Ryan’s “Path to Prosperity” Means More Poverty and Less Opportunity–Unless You’re Wealthy

It took only five hearings on the “Progress of the War on Poverty,” as well as multiple requests by the anti-poverty group Witnesses to Hunger, but House Budget Committee Chairman Paul Ryan has finally invited a person with direct experience to testify. Tianna Gaines-Turner, a mother of three who makes $10.20 an hour, knows what it is to experience poverty. At the hearing on July 9, Gaines-Turner explained to Chairman Ryan that between her low wages and those of her husband, who makes $8.50 an hour, as well as the cost of caring for her children’s health problems (two suffer from epilepsy and all three suffer from asthma), her family struggles to make ends meet. As a result, Gaines-Turner and her family have been homeless in the past and have had to make tough decisions like choosing to skip meals for themselves to provide food for their children. Gaines-Turner’s story, however, is unlikely to affect Ryan’s understanding of poverty. Despite recent efforts to position himself as the right’s anti-poverty crusader, including embarking on a “listening tour,” Ryan repeatedly has demonstrated, in the form of budget documents, hearings, reports, and speeches, that his real priority is to further advantage the already-rich. The most recent and revealing example of this distorted agenda is Ryan’s budget resolution for FY 2015.

Ryan’s budget plan is called the “Path to Prosperity,” but don’t be fooled—it reads more like a “path to adversity.” Behind the rhetoric is more of the same—an austere plan that heavily favors the already-rich.  A majority (69%) of Ryan’s proposed budget cuts are in programs for low-income people. And yet Ryan still finds room in the budget to carve out major tax cuts for the wealthiest 2% and major corporations. As the Center on Budget and Policy Priorities’ President Robert Greenstein has said, the budget is “an exercise in hypocrisy—claiming to boost opportunity and reduce poverty while flagrantly doing the reverse.”

Ryan says he is all about creating opportunity. And yet, he proposes gutting the very programs that create opportunities for people to escape poverty, including Pell Grants and job training. The irony isn’t lost on us—nor is the disproportionate impact this budget will have on low- and middle-income Americans. Here are some of the reasons we shouldn’t take Ryan’s words at face value and instead let the numbers speak for themselves:

1. The Ryan budget plan shreds the safety net. Some of the most important and effective safety net programs, including SNAP (food stamps) and Medicaid, are on the chopping block in the Ryan plan. For example, Ryan proposes resurrecting draconian cuts to the SNAP program that the House passed in September and combining them with further steep cuts that would cut $137 billion, or 18% of the program, in total, over the next decade. The plan also block-grants the program starting in 2019, meaning states would receive a fixed sum each year. This is troubling for two reasons. First, SNAP works so well because of the cyclical nature of its spending, which increases to meet demand during times of recession and widespread economic hardship, and falls to pre-recession levels once economic conditions improve. The recovery from the last economic downturn is a testament to this; already, SNAP spending as a share of the economy has begun declining. By capping the program at a fixed amount that would be unable to rise to the level of increased need in a recession, the Ryan plan would undermine what makes the program so effective: its responsiveness to economic conditions. Second, the dramatic cuts in the Ryan plan would force states to choose whose benefits to cut even further—will it be working parents, poor children, senior citizens, people with disabilities, veterans, or other people struggling to make ends meet? SNAP benefits provide just $1.40 per meal—how much more does Chairman Ryan think he can cut?

Going hungry isn’t the only thing struggling families would have to worry about under the Ryan plan—another basic need, health care, would also be jeopardized. The Ryan budget saves nearly $2.7 trillion by slashing access to health care for low- and moderate-income people. It achieves these savings by repealing the parts of the Affordable Care Act that provide coverage for low- and moderate-income people and by converting Medicaid and the Children’s Health Insurance Program into block grants with significantly reduced funding. Under this plan, over 40 million low- and middle-income Americans, or 1 in 8 Americans, would become uninsured by 2024. Ryan’s plan fails to include any meaningful health insurance alternatives for the millions that will be left uninsured.

