Allstate takes a former adjuster to court

In Allstate Insurance Company v. Warns, No. CCB 11-1846 (D. Md. Feb. 29, 2012), Allstate brought suit against one of its former adjusters who left the company and a short time later was hired by a plaintiffs' law firm with litigation pending against Allstate insureds.  This opinion, which denied most of the defendant's dispositive motions, marks the conclusion of an initial skirmish in what promises to be a quite a battle.

The defendant adjuster had worked for Allstate for 33 years, and for at least the last five years of that allegedly had handled only lead paint poisoning cases.  About a month after her resignation, she started working for a plaintiffs' law firm which specializes in lead paint cases.  Allstate alleged in its lawsuit that the adjuster removed confidential information from the company before she left, and that 68 new lead paint cases had been filed against Allstate's insureds in the year following the adjuster's departure. 

Represented by the law firm  of SNR Denton, Allstate in its complaint alleged breach of fiduciary duty, and breach of contract based on the language in Allstate's Code of Ethics.  Allstate sought compensatory and punitive damages, as well as injunctive relief, including an injunction ordering the adjuster to cease working for the plaintiffs' law firm or any other attorney representing plaintiffs in lead paint litigation.

The adjuster filed a motion to dismiss or for summary judgment, denying all the allegations, and averring that at the plaintiffs' law firm, she only works on cases in which Allstate does not provide insurance coverage for the defendant.

The Court granted the motion for summary judgment on the punitive damages claims, and denied the motion as to all other claims.

Concerning the breach of fiduciary duty claim, the Court stated that although there is no authority which expressly creates an independent cause of action for a breach of the duty not to misappropriate or disclose confidential information after the termination of the employment relationship, the weight of authority in both Maryland and other states suggests that such a cause of action may lie.  However, the Court observed that under the leading Maryland precedent, Kann v. Kann, 690 A.2d 509, 521 (Md. 1997), and its progeny, courts have limited independent causes of action for breach of fiduciary duty to those seeking equitable relief.  Thus, as a result of a successful common law breach of fiduciary duty, Allstate may be given injunctive relief, but punitive damages are not available, and any claim for compensatory damages will have to be supported by a successful breach of contract action.

The Court recognized, but did not reach, the issue whether the Maryland Uniform Trade Secrets Act (MUTSA) preempts at least some common law claims for breach of fiduciary duty, as it is the exclusive remedy for civil claims based on misappropriation of trade secrets. 

The Court found that there were enough factual allegations concerning the Allstate Code of Ethics for the breach of contract claim to survive the defendant's dispositive motion at this stage of the proceedings.  However, the Court pointedly observed that there was no allegation that the defendant adjuster had ever signed the Code of Ethics or that the Code of Ethics had been incorporated by reference into a contract of employment.

Finally, the Court denied Allstate's motion for a preliminary injunction, and denied Allstate's motion to place record materials under seal since redaction provides sufficient protection.

Impact: As a result of this lawsuit, Plaintiffs' law firms will likely be a little more cautious about hiring former insurance adjusters.  Insurers, for their part, may take a look at their employment contracts to tighten up the restrictive convenants. 

A plaintiffs' lawyer, Ron Miller, Esq., has an interesting take on this case on the Maryland Injury Lawyer Blog.

Maryland Court of Appeals explains how to analyze possible prejudice from error in civil jury instructions

In Barksdale v. Wilkowsky, ___ A.3d ____ (Md. May 23, 2011), the Maryland Court of Appeals reversed a defense verdict in a Baltimore City lead paint poisoning case, due to prejudicial error in the jury instructions.  In doing so, the Court reviewed Maryland law as to when an error in jury instructions is reversible error, and when it is harmless error. 

In the lead paint poisoning trial, the trial court gave an instruction regarding the joint responsibilities of landlords and tenants in keeping the property in good condition. This instruction was essentially the reading of a provision in the Baltimore City Housing Code.  The Court found that this instruction was error, because neither the plaintiff's contributory negligence nor negligence of her family members were at issue in the case.  The Court of Appeals found that this instruction was prejudicial, because it may have permitted the jury to speculate, or may have precluded a finding of liability where it was otherwise appropriate.

The Court of Appeals found that the jury instruction as to the occupant's duty to keep the dwelling in a clean and sanitary provision had no relevance to the issues at trial.  The plaintiff was a child when she lived in the dwelling, and whether or not her grandmother kept the house clean was irrelevant.  Under Maryland law, negligent acts of a parent cannot be imputed to a child, and such negligent acts that merely contribute to an injury do not necessarily rise to the level of a superseding cause.

Although there are a limited number of circumstances where prejudice is presumed, ordinarily a party in a civil case complaining of an erroneous jury instruction must show prejudice.  It is not enough, in those circumstances, to show that prejudice was possible; rather, the appellant must show that prejudice was probable.  Erroneous jury instructions which are misleading, distracting, or which permit the jury to speculate as to improper issues which are dispositive, are prejudicial.  The appellant can meet its burden of showing prejudice by showing the nature of the erroneous instruction and its relation to the issues in the case.  Based on that, the reviewing court can weigh the "materiality of the error and the potential that it poisoned the jury deliberations."

The Court of Appeals further stated that consideration of the following four factors, borrowed from a California case, are "helpful":

(1) the degree of conflict in the evidence on critical issues; (2) whether respondent's argument to the jury may have contributed to the instruction's misleading effect; (3) whether the jury requested a rereading of the erroneous instruction or of related evidence; . . . and [4] the effect of other instructions in remedying the error.

