
than the number” of putative class members who are citizens of any other state, and the
putative class members who are citizens of other states are “dispersed among a substantial
number of the States;”64 and (6) “whether, during the [three-year] period preceding the
filing of the class action, [one] or more other class actions asserting the same or similar
claims on behalf of the same or other persons have been filed” in any forum against the
defendants.65 Although Congress enumerated these six factors, the decision is committed
to the discretion of the district court. It is a fact-specific analysis to be discussed in more
detail below.
2. Local Controversy Exception
The local controversy exception, like the home state exception, is an attempt to keep
class actions of a truly local focus in state court. However, while the home state exception
focuses on the citizenship of the parties, the local controversy exception is focused primarily on where the alleged unlawful conduct occurred. As an initial requirement to defeat
federal jurisdiction, more than two-thirds of the putative class members must be citizens of
the state in which the suit was filed. Then the analysis turns to the defendant and the alleged
conduct. At least one of the defendants must be a citizen of the state where the suit was
filed, a party “from whom significant relief is sought,” and a party whose conduct formed a
“significant basis for the claims.”66 The Senate Report refers to a defendant who satisfies
these criteria as a “real local defendant.”67 Additionally, the principal injuries must have
occurred in the state where the claim was brought. Finally, in the past three years, no class
60
Id. § 1332(d)(3)(A).
61
Id. § 1332(d)(3)(B).
62
Id. § 1332(d)(3)(C).
63
Id. § 1332(d)(3)(D).
64
Id. § 1332(d)(3)(E).
65
Id. § 1332(d)(3)(F).
66
Id. § 1332(d)(4)(A).
67
S. REP. NO. 190-14, 109th Cong. 1st Sess., at 40 (2005).
452
actions may have been filed in any forum against any of the defendants alleging the same or
similar claims.68
The local controversy exception is narrowly drawn as well and intended to apply to
claims that are unique to the state in which the claim is filed. The Senate Report provides a
similar example to the following. If a state court action was brought in Alabama against a
funeral home regarding alleged wrongdoing in burial practice, the class likely would satisfy the local controversy exception, even if the class named an out-of-state parent company that supervised the cemetery. Presumably, nearly all of the putative class members
would be citizens of Alabama, the funeral home would satisfy the in-state defendant criterion, and if no other class actions had been filed, the alleged controversy would be considered unique to Alabama and therefore should remain in state court.69
3. State Action Exception
The state action exception removes from the grant of diversity jurisdiction those cases
in which class claims are asserted against primary defendants who are states, state officials,
or other governmental entities for whom a federal court may be unable to grant relief.70 The
purpose of this exception is to prohibit state defendants from removing cases to federal
court and then arguing that the Eleventh Amendment precludes the court from granting the
requested relief.71 In order to avoid these Eleventh Amendment concerns, the case will
proceed in state court when these governmental entities are the primary targets of the suit.72
4. Limited Scope Exception
The limited scope exception simply requires that a putative class consist of at least 100
plaintiffs.73 Class actions with relatively few claimants are assumed to involve local concerns and thus should be allowed to proceed in state court.74
5. Corporate Governance Exception
The corporate governance exception exempts from federal diversity jurisdiction class
claims regarding a covered security, internal corporate affairs, or those that relate to fiduciary or other duties resulting from any security.75 Congress intended to maintain the “inter-
68
28 U.S.C. § 1332(d)(4)(A) (2005).
69
S. REP. NO. 109-14, at 41.
70
28 U.S.C. § 1332(d)(5)(A) (2005).
71
S. REP. NO. 109-14, at 42.
72
Id.
73
28 U.S.C. § 1332(d)(5)(B) (2005).
74
S. REP. NO. 109-14, at 42.
75
28 U.S.C. § 1332(d)(9) (2005).
453
nal affairs” doctrine of the United States Supreme Court in which the states are given
jurisdiction over claims involving “matters peculiar to the relationships among or between
the corporation and its current officers, directors, and shareholders.”76 Therefore, state courts
will continue to hear corporate governance claims.
D. Removal
In order to allow defendants to take full advantage of the federal jurisdiction afforded
by the CAFA, the rules governing removal have been altered for class actions filed in state
court. First, the CAFA eliminates the removal of class actions from the strict prohibition
against removing a state court case more than one year after the action is commenced.77 As
a result of this change, plaintiffs’ attorneys can no longer “game” the system by amending
the complaint to increase the amount of damages requested or to dismiss a non-diverse
party more than one year after filing suit.78 Under the CAFA, once the class attorney makes
any changes to the pleading or sends the defendant some other paper,79 which brings the
action within the jurisdiction of section 1332(d), the case is subject to removal. However,
defendants still must remove the action within thirty days of the amendment or alteration
which makes the action removable.80
Second, a class action is now removable even if one of the defendants is a resident of
the state in which the suit is filed.81 This change was required to eliminate the possibility
that the class simply would include an in-state defendant, thus perpetuating the current
system that allows plaintiffs to evade federal jurisdiction.82 Along the same lines, any one
defendant can remove a class action. Consent of all the defendants is no longer mandated,
which eliminated any incentive for the class to name a “friendly” defendant who could
block removal.83
Finally, the CAFA allows discretionary appellate review of a district court order granting or denying a motion to remand.84 This unique review of a non-final order is very accelerated—the aggrieved party must file a notice of appeal within seven days of the decision
76
S. REP. NO. 109-14, at 45 (citing Edgar v. MITE Corp., 457 U.S. 624, 645 (1982)).
77
28 U.S.C. § 1453(b) (2005).
78
S. REP. NO. 109-14, at 50.
79
28 U.S.C. § 1446(b) (2005).
80
Id.
81
Id. § 1453(b).
82
S. REP. NO. 109-14, at 49.
83
28 U.S.C. § 1453(b) (2005); S. REP. NO. 109-14, at 49.
84
28 U.S.C. § 1453(c) (2005).
454
on the motion to remand.85 If the court of appeals accepts the appeal, the court must render
a decision within sixty days from the date of initial filing. Exceptions to the sixty-day rule
arise if the parties agree to an extension or the court allows one ten-day extension upon its
own motion. Failure to render a decision before the expiration of the appointed time period
is deemed a denial of the appeal.86
E. Significant Interpretive Questions
Having set forth the basic elements of the CAFA, the next issue is to gauge how the
courts will resolve the many unanswered questions that arise from this epic legislation. The
following is a look at the major issues that the federal courts have yet to answer.
1. Who Bears the Burden of Proof on a Motion for Remand?
An issue that already has made its way to the federal courts is whether the CAFA has
shifted the burden of proof regarding federal jurisdiction in a removed case. Although the
prior version of the statute contained no language regarding burden of proof, federal case
law required the party who removed the action to bear the burden of proving that federal
jurisdiction existed.87 Like the pre-CAFA version of section 1332, the amended provision
makes no mention of burden of proof. However, the Senate Reports to the CAFA clearly
show an intent that the plaintiff should bear the burden of proving that federal jurisdiction
does not exist. Most notably, the Senate Reports state, “it is the intent of the Committee that
the named plaintiff(s) should bear the burden of demonstrating that a case should be remanded to state court.”88
Federal district courts in the Ninth Circuit which have examined the language of the
Senate Reports have held (consistent with the Senate Reports), that the CAFA shifts the
burden of proof to the plaintiff to prove that federal jurisdiction does not exist.89 In Berry v.
American Express Publishing, Corp.,90 the California district court found that the statutory
text of amended section 1332 did not provide a clear answer to the question; therefore,
85
28 U.S.C. § 1453(c)(1). Although a literal reading of this statute states that an appeal should be taken
“not less than 7 days after entry of the order” (with no upper limit on the deadline), the courts interpreting
this provision have held that it requires a party to file a notice of appeal within seven days after entry of an
order. See Amalgamated Transit Union Local 1309 v. Laidlaw Transit Services, Inc., 435 F.3d 1140, 1146
(9th Cir. 2006); Miedema v. Maytag Corp., No. 06-12430, 2006 WL 1519630, at *2 (11th Cir. June 5,
2006).
86
Id. § 1453(c)(4).
87
Mitchell v. Brown & Williamson Tobacco Corp., 294 F.3d 1309, 1314 (11th Cir. 2002).
88
S. REP. NO. 109-14, at 43.
89
See Berry v. Am. Express Publ’g Corp., 381 F. Supp. 2d 1118 (C.D. Cal. 2005); Yeroushalmi v. Blockbuster Inc., No. CV 05-225-AHM(RCX), 2005 WL 2083008 (C.D. Cal. July 11, 2005); Waitt v. Merck &
Co., No. C05-0759L, 2005 WL 1799740 (W.D. Wash. July 27, 2005).
90
381 F. Supp. 2d 1118 (C.D. Cal. 2005).
455
resort to the Committee Reports was necessary to determine the Congressional intent. The
court acknowledged that the failure to include any burden shifting language could support
an argument that Congress intended to maintain the status quo, but the court found it equally
plausible that the failure to include such language was merely a legislative oversight.91 The
court determined that the most plausible argument was that the Legislature believed that
the clear statements in the Senate Reports were sufficient to shift the burden of proof to the
plaintiff.92
In Schwartz v. Comcast Corp.,93 a federal district court in Pennsylvania disagreed with
the rationale above and held that the failure to provide burden shifting language in the
amended statute resulted in maintaining the status quo. The Schwartz court noted the principle that Congress is presumed to know how the federal courts interpreted prior versions
of the statute.94 Therefore, notwithstanding the legislative history of the CAFA, the court
found that the failure to make an explicit change in the statutory text resulted in maintaining the burden on the party asserting federal jurisdiction95
More recently, the federal Circuit Courts of Appeal for the Seventh, Ninth, and Eleventh Circuits have addressed this issue. Each of these circuit courts has come to the conclusion that the CAFA’s legislative history does not alter the well-established rule that the
defendant bears the burden of persuasion regarding subject matter jurisdiction on removal.96
As is apparent, this issue will continue to be litigated and will substantially affect how
the CAFA is actually applied as more CAFA claims enter the federal system. The issue
likely will resolve based upon how much deference courts confer upon the legislative history of the CAFA. Whichever side ultimately bears the burden, that party will be forced to
cope with the many undefined terms and issues that the CAFA has created, discussed below
in Section II.E.4.
91
Id. at 1122.
92
Id. at 1123.
93
No. Civ.A 05-2340, 2005 WL 1799414, at *6 (E.D. Pa. July 28, 2005).
94
Id.
95
Id. at *7.
96
See Brill v. Countrywide Home Loans, Inc., 427 F.3d 446, 448 (7th Cir. 2005) (“To change such a rule,
Congress must enact a statute with the President’s signature (or by a two-thirds majority to override a
veto).”); Abrego Abrego v. The Dow Chemical Co., 443 F.3d 676, 686 (9th Cir. 2006) (“CAFA’s silence,
coupled with a sentence in a legislative committee report untethered to any statutory language, does not
alter the long-standing rule that the party seeking federal jurisdiction on removal bears the burden of
establishing that jurisdiction.”). Miedema v. Maytag Corp., No. 06-12430, 2006 WL 1519630, *4 (11th
Cir. June 5, 2006) (“Statements in CAFA’s legislative history, standing alone, are an insufficient basis for
departing from this well-established rule.”).
456
2. Will Federal Courts Allow Jurisdictional Discovery?
A critical question remains regarding how the courts will determine the composition of
the putative class for purposes of applying the home state and local controversy exceptions
– most notably, to determine the percentage of the class that is from the forum state. In the
vast majority of cases this will not be an issue because plaintiffs attempting to invoke one
of the exceptions will simply define the class to include only members of the state in which
the suit is filed. Where the class is not so precisely defined, the Senate Report acknowledges that courts may be required to conduct some limited discovery in order to make these
determinations.97 However, the Senate Report cautions that substantial, burdensome discovery on jurisdictional issues contravenes the intent of the CAFA.98 The Senate Report
envisioned these jurisdictional issues being resolved on the basis of readily available data
or through factual stipulations.99 The federal district courts that have addressed this issue
have allowed limited discovery to resolve jurisdictional issues.100
Other key factors that may require limited discovery include:
• Which defendants are “primary defendants”?
• Whether a “substantially larger” number of the class are from the forum state.
• Which defendants are “real local defendants”?
• Where did the “principal injuries occur”?
Where more extensive discovery is required, federal courts may remand the case to
state court for purposes of discovery. Under this scenario, the jurisdictional discovery would
occur in the state court system and, upon determination of the class composition, the case
could be removed if diversity jurisdiction exists. However, the necessary discovery is likely
to take longer than thirty days, exceeding the time limit for filing a motion to remove. A
viable argument can be made that the defendant’s prior removal constitutes fulfillment of
the requirement and that the case was simply remanded for purposes of discovery. It is also
arguable that the discovery obtained by the defendant, which determines that jurisdiction
exists, constitutes other paper that triggers the defendant’s ability to remove the case.101
97
98
Id.
99
Id.
100
Schwartz, 2005 WL 1799414, at *7; Yeroushalmi, 2005 WL 2083008, at *4.
101
See 28 U.S.C. § 1446(b) (2004).
457
3. Will Plaintiffs Be Able to Plead around Federal Jurisdiction?
Plaintiffs’ ability to “game” the CAFA by pleading their claims to avoid diversity jurisdiction represents another concern. Possible examples include attempts to invoke the state
action exception by naming a state entity as a defendant or invoking the limited scope
exception by molding a class that includes only ninety-nine plaintiffs.
With regard to the state action exception, the Senate Report is clear that federal courts
should not allow this to become a jurisdictional loophole.102 The Senate Report cautions
courts to pay special attention and ensure that the state entity is really a primary defendant
as required by the exception.103 Moreover, the Fifth Circuit has interpreted the exception to
require that “all” primary defendants be states.104 Further discussion regarding primary
defendants will follow in the next section. Additionally, as with other attempts to avoid
federal jurisdiction, the Senate Report states that plaintiffs should bear the burden of proving whether the state entity is actually a primary defendant.
Likewise, if it is unclear whether the class consists of less than 100 plaintiffs, the
Senate Report says that the federal courts should err in favor of exercising jurisdiction.105
On the other hand, if it is perfectly clear that the class involves less than 100 claimants,
federal jurisdiction will never exist.
4. Critical Legislative Language Yet To Be Interpreted
Both the home state and the state action exception require a determination of who
constitutes a primary defendant. The text of the CAFA leaves the term “primary defendant”
undefined. Therefore, the legislative history is the best source for insight on the topic. The
Senate Report interprets “primary defendants” to be the real “targets” of the lawsuit —
those who stand to assume the majority of the damages if liability is found.106 Additionally,
a “primary defendant” is someone who is potentially liable to the vast majority of the class.107
For example, in an employment discrimination class action, a corporate executive should
not be considered a primary defendant. The real target of the lawsuit is the employer, which
is the deep pocket.108
102
S. REP. NO. 109-14, at 42.
103
Id.
104
See Frazier v. Pioneer Americas LLC, No. 06-30434, 2006 WL 1843629, *2 (5th Cir. July 6, 2002)
(“[T]he exception is not meant to create a loophole whereby plaintiffs can avoid CAFA jurisdiction by
naming a state as a primary defendant in an action largely targeting non-states.”).
105
Id.
106
S. REP. NO. 109-14, at 43.
107
Id.
108
H.R. REP. NO. 108-44, at 38 (2003).
458
If the district courts give credence to this legislative history, nominal defendants and
those who are only potentially liable to a small proportion of the putative class would not
defeat federal jurisdiction. Potentially, a primary defendant could be interpreted to be the
proverbial “deep pocket” — the party against whom the class determines to collect a big
judgment. Courts are likely to scrutinize nominal defendants who are named by plaintiffs
in a purposeful effort to invoke an exception to diversity jurisdiction.109 Whatever factors
the courts ultimately utilize, the determination of who constitutes a primary defendant will
involve a highly factual determination based on the unique circumstances of each case.
In determining whether to decline federal jurisdiction under the middle-tier home state
exception, the fifth statutory factor will require the courts to define what constitutes a “substantially larger” number of putative class members and what constitutes dispersion among
a “substantial number” of states. The Senate Report suggests that a putative class would
have a “substantially larger” number of putative class members residing in the forum state
and that the out-of-state putative class members would be dispersed amongst a “substantial
number” of states if no state’s citizenry, other than that of the forum state, constituted five
percent of the total putative class.110
The two significant issues under the local controversy exception are who is a “real”
local defendant and what is meant by “principal injuries.” In order to be a real local defendant, the defendant must be one from whom “significant relief” is sought and the conduct
of the defendant must form a “significant basis” for the class claims.111 It is unlikely that in
a class action asserting products liability claims against an out-of-state national manufacturer and a local retailer, the local retailer will ever be considered a real local defendant.112
The relief sought by the class from the local retailer is insignificant compared to that of the
manufacturer, and the retailer’s conduct in selling the product did not form a significant
basis of the class claims.113
5. How Will the Federal Courts Implement Aggregation of Damages?
The CAFA requires the court to aggregate damages to meet the $5 million amount in
controversy requirement. Because plaintiffs could not aggregate their claims prior to the
CAFA, costs such as injunctive relief, punitive damages and attorneys’ fees could not be
used in satisfying the amount in controversy. A California district court, looking at the
109
See Evans v. Walter Industries, Inc., 449 F.3d 1159, 1166 (11th Cir. 2006) (holding that plaintiff bears
the burden of proving the local controversy exception applies).
110
S. REP. NO. 109-14, at 38.
111
Id. at 40.
112
See Evans v. Walter Industries, Inc., 449 F.3d 1159, 1167 (11th Cir. 2006).
113
S. REP. NO. 109-14, at 41.
459
Senate Report, held that the CAFA allows the inclusion of all these damages to satisfy the
amount in controversy requirement.114 Adopting the view of the Senate Report, the court
held that it is appropriate to consider the cost of injunctive relief from the defendant’s
viewpoint. Therefore, if providing the requested injunctive relief will cost the defendant
more than $5 million, federal jurisdiction will exist even if the benefit flowing to the plaintiffs does not meet the threshold. Finally, now that each plaintiff’s claim can be aggregated,
punitive damages and attorneys’ fees can be used to meet the amount in controversy.115
6. Will the Federal Appellate Courts Exercise Discretionary Appellate Review?
Prior to the CAFA’s implementation, it was unknown how often the appellate courts
would exercise their discretion to review remand orders. By allowing this accelerated discretionary appeal, Congress intended to develop a body of case law regarding jurisdictional issues without excessively delaying the litigation process. In the early stages of the
CAFA, the appellate courts have shown an inclination to hear these appeals. To this date,
however, these appeals have primarily involved issues regarding the effective date of the
CAFA, which will have little interpretive value over the long term.116 However, more recent
federal circuit court cases have begun to address some of the key interpretive issues.117 In
the future, it is likely that appellate courts will continue to grant discretionary appeals as the
key interpretive questions regarding jurisdictional issues reach the district courts.
7. How Will the District Courts Weigh the Factors in Determining Whether to
Decline Jurisdiction under the Middle-Tier Home State Exception?
Under the middle-tier category for the home state exception, in which more than onethird but less than two-thirds of the putative class members reside in the forum state, the
court is empowered with discretion to decline federal jurisdiction. The following is a look
at how the Legislature intends that courts weigh these factors.
Under the first factor, if the claims asserted are of a significant national or interstate
interest, this factor favors exercising federal jurisdiction. For example, a claim arising out
of a nationally distributed pharmaceutical product should be heard in federal court because
114
Yeroushalmi, 2005 WL 2083008, at *4.
115
Id.
116
See Pritchett v. Office Depot, Inc., 420 F.3d 1090 (10th Cir. 2005); Knudsen v. Liberty Mut. Ins. Co.,
411 F.3d 805 (7th Cir. 2005); Pfizer, Inc. v. Lott, 417 F.3d 725 (7th Cir. 2005); Schorsch v. HewlettPackard Co., 417 F.3d 748 (7th Cir. 2005).
117
See Brill v. Countrywide Home Loans, Inc., 427 F.3d 446 (7th Cir. 2005) (discussing burden of proof
and amount in controversy issues); Miedema v. Maytag Corp., No. 06-12430, 2006 WL 1519630 (11th Cir.
June 5, 2006) (same); Abrego Abrego v. Dow Chemical Co., 443 F.3d 676 (9th Cir. 2006) (discussing
issues related to burden of proof and mass actions); Evans v. Walter Industries, Inc., 449 F.3d 1159 (11th
Cir. 2006) (analyzing the local controversy exception); Frazier v. Pioneer Americas LLC, No. 06-30434,
2006 WL 1843629 (5th Cir. July 6, 2002) (analyzing the state actor exception).
460
of the nationwide implications and the possibility of issues regarding federal drug laws.
However, if the claims involve intrastate issues, the factor would favor declining federal
jurisdiction.118
The second factor favors jurisdiction if laws other than those of the state where the
claim is filed will govern the claim. The intent of this factor is to curtail the problem of
magnet state courts disrespecting or ignoring the laws of other states. If multiple states’
laws will apply, the factor weighs in favor of federal jurisdiction. On the other hand, if the
laws of the forum state will govern the claim, the factor points towards declining jurisdiction.119
If the plaintiffs attempt to plead the class in a way that avoids federal jurisdiction, the
court should favor exercising federal jurisdiction. If the plaintiff has proposed a class that
follows a “natural” pattern, i.e., it includes all the claimants and claims one would expect
the class to include, the court is more likely to allow the claim to proceed in state court than
if the plaintiff has “gerrymandered” the suit so as to avoid federal jurisdiction.120 This appears to be an attempt to deter the gamesmanship of plaintiffs’ attorneys that was commonplace prior to the CAFA.
If a distinct nexus exists between the state where the suit is filed and the class members, the alleged harm, or the defendants, the federal court should lean towards declining
jurisdiction. This factor is intended to prevent suits in magnet state courts with no real
relationship to the claims. The crux of this factor is whether the connection with the forum
is distinct from the connection other states have with the suit. If the forum’s connection
with the suit is shared by many other states, the nexus is not distinct and the court should
favor exercising federal jurisdiction.
If the number of putative class members who are citizens of the state in which the suit
is filed is substantially larger than the number of putative class members who are citizens of
any other states, and the citizenship of the out-of-state putative members is dispersed among
a substantial number of states, this would indicate that the federal court should decline
jurisdiction. This factor looks at the geographic distribution of the class members. If there
is a small proportion of out-of-state class members dispersed among many states the interests of the forum state would prevail. The Senate Report considers that this factor weighs
towards declining jurisdiction if no other state’s citizenry constitutes more than five percent of the class. If, however, the out-of-state class members are not widely dispersed, other
states would have substantial interests and the factor would weigh towards exercising federal jurisdiction.
118
S. REP. NO. 109-14, at 36.
119
Id. at 37.
120
Id.
461
The final factor looks at whether there have been any other class actions asserting the
same or similar claims brought on behalf of the same or other persons. If so, the court
would favor federal jurisdiction. This factor is intended to curb copy-cat lawsuits. Furthermore, the Legislature intends that “similar claims” should be liberally interpreted so that
inventive pleading does not circumvent this requirement. Thus, if a prior class action has
asserted claims arising out of a defective product for consumer fraud or unjust enrichment,
a later claim alleging negligence and involving the same product would favor exercising
federal jurisdiction.
8. Are Suits Brought by a State Attorney General a “Class” Subject to
Removal?
The reach of the CAFA does not expressly exempt actions brought by state attorneys
general on behalf of the citizens of the state. Concerned that the new diversity statute would
be misinterpreted to apply to attorney general suits, several state attorneys general sent a
letter to the Senate requesting an explicit exemption to clarify that these suits should remain in state court.121 The Senate ultimately defeated a proposed amendment that explicitly
would have exempted actions brought by an attorney general.122 However, the only federal
district court that has addressed this issue held that a suit by an attorney general is not a
class action subject to removal under the CAFA.123 The court looked to the Congressional
debates and found that the exemption was not implemented because of the prevailing belief
that it was unnecessary. A suit brought by a state attorney general on behalf of the citizens
of that state is not a class action; rather, it is a parens patriae suit. Like a class action, the
parens patriae suit involves representation of a large group of people; however, a state
attorney is allowed to bring parens patriae suits based on the state’s power to protect its
citizenry and not by virtue of judicial class certification.124 Accordingly, the court held that
because a suit brought by a state attorney general is based on the state’s parens patriae
power, it is not a class action that falls within the purview of the CAFA.125
In a state such as California, if the state attorney general brings suit on behalf of California citizens or if an individual brings suit on behalf of the general public (pursuant to the
California Unfair Competition Law), the case will remain in state court. The suit brought
by the attorney general is not a class action and therefore the CAFA does not apply. Like-
121
151 CONG. REC. S999-02, at S1003 (2005).
122
151 CONG. REC. S1157-02, at S1157-58 (2005).
123
Harvey v. Blockbuster, Inc., 384 F. Supp. 2d 749 (D. N.J. 2005).
124
Id. at 753 (citing 151 CONG. REC. S1157-02, at S1163-64).
125
Id. at 754.
462
wise, the CAFA does not apply to a suit brought by an individual on behalf of the general
public. Although these claims arguably satisfy the definition of a mass action, the CAFA
expressly exempts claims brought on behalf of the general public when authorized by state
statute.
9. How Has the CAFA Reduced the Possibility of Copy-cat Suits?
Copy-cat litigation is a problem that is unique to state court litigation. Pre-CAFA plaintiffs’ attorneys had the ability to freely forum shop without the possibility of removal merely
by naming an in-state defendant. The attorney would file virtually identical class actions
against a large defendant in multiple state courts. With no way to consolidate these cases,
the defendant was forced to hire counsel in each state to defend the parallel suits, resulting
in huge inefficiencies.
The copy-cat problem does not exist in federal court because of the ability to consolidate proceedings under one court through a multidistrict litigation proceeding.126 Therefore, with the advent of minimal diversity, many class actions brought in the various state
courts against large out-of-state defendants will be subject to removal. However, if plaintiffs attempt to circumvent diversity jurisdiction by using one of the exceptions, the CAFA
has implemented safeguards against copy-cat problems. In both the local controversy exception127 and the middle-tier discretionary home state exception,128 the court must determine whether any other suits alleging similar claims have been asserted against the defendants by a same or similar class, i.e., copy-cat suits. If such suits have been filed, federal
jurisdiction automatically exists under the local controversy exception129 and is favored
under discretionary home state jurisdiction.130 Once in federal court, the defendants will be
able to utilize multidistrict litigation, saving considerable cost and time.
III.
CONCLUSION
Although the CAFA was a monumental legislative victory for corporate defendants,
the CAFA creates many questions that remain for the courts to decide. Regardless of how
these issues ultimately are resolved, one matter is certain: as a result of the CAFA, class
actions against large corporate defendants regarding products related to interstate commerce will largely take place in the federal court system.
126
28 U.S.C. § 1407 (2004).
127
28 U.S.C. § 1332(d)(4)(A)(ii) (2005).
128
Id. § 1332(d)(3)(F).
129
Id. § 1332(d)(4)(A).
130
Id. § 1332(d)(3).
463
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464
2008
2007
FUTURE MEETINGS
THE SUPERSIZING OF AMERICA
The Supersizing of America:
Obesity’s Potential Implications for
the Insurance Industry†
Helen Johnson Alford
James W. Lampkin II
I.
INTRODUCTION
From the late 1980s to early 1990s, many of the fast food restaurants in America began
offering “supersized,” “king sized,” or “biggie sized” portions of french fries and soft drinks
as part of a “combo” meal. When ordering at one of these fast food establishments, customers would invariably be asked if they wanted to “supersize” their selection for an additional
charge. The increased portion sizes were not limited to fast food restaurants, and meal
portions increased in many full service restaurants as well. During this period of “supersized” meals, Americans began to become “supersized” as well. In 2001, the United States
Surgeon General published “The Surgeon General’s Call to Action to Prevent and Decrease Overweight and Obesity 2001” wherein it was noted that overweight and obesity
†
Submitted by the authors on behalf of the FDCC Life, Health and Disability Section.
465
Helen Johnson Alford is a partner with the law firm of Alford,
Clausen & McDonald, LLC. She obtained her law degree
from Tulane University in 1982. She is a member of the Alabama Bar, Mississippi Bar, Tennessee Bar and Texas Bar.
She is a Vice-President of the Alabama Defense Lawyers
Association and a member of the Mississippi Defense Lawyers Association, DRI, and Federation of Defense & Corporate Counsel.
“have reached epidemic proportions in the United States.”1 This article is not intended as
an attack on the fast food industry and will not focus on any issues related to the current
litigation against any particular fast food restaurant. Instead, this article will examine the
potential implications for the insurance companies providing health, life and disability insurance to a more obese American public.
II.
THE INFLATION OF AMERICAN WAISTLINES
Based upon data in the 1999-2000 National Health and Nutrition Examination Survey
(NHANES), approximately two-thirds of adult Americans are either overweight or obese.2
The chart3 below demonstrates the increase in obesity/overweight levels from 1976 through
2000.
1
U.S. Department of Health and Human Services, The Surgeon General’s Call to Action to Prevent and
Decrease Overweight and Obesity 2001 (2001), Foreword at XIII. U.S. Department of Health and Human
Services, Public Health Service, Office of the Surgeon General [hereinafter Call to Action], available at
http://www.surgeongeneral.gov/library.
2
Robert P. Hartwig & Claire Wilkinson, Obesity, Liability & Insurance, Insurance Information Institute,
[hereinafter O, L & I], available at http://www.iii.org/members/full_text_reports/Obesity/
iiiwhitepaperobesity.pdf.
3
Call to Action, supra note 1, at 10.
466
James W. Lampkin II is a partner with the law firm of Alford,
Clausen & McDonald, LLC. He obtained his law degree from
Cumberland School of Law in 1989. He is a member of the
Alabama Bar, Georgia Bar, Mississippi Bar and Florida Bar.
He is the Editor of the Alabama Defense Lawyers Journal
and is a member of the Alabama Defense Lawyers, DRI and
the International Association of Defense Counsel.
FIGURE 4: AGE-ADJUSTED PREVALENCE OF OVERWEIGHT AND
OBESTITY AMONG U.S. ADULTS AGED 20 TO 74 YEARS
70%
(Prevalence (%)
60%
50%
32
40%
30%
20%
10%
34
33
61
56
47
23
27
NHANES III (1988-94)
(N=14,468)
NHANES II (1999)
(N=1,446)
15
0%
NHANES II (1976-80)
(N=11,207)
Obese (BMI›30)
Overweight (BMI 25.0-29.9)
Source: Centers for Disease Control and Prevention (CDC), National Center for Health
Statistics (NCHS), National Health and Nutrition Examination Survey (NHANES)
Between 1986 and 2000, the number of American adults who are 100 pounds or more
overweight increased by four times, i.e., from one in two hundred adults to one in fifty.4
4
Id.
467
Unfortunately, the increase in obesity levels is not limited to adults.5 Since 1980, the number of obese/overweight children has doubled and the number of obese/overweight adolescents has tripled.6 The chart7 below demonstrates the increase in obesity/overweight in
children and adolescents since 1963.
FIGURE 5: PREVALENCE OF OVERWEIGHT* AMONG U.S.
CHILDREN AND ADOLESCENTS
(Prevalence (%)
14%
12%
10%
8%
6%
4%
2%
0%
1963-70
NHES II AND III
1971-74
NHANES I
1976-80
NHANES II
Aged 6 to 11 years
1988-94
NHANES III
1999
NHANES
Aged 12 to 19 years
*Gender- and age-specific BMI›the 95th percentile
Statistics (NCHS), National Health Examination Survey (NHES), National Health and
Nutrition Examination Survey (NHANES),
5
Press Release, NIH News, U.S. Teens More Overweight than Youth in 14 Other Countries (Jan. 5,
2004) (13.9 percent of 15-year-old boys were overweight and 15.1 percent of 15-year-old girls were overweight), available at http://www.nih.gov/new/pr/jan2004/nichd-05.htm.
6
Id.; Call to Action, supra note 1.
7
Id. Call to Action at 11.
468
The increase in obesity in America has not been limited to any particular geographic
area as evidenced by the chart8 below.
THE SURFACING OF AN EPIDEMIC
PREVALENCE OF OBESITY* AMONG U.S. ADULTS
1991
2000
No Data
‹10%
10%-14%
15%-19%
›20%
These two figures demonstrate the increasing
prevalence of obesity* among U.S. adults
*Approximately 30 pounds overweight
No Data
‹10%
10%-14%
15%-19%
›20%
Source: Behavioral Risk Factor Surveillance System (BRFSS)
Note: BRFSS uses self-reported height and weight to calculate obesity;
self-reported data may underestimate obesity prevalence
As of 1999, all states, except Colorado, had obesity rates of at least 15 percent or more, and
22 of the states had obesity rates of 20 percent or higher.9 The obesity problem is not
limited to a particular age group, gender, race, or ethnicity.10 The chart 11 below demonstrates the levels of obesity among males and females in White, African-American and
Mexican-American populations between 1988 and 1994.
8
Id. at VI-VII.
9
O, L & I, supra note 2, at 3.
10
Id.
11
469
FIGURE 6: AGE-ADJUSTED PREVALENCE OF OVERWEIGHT OR
OBESITY IN SELECTED GROUPS (NHANES III, 1988-1994)
% with BMI › 25
70%
60%
50%
40%
30%
White
(Non-Hispanic)
Black
(Non-Hispanic)
Mexican
American
Women
Men
Statistics (NCHS), National Health and Nutrition Examination Survey (NHANES)
Among children and adolescents, the racial and ethnic disparities in overweight are similar
to the pattern set forth in the chart above, i.e., Mexican-American boys tend to have a
higher prevalence of overweight than White or African-American boys, and African-American girls tend to have a higher prevalence of overweight than White or Mexican-American
girls.12
The accepted standard to calculate obesity is the Body Mass Index, which is a measure
of weight in relation to height. There are two separate formulas to determine BMI. The first
formula is:
BMI = Weight (pounds) ÷ Height2 (inches) X 703
The second formula is:
BMI = Weight (kilograms) ÷ the Square of Height (meters)
12
Id.
470
The chart13 below demonstrates BMI based upon the first formula:
FIGURE 1: ADULT BODY MASS INDEX
WEIGHT (POUNDS)
BMI =
X 703
HEIGHT (INCHES)
Height in Feet amd Inches
Weight in Pounds
120 130 140 150 160 170 180 190 200 210 220 230 240 250
4’6
29 31 34 36 39
41
43 46 48 51 53 56
58
60
4’8
27 29 31 34 36
38
40 43 45 47 49 52
54
56
4’10 25 27 29 31 34
36
38 40 42 44 46 48
50
52
5’0
23 25 27 29 31
33
35 37 39 41 43 45
47
40
5’2
22 24 26 27 28
31
33 35 37 38 40 42
44
46
5’4
21 22 24 26 28
29
31 33 34 36 38 40
41
43
5’6
19 21 23 24 26
27
29 31 32 34 36 37
39
40
5’8
18 20 21 23 24
26
27 29 30 32 34 35
37
38
5’10 17 19 20 22 23
24
26 27 29 30 32 33
35
36
6’0
16 18 19 20 22
23
24 26 27 28 30 31
33
34
6’2
15 17 18 19 21
22
23 24 26 27 28 30
31
32
6’4
15 16 17 18 20
21
22 23 24 26 27 28
29
30
6’6
14 15 16 17 19
20
21 22 23 24 25 27
28
29
6’8
13 14 15 17 18
19
20 21 22 23 24 25
26
28
Overweight
Healthy Weight
13
Id. at 5.
471
Obese
Although BMI has become the standard to determine if an individual is obese/overweight,
it has limitations because it can overestimate body fat in muscular individuals and underestimate body fat in individuals who have lost muscle mass, e.g., the elderly.14 Based upon the
National Institutes of Health Clinical Guidelines, the accepted definition of overweight is a
BMI between 25 kg/m2 and 29.9 kg/m2 and the accepted definition of obese is a BMI of 30
kg/m2 or greater.15
III.
HEALTH IMPLICATIONS OF OBESITY
With the rise in obesity levels in America over the past two decades, the impact of
greater levels of obesity are beginning to be recognized in several health areas. It has been
postulated that obesity causes approximately 300,000 deaths per year in America.16 The
Surgeon General has warned that obesity related deaths could rival deaths caused by smoking in the near future.17 Individuals with a BMI of 30 kg/m2 or greater comprised 80 percent
of the deaths due to overweight or obesity.18 Individuals with BMI of 30 kg/m2 have an
increased mortality rate of 50 percent to 100 percent from all causes, including cardiovascular disease, versus individuals with BMIs in the range of 20 to 25 kg/m2.19
Obesity has been recognized as contributing to a number of health concerns including
“hypertension, insulin resistance and diabetes mellitus, cardiovascular disease,
hypertriglyceridemia, low high-density-lipoprotein cholesterol, and, in some studies, high
total and low-density-lipoprotein cholesterol.”20 Additionally, obesity increases the risk of
endometrial cancer (women) and colorectal cancer (men) and can cause “chronic hypoxia
14
Id. at 4.
15
Id.
16
Id. See also David B. Allison et al., Annual Deaths Attributable to Obesity in the United States, 282
JAMA 1530 (1999), [hereinafter Annual Deaths] (estimating annual deaths due to obesity to be about
280,000).
17
Call to Action, supra note 1. See also Centers for Disease Control and Prevention, Obesity to Overtake
Smoking as Leading Cause of Death, 16 DRUG BENEFIT TRENDS 164 (2004).
18
Annual Deaths, supra note 16.
19
National Institutes of Health, Clinical Guidelines on the Identification, Evaluation, and Treatment of
Overweight and Obesity in Adults, NIH Publication No. 98-4083 at 23 (1999) [hereinafter Clinical Guidelines].
20
F. Xavier Pi-Sunyer, Health Implications of Obesity, 53 AM. J. CLINICAL NUTRITION 1595S, 1595S (1991).
472
and hypercapnia, sleep apnea, gout, and degenerative joint disease.”21 The chart22 below
lists several health issues complicated by obesity.
TABLE 1: HEALTH RISKS ASSOCIATED WITH OBESITY
Obesity is Associated with an Increased Risk of:
• premature death
• high blood cholesterol
• type 2 diabetes
• complications of pregnancy
• heart disease
• menstrual irregularities
• hirsutism (presence of excess body
and facial hair)
• stress incontinence (urine leakage
caused by weak pelvic-floor
muscles)
• stroke
• hypertension
• gallbladder disease
• osteoarthritis (degeneration of
cartilage and bone in joints)
• increased surgical risk
• psychological disorders such as
depression
• psychological difficulties due to
social stigmatization
• sleep apnea
• asthma
• breathing problems
• cancer (endometrial, colon, kidney,
gallbladder, and postmenopausal
breast cancer)
Adapted from www.niddk.nih.gov/health/nutrit/pubs/statobes.htm26
21
Id.
22
473
The NIH’s Clinical Guidelines address the health risks of obesity and examines several different health conditions impacted by obesity.
Hypertension – High blood pressure prevalence increases as BMI increases.
For individuals with a BMI e”30, 38.4 percent of men and 32.2 percent of women
have high blood pressure. This is compared to 18.2 percent of men and 16.5 percent of women with a BMI d”25. A 10 kg higher body weight increased systolic
blood pressure by 3.0 mm Hg and diastolic blood pressure by 2.3 mm Hg. The
increased blood pressure levels translated to a 12 percent increased risk for coronary heart disease and 24 percent increased risk for stroke. Additionally, obesity
and hypertension are “co-morbid risk factors for the development of cardiovascular disease.”23
Dyslipidemia – Blood cholesterol levels are affected by obesity, with women
having a greater prevalence of high blood cholesterol than men at each BMI level.24
The distribution of weight also affects cholesterol levels independently of total
weight. Individuals with “predominant abdominal obesity” usually have higher
levels of total cholesterol.25 Not only does obesity affect total cholesterol, it also
affects the individual components of cholesterol.
High Triglycerides – In three different age groups, ranging from 20 to 74
years, BMI levels are “associated with increasing triglyceride levels,” with men
suffering the greatest range of increased triglyceride levels.26
Low high-density lipoprotein cholesterol – Low HDL (good cholesterol)
levels in the study were based upon figures of <35 mg/dL for men and <45 mg/dL
for women. Increased BMI is associated with changes in HDL. For each BMI unit
increase, young adult men have a 1.1 mg/dL change in HDL, and young adult
women have 0.69 mg/dL change in HDL.27
Low density lipoprotein cholesterol – LDL (bad cholesterol) levels are increased as BMI increases. Studies have shown that an increase in BMI from 20 to
30 kg/m2 may result in an increase in LDL in a range of 10 to 20 mg/dL.28 Additionally, the increase in LDL levels increase an individual’s risk of coronary heart
disease (“CHD”), i.e., a 10 mg/dL increase in LDL increases the risk of CHD by
10 percent over a 5 to 10 year period.29
23
Clinical Guidelines, supra note 19, at 13.
24
Id.
25
Id. at 14.
26
Id.
27
Id.
28
Id.
29
Id.
474
Diabetes Mellitus – Numerous studies have demonstrated that the risk of
developing diabetes increases as an individual’s weight increases. At least one
study has demonstrated that the risk of developing type 2 diabetes increases as
BMI increases even from a BMI level of 22 kg/m2. The risk of developing diabetes
increases “approximately 25 percent for each additional unit of BMI over 22 kg/
m2;”30 moreover, a recent study estimated that a weight gain of 11 pounds during
adulthood resulted in 27 percent of new cases of diabetes.31
Coronary Heart Disease – Obesity is associated with “increased morbidity
and mortality from CHD.”32 According to one controlled study of women, the
risks for CHD were two times higher for BMIs in a range 25 to 28.9 and three
times as high for BMIs of 29 or higher as compared to BMI of 21 or less. The risks
increased by 25 percent for weight gains between 11 to 17.6 pounds and 2.5 times
for weight gains of 44 pounds or more. A British study of men demonstrated that
the risk of CHD increased by 10 percent for each BMI unit above 22.33
Congestive Heart Failure – Obesity/overweight are risk factors for congestive heart failure (“CHF”), which is a complication of severe obesity. Long standing obesity is a “strong predictor of CHF,” and hypertension and type 2 diabetes,
often associated with obesity, can lead to CHF.34
Stroke – At least one study has indicated that obesity can increase the risk of
stroke independent of the associated conditions of hypertension and diabetes. Some
studies indicate that obesity has “distinct risk factors for ischemic stroke as compared to hemorrhagic stroke” and the risk of stroke increases with higher BMIs.
As compared to women with BMI <21, women with BMIs >27 have a 75 percent
higher risk of ischemic stroke, and women with BMIs >32 have a 137 percent
higher risk of ischemic stroke.35
Gallstones – Obesity increases the risk of gallstones in both men and women.
The risk of developing gallstones or cholescystectomy increases from 3 per 1,000
women with BMI <24 to 20 per 1,000 women with BMI >40. As for men, the risk
of gallstone disease increases to 10.8 percent for men in the fourth quartile of BMI
versus 4.6 percent for men in the first quartile of BMI.36
30
Id. at 15.
31
Id.
32
Id.
33
Id.
34
Id.
35
Id. at 18.
36
Id.
475
Osteoarthritis – Obesity increases the risk of osteoarthritis in men and women,
but the risk is higher for women. Each kilogram of weight gained increased the
risk of osteoarthritis by 9 to 13 percent.37
Sleep Apnea – Obesity is a risk factor for and is related to the severity of sleep
apnea. A BMI e”30 is associated with sleep apnea, which can result in “arterial
hypoxemia, recurrent arousals from sleep, increased sympathetic tone, pulmonary
and systemic hypertension, and cardiac arrhythmias.”38
Cancer – Various studies have indicated increased risks of several types of
cancer due to obesity.
Colon cancer – Obesity appears to increase the risk of colon cancer for men
more than women, but one study has suggested that the increased risk is similar for
both genders. Women with BMI >29 had twice the risk of distal colon cancer than
women with BMI <21.39
Breast cancer – Obesity increases the risk of breast cancer in post-menopausal women, especially those who are not taking hormones. The risk of breast
cancer doubles with a weight gain of more than 20 pounds from age 18 to midlife.40
Endometrial cancer – Obesity increases the risk of this type of cancer by
three times for women with BMI e”30 versus non-obese/overweight women.41
Gallbladder cancer – The risk of this type of cancer increases for women as
weight increases. With a base line mortality ratio of 1 based upon a weight of 100
pounds, the risks increase to 1.53 with weight of 140 pounds or more.42
IV.
THE ECONOMIC IMPACTS OF OBESITY
As demonstrated above, obesity has significant impacts on the health of individuals.
The increasing prevalence of many of these health conditions will have adverse effects on
work, health care costs, and disability costs. It has been estimated that an obese individual
will incur $10,000 more than a normal weight individual for lifetime medical costs related
to “diabetes, heart disease, high cholesterol, hypertension, and stroke.”43 A ten percent
37
Id.
38
Id.
39
Id.
40
Id.
41
Id.
42
Id.
43
Jay Bhattacharya & Neeraj Sood, Health Insurance, Obesity, and Its Economic Costs, The Economics
of Obesity: A Report on the Workshop held at USDA’s Economic Research Service (May 17, 2004) at 21,
available at http://www.ers.usda.gov/publications/efan04004/efan04004g.pdf.
476
reduction in weight among the obese can reduce these costs in the range of $2,200 to
$5,300.44 At least one study has found that obese individuals spend “36% more on health
services than people who are normal-weight.”45 Additionally, obese individuals spend 77
percent more on medications than non-obese individuals.46 Both of these expenditure levels exceed expenditures for health services and medications by smokers and problem drinkers.47 The economic impacts of obesity are not limited to higher health care costs. Obesity,
on average, shortens the life span by seven years.48 Since obese individuals tend to have
more chronic health problems, obese individuals have a higher incidence of lost time from
work and disability claims.49 It has been estimated, that in 1995, obesity/overweight issues
had a total economic impact of $99.2 billion, which included “39 million lost work days,
236 million restricted-activity days, 90 million bed days, and 63 million physician visits.”50
If obesity levels continue to climb and the severity of obesity continues to rise as well,
the country can anticipate an increase in disability claims against disability insurance companies, Social Security, and Medicare/Medicaid. At least one study has found that disability rates for the 30-59 age group have increased by 130 percent and the increases occurred
“across all demographic and economic groups.”51 Diabetes and musculoskeletal problems,
often associated with obesity, are the “fastest-growing causes” of disability among younger
individuals.52 Obesity affects an individual’s daily life activities of “bathing, eating, dressing, walking across room, and getting in or out of bed.”53 Moderate obesity increases the
likelihood of limitations on these abilities for men by 50 percent, while severe obesity
increases such likelihood by 300 percent.54 The impacts on women are even greater.55
44
Id.
45
O, L & I, supra note 2, at 4.
46
Rand Health, Research Highlights, Obesity and Disability: The Shape of Things to Come (2004) [hereinafter Obesity and Disability], available at http://www.rand.org/publications/RB/RB9043/RB9043.pdf.
47
Id.
48
O, L & I, supra note 2.
49
Id.
50
Id at 6.
51
Obesity and Disability, supra note 44, at 2.
52
Id. at 3.