2. The Ryan budget plan cuts programs that create opportunities to escape poverty. For all Chairman Ryan talks about the importance of creating opportunity, his decision to cut Pell Grants by more than $125 billion over the next decade proves otherwise. Historically, Pell Grants, which enable low- and moderate-income students to afford college, have been instrumental in fostering opportunities to escape poverty through higher education. At a time when college tuition is skyrocketing to unprecedented levels, Ryan’s budget would freeze the maximum grant for 10 years, and would eliminate Pell Grants entirely for moderate-income students (who can currently receive modest assistance). As is, the maximum Pell Grant covers less than one-third of college expenses; at one time, it covered more than half of all college costs. Ryan’s budget thus makes it harder for low- and moderate-income students to attend college and break the cycle of poverty.

The plan also cuts funding for education and job training far below current levels.

3. The Ryan budget plan makes indiscriminate cuts to domestic programs. Ryan’s budget calls for at least $500 billion in cuts to mandatory programs other than Social Security, Medicare, Medicaid, SNAP, Pell Grants, farm programs, civil service programs, and veterans’ benefits. A substantial share of spending in this category is for low-income programs, including the Earned Income Tax Credit, the low-income component of the Child Tax Credit, school lunch and other child nutrition programs, and Supplemental Security Income, which helps extremely poor people who are elderly or have serious disabilities.

4.  It’s a “balanced” budget that only helps the rich. Ryan calls his budget a pathway to prosperity. What’s hiding behind the misleading rhetoric, however, is more of the same: top-down policies that fail our economy and disproportionately burden our nation’s low- and middle-income working families. In particular, Ryan wants to cut the top individual tax rate and the top corporate income tax rate to 25% and eliminate the Alternative Minimum Tax, on top of repealing the Affordable Care Act’s revenue-raising provisions. Together, these tax cuts for the wealthy would cost about $5.7 trillion over 10 years, while cuts to crucial programs for low- and moderate-income people would total $5.2 trillion. And yet, the budget assumes a revenue-neutral outcome—even though the plan fails to specify a single tax loophole to narrow or close in order to make up the difference in revenue losses.

The greatest problem with the Ryan budget is that it sprints to get the budget balanced in an extremely short amount of time (just 10 years), and does it by making massive cuts that disproportionately affect low-income people. Rather than looking for new ways to raise revenues, Ryan has chosen the easy way out. This strategy largely ignores any short- and long-term economic consequences. Moreover, it ignores the fact that the proposed cuts will result in large increases in poverty and in the number of people that are uninsured. As a result, Ryan’s plan provides prosperity only for the wealthy.

Chairman Ryan can talk a good game about poverty and the lack of upward mobility. In fact, Ryan is scheduled to speak about poverty (and likely elaborate on his proposed policy reforms) this Thursday, July 24, at the American Enterprise Institute. But we do not take him seriously because of what he is actually proposing to do. Numbers, such as those in his recently-passed budget resolution for FY 2015, make it harder to obscure the truth: that poverty and those suffering from it are not Ryan’s real priority.                                

The author thanks Kali Grant, Economic Justice and Opportunity VISTA, for her extensive work on this blog.

 

Controversial “Fake Bad Scale” used by Disability Insurers to deny claims

A test designed to expose less than legitimate personal injury suits is being used more often by disability insurance companies. The test, known as the “fake bad scale” (“FBS”), is being used as a tool to discredit disability claimants insurance benefits.

Various courts have barred the introduction of the FBS into evidence finding the test to be invalid. Even some psychologists say the test is labeling as liars too many people who have genuine symptoms. The disagreement among legal and relevant scientific community, however, has not deterred disability insurers from using the test as another weapon to fight off legitimate disability claims. Specifically in the ERISA context courts have allowed insurers to rely on the test in denying claims.

In Menge v. AT&T Mr. Menge made a number of arguments in an attempt to convince the court that his disability claim had been improperly denied. During the course of the claim, Mr. Menge underwent testing by his physician, which incorporated the FBS validity scale. Apparently, the FBS suggested that Mr. Menge may be exaggerating his symptoms.

Mr. Menge argued that the test is notoriously unreliable and very controversial in the psychological world and that, therefore, the plan abused its discretion by relying upon the results. Although the court acknowledged that the test is controversial it found that it was not an abuse of discretion for the plan to rely, in part, on the results to deny the claim.

