Medical Practice Competition RestrictionsBill Constangy*
The landscape is rapidly changing in North Carolina for the enforceability of employment contract restrictions on medical practice competition. The proliferation of medical practice employment contract covenants not to compete is consistent with the expanding use of such covenants to protect employers’ legitimate business interests in a multitude of businesses. Specifically in regard to medical practice, it has also been accelerated in North Carolina by the increased accessibility of medical specialty and other medical services throughout the state and the continuing rise of integrated health care systems.
It has become common for such health care systems, employing many physicians, and smaller medical practices to employ physicians bound by employment contract physician services agreements including covenants not to compete during employment and for a limited period of time after termination in a restricted physical area.
Such contracts often contain forfeiture clauses by which the offending physician agrees to give up certain retirement or other benefits, such as severance pay or pension rights, that the physician would otherwise receive. They also may contain even broader liquidated damage clauses that require the physician who violates the restrictions to pay a predetermined fixed sum based on a mathematical formula to compensate the employer medical practice for anticipated economic loss caused by the physician’s decision to remain in the restricted area and compete after termination of employment.
The inherent nature of medical services and the potential for harm to public health, raises significant public policy concerns in relation to the enforcement of such restrictions.
The North Carolina Court of Appeals noted in the 1988 case of Iredell Digestive Disease Clinic v Petrozza that “medical doctors are by no means immune from such agreements.” However, the court held that “[i]f ordering the covenantor to honor his contractual obligation would create a substantial question of potential harm to the public health, then the public interest outweighs the contract interests of the covenantee, and the court will refuse to enforce the covenant.” The court found that “public health and welfare would be harmed” by enforcing the covenant and leaving “only one gastroenterologist in Statesville.” Holding that covenant was unenforceable, the court noted that “[t]he doctor-patient relationship is a personal one and we are extremely hesitant to deny the patient-consumer any choice whatsoever.”
Interference with patient choice by physician non-compete agreements continues to be a major public policy concern. In November, 2014, the American Medical Association issued Opinion 9.02 in accordance with their Code of Medical Ethics concerning such restrictive covenants stating that “[c]ovenants-not-to-compete restrict competition, can disrupt continuity of care, and may limit access to care. Furthermore, the opinion urges physicians not to “enter into covenants that: (a) unreasonably restrict the right of a physician to practice medicine for a specified period of time or in a specified geographic area on termination of a contractual relationship; and (b) do not make reasonable accommodation for patients’ choice of physician.”
The issue of the “the effect of AMA's Code of Medical Ethics on validity of the restrictive covenants” was raised in Calhoun v. WHA Medical Clinic, a 2006 case heard by the North Carolina Court of Appeals. Two of the five physician employment contract covenants not to compete contained the following language: “no provision of this Agreement shall be enforceable by Company or Physician or any court of competent jurisdiction where local, state or federal laws and regulations and/or the AMA Code of Professional Ethics prohibits and/or discourages the conduct described in or intent of the provision(s) sought to be enforced.”
Technical evidentiary and assignment of error issues on appeal precluded the court from deciding this important question of the effect of a provision in the covenant making such covenant unenforceable if in violation of the AMA Code.
North Carolina courts have carefully distinguished substantial risk of harm to the public and mere inconvenience. The court in Statesville Medical Group. v. Dickey, a 1992 North Carolina Court of Appeals case, sets forth the following determinative risk factors: “the shortage of specialists in the field in the restricted area, the impact of ... establishing a monopoly ... in the area, including the impact on fees in the future and the availability of a doctor at all times for emergencies, and the public interest in having a choice in the selection of a physician.”
In Dickey, the court held that a 2 year restrictive covenant with “the only endocrinologist living and practicing in Iredell County” was unenforceable because it “would create a substantial question of potential harm to the public health.” The court concluded that if the restrictive covenant were enforced patients would have to travel forty-five minutes to Charlotte or Winston-Salem for treatment and “that [t]he distance between the two locations may very well impact on the availability of a doctor at all times for an emergency.” The court also considered the fact that since the plaintiff would be contracting with a part-time specialist from Charlotte to provide such services in Statesville one-half day per week that the plaintiff would have a monopoly on endocrinologist services in Iredell County and there would be no fee competition.
Public policy issues, which are central to the strict scrutiny analysis and reasonableness requirement for all enforceable covenants not to compete, have taken a backseat in the North Carolina appellate courts’ determination of the enforceability of forfeiture and liquidated damages clauses related to medical practice non-competition.
The North Carolina appellate courts have taken a softer approach to such clauses and opened the door widely for an alternative approach to damages incurred by the employer as a result of post-termination competition. In a series of cases the courts held that such clauses are not covenants not to compete and are not subject to covenant not to compete enforceability standards.
In 1975, the North Carolina Supreme Court in Hudson v. North Carolina Farm Bureau Mutual Insurance upheld a forfeiture clause in an insurance agency employment contract with an agency manager. Pursuant to the contract the employee forfeited, that is, gave up, his rights to pension plan solely funded by the employer as a result of violation the post-termination non-competition restrictions in the contract. The court concluded that “the forfeiture, unlike the restraint included in an employment contract is not a prohibition on the employee engaging in competitive work but is merely a denial of the right to participate in the retirement plan if he does so engage.”
