Norcal Mutual Insurance Co. v. Newton

Decision Date10 October 2000
Docket NumberNo. A086152.,A086152.
Citation84 Cal.App.4th 64,100 Cal.Rptr.2d 683
PartiesNORCAL MUTUAL INSURANCE COMPANY, Plaintiff and Appellant, v. Nancy NEWTON, Defendant and Respondent.
CourtCalifornia Court of Appeals Court of Appeals

Blaise S. Curet, Stephen R. Wong, Sinnott, Dito, Moura & Puebla, San Francisco, CA, Attorneys for Appellant.

A. Charles Dell'Ario, Steven B. Piser, Oakland, CA, Attorneys for Respondent.

KLINE, P.J.

NORCAL Mutual Insurance Company (NORCAL) appeals from the trial court's denial of its petition to compel arbitration a dispute with respondent Nancy Newton. NORCAL maintains the petition should have been granted because respondent was required to arbitrate by the language of the medical malpractice insurance policy it issued to respondent's late husband, by respondent's acceptance of the benefits of the policy, and by respondent's initiation of arbitration against NORCAL. We conclude the trial court's order must be reversed.

STATEMENT OF THE CASE AND FACTS

Dr. Harvey Newton, a psychiatrist, was covered under a medical malpractice insurance policy extended by appellant NORCAL. He and respondent, his wife, were sued in a malpractice action by a husband and wife who had each been in individual therapy with Dr. Newton and had been in couples' therapy with Dr. and Mrs. Newton that included allegations of sexual misconduct by Dr. Newton and unauthorized treatment of patients by respondent. The plaintiffs alleged that Dr. Newton became involved in a sexual relationship with the plaintiff wife, allowed and failed to supervise the treatment of the plaintiffs by respondent, who was not a therapist, and inappropriately treated the plaintiff husband. The plaintiffs alleged that respondent treated the plaintiffs despite not being a therapist, violated her professional relationship by blaming the plaintiff wife for the sexual relationship with Dr. Newton and for breaking up the Newtons' family life and by inappropriately terminating therapy, and threatened to tell the plaintiff husband about the alleged sexual relationship. According to a letter by Dr. Newton's attorney, Dr. Newton acknowledged that the plaintiff wife had told him she had fallen in love with him and acknowledged having occasional meetings with her outside of the office, but denied any overt sexual activity.1

On March 27, 1996, attorney James Murphy tendered the malpractice complaint to NORCAL for defense and indemnity "[o]n behalf of Dr. Newton and Nancy Newton." Murphy's letter stated that if NORCAL decided to provide a defense under a reservation of rights, Dr. Newton requested that Murphy's firm be appointed pursuant to Civil Code section 2860.2 On April 23, 1996, NORCAL agreed to defend Dr. Newton. According to the allegations of NORCAL's subsequent petition to compel arbitration and the declaration of NORCAL's counsel, NORCAL "agreed to defend DR NEWTON and MRS. NEWTON on an interim basis, subject to further investigation and a reservation of rights, including the right to decline to pay or indemnify any settlement and to seek reimbursement of all fees and costs associated with the defense of the [plaintiffs'] action."3

On October 14, 1996, NORCAL's counsel, Blaise S. Curet, wrote respondent a 23 page letter, informing her that NORCAL agreed to provide her with a defense in the malpractice action pursuant to a reservation of rights and setting forth NORCAL's understanding of the claims against the Newtons and relevant portions of the insurance policy. Among other things, NORCAL explained that the insurance policy extended coverage for "an occurrence involving direct patient treatment" by Dr. Newton and by "health care extenders" for whom Dr. Newton was legally responsible, provided the extender had been approved by NORCAL and an endorsement had been issued extending coverage for the claim. NORCAL stated that respondent had not been endorsed as a health care extender under Dr. Newton's insurance policy and that Dr. Newton's application for insurance did not identify respondent as having any role in his practice. The letter stated: "The NORCAL policy does not extend coverage to you. However, NORCAL will provide you with a defense under Dr. Newton's policy based upon a reservation of rights. Please be advised that NORCAL will provide a defense only to you, and will not indemnify you for any of the claims asserted by the [plaintiffs]." NORCAL further stated that "only a single limit of liability is available for the claims asserted by the [plaintiffs] against you and Dr. Newton" and that the "limits of liability will potentially apply only for indemnity for Dr. Newton, and not you." NORCAL stated that it would defend a claim containing allegations of sexual misconduct or sexual activity, but would not pay damages for such a claim on behalf of Dr. or Mrs. Newton, and that on a claim describing sexual misconduct or sexual activity as well as another theory of liability, NORCAL would pay damages "only for the portion of the claim completely unrelated to sexual misconduct or sexual activity and only on behalf of Dr. Newton, not you." NORCAL further indicated there might be grounds for rescission of the insurance policy based on Dr. Newton's failure to report on his application that he practiced with non-physician health care providers.

