Cyber Rules About to Get Real.

We have previously reported on NY’s onerous cyber rules. The rules go into effect by month’s end.

Specifically, n August 28, 2017, insurance companies that do business in NY will be obligated to institute policies and procedures that preserve and protect PII of clients, insureds, and other entities in accordance with 23 NYCRR §500 (et seq.). The rationale of the policy was explained by the Superintendent of the DFS:
Consumers must be confident that their sensitive nonpublic information is being protected and handled appropriately by the financial institutions that they are doing business with. DFS designed this groundbreaking proposed regulation on current principles and has built in the flexibility necessary to ensure that institutions can efficiently adapt to continued innovations and work to reduce vulnerabilities in their existing cybersecurity programs. Regulated entities will be held accountable and must annually certify compliance with this regulation by assessing their specific risk profiles and designing programs that vigorously address those risks.

Insurance companies, and other covered entities, are required to perform cybersecurity assessments in accordance with a written policy developed by the covered entity, that includes:
• An evaluation of encryption of data containing PII (both in transit and at-rest);
• The development of a Crisis Response Team (“CRT”) to respond to a breach;
• TFA or MFA;
• Identify and assess internal and external cybersecurity threats;
• Utilize defensive infrastructure in conjunction with appropriate policies and procedures to protect PII;
• Capability of detecting and responding to any intrusion;
• Ability to fulfill the statutorily required breach notification statutes.

Moreover, the regulations require a specific policy that regulates 14 different aspects of the covered entities operations. If this is not enough to develop specific in-house policies, the regulations also require that insurance companies ensure that other entities it does business with and transfers materials containing PII, to maintain and adhere to strict cybersecurity regulations that include a requirement for TFA, encryption, written policies, and periodic assessments of the efficacies and compliance to the policies. The insurance company is required to promulgate a policy for its third-party service providers that complies with the above requirements. If not, the insurance company may be held liable.

Furthermore, we note that this will soon be the policy in all 50 states. It is easier to implement these changes and requirements now as opposed to being forced to implement the policies at a rush and possibly not achieving full compliance.

Special thanks to Matt Care for his contributions to this post.

For more information about this post please e-mail Bob Cosgrove.

WCM Wins Summary Judgment in Philadelphia Penile Numbing Cream Products Case.

Partner Bob Cosgrove and associate Matt Care were awarded summary judgment in Philadelphia County in the case of Lowe v. The Kama Sutra Company, et. al. In Lowe, the plaintiff, a MMA fighter, sued the designer, manufacturer, and distributor of a prolonging gel, meant to prevent premature ejaculation, after alleging injuries to his penis after repeated use. Lowe utilized the gel in combination with other products and alleged that the gel caused permanent disfigurement to his member and decreased sexual performance.

After years of discovery and countless depositions, WCM was able to convince the court that our client, a wholesale distributor of adult novelties and romance products, did not distribute a defective product. Consequently, the court dismissed all of the plaintiff’s negligence, strict product liability, breach of express warranty, breach of implied warranty of merchantability, and breach of implied warranty of fitness for a particular purpose claims, and all cross-claims against our client.

For more information about this post please e-mail Bob Cosgrove.

GC’s Right of Supervision Over Subcontractor Work is Key to Determination (PA)

On July 19, 2017, the Superior Court of Pennsylvania affirmed an order denying a motion to remove the entry of nonsuit as to Appellee Patrick Smiley, Jr. (“Smiley”), following a jury trial that resulted in a $501,107.41 verdict against  Fairman’s Roof & Trusses, Inc. (“Fairman’s”).

Smiley filed the underlying suit against Fairman’s after Fairman’s delivered bent trusses to a construction site where Smiley was the general contractor.  These bent trusses were installed by Chris Fisher Construction (“Fisher”) and led to the collapse of a partially constructed pole barn.  The collapse left Brian Baird trapped beneath four trusses and seriously injured him.  Smiley alleged that Fairman’s breached their contract and warranty by delivering bent trusses.

