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  • 28 Apr 2017 9:05 AM | Lynette Pitt (Administrator)

    by William Silverman, Wall Templeton & Haldrup, PA

    Effective risk transfer in the construction industry is critical. So when an opinion comes out broadening that horizon, practitioners should take note. A recent federal court decision in an additional-insured coverage action opens a new door in North Carolina for construction risk transfer by holding that the construction parties’ contract trumps the language of the insurance policies to determine priority of coverage.

    Continental Casualty Company v. Amerisure Insurance Company1 arose from a dispute about coverage under a sub-subcontractor’s CGL and umbrella policies for serious personal injuries sustained during a construction project in Charlotte. The general contractor on the project, KBR Building Group, LLC (“KBR”), entered into a subcontract with SteelFab, Inc. (“SteelFab”) to supply and erect the structural steel for the project. SteelFab then subcontracted with Carolina Steel and Stone, Inc. (“CSS”) for the erection of structural steel. During the project, an employee of CSS fell from steel decking and suffered serious injuries.

    Under the policy chain for the project, KBR was an additional insured on SteelFab’s CGL policy with Continental Casualty. SteelFab and KBR also were additional insured on CSS’s umbrella and CGL policies with Amerisure. When the injured employee filed suit, the risk transfer line dance kicked into gear. KBR tendered its defense to SteelFab’s carrier, Continental Casualty. Continental Casualty in turn tendered to CSS’s carrier, Amerisure.

    Amerisure admitted that SteelFab and KBR qualified as additional insured under the CSS policy, but noted the owner on the project in question had an owner controlled insurance program (“OCIP”) in place. Amerisure’s policy contained an exclusion for damages arising out of the named insured’s operations when included in an OCIP2. Amerisure thus determined that coverage was excluded and, accordingly, denied that it had any duty to defend SteelFab or KBR.

    Continental Casualty stepped in to defend KBR and SteelFab in the personal injury suit upon Amerisure’s denial, incurring more than $650,000 in defense costs, and resolving the case for $1.7 million. As part of the settlement agreement, Continental Casualty preserved its rights to pursue indemnification and/or contribution from Amerisure, and filed a declaratory judgment action to establish that:

    - Amerisure owed a duty to defend SteelFab and KBR in the personal injury suit;

    - the Amerisure policies applied on a primary and non-contributory basis; and

    - Continental Casualty was entitled to reimbursement of all defense costs and expenses incurred in connection with the personal injury suit (i.e., equitable subrogation).

    Both Continental Casualty and Amerisure eventually filed cross-motions for summary judgment in the declaratory judgment action on all issues. Judge Graham Mullen presided over these motions and ruled as follows:

    1. Duty to Defend

    There was no real dispute that Amerisure’s duty to defend SteelFab and KBR was triggered in the personal injury suit. Amerisure admitted that SteelFab and KBR were additional insured under the CSS policies, and the complaint in that suit alleged damages because of personal injury caused by an occurrence. Nonetheless, Amerisure argued that the plain language of the OCIP Exclusion (i.e., bodily injury arising out of CSS’s operations included in an OCIP) applied to exclude coverage.

    The fallacy in Amerisure’s position, however, was that CSS was not enrolled in the OCIP on the project – a fact of which Amerisure was aware when it denied a defense to SteelFab and KBR. There was inarguably an OCIP in place on the project, and CSS was eligible to be enrolled in the OCIP. Amerisure contended that the OCIP exclusion should apply to bar its duty to defend because its named insured (CSS) was eligible to be enrolled and should have been enrolled in the OCIP.

    In his opinion, Judge Mullen conceded that there may be an issue of fact as to whether CSS was eligible to be enrolled and should have been enrolled in the OCIP, but nevertheless rejected Amerisure’s position. He noted that when determining whether an insurer has a duty to defend in North Carolina, the insurer must accept as true all allegations in the complaint, and also must consider reasonably available facts outside the four corners of the pleading that could be covered by its policy3. An insurer, however, may not consider extrinsic facts to defeat a duty to defend4. The complaint in the personal injury suit made no mention of insurance, much less any OCIP in place on the project. Judge Mullen thus held that Amerisure breached its duty to defend SteelFab and KBR because Amerisure could not establish an element of its OCIP Exclusion (that CSS’s operations were included in an OCIP) based solely on the allegations of the personal injury complaint and could not otherwise rely on facts outside the pleadings to establish the application of an exclusion5.

    2. Priority of Coverage

    Since coverage was established6 and the amount of the personal injury settlement was more than either of the CGL policy’s limits standing alone, the next issue was the order of coverage – which policies were primary and which were excess. In a novel ruling under North Carolina law, Judge Mullen determined that the contract between CSS and SteelFab governed the priority of coverage, not the language of the insurance policies themselves.

    Amerisure argued that even if its policies did provide coverage, that its primary coverage was limited to $1,000,000 (the limits of its CGL policy) and that its umbrella policy was excess over Continental Casualty’s primary policy. In other words, Amerisure’s proferred coverage sequence was: (1) Amerisure CGL ($1M limits); (2) Continental Casualty CGL ($1M limits); then (3) Amerisure umbrella. Conversely, Continental Casualty argued that all of Amerisure’s coverage should be primary, and that its coverage should sit excess to the combined limits from Amerisure’s CGL and umbrella policies.

    Judge Mullen first looked at the subcontract between SteelFab and CSS before turning to the policies’ language. The subcontract required CSS to procure both CGL and umbrella insurance with $1,000,000 limits each. The subcontract included an express requirement that CSS would provide insurance that was primary and non-contributory to SteelFab’s insurance program. A Certificate of Insurance issued to SteelFab identifying CSS’s coverage with Amerisure also provided that “coverage is written on a primary basis.” The language in the umbrella policy also plainly provided coverage to SteelFab and KBR as additional insured.

    Amerisure argued that the “Other Insurance” provisions in its umbrella policy and Continental Casualty’s CGL policy should govern priority of coverage instead of the subcontract language.7 Amerisure argued these competing clauses made its umbrella excess (only providing coverage after the Continental Casualty CGL policy’s limits were exhausted). Judge Mullen agreed with Amerisure that the language of the “Other Insurance” clauses in the competing policies would make Amerisure’s umbrella policy excess over the Continental Casualty primary policy, but ruled the subcontract language trumped this “Other Insurance” clause analysis to make Continental Casualty’s policy excess.

    Judge Mullen premised his decision on the rationale that SteelFab should be entitled to the benefit of its bargain with CSS. SteelFab contracted for protection in the form of $2,000,000 in primary insurance coverage from CSS before its own insurance would be tapped. Judge Mullen held that, because the SteelFab/CSS subcontract evidenced the intent of the parties, that language dictated the priority of coverage notwithstanding insurance policy language to the contrary.

    Interestingly, Judge Mullen’s determination was not based on any indemnity agreement between CSS and SteelFab8, although the cases cited in support of his decision all include analysis of a contractual indemnity agreement between the insureds as part of the reasoning for shifting the loss to the downstream subcontractor’s insurance carrier.9

    Conclusion

    The primary lesson of Continental Casualty v. Amerisure is the importance of careful contract drafting. The explicit risk-transfer terms in the SteelFab/CSS subcontract were central to the end result. The specificity of the insurance requirements created a clear picture of the parties’ intent regarding risk allocation, and Judge Mullen deferred to that arrangement. This decision presents a novel approach to determining priority of coverage in North Carolina, and could create a headache for insurance underwriters given the difficulty in quantifying risk of incurring losses beyond the scope of coverage created by insurance policy language. It will be interesting to see whether the North Carolina state courts follow suit when given the opportunity. Amerisure has appealed this decision to the Fourth Circuit, so an update may be warranted once the appellate process is complete.10

    Continental Casualty v. Amerisure also reinforces the sanctity of the duty to defend in North Carolina. North Carolina courts, both state and federal, jealously guard the insured’s right to a defense from its insurer, and this decision exemplifies that zeal. But Judge Mullen’s decision also reflects the absence of any real deterrent for a carrier to deny coverage to a putative additional insured where that party’s own insurer has agreed to defend. While Amerisure was found to owe indemnity for the settlement and had to reimburse half of the defense costs to Continental Casualty, it would have presumably incurred those losses anyway had it accepted the tender in the first place.11 Other than the loss of control of defense and settlement in the underlying suit, Amerisure’s only penalty here is the imposition of pre-judgment interest. Both this decision and the Rodgers Builders decision from last year may encourage upstream carriers to go to the mattresses on additional insured issues going forward, especially in the Western District.12

    _________________

    13:14CV529-GCM, --- F. Supp. 3d ---, 2017 WL 34822 (W.D.N.C. Jan. 3, 2017).

