Mt. Hawley Insurance Company v. Mesa Medical Group, PLLC et al
MEMORANDUM OPINION & ORDER: IT IS ORDERED that Plaintiff's 15 MOTION for Judgment on the Pleadings is GRANTED. Judgment will be entered by separate Order. Signed by Judge Joseph M. Hood on 7/19/2017.(GLD)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON
MT. HAWLEY INSURANCE COMPANY,
MESA MEDICAL GROUP, PLLC, et
Civil Case No.
MEMORANDUM OPINION & ORDER
This matter is before the Court upon Plaintiff’s Motion for
assuming the truth of all allegations in Defendants’ Answer and
Counterclaim, it is entitled to a declaration as a matter of law
that the policy language in a professional services liability
insurance policy with Defendants is valid and enforceable and
Defendants, (2) that Plaintiff has not breached the Agreement,
(3) that Plaintiff has not committed bad faith, and (4) that,
thus, Defendants’ Counterclaims for breach of contract and for
breach of the implied covenant of good faith and fair dealing
are without merit and should be dismissed.
filed a Response [DE 17], setting forth their objections, and
Plaintiff has filed a Reply [DE 19] in further support of its
Mt. Hawley Insurance Company (“Mt. Hawley”) issued Medical
Medical Management, LLC, with a Policy Period of October 1, 2013
to October 1, 2014. Pursuant to an endorsement, MESA Medical
Group, LLC, is a Named Insured under the Policy. The remaining
Defendants also claim either Insured or Named Insured status
Hawley paid for counsel to represent Defendants in the Clontz
Defendants and then ceased providing a defense to defendants.
On July 9, 2015 Haley Clontz filed a lawsuit in Pulaski
amendment, named Defendants, MESA Medical Group, PLLC
Southeastern Emergency Physicians, PLLC, Southeastern Emergency
Services, P.C., Dr. Timothy Ziolkowski and Jennifer Dick (“the
Defendants failed to diagnose or treat a popliteal artery injury
injury, after she was brought by ambulance to the emergency room
Clontz lawsuit, Mt. Hawley tendered the policy limit “jointly to
you as the Insured, and notifies you that it will discontinue
defending you in the Litigation up on payment of the limit to
you (jointly) or the plaintiff in the Litigation.”
argue that the Policy and Kentucky law do not allow Plaintiff to
“dump” its policy limits and avoid its duty to defend, so they
have rejected the tender.
The Policy has a $1 million liability limit and originally
With respect to the insurance provided
hereunder, the duty to defend and duty to
pay are not separate.
The Company shall
have the right and duty to defend any suit
against the Insured seeking Damages which
are payable under the terms of this policy,
even if the allegations of the suit are
groundless, false, or fraudulent.
further agreed that the Company may make
such investigations as it deems expedient
and may settle any Claim, but the Company
shall not be obligated to pay any Claim or
judgment or to defend or to continue to
applicable limit of the Company’s liability
has been tendered to the Insured or the
claimant or exhausted by the payment of
At some point, however, the parties agreed to a change
Expenses in addition to the limits of liability as specified on
the DECLARATIONS page.”
This endorsement alone did not impact
Mt. Hawley’s right to effect what Defendants term a “dump and
operate to prevent the Company from tendering its limits of
liability hereunder as provided under the policy to which this
endorsements is attached . . . and by such action eliminating
its responsibility for future Claims Expenses.”
[DE 11-1 at
Defendants argue, however, that a subsequent endorsement
Endorsement), provides that,
The Company will not settle any Claim
without the consent of the named Insured.
If the Named Insured refuses to consent to a
settlement that the Company recommends and
the claimant will accept, then the Company
will have the right, but not the duty or
obligation, to continue to defend any such
Claim or suit.
The Company’s liability for
any settlement or judgment shall not exceed
the amount for which the Company could have
settled if the Named Insured had consented
less all of the Claims Expense incurred from
the date of the Company’s recommendation.
limits of the liability of the policy.
[DE 11-1 at 31.].
With respect to Plaintiff’s motion,
“For purposes of a motion for judgment on
the pleadings, all well-pleaded material
allegations of the pleadings of the opposing
party must be taken as true, and the motion
may be granted only if the moving party is
nevertheless clearly entitled to judgment.”
