Dr. sues insurer for failure to settle within policy limits.
ISSUE: Is your professional liability insurance company looking after your best interest if you are sued for medical malpractice? That was the issue in this Alabama case in which an insurance company could have settled a medical malpractice case against a physician and his group within the $2 million limits of their policies. When a jury returned a verdict against the physician and his group for more than $4.5 million, the physician and his group sued their insurance company for both negligent and bad faith refusal to settle the case.
CASE FACTS: In April 1990, Woodrow Smith sued Dr. William Schulte and Pulmonary Associates of Mobile, P.A., Dr. Schulte's medical group, alleging that Dr. Schulte committed malpractice while treating Smith's wife, Annie Jo, and that she died as a result of the malpractice. At the time of the alleged malpractice, Dr. Schulte and his group were each covered by medical malpractice insurance policies issued by Mutual Assurance, Inc. (MAI). Each policy provided up to $1,000,000 in coverage per incident. Thus, MAI's total exposure in regard to the claim was $2,000,000. According to Dr. Schulte and Pulmonary Associates, Smith made multiple offers before trial to settle his claim for the limits in the policies. MAI, however, declined to settle. MAI's decision not to settle the medical malpractice death case for $2,000,000. After a jury returned a verdict in favor of Smith against Dr. Schulte and Pulmonary Associates for $4,500,000, Dr. Schulte and Pulmonary Associates moved the trial court to reduce the award, arguing both that it was excessive and that it should be reduced. Following a hearing, the trial court ruled that the damage award was not excessive. However, it reduced the amount awarded to $1,276,873. Both parties appealed the trial court's judgment to the Supreme Court of Alabama, which held that the $4,500,000 verdict was excessive and ordered a remittitur, which reduced the damages awarded to $2,500,000. MAI paid the $2,000,000 it was liable for under its policies and loaned Dr. Schulte and Pulmonary Associates and additional $1,150,000 to pay the remainder of the judgment and accumulated post judgment interest. Subsequently, Dr. Schulte and Pulmonary Associates sued MAI alleging that MAI could have settled the claim within the limits of the policies for $2,000,000 but failed to do so due to negligence and/or bad faith. Dr. Schulte and Pulmonary Associates maintained that MAI was also liable for that part of the judgment that exceeded the limits of their policies. The trial court denied MAI's motion for summary judgment. MAI appealed.
COURT'S OPINION: The Supreme Court of Alabama affirmed the judgment of the trial court, which denied MAI's motion for summary judgment. The court held, inter alia, that there was an issue of fact, which only a jury could decide. That was whether MAI's decision not to settle the case within the policy limits, as it had the opportunity to do, constituted negligence or bad faith.
LEGAL COMMENTARY: MAI made no differentiation between the plaintiffs' negligent-failure-to-settle and bad-faith-failure-to-settle claims. Instead, MAI implicitly attempted to combine the claims and argue that summary judgment was appropriate as to both claims. MAI's position was that it had a lawful basis for refusing to settle the underlying medical malpractice claim (i.e. reliance on an Alabama law placing a cap on damages). However, the court recognized that although the existence of a lawful basis for MAI's refusal to settle could be a defense to Dr. Schulte's and Pulmonary Associates' allegations of bad faith failure to settle, it was not a complete defense against their negligent failure to settle claim. The court noted that to defend against that claim, MAI would be required to establish that a reasonably prudent insurer would have relied upon that same lawful basis to refuse to settle the claim. Editor's Note: Physicians and their practice groups should be keenly aware that they may be best served by having their own personal defense counsel participate in the oversight of all medical malpractice cases brought against them. Many such cases will be well within policy limits and. as a practical matter, not require active participation by personal counsel. However, physicians are best served by having their personal counsel copied on all negotiations as well as all documents filed in court. In that way, personal counsel can make an informed decision whether he or she should be participating in the defense of their client. This is significant in an), case in which damages can potentially be in excess of policy limits. Further, the participation of personal counsel affords personal counsel the opportunity to urge settlement within policy limits and/ or allows him or her to put the carrier on notice of the consequences of refusing to settle within policy limits, whether negligently or in bad faith. It is amazing how much impact a certified letter from a physician's personal attorney, putting a recalcitrant insurer on notice that if the case is not settled within policy limits, despite a medical malpractice victim's willingness to do so, can have on an insurance company that is reluctant to settle the case for an amount within policy limits.
Meet the Editor & Publisher: A. David Tammelleo, JD, is a nationally recognized authority on health care law. Practicing law for over 40 years, he concentrates in health care law with the Rhode Island firm of A. David Tammelleo & Associates. He has presented seminars on medical, nursing and hospital law throughout the United States. In addition to his writings as Editor of Medical Law's, Nursing Law's & Hospital Law's Regan Reports, his legal articles have been published in the most prestigious health law journals. A prolific writer, his thousands of articles, as well as his achievements as an attorney and lecturer, have won him recognition in Martindale-Hubbell's Bar Register of Preeminent Lawyers, Marquis Who's Who in American Law, Who's Who in America and Who's Who in the World.