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D.C. Court of Appeals clarifies the method to assign permanent partial disability awards

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Virginia Workers’ Compensation:  Injury After Clocking Out

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District of Columbia

D.C. Court of Appeals clarifies the method to assign permanent partial disability awards




            Like many other workers’ compensation statutes, the D.C. Workers’ Compensation Act [Act] provides a schedule setting forth the amount of benefits that may be awarded for the permanent disability of certain body members.  D.C. Code § 32-1508(3).  For example, the Act dictates that the loss of an arm results in an award of 234 weeks of compensation benefits.  Partial loss of use of the arm is compensable in a proportionate amount, i.e., a 10% permanent disability of the arm equates to 23.4 weeks of compensation benefits.  Thus, the schedule of disabilities may be seen as a legislative determination of the presumed occupational impact of these permanent disabilities, without requiring proof of actual lost wages in every case.  In contrast, permanent partial disability benefits for non-scheduled members are based upon actual wage loss.  Thus, compensation for injuries to the neck or back is payable at a rate of two-thirds the wage loss for up to 633 weeks.

            Over time, this simple statutory scheme was interpreted in ways that made it difficult to determine whether or not the claimant sustained a scheduled disability, and the extent of the disability sustained. For example, neck injuries frequently cause radiculopathy, i.e., nerve pain radiating down the arm. The courts held that the place of the impairment, not the place of injury, controls for purposes of determining disability. From there, it was argued that some injuries cause impairments in more than one place. In 1999, the Court of Appeals affirmed a decision awarding scheduled benefits for a disability of the arm, plus additional benefits for any wage loss that could be attributed to any “separate and distinct” disability of the shoulder resulting from the same shoulder injury. Morrison v. D.C. DOES, 736 A.2d 223 (D.C. 1991). This generated still more litigation over whether these separate awards should be paid consecutively, or together at the same time.

           The case of M.C. Dean, Inc. v. D.C. Dep’t of Emp’t Servs., 146 A.3d 67 (D.C. 2016) [Dean] provided a vehicle for the Court of Appeals to clarify how Administrative Law Judges should make permanent partial disability awards.  In Dean, the treating physician assigned a 27% whole body impairment as a result of the claimant’s neck and shoulder injuries.  The claimant’s attorney wrote to the physician, explaining that an impairment of the neck and shoulders would not be compensable under the Act because the claimant sustained no wage loss, and asked him to express the impairment as the equivalent impairment of the claimant’s arms.  The physician obliged, assigning a 31% impairment of the left upper extremity and a 16% impairment of the right upper extremity. The physician addressed the impairments of the neck, shoulders, arms, and hands all together, explaining that in his view, “the upper extremity begins at the base of the skull.” 

          The case proceeded to a formal hearing, and the ALJ ultimately assigned a 45% permanent partial disability to the right upper extremity, and a 30% permanent partial disability to the left upper extremity.  The medical impairment ratings were increased by the ALJ to account for the claimant’s testimony about his pain, weakness, and loss of endurance, as well as the impact the injuries had on his ability to engage in personal, social, and occupational activities like playing ball and shopping for groceries. The award amounted to over $130,000 in permanent partial disability benefits, even though the claimant had never sustained any actual wage loss on account of his neck and shoulder injuries. 

            The Court of Appeals identified two problems with this approach.  First, the impairment ratings of Claimant’s arms were assigned based on injuries to his neck and shoulders.  The Court recognized that without a clear line of demarcation, a claimant could choose to collect a scheduled loss award where there is no wage loss, and vice versa. The Court decided that a neck injury could not support an award for an impairment of the arm.  Noting that earlier decisions had held that the shoulder was not part of the arm, the Court remanded the case to the agency to consider whether or not this interpretation of the statute should be reconsidered and allow the arm to be equated with the upper extremity, and include the shoulder.

          The Court also held it was improper to award benefits based on the effect of the injury on the claimant’s ability to engage in personal or social activities.  These awards went beyond the scope of the Act, which is intended to compensate for lost earnings. The Court held that a disability rating should focus on loss of occupational capacity.  The economic disability rating may be different from the medical impairment rating, but any variance should be specifically explained by an analysis of how the impairment affects the ability to work, and not in the abstract.

          On remand from the Court of Appeals, the Compensation Review Board adopted the suggestion to make the shoulder part of the arm for purposes of permanent disability ratings and “jettisoned” the approach taken earlier in MorrisonLawson v M.C. Dean, CRB 14-056 (2017). Following the most recent edition of the AMA Guide, the Board held that entire upper extremity -from the shoulder to the hand- is the arm for purposes of assigning permanent partial disability benefits under the schedule. 

