Precedential Pennsylvania Decision Deems Nursing Home Arbitration Agreement Unconscionable & Inherently Unenforceable (PA)
In an opinion released on July 5, 2022 in Kohlman, Administratrix for the Estate of Fay A. Vincent, Deceased v. Grane Healthcare Company, et al., 2022 Pa. Super 118, the Superior Court of Pennsylvania issued a precedential decision regarding whether an arbitration agreement between may be considered unconscionable and therefore unenforceable. Despite both Pennsylvania and federal law favoring arbitration enforcement as a matter of public policy, the Superior Court determined that the underlying arbitration agreement in Kohlman was inseverable and unconscionably, inherently unenforceable.
In Kohlman, the daughter of decedent, Faye Vincent (“Vincent”), brought a negligence, survival, and wrongful death action against Highland Park, a skilled nursing home facility in Pittsburg, PA, after her mother, Vincent died therein three (3) months after admission. By way of context, Vincent was admitted directly to Highland from a nearby hospital for care and rehabilitation related to congestive heart failure, diabetes, pressure ulcers, anxiety, depression, lack of focus requiring substantial narcotic medication. Importantly, Vincent had severely impaired vision where, even with glasses, she could not read newspaper headlines. Highland was additionally aware on intake that, due to this, Vincent preferred all decisions on her care be discussed with her family.
In preliminary objections, Highland Park sought to compel the matter to arbitration pursuant to an arbitration clause found in the Nurse Services Agreement (“Arbitration Agreement”) signed by Vincent and Highland’s Admission’s Director. The Allegheny Court of Common Pleas overruled Highland’s objections finding the Arbitration Agreement unconscionable and thereby unenforceable. Highland promptly filed its initial appeal to the Pennsylvania Superior Court who in turn affirmed the trial court with respect to the wrongful death claim but remanded for further discovery regarding particulars of the survival claim. On remand, Allegheny Court of Common Pleas again found the Arbitration Agreement wholly unconscionable. Highland petitioned the Superior Court for reconsideration giving rise to the subject decision.
Generally, per Pennsylvania law and the Federal Arbitration Act, 9 U.S.C § 2, courts must compel arbitration of claims subject to an agreement, unless found otherwise unenforceable through a valid contract defense such as unconscionability. To win on a theory of unconscionability, the party challenging enforcement of the contract must establish procedural unconscionability, they had no meaningful choice in the agreement, and substantive unconscionability, where the terms are unreasonably favorable to the non-challenging party.
On the second and subject appeal, the Pennsylvania Superior Court unequivocally affirmed. Specifically, the court found the Arbitration Agreement was procedurally unconscionable being that Vincent was physically and mentally incompetent upon signing, Highland did not read the entirety of the document to her to ensure she understood, nor did they consult Vincent’s family or even provide Vincent with a copy so someone else could read it to her. Plus, Vincent’s direct transfer from a nearby hospitalization gave her no awareness of other healthcare options, which in tandem, left an absence of any meaningful choice but for Vincent but to sign the Arbitration Agreement.
Further, the Superior Court agreed that the Arbitration Agreement subjected Vincent to undue economic restraint in requiring that her, or her heirs, would pay 50% of all arbitration costs, including the arbitrator’s fees. Typically, agreements are found conscionable in Pennsylvania if they contain a provision requiring payment of 50% of the arbitration costs or the arbitrator’s fee. However, the Superior Court found that implementation of both, especially where the challenger had no opportunity to know, was substantively unconscionable with respect to any cause of action since it imposed additional expenses on bringing a claim that Vincent, otherwise, would not have had to bear in court.
Despite Highland’s argument that the Arbitration Agreement’s severability clause would have rendered the fee language moot making the Agreement otherwise substantively conscionable, the Superior Court did not bite. Rather, it found that requiring nursing home residents to pay 50% of an arbitrator’s fee was so unreasonable that it was per se against public policy and inherently unenforceable. Even if the pertinent clause were to be severed, the Arbitration Agreement would remain silent on the essential term of who is to pay any such fees. The court declined to supplement the Agreement with a reasonable fee sharing alternative, as is possible where a term is omitted, being that this term directly sought to take advantage of Vincent financially.
