Obtaining Early Confirmation of Coverage in Litigation
James P. Goslee and Jillian A.S. Roman
Apr 14, 2014
Pursuing a successful medical malpractice claim in Pennsylvania is both challenging and expensive. Important facts are often unknown, the medicine can be difficult and the standard of care unclear. The risks of pursuing a claim are further compounded by the high costs of retaining and paying for experts and the uncertain and unpredictable odds of winning a jury verdict. Because of these challenges, during the course of litigation, plaintiffs attorneys logically focus on proving liability and establishing damages.
Rarely, however, do attorneys investigate with the same focus or thoroughness whether their client will be able to collect an award if he or she wins. Typically, attorneys accept defense counsel’s representation of the extent of the primary and excess insurance policies, without independent verification. This is a mistake. It is an unfortunate reality that, after considerable time and resources have been spent making out a strong liability and damages case, an excess malpractice policy identified early in discovery may no longer be available for settlement or to satisfy a judgment, because the policy has already been paid down on another claim. Under a shared-limit policy, the amount of coverage available can be significantly eroded or even eliminated during the course of litigation as the defendant and its carrier, unbeknownst to counsel, settle other pending claims or lawsuits. Thus, from the inception of litigation, it is crucial for plaintiffs counsel to identify not just the amount of insurance coverage available, but whether the coverage can be reduced or eliminated by other third-party claims.
Pennsylvania’s Medical Care Availability and Reduction of Error Act requires minimum insurance coverage of $500,000 for physicians and hospitals. Frequently, health care facilities carry excess coverage and plaintiffs attorneys typically ask for the limits of these policies in discovery. This information is obviously important to the plaintiff and is a prerequisite to settlement discussions.
In response to these requests, defendants normally provide simplistic interrogatory answers and, on occasion, provide declaration pages showing the excess liability limit. Plaintiffs counsel often accepts these bare representations without asking for more. Yet in order to appropriately represent victims of medical malpractice, it is important that plaintiffs counsel not only request and insist upon receiving complete copies of any liability insurance policies, but that they read these policies and understand them.
It is not uncommon for medical facilities to have excess policies with shared limits. These sorts of policies provide an aggregate amount of excess coverage to a medical provider for a given year and that amount is reduced on a first-come, first-served basis by any settlement or judgment award for claims falling in the same policy period. So, for instance, a medical provider may have an eroding excess policy of $5 million, but that does not mean there is $5 million available. If the provider settles one or more cases, that amount may be exhausted or reduced significantly.
There is no question that under Pennsylvania law, plaintiffs are entitled to receive copies of applicable insurance policies, including excess policies, in discovery. Indeed, the Pennsylvania Rules of Civil Procedure specifically require disclosure of “the existence and terms of any insurance agreement under which any person carrying on an insurance business may be liable to satisfy part or all of a judgment.”
Pennsylvania courts have long recognized the reason for and crucial importance of plaintiffs’ right to receive insurance policies in discovery. For instance, in Szarmack v. Welch, 318 A.2d 707 (Pa. 1974), the Pennsylvania Supreme Court cogently noted that “the extent of insurance coverage is not only valuable to plaintiffs counsel in determining how to prepare his case, but also in evaluating offers of settlement. A paper judgment is obviously meaningless to the plaintiff.”
Likewise, in Weiner v. Charny, 23 Pa. D&C. 3d 367 (Allegheny Ct. Com. Pl. 1982), Judge R. Stanton Wettick Jr. recognized that “this policy of giving plaintiff prior to settlement discussions and trial the opportunity to evaluate the likelihood that a judgment will be paid would be defeated if plaintiff were denied discovery of the contents of any provision within the policy that may serve as a basis for denying coverage.”
The use of shared-limit excess policies poses significant challenges and strategic decisions for plaintiffs attorneys. Therefore, it is important to determine whether there is such a policy as early in the litigation as possible. That means always insisting on the complete policy in requests for production, in addition to specifically asking if the policy is a shared-limit, self-consuming, wasting or eroding policy in interrogatories. Unfortunately, for strategic reasons or otherwise, defendants are not always forthcoming with this information.
Surprisingly, however, there is no legal requirement for defendants or insurance carriers to notify a plaintiff before settling other cases subject to the same policy, no matter how serious or significant the exposure in nonsettling matters. Instead, Pennsylvania has a first-come, first-served rule, even when the total policy is inadequate to compensate all victims, as in Scharnitzki v. Bienenfeld, 368 Pa. Super. 610, 614-615 (1987).
The sole requirement imposed on the insurer is that the settlements be reasonable; only if they are not could the insurer possibly be subject to a bad-faith claim by the nonsettling insureds, as in Anglo-American Insurance v. Molin, 670 A.2d 194, 195 (Pa. Commw. Ct. 1995). Thus, failing to be forthcoming with plaintiffs counsel and disclose the existence of other pending claims is not, in and of itself, a breach of good faith, and it is crucial for plaintiffs counsel to understand if the excess policy is an eroding policy as soon as possible and, if so, how much coverage is left on the policy.
In addition to receiving, reading and understanding the excess policy, counsel should also use discovery to determine whether there are other third-party claims that could eat away at the coverage. Once a shared-limit policy is identified, plaintiffs counsel should send interrogatories requesting the defendant list and provide a description of all other litigation or claims made that are covered by the same policy term as the one in which the plaintiff’s claim or occurrence falls. These interrogatories should be continuing and should specifically request notice of additional claims or lawsuits as they become known. The interrogatories can also request disclosure of third-party settlements and judgments that reduce the excess policy as they arise.
Having a complete and accurate understanding of excess coverage available is vitally important to representing a client in medical malpractice cases. This information can and does significantly influence both litigation tactics and settlement strategy. Therefore, it is crucial for plaintiffs counsel to vigorously pursue this information as soon as possible and utilize discovery tools to ensure they have a complete picture of available insurance, before unanticipated problems arise.
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