Author Archives: unknown

McReynolds v. American Commerce Insurance Co. (CA1 7/13/10)

Posted on by

Insurance lawyers will be writing to their companies about this one. It concerns the handling of multiple claims in excess of the policy limits.

ACIC’s insured caused an accident that injured McReynolds. The policy limit was $25,000. His claim was big; even his hospital lien was over $40,000. ACIC tendered the limit but he rejected it because ACIC put the hospital’s name on the check.  He sued the insured and made an OJ for the policy limit; ACIC provided a defense and responded to the OJ with an interpleader naming McReynolds, the hospital, and AHCCCS. When the hospital released its lien and AHCCCS defaulted, the interpleader was dismissed. McReynolds obtained an excess verdict at trial (over $400,000), took an assignment of the insured’s rights, and sued ACIC for bad faith based on its failure to accept the OJ.

The trial court granted summary judgment for ACIC; the Court of Appeals affirms.

McReynolds argued that ACIC should have “managed” its policy limit by settling his claim, leaving its insured exposed only to the much-smaller hospital lien. The court disagrees, holding that when an insurer is faced with multiple claims in excess of the policy limit its obligation is satisfied by promptly and in good faith interpleading its limits, so long as it also provides its insured a defense. The court specifically recognizes the victim’s claim and the medical liens as separate claims.

The court rejects other theories for paying multiple claims. The “first-in-time” rule doesn’t apply here because McReynolds’ injury and medical bills were at the same time. Courts that had said its a jury question for a bad-faith action didn’t address the interpleader angle.

“Promptly” means, when there is an OJ,  within the time for responding to it. In so holding the court clarifies that Rules 6(a) (last day on a Sunday/holiday) and 6(e) (extra days for mail) apply to responses to OJs.

And “good faith?” What a bad-faith interpleader would be is not explained. The court proudly says that its holding creates a “safe harbor”; our courts have once again produced a “safe harbor” with uncharted rocks and shoals.

The opinion also requires that the carrier actually pay the money into court. Rule 22 doesn’t require doing so until the time of discharge (and it is easier for all concerned that money never actually pass through the court’s hands); why the rule is different for insurance carriers is also unexplained.

The court regards this as an issue of first impression but the impression for years has been that interpleader is the safe thing for a carrier to do in this situation. The case will in any event be cited for the interpleader as “safe harbor”idea and its rules for getting there.

That’s unfortunate because the court comments, albeit very much in passing, on the other side of the coin. It quotes and agrees with a Kansas case that interpleader is but one of at least three ways of dealing with the situation: alert all claimants and get mutual agreement; pay the claims as they come (though this opinion has already thrown doubt on that); or interplead the policy limit.

A climate in which carriers probably must file interpleaders and claimants must file lawsuits to trigger them – which this opinion could further – is not necessarily good for either. McReynolds’ argument was legally wrong but hardly unreasonable; ACIC would have greatly reduced its insured’s exposure by paying him. What if it had? How is it bad faith to settle a $400,000 claim and expose the insured to only $40,000? What if one claim were 20 or 30 or 50 times larger than the other rather than merely 10? Interpleader should be for the tough calls. Carriers are already afraid that if they can’t settle with everyone – including every passenger and passerby and person who hasn’t made a claim yet but might someday –  then they can’t settle with anyone. That causes delayed compensation and higher claims costs even when the company knows perfectly well that one claim is huge and the others are peanuts. The attitude that making no decision is safest hardly needs to be reinforced; instead, carriers should be assured that they may settle multiple claims in objectively reasonable ways even if that exhausts the policy. That not paying claims need be a safe-harbor is a sign that not all is well in bad-faith land.

(link to opinion)

Clusiau v. Clusiau Enterprises (CA1 7/8/10)

Posted on by

This opinion concerns the preclusive effect of a small-claims judgment.

Clusiau’s uncle arranged to have his company, Clusiau Enterprises (CEI), make monthly payments of $350 to her for life. When CEI stopped paying she sued it for breach of contract in the small claims division of the Justice Court. Neither party had counsel. Clusiau won. Apparently, she collected that judgment but then CEI stopped paying again. She sued again (and the case moved to Superior Court because of a counterclaim not at issue on appeal). Clusiau argued that CEI was collaterally estopped by the first judgment. The trial court agreed and gave her summary judgment on liability.