Southern Ohio Bank v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 479 F.2d 478, 480 (6th
Cir.1973). But we “need not accept as true
legal conclusions or unwarranted factual
inferences.” Mixon v. Ohio, 193 F.3d 389,
400 (6th Cir. 1999). A Rule 12(c) motion “is
granted when no material issue of fact
exists and the party making the motion is
entitled to judgment as a matter of law.”
Paskvan v. City of Cleveland Civil Serv.
Comm'n, 946 F.2d 1233, 1235 (6th Cir. 1991).
JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d 566, 581-82 (6th
insurer with a duty to defend to avoid that duty by paying its
policy limits and that the policy “only arguably allows Mt.
Hawley to tender limits after the insureds’ liability has been
further argue that the language upon which Mt. Hawley relies
“has been superseded and is contradicted by the bargained for
endorsements” and that, to interpret the contract to permit a
“dump and run,” would render those endorsements meaningless and
Finally, Defendants argue that the policy is, at best
confusing and inconsistent and must be resolved in favor of the
insureds or through the development of extrinsic evidence.
contract...” Thompson v. West Amer. Ins. Co., 839 S.W.2d 579,
581 (Ky. Ct. App. 1992).
. . . interpretation of an insurance
contract is a matter of law for the court.
Morganfield National Bank v. Damien Elder &
Sons, [. . .] 836 S.W.2d 893 ([Ky.] 1992).
While ambiguous terms are to be construed
against the drafter and in favor of the
Insurance Co. v. McKinney, [. . .] 831
S.W.2d 164 ([Ky.] 1992), we must also give
the policy a reasonable interpretation, and
there is no requirement that every doubt be
resolved against the insurer.
Mutual Ins. Co. v. RSJ, Inc., [. . .] 926
S.W.2d 679 ([Ky. Ct. App.] 1996).
Stone v. Kentucky Farm Bureau Mut. Ins. Co., 34 S.W.3d 809, 810–
“interpreted in light of the usage and understanding of the
Id. (citing Fryman v. Pilot Life Ins. Co., 704
S.W.2d 205 (Ky. 1986).
[a]n endorsement is later in time than the
original policy; and it should prevail over
any conflicting provisions of the policy.”
Goodin v. General Accident Fire and Life
Assurance Corporation, [. . .]450 S.W.2d
252, 256 (Ky. Ct. App. 1970), quoting 1
statement is correct, as far as it goes. The
statement from Couch which precedes it sheds
more light on this case: “The policy and its
endorsements validly made a part thereof
together form the contract of insurance, and
are to be read together to determine the
contract actually intended by the parties.”
Id. at § 4:36.
Kemper Nat. Ins. Companies v. Heaven Hill Distilleries, Inc., 82
S.W.3d 869, 875 (Ky. 2002).
“[A]n insurance contract must be
construed without disregarding or inserting words or clauses and
possible.” Id. at 875–76 (quoting 43 Am.Jur.2d, Insurance, §
In this instance, the original policy provided for eroding
limits – the total amount of insurance coverage for a claim was
reduced over time by “claims expenses” such as attorney fees. At
expenses would be considered separately so that claims expenses
would not erode the corpus of the liability fund until after the
limits of liability were tendered by the insurer to the claimant
or the insured.
Finally, at some point, the parties agreed to
right to reject settlement but, if the insured did so, claims
expenses incurred after the rejection would begin to erode the
corpus of the liability fund.
permit a “dump and run,” by which the insurer tenders the policy
insured, would render meaningless the parties’ agreement that
liability limit for claims. Defendants argue that the insurer
has “an ongoing responsibility to the insured with respect to
the defense even if the policy limits have been met [. . . .,]”
1 Insurance Claims & Disputes § 4:32 (6th ed.) (emphasis added),
and that ongoing responsibility exists regardless of whether the
insurer has paid a judgment, contributed to a settlement or paid
its policy limits into court or to the insured. Id. (citing
Ursprung v. Safeco Ins. Co. of America, 497 S.W.2d 726 (Ky.