53
Id. at 2.
54
Id.
55
Id.
477
Obesity’s limitations on these daily living activities are significant because such factors are typically considered in determining whether an individual is disabled for the purposes of Social Security, Medicare/Medicaid, and under applicable federal disability statutes, such as the ADA and Rehabilitation Act. Federal agencies have been reconsidering
their prior stances concerning the classification of obesity as a disease/disability. In 2002,
the IRS issued a ruling that allows for a deduction for uncompensated amounts paid by an
individual participating in a weight loss program.56 This ruling noted that “[o]besity is
medically accepted to be a disease in its own right.”57 In 2002, the Social Security Administration issued a ruling providing guidance for disability claims related to obesity. This
ruling recognized obesity as a “complex, chronic disease. . . .”58 This ruling also noted that
obesity constitutes a disability if the obesity is a severe impairment, which, either alone or
in conjunction with other impairments, “limits an individual’s physical or mental ability to
do basic work activities. . . .”59 An obese individual could also be disabled if the individual’s
obesity “increase[s] the severity of coexisting or related impairments [especially musculoskeletal, respiratory, and cardiovascular impairments] to the extent that the combination
of impairments meets the requirements” of disability.60 In July 2004, Medicare removed
language that obesity was not an illness from its applicable manuals.61 Then HHS Secretary
Tommy G. Thompson stated: “With this new policy, Medicare will be able to review scientific evidence in order to determine which interventions improve health outcomes for seniors and disabled Americans who are obese and its many associated medical conditions.”62
V.
THE INSURANCE INDUSTRY RECOGNIZES OBESITY PROBLEMS
The obesity/overweight health complications are resulting in higher health care related
costs, disability losses, and deaths in America. Over the past few years, several articles
have recognized the challenges facing the insurance industry due to obesity issues. There
have been warnings and calls for the insurance industry to address obesity issues through
the underwriting process, including rate increases for obese applicants or policyholders.
56
Internal Revenue Service Ruling 2002-19 (Apr. 2, 2002).
57
Id.
58
Social Security Ruling 02-01p, Titles II and XVI: Evaluation of Obesity, 60 F.R. 57859, 57860 (Sept.
12, 2002).
59
Id. at 57861-62.
60
Id.
61
Press Release, U.S. Health & Human Services, HHS Announces Revised Medicare Obesity Coverage
Policy (July 15, 2004), available at http://www.hhs.gov/news/press/2004pres/20040715.html.
62
Id.
478
The impact of obesity is not limited to the United States and insurance industry publications in other countries have recognized the potential insurance problems related to obesity.
In November 2003, an article in REINSURANCE addressed the potential impact of obesity
related issues on the life insurance industry. The article states that “[t]he long term nature of
life insurance business means that inadequate pricing of mortality risks in the future could
lead to a reduction in mortality profits, or even losses. . . . The anticipated higher prevalence of obesity in the future could also mean that pricing bases should be updated more
frequently to reflect this.”63
In February 2004, UnumProvident issued a report concerning an increase in disability
claims related to obesity. This report stated that obesity costs employers over $8,000 per
year per employee for related disabilities with direct medical costs related to obesity costing approximately $30,000 per employee. Additionally, the report noted that direct healthcare
costs related to obesity were estimated at $70 billion per year, which amounted to seven
percent of the total healthcare costs in the United States. 64
In April 2004, Swiss Re issued a report concerning the potential impact of obesity on
life insurance companies. The news release concerning the report stated: “Looking ahead,
the life insurance industry must tackle issues associated with increases in obesity by ensuring that the related risks are accurately assessed and rated, and that consumers are charged
an appropriate premium to reflect the risk they present.”65
In May 2004, an article addressing underwriting issues raised by obesity in the group
disability insurance field noted that one group insurer had been receiving more claims due
to disabilities associated with health conditions of obese workers. It reported that group
disability insurers may (1) refuse coverage for all of the employees if several employees
were obese; (2) charge the obese employees higher premiums; or (3) exclude obese employees from the group coverage.66
In August 2004, UnumProvident issued another news release addressing the impact of
obesity related conditions on disability claims submitted to it from 1996 through 2003. The
report noted that during the time period there had been 100 percent increases in claims for
hypertension or diabetes, 78 percent increase in musculoskeletal disorders, 63 percent in-
63
Ernest Eng, Hard Facts to Stomach?, REINSURANCE, November 2003 at 20, 21.
64
Press Release, UmProvident, UmProvident Report Shows Tenfold Increase in Obesity-Related Disability Claims (February 17, 2004), http://www.umprovident.com/newsroom/news/corporate/obesity.aspx.
65
Press Release, Swiss Re, Increasing levels of obesity are too big to ignore: new Swiss Re study analyses
potential impact for life insurers (Apr. 6, 2004), http://swissre.com/INTERNET/pwswpspr.nsf/
alldocbyidkeylu/SCOS-5XRJ36?OpenDocument.
66
Allison Bell, Group Disability’s Weight Problem, National Underwriter Life & Health-Financial Services Edition (May 10, 2004), http://www.insurancenewsnet.com/article.asp?a=top_Ih&Inid-207864242.
479
crease in cancer, 46 percent increase in back disorders, and 17 percent increase in cardiovascular disease. The report stated that direct health care costs attributable to obesity related conditions were estimated at $123 billion (9 percent of the total U.S. health care
costs).67
In October 2004, an Australian insurance publication addressed issues facing life insurers due to obesity issues. The article recommended that life insurers should accurately
assess and rate the risks associated with obesity and that “[b]uild ratings should be kept in
line with mortality experience and medical studies and diligently applied by underwriters.”68
In a July 2005 publication by the National Bureau of Economic Research, the authors
examined the healthcare costs associated with obesity and the payment of those costs. The
article questioned whether the current system of employer provided group health care results in disincentives for obese individuals to lose weight. The authors suggested that employer provided group insurance passes the increased healthcare costs associated with obesity to non-obese individuals because the premiums for such coverage are not rated for
obesity. The article concluded that obesity-rated premiums would provide an incentive for
obese employees to lose weight in the form of lower insurance costs.69
VI.
OBESITY RELATED ISSUES FACING THE INSURANCE INDUSTRY
There are several issues that the insurance industry will face when attempting to underwrite and assess the risks of insuring obese/overweight individuals in the future. The issues
may include (1) whether obesity related conditions can be excluded from coverage under
the insurance policy; (2) whether different premiums rates can be charged for obese/overweight individuals; and (3) whether obesity/overweight will be considered a disability under the ADA and the impact of such consideration for the insurance industry.
A. Insurance Coverage For Obesity Related Treatments
1. Does Obesity Meet Definition of Sickness/Illness?
In the cases discussed below, the courts were required to construe the terms of coverage to determine whether the particular treatment for obesity complications fell within the
definition of sickness, illness, or disease.
67
Press Release, UmProvident, Data Reveals Striking Increase in Disability Claims Related to Obesity
(Aug. 18, 2004), http://www.unumprovident.com/newsroom/news/corporate/2004/08182004_Obesity.aspx.
68
Neil Sprackling, Obesity—A Growing Issue for the Life Insurance Industry, 18 RISKEBUSINESS at 11
(Oct. 2004), available at http://www.aluca.com/Risk_e_Business/ReBOctober2004SR.pdf.
69
Jay Bhattacharya & Neeraj Sood, Health Insurance and the Obesity Externality (Nat’l Bureau of Econ.
Research Working Paper No. 11529, 2005), available at http://papers.nber.org/papers/W11529.
480
In Brenzo v. Nationwide Insurance Co.,70 the Ohio Court of Appeals affirmed a judgment on a jury verdict finding that the plaintiff’s intestinal bypass surgery, which was performed to reduce weight, did not constitute a sickness. In addition to obesity, the evidence
demonstrated that the plaintiff suffered from high blood pressure, but the treating physician
testified that he did not perform the surgery to address the high blood pressure condition.71
The group policy provided for payment of medical expenses resulting from “sickness or
accidental bodily injury” and the insurance company denied the plaintiff’s claim for benefits.72 Examining definition of “sickness,” the court stated:
The definition of sickness is directed at conditions constituting an impairment of
vital functions to the organism. The mere presence of excess weight is not an
impairment of such functions. It may have an aesthetic impact. It may affect the
efficiency of operation. Here appellant testifies to difficulty in walking and lifting.
These, however, are not functions essential to the maintenance of life. The organism still exists and lives. What excess weight constitutes is not a sickness but a
condition constituting a prelude to sickness. In time and unchanged, the excess
weight may lead to impairment of vital functions but so far as the evidence here
shows the jury was justified in finding an impairment had not yet appeared.73
In Bobbitt v. Electronic Data Systems Corp.,74 the Texas Court of Appeals affirmed a
judgment in favor of an ERISA health plan created by the plaintiff’s employer. Mrs. Bobbitt,
who was overweight, had a gastroplasty operation and brought suit after the health plan
denied her request for reimbursement for the expenses. The health plan denied the claim
because Mrs. Bobbitt’s obesity did not constitute an illness or injury as required under the
plan. In affirming the trial court’s ruling in favor of the plan, the court of appeals noted that
the doctors testifying at trial that “morbid” obesity constituted an illness or disease but the
doctors did not agree that Mrs. Bobbitt was “morbidly” obese. Accordingly, the court held
that the plaintiff did not establish that the obesity related surgery was for an illness or
disease.
The Brenzo and Bobbitt opinions concluded that the treatments provided did not fall
within the respective insurance policy definitions of sickness or illness. If the insureds had
produced evidence that the surgical procedures were undertaken to address some of the
health complications of obesity, a different result could have occurred in either or both
70
1978 Ohio App. Lexis 9611 (Ohio Ct. App. 1978)
71
Id. at *8.
72
Id. at *1-2.
73
Id. at *8-9.
74
652 S.W.2d 620 (Tex. Ct. App. 1983).
481
cases. Both were decided before 1984, and the lack of any discussion of an exclusion of
obesity-related treatments lead the authors to conclude that the courts did not have to address the effect of such exclusions on the claims.
2. Can Obesity be Excluded from Coverage?
Many insurance policies include provisions that exclude claims related to obesity-related conditions and treatments. Typically, courts have enforced these exclusions over the
years. Several of the cases discussed below involved decisions by ERISA plans, and the
decisions were reviewed under an arbitrary and capricious standard. Whether a different
result would have occurred under a less deferential standard of review is unknown.
In Cain v. Fortis Insurance Co.,75 the South Dakota Supreme Court affirmed the trial
court’s holding that the plaintiff’s claim for gastric bypass surgery was excluded under the
terms of the insurance policy. The plaintiff, who had been diagnosed as morbidly obese,
with high blood pressure and degenerative joint disease, underwent the surgery after other
weight loss options were unsuccessful. The insurance policy contained an exclusion that
stated “[y]ou are not covered for any treatment or regime, medical or surgical, for the
purpose of controlling your weight or for the treatment of obesity.”76 The court also noted
that it was irrelevant whether the surgery was medically necessary for treatment of the
plaintiff’s high blood pressure and degenerative joint disease because the policy specifically excluded such treatment.77 The court rejected an argument that the exclusion was
ambiguous because it did not distinguish between obesity and morbid obesity and held that
“descriptive terms such as ‘severe,’ ‘extreme,’ and ‘morbid’ are often used to diagnose an
individual’s level of obesity” and, therefore, the term obesity included such designations.78
In Flecha De Lima v. International Medical Group, Inc.,79 the court rejected a similar
argument that an obesity exclusion did not apply to treatment for “morbid” obesity. The
language of the policy excluded claims for “[w]eight modification, or surgical treatment of
obesity, including wiring of the teeth and all forms of intestinal bypass surgery.”80 The
insured argued that the term “weight modification” did not apply to surgical procedures for
sustained weight loss and the exclusion did not apply to “morbid” obesity. As to the first
75
694 N.W.2d 709 (S.D. 2005).
76
Id. at 711.
77
The Court also rejected a claim that the insurance company violated a South Dakota statute prohibiting
discrimination in insurance policies because the policy exclusion applied to all insured and did not discriminate against the plaintiff.
78
Id. at 713.
79
2004 D.C. Super. Lexis 21 (D. C. Super. 2004).
80
Id. at *7.
482
argument, the court held that, even if such a strained interpretation was applied to the term
“weight modification,” the language still excluded surgical procedures for obesity. As to
the second argument, the court held that the term obesity included “morbid” obesity and
stated “the Plaintiff has failed to explain why a reasonable jury would find that ‘morbid
obesity’ is not a sub-category of ‘obesity,’ when the ordinary meaning, the medical community, a hospital website the Plaintiff’s own expert helped to develop, and the National Institutes of Health indicate precisely the opposite.”81
In Thrasher v. Corporate Systems, Inc.,82 the plaintiff filed suit after the ERISA plan
rejected her request for predetermination of coverage for gastric bypass surgery. The plan
document contained a specific exclusion that applied to treatment for obesity or weight loss
programs regardless of whether the treatment was prescribed by a doctor. After the predetermination denial, the plaintiff underwent surgery and filed suit. Reviewing the determination under an arbitrary and capricious standard, the court held that the plaintiff had not
proven that the denial decision was arbitrary and capricious. It found that the defendant had
“demonstrated a reasonable basis in the record for making its determination of non-coverage; the surgery was specifically excluded by the policy and the surgery was not medically
necessary.”83
In Strader v. Central States, Southeast & Southwest Areas Health & Welfare Fund,84 an
ERISA case, the court examined whether the Fund’s denial of coverage for gastric bypass
surgery was arbitrary and capricious. The plaintiff, who had previously undergone a
jejunoiliel (“JI”) bypass surgery, underwent the surgical procedure after her doctor diagnosed a failed JI bypass, recommended a “take down” of the JI bypass and the gastric
bypass. The plaintiff sought predetermination of coverage and submitted additional medical evidence after a denial of the first predetermination request. The Fund, upon receiving
the additional medical evidence, sought an opinion from a doctor, who determined that the
procedure was “clearly cosmetic.”85 The Fund plan documents contained an exclusion stating “[t]he plan shall not pay any charge incurred for any treatment or service connected
with surgery performed for cosmetic purposes, even if performed for psychological reasons, unless the treatment or service is required as a result of accident bodily injury.”86 The
court concluded that the exclusion applied and ruled in favor of the Fund holding that the
81
Id. at *14.
82
2002 U.S. Dist. Lexis 546 (N.D. Tex. 2002).
83
Id. at *5.
84
No. 86-3340-DV-S-4, 1987 U.S. Dist. LEXIS 14124 (W.D. Mo. May 4, 1987).
85
Id. at *8.
86
Id. at *10-11.
483
decision was not arbitrary and capricious based in part on the fact that the Fund relied upon
the doctor’s determination that the procedure was cosmetic.87 One interesting side-note of
the opinion is that the court noted that the consulting doctor held the opinion that “there is
no recognized medical evidence to show that morbid obesity causes or aggravates coronary
artery disease, diabetes, hypertension and cerebral vascular disease or that the removing of
obesity prevents or cures any of these diseases.”88 The authors question whether such an
opinion would be accepted by a trial court in 2005 based upon the available medical information discussed earlier in this article and elsewhere.
The language of the exclusionary provision is important to the determination of whether
the medical treatment will be covered or excluded. In Lowell v. Drummond, Woodsum &
MacMahon Employee Medical Plan,89 the court had to determine whether the Plan’s decision to deny benefits for gastric bypass surgery was reasonable. The Plan provided coverage for medically necessary treatment prescribed by a physician but excluded “any expense
for weight reduction, nutritional or dietary counseling (except to the extent provided herein);
smoking clinics, sensitivity training, encounter groups, educational programs (except as
provided herein); career counseling, and activities whose primary purposes are recreational
and/or social.”90 The Plan, while recognizing that the surgery was medically necessary,
denied the request for predetermination of coverage under this exclusionary language. The
court held that the surgical procedure met the plan definition of a covered expense and then
examined the exclusion to determine if it applied. It noted that the prefatory language of the
exclusion section demonstrated that the purpose of the exclusions was to “preclude coverage for medically unnecessary and inappropriate treatment, regardless whether performed
or prescribed by a physician” and the applicable exclusion contained a list of services that
“would be classified as lifestyle enhancements rather than medical necessities.”91 The court
concluded that the exclusion could be reasonably construed to preclude a Weight Watchers
membership but “not reasonably construed to bar coverage of medically necessary and
appropriate gastric bypass surgery.”92 It also held that the exclusionary language would not
87
Id. at *15-16.
88
Id. at *15. See also Exbom v. Central States, Southest & Southwest Areas Health & Welfare Fund, 900
F.2d 1138 (7th Cir. 1990) (affirming district court’s ruling that the Fund’s decision to deny coverage for
gastric bypass surgery based upon the same exclusion was not arbitrary and capricious. The Fund relied
upon an opinion by the same doctor in the Strader case.); Livingston v. Central States, Southeast & Southwest Areas Health & Welfare Fund, 900 F. Supp. 108 (E.D. Mich. 1995) (holding that the Fund’s determination that the surgical procedures were efforts to correct complications of prior obesity surgery, were
cosmetic, and were excluded under the terms of the plan and was not, therefore, arbitrary and capricious.
Again, the Fund relied upon an opinion by the same doctor in the Strader case.).
89
No. 03-244-P-S, 2004 U.S. Dist. LEXIS 13059 (D. Maine July 13, 2004).
90
Id. at *7.
91
Id. at *26.
92
Id.
484
apply to the gastric bypass surgery because the surgery was not intended for “weight reduction” but to “reduce or eliminate associated morbidities” that the treating physician believed would occur.93
3. Are there Legislative Limits on Obesity Exclusions?
A fairly recent legislative trend casts doubts on whether insurance companies will be
allowed to continue to exclude coverage for treatment of morbid obesity. Several state
legislatures have adopted statutes that prohibit such exclusionary language in insurance
policies sold in the state.
For example, in 1999 the Georgia Legislature enacted a statute specifically intended to
allow for coverage for the treatment of morbid obesity.94 The statute is titled the “Morbid
Obesity Anti-discrimination Act” and applies to any “individual or group plan, policy, or
contract for health care services issued, delivered, issued for delivery, or renewed in this
state which provides major medical benefits . . . by a health care corporation, health maintenance organization, preferred provider organization, accident and sickness insurer, fraternal benefit society, hospital service corporation, medical service corporation, or other
insurer or similar entity.”95 The Georgia statute defines morbid obesity as (a) 100 pounds
over or twice the ideal weight specified in the 1983 Metropolitan Life Insurance tables, (b)
a BMI of 35 to 39.9 with co-morbidity, or (c) a BMI of 40 or more without co-morbidity.96
The Georgia statute purportedly prohibits discrimination against morbidly obese individuals but does not mandate insurance coverage for such individuals. Instead, the statute states
“[e]very health benefit policy . . . which provides major medical benefits may offer coverage for the treatment of morbid obesity.”97 Although the statute instructed the Georgia
Commissioner of Insurance to promulgate rules and regulations to implement the statute,
the authors were unable to locate any such rules or regulations related to this statute. Based
upon the language of the Georgia statute, it does not appear to prohibit an insurance company from excluding coverage for obesity despite the stated legislative intent to provide for
treatment and coverage of morbid obesity.
In 2000, the Virginia Legislature enacted a statute mandating coverage for the treatment of morbid obesity.98 The statute applies to individual and group accident/sickness
policies providing major medical coverage, corporations providing individual or group
93
Id. at *28.
94
GA. CODE. ANN. § 33-24-59.7 (2006).
95
Id. §33-24-59.7(a), (b)(5)(A).
96
Id. §33-24-59.7 (b)(5)(D).
97
Id. §33-24-59.79(d) (emphasis added).
98
VA. CODE ANN. § 38.2-3418.13 (2006).
485
accident/sickness subscription contracts, HMOs. It requires that such entities “shall offer
and make available coverage . . . for the treatment of morbid obesity through gastric bypass
surgery or such other methods as may be recognized by the National Institutes of Health as
effective for the long-term reversal of morbid obesity.”99 The statute applied to any such
policy delivered, issued for delivery, or renewed on or after July 1, 2000.100 It further provides that (a) reimbursement for treatment of morbid obesity shall be determined by the
formulas applicable to other medical services, (b) the coverage, including deductible and/
or co-pays shall be no less favorable than those applicable to other physical illness, and (c)
the standards used to approve or restrict access to surgery for morbid obesity “shall be
based upon current clinical guidelines recognized by the National Institutes of Health.”101
The statute contains basically the same definition of morbid obesity as the Georgia statue
discussed above.102 It is clear from the language of the Virginia statute that insurance companies cannot sell policies covered by the statute in the state that exclude coverage for
treatment of morbid obesity.
In 2000, the Indiana Legislature enacted a statute mandating coverage for non-experimental, surgical treatment of morbid obesity, if the condition had lasted at least five years
and non-surgical treatment recommended by a physician had been unsuccessful for at least
18 consecutive months.103 In 2005, the Indiana Legislature amended the statute to prohibit
such coverage for individuals under 21 unless two physicians determined the surgery was
necessary to save the life of the insured or restore the insured’s ability to maintain a major
life activity.
In 2001, the Maryland Legislature enacted a statute mandating coverage for “morbid”
obesity.104 The statute defines morbid obesity as (a) a BMI of 40 or more or (b) a BMI of 35
or more with a “comorbid medical condition, including hypertension, a cardiopulmonary
condition, sleep apnea, or diabetes.”105 The statute applies to (a) individual and group policies that provide hospital, medical, or surgical benefits on an expense-incurred basis, (b)
HMOs, and (c) managed care organizations. It requires these entities to provide benefits to
the “same extent as for other medically necessary surgical procedures” under the applicable insurance contract.106 The statute states that the entity “shall provide coverage for the
99
Id. §38.2-3418.13(A).
100
Id.
101
Id. §38.2-3418.13(B) (emphasis added).
102
Id. §38.2-3418.13(C). The Virginia Legislature has also enacted a statute that mandates coverage for
treatment of “morbid” obesity in health insurance for state employees. See VA. CODE. ANN. § 2.2-2818(B)
(2006).
103
IND. CODE ANN. §27-8-14.1-4 (2006).
104
MD. CODE ANN., [Ins.] §15-839 (2006).
105
Id. §15-839(a)(3)(i)-(ii).
106
Id. §15-839(b), (d).
486
surgical treatment of morbid obesity that is: (1) recognized by the National Institutes of
Health as effective for the long-term reversal of morbid obesity; and (2) consistent with the
guidelines approved by the National Institutes of Health.”107 As with the Virginia statute, it
is clear that the Maryland statute mandates coverage for treatment of morbid obesity and an
insurance company could not exclude such coverage.
B. Different Premium Rates For Obese Individuals
As discussed above, the authors of Health Insurance and the Obesity Externality 108
have suggested that obese individuals should be charged higher premiums in employee
provided group insurance plans to serve as an incentive to encourage the individuals to lose
excess weight. While insurance companies may be able to charge higher premiums to obese
individuals seeking individual policies, the authors doubt that the suggestion of higher
premiums charged to individual plan participants would comply with applicable federal
and state statutes at least to group insurance plans. When Congress enacted The Health
Insurance Portability and Accountability Act (“HIPAA”), it included a provision, section
300gg-1, that prohibits discrimination against individual participants in group insurance
plans based upon the health status of the individual.109 The statute prohibits enrollment
rules that consider any of the following health factors of the individual or dependents:110
(A) Health status.
(B) Medical condition (including both physical and mental illnesses).
(C) Claims experience.
(D) Receipt of health care.
(E) Medical history.
(F) Genetic information.
(G) Evidence of insurability (including conditions arising out of domestic
violence).
(H) Disability.
107
Id. §15-839(c) (emphasis added).
108
Bhattacharya & Sood, supra note 69.
109
42 U.S.C.A. § 300gg-1 (2006).
110
Id. § 300gg-1(a)(1).
487
In addition to prohibiting consideration of health status for the purposes of enrollment, the
statute also prohibits discrimination in premiums charged to the individual based upon the
health status.111 Paragraph (b) of the statute states:
(1) In general. A group health plan, and a health insurance issuer offering health
insurance coverage in connection with a group health plan, may not require
any individual (as a condition of enrollment or continued enrollment under the
plan) to pay a premium or contribution which is greater than such premium or
contribution for a similarly situated individual enrolled in the plan on the basis
of any health status-related factor in relation to the individual or to an individual enrolled under the plan as a dependent of the individual.
(2) Construction. Nothing in paragraph (1) shall be construed –
(A) to restrict the amount that an employer may be charged for coverage
under a group health plan; or
111
Id. § 300gg-1(b). Several states have enacted statutes that have adopted the same provisions as a matter
of state law. The following states have enacted statutes that adopt the HIPPA provision verbatim or nearly
verbatim:
Arkansas
ARK. CODE ANN. § 23-86-306 (2006).
Florida
FLA. STAT. ANN. § 627.65625 (2006) (applicable to insurers).
§ 641.31073 (2006) (applicable to HMOs).
Louisiana
LA. REV. STAT. ANN. § 22:250.3 (2006).
New Mexico
N.M. STAT. ANN. § 59A-23E-11 (2006) (adopting the language
of U.S.C. § 300gg-1(a)).
§ 59A-23E-12 (2006) (adopting the language of §300gg-1(b)).
North Carolina
N.C. GEN. STAT. § 58-68-35 (2006).
South Carolina
S.C. CODE ANN. § 38-71-860 (2006).
Two other states have enacted statutes that require insurance company compliance with HIPAA
including § 300gg-1.
Connecticut
CONN. GEN. STAT. § 38a-47a(b) (2006).
Vermont
VT. STAT. ANN. TIT. 8, § 4062c (2006).
488
(B) to prevent a group health plan, and a health insurance issuer offering
group health insurance coverage, from establishing premium discounts
or rebates or modifying otherwise applicable copayments or deductibles
in return for adherence to programs of health promotion and disease prevention.112
This statute prohibits charging individual participants in a group health plan higher
premiums based upon any health related status. Obesity, along with the associated morbidities, would constitute health status and a medical condition. It is important to note that
HIPAA does not create a private right of action or an implied private right of action. Any
action to enforce the provisions, including this section, have to be brought by the appropriate state agency or the Secretary of Health and Human Services.113
Based upon the language of the statute, an insurer that sought to consider one’s obesity
in attempting to establish the premium for the individual’s participation in a group policy
has two potential avenues to charge premiums that reflect the risks of additional claims that
are likely. First, the statute does not prohibit the insurance company from charging an employer higher premiums for the group coverage. Second, the statute does not prohibit the
insurance company from providing premium discounts or rebates or reducing co-payments
or deductibles for individuals that participate in programs promoting good health or disease prevention. It is conceivable that the statute could be interpreted to approve a premium
structure that charged higher premiums to reflect the risks of insuring obese individuals but
allowed for discounts, rebates, lower co-pays, or deductible for group participants that
were involved in programs to promote good health, including weight loss or maintaining a
healthy BMI. If higher premiums were not charged for such a plan, the discounts, etc.,
would likely increase the insurance company’s costs associated with claims under the group
plan.
C. Obesity as a Disability and the Impact on Insurers
With a population that has experienced and is currently continuing to experience rising
rates of obesity, insurers face increasing claims for health care coverage, disability benefits
and life benefits. Obesity, due to the effects on health conditions, disability, and life expectancy, will likely result in additional claims in all three areas for years to come. In the authors’ opinion, the dilemma of obesity will be greatly exacerbated if obesity is classified as
a “disability” under the ADA. Such a classification will mean that insurance companies
112
42 U.S.C.A. §300gg-1(b) (2006).
113
Northwestern Mem’l Hosp. v. Vill. of S. Chicago Heights Health & Welfare Fund, 2004 U.S. Dist.
Lexis 14411, *10-11 (N.D. Ill. 2004); O’Donnell v. Blue Cross Blue Shield of Wyoming, 173 F. Supp.
1176, 11180 (D. Wy. 2001)
489
will have to navigate a quagmire of federal regulations and will face lawsuits alleging
violations of the ADA. Fortunately, as things currently exist, obesity, by itself, is not classified as a disability for ADA purposes.114
In Fredregill v. Nationwide Agribusiness Insurance Co.,115 the plaintiff filed suit against
his employer under Title I of the ADA asserting that the employer discriminated against
him and denied a promotion based upon the plaintiff’s weight. The plaintiff further alleged
that, when interviewing for the promotion, he was told he would need to lose weight as a
condition for the job. He did not receive the promotion, was subsequently demoted from a
position he transferred to at the request of his employer, and filed suit. The court granted
the employer’s motion for summary judgment on the ADA claims. It noted that an individual can meet the definition of being disabled in three ways: (1) having a physical or
mental impairment that substantially limits one or more major life activities; (2) having a
record of such impairment; or (3) being regarded as having such impairment.116 The court
held that “obesity alone is generally not a disability.”117 It stated:
People come in different shapes and sizes. A large segment of the population is
obese to some degree, and obesity is a matter of degree. It is a mutable condition
for some, immutable for others. It affects different people in different ways, sometimes not at all. Obesity may be the product or cause of physiological disorders or
conditions, but it must relate to a physiological disorder or condition to meet the
statutory definition of disability as explained in the EEOC regulations and interpretive guidance. As with any claim of disability, an assessment of the individual
person’s circumstances is required.118
Seven years after the Fredregill decision, a different district court denied a motion to
dismiss the plaintiff’s claims alleging violations of Title II of the ADA brought against a
state Medicaid agency. In Mendez v. Brown,119 three plaintiffs who were “morbidly” obese
filed suit after the Medicaid agency refused to pay for surgical procedure for breast reductions, which was recommended for treatment of hypermastia (severe breast enlargement).
114
See 29 C.F.R. 1630, app. §1630(j) (2006).
115
992 F. Supp. 1082 (S.D. Iowa 1997).
116
Id. at 1088.
117
Id. (citing Francis v. City of Meriden, 129 F.3d 281 (2d Cir. 1997); Andrews v. Ohio, 104 F.3d 803 (6th
Cir. 1997); Nedder v. Rivier Coll., 908 F. Supp. 66 (D.N.H. 1995); Smaw v. Commonwealth of Virginia
Dep’t of State Police, 862 F. Supp. 1469 (E.D. Va. 1994)).
118
Id. at 1089.
119
311 F. Supp. 2d 134 (D. Mass. 2004).
490
The Medicaid agency stated that it would reconsider its decision after the plaintiffs lost a
significant amount of weight. The complaint alleged that the plaintiffs were morbidly obese
and were disabled under the ADA. Rejecting the motion to dismiss, the court relied upon a
decision by the First Circuit Court of Appeals in construing the Rehabilitation Act, which
the defendant conceded allowed obese individuals to pursue discrimination claims under
that Act.120 Based upon the facts, the court concluded that the plaintiffs’ allegation of discrimination was sufficient to state a claim that they suffered a physical impairment, but
acknowledged that the plaintiffs would have to prove that their obesity substantially limited
at least one major life activity.
In Cook v. Rhode Island Department of Mental Retardation,121 the court affirmed a jury
verdict in favor of the plaintiff, who had been denied employment because the Department
did not believe that the plaintiff could perform the job due to her obesity. The court determined that the plaintiff presented evidence that her obesity met the requirement of a physical impairment because she presented evidence that “morbid obesity is a physiological
disorder involving a dysfunction of both the metabolic system and the neurological appetite-suppressing signal system, capable of causing adverse effects within the musculoskeletal, respiratory, and cardiovascular systems.”122 It further held that the plaintiff met a separate standard that the employer regarded her as being disabled.123 A different result occurred in Morrison v. Pinkerton, Inc.,124 where the plaintiff alleged that the employer violated a Texas statute, which was designed to implement the ADA policies under state law,
by discriminating against him due to his obesity. The Texas Court of Appeals affirmed
summary judgment in favor of the employer because the plaintiff did not produce evidence
to prove that his obesity met the definition of a disability. Unlike the Cook plaintiff, the
plaintiff did not produce any expert evidence to show that his obesity affected any body
system.
Each of these cases recognizes that obesity can constitute a disability under the ADA,
or a comparable state statute, under certain circumstances. With respect to an individual, a
disability means “(1) a physical or mental impairment that substantially limits one or more
of the major life activities of such individual; (2) a record of such an impairment; or (3)
120
See Cook v. Rhode Island Dep’t of Mental Retardation, 10 F.3d 17 (1st Cir. 1993).
121
10 F.3d 17 (1st Cir. 1993).
122
Id. at 23.
123
See also McDermott v. Xerox Corp., 480 N.E.2d 695 (N.Y. 1985). In McDermott, the employer refused
to hire the plaintiff because she failed a pre-employment medical examination due to her weight. The
plaintiff filed suit under a New York statute that prohibited discrimination against a disabled person. The
court concluded that the plaintiff’s obesity constituted a disability under the applicable New York law.
124
7 S.W.3d 851 (Tex. App. 1999).
491
[being] regarded . . . as having such an impairment.”125 The applicable ADA regulations
define “physical or mental impairment” as
(1) Any physiological disorder, or condition, cosmetic disfigurement, or anatomical loss affecting one or more of the following body systems: neurological,
musculoskeletal, special sense organs, respiratory (including speech organs),
cardiovascular, reproductive, digestive, genito-urinary, hemic and lymphatic,
skin, and endocrine; or
(2) Any mental or psychological disorder, such as mental retardation, organic brain
syndrome, emotional or mental illness, and specific learning disabilities.126
Major life activities are defined as “functions such as caring for oneself, performing manual
tasks, walking, seeing, hearing, speaking, breathing, learning, and working.”127 If an
individual’s obesity meets the definition of a disability for the purposes of the ADA, what
are the implications for an insurance company that is considering the individual for coverage? Can the insurance company refuse to issue the policy? Can the insurance company
limit benefits payable to treatment of obesity?
Title III of the ADA applies to insurance companies that sell policies to the public but
does not apply to insurance companies that provide coverage through employee benefit
plans.128 Title III prohibits discrimination against a disabled person by a place of public
accommodation, including an insurance office.129 The ADA contains a safe harbor provision applicable to insurance companies regardless of whether Title I or Title III is at issue.
The safe harbor provides that the ADA does not prohibit insurance companies “from underwriting risks, classifying risks, or administering such risks that are based on or not
inconsistent with State law” provided such actions are not used as a “subterfuge to evade
the purposes” of the ADA.130
125
29 C.F.R. § 1630.1(g) (2006).
126
Id. § 1630.1(h).
127
Id. § 1630.1(i).
128
See Parker v. Metropolitan Life Ins. Co., 121 F.3d 1006 (6th Cir. 1997); Weyer v. Twentieth Century
Fox Film Corp., 198 F.3d 1104 (9th Cir. 1999); Erwin v. Northwestern Mut. Life Ins. Co., 999 F. Supp.
1227 (S.D. Ind. 1998).
129
Pallozzi v. Allstate Life Ins. Co., 198 F.3d 28 (2d Cir. 1999).
130
Id. at 30 (citing 42 U.S.C.A. §12201(c)).
492
In Cloutier v. Prudential Insurance Co. of America,131 the court held that Prudential
violated the ADA by refusing to issue a life insurance policy to an individual who was
involved with a HIV partner. The prospective insured practiced safe sex and had not tested
positive for HIV. The court stated that the ADA’s “general prohibitions ban the discriminatory ‘denial of the opportunity . . . to participate in or benefit from the goods, services,
facilities, privileges, advantages, or accommodations of an entity.’”132 It noted that the ADA’s
“specific prohibitions against discriminatory ‘application of eligibility criteria,’ ‘failing to
make reasonable modifications in policies, practices, or procedures,’ and ‘failure to take
steps . . . to ensure that no individual with a disability is excluded, denied services . . . or
otherwise treated differently,’ could easily apply to the case of an insurer’s rejection of a
prospective customer without any physical barriers to access.”133 The court held that the
safe harbor provision did not apply because Prudential did not offer any actuarial or other
evidence to justify the rejection of the application, and “the mere fact that a particular
individual presents a greater risk does not compel the conclusion that the individual presents an uninsurable risk.”134
In Pallozzi v. Allstate Life Insurance Co.,135 the insurer refused to sell insurance coverage to the plaintiffs, who had a history of treatment for mental illness. The court reversed
the district court’s dismissal of the complaint asserting violations of Title III of the ADA.
The district court dismissed the complaint, due to a lack of an allegation that the insurer’s
decision lacked actuarial justification. The Court of Appeals held that Title III prohibited
an insurance company from refusing to issue insurance coverage on the basis of a disability
subject to the limitations of the safe harbor provision.136
In Winslow v. IDS Life Insurance Co.,137 the court addressed whether the decision of
IDS to refuse to issue disability insurance to an individual with a history of mental illness
complied with the safe harbor provision. The insurer had a policy of automatically refusing
coverage for an individual who had received treatment for a mental or nervous condition
within the previous twelve months. This policy did not comply with an underwriting manual
131
964 F. Supp. 299 (N.D. Cal. 1997).
132
Id. at 302.
133
Id.
134
Id. at 305.
135
198 F.3d 28 (2d Cir. 1999).
136
See also Hollander v. Paul Revere Life Ins. Co., 1997 U.S. Dist. LEXIS 23677 (S.D.N.Y. 1997) (refusing to dismiss plaintiff’s complaint that the insurance company violated Title III of the ADA by refusing
coverage); Baker v. Hartford Life Ins. Co., 1995 U.S. Dist. LEXIS 14103 (N.D. Ill. 1995) (refusing to
dismiss plaintiff’s claim that the insurance company violated Title III by denying coverage for plaintiff’s
disabled son).
137
29 F. Supp. 2d 557 (D. Minn. 1998).
493
that the company used for other underwriting decisions. The court applied a two-part test,
i.e., “(1) is the eligibility criteria . . . based on and consistent with state law; and (2) is the
eligibility criteria a subterfuge to evade the purposes of the ADA,” to determine if the
decision met the safe harbor requirements.138 Based upon an applicable state statute, the
court held that the insurance company had to “justify such eligibility criteria with claims
experience, actuarial projections, or other data to ‘establish significant and substantial differences in class rates because of the disability.’”139 It denied summary judgment for the
insurer because the plaintiff produced sufficient evidence challenging the data produced by
the insurer. The court did not reach the subterfuge issue because a genuine issue existed
whether the decision complied with state law. It further held that the insurer’s policy of
denying coverage for individuals who had been treated for mental conditions within the
previous twelve months denied access to insurance and violated the ADA.
In Doukas v. Metropolitan Life Insurance Co.,140 the court considered whether the insurance company’s decision met the requirements of the safe harbor provision. It concluded that a question of fact existed as to whether the decision to refuse coverage violated
the ADA. The court stated:
[W]hile insurers retain the ability to follow practices consistent with insurance risk
classification consistent with state law, these methods must still be based on sound
actuarial principles or related to actual or reasonably anticipated experiences. In
the absence of such characteristics, an insurance practice that is otherwise not
inconsistent with state law may still be a subterfuge to evade the purposes of the
ADA and therefore unprotected by the safe-harbor provision.141
An insurer that refuses to issue coverage to an individual who suffers from a disability
meeting the requirements of the ADA will have to demonstrate that the eligibility criteria
for the decision falls within the provisions of the safe harbor. The company will have to
demonstrate that the decision is either based on or not inconsistent with state law and is
supported by actuarial data or actual or reasonably anticipated experiences demonstrating
the underwriting risks associated with the decision. Additionally, the insurer will have to
demonstrate that its decision is not a subterfuge to evade the purposes of the ADA.
While the ADA prohibits discrimination in the issuance of an insurance policy, there
are several courts that have held that the ADA does not prohibit an insurance company
from limiting coverage for conditions that would be considered a disability provided the
limitation applies to all individuals.
138
Id. at 564.
139
Id. at 565.
140
950 F. Supp. 422 (D.N.H. 1996).
141
Id. at 432.
494
In Chabner v. United of Omaha Life Insurance Co.,142 the court reversed a ruling by the
district court that held the insurer’s policy of rating an insurance contract due to a condition
that constituted a disability violated the ADA. The court held that Title III did not apply “to
the terms of the policies the insurance company sells” and the insurance company “did not
violate the ADA by offering Chabner a nonstandard policy.”143 It referred to its previous
holding in Weyer v. Twentieth Century Fox Film Corp.144 that “an insurance office must be
physically accessible to the disabled but need not provide insurance that treats the disabled
equally with the non-disabled.”145 In Doe v. Mutual of Omaha Insurance Co.,146 the court
held that the ADA did not regulate the contents of an insurance policy, so a cap on AIDS
benefits did not violate the ADA. It stated “we conclude that section 302(a) does not require a seller to alter his product to make it equally valuable to the disabled and to the
nondisabled, even if the product is insurance.”147 In McNeil v. Time Insurance Co.,148 the
Fifth Circuit Court of Appeals considered whether Title III prohibited an insurance company from placing limits for AIDS related treatment. The court rejected the plaintiff’s argument and held:
We believe that Title III prohibits the owner, operator, lessee, or lessor from denying the disabled access to, or interfering with their enjoyment of, the goods and
services of a place of public accommodation. Title III does not, however, regulate
the content of goods and services that are offered.149
The same conclusions have been reached by courts considering Title I claims that an
employer-provided plan violated the ADA because certain disabilities were treated differently under the plan. In EEOC v. Staten Island Savings Bank,150 the court held that an
employee benefit plan could offer greater benefits for physical disabilities versus mental
disabilities without violating Title I of the ADA. It stated that “so long as every employee is
offered the same plan regardless of that employee’s contemporary or future disability status, then no discrimination has occurred even if the plan offers different coverage for vari-
142
225 F.3d 1042 (9th Cir. 2000).
143
Id. at 1047.
144
198 F.3d 1104 (9th Cir. 2000).
145
Id. at 1115.
146
179 F.3d 557 (7th Cir. 1999).
147
Id. at 563.
148
205 F.3d 179 (5th Cir. 2000).
149
Id. at 186.
150
207 F.3d 144 (2d Cir. 2000).
495
ous disabilities.”151 In Lewis v. Kmart Corp.,152 the court addressed the same issue and
concluded that a plan providing greater benefits for physical disabilities than mental disabilities did not violate the ADA because “the ADA does not require a long-term disability
plan that is sponsored by a private employer to provide the same level of benefits for mental
and physical disabilities.”153 It further noted that the “federal disability statutes are not
designed to ensure that persons with one type of disability are treated the same as persons
with another type of disability.”154 In Parker v. Metropolitan Life Insurance Co., the Sixth
Circuit Court of Appeals held that the ADA “does not mandate equality between individuals with different disabilities.” 155 The authors have found one Title I case that involves a
claim that an obesity exclusion in an employer provided plan violated the ADA. In Templet
v. Blue Cross/Blue Shield of Louisiana,156 the court rejected an argument that the blanket
obesity exclusion violated the ADA. Apparently, it accepted the claim that obesity constituted a disability under the ADA and considered whether the exclusion was discriminatory
thereunder. It held that the exclusion did not violate the ADA and stated “given the vast
authority that a blanket insurance exclusion does not violate the ADA prohibition of discrimination when distinctions in coverage apply to all regardless of disability,” finding
summary judgment for the insurer was proper.157
The cases construing Title I and Title III of the ADA allow for provisions in insurance
policies to limit benefits to individuals, even if they are disabled, provided the limitations
apply to all individuals covered by the policy. Limitations such as the amount payable for
certain conditions are acceptable. Accordingly, we believe that an insurance company can
issue a policy that limits the amount of benefits payable for obesity-related claims, even if
obesity were to be determined to be a disability, without violating the ADA. In individual
policies, we believe that the insurer can rate the policies and charge a higher premium for
obese individuals. The company cannot charge an individual a higher premium for group
insurance due to the HIPAA prohibitions discussed above. It appears, at least in the context
of Title I, that an exclusion of claims related to obesity will not violate the ADA. We do
151
Id. at 150 (quoting Ford v. Schering-Plough Corp., 145 F.3d 601, 613 (3d Cir. 1998)).
152
180 F.3d 166 (4th Cir. 1999).
153
Id. at 170.
154
Id. at 171-72.
155
121 F.3d 1006, 1015 (6th Cir. 1997). See also EEOC v. CNA Ins. Cos., 96 F.3d 1039 (7th Cir. 1996)
(plan that provided different benefits for physical disabilities versus mental disabilities did not violate the
ADA).
156
No. 99-1400, 2000 U.S. Dist. Lexis 15605 (E.D. La. 2000).
157
Id. at *10.
496
have one cautionary note concerning the HIPAA enactments by the various state legislatures discussed above. Based upon the HIPAA language adopted or incorporated by these
statutes, a good argument exists that the insurance company cannot charge higher premiums to group policyholders based upon the insured’s health status, which would include
obesity, because such action would not be consistent with state law. If such an argument
were accepted, the insurer’s decision would not meet the ADA safe harbor provisions.
VII.
CONCLUSION
The dramatic increases in obesity/overweight rates in the United States over the past
two decades present some daunting challenges to the insurance industry. The increased
obesity rates are likely to create more claims for health coverage, disability benefits, and
life benefits for insurers. Several states have enacted statutes requiring coverage for “morbid” obesity, thereby destroying the exclusionary language contained in many policies. The
industry also faces challenges with the complication that obesity can be considered disability, especially in conjunction with other health problems. The potential classification of
obesity as a disability creates ADA issues for insurance companies attempting to underwrite coverage and pay claims for policies issued to obese individuals. Even with the ADA
issue, there appears to be a consensus among most of the Federal Circuit Courts of Appeal
that the ADA does not regulate the content of insurance policies, so insurers may be able to
exclude or limit coverage for medical treatment of obesity, provided there is no conflicting
state law prohibitions against such action.
497
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498
Malingering of Psychiatric Problems
Malingering of Psychiatric Problems,
Brain Damage, Chronic Pain,
and Controversial Syndromes in
a Personal Injury Context
Steve Rubenzer
I.
Introduction
Malingering is defined as “the intentional production of false or grossly exaggerated
physical or psychological symptoms, motivated by external incentives . . .” by the American
Psychiatric Association (APA).1 The APA’s Diagnostic and Statistical Manual further states
that, “Malingering should be ruled out in those situations in which financial remuneration,
benefit eligibility, and forensic determinations play a role.”2 Treating clinicians, however,
may not know that a patient has such motivations since a patient may not disclose a pending lawsuit. Moreover, in treatment settings, few clinicians have reason to suspect feigned
symptoms and few have sufficient training or tools to assess the problem. Not surprisingly,
they rarely find it.3
American Psychiatric Association, Diagnostic and Statistical Manual of Mental Disorders IV 739
(4th ed.1994) [hereinafter DSM-IV].
1
2
Id. at 467.
Edward J. Hickling et al., Detection of Malingered MVA Related Posttraumatic Stress Disorder: An
Investigation of the Ability to Detect Professional Actors by Experienced Clinicians, Psychological Tests,
and Psychophysiological Assessment, 2 J. Forensic Psychol. Prac. 33 (2002); J. Gordon, R. Sanson-Fisher
& N.A. Sanders, Identification of Simulated Patients by Interns in a Casualty Setting, 22 Med. Educ. 533
(1988).
3
499
FDCC Quarterly/Summer 2006
Steve Rubenzer, PhD, ABPP, is a Diplomate of the American
Board of Professional Psychology in Forensic Psychology.
