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Potential New Strategies for Defending Assignment of Benefits Claims In Losses That Involve Homestead Property

I n recent years, assignment of benefits claims have become one of the biggest problems facing homeowners’ insurance carriers in Florida. This is evident from the substantial rise in the number of lawsuits filed in these types of claims each year. In fact, in some instances, there may be multiple assignments for a single occurrence and several lawsuits per claim. The practical result is that insurers are forced to defend distinct lawsuits against numerous plaintiffs, with the corresponding exposure to an attorney’s fee judgment in each,1 all arising from the same claim or event.

So far, insurers have had little success in Florida courts putting an end to this abuse of the claims process. For example, in Accident Cleaners, Inc. v. Universal Ins. Co., the Fifth District Court of Appeal held that as long as a homeowner has an insurable interest in the property at the time of the loss, then the postloss assignment is valid.2 In another case, One Call Prop. Servs. v. Sec. First Ins. Co., the Fourth District Court of Appeal held that standard antiassignment and loss payment provisions in an insurance policy do not preclude an assignment of post-loss benefits, even when payment is not yet due.3 Then, in Security First Ins. Co. v. Dep’t of Fin. Servs., the First District Court of Appeal upheld Florida’s Office of Insurance Regulation’s refusal to allow a carrier to revise its policy forms to explicitly prohibit the post-loss assignment of benefits.4

Despite these setbacks, however, a recent decision of the Fourth District Court of Appeal in One Call Property Services, Inc. v. St. Johns Ins. Co., Inc. 5 may point to potential new defense strategies in some cases. Specifically, in cases in which the assignor experiences a loss to a homestead property, Florida’s Constitution may afford a defense.6 The Florida Constitution defines a “homestead property” as the principal place of residence consisting of up to onehalf acre within a municipality and up to 160 contiguous acres outside a municipality that are owned by a natural person.7 This definition is construed liberally in favor of finding that a particular property is, in fact, a homestead property.8 Second homes, income property, and property owned by corporations are not considered homestead.9 Therefore, insurers can only assert this potential defense in breach of assignment of benefits claims that involve a homestead property.

In One Call, the Fourth District Court of Appeal affirmed the trial court’s finding that an assignment of benefits for insurance proceeds was unenforceable because it inappropriately attempted to divest the insured’s constitutionally-protected homestead property rights.10 One Call Property Services performed water mitigation services at the insureds’ home.11 The insureds submitted a claim under their homeowner’s insurance policy to St. Johns Insurance Company, but St. Johns denied the claim.12 One Call then filed suit against St. Johns, under an assignment of benefits, for the payment of its outstanding invoice.13 The trial court ultimately granted summary judgment in favor of St. Johns, finding that the assignment of benefits was invalid as it sought to divest the insureds of constitutionally-protected proceeds from homestead property through an unsecured agreement signed by only one of the insureds.14

Citing the decision of the Third District Court of Appeal in Quiroga v. Citizens Prop. Ins. Co. 15, the trial court ruled that an unsecured agreement cannot divest a homeowner of homeowner’s insurance proceeds. The trial court also noted that only one insured/homeowner executed the assignment of benefits.16 In addition, it found that the assignment of benefits and One Call’s actions in attempting to adjust the loss on behalf of the insureds violated Florida’s public adjuster statute, § 626.854(1), Florida Statutes.17 Ultimately, the Fourth District Court of Appeal agreed that the assignment of benefits was invalid; therefore, the company did not have standing to maintain the lawsuit.18

However, it is important to note limitations in the One Call decision. Importantly, the Fourth District Court of Appeal’s decision was per curiam affirmed (or without a written opinion).19 Moreover, to date, only one of Florida’s five District Courts of Appeal has directly ruled on the issue. Also, in cases in which the insurer has made partial payment of claims, the argument that the assignment is an unsecured agreement and invalid is not as strong. In partial payment cases, the insurer has arguably accepted the assignment of benefits as valid and enforceable. Therefore, a defense based upon the assignment being unsecured and invalid is potentially waived in partial payment cases.

It is likely that assignees of such agreements will argue that finding some assignment of benefits enforceable, while finding others unconstitutional, is inconsistent and inequitable. However, Florida courts have consistently held that the homestead protection is not based upon principles of equity.20 The public policy in favor of protecting homestead property rights extends not only to the property itself, but also to any insurance proceeds resulting from a covered loss.21 As such, in defending its case, an insurer should look to rely on the homestead status of the property at the time of loss. The fact that the definition of homestead property is liberally construed in favor of finding that a particular property is a homestead will also assist insurers in making this argument.

In defending against an assignment of benefits claim that involves homestead property, an insurer should consider the facts of each case and the applicability of these three potential arguments that the assignment of benefits: 1) is an unsecured agreement divesting the insured of his/her homestead property rights; 2) was not executed by all insureds; and, 3) violated Florida’s public adjuster statute.

In light of One Call, an insurer may now not only defend assignment of benefits claims in cases that involve homestead property, but may also seek early resolution of claims by moving for summary judgment. If an insurer is able to unequivocally show that the loss occurred to homestead property, then there is a strong argument that the assignment of benefits is an unsecured agreement.22 As such, Florida’s right to own property as homestead may ultimately offer carriers some relief from the deluge of assignment of benefits claims and the multiple exposures to attorney’s fee judgments insurers now face for the same occurrence.

(Endnotes)

1 See § 627.428(1), Fla. Stat. (“Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary…the trial court or… the appellate court shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney prosecuting the suit….”).
2 186 So. 3d 1 (Fla. 5th DCA 2015).
3 165 So. 3d 749 (Fla. 4th DCA 2015).
4 177 So.3d 627 (Fla. 1st DCA 2015).
5 183 So. 3d 364 (Fla. 4th DCA 2016) (hereinafter “One Call”).
6 Fla. Const. Art. X, § 4(a) reads in part: “There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement or repair thereof, or obligations contracted for house, field or other labor performed on the realty, the following property owned by a natural person: (1) a homestead.”
7 Id.
8 Synder v. Davis, 699 So. 2d 999, 1002 (Fla. 1997).
9 See, e.g., In re Tucker, 22 Fla. L. Weekly Fed. B 37 (Bank. S.D. Fla. Apr. 21, 2009) (finding that property held by a corporation could not be considered homestead).
10 One Call Property Services, Inc. v. St. Johns Ins. Co., Inc., Case No. 13-000868-CA, 2014 WL 7496474 (Fla. 19th Cir. Ct. 2014), aff’d by One Call., 183 So. 3d 364.
11 Id.
12 Id.
13 Id.
14 Id.
15 34 So. 3d. 101 (Fla. 3d DCA 2010) (holding that an attorney’s motion to impress charging lien on insurance proceeds was correctly denied).
16 One Call Property Services, Inc., 2014 WL 7496474.
17 Defining a “public adjuster” as “any person, except a duly licensed attorney at law as exempted under s. 626.860, who, for money, commission, or any other thing of value, prepares, completes, or files an insurance claim form for an insured or third-party claimant or who, for money, commission, or any other thing of value, acts on behalf of, or aids an insured or third-party claimant in negotiating for or effecting the settlement of a claim or claims for loss or damage covered by an insurance contract or who advertises for employment as an adjuster of such claims. The term also includes any person who, for money, commission, or any other thing of value, solicits, investigates, or adjusts such claims on behalf of a public adjuster.” § 626.854(1), Fla. Stat.
18 One Call Property Services, Inc., 2014 WL 7496474.
19 A per curiam affirmance or “PCA” is an affirmation of a lower court’s ruling without the preparation of a written opinion and which does not carry with it any binding authority. See Dep’t of Legal Affairs v. Dist. Ct. of Appeal, 5th Dist., 434 So. 2d 310, 311 (Fla. 1983).
20 See Pub. Health Trust of Dade County v. Lopez, 531 So. 2d 946, 951 (Fla. 1990) (citing Bigelow v. Dunphe, 143 Fla. 603 (Fla. 1940)); Pierrepont v. Humphreys (In re Newman’s Estate), 413 So. 2d 140, 142 (Fla. 5th DCA 1982) (“The homestead character of a piece of property . . . arises and attaches from the mere existence of certain facts in combination in place and time.”).
21 See Cutler v. Cutler, 994 So. 2d 341, 343 (Fla. 3d DCA 2008).
22 Arguing a violation of section 626.854(1) would likely be a more difficult argument to make as in most instances, a company traveling under a purported assignment of benefits would likely be able to produce some evidence showing that they were not acting as a public adjuster in order to overcome summary judgment.

The Propriety of Dismissal As A Sanction for Fraud in Florida

Has Plaintiff Set in Motion an Unconscionable Scheme Calculated To Interfere With the Administration of Justice

Insurance carriers employ a number of tools to combat the prevalence of insurance fraud in personal injury claims, including education to adjusters regarding how to identify and respond to fraud, industrywide seminars from law firms and insurance organizations, and dedicated special investigative units (“SIU”) to probe the existence of fraud, which can support prosecution where the fraud amounts to a crime.1 Florida courts can impose harsh sanctions against those who abuse the system through fraudulent activities, such as financial sanctions, partial dismissals, and even dismissal of an entire claim; however, the burden of proving fraud and the reality of obtaining sanctions can make for a difficult argument. This article provides a general overview of the standards and criteria that Florida courts apply when determining whether dismissal of an entire personal injury claim is an appropriate sanction in cases in where plaintiffs have made fraudulent representations.

Occasionally, the fraudulent nature of a personal injury claim does not become apparent until the matter is in litigation — when defense counsel can begin to investigate and evaluate the nature of a plaintiff’s claim through the discovery process. Florida law provides that when a plaintiff lies to the court on matters central to the claim, which impede the ability to defend or undermine the truth-seeking function of the court, dismissal of the claim may be appropriate.2 The basis for keeping clearly fraudulent claims entirely out of court is that “a party who has been guilty of fraud or misconduct in the prosecution or defense of a civil proceeding should not be permitted to continue to employ the very institution it has subverted.”3 That said, while the tools for dismissal are readily available in the law, proving that dismissal is the appropriate sanction in any particular case is not a simple undertaking. Because Florida’s Constitution guarantees access to courts,4 Florida courts grapple with whether dismissing all or part of a claim for fraud is an overly harsh remedy.