    2The actual exclusion read: "This insurance does not apply to 'bodily injury' or 'property damage' arising out of either your ongoing operations were at any time included within the 'products-completed operations hazard' if such operations were at any time included within a 'controlled insurance program' for a construction project which you are or were involved."

    3Waste Mgmt. of Carolinas, Inc. v. Peerless Ins. Co., 315 N.C. 688, 691, 340 S.E.2d 374, 377 (1986).

    4Judge Mullen explained: "an insurer may look to facts collateral to the allegations against the policyholder to confirm a defense obligation, but no to negate one." 2017 WL 34822, *5 (emphasis in original) (citing St. Paul Fire & Marine Ins. Co. v. Vigilant Ins. Co., 724 F. Supp. 1173, 1179 (M.D.N.C. 1989), aff'd 919 F.2d 235, 239 (4th Cir. 1990)).

    5See New NGC, Inc. v. Ace Am. Ins. Co., 105 F. Supp. 3d 552, 568 (W.D.N.C. 2015) ("Permitting evidence outside the pleadings to negate allegations in the complaint is akin to a perfunctory review of the merits of the underlying claims against the insured. Such review is not consistent with the duty to defend as understood by the insured party and as explained by North Carolina law pertaining to the interpretation of contracts for insurance.")

    6Because Amerisure breached its duty to defend, Judge Mullen held that it relinquished any coverage defenses and was liable for the costs of defense and settlement paid on behalf of SteelFab and KBS. 2017 WL 34822, *6 (citing Vigilant, 919 F.2d at 240).

    7There is North Carolina authority applying competing "Other Insurance" clauses to determine priority of coverage for an additional insured.  See Universal Ins. Co. v. Burton Farm Dev. Co., LLC, 216 N.C. App. 469, 479, 718 S.E.2d 665, 672 (2011).  The Burton Farm decision, however, was in the context of two competing primary CGL policies. The author is not aware of any North Carolina precedent addressing priority of coverage under facts analogous to this case.

    8Judge Mullen expressly refrained from addressing the impact and enforceability of the indemnity clause in the subcontract because he found the plain language of the subcontract and the umbrella policy shifted the entire loss to Amerisure. 2017 WL 34822, *9 n.5.

    9E.g., St. Paul Fire & Marine Ins. Co. v. Am. Int'l Specialty Lines Ins. Co., 365 F.3d 263 (4th Cir. 2004) (applying Virginia law); Wal-Mart Stores, Inc. v. RLI Ins. Co., 292 F. 3d 583 (8th Cir. 2002): Am. Indem. Lloyds v. Travelers Prop. & Cas. Ins. Co., 335 F. 3d 429 (5th Cir. 2003).

    10Continental Casualty has filed a cross-appeal concerning Judge Mullen's ruling (not discussed above in the interest of brevity) that it was only entitled to a pro-rata reimbursement of its defense costs from Amerisure through a contribution claim. Continental Casualty alleged equitable subrogation, and not contribution, for recovery of all defense costs based on the theory that Amerisure's coverage was primary and non-contributory.  Continental Casualty would have no duty to defend until exhaustion of underlying primary coverage if it truly sat excess, so contends it should be entitled to complete reimbursement for defense costs.

    11In dicta, Judge Mullen explains in his decision why Amerisure's proposed interpretation of its OCIP Exclusion supporting its denial would render its coverage meaningless.  2017 WL 34822,*6-*7.  Accordingly, it appears that there would have been coverage under Amerisure's policy(ies) even if it had accepted SteelFab's and KBR's tender and pursued its coverage defenses.

    12See Rodgers Builders, Inc. v. Lexington Ins. Co., No. 3:15CV110-MOC-DSC, 2016 WL 1052623 (W.D.N.C. Mar. 11, 2016), appeal dismissed (Sept. 14, 2016) (finding coverage for general contractor as additional insured under subcontractor's CGL, coverage even where no formal legal claim was asserted by the project owner).

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  • 27 Mar 2017 4:30 PM | Lynette Pitt (Administrator)

    by Michael W. Mitchell & Andrew P. Atkins, Smith Anderson, Blount, Dorsett, Mitchell & Jernigan, LLP

    The Supreme Court of North Carolina recently held that a doctor owed a fiduciary duty to a prospective patient prior to the formation of a doctor-patient relationship. The existence of that duty—previously unrecognized in North Carolina—allowed the Court to invalidate an arbitration agreement in the contract with the patient. The Court’s decision seems to redefine the law of fiduciary duty. And the scope of the Court’s decision necessarily reaches beyond arbitration agreements, and therefore could call into question the enforceability of other types of contract provisions whenever one party alleges the existence of a fiduciary duty.

    In King et al. v. Bryant, et al.1 a patient in need of a medical procedure filled out and executed routine patient intake forms prior to treatment. Among those forms was an agreement to arbitrate any disputes arising out of the doctor’s medical treatment. The forms stated that execution of the arbitration agreement was not a prerequisite to medical treatment. After completing the forms, Mr. King, the patient, and Dr. Bryant, the doctor, formed a doctor-patient relationship. Dr. Bryant then performed the needed medical procedure; however, the procedure did not go well and Mr. King suffered complications and alleged injuries as a result. When Mr. King filed litigation in state court, Dr. Bryant moved to stay the litigation and enforce the arbitration agreement. While there was much procedural history, the primary question before the Supreme Court was whether the arbitration agreement was enforceable against Mr. King.

    Typically, the enforceability of an arbitration agreement turns on an analysis of procedural and substantive “unconscionability.”2 However, here the Court departed from the typical analytical framework, stating “this case hinges upon the nature of the relationship that existed between Mr. King and Dr. Bryant at the time that the arbitration agreement was signed.” Notably, the Court did not focus on whether a doctor-patient relationship existed; rather, the Court looked at whether a fiduciary relationship existed separate and apart from the doctor-patient relationship. The Court held that a relationship of trust and confidence existed between the parties prior to the formation of the doctor-patient relationship, and therefore Dr. Bryant owed a duty to disclose all materials facts to Mr. King before he signed the agreement.

    The Court relied on the fact that Mr. King “demonstrated sufficient trust and confidence in [Dr. Bryant] to provide Dr. Bryant with confidential medical information” before the doctor-patient relationship was formed, even though Mr. King provided that medical information contemporaneously with his execution of the arbitration agreement. Thus, according to the Court, if Dr. Bryant failed to disclose all material facts to Mr. King, and in so doing Dr. Bryant received a benefit from his nondisclosure, then he would have breached his fiduciary duties and committed constructive fraud.

    The Court in fact held that was the case: Dr. Bryant breached his fiduciary duty to Mr. King, and therefore the arbitration agreement was unenforceable. The Court explained that no one directed Mr. King’s attention to the arbitration agreement, which was included in a stack of other documents, or attempted to explain the ramifications to him. While the Court noted that Mr. King never read the documents, it also seemed persuaded by the fact that he had limited education and experience interpreting legal documents.

    The Court further held that Dr. Bryant breached his fiduciary duty for the purpose of obtaining dispute resolution procedures to his benefit. Curiously, the arbitration provision in the agreement did not favor either party to the agreement, and yet the Court did not find this fact to be relevant in the analysis of whether there was a breach of fiduciary duty. If Mr. King had received a benefit of equal value to Dr. King’s, then how could Mr. King have suffered harm that would give rise to a claim that invalidated the arbitration agreement?

    The Court’s holding in King appears to presume, as a general proposition, that a bilateral right to arbitrate is nevertheless a benefit to only one of the parties, in this case the professional. Precedent from the United States Supreme Court, however, disapproves of an analysis that looks at whether one party benefits more than the other from arbitration.

    In Concepcion, the United States Supreme Court considered an arbitration agreement that restricted class actions in arbitration.3 The Court in Concepcion recognized that such a restriction could benefit one party over the other, and the Court referenced arbitration provisions that do not provide for judicially-monitored discovery as another example.4 But the Court did not find unequal benefits to be a proper subject of consideration, even if it falls within the confines of a generally-applicable state law unconscionability analysis, because it simply is not compatible with the Federal Arbitration Act (the “FAA”).5 The primary purpose of the FAA is to “promote arbitration.”6 Accordingly, state law theories that “stand[] as an obstacle to the accomplishment and execution of the full purposes and objectives” of the FAA are necessarily preempted.7

    Two justices dissented in King, arguing that the majority had abandoned the Court’s traditional unconscionability analysis, that it had failed to understand how a fiduciary relationship is formed, that it had failed to acknowledge the preemptive effect of the FAA, and that it had mischaracterized arbitration as a benefit to only one of the parties to the agreement. One of the dissents noted that, even if this arbitration agreement favored Dr. Bryant, contracts of adhesion with arbitration agreements often favor one party over the other, and yet they are enforceable under the FAA. The dissent also noted that any contrary analysis necessarily takes issue with the arbitration agreement itself, simply because it is an arbitration agreement. The other dissent even characterized the majority’s opinion as merely a “rationalization” of state law to avoid arbitration. In sum, both dissents take the position that the majority’s state law analysis necessarily applies in a way that would disproportionately affect arbitration agreements and, therefore, such an analysis is preempted by the FAA.

