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Medical Malpractice Statutory Cap on Non-Economic Damages Unconstitutional * Irreparable Harm to Force Insurer to Defend Without Resolution of Coverage Dispute * Personal Representative of Estate Bound by Policy Holder Waiver of UM/UIM * Willful Tort Exception to 627.361 Does Not Extend to Failure to Act in Good Faith to Settle Claim

Thursday, March 20th, 2014 •

March 18, 2014

CASE LAW UPDATE

Dear Ladies and Gentlemen:

The Florida Supreme Court recently issued a decision that holds that medical malpractice statutory caps on wrongful death noneconomic damages provided in Florida Statute section 766.118 is unconstitutional as it is in violation of the Equal Protection Clause of the Florida Constitution.  Additionally, the Florida District Courts of Appeal have recently issued several opinions concerning coverage and bad faith that may be of interest to you.

EXECUTIVE SUMMARY

In Estate of Michelle Evette McCall v. United States of America, the Florida Supreme Court held that the medical malpractice statutory cap on wrongful death noneconomic damages provided in Florida Statute section 766.118 was unconstitutional because it was in violation of the Equal Protection Clause of the Florida Constitution.  The court concluded that the statute failed the rational basis test because it imposed unfair and illogical burdens on injured parties when an act of medical negligence gave rise to multiple claimants.  The court indicated that medical malpractice claimants did not receive the same rights to full compensation because of the diminished compensation for legally cognizable claims. Moreover, the court held that the statutory cap did not bear a rational relationship to the stated purpose of the cap which was to address the medical malpractice insurance crises in Florida.

In FCCI Commercial Insurance Company v. A. Armour, the Second District Court of Appeal granted a writ of certiorari and quashed a trial court’s order staying a declaratory action filed by an insurance carrier to determine its duty to defend and indemnify its insureds in a construction defect claim made by the owners of a residence. The trial court had granted the stay pending resolution of the underlying arbitration and liability actions.  The Second District held that the order staying the declaratory action was a departure from the essential requirements of law that caused irreparable harm to the insurance carrier by forcing it to defend the subcontractor insureds without resolution of the coverage dispute.

In Horace Mann Ins. Co. v. Chase, the Fifth District Court of Appeal affirmed in part and reversed in part a trial court’s ruling holding that an insured, individually and in her capacity as personal representative of the her father’s estate, the original policyholder, was bound by the original policyholder’s waiver of the higher uninsured/underinsured coverage and the waiver of stacking uninsured/underinsured coverage did not apply to the insured individually.  Moreover, the court concluded that an owned-but-not insured exclusion, applied to the insured individually.

In Perdido Sun Condominium Association, Inc. v. Citizens Property Insurance Corporation, the First District Court of Appeal reversed a final order granting a motion to dismiss an insured’s bad faith complaint against Citizens Property Insurance Corporation (“Citizens”) holding that Citizens could be sued for bad faith pursuant to Fla. Stat. §624.155 under the “willful tort” exception of section 627.361(6)(s)(2) as the immunity provided to Citizens did not extend to the failure to attempt in good faith to settle claims as provided by Fla. Stat. §624.155.  The First District Court of Appeal certified the following question as one of public importance:

Whether the immunity of Citizens Property Insurance Corporation, as provided in section 627.351(6)(s), Florida Statutes, shields the Corporation from suit under the cause of action created by section 624.155(1)(b), Florida Statutes for not attempting in good faith to settle claims?

I.      Estate of Michelle Evette McCall v. United States of America, SC11-1148 (Fla. March 13, 2014)

FACTS AND PROCEDURAL HISTORY

This case arises from a wrongful death lawsuit filed by the Estate of Michelle Evette McCall (the “Estate”) against the United States of American under the Federal Tort Claims Act, 28 USC §§ 1346(b), 2671-80.  The Estate challenged the statutory cap on noneconomic damages, under Florida Statute §766.118[1] alleging that the statutory cap was, inter alia, in violation of the Equal Protection Clause of the Florida Constitution.

Ms. Michelle McCall received prenatal medical care at a United States Air Force clinic as an Air Force dependent.  While in the care of the Air Force’s family practice department and after delivering her baby, Ms. McCall went into shock and cardiac arrest as a result of severe blood loss.[2]  Ms. McCall never regained consciousness and was removed from life support.  The Estate, Ms. McCall’s parents and the father of Ms. McCall’s son (collectively referred to as “Petitioners”) filed an action against the United States under the Federal Tort Claims Act, 28 USC §§ 1346(b), 2671-80.  The United States was found liable under the Federal Tort Claims Act.  The United States District Court for the Northern District of Florida determined that the Petitioners’ economic damages amounted to $980,462.40.  The district court concluded that the Petitioners’ noneconomic damages amounted to $2 million, $500,000 for Ms. McCall’s son and $750,000 for each of the parents.  After applying Florida Statute section 766.118(2), the statute relating to Florida’s statutory cap on wrongful death noneconomic damages based on medical malpractice, the Petitioners’ recovery for wrongful death noneconomic damages was limited to $1 million.

