REED ARMSTRONG QUARTERLY

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1 REED ARMSTRONG QUARTERLY January 2012 Contributors: William B. Starnes II Leslie M. Warren Joshua N. Severit Reed Armstrong.com IN THIS ISSUE: Evidence Spoliation Expert Witnesses Insurance A Defendant that Preserves Evidence for its Own Purposes Has a Duty to Preserve the Evidence for Other Potential Litigants Expert Witness Testimony Must be Based on Measurable Data An Insured s Failure to Appear at an Arbitration Hearing Does Not Amount to Substantial Prejudice Unless It Actually Hampers Defense of His Claim Claimant Could Only Recover Uninsured Motorist Benefits for Elements of Loss Not Awarded in His Previous Workers Compensation Claim Motor Vehicle Exclusion Properly Precludes Coverage Under a Homeowner s Policy for Injuries Arising Out of a Motor Vehicle Accident Negligent Misrepresentation Claim Triggers Duty to Defend under Homeowners Insurance Policy Judicial Estoppel Negligence Plaintiff Cannot Pursue Tort Action that She Did Not Disclose to Bankruptcy Court No Duty when Danger is Open and Obvious Pool Owners Owe No Common Law Duty to Provide Lifeguards 2012, Reed, Armstrong, Gorman, Mudge & Morrissey, P.C. Page 1

2 EVIDENCE SPOLIATION A Defendant that Preserves Evidence for its Own Purposes Has a Duty to Preserve the Evidence for Other Potential Litigants Martin v. Keeley & Sons, Inc., 2011 IL App (5th) This case originated in St. Clair County, and was taken on appeal by the Fifth District Appellate Court. The plaintiffs were employed by Keeley & Sons, Inc., and were injured while working from scaffolding while installing a handrail on a bridge over Maxwell Creek in Randolph County. The scaffolding was supported by a beam that collapsed, and the three plaintiffs consequently fell from the scaffolding. The beam was supported by a bearing assembly. The plaintiffs sued the company that made the bearing assembly (Henderson & Associates, Inc.) for negligent design and the company that made the beam (Egyptian Concrete Company) for negligent manufacture. The plaintiffs also sued Keeley & Sons for spoliation, alleging that Keeley should not have destroyed the beam after the accident. Both Egyptian and Henderson filed their own spoliation claims against Keeley for failing to preserve the beam. Witnesses testified that after the accident, it did not appear that any defects in the beam caused it to collapse. The beam fell to the creek in one piece, indicating that it fell because it was not properly supported. Keeley preserved the beam until the Illinois Department of Transportation (IDOT) and the Occupational Health and Safety Administration (OSHA) could investigate the accident. Neither the OSHA or IDOT investigations indicated that the beam was defective. Keeley then destroyed the beam. Keeley moved for summary judgment of the spoliation claims in this case, arguing that it had no duty to preserve the beam. The trial court granted Keeley s motion, and the other parties appealed. In Illinois, there is no general duty to preserve evidence. Martin v. Keeley & Sons, Inc., 2011 IL App (5th) , 19, citing Boyd v. Travelers Ins. Co., 166 Ill.2d 188, 195 (1995). However, such a duty may arise when two conditions are met: 1) the defendant either agreed to preserve the evidence, voluntarily preserved the evidence, or a contract, statute, or other special circumstances gave rise to the defendant s duty to preserve the evidence; and 2) a reasonable person in the defendant s circumstances could foresee that the evidence was relevant to a potential civil action. Id., citing Dardeen v. Kuehling, 213 Ill. 2d 329, 336 (2004). In this case, the trial court found that the first condition was not met, i.e., Keeley did not agree to preserve the evidence, did not voluntarily preserve the evidence, etc. The Appellate Court disagreed, noting that when Keeley preserved the beam for the OSHA and IDOT investigations, it was voluntarily undertaking a duty to preserve the beam for the benefit of other potential litigants. Id. at 22. As for the second condition, the foreseeability requirement, the Appellate Court found that there was a genuine issue of material fact regarding whether a reasonable person would have believed that the beam was relevant to a potential civil action. Keeley presented witnesses that testified there was no reason to believe that a defect in the beam caused the accident, but there was other evidence to the contrary. Because summary judgment can only be granted when there is no genuine issue of material fact, the Appellate Court reversed. 2012, Reed, Armstrong, Gorman, Mudge & Morrissey, P.C. Page 2