Fairman’s also filed a complaint to join Fisher as an additional defendant.  In January 2013, Brian Baird and his wife commenced a separate civil action against Smiley and Fairman’s for products liability, negligent design, premises liability, negligence, and loss of consortium.  Smiley also filed a cross-claim against Fisher alleging that Fisher was solely liable for the claims asserted by Appellants or was required to indemnify Smiley pursuant to an alleged indemnification agreement between the parties.

The trial court bifurcated the appellants’ claims against Fisher from all claims of liability against Smiley and Fairman’s.  In the trial against Smiley and Fairman’s, the trial court granted Smiley’s oral motion for nonsuit.  The jury then returned a verdict in Appellants’ favor and against Fairman’s in the amount of $501,107.41.  Appellants filed an appeal contending that the entry of nonsuit in favor of Smiley was improper prior to the presentation of evidence by all defendants.  The Superior Court disagreed stating that Fairman’s indicated on the record that it was not taking a position on Smiley’s oral motion for nonsuit.  Thus, Fairman’s lack of opposition suggested it did not intend to present evidence as to Smiley’s liability as part of its defense.  In addition, Appellants had the opportunity to develop a case for liability during their case-in-chief which they failed to do.

The court adhered to the general rule in Pennsylvania that a contractor is not liable for injuries resulting from work entrusted to a subcontractor unless the general contractor retained control or right of supervision over the performance of the work.  Here, Smiley had hired Fisher based on Fisher’s experience in building pole barns and delegated the task of construction and supplying labor to him.  Further, Smiley did not visit the job site and never made an attempt to supervise Fisher’s construction work.  Thus, Fisher was in total control of the project and therefore Smiley was not responsible for the actions of Fisher.

As a result, the Superior Court found no abuse of discretion or error of law by the trial court in entering nonsuit in Smiley’s favor.  Thanks to Garrett Gittler for his contribution to this post.  Please email Brian Gibbons with any questions.

 

Property Owner and Snow/Ice Contractor Shielded Against Slippery Plaintiff (PA)

On July 24, 2017, the Superior Court of Pennsylvania summary judgment in favor of the defendants in Castaldi v. Light Acadia 11-89 et al..  The case arose out of an alleged slip and fall when on January 17, 2012, the plaintiff, Dina Castaldi (“Castaldi”), claimed she fell in the parking lot of a shopping center that was owned by Light Acadia 11-89, LLC (“Light Acadia”).  She claimed there was a patch of ice that caused her to fall.  Defendant Grass Works Landscape Management, Inc. (“Grass Works”) was retained by Light Acadia to perform snow and ice removal at the parking lot.

Both Light Acadia and Grass Works filed for summary judgment on the basis of the hills and ridges and out of possession landlord doctrines.  The trial court granted both of their motions.  Castaldi then appealed.

In Pennsylvania, the hills and ridges doctrine is designed to protect landowners from liability for generally slippery conditions resulting from ice and snow where the owner has not permitted the ice and snow to unreasonably accumulate.  Courts recognize that to impose a duty on landowners to keep their walkways free of ice and snow at all times is an impossibility.  Therefore, to make a case, a plaintiff must show: 1) that snow and ice accumulated to a degree to unreasonably obstruct travel and to constitute a danger; 2) that the property owner had notice of such condition; and 3) that the accumulation caused their fall and injuries.  A plaintiff can also make a case if they show that an accumulation was from an “artificial origin”, i.e. plowing.

The court agreed with the defendants and found the Light Acadia had no notice of snow/ice accumulation in the lot and that the accumulation was not large enough to constitute a danger.  In addition, the court stated that Grass Works was covered by the hills and ridges doctrine because it was actively treating snow and ice with salt and thus was acting reasonably.  The court also found that Light Acadia was not liable because it was an out of possession landlord, and owed no duty to third-parties.  As such, Light Acadia was granted summary judgment on this point as well.

