This is a good summary judgment ruling from the Davidson County Circuit Court in a slip and fall case. Boykin v. Moorehead Living Trust, 2015 WL 3455433 (Tenn. Ct. App., May 29, 2015). This case came out of Sixth Circuit in Davidson County Tennessee. The Court of Appeal affirmed summary judgment in favor of the property owner after plaintiff tripped and fell on a concrete landing pad in a parking lot. Read more
On December 1, 2015, several new amendments to the Federal Rules of Civil Procedure became effective. Among those amendments were notable changes to Federal Rule of Civil Procedure 26. For example, Rule 26(b)(1) now reads:
Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable.
In other words, information is discoverable if it is relevant to any party’s claim or defense and it is proportional to the needs of the case, which will be determined by consideration of the following six proportionality factors: 1) the importance of the issues at stake, 2) the amount in controversy, 3) the parties’ relative access to relevant information, 4) the parties’ resources, 5) the importance of discovery in resolving the issues, and 6) whether the burden or expense of the proposed discovery outweighs its likely benefit.
While it is unclear whether these factors are listed in order of importance or merely listed as considerations, the committee notes to the changes explained that “the change does not place on the party seeking discovery the burden of addressing all proportionality considerations.” Rather, “parties may begin discovery without a full appreciation of the factors that bear on proportionality.” However, regardless of whether all the factors must be considered or not, it appears the amended Federal Rule of Civil Procedure 26(b)(1) requires consideration of at least some of the proportionality factors in determining whether the discovery requested is proportional to the needs of the case.
Importantly, the addition of the proportionality factors should not change the existing responsibilities of the court and parties to consider proportionality; rather, the addition merely clarifies and brings together the specific set of factors the court is to consider in determining proportionality.
A new case filed June 15, 2015 in the Circuit Court of Appeals of Tennessee at Knoxville found that vomit on the floor of a Hardee’s restaurant for approximately three minutes was a sufficient length of time to charge defendant with constructive notice of the dangerous condition. The case at issue is styled Kyle Beverly, et al. v. Hardee’s Food Systems, LLC, No. E2014-02155-COA-R3-CV – FILED – June 15, 2015 (Tenn. Ct. App., April 14, 2015).
This appeal followed a successful summary judgment in the trial court, which found there was no evidence to support constructive knowledge on the part of the defendant. The videotape from Hardee’s showed two employees were busy serving customers during the three minute time period the condition existed before the fall. The trial court found (correctly in my opinion) the vomit did not existed on the floor long enough that the defendant, using ordinary care, should have discovered and corrected the unsafe condition.
Under Tennessee law, constructive notice is defined as “information or knowledge of a fact imputed by law to a person because he could have discovered the fact by proper diligence, and his situation was such as to cause upon him the duty of inquiring into it.” See Hawks v. City of West Moreland, 960 S.W.2d 10, 15 (Tenn. 1997). Plaintiff can prove constructive notice by presenting evidence that the condition existed for a length of time that the owner/occupier in the exercise of reasonable care, should have become aware of the condition.
In reversing the Trial Court below, the Court of Appeals found there was evidence in the record that “could potentially” establish constructive notice and, as a result, summary judgment was inappropriate. Specifically, the Court found that there were factual considerations that should have been considered, e.g., the nature of the business, the revolving number of patrons, and the nature of the danger, its location, and the foreseeable consequences. In considering these various factors, the Court found there were sufficient facts from which a reasonable jury could infer the condition existed for such a length of time that one exercising reasonable care would have discovered it.
Not all premise owners will be charged with constructive notice under the same circumstances presented by this case. The fact that Hardee’s is a fast food restaurant definitely played a role in the Court’s decision as to what would be a reasonable response of an employee. Nevertheless, this case reminds all premise owners of its responsibility to have periodic inspections. The frequency of the inspections needs to be tailored to the type of business operation. If you have questions or concerns regarding whether your business’ policies and procedures are adequate to prevent these types of claims, please do not hesitate to contact us directly.
Many insurance policies exclude damages caused by mold and fungi. Whether or not a loss caused by mold is covered under a policy will have to be made on a case-by-case basis. The wording of the policy and the specific facts of the loss will control this determination.
Most policies generally provide coverage for direct physical loss and then specifically exclude coverage for mold. Although the exclusion expressly mentions mold, a court could be persuaded to interpret these exclusions collectively. In other words, if the mold is the result of an otherwise covered loss, this exclusion may not bar coverage.