    The Court’s decision raises a significant risk that existing arbitration agreements could be unenforceable. The decision even has implications outside the arbitration setting, because it could just as easily apply to other types of contractual provisions. In fact, the Court expressly stated that its legal analysis would apply to other contractual provisions, not just arbitration agreements. The Court was essentially required to make this holding to avoid the reach of federal preemption under the FAA, which permits invalidation of arbitration agreements only under “generally applicable contract defenses” that also apply outside of the context of arbitration agreements.8

    In situations where a fiduciary relationship could be alleged, parties must now give careful consideration to whether they should adopt additional procedures to ensure that their contractual agreements are properly executed and still enforceable. While this process will be most important in the context of arbitration provisions between professionals and their prospective clients/patients, by necessity the Court’s holding extends equally to other types of contract provisions. The Court offers no guidance as to what provisions, other than arbitration agreements, would reach the threshold of such significance that they must be disclosed and/or explained. The Court also offers no guidance as to how the other party’s level of sophistication or experience should affect the fiduciary’s obligations. Undoubtedly, these issues will be the subject of additional litigation.

    ____________________________

    1 __N.C.__, 795 S.E.2d 340 (2017)
    2 See, e.g., Tillman v. Commercial Credit Loans, Inc., 362 N.C. 93, 655 S.E.2d 62 (2008)
    3 See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 341-42, 131 S.Ct. 1740, 1747-48
    4 Id. at 342-44, 131 S. Ct. at 1747-48
    5 See id.
    6 Id. at 346, 131 S. Ct. at 1749.
    7 Id. at 352, 131 S. Ct. at 1753.
    8 Id. at 349, 131 S. Ct. at 1746.

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  • 29 Jan 2017 3:30 PM | Lynette Pitt (Administrator)

    by Shantia J. Coley, Hedrick Gardner Kincheloe & Garofalo, LLP

    I wish I could say it seemed like just yesterday that was offered and accepted my position at the law firm of Hedrick Gardner Kincheloe and Garofalo. However, the year didn’t just “fly by.” Instead, it inched by in tenths of an hour, slowly and methodically. Do not get me wrong, working at a law firm at some point in their careers is the dream of most young attorneys. I was, and still am, no different. Maybe it’s the millennial in me, but as a person who has governed her life and found success based upon countless checklists, sometimes scribbled haphazardly on the nearest dinner napkin, I almost wish I’d had one as I entered my first year. I’ve been here slightly over a year and now that I am a veteran, (it’s okay to laugh here), I pulled together my very own list of the five tips I wish I had known:

    1. Decorate Your Office Space. While this first tip may seem trivial and a waste of time, your office will become your second home. The four walls of your office will become very familiar to you and you may find that you undoubtedly spend more time there than at your own home. Be kind to this space and make it your own. Grace this area with photos, sports memorabilia, paintings, or whatever it is that you choose to make it a comfortable space to work. Think back to law school and how by the end of your 3L year, you had mastered the art of learning your study habits. You knew exactly where in the school, at your home, or at your local coffee shop was the most comfortable for you. Well you don’t necessarily get to choose your office space, but you do get to make it your own, much like the spaces you were used to. A quick word of caution-- please check with the office managers before you go hammering nails into the walls. I’m sure there are policies and people who can guide and assist you when it comes to deciding how to turn your office into the perfect place to perform your best.

    2. The Other Young Associates Are Your Best Friend. Seriously. You cannot count on the partners to be at your beck and call and to answer every question you have. Simple as that. Ideally, they would have countless expendable hours to dedicate to answering questions and problem solving, but between maintaining client relationships, handling their own work load and firm management, this is just not possible. Chances are that question about interpreting that particular statute has already crossed the mind of another young associate and they have either figured it out or found a seasoned associate to assist. Another important relationship to foster is your relationship with the staff. Remember the office manager who helped you hang your credentials? Or the paralegal who showed you where the restroom was? Well most of them have been there as long as some of the partners and can assist with issues dealing with office procedure, protocol and getting you otherwise adjusted to the firm culture. The partners are certainly important, but do not take these other relationships for granted.

    3.  Save Samples of Everything! So you’ve drafted your first set of discovery or an important motion and sent it to a partner for review. You’ve gotten it returned filled with tracked changes and comments in the margins. You’ve accepted the changes, made revisions based upon the comments and after several hours, it is finally ready to go. Congratulations! Send it out and file a copy away for your own personal reference. By the time next week rolls by and you’ve been distracted by other tasks, you will not remember many of substantive considerations that went into the preparation of this task. You’re still trying to locate the bathrooms at this point anyway. I found it very helpful to keep a small folder of “samples” of various final documents for quick reference. What was the appropriate objection again? What was the language in the Order? What language did this particular partner prefer I use? Well, instead of wasting precious billable hours trying to remember, (trust me that 0.2 will make a difference later), I have found it extremely valuable to just be able to flip through my file to find the answer.

    4. Lunch At Your Desk Is The New Normal. This one took some getting used to. Billing is no fun but it is a necessary evil (as we will discuss next). If you semi enjoy your weekends or evenings, a few sacrifices will need to be made. If you’re a “foodie,” like me, this one may be a bit difficult. Lunch for many is the one trusted time to break up the monotony of the day. However, taking lunch away from my desk each day quickly added up to lost time and later days at the office. Let’s take a minute and do the math. An hour for lunch each day for one month is 20 hours. That computes to 240 hours of potentially billable time each year. I’m not saying never take a lunch away from your desk. In fact, a lunch away once or twice a week is probably necessary for balance. But when the reports come in and you’re faced with trying to figure out where to capture an extra hour or so every day, having a working lunch sure beats trying to bill while watching your favorite football game later in the evening.

    5. Billing Is An Art, Plain and Simple. Finally, billing is not fun and is also not as easy as you may initially think. Figuring out how to bill will probably take more time during your first year than the actual practice of law. Work closely with the partners to master this art. Ask questions of others about what they bill for and what they don’t. You will learn quickly that clients don’t just love paying invoices and will cut time for things they feel are unsubstantiated or unnecessary. I cannot express the importance of learning your clients and learning the style of the partners for whom you are working. It will probably take several months, but you want to invest time on the front end so you can then begin to increase your hours. Do not be ashamed to turn in a “time sheet” each day. I worked closely with a partner and did just this. I have to admit, I cringed when they were returned the next day with comments and edits, but it has paid off and as an added bonus, there is a level of trust that has been developed with that partner and my time entries.

    Well, there you have it. These are without a doubt my five top tips for someone entering their first year at a law firm. You will get tons of advice, but hopefully you will remember some of these tips as well. I’ve experienced a rollercoaster of emotions this past year, however, I can genuinely say that the reward is great. Your new opportunity is not one afforded to all. Hang in there, you got this, and don’t forget to pack a delicious lunch!

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  • 24 Jan 2017 11:00 AM | Lynette Pitt (Administrator)

    by Patrick Cleary, Bowman & Brooke, LLP

    News articles about self-driving vehicles are omnipresent as 2017 begins, suggesting that humans will soon no longer need to worry about driving. If technological and infrastructure advances occur at their predicted pace, automated vehicle technologies will assist, supplant and possibly replace human drivers over the next twenty years. This paradigm shift creates the real promise for dramatically reduced motor vehicle accidents and associated fatalities, injuries and damages.

    But it also creates the real possibility that the plaintiffs' bar will shift their focus from assigning fault to the driver of accident vehicles to the manufacturers of vehicles involved in accidents. In effect, the plaintiffs' bar will argue that the manufacturer of any vehicle equipped with automated driving technologies is liable when said vehicle has an accident. For example, while the National Highway Traffic Safety Administration ("NHTSA") concluded last week that Tesla's Autopilot system did not have a safety-related defect that contributed to a fatal 2016 accident in Florida, it is not a stretch to think that the plaintiffs' bar would make a different argument that vehicles with autopilot systems are "strictly" responsible.(1)

    We expect the plaintiffs' bar to argue that the introduction of automated driving technologies, regardless of form or function, mean that the vehicle itself has the ultimate control over what happens on the roadway. To put it simply, the North Carolina plaintiffs' bar will argue the doctrine of last clear chance will shift from the negligent driver to the motor vehicle manufacturer, opening up new avenues of recovery for injured drivers from their vehicle manufacturer.

