Medical Malpractice Joint Underwriting Ass'n of Massachusetts v. Goldberg

• Decision Date: 19 May 1997
• Citation: 680 N.E.2d 1121,425 Mass. 46
• Parties: The MEDICAL MALPRACTICE JOINT UNDERWRITING ASSOCIATION OF MASSACHUSETTS v. Harold L. GOLDBERG & others. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1121

680 N.E.2d 1121

425 Mass. 46

The MEDICAL MALPRACTICE JOINT UNDERWRITING ASSOCIATION OF MASSACHUSETTS v. Harold L. GOLDBERG & others. ¹

Supreme Judicial Court of Massachusetts Suffolk.

Argued Jan. 9, 1997.

Decided May 19, 1997.

Steven L. Schreckinger, Boston, for plaintiff.

Edward J. Barshak, Boston (Keith S. Brown, with him), for Harold L. Goldberg.

Alan J. Cooke, Boston, for Massachusetts Insurers Insolvency Fund.

Before O'CONNOR, GREANEY, FRIED and MARSHALL, JJ.

MARSHALL, Justice.

The Medical Malpractice Joint Underwriting Association of Massachusetts (JUA) seeks reimbursement from a policyholder, psychiatrist Harold L. Goldberg, for the amount that JUA paid to Jessie Witherspoon, a former patient of Goldberg, to settle a judgment she obtained against him. ² The trial judge concluded that JUA had breached its duty to defend Goldberg in the Witherspoon action. He further concluded that JUA was precluded from reimbursement because Goldberg had not authorized the settlement with Witherspoon and because, he found, JUA had reached a settlement with Witherspoon to protect its own interests. Judgment for the defendants was entered, and JUA's complaint was dismissed. JUA timely filed its notice of appeal, and we allowed its application for direct appellate review. We affirm the judgment.

I

We summarize in some detail the facts surrounding Witherspoon's charges against Goldberg and, more particularly, JUA's ultimate settlement of her lawsuit. From May 1, 1976, until November 1, 1989, Goldberg was insured by a series of professional liability insurance policies issued by JUA. ³ Each policy provided coverage in the amount of $1 million per claim and $3 million in the aggregate. ⁴ Between August 9, 1982, and February 12, 1985, Goldberg was also insured under a series of excess policies issued by American Universal; each policy provided insurance up to $3 million per claim in excess of the underlying JUA policy limits.

In January, 1988, Witherspoon, a former psychiatric patient of Goldberg, sued for unspecified damages for injuries allegedly caused by Goldberg's sexual misconduct toward her. ⁵ On February 3, 1988, Goldberg informed JUA of Witherspoon's lawsuit. An internal report from a JUA claim supervisor that same day noted that "this psych[iatrist] allegedly had sex with patient" and that, "[i]f allegation is true, we will not indemnify." JUA, thereupon, informed Goldberg that it would provide him "with a defense to the claims asserted by Jessie Witherspoon," but, it noted, the defense would be provided to him "subject to the express reservation of the JUA's right to disclaim coverage of the claims" asserted against him. ⁶

JUA retained the law firm of Bloom & Buell to defend Goldberg ⁷; William J. Davenport assumed the primary responsibility for Goldberg's defense in the Witherspoon matter. The record is clear that from the outset Goldberg sought to settle Witherspoon's claims and that he communicated that desire to JUA. ⁸ The record is equally clear that Davenport advised JUA that settlement with Witherspoon was called for. In his first report he advised JUA to settle the action, noting that "trial will be destructive to defendant." He noted that Goldberg "admits most of plaintiff's allegations"; he valued settlement at approximately $100,000-$300,000 and the chance of Goldberg's winning at trial at 10%. Neither Davenport nor JUA initiated settlement discussions with Witherspoon.

Several months later, in December, 1988, after Witherspoon had answered Goldberg's interrogatories, Davenport became even less optimistic. Davenport attempted--without success, to put it mildly--to identify an expert to testify that Goldberg had acted in accordance with the standard of the average qualified psychiatrist. Davenport noted in his report to JUA that, even if he could find such an expert, the jury would not believe the testimony: it would "probably only be throwing gasoline on this blazing forest fire." There were still no settlement discussions with Witherspoon. ⁹

In mid-1989, Witherspoon retained new counsel with expertise (and national experience) in the area of sexual misconduct claims. Witherspoon's new counsel sent Goldberg a letter as required by G.L. c. 93A, demanding $3 million in damages and other claims. On JUA's recommendation, the demand was summarily rejected. Witherspoon's new counsel promptly filed an amended complaint, seeking damages of $3 million, and adding claims under G.L. c. 93A. Shortly thereafter, on December 13, 1989, Witherspoon made her first settlement demand. ¹⁰ In light of Goldberg's deposition testimony, Witherspoon's new counsel noted, "[l]iability appears to be absolute." Witherspoon demanded $1 million or the limit of Goldberg's malpractice insurance policy. ¹¹

