Defense Digest

To Get It Right, Get It In Writing

The Pennsylvania Superior Court’s recent decision in Caruso v. The Medical Professional Liability Catastrophe Loss Fund, et. al., 2004 PA Super 344 (Pa. Super 2004), is a warning to all insurance carriers that all terms and conditions of a settlement should be in writing. The failure to put settlement terms and conditions in writing may leave the carrier liable for delay damages, pre-judgment interest, and post-judgment interest notwithstanding the language of their insurance policy.

Caruso interpreted the delay damages and post-judgment interest section of the MCARE Act, 40 PS §1303.714(h), and determined that a plain reading of the Act required that a basic insurer is only responsible for its proportionate share of liability for delay damages and post-judgment interest in cases where the medical provider seeks relief from the CAT Fund or the MCARE Fund.

The underlying medical malpractice action in Caruso arose out of injuries sustained by the plaintiff, which left him permanently brain damaged and totally incapacitated. The case proceeded to trial. However, prior to entry of a verdict, the plaintiff entered into a settlement agreement with three of the defendant doctors; two of whom were insured by Medical Inter-Insurance Exchange (MIIX). Under the terms of the agreement, MIIX tendered a total of $600,000 for their two insureds. The defendants insured by MIIX also assigned their indemnification rights against the CAT Fund (now the MCARE Fund) to the plaintiff as part of the settlement agreement. Ultimately, the jury returned a verdict in favor of the plaintiff in the amount of $49,594,684.

After the verdict was entered, the plaintiff filed a petition for delay damages, which was granted by the trial court. Five months later the plaintiff was granted leave to file an amended complaint adding MIIX and the CAT Fund as additional defendants in the underlying negligence suit. The plaintiff’s amended complaint alleged that MIIX and the CAT Fund were jointly and severally liable for the entire amount of the delay damages and post-judgment interest in the amount of $3,383,225. The trial court found that MIIX and the CAT Fund were not jointly and severally liable for delay damages and post-judgment interest on the entire verdict. The trial court found that, based on its interpretation of the Healthcare Services Malpractice Act and its successor, the MCARE Act, MIIX and the CAT Fund were liable for delay damages and post-judgment interest, but only in proportion to their respective liability in the underlying verdict.

On appeal, the plaintiff asserted that the trial court erred in its interpretation of the MCARE Act in refusing to assess delay damages/post-judgment interest on the entire amount of the verdict against MIIX and the CAT Fund as "required" by MIIX’s contract of insurance. The plaintiff alleged that MIIX’s insurance contract required it to pay delay damages following settlement, and therefore, the failure to pay delay damages at settlement rendered it liable for delay damages on the entire verdict.

In its analysis of the MIIX insurance policy language and the MCARE Act 40 P.S. §1303.714(h) (delay damages), the court determined that to interpret the policy as the plaintiff suggested would be repugnant to the statutory provision. The court concluded that a plain reading of the statute required that both MIIX and the CAT Fund each be responsible for its proportionate share of the liability for delay damages and post-judgment interest. The court further noted that to assign an insurer liability for post-judgment interest that is grossly disproportionate to the insurer's underlying liability to the insured and which is contrary to the express language of the statute would be contrary to public policy.

The Superior Court’s opinion in Caruso has clearly determined that a basic insurer and the CAT Fund can be held responsible for delay damages in excess of the policy limits, notwithstanding the insurance policy. The Caruso opinion also ascertained how much delay damages an insurer or the CAT Fund would be liable for. Most importantly, the Caruso case has set forth a road map for settling all cases.

In cases where a settlement is reached by some, but not all, of the interested parties (and the case is going to verdict), the settlement must be in writing to avoid delay damages/pre-judgment interest. If the settlement agreement does not specifically state that the settlement covers delay damages, and a plaintiff verdict is entered, the insurer (defendant) will be responsible for delay damages and post-judgment interest. However, the insurer will only be liable for its proportionate share of the delay damages and post-judgment interest.

*Rasheen, an associate in our Philadelphia, PA office, can be reached at (215) 575-2817 or rdavis@mdwcg.com.