Physicians Ins. Exchange v. Jennings

• Decision Date: 01 September 2000
• Docket Number: No. 1-99-3445, No. 1-00-2235.
• Citation: 736 N.E.2d 179,316 Ill. App.3d 443,249 Ill.Dec. 337
• Parties: PHYSICIANS INSURANCE EXCHANGE, a Washington Corporation, Plaintiff-Appellant, v. Douglas L. JENNINGS, Josephine Weaver, as Guardian and Conservator of Norman Heistand, a Disabled and Mentally Incompetent Adult, and Continental Insurance Company, a New Jersey Corporation, Defendants-Appellees.
• Court: United States Appellate Court of Illinois

736 N.E.2d 179

316 Ill. App.3d 443

249 Ill.Dec. 337

PHYSICIANS INSURANCE EXCHANGE, a Washington Corporation, Plaintiff-Appellant, v. Douglas L. JENNINGS, Josephine Weaver, as Guardian and Conservator of Norman Heistand, a Disabled and Mentally Incompetent Adult, and Continental Insurance Company, a New Jersey Corporation, Defendants-Appellees.

Nos. 1-99-3445, 1-00-2235.

Appellate Court of Illinois, First District, Fifth Division.

September 1, 2000.

John F. Horvath, Horvath & Lieber, P.C., Chicago, for Physicians Ins. Exchange.

Michael L. Resis, O'Hagan, Smith & Amundsen, L.L.C., Chicago, for Continental Ins. Co.

Justice GREIMAN delivered the opinion of the court:

For the trial advocate, appellate jurisdiction is akin to strolling through a minefield. This appeal arises out of a declaratory judgment action and counterclaim filed by Physicians Insurance Exchange (Physicians) and Continental Insurance Company (Continental), respectively, concerning coverage under professional liability policies issued to Dr. Douglas Jennings. The trial court ruled that (1) Dr. Jennings was covered under Physicians' policy but not covered under Continental's policy; and (2) Continental was entitled to reimbursement for the cost of its discovery depositions. Physicians now appeals. The issues presented are whether (1) this court has jurisdiction over the declaratory judgment order, which we find it does not; and (2) the trial court erred in awarding costs to Continental, which we find was error.

On October 16, 1991, Dr. Jennings was the attending anesthesiologist during the surgery of Norman Heistand. The surgery took place at Olympia Fields Osteopathic Hospital (Olympia), where Dr. Jennings was on staff. During surgery, Heistand suffered at least two periods of significantly low blood pressure due to blood loss. Heistand suffered a stroke either during or immediately after surgery which left him blind and mentally handicapped.

At the time, Dr. Jennings had a professional liability policy with Continental for the period of August 5, 1991, to July 1, 1992. The policy provided Dr. Jennings with coverage and legal defense for any claim occasioned by professional services performed or which should have been performed during the coverage period as long as Dr. Jennings reported the claim to the insurer in writing as required by the policy within the coverage period. Dr. Jennings was required to report any circumstance that might later result in a claim even if no claim had yet been made.

After the surgery, Dr. Jennings moved to Washington and entered into a professional liability policy with Physicians after filling out an application for insurance. The policy was effective from July 1, 1992, to January 1, 1993, with a retroactive date of August 1, 1991. Physicians renewed the policy twice; the renewal provisions are identical to the initial policy provisions. The policy provided Dr. Jennings with coverage and legal defense for any claim resulting from direct patient treatment as long as Dr. Jennings reported the claim to the insurer as required by the policy within the coverage period and no exclusions applied. The policy did not cover any potential claim which Dr. Jennings was aware or reasonably should have been aware as of the effective date regardless of whether it had been reported. On the application, Dr. Jennings stated that he was not aware of any factor that might ripen into a claim.

On December 16, 1993, Josephine Weaver, Heistand's guardian, filed a medical malpractice suit against Dr. Jennings. The complaint alleged that Dr. Jennings failed to evaluate and control Heistand's blood loss both during and after the surgery. Dr. Jennings tendered the lawsuit to both Physicians and Continental. Physicians hired counsel to defend Dr. Jennings; Continental refused to provide either coverage or a defense.

On July 19, 1994, Physicians filed a declaratory judgment action against Dr. Jennings, Continental, and Heistand's guardian.¹ Count I requested a finding that Physicians owed no duty to defend or indemnify Dr. Jennings in the underlying action. Physicians argued that because Dr. Jennings knew or reasonably should have known that the surgery was a "potential claim," Exclusion (u) precluded coverage under its policy. Count II requested an alternative finding that Continental was required to contribute to Dr. Jennings' defense because Dr. Jennings reported the surgery to Continental as a possible claim under its policy. Count II also requested a finding that Continental owed a duty to contribute to any judgment or settlement that Dr. Jennings might be obligated to pay. Continental filed a counterclaim in which it requested a finding that Dr. Jennings was not entitled to defense or indemnification under its policy. Continental argued that Dr. Jennings was not covered under its "claims-made" policy because the surgery was not reported as a claim during the coverage period.

