The Lawletter Vol 35 No 7, May 6, 2011

Fred Shackelford, Senior Attorney, National Legal Research Group

Can an insurer rescind a life insurance policy after the period of incontestability has expired?  In Sun Life Assur. Co. of Can. v. Berck, Civ. No. 09‑498‑SLR, 2011 WL 922289 (D. Del. Mar. 16, 2011), a 77-year-old man obtained a life insurance policy and transferred it to investors in the secondary life insurance market.  After the two-year incontestability period had expired, the insurer sought a declaratory judgment that the policy was void as a wagering contract, or stranger-oriented life insurance ("STOLI") policy.  In a STOLI arrangement, speculators collaborate with an individual to obtain life insurance and then sell some or all of the death benefit to stranger investors.  The Berck court noted that an insured must have an insurable interest and that this requirement discourages the use of insurance as a wagering contract.  A wagering contract gives the policyholder "a sinister counter interest in having the life come to an end."  Id. at *5.  The court ruled that expiration of the incontestability period does not preclude rescission of a life policy for which the policyholder lacked an insurable interest at the time the policy was procured, particularly when the incontestability clause was subject to a fraud proviso.  The court noted that no clear consensus exists as to what constitutes a lack of insurable interest at the time of procurement.  However, the court suggested that no insurable interest exists if a scheme to transfer the policy to an identifiable stranger is in place prior to submitting the application for insurance.  Id. at *7.  The court denied the defendants' motion to dismiss, allowing the insurer to conduct discovery in an effort to identify a specific party that was involved in the scheme from the outset.

The Lawletter Vol 35 No 7, May 6, 2011

Matthew McDavitt, Senior Attorney, National Legal Research Group

In the realm of interstate motor carrier law, federal law mandates that any policy of insurance covering the motor carrier contain a special surety endorsement to assure that in the event of damage or loss, a judgment obtained by the injured party against a negligent motor carrier will be paid.  Under the Federal Motor Carrier Act ("FMCA") and its implementing regulations, insurers of interstate motor carriers must pay unpaid judgments of plaintiffs who prevail against motor carrier insureds, up to the policy limits so long as federal minimum coverage is met, in the event that (1) the carrier's insurance denies coverage (e.g., through exclusions, use of nonscheduled vehicles, insured noncooperation, breached policy terms, and the like), and (2) no other insurance will cover the loss.

The most common endorsement used to comply with the FMCA mandate is the so-called MCS-90 form, with the "MCS" standing for "Motor Carrier Safety."  This form may be found at 49 C.F.R. § 387.15.  The MCS-90 endorsement comes into play only regarding acts of negligence by permissive users of the motor carrier; intentional acts are not covered.  Even if a nonscheduled vehicle was employed by the carrier during the actionable loss, the MCS-90 surety clause will pay the claim; the plain language of the MCS-90 form itself compels this reading:

The Lawletter Vol 35 No 7, May 6, 2011

Scott Meacham, Senior Attorney, National Legal Research Group

More than just giving someone permission to use your land, the granting of an easement is the separation of at least one of the sticks in the bundle that represents the ownership of the underlying real property.  This distinction between use and ownership came to the fore in a recent criminal case before the Court of Appeals of Washington, State v. Newcomb, 246 P.3d 1286 (Wash. Ct. App. 2011).

Newcomb started out as a typical dispute between neighboring landowners.  The landlocked dominant estate owned a conventional access easement across the servient estate.  The dominant estate owners used a long driveway across the neighboring land to reach the public road.  The adult son of the servient estate owner, defendant Scott Newcomb, evidently disputed his neighbors' rights, however.  He felled a tree across the driveway that crossed his mother's land, and he threatened to harm the neighbors if they tried to improve the road.  Newcomb's behavior led to a civil suit, and the dominant estate owners won an injunction in 2004.

