On a warm summer’s evenin’, on a train bound for nowhere . . . is a dispute over insuring a stranger’s life

 by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Gambling

I know it is a little obvious, but I couldn't write a post about gambling without using lyrics from "The Gambler." Fortunately, the case this post discusses — Sun Life Assurance Co. of Canada v. U.S. Bank National Association — is anything but obvious. Sun Life involved gambling on another person's life but not in a Deer Hunter, Russian roulette kind of way. In Sun Life, the U.S. Court of Appeals for the Seventh Circuit addressed the enforceability of an insurance policy that insured a stranger's life.

In Sun Life, Judge Posner began his decision by discussing the common law principle that "forbids a person to own an insurance policy that insures someone else's life unless the policy owner has an insurable interest in that life." A wife can have an insurable interest in her husband's or children's lives, a creditor can have an insurable interest in a debtor's life, but "you cannot own an insurance policy on the life of a stranger who you happen to know is in poor health and likely to die soon." The reason is that, by doing so, you are essentially gambling on another person's life, and gambling contracts are generally unenforceable as a matter of public policy. 

Continue reading “On a warm summer’s evenin’, on a train bound for nowhere . . . is a dispute over insuring a stranger’s life”

NJ Supreme Court: LLP Cannot Be Converted To General Partnership For Failing To Maintain Liability Insurance

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

NJ Supreme Court (pd)On June 23, 2016, the New Jersey Supreme Court released its decision in Mortgage Grader, Inc. v. Ward & Olivo, LLP, a case in which I had the privilege of representing the New Jersey State Bar Association as amicus curiae. (I previously wrote about the case here.) As discussed below, the Supreme Court agreed with our arguments. 

In Mortgage Grader, a former client sued the defendant law firm and each of its partners after the firm dissolved. While the firm had maintained professional liability insurance while it was actively practicing, it did not purchase a "tail" policy to cover claims that arose after it dissolved. The trial court held that this violated Rule 1:21-1C(a)(3), which requires attorneys practicing as an LLP to "obtain and maintain in good standing one or more policies of lawyers' professional liability insurance which shall insure the [LLP] against liability imposed upon it by law for damages resulting from any claim made against the [LLP] by its clients." Accordingly, the trial court held that the individual partners were not shielded from liability as they would normally be as members of an LLP and were instead vicariously liable for their partners' negligence. In other words, the trial court effectively converted the LLP to a general partnership because it failed to maintain liability insurance. The Appellate Division reversed, holding that the trial court did not have the authority to strip the individual partners of their liability protections under either Rule 1:21-1C(a)(3) or the Uniform Partnership Act.

The NJSBA asked the New Jersey Supreme Court to affirm the Appellate Division's decision. The Supreme Court agreed, holding that: (1) the insurance requirements for LLPs did not extend to the period when a firm is "winding up" its business — i.e., when it is collecting receivables but no longer providing legal services; and (2) even if they did, an LLP could not be converted to a general partnership as a "sanction" for failing to maintain liability insurance. Justice Albin wrote a separate opinion, concurring with the judgment of the majority, but suggesting that the Court Rules be amended to provide that an LLP would lose its liability protection if it failed to meet the insurance requirements, and to require LLPs to purchase tail insurance for six years following their dissolution. 

The Supreme Court's opinion can be found here.

When is an LLP not an LLP? NJ Supreme Court to Consider Whether an LLP Converts to a GP if it Fails to Maintain Malpractice Insurance

Scales (pd)
On Monday, the New Jersey Supreme Court will hear oral argument in a case – Mortgage Grader, Inc. v. Ward & Olivo, LLP — that involves insurance, court rules, and statutory interpretation, but still manages to be interesting. I have the privilege of representing the New Jersey State Bar Association as amicus curiae in the case and will be part of the oral argument. (Unlike the U.S. Supreme Court, the New Jersey Supreme Court live streams all of its oral arguments. Click here on Monday at 1 pm to watch.) 

In Mortgage Grader, a former client sued the defendant law firm and each of its partners after the firm dissolved. While the firm had maintained professional liability insurance while it was actively practicing, it did not purchase a "tail" policy to cover claims that arose after it dissolved. The trial court held that this violated Rule 1:21-1C(a)(3), which requires attorneys practicing as an LLP to "obtain and maintain in good standing one or more policies of lawyers' professional liability insurance which shall insure the [LLP] against liability imposed upon it by law for damages resulting from any claim made against the [LLP] by its clients." Accordingly, the trial court held that the individual partners were not shielded from liability as they would normally be as members of an LLP and were instead vicariously liable for their partners' negligence. The Appellate Division reversed, holding that the trial court did not have the authority to strip the individual partners of their liability protections under either Rule 1:21-1C(a)(3) or the Uniform Partnership Act.

