Bell v. Slezak

• Decision Date: 19 December 2002
• Citation: 812 A.2d 566,571 Pa. 333
• Parties: Shirley L. BELL and Thomas P. Bell, her husband, Appellants v. Joseph A. SLEZAK, M.D., Joseph A. Slezak, M.D. LTD, L. Alan Egleston, M.D., and Frick Community Health Center, Appellees.
• Court: Pennsylvania Supreme Court

812 A.2d 566

571 Pa. 333

Shirley L. BELL and Thomas P. Bell, her husband, Appellants v. Joseph A. SLEZAK, M.D., Joseph A. Slezak, M.D. LTD, L. Alan Egleston, M.D., and Frick Community Health Center, Appellees.

Supreme Court of Pennsylvania.

Argued March 5, 2002.

Decided December 19, 2002.

Howard F. Messer, Pittsburgh, for appellants, Shirley L. and Thomas P. Bell.

Jon Robert Perry, Paul L. Hilko, Pittsburgh, for appellant amicus curiae, PA Trial Lawyers Ass'n.

Robert B. Hoffman, Harrisburg, for appellant amicus curiae, PA Medical Soc.

Andrew Frank Adomitis, Pittsburgh, for appellee, L. Alan Egleston, M.D.

William D. Phillips, Kathleen Smith Delach, Washington, for appellees, Slezak, et al.

Lise Luborsky, Philadelphia, for appellee amicus curiae, PA Property and Cas. Ins. Guar. Ass'n.

Before ZAPPALA, C.J., and CAPPY, CASTILLE, NIGRO, NEWMAN and SAYLOR, JJ.

OPINION

Chief Justice ZAPPALA.

This appeal presents multiple, foundational questions concerning the application of provisions of the Pennsylvania Property and Casualty Insurance Guaranty Association Act in a setting involving the insolvency of a former medical malpractice insurance carrier.

In late 1992, Appellants, Shirley L. and Thomas P. Bell, commenced a civil action asserting claims against Appellees, Joseph A. Slezak, M.D. and his professional corporation (collectively, "Dr. Slezak"), and others. The central averments of the complaint alleged medical malpractice on the part of Appellees during the course of Mrs. Bell's treatment for abdominal conditions. In settlement negotiations supervised by the common pleas court, the parties consummated an agreement pursuant to which the Bells would receive $500,000 in exchange for a joint tortfeasor release. Of this amount, $200,000 represented the limits of a policy of malpractice insurance which Dr. Slezak maintained with PIC Insurance Group ("PIC"), and $300,000 was to be the responsibility of the Pennsylvania Medical Professional Liability Catastrophe Fund (the "CAT Fund").¹ Although PIC was not a party to the agreement, Dr. Slezak's agreement was made with the clear understanding that the policy limits would be furnished by the carrier. Prior to the disbursement of settlement funds, however, the Commonwealth Court issued an order placing PIC in liquidation in accordance with the liquidation provisions of the Insurance Department Act, 40 P.S. §§ 221.1-221.63. Such order triggered certain statutory obligations on the part of Pennsylvania Property and Casualty Insurance Guaranty Association ("PPCIGA" or "the Association"), pursuant to the Pennsylvania Property and Casualty Insurance Guaranty Association Act,² which are a primary subject of this appeal. As a result of the insolvency, PIC failed to tender its portion of the settlement proceeds. Although PPCIGA's statutory obligations include payment of certain covered claims arising out of the insolvency of property and casualty insurers, see 40 P.S. § 991.1803(b)(1), it, too, refused to provide the $200,000; it claimed that under the non-duplication of recovery provision of the PPCIGA Act, 40 P.S. § 991.1817(a), which prescribes that "[a]ny amount payable on a covered claim under this act shall be reduced by the amount of any recovery under other insurance,"³ it was entitled to offset medical expenses paid by the Bells' health insurer, Capital Blue Cross and Blue Shield. Further, since such payments exceeded $200,000 and thus also the limits of the underlying PIC policy, PPCIGA took the position that any obligation on its part to make payment was extinguished.

The Bells filed a petition to enforce the settlement, seeking the $200,000 payment and contending that Dr. Slezak was responsible in the event that PPCIGA did not contribute the funds. Dr. Slezak opposed the petition, emphasizing PIC's contemplated role in terms of funding the settlement, which he contended was assumed by PPCIGA per its enabling statute. He contended that PPCIGA's entitlement to invoke the non-duplication of recovery provision in the present circumstances was an open issue pending before the Commonwealth Court, and that enforcement of the settlement agreement against him would be inequitable since, inter alia, he had tendered all required premiums to PIC and the CAT Fund and was an "innocent victim" of the circumstances resulting in PIC's liquidation.