This case teaches us that disability claimants and their doctors should be aware of critical literature and controversy surrounding any test that is used in diagnosing a claimant’s illness or disability as well as any controversy surrounding any validity measures employed.

Effectively Connecting With A Jury In A Subrogation Trial

Consider this hypothetical:

It is 2 a.m. on a Monday morning. John and Jill Smith are fast asleep in the master bedroom while their kids are asleep down the hall. John awakes to the noisy smoke detector and the smell of smoke coming from their master bathroom. John goes to the bathroom to see what is happening. He opens the bathroom door and sees flames raging from the ceiling fan. John yells to his wife to gather the kids and run to safety while he helplessly tries extinguishing the fire with a fire extinguisher. The fire grows beyond John’s control. John gives up the fight then joins his family in the front yard. John and his family watch their home burn and watch as countless family heirlooms and memories are taken down by the flames.

Anne Amazing from Anyday Insurance arrives at the scene after the fire. Anne ensures the Smiths that they will have a warm place to stay while their home is rebuilt. While the sentimental value of the items cannot be replaced, Anne Amazing provides compensation to the Smiths so that they can begin rebuilding their life. While the wounds still exist, the Smiths can begin to live again.

Forensic investigation determines that the fire was started by a defective Fireprone Fan. Fireprone refuses to take responsibility for their actions and chooses to drag the Smiths and Anyday through contentious litigation. The cause of the loss is clear. The scope of the damages is clear. Regardless, Fireprone has taken Anyday to the eve of trial. Anyday Insurance contacts their subrogation counsel to discuss trial authority. The subrogation specialist Rachel Recovery is nervous. She informs counsel that her superiors are afraid of the jury bias against insurance companies. Even though Anyday has a very strong case, Rachel’s supervisor advised her to accept Fireprone Fans offer for 50% of the claim. Believing in her case but needing reassurance, Rachel asks the following question to subrogation counsel: Should I take the money or can you win this trial?

Many studies show that jurors tend to be biased against insurance companies. In fact, everyday experience confirms that this bias exists. However, juror bias should not prevent you from receiving a good result at trial. In fact, you can counteract juror bias if you conduct an effective voire dire. During voir dire, you must not only ask the right questions, but you must listen to every answer carefully. Even subtle answers that are unrelated to the topic of insurance can show that a juror would be biased against your client’s cause.

For example, an effective question that one can ask a juror to assess their potential bias is:

Q:  Do you think just because someone is wealthy that they do not deserve compensation if they have been wronged?

Depending on their answer, you may want to think about eliminating them from your jury.

Next, you must persuasively present your case. This is easier than you think. Many defense attorneys, will take complicated and emotional issues such as the insured’s lost belongings and reduce those items to mere numbers. This effectively takes the emotional factor out of the equation and strictly focuses on the logistics. Plaintiff’s counsel in a subrogation case cannot allow the case to be reduced to a matter of dollars and cents. Instead, I recommend focusing on what your insureds lost and the actions that your clients took to compensate them for their loss. I challenge you to remember your first fire inspection. Remember the devastation that family felt when they lost their home and all of their things. That is what your case is about.

Consider the hypothetical above. If that case went to trial, I would focus on: (1) how helpless John and Jill Smith felt watching their home burn; and (2) how much better they felt after Anyday compensated them for their loss and helped them begin to rebuild their future. When the Smith’s watched their home burn down and felt like they had nothing left, Anyday came in and provided them with just compensation.

Ask the jurors, where would the Smith’s be if it were not for Anyday? The Smith’s life was devastated by a defective fan that was supposed to cool and clear steam from their bathroom, not burn their house down. Destructive testing conducted after the Smith’s home burned down showed that the defective wiring in the fan turned it into a dangerous weapon. When Fireprone’s product burned down the Smith home, Anyday Insurance was there to rebuild while Fireprone was there to litigate. Without Anyday, the Smiths would have never had the opportunity to start again and rebuild their lives. The Smith’s would have been without a home and they would have never received compensation for their lost belongings.

