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A federal appeals court has upheld a lower court ruling that an XL Group P.L.C. unit was not obligated to defend nor indemnify a medical malpractice insurer under an errors & omissions clause in its reinsurance policy in a case involving the med mal insurer's refusal to settle litigation.
In May 2008, Stephen Nicholson sued surgeon Dr. Arleen Thom for medical malpractice on behalf of his late wife, a cancer patient, for allegedly leaving a surgical sponge after operating on her in 2005, according to court papers in Greenwich Insurance Company v. Medical Mutual Insurance Company of North Carolina.
According to a news report, the 18-inch by 18-inch sponge caused infections and prevented Mrs. Nicholson from being able to get chemotherapy and radiation for her cancer, and she died less than a year later became of the complications and the untreated cancer.
Raleigh, North Carolina-based Medical Mutual Insurance Co. of North Carolina, which defended Dr. Thom in the malpractice suit, rejected multiple settlement offers in the case, according to court papers.
In October 2012, a jury in Lumberton, North Carolina, found Dr. Thom liable for medical malpractice and awarded Mr. Nicholson $4,460,000 in damages plus prejudgment and post judgment interest.
In November 2013, Dr. Thom filed suit against Medical Mutual on charges including its bad faith refusal to settle. Medical Mutual's reinsurer, XL unit Stamford, Connecticut-based Greenwich, denied coverage, citing the errors & omissions clause in its policy.
In May 2014, Greenwich filed suit in U.S. District Court in Raleigh seeking a declaratory judgment it was not obligated to provide coverage in the case.
The court ruled in Greenwich's favor in a January 2015 ruling. “By its plain terms, the Greenwich policy excludes from coverage any loss resulting from any claim, no matter upon what legal theory that claim is based, that is merely alleged to be proximately caused by Medical Mutual's lack of good faith, or unfair dealing in the handling of any claim or obligation under another insurance contract (such as Dr. Thom's policy),” said the ruling.
“When the Greenwich policy and the Thom complaint are read side-by-side, it is clear that the complaint alleges a lack of good faith or unfair dealing, and thus that the policy excludes coverage for all claims,” said the District Court ruling.
In a brief opinion, the 4th U.S. District Court in Richmond, Virginia, affirmed the lower court's ruling on Thursday. “We have reviewed the record and find no reversible error,” says the ruling by a unanimous three-judge panel.
In a separate case, a federal court is permitting the continuation of bad-faith litigation filed by an Ironshore Inc. unit against a CNA Financial Corp. unit over its alleged refusal to reach an early settlement in a medical malpractice case, which led to a much higher jury award.
The medical professional liability sector is stable, but there is concern about weakening financial performance, continued soft market pricing, diminishing reserve redundancies, low interest rates and other challenges, says A.M. Best Co. Inc. in a report issued Wednesday.