On December 1, 2015 the New Jersey Supreme Court issued its opinion in DeMarco v. Stoddard, reversing the Appellate Division and ruling that an insurer has no duty to provide coverage to a doctor who made a material misrepresentation on his application for insurance. Defendant Dr. Sean Robert Stoddard practiced podiatry in New Jersey. In 2007, Dr. Stoddard applied to RIJUA for medical malpractice liability insurance and subsequently submitted renewal applications to RIJUA from 2008 through 2011. On each application, Dr. Stoddard represented that at least 51% of his practice was generated in Rhode Island. That was untrue.
In October 2011, Plaintiff Thomas DeMarco filed a medical malpractice complaint in New Jersey alleging that Dr. Stoddard negligently performed a surgical procedure. Dr. Stoddard subsequently forwarded the complaint to RIJUA, which responded with a reservation of rights letter, indicating that it only provides coverage for physicians who maintain 51% percent of their professional time and efforts in Rhode Island, and that it was investigating whether Dr. Stoddard met that requirement. As a result of its investigation, RIJUA instituted a declaratory judgment action in Rhode Island, and in May 2012, RIJUA rescinded Dr. Stoddard’s policy, ab initio. However, in the New Jersey action, the Superior Court and Appellate Division ordered RIJUA to provide Dr. Stoddard with a defense and indemnification up to $1 million.
In declaring that RIJUA owed no duty to provide coverage to Dr. Stoddard for the alleged malpractice committed upon DeMarco, the New Jersey Supreme Court recognized New Jersey’s policy that a legal malpractice insurance policy may be declared void from its inception due to a material misrepresentation by the insured on its application for insurance. The Court discerned no basis to treat physicians in a different manner. The Court reasoned that a policy of medical malpractice liability insurance is issued following an analysis of the risk to be assumed. However, the risk analysis is undermined when a prospective insured lies on the application. As a result, the Court stated that it refused to condone fraudulent conduct.
Furthermore, the Supreme Court differentiated New Jersey’s mandated medical malpractice liability insurance from New Jersey’s comprehensive no-fault automobile insurance system. As it pertains to medical malpractice liability insurance, unlike automobile insurance, the Court reasoned that the Legislature has not created an expectation that insurance coverage will be available to redress an injury even in the face of a fraudulently obtained policy. The Court held that the Appellate Division’s reference to and reliance on the compulsory automobile liability insurance model was therefore misplaced. The Court stated that an insured professional cannot expect insurance coverage when the professional liability insurance was obtained due to material misrepresentations in the application for insurance.
DeMarco v. Stoddard marks a favorable outcome for professional liability insurers. The Court’s holding reaffirms that New Jersey courts will not condone fraudulent activity and material misrepresentations. Given this decision, it appears that physicians are now also presented with a choice; be forthcoming on an application for medical malpractice liability insurance, or face potential malpractice lawsuits and a possible disclaimer.
A Rose by Any Other Name: When Dangerous Conditions Are Only Dangerous if They Have Been Before
The New Jersey Appellate Division again recently upheld the immunities in favor of municipalities and public entities, and displayed the high burden a plaintiff faces when alleging a dangerous condition on public lands. The case of Bunero v. City of Jersey City, 2015 N.J. Super. Unpub. LEXIS 2784 (App.Div. Dec. 3, 2015), LEXIS 430, is instructive in that it displays the great strength of the immunities granted in favor of public defendants, even in factual circumstances that may seem adverse, under the New Jersey Tort Claims Act (N.J.S.A. 59:1-1, et al.)
In granting summary judgment, the trial court determined that the plaintiff had not sustained his burden in proving that the City’s actions were palpably unreasonable. The plaintiff was struck from behind while riding his motorcycle on Communipaw Avenue in Jersey City, New Jersey, on July 4, 2010. Upon impact, plaintiff’s motorcycle was caused to ride up a nearby curb, and the plaintiff’s right leg struck the “nozzle cap” of a fire hydrant which was on the sidewalk. As a result, the plaintiff sustained an open compound fracture of the right leg.
Plaintiff generally alleged that the City had allowed a dangerous condition to exist on its property, in that the fire hydrant was placed too close to the curb, and thus too close to the roadway. The edge of the hydrant’s nozzle cap was measured to be just one and one-half inches from the curb line of Communipaw Avenue. This condition allegedly posed a danger to motorists in Jersey City. Surprisingly, this allegation found a multitude of support, even from the City itself.
