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Medical Assurance Co, Inc. v. Amyhellman

June 21, 2010

MEDICAL ASSURANCE COMPANY, INC., PLAINTIFF-APPELLANT,
v.
AMYHELLMAN, ET AL., DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Indiana, Hammond Division. No. 4:06-CV-117-AS-Allen Sharp, Judge.

The opinion of the court was delivered by: Wood, Circuit Judge.

ARGUED OCTOBER 29, 2009

Before FLAUM, MANION, and WOOD, Circuit Judges.

Dr. Mark Weinberger maintained a prosperous ear, nose, and throat practice (commonly called "ENT" by people whose first loyalty is not to J.R.R. Tolkien) in Merrillville, Indiana. Unfortunately, that was not enough for him; he supplemented his income by using his practice to defraud numerous insurance companies of millions of dollars. In September 2004, while vacationing with his wife in Greece, Weinberger "went for a run" and did not come back. At the time, it seemed that Weinberger had no intention of returning to the United States, in all likelihood because he was facing $5.7 million in creditor claims and 22 criminal counts of billing fraud upon his return. The U.S. government took various steps, including having an international arrest warrant issued, to locate Weinberger. The parties have informed us that Weinberger was arrested in Italy in December 2009, he has been extradited to the United States, and he is now facing health care fraud charges in the Northern District of Indiana. These facts, however, are of only peripheral concern to us for the present case.

Criminal charges are not the only allegations pending against Weinberger. He is also facing more than 350 medical malpractice claims, most of which were filed after his disappearance. These claims have been proceeding through Indiana's medical malpractice process. Weinberger's medical malpractice insurance carrier, the Medical Assurance Company, Inc. ("Medical Assurance"), has been conducting his defense, but Weinberger's disappearance prompted it to file this suit. The insurance contracts between Medical Assurance and Weinberger include a typical cooperation clause, which requires Weinberger to participate in his defense. Needless to say, Weinberger was not cooperating during his extensive European "vacation." Frustrated, Medical Assurance brought a declaratory judgment action in federal court in Indiana asking the court to declare that Weinberger breached his responsibilities under the contract and therefore Medical Assurance no longer has a duty to defend or indemnify him.

The district court was concerned that such a declaration would intrude too severely on the state medical malpractice actions. It thought that Medical Assurance could not show that Weinberger's lack of cooperation was prejudicing the company without improperly interfering with the state cases. It therefore decided to refrain from going forward pending the resolution of the state court proceedings, and it issued a stay of the federal proceedings. In this appeal, Medical Assurance argues that the court erred in doing so and that it should have proceeded to resolve the merits of the declaratory judgment action. We conclude that Medical Assurance is correct. Although district courts enjoy some discretion over requests for declaratory judgments, that discretion is not unlimited. We therefore remand this case to the district court with instructions to lift the stay and to proceed to the merits. In so doing, the court will be able to take into account Weinberger's return to Indiana and any other pertinent developments.

I.

Before turning to the specifics of the appeal, we review the more prosaic facts that led to this litigation. Over the years, Weinberger saw hundreds of patients, and not all of them were happy with the care they received. In June 2004, dissatisfied customers filed the first relevant medical malpractice claims. As mentioned above, Weinberger vanished in September 2004; by then, only three cases had been filed. After his disappearance became public, however, the number of malpractice claims ballooned to more than 350.

Indiana's medical malpractice insurance system is governed by statute. In 1975, Indiana adopted a comprehensive system to regulate medical malpractice insurance and claims. See IND. CODE §§ 34-18-1-1 to -18-2. The Medical Malpractice Act ("the Act") offers certain benefits, including a limitation on liability, to qualified providers who meet statutorily-defined requirements, such as holding malpractice insurance above prescribed levels. Qualified providers contribute funds to the Indiana Patient's Compensation Fund (PCF), which is then available to pay any damages over the statutory threshold, as well as damages that the doctor and his insurance provider fail to pay. See id. §§ 34-18-6-1, -15-3 & -15-4. As the payor of last resort, PCF has an interest in this case; it is represented by the defendant Commissioner of the Indiana Department of Insurance and Administrator of the PCF (an office that was held by James Atterholt at the time suit was filed, but that is now filled by Carol Cutter-we refer simply to "the Com-missioner").

The Act also introduced a new procedural mechanism for medical malpractice claims. In brief, it provides that a medical review panel must issue an opinion on every medical malpractice claim before that claim may be pursued in Indiana courts. Id. § 34-18-8-4. Complaints are filed with the Indiana Department of Insurance (IDOI) and, after 20 days, any party may request the formation of a medical review panel, which is made up of three independent (volunteer) physicians. Id. § 34-18-10-2. The panel issues an opinion on the merits (e.g., the doctor's compliance with the standard of care, causation, damages).

Id. § 34-18-10-22. The panel's decision is not binding, but it is admissible as evidence in the state court action. Id. § 34-18-10-23.

We are aware of only four cases in which medical review panels have rendered opinions on claims against Weinberger: three concluded that damages should not be available, and one found substandard care and nonpermanent injuries. Only those four cases have moved from the review-panel stage to an actual lawsuit in state courts. None of the cases has proceeded to judgment. Weinberger's absence from the country for more than five years already has had consequences in these cases; as a result of his failure to cooperate with the medical review panel process, the Lake County Superior Court entered an order in 2006 prohibiting him from testifying in the medical review panel proceedings or in the subsequent state court trial proceedings. As far as the record before us shows, its order applies to at least 285 of the pending claims.

Between 1996 and 2004, Medical Assurance provided professional liability insurance coverage to Weinberger and his businesses under various policies. The contractual provisions relevant to this appeal are the same in all of the policies. They provide that Medical Assurance has a duty to defend and indemnify Weinberger, but Medical Assurance is relieved of those duties if Weinberger violates the policy's cooperation clause, which is found in Paragraph 5 of the General Conditions and Requirements for each policy and reads as follows in relevant part:

[The insured] must fully cooperate with Medical Assurance and defense counsel in the investigation, handling, and defense of the legal proceeding. [The insured's] duty to cooperate includes, but is not limited to:

* When requested, attendance at and preparation for meetings, hearings, depositions, and trials;

* Securing and providing evidence and assisting in obtaining the attendance of witnesses;

* Truthfully and completely informing Medical Assurance about the facts and circumstances which surround any professional incident or legal proceeding and, specifically, the nature of [the insured's] acts or omissions, so that Medical Assurance may correctly assess liability;

* Supplementing the information previously provided to Medical Assurance or defense counsel as additional information ...


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