Medical Protective Co. v. Bell, 86-0569-CV-W-1.

CourtUnited States District Courts. 8th Circuit. Western District of Missouri
Writing for the CourtJohn Hansen and Robert Kroenert of Morrison, Hecker, Kansas City, Mo., for defendant
Citation716 F. Supp. 392
PartiesThe MEDICAL PROTECTIVE COMPANY, Plaintiff, v. Fletcher BELL, Defendant.
Docket NumberNo. 86-0569-CV-W-1.,86-0569-CV-W-1.
Decision Date10 May 1989

716 F. Supp. 392

Fletcher BELL, Defendant.

No. 86-0569-CV-W-1.

United States District Court, W.D. Missouri, W.D.

May 10, 1989.

716 F. Supp. 393

Roger Geary, Shook, Hardy & Bacon, Kansas City, Mo., for plaintiff.

John Hansen and Robert Kroenert of Morrison, Hecker, Kansas City, Mo., for defendant.


WHIPPLE, District Judge.

This action for declaratory judgment has been submitted for resolution on the briefs as agreed by the parties. The parties filed their stipulation of facts on December 18, 1987. Plaintiff filed its trial brief on January 20, 1988. Defendant filed his trial brief on February 22, 1988. Plaintiff filed a reply brief on March 18, 1988. By letter dated August 17, 1988, defendant's counsel alerted the court to a recently decided case. Plaintiff's counsel responded to the letter in a letter dated September 7, 1988. On November 23, 1988, the court heard oral argument from the parties. For the reasons set forth below, the declaratory judgment sought by plaintiff will be entered in favor of plaintiff and against the defendant.

I. Statement of the Case

The plaintiff insurance company sued the defendant, who is administrator of the Kansas Health Care Stabilization Fund, to be indemnified for funds paid in excess of the coverage limits on two doctors. Specifically, the plaintiff wants to recover $515,000 paid in settlement of a medical malpractice suit against two doctors and the professional corporation that employed them. Plaintiff alleges that the professional corporation's liability is purely vicarious and, thus, the corporation is entitled to indemnity from the employee doctors. As the insurer for the corporation, plaintiff is attempting to subrogate the indemnity claim. The plaintiff paid $200,000 under the policies it issued to the two doctors ($100,000 limit for each).

Plaintiff claims that any money paid beyond the policy limit should be paid by the fund, which is the excess carrier for the doctors, rather than under the professional corporation's policy. Defendant responds that the three policies issued to the two doctors and the corporation all apply before the fund's excess coverage would be payable. Defendant argues that the policies' coverage was not exhausted by the settlement, so no excess coverage was payable.

This case presents an intriguing combination of questions concerning choice of laws, contract construction, statutory construction, contract law, tort law, and insurance law. In reaching its conclusions, the court has been aided by exceptionally well-prepared

716 F. Supp. 394
briefs from both parties. This court's conclusions, in short, are: (1) Missouri law applies here except where Kansas law will be used to construe Kansas statutes. (2) The professional corporation's liability is vicarious, so it is entitled to indemnity from its employee doctors. (3) The plaintiff, as the corporation's insurer, may subrogate the indemnity claim and thus obtain reimbursement directly from the fund

II. Statement of Facts

The plaintiff is incorporated in its principal place of business, Indiana, and is authorized to conduct insurance business in Missouri and Kansas. The defendant is the Kansas commissioner of insurance and as such is the administrator of the Kansas Health Care Stabilization Fund. The fund was created by the Kansas Health Care Provider Insurance Availability Act, Kan. Stat.Ann. § 40-3401 et seq. Andrew B. Kaufman, M.D., and Robert A. Morantz, M.D., are physicians licensed by the Missouri and Kansas Boards of Healing Arts. Both physicians resided in Kansas but were employed in Missouri by Arnold Schoolman, M.D., Ph.D., a Missouri professional corporation.

Under the Kansas statute, a health care provider who resides in Kansas carries insurance for at least $100,000 per occurrence. The Kansas fund then pays any amount of a judgment or settlement in excess of the basic $100,000 coverage, even if the alleged incidents occurred outside Kansas. However, if any liability insurance in excess of the $100,000 amount is applicable to any claim, or would be applicable in the absence of the Kansas fund, "payments from the fund shall be excess over such amounts paid, payable, or that would have been payable in the absence of" the fund. Kan.Stat.Ann. § 40-3408.

Plaintiff issued separate policies of professional liability insurance to Drs. Kaufman and Morantz, each limited to $100,000 per occurrence. Plaintiff also issued a separate policy to the corporation, limited to $1,000,000 per occurrence. The three policies were in force during the relevant time. Also at that time, Drs. Kaufman and Morantz were Kansas resident health care providers within the meaning of the Kansas Act.

A civil action, styled Allen v. Morantz, et al., was filed on July 20, 1983, in Jackson County, Missouri, Circuit Court, wherein damages were sought from Drs. Kaufman and Morantz, and from the Schoolman corporation. Essentially the petition alleged medical malpractice concerning services rendered in Missouri by the two doctors within the course and scope of their employment by the Schoolman corporation.