He developed his interest in malingering while assessing defendants for the criminal courts of Harris County (Houston,
Texas) as a court appointed examiner, a position he held for
almost ten years. His areas of expertise include assessment
of competency to stand trial, sanity, malingering, personal
injury, risk/dangerousness, personality and intelligence, the
standardized field sobriety tests, eyewitness factors, and false
confessions.
Treatment providers tend to trust their patients. Often, there is no reason for them to do
otherwise. A recent survey 4 tellingly quoted the responses of several pain experts:
“I believe pain is what the person says it is.”
“If he says he is suffering, then he is suffering.”
“Pain is a subjective experience. Experts in pain are taught to believe the patient’s
reports. Diagnostic tests are not as useful for pain conditions as other medical
problems.”
Two writers, after examining a number of Post Traumatic Stress Disorder (PTSD) claimants who had been held hostage for three hours, stated that, “the victims involved in this
incident appear to have been genuine, honest people . . . . They were largely a law-abiding
group who had previously shown respect for, and trust in, authority.”5 Despite the fact that
Marcus T. Boccaccini et al., Evaluating the Validity of Pain Complaints in Personal Injury Cases: Assessment Approaches of Forensic and Pain Specialists, 6 J. Forensic Psychol. Prac. 51 (forthcoming).
4
Oscar E. Daly & Timothy G. Johnston, The Derryhirk Inn Incident: The Psychological Sequelae, 15 J.
Traumatic Stress 461, 463 (2002).
5
500
all were involved in litigation, no assessment of malingering was deemed necessary. The
reliance on a claimant’s apparent good character is probably ill-founded. A survey of university students, presumably also without significant criminal histories, found that forty-eight
percent indicated they would fake symptoms following an accident to recover more money
in a personal injury lawsuit.6
Treatment providers sometimes have been very reluctant to acknowledge the possibility
of faking or exaggeration, even with those patients involved in litigation. A recent authoritative work on chronic pain contains no chapter on malingering or exaggeration.7 When the
Clinical Journal of Pain published a recent special issue on malingering in pain patients,
several contributors opined that malingering is infrequent in pain populations, although one
grudgingly admitted that rates may be higher in litigating populations.8 By contrast, a recent
survey of psychologists who evaluate pain patients involved in litigation estimated that
approximately thirty percent were engaging in exaggeration or malingering.9 While some
researchers have investigated techniques to detect malingering, treatment issues remain the
primary concern (with a dash of advocacy as reflected in their characterization): “Despite
the sometimes pressing need to acquire assessment data from the victim, the ultimate issue
is the victim’s continuing well-being and the importance of avoiding any further harm.”10
In contrast to treating professionals, forensic psychologists consider malingering assessment a crucial element of their craft and routinely test for it. Because this situation
potentially places the examiner in opposition to the examinee’s interests, evaluation in
forensic settings is viewed as a professional specialty that is incompatible with providing
treatment.11 Other differences between forensic evaluators (who may be clinical, forensic,
or clinical neuropsychologists) and treating clinicians are summarized in Table 1 (adapted
from S.A. Greenberg & D. W. Shuman, 1997).12
Grant L. Iverson, A Comment on the Willingness of People to Malinger Following Motor Vehicle or
Work-Related Injuries, J. Cognitive Rehab., May/June 1996, at 10.
6
7
Handbook of Pain Assessment (Dennis C. Turk & Ronald Melzack eds., 2d ed. 2001).
8
Mark Sullivan, Exaggerated Pain: By What Standard?, 20 Clinical J. Pain 433 (2004).
9
Wiley Mittenberg et al., Base Rates of Malingering and Symptom Exaggeration, 24 J. Clinical & ExNeuropsychol. 1094 (2002).
perimental
John Briere, Psychological Assessment of Adult Posttraumatic States 59 (American Psychological
Association 2002) (emphasis added).
10
Stuart A. Greenberg & Daniel W. Shuman, Irreconcilable Conflict between Therapeutic and Forensic
Roles, 28 J. Prof. Psychol.: Res. & Prac. 50 (1997).
11
Id.
12
501
Table 1
Differences between Treatment and Forensic Roles in Psychology
Therapists
Forensic Examiners
The Client
Identified
Patient
Attorney or the Court
Goals
Provide treatment and
support
Objectively evaluate a
defendant or claimant
Data
Accept what the client says
Corroborate or refute
examinee’s statements with
collateral information
Emphasis
Treatment; “helping”
Assessment of psycho-legal
issue at stake
Trust
Assume basic honesty of
patient
Do not blindly trust any
source
Accountability
Anticipate little challenge
to conclusions, diagnoses
Anticipate cross-examination, consider alternative
hypotheses, explanations
Privilege
Governed by therapistclient privilege
Governed by attorney-client
privilege, if any
Knowledge of
legal issues
May be unaware of legal
standards or rules of
evidence
Familiar with case law governing the issue to be addressed, (i.e., Daubert and
Federal Rules of Evidence
standards)
Attitude
Avoid court appearances
Accept legal proceedings as
part of the work; develop
testimony skills
502
This article will review issues pertaining to malingering psychiatric and cognitive
impairment in a personal injury context. As such, it will discuss the techniques available
and examine syndromes where defense counsel frequently may face psychiatric faking or
exaggeration: head injury, PTSD, depression, chronic pain, and controversial diagnoses.
II.
Assessing for Malingering
Before proceeding, it is important to understand that not all dramatization or even intentional failure necessarily qualifies as malingering. Factitious disorder involves the intentional
production of symptoms, but only for the purpose of being treated as a sick person – not
external incentives as in malingering. However, the diagnoses are not mutually exclusive.
For example, a man who fears losing his wife might exaggerate his health problems in order
to gain her sympathy. If this continues over time, his wife may press him to apply for disability or to litigate in order to compensate for loss of income. In such a case, the husband
may have no interest in the financial outcome, but he may fear exposure to his wife.
Two other diagnostic possibilities include conversion disorder and somatoform disorder.
In conversion disorder, it is thought that the symptom is produced unconsciously as part of
a hysterical personality style to cope with a psychological conflict. However, this proposition has never been rigorously tested and it is quite possible that even such personalities
are aware of their exaggerations. In somatoform disorder, the symptoms are believed to be
part of a neurotic personality style that indirectly expresses needs for nurturance through
bodily complaints. Thus, the desired reward is attention or sympathy from family members,
friends, or medical staff. An alternative, less psychodynamic explanation is that such persons are biologically disposed to experience more negative emotions and negative bodily
sensations than most people. People who are neurotic tend to be relatively dissatisfied with
their health, as well as their employment or marriage.13 They may well experience more
unpleasant bodily sensations than most people, particularly as they approach middle age
– or they may just complain more than others.
Thorough assessment of malingering usually will involve multiple interviews with the
claimant (as opposed to “patient”), review of previous medical and psychiatric records,
interviews of family members and collaterals with no apparent loyalty to the examinee
(e.g., ex-wife, ex-employer), and specialized psychological testing. Observations beyond
the examination room also can be very revealing. Although family members can be very
useful, the possibility of collusion with the plaintiff must be considered, and family members
almost always should be interviewed separately from each other and the claimant.
Two types of testing are likely to be useful in a personal injury context. These include
self-report tests of symptom exaggeration and performance tests of intentional poor performance or incomplete effort.
Robert R. McCrae & Paul T. Costa, Jr., Personality in Adulthood (2d ed. 2002).
13
503
A. Self-Report Tests of Symptom Exaggeration
Tests such as the Minnesota Multiphasic Personality Inventory-2 (MMPI-2) ask hundreds of questions about psychiatric symptoms and problems. The test itself has a number of
embedded indices of response consistency and bias. There are scales that are quite sensitive
to some forms of both faking good (denying any faults or problems) and faking bad (exaggerating or faking symptoms). Some of these indices are automatically scored by the primary
software vender, but some are not. The classic “fake bad” scale is the Infrequency (F) scale,
consisting of items that are rarely endorsed by people without psychiatric illness. It contains
some items suggestive of psychosis, but also contains many items that are just odd and not
closely associated with any clinical syndrome. Although there is ample evidence that persons
who feign psychosis score much higher than both normals and psychiatric patients, various
studies on the F scale recommend widely varying cut-scores to separate honest responders
from malingerers. This is problematic, as is the fact that the F scale contains many items that
are reflective of true mental illness. The Infrequency-Psychopathology (Fp) scale was created to overcome these limitations. It has produced consistent cut-scores across studies and
has demonstrated effectiveness at distinguishing true from feigned depression as well.14
Personal injury claimants often report memory and bodily symptoms to a greater degree
than severe psychiatric problems. Those who exaggerate tend to maintain the same pattern
but to produce more elevated MMPI-2 profiles in general.15 A number of studies have examined the ability of various MMPI-2 scales to distinguish legitimate from feigned brain
injuries, chronic pain, and PTSD. The results indicate that the best-established traditional
validity indexes (F, F-K, Fp) are not very sensitive to exaggeration of these conditions. This
may be because the indexes mostly contain items suggesting psychosis or extreme deviance,
neither of which a litigating plaintiff wants to portray. A more desirable presentation is that
of a good, upstanding person who has suffered a very bad injury. One such “aftermarket”
index, the Fake Bad Scale (FBS), was developed specifically for personal injury claimants
and has shown considerable success in distinguishing feigned head injuries,16 chronic pain,17
Richard Rogers et al., Detection of Feigned Mental Disorders: A Meta-Analysis of the MMPI-2 and
Malingering, 10 Assessment 160 (2003).
14
Id.
15
Scott R. Ross et al., Detecting Incomplete Effort on the MMPI-2: An Examination of the Fake-Bad
Scale in Mild Head Injury, 26 J. Clinical & Experimental Neuropsychol. 115 (2004); Chantel S. Dearth
et al., Detection of Feigned Head Injury Symptoms on the MMPI-2 in Head Injured Patient and Community
Controls, 20 Archives Clinical Neuropsychol. 95 (2005); M. Frank Greiffenstein et al., The Fake Bad
Scale in Atypical and Severe Closed Head Injury Litigants, 58 J. Clinical Psychol. 1591 (2002).
16
Glenn J. Larrabee, Exaggerated Pain Report in Litigants with Malingered Neurocognitive Dysfunction,
17 Clinical Neuropsychologist 395 (2003) [hereinafter Exaggerated Pain Report]; Glenn J. Larrabee, Somatic Malingering on the MMPI and MMPI-2 in Personal Injury Litigants, 12 Clinical Neuropsychologist
179 (1998); John E. Meyers et al., A Validity Index for the MMPI-2, 17 Archives Clinical Neuropsychol.
157 (2002).
17
504
mixed personal injury claimants,18 and (in some studies) PTSD.19 While the FBS scale has
engendered some recent controversy,20 there are many published studies and a recent metaanalysis that support its validity and use in forensic settings.21
Several other MMPI-2 indices have been shown useful. These include the Ds scale (and
its short form, Dsr), which assess erroneous stereotypes of neurotic mental illness, and the
Ego Strength scale, which reflects emotional stability and resilience. While the Ego Strength
scale and the traditional validity scales are scored by the primary software vender for the
MMPI-2, the FBS and Ds/Dsr are not. Thorough assessment of symptom over-reporting
in conditions such as head injury, PTSD, and chronic pain requires use of these specialized MMPI-2 scales in addition to F, F-K, and Fp. An examiner should not conclude that
an MMPI-2 is “valid” in a personal injury setting simply because the traditional validity
indictors are not elevated. In fact, one could argue that the examiner should never make
such a statement since it is possible that successful coaching might result in an inaccurate
presentation that escapes detection on any of the validity indices.
William T. Tsushima & Vincent G. Tsushima, Comparison of the Fake Bad Scale and Other MMPI-2
Validity Scales with Personal Injury Litigants, 8 Assessment 205 (2001); Glenn J. Larrabee, Detection of
Symptom Exaggeration with MMPI-2 in Litigants with Malingered Neurocognitive Dysfunction, 17 Clinical
Neuropsychologist 54 (2003); Glenn J. Larrabee, Exaggerated MMPI-2 Symptom Report in Personal Injury
Litigants with Malingered Neurocognitive Deficit, 18 Archives Clinical Neuropsychol. 673 (2003).
18
M. Frank Greiffenstein et al., The Fake Bad Scale and MMPI-2 F-Family in Detection of Implausible
Psychological Trauma Claims, 18 Clinical Neuropsychologist 573 (2004); Paul R. Lees-Haley, Efficacy
of MMPI-2 and MCMI-II Modifier Scales for Detecting Spurious PTSD Claims: F, F-K, Fake Bad Scale,
Ego Strength, Subtle-Obvious Subscales, DIS, and DEB, 48 J. Clinical Psychol. 681 (1992).
19
Jim N. Butcher et al., The Construct Validity of the Lees-Haley Fake Bad Scale (FBS): Does the Scale
Measure Somatic Malingering and Feigned Emotional Stress?, 18 Archives Clinical Neuropsychol. 473
(2003); Paul R. Lees-Haley & David D. Fox, Commentary on Butcher, Arbisi and McNulty (2003) on the
Fake Bad Scale, 19 Archives Clinical Neuropsychol. 333 (2004); Kevin W. Greve, Response to Butcher
et al., The Construct Validity of the Lees-Haley Fake Bad Scale , 19 Archives Clinical Neuropsychol.
337 (2004); Paul A. Aribisi & James N. Butcher, Failure of the FBS to Predict Malingering of Somatic
Symptoms: Response to Critiques by Greve and Bianchini and Lees-Haley and Fox, 19 Archives Clinical
Neuropsychol. 341 (2004).
20
Lees-Haley & Fox, supra note 20. See also Nathaniel W. Nelson, Jerry J. Sweet, & George J. Demakis,
Meta-Analysis of the MMPI-2 Fake Bad Scale: Utility in Forensic Practice, 20 Clinical Neuropsychologist 39-58 (2006).
21
505
Table 2
Some Major MMPI-2 Indexes Used to Detect Malingering
Index
F
F(b)
F(p)
K
F-K
O-S
Ds /Dsr
Es
FBS
MVI
RBS
Description
(Infrequency Scale). Items that are rarely endorsed by
“normal” people who are not psychiatric patients. May be
elevated by careless responding or intentional faking of
psychiatric disorder, especially psychosis.
Same as F scale, but designed for items on the back side
of the answer sheet. Helps identify protocols where the
subject loses interest mid-way and randomly completes
the remaining test.
Items that are rarely endorsed by psychiatric patients
– a more specific version of F; includes fewer legitimate
symptoms of psychiatric illness than F.
A measure of defensiveness; possibly more stable and
enduring than L (not due to impression management). It is
inversely related to malingering.
The raw score of K subtracted from the raw score of F.
The sum of “obvious” items (“I hear voices”) minus the
sum of subtle items (“I think Washington was greater than
Lincoln”).
(Dissimulation Scale and its short form). Items that reflect
erroneous stereotypes of neuroticism (vs. serious mental
illness).
(Ego Strength). Low scores indicate that the subject
reported he/she lacks emotional stability and resilience.
Very low scores suggest exaggeration.
(Fake Bad Scale). Designed to identify faking in personal
injury claimants; its items include reports of bodily complaints combined with a portrayal of oneself as an honest
and virtuous person.
(Meyer’s Validity Index). An index created by assigning 1
or 2 points to indications on seven other indices, such as
F, FBS, and Ds.
(Response Bias Scale). Created by identifying items that
correlate with failure on the Word Memory Test.
506
Typical
Cut-Score
> 80
> 80
> 75
< 35
>5R
> 140
>35 R
> 70 T
< 20
> 20-27 R
>5R
> 21 R
Scores in this table are T scores (Mean = 50, SD =10), unless otherwise noted (“R” – raw
score). Most cut-scores in this table are taken from Greve, 2005. Some authors utilize considerably higher cut-scores, especially for the F scales.
Other instruments that are useful for evaluating over-reporting or exaggeration in other
contexts include the Structured Inventory of Reported Symptoms and the Miller Forensic
Assessment of Symptoms Test (both structured interviews) as well as the Personality Assessment Inventory. However, all of these instruments were developed and validated primarily to
detect feigned psychosis and not the kinds of complaints typical of personal injury plaintiffs.
At this point, the MMPI-2 has no real rivals for detecting over-reporting of symptoms in
personal injury settings, except for patients with chronic pain cases.22
B. Performance Tests of Suboptimal Effort/Motivated Failure
The second type of testing involves assessing the effort expended on tasks which require
the examinee to solve a mental problem, remember information, or exhibit a competence.
Neuropsychological and intelligence tests assume that the test-taker puts forth his or her best
effort. This assumption is highly suspect in situations where a criminal defendant may be
found eligible for the death penalty or a civil plaintiff may be ineligible for compensation
as a result of good performance on a test. There has been a virtual explosion of interest and
development of tests designed to detect inadequate effort or intentional failure. Most are
moderately sensitive (they will detect most though not all feigners) but highly specific (few
if any legitimate patients will fail them). For this reason, using at least two and preferably
three effort tests is recommended.23 However, two recent tests have shown perfect sensitivity
and specificity in published studies. This is truly a milestone. Nonetheless, given the possibility of coaching by plaintiffs’ attorneys24 as the specific tests become better known, it is
also prudent to utilize malingering indices that are embedded within traditional tests, such
as the WAIS-III. Several such indices have been cross-validated and demonstrate accuracy
of classification in the seventy-five to eighty-five percent range.25
See Section F., infra.
22
National Academy of Neuropsychology Policy & Planning Committee (2005), Symptom Validity Assessment: Practice Issues and Medical Necessity, 20 Archives Clinical Neuropsychol. 419 (2005); John E.
Meyers & Marie E. Volbracht, A Validation of Multiple Malingering Detection Methods in a Large Clinical
Sample, 18 Archives Clinical Neuropsychol. 261 (2003); Glenn J. Larabee, Detection of Malingering Using Atypical Performance Patterns on Standard Neuropsychological Tests, 17 Clinical Neuropsychologist
410 (2003); Chad D. Vickery et al., Head Injury and the Ability to Feign Neuropsychological Deficits, 19
Archives Clinical Neuropsychol. 37 (2004).
23
Martha W. Wetter & Susan K. Corrigan, Providing Information to Clients about Psychological Tests:
A Survey of Attorneys’ and Law Students’ Attitudes, 26 Prof. Psychol.: Res. & Prac. 474 (1995).
24
Kevin W. Greve et al., Detecting Malingered Performance on the Wechsler Adult Intelligence Scale:
Validation of Mittenberg’s Approach in Traumatic Brain Injury, 18 Archives Clinical Neuropsychol. 245
(2003).
25
507
Since specific information about detecting poor effort could greatly facilitate coaching
if it fell into the wrong hands, this article will not provide such material and will otherwise
provide only selected references. As an alternative, the article will familiarize the reader
with some of the factors that should be considered when reviewing a psychological or neuropsychological report. It also will provide guidelines for selecting an appropriate expert,
suggesting questions to pose at the outset before retaining such an expert as well.
There currently are a number of specialized, well-researched tests designed to detect
effort or intentional failure. Some of the best validated instruments include the Test of
Memory Malingering, the Word Memory Test, the Computerized Assessment of Response
Bias, the Portland Digit Recognition Test, and the Victoria Symptom Validity Test. Aside
from head injury, patients with many conditions (depression, chronic fatigue, chronic pain,
fibromylagia) complain of cognitive symptoms, especially poor memory and concentration.
They also show substantial rates of apparent malingering on effort tests when assessed in
the context of litigation (see Table 3). For these reasons, effort tests should be included in
any evaluation of memory or cognitive complaints or when test results are used to make
such claims.
Table 3
Rate of Apparent Malingering in Various Diagnostic Groups in Litigation
Mild head injury
Fibromylagia or Chronic Fatigue Syndrome
Pain/somatoform disorder
Neurotoxic disorders
Electrical injury Depressive Disorders Moderate & severe head injury Adapted from Mittenberg et al. (2002)26
42%
39%
33%
29%
26%
16%
9%
III.
Assessing Common Clinical Syndromes for
Exaggeration or Malingering
A. Traumatic Brain Injury
Unlike the other conditions discussed below, cognitive deficits often are the primary
claim for damages in alleged brain injury. Thorough neuropsychological assessment will
Wiley Mittenberg et al., Base Rates of Malingering and Symptom Exaggeration, 24 J. Clinical Experi& Neuropsychol. 1094 (2002).
26
mental
508
likely be necessary, and this should always entail assessment of effort and intentional failure.
The National Academy of Neuropsychology recently issued a formal policy statement that
symptom validity (effort) testing is medically necessary for all neuropsychological evaluations.27 Performance on neuropsychological measures of attention, memory, and other cognitive and motor functions depend greatly on the amount of effort expended; in the absence
of demonstrated good effort, results may be meaningless or highly misleading.28
There are two major types of brain injuries: closed head injuries, in which the skull is
not breached, and open head injuries, such as those that accompany a gunshot wound to
the head. Paradoxically, closed head injuries can be more serious because they typically
affect larger portions of the brain. Because the brain is gelatinous and not securely attached
to the skull, a motor vehicle accident or other sharp blow to the head can result in injuries
throughout the brain as it literally bounces off the inside of the skull and shears neural
connections to the spinal cord and lower brain centers. This article will focus primarily on
closed head injuries.
Head injuries are classified in terms of their severity according to several factors.
Among the most important are medical findings (CT, MRI scans); the length of any period
of unconsciousness; the period of post-traumatic amnesia (period of memory loss following
the injury); and the length of time after the injury until the patient is capable of following
a verbal command. Increasingly, emergency rooms and hospitals formally record these observations in the form of a standardized scale such as the Glasgow Coma Scale. Mild head
injuries are those that result in less than one-half hour of unconsciousness, a Glasgow Coma
Scale score of thirteen to fifteen, and do not produce abnormal findings on the CAT or MRI
scan. Since such claims often will be made in the absence of objective medical findings,
and evidence of substantial rates of exaggeration or malingering exists in this population,29
this article will further focus on mild head injuries.
Victims of head injuries often are reported to suffer from Postconcussion Syndrome. Its
symptoms include memory difficulties, fatigue, headaches, confusion, difficulties multitasking, and depression. Not surprisingly, when such symptoms follow a head injury, they are
often attributed to this cause. Recent research, however, finds that the level of postconcussion symptoms is not predicted by seriousness of head injury but by the patient’s degree
of depression.30 In fact, the same group of symptoms appear in a number of ill-defined and
National Academy of Neuropsychology Policy and Planning Committee, supra note 23.
27
Paul Green et al., Effort Has a Greater Effect on Test Scores than Brain Injury in Compensation Claimants, 15 Brain Injury 1045 (2001); Paul Green et al., The Word Memory Test and the Validity of Neuropsychological Test Scores, 2 J. Forensic Neuropyschol. 97 (2002).
28
Mittenberg et al., supra note 26.
29
John Gunstad & Julie A. Suhr, “Expectation as Etiology” versus “The Good Old Days”: Postconcussion Syndrome Symptom Reporting in Athletes, Headache Sufferers, and Depressed Individuals, 7 J. Int’l
Neuropsychol. Soc’y 323 (2001); John Gunstad & Julie A. Suhr, Factors in Postconcussion Syndrome
Symptom Report, 19 Archives Clinical Neuropyschol. 391 (2004).
30
509
controversial disorders.31 Symptoms such as reported memory problems and others associated with postconcussion syndrome are not specific to any particular disorder and have little
or no diagnostic value.
In the overwhelming majority of cases, the expected outcome from a mild traumatic
brain injury (with no abnormality on medical tests or subsequent complication) is complete
recovery within three months.32 Although there have been some reports of persisting deficits in concentration or memory past this time, such deficits disappear when patients who
fail effort tests are excluded from the group.33 Psychologists have only recently taken full
account of how malingering or exaggeration may have contaminated previous conclusions
about the course of recovery from head injury. If one-third of such patients are malingering,
this could easily result in the false conclusion that persisting deficits are common.
Among the most important pieces of data in assessing head injury are the emergency
room records. These should indicate observations of the patient in the immediate aftermath
of the injury. By definition, if the patient is alert, responsive, and not confused within the
first half hour; does not show a skull fracture or abnormal CAT or MRI; and does not experience a subsequent complication such as a hematoma, the head injury is mild and full
recovery to previous levels of functioning is expected. It is not uncommon for those who
exaggerate or malinger to misreport their level of impairment during the first few days or
weeks following the injury. And although this paper will focus on mild traumatic head injury
(MTBI), it should be noted that even some patients suffering moderate and severe injuries
may exaggerate or fake, as several recent case studies have demonstrated.34
The amount of impairment from a head injury should be proportionate to its severity:
a mild head injury should produce mild deficits (if any); a severe injury, more significant
ones. In the absence of a subsequent complication, the expected recovery course from a
head injury is one of progressive improvement – impairment should be worst immediately
after the injury and improvement should be fairly steady. This does not apply, of course, if
a patient subsequently develops a hematoma (blood mass), and may not apply if depression
complicates the picture. In the latter case, of course, the deficits observed should not be
attributed to brain damage.
Laurence M. Binder, Forensic Assessment of Medically Unexplained Symptoms, in Forensic Neuropsy298 (Glenn J. Larrabee ed., 2005).
31
chology: A Scientific Approach
David J. Schretlen & Anne M. Shapiro, A Quantitative Review of the Effects of Traumatic Brain Injury
on Cognitive Functioning, 15 Int’l Rev. Psychiatry 341 (2003); Laurence Binder et al., A Review of Mild
Head Trauma Part 1: Meta-analytic Review of Neuropsychogical Studies, 19 J. Clinical & Experimental
Neuropsychol. 421 (1997); Sureyya S. Dikman et al., Neuropsychological Outcome at 1-year Post Head
Injury, 9 Neuropsychology 80 (1995).
32
Green et al., supra note 28.
33
Kevin J. Bianchini et al., Definite Malingered Neurocognitive Dysfunction in Moderate/Severe Traumatic
Brain Injury, 17 Clinical Neuropyschologist 574 (2003).
34
510
There are numerous validated techniques to assess the genuineness of a head injury
claimant’s presentation. Typically, neuropsychological testing will be the major focus of
a psychologist’s evaluation in a head injury case. Neuropsychological testing involves
assessment of intellectual, motor, and cognitive functions such as attention, memory, and
perception. A typical assessment may take more than twelve hours and involve many tests,
some of which have dozens of individual indices. There is increasing evidence that, when
formally evaluated, patterns of performance within tests can identify those who exaggerate or fake with moderately high levels of sensitivity and specificity. Specific indices have
been identified and cross-validated for the Wechsler Adult Intelligence Scale-III and the
California Verbal Learning Test, two very popular neuropsychological instruments. Sometimes a patient will provide highly unusual responses that can serve as red flags of atypical
performance. Such indicators have been identified for the popular Trail Making Test and
the Wechsler Memory Scale-III. These anomalies are highly specific (highly diagnostic of
faking when they occur), but are produced by relatively few malingerers. Thus, they have
low sensitivity. Relying on only one or a few such indicators will fail to identify many of
those who do not exert their best effort.
If multiple evaluations have occurred, comparisons between the two or more evaluations can be highly informative. Formal research using both test scores and item responses,
compared across the two administrations, has displayed perfect classification in one study
— something rarely achieved in psychological research.
Although most tests employed to assess brain damage are performance-based measures,
there is an increasing role for self-report inventories such as the MMPI-2. Although the traditional validity indices have poor sensitivity when usual cut-scores (which were developed
for detecting feigned psychosis) are used, they can perform respectfully when cut-scores
derived in personal injury settings are implemented.35 The FBS scale has been the subject
of nearly a dozen studies with generally positive results, and some have found it to be the
best response bias scale for head injury claimants.36 Several studies also have found the Dsr
scale to be quite useful.37
Kevin W. Greve et al., Sensitivity and Specificity of MMPI-2 Validity Scales and Indicators to Malingered
Neurocognitive Dysfunction in Traumatic Brain Injury, 20 Clinical Neuropsychologist (forthcoming).
35
Larrabee, supra note 18; Griffenstein et al., supra note 19; Ross et al., supra note 16.
36
Greve, et al., supra note 25; Dearth et al., supra note 16; Larrabee, supra note 18.
37
511
B. PTSD
When introduced in the Diagnostic and Statistical Manual-III (DSM-III) in 1980, a
diagnosis of PTSD required a stressor that was life-threatening, beyond ordinary human
experience, and likely to evoke significant distress in nearly everyone. In DSM-IV, the criteria were modified to include someone “who experienced, witnessed, or was confronted
with an event or events that involved actual or threatened death or serious injury, or a threat
to the physical integrity of self or others [if] the person’s response involved intense fear,
helplessness, or horror.”38 Originally proposed in the Vietnam era to cover combat veterans,39
“criterion creep” had led to suits alleging PTSD due to sexual harassment or exposure to
repeated foul language at work – and the latter was successful to the tune of $21 million.40
Despite an enthusiastic embrace by “traumatologists,” more scholarly professionals have
emphasized the political origins of the diagnosis and numerous facts and findings that contradict the clinicians’ assumptions.41
Published estimates of malingering rates following personal injury vary from one to over
fifty percent.42 Following the Vietnam War, the government printed flyers to help veterans
recognize characteristic symptoms and prompt them to apply for allocated benefits. Among
the symptoms of PTSD intended for listing was “survivor’s guilt.” However, a printing error
in one region resulted in a number of veterans who showed up to file their claims carrying their “survivor’s quilt.” Some veterans claiming PTSD have been found never to have
experienced combat or, in some cases, never even to have been in the armed services.43
Almost from the beginning, observers have commented on the tendency of PTSD patients
to produce evaluated scores on MMPI validity indices. At first, many viewed this as a function
of the severity of the disorder and the variety of its symptoms. Over time, however, others
commented that the extremely pathological test scores observed were inconsistent with the
DSM-IV, supra note 1, at 467.
38
Ben Shepard, Risk Factors and PTSD: A Historian’s Perspective, in Posttraumatic Stress Disorder:
Issues and Controversies 39 (G. M. Rosen ed. 2004); D. Christopher Frueh et al., Unresolved Issues in
the Assessment of Trauma Exposure and Posttraumatic Reactions, at 63.
39
Richard J. McNally, Conceptual Problems with the DSM-IV Criteria for Posttraumatic Stress Disorder,
in Posttraumatic Stress Disorder: Issues and Controversies 1 (G. M. Rosen ed. 2004).
40
Id.
41
Jennifer Guriel & William Fremouw, Assessing Malingered Posttraumatic Stress Disorder: A Critical
Review, 23 Clinical Psychol. Rev. 881 (2003).
42
Richard J. McNally, Progress and Controversy in the Study of Posttraumatic Stress Disorder, 54 Ann.
Rev. Psychol. 229 (2003); B. Christoper Frueh et al., Apparent Symptom Overreporting in Combat Veterans
Evaluated for PTSD, 20 Clinical Psychol. Rev. 853 (2000); Jeannine; Monnier, Todd B Kashdan, Julie
A Sauvageot. Mark B Hamner, B. G. Burkett, & George W. Arana, Documented Combat Exposure of US
Veterans Seeking Treatment for Combat-Related Post-Traumatic Stress Disorder, 186 Brit. J. Psychiatry
467-72 (2005).
43
512
outpatient status of most PTSD patients, and that the disability rate far exceeded that seen
in previous wars or tragedies.44 In the Aleutian Enterprise sinking, eighty-six percent of
survivors reported PTSD symptoms, far exceeding the more typical figures of twenty-five to
forty percent in similar tragedies. Post-litigation interviews with these claimants, however,
found that most had communicated with other claimants and were coached by attorneys.45
A distinct literature has developed for survivors of motor vehicle accidents.46 Like many
treating clinicians, these authors appear overly trusting about their patients’ honesty: they
discount MMPI-2 findings believing they may falsely label their patients as exaggerating
and do not collect medical records—although they advise others to do so.47
The literature on PTSD may be badly compromised by the failure of researchers to
rigorously screen for malingering among presenting patients.48 This failure potentially contaminates much of what is known about the disorder. For example, one correlate of PTSD
is antisocial personality disorder, which denotes a personality style marked by deception,
exploitation, and substance abuse. Authors often refer to antisocial behavior and drug use
as a consequence of PTSD without making any serious attempt to determine if such traits
were present before the alleged injury. Further, antisocial personality disorder is one of four
DSM-IV indicators of potential malingering. The failure to consider malingering has resulted
in a published recommendation that journal editors demand disclosure of the litigation status
of study participants, and that those with incentives to exaggerate be identified and (at a
minimum) analyzed separately from those without such motivations.49 Some general indicators of possible PTSD malingering are listed in Table 3. With the exception of “unvarying,
repetitive dreams,” these apply to other disorders as well.
Id.
44
Gerald M. Rosen, The Aleutian Enterprise Sinking and Posttraumatic Stress Disorder: Misdiagnosis in
Clinical and Forensic Settings, 26 Prof. Psychol.: Res. & Prac. 82 (1995).
45
Edward B. Blanchard & Edward J. Hickling, After the Crash: Psychological Assessment and TreatSurvivors of Motor Vehicle Accidents (2d ed. 2004).
46
ment of
Id.
47
Gerald M. Rosen, Malingering and the PTSD Data Base, in Posttraumatic Stress Disorder: Issues
Controversies 85 (G. M. Rosen ed. 2004); Gerald M. Rosen, Litigation and Reported Rates of Posttraumatic Stress Disorder, 36 Personality & Individual Differences 1291 (2004); McNally, supra note
43, at 225.
48
and
Gerald M. Rosen, Litigation and Reported Rates of Posttraumatic Stress Disorder, supra note 48.
49
513
Table 3
Indications of Possible PTSD Malingering
Poor work record
Prior incapacitating injuries
Discrepant capacity for work and recreation
Unvarying, repetitive dreams
Antisocial personality traits
Overidealized functioning before the trauma
Evasiveness
Inconsistency in symptom presentation50
Some PTSD experts built their reputations by developing checklists or interview
schedules to identify PTSD patients and to help them fully describe their experiences and
symptoms. This focus on “finding” the disorder has helped create a culture in which the
validity of PTSD reports is largely assumed. The program for the 20th annual meeting of
the International Society for Traumatic Stress Studies makes no mention of malingering in
any of its dozens of trauma symposia. One researcher reported that his efforts to develop a
measure of PTSD malingering were met with hostility by one PTSD pioneer.51
C. Assessment of Malingering in PTSD
Most PTSD diagnostic interviews and self-report scales represent straightforward queries
about symptoms and allow motivated persons to present themselves as having the requisite
symptoms to meet the diagnostic criteria.52 Few instruments have any means to detect exaggeration or unreliable responding. One such interview schedule, the Clinician Administered
PTSD Scale, has a consistency scale to assess unreliable responding, but the only study
that examined its utility found it completely ineffective at identifying exaggeration.53 The
Philip J. Resnick, Guidelines for Evaluation of Malingering in PTSD, in Posttraumatic Stress Disorder
Litigation 194 (R.I. Simon ed. 2003).
50
in
Personal Communication from Kenneth R. Morel (on file with the author) (2004).
51
C. Burges & T. M. McMillan, The Ability of Naïve Participants to Report Symptoms of Post-traumatic
Stress Disorder, 40 Brit. J. Clinical Psychol. 209 (2001); Edward J. Hickling et al., Detection of Malingered MVA Related Posttraumatic Stress Disorder: An Investigation of the Ability of Professional Actors by
Experienced Clinicians, Psychological Tests and Psychological Assessment, 2 J. Forensic Psychol. Prac.
33 (2002).
52
Hickling, et al., supra note 52, at 42.
53
514
Atypical Responding Scale on the Trauma Symptom Inventory, a self-report inventory, has
shown only mixed results.54
The MMPI-2 has two scales, PS and PK, which are designed to assess PTSD symptoms.
These scales, however, appear highly sensitive to general distress and are not specific to
PTSD.55 More useful are the MMPI-2 validity scales, which are capable of distinguishing
malingerers from those with genuine PTSD. Although several studies found the Fp scale to
be the most effective scale and the FBS scale to be ineffective,56 these studies had serious
design flaws: they compared students asked to simulate PTSD with claimants or veterans
(who are eligible for permanent disability and have a very high incidence of malingering57)
diagnosed with PTSD – but the claimants were not assessed for malingering! The effectiveness of Fp with better-designed studies is mixed,58 with one such study showing FBS to
be the only valid indicator.59 Another found both traditional indices and FBS to effectively
separate simulators or pseudo-PTSD patients (those claiming PTSD symptoms but lacking
a qualifying stressor).60 Lastly, although knowledge of PTSD symptoms may help a claimant present a convincing facade in a face-to-face interview or on self-report scales, such
knowledge does not help feigners evade detection on the MMPI-2 validity scales.61
Another test, specifically developed to distinguish feigned PTSD, is the Morel Emotional Numbing Test (MENT). Norms are available for legitimate PTSD patients (and other
John F. Edens et al., Susceptibility of the Trauma Symptom Inventory to Malingering, 71 J. Personality
Assessment 379 (1998); Gerald M. Rosen et al., The Risk of False Positives When Using ATR Cut-Scores
to Detect Malingered Posttraumatic Reaction on the Trauma Symptom Inventory (TSI), 86 J. Personality
Assessment 329 (2006); Jennifer Guriel et al., Impact of Coaching on Malingered Posttraumatic Stress
Symptoms on the M-FAST and the TSI, 4 J. Forensic Psychol. Prac. 37 (2004).
54
Susanne Scheibe et al., Assessing Posttraumatic Disorder with the MMPI-2 in a Sample of Workplace
Accident Victims, 13 Psychol. Assessment 369 (2001).
55
Jon D. Elhai et al., The Detection of Malingered Posttraumatic Stress Disorder with MMPI-2 Fake
Bad Indices, 8 Assessment 221 (2001); Jon D. Elhai et al., Cross-Validation of the MMPI-2 in Detecting
Malingered Posttraumatic Stress Disorder, 75 J. Personality Assesssment 449 (2000); Alison S. Bury &
R. Michael Bagby, The Detection of Feigned Uncoached Posttraumatic Stress Disorder with the MMPI-2
in a Sample of Workplace Accident Victims, 14 Psychol. Assessment 472 (2002).
56
B. Christopher Freuh et al., Apparent Symptom Overreporting in Combat Veterans Evaluated for PTSD,
20 Clinical Psychol. Rev. 853 (2000).
57
M. Frank Greiffenstein et al., The Fake Bad Scale and MMPI-2 F-Family in Detection of Implausible
Psychological Trauma Claims, 18 Clinical Neuropsychologist 573 (2004).
58
Id.
59
Lees-Haley, supra note 19.
60
Martha W. Wetter et al., MMPI-2 Profiles of Motivated Fakers Given Specific Symptom Information: A
Comparison of Matched Patients, 5 Pyschol. Assessment 317 (1993); Gina L. Walters & James R. Clopton,
Effect of Symptom Information and Validity Scale Information on the Malingering of Depression on the
MMPI-2, 75 J. Personality Assessment 183 (2000).
61
515
psychiatric groups) and for patients identified as probably exaggerating. None of the former
group failed the MENT, as opposed to eighty percent of the latter group.62
Because complaints of memory and concentration problems are common in PTSD,63
despite few demonstrated cognitive impairments,64 failure on effort tests (such as the TOMM,
WMT) can provide strong evidence of malingering. Poor performance on these cognitive
tests requires intentional failure or poor effort (except in cases of retardation or demention),
which is distinct from over-reporting or exaggeration. Thus, failure cannot be explained by
the claim that dramatization is essential to PTSD.
D. Who Develops PTSD; In Whom Does It Persist?
Significant literature exists regarding the factors associated with developing PTSD
following exposure to trauma. A recent meta-analysis of seventy-seven studies found that
previous psychiatric history, childhood abuse, and family psychiatric history were consistently associated with developing PTSD. Less consistent predictors included gender, race,
age, education, previous trauma, and general childhood adversity.65 Another review reported
lower intelligence, neuroticism, negativistic personality traits, and dissociation surrounding
the trauma as predictors of subsequent PTSD diagnosis.66 Thus, the data suggest that people
who later report symptoms of PTSD are often vulnerable individuals who show neurotic
tendencies before the index accident/trauma. Preexisting anxiety, depression and dissatisfaction, which might be exacerbated following the trauma, gradually abate to baseline levels
of functioning – but still are (mis)interpreted as PTSD.
Follow-up studies of those initially diagnosed with PTSD show that sixty percent
continue to report significant symptoms at six months. The most reliable predictor may be
dissociation at the time of the trauma and PTSD-like symptoms in the immediate aftermath.
Acute Stress Disorder (ASD) entails the same symptoms as PTSD but does not require the
one-month delay between the traumatic event and the diagnosis. Not surprisingly, the presence of such symptoms before one month predicts the presence of such symptoms after one
month.
Kenneth R. Morel, Development and Preliminary Validation of a Forced-Choice Test of Response Bias
for Posttraumatic Stress Disorder, 70 J. Personality Assessment 299 (1998).
62
Neena Sachinvala et al., Memory, Attention, Function, and Mood among Patients with Chronic Posttraumatic Stress Disorder, 188 J. Nervous & Mental Disease 818 (2000).
63
Elizabeth W. Twamley et al., Neuropsychological Function in College Students with and without Posttraumatic Stress Disorder, 126 Psychiatry Res. 265 (2004).
64
Chris R. Brewin et al., Meta-analysis of Risk Factors for Posttraumatic Stress Disorder in TraumaExposed Adults, 68 J. Consulting & Clinical Psychol. 748 (2000).
65
McNally, supra note 43.
66
516
E. Depression
Malingered depression presents some of the same problems as PTSD: the symptoms
are familiar and widely disseminated, there are no definitive medical or psychological tests,
and the diagnosis typically depends largely on self-report. Some depressed persons obtain
elevated scores on some standard validity scales like the MMPI-2 F scale. The MMPI-2’s
newer, special malingering scales, particularly F(p) and Ds (Dissimulation), appear to be
effective and produce reasonably high correct classification (seventy-five to eighty-five percent) rates in classifying legitimate and feigned depression.67 A newly-developed scale, Md
(Malingered Depression), appears to provide some additional discrimination when feigners
have been coached about the content of depression scales and the validity indicators used to
detect exaggeration.68 It is clear, however, that coaching about validity scales does reduce
their effectiveness.
Persons who are depressed often complain about memory problems and difficulty concentrating. Nonetheless, they typically perform normally on formal memory tests,69 unless
there is evidence of poor effort.70 Thus, as with PTSD, failure on effort tests like the TOMM
or WMT can provide potentially powerful corroborating evidence of intentional failure.
F. Chronic Pain
Pain that is unresponsive to pain management techniques is another frequent cause of
claims. As with mild brain injury, such complaints may lack objective medical findings to
corroborate them. Although there are several standardized questionnaires to assess pain and
its impact on functioning, only some assist in assessing whether reports of pain are exaggerated.71
Chronic pain patients often report depression, and treatment with antidepressants often
helps with both mood symptoms and physical discomfort. On the MMPI-2, such patients
have a prototypical profile which is distinguishable from those in litigation who are believed
to be exaggerating based on other indicators. As with head injury and PTSD, some of the
standard validity scales are not particularly good indicators, and supplemental scales should
be examined. Based on a combination of six validity scales and the FBS, one index showed
Rogers et al., supra note 14; Jarrod S. Steffan et al., An MMPI-2 Scale to Detect Malingered Depression
(Md Scale), 10 Assessment 382 (2003).
67
Steffan et al., supra note 67.
68
Ali H. Kizilbash et al., The Effects of Depression and Anxiety on Memory Performance, 17 Archives
Clinical Neuropsychol. 57 (2002).
69
Paul Green & Lyle M. Allen, The Differential Effects of Depressive Symptoms on Self-Report and Performance Based Neurocognitive Measures in Patients Demonstrating Good Effort During Assessment, 14
Archives Clinical Neuropsychol. 741 (1999).
70
Larrabee, Exaggerated Pain Report, supra note 17.
71
517
substantial differences between pain patients who were in litigation and those who were not.
That index achieved greater separation between the groups than any of the individual scales
included in the index.72 Several studies have reported good to excellent discrimination of
exaggerators from legitimate patients on the basis of symptom profiles,73 grip strength,74
body extension,75 and motor performance during neuropsychological testing.76
Many chronic pain patients complain of memory problems and difficulty concentrating. Findings of impairment on neuropsychological tests have been somewhat inconsistent,
however. As with mild head injury and depression, when patients showing good or poor
effort on malingering tests are separated, few cognitive deficits are observed in the former
group.77 As with other disorders, effort testing should be routine.
Finally, there is at least one medical procedure designed to assess the validity of pain
complaints. Diagnostic blocks involve the systematic administration of analgesics, injected
into neurologically relevant sites, to map the enervation and the patient’s verbal response to
medication that should completely block the reported pain.78 Because different formulations
carry different expected periods of effectiveness, the patient’s report can be compared with
the expected pharmacological profile of the drug administered. Substantial mismatches suggest the possibility of false reporting. The rationale is that people cannot accurately report
the presence or absence of pain if they do not legitimately feel it.
John E. Meyers et al., A Validity Index for the MMPI-2, 17 Archives Clinical Neuropsychol. 157
(2002).
72
Larrabee, Exaggerated Pain Report, supra note 17.
73
Gerald A. Smith et al., Assessing Sincerity of Effort in Maximal Grip Strength Tests, 68 Am J. Physical
Med. & Rehabilitation 73 (1989); Somadeepti N. Chengalur et al., Assessing Sincerity of Effort in Maximal
Grip Strength Tests, 69 Am. J. Physical Med. & Rehabilitation 148 (1990).
74
Zeevi Dvir, The Measurement of Isokinetic Fingers Flexion Strength, 12 Clinical Biomechanics 473
(1997); Zeevi Dvir & Jennifer Keating, Reproducibility and Validity of a New Test Protocol for Measuring
Isokinetic Trunk Extension Strength, 16 Clinical Biomechanics 627 (2001); Zeevi Dvir & Jennifer Keating,
Trunk Extension Effort in Patients with Chronic Low Back Dysfunction, 28 Spine 685 (2003).
75
Larrabee, supra note 18.
76
Roger O. Gervais et al., Effects of Coaching on Symptom Validity Testing in Chronic Pain Patients
Presenting for Disability Assessment, 2 J. Forensic Neuropsychol. 1 (2001).
77
Nikolai Bogduk, Diagnostic Blocks: A Truth Serum for Malingering, 20 Clinical J. Pain 409 (2004).
78
518
G. Controversial Diagnoses
There are a number of diagnoses, in addition to those already discussed, that share the
following constellation of features:
•
•
•
•
•
•
•
Vague, subjective symptoms
Lack of objective laboratory findings
Quasi-scientific explanations
Mutual skepticism (physician/patient) with traditional medical practices
Denial of psychiatric/stress contributors
Subjective complaints that greatly exceed reliable laboratory findings
High rate of failure on effort tests in claimants.
These include whiplash, fibromylagia, non-epileptic seizures, Chronic Fatigue Syndrome,
Multiple Chemical Sensitivities, Toxic Mold and Sick Building Syndrome, Silicon Breast
Implant complaints, and Gulf War Syndrome.79 Some have considered these to be masked
psychiatric syndromes, while others have pointed to very high failure rates on effort tests
when evaluations are conducted within the context of litigation. In all these conditions,
subjective complaints include fatigue, depression, anxiety, pain or headache, poor memory
and concentration, dizziness, and irritability. The overlap with Postconcussion Syndrome
should be apparent, and the same issues apply.
