National News: September 2018

Kansas court rules Workers Compensation Act amendment unconstitutional, the Environmental Protection Agency can no longer delay implementation of its Chemical Disaster Rule, and, in New Jersey, a bad-faith bill looms in the legislature.

Washington

Supreme Court Articulates Rule for Negligent Hiring/Retention

The Washington Supreme Court, in Anderson v. Soap Lake School District, recently upheld summary judgment in a wrongful death case and articulated the rule applying to negligent hiring/retention of employee claims. The tragic facts involve the death of a student who was provided alcohol by her basketball coach. The estate sued the school district—the coach’s employer—alleging, inter alia, negligent hiring and retention, negligent training and supervision, and vicarious liability. The Supreme Court, for the first time, adopted the test for negligent hiring and/or retention: “[T]o hold an employer liable for negligently hiring or retaining an employee who is incompetent or unfit, a plaintiff must show that the employer had knowledge of the employee’s unfitness or failed to exercise reasonable care to discover unfitness before hiring or retaining an employee.” Further, the court held such claims are applicable only when the employee is acting outside the scope of employment.—From CLM Member Karen Bamberger

California

Law Limits Indemnification Obligations for Design Professionals

In April 2017, California Governor Jerry Brown signed into law Senate Bill 496, which modified Civil Code Section 2782.8, adding protections for private contracts entered into by design professionals. Under Section 2782.8, as amended, all contracts with non-state agencies for design professional services entered into on or after Jan. 1, 2018, that require licensed architects, engineers, and land surveyors to indemnify their clients, are unenforceable, except to the extent that the claims against the client arise out of the design professionals’ negligence, recklessness, or willful misconduct. As a result, design professionals can generally no longer be obligated to contractually indemnify the developer for claims merely arising out of their work. There are, as of yet, no cases applying this amended statute, yet many of its provisions will ultimately require judicial interpretation.—From CLM Member Mark D’Argenio

Kansas

Workers Comp Act Amendment Ruled Unconstitutional

The Kansas Court of Appeals declared the 2013 amendment to the state’s Workers Compensation Act unconstitutional. The amendment stated that permanent impairment ratings for workers injured on or after Jan. 1, 2015 be calculated using the sixth edition of the AMA Guides instead of the fourth edition. In the case, Howard Johnson III v. U.S. Food Service and American Zurich Insurance Co., the court, citing changes over the years to the Workers Compensation Act, said, “The gradual erosion of the fair exchange between rights under the act and common law rights to tort recovery have, for the injured worker, amounted to death by a thousand paper cuts.” The court determined that, with the 2013 changes, the tipping point had been reached. “The legislature went too far with the adoption of the sixth edition, and we agree that the act no longer comports with due process for injured workers who sustain a permanent impairment as a result of an injury occurring on or after Jan. 1, 2015,” the court stated.—From Managing Editor Phil Gusman

Montana

Insurers May Bear Directly Liability For Asbestos Exposure

In In re: W.R. Grace & Co., et al., a 3rd Circuit panel remanded an adversary case to bankruptcy court to determine if asbestos claimants may hold W.R. Grace & Co.’s employer’s liability insurers directly liable for personal injuries. W.R. Grace’s first amended Chapter 11 reorganization plan created a trust for asbestos-related claims, and a channeling injunction to steer claimants there. When W.R. Grace employees pursued claims directly against Continental Casualty Co. and Transportation Insurance Co., the insurers filed an adversary case to obtain enforcement of the injunction. On appeal, the 3rd Circuit panel held that a workers compensation claim exemption in the injunction did not apply because the insurers had also provided the employer’s liability coverage to W.R. Grace. The panel instructed that “[t]he proper inquiry is to review the law applicable to the claims being raised against the third party…to determine whether the third party’s liability is wholly separate from the debtor’s liability or instead depends on it.”—From Northeast Ohio Chapter Vice President Michael C. Brink

Washington, D.C.

EPA Can No Longer Delay Chemical Disaster Rule

The U.S. Court of Appeals for the D.C. Circuit ruled that the Environmental Protection Agency (EPA) could not continue to delay implementation of the “Chemical Disaster Rule,” which involves increased preparedness and reporting requirements for chemical plants. The EPA finalized the rule on Jan.13, 2017, but delayed it three times—most recently until February 2019—after the change in presidential administrations. The court’s ruling states, “The EPA may not employ delay tactics to effectively repeal a final rule while sidestepping the statutorily mandated process for revising or repealing that rule on the merits.” It adds, “Without regard to context, purpose, or history, EPA has equated its authority to amend a final rule pursuant to applicable statutory requirements with authority to delay a final rule merely because the EPA is considering revising it.” The court noted its holding is narrow: “The EPA retains authority under Section 7412(r)(7) to substantively amend the programmatic requirements of the Chemical Disaster Rule, and pursuant to that authority, revise its effective and compliance dates, subject to arbitrary and capricious review.”—From Managing Editor Phil Gusman

New Jersey

Bad-Faith Bill Working Its Way Through Legislature

Introduced on March 5, 2018 in the New Jersey legislature, the New Jersey Insurance Fair Conduct Act (NJIFCA) would create a private cause of action for first-party claimants against insurance providers for certain “unfair or unreasonable practices” by an insurer, including “unreasonable delay or unreasonable denial of a claim for payment of benefits.” If passed, the bill would also allow a private cause of action for a single violation of N.J.S.A. 17:29B-4, including unfair claims settlement practices, and the claimant need not establish that the insurer’s actions were part of a general business practice. Thus, a failure to acknowledge and act reasonably promptly upon communications with respect to claims arising under an insurance policy would give rise to a bad-faith claim. If passed in its current form, the NJIFCA would provide for treble damages and attorney’s fees and costs. The bill passed the Senate in June and is currently in the Assembly.—From CLM Member Julia Talarick