Med. Assurance Co. Inc v. Hellman

• Decision Date: 21 June 2010
• Docket Number: No. 08-2887.,08-2887.
• Citation: 610 F.3d 371
• Parties: MEDICAL ASSURANCE COMPANY, INC., Plaintiff-Appellant,v.Amy HELLMAN, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

610 F.3d 371

MEDICAL ASSURANCE COMPANY, INC., Plaintiff-Appellant,v.Amy HELLMAN, et al., Defendants-Appellees.

No. 08-2887.

United States Court of Appeals Seventh Circuit.

Argued Oct. 29, 2009.

Decided June 21, 2010.

Michael A. Dorelli, Attorney, Hoover Hull LLP, Indianapolis, IN, David C. Jensen, Attorney (argued), Eichhorn & Eichhorn, Hammond, IN, for Plaintiff-Appellant.

Arend J. Abel, Attorney, Kelley J. Johnson, Attorney, Cohen & Malad, A. Richard Blaiklock, Attorney (argued), Lewis & Wagner, Indianapolis, IN, for Defendants-Appellees.

Before FLAUM, MANION, and WOOD, Circuit judges.

WOOD, Circuit Judge.

Dr. Mark Weinberger maintained a prosperous ear, nose, and throat practice (commonly called “ENT” by people whose first loyalty is not to J.R.R. Tolkien) in Merrillville, Indiana. Unfortunately, that was not enough for him; he supplemented his income by using his practice to defraud numerous insurance companies of millions of dollars. In September 2004, while vacationing with his wife in Greece, Weinberger “went for a run” and did not come back. At the time, it seemed that Weinberger had no intention of returning to the United States, in all likelihood because he was facing $5.7 million in creditor claims and 22 criminal counts of billing fraud upon his return. The U.S. government took various steps, including having an international arrest warrant issued, to locate Weinberger. The parties have informed us that Weinberger was arrested in Italy in December 2009, he has been extradited to the United States, and he is now facing health care fraud charges in the Northern District of Indiana. These facts, however, are of only peripheral concern to us for the present case.

Criminal charges are not the only allegations pending against Weinberger. He is also facing more than 350 medical malpractice claims, most of which were filed after his disappearance. These claims have been proceeding through Indiana's medical malpractice process. Weinberger's medical malpractice insurance carrier, the Medical Assurance Company, Inc. (“Medical Assurance”), has been conducting his defense, but Weinberger's disappearance prompted it to file this suit. The insurance contracts between Medical Assurance and Weinberger include a typical cooperation clause, which requires Weinberger to participate in his defense. Needless to say, Weinberger was not cooperating during his extensive European “vacation.” Frustrated, Medical Assurance brought a declaratory judgment action in federal court in Indiana asking the court to declare that Weinberger breached his responsibilities under the contract and therefore Medical Assurance no longer has a duty to defend or indemnify him.

The district court was concerned that such a declaration would intrude too severely on the state medical malpractice actions. It thought that Medical Assurance could not show that Weinberger's lack of cooperation was prejudicing the company without improperly interfering with the state cases. It therefore decided to refrain from going forward pending the resolution of the state court proceedings, and it issued a stay of the federal proceedings. In this appeal, Medical Assurance argues that the court erred in doing so and that it should have proceeded to resolve the merits of the declaratory judgment action. We conclude that Medical Assurance is correct. Although district courts enjoy some discretion over requests for declaratory judgments, that discretion is not unlimited. We therefore remand this case to the district court with instructions to lift the stay and to proceed to the merits. In so doing, the court will be able to take into account Weinberger's return to Indiana and any other pertinent developments.

I

Before turning to the specifics of the appeal, we review the more prosaic facts that led to this litigation. Over the years, Weinberger saw hundreds of patients, and not all of them were happy with the care they received. In June 2004, dissatisfied customers filed the first relevant medical malpractice claims. As mentioned above, Weinberger vanished in September 2004; by then, only three cases had been filed. After his disappearance became public, however, the number of malpractice claims ballooned to more than 350.

