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The Medical Protective Company of Fort Wayne Indiana v. American International Specialty Lines Insurance Co.

United States District Court, N.D. Indiana, Fort Wayne Division

December 10, 2019

THE MEDICAL PROTECTIVE COMPANY OF FORT WAYNE INDIANA, Plaintiff,
v.
AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, Defendant.

          OPINION AND ORDER

          HOLLY A. BRADY UNITED STATES DISTRICT COURT JUDGE.

         In this 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 MedPro.

         This 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.

         BACKGROUND

         In 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.

         The 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.

         In late 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 rights.

         Later, 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.

         AISLIC declined to cover MedPro's settlement with Mrs. Bramlett's family, leading MedPro to sue AISLIC for breach of contract.

         ANALYSIS

         “Insurance 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.

         “Under 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.

         A. Relevant Policy Language

         MedPro's 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 ...

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