Medical Protective Co. v. Bubenik

• Decision Date: 18 February 2010
• Docket Number: No. 09-2324.,09-2324.
• Parties: The MEDICAL PROTECTIVE COMPANY, Plaintiff-Appellee, v. James E. BUBENIK, D.M.D.; James E. Bubenik, D.M.D., P.C., Defendants, Joseph C. Johnston, individually; Mary Johnston, through her legal guardian, Joseph C. Johnston, Defendants-Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

594 F.3d 1047

The MEDICAL PROTECTIVE COMPANY, Plaintiff-Appellee, v. James E. BUBENIK, D.M.D.; James E. Bubenik, D.M.D., P.C., Defendants, Joseph C. Johnston, individually; Mary Johnston, through her legal guardian, Joseph C. Johnston, Defendants-Appellants.

No. 09-2324.

United States Court of Appeals, Eighth Circuit.

Submitted: January 12, 2010.

Filed: February 18, 2010.

Joseph L. Bauer, Jr., argued, James E. Hopkins, Jr. and Leonard W. Buckley, Jr., on the brief, St. Louis, MO, for appellant.

Bruce Baty, argued, Jodi M. Hoss, on the brief, Kansas City, MO, for appellee.

Before MURPHY and BYE, Circuit Judges, and STROM,¹ District Judge.

MURPHY, Circuit Judge.

Medical Protective Company (MPC) brought this declaratory judgment action against its insured, Dr. James Bubenik, and Joseph and Mary Johnston, who had obtained a state court judgment against the doctor for malpractice, contending that it had no duty to pay because Dr. Bubenik had materially breached the terms of his insurance policy. The district court² entered a declaratory judgment in favor of MPC and the Johnstons appeal. We affirm.

Dr. Bubenik was a dentist specializing in conscious sedation dentistry and MPC provided his medical malpractice insurance. A patient named Marlon Jaudon died in July 2004 during a procedure at Dr. Bubenik's office. Six months later Dr. Bubenik performed the same type of procedure on Henry Johnston. Johnston did not regain consciousness and died four days later.

Malpractice actions were filed against Dr. Bubenik by the Jaudon family and subsequently by the Johnstons. During the course of the Jaudon litigation, Dr. Bubenik invoked his Fifth Amendment privilege against self incrimination and refused to offer any testimony. In March 2006 MPC told Dr. Bubenik that his refusal to testify might jeopardize his insurance coverage. MPC's counsel sent Dr. Bubenik a letter on April 3, 2006 stating that his continued refusal to testify might be a material breach of the cooperation clause in his policy. That clause provided that "[t]he Insured shall at all times fully cooperate with the Company in any claim hereunder and shall attend and assist in the preparation and trial of any such claim."

On the morning of the Jaudon trial, the presiding judge disqualified Dr. Bubenik's expert witness for that case because her opinion was based on information which had been given her by the doctor but was not in the record. MPC settled the Jaudon case the same day, but it was unable to contest coverage at that point because it had not sent Dr. Bubenik a reservation of rights letter.

During the course of the Johnston litigation, Dr. Bubenik again asserted his Fifth Amendment privilege. He refused to answer interrogatories, submit to a deposition, or testify at trial. When asked about the merits of his defense, Dr. Bubenik told MPC that the Johnston case was defensible but that he was unwilling to discuss how it could be defended. He also refused to release to MPC a state dental board report completed six days after Johnston's death. That report related what had occurred on Johnston's visit and contained Dr. Bubenik's opinion as to the cause of his death, information that was not contained in the dental records released to MPC.

MPC sent Dr. Bubenik's personal attorney a letter in August 2006 which stated:

Pursuant to the policy terms, including the provisions pertaining to his duty to cooperate, Dr. Bubenik is required to "fully cooperate" and "assist in the preparation and trial" of claims against him. Specifically, this duty to cooperate requires Dr. Bubenik to answer interrogatory requests, provide testimony in his defense at deposition and at trial, and assist MPC in the defense of this matter, all of which he has refused to do.

The letter from the insurer further advised that "Dr. Bubenik's failure to cooperate or testify creates a complete obstacle to the ability of MPC to defend the claims" against him and that "[a]bsent his full cooperation ... MPC will be forced to choose between electing to deny coverage or providing a continued defense only under a full reservation of rights."

Neither Dr. Bubenik nor his counsel responded to the August letter. A similar letter was sent in October 2006. Again MPC received no response. Finally at an October mediation in the Johnston case, MPC hand delivered to Dr. Bubenik a letter stating that he had breached the cooperation clause and that MPC was reserving its rights under the policy.

