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Westfield Insurance Co. v. Orthopedics and Sports Medicine Center of Northern Indiana, Inc.

United States District Court, N.D. Indiana, South Bend Division

March 28, 2017

WESTFIELD INSURANCE COMPANY, Plaintiff,
v.
ORTHOPEDIC AND SPORTS MEDICINE CENTER OF NORTHERN INDIANA, INC., et al., Defendants.

          OPINION AND ORDER

          RUDY LOZANO, JUDGE UNITED STATES DISTRICT COURT

         This matter is before the Court on the Motion for Summary Judgment filed by Plaintiff Westfield Insurance Company (“Westfield”), on March 31, 2016 (DE #64). For the reasons set forth below, Westfield's Motion for Summary Judgment (DE #64) is GRANTED. The Clerk of the Court is DIRECTED to enter a DECLARATORY JUDGMENT in favor of Westfield and against all defendants declaring that no coverage exists under Commercial Package Policy No. TRA 3413228 based on the personal and advertising injury, umbrella personal and advertising injury, bodily injury and property damage, and umbrella bodily injury and property damage coverage provisions, and thus, Westfield has no duty to defend or indemnify defendants Orthopedic and Sports Medicine Center of Northern Indiana, Inc. (“OSMC”), ASC Surgical Ventures, LLC (“ASC”), or their physicians (“OSMC Physicians”) with respect to the claims asserted by the other individual defendants in the lawsuits filed in Elkhart Superior Court and the proposed medical malpractice complaints filed with the Indiana Department of Insurance.

         BACKGROUND

         NECC was a compounding pharmacy that made preservative-free methylprednisolone acetate (“MPA”). MPA is an epidural steroid medication that is administered by injection for pain management. Defendants OSMC and its affiliate ASC purchased preservative-free MPA from NECC to treat patients with back pain. In September 2012, a multistate outbreak of fungal meningitis, lumbar fungal infections and related injuries arose as a result of patients receiving injections of contaminated preservative-free MPA that had been compounded by NECC. Patients injected with the contaminated MPA suffered bodily injury or death.

         Over 150 patients, spouses of patients, parents of patients, personal representatives of deceased patients, and powers of attorneys who are residents of Indiana or Michigan (together, “Individual Defendants”) filed lawsuits against OSMC, ASC, and OSMC Physicians (together, “OSMC Defendants”) in Elkhart Superior Court (“Lawsuits”). The Lawsuits allege the bodily injury or death of patients as a result of being injected with contaminated preservative-free MPA that had been compounded by NECC and ordered and administered by the OSMC Defendants. Most of the Individual Defendants also filed proposed complaints with the Indiana Department of Insurance alleging similar claims (“Medical Malpractice Complaints” or “Malpractice Complaints”).

         The OSMC Defendants requested that Westfield defend and indemnify them against the Lawsuits and Medical Malpractice Complaints pursuant to several insurance policies. Westfield refused to defend the OSMC Defendants, and filed the instant declaratory judgment action. Westfield now moves for summary judgment, asking the Court to find that the insurance policies do not provide coverage for the claims in the Lawsuits and Medical Malpractice Complaints, and that Westfield has no duty to defend or indemnify the OSMC Defendants in those actions.

         The OSMC Defendants do not oppose Westfield's motion for summary judgment. The Individual Defendants oppose this motion in part. (DE #70.) Intervenor Stephen W. Robertson, Commissioner, Indiana Department of Insurance, as Administrator of the Indiana Patients' Compensation Fund (“PCF”), filed a response to Westfield's motion for summary judgement. (DE #79.) Westfield filed reply briefs to the Individual Defendants' opposition and PCF's response brief. (DE #73, DE #80.)

         On November 7, 2016, Westfield filed a notice of additional authority in support of its summary judgment motion, and attached Robertson v. Anonymous Clinic, 63 N.E.3d 349, 361 (Ind.Ct.App. 2016). (DE #81.) The Individual Defendants objected to the Court's consideration of Robertson because the appellant PCF had filed a petition to transfer to the Indiana Supreme Court. (DE #82.) The petition to transfer was denied on February 16, 2017, and the Court of Appeals certified Robertson on February 22, 2017. (See DE #83.) Therefore, the Individual Defendants' objection is moot.

