January 12th, 2007

Are Emotional Injury Recoveries Tax Exempt? An Appeals Court Dumps Its Own Opinion…

It’s odd to see an appeals court vacate its own decision, without anyone having asked, but that is what happened here. It’s all about the power of the government to tax personal injury awards.

Congress has the power to tax income, but not recoveries for personal injury. Its power comes from the Sixteenth Amendment, which gives it the “power to lay and collect taxes on incomes, from whatever source derived…”

Since a personal injury award, either by settlement or verdict/judgment, is compensation for that which was lost, it is not income. The injured person is simply made whole.

But what of psychological injury or loss to reputation? It was just a few days ago I posted on emotional injuries for witnessing the death of a sibling while in the “zone of danger.” In Murphy v. IRS, a three judge panel of the U.S. Court of Appeals for the District of Columbia held last year that compensation for emotional injuries was not income, and therefore not taxable. Therefore the provision of the Internal Revenue Code that tried to tax the money was held to be unconstitutional as it contravened the Sixteenth Amendment. Much was written on the subject, which I will not repeat, some of which can be found at this link to the TaxProf Blog.

The news? The Court of Appeals reversed itself a few weeks back by tossing out the decision, and asked for new briefs and oral argument. We can thus expect a new decision where the same three judges reverses their prior holding, or perhaps strengthens that prior opinion with the knowledge that, one way or another, this may well be headed for the U.S. Supreme Court. Interestingly, the court’s request for a re-hearing was done on its own motion. The losing side, the government, had not asked for that, but rather, an en banc hearing (with all the judges for the circuit court).

Since almost all personal injury cases have an element of psychological damage (the “suffering” in “pain and suffering”), the outcome is more than a little bit important. Will the court try to distinguish the emotional damage one has with a lost limb from that of the suffering in a non-physical injury defamation case? If a person has any physical injury to go with the emotional damage, does that mean all of the emotional damages are tax exempt? Will juries now be asked to separate out the two components?

The government argument is that all compensation from a personal injury suit may be taxed, notwithstanding the Sixteenth Amendment. This next appellate argument is unlikely to be the last…stay tuned…

And a tip of the hat to John D. Darer at StructuredSettlements4Real, where I caught up with that information.

 

January 11th, 2007

Sister Permitted to Bring Zone of Danger Case After Witnessing Brother’s Death

A “zone of danger” personal injury story was in the New York Law Journal yesterday, in a case of first impression. For those not familiar with the principle, a zone of danger claim for emotional injury can be made by an “immediate family” member:

“where a defendant negligently exposes a plaintiff to an unreasonable risk of bodily injury or death, the plaintiff may recover, as a proper element of his or her damages, damages for injuries suffered in consequence of the observation of the serious injury or death of a member of his or her immediate family – assuming, of course, that it is established that the defendant’s conduct was a substantial factor bringing about such injury or death.” Bosvun v. Sanperi, 61 NY2d 219 [1984]

So the question before Justice Joseph Maltese in Staten Island was to figure out what “immediate family” actually meant. In the Bovsun case that had established the zone of danger principle, New York’s Court of Appeals noted that, “Inasmuch as all plaintiffs in these cases were married or related in the first degree of consanguinity to the injured or deceased person, we need not now decide where lie the outer limits of the immediate family.”

Thus, Justice Maltese was confronted with the open question before him in Shipley v. Williams. He wrote that:

[T]his court has determined that a brother and a sister are “immediate family” members for purposes of establishing a cause of action for emotional distress when they were both within a “zone of danger” while the sister observed her brother sustain serious physical injury and death.

This tragic personal injury case arose when Shannon Shipley and her brother Jesse were passengers in an automobile involved in a collision with another car. As a result, Shannon witnessed her brother Jesse in tremendous pain, suffering severe injuries, which ultimately resulted in his death.

Shannon and Jesse were brother and sister, born from the same parents and lived together with their mother and father in the same household since their birth. The basis of the defendants’ motion is that Shannon and Jesse were not closely related enough to be considered members of the “immediate family.”

This was a case of first impression in New York. In reviewing the case law, Justice Matlese noted that one New York appellate court had already decided that a grandparent-grandchild relationship did not suffice to meet the “immediate family” threshhold. But there was no case law on brother-sister.

