California Adopts “Sophisticated Intermediary” Defense

By on May 25, 2016

Earlier this week, the California Supreme Court formally adopted the “sophisticated intermediary” defense for product suppliers. The court significantly restricted applicability of the defense, however, and ruled that there was insufficient evidence in this case that Johns-Manville qualified as such an intermediary.

5-24Webb v. Special Electric Co., Inc. articulated the defense as follows: “a [product] supplier may discharge its duty to warn end users about known or knowable risks in the use of its product if it: (1) provides adequate warnings to the product’s immediate purchaser, or sells to a sophisticated purchaser that it knows is aware or should be aware of the specific danger, and (2) reasonably relies on the purchaser to convey appropriate warnings to downstream users who will encounter the product.”

Perhaps the most significant hurdle to use of the defense in the future is the requirement that “a product supplier must show not only that it warned or sold to a knowledgeable intermediary, but also that it actually and reasonably relied on the intermediary to convey warnings to end users.”

The challenge posed by that requirement was exemplified here, where the Supreme Court ruled that Special Electric, a 2-person broker of raw crocidolite asbestos, had a duty to warn asbestos behemoth Johns-Manville and the downstream users of Johns-Manville products that incorporated Special Electric-brokered raw material. In part, this reflected a welcome understanding about the divergent toxicities of the different minerals classified together as asbestos. “Although the record clearly shows Johns-Manville was aware of the risks of asbestos in general, no evidence established it knew about the particularly acute risks posed by the crocidolite asbestos Special Electric supplied.”

Webb identified four other reasons why the evidence did not justify the trial court’s decision to grant a defense JNOV in the face of a jury verdict finding negligence.

  1. “The evidence is disputed about whether Special Electric consistently provided warnings to Johns-Manville during the relevant time frame.” Note that it is not just “warnings,” but “consistent warnings.”
  2. “[P]laintiffs presented evidence that at least one Special Electric salesperson told customers crocidolite was safer than other types of asbestos fiber, when the opposite was true. If the jury credited this evidence, it may have found it unreasonable for Special Electric to believe Johns-Manville was so sophisticated that a warning about the particular dangers of crocidolite asbestos was not called for.”
  3. Further, “the record does not establish as a matter of law that Special Electric actually and reasonably relied on Johns-Manville to warn end users like William Webb about the dangers of asbestos. We recognize that direct proof of actual reliance may be difficult to obtain when, as in the case of latent disease, the material was supplied to an intermediary long ago. However, actual reliance is an inference the factfinder should be able to draw from circumstantial evidence about the parties’ dealings.”
  4. “[T]he jury could have reasonably determined that any reliance on Johns-Manville would have been unjustified. Plaintiffs presented testimony from a former Johns-Manville employee criticizing the company’s handling of asbestos warnings and asserting it had failed to warn its own workers about the hazards of asbestos before the mid-1970s.”

While this evidence may be slim, it was enough to support the jury’s finding of negligence and thus to overrule the trial court’s grant of JNOV to the defense. The evidence in the case may also have been sufficient to support a jury finding that Special Electric was entitled to rely on the sophisticated intermediary defense, but the issue was presented only to the court and not to the jury.

Webb overruled an earlier Court of Appeal decision that had rejected the sophisticated intermediary defense on the rationale that “that doctrine, where it applies at all, applies only if a manufacturer provided adequate warnings to the intermediary.” Webb ruled that “[t]his assertion cannot be reconciled with our analysis in Johnson [v. American Standard, the key California “sophisticated user” decision].… Insofar as it expresses a different view, Stewart v. Union Carbide Corp. … is disapproved.” So in at least some cases a defendant that provides no warnings can rely on the sophisticated intermediary defense.

A footnote that is off the main point is nevertheless a troubling sign for product liability defendants, because it appears to allow very speculative evidence about whether a plaintiff ever encountered a defendant’s product. “Plaintiffs introduced evidence that Webb was exposed to dust from Johns-Manville products containing trace amounts of crocidolite at roughly the same time Special Electric was supplying crocidolite asbestos to Johns-Manville. While evidence of the link could be stronger, it is nonetheless sufficient for the jury to have found that Special Electric’s asbestos was a substantial factor in causing Webb’s mesothelioma.” “[E]vidence of the link could be stronger” is an understatement. This footnote portends both an easier path for plaintiffs to “prove” exposure, and a court not willing to put much “substantial” in “substantial factor.”

