Hot Cases

The Federation of Defense & Corporate Counsel posts new decisions on a daily basis at its website www.thefederation.org in the "Hot Cases" section. Jim Horstman is a member of the FDCC and is available to discuss questions regarding the Hot Cases featured on the FDCC website.

Appellate Court Allows Wrongful Death Beneficiaries to Avoid Anti-Stacking Clauses in UIM Policies By Characterizing Each Beneficiary’s Interest Under Wrongful Death Act as a Separate Claim

In a case of first impression, the Second District Appellate Court has ruled that anti-stacking language in a UIM policy will not limit multiple wrongful death beneficiaries to a single UIM limit.  In Economy Premium Assurance Company v. Jackson, 393 Ill.App.3d 929 (2nd Dist. 2009), the son of divorced parents was killed in a collision caused by an underinsured motorist.  Each parent had a separate automobile policy containing UIM coverage, and both insurers contended that the parents’ recoveries for the death of their son must be limited to a single UIM limit by virtue of the anti-stacking language in the policies.

The insurers reasoned that under Illinois law, the parents’ claims for the death of their son could only be brought under the Wrongful Death Act, and that the Act provided for only a single claim that must be brought in the name of the decedent’s estate.  They reasoned that since there was only one claim, it was governed by the anti-stacking provisions of the policies and the estate could not aggregate the limits of both policies.

The Appellate Court disagreed, finding that each parent had a right to seek recovery for his or her own damages under the Wrongful Death Act.  Based on this analysis, the Appellate Court concluded that the anti-stacking provisions would not apply; rather, the decedent’s mother and father each had a separate claim and were entitled to recover the full UIM limit of their respective policies.

The Appellate Court’s opinion in this case is without precedent in Illinois law.  Although the Court decided the issue within the somewhat narrow context of UIM insurance, a similar analysis could potentially be applied to trigger multiple policy limits under other liability policies in wrongful death cases.

Beware relying on workers compensation IME reports.

The First District Appellate Court has ruled in Grabs v. Safeway (6/17/09) that an employer may not rely on it retained physician’s favorable IME “fit for duty” report (when conflicting medical opinions exist) to terminate an employee for failing to return to work before the Industrial Commission issues its ruling.

Seventh Circuit court’s recent discussions of the application of Daubert to expert testimony can be found in Lewis v. CITGO Petroleum Corp., 561 F.3d 698 (7th Cir. 2009) and Euro Holdings Capital & Investment Corp. v. Harris Trust & Savings Bank, No. 05 C 1181, 2009 WL 650373 (N.D. Ill. Mar. 11, 2009).

In CITGO the Seventh Circuit advised that district courts not only retain discretion when applying the Daubert factors to asserted expert testimony, but they also retain discretion in determining the manner in which the Daubert issue may be presented to the court. CITGO involved a personal injury action alleging exposure to hydrogen sulfide gas while working at CITGO. The plaintiffs sought to establish injury causation through expert testimony from treating physicians. CITGO did not challenge the testimony by a traditional motion to bar or Daubert hearing. Instead, CITGO brought a motion for summary judgment challenging plaintiff’s ability to establish causation because the experts were not qualified based on a lack of training or experience in toxicology or epidemiology. Other challenges were also asserted, such as faulty methodology and failure to consider alternative causes. Plaintiffs argued that this was an improper approach by which to challenge the experts’ testimony. The district court disagreed and entered summary judgment in favor of CITGO. The Seventh Circuit affirmed noting that the law grants the district court great discretion regarding the manner in which it conducts Daubert evaluations. Sua sponte consideration of the admissibility of expert testimony by a district court was also held to be proper.

The Northern District of Illinois provides a detailed analysis of the Daubert requirements and expert testimony with respect to lost future profits in the Euro Holdings case. Euro Holdings sought to recover from Harris Trust based on a tortious interference with contract claim. Harris Trust had allegedly caused the failure of a transaction resulting in Euro Holdings’ loss of a 90% equity stake in LFG. To attempt to put forward evidence of significant lost future profits, Euro Holdings relied an expert witness. The retained expert determined actual past performance of LFG and then modified that performance to reflect Euro Holdings’ intention to modify the structure of LFG’s business after the sale. The expert then made projections regarding LFG’s likely future performance based on certain assumptions. The district court found the expert’s methodology as to past losses to be sufficient for purposes of denying a motion in limine. However, the district court granted defendants’ motion in limine regarding future profit testimony because the modifications to the structure of the purchased company hadn’t occurred and thus the “new company” was never actually in existence. The damage calculation was held to be too speculative, and the court found that the claim itself likely was barred by the “New Business Rule” (recovery for lost profits of a new business generally is not allowed because such a loss is “too uncertain, specific and remote to permit recovery.”) In Solomonic fashion, the court split the baby.

A Colorful Picture of a Reasonable Settlement: The Illinois Appellate Court Considers Whether an Insurer Must Pay a Settlement in Asbestos Litigation

The Illinois Appellate Court recently in Federal Insurance Co. v. Binney & Smith, Inc. (1st Dist. June 30, 2009) found that Federal Insurance was obligated to pay a settlement between its insured, a manufacturer of asbestos-containing crayons, and a class of purchasers of said crayons. The class plaintiffs alleged in part that the insured violated the Illinois Consumer Fraud Act and Uniform Deceptive Trade Practices Act because the subject crayon packaging was falsely labeled that the product was “Certified Non-Toxic” and “safe for children.” Ultimately, the insured and the class plaintiffs settled the lawsuit for approximately $1 million. The trial court, after conducting a fairness hearing, approved the settlement.

The insured tendered to Federal Insurance the defense and indemnity of the lawsuit under the “advertising injury” provisions of the policies. Federal Insurance filed the instant declaratory action against its insured. The trial court found in the insured’s favor.

On appeal, the appellate court considered whether the settlement was reasonable, i.e., whether the settlement was for a covered loss and was reached in “reasonable anticipation of liability.” The insured contended that while it believed that the class plaintiffs’ allegations were not meritorious, it did not want to risk putting the issues before a jury, in light of juries’ tendency to render adverse verdicts against manufacturers whose products contain even trace amounts of asbestos. The insured thus believed it potentially faced significant liability. The appellate court was not compelled by Federal Insurance’s response that its insured had an absolute defense to the consumer fraud claims. The lack of evidence that the insured was “specifically authorized” by statute or regulation to use the term “Certified Non-Toxic” on its packaging indicated that the insured’s defense could not have been absolute. Accordingly, the appellate court agreed with the trial court that the settlement was reasonable. It also agreed with the trial court that the alleged false labeling was sufficient to trigger Federal Insurance’s indemnity obligations under its “advertising injury” provisions. The appellate court thus affirmed this aspect of the trial court’s ruling.

