Verdicts

'Taking the Fifth' Leaves Insurer Free to Deny Payment

A medical malpractice insurer was found not responsible for paying in a suit brought against its insured, as the dentist found guilty of malpractice had violated the terms of his insurance contract by refusing to cooperate in his defense when he asserted his constitutional right to remain silent. Medical Protective Co. v. Bubenik, — F.3d —-, 2010 WL 547053 (C.A.8 (Mo.), 2/18/2010).

The suit involved a dentist specializing in conscious sedation dentistry. Medical Protective Company (MPC) provided his medical malpractice insurance. A patient named Marlon Jaudon died in July 2004 during a procedure at the dentist's office. Six months later that same dentist performed the same type of procedure on the plaintiffs' family member Henry Johnston, who also died.

Malpractice actions were filed against the dentist, first by the Jaudon family and later by the Johnstons. During the course of the Jaudon litigation, the dentist invoked his Fifth Amendment privilege against self-incrimination and refused to offer any testimony. That case was settled.

The dentist asserted his Fifth Amendment rights again in the Johnston case. MPC informed the dentist that his continued refusal to testify might be a material breach of the cooperation clause in his policy, which provided that “[t]he Insured shall at all times fully cooperate with the Company in any claim hereunder and shall attend and assist in the preparation and trial of any such claim.” MPC further informed the dentist and his counsel, by way of two letters, that it would not defend the dentist if he refused to cooperate in his defense. MPC received no response. At a mediation in the Johnston case some months later, MPC hand-delivered to the dentist a letter stating that he had breached the cooperation clause and that MPC was reserving its rights under the policy.

The dentist, knowing that MPC planned to seek a declaratory judgment that it was not liable to pay any judgment in the Johnston case, entered into a settlement with the Johnstons in which they agreed to pursue execution of any judgment only against MPC. Shortly thereafter, MPC filed this declaratory judgment action in federal district court, joining the Johnstons as defendants.

The state court malpractice action went to trial and resulted in a $2.4 million judgment in favor of the Johnstons and against the dentist. The federal district court subsequently concluded that MPC was not liable for that judgment because the dentist had breached the cooperation clause in his policy by failing to testify and assist with his defense. The Johnstons appealed.

In Missouri, in order to deny liability coverage under a cooperation provision, an insurer must prove: 1) a material breach of the cooperation clause; 2) the existence of substantial prejudice as a result of the breach; and 3) the exercise of reasonable diligence to secure the insured's cooperation. Wiles v. Capitol Indem. Corp., 215 F.Supp.2d 1029 (E.D.Mo.2001). The Johnstons argued that the cooperation provision in the policy was ambiguous because it did not “express plainly that the insured will be required to give testimony,” and it should therefore be construed in favor of coverage. The court, after looking to Missouri case law in the area, concluded that a common sense interpretation of the language requiring that the dentist “fully cooperate” and “assist in the preparation and trial of any [claims]” included the duty to assist MPC in its defense strategy, provide relevant documents, answer interrogatories, submit to depositions, and testify at trial if necessary. The duty to give testimony was not outside the normal expectations of the signatories to the insurance contract.

The Johnstons also asserted that the policy's cooperation clause should be deemed unenforceable even if unambiguous because it amounted to a demand that the dentist waive his constitutional rights. They relied for this theory on Malan Realty Investors Inc. v. Harris, 953 S.W.2d 624, 627 (Mo. 1997), in which Missouri's Supreme Court stated that “[t]o effectively waive a jury trial by contract, clear, unambiguous, unmistakable, and conspicuous language is required.” The appellate court here was unconvinced, however, as the Malan case involved a waiver of rights while the MPC insurance policy did not require an actual waiver of the dentist's constitutional rights. He retained the choice whether to invoke his Fifth Amendment rights at the price of losing his insurance coverage or to cooperate with the defense attorneys provided to him and retain his coverage. Finding that the dentist had materially breached his contract, that MPC had used reasonable diligence to obtain his cooperation, and that MPC's ability to defend had been prejudiced by the breach, the Eighth Circuit affirmed the district court's finding that MPC had no duty to pay the Johnstons for their loses.

