United States District Court, N.D. Indiana, Hammond Division
STEPHEN W. ROBERTSON, COMMISSIONER OF THE INDIANA DEPARTMENT OF INSURANCE AND ADMINISTRATOR OF THE PATIENT'S COMPENSATION FUND, Plaintiff,
THE MEDICAL ASSURANCE COMPANY, INC. n/k/a PROASSURANCE INDEMNITY COMPANY, INC., Defendant.
OPINION AND ORDER
JON E. DEGUILIO, District Judge.
This is an insurance dispute between Indiana's Patient's Compensation Fund, through its administrator, Stephen W. Robertson, (the "Fund"), and the Medical Assurance Company, Inc., ("Medical Assurance"), which previously insured a physician whose medical malpractice spawned over 350 malpractice claims. Those malpractice claims have been litigated extensively in the Indiana state courts for nearly ten years, and the interested parties have litigated for nearly as long in federal court over who is responsible for the resulting damages. In this most recent chapter in the dispute, the Fund has filed a two-count complaint against Medical Assurance. The first count asserts that Medical Assurance breached its duty of good faith to its insureds in handling and defending the medical malpractice claims. The Fund argues that it is equitably subrogated to the insureds' common law bad faith claim against Medical Assurance because it paid those settlements on his behalf. The second count arises out of Medical Assurance's alleged failure to pay its share of judgments entered in favor of certain of the malpractice claimants against Weinberger. Pursuant to the Indiana Medical Malpractice Act, the Fund paid those amounts to the claimants, and is therefore subrogated to the claimants' rights to collect against Medical Assurance. Ind. Code § 34-18-15-4.
Though it had answered the initial complaint, which only raised the bad faith claim, Medical Assurance has now moved to dismiss both the bad faith and statutory subrogation counts of the Fund's First Amended Complaint. [DE 26]. That motion has been fully briefed, accompanied by extensive supplemental submissions. [DE 27-34, 39, 40]. In an April 3, 2014 order, the Court directed the parties to file briefs stating their position as to whether the Court should certify certain questions to the Indiana Supreme Court, given the lack of applicable Indiana authority on those issues, [DE 35], and the parties have filed those submissions as well. [DE 36, 37]. For the reasons that follow, Medical Assurance's motion to dismiss is denied as to Count II. The Court takes the motion under advisement as to Count I, and certifies a question to the Indiana Supreme Court.
I. FACTUAL BACKGROUND
Mark S. Weinberger, M.D., was an otolaryngologist-an ear, nose, and throat doctor- who practiced in Merrillville, Indiana until September 2004. [DE 25 ¶ 5]. He was the principal owner of Mark Weinberger, M.D., P.C.; the Merrillville Center for Advanced Surgery, LLC; and the Nose and Sinus Center, LLC. [ Id. ]. Weinberger and each of those entities were insured by Medical Assurance, now known as ProAssurance Indemnity Company, Inc. [ Id. ¶ 19]. The policies carried coverage in the amounts required to establish financial responsibility under the Indiana Medical Malpractice Act, which were $100, 000 per occurrence and $300, 000 in the annual aggregate until July 1, 1999, after which they were $250, 000 per occurrence and $750, 000 in the annual aggregate. [ Id. ]. Medical Assurance in turn submitted certificates of insurance and applicable surcharges to the Fund in order to bring the insureds within the protections of the Indiana Medical Malpractice Act, Ind. [ Id. ¶ 20]. Those protections include a cap on liability to the health care providers of $250, 000 per occurrence, with the Fund paying amounts in excess of that cap, up to its own statutory limit. [ Id. ¶ ¶ 2, 20 n.1].
Unfortunately for all parties involved, Weinberger's practice was rife with malpractice, resulting in over 350 malpractice claims being filed against him. [ Id. ¶ 21]. Weinberger ultimately fled to Europe in September 2004, and his whereabouts remained unknown for over five years until he was apprehended and returned to the United States to face prosecution. [ Id. ¶¶ 25, 27]. Medical Assurance undertook Weinberger's defense in the malpractice actions, pursuant to its policies. [ Id. ¶ 23]. The Fund alleges, however, that although potential coverage issues should have been clear to Medical Assurance from the very beginning, and certainly upon Weinberger's departure, Medical Assurance failed to set up a screen between personnel managing the claims defense and personnel managing the coverage issues. [ Id. ¶ 29]. Instead, those personnel shared attorney-client information and work product through at least February 2011. [ Id. ]. When Weinberger returned to the United States in February 2010, Medical Assurance purported to erect a screen between claims and coverage personnel, but it assigned one of the individuals who had worked on the defense side for five years to the coverage side, where he had no restrictions on his access to claims information, and he continued to communicate with claims personnel about work product and attorney-client information associated with the defense of the claims through at least February 2011. [ Id. ¶ 31].