 In the case at bar, the Court of Appeals found that the error touched the heart of the litigation, and that it could not be sure that the erroneous instructions were "cured" by the correct instructions when both were presented to the jury as equals.  The Court found that the appellant carried her burden of showing prejudice.

This decision is now one of the crucial authorities to consider when analyzing the strength of an appeal based on an erroneous civil jury instruction.




D.C. Landlord's Liability for Lead-Based Paint Poisoning Expanded By Court of Appeals

The D.C. Court of Appeals has held that a landlord can be sued in negligence for lead-based paint poisoning of a child even if the landlord had no notice of the presence of lead-based paint on the premises, or notice of the presence of chipping, flaking or peeling paint --  provided that the landlord knew that a child under the age of 8 years old lived there. Childs v. Purll.

The Court based its decision on a D.C. regulation which creates an affirmative duty on the landlord to remediate lead paint hazards in an apartment where such young children live.

The Court stated, in pertinent part, as follows:

Although the Purlls and their management company may not have known there was lead paint in the premises, “actual knowledge [of the defect] is not required for liability; it is enough if, in the exercise of reasonable care, appellee[s] should have known that the condition . . . violated the standards of the Housing Code.” Whetzel, 108 U.S. App. D.C. at 393, 282 F.2d at 951. “Ordinarily, the landlord will be chargeable with notice of conditions which existed prior to the time that the tenant takes possession,” RESTATEMENT § 17.6 cmt. c, and the creation in § 707.3 of an affirmative duty to furnish lead-free premises implies a concomitant, antecedent duty to ascertain whether the premises in fact are lead-free.

Upon notification that the prospective tenants of 1411 Ridge Place would include children under eight years of age, § 707.3 imposed a specific, affirmative duty on the owners and their agents to provide those premises to the Childs family in a lead-free condition or not at all.

(footnotes omitted, emphasis added).

In this case, the landlord was notified of the age of the children in the lease agreement.

Citing a New York case, the Court further stated that, " In effect, § 707.3 presumptively serves to put the landlord on constructive notice of any lead paint hazard in premises occupied by children under eight."

One way to try to defend against the statutory presumption of negligence is to show that the landlord did all that all reasonable person would do to establish that the premises were free of lead paint and to comply with the regulation.

This is a major expansion of the liability of landlords for lead-based paint poisoning in the District of Columbia, in the same vein as recent lead poisoning cases in Maryland

The end result is that any child under 8 years old in the District of Columbia who sustains lead-based paint poisoning in an apartment has a cognizable cause of action in negligence against the landlord, even if the landlord had no knowledge that there was lead-based paint on the premises and had no knowledge that there was flaking, peeling, or chipping paint there.  The focus of lead poisoning litigation in the District will necessarily be on the proof that the child got the lead poisoning on the premises, rather than from other sources such as the municipal water system.

The Court's opinion, however, rejected the argument that a lead poisoning claim could be the basis for a claim under the D.C. Consumer Protection Act.

Maryland Court of Appeals Determines Number of Claims Under An LPL Policy

If a grandmother retains an attorney to represent five minor children (who are brothers and sisters) with respect to lead-based paint poisoning, sustained while residing in the same rental property, and the attorney files a single complaint, presenting all of the claims in a single consolidated action, and later the attorney's alleged negligence in preparing the cases results in summary judgment in favor of the landlord, is the attorney's insurance coverage under his LPL policy the single limit (because the claims are related), or the aggregate limit?

It is difficult to see how the claims would not be "related" under these circumstances, given that it was joint representation by a single attorney in a consolidated lawsuit against a single defendant, the landlord; and given that the facts as to the presence of peeling or flaking lead paint in the premises would have been common to all the cases. In other words, the evidence as to liability would in large part have been common for all the children. Further, there was probably a joint retainer agreement, and the costs of the litigation would no doubt have been prorated among the minor plaintiffs.

Nevertheless, the Maryland Court of Appeals has held that these claims are not "related", and that the aggregate limit of liability under the LPL policy applies.

In Beale v. American Nat. Lawyers Ins. Reciprocal, No. 87, Sept. Term, 2002 (Md. Feb. 19, 2004), the Court held that where an attorney represented multiple clients in a tort action, a malpractice insurance provision which defines the per claim limit of liability as "all damages arising out of the same, related, or continuing Professional Services without regard to the number of claims made, demands, suits proceedings, claimants, or Persons Insured involved," the aggregate limit of liability applies, and not the limit for a single claim.

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Maryland Court of Appeals Holds That Plaintiffs In Lead-Based Paint Poisoning Suits Need Not Prove Common Law Notice Requirement To Establish Prima Facie Negligence Case Against Landlord

Baltimore landlords, grab your paint brushes!

In Brooks v. Lewin Realty III, Inc., (Md. Nov. 13, 2003), the Maryland Court of Appeals held that in the context of a tort action against a Baltimore City landlord, based upon a child’s consumption of lead-based paint which was present in the form of flaking, loose, or peeling paint in the leased premises, in violation of the Housing Code, the plaintiff does not have to show that the landlord had notice of the violation to establish a prima facie case. This ruling overturned prior Maryland precedent to the contrary.

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Suit Against Paint Manufacturers Dismissed

Dee McAree of the National Law Journal reports about the dismissal of an Illinois suit against 12 paint manufacturers seeking damages for the cost of treatment and clean up of lead-based paint.

Meanwhile, starting on Oct. 21, 2003, all paint sold in the U.S. will carry warnings about the dangers of lead-based paint.

By the way, next week is National Lead Poisoning Prevention Week, as I learned on the Coalition to End Childhood Lead Poisoning website. The Coalition is a Maryland-based organization. A similar national organization is The Alliance for Healthy Homes.

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