E-Newsletter, September 2010

In this issue:

  • Virginia Supreme Court Ruling Takes Policy Interpretation Beyond “Eight Corners” of the Complaint and Policy
  • Employer’s Responsibilities in Providing Leave as a Reasonable Accommodation Under the Americans with Disabilities Act
  • A Case Study in the Labyrinth of the Interstate Deposition Process – Virginia
  • Reevaluating Liability Protections for LLC Members in Maryland

Virginia Supreme Court Ruling Takes Policy Interpretation Beyond “Eight Corners” of the Complaint and Policy

By: William J. Carter, Esq. and Mariana D. Bravo, Esq.

In the April, 2010 case Copp v. Nationwide Mut. Ins. Co., 279 Va. 675, 692 S.Ed. 2d 220 (Va. 2010), the Virginia Supreme Court held that facts outside the “eight corners” of the complaint and policy may be considered when evaluating whether an exception to a policy exclusion applies. The Court held that the protection of person or property exception to intentional acts exclusion applied to an altercation involving the insured, who asserted self-defense. The Court reversed the circuit court ruling which had determined, based only on the complaint and policy language, that the insurer was not responsible for coverage.

Adam Copp was a Virginia Tech student playing beer pong in his apartment one night with his roommate. Copp, 692 S.E. 2d. at 222. Two men unknown to them walked by and joined their game. The situation deteriorated quickly into a profanity laced tirade, with Copp eventually physically escorting one of the men, Duggar, out of the apartment. Id. The yelling attracted the attention of people living upstairs who came down to see what was happening. When Copp reemerged from his apartment to try to get Duggar to leave, he was confronted by a crowd of people. Id. As Copp tried to approach Duggar, the group pinned him against the stairwell and, feeling outnumbered, Copp swung his arm out over the crowd and struck Gregory Jacobson. Id. Jacobson was knocked unconscious and his orbital socket was fractured, requiring surgery on two occasions. Id. Copp was charged with assault and battery under Code § 18.2-57 and entered a plea of no contest. Id. at 22-223.

At the time of the incident Copp was an insured under a homeowner’s policy and an umbrella policy issued by Nationwide to Copp’s parents. Id. at 221. The umbrella policy contained a clause excluding liability for personal injury arising out of willful violation of a law, however the clause specifically provided that “it does not apply to bodily injury or property damage caused by an insured trying to protect person or property.” Id. at 222.

Jacobson filed for declaratory judgment with claims for compensatory damages and punitive damages for assault and battery. Nationwide, arguing the “eight corners rule” claimed it did not have a duty to defend or owe coverage for any intentional acts because they “cannot be considered an accident or accidental under the terms of the policies.” Id. at 223. The Court acknowledged prior decisions where they have applied the rule that, “only allegations in the complaint and the provisions of the insurance policy are to be considered in deciding whether there is a duty on the part of the insurer to defend and indemnify the insured.” Id. at 224, citing Brenner v. Lawyers Title Insurance Corp., 240 Va. 185, 189, 192, 397 S.E. 2d 100, 102, 104 (1990)(citations omitted).

The Court stated though that none of those decisions involved the type of situation here, where the policy at issue included an exception to the exclusion of coverage. “The exception is found in one of the four corners of the insurance contract and stands on equal footing with other provisions thereof.” Id. at 225. When considering Copp’s examination under oath and deposition testimony, “Copp’s version of events is not inherently incredible, and Nationwide does not contend that it is.” The trier of fact might find for or against Copp, but, “the fact that the latter result might occur does not negate Nationwide’s duty to defend in the first instance.” Id. See Virginia Elec. & Power Co. v. Northbrook Property & Cas. Co., 252 Va. at 269, 475 S.E. 2d. Ultimately, “[w]hether Copp’s acts were or were not caused by his trying to protect person or property must be left to the fact-finder in the subsequent trial of the underlying tort action.” Id.

Employer’s Responsibilities in Providing Leave as a Reasonable Accommodation Under the Americans with Disabilities Act

By William J. Carter, Mariana D. Bravo and Juan M. Sempertegui

Title I of the Americans with Disabilities Act of 1990 (the “ADA”) requires an employer to provide reasonable accommodations to qualified individuals with disabilities (“qualified employees”) who are employees or applicants for employment, unless to do so would cause undue hardship. Reasonable accommodations must be provided to qualified employees regardless of whether they work part-time or full-time, or are considered “probationary.” There are a number of possible reasonable accommodations that an employer might be required to provide to qualified employees. Permitting the use of accrued paid leave or unpaid leave is one such reasonable accommodation, and the purpose of this article is to briefly explain an employer’s responsibilities in responding to a qualified employee’s request for leave.

