Court of Appeals of Illinois, First District, Fifth Division
ROSALIND FRANKLIN UNIVERSITY OF MEDICINE AND SCIENCE f/k/a Finch University/Chicago Medical School, Plaintiff-Appellee and Cross-Appellant,
LEXINGTON INSURANCE COMPANY and LANDMARK AMERICAN INSURANCE COMPANY, Defendants-Appellants and Cross-Appellees; (Lexington Insurance Company, Cross-Plaintiff-Appellant and Cross-Appellee,
Landmark American Insurance Company, Cross-Plaintiff-Appellant and Cross-Appellee)
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Appeal from the Circuit Court of Cook County, Illinois. No. 06 CH 14486. Honorable Richard J. Billik, Jr., Judge Presiding.
Affirmed in part and reversed in part; cause remanded.
On appeal from the entry of summary judgment finding that two of plaintiff medical school's insurers had to indemnify plaintiff for the settlement of an underlying suit arising from plaintiff's decision to discontinue a study of a breast cancer vaccine, the appellate court affirmed the finding that the insurer of plaintiff's medical services had a duty to pay plaintiff's defense and settlement costs, and the judgment for plaintiff on its claim that its medical services insurer was estopped from asserting coverage defenses was upheld on the ground that plaintiff was represented by its own counsel throughout the proceedings and did not rely exclusively on the counsel appointed by the insurer in making decisions about the case; however, the entry of summary judgment for plaintiff on the count alleging that the second insurer was required to pay plaintiff's settlement costs in the underlying suit was reversed and the trial court was directed to enter summary judgment for the insurer on that count, and the trial court's rejection of plaintiff's claim of bad faith on the part of its first insurer was affirmed.
For Lexington, APPELLANT: Matthew J. Fink, Paula M. Carstensen, Amy P. Klie, Bridget M. Curry, Bates Carey Nicolaides LLP, Chicago, Illinois.
For Landmark, APPELLANT: Michael S. Knippen, James M. Eastman, Natalie M. Limber, Traub Lieberman Straus & Shrewsberry, LLP, Chicago, Illinois.
For Rosalind, APPELLEE: Michael R. Gregg, Martin A. Kanofsky, Danita L. Davis, Merlo Kanofsky & Gregg Ltd., Chicago, Illinois.
JUSTICE TAYLOR delivered the judgment of the court, with opinion. Presiding Justice Gordon and Justice Palmer concurred in the judgment and opinion.
[¶1] This appeal arises out of a declaratory judgment action involving an insurance dispute between plaintiff, Rosalind Franklin University of Medicine and Science (Rosalind), and two of its insurers, Lexington Insurance Company (Lexington) and Landmark American Insurance Company (Landmark).
[¶2] Rosalind claimed coverage for a settlement it paid in an underlying lawsuit brought by former patients who sought compensation for Rosalind's decision to discontinue an experimental breast cancer vaccine program. As shall be discussed in greater detail below, Lexington's policies covered liability " resulting from a medical incident arising out of professional services," while Landmark's policy contained a specific exclusion for medical malpractice damages. When both insurers denied coverage, Rosalind brought the instant declaratory judgment action against them. Subsequently, Lexington filed a cross-claim against Landmark, contending that Landmark's policy should provide coverage for the underlying suit and settlement.
[¶3] On November 23, 2011, the trial court granted summary judgment for Rosalind and against Lexington and Landmark, finding that both insurers had a duty to indemnify Rosalind for the settlement in the underlying suit. It is from this judgment that Lexington and Landmark now appeal. For the reasons that follow, we affirm in part and reverse in part.
[¶4] I. BACKGROUND
[¶5] A. The Underlying Lawsuit
[¶6] The following facts regarding the underlying lawsuit are undisputed for purposes of this appeal. Rosalind is a not-for-profit medical school. Between 1989 and 2004, Rosalind administered a research study of a breast cancer vaccine developed by the late Dr. Georg Springer. The purpose of the study, entitled " Treatment of Carcinoma Patients with T/Tn Antigen," was to evaluate whether stimulating a person's immune system was effective in fighting breast cancer. Dr. Springer funded the study through a gift agreement that provided a donation of common stock valued at $2.5 million.
[¶7] Each patient who participated in the Springer vaccine program executed a consent form that provided, in relevant part: " I understand that the purpose of this experimental research is to stimulate the immune system in an attempt to fight cancer. *** T/Tn antigen treatment will be continued ad infinitum ." The consent form additionally stated: " [P]rocedures involved in this research are not part of my routine treatment and are not intended to potentially benefit my personal health. I am taking part in a study accumulating information on my body's response to T/Tn antigen vaccination."