Electrical injuries present many of the issues for mild traumatic brain injury, although
there is speculation that the impairments produced may be more persistent or even progressive. As with brain injury, the absence of objective signs of physical injury, such as entry
and exit wounds, is related to test indications of malingering.80 A recent report found high
rates of probable malingering using standard tests and criteria applied to head injury patients
among eleven electrical injury patients referred for disability evaluation.81
Exposure to welding fumes and manganese also has been cited as a cause of neurological
damage and, according to a recent article in Science magazine, “the number of claims could
rival those for asbestos-related lung disease.”82 A recent neuropsychological investigation
Binder, supra note 31.
79
Kevin Bianchini et al., Detection and Diagnosis of Malingering in Electrical Injury, 20 Archives CliniNeuropsychol. 365 (2005).
80
cal
Id.
81
Jocelyn Kaiser, Manganese: A High-Octane Dispute, 300 Science 926, 927 (2003).
82
519
found evidence of significant impairment based on welding fume exposure.83 However, this
analysis and its conclusions were savaged in an article by malingering-savvy scholars, who
pointed out huge differences between control and experimental groups on education, poor
screening for malingering, and inconsistencies in the data, suggesting motivated failure.84
IV.
Evaluating a Report
Psychological evaluations that are prepared for use in judicial proceedings are subject to the specialty guidelines for forensic psychologists.85 Although the guidelines are
aspirational and not binding on standards of practice, they do specify practical, reasonable
expectations that may not be met in typical evaluations. Among the most important of these
are that psychologists consider multiple, rival hypotheses to explain their data, and that the
bases for their conclusions be adequately documented in the report. In other words, the
examiner should consider other possible causes for deficits that are displayed or reported,
including poor effort or previous injury or condition. Given this guideline, the statement in
the DSM-IV about the need to rule out malingering in forensic contexts, and the National
Academy of Neuropsychologists’ position statement on effort testing, a case could be made
that an examiner’s failure to rigorously assess for malingering in a personal injury context
is malpractice.
The report should identify tests or indices that were used to evaluate effort or symptom exaggeration, or alternately describe them in such a way that another examiner would
know which technique was used. There should be a clear discussion of the level of effort
expended, based on formal tests and indices, as well as the effect of any such problems on
the test scores obtained in other areas. Statements that the examinee “appeared to put forth
good effort” based on unaided observations are inadequate. Unfortunately, even when these
issues are addressed appropriately, unfavorable findings are sometimes communicated indirectly. A recent survey of neuropsychological practices suggested that many practitioners
are reluctant to diagnose malingering or to make strong statements on this topic.86 In one
recent case, the neuropsychologist possessed definitive evidence of malingering yet reported
R. M. Bowler et al., Neuropsychological Sequelae of Exposure to Welding Fumes in a Group of Occupationally Exposed Men, 206 Int’l J. Hygene & Envtl. Health 517 (2003).
83
Paul T. Lees-Haley et al., Methodological Problems in the Neuropsychological Assessment of Effects
of Exposure to Welding Fumes and Manganese, 18 Clinical Neuropsychologist 449 (2004).
84
Committee on Ethical Guidelines for Forensic Psychologists, Specialty Guidelines for Forensic Psychologists, 15 Law & Human Behav. 655 (1991).
85
Daniel J. Slick et al., Detecting Malingering: A Survey of Experts’ Practices, 19 Archives Clinical
Neuropsychol. 465 (2004).
86
520
his findings in this way: “Data therefore certainly suggest that either Mr. M is a severely
demented individual or low in motivation, but such performance is rarely, if ever, obtained
by persons suffering from mild to moderate head injury.”87 The claimant obtained a score
of three correct out of fifty on the Test of Memory Malingering. Someone who took the
test blindfolded would be expected to score twenty-five (fifty percent of fifty items), plus
or minus six, simply by guessing. A score of three is so far below chance that a blindfolded
subject would have to take the test approximately fifty-four billion times to turn in a score
this low. This information was not apparently understood by the referring physician, who
wrote a report that helped the plaintiff to recover a multimillion dollar settlement. It did not
help that, throughout the report, the neuropsychologist described “deficits” in motor, speech,
and memory as if the question of poor effort did not exist.
Attorneys also may encounter neuropsychological reports that utilize no formal effort
tests. Fortunately, many of the frequently-used tests have been studied for use in assessing
exaggeration or faking. Researchers have identified patterns and individual responses that
can be highly useful in this role. Often, such indices will not have been scored by the examining psychologist, but can be scored quickly and cost-effectively by a knowledgeable
reviewer. Some of these indices have fairly good sensitivity and excellent specificity.
V.
Finding an Expert
One might assume that finding a board certified expert in the area of claimed damages
(e.g., pain medicine) is the logical choice. However, this makes a crucial assumption that is
rarely true: expertise in treating a condition translates into expertise in distinguishing true
and false presentations of that condition. In the context of litigation, this is perhaps the most
important differential diagnosis. How can one identify such an expert? An expert’s publication history can be a guide, although many qualified experts may not publish. Furthermore,
as seen in the discussion of PTSD, some experts who publish may have biases, employ poor
designs and come to highly questionable conclusions. In addition to referrals from other
attorneys, one might wish to post some of the following questions to potential experts:
Quotation from report on a particular claimant in author’s possession.
87
521
•
What are some of the major goals of your assessment? The expert should spontaneously state that assessment of effort or genuineness of the condition is one
of the primary purposes of the assessment.
•
How common do you think malingering or exaggeration is in mild head injury/
chronic pain patients who are involved in litigation? The best estimates of these
figures are about forty percent for the former and thirty percent for the latter. An
answer significantly discrepant from this range should be cause for concern.
•
How do you assess the possibility of exaggeration or faking? The expert’s answer should clearly indicate that this is an area of expertise and that the expert
competently uses multiple, sensitive, and established techniques. However, some
experts may be reluctant to disclose their techniques, suspecting that the attorney
may be misrepresenting his situation or interested in coaching a client.
•
Are the techniques you use widely accepted in your field? Will the techniques
that you use pass a Daubert challenge? The expert should have an understanding of the Daubert standards (if in a Daubert jurisdiction), and should be able
to speak intelligently regarding the general acceptance, error rate, and other
factors relevant to admissibility.
VI.
Conclusion
Malingering and exaggeration are common among people who litigate for injuries
involving mild head injury, chronic pain, and posttraumatic stress disorder. There also may
be a substantial number of persons who sincerely experience symptoms but test negative
on medical and psychological tests. Such people may mistakenly attribute symptoms and
problems to an accident or incident. In such cases, assessment of Somatization and personality are likely to be important.
Any psychological reports that are submitted by the plaintiff should be reviewed by
another qualified psychologist who is proficient in detecting malingering, poor effort and
Somatization. Should an Independent Medical Examination (IME) be necessary, the same
qualifications apply. One should not assume expertise in detection of malingering based on
any specialty or formal credential. Although both forensic psychology and neuropsychology have developed measures of response style, there is a wide range of proficiency among
practitioners—even board certification in either specialty is no guarantee. Armed with the
information in this article and the sample questions noted above, however, attorneys should
be able to evaluate candidates and decide upon the right expert for any given case.
522
Table 4
Report/Evaluation Features Important to Assessing Malingering or Poor Effort
1. Explicit consideration and discussion of effort/malingering
2. Listing of specific tests sensitive to effort
3. Attempts to contact neutral or non-supportive sources of information
4. Recognition that the patient, family members and treatment providers may be
sympathetic, potentially biased, or possibly have deceived themselves
5. Explicit consideration of alternative causes for the deficits observed; avoids
use of phrases like “consistent with,” which imply consideration of only a single
hypothesis
6. Frank discussion of test results
7. Avoid use of suggestive or conclusive language (i.e., “suffers from;” reporting
patient statements, or those of any source, as conclusive facts)
523
Back Issues of the Quarterly
The Federation maintains a limited stock of back issues
of the Quarterly. For more information contact the
Executive Director, Martha J. Streeper, whose address,
phone number, etc. may be found on the inside front cover
of this issue.
To secure copies of past
Quarterly articles,
contact your nearest law
school library or on-line
services such as LEXISNEXIS, WESTLAW
or ProQuest Direct.
Articles from recent
years are also
available at the
Federation’s
web site:
524
MOLD LLITIGATION IN THE NEW MILLENNIUM
Life after Ballard:
Mold Litigation in the New Millennium
W. Stephen Benesh
I.
INTRODUCTION
A new toxin is aggressively framing the next wave of tort litigation. It supposedly
killed Ed McMahon’s sheepdog, Muffin.1 Even Erin Brockovich has sued her contractor
with allegations that it took over her new home.2 And a teacher in Plano, Texas, sued her
school district because she claimed that it violated her constitutional rights.3 The “it” is
toxic mold, and some believe that it represents the next big toxic tort. If mold becomes an
unsightly growth on the underside of the legal industry, then perhaps the Ballard lawsuit4 in
Texas was the initial spore.
Plaintiff Melinda Ballard, along with her family, had purchased a twenty-two-room
mansion in Dripping Springs, Texas (an ironic site for incipient claims of water damage).
Soon after moving in, they noticed mold when a hardwood floor buckled due to a water
leak. Ballard and her family then began to suffer a variety of ailments. It was not until
1
Elizabeth L. Perry, Comment, Why Fears of Fungus? Why Toxic Mold Is and Is Not the Next Big Toxic
Tort, 52 BUFF. L. REV. 257, 258 (2004).
2
Id.
3
Greene v. Plano Indep. Sch. Dist., 103 F. App’x 542 (5th Cir. 2004).
4
See Allison v. Fire Ins. Exch. (Ballard), 98 S.W.3d 227 (Tex. App. 2002).
525
W. Stephen Benesh is a partner with Bracewell & Patterson,
L.L.P., and has extensive experience handling mold, toxic
tort and indoor air quality matters. In addition to serving as
Managing Partner of the firm’s Austin office, he also acts as
a co-chair of the firm’s products and premises liability team.
In 2004, Mr. Benesh was named “Best in Business Law” for
products liability in Central Texas by the Austin Business
Journal.
Ballard discussed her situation with a fellow passenger on an airline flight — who happened to be a mold expert — that she became aware that mold might be the culprit behind
her family’s health problems. The family then hired a mold expert who found that the house
was infested with “black mold.” As a result, Ballard and her family moved out immediately
and sued Farmers Insurance Group to recover for the damage done to their home and their
health. The case became known nationwide5 when the jury returned a verdict against Farmers for $32 million.6
The Ballard case has had a profound impact on mold litigation. According to the Texas
Department of Insurance, mold complaints proliferated in 2000, shortly after the jury reached
its verdict in the Ballard case.7 By the year 2002, the state of Texas hosted approximately
seventy-five percent of all mold claims nationwide, though it holds only eight percent of
the nation’s population.8 As a result of a unique confluence of events—the Ballard case,
weather conditions conducive to the growth of mold,9 and a standard homeowners’ insurance policy that made it much easier to locate mold damage within the terms of the policy10—
Texas has found itself at the forefront of mold litigation.
5
See, e.g., Perry, supra note 1, at 267.
6
Ballard, 98 S.W.3d 227.
7
Mary Sit-DuVall, The Mold Toll: Claims Boost Insurance Rates, Fraud, HOUS. CHRON., June 30, 2002,
at A1.
8
Id.
9
See infra Section II.A.
10
See infra Section III.A.
526
As the result of cases such as Ballard, mold (viewed earlier as the most ordinary of
household nuisances) became a potential cash cow for plaintiffs’ lawyers. However, given
their position as the primary target of most of the initial lawsuits, insurers moved quickly to
ensure that mold did not become the next asbestos. State governments also have become
involved in this issue. As a result, the landscape for future mold litigation has changed a
great deal since the Ballard case was decided.
II.
BACKGROUND
A. The Basics about “Toxic Mold”
Much has been made of “toxic mold” — a mold that supposedly can sicken and even
kill people if it appears in their homes or businesses. However, as the Center for Disease
Control and Prevention (“CDC”) explains, “[t]he term ‘toxic mold’ is not accurate.”11 Although certain molds can produce toxins (such molds are known as toxigenic molds), molds
themselves are not toxic.12 Molds are common in buildings and homes and will grow anywhere there is moisture.13 In fact, the CDC believes that there may be as many as 300,000
or more discrete species of mold and fungi.14 The most common indoor molds are Cladosporium, Penicillium, Aspergillus, and Alternaria.15 While the notorious Stachybotrys
chartarum (a.k.a. “black mold”) is not as common as these molds, it is not rare.16
Although mold growth is common in homes and buildings across the nation, mold
litigation has grown more prevalent in Texas in part because of the moisture and warmer
weather, which provide ideal conditions for the spread of mold. The question that predominates across Texas and nationwide, however, is what constitutes an acceptable level of
mold. Unfortunately, standards for judging what is an acceptable, tolerable, or even normal
quantity of mold have not been established at the federal or state levels.
B. The Full Story Behind the Ballard Case
While the large jury verdict awarded in the Ballard case received national attention,
the actual basis for the award, and its subsequent reduction on appeal, were not widely
publicized. In fact, the basis for most of the Ballard award was the finding that the insur-
11
CTR. FOR DISEASE CONTROL AND PREVENTION, MOLD QUESTIONS AND ANSWERS 1 (2004), available at http:/
/www.cdc.gov/mold/pdfs/stachy/pdf.
12
Id.
13
Id.
14
CTR. FOR DISEASE CONTROL AND PREVENTION, MOLD
www.cdc.gov/mold/pdfs/faqs.pdf.
15
Id.
16
MOLD QUESTIONS AND ANSWERS, supra note 11, at 2.
527
IN THE
ENVIRONMENT 1 (2005), available at http://
ance company acted in bad faith.17 More importantly, the appellate court reduced the verdict because it disagreed with many of the jury’s findings. While the appellate court held
that there was sufficient evidence to support a finding that the insurer had breached its duty
of good faith and fair dealing, causing damage to Ballard, it disagreed with the jury’s findings of unconscionability, fraud, and “knowing violations” of the duty of good faith on the
part of the insurer.18 As a result, the court dismissed the punitive and mental anguish awards,19
and Ballard’s $32 million total award was reduced to just over $4 million.20 The decision
was appealed to the Texas Supreme Court, but the parties reached a confidential settlement
before the court reached a decision.21
The Ballard case, which brought national attention to the issue of mold damage and is
blamed by some for inciting a wave of litigation, actually had little to do with the issue of
whether water or subsequent mold damage would be covered by homeowners’ insurance
policies. As Ballard herself pointed out, her lawsuit was not actually a mold case; it was a
bad-faith lawsuit against her insurer.22 The other aspect of the Ballard case that causes
difficulties for those hoping to capitalize on the mold panic is that the trial court refused to
allow the plaintiff to present expert testimony on the allegedly dangerous health effects of
the mold.
The Ballard case itself would have had little impact on the legal landscape for mold
litigation, were it not for events that occurred in the wake of the jury’s decision: the numerous remediation businesses that responded to the panic caused by the case, the resulting
lawsuits, and the changes in insurance policies following the mold litigation boom. The
Ballard case, as well as a few other high-profile mold cases and problems, dramatically
raised public awareness of mold issues, but they also raised awareness of the potential
damage to the insurance and other industries if mold litigation continued unchecked. As a
result, insurers and legislators have been actively implementing changes that will impact
mold litigation in the future.
17
Allison v. Fire Ins. Exch. (Ballard), 98 S.W.3d 227 (Tex. App. 2002).
18
Id.
19
Id.
20
Id.
21
See Jessica Seger, Comment, Toxic Mold in Texas: Will Recent Insurance Reforms Clean It Up for
Good?, 11 CONN. INS. L.J. 169, 182-83 (2004).
22
Kelly Johnson, Mold Litigation Soars, SACRAMENTO BUS. J., July 5, 2002.
528
III.
INSURANCE COMPANY EFFORTS TO COUNTERACT MOLD LITIGATION
A. Standard Insurance Protection before the Mold Panic
Traditional homeowners’ insurance policies are “all-risk” contracts. They cover all
physical loss to the insured property, subject to many exceptions and exclusions. To cite
one of the more common, many homeowners’ policies exclude such things as “loss from
wear and tear and ‘repeated or continuous seepage or leakage.’”23 However, mold still may
be covered by homeowners’ policies if it is “proximately caused by a ‘covered loss.’”24 For
example, if mold develops as the result of a burst pipe instead of a slow leak, a court could
rule that the resulting mold damage is proximately caused by the burst pipe, which would
be covered by the insurance policy.25
In 2001, ninety-six percent of Texas homeowners had HO-B insurance policies.26 These
policies provided broad coverage for water damage and ensuing mold or fungi losses, so
long as the water damage was not caused by flooding.27 These Texas policies offered greater
protection than most homeowners’ policies nationwide, since they did not limit coverage to
“sudden and accidental” events such as burst pipes.28
B. Changes to Standard Homeowners’ Insurance Policies Due to Mold Panic
In reaction to the wave of mold litigation, insurers have rewritten their policies to
exclude mold coverage. “By 2004, at least 44 states allowed [insurance] exclusions for
mold and some other water[-]related events.”29 The Insurance Services Office30 (“ISO”)
proposed a mold limitation for homeowners’ coverage which has been approved by at least
thirty-five states.31 As noted earlier, mold damage is excluded from coverage unless the
mold resulted from a covered peril.32 In some states, policyholders may add a separate
23
Seger, supra note 21, at 179.
24
Id.
25
Id.
26
Terrence Stutz, Home Insurance Rates Stabilizing, DALLAS MORNING NEWS, Aug. 29, 2002, at 27A.
27
See Jim Fuquay, Rising Texas Mold Claims Agitate Homeowners, Insurers, Regulators, FORT WORTH
STAR-TELEGRAM, Dec. 16, 2001.
28
Id.
29
See Seger, supra note 21, at 194.
30
The Insurance Services Office (ISO) is “the property/casualty insurance industry’s leading supplier of
statistical, actuarial, underwriting, and claims data.” See Insurance Services Office Website, available at
http://www.iso.com (last visited March 3, 2005).
31
35 States Adopt Mold Limitations, CLAIMS MAG., Feb. 2003, at 12.
32
Id.
529
limited coverage option of $10,000 per year “for loss caused by fungi, wet or dry rot, or
bacteria,” which would include the cost of mold removal and the expenses involved in
“tearing out and replacing any part of the property to gain access to the mold.”33 Under the
terms of the ISO limitation, coverage for mold-related damage is excluded unless it results
“from a covered peril of water damage such as accidental discharge or overflow of water or
steam or windstorm, and is covered under policy limits.”34 The ISO claims that these changes
allow insurers to use “these options to cap potentially high claims and to ensure that insurance coverage at competitive prices is available in the marketplace.”35
Reacting to the dramatic increase in mold claims after the Ballard case, some Texas
insurers in the summer of 2001 took the drastic step of refusing to issue HO-B policies to
new homeowners.36 Other insurers refused to write new policies for homeowners who had
previously filed a claim for water damage.37 In response to these decisions, the Texas Department of Insurance (“TDI”) permitted insurers to offer the less-extensive HO-A policy,
which did not provide coverage for water damage caused by slow and continuous leaks.38
Insurers were still required to pay for repairs to property damaged by water, but they would
not have to pay for the testing or remediation of resulting mold.39 The TDI order “did not
provide a specific limit on damages,” instead permitting “insurers and consumers to determine how much coverage they thought was appropriate.”40 Policyholders also would have
the option of buying back twenty-five, fifty, or one hundred percent of their original mold
coverage.41
As a result of the TDI’s changes, many insurers began selling their “national” policies
in Texas. For example, both USAA and State Farm received permission from the TDI in
2002 to begin offering their national policies in Texas.42 The primary difference between
the Texas form previously used and the national form was the more limited water damage
33
Id.
34
Id.
35
Kevin B. Thompson, Letter to the Editor, ISO Clarifies Mold Coverage, NAT’L UNDERWRITER (PROP. &
CAS./RISK & BENEFITS MGMT. ED.), May 19, 2003, at 40. (Note: Kevin B. Thompson is Senior Vice President of ISO).
36
See Fuquay, supra note 27.
37
38
See Diana Reinhart, Texas Lawmakers Vow to Address Soaring Homeowners’ Insurance Premiums,
BEAUMONT ENTERPRISE (Texas), Dec. 24, 2002, at 2.
39
See Fuquay, supra note 27.
40
41
Id.
42
Peggy Fikac, USAA to Sell Revamped Policy, SAN ANTONIO EXPRESS-NEWS, May 23, 2002, at 1E.
530
protection offered by the national form.43 In particular, the new USAA policy would provide coverage for damage caused by sudden and accidental water leaks, but would not
cover slab, foundation or mold damage caused by constant water leaks or sewer backups.44
However, homeowners would be able to purchase additional coverage for mold and water
damage resulting from continuous leaks if they chose.45 As a result, homeowners’ insurance policies in Texas are now more closely aligned with homeowners’ insurance policies
in other states. The former, expansive coverage of water damage under Texas homeowners’
insurance policies has been blamed in part for the mold and insurance crisis in Texas.
IV.
RESPONSIVE LEGISLATIVE ACTION FOR MOLD LITIGATION
The Texas legislature became involved in the mold litigation issue in 2003. Texas passed
legislation banning insurers from refusing to insure a homeowner who had made a previous
mold claim, so long as the problem had been fixed.46 The legislation also articulated standards for mold remediation licensing and provided for regulation of the mold remediation
industry by the Texas Board of Health.47 The creation of standards and regulations was
perceived as hugely beneficial by many in the insurance industry, owing to the fact that
much of the blame for the mold panic and expense of remediation claims was laid at the
feet of a largely unregulated industry of inexperienced mold remediators who had surfaced
in Texas.48 Moreover, public adjustors and mold remediators are viewed as working together against insurers. Typically, the adjustors hire remediators before insurers have even
had a chance to inspect or investigate the nature and extent of damage.49
Texas is not the only state taking action to quell extensive mold litigation. In 2003, at
least fifty-six mold-related bills were filed in twenty-one states.50 For example, California
“passed a bill establishing a separate trigger for the two-year statute of limitations” for a
43
Id.
44
Id.
45
Id.
46
2003 TEX. GEN. LAWS 205 (regulations codified at 28 TEX. ADMIN. CODE § 21.1007).
47
2003 TEX. GEN. LAWS 205 (regulations codified at 25 TEX. ADMIN. CODE § 295.301).
48
However, some argue that it is too early to require licensing since licensing criteria are limited by
deficiencies in understanding the mold issue, which therefore inhibits a full understanding of remediation.
Kirk Hansen, Paradise Lost, Mold Found, CLAIMS MAG., Mar. 2004, at 76.
49
Hansen, supra note 48. Texas even has begun to investigate mold consultants who allegedly “cooked”
mold claims by spraying water into homes and then turning on the heat to encourage mold growth while
homeowners were at a nearby hotel, waiting for remediation to take place. Perry, supra note 1, at 298.
50
Hansen, supra note 48.
531
personal injury civil action based upon “exposure to a hazardous material or toxic substance other than asbestos.”51 Indiana, Louisiana, and Montana passed legislation regarding mold concerns related to real estate transactions.52 Meanwhile, Louisiana, like Texas,
enacted a law requiring that those working on mold assessment and remediation be licensed.53 Lastly, Illinois, Oklahoma, and Rhode Island legislators passed resolutions creating task forces or commissions to investigate and offer recommendations regarding mold
issues.54
More recently, South Carolina passed a law limiting realtors’ liability for mold problems, and Virginia has instituted a law requiring landlord disclosures to prospective tenants
about mold in the building.55 Oklahoma, on the other hand, no longer allows one person to
conduct both the mold assessment and the mold remediation on the same property.56 This
same law requires the distribution of educational materials regarding mold infestation by
mold assessors and remediators.57 Finally, Louisiana immunizes contractors who work on
manufactured homes from any liability related to mold or mold damage, unless such liability is contractually agreed to in writing.58
V.
THE FUTURE OF MOLD LITIGATION
A. Disputes over Mold Exclusions in Homeowners’ Insurance Policies
1. Homeowners’ Policies Continue to Change
The extent to which mold damage is covered under insurance policies is still an issue,
even with the insurance industry’s attempts to dramatically reduce their liability for mold.
As courts debate the language of insurance policies, insurers continue attempting to develop policy language that will limit mold coverage and still win approval from state insurance commissioners as being adequate for homeowner coverage. Insurers are even attempting
to limit their liability for mold caused by situations otherwise covered by the insurance
policies.
51
Id.
52
Id.
53
Id.
54
Id.
55
National Association of Mutual Insurance Companies, 2004 Mold Litigation (Aug. 16, 2004), available at http://www.moldupdate.com/legislation.htm.
56
Id.
57
Id.
58
Id.
532
Meanwhile, consumers in Texas are often unable to afford the cost of coverage for
water damage.59 Florida has now allowed several insurance companies to limit payments
for mold damage to $10,000 per incident and only $20,000 total.60 Florida also has allowed
insurers to write policy provisions that exclude mold damage resulting from covered perils.61 On the other hand, California, which is second to “Texas in mold related first-party
insurance claims in the United States,” has required “insurance companies to provide mold
coverage when the mold damage” results from a covered peril.62 At the other end of the
spectrum, New York has decided against allowing a specific mold exclusion and instead
has developed a system of insurance protection designed to provide coverage for mold that
arises from covered perils already present in the homeowner’s policy.63
2. Questions Remain Regarding Whether Mold Damage Is Covered
An issue yet to be resolved is the extent to which insurers must provide coverage for
mold damage that resulted in some way from a peril covered under the insurance policy.
Generally, a basic insurance contract requires the insured property to be directly damaged
as the result of a covered peril. As discussed above, most basic insurance policies now
refuse to include mold as a covered peril. Thus, the homeowner must show that the mold
growth directly resulted from a covered peril.
Various state courts have treated this issue differently. Some plaintiffs have argued
successfully that an “ensuing loss” clause overrides the mold exclusion in the insurance
policy. Ensuing loss provisions generally permit coverage for further damage that follows
as a result of the original cause of damage.64 Plaintiffs therefore could argue that mold
damage is an ensuing loss of a covered damage. This argument may have potential. For
example, the Fifth Circuit Court of Appeals recently held that the plaintiffs’ expert testimony regarding mold was sufficient to raise a genuine issue of material fact about the
amount of mold that was attributable to covered causes.65 The court certified to the Texas
Supreme Court the question of whether the “ensuing loss” provision of the plaintiffs’ policies provided coverage for mold damage. On the other hand, some courts have refused to
allow the ensuing loss provision to override the mold exclusion.66
59
Melinda Wood Allen, Texas Lassoes Mold Industry, CLAIMS MAG., Aug. 2003, at 14.
60
Jeff Ostrowski, State Approves Mold Damage Insurance Cap, PALM BEACH POST (Florida), July 22,
2003, at 1A.
61
Insurance Regulators Allow Mold Exclusions, CLAIMS MAG., Oct. 2003, at 16.
62
See Perry, supra note 1, at 287.
63
Id.
64
Id. at 281.
65
Fiess v. State Farm Lloyds, 392 F.3d 802 (5th Cir. 2004).
66
See, e.g., Wright v. Safeco Ins. Co. of Am., 109 P.3d 1 (Wash. Ct. App. 2004).
533
Other courts have applied an “efficient proximate cause” test to mold claims. For example, in Shelter Mutual Insurance Co. v. Maples,67 a frozen pipe burst in the homeowner’s
basement, and mold grew as a result. Despite the fact that the homeowner’s insurance
policy contained a mold exclusion, the Eighth Circuit Court of Appeals held that there was
a genuine issue of material fact as to whether the “efficient proximate cause” of the property damage was mold or the flood itself.68 California also uses the “efficient proximate
cause” test, which some insurers have tried to avoid by using language in their insurance
policies that specifically denies coverage for certain risks, such as mold, even if such risks
combine with a covered risk to cause the injury at issue. California courts have held that
such insurance language is unenforceable to the extent it conflicts with California’s statutory requirement that an “insurer is liable for a loss of which a peril insured against was the
proximate cause, although a peril not contemplated by the contract may have been a remote
cause of the loss.”69
B. Disputes over the Connection between Mold and Personal Injuries
1. The Ballard Court’s Refusal of Testimony
Plaintiffs’ efforts to link physical injuries or problems to mold so far have produced
only limited success. As noted above, the Ballard court refused to allow the plaintiffs’
experts to testify about the connection between mold growth and health problems experienced by the plaintiff’s family. The Texas Supreme Court has held that the trial court, when
meeting the Daubert-required role of “gatekeeper,” must “determine how the reliability of
particular testimony is to be assessed.”70 In toxic tort cases, proof is required of “both
general and specific causation about the effects of the toxic substance.”71 In Ballard, the
appellate court examined the expert’s own admissions when reviewing the district court’s
decision to exclude Ballard’s causation expert’s testimony. The expert had admitted that
the “calculation of a confidence interval for the results of the study was ‘premature.’”72 It
was also premature to calculate the risk factor.73 In addition, the expert “could not say
whether the techniques used were generally accepted.”74 As a result, the court held that the
67
309 F.3d 1068 (8th Cir. 2002).
68
Id.
69
Palub v. Hartford Underwriters Ins. Co., 112 Cal. Rptr. 2d 270, 237 (Ct. App. 2001) (following Howell
v. State Farm Fire & Cas. Co., 267 Cal. Rptr. 7081 (Ct. App. 1990)).
70
Allison v. Fire Ins. Exch. (Ballard), 98 S.W.3d 227, 238 (Tex. App. 2002) (quoting Gammill v. Jack
Williams Chevrolet, Inc., 972 S.W.2d 713, 726 (Tex. 1998)).
71
Id. at 239.
72
Id.
73
Id.
74
Id.
534
causation expert’s testimony was not based on a reliable foundation, as required by the
Texas Supreme Court in Havner.75 Consequently, “[i]f an expert relies on unreliable foundational data, any opinion drawn from that data is likewise unreliable.”76 The court determined that, because the expert “did not establish a reliable foundation for the admission of
general causation evidence,” it did not need to address evidence relating to specific causation.77 As a result, the appellate court held that the trial court did not abuse its discretion by
refusing to admit the causation expert’s testimony.78 Because the causation expert’s testimony regarding plaintiffs’ personal injuries was properly excluded, the district court’s decision to dismiss plaintiffs’ personal injury claims also was proper.79
2. Disagreement over Safe Levels of Mold Exposure
Though the Ballard court refused to admit expert testimony regarding the alleged connection between mold and the plaintiffs’ injuries, other courts have permitted such expert
testimony.80 Contradictory court rulings have evolved because there currently is a great
deal of confusion about the role that mold exposure plays in causing health problems.
While “the causative role of fungi in individual cases of respiratory allergy and asthma has
been known since the eighteenth century, their overall significance in respiratory health is
still debated.”81 Medical research has shown a potential link between some mold growth in
buildings and resulting human disease. These lack specific “dose-response” data, however.
Many other indoor air pollutants (e.g., chemicals, dust mites) make it difficult to link mold
growth directly to health problems.82
The CDC has stated that a causal link between the presence of toxigenic molds and
rare health conditions such as pulmonary hemorrhage or memory loss has not been proven.83
Hazards presented by toxigenic molds should be treated the same as hazards posed by other
common molds that can grow in the home.84 The CDC directed the Institute of Medicine
75
Id. at 240 (citing Merrell Dow Pharms. V. Havner, 953 S.W.2d 706 (Tex. 1997)).
76
Id.
77
Id.
78
Id.
79
Id.
80
See, e.g., Mondelli v. Kendel Homes Corp., 631 N.W.2d 846 (Neb. 2001).
81
See Gregory J. Johansen, Litigating Mold Claims: Crisis? What Crisis?, 19 J. LAND USE & ENVTL. L.
465, 470 (2004) (quoting Comm’n of European Communities, Biological Particles in Indoor Environments, in INDOOR AIR QUALITY & ITS IMPACT ON MAN (1993)).
82
Id. at 471.
83
CTR. FOR DISEASE CONTROL AND PREVENTION, supra note 11, at 1.
84
Id.
535
(“IOM”) to review the scientific literature regarding the relationship between mold growth
and damp buildings and adverse health effects. The IOM committee found that existing
research did not show sufficient evidence of a causal relationship between mold and the
physical symptoms it reviewed. However, the committee found an association between
mold and symptoms such as asthma in sensitized persons, wheezing, coughing, and upper
respiratory tract symptoms. It also found limited but suggestive evidence of a relationship
between mold and lower respiratory illness in otherwise healthy children. The committee
found insufficient evidence to link mold to problems such as dyspnea, airflow obstruction,
chronic obstructive pulmonary disease, asthma development, acute idiopathic pulmonary
hemorrhage in infants, skin symptoms, cancer, neuropsychiatric symptoms, and rheumatic
and other immune diseases.85
An expert testifying before a U.S. House of Representatives committee explained the
challenges he saw in creating standards for acceptable mold exposure. The expert explained
that there currently are no accepted standards for the sampling of mold or for analyzing or
interpreting the data in terms of its impact on human health.86 Since no one is sure what
quantity of indoor mold is acceptable, studies have concentrated on environmental data
rather than data related to dose-response.87 In addition, individuals experience different
sensitivities to molds. Of course, the effort to find appropriate standards also is complicated by the fact that standards may vary depending on which of the numerous mold varieties is examined. As a result of all these factors, “setting standards and guidelines for mold
exposure levels is difficult and may not be practical.”88
Only a few states or cities have begun to explore the possibility of creating guidelines
for “safe” levels of mold, and the various federal agencies responsible for determining safe
exposure levels to toxins in the workplace or environment have yet to reach any agreement
on mold. For example, while New York City proposed indoor air quality guidelines for
fungi in 1993, it did not establish a safe exposure standard specifically for mold.89 In 2001,
California passed a Toxic Mold Protection Act requiring the creation of a task force to
85
See Robyn Ice & Jonathan Crumly, Preventing War over Mold Claims; Thorough Policies Addressing
All Stages of Construction Offer Best Medicine, N.Y.L.J., July 12, 2004, at 9.
86
Johansen, supra note 81, at 477 (citing statement of Stephen C. Redd., M.D., July 18, 2002, before U.S.
House of Representatives Committee on Financial Services, Subcommittee on Oversight and Investigation).
87
Id.
88
Id.
89
See N.Y. CITY DEP’T OF HEALTH & MENTAL HYGIENE, GUIDELINES ON ASSESSMENT AND REMEDIATION OF
FUNGI IN INDOOR ENVIRONMENTS, available at http://www.ci.nyc.ny.us/html/doh/html/epi/moldrpt1.html (last
visited Feb. 23, 2005).
536
attempt setting permissible exposure limits for mold in indoor environments.90 Once limits
were set, the bill would require written disclosure regarding the presence of mold in excess
of those limits by sellers or lessors of property, in most cases.91 California also established
a Department of Heath Services mold program, which is charged to study and publish
findings on “fungal contamination in indoor environments.”92 Texas likewise created a task
force to investigate the potential for standards regarding mold exposure.93
3. Different Standards for Determining Admissibility of Expert Testimony
As a result of the issues discussed above, there is much disagreement in the medical
and scientific community over the “toxicity” of the various molds and the safe levels for
each variety of mold. Given this disparity, a key battle in present and future litigation is
determining whether a plaintiff’s expert will be permitted to testify about the physical injuries caused by mold. Recall that even though Ballard claimed that the mold in her home
was responsible for serious injuries suffered by her family, the court refused to allow expert
testimony regarding her medical injuries at trial. In reaching this determination, the court
invoked the Daubert test articulated by the Supreme Court.94
To pass muster in a Daubert jurisdiction, a plaintiff must show a general causal link
between mold and the alleged injuries. Such a showing is difficult since, to date, “[t]here
are few epidemiological investigations of inhaled mycotoxins and disease in indoor air
settings. Although some purport to show an association between inhaled mycotoxins and
health effects, none has had sufficient data or experimental design to support this claim.”95
Once general causation is demonstrated, the plaintiff still must show specific causation. The specific causation criteria required in mold lawsuits include: 1) the presence of
mycotoxins in the building; 2) a showing that the plaintiff was exposed to the mycotoxins;
3) proof that the plaintiff was exposed to the mycotoxins for long enough, at a high enough
dosage, to cause the injury; and 4) evidence that the plaintiff was injured.96 Because it is
difficult to prove the nature of a plaintiff’s exposure, it will be difficult for a plaintiff to
successfully meet the specific causation test.
90
CAL. HEALTH & SAFETY CODE § 26101.7 (2004).
91
Linda B. Morrison, The “Molden” State: Evaluating Third-Party Mold Claims under California Law,
1-12 MEALEY’S LITIG. REP.: MOLD 1 (2001).
92
Id.
93
10 TEX. ADMIN. CODE § 300.5 (2005).
94
Allison v. Fire Ins. Exch. (Ballard), 98 S.W.3d 227 (Tex. App. 2002).
95
Perry, supra note 1, at 291 (citing Ronald E. Gots, Mold and Mold Toxins: The Newest Toxic Tort, 8-1
J. CONTROVERSIAL MED. CLAIMS 1, 4 (2001)).
96
Id.
537
Not all jurisdictions use the Daubert test in determining whether an expert may testify,
however. Despite the Supreme Court’s ruling in Daubert, many jurisdictions continue to
use the Frye test,97 while still other states use their own individual tests to determine whether
expert testimony may be admitted.98 The Frye test is much simpler than the Daubert test,
merely requiring that a scientific theory or methodology be generally accepted in the relevant scientific community.99 Because the Frye test is not as stringent as the Daubert test,
plaintiffs may be more successful in asserting their personal injury claims in those jurisdictions that apply the Frye test. For example, in Mondelli v. Kendel Homes Corp.,100 the
Nebraska Supreme Court applied the Frye test (as well as its own factors) to determine the
admissibility of a physical injury causation expert’s testimony in a mold case. The court
held that the expert witnesses had satisfied the Frye standard in part by showing that “the
issue of mold as it relates to health concerns has been addressed in scientific publications.”101
While the Frye test is clearly an easier hurdle for mold litigation plaintiffs with personal injury claims, some courts also have admitted physical injury causation testimony
under the Daubert test. In New Haverford Partnership v. Stroot, the Delaware Supreme
Court was asked to determine whether plaintiffs’ experts could testify about the causal link
between mold in their apartments and their subsequent health problems.102 The court subsequently found the defendants’ arguments about the assigned flaws in the experts’ testimony
unpersuasive,103 finding instead that the following evidence was sufficient to admit the
experts’ testimony:
Although no “extensive” baseline testing was undertaken, Yang did test an outdoor air sample and found that the mold level in Haverford Place was more than
ten times higher. In addition, Johanning testified that the mold level inside the
building was so high that it overloaded the machine used to test samples. Given
these facts, we conclude that the failure to conduct extensive baseline testing goes
to the weight of the experts’ opinions, not their admissibility. The same is true for
the asserted failure to eliminate other possible causes of plaintiffs’ health prob-
97
These states include Arizona, California, Florida, Maryland, Michigan, Nebraska, New York, Pennsylvania, and Washington. Id. at 289.
98
Id.
99
Frye v. United States, 293 F. 1014 (D.C. Cir. 1923).
100
631 N.W.2d 846 (Neb. 2001).
101
Id. at 856.
102
772 A.2d 792, 799-800 (Del. 2001).
103
Id. at 800.
538
lems. Johanning testified that he followed the scientifically accepted procedure of
obtaining a medical history and a detailed questionnaire from the plaintiffs. He
then ruled out other possible causes of plaintiffs’ health problems by reviewing
that information together with the blood test results and the data collected from the
apartment buildings. The foundation for an expert’s causation opinion need not be
established with the precision of a laboratory experiment. The facts here support
the trial court’s decision to admit the causation opinions.104
While this decision supports the admissibility of expert causation testimony over
defendant’s objections in a Daubert jurisdiction, defendants will likely be more successful
making a Daubert challenge if they emphasize the lack of a general consensus on the role
of mold in causing most physical ailments. Plaintiffs, on the other hand, will likely be more
successful in Frye jurisdictions, since that test more easily allows the admission of expert
testimony even when there is lack of agreement on the issue.
C. Disputes over the Extent to Which Third-Party Insurance Covers Mold Damage
In addition to first-party claims against the insurance industry, other targets of mold
litigation include those in the construction, real estate, and property management industries. Even prior to Ballard, some lawsuits targeted contractors for mold problems associated with construction defects. However, those lawsuits occurred at a time when no panic
existed about mold and its allegedly dangerous health implications.
As insurers continue finding ways to exclude mold coverage from homeowners’ policies, it is likely that homeowners increasingly will look to hold other parties responsible for
mold problems in their homes.105 While first-party lawsuits are still the primary source of
litigation, third-party lawsuits, which require insurers to defend the third-party policyholders, are on the rise.106 The threat of such lawsuits could make contractors more careful
about the materials used in their buildings and the actual construction of the buildings; it
could also drive up costs for the contractors. In addition, their insurance costs could escalate as well as their costs in construction time.
Given the increase in public concern about mold resulting from cases like Ballard, and
given the increasingly limited options available under their own insurance, contractors and
other parties holding potential liability for mold growth in buildings will become more
involved in mold litigation. The application of liability insurance coverage, such as traditional commercial general liability (“CGL”) policies, will be at issue in these homeowners’
104
Id.
105
See Perry, supra note 1, at 275.
106
Id.
539
lawsuits against their contractors.107 These CGL policies are insurance agreements purchased by commercial entities for protection against claims brought by third parties. This
practice of targeting other defendants once again could draw liability insurers into mold
litigation. Instead of defending claims as the result of a “first-party” insurance policy between the homeowner and the insurer, the insurance company would be involved under a
third-party insurance dispute. In other words, once the homeowner sued a contractor or
subcontractor, supplier or realtor, that defendant would then look to its liability insurance
coverage for protection.
Under such third-party insurance, the insurer still may be able to avoid liability for
mold damage through the common “Business Risk Exclusion” provision included in most
CGL policies. Such an exclusion precludes indemnification and defense of an insured (such
as a contractor) by the insurance company if the damage resulted from the insured’s own
negligence.108 While this exclusion bars coverage for the cost of repairing or replacing the
insured’s own work product, it may not bar coverage for claims made by third parties for
damage resulting from the insured’s negligent work.109
A similar situation arose in the asbestos context. In those cases, some courts have
rejected insurers’ claims that a business risk exclusion permits them to deny coverage for
property damage caused by asbestos.110 Courts have construed business risk exclusions to
bar coverage for “damage associated with the repair or replacement of the insured’s work,”
but have been unwilling to bar coverage for “damage resulting from the insured’s work.”111
Such a rationale requires the contractor to bear its own replacement or repair losses, while
the insurer is responsible for damage to the property of third parties. This same reasoning
could be applied to mold damage as well.112
Mold plaintiffs also may be able to seek coverage under a contractor’s CGL policy if
the mold damage was caused by the subcontractor’s negligent work or materials. Generally, the business risk exclusion provides an exception for work done on the insured’s
behalf by a subcontractor.113 Therefore, the repair or replacement of defective work performed by a subcontractor may be covered.114
107
Id. at 274.
108
See William F. Stewart, Mold and You: An Introductory Guide to Mold Claims for Insurance Professionals, 1-9 MEALEY’S LITIG. REP.: MOLD 24, at 33 (2001).
109
Morrison, supra note 91, at 9.
110
Mary P. McCurdy, Insurance Coverage Issues for Mold Litigation, CLAIMS MAG., Aug. 2002, at 61.
111
Id.
112
Id.
113
See Morrison, supra note 91, at 9.
114
Id.
540
Insurers also may argue that the standard “pollution” exclusion included in most CGL
policies would permit them to deny coverage for mold-related problems. The insurers reason that if mold is a pollutant, as alleged by many plaintiffs, then the pollution exclusion
should bar coverage. At least one court has found that, while the term “pollutant” in a CGL
policy could be interpreted to include naturally occurring substances, it was ambiguous
enough that the clause should be construed against the insurer.115 As a result, the insurer
was required to provide coverage for the mold damage.116
It is not clear how other courts would resolve this issue. Many courts have been unwilling to apply the pollution exclusion “outside of traditional environmental or industrial pollution cases.”117
Opinions on interpretation of the absolute pollution exclusion to non-traditional
pollutant claims are far from uniform in their definition of the term “pollutant,” as
well as whether there has been a “discharge, dispersal, release, or escape” of the
pollutant. Therefore, it is difficult to predict how courts will rule on application of
the pollution exclusion to mold claims.118
Courts that have refused to extend the pollution exclusion beyond traditional pollutants
often have relied upon a statement made by the Seventh Circuit Court of Appeals in Pipefitters
Welfare Education Fund v. Westchester Fire Insurance Co.119 The court there stated that,
“without some limiting principle, the pollution exclusion clause would extend far beyond
its intended scope, and lead to some absurd results.”120 Therefore, this issue will remain for
debate in future mold lawsuits involving third-party insurance policies.
Over the past several years, some insurers have begun to specifically exclude coverage
for mold damage or at least cap payments for mold claims.121 The ISO has even released a
special endorsement to CGL policies titled, “Fungi or Bacteria Exclusion,” effective May
1, 2002. The endorsement excludes “bodily injury” or “property damage” that “would not
have occurred, in whole or in part, but for the actual, alleged or threatened inhalation of,
115
Stillman v. Charter Oak Fire Ins. Co., 88 F.3d 911 (11th Cir. 1996).
116
Id.
117
Mary P. McCurdy, supra note 110, at 61.
118
Id.
119
976 F.2d 1037 (7th Cir. 1992).
120
Id. at 1043-44.
121
Gregory Goodman, Insurance Triggers as Judicial Gatekeepers in Toxic Mold Litigation, 57 VAND. L.
REV. 241, 256 (2004).
541
ingestion of, contact with, exposure to, existence of, or presence of, any ‘fungi’ or bacteria
on or within a building or structure, including its contents, regardless of whether any other
cause, event, material or product contributed concurrently or in any sequence to such injury
or damage.”122 The exclusion also bars coverage for the costs of testing, analyzing and
remediating any mold.123
D. Disputes over Employers’ Responsibility for Workplace Mold
Employers also could be targeted for litigation by employees who claim that they have
suffered physical harm as a result of exposure to mold in the workplace. Under both federal
and state laws, employers generally are required to provide their employees with a workplace that is reasonably safe and healthful. If an employer fails to provide and maintain
such a workplace, it could be liable for violating its duty of care to its employees. However,
applying this general principle to the issue of mold is difficult at the present time.
As noted earlier in Section V.B.2., there currently is no agreement about a “safe” level
of mold or the actual physical dangers posed by exposure to that mold. Neither the Environmental Protection Agency nor the Occupational Safety and Health Administration
(“OSHA”) have issued standards for mold or fungi. While some states have begun to investigate standards for mold exposure, no such standards have yet been established. Without
such standards and a better understanding of the physical risks associated with mold exposure, employers have little guidance on this issue. OSHA has issued a mold bulletin designed to assist those responsible for building maintenance.124 This bulletin does not create
liability under OSHA’s regulations but articulates guidelines for dealing with mold and its
removal.125 Nevertheless, employees alleging problems from exposure to mold could argue
that an employer’s failure to comply with the bulletin created an unsafe workplace.126
In addition to the lawsuits and workers’ compensation suits that have begun to surface,
employers also will bear additional costs resulting from mold growth in the workplace.
