Sacred Heart Health Servs. v. MMIC Ins.

• Docket Number: 4:20-CV-4149-LLP
• Decision Date: 31 May 2023
• Citation: 675 F.Supp.3d 937
• Parties: SACRED HEART HEALTH SERVICES d/b/a Avera Sacred Heart Hospital, Avera Health and Lewis & Clark Specialty Hospital, LLC, Plaintiffs, v. MMIC INSURANCE, INC. d/b/a MMIC Agency, Inc. and Constellation, Inc. f/k/a MMIC Group, Inc., Defendants.
• Court: U.S. District Court — District of South Dakota

675 F.Supp.3d 937

SACRED HEART HEALTH SERVICES d/b/a Avera Sacred Heart Hospital, Avera Health and Lewis & Clark Specialty Hospital, LLC, Plaintiffs, v.MMIC INSURANCE, INC. d/b/a MMIC Agency, Inc. and Constellation, Inc. f/k/a MMIC Group, Inc., Defendants.

4:20-CV-4149-LLP

United States District Court, D. South Dakota, Southern Division

Signed May 31, 2023

Steven M. Johnson, Ronald A. Parsons, Jr., Sara E. Show, Shannon R. Falon, Johnson, Janklow, Abdallah & Reiter, LLP, Sioux Falls, SD, Stacy Deery Stennes, Pro Hac Vice, Taylor B. Cunningham, Pro Hac Vice, Thomas J. Conlin, Pro Hac Vice, Conlin Law Firm, L.L.C., Minneapolis, MN, for Plaintiffs Sacred Heart Health Services, Avera Health & Lewis & Clark Specialty Hospital, LLC.

Laura J. Hanson, Charles E. Spevacek, Pro Hac Vice, Erin D. Doran, Pro Hac Vice, Meagher & Geer, PLLP, Minneapolis, MN, for DefendantsMMIC Insurance, Inc., Constellation Inc.

MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

Lawrence L. Piersol, United States District Judge

Pending before the Court is Defendants' Motion for Summary Judgment.(Doc. 77).For the following reasons, Defendants' Motion it granted in part and denied in part.

BACKGROUND

I.The Insureds

Avera Health is a regional health care system based in Sioux Falls, South Dakota.(Docs. 82, ¶ 1; 89, ¶ 1).Avera owns and operates Avera Sacred Heart Hospital in Yankton, South Dakota (collectively, "Avera").(Docs. 82, ¶ 1; 89, ¶ 1).Lewis & Clark Specialty Hospital ("LCSH") was a specialty hospital and surgery center owned by physicians operating in Yankton, South Dakota.(Docs. 82, ¶ 1, 89, ¶ 1).

II.The MMIC Policies

MMIC Insurance, Inc. issued two separate policies to Avera and LCSH.(Docs. 82, ¶ 3; 89, ¶ 3; 104, ¶ 3).To LCSH, it issued a combined Healthcare System Umbrella/Excess Liability Policy and Healthcare System Liability Protection Policy, No. MHP000220, which was in effect from April 1, 2013, through April 1, 2014.(Docs. 82, ¶ 3; 92, ¶ 3).LCSH had a total of $5 million in available coverage under its medical professional liability policy purchased from MMIC¹.(Docs. 90, ¶ 5; 102, ¶ 5).LCSH Policy's primary coverage contains the following coverage grant with respect to medical professional liability:

MMIC agrees to pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages ... arising out of the performance of medical professional services....

MMIC shall have the right and duty to defend any suit against the insured alleging such damages, even if any of the allegations of the suit are groundless, false, or fraudulent, and may make such investigation or such settlement of any claim or suit at it's sole discretion, but MMIC shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of MMIC's liability hereunder has been exhausted by payment of judgments or settlements.

(Doc. 82, ¶ 5; 89, ¶ 5).The Policy also includes a prohibition against "voluntary payments" by LCSH, and a "no action" clause that prohibits suits against MMIC unless there is a final judgment or a settlement with MMIC's consent.(Doc. 82, ¶ 6; 89, ¶ 6).The LSCH excess coverage follows form to the primary coverage.(Docs. 82, ¶ 7; 89, ¶ 7).

To Avera, MMIC issued a combined Healthcare System Umbrella/Excess Liability and Healthcare System Liability Protection (Excess of Self Insured Retention) Policy, No. SIR000002, which was in effect from January 1, 2014 through January 1, 2015.(Doc. 82, ¶ 8; 89, ¶ 8; 104, ¶ 8).Avera had a total of $10 million in available coverage under its MMIC policy after the limits of its $6 million self-insured retention policy were exhausted.(Docs. 90, ¶ 4; 102, ¶ 4).The Avera Policy contains the following coverage grant with respect to primary medical professional liability:

MMIC agrees to pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages ... arising out of the performance of medical professional services ...

MMIC shall have the right but not the duty to defend, or associate in the defense and control of any covered claim or suit made or brought against the Insured that is likely to involve MMIC.However, MMIC shall have no duty to defend any claim or suit or perform other acts or services in connection with any claim or suit.MMIC shall have the right to investigate any covered claim or suit to the extent that MMIC believes is proper.MMIC shall also have the right to settle any claim or suit covered under this Policy within the available limits of liability.

