CLM National: March 2020

A federal judge dismisses Hurricane Harvey lawsuits from property owners downstream of two dams, the Maryland Court of Appeals refuses to enforce a homeowners association’s confessed-judgment clause, and, in Washington, the 9th Circuit Court of Appeals will address whether the Convention on the Recognition of Foreign Arbitral Award, Art. II, Sec. 3 is subject to pre-emption under the McCarran-Ferguson Act.

Washington

Interplay Between McCarran-Ferguson, FAA, and Convention Analyzed

In the matter of CLMS Mgmt. Servs. Ltd. P’ship v. Amwins Brokerage of Georgia LLC, the U.S. District Court in the Western District of Washington granted certification pursuant to 28 U.S.C. § 1292(b) of the court’s earlier order, in which the court held that the Convention on the Recognition of Foreign Arbitral Award, Art. II, Sec. 3 is “self-executing,” and not subject to pre-emption under the McCarran-Ferguson Act—and thus not pre-empted by Washington statute. The court’s order, granting defendant’s motion to enforce an arbitration clause in the policy of insurance at issue, analyzes the interplay between the Federal Arbitration Act, the McCarran-Ferguson Act, and Art. II, Sec. 3 of the Convention. In granting certification for review, the court recognized that federal circuits are split and there is “considerable disagreement between courts around the country about whether and why the Convention pre-empts state laws like RCW 48.18.200.” Because the 9th Circuit has not ruled on this issue, it will be a matter of first impression for it.—From CLM Member Jennifer Dinning

California

Dangers of Prematurely Recording Mechanics Liens

In Precision Framing Systems Inc. v. Luzuriaga, Precision Framing Systems installed framing trusses and roof supports—fabricated by Inland Empire Truss—on a veterinary hospital in Wildomar. The city issued a correction notice stating that some of the truss bearing points were not in accordance with the permitted plans and specifications. Inland corrected the problem, but project owner Luzuriaga told Precision she would not be paying them. Precision recorded a mechanics lien in the amount of $53,268.16. Luzuriaga advised Precision that the mechanics lien was premature because the scope of work was not fully completed. Precision later learned additional correction notices were lodged against the project, requiring additional repairs, which Luzuriaga relied upon to nullify the mechanics lien as premature. The 4th District Court of Appeal agreed with Luzuriaga that the additional repairs were part in parcel to the completion of the truss-installation work, which rendered the recording of the mechanics lien premature and invalid. The bottom line? Timing is everything.—From CLM Member Jason Feld

Texas

Judge Dismisses Hurricane Harvey Lawsuits

A federal judge dismissed lawsuits from Hurricane Harvey victims who asserted that the government was to blame for damage they suffered when the U.S. Army Corps of Engineers opened the Addicks and Barker Reservoirs’ gates to prevent additional upstream flooding during the storm. The downstream victims alleged that the flooding constituted an unconstitutional taking of their properties. Judge Loren A. Smith, in the U.S. Court of Federal Claims, said the court “cannot find the government liable or find it responsible for imperfect flood control of waters created by an act of God.” Smith noted that another judge from the same court previously found the Corps liable for damage caused to property owners upstream from the dams, but added that damage occurred “as a result of the general operation of the Addicks and Barker Dams and Reservoirs, as a direct result of the Corps’ decision to close the flood gates in order to protect properties downstream….” The downstream damage, on the other hand, occurred because the dams were simply overwhelmed.—From Managing Editor Phil Gusman

Ohio

Insurer Has No Obligation to Protect Attorney Charging Lien

In Kisling, Nestico & Redick LLC v. Progressive Max Ins. Co., et al., an accident victim signed a contingent-fee agreement that purported to give the law firm a charging lien on the proceeds of any insurance settlement. The claimant fired the law firm and ultimately settled his claim with the tortfeasor’s insurer. KNR subsequently sued Progressive for failing to protect its charging lien, and the trial granted summary judgment in favor of the law firm. The appellate court upheld the judgment by finding that a charging lien becomes binding on a third party when the party has notice of the lien. In a unanimous opinion, however, the Ohio Supreme Court reversed and held that an insurer has no obligation to protect an attorney’s charging lien because the equitable fund to be charged doesn’t exist until after the settlement funds are paid to the claimant.—From Northeast Ohio Chapter President, Michael C. Brink

Maryland

Court Refuses to Enforce Confessed-Judgment Clause

In Goshen Run Homeowners Association Inc. v. Cumanda Cisneros, the Maryland Court of Appeals ruled that the Maryland Consumer Protection Act (MCPA) prevents homeowners associations from enforcing confessed-judgment clauses that require their members or lot owners to pay assessments or fees. The court stated that since a member’s assessment pays for goods and services provided by the association for their personal, household, or family use, a member would be considered a “consumer,” and thus protected by the Act. In general, the MCPA bars the use of confessed-judgment clauses, since they require consumers to waive their rights to challenge any debt that is owed prior to litigation. Here, since the assessment-payment contract between Goshen Run and Cisneros contained a confessed-judgment provision, the court refused to enforce the missed payments owed by Cisneros, claiming that it violated her consumer rights. The court said associations may still enforce assessments through other legal methods, including bringing a claim for breach of contract that is severed from the confessed-judgment clause.—From CLM Member Zachary A. Miller

New Jersey

Medical Marijuana Insurance Bills Move Through Committee

Two bills in the Assembly could pave the way for medical marijuana to be covered by workers compensation insurance in the state. A1708, which passed through the Assembly Financial Institutions and Insurance Committee by a 9-4 vote, would require workers compensation and personal injury protection coverage for medical marijuana under certain circumstances. A377, which passed through the same committee 11-1 with one abstention, would create certain protections for insurers engaging in business of insurance in connection with cannabis-related businesses. Essentially, the bill protects insurers that engage in insurance business with medical marijuana businesses from actions by state and local agencies. An NJ.com article notes that the bill does not supersede federal regulations, and it quotes an insurance industry representative noting that the industry’s preference is to see conflicting state and federal laws addressed before the New Jersey bills move forward.—From Managing Editor Phil Gusman