ADVANCED HEALTHCARE DIRECTIVE

Schiavo?  Not me!
By Michael A. Latona

Unless you are as unfortunate as Terri Schiavo, you have read, or heard, the name Schiavo.  In Italian, the word S-C-H-I-A-V-O is pronounced “skee-ah-voe” and means "slave."  Ironically, and tragically, Terri Schiavo became a slave to the wishes of others, with some of whom she certainly did not agree; however, nobody will ever know what she would have wanted concerning her final treatment.

To avoid a similar fate, we all have options.  Generally, these options are known as health care directives.  In Illinois, they include the Health Care Surrogate, the Living Will and the Health Care Power of Attorney. This article is not meant to be an exhaustive discussion of this complex area.  Rather, it is designed to expose you to the subject in an effort to motivate you to take action to avoid enslavement through your silence.

If you have no Living Will or Health Care Power of Attorney, a Health Care Surrogate is available under very restricted circumstances.  The statute which authorizes the surrogate gives your attending physician the power to identify a qualifying condition and the power to determine you lack the requisite capacity to make decisions before he may name a surrogate from among a prescribed list of candidates.  Once the surrogate is named, he may make a decision on whether to forgo life sustaining treatment without judicial involvement.  The only problem with this instrument is the surrogate’s decision may not reflect your wishes.

A Living Will, on the other hand, is a written statement of your wishes concerning your medical treatment (it is not an instrument by which you dispose of your estate – that is called a "will").  It is what is known as an advance directive since it gives your health care providers your wishes in the event you suffer from an incurable and irreversible disease.  It comes into play only when your condition is terminal.  It does not, however, give an express direction to your health care providers as to whether you wish to have nutrition and hydration withdrawn or withheld. 

A Health Care Power of Attorney gives you the opportunity to choose an agent to act in accordance with your wishes and informs the agent what those wishes are.  The agent will have the authority to decide health issues, including the ability to consent, authorize, refuse, withhold or withdraw any type of medical care, including life-sustaining (including the provision of nutrition and hydration) treatment.  The Health Care Power of Attorney is the instrument by which you instruct your agent that you either: a) do not want to be kept in a permanent vegetative state; or b) due to religious beliefs, you want to be kept alive as long as possible.

In summary, a Living Will provides your health care providers with your intent.  However, it lacks empowering provisions.  A Health Care Surrogate, which may be used absent any documents signed by you, is more powerful than a Living Will but may result in actions contrary to what you would have wanted.  A Health Care Power of Attorney can provide you with what you want – executed by an agent in whom you have trust.

Do not become a Schiavo – free yourself and your loved ones from additional anguish at a time when you and they are suffering enough.  Make sure you include both a Living Will and a Health Care Power of Attorney as part of your estate plan.

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BUSINESS LAW

All employers required to display new labor poster

Effective March 10, 2005, all employers, regardless of the number of employees, must display a new mandatory labor law poster under the federal Uniformed Services Employment and Reemployment Rights Act.  The employment rights mandated by the Act extends coverage to up to 24 months for employees called to active military duty.  Coverage was formerly only 18 months.  During this coverage period, the job security and benefits for the employee on active duty are guaranteed under the law.

In addition, there are five additional labor law posters required under federal law.  They are notices related to: 1) Equal Employment Opportunity, 2) Occupational Safety and Health, 3) Fair Labor Standard Act (minimum wage), 4) Polygraph Protection, and 5) Family and Medical Leave.

With respect to the required labor law posters under Illinois law, there are also six required posters.  These posters relate to: 1) Minimum Wage, 2) Equal Pay Act, 3) Victims’ Economic Security and Safety Act, 4) Workers’ Compensation, 5) Notice to Workers about Unemployment Insurance Benefits, and 6) Safety and Health Protection on the Job.

If you have any specific questions about whether or not your organization is in compliance with these or other mandatory labor laws, please contact Attorney Joseph R. Marconi with the Business Litigation & Practice Group.

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BUSINESS LAW

Effect of reinstatement on involuntarily dissolved corporations

One of the primary reasons people incorporate their businesses is to enjoy limited personal liability relative to operating that business.  What does that mean?  Absent fraud, a person’s liability, in the event of judgment entered against the corporation, is limited to his or her investment in the corporation. 