3 EXPERT WITNESSES Expert Witness Testimony Must be Based on Measurable Data Bielskis v. Louisville Ladder, Inc., 2011 WL (7 th Cir. 2011); No In this federal case, Plaintiff Bielskis filed a strict products liability action against Louisville Ladder, Inc. ( Louisville ). Bielskis was using a Louisville scaffold while installing ceiling tile. The scaffold had four wheels, each attached to the scaffold by a caster stem. Each caster stem was screwed onto the scaffold leg. While Bielskis was standing on the Louisville scaffold, it collapsed after a caster stem on one of the wheels broke. Bielskis case depended on the testimony of an expert witness, Neil J. Mizen. Mizen issued a written report, in which he wrote that the caster stem was screwed to the scaffold with a threaded stud. Mizen examined the surface of the threaded stud, and determined that the stud failed because of a brittle fracture, meaning there was a clean break. Mizen concluded that the break occurred because the screw was overtightened. The district court barred Mizen s testimony, because he failed to explain how a brittle fracture indicated that the screw was overtightened. Thus, the district court barred his testimony, finding that it was unreliable. (N.D. Ill.; Leinenweber, J.) The Seventh Circuit Court of Appeals affirmed the district court s decision, noting that it is the district court s role to ensure that expert testimony is both relevant and reliable. Bielskis v. Louisville Ladder, Inc., 2011 WL , *4 (7 th Cir. 2011). There are a variety of factors that the district court may consider when making such an inquiry, including whether the expert s opinion is based on data. Here, Mizen reached his conclusion that the screw holding the caster stem to the scaffold had been overtightened simply by viewing it with his naked eye. Id. at *6. This method was not based on any data. Accordingly, the District Court properly barred Mizen s testimony. INSURANCE An Insured s Failure to Appear at an Arbitration Hearing Does Not Amount to Substantial Prejudice Unless It Actually Hampers Defense of His Claim United Auto. Ins. Co. v. Buckley, 2011 IL App (1st) In this recent case out of the First District, the Appellate Court held that an insurer failed to show substantial prejudice by an insured s inadvertent failure to appear at an arbitration hearing, as his presence was not necessary to defend the negligence claim. In United, an insurer filed a declaratory judgment action seeking a finding that it owed no coverage under an automobile policy issued to Buckley for injuries sustained in an automobile collision. In the underlying suit, another driver sued Buckley for negligently crossing into his lane of traffic. Although notified by both his attorneys and insurer of the date of arbitration, Buckley inadvertently failed to appear at the arbitration hearing. The arbitrators entered an award against Buckley noting that he did not participate in good faith by failing to appear. The trial court 2012, Reed, Armstrong, Gorman, Mudge & Morrissey, P.C. Page 3

4 debarred Buckley from rejecting the award as a sanction for failing to comply with a Rule 237 notice requesting his presence at the arbitration. Shortly after the judgment was entered on the arbitration award, Buckley s insurer, United, denied coverage as to the judgment based on his failure to cooperate. United then filed a declaratory judgment action seeking a finding that there was no coverage under its automobile policy because Buckley failed to cooperate. The other driver also filed a garnishment action against United seeking the proceeds under the policy. The two actions were consolidated and thereafter proceeded to a bench trial. The trial court found that coverage existed as Buckley did not breach the cooperation clause of his policy. The First District affirmed and rejecting United s estoppel arguments, found an inadvertent failure to appear is not a willful breach of the cooperation clause. It further held that even if there was a breach, United failed to establish substantial prejudice. United argued, inter alia, that it was substantially prejudiced by Buckley s failure to appear at the arbitration hearing because his absence prevented any testimony regarding what Buckley saw and experienced at the time of the collision. The court disagreed, because multiple nonparty witnesses could have been called in place of Buckley to testify as to the nature of the collision and impact. It noted that Buckley s admission of fault further illustrates that his presence was not necessary to defend the claim. In its analysis, the Court stated that Illinois law will not relieve an insurer of its contractual responsibilities to an insured unless it proves it was substantially prejudiced by the insured s actions or conduct in defending the case. An insurer has the burden of demonstrating that it was actually hampered in its defense by the violation of the cooperation clause. Here, United failed to show that Buckley s failure to appear