Medical Protective Company of Fort Wayne Indiana The v. American International Specialty Lines Insurance Company

Filing 187

OPINION AND ORDER DENYING 179 Motion for New Trial. Signed by Judge Holly A Brady on 4/17/2020. (bas)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
FORT WAYNE DIVISION
THE MEDICAL PROTECTIVE
COMPANY OF FORT WAYNE INDIANA,
Plaintiff,
v.

CAUSE NO.: 1:13-CV-357-HAB

AMERICAN INTERNATIONAL
SPECIALTY LINES INSURANCE
COMPANY,
Defendant.
OPINION AND ORDER
On January 31, 2020, a jury returned a verdict in favor of Plaintiff Medical Protective
Company of Fort Wayne, Indiana (MedPro or Plaintiff), and against Defendant American
International Specialty Insurance Company (AISLIC or Defendant), now known as AIG Specialty
Insurance Company. MedPro initiated the litigation in this Court in December 2013 for breach of
contract after AISLIC, who insured MedPro under a “claims made” professional liability policy,
refused to cover MedPro’s extra-contractual liability and eventual settlement of a third party’s bad
faith claim against MedPro. That third party was the family of Vicki Bramlett, who died after
undergoing a routine surgery performed by MedPro’s insured, Dr. Benny Phillips. The Bramletts
successfully sued Dr. Phillips for medical malpractice in Texas, recovering an amount well in
excess of Dr. Phillips medical malpractice insurance policy limit.
AISLIC now moves for a new trial pursuant to Federal Rule of Civil Procedure 59 (ECF
No. 179). AISLIC’s Motion advances two issues: Whether the verdict was against the manifest
weight of the evidence; and whether errors in the admission or exclusion of evidence had a

substantial and injurious impact on the jury’s verdict. The Court answers each inquiry in the
negative.
STANDARD OF REVIEW
Rule 59(a) permits a trial court judge to grant a new trial “for any reason for which a new
trial has heretofore been granted in an action at law in federal court.” Fed. R. Civ. P. 59(a)(1)(A).
As the Seventh Circuit has put it, a new trial may be granted where “the verdict is against the
weight of the evidence, the damages are excessive, or if for other reasons the trial was not fair to
the moving party.” Mid–Am. Tablewares, Inc. v. Mogi Trading Co., 100 F.3d 1353, 1367 (7th Cir.
1996) (citations and internal quotations omitted). However, the Court must be mindful that the
imprecise “interest of justice standard,” when read literally to
give the judge carte blanche to set aside a jury verdict . . . can’t be right; a judge
can’t set aside a jury verdict just because had he been a member of the jury he
would have voted for a different verdict. Such a power would emasculate the jury
system.
Prime Choice Servs., Inc. v. Schneider Logistics Transloading & Distrib., Inc., 861 F.3d 633, 635
(7th Cir. 2017). Accordingly, “a judge is permitted to grant a new trial because the jury’s verdict
was against the weight of the evidence ‘only when the record shows that the jury’s verdict resulted
in a miscarriage of justice or where the verdict cries out to be overturned or shocks our
conscience.’” Id. (quoting Latino v. Kaizer, 58 F.3d 310, 315 (7th Cir. 1995) (ellipsis omitted)).
A.

Manifest Weight of the Evidence
Although AISLIC had asserted numerous defenses before trial, only one defense, based on

