Case Briefs

Multidistrict Order Criticizes Thousands of Silica Claims; Asbestos Litigation May Be Affected

More than 10,000 silicosis claims in Mississippi, Kentucky, Texas and Missouri have been consolidated in multidistrict litigation before Judge Janis Graham Jack in the Southern District of Texas. On June 30, 2005, Judge Jack wrote a lengthy opinion that addressed the frauds and abuses being committed by certain B-readers in the process of diagnosing silica claims. In re Silica Products Liability Litigation, MDL docket No. 03-1553 (S.D. Tex. July 1, 2005) (hereinafter 'Silica Litigation'). Judge Jack's reliability concerns relating to certain physicians, law firms and screening companies could have far-reaching implications in the mass tort context, specifically with regard to asbestos claims.

During Daubert hearings in the Silica Litigation, more than 9000 plaintiffs submitted fact sheets that included the names of approximately 8000 physicians. However, when this list was distilled to include only the names of physicians that diagnosed the plaintiffs with silicosis, only 12 doctors were still standing. Id. at 30. The same 12 physicians had diagnosed all 9000 plaintiffs with silicosis, based in whole or in part on so-called '1/0' B-reads. A 1/0 reading means that the B-reader sees a very small amount of scarring on the lungs; however, a 1/0 reading also means that other B-readers may see nothing at all. Judge Jack noted that the 12 physicians that diagnosed the 9000 plaintiffs had little connection with the plaintiffs; they were instead affiliated with a handful of law firms and mobile x-ray screening companies. Judge Jack found that '[t]his small cadre of non-treating physicians, financially beholden to lawyers and screening companies rather than to patients, managed to notice a disease missed by approximately 8000 other physicians ' most of whom had the significant advantage of speaking to, examining and treating the Plaintiffs.' Id. at 144-46, 148.

Judge Jack found that one possible explanation for the small number of doctors and large number of diagnoses was the fact that 'in every case involving a screening company, the diagnoses were essentially manufactured on an assembly line ' ' Id. Judge Jack characterized the assembly line as 'an ingenious method of grossly inflating the number of positive diagnoses,' but not an acceptable method for diagnosing silicosis. Judge Jack noted that medical histories, physical examinations and other testing were nonexistent or cursory. The doctors were told what to look for and then produced x-rays, B-reads and other data to support the desired result. Id.

Judge Jack's opinion not only found fault with the doctors making these diagnoses, she also implicated the law firms retaining the doctors and the screening companies employing them. Judge Jack stated that, '[i]f nothing else, this MDL illustrates the mess that results when lawyers practice medicine and doctors practice law. In almost all of these cases, one vital requirement for the diagnosis of silicosis ' the taking of occupational histories ' was performed absent medical oversight by the lawyers or their agents or contractors.' Id. Judge Jack found that the lawyers controlled the flow of information to both the doctors and the patients, stymieing the normal discourse between patient and physician.

Noting that silica litigation is booming despite the fact that government statistics show that the disease is rare and on the decline, Judge Jack concluded that the silicosis litigation epidemic 'is largely the result of misdiagnosis.' Id. at 116. Judge Jack stated that there was 'simply no rational medical explanation for the number of alleged diagnoses of silicosis in this MDL,' which ultimately led to her conclusion that 'truth and justice had very little to do with these diagnoses. ' Instead, these diagnoses were driven by neither health nor justice: they were manufactured for money.' Id. at 150. Judge Jack observed that the 'clear motivation' was to overwhelm the system in order to prevent examination of each individual claim, which would allow the plaintiffs' attorneys to extract mass settlements.

In addition to the sharp criticism noted above, Judge Jack's order granted a motion for sanctions against one plaintiff law firm and remanded most of the cases to state court for further proceedings.

Judge Jack's order establishes a high standard for future mass tort claims. It has had the immediate effect of prompting some silica defendants to file motions to compel the plaintiffs to come forward with legitimate medical evidence of their silica diagnoses. Indeed, Judge Jack's order not only casts doubt on every pending silicosis claim, it also could impact the landscape of asbestos litigation. Much asbestos litigation substantially mirrors silica litigation, involving asbestosis claims that are generated by mass screening techniques. Judge Jack noted in her order that the 'evidence of the unreliability of the B-reads performed for this MDL is matched by the evidence of the unreliability of B-reads in asbestos litigation.' Id. at 136. Although the ultimate impact of Judge Jack's ruling remains to be seen, it certainly provides defendants with additional support for challenging the relaxed legal and medical standards that plaintiffs' lawyers attempt to exploit in mass tort cases. It is hoped that both courts and prosecutors alike will be prompted by Judge Jack's findings to further explore frauds and abuses in asbestos and silica litigation and to hold those involved accountable for their actions.

