A sexual assault on a patient during the course of a gynecological examination was covered under a professional medical malpractice policy, according to a New Jersey appellate court, despite the policy's exclusion of criminal acts.

Prasert Chunmuang, a gynecologist, was covered under a professional medical malpractice policy issued by Princeton Insurance Co. The policy covered damages the doctor was legally obligated to pay as a result of injury caused by a "medical incident" arising out of his supplying professional services. The policy exclusion section provided that the insurance did not apply for injury resulting from the performance of a criminal act.

In November 1992, June Davis, then 17 years old, consulted the doctor for a gynecological examination because she was experiencing cramping and had not had a menstrual cycle.

The examination allegedly included physical contact not ordinarily associated with such exams, including fondling of Ms. Davis' breasts and the use of the doctor's fingers rather than an instrument for the vaginal examination. Subsequently the doctor was indicted and pleaded guilty to several counts of similar criminal conduct on patients other than Ms. Davis.

Ms. Davis sued the doctor for damages and won a judgment of $50,000 in compensatory damages and a like amount in punitive damages. The doctor's insurer refused to defend the Davis suit and sought a declaration from the court that it had no duty to defend. The trial court held there was coverage.

The appellate court affirmed, concluding that the insurer was liable for the malpractice of the insured doctor that resulted in injury to Ms. Davis.

According to the court, it was an injury resulting from a "medical incident" arising out of the doctor's supplying of professional services. The court also held that the insurer could seek indemnification for such damages against Dr. Chunmuang.

Princeton Insurance Co. vs. Chunmuang, Superior Court of New Jersey, Appellate Division, July 18, 1996 (BI/03/F.-$10)

Blanket bond limitation clarified

A two-year contractual limitations period in a savings and loan blanket bond was not tolled, or barred, during the period of the insurer's investigation from the time of submission of the proof of loss to the denial of the claim, according to the 8th U.S. Circuit Court of Appeals.

Hartford Accident & Indemnity Co. issued a standard savings and loan blanket bond to the now defunct First Federal Bank since taken over by the Federal Deposit Insurance Corp. The bond provided broad coverage, including employee infidelity. The bond further provided that any action on the bond must be brought no later than 24 months after discovery of the loss.

In late 1988, it was discovered that the president of the mortgage company operated by First Federal had engaged in fraudulent activities. First Federal notified Hartford of the claim under the bond, and Hartford refused to pay.

The proof of loss was submitted to Hartford on Dec. 20, 1988. On March 7, 1990, Hartford denied coverage.

The FDIC filed this suit for breach of contract on Nov. 15, 1990, eight months after denial of coverage, and almost 25 months after discovery of the loss. The trial court ruled that the two-year limitations period in the bond was void under South Dakota law. The Circuit Court of Appeals reversed and remanded to the trial court. The trial court again ruled for the FDIC.

The appellate court emphasized that the bond specifically required First Federal to commence action no later than "the expiration of 24 months from the discovery of such loss." The court said that this language was plain and unambiguous. The court also pointed out that a majority of courts have refused to toll a limitations provision during the initial non-suit period or during the insurer's investigation.

According to the court, the parties made an agreement and were bound to their contract as written. The trial court decision was reversed.

Federal Deposit Insurance Corp. vs. Hartford Accident & Indemnity Co., 8th U.S. Circuit Court of Appeals, Oct. 16, 1996 (BI/05/A.-$10).

These abstracts were prepared by Mayo H. Stiegler. Copies of these decisions are available by sending a $10 check payable to Mayo H. Stiegler to Business Insurance, 740 N. Rush St., Chicago, Ill. 60611-2590. List the number for each opinion.