The Fund further alleges that Medical Assurance failed to reserve its rights under the policies within a reasonable time, did not send reservation of rights letters in some cases until July 2010, and did not send them at all in some cases. [ Id. ¶ 40]. It also failed to advise the insureds of coverage issues, failed to advise them of a conflict of interest among the insureds who were represented by common counsel, failed to warn the insureds that their failure to cooperate in their defense could lead to a loss of coverage, and waited almost four years to file its declaratory judgment action relative to its coverage. [ Id. ]. The Fund also alleges various bad faith conduct relative to the defense of the claims itself, including that Medical Assurance took Weinberger's deposition while criminal charges were still pending against him, knowing that he would plead the Fifth Amendment, that it failed to adequately investigate the claims and attempt to settle them, that it failed to seek copies of relevant records or access to former employees of Weinberger, and that it never informed or failed to timely inform the insureds that policy limits were demanded in some of the malpractice claims. [ Id. ].
At least six of the malpractice claims proceeded to trial by jury, and all resulted in judgments against Weinberger and his entities. [ Id. ¶ 35]. Two of those judgments exceeded Medical Assurance's policy limits, as one was for $390, 000, and the other was for $1, 250, 000 plus $9, 000, 000 in punitive damages. [ Id. ]. Weinberger and the Fund then proceeded to settle their respective liability to all of the claimants, some individually and some in large groups. [ Id. ¶¶ 42-53]. Medical Assurance only joined in one of the group settlements, however, and declined to pay its alleged share of the remaining judgments and settlements. [ Id. ¶¶ 37, 38, 48, 52, 53]. Thus, pursuant to its obligation under the Medical Malpractice Act, the Fund paid all of the amounts allegedly owed by Medical Assurance, which forms the basis for its statutory subrogation claim in Count II. [ Id. ¶¶ 38, 49].
The Fund filed its Complaint in this matter on March 22, 2013, and subsequently filed its First Amended Complaint on September 25, 2013. [DE 1, 25]. As previously indicated, the First Amended Complaint contains two counts. Count I asserts that Medical Assurance violated its duty of good faith to its insureds in a variety of ways, leading to an increase in the amount by which the judgments and settlements exceeded its coverage limits. Though Medical Assurance owed this duty of good faith to its insureds, the Fund claims the right to assert this action under the doctrine of equitable subrogation, since it has paid all of those amounts to the claimants on the insureds' behalf. Count II is limited to the amounts that the Fund contends Medical Assurance owed to the claimants under its policies but failed to pay. Because the Fund paid those amounts upon Medical Assurance's failure to do so, it is statutorily subrogated to the claimants' rights against Medical Assurance.
II. STANDARD OF REVIEW
Rule 12(b)(6) authorizes dismissal of a complaint when it fails to set forth a claim upon which relief can be granted. Generally speaking, when considering a Rule 12(b)(6) motion to dismiss, courts must inquire whether the complaint satisfies the "notice-pleading" standard. Indep. Trust Corp. v. Stewart Info. Servs. Corp., 665 F.3d 930, 934 (7th Cir. 2012). The noticepleading standard requires that a complaint provide a "short and plain statement of the claim showing that the pleader is entitled to relief, " which is sufficient to provide "fair notice" of the claim and its basis. Id. (citing Fed.R.Civ.P. 8(a)(2)); Maddox v. Love, 655 F.3d 709, 718 (7th Cir. 2011) (citations omitted); see Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Fed.R.Civ.P. 8(a)(2)). In determining the sufficiency of a claim, the court construes the complaint in the light most favorable to the nonmoving party, accepts all well-pleaded facts as true, and draws all inferences in the nonmoving party's favor. Reynolds v. CB Sports Bar, Inc., 623 F.3d 1143, 1146 (7th Cir. 2010) (citation omitted).
The Supreme Court has adopted a two-pronged approach when considering a Rule 12(b)(6) motion to dismiss. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009) (citing Twombly ). First, pleadings consisting of no more than mere conclusions are not entitled to the assumption of truth. Id. This includes legal conclusions couched as factual allegations, as well as "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements." See Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555). Second, if there are well-pleaded factual allegations, courts should "assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Id. at 679.
"A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." McCauley v. City of Chi., 671 F.3d 611, 615 (7th Cir. 2011) (citing Iqbal and Twombly ). The complaint "must actually suggest that the plaintiff has a right to relief, by providing allegations that raise a right to relief above the speculative level." Maddox, 655 F.3d at 718 (citations omitted). However, a plaintiff's claim need only be plausible, not probable. Indep. Trust Corp., 665 F.3d at 935 (quoting Twombly, 550 U.S. at 556). "[A] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely." Id. In order to satisfy the plausibility standard, a plaintiff's complaint must "supply enough fact to raise a reasonable expectation that discovery will yield evidence supporting the plaintiff's allegations." Id. Determining whether a complaint ...