          The Board also rejected the recently emerging trend of ALJs awarding increased disability ratings to account for “personal, social and occupational factors” associated with the injury.  Henceforth, any variation from the medical impairment rating must be based on the statutory allowance for pain, weakness, atrophy, loss of endurance and loss of function, and then only to the extent it can be shown to have an identifiable nexus with the claimant’s wage earning capacity.

          Applying these new standards, Administrative Law Judge Roberson rejected the opinion supplied by Dr. Moskovitz and reduced the permanent partial disability to 12% of the left arm and 3% of the right arm due to the work injury.  This reduction, from a combined disability of 75%, resulted in giving Dean a credit of $148,141 to offset against any future indemnity awarded. Lawson v M.C. Dean, AHD 06-431E (Feb. 27, 2017).

          Dean should have a very favorable impact on future claims. Under this binding precedent, cervical radiculopathy should no longer support a claim for disability of the arm. By the same reasoning, back injuries should not result in a disability of the leg. Non-scheduled injuries will be compensated only on the basis of actual, demonstrated wage loss again. Shoulder injuries are now considered part of the arm, subject to the 234 week limitation on permanent partial disability benefits. And hip injuries should be compensated as part of the leg.

          Perhaps most importantly, ALJ’s will no longer be allowed to increase the disability over the medical impairment ratings to account for the alleged personal or social impact of the injury. Any increase in disability on account of occupational impairment based on the statutorily recognized factors of pain, weakness, atrophy, loss of endurance or function must be directly related to the claimant’s ability to work. This will reduce uncertainty and litigation, making workers’ compensation awards predictable again.

          To discuss the impact of the M.C. Dean case further, please call D. Stephenson Schwinn at 703-246-0900.

Posted by D. Stephenson Schwinn on 05/04/2017 at 07:38 PM
District of ColumbiaWorkers CompensationPermalink

Avoiding the Late Payment Penalty

Compensation awarded in an Order must be "paid within 10 days after it becomes due" or a statutorily mandated twenty-percent penalty shall be imposed. D.C. Code § 32-1515.

In Daly v. D.C. Dep't of Empl. Servs., 2015 D.C. App. LEXIS 359, 12-13 (D.C. Aug. 6, 2015), the Court held that payment becomes "due" within ten days of the employer/insurer receiving notice of either OWC's or the Hearings and Adjudication Section's order via certified mail or registered mail, return receipt requested, if that is the method on which the administrative agency decides to serve the party. The Court rejected Claimant’s argument that the ten-day time period began to run when the employer/insurer had "actual notice," i.e. when counsel forwarded a copy of the order via email.

In Orius Telcoms., Inc. v. D.C. Dep't of Empl. Servs., 857 A.2d 1061 (D.C. 2004), the Court held that the term "paid" in this context means money actually received, not the date payment was posted or mailed. Compensation must be received by the Claimant within ten days after the employer/insurer receives the Order to avoid the imposition of the penalty.

For further information concerning the defense of District of Columbia workers' compensation matters, call Jordan Coyne LLP Partner Steve Schwinn, at 703-246-0900.

Posted by D. Stephenson Schwinn on 09/08/2015 at 09:18 PM
District of ColumbiaWorkers CompensationPermalink

D.C. Workers Compensation Act Amended to Provide for Reversion of Third Party Claims

The District of Columbia Workers Compensation Act provides for an automatic assignment of the right to sue a third party to the employer if the person entitled to compensation does not file suit within six months after being awarded compensation in an order. D.C. Code § 32-1535(b). This provision had been applied to bar a worker from filing a civil action for damages against a third party tortfeasor more than six months after being awarded worker’s compensation benefits in an order, even if it operated to shorten the general three year statute of limitations for the worker to file suit. Cunningham v. George Hyman Constr. Co., 603 A.2d 446, 447 (D.C. 1992).

The District of Columbia Council recently amended the Act to allow for a reversion of the right to sue third party liable for the worker’s injury if the employer does not file suit against the third party within 90 days. D.C. Law 20-159, § 2. (Effective February 26, 2015). This amendment applies to causes of action for negligence for which the three-year statute of limitations [generally applicable to negligence claims] has not yet expired. Id. § 3. 

With this amendment, the Council modified the assignment provision to have the right to file suit against the tortfeasor revert back to the injured worker if his employer does not file suit within 90 days.  This change is akin to the Longhore and Harbor Workers’ Compensation Act 33 U.S.C. § 933(b) (1988), as amended by Pub. L. No. 98-426 § 21(a) (1984) ("If the employer fails to commence an action against such third person within ninety days after the cause of action is assigned under this section, the right to bring such action shall revert to the [employee].") and the Maryland Workers’ Compensation Act, where the worker’s right of action is assigned to the employer when the Commission awards compensation benefits, but it reverts back to the worker if suit is not filed within two months after the award. Md. Code, Labor and Employment § 9-902.

