Product Defect

Limits of Insurer Indemnity Clarified in Parish of St. Bernard Case

Published on: September 1, 2011 | By Berniard Law Firm

When an insurance company provides coverage to a business, the contract typically includes a duty to defend the inured business against any coverage claims. If an insurer refuses to provide the insured with claim defense, then the insured business may sue the insurance company for indemnification of defense fees. However, a question often arises as to how much an insurance company is required to pay for indemnification. This issue was brought to light in a recent Supreme Court of Louisiana case when insurance company Continental was sued for indemnification by a manufacturing company, T&L.

When an insurance company is sued for indemnification, several options exist for a defense. One defense, which was used in the Continental case, is policy exclusion. Under this defense, the insurance company claims that the individuals seeking damages from the insured business fall outside the policy coverage and thus outside the realm requiring the insurer to defend the insured business. In the Continental case, for example, Continental refused to defend T&L against claims brought by T&L employees because certain time frames of T&L’s policy did not cover injuries sustained by employees.
One way to defeat a policy exclusion defense is to prove that the insurance company waived its right to the defense. Typically, a waiver occurs when an individual, or in this case a company, has an existing right, knowledge of its existence, and an intention to relinquish that right. However, even if there is no intention to give the right up, conduct that creates a reasonable belief that the right has been relinquished will constitute a waiver of that right. Therefore, if an insurance company undertakes a defense on behalf of its insured against claims that the insurance company knows do not fall under the insurance policy, and does not reserve its rights to withdraw defense, then it is likely that the insurance company has waived its right to a policy exclusion defense. This means that if the insurance company was to back out of the defense it would be held liable for indemnification to the insured because the insured relied on the insurer’s actions to defend them.

However, it is important to make a distinction between waiver and breach of duty to defend in the insurance context. While a waiver involves an insurer relinquishing its rights to deny coverage under a policy, a breach of a duty to defend expressly denies coverage under a policy. In essence, the two are complete opposites. If an insurance company waives its right to deny coverage, then the insurance company, if they withdraw from defense, is likely to be forced to indemnify the insured for all defense costs for all claims. On the other hand, as was the holding in the Continental case, a breach of a duty to defend falls under contract law, and would find the insurance company liable for reasonable defense costs. In addition, if the breach was made in bad faith, statutory penalties will be imposed upon the insurer. Liability for such claims is also allocated on a pro rata basis between all insurance policies. This lowers the costs incurred upon insurers, which, for Continental, decreased from over four million dollars to just shy of two-hundred thousand dollars.

If your business is at odds with an insurance company over policy claim defense, be sure to consider whether or not the insurance company has waived its right to a policy exclusion defense. If the insurer has, then it is likely that the insured will be able to recoup costs paid to all claimants. If, on the other hand, the insurer has simply breached a duty to defend, you may only be able to recoup reasonable defense costs.

Even if you find this article helpful, insurance law is a complicated matter that should not be approached without consultation from a practicing insurance attorney.

Keeping Up with Your Louisiana Home’s Construction Defects (Part II) – Understanding Statutes

Published on: August 18, 2011 | By Berniard Law Firm

As previously discussed in Part I, the case of Charles Ebinger, et ux. v. Venus Construction Corporation, et al. focuses on the time period in which a claim for damages can be brought against a contractor and the time period in which a contractor may bring an indemnifying action against a subcontractor. This Part, however, focuses on the Louisiana Supreme Court’s reasoning as to how it interpreted the applicable statute of limitations.

The Ebingers moved into their newly built home in April of 1997. On October 9, 2003, the Ebingers filed suit against Venus Construction alleging defects in the home’s foundation had caused cracks in the drywall, tile, brick walls, and floor. Venus Construction filed its indemnity claim on September 22, 2006 against the engineer and subcontractor that supplied the foundation.

