Chicago Ins. Co. v. Pacific Indem. Co., Civ. A. No. 81-2923.

• Decision Date: 20 October 1982
• Docket Number: Civ. A. No. 81-2923.
• Citation: 566 F. Supp. 954
• Parties: CHICAGO INSURANCE COMPANY v. PACIFIC INDEMNITY COMPANY and Chubb & Son, Inc.
• Court: U.S. District Court — Eastern District of Pennsylvania

566 F. Supp. 954

CHICAGO INSURANCE COMPANY v. PACIFIC INDEMNITY COMPANY and Chubb & Son, Inc.

Civ. A. No. 81-2923.

United States District Court, E.D. Pennsylvania.

October 20, 1982.

Richard A. Kraemer, Philadelphia, Pa., for plaintiff.

Barton L. Post, Post & Schell, Philadelphia, Pa., for defendants.

MEMORANDUM AND ORDER

FULLAM, District Judge.

Plaintiff, insurer under an excess policy, claims that the defendant Pacific Indemnity Company, the primary carrier, did not contribute its full policy limits to the settlement of a medical malpractice case, with the result that plaintiff paid more than its share.

A patient and her husband, Mr. and Mrs. Karl Pfeifer, sued the two gynecologists who had, in succession, treated Mrs. Pfeifer: Dr. Vallow, who had treated her from 1968 through 1971, and Dr. Gerstley, who had treated her from 1972 until May 1975. The Pfeifers contended that both physicians were negligent in failing to perform or obtain a biopsy of certain suspicious vaginal lesions. When a biopsy was finally performed on May 6, 1975, it was discovered that Mrs. Pfeifer suffered from a cancer which, by that time, had progressed to the incurable stage.

The two physicians practiced independently but, as it happened, had identical insurance coverages: a $100,000/$300,000 primary liability policy with the defendant Pacific, and a $1 million excess policy with plaintiff Chicago. Each of the policies covered a one-year period, and each was renewed annually.

It was and is the position of the defendant Pacific that its maximum exposure was $100,000 on behalf of each of the insured physicians. Accordingly, before the Pfeifer case was called for trial, Pacific tendered $200,000 toward settlement of the case. In the course of the trial, a total, lump-sum settlement of $850,000 was agreed upon. Of that amount, plaintiff, Chicago, paid $650,000, and the defendant Pacific paid $200,000.

Plaintiff thereupon brought the present suit, asserting, as mentioned above, that the respective insurance policies require a different allocation of the settlement burden. Both sides have moved for summary judgment. Although the point is not conceded by the defendants, it will be assumed for present purposes that plaintiff is proceeding under a valid and sufficient reservation of its right to pursue the claims asserted in this suit.

Plaintiff makes two basic claims: (1) that, since the alleged failure to obtain a biopsy was a continuing tort, each of Pacific's one-year policies rendered Pacific liable for at least $100,000 (i.e., that Pacific's maximum liability should be calculated on a cumulative basis); and (2) that, in any event, the claims of Mrs. Pfeifer were separate from the claims of her husband, so that Pacific should have paid at least $200,000 on behalf of each physician, for a total of $400,000, rather than $100,000 per physician for a total of $200,000.

Before discussing these claims, it is necessary to address plaintiff's motion to disqualify defendants' counsel. In its initial response to plaintiff's Motion for Summary Judgment, defendant included an affidavit executed by Adrian R. King, Esq., a member of the law firm which represents defendant Pacific in this action. Mr. King had represented Dr. Gerstley in the malpractice case, and his affidavit discusses the chronology of the settlement of the malpractice action. All concerned recognize that, if Mr. King were to be called as a witness at the trial of this case, disqualification of his law firm would be appropriate. Apparently, it did not occur to defense counsel that DR 5-101(B) and DR 5-102(A) might also be implicated if Mr. King were to "testify" in affidavit form in connection with the summary judgment motions. Mr. King's affidavit merely corroborates the affidavit of the attorney (from another law firm) who represented Dr. Vallow in the malpractice case. The facts set forth in both affidavits are neither controverted nor controversial. Moreover, in the view I take of this case, both affidavits are immaterial. But in any event, in response to the disqualification motion, defense counsel promptly sought leave to withdraw the King affidavit from consideration, and I have not considered it in disposing of the pending summary judgment motions. An order will be entered striking the King affidavit from the record. The Motion for Disqualification will be denied.