    If the plaintiffs' bar prevails, it would be a dramatic shift in North Carolina product liability law, creating a quasi-strict liability regime and a repudiation of contributory negligence outside of legislative enactment. But this argument presents a false dichotomy between automated and non-automated vehicles and ignores well-established doctrines of personal responsibility inherent in North Carolina law.

    This article clarifies the development and introduction of automated vehicle technologies and then evaluates these technologies within the context of North Carolina product liability law. As a defense bar, we have the obligation to rebut plaintiffs' arguments, showing that automated vehicle technologies do not replace the duty of a driver nor do they supplant North Carolina product liability law.

    Development of Automated Vehicle Technologies

    Motor vehicles have not and will not immediately shift from completely human controlled to fully autonomous. Instead, motor vehicles will transition from fully human controlled to human controlled but machine assisted, to machine controlled in certain locations then possibly fully automated. An example of this shift was discussed by Dr. Gill Pratt, Toyota Research Institute CEO at the January 2017 Consumer Electronics Show. (2)

    For a more detailed description of this transition, in September 2016, NHTSA released the Federal Automated Vehicles Policy. (3)  In the Policy, NHTSA differentiates vehicles on "who does what, when" by adopting the SAE Levels of Automation. There are six distinct levels of automation:

    At SAE Level 0, the human driver does everything;

    At SAE Level 1, an automated system on the vehicle can sometimes assist the human driver conduct some parts of the driving task (an example is vehicle equipped with cruise control);

    At SAE Level 2, an automated system on the vehicle can actually conduct some parts of the driving task, while the human continues to monitor the driving environment and performs the rest of the driving task (an example is dynamic cruise control or some types of electronic stability control);

    At SAE Level 3, an automated system can both actually conduct some parts of the driving task and monitor the driving environment in some instances, but the human driver must be ready to take back control when the automated system requests (the Tesla auto-pilot system is at this level);

    At SAE Level 4, an automated system can conduct the driving task and monitor the driving environment, and the human need not take back control, but the automated system can operate only in certain environments and under certain conditions (vehicles at Level 4 could control themselves on dedicated roadways); and

    At SAE Level 5, the automated system can perform all driving tasks, under all conditions that a human driver could perform them.

    There are no commercially available levels for sale at SAE Levels 4 or 5. Indeed, the vast majority of vehicles for sale today are SAE Level 1 or 2 vehicles; vehicle automated driving technologies simply assist the driver. And these technologies have been installed on vehicles for an extended period of time, helping drivers safely control their vehicle on the road. What this means is nothing new. Human drivers have the obligation and responsibility to monitor and control the vehicle – there are no vehicles currently available where the driver can abrogate this responsibility to the vehicle itself.

    North Carolina Product Liability Law and Automated Vehicles

    North Carolina product liability statutes and case law confirm tried and true principles: there is no strict liability in tort, manufacturers must exercise reasonable care in designing and manufacturing their products, product users must exercise reasonable care and contributory negligence is a complete defense to product liability causes of action. N.C. Gen. Stat. §99B-1.1 (“There shall be no strict liability in tort in product liability actions.”); Smith v. Fiber Controls Corp., 300 N.C. 669, 678, 268 S.E.2d 504, 509–10 (1980); N.C. Gen. Stat. §99B-4(3). See also Nicholson v. Am. Safety Util. Corp., 346 N.C. 767, 773, 488 S.E.2d 240, 244 (1997) (noting that the statute “does not create a different rule for products liability actions; it clarifies the common law contributory negligence standard with respect to these actions.”); These tried and true principles provide clear guidance to manufacturers, litigants and the courts when motor vehicle product liability actions occur.

    In particular, contributory negligence limits the ability of injured drivers to recover from a vehicle manufacturer. Unlike in many other jurisdictions, injured North Carolina drivers cannot use the doctrine of strict liability to seek recovery from their vehicle manufacturer. These statutory limitations on recovery are consistent with North Carolina tort and product liability law, and ensure that recovery does not occur when a driver fails to exercise reasonable care.

    As discussed above, the current introduction of automated vehicle technologies does not replace the need for a driver's reasonable care, but assist the driver in exercising that reasonable care. Any other argument misrepresents North Carolina law and the current status of automated vehicle technologies.

    Conclusion

    North Carolina's tried and true doctrines of contributory negligence, personal responsibility and reasonable care do not change because of autonomous vehicles and driver assistance technologies. Motor vehicle drivers have the firmly established responsibility to control their vehicles with reasonable care. While automated vehicle technologies will prevent accidents and reduce harm, they do not excuse or replace a driver's non-delegable duty to control their vehicle. The defense bar has an obligation to challenge plaintiffs' attempts to circumvent these tried and true doctrines in motor vehicle accident litigation involving vehicles equipped with automated vehicle technologies.

    Endnotes:

    (1) https://static.nhtsa.gov/odi/inv/2016/INCLA-PE16007-7876.PDF. Of note, NHTSA classified the Tesla Autopilot as "the Autopilot system is an Advanced Driver Assistance System (ADAS) that requires the continual and full attention of the driver to monitor the traffic environment and be prepared to take action to avoid crashes."

    (2) http://corporatenews.pressroom.toyota.com/releases/2017-ces-press-conference-pratt.htm

    (3) https://www.nhtsa.gov/technology-innovation/automated-vehicles

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  • 23 Jan 2017 2:00 PM | Lynette Pitt (Administrator)

    by Bradley C. Friesen, Bell Davis & Pitt

    In 2016, the North Carolina Court of Appeals issued three opinions that clarify aspects of the attorney-client privilege. They provide helpful refreshers on the basics of attorney-client privilege, as well as guidelines and warnings for how to maintain the privilege during litigation. Additionally, the Federal District Court for the Western District published an opinion about privilege in the context of real estate transactions, which seems to conflict with the view of many real estate practitioners.

    The starting point for discussion of these cases is a review of the elements of attorney-client privilege. The privilege protects attorney-client communications from disclosure, thereby promoting full and frank communications between attorney and client. It arises under the following circumstances: (1) the relation of attorney and client existed at the time the communication was made, (2) the communication was made in confidence, (3) the communication relates to a matter about which the attorney is being professionally consulted, (4) the communication was made in the course of giving or seeking legal advice for a proper purpose, although litigation need not be contemplated, and (5) the privilege has not been waived.(1)

    Friday Investments v. Bally Total Fitness: No Joint Defense or Common Interest Protection for Indemnity Relationship Arising from Asset Sale Agreement.

    In Friday Investments, LLC v. Bally Total Fitness of the Mid-Atlantic, Inc.,(2) the Court of Appeals held that communications between indemnitee and indemnitor did not qualify for privilege under the joint defense or common interest doctrine. This doctrine extends the attorney-client privilege to persons outside of the attorney-client relationship when they “(1) share a common interest; (2) agree to exchange information for the purpose of facilitating legal representation of the parties; and (3) the information must otherwise be confidential.”(3)

    This case arose from a lawsuit for back rent under a commercial lease. Friday Investments was the landlord and Bally was the tenant. Before the claims accrued, Bally sold its assets, including its rights under the lease. The asset purchase agreement included the following indemnification provision:

    “[Purchaser agrees to] defend, indemnify, and hold [Bally] … harmless of, from and against any [l]osses incurred … on account of or relating to … any Assumed Liabilities, including those arising from or under the [lease] after closing.”

    After Friday Investments filed suit, the purchaser agreed to provide a defense for Bally under the indemnification provision.

    The plaintiff took the deposition of Bally’s general counsel. During the deposition, the plaintiff’s counsel asked Bally’s general counsel to describe “all of the conversations” after the lawsuit was filed that he personally had with the purchaser—i.e., the entity providing the defense and indemnity for Bally. Attorney-client privilege was asserted. The trial court later granted the plaintiff’s motion to compel the answers, and denied Bally’s motion for a protective order. Bally appealed.

    The Court of Appeals held that the joint defense or common interest extension of the attorney-client privilege was limited to relationships formed primarily for the purpose of indemnification, like an insurance contract, or for coordination among parties in common litigation.(4) The Court held that the asset purchase agreement in this case arose out of a business relationship, and that the indemnity provision was ancillary to the business purposes of the parties. (5) The Court further distinguished the indemnity provision at issue from an insurance contract by noting that it did not allow the indemnitor any right to settle or effect the outcome of the litigation, further emphasizing its business purpose.

    This rationale begs an important question: when would an indemnification provision in an asset purchase agreement be invoked, except in the “non-business” context of litigation? Additionally, while the indemnitor in this case lacked a contractual right to settle the litigation, it was paying for the defense and any ultimate judgment, which would seem to give it a stake in the outcome sufficient to warrant the right to be informed about the shape and strategy for the litigation without having to reveal it to the plaintiff. The North Carolina Supreme Court granted discretionary review for this case on December 8, 2016, so further clarification about this issue is likely.