In December 1997, the jury in the underlying action rendered a verdict in favor of Dr. Jennings.² Physicians and Dr. Jennings signed a settlement agreement in which Physicians dismissed Dr. Jennings from the declaratory judgment action and agreed to pay him $50,000 for attorney fees spent in defending that action. Physicians continued to deny that Dr. Jennings was entitled to coverage for the underlying lawsuit.

Continental, Physicians, and Dr. Jennings filed cross-motions for summary judgment. After a hearing, the trial court denied the motions. The judge found that a material issue of fact existed as to whether (1) Dr. Jennings knew or reasonably should have known that a potential claim might be brought against him at the time he entered into the agreement with Physicians; and (2) Continental received notice of the claim within the effective dates of its policy. The judge also found that Washington law applied to the dispute between Physicians and Dr. Jennings.

During discovery, depositions of the following six witnesses were taken: Dr. Jennings, Daniel Nash (Continental's insurance representative), Donna DiTuri (a claims examiner for Continental), Dr. Edward Brunner (Physicians' expert), Dr. Timothy Starck (Dr. Jennings' expert), and John Karlen (Physicians' underwriting vice president).

It appears that the parties gave opening statements on May 7, 1999. Continental submitted a trial brief. The parties stipulated to several facts and various provisions of the two policies. The parties also stipulated to the testimony of the six witnesses who had previously been deposed.

On June 29, 1999, the trial court ruled that Dr. Jennings was entitled to coverage under Physicians' policy but not under Continental's policy. The judge indicated that he had read Continental's trial brief, the parties' closing arguments, and the stipulated material. The judge found that exclusion (u) did not apply because the Heistand surgery was not a "medical incident"; that Dr. Jennings was under no notice of any possible claim against him in connection with the surgery; that Continental's policy was a claims-made policy; and that Dr. Jennings had not reported the incident to Nash within the meaning of Continental's policy.

On July 23, 1999, Physicians filed a notice of appeal (No. 1-99-2643).

On July 29, 1999, Continental filed a motion to tax costs pursuant to section 5-109 of the Code of Civil Procedure (735 ILCS 5/5-109 West 1998).

Physicians and Continental stipulated pursuant to Supreme Court Rule 309 (134 Ill.2d R. 309) to the dismissal of Physicians' appeal without prejudice to refiling it. On September 28, 1999, the trial court entered an order dismissing the appeal. On September 29, 1999, Physicians filed a second notice of appeal (No. 1-99-3445) from both the June 29, 1999, and August 31, 1999, orders.

On August 31, 1999, the trial court awarded Continental costs in the amount of $1,595.85. Apparently, this sum included $1,375.85 for six deposition transcripts and $220 for Continental's appearance fees and counterclaim costs.

On April 13, 2000, Continental filed a motion to strike the portion of Physicians' opening brief asking this court to review the trial court's declaratory judgment order, arguing that this court lacked jurisdiction over that order. This court ordered the motion taken with the case.

On May 19, 2000, Physicians filed a motion to vacate the trial court's September 28, 1999, dismissal order pursuant to section 2-1401 of the Code of Civil Procedure (735 ILCS 5/2-1401 (West 1998)). The motion states that "[u]pon belief that defendant's motion [for costs] rendered plaintiff's first notice of appeal premature, plaintiff and defendant stipulated in writing to dismiss `plaintiffs appeal without prejudice to the refiling of the appeal.'" The motion further states that if Continental's attorney had not agreed to the dismissal of Physicians' first notice of appeal without prejudice to refiling it, Physicians would not have dismissed the appeal; it was the parties' intent that Physicians would be allowed to pursue its appeal from the trial court's declaratory judgment order; that Physicians "did not know and had no reason to suspect" that Continental would move to strike a portion of Physicians' brief; that Physicians acted diligently in filing its motion to vacate; and that Continental would not be prejudiced if the trial court vacated the dismissal order. Attached to the motion is an affidavit signed by Physicians' attorney.

Continental did not file a motion to strike the petition. It did, however, file a response in which it stated that the trial court's dismissal order was not a final order for purposes of section 2-1401. The response further stated that section 2-1401 does not address errors of law, namely, the erroneous belief that Continental's motion for costs rendered the first notice of appeal premature. Continental asserted that Physicians' attorney proposed, drafted, and sent the stipulation to Continental and that Continental's...