The Petitioners filed a motion challenging the constitutionality of the wrongful death statutory cap under the Florida and United States Constitution and a motion to amend/alter the judgment.  The district court denied both motions.  The Petitioners appealed the court’s rulings contending that the statutory cap violated the Equal Protection Clause of the Fourteenth Amendment and constituted a taking under the Fifth Amendment of the United States Constitution.[3]  The Eleventh Circuit Court of Appeals held that the statute did not constitute a taking in violation of article X, section 6 of the Florida Constitution and that the cap did not violate the Equal Protection Clause or the Taking Clause of the United States Constitution.  Nevertheless, the Eleventh Circuit granted a motion filed by the Petitioners to certify the following four questions to the Florida Supreme Court:

(1)     DOES THE STATUTORY CAP ON NONECONOMIC DAMAGES, FLA. STAT. § 766.118, VIOLATE THE RIGHT TO EQUAL PROTECTION UNDER ARTICLE I, SECTION 2 OF THE FLORIDA CONSTITUTION?

(2)     DOES THE STATUTORY CAP ON NONECONOMIC DAMAGES, FLA. STAT. § 766.118, VIOLATE THE RIGHT OF ACCESS TO THE COURTS UNDER ARTICLE I, SECTION 21 OF THE FLORIDA CONSTITUTION?

(3)     DOES THE STATUTORY CAP ON NONECONOMIC DAMAGES, FLA. STAT. § 766.118, VIOLATE THE RIGHT TO TRIAL BY JURY UNDER ARTICLE I, SECTION 22 OF THE FLORIDA CONSTITUTION?

(4)     DOES THE STATUTORY CAP ON NONECONOMIC DAMAGES, FLA. STAT. § 766.118, VIOLATE THE SEPARATION OF POWERS GUARANTEED BY ARTICLE II, SECTION 3 AND ARTICLE V, SECTION 1 OF THE FLORIDA CONSTITUTION?

The Florida Supreme Court rephrased the first certified question as follows:

(1)     DOES THE STATUTORY CAP ON WRONGFUL DEATH NONECONOMIC DAMAGES, FLA. STAT. § 766.118, VIOLATE THE RIGHT TO EQUAL PROTECTION UNDER ARTICLE I, SECTION 2 OF THE FLORIDA CONSTITUTION?

FLORIDA SUPREME COURT DECISION

The Florida Supreme Court answered the first certified question in the affirmative and held that the statutory cap on wrongful death noneconomic damages provided in Florida Statute section 766.118 violated the Equal Protection Clause of the Florida Constitution under the rational basis test.  The Florida Supreme Court determined that it was not necessary to answer the remaining certified questions.

The court began its analysis by explaining the tests that are applied when evaluating equal protection challenges.[4]  The court noted that unless a suspect class or fundamental right protected by the Florida Constitution was implicated, the rational basis test is applied to evaluate an equal protection challenge.  To satisfy the rational basis test, a statute must bear a rational and reasonable relationship to a legitimate state objective, and it cannot be arbitrary imposed.  Id. at 9.  The analysis under the rational basis tests requires that the Court determine: “(1) whether the challenged statute [served] a legitimate governmental purpose, and (2) whether it was reasonable for the Legislature to believe that the challenged classification would promote that purpose.” Id. at 19.

With respect to the statutory cap on wrongful death noneconomic damages, the court determined that the statute failed the rational basis test because it imposed “unfair and illogical burdens on injured parties when an act of medical negligence [gave] rise to multiple claimants.”  Id. at 9.  The court indicated that medical malpractice claimants did not receive the same rights to full compensation because of the diminished compensation for legally cognizable claims. Moreover, the court held that the statutory cap did not bear a rational relationship to the stated purpose of the cap which was to address the medical malpractice insurance crises in Florida.

