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The Importance of Planning for Medical and End-of-Life Decisions

Posted Wednesday, September 12, 2018 by Pivotal Law Group

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People make an estate plan because they want certainty about what will happen in the future. This often includes certainty about who will make medical decisions for you if you’re ever unable to do so. For many people, one important future medical decision is so-called “end-of-life” planning. This means exercising control over medical treatment and decision-making in a terminal illness or similar condition. Some people express a desire to go off life support or decline life-sustaining medical care because they don’t want to artificially prolong the process of their dying. Others just want a firm plan for who will make those decisions to give themselves and their family certainty.

People have a right to make end-of-life plans. Medical ethical principles give patients an absolute right to decide what medical treatment to undergo, including the right to refuse medical treatment. That includes designating someone else to decide to refuse medical treatment on your behalf if you’re incapacitated.

But this generates a conflict with health care providers, who always want to do everything they can to keep patients alive as long as possible regardless of the patient’s awareness or quality of life. When decisions are being made that are, quite literally, life-and-death, medical providers want to be certain they are following the patient’s wishes. It doesn’t matter how forceful your wishes are, or how strongly your trusted decision maker advocates for you, if you haven’t planned for these decisions in a way healthcare providers and the law will recognize.

Washington law gives people the right to plan for this as part of their estate plan. You can express your wishes in advance with a Health Care Directive. Washington’s Natural Death Act permits individuals to issue an advance Health Care Directive describing the individual’s desire for medical providers to withhold or withdraw life-sustaining treatment. A Health Care Directive becomes effective only if the person is certified by doctors to be in a “terminal condition” or “permanent unconscious condition.” In such event, the Health Care Directive expresses the person’s desire that their dying not be prolonged by artificially provided nutrition and hydration. The directive has specific formal requirements including being witnessed by two disinterested persons.

Washington law also gives you the right to designate an agent to make health care decisions on your behalf in the event you’re incapacitated through a Power of Attorney. A Power of Attorney is a formal document granting a third party authority to make decisions on your behalf if you cannot do so. A Power of Attorney providing a trusted agent authority to make medical decisions on your behalf under specific circumstances can give you some certainty that future medical decisions, including end-of-life planning, are made in accordance with your wishes.

The tension between end of life planning and health care providers, and the need for a specific and effective medical decision-making plan, were highlighted in a recent high-profile Oregon case where the patient’s husband accused her doctors of ignoring her wishes for medical treatment. There, doctors continued providing artificial nutrition to the patient despite her wishes in her advanced directive, because the doctors believed the patient’s advance directive was not specific enough under the circumstances. Cases such as this one underscore the need for careful advance planning of your future and end-of-life medical wishes.

If you have questions regarding planning for future medical decision-making, contact Attorney McKean J. Evans for a free consultation.

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Five Important Things You Should Have in Your LLC Operating Agreement

Posted Wednesday, September 5, 2018 by Kim Sandher

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While most states don’t require you to have an operating agreement (Washington is the one of the states that does not require it), one of the biggest mistakes people make after setting up a Limited Liability Company is not drafting an operating agreement. I’ve had many clients come to me after things have fallen apart and they don’t have anything in writing to resolve their issues and a lot of them end up in expensive litigation trying to resolve the problem. As you probably know, litigation can be very expensive. It’s good to address things you don’t want to think about and that are not at the top of your list when launching your business.

An operating agreement is the document that lays out the rules and understanding among the members of the LLC. It is like what the bylaws for a corporation are.

These are five important things you should consider putting in yours:

1. Ownership Interests: Usually ownership is based on how much each owner contributed when the company was started, but it’s still possible to split other ways. A lot of people make other arrangements. For example, an owner might get 30% of the company even though he or she only contributed 10% of the money to the company because they bring more experience, or will be bringing in more sales, or will be the only one running the business. Whatever the reason is, the operating agreement should clearly list out how much each owner interest is because it will affect important decisions for your company.