[¶8] In 2004, Rosalind's institutional review board (IRB) decided to discontinue the Springer vaccine program, citing the following reasons: (1) inadequate information from the program's principal investigator, (2) lack of scientific validity, (3) lack of demonstrable efficacy, and (4) inadequate assurance of safety.
[¶9] Following this decision, in July 2004, approximately 50 of the former Springer vaccine patients filed suit against Rosalind, claiming that the decision to discontinue the vaccine program put their lives at risk. (We shall refer to this suit as " the Pollack suit" or " the underlying suit." ) The Pollack complaint was prefaced with a preliminary statement alleging that the Springer vaccine treatments " have helped save and prolong the patients' lives," and, as a result, the termination of the vaccine program " has caused these patients to suffer incalculable damage." The preliminary statement additionally stated:
" A cardinal principle of the medical profession is that, once care is undertaken, patients may not be abandoned. This litigation seeks relief for such abandonment of the plaintiffs who have been patients in the Springer/[Rosalind] anti-cancer vaccine program for many years. *** Each of [the claims in the complaint] arises as a direct and proximate result of [Rosalind's] improvident decision to terminate the life-saving treatments that have sustained these women for many years following their horrific experiences of breast cancer, surgery, radiation, chemotherapy, and other trauma."
[¶10] The Pollack complaint alleged the following facts about Rosalind's decision to discontinue the Springer vaccine program. Starting in 1988, the Food and Drug Administration (FDA) cited the Springer vaccine program for multiple violations of proper laboratory management and research techniques. Instead of spending the necessary money to correct these deficiencies, Rosalind chose to end the program. To this end, its university administrators allegedly " manipulate[d] the IRB to ensure the termination of the T/Tn anti-cancer vaccine program." The complaint acknowledged that the IRB cited lack of scientific validity as a reason for ending the program, but it stated that this justification was " a ruse" and contradicted " decades of evidence to the contrary." The complaint further alleged that the decision to end the program " significantly increases the likelihood that the patients will suffer a recurrence of cancer." In support, the complaint cited an alleged statement by Dr. Springer that " in order to maintain its effectiveness against any possible recurrence of cancer, the [vaccine] treatments must be continued throughout [the patient's] lifetime."
[¶11] The Pollack plaintiffs sought injunctive relief as well as damages for breach of fiduciary duty, breach of contract, unjust enrichment, violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq . (West 2012)), common law fraud, and negligence. In the count for injunctive relief, the plaintiffs asked the court to require Rosalind to " disgorge all sums received from Dr. Springer" and release the available vaccines as well as all records pertinent to the program.
[¶12] In the count for breach of fiduciary duty, plaintiffs claimed that a hospital/patient fiduciary relationship existed between the parties, which gave Rosalind the obligation " to comport with their professional responsibilities as articulated in the Code of Medical Ethics." Plaintiffs alleged that Rosalind violated the provision of the Code of Medical Ethics which states that a health care provider " may not discontinue treatment of a patient as long as further treatment is medically indicated, without giving the patient reasonable assistance and sufficient opportunity to make alternative arrangements for care." Plaintiffs further alleged that Rosalind breached its fiduciary duty by promising to continue the Springer vaccine treatments " ad infinitum "
and then discontinuing them without any legitimate justification.
[¶13] In the count for " Unjust Enrichment and Disgorgement," plaintiffs stated that during the course of the Springer vaccine program, Rosalind collected millions of dollars from Dr. Springer and thousands of dollars from the patients. Plaintiffs contended that Rosalind's retention of those funds after termination of the vaccine program constituted unjust enrichment and that such funds " should be disgorged from" Rosalind and placed in a fund to continue the vaccine program.
[¶14] In the count for violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, plaintiffs alleged that Rosalind knowingly deceived the patients by promising to continue the vaccine treatments " ad infinitum " ; Rosalind intended for the patients to rely on its representations by entering the vaccine program and contributing sums of money; and the plaintiffs did, in fact, rely on such representations.
[¶15] Finally, in the count for negligence, plaintiffs alleged that Rosalind had a duty to treat its patients with reasonable care, and it breached that duty by improperly managing the vaccine program and then terminating it with the knowledge that doing so would expose the patients to significant risk of injury. Plaintiffs stated, " As evidence of [Rosalind's] breach of its standard of care, [Rosalind] violated the Code of Medical Ethics." In support, they attached a healing arts affidavit from a health professional opining that there was a meritorious cause for the filing of the action.
