March 23, 2009

TO ALL INTERESTED COMPANIES

On March 20, 2009, the Kansas Court of Appeals issued its decision in Kansas Health Care Stabilization Fund v. St. Francis Hospital, and the opinion may be of interest to you.

The Kansas Health Care Stabilization Fund provides liability coverage to health care providers, and stands in the shoes of a liability insurance carrier. 

A suit was filed against the hospital alleging medical negligence, but also alleging fraud and spoliation of evidence.  Plaintiff alleged that a hospital representative had actually changed and/or destroyed medical records to conceal medical negligence.  Summary judgment was entered in favor of the hospital on the negligence claim due to the statute of limitations/statute of repose.

The Health Care Stabilization Fund had taken the position that there would be liability coverage for the negligence claim, but not the claim of fraud or intentional spoliation of evidence.  After summary judgment was entered on the medical malpractice claim, the hospital settled plaintiff’s claims for 3.3 million dollars.  The hospital then made claim against the Health Care Stabilization Fund by alleging that the fund (liability insurer) should contribute to the settlement amount because at least some of plaintiff’s claims were covered.

The Kansas Court of Appeals held that when the insured settles all claims against the insured, and some of them are covered and some of them are not covered under a liability policy, the proper procedure is for the Court to conduct a trial to determine the amount of the settlement that was actually apportioned to the covered claim.  The Court of Appeals held that the merits of each of the plaintiff’s claims against the insured was not directly relevant.  The only question to be decided is, “how the parties to the settlement viewed the relative merits of plaintiff’s claims at the time of the settlement and whether, if the insured settled without the carrier’s approval, the settlement amount was reasonable”. 

Obviously, this decision gives a road map to counsel in cases in which there is a coverage dispute because some claims may be covered and others may not be covered.  It certainly puts the liability carrier at a disadvantage, particularly where counsel for both sides in a damage case would have an incentive to “build the record” with regard to the way the “claims are perceived at the time of settlement”.

Schmitt Manz Swanson & Mulhern, P.C.
Paul Hasty, Jr.
7101 College Boulevard
Overland Park, Kansas  66210
Phone: 913/317-8068
Phasty@msmlawkc.com