Through Kohlman, the Superior Court provides precedential guidance for those drafting arbitration agreements subject to Pennsylvania law, and those seeking to enforce or challenge their feasibility in the face of litigation.
Thanks to Kendal Hutchings for her contribution to this article. Should you have any questions, please contact Matthew Care.Read More
New Life For Failing To Waive Contractual Notice Requirement For Life Insurance Policy (NY)
On May 31, 2022, the Eastern District of New York issued a Memorandum & Order in Herman Brettler v. Allianz Life Insurance of North America.
In 2016, Herman Brettler (“Herman”), as trustee of the Zupnick Family Trust 2008 (the “Trust”), commenced an action against Allianz Life Insurance Company of North America (“Allianz”), seeking a declaration that a life insurance policy issued by Allianz (the “Policy”) remained in effect. In 2018, the Eastern District of New York granted Allianz’s motion to dismiss under Rule 12(b)6), finding the previous owner of the Policy failed to provide Allianz with written notice of its assignment to the Trust as the terms of the Policy required, and therefore, the assignment was ineffective and the Trust lacked contractual standing to sue.
On appeal, the Second Circuit acknowledged the question of whether a policy owner’s failure to comply with the written notice requirement renders an assignment ineffective under New York law is a question best answered by the Court of Appeals of New York because the issue lacks binding precedent; however, in hopes of avoiding the need for certification, the Second Circuit remanded to determine whether the claims were time-barred and whether the Policy was in fact assignable on May 24, 2016, when it was allegedly transferred to the Trust.
In sum, the Court in Brettler found (i) the time-bar under New York Insurance Law § 3211(d) did not apply to the declaratory judgment and that Allianz’s position that the death of the insured while the matter was pending transformed the declaratory judgment into an action seeking recovery was unavailing; (ii) the time-bar under C.P.L.R. § 213, not § 214(2) was applicable, meaning, plaintiff had six years, not three years, to bring the action because the wrongs alleged exist under common or decisional law; (iii) it was plausible that Allianz’s grace notice was defective because it may have significantly overstated the amount due to prevent the Policy from lapsing; and (iv) it was sufficiently shown that the Trust attempted to make the premium payments even though, strictly speaking, Allianz’s insistence of extracontractual performance by overstating the amount due to prevent lapse may constitute repudiation of its own terms which would then preclude it from relying on the policyholder’s failure to tender premiums when arguing the policy lapsed.
As this case was not dismissed under either of the issues for which the Second Circuit remanded it, Wade Clark Mulcahy LLP will be keeping an eye on whether it leads to a precedent-setting certification by the Court of Appeals of New York.Thanks to Richard Dunne for his contribution to this article. Should you have any questions, please contact Matthew Care.Read More
Gist Of The Action Remains Useful In PA Motion Practice
In Moravia Motorcycle, Inc. v. Allstate Insurance Company, plaintiffs brought the following claims in connection with damage sustained to a motor home: (1) negligent misrepresentation; (2) breach of contract; and (3) bad faith. Allstate moved for summary judgment on Counts I and III. The claim arose from a curious scenario, as the plaintiffs’ motorhome was parked in a lot they owned when a tree branch fell on the roof, causing serious water damage.
In Count I, plaintiffs alleged Allstate was negligent by misrepresenting the status of the policy by, among other things, failing to fully advise as to the actual terms of coverage and failing to inspect the motor home in a workmanlike manner, which led to additional damages associated with mold and electrical issues, and eventually, complete loss of the motor home. Specifically, it was alleged that an adjuster originally verbally indicated the claim was covered, and the plaintiffs thereafter started the repair process on their vehicle at an approved mechanic. In the meantime, Allstate sent a second adjuster and inspector and denied the claim entirely.
Allstate argued plaintiffs’ negligence allegations should be dismissed under the gist of action doctrine, as the duty Allstate owed to plaintiffs arose pursuant to the contractual relationship (Count II) between the parties, not from a separate societal duty as would be necessary in tort. The court agreed and dismissed Count I, stating, “[i]f Allstate wrongly denied coverage, Plaintiffs have a claim for breach of contract.”
