Butterfield v. Giuntoli

Page 646

670 A.2d 646

448 Pa.Super. 1, 64 USLW 2432

Kathleen A. BUTTERFIELD (Now Estate of Kathleen A Butterfield, Deceased), Appellant, v. Robert L. GIUNTOLI, M.D., Alan Rubin, M.D., John J. Mikuta M.D., Trustees of the Hospital of the University of Pennsylvania, Guy Benrubi, M.D., Stephen C. Rubin, M.D Lexington Insurance Co., Appellees.

Superior Court of Pennsylvania.

Argued Sept. 12, 1995.

Filed Dec. 7, 1995.

Reargument Denied Feb. 20, 1996.

David Perry, Philadelphia, for appellant.

Melvin R. Shuster, Philadelphia, for Lexington Insurance Company, appellee.

Daniel F. Ryan, III, Plymouth Meeting, for Com. of PA Medical Professional Liability Catastrophe Loss Fund, amicus curiae.

Before KELLY, FORD ELLIOTT and OLSZEWSKI, JJ.

KELLY, Judge.

In this appeal we must determine whether the trial court properly granted summary judgment in favor of appellee, Lexington Insurance Company ("Lexington"), pursuant to the garnishment action brought by appellant-assignee, Estate of Kathleen A. Butterfield ("Butterfield"). Specifically, we must decide whether the instant insurance policy covered punitive damages in view of a Punitive Damages Amendatory Endorsement. In addition, we must determine whether punitive damages assessed on vicarious liability are insurable as a matter of law. For the reasons set forth below, we hold that the trial court erred in placing the burden of proof on assignee Butterfield and granting summary judgment in favor of Lexington. Accordingly, we reverse and remand for proceedings consistent with this opinion.

I. FACTS AND PROCEDURAL HISTORY

This appeal arises from appellant Butterfield's efforts to collect a portion of the punitive damages awarded in the underlying medical malpractice action against the Hospital of the University of Pennsylvania ("HUP") and four physicians employed by HUP. HUP is a wholly owned and controlled separate legal entity of the Trustees of the University of Pennsylvania ("Trustees"), the named insured under the Lexington umbrella insurance policy. Lexington is the second level excess insurance carrier for the Trustees, HUP, and its physicians.

In the underlying action, plaintiff Kathleen A. Butterfield brought suit against HUP and four of its physicians for damages arising from drug-induced leukemia. Miss Butterfield's illness and subsequent death resulted from an extended course of chemotherapy with the experimental drug Alkeran during her treatment at HUP for ovarian cancer. Miss Butterfield died while her action was pending, and her estate successfully litigated the claim to conclusion.

During the relevant time periods, the Trustees, HUP, and each of the defendant doctors carried $100,000 in primary professional liability insurance coverage with the Insurance Company of North America ("INA"), $1 million in first level excess monetary coverage with the Medical Professional Liability Catastrophe Loss Fund ("CAT Fund"), and $10 million in second level excess insurance coverage with Lexington. Approximately six months prior to trial in a letter dated May 18, 1984, Lexington wrote to Johnson & Higgins, Lexington's insurance broker, advising that it was Lexington's position that it is against public policy in Pennsylvania to insure for punitive damages and that, therefore, under the Lexington policy there would be no coverage for the punitive damages claim. In a letter dated July 13, 1984, Johnson & Higgins responded:

As you know, the insuring agreement is broad enough to include punitive damages, and they are not excluded. In Pennsylvania, vicariously assessed punitive damages are insurable. So we take exception to the way your position is worded.

Pursuant to the terms of the respective policies, Lexington had the right to participate with the insured in the defense and control of the underlying suit. The pertinent policy provision provides:

V. Settlement and Defense

... the Company, at its option but not being required to, shall have the right and be given the opportunity to associate with the insured in the defense or control of any claim, suit or proceeding which appears reasonably likely to involve the Company, in which event the insured and the Company shall cooperate in all things in the defense or control of such claim, suit or proceeding....

An attorney from the law firm representing Lexington's interests was present in the courtroom every day during the two-week trial in November, 1984. ¹ Additionally, counsel representing Lexington's interests regularly contacted the defense attorneys handling the case. (Argument on Lexington's Preliminary Motions, September 26, 1985, at 7-8).

In the trial court's charge to the jury, the Honorable Curtis C. Carson instructed that the jury could find HUP either directly negligent, vicariously negligent, or both, in the diagnosis, treatment, or care of Kathleen Butterfield. None of the participants objected to the jury instructions, nor did any of the participants request specific interrogatories to determine whether the jury assessed liability to HUP directly, vicariously, or both. The jury returned a verdict for Butterfield in the amount of $5.5 million, of which $2 million was a lump-sum award for compensatory damages. In addition, the jury awarded $3.5 million in punitive damages apportioned between defendants HUP and the four physicians according to the jury's assessment of negligence as follows:

              Percent of     Amount of
Defendant     Negligence  Punitive Damages
HUP               50%        $1,750,000
Dr. Mikuta        30%         1,050,000
Dr. Giuntoli      15%           525,000
Dr. Rubin          3%           105,000
Dr. Benrubi        2%            70,000
              ----------  ----------------
Totals:          100%        $3,500,000

On March 1, 1985, the trial court approved an Agreement and Order between the parties agreeing to settle the case. The trial court entered judgment in favor of Butterfield and against all of the defendants for compensation, delay, and punitive damages as follows:

Defendant     Compensatory     Delay      Punitive       Total
Trustees       $1,000,000   $105,753.43  $1,750,000  $2,855,753.43
(for HUP)
Dr. Mikuta        600,000     63,452.06   1,050,000   1,713,452.06
Dr. Giuntoli      300,000     31,726.03     525,000     856,726.03
Dr. Rubin          60,000      6,345.21     105,000     171,345.21
Dr. Benrubi        40,000      4,230.14      70,000     114,230.14
              ------------  -----------  ----------  -------------
Totals:        $2,000,000   $211,506.87  $3,500,000  $5,711,506.87

The Agreement provided that the Trustees would pay $450,761.85 in compensatory and delay damages and $875,000 in punitive damages on behalf of HUP and the four physicians, and that the CAT Fund would pay $1,760,745 in compensatory and delay damages on behalf of HUP and Drs. Mikuta and Giuntoli. An attorney representing Lexington attended the initial settlement meeting on December 3, 1984. Lexington, however, subsequently refused to indemnify the Trustees. The Trustees and the CAT Fund then assigned to Butterfield any claims they may have against Lexington under Lexington's umbrella insurance policy, which is the subject of this garnishment action. ²

On April 19, 1985, Butterfield filed a writ of execution to garnish and execute upon the Butterfield judgment debt. ³ On May 13, 1985, Lexington filed preliminary objections. In an opinion and order entered November 30, 1987, the trial court dismissed Lexington's preliminary objections and directed Lexington to answer the Butterfield interrogatories. Following discovery, the parties agreed to submit this case to the trial court on cross motions for summary judgment. The Honorable Abraham J. Gafni held that Butterfield could not meet its burden of proof on the issue of whether the Lexington policy covered the punitive damages granted against HUP because Butterfield could not show whether the damages were assessed vicariously, for which there may be coverage under Pennsylvania law, or whether the damages were assessed directly, for which coverage is precluded. Therefore, the court denied Butterfield's motion for summary judgment and entered judgment for Lexington on June 15, 1994. This timely appeal followed.

Butterfield raises the following issues for our review:

1. DID THE LOWER COURT COMMIT REVERSIBLE ERROR BY FAILING TO APPLY THE BURDEN OF PROOF TEST SET FORTH IN RYAN V. FUREY, 437 PA. 96, 262 A.2D 305 (1970) AND BIANCO V. CONCEPTS "100", INC., 291 PA.SUPER. 458, 436 A.2D 206 (1981) THAT IS, REQUIRING THE INSURED/GARNISHOR (APPELLANTS) TO PROVE THE EXISTENCE OF A JUDGMENT AND THE EXISTENCE OF A VALID POLICY OF LIABILITY INSURANCE COMPANY [SIC] COVERING THE CLAIM, AND THEN SHIFTING THE BURDEN OF PROOF TO THE INSURER/GARNISHEE (APPELLEE) WHO ATTEMPTS TO EVADE LIABILITY THROUGH AN AFFIRMATIVE DEFENSE?

2. DOES THE INSURER/GARNISHEE (LEXINGTON) HAVE THE BURDEN TO PROVE THAT PUNITIVE DAMAGES HAVE BEEN DIRECTLY RATHER THAN VICARIOUSLY IMPOSED WHEN THE INSURER ATTEMPTS TO RELY ON THE AFFIRMATIVE DEFENSE THAT PUNITIVE DAMAGES WERE DIRECTLY IMPOSED AND THAT INSURING THEM IS "AGAINST PUBLIC POLICY"?

3. IS A PARENT ENTITY WHO IS FINANCIALLY RESPONSIBLE FOR A JUDGMENT ENTERED AGAINST ITS SUBSIDIARY VICARIOUSLY LIABLE AS A MATTER OF LAW, WHEN SUCH PARENT ENTITY WAS NOT NAMED AS A DEFENDANT AND THE JURY VERDICT WAS AWARDED AGAINST THE SUBSIDIARY?

4. IS THE MEDICAL LIABILITY COVERAGE PROVIDED BY THE MEDICAL PROFESSIONAL LIABILITY CATASTROPHE LOSS FUND ("CAT FUND") AN INSURANCE POLICY?[ ⁴

Butterfield's Brief at 4. ⁵

II. STANDARD OF REVIEW

The standard of appellate review of a grant of summary judgment states that summary judgment is properly entered where the pleadings, depositions, answers to interrogatories, and admissions, together with affidavits demonstrate that no genuine, triable issue of fact exists and that the moving party is entitled to judgment as a matter of law. Pa.R.Civ.P. 1035(b); Cosmas v....