In granting relief on the Bells' petition, the common pleas court noted, preliminarily, that PIC was neither a named party to the Bells' civil action nor referenced in the correspondence reflecting the parties' settlement. The court then applied conventional contract principles to conclude that the agreement was a valid one and remained fully enforceable after PIC's insolvency. Thus, although acknowledging the parties' awareness of PIC's involvement as Dr. Slezak's insurer, the common pleas court simply did not deem this awareness to be material to its disposition of the petition, particularly where the parties had not memorialized an intention that Dr. Slezak should be relieved of his obligation to present the settlement funds in the event that his insurer became insolvent. In effectively weighing the circumstances of the case in view of the express policy of the PPCIGA statute, the court explained as follows:

The defense ... argues that the statute's purpose of avoiding financial loss to the policyholder as a result of the insolvency of an insurer would be frustrated if the statutory provisions did not apply to the settlement agreement. However, in a situation where either an innocent claimant or an innocent policyholder stands to suffer a financial loss as a result of the insolvency of an insurer, it is the policyholder that should bear the loss. The plaintiff had no relationship with the now insolvent insurer and had no reason in the preparation of the settlement agreement, to attempt to protect themselves from the insolvency of the insurer. The result referred to must occur in order to protect at least one member of the protected class (claimants and policyholders) from suffering any financial loss. In this way the public policy expressed in the statute of attempting to protect claimants from financial loss as a result of the insolvency of an insurer will be carried out.

Trial court opinion at 12-13. Additionally, since the Bells were non-parties with respect to the contractual relationship between Dr. Slezak and PIC, the common pleas court expressed doubt as to whether the Bells were "claimants" for purposes of PPCIGA, such that the non-duplication of recovery provision was even implicated by virtue of their health insurance recovery. See 40 P.S. § 991.1817(a).

On Dr. Slezak's appeal, an en banc Superior Court considered the matter in conjunction with two other cases involving overlapping issues, Panea v. Isdaner, No. 3677 Phila. 1998, and Baker v. Myers, No. 642 E.D. 1999, and reversed. See Panea v. Isdaner, 773 A.2d 782 (Pa.Super.2001). Rejecting the common pleas court's (and the Bells') reliance on ordinary contract principles as controlling, the majority indicated that such approach "ignore[s] the economic realities of litigation and the interplay of insurance coverage in the settlement process." See id. at 789. In this regard, the majority focused on the position of defendant-physicians vis-à-vis the insolvent malpractice insurance carrier, explaining:

No one disputes the fact that the settlement agreements established the defendants' liability; however, to the extent the defendants' liability is covered by insurance the insurer is ultimately obligated to pay. It cannot logically be denied that all the parties anticipated that insurance would cover payment of the settlement amounts. The defendants all paid premiums for their malpractice insurance and expected to have coverage in the event of a claim. Thus, the defendant doctors are also victims of the insurers' insolvency. In recognition of the harm occasioned by insurance companies becoming insolvent the legislature saw fit to fashion a remedy by enacting this [PPCIGA] Act.

Panea, 773 A.2d at 789. In assessing the available remedy, the Superior Court majority accepted that, although they were not parties in relation to Dr. Slezak's insurance contract with PIC, the Bells nevertheless maintained a "covered claim" for purposes of the non-duplication of recovery provision. See id. at 789-90. Further, the majority adopted Dr. Slezak's characterization of himself as a victim of PIC's insolvency and therefore believed that, as a policy matter, he should benefit from the protective umbrella of the non-duplication of recovery provision, along with PPCIGA. See id. at 789 (indicating that "defendants are merely asserting a statutory right to either limit or extinguish their obligations to pay on the claims"). The majority thus referred to the Bells' right to payment under the settlement agreement as "nothing more than a claim against an insolvent insurer by virtue of having a claim against a tortfeasor who was insured by that insurer." Id. Furthermore, in these regards, the majority opined that the PPCIGA Act provides a clear and adequate remedy for a loss due to the insolvency of a property and casualty insurer, noting that statutory remedies are favored over common law ones. See id. at 789 (citing 1 Pa.C.S. § 1504). The Superior Court majority noted that the changed circumstances necessitating PPCIGA's involvement might provide a basis for rescinding the settlement, but emphasized that the parties had not chosen to pursue such course. See id. at 789 n. 3.⁴

The majority then returned specifically to the question of whether, in light of the application of the non-duplication of recovery provision, the insured of the insolvent insurer may be held personally responsible for the amount of the offset, concluding that "the legislative intent of the Act precludes such an anomalous result." Id. at 791; see also id. at 792 ("To find the doctors personally liable for the...