This decision may be found at:
http://www.state.il.us/court/Opinions/AppellateCourt/2009/1stDistrict/June/1080843.pdf

The Illinois Appellate Court Agrees That an Estopped Insurer May Still Challenge the Reasonableness of a Settlement

The Illinois Appellate Court recently in Stonecrafters, Inc. v. Wholesale Life Insurance Brokerage, Inc. (2d Dist. July 13, 2009) held that a liability insurer that breaches its duty to defend its insured an underlying lawsuit and is estopped from raising coverage defenses may challenge a trial court’s finding of the reasonableness of the underlying settlement between the insured and the underlying plaintiff and may take discovery in furtherance of its challenge. Here, the insured settled a class action lawsuit alleging violations of the Telephone Consumer Protection Act arising out of the sending of blast faxes. The insured had tendered notice of the lawsuit to its insurer, Milwaukee Insurance Co. (“MIC”), but MIC had denied coverage. The trial court certified the settlement class, approved the settlement, and determined that the settlement was fair and reasonable.

Following the initiation of a third-party action against MIC, MIC moved for leave to issue discovery concerning the reasonableness of the settlement. The class plaintiffs refused to comply. The trial court ultimately granted the class plaintiffs’ motion for partial summary judgment, finding that MIC had owed a duty to its insured in the class action, that MIC had breached its duty to defend, and that MIC was estopped from raising policy defenses to coverage.

On interlocutory appeal, the appellate court agreed with MIC that in order to avoid the possibility of collusion to defraud the insurer, a plaintiff must prove that its settlement with the insured is reasonable before the settlement can have a binding effect upon the insurer. In interpreting Guillen v. Potomac Insurance Company of Illinois, 203 Ill. 2d 141 (2003), the appellate court found that the burden to establish the reasonableness of the settlement remains on the parties to the settlement even when the insurer is found to be estopped from asserting policy defenses to coverage. Since MIC was not given notice of the motion to approve the underlying settlement and was not able to participate in the hearing on the fairness of the settlement, the appellate court found that the trial court erred in holding that the settlement was fair and reasonable.

This decision may be found at:
http://www.state.il.us/court/Opinions/AppellateCourt/2009/2ndDistrict/July/2080865.pdf

The Appointment of Conflict Counsel: The Seventh Circuit Speaks on Actual vs. Potential Conflicts

The Seventh Circuit Court of Appeals recently rejected in National Casualty Co. v. Forge Industrial Staffing, Inc. (June 3, 2009) an insured’s attempt to force its insurer to pay for independent counsel. The insured, a staffing company, had been charged by the Equal Employment Opportunity Commission (“EEOC”) with discriminatory termination practices. Following the tender of the claim, the insurer agreed to defend the insured under reservation of rights and appointed counsel to represent the insured. The insurer specifically reserved its rights for any punitive damages awards arising out of the insured’s willful violations of the law. Notably, the applicable insurance policy covered intentional acts, but not willful violations of employment statutes or regulations. The insured identified this reservation as creating a conflict of interest and requested independent counsel. The insurer refused and filed the instant declaratory judgment action. The United States District Court for the Northern District of Illinois decided the independent counsel dispute in favor of the insurer.

On appeal, the Seventh Circuit found that the even if the reservation may have created a potential conflict of interest between the insurer and the insured, there was no actual conflict of interest. The Seventh Circuit found particularly compelling that punitive damages cannot be sought in an EEOC proceeding, the underlying plaintiffs did not accuse the insured of willfully violating any laws, and in defending the insured generally, the insurer would necessarily be protecting the insured’s interests with respect to both compensatory and punitive damages. Thus, the Seventh Circuit affirmed the trial court’s judgment.

Another Four Corners to Examine: TheIllinois Appellate Court Looks To the Underlying Counterclaim to Find a Duty to Defend

The Illinois Appellate Court, Fifth District recently in Pekin Insurance Co. v. Wilson (June 8, 2009) looked beyond the eight-corners of the complaint and insurance policy to find that the insurer had a duty to defend its insured. Here, the underlying plaintiff filed a lawsuit against the insured in part for assault, battery, intentional infliction of emotional distress. Pekin filed the instant declaratory judgment action, relying in part upon its commercial general liability policy’s intentional acts exclusion. Following a motion for judgment on the pleadings, the trial court found that Pekin did not owe its insured a duty to defend.

The Appellate Court disagreed. Relying upon the self-defense exception to the expected or intended conduct exclusion, the Appellate Court found that Pekin’s duty to defend was triggered. Pekin maintained that the exception could not apply unless the allegation arose out of the pleadings of a non-insured. The Appellate Court stated, instead, that it could consider all the facts alleged “in the underlying lawsuit as a whole,” including the allegations in the insured’s counterclaim. Thus, the Appellate Court reversed and remanded the matter for further proceedings.

The decision may be found at http://www.state.il.us/court/Opinions/AppellateCourt/2009/5thDistrict/June/5070571.pdf

Seventh Circuit Finds No Coverage for False Claims Act Claims

The Seventh Circuit Court of Appeals recently in Health Care Industry Liability Insurance Program v. Momence Meadows Nursing Center, Inc. (May 20, 2009) took great lengths to foreclose coverage for Federal Claims Act claims. Here, the insured nursing home sought coverage for a lawsuit alleging violations of the federal False Claims Act and the Illinois Whistleblower Reward and Protection Act, arising out of charges it had submitted to Medicare and Medicaid. The underlying lawsuit specifically alleged that the insured falsely certified that it was ensuring, for example, that its residents were properly receiving their medications and were provided with adequate nutrition. The underlying lawsuit alleged that as a result of the substandard care, the insured’s residents suffered from various diseases. In the instant declaratory judgment action, the magistrate judge held that the insurer had no duty to defend the insured.

The Seventh Circuit agreed. It found that the allegations concerning the injuries experienced by the residents were not the foundation of the underlying complaint; rather, they were only tangentially related to the damages sought for the false filings. The Seventh Circuit noted that the allegations of injuries suffered by the residents need not be proven for the underlying plaintiffs to recover; rather, the underlying plaintiffs merely needed to show that the insured billed the government for services and a level of care it knew it was not providing. The Seventh Circuit cited the decisions of several other circuits that were in accord with its ruling. Accordingly, the Seventh Circuit affirmed the judgment below.

