Statutory waiver of insurer's late notice defense in Virginia

I've previously posted about Va. Code § 38.2-2226, which states that in order to disclaim coverage based on an insured’s breach of a policy condition, an insurer has to give notice to the claimant or claimant’s counsel within 45 days after discovery by the insurer of the breach of the condition. Failure to give such notice within 45 days will result in a statutory waiver of the defense. 

The importance of compliance with this statute cannot be overstated in a Virginia claim involving a potential late notice defense. 45 days has a way of slipping past.

This same statute came up in a relatively recent decision from the Virginia Supreme Court, Dabney v. Augusta Mutual Insurance Co., which is discussed here.

The Dabney opinion was also usefully discussed in Zalma on Insurance, from a different perspective. 

Plaintiff's bankruptcy filing may create defenses in civil litigation

A search should be conducted early in every case to determine if the plaintiff has filed for bankrtupcy. There are a number of good reasons to do so.

DRI published a recent article on its website concerning the defense of judicial estoppel arising from the plaintiff's failure to disclose his or her claim as an asset in the bankruptcy proceedings.  There is quite a bit of case law on judicial estoppel arising from bankruptcy. 

Another way in which bankruptcy proceedings can negatively impact a plaintiff's suit was recently illustrated by the case of Kocher v. Campbell, a decision of the Virginia Supreme Court that came out last June.  In Kocher, the Court considered the issue whether the plaintiff in an action to recover damages for personal injuries had standing to maintain his action after filing a petition for bankruptcy, causing his claim to become an asset of his bankruptcy estate.  The Court held that the plaintiff lacked standing, and dismissed the case.

The plaintiff was involved in a motor vehicle accident, and before filing a lawsuit the plaintiff filed a voluntary Chapter 7 petition in bankruptcy.  His petition failed to disclose his personal injury claim as an asset in Schedule B, and failed to list it on Schedule C as an exempt property.  About three months later, plaintiff received a standard discharge in bankruptcy.

The plaintiff then filed his civil action based on the motor vehicle accident.  This was nonsuited then refiled and served.  The defense filed a motion for summary judgment on the grounds that the plaintiff lacked standing to bring the action.  During the hearing on the motion, the plaintiff nonsuited the action again.

The plaintiff then persuaded the bankruptcy trustee to file a motion in bankruptcy court to reopen his bankruptcy case, which was granted.  Then the plaintiff obtained leave to file amended schedules, listing the personal injury action and claiming it as exempt property.  The bankruptcy court ruled that the plaintiff had properly exempted the cause of action.

Next, the plaintiff filed his civil suit for the third time. The defense again moved for summary judgment, asserting the lack of standing and the statute of limitations.  The trial court denied the motion, but certified the issue for an interlocutory appeal pursuant to a Virginia statute, and the Virginia Supreme Court awarded the defendant an appeal.

The Virginia Supreme Court reversed, holding that the action was a nullity at the time of its filing and the statute of limitations had run before it was refiled the third time, and dismissed the case.

The Court reasoned first that as a result of the plaintiff's filing a petition for bankruptcy, his inchoate personal injury claim passed to his bankruptcy estate.  Thereafter, the cause of action was one that could only be asserted by the trustee in bankruptcy, unless and until it was restored to the plaintiff by the bankruptcy court.  Here, the cause of action remained a part of the bankruptcy estate until the bankruptcy court ordered it exempted over five years after the motor vehicle accident.  All three complaints were filed during the period when the plaintiff lacked standing to assert the cause of action because it remained in the bankruptcy estate, enforceable only by the trustee. 

The Court rejected the plaintiff's argument that the final order closing the reopened bankruptcy case had the effect of abandoning all property remaining in the estate, and that abandonment causes the abandoned property to revert back to the debtor retroactively, as if the bankruptcy had never occurred.  The Court reasoned that the exemption that preceded the final order had already removed the plaintiff's cause of action from the bankruptcy estate.  Second, under Virginia law concerning standing, an action filed by a party who lacks standing is a legal nullity.  Standing acquired after the statute of limitations has run cannot be retroactively applied to cure the lack of standing that existed when the action was filed.

How a similar scenario would play out in other States would depend on the State law where the action is pending.  The most important step, however, is to run the search, and find out whether there has been a bankruptcy filing. 

Trouble and how not to meet it: Landrum v. Chippenham and Johnston-Willis Hospitals

As a young associate, I once read an ABA pamphlet on how to manage a law practice, and one of the recommendations was to have a regular meeting of all attorneys, at which one of the agenda items would always be "trouble and how to meet it."   The idea is that usually you can see trouble coming at you from down the road, and that's precisely when an attorney needs the collective wisdom and experience of the firm.  Trouble and how NOT to meet it is illustrated by the recent decision of the Virginia Supreme Court in Landrum v. Chippenham and Johnston-Willis Hospitals, Inc.

Landrum was a Virginia medical malpractice case in which the plaintiff was represented by an out-of-state counsel from Missouri, with Virginia local counsel.  The Virginia Supreme Court affirmed the trial court's exclusion of the plaintiff's expert witness designations for failure to have them signed by local counsel, and the summary judgment in favor of the defense based on the plaintiff's lack of expert testimony.

