Malpractice Carrier Is Given An Opportunity To Establish Actual Prejudice From Insured's Lack Of Cooperation
MEDICAL ASSURANCE CO. v. HELLMAN (June 21, 2010)
Dr. Mark Weinberger was a wealthy Indiana physician. It seems, however, that only a portion of his wealth resulted from his legitimate medical practice. The rest of it came from defrauding insurance companies. In 2004, facing the prospect of civil and criminal litigation, Weinberger disappeared during a European vacation (read about his escapades on America's Most Wanted). Hundreds of malpractice claims were filed against him in the months following his disappearance. Those claims are working their way through Indiana's medical malpractice statutory procedures, although only four have proceeded to the actual lawsuit stage. Medical Assurance Company is Weinberger's malpractice insurance provider. It brought a declaratory judgment action, seeking a declaration that Weinberger's disappearance breached his duty of cooperation and thus voided its duty to defend. Judge Sharp (N.D. Ind.) concluded that Medical had shown no actual prejudice and therefore stayed the proceedings. Medical appeals.
In their opinion, Judges Flaum, Manion, and Wood vacated and remanded. The Court quickly resolved two jurisdictional issues. First, the Court upheld diversity jurisdiction notwithstanding Medical's "information and belief" allegation of the citizenship of the 300+ individual defendants (the state malpractice plaintiffs). Although such an allegation is generally insufficient standing alone, the additional factors -- that each defendant was a claimant within the Indiana malpractice system and that no defendant contradicted the allegation --satisfied the Court. With respect to its appellate jurisdiction, the Court concluded that the district court's order was appealable under Quackenbush as an abstention-based stay order. On the merits, the Court noted that the Declaratory Judgment Act is a procedural device that allows a judge to declare the rights of the parties under the applicable state or federal law. One legitimate reason to refrain from such a declaration is the existence of a parallel proceeding. The proper inquiry in such a case includes consideration of the identity of the parties, the similarity of the issues, the relief available to the plaintiff, and whether a declaration will clarify the obligations of the parties. Applying those principles, the Court concluded that the district court abused its discretion by issuing its stay order. Under Indiana law, Medical must show actual prejudice to prevail on its breach of cooperation argument. Although the district court thought that Medical could not show actual prejudice without interfering with the malpractice actions, the Court concluded that Medical should at least be given the chance.