In conclusion, the Act as interpreted by Illinois Appellate Courts stands for the proposition a corporation may ratify acts of its principals without negating personal liability imposed on those persons who illegally carry on the business of the corporation while the corporation is dissolved.  In other words, reinstatement of the corporation will not absolve any personal liability which accrued during the period of corporate dissolution.  Upon reinstatement, however, the corporation will become additionally liable, thus acting as an indemnitor of sorts of the individual.

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EMPLOYMENT LAW

Illinois prohibits discrimination based on sexual orientation
By Joseph F. Spitzzeri 

On January 21, 2005, Illinois Governor Rob Blagojevich signed into law an amendment to the Illinois Human Rights act which prohibits discrimination on the basis of sexual orientation by employers, as well as others.  The new amendment applies to any Illinois employer having 15 or more employees, and any employer which has a state contract.

The amendment defines “sexual orientation” as “actual or perceived heterosexuality, homosexuality, bisexuality or gender-related identity, whether or not traditionally associated with the persons designated sex at birth.” The amended act appears to prohibit discrimination against transsexuals, or persons who seek to change their gender or consider themselves a different gender than their birth gender. However, the amendment excludes a physical or sexual attraction to a minor by an adult, and does not require an employer to give preferential treatment or special rights based on sexual orientation, or to implement affirmative action policies or programs based on sexual orientation.

Illinois law now provides broader protection against discrimination on the basis of sexual orientation than does federal law.  Title VII does not apply to discrimination based on homosexuality.  Spearman v. Ford Motor Company, (2001).  Although Title VII covers discrimination because a person does not meet an individual or group notion of what a person of that gender should act and look like (stereotyping), such discrimination is prohibited on the grounds that it is discrimination because of that individual’s sex.  Ulane v. Eastern Airlines, Inc., (1994).  Under the amended Illinois statute, it is not required that discrimination on the basis of sexual orientation constitute gender stereotyping to be actionable.

The amended statute is effective January 1, 2006 . It must be followed despite any religious or philosophical objections. The new amendment, while departing from federal law, follows the ordinances of many units of local government in Illinois which prohibit discrimination based on the sexual orientation (Bloomington, Carbondale, Champaign, Chicago, Cook County, Decatur, DeKalb, Evanston, LaGrange, Moline, Naperville, Normal, Oak Park, Peoria, Springfield and Urbana ). 

Relief available to a prevailing complainant under the Human Rights Act includes actual damages, including back pay and benefits, emotional distress and interest, and an award of attorney’s fees and costs, in addition to the equitable relief of reinstatement to employment, a cease and desist order, posting notices explaining rights under the statute, and reporting as to compliance.

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EMPLOYMENT LAW

Severance agreements: An increasingly popular tool for employers
By Thomas J. Hayes 

Throughout the 1990’s, corporate downsizing was a popular strategy for companies that believed they had become complacent to the ever-increasing pace of competition in their markets. Today, corporations continue to downsize.  Not surprisingly, these same corporations are facing an increasing amount of employment-related litigation.  As a result, many corporations have turned to severance agreements as a way of protecting their interests.  What once was only associated with outgoing corporate executives, severance agreements are increasingly being utilized by employers for all levels of employees.   The primary reason for their increasing popularity is that, if drafted properly, a severance agreement can protect both the employer and the employee from future harm.  This article will outline some of the provisions employers should include in their severance agreements while at the same time will also point out some areas of concern employers need to be aware of when offering a severance agreement to an outgoing employee.

A severance agreement is a freely entered into contract between an employer and an employee.  In its simplest form, a severance agreement should contain: (a) the fact of the employee’s termination, (b) a release of all potential and future claims against the employer (worker’s compensation claims however may never be waived), (c) some amount of pay in consideration for the release, (d) a confidentiality provision, and (e) an enforceability provision.  Because a severance agreement is a contract, basic contract principles apply.  Therefore, compensation or consideration is required in order for the departing employee’s release of liability to be valid.  If there is no such consideration, the employee may retain the right to sue the employer even if the employee agreed to waive that right.  Compensation to the employee may include a large one-time payment, continued health benefits, continued salary payments, or other options.

