Willet v. Pennsylvania Medical Catastrophe Loss Fund

• Decision Date: 12 January 1998
• Citation: 702 A.2d 850,549 Pa. 613
• Parties: Andrew A. WILLET, M.D., Appellant, v. PENNSYLVANIA MEDICAL CATASTROPHE LOSS FUND, Pennsylvania Medical Society Liability Insurance Company, and PHICO Insurance Company, Appellees .
• Court: Pennsylvania Supreme Court

Page 850

702 A.2d 850

549 Pa. 613

Andrew A. WILLET, M.D., Appellant, v. PENNSYLVANIA MEDICAL CATASTROPHE LOSS FUND, Pennsylvania

Medical Society Liability Insurance Company, and

PHICO Insurance Company, Appellees [No. 104A].

GREENE COUNTY MEMORIAL HOSPITAL, Appellant, v. PENNSYLVANIA MEDICAL CATASTROPHE LOSS FUND, Pennsylvania

Medical Society Liability Insurance Company, and

PHICO Insurance Company, Appellees [No. 104B].

Supreme Court of Pennsylvania.

Argued May 1, 1997.

Decided Nov. 3, 1997.

Reargument Denied Jan. 12, 1998.

[549 Pa. 616] David Trushel, Pittsburgh, for Andrew A. Willet, M.D.

John David Rhodes, Pittsburgh, for Greene County Memorial Hosp.

Thomas A. Matis, John W. Jordan, IV, Pittsburgh, for CAT Fund.

Daniel P. Stefko, Terry C. Cavanaugh, Lisa D. Dauer, Pittsburgh, for PMSLIC.

Stephen A. Ryan, King of Prusia, for PHICO.

Before FLAHERTY, C.J., and ZAPPALA, CAPPY, CASTILLE, NIGRO and NEWMAN, JJ.

OPINION

NIGRO, Justice.

This consolidated appeal arises from the filing of amended complaints by appellants, Andrew A. Willet, M.D. (" Dr. Willet") and Greene County Memorial Hospital ("Hospital"), within the original jurisdiction of the Commonwealth Court, ¹ seeking indemnity or contribution from appellees, the Pennsylvania Medical Catastrophe Loss Fund ("CAT Fund"), Pennsylvania Medical Society Liability Insurance Company ("PMSLIC") and PHICO Insurance Company. ²

The question presented on appeal is whether the Commonwealth Court erred in sustaining the demurrer of the CAT Fund to the appellants' amended complaints. Appellants seek indemnification for a portion of the delay damages added to a $4 million verdict in an underlying medical malpractice action. For the reasons set forth below, we reverse the decision of the Commonwealth Court.

PMSLIC issued Dr. Willet a professional liability insurance policy providing basic liability coverage of up to $200,000 per occurrence. PHICO provided basic liability insurance for the Hospital in the same amount. In addition, each appellant participated in the contingency fund administered by the CAT Fund, a Commonwealth agency established by the Pennsylvania Health Care Services Malpractice Act, 40 P.S. §§ 1301.101-1301.1006 ("the Act"), which requires the CAT Fund to provide an additional $1 million in liability coverage for each appellant. Lastly, in addition to its basic policy, PHICO also provided the Hospital with a policy for excess liability coverage of up to $3 million.

On May 14, 1991, plaintiff, Terry Harding, filed a civil action seeking damages for medical negligence of, among others, Dr. Willet and the Hospital. Harding's lowest pre-trial settlement demand was $3 million. By March 23, 1993, PMSLIC and PHICO each tendered their respective $200,000 limits of basic coverage toward settlement.

From May 14, 1991, until February 25, 1994, despite the urging of Dr. Willet and the Hospital, who recognized a meritorious and significant medical malpractice claim and sought to resolve the matter and avoid trial, the CAT Fund did not tender the limits of the respective policies.

On January 25, 1994, PHICO, as the Hospital's excess carrier, asked the CAT Fund to tender its coverage limits to PHICO so it could attempt settlement. On February 10, 1994, the CAT Fund tendered its $1 million limits to PHICO, on behalf of the Hospital. Upon receipt of the funds, PHICO assumed control over the negotiations on behalf of the Hospital. PHICO then offered $800,000 from the Hospital's excess coverage, making the total offer for settlement on behalf of the Hospital $2 million. ³ The CAT Fund also indicated it would contribute only $300,000 of its $1 million toward a "global settlement," making the settlement offer on behalf of Dr. Willet $500,000.00. However, as neither offer met plaintiff's settlement demand of $3 million, the case proceeded to trial.