an exclusion in the policy with MedPro, remained for resolution at trial. AISLIC argues that, based
on the evidence presented at trial, no rational jury could have concluded that MedPro’s rejection
of the Bramletts’ policy limit demands was not a “breach of duty, neglect, error [or] omission.”
(Mot. 9 (citing the insurance policy’s definition of Wrongful Act).) As proof, AISLIC lists the
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facts that MedPro was aware of as of March 23, 2004, the date the Bramletts made their second,
and final, policy limit demand to MedPro.
The Court has no quarrel with these facts, or with the assertion that they could have
supported a verdict in favor of AISLIC on the issue of whether MedPro committed a Wrongful
Act as defined in the insurance policy. However, the facts did not require such a conclusion after
consideration of all the evidence in the record. AISLIC’s one-sided presentation of the facts is just
that—one-sided. The jury, of course, heard counter points relevant to the very same factual issue.
The substantive issue for the jury to decide was described in the instructions as follows:
MedPro’s professional liability policy with American Specialty provides
insurance coverage for MedPro’s settlement of the Bramletts’ 2009 lawsuit against
MedPro unless Exclusion (m) precludes coverage. Pursuant to Exclusion (m), the
policy does not apply to a Wrongful Act if it occurred before June 30, 2005, the
date the first policy was issued by American Specialty to MedPro. The sole issue
for you to decide is whether American Specialty has proved by a preponderance of
the evidence that MedPro committed a Wrongful Act when it did not accept the
Bramletts’ December 2003 or March 2004 $200,000 policy limit demands in
settlement of the Bramletts’ malpractice case against Dr. Phillips.
The term “Wrongful Act” is defined in the policy as “any breach of duty,
neglect, error, misstatement, misleading statement, omission or other act done or
wrongfully attempted.”
In deciding whether MedPro committed a Wrongful Act, you should
consider that an insurer defending a policyholder in Texas has certain duties when
responding to settlement demands that are within policy limits. An insurer has a
duty to exercise that degree of care and diligence that an ordinarily prudent person
would exercise in the management of his own business. An insurer violates that
duty if it does not accept a settlement that is within policy limits if an ordinarily
prudent insurer would accept it, considering the likelihood and degree of the
insured’s potential exposure to a judgment that exceeds the policy limits.
When deciding whether the failure to accept either of the settlement offers
was a Wrongful Act, you should consider only what information was available to
MedPro before the settlement demands expired. It is not necessarily a failure to
exercise ordinary care merely because a decision proves in hindsight to be wrong
by reason of a jury verdict.

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(Jury Instr. No. 15, ECF No. 173.) When the evidence is viewed in the light of what an ordinarily
prudent person in the management of his own business would do, there can be no doubt that the
jury had ample evidence to consider on both sides.
Indeed, the Seventh Circuit already recognized that a trier of fact would have much to
consider on both sides of this very issue, and in this very case. Med. Protective Co. of Fort Wayne,
Ind. v. Am. Int’l Specialty Lines Ins. Co., 911 F.3d 438, 447 (7th Cir. 2018) (finding that the
evidence presented at the summary judgment stage revealed a genuine factual dispute as to whether
MedPro committed a Wrongful Act). Addressing MedPro’s evidence first, the court stated:
MedPro argues that it handled the Bramletts’ Stowers demands appropriately and
that its rejection of the demands was not a Wrongful Act. A reasonable factfinder
could agree. Outside counsel believed that MedPro had not acted in bad faith by
declining both Stowers demands in order to investigate the case, and MedPro’s own
counsel agreed. Moreover, there is some evidence that the largest medical
malpractice verdict in the area at that time was $2 million—a similar verdict, or
even a larger verdict (up to $2.5 million), would not lead to extra-contractual
liability for MedPro, because the hospital had already agreed to pay $2.3 million.
It was not until after MedPro declined to settle that several people, including Dr.
Phillips’s attorneys and a MedPro claims specialist, advised that there would be an
adverse verdict and it was likely to be $3 million or over.
Id. at 447–48 (emphasis added). The court continued:
To be sure, there is also evidence pointing in the other direction. By the time the
Bramletts made their second demand, MedPro knew of the damaging fact that Dr.
Phillips had not immediately attended to Mrs. Bramlett because he went to exercise.
By that time, the Bramletts had also submitted an expert report supporting Dr.
Phillips’s liability for their claim. In addition, MedPro knew that the hospital had
settled for $2.3 million, presumably because it believed that the verdict could be
adverse and large.
Id. at 448 (emphasis added). That MedPro ultimately turned out to be wrong in its assessment of
the Bramletts’ case against Dr. Phillips did not perforce require that the jury determine that it was
more probably true than not that MedPro committed a Wrongful Act under the policy. The