Illinois Appellate Court Broadly Construes Additional Insured Endorsement to Create Coverage for General Contractor

The Illinois Appellate Court recently broadly construed an additional insured endorsement to find coverage for a construction project’s general contractor. First, in Pekin Insurance Co. v. Hallmark Homes, L.L.C. (2d Dist. June 23, 2009), Michael Bremer, an employee of an unidentified subcontractor, was injured on a construction site and sued the construction project’s general contractor, Hallmark Homes (“Hallmark”), and one of Hallmark’s subcontractors, MC Builders (“MC”). The negligence allegations against Hallmark and MC were substantially identical. Importantly, the allegations against Hallmark included those for direct liability and for vicarious liability, i.e., that Hallmark retained control over many of the operative details of its subcontractors’ work by coordinating the work being done, designating work methods, scheduling the work, inspecting the work, and checking work progress. Hallmark tendered the defense of the underlying lawsuit to MC’s insurer, Pekin.

Pekin filed the instant declaratory judgment action based on the language of the additional insured endorsement, “Such person or organization is an additional insured only with respect to liability incurred solely as a result of some act or omission of the named insured and not for its own independent negligence or statutory violation.” Pekin subsequently filed a summary judgment motion, which the trial court denied.

On appeal, the Appellate Court found based on the vicarious liability allegations that Hallmark could potentially be liable in the underlying lawsuit solely on the basis of MC’s acts or omissions. Since the underlying complaint’s allegations could comprise at least one claim within the terms of the additional insured endorsement, the Appellate Court found that Pekin had a duty to defend Hallmark. Thus, the Appellate Court affirmed the trial court’s judgment.

This decision may be found at: http://www.state.il.us/court/Opinions/AppellateCourt/2009/2ndDistrict/June/2080380.pdf

FIRST DISTRICT EXPANDS "WRONGFUL BIRTH" DAMAGES

In Clark v. Children’s Memorial Hospital (opinion issued 4/9/2009), the First District Appellate Court was asked to answer the questions of whether (in light of the Illinois Supreme Court’s 1987 ruling in Siemieniec v. Lutheran General), damages could be recovered if proven for extraordinary expenses incurred beyond the age of majority and for negligent infliction of emotional distress. The Court answered both questions affirmatively. Clark involved a child born with the chromosomal defect producing syndrome called Angelman Syndrome, in which the children often suffer from seizures, gait and movement disorders, hyperactivity, sleep disturbances, inappropriate happy demeanor and mental retardation. The Clark parents alleged that they were subject to “hitting, biting and physical trauma” from their son because of his wrongful birth. The Appellate Court ruled that the parents’ allegations that they satisfied the “zone of danger” test for bystander recovery of emotional distress damages, were sufficient. While “wrongful life” is still not a recognized cause of action in Illinois, the breadth of damages in “wrongful birth” situations has clearly been significantly expanded. This case is ripe for consideration by the Illinois Supreme Court.

Outside the Scope of Bad Faith Failure to Settle: The Insurer’s Duty to Settle Extends Only to the Insured

The Seventh Circuit Court of Appeals, applying Illinois law, recently rejected in Iowa Physicians' Clinic Medical Foundation v. Physicians Insurance Company of Wisconsin (October 31, 2008) that an insurer’s duty to settle and consequently, a bad faith failure to settle claim, extended to a non-insured (without an assignment of rights). Here, the insurer-defendant issued a policy to Dr. Randall Mullin, a practitioner at the plaintiff's medical clinic, with a $1 million limit. The plaintiff was given an opportunity to purchase insurance from the insurer-defendant but chose not to.

The underlying lawsuit stemmed from Dr. Mullin's administration of anti-malarial therapy to Dennis Goetz prior to a trip to Africa. Unfortunately, Mr. Goetz contracted malaria and subsequently died. Mr. Goetz' wife then filed suit against Dr. Mullin and the plaintiff. Mrs. Goetz offered to settle the case for $900,000, but the insurer-defendant refused. Plaintiff next offered to settle the case for $1.5 million. The case eventually was tried by a jury to a $3.5 million award in favor of Mrs. Goetz. The insurer-defendant paid $1 million, and the plaintiff paid the remaining amount.

The instant case concerns the plaintiff and Dr. Mullin's suit against the insurer-defendant for failure to settle in good faith the Goetz suit. Following a motion for judgment on the pleadings, the trial court agreed, in pertinent part, that the insurer-defendant had no duty to the plaintiff with respect to settlement. On appeal, the Seventh Circuit concluded that the plaintiff could not maintain a failure to settle action against the insurer-defendant because (1) the duty to settle arises from the insurance contract to which the plaintiff was not a party, although it could have chosen to be, and (2) the duty to settle is an outgrowth of the insurer's exclusive control over settlement negotiations, which the insurer-defendant did not maintain over the plaintiff. Accordingly, the Seventh Circuit affirmed the trial court's judgment.

Those who handle insurance coverage matters should familiarize themselves with this decision and should use it liberally when arguing for the limited duties of an insurer with respect to settlement of underlying matters. Similarly, insurers faced with demands by non-insured co-defendants should feel more comfortable resisting said demands.

Left Holding the Bag: The Illinois Supreme Court Sanctions the Absence of Settling Primarily Responsible Defendants on Jury Verdict Forms At the Expense of Minimally Responsible Non-Settling Defendants

The Illinois Supreme Court recently clarified in Ready v. United/Goedecke Services, Inc. (November 25, 2008) that a settling defendant should not be included on a jury verdict form for purposes of allocating contributory fault. The lawsuit arose from a workplace incident in which the plaintiff's husband ("the decedent") was killed. Initially, the lawsuit was brought against the defendant, the subcontractor on the construction project; BMW Constructors, Inc. ("BMW"), the general contractor on the construction project; and Midwest Generation, L.L.C. ("Midwest"), the owner of the premises where the project took place. Yet prior to trial, BMW and Midwest reached settlement agreements with the plaintiff.

At trial, the trial court denied United's motion to list BMW and Midwest on the verdict form so the jury could consider whether to allocate fault to them, in addition to the decedent. The jury ultimately found the defendant liable and awarded over $14 million in damages. The trial court found the defendant jointly and severally liable for the verdict amount remaining after the decedent's comparative negligence was incorporated and offsets for the pre-trial settlements were applied.

The Appellate Court, on appeal, reversed the trial court's judgment, in part, and remanded the case for a new trial. In particular, the Appellate Court concluded that BMW and Midwest should have been included on the verdict form. Plaintiff appealed.

