United States District Court, N.D. Indiana, Fort Wayne Division
THE MEDICAL PROTECTIVE COMPANY OF FORT WAYNE INDIANA, Plaintiff,
AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, Defendant.
OPINION AND ORDER
A. BRADY JUDGE
litigation, Plaintiff Medical Protective Company of Fort
Wayne, Indiana (MedPro), has sued Defendant American
International Specialty Insurance Company (AISLIC), now known
as AIG Specialty Insurance Company, for breach of the terms
of a 2006 policy AISLIC issued to MedPro. MedPro alleges that
AISLIC breached the policy when it refused to cover
MedPro's extra-contractual liability and eventual
settlement of a third party's bad faith claim against
parties moved for summary judgment [ECF Nos. 68 & 69].
MedPro sought partial summary judgment on three of
AISLIC's affirmative defenses: prior known wrongful acts
exclusion, known loss doctrine, and rescission. AISLIC moved
for judgment as a matter of law on the merits of MedPro's
claim. Specifically, AISLIC sought a declaration that: (1)
there is no coverage for the extra-contractual damages claim
because the claim was not first made during the 2006 AISLIC
policy period; and (2) coverage is precluded under exclusion
M of the policy.
March 2018, the district court granted summary judgment in
favor of AISLIC, and the Clerk entered judgment. The court
found that Exclusion M barred coverage of the
extra-contractual liability claim. MedPro filed an appeal and
was successful, leading to a remand of the case back to this
Court. The purpose of this Opinion and Order is
to resolve any outstanding issues related to the previous
summary judgment motions before proceeding further in this
cause. To put the case in context, the Court will briefly
recite some of the pertinent background facts, understanding
that a more comprehensive version of the facts can be found
in the district court's March 2018 opinion [ECF No. 85],
and the Seventh Circuit's December 18, 2018, decision,
Med. Protective Co. of Fort Wayne, Ind. v. Am. Int'l
Specialty Lines Ins. Co., 911 F.3d 438 (7th Cir. 2018).
2002, thirty-six-year-old Vicki Bramlett died from
complications following routine surgery she underwent in
Texas. Mrs. Bramlett's family sued Dr. Benny Phillips,
the physician who performed the surgery, and the hospital and
nurses who provide post-surgery care. MedPro was Dr.
Phillips's malpractice insurer. MedPro twice declined to
settle the case for $200, 000, Dr. Phillips's insurance
policy limit. The Bramletts' demand was based on a
seminal Texas Supreme Court case, G.A. Stowers Furniture
Co. v. American Indemnity Co., 15 S.W.2d 544 (Tex.
1929), under which an insurer is liable for any amounts in
excess of policy limits if it wrongfully rejects a
plaintiff's demand within the policy limit that an
ordinarily prudent insurer would have accepted. At the time
the Bramletts made the Stowers demands, the hospital
and its nurses had already settled with the Bramletts for
trial, a jury awarded a $14 million verdict against Dr.
Phillips. While the case was on appeal, MedPro reported to
AISLIC that there was a potential claim against it based on
Texas law. AISLIC responded to the report, stating that no
bad faith claim had yet been made against MedPro, and that it
was reserving its rights. Later, in 2009, the Supreme Court
of Texas capped Dr. Phillips's liability. The court, for
the first time, also held that the Bramletts could pursue a
direct claim against MedPro for the difference between the
jury verdict and the statutory cap. Three days after the
Texas Supreme Court decision, Mrs. Bramlett's family sued
MedPro for the excess verdict. MedPro settled the claim.
MedPro also settled with Dr. Phillips pursuant to a previous
agreement to indemnify him.
declined to cover MedPro's settlement with Mrs.
Bramlett's family, leading MedPro to sue AISLIC for
breach of contract.
Timing of the Claim
the arguments that AISLIC advanced in support of summary
judgment was that the 2006 AISLIC policy did not cover the
extra-contractual damages claim against MedPro because the
claim was first made against MedPro before the policy
incepted on July 1, 2006. The district court declined to
address this argument because it found that Exclusion M
barred coverage of the Bramletts' extra-contractual
liability claim, and granted summary judgment in favor of
AISLIC on that ground. When MedPro filed an appeal, AISLIC
again advanced the timing argument, as well as others.
argument is as follows: in December 2004, MedPro's
insured, Dr. Phillips, through his counsel: (1) accused
MedPro of wrongfully rejecting two Stowers demands
to settle the wrongful death lawsuit for Dr. Phillips's
$200, 000 policy limits; (2) argued that MedPro's
handling of the matter made it liable for extra-contractual
damages; and (3) demanded that MedPro settle the lawsuit,
even if that meant paying more than Dr. Phillips's policy
limits. This claim was asserted against MedPro thereafter on
multiple occasions by counsel for both Dr. Phillips as well
as the Bramletts.
argued that, under these facts, a reasonable juror could
reach only one conclusion: that the demand for
extra-contractual damages against MedPro was a claim first
made against MedPro prior to inception of the 2006 AISLIC
policy, and therefore was not a claim “first”
made against MedPro between July 1, 2006, and July 1,
2007. It argued that these same facts
established that coverage is excluded under Exclusion M,
which bars coverage for a claim for a Wrongful Act if any
Insured, prior to purchasing insurance, knew or could have
foreseen that such wrongful act could result in a claim or
suit. AISLIC also asserted that Indiana's known loss
doctrine precluded coverage.
Court of Appeals, interpreting Exclusion M, agreed that the
Bramletts' claim was foreseeable to MedPro. However, the
question of foreseeability would only be reached if the trier
of fact first found that MedPro committed a “Wrongful
Act” by failing to settle with the Bramletts. On that
issue, the Court of Appeals disagreed with the district
court's ruling and determined that a genuine issue of
fact existed. Med. Protective Co., 911 F.3d at 447
(“MedPro argues that it handled the Bramletts'
Stowers demands appropriately and that its rejection
of the demands was not ...