This rationale has been applied to such clauses in medical practice employment contracts.
The Court of Appeals in the 1987 case of Newman v. Raleigh Internal Medicine Associates, upheld a “limitation of practice” forfeiture clause in which a cardiologist gave up 90 days of post-termination benefits including a productivity bonus and a portion of his base salary by engaging in a similar practice in Raleigh.
In Nalle Clinic v. Parker, a 1991 North Carolina Court of Appeals case, reversed the trial and refused to enforce a “practice limitation clause” including a covenant not to compete and a liquidated damage clause. The court found that there would be substantial risk of harm to the public by enforcing a 2 year covenant prohibiting the only full-time practicing pediatric endocrinologist from practicing medicine or surgery in Mecklenburg County. The liquidated damages provision, which was cumulative and not an alternative to any other damages for violation, such as injunctive relief or loss of profits, would have required the physician to pay 50% of his monthly compensation for each month of the breach in addition to any other remedies.
In the 2002 North Carolina Court of Appeals case, Eastern Carolina Internal Medicine v. Faidas, which was appealed and affirmed by the North Carolina Supreme Court, the court enforced a stand-alone “cost sharing” liquidated damages clause that was not in addition to a traditional non-compete provision. The clause required the physician who chose to continue practice in Jones, Craven or Pamlico Counties to pay a “reasonable estimate” of the prospective damages pursuant to a mathematical formula. The court held that the provision was not an unenforceable penalty and was not a covenant not to compete.
In the 2006 Calhoun case, even though medical specialists were involved, the NC Court of Appeals unanimously held that the liquidated damages clauses were enforceable. The non-compete covenants at issue involved five cardiologists employed by a sixty physician multi-specialty group covering seven North Carolina counties. Upon termination the five employees were prohibited from practicing medicine in those counties. The liquidated damages clause contained a formula for assessing damages if the physicians chose to violate the restrictions and continue practicing in any or all of seven counties. The clause also included a provision requiring the physicians to pay back certain payouts that they otherwise received under the employment contract. The court held that there would be substantial risk of harm to public safety by enforcing the covenant if there were no provision allowing the physician to continue practicing in the restricted area. However, the court found that the liquidated damage clauses provided an alternative, allowing the physicians to compete upon compliance. The court held that such provisions are not considered to be a covenant not to compete and consequently not subject to the same scrutiny and enforceability factors as covenants not to compete.
Without denominating it as such, the North Carolina appellate courts appear to have adopted the “employee choice doctrine” applied by the Court of Appeals of New York in the 2006 case of Morris v. Schroder Capital Management. The rationale for this doctrine is explained in Morris, as follows:
We have recognized an exception to the general disfavor of non-compete provisions, however, in the “employee choice” doctrine. This exception applies in cases where an employer conditions receipt of post-employment benefits upon compliance with a restrictive covenant. The doctrine rests on the premise that if the employee is given the choice of preserving his rights under his contract by refraining from competition or risking forfeiture of such rights by exercising his right to compete, there is no unreasonable restraint upon an employee's liberty to earn a living. It assumes that an employee who leaves his employer makes an informed choice between forfeiting his benefit or retaining the benefit by avoiding competitive employment.
However, it should be noted that the Court of Appeals has extended the enforcement of such clauses beyond traditional forfeiture clauses which consists of giving up a benefit, such as the pension in Hudson, the progenitor of North Carolina’s forfeiture clause exception, to include broader liquidated damages clauses that involve payments of specific sums of money. Also, even under the New York “employee choice doctrine”, the New York courts refuse to apply this exception to at will or fixed term employees who are involuntarily terminated.
The Calhoun court did not differentiate between enforcement of the clause in regard to the one cardiologist who was involuntarily terminated the day before he intended to resign and the other four cardiologists who voluntarily resigned.
*Bill Constangy is a retired Superior Court Judge in Charlotte, an arbitrator and mediator, the author of a law book and numerous articles on employment law and other legal subjects.
U.S. Supreme Court Describes "Ordinary Principles of Contract Law"Michael W. Mitchell, Smith Anderson, LLP
In a contract governed by federal law, does “The End” really mean “The End”? Some federal courts have said “no,” but the U.S. Supreme Court has just said “yes.”
Most contract cases in federal court involve the application of state substantive law and so it is uncommon for the U.S. Supreme Court to expound on what it considers to be the contract principles to be applied in federal cases where no state’s substantive law applies. But in a recent unanimous decision, M&G Polymers USA, LLC v. Tackett, 135 S.Ct. 926 (2015) (four justices concurring in a separate opinion), the Court took the opportunity to do just that when it vacated a Sixth Circuit decision because that court had failed to apply “ordinary principles of contract law” to a collective bargaining agreement.
The issue in M&G Polymers USA was whether the agreement, governed by The Employee Retirement Income Security Act of 1974 (ERISA), granted lifetime health benefits to employees even in the face of the agreement’s three-year term. In a prior case, International Union, et al v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983), the Sixth Circuit had adopted its “Yard-Man” inference, pursuant to which courts could construe the grant of health care benefits in a collective bargaining agreement as vested and interminable despite express language setting an expiration date on the entire agreement itself.