The defendants had argued that dismissal of the plaintiff’s complaint was mandated through a degree of consanguinity analysis. They argued that “The class of persons who may claim under the zone of danger rule is strictly limited to spouses, parents and issue of an injured person.” Brothers and sisters, defendants said, are relatives of the second degree of consanguinity.

Justice Maltese disagreed, and noted that while the Court of Appeals had not defined “immediate family” in the context of a zone of danger personal injury case, the legislature had done so in many other instances, including the Penal Law, Public Health Law and Social Services Law, always defining siblings as immediate family. More such definitions existed, noted the court, in the Emergency Tenant Protection Regulations, the Rent Stabilization Code the New York Rules of the Chief Judge and Black’s Law Dictionary.

The court ultimately found that a brother and sister, who lived together in the same household at the time of the accident are not members of their “immediate family” is contrary to the definitions established by the state legislature and legal reason.

Future judges will no doubt wrestle with half-siblings and step-siblings, some living apart from each other and some together. This will not be the last decision on the subject.

 

January 9th, 2007

Port Authority Cancels Geico Contract for GWB

I posted just two days ago about the dangerous agreement that the Port Authority made with Geico to put billboards and other ads on the George Washington Bridge. Dangerous because the main focus of the $3.2M agreement was to divert the attention of drivers in a toll plaza away from the cars around them and toward the ads. Where they saw money, I saw danger and liability.

And just as suddenly as it was announced, the deal is now cancelled, as per this article in today’s New York Times. As much as I would love to claim credit that my injury warnings from this tiny corner of cyberspace had something to do with it the article doesn’t cite safety as any of the reasons.

 

January 7th, 2007

Geico and New York’s Port Authority: Making Life More Dangerous

You really can’t beat the irony. New York’s Port Authority wants to let Geico put giant billboards up at it’s George Washington Bridge toll booths touting “safety” according to a New York Times story late last week (sub req.)

Why irony? Because the billboards will intentionally distract drivers as they approach the tolls. That is, after all, the basic idea a billboard — a distraction from driving to read the sign. This will be done in a spot with lots of stop-and-go traffic and lane-changing. According to the article, the signs:

will include the posting of a huge billboard on top of the toll plaza in Fort Lee, N.J., that says “Geico Drive Safely.” Drivers will also see Geico signs with the company’s mascot, a gecko, on the tollbooths and electronic signs on the approach roads.

Busy toll plazas are undoubtedly one of the more accident-prone pieces of roadway. I bet the toll workers and policemen that need to constantly walk that area are thrilled to have more distractions for the drivers.

Geico will pay $3.2M for two years for the ads. So I guess money trumps safety for the insurance company and the Port Authority that operates the bridge. The more things change in this world, the more they stay the same.

[Addendum: One day after this blog entry, the Port Authority cancelled the agreement, though the New York Times article said nothing about safety issues.)

 

January 5th, 2007

Did New York Courts Exceed their Authority With New Advertisng Rules?

I posted earlier today regarding the new ethics rules regulating attorney advertising in New York, and the prohibition from soliciting clients for 30 days. These Disciplinary Rules that were created by the presiding judges of each of the four appellate divisions not only apply to plaintiffs lawyers but to defendants as well. And to insurance companies. But can the courts legally do that? Part (a) is for plaintiffs, and part (b) is for defendants:

DR 7-111 (22 NYCRR 1200.41-a) Communication After Incidents Involving Personal Injury or Wrongful Death

(a) In the event of an incident involving potential claims for personal injury or wrongful death, no unsolicited communication shall be made to an individual injured in the incident or to a family member or legal representative of such an individual, by a lawyer or law firm, or by any associate, agent, employee or other representative of a lawyer or law firm, seeking to represent the injured individual or legal representative thereof in potential litigation or in a proceeding arising out of the incident before the 30th day after the date of the incident, unless a filing must be made within 30 days of the incident as a legal prerequisite to the particular claim, in which case no unsolicited communication shall be made before the 15th day after the date of the incident.

(b) This provision limiting contact with an injured individual or the legal representative theoreof applies as well to lawyers or law firms or any associate, agent, employee or other representative of a lawyer or law firm who represent actual or potential defendants or entities that may defend and/or indemnify said defendants.

And so an interesting question on the new rules has immediately arisen: Can the New York courts regulate what the insurance companies do?