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Virginia Workers’ Compensation:  Injury After Clocking Out

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Virginia Workers’ Compensation:  Injury After Clocking Out

In Jones v. The Woodlands, Inc., Jurisdiction Claim No. VA00001035833 (March 29, 2016), the Virginia Workers’ Compensation Commission ruled that an employee injured on the employer’s premises but after he had clocked out was not injured in the course of his employment.  The Commission reversed the Deputy Commissioner’s ruling that the injury was compensable.

The claimant, Robert William Jones, was a nursing assistant for the employer, an assisted living facility.  The claimant clocked out at 7:30 am on the morning of February 18, 2015.  He claimed that he “went straight … on over” to another building on the premises in order to retrieve his paystub from the human resources office.  Paystubs were mailed or emailed to employees and employees were not required to pick up a copy from human resources but the claimant needed to provide a copy in order for his wife to continue to receive disability benefits.  The claimant was reportedly in the human resources office for approximately five minutes obtaining the paystub, and then left, walking to his car in the parking lot.  The claimant slipped and fell on snow and ice and was reportedly discovered around 9:00 am.  He was transported by ambulance to the hospital where he was treated for his injuries.

An employee remains within the course of his employment for “a reasonable period while he winds up his affairs” after clocking out.  Jones, JCN. VA00001035833, at 5.  (citing 1A A. Larson, Workman’s Compensation § 26.10 (1989)).  The Commission looked to the exact sequence of events in order to determine whether the ninety minutes between the time that the claimant clocked out and the time his injury was discovered constituted a reasonable period.  The claimant testified that he walked slowly to the human resources office in order to avoid falling, and arrived “a little before 8:00.”  Id. at 3.  He estimated that, after falling, he lay on the ground for approximately one hour, calling for help before he was discovered.  Id.  Two employees in the human resources office testified that, although the office generally opens at 8:00 am, they did not arrive to open the office until approximately 8:45 am on the morning of February 18, 2015 due to transportation difficulty caused by the snow.  Id.  They testified that the claimant did not arrive at the human resources office until shortly before 9:00 am and that they heard him fall and call for help only moments after he left the human resources office.  Id. at 3 – 4.  The claimant’s inability to explain his whereabouts between the time he clocked out at 7:30 am and his arrival at the human resources office shortly before 9:00 am persuaded the Commission that the claimant had not proven that his injury occurred in the course of his employment.  Id. at 7.

“To establish that an injury occurred ‘in the course of’ employment, the claimant must show ‘that the injury occurred within the period of employment, at a place where the employee was reasonably expected to be, and while he is reasonably fulfilling the duties of his employment doing something reasonably incident to his employment.’”  Id. at 5 (citing Norfolk Cmty Hosp. v. Smith, 33 Va. App. 1, 5, 531 S.E.2d 576, 578 (200)).  An injury that occurs outside the normal time or place of work while an employee is not doing anything to benefit the employer does not occur in the course of employment.  Conner v. Bragg, 303 Va. 204, 208, 123 S.E.2d 393, 396 (1962).  The Commission looked to its decision in McKinney v. Hardee’s, 67 O.I.C. 99 (1988), in deciding that Jones’ injury did not occur in the course of his employment.  .  In McKinney, the claimant clocked out at approximately 11:30 pm on a Thursday and waited in the dining area some amount of time between thirty minutes and two and a half hours for the arrival of her paystub, which she would otherwise have been given the next day, Friday, at the end of her shift.  Id.    The claimant in McKinney was injured when, while waiting for the paystubs to be delivered to the restaurant, she got up to get a drink and slipped on an unknown substance on the floor.  Id.  In some cases, employees are still considered to be in the course of their employment while picking up paychecks or paystubs if the employees are thereby providing some benefit to the employer.  See Decatur v. American Silk Mills, Inc., O.I.C. 137 (1981) (ruling that an employee was in the course of his employment while picking up a paycheck from a plant that had closed); Ali v. Bradlees, I.C. 128-39-27 (June 10, 1988) (ruling that an employee was providing a benefit to the employer while picking up a paycheck that needed to be cashed in store). 

The Commission’s decision in McKinney was based in part on the fact that the claimant was unable to identify the cause of the slippery floor or explain its relation to her employment.  67 O.I.C. 99.  The recent decision in Jones clarifies the string of Commission rulings on employees injured while obtaining paychecks because its decision was based on the amount of time that passed after the claimant clocked out and the purely personal nature of his activities after clocking out.  JCN. VA00001035833, at 7.  The claimant’s ability to identify the specific cause of his fall was not a factor in deciding whether or not the injury occurred within the course of his employment as it was in McKinney.

