Economic Loss Rule Limited to Product Liability Actions * Presumption of Negligence of Rear Driver Rebutable * Medicare Liens Subject to Reduction When Lien Amount Exceeds Recoverable Medicals * Settlement Agreement Can Be Rescinded Where Material Facts Withheld During Discovery
April 24, 2013
CASE LAW UPDATE
Dear Ladies and Gentlemen:
The Florida Supreme Court and the Florida District Courts of Appeal have recently issued several opinions that may of interest to you.
In Tiara Condo. Ass’n v. Marsh & McLennan Cos., the Florida Supreme Court expressly limited the economic loss rule to products liability cases. The Court left open to interpretation whether parties to a contract now have tort claims available to them for economic losses. However, the dissent argued that was precisely the significance of the Court’s decision stating “we face the prospect of every breach of contract claim being accompanied by a tort claim.”
In Birge v. Charron, the Florida Supreme Court held that the presumption of negligence on the part of the rear driver in a rear-end collision, could be rebutted where there is evidence produced from which a jury could conclude that the front driver was negligent and comparatively at fault in bringing about the collision.
In Roberts v. Albertson’s Inc., the Fourth District Court of Appeal held that section 409.910 is a presumptively valid allocation of settlement proceeds subject to a Medicare lien when the Florida Agency for Health Care Administration (“AHCA”) is not a participant to the settlement. However, the Fourth District also held that a plaintiff is entitled to an opportunity to seek a reduction of a Medicare lien amount established by the statutory default allocation by demonstrating, with evidence, that the lien amount exceeds the amount recovered for medical expenses.
In Garvin v. Tidwell, the Fourth District Court of Appeal held that misconduct in discovery does not meet the test of good faith and must be discouraged by disallowing settlements which are the fruit of a party withholding material information in discovery.
I. Tiara Condo. Ass’n v. Marsh & McLennan Cos., SC10-1022, 2013 WL 828003 (Fla. Mar. 7, 2013).
FACTS AND PROCEDURAL HISTORY
This matter involved a lawsuit filed by an insured against its insurance broker alleging breach of contract, negligent misrepresentation, breach of the implied covenant of good faith and fair dealing, negligence, and breach of fiduciary duty. The insured, a condominium association, was assured by its insurance broker that its windstorm coverage through Citizens Property Insurance Corporation (“Citizens”) contained a limit of $50 million per occurrence rather than in the aggregate for losses caused by Hurricanes Frances and Jeanne. Relying upon the insurance broker’s assurances, the condominium spent more than $100 million in more expensive remediation efforts. However, when the condominium sought payment from Citizens, Citizens claimed that the loss was in the aggregate, not per occurrence. The trial court granted summary judgment on all claims in favor of the insurance broker and the insured appealed to the Eleventh Circuit Court of Appeal. The Eleventh Circuit affirmed the summary judgment on all claims except as to the negligence and breach of fiduciary duty claims. As to those claims, the insured alleged that the insurance broker had either been negligent or had breached its duty by failing to advise the condominium that it was underinsured. The Eleventh Circuit Court of Appeal certified a question to the Florida Supreme Court to determine whether the economic loss rule prohibits recovery, or whether an insurance broker falls within the professional services exception that would allow the insured to proceed with the claims.
SUPREME COURT DECISION
The Florida Supreme Court restated the certified question as follows:
Does the economic loss rule bar an insured’s suit against an insurance broker where the parties are in contractual privity with one another and the damages sought are solely for economic losses?
The Court began its analysis by reviewing the origin and original purpose of the economic loss rule. The Court noted that the economic loss rule initially appeared for the purpose of limiting actions in the product liability context where parties sought to apply tort remedies to traditional contract law damages. According to the Court, the economic loss rule was later extended to cases in which a party sought damages in tort for matters arising from a contract.
The Court then went on to analyze the various decisions that have carved out exceptions to the contractual privity application of the economic loss rule. Such exceptions include claims for: fraud in the inducement, negligent misrepresentation and professional malpractice. The Court cited to prior decisions which expressed a desire to “return the economic loss rule to its intended purpose” but that failed to go as far as halting its over-expansion. Id.
The Court explained that the application of the economic loss rule should be expressly limited to products liability cases given that in those types of cases, and for claims not involving injury to persons or property, warranty law is more appropriate than tort law for resolving economic losses.
Ultimately the Court answered the certified question in the negative and held that the economic loss rule applies only in the product liability context. Further, the Court receded from its prior rulings to the extent those rulings applied the economic loss rule to cases other than products liability.