    Berens v. Berens: A Litigant’s Friend became her Agent to Help with Litigation, thereby Preserving Confidentiality and Privilege.

    Berens v. Berens (6) is a family law case in which the plaintiff-husband subpoenaed communications between the defendant-wife and her friend, who was helping her with the case, as well as communications between the wife’s attorney and the friend. Ordinarily, the presence of a non-client or non-attorney during a communication destroys the confidentiality of the communication, and therefore, the privilege. However, the wife asserted that her friend, although not the wife’s attorney, was her “agent and personal advisor to specifically assist her in this litigation.”(7)

    At the beginning of the friend’s involvement, and before any privilege dispute arose, the defendant and her friend formalized this principal-agent relationship in a written “Confidentiality Agreement and Acknowledgement of Receipt of Privileged Information.” The agreement provided (1) express authority for the friend to act as agent for the wife (2) subject to the wife’s control.(8) The agreement also provided that the friend-agent would “limit her communications concerning the Client’s litigation … to Client and Client’s attorneys and they [sic] will have no communication with anyone including, but not limited to Wife’s experts, accountants, consultants or attorneys or other advisors and consultants unless Client’s attorneys are present.”(9)

    The trial court found that the communications in the presence of the wife’s friend were not privileged because there is “no good friend exception” to the strict elements of attorney-client privilege. However, the Court of Appeals, found that the agency relationship was sufficient to keep the communications within the attorney-client circle. The Court held that being a good friend and being a litigant’s agent are not mutually-exclusive roles.(10) In this case, the record before the trial court and the Court of Appeals contained the friend’s affidavit, describing the agency relationship, as well as a copy of the written agency agreement. The Court of Appeals found these items to be sufficient to establish a client-agent relationship sufficient to preserve the attorney-client privilege.

    Sessions v. Sloane: A Checklist for How to Preserve and Present Privilege Disputes.

    In Sessions v. Sloane,(11) a group of business partners wanted to protect their internal communications from discovery by a creditor. Sloane and his partners won a $50 Million contract with the Royal Canadian Mounted Police to provide three cruise ships to house security forces during the 2010 Winter Olympics in Vancouver.

    A key reason they won the contract was a letter of credit for 10% of the $50 Million bid, which was provided at the last minute by the plaintiff, John Sessions. The defendants agreed to pay plaintiff a fee of $5 Million out of the proceeds of the contract. The proceeds ended up in the trust account for the defendants’ attorney after litigation with the Canadian government. Plaintiff caught wind of a plan by defendants to avoid paying his $5 Million fee, and he sued the defendants and obtained an attachment of the funds in their attorney’s trust account.

    During discovery, in response to a commonly-propounded discovery request for all documents “concerning” the plaintiff, the defendants asserted attorney-client privilege and work product protection. They produced a privilege log identifying some emails among the defendants—no attorneys—from the time period when the defendants were negotiating the terms of the letter of credit agreement with the plaintiff. The plaintiff moved to compel these communications, along with the To, From, CC, BCC, and Subject fields for other emails on the privilege log.

    In response, one of the defendants submitted an affidavit stating that the defendants had hired counsel and planned from day one to deny the enforceability of the agreement with the plaintiff, and therefore, they involved an attorney and anticipated litigation from the beginning. The defendants did not provide the materials at issue to the trial court for in camera review. The parties disputed whether those materials were offered for in camera inspection, but unfortunately, the court reporter present in the court room did not “take down” the proceedings. (PRACTICE POINTER: Expressly request that the hearing be taken down by the court reporter). The trial court ordered the non-attorney communications to be produced, along with the email header information, including email subject lines, for the emails on the privilege log.

    On appeal, the Court of Appeals addressed numerous aspects of privilege, which can be summarized in the following checklist about how to preserve and present privilege disputes:

    • The party asserting privilege has the burden to establish it. Providing a privilege log with only the date, sender, and recipient information, along with a claim of privilege and the basis, “email seeking or containing legal advice,” without providing the documents for in camera review, does not meet the burden because the court lacks sufficient information to evaluate the claim of privilege. (12)
    • Orally offering to allow the judge to review the material at issue is not the equivalent of actually submitting the material for review.(13)
    • If the material was not submitted to the trial court, it will not be reviewed by the Court of Appeals. (14)
    • “The better practice in privilege controversies would be to submit a motion, affidavit, privilege log, request for findings of fact and in camera review together with a sealed record of the documents to be reviewed.”(15)
    • In a matter of first impression, the Court of Appeals held that email subject lines may contain privileged material, but the subject line must meet the elements of attorney-client privilege, and should be submitted for in camera review. “Email containing legal advice” is not a sufficient description to establish privilege.(16)

    In re: Grand Jury Subpoena No. 2013R00691-009: Communications Made to Effectuate Real Estate Transaction are Not Privileged.

    Finally, Judge Whitney issued an opinion in Grand Jury Subpoena No. 2013R00691-009.(17)  In this matter, a law firm was subpoenaed to produce “all documents, records, or files maintained by firm regarding the closing of real estate transactions” between its client and certain parties. The law firm objected to producing confidential communications on the grounds of attorney-client privilege. Judge Whitney issued a published opinion granting the government’s motion to compel, stating that “[b]ecause of the frequent recurrence of objections … the Court now memorializes its oral ruling with this published opinion.”(18)

    The Court ordered the law firm to produce its communications with its client, stating that

    First, the subpoenaed documents are real estate closing files. Second, Movant is admittedly in a position of dual representation. … [E]ither [reason] independently, would suffice to determine that attorney-client privilege does not protect the subpoenaed communications ….(19)

    Perhaps alarmingly, the Court further stated that

    A client communication made for the purpose of effectuating a real estate closing inherently must be made in contemplation of ultimate public disclosure. Therefore, no intention of confidentiality, and thus no privilege exists.(20)

    This decision and rationale conflicts with the way many real estate practitioners view their communications with their clients. While some communications contain information contemplated to be included in the public record, other communications—including details related to negotiations, loan terms, and other matters—are intended to remain confidential. Real estate practitioners should be aware of this published decision.

    Conclusion.

    The mechanics of attorney-client privilege are often an afterthought during litigation. However, it is important to counsel our clients about privilege at the beginning of the representation so that it is not waived, as well as to avoid creating discoverable non-privileged material in the first place. Finally, remember to create an adequate record for the court to review so that privilege disputes are not waived.

    Endnotes:

    (1) Sessions v. Sloane, et al., 789S.E.2d 844 (N.C. App. 2016)
    (2) Friday Investments, LLC v. Bally Total Fitness of the Mid-Atl., Inc., 788 S.E.2d 170 (N.C. App. 2016), review allowed, 793 S.E.2nd 685 (N.C. 2016)
    (3) Id., 788 S.E.2d at 177.
    (4) Id., at 178.
    (5) Id.
    (6) Berens v. Berens, 785 S.E.2d 733 (N.C. App. 2016)
    (7) Id., at 739.
    (8) Id., at 736.
    (9) Id., at 737.
    (10) Id., at 741.
    (11) Sessions v. Sloane, et al., 789 S.E.2d 844 (N.C. App. 2016)
    (12) Id., at 856-7.
    (13) Id.
    (14) Id., at 854.
    (15) Id.
    (16) Id., at 856.
    (17) In re: Grand Jury Subpoena No. 2013R00691-009, No. 316MC00079FDWDCK, 2016 WL 4385874 (W.D.N.C. Aug. 16, 2016).
    (18) Id., at 1.
    (19) Id., at 5.
    (20) Id.

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  • 14 Dec 2016 11:30 AM | Lynette Pitt (Administrator)

    by Shannon J. Colangelo, Queen City Court Reporting

    In the past decade, the practice of insurance companies contracting for services has changed the court reporting industry, but for better or worse? Who is this practice benefiting, the local court reporting firm or the insurance industry? This practice has been the subject of much debate over the years as to whether these contracts bias the court reporting firms providing the service. In February of this year, California became the latest state to pass a law imposing disclosure requirements similar to those in North Carolina, while over half the states in the U.S. prohibit these contracts completely.

    N.C. Gen. Stat. § 1A-28(c)(4) addresses the rise in the use of exclusive or preferential contracts between providers of deposition services being financed by insurance companies, in efforts to ensure fairness and prevent cost-shifting. Such arrangements, while frustrating for small court reporting firms and counsel on opposite sides of such litigation, have thus far not been prohibited in North Carolina. The vexation created by these contracts is felt predominantly by attorneys paying for “outrageous” copies, as evidenced in a recent suit, Crystal Danielson vs. Veritext Corporate Services, Inc., filed by attorney Lamar Armstrong. Although the Court ruled against Mr. Armstrong’s client in this case, his plight is felt throughout the industry. Judge Robinson noted, “Nor does Danielson allege that she, or her counsel, made any efforts prior to the deposition to determine who would be serving as the certified verbatim reporter at the deposition or how much a copy of the deposition would cost.” As an aside, most court reporting firms cannot tell you how much a transcript is going to cost prior to the deposition, as prices are dictated by page count. The best they could have done was disclose their copy page rate.

