Med. Protective Co. of Fort Wayne v. Am. Int'l Specialty Lines Ins. Co.
911 F.3d 438
7th Cir.2018Background
- Vicki Bramlett died after routine surgery; her family sued Dr. Benny Phillips. MedPro insured Phillips with a $200,000 policy and refused two Stowers settlement demands for the policy limit.
- A jury returned a $14 million verdict; Texas courts later capped Phillips's liability and allowed the Bramletts to pursue excess recovery directly from MedPro. MedPro paid and later settled with the Bramletts for a confidential multi‑million amount.
- MedPro had purchased a professional‑liability policy from AISLIC (effective June 30, 2005; renewed July 1, 2006) that contained Exclusion M: it excluded claims arising from wrongful acts occurring before AISLIC’s first inception date if the insured knew or reasonably could have foreseen the act could lead to a claim.
- MedPro notified AISLIC of the Bramlett matter near the 2006 policy expiration; AISLIC denied coverage for MedPro’s excess/extra‑contractual settlement and refused to indemnify.
- MedPro sued AISLIC; cross‑motions for summary judgment followed. The district court granted summary judgment for AISLIC, holding Exclusion M applied because the Bramletts’ claim was foreseeable before AISLIC’s inception. MedPro appealed.
Issues
| Issue | MedPro's Argument | AISLIC's Argument | Held |
|---|---|---|---|
| Whether Exclusion M requires an actual (not merely alleged) "Wrongful Act" before the policy inception | Exclusion M requires an actual wrongful act; alleged or possible acts do not trigger the exclusion | Exclusion M bars coverage where the underlying claim alleges a wrongful act (no need to show the act was proven pre‑inception) | Court: Exclusion M requires a Wrongful Act (actual, not merely alleged); genuine factual dispute exists whether MedPro committed one, so summary judgment on this point improper |
| Whether MedPro could have reasonably foreseen a claim arising from its failure to settle before AISLIC's first inception date (foreseeability prong of Exclusion M) | MedPro: foreseeability was uncertain pre‑inception; Stowers liability to third parties was unsettled and not clearly applicable then | AISLIC: given demand letters, mediation reports, counsel warnings and possibility of assignment of Stowers claim, a reasonable insurer should have foreseen a claim before inception | Court: as a matter of law MedPro should have foreseen a potential Stowers claim before June 30, 2005; summary judgment correct on foreseeability |
| Whether Indiana’s known‑loss doctrine bars coverage because the loss was already occurring/virtually certain before policy inception | MedPro: loss was not substantially certain; trial and excess verdict had not occurred | AISLIC: loss was effectively known/inevitable | Court: known‑loss doctrine does not apply — loss was not "virtually inevitable" before inception |
Key Cases Cited
- Phillips v. Bramlett, 288 S.W.3d 876 (Tex. 2009) (permits third‑party Stowers claims against insurer when insured’s liability is statutorily capped)
- Koransky, Bouwer & Poracky, P.C. v. Bar Plan Mut. Ins. Co., 712 F.3d 336 (7th Cir. 2013) (insurance exclusion applied where insured reasonably should have foreseen a claim before policy inception)
- Berry Plastics Corp. v. Illinois Nat'l Ins. Co., 903 F.3d 630 (7th Cir. 2018) (insurer bears burden to show an exclusion applies to bar otherwise covered claims)
- Trinity Homes LLC v. Ohio Cas. Ins. Co., 629 F.3d 653 (7th Cir. 2010) (interpretation of insurance contracts is a question of law; ambiguous provisions construed for insured)
- In re Indiana State Fair Litig., 49 N.E.3d 545 (Ind. 2016) (known‑loss doctrine bars coverage only when loss is substantially certain or virtually inevitable)