Thursday, May 2, 2013
C.A. Says Insurer Had Duty to Defend Liver Transplant Doctor
By KENNETH OFGANG, Staff Writer
The former director of St. Vincent Medical Center’s liver transplant program, charged with multiple federal felonies as a result of alleged plot to transplant a liver into the wrong patient, was entitled to a defense by the hospital’s insurer, the Court of Appeal for this district ruled yesterday.
Div. Seven agreed with attorneys for Dr. Richard R. Lopez Jr. that a state statute precluding insurers from defending certain criminal cases and civil actions brought by public prosecutors does not apply to federal prosecutions. The panel also said that the policy in question required Mt. Hawley Insurance Company to provide a defense under the alleged facts of Lopez’s case.
Lopez was acquitted by a U.S. District Court jury in October 2011, less than four months after Los Angeles Superior Court Judge Robert L. Hess ruled that Insurance Code Sec. 533.5(b) barred Mt. Hawley from defending him under the terms of its policy insuring Daughters of Charity Health Systems, Inc., the owner of St. Vincent’s. The policy covered “claims”—including “a criminal proceeding against any Insured commenced by the return of an indictment”—against insureds, including employees, for “wrongful acts.”
Lopez acknowledged that he helped decide to take an organ intended for one patient and use it for another more than 50 places down the waiting list—a violation of federal transplant rules that prompted the hospital to shut down the program. But he denied accusations that he led a coverup of the action.
According to the indictment, Lopez initially reported the name of the actual recipient to the United Network for Organ Sharing, which oversees transplantation nationwide. But later that day, the transplant staff retracted that notification and reported—falsely—that the liver had gone to the man for which it had been offered, and the indictment charged that it was Lopez who falsely reported to UNOS.
Prosecutors claimed Lopez was responsible for the hospital continuing to file falsified documents, including a pathology report describing the liver that was supposedly removed from the intended patient. They blamed the doctor—who was charged with making false statements, conspiracy, and evidence tampering—for the fact that the first patient never received a liver and died.
Following the indictment, Lopez tendered his defense to Mt. Hawley, which said it would not defend or indemnify because it was barred from doing so by Sec. 533.5, and also because certain policy exclusions applied. Mt. Hawley sued for a declaration that it had no duty to Lopez, and Hess granted judgment on the pleadings.
Federal Court Correct
But Los Angeles Superior Court Judge John L. Segal, sitting on assignment and writing for the Court of Appeal, concluded that, while there are no state cases on point, Bodell v. Walbrook Ins. Co. (9th Cir. 1997) 119 F.3d 1411—which Hess found “not binding and…unpersuasive”— properly interpreted Sec. 533.5(b).
The statute reads:
“No policy of insurance shall provide, or be construed to provide, any duty to defend, as defined in subdivision (c), any claim in any criminal action or proceeding or in any action or proceeding brought pursuant to [the Unfair Competition Law or the False Advertising Law] in which the recovery of a fine, penalty, or restitution is sought by the Attorney General, any district attorney, any city prosecutor, or any county counsel, notwithstanding whether the exclusion or exception regarding the duty to defend this type of claim is expressly stated in the policy.”
Segal explained that there are three plausible interpretations of the ambiguous statute—the insurer’s, which is that it applies to criminal prosecutions without limitation, but applies to UCL and FAL actions only if brought by one of the named officials; the doctor’s, that it does not apply to federal prosecutions, because they are not brought by any of the named officials; or that the phrase “in which the recovery of a fine, penalty, or restitution is sought by the Attorney General, any district attorney, any city prosecutor, or any county counsel” modifies “any claim.”
The most reasonable interpretation, he said, is the second one, as the court held in Bodell, based on maxims of construction and legislative history.
The advantage of that interpretation, he said, is that it can be reconciled with other statutes that allow certain types of criminal charges to be covered by insurance, is consistent with allowing individuals to serve on corporate and charitable boards without fear that they will have to defend lawsuits and criminal prosecutions at their own expense, and comports with the presumption of innocence.
Attorneys on appeal were Amy B. Briggs, Kenneth B. Julian, Benjamin G. Shatz, and Amanda M. Knudsen of Manatt, Phelps & Phillips for Lopez and William C. Morison and Michael D. Prough of Morison Holden & Prough for the insurer.
The case is Mt. Hawley Insurance Company v. Lopez, 13 S.O.S. 2213.
Copyright 2013, Metropolitan News Company