A Cautionary Tale to Risk Managers: a Reminder About Jurinko

Pennsylvania -- Insurance Coverage & Bad Faith

In Jurinko v. Medical Protective et al., 2008 U.S. App. LEXIS 26263, Nos. 06-3519 & 06-3666 (Dec. 24, 2008), on appeal to the Third Circuit, there was an issue regarding whether an insurer acted in bad faith by having two separate insureds represented by the same attorney and a refusal to tender a policy limit as a stratagem to get another policy to increase its settlement offer. The underlying medical malpractice action involved a failure to diagnose a skin melanoma, which allegedly metastasized and invaded cervical lymph nodes.

The plaintiff brought suit against two different doctors for malpractice. Each doctor was noted to have alternative theories of negligence which would implicate the other in the malpractice. However, both doctors had the same primary coverage through Medical Protective of $200,000 and $1 million in excess through MCARE. Despite knowing of this potential conflict of interest, the risk manager for Medical Protective assigned the same attorney to represent both doctors in an admitted effort to keep down costs.

During settlement negotiations, Medical Protective only offered $50,000 to settle one of the doctor's claims. The admitted strategy of the insurer was to try to increase the contribution of MCARE to the overall settlement. However, MCARE could not invade its excess coverage without the exhaustion of all the underlying primary layers. MCARE notified Medical Protective, in writing, that the failure to tender the policy limit for the doctor was in bad faith and was hindering settlement efforts. The doctor himself is noted to have actively sought settlement of this matter. A global settlement could not be reached, and this matter proceeded to trial.

The jury found against the doctor in the amount of $2.5 million. The doctor assigned his bad faith claims against Medical Protective to the plaintiff in satisfaction of the $1.3 million above his policy limits. The plaintiff asserted this bad faith claim against Medical Protective in the Eastern District of Pennsylvania for its failure to tender the policy limits and for assigning one attorney to represent both doctors. The jury awarded $1,658,345 in compensatory damages and $6.25 million in punitive damages. Medical Protective moved for post-trial relief. See Jurinko v. Medical Protective Co., 2006 U.S. Dist. LEXIS 13601, No. 03-cv-4053 (E.D. Pa. Mar. 24, 2006).

In addressing the judgment, the District Court found sufficient evidence of bad faith under both the failure to tender and the joint representation claims. The court noted that Medical Protective valued the case above its primary limits. Indeed, the testimony of the claims representative was that tender of the policy was withheld in order to try to pressure MCARE to contribute more money towards settlement. This testimony demonstrated that Medical Protective knowingly assigned one attorney to represent both doctors, despite being aware that such a duel representation was unethical. With this evidence the court found there was sufficient evidence for the jury to find bad faith on the part of Medical Protective.

Both parties appealed to the Third Circuit, where the punitive damage award was reduced. See Jurinko v. Medical Protective et al., 2008 U.S. App. LEXIS 26263, Nos. 06-3519 & 06-3666 (Dec. 24, 2008). In starting its analysis, the Third Circuit noted that Pennsylvania law supports a bad faith claim against an insurer who acts in bad faith in refusing to settle a claim. Although Medical Protective argues that there was never an expressed willingness to settle for the policy limits, the court noted there was $1.2 million in aggregate coverage and that the plaintiff's demand of $1.1 million fell within this amount.

Medical Protective argued it could not be liable for any detriment to the representation of the doctor due to any conflict of interest of its attorney. Here, the Circuit Court affirmed the District Court's ruling in holding that the jury had sufficient evidence that the insurer knew and endorsed the conflict of interest.

As to the reprehensibility of Medical Protective's conduct, the Circuit Court found that the insured was financially vulnerable and that Medical Protective's actions were intentional. However, it differed in finding that Medical Protective's conduct constituted repeated actions. In analyzing other case law, the court noted that actions in a single case are "relevant but with less force" than if the repeated actions spanned across several matters. In comparing this case to Willow Inn, Inc. v. Pub. Serv. Mut. Ins. Co., 339 F.3d 224, 232 (3d Cir. 2005), the court noted that the declination to settle at various points of the litigation were unlike a situation were a party repeatedly refuses to tender a policy amount which causes continual economic loss to the insured. Therefore, the Third Circuit concluded that there is only minimal repeated reprehensible conduct.

Due to this minimal repeated conduct, the court found only a moderate amount of reprehensibility which could only support a lesser punitive damage award. When moderate amounts of punitive damages are warranted, a large body of law points to only allowing a 1:1 ratio between compensatory and punitive damages, which is how the Third Circuit modified the punitive damage award.

While this case is not precedential, it is important as it provides insight on how the courts are viewing cases such as this.

*Dave is an associate in our King of Prussia, Pennsylvania, office who can be reached at (610) 354-8291 or djkrolikowski@mdwcg.com.

Defense Digest, Vol. 15, No. 2, June 2009