[¶16] On October 25, 2004, a hearing began on the Pollack plaintiffs' motion for a preliminary injunction to secure the funds that were gifted by Dr. Springer as well as the remaining vaccine. After the second day of the hearing, counsel for Rosalind determined that the case was not proceeding well for Rosalind and that the possibility of a settlement should be explored. Consequently, the preliminary injunction hearing turned into a settlement conference.
[¶17] On October 27, 2004, the parties reached a settlement in principle. Rosalind's president and board of trustees subsequently approved the settlement, and the final agreement was executed on December 4, 2004. The agreement provided for payments by the university of: (1) $2.5 million to be placed in a trust for the plaintiffs to resume the vaccine study; (2) $1 million if the plaintiffs successfully resumed the study; and (3) $500,000 " to compensate the plaintiffs for pain and suffering." The underlying plaintiffs did not succeed in restarting the vaccine program and, therefore, Rosalind's total settlement payment was $3 million.
[¶18] B. The Insurance Policies
[¶19] At all times relevant to this lawsuit, Lexington had issued primary and excess healthcare liability policies to Rosalind, while Landmark had issued a directors and officers liability policy to Rosalind.
[¶20] The primary policy issued by Lexington is a " Healthcare Professional Services Liability Policy" (hereinafter, the Lexington Primary Policy), which contains a limit of $1 million per " medical incident," subject to a $100,000 self-insured retention. The policy covers sums that Rosalind becomes legally obligated to pay as damages " resulting from a medical incident arising out of professional services." The phrase " medical incident" is defined as " any act, error or omission in the providing of or failing to provide professional services." The phrase " professional services" is defined as follows:
" 1. Medical, surgical, dental, nursing or other health care services including
but not limited to the furnishing of food or beverages in connection with such services; the practice of nuclear medicine; the furnishing or dispensing of drugs or medical, dental or surgical supplies or appliances; or the handling or treatment of deceased human bodies, including but not limited to, autopsies, organ donation or other procedures."
The Lexington Primary Policy additionally contains a voluntary payment provision which provides that without Lexington's consent, the insured shall not " except at [its] own cost, voluntarily make a payment, assume any obligation, or incur any expense."
[¶21] Lexington also issued an " Excess Healthcare Professional Liability Policy" (hereinafter, the Lexington Excess Policy) to Rosalind for the same policy period. This policy has a limit of $2 million for " each medical incident" and otherwise contains the same relevant coverage provisions as the Lexington Primary Policy.
[¶22] The other defendant, Landmark, issued a " Directors and Officers Liability Policy" (hereinafter, the Landmark Policy) to Rosalind with an aggregate limit of $5 million per policy period. The parties do not dispute that Landmark owed no defense obligation with regard to the underlying suit. Thus, the only issue presented in this case with regard to Landmark is whether the Landmark Policy provides indemnity to Rosalind for the settlement paid to the underlying plaintiffs.
[¶23] Under the Landmark Policy, Landmark agrees to provide coverage to Rosalind for any covered " Loss" that Rosalind became legally obligated to pay as a result of a " Claim" for a " Wrongful Act." The term " Loss" is defined as follows, in relevant part:
" [D]amages, settlements, judgments and Defense Expenses, including punitive or exemplary damages, if insurable under the law pursuant to which this policy is construed ***. Loss, however, shall not include:
ii. matters which are uninsurable under the law pursuant to which this policy shall be construed;
iv. any amount which an Insured Person is obligated to pay as a result of a Claim seeking relief or redress in any form other than money damages ***."
The term " Wrongful Act" is defined as " any actual or alleged error, omission, misstatement, misleading statement, neglect or breach of duty by an Insured Person solely in their capacity as an Insured Person acting on behalf of the Insured Organization."
[¶24] The Landmark Policy also contains two exclusions relevant to this appeal. First, it contains a " Medical Malpractice Exclusion (With Management Carveout)," which states, in relevant part:
" In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable to make any payment for Loss in connection with any Claim made against any Insured Person and/or the Insured Organization based upon or attributable to any medical or professional malpractice including but not limited to the rendering or failure to render any medical or professional service(s)."
[¶25] Second, the Landmark Policy contains an exclusion for bodily injury, including pain and suffering, as follows: " The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against the Insured Persons: *** (1) for any actual or alleged (a) bodily injury, sickness, disease, or death of
any person, mental anguish, or emotional ...