The New York Appellate Division has dismissed the remaining counts of breach of contract and breach of fiduciary duty asserted by former CBS anchorman Dan Rather against his former employee resulting out of his termination in June 2006. Regarding the breach of contract claim, Rather had a “pay or play” provision in his contract, that is, he was paid regardless of whether CBS used his services. Rather claimed that CBS’s failure to use him for over a year hurt his market value. The Court responded that, as long as he was paid, CBS had no obligation to assign Rather to any story.

Rather also claimed that, because he worked for CBS for over 40 years, CBS owed him a fiduciary duty. The Court noted that no appellate decision has ever held that employment relationships create fiduciary duties. The court, therefore, dismissed the complaint in its entirety.

http://www.nycourts.gov/courts/ad1/calendar/appsmots/2009/September/september.shtml

Overview

Medicare is the U.S. government health insurance program that primarily covers U.S. citizens aged 65 and over. Under the Medicare Secondary Payer (MSP) statute, it is well settled that Medicare almost always bears secondary liability for Medicare beneficiaries’ medical claims, while private group health plans, liability insurers (including self-insured plans), no-fault insurers and workers’ compensation insurers carry primary liability. In other words, Medicare can insist that such insurers pay first for medical expenses where coverage overlaps and thus limit Medicare ‘s obligation to any shortfall.

Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) put in place a new reporting system to help the Centers for Medicare & Medicaid Services (CMS), the federal agency that administers Medicare, recover from Medicare beneficiaries and insurers when Medicare erroneously pays primary or when a beneficiary receives payment from both Medicare and an insurer for the same injury. Section 111 requires insurers to electronically report substantial claims information to CMS if they are liable for the medical expenses of an injured Medicare beneficiary, whether due to a court judgment or settlement. These insurers must begin testing “dummy” claims submissions in the fall of 2009 and then report live claims data in the second quarter of 2010, or risk incurring steep monetary penalties. Failure to comply with Section 111 could subject insurers to civil money penalties of $1,000 for each day of noncompliance for each claimant whose information they did not report.

Statutory Language

42 U.S.C.A. § 1395y:

(2) Medicare secondary payer (B) Conditional payment (i) Authority to make conditional payment: The Secretary may make payment under this subchapter with respect to an item or service if a primary plan described in subparagraph (A)(ii) has not made or cannot reasonably be expected to make payment with respect to such item or service promptly (as determined in accordance with regulations). Any such payment by the Secretary shall be conditioned on reimbursement to the appropriate Trust Fund in accordance with the succeeding provisions of this subsection.

1(ii) Repayment required: A primary plan, and an entity that receives payment from a primary plan, shall reimburse the appropriate Trust Fund for any payment made by the Secretary under this subchapter with respect to an item or service if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service. A primary plan’s responsibility for such payment may be demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means. If reimbursement is not made to the appropriate Trust Fund before the expiration of the 60-day period that begins on the date notice of, or information related to, a primary plan’s responsibility for such payment or other information is received, the Secretary may charge interest (beginning with the date on which the notice or other information is received) on the amount of the reimbursement until reimbursement is made (at a rate determined by the Secretary in accordance with regulations of the Secretary of the Treasury applicable to charges for late payments).

(iii) Action by United States: In order to recover payment made under this subchapter for an item or service, the United States may bring an action against any or all entities that are or were required or responsible (directly, as an insurer or self-insurer, as a third-party administrator, as an employer that sponsors or contributes to a group health plan, or large group health plan, or otherwise) to make payment with respect to the same item or service (or any portion thereof) under a primary plan. The United States may, in accordance with paragraph (3)(A) collect double damages against any such entity. In addition, the United States may recover under this clause from any entity that has received payment from a primary plan or from the proceeds of a primary plan’s payment to any entity. The United States may not recover from a third-party administrator under this clause in cases where the third-party administrator would not be able to recover the amount at issue from the employer or group health plan and is not employed by or under contract with the employer or group health plan at the time the action for recovery is initiated by the United States or for whom it provides administrative services due to the insolvency or bankruptcy of the employer or plan.

(iv) Subrogation rights: The United States shall be subrogated (to the extent of payment made under this subchapter for such an item or service) to any right under this subsection of an individual or any other entity to payment with respect to such item or service under a primary plan.

