Rose ex rel. Rose v. ST. PAUL FIRE

Decision Date25 June 2004
Docket NumberNo. 31317.,31317.
Citation599 S.E.2d 673,215 W.Va. 250
CourtWest Virginia Supreme Court
PartiesLinn ROSE and Adam Rose, By and Through his mother and legal guardian, Linn Rose, Plaintiffs Below, Appellees, v. ST. PAUL FIRE AND MARINE INSURANCE COMPANY, and Stephen Brown, Defendants Below, Appellants, v. Joseph KATARINCIC, Esq., Carl DePasquale, Esq., and Chad A. Ciccone, Esq., Third-Party Defendants Below.

Joseph J. John, Esq., Anthony I. Werner, Esq., Paul T. Tucker, Esq., Bachmann, Hess, Bachmann & Garden, Wheeling, for Appellees.

James S. Crockett, Jr., Esq., Mary M. August, Esq., Spilman, Thomas & Battle, Charleston, for Amicus Curiae West Virginia Insurance Federation.

Michael J. Farrell, Esq., Charlotte A. Hoffman, Esq., Farrell, Farrell & Farrell, Huntington, West Virginia, for Appellants.

E. Kay Fuller, Esq., Martin & Seibert, L.C., Martinsburg, for Amicus Curiae Progressive Paloverde Insurance Company.

STARCHER, Justice.

In this appeal of an order from the Circuit Court of Ohio County, an insurance company and an insurance claims representative challenge the circuit court's conclusion that a defense attorney, hired by the insurance company to defend the interests of an insured in a liability matter, was subject to the provisions of the West Virginia Unfair Trade Practices Act, W.Va.Code, 33-11-1 to 33-11-10. The circuit court ruled that the duties imposed by the Act upon the insurance company are not delegable, and that the insurance company could be held liable for any violations of the Act by a defense attorney employed by the insurance company to defend an insured in an underlying medical malpractice case.

As set forth below, we affirm, in part, and reverse, in part, the circuit court's order. We reverse the circuit court's conclusion regarding the duties of a defense attorney under the Act, and hold that a defense attorney who is employed by an insurance company to represent the interests of an insured in a liability matter is not directly subject to the provisions of the Act. However, we affirm the circuit court's order to the extent that it holds that an insurance company is not relieved of its duty to comply with the Act by employing a defense attorney to represent the interests of an insured, and may be found liable under the Act for its own actions when it knowingly encourages, directs, participates in, relies upon, or ratifies certain wrongful litigation conduct of a defense attorney.

I. Facts & Background

Appellee Linn Rose brought the instant action against appellant St. Paul Fire and Marine Insurance Company ("St.Paul") and one of its claims handlers, appellant Stephen Brown, for violations of the West Virginia Unfair Trade Practices Act ("UTPA"). Ms. Rose alleges that the appellants violated the Act by directing, ratifying, participating in, or acquiescing to the misconduct of certain defense attorneys who were employed by the appellants to defend a doctor insured by St. Paul against a medical malpractice claim filed by appellee Rose.

Ms. Rose's malpractice claim began on August 21, 1998, when Dr. David Shaffer performed an outpatient surgical procedure and negligently burned through the appellee's spinal accessory nerve. After the surgery, the appellee experienced pain in her shoulder and difficulty moving her right arm. As time passed her trapezius muscle began to wither and her shoulder began to droop. A physician at the Cleveland Clinic diagnosed and repaired the error in March 1999, but the disfigurement to the appellee's shoulder was permanent.

In January 2000, appellee Rose sued Dr. Shaffer for medical malpractice. Dr. Shaffer referred the lawsuit to his malpractice insurance company, appellant St. Paul, and St. Paul retained defense attorney Joseph Katarincic to defend Dr. Shaffer. During the course of litigation, the appellee asserts that Mr. Katarincic and an associate, Carl DePasquale, engaged in numerous improper acts — and that Mr. Brown, who was a St. Paul employee and the claims adjuster assigned to the case, assisted, encouraged, approved, and/or acquiesced in those improper acts. The appellee asserts that St. Paul can be held liable for the conduct of the defense attorneys, as well as for the conduct of Mr. Brown in tolerating, encouraging or assisting that behavior.

