MONTHLY QUIZ: Insured-Restauranteurs own four donut shops and hire Manager to run them. Manager's duties include supervising employees and reviewing employee time cards for payment. Restauranteurs discover that Manager has hired four of her relatives and falsified their time records, resulting in overpayments of almost $70,000. Restauranteurs' policy includes a rider (i.e., a fidelity bond), which insures against "direct physical loss to... 'money' ... resulting from dishonest acts committed by any of your employees...." The coverage, however, excludes "salaries ... or other employee benefits earned in the normal course of business." Does the exclusion apply to normal salary disputes, but not fraud? Does the exclusion for "salaries ... earned in the normal course of business" apply to these facts even though they were not legitimately earned? Who wins? You be the judge. (Answer below).
WORKERS' COMPENSATION - EROSION OF A CLAIMANT'S REQUIREMENTS IN PROVING NOTICE AND ACCIDENT: Petitioner-Employee, a truck driver and laborer for the City of Springfield, alleged a right elbow injury while cutting a tree trunk. The record reflected Petitioner was not sure of the accident date, was unclear as to the exact mechanism of injury and failed to provide proper notice. Based upon documents, the most commonly listed accident date was May 13, 2015, near his first treatment date; though Petitioner also listed April 2015 as the accident "date." At his first medical visit, however, on May 13, 2015, Petitioner stated that the injury occurred six weeks prior. Notably, the Employer had only one recent work order for cutting a tree truck, which was on March 24, 2015. Despite the conflicting evidence as to the date and existence of the injury, the Arbitrator, Commission, and Circuit Court all found in favor of Petitioner, focusing on Petitioner's testimony, which it found consistent with the credible medical records as to the mechanism of injury. The Fourth District Appellate Court affirmed the decision as the Commission, finding ample evidence to support the accident occurred on March 24, 2015, the date of the work order, and explained the Commission had the province and authority to resolve conflicts in the records, assess witness credibility, draw inferences and assign weight to the evidence. City of Springfield vs. The Illinois Workers' Compensation Commission, 2020 IL App (4th) 190817 (Ill. App.Ct. 2020).
COVID-19 - MICHIGAN AND FLORIDA FEDERAL COURTS FIND THAT ALLEGED COVID-19 LOSSES FAIL TO STATE CAUSE OF ACTION: In Michigan Insured-Chiropractor, a business deemed "non-essential" under the Michigan Governor's COVID-19 order, was forced to shut down, resulting in an alleged loss of revenue. In a Florida lawsuit, Insured-Restauranteur alleged losses of business income at Insured's restaurant caused by the Florida Governor's COVID-19 orders, which closed all restaurants for indoor dining and only permitted takeout and delivery. In both cases, the insurance policies generally provided coverage for the actual loss of business income where a direct physical loss or damage to the property caused a suspension of operations. However, because the allegations in both cases sought coverage for pure economic losses stemming from COVID-19, with no connection to any physical loss or damage, both complaints were dismissed. In both cases, exclusions for fungi, bacteria and viruses were also discussed. See Turek Enterprises, Inc., d/b/a Alcona Chiropractic v. State Farm Mut. Auto Ins. Co, et al., Case No. 20-11655 (Sept. 3, 2020) and Malaube, LLC v. Greenwich Ins. Co., Case No. 20-22615-Civ (S.Dist.Fla., August 26, 2020). EDITOR'S NOTE: These recent cases follow what appears to be the majority view - namely, that "direct physical loss or damage" requires a physical or tangible change to the property, not merely a loss of use. See e.g. Barbershop v. State Farm Lloyds, 2020 U.S. Dist. LEXIS 147276 (W. Dist. Texas, August 13, 2020); Rose's 1, LLC, et al. v. Erie Ins. Exchange, Civil Case No. 2020 CA 002424 B (Wash. D.C., August 6, 2020); COMPARE / CONTRAST: Studio 417 Inc. v. Cincinnati Insurance Co., Case No. 20-cv-03127-SRB Order Denying Defendant's Motion to Dismiss (W.D. Mo, Aug. 12, 2020).
IT IS THE JURISDICTION OF ARBITRATOR, NOT CIRCUIT COURT, TO DETERMINE WHETHER A PARTY HAS WAIVED ITS RIGHT TO ARBITRATION: Following his termination from employment with the Circuit Court of Cook County, a court interpreter initiated a grievance procedure, pursuant to the collective bargaining agreement between the Court and the interpreter's union. After exhausting preliminary appeals, the interpreter submitted a written notice of intent to arbitrate his grievance. The Chief Judge of the Circuit Court of Cook County filed suit to permanently enjoin the arbitration, arguing that the defendant had forfeited his rights to arbitration by not scheduling the arbitration within 60 dates of the notice to arbitrate. The trial court granted the restraining order and entered a stay of the arbitration. On appeal, the First District Appellate Court noted that when parties agree to arbitrate, generally the only issues a court can decide is whether there is a binding arbitration agreement in effect, and whether the subject dispute is subject to that agreement. In reversing the trial court, the First District held that the question of whether defendant forfeited his right to arbitration is a procedural question to be resolved by the arbitrator, not the circuit court. Evans v. Chicago Newspaper Guild-CWA,2020 IL App (1st) 200281 (Jul. 20, 2020).