Georgia Supreme Court Holds Federal Arbitration Act Is Pre-empted By the McCarran-Ferguson Act

The Georgia Supreme Court recently held that a Georgia statute barring the enforcement of arbitration clauses in insurance contracts trumped the Federal Arbitration Act ('FAA'). 9 U.S.C. '1, et seq. The court found that the McCarran-Ferguson Act ('MFA'), 15 U.S.C. '1012, which bars the implied pre-emption of state insurance laws, overrode the reach of the FAA. Love v. Money Tree, Inc., No. S04G1474 (Ga., June 6, 2005). In Love, a lender, The Money Tree, brought collection efforts against borrowers who had purchased automobile club memberships in connection with certain loans. The membership agreements included an arbitration clause. The Money Tree moved to compel arbitration, arguing that the dispute was governed by the FAA. The Georgia Court of Appeals ruled that automobile club memberships were not insurance and that the MFA did not preclude application of the FAA.

The Supreme Court of Georgia reversed, holding that the automobile club memberships constituted insurance. The court then addressed whether the FAA required the parties to submit their dispute to arbitration even though Georgia law provides that agreements to arbitrate disputes regarding 'contracts of insurance' are invalid. Off. Code Ga. Ann. '9-9-2(c)(3). While noting that the FAA's rule requiring the enforcement of arbitration provisions agreements pre-empts contrary state law, the court also recognized that the MFA prohibits the application of any federal statute that would 'invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance,' unless the federal law expressly so provides. 15 U.S.C. '1012. The FAA does not expressly apply to insurance contracts.

Thus, the court had to decide whether Off. Code Ga. Ann. '9-9-2(c)(3) was enacted for the 'purpose of regulating the business of insurance' and, if so, whether the application of the FAA would impair the state statute. In its discussion of the issue, the court noted that other courts had held that such state laws were enacted for the purpose of regulating insurance, that application of the FAA would impair those laws, and that the MFA precluded the FAA from pre-empting those state laws. The Love court agreed. Finally, the court stated that the issue of whether Georgia law forbids the arbitration of an insurance dispute is not an issue that goes to the merits of the parties' underlying dispute, but rather is an issue of arbitrability that may be decided by a court.

Late Reporting No Bar to Coverage under Claims Made and Reported Policy

In Root v. American Equity Specialty Insurance Co., 2005 Cal. App. LEXIS 1025 (Cal. Ct. App. June 28, 2005), a California court of appeal addressed coverage for a lawyer who was 'late' in reporting a claim under a malpractice policy. The policy stated that it applied with respect to claims first made against the insured and reported in writing to the company while the policy is in force. It also provided that if the insured became aware during the policy period of acts that could reasonably be expected to form a basis of the claim and gave notice during the period, then a claim subsequently made will be deemed made as of the date of the notice. Finally, the policy defined a claim to mean 'a demand, including service of suit or institution of arbitration proceedings, for money against an Insured.'

