McMahon v. Med. Protective Co.

• Decision Date: 20 March 2015
• Docket Number: Civil Action No. 13–991.
• Parties: Susan McMAHON, Plaintiff, v. The MEDICAL PROTECTIVE CO., Defendant.
• Court: U.S. District Court — Western District of Pennsylvania

92 F.Supp.3d 367

Susan McMAHON, Plaintiff

v.The MEDICAL PROTECTIVE CO., Defendant.

Civil Action No. 13–991.

United States District Court, W.D. Pennsylvania.

Signed March 20, 2015.

Joseph Decker, Frick Building, Pittsburgh, PA, Edward C. Flynn, Vasilios E. Sanios, Cohen & Grace, LLC, Pittsburgh, PA, Steven F. Baicker–McKee, Babst, Calland, Clements & Zomnir, Pittsburgh, PA, for Plaintiff.

Craig E. Ziegler, Jeffrey R. Lerman, Montgomery McCracken Walker and Rhoads, LLP, Philadelphia, PA, for Defendant.

MEMORANDUM OPINION

CONTI, Chief Judge.

I. Introduction

The dispute in this case arises out of an insurer's negotiation of settlement of a third-party claim against its insured. Defendant The Medical Protective Company (“Medical Protective”) issued a dental malpractice insurance policy to plaintiff Susan McMahon (“McMahon”). A third party sued McMahon for malpractice and McMahon and Medical Protective settled that malpractice lawsuit. Under the settlement agreement, McMahon paid $50,000 of her own money in addition to the money paid by Medical Protective. McMahon filed this lawsuit against Medical Protective to recover the funds she paid and other damages. McMahon asserts that Medical Protective breached the terms of the insurance contract and acted in bad faith under 42 Pa. Cons.Stat. § 8371.¹ Medical Protective asserts that under a policy exclusion, the money contributed by McMahon was voluntary and at her own expense. After discovery, McMahon (ECF No. 35) and Medical Protective (ECF Nos. 34, 48) filed cross motions for summary judgment.²

II. Factual Background

A. The Malpractice Lawsuit

McMahon practices dentistry and is the owner of Esthetic Dentistry Pittsburgh, Inc. (Combined Concise Statement of Material Fact in Support of Plaintiff's Motion for Summary Judgment (“Pl.'s CCS”) ¶ 1, ECF Nos. 69, 70.) Medical Protective issued malpractice insurance policies to McMahon and Esthetic Dentistry Pittsburgh.³ These policies had a combined per occurrence limit of $2 million. (Compl. Ex. A, ECF No. 1–1.)

In 2008, a third party (the “claimant”) filed a dental malpractice lawsuit against McMahon and Esthetic Dentistry Pittsburgh in state court. (Combined Concise Statement of Material Facts Concerning the Motion for Summary Judgment of Defendant (“Def.'s CCS”) ¶ A4, ECF Nos. 68, 71.) The claimant alleged she suffered an injury from dental treatment by McMahon. (Pl.'s CCS ¶ 4.) Pursuant to the terms of the insurance policies, Medical Protective defended McMahon against the malpractice lawsuit and appointed the law firm of Davies McFarland & Carroll as defense counsel. (Id. ) Attorneys Daniel Carroll (“Carroll”) and Kristin Pieseski (“Pieseski”) acted as defense counsel. (Def.'s CCS ¶ A5.) Medical Protective's field claims manager assigned to the case was Kurtis Marshall (“Marshall”). (Marshall Dep. 7:13–23, Mar. 15, 2014, ECF Nos. 37–9, 49–9.) Marshall reported to Antony Ball (“Ball”), who was Medical Protective's national dental claims manager. (Ball Dep. 5:17–19, Mar. 15, 2014, ECF Nos. 37–3, 49–3.) Ball's supervisor was Robert Ignasiak (“Ignasiak”), senior vice president of claims for Medical Protective. (Id. at 6:22–7:6.) Timothy Kenesey (“Kenesey”) was the chief executive officer of the company. (Id. at 55:10–12.)

Medical Protective considered the claim winnable at trial. In October 2010, Marshall estimated the probability of a defense verdict to be seventy-five percent. (Marshall Dep. 13:23–25.) The claimant had been a high wage earner, and she claimed she was unable to work as a result of her injury. In March 2011, Pieseski informed McMahon and Medical Protective that due to the claimant's anticipated income-impairment claim, the potential exposure in the event of an adverse jury verdict could exceed the $2 million policy limit. (Pieseski Dep. 13:20–17:9, Mar. 14, 2014, ECF No. 37–7.) The reports of the parties' economic damages experts confirmed the possibility of an adverse verdict well in excess of the policy limit. (Carroll Dep. 34:24–35:7, Feb. 28, 2014, ECF Nos. 37–8, 49–8.) Pieseski encouraged McMahon to consult with counsel about her personal assets in the event of a verdict exceeding the coverage limit. (Pieseski Dep. 15:2–16:11.) McMahon engaged Joseph Decker (“Decker”) as her personal counsel. (Id. at 13:24–14:3.)

