Continental Cas. Co. v. Empire Cas. Co.

• Decision Date: 27 June 1985
• Docket Number: No. 83CA0139,83CA0139
• Citation: 713 P.2d 384
• Parties: CONTINENTAL CASUALTY COMPANY, Plaintiff-Appellant and Cross-Appellee, v. EMPIRE CASUALTY COMPANY, a corporation, Defendant-Appellee and Cross-Appellant, and St. Paul Fire and Marine Insurance Company, a corporation; and Chicago Insurance Company, a corporation, Defendants-Appellees. . II
• Court: Colorado Court of Appeals

Page 384

713 P.2d 384

CONTINENTAL CASUALTY COMPANY, Plaintiff-Appellant and Cross-Appellee, v. EMPIRE CASUALTY COMPANY, a corporation, Defendant-Appellee and Cross-Appellant and St. Paul Fire and Marine Insurance Company, a corporation and Chicago Insurance Company, a corporation Defendants-Appellees.

No. 83CA0139.

Colorado Court of Appeals Div. II.

June 27, 1985.

Rehearings Denied Aug. 15, 1985.

Certiorari Granted (Empire) Jan. 13, 1986.

Certiorari Granted (Chicago) Jan. 13, 1986.

Pryor, Carney & Johnson, P.C., Thomas L. Roberts, John L. Wheeler, Englewood, for plaintiff-appellant and cross-appellee.

Donald E. Cordova, P.C., Donald E. Cordova, Larry N. Harris, Denver, for defendant-appellee and cross-appellant.

Montgomery Little Young Campbell & McGrew, P.C., William H. ReMine, III, Englewood, for defendant-appellee St. Paul Fire and Marine Ins. Co.; Hansen & Breit, P.C., John L. Breit, Susan Smith Fisher, Denver, on brief.

Downey Law Firm, P.C., Arthur H. Downey, Kenneth G. Gulley, Denver, for defendant-appellee Chicago Ins. Co.

KELLY, Judge.

This case involves claims for declaratory and other relief to determine which insurance carriers had what coverage responsibilities for a jury verdict of $575,000 entered in an underlying medical malpractice action, Peek v. Lockwood, filed on behalf of Gary Peter Peek, a minor, against Gerald M. Lockwood, M.D.

Appellant, Continental Casualty Company, argues, among other grounds for reversal, that the trial court erred (1) in finding that Continental's policy covering Dr. Lockwood included professional liability; (2) in allowing the doctrine of waiver to be used to expand Continental's insurance coverage; (3) in holding that Continental was contractually obligated to pay a pro-rata share of post-judgment interest; and (4) in granting St. Paul's motion for summary judgment.

Appellee-Cross-Appellant, Empire Casualty Company, argues, among other grounds for reversal, that the trial court erred (1) in recognizing a cause of action for wrongful life by finding that two separate Empire policies were activated by Lockwood's negligence; (2) in refusing first to exhaust Lockwood's primary and excess insurance before reaching the primary insurance of Lockwood, M.D., P.C.; and (3) in binding the professional corporation to the judgment against Lockwood as an individual, pursuant to C.R.C.P. 106(a)(5). We affirm in part and reverse in part.

In the malpractice action, Lockwood made a general admission of liability. Thus, the issues concerning which of Lockwood's acts were negligent and which acts were a cause of Gary Peter Peek's injuries were not litigated until the trial in this case. A chronological chart of the operative events is appended to this opinion.

The malpractice claim arose from Lockwood's care and treatment of Shelly Peek for two separate pregnancies over a twenty-seven month period. Shelly Peek first went to Lockwood on July 25, 1972, for obstetrical care. Her blood was tested, but her RH factor was either mistyped or misrecorded, and Lockwood treated her throughout her pregnancy as having RH positive blood when in fact her blood was RH negative. Shelly Peek's husband, Randy Peek, had RH positive blood, thereby creating a risk of RH incompatability in their offspring.

In cases of RH incompatability, a drug called RhoGAM is usually administered to the mother within seventy-two hours after giving birth. The purpose of this drug is to prevent the mother from becoming "sensitized" to the infant's blood type, RH positive. Sensitization may cause devastating consequences to children in subsequent pregnancies. Because of Lockwood's error regarding Shelly Peek's blood type, Lockwood was unaware of the RH incompatability and, therefore, did not administer RhoGAM after the birth of her first child, Billy.

Shelly Peek became pregnant for the second time and consulted Lockwood for treatment of this pregnancy on March 22, 1974. Lockwood did not retype her blood. Complications resulted from this pregnancy and the child was stillborn on October 16, 1974. An autopsy was performed which was inconclusive as to the cause of death, and neither cord blood tests nor retyping of Shelly Peek's blood was done. If done, these tests might have revealed the RH incompatability. After the stillbirth, Lockwood advised Shelly Peek that she could have more children if she wished.