This would be the case if Plaintiff and Defendants had
agreed only that Plaintiff “shall defend any suit alleging such
damages which are payable under the terms of this policy,” as in
Ursprung, 497 S.W. 2d at 728.
The language in the parties’
endorsement goes further, however, and provides that Plaintiff
retained the right to absolve itself of future claims expenses
by tendering the full policy amount.
Defendants have cited no
law providing that such an agreement is unlawful.
withdraw from defense because the duty to defend is distinct
from the duty to indemnify.
Defendants argue that permitting
the “dump and run” proposed by Plaintiff would render illusory
the endorsements in which the parties bargained to give the
Named Insured the exclusive right to decide whether a claim
should be paid and to make Plaintiff responsible for defense
Defendants argue, as well, that the provisions that
allow Plaintiff to tender policy limits and withdraw its defense
create an ambiguity that must be interpreted in favor of the
insured’s reasonable expectations or require parole or extrinsic
evidence to resolve.
Plaintiff’s reading of the contractual language, it could have
the effect of significantly reducing the value of the policy’s
liability limit, but that is acceptable if the language of the
policy, as amended, provides for it.
Whether agreeing to reduce
the value of the policy’s liability limit is sensible or a bad
idea or even something that the insured would have wanted with
twenty-twenty hindsight is of no matter to this Court in the
absence of coercion or the violation of a public policy that
would render the agreement unenforceable.
The parties agreed to
Clearly, Plaintiff felt it was important to set a cap on
bargained for that.
Judgment on the pleadings is appropriate in
this instance because, as a matter of law, the policy language
contained in the Insuring Agreement of the professional services
liability insurance policy issued by Mt. Hawley is valid and
enforceable and Mt. Hawley’s duty to pay any claim or judgment
or to continue to defend in the lawsuit filed by Haley Clontz
(currently pending in Pulaski Circuit Court) terminated at the
time Mt. Hawley tendered its policy limit to Defendants. In the
contract, there can be no breach of contract.1
Neither can there
be a breach of the implied covenant of good faith and fair
dealing, as Defendants aver in their counterclaims.2
Court agrees that Defendants’ counterclaims fail as a matter of
law and should be dismissed.
Judgment on the Pleadings [DE 15] is GRANTED.
Judgment will be
entered by separate order.
Plaintiff seeks, by its motion, a declaration that it has not acted in bad
faith, but it does not seek this relief in its Complaint for declaratory
judgment. [See Complaint, DE 1 at 5, Page ID#: 5 (demanding declaration that
that “Mt. Hawley is not obligated to pay any Claim or judgment or to defend
or to continue to defend the Clontz Action on behalf of Defendants, as of the
date that Mt. Hawley tendered the applicable limits to Defendants”). In an
absence of a motion to amend the Complaint, the Court declines to provide
such relief but expresses doubt as to the success of a claim for bad faith.
See Rawe v. Liberty Mut. Fire Ins. Co., 462 F.3d 521 (6th Cir. 2006) (citing
Wittmer, 864 S.W.2d at 890) (holding that claimant would also have to
“establish three elements to maintain a bad faith claim, regardless of
whether the claim is brought under common law or statute: (1) the insurer
must be obligated to pay the claim under the terms of the policy; (2) the
insurer must lack a reasonable basis in law or fact for denying the claim;
and (3) it must be shown that the insurer either knew there was no reasonable
basis for denying the claim or acted with reckless disregard for whether such
a basis existed.”).
2 “Within every contract, there is an implied covenant of good faith and fair
dealing, and contracts impose on the parties thereto a duty to do everything
necessary to carry them out.” Farmers Bank & Trust Co. of Georgetown,
Kentucky v. Willmott Hardwoods, Inc., 171 S.W.3d 4, 11 (Ky. 2005) (citing
Ranier v. Mount Sterling National Bank, 812 S.W.2d 154, 156 (Ky. 1991)). “An
implied covenant of good faith and fair dealing does not prevent a party from
exercising its contractual rights.” Id. (citing Hunt Enterprises, Inc. v.
John Deere Indus. Equipment, Co., 162 F.3d 1161, 1998 WL 552795 (6th Cir.
This the 19th day of July, 2017.
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