On March 31, 1986, Gerald D. Ediger, territorial manager for plaintiff's law department, discussed the Allen case with Derenda J. Mitchell of the Kansas fund. Ediger demanded that the fund assume responsibility for all amounts sought from Drs. Kaufman and Morantz which exceeded the limits of the policies issued to them by plaintiff. Mitchell responded that the fund would pay only the excess over the combined limits for the three policies issued to Drs. Kaufman and Morantz and to the Schoolman corporation. The discussion was memorialized in a letter dated April 1, 1986, from Ediger to Mitchell.

Having been informed of the fund's intention not to contribute until the three policy limits were exhausted, plaintiff herein negotiated and entered a settlement of all claims against plaintiff's insureds (Kaufman, Morantz, and Schoolman corporation) on March 31, 1986. Plaintiff herein agreed to pay $715,000 under the coverage of the three policies. The amount includes the limit of $100,000 from each of the two doctors' coverage, and the remaining $515,000 from the coverage of the corporation. The Kansas fund was not a party to the negotiations or to the settlement.

The plaintiff herein did not obtain the consent or agreement of the fund that the settlement payment would not be a waiver of any claim of the plaintiff against the fund. The release signed by the Allen plaintiff said Medical Protective, by tendering payment of sums in excess of the two doctors' insurance limits, was not assuming "volunteer status."

716 F. Supp. 395

On March 31, 1986, plaintiff filed its original petition for declaratory judgment against defendant in Jackson County, Missouri, Circuit Court. The action was removed here by defendant Bell on May 2, 1986.

On April 11, 1986, the plaintiff herein paid $200,000 directly to the Allen case plaintiff and deposited the remaining $515,000 with the court administrator of Jackson County Circuit Court. On April 11, 1986, the circuit court directed the circuit court clerk to pay that amount to the Allen plaintiff.

The plaintiff herein is not seeking reimbursement and recovery from the fund for the $200,000 paid under the policies issued to Drs. Morantz and Kaufman. Rather, the plaintiff seeks reimbursement for the $515,000 paid pursuant to the policy issued to the Schoolman corporation. The fund has refused to provide coverage and/or indemnification for the $515,000, which is the amount by which payment exceeded the limit of coverage of the two doctors.

The fund has no independent knowledge upon which to ascertain the reasonableness of the Allen settlement amount. However, the fund does not contest the reasonableness of the amount.

III. Discussion

A. Parties' Arguments

1. Plaintiff's Argument

The plaintiff's argument takes several steps to reach its conclusion that it is entitled to reimbursement of the settlement amount paid on behalf of the Schoolman corporation. To begin, plaintiff urges application of Missouri law which, plaintiff argues, supports its approach to the flow of liability and to the duty to pay. First, if the corporation is vicariously liable, then the corporation would pay damages exceeding the primarily liable physicians' coverage. Second, if the corporation pays, then it would be entitled to indemnity from its primarily liable employee physicians. Third, if the corporation is entitled to indemnity, then the physicians would reimburse the corporation. Fourth, if the physicians' insurance coverage is exhausted, the excess insurance carrier (the Kansas fund) would reimburse the corporation.

Plaintiff asserts that, as the corporation's insurer, it may subrogate the corporation's indemnity claim. If the plaintiff can subrogate, then the primarily liable physicians would reimburse the plaintiff for amounts paid by plaintiff on behalf of its insured corporation. If the physicians' basic coverage is exhausted, then the excess insurance carrier would reimburse the plaintiff.

2. Defendant's Argument

Defendant relies upon alternative theories, based upon his belief that Kansas law controls. First, the corporation is directly, not vicariously, liable for damages. If the corporation is directly liable, then it is not entitled to indemnity from the employee physicians. If the corporation cannot be indemnified, then the physicians' excess insurance would not apply and the corporation's own insurer (plaintiff) would pay the damages. Furthermore, the corporation is not covered by the Kansas statute, so the defendant would not be liable for excess coverage even if the corporation's basic coverage were exhausted.

Second, if the corporation is vicariously liable, then plaintiff still would pay the damages under the terms of its policy because plaintiff agreed to pay for vicarious liability. Further, even if the corporation were...

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3 cases
  • Jefferson Ins. Co. v. Health Care Ins. Exchange
    • United States
    • New Jersey Superior Court – Appellate Division
    • April 4, 1991 avoid contribution to the settlement on the grounds that he did not participate in negotiating it" (Medical Protective Co. v. Bell, 716 F.Supp. 392, 405 (W.D.Mo.1989), rev'd on the other grounds, 912 F.2d 244 (8th Cir.1990)); and because public policy should "encourage insurance companie......
  • Medical Protective Co. v. Bell, 89-1976WM
    • United States
    • United States Courts of Appeals. United States Court of Appeals (8th Circuit)
    • October 3, 1990
    ...of section 40-3408. The district court thus held the Act presented no barrier to the Fund's payment of the doctors' excess liability. 716 F.Supp. 392. As a federal court interpreting a state statute, we are " 'bound by the construction given the statute by the highest court within the state......
  • Wright v. Minter, 89-6117-CV-SJ-8.
    • United States
    • United States District Courts. 8th Circuit. Western District of Missouri
    • May 15, 1990
    ...of action and determine which state "has the most significant contacts" with the lawsuit. Id. Accord Medical Protective Co. v. Bell, 716 F.Supp. 392, 396 (W.D.Mo.1989); Carver v. Schafer, 647 S.W.2d 570, 576 In performing this balancing, the court must consider "(a) the place where the inju......

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