The NJSBA has asked the New Jersey Supreme Court to affirm the Appellate Division's decision. It has further suggested that if the Supreme Court is inclined to change Rule 1:21-1C(a)(3) to require that attorneys practicing as an LLP obtain a "tail" insurance policy to cover claims that arise after they dissolve, that this change be made through the normal rule making process and not as part of a decision in Mortgage Grader.

[BONUS COVERAGE: I plan to stick around after the oral argument in Mortgage Grader to hear oral argument in Robertelli v. The New Jersey Office of Attorney Ethics, a case I blogged about here and here. Robertelli involved an ethics  grievance filed against a defense lawyer who "friended" a plaintiff on Facebook.]

A Rare Narrowing Of The Consumer Fraud Act’s Scope: Medical Malpractice Insurance Not Covered

 by:  Peter J. Gallagher (@pjsgallagher)

It is not every day that a New Jersey court limits the scope of the New Jersey Consumer Fraud Act (“CFA”), so when one does, it is worth writing about. Anyone who litigates in New Jersey knows about the CFA and, depending on whether you are on the plaintiff’s side or the defendant’s side, either loves it or hates it. (I am mostly on the defendant’s side, but occasionally find myself representing a plaintiff, so my relationship with the CFA is “complicated.”) Because it is remedial legislation, the CFA is liberally construed to afford the greatest protection to consumers. This philosophy has led courts to apply the CFA (and its treble damages and prevailing party’s attorney fees) to a seemingly ever growing, and very rarely contracting, variety of disputes. In fact, many years ago, the New Jersey Supreme Court observed that: “The history of the Act is one of constant expansion of consumer protection.”

With this in mind, we turn to the Law Division’s published decision in Khan v. Conventus Inter-Insurance Exchange. That case was a putative class action in which plaintiff, a doctor, alleged that defendant violated the CFA in connection with the sale of medical malpractice insurance and the administration of the policy after it was purchased. Plaintiff purchased a policy from defendant and, as part of her initial membership, was required to make a one-time contribution, equal to the first year’s premium, to defendant’s surplus fund. (Defendant is not a traditional insurance carrier, but is instead a “non-profit physician member-owned risk sharing exchange.”) Plaintiff elected to make this contribution in installments over a ten-month period, with the understanding that if she cancelled her policy before the final payment was made, she would still be responsible for the full surplus fund contribution. Plaintiff eventually cancelled her policy before the ten-month period passed and defendant demanded that she immediately pay her entire surplus fund contribution rather than allowing her to pay it off in installments as originally agreed upon by the parties. Plaintiff sued alleging that this attempt to accelerate the surplus fund payment was a breach of contract and a violation of the CFA. She sought to bring her claims as a class action.

Before addressing whether plaintiff could sustain a class action and be appointed class representative, the court first had to decide whether the CFA applied to “transactions involving the purchase and sale of medical malpractice insurance.” Because the court held that it did not, it never had to reach the class certification issues.

 

 

Continue reading “A Rare Narrowing Of The Consumer Fraud Act’s Scope: Medical Malpractice Insurance Not Covered”

“Warriors . . . come out to playyyyyy” (or “What Are The Insurance Implications Of Driving Your Mom’s Car To A Street Fight?”)

 by:  Peter J. Gallagher (@pjsgallagher)

 

One of the most ridiculously entertaining movies of the late-1970’s/early-1980’s was “The Warriors.” You need to watch it to fully appreciate how ridiculous and entertaining it was but it involves a running battle between street gangs through a post-apocalyptic-looking New York City. (To give just a glimpse of how ridiculous it was, the members of one of the gangs, the “Hi Hats,” were dressed like mimes.) The quote in the title of this post is one of the two most well-known lines from the movie (bonus points if you know the other one, answer below).

I was reminded of “The Warriors” when I read the opening sentences of the Appellate Division’s recent decision in Cannon v. Palisades Insurance Company:

“This case involves a street fight between two groups of combatants, some of whom were employed as telemarketers with two local companies. Not surprisingly, the challenge to fight, the acceptance of that challenge, and negotiations over the combat site were all done telephonically.”

A gang of telemarketers could have easily fit into “The Warriors.” Regardless, with an opening sentence like that, I had to read the rest of the opinion. Ultimately, the facts of Cannon are unique and not likely to be useful to you in any future matter. But, that doesn't mean you should not read on, and read the decision yourself if you have the time.

 

Continue reading ““Warriors . . . come out to playyyyyy” (or “What Are The Insurance Implications Of Driving Your Mom’s Car To A Street Fight?”)”