There is no law requiring an employer to offer an employee a severance agreement.  However, if an employer decides to give an employee a severance package, certain rules and laws do apply, specifically where the severance agreement contains a waiver of a right.  Take for instance the scenario where a company wishes to offer a severance agreement to an employee who is 40 years old.  In this case, the employer must be aware of the requirements for waivers set forth in the Older Workers Benefit Protection Act (OWBPA).  The OWBPA is an amendment to the Age Discrimination Employment Act (ADEA) that limits the manner in which an employee (40 years or older) may waive his or her protections under the ADEA.  Specifically, the OWBPA states that an individual may not waive any right or claim under the ADEA unless the waiver is understood and voluntary.  Any severance agreement that does not follow the specific guidelines of the OWBPA is considered invalid.  A release executed by an employee as part of a severance program involving two or more employees is not considered valid unless at a minimum: 1) the employee was granted a period of at least 21 days (45 days in an instance of mass-termination) within which to consider the agreement; 2) the waiver is part of an understandable written agreement that specifically refers to rights under the ADEA; 3) the waiver must be accompanied by consideration (i.e. money) in addition to severance or other benefits to which the employee is already entitled to receive.  4) The waiver must advise the individual in writing to consult with an attorney before executing the waiver.  5) The waiver must also state that the offer remains revocable for at least seven days after the date of signature.  6) The waiver must not interfere with the employee’s right to file a charge with the EEOC.

It should be noted that a violation of the OWBPA, by itself, will not subject employers to monetary damages.  A violation could, however, expose employers to declaratory and injunctive relief that voids the ADEA waiver and opens the door to litigation on the merits of the age discrimination claim, which could result in monetary damages.

Severance agreements are useful for a number of different reasons.  They can be used when an employee has served the company well but is being laid-off due to changing economic times.  Severance agreements have also been used to protect trade secrets and therefore will contain a non-competition clause.  A severance agreement may also be used where the employer wants to offer the employee compensation for their cooperation in not filing suit against the company.  Whatever the reason is for offering a severance agreement, it is crucial that the agreement complies with all applicable rules and laws.  Any violation could deem the severance agreement unenforceable and could therefore unnecessarily open the employer up to future litigation.  For these reasons, it is always a good idea to have an attorney who practices employment law review any severance agreement a company wishes to offer.

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INSURANCE COVERAGE

New case law dealing with additional
insured endorsements & targeted tenders
By Glenn F. Fencl

Insurance coverage disputes between insurance companies are not uncommon and many times arise out of a construction related incident. Issues concerning “other insurance clauses” and the interplay between various “additional insured endorsements” can be confusing. With the advent of “targeted tenders,” contractors attempt to involve as many insurance carriers as they can while refraining from calling upon their own insurance carrier to respond.

The recent Illinois Supreme Court decision of Home Insurance Company v. Cincinnati Insurance Company, sheds some light on the often confusing situation where multiple insurers are requested to respond to an additional insured’ request for coverage.

In the Home v. Cincinnati case, the plaintiff, an employee of Aldridge Electric, was injured while working on a project. Aldridge Electric Company was a subcontractor of the general contractor, Allied Asphalt Paving Company. The insurance company for Aldridge, Home Insurance, provided an additional insured endorsement naming Allied Paving Company.

Another subcontractor of Aldridge, Western Industries, also carried insurance through Cincinnati Insurance Company, also naming Aldridge as an additional insured. The policy provisions provided that the Cincinnati policy was primary, and the Home insurance policy was excess.

As anticipated, the plaintiff filed negligence actions against the general contractor Allied and Western. Allied tendered its defense to both Home and Cincinnati. Both policies had limits of $1 million. Both additional insured endorsements limited Allied’s coverage as follows:

Who is an Insured is amended to include as an insured the person or organization shown on the schedule but only with respect to liability arising out of your work for that insured by or for you.

Cincinnati agreed to defend Allied but under a reservation of rights to deny coverage for work or conduct that was not performed by Western on behalf of Allied.

Ultimately, the plaintiff’s case settled in the amount of $600,000. Of this amount, Cincinnati Insurance only paid $100,000 while Home Insurance paid $500,000. Following the settlement, Home filed an action for equitable subrogation and equitable contribution from Cincinnati claiming that Cincinnati was solely liable for the entire amount of the settlement (equitable subrogation) and that Home was entitled for recovery of the portion of the settlement that exceeded its pro rata share (equitable contribution).