'Taking the Fifth' Leaves Insurer Free to Deny Payment

A medical malpractice insurer was found not responsible for paying in a suit brought against its insured, as the dentist found guilty of malpractice had violated the terms of his insurance contract by refusing to cooperate in his defense when he asserted his constitutional right to remain silent. Medical Protective Co. v. Bubenik, — F.3d —-, 2010 WL 547053 (C.A.8 (Mo.), 2/18/2010).

The suit involved a dentist specializing in conscious sedation dentistry. Medical Protective Company (MPC) provided his medical malpractice insurance. A patient named Marlon Jaudon died in July 2004 during a procedure at the dentist's office. Six months later that same dentist performed the same type of procedure on the plaintiffs' family member Henry Johnston, who also died.

Malpractice actions were filed against the dentist, first by the Jaudon family and later by the Johnstons. During the course of the Jaudon litigation, the dentist invoked his Fifth Amendment privilege against self-incrimination and refused to offer any testimony. That case was settled.

The dentist asserted his Fifth Amendment rights again in the Johnston case. MPC informed the dentist that his continued refusal to testify might be a material breach of the cooperation clause in his policy, which provided that “[t]he Insured shall at all times fully cooperate with the Company in any claim hereunder and shall attend and assist in the preparation and trial of any such claim.” MPC further informed the dentist and his counsel, by way of two letters, that it would not defend the dentist if he refused to cooperate in his defense. MPC received no response. At a mediation in the Johnston case some months later, MPC hand-delivered to the dentist a letter stating that he had breached the cooperation clause and that MPC was reserving its rights under the policy.

The dentist, knowing that MPC planned to seek a declaratory judgment that it was not liable to pay any judgment in the Johnston case, entered into a settlement with the Johnstons in which they agreed to pursue execution of any judgment only against MPC. Shortly thereafter, MPC filed this declaratory judgment action in federal district court, joining the Johnstons as defendants.

The state court malpractice action went to trial and resulted in a $2.4 million judgment in favor of the Johnstons and against the dentist. The federal district court subsequently concluded that MPC was not liable for that judgment because the dentist had breached the cooperation clause in his policy by failing to testify and assist with his defense. The Johnstons appealed.

In Missouri, in order to deny liability coverage under a cooperation provision, an insurer must prove: 1) a material breach of the cooperation clause; 2) the existence of substantial prejudice as a result of the breach; and 3) the exercise of reasonable diligence to secure the insured's cooperation. Wiles v. Capitol Indem. Corp. , 215 F.Supp.2d 1029 (E.D.Mo.2001). The Johnstons argued that the cooperation provision in the policy was ambiguous because it did not “express plainly that the insured will be required to give testimony,” and it should therefore be construed in favor of coverage. The court, after looking to Missouri case law in the area, concluded that a common sense interpretation of the language requiring that the dentist “fully cooperate” and “assist in the preparation and trial of any [claims]” included the duty to assist MPC in its defense strategy, provide relevant documents, answer interrogatories, submit to depositions, and testify at trial if necessary. The duty to give testimony was not outside the normal expectations of the signatories to the insurance contract.

The Johnstons also asserted that the policy's cooperation clause should be deemed unenforceable even if unambiguous because it amounted to a demand that the dentist waive his constitutional rights. They relied for this theory on Malan Realty Investors Inc. v. Harris , 953 S.W.2d 624, 627 (Mo. 1997), in which Missouri's Supreme Court stated that “[t]o effectively waive a jury trial by contract, clear, unambiguous, unmistakable, and conspicuous language is required.” The appellate court here was unconvinced, however, as the Malan case involved a waiver of rights while the MPC insurance policy did not require an actual waiver of the dentist's constitutional rights. He retained the choice whether to invoke his Fifth Amendment rights at the price of losing his insurance coverage or to cooperate with the defense attorneys provided to him and retain his coverage. Finding that the dentist had materially breached his contract, that MPC had used reasonable diligence to obtain his cooperation, and that MPC's ability to defend had been prejudiced by the breach, the Eighth Circuit affirmed the district court's finding that MPC had no duty to pay the Johnstons for their loses.