CLM National: March 2023

The Third Circuit Court of Appeals rejects Johnson & Johnson’s bankruptcy plan to handle its talc litigation, California expands the list of contractor classifications that are required to purchase workers’ compensation coverage, and the Illinois Supreme Court issues an important ruling on the state’s Biometric Information Privacy Act.

California

Contractors Required to Purchase WC Coverage

Senate Bill 216 went into effect as of Jan. 1, and it expands the applicable contractor classifications that must now purchase workers’ compensation insurance even if they have no employees. Previously, licensed contractors had to file with the Contractor State License Board a certificate demonstrating workers’ compensation insurance or self-insurance, or a certificate claiming exemption because the contractor has no employees. The new law requires concrete contractors (with a C-8 license); heating, ventilation, and air-conditioning contractors (with a C-20 license); asbestos abatement contractors (with a C-22 license); and tree service contractors (with a D-49 license) to purchase workers’ compensation insurance even if the contractor has no employees. On Jan. 1, 2026, the law requires all licensed contractors regardless of classification to obtain workers’ compensation insurance to work lawfully in the state. The only exception will be for contractors organized as a joint venture that file a certificate of exemption.—From CLM Member Alexander Moore, Kahana Feld

Arizona

Attorneys’ Fees Not Automatic

In Zahler v. Swift Transportation, Mark Zahler entered into an agreement with Swift Transportation Company, LLC as an independent contractor. The contract required the parties to arbitrate disputes and included a provision stipulating that the prevailing party shall be entitled to recover its costs and reasonable attorneys’ fees. Zahler sued Swift for injuries experienced on the job. The arbitrator found in favor of Zahler and awarded damages, but not attorneys’ fees and some of his costs. Zahler filed a petition to vacate the award, which the superior court denied. On appeal, the Court of Appeals upheld the arbitrator’s ruling, finding the arbitrator did not decide an issue beyond those submitted for arbitration. Upon review of the pertinent contract language, the court found it provided the arbitrator with several grounds to decline to award attorneys’ fees and costs. In a claim involving a contract, it is important to discuss with defense counsel the potential argument from plaintiff’s counsel to seek attorney’s fees and analyze how contract terms could impact the litigation plan.—From CLM Member Sitar Bhatt, Tyson & Mendes

Texas

Minor Children Compelled to Arbitrate

In Taylor Morrison of Texas, Inc. v. Skufca, a trial court denied a motion to compel arbitration that involved breach-of-contract claims brought by Jack and Erin Skufca, along with their minor children, alleging construction defects with their new home. The Court of Appeals upheld the denial. In reversing, the Texas Supreme Court held “that the Skufcas’ petition, which did not distinguish between the parents’ claims and the children’s claims, unambiguously reflects the children as joining their parents in asserting the breach-of-contract claim, and that the children therefore may be compelled to arbitrate.” The court added, “We note, however, that our decision does not mean that the children may avoid arbitration simply by amending the petition to allege only tort or other noncontractual claims…. Because the Skufca children lived with their parents in the home and sued for factually intertwined construction-defect claims, that basis for direct benefits estoppel serves as an additional reason to compel arbitration here.”—From CLM Member Christopher K. Chapaneri, Wood Smith Henning & Berman

Florida

Adjuster Is Not Disinterested Appraiser

State Farm’s homeowners policies offer appraisal as an alternative to litigation when the amount of loss is disputed. After Hurricane Irma in 2017, thousands of Floridians made property claims under State Farm policies, including Jon Parrish. However, he also retained a public adjusting firm for its services in maximizing the value of his claim. When the appraisal clause was invoked, he named one of the owners of the firm that his public adjuster worked for as his chosen appraiser. State Farm objected, arguing that, due to the public adjuster’s contingency agreement for 10% of whatever Parrish collected, he could not be “disinterested,” as required under the policy. In Parrish v. State Farm Florida Ins. Co., the Florida Supreme Court reasoned that a person cannot be disinterested in a matter where they have a pecuniary interest. Thus, Parrish’s public adjuster could not serve as an appraiser for the property claim where the company stood to be compensated based on the claim’s outcome.—From CLM Member Jessica Cauley, Freeman, Mathis & Gary

Illinois

BIPA Ruling Could Impact Employers

In Latrina Cothron v. White Castle System, Inc., the Illinois Supreme Court ruled, in a divided opinion, that employers violated the Illinois Biometric Information Privacy Act (BIPA) each time they collected fingerprints from an employee and disclosed that biometric information without consent. BIPA, which has led to thousands of court cases filed against employers, primarily in Illinois, requires businesses that store biometric information to inform the subject that the data is being collected or stored and the purpose and duration for which it is being collected. Illinois remains the only state that permits a private right of action in biometric cases. Employer attorney Daniel S. Marvin, a partner with Kennedys Law LLP, who is not involved in the case, said the majority “pretty much acknowledges that this decision could lead to absurd results.” Daniel A. Cotter, an attorney with Howard & Howard Attorneys PLLC, also not involved in the case, said, “My recommendation to anybody using biometric information would be to stop immediately.”—From Mark Friedlander, Insurance Information Institute

New Jersey

Court Rejects J&J Bankruptcy Plan

Johnson & Johnson Consumer, Inc. divided itself into two separate companies: LTL and “New Consumer,” and then had the liability-bearing company—LTL—declare bankruptcy in the Bankruptcy Court for the Western District of North Carolina, with funding from New Consumer to pay for talc litigation claims. That court subsequently transferred the case to the Bankruptcy Court for the District of New Jersey. A group of talc plaintiffs then filed a motion to dismiss LTL’s bankruptcy filing, alleging it was filed in bad faith. The claimants’ motion to dismiss was denied, but they appealed directly to the U.S. Court of Appeals for the Third Circuit, which determined LTL was not in financial distress. The panel noted that LTL’s assets included the right to receive almost $62 billion from Johnson & Johnson and New Consumer under a funding agreement executed at the time of the divisional merger. Compared to the $4.5 billion in estimated aggregate costs from the talc litigation, the Third Circuit failed to see where the distress lay. —From CLM Member Stephen Jenkins, Goldberg Segalla