The State of New York Supreme Court, Appellate Division Third Judicial Department (“New York Appellate Court”) held in its Memorandum And Order dated October 25, 2018 that it was error for the trial court to enter summary judgment on behalf of the defendant medical malpractice insurance company and the plaintiff excess carrier in a bad faith failure to settle declaratory judgment action because there is a question of fact as to whether the plaintiff excess carrier and the defendant medical malpractice insurance company acted in bad faith in failing to settle the underlying New York medical malpractice case despite the opportunity to do so.
The Underlying Facts
A man who fractured his ankle at work in October 2004 was treated by the defendant surgeon, who performed several surgeries on the man after which the man required an above-the-knee leg amputation. The man subsequently filed a New York medical malpractice lawsuit against the defendant surgeon that resulted in a jury verdict in his favor in the amount of $8.6 million, which was upheld on appeal.
At the time of the New York medical malpractice verdict, the defendant surgeon had medical malpractice liability insurance coverage totaling $2.3 million per claim through a $1.3 million primary policy with defendant Medical Liability Mutual Insurance Company (“MLMIC”) and a $1 million excess policy with the plaintiff, who filed a declaratory judgment action seeking a determination that it acted in good faith during settlement negotiations in the medical malpractice action and that its obligation to indemnify the defendant surgeon is limited to the excess policy.
The defendant surgeon brought a counterclaim against the plaintiff excess carrier and a cross claim against MLMIC alleging that both carriers acted in bad faith in failing to settle the medical malpractice action within the policy limits. With MLMIC limiting its argument to the issue of causation, the trial court granted the plaintiff’s and MLMIC’s motions for summary judgment and dismissed the defendant surgeon’s bad faith claim against them. The defendant surgeon and the medical malpractice plaintiff subsequently appealed.
The New York Appellate Court Opinion
The New York Appellate Court stated that in order to establish bad faith in failing to settle a liability claim, the insured must show that the insurer’s conduct constituted a ‘gross disregard’ of the insured’s interests — that is, a deliberate or reckless failure to place on equal footing the interests of its insured with its own interests when considering a settlement offer. Stated otherwise, the plaintiff must establish that the defendant insurer engaged in a pattern of behavior evincing a conscious or knowing indifference to the probability that an insured would be held personally accountable for a large judgment if a settlement offer within the policy limits were not accepted.
It must be shown that the insured lost an actual opportunity to settle the claim at a time when all serious doubts about the insured’s liability were removed. It is necessary to consider all the facts and circumstances in gauging whether an insurer acted in bad faith in addressing settlement. Key factors include the plaintiff’s likelihood of success, the potential magnitude of a verdict and the corresponding financial burden on the insured and the information available to the insurer at the time the settlement demand was made.
In the case the New York Appellate Court was deciding, each side presented plausible expert testimony as to the viability of the medical malpractice claim. Nonetheless, the gravity of the man’s injury was manifest and the record shows that MLMIC, as the primary insurer in control of the defense, was fully cognizant, early on, of the potential for an unfavorable verdict. MLMIC retained and presented the trial testimony of an orthopedic specialist who believed the medical malpractice case was defensible, and MLMIC’s trial counsel assessed the chances of successfully defending the claim “to be better than fifty-fifty.”
As the medical malpractice case progressed, the defense attorney sent periodic pretrial reports to MLMIC which, in turn, were forwarded to the plaintiff excess carrier. In addition to potential liability, the reports discussed the injured man’s claimed damages for pain and suffering, loss of consortium, and economic losses that greatly exceeded the coverage (the injured man was 36-years-old at the time he fractured his ankle).
The medical malpractice attorney for the injured man demanded $2.3 million to settle the man’s claim during a court conference in June 2012, which settlement demand was repeated at several conferences prior to trial.
During the medical malpractice jury’s deliberations, the jury sent out a note requesting a breakdown of the life care plan expenses for the injured man’s future care, which totaled about $1.1 million. The defense attorney subsequently advised the defendant surgeon for the first time to pursue settlement and obtained the defendant surgeon’s immediate consent to settle, as well as confirmation from the man’s medical malpractice attorney that he would settle for the medical malpractice insurance coverage of $2.3 million against the defendant surgeon.
While the New York medical malpractice jury continued its deliberations, MLMIC subsequently offered its policy limit and advised the excess carrier that it would take its excess policy limit to settle the claim. The excess carrier allegedly decided to await further jury deliberations (the excess carrier alleged, however, that it was never advised that MLMIC offered its policy to settle and that it did not learn that the defendant surgeon signed a consent to settle until after the medical malpractice jury’s verdict). The jury subsequently issued a note indicating that it had reached a verdict after which the defense attorney explained that he received word that MLMIC had agreed to offer its $1.3 million policy but that the excess carrier was not prepared to make any offer. No request was made for additional time to finalize a settlement and the defense attorney was instructed to take a verdict, after which the verdict was rendered.
In the declaratory judgment action, an expert’s affidavit opined that each carrier breached its duty of good faith and failed to comply with industry standards by not keeping the defendant surgeon properly informed as to the risk of an excess verdict, by failing to even address settlement prior to trial, and by failing to offer their policies despite the significance of the jury’s note, the defense counsel’s recommendation to settle, and the defendant surgeon’s consent to settle.
The New York Appellate Court stated that the failure by the insurer to follow an industry practice or its own standard is relevant to resolution of the bad faith issue. While an insurer cannot be compelled to settle a questionable claim, the failure to even address the settlement demand or communicate the demand to the defendant surgeon before the jury’s note is a factor that a jury can consider as some evidence of bad faith.
The New York Appellate Court held: “In our view, the circumstances described above raise a question of fact as to whether plaintiff and MLMIC acted in bad faith in failing to settle this case despite the opportunity to do so. Each points the finger at the other for failing to finalize a settlement, and the factual discrepancy as to the information shared and conversations held between [the insurance company representatives] are for a factfinder to determine at trial. It was clear from the inception of this case that if a jury held [the defendant surgeon] accountable, the verdict would exceed the total coverage — and that, indeed, was the [the injured man’s] settlement position throughout. As such, it was incumbent upon both plaintiff and MLMIC to be fully engaged and attentive to the case, particularly after the jury highlighted question No. 6 on the verdict sheet [i.e., requesting a breakdown of the life care plan expenses] … We recognize that MLMIC controlled the litigation, but, given the prevailing circumstances of the case, plaintiff was equally obligated to remain informed and prepared to respond. On the other hand, if [the excess carrier representative’s] testimony were accepted — that MLMIC never informed her that it had determined to accept the settlement and offer its policy — then plaintiff’s obligation to offer its policy was not triggered, leaving open the question of whether MLMIC acted in bad faith for failing to offer its policy. As it turns out, neither MLMIC nor plaintiff responded to the [injured man’s] settlement demand … As such, we conclude that Supreme Court erred in granting the motions for summary judgment and that the issue of bad faith remains a factual question for resolution at trial.”
Source Healthcare Professionals Ins. Co. v Parentis, 2018 NY Slip Op 07224.
If you or a loved one were injured due to medical negligence in New York or in another U.S. state, you should find a medical malpractice attorney in New York or in your state who may investigate your medical malpractice claim for you and represent you or your loved one in a medical malpractice case, if appropriate.
Click on the “Contact Us Now” tab to the right, visit our website, or call us toll-free in the United States at 800-295-3959 to be connected with medical malpractice lawyers in your state who may assist you.
Turn to us when you don’t know where to turn.