In Florida’s “fraud upon the court” jurisprudence, the Fifth District Court of Appeal’s decision in Cox v. Burke was among the first in Florida to set forth a standard to assist parties and courts in determining when a plaintiff’s fraud is sufficiently pervasive to warrant dismissal of the entire claim.5 In Cox, the Fifth District sought to strike an appropriate balance. The Fifth District explained that courts must weigh the policy condemning fraudulent claims with the competing policy favoring adjudication of a plaintiff’s claim on its merits:

The requisite fraud on the court occurs where “it can be demonstrated, clearly and convincingly, that a party has sentiently set in motion some unconscionable scheme calculated to interfere with the judicial system’s ability impartially to adjudicate a matter by improperly influencing the trier of fact or unfairly hampering the presentation of the opposing party’s claim or defense.” When reviewing a case for fraud, the court should “consider the proper mix of factors” and carefully balance a policy favoring adjudication on the merits with competing policies to maintain the integrity of the judicial system. Because “dismissal sounds the ‘death knell of the lawsuit,’ courts must reserve such strong medicine for instances where the defaulting party’s misconduct is correspondingly egregious.” The trial court has the inherent authority, within the exercise of sound judicial discretion, to dismiss an action when a plaintiff has perpetrated a fraud on the court, or where a party refuses to comply with court orders. Because dismissal is the most severe of all possible sanctions, however, it should be employed only in extreme circumstances. 6

Certainly, despite the apparent stringency of this standard, there are numerous examples of Florida courts finding a personal injury plaintiff’s fraudulent conduct during discovery sufficiently egregious to dismiss the entire action. In one recent case, Diaz v. Home Depot USA, Inc., the plaintiff in a premises liability action alleged she had suffered permanent injuries to her neck and shoulder and sought both economic and noneconomic damages.7 At her deposition, the plaintiff denied that she had previously suffered any injury to her neck or back and that she had been involved in a prior slip-and-fall or motor vehicle accident.8 The defense, however, obtained medical records revealing that the plaintiff had been involved in a motor vehicle accident necessitating medical treatment nine months prior to the incident at issue. In those records, the plaintiff had complained of pain to her neck and back. Seven months before the incident at issue, the plaintiff had again visited the hospital, after falling backwards onto concrete, asserting pain to her neck and back. Finally, eight months after the incident, the plaintiff was involved in a second motor vehicle accident following which, among other things, she reported to a nurse that she had suffered chronic neck pain for years.9 Because the evidence demonstrated that the plaintiff had set in motion an unconscionable scheme calculated to interfere with the court’s ability to adjudicate the matter, the Third District Court of Appeal determined that clear and convincing evidence supported the lower court’s decision to dismiss the plaintiff’s case.10

In another commonly-cited case, Morgan v. Campbell, the plaintiff similarly denied that she had experienced neck or back pain before the accident at issue.11 Although she admitted she had previously seen a chiropractor to treat her scoliosis, she denied that the chiropractor had treated her for neck or back pain; however, the defense discovered that the chiropractor had treated her for complaints of neck and back pain and that the plaintiff had also seen another chiropractor whom she had failed to disclose.12 The Second District Court of Appeal upheld the lower court’s dismissal of the claim, finding that the plaintiff’s “false testimony was directly related to the central issue in the case — whether the accident in question caused her neck and low back injuries,” and that the plaintiff’s contention that she “forgot” about the prior treatment to her back and neck was not credible.13 In upholding the dismissal, the Second District crafted some useful language for the defense to utilize in future cases. Specifically, the court made note of the plaintiff’s “half-truths” and declared that “[r]evealing only some of the facts does not constitute ‘truthful disclosure’” upon which the process of civil litigation depends.14

On the other hand, there is no shortage of Florida appellate decisions that reversed lower courts’ orders to dismiss for fraud upon the court where the strict standard of finding clear and convincing evidence of an unconscionable scheme was not satisfied. For example, in Gautreaux v. Maya, the plaintiff allegedly suffered from continuing migraine headaches as a result of a motor vehicle accident.15 The plaintiff testified that she had never had headaches before the accident; however, medical records revealed that years before the accident, the plaintiff had “frequent headaches” and a history of chronic migraine headaches. The plaintiff explained her earlier testimony by stating that the question had confused her and that she once had experienced a really bad headache.16 The Fifth District Court of Appeal reversed the lower court’s dismissal of the case, finding that “[t]he facts of this case do not meet the narrow, stringent standard required for dismissal for fraud on the court,” as the facts revealed only a “testimonial discrepancy.” According to the Fifth District, the plaintiff’s misrepresentation “did not rise to the level of ‘the most blatant showing of fraud, pretense, collusion, or other similar wrong doing.”17

A different variety of cases where the evidence may not sustain a dismissal for fraud is where the alleged fraud is not central to the main issues in the case. In Suarez v. Benihana National of Florida Corp., the defendants identified numerous discrepancies between a plaintiff’s deposition testimony in a negligent security case and his testimony in a former deposition in the related criminal case. The discrepancies arose when the plaintiff testified on the issues of whether he drank alcohol the night of the incident, whether he used profanity in speaking to his attackers, whether he was punched or “pat on the chest” first, whether he punched the attacker back, how he verbally responded to the attacker’s instruction to him to cross the street, and whether he was willing to fight the attackers.18 The Third District Court of Appeal reversed the lower court’s dismissal for fraud, finding the discrepancies between the depositions insufficient to support dismissal:

While there are certainly inconsistencies and contradictions in the deposition testimony given by [plaintiff] in 2007 and 2011, the record simply fails to demonstrate clearly and convincingly that Appellants “collusively engaged in a scheme designed to prevent the trier [of fact] from impartially adjudicating this matter through lies, misrepresentations, contradictory statements and otherwise hiding the truth.” More importantly, we disagree with [defendant’s] assertions and the court’s conclusion that the contradictions and inconsistencies go “to the very heart of the claims” against [defendant], justifying dismissal of the action with prejudice

. . . . .

Even if the record in this case could give rise to some inference of willful or intentional conduct, the nature and substance of the inconsistencies and contradictions required the trial court to consider some lesser sanction, reflecting the proper balance of competing interests and appropriately tailored to address the party’s conduct and the resulting prejudice.19

Cases like Gautreaux and Suarez show that notwithstanding the defense’s best efforts, Florida courts may permit a plaintiff to have his or her day in court even where evidentiary discrepancies constitute lies or are otherwise pervasive.20 Indeed, notably, in cases where the evidence of a fraudulent scheme is not deemed clear and convincing, Florida courts have pronounced that, short of evidence of a “deliberate scheme to subvert the judicial process,” a plaintiff’s “[m]isconduct that falls short of the rigors of this test, including inconsistency, poor recollection, dissemblance, [and] even lying may be well managed and best resolved by bringing the issue to the jury’s attention through cross-examination….”21 Invariably, seizing on the stringency of the standard as demonstrated by such caveats, plaintiffs oppose motions to dismiss for fraud upon the court on the basis of poor memory, forgetfulness, or language barriers (in cases where the plaintiff does not speak English or is a non-native speaker). Such arguments are best combated by cross-examining the plaintiff at an evidentiary hearing on the defense’s motion to dismiss for fraud on the court. Effective cross-examination of the plaintiff in such cases may demonstrate, based on other case-specific evidence, that the assertions of misunderstanding or forgetfulness are not credible.

Adjusters and SIU professionals should also be aware of an important offshoot of cases where courts may find the evidence of fraud insufficient to dismiss a claim. These are cases in which the defense attempts to prove that the plaintiff committed a fraud on the court by contradicting his or her reports of injuries with surveillance video. Specifically, Florida’s appellate courts are not inclined to uphold dismissals for fraud upon the court where the only evidence of fraud amounts to discrepancies between the extent of a plaintiff’s injuries complained of and the plaintiff’s physical capabilities as shown by surveillance. For example, in Guillen v. Vang, the Fifth District reversed a trial court’s finding that the plaintiff perpetrated a fraud on the court by performing activities, as depicted in a surveillance video, that he allegedly claimed he could not perform in his deposition testimony.22 The Fifth District held:

We do not believe that the surveillance DVD constitutes clear and convincing evidence that Guillen has “‘sentiently set in motion some unconscionable scheme calculated to interfere with the judicial system’s ability impartially to adjudicate a matter by improperly influencing the trier of fact or unfairly hampering the presentation of the opposing party’s claim or defense.’” We believe that any discrepancies between Guillen’s testimony and the surveillance DVD are best resolved by a jury.23

In working with defense counsel, being familiar with the legal standard for dismissal for fraud — vague and subjective as it may be — can be useful to claims adjusters and SIU professionals. Depending on the quality and quantity of the misrepresentations and omissions at issue, the defense team should decide whether to pursue a full-scale motion to dismiss for fraud upon the court versus seeking lesser discovery sanctions. In certain cases, lesser discovery sanctions may be the more appropriate and viable avenue, including dismissal of only portions of the claim. Ultimately, if the adjuster and defense counsel decide that pursuing dismissal for fraud is not the best defense, then using the misrepresentations and omissions for cross-examination and impeachment at trial may be the most effective tactic.

CSK is devoted to assisting its partner carriers with investigating and aggressively combatting fraudulent claims. Yet, it is important to keep in mind that, given the current law in Florida, the defense sometimes maintains more credibility with the court in recognizing when seeking dismissal of an entire action may not be appropriate. Where omissions are isolated or not central to the claim or where there are potentially believable explanations for the plaintiff’s testimonial discrepancies, the plaintiff’s misrepresentations may be most effectively presented in cross-examination and impeachment during trial.

In sum, Florida courts have not crafted an objective test that draws the definitive line between situations where the plaintiff’s misrepresentations or omissions warrant dismissal and those where the misrepresentations (or even lies) provide mere fodder for cross-examination and impeachment. Florida’s standard for dismissal of claims where the plaintiff has arguably committed fraud upon the court requires egregious inconsistencies and blatant misrepresentations that bear on issues central to the plaintiff’s claims. Thus, the success of motions to dismiss for fraud upon the court continues to rest on the quality of defense counsel’s advocacy in convincing a trial judge, and likely an appellate panel, that clear and convincing evidence of the requisite “pattern” or “scheme” of fraud exists in a given case.