Part of the “problem” in Tennessee arises out of the doctrine of “concurrent causation.” Here, there will be coverage in a situation where a non-excluded cause is a substantial factor in producing the damage or injury, even though an excluded cause may have contributed in some form to the ultimate result and, standing alone, would have properly invoked the exclusion contained in the policy. Davidson Hotel Company v. St. Paul Fire and Marine Insurance Company, 136 F. Supp. 2d 109 (W.D. Tenn. 2001); Allstate Insurance Company v. Watts, 811 S.W.2d 883 (Tenn. 1991). Thus, damage caused by mold and fungi may still be covered by the policy if the mold is the result of a “covered loss” such as a burst pipe.
As a result, many carriers have changed the language of their mold exclusion to preclude coverage for losses caused by mold or fungi regardless whether said loss was direct, indirect, or concurrent. The United States District Court for the Eastern District of Tennessee examined such an exclusion in Pennsylvania Nat. Mut. Cas. Ins. Co. v. HVAC, Inc., 679 F. Supp. 2d 863 (E.D. Tenn. 2009). It held the exclusion explicitly, unambiguously, and clearly excluded coverage for a loss due to mold. Id. at 874-75.
Some policies provide limited coverage for mold or fungi. For instance, in State Auto. Mut. Ins. Co. v. R.H.L., Inc., 07-1197, 2010 WL 909073 (W.D. Tenn. Mar. 12, 2010), the Court examined a policy which provided coverage where fungi was “the result of a ‘specified cause of loss’ other than fire or lightning.” There, the only potentially applicable “specified caused” of loss was “water damage” caused by leaks in or around the property’s laundry room occurring within the policy period. The insured could not prove “water damage” occurred within the policy period and therefore there was no coverage for the fungi.
Many policies today utilize “anti-concurrent” causation lead in language for certain exclusions to defeat the concurrent causation doctrine. Such language typically excludes losses caused “directly or indirectly” by the excluded peril and applies whether or not any other cause “contributes concurrently or in any sequence” to cause the loss, making it clear that if the excluded peril contributes, there is no coverage. The additional coverage for mold can be very specific and can include and limit coverage for a variety of mold related concerns, including mold testing. Thus, it is important to specifically reference the policy language itself in evaluating coverage for a mold or fungi claim.
The Court of Appeals recently had an opportunity to revisit the issue of agent negligence when procuring the wrong coverage for an insured. In Steven Barrick and Janice Barrick v. State Farm Automobile Insurance Company and Thomas Harry Jones No. M2013-01773-COA-R3-CV, (Tenn. Ct. App. 2014), the Barricks initially obtained automobile insurance through State Farm with Thomas Jones as their agent from 1985 until 2009. Id. The Barricks’ lawsuit alleged both State Farm and Jones had a duty of care to advise the Barricks of their need for increased coverage after the initial procurement of the policy.
While operating an insured vehicle, Mr. Barrick struck a motorcyclist who died at the scene of the collision. The motorcyclist’s survivors filed a complaint against him which subsequently settled for $200,000.00. However, the Barricks’ policy with State Farm had limits of $100,000.00 per person and $300,000.00 per occurrence. Thus, the Barricks paid $100,000.00 more than their coverage allowed out of their own pocket. Id.
The Barricks claimed State Farm and Jones were negligent. A second amended complaint alleged Jones (the agent) was negligent because he had a special relationship with the Barricks where he not only recommended but also selected liability coverage and limits for the Barricks’ policies. The Barricks claimed this created additional duties beyond those of the ordinary insurance agent. The Barricks also argued State Farm was vicariously liable for Mr. Jones’ negligence.
The trial court granted summary judgment for the defendants and found both State Farm and Mr. Jones affirmatively negated the element of duty within the Barricks’ claim or that the established element of duty could not be proved at trial. Further, the trial court specifically found Mr. Jones’ duty to the Barricks ended once he obtained the initial insurance coverage, and owed no further duty to the Barricks to select appropriate coverages or limits thereafter.
This particular case was governed by the summary judgment standard referenced in Hannan, et al v. Alltel Publishing Company, 270 S.W.3d 1, 8 (Tenn. 2008). Under Hannan, it is not enough for a moving party to challenge another party to “put up or shut up”. The Barricks alleged Mr. Jones’ assumed duties beyond those of an ordinary insurance agent. Relying upon Bennett v. Trevecca Nazarene Univ., 216 S.W.3d 293 (Tenn. 2007), the court decided it can apply the principle of assumption of duty to this case. In other words, if Jones regularly recommended and selected coverage for the Barricks, he had a duty to do so with reasonable care. The court determined that under the Hannan standard, summary judgment was not appropriate because there could be facts to establish in assumption of duty. Further, the court determined that State Farm could not be granted summary judgment for the same reasons in that he could still be found vicariously liable for its agent’s acts.
