Why is opposing counsel so concerned about Dennis Rodman?

On January 15, 1997, while playing in a basketball for the Chicago Bulls, Dennis Rodman dove for a loose ball and ended up falling into a group of photographers who were stationed on the sideline. As television cameras panned over to where Rodman had fallen, the country saw Rodman kick one of the cameramen, Eugene Amos, in the groin. After the incident, Amos sought treatment for groin and back injuries and later filed a police report.  He then retained a lawyer to pursue personal injury claims against Rodman. In conjunction with pre-suit negotiations, the attorneys hired by Amos and an attorney retained by Rodman negotiated a settlement for $200,000.  Rodman’s attorneys insisted that any settlement agreement include a confidentiality provision that mandated that Amos keep the nature and amount of the settlement secret.

When Amos filed his tax return for 1997, he excluded the full $200,000 he received in settlement from Rodman.  Unfortunately for Amos, the IRS claimed that he was not entitled to exclude any of the settlement amount because he had failed to introduce any evidence of his injuries.  The IRS conducted an audit and then attempted to tax all but one dollar of the $200,000, contending that the settlement was really about confidentiality to settle a nuisance claim to avoid further bad publicity for Rodman and that the settlement was not about any legitimate injuries to Amos.   Amos’ attorney claimed that the entire amount of the settlement was paid due to legitimate injuries suffered by Amos. The court found that position “belied by the terms of the settlement agreement.”  The court also considered other items included in the settlement agreement itself, including Amos’s agreement not to (1) defame Dennis Rodman, (2) disclose the existence or terms of the settlement agreement, and/or (3) publicize facts relating to the incident.  Ultimately, The Commissioner of Internal Revenue determined that Amos owed income taxes on the entire $200,000 settlement in the sum of $61,668.

On appeal, the United States Tax Court held that $120,000 of the settlement was excludable from gross income as the proceeds of an injury settlement, but the remaining $80,000 was subject to federal income taxes.  The tax court allocated 60% of the settlement as monies paid for physical injuries sustained by Amos, and the other 40% as monies paid in consideration for the other items listed in the settlement agreement, including the confidentiality provision.  The U.S. Tax Court found that the settlement money was paid in consideration of several items included in the settlement agreement above and beyond the compensation paid for Amos’ physical injuries.  The court ruled that the parties did not intend all of the settlement proceeds to be allocated to pay for Amos’ physical injuries.

As a result of Rodman’s case, in conjunction with a request for a confidentiality provision in a settlement agreement for a personal injury case, the plaintiff’s bar is oftentimes requesting some additional language so that their client can avoid any previously unanticipated tax consequences.  To that end, the plaintiff’s bar is now aware that the IRS may challenge the allocation of the settlement proceeds contained in the settlement agreement and seek more taxes.   If a confidentiality provision is requested, counsel must now work together when a case is resolved to avoid any adverse tax consequences.

Bad Faith In The Evaluation Of Uninsured And Underinsured Motorist Claims

Uninsured and underinsured motorist claims may often be considered “routine” to some auto liability insurers and most are resolved by claims handlers through “routine” negotiations. However, a couple of recent decisions from Northern Ohio Courts of Appeals illustrate the bad faith exposure insurers can face from these claims and provide some guidance on how to best try to minimize that exposure.

In Marshall v. Colonial Ins. Co. of California, 2016-Ohio-8155, an insured plaintiff was injured in a car accident, incurring over $26,000 in medical expenses which included the cost of back surgery. He had $100,000 in underinsured motorist coverage with Colonial. After receiving Colonial’s consent to accept the tortfeasor’s $15,000 limits, the insured plaintiff filed suit asserting an underinsured motorist claim against Colonial.

A Colonial nurse who reviewed the plaintiff’s claim questioned whether the claimed injuries were the sole result of the car accident or the result of an aggravation of a pre-existing injury. After that review, Colonial offered $15,000 (of the $85,000 remaining policy limits) and retained a medical expert who opined that the plaintiff’s injuries were limited to a cervical strain that resolved within 3 months.

The parties then arbitrated the value of the plaintiff’s injury claim. The insured plaintiff was awarded $65,000. Therefore, Colonial was obligated to pay $50,000 in underinsured motorist coverage ($65,000 less the tortfeasor’s $15,000 payment). The plaintiff then sued Colonial for bad faith based on both the delay in resolving his claim and the $15,000 offer that was made to do so. Colonial argued that the time it took to handle the claim was reasonably justified and that its offer was reasonably justified based on evidence of Plaintiff’s pre-existing condition.

The trial court granted Colonial summary judgment and the plaintiff appealed to the Seventh District Court of Appeals (Mahoning County/Youngstown). The Seventh District reversed, finding that there were “issues of fact” as to whether the timing of Colonial’s handling of the plaintiff’s claim or its evaluation of that claim lacked “reasonable justification.”