Posted by Andrew E. Suddarth on 04/15/2016 at 06:21 PM
VirginiaWorkers CompensationPermalink

Eastern District of Virginia rules on school restroom policy regarding transgender students

In G.G. v. Gloucester County School Board, Civil No. 4:15cv54., the U.S. District Court for the Eastern District of Virginia considered whether a school board resolution requiring that the use of male or female restrooms and locker rooms be restricted to those of the corresponding biological gender constituted impermissible sex discrimination.  The Court dismissed a claim by a transgender student that the policy violated Title IX.

 A student identified in court papers as G.G. is biologically female but requested the ability to use male restrooms due to a male gender-identification.  G.G. is a high school student in Gloucester County (VA) Public Schools.  A psychologist diagnosed G.G. with gender dysphoria and recommended that G.G. dress as a male, use a male name, and act in accordance with the male gender identification.  School officials allowed G.G. to use a private restroom in the nurse’s office and to complete physical education coursework through a home-based educational setting.  G.G. claimed that use of a private restroom was stigmatizing and requested permission to use the male restroom.  The school principal authorized use of the male restroom by G.G. in late October 2014 and G.G. used the male restrooms in the school for the next seven weeks triggering an outcry from the parents of other students.

The Gloucester County School Board proposed a resolution (“The Resolution”) for consideration at its November 11, 2014 meeting requiring that the use of male or female restrooms and locker rooms be restricted to those of the corresponding biological gender and further requiring that appropriate private facilities be provided for students with gender identity issues.  The meeting allowed public comment on the matter and the majority of those speaking on the subject supported The Resolution citing concern over the privacy rights of other students and concerns over sexual assault in school restrooms and locker rooms.  The School Board approved The Resolution at its December 9, 2014 meeting by a vote of 6-1, again with considerable public response in support of The Resolution.  Three unisex single-stall restrooms were installed in G.G.’s school prior to the school board vote and on December 10, 2014, the school principal told G.G. that the student’s use of the male restroom was no longer authorized.

 G.G. claimed that use of the three unisex restrooms was isolating and stigmatizing and, on June 11, 2015, filed suit against the Gloucester County School Board (“The School Board”) in the US District Court for the Eastern District of Virginia (Newport News Division) claiming that the policy established by The Resolution constituted gender discrimination in violation of the Fourteenth Amendment (“Equal Protection Clause”) and Title IX.  The Department of Justice filed a Statement of Interest in support of G.G.’s allegation of a Title IX violation.  The School Board filed a Motion to Dismiss and G.G. filed a Motion for Preliminary Injunction to allow the student to use the male restroom until a final judgment on the merits.  Both motions were heard on July 27, 2015.

“Under Title IX, a prima facie case is established by a plaintiff showing (1) that [he or] she was excluded from participation in (or denied the benefits of, or subjected to discrimination in) an educational program; (2)that the program receives federal assistance; and (3) that the exclusion was on the basis of sex.”  Manolov v. Borough of Manhattan Comm. Coll., 952 F. Supp. 2d 522, 532 (S.D.N.Y. 2013) (quoting Murray v. N.Y. Univ. Coll. Of Dentistry, No. 93 Civ. 8771, 1994 WL 533411 at *5 (S.D.N.Y.  Sept. 29, 1994).  Both parties supported their motions by citing to interpretations of Title VII of the Civil Rights Act of 1964, “upon which courts have routinely relied in determining the breadth of Title IX.  See Jennings v. Univ. of N.C., 482 F.3d 686, 695 (4th Cir. 2007).”  The School Board argued that restricting bathroom usage to those corresponding with an individual’s biological sex is not a violation of Title IX because discrimination against transgender individuals is not included in sex discrimination.  Johnston v. Univ. of Pittsburgh, 2015 U.S. Dist. LEXIS 41823 (W.D. Pa. Mar. 31, 2015).

 On September 17, 2015, the Court issued its opinion on the parties’ motions.  The Court dismissed Count II of G.G.’s claim under Title IX, ruling that Department of Education regulations bar the Title IX claim.  Schools are allowed to “provide separate bathroom facilities based upon sex, so long as the bathrooms are comparable.”  34 C.F.R. § 106.33 (“Section 106.33”).  The court determined that Section 106.33 was not arbitrary, capricious or manifestly contrary to the statutory exceptions within Title IX allowing separate living facilities for the sexes.  Therefore, Section 106.33 is controlling.  G.G. did not allege that the unisex single-stall restrooms and female restrooms were incomparable to the male restrooms and therefore failed to state a valid claim under Title IX.