Posted by D. Stephenson Schwinn on 09/02/2015 at 01:59 PM
DefensesDistrict of ColumbiaWorkers CompensationPermalink

Federal court in D.C. rejects dramshop liability claims arising from off-premises fight

Partner Steve Schwinn, assisted by Raphael Cohen, of Jordan Coyne, LLP secured the dismissal of all claims against a District of Columbia nightclub owner seeking damages arising from the death of a graduate school student who became involved in a fight outside a fast food restaurant with three men who had been served alcohol at the nightclub down the street about an hour before.  U.S. District Court Judge Richard J. Leon held that the nightclub owner could not be liable for the death because it could not have been foreseen that the men would commit the assault upon the decedent.    

Plaintiffs alleged the men were served alcohol while obviously intoxicated, in violation of the Alcohol Beverages Control Act, and argued that the assault was foreseeable because intoxication often leads to irresponsible and criminal behavior.  The Court rejected the argument, finding that the death was caused by the intentional and unforeseeable acts of third parties that were too attenuated from the alleged negligence to support a claim. Recognizing that drinking establishments may be found negligent where a violation of the Act is a contributing cause of an accidental injury, Judge Leon explained that civil liability for the intervening criminal acts of others is extraordinary and requires a more heightened showing of foreseeability than that alleged by the plaintiffs.

 The case, Casey v. Ward, et al., Case No.: 13-1452 (D.D.C. 2015), will continue on the claims against the individuals involved in the fight, and the fast food restaurant where the altercation began.  For further information concerning this matter or any other similar matter, please call Steve Schwinn at 703-246-0900.

Copies of opinions in the case can be found here and here.

Posted by David B. Stratton on 05/15/2015 at 01:10 PM
DefensesDistrict of ColumbiaPermalink

D.C. Court of Appeals adopts the economic loss doctrine

In Aguilar v. RP MRP Washington Harbor, LLC __ A.3d __ (D.C. Sept. 4, 2014), the D.C. Court of Appeals considered the issue whether the District of Columbia will follow the majority of jurisdictions by adopting the "economic loss doctrine" which prohibits claims of negligence where a claimant seeks to recover purely economic loss sustained as a result of an interruption in commerce caused by a third party.  The Court held that it would adopt the economic loss doctrine.

The Plaintiffs had sued for lost wages that resulted from the closure of their workplaces due to a flood at the Washington Harbor retail complex.  That property has unique disappearing flood walls, which can be raised when the Potomac river threatens to flood.  The flood walls were negligently not raised during a river flood in April, 2011.  Plaintiffs claim that the defendant had adequate prior knowledge of the impending flood. 

The defendant moved to dismiss for failure to state a claim because the economic loss doctrine bars recovery of claims alleging solely economic loss stemming from a defendant's negligence.  The Plaintiffs argued that the economic loss doctrine does not apply in the District of Columbia.

The D.C. Court of Appeals held that the plaintiffs are precluded from pursuing a negligence action against appellants for recovery of lost wages, standing alone absent any other injury, by virtue of the economic loss doctrine.  The economic loss doctrine in the District of Columbia bars recovery of purely economic losses in negligence, subject to a limited exception where a "special relationship" exists.  What constitutes a special relationship is illustrated by the Court, which found no special relationship in this case because "there was no obligation on the part of [the defendant] to care for [plaintiffs'] economic well being."

The United States District Court for the District of Columbia had previously stated that the economic loss doctrine is a rule that prevents a party from alleging a tort claim, such as negligence or strict products liability, “‘where the only damage is to the product itself.’” Capital Motor Lines v. Detroit Diesel Corp., 799 F. Supp. 2d 11, 16 (D.D.C. 2011) (quoting Liberty Mut. Ins. Co. v. Equipment Corp. of America, 646 F. Supp. 2d 51, 56 (D.D.C. 2009) (internal citation omitted)). “Under the economic loss doctrine, a plaintiff [suing in tort] may not recover the ‘loss of value or use of the product itself, cost to repair or replace the product, or the lost profits resulting from the loss or use of the product.’” Capital Motor Lines, 799 F. Supp. 2d at 16 (quoting Potomac Plaza Terraces, Inc. v. QSC Products, Inc., 868 F. Supp. 346, 354 (D.D.C. 1994)(internal citations omitted)).  However, in Aguilar, the D.C. Court of Appeals rejected the argument that the application of the economic loss doctrine is limited to cases involving contract or products liability claims.

The economic loss doctrine thus has taken its place as one of the affirmative defenses to be considered in every case in the District of Columbia.

Posted by David B. Stratton on 10/13/2014 at 03:46 PM
DefensesDistrict of ColumbiaPermalink

Failure to issue reservation of rights letter does not waive per claim/per claimant deductible

We previously noted the decision in Cincinnati Insurance Co. v. All Plumbing, Inc., Civil Action No. 12-851 (D.D.C. Oct. 18, 2013)(Kollar-Kotelly, J.), where the Court held that Cincinnati Insurance's failure to properly reserve its rights and five-month delay in disclaiming coverage while controlling important actions in the insureds' defense precluded Cincinnati from asserting any defenses to coverage in the underlying junk fax class action.