Before the Illinois Supreme Court was the issue of whether under section 2-1117 of the Illinois Code of Civil Procedure, settling defendants may be excluded from the jury's apportionment of fault. Following the submission of amicus curiae briefs, including from the Plaintiffs’ Bar and the Defense Bar, a plurality of justices (with two justices dissenting and one not participating) determined that, indeed, settling defendants may be excluded from the verdict form. For the first step in its analysis, determining whether the plain meaning of the statutory provision in question has an unambiguous meaning, the plurality analyzed the relevant language of section 2-1117, “defendants sued by the plaintiff.” The plurality ultimately found the language of the provision ambiguous, relying upon dictionary definitions and conflicting interpretations of the statute by the Appellate Court. Rejecting the dissent's thoughtful and thorough analysis of the plain meaning of the statute, after which it concluded that the statute unambiguously supported the inclusion of settling defendants for purposes of the allocating contributory fault, the plurality characterized the dissent's "complex discussion of grammatical principles" as beyond the understanding of "the ordinary person, exercising ordinary common sense."

The plurality then moved onto the second step in its analysis, determining whether the legislature intended for settling defendants to be excluded from the jury’s apportionment of fault. The plurality answered the question in the affirmative and reached its answer based upon the following three actions (or the lack thereof) by the Legislature: (1) the legislature's failure to expressly reject in a 2003 amendment to section 2-1117 a 1995 Appellate Court holding that settling defendants were not to be included in the apportionment of fault, (2) a 1995 amendment to a different section of the Code indicating that settled tortfeasors were not to be included in the apportionment of fault, and (3) statements made by an Illinois Senator during a floor debate on a bill not yet passed, but aimed to amend section 2-1117.

Following suspect reasoning, the Illinois Supreme Court, once again, sided with the Plaintiffs’ Bar and left deep-pocketed yet minimally responsible defendants at a great disadvantage at trial. Too often, plaintiffs sue multiple defendants for an injury sustained and settle the case with the primarily responsible yet shallow-pocketed defendants, leaving the deep-pocketed defendants "holding the bag." Despite being given an opportunity to correct this inherently unfair practice, the Illinois Supreme Court failed to fill the empty chairs sitting at the defense table in such situations. Those representing such defendants should familiarize themselves with this decision and counsel their clients accordingly.

Slow Down Mister: Ripeness of Declaratory Judgment Actions Seeking Adjudications as to the Duty to Indemnify

To keep circuit courts from getting ahead of themselves with confronting duty to indemnify cases, the Illinois Appellate Court, First District recently reiterated its stance on the ripeness of declaratory judgment actions. In Czapski v. Maher (September 30, 2008), the Illinois Appellate Court was asked to review the trial court’s rulings on cross-motions for summary judgment, in particular, addressing whether the insurance policies at issue cover injuries resulting from an auto collision. Rather than answer the issue posed by the parties, the Court found the case unripe for consideration because there had not yet been a determination of liability in the underlying lawsuits. Reminding that the issue of whether an insurer has a duty to indemnify is properly considered only when the insured has incurred liability in the underlying claim, the Court vacated the trial court’s rulings on the parties’ motions and dismissed the operative complaints. Those who handle insurance coverage matters should be mindful of the status of the underlying case when prosecuting declaratory judgment actions.

The decision may be found here.

Something’s Gotta Give: Interpreting Additional Insured Language Where the Language of the Certificate and the Insurance Policy Conflict

Comparing and contrasting an additional insured provision of an insurance policy, a construction contract, and a certificate of insurance the Illinois Appellate Court, First District recently clarified its position with respect to the authority of certificates of insurance. In United Stationers Supply Co. v. Zurich American Insurance Company (September 30, 2008), the defendant issued a commercial general liability policy to D.C. Taylor Company, which had entered into a construction contract with the plaintiff. This particular lawsuit concerned an employee of the plaintiff who was injured while using D.C. Taylor’s equipment. The employee sued D.C. Taylor, which in turn, filed a contribution action against the plaintiff. The plaintiff sought coverage under the Zurich policy for the contribution action.

Under one provision of the construction contract, D.C. Taylor was required to purchase certain types of insurance, though general liability insurance was not explicitly included in the list. Another provision required D.C. Taylor to obtain certificates of insurance naming the plaintiff as an additional insured. Similarly, that provision did not identify the type(s) of insurance for which the plaintiff was required to be named as an additional insured.

Since the Zurich policy did not specifically name the plaintiff as an additional insured, the plaintiff argued that a certificate of insurance provided by D.C. Taylor, which listed the plaintiff as a certificate holder and identified the Zurich policy as a policy for which the certificate holder is an additional insured, governs the extent of coverage. Nevertheless, the certificate contained disclaimer language, such that the certificate “is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies below.”

Following the trial court’s grant of summary judgment in favor of the defendant, the Appellate Court affirmed that there was no coverage for the plaintiff. In pertinent part, the Court delineated between those cases where the certificate of insurance did not refer to the particular policy and those cases where the certificate refers to the policy yet disclaims coverage other than what it is stated in the policy. Deciding that this case fell in the second category based on the disclaimer language in the certificate here, the Court concluded that the policy governed the terms of coverage. Accordingly, the Court found that the plaintiff was adequately warned that it could not rely upon the certificate for the terms and conditions of coverage, including whether it was an additional insured under the general liability policy. Those who handle insurance coverage and construction defect matters should familiarize themselves with this decision.

The decision may be found here.

Staying the Case: The Illinois Appellate Court Brings the Perpetually Elusive Goal One Step Closer to Reality

Like a speeding locomotive, it is sometimes very difficult to bring a declaratory judgment action to a halt. While obtaining a stay of proceedings is often difficult to secure, the Illinois Appellate Court, Fourth District recently in Economy Fire & Casualty Company v. Brumfield, No. 4-07-0658 (August 13, 2008), chastised the parties for moving the declaratory judgment action along too quickly and without considering its potential impact on the underlying lawsuit. The Appellate Court maintained that the parties, instead, should have sought a stay of the declaratory judgment action pending the outcome of the underlying lawsuit.

Although the appeal also involved breach of duty to defend and conflict of interest questions, the following facts are necessary to understand the case’s most significant holding, namely, why a stay of the declaratory judgment action was warranted here. Following an October 1999 car accident involving Brumfield and Beau Drewes, Brumfield sued Beau for negligence. Apparently, the Drewes tendered the lawsuit to Economy Fire, the insurer of Beau’s father. Economy Fire subsequently filed a declaratory judgment action, seeking a judgment that Beau was not owed a duty of coverage because he was not a “permissive driver” of the vehicle involved in the accident.