First the Court determined when the cause of action arose. The Court determined that “regardless of the length of the peremptive period, it [the peremptive period] began when the owners took possession of the house or filed an acceptance of the work.” In this case, a certificate of occupancy issued on April 22, 1997, and therefore, that is when the peremptive period began. At the time the Ebingers moved into their home, the original statute was in place and thus the Ebingers would have ten (10) years to file a claim.

Second, the Louisiana Supreme Court looked at the language of the statutes to determine whether the superseding statutes were written to act retroactively or have prospective application. Though the peremptive period was ten years at the time the statute of limitations began to run, the legislature amended the governing statute in 1999, substituting ‘seven’ for ‘ten’ years as the peremptive period. Further, this Act stated “the provisions of this Act shall have prospective application only and shall apply to contracts entered into on or after the effective date of this Act.” Thus, at this time, the Ebingers would still have a valid claim through the original ten year peremptive period because the amended statute had only prospective applicability, not retroactive applicability, as specifically written in the Act by the legislature. Next, the Court looked at the second revision of the Act in 2003 which substitute ‘five’ for ‘seven’ years and did not maintain the ‘prospective application’ language. The Court states that the legislature’s actions in drafting a law are knowing and intentional, and thus, if the legislature meant for the ‘prospective application’ language to continue, then the legislature would have included it in the Act. However, because the legislature did not, the Court’s interpretation is that the 2003 Amendment supersedes the original statute and makes the peremptive period five years, even for those causes of action that arose back when the ten and seven year periods were applicable.

Third, the Court examines Constitutional rights to Due Process and determines that the statute of limitations is a procedural law and as long as it does not disturb a vested legal right, a right that at the moment may be expressed, then the statute of limitations (peremptive period) may be applied retroactively. In the end, the Ebingers’ claim is not perempted even though it was filed two months after the 2003 Amendment because the Ebingers’ right to sue had vested the moment they attained the certificate of occupancy. However, as for Venus Construction, “the mere expectancy of a future benefit,” for Venus Construction in this case the right to file a claim for indemnification, “does not constitute a vested right.” Therefore, Venus Construction’s right to file a claim for indemnification did not vest until a judgment was entered against Venus Construction, and thus the peremptive period has run for Venus Construction to file a claim for indemnification against the subcontractor.

Handling Faulty Home Construction Defects in Louisiana

Published on: August 16, 2011 | By Berniard Law Firm

Being able to be involved in the design and building of a new home can be an exciting experience. But there is nothing more special than seeing the home’s construction completed and fully furnished. After all of this, there can be nothing more upsetting than the discovery that the new home has building defects. Imagine settling in and noticing some part of the home’s structure misshapen or cracking at the seams of walls or floors, or perhaps even a foundation or structural supports that have improperly settled or misplaced. The focus of Charles Ebinger, et ux. v. Venus Construction Corporation, et al. focuses on the time period in which a claim for these damages can be brought against a contractor and the time period in which a contractor may bring an indemnifying action against a subcontractor.

The crux of this follows what happens from the time that the building has completed through when litigation is brought against the contractor, and in the event the contractor is found liable, then the indemnification proceeding the contractor would most likely bring against any subcontractor who may be at fault for the imperfect work. However, this is complicated by taking into account the statute of limitations that exists to bring about such a suit. And this is further complicated when taking into account the revisions of the statute of limitations by the legislature.

In short, and to be clear, ‘to indemnify’ means to compensate for damages or losses sustained and to pay for expenses incurred through the litigation. Thus, in the event that a contractor, one who oversees and employs the various subcontractors for a specific job, is found to be liable for damage that exists in a specific construction unit, then, if it is through no fault of the contractor, but is the fault of one of the subcontractors and his or her oversight of his or her unit and specific job, then the contractor may seek to have his or her losses, in this case through litigation and a damages award against the contractor, paid by, or reimbursed by, the subcontractor.