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previously identified genuine factual dispute was appropriately submitted for resolution to a jury
after the presentation of evidence by competent counsel on both sides.
In presenting this case, the jury was assigned a distinct task. The Special Verdict Form
reduced that task to a Yes or No answer to the following question: “Was MedPro’s rejection of
either of the Bramletts’ demand to settle the malpractice claim against Dr. Phillips for Dr. Phillips’
$200,000 police limit a Wrongful Act?” (Special Verdict Form, ECF No. 174.) The parties’ closing
arguments clearly focused on the determinative issue, with each party highlighting the evidence
admitted at trial that favored its position on the reasonableness of MedPro’s decision not to settle
the Bramletts’ medical malpractice claim against its insured during the discrete timeframe in
question. The Court has no reason to believe that the jury did not perform its duty as “impartial
judges of the facts” to “give fair and equal consideration to all the evidence and deliberate with
the goal of reaching an agreement that [was] consistent with the individual judgment of each juror.”
(Jury Instr. No. 18.) The verdict in favor of MedPro was not against the manifest weight of the
evidence any more than a verdict in favor of AISLIC would have been against the manifest weight
of the evidence.
B.

Evidentiary Rulings
AISLIC’s Motion asks the Court to revisit several of its pretrial and trial rulings, arguing

that the exclusion or admission of certain evidence had a substantial and injurious effect or
influence on the jury’s verdict and deprived AISLIC of a fair trial. For the reasons explained below,
the Court disagrees.
1.

Policy Language Interpretation

Throughout the course of summary judgment briefing, on appeal, and leading up to trial,
various provisions of the insurance policy were implicated by MedPro’s breach of contract claim

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and AISLIC’s defense to the claim. It became apparent, however, that many of the disputes
regarding those provisions were not based on competing or disputed facts. Rather, resolution
required interpretation of the insurance contract which, in Indiana, is a question of law for the
court. Trinity Homes LLC v. Ohio Cas. Ins. Co., 629 F.3d 653, 656 (7th Cir. 2010) (citing Tate v.
Secura Ins., 587 N.E.2d 665, 668 (Ind. 1992)); see also Bar Plan Mut. Ins. Co. v. Likes Law Office,
LLC, 44 N.E.3d 1279, 1285 (Ind. Ct. App. 2015) (stating that interpretation and construction of
contract provisions are questions of law).
Indeed, AISLIC had itself requested that summary judgment be granted in its favor based
on its interpretation of the contract, including when a claim had first been made against MedPro.
Despite this, AISLIC now claims that the Court’s findings as a matter of law on that very issue
was procedurally improper. The Court previously addressed the procedural propriety of its ruling,
noting that AISLIC had a full opportunity to brief the issue in the context of its request for summary
judgment. Moreover, even after the Court issued its decision in favor of MedPro, AISLIC
submitted an Offer of Proof [ECF No. 145], setting forth the evidence and testimony that it would
introduce at trial on the issue of whether a claim was first made against MedPro for its failure to
settle the malpractice action prior to July 1, 2006. On January 16, 2020, the Court also heard the
argument of counsel for both parties as it pertained to the offer of proof and the claims first made
issue. The Court issued an Amended Opinion and Order [ECF No. 152] on January 22, 2020, and
AISLIC does not suggest that there is any evidence that the Court failed to consider or that AISLIC
did not have an opportunity to present.
Likewise, with respect to its ruling on whether MedPro satisfied a special reporting
provision, the Court interpreted the contract provision, and then permitted the parties to address
whether there were any disputed material issues of fact that required resolution by a finder of fact

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with respect to whether MedPro’s June 2007 notice satisfied that provision. (See ECF No. 146.)
The parties then stipulated to the facts that would have been adduced at trial, and agreed that, under
the Court’s interpretation, MedPro complied with the reporting provision. (See ECF No. 148.)
AISLIC preserved its right to appeal the Court’s interpretation and made an offer of proof during
trial.
AISLIC’s disagreement with the Court’s interpretations are an issue for appeal. If the court
of appeals determines that the threshold legal issue of whether the insuring agreement provided
coverage for MedPro’s claim should have been decided against MedPro and in favor of AISLIC,
that will end the case.1 If the court of appeals agrees with the Court’s analysis of the coverage
issue, the matter will have properly proceeded to the jury for a decision on the policy exclusion,
Exclusion (m).
2.

Expert Testimony

AISLIC asserts that it was deprived of a fair trial when MedPro’s expert witness, Robert
Gaddis, suggested to the jury that the policy limit settlement demands made by the Bramletts’
attorney, Alex Klein, were invalid under Texas law. AISLIC also reiterates its argument that
Gaddis should not have been permitted to testify as an expert because he was not qualified to offer
opinions regarding insurance industry custom and practice as it relates to insurance handling and
evaluation of settlement demands.
The Court will not revisit its Rule 702 ruling. As to AISLIC’s assertion that Gaddis offered
testimony that suggested “an ultimate conclusion about the purported invalidity of the demands

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When this case was previously before the court of appeals, the district court had disposed of the

case without addressing when the claim against MedPro was first made or whether there was coverage
pursuant to the special reporting clause. Accordingly, the court of appeals expressed no opinion on those
coverage issues.

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made by the Bramletts’ attorney under Texas law based on their timing” (Mot. 12), the Court finds
no basis to grant a new trial.
AISLIC takes issue with Gaddis’s testimony that the Bramletts’ attorney should have
granted MedPro more than seventeen days to accept the March 23, 2004, policy limit settlement
demand, or waited until later in the malpractice litigation to make the demands. AISLIC argues
that the question for the jury was not whether the Bramletts’ attorney might have committed legal
malpractice because he should have made the policy limit demands at a different time or with a
longer response deadline. Rather, the issue was the standard of care for the recipient of the policy
limit demands and whether MedPro’s claims adjuster was wrong in not accepting the demands.
AISLIC finds it significant that MedPro did not present any evidence that it rejected the demands
based on some purported invalidity of those demands. Instead, according to AISLIC, the evidence
showed that MedPro rejected both demands for reasons unrelated to their timing—namely, that it
either believed Dr. Phillips would not be held liable or that additional discovery was necessary to
better evaluate the demand.
The Court finds AISLIC’s line of argument problematic. First, AISLIC asserts that the
timing of the demand was not relevant, but then cites to MedPro’s reasons for declining to settle,
both of which were impacted by the timing of the offers. Second, it puts a spin on Gaddis’s opinion
that it cannot reasonably be suggested that the jury shared. As AISLIC’s statements allude, there
was a great deal of testimony regarding the reasons MedPro did not accept the settlement demands.
The Bramletts’ attorney, Alex Klein, testified regarding his strategy of the case and the decision
when to make the settlement demands. That Gaddis would opine that the lawyer who makes an
early settlement demand, which he does not later follow with additional demands as the litigation
proceeds, is potentially gambling that his client will not later be successful on an extra-contractual

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claim to recover from the insurance company is not particularly surprising or controversial. Gaddis
testified that his own practice was to wait until after discovery had been completed, unless the case
was open-and-shut or there were very low policy limits. However, he also confirmed that MedPro
counsel was correct when she asserted: “[T]here’s no legal obligation for a plaintiff’s attorney to
issue multiple Stowers demands. They can issue one and say that’s it, we’re going to trial, right?”
(Trial Tr. Vol. III-146, ECF No. 179-5 at 146.) Gaddis did not, contrary to AISLIC’s argument,
make any statements to suggest that Klein committed legal malpractice or that his settlement
demands were invalid.2
On the other side, AISLIC was free to argue, and did argue, that MedPro had all the
information it needed to determine that Dr. Phillips could be facing a verdict in excess of his policy
limits and that, if it was missing information it could have known, MedPro’s own inadequate
development of the claims file was to blame. In AISLIC’s framing of the case, MedPro
unreasonably failed to protect its policyholder. It was for the jury to consider the testimony it heard
in context with the ultimate issue for its resolution as set forth in the Court’s instructions, which
the Court can presume the jury followed. Weeks v. Angelone, 528 U.S. 225, 234 (2000) (“A jury

2

As Klein explained in his testimony, the Stowers doctrine is not for the protection of malpractice
victims. It is intended to protect insureds’ from poor decisions by their insurance companies. Thus, if Klein
did not make a demand that would trigger Stowers, he could not have been accused of committing
malpractice in connection with his representation of the Bramletts. Likewise, Kevin Quinley, the expert
who testified on behalf of AISLIC, also testified that the Stowers doctrine captured the fundamental idea
that an insurance company has a duty to protect its policyholder and not to gamble with the policyholder’s
financial future.
Curiously, AISLIC also contends that Gaddis offered testimony on a legal conclusion when he
suggested to the jury that the policy limit demands by the Bramletts’ attorney were invalid. Although the
Court does not characterize Gaddis’s testimony as an impermissible legal conclusion, the Court wonders
how AISLIC would characterize its own expert’s testimony. Quinley testified that MedPro breached its
duty to its insured when it failed to accept the policy limit settlement demand in April 2004 because, under
the circumstances, any reasonable insurer would have settled the case.