A critical and disputed issue in both the underlying lawsuit and declaratory judgment action was whether Beau had permission to use his father’s vehicle. In applying the Illinois Supreme Court’s holding in Murphy v. Urso, 88 Ill. 2d 444, 430 N.E.2d 1079 (1981), the Appellate Court reemphasized the rule that “when the issues in the underlying suit and the declaratory-judgment action are the same, the question of coverage cannot be decided in a collateral proceeding because (1) the collateral-estoppel doctrine would apply, which would result in the declaratory judgment controlling the underlying suit, and (2) such a procedure would be prejudicial to the insurer by forcing upon it, as plaintiff, the burden of proof.” Accordingly, the Appellate Court concluded that the declaratory judgment action here should have been stayed pending the resolution of the permissive driver issue.

Those who handle insurance coverage matters should familiarize themselves with this decision and should use it liberally when arguing for a stay in a declaratory judgment action where key issues in the underlying lawsuits have not yet ripened.

The decision may be found here.

Tenants Must Pay: The Illinois Appellate Court Clarifies Landlord-Tenant Contribution Actions

The Illinois Appellate Court, Fifth District recently clarified Illinois law on the rights of insurers of landlords with respect to potential contribution actions against tenants. In ESL Delivery Services Co. v. Delivery Network, Inc., No. 5-07-0122 (July 25, 2008), the Appellate Court confronted a well-established Illinois Supreme Court decision, Dix Mutual Insurance Co. v. LaFramboise, 149 Ill. 2d 314, 597 N.E.2d 622 (1992), which stands for the proposition that landlords and tenants, in general, are separately responsible for damage to the landlord’s property. However, the Appellate Court distinguished Dix from the instant case, where a fire damaged a third party’s property, by limiting Dix’s application to cases where only the landlord’s property is damaged, as opposed to where third party’s property is damaged. In an area of law where insurers’ subrogation rights against tenants were previously believed to be foreclosed, the Illinois Appellate Court effectively blew the proverbial door wide open to contribution actions for tenants’ negligence.

The decision may be found here.

Seventh Circuit Finds Faulty Workmanship Claims Are Not Covered Under CGL Policy

The Seventh Circuit Court of Appeals in Lyle Lylerla, d/b/a Wildewood Construction v. AMCO Insurance Co. (decided August 4, 2008), recently considered whether a breach of contract action alleging faulty workmanship triggers a duty to defend. Owners of a home sued the builder for failure to construct the home pursuant to the terms of the contract. The builder, in turn, tendered the defense of the action to its insurer. The insurer denied coverage based on the lack of allegations of an “occurrence” or “property damage.” The builder then sued its insurer for breach of contract, and the insurer filed a counterclaim seeking a declaration that it did not owe the builder a duty to defend or indemnify. Following the district court’s grant of summary judgment in favor of the insurer, the builder appealed.

On appeal, the Seventh Circuit recounted and affirmed as the law in Illinois a host of Illinois Appellate Court decisions in which allegations of faulty workmanship were found to not trigger the duty to defend, since the allegations of faulty workmanship did not involve an “occurrence” or “property damage.” Significantly, the Seventh Circuit contrasted the Illinois rule, which is followed by several states nationwide, with a recent trend of state supreme court decisions, including in Florida, Texas, and Wisconsin, where faulty workmanship claims were found covered under the applicable CGL policies. Nevertheless, those encountering faulty workmanship claims in Illinois can rest assured that Illinois case law clearly maintains that such claims are not covered under standard-ISO CGL policies.

Networking as Within the Scope of Employment?: The Illinois Appellate Court Dodges This Important Question

The issue of the scope of an employee’s duties in the context of a policy coverage dispute was recently addressed by the Illinois Appellate Court. Following its consideration of the issue, the Appellate Court reversed the trial court’s grant of summary judgment in favor of the insurer and remanded the matter to the trial court, in pertinent part, for consideration of whether the driver of a car involved in an accident was acting within the scope of his employment at the time of the accident. Wolfensberger, Eastwood, and another individual, all employees of Accenture, LLP, had been attending a training program. Following the program, the three met at a social hour, consumed libations until past midnight, and then drove around looking for a bar. At approximately 3:30 a.m., Eastwood, the driver of the vehicle, crossed the median, drove in the opposite lane of traffic, and collided with another vehicle. Wolfensberger was injured and subsequently sued Eastwood. Eastwood tendered the claim to Illinois National Insurance Co., Accenture’s insurer. Illinois National denied coverage. Following Eastwood’s assignment of rights to Wolfensberger, Wolfensberger filed the instant declaratory judgment action against Illinois National.

he parties filed cross-motions for summary judgment. The trial court granted Illinois National’s motion and found that there was no coverage under the Policy because Eastwood was not acting within the scope of his employment at the time of the accident. Wolfensberger appealed. Following a lengthy recitation of the evidence supporting the case for and against summary judgment, the Appellate Court avoided an affirmative finding of whether Eastwood was acting within the scope of his employment at the time of the accident, relying on the principle that “summary judgment is generally inappropriate when scope of employment is at issue.” Further, the Appellate Court held that the direct contradictions presented by the evidence, namely the evidence concerning corporate sponsorship and reimbursement for the activities of employees and employee practices at training and networking functions, revealed material questions of fact as to whether Eastwood was acting within the scope of his employment at the time of the accident. This case demonstrates the Appellate Court’s general reluctance to grant summary judgment on scope of employment issues, virtually foreclosing that option in cases where that issue is critical. Those who handle insurance coverage matters should familiarize themselves with the decision.

The decision may be found here.

United Fire & Casualty Co. v. Keeley & Sons, Inc., et al., No. 5-06-0307 (Ill. App. Ct., 5th Dist. May 2, 2008) In this recent decision, the Illinois Appellate Court determined whether a spoliation of evidence claim constituted a claim for “property damage” under the policy. Defendant Keeley & Sons, Inc. tendered claims for spoliation of evidence, i.e., an I-beam involved in a personal injury lawsuit filed, to United Fire & Casualty Co. Following a denial of coverage and the filing of a declaratory judgment complaint, the trial court granted Keeley’s cross-motion for summary judgment, finding coverage. On appeal, the Appellate Court reversed, reasoning that the damage to personal property within the insured’s care, custody, or control exclusion precluded coverage. It further reasoned that “property damage” as defined by the policy is limited to damage to tangible property and thus, cannot include damage to the underlying personal injury lawsuit.