The question on appeal was whether in the first case CEI had a “full and fair opportunity and motive to litigate the issue.” If it did, collateral estoppel would apply. Restatement (Second) of Judgments §28 says that the lack of a right to appeal, “differences in the quality or extensiveness of the procedures followed in the two courts,” and jurisdictional issues can be factors in this.

The opinion holds that the first judgment did not collaterally estop CEI. It reviews the reasons why small-claims courts are not like others: there is no appeal; there is no jury; hearing officers need have only minimal qualifications; there are no attorneys or motions, nor any discovery; the rules of procedure and evidence don’t apply.

In addition, the small claims division had jurisdiction over only seven month’s worth of Clusiau’s payments; to give its judgment preclusive effect would effectively expand its jurisdiction.

Clusiau argued that CEI could have hired a lawyer in the first case and moved out of small claims. But the court says that a litigant should not have to do that simply because more or bigger claims might be filed later.

A footnote mentions that this opinion applies only to small-claims cases won by the plaintiff; the issues may be different if the plaintiff loses.

This may sound like a no-brainer but the issue was the subject of some major bickering when the ALI was considering the present Restatement of Judgments. The Reporter originally didn’t think – nor did many of the law professors who make up the ALI – that, other than the lack of a right to appeal, the circumstances of the first case should make much difference. They gave some ground on that but the illustrations, cited in this opinion, mostly reflect their views: a court with a $500 jurisdictional limit and no rules shouldn’t have preclusive effect but a property-damage judgment in a $2000 court with “substantially” standard rules can – even on an unrelated, multimillion-dollar, personal-injury case. The real-world decisions that real-world clients have to make in real-world cases are generally not things that the folks in the ivory towers care to spend much time knowing or thinking about.

(link to opinion)

Johnson v. State of Arizona (7/8/10)

Posted on by

This vacates a Court of Appeals opinion we blogged here. The Supreme Court agrees with the result and most of the reasoning but has some different thing to say about the admissibility of remedial measures under Rule 407.

Johnson’s husband, driving on Highway 60, was killed when he hit a truck near an intersection. After the accident the State coincidentally put up a warning sign; it didn’t know there had been an accident. Johnson wanted to present evidence of this at trial. She argued that remedial measures – to be truly “remedial” and therefore excluded by the rule – must be made in response to a specific event. She also argued that the evidence was admissible under the “other purpose” exception in the rule. The trial court disagreed. She lost at trial and appealed. The Court of Appeals affirmed.

The Supreme Court agrees that Rule 407 does not expressly, nor does the word “remedial” impliedly, require knowledge of an accident. And requiring knowledge could discourage people from improving risks that might have caused accidents they didn’t know about.

As to the “another purpose” argument, Johnson’s other purpose was to rebut the State’s claims that there was nothing wrong with the intersection and that the decedent was negligent. But the “mere fact that a defendant denies fault and alleges comparative negligence does not, alone, justify the admission of subsequent measure evidence for impeachment purposes.”

Remedial-measures evidence can come in, however, to rebut evidence “that, if left uncontroverted, would create an unfair advantage or misleading impression for the other party who seeks to exclude any evidence of subsequent measures.” So, for example, it would have been admissible had the State claimed that signs couldn’t be put in, or that the roadway was as safe as it could possibly be, etc. But the State hadn’t said that. Allowing evidence of the signage would not have impeached impeached anything it did say except its basic position that the roadway was reasonably safe – and the latter is what the rule prevents.

The Court of Appeals had indicated that the “another purpose” exception doesn’t apply if other evidence, not barred by 407, is available to serve the same purpose. The Supreme Court, in a footnote, rejects this but adds that the remedial-measure evidence could then be excluded under Rule 403 instead.

On the knowledge issue, the Supreme Court avoids some analytical confusions in the Court of Appeals’ opinion but the take-away is not much different. The “unfair or misleading” exception to Rule 407 is a new wrinkle, though.

Stylistically, we applaud the court’s decision to mention the standard of review briefly and where necessary (although we would still argue that it isn’t really necessary) rather than in a boilerplate paragraph. The statement of jurisdiction, though even less necessary, is at least brief. This is not at all a bad opinion coming from a Justice whose prose style has not historically been his strong point.

 

(link to opinion)