These additional costs might include the expense associated with mold remediation, the
expense of finding temporary workspace for employees while the mold is remediated, and
122
Leslie O’Neal-Coble, Mold Exclusion Adopted for Comprehensive General Liability Policies, INDOOR
AIR QUALITY NEWSLETTER (Holland & Knight L.L.P), 2003, at 7, available at http://www.hklaw.com/Publications/Newsletters.asp?IssueID=365&Article=2051.
123
Id.
124
Steptoe & Johnson PLLC, OSHA Weighs In on Mold and Creates Liability for West Virginia Employers,
9-5 W. VA. EMP. L. LETTER (2003).
125
Id.
126
Id.
542
lost productivity from employees who suffer mold-related illness. Some workers also have
claimed that health problems allegedly caused by mold exposure in the workplace are covered under the Americans with Disabilities Act.127
The few court cases that have addressed this issue provide little guidance for employers uncertain about what to do in the absence of state or federal guidelines. In Allen v.
IBM,128 the federal district court found that the employees could not avoid North Carolina’s
workers’ compensation bar on an action against their employer for mold in the workplace.
The court held that no evidence existed indicating that the hazards posed by the “toxic
mold” were obvious to the employer, nor was there any evidence that the employer intentionally opted to forego critical safety precautions.129 On the other hand, in Kloepper v.
Unemployment Appeals Commission,130 the Florida appellate court was asked to review an
employee’s complaints about illnesses allegedly caused by mold and mildew in her workplace. Although the employer had taken some steps to correct the problem, the court found
that those steps were inadequate.131
These cases seem to imply that an employer is protected so long as it is not aware of the
existence of mold. Once awareness exists, however, the employer is responsible for taking
adequate steps to rectify the situation. Of course (as noted earlier), without a better understanding of the dangers of mold exposure and the creation of mold exposure standards,
employers are left with little guidance as to what would constitute an adequate remedy.
E. Other Potential Targets for Mold Infestation Litigation
While the issues discussed above are some of the more prominent current and future
issues affecting mold litigation, there are many other sources of potential mold litigation.
For example, homeowners are not the only potential plaintiffs in mold litigation. In May
2002, a North Carolina owner of a 1999 Cadillac Escalade sport utility vehicle sued General Motors Corporation for mold damages. The owner alleged that defective weatherstripping permitted water to seep into his vehicle, creating a mold that made the owner
sick.132
Other litigants may include tenants who experience or claim mold problems. Currently,
the maintenance systems used by many landlords to sustain their buildings do not successfully ensure that mold damage will be prevented or quickly remediated. Many landlords
127
Stephanie Armour, Employers Face Mold Problems, USA TODAY, Aug. 12, 2002, at 1B.
128
308 F. Supp. 2d 638 (M.D.N.C. 2004).
129
Id.
130
871 So. 2d 997 (Fla. Dist. Ct. App. 2004).
131
Id.
132
Johnson, supra note 22.
543
have reduced their maintenance responsibilities by writing leases that include deductibles
for maintenance and repairs.133 These deductibles provide a disincentive to tenants for reporting minor problems such as small leaks that could lead to mold problems.134 In addition, many tenants may not bother to report small leaks or other possible water or mold
damage that occurs near the end of a lease period. In both situations, landlords may be
responsible later for more costly repairs and remediation.
Landlords also must be aware of the possibility that some tenants, familiar with the
mold crisis, may claim injuries from newly-discovered mold in an effort to otherwise shorten
their leases. One owner of a Texas property management company reported that ten tenants
in one year had sought early release in just that situation, often threatening to file mental
anguish claims if their leases were not suspended.135 Landlords who fear such fraudulent
behavior must take steps to ensure that their maintenance plans remain current so that new
mold growth can be efficiently remediated.
VI.
CONCLUSION
Much has changed since the Ballard decision issued. Actions taken both by insurers
and state legislatures have slowed the surge of this new wave of toxic tort litigation – at
least to some extent. However, this area of litigation is relatively new, and several issues
remain before the tide ebbs entirely. Despite the best efforts of some insurers, many courts
continue finding ways to cover mold damage. If insurers are successful in foreclosing much
of the first-party insurance litigation, attention will likely move to third-party liability insurance coverage. Under those circumstances, contractors may see renewed interest in their
liability for mold problems, which will translate to insurer liability for the negligence of
contractors or subcontractors. Employers also face potential litigation from employees who
are exposed to mold in the workplace. Finally, if more conclusive scientific evidence regarding mold problems and health issues surfaces in the future, the floodgates will open
once again.
133
Sit-DuVall, supra note 7.
134
Id.
135
Id.
544
THE END OF FIRST-PARTY BAD FAITH
Taking the Last Step in Insurance
Law’s Most Significant Event:
The End of First-Party Insurance
Bad Faith in California
John Cross
I.
INTRODUCTION
An examination of the past twenty-five years in the field of insurance law presents a
panoply of dramatic events that have had a significant impact on the insurance industry and
make it difficult to select the single most significant development in the field. One tends to
focus on the most recent events and find them the most compelling. Consider the proliferation of the APH claims: asbestos, pollution, and health hazard claims. The resulting controversies and litigation have transformed the insurance industry as well as insurance law.
Many venerable insurance companies have gone out of business as a consequence of this
onslaught of litigation. Some businesses became unable to obtain conventional insurance.
The nation also has been besieged by natural disasters that compounded the problems of
the insurance industry. The Northridge earthquake and Hurricane Andrew caused huge
losses from which many segments of the insurance market have yet to recover. Now the
September 11 terrorist attacks have dealt the industry another devastating blow.
Despite the immensity of these events, I have concluded that the most significant event
of the past twenty-five years in the field of insurance law was the expansion and contraction of insurer bad faith liability.1
1
Justice Arleigh Maddox Woods, Insurance Law: The Twists and Turns of Insurer Bad Faith Liability,
25 LOS ANGELES LAWYER 55, 55 (Mar. 2002).
545
John Cross is an insurance educator and consultant who resides in Orange County, California. He is a faculty member
with the California State University, Fullerton (Finance Department) and the University of Phoenix, Southern California and Online Campuses. Mr. Cross teaches courses in insurance, risk management, business law, and business ethics. He received a B.A. from the University of Massachusetts, a J.D. from the University of Kansas School of Law,
and a M.S.F.S. (Master of Science in Financial Services) from
the American College. Mr. Cross is a member of the California and Virginia State Bars.
True, indeed. In fact, there is now an entire industry devoted to insurance bad faith.2
Many plaintiffs’ and defense lawyers devote their practices to it. Each side comes armed
with paid industry “experts,” poised to give testimony about what constitutes proper insurance industry practices. The public at large devotes a considerable amount of its scarce
judicial resources to provide a forum for resolving these disputes. A lot of smart and highlycompensated people devote a lot of time and energy to deciding whether an insurance
claim was handled properly. And whatever the result, the public pays for it all through
taxation and insurance premiums.3
Of course, society makes similar resource allocations in other areas. There are costs
whenever the law provides someone with a remedy for something. But first-party insurance
bad faith law carries some additional baggage. First, insurance bad faith is not a traditional
2
See Alan O. Sykes, “Bad Faith” Breach of Contract by First-Party Insurers, 25 J. LEGAL STUD., 405,
406 (1996); Douglas R. Richmond, An Overview of Insurance Bad Faith Litigation, 25 SETON HALL L.
REV. 74, 76, 111 (1994).
3
See, e.g., Mark J. Browne et al.,, The Effect of Bad-Faith Laws on First-Party Insurance Claims Decisions, 33 J. LEGAL STUD. 355 (June 2004). The authors note:
[o]ur study supports several assumptions about how the law of bad faith affects insurers’ claims
settlement practices. Higher overall settlement amounts are paid in states with a bad-faith remedy.
Moreover, consistent with the reasoning outlined earlier, the higher overall settlements are a result
of higher payments for both economic and noneconomic damages.
Id. at 386.
546
legal doctrine. One cannot defend it—even if it were a good thing—by arguing that it is an
established part of our jurisprudence. Second, insurance bad faith requires the courts to
distort established legal principles to afford a tort remedy in cases that do not justify one.
Instead, contract law and traditional tort law causes of action can sufficiently redress serious insurer claim handling misconduct. Finally, even if a different approach were called
for, it is a matter for the legislature. California courts should not have created an entirely
new body of law—unique to the insurance industry—on their own.
In the opening quotation to this article, Justice Woods writes about the expansion and
contraction of insurer liability, and its significance. Yes, insurer liability expanded—quite a
bit. And then it contracted . . . somewhat. But there is a final paragraph in insurance bad
faith law that remains and needs to be written. It would set out the California Supreme
Court’s decision to abolish the last remnant of the “tortification” of contract law4—firstparty insurance bad faith.
But to get to this destination, we need to see where we’ve been. So we will start by
reviewing the creation of first-party insurance bad faith law in California. Then, we will
examine subsequent developments in closely-related areas of the law that refuted several
key premises underlying first-party bad faith. Finally, we’ll survey the actions that would
remain were there no insurance bad faith—ones that provide appropriate remedies. An
inescapable conclusion will follow from this: California’s first-party insurance bad faith
doctrine must go!
II.
THE RISE OF FIRST-PARTY INSURANCE BAD FAITH
The first-party insurance bad faith tort action has humble origins indeed. It began with
the application of familiar contract principles. As time went on, tort law doctrine slipped
into the cases. Finally, we were left with a unique tort law cause of action directed solely to
insurers, yet not one subject to tort defenses.
A. The Excess Liability Cases
The California Supreme Court—seemingly unwittingly—began setting out legal principles that would ultimately morph into the new insurance bad faith tort in Comunale v.
Traders & General Insurance Co.5 Comunale, like the other early bad faith cases, involved
4
See generally Oki Am., Inc. v. Microtech Int’l, Inc., 872 F.2d 312, 315 (9th Cir. 1989) (Kozinski, J.,
concurring) (coining this term).
5
328 P.2d 198 (Cal. 1958).
547
an action against an insurer following a judgment against its insured in excess of the insured’s
policy limit. The court held that in many situations insurers should be responsible for awards
exceeding their insureds’ policy limits. In the underlying case against the insured, Traders
had failed to defend and thus also failed to settle a liability claim against its insured. The
court ruled that Traders should bear responsibility for the entire judgment—even the amount
over its policy limit—if it had wrongfully failed to protect its insured.
It follows from what we have said that an insurer, who wrongfully declines to
defend and who refuses to accept a reasonable settlement within the policy limits
in violation of its duty to consider in good faith the interest of the insured in the
settlement, is liable for the entire judgment against the insured even if it exceeds
the policy limits.6
Comunale was a breach of contract case. The court began discussing insurer responsibility for extra-contractual damages by establishing its source—the implied covenant of
good faith and fair dealing.
“There is an implied covenant of good faith and fair dealing in every contract that
neither party will do anything which will injure the right of the other to receive the benefits
of the agreement. This principle is applicable to policies of insurance.”7
The court found that breaching a contractual provision like this could support a damages award including amounts over the insurance policy limit.
There is an important difference between the liability of an insurer who performs its obligations and that of an insurer who breaches its contract. The policy
limits restrict only the amount the insurer may have to pay in the performance of
the contract as compensation to a third person for personal injuries caused by the
insured; they do not restrict the damages recoverable by the insured for a breach of
contract by the insurer.8
The court noted that damages in excess of the insurance policy limit are appropriate in
these cases. California’s statute setting forth the measure of damages in contract cases
includes them.
A breach which prevents the making of an advantageous settlement when there
is a great risk of liability in excess of the policy limits will, in the ordinary course
of things, result in a judgment against the insured in excess of those limits. Section
6
Id. at 202.
7
Id. at 200 (citation omitted).
8
Id. at 201.
548
3300 of the Civil Code provides that the measure of damages for a breach of
contract is the amount which will compensate the party aggrieved for all the detriment proximately caused by the breach, or which, in the ordinary course of things,
would be likely to result from it.9
The courts continued to analyze insurance bad faith as a breach of contract after
Comunale as demonstrated by the next often-cited bad faith decision—Critz v. Farmers
Insurance Group.10 The case presented a familiar scenario. A third-party claimant offered
to settle her liability claim, the insurer rejected the offer, and the case went to trial, resulting in a verdict in excess of the insured’s policy limits. In Critz, like Comunale, the insured assigned the rights to sue his insurer to the third-party claimant, but unlike Comunale,
the insured did so before the case went to trial. The propriety of this practice was the
primary issue for the court of appeal, and the court upheld it. It ruled that if an insurer
commits bad faith by unreasonably failing to accept a settlement offer within its insured’s
policy limit, the insured is authorized to protect himself through an assignment. The court
continued to analyze bad faith actions as those sounding in contract. It ruled that assignments would not be regarded as contract breaches when insurance companies are shown
to have acted in bad faith. The insurer’s breach of contract—its bad faith claim handling—
excuses what would otherwise be a breach of contract by the insured. Bad faith remained
a contract law concept.
But two years later the California Supreme Court would begin the process of creating
an entirely new body of law—the tort law cause of action for insurance bad faith. In Crisci
v. Security Insurance Co.,11 the court again ruled on insurer excess liability, but this time
the plaintiff—the insured—also sought damages for emotional distress. The plaintiff could
not receive these damages for breach of contract. To allow plaintiffs to recover them, bad
faith would need to become a tort. So the court made it one. The court acknowledged that
Critz at least implied otherwise—that insurance bad faith was grounded in contract law—
and it disapproved this analysis.12 But given previous California decisions, the court needed
to stretch to establish a tort law foundation for insurance bad faith. So stretch, it did. The
court referred to a short passage in Comunale where—to allow a longer contract statute of
limitations period—it had noted that plaintiffs ordinarily may elect between tort and contract actions:
9
Id. at 202 (citations omitted) (emphasis added).
10
41 Cal. Rptr. 401 (Ct. App. 1964).
11
426 P.2d 173 (Cal. 1967).
12
Id. at 178-79.
549
Although a wrongful refusal to settle has generally been treated as a tort, it is the
rule that where a case sounds both in contract and tort the plaintiff will ordinarily
have freedom of election between an action of tort and one of contract. An exception to this rule is made in suits for personal injury caused by negligence, where
the tort character of the action is considered to prevail, but no such exception is
applied in cases, like the present one, which relate to financial damage.13
This scant reference would provide the basis for the creation of an entirely new tort law
cause of action. What was once termed insurer excess liability was set to become a new and
comprehensive tort action—insurance bad faith.
B. First-Party Cases 14
The California Supreme Court took these excess liability concepts and applied them to
insureds’ direct claims for policy benefits in Gruenberg v. Aetna Insurance Co.15 Aetna had
denied Gruenberg’s commercial property policy claim following a fire at Gruenberg’s business premises. Aetna suspected that Gruenberg had been involved in setting the fire and
demanded he submit to an examination under oath (EUO). Gruenberg refused because
criminal charges were pending against him. Aetna denied Gruenberg’s claim asserting that
he had breached the policy’s cooperation clause. The criminal charges were ultimately
dropped, but Aetna continued with its claim denial. Gruenberg sued Aetna for bad faith.
13
Comunale, 328 P.2d at 203 (citations omitted).
14
All of the cases discussed so far and all the bad faith cases that will be discussed throughout, other than
Moradi-Shalal v. Fireman’s Fund Ins. Co. and Royal Globe v. Superior Court (Koeppel), see infra Part III.
A., are “first-party bad faith” cases. That is—they involve claims by insured persons that their insurance
companies breached duties owed to them under their insurance policies, resulting in financial loss to them.
Excess liability bad faith lawsuits still involve first-party bad faith. They’re based on allegations that the
insurer breached a duty owed to the insured—the duty to protect the insured from liability over the insured’s
policy limit by settling a claim against the insured within the policy limit. These cases, however, arise from
underlying insurance claims brought by third-parties against the insureds. And sometimes insureds assign
their rights to sue their insurers in bad faith to the third-party claimants, and in those situations the thirdparty sues the insurer. The insured may not be involved in the lawsuit, other than as a percipient witness
regarding the insurer’s claim handling. But the insureds’ rights under their policies are still the matter at
issue, so these are still first-party bad faith lawsuits. They’re first-party cases that arose in a third-party
context.
But there are also first-party bad faith cases that arise in a first-party context. These cases involve direct
claims by insureds for policy benefits. That is, they involve insureds’ claims for benefits to be paid directly
to them under the insurance contract. They do not involve settlement of a third-party claim against them.
These situations are typically termed “first-party cases,” although, as discussed, first-party bad faith may
arise in both the third-party (liability) and first-party (direct payment of policy benefits to insureds) claims
contexts.
15
510 P.2d 1032 (Cal. 1973).
550
Aetna filed a demurrer to the complaint, and the trial court granted it. It found that
Gruenberg’s failure to appear at the EUO was a breach of his insurance policy, which in
turn barred Gruenberg from recovering in any action on the insurance policy.
The trial court’s ruling was correct—assuming that Gruenberg’s breach was material—
if his action were based in contract. A party who has materially breached a contract has no
right to a breach of contract action based on the other party’s alleged breach.16 But if Aetna’s
claim denial sounded in tort, things would be different.
The court declared that this was so. It repeated its past references to the contract and
tort ramifications of breaches of the implied covenant of good faith and fair dealing. Then,
in this frequently quoted passage, it applied its excess liability reasoning to insureds’ direct
claims for policy benefits, finding the two contexts essentially indistinguishable:
[I]n Comunale and Crisci we made it clear that “[liability] is imposed [on the
insurer] not for a bad faith breach of the contract but for failure to meet the duty to
accept reasonable settlements, a duty included within the implied covenant of good
faith and fair dealing.” In those two cases, we considered the duty of the insurer to
act in good faith and fairly in handling the claims of third persons against the
insured, described as a “duty to accept reasonable settlements”; in the case before
us we consider the duty of an insurer to act in good faith and fairly in handling the
claim of an insured, namely a duty not to withhold unreasonably payments due
under a policy. These are merely two different aspects of the same duty. That responsibility is not the requirement mandated by the terms of the policy itself — to
defend, settle, or pay. It is the obligation, deemed to be imposed by the law, under
which the insurer must act fairly and in good faith in discharging its contractual
responsibilities. Where in so doing, it fails to deal fairly and in good faith with its
insured by refusing, without proper cause, to compensate its insured for a loss
covered by the policy, such conduct may give rise to a cause of action in tort for
breach of an implied covenant of good faith and fair dealing.17
This was a significant development in the law. It was one thing to allow plaintiffs to
impose extra-contractual liability on insurers in excess liability situations. As the key decisions pointed out, the insurers reserved to themselves extensive control over the tort litigation filed against their insureds. The insureds were required to cooperate with their insurers, but they possessed little to no direct control over what happened in the litigation. Small
wonder, then, that the insurers would be held responsible for damages awards exceeding
16
1 WITKIN, SUMMARY OF CALIFORNIA LAW, Contracts § 796 (10th ed. 2005).
17
510 P.2d at 1037 (citations omitted).
551
their policy limits if that was due to their bad faith. If nothing else, this ought to be the
situation as a matter of simple fairness. You cause it—you pay for it.
But it is quite another thing to impose tort liability on insurers for the simple failure to
pay a direct contract benefit. In excess liability cases, as in first-party benefits cases such as
Gruenberg, the insurer has failed to pay benefits it owes under its insurance policy. But in
the excess liability context, this decision creates a potentially large new exposure for the
insured—the amount of a civil judgment over the insured’s policy limits. The financial
implications of a failure to pay first-party policy benefits are generally limited to the amount
of these benefits. But a wrongful failure to settle a liability claim creates an additional
exposure to severe financial loss. Very few persons who manage property and liability
accidental loss exposures would cavalierly equate them as “merely two different aspects of
the same duty,”18 as the California Supreme Court did in Gruenberg.19 Yet the court did so
there and thus paved the way to a new era where denial of a contract benefit would now be
a tort.
The California Supreme Court’s next major decision, Silberg v. California Life Insurance Co.,20 made it clear that tort recovery would be widely available in insurance cases.
Silberg involved the disagreement over the interpretation of a health insurance policy provision denying coverage when workers compensation benefits were “payable.” Silberg ar-
18
Id.
19
Potential legal liability losses present a much greater financial exposure than property losses. Here is
one representative statement of this view written for those who manage these risks:
As disastrous as a severe property loss might be, the potential for loss created by a liability loss
exposure is even greater. In a society such as the United States, where the legal climate encourages
lawsuits, individuals and families face a severe drain on assets from the possibility of being sued or
being held responsible for someone else’s injury.
....
Unlike most property loss exposures, liability loss exposures put all of an individual’s financial
resources at risk of loss. When a court orders an individual to pay liability damages, the amount of
the damages is based on the loss the injured party suffers. The court is not concerned with the
financial resources of the party at fault or with that party’s ability to pay the damages. As a result, all
of an individual’s or a family’s savings and property are exposed to loss because of the possibility
that the individual or family might have to liquidate all available resources to pay large liability
damages. In addition, courts have the power to garnishee a portion of an individual’s wages, if
necessary, to pay for liability damages. The fact that all of an individual’s assets, plus his or her
future income, may be required to pay for liability damages makes a liability loss a frightening
possibility.
ERIC A. WIENING ET AL., PERSONAL INSURANCE §§ 1.6, 1.9 (2002).
20
521 P.2d 1103 (Cal. 1974).
552
gued that this term meant “paid,” and California Life argued that it meant “available.”
Workers compensation benefits ended up being available for part of Silberg’s expenses but
not all of them, so California Life denied any payment based on its construction of the word
“available.” Silberg claimed that California Life was obligated to cover any unpaid amounts
because as to those amounts workers compensation was not “available.”
Silberg sued California Life for bad faith and prevailed at trial, recovering compensatory and punitive damages. But the trial court set aside the verdict upon post-trial motion. It
held that the evidence was not sufficient to support a finding of bad faith. The case reached
the California Supreme Court, which reversed. It held that as a matter of law, California
Life had acted in bad faith and that the trial court had abused its discretion in ruling otherwise.21
The supreme court observed that at most, the insurance policy was ambiguous and that
the coverage issue had been unclear from the beginning. It noted that Silberg earned only a
modest income but had incurred high medical expenses. It concluded that if California Life
wanted to dispute payment under its policy, it could have paid Silberg and then have asserted a lien against the workers compensation carrier. California Life had not, however,
and the court found this inconsistent with California Life’s expressed intent in its policy (in
the court’s view, anyway) to protect insureds from ruinous medical bills.
21
The court did, however, defer to the trial court’s discretion on the punitive damages award. Although it
affirmed the jury’s contractual and compensatory damages award (for physical and mental distress), it
upheld the trial court’s decision to set aside the punitive damages award:
It does not follow that because plaintiff is entitled to compensatory damages that he is also
entitled to exemplary damages. In order to justify an award of exemplary damages, the defendant
must be guilty of oppression, fraud or malice. He must act with the intent to vex, injure or annoy, or
with a conscious disregard of the plaintiff’s rights. While we have concluded that defendant violated
its duty of good faith and fair dealing, this alone does not necessarily establish that defendant acted
with the requisite intent to injure plaintiff.
In granting a new trial the trial court stated that the evidence was insufficient to justify an award
of punitive damages because defendant was not put on notice by cases previously decided that its
interpretation of the policy was incorrect and because there was insufficient evidence of a practice in
the insurance industry to pay a disputed claim and then file a lien in the workmen’s compensation
proceeding to recover the payments made. The trial court’s conclusion that defendant was not guilty
of oppressive conduct did not constitute a manifest and unmistakable abuse of discretion. Therefore, the order granting a new trial must be affirmed insofar as it determines that the evidence was
insufficient to justify the award of punitive damages.
Id. at 1110 (citations omitted).
Its decision to uphold the trial court’s ruling setting aside punitive damages notwithstanding Silberg, reveals another significant development. The exposure to punitive damages would now become a big part of
insurance litigation.
553
Silberg was a remarkable decision. It supported recovery for bad faith based on a disagreement over whether an insurance policy provided coverage. And there was certainly
room for disagreement—Justice Clark’s dissenting opinion concluded that the policy did
not provide coverage!22 Additionally, the court went far beyond Gruenberg, which just
recognized—at the demurrer stage—the existence of a tort law action for first-party insurance bad faith. In Silberg, the court ruled that an erroneous interpretation of insurance
coverage (in its, albeit not the dissent’s, view) would not just support a finding of bad
faith—it required it as a matter of law.23
The California Supreme Court’s next significant first-party insurance bad faith case
further reinforced the breadth of its new tort cause of action. In Neal v. Farmers Insurance
Exchange24 the court held that an insurer could be found responsible in tort for disagreeing
with its insured over the value of the insured’s claim when the claim value is later determined to be higher than the insurer’s offer of settlement. Mrs. Neal’s husband had turned
left in front of an uninsured motorist. Mrs. Neal was seriously injured in the subsequent
collision. The Neals had an auto policy with Farmers. The policy included medical payments coverage (MPC) with $5000 limits and uninsured motorist coverage (UMC) with
$15,000 limits. Mrs. Neal demanded that Farmers pay both limits. Farmers paid the $5000
MPC limit. But Farmers initially declined to pay the UMC limit because it appeared the
uninsured motorist was not legally responsible for the accident, and Farmers believed it
was entitled to offset the MPC payment from its available UMC limits. Farmers consulted
defense counsel who advised it that the offset issue was unclear and that “‘at best’ the case
was ‘50-50’ on liability.”25 Given these issues, Farmers offered to pay $5000 under UMC,
but Mrs. Neal rejected the offer, demanding the full limit. The case went to UMC arbitration and the arbitrator first resolved liability against the uninsured motorist and later ruled
in favor of Mrs. Neal on the offset issue. Farmers paid $10,000 promptly after the first
ruling and paid $5000 promptly after the second.
Mrs. Neal sued Farmers for bad faith. The jury found in her favor and awarded her just
over $1.5 million in compensatory and punitive damages, which was ultimately remitted to
approximately $750,000. Both parties appealed.
The California Supreme Court affirmed the jury’s award, finding it was supported by
substantial evidence. The court acknowledged that Farmers had handled Mrs. Neal’s claim
based on legal advice, but it found fault with Farmers for not completely investigating the
claim. The court cited a Farmers claim manual that discussed using life events affecting
22
Id. at 1112-13.
23
See id. at 1112.
24
582 P.2d 980 (Cal. 1978).
25
Id. at 984.
554
insureds’ financial situations to facilitate settling their claims26 as evidence supporting a
conclusion that Farmers had attempted to “force a settlement more favorable to the company than the facts would otherwise have warranted.”27 The court conceded that there was
no direct evidence the Farmers’ claim representatives had followed the manual in Mrs.
Neal’s claim. But it said the record contained indirect evidence supporting this conclusion
from which the jury could infer that Farmers had acted improperly.
After Neal, it was clear that the court intended to apply the law of insurance bad faith
broadly.28 In his dissenting opinion, Justice Clark noted that the Neal majority would allow
insurers to be held liable in tort for simply guessing wrong about insureds’ claims—that is,
for offering less than the insureds ultimately receive in arbitration or litigation. He viewed
the court’s ruling as enacting a strict liability rule and predicted that due to this new tort
exposure, insurers would thereafter need to pay many frivolous claims.
The Neal decision focused mostly on Farmers’ alleged sharp claim settlement practices. Also important to the court was that—in its view—Farmers had no colorable basis to
resist paying its full policy limit, thus requiring the claim to go through UMC arbitration
process. There were also several references to Farmers’ failure to look properly into the
details of Mrs. Neal’s claim and to consider adequately all available evidence. But the court
devoted little analysis to the significance of an incomplete or inadequate claim investigation. It reserved this for what may have been its greatest expansion of the new first-party
bad faith tort in Egan v. Mutual of Omaha Insurance Co.29
26
Id. at 987 n.8.
27
Id. at 987.
28
In Neal, the jury had awarded the plaintiff approximately $1.5 million, in a general verdict comprising
compensatory and punitive damages. The trial court reduced the award to just under $750,000. The verdict
didn’t differentiate between contractual and punitive damages—a practice the supreme court disapproved.
But the court was able to determine what amount corresponded to punitive damages—approximately
$740,000—and it upheld this award over Farmers’ contention that it was excessive as a matter of law. The
court had now upheld a punitive damages award in a first-party insurance bad faith case, and this substantially increased the attractiveness of this tort action to prospective plaintiffs.
29
620 P.2d 141 (Cal. 1979). Egan was a part—albeit an important one—of the “Rose Bird” court’s overall
expansion of insurer liability. Just before it decided Egan, the court handed down one of its most controversial decisions—Royal Globe Insurance Co. v. Superior Court (Koeppel), 592 P.2d 329 (Cal. 1979).
There the court held that third-party claimants may sue insurers for violating the Unfair Claim Settlement
Practices Act—Ins. Code sections 790.03(h)(5), (h)(14). This decision greatly expanded insurance bad
faith law, and gave rise to—among other things—the “settle and sue” phenomenon. A quite different court
ultimately overruled Royal Globe Insurance in Moradi-Shalal v. Fireman’s Fund Insuirnce Co., 758 P.2d
58 (Cal. 1988). See infra Part III.A.
555
Egan involved a disability insurance claim. The disability policy provided lifetime
benefits if an accident caused the insured’s disability, but limited benefits to three months if
illness was the cause. Mutual of Omaha took the position that Egan’s condition was due to
illness, and it offered to pay Egan disability benefits for only three months. It based this
solely on a medical records review. It did not contact Egan’s treating doctors nor did it
conduct an independent medical examination. Mutual of Omaha also engaged in harsh
claim tactics including accusatory and derisive comments and conditioning higher settlement offers on Egan surrendering his policy.
Egan sued Mutual of Omaha for bad faith, and the trial court directed a verdict in
Egan’s favor. Causation and damages issues went to the jury, which awarded Egan approximately $120,000 in compensatory damages and $5 million in punitive damages.
Mutual of Omaha appealed the award. It sought to limit the expanding first-party insurance bad faith tort by arguing that liability is only appropriate if an insurer “wrongfully
denies a claim knowing it has no reasonable basis for doing so . . . .”30 It argued that the trial
court’s ruling “improperly subjects it to strict liability in tort for breach of contract.”31 The
California Supreme Court disagreed. It found that Mutual of Omaha’s claim handling justified a bad faith finding because Mutual had breached what the court would now regard as
a critical component of the implied covenant of good faith and fair dealing—the duty to
investigate claims. The court provided this often-quoted explanation:
The insured in a contract like the one before us does not seek to obtain a
commercial advantage by purchasing the policy — rather, he seeks protection against
calamity. As insurers are well aware, the major motivation for obtaining disability
insurance is to provide funds during periods when the ordinary source of the
insured’s income — his earnings — has stopped. The purchase of such insurance
provides peace of mind and security in the event the insured is unable to work. To
protect these interests it is essential that an insurer fully inquire into possible bases
that might support the insured’s claim. Although we recognize that distinguishing
fraudulent from legitimate claims may occasionally be difficult for insurers, especially in the context of disability policies, an insurer cannot reasonably and in
good faith deny payments to its insured without thoroughly investigating the foundation for its denial.
30
Egan, 620 P.2d at 144.
31
Id. at 144-45.
556
Here the evidence is undisputed that Mutual failed to properly investigate
plaintiff’s claim; hence the trial court correctly instructed the jury that a breach of
the implied covenant of good faith and fair dealing was established.32
The preceding decisions largely define California’s first-party insurance bad faith law.
There have been additional supreme court first-party insurance bad faith decisions since
then that are of some note. For example, in White v. Western Title Insurance Co.,33 the court
ruled that duties under the implied covenant of good faith and fair dealing continue even
after an insured has instituted litigation against the insurer. In Brandt v. Superior Court,34
the court held that plaintiffs could recover attorneys’ fees incurred to obtain insurance policy
benefits (but not to prosecute their bad faith cases).35 Also, in Waller v. Truck Insurance
Exchange, Inc.,36 the court made clear that there could be no tort liability for bad faith
32
Id. at 145-46 (citations omitted). Using the term “thoroughly investigating” made the decision more
extreme. “Thorough” is commonly defined as follows:
Function: adjective
1: carried through to completion : EXHAUSTIVE <a thorough search>
2a: marked by full detail <a thorough description> b : careful about detail : PAINSTAKING
<a thorough scholar> c : complete in all respects <thorough pleasure>
(as of an art) <a thorough musician>.
d : having full mastery
Merrian-Webster Online Dictionary, http://www.m-w.com/cgi-bin/dictionary (last visited July 19, 2005).
So, an insurance company acts in bad faith unless it exhaustively and painstakingly investigates a claim?
This does not comport with the duties created by the implied covenant of good faith and fair dealing.
Insurers breach the covenant when they deny policy benefits unreasonably or without proper cause. The
standard is not perfection. It is “fair and reasonable.” There is no duty of excellence—no duty to conduct a
“no-stones-unturned” claim investigation. It may be a good thing to do in some claims, and it may differentiate an insurance company from its competitors based on its excellent customer service. But it is truly
extraordinary to say that the law requires this level of service.
Perhaps recognizing the inappropriateness of the term “thoroughly investigating,” the supreme court
has generally used more appropriate descriptive terms in other cases. See, e.g., Waller v. Truck Ins. Exch.
Co., 900 P.2d 619 (Cal. 1995) (reasonable investigation); Frommoethelydo v. Fire Ins. Exch. Co., 721 P.2d
41 (Cal. 1986) (adequate/proper investigation); White v. W. Title Ins. Co., 710 P.2d 309 (Cal. 1985) (reasonable investigation); see also Egan, 620 P.2d 141 (Cal. 1979) (Clark, J. dissenting) (concurring with
“the majority opinion insorfar as it holds that included within the implied covenant of good faith and fair
dealing is a duty to properly investigate claims . . .).” Egan, 620 P.2d at 149.
33
710 P.2d 309 (Cal. 1985).
34
693 P.2d 796 (Cal. 1985).
35
See also Cassim v. Allstate Ins. Co., 94 P.3d 513 (Cal. 2004) (re-explaining and interpreting how attorney’s
fees are determined under Brandt).
36
900 P.2d 619 (Cal. 1995).
557
without there having been a contractual right to receive insurance policy benefits. These
cases were important for their specific propositions, but they simply reflected the California Supreme Court’s earlier decisions defining the first-party bad faith cause of action
overall.
Yet the California Supreme Court may have written the final paragraph in its body of
work developing and expanding first-party insurance bad faith law in Kransco v. American
Empire Surplus Lines Insurance Co.37 There, the court rejected an insurer’s attempt to
apply comparative fault in an insurance bad faith case. The court reviewed the underpinnings of insurance bad faith. It noted that it was a tort cause of action based on contractual
duties owed by insurers to insureds. In most cases (all but insurance), contractual breaches
support actions for breach of contract—not those seeking to impose tort liability. But the
court distinguished the insurance context and found that bad faith cases warranted different
treatment:
It has long been recognized in California that “[t]here is an implied covenant of
good faith and fair dealing in every contract that neither party will do anything
which will injure the right of the other to receive the benefits of the agreement.”
This principle applies equally to insurance policies, which are a category of contracts. Because the covenant is a contract term, in most cases compensation for its
breach is limited to contract rather than tort remedies. But “[a]n exception to this
general rule has developed in the context of insurance contracts where, for a variety of policy reasons, courts have held that [an insurer’s] breach of the implied
covenant will provide the basis for an action in tort.” The availability of tort remedies in the limited context of an insurer’s breach of the covenant advances the
social policy of safeguarding an insured in an inferior bargaining position who
contracts for calamity protection, not commercial advantage.38
It then observed that an insurer’s breach of the implied covenant of good faith and fair
dealing is one thing—a tort. But an insured’s breach would be treated as something else—
breach of contract:
To be sure, the “duty of good faith and fair dealing in an insurance policy is a twoway street, running from the insured to his insurer as well as vice versa.” But the
scope of the insured’s duty of good faith and fair dealing, and the remedies available to the insurer for a breach of that duty, are fundamentally and conceptually
37
2 P.3d 1 (Cal. 2000).
38
558
distinct from the insurer’s reciprocal duty, and the remedies available to the insured for breach of that duty, under the insurance policy. As this court has explained, it is an insurer’s breach of the covenant of good faith that is governed by
tort principles, at least as concerns the availability of tort damages. In contrast,
an insured’s breach of the covenant is not a tort. An insurer’s tort liability is predicated upon special factors inapplicable to the insured.39
The court’s tort/non-tort distinction (depending on the party) is at least unusual, if not
odd. It would seem that if the court wanted to continue along applying tort principles in
insurance cases, then it would apply all of them. To start, it was extraordinary to create any
tort action for not performing under a contract. It required convoluted and strained reasoning to limit the action to insurance cases only. But now, the court would take a further step
and reaffirm the availability of a tort remedy for insurance bad faith, but abrogate a key tort
defense—comparative fault.40 One concluding that this seems analytically inconsistent—
and unfair—is in good company. Chief Justice George thought so too:
In the past, this court has taken a broad view of the type of “comparative fault”
of a plaintiff that may reduce damages in a tort action, permitting the comparative
fault doctrine to be applied in strict liability cases and even in cases in which a
plaintiff voluntarily chooses to engage in an unusually risky sport, whether or not
the choice to do so is unreasonable. As this court explained in Knight [v. Jewett]:
“Past California cases have made it clear that the ‘comparative fault’ doctrine is a
flexible, commonsense concept, under which a jury properly may consider and
evaluate the relative responsibility of various parties for an injury (whether their
responsibility for the injury rests on negligence, strict liability, or other theories of
responsibility), in order to arrive at an ‘equitable apportionment or allocation of
39
Id. at 9 (emphasis added) (citations omitted).
40
The court did not, however, totally eliminate the insurer’s ability to litigate the merits of the insured’s
conduct. It said, for example:
We again emphasize that a liability insurer is not without redress for an insured’s litigation misconduct, be it negligent or intentional. Evidence of the insured’s misconduct or breach of its express
obligations under the terms of the insurance policy (i.e., breach of the cooperation clause) may
support a number of contract defenses to a bad faith action, by voiding coverage, factually disproving the insurer’s bad faith by showing the insurer acted reasonably under the circumstances, or
forming the basis for a separate contract claim, and an insured’s intentionally fraudulent conduct
may give rise to tort damages. An insurer may not, however, assert an insured’s comparative bad
faith as an affirmative defense to partially absolve itself of its own tort liability for breach of the
covenant of good faith and fair dealing.
559
loss.’ In my view, it is neither fair nor compatible with our past comparative fault
precedent to permit an insured to obtain tort damages when an insurer’s breach of
the covenant of good faith and fair dealing is a proximate cause of an injury or loss
incurred by the insured, but to refuse to permit a proportionate reduction in such
tort damages when the insured’s own bad faith conduct also is a concurrent cause
of the insured’s injury or loss.”41
So we are left with an odd and convoluted legal construct. Overall, breach of contract
is just that—it isn’t a tort. But in insurance cases, we will consider it something different,
and we will apply tort law doctrine. But we won’t apply all of it. We’ll allow tort law to
establish liability and responsibility for damages but not to defend against it.
Certainly it seems that a legal doctrine created and supported by analysis of this quality
requires re-examination—at minimum.
III.
THE MOVEMENT TO RESTRAIN UNRESTRAINED TORT LAW
The insurance bad faith tort action did not develop on its own in a vacuum. It was a part
of the California Supreme Court’s rapid tort liability expansion.42 But rapid tort liability
expansion led to undesirable social and economic consequences like increased taxes and
insurance premiums, and this began to influence the court’s thinking.43 Also during this
time, after a succession of Republican governors, the California Supreme Court’s composition began to change. The new court would begin to restrict ever-expanding tort liability.44
41
Id. at 18 (George, C.J., concurring and dissenting) (citations omitted) In addition, Justice Kennard
explains:
“[C]ourts cannot logically ground the duty of good faith and fair dealing in tort law and, at the same
time, reject the concomitant and well-established affirmative defense of comparative fault. Fidelity
to legal doctrine requires that if the implied duty of good faith and fair dealing merits tort remedies
for its breach, so must it be subject to tort defenses.” When it abolished the all-or-nothing contributory negligence doctrine, this court said the decision “was to be viewed as a first-step in what we
deem to be a proper and just direction.” By refusing to recognize a partial defense of comparative
fault in insurance bad faith actions based on unreasonable failure to settle with third parties, the
majority takes a step backward, making liability insurers the only party to whom this court has
denied the benefits of California’s comparative fault tort system.
Id. at 26 (Kennard J., dissenting) (citations omitted).
42
See generally Ellis Horvitz, An Analysis of Recent Supreme Court Developments in Tort and Insurance
Law: The Common-Law Tradition, 26 LOY. L.A. L. REV. 1145 (1993).
43
Id. at 1162.
44
See id; see also Kerry L. Macintosh, Gilmore Spoke Too Soon: Contract Rises from the Ashes of the Bad
Faith Tort, 27 LOY. L.A. L. REV. 483 (1994).
560
Three major developments during the court’s restrictive phase, outside first-party insurance bad faith, warrant review and examination. In each area the court reined-in tort
liability for matters that are essentially contractual. Although the various case holdings do
not involve first-party insurance bad faith, they set out principles that do bear directly on
this area of the law. These decisions lend practical and analytical support to the concept
that first-party insurance bad faith must be eliminated to return contract and tort to their
proper places and restore proportionality to insurer liability.
A. Moradi-Shalal
In 1988, the California Supreme Court abolished the so-called third-party bad faith
doctrine in its watershed decision Moradi-Shalal v. Fireman’s Fund Insurance Cos.45 There,
the court overruled its decision in Royal Globe Insurance Co. v. Superior Court (Koeppel),46
which had authorized third-party claimants—those who had no contractual relationship
with the insurer, but who presented a liability claim against someone who did—to file bad
faith actions against insurers based on their alleged violations of California’s Unfair Claims
Practices Act.47 The court took the extraordinary step of overruling one of its recent decisions, finding “it was incorrectly decided, and . . . has generated and will continue to produce inequitable results, costly multiple litigation, and unnecessary confusion unless we
overrule it.”48
The specific issue before the court in Moradi-Shalal was whether it was proper for the
court to have created a new third-party bad faith cause of action based on certain Insurance
Code violations. Some of the court’s reasons to eliminate this cause of action related to its
specific nature—a statutory action available to third-parties. For example, the court found
it created conflicts with the insurer’s duty to protect its insured. Additionally, it found that
the legislative history of California’s Unfair Claim Practices Act showed the legislature
intended only its administrative enforcement and did not intend a private civil cause of
action.
But the court also cited a number of broad, pragmatic, reasons that warranted eliminating a claimant’s private civil cause of action under the Insurance Code. These were:
• Multiple litigation and its drain on judicial resources. Plaintiffs would file one
lawsuit seeking compensation for their injuries, then a second lawsuit claiming
bad faith claim handling. This created very high transaction costs for what were
largely simple matters.
45
758 P.2d 58 (Cal. 1988).
46
592 P.2d 329 (Cal. 1979).
47
CAL. INS. CODE § 790.03(h)(5), (h)(14) (West 2006).
48
Moradi-Shalal, 758 P.2d at 63.
561
• Unwarranted settlement demands. Claimants used second lawsuits as levers to
obtain larger, unwarranted, settlements from insurers. Insurers sought to avoid
exposure to extra-contractual damages and the expenses required to defend
second lawsuits. So they settled personal injury cases for greater than was fair
and reasonable just to avoid further—very expensive—litigation.
• Escalating insurance costs. More litigation and higher settlements led to higher
insurance costs.
• Uncertainty regarding the new tort. What is a “bad faith” refusal to abide by
the Insurance Code, anyway? The courts never defined this concept. This uncertainty compounded the coercive settlement and expensive litigation problems. Plaintiffs could sue for most anything—even conduct no more severe
than poor customer service.
• Judicial legislating. The legislature could have chosen to create a new firstparty insurance bad faith tort—but it didn’t. The California Supreme Court
created it on its own. These matters are more appropriately left to the legislature. If California’s citizens really want to pay higher taxes and insurance premiums to allow persons dissatisfied with how their insurance claims were
handled to recover tort damages, they or their elected representatives should
make this judgment. This is a public policy decision, and courts should not
engage in policy-making activities.
• Other available remedies. The court made it clear that its decision was “not an
invitation to the insurance industry to commit the unfair practices proscribed
by the Insurance Code.”49 California’s Insurance Commissioner is authorized
by statute to impose substantial administrative sanctions against insurers, including cease and desist orders, fines, and even suspension of an insurer’s license. And there remained “appropriate common law actions, based on such
traditional theories as fraud, infliction of emotional distress, and (as to the insured) either breach of contract or breach of the implied covenant of good faith
and fair dealing.”50
Again, Moradi-Shalal dealt with a specific species of bad faith—the third-party bad
faith lawsuit based on alleged Insurance Code violations. First-party common law bad faith
was not before the court. Indeed, as noted, the court reinforced that common law bad faith
actions would remain available to insureds.
49
Id. at 68.
50
Id. at 68-69.
562
But should they remain? Not when one applies much of the court’s reasoning in striking down the third-party statutory tort.
• Multiple litigation and its drain on judicial resources. In many situations, firstparty common law bad faith actions create additional litigation. For example,
when there is an insurance coverage issue, either the insured or the insurer may
file a declaratory relief action seeking judicial resolution of the issue. If the
insured prevails, the insurer can expect a second action for first-party bad faith.
Another example involves an insured and insurer disagreeing on the value of
the insured’s uninsured motorist coverage claim. By statute, California requires
the disagreement to be resolved by arbitration.51 If the insured receives a favorable determination—the insured recovers more in arbitration than the insurer’s
settlement offer—the insured can, and in many cases will, sue the insurer for
bad faith.
• Unwarranted settlement demands. As with third-party statutory bad faith, plaintiffs understand that insurers are aware of their first-party bad faith exposure.
Insurers are afraid to “guess wrong” on, for example, the value of the insured’s
claim or whether it is covered at all. If they do, they are vulnerable to a firstparty bad faith action. These actions are expensive to defend—even a “routine”
case will cost an insurer between $50,000 and $100,000 to defend through trial
(and will likely be more, many times). Certainly this provides an incentive to
avoid litigation by inflating the settlement value of cases that present this exposure.52
• Escalating insurance costs. Someone has to pay for higher claim settlements
and all this litigation. It is the insuring public, of course.
• Uncertainty regarding the new tort. What constitutes first-party bad faith is no
more understandable than what qualified as a bad faith refusal to abide by the
Insurance Code, and at least with respect to the third-party action, there were
specific claim practices prohibited by the Insurance Code! But consider this
attempt, by a leading treatise, to present the first-party standard:
Breach as “bad faith:” An insurer is said to act in “bad faith” when it breaches
its duty to deal “fairly” and “in good faith” with its insured.
