All posts by Marc Zimet

In today’s connected society, it’s difficult to escape the necessity of joining the world of social media networking. For attorneys, social media may provide fast, easy, and economical means of reaching clients and potential clients and advertising their services. “Victory in court today! Contact me for a free consultation,” and “Just won a million dollar verdict! Tell your friends to check me out,” are examples of common social media postings utilized by attorneys to spread the word of their success and appeal to clients. But are such postings subject to the Rules of Professional Conduct regarding advertising? This was the issue recently decided by The State Bar of California Standing Committee on Professional Responsibility and Conduct.

The Rules of Professional Conduct and the Business and Professions Code place numerous requirements and restrictions on attorney advertisements and communications. Rule 1-400 of the Rules of Professional Conduct entitled “Advertising and Solicitation” provides detailed requirements with which attorney advertising must comply. However, despite its title, it speaks in terms of “communications” rather than specifically “advertisements.” The rule defines a “communication” as “any message or offer made…for professional employment…directed to any former, present, or prospective client.” Furthermore, the Business and Professions Code defines an advertisement as any “communication…that solicits employment of legal services.” Therefore, when it comes to social media postings, because such postings are technically communications, they must be carefully analyzed to ensure that the rules are complied with. Despite the fact that these rules do not specifically refer to Facebook or Twitter postings, “there is little doubt that the restrictions [of the rules] indeed apply to computer-based communications.” (The State Bar of California Standing Committee on Professional Responsibility and Conduct, Formal Opinion no. 2012-186.) In light of the foregoing, it was determined by the Standing Committee that the real issue when determining whether a Facebook or Twitter posting constitutes a communication within the meaning of the rules is whether the statement “concern[s] the availability of professional employment” of an attorney. (Rule 1-400(A).)

For example, a Facebook posting stating, “Case finally won! Celebrating tonight,” does not seek employment by the attorney. Whatever the attorney’s subjective intent when making the statement, it does not constitute a communication for purposes of the rules. In contrast, the statement “Victory in court today! My client is delighted. Contact me for a free consultation,” suggests the availability of professional employment and is therefore subject to the rules. This statement furthermore violates Rule 1-400(E), Standard 2 by containing a client testimonial (“[m]y client is delighted!”) without an express disclaimer.

Any social media posting that seeks professional employment and is therefore subject to the rules must comply with the advertising requirements that apply to such communications. Rule 1-400, Standard 5 requires that the communication bears the word “advertisement” or “newsletter”, or other words to that effect. Additionally, any such communication must be retained by the attorney for two years; this rule has been specifically extended to include “electronic media” by Rule 1-400(F).

While the social media outlets may provide personalized, informal contact with friends and business contacts, it should be remembered by all attorneys that the informal arena does not relieve the attorney of his or her ethical obligations. So, before you press “send” on your tweet, don’t forget to check your statements to ensure they are in compliance with the Rules of Professional Conduct.

*This was originally posted on May 7 on Jampol Zimet LLP’s Insurance Defense Blog. Read the original post here.

Categories: Insurance Law | Social Media

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When an insurer sues for rescission, the insured is generally responsible for omissions and misrepresentations on insurance applications. That being said, when a third party brokers the deal between the insurer and the insured, he too is potentially liable. A recent District Court case out of Northern California case illustrates how a broker can be held liable to the insured for those same omissions and misrepresentations in rescission actions.

In James River Ins. Co. v. DCMI, Inc., 2012 WL 2873763 (N.D. Cal. July 12, 2012), James River Insurance Company brought suit against DCMI, a construction contractor, to rescind the insurance contract taken out. The insurer alleged that DCMI made material omissions and/or misrepresentations about prior claims or threatened litigation against them. DCMI, who used a broker, Powers & Company, to find James River Insurance Company, argued that they were not responsible for the omissions.