On February 25, 1994, the jury returned a $4 million verdict for plaintiff, for which Dr. Willet was deemed to be 60% liable and the Hospital 40% liable. On May 12, 1994, the trial court granted plaintiff's Petition for Delay Damages pursuant to Pa. R.C.P. 238 in the amount of $508,902 for the period of May 15, 1992, until February 22, 1994. ⁴ The Superior Court affirmed the order adding delay damages to the verdict and this Court denied allocatur. Appellants then filed separate amended complaints against the CAT Fund seeking "indemnity or contributions representing all or half of those delay damages and accrued interest attributable to the period from March 23, 1993 through February 10, 1994," representing the time period in which the CAT Fund was in control of settlement negotiations with plaintiff. Specifically, Dr. Willet seeks reimbursement from the CAT Fund and/or PMSLIC whereas the Hospital seeks the same relief for the same period from the CAT Fund only. ⁵

In November 1995, the CAT Fund, PMSLIC and PHICO separately filed preliminary objections to both Dr. Willet's and the Hospital's amended complaints. Specifically, in its preliminary objections, the CAT Fund asserted the relief requested by appellants is expressly barred by 40 P.S. § 1301.701(d), and as an executive agency of the Commonwealth, sovereign immunity further bars any right to relief appellants may have. See preliminary objections to respective appellants' amended complaints, pp 4,5. On December 21, 1995, the Commonwealth Court sustained the CAT Fund's preliminary objections in the nature of a demurrer and found that no legal basis exists upon which to hold the CAT Fund liable, and as a result, the Commonwealth Court determined that PMSLIC's and PHICO's preliminary objections were moot.

In sustaining the CAT Fund's preliminary objections, the Commonwealth Court found that there is no legal basis for either indemnification or contribution from the CAT Fund. Slip Op. at p. 7. Further, the court determined that the CAT Fund only had a combined total of $2.4 million to offer ($400,000 in basic coverage from the Hospital and Dr. Willet + $2 million in CAT Fund coverage for the Hospital and Dr. Willet = $2.4 million) and, therefore, there is no factual basis for the contention that the CAT fund could have met plaintiff's lowest settlement demand of $3 million. Id.

A court should sustain preliminary objections in the nature of a demurrer only where:

the complaint is insufficient to establish the pleader's right to relief.... For the purpose of testing the legal sufficiency of the challenged pleading a preliminary objection in the nature of a demurrer admits as true all well-pleaded, material, relevant facts ... and every inference fairly deducible from those facts.... The pleader's conclusions or averments of law are not considered to be admitted as true by a demurrer.

Since sustaining the demurrer results in a denial of the pleader's claim or dismissal of his suit, a preliminary objection in the nature of a demurrer should be sustained only in cases that clearly and without a doubt fail to state a claim for which relief may be granted.... If the facts as pleaded state a claim for which relief may be granted under any theory of law then there is sufficient doubt to require the preliminary objection in the nature of a demurrer to be rejected....

The County of Allegheny v. The Commonwealth of Pennsylvania, 507 Pa. 360, 372, 490 A.2d 402, 408 (1985) (citations omitted). Moreover, where doubt exists as to whether a demurrer should be sustained, the doubt should be resolved in favor of overruling it. Mahoney v. Furches, 503 Pa. 60, 66, 468 A.2d 458, 461-62 (1983).

Appellants argue that in sustaining the CAT Fund's preliminary objections, the Commonwealth Court committed an error of law. They argue the Commonwealth Court failed to accept as true all the well-pleaded facts and inferences reasonably deducible from the parties' respective amended complaints. Appellants assert their liability for the delay damages which accrued while the CAT Fund was in control of the negotiations was vicarious, and the law of indemnity provides an equitable remedy to shift the delay damages from them to the party who occasioned the loss, the CAT Fund. ⁶ Moreover, they assert that sovereign immunity presents no barrier to their cause of action against the CAT Fund.

Appellants' arguments are persuasive. In reaching its decision, the Commonwealth Court rejected key allegations in the amended complaints, and in doing so, failed to adhere to the proper decisional standard for preliminary objections in the nature of a demurrer. Moreover, the Commonwealth Court presumed that PHICO, the Hospital's excess carrier, was blameworthy by indicating that "[n]owhere is it alleged that PHICO ever tendered its excess coverage to the CAT Fund to be used by the CAT Fund to effect a settlement." Slip Op. at p. 7.

Statutory Framework For Payment Priority

We find the Commonwealth Court declined to accept the facts as pled by appellants and misapplied the principles surrounding global settlements in medical malpractice cases involving multiple insurers. The court failed to apply § 1301.705(a) of the Act, 40 P.S. §§ 1301.101-1301.1006, which provides for the order of payment in medical malpractice actions involving multiple insurers. Specifically, § 1301.705(a) provides:

No insurer providing excess liability insurance to any health care provider eligible for coverage under the Medical Professional Liability Catastrophe Loss Fund shall be liable for payment of any claim against a health care provider for any loss or damages except those in excess of the limits of liability provided by the Medical Professional Liability Catastrophe Loss Fund.

Further, in American Casualty Co. of Reading Pa. v. PHICO Insurance Co., 537 Pa. 295, 643 A.2d 91 (1994), we indicated that the order of payment of insurance proceeds must be determined by reference to § 1307.705(a); the first $200,000 of liability must be borne by the primary carriers, the CAT Fund is obligated to pay the next $1 million and the...