 A Preliminary Injunction requires plaintiffs to present admissible evidence to “demonstrate that (1)they are likely to succeed on the merits; (2) they will likely suffer irreparable harm absent an injunction; (3) the balance of hardships weighs in their favor; and (4) the injunction is in the public interest.” League of Women Voters of N.C. v. North Carolina, 769 F.3d 224, 236 (4th Cir. 2014).  The court noted that G.G. failed to identify specific harms that would result in the continued use of female or unisex single-stall restrooms during the pendency of the litigation.  By contrast, bodily privacy is a constitutional right Lee v. Downs, 641 F.2d 117, 119 (4th Cir. 1981), so the School Board policy was designed to protect the constitutional rights of other students.  Therefore, the balance of hardships weighs in favor of the School Board.  Furthermore, G.G. failed to offer evidence of irreparable harm from continued use of the female restrooms or unisex single-stall restrooms.  The Motion for Preliminary Injunction was therefore denied.

 As legal challenges are raised to school policies relating to gender identification issues, school systems may rely on  Section 106.33 and the constitutional right to bodily privacy to support policies establishing comparable but separate restrooms, locker rooms, and living facilities for biological males and biological females regardless of gender identification

Posted by Andrew E. Suddarth on 10/09/2015 at 07:05 PM
School liabilityVirginiaPermalink

Virginia Legal Malpractice:  The burden of proving non-collectibility is on negligent attorney

In Shevlin Smith v. McLaughlin, the Virginia Supreme Court considered the issues of: (1) whether an attorney breaches the duty to a client by failing to correctly anticipate a judicial ruling on an unsettled legal issue; (2) whether collectibility is relevant to a legal malpractice claim when the alleged injury is the loss of an otherwise viable claim; and (3) whether non-pecuniary damages are recoverable in a legal malpractice claim.

Among other things, the Court held that the burden of proving that a judgment in the underlying case would have been uncollectible is on the negligent attorney.

This case involve an allegation of legal malpractice in an underlying legal malpractice claim, which in turn arose from alleged malpractice in a criminal case.

The alleged malpractice in the original criminal matter was that the criminal defense attorneys negligently failed to obtain the taped interview of the alleged victims and compare those tapes with the inaccurate written transcripts used during the first criminal trial.  In that trial, the accused had been represented by two separate law firms.

The first criminal trial resulted in a conviction, and the accused served four years in prison before the conviction was overturned in a habeas proceeding.  After that, the accused was found not guilty in a second prosecution.

The accused hired the firm of Shevlin Smith to represent him in a criminal malpractice case.  Shevlin Smith negotiated a settlement and release with law firm #1 in order to settle the criminal malpractice claim against it. The release did not discharge the criminal malpractice claim against law firm # 2.

Four months later, a Virginia Supreme Court opinion was issued in an unrelated matter, Cox v. Geary.  Based on that decision, law firm # 2 filed a plea in bar, arguing that the criminal malpractice claim against it must be dismissed because under the new decision, the settlement and release of some co-defendants to the legal malpractice claim was a release of all co-defendants.  The trial court agreed, and sustained law firm # 2's plea in bar.

The plaintiff then filed a second legal malpractice claim against Shevlin Smith, based on two theories of liability.  First that Shevlin Smith breached its duty be failing to foresee how the Court's holding in Cox v. Geary would impact the Release Agreement.  Second, that Shevlin Smith breached its duty to the plaintiff by failing to take various actions with respect to law firm # 1, and failing to fully advise the plaintiff about the alternative of refusing the settlement and continuing to proceed against law firm # 1.

Here, the court noted that since the alleged negligence occurred in a criminal proceeding, the legal malpractice plaintiff "must prove post-conviction relief and innocence entitling him to release."

Concerning the issue of judgmental immunity, the Virginia Supreme Court declined to adopt a per se judgmental immunity doctrine.  Instead, the Court held that, if an attorney exercises a reasonable degree of care, skill, and dispatch while acting in an unsettled area of the law, which is to be evaluated in the context of the state of the law at the time of the alleged negligence, then the attorney does not breach the duty owed to the client.  While this determination is ordinarily a question of fact for a jury, it becomes an issue of law when reasonable minds could not differ on the issue.

Further concerning the issue of whether collectability is relevant to a legal malpractice claim, the court held that collectibility is implicated when the injury claimed by the legal malpractice plaintiff is the loss of an otherwise viable claim.  That is, collectibility limits the measure of the legal malpractice plaintiff's damages as to how much the legal malpractice plaintiff could have actually recovered from the defendant in the underlying litigation, absent the attorney's negligence.

The client must prove that the attorney's negligence proximately caused the damages claimed.  As to who must prove that a judgment in the underlying case was collectible, the Court said the following:

"Consequently, collectibility is relevant because a legal malpractice plaintiff's damages for a lost claim can only be measured by the amount that could have actually been collected from the defendant in the underlying action in the absence of the attorney's negligence. Entry of judgment against the defendant in the underlying claim does not guarantee collection of the entire award. Instead, successfully prosecuting a claim to judgment is only half of the marathon that is redressing an injury in our judicial system. Once armed with a judgment, a plaintiff then has 20 years to collect that award . . ."