In the same case, on August 18, 2014, the Court granted in part and denied in part a motion for reconsideration filed by the insurer.  Significantly, the Court found that the insurer's failure to properly reserve its rights in the underlying tort litigation does not prevent it from asserting the $1,000 deductible with regard to Coverage A under the Policy.

This was a significant victory for the insurer, given that the underlying litigation is a putative class action against the insured for sending unsolicited faxes to the plaintiff and others in violation of the Telephone Consumer Protection Act.  The TCPA provides a private right of action for violations and statutory damages in the amount of $500 for each violation and up to $1,500 for each willful violation. When applied to a large number of faxes in a class action, the damages in these cases can become large.  However, the $1,000 per claim, per claimant deductible mitigates the liability exposure for the insurer.

Coverage A under the Policy provided that a $1,000 deductible applies on a per claim, per claimant basis.  The insurer in its motion for reconsideration requested clarification that, despite the Court's conclusion that the insurer failed to properly reserve its rights in the underlying action, the $1,000 per claim, per claimant deductible still applies with regard to Coverage A. 

The Court agreed with the insurer.  The Court reasoned that a deductible is the portion of the loss to be borne by the insured before the insurer becomes liable for payment. The Court further reasoned that a deductible endorsement is not a coverage defense or exclusion; it is a means of shifting a portion of the risk from the insurer to the insured.  Even where, as here, an insurer assumes an insured's defense unconditionally, the insurer does not waive the deductible endorsement.  Among other authorities, the Court relied on Couch on Insurance for the proposition that "While the defense of the action by an insurer without reservation of rights as to its defense may constitute a waiver of the insurer's defenses, it does not rewrite the policy so as to remove the maximum on the coverage provided."

Posted by David B. Stratton on 08/25/2014 at 12:22 PM
District of ColumbiaInsurancePermalink

DC:  Legal malpractice verdict in favor of plaintiff reversed on appeal due to lack of privity

In Scott v. Burgin, No. 12-V-1474 (D.C. Aug. 14, 2014), the Court reversed a $255,000 jury award in a legal malpractice case against a divorce attorney.  The plaintiff was not a client of the defendant law firm, and consequently the Court held that the defendant's duty of care did not extend to the Plaintiff, and reversed the judgment.  In so doing, the Court refused to expand the third party beneficiary exception to the requirement of privity in a legal malpractice action.

The plaintiff's fiancé was a retired government employee, who was long separated from his first wife, but they had never gotten a divorce. 

The plaintiff and her fiancé had a long-standing relationship of over 25 years.  After the fiancé was diagnosed with terminal bone cancer, the plaintiff met with the defendant attorney to seek his help in getting the fiancé a divorce from his separated wife.  The attorney said he would help the fiancé, if the fiancé chose to retain him.  The fiancé wished to obtain a divorce so that he could marry the plaintiff.  Although he had previously designated the plaintiff as the beneficiary of his federal benefits, he was aware that the plaintiff might not receive them unless their were married.

A year passed before the fiancé met with the attorney.  Shortly thereafter, the fiancé signed a retainer agreement for the lawyer's representation in his divorce proceedings.

Unfortunately, the attorney did not serve the separated wife with the divorce complaint until November, 2007, about 11 months later.  The fiancé died in April, 2008, and a divorce was never secured prior to his death.

Afterwards, the federal government denied the plaintiff's claim for survival benefits under the Civil Service Retirement System, based on evidence showing that the earlier marriage was never terminated.

The plaintiff brought suit against the lawyer for legal malpractice and the related breach of contract as a third-party beneficiary, and the jury returned a verdict in favor of the plaintiff.

On appeal, the sole issue was whether the plaintiff lacked standing to sue for legal malpractice or breach of contract.

The Court held that the plaintiff did not have standing.  It was undisputed that the fiancé and the fiancé alone, was the lawyer's client.  In the District of Columbia, both contracting parties must intend a direct benefit which the third party can enforce against the promisor, for classic third-party beneficiary liability to exist.  Here, there was no real evidence that the attorney himself intended to incur any liability beyond that imposed by law as part of his duty of care.

The Court reaffirmed the general rule that the obligation of an attorney is to his client, and not to a third party.  The Court distinguished the recognized exception to that rule, where the impact upon the third party is not an indirect or collateral consequence, but the end and aim of the transaction.  The classic situation that meets that exception is the failure of an attorney to properly draft a will. 