The Court recognized that it had previously addressed the issue of aggregate caps and limitations on noneconomic damages in St. Mary’s Hospital, Inc. v. Phillipe, 769 So.2d 961 (Fla. 2000).  In Phillipe, the court found that aggregate caps and limitations violated equal protection guarantees under the Florida Constitution when applied without regard to the number of claimants entitled to recovery.[5]  The court noted that the same violation found in Phillipe was found in the present case since the statutory cap on wrongful death noneconomic damages impacted circumstances where multiple claimants/survivors were involved less favorably than circumstances where there was only one survivor.[6]  Further, the statutory cap irrationally impacts a victim of medical negligence when the victim has a large family as in the present case.  The statutory cap in the present case limited the recovery of Ms. McCall’s son and surviving parents due to the reason that others had suffered a loss.  The court held that to reduce noneconomic damages based upon the existence of the cap was arbitrary and “[offended] the fundamental notion of equal justice under the law.” Id. at 13.[7]

Further, the court indicated that in addition to arbitrary discrimination between medical malpractice claimants, the statutory cap also violated the Equal Protection Clause of the Florida Constitution because it bore no relationship to a legitimate state objective which is required under the rational basis test.  The Florida Legislature claimed that Florida was in the middle of a medical malpractice insurance crises and the increase in medical malpractice liability insurance premiums had resulted in physicians leaving Florida, retiring early from the practice of medicine or refusing to perform high-risk procedures in order to justify the cap of noneconomic damages.  However, the court stated that the conclusions reached by the Florida Legislature as to the existence of the medical malpractice crisis was “not fully supported by available data” and the alleged interest of health care being unavailable was completely undermined by authoritative government reports.[8]  Id. at 21.  Additionally, the court noted that testimony before the Senate Judiciary Committee and debates within the Florida Senate had raised questions concerning the magnitude of the health care crisis including testimony by the Deputy Director of the Florida Office of Insurance Regulation wherein he stated that he had found no evidence to suggest that there had been an increase in frivolous lawsuits filed in Florida nor evidence of excessive jury verdicts in the last three (3) years.  Id. at 25.  The court concluded that based on these statements and reports, the Legislature’s determination that the increase in medical malpractice liability insurance premiums had resulted in physicians leaving Florida, retiring early from the practice of medicine or refusing to perform high-risk procedures, was not supported.

The court concluded that even if the Legislature’s assumptions were in fact true, section 766.118 still violated the Florida’s Equal Protection Clause because the evidence failed to establish a rational relationship between a cap on noneconomic damages and alleviation of the alleged crisis.  The statutory cap limits noneconomic damages that insurance companies must pay injured parties of medical malpractice however, section 766.118 does not require the insurance companies to use the savings to lower malpractice insurance premiums for physicians.[9]  Thus, the court concluded that available data failed to establish a legitimate relationship between the cap on wrongful death noneconomic damages and the lowering of medical malpractice insurance premiums and therefore, section 766.118 failed the rational basis test and was in violation of the Equal Protection Clause of the Florida Constitution.

Lastly, the court noted that even if section 766.118 was rational when it was first enacted, it was no longer rational where the premise upon which the statute was based had changed.  The court evaluated the current data and determined that no rational basis existed to currently justify the statutory cap.[10]

The court determined that it was not necessary to answer the remaining certified questions.  The provisions in the Florida Constitution with respect to access to courts and the right to trial by jury protects only the rights which existed at common law or by statute prior to the adoption of the 1968 Declaration of Rights.  Florida law did not recognize a cause of action for wrongful death at common law and although the wrongful death statute was enacted prior to 1968, the right of survivors to recover noneconomic damages did not become part of the statutory law until 1972.  Therefore, since the case involved a wrongful death medical malpractice action and Ms. McCall’s parents and son’s right to recover noneconomic damages did not exist prior to 1972, their actions for access to the courts and jury trial challenges to section 766.118 were not cognizable.  The court stated that it would not answer the second and third certified question as this would constitute an advisory opinion.  With respect to the fourth question, the court noted that since section 766.118 addressed both personal injury and medical malpractice actions, and wrongful death medical malpractice actions were statutorily created, answering the fourth question would also constitute an advisory opinion in part.

II.      FCCI Commercial Insurance Company v. A. Armour, 2014 WL 443991 (Fla. 2d DCA 2014)

FACTS AND PROCEDURAL HISTORY

This case arose from an allegation of construction defects of a residence.  The liability insurance carrier, FCCI Commercial Insurance Company, Inc. (“FCCI”), for two of the subcontractors involved in constructing the residence brought a declaratory judgment action seeking a determination of its duty to defend and indemnify the subcontractors against claims asserted by the owners of the residence.  Mr. James Armour and 4449 Holdings Company (collectively referred to as “Armour”) brought an arbitration proceeding against the general contractor, the prior property owner, and fourteen subcontractors used to complete the residence.  During the liability proceedings, Armour initialed arbitration proceedings.  The subcontractors were dismissed from the arbitration proceedings and Armour filed a separate action against them in the circuit court.

FCCI filed a separate declaratory action to resolve the issue of its duty to defend and indemnify two of the subcontractors Horizon and Windemuller, involved in the construction of the residence.  The circuit court granted Armour’s motion to stay the declaratory action.  During the hearing on the motion to stay, Armour argued that the consideration of the policy provisions of the FCCI policy with respect to FCCI’s duty to defend and indemnify would involve the same factual issues raised in the arbitration and liability actions.  The court stayed both the declaratory action and liability action pending resolution of the arbitration action.  FCCI sought certiorari review of the order staying its declaratory judgment action pending the resolution of the arbitration action and liability action.