In Count III, plaintiffs alleged Allstate engaged in bad faith by stating the loss was covered, only later to inform plaintiffs, without explanation, the loss was in fact not covered. This allegation alone was sufficient to overcome Allstate’s Motion to Dismiss pursuant to Rule 12(b)(6) as to Count III.
This decision highlights the gist of action doctrine as an important tool in the preliminary stages of litigation and the importance of maintaining one, consistent message.
Thanks to Richard Dunne for his contribution to this article. Should you have any questions, please contact Matthew Care.Read More
An Obligation To Procure Commercial General Liability Insurance Is Not Waived Unless Waiver Is Clear, Unequivocal And Deliberate (NY)
Where a party has a contractual obligation to procure a certain amount of commercial general liability insurance coverage, does the acceptance of a certificate of insurance constitute as a waiver of the insurance procurement provision if the party failed to procure the agreed-upon amount of coverage? According to the Appellate Division, First Department, the answer is no.
In Benedetto v. Hyatt Corporation, 2022 WL 773978 (1st Dep’t 2022), a security guard was injured and brought a personal injury action against a hotel (“Plaintiff-Respondent”). Subsequently, Plaintiff-Respondent brought a third-party breach of contract claim against the security guard’s employer (“Defendant-Appellant”). The subject contract required Defendant-Appellant to acquire $3 million worth of commercial general liability insurance coverage. However, instead of procuring $3 million worth of commercial general liability insurance coverage, Defendant-Appellant obtained $2 million worth of commercial general liability insurance coverage and $1 million worth of umbrella liability coverage. As such, Plaintiff-Respondent moved for summary judgment for breach of contract. The Supreme Court, County of New York granted Plaintiff-Respondent’s summary judgment motion and Defendant-Appellant appealed.
During the appeal, Defendant-Appellant argued that Plaintiff-Respondent waived the insurance procurement provision in the subject contract because Plaintiff-Respondent accepted Defendant-Appellant’s certificates of insurance even though the certificates did not reflect the agreed-upon $3 million worth of commercial general liability insurance coverage. However, the First Department noted that, by definition, a waiver is the intentional relinquishment of a known right, and a waiver must be clear, unequivocal and deliberate. Accordingly, the First Department held that Defendant-Appellant failed to raise an issue of fact because Plaintiff-Respondent’s acceptance of the certificates of insurance merely constituted “mere silence” or, at most, “mistake, negligence or thoughtlessness,” but never amounted to any intentional act to relinquish a known right. Therefore, Supreme Court’s decision was affirmed as Plaintiff-Respondent did not waive the insurance procurement provision in the subject contract.
Thanks to Drew Fryhoff for his contribution to this article. Should you wish to discuss, please feel free to contact Tom Bracken.Read More
Always Read The Fine Print (PA)
In Apollo 1969 At Lloyds’s a/s/o Storage Development Inc. d/b/a Guardian Self-Storage v. Scalo Companies d/b/a Burns & Scalo Roofing, the United States District Court for the Western District of Pennsylvania ruled that a contractual arbitration clause was binding and enforceable where all parties involved had more than enough opportunities to review the contract and raise objections to its contents, but failed to do so.
This case arises from property damage caused by a water leak. Defendants Burns & Scalo completed roofing work at one of Storage Development Inc’s several Pittsburgh locations. Following a flood on the property, Storage Development Inc’s insurer, Apollo 1969 At Lloyd’s, paid for the damage. Apollo subsequently brought a subrogation claim against Burns & Scalo, seeking to recovery for breach of contract, negligence, and breach of warranty. Beyond arguing that the leak was caused by Storage Development Inc’s negligence, Burns & Scalo filed a motion to dismiss this action, or in the alternative, stay this action and compel arbitration in accordance with the arbitration clause contained in the contract entered into between Storage Development Inc and Burns & Scalo. Despite Apollo arguing that the arbitration clause was both invalid and unconscionable, the court granted Burns & Scalo’s motion to compel arbitration.
The court focused its analysis of the validity of the arbitration provision on two key factors: (1) whether there was an objective intent to be bound by the arbitration clause, and (2) whether the arbitration clause was unconscionable.
