When clinicians are accused of professional wrongdoing, at what point are the medical practice's insurers required to provide for their defense? That's the question at the heart of a recent North Carolina Appeals Court ruling in the case of a surgeon who sued his anesthesia providers, and the insurance companies that refused to cover their defense.
The dispute between the Cape Fear Valley Medical Center surgeon and the anesthesiologists he believed had ruined his reputation was long over — cardiothoracic and vascular surgeon Wayne Welsher, MD, voluntarily dismissed his complaint against several individuals from Cumberland Anesthesia Associates in August 2007. But the legal wrangling over who was responsible for defending Drs. Victor Kubit, Sanjay Shah and Larry Dale Withers against Dr. Welsher's accusations continued for about 3 and a half years. The anesthesiologists took a handful of Cumberland Anesthesia's insurance carriers to court, arguing that they had failed to uphold their duty to cover the doctors' defense, but the trial court granted the insurers' motions for summary judgment. The anesthesiologists appealed and won, in part.
The story begins in July 2006, when Dr. Welsher sued the anesthesiologists, arguing that they had retaliated against him, engaging in "conspiratorial acts" to destroy his practice, after he criticized new rules for their provision of anesthesia services at Cape Fear Valley Medical Center. Among the charges, Dr. Welsher claimed that the anesthesiologists had created a "hostile environment" for him at the hospital and filed "false and malicious" complaints that led to a 30-day suspension of his privileges there in 2002.
According to court documents, Cumberland Anesthesia's insurance providers received notice of Dr. Welsher's complaint "at different times." The timing of notice is important, because it triggers the insurers' financial duty to defend their clients. After Dr. Welsher withdrew his complaint in August 2007, the anesthesiologists sued their insurers in May 2008 to recoup defense costs.
By the time the suit reached the state appeals court, there were 4 insurance carriers left in the dispute. The court ruled on March 15, 2011, that the plaintiffs, as employees of Cumberland, were covered by all 4 entities. It also ruled that the insurance providers had a duty to defend the anesthesiologists against Dr. Welsher's allegations based on what their policies covered. But when did that duty to defend kick in? It was different for all 4 insurers:
MAG Mutual Insurance Company received notice of the Welsher complaint 4 days after it was filed. As of that date, July 7, 2006, it had a duty to defend the anesthesiologists, the court found.
Cincinnati Insurance Company, American Economy Insurance Company and American State Insurance Company ("American") claimed that they didn't receive notice until March 2007 and July 2007, respectively. The anesthesiologists argued that they sent notice to Cincinnati and American via an insurance service center in September 2006 along with the renewal of an unrelated insurance policy. The court found that method of notice wasn't sufficient, and sided with the insurers, finding that their duty to defend was triggered in March and July 2007.
Travelers received notice of the complaint in March 2007, in breach of the "timely notice provision" in its policies with Cumberland. The anesthesiologists' failure to notify Travelers soon after the complaint was filed therefore exempted it from the duty to defend, the court found.
The lesson: Don't hesitate to notify your insurers of a complaint lodged against a covered employee through the proper channels, or you may lose out on some of the defense costs to which you're entitled.
Irene Tsikitas