In M&G Polymers USA, the collective bargaining agreement provided a durational clause, stating that the employer would provide health benefits for the duration of the agreement. The agreement provided for renegotiation of its terms in three years. Despite this explicit language, the Sixth Circuit applied its Yard-Man inference and held that the health care benefits were vested for the life of all retirees. In other words, health benefits would continue after the agreement’s expiration and for the remaining life of the retirees.
But the Supreme Court rejected the Yard-Man inference in M&G Polymers USA. As the Court explained, “[w]e interpret collective-bargaining agreements, including those establishing ERISA plans, according to ordinary principles of contract law, at least when those principles are not inconsistent with federal labor policy.” Below are the four basic principles the Court applied in reaching its decision:
Courts should use case-specific evidence to determine the intentions of the contracting parties and not the court’s own general suppositions regarding their intentions. The Supreme Court noted that the Yard-Man inference distorted the attempt to ascertain the intention of the parties because its “assessment of likely behavior…is too speculative and too far removed from the context of any particular contract to be useful in discerning the parties’ intentions.” The Court also explained that courts may look to known industry customs or usages to determine the meaning of a contract. But, the parties first must prove that those particular customs and usages apply to the contract and do so with specific evidence in each case.
According to the Court, a written agreement is presumed to encompass the whole agreement of the parties. Therefore, it is not necessary for parties to include a separate durational clause in a contract in order to terminate any specific provision when the contract already contains a general durational clause.
The Court also described the proper application of the “illusory promises” doctrine. The doctrine discourages an interpretation of a contract that would render a promise illusory because an illusory promise cannot serve as consideration. And without consideration, a contract is invalid. The Sixth Circuit had held that the collective bargaining agreement would be illusory if the health care benefits did not vest for the life of the employee, because some employees would not get the benefit of the promise. But the Supreme Court explained that, if a promise is only partly illusory, then it is necessarily partly real. And a real promise can serve as consideration.
Finally, the Court recognized the “traditional principle that courts should not construe ambiguous writings to create lifetime promises.” The Court held that, generally, contractual obligations will cease upon termination of the contract. And when a contract is silent as to the duration of the term, a court may not infer that the parties intended it to last indefinitely.
While most commentators have focused on the importance of M&G Polymers USA in relation to collective bargaining agreements and health care benefits, the case also provides valuable insight into the Supreme Court’s view of those contract principles that federal courts should apply in the absence of applicable state law.
Reprinted with Permission.
North Carolina Erroneously Interprets How UIM Statute is Applied in Multiple Tortfeasor ScenariosDavid S. Coats, Bailey & Dixon, LLP
In the recent case of Lunsford v. Mills, No. 385PA13, 2014 N.C. LEXIS 1202 (December 19, 2014), a matter of first impression, the North Carolina Supreme Court decided when underinsured motorist (UIM) coverage is triggered under the provisions of N.C. Gen. Stat. § 20-279.21 in situations involving multiple tortfeasors. In doing so, the Court appears to have undermined the purposes of the UIM statute and allowed an injured party to recover more than the UIM coverage they bargained for, to the detriment of the UIM insurer.
The facts in Lunsford were that Defendant Mills was operating a tractor-trailer owned by his employer (Crowder) on Interstate 40 when he lost control while rounding a curve, causing the vehicle to collide with a concrete median and flip. Plaintiff Lunsford, a volunteer firefighter, was standing in the highway median attempting to lift Mills over the concrete barrier and carry him to safety when a second accident occurred: Defendant Buchanan, traveling the opposite direction on the Interstate, swerved to the left to avoid the vehicle in front of him (itself slowing due to the tractor-trailer accident) and struck Lunsford, causing him severe bodily injuries. At the time of the accident, Defendants Mills and Crowder were covered under a business auto policy issued by US Fire Insurance Company that carried $1,000,000 in limits. Defendant Buchanan was insured under a personal auto policy issued by Allstate Insurance Company that carried $50,000 in limits. Finally, Lunsford had two policies issued by NC Farm Bureau Insurance Company that carried combined UIM limits of $400,000.
Lunsford filed a negligence action against Mills, Crowder, and Buchanan, claiming that they were jointly and severally liable for his injuries. Lunsford also put his insurer, NC Farm Bureau, on notice of a UIM claim. When Allstate thereafter tendered its $50,000 limits to Lunsford, Lunsford’s attorney demanded that NC Farm Bureau tender its limits on his UIM claim. NC Farm Bureau refused, and Lunsford later settled his lawsuit against Mills and Crowder for $850,000 (out of their $1,000,000 in liability insurance coverage). When Lunsford continued to demand payment of the UIM coverage limits, NC Farm Bureau filed a motion for summary judgment arguing that Lunsford was not entitled to UIM coverage because the total amount of his settlements ($900,000) exceeded the $400,000 in UIM coverage. The trial court disagreed, however, and entered an order requiring NC Farm Bureau to pay Lunsford $350,000 (the $400,000 in UIM coverage minus the $50,000 first received from Allstate on behalf of Buchanan).
NC Farm Bureau appealed the trial court’s ruling, but the North Carolina Court of Appeals affirmed. In doing so, the court relied on the relationship between the “triggering provision” of N.C.