         SUMMARY JUDGMENT STANDARD

         Summary judgment must be granted when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A genuine issue of material fact exists when “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Not every dispute between the parties makes summary judgment inappropriate; “[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Id. To determine whether a genuine dispute of material fact exists, the Court must construe all facts in the light most favorable to the non-moving party and draw all reasonable inferences in that party's favor. See Ogden v. Atterholt, 606 F.3d 355, 358 (7th Cir. 2010). A party opposing a properly supported summary judgment motion may not rely on allegations in her own pleading, but rather must “marshal and present the court with the evidence she contends will prove her case.” Goodman v. Nat'l Sec. Agency, Inc., 621 F.3d 651, 654 (7th Cir. 2010). “[I]nferences relying on mere speculation or conjecture will not suffice.” Stephens v. Erickson, 569 F.3d 779, 786 (7th Cir. 2009) (citation omitted). The party with the burden of proof on an issue can obtain a summary judgment “only where the evidence is so onesided that it points inescapably” in the movant's favor, and “every reasonable jury” would decide that the movant has met its burden of proof. Thorne v. Member Select Ins. Co., 899 F.Supp.2d 820, 824 (N.D. Ind. 2012) (citations omitted). If the non-moving party fails to establish the existence of an essential element on which he bears the burden of proof at trial, summary judgment is proper. Massey v. Johnson, 457 F.3d 711, 716 (7th Cir. 2006).

         “Interpretation of a written contract, including a contract of insurance, typically presents a question of law suitable for resolution on motions for summary judgment.” Royer v. USAA Cas. Ins. Co., 781 F.Supp.2d 767, 770 (N.D. Ind. 2011) (citation omitted). “When the question presented is whether an insurance policy provides liability coverage for a particular claim or lawsuit, the central material facts are ordinarily the terms of the written contract and the contents of the plaintiff's allegations in the underlying litigation.” Id. (citation omitted).

         FACTS

         The Court finds the following undisputed facts to be supported by admissible evidence in the record:[1]

         OSMC operates a medical clinic in Elkhart County, Indiana. ASC is the operating entity for the clinic where OSMC's physicians perform orthopedic surgeries and pain management procedures, including epidural steroid injections. ASC ordered the epidural steroid medication that OSMC's physicians administered to patients, including MPA.

         In 2005, OSMC's physicians had been administering preservative-based MPA to patients. OSMC's physicians became concerned about reports in medical literature that injections of preservative-based MPA could cause arachnoiditis and injury to the spinal cord. Based on these concerns, the physicians recommended to ASC's board of directors that they switch to using preservative-free MPA. ASC's board of directors was comprised of ASC's Chief Executive Officer (“CEO”) and eleven physicians who are OSMC staff members. ASC's board of directors approved the switch to preservative-free MPA.

         Dr. Gene W. Grove Sr., an OSMC physician and the medical director for ASC, testified that ASC's decision to use preservative-free MPA compounded by NECC was a “medical decision” and a “medical judgment” made by himself and “other physicians on the ASC board [of directors].” (DE #67-3 at 30-31.) ASC had been using NECC, a compounding pharmacy located in Massachusetts, as a supplier of other medications, and had vetted NECC through its pharmacist consultant, Elkhart General Hospital and Elkhart General Hospital's Pharmacy and Therapeutics Committee. ASC's board of directors made the decision to use NECC as a supplier.[2]OSMC, through ASC, began ordering preservative-free MPA from NECC in approximately 2006. ASC's board of directors conducted annual reviews of medications used in OSMC's medical center, and approved the continued use of preservative-free MPA.

         Preservative-free MPA was ordered from NECC using a prescription order form that listed each patient for each individual prescription of MPA that was ordered. This form was to be signed by a physician. Patients were injected with preservative-free MPA after they signed a consent form to receive the medical procedure.

