August, 2005

I. Insurance Issues

Insurer Ordered to Produce Reserve Information in Bad Faith Claim.

A federal court in Pennsylvania has recently held that an insurance company must produce its reserve information in a case involving breach of contract, bad faith and violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law.

In Maiden Creek TV Appliance, Inc. v. General Casualty Insurance Co., No. 05-667, E.D. Pa. 7-21-05, the plaintiff brought an action against its insurer alleging that it acted in bad faith by its delays and failure to provide full payment under an insurance policy issued to the plaintiff. Plaintiff moved to compel more complete responses to Interrogatories and Requests for Production of Documents. Specifically, the insurer withheld information in its investigative reports and activity log reports concerning “reserve information and mental impressions”, which the insurer withheld on the grounds of privilege.

The insurer argued that the reserve information was not discoverable because it was not reasonably calculated to lead to the discovery of admissible information. The court stated that there is generally only a “tenuous link between reserves and actual liability given that numerous considerations factor into the calculation of reserves in accordance with statutory requirements, and the court requires a showing of good cause before it will order production of reserve information.” However, liability in this case was not disputed, and because the plaintiff had made a claim for bad faith, the court found that the reserve information was “germane” to defendant’s analysis of the value of the insured’s claims. The court found that the reserve information was therefore discoverable on the question of bad faith. The court further held that the mental impressions of the insurers’ non-attorney agents contained in the claims files were also at issue and were discoverable.

The court, however, allowed the insurance company to withhold several portions of the investigative reports containing information relayed to the insurance company by its outside counsel.

II. Employment Issues.

Employer Liable for Refusing to Use Employee’s Correct Name.

An employer may be found liable for employment discrimination if he continuously refers to an employee by an improper name, according to a recent decision of the United States Court of Appeals for the 9th Circuit. In El-Hakem v. BJY, Inc., 2005 WL 1692470 (7-21-05), the plaintiff, Mamdouh El-Hakem, who is of Arabic heritage, brought an action against his former employer for employment discrimination, wrongful termination, and failure to pay wages. The racial discrimination claim stemmed from his employer’s Chief Executive Officer’s repeated references to Mr. El-Hakem as “Manny”, despite Mr. El-Hakem’s strenuous objections. The Chief Executive Officer stated that a “western” name would increase Mr. El-Hakem’s chances for success and would be more acceptable to the clients of the company.

The defendants argued that they could not be held liable for intentional discrimination on the basis of race, because the name “Manny” was not a racial epithet. However, the court disagreed with this contention. The court stated that the laws protecting individuals from discrimination not only protect discrimination based on physical or genetically-determined characteristics such as skin color, but rather protected identifiable classes of persons “who were subjected to intentional discrimination solely because of their ancestry or ethnic characteristics.” The court stated that a group’s ethnic characteristics encompass more than its members’ skin color and physical traits. “Names are often a proxy for race and ethnicity.” Concerning the plaintiff’s claim for a hostile work environment, the court found that although the Chief Executive Officer’s conduct may not have been especially severe, there was undisputed evidence of its frequency and pervasiveness. There was evidence that the defendant continued to use the name “Manny” over Mr. El-Hakem’s repeated objections, and that the conduct continued for almost one year. The court found that these incidents were frequent and consistent, rather than isolated, and that a reasonable juror could conclude that the work environment was hostile.

III. Product Liability Issues.

Admission of Remedial Repairs by Non-Party Allowed in Product Liability Case.

The U.S. Court of Appeals for the Third Circuit has issued a recent opinion allowing evidence of post-accident modifications to a product when the modifications were done by a non-party. In Sell v. Ingersoll-Rand Co., 2005 WL 1526455 (6-29-05), the manufacturer of a drill rig appealed the lower court’s evidentiary ruling allowing evidence testimony concerning a post-accident modification to the drill rig. The manufacturer argued that the testimony should have been excluded pursuant to Federal Rules of Evidence 407 and 403.

Federal Rule of Evidence 407 states that evidence of a remedial measure taken after the occurrence of harm or damages caused by an event “is not admissible to prove …a defect in a product, [or] a defect in a product design.” This rule has been consistently applied “to exclude evidence of subsequent remedial measures taken by the party against whom the post-accident modification is offered.”

In this matter, a subsequent remedial measure was taken by the plaintiff’s employer, who was not a party to the lawsuit. The subsequent remedial measure was also the alternative design that the plaintiff’s product design expert opined that the manufacturer should have performed on the drill rig.

The defendant/manufacturer alternatively argued that the district court abused its discretion in allowing the evidence of the subsequent remedial measure pursuant to Rule 403. Rule 403 states that although relevant, “evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury.”

In affirming the ruling of the lower court, the Appeals Court stated that Rule 407 does not bar evidence of remedial measures taken by a non-party. The court further held that the information concerning the alternative design was relevant, and its probative value outweighed the danger of unfair prejudice to the jury.

Copies of the full text of any of the cases discussed in this Newsletter may be obtained by calling our office.  The articles contained in this Newsletter are

for informational purposes only and do not constitute legal advice.

©Thomas Paschos & Associates, P.C. (2006) All Rights Reserved.