However, while collectibility is relevant, it is not an element of a legal malpractice plaintiff's prima facie case.  The Virginia Supreme Court held that "we do not place the burden on a legal malpractice plaintiff to also prove the value of the underlying judgment that he would have been able to collect absent the attorney's negligence."

Instead, Virginia joined the growing trend of jurisdictions that place the burden of pleading and disproving collectibility on the negligent attorney as an affirmative defense.

Finally, the court held that a plaintiff cannot recover non-pecuniary damages in a legal malpractice action. The question of what damages are recoverable in a legal malpractice claim is governed by Virginia law pertaining to what damages are recoverable in a breach of contract claim. Regardless of the foreseeability of non-pecuniary injury incident to a breach of contract, however, "[a]s a general rule, damages for breach of contracts are limited to the pecuniary loss sustained."

The "rule," then, is clear: "tort damages" — including non-pecuniary damages such as mental anguish, emotional distress, and humiliation — "are not recoverable for breach of contract."  As this principle holds true for all non-pecuniary, non-economic injury caused by the attorney's malpractice, such loss is not recoverable as damages in a legal malpractice claim.


To discuss these holdings or the defense of a Virginia legal malpractice claim, contact Carol T. Stone of Jordan Coyne LLP at 703-246-0900.



Posted by David B. Stratton on 08/01/2015 at 08:44 PM
Legal MalpracticeVirginiaPermalink

Requirements to plead a legal malpractice action arising from a criminal matter in Virginia

In Desetti v. Chester, the Virginia Supreme Court considered the issue of whether a plaintiff sufficiently pled a claim for legal malpractice that occurred during the course of an attorney's misrepresentation of the plaintiff in a criminal matter.

The plaintiff, her husband, and her son were all involved in a criminal incident with a law enforcement officer at their home.  Based on that incident, she was charged with felony assault and battery of a law enforcement officer and a misdemeanor obstruction of justice count.  Her husband and son were charged with misdemeanor obstruction of justice counts.  They all retained the same defense counsel.

The charges against the husband and son went to trial first.  The defense attorney called the plaintiff as a witness, and during the course of her direct examination, she admitted that she struck the law enforcement officer who had entered her home.  The husband and son were found guilty.

Next, the prosecution gave the defense attorney a plea offer, which would allow her to plead guilt to a misdemeanor assault and battery.  The defense attorney never conveyed this offer to the plaintiff.  Instead, he advised her to plead not guilty and go to a jury trial because "she had a 'slam dunk' case."  He also allegedly failed to inform her that a guilty verdict on her felony charge would entail a mandatory minimum sentence of six months of incarceration.

The Plaintiff's trial then took place.  The Plaintiff alleged that the defense attorney made the unilateral decision, without consulting with her, to reject the prosecution's jury instruction that incorporated the lesser-included offense of misdemeanor assault and battery because the defense attorney was employing a "felony or freedom" strategy.  At trial, the jury returned a verdict on the felony assault and battery charge, and the Plaintiff was sentenced to the mandatory minimum of six months of incarceration.

While serving her sentence the Plaintiff filed a petition for writ of habeas corpus, alleging ineffective assistance of counsel.  A year later, the habeas court granted her petition on the basis that the defense counsel's ineffective assistance of counsel prejudiced the plaintiff in a criminal matter, because of (1) the defense counsel's concurrent representation of the three defendants; (2) the defense counsel's failure to convey and explain the plea offer; (3) the defense counsel's failure to advise and consult with the plaintiff about the inclusion of a lesser-included misdemeanor offense in the jury instructions.  The habeas court vacated her felony assault and battery conviction.

The Commonwealth elected to retry her for her actions giving rise to the original charges.  The Plaintiff this time pled guilty to misdemeanor assault and battery.  She was convicted of misdemeanor assault and battery and was sentenced to ten days of incarceration, with all ten days suspended.

The Plaintiff then brought a legal malpractice suit against her former criminal defense counsel. 

In the malpractice action, the defendant filed a demurrer on the grounds that the plaintiff failed to state a claim upon which relief could be granted because she was not actually innocent of the criminal act of assault that was the basis of her prosecution.  The argument was that although the felony assault and battery had been vacated, the plaintiff subsequently admitted guilt to misdemeanor assault and battery, and it was that guilt of a criminal act which was the proximate cause of her injuries.  The trial court sustained the demurrer.

On appeal, the Virginia Supreme Court affirmed the trial court.

The Court began by pointing out that in the normal legal malpractice action, the essential elements are the existence of an attorney-client relationship which gave rise to a duty, breach of that duty, and that the damages claimed by the plaintiff must have been proximately caused by the defendant attorney's breach.

However, in a legal malpractice action arising out of a criminal matter, there are additional burdens of pleading, to ensure that courts do not assist the participant in an illegal act who seeks to profit from the act's commission.  A criminal defendant may not profit from a crime in a subsequent legal malpractice action.