Without Anyday, the Smiths would have been left to seek help from Fireprone. Without insurance companies, the public would be left to fend for themselves against these dangerous products and the companies who manufacture them.

When setting up your case for the jury, make it clear that you are trying to recover from the responsible party for the harm they or their product caused. In the hypothetical, Anyday compensated the Smith’s for their loss and now seeks to make Fireprone answers for their mistakes. This is why potential bias should not be enough to scare a subrogation carrier out of taking a case to trial. Subrogation carriers are fixers. They fix what has been broken and then make the breakers take responsibility for their actions. Subrogation investigations have discovered product defects that were harming the public. A product defect gone unnoticed is another building about to burn and another injury waiting to happen. Avoid the bias by telling the jury what your client really wants: To make those responsible take responsibility for their actions. Make sure that each juror is open to listening to your client’s story. Further, make sure that you tell the actual story. I reiterate, embrace the emotional! Do not let your client’s case be diminished to dollars and cents. You should never be afraid of taking your case to trial if you use these methods.

Esquenazi decision interprets the Foreign Corrupt Practices Act

By David McMahon and Robert G. Levy

Companies doing business internationally no doubt have heard about the rise in claims brought by government agencies against companies and individuals under the Foreign Corrupt Practices Act (FCPA). Our last article focused on ways expenses in defending against such claims — often substantially greater than the amount for which the claims are ultimately resolved — can be contained.

A new decision, U.S. v. Esquenazi, was issued by the 11th Circuit on May 16, 2014, that carefully examines the tests required to determine whether in a given situation the FCPA has, or has not, been violated. The decision, a rare one despite the burgeoning number of prosecutions under the FCPA, clarifies but yet does not simplify what the applicable criteria for prosecution and conviction are. Pertinent to the role of corporate counsel overseeing the defense of such investigations and prosecutions, the decision in fact demonstrates just how wide ranging and fact intensive such an investigation and prosecution might become.

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Originally published by InsideCounsel, July 15, 2014

Bruce Rauner’s Tax Plan

Bruce Rauner, the Republican candidate for Governor of Illinois, recently released his Jobs and Growth blueprint, which includes his tax plan. Here is a look at his major tax proposals and current stance on the minimum wage.

Income Tax. Rauner would reduce Illinois's current 5% income tax rate to its previous level of 3% over four years. This would cost the state $8 billion in annual revenue. Were Rauner to follow through on this pledge, he would have to find a corresponding amount in spending savings. Rauner provides no information about what programs he would cut or by how much.

Eight billion dollars is a lot of money. It’s more than the state’s general funds spending on health care ($7 billion), K-12 education ($6.7 billion), human services ($3.2 billion), higher education ($2.5 billion), public safety including prisons ($1.6 billion), or seniors ($1 billion). But Rauner does not say anything either about specific cuts or about priorities for cuts that would be needed to achieve this magnitude of savings.

Sales Tax. Rauner proposes to raise $600 million by increasing the number of services that would be subject to the sales tax. This $600 million would make up less than 10% of the $8 billion revenue loss from his income tax proposal. Thus Rauner’s overall plan is a massive cut to revenue that will trigger unspecified massive spending cuts.

As to the merits of Rauner’s proposal, we agree that Illinois should tax more services, and we support this part of his plan. Rauner would exempt “day-to-day” services such as day care centers, laundromats, barber shops, and animal care. Services he would tax include attorneys, printing, and travel agents. We may have some differences with Rauner as to which categories of services should be taxed or exempted, but we do strongly agree in principle with him that consumer services generally should be subject to the sales tax. We also credit Rauner for the specificity of this part of his plan, which details which services would be taxed and which would be exempt.

Property Tax Freeze. We agree with Rauner that Illinois has become far too dependent on local property taxes. Our biggest concern is the inequity in school funding that has resulted. However, we oppose a complete freeze on property taxes as Rauner has proposed because it generally hinders localities’ abilities to raise needed funds and forces localities to turn to regressive sources of income like sales taxes and fees. Freezing property taxes also can create severe distortions in housing markets. 