Filed under Asbestos, California, Crocidolite, Sophisticated Intermediary, Substantial Factor

Ninth Circuit Rejects Plaintiffs’ “Every Exposure Counts” Theory

By on April 4, 2016

4-4A Ninth Circuit panel including former Chief Judge Kozinski last week rejected the “every exposure” theory advanced by many plaintiff expert witnesses, who thereby try to impose liability on defendants responsible for only vanishingly small amounts of asbestos.

McIndoe v. Huntington Ingalls Inc. framed the question in terms of the substantial factor test. “Absent direct evidence of causation, a party may satisfy the substantial-factor test by demonstrating that the injured person had substantial exposure to the relevant asbestos for a substantial period of time.” The Ninth Circuit found this evidence lacking, thereby justifying summary judgment to defendants.

At most the heirs have provided evidence that McIndoe was “frequently” present during the removal of insulation aboard the Worden and was present 20–30 times during such removal aboard the Coral Sea. But, as the district court found, even if McIndoe was around asbestos dust several times, his heirs presented no evidence regarding the amount of exposure to dust from originally installed asbestos, or critically, the duration of such exposure during any of these incidents.

Plaintiffs “argue[d] that evidence of prolonged exposure is not needed, because they presented the opinion of Dr. Allen Raybin—a medical expert who asserted that every exposure to asbestos above a threshold level is necessarily a substantial factor in the contraction of asbestos-related diseases.”

Both the Ninth Circuit and the district court rejected this argument on the ground that the “every exposure” theory of asbestos causation” amounts “to reject[ing] the substantial-factor test as a whole.” Plaintiffs’ expert “did not make distinctions between the overall dose of asbestos McIndoe breathed aboard the ships and that portion of such exposure which could be attributed to the shipbuilders’ materials,” and his “testimony aims more to establish a legal conclusion—what general level of asbestos exposure is required to show disease causation—than to establish the facts of McIndoe’s own injuries.” Thus, the defendant shipbuilders were entitled to summary judgment.

McIndoe was decided under federal maritime law, and so may not be directly applicable in state law cases. It joins a long list of cases that have rejected the every exposure theory, but interestingly comes mere weeks after a California appeals court allowed every exposure testimony. McIndoe’s emphasis on the amount and duration of exposure is consistent with most decisions on point, and may offer an additional reason for California defendants to seek to remove cases to federal court.

In another holding, McIndoe found that naval warships do not constitute “products,” so that only negligence and not strict liability was available to plaintiffs. Arguably the holding on required evidence of substantial factor causation would be the same under both theories.

Filed under Any Exposure, Asbestos, California, Every Exposure, Maritime, single fiber theory, Substantial Factor

California: Insurers Must Cover “Long Tail” Claims Regardless of Corporate Reorganization During Intervening Years

By on August 26, 2015

Many insurance policies contain provisions barring assignment of the insured’s rights without the insurer’s consent, which have been interpreted to include “assignments” via merger or corporate reorganization. Last week, in Fluor Corp. v. Superior Court (Hartford Accid. & Indem. Co.), the California Supreme Court ruled that such restrictions do not apply after the event triggering coverage has occurred. Instead, the law “bars an insurer from refusing to honor an insured’s assignment of policy coverage regarding injuries that predate the assignment.”

The decision is likely to have particular resonance in the environmental and toxic tort area. Many such claims are notoriously “long-tail” – the injuries do not manifest, or clean-up responsibilities do not mature, until decades after the “occurrence” of exposure, with more time, and often more reason, for corporate reorganization. The California decision follows a recent New Jersey decision to the same effect, and both states are venues for many environmental and toxic tort claims.

The California Supreme Court held that this result was compelled by a little-known statute. “An agreement not to transfer the claim of the insured against the insurer after a loss has happened, is void if made before the loss.” (Ins. Code, § 520.) “Under that provision, after personal injury (or property damage) resulting in loss occurs within the time limits of the policy, an insurer is precluded from refusing to honor an insured’s assignment of the right to invoke defense or indemnification coverage regarding that loss. This result obtains even without consent by the insurer — and even though the dollar amount of the loss remains unknown or undetermined until established later by a judgment or approved settlement.”

The decision distinguished assignments of policy rights before and after the triggering event, which it somewhat imprecisely referred to as the difference between assigning a risk and assigning a loss. “The insurer has a right to know, and an interest in knowing, for whom he stands as insurer. He may be willing to insure one person and unwilling to insure another … But these considerations have no application to the assignee of [a claim for coverage under] the policy, for it makes no difference to the insurer to whom he pays the insurance in case of a loss.” A “postloss assignment generally does not ‘increase the risk to the insurer associated with an undesirable assignee.’” Further, the court reasoned, not allowing an insured to assign policy benefits after the coverage-triggering event would provide “an insurer … the windfall of not having to insure an occurrence that it received premiums for covering.”