For that reason, a legal malpractice plaintiff, who alleges that malpractice occurred during the course of a criminal matter, must also plead (1) that the damages to be recovered were proximately caused by the attorney's malpractice and (2) were not proximately caused by the plaintiff's own criminal actions.

The Court reasoned that to adequately plead proximate causation in this case, the plaintiff was required to plead that the damages she seeks to recover were proximately caused by the legal malpractice and not by her own criminal conduct.  However, the only pecuniary damage pled in the compliant was that her nursing license was suspended as a direct result of her felony conviction.  There was no allegation that she would not have lost her nursing license based upon her conviction of misdemeanor assault and battery.  Thus, the Court found that the plaintiff failed to plead damages flowing from her felony conviction that would not have been proximately caused by her misdemeanor sentence.

Secondly, with regard to the length of her jail time, the Court found that the plaintiff had adequately pled that but for the legal malpractice, she would have been sentenced to less than six months.  However, the complaint failed to plead that her damages were proximately caused by legal malpractice, rather than by her own criminal conduct.  The Court pointed out that "there is no basis to determine what sentence a circuit court would have imposed in the original criminal proceeding had [the defense attorney] not been negligent."  This is because a defendant convicted of misdemeanor assault and battery is subject to a sentence of not more than twelve months and a find of $2,500, either or both.  In the plaintiff's second criminal trial, her suspended sentence was after she had already served her original six month sentence.  The original misdemeanor plea offer was not accompanied by a sentence recommended by the Commonwealth.  Thus, there were no facts pled from which to draw the inference that, absent the legal malpractice, the circuit court would have imposed any shorter sentence than the six months that was imposed.

Accordingly, the Virginia Supreme Court affirmed the circuit court's judgment sustaining the demurrer.

Impact:  This opinion explains in detail what elements a plaintiff must plead in the complaint to allege a cause of action for legal malpractice where the plaintiff was found guilty in the underlying criminal matter.  It would be an over-simplification to say that under Virginia law, a person convicted of a crime cannot bring a legal malpractice claim against his or her criminal defense lawyer unless the conviction is overturned and there is a finding of not guilty. For example, in this case, the opinion suggests that the plaintiff might have stated a cause of action if she had pled that her nursing license would not have been suspended based upon a conviction of misdemeanor assault and battery.  That would have been an allegation that she sustained pecuniary harm not proximately caused by her ultimate misdemeanor conviction.

To discuss the defense of a pending legal malpractice matter in Virginia, contact Carol T. Stone of Jordan Coyne LLP at 703-246-0900.

Posted by David. B. Stratton on 07/27/2015 at 01:00 PM
DefensesLegal MalpracticeVirginiaPermalink

Limit on Virginia courts to enforce subpoena duces tecum on nonresident non-parties

In Yelp, Inc. v. Hadeed Carpet Cleaning, Inc., 2015 Va. LEXIS 51 (April 16, 2015), the Supreme Court of Virginia considered the issue of whether a Virginia Circuit Court was empowered to enforce a subpoena duces tecum against a non-party California company having a registered agent in Virginia.  The Court held that Virginia circuit courts do not hold subpoena power over non-party foreign companies notwithstanding the foreign company’s act of designating a registered agent in Virginia.

The plaintiff filed a defamation suit against three John Doe defendants claiming that the three had posted false negative reviews on Yelp, a social networking website which allows users to rate local businesses.  Yelp, Inc. is headquartered in California but is registered to do business in Virginia and has designated a registered agent in Virginia.  Yelp users are able to use pseudonyms when posting reviews of businesses so Hadeed issued a subpoena duces tecum to Yelp seeking documents that might reveal the identities of the three John Doe defendants.  The subpoena was served on Yelp’s registered agent in Virginia. 

Yelp objected to the subpoena duces tecum.  The Circuit Court for the City of Alexandria issued an order enforcing the subpoena duces tecum and holding Yelp in contempt for failure to comply.  The Virginia Court of Appeals affirmed the decision of the Circuit Court and adopted its reliance upon Va. Code § 8.01-301 (1) which authorizes service of process on the registered agents of foreign corporations registered to do business in Virginia.

The Virginia Supreme Court observed that, while the General Assembly has provided for the exercise of personal jurisdiction over some nonresident defendants, subpoena power has never been expanded so as to allow it to be exercised over nonresident non-parties.  A nonresident party to a legal dispute is subject to the power of the court by way of the pending litigation but a nonresident corporation does not subject itself to the power and authority of Virginia courts by simply registering to do business in Virginia.  The court cited numerous opinions from other states holding that nonresident non-parties were not subject to subpoena power. 