Gen. Stat. § 20-279.21(b)(4) and the statute’s definition of “underinsured highway vehicle.” The former provision provides that “underinsured motorist coverage is deemed to apply when, by reason of payment of judgment or settlement, all liability bonds or insurance policies providing coverage for bodily injury caused by the ownership, maintenance, or use of the underinsured highway vehicle have been exhausted.” (emphasis added). NC Farm Bureau focused on the “all liability bonds or insurance policies” language to argue that, in determining whether UIM coverage is triggered, the insured’s UIM coverage limit must be compared to the sum of all the liability limits of all the at-fault motorists. The Court of Appeals disagreed, however, noting that the term “underinsured highway vehicle” was defined by statute as “a highway vehicle with respect to the ownership, maintenance, or use of which, the sum of the limits of liability under all bodily injury liability bonds and insurance policies applicable at the time of the accident is less than the applicable limits of underinsured motorist coverage for the vehicle involved in the accident and insured under the owner’s policy.” (emphasis added). As the court reasoned, “a” means “one,” and thus UIM coverage is triggered as soon as the insured has recovered under all policies applicable to one underinsured motor vehicle. Consequently, UIM carriers are obligated to “first provide coverage, and later seek an offset through reimbursement or exercise of subrogation rights” against other tortfeasors.
Although the Court of Appeals’s decision was unanimous, the Supreme Court of North Carolina granted NC Farm Bureau’s petition for discretionary review, raising the specter of a reversal. The Supreme Court applied the same logic as the Court of Appeals, however, and the affirmed the trial court’s order requiring payment of NC Farm Bureau’s UIM coverage. In ruling, the court further noted that the purpose of the UIM statute – and the Financial Responsibility Act in general – was “to provide the innocent victim with the fullest possible protection.” Consequently, thecourt stated that “if Farm Bureau’s interpretation were adopted, insureds would be required to pursue all claims, including weak, tenuous ones, against all potentially liable parties, no matter how impractical, before being eligible to collect their contracted-for UIM benefits.” The court rejected NC Farm Bureau’s argument that the plaintiff received a windfall, noting that it could have preserved its subrogation rights against Mills/Crowder’s policy if it had timely advanced its UIM policy limits at the time of plaintiff’s initial settlement with Buchanan.
The Supreme Court’s decision in Lunsford provoked a dissent from Justice Newby. The dissent began by pointing out that the statutory purpose of UIM coverage is to provide a secondary source of recovery for an insured when the tortfeasor has insurance, but those insurance limits are insufficient to compensate the injured party. That purpose was thwarted on the facts in Lunsford, however, when not only did the plaintiff fail to exhaust the liability insurance limits of all the parties that he sued (by accepting a settlement for only $850,000 of Mills/Crowder’s $1,000,000 in limits) but he also received a windfall by receiving $350,000 in UIM benefits in excess of his agreed-upon damages. Justice Newby further argued that the Court of Appeals’s and Supreme Court’s interpretation of the UIM statute was flawed. According to Justice Newby, the definition of an “underinsured highway vehicle” falls within the “activation” provision of the statute, which tells us that UIM coverage is activated when the insured’s UIM policy limits are greater than the liability limits of policies connected with the tortfeasor’ s ownership, maintenance, or use of a highway vehicle. Because the combined liability limits of the jointly and severally liable tortfeasors exceeded the UIM coverage available under Lunsford’s policies, NC Farm Bureau’s UIM coverage was never activated. Justice Newby also rejected the majority’s fear that NC Farm Bureau’s interpretation would require insureds to pursue weak and tenuous claims, noting that Lunsford himself elected to sue multiple tortfeasors whose combined insurance coverage far exceeded the UIM coverage that he paid for. As he reasoned, “having chosen . . . to pursue simultaneously claims against multiple tortfeasors whose combined liability limits far exceeded plaintiff’s own UIM coverage, plaintiff was no longer able to access his UIM policy limits.” Finally, Justice Newby argued that the majority opinion blurred the distinction between a UIM carrier’s right of subrogation (if they advance their UIM limits upon notice of the insured’s settlement with a tortfeasor) and its ability to seek reimbursement from other tortfeasors.
In this author’s opinion, Justice Newby’s dissenting opinion correctly points out the multiple flaws in the Supreme Court’s opinion. As the UIM statute is interpreted by Lunsford, an insured who paid for UIM coverage limits of $400,000 – and thus protected himself only to that amount – was allowed to collect those limits in addition to the $850,000 that he received from other tortfeasors. Meanwhile, an automobile insurance carrier with moderate UIM limits was told that it should have paid those limits to its insured as soon as the insured settled with the tortfeasor with the lowest liability limits, otherwise its right to seek reimbursement of those limits from other tortfeasors was barred. This system, if it is allowed to remain in place, essentially places all of the risk on the UIM insurer, while the insured receives a benefit greater than it bargained for. In this regard, the Court has taken the “remedial nature” of N.C. Gen. Stat. § 20-279.21 a step too far.
This article was originally printed February 22, 2015 and reprinted with permission.
The Rest of the Story: Search for the Truth in Use of Force Cases James C. Thornton, Cranfill Sumner & Hartzog, LLP
The late radio personality Paul Harvey had a famous show called “The Rest of the Story.” Harvey would bait his audience with a cliffhanger story based on sketchy facts, let them reach a conclusion, and then finish it with details that put it all in perspective.