    N.C.G.S. 1A-28(c)(4) also requires “the party desiring to take the deposition under a stipulation shall disclose the disqualification in writing in a Rule 30(b) notice of deposition and shall inform all parties to the litigation on the record of the existence of the disqualification under this rule and of the proposed stipulation waiving the disqualification. Any party opposing the proposed stipulation as provided in the notice of deposition shall give timely written notice of his or her opposition to all parties.”

    This business shift allowing insurance clients to dictate which reporting firm to hire has hurt independent reporters and local reporting firms and benefitted national reporting firms and the insurance industry. National reporting firms, most of which are not located in North Carolina and do not benefit our economy in the same way local reporting firms do, contract with insurance companies to provide lower original rates to their client and charge higher than average page rates to the copy attorneys, while paying lower than average page rates to the court reporters who provide the actual service to the client, all in efforts to cover their exorbitant overhead. This shift in business has affected closure of many small firms in recent years due to their clients being herded to the national firms by insurance litigation. Small court reporting firms across our state, as well as throughout the U.S., are still trying to survive this industry shift. In an if-you-can’t-beat-them-join-them mentality, some local reporting firms have petitioned these national agencies, requesting to be placed on their list of approved firms, if only to handle the depositions of their own clients, most times being thwarted in the attempt unless the attorney goes to battle with the insurance company on their behalf.

    In a May 2016 Lawyers Weekly article, Lawyer challenges court reporters on ‘outrageous’ copy charges, Phillip Bantz interviewed Mr. Armstrong, the attorney who filed the suit against Veritext. The article quotes Armstrong to have “believed that court reporters are using copy charges as an ‘extra profit center’ but he said he’s been told that reporters have to make money off the copies based on how they price the originals...the answer is to set your originals at whatever cost you need to generate the profits you want.” In theory, this is a plausible answer, but would necessitate an industry-wide pricing model change. If one agency raised the prices of original transcripts to cover the expenses that copy sales now cover, that agency would not be competitively priced within the industry and would soon find themselves out of business. Another way to keep costs down is to use a local firm with a smaller overhead and plan the deposition with enough time to receive transcripts at standard, not expedited, page rates.

    This problem has been ongoing for more than a decade. Consumer Watchdog discussed the issue in 1999. One attorney they quoted had complaints that mirror the concerns of court reporters across the nation, “When a client learns that the court-reporting firm is financially tethered to the insurance company, he feels that maybe he's not getting the transcript he deserves,” Says Gallen. “One thing we could always count on in the past was the integrity of the court reporter. I could always make that assurance to my client. But now I can't vouch for something I don't know.” They also point out that “many defense lawyers hate being told which court reporter they can use for a particular case. They'd rather pick the best one for the job.” The same holds true today.

    When asked, “How does contracting affect impartiality? Aren’t ethical codes enough?”, the National Court Reporting Association’s answer is that “Any arrangement that threatens the impartiality of court reporters or merely threatens the appearance of impartiality will lead to a breakdown of our justice system. What if the judge in a case of yours was being paid by your opponent in the litigation? Would their oath to be impartial be enough for you? If you lost, would you feel as though you got a fair shake? It is our faith in the impartiality of the judicial system that is the very basis of our Rule of Law and ordered government, and this foundation erodes when the antagonists in litigation--the parties--start directly paying the bills of the allegedly impartial.”

    The national agencies keep growing year after year and acquiring more smaller firms in every state and, left unchecked, will eliminate the small reporting firms all together in not too many years. If you’re paying too much for copies now, beware. The monopoly that is growing certainly will not keep prices down in the future.

    About the Author: Shannon Colangelo has been a court reporter for 10 years, partnering with three colleagues in March, 2015, to form Queen City Court Reporting. She spent the 20 years prior as an executive assistant and is a Gulf War veteran, U.S. Air Force. Queen City Court Reporting, based in Charlotte, with over 50 years combined experience, serves primarily North and South Carolina, as well as the Southeastern U.S. We pride ourselves on our professionalism, accuracy, and timeliness in every job we take, striving to get to know our clients so we can tailor each job to fit their individual needs.

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  • 30 Nov 2016 3:05 PM | Lynette Pitt (Administrator)

    by Niki T. Ingram, Marshall Dennehey Warner Coleman & Goggin

    "Black lives matter," "equality for women," and "diversity and inclusion" are all phrases that are thrown about in today's world. These phrases mean different things to different people, and one can argue that they refer to moral conclusions that some individual or groups espouse. They are generally not phrases that come to mind when talking to the insurance industry, but perhaps they need to be. It is important for insurance carriers, and those who represent them, to realize that the world is a very diverse place and that the appreciation of these differences can be critical when evaluating cases.

    Proper reserving is one of the most important aspects of working in the insurance industry. Carriers set their premiums based upon algorithms used by underwriters when issuing policies. Those algorithms take into account the likelihood of a claim occurring. Insurance companies are obviously in the business of making money when writing insurance, and, from the inception of a claim until its conclusion, it is critical that the reserves are adequate. Once a claim does occur, the initial reserve is set by the insurance adjuster. The setting of the reserves is based upon the most accurate assessment of the case that is possible. Reserves, however, are fluid and should change as the case evolves. Should the case go into litigation, the attorney representing the defendant then becomes involved in the valuation process. It is essential that the adjuster and the defense attorney be as accurate as possible when evaluating cases and that all factors involved in the case are appropriately assessed. One way to assure that this happens is to make certain that neither the claims professional nor the defense attorney allows his or her unconscious biases to impact the valuation of the case.

    Unconscious biases are those prejudices we all have that impact our belief structure about other groups. These biases may be based on race, gender, ethnicity, age, disability status, personality type or some other factor. They don't necessarily all exist together, but we all manifest them in some way or another. In the context of this article, the biases that are being discussed are those of racial prejudice.

    Several years ago, I had a case where I was asked to provide a settlement analysis for my client, which was a large third-party administrator. I went through the standard process of evaluating the case and considered the age of the plaintiff and her life expectancy, as well as the extent of her injury, the permanency of that injury, the cost of her medical treatment, what future treatment she would need, her ability to work, her loss of earnings and her level of pain and suffering. My settlement recommendation was neither high, nor low, from my perspective. However, the client dismissed my analysis immediately. What was interesting was that the dismissal was done using terms that could be classified as "buzz phrases," such as "people like her don't need that kind of money" and "she's just not a quality human being. I don't want her to get a large settlement. Let's make her sweat it out." What was the plaintiff like? Where did she live? What made her not a quality human being? I'm not sure of all of the answers to these questions, but she was a middle-aged African-American woman who lived in a working class neighborhood that was primarily African-American and Latino. She had an Associate's degree and had been working for a number of years when she sustained her injury. There was nothing to outwardly suggest that she was not "a quality human being." The claims adjuster refused to settle the case, and it dragged on for another year.

    The result of the failure to settle this case early was that by the time it did settle, my client paid $50,000 more than the original settlement recommendation. This case has always resonated with me because it is emblematic of the many reasons why diversity and inclusion should be important to the insurance industry. Was the adjuster in this case a racist? Probably not. Did his unconscious biases about African-Americans impact the value that he placed on the case? Probably. There are many studies that show that affinity biases exist. These biases are those which make us inclined to like or value individuals who are most like ourselves. In recent years, many studies have been conducted on unconscious biases, and one study done in 2014 showed that, even when people believe that prejudice and discrimination are wrong, they still harbor these biases. (Henneman, 2014). There are a myriad of unconscious biases that exist, and it is important for the defense industry to understand that hiring and retaining diverse personnel helps to reduce the biases of others in the office and that this, along with formalizing training about issues of diversity, leads to increased understanding and respect for individuals who are different than the evaluator.

    The initial response from the insurance industry and the defense bar about a case such as my example above may be that this was an individual instance and there was no demonstrated racism. Perhaps a more thoughtful and realistic way to deal with the issues posed might be to focus on the fact that the case could have settled more quickly and more cheaply had the adjuster been able to recognize and appreciate the value of a non-white life. Even if minorities are not well represented in either the insurance industry or the defense bar, there can be training conducted that helps individuals to understand what their unconscious biases are and how to overcome them or compensate for them. While there is certainly a moral argument that the hiring and retention of minorities is important for the defense industry, there is also an economic incentive to implement and strengthen diversity programs and practices.