Under the ADA, a qualified employee who needs leave related to his/her disability is entitled to such leave if there is no other effective accommodation and the leave will not cause undue hardship. Some examples of disability-related reasons for which a qualified employee may need leave are to obtain medical treatment for a disability, to recuperate from an illness stemming from a disability, and to train a service animal (e.g. a guide dog). “Undue hardship” means significant difficulty or expense and focuses on the resources and circumstances of the particular employer in relationship to the cost or difficulty of providing a specific accommodation.

While an employer is under no obligation to provide a qualified employee with paid leave beyond that which is provided to similarly-situated employees, an employer must grant the individual unpaid leave if the paid leave is insufficient to cover the entire period. This rule rebuffs the common assumption that qualified employees are no different than other employees in their entitlement to additional leave. In providing additional unpaid leave to a qualified employee, employers should allow the individual to exhaust accrued paid leave first, and then use unpaid leave. For example, if an employer’s policy is that all employees get 10 days of paid leave, and a qualified employee needs 15 days of leave related to his/her disability, then the employer should allow the individual to use 10 days of paid leave and 5 days of unpaid leave. Even if employers have a “no-fault” leave policy under which employees are automatically terminated after they have been on leave for a certain period time, they are still required to provide the additional leave to qualified employees unless they can show that: (1) there is another effective accommodation that would enable to the person to perform the essential functions of his/her position; or (2) granting additional leave would cause an undue hardship. Additionally, an employer cannot penalize a qualified employee for work missed during leave taken as a reasonable accommodation since doing so would be considered retaliation for the qualified employee’s use of a reasonable accommodation to which he/she is entitled under the law.

There is no specific metric for how long an employer must keep a qualified employee on unpaid leave. Rather, the standard is that employers are required to hold a qualified employee’s job open as a reasonable accommodation unless it can show that doing so causes undue hardship. If an employer cannot hold a position open during the entire requested leave period without incurring undue hardship, the employer must consider whether it has a vacant, equivalent position for which the employee is qualified and then reassign the employee to that position to begin working at the end of the leave period. If an equivalent position is not available, the employer must look for a vacant position at a lower level. If a vacant position at a lower level is also unavailable, the employer is not required to provide continued leave as reasonable accommodation.

Finally, employers should be aware of the interaction between the leave requirements under the ADA and the Family Medical Leave Act (FMLA). For the most part, employees eligible for leave under the FMLA will not be entitled to leave as a reasonable accommodation under the ADA, either because they do not meet the ADA’s definition of disability or the need for leave is unrelated to their qualifying disability. However, when an employee’s request for leave does qualify under both the ADA and FMLA, the employer should consider the individual’s rights under both statutes and provide leave under whichever statutory provision provides the greater rights to employees.

A Case Study in the Labyrinth of the Interstate Deposition Process – Virginia

By: Sarah Bagley, Esq.

You are defending a corporation in a state court in Virginia. The Plaintiff’s counsel has just located a former employee of your company who has retired to Colorado, and Plaintiff hopes to depose that witness. Plaintiff’s counsel has moved in the Virginia trial court for a commission for issuance of a foreign subpoena. Within days the subpoena is issued by the district court in Colorado, and any minute now the witness, whose testimony you believe is irrelevant and possibly damaging, is going to be served. How did Plaintiff move through those steps so quickly, and what can you do now to prevent this deposition from moving forward?

Any time a party seeks to depose an out of state witness there will always be the law of two states to consider: the trial state and the discovery state. Unfortunately, there is little uniformity of statutes and rules addressing these issues between the states. These scenarios, therefore, must be evaluated on a case-by-case basis.

The starting point is always the law of the trial state. In Virginia, Rule 4:5 controls. Rule 4:5 provides that a deposition may be taken outside of the state subject to a commission or “letter rogatory” requested from the trial court. A letter rogatory is essentially a formal request from one court to another for judicial assistance. Upon motion for a letter rogatory or a commission, the Virginia court will issue a Virginia subpoena which the party can then take to the court in the state where the witness resides. The party must then have a subpoena issued and served in compliance with the laws of the discovery state.

In our case study, the potential witness was located in Colorado, a state that has enacted the Uniform Interstate Discovery and Depositions Act. This Act was designed to streamline the process for issuance of subpoenas in the discovery state and create more uniformity in the process across the fifty states. The process it has created is simple for the parties seeking the witness’ testimony. The Virginia subpoena is simply presented to the clerk of the Court in the appropriate district court in Colorado and the clerk then issues a Colorado subpoena.

