W. Va. Mut. Ins. Co. v. Vargas

• Decision Date: 20 March 2013
• Docket Number: Civil No. 1:11–CV–32.
• Citation: 933 F.Supp.2d 847
• Court: U.S. District Court — Northern District of West Virginia
• Parties: The WEST VIRGINIA MUTUAL INSURANCE COMPANY, a West Virginia Corporation, Plaintiff, v. Ana Cortes VARGAS, Defendant.

933 F.Supp.2d 847

The WEST VIRGINIA MUTUAL INSURANCE COMPANY, a West Virginia Corporation, Plaintiff,

v.Ana Cortes VARGAS, Defendant.

Civil No. 1:11–CV–32.

United States District Court,

N.D. West Virginia.

March 20, 2013.

Jeffrey M. Wakefield, Flaherty Sensabaugh Bonasso, PLLC, Charleston, WV, for Plaintiff.

Wesley W. Metheney, Wilson, Frame, Benninger & Metheney, PLLC, Morgantown, WV, for Defendant.

MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 55] AND DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 53]

IRENE M. KEELEY, District Judge.

Pending before the Court are the parties' competing motions for summary judgment. The plaintiff, the West Virginia Mutual Insurance Company (“West Virginia Mutual”), seeks a declaration that the available limit of liability under the Extended Reporting Endorsement (“tail endorsement” or “tail policy”) it issued to Dr. Richard R. Lotshaw (“Lotshaw”) is $687,235.79. (Dkt. No. 55). The defendant, Ana Cortes Vargas (“Vargas”), seeks a declaration that the available limit of liability under Lotshaw's tail endorsement is $1,000,000, and that any costs associated with providing a defense to Lotshaw in Vargas's malpractice action are supplemental to—and not within—that policy limit. (Dkt. No. 53). Alternatively, Vargas seeks reformation of Lotshaw's tail policy. The motions are fully briefed and ripe for review. For the reasons that follow, the Court GRANTS West Virginia Mutual's motion for summary judgment (dkt. no. 55) and DENIES Vargas's motion for summary judgment. (Dkt. No. 53). The Court DECLARES the available liability limits under West Virginia Mutual's tail policy to satisfy the claims in the case of The West Virginia Mutual Insurance Company v. Ana Cortes Vargas, Civil Action No. 11–CV–32 to be $687,530.79.

I.

The material facts in this case are not in dispute. (Dkt. No. 53 at 2). Lotshaw performed surgery on Vargas on July 20, 2007. Approximately four months after that surgery, Lotshaw canceled his medical professional liability policy with West Virginia Mutual, which provided up to $1,000,000 in liability insurance per medical incident. In its place, he purchased a tail endorsement from West Virginia Mutual. “ ‘Tail insurance’ ... covers a professional insured once a claims made malpractice insurance policy is canceled, not renewed or terminated and covers claims made after such cancellation or termination for acts occurring during the period the prior malpractice insurance was in effect.” W. Va.Code § 33–20D–2(a). Lotshaw elected to pay the $103,406 premium for his tail insurance in quarterly installments over a three-year period.

On July 17, 2009, Vargas sued Lotshaw for malpractice related to her July 2007 surgery. When Vargas filed her lawsuit, Lotshaw was current on all quarterly installment payments for his tail insurance. After Vargas sued him, however, he defaulted on his next quarterly installment due on January 31, 2010, and he never paid another premium. (Dkt. No. 55–1 at 12).

Following Lotshaw's failure to make his January 2010 quarterly installment payment, West Virginia Mutual informed him in a letter dated February 10, 2010 that, unless he paid the entire balance due on his $103,406 premium by March 17, 2010, it would take the following actions:

• Reduce his tail endorsement's liability limits by a “pro-rata reduction ... based upon the amount of premium that you have paid as a ratio to the total amount due;” and

• Include in the tail endorsement's liability limits all previously supplemental costs, including the costs associated with defending Vargas's malpractice case.

(Dkt. No. 55–1 at 12). Despite this notice, Lotshaw failed to pay the remaining balance on his tail policy. (Dkt. No. 55–1 at 14). West Virginia Mutual therefore amended Lotshaw's policy in accordance with its February 10, 2010 notice. At the time of his default, Lotshaw had paid $77,585 of the $103,406 total premium due on his tail policy. (Dkt. Nos. 56 at 3; 60 at 4). Due to his default, West Virginia Mutual reduced the limits of his policy pro-rata from $1,000,000 per incident to $750,005, to reflect the amount of the premium he had paid. (Dkt. No. 55–1 at 15–16). It also allocated defense costs associated with the Vargas litigation to fall within that reduced liability limit, a move that effectively reduced Lotshaw's liability limits even further. West Virginia Mutual maintains that, under the terms of its tail policy, those reductions apply to all claims made after October 31, 2007, the date Lotshaw canceled his malpractice policy, and are thus applicable to Vargas's claim. (Dkt. No. 55–1 at 13, 15).

Vargas settled her malpractice claim with Lotshaw in August 2011. (Dkt. No. 56 at 5). Subsequently, West Virginia Mutual filed this action seeking a determination of the amount of insurance proceeds available under Lotshaw's tail policy to settle Vargas's claim. (Dkt. No. 3). Vargas has conceded that West Virginia Mutual may interplead the liability limits of its tail endorsement, but she disputes the actual amount of those limits. (Dkt. No. 8 at ¶ 18).¹ Lotshaw's personal liability is not an issue in this action. (Dkt. No. 35).

At the heart of the parties' dispute is whether, following Lotshaw's default, West Virginia Mutual's reduction of the liability limits of his tail policy was lawful. West Virginia Mutual contends that it was, and that its inclusion of the costs associated with the defense of the Vargas malpractice case is also lawful. It therefore asserts that the amount of the policy limits available to settle Vargas's claim is $687,235.79. (Dkt. No. 3 at 7).

Vargas, on the other hand, argues that West Virginia Mutual's reduction of Lotshaw's liability limits following his default on his premium payments is ineffective under West Virginia law, and that the available coverage should be $1,000,000. (Dkt. No. 8 at ¶ 23). In the alternative, she contends that the policy limits should be $974,473.86 (the original liability limit of $1,000,000 minus the cost of defending Vargas's malpractice case). Id. at ¶ 29.

II.

A. Summary Judgment

A moving party is entitled to summary judgment “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A genuine issue of material fact exists “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In applying the standard for summary judgment, the Court must review all the evidence “in the light most favorable to the nonmoving party.” Providence Square Assocs., L.L.C. v. G.D.F., Inc., 211 F.3d 846, 850 (4th Cir.2000). The Court must avoid weighing the evidence or determining the truth and limit its inquiry solely to a determination of whether genuine issues of triable fact exist. Anderson, 477 U.S. at 248, 106 S.Ct. 2505. The same standard applies to cross motions for summary judgment. See Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir.2003) (“When faced with cross-motions for summary judgment, the court must review each motion separately on its own merits ‘to determine whether either of the parties deserves judgment as a matter of law.’ ”) (quoting Philip Morris Inc. v. Harshbarger, 122 F.3d 58, 62 n. 4 (1st Cir.1997)).

B. Declaratory Judgment

The Declaratory Judgment Act authorizes district courts to “declare the rights and other legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201. In the Fourth Circuit, “a declaratory judgment action is appropriate ‘when the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, and ... when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.’ ” Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 256 (4th Cir.1996) (citing Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 325 (4th Cir.1937) (internal citation omitted)). Here, because the entry of a declaratory judgment will resolve the parties' dispute over the applicable liability limits of Lotshaw's tail policy, the Court's exercise of jurisdiction over this matter is proper.

Pursuant to Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), the applicable law in a diversity case such as this is determined by the substantive law of the state in which a district court sits. ² This includes the forum state's prevailing choice of law rules. See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496–97, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The parties agree that the substantive law of West Virginia governs the interpretation and application of the tail endorsement.

III.

The Court must apply the well-settled law of West Virginia that, “ ‘[w]here provisions of an insurance policy are plain and unambiguous and where such provisions are not contrary to a statute, regulation or public policy, the provisions will be applied and not construed.’ ” Progressive Paloverde Ins. Co. v. Hartford Fire Ins. Co., 356 F.3d 524, 527 (4th Cir.2004) (quoting Deel v. Sweeney, 181 W.Va. 460, 383 S.E.2d 92, 94 (1989)). Neither party argues that the terms of Lotshaw's tail endorsement are ambiguous.³ Rather, they focus on whether the terms of that insurance policy are enforceable under West Virginia law.

A. West Virginia Mutual's Motion for Summary Judgment

West Virginia Mutual asserts that the terms of its tail endorsement comply with and are enforceable under applicable West Virginia law. In West Virginia, a medical malpractice insurer such as West Virginia Mutual must, “[u]pon cancellation, nonrenewal or termination of any claims made professional malpractice insurance policy ... offer to the insured tail insurance coverage.” W. Va.Code § 33–20D–3(a). The insurer also must offer the purchaser of a tail endorsement “the opportunity to...