Here, the anticipated divorce decree did not provide the same direct benefits to the plaintiff.  The Court stated that the fiancé of either party to a divorce is a complete stranger to the transaction, and the divorce does nothing to change that status.  The newly divorced person would have had to take at least one further action, that is, marry the plaintiff.  The Court noted that in the divorce proceedings, the pension rights at issue might have been the subject of controversy, since the separated wife had had four children in the marriage.

To permit the plaintiff's suit here would frustrate one of the primary goals of the privity rule, that is, avoiding exposure to the attorney to indeterminate liability to an indeterminate class of people.  It would also undermine the ability of the attorney and the client to exercise control over their contractual agreement.

Posted by Jordan Coyne LLP on 08/16/2014 at 07:36 PM
DefensesDistrict of ColumbiaLegal MalpracticePermalink

Expert witness ruling in District of Columbia cell phone litigation

“Can cell phones cause brain cancer?”  That is a fundamental issue in Murray v. Motorola, Case No. 2001 CA 008479 (Superior Court for the District of Columbia, Aug. 8, 2014), in which Judge Frederick H. Weisberg has issued a 76 page opinion, ruling on the defendants’ Dyas/Frye challenges to the admissibility of the plaintiffs’ expert witnesses.  Judge Weisberg, however, did not render an opinion on that causation issue.  Rather, his opinion focuses only on whether plaintiffs’ expert witnesses should be permitted to testify before the jury.

Under the Dyas/Frye test which is currently the law in the District of Columbia, the expert testimony is presumptively admissible if the subject is beyond the ken of an average layperson, the expert is qualified to offer an opinion on the subject, the expert uses a methodology that is generally applied in the relevant scientific community to arrive at his opinion, and the probative value of the expert’s testimony is not substantially outweighed by the risk of undue prejudice.

In December 2013 and January 2014, Judge Weisberg conducted an evidentiary hearing to determine the admissibility of plaintiffs’ experts, hearing four weeks of testimony from plaintiffs’ eight experts and defendants’ four rebuttal experts, receiving 280 exhibits containing thousands of pages of documents, and reviewed hundreds of pages of legal briefing.  At this stage of the litigation, the general causation question presented is whether the non-ionizing radiation from cell phones has a non-thermal effect that causes, promotes, or accelerates the growth of brain tumors, specifically gliomas and acoustic neuromas.

The opinion contains an in-depth discussion of the Dyas/Frye standard, which practitioners will find useful. 

Further, Judge Weisberg included a four page discussion of the differences between the Dyas/Frye standard adopted by the D.C. Court of Appeals, and the federal Daubert standard governing the admissibility of expert testimony.  The Court noted that “the scientific dispute in this case illustrates that the choice of one approach over the other can be outcome determinative.”  This discussion may ultimately set the stage for the D.C. Court of Appeals to undertake an en banc review of whether to adopt the Daubert standard.

Out of the eight experts for the Plaintiffs, the Court excluded the testimony of three completely:  Dr. Shira Kramer; Dr. Guatam Khurana; and Dr. Dimitris Panagopoulos.  The Court further ruled that the testimony of three of the Plaintiffs’ experts on general causation is not excluded:  Dr. Michael Kundi; Dr. Wilhelm Mosgoeller; and Dr. Abraham Liboff.  Finally, the remaining two Plaintiffs’ experts were only excluded in part:  Dr. Igor Belyaev; and Dr. Laura Plunkett.  Thus, the Plaintiffs’ case has apparently survived a knockout punch in this round of litigation, and the parties will now move on to conduct broader discovery on the general causation issue before proceeding to specific causation.

Judge Weisberg’s opinion makes it clear that, based on the present record, he thinks that the scientific evidence on the general causation question is too unsettled for any scientist to say, to a reasonable degree of scientific certainty, that cell phones cause brain cancer.  On the other hand, Judge Weisberg’s opinion also calls for more research and cautions that, “If there is even a reasonable possibility that cell phone radiation is carcinogenic, the time for action in the public health and regulatory sectors is upon us.  Even though the financial and social cost of restricting such devices would be significant, those costs pale in comparison to the cost in human lives from doing nothing, only to discovery thirty or forty years from now that the early signs were pointing in the right direction.”

Posted by David B. Stratton on 08/10/2014 at 06:36 PM
District of ColumbiaExpert Witness IssuesPermalink

D.C. Court of Appeals affirms summary judgment based on judicial estoppel

In Atkins v. 4940 Wisconsin LLC, ___ A.2d ___, 2014 D.C. App. LEXIS 192 (D.C. July 3, 2014), the Court affirmed the trial court's award of summary judgment to the defendant on the grounds of judicial estoppel, based on the plaintiff's filings in bankruptcy court in which he represented in his schedules that he had no unliquidated claims.  An aggravating factor here was that the defendant in the personal injury suit had had a claim of $328,606 against the plaintiff due to a retail lease, which claim was discharged in the bankruptcy.