    All cases need to be evaluated as accurately as possible. This starts with the first-line adjuster. These adjusters need to recognize and overcome any inherent biases they have. As a case proceeds into the litigation process, it is incumbent upon defense counsel to do the same. The recognition that unconscious biases may play into analysis will not only help improve accuracies in setting reserves and settlements, but it is the beginning of change for the industry as a whole.

    About the Author: Niki T. Ingram is a Shareholder, Director of the Workers' Compensation Department, and a member of the Board of Directors at Marshall Dennehey Warner Coleman & Goggin. 

    This article is re-printed with permission from DRI’s Diversity Insider Newsletter, May 6, 2016 issue.

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  • 16 Nov 2016 11:21 AM | Lynette Pitt (Administrator)

    by Erin M. Young, Hall Booth Smith, PC

    A recent Order and Opinion from the North Carolina Business Court establishes that corporate in-house counsel in this state can no longer rely on the mere fact that they are attorneys as a shield from becoming testifying witnesses in litigation. The Court determined that, under the circumstances, a blanket order prohibiting plaintiff from deposing in-house counsel was not justified and the deposition could proceed. In the November 2, 2016 Order and Opinion, Chief Business Court Judge James Gale denied a Motion for Protective Order filed by Acuity Healthcare Holdings, Inc. and Acuity Healthcare, L.P. ("Acuity") in response to plaintiff's request to depose their general counsel and vice president of compliance and risk management.

    Background

    Plaintiff, Carmita Edison, worked as a respiratory therapist at Mercy Restorative Hospital ("Mercy"), a long-term acute care hospital in Charlotte. Acuity and Mercy jointly employed the plaintiff. Plaintiff alleges that Acuity and Mercy wrongfully terminated her after she filed a complaint with the North Carolina Respiratory care Board regarding poor patient care, incorrect ventilator settings, false documentation, and management failures.

    Plaintiff's attorney requested to depose Acuity's general counsel. Acuity, in its Motion for Protective Order, stated that their general counsel provided "general legal advice and counsel to [Acuity] . . . regarding legal compliance and management of legal risk." Acuity's 30(b)(6) designee also identified the general counsel as the person capable of answering questions on topics relevant to the dispute about which the designee had no knowledge.

    Plaintiff then served a notice of deposition on Acuity's general counsel to which Acuity responded with a Motion for Protective Order.

    Legal Analysis

    The Business Court adopted the "Shelton" rule set forth in the Eighth Circuit decision of Shelton v. American Motors Corp., 805 F.2d 1323 (8th Cir.1986 ). A party may depose corporate in-house counsel if they are able to demonstrate that "(1) no other means exist to obtain the information than to depose opposing counsel; (2) the information sought is relevant and nonprivileged; and (3) the information is crucial to the preparation of the case."

    In its discretion, the Business Court found that under the Shelton analysis, Acuity's general counsel could be deposed because the deposition was not targeted solely at eliciting information relating to Acuity's litigation strategy, and the deposition would not necessarily result in undue burden or expense. The Court further determined that there was no evidence that counsel had been substantially involved with overseeing the litigation. Additionally, the 30(b)(6) designee identified in-house counsel as the person who could best speak to certain clinical care standards and to consistency among Acuity's hospitals.

    Holding

    Where defendant's general counsel also served as one of its vice presidents who may have unprivileged knowledge relevant to the case, she may be deposed. The Business Court stated that a blanket order prohibiting general counsel's testimony was unjustified; that Acuity could assert the attorney-client privilege on a question-by-question or subject-by-subject basis.

    Future Implications

    Neither North Carolina's appellate courts nor the Fourth Circuit have expressly adopted the Shelton rule. However, federal district courts in North Carolina have applied the rule in some cases. The Business Court's adoption of the rule certainly has persuasive implications for other trial courts considering this inquiry. The trend now seems to be that court's will not issue a blanket prohibition on the in-house deposition but will entertain a motion to limit the scope of the deposition.

    Though the ruling in this case sounds ominous, you must remember that Acuity's general counsel served in dual capacities – both as general counsel and as vice president of the company's compliance and risk management department. In that regard, she possessed non-privileged, relevant, factual information necessitating her participation in the litigation as a fact witness.

    To reduce the possibility of general counsel becoming a deponent, corporations and their in-house counsel can take some proactive measures to reduce the chances of being deposed or to limit the scope of the deposition.

    • Do not allow the in-house attorney to act like a fact witness. For example, corporate counsel should avoid signing affidavits or interrogatories as the corporate representative if possible. Participation in factual discovery erodes the line between counsel and fact witness.
    • Delineate those written communications that are made solely for the purpose of giving legal advice. Routine business communications do not become privileged solely because they are sent to or copied to in-house counsel. Clearly, identify all written communications seeking or providing legal advice as "confidential" and/or subject to the attorney-client privilege in the event of a request for production or in camera review. Also, only disseminate communications with legal advice to those who have a legitimate "need to know." Have non-legal employees identify communications to in-house counsel as a "request for legal advice."
    • If general counsel serves a dual role, avoid discussing legal and business topics in the same communication or forum. Where the in-house counsel wears both a legal hat and a business hat, that automatically increases the likelihood that he/she possesses non-privileged information. Thus, the dual roles should be clearly delineated as much as possible to protect the attorney-client privilege.

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  • 27 Oct 2016 12:37 PM | Lynette Pitt (Administrator)

    by Queen City Court Reporting

    There will inevitably come a time in every attorney’s career  when theyare faced with the task of conducting a video deposition. We would like to share some insights regarding this process to help make it as seamless and productive as possible for you.

    Most legal videographers are independent contractors who are hired by court reporting agencies to represent them during the proceeding. As most court reporters are certified, so too are legal videographers through the NCRA or AGCV. This is important because certain standards should be followed to ensure certification of the deposition video meets acceptable standards and procedures and thereby is not challenged if shown in court.

    The videographer is part of the legal community as a non-biased representative of services and should dress accordingly. The legal videographer’s job is to videotape the deposition and not be a distraction to the proceedings.

    When the deposition starts, the legal videographer will do a read-on stating the date, time, witness, the case and case number, the court it is in, location of the deposition, his/her name and that of the court reporter too. He/she will then ask all lawyers present to introduce themselves for the record, after which the court reporter will swear in the witness. There are times where the examining lawyer does not want to do a read-on. The legal videographer will ensure that the attorneys representing the plaintiff and defendant are in agreement not to do a read-on or do a shortened read-on before moving forward with the deposition.

    What challenges does the legal videographer face when videotaping a deposition?

    First, doing a deposition in a closet is not good for the videographer, court reporter, lawyers and/or witness…nor is a bathroom or an exam room (come on, we’ve all been there!) However, there are times when limited space is all that is available. Preferably, the deposition should be taken in a conference room, but break-out rooms, even lobbies have been used. Your videographer will do their best to set up the room so that you will be comfortable with the setting. We do the best we can under the circumstances.

    Videographers will come with a lot of fancy equipment. It is more than just a camera and tripod. It additionally includes audio mixer, video capture equipment, audio cables, microphones, background screen, and so on. The word “tape,” as in “videotape,” has been changed to “media”. Almost all legal videographers record directly to DVD or a capture card. In the past, when the “tape” was about to run out, the videographer would provide a 5-minute warning and hope that the lawyer did not go beyond the tape running out. With DVDs and other captured devices the recording time limits are luckily much longer.

    Importance of quality audio

    First, you want the best audio possible. Below are some of the issues a videographer deals with and how they can affect the quality of your videotaped deposition.

    Set up

    Generally, the videographer will arrive at the deposition site one hour before it is scheduled to start. This provides enough time to set up equipment, run microphone cable, set up background screen and test equipment prior to lawyers and the court reporter arriving. There are times when the deposition is set up for 7:00 a.m. for a doctor, but no one shows up to open the location until 7:00 a.m. This obviously would waste the time of the lawyer and the deponent (almost always a doctor). It is better to set up these depositions after normal business hours or other free time convenient to all parties.

    The Heavy Breather

    Microphones in the deposition setting are very sensitive. Some lawyers, who we’ll call “Heavy Breathers”, will wear their microphone in close proximity to their face (nose) so that when they are looking at their notes their heavy breathing is picked up on the video recording. The videographer can often find themselves adjusting audio to minimize the noise when the lawyer is not speaking.

    The Note Flipper

    The “Note Flipper” is the lawyer who is going through their notes flipping pages toward their chest hitting the microphone and causing extreme static on the audio recording. To avoid being cast as the dreaded “Note Flipper”, attempt to keep all note flipping as quiet and as unobtrusive as possible.

    The Shuffler

    The lawyer who shuffles papers on the desk will often create enough noise (microphones are sensitive) to be distracting. Understandably, looking for an exhibit in a pile on the table can often be frustrating for the “Shuffler”; nevertheless, it can cause audio issues. Yes, your videographer should be using a sound board (audio mixer) to adjust inputs to minimize these audio issues, but often it can be a challenge of balancing testimony and these other noises in the room.

