Eleventh Circuit Concludes Significant Litigation Involving Surplus Lines Carrier

On January 18, 2011, the Eleventh Circuit Court of Appeals in Essex Insurance Co. v. Zota (.pdf) brought an end to seven years of litigation and four appellate proceedings, when it affirmed a final declaratory judgment entered in favor of a surplus lines insurer, Essex Insurance Company, following a jury trial.  Although the Eleventh Circuit’s decision is brief and unpublished, the Court’s decision and the earlier appeals in the case established certain significant precedent for surplus lines insurers doing business in the State of Florida on issues relating to policy form filing, policy delivery, and the reach of Chapter 627, Florida Statutes to surplus lines carriers.

BACKGROUND

Mercedes Zota was injured when she fell while painting a mural on the second-story ceiling of a “spec” home under construction in Lighthouse Point, Florida.  After the incident, Zota and her husband brought a negligence action against Lighthouse Intracoastal, Inc.; Broward Executive Builders, Inc., the general contractor for the project; and Jack Farji, a 50% shareholder of Lighthouse and the owner of Broward Executive.  Lighthouse’s insurer, Essex, then sought declaratory relief in federal district court regarding its obligations with respect to the defendants in the negligence action.  After the district court narrowed the issues for trial during summary judgment proceedings, the case proceeded to trial on the two remaining factual issues arising from the policy exclusion at issue:  (1) Whether Lighthouse was a contractor at the time of the construction; and (2) Whether Lighthouse was a builder at the time of the construction.  Because the jury found that Lighthouse was a builder, the Essex policy did not provide coverage and final judgment was entered in Essex’s favor.

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Supreme Court Holds Seatbelt Suits Not Pre-empted

The Supreme Court recently decided that Federal Motor Vehicle Safety Standard 208 (FMVSS 208), which requires auto manufacturers to install lap-and-shoulder seatbelts on seats next to a vehicle’s door frames, but allows manufacturers to choose between simple lap belts or lap-and-shoulder belts for rear inner seats (such as middle seats or those next to a minivan’s aisle), did not pre-empt a state tort suit that would deny manufacturers a choice of belts for rear inner seats by imposing tort liability on those who choose to install a simple lap belt.  Williamson v. Mazda Motor of America, Inc., No. 08-1314 (Feb. 23, 2011) .pdf.

In 2002 the Williamson family’s Mazda minivan was struck head-on by another vehicle.  One family member sitting in a rear aisle seat, wearing a lap belt, died in the accident.  Two other family members wearing lap-and-shoulder belts survived.  They sued Mazda saying it should have installed lap-and-shoulder belts on rear aisle seats.  The California trial court dismissed the claim and the California Court of Appeal affirmed, relying on an earlier Supreme Court case, Geier v. American Honda Motor Co., 529 U.S. 861 (2000), where the court held that a different portion of FMVSS 208 requiring installation of passive restraint devices (airbags) pre-empted a state tort suit that sought to hold an auto manufacturer liable for failure to install a particular kind of passive restraint.  The Williamsons sought certiorari, and the Supreme Court granted review because other courts have interpreted Geier as indicating that FMVSS 208 pre-empts state tort suits similar to the Williamsons’.  Holding that FMVSS 208 does not pre-empt these suits, the Supreme Court reversed the California Court of Appeal’s decision.
 
The court explained that a state law that “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of a federal law” is preempted, and in Geier it determined – based on the airbag regulation’s history, the promulgating agency’s explanation of its objectives, and the agency’s views of the regulation’s pre-emptive effect – that giving auto manufacturers a choice among different kinds of passive restraint devices was a significant objective of the airbag regulation, and the tort suit stood as an obstacle to the accomplishment of that objective.  But the court determined, based likewise on history and agency interpretation – that choice was not a significant regulatory objective of the seatbelt regulation in Williamson, so even though the state tort suit might restrict the manufacturer’s choice, it did not stand as an obstacle to the regulation’s full purposes and objectives, and was therefore not pre-empted.

Supreme Court Sides with Vaccine Manufacturers in Bruesewitz v. Wyeth LLC

The Supreme Court, voting 6-2, ruled on Tuesday that the National Childhood Vaccine Act of 1986 (NCVIA or Act) bars state-law product liability claims against vaccine manufacturers.  [See Bruesewitz v. Wyeth LLC, FKA Wyeth, Inc. .pdf]. The Act, designed to ensure a stable vaccine supply by limiting vaccine manufacturers’ potential tort liability, created a special, company-financed, no-fault system that offers guaranteed payments to patients for injuries shown to be caused by a vaccine.  The federal program has awarded more than $1.8 billion for vaccine injury claims in nearly 2,500 cases since 1989.

