The United States Court of Appeals for the Fourth Circuit (“Federal Appellate Court”), in its unpublished opinion filed on May 7, 2019, had to decide the issue of whether a medical malpractice insurer owes coverage for a default judgment obtained against an insured physician who fled the country and refused to participate in the defense of a medical malpractice action against him.
The medical malpractice insurer contended that it does not owe coverage under the Policy because Maryland law prohibited it from defending the malpractice claim without the physician’s consent and because his refusal to participate prejudiced the insurer’s ability to defend the malpractice action. The district court rejected those arguments and found the insurer liable for payment under the terms of the Policy. The Federal Appellate Court affirmed the judgment of the district court.
The Underlying Facts
In January 2015, a Maryland doctor treated the decedent for his complaints of chest pains and shortness of breath. After administering a treadmill stress test and an EKG, the Maryland doctor prescribed a beta blocker but did not refer the decedent to a cardiologist or instruct him to seek any other immediate medical attention. Eight days later, the decedent died from a cardiac event.
The plaintiffs filed their Maryland medical malpractice wrongful death lawsuit against the Maryland doctor and others, alleging that the Maryland doctor and another defendant doctor negligently failed to refer the decedent to a cardiologist, leaving his condition undiagnosed and untreated, resulting in his death. The Maryland doctor’s medical malpractice insurer hired an attorney to represent him who later discovered that the Maryland doctor had moved to Pakistan and did not intend to return.
The Maryland medical malpractice defense lawyer hired by the medical malpractice insurer advised the insurer that he had not obtained the Maryland doctor’s consent to representation and that the Maryland Rules of Professional Conduct barred him from appearing in the Maryland malpractice action. The medical malpractice insurer did not participate in the malpractice action and did not answer the plaintiffs’ medical malpractice complaint.
In February 2016, the plaintiffs moved for Entry of an Order of Default against the Maryland doctor, which the state court granted on March 11, 2016. Three days before a state court scheduled a hearing on damages, the medical malpractice insurer filed a motion to intervene—its first effort to participate in the case—which the court granted. Thereafter, the medical malpractice insurer unsuccessfully moved to delay the damages hearing. The state court then entered judgment in the plaintiffs’ favor in the amount of $2.56 million.
On March 2, 2016, the plaintiffs filed a declaratory judgment action in Maryland state court, seeking a declaration that the medical malpractice insurer owed coverage under the Policy for the judgment in the Maryland medical malpractice action. The medical malpractice insurer removed the case to federal court and filed a counterclaim seeking a declaration that the Policy was void because of the Maryland doctor’s failure to comply with notice and cooperation provisions in the Policy.
Following a two-day bench trial on the issue of prejudice, the federal district court entered judgment in favor of the plaintiffs, declaring that the medical malpractice insurer was liable for the money damages of its insureds pursuant to the Policy’s terms. Specifically, the federal district court found that neither ethical rules, nor Maryland law, nor the terms of the Policy prevented counsel for the medical malpractice insurer from entering an appearance and defending the malpractice action. Accordingly, the federal district court held that the medical malpractice insurer’s decision not to participate in the malpractice action belied its argument that it was prejudiced by its insured’s lack of cooperation. Furthermore, the federal district court concluded that the medical malpractice insurer had failed to meet its burden to establish that it had been actually prejudiced by its insured’s refusal to participate because, even in the insured’s absence, the insurer had several viable paths to defending the malpractice action, which it elected not to pursue. After a separate hearing on damages, the federal district court awarded the plaintiffs damages in the amount of $996,840.50 as well as post-judgment interest. The medical malpractice insurer appealed.
Federal Appellate Court Opinion
The Federal Appellate Court stated that although Maryland does not follow the majority of states in construing policies strictly against the insurer, if an insurance policy is ambiguous, it will be construed liberally in favor of the insured and against the insurer as drafter of the instrument. A term of a contract is ambiguous if, to a reasonably prudent person, the term is susceptible to more than one meaning.
The Federal Appellate Court stated that an attorney would not have violated the Maryland Rules of Professional Conduct if the attorney appeared in the malpractice proceedings on behalf of medical malpractice insurer and its insureds because Section 2 of the Policy conferred on the insurer “the right and duty to defend any Claim covered by the Policy.” That provision also afforded insurer the “right” to investigate any covered claims against the Insureds and the “right” to choose counsel to defend any claims asserted against the Insureds. The Federal Appellate Court stated that Maryland courts have recognized the validity of such “advanced” consent provisions in insurance contracts, which allow defense counsel to represent both the insurer and the insured simultaneously.
The Federal Appellate Court held that the medical malpractice defense attorney chosen by the insurer had the ability to enter an appearance without the consent of the insured Maryland doctor.
The Federal Appellate Court stated that although the insurer does not have to overcome the almost insurmountable burden of proving that the verdict was the direct result of a lack of cooperation, it must show that the insured’s failure to cooperate has, in a significant way, precluded or hampered it from presenting a credible defense to the claim. The Federal Appellate Court held: “the district court’s factual findings as to [the insurer’s] failure to meet its burden to establish prejudice find ample evidentiary support in the record and are not subject to reversal under the deferential standard of review that we must apply to a district court’s factual findings. Accordingly, the district court did not reversibly err in finding that [the insurer] failed to meet its burden to establish prejudice.”
Source Mora v. Lancet Indemnity Risk Retention Group, Inc., No. 18-1566.
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