The trouble was coming down the road for a couple months before the end.  Plaintiff's intial effort at expert witness designations failed to state the substance of the facts and opinions to which the experts were expected to testify and a summary of the grounds for each opinion.  The defense moved to exclude the expert witnesses and for summary judgment.

Plaintiff then attempted to cure the deficiency by providing the expert witnesses' reports, but failed to supplement the designation.

There was a hearing before the Circuit Court on the defense motions, in which the Court warned:

THE COURT: . . . I will give you seven days from today, and I'm going to give you a time that you file your answer to these interrogatories and you file a copy of it in the clerk's office and you do it in the proper manner. I'm not going to sit here and lecture how you're supposed to do it.
. . . .
I will tell you, sir, if you fail to do that, I will dismiss the case after that.

Plaintiff's next effort at filing an expert witness designation also did not comply with the Virginia Rules, as it was not signed by Plaintiff's local counsel, and the defense again moved to exclude the plaintiff's expert witnesses and for summary judgment.

This time, the trial court granted the motions, and dismissed the case with prejudice. 

About two full months passed between the first effort at filing expert witness designations, and the last.  The trial judge gave the plaintiff a week to file a compliant expert witness designation, after delivering a clear warning to comply with the Virginia Rules.  There was time to reread the Virginia Rules, and conference with Virginia counsel. 

Unfortunately, this was a very harsh result in a medical malpractice case, and the Virginia Supreme Court granted an appeal -- a rare and golden opportunity for claim repair.  However, as noted here, plaintiff failed to comply fully with the Virginia appellate rules as well, and the appeal did not go well.  Now it is big trouble.

The reason why in Virginia, local counsel must sign all the pleadings, is that being local counsel in Virginia is not regarded as a pro forma responsibility.    As the Virginia Supreme Court has stated:

The purpose of the Rule is to facilitate the efficient administration of court business by permitting a court to deal exclusively with local counsel, upon whom all notices and processes may be served. It is necessary that our courts have access to attorneys of record who are personally subject to their supervisory control rather than risk delays in communicating with foreign attorneys who may be inaccessible, uncooperative or unfamiliar with the rules and statutes governing the trial of cases in Virginia.

Ortiz v. Barrett, 278 S.E.2d 833 (Va. 1981). 








Partial remittitur of $6.227 million verdict in Virginia based in part on Facebook spoliation

A trial verdict of $6,227,000 to the decedent's husband in a wrongful death action arising from a truck accident in Virginia was challenged based in part on allegations of discovery violations related to the cleansing of the plaintiff's Facebook account of unflattering photographs.  The Virginia Lawyers Weekly blog has just updated the story, with an account of the trial court's post judgment decision reducing the verdict to $2.1 million in a 32 page order.

A few choice quotes from the order:

During the course of their discussion, Murray questioned how the Defendants had obtained the "1 [heart] .. hot moms photo." Smith said she thought the photo likely came from Facebook. Smith accessed Lester's Facebook page, and after seeing Facebook photo, Murray instructed Smith to tell Lester to "clean up" his Facebook because "we don't want blowups of this stuff at trial."

. . . .

Following Murray's instructions, Smith emailed Lester at 9:54 a.m. and 3:49 p.m. on March 26,2009. The first email requested information from Lester to answer the interrogatory seeking the identities ofthe individuals in the "I .. hot moms" photo. After informing Lester that the "I [heart] .. hot moms photo" was on his Facebook page, Smith stated there are "some other pics that should be deleted." The second email exhorted Lester to "clean up" his Facebook page because "we do NOT want blow ups of other pics at trial so please, please clean up your facebook and myspace!"

. . . .

Murray intentionally omitted from the Privilege Log and the Enhanced Privilege Log the March 26,2009,9.54 a.m. email from Smith to Lester and willfully failed to deliver it to the Court for in camera inspection. Murray concealed the email from the Court out offear that the Court would grant yet another continuance ofthe trial, scheduled to begin on December 7, 2010.

. . . .

After the trial, Murray furnished the March 26,2009,9:54 a.m. email to the Court on December 14, 2010. In his letter oftransmittal, Murray falsely represented to the Court that the omission of this now notorious email was caused by the mistake of a paralegal then employed by the Allen Firm, when, in fact, Murray knew his own misconduct caused the omission.

. . . .

92. Murray's conduct at trial included a number of actions designed to inflame the passions and play upon the sympathy of the jury. These actions include the following:
a. Weeping during opening statement and closing argument. b. Stating on two occasions to the jury, in one form or another, that defendant David Sprouse, the driver of the truck, "killed" the plaintiff;
. . .
c. Violating a pre-trial ruling from this Court by exclaiming in the jury's presence that the Defendants had asserted that Lester was contributorily negligent in causing his wife's death; . . .
d. Repeatedly invoking the name of God or religion by referring to the Plaintiff as one who attends church with his parents and by four times mentioning prayer. . . .
93. Significantly, with the exception of~ 92 c., above, at no time did defense counsel object to any of the above-described behavior

. . . .