On October 18, 1996, on behalf of Dr. and Mrs. Newton, Murphy reiterated a previously stated demand that NORCAL settle the malpractice action for the policy limits ($1,000,000).4 On November 13, NORCAL informed Murphy that both the insurance policy and the Business and Professions Code required Dr. Newton's written consent to settle. NORCAL provided an authorization which stated that Dr. Newton authorized the settlement and understood all settlements had to be reported by NORCAL to the National Practitioner Data Bank (data bank) and were also reported to the Medical Board of California. NORCAL's counsel's cover letter stated that NORCAL continued to reserve all its rights under the policy and California law. Dr. Newton signed the authorization on November 20, 1996, the date of the mediation hearing. NORCAL did not seek respondent's authorization to settle. Murphy's November 18, 1996, mediation brief in the malpractice action was presented on behalf of Dr. and Mrs. Newton and included separate sections discussing the non-liability of each defendant. Respondent was among the parties and attorneys who signed the November 20, 1996, mutual release and covenant not to sue in the malpractice action.

After settlement of the malpractice action, a dispute arose between NORCAL and the Newtons concerning the language by which NORCAL would report the settlement to the data bank. According to a letter from Murphy to NORCAL, Dr. Newton's consent to the settlement had been predicated upon NORCAL's assurance that he would be allowed to approve this language; NORCAL was insisting on language indicating the case had been settled for sexual misconduct despite Dr. Newton's objection; and the report to the data bank should not include the unproven allegations of sexual misconduct. This January 15, 1997, letter indicated that NORCAL had refused to "recognize that the settlement payment covered both Harvey Newton and Nancy Newton."

On April 4, 1997, Murphy wrote to NORCAL demanding arbitration under the insurance policy. This letter detailed a number of issues arising from the dispute over language for the report to the data bank: Breach of oral contract, misrepresentation, intentional infliction of emotional distress (claiming mental anguish and physical symptoms on behalf of both Dr. and Mrs. Newton), bad faith (based on NORCAL's cancellation of Dr. Newton's malpractice policy), breach of fiduciary duty and intentional interference with prospective economic advantage. Murphy stated, "[t]his letter is notice of the nature of the claims which policy holder Harvey Newton and additional insured Nancy Newton are making." The letter indicated that Dr. Newton had selected Basil Plastiras as arbitrator and was signed by Murphy as "Attorney for Dr. Newton."

On April 23, 1997, Murphy repeated his demand for arbitration, referring to it as having been "submitted on behalf of my clients, Dr. and Mrs. Harvey Newton" and again signing the letter as "Attorney for Dr. Newton."

NORCAL responded by selecting its arbitrator, David Meadows, and making claims against Dr. and Mrs. Newton for declaratory relief (seeking determinations that the malpractice insurance policy did not cover Nancy Newton and that the malpractice plaintiffs' damages came within the insurance policy's exclusion for sexual misconduct or sexual activity related to direct patient treatment); money had and received; reimbursement; and rescission (based on Dr. Newton's alleged failure to inform NORCAL that respondent provided treatment in his practice).

Murphy sought a preliminary injunction to prevent NORCAL from submitting its report to the data bank, which was denied on July 8, 1997. The trial court took the view that NORCAL's language complied with the requirements of the federal statute mandating reporting of the settlement.

On July 16, 1997, attorney Steven B. Piser informed NORCAL that he would be representing Dr. and Mrs. Newton in the arbitration. By letter of September 5, 1997, Piser, on behalf of Dr. and Mrs. Newton, requested that NORCAL dismiss its claims and submit to arbitration through Judicial Arbitration and Mediation Services (JAMS) rather than through the American Arbitration Association. On September 12, Piser expressed Dr. Newton's interest in an expedited determination of whether the language in NORCAL's report to the data bank "was consistent with its obligations" and suggested JAMS arbitration of that single issue.

By letter of October 15, 1997, Piser informed NORCAL, on behalf of Dr. and Mrs. Newton, that the April 4, 1997, request for arbitration was withdrawn without prejudice.

...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT