Birth Center v. St. Paul Companies, Inc.

• Decision Date: 09 March 1999
• Citation: 727 A.2d 1144
• Parties: The BIRTH CENTER, Appellant, v. The ST. PAUL COMPANIES, INC., Sharon Dawson-Coates and Al Afonso, Appellees. (Three Cases.) The Birth Center, Appellee, v. The St. Paul Companies, Inc., Sharon Dawson-Coates and Al Afonso. Appeal of The St. Paul Companies, Inc., Appellant.
• Court: Pennsylvania Superior Court

727 A.2d 1144

The BIRTH CENTER, Appellant, v. The ST. PAUL COMPANIES, INC., Sharon Dawson-Coates and Al Afonso, Appellees. (Three Cases.)

The Birth Center, Appellee, v. The St. Paul Companies, Inc., Sharon Dawson-Coates and Al Afonso.

Appeal of The St. Paul Companies, Inc., Appellant.

Superior Court of Pennsylvania.

Argued January 28, 1998.

Filed March 9, 1999.

Reargument Denied May 3, 1999.

John S. Brooks, Media, for The Birth Center.

Thomas P. Wagner, Philadelphia, for The St. Paul Companies, Inc., Sharon Dawson-Coates and Al Afonso.

Before McEWEN, President Judge, and KELLY and HOFFMAN¹, JJ.

KELLY, J.:

¶ 1 In these consolidated appeals we must determine whether the trial court properly granted judgment notwithstanding the verdict ("J.N.O.V.") in favor of Appellee, St. Paul Companies, Inc. ("St. Paul"), where the jury found sufficient evidence that St. Paul had acted in bad faith in refusing to negotiate and settle a medical malpractice suit brought by a third party against its insured, Birth Center. We must also decide whether compensatory damages may be available to the insured in this context where the insurer ultimately pays the excess verdict in the underlying third-party action. For the reasons set forth as follows, we hold that there was sufficient evidence to support the jury's finding of bad faith and that compensatory damages may also be available to the insured in the context of the insurer's unreasonable refusal to settle a claim within the policy limits. Accordingly, we reverse and remand with instructions.

FACTS

¶ 2 The present case arises out of St. Paul's refusal to negotiate and settle a medical malpractice action, Norris v. Birth Center and Despina Soppas, M.D. ("Norris Case"), in connection with the birth of the Norrises' child.² The Norris Case was initiated against Birth Center on November 16, 1986. The Norrises alleged that Birth Center's negligence during the birth of their daughter caused her to suffer severe and permanent brain damage. The Norris complaint alleged, inter alia, that Birth Center failed to provide proper monitoring of the infant in utero in order to diagnose fetal distress at a time when the infant could have been delivered without permanent and serious brain damage. The complaint also averred that Birth Center was negligent in failing to transfer the newborn child across the street to Bryn Mawr Hospital, where her condition could have been properly assessed and treated.

¶ 3 Upon being served with the complaint, Birth Center turned to St. Paul from whom it had purchased a one million dollar ($1,000,000.00) professional liability insurance policy. St. Paul immediately began an investigation of the Norris claim and hired counsel to defend Birth Center. Counsel engaged seven medical experts to evaluate the case. These experts concluded that Birth Center had acted within the requisite standard of care. After reviewing these opinions, St. Paul's medical liability supervisor determined that Birth Center had a fifty to sixty percent chance of successfully defending the claim. Based upon this estimate, the supervisor recommended that St. Paul make no offers of settlement. St. Paul adhered to this position throughout the remaining six years of the Norris Case litigation.

¶ 4 The Norrises' attorney also engaged a team of experts. After reviewing the facts and medical evidence in the Norris Case, the Norrises' experts determined that Birth Center was negligent in connection with the birth of Lindsey Norris. Furthermore, the experts concluded that Birth Center's negligence was the direct cause of Lindsey Norris' brain damage. This information was made available to all the parties involved in the Norris Case, including St. Paul.

¶ 5 On August 2, 1991, the Norrises made an offer to settle the case within Birth Center's policy limits. Three days later, Birth Center notified St. Paul that Birth Center was making a firm demand to settle the case within its policy limits. On August 7, 1991, St. Paul informed Birth Center's private counsel that it continued to refuse to negotiate or settle the case.

¶ 6 On August 8, 1991, a pre-trial conference was held in the Common Pleas Court of Delaware County. During the course of the pre-trial conference, the presiding judge recommended settlement of the Norris Case within Birth Center's policy limits. St. Paul refused to negotiate or offer a settlement. Thereafter, the Norris Case was listed for a second pre-trial conference with a different judge presiding. This judge also recommended settlement within Birth Center's policy limits. At this time, Birth Center demanded settlement in accordance with the judge's recommendation. Once again, St. Paul refused to negotiate or offer a settlement.