In the District of Columbia, the courts generally consider three factors in deciding whether to apply judicial estoppel: (1) whether a party's later position is clearly inconsistent with its earlier position; (2) whether the party has succeeded in persuading a court to accept the party's earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create the perception that either the first or the second court was misled; and (3) whether the party seeking to impose an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.

Editor's note:

The doctrine of judicial estoppel precludes a party from taking one position on an issue before one court and the opposite position before a different court, and has been adopted in the District of Columbia.  See Fairman v. District of Columbia, 934 A.2d 438, 443 (D.C. 2007); Porter Novelli v. Bender, 817 A.2d 185, 188 (D.C. 2003); Thoubboron v. Ford Motor Co., 809 A.2d 1204, 1212 (D.C. 2002);  Lofchie v. Wash. Square P'ship, 580 A.2d 665, 668-69 (D.C. 1990)(concurring opinion by Schwelb, J);  See also Comcast Corp. v. FCC, 390 U.S. App. D.C. 111, 116, 600 F.3d 642, 647 (D.C. Cir. 2010).

In Moses v. Howard Univ. Hosp., 391 U.S. App. D.C. 21, 30, 606 F.3d 789, 798 (D.C. Cir. 2010), the United States Court of Appeals for the District of Columbia Circuit stated,

While “‘[t]he circumstances under which judicial estoppel may appropriately be invoked are probably not reducible to any general formulation of principle,’” Maine, 532 U.S. at 750 (quoting Zurich Ins. Co., 667 F.2d at 1166), we have explained that “[c]ourts may invoke judicial estoppel ‘[w]here a party assumes a certain position in a legal proceeding, . . . succeeds in maintaining that position, . . . [and then] simply because his interests have changed, assume[s] a contrary position.’”  Comcast Corp., 600 F.3d at 647 (quoting Maine, 532 U.S. at 749). 

The Moses Court stated that “[c]ourts may invoke judicial estoppel ‘[w]here a party assumes a certain position in a legal proceeding, . . . succeeds in maintaining that position, . . . [and then,] simply because his interests have changed, assume[s] a contrary position.’” Id. at 798. (citing Comcast Corp., 600 F.3d at 647 (quoting Maine, 532 U.S. at 749).

In New Hampshire v. Maine, 532 U.S. 742, 749 (3d ed. 2000), the Supreme Court spoke approvingly of judicial estoppel in that it “’prevents a party from asserting a claim in a legal proceeding that is inconsistent with a claim taken by that party in a previous proceeding,’” (quoting 18 MOORE’S FEDERAL PRACTICE § 134.30 (3d ed. 2000)), and explained that judicial estoppel is “’an equitable doctrine invoked by a court at its discretion,’” Maine, 532 U.S. at 750 (quoting Rolfs, 893 F.3d at 1037).  See also Moses v. Howard Univ. Hosp., 606 F.3d 789, 798 (D.C. Cir. 2010).

In the context of bankruptcy proceedings, “[a] debtor is required to disclose all potential claims in a bankruptcy petition. See 11 U.S.C. §§ 521(1), 541(a)(1).  The Moses Court interpreted this to mean that “. . . a debtor is under a duty both to disclose the existence of pending lawsuits when he files a petition in bankruptcy and to amend his petition if circumstances change during the course of the bankruptcy.” Id. at 793.

The doctrine of judicial estoppel may be applied where the plaintiff has failed to comply with these statutory requirements:

Courts have routinely held that judicial estoppel is appropriate when a debtor fails to identify a claim in a bankruptcy proceeding and then proceeds to assert that claim in a separate judicial action. See Moses v. Howard Univ. Hosp., 606 F.3d at 798 ("[E]very circuit that has addressed the issue has found that judicial estoppel is justified to bar a debtor from pursuing a cause of action in district court where that debtor deliberately fails to disclose the pending suit in a bankruptcy case."); Kopff v. World Research Group, LLC, 568 F. Supp. 2d 39, 43-44 (D.D.C. 2008) (citing cases).

Frese v. Empire Fin. Servs., 725 F. Supp. 2d 130, 140 (D.D.C. 2010).