    The Reacher

    The videographer will be shooting at an angle that is normally mid chest to just above the head of the witness. In most cases, laptops, drinks, and so on are not in the camera’s view. But there are those times when a lawyer will “reach” forward with a document into the camera view to read, and often it is their witness. This will be distracting to a jury, as will the heavy breather, note flipper, and shuffler.

    The videographer will do their best to ensure there is a clear path between the camera viewing lens and the witness, i.e., laptops, drinks, etc. Make a mental note to not obstruct or interfere with the picture or risk the wrath of the videographer!

    The Angle of the Camera

    If the ordering attorney has a specific desire on how they want the videographer to set up, they should let them or the agency they work with of their preference, i.e., over their shoulder or long shot where the witness sits at the end of the table. Your videographer normally takes 30 to 40 minutes to set up and test their equipment. To re set-up equipment at the time of the deposition will take time and also be distracting.

    There is the chance that this video will be shown to a jury, so you want it to look as best as possible. So here are some do’s and don’ts for your witness:

    Dress

    Don’ts for men and ladies is to not wear sweat shirts or t-shirts to their deposition. A nice shirt or blouse, preferably a solid color, presents itself much better than stripes or zig zag patterns on the video. The videographer will place a Lavalier microphone on the witness for audio recording. If the microphone cannot be attached to a jacket lapel, tie or buttoned shirt, its appearance on the video can be distracting. In rare cases a small tripod mounted microphone can be used, but the method of clipping the microphone on the witness’s clothing is preferred.

    If this is your witness, you want them to present themselves as best as they can as this video may end up being viewed by a jury. As they say, “What you are speaks so loudly I can hardly hear a word you are saying!”

    Hair

    Ladies should wear clothing that a Lavalier microphone can be attached to and not brush against their hair. There is a balance between distance of the microphone to the voice and quality of the audio. If this becomes a problem, the videographer should use a small tripod with the microphone attached and place it on the table in front of the witness out of camera view. The audio level can be adjusted by the videographer, though the quality will be about 90% of normal.

    What are some popular formats for the DVD?

    During the deposition, the legal videographer will put the deposition on and off the record for each media used. At the end of the deposition, the legal videographer will ask each lawyer what format they want the video delivered in. If they have a standing order with the court reporting agency, that will be noted. Most lawyers order DVD or Synched DVD. The Synched DVD is when the video is synched up with the transcript through trial presentation software so you can see the transcript on one side of the screen and the corresponding video on the other side of the screen. This allows one to jump around with the transcript from one line to another and the corresponding video clip will appear too.

    Periodically lawyers will ask for an mp4 or mpeg-4 format, which they can play on their tablet or laptop. For the attorney who scheduled the deposition, the DVD is provided as part of the contracted service. If they wish for the video to be synched or converted to mpeg-4, or other format, there is normally an additional fee.  

    When the deposition is over

    Finally, it takes time for the legal videographer to pack up after the deposition is over. He/she should make sure that the room the deposition was held in is returned to its original layout and all extras, such as empty drink bottles, papers, etc., are properly thrown away, and leave the room as clean and orderly as possible. Those who work at the facility will greatly appreciate this effort. No one wants to be left with a mess.

    So now it’s finally time to sigh a huge breath of relief and congratulate yourself as you have successfully completed your video deposition. And always remember to relax and show them your best side. After all, the spotlight is indeed on you!

    About the Author:  At Queen City Court Reporting, you are our main priority. We tailor our services to meet your needs and will provide accurate, dependable, and experienced reporters. Contact us at 704-300-9770 or office@queencitycourtreporting.com.

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  • 29 Aug 2016 4:18 PM | Lynette Pitt (Administrator)

    by Luke Dalton

    Elements of basic technology were introduced into our vehicles decades ago. Over time, the adapting and interfacing of technological modalities have been slowly, even incipiently, integrated into our vehicles.

    Today, many of our vehicles utilize both short-range and long-range connectivity through wireless interfaces to support features such as tire pressure monitoring, telematics and Smart Key keyless entry/ignition start. These interfaces include Bluetooth, Wi-Fi, radio frequency, Global System for Mobile Communications/Code Division Multiple Access and Universal Mobile Telecommunications System.

    For some time, our vehicles have also used several self-driving technologies, including collision avoidance, drifting warning, blind-spot detectors, enhanced cruise control and self-parking. Still, not many years ago, the thought of driverless vehicles seemed like a remote and distant possibility. However, the technology that will be utilized in our vehicles has progressed rapidly, more so than many in the legal community previously thought possible.

    From recent news, society is learning more about the future of technology in our vehicles, and the resulting legal issues that may arise. In late 2015, Tesla released a self-driving feature called Autopilot to customers in a software update. Through outlets such as The Wall Street Journal, we are now learning about Uber’s plans to utilize self-driving vehicles as soon as this month to transport passengers around Pittsburgh.

    The Federal Government seems to be encouraging the development of self-driving automated/autonomous vehicles. The U.S. Department of Transportation John A. Volpe National Transportation Systems Center prepared a preliminary report in March 2016 identifying instances where existing Federal Motor Vehicle Safety Standards may impede the introduction of automated/autonomous vehicles. More recently, during his remarks at the 2016 Automated Vehicles Symposium, Mark Rosekind, Administrator of the National Highway Traffic Safety Administration (NHTSA), outlined many benefits of technology in our vehicles. He spoke of a future “where vehicle automation and vehicle connectivity could cut roadway fatalities dramatically.” Further, the technology will assist disabled and elderly people in reclaiming the independence and freedom allowed by a personal vehicle.

    However, as we have also seen in recent news, there are potential dangers associated with connected and automated/autonomous vehicles. For example, the U.S. Government Accountability Office (GAO) has noted that researchers found our vehicles’ wireless interfaces—if not properly secured—may be exploited to gain access to in-vehicle networks, and to take control of brakes and other safety-critical functions. After widespread news coverage of an accident in Florida involving a Tesla Model S using the Autopilot feature, we have also seen that automated/autonomous vehicles will be involved in catastrophic events. Governmental agencies and members of the legal community have been working to keep pace with technological innovation in order to anticipate and address these dangers, while still embracing the use of technology in our vehicles.

    In 2014, the NHTSA issued a summary of cybersecurity best practices to address the growing cybersecurity risks associated with vehicles equipped with advanced electronic control systems. The SPY Car Act of 2015 was introduced in the U.S. Senate, which would have directed the NHTSA to issue motor vehicle cybersecurity regulations. Some have called for governmental agencies to take further actions. The GAO recently called for the Department of Transportation to define its role in responding to vehicle cyber-attacks.

    This year the NHTSA announced its belief that it retains authority over automated vehicle technologies, systems, equipment, software and after-market software updates, such as Tesla’s Autopilot feature, as “motor vehicle equipment.” The NHTSA noted that a defect in a vehicle’s hardware, software, and other electronic systems “may be considered a defect of the motor vehicle itself,” and that unique safety risks are presented by software installed in or on a vehicle.

    According to the NHTSA, a software failure or safety-risk constitutes a defect when the software has manifested a safety-related performance failure, or otherwise presents an unreasonable risk to safety. The NHTSA noted:

    To avoid violating Safety Act requirements and standards, manufacturers of emerging technology and the motor vehicles on which such technology is installed are strongly encouraged to take steps to proactively identify and resolve safety concerns before their products are available for use on public roadways.

    Issues caused by connected and automated/autonomous vehicles will likely raise novel issues under current state laws. According to the National Conference of State Legislatures, as of 2015, sixteen states introduced legislation related to autonomous vehicles.

    In 2015, legislation was introduced in North Carolina that would have directed the NCDOT to study how to implement autonomous vehicle technology on the roads and highways of North Carolina. Is it now time for North Carolina to analyze its criminal and civil laws and regulations in preparation for the expected widespread introduction of automated vehicles?

    Some of the legal issues that courts will be presented with because of connected and automated/autonomous vehicles may include how coverage under North Carolina’s vehicle liability policy will be interpreted when accidents are caused by software in vehicles. Courts may be called upon to address novel issues when analyzing the applicability of North Carolina’s product liability law to accidents caused by software that was downloaded as a software update after the sale of the vehicle. Moreover, products liability and personal injury litigants will face new and likely costly challenges when addressing whether software was the actual and proximate cause of any vehicle accident.

    It appears that the Internet of Things and the widespread use of technology in our vehicles will continue to be an integral element of our society. The legal community and lawmakers in North Carolina should take note and prepare to address issues that will arise from the use of highly utilitarian, but sometimes risky, technology in our vehicles.

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