Minimum Wage. Rauner got himself into trouble during the primary campaign when, while playing to conservative audiences, he announced his support for reducing Illinois’s minimum wage from $8.25 to the federal minimum wage of $7.25. This proved to be a highly unpopular position, especially coming from a billionaire.

In his new plan, Rauner says he supports raising the minimum wage “gradually.” He does not say how much he would he raise it, or how gradually.

Rauner also makes his support for an increase in the minimum wage contingent on the adoption of business-friendly reforms of workers compensation and tort claims. This conditional support for raising the minimum wage increases the difficulty of passing it.  There are difficult political problems with each of the reforms he champions that, in addition to the political issues around the minimum wage, multiply the obstacles to any of it actually happening.

The bottom line, then, is that the Rauner tax plan would produce welcome changes to the sales tax, but as a whole would result in a massive cut in state revenue that would require an equally massive cut in spending on education, health care, human services, and public safety. Rauner offers no specifics on what programs he would cut.  And he offers support for an unspecified increase in the minimum wage contingent on controversial business reforms.   

Kentucky District Court concludes that Kentucky’s five year statute of limitations applies to ERISA actions

In Hester v. Life Insurance Company of North America, a recent case out of the Eastern District of Kentucky, the widow of a deceased employee of CSX attempted to bring an ERISA action, alleging that LINA wrongfully denied her claim for death benefits nearly eleven years earlier. Finding plaintiff’s civil action to be untimely, the Kentucky court entered judgment in favor of LINA.

Plaintiff’s husband, Mr. Hester, was an employee of CSX and during his employment with the company obtained a $200,000 Accidental death benefit on his life under the company’s group AD&D Policy.
On July 16, 2002 Mr. Hester died of a self-inflicted gunshot wound to the chest in the garage of the family home. Accordingly, the State of Kentucky Certificate of Death listed the manner of death as “Suicide.” On August 7, 2002, Ms. Hester filed a claim for benefits with LINA.

LINA informed Ms. Hester that suicide was an exclusion under the policy and after giving Ms. Hester additional time to submit additional information that would indicate Mr. Hester’s death was an accident which Ms. Hester failed to do, LINA denied the claim.

The policy under which Ms. Hester was claiming benefits provided that no legal action to get policy benefits could be brought “more than 3 years after written proof has been furnished as required by the policy.”

Undoubtedly stricken by grief, Ms. Hester failed to respond to LINA’s denial and failed to institute a civil action until nearly eleven years later, well beyond the policy’s 3 year limitation. In an attempt to maintain the action Ms. Hester urged the court to apply KRS 413.090(2)’s fifteen year limitations period upon a recognizance, bond or written contract, contending that the policy’s three year window is unreasonable.

Ms. Hester’s argument was unsuccessful. Instead, the court, citing previous case law, concluded that the applicable statute of limitations is five years under KRS 413.120.

Which statute of limitations applies in ERISA actions is a commonly litigated issue in Kentucky. The court deferred to the 6th Circuit’s decision in Redmon v. Sud-Chemie Inc. in concluding the five year statute of limitations applies. To avoid digging further into the differences between previous case law in which Kentucky courts have found the five year limitation to apply and the case under review, the court went on to explain that even if Ms. Hester’s claim was not time barred the court finds that LINA’S decision was correct based on the administrative record since the weight of the evidence supports the finding that Mr. Hester’s death resulted from an “intentionally self-inflicted” injury, benefits for which are specifically excluded by the policy.

The “Tennessee Promise”: Real Reform or Empty Diversion?

As graduation season comes to an end, our thoughts return back to Republican Governor Haslam’s 2014 State of the State Address announcing a plan to provide two years of free community college and vocational school to all Tennesseans:  

This isn’t just about higher education — it’s about better jobs for more Tennesseans. It’s about building a stronger economy. . . . As we urge more Tennesseans to continue their education, we know we have to remove as many barriers as possible. For many Tennessee families, cost is the biggest hurdle to further education. That’s why tonight I am really excited to announce the “Tennessee Promise.” 

