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Dynamic Chiropractic February 15, 1991, Volume 09, Issue 04 |
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MGIC and CNA Pay Over $2.2 Million Bad Faith Settlement To California Chiropractic AssociationCCA Attorney Michael Schroeder sends a message to insurance companies about dealing with chiropractors. The California Chiropractic Association (CCA) purchased general liability insurance that was particularly designed to safeguard its peer review program. The CCA purchased $3 million of liability insurance for a three-year period from MGIC Indemnity Corporation. The CCA based its decision to purchase this insurance in part on an endorsement by the American Society of Association Executives. Three lawsuits were filed against the CCA by chiropractors who didn't agree with the results of peer reviews involving them. Two of these reviews resulted in actions by the California State Board. There were an additional two lawsuits filed by DCs for other reasons. When the CCA notified MGIC of these claims, MGIC took the position that they had assigned the policy to CNA Insurance Company, a subsidiary American Casualty. This assignment had been pursuant to a secret agreement of which the CCA was never informed. When the CCA notified CNA, it was told that CNA would neither affirm or deny coverage. Thus, neither CNA nor MGIC would agree to cover the claims. The CCA was also told that neither company would pay expenses as they occurred. In addition, CNA cancelled the CCA policy prior to the completion of the term. This left the CCA with the burden of carrying the costs of the lawsuits. Even though the CCA won all five cases, they were not able to be awarded legal fees. The lawsuits caused the CCA to have to divert funds from member services. "A non-profit association, and all businesses, need to be able to depend on their insurer to cover them in their times of need." said Gary Cuneo, executive director of the CCA. "For our liability insurer, CNA, to turn its back on us when we most needed them was the epitome of bad faith." The CCA had two other insurance policies that it hoped to rely on in this situation: a premises liability policy from U.S. Fidelity & Guarantee (USF&G) and the malpractice insurance policies of the individual peer reviewers provided by the National Chiropractic Mutual Insurance Company (NCMIC). NCMIC and USF&G supported the CCA's efforts by agreeing to advance the legal fees necessary to sue CNA and MGIC. This support was offered on the basis that the additional amount advanced would be reimbursed if the CCA won the lawsuits. With MGIC's and CNA's failure to affirm coverage and their refusal to pay legal expenses after the fact, the CCA was left with only one alternative: On December 16, 1985, the CCA attorney Michael J. Schroeder, filed suit against both CNA and MGIC. CCA claimed that the two companies were guilty of bad faith, fraud, intentional misrepresentation, negligent misrepresentation, breach of statutory duties, and breach of fiduciary duties. The pre-trial process was very long and difficult. The two insurance companies were very uncooperative. This caused many motions to have to be filed and refiled. "For five years CNA and MGIC made it difficult to obtain documents, filing delaying motions and generally tried to draw the case out until we would just quit", remarked Willard Smith, D.C., president of the CCA. "We didn't quit because we knew we were right and we refused to let these insurers get away with not honoring our policy." In June of 1989, the court heard a motion for summary ajudication. The court was asked to rule on whether:
At this point, CNA decided they might want to settle, but at what cost? CNA's and MGIC's portions of the $450,000 legal defense claim would have probably been no more than $150,000 each if the insurance companies involved had settled the claims as presented. In July of 1990, CNA offered $44,000 to settle. In September, they offered $100,000. Then, one week prior to the date of the actual trial, CNA settled for the sum of $2.1 million and an agreement to testify _against_ MGIC. All because they wouldn't honor the CCA's policy. The efforts of the CCA and their attorney Michael Schroeder paid off and then some. The support extended by NCMIC and USF&G was repaid. This left the CCA with the funds necessary to continue to pursue MGIC, who first issued the policy, through the trial period in order to recover the CCA's remaining damages. The CCA knew that they needed to pursue MGIC, if for no other reason than to demonstrate that the chiropractic profession does not back down. The MGIC trial occurred over a three-week period. The jury deliberated for two days. On January 18, 1991, the jury found MGIC guilty of breaching its insurance contract with the CCA and committing statutory bad faith. After the verdict, but before the damage phase of the trial was to begin, MGIC presented the CCA with an offer of $110,000, cash. Realizing that it had already won $2.1 million from CNA (the company that actually held the insurance policy and failed to honor it) as well as gaining a guilty verdict against MGIC, the CCA accepted the $110,000. By accepting this offer, the CCA saved a large amount of money that would still be required for the damage portion of the trial. The $2,210,000 total settlement is probably the largest by any chiropractic state association in the professions history. Reflecting on the recent victory against CNA and MGIC, attorney Schroeder remarked: "We are extremely pleased with the resolution of our lawsuit with CNA and MGIC. This $2,210,000 settlement will send a message to insurance companies that they cannot continue to ignore the claims of their chiropractic insureds with impunity. Let there be no doubt that other such suits will be brought in the future on behalf of chiropractic doctors and their patients."
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Dynamic Chiropractic February 15, 1991, Volume 09, Issue 04 |
Printer Friendly Version E-mail to a Friend |
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