The facts and tortured history of this particular claim are, in some ways, unique. There are, however, several aspects of Marshall Court’s opinion that have some universal import in the handling of any uninsured or underinsured motorist claim and the defense of a bad faith claim based on the handling of such a claim. To that end, the Seventh District reaffirmed that Ohio recognizes “bad faith” claims based on both alleged “foot-dragging” and “an unreasonably low settlement offer.” Marshall, 2016-Ohio-8155 at ¶¶ 11-12. With respect to valuing a claim, the Court also noted that an “insurer cannot avoid a bad faith claim simply by establishing that its claims decision was based on the personal opinion of a seasoned adjuster. Rather, the purpose of a bad faith inquiry is to determine whether the adjuster lacked a reasonable justification for that ‘personal opinion.’” Id. at p. 12 (citing Toman v. State Farm, 2015-Ohio-3351 (Cuyahoga County)). In making a “bad faith” determination, the Court also noted that it had to view “the totality of the circumstances to ascertain if the insurer’s handling of this claim was reasonably justified…[ie] performed in good faith.” Id. at p. 17.

The Marshall Court’s reliance on the Eighth District’s (Cuyahoga County/Cleveland) 2015 opinion in Toman seems to suggest that the Seventh District now agrees with the Eighth District’s conclusion that: (1) A seasoned adjuster’s personal opinion of value does not, in and of itself, constitute “reasonable justification.” There must also be evidence demonstrating “the reasoning behind [the] valuation of [the injury] and its relationship to the facts…”. Toman, 2015-Ohio-3351; and (2) “[A]rbitrarily determining the value of an injury based solely on the Robinson v. Bates value of past medical expenses and a multiplier, without consideration of the underlying facts and circumstances, and then stating, without supporting evidence, that juries typically award a smaller number, is not evidence that [an] evaluation was reasonable as a matter of law.” Id. The Marshall and Toman decisions also appear to indicate that even if an adjuster is able to articulate how he or she evaluated a claim and accounted for all of the variables that could impact injury value, a court is still likely to hold that “reasonable justification” for that valuation is an “issue of fact.” Thus, when a bad faith claim is based on the amount offered to settle an uninsured or underinsured motorist claim, the grant of summary judgment in favor of an insurer is unlikely.

The Seventh District’s decision in Marshall also suggested that except to the extent that it would reveal attorney-client privileged communications or work product, a plaintiff asserting an uninsured or underinsured motorist claim should be entitled to broad discovery of the claims file and claims handling process (including adjuster depositions) even when a bad faith claim has not been asserted. Marshall, 2016-Ohio-8155 at ¶ 18. The court noted that this is true even if that discovery may be aimed at acquiring “information for the future bad faith claim by disguising it as discovery in preparation for [adjudication of the injury claim].” Id.

These recent decisions in Marshall and Toman serve as reminders that while the negotiation of uninsured and underinsured motorist claims may be “routine,” those negotiations can also create extra-contractual “bad faith” exposure. To minimize that exposure, an adjuster must consider and be able to articulate how he or she evaluated a claim and how they accounted for all of the variables that could impact jury value. Furthermore, great care needs to be used in negotiating. Unless authority is truly exhausted, any suggestion that “this is all there is” could also give rise to bad faith exposure. If an adjuster has not offered authority and wants to leave the door open for further discussion, he or she should say so.

Moscarino & Treu LLP: A 20-Year Retrospective

There are moments in life where one has to make a decision: “Do I take the straight and narrow, predictable path, or do I take a risk and aspire to something more than the status quo?”

Roughly twenty years ago, George Moscarino and I faced such a decision. We had both led successful careers, and were a comfortable 15 and 12 years, respectively, into our roles as attorneys at Arter & Hadden, the well-respected Cleveland law firm. Things were fine, but we saw untapped opportunity beyond the doors of the Huntington Building. We weighed our options, we consulted our families and we arrived at a conclusion: Come the new year, we would go out on our own.

And thus, Moscarino & Treu LLP was born.

Our departure from Arter & Hadden was amicable. With one associate attorney, Patty Cuthbertson, and one secretary, we began our new endeavor. It was a cold winter day when we started operation on January 1st, 1998 in office space at the Caxton Building near Progressive Field…or “The Jake”, as it was back then. We had moved on from the marbled hallways of the Huntington Building to a life of metal desks with bare, hanging light bulbs—not exactly the glamorous new space one would associate with a startup company these days, but it was a beginning.

We moved upstairs to “real offices” later that year, and nurse/lawyer Susan Massey and paralegal Pat Molle came on board. We had five offices and a conference room at this point, but it was not long before we outgrew the space. We soon found ourselves kicking off the new millennium with office space in the Hanna Building as of January 1st, 2000. Our partner, Bill Falin, joined us from Arter & Hadden in 2001.

While Moscarino & Treu has resided in the Hanna Building ever since, our growth did not stop there. The ensuing years saw the firm expand to 15 lawyers, earning recognition as a Weatherhead 100 company in 2005—the year George and I saw our first kids off to college.

Currently, Moscarino & Treu is comprised of nine lawyers and seven support staff members. Over the years, we have broadened our practice from a relatively strict focus on medical malpractice defense to encompass products liability, banking, business, securities, commercial, professional, insurance, auto and general liability work.

We are proud of where the firm’s collective talents and experience have taken us these past 20 years, as well as the reputation of delivering strong results we have developed among our clients. More so, with more capabilities in-house than ever before and the strong legacy we have been able to build within the walls of Moscarino & Treu, we are looking forward to the next 20 years…and beyond.

As we near the 20th anniversary of our firm, we would also like to thank you for your trust in Moscarino & Treu to date. We look forward to continuing to deliver value as we partner with you in the years to come.