Stoneridge Development Company, Inc. v. Essex Insurance Co., No. 2-06-1166 (Ill. App. Ct., 2d Dist. May 6, 2008) In this recent decision, the Illinois Appellate Court considered whether defendant Essex Insurance Company had an undisclosed conflict of interest with plaintiffs Stoneridge Development Company, Inc. and Highland Glen Associates (an additional insured) in defending them against a lawsuit brought by homeowners alleging that plaintiffs improperly constructed their townhome. The underlying lawsuit mainly contained claims for breach of contract and breach if the implied warranty of habitability.

Following tender of the underlying lawsuit, Essex reserved its rights based on the lack of “bodily injury” or “property damage” allegations, as well as questions about whether the arguable “property damage” arose out of an “occurrence.” In particular, Essex maintained that since the underlying action solely contained breach of contract claims, there was no coverage under the applicable policy. The Appellate Court agreed with Essex that the breach of implied warranty of habitability was fundamentally contractual in nature. The Court also disagreed with plaintiffs that the reservation of rights letter suggested that Essex would potentially cover the implied warranty of habitability claim. Because the policy clearly did not cover breach of contract claims, i.e., those for economic damages arising from construction defects due to faulty workmanship, the Court found that Essex could not have had a conflict of interest. The Appellate Court otherwise found that the policy does not cover plaintiffs in the underlying lawsuit.

Federal Pre-emption The U.S. Supreme Court in a series of recently decided cases has upheld the power of congress to create federal laws and regulation which occupy a particular field and deny individual states from enacting laws or regulations which conflict with these federal laws. The three U.S. Supreme Court cases in this series include issues related to conflicting state laws involving Class III medical devices (Riegel v. Medtronics, Inc.), arbitration clauses in contracts (Preston v. Ferrer) and motor carrier regulations (Rowe v. New Hampshire Motor Transport Association). These cases continue a trend away from allowing state tort claims where the federal government has established national regulation, and provide welcome relief for global companies who have businesses in these federally pre-empted areas.

Porter v. Decatur Memorial Hospital  In this new case (decided January 25, 2008), the Illinois Supreme Court adopted the "sufficiently close relationship" test to determine whether new counts added to a complaint after the running of the statute of limitations relate back to the original filing of the complaint in order to avoid dismissal. The test, while subject to subjective application, is rather simple to apply. The court is to ask, "are the new factual allegations of fault sufficiently close to the previous allegations of fault, both in temporal proximity and in general character?" If so, the pleading stands despite the running of the statute. This constitutes a fairly broad test which should suck in most amendments. Porter was a medical malpractice case, so, doctors and hospitals beware.

The decision in Moy v. Ng, 341, Ill.App. 3d 984, 793 N.E.2d 919 (1st Dist. 2003) outlined the appellate court’s approach to defective responses to requests to admit facts.  Under Moy,  a response to a request to admit under Supreme Court Rule 216 was deemed defective if it was not signed by the party to whom it was addressed.  Additionally, if a response to a request to admit was late in being answered, then it too would be defective.  In either case, a defective response to a request to admit meant that the facts were deemed admitted.  Such a harsh result could be fatal to a case.  Accordingly, requests to admit are a potential sword used for gamesmanship and not simply as a means of discovery.

Recently, however, the Illinois Supreme Court has limited the power to use the Supreme Court Rule 216 Request to Admit to protect parties upon whom they were served so that the penalty for failure to answer the requests in a timely fashion, or the failure for a party to sign the response, would not deem the response defective.  In Vision Point of Sale, Inc. v. Haas, 2007 WL 2729322 the Court found that if a response to a request to admit is late, or if it is not signed by the party to whom it was served, it is not per se defective such that the facts are deemed admitted.  In Vision Point, a party’s counsel signed the response to request to admit on behalf of the party.  The issuing party moved to strike the response and to deem the facts admitted.  The Illinois Supreme Court, overruling Moy v. Ng, found that Supreme Court Rule 216 imposed no requirements that a party responding to the request to admit personally, and not through counsel, sign both the answer and the sworn to statement to the request to admit.  Additionally, the Court found that a trial court is not precluded from granting an extension of time to the served party pursuant to Supreme Court Rule 183 for good cause, including mistake and inadvertence. 

Thus, under Vision Point, Supreme Court Rule 216 is not as powerful a tool in the strategy of the practice of law, though it can still be used as a cost effective way to obtain valuable information from another party. 

Should you have any questions on this ruling, please contact Christopher D. Wehrman at 312/332-8826.

Entering Lessor's Garage constitutes a breach of the peace but is not by itself consumer fraud -- In the recent Illinois Appellate Court, First District, decision in Pantoja-Cahue, __ N.E.2d ___, 2007 WL 2050943 (July 18, 2007), the court held that breaking into a locked garage to repossess a leased vehicle constitutes a breach of the peace in violation of Section 2A-525(3) of the Uniform Commercial Code. Section 2A-525(3) of the Uniform Commercial Code allows a lessor to use 'self-help' to repossess goods after default by the lessee, if it can be done without breach of the peace. The court relied on the analysis in ditca in Chrysler Credit Corp. v. Koontz, 277 Ill.App.3d 1078, 661 N.E.2d 1171 (1996), which emphasized that 'self-help' is a privilege that must be balanced against the risk to the public of extrajudicial conflict resolution. The holding in Koontz implied that a breach of the peach occurs when a creditor must pass through "gates, barricades, doors, enclosures, buildings, or chains" and almost certainly when "repossession is accompanied by the unauthorized entry into a closed or locked garage." (quoting Davenport v. Chrysler Credit Corp., 818 S.W.2d 23, 30 (Tenn. App. 991)). Therefore, creditors looking to repossess vehicles being housed in locked garages should seek judicial process and not resort to self-help, or they may be liable for damages for breach of the peace.

The appellate court held that the trial court correctly dismissed plaintiff's breach of contract and Consumer Fraud Acts claims with prejudice pursuant to Section 2-615. With respect to the Illinois Consumer Fraud Act claims, the court held that committing a breach of the peace while effectuating a repossession was not by itself sufficient to support a cause of action under Section 2 of the Illinois Consumer Fraud Act.