On Feb. 25, 1999, a former client filed a malpractice suit. That same day, a reporter contacted the attorney and asked about the filing of the suit. The attorney thought the call was a 'possible prank' and regarded it as nothing more than 'hearsay regarding the potential claim.' On Feb. 28, the existing policy expired. On March 2, the attorney read an article in a legal journal describing the lawsuit and immediately notified the carrier. The carrier denied coverage because the claim had not been reported during the policy period. The court of appeal reversed the judgment in favor of the carrier. It noted that the case involves 'one of the worst nightmares faced by most every attorney, doctor, accountant or other professional covered by a malpractice insurance policy: the possibility of no malpractice coverage under a 'claims made and reported' policy where a claim is made very late in the policy period and the insured learns of the claim under highly ambiguous circumstances, so the claim is not reported until there is confirmation of that claim, which is shortly after the policy has expired.' Id. at *1. The court rejected the carrier's argument for two reasons. First, it addressed whether a 'claim' was made against the attorney, given that the suit was filed, but not served, before the expiration of the policy. The court concluded that a claim was made. It explained: 'The definition of claim in the policy is ambiguously open-ended. The policy doesn't say that the mere filing of a suit is not a claim. It merely says that a claim is a demand for money. But a suit, even an unserved suit, easily fits several of the definitions of 'demand' as an ordinary person might think of the word demand. … Thus reasonable insureds might very well deduce that the mere filing of a suit against them, even without their knowledge, is a 'claim' under the policy. Id. at *10-11. The court then concluded that 'there could be a situation in which an insured might have two 'claims' against him or her based on just one malpractice suit. … ' Id. at *11. It held: '[I]t is the insurer, not the insured, who must bear the cost of that ambiguity.' The court further held: 'The point is, given the ambiguity in the word 'claim,' the word must be given an interpretation which favors the insured on both sides of the policy period divide, lest the insured be trapped by competing, but mutually exclusive, reporting triggers. … ' Id. at *13. Second, the court held that the policy's reporting position, which is characterized as a condition to coverage, should not be applied to bar coverage on the facts before it. It noted that 'California's common law of contracts has traditionally allowed for the equitable excusal or remediation of non-occurrence of conditions precedent in contracts when such non-occurrence works a forfeiture.' Id. at *26. The court based its conclusion on the fact that the policy described the reporting provision as a 'condition precedent' and because 'the commercial reality behind the reporting requirement provides ample proof that it is, fundamentally, a condition.' The court then cited an earlier California Supreme Court decision, in which that court held: 'Forfeitures, however, are not favored; hence a contract, and conditions in a contract, will if possible be construed to avoid forfeiture. This is particularly true of insurance contracts. And where … the condition is express and cannot be avoided by construction, the court may, in a proper case, excuse compliance with it or give equitable relief against its enforcement.' Id. at *32 (quoting O'Morrow v. Borad, 27 Cal. 2d 794, 800 (1946) (citations omitted)). The court explained: 'Equities vary with the peculiar facts of each case. Sometimes ' indeed most of the time ' it will not be equitable to excuse the non-occurrence of the condition, so it is not excused. Granted, the factually intense nature of the inquiry may make summary judgment more difficult for insurers to obtain in certain cases … , but that is a result that comes with California's common law rule that conditions can be excused if equity requires it.' Id. at *45. Therefore, based on the facts before it, the court concluded that 'it would be 'most inequitable' to enforce the condition precedent of a report during the policy period.' Id. at *46.

Jack Gerstein and Meredith Werner of Ross, Dixon & Bell, Lewis E. Hassett and Kristin B. Zimmerman of Morris, Manning & Martin, LLP and Kirk A. Pasich of Dickstein Shapiro Morin & Oshinsky contributed this month's case briefs.

Multidistrict Order Criticizes Thousands of Silica Claims; Asbestos Litigation May Be Affected

More than 10,000 silicosis claims in Mississippi, Kentucky, Texas and Missouri have been consolidated in multidistrict litigation before Judge Janis Graham Jack in the Southern District of Texas. On June 30, 2005, Judge Jack wrote a lengthy opinion that addressed the frauds and abuses being committed by certain B-readers in the process of diagnosing silica claims. In re Silica Products Liability Litigation, MDL docket No. 03-1553 (S.D. Tex. July 1, 2005) (hereinafter 'Silica Litigation'). Judge Jack's reliability concerns relating to certain physicians, law firms and screening companies could have far-reaching implications in the mass tort context, specifically with regard to asbestos claims.

During Daubert hearings in the Silica Litigation, more than 9000 plaintiffs submitted fact sheets that included the names of approximately 8000 physicians. However, when this list was distilled to include only the names of physicians that diagnosed the plaintiffs with silicosis, only 12 doctors were still standing. Id. at 30. The same 12 physicians had diagnosed all 9000 plaintiffs with silicosis, based in whole or in part on so-called '1/0' B-reads. A 1/0 reading means that the B-reader sees a very small amount of scarring on the lungs; however, a 1/0 reading also means that other B-readers may see nothing at all. Judge Jack noted that the 12 physicians that diagnosed the 9000 plaintiffs had little connection with the plaintiffs; they were instead affiliated with a handful of law firms and mobile x-ray screening companies. Judge Jack found that '[t]his small cadre of non-treating physicians, financially beholden to lawyers and screening companies rather than to patients, managed to notice a disease missed by approximately 8000 other physicians ' most of whom had the significant advantage of speaking to, examining and treating the Plaintiffs.' Id. at 144-46, 148.

Judge Jack found that one possible explanation for the small number of doctors and large number of diagnoses was the fact that 'in every case involving a screening company, the diagnoses were essentially manufactured on an assembly line ' ' Id. Judge Jack characterized the assembly line as 'an ingenious method of grossly inflating the number of positive diagnoses,' but not an acceptable method for diagnosing silicosis. Judge Jack noted that medical histories, physical examinations and other testing were nonexistent or cursory. The doctors were told what to look for and then produced x-rays, B-reads and other data to support the desired result. Id.