Fluor is a corporation with many subsidiaries, all covered under CGL insurance policies with Hartford. Insurer Hartford assumed defense and indemnity of many claims, including many personal injury and wrongful death claims related to asbestos. After the relevant exposures, Fluor created a new entity (Fluor II) into which it put assets and operations, including those related to the asbestos activities. Hartford sued for declaratory relief that this was an invalid assignment under standard consent-to-assignment provision in the CGL policies.  Fluor moved for summary adjudication on the issue and lost. Fluor thereupon filed a writ petition, which the Court of Appeal denied twice (once summarily and once after full briefing), before the Supreme Court granted review, reversed and remanded.

“[P]recluding an insurer, after a loss has occurred, from refusing to honor an insured’s assignment of the right to invoke policy coverage for such a loss,” said the court, has the beneficial effect of “facilitating the productive transformation of corporate entities, and thereby fostering economic activity.” Although the decision arose in the context of a big corporation’s complex reorganization, the principle should be no less applicable in reorganizations of smaller operations as well. After Fluor, an insurer may have a hard time arguing that its permission is necessary when an insured small LLC turns into an S corporation with the same participants, or vice versa.

The decision is contrary to, and expressly disapproves, the earlier California Supreme Court decision of Henkel Corp. v. Hartford Accident & Indemnity Co. (2003) 29 Cal.4th 934, 945 [“an assignment is subject to consent by the insurer unless ‘the benefit has been reduced to a claim for money due or to become due.’”]) The rationale for departing from precedent is that section 520 was neither briefed nor addressed in the earlier case. “We now recognize that [Henkel’s] determination, reached without consideration or analysis of section 520, conflicts with the rule prescribed by that statute.”

Filed under Asbestos, California, Insurance

Delayed Filing of Birth Defect Actions: Toxic Tort Exception to the General Rule in California

By and on October 7, 2014
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In Nguyen v. Western Digital Corp., the California Court of Appeal, Sixth Appellate District concluded that a child born in 1994 with pronounced birth defects purportedly caused by in utero exposure to various chemicals at the “clean room” workplace of her mother could nevertheless timely file an action against that employer in 2010.

The primary issue was which California statute of limitations applied, the six-year statute for pre-birth injuries (Code Civ. Proc., § 340.4) or the statute related to exposure to toxic substances (Code Civ. Proc., § 340.8). The two-year toxic statute of limitations is, however, tolled during a plaintiff’s minority.

Nguyen grappled with these issues through more than 30 pages of detailed legal analysis and interpretation of legislative intent, and ruled in favor of the plaintiff.

Construing both section 340.4 and section 340.8, we hold that claims based on birth or pre-birth injuries that are due to exposure to hazardous materials or toxic substances are subject to the limitations period in section 340.8. We also hold that even though section 340.8 did not take effect until almost 10 years after Plaintiff was born, it applies in this case because the allegations of the third amended complaint support a claim of delayed accrual until December 31, 1998. And since Plaintiff’s claims did not accrue until that date, they were not barred by the six-year limitations period in section 340.4 (pre-birth injuries) on January 1, 2004, when section 340.8 (toxic exposures) went into effect. Moreover, since Plaintiff’s claims were subject to the limitations period in section 340.8 when it took effect, she is entitled to tolling for minority that applies to section 340.8 claims. Thus, her action filed on October 25, 2010, when she was 16 years old, was timely.

The plaintiff had adequately alleged “a claim of delayed accrual until December 31, 1998” because that was allegedly “the last possible date that ‘health service providers affiliated with . . . [employer] falsely represented to [parent] . . . that there was no causal connection between [parent’s] occupational chemical exposure and [Plaintiff’s] injuries.’ ”

The court analyzed the application of the two statutes by first looking at section 340.4:

Since the allegations of the third amended complaint support a claim of delayed accrual until December 31, 1998, [Plaintiff]’s claims were not barred by the six-year limitations period in section 340.4 (pre-birth injuries) on January 1, 2004 when section 340.8 (toxic exposures) went into effect.

Having resolved the question of a possible bar by the earlier-enacted section 340.4 favorably for the plaintiffs, the court moved on to the later-enacted section 340.8:

Since her claims had not yet expired, she was entitled to rely on the statute of limitations in section 340.8, which included tolling for minority. Thus, [Plaintiff’s] action filed on October 25, 2010, when she was 16 years old, was timely.