Just carrying your boss' sign isn't always enough for vicarious fault! - - A new Second District case, Nulle v. Krewer, N.E.2d, 2007 WL 2109547 (2nd Dist. 2007) analyzes the potential for an employer's liability based upon the negligent acts of its employee pursuant to the doctrine of respondeat superior. In Krewer, the plaintiff sued an employee and his employer for negligence resulting from an automobile accident, alleging that the employer was liable for the employee's acts pursuant to respondeat superior because the employee's personal vehicle was displaying signage for the employer. The employer filed a motion to dismiss denying the employee was acting in the scope of his employment and the trial court granted the employer's motion. The plaintiff claimed that because the employee's vehicle displayed his employer's signage that the employee was acting in the scope of his employment even though he was driving a personal vehicle on a personal errand outside of working hours. The Second District rejected the plaintiff's argument and affirmed the trial court, reasoning that "the fact that the employee was [displaying the employer's signage] while conducting his personal business was insufficient to put that personal business within the scope of his employment." The Second District effectively rejected the plaintiff's argument to expand the doctrine of respondeat superior, limiting such a theory to "those torts that are committed within the scope of the employment" and affirmatively finding the the employee was not in the scope of his employment simply because his vehicle displayed an advertisement for his employer.

Do Not Pass Go, Do Not Go to Arbitration: Illinois Court Bars Arbitration of Contribution Claims -- In a recent groundbreaking ruling, the Illinois Appellate Court held that parties may not arbitrate their contribution claims, reasoning that a future arbitration deciding liability would be barred by collateral estoppel principles. This ruling should have a profound impact on the drafting, construction, and negotiation of arbitration agreements.

In Czarnik v. Wendover, No. 1-06-2379 (June 13, 2007), the Illinois Appellate Court, First District considered an appeal by Wendover Financial Services (Wendover) following the denial of its motion to compel arbitration of a counterclaim asserted by Old National Bancorp (Old National). The underlying plaintiff, Wayne Czarnik, had filed a lawsuit against both Wendover and Old National, alleging negligence and seeking damages for injuries sustained as a result of falling through a roof. Old National filed a counterclaim for contribution against Wendover, arguing that any liability in the Czarnik lawsuit was due to the negligence of Wendover and the other codefendants. Wendover then filed a motion to dismiss Old National's counterclaim and to compel arbitration pursuant to a provision in the Subservicing Agreement between it and Old National. The trial court denied the motion, finding that the counterclaim was not arbitrable. Wendover filed an interlocutory appeal.

The appellate court affirmed the trial court's finding. In particular, the appellate court agreed with Old National that (1) the counterclaim for contribution is ultimately contingent upon the liability findings of a trier of fact, (2) the determination of relative fault of the defendants will be litigated in a court of law prior to any arbitration, and (3) any arbitration proceeding would merely serve to relitigate the issue of the parties' shares of liability, which would have already been resolved by the trier of fact.

Illinois courts have generally expressed a preference for arbitration proceedings rather than trials, thereby acknowledging the benefits inherent in alternative dispute options. Nevertheless, this ruling effectively invalidates arbitration clauses as they apply to contribution claims, and in doing so, forecloses arbitration as a dispute resolution mechanism for certain Illinois tort claims.

Another coverage pull-back in Mold cases -- The Texas Supreme Court in Fiess v. State Farm Lloyds has held (in answering a certified question from the U.S. Court of Appeals for the Fifth Circuit) that homeowners policies do not cover damages caused by mold under the "ensuing loss" from water damage provisions. This could also apply to "resulting-loss" policies. Courts in more than a dozen states have now interpreted this policy language to deny mold loss coverage. Fiess v. State Farm Lloyds, 202 S.W.3d 744 (Tex.2006)

You Don't Always Get a Second Bite at the Apple. In Bellik v. Bank of America,--- N.E.2d ----, 2007 WL 1662339, Ill.App. 1 Dist.,2007, issued June 08, 2007, the First District Appellate Court identified an instance in which the usual practice of granting a plaintiff an opportunity to replead or amend his complaint following a first-time successful involuntary dismissal would not be followed.

Bellik involved a dispute over the assignment of a retail sales contract. Bellik argued that the circuit court erred in dismissing his third-party complaint with prejudice, contending that he “was precluded from filing an amended pleading, and, since the dismissal was with prejudice, the direct filing of an action against Bank of America.” Bellik argued that he should have been granted an opportunity to amend his complaint.

In response to plaintiff's plea for relief, the Court noted, "A circuit court may properly dismiss a complaint with prejudice under section 2-615 of the Code where it is clearly apparent that the plaintiff can prove no set of facts that entitles them to recovery, and we review de novo the court's decision in that regard. Schiller v. Mitchell, 357 Ill.App.3d 435, 438-39 (2005). Ordinarily, the circuit court should give a plaintiff at least one opportunity to cure the defects in his or her complaint. Schiller, 357 Ill.App.3d at 453. Here, contrary to Bellik's claims on appeal, he never articulated to the circuit court any potential amendments to his third-party complaint prior to its dismissal. Instead, after the circuit court dismissed his complaint, Bellik filed a motion to reconsider, urging the circuit court to either reverse its decision and allow him to replead or modify its decision from a dismissal with prejudice to a dismissal without prejudice. However, Bellik proposed no amendments to his complaint that would prevent its dismissal. In light of our determination that Bellik's third-party complaint was properly dismissed by the circuit court pursuant to section 2-615 of the Code, and Bellik offered no potential amendments to his original complaint to cure its defects, we find that the circuit court did not abuse its discretion when it dismissed his complaint with prejudice."

The lesson to be learned from this exercise is that you had better present a proposed amended complaint to the trial court setting forth a properly stated claim if you don't want to permanently risk your first chance to replead.

A New Case From The Illinois First Appellate District Addressing the Issue of Interstate Forum Non Conveniens May Serve to Discourage Plaintiffs' Attorneys from Forum Shopping and Filing Cases in Cook County When They Arise Out of Incidents Occurring in Other Illinois Counties. See, Smith v. Jewel Food Stores, Inc., --- N.E.2d ----, 2007 WL 1745629 (1st Dist. 2007). In Smith, the First District analyzed several recent Supreme Court cases (including Langenhorst v. Norfolk Southern Ry. Co., 219 Ill.2d 430 (2006) and Gridley v. State Farm Mutual Automobile Ins. Co., 217 Ill.2d 158 (2005)) to support its holding that public and private interest factors weigh in favor of transferring the case from Cook County to the county where the incident occurred, Kendall County. Notably, the Smith Court rejected plaintiffs' argument that the Cook County forum was convenient because defendants conducted business there, holding that "the defendants’ mere conduct of business in Cook County has no affect on the forum non conveniens motion." The Smith Court further held that "the convenience of the parties weighs in favor of transfer" where the majority of the parties and witnesses were located in Kendall County and where the accident site was located, even when one of the defendant's corporate headquarters was located in Cook County. The latter part of the Smith decision distinguishes its holding from Langenhorst, a Supreme Court case that reached a different result based upon strikingly similar facts. The effect of Smith will be to provide Illinois defendants with a strong means of attacking apparent forum shopping in Cook County. For further commentary on Illinois forum non conveniens, including the Smith v. Jewel Food Stores, Inc. case, please contact Dan Cray (312/332-8499) or Tim Samuelson (312/332-8498).