In May 2012, Medical Protective was still determined to proceed to trial. (Id. at 18:23–19:2.) In July 2012, Decker sent a letter to Pieseski and Carroll to demand that the case be settled within the policy limits. (Id. at 20:24–21:19.) In a pretrial report dated April 8, 2013, Pieseski estimated the chance of a defense verdict as fifty percent with respect to the standard of care and sixty percent with respect to causation. (Marshall Dep. 18:3–7.) On April 15, 2013, Pieseski sent Ball and Marshall a letter advising them that, due to new evidence from the claimant's expert witnesses, the chance of a successful defense verdict on causation was reduced to forty percent. (Pieseski Dep. 24:20–25:18.) The judge assigned to the trial declined to hold a hearing on challenges to the claimant's experts and deferred ruling on the admissibility of the expert evidence until trial. (Ball Dep. 42:3–11.) Around that time, Ball spoke to McMahon on the phone. (Id. at 43:21–23.) McMahon again expressed her desire that the case be settled. (Id. at 44:17–21.) Ball told McMahon that Medical Protective would attempt to settle the case at an upcoming mediation, but she should prepare for the possibility of a trial. (Id. at 44:22–25.)

A mediation session was set for April 20, 2013, nine days before the scheduled trial date. Internally, Medical Protective “moved from defend to settle.” (Id. at 59:9–10.) In an e-mail to Ignasiak and Ball, dated April 18, 2013, Kenesey authorized settlement up to the full policy limit of $2 million, although he stated the case “should be brought in for far less.” (Id. at 54:22–56:15.) In turn, Ignasiak gave Ball settlement authority of $1.5 million. (Id. at 57:18–25.) Ball told Marshall, who would attend the mediation as Medical Protective's representative, that they had $1.5 million to settle the case. (Id. at 59:11–60:12.) Ball did not tell Marshall that Kenesey had internally authorized the full policy limit. (Id. ) Ball did not tell Carroll or Pieseski the amount of his settlement authority. (Id. ) Medical Protective's normal practice was not to inform defense counsel of its settlement limits. (Pieseski Dep. 27:2–28:19.) Marshall did not divulge his settlement authority until he had reached it, even when asked by Decker. Marshall's practice with respect to mediation was not to tell anyone what his authority was until he had extended it. (Marshall Dep. 29:21–30:11.)

B. The Mediation Session

Present at the mediation for the defense side were claims manager Marshall, defense counsel Pieseski and Carroll, McMahon, and McMahon's personal attorney Decker. (Pieseski Dep. 30:10–16.) Medical Protective made an opening offer of $500,000, and the claimant's response to that offer was $1,975,000. (Carroll Dep. 68:1–21.) The negotiations proceeded “[i]ncredibly slowly.” (Marshall Dep. 32:3.) Medical Protective made a series of offers, increasing from $1.1 million to $1.2 million and then $1.3 million. The claimant's response to the $1.3 million offer was a demand for $1.91 million. (Carroll Dep. 69:5–9.)

Because of the large gap between the parties and Marshall's unwillingness to disclose his settlement authority, Decker called Ball while the $1.3 million offer was on the table to find out what Medical Protective was willing to pay and to urge settlement. (Decker Dep. 6:18–25, Feb. 28, 2014, ECF Nos. 37–4, 49–4.) Ball testified he was “uncomfortable” sharing with Decker what Medical Protective was willing to pay to settle the lawsuit because it seemed that Decker was potentially in discussion with the claimant's counsel and Ball “didn't want the strength of [his] negotiating position compromised by anything that might be said advertently or inadvertently to [the claimant] or to the mediator.” (Ball Dep. 66:10–19.) During the conversations, Decker and Ball discussed the possibility that McMahon contribute her own money. Decker commented that if McMahon were to contribute her own money to the settlement, she would do so under protest and reserving her rights against Medical Protective. (Decker Dep. 8:1–9.) Ball told Decker that Medical Protective would prefer that McMahon not put in her own money. (Id. at 12:19–21.) Ball testified that, through Decker, he “urge[d]” McMahon not to contribute and to let negotiation “play its course.” (Ball Dep. 65:12–18.) Ball said, “[I]f you want to make a voluntary payment at your own expense, I can't stop you, but I would urge you not to.” (Id. at 65:21–24.) Ball told Decker that the case “doesn't have to settle today.” (Decker Dep. 21:23–24.) Decker asked whether Medical Protective would offer more than $1.3 million to settle closer to trial, and Ball said, “[N]o, that's it.” (Id. at 22:1.)

Sometime after Decker spoke with Ball, Marshall offered $1.5 million, which he described as “the full amount of my authority.” (Marshall Dep. 33:6–9.) While Medical Protective stuck to the $1.5 million offer, the claimant made several declining demands, first to $1.75 million and finally to $1.65 million. (Pieseski Dep. 33:20–25.) At that point, Marshall said, “I don't think it looks like we [are] going to get it done today.” (Marshall Dep. 35:19–24.) Marshall, who had to catch a flight, started gathering his things to leave. (Id. ) Pieseski sent an e-mail to a colleague at 5:29 p.m. that said the case had not settled and they were concluding for the day. (Pieseski Dep. 34:1–23.)

During the mediation, McMahon began to consider contributing her personal funds to the settle the case. The parties dispute who first suggested this idea. McMahon testified that, during an impasse in the negotiations, Carroll asked Decker and her whether she had considered contributing her own money to facilitate a...