Monthly Archives: January 2013

Excess Verbiage and Commas Do Not Negate Indemnification in NJ

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Increasingly businesses are considering risk allocation issues as they contract with one another. Who bears the risk of claims for personal injury and property damage has a direct bearing on the bottom line of the profitability of the agreement for each party. In this regard, indemnification language can be a negotiating point as parties attempt to place the risk for each other’s and even their own negligence.

It is well settled in New Jersey that in order to transfer the risk of loss for one’s own negligence, the contract language must be specific and include an unambiguous statement that the indemnitee will be indemnified for its own negligence. Azurak v. Corporate Property Investors, 175 N.J. 110 (2003). To the extent that a clause may be ambiguous, the courts will construe it strictly against the indemnitee. Thus, it is important to clearly word such language to capture the true intent of the contracting parties.

Of course, as legalize creeps into a document, clarity can sometimes be obscured. Yet, recently, the appellate division drew a line in the sand. In Sayles v. G & G Hotels, Inc., a hotel franchisor was granted indemnification from a hotel owner and operator. The trial court agreed that the clause in question included “too many, far too many disjunctives, conjunctives, commas and an insufficient amount of periods.” And yet, the court applied a common sense interpretation of the clause.

The term in question included several scenarios for indemnification ending with the phrase “including when the active or passive negligence of [the indemnitee] is alleged or proven.” In an argument worthy of author Lynn Truss of Eats, Shoots and Leaves fame, the indemnitor argued comma placement and relied upon what the court found to be a “crabbed” and contrived reading of the term to avoid indemnification. The appellate division concurred that the clause could have been better written, but refused to find an ambiguity simply because the language was perhaps cumbersome.

The lesson of the case is that while New Jersey courts scrutinize indemnification agreements and strictly construe them against the indemnitee, if the term fairly expresses the intent that the indemnitee is to be indemnified for its active or passive negligence, alleged or proven, our courts will enforce it as written.

For more information, contact Denise Fontana Ricci at .

 

NJ: Retailer Not Responsible For Sharp Knives

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The N.J. Appellate Division recently analyzed whether a plaintiff has a claim for negligence when he is harmed by an obvious and dangerous item on display at a retail store.

In Khutorsky v. Macy’s, Inc., a husband and wife visited Bloomingdale’s to shop for pots and pans. The husband began to examine kitchen knives placed in a butcher block located in an unlocked, glass-faced cabinet. Other high-end knives would be in a locked display to avoid theft. While pulling a knife from the block, it began to slip from his hand. He swatted at the knife to avoid getting struck in the thigh and as a result cut two tendons and required surgery.

Plaintiffs subsequently filed suit claiming that the above-referenced injuries resulted from Bloomingdale’s negligence. Bloomingdale’s moved for summary judgment arguing that it did not breach a duty owed to plaintiff nor was it the proximate cause of plaintiff’s injuries. The Court granted Bloomingdale’s motion finding that the threat of cutting one’s self with a knife is so patently obvious that there was no duty to provide a warning. Plaintiffs appealed in part arguing that there were genuine issues of fact including whether Bloomingdale’s was negligent that should have precluded summary judgment.

The Appellate Division affirmed the lower court’s decision. While a retail store has a duty to provide a reasonably safe premises, it has no duty to warn of dangers that are open, obvious and easily understood. Furthermore, no breach could be found in the way Bloomingdale’s displayed the knives. Nothing was hidden or conspicuous in the knife display and the plaintiff had already examined several knives before being injured. The Court found this fact pattern similar to where a plaintiff injures himself after diving into the shallow end of a swimming pool despite knowing the depths of the pool. Summary judgment was therefore appropriate under these circumstances.

The death of common sense has been greatly exaggerated.

Thanks to Andrew Marra for his contribution to this post. If you have any questions or comments, please email Paul at

 

 

PA Court Underscores NY-PA Split in Indemnity Allocation

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In the recent Commerce Court decision of Anheuser-Bush, Inc. v. INA, Philadelphia Common Pleas judge Patricia McInerney elected to apply New York’s “time on risk” approach in denying an insured’s claim for indemnity of a $1 million asbestos settlement despite Pennsylvania’s explicit rejection of that method in previous cases.