When You Consent to Arbitration, Make Sure You Know the Scopeof the Consent...and the Standard By Which the Appellate Court Will Review the Decision...The Fifth District Appellate Court has issued a decision that reminds all practitioners that caselaw limiting the scope of powers granted to arbitrators may be be trumped if the parties have consented to broader powers, unwittingly or not. For instance, arbitrators typically cannot award punitive damages under the Edward Electric decision. However, if the plaintiff has requested punitive damages in a complaint and the entire dispute is sent by consent order to arbitration without further stipulation, those damages may be considered. Beatty v. The Doctors' Company, 2007 WL 1732816, (5th Dist. June 12, 2007).

In Beatty, the court went on to restate certain principles of appellate review of arbitration decisions that should be kept in mind.

* The court should not overrule an award simply because its interpretation differs from that of the arbitrator.
* A court must construe an award, if possible, so as to uphold its viability.
* An arbitration award will not be overturned or set aside because it is illogical, inconsistent or contains errors in judgment or a mistake of law or fact (when the interpretation of the law or fact is entrusted to the arbitrator.
* Only where it appears on the face of the award (and not in the arbitrator's opinion) that the arbitrator was so mistaken as to the law that, if apprised of the mistake, the award would be different may a court review the legal reasoning used to reach the decision.

Attorney's Fees Only When the War is Won. In private actions under 42 USC Section 1983, the court may award attorney's fees to a prevailing party. Until recently, successfully obtaining a preliminary injunction was deemed to be sufficient to award attorney's fees. However, the US Supreme Court has clarified that rule to prevent an award of attorney's fees when the injunction is later undone. The Supreme Court in Florida EPA v. Wyner, recently held that "Prevailing party status does not attend achievement of a preliminary injunction that is reversed, dissolved or otherwise undone by a final disposition in the same case." Consequently don't get your hopes up for a fee award until you have been fully successful in your injunctive relief effort... winning the battle but losing the war is not a victory.

Illinois Supreme Court Destroys Insurers’ Right to Recover Defense Expenses Paid Under Reservation of Rights In General Agents Insurance Company v. Midwest Sporting Goods Company (2005 WL 674685; filed March 24, 2005), the Illinois Supreme Court significantly changed the course of Illinois coverage law by prohibiting liability insurers from recovering defense costs paid pursuant to a reservation of rights, unless the insurance policy expressly authorizes such a recovery. The Illinois Supreme Court acknowledged that its holding is contrary to the majority rule followed in most other jurisdictions. This ruling places Illinois in the clear minority of jurisdictions now refusing to adopt the recovery rule articulated by the California Supreme Court in Buss v. Superior Court, 16 Cal.4th 35, 939 P.2d 766 (1997).  For a more complete discussion of the decision, click here.

Same Part of the Body Rule Modified.  Second District Appellate Court modifies "same part of body" evidentiary rule. In the recent case of Felber v. London, the Appellate Court for the Second District, Illinois (Jan. 30, 2004) loosened the restrictions on defense counsel cross-examination of a plaintiff regarding prior injuries to the same part of the body without expert testimony to establish a causal link to the current complaints. In Felber, the trial court was held to have properly allowed evidence of plaintiff's prior neck injury even without expert testimony because the plaintiff was wearing a cervical collar when she was involved in the subject accident. The Appellate Court found in this instance that the connection between the claimed neck injury and the prior injury was of a type that was apparent to lay persons and thus was an exception to the Donaldson rule requiring expert testimony.

No Duty to Make Sure Insured Has Sufficient Coverage.  Even liberal Fifth District won't go this far.... In Moore v. Johnson County Farm Bureau (October 15, 2003), the Fifth District Appellate Court, infamous for finding coverage, reiterated a long standing proposition that there is no liability in Illinois on the part of an insurer or an insurance agent to make sure that the insured has sufficient coverage... if it is not requested by the insured.

E-Discovery.  The parameters of and cost allocation for e-discovery continue to challenge the courts. A court in New York has analyzed the "who should pay?" question and come up with a seven point test for arriving at a fair and equitable result. The ruling, Zubulake v. UBS Warburg, 02 Civ. 1243 (SAS) was written by Judge Shira Scheindlin. Zubulake involves a suit against an employer, UBS Warburg, claiming gender discrimination and illegal retaliation. Warburg claimed that e-mail messages the plaintiff requested in discovery were stored on 94 separate backup tapes, and that retrieving them would cost $300,000. Rather than just blindly assume that all tapes should be discovered and paid for by Warburg, the court decided to weigh (and weight) the following seven factors: How specific the discovery request is. The availability of the information from other sources. The total cost of producing the requested documents compared to the amount in controversy. The total cost compared to the resources each party has. The relative ability of each party to control costs. The importance of the issues at stake in the litigation. The relative benefits to the parties of getting the information The factors are listed in order of importance. As the courts continue to arbitrate e-discovery disputes, any effort to balance the burden of cost and production should be met with gratification by corporate defendants. While the decision has (as of yet) no binding authority as to other matters, the court's test protocol is a sound step in the direction of leveling the playing field. Posted by Michael Huber.

Fifth Circuit Court of Appeals outlines the approach for higher courts reviewing commercial arbitration awards under various theories of attack by the non-prevailing party. In PRESTIGE FORD v. FORD DEALER COMPUTER SERVS., INC. No. 02-50749 (5th Cir. March 25, 2003) a commercial arbitration award after breach of a contract to provide hardware, software, and maintenance related to computer systems was upheld, as the court found no grounds existed for vacatur based on 1) 9 U.S.C. section 10(a), 2) alleged manifest disregard of the law, or 3) public policy. In so holding, the court took a close look at what reviewing courts can and should do when determining the reasonableness of evidentiary rulings and discovery dispute rulings made by an underlying arbitration panel. Ultimately, the court recognized a significant measure of deference that should be given to the panel's handling of all phases of a contractually agreed-to arbitration. In anticipation of the possibility of an unsuccessful arbitration, parties to arbitration contracts would do themselves a favor by first becoming educated on the process and the limitations on potential remedies before advocating commercial arbitration. Posted by Michael D. Huber

HOT LINK: The U.S. Department of Justice has a special Cybercrime site with extensive information including reports, press releases, links, and statutes. Topics include economic espionage, privacy issues, and electronic commerce. It's at http://www.cybercrime.gov/index.html.

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