In order to participate in the Tennessee Promise, students would first have to apply for federal student aid, need-based, or merit scholarships. Tennessee would then pay the cost of tuition and fees not covered by other student aid. Similar to tnAchieves, the Tennessee Promise would place requirements on students, such as full-time college enrollment, maintenance of a 2.0 grade-point average, and completion of eight hours of community service per semester.

According to its architects, Tennessee Promise would be the only program of its kind and a revolutionary way of thinking about student loans and the societal promise that an educated and employed citizen is a responsibility of the state. The program beckons back to pre-millennium years when California and New York provided tuition-free community or city colleges to in-state students. However, after integration in New York spiked student enrollment, and funding cuts in California following property tax reductions, both states ceased to offer these programs. 

Tennessee plans to avoid these budgetary pitfalls by depending not on property taxes but instead on lottery revenues for funding. Several states, including Arkansas, Georgia, and South Carolina, use lottery money to provide college scholarships based on academic merit. Tennessee already offers merit-based scholarships, called Hope Scholarships, but the Tennessee Promise is for all students regardless of academic standing to attend community and technical colleges free of charge.

The announcement of the Tennessee Promise reflects the heightened interest of state leaders around the country in keeping college affordable and boosting the number of college graduates. Republican governors in Florida and Texas have attempted to reduce the cost of 4-year state schools to $10,000, by employing advances in technology such as online learning. However, the projects have not drastically changed degree programs and most students in both states already end up paying less than $10,000 for such degrees with careful planning in high school and federal or state aid already in existence.

Another pilot program passed in Oregon, called Pay It Forward, Pay it Back, also avoids the use of property tax for funding. Unlike in Tennessee, tuition would ultimately not be free for students. Instead students would pay no tuition upfront, but pay a small percentage of their income for the next 20 years to "pay forward" the cost of instruction for the next generation of students.

Some argue the Tennessee Promise is far from perfect. The plan calls for reducing Hope Scholarships for freshmen and sophomores at Tennessee's four-year universities from $4,000 to $3,000. Tennessee democrat Rep. Steve Cohen, who was instrumental in developing the state's Hope Scholarship program, argued the governor's plan could discourage enrollment from the state's top universities. "Over the last 10 years, the Hope Scholarship program that I worked for 20 years as a state senator to create has been an unparalleled success," Cohen said. "But the governor's 'promise' actually cuts funding from high-achieving students beginning four-year degree programs."

Others raise concerns about the longevity of the “Tennessee Promise” given that Governor Haslam is up for reelection this year and arguing that the program’s dependence on lottery funds is unsustainable. The program also would not apply to working adults.

“Tennessee Promise” is worth watching, but we also must not take our eyes off increasing graduation rates from four-year institutions and perhaps, most important, increasing high school graduation rates, and decreasing higher education costs across the board.

Principal Architect Liability

 The California Supreme Court, in Beacon Residential Community Association v. Skidmore, Owings & Merrill LLP (2014) DJDAR 8787, recently held that an architect which serves as principal architect on a project owes a duty of care to future homeowners in the design of a residential building. Such architects owe that duty of care even when they do not actually build the project or exercise ultimate control over its construction.

The trial court had sustained a demurrer in favor of two architectural firms on the grounds that architects who made recommendations, but no final decisions on construction, owed no duty of care to future homeowners with whom they were not in privity of contract. The Court of Appeals reversed, concluding that an architect under those circumstances owes a duty of care under both common law and the Right to Repair Act.

In support of its holding, the Supreme Court, like the Court of Appeals, relied heavily on the factors set forth in Biakanja v Irving (1958) 49 Cal. 2d 647 and the Bily v. Arthur Young & Co. (1992) 3 Cal. 4th 370 decision. The Court summarized its opinion by outlining the following Biakanja factors: 1. Defendants’ work was intended to benefit the homeowners living in the residential units that defendants designed and helped construct; 2. It was foreseeable that these homeowners would be among the limited class of persons harmed by the negligently designed units; 3. Plaintiff’s members have suffered injury as the design defects have made their homes unsafe and uninhabitable during certain periods; 4. There is a close connection between defendants’ conduct and the injuries suffered; 5. Significant moral blame attaches to defendants’ conduct due to their unique and well-compensated role in the project as well as their awareness that future homeowners would rely on their expertise in designing safe and habitable homes; and 6. The policy of preventing future harm to homeowners reliant on the architects’ specialized skills support recognition of a duty of care.