at the arbitration hearing actually hampered its defense of the underlying suit. As such, the Appellate Court affirmed the trial court s coverage finding. One could argue that the inability to reject the arbitration award constitutes substantial prejudice. The Court did not address this argument, and there is no indication that it was raised on appeal. Claimant Could Only Recover Uninsured Motorist Benefits for Elements of Loss Not Awarded in His Previous Workers Compensation Claim Burcham v. West Bend Mut., 2011 IL App (2d) In this workers compensation case out of the Second District, a claimant brought a declaratory judgment action against his employer s insurer seeking a declaration that uninsured motorist coverage he sought from the insurer was not precluded by payments he was entitled to receive from the same insurer through workers compensation. Burcham was involved in a motor vehicle accident while driving a truck for his employer. He filed two claims with defendant West Bend: (1) a workers compensation claim; and (2) an uninsured motorist claim. Under the workers compensation policy, West Bend paid Burcham s medical expenses, temporary total incapacity from work, and a continuing wage loss for injuries sustained as a result of the accident. On the uninsured motorist claim, Burcham sought compensation for disfigurement, loss of a normal life, the discounted amount of medical expenses, and a loss of earings, among other things. The trial court granted Burcham s motion for summary judgment, 2012, Reed, Armstrong, Gorman, Mudge & Morrissey, P.C. Page 4

5 finding that he was entitled to seek those elements of compensation from the uninsured motorist coverage. West Bend argued on appeal that a limitation provision in the motor vehicle policy prevented Burcham from receiving duplicative payments for the same elements of loss compensated in his workers compensation claim. The provision stated that we will not pay for any element of loss if a person is entitled to receive payment for the same element of loss under any workers compensation, disability benefits or similar law. Based on this limitation, the Second District Appellate Court found that compensation for loss of a normal life, discounted medical expenses, and lost earnings could not be recovered from the uninsured motorist coverage. Burcham already received payments under his workers compensation claim covering those elements of loss. As for disfigurement, however, Burcham was not automatically entitled to receive payment for disfigurement under his workers compensation claim. Therefore, he could seek compensation for any disfigurement from the uninsured motorist coverage which was not already awarded in his previous workers compensation claim. Motor Vehicle Exclusion Properly Precludes Coverage Under a Homeowner s Policy for Injuries Arising Out of a Motor Vehicle Accident Allstate Prop. and Cas. Ins. Co. v. Mahoney, 2011 IL App (2d) The Second District recently upheld a trial court s ruling that an insurer had no duty to defend or indemnify its insured under a homeowner s policy based upon a motor vehicle exclusion. In Mahoney, Allstate filed a declaratory judgment seeking a finding that it was not obligated to provide coverage to an insured under a homeowner s policy for injuries sustained in a motorcycle accident. Mahoney was injured while test driving a motorcycle repaired and owned by an Allstate insured. Mahoney filed suit against the Allstate insured and Allstate defended the insured under a reservation of rights based on a homeowner s policy it issued to the insured s parents. The trial court ruled that Allstate owed no coverage under the homeowner s policy based on a motor vehicle exclusion, finding that: (1) the motorcycle was a motor vehicle; (2) the bodily injury claim arose out of the ownership and maintenance of the motorcycle; and (3) the motorcycle was not in dead storage. On appeal, the Mahoneys argued that the motor vehicle exclusion did not apply because the motorcycle was not a motor vehicle, it was in dead storage at the time of the accident, and the insured s negligence was not vehicle-related. The motor vehicle exclusion in the homeowner s policy provided that Allstate owed no coverage for bodily injury or damage arising out of the ownership, maintenance, use or entrustment of any motor vehicle. Affirming the trial court, the Second District held that the motor vehicle exclusion precluded coverage. It found that the motorcycle at issue was a motor vehicle, not a motorized land conveyance, in that it had two wheels, an operating motor, and a person could ride it. The motorcycle was not in dead storage because it was undergoing maintenance at the time of the accident. Finally, the insured s alleged negligence, installing a faulty brake pedal, created a risk only when the motorcycle was in motion. The negligent welding of the brake pedal was not wholly independent of the use of the motorcycle. As such, the trial court properly denied coverage based on the motor vehicle exclusion. 2012, Reed, Armstrong, Gorman, Mudge & Morrissey, P.C. Page 5