Judge Jack's opinion not only found fault with the doctors making these diagnoses, she also implicated the law firms retaining the doctors and the screening companies employing them. Judge Jack stated that, '[i]f nothing else, this MDL illustrates the mess that results when lawyers practice medicine and doctors practice law. In almost all of these cases, one vital requirement for the diagnosis of silicosis ' the taking of occupational histories ' was performed absent medical oversight by the lawyers or their agents or contractors.' Id. Judge Jack found that the lawyers controlled the flow of information to both the doctors and the patients, stymieing the normal discourse between patient and physician.

Noting that silica litigation is booming despite the fact that government statistics show that the disease is rare and on the decline, Judge Jack concluded that the silicosis litigation epidemic 'is largely the result of misdiagnosis.' Id. at 116. Judge Jack stated that there was 'simply no rational medical explanation for the number of alleged diagnoses of silicosis in this MDL,' which ultimately led to her conclusion that 'truth and justice had very little to do with these diagnoses. ' Instead, these diagnoses were driven by neither health nor justice: they were manufactured for money.' Id. at 150. Judge Jack observed that the 'clear motivation' was to overwhelm the system in order to prevent examination of each individual claim, which would allow the plaintiffs' attorneys to extract mass settlements.

In addition to the sharp criticism noted above, Judge Jack's order granted a motion for sanctions against one plaintiff law firm and remanded most of the cases to state court for further proceedings.

Judge Jack's order establishes a high standard for future mass tort claims. It has had the immediate effect of prompting some silica defendants to file motions to compel the plaintiffs to come forward with legitimate medical evidence of their silica diagnoses. Indeed, Judge Jack's order not only casts doubt on every pending silicosis claim, it also could impact the landscape of asbestos litigation. Much asbestos litigation substantially mirrors silica litigation, involving asbestosis claims that are generated by mass screening techniques. Judge Jack noted in her order that the 'evidence of the unreliability of the B-reads performed for this MDL is matched by the evidence of the unreliability of B-reads in asbestos litigation.' Id. at 136. Although the ultimate impact of Judge Jack's ruling remains to be seen, it certainly provides defendants with additional support for challenging the relaxed legal and medical standards that plaintiffs' lawyers attempt to exploit in mass tort cases. It is hoped that both courts and prosecutors alike will be prompted by Judge Jack's findings to further explore frauds and abuses in asbestos and silica litigation and to hold those involved accountable for their actions.

Georgia Supreme Court Holds Federal Arbitration Act Is Pre-empted By the McCarran-Ferguson Act

The Georgia Supreme Court recently held that a Georgia statute barring the enforcement of arbitration clauses in insurance contracts trumped the Federal Arbitration Act ('FAA'). 9 U.S.C. '1, et seq. The court found that the McCarran-Ferguson Act ('MFA'), 15 U.S.C. '1012, which bars the implied pre-emption of state insurance laws, overrode the reach of the FAA. Love v. Money Tree, Inc., No. S04G1474 (Ga., June 6, 2005). In Love, a lender, The Money Tree, brought collection efforts against borrowers who had purchased automobile club memberships in connection with certain loans. The membership agreements included an arbitration clause. The Money Tree moved to compel arbitration, arguing that the dispute was governed by the FAA. The Georgia Court of Appeals ruled that automobile club memberships were not insurance and that the MFA did not preclude application of the FAA.

The Supreme Court of Georgia reversed, holding that the automobile club memberships constituted insurance. The court then addressed whether the FAA required the parties to submit their dispute to arbitration even though Georgia law provides that agreements to arbitrate disputes regarding 'contracts of insurance' are invalid. Off. Code Ga. Ann. '9-9-2(c)(3). While noting that the FAA's rule requiring the enforcement of arbitration provisions agreements pre-empts contrary state law, the court also recognized that the MFA prohibits the application of any federal statute that would 'invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance,' unless the federal law expressly so provides. 15 U.S.C. '1012. The FAA does not expressly apply to insurance contracts.

Thus, the court had to decide whether Off. Code Ga. Ann. '9-9-2(c)(3) was enacted for the 'purpose of regulating the business of insurance' and, if so, whether the application of the FAA would impair the state statute. In its discussion of the issue, the court noted that other courts had held that such state laws were enacted for the purpose of regulating insurance, that application of the FAA would impair those laws, and that the MFA precluded the FAA from pre-empting those state laws. The Love court agreed. Finally, the court stated that the issue of whether Georgia law forbids the arbitration of an insurance dispute is not an issue that goes to the merits of the parties' underlying dispute, but rather is an issue of arbitrability that may be decided by a court.