Over the years, CSK has successfully defended numerous matters involving claims of fraud, including several more-recent decisions.24

(Endnotes)

1 Robert W. Emerson, Insurance Claims Fraud Problems and Remedies, 46 U. Miami L. Rev. 907, 934 (1992).
2 See, e.g., Ramey v. Haverty Furniture Cos., 993 So. 2d 1014, 1018 (Fla. 2d DCA 2008) (“[A] trial court has the inherent authority to dismiss an action as a sanction when the plaintiff has perpetrated a fraud on the court. ‘Such power is indispensable to the proper administration of justice, because no litigant has a right to trifle with the courts.’”) (internal citations omitted).
3 Andrews v. Palmas De Majorca Condo., 898 So. 2d 1066, 1069 (Fla. 5th DCA 2005) (citation omitted).
4 Art I., § 21, Fla. Const. (“The courts shall be open to every person for redress of any injury, and justice shall be administered without sale, denial or delay.”).
5 706 So. 2d 43 (Fla. 5th DCA 1998).
6 Id. at 46 (internal citations omitted). It is interesting to note that in Cox, the Fifth District declared that where the question of whether dismissal was the appropriate sanction is a “close” one, if the dismissal is appealed, the appellate court should not find an abuse of discretion. Id. at 47. Since Cox, the law has evolved to provide that the appellate court will apply a “narrowed” abuse of discretion standard of review to a lower court’s ruling on a motion to dismiss for fraud. The standard is “narrowed” to the extent that the appellate court must assess whether there is competent, substantial evidence to support the lower court’s finding of “clear and convincing evidence” of fraud.
7 41 Fla. L. Weekly D1625 (Fla. 3d DCA July 13, 2016).
8 Id.
9 Id.
10 Id. For other relatively recent appellate decisions upholding dismissals for fraud upon the court in personal injury actions, see Middleton v. Hager, 179 So. 3d 529 (Fla. 3d DCA 2015); Jimenez v. Ortega, 179 So. 3d 483 (Fla. 5th DCA 2015); Herman v. Intracoastal Cardiology Ctr., 121 So. 3d 583 (Fla. 4th DCA 2013); Faddis v. City of Homestead, 121 So. 3d 1134 (Fla. 3d DCA 2013); Wenwei Sun v. Aviles, 53 So. 3d 1075 (Fla. 5th DCA 2010) (“The case before us is not one of poor recollection or dissemblance; it is one where the three claimants over a span of six years lied repeatedly about Mr. Sun’s employment and his abilities to perform even the most basic functions of daily life.”); Williams v. Miami-Dade Cnty. Pub. Health Trust, 17 So. 3d 859 (Fla. 3d DCA 2009); Bass v. City of Pembroke Pines, 991 So. 2d 1008 (Fla. 4th DCA 2008); Ramey, 993 So. 2d 1014; Saenz v. Patco Transp., Inc., 969 So. 2d 1145 (Fla. 5th DCA 2007); Papadopoulos v. Cruise Ventures Three Corp., 974 So. 2d 418 (Fla. 3d DCA 2007); Austin v. Liquid Distribs., Inc., 928 So. 2d 521 (Fla. 3d DCA 2006); Hutchinson v. Plantation Bay Apts., LLC, 931 So. 2d 957 (Fla. 1st DCA 2006); McKnight v. Evancheck, 907 So. 2d 699 (Fla. 4th DCA 2005); and, Piunno v. R.F. Concrete Constr., Inc., 904 So. 2d 658 (Fla. 4th DCA 2005).
11 816 So. 2d 251, 252 (Fla. 2d DCA 2002).
12 Id. at 252-53.
13 Id. at 253.
14 Id. at 254.
15 112 So. 3d 146, 148 (Fla. 5th DCA 2013).
16 Id. at 148-49.
17 Id. at 150 (citation omitted).
18 88 So. 3d 348, 351 (Fla. 3d DCA 2012).
19 Id. at 353.
20 For other relatively recent cases reversing dismissals for fraud upon the court in personal injury actions, see Bolera v. Papa, 142 So. 3d 918 (Fla. 4th DCA 2014); Bosque v. Rivera, 135 So. 3d 399 (Fla. 5th DCA 2014); Chacha Transp. USA, Inc., 78 So. 3d 727 (Fla. 4th DCA 2012) (holding that order of dismissal for fraud upon the court must include express written findings demonstrating that lower court balanced the equities); Gilbert v. Eckerd Corp. of Fla., Inc., 34 So. 3d 773 (Fla. 4th DCA 2010); Laurore v. Miami Auto. Retail, Inc., 16 So. 3d 862 (Fla. 3d DCA 2009); Villasenor v. Martinez, 991 So. 2d 433 (Fla. 5th DCA 2008); Ibarra v. Izaguirre, 985 So. 2d 1117 (Fla. 3d DCA 2008); Granados v. Zehr, 979 So. 2d 1155 (Fla. 5th DCA 2008); Kubel v. San Marco Floor & Wall, Inc., 967 So. 2d 1063 (Fla. 2d DCA 2007); Gehrmann v. City of Orlando, 962 So. 2d 1059 (Fla. 5th DCA 2007); Howard v. Risch, 959 So. 2d 308 (Fla. 2d DCA 2007); Myrick v. Direct Gen. Ins. Co., 932 So. 2d 392 (Fla. 2d DCA 2006); Cross v. Pumpco, Inc., 910 So. 2d 324 (Fla. 4th DCA 2005); Canaveras v. Cont’l Grp., Ltd., 896 So. 2d 855 (Fla. 3d DCA 2005); Rios v. Moore, 902 So. 2d 181 (Fla. 3d DCA 2005).
21 Perrine v. Henderson, 85 So. 3d 1210, 1212 (Fla. 5th DCA 2012) (emphasis supplied); see also Bologna v. Schlanger, 995 So. 2d 526, 528 (Fla. 5th DCA 2008).
22 138 So. 3d 1144 (Fla. 5th DCA 2014).
23 Id. at 1145; see also Amato v. Intindola, 854 So. 2d 812, 816 (Fla. 4th DCA 2003) (“The fact that a surveillance tape shows discrepancies usually affects the jury’s view of the case, but in this case it does not merit a dismissal with prejudice to appellant’s case.”); Jacob v. Henderson, 840 So. 2d 1167, 1170 (Fla. 2d DCA 2003) (“’In all but the most extreme cases, our system entrusts juries with the ultimate decisions as to whether claimed injuries are genuine or not. Our experience has demonstrated that juries deserve this trust and that they are well able to discern the truth and to render judgment accordingly.’”) (quoting Francois v. Harris, 366 So. 2d 851, 852 (Fla. 3d DCA 1979)). But cf. Jimenez, 179 So. 3d at 488 (“Even when confronted with video surveillance showing him performing tasks he claimed he could not do, Ortega continued to perjure himself and exaggerate his claims. His conduct cannot be countenanced.”).
24 See, e.g., Diaz v. Home Depot USA, Inc., 196 So. 3d 504 (Fla. 3d DCA 2016); Lester v. Progressive Express Insurance Co., No. 1D15-5500, 2016 Fla. App. LEXIS 17396 (Fla. 1st DCA Nov. 18, 2016); Austin v. Niko Petroleum, No. 3D15-2196, 2015 Fla. App. LEXIS 17274 (Fla. 3d DCA Oct. 21, 2015); Lorenzo v. Harris, 151 So. 3d 1257 (Fla. 3d DCA 2014); Handel v. Nevel, 147 So. 3d 649 (Fla. 3d DCA 2014); Hadfeg v. Hialeah Rey Pizza, Inc., 149 So. 3d 19 (Fla. 3d DCA 2014).

Application of the PIP Deductible to Bills Submitted by Hospitals and Other Non-emergency Physician Providers

Let’s face it, accidents happen. But, when they do, we hope for a host of reasons that the injuries are not severe enough to warrant a visit to the hospital. For insurers, this concern goes beyond the concern for the claimant’s physical well-being. Rather, the insurer must also concern itself with how to tender Personal Injury Protection benefits to those providing medical services in a hospital setting. In particular, insurers must decide whether they are obligated to apply 100 percent of the contracted for Personal Injury Protection (“PIP”) deductible to the full amount of charges that a hospital (Chapter 395 provider) submits, or whether they should apply 100 percent of the contracted for PIP deductible to the adjusted amount of the total charges.

The fact is that there is no binding statewide appellate authority on this issue. In addition, courts throughout Florida are split on the issue. As such, from a defense perspective, this article discusses how the issue should be resolved based upon legislative analysis and a statewide canvass of all relevant, recently published opinions.

I. “Nay, whoever hath an absolute Authority to interpret any written, or spoken Laws; it is He, who is truly the Lawgiver, to all Intents and Purposes; and not the Person who first wrote, or spoke them.”1

Legislative intent guides a court’s construction of a statute.2 “To discern legislative intent, a court must look first and foremost at the actual language used in the statute.”3 “[W] hen the language of the statute is clear and unambiguous and conveys a clear and definite meaning, there is no occasion for resorting to the rules of statutory interpretation and construction; the statutes must be given its plain and obvious meaning.”4 Courts cannot construe an unambiguous statute in a manner that would “extend, modify, or limit, its express terms or its reasonable and obvious implications” because “[t]o do so would be an abrogation of legislative power.”5 Moreover, when two statutes relate to the same object or subject, the Florida Supreme Court has repeatedly urged Florida Courts to “read statutes relating to the same subject or object in pari materia, in order to harmonize the provisions and give effect to the Legislative intent.”6

The clear and unambiguous language of the relevant statutes, when read together, firmly establishes that an insurer is not required to apply PIP deductibles to 100 percent of whatever the face amount of the provider’s bill may be. Instead, an insurer may apply the deductible to the eligible and “reasonable” amounts of an insured’s medical expenses.

The relevant statutory language is found within the “Deductible Statute”, or §627.739(2), Florida Statutes, which states as follows:

Insurers shall offer to each applicant and to each policyholder, upon the renewal of an existing policy, deductibles, in amounts of $250, $500, and $1000. The deductible amount must be applied to 100 percent of the expenses and losses described in s. 627.736. After the deductible is met, each insured is eligible to receive up to $10,000 in total benefits described in s. 627.736(1). APPLICATION OF THE PIP DEDUCTIBLE TO BILLS SUBMITTED BY HOSPITALS AND OTHER NON-EMERGENCY PHYSICIAN PROVIDERS However, this subsection shall not be applied to reduce the amount of any benefits received in accordance with s. 627.736(1)(c). 7

From a straightforward reading of the Deductible Statute, it appears that the contracted for PIP deductible should be applied to 100 percent of the expenses and losses described in the “PIP Statute”, or §627.736, Florida Statutes. Importantly, several sections of the PIP Statute describe expenses as those that are lawfully rendered; reasonable in charge; related and medically necessary. Yet, the plaintiff bar, and those courts that find the provider’s arguments persuasive, refuse to parse the language of the statute. They merely stop on the surface, reading the language to mean only those benefits that are described in subsection one (1) of the PIP Statute, or 80 percent of the total amount submitted. The plaintiff bar’s proposed method of applying the PIP deductible, however, is arguably inconsistent with the legislative intent.

Providers urge that the Deductible Statute requires that the deductible be applied to 100 percent of the expenses and losses described in the PIP Statute. This position is inapposite to the clear and unambiguous language of the PIP statute’s archetypal requirement that medical benefits are defined as “reasonable” benefits. Not only would such an interpretation render portions of the PIP Statute meaningless,8 but it also disregards established principles of statutory construction.

Indeed, as noted in the Preface to the Florida Statutes, “a cross reference to a specific statute incorporates the language of the referenced statute as it existed at the time the reference was enacted.”9 In this case, the Deductible Statute states that the deductible must be applied to 100 percent of the expenses and losses “described in s. 627.736.” Therefore, by its very own language, the Deductible Statute contains a descriptive reference to the entire PIP Statute, not just the provisions “cherry-picked” by the provider. Accordingly, by expressly referencing the entire PIP Statute, it was arguably the Legislature’s intent to incorporate the “reasonableness” limitation on expenses and losses.

Although there are many published opinions on the general issue of proper application of the deductible, only one case involves a hospital’s submission of bills. Nevertheless, the majority of the decisions support the position that an insurer must apply 100 percent of the contracted for deductible to the reasonable amount of the charges as opposed to the face value of the bills submitted.10 The following is a review of the most recent, persuasive and informative cases.

