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 UNITED STATES DISTRICT COURT 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 (the Policy). 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
matter is set for a four-day jury trial to begin on January
28, 2020. Broadly speaking, the outstanding issues in this
litigation include the following: first, whether the Policy
provides coverage for MedPro's claim arising out of a bad
faith claim brought against MedPro related to its handling of
a medical malpractice claim against MedPro's insured, Dr.
Benny Phillips, and; second, whether Exclusion M of the
Policy applies resulting in the absence of coverage under the
Policy. The second issue is not reached unless MedPro first
establishes that its claim falls within the insuring
agreement. This Opinion sets forth the matters that are not
in dispute, and do not require resolution by a jury.
2002, thirty-six-year-old Vicki Bramlett died from
complications following routine surgery she underwent in
Texas. Mrs. Bramlett's family sued Dr. Phillips, the
physician who performed the surgery, and the hospital and
nurses who provided post-surgery care. MedPro insured Dr.
Phillips for medical malpractice. MedPro twice declined to
settle the Bramlett's case for the insurance policy
limit, $200, 000.
first demand for settlement was made in December 17, 2003. A
second demand was made on March 23, 2004. The Bramletts'
demand for the policy limit 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.
August 2005, a jury awarded a $14 million verdict in favor of
the Bramletts. In October 2005, the trial court entered a
judgment in excess of the statutory cap. While the case was
on appeal, MedPro reported to AISLIC that there was a
potential claim against it based on Texas law. That was in
2007, just before the Policy was set to expire. AISLIC
responded to the report, stating that no bad faith claim had
yet been made against MedPro, and that it was reserving its
in 2009, the Supreme Court of Texas ruled that a statutory
cap on liability damages applied to limit Dr. Phillips'
exposure. The Texas Supreme Court, for the first time, also
reconciled the statutory Stowers exception to the
cap by holding that the Stowers exception was
similar to a right to equitable subrogation. Phillips v.
Bramlett, 288 S.W.3d 876, 882 (Tex. 2009). In other
words, it put “the injured third party in the shoes of
the insured to the extent the cap eliminates the
insured's incentive to enforce the insurer's duty to
settle with reasonable care.” Id. As a result,
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.
contracts are governed by the same rules of construction as
other contracts, and the proper interpretation of an
insurance policy, even if it is ambiguous, is generally a
question of law appropriate for summary judgment.”
Wellpoint, Inc. v. Nat'l Union Fire Ins. Co.,
952 N.E.2d 254, 258 (Ind.Ct.App. 2011). Courts “review
the contract as a whole, attempting to ascertain the
parties' intent and making every attempt to construe the
contract's language so as not to render any words,
phrases, or terms ineffective or meaningless.” Bar
Plan Mut. Ins. Co. v. Likes Law Office, LLC, 44 N.E.3d
1279, 1285 (Ind.Ct.App. 2015) (internal quotation marks
omitted). When terms are clear and unambiguous, the court
applies the plain and ordinary meaning of the terms and
enforces the contract according to its terms. Id.
Indiana law, an insurance policy is ambiguous if reasonable
persons may honestly differ as to the meaning of the policy
language.” Eli Lilly & Co. v. Home Ins.
Co., 482 N.E.2d 467, 470 (Ind. 1985). If there is an
ambiguity in the contract, its terms should be interpreted
most favorably to the insured and “to further the
policy's basic purpose of indemnity.” Id.
Relevant Policy Language
Policy with AISLIC stated, in relevant part:
NOTICE: THIS IS A CLAIMS MADE FORM. EXCEPT TO SUCH
EXTENT AS MAY OTHERWISE BE PROVIDED HEREIN, THE COVERAGE OF
THIS POLICY IS LIMITED GENERALLY TO LIABILITY FOR ONLY THOSE
CLAIMS THAT ARE FIRST MADE AGAINST THE INSURED AND REPORTED
IN WRITING TO ...