6 Negligent Misrepresentation Claim Triggers Duty to Defend under Homeowners Insurance Policy USAA Casualty Ins. Co. v. McInerney, 2011 IL App (2d) In this case, the Second District Appellate Court determined that USAA Casualty Insurance Company had a duty to defend its insureds (the McInerneys) for allegedly making negligent misrepresentations during the course of selling their home. The McInerneys sold their home to another family, and prior to closing the sale, the McInerneys informed the buyers that slight flooding occurred in the home s basement during heavy rains. USAA Casualty Ins. Co. v. McInerney, 2011 IL App (2d) , 4. The buyers purchased the home, and shortly thereafter, experienced heavy flooding and mold growth in the basement, causing mold-related illnesses. Id. The buyers sued the McInerneys, bringing claims for breach of contract, violation of the Residential Real Property Disclosure Act, fraudulent misrepresentation, and negligent misrepresentation. The McInerneys and USAA agreed that apart from the negligent misrepresentation claim, none of the claims triggered USAA s duty to defend under the McInerneys homeowners insurance policy. USAA filed a declaratory judgment action, asking the trial court to find that the negligent misrepresentation claim did not trigger the duty to defend because there was no occurrence alleged in the buyers complaint. The USAA policy defined occurrence as an accident which results, during the policy period, in *** bodily injury; or *** property damage. Id. at 14. The trial court found that the buyers alleged an occurrence by claiming that the McInerneys made negligent misrepresentations. The Appellate Court affirmed. The Second District noted that this case was the first time an Illinois appellate court determined whether a claim that an insured had made a negligent misrepresentation could constitute an occurrence under a homeowners general liability policy. The Court further noted that no Illinois law suggested a negligent misrepresentation claim should be treated differently than any other negligence claim when determining whether there was coverage under a homeowners policy and noted other jurisdictions were evenly split on the issue. If, based upon the allegations in the underlying complaint, it is conceivable that the insureds had no knowledge they were making misrepresentations, then the insurer has a duty to defend the insureds in the underlying suit. Therefore, it held USAA had a duty to defend the McInerneys. JUDICIAL ESTOPPEL Plaintiff Cannot Pursue Tort Action that She Did Not Disclose to Bankruptcy Court Berge v. Mader, 2011 IL App (1st) Plaintiff Berge filed for bankruptcy in April She was involved in a car accident with Defendant Kuno Mader in May At the time of the accident, Mader was driving a car owned by his employer, DMG America, Inc. In November 2007, the plaintiff filed suit against Mader and DMG. In October 2009, the plaintiff was discharged of her debts in bankruptcy court. The plaintiff never listed her suit against Mader and DMG as one of her assets in the bankruptcy 2012, Reed, Armstrong, Gorman, Mudge & Morrissey, P.C. Page 6

7 case, though she had many opportunities to do so. When the attorneys for Mader and DMG learned of the plaintiff s bankruptcy action, and that she failed to list the Mader/DMG suit as one of her assets, they filed for summary judgment on the basis of judicial estoppel. Judicial estoppel prevents a party from making a representation in one case that is contrary to a position that party took in another case. Judicial estoppel applies when the following requirements are met: (1) the two positions must be taken by the same party; (2) the positions must be taken in judicial proceedings; (3) the positions must be given under oath; (4) the party must have successfully maintained the first position, and received some benefit thereby; and (5) the two positions must be totally inconsistent. Berge v. Mader, 2011 IL App (1st) , 13, citing Ceres Terminals, Inc. v. Chicago City Bank & Trust Co., 259 Ill.App. 3d 836, 851 (1st Dist. 1994). In this case, the trial court granted the defendants motion for summary judgment, finding that the plaintiff was judicially estopped from bringing the suit against Mader and DMG after she failed to list it as one of her assets in the bankruptcy court. The appellate court affirmed this decision, finding that all of the required elements for judicial estoppel were met. In the bankruptcy court, the plaintiff took the position that she had no pending lawsuits; her position in