This case reiterates that neither an agent nor the insurance carrier has a duty to the insureds after the initial policy or coverages had been procured. However, such a duty might exist if the agent continues to select or recommend coverages for the insured after the initial procurement of the policy. The insurance carrier can be found vicariously liable for an agent’s breach of duty under both situations.
We are sometimes asked by insurance company representatives about how to respond to a plaintiff’s time limit settlement demand. There are no direct Tennessee cases on point on this issue, though Tennessee does have certain requirements in considering settlement demands against an insured. In Tennessee, insurance carriers who have exclusive control over investigation and settlement of a claim may be liable for more than the policy limit when it fails, in bad faith, to settle within policy limits. Clark v. Hartford Acc. & Indem. Co., 61 Tenn. App. 596, 457 S.W.2d 35 (Ct. App. 1970). Such a recovery sounds in tort, as opposed to under the contract, and is based upon a theory of the breach of the duty of “good faith and diligence in protecting the interests of the insured.” Id. This is also the rule in the vast majority of jurisdictions. State Auto. Ins. Co. of Columbus, Ohio v. Rowland, 427 S.W.2d 30, 33 (1968). As one court pointed out, things to be considered include:
the strength of the injured claimant’s case on the issues of liability and damages; attempts by the insurer to induce the insured to contribute to a settlement; failure of the insurer to properly investigate the circumstances so as to ascertain the evidence against the insured; the insurer’s rejection of advice of its own attorney or agent; failure of the insurer to inform the insured of a compromise offer; the amount of financial risk to which each party is exposed in the event of a refusal to settle; the fault of the insured in inducing the insurer’s rejection of the compromise offer by misleading it as to the facts; and any other factors tending to establish or negate bad faith on the part of the insurer. Id.
Other states have examined time limit settlement demands, but in a limited fashion. A Georgia court explained that “an insurance company does not act in bad faith solely because it fails to accept a settlement offer within the deadline set by the injured person’s attorney” but whether “the insurer acted unreasonably in declining to accept a time-limited settlement offer.” S. Gen. Ins. Co. v. Wellstar Health Sys., Inc., 726 S.E.2d 488, 491-92 (2012)(emphasis added). New York courts hold that failure to respond to a time limit demand when the insured’s liability was still under investigation is not enough to establish a case for bad faith. Pavia v. State Farm Mut. Auto. Ins. Co., 626 N.E.2d 24 (1993). However, Florida courts hold that failing to “ensure payment of the policy limits within the time demands” is included in the consideration for bad faith. Berges v. Infinity Ins. Co., 896 So. 2d 665, 672 (Fla. 2004).
Thus, the failure to accept a time limit demand is but one consideration courts allow to be made in examining whether a carrier has acted in bad faith. Thus, it is important to be actively engaged in investigation, consider all settlement demands, communicate all settlement demands with the insured, and otherwise consider the interests of the insured. While there appears to be no per se rule about responding to time limited demands, it is in the best interest to respond within the time period, if possible, even if it is to simply let the claimant know the reasons why a response cannot be made within the time constraints of the demand.
The Tennessee Court of Appeals recently ruled on a curious case of slip-and-fall. In the case of Petros Goumas v. Jimmy Mayse, et al., the Tennessee Court of Appeals in Knoxville found that the Trial Court correctly granted summary judgments to the defendants. The plaintiff was the fiancé of the daughter of the defendants, Jimmy Mayse and wife, Barri Mayse. Goumas was staying with his future in-laws when he slipped on a rock and broke his arm. It was daylight and dry at the time of the accident. Goumas had worked on the property before and knew where the rock was located.
Both the trial court and the court of appeals made quick work of dismissing this case on summary judgment. The court of appeals reiterated that liability in premise liability cases stem from superior knowledge of the condition of the premise. Under the circumstances of the case, the court found that plaintiff had as much knowledge of the condition of the premise as the owners. The court also restated two, long-standing principals in Tennessee. First, an individual has the duty to take care for his or her own safety. And second, negligence is not to be presumed by the mere happening of an injury or an accident.
Chief Judge Susano’s opinion does not necessarily present a novel legal precedent, but the facts of the case and the affirmation of some long-standing principals favorable to owners of property warrant some comment. Also, I can’t help but wonder whether Goumas wed the daughter of Jimmy Mayse. Sources confirm Goumas was forced to sue his future in-laws because the homeowners’ insurer denied coverage for the incident. So maybe the facts as presented do not tell the whole story. Rumor is Goumas and fiancé moved away from Tennessee to Elk River, Minnesota.
I recently wrote about a recent Court of Appeals decision on an insurance contract claim concerning several issues that come up in first-party bad faith claims against insurers, including the admissibility of evidence that would ordinarily amount to hearsay and excluded from introduction at trial. See John Riad v. Erie Insurance Exchange, E2013-00288-COA-R3CV, (Tenn. Ct. App. Oct. 31, 2013). The Court also examined whether the trial court erred in allowing the jury to consider the plaintiff’s claim for bad faith pursuant to T.C.A. §56-7-105 for failure to give the required 60 day notice.
In order to maintain a statutory bad faith claim against an insurer on a first party claim, T.C.A. §56-7-105 and case law require a formal demand for payment to be made, and that the insured must wait 60 days after making the demand before filing suit. In Riad, several e-mails were sent from the insurance agent to Erie concerning the plaintiff’s desire to sue both the insurance agency and Erie, including for bad faith, if the claim was not paid. The Riad court admitted precedence on this issue was conflicting as some cases have held “that a simple form of demand for payment is required, while others provide that an explicit threat of litigation is required.” Id. See also Heil v. Evanston Co., 690 F.3d 722, (6th Cir. 2012). However, the Court of Appeals recognized the plaintiff provided some form of notice to the insurance agent he intended to file a civil suit that would likely raise bad faith claims, and accordingly, the Court of Appeals found that applying either rationale, the plaintiff provided a formal demand as required by statute. Id.
After the Court found plaintiff could seek the bad-faith penalty, Erie asserted that the Plaintiff’s recovery was limited to the insured loss under the policy’s coverage and the statutory 25% bad-faith penalty. The Riad Court disagreed and found the bad faith statute could be used as an additional form of recovery for an insured and was not a limitation of recovery. Id. The Riad Court explained the purpose of assessing damages in breach of contract suit is to place the plaintiff in the same position he would be if the contract had been performed. Id. Here, because of Erie’s alleged non-performance of the policy, the insured lost rental income but his policy contained no coverage for lost rents. Id. The Court discussed the bad-faith statute and allowed recovery of the loss rents, though it may be argued such damages would be more likely constitute consequential damages as opposed to bad-faith damages. Id. An application for appeal to the Tennessee Supreme Court has been filed.
The Tennessee Legislature recently amended T.C.A. § 56-7-130, the statute requiring insurance carriers offering homeowner’s insurance in the state to “make available” sinkhole coverage to their insureds. The new statute clarifies sinkhole coverage is optional and available upon request by the insured. This is important because while the prior statute required insurance companies to “make available” sinkhole coverage, disputes arose over whether carriers were required to affirmatively “offer” sinkhole coverage to their insureds. The statute now makes it clear sinkhole coverage is not mandated to be included in homeowner property insurance policies – only that such coverage be available for optional purchase on request by policyholders.
The new statute also adds several helpful definitions such as “building stabilization or foundation repairs”, “covered building”, “homeowner property insurance”, “land stabilization”, “primary structural member”, “primary structural system”, and “structural damage” helpful in interpreting the law. According to the new statute, “sinkhole loss” is further clarified to require coverage for “structural damage” and does not include land stabilization. Without “structural damage”, as defined by the statute, any other cracking, shrinking, and/or expansion damage would not be covered even if actually caused by a sinkhole unless otherwise covered under the terms of the policy.
The statute requires insurers to follow the statute’s investigation standards only if the insured’s policy contained the sinkhole coverage, something that was less than clear in the previous version of the law. If sinkhole coverage is provided, upon a claim for sinkhole loss, the carrier must inspect the property. If structural damage possibly caused by sinkhole activity is present, before a sinkhole claim may be denied, written certification must still be obtained from an engineer or other qualified professional that sinkhole activity did not cause the observed structural damage.
If a loss is covered and determined to be the result of sinkhole activity, the statute speaks directly to how the claim is to be paid. The carriers, through the terms of their policies, may limit recovery to the Actual Cash Value of the loss, excluding the costs for building stabilization or foundation repair, until the insured actually enters a contract for such building stabilization or foundation repair. To receive payment in excess of the aforementioned Actual Cash Value:
– The insured must actually repair the damage in accordance with a repair plan approved by the insurer; and
– The policyholder is required to enter into a contract for foundation and building stabilization repairs within ninety (90) days after the insurer confirms coverage for the loss.