By early November 2006 Dr. Bubenik knew that MPC planned to seek a declaratory judgment that it was not liable to pay any judgment in the Johnston case due to his breach of the cooperation clause. He entered into a settlement with the Johnstons in which they agreed to pursue execution of any judgment only against MPC. Shortly thereafter, MPC filed this declaratory judgment action in federal district court, joining the Johnstons as defendants. The state court action went to trial in December resulting in a $2.4 million judgment in favor of the Johnstons against Dr. Bubenik. The federal district court subsequently concluded that MPC was not liable for that judgment because Dr. Bubenik had breached the cooperation clause in his policy by failing to testify and assist with his defense. The court also concluded that MPC neither waived nor should be estopped from asserting its affirmative defense.

The Johnstons appeal, asserting that MPC failed to make the showing required by Missouri law to deny coverage for breach of a policy cooperation clause. They also claim that MPC waived this defense and should be estopped from denying coverage. We review the findings of fact made by the district court in a bench trial for clear error and its conclusions of law de novo. Eckert v. Titan Tire Corp., 514 F.3d 801, 804 (8th Cir.2008).

Cooperation clauses such as the one at issue here are valid and enforceable under Missouri law. Union Ins. Co. of Providence v. Williams, 261 F.Supp.2d 1150, 1152 (E.D.Mo.2003). To deny liability coverage under such a provision, an insurer must prove: (1) a material breach of the cooperation clause; (2) the existence of substantial prejudice as a result of the breach; and (3) the exercise of reasonable diligence to secure the insured's cooperation. Wiles v. Capitol Indem. Corp., 215 F.Supp.2d 1029, 1031 (E.D.Mo.2001).

The policy cooperation clause provides that, "[t]he Insured shall at all times fully cooperate with the Company in any claim hereunder and shall attend and assist in the preparation and trial of any such claim." The district court concluded that Dr. Bubenik had materially breached that clause by failing to answer interrogatories, participate in discussions, share documents, submit to a deposition, or testify at trial. The Johnstons respond that the cooperation provision in the policy was ambiguous and must therefore be construed in favor of coverage. Alternatively, they argue that the cooperation clause amounted to a waiver of constitutional rights and that it could not be enforced unless it was explicit and conspicuous.

Whether a contract is ambiguous as written is a question of law which we review de novo. United States v. Brekke, 97 F.3d 1043, 1049 (8th Cir.1996). Missouri law accords the terms of an insurance policy "the meaning which would be attached by an ordinary person of average understanding." Seeck v. Geico General Ins. Co., 212 S.W.3d 129, 132 (Mo.2007). If the language of the contract is clear and unambiguous, it must be enforced as written. Krombach v. Mayflower Ins. Co., Ltd., 827 S.W.2d 208, 210 (Mo.1992). If the policy contains ambiguities, however, we must resolve them "in favor of the insured." Seeck, 212 S.W.3d at 132. "An ambiguity exists when there is duplicity, indistinctness, or uncertainty in the meaning of the language in the policy." Id.

The Johnstons assert that the general terms of the cooperation clause are ambiguous because they "do not express plainly that the insured will be required to give testimony." That the clause is general does not mean that it is ambiguous, however. In construing a similarly general cooperation clause, the Missouri Supreme Court has recognized that "[a] multitude of matters other than those specified in the [policy] might be said to be included under the term [`cooperate'], depending upon the particular facts in the particular case." Meyers v. Smith, 375 S.W.2d 9, 15 (Mo.1964).

There are a number of Missouri cases in which general cooperation clauses like the one at issue here have been interpreted to require the insured to perform acts not explicitly stated in the insurance policy. See, e.g., Smith v. Progressive Cas. Ins. Co., 61 S.W.3d 280, 283 (Mo.Ct.App.2001); Hayes v. United Fire & Cas. Co., 3 S.W.3d 853, 857-59 (Mo.Ct.App.1999); Riffe v. Peeler, 684 S.W.2d 539, 542-43 (Mo.Ct. App.1984); Meyers, 375 S.W.2d at 15. In Riffe, the insured breached a general cooperation clause by failing to assist in the preparation of interrogatories and failing to appear at scheduled hearings. 684 S.W.2d at 542. In Meyers, the insured materially breached such a clause by providing conflicting statements to his insurer. 375 S.W.2d at 18-19. In neither of these cases did the respective cooperation clause mention the specific action taken by the insured which was held to be a material breach.

After considering the Missouri cases and the policy language in question, we conclude that the MPC cooperation clause was not ambiguous. A common sense interpretation of the language requiring that Dr. Bubenik "fully cooperate" and "assist in the preparation and trial of any [claims]" included the duty to assist MPC in its defense strategy, provide relevant documents, answer interrogatories, submit to depositions, and testify at trial if necessary.

The cases relied upon by the Johnstons are not to the contrary. American Home Assurance Company v. Pope, 08-2848, 591 F.3d 992, 999 (8th Cir.2010) involved an insurance policy containing...