Missouri Medical Ins. Co. v. Wong, 55531

• Decision Date: 24 January 1984
• Docket Number: No. 55531,55531
• Citation: 676 P.2d 113,234 Kan. 811
• Parties: MISSOURI MEDICAL INSURANCE COMPANY, Plaintiff-Appellant/Cross-Appellee, v. David WONG, M.D., Defendant-Appellee/Cross-Appellant, Lynn Eugene Cleveland, Jack Jacobson, and Fletcher Bell, Commissioner of Insurance, as Administrator of the Health Care Stabilization Fund, Defendants-Appellees.
• Court: Kansas Supreme Court

Page 113

676 P.2d 113

234 Kan. 811

MISSOURI MEDICAL INSURANCE COMPANY, Plaintiff-Appellant/Cross-Appellee, v. David WONG, M.D., Defendant-Appellee/Cross-Appellant Lynn Eugene Cleveland, Jack Jacobson, and Fletcher Bell Commissioner of Insurance, as Administrator of the Health Care Stabilization Fund Defendants-Appellees.

No. 55531.

Supreme Court of Kansas.

Jan. 24, 1984.

Syllabus by the Court

1. Where a policy of insurance is issued to an insured in compliance with the requirement of a statute, the pertinent provisions of the statute must be read into the policy, and no provisions of the policy in contravention of the statute can be given effect.

2. Because medical malpractice insurance is compulsory, the terms of the Kansas Health Care Provider Insurance Availability Act (K.S.A. 40-3401 et seq. ), become a part of any contract of professional liability insurance which insures a health care provider practicing in Kansas, and to the extent that the provisions of the policy contradict the terms of the act, the terms of the act are controlling with respect to the Kansas practice.

3. Since K.S.A. 40-3402 requires claims made coverage to be provided in a medical malpractice insurance policy, a policy which insures a health care provider practicing in Kansas must be construed to provide claims made coverage, notwithstanding the policy, as written, is an occurrence form policy.

4. Where an insurance company denies coverage and the duty to defend under a medical malpractice insurance policy and brings a declaratory judgment action against the insured to determine that issue, the insured is entitled to recover attorney fees and expenses incurred in defense of the declaratory judgment action if it is determined that there is coverage and a duty to defend.

5. Where the Health Care Stabilization Fund is forced to defend a medical malpractice claim because of the wrongful refusal of the primary insurance carrier to defend against the claim, the Fund is entitled to recover the amount paid to settle the claim to the extent of the latter's policy limits and also attorney fees and expenses incurred in defending against the claim.

Raymond L. Dahlberg, of Turner & Boisseau, Chartered, Great Bend, argued the cause, and Steven C. Day and James T. McIntyre, Wichita, were on briefs, for appellant.

J. Michael Gillaspie, of Jochems, Sargent & Blaes, P.A., Wichita, argued the cause, and Alan D. Herman, Wichita, of the same firm, was with him on brief, for defendant-appellee/cross-appellant, Dr. David Wong.

Edward J. Hund, of Smith, Shay, Farmer & Wetta, of Wichita, argued the cause, and Michael A. Rump, Wichita, of the same firm, and David M. Hall, of Hall & Hall, Anthony, were with him on brief, for defendant-appellee, Lynn Eugene Cleveland.

Michael J. Dutton, Sp. Asst. Atty. Gen., argued the cause, and was on brief, for defendant-appellee, Fletcher Bell.

PRAGER, Justice:

This is an action brought by the plaintiff, Missouri Medical Insurance Company (MoMedico), for a declaratory judgment seeking cancellation and construction of a medical malpractice insurance policy issued to the defendant, Dr. David Wong. Plaintiff joined as additional defendants, Lynn Eugene Cleveland and Jack Jacobson, former patients of Dr. Wong, who had filed medical malpractice actions against Wong, and Fletcher Bell, Commissioner of Insurance, as administrator of the Health Care Stabilization Fund. MoMedico alleged in its petition that it had cancelled Wong's policy of professional liability insurance as of the date of issuance for material misrepresentations made in his application, and further alleged that the policy, as issued, covered only acts of negligence which occurred during the term of the policy rather than for claims made during the policy period. Defendant Wong filed a counterclaim seeking a determination that MoMedico was precluded from cancelling his medical professional liability insurance ab initio, and that the provisions of the Kansas Health Care Provider Insurance Availability Act (K.S.A. 40-3401 et seq. ) require the policy to be construed as a claims made policy rather than an occurrence policy. Defendant Wong also claimed he was entitled to recover actual and punitive damages from MoMedico arising out of its attempted cancellation of the policy, and that he was also entitled to recover attorney fees from MoMedico incurred in the defense of the declaratory judgment action. The other named defendants also filed counterclaims which will be discussed later in the opinion.

The matter came regularly on for trial on November 1, 1982. Counsel for MoMedico made his opening statement. Counsel for defendant Wong then moved for a directed verdict and for judgment as a matter of law. The trial court interpreted the motion as a motion for summary judgment, and entered summary judgment in favor of Dr. Wong. A hearing was then held on November 2, 1982, on the issues raised in the defendants' counterclaims. MoMedico has appealed from the judgments entered in favor of the various defendants. Defendant Wong filed a cross-appeal claiming that the district court erred in disallowing certain elements of damage claimed by Wong in his counterclaim.

The basic facts in this case were either stipulated or undisputed and are as follows: Defendant David Wong, M.D., began practicing medicine in the state of Kansas on or about July 1, 1975. At all times, he maintained professional medical liability insurance coverage as required by the Kansas Health Care Provider Insurance Availability Act (K.S.A. 40-3401 et seq. ). St. Paul Fire & Marine Insurance Company advised Wong that it would not renew his professional liability insurance policy when it expired on June 30, 1980. On July 28, 1980, Wong purchased a policy of professional liability insurance from MoMedico which took effect on that date. The policy was purchased by Wong in person at MoMedico's office in St. Louis, Missouri. On his application for insurance, Dr. Wong listed both a Wichita address and a Cameron, Missouri, address. Thus on July 28, 1980, when it issued the policy, MoMedico's agents knew that Wong had both a Kansas and Missouri address. The insurance binder was mailed to Wong at his Wichita address. The policy was mailed to Dr. Wong at his Cameron, Missouri, address. The policy purchased by Dr. Wong provided professional liability insurance coverage and limits of $1,000,000 for each claim with a $1,000,000 annual aggregate. The policy was an occurrence form policy rather than a claims made policy. MoMedico knew at the time the policy was issued that Dr. Wong would render some professional care to persons in Kansas. For the basic coverage in Missouri, Dr. Wong paid a quarterly premium of $721, and for Kansas coverage he paid a quarterly premium of $72.10. Thereafter, Dr. Wong continued to render some medical services in Kansas until September 5, 1980. As of July 28, 1980, Dr. Wong had not received any written notice of any claim being made against him by anyone. Defendant Jack Jacobson filed a medical malpractice suit against Wong on September 11, 1980. Defendant Lynn Eugene Cleveland filed a medical malpractice suit against Wong on September 28, 1980. The alleged acts of negligence claimed in both of these suits occurred prior to July 28, 1980, the effective date of the MoMedico policy.

On October 8, 1980, after it became aware of the two claims, MoMedico attempted cancellation of the policy ab initio and tendered Wong the return of his premiums and surcharge payments. MoMedico refused to provide Dr. Wong insurance coverage or a defense to the Jacobson and Cleveland claims. MoMedico, in May 1978, had filed a "Non-Admitted Carrier Declaration of Compliance" form with the Kansas commissioner of insurance. This form states, in substance, that MoMedico declares that its professional liability policies wherever issued, shall be deemed to provide the insurance coverage required by K.S.A. 40-3402(a)(1), when the non-resident health care provider renders professional service as a health care provider in Kansas. It was stipulated by the parties that MoMedico never notified the Kansas insurance commissioner of either the issuance or cancellation of Dr. Wong's insurance policy.

Because MoMedico refused to provide Dr. Wong insurance coverage and a defense to the Jacobson and Cleveland claims, defendant Fletcher Bell, Commissioner of Insurance, as administrator of the Health Care Stabilization Fund, provided a defense to Dr. Wong in those cases under a reservation of rights. Defendant Bell, in his counterclaim against MoMedico, sought reimbursement for attorney fees and expenses and for the sum of $12,000 paid to Jacobson in settlement of his malpractice claim against Dr. Wong. At the time the judgment in this case was entered in district court, the Cleveland action against Dr. Wong was still pending.

As a basis for the cancellation of Dr. Wong's policy, MoMedico claimed that Dr. Wong misrepresented his place of residence, continued to practice medicine in Kansas after indicating that he would be concluding his Kansas practice, failed to inform plaintiff that claims were being made against him, and neglected to inform MoMedico that Wong had been insured by Western Casualty & Surety Company. Prior to cancellation of Dr. Wong's policy, MoMedico's manager conducted an investigation of Dr. Wong. That investigation did not disclose any acts of wrongdoing whatsoever on the part of Dr. Wong nor disclose any facts justifying cancellation of the policy. Following this investigation, MoMedico decided to cancel Dr. Wong's policy from the date of issuance and, thereafter, instituted this declaratory judgment action. When the case came on for trial, the district court granted judgment in favor of all defendants on plaintiff's claims following MoMedico counsel's opening statement. This judgment was granted upon the motion of Dr. Wong's counsel for a "directed verdict or for judgment as a matter...