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is presumed to follow its instructions.”) (citing Richardson v. Marsh, 481 U.S. 200, 211 (1987)).
The Court does not find that Gaddis’s statements improperly turned the focus away from the issue
decided by the jury, or that his statements confused and misled the jury.
3.

Nature of the Coverage Dispute

AISLIC argues that it was unfairly prejudiced when MedPro was permitted to introduce
evidence and argument regarding the parties’ coverage dispute, namely, that MedPro was
contending that AISLIC wrongfully denied MedPro’s claim. AISLIC asserts that this distracted
the jury from a fair evaluation of the Wrongful Act issue. According to AISLIC, because the jury
was only to evaluate MedPro’s conduct, any discussion of AISLIC’s duty to provide coverage
substantially confused and misled the jury.
The prevailing discussion throughout the entirety of the four-day trial was whether MedPro
failed to act as a reasonable insurer when it did not accept the policy limit settlement demands in
the malpractice action against Dr. Phillips. The Court cannot agree that there is any basis to support
the speculative belief that the jury was so lacking in comprehension skills that it could not
differentiate its ultimate decision from the context of the litigation as a whole. The jury was aware
even before the presentation of either side’s case that the matter involved two insurance companies.
During voir dire, counsel expressly addressed the nature of the case as one for breach of contract
where one insurance company was claiming coverage, and the other was relying on an exclusion
to deny coverage. In opening, AISLIC argued that the case was about MedPro trying to get AISLIC
to pay for a mistake MedPro made before it ever purchased insurance from AISLIC. Additionally,
the jury instructions included a statement that informed the jury that MedPro’s professional
liability policy with AISLIC provided insurance coverage for MedPro’s settlement of the
Bramletts’ 2009 lawsuit against MedPro unless Exclusion (m) precluded coverage.

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Accordingly, rather than a being a source of confusion, the limited testimony and argument
that AISLIC claims was unfair prejudice was rightfully part of the broader picture of the case. A
trial is an adversarial proceeding. Failing to sanitize the presentation of the case in a manner that
would prevent an accusation that AISLIC breached its duty to MedPro did not deprive AISLIC of
a fair trial or otherwise induce the jury to decide the case on an improper basis.
4.

Verdict Against Dr. Phillips

AISLIC argues that it was substantially prejudiced in its presentation of evidence when it
was not permitted to elicit testimony regarding the size of the malpractice judgment against Dr.
Phillips, as well as the jury’s allocation of fault. AISLIC claims that this information is probative
of whether MedPro erred in failing to settle for the $200,000 policy limits.
The Court finds that a new trial is not warranted to permit the introduction of these details.
Through the presentation of the case, the jury heard that MedPro was mistaken about Dr. Phillips’s
potential liability, and that the verdict against him exceeded $5 million. These facts, and others,
are what set up the claim for extra-contractual liability against MedPro in the first place. For
purposes of Exclusion (m), the probative inquiry was what MedPro knew or should have known
when it made the decision not to accept the policy limit demands, and the reasonableness of its
actions based on that knowledge. In general, the outcome of a jury trial can turn on a wide array
of factors that a reasonably prudent insurer would have no reason to predict. That general rule was
no less true in Dr. Phillips’s case. The Court’s decision to confine the presentation of evidence to
this time period was further warranted by the dizzying twists and turns the malpractice case took
as it proceeded through discovery, trial, and two levels of Texas state court appeals. That AISLIC
relies on dicta from a 1975 California decision to argue that the size of the ultimate verdict is
probative of MedPro’s duty does not convince the Court that AISLIC is entitled to a new trial.

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5.

