Settlement may be largest of its kind

In what is believed to be the highest-ever payout of its kind in the state, the Indiana Department of Insurance will receive $16.5 million from a national legal malpractice insurer as part of a federal lawsuit settlement.

Attorneys told Indiana Lawyer on Monday that ProNational Insurance settled a bad faith and breach of contract suit with the state agency, ending a 4-month-old suit that had been the result of a state malpractice claim where an Indianapolis law firm got hit with a $17.9 million verdict two years ago.

Alabama-based ProNational was the malpractice insurer for Fillenwarth Dennerline Groth & Towe, which had once represented the failed Indiana Construction Industry Trust that had provided health-care coverage to 8,200 non-union construction workers before going bust in 2002.

The state agency had settled with about 80 other defendants involved in the trust's failure, but not with the firm and attorney Frederick W. Dennerline III. ProNational declined to settle on behalf of the firm for a $1 million limit and the end result was a jury verdict against the firm that shocked the legal community and initially put the firm's future in doubt.

This spring, the Indiana Court of Appeals affirmed that verdict and this federal suit in the Southern District of Indiana followed in June.

Dennerline and the law firm assigned their rights to the insurance commissioner and paid $50,000, releasing them from any obligation to pay the multi-million dollar verdict. The state agency then went after ProNational.

Indianapolis attorney Joe Chapelle with Barnes & Thornburg, who represented ProNational, said the settlement involves paying $16.5 million on the breach of contract aspects, but the company doesn't acknowledge that any "no settlement" policy exists or that anything improper happened in its handling of the Dennerline legal malpractice case.

"This is not to be construed to mean that there was any finding by the department of bad faith," he said. "We are pleased with the outcome and the company is pleased to be able to put this behind them."

Cohen & Malad attorney Irwin Levin, who represented the state insurance agency, confirmed the $16.5 million settlement amount and said the negotiation came down to balancing the trust fund needs with a potentially ongoing appeal and federal suit.

"We negotiated and took a tough stance, and it came down to how long we wanted to litigate," Levin said, noting this settlement ends the federal suit and a transfer request pending on the state legal malpractice claim before the Indiana Supreme Court.

Levin added that to his knowledge, this is the highest amount ever returned from a liquidation action without a guaranty fund in the state. An additional $7.7 million in settlements already paid by other defendants makes a combined total of more than $24 million to be paid into the trust.

The Department of Insurance issued a news release today and described this recovery as remarkable, noting that it hadn't expected to recover this amount. This money will be used to reimburse about 80 percent of out-pocket expenses paid by member companies, their employees, and healthcare providers that should have been paid years ago by the trust. A payout date is set for Dec. 15.

Between now and then any ICIT member, their employees, or healthcare providers with a claim for reimbursement can contact the special deputy liquidator, Indiana Insolvency Inc., at (317) 237-4900 or via email at [email protected].