Understanding Class Action Lawsuits in Louisiana

Published on: June 16, 2011 | By Berniard Law Firm

Class actions are a common and popular legal tool for cases involving a large group of people who share the same grievance against a defendant. Specifically, the plaintiffs have to have a real and actual interest in order to join a class action. An issue may arise however, if a plaintiff’s interest is called into question. In particular, whether the plaintiff belongs to the class of persons to whom the law grants the cause of action asserted against a defendant. Essentially, the plaintiff’s have to share the same type of complaint and injury in order to form a proper class action. Many times, defendants will allege that the class action was improperly certified (allowed) in order to invalidate any complaints against them.

In a recent Second Circuit Court of Appeal Case in Louisiana, the court explored the certification of a class action in order to determine whether or not it was proper. The facts of the case include the plaintiff, representing a class of individuals, who all share a grievance against a funeral home, owners of the funeral home, and numerous banks. The gist of their complaint is that the funeral home sold prepaid funeral expenses to the plaintiffs and other putative class members. The owner of the funeral home then deposited their payments into certificates of deposit (COD) with one or more of the banks named as defendants. The bulk of COD’s were under names which included the Funeral Home, followed by either “payable on death,” or “for the benefit of” followed by the name of the individual whose prepaid funeral funds were being held on deposit. The issue became that without presentation of a death certificate as required by Louisiana statute, the law governing prepaid funeral services, and in breach of the banks’ contracts, namely, the certificates of deposit, the funeral home was allowed by the banks to withdraw the funds which they converted and appropriated for their own use. The plaintiffs argue that by accepting the deposits, the defendant banks became commonly liable with the funeral home. Yet, the appellate court is charged with the responsibility to determine whether the class action should be certified, despite the fact the trial court denied the class’s certification.

A class action must have certain definite characteristics. First, the class must be so large as to make individual suits impractical. Second, there must be a legal or factual claim in common between all the plaintiffs involved. Third, the claims or defenses must be typical of the plaintiffs or defendants. Fourth, the representative parties must adequately protect the interest of the class. Further, in many cases, the party seeking certification of a class must also show that common issues between the class and the defendants will predominate the proceedings, as opposed to individual fact-specific conflicts between class members and the defendants and that the class action, instead of individual litigation, is a superior vehicle for resolution of the disputes at hand. Here, the class certification, the plaintiffs sought to certify a class defined as “all individuals from whom the funeral home appropriated and converted funds collected by them for prepayment of funeral expenses.” Additionally, the motion asserted common questions of law and fact including:

Playstation Network to Return: Legal Concerns Still Remain

Published on: June 1, 2011 | By Berniard Law Firm

Sony announced yesterday that the Playstation Network (PSN) is set to return by the end of this week. Reports indicate access began to be provided to users starting on May 15 with different regions being incrementally phased in worldwide. Questions remain, however, as to the extent of previous breaches of the gaming network’s security and just how safe gamers are from having the incidences of May occur again.

With its restoration of access to Playstation and Qriocity users in US, Europe and Asia, Sony is ending a month of outage that was first spurred by a breech of the networks’ security. As we explored previously, that Sony has admitted that the breech occurred due to the exploit of a known vulnerability opens a rather clear inquiry of just how negligent the electronics giant was in the matter. Down since April, the Playstation gaming network and Qriocity, a movie and music service, have been sorely missed by users that frequently accessed the services for their entertainment needs. However, with that access came the disclosure of information that is now likely in the open. What this information can be used for, and the subsequent ramifications for the users, remains to be seen but there is no doubt the courts will begin seeing discussion on the damages caused.

Sony has been adamant about the upgrades they have made to their system, stating they have “been conducting additional testing and further security verification of our commerce functions in order to bring the PlayStation Network completely back online so that [their] fans can again enjoy the first class entertainment experience they have come to love.” This statement, made by Sony Executive Deputy Vice President Kazuo Hirai, also came with an expression of gratitude for the patience and support offered by fans. The reality of the situation, however, is that those whose information was disclosed have zero patience for an invasion of their privacy.