Justice Polston and Justice Canady dissented. Justice Polston expressed concern for contract law noting that “[n]ow there are tort claims and remedies available to contracting parties in addition to the contractual remedies which, because of the economic loss rule, were previously the only remedies available.” Justice Canady agreed with Justice Polston and added that because of the majority’s decision “we face the prospect of every breach of contract claim being accompanied by a tort claim.”
II. Birge v. Charron, SC10-1755, 2012 WL 5869641 (Fla. Nov. 21, 2012).
FACTS AND PROCEDURAL HISTORY
This matter arose out of a motorcycle/automobile accident. Plaintiff filed suit against the driver of the automobile as a result of injuries she sustained when the motorcycle she was riding flipped over because its operator tried but failed to avoid a collision with the rear of the automobile driven by defendant. The trial court granted summary judgment for the defendant finding plaintiff could not rebut the presumption of negligence that attached to the motorcycle operator as the rear driver in a rear-end collision. The Fifth District Court of Appeal reversed, finding that there were factual disputes regarding the reasonableness and care with which the driver operated the automobile. Thus, there was evidence from which a jury could find that defendant was negligent and at least comparatively at fault in causing the collision. The Fifth District certified conflict with Cevallos v. Rideout, 18 So. 3d 661 (Fla. 4th DCA 2009) and the Florida Supreme Court granted review.
SUPREME COURT DECISION
The Florida Supreme Court approved the Fifth District Court of Appeal’s decision and disapproved the Fourth District Court of Appeal’s decision in Cevallos. The Court held that because tort recovery is governed by the principles of comparative negligence in Florida, the presumption of negligence on the part of the rear driver can be rebutted or overcome by the production of evidence from which a jury could conclude that the front driver was negligent in the operation of his or her vehicle.
The Court discussed Florida’s adoption of pure comparative negligence as its system of recovery noting that one of the primary reasons for doing so was to address the pressing social problem that automobile accidents represented. In determining liability on the basis of the percentage of fault of each participant, even a negligent plaintiff can recover damages in proportion to the defendant’s comparative fault. Thus, a party only bears the burden of a loss in proportion to that party’s responsibility.
The Court indicated that the substantive change in the law provided no guidance to the multiple conflicts that would later arise with the imposition of a new recovery system. The Court noted that in Cevallos, the Fourth District Court of appeal had incorrectly applied a distinct system of recovery because the case before it involved the rear-end presumption. However, the Court explained that the rear-end presumption was not a substantive rule of law but rather an evidentiary tool introduced by decisional law to facilitate cases where the evidence is insufficient to create a jury question on the relevant issues of fault.
Accordingly, where there is sufficient evidence produced from which a jury could find that the front driver in a rear-end collision was negligent and comparatively at fault in bringing about the collision, “the presumption is rebutted and the issues of disputed fact regarding the negligence and causation should be submitted to the jury.” Id.
III. Roberts v. Albertson’s Inc., 4D10-2313, 2012 WL 5232182 (Fla. 4th DCA, Oct. 24, 2012).
FACTS AND PROCEDURAL HISTORY
This matter arose out of a personal injury action asserted by Alan Roberts, a pedestrian, against four defendants, including Albertson’s Inc., as the result of an accident that rendered him a quadriplegic. Medicaid paid for all of the medical care costs associated with the accident, which totaled $343,452.83. Mr. Roberts brought actions against the four defendants. All defendants except Albertson’s settled with Mr. Roberts for their insurance policy limits. Albertson’s settled with Mr. Roberts for $2,735,000 without allocating between medical expenses and other economic losses or non-economic losses. Florida Agency for Health Care Administration (“AHCA”), the Medicaid administrator for Florida, was not made a part of the settlement agreement. As a result, AHCA filed a lien against the third-party benefits paid in settlement by the defendants.
Mr. Roberts filed a motion to determine equitable Medicaid lien amount, “asking the court to determine the amount of the settlement that was comprised of medical expenses and to limit recoupment of the Medicaid lien to that amount.” Id. Mr. Roberts argued that the federal Medicaid anti-lien provision and the decision in Arkansas Department of Health & Human Services v. Ahlborn, 547 U.S. 268 (2006) entitled him to an evidentiary hearing to determine what amount of his settlement was for medical expenses. Mr. Roberts further argued that similar to Ahlborn, AHCA’s lien should be reduced in proportion to the ratio that the settlement recovery bears to the reasonable value of the case. Mr. Roberts asserted that the ratio in his case was 2.75/44 and thus AHCA’s lien should be 6.25% of the total medical expenses paid by Medicaid. AHCA opposed a hearing asserting that Ahlborn did not apply to the case because unlike in Ahlborn, there was no stipulation as to what portion of settlement was for medical expenses. AHCA also argued that section 409.910(11)(f), Florida Statutes provides the statutory formula to determine what portion of a personal injury settlement is subject to a Medicaid lien. The trial court denied Mr. Roberts’ request for an evidentiary hearing and ordered that AHCA was entitled to a Medicare lien for the full amount of Medicaid benefits provided to Mr. Roberts.