Beginning in 1981, INA issued several policies to Anheuser-Busch including a standard Employer’s Liability Policy and Excess Blanket Catastrophic Liability Policy. Although INA denied coverage for the original asbestos action under the former, it agreed to defend Anheuser-Busch under the excess policy subject to a reservation of rights. Ultimately, Anheuser-Busch settled the underlying claim for $1 million, but was denied indemnity when INA claimed that the policy was not required to respond until the insured paid $100,000 for each of the thirty years of exposure alleged in the complaint.

Unsurprisingly, Anheuser-Busch took exception to INA’s decision and filed suit in the First Judicial District, claiming that the carrier breached its contract and acted in bad faith. In particular, Anheuser-Busch contended that the policy was subject to Pennsylvania’s “all sums” approach wherein the loss is presumed to occur within a finite policy period and therefore subject to a single self-insured retention of $100,000. In contrast, INA contended that New York’s “time on risk” methodology controlled the policy and demanded the allocation of damages across those policies in effect during the time the loss occurred.

In spite of Pennsylvania’s bright-line repudiation of the “time on risk” approach, Judge McInerney couched the issue as a conflict of laws in which the policy’s operation was governed by the law of the most interested state. To this end, she considered each jurisdiction’s contacts with the policy and concluded that New York was more closely associated than Pennsylvania because the contract was negotiated, created, and performed in that state. Consequently, Judge McInerney found that New York’s “time on risk” controlled and INA was therefore correct to require Anheuser-Busch’s payment of the aggregate retention before responding to the claim.

While Anheuser-Busch, Inc. v. INA is arguably a routine application of the traditional conflict of laws analysis, the opinion is a reminder of both the divergent interpretations of indemnity allocation across the country and the extent to which the laws of conflicting jurisdictions may produce dramatically different results.

Thanks to law clerk Adam Gomez for his contribution to this post. If you have any questions or comments, please email Paul at

In PA, Delay Damages Can Only Be Awarded on Auto Policy’s Limits.

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In Pennsylvania, an injured party can recover “delay damages”, i.e. interest that runs from the date suit is filed until the date of a favorable judgment for the plaintiff.  The question that Pennsylvania’s Supreme Court, the state’s highest court, was recently called to address is whether an insurer can be forced to pay delay damages on an award that exceed the policy limits.

In the case of Marlette v. State Farm Mutual Automobile Insurance Company, the controversy stemmed from a car accident in Pittsburgh between Richard Marlette (who was accompanied by his wife, Marleen Marlette) and an uninsured motorist, Herman Jordan. Jordan crossed the centerline and sideswiped the Marlette’s car, leaving Mr. Marlette seriously injured and impairing his future earning capacity.

After trial, the jury awarded damages of $550,000 to Mr. Marlette for bodily injuries and $150,000 to Mrs. Marlette for loss of consortium. The trial court molded the $700,000 verdict to fit the Marlette’s uninsured motorist policy with State Farm, which was capped at $250,000. The Marlettes then filed a motion for delay damages on the jury verdict, which was granted. Although the delay damages granted were calculated based on the molded jury verdict, they still caused the total amount of damages collected by the Marlette’s to exceed the insurance cap of $250,000.

Thereafter, both the Marlettes and State Farm filed appeals and the case ultimately ended up before the Supreme Court of Pennsylvania.  The Supreme Court limited its review to the question of whether delay damages should be awarded on the jury verdict or the policy limit. Ultimately the Supreme Court ruled that delay damages can only be awarded on the policy’s limits and not the jury verdict.  One questions whether the result would have been the same if the Supreme Court had been faced with a commercial general liability policy affording third-party coverage.  It appears to us that the answer would be “no” so the potential for significant extra contractual exposure remains.

Special thanks to Thalia Staikos for her contributions to this post.  For more information, please contact Bob Cosgrove at .