“Good faith” performance of a contract emphasizes faithfulness to an agreed
common purpose and consistency with the reasonably justified expectations
of the other party.
51
CAL. INS. CODE § 11580.2(f) (West 2006).
52
See Browne et. al., supra note 3.
563
Positive misconduct not required: The term “bad faith” does not connote
“positive misconduct of a malicious or immoral nature” (factors more properly considered in connection with punitive damages). It simply means the
insurer acted deliberately.
Negligence alone sufficient? It seems clear that mere negligent conduct, by
itself, is not actionable as a tortious breach of the implied covenant.
Determinative factors: Allegations that assert a “bad faith” claim must show
that the conduct of the defendant, whether or not it also constitutes a breach
of a consensual contract term
— demonstrates a failure or refusal to discharge contractual responsibilities.
— prompted not by an honest mistake, bad judgment or negligence but
rather by a conscious and deliberate act.
— which unfairly frustrates the agreed common purposes and
— disappoints the reasonable expectations of the other party thereby
depriving that party of the benefits of the agreement.
Whether particular conduct meets these criteria is determined on a case-bycase basis and depends on the contractual purposes and reasonably justified
expectations.53
To say the least, this is far from the mark of judicial precision. It appears to involve something more than negligence.54 It carries some component of unfairness, but the insurer’s
conduct need not have been malicious or immoral. For there to be bad faith liability, the
insurer must have frustrated the common purpose of the insurance contract and disappointed the insured’s reasonable expectations. Moreover, all of this will be decided on a
case-by-case basis. First-party insurance bad faith seems even more vulnerable to the criticism that it is vague, and thus, it leads to more expensive litigation and coercive settlements
than the third-party insurance code action that was rejected by Moradi-Shalal.
53
See 3 W. CROSKEY, R. HEESEMAN & T. JOHNSON, INSURANCE LITIGATION §§ 12:28.5-12.28.7 (2004).
54
See also infra Part IV.B.3.
564
• Judicial legislating. The conclusion that there has been judicial policy-making
is inescapable when one examines the creation of the insurance bad faith tort.
The implied covenant of good faith and fair dealing was intended to fill in gaps
in contracts.55 It was intended to help courts determine how parties were to act
under contracts when they were not clear and explicit regarding performance.56
There is simply nothing in the early history of the implied covenant of good
faith and fair dealing suggesting it was intended to trigger tort liability.
But the California courts nonetheless took a contract concept and declared—ipse dixit—
that henceforth it would support a completely new tort law cause of action. Reasonable
minds can disagree as to whether there should be tort liability for the failure to pay an
insurance claim. But how can this be a decision for the courts? The public, either directly
by initiative or indirectly through their elected representatives, ought to decide whether the
law needs to afford this sanction, with all its attendant administrative costs and burdens.57
55
1-6 MURRAY ON CONTRACTS § 96(c) (2001).
56
See Seth William Goren, Looking for Law in All the Wrong Places: Problems in Applying the Implied
Covenant of Good Faith Performance, 37 U.S.F. L. REV. 257 (2003).
57
It is interesting to note that in 2000, by initiative, the public rejected a legislative attempt to restore
third-party bad faith. See Woods, supra note 1, at 58. Why should the courts keep first-party bad faith from
the public decision making process?
565
• Other available remedies. The Moradi-Shalal decision noted that there were
other remedies to redress alleged improper claim practices. After all, a main
function of the California Department of Insurance is to make sure insurer claims
practices comply with the Insurance Code and Department regulations.58 The
58
The California Department of Insurance website includes this overview of its operations:
ABOUT US: AN INTRODUCTION TO CDI OPERATIONS
(Revised February 2004)
The CDI ensures that consumers are protected; that the insurance marketplace is fostered to be
vibrant and stable; that the regulatory process is maintained as open and equitable; and that the law
is enforced fairly and impartially.
...
The CDI licenses and regulates the rates and practices of insurance companies, agents, and brokers
in California. Currently the Department licenses over 1,500 insurance companies and more than
340,000 agents and brokers. License fees, other fees, premium tax, and Proposition 103 recoupment
fees are the primary sources of funding for the CDI. Today we have a complement of over 1,300
employees working to protect the consumers’ insurance interests.
Regulatory Authority and Enforcement
As a state mandated regulatory agency, the CDI has authority over how the insurance industry
conducts business within California. The following eight points represent areas where regulatory
authority is exercised on a daily basis by the Department:
Enforcement – Legal action is the ultimate enforcement instrument of the Department. Possible
legal enforcement actions include: Cease and Desist Orders, Notices of Noncompliance, and Administrative Law Hearings. These actions may result in fines or penalties against our licensees.
Consumer Protection – The Department aids consumers by regulating how insurance companies
market and administer their policies. Insurance business must be conducted in an honest, open,
and fair manner.
Licensing – As mandated by the California Insurance Code (CIC), the Department holds licensing
examinations for brokers and agents and investigates suspected violations of the CIC by licensees.
Criminal Investigations – By actively investigating and arresting those who commit insurance fraud,
criminal investigations protects the public from economic loss and general distress. Claimant, agent,
and insurance company fraud is investigated and prosecuted to the fullest extent of the law.
Certificates of Authority – Insurance companies that want to do business in California must apply
and be reviewed by the Department to determine whether or not they should be given the authority
to sell insurance in this state.
Conservation and Liquidation –The Department takes an active, leading role to conserve, rehabilitate, or liquidate troubled insurance companies under appointment of the Superior Court.
Rate Regulation – The Rate Regulation Branch, under the provisions of Proposition 103, reviews
proposed personal auto and homeowners insurance rates to ensure that they are fair, reasonable,
and adequate.
Financial Surveillance – By examining and reviewing key financial statements and conducting
audits of insurance companies in California, the Department oversees the financial condition of
the insurance industry and helps to ensure stability and to protect policyholders.
566
Consumer Services
Consumer Communications Bureau (Hotline)
The Department’s statewide toll-free consumer Hotline, 800-927-HELP (4357), provides callers
with immediate access to current information on insurance issues. The Hotline is staffed by knowledgeable insurance professionals who can answer questions, give direction, and provide assistance
to consumers who are experiencing insurance related problems or concerns. By calling the Hotline,
a consumer can ask questions on insurance claims and underwriting practices as well as check the
license status of his/her insurance company, agent, or broker.
Requests for Assistance
After listening to and discussing a consumer’s concerns over the phone, a Hotline officer may
decide to send the consumer a Request for Assistance (RFA) form to be completed and returned to
the Department. The RFA provides the necessary information to open a complaint investigation,
which will be handled by officers in the Claims Services Bureau or the Rating and Underwriting
Services Bureau, depending on the subject matter involved. Within 10 working days the consumer
will receive an acknowledgment from the officer who will be handling the file.
http://www.insurance.ca.gov/0500-about-us/0100-cdi-introduction/htm
One method by which the Department assesses insurer claim practices is through its market conduct examinations. Its website describes the examinations conducted by its field claims bureau this way:
The Field Claims Bureau (FCB) is a member of the Consumer Services and Market Conduct Branch
of the California Department of Insurance. FCB conducts examinations of California licensed insurers’ claims-handling practices. FCB’s market conduct examination results are documented in
reports filed with the Insurance Commissioner.
FCB Mission Statement
The mission of the Field Claims Bureau is to protect California insurance consumers and claimants
by enforcing the California Insurance Code, California Code of Regulations and related applicable
laws through examinations of the claims handling practices of insurance entities doing business in
the State of California.
About the Field Claims Bureau
Field Claims Bureau exams focus on claims handling practices. A staff of approximately 30 people
travel across California and the entire United States conducting these market conduct examinations.
Exams are usually conducted at insurer claims offices. Exams include a review of insurer claims
handling guidelines and procedures and an audit of a sample of individual claims files for compliance with California statutes and regulations.
Field Claims Bureau Accomplishments - 2000
The following accomplishments were achieved by the Field Claims Bureau during the year 2000.
• 240 insurers examined on-site.
• $1,202,974 claim dollars recovered for consumers.
• $110,000 in penalties levied against insurers.
What is a Market Conduct Exam?
Market conduct examiners document alleged violations of law for possible enforcement actions and
work with insurers to implement corrective measures. The examinations are both corrective and
preventative. California’s insurance consumers receive restitution when corrective actions are implemented by an insurer as a result of deficiencies or violations discovered during a claims examination. Future claimants are also protected by the new guidelines and procedures implemented by the
insurer as a result of the examination to achieve compliance with the law. Public reports of market
conduct examinations are available for viewing.
California Department of Insurance, About Us: Field Claims Bureau (FCB), http://www.insurance.ca.ov/0500about-us/0500-organization/0100-consumer-series/market-conduct/field-claims.cfm (last visited June 3, 2006).
567
Department has a variety of remedies at its disposal.59 And there would remain
“appropriate common law actions, based on such traditional theories as fraud,
infliction of emotional distress and (as to the insured) either breach of contract
or breach of the implied covenant of good faith and fair dealing.”60
Of course the court reflected the current state of the law in the previous passage. The
propriety of first-party common law insurance bad faith was not before it—third party
statutory bad faith was. The court’s overall point was correct. There are other traditional
remedies available to redress improper insurer conduct. But first-party insurance bad faith
is not one of them. It is neither a traditional nor an appropriate remedy. It is a new cause of
action, created by the California Supreme Court out of whole cloth. It carries many undesirable consequences. Insureds that bring suit against insurers should have to proceed under appropriate common law actions based on traditional theories. Breach of contract,
intentional infliction of emotional distress, and fraud or deceit, are good examples of those
actions. They provide appropriate remedies for the type of conduct that must be shown to
support recovery. If an insurer’s conduct really deserves damages beyond the contract, then
there should have been sufficiently severe conduct outside the contract to justify the item of
damages being sought. Traditional tort actions like fraud and intentional infliction of emotional distress, for example, require a high standard of proof,61 and they should. Actions for
breach of contract otherwise provide insureds with the appropriate damages remedy.62
The theme of Moradi-Shalal is plain. There are too many lawsuits—requiring too much
time, energy, and expense—seeking too much in damages for conduct that generally has
not been and should not be redressed through tort. Consistent with this overall view, the
California Supreme Court should take the next step in first-party insurance bad faith. It
should return insurance contract performance to where it belongs—the realm of contract—
unless the insured can satisfy the elements of a traditional tort. If not, contract damages—
properly construed—are quite sufficient for the conduct being redressed.
59
In Moradi-Shalal the court noted:
[W]e observe that our opinion leaves available the imposition of substantial administrative sanctions by the Insurance Commissioner (see §§ 790.05-790.09). These sanctions include issuance of
cease and desist orders to enjoin further violations of section 790.03. (See § 790.05.) Willful violation of such orders may result in a maximum fine of $ 55,000; repeated violations may result in a
suspension of the insurer’s license for up to a year. (§ 790.07.).
Moradi-Shalal v. Fireman’s Fund Ins. Cos., 758 P.2d 58, 68 (Cal. 1988).
60
Id. at 68-69.
61
See infra Part IV.B.
62
See infra Part IV.A.
568
B. The Economic Loss Rule
Contracts establish rights and duties. The parties agree that each will do or refrain from
doing specified things. Once the parties form a contract, they are obligated to follow through
on the legal duties they established thereunder. But when one surveys contracts this way,
tort law concepts may come to mind. After all, tort law is designed to redress injury or loss
that results from the breach of a legal duty. Contracts contain legal duties, albeit ones the
parties assumed voluntarily. So the argument would go, is not a contractual breach also a
tort?63
There have been a variety of efforts over the years to make it one, one of which corresponded with the development of products liability law. California has long-recognized the
availability of a negligence cause of action to redress product-related injuries.64 Ultimately,
the California Supreme Court decided that in addition to negligence, injured parties should
be able to recover under the doctrine of strict product liability in tort.65 From there, plaintiffs urged the view that the courts should further expand tort liability to include financial
losses sustained due to failure to perform contractual duties. After all, how much of a
stretch would it be? A product defect resulting in injury was, arguendo, at least a failure to
perform up to contract specifications. The law allowed tort recovery for this lapse. So why
not allow plaintiffs to recover economic loss damages for any contractual non-performance
through tort law?
The California Supreme Court has decided this question in its decisions on the economic loss doctrine. It has ruled that there is still a line separating contract and tort. Plaintiffs may not recover in tort for non-performance under a contract:
“[W]hen two parties make a contract, they agree upon the rules and regulations
which will govern their relationship; the risks inherent in the agreement and the
likelihood of its breach. The parties to the contract in essence create a mini-universe for themselves, in which each voluntarily chooses his contracting partner,
each trusts the other’s willingness to keep his word and honor his commitments,
and in which they define their respective obligations, rewards and risks. Under
such a scenario, it is appropriate to enforce only such obligations as each party
voluntarily assumed, and to give him only such benefits as he expected to receive;
this is the function of contract law.”66
63
See Erlich v. Menezes, 981 P.2d 978 (Cal. 1999) (The court of appeal noted that “a contractual obligation may create a legal duty and the breach of that duty may support an action in tort.” Id. at 981. The
supreme court, however, rejected this concept.)
64
See Kalash v. Los Angeles Ladder Co., 34 P.2d 481 (Cal. 1934).
65
Greenman v. Yuba Power Prods., Inc., 377 P.2d 897 (Cal. 1963).
66
Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 869 P.2d 454, 461 (Cal. 1994).
569
Certainly the same course of conduct can involve both contract and tort issues. But tort law
“is generally designed to vindicate ‘social policy.’”67 To establish tort liability in cases
involving non-performance of contracts, plaintiffs must do more than show a breach of
contractual duties. They must demonstrate that the defendant breached a duty independent
of the contract.
A person may not ordinarily recover in tort for the breach of duties that merely restate
contractual obligations. Instead:
“[c]ourts will generally enforce the breach of a contractual promise through contract law, except when the actions that constitute the breach violate a social policy
that merits the imposition of tort remedies.” . . . [W]e [have] reiterated that conduct amounting to a breach of contract becomes tortious when it also violates a
duty independent of the contract arising from principles of tort law.”68
Because contract and tort law have different objectives—the ordering of private agreements versus enforcement of societal norms—the courts generally keep them separate. A
breach of contract, by itself, is just that. It is not more without more. With limited exceptions, breach of a contract will not support tort liability. For a tort action to arise from a
breach of contract, there ordinarily must be some conduct—apart from performance under
the contract—that satisfies the elements of the tort that is pleaded.
The California Supreme Court dealt with one of these situations in Robinson Helicopter Co. v. Dana Corp.69 There, Robinson had sued Dana for breach of contract, breach of
warranty, and negligent and intentional misrepresentation due to Dana having delivered
machine parts that Dana knew failed to conform to contract specifications. The nonconforming machine parts had a higher failure rate than those that conformed. No bodily injury
or damage to other property occurred due to this, but Robinson incurred substantial recall
expenses upon being required by government authorities to replace the parts.
Robinson recovered against Dana on all counts. The jury awarded Robinson over $1.5
million in compensatory damages and $6 million in punitive damages. But the court of
appeal ruled that because Robinson had only sustained economic loss, it could not recover
in tort, thus invalidating the punitive damages award. Robinson appealed, and the California Supreme Court reversed.
It began by explaining the economic loss rule and the reasons behind it:
67
Erlich, 87 Cal. Rptr. 2d at 890 (citations omitted).
68
Aas v. Superior Court, 12 P.3d 1125, 1136-37 (Cal. 2000) (citations omitted).
69
102 P.3d 268 (Cal. 2004).
570
We begin with a brief background on the economic loss rule. Economic loss
consists of damages for inadequate value, costs of repair and replacement of the
defective product or consequent loss of profits—without any claim of personal
injury or damages to other property. Simply stated, the economic loss rule provides: “[W]here a purchaser’s expectations in a sale are frustrated because the
product he bought is not working properly, his remedy is said to be in contract
alone, for he has suffered only ‘economic’ losses.” This doctrine hinges on a distinction drawn between transactions involving the sale of goods for commercial
purposes where economic expectations are protected by commercial and contract
law, and those involving the sale of defective products to individual consumers
who are injured in a manner which has traditionally been remedied by resort to the
law of torts. The economic loss rule requires a purchaser to recover in contract for
purely economic loss due to disappointed expectations, unless he can demonstrate
harm above and beyond a broken contractual promise. Quite simply, the economic
loss rule “prevent[s] the law of contract and the law of tort from dissolving one
into the other.”70
To support tort recovery in a case involving performance under a contract, a plaintiff must
demonstrate the breach of some duty independent of the contract. Robinson satisfied this
requirement because it proved the elements of intentional and negligent misrepresentation—two traditional tort theories (deceit). The plaintiff pleaded and proved the elements
of these torts. The plaintiff did not proceed on the theory that Dana’s breach of contract was
tortious because it was intentional, extreme, or due to some similar distinguishing factor
purportedly warranting tort damages. Instead, the plaintiff satisfied the elements of traditional tort causes of action recognized in California.
This indirectly establishes an important point. Tort liability can legitimately flow from
a contractual breach. But this should only occur when the plaintiff can plead and prove the
elements of a traditional tort cause of action.71
California’s public policy also strongly favors this holding. “[C]ourts will generally enforce the breach of a contractual promise through contract law, except
when the actions that constitute the breach violate a social policy that merits the
imposition of tort remedies.” Similarly, “‘[c]ourts should be careful to apply tort
remedies only when the conduct in question is so clear in its deviation from socially useful business practices that the effect of enforcing such tort duties will be
. . . to aid rather than discourage commerce.’” “In pursuing a valid fraud action, a
70
Id. at 272-73 (citations omitted).
71
In Erlich, the court acknowledged that it recognized an exception to this general rule in insurance cases.
See Robinson, 102 P.3d at 273. This of course correctly recites the law and Erlich’s facts gave the court no
occasion to re-examine its thinking in this area.
571
plaintiff advances the public interest in punishing intentional misrepresentations
and in deterring such misrepresentations in the future. Because of the extra measure of blameworthiness inhering in fraud, and because in fraud cases we are not
concerned about the need for ‘predictability about the cost of contractual relationships,’ fraud plaintiffs may recover ‘out-of-pocket’ damages in addition to benefitof-the bargain damages.”72
The economic loss doctrine cases separate contract from tort appropriately. This same
view should be brought to insurance cases. Tort liability may flow from actions insurers
take under insurance contracts. But, to recover in tort, insureds should be required to identify conduct other than non-performance of a contractual duty.73
C. Bad Faith or Other Intentional Contract Breaches
The California Supreme Court also dealt with tort liability for contract breaches in its
cases dealing with a new overall doctrine that had crept into California law outside the
insurance arena—tortious breach of contract. The court had begun accepting the concept
that certain types of non-insurance contractual breaches, if sufficiently serious, warranted
tort liability. But in two very important cases the court reversed this trend. In them the court
returned breach of contract to breach of contract—in all areas other than insurance.
The first was Foley v. Interactive Data Corp.74 There the court rejected the concept of
tort liability for the breach of the implied covenant of good faith and fair dealing in the
employment context. It again reinforced the distinction between tort and contract liability.
It reiterated that the implied covenant of good faith and fair dealing was engrafted into
contracts as a gap-filler or a safety valve—not an independent device to support tort liability. It acknowledged that in the insurance arena, its decisions did indeed subject insurers to
tort liability for breach of the implied covenant. But it distinguished the employment relationship from the insurer/insured relationship. Also it declined to extend tort liability for
breach of the implied covenant to the employment relationship. Why? Well, given its prior
body of law on the implied covenant, the court had to work hard to find reasons. Here is
what it provided:
After review of the various commentators, and independent consideration of
the similarities between the two areas, we are not convinced that a “special relationship” analogous to that between insurer and insured should be deemed to exist
in the usual employment relationship which would warrant recognition of a tort
action for breach of the implied covenant. Even if we were to assume that the
special relationship model is an appropriate one to follow in determining whether
72
Id. at 991-92 (citations omitted).
73
See infra Part IV.
74
765 P.2d 373 (Cal. 1988).
572
to expand tort recovery, a breach in the employment context does not place the
employee in the same economic dilemma that an insured faces when an insurer in
bad faith refuses to pay a claim or to accept a settlement offer within policy limits.
When an insurer takes such actions, the insured cannot turn to the marketplace to
find another insurance company willing to pay for the loss already incurred. The
wrongfully terminated employee, on the other hand, can (and must, in order to
mitigate damages) make reasonable efforts to seek alternative employment. Moreover, the role of the employer differs from that of the “quasi-public” insurance
company with whom individuals contract specifically in order to obtain protection
from potential specified economic harm. The employer does not similarly “sell”
protection to its employees; it is not providing a public service. Nor do we find
convincing the idea that the employee is necessarily seeking a different kind of
financial security than those entering a typical commercial contract. If a small
dealer contracts for goods from a large supplier, and those goods are vital to the
small dealer’s business, a breach by the supplier may have financial significance
for individuals employed by the dealer or to the dealer himself. Permitting only
contract damages in such a situation has ramifications no different from a similar
limitation in the direct employer-employee relationship.
Finally, there is a fundamental difference between insurance and employment
relationships. In the insurance relationship, the insurer’s and insured’s interest are
financially at odds. If the insurer pays a claim, it diminishes its fiscal resources.
The insured, of course, has paid for protection and expects to have its losses recompensed. When a claim is paid, money shifts from insurer to insured, or, if appropriate, to a third party claimant.
Putting aside already specifically barred improper motives for termination which
may be based on both economic and noneconomic considerations, as a general
rule it is to the employer’s economic benefit to retain good employees. The interests of employer and employee are most frequently in alignment. If there is a job to
be done, the employer must still pay someone to do it. This is not to say that there
may never be a “bad motive” for discharge not otherwise covered by law. Nevertheless, in terms of abstract employment relationships as contrasted with abstract
insurance relationships, there is less inherent relevant tension between the interests of employers and employees than exists between that of insurers and insureds.
Thus the need to place disincentives on an employer’s conduct in addition to those
already imposed by law simply does not rise to the same level as that created by the
conflicting interests at stake in the insurance context. Nor is this to say that the
Legislature would have no basis for affording employees additional protections. It
is, however, to say that the need to extend the special relationship model in the
form of judicially created relief of the kind sought here is less compelling.75
75
Id. at 395-96 (citations and footnotes omitted).
573
This may be the California Supreme Court’s most important analysis of the overall
implied covenant tort action. Certainly the court’s conclusion was correct—breach of employment agreements ought to be analyzed on contractual grounds. And the court had to
distinguish its insurance decisions, because it had authorized the award of tort damages in
these cases. Sure, the court could have invalidated all tort liability for the breach of the
implied covenant, including insurance, but Foley was not an insurance case, and doubtless,
the court thought this too big a step to take in one decision. Yet, a careful look at the
distinctions the court was required to draw, reveals that it should now take the next logical
step. It should eliminate its special insurance rule and abolish all tort liability under the
implied covenant.
The court distinguished employment and insurance cases:
• Employees have viable alternatives when their employers breach an employment agreement. They can obtain other employment. But insureds don’t have
similar alternatives. They can’t obtain insurance for losses that have already
occurred.
The distinctions are literally true, but do not provide a complete picture of either situation.
Employees certainly can obtain other jobs when their employment is wrongly terminated,
but this is far from easy and simple, and losing one’s job carries serious economic consequences. It is true that insureds cannot obtain other insurance for a loss once they have
already sustained it, but that does not mean they are without means to recover. They may
possess other financial resources or be able to obtain them, e.g., loans. They may have
substitute property. There are many possibilities. Perhaps the best way to evaluate the court’s
distinction is this: can it really be said with any certainty that losing one’s job is less severe
than not receiving payment for one’s insurance claim? Undoubtedly—at minimum—this
isn’t the case categorically. The court hardly drew a safe distinction.
• Unlike insurance companies, employers do not provide a “quasi public service,” nor do they sell protection to employees.
Once more this is true, as far as it goes, but even in a changing economy, do people
really rely substantially less on the security of their jobs than they do on expecting their
insurance claims to be paid? Many employers do promise job security, expressly or impliedly. Again, although people do justifiably rely on being compensated for bona fide
claims, most people can recover from accidental losses were they not to receive an insurance payment. Do we really believe that receiving an insurance payment is more important
to most people than having a job?
• The interests of insurers and insureds are adverse. Paying claims benefits
insureds but diminishes the financial reserves of insurers. But the interests of
employers and employees are not adverse—they are usually aligned. Both seek
to enhance the employer’s business.
574
This view does not comport with commercial reality. Despite some plaintiffs’ expressions to the contrary, no insurance company that expects to stay in business very long views
its customers as adversaries. And is it being seriously proposed that there is a fair distinction to be drawn between businesses in general, and the insurance industry? If so, the
reasoning would go like this: employers are altruistic and align with employees to serve the
mutual needs of employer and employee, but if and only if insurance becomes involved,
then business becomes rapacious, and all emphasis automatically shifts to saving money by
minimizing payment whenever possible. But nothing supports this assertion—not evidence,
intuition, or even common sense. It is not a sound basis to justify tort liability that would
not exist otherwise.
Foley remains a very important case, its questionable distinctions notwithstanding.
Crucially, it attacked the foundation of tort liability based on the implied covenant of good
faith and fair dealing. Foley disposed of the idea that the breach of a particular type of
contract—employment—justified tort liability.
But the concept remained in California law, that apart from the mere breach of a contract, bad faith denial of the existence of a contract could justify tort liability. The court had
ruled that it could in Seaman’s Direct Buying Service, Inc. v. Standard Oil Co.76 It eliminated this artificial distinction in Freeman & Mills Inc. v. Belcher Oil Co.77 The court
approached the issue in the manner it had approached third-party statutory bad faith in
Moradi-Shalal v. Firemen’s Fund Insurance Cos.78 It again noted the long-standing distinction between contract and tort liability. The court cited substantial criticism of the decision
by scholars and other courts. It found Seaman’s created many problems similar to those
noted in Moradi-Shalal, e.g., more litigation, excessive damages, and confusion about the
meaning of the new tort standard. The supreme court concluded, as it had in several decisions, that if a change in the law of contract, like that created by Seaman’s were wise, it was
a matter for the legislature, not the courts. Once again, it held that any extension of tort
liability to breach of contract cases should be confined to the insurance area “at least in the
absence of violation of an independent duty arising from principles of tort law other than
denial of the existence of, or liability under, the breached contract.”79
The California Supreme Court has properly rejected the concept that contractual breaches
of a certain type or quality—other than insurance—warrant imposing liability in tort. It is
time to eliminate the artificial and unsupportable distinction, however, and bring this same
reasoning to insurance bad faith.
76
686 P.2d 1158 (Cal. 1984).
77
900 P.2d 669 (Cal. 1995).
78
758 P.2d 58 (Cal. 1988).
79
Freeman & Mills, 900 P.2d at 675 (citations omitted).
575
IV.
THE NEW WORLD OF INSURER LIABILITY
If the California Supreme Court were to eliminate first-party bad faith, what would be
left for insureds (and their lawyers)? Would it be adequate to redress situations where insurers deny insurance claims improperly? We will see that the remaining causes of action
would be appropriate and would provide a measure of damages that is proportional to the
conduct that could lead to any inappropriate insurance claim denial.
A. The Breach of Contract Remedy
The traditional and modern common law breach of contract damages rules are these:
For breach of contract, the law of damages seeks to place the aggrieved party
in the same economic position the aggrieved party would have attained if the contract had been performed. This involves an award of both the “losses caused and
gains prevented by the defendant’s breach, in excess of savings made possible.”
....
The more modern analysis divides a contracting party’s legally protected interests into three categories: a restitution interest, a reliance interest, and an expectation interest. The restitution interest represents the benefits conferred upon the
other party. The reliance interest represents the detriment incurred by changing
position. In most cases, reliance interest recovery includes the restitution interest
which then is a subspecies of reliance. The expectation interest represents the prospect of gain from the contract.80
This is a fairly broad remedy. Were it to be applied without limitation, a plaintiff could
seek compensation for anything that would have come his way absent the breach of contract. The defendant would be responsible for whatever the plaintiff lost, no matter how
remotely connected and regardless of whether the parties intended this level of responsibility. The courts thought this was too great an exposure, however, and decided to limit breach
of contract damages by following the English Court of Exchequer Chamber’s rule enunciated in Hadley v. Baxendale.81
80
JOSEPH M. PERILLO, CALAMARI & PERILLO ON CONTRACTS § 14.4 at 564 (5th ed. 2003).
81
156 Eng. Rep. 145 (Ex. Ch. 1854).
576
Prior to 1854 there were almost no rules of contract damages. The assessment
of damages was for the most part left to the unfettered discretion of the jury. Such
broad discretion, however, was unsuited to the newly mature commercial economy
of England. In 1854 Hadley v. Baxendale was decided. It has won universal acceptance in the common law world and remains the leading case in the field.
....
The decision . . . was clearly based on the policy of protecting enterprise in the
then burgeoning industrial revolution. The court laid down two rules which still
govern today. First, the aggrieved party may recover those damages “as may fairly
and reasonably be considered . . . arising naturally, i.e., according to the usual
course of things, from such breach of contract itself.” Today, such damages are
frequently referred to as general damages. Second, recovery is allowed for damages “such as may reasonably be supposed to have been in the contemplation of
both parties, at the time they made the contract, as the probable result of the breach
of it.”82
California has adopted this rule. California Civil Code section 3300 provides:
For the breach of an obligation arising from contract, the measure of damages,
except where otherwise expressly provided by this code, is the amount which will
compensate the party aggrieved for all the detriment proximately caused thereby,
or which, in the ordinary course of things, would be likely to result therefrom.83
Although this language differs somewhat from Hadley v. Baxendale, numerous California
decisions have held that the California Civil Code was intended to incorporate its view on
foreseeability.84 The California Supreme Court recently summarized the rule this way:
“Contract damages are generally limited to those within the contemplation of
the parties when the contract was entered into or at least reasonably foreseeable by
them at that time; consequential damages beyond the expectation of the parties are
not recoverable. This limitation on available damages serves to encourage contractual relations and commercial activity by enabling parties to estimate in advance the financial risks of their enterprise.”85
82
JOSEPH M. PERILLO, supra, note 80, at 568-69 (footnotes omitted).
83
CAL. CIV. CODE § 3300 (2006).
84
See 1 WITKIN SUMM. CAL. LAW, Contracts § 815 (2004).
85
Erlich v. Menezes, 981 P.2d 978, 982 (Cal. 1999) (quoting Applied Equip. Corp. v. Litton Saudi Arabia
Ltd., 869 P.2d 454, 460 (Cal. 1994)).
577
When one applies this to insurance contracts, it becomes readily apparent that contract
law authorizes recovery of several items of damages. To determine what damages, one
must review what is reasonably within the contemplation of the parties at the time they
form the insurance contract, or at least what is reasonably foreseeable to them at that time.
One must also inventory what is not within their contemplation or was not reasonably
foreseeable to them. Then, one can list appropriate items of damages for breach of contract
in insurance cases.
When an insurance customer and an insurance company (through its authorized agent)
enter into an insurance contract, the parties reasonably contemplate:
• The customer’s person or property could be injured or damaged. This injury or
damage could cause financial loss to the customer.
• A third-party could be injured or could sustain property damage due to the
customer’s negligence. The third-party may sue the customer, and this would
cause the customer to incur legal expenses and financial loss due to a potentially large civil damages award.
• The insurance policy would provide financial protection for injury to the customer or damage to the customer’s property, as specified in the policy. It would
also protect the customer from litigation expenses and civil judgments, as specified in the policy.
This is all that is reasonably contemplated by both parties. It is possible that each—
subjectively—thinks about some other things. But insurance is an aleatory contract, and
the future is uncertain. Insurance policies are standard form contracts—they are not typically tailored to each insured. So there are many things that are not reasonably within the
contemplation of the parties at the time they reach their agreement. They are too uncertain,
or speculative. Among them are these:
• Whether the insurance customer will sustain a loss.
• The type of any loss and whether it will be covered by the policy.
• The size of any covered loss.
• The insurance customer’s financial circumstances at the time of any covered
loss.
• How the insurance customer would react to a covered loss.
• Whether the insurance customer will have other financial means to recover
from a loss.
• How much the customer will depend upon the insurer if the customer sustains
a covered loss.
578
So there are some things that are reasonably understood by parties to insurance contracts at the time they enter into these contracts and some things that are not. The recoverable damages for breach of the insurance contract must be determined accordingly. Certainly they include the benefits promised by the policy, given a covered loss. So, for example, if I insure my house for $500,000 under a homeowner policy, and the house burns to
the ground, I am entitled to the $500,000. I am also entitled to any benefits the policy may
provide in addition to this—extra coverage for debris removal or changes in ordinances or
laws causing increased construction costs, for example (if the policy authorizes this).
And there can be more. In situations where an insurer breaches the insurance contract,
the insured has to deal with his loss (in whole or in part) on his own. The insured may need
to use some alternative method of financing his recovery from the loss. Protection from
these extra expenses is reasonably within the contemplation of the parties at the time they
form the insurance contract. So the following damages items should also be recoverable for
breach of contract: (1) interest and (2) any additional expenses to recover from the loss—
caused by the insurer’s breach.
The first category is straightforward. The insured should receive a fair rate of interest
on the sum the insurer should have paid, computed from the date the insurer should have
paid it to the date the insurer pays the insured, or when the insured receives a judgment.
The other category may or may not apply in any individual case. For it to come into play,
the insured would have to show that had the insurer paid when it should, the insured would
not have incurred certain costs, and that these costs caused the insured’s claim to be in
excess of the insured’s coverage limits.86 So, for example, if an insured with a $500,000
homeowner coverage limit had to pay $600,000 to rebuild his house, but the prevailing rate
charged to insurers would have been $400,000 for similar jobs, the insured who sustained
the breach should receive his $500,000 coverage limit and the extra $100,000 he sustained
to rebuild his house. It was reasonably within the contemplation of the parties at the time
they entered into the insurance agreement that the policy would protect the insured from
this extra expense. Or, assume the insurer should have paid for its insured’s covered property damage at some established time, but it wrongly denied the claim. Assume also, however, that by the time the insured was able to effect repairs on his own, prices had increased
by 20%, and the total repair bill now exceeded the insured’s policy limit. The insured
should also be able to recover for this additional amount.
There are many other examples, but there is one main point. The insured should recover—under breach of contract—for any increased repair or replacement costs, over the
policy limit, reasonably incurred in the insured’s attempt to deal with the loss without insurance proceeds. Any repair or replacement costs within his coverage limit are of course also
payable as a direct contract benefit owed to the insured.
86
If the insured incurred repair or replacement costs within his coverage limit, he would already have
been compensated for them. Insurance policy benefits, as noted earlier, are the first key contractual damages item.
579
The analysis is similar for legal liability coverage. Damages include the benefits promised by the policy. In cases where the insurer breached the insurance contract by failing to
defend the insured, for example, the insured may recover attorney’s fees and other litigation costs covered by the policy. Where the breach was a failure to indemnify the insured,
the insured may also recover the amount of a civil damages award entered against him, up
to his insurance policy limits. But, there is more. As discussed previously, under breach of
contract, insureds should be able to recover extra expenses—over the policy limit—caused
by the failure to pay insurance policy benefits when due. This same concept applies to civil
damages awards against the insured that are over the insured’s policy limit. The insured
should be able to recover these amounts as an element of damages for breach of contract.
One reason people purchase insurance is to protect themselves from potentially large civil
damages awards. If an insurer has a reasonable opportunity to protect the insured from a
large judgment but fails to do so, the insurer has breached the insurance contract (the
implied covenant of good faith and fair dealing—a contract law concept) and should be
liable for the excess award. But the insurer should be liable in contract, not tort. The parties
contemplated that the insurance policy would reasonably protect against the insured’s personal responsibility for these awards.
But the breach of contract action would not allow insureds to recover damages in three
key areas authorized presently under the tort action for first-party bad faith. The first is the
court-fashioned attorney’s fee remedy. In Brandt v. Superior Court,87 the California Supreme Court held that attorney’s fees incurred by insureds in litigation against their insurers
to obtain policy benefits are recoverable as an element of damages in insurance bad faith
cases. This holding constituted a significant departure from the “American rule” (followed
in California) which provides that each party must bear its own attorney’s fees absent a
statute that authorizes their recovery.88 The supreme court allowed these fees to be recovered because insurance bad faith is a tort cause of action, and attorney’s fees were viewed as
damages proximately caused by this tort. An insured whose claim is denied in bad faith has
to incur attorney’s fees to obtain policy benefits justly owed—but wrongly denied—the
argument goes. Recovery of attorney’s fees in bad faith cases can only be supported under
tort law. “Of course, without a tort judgment, there could be no Brandt fees.”89
Not allowing insureds to recover attorney’s fees as an element of damages would be a
positive change in the law. The American rule is well-established in California jurisprudence,
and any changes to it are better left to the legislature. But assuming Brandt has a sound basis—that in insurance cases, certain attorney’s fees should be recoverable in tort—plaintiffs
could still be allowed to recover them, but they would need to establish the elements of a
traditional tort cause of action, e.g., fraud, intentional infliction of emotional distress.90
87
693 P.2d 796 (Cal. 1985).
88
See CAL. CIV. PROC. CODE § 1021 (2006).
89
Cassim v. Allstate Ins. Co., 94 P.3d 513 (Cal. 2004).
90
See infra Part IV.B.
580
Second, the rules governing the availability of emotional distress damages would change.
Insureds cannot recover emotional distress damages in breach of contract actions. The California Supreme Court initially allowed insurance plaintiffs to recover these damages in
Crisci v. Security Insurance Co.91 It found that implied covenant actions had both contract
and tort elements. It cited the tort law damages rule—recovery for all detriment caused
whether anticipated or not—as the basis of its decision to allow recovery of emotional
distress damages in excess liability insurance bad faith cases. As what plainly was an aside,
it also noted that breach of contracts for personal comfort, happiness, or esteem could
support emotional distress damages in certain cases, and that liability insurance contracts
had some of these elements.92 But the court nonetheless relied on tort law doctrine to provide the analytical basis of its decision to allow recovery of emotional distress damages in
insurance excess liability cases—not on contract principles.93 So the breach of contract
91
426 P.2d 173 (Cal. 1967).
92
After an extended discussion of tort law damages principles, here is what the court added about emotional distress damages and contract law:
Recovery of damages for mental suffering in the instant case does not mean that in every case of
breach of contract the injured party may recover such damages. Here the breach also constitutes a
tort. Moreover, plaintiff did not seek by the contract involved here to obtain a commercial advantage
but to protect herself against the risks of accidental losses, including the mental distress which
might follow from the losses. Among the considerations in purchasing liability insurance, as insurers are well aware, is the peace of mind and security it will provide in the event of an accidental loss,
and recovery of damages for mental suffering has been permitted for breach of contracts which
directly concern the comfort, happiness or personal esteem of one of the parties.
There are some court of appeal cases that contain similarly loose language. See, e.g., State Farm Mut. Auto.
Ins. Co. v. Allstate Ins. Co., 88 Cal. Rptr. 246 (Ct. App. 1970); Frazier v. Metro Life Ins. Co., 214 Cal. Rptr.
883 (Ct. App. 1985). But how can an insurance contract be this type of arrangement? Insurers must investigate claims and separate the recoverable from unrecoverable—let alone the fraudulent from the legitimate. An insurance contract certainly can not be fairly analogized to a personal care contract like one to
provide funeral services, for example. See Chelini v. Nieri, 196 P.2d 915 (Cal. 1948).
93
The court plainly centered on tort law doctrine—thus:
We are satisfied that a plaintiff who as a result of a defendant’s tortious conduct loses his property
and suffers mental distress may recover not only for the pecuniary loss but also for his mental
distress. No substantial reason exists to distinguish the cases which have permitted recovery for
mental distress in actions for invasion of property rights. The principal reason for limiting recovery
of damages for mental distress is that to permit recovery of such damages would open the door to
fictitious claims, to recovery for mere bad manners, and to litigation in the field of trivialities.
Obviously, where, as here, the claim is actionable and has resulted in substantial damages apart from
those due to mental distress, the danger of fictitious claims is reduced, and we are not here concerned with mere bad manners or trivialities but tortious conduct resulting in substantial invasions
of clearly protected interests.
Crisci, 426 P.2d at 179 (citations omitted).
581
action would not support recovery of emotional distress damages. For that, the plaintiff
would also need to prove the elements of a traditional tort action. And this is as it should be.
These tort actions were intended to redress highly improper conduct. The rest should be left
to contract.
Third, punitive damages would not be as widely available in insurance claims cases.
Contract breaches do not demonstrate the state of mind necessary to support punitive damages—malice, fraud or oppression.94 Punitive damages are not recoverable for breach of
contract.95 To recover punitive damages, plaintiffs would first need to establish the elements of a traditional tort law cause of action. But if they are only able to demonstrate
breach of the insurance contract, they will not be entitled to punitive damages.
B. Traditional Common Law Tort Actions
The preceding analysis of the breach of contract action is not to say contract should
completely supplant tort in insurance cases. It should not. There are good reasons for each.
As the court said in Moradi-Shalal, there are “appropriate common law actions, based on
. . . traditional theories”96 which are and should be available to insureds to redress improper
insurer conduct. All of the traditional common law torts, e.g. assault, battery, defamation,
invasion of privacy, etc., apply to the insurance context just as they do anywhere else. The
courts will see very few instances of insurance claim handling conduct that could possibly
give rise to these tort actions, however. But there are two other torts actions that could come
into play more frequently in cases of severe insurer misconduct.97
1. Intentional Infliction of Emotional Distress
California law provides an appropriate tort law cause of action to redress highly improper conduct that causes non-physical harm—intentional infliction of emotional distress.
One who deliberately or recklessly inflicts severe emotional or mental suffering on another by means of outrageous conduct will be liable in tort for intentional
infliction of emotional distress. The tort of intentional infliction of emotional distress has been recognized in California since the decision of the California Supreme Court in State Rubbish Collectors Association v. Siliznoff [240 P.2d 282
(Cal. 1952)]. It affords direct and specific protection to a legally recognized interest in emotional and mental tranquility; accordingly, the right to recover for severe
94
See generally JOHN J. KIRCHER & CHRISTINE M. WISEMAN, PUNITIVE DAMAGES: LAW & PRACTICE Ch. 5
(2000 & Supp. 2006).
95
Id.; see also Cates Constr., Inc. v. Talbot Partners, 980 P.2d 407 (Cal. 1999); Applied Equip. Corp. v.
Litton Saudi Arabia Ltd., 869 P.2d 454 (Cal. 1994).
96
Moradi-Shalal v. Fireman’s Fund. Ins. Cos., 758 P.2d 58, 68 (Cal. 1988).
97
See Alan O. Sykes, supra note 2, at 410.
582
emotional distress is not dependent upon the existence of physical injury or injury
to some other legally cognizable personal or property interest.
The essential elements of a prima facie case of intentional infliction of emotional distress are (1) outrageous conduct by the defendant; (2) an intention to
cause, or a reckless disregard of the probability of causing, emotional distress; (3)
the suffering of severe emotional distress by the plaintiff; and (4) actual and proximate causation of the plaintiff’s emotional distress by the defendant’s outrageous
conduct.98
The elements of this tort action have been drawn properly. In nearly every human
contact there is the potential that someone will sustain some level of emotional distress.
The law does not intend to provide a remedy for trivialities, or mere insults, or similar
rough or inconsiderate conduct.99 But it will provide a remedy for unacceptable conduct
that is far beyond the mainstream that people should be expected to tolerate, if it results in
emotional distress that is also far beyond the mainstream.100
Intentional infliction of emotional distress is an available tort remedy in insurance
claim cases. There are not a great deal of insurance cases centering on this cause of action,
probably because insurance plaintiffs’ preferred tort remedy has been first-party insurance
bad faith. But California appellate cases reveal that the action remains available, as long as
the case facts satisfy its elements.
Fletcher v. Western National Life Insurance Co.101 provides a good illustration. Fletcher
had an individual disability insurance policy, and he made a claim for benefits following a
workplace back injury. Western National alternately delayed and denied policy benefits. It
paid some benefits, refused to pay more, sometimes relented and issued payment, and did
so in a harsh and aggressive manner. But Western National lacked supporting facts for its
decisions. It was clear that Western National was trying to resist payment wholly apart from
any supporting evidence.
98
4 SCOTT D. NOBLE, CALIFORNIA TORTS § 44.01 (2005) (footnotes omitted); see also State Rubbish Collectors Ass’n v. Siliznoff, 240 P.2d 282 (Cal. 1952).
99
100
See RESTATEMENT (SECOND) OF TORTS § 46, cmt. (d) (1965).
Comment (j) to the RESTATEMENT explains that:
[e]motional distress passes under various names, such as mental suffering, mental anguish, mental
or nervous shock, or the like. It includes all highly unpleasant mental reactions, such as fright,
horror, grief, shame, humiliation, embarrassment, anger, chagrin, disappointment, worry, and nausea. It is only where it is extreme that the liability arises. Complete emotional tranquility is seldom
attainable in this world, and some degree of transient and trivial emotional distress is a part of the
price of living among people. The law intervenes only where the distress inflicted is so severe that
no reasonable man could be expected to endure it.
101
89 Cal. Rptr. 78 (Ct. App. 1970).
583
Additionally, Western National claimed that Fletcher had misrepresented his medical
condition when he took out his policy. Western National also asserted that Fletcher’s back
problem was really due to illness rather than injury, which substantially limited the amount
of policy benefits he could receive. Both of these contentions were totally without merit as
well. The court summarized Western National’s overall claim-handling conduct this way:
[D]efendants, without probable cause for believing that plaintiff had made an intentional material misrepresentation or that his disability was due to anything other
than his injury in January 1965, embarked upon a concerted course of conduct to
induce plaintiff to surrender his insurance policy or enter into a disadvantageous
“settlement” of a nonexistent dispute by means of false and threatening letters and
the employment of economic pressure based upon his disabled and, therefore impecunious, condition, (the very thing insured against) exacerbated by Western
National’s malicious and bad faith refusal to pay plaintiff’s legitimate claim.102
Fletcher sued Western National for intentional infliction of emotional distress. The
jury found for Fletcher, awarding compensatory and punitive damages, and Western National appealed. It claimed that the judgment was improper, asserting that its conduct was
privileged because it involved the settlement of a contractual dispute. The court rejected
this argument out of hand. It held that any privilege was dependent on good faith—which
was completely absent—and in any case, would not extend to outrageous conduct.
Undoubtedly an insurance company is privileged, in pursuing its own economic interests, to assert in a permissible way its legal rights and to communicate
its position in good faith to its insured even though it is substantially certain that in
so doing emotional distress will be caused. The social utility served by recognition
of this privilege is obviously enhanced when the privilege is exercised in connection with settlement negotiations, which are certainly to be encouraged.
Nevertheless, the exercise of the privilege to assert one’s legal rights must be
done in a permissible way and with a good faith belief in the existence of the rights
asserted. It is well established that one who, in exercising the privilege of asserting
his own economic interests, acts in an outrageous manner may be held liable for
intentional infliction of emotional distress.