2. Management: The LLC can be managed by one or more members, by a board, or by one or more managers. Typically, management is responsible for the day-to-day running of the business and for strategic decisions. Your operating agreement should lay out how management is selected, what triggers removing or replacing management, what procedures should be followed, what powers management has, and any limitations to management.

3. Sharing of Profits and Losses:
Usually sharing in profits and losses is done according to the percentage owned. For example, if you own 30% of the company, you would get 30% of the profits and/or 30% of the losses. If a member is an individual, the amount they receive in profit or losses is typically what they’d report on their personal income tax. The percentages may be different than ownership interest because of tax considerations. It’s good to lay all of this out clearly in an agreement.

4. Member Changes: Laying out how a member may exit the business, sell their share, or what happens when a member dies will save you the hassle and stress of figuring it out when it does happen. You might want to give the remaining members the option to buy the exiting member’s share and lay out how the business will be valued. You may want to also address what happens when a member files for divorce or bankruptcy.

5. Dissolution:You should address the steps that should be taken to dissolve the LLC and how the assets should be divided and how debts should be paid.

Since this is one of the most important documents your business will have, it is always a good idea to have an attorney review your document even if you’ve drafted it yourself. Your lawyer will look it over to address any legal issues with the drafting and/or point out anything you may have missed. You should also keep this document updated to address any changes in the business.

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Title Insurance Cover Tribal Fishing Rights Claims Against Landowner Says Court of Appeals

Posted Thursday, August 30, 2018 by Pivotal Law Group

Title insurance is a critical part of most real estate deals. In Washington and throughout the U.S., a piece of real estate has likely changed hands numerous times, including typical purchase money mortgage sales, foreclosures, bequests via a will or trust, or otherwise. As a result, prudent people about to buy land or a home buy title insurance, which protects the buyer from losing money if it subsequently turns out that there is a problem in the chain of prior transactions of the property. For example, a person might buy a new home and subsequently learn that, due to a defective transfer decades prior, the seller didn’t fully own the property and thus the new buyer’s ownership interest is in jeopardy. The new buyer might find themselves defending a lawsuit (a/k/a a “quite title” action) or otherwise taking a monetary loss on the property due to the defective title. In that case, the buyer would tender the claim to their title insurer who would defend the lawsuit or reimburse the buyer.

As a result, most prudent home-buyers and other parties to real estate transactions routinely buy title insurance. Unfortunately, the title insurer often resists paying claims when problems with title arise. This is particularly true where the claims against the title are more esoteric, such as tribal fishing treaty rights.

In Robbins v. Mason County Title Insurance Co., Case No. 50376-0-II, Washington’s Court of Appeals ruled in favor of buyers, the Robbinses, in their dispute with Mason County Title Insurance Company (“Mason Title”). In 1978, the Robbinses purchased land including tidelands formerly owned by the state of Washington (the “Property”), intending to use the tidelands for commercial shellfish harvesting. Being prudent land buyers, the Robbinses also purchased title insurance from Mason Title (the “Policy”). The Policy required Mason Title to insure the Robbinses against any loss resulting from defects in the Property’s title. Specifically, the policy stated:

[Mason Title] shall have the right to, and will, at its own expense, defend the insured with respect to all demands and legal proceedings founded upon a claim of title, encumbrance or defect which existed or is claimed to have existed prior to the date hereof and is not set forth or excepted herein.

Unfortunately for the Robbinses, their newly-purchased tidelands had a defect in title. The Sqaxin Island Tribe (“Tribe”) had a claim to the Property’s shellfish rights by virtue of the 1854 Treaty of Medicine Creek (“Treaty”). Upon learning of the Robbinses’ shellfish-harvesting aspirations, the Tribe sent the Robbinses a letter asserting its rights under the Treaty and demanding 50 percent of the harvestable shellfish from the Property.

The Robbinses tendered the Tribe’s claim to Mason Title and asked Mason Title to defend them as required by the Policy. Mason Title refused, claiming there was no coverage under the Policy for the Tribe’s claim. The Robbinses sued Mason Title for coverage under the Policy as well as for insurance bad faith.