As it concerns an intent to be bound, both “parties disagree as to what level of familiarity signatories must have with individual provisions in the contact.” Apollo argued that a signature is required on every single page of a contract in order for the contents of every page to be enforceable. However, the Court quickly rejected this argument. The Court noted that “under Pennsylvania law, ‘a promise on the second page of a document is binding upon a promisor who signs the first page.’” Moreover, in this particular contract, immediately above the signature line was an explicit warning that “by your signature below, you also agree to all of the other terms and general conditions of this proposal.” The Court noted that Apollo had ample opportunities to review each and every page of the contract, but failed to do so, as testified to in the depositions of Storage Development Inc’s President.
As it concerns unconscionability, Apollo’s argument that the contact was essentially a contract of adhesion was also shot down by the Court. Apollo attempt to argue that the contract was procedurally unconscionable because there was a lack of meaningful choice. The Court rejected this argument, citing the existence of many other roofing companies in Pittsburgh that Storage Development, Inc. could have contracted with. Apollo also argued that the contract was substantively unconscionable, because the terms of the contract itself were outrageously unfair. Again, the Court was not convinced, as the arbitration clause in the contract wholly aligned with the standards set by the Construction Industry Arbitration Rules of the American Arbitration Association.
The takeaway from this case is short and sweet: read the fine print. When you sign the last page of a long contract, be prepared to be bound by its entirety, especially the arbitration clause.
Thanks to Brian Zappala for his contribution to this post. Please contact Heather Aquino with any questions.Read More
Ambiguous Additional Insurance Provision Results In Denial Of Summary Judgment All Around (NY)
In Corter-Longwell v. Juliano, the New York Appellate Division evaluated a common commercial contract provision, in which a transportation company was responsible for naming its contract partner, a landfill operator, as an additional insured. The dispute arose as the contract was imprecise regarding this responsibility, and the parties disputed whether a subsidiary of the landfill operator was covered as an additional insured.
It has long been the law in New York that an ambiguous contract provision is subject to the court’s interpretation. The Juliano court applied reasoning from the First, Second, and Fourth Departments of the Appellate Division and held that a contract “cannot be interpreted as requiring the procurement of additional insured coverage unless such a requirement is expressly and specifically stated.”
Here, the contract did not mention any obligation for the transportation company to name the landfill operator as an additional insured on its employers’ liability, workers’ compensation, or excess coverage policies. The contract did require additional insured coverage on the commercial general liability and automobile liability policies, but these contract provisions named only the landfill parent company (not the subsidiary).
The court analyzed this ambiguity in the contract and denied the motions for summary judgment of both parties. It refused to hold as a matter of law that the above-referenced provisions provided (or failed to provide) coverage for the landfill’s subsidiary company, instead holding that the ambiguity was a matter of fact that required a trial. The parties could have avoided this ongoing litigation altogether if they had more specifically described the obligations of the respective parties in the contract.Thanks to Jason Laicha for his contribution to this article. If you have any questions, please contact Matthew Care.Read More
Timing is Everything!
In Synergy Contracting v. Fednat Insurance, Case Number 2D21-144 (Fla. 2d DCA December 10, 2021) the insured’s home suffered a covered loss. The insured contracted for repairs with, and assigned its policy benefits to, Synergy Contracting. A dispute arose, and Synergy sued Fednat for breach of contract. Fednat invoked the policy’s appraisal clause, timely paid the $3,795.62 appraisal award and asked the court to dismiss. Synergy argued that dismissal was improper because it was entitled to a statutory attorney’s fee award. The court agreed and did not dismiss.
Believing that payment ended the breach of contract claim, and that Synergy was wasting everyone’s time by dragging out the litigation; Fednat served a $100.00 proposal for settlement on Synergy. Fednat then moved for, and was granted, summary judgment finding that nothing was owed under the policy. Upon receiving summary judgment, Fednat moved for and was granted final judgment. With a final judgment in hand, Fednat sought, but was denied, a prevailing party fee award under its proposal for settlement.