II. While Legislative Intent is the Polestar that Guides the Court’s Construction of Statutes, Not All Courts Arrive at the Same Destination.

There is, perhaps, no more difficult task that judges perform than that of construing or interpreting statutes. There are also few tasks more difficult. This is the case for several reasons. Statutes are made up of words. Words are, by their nature, at best imprecise approximations of the ideas they are intended to convey. A word almost always has more than one meaning. Moreover, statutes are often a group product, and the members of the group may not have shared the same understanding regarding the words used. If all of this were not enough, legislative bodies frequently draft statutes using general, rather than specific, language because they cannot agree on the full reach of the statute. Or, even if they can, they wish to leave room for interpretive growth in order to cover those potential future situations that cannot be clearly foreseen. This is why not all courts, while guided by the same “polestar”, arrive at the same destination. As for the courts’ interpretation of the Deductible Statute, this has certainly been the case.

A recent county court decision out of the Eleventh Judicial Circuit, Royal Care Medical Center (a/a/o Samantha Gonzalez) v. Esurance Property and Casualty Ins. Co., held that where the PIP policy clearly elects to pay pursuant to the permissive statutory fee schedule, the insurer properly applied the fee schedule to bills before applying the deductible.11 In the case, the court reasoned that the defendant properly applied its policy deductible to plaintiff’s medical bills by first applying the Medicare Fee Schedule reductions as elected by the subject policy of insurance, and by then applying the deductible. The court reasoned that the deductible only applies to losses covered under the policy of insurance, not simply the total bills submitted.12

Therefore, the insurer should first determine which bills are deemed reasonable, related and necessary under the policy of insurance, and then apply the deductible. If the insurer has properly elected to pay pursuant to the applicable fee schedules as described in the PIP Statute, then the insurer may first apply the fee schedules to the submitted bills, and then apply the deductible.13 Moreover, courts have held that the PIP Statute and the Deductible Statute must be read together, in pari materia. By applying the Medicare Fee Schedule limitations prior to the application of the policy deductible, defendant has complied with the Deductible Statute and applied the deductible to 100 percent of the expenses and losses as described in the PIP Statute.14

The courts of Pinellas County reached a similar holding in the case of Bayfront Health Education and Research Org. Inc. v. Progressive Am. Ins. Co.15 In Bayfront Health Education and Research Org. Inc., the court found no merit to the argument that the insurer was required to apply the deductible to 100% of medical provider’s billed expenses, and expressed the following rationale in reaching its decision:

Section 627.739(2), Fla. Stat. states ‘The deductible amount must be applied to 100 percent of the expenses and losses described in §627.736.’ As §627.739(2), Fla. Stat. refers to the ‘expenses and losses described in §627.736,’ this Court must look to §627.736 to determine the expenses and losses described. Section 627.736 describes the payable expenses as ‘reasonable expenses for medically necessary medical, surgical, X-ray, dental and rehabilitative services. . .’ and payable losses as ‘any loss of gross income and loss of earning capacity per individual from inability to work. . .’ As such, the statute requires the deductible be applied to 100 percent of the reasonable expenses for medically necessary medical, surgical, etc. services and loss of gross income and loss of earning capacity related to the accident. If the insurer, Defendant, reduced the medical expenses to a “reasonable” amount, then the deductible should be applied to 100% of the reasonable amounts, not necessarily the amount billed by the medical provider. While the Plaintiff argued that §627.739(2), Fla. Stat. requires that the deductible be applied to ‘100% of all expenses and losses,’ it fails to reference the remaining part of the statute that states ‘described in §627.736.’ Plaintiff argues the deductible should be applied to 100% of all expenses billed by the medical provider. (emphasis added) Plaintiff suggests that the Legislature’s amendment to §627.739, in 2003, supports this argument. However, Plaintiff is incorrect; prior to 2003, the deductible was being applied after the reasonable expenses were reduced by the 80% P.I.P. coverage. See Bankers Ins. Co. v. Arnone, 552 So. 2d 908 (Fla. 1989). Now, the insurer is required to apply the deductible to 100% of the reasonable expenses (not necessarily the billed expenses), before the expenses are reduced for the 80% P.I.P coverage. As such, Plaintiff’s argument fails as it relates to §627.739(2), Fla. Stat.16

Based upon the two cases discussed above, we see that courts in Florida are finding that simple statutory construction of the PIP Statute and the Deductible Statute requires an insurer to apply 100 percent of the elected deductible to the “reasonable amount” of medical expenses. In determining the reasonable charge, the insurer may have elected to apply the fee schedule methodology of payment or the fact intensive methodology. However, regardless of the methodology used, it comes down to whether the insurer determined what the “reasonable amount” was before applying the deductible to said amount.

III. Alas, All Ships May Enter the Same Harbor.

We may yet gain closure on this issue as the Fourth District Court of Appeal has accepted jurisdiction and will hear the appeal of Care Wellness Center, LLC (a/a/o Virginia BardonDiaz) v. State Farm Mutual Automobile Insurance Company, wherein the Seventeenth Judicial Circuit has certified the following as a question of great public importance: “Pursuant to Fla. Stat. §627.739, is an insurer required to apply the deductible to 100% of an insured’s expenses and losses prior to applying any permissive fee schedule payment limitation found in §627.736(5) (a)1, Fla. Stat. (2013)?”17

Care Wellness Center, LLC (a/a/o Virginia Bardon-Diaz) arose out of an automobile accident in which Virginia Bardon-Diaz sustained injuries and sought treatment, making a claim for PIP benefits under a policy of insurance that had a limit of $10,000 in PIP benefits with an elected $1,000 deductible. Following the motor vehicle accident, Ms. Bardon-Diaz treated at various medical providers, including three prior to Care Wellness, LLC. The insurer reduced the bills of these three providers according to the fee schedules contained in subsection (5)(a)1 of the PIP Statute and applied the reduced amount to the deductible. Thereafter, the defendant received bills from Care Wellness, LLC, which the PIP carrier likewise reduced and then applied entirely to the remaining deductible.

Care Wellness, LLC disputed the reduction and application of the deductible. The provider filed, in part, a request for declaratory relief on the pure legal question of whether it was appropriate for the insurer to make fee schedule reductions to bills that are applied to the deductible. Care Wellness, LLC sought a declaration that both the policy and relevant statutes limit the applicability of the fee schedules to bills that are actually reimbursed, that the injured insured’s deductible should have been completely satisfied prior to receipt of Care Wellness’s first bill, and that the insurer erred by failing to reimburse its bills. The insurer’s position, in summary, is that since the policy of insurance permits it to reimburse providers in accordance with the fee schedules, it may reduce all bills (including those falling under the deductible or outside of policy limits) to the fee schedule rates. The county court agreed with plaintiff’s position, finding that neither the statutes nor the policy permitted the insurer to make fee schedule reductions to bills that are applied to the deductible.

The county court’s ruling, as important as it is to the parties involved in the dispute, has far greater import to the rest of the community. In fact, the court found that the issue presented is one of great public importance affecting the uniform administration of justice. Indeed, two circuit courts, sitting in their appellate capacity, are in conflict over this issue, and several county courts have diverged on this same issue.18 This divergence of opinions has created a tremendous amount of uncertainty for insureds, insurers, and medical providers. Accordingly, the County Court of the Seventeenth Judicial Circuit certified the question to the Fourth District Court of Appeal as a matter of great public importance.

Until this conflict of law is resolved, the issue of how insurers may apply the PIP deductible remains uncertain. However, the lawyers at CSK remain watchful. Once the appellate court resolves this conflict, CSK will promptly inform you of the decision by e-blast.

(Endnotes)

1 Benjamin Hoadly, Lord Bishop of Winchester, The Nature of the Kingdom, or Church, of Christ (March 31, 1717), in Sixteen Sermons , 1754, at 291. 2 Larimore v. State,
2 So. 3d 101, 106 (Fla. 2008) (citing Bautista v. State, 863 So.2d 1180, 1185 (Fla. 2003)).
3 Id.
4 Holly v. Auld, 450 So. 2d 217, 219 (Fla. 1984) (quoting A.R. Douglass, Inc. v. McRainey, 137 So. 157, 159 (Fla. 1931)).
5 Id. (quoting Am. Bankers Life Assur. Co. of Fla. v. Williams, 212 So. 2d 777, 778 (Fla. 1st DCA 1968)).
6 Geico v. Virtual Imaging Servs., Inc., 90 So. 3d 321, 323 (Fla. 3d DCA 2012); see also Florida Dep’t of Highway Safety v. Hernandez, 74 So. 3d 1070, 1075 (Fla. 2011); Hill v. Davis, 70 So. 3d 572, 577 (Fla. 2011).
7 § 627.739(2), Fla. Stat. (emphasis added).
8 Courts are “required to give effect to ‘every word, phrase, sentence, and part of the statute, if possible, and words in a statute should not be construed as mere surplusage.” Heart of Adoptions, Inc. v. J.A., 963 So. 2d 189, 198 (Fla. 2007) (quoting Am. Home Assur. Co. v. Plaza Materials Corp., 908 So.2d 360, 366 (Fla. 2005)). A “basic rule of statutory construction provides that the Legislature does not intend to enact useless provisions, and courts should avoid readings that would render part of a statute meaningless.” Id. The plaintiff bar’s proposed method of deductible application would render portions of the PIP Statute meaningless and disregard the explicit “reasonable” and “allowable” reimbursement methodology set forth therein.
9 Preface at viii, Fla. Stat. (1995); Golf Channel v. Jenkins, 752 So. 2d 561, 564 (Fla. 2000) (quoting Preface at viii, Fla. Stat. (1995)); see also Overstreet v. Blum, 227 So.2d 197 (Fla. 1969); Hecht v. Shaw, 151 So. 333 (Fla. 1933); 48A Fla. Jur. 2d Statutes § 12 (“Where a statute adopts a part of or all of another statute by specific or descriptive reference thereto, the effect is the same as if the provisions adopted were written into the adopting statute.”) (emphasis added).
10 For a list of cases reviewed with analysis, please feel free to contact the author directly.
11 22 Fla. L. Weekly Supp. 948a (Fla. 11 Cir. Ct. Jan. 21, 2015).
12 Id.; see also General Star Indem. v. W. Fla. Village Inn, 874 So. 2d 26, 33-34 (Fla. 2d DCA 2004) (discussing the functional purpose of a deductible – to apply only to losses covered under the policy of insurance).
13 Id.; Order Denying Plaintiff’s Motion for Summary Judgment, New Medical Group, Inc. a/a/o Elisa Collazo v. United Auto. Ins. Co., Case. No. 11-01871 SP 26 (Fla. 11th Cir. Ct. Mar. 15, 2013) (denying summary judgment where plaintiff was alleging defendant improperly applied its policy deductible).
14 22 Fla. L. Weekly Supp. 948a; see also Goldcoast Physicians Center, Inc. (a/a/o Charles Bradford) v. Garrison Prop. & Cas. Ins. Co., 20 Fla. L. Weekly Supp. 711a (Fla. 17th Cir. Ct. Apr. 29, 2013); Gen. Star. Indem., 874 So. 2d at 34.
15 22 Fla. L. Weekly Supp. 934a (Fla. 6th Cir. Ct. Feb. 20, 2015).
16 Id. (emphasis in original).
17 23 Fla. L. Weekly Supp. 985a (County Court, Broward, May 12, 2016). A similar appeal is currently pending in the Fifth District Court of Appeal.
18 Compare Progressive American Insurance Co. v. Chambers Medical Group, Inc. (a/a/o Sheila Wilcox), Case No. 2015 AP 000850 NC (Fla. 12th Cir. Ct. App. Div. Feb. 23, 2016), with Garrison Property and Cas. Ins. Co v. New Smyrna Imaging, LLC (a/a/o Megan McClanahan), 23 Fla. L. Weekly Supp. 708a (Fla. 18th Cir. Ct. App. Div. Jan. 12, 2015).

