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

• Decision Date: 06 December 1991
• Docket Number: No. 89-8715,89-8715
• Citation: 947 F.2d 1536
• Parties: Ben and Audrey DELANCY, as Co-Administrators and on Behalf of Estate of Dr. Herman Delancy, Plaintiffs-Appellants, v. ST. PAUL FIRE & MARINE INSURANCE CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1536

947 F.2d 1536

Ben and Audrey DELANCY, as Co-Administrators and on Behalf

of Estate of Dr. Herman Delancy, Plaintiffs-Appellants, v. ST. PAUL FIRE & MARINE INSURANCE CO., Defendant-Appellee.

No. 89-8715.

United States Court of Appeals, Eleventh Circuit.

Dec. 6, 1991.

Brent J. Savage, Dorothy W. Courington, Laura J. Tromly, Adams, Gardner, Ellis, Inglesby & Falligant, Savannah, Ga., for plaintiffs-appellants.

Earl W. Gunn, Sidney F. Wheeler, Glenn E. Kushel, Roger Mills, Long, Weinberg, Ansley & Wheeler, Atlanta, Ga., Frank W. Seiler, Bouhan, Williams & Levy, Savannah, Ga., for defendant-appellee.

Appeal from the United States District Court for the Southern District of Georgia.

Before TJOFLAT, Chief Judge, CLARK ^* and ESCHBACH ^**, Senior Circuit Judges.

TJOFLAT, Chief Judge:

In this tort action, the representatives of Dr. Herman Delancy's estate sued St. Paul Fire and Marine Insurance Company (St. Paul), Dr. Delancy's malpractice liability insurer, for negligent or bad faith failure to settle a suit against Dr. Delancy. The district court granted summary judgment to St. Paul, and the plaintiffs appeal. ¹ The plaintiffs ask us to hold, under Georgia law, that when a liability insurer knows or in the exercise of ordinary care should know that a suit against its insured could be settled within the policy limits and that its failure to settle will expose the insured to an unreasonable risk of harm, including emotional distress, the insurer has a duty to effect a settlement within a reasonable time after settlement is possible; if the insurer breaches this duty, it is liable for all damages proximately caused by its breach.

We assume for the sake of argument that the plaintiffs correctly state Georgia law. We nonetheless affirm the district court's grant of summary judgment to St. Paul, as the plaintiffs have not introduced competent evidence showing a genuine issue of material fact on an element of their case on which they have the burden of proof: they have not shown that St. Paul ever knew or in the exercise of ordinary care should have known that the suit against Dr. Delancy could have been settled within the policy limits.

I.

In 1974, Dr. Delancy performed liver biopsy surgery on Herbert Ross at the Memorial Medical Center (Memorial) in Savannah, Georgia. During the operation, Dr. Delancy or someone on the surgical team left a surgical instrument, probably a needle holder, in Ross' body. When the procedure was performed, St. Paul provided liability insurance to both Dr. Delancy and Memorial. The limit of Dr. Delancy's coverage was $100,000; Memorial's limit was $1 million.

In the years after the operation, Ross suffered abdominal discomfort and digestive problems. In 1985, he began to feel sharp pains in his abdomen and back; in July of that year, a chiropractor took X-rays which revealed that there was a foreign object in Ross' abdomen but did not show its exact location. On May 5, 1986, twelve years after the operation, Ross sued Dr. Delancy and Memorial in Georgia state court; he alleged that both the doctor and the hospital had been negligent and had breached implied and express warranties. Samuel Svalina (a South Carolina attorney) represented Ross and had the most contact with him during the litigation of his claim; Thomas Taggart (a Savannah attorney) served as Ross' local counsel.

Pursuant to the terms of its contracts with its insureds, St. Paul undertook the defense of Ross' suit. It retained attorney William Pinson to defend Dr. Delancy, hired another attorney to defend Memorial, and assigned adjuster Lori Merryman to both of Ross' claims. Because it was possible that his liability might exceed his policy limits, Dr. Delancy retained attorney Stanley Karsman to represent his interests.

On July 2, Pinson filed an answer to Ross' complaint, asserting that the statute of limitations barred Ross' claim against Dr. Delancy. Pinson also moved to strike the breach of warranty claims. In response, the court ordered Ross to eliminate those claims from the complaint. Meanwhile, Pinson began discovery; he filed interrogatories and requests for production and, on August 27, 1986, took Ross' deposition.