(Docs. 82, ¶ 12; 89, ¶ 12).The self-insured retention sections of the Avera primary coverage provide that MMIC has a right, but not a duty to defend unless and until the self-insured retention is exhausted.(Docs. 82, ¶ 13; 89, ¶ 13).Under the policy, MMIC also has the right to settle claims, but Avera must also consent to any settlement.(Docs. 82, ¶ 14; 89, ¶ 14).Like the LCSH Policy, the Avera Policy includes a prohibition on "voluntary payments" by Avera and a "no action" clause that prohibits suits against MMIC unless there is a final judgment or a settlement with MMIC's consent.(Docs. 82, ¶ 15; 89, ¶ 15).The Excess Medical Professional Liability coverage in the Avera Policy requires MMIC to defend Avera once the underlying self-insured retention and primary coverage limits are exhausted.(Docs. 82, ¶ 16; 89, ¶ 16).The Avera excess coverage includes substantively the same provisions as the primary coverage with respect to actions against MMIC and "voluntary payments" by the insured.(Docs. 82, ¶ 17; 89, ¶ 17).

Both the LCSH and the Avera policies includes the following definitions:

"Medical professional services" means only the following:

...

(e) evaluating, or responding to an evaluation of, the professional qualifications or performance of any provider of health care professional services, when done by or for any of the insured's formal review boards or committees;

(f) communicating, or failing to communicate, any information to any of the insured's formal review boards or committees; or

(g) carrying out, or failing to carry out, any decision or directive of any of the insured's formal review boards or committees.

"Formal Review Board or Committee" means any formal review board or committee of the named insured while performing the following activities:

(a) evaluating the professional qualifications or clinical performance of any provider of medical professional services; or

(b) promoting and maintaining the quality of medical professional services being provided

(Docs. 82, ¶ 18; 89, ¶ 18).Both policies excluded "any willful, fraudulent, dishonest, criminal or malicious act or omission, by or with the knowledge or consent of, or at the direction of, any insured.(Docs. 82, ¶ 19; 89, ¶ 19).

Under the Avera Policy, Avera is responsible for the first $6 million in aggregate coverage, then MMIC's policy provides $10 million in coverage excess of the $6 million.(Docs. 82, ¶ 20; 89, ¶ 20).Avera also purchased an excess policy from Allied World Insurance that provided another $25 million in coverage above the MMIC layer.(Docs. 82, ¶ 21; 89, ¶ 21).

The individual physicians sued by the Sossan plaintiffs, who were members of LCSH, had a total of $25 million under their individual policies purchased from MMIC that MMIC had informed LCSH would be available on an excess basis for the claims in the Sossan lawsuits.(Docs. 90, ¶ 6; 102, ¶ 6).The limits of coverage for the physicians individually insured by MMIC were as follows: Dr. Johnson — $12 million; Dr. Abbott — $4 million; Dr. Boudreau — $3 million; Dr. Hicks — $3 million; Dr. Swift — $3 million.(Docs. 90, ¶ 7; 102, ¶ 7).

III.The Underlying Litigation against Avera and LCSH

Beginning in 2014, former patients of spine surgeon Dr. Allen Sossan filed lawsuits ("the underlying lawsuits") against Sossan, Avera, LCSH, and individual doctors in South Dakota state circuit court alleging negligent and intentional conduct in the credentialing, retention, and supervision of Sossan.(Docs. 82, ¶ 22; 89, ¶ 22; 90, ¶ 1; 102, ¶ 1).MMIC did not insure Dr. Sossan.(Docs. 82, ¶ 23; 89, ¶ 23).The underlying lawsuits alleged that Dr. Sossan performed unnecessary or inappropriate surgeries on the underlying plaintiffs.(Docs. 82, ¶ 25; 89, ¶ 25).They alleged that Avera and LCSH knew or should have known of Dr. Sossan's conduct but continued to allow him to perform the surgeries.(Docs. 82, ¶ 26; 89, ¶ 26).The Sossan plaintiffs brought the following causes of action: Deceit and Unfair Trade Practices, Fraudulent Misrepresentation, Fraudulent Concealment, Respondeat Superior/Agency, Conspiracy, RICO(later dismissed), Negligence, Unjust Enrichment, and Loss of Consortium.(Docs. 82, ¶ 27; 89, ¶ 27).

MMIC acknowledged that the lawsuits' negligence claims potentially implicated coverage under the Avera and LCSH Policies.(Docs. 82, ¶ 28; 89, ¶ 28).MMIC issued to LCSH a reservation of rights letter agreeing to defend LCSH under is Medical Professional Liability policy, but advising LCSH that "not all of the damages that may be awarded against LCSH are covered under the policy."(Docs. 78-6; 82, ¶ 30; 89, ¶ 30).The letter informed LCSH that the "MMIC policy does not cover damages awarded against [LCSH] based on a finding of intentional, dishonest, or fraudulent conduct.The policy does not provide coverage for any punitive damages, declaratory relief, or injunctive relief.Allegations of negligent credentialing are covered to the extent the credentialing was done by a committee at Lewis & Clark."(Doc. 78-6).In an updated reservation of rights letter issued on August 1, 2017, to LCSH, MMIC provided that any damages awarded against the hospital for unjust enrichment or other ill-gotten gains do not qualify as "damages" and are not covered under the policy.(Doc. 78-7).The letter provided that the exclusions for "any...