Legal Malpractice Claims Barred Business Enterprise/Pursuits Exclusions

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Professional liability policies are designed to cover errors and omissions committed by professional while providing or failing to provide services on behalf of their firms.  Sounds simple enough.  Problems arise when attorneys -or other professionals – act in different capacities, sometimes providing legal advice while at others  offering business judgments or acting as “deal makers” for fledgling businesses.

In Abrams, Fensterman, et al. v. Underwriters At Lloyd’s, London, a partner and his law firm found themselves in a real pickle over some business transactions that went bad. The underlying complaint alleged that the partner committed legal malpractice and engaged in fraudulent conduct when he induced the underlying plaintiffs to invest in a business formed to underwrite and sell insurance products. According to the disgruntled investors,  when their seed money went missing, the law firm defendants falsely claimed that it was  stolen by members of a royal family in the United Arab Emirates.

Given the allegations of legal malpractice, the law firm defendants sought a defense and indemnification from their malpractice insurer. After some initial fact gathering, the insurer denied coverage citing two key policy exclusions commonly called the “business pursuits” and “business enterprise” exclusions. Closely aligned, these exclusions bar coverage for any claims arising out of or in connection with (1) a business “controlled, operated or managed by any insured” or (2) an  insured’s activities as “a trustee, partner, officer, director or employee of a business ” other than his law firm.  Given the attorneys’ alleged involvement in the formation, capitalization and management of the business venture, the court upheld the insurer’s denial of coverage.

Abrams, Fensterman reinforces that most professional liability policies seek to avoid assuming additional risk where an attorney “so intermingles his business relationships with his law practice” that the line between the two is blurred.  When timely invoked, the courts will uphold those exclusions.

If you have any questions or comments about this post, please email Paul at

Disclaimer:  This post is not intended to express any opinion on the merits of the allegations in the underlying lawsuit, which may or may not have any merit.

 

Cabana Can Be Insured Premises

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In Raner v. Security Mutual Insurance Company, the First Department found an insurance policy exclusion for “liability…resulting from premises owned, rented or controlled by an insured other than the insured premises” ambiguous because the policy provided that the “insured premises” includes “that part of any premises occasionally rented to an insured for other than business purposes.”  Of significance, the policy did not define the term “occasionally rented.”

In this case, the premises at issue was a beach club cabana rented by the insured for 20 successive summers, albeit under separate yearly membership agreements. The First Department found that since the term “occasionally rented” could apply in this context,  the exclusion was ambiguous and must be construed against the insurer.

In Raner, the First Department cautions that policy terms must be clearly defined or subject to only one reasonable interpretation or else it will have no effect.  If the terms can be open to more than one reasonable interpretation, proceed with caution.

Thanks for Alison Weintraub for her contribution to this post.  If you have any questions, please email Paul at

Spoliation of Evidence: A Kinder, Gentler Sanction

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In today’s technological world, video surveillance is becoming more and more common. However, many security systems delete footage after a preset interval like thirty-days.  After a deletion is discovered, a plaintiff will likely move for sanctions on the grounds that there was “spoliation” of evidence. Plaintiffs typically ask for the defendant’s answer to be stricken, but will be satisfied with the lesser sanction of excluding the damning footage at trial.

As theJennings v Orange Regional Med. Ctr  suggests, courts should find that, in most cases, preclusion is too harsh a sanction. Rather, the appropriate penalty may be an adverse inference jury charge at trial, which gives defense counsel the opportunity to offer an explanation for the destruction or argue that the “missing” footage is not relevant or necessary for the jury to decide plaintiff’s case.

In Jennings, the plaintiff was assaulted at the defendant’s medical facility. Despite having received an immediate written demand for the footage, the hospital did not preserve the videotape footage. The plaintiff then sued the hospital alleging inadequate supervision and requested the production of the video footage during discovery. The defendant admitted its mistake and the plaintiff moved to strike the defendant’s answer. The Supreme Court partially granted plaintiff’s motion and precluded the defendant from introducing evidence at trial that the alleged perpetrator was properly supervised at the time of the incident.