Indiana's medical malpractice insurance system is governed by statute. In 1975, Indiana adopted a comprehensive system to regulate medical malpractice insurance and claims. See Ind.Code §§ 34-18-1-1 to -18-2. The Medical Malpractice Act (“the Act”) offers certain benefits, including a limitation on liability, to qualified providers who meet statutorily-defined requirements, such as holding malpractice insurance above prescribed levels. Qualified providers contribute funds to the Indiana Patient's Compensation Fund (PCF), which is then available to pay any damages over the statutory threshold, as well as damages that the doctor and his insurance provider fail to pay. See id. §§ 34-18-6-1, -15-3 & -15-4. As the payor of last resort, PCF has an interest in this case; it is represented by the defendant Commissioner of the Indiana Department of Insurance and Administrator of the PCF (an office that was held by James Atterholt at the time suit was filed, but that is now filled by Carol Cuttet-we refer simply to “the Commissioner”).

The Act also introduced a new procedural mechanism for medical malpractice claims. In brief, it provides that a medical review panel must issue an opinion on every medical malpractice claim before that claim may be pursued in Indiana courts. Id. § 34-18-8-4. Complaints are filed with the Indiana Department of Insurance (IDOI) and, after 20 days, any party may request the formation of a medical review panel, which is made up of three independent (volunteer) physicians. Id. § 34-18-10-2. The panel issues an opinion on the merits ( e.g., the doctor's compliance with the standard of care, causation, damages). Id. § 34-18-10-22. The panel's decision is not binding, but it is admissible as evidence in the state court action. Id. § 34-18-10-23.

We are aware of only four cases in which medical review panels have rendered opinions on claims against Weinberger: three concluded that damages should not be available, and one found substandard care and nonpermanent injuries. Only those four cases have moved from the review-panel stage to an actual lawsuit in state courts. None of the cases has proceeded to judgment. Weinberger's absence from the country for more than five years already has had consequences in these cases; as a result of his failure to cooperate with the medical review panel process, the Lake County Superior Court entered an order in 2006 prohibiting him from testifying in the medical review panel proceedings or in the subsequent state court trial proceedings. As far as the record before us shows, its order applies to at least 285 of the pending claims.

Between 1996 and 2004, Medical Assurance provided professional liability insurance coverage to Weinberger and his businesses under various policies. The contractual provisions relevant to this appeal are the same in of the policies. They provide that Medical Assurance has a duty to defend and indemnify Weinberger, but Medical Assurance is relieved of those duties if Weinberger violates the policy's cooperation clause, which is found in Paragraph 5 of the General Conditions and Requirements for each policy and reads as follows in relevant part:

[The insured] must fully cooperate with Medical Assurance and defense counsel in the investigation, handling, and defense of the legal proceeding. [ The insured's] duty to cooperate includes, but is not limited to:

• When requested, attendance at and preparation for meetings, hearings, depositions, and trials;

• Securing and providing evidence and assisting in obtaining the attendance of witnesses;

• Truthfully and completely informing Medical Assurance about the facts and circumstances which surround any professional incident or legal proceeding and, specifically, the nature of [the insured's] acts or omissions, so that Medical Assurance may correctly assess liability;

• Supplementing the information previously provided to Medical Assurance or defense counsel as additional information becomes known to [the insured].

This clause underlies Medical Assurance's request for declaratory relief. We turn now to the procedural history of that claim in its federal court action.

II

ProNational Insurance Company (“ProNational”) filed the original complaint in this case on August 1, 2006. On November 1, 2006, Medical Assurance, an affiliate of ProNational, filed an amended complaint in its own name. Medical Assurance is an Alabama corporation with its principal place of business in Alabama. It named as defendants the more than 300 claimants in the Indiana medical malpractice proceedings, the Commissioner, Weinberger himself (a citizen of Illinois), and four “Entity defendants” through which Weinberger practiced: Mark S. Weinberger, MD, PC (an Indiana professional corporation with its principal place of business in Merrillville, Indiana); plus three limited liability corporations-the Nose and Sinus Center, LLC, the Merrillville Center for Advanced Surgery, LLC, and the Subspecialty Centers of America, LLC-all of which had Weinberger as their sole member and were thus Illinois citizens. (We refer to Weinberger and the Entity defendants collectively as the “Weinberger defendants.”)

Medical Assurance's amended complaint asks the court to issue the following declaratory judgment (we quote here from the document):

1. That Weinberger has failed and refused to assist and/or cooperate with the defense of the Claims [meaning the individual malpractice claims];

2. That Weinberger's failure to assist and cooperate in the defense of the Claims constitutes a material breach of the contracts of insurance between the Weinberger Defendants and Medical Assurance ...;

3. That Medical Assurance has been prejudiced by Weinberger's failure and refusal to assist and/or

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