I.

Plaintiff's contention that the coverages under Pacific's successive annual policies should be "stacked" before plaintiff's excess policy is called into play must be rejected, for each of two fundamental reasons. The first is that, under the plain terms of the primary policies issued by defendant Pacific, the maximum amount which defendant could become obligated to pay on behalf of the insured was $100,000 per claim or $300,000 in the aggregate. The fact that the physician's alleged failure to make a proper diagnosis may have extended over several years does not mean that the failure gave rise to more than one claim of malpractice. Pacific obligated itself

"... To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury arising out of:

(a) malpractice, error or mistake of the insured ... in rendering or failing to render professional services....."

The limits of Pacific's liability are clearly expressed. The declaration page contains the following:

"LIMITS OF LIABILITY

$100,000 each claim

$300,000 aggregate"

The policy further provided:

"Limits of Liability: Subject to Insuring Agreement III, the limit of liability stated in the declarations as applicable to `each claim' is the limit of the company's liability for all damages on account of each claim or suit covered hereby; subject to the foregoing provision respecting each claim, the limit of liability stated in the declarations as `aggregate' is the total limit of the company's liability hereunder for all damages...."

Plaintiff cites recent developments in the law of insurance as it relates to the asbestos industry. In Insurance Co. of North America v. Forty-Eight Insulations, Inc., 633 F.2d 1212 (6th Cir.1980), the court adopted the "exposure" theory, and ruled that each of several insurance companies which were on the risk at various times must provide coverage for a pro rata share of the damages sustained as a result of prolonged exposure to asbestos fibers. Under that ruling, an insurance company, which, for example, provided products liability coverage during three of the twelve years in which the plaintiff was exposed to asbestos fibers manufactured by the insured would be required to bear one-fourth of the financial burden of the resulting asbestosis. But this approach is premised upon the concept that "bodily injury" within the meaning of the policies in question occurred with each inhalation of asbestos fibers which reached the lung and lodged there. In our case, Mrs. Pfeifer did not sustain separate injuries each time the doctor failed to order a biopsy. Moreover, and more importantly, the Forty-Eight Insulations court expressly held that no one company would be liable for amounts in excess of the limitations expressed in whichever single insurance policy provided the highest limits. "Stacking" coverages would not be permitted, since that would give the insured more than was bargained for. See, also, Keene Corp. v. INA, 667 F.2d 1034, 1049 (D.C.Cir.1981), cert. denied, 455 U.S. 1007, 102 S.Ct. 1644, 71 L.Ed.2d 875 (1982).

A second reason for rejecting plaintiff's "stacking" argument is found in the provisions of the excess policy issued by plaintiff itself. That policy provides, in pertinent part:

"INSURING AGREEMENTS

"1. COVERAGE

(C) PROFESSIONAL LIABILITY

The company agrees to indemnify the insured for ULTIMATE NET LOSS in excess of the RETAINED LIMIT which the INSURED shall become legally obligated to pay as damages because of injury for which coverage is afforded by the underlying professional liability policy(ies) listed in Schedule A, or by any renewals or replacement thereof....

"3. RETAINED LIMIT-LIMIT OF LIABILITY

With respect to coverage 1(C), the Company's liability shall be only for the ULTIMATE NET LOSS in excess of the INSURED's RETAINED LIMIT defined as an amount equal to the limit(s) of liability indicated beside the underlying professional liability policy(ies) listed in Schedule A hereof, plus the applicable limits of any other underlying insurance collectible by the insured...."

Pacific's policy is listed on schedule A; beside it the applicable limits are specified as "100,000 each claim-300,000 aggregate." Thus, plaintiff's policy makes plaintiff responsible for damages in excess of the retained limit, and the retained limit is specified as $100,000 per claim, $300,000 aggregate.

Under plaintiff's theory, the "retained limit" increased, and plaintiff's exposure substantially decreased, with each renewal of the primary policy; there is no suggestion that the premiums paid plaintiff reflected any such change.

II.

Plaintiff's remaining argument is that the Pfeifer lawsuit involved two claims against each of the doctors, hence defendant should have paid $200,000 under each of the two policies. It is true that there were two plaintiffs in the malpractice litigation. Mrs. Pfeifer claimed...