(v) Waiver of rights: The Secretary may waive (in whole or in part) the provisions of this subparagraph in the case of an individual claim if the Secretary determines that the waiver is in the best interests of the program established under this subchapter. (vi) Claims-filing period: Notwithstanding any other time limits that may exist for filing a claim under an employer group health plan, the United States may seek to recover conditional payments in accordance with this subparagraph where the request for payment is submitted to the entity required or responsible under this subsection to pay with respect to the item or service (or any portion thereof) under a primary plan within the 3-year period beginning on the date on which the item or service was furnished.
Section 411.37 Amount of Medicare recovery when a primary payment is made as a result of a judgment or settlement:

2
(a) Recovery against the party that received payment–
(1) General rule. Medicare reduces its recovery to take account of the cost of procuring the judgment or settlement, as provided in this section, if–
(i) Procurement costs are incurred because the claim is disputed; and (ii) Those costs are borne by the party against which CMS seeks to recover.
(2) Special rule. If CMS must file suit because the party that received payment opposes CMS’s recovery, the recovery amount is as set forth in paragraph (e) of this section.

(b) Recovery against the primary payer. If CMS seeks recovery from the primary payer, in accordance with § 411.24(i), the recovery amount will be no greater than the amount determined under paragraph (c) or (d) or (e) of this section.

(c) Medicare payments are less than the judgment or settlement amount. If Medicare payments are less than the judgment or settlement amount, the recovery is computed as follows:
(1) Determine the ratio of the procurement costs to the total judgment or settlement payment.
(2) Apply the ratio to the Medicare payment. The product is the Medicare share of procurement costs.
(3) Subtract the Medicare share of procurement costs from the Medicare payments. The remainder is the Medicare recovery amount.

(d) Medicare payments equal or exceed the judgment or settlement amount. If Medicare payments equal or exceed the judgment or settlement amount, the recovery amount is the total judgment or settlement payment minus the total procurement costs.

(e) CMS incurs procurement costs because of opposition to its recovery. If CMS must bring suit against the party that received payment because that party opposes CMS’s recovery, the recovery amount is the lower of the following:
(1) Medicare payment.
(2) The total judgment or settlement amount, minus the party’s total procurement cost.

3

Overseas Insurers

What this means for overseas insurers is unclear. The MMSEA statute is silent as to its application to overseas insurers, but CMS has stated informally that the reporting requirements apply to overseas insurers when they pay the bodily injury claims of Medicare beneficiaries. There are, however, serious questions as to whether CMS can lawfully extend its regulatory authority over non-U.S. companies in all circumstances.

The Foreign Commerce Clause of the U.S. Constitution, the presumption against extraterritorial application of federal statutes and potential conflicts with privacy laws of other countries provide some of the strongest arguments against application of Section 111 to overseas insurers. The viability of each argument is dependent upon the factual circumstances of each claims transaction. Relevant factors include the type of insurance coverage involved, the insurer’s U.S. contacts, the identity and location of the insured and how and where payment to the claimant is made.

Special thanks to Georgia Stagias for her contributions to this post.

In Parkside Cab Corp. v. Medley, plaintiff, Parkside Cab appealed from the denial of its motion for leave to file a late notice of claim pursuant to the New Jersey Tort Claims Act. The claim arose out of an accident wherein defendant, Medley , was operating a vehicle owned by defendant, New Jersey Department of Treasury, which collided with plaintiff’s vehicle. In its motion, plaintiff asserted that it assumed that the accident involved the United States Department of Treasury rather than the State. The Appellate Division affirmed the denial of leave to file late notice finding that even the most cursory of inquiry would have revealed that the vehicle, registered in New Jersey , with New Jersey license plates, was state owned rather than federally owned.

http://www.judiciary.state.nj.us/opinions/a2268-08.pdf

New York’s Dram Shop Act provides that a tavern owner who unlawfully serves alcohol to an intoxicated person is liable to any third party injured by the intoxicated person. However, the intoxicated person himself/herself has no right to sue the tavern owner for his/her own injuries. In O’Gara v. Alicca, the intoxicated plaintiff, a pedestrian, was injured in an automobile accident. She sued the automobile driver, who then impleaded the tavern owner who allegedly unlawfully contributed to the plaintiff’s intoxication. The tavern owner moved to dismiss, arguing that the tavern owner could not be compelled to pay damages in a case brought by the intoxicated person.