The Illinois Supreme Court, in this decision, goes into an exhaustive discussion of the distinction between equitable contribution and equitable subrogation. The court noted that equitable contribution permits one insurer who has paid the entire loss or greater than its share of the loss to be reimbursed from other insurers who are also liable for the same loss. Contribution applies to multiple concurrent insurance situations and is only available when the concurrent policies insure the same entities, the same interests, and the same risks. The court, therefore, concluded that when two insurers cover separate and distinct risks there can be no contribution among them.

The court ultimately concluded that the two policies at issue covered substantially different risks, and therefore, equitable contribution was not available. Relying upon the decision of Schal Bovis Inc. v. Casualty Insurance Co., the court noted that the Cincinnati policy covered Allied only for liability arising out of Western’s work while the Home policy covered Allied only for liability arising out of the work of Aldridge Electric. The court noted that the policies clearly covered different possibilities or degrees of probability for suffering harm or loss. The court noted that even though both policies may have been triggered so as to provide coverage this did not mean that the policies set out to cover the same risks.

The court then further went on to discuss the concept of equitable subrogation. The court noted that “in contrast to contribution, subrogation and indemnification are devices for placing the entire burden for a loss on the party ultimately liable or responsible for it and by whom it should have been discharged.” The Supreme Court set forth the elements of an equitable subrogation claim as follows:

(1) The defendant carrier must be primarily liable for the insured for a loss under a policy of insurance.

(2) The plaintiff carrier must be secondarily liable to the insured for the same loss under its policy.

(3) The plaintiff carrier must have discharged its liability to the insured and at the same time extinguished the liability of the defendant carrier.

The Supreme Court noted that the Appellate Court erred in equating the “identity of risk” element of a contribution claim with the “same loss” requirement of a subrogation claim. The “identify of risk” only pertains to equitable contribution. A subrogation action brought by an excess insurer against a primary insurer is completely distinct from a contribution action. The elements necessary to maintain a contribution action focused on the “risk” that the parties are set out to cover. For a co-insurer to recover, it must have insured the identical risk. However, a subrogation claim only requires that the secondary insurer insure the “same loss” as the primary insurer. The court thus concluded that Home Insurance could pursue its claim for equitable subrogation against Cincinnati.

In conclusion, while the area of additional insured endorsements and targeted tenders is often confusing, there has been some recent guidance by the courts to help insurance carriers resolve conflicts in multiple insurer situations and hopefully to speed the resolution of these conflicts in order to timely resolve underlying lawsuits.

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INSURANCE COVERAGE

Illinois Supreme Court rules carriers cannot reserve their
right to recoup defense costs: adopts the minority rule
By Peter R. Ryndak

When issuing a reservation of rights letter, insurance carriers oftentimes reserve the right to recoup defense costs paid on behalf of their insured in the event that it is later determined that the carrier did not owe a duty to defend the insured in the first instance. The majority of jurisdictions passing upon this issue have held that an insurance carrier may, indeed, recover defense costs if it specifically reserved the right to do so in its reservation letter to the insured. Hence, the almost universal practice among carriers to reserve this right.

In Knapp v. Commonwealth Land Title Ins. Co., the U.S. District Court for the District of Minnesota upheld an insurance carrier’s right to seek reimbursement of defense fees and costs where the insured did not object to the reservation of this right and subsequently accepted the defense provided by the carrier. Similar decisions from other jurisdictions hold that the reservation to recoup defense costs accompanied by the insured’s acceptance of the defense creates a contract implied in fact or law. Other cases simply hold that the insured would be unjustly enriched if the insurer paid defense costs for claims that were not covered by the insured’s policy. In fact, in Grinnell Mutual Reinsurance Co. v. Shierk, the U.S. District Court for the Southern District of Illinois incorrectly predicted that if presented with this issue, the Supreme Court of Illinois would follow the majority rule and allow a carrier to recoup defense costs as long as it has timely reserved the right to do so.