Transgender Discrimination Claims

Transgender discrimination has increasingly become a topic of concern for employers and insurance professionals who handle these claims.1 At the state level, some legislative bodies have even further confounded the issues surrounding equal protection for the transgender population by enacting anti-transgender laws. One recent example occurred in North Carolina when its state legislature enacted the “Bathroom Bill.” The Bill restricts transgender individuals to utilizing public restrooms that correspond to the sex listed on the individuals’ birth certificates. Such legislation poses the probability—if not certainty- –of an increasing number of transgender discrimination claims.

Despite increased awareness in recent times, it is likely that employers and communities still fail to recognize the number of transgender individuals who live and work in the United States. In June 2016, the Williams Institute at the U.C.L.A. School of Law released a survey, estimating that approximately 1.4 million adults in the United States identify themselves as transgender.2 Notably, the 2016 estimate of the transgender population was double the estimate that the Williams Institute reported in April 2011.3 In addition, the Williams Institute’s 2016 estimate reported that about 100,300 adult Floridians identify as transgender, which is approximately 0.66% of Florida’s total adult population. Florida has the sixth highest percentage of adult residents who identify as transgender.

Legal Protection of Transgender Individuals

In the employment law realm, the primary source of federal law that addresses workplace discrimination is Title VII of the Civil Rights Act of 1964 (“Title VII”).4 Presently, Title VII does not expressly protect transgender employees from discrimination. However, the United States Equal Employment Opportunity Commission (“EEOC”) makes clear that it interprets Title VII to protect transgender employees. In fact, the EEOC continues to expand protection for transgender employees against discrimination. In addition, cities and counties in Florida have started enacting codes that specifically protect transgender employees.

Within this continuing trend, employers will likely see an increase in transgender discrimination claims. There are two keys to handling, minimizing, and preventing transgender discrimination claims. First, to determine the full extent of the exposure, employers and claims professionals should identify the law under which the claim is being brought, and other potentially applicable laws. Second, employers must take steps to minimize the risk of continued discrimination or retaliation based on such claims.

Applicable Laws

Employees have multiple avenues for bringing transgender discrimination claims. These include Title VII claims and claims based upon state laws, such as the Florida Civil Rights Act of 1992 (“FCRA”).5 In addition, there may be county or municipal laws that protect transgender individuals.

As employers know, Title VII protects employees from discrimination by an employer based on sex, race, color, national origin, or religion.6 However, despite protecting “sex,” Title VII does not expressly protect gender identity or gender expression.7 Based upon this omission, courts have previously held that an individual’s status as a transgender person was not protected by Title VII.8

Recently, however, there has been a shift toward greater protection for transgender employees. In 2011, the Eleventh Circuit held that the Equal Protection Clause of the Fourteenth Amendment protects a transgender employee’s status as a transgender person.9 Moreover, courts have consistently held that Title VII protects employees against discrimination based on sexual stereotyping and failure to conform to gender norms, such as how a person of a certain sex should dress or behave.10 Transgender discrimination claims are tied into gender norms because a person is considered transgendered under the law “precisely because of the perception that his or her behavior transgresses gender stereotypes.”11 In a practical sense, what this means for employers is that any discrimination against a transgender employee could likely be covered by Title VII.

Through its enforcement of Title VII, the EEOC has also taken the position that it affords transgender employees protection from discrimination.12 In fact, the EEOC’s website specifically states that it protects employees from discrimination based on gender identity.13 From its inception, courts have broadly interpreted Title VII to provide protection to employees and its reach continues to expand. Therefore, it is likely that courts will continue to follow the EEOC’s lead in expanding protections to transgender employees.

Similar to Title VII, the FCRA does not expressly address transgender employees. Moreover, Florida courts have yet to weigh in on the issue. However, because the FCRA is patterned after Title VII, federal case law interpreting Title VII is applicable in the context of the FCRA.14 It is, therefore, prudent for employers to assume that the FCRA will likely afford protection to transgender employees.

Beyond the federal and state laws, employers and claims professionals must also be aware of laws at the municipal and county levels that may afford transgender employees protection. In Florida, many counties and cities maintain their own anti-discrimination laws, although the level of protection afforded to transgender employees, specifically, varies from municipality to municipality. Some county codes, such as the Hillsborough County Code, mirror or adopt the protections available under Title VII and the FCRA.15 Other county codes, such as the Miami-Dade County Code, include specific protections for transgender employees, including protection of employees’ gender identity and gender expression.16 There is often a lower threshold for employers to fall under these municipal level anti-discrimination laws, so a county or city anti-discrimination code or ordinance can potentially offer a transgender employee relief that may not otherwise be available under Title VII or the FCRA.

Upon receiving a transgender discrimination claim, it is advisable to check for all applicable county and city level anti-discrimination codes. This will help to fully evaluate the claim, particularly when the claim may not be covered by Title VII or the FCRA. Staying up-to-date is critical throughout the claims process because changes in municipal laws typically do not receive the publicity that changes in federal or state laws do. Further, municipal level anti-discrimination laws may have unique processes or criteria for handling discrimination claims or may offer different forms of relief to the employee.

In addition to Title VII, the FCRA, and relevant municipal codes, other laws may also apply, depending on the specific circumstances of the claim. For instance, the Family Medical Leave Act may apply where the alleged discrimination involves an employee attempting to take leave for gender reassignment surgery or for other treatment based on a gender dysphoria or gender identity disorder. As another example, the United States Department of Labor’s Occupational Safety and Health Administration recently issued a guide to employers regarding restroom access for transgender employees.17 Accordingly, understanding the wide variety of laws that may be involved in a transgender discrimination claim is critical when evaluating the claim.

Minimizing Claim Exposure

Gender issues in the workplace can be a particularly touchy subject. In fact, claims of transgender discrimination come with a high potential for subsequent retaliation claims. Title VII protects employees who engage in protected activity from retaliation, such as protesting discrimination or filing a charge of discrimination with the EEOC.18 Employers should therefore attempt to work with the transgender employee who is making the discrimination claim to devise a plan to prevent additional or future claims of discrimination or of retaliation. In doing so, there are three primary areas that the employer typically needs to address.

First, the employer should be sensitive to the fact that transgender employees may want access to the restroom of the gender with which they identify. If other employees object, the employer should also be sensitive to their needs. This is because courts have generally held that allowing an employee access to a restroom based on gender identity does not constitute harassment of the objecting employees.19 Ultimately, an employer should initiate a collaborative effort in an attempt to meet everyone’s needs.

In this regard, secondly, the employer should consider implementing employee education regarding the protections afforded to transgender employees. As part of any education, an employer should reiterate the employer’s anti-discrimination and anti-harassment policy. The employer should allow the transgender employee to decide the employee’s attendance at transgender education training. It may be helpful for the transgender employee to assist in allaying co-worker’s concerns. However, the employer must be sensitive and should certainly avoid putting the transgender employee in an uncomfortable position.

Third, employers should address and refer to the transgender employee properly. Transgender employees may opt to use a new name as part of the transition to their preferred gender. Employers should use the transgender employee’s preferred name and title, and should ensure that employees do the same.

Conclusion

With transgender discrimination issues making headlines and the requirement for workplace protections increasing, employers will likely see an increase in transgender discrimination claims. When evaluating a transgender discrimination claim, employers and claims professionals should first determine what laws may apply to the employee and which laws are relevant in evaluating their exposure. Employers should next take proactive measures to stop the discrimination and prevent retaliation. Taking these steps will allow employers and claims professionals to fully assess existing claims and help minimize the potential for future and additional claims.

(Endnotes)

1 The United States Equal Employment Opportunity Commission defines “transgender” as follows: “Transgender” refers to people whose gender identity and/or expression is different from the sex assigned to them at birth (e.g. the sex listed on an original birth certificate). The term transgender woman typically is used to refer to someone who was assigned the male sex at birth but who identifies as a female. Likewise, the term transgender man typically is used to refer to someone who was assigned the female sex at birth but who identifies as male. A person does not need to undergo any medical procedure to be considered a transgender man or a transgender woman. U.S. Equal Opportunity Comm’n, Fact Sheet: Bathroom Access Rights for Transgender Employees Under Title VII of the Civil Rights Act of 1964, https://www.eeoc.gov/ eeoc/publications/fs-bathroom-access-transgender.cfm (last visited October 18, 2016).
2 Andrew R. Flores, Jody L. Herman, Gary J. Gates & Taylor N.T. Brown, How Many Adults Identify as Transgender in the United States, June 2016, http://williamsinstitute.law. ucla.edu/wp-content/uploads/How-Many-Adults-Identifyas-Transgender-in-the-United-States.pdf.
3 Gary J. Gates, How many people are lesbian, gay, bisexual, and transgender? April 2011, http:// williamsinstitute.law.ucla.edu/wp-content/uploads/GatesHow-Many-People-LGBT-Apr-2011.pdf.
4 42 U.S.C. § 2000d et seq.
5 § 760.01, Fla. Stat.
6 42 U.S.C. §§ 2000e–2000e-17.
7 Miami-Dade County’s Municipal Code provides definitions of the terms “gender identity” and “gender expression”: Gender identity shall mean a person’s innate, deeply felt psychological identification as a man, woman or some other gender, which may or may not correspond to the sex assigned to them at birth (e.g., the sex listed on their birth certificate). Gender expression shall mean all of the external characteristics and behaviors that are socially defined as either masculine or feminine, such as dress, grooming, mannerisms, speech patterns and social interactions. Social or cultural norms can vary widely and some characteristics that may be accepted as masculine, feminine or neutral in one culture may not be assessed similarly in another. Miami-Dade County, FL., Municipal Code § 11A-2(12), (13).
8 See, e.g., Ulane v. Eastern Airlines, Inc., 742 F.2d 1081 (7th Cir. 1984) (holding that “Title VII is not so expansive in scope as to prohibit discrimination against transsexuals”).
9 Glenn v. Brumby, 663 F.3d 1312 (11th Cir. 2011).
10 Price Waterhouse v. Hopkins, 490 U.S. 228 (1989).
11 Glenn, 663 F.3d 1312.
12 Lusardi v. Dep’t of the Army, Appeal No. 0120133395, 2015 EEOPUB LEXIS 896 (E.E.O.C. 2015) (holding that Agency restrictions on transgender female’s ability to use a common female restroom facility constituted disparate treatment on the basis of sex and that the restroom restrictions combined with hostile remarks, including intentional pronoun misuse, created a hostile work environment on the basis of sex).
13 U.S. Equal Opportunity Comm’n, https://www.eeoc.gov/ eeoc/ (last visited October 18, 2016).
14 See Florida Dep’t of Cmty. Affairs v. Bryant, 586 So. 2d 1205, 1209 (Fla. 1st DCA 1991).
15 Hillsborough County, FL. Code of Ordinances § 30-19(b) (1).
16 Miami-Dade County, FL., Municipal Code § 11A-2(12), (13).
17 Occupational Safety and Health Admin., U.S. Dep’t. of Labor, Best Practices: A Guide to Restroom Access for Transgender Workers, https://www.osha.gov/ Publications/OSHA3795.pdf (last visited October 18, 2016) (providing “[a]ll employees, including transgender employees, should have access to restrooms that correspond to their gender identity”).
18 42 U.S.C. § 2000e–3.
19 Cruzan v. Special School District # 1, 294 F.3d 981 (8th Cir. 2002); see also Lusardi, 2015 EEOPUB LEXIS 896 (“[S]upervisory or co-worker confusion or anxiety cannot justify discriminatory terms and conditions of employment. Title VII prohibits discrimination based on sex whether motivated by hostility, by a desire to protect people of a certain gender, by gender stereotypes, or by the desire to accommodate other people’s prejudices or discomfort.”).