On receiving Witherspoon's demand, Goldberg's counsel again conferred with JUA; he was instructed to make no offer of settlement. ¹² Consequently, no response was sent to Witherspoon. In the meantime, Goldberg had become concerned about the refusal of JUA to authorize any offer of settlement to Witherspoon. In February, 1990, in response to an inquiry from Goldberg's personal attorney, Edward J. Barshak, JUA informed Barshak that it was "considering making" an offer of $50,000, but only if Goldberg would contribute 50%. In reply Barshak wrote to JUA: "[W]ith all the firmness that I can bring to the matter, I submit to you that you have an obligation to Dr. Goldberg to try to settle this case within the policy limits. Further, there is no good faith basis for a failure of your company to carry out that obligation."

Barshak's letter also initiated an exchange of correspondence that took place between February and December, 1990, in which JUA and Goldberg each resolutely maintained their respective views with respect to whether the JUA policies covered the Witherspoon claims against Goldberg. ¹³ JUA did acknowledge that it was in Goldberg's interest to settle the matter. ¹⁴ Three weeks later, in March, 1990, at a pretrial conference in the Superior Court, JUA responded to Witherspoon's settlement demand: Davenport informed the judge that he was not prepared to make any offer of settlement to Witherspoon. That same day--the record is not clear as to which came first--Barshak on behalf of Goldberg again wrote to JUA: "You ... have the obligation to settle the case within policy limits.... Dr. Goldberg hereby agrees and hereby expresses to you through me that if you settle the case, the settlement will not be considered a waiver of your reservation of rights (for whatever value the reservation may have). Therefore, please proceed and settle the case." ¹⁵ JUA finally authorized an offer to Witherspoon of $150,000 to settle the case. Witherspoon responded by demanding $2 million. There was no response to this demand from JUA.

In April, 1990, as the commencement date of the trial approached, JUA prepared an internal "large claim" report, which noted that, "if it appears that the plaintiffs [sic ] are interested in settlement we would attempt to dispose of the case for a settlement in the area of $350,000." No offer was communicated to Witherspoon. The trial began on April 26, 1990. Four days later, while the trial was under way, Barshak again wrote to JUA demanding that JUA settle with Witherspoon. ¹⁶ No settlement was proffered. On May 2, 1990, a jury found that Goldberg's negligence was the proximate cause of damages to Witherspoon and awarded her $1,779,785 in damages. On June 14, 1990, the trial judge issued his findings of fact, rulings of law, and order of judgment on Witherspoon's G.L. c. 93A claim and ruled that G.L. c. 93A did not apply to the psychiatrist-patient relationship. He dismissed Witherspoon's statutory claim. ¹⁷

On July 24, 1990, JUA filed a complaint for declaratory judgment against Witherspoon, Goldberg, and American Universal. ¹⁸ In September, 1990, Goldberg counterclaimed and asserted claims for bad faith negligence in JUA's handling of the underlying lawsuit (with particular reference to its failure to settle the lawsuit), breach of contract coverage, G.L. c. 93A and G.L. c. 176D claims, and sought a declaration that the JUA policies covered the judgment and the potential judgment for G.L. c. 93A treble damages in the Witherspoon lawsuit.

In the interim both Goldberg and Witherspoon filed appeals in the Witherspoon lawsuit. Goldberg sought to reverse the judgment against him, and Witherspoon contested the judge's determination that G.L. c. 93A did not apply to the relationship between psychiatrist and patient. JUA retained new counsel to represent Goldberg on appeal. Appellate counsel advised JUA that Witherspoon's appeal posed unusual risks to JUA, ¹⁹ and recommended settlement. JUA then offered $1 million to settle all of Witherspoon's claims. Witherspoon rejected the offer. ²⁰

Shortly after learning of Witherspoon's rejection, Barshak wrote again to JUA and to American Universal. He expressed his concern about the continuing risk to Goldberg caused by the dispute between the two insurers, and urged them to contribute toward a fund necessary to settle Witherspoon's case "under an escrow arrangement" between them whereby they would be free to litigate against each other to the extent that either one paid funds which the other should have paid. Counsel for JUA responded the next day, to "restate" the coverage position of JUA. ²¹

In late April, 1991, Witherspoon informed JUA that she would settle her case for $1,875,000. JUA accepted her offer without any notice to or consultation with Barshak or Goldberg. Indeed, after the last letter to Barshak in December, 1990, there were no further communications to him from JUA. At the time JUA knew that Goldberg continued to insist that his professional liability insurance policies covered the judgment obtained by Witherspoon.

Subsequent to her settlement with JUA, Witherspoon executed a release of all claims against Goldberg, and...