Both Lester and Murray must be held accountable for the spoliation. Lester did what Murray told him to do, deliberately delete Facebook photos that were responsive to a pending discovery request. Defendants are entitled to sanctions against Murray and Lester for the spoliation that occurred on May 11,2009, as previously ordered.

. . . .

Contributing substantially to the jury's excessive verdict was Murray's actions geared toward inflaming the jury. As witnessed by the Court, and detailed in ~ 92 above, Murray, injected passion and prejudice into the trial, shouting objections and breaking into tears when addressing the jury. Most of Murray's actions in this respect were suffered without objections from defense counsel, who focused their defense upon the denial of liability (despite Defendant Sprouse's admission to having pled guilty to manslaughter in connection with the accident, . . . and upon aggressive, but obviously ineffectual, attacks upon Lester's credibility and character. This defense strategy produced the extreme opposite of its desired effect, serving to create additional passion and sympathy for Lester and anger towards the Defendants.

As a result, the trial court remitted $4,127,000 of the $6,227,000 awarded to the decedent's husband as beneficiary, leaving him with an award of $2,100,000, adjusted for interest, as beneficiary of his wife's estate.  The husband had also recevied a verdict for his own personal injuuries of $2,350,000, and the trial court stated that his award will stand without modification.   Thus, even after the remittur, the husband's total recovery was $4,450,000.   An award of $1,000,000 to the parents of the decedent was also not disturbed.

The trial court will hold another hearing as to the amount of sanctions to be assessed against the husband and his attorney, and stated that it will refer certain matters to the Virginia State Bar.

All in all, even after the remittitur, this was still a huge plaintiffs' verdict in Virginia.




Professional reading - recent blog posts of note

From the Electronic Discovery Law Blog, an interesting summary of a San Diego legal ethics opinion barring an attorney from making an ex parte "friend request" to a represented party. Seems to be common sense.

The Drug and Device Law Blog has a good discussion of recent Supreme Court decisions concerning personal jurisdiction in products liability cases based on stream of commerce. This is required reading.

While there, also catch their post about the status and rights of private insurers who are Medicare Advantage Organizations as secondary payers.

From the Blog of the Legal Times, we have an article about how Wilmer Cutler may or may not be facing a contingent claim of $214 million arising from a patent matter. One of the managing partners of that firm says no problemo. Move along folks, there's nothing to see here.

Brian Krebs has published a story about cutting-edge litigation relating to the liability of a bank to a commercial customer for fraudulent wire transfers from the business's account by cyber-criminals. Cyber fraud is a huge problem and it remains to be seen how legislatures and courts deal with it.

A DRI Today post provides a helpful checklist in The Top Ten Mistakes To Avoid When Preparing Coverage Opinions.

The Insurance Defense News blog has a report concerning a successful defense of a retail store in the E.D. of Virginia against the claims of a customer who banged her head on a shelf. It was an open and obvious condition, held Judge Ellis.

In a case described by the Maryland Court of Appeals as a procedural nightmare, the Court reviews the proper procedures for settling a wrongful death case.


Eastern District of Va. finds insurer has no duty to defend in Blackberry malpractice case

In Minnesota Lawyers Mutual Ins. Co. v. Antonelli, Terry, Stout & Kraus, LLP, No. 1:08-CV-1020 (E.D. Va. Nov. 18, 2010), the Court granted the insurer's motion for summary judgment concerning insurance coverage for the "Blackberry malpractice case."


In the "Blackberry malpractice case", which is pending in Florida, the plaintiffs claim that alleged breaches of duty by the defendant law firm and attorneys prevented them from receiving any share of the settlement of NTP's patent infringement claims against RIM concerning Blackberry wireless messaging technology. NTP's suit against RIM resulted in a $612.5 million settlement, and one of the defendant attorneys is alleged to have received $177 million of the NTP settlement proceeds.


In the coverage action, the Eastern District of Virginia based its ruling on the business enterprise exclusions in the policy, which relieved the insurer from its duty to defend the insureds in the underlying malpractice case.


Essentially, the Court found that the malpractice claims arose out of legal advice rendered by the insured attorneys; that the insured attorneys rendered these services in connection with the Telefind, Flatt Morris, and NTP enterprises; and that Flatt Morris and NTP were both owned, controlled, or managed by the Insureds. The damages alleged in the malpractice action resulted from a conflict of interest between the insureds and the plaintiffs, who claimed an interest in NTP, Telefind, and Flatt Morris. Therefore, the business enterprise exclusions applied.


There was also a Specific Entity Endorsement in the policy, excluding:

Any CLAIM resulting from any act, error or omission arising out of rendering or failing to render PROFESSIONAL SERVICES to or on behalf of the following individual(s), business enterprise(s) or organization(s): "NTP Incorporated"

However, and somewhat curiously, due to the ruling based on the business enterprise exclusions, the Court did not reach the issue whether the Specific Entity Endorsement barred coverage.


This coverage decision has been appealed to the 4th Circuit, which will be the second time the case has reached the 4th Circuit.


More background concerning this decision, and judicial interpretatioin of business enterprise exclusions in LPL policies, is available here.