Plaintiff Kathleen O’Gara began the evening of October 28, 2006 with a Percocet. She then went off to the Katonah Bar & Grill, where she allegedly consumed “copious amounts of alcohol.” Kath left the tavern at 5:00 a.m. and then, for reasons she can no longer recall, chose to walk across the Saw Mill River Parkway. Defendant Matthew Alacci was driving on the Parkway and his car struck the plaintiff.

The plaintiff filed suit against Alacci, claiming he was at fault for the accident. Alacci impleaded the tavern on a cause of action for contribution on the theory that the tavern wrongfully caused the plaintiff’s intoxication. In a case of first impression, an appellate court in NY ruled that the claim for contribution is valid and can go forward. The court ruled that while an intoxicated person cannot sue a tavern for damages under the Dram Shop Act, there is no reason to prohibit a defendant from seeking compensation from the tavern on the Act. http://www.courts.state.ny.us/reporter/3dseries/2009/2009_06668.htm

Generally, a party that seeks to file suit against a New York municipality has 90 days to provide notice of a claim. With the types of injuries arising out of 9/11, this date usually begins to run from the date the injured party discovered the injury.

However, last week, New York’s governor signed a bill opening a new one-year window, reviving claims that would otherwise be time-barred. As you might expect, New York City was fiercely opposed to this move, arguing that thousands of new lawsuits may result with hundreds of millions of dollars in exposure. In addition, the City’s ability to defend older claims may also be compromised. But the State legislature believed it was more important to provide injured parties with their day in court.

http://assembly.state.ny.us/leg/?bn=A07122&sh=t

In Paragas v. Comsewogue Union Free School District, the infant plaintiff was injured when he accidentally collided with another student during gym class. Plaintiff brought an action against the school district for negligent supervision.

Stating that the school’s standard of care to be exercised toward the student is that of a reasonably prudent parent, the Appellate Division found that the defendant provided adequate supervision. The children in the gym class were playing an age-appropriate game and the supervising teacher had several years of experience. Moreover, any alleged inadequacy in the supervision was not a proximate cause of the accident. The collision was accidental and more intense supervision would not have prevented it. Accordingly, the Appellate Division determined that the trial court properly granted defendant’s motion for summary judgment dismissing the complaint.

Thanks to Stephanie Chen for her contribution.

http://www.courts.state.ny.us/reporter/3dseries/2009/2009_06521.htm

The Pennsylvania Defense Institute invited WCM partner Robert J. Cosgrove to lecture at its September 24, 2009 annual conference in Bedford Springs, PA. Bob spoke on the topic of “Preserving Subrogation Rights in the First Party Insurance Context.” A copy of the handout materials is attached.

If you would like more information about the program or the materials, please feel free to contact Bob.

http://pdf.wcmlaw.com/pdf/PDI.pdf

http://www.padefense.org/

Two cases that we previously highlighted on Of Interest have been placed onto the New Jersey Supreme Court’s docket for this Fall.

http://www.judiciary.state.nj.us/calendars/sc_appeal.htm

In Stengart v. Loving Care Agency, Inc. et al., the trial court originally held that e-mails sent by an employee to her attorneys on her employer’s computer were the property of the employer pursuant to its policy regarding electronic communication. Thus, when the employee sued her (now former) employer, the employer was permitted to use the plaintiff’s e-mail that had been extracted from the computer, despite the fact that attorney-client privilege was implicated. The Appellate Division disagreed and held that attorney-client privilege trumped the employer’s privacy policy, and suppressed the use of the e-mail communication. It also ordered a hearing to determine whether the employer’s attorneys should be disqualified or otherwise sanctioned for viewing the privileged communications. The Supreme Court will now determine how to properly balance these two important interests.

http://www.wcmlaw.com/blog/Default.aspx?g=posts&t=259

http://www.wcmlaw.com/blog/Default.aspx?g=posts&t=324

In Rabinowitz v. Wahrenberger, plaintiffs originally filed a medical malpractice action against a hospital for the death of their child. The attorney representing the hospital asked the father whether the father’s statement to the police about his suspicion of murder was a reference to the baby’s mother. Plaintiffs later sued defense counsel for intentional infliction of emotional distress because of those uncomfortable questions, but the trial and appellate courts found the questions were privileged, that the lawsuit was frivolous, and awarded legal fees to the defendant. The Supreme Court will now determine whether the plaintiff or plaintiff’s counsel ought to be responsible for paying that award.

http://www.wcmlaw.com/blog/Default.aspx?g=posts&t=265

Both cases have important implications for both attorneys and their clients, so be sure to check Of Interest for any updates.