With the recent use of force events in our country, there has been much attention as to whether a police officer’s use of force was appropriate under the circumstances. The danger is that our desire for a quick answer to this question can sometimes usurp the necessity to first search for the unabridged truth. The rise of the information age – including 24/7 news outlets clamoring to be the first to break a story (however incomplete) -- only adds an additional layer of challenges for municipalities and their police forces.
So what do police departments need to keep in mind regarding training their officers and managing possible incidents in this digital world? A comprehensive understanding of the law is critical, but so is the completion of a comprehensive incident report.
Graham v. Connor: The United States Supreme Court’s Word on Excessive Force.
In Graham v. Connor, the United States Supreme Court stated that an officer’s actions do not amount to excessive force if they are objectively reasonable in light of the facts and circumstances confronting the officer, without regard to underlying intent or motivation.
The Court outlined three factors to consider in this analysis:
· Severity of the Suspected Crime
When evaluating this factor, courts look at the type of crime at issue when an officer confronts a suspect. This requires the officer to evaluate whether the suspect is engaged in a violent crime, such as armed robbery or assault; or whether the offense is non-violent in nature, such as a minor traffic violation. Whether the offense is a misdemeanor versus a felony is also a factor to consider. Courts have uniformly held that nonviolent misdemeanor offenses are not of the type that would typically give an officer reason to believe the suspect was a potentially dangerous individual. On the other hand, more serious and potentially violent offenses create a heightened awareness that the suspect may be armed and dangerous, and therefore would lead a reasonable officer to conclude force may be necessary to apprehend the suspect. Many times these lines are blurred, and the officer must use his best judgment. The real question is whether the offense at issue would give the officer reason to believe the suspect was a potentially dangerous person.
· Whether the Suspect Poses an Immediate Threat
This factor is typically the most discussed of the three, and considers such facts as the physical size of the suspect versus the officer involved, and whether the suspect had a weapon at the time. Other facts that are considered are the demeanor of the suspect when approached by the officer, and whether the suspect was willing to answer the officer’s questions. The presence of a weapon on a suspect is typically viewed as an obvious threat of harm to the officer. However, it should be emphasized that the law does not require the officer to actually see a weapon to justify the use of force. The officer only need a reason to believe the suspect is armed. For instance, if an officer sees a bulge under the suspect’s shirt or waistband, the officer has reason to believe the suspect is armed and poses an immediate threat.
Contrary to popular belief, the presence of a weapon on a suspect is not required to justify an officer’s use force. Courts have routinely held that force is appropriate in circumstances when a large-sized suspect is belligerent to the officer, unwilling to answer questions, and threatens the officer with words and body language -- even though the suspect is unarmed.
· Whether the Suspect Was Resisting Arrest of Attempting to Flee
This factor is important as it relates to the officer’s need to keep a suspect under control during the detainment or arrest process. If a suspect is calm and compliant, the need to use force is not likely present. However, there are situations where use force is justified to allow the officer the opportunity to contain the suspect at the scene. The court looks at whether the suspect was compliant with the officer’s commands, such as instructions to stop running or to show hands; whether the suspect attempted to evade arrest by turning away from the officer or running from the scene; and whether the suspect attempted to strike the officer to improve the opportunity to flee.
The Supreme Court’s Analysis – Excessive Force
The Court emphasized that the use of force determination is a fact specific analysis and must be reviewed on a case-by-case basis. The question is whether a reasonable officer in the same circumstances would have concluded that a threat existed justifying the particular use of force. Courts also are careful not to look at the particular use of force with the 20/20 vision of hindsight. Instead, the analysis is judged from the perspective of a reasonable officer on the scene at the time.
Any officer involved in a potential excessive force case should take the time to complete a comprehensive incident report, making sure the factors outlined above are addressed in detail. While the media may sensationalize the story for their own self-serving purposes based on sketchy facts, an officer’s report and other investigative documentation can serve to put the matter into the proper perspective.
NC Court of Appeals Upholds “Class” Distinction In Determining UIM Liability ApportionmentJessica C. Tyndall, McAngus Goudelock & Courie
On January 21, 2014, the North Carolina Court of Appeals handed down the Nationwide Mutual Ins. Co. v. Integon Nat’l Ins. Co. decision, affirming its somewhat controversial holding in North Carolina Farm Bureau Mutual Ins. Co. v. Bost, 126 N.C. App. 42, 483 S.E. 452 (1997) and holding that the “Class” of insured into which the claimant falls is a determinative factor in apportioning liability and credits among competing UIM policies. Nationwide, 2014 N.C. App. LEXIS 64, 1, 2014 WL 217110 (N.C. Ct. App. Jan. 21, 2014).
The fact pattern on which the Nationwide decision is based involves a motorcyclist who was killed when an underinsured driver failed to stop at a red light. The motorcyclist was a named insured on separate policies issued by Integon National Insurance Company and State National Insurance Company, both of which provided the motorcyclist with underinsured motorist coverage. The motorcyclist was also a resident of his parents’ household at the time of the accident and, as a result, qualified for underinsured motorist benefits under their Nationwide Mutual Insurance Company policy as well.