Long-Term Care Update

The Centers for Medicare and Medicaid Services (CMS) issued a final rule September 28, 2016, that prohibits nursing home facilities that receive federal funding from requiring residents to resolve legal disputes through arbitration. CMS, an agency within the federal Health and Human Services Department, is perceived to be reacting to allegations that arbitration permits such facilities to hide patterns of wrongdoing and potential illegality against some of the nation’s most vulnerable. CMS Acting Administrator Andy Slavitt stated, “The advances we are announcing today will give residents and families greater assurances of the care they receive.” The rule is scheduled to go into effect on November 28, 2016, although it will only apply to future admissions and its applicability can be challenged on a case by case basis in court.

Medicare and Medicaid Programs; Reform of Requirements for Long-Term Care Facilities – A Rule by the Centers for Medicare & Medicaid Services

Please feel free to contact us to discuss this new rule and any effect it may have on your operations in greater detail.

John Coleman, Esq.
305.350.5307 – john.coleman@csklegal.com
 
Sherry Schwartz, Esq.
561.383.9251 – sherry.schwartz@csklegal.com
 
Christina C. Backus, Esq.
561.681.5255 – christina.backus@csklegal.com

The 20% Rule: An Emerging Theory of Liability Under the FLSA

By: Eric B. Moody

Employers are no doubt familiar with the Fair Labor Standards Act (“FLSA”), but may not be aware of an emerging theory of liability under the FLSA that affects employers with tipped employees.1 This new cause of action is based on a United States Department of Labor handbook that states a tipped employee cannot spend in excess of 20% of their work time performing side work.2 This article explores the origins in law of this emerging theory of liability, discusses the practical difficulty of the 20% Rule, and provides some analysis on how to minimize or resolve these claims.

Origins of the 20% Rule Claim

The FLSA requires that employers pay employees a minimum wage. However, the FLSA allows employers to pay tipped employees a reduced minimum wage, often referred to as a “tip rate.”3 Provided certain other conditions are met, an employer may count a tipped employee’s tips toward meeting the minimum wage requirement under the FLSA.4

In order to prevent employers from abusing the FLSA’s tip credit provisions, the regulations interpreting the FLSA place limits on when an employer may pay an employee at a tip rate. For instance, if an employee works in two or more separate jobs for an employer, with one job receiving tips and the other not receiving tips, then the employer can only pay the tip rate for the employee’s time spent in the job receiving tips.5 The FLSA refers to this working arrangement as a “dual job” occupation.6

The FLSA regulations distinguish an employee in a dual job from the typical job of a restaurant server. In addition to serving customers, restaurant servers often perform “side work.” Side work encapsulates a wide variety of tasks, depending on the restaurant, and includes such duties as balancing cash receipts, stocking, cleaning, inventory, and preparatory work.7 Many of the duties that constitute side work do not “directly” produce tips.8 However, the FLSA allows employers to require servers to perform side work even though it does not directly produce tips. The FLSA and interpreting regulations do not affix a specific time limit to the amount of time that a tipped employee can perform side work, other than stating a tipped employee can spend “part of her time” engaging in side work.9

Recently, the agency in charge of enforcing the FLSA, the United States Department of Labor Wage and Hour Division (“Wage and Hour Division”), added a restriction to the amount of time a tipped employee can spend performing duties that are not “tip producing.” Specifically, the Wage and Hour Division publishes a Field Operations Handbook for its investigators and staff to use in enforcing the FLSA.10 The Field Operations Handbook limits the percentage of time a tipped employee can spend performing side work to 20% of the employee’s shift.

Agency interpretations, such as the Field Operations Handbook, are not “automatically” law, such as a statute or a regulation.11 But courts can give an agency’s interpretation deference, thus giving it the force of law.12 Unfortunately for employers, many federal district courts have given the Field Operations Handbook deference and allowed claims based on the 20% Rule to proceed, including federal district courts in New York, South Carolina, Illinois, and Georgia.13

The Middle and Southern Districts of Florida have also allowed claims based on the 20% Rule to proceed.14 Moreover, there is limited authority contrary to the 20% Rule in the Eleventh Circuit, meaning employers with tipped employees can expect to see more of these claims in the future.15 Courts that have given the 20% Rule deference, however, may have failed to fully consider the practical difficulties the 20% Rule creates in workplaces such as restaurants.

Practical Difficulties of the 20% Rule

From a practical standpoint, maintaining records to show strict compliance with the 20% Rule is difficult due to the fluid nature of a server’s job. Analysis of a server’s shift under the 20% Rule requires dissection of each of a server’s shifts on a minute-by-minute basis to determine when the server performed tipped labor versus non-tipped labor. Often, 20% Rule claims involve an employee claiming he spent large percentages of his time performing side work, much of which will be intertwined with time serving customers. The employer will typically not have (and realistically may not be able to produce) the type of records that could disprove the employee’s testimony.

Moreover, while many duties are certainly tip producing activities, such as taking and serving orders, it is unclear whether other activities are tip producing activities or non-tip producing activities. For example, a customer requests new silverware from a server. The server is unable to locate clean silverware, so he washes silverware instead and takes it to the customer. An argument could be made that cleaning the silverware was an activity directed toward producing tips, while a counterargument could be made that cleaning the silverware was work incidental to tip producing activities and, therefore, should count toward the 20% calculation. These types of distinctions could be left to a jury, who may not understand the nuances of the FLSA or the realities of the restaurant business.16

In Pellon v. Business Representation Intern., Inc., a federal district court in Florida recognized the difficulty of proving compliance with the 20% Rule and the difficulty of litigating such a case, describing 20% Rule cases as infeasible.17 The Pellon court recognized that the 20% Rule creates an exception that could swallow the tip credit whole, resulting in a “discovery nightmare,” and may require “perpetual surveillance” of tipped employees during their shifts.18 Unfortunately for employers, other federal courts, including Florida’s federal courts, have ignored the Pellon court’s criticism for a number of reasons. Most notably, the Pellon case involved sky caps, not waiters, who had not even made a threshold showing that their non-skycap duties exceeded 20% of their workday.19

Practical Tips for Preventing and Resolving 20% Rule Claims

Employers with tipped employees can take several steps to attempt to prevent 20% Rule claims. First, employers can shift some tasks typically falling under the umbrella of side work to non-tipped employees.

Second, employers can attempt to limit side work to distinct periods, such as before the employee begins serving customers or after the employee finishes serving customers. This action should minimize the percentage of time an employee may later argue they spent performing non-tipped duties.

Third, an employer may also consider paying the employee minimum wage during these discrete periods while performing side work. While this may result in higher labor costs—always a critical consideration in the restaurant industry—the employer may offset some of these costs by more closely monitoring the number of servers working and cutting servers when demand dictates. In other words, if servers are not spending time performing side work while they serve customers, they should be able to serve additional tables.

When faced with a 20% Rule claim, an employer may consider early resolution due to the limited value of the claim. Damages are limited to the difference between tip wage and minimum wage for the percentage of time an employee spends performing non-tipped duties.20 If an employee proves that he spent more than 20% of his time performing side work, then the employee can recover for all time spent performing side work. For example, if a tipped employee spends 30% of his work time performing non-tipped duties, he will only be able to recover the difference between tip wage and minimum wage for the 30% of work time performing non-tipped duties.

Early valuation of a 20% Rule claim can be difficult since employers typically do not keep the type of records that would allow the employer to ascertain a server’s time spent on side work duties. Moreover, plaintiffs may refrain from tipping their hand as to the amount of work time they allege exceeded the 20% Rule.

Employers can attempt to make some valuation of a 20% Rule claim by examining their tipped employees’ duties during “discrete time periods—such as before the restaurant opens to customers, after the restaurant is closed to customers, or between the lunch and dinner shifts.”21 In fact, the United States District Court for the Middle District of Florida ruled that the plaintiffs in a 20% Rule case were limited to these discrete periods in proving that their related non-tipped duties exceeded 20% of their shifts due to the difficulties of attempting a minute-by-minute examination of a typical server shift.22 Successfully making this argument early in a 20% Rule case can help cap the value of the claim.

Due to the limited value of a 20% Rule claim, the greatest source of exposure is typically the attorney’s fees. Under the FLSA, a prevailing plaintiff will likely be entitled to liquidated damages in the same amount as the unpaid minimum wages.23 As with other FLSA claims, a prevailing plaintiff will also likely be entitled to his or her reasonable attorneys’ fees and costs, which can be substantial in disputed 20% Rule claims. Moreover, defending and litigating a 20% Rule claim can be expensive due to the factual questions involved. Accordingly, depending on the specific circumstances of the case, employers may want to consider early resolution in order to avoid potential exposure and to limit defense fees and costs.

Conclusion

With this new 20% Rule theory gaining steam, employers with tipped employees who perform side work will likely see more of these claims. Unfortunately, most federal courts in Florida have not recognized the difficulty this rule creates for employers. Therefore, employers should consider minimizing their exposure from such claims by reconsidering their side work assignments. When faced with a lawsuit, employers may ultimately want to consider early resolution of these claims to avoid exposure and significant defense costs.