The Court of Appeals ruled for the Robbinses. The court determined the Tribe’s claim constituted a “demand” “founded on a claim of encumbrance arising before the date of inception of the policy” which the Policy required Mason Title to defend the Robbinses against. Thus, the Robbinses had coverage under the plain language of the Policy.

Mason Title argued the Robbinses’ claim was excluded under the Policy’s exclusion for “public or private easements not disclosed by the public records.” The court disagreed, finding the Tribe’s rights under the Treaty were not “easements.” An easement is “a right to enter and use property for some specified purpose.” The Tribe’s shellfish harvesting rights were not a right granted to the Tribe to enter the Property but rather existing rights the Tribe had always possessed and which the Treaty simply reserved for the Tribe.

Besides ruling the Policy covered the Tribe’s claim against the Robbinses, the court also ruled Mason Title acted in bad faith in unreasonably refusing to defend the Robbinses. The court found Mason Title’s interpretation of the policy was, at best, an arguable reading of an ambiguous provision of the Policy. As such, Mason Title was required to, at least, defend the Robbinses from the Tribe’s claim while reserving its right to dispute coverage.

The Robbins case emphasizes property buyers should carefully review their title insurance policies to confirm they are covered in the event title is defective, and should insist the title insurer follow the policy and provide coverage in the event of a loss.

Pivotal Law Group attorney McKean J. Evans represents insurance policyholders and has obtained favorable outcomes in disputes with insurance carriers. If you have questions regarding a title insurance or other insurance coverage matter, contact McKean for a free consultation.

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The Brave New World of Cybercrime Insurance Coverage Disputes

Posted Monday, August 27, 2018 by Pivotal Law Group

Computer crime and data breaches have become a reality for most businesses. Words like spearphshing or ransomware that were obscure five years ago are now in the headlines on a regular basis. The FBI calculated over $1.4 billion in reported losses from hacking and similar computer crime in 2017. A data breach can cause serious monetary consequences for businesses, besides the goodwill hit of having to notify customers and colleagues of the intrusion.

Accordingly, business have tried to mitigate the risks of a data breach or hack through insurance coverage. Since cybercrime coverage is in its infancy, it’s unsurprising disputes have arisen between businesses and insurers regarding the extent of coverage under these policies.

Emerging caselaw shows that cybercrime coverage is not immune from the traditional conflict between the insured’s interest in being made whole after a loss and the insurer’s interest in paying as little as possible on claims. A good example is the recent decision by the U.S. Court of Appeals for the Sixth Circuit in American Tooling Center, Inc. v. Travelers Casualty and Surety Company of America. American Tooling Center (“ATC”), lost over $800,000.00 in a phishing scam. Hackers first infiltrated ATC’s email servers and obtained the names of ATC’s contacts with ATC’s Chinese subcontractor. After ATC wired certain payments to its subcontractor, the hackers posed as the subcontractor’s agents and claimed to have never received the payments. ATC canceled its initial wire transfer and re-sent the funds to the hackers. ATC realized what had happened when the genuine subcontractor called to demand payment.

ATC tendered the claim to its insurance carrier, Travelers, under ATC’s coverage for “computer crime.” ATC’s policy provided Travelers “will pay the Insured for the Insured’s direct loss of, or direct loss from damage to, Money, Securities and Other Property directly caused by Computer Fraud.” ATC requested Travelers cover the over $800,000.00 it lost in the phishing scheme.

Travelers refused to pay. Relying on the words “direct loss,” Travelers claimed ATC hadn’t actually lost the over $800,000.00 it wired to the hackers. Instead, Travelers argued ATC only had a “direct loss” in the amounts it had to pay to its subcontractor over and above those amounts it paid to the hackers. Since the subcontractor (presumably sympathetic to ATC) had settled for a reduced payment, Travelers claimed it need only pay ATC the amount its subcontractor agreed to accept.