It is difficult to say how far-reaching this decision may become with regard to birth defect cases in California.  Perhaps it will have no effect other than on cases involving children born within six years prior to the January 1, 2004, effective date of the toxic tort statute. Further, in this opinion the court had to take all of the plaintiffs’ allegations as truthful, since the ruling in the court below was at the demurrer stage, and pursuant to rules of statutory interpretation the court was obliged to seek any set of facts that would allow for a conclusion that the action was timely filed. The court found such a set of facts by accepting the contentions of the family that they did not suspect any chemical cause of the birth defects as of 1998 such that one statute did not extinguish the claim, and then supplanting that statute with application of a second, later-enacted statute so as to afford the family more time to file.

It could have been worse. The plaintiff also alleged that pursuant to the discovery rule, the action should not be deemed to have accrued until 2008, when family members heard on the radio that attorneys were investigating cases of birth defects caused by chemical exposures in the semiconductor industry … contacted the attorneys and “learned for the first time” of the potential harm from the chemicals at work. Nguyen did not address that issue, because it found the action timely on other grounds. If the plaintiff’s argument was adopted, it would essentially mean that attorney advertisements would become the trigger for statutes of limitations, which in turn would mean the certainty of the statute would vanish.

Perhaps the lesson to be learned here is that defeating what initially appears to be a stale birth defect claim by application of the statute of limitations in California is going to be a difficult, but not impossible task. The Sixth Appellate District issued two other unpublished decisions (meaning they cannot be cited as precedent in California) also interpreting application of the California statutes of limitations and the discovery rule in “clean room” cases involving delayed filing of actions for birth defects.  In one, Ovick v. National Semiconductor Corp., the ruling of the trial court dismissing the action at the demurrer stage was reversed.  In the second, Studdendorf v. National Semiconductor Corp., the court sustained a dismissal at the demurrer stage. While the case cannot be cited, it may still have value in suggesting a way to convince a court that the discovery rule means something other than an attorney telling you it is a problem.

In Studdendorf, as in the other cases, the plaintiffs alleged that “Parents did not know [the child’s] birth defects were caused by workplace exposure to hazardous chemicals until December 2008, when they heard on the radio that their attorneys were investigating cases of birth defects caused by chemical exposures in the semiconductor industry.” One key difference in this case: “But Plaintiffs also allege that around the time Christopher was diagnosed with retinoblastoma in October 1987, Parents asked [their employer] ‘whether they had worked with or otherwise been exposed to any hazardous chemicals.’ ” In 1987, only the six-year statute was in effect, so the plaintiff “was required to file suit within six years of discovery, or no later than October 1993.”

Parents suspected that Christopher’s injuries were caused by chemical exposure in their workplace. The averments of the second amended complaint support the conclusion that they suspected both wrongdoing and the alleged cause of Christopher’s injuries shortly after the diagnosis when they went to NSC and asked “whether they had worked with or otherwise been exposed to any hazardous chemicals.” The use of the word “hazardous” supports the conclusion that Parents suspected something in their work environment was dangerous to human health; not simply a cause, but a wrongful cause.

Thus, defendants in long-delayed birth defect cases should pursue any evidence that parents asked employers, or for that matter perhaps doctors or anyone else, about possible causes of harm near the time the defects first became apparent.

Challenges to the timeliness of such actions must be considered and made.  And if at first the defense does not succeed, similar arguments can be resurrected after discovery and investigation through a summary judgment motion.  In the final analysis, it may remain difficult to convince courts to dismiss such cases on statute of limitations arguments. The rules of statutory interpretation allow the courts to seek a means of maintaining actions that have such strong emotional appeal.

 

Filed under birth defects, Clean Room, Statutes of Limitations

New Jersey: No Liability for Other Parties’ Asbestos Products

By on April 28, 2014

New Jersey has joined the list of jurisdictions that hold a defendant is not liable for asbestos in replacement parts supplied by others, regardless of whether there was asbestos in the same part as originally supplied.

Hughes v. A.W. Chesterton Co. is a generally good result for asbestos defendants. Notably, it did not get to the result the same way that other cases (e.g., California, Washington, and the asbestos MDL) did.

Hughes held that there was a duty to warn, but found no liability as a matter of causation. Many other cases coming to the same result as Hughes held that there is no duty to warn. (For example, California’s O’Neil, Washington’s Braaten and Simonetta, the Sixth Circuit’s Lindstrom, the MDL’s Prange, etc.)