The key to the Beacon decision is that the architects were the principal architects on the project - i.e. their design work was not subordinate to any other design professionals. It is yet additional proof that the concept of privity, if not dead, has been eroded to the point of irrelevance.

Dispute Resolution Clauses (UK)

The New Law Journal is likely to soon feature the following article by Rob Kay discussing the very recent English case of Emirates Trading Agency LLC v. Prime Mineral Exports Private Limited [2014] EWHC 2104 (Comm).  The decision held that a clause which required parties to have friendly discussions prior to resorting to arbitration - a clause which is fairly common in contracts between Asian parties - was an enforceable condition precedent to the right to invoke arbitration. The case shows the willingness of the Court to apply decisions in support of enforceability (as in recent Australian, Singaporean and ICSID decisions).

The Facts

The applicant, ETA, agreed to purchase iron ore from the respondent, PMEPL. However, ETA failed to lift all of the iron ore expected and PMEPL raised a debit note in respect of liquidated damages pursuant to the terms of their contract. During the next shipment year ETA failed to lift any iron ore and so PMEPL served notice of termination claiming US$ 45m. They stated that if the claim was not paid within 14 days they reserved the right to refer the claim to arbitration without further notice. The claim was not settled and, in June 2010, the claim was referred to arbitration.

The Contract provided:

“In case of any dispute or claim arising out of or in connection with [this contract] … the Parties shall first seek to resolve the dispute or claim by friendly discussion. Any party may notify the other Party of its desire to enter into consultation to resolve a dispute or claim. If no solution can be arrived at in between the Parties for a continuous period of 4 (four) weeks then the non-defaulting party can invoke the arbitration clause and refer the disputes to arbitration.

All disputes arising out of or in connection with [the contract] shall be finally resolved by arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce ("ICC"). The place of arbitration shall be in London ("UK")….

Discussions Between the Parties

In December 2009 PMEPL terminated the contract. After an exchange of communications a meeting between the parties took place in Goa (although there had been previous meetings in Dubai and Goa these were before the termination). In the meeting they discussed possibilities to avoid arbitration, but no solution was found. Another (unsuccessful) meeting occurred in March whereupon PMEPL agreed to wait for a couple of months after which they would file for arbitration.

The Arguments

ETA argued that the disputes clause required a condition precedent to be satisfied before the arbitrators would have jurisdiction to hear and determine the claim and that such condition precedent was not satisfied with the result that the arbitral tribunal lacked jurisdiction. ETA asserted that the condition precedent was "a requirement to engage in time limited negotiations" and the requirement was not fulfilled because there had not been a continuous period of 4 weeks to resolve the claims.

PMEPL argued that the suggested condition precedent was unenforceable because it was a mere agreement to negotiate, but that if it were enforceable then it had been satisfied and therefore the arbitrators had jurisdiction.

The Decision

The Judge, despite being directed to several (first instance) decisions tending towards unenforceability, found them unpersuasive and declined to follow them.

The Judge took the view that:
(i) The use of the word "shall" in the dispute resolution clause indicated that the obligation was mandatory and that friendly discussions were a condition precedent to the right to refer a claim to arbitration
(ii) The use of the word "may", in distinction from the word "shall" in the first part of the clause, indicated that this was not a mandatory obligation
(iii) The meaning reasonably to be attributed to "for a continuous period of 4 (four) weeks" was not only for friendly discussions to resolve a dispute but also for a period of time to elapse before which arbitration may be invoked: the discussions may last for a period of 4 weeks but if no solution was achieved a party may commence arbitration; or the discussions might last for less than 4 weeks in which case a party must wait for a period of 4 continuous weeks to elapse before arbitration may be commenced.
(iv) There was obvious commercial sense for the dispute resolution clause: arbitration can be expensive and time consuming, so it was far better to try to avoid it by friendly discussions.

