Articles Posted in Contracts

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Companies and individuals who are weighing the “pros” and “cons” of entering into arbitration agreements consider a whole host of factors in making this complex, and significant decision. Arbitration is often a good choice for parties who have a strong desire to keep their disputes confidential. An arbitration is also typically resolved faster than a civil lawsuit, usually with streamlined discovery and motions practice, resulting in the added benefit of lower litigation costs. Parties who choose arbitration typically prioritize these anticipated benefits over what is typically more exhaustive collection of information and presentation of issues in a civil lawsuit.
When a party chooses arbitration, however, it is critical that counsel express that choice with absolute clarity in a written agreement. A new decision from Maryland’s top court holds that after a civil lawsuit is filed, and a responding party is unsuccessful in moving to compel the arbitration it thought was agreed to, there is no immediate appeal of the denial of the motion to compel arbitration. Instead, the party must add the denial of the motion to compel arbitration to issues raised on appeal after trial.
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Companies often develop complimentary services that can enhance the consumer experience and build customer loyalty to their brand. Shrewd businesses recognize that these freebie benefits should come attached with exculpatory and indemnification agreements, so a courtesy for customers doesn’t end up being a colossal burden of additional liability. Even when faced with heartbreaking injuries to a small child, Maryland’s highest court recently ruled that exculpatory agreements are binding on children in Maryland, creating new law on an issue of first impression in BJ’s Wholesale Club, Inc. v. Rosen, No. 99, Sept. Term 2012.

The stage for the case was set when the Rosens permitted their 5-year-old son, Ephraim, to play at a free “Incredible Kids Club” area at a BJ’s Wholesale Club in Owings Mills, Maryland. Before Ephriam was permitted to play, Mr. Rosen had to execute an agreement releasing and indemnifying BJ’s from any related injuries that might arise. Cut to 15 months later, when Ms. Rosen returned to BJ’s to do a little shopping. Mrs. Rosen again dropped Ephraim off at BJ’s Incredible Kids Club, which featured a large toy hippopotamus to climb on.
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Many of you have seen the following disclaimer made in connection with films or books: “All characters in this book are fictitious, and any resemblance to real persons, living or dead, is coincidental.” The line between fact and fiction may not always be so clear, however, as Maryland’s Court of Special Appeals discovered in addressing the issues raised in Publish America, LLP v. Stern, No. 2965, September Term 2010.

Stern was a librarian at the Ludington Library in Ludington, Michigan. During her tenure at the Library, Stern developed a manuscript about some of the interesting people in her community. In 2008, Publish America offered to publish Stern’s manuscript. Publish America insisted that Stern either obtain waivers from the people appearing in the book or appropriately “fictionalize the work.” Publish America’s concern was that the book disparaged real-life people who were recognizable within Stern’s community. Publish America instructed Stern to “make sure that all names, places, and events have been changed” so as to truthfully comply with the disclaimer and to “take care that there are no real-life people that are in the least bit recognizable.” Stern agreed to fictionalize her characters, and she even confirmed via e-mail that she had done so.
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On December 9, 2013, STSW lawyers Bill Sinclair and Ned Parent obtained a half million dollar judgment in a complex construction arbitration before the American Arbitration Association. After pre- and post-arbitration briefing and a four-day hearing before Arbitrator J. Snowden Stanley, which included a comprehensive site visit and fact and expert witness testimony, Sinclair and Parent convinced Mr. Stanley that their client, the Edgewood American Legion Service Post 17, should receive money and credits from the architect and general contractor who failed to complete a re-build of the Legion’s hall in Edgewood, Harford County, Maryland.
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Is intending to settle a case the same thing as actually settling? As the Court of Special Appeals of Maryland recently confirmed, it can be. In its decision earlier this month in Falls Garden Condo. Ass’n, Inc. v. Falls Homeowners Ass’n, No. 0443, September Term 2012, the Court applied state contract interpretation principles to a “letter of intent” memorializing a settlement agreement, construing the document as a valid “executory accord” that precluded the Appellants’ ability to pursue its claims. The ruling is a reminder that, when a party doesn’t want to be bound by a recording of an agreement, it better make sure the agreement says so.