The subpoena issued by the discovery state court must incorporate the terms used in the trial state subpoena and contain the names, addresses, and telephone numbers of all counsel of record in the proceeding to which the subpoena relates. This procedure allows the party to avoid hiring local counsel to procure the subpoena and avoids the need for an appearance before a judge in the discovery state. The party will then serve the witness with the local subpoena in accordance with the local forum’s service requirements. The issuance of the subpoena by the clerk in the discovery state is sufficient however to invoke the jurisdiction of the local court and create an enforceable and objectionable subpoena.

At that stage, our Virginia defendant can move in the Colorado court either to quash the subpoena or file for a protective order. As the home of the subpoenaed witness, the discovery state takes an interest in the matter on behalf of its citizen and assigns a miscellaneous action number to the issued subpoena. Upon motion of a party, filed under the assigned miscellaneous action number, the discovery state can then make a determination as to the necessity of the witness’ appearance and whether the properly issued subpoena should be in fact be quashed or limitations placed on the scope of the deposition.

To date, only nine states have enacted identical or slightly modified versions of the Uniform Interstate Discovery and Deposition Act. They include: California, Colorado, Idaho, Kentucky, Maryland, New Mexico, Tennessee, Utah and Virginia. The impact of the Act is that procuring the testimony of a witness residing within those states is significantly simplified. Virginia’s statutory framework, as an adopter of the Uniform Act, is such that a party from a foreign state need not present a commission or letter rogatory to a Virginia court to procure the issuance of a Virginia subpoena. Rather, Virginia’s version of the Act requires only submission to the appropriate court where the discovery is sought of a foreign subpoena, and a statement that the law of the foreign jurisdiction grants reciprocal privileges to citizens of the Commonwealth. At that point, a Virginia subpoena will be issued.

While adoption of the Uniform Act in additional states will streamline and make this process more consistent among the states, the current legal framework requires a close analysis of each state’s rules when this issue arises. Failure to reference both the trial state’s framework and the discovery state’s framework can result in either the loss of a necessary witness’ testimony due to procedural failings or the loss of the ability to quash a potential witness’ testimony.

Reevaluating Liability Protections for LLC Members in Maryland

By: Tina M. Maiolo, Esq. and Allie M. Wright, Esq.

Limited Liability Company’s are a recent business entity creation, and have been a growing choice for many new entrepreneurs. The LLC is a hybrid of features of corporation and partnership structures. Favorable aspects of an LLC to entrepreneurs have been the flow through taxation and the liability protection of a corporation. Generally, members of an LLC cannot be held personally liable for debts or obligations of an LLC, whether in tort or contract, solely by reason of being a member of the LLC. Recently, however, the Maryland Court of Appeals imposed personal liability on an LLC member in a ruling based on its interpretation of the Baltimore City Housing Code. This decision could have far reaching ramifications for many businesses, not just owners of investment properties.

In Allen v. Dackman, the Maryland Court of Appeals held in a 5-2 decision that a member of an LLC may be liable for tort he “personally commits, inspires, or participates in, even though performed in the name of the LLC.” Further, under the Baltimore Housing Code, an individual member of an LLC that owns a residential property may be personally liable for violations of the House Code as an “owner” if he has “control” over the title. Here, an LLC member was found liable to lead paint plaintiffs for injuries they suffered while living in a house owned by the LLC. This was despite the fact that the LLC member: a) had limited involvement with the property; b) had never visited the property; c) had no knowledge the plaintiffs/squatters were illegally living there until after the LLC bought the property – after which the LLC took proper action to remove them; d) never had a lease with anyone; and, e) only dealt with the property through the LLC, which purchased the property at a tax sale.

Many commentators have asked, what does “inspiring” a tort mean? Does this mean that anyone who comes up with any idea or business strategy that an LLC puts into motion will be liable to a future plaintiff simply because the member thought of the idea, and it resulted in some unintended or unforeseen injury? The fact that this ruling is not limited to intentional torts could mean the significant erosion to any protection a limited liability structure provides to its members for simple negligence. It is the proverbial “slippery slope.” Members of an LLC may now be exposed to personal liability for the LLC’s alleged negligence even when there is no evidence of fraud or malicious conduct. If the ruling is expanded, there will be no need to “pierce the corporate veil” because the veil will not exist.

New and existing LLCs should consult with counsel and determine how this new ruling could affect their company.