Courts have recognized owning property as a benefit, on the whole, to society and seek to encourage.  As such, several defenses have been established in common law and statute to protect landowners in certain situations.  The hills and ridges and out of possession landlord doctrines are two examples of such defenses.

It is important therefore to recognize early on the type of ownership that a client has in a property, their interest in the property, how they use it, whether they have leased it out, and other factors to see if they qualify for a certain defense. Thanks to Peter Cardwell for his contribution to this post.  Please email Brian Gibbons with any questions.

Replacement Cost Policy Must Actually Provide Replacement Cost Coverage (PA)

In Kurach v. Truck Insurance Exchange, a Pennsylvania Court awarded summary judgment to a homeowners’ policy holder who alleged that the replacement cost coverage policy was actually not replacement cost, as the terms of the policy allowed the insurance company to reduce the reimbursement by utilizing depreciation costs.

Pennsylvania law defines replacement cost as the actual value of the property at the time of the loss, without deduction for depreciation or deterioration. But here, as the insured learned when he sought coverage for a water damage claim, the policy coverage did deduct for depreciation. The policy further excluded general contractor “overhead” in clear and unambiguous language and plaintiff also challenged the legality of this provision in a policy labeled and marketed as a“Replacement Cost Coverage” policy.

The court held that a replacement cost coverage policy may not exclude general contractor overhead or profit, as that would run contrary to the definition under Pennsylvania law. Even though this exclusion was clearly written into the policy,  the court stated that a policyholder paying a premium for replacement cost coverage cannot be reimbursed for less. The same rationale applied to the depreciation claim – because this policy was labeled as a replacement cost coverage plan the court took issue with the policy diminishing full reimbursement, regardless of the reason. Specifically, the court took issue with Truck Insurance purporting to provide a policy that provided replacement cost coverage but defined replacement cost coverage in a manner that provided far less coverage.

Thanks to Matt Care for his contribution to this post and please write to Mike Bono for more information.

$38.5 Million Punitive Damage Award Barred By Statute of Limitations (PA)

The Pennsylvania Superior Court recently addressed the $38.5 million punitive damages jury verdict in Wilson v. U.S. Security Associates (2015) – the highest award in Philadelphia in 2015.  In 2010, two factory workers were fatally shot and a third seriously injured at the Kraft-Nabisco factory in North Philly. The defendant security firm was found negligent by a jury when two security guards abandoned their post in fear when they saw an armed woman – a suspended Kraft worker who returned to the company looking for revenge.

The issue on appeal was the trial court’s decision to allow the plaintiffs—mid-trial—to reinstate a claim for punitive damages which was withdrawn by stipulation in exchange for a withdrawal of preliminary objections two years earlier. And by the time plaintiffs sought to introduce the punitive damages claim, the statute of limitations had expired.

The plaintiffs argued that the claim was merely an amendment to the ad damnum clause—the section of the complaint outlining damages—not a new claim; and as such there was no statute of limitations issue. Unpersuaded, the court held that to prove punitive damages, the plaintiffs must prove “reckless, outrageous, intentional and/or wanton” conduct, which is an extra element and not merely an amendment to an existing claim.

After finding punitive damages to be a claim instead of an amendment, the court moved to its statute of limitations analysis. Plaintiffs’ stipulation in exchange for the defense withdrawing their preliminary objections removed the claim from the complaint. Accordingly, the complaint must be read without the punitive damages claim. If the claim is not in the original complaint, the statute of limitations was never tolled by filing the complaint and the statute ran from 2010. Therefore, when the plaintiffs sought to reintroduce the claim at trial in 2015, the statute of limitations had already expired. To support this conclusion, the court looked to the settled law of voluntary nonsuits—voluntarily withdrawing an entire lawsuit. In voluntary nonsuits, the original complaint is treated as if it never existed; the statute of limitations is not tolled. The court reasoned there is “no legal basis on which the strategic withdrawal of one significant cause of action, punitive damages, should be treated differently than our settled controlling authority treats the withdrawal of an entire lawsuit.”