(Endnotes)

1 29 U.S.C. § 201, et seq.
2 The cause of action is referred to as the “20% Rule” throughout this article, and the term “side work” is defined later in the article.
3 The FLSA defines tipped employees as employees “engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” 29 U.S.C. § 203(t); 29 C.F.R. § 531.50.
4 29 U.S.C. § 203(m); see also 29 C.F.R. § 531.50 et seq.
5 29 C.F.R. § 531.56(e) (hereinafter “regulation 531.56(e)”).
6 An example of a dual job in the restaurant context would be an employee who works as a prep cook during some shifts, as a maintenance person during some shifts, and as a server during other shifts. The employer must pay the employee minimum wage while working as a prep cook or a maintenance person. The employer may pay the employee at a tip rate when working as a server. Id.
7 Regulation 531.56(e) permits a server to spend part of “her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses.”
8 Courts have interpreted the applicable regulations to create three categories of duties for tipped employees: (1) tip producing activities, which can be compensated at the tip rate; (2) non-tip producing activities incidental to tip producing duties, the subject of the 20% Rule; and (3) non-tip producing activities unrelated to tip producing duties, such as time spent in the chef role described above. Fast v. Applebee’s Intern., Inc., 502 F. Supp. 2d 996, 1002 (W.D. Mo. 2007). Although outside of the scope of this article, plaintiffs bringing 20% Rule claims will often bring an alternative claim that some side work duties are unrelated to tip producing duties and claim compensation at minimum wage for time spent performing these duties.
9 29 C.F.R. § 531.56(e).
10 United States Department of Labor, Wage and Hour Division, Field Operations Handbook, § 30d00(e), available at: http://www.dol.gov/ whd/foh/ (last visited June 16, 2016). The Field Operations Handbook provides Wage and Hour Division investigators and staff with “interpretations of statutory provisions, procedures for conducting investigations, and general administrative guidance.” Id.
11 Instead, agency interpretations are “entitled to respect, but only to the extent that they are persuasive.” Christensen v. Harris Cnty., 529 U.S. 576, 578 (2000) (internal citations omitted).
12 Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1984).
13 See, e.g., Flood v. Carlson Restaurants Inc., 94 F. Supp. 3d 572 (S.D.N.Y. 2015); Irvine v. Destination Wild Dunes Mgmt, Inc., 106 F. Supp. 3d 729 (D.S.C. 2015); Hart v. Crab Addison, Inc., No. 13-CV-6458 CJS, 2014 U.S. Dist. LEXIS 85916 (W.D.N.Y. June 24, 2014); Driver v. AppleIllinois, LLC, 890 F. Supp. 2d 1008, 1013 (N.D. Ill. 2012); Holder v. MJDE Venture, LLC, No. 1:08-CV-2218-TWT, 2009 U.S. Dist. LEXIS 111353 (N.D. Ga. Nov. 30, 2009).
14 Ash v. Sambodromo, LLC, 676 F. Supp. 2d 1360 (S.D. Fla. 2009); Crate v. Q’s Rest. Group LLC, No. 8:13-cv-2549-T-24 EAJ, 2014 U.S. Dist. LEXIS 61360 (M.D. Fla. May 2, 2014).
15 Some defendants outside of the Eleventh Circuit have successfully argued that the 20% Rule is not entitled to deference, resulting in dismissal of 20% Rule claims, but these decisions are limited to date. See Montijo v. Romulus Inc., No. CV-14-264-PHX-SMM, 2015 U.S. Dist. LEXIS 41848 (D. Ariz. Mar. 30, 2015); Richardson v. Mountain Range Restaurants LLC, No. CV-14- 1370-PHX-SMM, 2015 U.S. Dist. LEXIS 35008 (D. Ariz. Mar. 19, 2015).
16 Which “duties may prompt a customer to tip is a question of fact upon which reasonable finders of fact could disagree.” See Fast, 502 F. Supp. 2d at 1004.
17 528 F. Supp. 2d 1306 (S.D. Fla. 2007), aff’d, 291 F. App’x 31 (11th Cir. 2008).
18 Id. at 1314.
19 Crate v. Q’s Rest. Group LLC, 2014 U.S. Dist. LEXIS 61360. As another example, a Missouri District Court found that Pellon was “inconsistent with 29 C.F.R. § 785.13 and 29 C.F.R. § 516.18, which require the employer to exercise control over work performed by an employee and to keep records of work done in tipped and non-tipped occupations.” Fast v. Applebee’s Intern., Inc., 159 Lab. Cas. P 35714 (W.D. Mo. 2010), aff’d, 638 F.3d 872 (8th Cir. 2011); see also Flood, 94 F. Supp. 3d 572. 20 Fast, 502 F. Supp. 2d at 1002.
21 Crate v. Q’s Rest. Group LLC, 2014 U.S. Dist. LEXIS 61360.
22 Id.
23 29 U.S.C. § 216(b).

Repeal of the McCarran Act Would Roil the Insurance Industry

By: David C. Borucke

The business of insurance is insulated from the full weight of antitrust law under the McCarran-Ferguson Act (the “McCarran Act”).1 This statutory protection, however, may soon disappear. Multiple bills to repeal the McCarran Act are pending in the 114th Congress, with some bi-partisan support. If the McCarran Act is repealed, for example as a step toward replacing the Affordable Care Act, carriers will need to update their antitrust compliance practices. In particular, carriers will need to radically limit information sharing. Thus, with timely reason, we describe the scope of the McCarran Act and then some antitrust basics to underscore the potential impact of repeal.

The McCarran Act Antitrust Exemption

The federal government once deemed insurance as a purely local matter, i.e., a state concern beyond the constitutional reach of federal regulation. New Deal jurisprudence then expanded the scope of the Commerce Clause.2 However, in 1944 the U.S. Supreme Court ruled that insurance transactions affect interstate commerce and are, therefore, subject to federal antitrust law.3

Congress moved quickly in response to the Supreme Court decision. In 1945 Congress passed the McCarran Act to maintain the predominance of state regulation over the industry. The Act includes a limited but important exemption for the “business of insurance.” The exemption applies where the following three requirements are met:

First, the conduct must be the “business of insurance” and not just any business conducted by an insurance company. The focus is on the nature of the conduct. The conduct is likely exempt where it involves underwriting and the spreading of risk, has a direct connection to the contract between the insurer and insured, and/or involves only entities within the insurance industry. In particular, Congress sought to maintain the industry practice of pricing through rating organizations – the quintessential “business of insurance” that would otherwise be subject to antitrust scrutiny.

Second, the conduct must be regulated by the state. This is a lenient requirement. Active and effective state regulation is not necessary. The mere potential to regulate is sufficient.4 For example, this requirement is readily satisfied in Florida given the broad authority of the Office of Insurance Regulation to enforce the Insurance Code and the Unfair Insurance Trade Practices Act.5

Third, the conduct must not constitute “[a] boycott, coercion or intimidation.”6 The U.S. Supreme Court has clarified that, for purposes of the McCarran Act, a boycott requires something more than an agreement among insurers to set prices and a refusal to deal.7 It requires that extra step of coercing others into conformance, or enlisting third-parties to compel the target to capitulate through conduct in a collateral transaction.

In sum, the McCarran Act is a form of reverse “preemption” – if a state takes minimal steps to regulate the business of insurance, then federal antitrust law is largely preempted. In this way, the McCarran Act provides the breathing space that allows insurers to engage in beneficial, collective action without antitrust concerns, including: joint ratemaking through rating organizations; the standardization of insurance forms; agreements based on the joint collection of underwriting information; and the exchange of pricing information among insurers to determine if rates are competitive.8 Notably, this is a measure of protection for collective action among competitors unheard of in most other industries.

Antitrust Basics – The Sherman Act

The Sherman Antitrust Act of 1890 is enforced by two federal agencies, the Department of Justice and the Federal Trade Commission.9 Aggrieved private parties may also have standing to bring lawsuits and, if successful, recover treble damages, attorney’s fees, and costs.10 Significant violations may also result in criminal penalties, including incarceration for the individuals involved.

Many states, like Florida, have laws that mirror the Sherman Act.11 Importantly, the McCarran Act does not preempt these state laws. While Florida has adopted federal exemptions and immunities,12 some states have not. For example, in a recent Texas case against a large insurance brokerage, the Fifth Circuit Court of Appeal affirmed the dismissal of federal antitrust claims pursuant to the McCarran Act, but reversed and remanded similar claims brought under a Texas antitrust statute.13

Our focus here is the prohibition against agreements that unreasonably restrain trade. Stated differently, there are two essential elements for a Sherman Act “Section 1” violation: (i) an agreement between separate individuals or entities; and (ii) that agreement is unreasonable. 14

Agreement – A Knowing Wink

An “agreement” is broadly defined by antitrust law. It does not need to be in writing or expressed; rather, an informal understanding or a “knowing wink” can also be an agreement. For example, three competitors are sitting in a hotel bar after a trade association meeting. One says: “I sure hope prices rise tomorrow.” If not a further word is said between them and prices go up the next day, the competitors may be found guilty of an agreement to fix prices despite the absence of a formal or explicit agreement. However, it is important to note that affiliated companies, even if separately incorporated, as well as officers and employees of the same company are typically (not always) considered part of a single entity and, thus, unable to reach such agreements.

Per Se Unreasonable Conduct

Once an agreement exists, the next question is whether that agreement “unreasonably” restrains competition. Certain trade restraints are so injurious to competition that they are deemed to be automatically unreasonable and, thus, illegal per se. 15 There is no defense to a per se violation. Courts will not consider the business justifications, the good motives of the parties involved, or even a lack of market power.

With few exceptions, per se unlawful agreements are those entered into by competitors. Price fixing among competitors is the most familiar, but the prohibition may be broader than you think. Any agreement or understanding between two or more competitors to fix, raise, maintain or stabilize prices, or one that tends to affect a material term of price, is per se unlawful.

As should be clear, in the absence of the protection afforded by the McCarran Act, many collective ratemaking activities traditional in the insurance industry could be deemed per se unlawful, particularly those involving prospective loss costs, setting final/end rates, and rating plans and schedules. Likewise, insurers exchanging information about their current rates would run a serious risk of being found liable, absent immunity. Other types of per se unlawful agreements include agreements to restrict output or allocate customers or territories, group boycotts, and tied selling (e.g., tying two insurance coverages).

The Rule of Reason

All other agreements are subject to a balancing test, referred to as the “rule of reason,” which uses defined markets to weigh the anti-competitive restraints caused by the agreement against its procompetitive benefits.16 If, on balance, the agreement is pro-competitive, the agreement is deemed reasonable and lawful. Under this analysis, courts will consider a number of factors, including the motives of the parties, all reasonable business justifications, and the impact of the agreement in defined product and geographic markets.

A rule or reason analysis is often complicated and uncertain. There is no bright-line test for determining whether a particular agreement is, on balance, pro-competitive. Agreements typically subject to a rule of reason analysis include exclusive dealing, reciprocal dealing, information exchanges, bundled discounts, and joint ventures or pooling arrangements. These types of agreements can involve complicated assessments to determine their legality.