DCMI cross-filed to include Powers & Company as a defendant in the suit. Powers & Company filed out the insurance application on behalf of DCMI. DCMI alleged that in doing so the broker neglected to explain material terms and used a pre-filled form. The cross-filing complained of breach of contract, negligence, and breach of duty. Powers & Company moved to dismiss the suit against them for a failure to state a claim regarding all three counts. The trial court denied the motion in relevant part.

The court held that the breach of contract and negligence cause of actions were proper. In doing so, the court explained that under California law, an insurance broker has the general duties found in any agency relationship. This includes the duty to use reasonable care, diligence, and judgment in procuring the requested insurance coverage. Failing to properly fill out an application and explain material terms is a breach of said duty—a breach that can be an element within either cause of action.

In ruling on the first claim, the court held that the use of a pre-filed form and then failing to explain key terms to a client could amount to breach of contract in a broker-relationship. The court explained that a breach of contract claim requires the showing of four elements: (1) the existence of a contract; (2) the plaintiff’s performance under the contract; (3) that the defendant breached the contract; and (4) the breach resulted in damage to the plaintiff. DCMI’s allegation of an arrangement and then the incorrectly completion of the forms was enough to survive a motion to dismiss.

On the second claim, the court held that although an insured bears the responsibility of omissions in application as to an insurer, the broker can still be liable to the insured. A negligence claim requires the showing of three elements: (1) breach of duty; (2) causation; and (3) damages. The court acknowledged that when an insurer seeks to rescind the insured bears the responsibility of the application. However, the court explained that nothing prevents the insured from then recovering from the broker where the broker is liable. In this case, the use of a pre-filled application and then failing to explain key terms could amount to negligence.

This case is significant because it shows just how far insurance broker liability can go. Even where the law already holds the insured responsible for rescission actions, a broker may be joined to the suit for his own negligence or breach arising out of the contract.

This was originally posted on the Jampol Zimet LLP’s Insurance Defense blog. Read the original post here.

Categories: Insurance Industry

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The Zhang case is a dispute following a fire at the plaintiff’s commercial property wherein the uninsured Zhang accuses the defendant-insurer of misconduct. The first two actions in the plaintiff’s complaint consist of 88 paragraphs arguing common law allegations of misconduct by the insurance company. Then, in her third cause of action, the plaintiff incorporates these paragraphs and alleges that the defendant engaged in false advertising. That last allegation starts the case down its controversial path.

The Zhang trial court sustained the insurer’s demurrer on the grounds that an earlier Court of Appeal case, Trexton Financial Corp. v. National Union Fire Insurance Company of Pittsburgh, precluded suit under Insurance Code section 790.03 (a.k.a. Fair Claims Handling Act, FCHA). On review, the appellate court disapproved of the Textron holding and held that the allegations of false advertising permitted suit under the Business and Professions Code section 17200 et seq (a.k.a. Unfair Competition Law, UCL).

To address the appellate court’s ruling in Zhang and the difference between it and Textron, we need to understand the current law. The UCL is a set of statutory codes that allow private persons to sue businesses for five types of conduct: (1) an unlawful business practice; (2) an unfair business practice; (3) a fraudulent business act (4) unfair, deceptive, untrue or misleading advertising; or (5) other acts prohibited by later sections of the code. Insurance companies are businesses within this law. A UCL cause of action requires some “predicate” violation, meaning that the plaintiff must complain of some conduct by a business-defendant in order to bring the claim.

As for the FCHA, it too is a set of statutory codes and it too sets out to stop unfair business practices; acts such as disseminating false insurance statements, making false entries into insurance reports, improperly disclosing private financial information. Unlike the UCL, the Legislature wrote the FCHA to apply specifically to insurance companies—almost exhaustively. The California Supreme Court previously ruled in Moradi-Shalal v. Fireman’s Fund Insurance Companies that private plaintiffs cannot bring actions under FCHA. The Supreme Court has not held the same when it comes to the UCL. And that is the issue at the heart of Zhang when it comes before the supreme court this year.