APPELLATE COURT DECISION
The Court reversed the trial court’s denial of an evidentiary hearing holding that a “plaintiff should be afforded an opportunity to seek the reduction of a Medicaid lien amount established by the statutory default allocation by demonstrating, with evidence, that the lien amount exceeds the amount recovered for medical expenses.” Id. The Court rejected the argument that Ahlborn established a formula for determining the medical expenses portion of a settlement and held that section 409.910, Florida Statutes provides a presumptively valid allocation of settlement proceeds subject to a Medicare lien when AHCA is not a participant to the settlement agreement.
The Court began its analysis noting that the federal Medicaid anti-lien provision was intended to ensure that Medicaid recipients were not forced to directly bear the costs of their Medicaid care during their lifetime. However, the court explained that Congress was concerned about protecting a Medicaid recipient’s personal assets, not their interests in recovering from third parties medical costs paid on the recipient’s behalf. The Court explained that Florida’s Medicaid Third-Party Liability Act, Section 409.10, Florida Statutes, was enacted to comply with the federal mandate of implementing a third party liability provision requiring the state to seek reimbursement for Medicaid expenditures from third parties who are liable for medical treatment provided to a Medicaid recipient.
Section 409.10 provides AHCA at least three ways to recuperate expenditures from third parties:
(1) an automatic lien “upon the collateral, as defined in s. 409.901” for the full amount of medical assistance provided by Medicaid;
(2) automatic subrogation to any rights of a recipient to third-party benefits; and
(3) an automatic assignment of the recipient’s rights to any third-party benefits. 409.910(6)(a)-(c), Fla. Stat.
Section 409.901(7)(b), Florida Statutes defines “collateral” as “[a]ll judgments, settlements and settlement agreements rendered or entered into and related to such causes of action [related to a covered injury necessitating Medicaid payments].” (emphasis added). “Third-party benefits” are defined by section 409.901(28), Florida Statutes (2010), to include “collateral.” Accordingly, settlements are subject to Medicaid liens in Florida.
Section 409.910(11)(e), Florida Statutes (2010) provides that the entire amount of any settlement is subject to a Medicaid claim for reimbursement limited to the amount of Medicaid assistance provided. However, section 409.910(11)(f), further limits the amount of reimbursement using a formula:
(f) Notwithstanding any provision in this section to the contrary, in the event of an action in tort against a third party in which the recipient or his or her legal representative is a party which results in a judgment, award, or settlement from a third party, the amount recovered shall be distributed as follows:
1. After attorney’s fees and taxable costs as defined by the Florida Rules of Civil Procedure, one-half of the remaining recovery shall be paid to the agency up to the total amount of medical assistance provided by Medicaid.
2. The remaining amount of the recovery shall be paid to the recipient.
3. For purposes of calculating the agency’s recovery of medical assistance benefits paid, the fee for services of an attorney retained by the recipient or his or her legal representative shall be calculated at 25 percent of the judgment, award, or settlement.
4. Notwithstanding any provision of this section to the contrary, the agency shall be entitled to all medical coverage benefits up to the total amount of medical assistance provided by Medicaid. For purposes of this paragraph, “medical coverage” means any benefits under health insurance, a health maintenance organization, a preferred provider arrangement, or a prepaid health clinic, and the portion of benefits designated for medical payments under coverage for workers’ compensation, personal injury protection, and casualty.
The Court agreed with Russell v. Agency for Health Care Administration, 23 So. 3d 1266 (Fla. 2d DCA 2010), wherein the Second District Court of Appeal found no reasonable basis to conclude that the lien asserted by AHCA extended to a portion of settlement meant to compensate the recipient for damages distinct from medical costs as it was the case in Ahlborn. The Court did note that in certain circumstances, such as when the majority of an award (after attorney’s fees and costs) is not allocable to medical expenses, section 409.910, Florida Statutes, being a default allocation, could run afoul of federal anti-lien and anti-recovery statutes
Lastly, the Court certified conflict with Garcon v. Agency for Health Care Administration, 96 So. 3d 472 (Fla. 3d DCA 2012), and with Russell v. Agency for Health Care Administration, 23 So. 3d 1266 (Fla. 2d DCA 2010) regarding whether a plaintiff is entitled to an opportunity to prove the Medicaid lien exceeds the amount recovered for medical expenses.