Recently, in General Agents Ins. Co. of America, Inc. v. Midwest Sporting Goods Co., the Illinois Supreme Court has adopted the minority rule and held that an insurer cannot unilaterally modify the insurance contract through a reservation of rights letter, which would allow for the reimbursement of defense costs. At bottom, the relationship between the carrier and the insured is controlled by the insurance contract, which does not even mention the carrier’s ability to recoup defense costs. In adopting the minority rule, the Illinois Supreme Court relied heavily upon its minority brethren and reasoned that:

A rule permitting such recovery would be inconsistent with the legal principles that induce an insurer’s offer to defend under a reservation of rights. Faced with uncertainty as to its duty to indemnify, an insurer offers a defense under a reservation of rights to avoid the risks that an inept or lackadaisical defense of the underlying action may expose it to if it turns out there is a duty to indemnify. At the same time, the insurer wishes to preserve its right to contest the duty to indemnify if the defense is unsuccessful. Thus, such an offer is made at least as much for the insurer’s own benefit as for the insured’s. If the insurer could recover defense costs, the insured would be required to pay for the insurer’s action in protecting itself against the estoppel to deny coverage that would be implied if it undertook the defense without reservation.

Thus, the Illinois Supreme Court has made a clear statement that an insurance carrier may not recoup defense costs by simply claiming that right in a letter to its insured. Furthermore, the Court’s decision takes into account that when the carrier defends its insured pursuant to a reservation of rights, the carrier is protecting itself as much as it is protecting its insured. Providing the defense protects the carrier against being estopped from asserting coverage defenses in a subsequent declaratory judgment action. Therefore, it would be fundamentally unfair, in the Court’s view, for the carrier to have the ability to protect itself and then compel the insured to pay for that protection.

The Court’s decision to adopt the minority rule in Midwest Sporting Goods is consistent with Illinois jurisprudence concerning the "duty to defend," generally. Consistently, the courts of Illinois find that the carrier’s duty to defend its insured is easily triggered, non-delegable, and must be exercised to preserve coverage defenses. It is no surprise then, the Illinois Supreme Court has placed the burden of paying for this duty squarely upon the carrier.

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HOSPITAL LAW & MEDICAL MALPRACTICE

Webb v. Mt. Sinai – The Medical Studies Act
By Kathryn K. Loft 

The Medical Studies Act strictly defines the parameters by which a hospital may investigate an incident in order to keep any resulting documentation within the protection of the privilege.

In Webb v. Mt. Sinai the court clarified application of the Medical Studies Act.  In this case the court found that certain documents, prepared by risk management after investigation of a patient death, were not protected by the Act and therefore were not protected from disclosure by the Act.

The court held that the hospital failed to show documents prepared by risk management were part of the Risk Management Committee's peer review process because:

 1)  The documents included language about issues of potential liability, thereby removing the documents from protection under the Act as the documents were not prepared only for peer review and/or quality control; and,

 2)  there was no evidence as to when the Risk Management Committee’s review began, suggesting that the investigation and document preparation might have occurred before and/or after the peer review process.

In this case, plaintiff was admitted to Mt. Sinai on July 28, 1998, to rule out hepatitis and for treatment of dehydration.  Plaintiff died the next day, on July 29th.  The documents at issue are an Occurrence Summary, authored by the risk manager and four memoranda, summarizing interviews with physicians, also authored by the risk manager.  Two of the memos were dated July 29, 1998, and two were dated August 4, 1998. 

After suit was filed, plaintiff requested during discovery certain documents from the hospital.  The hospital responded that it had responsive documents but objected that they were privileged under the Act.  When plaintiff asked the court to rule on the hospital's objections, the hospital responded with an affidavit by the (now former) risk manager. 

The first affidavit described the risk manager’s duties as responsibility for loss prevention and managing claims.  The affidavit also outlined her risk management duties, including improvement of patient care and safety through risk management techniques. The affidavit stated that the documents prepared as part of the investigation process in this case were presented solely to the Risk Management Committee and utilized solely for peer review, patient safety and quality improvement.

Plaintiff objected and the court ordered Mt. Sinai to file a supplemental affidavit and to provide the documents for in camera review (reviewed by the court but without access by plaintiff or other parties).

The second affidavit stated that the Chairman of the Risk Management Committee on July 29, 1998, directed the risk manager to begin an investigation on behalf of the committee.  This affidavit further stated that the memoranda prepared during the investigation were not distributed to the risk management committee.