Based upon property records and testimony from a professional engineer employed by the City, it was determined that the subject hydrant had been at that location and position on the sidewalk since sometime before 1939. Plaintiff’s expert presented extensive testimony regarding applicable standards. Apparently, in 1938, the American Water Works Association recommended that “no portion” of a hydrant should be placed “less than six inches or more than twelve inches” from the gutter face. Even if the subject hydrant was measured from its outlets, and not the nozzle cap, it was still just four and one-half inches from the curb. In 1970, this standard was updated, and recommended that a set-back of two feet from the curb line to the hydrant was appropriate. This is apparently the current standard, as well. The City, when installing new hydrants, mandated that they be at least eighteen inches from the curb, and more specifically, there be two feet of space between the curb face and the center-line of any newly relocated fire hydrant.
The hydrant had remained in its position for over seventy years by the time of plaintiff’s accident, and it apparently was not in compliance with applicable codes and standards for the duration of that time. Nonetheless, when discussing the City’s summary judgment motion, the trial court concluded that the hydrant did not constitute a dangerous condition, and that the hydrant did not represent a reasonably foreseeable risk of the injury sustained by plaintiff. Summary judgment was awarded in the City’s favor.
On appeal, the Appellate Division of New Jersey upheld the trial court’s conclusion, and affirmed the summary judgment award. However, it disagreed with the trial court on some key aspects. The Appellate Division held that the evidence presented by plaintiff was sufficient to raise an issue of fact as to whether the hydrant constituted a dangerous condition, and that a jury could also conclude that the injury sustained by plaintiff was foreseeable.
Despite this, the Appellate Division ultimately agreed with the trial court in ruling that the City’s actions could not be found to be “palpably unreasonable.” In support of this ruling, the evidence relied upon included testimony from the City’s engineer that as a result of the location of the water pipes, the nearest property line, and other impediments, the City “probably could not have” installed the hydrant further from the roadway. It further noted that the plaintiff failed to produce any evidence that the subject hydrant was the cause of any prior incident or injury.
But perhaps the most interesting portion of this case is where the Appellate Division expounded upon its ruling. In citing Polzo v. Cty of Essex, 209 N.J. 51 (2012), the Appellate Division noted that where a public entity fails to repair a dangerous condition, even in instances where there was not even an inspection program in place, this conduct was protected under the Tort Claims Act. In Polzo, a bicyclist fell over a depression in a county road. The Supreme Court found that where there was no inspection program in place, it could not be held that the County had actual or constructive notice of the subject condition. The Court also commented on the responsibilities with which public entities are tasked, noting that they are often charged with “considerable responsibility for road maintenance in a world of limited public resources.”
The Bunero Court applied these principles to its facts, noting that Jersey City has thousands of fire hydrants on its properties, and that it is unclear exactly how many of those hydrants may be in violation of the applicable standards. Therefore, even though the City has “considerable responsibility” for maintenance of its properties, the “limited public resources” it is generally granted certainly hinder those efforts.
This matter is instructive in that it should serve as yet another reminder of state legislatures’ protection of public entities, and the often broad immunities granted in their favor. Further, if a dangerous condition is alleged, it could easily be argued in response that notice of the specific dangerous condition is required, as well as knowledge that the alleged dangerous condition was the cause of an incident or injury in the past. Should this notion be widely applied and create a new standard, the defense of public entities would benefit substantially.
New Technology Companies and the Resulting Labor Force Identity Crisis
The rise of the virtual marketplace has seen the advent of a new employment space, colloquially referred to as the “gig economy.” However, emerging technology, freelance driven companies, such as Shyp, Lyft, Instacart, Handy, Postmates, and many more, are still operating under an old employment status regime. Independent contractors and dependent employees stand on opposite sides of the employment continuum, and between the two is the future of the labor force.
Generally, an employer will be held liable for the wrongful acts of his employee and Courts have repeatedly held that an independent contractor is not an employee. Specifically, Courts have adopted a multi-factor test to determine employment status as a dependent employee or independent contractor – essentially, an analysis of the control exerted by the employer.
For example, despite Uber positioning itself as a logistics software company/middleman between transportation providers and users, the California Labor Commission recently determined that at least one Uber driver is a dependent employee rather than an independent contractor. That being said, it should be noted that Uber had success in other states, which determined that Uber's drivers are independent contractors.
Still, lawsuits are expensive and potentially fatal, as can be seen through the closing of Homejoy. Indeed, companies, including Lyft and Shyp, are starting to re-classify their workforce as dependent employees ahead of Court rulings, though, they each state that this is an attempt to achieve better customer service and is an investment in their workforce rather than a hedge to litigation costs. Reallocating funds from fighting its employees in court to paying more money in benefits etc. is a cost benefit analysis that these companies will be forced to make, and may threaten their unique business model. Clearly, the new “sharing” or “gig” economy is creating rifts in the established classifications for employees.