state court was that she had one against Mader and DMG. The plaintiff s state court complaint and the representations she gave in bankruptcy court were made under oath. She benefitted from her failure to disclose her state court case to the bankruptcy court because her debts were eliminated, while her creditors were not given the opportunity to recover from any award or settlement in the Mader/DMG case. Furthermore, the appellate court found that it could not be clearer that the positions the plaintiff took in the bankruptcy case and in the state court case were totally inconsistent. Id. at 14. Consequently, the plaintiff s case against Mader and DMG in state court was properly dismissed. NEGLIGENCE No Duty when Danger is Open and Obvious Swearingen v. Momentive Specialty Chemicals, Inc., 2011 WL (7 th Cir. 2011); No In this federal case, the district court applied Illinois negligence law to find that the defendant owed no duty to the plaintiff and entered summary judgment in favor of the defendant. (N.D. Ill.; St. Eve, J.). Plaintiff Swearingen was a tanker-truck driver, and in March 2010, delivered a tank of chemicals to Defendant Momentive. When Swearingen arrived at Momentive, Momentive employees asked him to open the truck s lid. Swearingen had to climb a ladder to the top of the truck to open the lid. There was some red piping above the truck, and Swearingen testified that he noticed the piping was extremely low. Swearingen v. Momentive Specialty Chemicals, Inc., 2011 WL , *1 (7 th Cir. 2011). When Swearingen attempted to open the lid, he hit his head on the piping and fell. Swearingen s complaint alleged that Momentive had a duty to warn him of the risk associated with the low-piping hazard and otherwise provide him with a fall-protection harness. Id. 2012, Reed, Armstrong, Gorman, Mudge & Morrissey, P.C. Page 7

8 The district court found that the danger posed by the red piping was open and obvious, and thus Momentive did not have a duty to Swearingen at the time of the accident. On appeal, Swearingen argued that while the red piping was open and obvious, Momentive was liable to him because Momentive s employees should have expected that by asking Swearingen to open the truck s lid, Swearingen would encounter the red piping. The Seventh Circuit Court of Appeals disagreed, finding that the plaintiff presented no evidence to suggest that Momentive employees would anticipate Swearingen encountering the red piping while opening the truck s lid. Thus, the district court s decision was affirmed. Pool Owners Owe No Common Law Duty to Provide Lifeguards Barnett v. Ludwig and Co., 2011 IL App (2d) The Second District recently upheld a trial court s finding that the Swimming Facility Act does not apply to a 17 year-old, and apartment complex owners owe no common law duty to furnish a lifeguard to protect guests from drowning. In Barnett, the estate of a 17 year-old brought suit against an apartment complex owner and operator after he drowned in an outdoor swimming pool provided for residents and their guests. Although a pool attendant was on duty at the time of the drowning, the attendant was not a lifeguard. The estate alleged, inter alia, that the defendants negligently violated both the common law and the Swimming Facility Act by not having an active lifeguard on duty at the pool. The trial court granted summary judgment for the defendants, finding that they had no duty to provide a lifeguard. On appeal, the Second District analyzed the requirements of the Swimming Facility Act. The Act requires that lifeguards shall be provided at all pools when persons under the age of 16 are allowed in the pool enclosure without supervision by a parent or guardian. Where lifeguards are not provided, a sign shall be posted stating that the pool is not protected by a lifeguard and persons under the age of 16 must be accompanied by a parent or guardian. The Court found that defendants complied with the statute in two respects: (1) the decedent was not within the class of persons the statute was meant to protect he was 17; and (2) defendants posted numerous signs indicating that the pool was not protected by a lifeguard and persons under 16 must be accompanied by a parent or guardian. Additionally, the Court found no basis in common law to impose a duty on defendants to provide a lifeguard. It unearthed no decision since the passing of the Swimming Facility Act discussing a duty to provide a lifeguard. The Court cited the Illinois Supreme Court decision in Cope v. Doe, 102 Ill.2d 278 (1984) discussing the Illinois legislature s intervention in this area through the passing of the Act. Thus, the Second District affirmed the trial court s grant of summary judgment as to defendant s duty to provide a lifeguard. 2012, Reed, Armstrong, Gorman, Mudge & Morrissey, P.C. Page 8