The carrier is required to pay the amounts necessary to begin the repairs and may not require the insured to advance payment for the necessary repairs. Such repairs are required to be completed within twelve (12) months unless there is mutual agreement; the matter is in litigation, appraisal or litigation; or circumstances beyond the control of the insured.
The new law takes effect July 1, 2014. It is a substantial improvement over the previous statute as it provides much needed clarity as to the requirements of insurers in making the coverage available as well as the specific steps required in the event of a covered sinkhole loss.
The doctrine of spoliation of evidence can cause major problems for both plaintiffs and defendants in civil litigation. Often times, months or years pass before the defendant is notified of a claim. As a result, defendants may have no notice that there is a duty to preserve evidence relevant to future litigation until after the evidence is discarded, lost or destroyed during the normal course of business. It is paramount, therefore, that businesses understand the rules associated with spoliation of evidence and adopt sound policies and procedures to (a) identify a potential claim; and (b) take reasonable steps to preserve evidence material to the claim.
As a general matter, spoliation of evidence permits a court to draw a negative inference against a party that has intentionally, and for improper purpose, destroyed, mutilated, lost, altered or concealed evidence. Bronson v. Umphries, 138 S.W.3d 844, 854 (Tenn. Ct. App. 2003); Leatherwood v. Wadley, 121 S.W.3d 682, 703 (Tenn. Ct. App. 2003); Foley v. St. Thomas Hospital, 906 S.W.2d 448, 453-54 (Tenn. Ct. App. 1995)). Federal courts in the Sixth Circuit also require some showing of intentional destruction of evidence before a spoliation sanction is appropriate. Atkins v. Wolever, 554 F.3d 65 (6th Cir. 2012); Beaven v. U.S. Dept. of J., 622 F.3d 540 (6th Cir. 2010).
However, amendments to the Tennessee Rules of Procedure, as well as several unreported Tennessee cases, began calling into question the type of proof required before a court may impose a spoliation sanction. Rule 37A.02 of the Tennessee Rules of Civil Procedure states that a sanction “… may be imposed upon a party or an agent of a party who discards, destroys, mutilates, alters, or conceals evidence.” Tenn. R. Civ. Pro. 34A.02. There is no culpable mind state included in this rule. In Cincinnati Ins. Co. v. Mid-S. Drillers Supply, Inc., 2008 WL 220287 (Tenn. Ct. App., Jan. 25, 2008), the Tennessee Court of Appeals pointed out that “nowhere in Rule 34A does it state that a finding of intentional destruction of evidence is permitted before a trial can order sanctions under Rule 37.” Id. at *4. The court held “. . . the trial court has discretion to sanction a party by dismissal of its case where the party’s destruction of evidence severely prejudices an adverse party’s defense irrespective of whether the destruction was inadvertent or intentional.” Id. at *1.
But, following the Cincinnati case, the Court of Appeals has repeatedly held that the doctrine of spoliation only permits a court to draw a negative inference against a party who has intentionally, and for improper purpose, destroyed, mutilated, lost, altered, or concealed evidence. Fuller v. City of Memphis, 2012 WL 3201937, at *5 (Tenn. Ct. App., August 8, 2012); Hensley v. Duke, 2010 WL 845385, at *9 (Tenn. Ct. App., March 10, 2010); Kincade v. Jiffy Lube, 2008 WL 1970348, at *4 (Tenn. Ct. App., May 8, 2008). In Fuller v. City of Memphis, the court reiterated that the negative inference only arises “… when the spoliation occurs in circumstances indicating fraud and a desire to suppress the truth. It does not arise when the destruction was a matter of routine with no fraudulent intent.” Id. at *5.
Accordingly, although the current status quo appears to require a showing of intent, it is clear that trial courts have wide discretion in determining the appropriate sanction to be imposed for discovery violations and that such discretion will only be set aside on appeal when the court has misconstrued or misapplied the controlling legal principal. Mercer v. Vanderbilt University, Inc., 134 S.W.3d 121, 133 (Tenn. 2004). Hopefully, the Tennessee Supreme Court will clarify what standard applies in determining whether or not a spoliation sanction is appropriate. In the meantime, it is incredibly important for businesses to use due diligence to protect and preserve any evidence that may relate to civil litigation, including standardization of incident reports for all incidents involving injury on premises. It is equally important that any incident reports be communicated to the appropriate risk managers for evaluation and appropriate action.
If your business needs advise concerning risk management or evidence preservation, please do not hesitate to contact me.