St. Paul Fire & Marine Ins. Co. v. Vigilant Ins. Co.

• Decision Date: 09 November 1989
• Docket Number: No. C-87-395-G.,C-87-395-G.
• Citation: 724 F. Supp. 1173
• Parties: ST. PAUL FIRE & MARINE INSURANCE COMPANY, Individually and as subrogee of James E. Collins, M.D., Plaintiff, v. VIGILANT INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Middle District of North Carolina

724 F. Supp. 1173

ST. PAUL FIRE & MARINE INSURANCE COMPANY, Individually and as subrogee of James E. Collins, M.D., Plaintiff, v. VIGILANT INSURANCE COMPANY, Defendant.

No. C-87-395-G.

United States District Court, M.D. North Carolina, Greensboro Division.

August 18, 1989.

On Motion For Prejudgment Interest November 9, 1989.

J. Reed Johnston, Jr., Joseph Elrod, II, and Frederick K. Sharpless of Tuggle, Duggins, Meschan & Elrod, P.A., Greensboro, N.C., for plaintiff.

Vance Barron, Jr. and William F. Patterson, Jr. of Smith, Helms, Mullis & Moore, Greensboro, N.C., for defendant.

MEMORANDUM OPINION AND ORDER

HIRAM H. WARD, Senior District Judge.

This matter is before the Court for reconsideration of plaintiff's motion for summary judgment. See Order and Notice, C-87-395-G, June 27, 1989. Defendant and plaintiff provided consecutive policies of professional liability insurance to a psychiatrist. Plaintiff brought this action seeking damages arising from defendant's failure to contribute to defense and settlement costs in two medical malpractice suits filed against the insured psychiatrist. Plaintiff filed a motion for summary judgment on July 15, 1988. The Court denied plaintiff's motion, and set the matter for trial. See Memorandum Opinion and Order, C-87-395-G, December 22, 1988. However, in the course of preparing the issues for submission to a jury and in light of the pleadings filed in anticipation of trial, after further hearing and argument the Court has determined that summary judgment is the proper means of resolving this matter. Accordingly, the Court will grant summary judgment in favor of plaintiff.

FACTS

The parties to this action, plaintiff St. Paul Fire and Marine Insurance Company and defendant Vigilant Insurance Company, each issued policies of professional liability insurance to Dr. James E. Collins, a psychiatrist. Defendant's policy, an "occurrence" policy, covered Collins for injury sustained by any person arising out of Collins' rendering of or failure to render professional services. The company provided coverage from June 30, 1973 to May 1, 1976. Plaintiff's policy, a "claims made" policy covered Collins for claims made against Collins during the policy period arising out of the performance of professional services rendered or which should have been rendered from May 1, 1976 to March 1, 1980.

In 1984, two individuals, Bonnie Gwyn and H.N. Gwyn, filed separate lawsuits against Collins in state court. The lawsuits arose out of incidents which allegedly occurred at some point while Bonnie Gwyn was a patient of Dr. Collins from mid January 1976 to mid January 1977. The physician-patient relationship began during defendant's policy period, and ended during plaintiff's policy period.

Bonnie Gwyn's complaint alleged that Collins committed medical malpractice. Particularly, it alleged that during 1976 Collins established a physician-patient relationship with her and that as a result of Collins' encouraging her to confide in him, she became mentally and emotionally dependent upon him as her psychiatrist. It further alleged that Collins abused the physician-patient relationship by inducing her to engage in sexual conduct with him, and additionally that he failed to provide adequate psychiatric care. The complaint stated that she suffered extreme mental and emotional harm as a result of the alleged actions of Collins.

Henry Gwyn alleged in his complaint that the conduct of Collins, occurring sometime during the physician-patient relationship, alienated and destroyed the love and affection which existed between Henry Gwyn and his wife Bonnie Gwyn. He further alleged that Collins' actions caused severe mental and emotional suffering to both Henry and Bonnie Gwyn, which culminated in the dissolution of their marriage.

In August, 1984, Collins became aware of the suits filed against him by Bonnie and Henry Gwyn and promptly notified plaintiff. Both suits were voluntarily dismissed, and Bonnie Gwyn's was refiled in October, 1985. Subsequently, during discovery in Bonnie Gwyn's lawsuit, the parties determined that defendant had provided liability coverage for Collins prior to May 1, 1976. By letter received June 9, 1986, defendant learned that an action had been filed against Collins. At that time, only Bonnie Gwyn had refiled her lawsuit. Defendant reviewed copies of her complaint and other evidence submitted by plaintiff and decided that none of the alleged acts occurred within its policy period. Based on this assessment, defendant determined that it had no duty to defend him.