A debtor in bankruptcy court has a continuing duty to disclose all assets and potential assets to the court until her discharge date.[1] 11 U.S.C. § 521(1) and 541(a)(7); In re Wilmoth, 412 B.R. 791, 798-99 (Bankr. E.D. Va. 2009) (explaining that [t]he duty to list all property and applicable exemption is an ongoing duty prior to closing of the case and the duty falls squarely on the Debtor’s shoulders); Burnes v. Pemco Aeroplex, 291 F.3d 1282, 1286 (11th Cir. 2002); Browning Mfg. v. Mims (In re Coastal Plains, Inc.), 179 F.3d 197, 207-08 (5th Cir. 1999).[2]

“Reopening a case does not automatically grant the Debtor a right to amend schedules or take other actions that ought to have occurred prior to closing; instead, the reopening of the case allows administrative and ministerial loose ends to be tied. See Finch v. Coop (In re Finch), 378 B.R. 241, 246 (B.A.P. 8th Cir. 2007) (citing In re Barlett, 326 B.R. 436, 438 (Bankr. N.D. Ind. 2005)). Chapter 7 trustees are not automatically reappointed as trustees upon the reopening of a bankruptcy case. Fed. R. Bankr. P. 5010.”  In re Wilmoth, 412 B.R. 791, 795-796 (Bankr. E.D. Va. 2009)


[1] Federal bankruptcy law requires a debtor to list in the initial petition, inter alia, a “schedule of assets.” 11 U.S.C. § 521(a)(1)(B)(1).  Official Form 6 for Schedule B requires a debtor to list “all personal property of the debtor of whatever kind,” and property of a bankruptcy estate is defined broadly to include “all legal or equitable interests of the debtor in property as of commencement of the case.” 11 U.S. C. § 541(a)(1).  Courts have interpreted this definition to include “all causes of action that could be brought by a debtor.”  USinternetworking, Inc. v. Gen. Growth Mgmt., 310 B.R. 274, 281 (Bankr. D. Md. 2004) (citing Seward v. Devine, 888 F.2d 957, 963 (2d Cir. 1989)).  The duty to disclose such claims continues for the duration of the bankruptcy proceeding. Id. at 282 (citing Browing Mfg. v. Mims (In re Coastal Plains, Inc.), 179 F.3d 197, 207-08 (5th Cir. 1999)).

[2] "'The debtor need not know all the facts or even the legal basis for the cause of action; rather, if the debtor has enough information … prior to confirmation to suggest that it may have a possible cause of action, then that is a "known" cause of action such that it must be disclosed'".  Browning Mfg., 179 F3d at 208, quoting Union Carbide Corp. v. Viskase Corp. (In re Envirodyne Indus., Inc.), 183 B.R. 812, 821 n.17 (Bankr. N.D. Ill. 1995)). "Any claim with potential must be disclosed, even if it is 'contingent, dependent, or conditional'".  Browning Mfg., 179 F.3d at 208, quoting Westland Oil Dev. Corp. v. MCorp Management Solutions, Inc., 157 B.R. 100, 103 (S.D. Tex. 1993) (emphasis the Court’s).



Posted by David B. Stratton on 08/09/2014 at 03:13 PM
DefensesDistrict of ColumbiaPermalink

Failure to issue reservation of rights letter results in waiver of all coverage defenses

In Cincinnati Insurance Co. v. All Plumbing, Inc., Civil Action No. 12-851 (D.D.C. Oct. 18, 2013)(Kollar-Kotelly, J.), the Court held that Cincinnati Insurance's failure to properly reserve its rights and five-month delay in disclaiming coverage while controlling important actions in the insureds' defense precluded Cincinnati from asserting any defenses to coverage in the underlying junk fax class action.   This decision teaches the importance of issuing a separate reservation of rights letter for each action filed, even where successive lawsuits are closely related or almost identical.

The underlying litigation involve two putative class actions against All Plumbing and its owner, each alleging that they sent unsolicited faxes in violation of the Telephone Consumer Protection Act ("TCPA").  The first of these class actions was filed on November 5, 2010, with the class representative named "Love the Beer, Inc."  According to Cincinnati, the insureds never notified it of the class action.  Finally, more than a year later, on November 15, 2011, plaintiffs' counsel contacted Cincinnati and requested Cincinnati to defend the action.

In response, on November 18, 2011, Cincinnati notified plaintiffs' counsel that coverage for the Love the Beer action may be barred under the policy, asserting that the insureds failed to comply with the notice requirements under the policy.  In addition, on December 2, 2011, Cincinnati informed the insureds that it was assuming the defense of the Love the Beer action pursuant to a full and complete reservation of rights.

Meanwhile, also on December 2, 2011, another business, FDS Restaurant, filed a second putative class action against All Plumbing and its owner in D.C. Superior Court based on the same allegation of unsolicited faxes as at issue in the Love the Beer action.  This second action was filed by the same plaintiffs' counsel as the Love the Beer action, and apparently was filed to circumvent Cincinnati's late notice defense to the Love the Beer action. If so, this procedural fencing paid off in a big way for plaintiffs' counsel.

Plaintiffs' counsel sent Cincinnati a copy of the FDS complaint a few weeks after it was filed, and Cincinnati assigned defense counsel to the action.

On December 22, 2011, an amended complaint was filed in the Love the Beer action to eliminate the class action allegations, and the Love the Beer action was never certified as a class action.  About six months later, the Love the Beer action was voluntarily dismissed as part of a settlement.