Synergy appealed the final judgment, and Fednat appealed the denial of its motion for fees. Florida’s Second District Court of Appeal found that the timing of events was critical to its decision and that Fednat, in invoking the appraisal clause and paying the appraisal award after suit was filed, had, in effect, confessed judgment in favor of Synergy on the breach of contract action. The court also found that in insurance policy disputes, the insured’s right to a statutory fee award was part and partial of the insured’s damages and that the insurer’s post-suit payment did not moot the case. Finally, the court noted that while Fednat may ultimately have a “race to the courthouse” defense to Synergy’s fee claim, that defense did not warrant entry of final judgment for Fednat. Applying these findings to the case at hand, the court reversed the judgment in favor of Fednat and affirmed the denial of Fednat’s motion for fees.
Had Fednat invoked the policy’s appraisal clause pre-suit, Synergy’s lawsuit would have been stayed during the appraisal process, upon timely payment of the appraisal award, Synergy’s claim would have become moot, and Fednat would have been in a good position to argue that Synergy was not entitled to a statutory fee award. Unfortunately, that did not happen, and a $3,795.62 claim cost Fednat tens-of-thousands of dollars to litigate.
Timing really is everything!Thanks to Charles “Chip” George for his contribution to this post. Please contact Chip with any questions.Read More
Tick, Tick: Trial Court Reversed By Misapplying The Statute Of Limitations (NJ)
Venkateswaran v. Wilmers, 570101/2021 (1st Dep’t Oct. 1, 2021) concerned defendants’ appeal from an order denying their motion to dismiss the complaint as time-barred. The subject dispute arose when, in 2011, plaintiff contracted to purchase defendants’ cooperative apartment. One provision of the contract allegedly represented “sellers have not made any material alterations or additions to the unit without complying with all applicable law.” In 2018, the cooperative board discovered that defendants, sellers, were issued a permit in 1992 for plumbing work to the apartment, that the permit was still “open,” and required plaintiff, as current owner, to correct the condition. Consequently, plaintiff initiated the action alleging, inter alia, the misrepresentations in the contract of sale fraudulently induced him to purchase the unit.
Here, the basis of plaintiff’s action was the contract of sale, executed in 2011. Plaintiff alleged that the fraud arose exclusively from the representations made in the contract, rather than independent misrepresentations that were collateral or extraneous to the contract. Accordingly, courts do not apply the fraud statute of limitations “if the fraud allegation is only incidental to the claim asserted; otherwise fraud would be used as a means to litigate stale claims.” Powers Mercantile Corp. v. Feinberg, 109 A.D.2s 117, 120 (1985), aff’d 67 N.Y.2d 981 (1986).
The takeaway from Venkateswaran is relatively straightforward: when a suit is predicated on a breach of contract, the statute of limitations for breach of contract applies. Litigators should think carefully about the essence of the claim.
Thanks to John Amato for his contribution to this post. If you have any questions, please contact Matthew Care.Read More
A “Feigned Issue Of Fact” Not Sufficient To Defeat Summary Judgment (NY)
In Fonck v. City of New York, 2021 NY Slip Op 05693 (2021), while plaintiff was trying to retrieve his pliers, laying approximately five feet away from him, he allegedly tripped and fell on a concealed piece of pipe underneath plastic sheeting, causing him to fall and sustain injuries. The Supreme Court, Kings County had granted defendants’ motion for summary judgment dismissing plaintiff’s causes of action alleging violations of Labor Law §200 and §241(6), and common-law negligence. Upon appeal, the Second Department reversed with respect to common Law negligence and Labor Law §200 but affirmed the dismissal of the Labor Law §241(6).
With respect to his Labor Law §241(6), Second Department held that defendants established prima facie that 12 NYCRR 23-1.7(d) relating to slipping hazards, was inapplicable. Despite the affidavit of plaintiff’s foreman submitted describing the work as “wet and slippery due to recent rainfall,” plaintiff did not contend that the slipper condition was related to the accident. As such, plaintiff only raised a feigned issue of fact, and his affidavit contradicted his earlier deposition testimony submitted by defendants that his fall was caused by the concealment of the pipe.
So, despite the inconsistent testimonies submitted by both parties to be a “feigned issue of fact,” it was not enough to warrant dismissal of summary judgment. This case is a good example of a plaintiff attempting to muddy the waters and create a disputed material fact – but the Court determined that the “fact” was not material.Thanks to Gina Rodriguez for her contribution to this post. If you have any questions, please contact Matthew Care.Read More