The underinsured tortfeasor admitted liability for the accident, and her insurer paid its $50,000 limit of liability. Nationwide argued that its policy and the other two applicable policies all afforded the motorcyclist primary coverage because the motorcyclist was a “Class I” insured under all three policies. Based on the fact that the claimant was a “Class I” insured under all three policies and the fact that all three policies had “mutually repugnant” “Other Insurance” clauses, Nationwide argued that all three carriers were entitled to a pro-rata share of the $50,000 paid by the tortfeasor’s carrier.
In contrast, Integon, which insured the motorcycle involved in the accident, argued that its policy and the State National policy covered the claimant with respect to vehicles owned by the claimant while the Nationwide policy covered the claimant with respect to a vehicle he did not own. Thus, based on a “plain reading” of the policies’ “Other Insurance” clauses, the Integon and State National policies would afford primary coverage to the claimant while the Nationwide policy would afford excess coverage to the claimant.
Relying on its holding in Bost, the Court agreed with Nationwide and set out a three step analysis to instruct courts and practitioners on how “UIM credit/liability apportionment disputes” should be decided. Nationwide, 2014 N.C. App. LEXIS 64, 11, 2014 WL 217110.
The Court’s three step analysis requires carriers and practitioners to first decide whether the competing policies’ “Other Insurance” clauses are “mutually repugnant,” meaning that they have identical terms or, if not identical terms, the same meaning. If those clauses are mutually repugnant, they are effectively stricken from the policies and given no effect.
When mutually repugnant “Other Insurance” clauses are involved, carriers and practitioners must evaluate the “Class” into which the claimant falls for each of the UIM policies at issue. Case law interpreting North Carolina’s underinsured motorist statute has established that “Class I” insureds are those who are “named insured[s] and, while resident of the same household, the spouse of any named insured and relatives of either, while in a motor vehicle or otherwise.” “Class II” insureds are those insureds who do not fall within Class I but who nonetheless qualify as insureds for the purpose of UIM coverage. If the claimant falls within the same “Class” for each policy at issue, the competing UIM carriers share liability and credits on a pro-rata basis.
If the claimant does not fall within the same “Class” under each of the UIM policies at issue, carriers and practitioners must revisit the policies’ language, specifically evaluating, at least in the Nationwide decision, whether the vehicle in which the claimant was riding at the time of the accident was owned by the named insured or the named insured’s spouse whose policy covered the vehicle. The “owned” versus “non-owned” distinction may require one or more policies to extend primary UIM coverage to the claimant while other policies will extend excess coverage.
According to the Court, the Nationwide decision was intended to clarify decisions handed down subsequent to Bost suggesting that the “Class” determination was not relevant to the apportionment analysis. As examples, in Benton v. Hanford and Iodice v. Jones, the Court, faced with arguably identical apportionment issues to those addressed in the new Nationwide decision, looked not at the claimants’ “Class” and instead looked at whether the claimants suffered injury while riding in “owned” or “nonowned” vehicles. See Benton v. Hanford, 195 N.C. App. 88, 671 S.E.2d 31 (2009); Iodice v. Jones, 133 N.C. App. 76, 514 S.E.2d 291 (1999).
In Benton and Iodice, the claimants were passengers riding in vehicles owned by named insureds possessing policies with underinsured motorist benefits. In both cases, the claimant passengers were also entitled to underinsured motorist coverage through policies held by family members on vehicles not involved in the collisions at issue. In both cases, the Court construed the policies’ “owned” vs. “nonowned” language to require the policies covering the vehicles in which the claimants were riding to afford the claimants primary coverage (as “owned” vehicles) while the policies covering the claimants as resident family members (as “non-owned” vehicles) afforded excess coverage.
The Nationwide Court distinguished the Benton and Iodice decisions by noting that the claimants in both cases were “Class II” insureds under the policies of insurance covering the vehicles in which they were riding and “Class I” insureds under the policies covering them as resident family members.
Because insureds of different Classes may be treated differently, the Court reasoned that those cases were decided consistently with the Court’s new three-step analysis. Nationwide, 2014 N.C. App. LEXIS 64, 21, 2014 WL 217110.
Critics of the Nationwide decision point out that the Court’s analysis seems unnecessarily complicated given that, as Integon and State National argued, the dispute could have been decided by applying the plain language of the policies’ “Other Insurance” clauses to the facts. Instead, the Court has inserted the Class I/Class II dichotomy into the analysis without having any contractual basis in policy language to do so.
On the other hand, as Nationwide itself argued in its appellate brief, “for the sake of consistency and predictability, the focus [of the Nationwide decision appears to have been] on determining what the law actually is, rather than what the law arguably should be.” Brief for Appellee at p. 27, Nationwide, 2014 N.C. App. LEXIS 64, 21, 2014 WL 217110 (No. COA 13-640)(emphasis in original). In that regard, the Nationwide decision upholds Bost and perhaps provides practitioners and insurers more certainty when these disputes arise. Now, whether grounded in policy language or not, the initial inquiry will be to look at the Class into which the claimant falls first with the ownership or nonownership of the vehicle involved in the collision becoming a secondary inquiry.