Like in Zhang, in Textron, the plaintiff also alleged that the insurer engaged in misconduct that violated the FCHA and brought a UCL claim. The Textron appellate court upheld the defendant’s demurrer dismissing the case and pointed out that the conduct the plaintiff complained of was similar to the conduct covered by the FCHA and therefore the plaintiff could not bring a private cause of action. The appellate court in Textron held that, because in Moradi-Shalal the Supreme Court held that FCHA does not allow a private cause of action, FCHA violations cannot be the predicate violation for a UCL claim.

The differences between Textron and the appellate decision in Zhang is FCHA violations can serve as the predicate for a UCL cause of action. Textron unequivocally disfavored such a practice, holding that a plaintiff cannot use the UCL to avoid the Moradi holding. Zhang is holding otherwise. In Zhang, the UCL claim remained even though it was an FCHA violation. Now that we have two courts of equal standing handing down opposite rulings, the California Supreme Court must make a ruling to determine which way the law goes.

There is no evidence to suggest that the California Supreme Court will alter Moradi as to the holding denying a private right of action for violations of the FCHA. However, good public policy indicates that the Zhang approach—allowing UCL claims for FCHA violations—is the right approach. As a general matter, the UCL acts to empower private citizens to enforce fair business practices when the attorney general cannot or chooses not to do so. By extending the right to cover citizens aggrieved by insurance companies, the system can better protect those that are wronged. Moreover, because a successful plaintiff recovers restitution and not damages, the results will be equitable. Essentially, private citizens will be able to file claims to force an insurer to comply with the FCHA and then recover any money or property wrongfully taken.

Posted on January 21, 2013 by jampolzimetlaw

Categories: Defense Practice | Insurance Industry | Insurance Law | Professional Liability

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On December 13, 2012, the Court of Appeals for the First District filed its opinion in Beacon Residential Community Association v. Skidmore, Owings & Merrill LLP et al. (No. A134542.) The decision is bad news for architects and other design professionals since it holds they can be held liable in negligence to third party purchasers under both the common law and Senate Bill 800.

Skidmore, Owings & Merrill LLP (SOM) and HKS Architects (HKS) provided architectural and engineering services for the Beacon Residential Condominiums, a 595 unit development in San Francisco. Alleged construction defects caused problems with water infiltration, inadequate fire separations, structural cracks, and other life safety hazards. SOM and HKS demurred to claims for negligence and statutory negligence. The trial court granted the demurrer, reasoning that design professionals owe no duty of care to condominium associations or residents if the owner retains final decision-making power over the design. Plaintiffs appealed.

The court of appeals reversed, finding that design professionals do, under some circumstances, owe a duty of care to third party purchasers and residents even when they do not have control. The Court viewed the issue as “not whether a design professional owes a duty of care to purchasers but the scope of that duty.” It applied the six policy factors from Biakanja to assess the scope of that duty: 1) extent to which the transaction was intended to affect the plaintiff, 2) foreseeability of harm to the plaintiff, 3) degree of certainty that the plaintiff suffered injury, 4) closeness of connection between defendant’s conduct and the injury suffered, 5) the moral blame attached to defendant’s conduct, and 6) the policy of preventing future harm.

The contract between HKS and the developer contained a clause intended to limit HKS’s liability. Ironically, the court used this clause as evidence that HKS and the other defendant were “more than well aware that future homeowners would necessarily be affected by the work that they performed.” The court noted other facts that grounded their analysis. The defects posed a serious risk of harm to people or property. The plaintiffs were purchasers/owners and not merely investors. Due to the numerous cross-complaints filed among the approximately 40 defendants named in the action, it was unlikely that the design professionals would bear liability out of proportion to their fault. SOM and HKS were allegedly paid over $5,000,000 for their work on the project, a factor speaking to proportional liability as well.