On March 2, 1987 an attorney for Collins informed defendant that the trial of Bonnie Gwyn's action had been set for March 23, 1987, and reiterated that defendant might have some exposure under its policy regarding her claims. Defendant inquired on March 10, 1987 whether any additional information had been discovered indicating that improper conduct occurred before the expiration of defendant's policy. Collins' attorney replied that the physician-patient relationship existed during defendant's policy period and that the evidence indicated that the first physical contact occurred in May, but that he was unable to say what Bonnie Gwyn might state at trial.

On March 19, 1987, defendant retained counsel to assist in the defense of Collins, while reserving for itself the right to contest any liability imposed on it under its coverage of Collins. On March 25, 1987, during the trial of the suit between Bonnie Gwyn and Collins, the parties agreed to settle. According to the terms of the settlement agreement, plaintiff paid $425,000 to Bonnie Gwyn under its liability coverage.

Shortly thereafter, H.N. Gwyn refiled his lawsuit against Collins. On April 29, 1987 defendant received notice of H.N. Gwyn's pending claims against Collins. The parties negotiated concerning what defense obligations defendant owed to Collins in that action. No agreement was reached. On May 4, 1989, H.N. Gwyn's lawsuit against Collins was settled for a certain sum of money paid by plaintiff to H.N. Gwyn.

DISCUSSION

Rule 56 of the Federal Rules of Civil Procedure provides that summary judgment may be rendered "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In a motion for summary judgment, the moving party has the burden of showing the absence of a genuine issue as to any material fact; further, the material submitted must be viewed in the light most favorable to the opposing party. Adickes v. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142, 154 (1970). However, once the moving party has met his burden, the opposing party must come forward with evidence to support its contentions. DeLeon v. St. Joseph's Hospital, Inc., 871 F.2d 1229 (4th Cir.1989). Furthermore, a party who fails to make a showing sufficient to establish the existence of an element essential to its case, and on which it will bear the burden of proof at trial, may have summary judgment rendered against it. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265, 273 (1986).

The parties have submitted various issues in anticipation of trial. However, the issues relevant to resolution of this matter involve defendant's duty to defend, its duty to indemnify and the timeliness of notice to defendant of the underlying claims. For reasons set out in the ensuing discussion, the Court finds the question of whether defendant breached a duty to defend to be the pivotal issue, and, in discussing the propriety of summary judgment in this matter, the Court will address the duty to defend question first.

The duty of an insurer to defend its insured is based on the coverage contracted for in the insurance policy. Mastrom, Inc. v. Continental Cas. Co., 78 N.C.App. 483, 337 S.E.2d 162 (1985). An insurer agrees to defend its insured against facts and circumstances covered by the policy even if the allegations are "groundless, false, or fraudulent;" therefore, the insurer's obligation depends on the nature of the allegations in the complaint and on the insurer's potential liability and not on the merits of the claim or proof of insured's liability. 7C J. Appleman Insurance Law and Practice § 4683.01 (1979 & Supp. 1984). Accordingly, in North Carolina, an insurer properly determines whether it has a duty to defend by applying what is generally known as the "comparison test." Under that analysis, only two documents are pertinent: the insurance policy and the complaint. The allegations of the complaint are considered side by side with the terms of the policy to determine whether the events as alleged are covered or excluded. If the allegations fall within coverage of the policy, then a duty to defend arises, regardless of whether the allegations are ultimately determined to be truthful or untruthful. Stout v. Grain Dealers Mut. Ins. Co., 307 F.2d 521 (4th Cir.1962). Any doubt as to coverage is to be resolved in favor of the insured. Mastrom, Inc., 337 S.E.2d at 163.

The duty to defend and the duty to indemnify are separate obligations imposed on the insurer. Generally, an insurer's duty to defend is broader than its obligation to pay damages incurred by events covered by a particular policy. While the duty to defend is ordinarily measured by the facts as alleged in the pleadings, the duty to pay is measured by the facts ultimately determined at trial. Strickland v. Hughes, 273 N.C. 481, 487, 160 S.E.2d 313, 318 (1968). As recently stated by the North Carolina Supreme Court,

When the pleadings state facts demonstrating that the alleged injury is covered by the policy, then the insurer has a duty to defend, whether or not the insured is ultimately liable. Consequently, when the pleadings allege facts indicating that the event in

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