An example of litigation misconduct cited by the appellee is Dr. Shaffer's September 2000 deposition testimony, where he asserted that his hospital privileges had never been revoked or suspended.1 The appellee has since discovered notes in St. Paul's records, recording a conversation between Mr. Brown and Mr. Katarincic in August 2000, to the effect that Dr. Shaffer's hospital privileges had in fact previously been suspended.2 In a report later written by Mr. Brown regarding the appellee's case, a report which justified the ultimate settlement of the malpractice case, Mr. Brown again stated that "[i]n the fall and winter of 2000, we learned that Dr. Shaffer had his privileges at both of the hospitals in Wheeling revoked." The appellee argues that Mr. Brown, St. Paul, and Mr. Katarincic knew that Dr. Shaffer was being less than truthful in his deposition testimony in September 2000, but made no attempt to correct or amend his statement.3 Several weeks before trial, on March 29, 2001, the appellee settled her medical malpractice action against Dr. Shaffer for $800,000.00. After the settlement, and during discovery in the instant case, the appellants produced a confidential, internal "loss report" prepared by Mr. Brown discussing the settlement in which he stated that there was "no chance to successfully defend this case" and estimated the "full value" of the appellee's damages at $1.25 million.

On October 21, 2001, the appellee brought the instant action under the UTPA against appellants St. Paul and Mr. Brown.4 The appellee's complaint asserted, among other theories, that the appellants should be held liable for the litigation misconduct of the defense attorneys hired to defend Dr. Shaffer. The complaint alleges, in part:

[Appellants] have acted wrongfully, and in contravention of the law, in relation to [appellees]' claims of the underlying action. Their wrongful and illegal conduct includes:
a. directing, acquiescing, participating in, and/or ratifying unlawful and improper behavior committed by counsel retained to defend Dr. Shaffer; ...
f. asserting defenses to the claims, which defenses had no basis in law nor fact;
g. engaging in unreasonable and abusive discovery;
h. unlawfully communicating with [appellee] Linn Rose's healthcare providers.

The appellants later filed a motion seeking to dismiss those portions of the appellee's case that would hold St. Paul liable under the UTPA for the litigation conduct of defense counsel. The circuit court, in a hearing on the issue, stated that "the conduct of anybody acting on behalf of the insurance company is attributable to the insurance company." The court subsequently entered an order on September 12, 2002, specifically stating that:

[T]he duties imposed upon defendants [St. Paul and Mr. Brown] under § 33-11-4(9) of the West Virginia Unfair Trade Practices Act are not delegable, and that the defendants can be held liable for the conduct of the attorneys employed to defend the underlying action against Dr. Shaffer to the extent that the conduct implicates the various provisions set forth in § 33-11-4(9) of the Unfair Trade Practices Act.

The circuit court declared that its order was a final order entered pursuant to Rule 54(b) of the Rules of Civil Procedure and, finding that there was "no just reason for delay," directed "the entry of final judgment on the issues addressed herein for purposes of appeal."

St. Paul and Mr. Brown now appeal the circuit court's September 12, 2002 order.

II. Standard of Review

The issues raised by the parties in the instant appeal require an interpretation of the West Virginia Unfair Trade Practices Act, W.Va.Code, 33-11-1 to -10. "Where the issue on an appeal from the circuit court is clearly a question of law or involving an interpretation of a statute, we apply a de novo standard of review." Syllabus Point 1, Chrystal R.M. v. Charlie A.L., 194 W.Va. 138, 459 S.E.2d 415 (1995).

III. Discussion

The appellants' primary contention on appeal is that the provisions of the UTPA apply only to people, entities or their agents who are engaged in the business of insurance. The appellants contend that defense attorneys hired to defend an insured pursuant to a liability insurance policy are not subject to the provisions of the UTPA because they are not engaged in the business of insurance, but rather are engaged in the practice of law.5

The appellee responds that she is not pursuing a case against the defense attorneys, but is only contending that the appellants violated the UTPA by the manner in which they directed, ratified, encouraged, participated in, or acquiesced to the actions of the defense attorneys. The appellee contends that an insurance company should be held liable for the wrongful acts or omissions of an attorney hired to defend an insured, particularly when those acts or omissions were directed, commanded, or knowingly authorized by the insurance company.

The issue raised by the parties requires us to interpret the West Virginia Unfair Trade Practices Act, W.Va.Code, 33-11-1 to -10. "The primary object in construing a statute is to ascertain and give effect to the intent of the Legislature." Syllabus Point 1, Smith v. State Workmen's Compensation Com'r, 159 W.Va. 108, 219 S.E.2d 361 (1975). "Once the legislative intent underlying a particular statute has been ascertained, we proceed to consider the precise language thereof." State ex rel. McGraw v. Combs Services, 206 W.Va. 512, 518, 526 S.E.2d 34, 40 (1999). Moreover, when we interpret a statutory provision, this Court is bound to apply, and not construe, the enactment's plain language. We have held that...

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