The classification of “dependent contractors” has been utilized by European countries and could possibly offer clarity where ambiguity presently lies. Again on the employment status continuum, a dependent contractor would stand between the independent contractor and the dependent employee. A designation of dependent contractor would allow such laborers the flexibility of an independent contractor and the protections of a dependent employee.
Whether those protections include insurance coverage has yet to be seen; however, if an employer provides insurance, the covered laborer would likely be considered a dependent employee. Nonetheless, the legitimization of the dependent contractor status could provide a windfall for workers’ rights. More, the establishment of the dependent contractor may lead to new insuring practices and platforms etc.; thereby, advancing and evolving the insurance industry, inter alia, to keep up with today’s transformative economy.
Common Law Limits to Residential Covenants
"A Common Sense Approach"
At the beginning of private landownership the government took a laissez-faire approach regarding restrictive covenants amongst private landowners, absent restrictions volatile of the Constitution or other applicable law. As the common law has progressed the Courts have continued to demonstrate an aversion to the enforcement private residential covenants. In a recent decision by the New Jersey Appellate Court, Freedman v. Sufrin, No. A-4942-13T1, 2015 WL 7432100, (N.J. Super. Ct. App. Div. Nov. 24, 2015), the continuing judicial scrutiny on residential covenants that are unclear and ambitious was continued.
In Freedman, the plaintiffs purchased a two-story single family home pursuant to a written contract that made no mention of a restrictive convent. In 1996 the predecessor in title purchased the property and obtained a deed that subjected the conveyance of the property to several restrictions, including retaining “as many trees . . .as possible.” In the subsequent transfer of the title the restrictive covenant was not memorialized; however, the Court presumed that the plaintiffs had knowledge based on previous title searches.
After the plaintiffs took possession of the property they began to remove trees located on the property. As a result of objections by neighbors the plaintiffs commenced a quite-title action in the Chancery Division and were granted summary judgment. The defendants sought to apply the property test devised in Davidson Bros., Inc. v. D. Katz & Sons, Inc., 121 N.J. 196 (1990), which involved covenants prohibiting commercial property in residentially zoned land or restrictive covenants part of a neighborhood scheme. In rejecting the defendants’ arguments, the Appellate Division held that restrictions on the use of private land require strict construction and must be unambiguously clear. Further, should there exist any ambiguities in covenants all doubts must be resolved in favor of the owner’s unrestricted use of the land. In finding that the present covenant was ambiguous the Court turned to the interpretation of whether the covenant applied after new owners bought the property. The Court held that the covenant only applied to the original purchases of the property where the covenant was included in the deed. Additionally, the requirement that the owners of the property retain “as many trees . . . as possible” had no quantitative meaning and was wholly subjective. Under the common law’s standard of strict construction the Court is limited to looking at the four corners of the document. Unable to define the meaning of “as many trees . . .as possible” the Appellate Division affirmed the granting of summary judgment in favor of the plaintiffs and declared the restriction null and void.
The effect of the Freedman decision will now require any future covenants to provide for explicit and unambiguous language on any restrictions. The Court has reiterated its discontent for restrictions on private landowners absent clear intentions by the parties entering into the agreement to be bound by them. Unlike contract interpretation, Courts may grant summary judgment in favor of nullifying covenants even where there exists material issues of fact regarding the interpretation of restrictions. For that reason, attorneys faced with clients requesting a covenant in their land, it is of utmost importance that any covenants be detailed and be included in all future transfers of property.
Insurers Liable Only For "Basic" Coverage Amount To Innocent Injured Third Parties In Light Of New Jersey Supreme Court Decision
The New Jersey Supreme Court recently unanimously held in Citizens United Reciprocal Exchange v. Perez, 223 N.J. 143, 157 (2015), that when an innocent third party is injured by a driver operating under an automobile insurance policy, which is later voided due to fraud, automobile insurers are liable only for the "basic policy" contracted coverage amount, and not the minimum "standard policy" motor vehicle coverage amount required under New Jersey's standard no fault insurance provisions.
In Citizens United, (not related to the election law decision), the insured elected to add the optional $10,000 "basic policy" coverage for third-party bodily injury. When obtaining the insurance policy, however, the insured failed to include a household resident who was of driving age, the father of her two children, who had a poor driving record. A month after the automobile policy was purchased; the father of the insured's children drove the insured's vehicle and was involved in an accident with an innocent third party. The third party then filed a personal-injury claim against the insured's policy.
The insurer informed the insured that her policy was void from inception due to the misrepresentations made by the insured when she obtained the automobile policy. The insurer sought a declaratory judgment finding that it was not required to cover claims pertaining to the subject accident, including those brought by the innocent third party, due to the voided automobile policy. The New Jersey Supreme Court determined that while the automobile insurance policy could be voided and rescinded due to the plaintiff's fraud, the innocent third party was still entitled to coverage under the insured's policy. The Supreme Court then had to decide the amount that the innocent third party was entitled to from the insurer in accordance with the insured's voided policy, if any.
