Recht

CHARLESTON – In decisions under review at the West Virginia Supreme Court of Appeals, three circuit judges yanked insurance companies out of the shadows and thrust them into the harshest light of the courtroom.

Former Supreme Court Justice Arthur Recht practically guaranteed a million-dollar verdict against Transamerica subsidiary TIG Insurance in Hancock County.

Tod Kaufman of Kanawha County planned a double trial so jurors could render verdicts against Nationwide Insurance and one of its policyholders at the same time.

Mark Karl of Marshall County made sure before a trial began that prospective jurors knew Nationwide would pay for their verdict.

The Supreme Court of Appeals heard oral arguments in all three cases Jan. 8.

In the Hancock County case, Recht saddled TIG with six pages of costly findings after denying the insurer an opportunity to defend itself.

Before the case reached the Justices, a coincidence added drama. Attorneys Thomas Flaherty of Charleston and Robert Fitzsimmons of Wheeling, opponents in the case, joined forces to sue former West Virginia University football coach Rich Rodriguez.

At oral arguments, Flaherty argued for TIG that Recht adopted a litany of charges from plaintiff Jeffrey Horkulic after a hearing where Recht prohibited TIG from participating.

Justice Larry Starcher said William Wilmoth was there. Flaherty said Wilmoth represented William Galloway, Horkulic's former lawyer.

Horkulic sued Galloway in 2002, alleging malpractice. TIG retained Wilmoth to defend Galloway but tables turned and Wilmoth testified against TIG.

Flaherty told the Justices that Recht admitted Wilmoth's entire file as evidence and allowed hearsay testimony from Wilmoth.

Flaherty said TIG settled the claim for $500,000. He said he didn't want to undo the settlement but he wanted to remove from Recht's settlement order findings of facts and conclusions of law based on hearsay and unwaived privilege.

The findings and conclusions add up to $1,500,000 in liability on TIG's part.

Starcher asked if the findings would affect a bad faith claim against TIG. Flaherty said they would.

Justice Joseph Albright asked if the findings would be binding. Flaherty predicted that Fitzsimmons would argue they were "res judicata," Latin for a thing adjudicated.

"They kill TIG in the third-party bad faith case," Flaherty said.

Chief Justice Spike Maynard told him he was allowed to object.

"Why isn't that due process," Maynard asked. "You are still not barred from challenging that."

Albright agreed.

"I sense it's worth what it says and no more," he told Flaherty. "You can contest that at any point along the line."

Flaherty asked him to read pages 11 to 16 of the order.

Justice Robin Davis agreed with Flaherty.

"They will take that order and the Shamblin case and beat you to death," she said.

Flaherty read the harshest parts of the order out loud and Albright said, "You are not precluded from challenging that, are you?"

Flaherty said, "I'm afraid I am," and took a seat.

Fitzsimmons stood and said, "They don't know the effect of this judgment. I don't know either. It sounds pretty good and I like it."

He called Wilmoth "an upstanding, outstanding attorney."

Albright asked if there was any doubt that TIG could litigate the order from top to bottom, and Fitzsimmons said he didn't doubt it at all.

Davis said recent decisions held that prior orders were binding as "law of the case." She said, "I would start with the one point five million and go up from there."

Fitzsimmons said, "It was not to be binding."

Davis said, "Does the order make that clear?" Fitzsimmons said it did.

Albright asked if TIG could defend itself. Fitzsimmons said, "They can raise defenses to that order."

In rebuttal, Flaherty said that although Fitzsimmons said TIG could raise defenses, he never argued that the order wouldn't be binding.

Starcher said, "You are going to hear two terms, res judicata and law of the case."

Flaherty said, "Succinctly stated, that is our whole case."

Starcher said, "You can't unring a bell."

In the Kanawha County case, Michelle Fox of Charleston challenged Kaufman's plan to conduct a single trial against Nationwide and policyholder Stephen Clegg.

Fox told the Justices that courts follow a strong policy to keep insurance questions away from jurors.

She said that after a traffic accident between Clegg and Donald Smith, Nationwide paid Smith's property damage claim and took title to his motorcycle.

Clegg was adamant that he didn't cause the accident, she said, so Nationwide refused Smith's injury claim.

She said Smith wanted the property payment to bind Nationwide to an injury payment.

She said she moved to bifurcate a trial about the crash from a trial about the claim, but Kaufman found the cases too intertwined for bifurcation.

She said courts have held that a challenge to an insurer's conduct must be bifurcated.

Fox took a seat. Jack Tinney of Charleston stood for Smith, but Albright spoke first to ask him why he objected to bifurcation.

Tinney said he wanted to conduct discovery.

Albright said he would still have that right.

"You would be down there trying it by now," Albright said.

Tinney said they induced his client to turn over the motorcycle.

"We received false answers," he said. "We received very suspicious claims of privilege."

He asked the Court to remand and get on with trial.

In rebuttal Fox said, "I agree he should present the case, Smith versus Clegg. Let a jury decide who caused it and who is hurt."

In the Marshall County case, Karl held that the Law Offices of W. Stephen Flesher, as a "captive firm" representing Nationwide full time, can't hide the connection from prospective jurors.

Amy Shafer of Wheeling told the Justices that jurors will think Nationwide insured the defendant, though they did not.

"It's not a bad faith case," she said. "It's an under insured case."

Chief Justice Spike Maynard said if captive firms had to disclose an insurer's identity to juries, "…we'd put your firm out of business."

Shafer said claims might receive different treatment depending on the insurer.

When James Bordas III of Wheeling stood to represent plaintiff Stacey Meadows, Albright asked why he would expose the firm to a question no one else must answer.

Bordas said they should identify themselves by their true name.

"We think it should be consistent for all firms," he said.

He said they called themselves "Nationwide trial division," in phone books and when contacting witnesses.

Maynard asked if they were required to do that. Bordas said, "Yes but ..."

Maynard said, "Are you arguing that they should ignore ..."

Bordas said, "Not at all, but they don't have to set up as a captive law firm."

He compared it to Reginald Dwight calling himself Elton John.

"To perform the truth seeking function," he said, "the court has to ask."

He said the bias of jurors should be discovered at voir dire.

Maynard said it was in the public interest to keep insurance out of jurors' minds.

"Jurors have a tendency to want to go after the deep pocket," he said, "and justice goes out the window."

Decisions will follow.

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