The Second Department reduced the sanction from outright preclusion to a adverse inference jury charge. The Appellate Division held that plaintiff did not demonstrate that she was left “prejudicially bereft” of the means of prosecuting her claim. Thus, the lesser sanction of an adverse inference/missing evidence jury charge was appropriate because plaintiff was not deprived of the ability to establish her case. The Appellate Division reasoned that plaintiff could still testify about how and where the incident occurred and subpoena other individuals who may have witnessed the incident.

Where a party fails to preserve video footage after an accident, Courts may impose sanctions based on the spoliation of evidence. To avoid the harsh penalty of preclusion or worse, an attorney must establish that the evidence is available through other means (i.e. eye witnesses are available). If so, the defense may avoid the striking of its defense or preclusion of the video footage and be forced to deal with the more manageable sanction of an adverse inference/missing evidence jury charge.

Thanks to Bill Kirrane for his contribution to this post. If you have any questions, please email Paul at .

Is the Value of Art Going Down?

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Given our fine arts practice, we are tuned in to market value fluctuations since those fluctuations often dictate what an insurer must pay when a covered loss occurs.  If this recent article is to be believed, the value of art is beginning to go down.  If true, this could be good news for insurers.

For more information about this post, please contact Bob Cosgrove at .

 

$18 Million Judgment Entered Against Art Dealer for Theft Claims (NY)

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Plaintiff George Ball is a renowned art collector, and retained R. Scott Cook, his wife Soussan, and Cook Fine Art as his exclusive art advisor and dealer.  The relationship started off well, and between 1997 and 2000, at Cook’s advice Ball purchased about $10 million in paintings, which were held in storage by Cook or at the gallery.    Eventually, the parties entered into an agreement allowing Cook to sell some of Ball’s collection.

In 2011, Cook persuaded Ball to list eleven notable works at auction with Christie’s, afterwards telling Ball that nine of the works had been sold.  However, Cook never listed the works and instead sold them without Ball’s knowledge or consent.  When Cook admitted he had no auction proceeds to deliver, Ball demanded the return of all of his works.  To date, Cook has still not complied.

Ball filed suit in the Southern District of New York.  Cook invoked Fifth Amendment rights against self-incrimination in response to all discovery demands, and Ball eventually moved for summary judgment.  Cook, incarcerated in France and under indictment in New York, advised the Court that he would not oppose the motion.  The Court thus ruled in favor of Ball on breach of contract, conversion, breach of fiduciary duty, fraud, and replevin claims.  The judgment, including interest and punitive damages, is in excess of $18 million.  As often is the case under these circumstances, collectabilty of the judgment is sure to be an issue.

If you would like further information about this post, please write to Mike Bono at .

 

The Boardwalk is not a Sidewalk (NY)

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In Stoloyvitskaya v Dennis Boardwalk, LLC, plaintiff was walking on the boardwalk in Coney Island and tripped and fell due to a defective condition in the boardwalk. The boardwalk was directly situated between the premises owned by the aptly named Dennis Boardwalk LLC, and the beach. Plaintiff thus sued both the owner of the abutting property and the City of New York, but ultimately, the trial court granted the property owner summary judgment.

The Second Department affirmed the trial court’s decision that the property owner had no duty to maintain the abutting boardwalk under Section 7-210 of the Administrative Code, also commonly known as the “Sidewalk Law.” While the Sidewalk Law generally shifted sidewalk maintenance duties to abutting property owners, it only applied to sidewalks, defined under the Administrative Code as “that portion of a street between the curb lines, or the lateral lines of a roadway, and the adjacent property lines, but not including the curb, intended for the use of pedestrians.” As the boardwalk where the plaintiff fell did not abut a roadway, the property owner established that the boardwalk was not a sidewalk under the Sidewalk Law and was thus entitled to summary judgment.

Thanks to Jung Lee for his contribution to this post.  If you would like further information please write to .