¶ 7 In early January of 1992, St. Paul requested the defense attorneys for Birth Center and Dr. Soppas to prepare pre-trial reports for its consideration. In her report to St. Paul, defense counsel for Birth Center stated that Birth Center had at best, a fifty-percent chance of successfully defending the lawsuit at trial. Furthermore, she advised that the jury verdict could range from one million, two hundred and fifty thousand dollars ($1,250,000.00) to one million, five hundred thousand dollars ($1,500,000.00). Defense counsel for Dr. Soppas stated in his report to St. Paul that Birth Center had a thirty-five percent chance of winning at trial and predicted a probable jury verdict of five million dollars ($5,000,000.00) to six million dollars ($6,000,000.00).

¶ 8 On January 27, 1992, Birth Center's executive director wrote a letter to St. Paul stating that she was very distressed by St. Paul's decision to take the case to trial despite the opportunity to settle it within Birth Center's policy limits. She expressed her concerns about a jury verdict in excess of the policy limits and the devastating effects such a verdict would have upon Birth Center's future existence. Birth Center's executive director also voiced these concerns to St. Paul's claims representative assigned to the case. The claims representative informed her that St. Paul tries "all of these bad baby cases, and we're going to trial." (N.T., 5/6/96 at 16; R.R. at 1343.) Furthermore, the claims representative stated that St. Paul was only obligated to pay the amount of the insurance policy, and that St. Paul had no obligation to cover any verdict in excess of the policy's limits. (Id.)

¶ 9 The case was subsequently transferred to the docket of a third judge who ultimately presided over the trial of the Norris Case. On February 5, 1993, the trial judge held a pre-trial conference in his chambers at which time he recommended settlement within Birth Center's policy limits. St. Paul refused to make any offer whatsoever. On February 12, 1993, the Norrises made another offer of settlement. Under the terms of the high/low offer, St. Paul would pay a non-refundable three hundred thousand dollars ($300,000.00) regardless of the verdict. If the jury returned a verdict in excess of Birth Center's policy limits, then the Norrises agreed to accept the policy limits as total satisfaction of the verdict. The settlement offer also provided that if the jury returned a verdict lower than Birth Center's maximum coverage, but higher than the low figure of three hundred thousand dollars, then the Norrises would accept such verdict as full satisfaction of Birth Center's liability. St. Paul refused this offer of settlement and made no counter-offer of settlement.

¶ 10 On February 16, 1993, the day of trial, a final pre-trial conference was held in the trial judge's robing room. At this time, the Norrises made the same settlement offer that they had extended to Birth Center on February 12, 1993. Birth Center indicated that it would accept this offer of settlement. A representative of St. Paul, who was present during the robing room discussion, rejected this offer on the record. The judge stated: "[t]here is a clear indication of bad faith here. I think the insurance company is not proceeding in a responsible manner and is not discharging its fiduciary obligation to its insureds in this case ... I think this insurance company has operated in a highly irresponsible manner. I want it clear that they have turned this high/low offer of $300,000.00 down in which [sic] I think is a breach of their fiduciary responsibility to their insureds. And I want that clear on this record." (N.T., 2/16/93, at 15-19; R.R. at 2919-2923).

¶ 11 The case proceeded to trial immediately after the pre-trial conference. During the first two days of trial, the Norrises presented competent, persuasive, and highly sympathetic testimony, including a videotape recording of a day in the life of Lindsey Norris. After the presentation of the videotape, the trial judge called a recess and instructed all the parties to report to his robing room. At this time, the court instructed defense counsel for Birth Center and for Dr. Soppas to call St. Paul to see if it intended to make any settlement offer. When defense counsel for Birth Center returned from her telephone call, she stated to those present in the robing room: "They must be crazy. They're not offering a dime. They won't give me authority to offer any money in this case, you know, I can't believe it." (N.T., 5/3/96, at 69; R.R. at 1158).

¶ 12 The trial resumed. Birth Center made continued requests and written demands to settle within its policy limits, advising St. Paul that the case appeared to be going badly. St. Paul steadfastly refused to negotiate or make any offers. On March 4, 1993, the jury returned a verdict in favor of the Norrises for four million, five hundred thousand dollars ($4,500,000.00), with Birth Center liable for sixty percent (60%) of that amount, or two million, seven hundred thousand dollars ($2,700,000.00). The final verdict, as molded to include delay damages and interest, was seven million, one hundred ninety-six thousand, two hundred and thirty-eight...