INSURANCE COVERAGE - NO WAIVER OF ARBITRATION CLAUSE IN POLICY RELEASE BY INSURER; BUT APPELLATE DECISION INSTRUCTIVE FOR INSUREDS IN DRAFTING NOTICE TO INSURERS: Following an insurer's refusal to indemnify insured for the costs of defending thousands of welding fume personal injury claims filed against the insured between 1995 and 2007, insured filed a declaratory judgment action under several insurance policies issued by the insurer in the 1980s seeking recovery of $18 million in costs incurred by the insured. Insurer argued that a 1999 settlement and partial policy release with the insured precluded recovery for the claims, and relied on a dispute resolution clause in the agreement to successfully stay the coverage action pending completion of the multi-step dispute resolution procedure outlined in the agreement. Insured appealed the trial court's grant of the stay, in part arguing that the insurer waived reliance on the dispute resolution clause by failing to assert its rights under the clause when it received notice of the claims between 1999 and 2007. The appellate court affirmed the trial court's ruling, noting that the appellate record only noted generally that the claim notices asked the insurer to protect the insured's interests, and lacked detail about the specific language used in the notices. The court found the record insufficiently established that a specific duty under the policy had been triggered by the notices. The court noted, however, that merely informing the insurer of its duty to indemnify the insured at the conclusion of the underlying litigation would not trigger a duty requiring the insurer to assert its rights under the agreement. In contrast, if notices informed insurer of an immediate duty to pay ongoing defense costs as they accrued, failure by the insurer to assert its rights may have implicated waiver. However, on the limited record before it, the court would not speculate on the nature of the claim notices. The decision is instructive to insureds in how to draft future claim notices to trigger immediate duties under insurance policies, and insurers should continue to be vigilant in responding to claim notices to avoid waiver concerns. Caterpillar Inc. v. Century Ind. Co., 2019 IL App (3d) 190032 (February 5, 2020).
ADOPTION AND INCORPORATION OF A SETTLED PARTY'S RULE 213(F)(3) EXPERT DISCLOSURES IS AFFIRMED: Plaintiff filed a medical malpractice suit against an emergency room physician and a hospital. Prior to trial, the hospital settled with the Plaintiff and was dismissed, leaving the only claims against the physician. Prior to settling out, the hospital disclosed the opinions of Dr. Tapson, a pulmonologist, as its retained expert witness, pursuant to Illinois Supreme Court Rule 213(f)(3), and Plaintiff took Dr. Tapson's discovery deposition. The defendant doctor's Rule 213(f)(3) disclosures did not specifically name Dr. Tapson, however, it included language providing that he "adopts and incorporates the disclosures...by any other party to this litigation to the extent that the disclosures and/or opinions benefits Defendant", and that he "reserves the right to call any...witnesses disclosed by any other parties..". At trial, defendant physician called Dr. Tapson to the stand, and Plaintiff objected, arguing that Dr. Tapson had not been formally disclosed by the defendant following the settlement and dismissal of the hospital, and therefore could not be called as a witness. The trial court allowed Dr. Tapson to testify, and a verdict was rendered for the defense. Plaintiff appealed, and the First District Appellate Court affirmed. On appeal, the Court considered all of the factors for whether exclusion of a witness is the proper sanction for non-disclosure (including the witness' surprise to the Plaintiff, the nature and potential prejudicial effect of the testimony, the diligence of the Plaintiff, the timing of the objection, and the good faith of the defendant in calling the witness), and concluded that they all favored defendant. The Court noted that Plaintiff was made adequately aware of the opinions of Dr. Tapson through the hospital's disclosures, as well as through Dr. Tapson's discovery deposition, and that the Plaintiff failed to identify any caselaw requiring a party "generally adopting" another party's disclosures, to submit a second disclosure when that party settles out. (It was further specifically pointed out that Plaintiff's own Rule 213(f)(3) disclosures contained similar language to that challenged here, purporting to adopt and incorporate the disclosures of other parties.) Wilson v. Moon, 2019 IL App (1st) 173065 (March 28, 2019).
ANSWER TO QUIZ: Insurer wins, Restauranteur loses. According to the appellate court, "unearned salary payments are nonetheless salary and excluded from coverage." The Illinois Appellate court determined that the phrase "earned in the normal course of business" did not define "salaries" but rather "other employee benefits." Consequently, there was no coverage for wage fraud. 3BC Properties, LLC, et al. v. State Farm Fire & Cas. Co., 2020 IL App (2d) 190501 (2nd Dist., Jul. 27, 2020).