And thus Wilson v. U.S. Security Associates was stripped of its accolade of Philadelphia Court of Common Pleas’ largest 2015 award.

Thanks to Ellis Palividas for his contribution to this post and please write to Mike Bono if you would like more information.

Homeowners’ Association Has No Duty to Maintain Stop Sign

In Brown v Russaw and Emerald Lakes Association, the court granted summary judgment in favor of a homeowner’s association in a motor vehicle accident case involving a missing stop sign.  Plaintiff alleged personal injuries as a result of a motor vehicle accident that occurred when she was struck by another vehicle which had entered the intersection from a roadway at which a stop sign was missing.

The issue of whether a private community association has a duty to maintain or replace a stop sign was a matter of first impression under Pennsylvania law.  The Defendant association pointed to analogous cases involving municipalities which indicated that there was no duty upon a municipality to erect, maintain, or replace a missing stop sign at an intersection.   Although the court acknowledged that the defendant community association was not a municipality, the court felt that the municipality cases were indeed analogous and noted that, if a municipality has no obligation to erect, maintain, or repair stop signs, then, for the same reasons, a private road owner likewise did not have that obligation.

Therefore, a private association that maintains its own private roads, is under no duty to erect traffic control signs, including stop signs, or to repair or replace them, even if they know they are missing.

Thanks to Hillary Ladov for her contribution to this post.

Denial of Summary Judgment Motion on Undefined Policy Term did not Preclude Litigating the Term at Trial

In Windows v. Erie Ins. Exch., homeowners claimed coverage under their policy after raw sewage entered their home.  The insurance company denied coverage based on a water damage exclusion that stated there was no coverage for damage caused by “water or sewage which backs up through the sewers and drains”.  After the denial, the homeowners commenced the instant action.

Ultimately, the insurance company filed for summary judgment seeking a declaration of no coverage based on the exclusion.  The trial court denied the insurer’s motion on the basis that “backs up” was not defined.  The insurer then filed a motion in limine seeking a ruling that the law of the case did not apply, and it should not be precluded from presenting evidence of its coverage defenses, i.e. the water damage exclusion barred coverage under the policy.  The trial court also denied this motion stating the previous summary judgment order had already concluded that the water damage exclusion could not preclude coverage for the homeowners’ instant claim.  As such, the denial of summary judgment established the law of the case.

On appeal, the Superior Court reasoned that while the policy term “backs up” was ambiguous, and the trial court had correctly denied the insurer’s motion for summary judgment, the trial court had erred nonetheless by reading into the denial of summary judgment the legal conclusion that the insurer was precluded from further litigating the water damage exclusion.  As such, the case was remanded.

Accordingly, this case stands for the proposition that a denial of a summary judgment does not mean an insurer will be precluded from continuing to litigate its position that coverage does not apply, regardless of whether its reasons for disclaimer were included in a previously denied motion for summary judgment.

Thanks to Colleen Hayes for her contribution to this post.

 

 

 

 

 

 

 

Financial Advisor Owed No Fiduciary Duty (PA)

The Pennsylvania Supreme Court recently considered whether a fiduciary duty arises when a person with superior knowledge advises another with respect to financial products. In Yenchi v. Ameriprise Financial, Inc., the court found no fiduciary duty where the clients made the ultimate investment decisions in the absence of a traditional controlling and overmastering relationship.

Bryan Holland made an unsolicited cold call to Eugene and Roth Yenchi in 1995, asking to meet them regarding their “financial stuff”. At the initial meeting, Yenchi informed Holland that he had a long term disability policy, which Holland later reviewed and asked Yenchi to keep because he couldn’t offer a comparable product.