Even if it could be said that defendants were asserting their legal rights in
good faith, they were not privileged to do so in an outrageous manner.103
102
103
584
Then it held that the facts before it supported a judgment for intentional infliction of emotional distress, and for tortious interference with a protected property interest, which would
ultimately become the tort of first party bad faith in Gruenberg.104
We hold, therefore, that defendants’ threatened and actual bad faith refusals to
make payments under the policy, maliciously employed by defendants in concert
with false and threatening communications directed to plaintiff for the purpose of
causing him to surrender his policy or disadvantageously settle a nonexistent dispute is essentially tortious in nature and is conduct that may legally be the basis for
an action for damages for intentional infliction of emotional distress. We further
hold that, independent of the tort of intentional infliction of emotional distress,
such conduct on the part of a disability insurer constitutes a tortious interference
with a protected property interest of its insured for which damages may be recovered to compensate for all detriment proximately resulting therefrom, including
economic loss as well as emotional distress resulting from the conduct or from the
economic losses caused by the conduct, and, in a proper case, punitive damages.105
The insurer’s conduct in Fletcher was harsh and plainly improper. The court found that
Fletcher satisfied the elements of intentional infliction of emotional distress and sustained
the judgment against Western National. This was just and proper. Highly inappropriate
insurer conduct that results in severe emotional distress should trigger tort liability—including punitive damages if the statutory test106 is satisfied. It was in Fletcher.
104
Gruenberg v. Aetna Ins. Co., 510 P.2d 1032 (Cal. 1973) (discussed previously in this article).
105
Fletcher, 89 Cal. Rptr. at 93-94. The court continued discussing both tort causes of action, noting that
intentional infliction of emotional distress probably was sufficient to support the trial court judgment, but
the new action for tortious interference with a protected property interest seemed the better of the two.
Although it might be possible to rest our decision solely upon the first holding, we make the
latter holding because we believe that it squares with the economic, social and legal realities of the
problem presented. The tortious conduct in this case has resulted, and could be expected to result, in
both economic loss and emotional distress. The emotional distress resulted, and could be expected
to result, from both the immediate conduct of defendants and the economic losses caused by their
conduct. Indeed, in a case such as this, the invasion of economic interests might well outweigh the
direct invasion of emotional tranquility. The tort of intentional infliction of emotional distress is
designed to redress primarily invasions of the personal interest in emotional tranquility, not economic losses, unless, of course, the economic losses result from the intentionally caused emotional
distress. A rule placing the emphasis where it belongs and permitting recovery of all proximately
caused detriment in a single cause of action is more likely to engender public respect for and confidence in the judicial process than a rule which would require attorneys, litigants and judges to force
square pegs into round holes.
Id. at 94 (citations and footnote omitted).
106
California Civil Code section 3294 requires plaintiffs to demonstrate malice, fraud or oppression by
clear and convincing evidence. CAL. CIV. CODE § 3294(a) (2006).
585
Importantly though, this tort is reserved for serious misconduct—it must have been
outrageous. The conduct must be like that in Fletcher. There, Western National took every
possible step to delay and deny payment to its insured, without any supporting basis, and
did so in a coercive and threatening manner. The case facts revealed much more than a
denial of payment that was unreasonable or without proper cause. The intentional infliction
of emotional distress action will not lie for this conduct, e.g., delay, poor investigation,
incorrect claim denial,107 and this is as it should be. This type of conduct should be redressed through actions for breach of contract.
2. Fraud or Deceit
This traditional tort action is also available to insureds. Its elements are these:
The general elements of a cause of action for fraud or deceit are (1) misrepresentation (false representation, concealment, or nondisclosure) of a material fact;
(2) knowledge of falsity or lack of reasonable ground for belief in the truth of the
representation (scienter); (3) intent to induce reliance; (4) actual and justifiable
reliance by plaintiff; and (5) resulting damage.108
But like intentional infliction of emotional distress, it is reserved for egregious insurer
misconduct. The insured must demonstrate quite a few things. And it is not enough to
allege them generally.
The facts constituting every element of a cause of action for fraud must be
alleged with particularity. The policy of liberal construction of pleadings will not
be invoked to sustain a defective complaint. The rationale for this requirement is
that allegations of fraud involve a serious attack on character, and fairness to the
defendant demands that he or she should receive the fullest possible details of the
charge in order to prepare a defense.
Even in a case involving numerous oft-repeated misrepresentations, the plaintiff must, at a minimum, set out a representative selection of the alleged misrepresentations sufficient to permit the trial court to ascertain whether the statements
were material and otherwise actionable. A defendant accused of fraud may rely on
a plaintiff’s lack of specific factual allegations, including factually devoid discovery responses, to procure a summary judgment on the fraud claim.
107
See, e.g., Lee v. Travelers Cos., 252 Cal. Rptr. 468 (Ct. App. 1988); Taylor v. Cal. State Auto. Ass’n
Inter-Ins. Bureau, 240 Cal. Rptr. 107 (Ct. App. 1987); Soto v. Royal Globe Ins. Corp., 229 Cal. Rptr. 192
(Ct. App. 1986); Ricard v. Pac. Indem. Co., 183 Cal. Rptr. 502 (Ct. App. 1982).
108
3 NEIL M. LEVY, MICHAEL M. GOLDEN & LEONARD SACHS, CALIFORNIA TORTS § 40.02 (2006) (footnotes
omitted).
586
To meet the specificity requirement in an action against a corporation, the
plaintiff must allege the names of the persons who allegedly made the fraudulent
representations, their authority to speak, to whom they spoke, what they said or
wrote, and when it was said or written.109
So the tort of fraud or deceit is also available, if an insured can prove all the elements.
When proceeding under this tort theory, insurance plaintiffs typically contend that their
insurers accepted their premiums but never intended to pay any legitimate claim.110 This is
an appropriate recovery theory—if it can be proven, not simply alleged. Merely showing
the failure to pay a claim is not enough. Fraudulent intent may not be inferred from this
alone.111 The insured must present specific evidence that the insurer never intended to perform under the insurance contract. It will not be sufficient to show that the insurer wrongly
believed the claim should not be paid, or even that it ultimately decided not to pay to save
money, or due to some animus against the insured that developed during the claim process.
But the tort is available if the insured can demonstrate something truly extreme and extraordinary—the insurer never intended to issue legitimate payments under its contract.
3. A Note on Negligence
California courts do not recognize a cause of action for negligent claim handling. There
is no general duty of reasonable claim adjustment.112 The insurance policy creates contractual duties. The implied covenant of good faith and fair dealing creates duties that if breached
may be redressed (presently) by the insurance bad faith tort cause of action.113 The courts
109
Id. (footnotes omitted).
110
See, e.g., Miller v. Nat’l Am. Life Ins. Co., 126 Cal. Rptr. 731 (Ct. App. 1976); Wetherbee v. United Ins.
Co. of Am., 95 Cal. Rptr. 678 (Ct. App. 1971).
111
See Tenzer v. Superscope, Inc., 702 P.2d 212 (Cal. 1985):
Some California cases have stated broadly that “[the] subsequent failure to perform as promised
warrants the inference that defendant did not intend to perform when she made the promise.” This
may suggest that proof that a promise was made and that it was not fulfilled is sufficient to prove
fraud. This is not, and has never been, a correct statement of the law, and we disapprove the cases
cited to the extent they suggest otherwise.
Rather, “something more than nonperformance is required to prove the defendant’s intent not to
perform his promise.”
112
See Adelman v. Associated Int’l Ins. Co., 108 Cal. Rptr. 2d 788 (Ct. App. 2001); Sanchez v. Lindsey
Morden Claims Servs., Inc., 84 Cal. Rptr. 2d 799 (Ct. App. 1999).
113
Waller v. Truck Ins. Exch., Inc., 900 P.2d 619 (Cal. 1995) (breach of legal duty owed under an insurance
contract is a predicate to an action for insurance bad faith).
587
have never tried to replace insurance bad faith with negligence, which has an even lower
tort liability standard.114 This makes sense. The relationship between insured and insurer is
contractual. And certainly, if there should be no first-party insurance bad faith action, there
should be no action for negligent non-performance of a contract.115
V.
CONCLUSION
Perhaps first-party insurance bad faith was a product of its times. The California Supreme Court experimented with substantial broadening of tort recovery for contract breaches.
But it came to see the adverse conceptual and pragmatic consequences of this and changed
its thinking. It took several steps to re-focus tort and contract law to their intended purposes.
One more to go.
After all:
We have become used to the idea that, in literature and the arts, there are
alternating rhythms of classicism and romanticism. During classical periods, which
are, typically, of brief duration, everything is neat, tidy and logical; theorists and
critics reign supreme; formal rules of structure and composition are stated to the
general acclaim. During classical periods, which are, among other things, extremely
dull, it seems that nothing interesting is ever going to happen again. But the classical aesthetic, once it has been formulated, regularly breaks down in a protracted
romantic agony. The romantics spurn the exquisitely stated rules of the preceding
period; they experiment, they improvise; they deny the existence of any rules; they
churn around in an ecstasy of self-expression. At the height of a romantic period,
everything is confused, sprawling, formless and chaotic—as well as, frequently,
114
See Mariscal v. Old Republic Life Ins. Co., 50 Cal. Rptr. 2d 224 (Ct. App. 1996); Shade Foods, Inc. v.
Innovative Prods. Sales & Mktg., Inc., 93 Cal. Rptr. 2d 364 (Ct. App. 2000).
115
Nor should the tort of negligent misrepresentation be construed to allow an action for simple negligent
breach of an insurance contract. “Negligent misrepresentation is a separate and distinct tort, a species of
the tort of deceit. ‘Where the defendant makes false statements, honestly believing that they are true, but
without reasonable ground for such belief, he may be liable for negligent misrepresentation, a form of
deceit.’” Bily v. Arthur Young & Co., 834 P.2d 745, 768 (Cal. 1992). To make out a case of negligent
misrepresentation, the plaintiff must prove all the elements of fraud, except that the misrepresentation need
not be intentional, but instead without reasonable cause. See LEVY, GOLDEN, & SACHS, supra note 108, at §
40.10.
588
extremely interesting. Then, the romantic energy having spent itself, there is a new
classical reformulation—and so the rhythms continue.
Perhaps we should admit the possibility of such alternating rhythms in the
process of the law. We have witnessed the dismantling of the formal system of the
classical theorists. We have gone through our romantic agony—an experience peculiarly unsettling to people intellectually trained and conditioned as lawyers are.
It may be that, in this centennial year, some new Langdell is already waiting in the
wings to summon us back to the paths of righteousness, discipline, order, and
well-articulated theory. Contract is dead—but who knows what unlikely resurrection the Easter-tide may bring?116
116
GRANT GILMORE, THE DEATH OF CONTRACT 111-12 (2d ed. 1995).
589
FDCC 2006 Roster
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and update your
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FEDERA
T ION
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FENS
E
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ter
© 2005 Fe
deration
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590
Water Sports and
Recreational Liability Issues
(Come on in, the Water’s Fine!)†
David M. Louie
Rhonda L. Ching
I.
INTRODUCTION
Taking a vacation is a quintessential American activity. Unfortunately, when vacationing tourists get hurt or injured, they engage in another quintessential American activity—
litigation. Lawsuits over water sports and recreational liability issues have proliferated over
the past decades. Specifically, many people participate in ocean and water activities. They
are also suing the persons involved in providing such activities for the injuries suffered.
Many people also engage in recreational activities such as horseback riding, golfing, hiking, and attending sports events. These can also lead to injuries and lawsuits. These types of
lawsuits are increasingly common in Hawaii and across the nation. Hawaii’s law relating to
ocean sports and recreational liability tends to reflect the general law of other states when
dealing with similar situations. It may foreshadow new developments in the law applicable
to other jurisdictions. This article will discuss some of the different types of cases that arise,
various legal theories propounded by plaintiffs, common defenses asserted by defendants,
statutory protections afforded by legislatures, special considerations for different types of
defendants, and strategies in defending such cases.
†
Sumitted by the authors on behalf of the FDCC Premises and Security Liability Section.
591
David M. Louie is the managing partner of Roeca Louie &
Hiraoka in Honolulu, Hawaii. His practice emphasizes the
defense of matters involving premises liability, construction
site accidents, construction defect litigation, professional liability and product liability. Mr. Louie received his undergraduate degree from Occidental College (A.B. 1973 cum
laude, Recipient: International Fellowship Award) and his
law degree from Boalt Hall (University of California 1977).
He served as the President, Vice-President and Director of
the Hawaii State Bar Association (1995-2001) and has been
Vice-President, Secretary-Treasurer and a Director of the
Hawaii Defense Lawyers Association (1993 to Present). Mr.
Louie is currently a Lawyer Representative for the Ninth Circuit. He has served as the
President, Treasurer and Director of the National Asian Pacific American Bar Association
(NAPABA), Hawaii Chapter (1995 to Present). Mr. Louie has been the Chairman of the
State of Hawaii Aloha Tower Development Corporation (1999-2005), and is the Vice Chair
of the Hawaii Supreme Court Special Committee on Judicial Performance (1999 to Present).
He has been a faculty member for numerous continuing legal education seminars for the
HSBA, Pacific Law Institute, Professional Education Systems, Inc. and the National Business Institute. Mr. Louie is a member of the Federation of Defense & Corporate Counsel
(currently a Vice-Chair for the Premises Liability Section), the Defense Research Institute
and the American Bar Association.
As an example, lawsuits stemming from injuries suffered due to ocean waves are common in Hawaii. The majority involve catastrophic injuries that stem from an injured person’s
attempts to catch ocean waves while bodysurfing or boogie boarding. In order to catch a
wave, bodysurfers purposefully position themselves in front of waves in order to catch the
waves and are propelled forward or down by the force of the waves. Bodysurfers risk injury
each time as they surrender complete control over their bodies, since there is no way to
predict the waves’ movements. When bodysurfers are flipped by waves, they are especially
vulnerable to serious injury or death because their bodies may land on compacted sand
along the ocean floor. Injuries and lawsuits also arise when persons are in the ocean and are
thrown about by breaking waves. Other types of ocean liability cases involve persons injured due to diving from seawalls into shallow or rocky areas; swimmers who are caught in
riptides, undertows, or other ocean currents; persons injured while SCUBA diving; persons
injured while parasailing over the ocean; persons injured by boats or other marine vessels;
and persons injured while waterskiing.
592
Rhonda L. Ching is an associate with Roeca, Louie & Hiraoka
in Honolulu, Hawaii. She attended Santa Clara University,
where she received her B.S. in Psychology, and also attended
University of Hawaii, where she received her M.Ed. in School
Counseling. Ms. Ching graduated from University of Hawaii’s
School of Law in 2004. She is a member of the American Bar
Association, Hawaii State Bar Association, and Christian
Legal Society.
Plaintiffs in such cases often claim that they were unaware of the dangers of the ocean
and the harsh power of breaking waves, and that they should have been warned or protected by the hotels and landowners near to where the accident occurred. Many plaintiffs in
such cases claim that they were lulled into a false sense of security as to the dangers of the
ocean by advertising materials showing calm, gentle waves. In Hawaii, due to the configuration of the beaches and the power of the waves, even small waves can break in a powerful
manner directly on the shore. Plaintiffs usually claim that such waves constitute a hidden or
latent danger of which they should have been warned.
Other types of recreational liability cases occur when persons are injured in a variety of
leisure activities such as horseback riding, playing golf, riding all terrain vehicles (ATVs),
hiking in the mountains or on trails, and riding bicycles. As in the ocean liability cases, the
plaintiffs often seek to paint a picture that they were unsuspecting innocents who were not
informed of any latent or hidden dangers, and were given insufficient instruction or warnings as to potential problems. Plaintiffs in such cases generally claim that they relied upon
a hotel or activity vendor, who had superior knowledge and control, so as to provide proper
safety precautions.
In general, a successful defense of these cases involves many different approaches and
factors. In many cases, a defendant starts off with the adverse presumption that it has superior knowledge and control of the situation and of potential hazards. Consequently, the
defense will want to show that the defendant proactively attempted to address the risks
involved, formulated some type of response or plan to foster safety, and provided warnings
or instructions to the plaintiffs. Sometimes, the risks and potential dangers of an activity are
either inherent or so open and obvious that no warnings are required. Oftentimes, plaintiffs
can be shown to have substantial knowledge and appreciation of the risks and dangers, but
to have failed to properly protect themselves. The defense will want to investigate and
593
assert the existence of any waivers or releases, and attempt to show that they were knowingly and intentionally given by the plaintiffs. The defense will also want to conduct research to see if there are specific protections or immunities provided by statute that may be
asserted.
II.
TYPICAL LEGAL LIABILITY THEORIES
The most common legal liability theories asserted by plaintiffs in these types of actions
include negligence, duty to warn, and attractive nuisance.
A. Negligence
Negligence is conduct which falls below the standard of care “established by law for
the protection of others against unreasonable risk of harm.”1 The elements of a negligence
action consist of the following:
• A duty, or obligation, recognized by the law, requiring the defendant to conform to certain standards of care to protect others against unreasonable risk.
• A failure to conform to the standards required.
• A reasonable connection between the conduct of the defendant and the resulting injury or loss.
• Actual loss or damage to the plaintiff.2
“[A] negligence action lies only where there is a duty owed by the defendant to the
plaintiff.”3 “Whether such a relation exists between the parties that the community will
impose a legal obligation upon one for the benefit of the other is a question of law to be
determined by reference to the body of statutes, rules, principles, and precedents, which
make up the law.”4 The Hawaii Supreme Court has stated that a defendant owes a duty of
care only to those “who are foreseeably endangered by the conduct and only with respect to
1
RESTATEMENT (SECOND) OF TORTS § 282 (1965).
2
BRUCE B. HRONEK & JOHN O. SPENGLER, LEGAL LIABILITY IN RECREATION AND SPORTS 57-58 (2002) (citing
WILLIAM L. PROSSER, LAW OF TORTS 143-44 (4th Ed. 1971).
3
Bidar v. Amfac, Inc., 669 P.2d 154, 158 (Haw. 1983) (citing Hulsman v. Hemmeter Dev. Corp., 647 P.2d
713, 719 (Haw. 1982)).
4
Hayes v. Nagata, 730 P.2d 914, 916 (Haw. 1986) (internal quotations omitted).
594
those risks or hazards whose likelihood made the conduct unreasonably dangerous.”5 “Without a reasonable and proper limitation of the scope of duty of care, [defendants] would be
confronted with an unmanageable, unbearable and totally unpredictable liability.”6 The
elements of a negligence action are almost identical in other states. Whether a duty exists is
a question of law for the court, while the issues of breach and proximate cause are decided
by the jury as factual matters.7
B. Duty to Warn
The primary plaintiff’s legal liability theory which is presented in water sports and
recreational liability cases, involves the defendant’s duty to warn. Whether the defendant is
a landowner, hotel, activity vendor, or sports equipment manufacturer, the argument is
always advanced that the defendant failed to inform the injured person of the risk and
danger involved. The plaintiff’s approach is usually that the defendant had superior knowledge and control of the situation, but failed to take proper safety precautions and failed to
let the plaintiff know of the hidden or latent dangers so that the plaintiff could be aware of
the risks.
In 1969, the Hawaii Supreme Court abolished the common law distinction between the
duty owed by landowners to licensees from that owed to invitees on the premises. Although
the courts of some other states have preserved this distinction, the Hawaii court believed
that the common law distinctions between classes of persons had no logical relationship to
the exercise of reasonable care for the safety of others. It therefore held that a landowner
has a duty “to use reasonable care for the safety of all persons reasonably anticipated to be
upon the premises, regardless of the legal status of the individual.”8 The issue, of course, is
generally whether the defendant used reasonable care to protect the plaintiffs.
With regard to ocean liability cases, in 1989 the Hawaii Supreme Court set forth a rule
further defining the scope of landowner liability. Essentially, the court held that if a condition exists that creates an unreasonable risk of harm, and the possessor of the land knows or
should have known of the unreasonable risk, then the possessor owes a duty to take reasonable steps to eliminate the unreasonable risk, or adequately warn persons against it.9 For
ocean liability cases, Hawaii courts will consider whether the landowner impliedly invited
5
Hulsman, 647 P.2d at 720.
6
Janssen v. Am. Hawaii Cruises, Inc., 731 P.2d 163, 166 (Haw. 1987).
7
Bier v. Leanna Lakeside Prop. Ass’n, 711 N.E.2d 773, 778 (Ill. App. Ct. 1999).
8
Patricia Mathias NaPier & Jill Murakami Baldemor, Landowner Liability Under Hawaii Law, HAW.
BAR J., at 4-12 (Apr. 2004) (citing Pickard v. City & County of Honolulu, 452 P.2d 445 (Haw. 1969)).
9
Corbett v. Ass’n of Apartment Owners of Wailua Bayview Apartments, 772 P.2d 693 (Haw. 1989).
595
persons to the beach or ocean and whether the ocean conditions were extremely dangerous
and not readily apparent to persons of ordinary intelligence.10
In Kaczmarczyk v. City & County of Honolulu,11 the plaintiff entered the ocean fronting
the City’s beach park, was caught in the current while swimming, and drowned. The court
noted the duty of the owner and occupier of land to take reasonable care for the safety of all
persons known or reasonably anticipated to be upon its premises, and it found a very narrow expansion of that duty stating that: “[w]here the premises front upon the ocean, this
responsibility extends to those swimming in the waters along the property’s beach frontage.”12 Additionally, the court found that the city has a duty to warn users of a beach park
“of extremely dangerous conditions in the ocean along its beach frontage which were not
known or obvious to persons of ordinary intelligence, and which were known or in the
exercise of reasonable care ought to have been known to the city.”13
One type of landowner that is often a defendant in these cases is a hotel. Hotels as
innkeepers owe their guests a duty to warn of dangerous conditions in the ocean. Hawaii
law imposes a higher duty of care upon parties having “special relations” with others.14
According to Hawaii law, a special relationship is created between a hotel and its guests or
invitees.15 “When the relation is a special one of innkeeper and guest, the former is under a
duty to take reasonable action to protect the latter against unreasonable risk of physical
harm.”16 The Hawaii courts have considered two main factors with regard to ocean liability
cases: 1) whether the landowner invited or induced persons to use the beach or ocean, and
2) whether the dangerous conditions were apparent to persons of ordinary intelligence.17
In Tarshis v. Lahaina Investment Corp.,18 the plaintiff, a registered guest at the
defendant’s hotel and was injured when thrown by a huge wave in the ocean fronting the
hotel. The Ninth Circuit Court of Appeals reversed the trial court’s order granting summary
judgment in favor of the defendant. The basis was that a genuine issue of material fact
existed as to whether the dangers of the ocean on the day in question should have been
apparent to the plaintiff. However, the court also acknowledged that a hotel owes a duty to
its guests to warn of dangerous conditions that are not known to the guest or obvious to an
10
Birmingham v. Fodor’s Travel Publ’ns, Inc., 833 P.2d 70 (Haw. 1992).
11
656 P.2d 89 (Haw. 1982).
12
Id. at 92.
13
Id.
14
RESTATEMENT (SECOND) OF TORTS § 314A (1965).
15
Maguire v. Hilton Hotels Corp., 899 P.2d 393 (Haw. 1995).
16
Knodle v. Waikiki Gateway Hotel, Inc., 742 P.2d 377, 384 (Haw. 1987).
17
See Birmingham v. Fodor’s Travel Publ’ns, Inc., 833 P.2d 70 (Haw. 1992).
18
Tarshis v. Lahaina Investment Corp., 480 F.2d 1019 (9th Cir. 1973).
596
ordinarily intelligent person and that either are known or in the exercise of reasonable care
should have been known by the hotel.
Some cases have also extended this duty to warn to encompass conditions on property
beyond which the hotel owns, possesses, or controls. This duty has been extended to such
places in or about the premises as the hotel’s invitees may be reasonably expected to go in
the course of the visit.19 The question for the defense, of course, is where does the duty
end?
In Geremia v. Hawaii,20 the Hawaii Supreme Court addressed the duty to warn of
dangerous conditions of both an occupier of land and a non-occupier. The case arose from
the drowning of a boy at the Waipahee Slide on the island of Kauai, which “is located in
mountainous terrain, on land which is privately owned, and is reached by a trail of approximately one-third mile originating at a parking area beside a canefield road.”21 The plaintiffs
brought suit against the State since the State had improved a parking area and trail and had
erected a direction and warning sign. Although the State did not own the slide, the State
was still held liable. The court reasoned:
Circumstances may exist in which a non-occupier must take cognizance of
dangerous conditions existing on the land of another in discharging a duty of care
which he owes to a third person. The existence of such a dangerous condition,
although not under the control of the actor, may be the fact which renders negligent an otherwise blameless act.22
It held that a party will be liable in tort when he or she voluntarily takes action to induce
another to engage in an activity and therefore creates a false appearance of safety upon
which the other relies to his detriment.
In Littleton v. Hawaii,23 the Hawaii Supreme Court extended the duty of a landowner to
warn of hazards, existing elsewhere than on its premises, about which it knew or ought to
have known. There the plaintiff entered the beach fronting a Honolulu park by going through
the park, and was injured by a telephone pole in the water. The Hawaii Supreme Court
affirmed the trial court’s conclusion of law that the telephone pole in question “had its most
19
See Littleton v. Hawaii, 656 P.2d 1336 (Haw. 1982).
20
573 P.2d 107 (Haw. 1977).
21
Id. at 109.
22
Id. at 111.
23
656 P.2d 1336 (Haw. 1982).
597
recent origin in the abutting waters of the State,” and therefore, the State’s negligence was
at least a proximate cause of the plaintiff’s injuries.24 Further, the court stated that “it would
be unreasonable for the City to expect that those to whom it invited to use its park and
beach facilities would confine their activities strictly within the beach and waters along and
adjacent to the park’s beach frontage.”25 As the owner of the beach park, the City had a duty
to exercise reasonable care for the plaintiff’s safety and to warn her of any dangerous
conditions in the ocean that were not known to her and which reasonably should have been
known to the City.
On the other hand, in some cases the duty to warn has been found to have been met. In
Rygg v. County of Maui,26 a wrongful death action was brought against the County for
breach of its duty to warn of the dangerous shorebreak. At the time of the accident, Mr.
Rygg was in chest deep water and attempting to body surf or swim to shore. A relatively
small wave broke over him that caused him to go headfirst into the sandy bottom, rendering
him a quadriplegic. The case ultimately turned on whether the County had met its duty to
provide a warning, when it did not post flags or portable signs to warn of the extremely
dangerous shorebreak and strong currents at the County park. The court found that the
shorebreak warning sign and pictogram that was displayed was within the standard of care,
and that the County met its duty to warn the public of the extremely dangerous shorebreak
conditions that existed at the time. The County’s alleged failure to post portable warning
signs did not breach its duty when the waves that day were one to one and one-half feet
high, red flags were posted, permanent signs were on display, and the injured swimmer
never knew of the county’s use of portable signs. Therefore, the County was not liable for
Mr. Rygg’s injuries.
In Illinois, plaintiffs sued the owner of a dam near where minors drowned, alleging that
the owner was negligent in failing to place or maintain warning signs regarding dangerous
man-made underwater currents.27 The court held that the dam owner owed the minors a
duty to warn, since the underwater currents were not apparent from the surface, were manmade by the owner, and the owner knew of six previous drownings in the area. “Under
Illinois law, persons who own, occupy, or control and maintain land are not ordinarily
required to foresee and protect against injuries from potentially dangerous conditions that
are open and obvious.”28 Whether a body of water is natural or artificial, it is still “deemed
24
Id. at 1342.
25
Id. at 1345.
26
122 F. Supp. 2d 1140, 1141-56 (D. Haw. 2000).
27
Ward v. Mid-American Energy Co., 729 N.E.2d 861, 863-64 (Ill. App. Ct. 2000).
28
Id. at 863.
598
to present an open and obvious danger.”29 However, the court reasoned that although certain dangers of the water were obvious, such as strong currents and submerged obstacles,
the increased risks caused by the owner including the man-made currents were hidden
beneath the surface. Therefore, the defendant owed a duty to warn the plaintiffs’ decedents
of the dangerous conditions.
C. Travel Agents and Activity Ticket Vendors
When accidents occur during vacation activities, in addition to the usual defendants
such as landowners, hotels, government agencies, and activity providers, plaintiffs’ attorneys have also attempted to enlarge the roster of potential defendants by bringing claims
against travel agents, commentators, and activity ticket vendors. For example, a plaintiff
would normally sue the helicopter company (activity provider) involved in the crash of a
sight-seeing helicopter flight, but might also sue the travel agent or activity ticket vendor
who merely made the arrangements for the flight.
In Hawaii, the courts have not had the opportunity to address the issue of whether
travel agents and similarly situated entities are liable for the negligence of third parties.
However, other jurisdictions that have squarely addressed the issue “have generally declined to impose liability on travel agents and tour operators for injuries sustained by clients aboard vessels, buses, and other modes of transportation, or at hotels or other destinations.”30 These courts have found that there is no special relationship that would give rise to
a duty on the part of the travel agent to investigate the safety of third parties over which it
had no knowledge or control. Cases addressing this issue have focused upon various types
of defendants including, but not limited to, travel agents, ticket agents, tour operators,
booking agents, and vacation reservation and referral services. These defendants are similarly situated in that their function is limited to making ticket reservations and organizing
tours through third-party vendors.31 Generally, where “the travel agent’s actions are limited
to making reservations or packaging tours, the companies providing the actual services are
considered to be independent contractors, precluding liability against the travel agent for
any of the contractor’s tortious activity.”32 In situations in which a defendant completely
lacks control over the allegedly negligent conduct of a third-party that caused a plaintiff’s
injuries, liability should not be imposed.
29
Id.
30
Gabrielle v. Allegro Resorts Hotels, 210 F. Supp. 2d 62, 69 (D. R.I. 2002).
31
See, e.g., Lavine v. General Mills, Inc., 519 F. Supp. 332 (N.D. Ga. 1981) (holding that a travel agent
does not have a duty to investigate the safety of third parties because the sole function of a travel agent is
“to sell and arrange travel tours for those who might wish to purchase them.”).
32
Russell v. Celebrity Cruises, Inc., 2000 WL 1013954 at *1 (S.D.N.Y. July 24, 2000).
599
The Hawaii Supreme Court has held that a publisher of a travel guide did not have a
duty to warn of the dangerous condition of the beach which it describes. In Birmingham v.
Fodor’s Travel Publications, Inc.,33 an injured swimmer and his wife brought an action
against the publisher of a travel guide. The publisher did not guaranty, warrant, or endorse
the locations and subjects listed in the guide. The court held that, “a publisher of a work of
general circulation, that neither authors nor expressly guarantees the contents of its publication, has no duty to warn the reading public of the accuracy of the contents of its publication.”34 It found that as a matter of law, Fodor’s did not owe a duty to warn the plaintiffs of
the accuracy of the contents of the guide.
D. Attractive Nuisance
Another common legal liability theory for cases involving children is the doctrine of
attractive nuisance. A possessor of land may be liable for injuries to children under this
doctrine if the child’s presence should have been reasonably anticipated or foreseeable.
According to the Restatement (Second) of Torts, section 339:
A possessor of land is subject to liability for physical harm to children trespassing
thereon caused by an artificial condition upon the land if
(a) the place where the condition exists is one upon which the possessor knows
or has reason to know that children are likely to trespass, and
(b) the condition is one of which the possessor knows or has reason to know and
which he realizes or should realize will involve an unreasonable risk of death
or serious bodily harm to such children, and
(c) the children because of their youth do not discover the condition or realize the
risk involved in intermeddling with it or in coming within the area made dangerous by it, and
(d) the utility to the possessor of maintaining the condition and the burden of eliminating the danger are slight as compared with the risk to children involved, and
(e) the possessor fails to exercise reasonable care to eliminate the danger or otherwise to protect the children.35
33
833 P.2d 70 (Haw. 1992).
34
Id. at 77.
35
RESTATEMENT (SECOND) OF TORTS § 339 (1965).
600
This doctrine has generally applied to artificial or manmade conditions rather than
natural conditions and depends upon whether the owner knew of the condition, could have
taken precautions against it, and reasonably anticipated that children could be injured from
it. The attractive nuisance doctrine generally does not apply to water, unless there are unusual dangers, hidden perils, or traps that a child would be unlikely to appreciate.36 Therefore, a property owner does not have a legal duty to “erect barriers or other safeguards to
protect children who are not invitees from water hazards.”37
Some courts have determined that children of a certain age are held to know that bodies of water are dangerous. In Townes v. Hawaii Properties, Inc.,38 an action was brought to
recover for the wrongful death of an eight-year-old girl who accidentally drowned in an
apartment building swimming pool. The defendants in this case owned the apartment complex with the pool. The Eighth Circuit Court of Appeals held that the child’s own negligence was the proximate cause of the death and that the child’s negligence exceeded that of
the pool owner who did not have the required safety equipment. The court reasoned that
children who are eight-years old are held to be responsible for knowing that bodies of water
are dangerous and that the doctrine of attractive nuisance is inapplicable to artificial or
natural bodies of water unless there are unusual elements of danger that exist such as a trap
or hidden hazzard that an immature mind would not appreciate.
III.
TYPICAL DEFENSES
Defendants usually will assert a variety of legal defenses such as contributory negligence, open and obvious condition, primary assumption of the risk, and waiver and release.
A. Contributory Negligence
At common law, any contributory negligence of a plaintiff was often held to be a complete bar to recovery. Because of the perceived harshness of this rule, many courts and
legislatures have established the framework of comparative negligence. With comparative
negligence or fault, the pro rata share of negligence of each party is determined by the jury.
Where such a system is utilized, the jurisdictions vary in their approach as to the amount of
comparative negligence or fault of a plaintiff that may bar a claim. In some jurisdictions, a
plaintiff will be barred from recovery only if his or her percentage of fault is greater than
that of the person or persons sued.39 In others there will be a bar if the plaintiff’s percentage
36
62 AM. JUR.2d, Premises Liability § 369 (2005).
37
Id.
38
708 F.2d 333, 334-35 (8th Cir. 1983).
39
HRONEK & SPENGLER, supra note 2, at 65.
601
of fault equals those sued. If the plaintiff is not barred, his or her damages will be reduced,
however, by the percentage of fault attributed to him or her. The term “pure comparative
negligence” usually refers to a scheme whereby a plaintiff may recover damages, reduced
by his or her percentage, unless the plaintiff is found totally at fault for the situation that
produced harm.
Hawaii follows the comparative negligence rule that if the plaintiff is found to have a
greater percentage of negligence than the person or persons sued, then the claim is barred.
Other states have followed different schemes. For example, California and New York follow a pure comparative negligence scheme, while Illinois follows a modified comparative
negligence scheme.
B. No Duty to Warn
Defendants usually assert that no duty to warn existed because the danger complained
of was open and obvious. Therefore, a landowner is not liable for all injuries sustained on
its premises, since it does not owe a duty to provide protection from, or warn against,
conditions that would have been obvious to a reasonable person.40 Whether a condition is
open and obvious is a question of law to be determined by the court.41
In Jones v. Halekulani Hotel, Inc.,42 a teenage boy dove off a seawall into shallow
water and fractured his neck. The plaintiff brought an action against the hotel whose land
bordered the beach where the seawall was located, claiming failure to warn. The court
found that when the landowner did not create the dangerous condition, alter it, or put it to
special use, it had no duty to the plaintiff and could not be held liable for plaintiff’s injuries.
In Fredrich v. Department of Transportation,43 a plaintiff was permanently paralyzed
when he slipped on a water puddle on a pier, fell over the edge of the pier and struck his
head on the ocean floor. The court held that the “obviousness of a risk substitutes for an
express warning and satisfies this obligation.”44 The State was not required to eliminate a
known or obvious hazard that plaintiff would reasonably be expected to avoid. The court
reasoned,
People can hurt themselves on almost any condition of the premises. . . . But it
takes more than this to make a condition unreasonably dangerous. If people who
are likely to encounter a condition may be expected to take perfectly good care of
themselves without further precautions, then the condition is not unreasonably
40
See Richardson v. Sport Shinko, 880 P.2d 169 (Haw. 1994).
41
Tabieros v. Clark Equip. Co., 944 P.2d 1279 (Haw. 1997).
42
557 F.2d 1308 (9th Cir. 1977).
43
586 P.2d 1037 (Haw. 1979), superceded by statute, Act 190, sec. 2(a), 1996 Haw. Sess. Laws 435, as
recognized in Bhakta v. County of Maui, 124 P.3d 943 (Haw. 2005).
44
Id. at 1040.
602
dangerous because the likelihood of harm is slight. . . . The knowledge of the
condition removes the sting of unreasonableness from any danger that lies in it,
and obviousness may be relied on to supply knowledge. Hence the obvious character of the condition is incompatible with negligence in maintaining it. If plaintiff
happens to be hurt by the condition, he is barred from recovery by lack of defendant’s
negligence towards him, no matter how careful plaintiff himself may have been.45
Similarly, in Tabieros v. Clark Equipment Co.,46 the court ruled that the defendant was
not negligent for failing to warn plaintiff of an open and obvious danger since the plaintiff
encountering the conditions was “in just as good a position as the [defendant] to gauge the
dangers associated with the [conditions] and nothing is gained” by requiring the defendant
to warn the plaintiff.47 The court reasoned that the defendant could not be liable for not
warning plaintiff because the failure to warn could not be a proximate cause of the plaintiff’s
injury when the plaintiff was already aware of the risk of injury.
In a California case,48 family members of individuals who were killed when a motorboat struck their canoe brought an action against the State, County and City. The court
found that the State, County, and City did not have a duty to warn canoers, and that the risks
of the conditions and activities at the site of the collision were “so obvious or inherent that
they had to have been reasonably assumed,” regardless of the canoers’ subjective awareness of the risk.49
In another case,50 a minor who injured her knee while jumping on a trampoline brought
an action against the trampoline’s owner and manufacturer on theories of negligence and
product liability. Applying Illinois law, the court held that a reasonable 14-year-old would
appreciate the open and obvious danger of jumping on a trampoline. It therefore found that
there was no duty on the part of either the owner or manufacturer. The court reasoned that
while jumping on a trampoline, “falling from a height, falling while attempting to land a
‘trick,’ or even falling off, are open and obvious” to either teenagers or adults.51
In New York, the plaintiff brought an action against the host of the party and owner of
a house for injuries he sustained while diving into a swimming pool from the second-floor
balcony of the house.52 The plaintiff admitted that entering the pool from the balcony was
45
Id.
46
Tabieros, 944 P.2d at 1279.
47
Id. at 1306.
48
Wood v. County of San Joaquin, 4 Cal. Rptr. 3d 340 (Ct. App. 2003).
49
Id. at 349.
50
Ford v. Nairn, 717 N.E.2d 525 (Ill. App. Ct. 1999).
51
Id. at 529.
52
Testaverde v. Lyman, 793 N.Y.S.2d 182, 183 (Sup. Ct. App. Div. 2005).
603
dangerous and that diving head-first would present a risk of serious injury even if the defendants had taken precautions. The court found that their alleged failures to post waterdepth markers and “no diving” signs around the pool, to provide proper illumination for the
pool, and to warn guests of danger of entering the pool from the second-floor balcony were
not the proximate cause of plaintiff’s injury, since plaintiff was well aware of the dive.
In Illinois, a swimmer brought an action against a lakeside property association for
injuries he sustained when he fell from a rope swing into a lake and was rendered a quadriplegic.53 The court held that the association did not owe the swimmer a duty to protect
him from the open and obvious danger of the rope swing. It reasoned that even though
placing a duty on the association to remove the rope swing would not have been a great
financial burden, the swimmer at least had knowledge of the condition equal to that of the
association and was able to appreciate the risk involved with the height, water, and the rope
swing, yet nevertheless decided to undertake it.
C. Primary Assumption of the Risk
Under the common law, a plaintiff who voluntarily assumed a risk of harm arising from
another’s conduct could not recover if harm resulted. As with the defense of contributory
negligence, in some jurisdictions this harsh rule was ameliorated and merged into the doctrine of comparative negligence, so that a plaintiff’s assumption of risk was simply a factor
to be applied in determining the plaintiff’s comparative fault. However, in certain situations and activities where there are inherent risks that are voluntarily assumed by a plaintiff, the doctrine of primary implied assumption of the risk remains as a potential bar to a
plaintiff’s recovery. The Hawaii courts, as well as other courts, have recognized primary
assumption of the risk as a bar to recovery for injuries sustained while engaging in certain
recreational activities.54
Primary implied assumption of the risk considers two factors: 1) whether the defendant
owed a legal duty to protect the plaintiff from a particular risk of harm that caused injury,
and 2) whether the plaintiff had both knowledge and full appreciation of the danger involved and voluntarily and deliberately exposed himself to the risk.55 “Such intentional
exposure to a known risk negates a defendant’s liability.”56
53
Bier v. Leanna Lakeside Prop. Ass’n, 711 N.E.2d 773 (Ill. App Ct. 1999).
54
See Larsen v. Pacesetter Sys., Inc., 837 P.2d 1273 (Haw. 1992); see also Tacrendi v. Dive Makai Charters, 823 F. Supp. 778, 788 (D. Haw. 1993) overruled on other grounds as recognized by McClenahan v.
Paradise Cruises, Ltd., 888 F. Supp. 120 (D. Haw. 1995); Foronda v. Hawaii Int’l Boxing Club, 25 P.3d
826, 836 (Haw. Ct. App. 2001).
55
Tacrendi, 823 F. Supp. at 788.
56
Id.
604
The Hawaii Supreme Court held that the implied assumption of risk doctrine bars
claims for injuries sustained by persons participating in sports or recreational activities.
Participants cannot recover damages as a matter of law, because they assume the risk of
injury caused by known or reasonably foreseeable or inherent dangers.57
Implied assumption of risk has been used in the context of negligence cases to
describe two distinct theories under which a defendant may avoid liability. . . Used
in its primary sense, assumption of risk describes the act of a plaintiff, who
has entered voluntarily and reasonably into some relation with a defendant,
which plaintiff knows to involve the risk. It is an alternate expression of the
proposition that a defendant owes no duty to a plaintiff. Primary implied assumption of risk may be illustrated by the case in which a plaintiff has been injured
as a natural incident of engaging in a contact sport. It may also be seen in the act of
a spectator entering a baseball park, thereby consenting that the players proceed
without taking precautions to protect her from being hit by the ball.58
In Tancredi v. Dive Makai Charters,59 the parents of a deceased scuba diver brought a
wrongful death and survivor’s action against the dive charter company, its owners, vessel
captain, and dive master. The defendants argued that implied assumption of the risk operates as a complete bar to the plaintiff’s recovery. However, the court found that while the
“plaintiff was or should have been aware of the inherent dangers of scuba diving, he did not
have the knowledge and experience to appreciate the inherent dangers of the type of dive
that caused his death.”60 In short, his decision to participate in the deep dive was not a fully
informed decision and could not be considered totally voluntary. Therefore, the court held
that under the circumstances of the case, primary implied assumption of the risk was not a
defense. At the time of the Tancredi case, the Hawaii Supreme Court had not yet addressed
either secondary or primary implied assumption of risk in the context of recreational sports.
It considered the position taken by the California courts demonstrating that the defense of
primary implied assumption of the risk survived the adoption of California’s comparative
negligence statute. The Tancredi court believed that the Hawaii Supreme Court would allow the defense in an appropriate sports-related case.
57
Foronda, 25 P.3d 826.
58
Larsen, 837 P.2d at 1290-91 (citations omitted) (emphasis added).
59
Tacrendi, 823 F. Supp.at 778.
60
Id. at 790.
605
Although not a water liability case, the Hawaii Supreme Court in Foronda v. Hawaii
International Boxing Club,61 affirmed the dismissal of a wrongful death lawsuit stemming
from fatal injuries sustained by a boxer when he fell through the ropes of a boxing ring. The
primary implied assumption of risk doctrine barred the plaintiffs’ claims because the risk of
falling through the ropes was an inherent risk related to boxing. Damages were not recoverable, since the plaintiff had previously given his consent to relieve the defendant of an
obligation of conduct toward him. Essentially, the plaintiff took his chances of injury from
a known risk arising from what the defendant would do or leave undone. As a result, the
defendant was relieved of a legal duty to the plaintiff, and therefore, being under no duty,
could not be charged with negligence.
A plaintiff’s subjective knowledge of risks is not dispositive with regard to injuries
barred by this doctrine. Whether a particular plaintiff knew or did not know about the risks
of the sport cannot be controlling. Inherent risk implies indwelling risk and is independent
of the participant’s subjective knowledge or perception of it. Rather, the inquiry is an objective one. The focus “is not on the particular participant’s actual knowledge, but on the
risks inherent in participation by one with the skill and experience of the plaintiff.”62
In American Golf Corp. v. Superior Court,63 the plaintiff was injured when the ball hit
by his companion ricocheted off the yard marker and struck the plaintiff in the eye. The
court ruled in favor of the golf club reasoning that the injured golfer’s personal injury
action against the golf course for negligent design and placement of the yard marker was
barred by the primary assumption of the risk doctrine. It held that golf is an active sport,
that errant shots are an inherent risk of golf, that yardage markers are an integral part of the
sport, and that the golf course as recreation provider did not increase the risk of injury by its
design and placement of the yardage marker.
Similar reasoning has been followed in other state courts. In Illinois, an amateur hockey
player hit in the eye with a puck during a warm-up game brought a suit against a coparticipant whose shot at an open net struck him.64 The court held that the amateur hockey
player knowingly and voluntarily assumed the risks inherent in playing the game since he
had played in organized leagues for about ten years prior to the accident. The player was
aware that there was a risk of being hit by the puck and accepted the dangers inherent in the
game of hockey or due to his co-participant’s negligence.
Under New York law, a defendant may be relieved of liability for injuries to a plaintiff
who participates in a sporting event or recreational activity when the plaintiff is aware of
the risks inherent in the activity, has an appreciation of the nature of such risks, and volun-
61
Foronda, 25 P.3d 826.
62
Id. at 842-43.
63
93 Cal. Rptr. 2d 683 (Ct. App. 2000).
64
Savino v. Robertson, 652 N.E.2d 1240 (Ill. App. Ct. 1995).
606
tarily assumes those risks. The assumption of the risk doctrine was applied to a case involving a fifty-four-year-old plaintiff who sustained personal injuries after climbing onto a high
trampoline located in defendant’s backyard and fall onto the grass while attempting to
stand. The court found that the plaintiff had assumed the risk of using the trampoline.65
Utilizing the doctrine of assumption of the risk, a New York court in Salas v. Town of
Lake Luzerne,66 determined that a swimmer who drowned on town property while
bodysurfing assumed the risk of his own injuries, which relieved the town of liability for
his injuries. The Salas court cited the Court of Appeals of New York which reasoned that:
by engaging in a sport or recreational activity, a participant consents to those commonly appreciated risks which are inherent in and arise out of the nature of the
sport generally and flow from such participation risks which various participants
are legally deemed to have accepted personal responsibility for because they commonly inhere in the nature of those activities.67
The court found that the hazardous water conditions on the property were readily observable and that the decedent had consented to the “risks which are inherent in and arise out of
the nature of” his activity.68
With lawsuits dealing with waterskiing incidents, the effect of the alleged fault of the
skier is often critical to the outcome of the case. The California Supreme Court has held
that a water-skier assumes the risk of negligent conduct by other participants in the activity.
