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Questions in med-mal case bring 7th Circuit reversal

December 18, 2018

A Fort Wayne medical malpractice insurance company got a reprieve from having to cover a multi-million verdict in a wrongful death lawsuit after the 7th Circuit Court of Appeals reversed the grant of summary judgment, finding too many questions are unanswered.

Medical Protective Co. (MedPro), based in Fort Wayne, sued its insurer American International Specialty Lines Insurance Co. (AISLIC) after being declined coverage after a $14 million medical malpractice verdict in Texas. The U.S. District Court for the Northern District of Indiana granted summary judgment to AISLIC, but the 7th Circuit reversed and remanded, finding a genuine dispute of material fact.

The malpractice claim arose after Texas resident Vicki Bramlett, 36, died after a laparoscopic hysterectomy. Bramlett’s husband and children filed a wrongful death lawsuit against the physician, Dr. Benny Phillips.

During the litigation process, the Bramletts twice made a Stowers demand to Phillips. In Texas, a Stowers demand provides that if a plaintiff makes a demand to an insurer that is within the insured’s policy but the insurer rejects it even though a reasonably prudent insurer would accept, then the insurer will later be liable for any amount awarded over the policy limit.

The Bramletts offer to settle for Phillips’ policy limit of $200,000. However, MedPro declined, saying it wanted to wait because discovery was ongoing.

About a month after declining a second Stowers demand, Phillips’ attorney notified MedPro of possible issues with the defense. Namely, Phillips had received a voicemail about Mrs. Bramlett’s hemoglobin levels dropping, but instead of going to attend to her, Phillips left the hospital to exercise.

Phillips’ attorneys were not certain of success at trial and warned MedPro that it could be saddled with a hefty payout because it had declined the two Stowers demands. However, MedPro’s own counsel saw the Stowers claim as “relatively weak” and advised that settling with the Bramletts could set a bad precedent.

The Texas jury returned a verdict of $14 million. Subsequently, the Texas Supreme Court ruled that a statutory cap for physicians limited Phillips’ liability to $1.7 million, and that the Bramletts could pursue a direct claim against MedPro for the amount of the verdict in excess of that cap.

When MedPro turned to its insurer, AISLIC refused to cover the claim, and MedPro sued for breach of contract. The Northern Indiana District Court held the exclusion provision in AISLIC’s policy applied because MedPro knew or should have foreseen that its failure to settle could lead to a claim.

However, the 7th Circuit reversed in part in The Medical Protective Company of Fort Wayne, Indiana v. American International Specialty Lines Insurance Company, known as AIG Specialty Insurance Company, 18-1737, finding there was a genuine dispute of material fact as to whether MedPro committed a wrongful act that would negate coverage. The appellate court agreed that AISLIC must establish the claim arose from MedPro’s wrongful act but whether such an act was committed is not certain.

The 7th Circuit noted both sides in this dispute have compelling arguments.

On the one hand, MedPro argued it handled the Bramletts’ Stowers demands appropriately and its rejection of the demands was not a wrongful act. Outside counsel believed that MedPro had not acted in bad faith by wanting to continue the investigation before agreeing to a settlement. Moreover, some of the evidence indicated that the largest medical malpractice verdict in the area at that time was $2 million.

On the other hand, by the time the Bramletts made their second demand, MedPro knew of the damaging fact that Phillips went to work out rather than immediately attending to Mrs. Bramlett. Also, the Bramletts submitted an expert report supporting Phillips’ liability. Plus, MedPro knew that the hospital had settled for $2.3 million, presumably because it believed that the verdict could be adverse and large.

For these reasons, the 7th Circuit found the grant of summary judgment in favor of AISLIC was improper.

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