The Virginia Supreme Court further observed that the General Assembly enacted the Uniform Interstate Deposition and Discovery Act (UIDDA) to facilitate the issuance of out-of-state discovery.  Va. Code §§ 8.01-412.8 et seq.  The UIDDA act provides a reciprocal streamlined process for obtaining discovery via subpoena in other  foreign jurisdictions.  Under the UIDDA acts, a party seeking out of state discovery from a non-party should have a subpoena issued by the court in which the litigation is pending.  That subpoena would then be presented to the court having jurisdiction over the territory in which discovery is sought which would be empowered to issue and enforce a subpoena.

The Supreme Court of Virginia held that the Circuit Court for the City of Alexandria could not enforce a subpoena duces tecum directing Yelp, a non-party, to produce documents located in California and the contempt order against Yelp was vacated.  Based on the reasoning presented by the court, it is likely that Hadeed would have been able to subpoena documents located in Yelp’s California headquarters using procedures outlined in the UIDDA acts, by presenting a Virginia subpoena duces tecum to the California court for issuance and enforcement of a subpoena.

Posted by Andrew Suddarth on 04/30/2015 at 06:19 PM

Virginia rejects attempt to limit pollution exclusions to “traditional” environmental pollution

In PBM Nutritionals, LLC v. Lexington Ins. Co., No. 110669 (Va. Apr. 20, 2012), the Virginia Supreme Court affirmed the Circuit Court's judgment that pollution exclusions barred coverage for a multi-million dollar loss resulting from a manufacturing incident that contaminated a number of lots of infant formula, which all had to be destroyed as a result.  In so doing, the Court rejected the arguments that the pollution exclusions are ambiguous because they are overly broad and could exclude nearly any loss, and that the Circuit Court erred in failing to limit the scope of the pollution exclusion endorsements to traditional environmental losses in order to avoid the problem of illusory coverage. 

Instead, the Court agreed with the insurers and the Circuit Court that the plain text of the endorsements should be applied.  After citing to City of Chesapeake v. States Self-Insurers Risk Retention Group, 271 Va. 574, 628 S.E.2d 539 (2006), the Court reasoned that none of the pollution exclusions referenced any terms such as "environment", environmental", "industrial," or any other limiting language suggesting that the exclusions are limited to "traditional" rather than "indoor" pollution.  There was no language suggesting that the discharges or dispersals of pollutants or contaminants must be into the environment or atmosphere.    The Court concluded that according to their plain language, the pollution exclusions are not restricted to traditional environmental pollution, and held that the Circuit Court did not err in refusing to limit the insurers' pollution exclusion endorsements to traditional environmental contamination losses.

In PBM Nutritionals, the contamination occurred when superheated water caused water filters to disintegrate into their constituent components of cellulose, melamine, and other materials, which infiltrated the water from which the lots of infant formula were manufactured.  Quality control testing discovered the contamination, and all batches manufactured during that period had to be destroyed.

This decision confirms that Virginia will not follow other jurisdictions which have limited pollution exclusions to traditional, environmental pollution.

Posted by David B. Stratton on 04/23/2012 at 02:59 PM

4th Circuit affirms summary judgment based on business enterprise exclusion in LPL policy

In Minnesota Lawyers Mut. Ins. Co. v. Antonelli, Terry, Stout & Kraus, LLP, No. 10-2404 (4th Cir. March 29, 2012)(unpublished), the Court affirmed the District Court's award of summary judgment to the insurer, holding that the insurer does not have a duty to defend the insured law firm because the complaint falls entirely within the insurance policy's Business Enterprise Exclusion. 

In the underlying suit, the defendant attorneys were alleged to have advised their clients to transfer the ownership of certain patents for wireless email technology to a shell company, NTP, in which the clients held no interest, in order to protect the patents from creditors.  Later, NTP filed a patent infringement action against RIM, alleging that RIM's Blackberry system infringed on the wireless email technology patents.

RIM settled the suit for $612.5 million and received a perpetual license.   When the defendant attorneys refused to share the settlement with the plaintiffs, the plaintiffs sued for breach of fiduciary duty, breach of contract, unjust enrichment, and promissory estoppel.

The Business Enterprise Exclusion  stated that the policy did not provide coverage to:

  any CLAIM arising out of PROFESSIONAL SERVICES rendered by any
  INSURED in connection with any business enterprise:
  (a) owned in whole or part;
  (b) controlled directly or indirectly; or
  (c) managed, by any INSURED, and where the claimed DAMAGES resulted from
  conflicts of interest with the interest of any client or former client or with the
  interest of any person claiming an interest in the same or related business

The Fourth Circuit found that each element of this exclusion was met within the four corners of the Complaint.  There was no dispute that the case arose out of professional services that the insureds provided to the plaintiffs.  Those services included counseling as to changing the ownership of certain patents in order to avoid their creditors.  The Court also found that the professional services were rendered "in connection with" a business enterprise, and that the insureds owned, controlled or managed the business enterprises that were involved.   Finally, the Court found that the asserted damages surely resulted from conflicts of interest, because the defendant attorneys allegedly obtained complete ownership and control of their clients' assets and exploited those assets for personal benefit, violating professional ethics rules governing conflicts of interest.  See Va. R. Prof. Conduct 1.8(a), (b), and (j).