Meanwhile, with regard to the FDS action, Cincinnati sent a letter dated February 16, 2012 to plaintiffs' counsel in the FDS action that coverage may be barred under the Policy due to the terms, provisions, conditions and exclusions of the Policy, including the insured's failure to comply with the conditions requiring the prompt reporting of offenses, claims and suits.  However, Cincinnati never sent a separate letter or oral communication to the insureds, All Plumbing and its owner, stating that the defense of the FDS action was being provided by Cincinnati pursuant to a reservation of rights. This turned out to be a fatal error.

The assigned defense counsel proceeded to defend the FDS action, answering the complaint, opposing the class certification, removing the action to federal court, and opposing the remand of the action to Superior Court.

Meanwhile, Cincinnati filed a declaratory judgment action on May 21, 2012, against the insureds and FDS, seeking a declaration that it has no duty to defend the insureds in the FDS Superior Court action.  Cincinnati obtained a default order against all the defendants in the declaratory judgment action, but subsequently, the Court on April 22, 2013 vacated the entry of default as against FDS Restaurant only.  Following that, the declaratory judgment action was litigated between Cincinnati and FDS Restaurant.  (The effect, if any, of the default against the insureds on the coverage issues was not mentioned in the decision.  Presumably, FDS's victory on the waiver issue redounds to the benefit of the insureds.)

In the declaratory judgment action, Cincinnati and FDS filed cross motions for summary judgment.  Among other things, FDS argued that Cincinnati waived its ability to disclaim coverage because it assumed the defense of the insureds without properly reserving its rights.  Cincinnati argued in response that it had reserved its rights properly when it sent a full reservation of rights letter to the insureds on December 2, 2011 in connection with the Love the Beer action.  Cincinnati maintained that FDS Restaurant was part of the putative class plaintiffs identified in the Love the Beer action, and that the FDS action involved the identical claims that were raised in the Love the Beer action.  Alternatively, Cincinnati argued that the filing of the declaratory judgment action itself informed the insureds of the coverage issues.

The Court rejected Cincinnati's arguments, and awarded summary judgment to FDS.  It is well settled in the District of Columbia that an insurer undertaking the defense of an insured against a litigious assertion of an unprotected liability, without a disclaimer of contractual responsibility and a suitable reservation of rights, is foreclosed from thereafter taking refuge in the policy provisions exempting the liability from coverage.  Further, when an insurer assumes control of the insured's defense without a proper reservation of rights, prejudice is presumed as a matter of law by virtue of the insurer's assumption of the defense.

The Court found that Cincinnati's reservation of rights letter dated December 2, 2011 in the Love the Beer action cannot serve as a reservation of rights letter in the FDS action because the letter, on its face, exclusively addressed coverage concerns relating to Cincinnati's defense of the Love the Beer action.  The Court noted, "Despite the many similarities in the Love the Beer and FDS actions, they remain two distinct lawsuits."  The Court also observed that the Love the Beer action was never certified as a class action, and consequently FDS was never even a party to the Love the Beer action.  Thus, the December 2, 2011 letter did not provide a reservation of rights with regard to the FDS action.

Cincinnati did send a letter to counsel for FDS on February 16, 2012, notifying FDS that coverage may be barred by the insureds' failure to comply with the reporting requirements of the policy.  However, the Court found that that letter cannot be considered to be a proper reservation of rights in the FDS action because it was sent to FDS's counsel, and not to the insureds.  The Court observed, "An insurer's obligation to provide notification of its reservation of rights under an insurance policy is to the insured, not to the party seeking a judgment from the insured." 

Finally, the Court rejected the argument that the declaratory judgment action itself was an adequate notification to the insureds of Cincinnati's coverage defenses.  The Court pointed out that Cincinnati took important actions in defense of the FDS action in the approximately five month period between assuming the defense and disclaiming liability.  The Court found that the five month delay was not justified in this case by any need to conduct an investigation, because Cincinnati had already investigated the facts in the Love the Beer action.

Accordingly, the Court found that Cincinnati had failed to rebut the presumption of prejudice and was found to have "waived all defenses to coverage by assuming the defense of All Plumbing and Shafik without a reservation of rights." 

Cincinnati's motion for reconsideration and clarification is still pending before the Court.

In conclusion, this case turned on a technicality.  The lesson it teaches is that where there are closely-related, almost duplicative lawsuits, the better practice is to issue a separate reservation of rights letter as to each lawsuit, rather than assume that the initial reservation of rights letter encompasses the related lawsuit.  As illustrated by this case, the marginal costs of preparing another reservation of rights letter is trivial compared to the litigation expenses and indemnity exposure resulting from a waiver issue.  A reservation of rights letter should be issued for each separate lawsuit, no matter how closely related.

Posted by David B. Stratton on 02/17/2014 at 05:15 PM
District of ColumbiaInsurancePermalink

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