For example, joint underwriting arrangements and joint data collection typically constitute the “business of insurance” exempt from antitrust scrutiny under the McCarran Act. If the exemption is lost, however, a joint venture analysis may apply. Federal guidelines for analyzing collaborations among competitors typically involve complex assessments of market power and then an assessment of market impact.17

In sum, the McCarran Act permits insurers to cooperate in ways that federal antitrust law would prohibit in other industries. Attention should be paid, therefore, to developments in Congress. If the McCarran Act is repealed, carriers will need to update their antitrust compliance policies and practices. In the meantime, an important objective of compliance will remain avoiding activities that result in the loss of immunity.

(Endnotes)

1 15 U.S.C. §§ 1011 et seq.
2 See Wickard v. Filburn, 317 U.S. 111 (1942) (holding that a farmer growing wheat not for sale, but to feed his own animals, is engaged in interstate commerce subject to federal regulation).
3 See United States v. South-Eastern Underwriters Ass’n, 322 U.S. 533 (1944).
4 See Lawyers Title Co. of Mo. v. St. Paul Title Ins. Corp., 526 F.2d 795, 797 (8th Cir. 1975) (“[T] he McCarran Act exemption does not depend on the zeal and efficiency displayed by a state in enforcing its laws. Congress provided that exemption whenever there exists a state statute or regulation capable of being enforced.”).
5 See Florida Insurance Act, chs. 624-632, 634-636, 641-642, 648, 651, Fla. Stat.
6 15 U.S.C § 1013(b).
7 Hartford Fire Ins. Co. v. California, 509 U.S. 704 (1993); see also Slagle v. ITT Hartford, 102 F.3d 494, 498 (11th Cir. 1996) (“Conduct constitutes a ‘boycott’ [for purposes of the McCarran Act] where, in order to coerce a target into certain terms on one transaction, parties refuse to engage in other, unrelated or collateral transactions with the target … unrelated transactions are used as leverage to achieve the desired ends.”).
8 See Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 221 (1979) (describing the protection of cooperative rate-making as the core purpose behind the McCarran Act exemption).
9 15 U.S.C. § 1 et seq.
10 15 U.S.C. § 15.
11 See, e.g., § 542.18, Fla. Stat. (“Every contract, combination, or conspiracy in restraint of trade or commerce in this state is unlawful.”).
12 See § 542.20, Fla. Stat.
13 Sanger Ins. Agency v. Hub Int’l, Ltd., 802 F.3d 732 (5th Cir. 2015).
14 15 U.S.C § 1. The Sherman Act also prohibits monopolization and related violations, which are beyond the scope of this article.
15 See Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328 (1990).
16 See Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284 (1985).
17 U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Guidelines for Collaborations Among Competitors (April 2000).

Are Consulting Physicians Required to Intervene?

By: Paula J. Lozano

In Florida medical malpractice lawsuits, plaintiffs’ attorneys often sue not only the providers involved in the direct care of the patient, but also providers who were remotely in contact with the patient’s care. Plaintiffs’ attorneys often take the position that if an insurance policy exists – sue them and maybe we will get a few bucks. Occasionally, it is an effective tactic. By suing all potential parties, plaintiffs avoid a Fabre defense and an “empty chair” at trial, and they may actually obtain a nominal settlement just so the defendant-physician can avoid the cost and inconvenience of litigation or trial. However, defending such cases can become protracted and the litigation costs immense.

Duty to Intervene Allegations and the Costs of Defense

While the true focus of the lawsuit is on the primary care providers, secondary claims often involve a consulting physician’s failure to intervene or override the decisions of the treating physician. In the last several years, CSK attorneys were presented with this “failure to intervene” issue in four different lawsuits. The issues were as follows: (1) whether the treating obstetrician should have presented to the hospital to evaluate his patient after the emergency room physician called regarding use of a steroid for an allergic reaction; (2) whether the anesthesiologist who evaluated the patient in the Post Anesthesia Care Unit (“PACU”) should have convinced the surgeon to take the patient back to surgery to evaluate post-operative bleeding; (3) whether the consulting intensivist who saw the patient in the Intensive Care Unit (”ICU”) five hours after surgery should have overridden the surgeon’s orders and called another surgeon to take the patient back to surgery to explore for a developing hematoma; and, (4) whether the anesthesiologist administering an epidural to a patient in labor should have convinced the obstetrician to perform a C-Section. All patients suffered complications resulting in significant injuries.

In each case, the plaintiff’s attorney alleged negligence on the secondary physicians. Two cases resulted in a nominal settlement, another in a defense verdict, and the last in a dismissal before trial. Only one case pursued a Motion for Summary Judgment on behalf of the secondary physician, which the trial court denied. All four cases were in litigation for years with significant costs.

In Florida, Is There a Duty to Intervene?

In Florida, there is presently no duty for a consulting physician to intervene or convince the treating physician to take a different course of action. However, no Florida court has held that such a duty does not exist. Therefore, plaintiffs’ attorneys are free to file claims against consulting physicians alleging that the provider had a duty to intervene. When confronted with such claims, it is advisable that defense attorneys file early dispositive motions seeking summary judgment. Convincing the courts in Florida that there is no legal duty for a consulting physician to intervene in the care of a patient is the best means of controlling defense costs. However, despite the absence of case law recognizing such a duty in Florida, establishing that plaintiffs have failed to meet their burden of proof as a matter of law is challenging.

Plaintiff’s Burden of Proof and Challenging the Duty Owed

In order to prevail in a medical malpractice matter, the plaintiff bears the burden of proving all four elements of the cause of action: (1) a duty owed to the patient; (2) a breach in the applicable standard of care; (3) a legal causal connection between the breach and the injuries; and, (4) damages. Too often, lawyers and courts gloss over the first element. However, because there is no case law imposing a duty for a physician to intervene in Florida, defense attorneys should aggressively pursue summary judgment on this first element.

Whether a legal duty exists in a negligence action is a question of law decided by the trial court.1 In all four CSK cases discussed above, the plaintiffs’ claims involved whether the secondary provider had a duty to intervene or override the treating provider’s orders. Currently, Florida imposes no such duty on physicians, nor does Florida negate such a duty. In fact, there is no Florida case on point. There are, however, cases from various other jurisdictions that support summary judgment on this question of duty.

Case Law in Foreign Jurisdictions that Support No Duty to Intervene

Kansas provides direct, persuasive support. Specifically, in Dodd-Anderson By and Through Dodd-Anderson v. Stevens, the appellate court considered adopting a duty for a secondary physician to override the judgment and decisions of another physician.2 In the case, the plaintiffs alleged that the consulting physician negligently failed to intervene in the treating physician’s treatment of a child. The plaintiffs’ expert opined that the secondary physician “should have done something….should have examined and assumed control.”3 Plaintiffs often rely upon such evidence in Florida. However, the Kansas court disagreed, upheld the entry of summary judgment, and provided the following rationale:

[N]o reasonable person, applying contemporary standards, would recognize and agree that a physician has, or should have, a legal duty to unilaterally and perhaps forcibly override the medical judgment of another physician, particularly a treating physician. 4

In fact, the court opined that such a duty would result in “medical, and ultimately legal, chaos.”5 Although the court noted the obvious and endless adverse consequences to the medical community and patients, it did not elaborate on these consequences.6

Alabama lends further support to challenge these “failure to intervene” cases. In Wilson v. Athens-Limestone Hosp., the parents filed a wrongful death action against the hospital and hospital-employed pediatrician alleging improper discharge of their four year old who ultimately died.7 The emergency room physician consulted the child’s pediatrician, Dr. Teng, who had a pre-existing physician-patient relationship with the child.8 Dr. Teng presented to the emergency department, saw the child, and spoke to the emergency room physician, but did not diagnose, treat, or make any recommendations for the patient.9 Still, the plaintiffs alleged that Dr. Teng had a duty to intervene, which he breached by negligently failing to ensure the child received proper care through admission and administration of medication.10 The trial court, however, disagreed and granted the defendants’ directed verdict at trial. The appellate court also agreed and, citing Dodd-Anderson, found that Dr. Teng owed the patient no duty to intervene or override the independent medical judgment of the emergency room physician who retained control of the child.11

More recently, in Gilbert v. Miodovnik, the Court of Appeals for the District of Columbia relied on Dodd-Anderson to determine that a Medical Director did not owe a duty to intervene in the patient’s care.12 In this case, the plaintiff received obstetrical care and treatment from a midwifery group who counseled the patient on the dangers and increased risks of complications giving birth vaginally after two prior C-Sections (VBAC). The midwifery group often consulted with Dr. Miodovnik during “chart review” meetings regarding various patients.13 When the midwives brought this patient to his attention during a routine chart review, Dr. Miodovnik expressed great concern, recommended the patient have a C-section, and instructed the midwives to reiterate the dangers and risks involved in a VBAC in order to obtain proper consent.14 However, the midwives failed to again inform the patient of the risks and failed to again obtain her consent to forego the C-section.

Thereafter, while the patient ultimately agreed to a C-section at the last minute, her uterus ruptured causing significant damages to the baby.15 The plaintiff argued that because Dr. Miodovnik was the Medical Director who gave advice when the midwives presented her case, he owed the patient a duty to intervene, override the judgment of the nurse midwives, and directly communicate with and counsel the patient that the VBAC was inadvisable.16 However, the Court of Appeals found that a traditional physician-patient relationship did not exist between the plaintiff and Dr. Miodovnik, since he never met with or examined the patient.17 The Court of Appeals also found that even though Dr. Miodovnik consulted on the case, he had no duty to intervene, take charge of the patient’s care and treatment plan, or even monitor the situation.18 In summary, the patient already had skilled treating practitioners managing her care, which Dr. Miodovnik neither supervised nor had a duty to supervise.19

Conclusion

In CSK’s experience in medical malpractice lawsuits over the years, plaintiffs persist in making creative arguments that challenge the existence of a duty to intervene. From a practical standpoint, the case law from Kansas, Alabama and the District of Columbia support the proposition that secondary providers consulting on patients’ care, or merely discussing care with the treating provider, have no such duty to intervene or override the treating physician’s plan. In Florida, there is no case law that specifically addresses the issue. However, the holdings from these other jurisdictions provide aggressive defenses to allegations that a physician had the duty to intervene. Florida counsel should raise these defenses early via the filing of dispositive motions in cases where the plaintiffs assert a physician’s duty to intervene, before extraordinary time and resources are expended in litigation. The challenge we continue to face in Florida, however, is finding trial courts willing to grant these motions.

(Endnotes)

1 McCain v. Florida Power Corp., 593 So. 2d 500 (Fla. 1992).
2 905 F. Supp. 937 (D. Kan. 1995), aff’d, 107 F.3d 20 (10th Cir. 1997).
3 Id. at 947.
4 Id. at 948.
5 Id.
6 Id.
7 894 So. 2d 630 (Ala. 2004).
8 Id. at 631.
9 Id.
10 Id. at 633.
11 Id. at 635.
12 990 A.2d 983 (D.C. 2010).
13 Id. at 986.
14 Id.
15 Id. at 987.
16 Id. at 991.
17 Id.
18 Id. at 996-97.
19 Id.