The court further reasoned that the Legislature sets public policy and that the legislative intent of Senate Bill 800 (enacted in 2000 as the Right to Repair Act), was clear that design professionals are liable to third parties for negligence. This reasoning served to show that the sixth factor of Biakanja was met, for a common law analysis. However, the court noted further that “To the extent that a Biakanja/Bily policy analysis is not otherwise dispositive of the scope of duty owed by a design professional to a homeowner/buyer, Senate Bill No. 800 is.” This sentence implies that even if a design professional is not liable under the common law, they are liable under the statute. As the court noted, this decision will have an impact on the cost of housing. It also will likely have an impact on the cost of professional liability insurance for design professionals who work on residential developments. It will be interesting to see whether SOM and HKS appeal to the Supreme Court of California.

This was originally posted on January 3 on Jampol Zimet blog. Check out the original post here.

Categories: Court of Appeals | State Supreme Court

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As the California Judicial Branch budget crisis deepens, more and more cases will be resolved in mediation rather than in the courtroom. Meanwhile, the rules regarding mediation confidentiality are under close scrutiny. Currently, lawyers who commit malpractice during mediation are protected by strict confidentiality statues. Under Evidence Code sections 1119 and 1126, all oral and written communications made in connection with a mediation or mediation consultation generally are absolutely inadmissible and protected from discovery in subsequent civil actions or other noncriminal proceedings, including claims of legal malpractice. Earlier this year, a bill was introduced in the state Assembly that would have created an exception allowing the admission of such evidence in legal malpractice cases.

In February of 2012, Assembly Bill 2025 (AB 2025) was introduced in response to a 2011 California Supreme Court decision in the case of Cassell v. Sup. Ct. (Wasserman, Comden, Casselman & Pearson, L.L.P.) In Cassell, the appellant had sued his attorneys for malpractice, claiming they improperly pressured him to accept an inadequate settlement during mediation. The Court upheld the lower court’s decision to exclude evidence of communications between the appellant and the attorneys, reasoning that mediation confidentiality covered all oral or written communications made for the purpose of or pursuant to mediation, even if their application would preclude a client from seeking redress for attorney malpractice.

As introduced, Assembly Bill 2025 would have added an exception excluding from protection “communications directly between the client and his or her attorney during mediation if professional negligence or misconduct forms the basis of the client’s allegations against the attorney.” However, there was much opposition to the bill, which was ultimately withdrawn and replaced in June with another version of 2025 which sent the question to the California Law Revision Commission (CLRC) for study. (As of this writing, the CLRC website does not list “mediation confidentiality” as an active topic of study, but it is clearly “on deck”.)

In August of 2012, our own Second Appellate District, Division Eight, handed down an unpublished opinion in Hadley v. The Cochran Firm (B233093). The Cochran Firm represented Hadley and seven other plaintiffs in a racial discrimination case against their employer. The case was apparently settled at mediation; however, the plaintiffs allege that The Cochran Firm induced them to sign a fake confidentiality agreement at the mediation, later fraudulently appending the signature sheet to a settlement agreement that the plaintiffs had not seen. The Court cited Evidence Code 1119 and Cassell, finding that “mediation confidentiality provisions are clear and absolute.” Even in the face of the egregious facts alleged in Hadley, the notion that “what happens in mediation, stays in mediation,” has held firm. However, change may be afoot as this issue has already captured the attention of the Legislature, which is awaiting the results of the CLRC study. Change is not likely to come quickly, but stay tuned, because when it comes it could be a game-changer with the potential to expose attorneys to liability for their communications during mediation, just as there is more pressure than ever to mediate rather than litigate.

Jampol Zimet LLP - Insurance Defense Blog originally posted this entry on December 3, 2012. Click here to read.

Categories: Appellate Advocacy

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When Do The Rules of Professional Conduct Apply to Social Media Postings?

James River Ins. Co. v. DCMI, Inc. — Broker Liability in Rescission Actions

A Change in the Insurance Winds–An appellate district split threatens to broaden liability for insurers

Design Professionals Owe a Duty of Care to Third Party Purchasers of Residential Buildings

Potential Expansion of Legal Malpractice Claims Circumventing the Mediation Privilege

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