In a December 12, 2017 decision, the Appeals Court, affirmed, in the case of Johnson v. ProSelect Insurance Company (“ProSelect”), a Superior Court ruling that an insured doctor, Ellen Johnson (“Dr. Johnson”), had no viable claims against her medical malpractice insurer, ProSelect, for refusing to appeal and unilaterally settling, over her objections, a $5 million judgment entered against her after malpractice jury trial.
Surprise verdict leads to settlement dispute
Doctor Johnson, a Massachusetts resident, worked in New Hampshire as a radiologist for Advanced Diagnostic Imaging (“ADI”), a radiology group practice ADI which provided radiology services to the Exeter Hospital in Exeter, New Hampshire.
In 2010, a 25-year old woman and her husband filed a medical malpractice suit against various doctors, including Dr. Johnson, attached to Exeter Hospital claiming negligent care. The suit alleged that after she went to the emergency room in 2007 for a persistent headache, but was not properly diagnosed or treated and, as a result, following her admission to the hospital, she proceeded to have a a seizure and stroke. The suit sought damages for her injuries including the seizure, the stroke and certain residual deficits caused by her stroke.
The suit alleged that Dr. Johnson’s liability resulted from her misreading a CT scan as negative (or normal) when it showed signs of an impending stroke. Dr. Johnson denied liability based her testimony she had advised the emergency room physician’s assistant she had concerns about the CT scan and that an MRI was indicated which was, in fact, arranged by her. However, the physician’s assistant and the on-call neurologist denied there were any calls or discussions with Dr. Johnson about her concerns.
Before the malpractice case went to trial, the plaintiffs had settled with the attending physician for $950,000 and dropped their suit against the other defendants, other than Dr. Johnson.
Doctor Johnson went to trial on the issue of her liability and lost. After a jury trial lasting from November 5 to November 15, 2012, the jury returned a $5 million medical malpractice verdict against Doctor Johnson, awarding $4 million to the injured plaintiff for her damages and $1 million to the plaintiff’s husband for his loss of consortium. The trial judge did reduce the amount owed $4.05 million to reflect the $950,000 pretrial settlement payment from the attending physician.
Following the adverse verdict, Dr. Johnson, both individually and through personal counsel, expressed her desire to appeal and her objection to any settlement. Dr. Johnson informed ProSelect through her personal counsel that it and its appointed trial counsel had failed to provide a proper defense at trial. However, ProSelect was also informed by counsel for the plaintiffs that they would entertain a settlement within policy limits if discussions ensued prior to any appeal.
Policy language involved in dispute
ProSelect’s professional liability policy with ADI provided provided separate coverage for ADI and Dr. Johnson with separate limits of $2 million for each.
The policy included a “Consent to Settle Endorsement” which required Dr. Johnson’s written consent to settlement. The Endorsement further provided, however, that ProSelect did not have to have Dr. Johnson’s consent to settle after:
a jury verdict, judgment, or any other ruling by a court. . . establishing [Dr. Johnson’s]’s liability regardless of whether such verdict, judgment or ruling is subject to appeal or further judicial review.”
ProSelect refuses to appeal and settles lawsuit over objection of Dr. Johnson
Instead of filing the appeal Dr. Johnson had requested, if not demanded, ProSelect decided to settle and was able to reach agreement with the plaintiffs to settle the matter for $3.75 million including interest. The settlement extinguished any excess liability for Dr. Johnson and her employer by the plaintiffs executing a complete release of any and all liability of Dr. Johnson and her employer, ADI.
Doctor Johnson files suit for emotional distress and other damages arising out of settlement
Approximately a year after ProSelect settled the malpractice judgment, Dr. Johnson sued ProSelect in the Massachusetts Superior Court filing a three-count complaint alleging alleging ProSelect in the course of the malpractice suit:
- negligently defended her in the malpractice action (Count I);
- negligently refused to pursue posttrial motions and appeal (Count II); and
- had breached its contract and its covenant of good faith and fair dealing in settling the malpractice action rather than appealing the verdict (Count III).
In the suit, she alleged ProSelect by refusing to appeal and settling the malpractice suit against her over her objection had caused her damages including:
- severe emotional distress and depression;
- anxiety and post-traumatic stress disorder;
- loss of income for the work days missed for medical treatment and counseling;
- a significant increase in professional liability insurance premiums; and,
- loss of career opportunities including the decision of a different radiology group not to hire her as head of its new women’s imaging site because of the unchallenged adverse verdict not being appealed and reversed.
Superior Court finds Dr. Johnson had no valid claims arising out of ProSelect’s settlement
In the Superior Court, Dr. Johnson’s complaint never went to trial, ProSelect mover for summary judgment arguing it had acted in good faith and within its legal rights in settling the malpractice case. Following briefing and argument, the Superior Court granted ProSelect’s motion for summary judgment holding:
- On Count I, that Dr. Johnson had not put forth sufficient expert testimony to establish either the standard of care or causation related to her claim of a negligent defense of the malpractice action.
- On Count II, that ProSelect did not owe a duty to Dr. Johnson because she did not have personal exposure as a result of the settlement, and the policy specifically allowed the insurer to settle after an adverse verdict without the consent of insured.
- On Count III, he held that ProSelect’s exercise of a specific right expressly granted by the policy was not a breach of the duty of good faith and fair dealing.
Appeals Court rules ProSelect’s settlement within policy limit bars Dr. Johnson’s damage claims
Doctor Johnson appealed the dismissal of her suit on the grounds:
- The Superior Court erred in ruling that the insurer’s duty of good faith applied only if the insurer had exposed Dr. Johnson to an excess verdict and that this duty did not apply where the insurer otherwise injured Dr. Johnson by virtue of its exclusive control over the defense of her case; and,
- By ruling that the implied covenant of good faith and fair dealing did not apply to ProSelect’s failure to engage in pre-verdict settlement negotiations or in its subsequent refusal to appeal the verdict, despite reasonable grounds for appeal and the good faith interests of Dr. Johnson in pursuing an appeal.
On appeal, the Appeals Court ruled Dr. Johnson’s negligent defense claim failed because the duty of reasonable care in the control of the defense imposed on insurers, did in fact, only apply only where the insurer’s misconduct exposed an insured to personal liability. In this case, notwithstanding the consequential damages alleged by Dr. Johnson resulting from the disputrd settlement, the three-judge Appeals Court panel ruled that since ProSelect’s settlement had extinguished Dr. Johnson’s personal liability for the damages owed in excess of her policy’s limit of liability, ProSelect had acted with reasonable care.
On the other claim, the Appeals Court agreed with the Superior Court motion judge there was no viable claim for breach of the duty of good faith and fair dealing implied in the insurance contract because the policy language gave ProSelect the right to settle the case post-verdict without Johnson’s consent.
Accordingly, the Appeals Court judges agreed with the Superior Court decision that ProSeletct’s “decision to invoke an express contractual right to settle cannot constitute a breach of the implied covenant of good faith and fair dealing.”
The Court noted that while Dr. Johnson correctly asserted that the law recognizes an implied covenant of good faith and fair dealing in all contracts, including insurance policies, the law has not recognized a breach of the implied covenant of good faith and fair dealing where an insurer merely exercises a right expressly granted under a valid insurance policy. As the Court stated:
The implied covenant cannot create a duty of care beyond the express terms of the contract [and] Neither will the duty of good faith and fair dealing require an insurer to pursue an appeal of an excess verdict, forgoing a settlement within the policy limits.
As a result, the Appeals Court concluded the Superior Court motion judge correctly ordered summary judgment for ProSelect.