The court had little trouble rejecting Travelers’ argument, stating:

A simplified analogy demonstrates the weakness of Travelers’ logic. Imagine Alex owes Blair five dollars. Alex reaches into her purse and pulls out a five-dollar bill. As she is about to hand Blair the money, Casey runs by and snatches the bill from Alex’s fingers. Travelers’ theory would have us say that Casey caused no direct loss to Alex because Alex owed that money to Blair and was preparing to hand him the five-dollar bill. This interpretation defies common sense.

Separately, Travelers also argued the phishing attack was not covered under ATC’s computer fraud coverage. Travelers claimed coverage only existed where the perpetrator actually caused the transfer, not where the hackers deceived employees into transferring money unwittingly. The court observed that if Travelers wanted to restrict coverage thusly, it could easily have made that explicit in the policy - indeed, the court pointed out many policies do restrict coverage in this way using language absent from Travelers’ policy.

The ATC decision underscores the emerging issues in cybercrime coverage disputes and the bases insurers will use to deny coverage for phishing, hacking and other computer crime causing losses to businesses.

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Court of Appeals Reiterates Insurer’s Obligation to Protect Policyholder From Lawsuit

Posted Thursday, August 16, 2018 by Pivotal Law Group

When a driver crashes into another vehicle and is sued for damages, the driver’s insurer typically has an obligation to defend the lawsuit and act in good faith to protect its insured’s interests. When the insurer fails to do so, the driver likely has legal recourse under Washington law.

Washington’s Court of Appeals recently reiterated this principle in Singh v. Zurich American Insurance Company. In Singh, the Court of Appeals ruled Singh’s insurer, Zurich American, was liable for failing to settle and defend claims against Singh in good faith.

On July 20, 2011, one of Singh’s employees, driving Singh’s semitruck, allegedly caused a 16-vehicle crash by failing to slow down for congested traffic. Persons injured in the crash, and the families of those killed in the crash, sued Sing for damages. Because of the dramatic injuries and deaths allegedly caused by Sing’s employee, the plaintiffs quickly advised Singh that they saw their damages recoverable from Singh as exceeding the limits of Sing’s insurance policy. In other words, Singh knew that, if he lost the court case, he would have to pay significantly more money than his Zurich American insurance policy would cover.

Singh’s insurance policy with Zurich American obligated Zurich American to defend Singh in the lawsuit. Zurich hired a lawyer to defend Singh. Zurich’s lawyer recognized it was in Singh’s best interests to pay the entire insurance policy limit to settle the large monetary demands of the persons injured and killed in the crash. But the attorney also recognized that disbursing the entire policy limit to the first plaintiffs to sue Singh would leave Singh without insurance coverage should later claimants seek damages from Singh.

Accordingly, Zurich’s lawyer proposed to reserve some of Singh’s policy limits to protect Singh from future claims arising from the crash. However, Zurich ignored its lawyer’s advice and ordered the lawyer to settle the existing claims with the full policy limits. Zurich’s lawyer did so.

Later, another person sued Sing claiming injuries in the crash. Zurich refused to defend the lawsuit because Singh’s policy limits were exhausted from the prior settlement. Singh paid for his own counsel and ultimately paid $250,000.00 to settle the new claims.

Singh then filed suit against Zurich alleging Zurich acted in bad faith and violated Washington’s Insurance Fair Conduct Act (“IFCA”) and Consumer Protection Act (“CPA”). The jury found in Singh’s favor, agreeing Zurich breached Singh’s insurance policy and acted in bad faith.

The Court of Appeals upheld the jury’s verdict. The court observed the insurer’s duty to defend the insured “is one of the main benefits of the insurance contract.” Thus, the court determined Zurich could not permissibly exhaust the policy limits then use its exhaustion of the policy limits as an excuse to continue defending Singh. Doing so put Zurich’s interests over Singh’s in violation of the insurance policy and Washington law. Notably, Zurich ignored its own lawyer’s suggestion it keep some policy limits in reserve to protect Singh from future claims.

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