Smooth Away Product Not All It’s Purported to Be

Published on: May 9, 2011 | By Berniard Law Firm

Infomercials, commonplace in the wee nights for insomniacs, often push the envelope of how groundbreaking and innovative their products are. Using notions of mystery and incredible results, these product “debuts” draw the viewer in by promising results, and features, that commonplace items cannot. While most people would take these promises with a grain of salt, the notion that the product may not even resemble the claims presented is something that seems improbable. In the case of “As Seen on TV” product Smooth Away, this actually is the case as plaintiffs have begun to voice their displeasure of the false reality surrounding this hair removal item.

Smooth Away is a hair removal product that is pitched through the premise that it is a pain-free solution for hygiene purposes. Advertised as an instant and painless manner to tackle shaving needs, Smooth Away has had a very solid sales cycle due to these very attractive promises. The truth, however, behind the New Jersey-based corporation’s product is not so simple. While their claims are smooth, the truth is much more rough and cloudy.

Marketed online and in local stores like Walgreens and others, it is without question that Smooth Away has found a niche in the marketplace. What’s more, sales appear to be solid as buyers, mostly women, are looking for what is being promised: a simple, painless and easy way towards hair removal. The cost of trusting this product, though, is enough to be concerned with.

Sony Network Shutdown Caused by Data/Personal Information Leak

Published on: May 2, 2011 | By Berniard Law Firm

The video game world was rocked recently by the shutdown of the Sony Playstation 3 Gaming Network. While a free service, the fact that gamers were unable to connect to the network and play their favorite games against both friends and strangers added a wrinkle to an already complex competition between the electronics giant and Microsoft’s X-Box system and network. However, a more significant wrinkle much less publicized exists: Sony was forced to shut down their network due to a breach by external individuals that exposed their personal data.

Most likely ending as a Multidistrict Litigation (MDL) situation wherein the litigation will be handled in one court and affect the rulings and settlement opportunities of people across the country, this situation affects hundreds, if not millions, of Americans. Headquartered in California, Sony still does not have a definitive answer for its customers regarding this situation. Yesterday’s news that 10 million credit card numbers may have been exposed in a data breach that involved a known vulnerability is all the more staggering.

When someone puts their faith, and personal information, in the hands of a company, let alone a giant like Sony, they believe this data will be kept secure. However, for this breach to occur, and for the company to admit it was a known issue, provides the legal basis for judicial recovery. Only time will tell what becomes of this privacy and information issue but the protection of secure data is paramount. What Sony will do to reassure its customers that they can continue to trust them remains to be seen.

Hurricane Katrina Case Allowed to Move Forward

Published on: April 17, 2011 | By Berniard Law Firm

On August 29, 2005, Hurricane Katrina devastate much of the Gulf Coast, prompting the Louisiana Legislature to enact Acts 2006, which extended the prescriptive period within which insured’s were allowed an additional year to file certain claims under their insurance policies for losses incurred by the storms. Despite many insurance contracts granting only one year for insured’s to file claims, this prescriptive period extension allowed many residents more time to file as a result of the difficult circumstances caused by the storm. The Louisiana Supreme Court recently were asked to determine whether the Plaintiffs’ lawsuit, seeking damages from the Louisiana Citizens Property Insurance Corporation (LCPIC), filed nearly three years after Hurricane Katrina had prescribed. In an earlier decision made by the Fourth Circuit Court of Appeal, the prescriptive period was held to be interrupted by a timely filing of a class action petition against the insurer, which included the Plaintiffs as putative class members. Time is of the essence when filing lawsuits, here, the Louisiana Supreme Court held that the plaintiffs were timely and permitted to continue their lawsuit against LCPIC.