The Lawletter Vol 35 No 7, May 6, 2011

Doug Plank, Senior Attorney, National Legal Research Group 

April 26, 2011

Jeremy Taylor, Senior Attorney, National Legal Research Group

A recent decision by a U.S. District Court in Pennsylvania combined, in an interesting way, the issues of removal of a case to federal court and of the potential responsibility under a products liability theory of the publisher of an "education monograph" containing warnings about a prescription drug.  See Slater v. Hoffman-La Roche, Inc., Civ. Action No. 10-6956, 2011 WL 1087240, at *1 (E.D. Pa. Mar. 24, 2011).  The plaintiff sued the manufacturer of the acne drug Accutane, alleging that the drug had caused him to develop colitis and ulcerative colitis.  The plaintiff also sued the publisher of a monograph explaining the dangers of Accutane.  The plaintiff was a resident of Wisconsin, the drug manufacturer was a resident of New Jersey, and the publisher of the educational monograph was a Delaware corporation with its principal place of business in Pennsylvania.  Following the plaintiff's filing in Pennsylvania state court, the defendants removed the action to the federal district court.  The plaintiff moved to remand the case to the state court.  The court noted that unless the publisher had been fraudulently joined, the claims against it had to be remanded, in light of the rule that removal to federal court is permissible only if none of the parties in interest properly joined and served as defendants is a citizen of the state in which the action has been brought.  See 28 U.S.C. § 1441(b).

April 22, 2011

Alistair Edwards, Senior Attorney, National Legal Research Group

In 2008, Congress passed the Home Affordable Modification Program ("HAMP"), created under the Emergency Economic Stabilization Act of 2008 ("EESA"), 12 U.S.C. §§ 5201-5261.  To participate in HAMP, companies that service mortgages not owned by a government-sponsored enterprise enter into a contract with Fannie Mae ("HAMP Contract").  HAMP's purpose is to provide eligible homeowners with permanent loan modifications to avoid foreclosures.  In a typical HAMP Contract, the company agrees to review all eligible borrowers who apply for a loan modification under HAMP and to provide permanent loan modifications to eligible borrowers who meet the HAMP criteria.

Recently, the U.S. District Court for the Southern District of Florida held that no private right of action exists under HAMP.  In Ozoria v. Deutsche Bank Trust Co. Ams., No. 10-24070-Civ, 2011 WL 1303270 (S.D. Fla. Mar. 31, 2011) (available on Westlaw only), the plaintiffs sued GMAC Mortgage, LLC ("GMACM"), their mortgage loan servicer, after they had twice applied for a permanent mortgage modification but GMACM had denied their applications both times.  The plaintiffs, claiming to be third-party beneficiaries of the HAMP Contract, alleged that GMACM had breached the Contract when it wrongfully denied their applications for permanent HAMP mortgage loan modification and that it had breached the covenant of good faith and fair dealing when it denied their applications.  In dismissing the plaintiffs' breach-of-contract claims (or third-party beneficiary claims) against GMACM, the court emphasized that there is no private right of action under HAMP.  The court, pointing out that other courts have held likewise, commented:

Defendants argue that Plaintiffs' Complaint should be dismissed because it only concerns breaches of the HAMP Contract, and HAMP does not provide a private cause of action. Indeed, the courts that have been presented with similar cases have held that HAMP does not confer a private right of action. See, e.g., Nelson v. Bank ofAmerica, N.A., No. 10-00929, 2011 WL 545817, at *1 (M.D.Fla. Feb. 8, 2011); Zoher v. Chase Home Financing, No. 10-14135, 2010 WL 4064798, at *3 (S.D.Fla. Oct.15, 2010) (collecting cases). Neither the HAMP Guidelines nor the EESA expressly provide for a private right of action. Instead, Congress provided that Freddie Mac serve as the compliance officer for HAMP. See U.S. Dep't of Treasury, Supp'l Directive 2009-08, at 4 (Nov. 3, 2009). As the compliance officer, Freddie Mac must conduct "independent compliance assessments," including an "evaluation of borrower eligibility." Supp'l Directive 2009-01, at 25-26. By delegating sole compliance authority to Freddie Mac, and staying silent as to a right of action in district courts, Congress intended that a private right of action was not permitted. Cf. Thompson v. Thompson, 484 U.S. 174, 180, 108 S.Ct. 513, 98 L.Ed.2d 512 (1988) ("The intent of Congress remains the ultimate issue, however, and unless this congressional intent can be inferred from the language of the statute, the statutory structure, or some other source, the essential predicate for implication of a private remedy simply does not exist.").