Subsequently, Holland presented the Yenchis with a financial management proposal, which contained a notice that it had been prepared by “your American Express financial advisor” (Holland) and that “at your request, your American Express financial advisor can recommend products distributed by American Express Financial Advisors and its affiliates as investment alternatives for existing securities.” The Proposal offered the Yenchis a number of general recommendations, including that they monitor monthly expenses, consolidate their debt, consider various savings plans, consolidate current life insurance policies into one policy, review long-term care coverage, keep accurate records for tax purposes (medical expenses and charitable contributions), transfer 401(k) funds into mutual funds, and continue estate planning with an attorney and their financial advisor. The Yenchis implemented some of these recommendations, saving money in an investment certificate and opening an IRA account.

Additionally, the Yenchis purchased a whole life insurance policy with an initial death benefit of $100,000 plus a $25,000 rider for Ms. Yenchi, paying for it by cashing out Yenchi’s five MetLife policies to make the initial payment. In 1997, Ms. Yenchi used the proceeds from her two MetLife policies to purchase a deferred variable annuity. In 1998, Holland proposed that Yenchis increase their coverage to $300,000 but they rejected Holland’s advice.

In 2000, the Yenchis had their portfolio independently reviewed and were advised that their financial portfolio was not as Holland represented- the 1996 policy was underfunded, destined to lapse and additional premium rates would have to be paid over time. Additionally, Ms. Yenchi’s deferred variable annuity would not mature until 2025 when she was eight-four.

The Yenchis initiated suit in April 2001 against American Express and Holland, alleging claims of negligence/willful disregard, fraudulent misrepresentation, violation of the Uniform Trade Practices and Consumer Protection Law (“UTPCPL”), 73 P.S. §§ 201-1-201-9.3, bad faith, negligent supervision, and breach of fiduciary duty. Among other things, the Yenchis claimed that a confidential relationship existed with Holland because he held a “vastly superior” position in terms of knowledge- highlighting that they were only high school educated while Holland is college educated with a CPA and securities and insurance licenses.

The Supreme Court of the Western District robustly analyzed the different scenarios in which a fiduciary relationship could be created- specifically requiring a relationship of confidence in which the client cedes decision-making control to the other party. Conversely, even where special vulnerabilities exist, this Court has not recognized the existence of a confidential relationship if the person continued to act on his or her own behalf and did not succumb to “overmastering influence” of another.

The Court concluded that the record fell short of establishing a fiduciary relationship with Holland because fiduciary duties “do not arise merely because one party relies on and pays for the specialized skill of the other party. Its just not enough. The superior knowledge or expertise does not impose a fiduciary duty or otherwise convert an arms length transaction into a confidential relationship. “[T]he critical question is whether the relationship goes beyond mere reliance on superior skill, and into a relationship characterized by ‘overmastering influence’ on one side or ‘weakness, dependence, or trust, justifiably reposed’ on the other side,” which results in the effective ceding of control over decision -making by the party whose property is being taken. The court concluded that the case at bar presets an arms length transaction in which the Yenchis accepted Holland’s advice with respect to the purchase of the policy and decided to reject other products.

Thanks to Sathima Jones for her contribution.

For more information, contact Denise Fontana Ricci at dricci@wcmlaw.com.

 

WCM Is Pleased to Announce That Colleen Hayes Has Been Promoted to Counsel.

Effective July 1, 2017, WCM is pleased to announce that Colleen Hayes has been promoted to the rank of counsel. Colleen, who is based in WCM’s Philadelphia office, focuses her practice on commercial work and specifically insurance contract interpretation and coverage and bad faith litigation. Colleen joined WCM after her 2011 graduation from Villanova University School of Law where she graduated magna cum laude and was elected to the Order of the Coif. She is also a cum laude graduate of Villanova University where she received a B.A. in Psychology. Colleen is barred in New Jersey and Pennsylvania (with a pending admission in New York). She was recently elected to the Executive Committee of the Philadelphia Association of Defense Counsel.