In Falls Garden Condo. Ass’n, condominium complex Falls Garden used 65 adjacent parking spaces for 23 years before finding out that they actually belonged to a neighboring residential community, The Falls. Falls Garden sought a declaratory judgment that it owned the spaces by adverse possession or, alternatively, by obtaining an easement. As trial neared, the parties negotiated a possible settlement, and eventually executed a letter of intent “meant to memorialize certain aspects of a formal Settlement Agreement and separate Lease to be entered into” between the parties. The letter provided that The Falls would lease the spots to Falls Garden at $20 a month for each spot, provided that The Falls’ homeowners’ association approved. After the association accepted the plan, its attorneys drafted a proposed 99-year lease and submitted it to Falls Garden.
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A Vice President at Microsoft has been credited with saying that “litigation is the basic legal right which guarantees every corporation its decade in court.” While the Microsoft executive was clearly speaking with tongue planted firmly in his cheek, years-long litigation is not only time-consuming, it is extraordinarily expensive. That is why the STSW Business Litigation Group subscribes to the guiding principle, borrowed from Sun Tzu’s The Art of War, that “the supreme art of war is to subdue the enemy without fighting.” When companies are named in frivolous lawsuits, they turn to STSW to aggressively turn the tables. A company that has been harassed with a frivolous lawsuit is not without options.

One option is to countersue to recover attorneys’ fees spent on the frivolous litigation. Maryland Rule 1-341 states that “[i]n any civil action, if the court finds that the conduct of any party in maintaining or defending any proceeding was in bad faith or without substantial justification” the court may order that the offending party pay the expenses and attorneys’ fees “incurred by the adverse party in opposing it.” For a target of such legal harassment who pays out of pocket, the Rule is clear enough. There are, however, nuances in its application when an insurance company pays to defend the target company from the baseless suit.
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In its early years, malpractice insurance coverage was often provided through “occurrence”-based policies that provide coverage for specific events, or “occurrences,” that happened during the policy’s effective period. When a professional malpractice claim was made under one of these policies, however, it was often difficult to define the boundaries of the “occurrence” of the negligent act, particularly when services were provided to the client long in the past or were part of a years-long relationship. If the “occurrence” extended over multiple policy periods, then multiple insurers were arguably responsible for covering the occurrence, unless a single insurer was unlucky enough to have issued multiple policies whose separate limits were arguably triggered by the single, years-long, occurrence. In order to minimize their exposure, exercise greater control over their exposure, and for other reasons, malpractice insurers have more recently begun issuing more “claims made” policies.
In contrast to “occurrence”-based policies, which typically cover insureds for any occurrence which takes place during the effective period regardless of when the claim is filed, “claims made” coverage protects the insured from claims made against it only during the effective period of the contract; in effect, the filing of the claim during the policy period is itself the coverage trigger.
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Maryland law requires that property and casualty insurers who are investigating an insurance claim must send the insureds a written update on the status of the claim every forty-five (45) days. COMAR 31.15.07.04. Specifically, the Maryland regulation provides that if an insurer has not completed its investigation of a first-party claim (this generally means that you made the claim under your own policy) within 45 days of notification, the insurer must promptly notify the first-party claimant, in writing, of the actual reason that additional time is necessary to complete the investigation.

Notice must also be sent to the first-party claimant after each additional 45-day period until the insurer either affirms or denies coverage and damages.
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When the relationship between an insurance company and a managing general agent terminates in Maryland, it is typically the agent that owns the “expirations” (or “book of business”) – i.e., the policyholders’ contact information that may be used to solicit further business upon expiration of those policies. Maryland’s rule is consistent with the general weight of authority in the country that under the “American agency system,” the agent is the owner of expirations upon termination of the insurance agency relationship, particularly when such ownership is provided for by contract.

As for Maryland, Md. Code, Ins. Art. § 27-503 prevents insurance purchasers from losing their insurance when their agency relationship is terminated between their agents and the insurers. Upon the termination of that relationship, the statute grants ownership of expirations to the insurer, but requires the insurer to renew the agent’s policies through the agent for at least two years or until the policies are placed elsewhere. See Md. Code, Ins. Art. (“IN”) §27-503(b)(3). This is known as the “renewal rule.”
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Most insurance policies provide for “subrogation.” Subrogation is triggered whenever an insurance company pays out an amount to a policyholder for harm caused to the policyholder by a third party. If the insurer can prove that the third party was at fault, the insurance company can typically file a “subrogation” lawsuit against the third party to recover the money it paid out to the policyholder. To use a simple example, if a third party sets fire to a business’s office, and the business’s insurance company pays the business the amount of its fire loss, then the insurance company can typically sue the arsonist in a “subrogation” action to recover the amount that it paid to the business.
“Subrogation” is defined by everyone’s favorite legal dictionary as “the substitution of one person in the place of another with reference to a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim.” Black’s Law Dictionary 1467 (8th ed.2004).
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