There is an old saying that “tough cases make bad law.” In the insurance litgation context, this truism is reflected in the reluctance of courts to deny liability coverage where they believe it would be unfair or inequitable.

In Barkan v. New York School Ins. Reciprocal, the Appellate Division, Second Department, denied the insurer’s cross motion for summary judgment seeking to void its two policies ab initio based on an alleged misrepresentation in an earlier renewal application. The action underlying Barkan was notorious on Long Island because it involved the alleged misappropriation of $11,000,000 from a wealthy school district by several of its employees. In response, the school district sued several former board members for negligence and breach of their fiduciary duties. The district’s insurer denied coverage to the former board members based on, among other reasons, the failure of the district to disclose in an earlier renewal application the misappropriations by a former employee in the district’s business office.

Several board members sued the insurer for coverage. The insurer responded by counterclaiming for rescission based on the district’s failure to disclose the earlier theft and commenced a third party action against other board members seeking a declaration that it had no duty to defend or indemnify them either. Motions for summary judgment were filed by the parties and the lower court found in favor of the board members. The Appellate Division affirmed, holding that the insurer failed to meet its evidentiary burden on the issue of rescission.

In order to rescind a liability policy, the insurer must demonstrate that the insured made a “material” misrepresentation. If proven, the policy is considered void ab initio. To meet its burden the insurer must present documentary evidence concerning its underwriting practices such as manuals, bulletins and rules relating to similar risks, which show that the policy would not have been underwritten in the same manner if the true facts were known. In this case, the insurer apparently relied exclusively on the affidavit from one of its underwriters without any documentary support whatsoever. The court rejected this proof and upheld the ruling that the insurer had, at a minimum, a duty to defend the board members against the claims made by the school district itself.

In our experience, courts are very reluctant to rescind a policy based on an alleged misrepresentation. In evaluating the strength of such a policy defense, an insurer and its counsel must support their claims with compelling documentary proof. The naked affidavit of an underwriter will generally not win this battle, particularly where the individuals seeking coverage may not have been directly involved in submitting the allegedly false information.

If you would like more information on this post, please contact Paul at .

http://www.courts.state.ny.us/reporter/3dseries/2009/2009_06494.htm

Bank of America and the Securities Exchange Commission (SEC) were recently blasted in a ruling issued by Federal District Judge Jed S. Rakoff.

On August 3, 2009, the SEC brought an action against Bank of America alleging that it had lied to its shareholders. In seeking its shareholders’ approval of the $50 billion acquisition of Merrill Lynch, Bank of America issued a proxy statement that Merrill would not pay year-end bonuses to its executives prior to the merger without Bank of America’s consent. However, according to the SEC, Bank of America had already authorized Merrill to pay up to $5.8 billion in bonuses and didn’t share that information with shareholders.

After commencement of the litigation, the two parties proposed a settlement deal, where Bank of America agreed to pay $33 million without admitting or denying wrongdoing. Judge Rakoff, not only rejected it, he criticized the very ethics of the deal:

“[T]he proposed Consent Judgment is neither fair, nor reasonable, nor adequate. It is not fair, first and foremost, because it does not comport with the most elementary notions of justice and morality, in that it proposes that the shareholders who were the victims of the Bank’s alleged misconduct now pay the penalty for that misconduct.”

This decision is a hard blow to both parties.

The New York Attorney General will likely consider whether to file civil charges against Bank of America executives over their role in failing to alert shareholders to mounting losses and bonus payments at Merrill.

The SEC – who has tried to mend its image since its failure to detect Bernard Madoff’s fraud scheme – must struggle to regain credibility for its enforcement efforts. Judge Radkoff found that the SEC was way too lenient. Now, the SEC may be forced to mount a court battle against one of the biggest U.S. banks over one of the touchiest issues of our financial times – executive pay. The trial is set for February 1, 2010.

Judge Rakoff’s decision is certainly worth reading:

http://www1.nysd.uscourts.gov/cases/show.php?db=special&id=104