Meet the New Boss…Strategies to Help Young Lawyers As New ManagersKelli A. Burns, McGuireWoods, LLP
Learning how to navigate being a boss and managing people can be a difficult transition, but it is doable. Many young lawyers are thrown into the “boss” role for the very first time without much, if any, training or experience in managing people. It’s even more challenging when these new responsibilities require a young lawyer to manage individuals that may have been in their jobs longer, or have significantly more experience than they do. These situations can be challenging and often rather than cultivating a sense of pride and accomplishment, can cause even the most capable young lawyer to experience an increased amount of anxiety and stress. What’s important is to take the role in stride, communicate, and open yourself up to feedback.
Everyone make mistakes, everyone has bad days, and everyone has moments they just want to get up and walk out the door. Being a good manager is figuring out how to motivate people through those moments, help keep and improve morale, and most importantly making sure the people who report to you feel valued and appreciated while maintaining an appropriate level of productivity. There are some basic principles and ideas that can guide you through the initial struggles until you get your footing.
Take a minute to think about what it is that you need and crave from your supervisors. Chances are most of you thought about the same few overreaching ideas: (1) having a clear understanding of what is expected of you; (2) receiving feedback on your performance; and (3) getting recognition for your work. Now the trick is implementing those same desires into how you manage others.
Setting clear expectations is the foundation for effective management. Without clear expectations, you have set yourself and those under you up to fail. A prior supervisor of mine used to say “set yourself up for success” about ten times a week. It drove me crazy at the time – similar to when your parents used to say “if your friends jumped off bridge, would you?” But it is now a mantra that flows through my head regularly. Setting up for success includes knowing the strengths and weaknesses of the people you are managing – as individuals and as a whole. It may be that you sit down with each individual early on and ask them what they believe their attributes and interests are, while also observing from afar. Taking initiative to learn about your team will also allow them to develop a sense of your management style, while also building your credibility as a manager that strives to see your whole team succeed.
Another critical part of setting clear expectations is leading by example. Keeping a positive focus, avoiding venting or gossiping, and meeting your own expectations, will set the tone for your team and provides leadership. Solution based thinking, rather than the problem focused alternative, also fosters leadership qualities. Do not underestimate how your actions feed and nourish your team’s attitude.
People crave and need honest feedback on performance, whether good or bad. In providing feedback there are some golden rules to live by. Always praise in public and discuss issues with performance in private. The “sandwich” method of providing constructive criticism seems to be the most effective. Start with something positive, then provide the comments on what could be done better, and always end on a positive note. Face to face meetings are always better than an email or phone call. Who wants bad news via email? While email may be easier to say something difficult, words on a page have no emotion and there is no opportunity for mutual discussion. Instead, a face to face meeting not only shows you are truly interested in the person and their development, but it also allows for expressions and tone of voice to assist you in delivery of the feedback and minimize misinterpretations. Plan to go to their office or work area or meet in a neutral spot like a conference room – it provides a sense of ease for a person to be in their own environment (no one likes to be called to the principal’s office). The fastest way to undermine yourself and the sincerity of your attention is to look down at your phone or answer an email during a meeting, so don’t do it. Be present, it will be appreciated.
When providing any type of constructive criticism, be sincere, but specific about what behavior or actions you want to see altered. Provide potential solutions, specific ideas, or options on how to correct the course. That said, do not compare one team member to another. No one wants to hear how their older brother got straight A’s and your B’s just are not measuring up. Effective management understands and respects the individuality of the people who report to them and utilizes each person’s strengths to the betterment of the team while working on changing the weaknesses into assets.
Probably the most important thing in being an effective manager is knowing how, and when, to recognize the people you manage. Recognition is a basic need of all people. Recognition not only that they are trying to work hard and exceed expectations, but simply, that they exist. Recognition can come in many forms: praise, acknowledgment, awards, and money to name a few. As young attorneys, we do not have any real control over awards or raises, but we can give recognition by way of praise and acknowledgment. While getting to know your team, you should also understand how each member of your team would like to be recognized. Some people enjoy being praised in a public environment, some in private. Also, recognition should be consistent, just be sure it is deserved and does not become an entitlement. Contradictory, right? If people see unfairness in what prompts the recognition, it only serves to divide your team. However, if you always recognize people in the same way and on a consistent basis, it no longer becomes a special thing and becomes expected.
Recognition by saying “you did a good job” is a start, but it does not a provide powerful communication of praise. Instead, be specific about what it was that made you notice the team member – “thank you for taking the initiative to call the court and determine if our assigned judge would like a proposed order for the motion hearing.” The second statement reinforces that you appreciate the initiative as well as the action.
Recognition can also be simple. Walking around the floor, or showing your face for something other than delegating a task is recognition. Merely taking a moment to have a conversation while remembering names of children or a significant other, and details of interests of each of your team members, demonstrates that you care and understand they are human beings who desire to be noticed. Acknowledging life events, birthdays, employment anniversaries, marriage, birth of a child, etc., will also go a long way. Be sure these are noticed equally among all members.
Managing people effectively is challenging – we have all had bosses that were ineffective in one way or another – so approach it with intent and a plan. Consider what motivates you and the interaction that you desire from your superiors and apply them to your own management style.