IV. Garvin v. Tidwell, 4D11-2712, 2012 WL 5232224 (Fla. 4th DCA, Oct. 24, 2012).
FACTS AND PROCEDURAL HISTORY
This matter involved a negligence and negligent misrepresentation action brought by a horse rider against a horse owner for injuries she suffered to her back when she fell off the horse. The Plaintiff’s Complaint alleged that despite numerous inquiries by the plaintiff about the horse’s dangerous propensities, the horse owner negligently failed to disclose to plaintiff the horse’s long and well-known history of bucking and running away with riders, which was well-known to the horse owner.
During discovery, plaintiff sent one set of interrogatories and request for production which requested the identification and production of documents including photographs pertaining to any fact or issue involved. The horse owner answered the discovery by providing twenty names and four photographs but objected to the production of any of the documents identified in the answers to interrogatories on grounds of work product privilege. No privilege log was filed and no statements or documents were identified. The plaintiff never filed a motion to compel in response to the discovery answers and responses. The plaintiff did take the deposition of the horse owner and of the horse’s primary caretaker. Both the horse owner and horse caregiver testified of some incidences of the horse being “spooked” or “bucking,” but claimed they occurred mostly when the horse was young. They also testified such behaviors were not a characteristic of the horse’s personality.
The parties settled the case at mediation. Soon after, plaintiff’s counsel received an unmarked envelope containing a magazine advertisement for a calming dietary supplement for horses (“Ex Stress”). The horse owner appeared in the advertisement stating she had decided to give Ex Stress to her horse because the horse could be a little difficult at times and claiming that after giving the horse Ex Stress “we’ve had nothing but great rides.” When asked by plaintiff’s counsel, the horse owner’s attorney admitted he and his client were in possession of the advertisement at the time of the depositions and when they responded to the interrogatories and requests for production. Plaintiff moved the trial court to reopen discovery and rescind the mediation agreement and for sanctions. The trial court denied plaintiff’s motion to rescind the mediation agreement and for sanctions, and granted the horse owner’s motion to enforce settlement.
APPELLATE COURT DECISION
The Court reversed the trial court’s order denying plaintiff’s motion to rescind the settlement agreement and granting the horse owner’s motion to enforce the settlement agreement. The Court affirmed the denial of sanctions without first receiving a motion to compel from the plaintiff and issuing an order to comply with the discovery request.
The Court noted the long recognized function of discovery of enabling parties to evaluate the strengths and weaknesses of a case prior to trial thus encouraging settlements and avoiding costly litigation. The Court indicated that litigants have an obligation to comply with discovery in good faith. The Court found that the horse owner had violated her discovery obligations by failing to disclose the Ex Stress advertisement and relevant information regarding the horse’s behavior which prompted the use of the calming supplement.
The Court citing to Stamato, explained that a trial court may rescind an agreement based on unilateral mistake if: 1) the mistake did not result from an inexcusable lack of due care, and 2) defendant’s position did not so change in reliance that it would be unconscionable to set aside the agreement. Stamato v. Stamato, 818 So. 2d 662, 664 (Fla. 4th DCA 2002). Additionally, the unilateral mistake must go to the very substance of the agreement. The Court found that plaintiff’s mistake resulted from the horse owner’s omissions and not from inexcusable due care as there was no other reasonable way for the plaintiff to have discovered the advertisement. The Court noted this case involved a “plaintiff who entered into a settlement agreement believing that, after conducting discovery, she had all of the material facts in front of her, when she did not.” Id. As to the second prong of the Stamato test, the horse owner did not raise any argument that she had detrimentally relied upon the settlement agreement so as to make the rescission of the settlement agreement inequitable.
In accordance with Jones v. Publix Super Markets, Inc., 5D09-4120, 2012 WL 3044250 (Fla. 5th DCA, July 27, 2012), the Court held that misconduct in discovery does not meet the test of good faith and must be discouraged by disallowing settlements which are the fruit of a party withholding material information in discovery.
We hope you find the above cases helpful and insightful. Should you have any questions with respect to the foregoing, please do not hesitate to contact the undersigned at your earliest convenience.
Very truly yours,
JOHN BOND ATKINSON
JULIETH A. ARMAS