Doctors Co. v. Women's Healthcare Assocs., Inc.

• Decision Date: 18 April 2013
• Docket Number: Record No. 120702.
• Parties: The DOCTORS COMPANY v. WOMEN'S HEALTHCARE ASSOCIATES, INC., et al.
• Court: Virginia Supreme Court

285 Va. 566

740 S.E.2d 523

The DOCTORS COMPANY

v.WOMEN'S HEALTHCARE ASSOCIATES, INC., et al.

Record No. 120702.

Supreme Court of Virginia.

April 18, 2013.

Thomas S. Garrett, Richmond (John M. Claytor, Glen Allen; Claytor, Corrigan & Wellman, on briefs), for appellant.

David J. Dickens, Orange, (Michael J. Miller, Orange; The Miller Firm, on brief), for appellees.

Present: All the Justices.

OPINION BY Justice LEROY F. MILLETTE, JR.

This appeal arises from a declaratory judgment action in which The Doctors Company (TDC), a professional liability insurance company, sought a determination that its coverage of policyholder Women's Healthcare Associates (WHA) did not apply to a pending breach of contract action brought by the Davidson family against WHA. The pending breach of contract action relates to WHA's participation in the Virginia Birth–Related Neurological Injury Compensation Act, Code § 38.2–5000 et seq. (the “Birth Injury Fund”). For the reasons stated herein, we affirm the holding of the circuit court finding that the policy covers the claim alleged by the Davidsons in their complaint against WHA.

I. Facts and Proceedings

The Birth Injury Fund is a statutory structure creating a no-fault source of compensation for families whose children suffer birth-related neurological injuries when delivered by a participating physician or hospital. Code § 38.2–5000 et seq. Physicians or hospitals voluntarily pay into the fund, which operates in lieu of civil suits for medical malpractice. Code § 38.2–5002. Physicians and hospitals are required to give written notification to their obstetrical patients of their participation or non-participation in the fund. Code § 38.2–5004.1.

The case at bar stems from an underlying breach of contract action by the Davidson family against WHA, which is not currently before this Court but integral to these proceedings. The Davidsons allege that, on December 27, 2006, they entered into an express contract in which WHA agreed

to provide obstetrical care and pre-natal management of her pregnancy ...; to provide her with management of her ultimate labor and delivery of that child; to participate in the Virginia Birth–Related Neurological Injury Compensation Program (“Birth Injury Fund”); and to inform her if they ceased participating in the Birth Injury Fund. Such services and contractual obligations of WHA, through its employee-agents, continued through at least May 17, 2007, and the birth[.] In exchange for such services and contractual obligations, Michele Davidson agreed to consent to treatment, tender payment on behalf of herself and [the baby], and waive future malpractice claims which might arise from a birth-related neurological injury to [the baby].

The Davidsons then allege that, after they entered into this contract in part in reliance on WHA's participation in the Birth Injury Fund, WHA materially breached the contract by failing to pay into the fund as represented to the Davidsons; that their child suffered an otherwise compensable injury under the fund when delivered; and that, due to the breach, the Davidsons were not able to receive compensation under the fund. The Davidsons' complaint includes a copy of WHA's written notification of its participation in the fund, acknowledged as received by Michele Davidson, as evidence that such representation was part of the contract. Although WHA had participated in the fund in the past, it is undisputed that WHA was not paying into the Birth Injury Fund at either the time of the notification or at the time of the birth of the Davidsons' son, a child alleged to have been born with quadriplegic cerebral palsy and static encephalopathy. It is likewise undisputed that WHA never notified the Davidsons of its non-participation during this time period. As a result of WHA's non-participation, the Davidsons could not file a claim with the Commonwealth under the Birth Injury Fund, and instead filed a complaint against WHA setting forth several related counts of breach of contract and breach of fiduciary duty. After initial motions before the circuit court, only two breach of contract counts, one on behalf of Michele Davidson and one on behalf of her husband, Nathan Davidson, remain at issue between the Davidsons and WHA.

