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Kessler v. Continental Casualty Co.

OPINION FILED APRIL 2, 1985.

SEYMOUR KESSLER, D.P.M., PLAINTIFF-APPELLEE,

v.

CONTINENTAL CASUALTY COMPANY ET AL., DEFENDANTS-APPELLANTS.



Appeal from the Circuit Court of Cook County; the Hon. George A. Higgins, Judge, presiding.

PRESIDING JUSTICE STAMOS DELIVERED THE OPINION OF THE COURT:

Rehearing denied April 30, 1985.

This case involves an interlocutory appeal by the defendants, two insurance companies, from the issuance of a preliminary injunction prohibiting them from nonrenewing or otherwise failing to provide malpractice insurance for plaintiff's podiatric services until plaintiff, as an insured, is given full claims and insurability review by the Professional Liability Review Committee and the insurance companies.

The facts disclose that plaintiff Seymour Kessler (plaintiff), a podiatrist and one of the founders and current members of the Academy of Ambulatory Foot Surgeons (AAFS), sought a preliminary and permanent injunction against the defendants, the two insurance companies (collectively CNA), which had provided malpractice insurance to plaintiff for three policy years under a program sponsored by the AAFS. Plaintiff sought to require CNA to renew his most recently expired policy and to continue providing him with malpractice insurance until such time as the defendant fully complied with its obligations under plaintiff's policy and the AAFS malpractice insurance program agreements.

In the fall of 1980, AAFS, a society of podiatrists specializing in outpatient foot care and strong proponents of a surgical technique called "minimal incision surgery," entered into an agreement with CNA to co-sponsor a professional liability insurance program for AAFS members. A written contract was executed on June 1, 1981 (the AAFS Agreement).

Plaintiff alleged in his complaint that the development of the minimal incision surgery technique, which can be performed in a physician's office or on an outpatient basis, had the effect of reducing medical care revenue to podiatric hospitals and to podiatrists having a practice based on an inpatient surgery and confinement basis. As a result of this economic threat, the hospital-based podiatrists and others attacked the minimal incision procedure and, through their representative group, the American Podiatry Association (APA) allegedly sought to impede the proponents of the procedure from qualifying as certified diplomats of the American Board of Podiatric Surgery. This animosity led the proponents to form their own national organization, the AAFS, which then embarked on providing malpractice insurance for its members. This ultimately led to the AAFS Agreement mentioned above.

At the hearing for the preliminary injunction, one Dr. Plon testified as to the history of the AAFS and the special needs which caused the AAFS to develop its own program with CNA as the carrier. Plon, a co-founder of the AAFS with plaintiff, testified as to meetings between members of the AAFS board, which included plaintiff and was responsible for finding an appropriate insurance carrier, and members of CNA. Specifically, Plon testified that the concept of peer review and claims review was vitally important to the AAFS and was one of the major reasons the AAFS wanted its own insurance program apart from any program sponsored by the APA. Plon testified that, when he and plaintiff were looking for a new insurance company to insure AAFS after its old carrier was determined to be unsatisfactory, CNA was selected as the carrier because of its representations that it could meet the special requirements of the AAFS. Plon also testified that CNA, in his opinion, did not perform under the AAFS Agreement in the manner he and the AAFS originally thought it would. Namely, no information was apparently given by CNA to the appropriate committee of the AAFS enabling AAFS to review the merits of claims filed against members and advise CNA accordingly, and, if necessary, offer expert witnesses to fight claims thought to be non-meritorious.

The AAFS Agreement did not provide for automatic group coverage. Rather, the AAFS was empowered to create a Professional Liability Review Committee which would work with CNA in administering the program. Relevant portions of the AAFS Agreement provide as follows:

"CNA shall have the sole and exclusive authority to accept or reject an application for insurance from a podiatrist.

The insurance provided hereunder will be offered as long as the podiatrist meets the approval of the AAFS Professional Liability Review Committee and continues to meet CNA's underwriting criteria. No quota or limit shall apply to the number of podiatrists as participants in the program.

The Academy will assist CNA in establishing general underwriting criteria and eligibility standards for the insurance program. While the criteria and standards are intended as general guidelines, CNA may use such other relevant considerations as it deems material in determining eligibility for the insurance program. CNA agrees to offer the insurance program to podiatrists who, in the judgment of CNA qualify, pay the premiums when due, and continue to meet CNA's general underwriting criteria and eligibility standards.

The role of the Professional Liability Review Committees is advisory in nature and as such the members of [said committees] shall not be liable to CNA for findings, recommendations or decision made."

Plaintiff subsequently obtained professional liability insurance under the program with CNA for three policy years from January 31, 1981, to January 31, 1984. During the term of plaintiff's contract, a total of 40 claims were filed against him. After reviewing plaintiff's three-year claims history, CNA determined that it would not renew plaintiff's insurance coverage, allegedly because plaintiff's loss experience had become deleterious. CNA sent plaintiff one notice of non-renewal on December 15, 1983, and another on December 27, 1983, citing plaintiff's alleged noncompliance with underwriting criteria. Plaintiff claims that CNA's decision to non-renew him was based on its use of a secret underwriting "grid" which provided for automatic non-renewal when four or more claims were filed in three years against an insured, regardless of the merits of the claims or the volume of the insured's practice. Plaintiff contends that CNA's use of this grid was violative of the basic understanding between AAFS and CNA to provide for AAFS peer review of claims, and is inconsistent with the AAFS Agreement and the negotiations leading thereto. Plaintiff further contends that CNA's use of the grid is inconsistent with advertising brochures issued by CNA to AAFS members, like plaintiff, who were obtaining insurance through the program. CNA claimed that the decision to renew was solely within the province of CNA. CNA also claimed that the provision in the AAFS Agreement for AAFS advisory review relates to insurability, the initial decision to accept or reject an applicant, and not to renewal, the decision to enter into a new insurance contract upon the automatic expiration of the existing policy. CNA further maintained that plaintiff has no legal interest or right in any provision of the AAFS Agreement and that nowhere does plaintiff's own insurance contract provide for claims review or peer review.

On February 29, 1984, plaintiff filed a complaint in chancery for an injunction and other relief. The essence of plaintiff's complaint was that CNA's refusal to renew his malpractice insurance was a breach of CNA's duty arising under the AAFS program agreement with the AAFS and its members as well as a breach of CNA's policy obligations to plaintiff. Effective January 31, 1984, plaintiff's insurance had been extended through March 1, 1984. On February 29, 1984, the trial court issued a temporary restraining order, based upon plaintiff's motion for a temporary restraining order ...


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