         On September 26, 2012, NECC voluntarily recalled three lots of preservative-free MPA due to fungal contamination. Contaminated MPA had been distributed to OSMC's medical center, and allegedly injected into the bodies of some OSMC patients. The Center for Disease Control and Prevention later confirmed more than 750 cases of fungal infection linked to injections of contaminated NECC-compounded MPA in 2012 and 2013, including over 350 cases within the states of Indiana and Michigan.

         Lawsuits and Medical Malpractice Complaints

         Beginning in April 2014, the Individual Defendants filed 26 Lawsuits against the OSMC Defendants in Elkhart Superior Court. The complaints filed in the Lawsuits (“Lawsuits' complaints”) allege theories of negligence, gross negligence, negligent misrepresentation and omission, negligence per se for violation of Indiana Code § 16-42-19-16, failure to warn, punitive damages, medical malpractice, violation of the Indiana Deceptive Consumer Sales Act, Ind. Code §§ 24-5-0.5-1 et seq., and battery. In opposing the instant motion for summary judgment, the Individual Defendants rely solely on the Lawsuits' allegations that the OSMC Defendants were negligent in selecting NECC as a supplier of preservative-free MPA, and in managing and overseeing that supplier relationship. (DE #70 at 7, 11, 12, 22, 23 n.5.) They summarize the Lawsuits' negligence allegations as follows:

1. OSMC was negligent in selecting and continuing to deal with NECC as the latter was operating illegally under its Massachusetts state license;
2. OSMC was negligent in that it should have known that NECC was operating as a bulk, mass manufacturer and as such, it could only lawfully operate pursuant to FDA authorization and regulation;
3. Apart from not being properly licensed or authorized by either the State of Massachusetts or the FDA, NECC was also not accredited by any compounding accreditation board or other similar organization[;]
4. OSMC also failed to perform reasonable, recommended and widely utilized due diligence in selecting NECC as a supplier of preservative-free MPA and failed to perform reasonable, recommended and widely utilized due diligence in the ongoing supplier relationship with NECC.

(DE #70 at 7 (citing DE #29-5 (Amended Complaint filed in Alcozar v. Orthopedic and Sports Medicine Center of N. Ind., No. 20DO1-1404-CT-72 (Elkhart Sup. Ct.)).[3]

         The majority of the Individual Defendants also filed proposed complaints of medical malpractice against the OSMC Defendants with the Indiana Department of Insurance, i.e., the Malpractice Complaints. The Malpractice Complaints allege similar claims of negligence, gross negligence, negligence per se, and medical malpractice.

         Westfield's Insurance Policies

         Westfield issued Commercial Package Policy No. TRA 3413228 to OSMC and ASC in September 30, 2011 (“Policy”), and renewed it annually twice thereafter, for coverage through September 30, 2014 (together, “Policies”). The Policies include commercial general liability (“CGL”) bodily injury and property damage coverage (“BI/PD”). The BI/PD provision states in part:

We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. . . .

         (DE #29-1 at 154; DE #29-2 at 142; DE #29-3 at 136.) The Policies' commercial liability umbrella (“Umbrella”) BI/PD states in relevant part:

We will pay on behalf of the insured the "ultimate net loss" in excess of the "retained limit" because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking damages for such "bodily injury" or "property damage" when the "underlying insurance" does not provide coverage or the limits of "underlying insurance" have been exhausted. . . . [W]e will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. . . .

         (DE #29-1 at 293; DE #29-2 at 282; DE #29-3 at 281.) The BI/PD and Umbrella BI/PD apply only if “[t]he ‘bodily injury' or ‘property damage' is caused by an ‘occurrence'. . . .” (DE #29-1 at 154, 293; DE #29-2 at 142, 282; DE #29-3 at 136, 281.) The Policies define “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (DE #29-1 at 168, 308; DE #29-2 at 156, 297; DE #29-3 at 150, 297.) The term “suit” is defined as “a civil proceeding in which damages because of ‘bodily injury, ' ‘property damage' or ‘personal and advertising injury' to which this insurance applies are alleged.” (DE #29-1 at 169, 309; DE #29-2 ...


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