The action before this Court is a separate declaratory judgment action in which WHA's professional liability insurance company, TDC, seeks to establish that the pending breach of contract action is not covered under the TDC insurance policy held by WHA. TDC's policy with WHA generally states that it provides coverage for “those sums that the [insured] becomes legally obligated to pay as damages for Claims covered by this Policy resulting from ... Professional Services rendered.” (Emphasis in original.) In the policy's “Definitions” section, a “ Claim ” is defined as “a demand for payment of damages or for services arising from a Professional Services Incident ... not otherwise excluded by the terms and conditions of this Policy.” (Emphasis in original.) One such exclusion is “[l]iability arising out of any ... violation of any statute.” TDC argued below that the alleged liability does not stem from professional services and is therefore not covered under the policy. In the alternative, TDC also argued that the liability arising from the inaccurate notification was in violation of a state statute requiring notification of participation in the Birth Injury Fund and therefore excluded from coverage under the language of the policy.

The circuit court found in favor of WHA and the Davidsons, and TDC now appeals to this Court. Only the Davidsons filed a brief in opposition.

II. Discussion

A. Standard of Review

The material facts before the Court are undisputed. The issues before the Court concern the interpretation and application of terms of the insurance contract to those undisputed facts. We therefore review these questions of law de novo. Virginia Farm Bureau Mut. Ins. Co. v. Williams, 278 Va. 75, 80, 677 S.E.2d 299, 302 (2009).

B. Whether the Breach of Contract Claims are Covered as “Professional Services”

The initial question is whether the claim falls under the scope of “Section II: What Liability Is Covered,” subsection b: “Coverage B—Entity Professional Liability.” The section states that TDC “will pay on behalf of the [insured] those sums that it becomes legally obligated to pay as damages for Claims covered by this Policy resulting from ... Professional Services rendered by a Protected Party for whose acts or omissions the [insured] is legally responsible.” (Emphasis in original.)

In addition, Section VII of the policy provides the following definitions to define the scope of these terms:

a. Claim means a demand for payment of damages or for services arising from a Professional Services Incident ... that is not otherwise excluded by the terms and conditions of this Policy.

....

l. Professional Services means the diagnosis, treatment, care, or consultation, regarding a patient's medical condition.

....

m. Professional Services Incident means the performance of or failure to perform Professional Services ... by:

1. a Healthcare Professional, when acting within the scope of his or her specialty and training[.]

(Emphasis in original.)

TDC takes the position that the alleged breach, injury, and damages resulted from a misrepresentation in a contract, which is not within the scope of a provider's specialty and training, and therefore lacked a causal nexus with professional services rendered. TDC acknowledges that there were professional services employed in the birth of the child. TDC argues, however, that the breach was the misrepresentation and the injury and damages sustained were incurred due to a lack of compensation under the fund based on the contractual misrepresentation, not “resulting from” the professional service itself as would be alleged in a tort action.

The Davidsons argue that the lack of compensation cannot be severed from the professional services because one of the elements required for compensation under the fund, in addition to a qualifying birth injury, is that the child must have been delivered by a participating professional service provider or in a participating hospital. The Davidsons therefore contend that the injury would not have been possible without the rendering of professional services, and so the claim is one “arising from” professional services.

The parties point to separate portions of the Policy to support their respective arguments. TDC argues that a plain-language reading of the term “resulting from” professional services, as stated in Section II(b) describing the coverage under the policy, requires a direct nexus, and that a contractual misrepresentation that is out of the scope of the doctor's professional training lacks this nexus. The Davidsons respond that the operative language defining a covered claim is clarified by the “Definitions” of Section VII to include any claim “arising from” professionalservices and not otherwise excluded by the policy.

The Court is left to resolve this apparent conflict. TDC has conceded that the use of different language in the drafting of the contract was not accidental and that “arising from” has a broader definition than “resulting from.” We have said that “when considering the meaning of any part of a contract, we will construe the contract as a whole.” Cappo Mgmt. V, Inc. v. Britt, 282 Va. 33, 37, 711 S.E.2d 209, 211 (2011) (quoting Lansdowne Dev. Co. v. Xerox Realty Corp., 257 Va. 392, 401, 514 S.E.2d 157, 161 (1999)); see Vega v. Chattan Assocs., Inc., 246 Va. 196, 199, 435 S.E.2d 142, 143 (1993). As a result, despite TDC's urging that we should apply a plain-language reading of the term “resulting from,” we are obligated to consider both phrases and resolve the ambiguity that arises from their presence in the same contract.

We have consistently held that “[i]n the event of an ambiguity in the written contract, such ambiguity must...