The Appellate Division in Citizens United Reciprocal Exch. v. Perez, 432 N.J. Super. 526, 528 (App. Div. 2013), held that the insurer was liable to the innocent third party for $15,000, in accordance with the minimum "standard policy" coverage mandated by New Jersey's no fault insurance provisions. The Supreme Court, however, in reversing the Appellate Division's decision, held, contrary to prior case law and New Jersey's standard no fault insurance provisions, that innocent third parties are entitled only to the bargained for $10,000 optional third-party "basic policy." The Supreme Court found that "it would be both unjust and contrary to public policy to invalidate and disregard this minimal amount of liability coverage bargained for by the insured." Additionally, the Supreme Court held that when an insured elects not to add the optional $10,000 "basic policy" coverage for third-party bodily injury, the insurer cannot be held liable to an innocent injured third-party under that contract.
The Supreme Court's decision in Citizens United will serve to clarify for automobile insurers across New Jersey the actual amount owed to innocent third parties for bodily injury payments under voided optional "basic policies."
Florida Supreme Court Rules Evidence of Potential Future Medicare Payments Inadmissible
By: William P. Dilley, II., Esq.
In a 5-2 split decision, the Florida Supreme Court held that the evidence of “social legislation” benefits as an exception to the evidentiary collateral source rule are no longer admissible, receding from its holding in Florida Physician’s Insurance Reciprocal v. Stanley, 452 So.2d 514 (Fla. 1984).
Joerg v. State Farm Mut. Auto. Ins. Co. (October 15, 2015), is a case arising from a motor vehicle v. bicycle accident. Petitioner, John Joerg, on behalf of himself and as the father and natural guardian of his son, Luke Joerg, brought an action against State Farm for uninsured motorist benefits as a result of Luke, a developmentally disabled adult, being struck by a motor vehicle while riding his bicycle.
The trial court initially held that State Farm could not introduce evidence of future Medicare benefits available to Luke as a result of his disability. The Second District Court of Appeals, reviewing the trial court’s decision, reversed the jury’s award of future damages. The Florida Supreme Court accepted jurisdiction, as the Second District’s ruling was in direct conflict with Stanley, which held that “evidence of free or low cost services from governmental or charitable agencies available to anyone with specific disabilities is admissible on the issue of future damages …. Such evidence violates neither the statutory nor the common-law collateral source rule….”
In receding from Stanley, the Supreme Court noted that Stanley had now become the minority rule in the United States. The Court further explained that whether or not an individual has directly paid for his or her Medicare benefits, all Medicare beneficiaries who receive an award for future medical damages will be liable to reimburse Medicare, if Medicare makes a conditional payment on their behalf. Further, the Court stated that “it is absolutely speculative to attempt and calculate damage awards based on benefits that a Plaintiff has not yet received and may never receive, should either the Plaintiff’s eligibility or the benefits themselves become insufficient or cease to continue.”
As a policy justification for its holding, the Court stated that “to consider Medicare, Medicaid, and other similar social legislation benefits as exceptions to the general rule that precludes admission of collateral sources circumvents the purpose of the collateral source rule. It is a basic principle of law that tortfeasers should not receive a windfall due to benefits available to the injured party, however those benefits were accrued.”
While this case will have a direct effect on how defendants and their insurers limit future damages in Florida for Medicare beneficiaries, the effect of Joerg on cases holding that evidence of past medical damages in excess of the amount paid by Medicare as inadmissible remains to be seen. The Court in Joerg does not specifically address the line of Florida cases which state that “the appropriate measure of compensatory damages for past medical expenses when a Plaintiff has received Medicare benefits does not include the difference between the amount that Medicare providers agreed to accept and the total amount of Plaintiff’s medical bills.” See Thyssenkrupp Elevator Corp. v. Lasky 868 So.2d 547 (Fla 4th DCA 2003); Cooperative Leasing, Inc., v. Johnson, 872 So.2d 956 (Fla. 2d DCA 2004).
While the reasoning in Thyssenkrupp as in Cooperative Leasing was based largely on the holding in Stanley, the effect of the holdings in Thyssenkrupp and Cooperative Leasing seem to be the proper measure of past damages for Plaintiffs that are also Medicare recipients. The purpose of compensatory damages is to compensate, not to punish defendants or bestow a windfall on Plaintiffs. Yet more significantly, while clarifying its intent in one area of the law, the Florida Supreme Court has potentially muddied the waters in another.