The plaintiffs, like so many other Gulf Coast residents, suffered extensive property damage as a result of Hurricane Katrina. Maneuvering through the insurance filing process became tedious and very difficult, the plaintiff’s constantly received refusals by the insurance company to make any payments on their policy limits. Thus, the plaintiff’s turned to legal help in order to obtain help to rebuild their homes and their lives. On June 27, 2008, the Plaintiffs filed a petition against their insurer, LCPIC, seeking payment of their policy limits and damages, including damages for emotional distress and mental anguish. The allegations included: The plaintiff’s property was completely destroyed during the storm, the properties in question were covered by a policy of insurance issued by the defendant LCPIC, yet, the company refused to pay the policy limits. In response, LCPIC filed an Exception of Prescription, arguing that the suit was not filed within one year of loss and that the extended period of prescription provided by legislation had also expired. The trial court initially granted the defendant’s exception of prescription and dismissed the plaintiff’s claim with prejudice, finding that they had failed to file their claim timely. However, on appeal the trial court’s decision was reversed, the prescriptive period had been interrupted by the timely filing of a class action against the defendant insurer in which the Plaintiff’s were putative class members.

Prescription, as defined by Louisiana’s civilian tradition, is defined as a means of acquiring real rights or of losing certain rights as a result of the passage of time. In the case of Cichirillo v. Avondale Industries, Inc, the court reasoned that prescription is designed to “afford a defendant economic and psychological security if no claim is made timely and to protect the defendant from stale claims and from the loss or non-preservation of relevant proof.” Prescription itself is a safety measure that was created in order to prevent defendants from the constant fear of a lawsuit twenty or more years after the fact. Conversely, the other type of period that exists in Louisiana, is liberative prescription. This is a period of time fixed by law for the exercise of a right, yet, a contractual limitation period is not a period of time fixed by law, it is a fixed agreement between the parties. Time is of the essence, yet, there are exceptions to the rule, this is exemplified by the fact that Louisiana extended the initial one year prescriptive period for property damage claims against insurers, for one additional year, allowing victims fo Hurricane Katrina more time to organize the various aspects of their lives that were devastated by the storm.

The primary issue in this recent Louisiana Supreme Court decision, was whether or not the class action suit in which the plaintiff’s were putative class members, interrupted prescription, thus, allowing them continued access to their legal claim against the insurance company. Louisiana civil code article 1793 states, “Any act that interrupts prescription for one of the solidary obligees benefits all the others.” Thus, by becoming putative class members in the initial lawsuit against the insurance company, the plaintiff’s maintained their legal claims against the defendants, allowing them to pursue further legal action against the company despite the passage of time. The court of appeal held that the filing of the class action suits against LCPIC suspended or interrupted the running of prescription against the plaintiff’s property damage claims since they were found to be putative class members when the original class action petitions were filed.

The defendant insurer argued that the contract, which provided one year from the date of the property damage, was the governing time period, even over the statutory extension provided by the Louisiana Legislature. The defendants supported this assertion by declaring that the public interest is served by permitting the insurer to limit the time of its exposure, as Louisiana Civil Code 802 states, “any suit not instituted within the specified time and any claims relating thereto, shall be forever barred unless a contract or the parties thereto provide for a later time.” However, even though the plaintiff’s did not unilaterally file a claim against the insurer within the one year contractual time period, they did enter into the class action against the insurer within the aforesaid time period. Upon the filing of the class action, liberative prescription on the claims arising out of the transaction or occurrences described in the petition were suspended as to all members of the class. The insurance contract provided a contractual time period, not a prescriptive time period, as a result, the additional one year time period afforded to Gulf Coast residents affected by the storm governs. The insurance company attempted to assert the contractual nature of its agreement to circumvent the application of the general codal and statutory rules of prescription is adverse to Louisiana civil Code Article 3471, which clearly circumscribes the limits of any contractual agreement attempting to incorporate a limitation period different from that established by law. Specifically, Louisiana Civil Code Article 3471 states:

A juridical act purporting to exclude prescrption, to specify a longer period than that established by law, or to make the requirements of prescription onerous, is null.

Thus, parties cannot “opt out” of prescriptive periods created by general codal and statutory rules. The plaintiff’s entered into a class action within the prescriptive time period, this interrupted the passage of time that would have taken away their legal rights to sue the insurer. Thus, the subsequent suit against the defendants was timely, and despite the contractual language that attempted to circumvent the Louisiana Legislature, the plaintiff’s filing was timely.