Early in the litigation, Karsman (Dr. Delancy's personal attorney) began urging Taggart (Ross' local counsel) and St. Paul to settle the case for the policy limits of $100,000 or less. ² In late August 1986, Karsman and Taggart evidently discussed settlement. On September 3, Karsman wrote Pinson that he had been led to believe (presumably by Taggart) that the claim against Dr. Delancy could be settled within the policy limits. On September 26, Karsman wrote Taggart, informing him that Dr. Delancy had physical and emotional problems resulting from the litigation, asking Taggart to tender a demand under St. Paul's policy limits, and promising him that if he tendered such a demand, Karsman would put "as much heat on St. Paul as possible to get the case settled." On September 30, Pinson (for Dr. Delancy and St. Paul) wrote Taggart and asked him to tender a settlement demand.

On October 16, 1986, Pinson moved for summary judgment on Ross' claim against Dr. Delancy, arguing that the statute of limitations barred Ross' claim. Georgia imposes a one-year statute of limitations on medical malpractice claims, which begins to run, in a foreign object case, when a person either discovers or (Pinson argued) through the reasonable exercise of diligence should discover the foreign object. Pinson contended that because Ross was complaining about a twelve-year history of pain, and because one of his doctors had told him to return to Dr. Delancy for consultation some time before the X-ray revealed the object, Ross should have discovered the object before 1985; therefore, his suit was barred.

Dr. Delancy's codefendant, Memorial, also moved for summary judgment, arguing that it was not liable to Ross for two reasons: (1) at the time of the 1974 procedure, it was not standard operating procedure in the Savannah area for hospitals to require an instrument count after surgery and (2) under the "borrowed servant" doctrine, all of the hospital employees in the operating room were under Dr. Delancy's immediate control and the hospital, therefore was not responsible for their behavior.

On November 3, Karsman wrote to Pinson again demanding that St. Paul offer to settle for the policy limits. On November 10, Pinson responded, stating that he had made numerous unsuccessful attempts to obtain a settlement demand from Ross and that Ross' attorneys had never indicated that Ross would settle within policy limits; he confirmed this in his deposition in the instant case. Sometime in November, the parties argued Dr. Delancy's summary judgment motion, focusing on the statute of limitations issue.

On December 18, 1986, Taggart tendered Ross' first settlement offer to Karsman: Ross would take $250,000 to settle the suit against both Dr. Delancy and Memorial. By January 13, 1987, St. Paul had not responded to this offer; Karsman wrote Pinson on that date, stating that both he and Taggart were "extremely upset" and "shocked" at St. Paul's failure to respond.

On January 22, 1987 (before the trial court had decided the summary judgment motion on the statute of limitations issue), St. Paul's adjuster, Merryman, offered Taggart $40,000 to settle the claim against Dr. Delancy; when she made this offer, Merryman told Taggart that the offer was nonnegotiable and that St. Paul would make no settlement offer for Memorial. On January 28, Karsman again demanded that St. Paul offer its policy limits to settle the case against Dr. Delancy and stated that he was "reasonably certain" that $100,000 would settle the case. ³

On February 24, 1987, the trial court denied Dr. Delancy's motion for summary judgment on the statute of limitations issue; it also denied Memorial's summary judgment motion. Pinson did not apply for permission to take an interlocutory appeal ⁴ on the statute of limitations issue, but Memorial did apply for and did receive permission to take an interlocutory appeal of the trial court's denial of its summary judgment motion.

Pinson, meanwhile, continued discovery by taking the depositions, on October 13, 1986 and March 3, March 4, and April 29, 1987, of the doctors who had examined Ross and would act as his expert witnesses. Pinson also had a doctor examine Ross' medical records on behalf of Dr. Delancy (and St. Paul). Pinson appears to have had some difficulty in scheduling the depositions of Ross' doctors. He first requested that Taggart schedule the depositions on September 30, 1986, and on October 29 he wrote complaining that Taggart had not responded to his request. On December 8, 1986, he wrote Taggart complaining that Taggart, "[d]espite repeated requests," had not cooperated in setting depositions and asking for an extension of time for discovery.

After discovery was completed, it was clear to all involved in the litigation that Dr. Delancy or someone on the surgical team had left a surgical instrument in Ross' body during the 1974 procedure, and that Dr. Delancy was probably liable for any damages Ross suffered as a result. There were, however, several remaining disputed issues of causation and damages, including the location of the foreign object within Ross' body, Ross' fitness for surgery to remove the object, and whether Ross' problems were caused by the foreign object or were products of his obesity and an earlier intestinal bypass procedure that Dr. Delancy had performed. Moreover, the statute of limitations issue (whether Ross should have discovered the object before he did) remained a fact question for the jury.

First, it was unclear whether the surgical instrument was beneath Ross' skin (in the subcutaneous layer of fat) or within his abdominal cavity. ⁵ This question was relevant to both causation and damages. If the object was just beneath the skin, it was unlikely to have caused Ross'...