In Ford v. Gouin,69 an injured water skier brought a personal injury action against a ski boat
operator after the water skier was struck in the back of his head by a tree limb extending
over the channel in which he was skiing. The court held that a co-participant in an active
sport does not bear liability for an injury resulting from conduct in the course of a sport that
is merely careless or negligent. Generally, a co-participant has a duty to avoid intentionally
injuring another participant or engaging in conduct so reckless as to bring it outside the
range of ordinary activity involved in a sport. The court stated that:
65
Koubek v. Denis, 799 N.Y.S.2d 746 (App. Div. 2005).
66
745 N.Y.S.2d 108 (App. Div. 2002).
67
Id. at 110-11.
68
Id. at 111.
69
834 P.2d 724 (Cal. 1992).
607
[T]he assumption of the risk doctrine operates as a complete bar to a plaintiff’s
action only in instances in which, in view of the nature of the activity at issue and
the parties’ relationship to that activity, the defendant’s conduct did not breach a
legal duty of care owed to the plaintiff.70
It further reasoned that the water skier could not recover against the ski boat operator for
injuries incurred when he struck the tree since the ski boat operator was at most careless in
steering the boat.
D. Waiver and Release
It is a common practice to require that participants of water sports and other recreational activities agree in writing to assume all risks and release the organizer or vendor
from liability. A release is a voluntary relinquishment of a claim, right, or privilege by a
person to someone against whom it might be enforced.71 Such waivers are intended to
reduce or release recreation and sport provider’s liability exposure. In order to be effective,
such waivers or releases must be made knowingly and voluntarily. The effectiveness of any
particular waiver or release document will generally depend upon a number of factors,
including the clarity of the written waiver, the size of the type face and font in providing
notice of the waiver to the participant, the amount of time given to the participant to read
and review the waiver, whether the terms of the waiver were verbally explained to the
participant, and the like. Even if all of these factors weigh in favor of the waiver, some
courts have held that recreational liability waivers are against public policy. In Hawaii, and
in other states, the efficacy of waiver documents may also be determined by statutory provisions.
In Hawaii, a purported waiver document for water sports activities may be affected by
Hawaii Revised Statutes section 663-1.54, which provides:
(a) Any person who owns or operates a business providing recreational activities
to the public, such as, without limitation, scuba or skin diving, sky diving, bicycle
tours, and mountain climbing, shall exercise reasonable care to ensure the safety
of patrons and the public, and shall be liable for damages resulting from negligent
acts or omissions of the person which cause injury. (b) Notwithstanding subsection (a), owners and operators of recreational activities shall not be liable for damages for injuries to a patron resulting from inherent risks associated with the recreational activity if the patron participating in the recreational activity voluntarily
signs a written release waiving the owner or operator’s liability for damages for
70
Id. at 726.
71
66 AM. JUR. 2D, Release § 1 (2005).
608
injuries resulting from the inherent risks. No waiver shall be valid unless: (1) The
owner or operator first provides full disclosure of the inherent risks associated
with the recreational activity; and (2) The owner or operator takes reasonable steps
to ensure that each patron is physically able to participate in the activity and is
given the necessary instruction to participate in the activity safely. (c) The determination of whether a risk is inherent or not is for the trier of fact. As used in this
section an “inherent risk”: (1) Is a danger that a reasonable person would understand to be associated with the activity by the very nature of the activity engaged
in; (2) Is a danger that a reasonable person would understand to exist despite the
owner or operator’s exercise of reasonable care to eliminate or minimize the danger, and is generally beyond the control of the owner or operator; and (3) Does not
result from the negligence, gross negligence, or wanton act or omission of the
owner or operator.72
The effect of this statute is to make the issue of waiver a jury question as to whether
there was full disclosure of the inherent risks, and whether the owner/operator exercised
reasonable care. It, unfortunately, precludes summary judgment on the part of the defendant. Under this statute, the owner or operator who seeks to apply such a waiver must
exercise reasonable care and shall be liable for damages resulting from their negligent acts
or omissions. Subsection (b) provides for a “qualified privilege” from liability on the part
of the operator of the recreational activity if it can prove, via a valid waiver, that the participant voluntarily waived liability for injuries caused by “inherent risks” associated with the
activity. A waiver cannot be valid unless there is full disclosure of the inherent risks associated with the activity and the owner or operator takes reasonable steps to ensure that a
participant was physically able to do the activity and was given the necessary instruction to
perform the activity safely.
In contrast, under New York law, agreements exempting pools, gymnasiums, places of
public amusement or recreation, and similar establishments from liability for negligence
are void and unenforceable. The relevant statute states:
Every covenant, agreement or understanding in or in connection with, or collateral
to, any contract, membership application, ticket of admission or similar writing,
entered into between the owner or operator of any pool, gymnasium, place of amusement or recreation, or similar establishment and the user of such facilities, pursuant to which such owner or operator receives a fee or other compensation for the
use of such facilities, which exempts the said owner or operator from liability for
72
HAW. REV. STAT. § 663-1.54 (2006).
609
damages caused by or resulting from the negligence of the owner, operator or
person in charge of such establishment, or their agents, servants or employees,
shall be deemed to be void as against public policy and wholly unenforceable.73
The intent of this New York statute voiding assumption of the risk agreements is to
prevent amusement parks and recreational facilities from enforcing exculpatory clauses
printed on admission tickets or membership applications, since the public is unaware of
them or not cognizant of their effect. This statute was analyzed by a New York court in a
case brought by a member of a fitness center, who was injured during a supervised weight
lifting exercise, against the center and his instructor.74 The court held that the statute voiding the assumption of risk agreements entered into by users of amusement and recreation
facilities did not apply to assumption of risk and waiver documents executed by the member. The statute did not apply because the member was at the fitness center for instructional
purposes and not recreational purposes when he was injured during his supervised weight
lifting exercises. Therefore, the waiver was found to be valid and enforceable.
In King v. CJM Country Stables,75 a horseback rider and her husband brought an action
against the owner of a horse that bit her during a trail ride. The plaintiffs had signed waivers
which released the owners from liability prior to riding the horses. The court held that
Hawaii’s recreational activity statute, which provides that owners and operators of recreational businesses are liable for damages arising out of negligent acts and omissions, but
not for injuries resulting from the inherent risks related to the activity, applied to the case.
However, the court did not rule on whether the recreational use statute would relieve the
defendant of liability, since genuine issues of material fact existed as to whether the plaintiff was injured as an inherent risk of the horseback riding and whether the owner was
negligent which precluded the granting of summary judgment.
In a New York horseback riding case, a horseback rider brought an action against the
owner of a horse ranch to recover for injuries sustained when she fell from a horse.76 Prior
to the accident, the plaintiff had completed a “Horse Rental Agreement and Liability Release Form,” which indicated that she had over ten hours of riding experience and had
initialed the agreement demonstrating that she was warned of the risks inherent in the
activity.77 The court found that the plaintiff assumed the risk of injury of falling from the
horse, since being thrown from a horse or the horse acting in an unintended manner were
dangers inherent in horseback riding. It reasoned that, “[v]oluntary participants in a sport-
73
N.Y. GEN. OBLIG. LAW § 5-326 (McKinney 2006).
74
Evans v. Pikeway, Inc., 793 N.Y.S.2d 861 (Sup. Ct. 2004).
75
315 F. Supp. 2d 1061 (D. Haw. 2004).
76
Eslin v. County of Suffolk, 795 N.Y.S.2d 349 (App. Div. 2005).
77
Id. at 350.
610
ing activity are presumed to have consented to those injury-causing events which are known,
apparent, or reasonably foreseeable.”78
In contrast, in another New York horseback riding case, the plaintiff sought to recover
damages for injuries sustained when she was thrown from a horse at a farm. The court
found that the release executed by the rider absolving the lessee and owner of the farm from
any liability for personal injury did not clearly insulate the lessee and owner from liability
for their own negligent acts. Therefore, the release of liability was not applicable to the
alleged negligence of the lessee and owner.79
IV.
STATUTORY PROTECTIONS AND IMMUNITIES
Depending upon the jurisdiction, the state legislature may have enacted statutes that
provide some measure of protection to landowners, hotels, innkeepers, activity vendors,
and others from lawsuits relating to water sports and recreational activities.
A. Recreational Use Statutes
Along with most states across the nation, Hawaii has developed a statutory exemption
limiting liability for those who open their lands to the public for recreational uses. Hawaii
Revised Statutes section 520-1 encourages owners of land to make land and water areas
available to the public for recreational purposes by limiting their liability toward persons
entering thereon for such purposes.”80 Hawaii Revised Statutes section 520-4 provides that:
an owner of land who either directly or indirectly invites or permits without charge
any person to use the property for recreational purposes does not: (1) Extend any
assurance that the premises are safe for any purpose; (2) Confer upon the person
the legal status of an invitee or licensee to whom a duty of care is owed; (3) Assume responsibility for, or incur liability for, any injury to person or property caused
by an act of omission or commission of such persons . . . .81
In other words, when an owner of land does not charge for the land to be used for recreational purposes, there is no duty of care owed. The statute provides for liability when a
landowner has charged a fee for use of the land or where the injured person was a
houseguest.82
78
Id.
79
DiPilato v. Biaseti, 776 N.Y.S.2d 581 (App. Div. 2004).
80
HAW. REV. STAT. § 520-1 (2006).
81
Id. § 520-4.
82
Id. § 520-5.
611
The initial Hawaii cases interpreting this recreational use statute were decided by federal courts and were generally favorable to the defense in providing maximum protection
to landowners against liability. However, that trend was reversed by the Hawaii Supreme
Court’s first ruling on the statute, in Crichfield v. Grand Wailea Co.,83 in which it narrowly
construed the statute.
In Palmer v. United States,84 the plaintiff brought an action against the government to
recover for injuries he sustained when he slipped and fell while descending a flight of stairs
at a government-owned pool. The Ninth Circuit determined that the recreational liability
statute precludes all theories of liability based upon mere negligence and provides liability
only in circumstances where conduct is wilful or malicious. Therefore, the government was
immunized and not liable for plaintiff’s injuries.
In Covington v. United States,85 a father brought an action against the United States
alleging negligent creation of a dangerous condition and willful failure to warn of the condition which arose from the staffing of lifeguards at the beach where his son drowned. The
court held that the recreational use statute precluded all liability based on mere negligence,
“including where a landowner has voluntarily undertaken safety measures.”86 However, the
court acknowledged that immunity under chapter 520 is not absolute and reasoned that a
“land owner will still be liable for ‘wilful or malicious failure to guard or warn against a
dangerous condition, use, or structure which the owner knowingly creates or perpetuates
and for wilful or malicious failure to guard or warn against a dangerous activity which the
owner knowingly pursues or perpetuates.’”87
The court reasoned that a false appearance of safety was created by the placement of
inadequate or untrained lifeguards on the beach, which resulted in a potentially dangerous
condition above and beyond the danger created by ocean currents and surf. It found that the
government would be liable to the extent that it created, and willfully or maliciously failed
to guard or warn against the danger, since such liability is not based on mere negligence.
In Viess v. Sea Enterprises Corp.,88 an action was brought for injuries suffered by a
swimmer using a modified surf board in ocean waters. The plaintiff was facing the shore
when he was struck from behind by a large wave that lifted him up and threw him on his
head, fracturing his neck and rendering him a quadriplegic. The court held that the Hawaii
recreational use statute relieved the owner of the shoreline property above the high-tide
mark from liability where the owner made no direct charge upon the swimmer in return for
83
6 P.3d 349 (Haw. 2000).
84
945 F.2d 1134 (9th Cir. 1991).
85
902 F. Supp. 1207 (D. Haw. 1995).
86
Id. at 1212.
87
Id. at 1211-12 (citing HAW. REV. STAT. § 520-5).
88
634 F. Supp. 226 (D. Haw. 1986).
612
access to the beach. The owner had no duty to warn of dangerous surf conditions. The court
reasoned that for liability to arise, “a landowner must willfully or maliciously fail to warn
against a dangerous condition which he knowingly perpetuates,” and that the failure to
warn could only be considered willful or malicious if the landowner had an independent
duty to warn.89 The court found that the landowner did not perpetuate the condition of the
ocean surf and thus had no duty to warn.
In Atahan v. Muramoto,90 the plaintiff was rendered quadriplegic in a surfing accident
and brought suit against the owner of the lot in front of which they parked their vehicle.
Under the recreational use statute, the owner of the beachfront lot owed no duty to the
plaintiff to prevent the plaintiff from parking on and walking over the lot to access the
public beach and beach fronting another lot, or to warn of dangers associated with the
ocean in front of that lot. The plaintiff was indirectly permitted without charge to use the
owner’s land for the recreational purpose of assessing the public beach and ocean and
therefore was not an invitee or licensee to whom a duty of care was owed.
In Crichfield v. Grand Wailea Co.,91 the plaintiff was a hotel guest who decided to go
for a walk with her husband on the grounds of another hotel. While walking at the second
hotel, the plaintiff injured her wrist as she stepped off the pathway and onto the grass to
look at the sculptures and fishpond. She slipped and fell. Although no charge had been
assessed against the plaintiff for her use of the second hotel’s premises, the plaintiff alleged
in an affidavit that she had a subjective intent to make purchases at the commercial businesses on the premises, and thus was a business invitee, not a recreational user. The Hawaii
Supreme Court reversed the trial court’s grant of summary judgment in favor of the hotel,
reasoning that there was a genuine issue of material fact as to whether the plaintiff was on
the land for a recreational purpose. The supreme court held that a person’s subjective intent
is essential to determining whether the person is a recreational user engaged in a recreational purpose, thus limiting the broad protection once afforded to landowners under the
recreational use statute.
Other state legislatures have enacted similar statutes that limit or eliminate a landowner’s
liability for personal injuries suffered by a person using his land for a recreational use and
usually only if that use is without charge. California law provides that landowners must
warn of any “dangerous condition, use, structure or activity” on the premises.92 The limiting language of the Hawaii statute, “which the owner knowingly creates or perpetuates,”93
89
Id. at 231.
90
984 P.2d 104 (Haw. Ct. App. 1999) overruled by Lansdell v. County of Kauaii, 130 P.3d 1054 (Haw.
2006).
91
6 P.3d 349 (Haw. 2000).
92
CAL. CIV. CODE § 846 (West 2006).
93
HAW. REV. STAT. § 520-5 (2006).
613
is not included. Thus, California law requires landowners to warn of dangerous natural
conditions. Recreational use liability is governed by the California Civil Code section 846.
It states that an owner of the estate does not extend any assurance that the premises are safe
for the recreational purpose, does not grant the legal status of invitee or licensee upon
whom a duty of care is owed upon the person entering the land, and does not assume
responsibility or liability for any injury to a person or property caused by the person upon
whom permission is granted to enter upon the land. The section does not limit liability for
willful or malicious failure to guard or warn against a dangerous condition, use, structure,
or activity, or for injuries when the landowner was paid for access to the land, or to persons
who are expressly invited rather than permitted onto the land by the landowner.
In Shipman v. Boething Treeland Farms, Inc.,94 a trespasser was injured when he drove
his all-terrain vehicle (ATV) into a privately-owned tree farm and collided at an intersection with a vehicle driven by a farm employee. Applying California law, the court held that
under the recreational use statute, the owner and employee owed no duty of care to the
trespasser and reasoned that when an uninvited, nonpaying recreational user is injured on
private land, any recovery from the owner is barred under the recreational use statute. Even
if the landowner was negligent, negligence was insufficient to overcome a landowner’s
immunity under the recreational use statute.
According to Illinois law:
[A]n owner of land owes no duty of care to keep the premises safe for entry or use
by any person for recreational or conservation purposes, or to give any warning of
a natural or artificial dangerous condition, use, structure, or activity on such premises to persons entering for such purposes.95
Almost identical to the law of California, an owner of land who invites or permits without
charge any person to use such property for recreational or conservation purposes does not
extend any assurance that the premises are safe, confer upon such person the legal status of
invitee or licensee to whom a duty of care is owed, assume responsibility or liability for any
injury to person or property caused by an act or omission of such person who enters the
land, or assume responsibility or liability for any injuries to such persons or property caused
by a natural or artificial condition, structure, or personal property on the land. This section
does not limit liability for wilful or wanton failure to guard against a dangerous condition,
use, structure, or activity, or for injuries suffered when an owner charges the person to enter
the land.
94
92 Cal. Rptr. 2d 566 (Ct. App. 2000).
95
745 ILL. COMP. STAT. 65/3 (2006).
614
In Johnson v. Stryker Corp.,96 a person was injured when he dove into a pond on the
defendant’s property. Applying Illinois law, the court found that the defendant was entitled
to the protection of the Recreational Use of Land and Water Areas Act, despite the fact that
he did not make his land available to general public, since he did permit his land to be used
recreationally on a casual basis. The court reasoned that there was no willful or malicious
failure to guard or warn against a dangerous condition and therefore no liability could be
imposed.
Illinois has developed a vehicle code provision that immunizes owners, lessees, and
occupants of land from liability when someone is injured on their land while using an ATV,
unless liability exists as a result of willful or malicious failure to guard or warn against a
dangerous condition.97 According to the Illinois statute, “an owner, lessee, or occupant of
premises owes no duty of care to keep the premises safe for entry or use by others for use by
an [ATV] or off-highway motorcycle, or to give warning of any condition, use structure[,]
or activity on such premises.”98 However, liability is not limited for willful or malicious
failure to guard or warn against a dangerous condition, use, structure, or activity.99
In a personal injury action brought by a thirteen-year-old minor through his parents
against farm lessors, farm land lessee, and a subdivision association, the Illinois Appellate
Court found that the evidence did not establish that the lessee’s conduct was willful and
wanton. The court reasoned that the failure of the farm land lessee to warn the thirteenyear-old operator of the ATV of the hole in the ground created by erosion, or to guard the
minor operator against such danger was not willful and wanton, and therefore, the exception to the Illinois Vehicle code provision was unmet. The facts were insufficient to demonstrate that the lessee’s actions were willful, since he did not intentionally cause the harm or
exhibit a reckless disregard for the safety of others.100
In close alignment, New York’s recreational use liability statute also mirrors that of
California and Illinois law. According to New York law, an owner, lessee, or occupant of
premises owes no duty to keep the premises safe for entry or use by others for recreational
purposes.101 An owner does not extend any assurance that the premises are safe for such a
purpose, constitute the person to whom permission is granted an invitee to whom a duty of
care is owed, or assume responsibility or liability for any injury to person or property cause
by the person upon whom permission was granted. Liability is not limited when there is a
willful or malicious failure to guard or warn against a dangerous condition, use, structure,
or activity; for injuries suffered where permission to enter the land was conditioned upon
96
388 N.E.2d 932 (Ill. App. Ct. 1979).
97
Morris v. Williams, 834 N.E.2d 622 (Ill. App. Ct. 2005) (citing 625 ILL. COMP. STAT. 5/11-1427 (2005)).
98
625 ILL. COMP. STAT. 5/11-1427(g) (2006).
99
Morris, 834 N.E.2d at 622.
100
Id.
101
N.Y. GEN. OBLIG. LAW § 9-103 (McKinney 2006).
615
the landowner being paid; or for injuries when the owner owed a duty to keep the premises
safe or warn of danger.
B. Hotel Beach Liability Statutes
Some jurisdictions have enacted statutes relating to the specific liabilities of certain
enumerated defendants. Hawaii Revised Statutes section 486-5.5 specifically applies to
hotels with beach front properties. Enacted in 1994, section 486K-5.5 imposes liability
upon a hotelkeeper only if the hotelkeeper fails to warn against a hazardous condition when
it knew or should have known of the condition and the condition would not be known to a
reasonably prudent guest. It also immunizes hotels from liability arising from injuries suffered by non-guests on the beach or ocean fronting the hotel. Hawaii Revised Statutes
section 486K-5.5 provides that:
In a claim alleging injury or loss on account of a hazardous condition on a beach or
in the ocean, a hotelkeeper shall be liable to a hotel guest for damages for personal
injury, death, property damage, or other loss resulting from the hotel guest going
onto the beach or into the ocean for a recreational purpose, including wading,
swimming, surfing, body surfing, boogie boarding, diving, or snorkeling, only
when such loss or injury is caused by the hotelkeeper’s failure to warn against a
hazardous condition on a beach or in the ocean, known, or which should have
been known to a reasonably prudent hotelkeeper, and when the hazardous condition is not known to the guest or would not have been known to a reasonably
prudent guest. A hotelkeeper owes no duty and shall have no liability for conditions which were not created by the hotel to a person who is not a guest of the hotel
for injury or damage resulting from any beach or ocean activity. As used in this
section, “beach” means the beach fronting the hotel, and “hotel guest” means a
guest of that particular hotel and other persons occupying the assigned rooms.102
By enacting section 486K-5.5, the Hawaii Legislature narrowed the hotelkeeper’s
duties. Both Hawaii common law and Hawaii legislation have refused to impose a duty
upon hotelkeepers unless the hotelkeepers occupy land “fronting,” that is immediately adjacent to the beach or ocean where an accident occurred. The Hawaii appellate courts have
defined the duty of an occupier of land adjacent to the shoreline as the “duty to warn users
. . . of extremely dangerous conditions in the ocean along its beach frontage which were not
known or obvious to persons of ordinary intelligence, and which were known or in the
exercise of reasonable care ought to have been known to the [occupier].”103
102
HAW. REV. STAT. § 486K-5.5 (2006).
103
Kaczmarczyk v. Honolulu, 656 P.2d 89. 92 (Haw. 1982) superceded by statute, Act 190, sec. 2(a), 1996
Haw. Sess. Laws 435, as recognized in Bhakta v. County of Maui, 124 P.3d 943 (Haw. 2005).
616
Hawaii Revised Statutes section 486K-5.6 also sets forth a hotelkeeper’s liability with
respect to the rental or other use of certain recreational equipment.104 A hotelkeeper does
not have a duty to instruct or train a user of recreational equipment or to supervise the use
of such equipment where the recreational equipment is in fact used without supervision,
and during the time of use, it is not part of an activity guided or managed by representatives
of the hotelkeeper. Recreational equipment “includes skin diving masks, snorkels, swim
fins, bodysurfing boards, surfboards, canoes, kayaks, bicycles, skates, tennis or golf equipment, weights and exercise equipment, air mattresses, and flotation devices provided by
the hotel.”105 Liability against a hotelkeeper is limited for negligence in the maintenance of
recreational equipment; or when “a loss or injury is suffered by a hotel guest and is caused
by the hotelkeeper’s failure to warn against a hazardous condition on a beach or in the
ocean, known, or which should have been known to a reasonably prudent hotelkeeper.”106
C. Act 190
In 1996, in response to a plethora of lawsuits, the Hawaii Legislature decided that the
state and the counties needed protection from liability arising from dangerous natural conditions in the ocean adjacent to public beach parks. As a result, the Hawaii Legislature
enacted Act 190, entitled an “Act Relating to Public Land Liability Immunity.”107 This Act
went into effect on July 1, 1996, and initially was to be repealed on June 30, 1999, but was
extended to June 30, 2007. The stated purpose of Act 190 was to “increase public safety,
reduce ocean-related accidents, and protect the State and Counties from the unlimited liability they face with regard to activities in the ocean and at public beaches.”108 It established a process by which “the state and counties could provide both meaningful and legally adequate warnings to the public regarding extremely dangerous natural conditions in
the ocean adjacent to public beach parks.”109 The Act has not been codified into a state
statute due to its short-term existence, but has remained effective as a session law.110
104
HAW. REV. STAT. § 486K-5.5 (2006).
105
Id. § 486K-5.6.
106
Id.
107
Act 190, 1996 Haw. Sess. Laws 435.
108
Id. § 1.
109
Id.
110
See Bhakta v. County of Maui, 124 P.3d 943 (Haw. 2005).
617
Act 190 provides that the State or county has a duty to warn of dangerous shorebreak
or strong current in the ocean adjacent to a public beach park, when these conditions are
extremely dangerous, typical for the specific beach, and pose a risk of serious injury or
death.111 With regard to other ocean conditions, “[n]either the State nor any county shall
have a duty to warn of dangerous natural conditions in the ocean other than as provided in
this section.”112 The Act further provides that, “neither the State nor a county shall have a
duty to warn on beach accesses, coastal accesses, or in areas that are not public beach parks
of dangerous natural conditions in the ocean.”113
Act 190 provides public entities protection from liability when they have provided
“adequate warning” to the public though the design and placement of specific warning
signs in beach parks. The Act specifies that
[a] sign or signs warning of dangerous shorebreak or strong current shall be conclusively presumed to be legally adequate to warn of these dangerous conditions,
if the State or County posts a sign or signs warning of the dangerous shorebreak or
strong current and the design and placement of the warning sign or signs has been
approved by the Chairperson of the Board of Land and Natural Resources.114
The Act further states that, “[t]he chairperson shall consult with the Governor’s Task Force
on Beach and Water Safety prior to approving the design and placement of the warning
sign or signs.”115
Essentially, Act 190 sets out the State’s duty to warn of dangerous natural conditions in
the ocean.116 In Bhakta v. County of Maui,117 a negligence action arose out of the drowning
deaths of four men on the north shore of the island of Maui, when they were swept into the
ocean from a landing area owned by the State. The county moved for summary judgment
which the court granted on the ground that the county did not own or occupy the landing
area.118 The plaintiffs moved for summary judgment against the State on the basis that the
State was negligent in failing to warn of and protect the plaintiffs from the dangerous ocean
111
Act 192, § 2(a), 1996 Haw. Sess. Laws 435.
112
Id. § 2(f).
113
Id. § 2(e).
114
Id. § 2(b)
115
Id.
116
Bhakta v. County of Maui, 124 P.3d 943 (Haw. 2005).
117
Id.
118
Id.
618
and man-made conditions at the landing. Following a jury-waived trial, judgment was entered in favor of the State finding that Act 190 relating to public land liability immunity
served to relieve the State of any liability to the plaintiffs.119 The plaintiffs and the State
agreed that the landing was not a “public beach park,” but rather a “coastal access.”120
Therefore under the plain language of Act 190, section 2(e), the State did not have a duty to
warn the plaintiffs of dangerous natural conditions in the ocean, specifically of the shore
break, the strong current near the landing, and the high surf abutting the landing.121 The
State had a duty to warn of dangerous conditions in the ocean adjacent to a public beach,
but it did not have a duty to warn of any dangerous natural ocean conditions on beach
accesses, coastal accesses, or in other areas that are not public beach parks.122 The court
further found that even if Act 190 did not apply, the State still had no common law duty to
warn the plaintiffs of the dangerous conditions in the ocean at the landing, since the conditions in the ocean were open and obvious to persons of ordinary intelligence on the day of
the accident.123
D. Equine Statutes
The Hawaii legislature has provided a statutory exemption for horse owners with regard to equine activities. Hawaii Revised Statutes section 663B-2(a) provides that in any
civil action for an injury of a participant, there shall be a presumption that the injury was
not caused by the negligence of an equine activity sponsor, equine professional or their
employees or agents, if the injury was solely caused by the inherent risk and unpredictable
nature of the equine.124 An injured person may rebut this presumption of no negligence by
a preponderance of the evidence. However, liability is not limited when the equine activity
sponsor, equine professional, or their employees or agents knew or should have known that
the equipment or tack provided, which was the proximate cause of the injury, was faulty;
failed to make reasonable and prudent efforts to determine the ability of the participant to
engage safely in the equine activity; knows or reasonably should have known of a latent
condition that caused the injury and did not conspicuously post warning signs; commits
gross negligence or wilful or wanton disregard for the safety of the participant; or intentionally injures the participant.125
119
Id.
120
Id. at 958.
121
Id.
122
Id.
123
Id.
124
HAW. REV. STAT. § 663B-2(a) (2006).
125
Id.
619
Illinois has also developed a statute limiting the liability of equine activity providers.
According to chapter 745 of the Illinois Compiled Statutes, section 47/15, participants who
engage in equine activities expressly assume the risk and legal responsibility for injuries
resulting from participation in such activities. Participants carry the sole responsibility for
knowing the range of their own ability to manage, care for, and control a particular equine
or perform a particular equine activity. Participants may execute a release assuming responsibility for the risks of equine activities, and such a release will remain valid until it is
expressly revoked by the participant. Liability is not limited under the same exceptions as
referenced to by Hawaii law above.126
V.
CONCLUSION
Lawsuits arising out of water sports and recreational liability issues have become quite
common in our society. Plaintiffs generally claim that they should have been protected or
warned of a hazard by the defendants. The most typical types of legal theories arising in
such lawsuits include negligence, duty to warn and attractive nuisance. Some of the case
law in this area has involved the extension of a duty to warn to encompass conditions on
property beyond which a defendant landowner owns, possesses or controls. Often times the
issue is whether a possessor of land may be held liable for injuries to persons on the land if
that person’s presence should have been reasonably anticipated or foreseeable.
On the other hand, defendants seek to limit the extent of their duties and to interpose
various defense theories such as comparative fault, contributory negligence, open and obvious conditions, primary assumption of the risk, and waiver and release. Defendants may
also have the benefit of looking toward statutory protections and immunities from liability,
such as recreational use statues or other specific statutes that provide immunity for defendants engaged in offering activities such as skiing or horseback riding.
Attorneys who handle cases involving such claims should become familiar with the
various liability theories and defenses so as to formulate winning strategies.
126
745 ILL. COMP. STAT. 47/15 (2005).
620
APPENDIX A
BIBLIOGRAPHY
The following American Law Reports may be of assistance for attorneys handling
water sports and recreational liability cases.
A. Pool Liability Cases
1. Thomas R. Trenker, Annotation, Liability of Swimming Facility Operator For
Injury or Death Inflicted by Third Person, 90 A.L.R.3d 533 (2004).
Injury or Death Allegedly Resulting From Condition of Deck, Bathhouse, or
Other Area in Vicinity of Water, 86 A.L.R.3d 388 (2004).
Injury to or Death of Swimmer Allegedly Resulting From Hazardous Condition
in Water, 86 A.L.R.3d 1021 (2004).
Injury to or Death of Diver Allegedly Resulting From Hazardous Condition in
Water, 85 A.L.R.3d 750 (2004).
5. Thomas R. Trenker, Annotation, Liability of Operator of Swimming Facility
For Injury or Death Allegedly Resulting From Absence of or Inadequacy in
Rescue Equipment, 87 A.L.R.3d 380 (1999).
6. M.O. Regensteiner, Annotation, Liability of Private Owner or Operator of Bathing Resort or Swimming Pool For Injury or Death of Patron, 48 A.L.R.2d 104
(2004).
7. Philip White, Jr., Annotation, Products Liability: Swimming Pools and Accessories, 65 A.L.R.5th 105 (2005).
B. Ocean Liability Cases
1. John B. Spitzer, Annotation, Admiralty Jurisdiction: Maritime Nature of Tort—
modern Cases, 80 A.L.R.Fed. 105 (2005).
2. Jay M. Zitter, Annotation, Validity, Construction, and Application of State Statutes and Local Ordinances Governing Personal Watercraft Use, 118 A.L.R.5th
347 (2004).
621
3. Elizabeth E. Ewing, Annotation, Liability For Injuries to, or Death of, Waterskiers, 34 A.L.R.5th 77 (2004).
4. Michelle M. McCarthy, Annotation, Tort Liability Arising From Skydiving, Parachuting, or Parasailing Accident, 92 A.L.R. 5th 473 (2004).
C. General Recreational Liability
1. Robin C. Miller, Annotation, Effect of Statute Limiting Landowner’s Liability
For Personal Injury to Recreational User, 47 A.L.R.4th 262 (2005).
2. Tracy A. Bateman, Annotation, Liability of Travel Publication, Travel Agent, or
Similar Party for Personal Injury or Death of Traveler, 2 A.L.R.5th 396 (2005).
622
INDEX / QUARTERLY VOLUME 56
FEDERATION OF DEFENSE & CORPORATE COUNSEL
QUARTERLY / VOLUME 56
Subject Index
ANTITRUST
Good Faith in the World of Delaware Corporate Litigation: A Strategic Perspective
on Recent Developments in Fiduciary Duty Law, Zachary S. Klughaupt, Vol. 56, No. 3,
Spring 2006, p. 281.
Limitations of Liability Provisions in Utility Tariffs Against the Backdrop of Deregulation, Joseph D. Zopolsky, Vol. 56, No. 3, Spring 2006, p. 419.
Separate Corporate Personality: Piercing the Corporate Veil, Oscar Shub, Vol. 56,
No. 2, Winter 2006, p. 253.
DAMAGES
GENERALLY
Spring 2006, p. 281.
Important Recent Developments in the Area of Clergy Sexual Misconduct, F. Robert
Radel, II & Kelly Wasmer, Vol. 56, No. 2, Winter 2006, p. 237.
Proportionate Liability in Australia, Oscar Shub & Mark Lindfield, Vol. 56, No. 1, Fall
2005, p. 89.
Taking the Last Step in Insurance Law’s Most Significant Event: The End of FirstParty Insurance Bad Faith in California, John Cross, Vol. 56, No. 4, Summer 2006,
p. 545.
623
PUNITIVE
Controlling the Scope of Deposition Discovery in Bad Faith and Punitive Damages
Cases, Michael R. Nelson & C. Theresa Barone, Vol. 56, No. 3, Spring 2006, p. 409.
Punitive Damages Bait And Switch: Juries or Judges; Individual Suits or Class
Actions, Thomas F. Segalla, Vol. 56, No. 1, Fall 2005, p. 3.
p. 545.
DEFENSES
Malingering of Psychiatric Problems, Brain Damage, Chronic Pain, and Controversial Syndromes in a Personal Injury Setting, Steve Rubenzer, Vol. 56, No. 4, Summer
2006, p. 499.
p. 545.
Water Sports and Recreational Liability Issues (Come On In, the Water’s Fine!),
David M. Louie & Rhonda L. Ching, Vol. 56, No. 4, Summer 2006, p. 591.
DISCOVERY
Advanced Defense Trial Strategies for Prevailing in a Complex Brain and Spinal
Cord Case, C. Barry Montgomery & Bradley C. Nahrstadt, Vol. 56, No. 2, Winter 2006,
p. 121.
Expert Witnesses on Insurance Issues: Locating Them, Retaining Them, and Presenting Their Testimony, Douglas G. Houser & Dennis J. Wall, Vol. 56, No. 1, Fall 2005,
p. 33.
624
Spring 2006, p. 281.
Protecting Confidentiality in Communications with Excess Carriers, Howard Merten
& Michael W. Sweeney, Vol. 56, No. 3, Spring 2006, p. 399.
No. 2, Winter 2006, p. 253.
DISCRIMINATION
Supersizing of America: Obesity’s Potential Implications for the Insurance Industry, The, Helen Johnson Alford & James W. Lampkin II, Vol. 56, No. 4, Summer 2006,
p. 465.
ENVIRONMENTAL LAW
Life After Ballard: Mold Litigation in the New Millennium, W. Stephen Benesh,
Vol. 56, No. 4, Summer 2006, p. 525.
New Jersey’s Natural Resource Damages Initiative: Is the “Sleeping Giant” Waking Up?, Shawn Kelly, Victoria H. Roberts & David A. Niles, Vol. 56, No. 3, Spring 2006,
p. 345.
ETHICS
(Professional Responsibility)
Ethical Issues in the Use of Trial Consultants, Guy R. Gruppie & Gilbert Perez, III,
Vol. 56, No. 2, Winter 2006, p. 267.
Update on Cumis Counsel: The Florida and Selected Other Perspectives, D. David
Keller & Michael A. Krueger, Vol. 56, No. 3, Spring 2006, p. 315.
625
EVIDENCE
p. 121.
Spring 2006, p. 281.
Handling “Bad” Company Documents: Preventing Admission at Trial, Leslie C. O’Toole
& Wendy I. Sexton, Vol. 56, No. 1, Fall 2005, p. 77.
Litigating on the New Frontier: Inroads on the Duties of Sponsors and Investigators
in Clinical Trials, Roxanne M. Wilson, Vol. 56, No. 1, Fall 2005, p. 49.
2006, p. 499.
p. 345.
No. 2, Winter 2006, p. 253.
626
EXTRACONTRACTUAL LIABILITY
p. 545.
FEDERAL RULES
EVIDENCE
p. 121.
PROCEDURE
An Introduction to the Class Action Fairness Act of 2005, William C. Roedder, Jr.,
Vol. 56, No. 4, Summer 2006, p. 443.
627
HEALTH CARE
p. 465.
INSURANCE
ACCIDENT & HEALTH
p. 465.
DISABILITY
p. 465.
EXCESS
FIRST PARTY GENERALLY
p. 545.
628
GENERAL LIABILITY
New Challenges to Insurance Coverage for Defective Construction, Patrick J.
Wielinski & Marc A. Young , Vol. 56, No. 2, Winter 2006, p. 175.
GENERALLY
Exit Strategies in the Run-Off Market, Stephen Carter, Bernadette Bailey & Tobey
Butcher, Vol. 56, No. 2, Winter 2006, p. 219.
p. 33.
p. 545.
PROPERTY
Life After Ballard: Mold Litigation in the New Millennium, W. Stephen Benesh,
Vol. 56, No. 4, Summer 2006, p. 525.
THIRD PARTY GENERALLY
Hecker Award Winner
629
p. 545.
INTERNATIONAL LAW
2005, p. 89.
MEDICAL LEGAL
2006, p. 499.
NEGLIGENCE
No. 2, Winter 2006, p. 253.
p. 545.
630
PRACTICE & PROCEDURE
p. 121.
Vol. 56, No. 4, Summer 2006, p. 443.
Vol. 56, No. 2, Winter 2006, p. 267.
Spring 2006, p. 281.
p. 345.
2005, p. 89.
Prospective Juror Questionnaires Made Easy, John P. Daniels & Annie L. Knafo, Vol.
56, No. 1, Fall 2005, p. 103.
631
PREMISES LIABILITY
Water Sports and Recreational Liability Issues (Come On In, the Water’s Fine!),
David M. Louie & Rhonda L. Ching, Vol. 56, No. 4, Summer 2006, p. 591.
PRODUCTS LIABILITY
No. 2, Winter 2006, p. 253.
PROFESSIONAL LIABILITY
CLERGY
PSYCHOTHERAPISTS
2006, p. 499.
Hecker Award Winner
632
REMEDIES
Spring 2006, p. 281.
2005, p. 89.
No. 2, Winter 2006, p. 253.
p. 545.
STATUTES
p. 465.
TRIAL TACTICS
Vol. 56, No. 4, Summer 2006, p. 443.
p. 121.
633
Vol. 56, No. 2, Winter 2006, p. 267.
p. 33.
2006, p. 499.
p. 345.
2005, p. 89.
Prospective Juror Questionnaires Made Easy, John P. Daniels & Annie L. Knafo,
Vol. 56, No. 1, Fall 2005, p. 103.
Hecker Award Winner
634
VICARIOUS LIABILITY
No. 2, Winter 2006, p. 239.
635
FEDERATION OF DEFENSE & CORPORATE COUNSEL
QUARTERLY / VOLUME 56
Author Index
A
Alford, Helen Johnson (with James W. Lampkin II), Supersizing of America: Obesity’s
Potential Implications for the Insurance Industry, The, Vol. 56, No. 4, Summer 2006,
p. 465.
B
Bailey, Bernadette (with Stephen Carter, & Tobey Butcher), Exit Strategies in the RunOff Market, Vol. 56, No. 2, Winter 2006, p. 219.
Barone, C. Theresa (with Michael R. Nelson) Controlling the Scope of Deposition Discovery in Bad Faith and Punitive Damages Cases, Vol. 56, No. 3, Spring 2006, p. 409.
Benesh, W. Stephen, Life After Ballard: Mold Litigation in the New Millennium, Vol. 56,
No. 4, Summer 2006, p. 525.
Bickerman, John, Don’t Guess Who’s Coming to the Table: Organizing the Mediation
Process, Vol. 55, No. 3, Spring 2006, p. 321.
Butcher, Tobey (with Stephen Carter & Bernadette Bailey), Exit Strategies in the Run-Off
Market, Vol. 56, No. 2, Winter 2006, p. 219.
C
Carter, Stephen (with Bernadette Bailey & Tobey Butcher), Exit Strategies in the Run-Off
Market, Vol. 56, No. 2, Winter 2006, p. 219.
Ching, Rhonda L. (with David M. Louie), Water Sports and Recreational Liability Issues
(Come On In, the Water’s Fine!), Vol. 56, No. 4, Summer 2006, p. 591.
636
Cross, John, Taking the Last Step in Insurance Law’s Most Significant Event: The End of
First-Party Insurance Bad Faith in California, Vol. 56, No. 4, Summer 2006, p. 545.
D
Daniels, John P. (with Annie L. Knafo), Prospective Juror Questionnaires Made Easy,
Vol. 56, No. 1, Fall 2005, p. 103.
G
Gruppie, Guy R. (with Gilbert Perez, III), Ethical Issues in the Use of Trial Consultants,
Vol. 56, No. 2, Winter 2006, p. 267.
H
Houser, Douglas G. (with Dennis J. Wall), Expert Witnesses on Insurance Issues: Locating Them, Retaining Them, and Presenting Their Testimony, Vol. 56, No. 1, Fall 2005,
p. 33.
K
Keller, D. David (with Michael A. Krueger), Update on Cumis Counsel: The Florida and
Selected Other Perspectives, Vol. 56, No. 3, Spring 2006, p. 315.
Kelly, Shawn (with Victoria H. Roberts & David A. Niles), New Jersey’s Natural Resource
Damages Initiative: Is the “Sleeping Giant” Waking Up?, Vol. 56, No. 3, Spring 2006,
p. 345.
Klughaupt, Zachary S., Good Faith in the World of Delaware Corporate Litigation: A
Strategic Perspective on Recent Developments in Fiduciary Duty Law, Vol. 56, No. 3,
Spring 2006, p. 281.
Knafo, Annie L. (with John P. Daniels), Prospective Juror Questionnaires Made Easy,
Vol. 56, No. 1, Fall 2005, p. 103.
Krueger, Michael A. (with D. David Keller) Update on Cumis Counsel: The Florida and
Selected Other Perspectives, Vol. 56, No. 3, Spring 2006, p. 315.
637
L
Lampkin II, James W. (with Helen Johnson Alford), Supersizing of America: Obesity’s
Potential Implications for the Insurance Industry, The, Vol. 56, No. 4, Summer 2006,
p. 465.
Lindfield, Mark (with Oscar Shub), Proportionate Liability in Australia, Vol. 56, No. 1,
Fall 2005, p. 89.
Louie, David M. (with Rhonda L. Ching), Water Sports and Recreational Liability Issues
(Come On In, the Water’s Fine!), Vol. 56, No. 4, Summer 2006, p. 591.
M
Merten, Howard (with Michael W. Sweeney), Protecting Confidentiality in Communications with Excess Carriers, Vol. 56, No. 3, Spring 2006, p. 399.
Montgomery, C. Barry (with Bradley C. Nahrstadt), Advanced Defense Trial Strategies
for Prevailing in a Complex Brain and Spinal Cord Case, Vol. 56, No. 2, Winter 2006,
p. 121.
N
Nahrstadt, Bradley C. (with C. Barry Montgomery), Advanced Defense Trial Strategies
for Prevailing in a Complex Brain and Spinal Cord Case, Vol. 56, No. 2, Winter 2006,
p. 121.
Nelson, Michael R. (with C. Theresa Barone), Controlling the Scope of Deposition Discovery in Bad Faith and Punitive Damages Cases, Vol. 56, No. 3, Spring 2006, p. 409.
Niles, David A. (with Shawn Kelly & Victoria H. Roberts), New Jersey’s Natural Resource Damages Initiative: Is the “Sleeping Giant” Waking Up?, Vol. 56, No. 3, Spring
2006, p. 345.
O
O’Toole, Leslie C. (with Wendy I. Sexton), Handling “Bad” Company Documents: Preventing Admission at Trial, Vol. 56, No. 1, Fall 2005, p. 77.
638
P
Perez, III, Gilbert (with Guy R. Gruppie), Ethical Issues in the Use of Trial Consultants,
Vol. 56, No. 2, Winter 2006, p. 267.
R
Radel, II, F. Robert (with Kelly Wasmer), Important Recent Developments in the Area of
Clergy Sexual Misconduct, Vol. 56, No. 2, Winter 2006, p. 237.
Roberts, Victoria H. (with Shawn Kelly & David A. Niles), New Jersey’s Natural Resource Damages Initiative: Is the “Sleeping Giant” Waking Up?, Vol. 56, No. 3, Spring
2006, p. 345.
Roedder, Jr., William C., An Introduction to the Class Action Fairness Act of 2005,
Vol. 56, No. 4, Summer 2006, p. 443.
Rubenzer, Steve, Malingering of Psychiatric Problems, Brain Damage, Chronic Pain, and
Controversial Syndromes in a Personal Injury Setting, Vol. 56, No. 4, Summer 2006,
p. 499.
S
Segalla, Thomas F., Punitive Damages Bait And Switch: Juries or Judges; Individual Suits
or Class Actions, Vol. 56, No. 1, Fall 2005, p. 3.
Sexton, Wendy I. (with Leslie C. O’Toole), Handling “Bad” Company Documents: Preventing Admission at Trial, Vol. 56, No. 1, Fall 2005, p. 77.
Shub, Oscar (with Mark Lindfield), Proportionate Liability in Australia, Vol. 56, No. 1, Fall
2005, p. 89.
Shub, Oscar, Separate Corporate Personality: Piercing the Corporate Veil, Vol. 56, No. 2,
Winter 2006, p. 253.
Sweeney, Michael W. (with Howard Merten), Protecting Confidentiality in Communications with Excess Carriers, Vol. 56, No. 3, Spring 2006, p. 399.
639
W
Wall, Dennis J. (with Douglas G. Houser), Expert Witnesses on Insurance Issues: Locating Them, Retaining Them, and Presenting Their Testimony, Vol. 56, No. 1, Fall 2005,
p. 33.
Wasmer, Kelly (with F. Robert Radel, II) Important Recent Developments in the Area of
Clergy Sexual Misconduct, Vol. 56, No. 2, Winter 2006, p. 237.
Wielinski, Patrick J. (with Marc A. Young), New Challenges to Insurance Coverage
for Defective Construction, Vol. 56, No. 2, Winter 2006, p. 175.
Wilson, Roxanne M., Litigating on the New Frontier: Inroads on the Duties of Sponsors
and Investigators in Clinical Trials, Vol. 56, No. 1, Fall 2005, p. 49.
Y
Young, Marc A. (with Patrick J. Wielinski), New Challenges to Insurance Coverage for
Defective Construction, Vol. 56, No. 2, Winter 2006, p. 175.
Z
Zopolsky, Joseph D., Limitations of Liability Provisions in Utility Tariffs Against the Backdrop of Deregulation, Vol. 56, No. 3, Spring 2006, p. 419.
Hecker Award Winner
640
The Federation of Insurance Counsel was organized in
1936 for the purpose of bringing together insurance
attorneys and company representatives in order to assist
in establishing a standard efficiency and competency in
rendering legal service to insurance companies, and to
disseminate information on insurance legal topics to its
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reflecting the changing character of the law practice of
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