Swedishamerican Hosp. v. Illinois State Med. Inter-Ins. Exchange

• Decision Date: 18 September 2009
• Docket Number: No. 2-08-0136.,2-08-0136.
• Citation: 334 Ill.Dec. 47,916 N.E.2d 80
• Parties: SWEDISHAMERICAN HOSPITAL ASSOCIATION OF ROCKFORD and Sari Insurance Company, Individually and as Subrogees and Assignees of Bruce Hecht, Plaintiffs-Appellants, v. ILLINOIS STATE MEDICAL INTER-INSURANCE EXCHANGE, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

916 N.E.2d 80

334 Ill.Dec. 47

SWEDISHAMERICAN HOSPITAL ASSOCIATION OF ROCKFORD and Sari Insurance Company, Individually and as Subrogees and Assignees of Bruce Hecht, Plaintiffs-Appellants, v. ILLINOIS STATE MEDICAL INTER-INSURANCE EXCHANGE, Defendant-Appellee.

No. 2-08-0136.

Appellate Court of Illinois, Second District.

September 18, 2009.

Richard K. Van Evera, Charlotte A. LeClercq, Barrick, Switzer, Long, Balsley & Van Evera, LLP, Rockford, IL, Michael M. Marick, Rebecca R. Haller, Meckler Bulger Tilson Marick & Pearson LLP, Chicago, IL, for Appellant.

James J. Stamos, Stamos & Trucco LLP, Chicago, IL, for Appellee.

Justice BOWMAN delivered the opinion of the court:

Plaintiffs, SwedishAmerican Hospital Association of Rockford (Hospital) and Sari Insurance Company, individually and as subrogees of Dr. Bruce Hecht, appeal the trial court order that granted summary judgment in favor of defendant, Illinois State Medical Inter-Insurance Exchange (ISMIE). On appeal, plaintiffs argue that the trial court erred in determining that the "no action" clause in defendant's insurance policy was enforceable and barred plaintiffs' recovery under the policy. ISMIE relied on the no-action provision when it refused to contribute its policy limit toward a settlement agreement that plaintiffs entered in a medical-malpractice lawsuit that was filed against them. Plaintiffs argue that ISMIE breached its good-faith duty to settle the medical-malpractice lawsuit and cannot rely on the no-action provision in its policy. We affirm in part, reverse in part, and remand.

I. BACKGROUND

This case stems from an underlying medical-malpractice lawsuit filed by the family of an infant that was treated by Dr. Hecht at the Hospital in Winnebago County. The lawsuit was filed under No. 95—L—91 as Tripp v. SwedishAmerican Hospital and Bruce Hecht. We refer to this as the Tripp suit. Dr. Hecht joined the Hospital on June 1, 1993. In December 1993, Dr. Hecht treated an infant, Wanique Tripp, for cardiac problems. Dr. Hecht performed a cardiac biopsy on the child in December 1993 that allegedly resulted in the child's disabling and disfiguring spastic quadriparesis. The Tripp lawsuit was filed against the Hospital and Dr. Hecht in March 1995 and alleged that Dr. Hecht was negligent and that the Hospital was vicariously liable for his negligence. The case was tendered to ISMIE, which accepted and defended Dr. Hecht without a reservation of rights. ISMIE provided $1 million coverage for Dr. Hecht, the Hospital self-insured $1.5 million for itself and its employees, and Sari provided a $25 million excess policy, covering the Hospital and its employees. Greg Snyder represented Dr. Hecht; ISMIE paid for Snyder's services. The Hospital was defended by separate counsel, David Faulkner. Additionally, ISMIE advised Dr. Hecht to seek private counsel to advise him separately, which he did when he hired Paul Cicero.

After extensive discovery, the case settled on May 15, 2003, for $5 million. However, ISMIE refused to participate in the settlement and refused to pay on its $1 million policy. The structured settlement agreement stated that the Hospital and its insurer agreed to pay $3 million immediately and the remaining $2 million in a periodic payment plan. In exchange, the Tripp lawsuit against the Hospital and Dr. Hecht would be dismissed with prejudice. The trial court approved the settlement agreement on June 11, 2003. On July 28, 2003, Dr. Hecht assigned to the Hospital and Sari his right to recover the $1 million from ISMIE. In the assignment agreement, Dr. Hecht denied the allegations in the Tripp lawsuit and stated that he tendered his defense to ISMIE. ISMIE assigned defense counsel to represent Dr. Hecht. After discovery was substantially completed, Dr. Hecht determined that it would be in his best interests to settle the litigation. ISMIE refused to contribute or participate in the settlement agreement. Dr. Hecht was required by the Hospital and Sari policies to cooperate with them in the subrogation of any payment made under their plans on his behalf.

On October 27, 2003, plaintiffs filed suit against ISMIE, seeking recovery of the $1 million ISMIE policy limit. The amended complaint alleged ISMIE's lack of good faith under various theories: two counts of Dr. Hecht's right to select coverage; one count of equitable contribution; one count of reimbursement; one count of unjust enrichment; and one count of quantum meruit. We delineate these counts in greater detail later in this opinion. On June 12, 2006, plaintiffs filed a motion for summary judgment pursuant to section 2—1005 of the Code of Civil Procedure (Code) (735 ILCS 5/2—1005 (West 2006)). Plaintiffs argued that the undisputed facts demonstrated that ISMIE had an obligation to contribute to the settlement of the Tripp lawsuit and failed to fulfill that obligation. They also claimed that ISMIE was liable for costs under section 155 of the Illinois Insurance Code (215 ILCS 5/155(1) (West 2002)). In support of its motion, plaintiffs attached multiple documents, which we describe as follows.

An affidavit from Richard Walsh, chief operating officer of the Hospital, provided that he authorized the settlement for both the Hospital and Dr. Hecht. The Hospital purchased the ISMIE policy to provide primary coverage for Dr. Hecht. ISMIE acknowledged that its policy provided primary coverage for Dr. Hecht, and it defended him without a reservation of rights. The evidence in the Tripp lawsuit indicated that there was a high probability that a verdict would result against Dr. Hecht and that it would greatly exceed the $1 million ISMIE policy limit.

Answers to plaintiffs' interrogatories were also attached to the motion. ISMIE admitted that it defended Dr. Hecht without a reservation of rights but denied that there was a reasonable probability of a verdict against Dr. Hecht. ISMIE admitted that in early 2003 Dr. Hecht demanded settlement, but it denied that it was required to pursue settlement on his behalf. ISMIE admitted that plaintiffs settled for the release of Dr. Hecht and the Hospital, but it stated that it had insufficient knowledge to determine what was paid for Dr. Hecht's and the Hospital's release individually.

A portion of Jennifer Temple's deposition was attached as an exhibit. Temple, ISMIE's claims manager, testified that normally if a hospital were sued under a vicarious-liability theory, the hospital's insurance would pay after the doctor's limits were exhausted. She admitted that ISMIE agreed to pay first dollar in the event of a verdict against Dr. Hecht. Temple recommended that the suit be defended and acknowledged that Dr. Hecht wanted to defend the suit, but she admitted that she had noted that the Hospital was under pressure to settle from its excess carrier (Sari). In Temple's notes from 2002, she indicated that she felt the chance of prevailing in front of a jury of laypeople was 50/50 at best because of the technical medical issues involved. In front of a jury of doctors, Dr. Hecht would have a 95% chance of prevailing. She stated in her notes that she was "very worried about the potential exposure," and that a verdict would likely be in the millions of dollars. Temple wrote that from ISMIE's perspective, its $1 million was gone whether the case was tried or settled, because a verdict or a settlement would likely be more than $1 million. She wrote, "[t]herefore, by trying this case, we have a chance to theoretically `win back' our $1mil." Temple wrote this in summary of her conversation with Dr. Hecht advising him of ISMIE's position that the case was medically defensible but that he should consult with private counsel as he would have concerns of liability beyond ISMIE's $1 million. She admitted that after Dr. Hecht discussed the case with private counsel, he wanted to settle the case and that Temple agreed to recommend to the physician review committee that the case should be settled. In her report to the physician review committee, Temple admitted that there were problems with the defense of Dr. Hecht, including that he was a "loose cannon" at times and that the plaintiff would make a sympathetic witness.

On November 13, 2002, the physician review committee decided that the case should be tried. Temple attended the meeting and recalled that they considered Dr. Hecht's desire to settle but that the physicians believed it was a defensible case. Temple admitted that defense counsel conducted one-day focus groups, which all ended in verdicts against Dr. Hecht. Temple acknowledged that defense counsel did the best it could given the fact that they condensed what would have taken three weeks into one day. However, ISMIE believed that its expert was a stronger witness and that over three weeks' time, jurors would understand the technical medical issues involved. The average verdict from the focus groups was $20 million. Later, Temple received a letter from Dr. Hecht in which he expressed concern about having to close his office for three weeks for a trial and that he would prefer not to do that. Although Temple believed that Dr. Hecht wanted to defend the case, she admitted that in April 2003 correspondence she indicated that Dr. Hecht wanted to settle because he was concerned about his exposure and that a large verdict could bankrupt his medical practice. Temple testified that ISMIE was not concerned about Dr. Hecht's concerns but also that ISMIE was not making its decision based on its financial interests. According to Temple, if ISMIE felt it had a medically defensible case, it would try the case "regardless of any financial considerations to the company."

Temple admitted that the Hospital could not settle only on its own behalf but would also have to settle on Dr. Hecht's behalf because its policy covered the doctor and it was being sued solely based on vicarious liability. The Hospital invited Temple to attend a mediation with the plaintiff in the Tripp...