Sacred Heart Health Servs. v. MMIC Ins., Inc.

Citation575 F.Supp.3d 1137
Decision Date13 December 2021
Docket Number4:20-CV-4149-LLP
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.
CourtUnited States District Courts. 8th Circuit. United States District Courts. 8th Circuit. District of South Dakota

575 F.Supp.3d 1137

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.

Filed December 13, 2021


575 F.Supp.3d 1146

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 Defendant MMIC Insurance, Inc.

Laura J. Hanson, Meagher & Geer, PLLP, Minneapolis, MN, for Defendant Constellation Inc.

AMENDED MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTION TO DISMISS

Lawrence L. Piersol, United States District Judge

Defendants MMIC Insurance, Inc. d/b/a/ MMIC Agency, Inc. ("MMIC") and Constellation, Inc. f/k/a/ MMIC Group, Inc. ("Constellation") have filed a Motion to Dismiss Plaintiffs’ claims in their entirety. (Doc. 49). For the following reasons, Defendants’ Motion to Dismiss is granted in part and denied in part.

BACKGROUND

The following facts are alleged in Plaintiffs’ Amended Complaint. Avera Health is a large regional health system that owns and operates the Avera Sacred Heart Hospital in Yankton, South Dakota. (Doc. 44, ¶¶ 23-24). Lewis & Clark Specialty Hospital, LLC ("LCSH") is a hospital and surgery center in Yankton owned by physicians in that community. (Doc. 44, ¶¶ 25-26).

A. Avera's Healthcare Liability Policies

Avera purchased a combined Healthcare System Liability Protection Policy Excess of Self Insured Retention ("Avera's Primary Policy") and Healthcare System Umbrella/Excess Liability ("Avera's Excess Policy") from MMIC which was in effect from January 1, 2014 through April 1, 2015 ("Avera Policies") (Doc. 44, ¶¶ 27-28; 44-1 at 412; 51-10 at 668, 677). Avera's Primary Policy provides that:

MMIC agrees to pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of any claim or claims first made against and reported to the insured during the policy period and occurring within the coverage territory
575 F.Supp.3d 1147
arising out of the performance of medical professional services rendered or which should have been rendered on or after the retroactive date by the insured or by any person for whose acts or omissions the insured is legally responsible.

(Doc. 44-1 at 415). Excluded from coverage was "any willful, fraudulent, dishonest, criminal or malicious act or omissions, by or with the knowledge or consent of, or at the direction of, any insured." (Doc. 44-1 at 415). Avera's Primary Policy provides that "MMIC shall pay damages for all covered claims in excess of the self-insured retention, up to the limits of liability as shown on the Declarations Page." (Doc. 44-1 at 415). Avera's self-insured retention liability limit under Avera's Primary Policy was $2 million per event and $6 million in the aggregate of covered losses. (Docs. 44, ¶ 30; 41-1 at 412).

Pursuant to Avera's Excess Policy, MMIC was to provide up to an additional $10 million for covered losses which Avera becomes "legally obligated to pay as damages" in excess of Avera's self-insured retention limits. (Docs. 44, 81-82; 51-10 at 679). Specifically, Avera's Excess Policy provides that:

MMIC agrees to pay on behalf of the insured, in accordance with the applicable provisions of the underlying insurance those sums, in excess of the applicable limits of the underlying insurance, which the insured shall be legally obligated to pay as damages, because of any claim or claims to which the underlying insurance would apply except for the exhaustion of its applicable limit of liability, first made against the insured and reported to MMIC during the policy period and occurring within the coverage territory, arising out of performance of medial professional services rendered or which should have been rendered on or after the retroactive date by the insured or by any person for whose acts or omissions the insured is legally responsible.

(Doc. 51-10 at 679). "Damages" are defined under the policies as "all amounts of money which are payable to compensate for loss because of injury to which this insurance applies." (Doc. 44-1 at 423).

According to Avera's Primary Policy, MMIC had the right, but not the duty to defend Avera and the right to settle any claim or suit covered under the policy within the available limits of liability. Specifically, Avera's Primary Policy provided:

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.

(Doc. 44-1 at 415). Once Avera had exhausted its self-insured retention limits under Avera's Primary Policy, MMIC was obligated to defend Avera. Specifically, Avera's Excess Policy provided:

With respect only to insurance afforded by this Policy, if no underlying insurance is available due to exhaustion of its Policy limits by payment of losses, or if no coverage is provided by underlying insurance, 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 as it deems expedient, but MMIC shall not be obligated to pay
575 F.Supp.3d 1148
any claim or judgment or to defend any suit after the applicable limit of MMIC's liability has been exhausted by payment of judgment or settlements.

(Doc. 51-10 at 681).

Avera's Primary Policy provided that "[t]he insured agrees not to, except at the insured's own expense, voluntarily pay or assume any obligation to pay damages or defense costs above the self-insured retention." (Doc. 44-1 at 421). Avera's Primary and Excess Policies contained "cooperation" and "no voluntary payments" clauses which provided:

Insured's Duties in the Event of an Occurrence, Claim or Suit

...

(c) The insured shall cooperate with MMIC and, upon MMIC's request, assist in making settlements, in the conduct of suits and in enforcing any right of contribution or indemnity against any person or organization who may be liable to the insured because of injury or damages with respect to which insurance is afforded under this Policy; and the insured shall attend hearings and trials and assist in securing and giving evidence and obtaining the attendance of witnesses. The insured shall not, except at the insured's own cost, voluntarily make any payment, assume any obligation or incur any expense other than for first aid to others at the time of accident.

(Docs. 44-1 at 427; 51-10 at 672). Avera's Primary and Excess Policies also both contained a "no action" provision which provided as follows:

No action shall lie against MMIC unless, as a condition precedent thereto, there shall have been full compliance with all of the terms of this Policy, not until the amount of an insured's obligation to pay shall have been finally determined either by final judgment after expiration of period for appeal against such insured after actual trial or by written agreement of the insured, the Claimant and MMIC. Any person or organization or the legal representative thereof who has secured such judgment or written agreement shall thereafter be entitled to recover under this Policy to the extent of the insurance afforded by this Policy.

(Docs. 44-1 at 428; 51-10 at 673).

B. LCSH's Healthcare Liability Policies

MMIC issued a combined Health System Liability Protection Policy ("LCSH's Primary Policy") and a Healthcare System Umbrella/Excess Liability Policy ("LCSH's Excess Policy") to LCSH which was in effect from April 1, 2013 through April 1, 2014 ("LCSH's Policy"). (Doc. 44-2 at 455-58). LCSH's Primary Policy was subject to a primary coverage limit of $1 million per claim and $3 million in aggregate and LCSH's Excess Policy was subject to a liability limit of $2 million per claim and $2 million in aggregate. (Docs. 44, ¶¶33-38; 44-2 at 455-58). LCSH's Primary Policy provides that:

MMIC agrees to pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of any claim or claims first made against and reported to the
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