DePuy Settlements May Offer Spectrum of Opportunities for Recovery

Published on: March 27, 2011 | By Berniard Law Firm

Nearly ten years ago, consumers sued Sulzer Medica for producing defective hip and knee implants. The company ultimately settled with the affected parties. Although the underlying facts of the Sulzer Medica litigation are technically different from those of DePuy, the Sulzer Medica outcome is nevertheless instructive. If anything, the outcome of the Sulzer Medica recall may reflect the outcomes that will emerge in forthcoming DePuy litigation.

For those unfamiliar with the Sulzer Medica situation, here is a brief synopsis:

Sulzer Medica is a Swiss company that produces artificial joint replacements. It has since changed its name to Centerpulse. In December 2000, the company discovered that machinery oil had contaminated some of its knee and hip implant parts. Consequently, affected joint replacement units failed to adhere to the bone of recipients. Sometime in 2000, the company recalled the defective units. affecting approximately 32,000 people in the United States. Many had to undergo revision surgeries to remedy the problem.

Chinese Drywall Claims Continue as Thousands Still Face Problems

Published on: March 25, 2011 | By Berniard Law Firm

In a recent decision, a Palm Beach County, Florida, judge ruled that because homebuilders did not manufacture the defective drywall that eventually caused damage to homes, and because they were not within the “chain of distribution,” they could not be held strictly liable for the alleged defects. Strict liability would make it easier for a potential victim to recover money from the homebuilder because the victim would not have to prove that the homebuilder had been negligent in any way. The victim would merely have to show that a product standard was not met along the supply line that led to their injury.

In this case, the homeowner, Marlene Bennett, sued the homebuilder under several theories: 1) breach of contract, 2) tort law, and 3) private nuisance law. The plaintiff asserted damages against the homebuilder, installer, supplier, and manufacturer of the drywall for installing faulty materials, economic losses for declines in home values, and personal losses for the alleged nuisance caused by the drywall emitting fumes. All of these claims, and defendants, are designed to cover the wide spectrum of expenses and responsibilities that can develop as a result of this caustic material being installed and slowly ruining a family home.

Upon going to trial, the case hit its first roadbump when the judge did not let the private nuisance claim go forward. Usually, nuisance law claims are used when someone is unreasonably interfering with the private property rights of another. The judge analyzed Florida law and decided that nuisance law usually had to do with things tied to the land itself, not parts of the house like drywall. The plaintiff may still be able to claim under a breach of contract claim (for breach of implied warranty or other claim) but because there are so many parties involved from the manufacture of the drywall to its installation, it is difficult for plaintiffs to recover damages.

It is important, however, to note that this is only one case, and was in a Florida court, not a Louisiana court. It has not yet been adopted by other judges or upheld by higher courts, and the case law is still developing in this area. It is possible that a Louisiana court could decide the case completely differently. The proper attorney with the most thorough understanding of product liability and insurance dispute (like those at our firm) will use legal theories and tools like this to navigate the judicial process.

In addition to this case, there are a number of ongoing legal efforts in the courts right now in Louisiana, Virginia, California, and Florida dealing with the issue of whether builders can be held liable for defective drywall. Much of the drywall involved in the litigation was manufactured during a specific period of time in China and believed to cause damage to electrical wiring and fire safety equipment.There has been a settlement in federal court involving Knauf Plasterboard Tianjin, which produced one-fifth of the defective drywall, recently settled in federal court to help pay to fix the damage their defective drywall caused. Homeowners may choose to have their homes repaired or to sue for money damages and do the work themselves.

Our firm has made steady progress within the courts and continues to take on clients looking to receive the damages they deserve due to this defective wallboard. If you are a homeowner with defective drywall that is emitting fumes, lowering your home value, or other damage, we may be able to help you.