Business Entreprise Exclusions are discussed in more detail here.

Posted by David B. Stratton on 04/08/2012 at 02:41 PM
InsuranceLegal MalpracticeVirginiaPermalink

Pollution exclusion update: Fourth Circuit certifies Chinese drywall case to Virginia Supreme Court

To update a previous post dealing with the application of the pollution exclusion in a Chinese drywall case, in Travco Ins. Co. v. Ward, No. 10-1710 (4th Cir. March 1, 2012), an insured had appealed from an order granting summary judgment to his homeowner's insurer in a Chinese drywall case.  The District Court found that the insured had suffered a loss within the policy's coverage, but concluded that coverage was excluded by four provisions:  the latent defect exclusion; the faulty material exclusion; the corrosion exclusion; and the pollution exclusion. 

The Fourth Circuit in Travco recently certified the coverage issues to the Supreme Court of Virginia, including the following: for purposes of interpreting an "all risk" homeowners insurance policy, is any damage resulting from the Chinese drywall unambiguously excluded from coverage under the policy because it is loss caused by: . . . ('pollutants,', where pollutant is defined as 'any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste'?

On appeal, the insured's argument on the pollution exclusion is that it is ambiguous in the context of product liability claims, because the exclusion was intended to limit or exclude coverage for past environmental contamination.  The insured relies on Unisun Ins. Co. v Schulwolf, 53 Va. Cir. 220 (Va. Cir. 2000), in which the Circuit Court declined to apply a pollution exclusion to lead-based paint.

A very similar issue was certified in Nationwide Mut. Ins. co. v. Overlook, but the Supreme Court of Virginia declined to accept the certified question of law, .  See Builders Mut. Ins. Co. v. Parallel Design & Dev. LLC, 785 F. Supp. 2d 535, 545 n. 5 (E.D. Va. 2011). 



Posted by David B. Stratton on 04/07/2012 at 09:31 PM

Private causes of action against CRESPA surety bond

 In First American Title Insurance Company v. Western Surety Company, No. 111394 (March 2, 2012), the Virginia Supreme Court addressed three questions of law certified by the United States Court of Appeals for the Fourth Circuit.  The Court held: (1) that the Virginia Consumer Real Estate Settlement Protection Act ("CRESPA") does not provide for a private cause of action against a surety and surety bond executed pursuant to CRESPA; (2) that Virginia law nonetheless permits a common law breach of contract cause of action against a CRESPA surety and surety bond; and (3) that a title insurance company has standing as subrogee of its insured to maintain a cause of action against a CRESPA surety and surety bond.

The case arose out of a real estate transaction involving an owner who sought to refinance his existing mortgage through SunTrust Mortgage, Inc.  First American Title Insurance Company ("FATIC") provided title insurance for the refinancing through its title agent, First Alliance Title Company ("First Alliance").  Pursuant to CRESPA requirements, First Alliance obtained a $100,000 surety bond from defendant Western Surety Company ("Western").  At settlement, funds which were designated to pay off the original mortgages on the property were diverted.  The original mortgages were not paid, and the original deeds of trust were not released. As a result, SunTrust's deeds securing the refinance indebtedness were behind the original deeds in priority. 

The property owner subsequently defaulted, and the original mortgagor foreclosed, resulting in a loss of $734,296.09 to SunTrust.  FATIC paid SunTrust the full amount of the loss pursuant to the title insurance policy, and made a formal demand upon Western for the full $100,000 of the CRESPA surety bond.  Western refused to pay, asserting that FATIC could not bring a private cause of action against a statutory CRESPA surety bond.  FATIC brought this action against Western on its own behalf, and also as a subrogee of SunTrust, asserting that it became subrogated to SunTrust's right after paying in full SunTrust's claim under the title insurance policy.

The parties disputed that FATIC could bring a common law claim against the CRESPA surety bond, and also that FATIC had standing to assert the cause of action.  At trial, the District Court found in favor of FATIC, and entered judgment in its favor for the full $100,000 amount of the CRESPA bond.  On appeal, the Fourth Circuit certified the three questions of law to the Supreme Court of Virginia.

The Court first held that CRESPA does not provide for a private cause of action.  CRESPA expressly authorizes only licensing authorities to fine or otherwise penalize a settlement agent that violates its provisions.  Accordingly, the Court found that CRESPA does not recognize a private cause of action against a surety or surety bond executed pursuant to its provisions. 
Next, the Court found that under certain circumstances, Virginia common law does allow for a cause of action to be maintained against a CRESPA surety or surety bond.  The Court noted that the express language of a statute must expressly state that the statute abrogates a common law cause of action.  CRESPA contains no such express language.  The general rule in Virginia that any bond required of a surety is at least as good as a common law voluntary contractual obligation.  Accordingly, the Court held that while CRESPA does not expressly authorize a private cause of action against surety bonds, Virginia common law does permit the assertion of a common law breach of contract claim.

