Foremost Insurance Appeals $45 Million Discovery Order to Arkansas Supreme Court

The Southeast Texas Record notes an appeal (either an interlocutory appeal or a request for extraordinary writ relief) in Chivers v. State Farm, one of the many nationwide class actions simmering in the Texarkana, Arkansas-based state courts.

Chivers is a case against several major insurers over the way the insurers compensate contractors:

The lawsuit involves allegations that after a loss or damage to an insured’s property, insurance companies did not disclose or pay the general contractors’ overhead and profit. Although the insurance companies paid the claims to the insurers, the plaintiffs state they are entitled to the additional money. The complaint states that general contractors’ overhead and profit is 20 percent of an estimated construction job cost and is a paid-for-benefit to the customer.
The issue in the appeal is Circuit Judge Kirk Johnson’s order that one of the defendants, Foremost Insurance, produce discovery at a cost of $45 million.

Judge Johnson’s disagreed with Foremost’s cost estimate in his order and stated that non-lawyer clerks could be employed to search the discovery for privileged material:

After Judge Johnson analyzed the costs of production of Foremost’s claim files, he believes 90 percent of the costs are for attorneys’ fees for removing attorney-client work product, which “can be identified by company clerks for attorney review at a greatly reduced rate of pay.”


No Fraud in Sale of Property When Buyer Saw Numerous Problems Before the Sale

Burgess purchased a house from the Frenches. The house was in need of major repair; only one room was completed. Wiring and insulation were exposed throughout the house. The Seller Property Disclosure Form stated that the Frenches had not had any problems with the house. Burgess’s agent had seen a puddle of water in the house and encouraged him to get a professional inspection. Burgess refused because he conducted inspections for a living.

The sales contract contained a “disclaimer of reliance” clause that he had inspected the property to his satisfaction and was not relying on the Frenches. The contract also stated that Burgess purchased the house “as is.” A week after the sale, Burgess had problems with the roof and electrical system. He called Mrs. French, and she admitted that Mr. French had recently made repairs to the roof. Burgess sued for fraud and constructive fraud.

In affirming judgment for the sellers, the court held it was unreasonable for Burgess to claim reliance. Aside from the disclaimer and “as is” clauses, he had an obligation to make further inquiry when he saw the exposed wiring and was told about the puddle of water.


Court Resolves Discovery and Evidentiary Issues in Case Involving Construction at Arkansas State University

The Eastern District of Arkansas issued two decisions in a construction case involving work at Arkansas State University. Building Construction Enterprises, Inc. v. Meadows. BCE claims certain work was part of the contract; Meadows claims this work was not part of the contract.

Meadows submitted untimely discovery requests to BCE on June 26, 2007. BCE responded with blanket objections and claimed it did not have sufficient knowledge to admit or deny the requests for admission. Frustrated with both parties, the court ordered BCE to provide 125,000 pages of documents and to make a reasonable investigation into the matters addressed in the requests for admission. The court will decide later if the requests for admission should be deemed admitted. See 2007 WL 2570514 (E.D. Ark. 8/31/07).

BCE filed two motions in limine to exclude (1) parole evidence regarding the contract; and (2) statements by BCE’s on-site superintendents. The court denied both motions, finding the contract is ambiguous and that statements by BCE’s superintendents are admissions of BCE. See 2007 WL 2695493 (E.D. Ark. 9/10/07).


Arkansas Supreme Court Upholds Electronic Games Gambling Law

The law at issue is codified at A.C.A. § 23-113-101, et seq. This law sets forth procedures for permitting gambling on electronic games of skill. Any city or county that already has horse racing or greyhound racing can hold a local election. Presently only Oaklawn Jockey Club in Hot Springs and Southland Racing Corporation in West Memphis have such legal operations in Arkansas. The racetrack itself chooses whether the election is submitted to the city or county, but the racetrack must pay all expenses associated with the election. The Arkansas Racing Commission (ARC) determines what games qualify as electronic games of skill.

Plaintiffs are residents of Garland County but not of the city of Hot Springs. They challenged the law on three main grounds: (1) delegation of legislative authority to the racetracks; (2) delegation of legislative authority to the ARC; and (3) the law had no rational basis. The trial court rejected these arguments and held the law is constitutional. The supreme court agreed and affirmed.