Hughes imposed a duty to warn on the grounds that it was reasonably foreseeable at the time the Goulds pumps were sold that original gaskets and packing would be regularly replaced with gaskets and packing that contained asbestos. “Since the risk of exposure continued and was perhaps increased by the replacement process, a warning given at the time of the initial sale would ensure that this information was available to be considered in subsequent decisions regarding the choice of replacement parts and any additional safeguards for workers who made the replacements. We therefore conclude that it would be reasonable, practical, and feasible to impose a duty to warn upon Goulds under the facts here.”

“We do not agree that plaintiffs may prove causation by showing exposure to a product without also showing exposure to an injury-producing element in the product that was manufactured or sold by defendant.” The court rejected plaintiffs’ argument that causation may be proved by mere likelihood that defendant’s equipment would be used with asbestos-containing replacement parts, requiring instead proof that such parts were “manufactured or sold by the defendant.”

“California law,” as O’Neil  says in contrast, “does not impose a duty to warn about dangers arising entirely from another manufacturer’s product, even if it is foreseeable that the products will be used together. Were it otherwise, manufacturers of the saws used to cut insulation would become the next targets of asbestos lawsuits.”

It is unclear whether the Hughes/New Jersey/causation approach will lead to more consistently positive results for defendants than the O’Neil/California/no duty approach. For example, California courts have since split on whether cases against various defendants, including some that never made any asbestos-containing products but only products that were used with such products, fall within O’Neil exceptions. Such exceptions to O’Neil may be irrelevant to a causation analysis under Hughes. Another potential difference is that it ought generally to be easier to win summary judgment on duty, a legal issue, than on causation, which will involve facts. On the other hand, it’s still all about one question: “was it the defendant’s product that contained the asbestos?”

Filed under Asbestos, Causation, Duty to Warn, Other Parties’ Products, “Bare Metal” Defense

More Fallout From Garlock Ruling Finding That Asbestos Plaintiff Counsel Withhold and “Change” Evidence

By and on April 3, 2014

ASBESTOS TRUSTS FIND “PATTERN” OF SUBMITTING UNRELIABLE EVIDENCE TO SUPPORT TRUST CLAIMS

Audits of several asbestos bankruptcy trusts have revealed that a plaintiffs’ attorney “has submitted unreliable evidence to each of the Trusts and … has done so in a pattern.” Case 2:12-ap-02182-BB; Doc. 198 at pp.17-18. Through his counsel, attorney Michael Mandelbrot stipulated to sanctions including that he may file no new claims with any of the trusts, that he must cease activity on pending claims and must substitute out as attorney, and that he receive no “payments from any of these trusts for any reason.” He has since claimed that he stipulated under duress, including threat of criminal liability by (as well as incompetence of) his own counsel, and that he has discovered “evidence of criminal conduct” by other plaintiff counsel serving as trustees of asbestos bankruptcy trusts.

This audit finding, the “it’s not just me it’s others” defense, and the possibility of sanctions comes fresh on the heels of the ruling in In re Garlock Sealing Technologies that found widespread differences between what several different asbestos plaintiffs’ counsel represented to bankruptcy trusts and what they represented in civil court proceedings. The Thorpe and Western Asbestos audits and anticipated ruling may, and should, spur further efforts for greater transparency in the asbestos bankruptcy trust process.

The audits covered some 5,900 claims. The specifics of the “pattern” of “unreliable evidence” are unclear, because the bulk of the trusts’ evidence was submitted under seal. In Garlock, exposure evidence relevant to claims against bankrupt entities with trusts was suppressed in each and every one of the 15 asbestos injury lawsuits in which post-verdict investigation was conducted. In Garlock too, much of the underlying evidence was filed under seal. The press and several defendants have moved to unseal the evidence in Garlock, and a similar move seems likely  in Thorpe.

These rulings contradict pronouncements by asbestos plaintiffs’ counsel that the system is working fine and does not need greater transparency, such as this statement recently presented by plaintiffs’ attorney Elihu Inselbuch (who represents many plaintiff committees in asbestos bankruptcies) to Congress: “[D]espite trying to find instances of widespread fraud and abuse, there is none. Defendants have no evidence to support their assertions of fraud by plaintiffs. The Kananian case, on which they so heavily rely, was an isolated incident, remedied by a state court.” Not so “isolated” as all that – as the Garlock and now Thorpe cases demonstrate.

Similarly, on the day Congress passed Federal legislation to mandate transparency in the trust claiming process, one plaintiffs’ attorney posted the following statement: “Multiple independent studies prove any fraud is negligible.”  No citations to these “independent studies” are provided.

It is no longer a question of whether there is fraud in the asbestos trust system, which is beset with other problems as well. Now the question is how widespread it is, and what to do about it, on both a case-by-case and systemic basis. 

Filed under Asbestos, Asbestos Bankruptcy Trust

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