Late Reporting No Bar to Coverage under Claims Made and Reported Policy

In Root v. American Equity Specialty Insurance Co., 2005 Cal. App. LEXIS 1025 (Cal. Ct. App. June 28, 2005), a California court of appeal addressed coverage for a lawyer who was 'late' in reporting a claim under a malpractice policy. The policy stated that it applied with respect to claims first made against the insured and reported in writing to the company while the policy is in force. It also provided that if the insured became aware during the policy period of acts that could reasonably be expected to form a basis of the claim and gave notice during the period, then a claim subsequently made will be deemed made as of the date of the notice. Finally, the policy defined a claim to mean 'a demand, including service of suit or institution of arbitration proceedings, for money against an Insured.'

On Feb. 25, 1999, a former client filed a malpractice suit. That same day, a reporter contacted the attorney and asked about the filing of the suit. The attorney thought the call was a 'possible prank' and regarded it as nothing more than 'hearsay regarding the potential claim.' On Feb. 28, the existing policy expired. On March 2, the attorney read an article in a legal journal describing the lawsuit and immediately notified the carrier. The carrier denied coverage because the claim had not been reported during the policy period. The court of appeal reversed the judgment in favor of the carrier. It noted that the case involves 'one of the worst nightmares faced by most every attorney, doctor, accountant or other professional covered by a malpractice insurance policy: the possibility of no malpractice coverage under a 'claims made and reported' policy where a claim is made very late in the policy period and the insured learns of the claim under highly ambiguous circumstances, so the claim is not reported until there is confirmation of that claim, which is shortly after the policy has expired.' Id. at *1. The court rejected the carrier's argument for two reasons. First, it addressed whether a 'claim' was made against the attorney, given that the suit was filed, but not served, before the expiration of the policy. The court concluded that a claim was made. It explained: 'The definition of claim in the policy is ambiguously open-ended. The policy doesn't say that the mere filing of a suit is not a claim. It merely says that a claim is a demand for money. But a suit, even an unserved suit, easily fits several of the definitions of 'demand' as an ordinary person might think of the word demand. … Thus reasonable insureds might very well deduce that the mere filing of a suit against them, even without their knowledge, is a 'claim' under the policy. Id. at *10-11. The court then concluded that 'there could be a situation in which an insured might have two 'claims' against him or her based on just one malpractice suit. … ' Id. at *11. It held: '[I]t is the insurer, not the insured, who must bear the cost of that ambiguity.' The court further held: 'The point is, given the ambiguity in the word 'claim,' the word must be given an interpretation which favors the insured on both sides of the policy period divide, lest the insured be trapped by competing, but mutually exclusive, reporting triggers. … ' Id. at *13. Second, the court held that the policy's reporting position, which is characterized as a condition to coverage, should not be applied to bar coverage on the facts before it. It noted that 'California's common law of contracts has traditionally allowed for the equitable excusal or remediation of non-occurrence of conditions precedent in contracts when such non-occurrence works a forfeiture.' Id. at *26. The court based its conclusion on the fact that the policy described the reporting provision as a 'condition precedent' and because 'the commercial reality behind the reporting requirement provides ample proof that it is, fundamentally, a condition.' The court then cited an earlier California Supreme Court decision, in which that court held: 'Forfeitures, however, are not favored; hence a contract, and conditions in a contract, will if possible be construed to avoid forfeiture. This is particularly true of insurance contracts. And where … the condition is express and cannot be avoided by construction, the court may, in a proper case, excuse compliance with it or give equitable relief against its enforcement.' Id. at *32 (quoting O'Morrow v. Borad , 27 Cal. 2d 794, 800 (1946) (citations omitted)). The court explained: 'Equities vary with the peculiar facts of each case. Sometimes ' indeed most of the time ' it will not be equitable to excuse the non-occurrence of the condition, so it is not excused. Granted, the factually intense nature of the inquiry may make summary judgment more difficult for insurers to obtain in certain cases … , but that is a result that comes with California's common law rule that conditions can be excused if equity requires it.' Id. at *45. Therefore, based on the facts before it, the court concluded that 'it would be 'most inequitable' to enforce the condition precedent of a report during the policy period.' Id. at *46.

Jack Gerstein and Meredith Werner of Ross, Dixon & Bell, Lewis E. Hassett and Kristin B. Zimmerman of Morris, Manning & Martin, LLP and Kirk A. Pasich of Dickstein Shapiro Morin & Oshinsky contributed this month's case briefs.