Finally, the Court found that title insurance companies may have standing as subrogees of their insureds to maintain a common law cause of action against a CRESPA surety bond.    CRESPA's surety bond requirement exists to protect parties with an interest in real estate transactions.  Title insurers are not parties to real estate transactions and thus are not among the parties CRESPA surety bonds are intended to protect.  Because a title insurer is not a protected party under CRESPA, it does not have standing in its own right to maintain a cause of action.  However, the Court nonetheless concluded that a title insurer has standing, not in its own right but as a subrogee of its insured, to maintain a cause of action against a CRESPA surety bond.

Therefore, under its ruling in First American Title,  the Supreme Court recognized that certain entities may bring a common law cause of action for breach of contract against a CRESPA surety bond.  Additionally, the Court recognized that certain parties may have standing to bring such actions, not in their own right, but as subrogees of their insureds.

Posted by Robert D. Brant on 04/05/2012 at 04:49 PM

Virginia Insurance Coverage:  Supreme Court interprets auto policy’s workers compensation exclusion

In Christy v. Mercury Casualty Company, No. 102138 (March 2, 2012), the Supreme Court of Virginia held that an exclusion in an automobile insurance policy barred the insured from receiving any payment for medical expenses where a portion of medical expenses had already been paid by workers' compensation benefits.

The plaintiff police officer was a passenger in a car driven by a Washington County sheriff's deputy.  The car was struck from behind, and the plaintiff sustained a number of injuries.  The parties did not dispute that the accident arose out of and occurred during the course of the plaintiff’s employment with the town.  Among other injuries, the plaintiff’s physician opined that he experienced a tear of the labrum in his left shoulder as a result of the accident, that required surgery.

At the time of the accident, the plaintiff was covered by three different insurance policies.  The Town of Abington obtained its workers’ compensation coverage through the Virginia Municipal League Insurance Programs ("VMLI").  The plaintiff received his primary health insurance coverage through a physician-hospital organization ("PHO").  Additionally, the plaintiff was insured under an automobile liability policy issued by Mercury Casualty Company.  The Mercury policy included coverage for medical expenses incurred as a result of injuries arising out of the use of a motor vehicle.  In relevant part, the policy provided that it did not apply "to bodily injury sustained by any person to the extent that benefits therefor[] are in whole or in part payable under any [workers'] compensation law."

The workers’ compensation insurance carrier, VMLI, paid a portion of the plaintiff's total medical expenses.  However, VMLI denied claims for the plaintiff’s surgery to repair his labrum, asserting that the injury was a pre-existing condition and therefore not compensable under the workers’ compensation policy.  The balance of the plaintiff's medical expenses was either paid or resolved by the plaintiff and the PHO.

The plaintiff subsequently submitted a claim to Mercury demanding payment under the medical expense coverage of his policy.  Mercury denied the claim, asserting that the exclusion provision barred coverage due to the fact that some of the plaintiff’s medical expenses were, in part, payable under workers’ compensation law.

On appeal, the plaintiff argued that the exclusion applied only “to the extent” that some portion of his medical expenses were paid by workers' compensation benefits.  The plaintiff argued that the exclusion acted only to offset any amount actually paid by the workers' compensation carrier, without regard to whether he successfully pursued a claim for all medical expenses.  In doing so, the plaintiff argued that the policy language operates to prevent a "double recovery" by not allowing the insured to receive full payment for medical expenses from both a workers' compensation provider as well as an automobile insurance provider.

Defendant Mercury argued its interpretation of the exclusion, asserting that it excluded all coverage if any portion of plaintiff’s medical expenses were subject to workers’ compensation.

The Court ultimately found in favor of defendant Mercury Casualty, holding that the policy exclusion limited the scope of coverage for medical expenses, rather than the amount of coverage in the form of a set-off against workers’ compensation benefits.  The court noted the fact that VMLI did pay a portion of plaintiff’s medical expenses pursuant to its workers' compensation policy.   The court also noted that there was no dispute over whether the accident arose out of and in the course of the plaintiff's employment.  Accordingly, the Court held that the clear and unambiguous language of the exclusion permitted defendant Mercury Casualty to deny coverage where the expenses were payable under workers’ compensation law.   Thus, the exclusion permitted Mercury Casualty to deny coverage for any expenses which would have been subject to workers' compensation coverage by VMLI without regard to whether all of those expenses were actually paid by VMLI.

Posted by Robert D. Brant on 04/05/2012 at 04:22 PM
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