Advice from the Experts: How to Become a “Rainmaker”by Leslie P. Lasher, Teague Campbell Dennis & Gorham, L.L.P
At some point, every young lawyer transitions from learning how to practice to learning how to use their practice to generate business. In the first few years, your goal is simply to learn how to practice law. After a few years, the focus shifts from learning how to practice to trying to find your “niche.” Then comes the big one: once you have figured all of this out, you have to figure out how to generate business. Then, maybe one day you will be a “Rainmaker,” which is of course the ultimate goal in the marketing world.
This process generally occurs in steps. Sometimes, though, we have to try to figure all of these things out in one fell swoop. This process is not easy and leads to questions like: What if I am still figuring out what areas I want to practice in? How do I market myself? How to I earn the business of my ideal clients? What organizations are really worth my time? And my personal favorite: How do I sell myself as an expert in a certain area when I have only been practicing four years?
The Young Lawyer’s committee hears these questions all of the time. So, we thought it would be worthwhile to seek some advice, and who better to ask than some of the State’s most highly regarded defense attorneys. Our distinguished panel of experts includes:
The following recommendations are a compilation of the experts’ intuitive, and sometimes off-the cuff advice on “How to become a Rainmaker.”
1. Quality sells. If you do a good job, people notice. Your current clients will not continue to hire you if you do not produce quality work, nor will they recommend you to others. According to the experts, the main reasons clients choose to fire their attorney is because the attorney was a poor communicator, was not worth their high fees, or did not pay enough attention to their case.
So, while your client may not appreciate how brilliant your brief was on the Motion for Summary Judgment, they are abundantly aware that you cannot spell correctly in an email, always send their correspondence to the wrong address, or cannot explain a basic legal issue in a way they can understand. These are easy things to get right, and they are easy things to be good at. So, it goes without saying that the first step in becoming a “Rainmaker” is to pay attention to detail, sharpen your skills, and perfect your work product.
2. Become an expert. Find something you like, and go with it. Then, learn everything about it that you possibly can. Find someone who is in that field, whether it be an attorney, a client, or a friend, and ask them to teach you everything they know. You should not let your age or year in practice hold you back from learning, but instead use it to help set yourself apart at an earlier age. Ask for a ride along or a plant tour. Take a class in order to learn your clients’ trade or skill. Ask the experts in the area what publications they read, and start reading them. Then, start writing and presenting on topics that are interesting and useful in that particular field. Don’t be shy. Tell your colleagues and your clients about your interest and your new found expertise and ask them if they know a group that would benefit from your knowledge, articles, and presentations. In order to sell yourself, you have to know yourself, so start learning.
3. Sell your product. Once you have the work product and the expertise, one expert says: “you simply have to get out of the cloud that you currently walk around in.” As another expert put it: “you are never going to get a date if don’t ask anyone out.” So, start thinking of yourself as a product provider, and start thinking of everyone you meet as a potential client or a referral source. Figure out who your ideal client is. Figure out what they like to do and where they hang out. Then, go there and hang out with them. Stop telling people what you do for a living and instead tell them how you can help them with what they do for a living. Start telling your ideal clients how much you like to work with them, and ask them to keep sending you work. But, don’t be the pushy lawyer that is always saying “we want your work!” Everyone has the capacity to sell their product, but different approaches work for different people. Forget the dog and pony show and take the time to figure out what works for you, and then, go do it.
4. Build and maintain personal relationships. According to one of our experts, this is the “don’t be a jerk” part. If people think you are a jerk, they are not going to recommend you. According to another expert “Competence is presumed. Relationships are what really make you successful.” So, be genuine and empathetic. Become as invested as you can, and always use the word “we,” never “you” or “me.” Do not be Facebook friends with people you meet, be actual friends. Call people on their birthdays, send them a memento after you win a big case, or send them a handwritten note every so often. If your clients are not up for the standard “conference dinner,” put on your jeans and go watch football instead. Lawyers do not typically get clients by showing the depth of their legal knowledge, so, stop talking about law all of the time. While it certainly does not hurt educate a client on a certain issue, taking a genuine interest in your client will likely get you farther.
5. Be intentional and get involved. Only really lucky people become “Rainmakers” by chance. Yes, some people are just naturally born for it, but for most people, it is going to require a lot of very intentional effort. Start by determining the most important organizations to you and your practice. For attorneys that get business primarily from lawyer referrals, this may mean becoming involved in a state wide organization, like the NCADA or the State Bar Association in order to expand your referral base. For others, this will mean finding the trade association that your niche group of clients belong to. Then, as one expert says “you have to get involved- with capital letters: INVOLVED.” It is simply a waste of your time go to an event and not meet new people, or to be on a committee and offer no input. You have to be dependable, and you have to devote your attention to the organizations you have chosen. When you are engaged and intentional, whether it is in your law firm, organizations, or personal life, good things will follow.
All of the experts unanimously agree on one thing: “Rainmaking” is not rocket science. There is no trick or magic pill. While these attorneys are now experts in maximizing the balance between practicing law, marketing, and generating business, getting there was a career-long process. As one expert aptly noted: “At the end of the day, there are hundreds of lawyers who do exactly what you do, just as well as you do. So, you have to find a way to be memorable. You have to be true to yourself.” Becoming a “Rainmaker” simply does not happen overnight, so we as young lawyers should not become discouraged. We simply have to have our eyes open when an opportunity presents itself, be smart enough to recognize it, and brave enough to take it.
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