Design Defect Claims are Preempted under the Act

Writing for the majority, Justice Scalia noted that Congress intended to bar lawsuits against vaccine manufacturers based on so-called design defects.  “Vaccine manufacturers fund from their sales an informal, efficient compensation program for vaccine injuries; in exchange they avoid costly tort litigation and the occasional disproportionate jury verdict.  Congress enacted this deal to coax manufacturers back into the vaccine market.”

The case involved a lawsuit over the injection of a diphtheria, tetanus, and pertussis (DPT) vaccine to six-month old Hannah Bruesewitz.  After her parents’ claims were rejected under the federal compensation system, Hannah’s parents filed suit against the vaccine manufacturer in state court claiming their daughter developed a seizure disorder and experienced serious developmental delays from toxins in the vaccine.  The parents argued that a safer alternative had been available but was not used. 

The vaccine manufacturer removed the case to federal court and subsequently sought dismissal under the express preemption provision of the Act, which protects manufacturers from most state-law claims where there was an unavoidable injury and where the vaccine was both properly prepared and administered with the proper directions and warnings: 

No vaccine manufacturer shall be liable in a civil action for damages arising from a vaccine-related injury or death associated with the administration of a vaccine after October 1, 1988, if the injury or death resulted from side effects that were unavoidable even though the vaccine was properly prepared and was accompanied by proper directions and warnings.

Plaintiffs opposed dismissal, arguing that the DPT manufacturer knew there was a safer version of the vaccine that could have been used.  They maintained that the vaccine maker should be liable despite the Act’s express preemption provision because it chose not to produce the available safer vaccine, thereby rending the injury avoidable.  The federal district court and later the Third Circuit Court of Appeals both ruled that the Act barred such claims.  

In rejecting plaintiffs’ claims and affirming the Third Circuit’s decision, Justice Scalia wrote: “If a manufacturer could be held liable for failure to use a different design, the word ‘unavoidable’  would do no work.  A side effect of a vaccine could always have been avoidable by use of a differently designed vaccine not containing the harmful element.”

Justices Sotomayor and Ginsburg dissented.  They maintain that the ruling “leaves a regulatory vacuum in which no one ensures that vaccine manufacturers adequately take account of scientific and technological advancements when designing or distributing their products.”  Justice Kagan took no part in the consideration or decision of the case.

Future Implications

The decision has broad ramifications for the vaccine manufacturers as well as the public.  The Court’s opinion effectively ends pending vaccine-related autism litigation.  The decision also ensures the continuing viability of a stable vaccine market in the United States. 

The Court’s position may also bode well for generic drug manufacturers later this term in Mensing, since the Court acknowledged the economic realities of increasing tort liability on vaccine manufacturers when deciding these claims were preempted.  These same economic realities apply equally to generic drug manufacturers.

The California Supreme Court Issues Unanimous Opinions Addressing Insurance, Consumer Protection and ADR

  • Insurance – In Century-National Ins. Co. v. Jesus Garcia, the court held that a fire insurance policy could not exclude coverage for innocent insureds because of the intentional acts of another insured; in this case the intentional act of the son setting fire to his parents house. The policy excluded coverage based on the intentional act or criminal conduct of “any insured,” and on this basis the carrier excluded coverage for the parents based on the acts of the son. While similar language was previously held as effective to exclude coverage as to all insureds in Minkler; the Court held that Insurance Code §§ 2070 and 533 limit the scope of such an exclusion in fire insurance policies to the specific insured who committed the intentional act. In doing so, the Court warned that this holding may have limited application in other contexts. For more details about Century-National Ins. Co. see the Insurance update page.
  • Consumer Protection – The Song-Beverly Credit Card Act of 1971 is a consumer protection act which bars businesses from requesting that cardholders provide “personal identification information” during credit card transactions, and then recording that information. In Pineda v. Williams-Sonoma Stores, Inc. the Supreme Court found that zip codes constituted “personal identification information,” making it a violation of the act for a business to request and record zip codes as a part of credit card transactions. For more details about Pineda see the B & P 17200/Class Actions/Commercial update page.
  • ADR – Several of the plaintiffs in Tarrant Bell Property, LLC v. Superior Court (Abaya) signed lease agreements requiring that any arbitrable issues, including those involving conditions at the subject mobilehome park, which were made subject to judicial proceedings would be decided by a referee upon the motion of any party pursuant to CCP § 638.  After the residents collectively brought suit, the trial court refused to enforce this provision and the Supreme Court affirmed, finding that the trial court had discretion to deny the motion. Moreover, given the redundancy that would result from referring only some of the residents to a referee over the same legal issues, the trial court did not abuse its discretion. In so ruling, the Court disapproved of both Greenbriar Homes Communities, Inc. v. Superior Court (2004) 117 Cal.App.4th 337, and Trend Homes, Inc. v. Superior Court (2005) 131 Cal.App.4th 950, to the extent they are inconsistent. For more details about Tarrant Bell Property, LLC see the ADR update page.