The Lawletter Vol 35 No 6, April 15, 2011

Suzanne Bailey, Senior Attorney, National Legal Research Group

Under the Federal Rules of Civil Procedure, may a party appeal an order denying summary judgment after a full trial on the merits?  In Ortiz v. Jordan, 131 S. Ct. 884, 889 (2011), the U.S. Supreme Court, addressing a split among the circuits, unanimously held that the answer is "no."  Compare Black v. J.I. Case Co., 22 F.3d 568, 570‑71 (5th Cir. 1994) (declining to review denial of summary judgment after trial on the merits), and Price v. Kramer, 200 F.3d 1237, 1243‑44 (9th Cir.) (finding no exception to the rule against reviewing denial of summary judgment following a trial on the merits for cases in which the summary judgment rejected the assertion of qualified immunity), cert. denied, 531 U.S. 816 (2000), with Goff v. Bise, 173 F.3d 1068, 1072 (8th Cir. 1999) (holding that the denial of summary judgment based on qualified immunity was reviewable after a trial on the merits), and Ortiz v. Jordan, 316 F. App'x 449, 453 (6th Cir. 2009) (case below).  The issue in Ortiz arose in the context of the assertion of a qualified immunity defense by defendant prison employees in a suit brought by a former inmate pursuant to 42 U.S.C. § 1983, alleging that the officials had failed to protect her from a second sexual assault by a corrections officer after having been informed that he had assaulted her on a prior occasion.  However, the Court's ruling on the procedural issue was not limited to civil rights suits or the assertion of a qualified immunity defense.

The Lawletter Vol 35 No 6, April 15, 2011

John Stone, Senior Attorney, National Legal Research Group

When four employees from New Jersey sued their employer for race discrimination, and especially racial harassment, in violation of the New Jersey Law Against Discrimination ("LAD"), among the types of relief they sought were damages for emotional distress.  McGhee v. Pathmark Stores, No. ATL-L-2459-08 (N.J. Super. Ct. Law Div. Aug. 23, 2010) (unpublished mem.) (motion for leave to appeal denied Oct. 7, 2010).  The "findings and declarations" provision in LAD itself contemplates such relief.  It states that victims of discrimination can suffer a variety of hardships stemming from the discriminatory treatment, including emotional stress, or even severe emotional trauma, and anxiety.  In recognition of these common effects of discrimination in the workplace, the Supreme Court of New Jersey has said that the legislature intended victims of discrimination to obtain redress for mental anguish, embarrassment, and the like without limitation to severe emotional or physical ailments.  In short, to suffer humiliation, embarrassment, and indignity is by definition to suffer emotional distress, and emotional distress actually suffered by the victim of proscribed discrimination is compensable without corroborative proof, permanency of response, or other physical or psychological symptoms rendering the emotional distress severe or substantial.  Tarr v. Ciasulli, 853 A.2d 921, 927 (N.J. 2004).

April 12, 2011

Steve Friedman, Senior Attorney, National Legal Research Group

A prescriptive easement is analogous to adverse possession, the difference being that in a prescriptive easement claim, the claimant acquires only an easement rather than title to the land.  See 28A C.J.S. Easements § 23 (Westlaw database updated Mar. 2011); Cumulus Broad. v. Shim, 226 S.W.3d 366, 378-79 (Tenn. 2007).

As with adverse possession, a party asserting a prescriptive easement must generally prove, by clear and convincing evidence, adverse use that is visible, open, and notorious, as well as continuous and uninterrupted for the statutory prescriptive period.  See 28A C.J.S., supra, § 23; 25 Am. Jur. 2d Easements and Licenses § 39 (Westlaw database updated Nov. 2010); Hilley v. Lawrence, 972 A.2d 643, 651-52 (R.I. 2009); Shapiro Bros. v. Jones‑Festus Props., 205 S.W.3d 270, 274 (Mo. Ct. App. 2006).

The existence of prescriptive easements and the requisite elements to establish them have long been plainly set forth in the law; however, there is scant legal precedent regarding  the acquisition of prescriptive easements by an identified class of persons as opposed to an individual or the public generally.  See Flaherty v. Muther, 2011 ME 32, ¶¶ 80-83, 2011 WL 990308, at *16 (not yet released for publication).