After reviewing the documents in camera the court found these documents were not only for peer review purposes, but that each document clearly anticipated litigation and was intended, at least in part, to weigh potential liability.  Since they were not generated specifically and only for peer review, the documents were not protected by the privilege. 

In order to address the court’s findings, the hospital was allowed to file a third affidavit to attempt to clarify the issues.  In this affidavit, the risk manager stated that the only functions of the Risk Management Committee were peer review and patient safety and that the committee didn’t evaluate liability issues.  The affidavit included the apparently erroneous statement that the chairman of the committee instructed the risk manager on July 28 to initiate investigation after being notified of the patient’s death.  The patient didn’t die until the next day, on July 29. 

The court found significant discrepancies in the evidence.  The affidavits were internally inconsistent.  For example, in the first affidavit, the risk manager explained that the investigation memoranda were given only to the committee; and, in the second affidavit, she stated that the documents were not given to the committee.  The third affidavit stated that the risk manager began the investigation on July 28, the day before the patient’s death.    The court also found discrepancies between the memoranda and affidavits.  The in camera document inspection revealed that each memorandum included a statement that it was prepared, in part, to identify liability issues, while at least one of the affidavits stated that the Risk Management Committee’s purpose was not to determine liability issues.

The burden to prove that documents fall within the Act is on the party claiming the privilege.  The court identified two main reasons for its determination that the documents were not protected by the Act.  The Act does not protect documents created to evaluate potential legal liability.   Since the documents were not prepared solely for peer review purposes, the court determined that they were not protected.  The Act also does not protect documents generated before the peer-review process begins or after it ends.  Therefore, since the hospital could not clearly state when the Risk Management Committee’s review occurred, the court determined that the documents were likely prepared outside of the peer review process and were not protected by the Act.  Once the court realized that the affidavits were inconsistent with each other and inconsistent with the documents themselves, it had no trouble finding that the hospital had not met its burden of proof in establishing the privilege.

What can hospitals do to improve the chance documents created during risk management investigation will be protected from disclosure under the Medical Studies Act?

1)  Before the investigation begins for a specific occurrence, the Risk Management Committee must meet and direct the risk manager to conduct an investigation;

2)  Timing of the investigation must be designated; the Act does not protect against disclosure of information generated before a peer-review process begins or after it ends; the committee must be engaged in the peer-review process before the privilege is applicable; 

3)  Investigation must be designated as being solely for the purpose of peer review and quality control. Investigation documents must not include any reference to potential liability, loss prevention, managing claims or legal opinions.  Documents created in the ordinary course of hospital business for purposes of rendering legal opinions or to weigh potential liability are not privileged (even if later used by a risk management committee in the peer-review process);

4)  Everything the risk manager does as part of the investigation must be given only to the risk management committee; or,

5)  Hospital attorney performs investigation so the documents are protected by attorney/client or work/product privilege.

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HOSPITAL LAW & MEDICAL MALPRACTICE

Appellate court decision on the Petrillo rule
By Lynn M. Reid

The Illinois Appellate Court, First District, recently issued an opinion interpreting the Petrillo rule. Under Petrillo, defendants and defense counsel are prohibited from engaging in ex parte communications with a plaintiff’s treating physicians. In the decision in Moss v. Amira, the appellate court reversed a plaintiff's verdict in an auto case and remanded for a new trial based on defense counsel's Petrillo violation. Defense counsel in Moss had taken the discovery deposition of one of plaintiff's treating physicians and then disclosed the doctor as an expert, based upon the doctor's discovery deposition.  Defense counsel then noticed the evidence deposition of the doctor. Counsel sent the doctor a letter setting forth the date of the deposition and enclosing a copy of the doctor's discovery deposition and a copy of the defendant’s Rule 213(f) interrogatory answers. Defense counsel did not talk with the doctor. The court considered the transmittal of the Rule 213 interrogatory answers to be more than a de minimus communication and improper under Petrillo, due to the inclusion of opinions of other witnesses and also presumed opinions of the doctor outside the testimony of his discovery deposition. Since the doctor's testimony was important to the outcome of the case, the court remanded for a new trial, during which the doctor's testimony would be barred. In a concurring opinion, one of the appellate justices commented that the protection of private health information under HIPAA should also apply to communications with treating physicians. 

For more information, click here for the opinion in Moss v. Amira.

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