As a result the Judge found:

(a) The agreement was not incomplete - no term was missing; and

(b) the agreement was not uncertain - an obligation to seek to resolve a dispute by friendly discussions in good faith had an identifiable standard (fair, honest and genuine discussions aimed at resolving the dispute). The difficulty of proving a breach should not be confused with a suggestion that the clause lacked certainty; the parties had voluntarily accepted the restriction in the contract (and the court should be expected to enforce obligations which (a) have been freely undertaken; and (b) had the objective of avoiding a (likely) expensive and time consuming arbitration).

However he found that there had been "friendly discussions" at the meetings and they had lasted for more than 4 continuous weeks. As a result the arbitrators had jurisdiction to decide the dispute because the condition precedent to arbitration, although enforceable, had been satisfied.
 

 

 

 

 

 

Court Upholds Reliance Standard’s Decision to Deny Continued Long Term Disability Benefits to former GAF Materials Corporation Employee

Although this recently decided case was not handled by Attorneys Dell & Schaefer Chartered, it can be used an educational tool for those currently on claim or those thinking of making a claim for disability benefits.

The Factual Background

Sylvia R. suffered from Chronic Fatigue Syndrome. Being employed by GAF Materials Corporation she was apparently covered by a Long Term Disability (LTD) Insurance Policy that would provide her with an income should be unable to perform the duties of her occupation. This Policy was with the Reliance Standard Life Insurance Company.

Due to her disabling condition, Sylvia R. was forced to leave work on July 26, 2008. She applied for LTD benefits and her claim was initially paid by Reliance Standard for the period of January 22, 2009 through January 21, 2011. Reliance Standard then denied her claim at that time due to the fact that under the Policy that governed Sylvia R.’s claim after 24 months of benefits the definition of disability changes.

The Definitions of Disability

Often times in most Group Disability Insurance Policies, what it means to be disabled under the policy will often change after a specified time period. In the GAF Materials Corporation LTD policy, this change occurs after 24 months of benefits have been paid.

Initially, in order to qualify for LTD benefits, one must prove with medical documentation that he or she is unable “to perform the material duties of her regular occupation.” Thus, if the person is a laborer, then the person will satisfy this definition of disability if the medical records prove that he or she cannot perform the material duties of a laborer. In the case of Sylvia R., Reliance Standard agreed that she could not perform the material duties of her regular occupation.

Unfortunately for Sylvia R., and unfortunately for most disability claimants, after benefits are paid for 24 months, the definition of disability changes. In the case of Sylvia R., on January 22, 2011, in order for her to qualify for continued benefits, she must at that time prove that she is unable “to perform the material duties of any occupation that her education, training or experience reasonably allow.” This is obviously a much higher standard to satisfy as it could mean “any occupation” under the sun. The Court’s opinion is silent on whether there is an earnings requirement in the GAF Materials Corporation LTD Policy, however many policies require that this “any” occupation provide an income of at least 60% of the prior monthly earnings of the disabled person.

Most insurance companies use this change in definition as a perfect excuse to deny a person’s claim and to end benefits. In fact, a great percentage of people that contact Attorneys Dell & Schaefer Chartered due so after they have been denied for this very reason. Thus, it is important for all people who are currently receiving disability benefits to be aware if their policy contains this “change in definition of disability” and if it does, one must also be aware of the date in which the definition will change.

If one knows of the date that the definition will change, they can either attempt to strengthen their case or prepare economically for an upcoming denial of benefits (and a termination of income) prior to that time.

Unfortunately in the case of Sylvia R., Reliance Standard utilized the change in definition as a perfect time to deny Sylvia R.’s claim. Although administrative appeals and this lawsuit were filed, the Court upheld Reliance Standard’s decision to deny benefits. The Court felt that the five independent physician reviews conducted by Reliance Standard was sufficient evidence enough to support its decision to deny benefits. It is unknown what evidence, if any, Sylvia R. provided prior to and after the denial of her claim.

If you are currently on claim and are in fear of being denied continued disability benefits by Reliance Standard or any other insurance company due to this change in definition of disability, please contact Attorneys Dell & Schaefer Chartered for a free consultation so that we can assess your claim and see if we can be of assistance in strengthening your claim prior to a possible denial.