In 1975, Shelly Peek became pregnant for the third time and sought care from a different obstetrician who discovered the RH incompatability. On April 25, 1976, Gary Peter Peek was born. He suffered from a hemolytic disease known as erythroblastosis fatalis. He suffered a stroke in utero or shortly after his birth which resulted in substantial brain damage because of the premature delivery necessitated by his condition.

Throughout this period of time, Empire provided Lockwood with primary professional liability coverage pursuant to successive, one-year policies. Continental, St. Paul Fire and Marine Insurance Company, and Chicago Insurance Company issued umbrella or excess professional liability policies over Empire's coverage. In April 1979, the carriers, without waiver of their respective rights concerning their coverage positions, satisfied in full the judgment in favor of Gary Peter Peek.

Lockwood purchased primary insurance policies from Empire on an annual basis through 1977. Initially, the policy provided coverage for Gerald Lockwood, M.D., in the amount of $100,000 for each claim and $300,000 aggregate coverage (100/300). Effective April 21, 1970, by endorsement, the limits under this policy were increased to $500,000 for each claim and $500,000 aggregate coverage (500/500). The limits were raised at this time in order to comply with Continental's umbrella insurance policy requirement that underlying primary medical malpractice coverage of 500/500 be maintained for its $1,000,000 umbrella policy.

Continental's policy commenced April 21, 1970, and expired April 21, 1973. Lockwood specifically ordered the professional liability policy, not the basic policy, from Continental. However, the professional liability supplement ordered was not delivered to Lockwood. Lockwood was billed for the premium for professional liability coverage.

During the term of Continental's policy, on December 1, 1971, Empire notified Lockwood that it could no longer offer the 500/500 coverage and Empire's coverage was reduced to 100/300. On December 1, 1971, Lockwood purchased a new policy from Empire which added his professional corporation, Lockwood, M.D., P.C., as a named insured, but which also provided only 100/300 policy limits. Thus, halfway through the term of Continental's umbrella policy, Lockwood had only 100/300 policy limits although Continental required 500/500 primary insurance coverage.

Lockwood elected not to renew Continental's policy because of its requirement of 500/500 underlying limits, and instead obtained a $1,000,000 umbrella policy from St. Paul which required primary coverage of the 100/300 type only, as provided by Empire. St. Paul's policy commenced April 21, 1973, and expired April 21, 1974. When St. Paul's policy expired, it was replaced with a similar $1,000,000 umbrella policy issued by Chicago which was in effect until April 21, 1977.

Continental filed this action on May 26, 1978, to determine the respective rights and responsibilities of the insurance carriers, Lockwood, Lockwood, P.C., and Shelly and Randy Peek, individually, and as next friends of Gary Peter Peek. Lockwood filed counterclaims and cross-claims against the insurance companies, and a third-party complaint against his insurance agent. All parties, with the exception of the insurance companies, settled prior to trial.

In January 1980, the trial court granted summary judgment in favor of St. Paul. The trial was bifurcated; phase one concerned the issues of medical negligence and causation, and phase two addressed the question whether Continental had waived or was estopped from asserting that Lockwood's failure to maintain the underlying limits required by its policy suspended its professional liability coverage.

At the conclusion of the medical phase of the trial, the jury determined that Lockwood had performed four separate acts of negligence which were proximate causes of the injury sustained by Gary Peter Peek. These acts of negligence were: (1) the mistyping of Shelly Peek's blood in July 1972; (2) the failure to retype her blood in March 1974 during her second pregnancy; (3) the failure to investigate adequately the cause of death of the stillbirth of her second child in October 1974; and (4) Lockwood's affirmative advice to the Peeks, following the stillbirth, that they could have further normal children. The jury also determined that Shelly Peek was sensitized following the delivery of her first child in December 1972.

In phase two of the trial, the jury concluded that Continental was not estopped from asserting the suspension provision of its policy, but that it had waived its right to rely on this provision.

After finding that the jury verdicts were supported by substantial evidence, the court concluded that Empire owed $400,000 in coverage limits, $100,000 for each named insured, Lockwood and Lockwood, P.C., pursuant to the two policies which were in force during that period in which the jury had found negligent acts to have occurred. The trial court also found that Continental and Chicago were obligated to share equally in the remaining unsatisfied portion of the judgment, $175,000, or $87,500 each. The court determined that Empire was responsible for prejudgment interest but that post-judgment interest was to be shared pro rata by the carriers in accordance with their respective coverage responsibilities.

I. Continental's Coverage

Continental contends that the trial court erred in finding that its undelivered professional liability supplement formed a part of its policy covering Lockwood. Continental...