MedPro’s Termination of Adjuster Debbie Crawford

AISLIC submits that it was prejudiced when it was not permitted to elicit testimony that
Debbie Crawford, the MedPro claims adjuster who initially investigated the malpractice action
against Dr. Phillips and who made the decision to reject the policy limit demands, was terminated
from her employment with MedPro. AISLIC contends that the testimony was necessary because
MedPro’s Vice President of Claims, Robert Ignasiak, testified that he stood by Crawford’s
investigation, and that her decisions were reasonable. Further, because he still maintained that
belief, the “jury could well have believed that MedPro and Mr. Ignaziak never had any questions
regarding Ms. Crawford’s performance in her role as a claims adjuster.” (Mot. 20.) According to
AISLIC, this is simply not true, as MedPro assigned Dr. Phillips’s claim to another adjuster shortly
after Crawford denied the policy limit demands and, in December 2005, terminated her
employment for failing to comply with the requirements that MedPro had for claims specialists.
AISLIC was not denied a fair trial when it was not permitted to explore with Mr. Ignaziak
a termination that occurred in December 2005, some eighteen months after the second settlement
offer was made. Not only was AISLIC permitted to cross-examine Mr. Ignaziak about Crawford’s
compliance with MedPro policies and procedures as it pertained to the particular file and the
particular decisions at issue, nothing about her termination created any inference that it was related
to her handling of Dr. Phillips’s claim. Mr. Ignaziak was not involved in her termination and did
not know the specifics of her termination. Contrary to AISLIC’s claims, questioning of Mr.
Ignaziak would not have rebutted his testimony that he believed she did not mishandle the Dr.
Phillips/Bramlett file. Additionally, had there been any such connection, the evidence was
excludable as a “subsequent remedial measure.”

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6.

John Bedingfield Mediation Email

AISLIC asks the Court to revisit its in limine ruling precluding the admission of a postStowers email from MedPro employee John Bedingfield. Although Bedingfield was not the
regularly assigned adjuster, but merely standing in for the regular adjuster during a mediation that
occurred after the Stowers demands had expired, AISLIC claims that its contents should have been
presented to the jury. AISLIC takes issue with the Court’s ruling that the questionable probative
value of the email would have been outweighed by the danger of unfair prejudice.
The Court does not find that the exclusion of the email warrants a new trial. The Court took
measures to limit the testimony to events that occurred before MedPro rejected the second, and
final, Stowers demand. This was so because, “[i]n the context of a Stowers lawsuit, evidence
concerning claims investigation, trial defense, and conduct during settlement negotiations is
necessarily subsidiary to the ultimate issue of whether the claimant’s demand was reasonable under
the circumstances, such that an ordinarily prudent insurer would accept it.” Coats v. Ruiz, 198
S.W.3d 863, 882 (Tex. App. 2006) (citing Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842,
848–49 (Tex. 1994)).
The email was not probative because it was not based on facts known to, or available to,
MedPro before the Stowers demands expired. Mr. Bedingfield refers, for example, to the
deposition of Dr. Phillips that occurred after the second demand expired and which surprised
defense counsel and MedPro with new (and later retracted) information. He also refers to the
deposition of Dr. Phillips’s expert, which also occurred after the second demand expired.
Moreover, allowing the email into evidence would have then led to additional post-Stowers
demand evidence. Mr. Bedingfield advised that MedPro obtain outside counsel to review the
Stowers issue. MedPro did so, and this outside counsel reviewed the entire file, including portions

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not reviewed by Mr. Bedingfield, and opined that MedPro had responded appropriately to the
Stowers demands.
The Court agrees with MedPro’s assessment on this matter, that the introduction of Mr.
Bedingfield’s email would have inevitably led to a trial within a trial to address the purported flaws
in his assumptions. Any probative value that could be gleaned from such a minitrial was
outweighed by the risk of confusion of the issues by introducing facts not known before the
settlement demands expired, and by wasting time analyzing the Bedingfield assumptions. The
exclusion of the email did not so limit AISLIC in the evidence that it could present to the jury that
it was stopped from presenting its case.
CONCLUSION
Based on the reasons stated above, American International Specialty Lines Insurance
Company’s Rule 59 Motion for New Trial [ECF No. 179] is DENIED.
SO ORDERED on April 17, 2020.
s/ Holly A. Brady
JUDGE HOLLY A. BRADY
UNITED STATES DISTRICT COURT

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