Failure to Settle Wrongful Death Suit Proves Costly

by David Cosgrove

Late last month, the Michigan Court of Appeals affirmed, in part, a set-off reduced verdict of over $1.3 million against an insurance company. This verdict came upon the heels of a $350,000 legal malpractice suit settlement with the insurance company’s attorney. Tibble, et al v. American Physicians Capital, Inc., 2014 WL 5462573 (Mich. App.).

The Plaintiffs were the bankruptcy trustees for an emergency room physician and his corporate employer at Battle Creek Hospital in Michigan. The two of them belonged to Battle Creek Emergency Physicians (“BCEP”). The physician was working in the emergency room when Daniel Symons presented himself complaining of arm pain. The 35-year old Symons died of a heart attack just hours after he was discharged from the emergency room by the physician’s assistant. Symons had three young children at the time of his death.

BCEP had a measly medical malpractice policy with a $300,000 per incident limit. That policy was with insurer-defendant-appellate American Physicians Capital (“APC”).

APC assigned an attorney to defend the claim brought by Symons’ estate. The wrongful death case went to trial and the plaintiffs, defendants in that trial, were hit with a wrongful death judgment of $1.3 million. APC paid in $371,000 toward the $1.3 million judgment. The plaintiffs, substituted by their bankruptcy trustees in this case, eventually filed for—you guessed it—bankruptcy.

The physicians and BCEP filed suit against APC for bad faith in failing to settle before trial and against the attorney and his firm for malpractice. They sought an array of damages, not the least of which was the amount of the trial judgment that exceeded APC’s $371,000 contribution. As noted about, the attorney settled and APC lost at trial. The appeal in Tibble followed.

Ironically, physician Prodinger and the attorney wanted to go to trial, even though the physician’s assistant had failed to check the victim’s cardiovascular and pulmonary systems. They both believed the standard of care had been met, somehow, and regardless—the physicians and BCEP didn’t have enough money to meet the estate’s pre-trial settlement demand. So how did the physician and BCEP win at trial?

This is how—the overwhelming bulk of the verdict went to the physician’s assistant and BCEP, rather than Prodinger. Moreover, APC rejected a $500,000 non-binding case evaluation prior to the malpractice trial. Furthermore, APC rejected a subsequent demand of only $275,000 from the estate. What?! APC claimed it did so because the doctor wanted to go to trial and they had an expert witness on their side to boot. Notably—no apparent input on that decision from the physician’s assistant. And, the doctor got cold feet before trial and told the attorney to settle for $300,000 or less.

During the bad faith claim trial, however, the attorney testified that the doctor and BCEP’s letter to him and APC about settling the malpractice case was insufficiently unequivocal. So, they offered Symons’ estate $100,000 on the first day of trial. (It is amazing how insurance companies and lawyers play this reckless game without any apparent consideration of the value of “buying down risk.” And Lord forbid they consider the non-dollar value of accepting at least partial responsibility for a fatal mistake. Oh how they lose perspective in the heat of “the game.”) Finally, as to Doctor Prodinger-he never told the lawyer he still wanted to settle after the trial (he was attending) began.

On appeal, APC complained that the trial court erred in refusing to give a special jury instruction regarding bad faith. APC wanted the trial court to include “arbitrary” and “intentional disregard” in its definition of bad faith. The trial court refused. Citing City of Wakefield v. Global Indemnity Co., 246 Mich. 645 (1929), the Court of Appeals rightly noted that “a mistake of judgment is not bad faith.” It quoted the Wakefield Court, in part, stating:

Undoubtedly the insurer does not act in bad faith it if refuses settlement in the honest belief that it has a fair chance of victory, or of keeping the verdict within the policy limit, or, upon reasonable grounds, that the compromise is amount is excessive, or if it has legal defenses, as yet undetermined by a court of last resort, which fairly seem applicable, as the question of seasonable notice to the city of the claim of injury may have been in the instant case. There may be other bona fide reasons for refusal to compromise. On the other hand, arbitrary refusal to settle for a reasonable amount, where it is apparent that suit would result in a judgment in excess of the policy limit, indifference to the effect of refusal in a judgment in excess of the policy limit, failure to fairly consider a compromise and facts presented and pass honest judgment thereon, or refusal upon grounds which depart from the contract and the purpose of the grant of power, would tend to show bad faith.

Id. At 652-653. The court of appeals concluded that the trial court erred when it denied APC’s request to include “arbitrary” and “intentional” in its bad-faith instruction. In other words, the plaintiffs over-played their hands at the goal line—the instructions conference. But did they turn the ball over? No—the court of appeals concluded that the instructional error was not prejudicial.

APC’s next argument was quite interesting. It argued that the plaintiffs were not injured because the portion of the jury’s judgment that excluded the policy limits was discharged in the plaintiffs’ bankruptcies. Pretty interesting. The court of appeals provided an extremely detailed analysis of this argument. In doing so, it noted that the courts had decided the issue differently from one another in the past. Their analysis was, however, strictly limited to bad faith claims against insurers for judgments exceeding policy limits. In this regard, it aptly noted that these are actually breach of contract cases confined by the economic loss doctrine. But Dr. Prodinger noted that he was solvent at the time of the judgment and he also noted that he had incurred nearly $100,000 in attorney fees in the lower court and the bankruptcy proceedings.

The court of appeals finally begins its analysis of this point on appeal on page 21 of its Opinion. Ten pages later it concluded:

Accordingly, we conclude that the damages in a bad faith action against an insurer, where the insured files for bankruptcy, is an amount equal to the debtor’s assets that are collected by the trustee of the bankruptcy estate. Our conclusion advances the goals that led to the compromise rule announced in Keeley I by Justice Levin. First, it accepts the essence of the judgment rule by precluding the insurer from taking advantage of the insured’s inability to pay the excess judgment and having to file for bankruptcy, see Keeley I, 433 Mich. at 565 (opinion by LEVIN, J .), and provides a consequence for the insurer’s act of bad faith. Second, it protects the insurer by precluding collection from the insurer beyond what is collectable from the insured by the trustee of the bankruptcy estate.

The court, however, limited this holding to the individual plaintiffs, but another 10 pages later managed to cut the corporate plaintiff’s (BCEP) trial court award in half. In sum, it is critical for attorneys to document their client’s directives and prerogatives regarding settlement, and they should really teach their clients about the risk of losing any jury trial, even if they lose their ability to bill through a trial at an hourly rate.