APPELLATE COURT DECISION

The court granted the petition for writ of certiorari and quashed the trial court’s order staying the declaratory action pending resolution of the underlying arbitration and liability actions and remanded to the circuit court.  The court determined that FCCI would suffer irreparable harm if required to provide a defense for the subcontractors when it had no obligation to.  The court explained that there were several factors that must be considered when determining whether a declaratory judgment action as to insurance policy indemnity coverage should proceed ahead of the underlying tort action.  The court cited Higgins v. State Farm Fire & Casualty Co., 894 So.2d 5, 16 (Fla. 2004), and explained that the court must consider:

1)      Whether the two actions are mutually exclusive;

2)      Whether proceeding to a decision on the indemnity issue will promote settlement and avoid the problem of collusive actions between the claimant and the insured in order to create coverage where there is none; and

3)      Whether the insured has resources independent of insurance, so that it would be immaterial to the claimant whether the insured’s conduct was covered or not covered by indemnity insurance.

Id.

In reviewing the factors, the court noted that since FCCI contended that all of Armour’s claims against its subcontractor insureds were outside the scope of the policy, the claims were mutually exclusive.  Further, since one of the subcontractors, Horizon, had entered bankruptcy during the pendency of the underlying actions and the FCCI policy would be the only means for recovery against Horizon, the court determined that the coverage issue was important both for settlement negotiations and Armour’s decision to continue to pursue a judgment against Horizon.  Thus, all of the factors weighed in favor of allowing the declaratory action to proceed.

The court held that the order staying the declaratory action was a departure from the essential requirements of law that caused irreparable harm to FCCI by forcing it to defend the subcontractor insureds without resolution of the coverage dispute.

III.      Horace Mann Ins. Co. v. Chase, 121 So.3d 1191 (Fla. 5th DCA 2013)

FACTS AND PROCEDURAL HISTORY

This matter involved a lawsuit filed by an insured against her insurance carrier for uninsured/underinsured motorist coverage.  Mr. Richard Chase had purchased an insurance policy with Horace Mann Insurance (“insurance carrier”) which provided uninsured/underinsured (“UM”) motorist coverage.  Mr. Chase signed a form in which he selected to reduce the UM coverage limits to $25,000/$50,000 which were less than his bodily injury limits.  He also selected non-stacked UM coverage which form stated:

Under this form if injury occurs in a vehicle owned or leased by you or any family member who resides with you, this policy will apply only to the extent of coverage (if any) which applies to that vehicle in this policy. If an injury occurs while occupying someone else’s vehicle, or you are struck as a pedestrian, you are entitled to select the highest limits of Uninsured Motor Vehicle coverage available on any vehicle for which you are a named insured, insured family member, or insured resident of the named insured’s household. This policy will not apply if you select the coverage available under any other policy issued to you or the policy of any other family member who resides with you.

The insurance policy also contained an owned-but-not-insured exclusion with respect to UM coverage.

Mr. Chase’s daughter, Allison Chase was a listed driver under the policy but not a named insured.  Three years later, Ms. Chase became the sole named insured and added Mr. Chase as a listed driver on the policy.  Mr. Chase was provided a new policy.  Thereafter, an uninsured motorist collided with two motorcycles operated and owned by Mr. Chase and his daughter Ms. Chase.  Mr. Chase died due to his injuries caused in the accident.  Ms. Chase filed suit and sought to recover damages individually and for Mr. Chase’s estate.

The insurance carrier contended that the waivers and exclusion were binding on Mr. Chase’s estate as well as the Ms. Chase both individually and as personal representative of Mr. Chase’s estate.  On the insurance carrier’s motion for summary judgment and Ms. Chase’s partial motion for summary judgment, the trial court determined that since Ms. Chase did not sign any documentation rejecting the higher limits of UM coverage or stacked UM coverage, the waivers did not apply to Ms. Chase individually or to the estate.  The trial court also found that since Ms. Chase did not sign a form selecting limited UM coverage at the time she became the named insured, the policy exclusion for owned but not insured vehicles was not enforceable against her or the estate.  The insurance carrier appealed both rulings.

APPELLATE COURT DECISION

The Fifth District Court of Appeals affirmed in part and reversed in part the trial court’s ruling holding that Ms. Chase, individually and in her capacity as personal representative of Mr. Chase’s estate, was bound by Mr. Chase’s waiver of the higher UM/UIM coverage and the waiver of stacking UM/UIM coverage did not apply to Ms. Chase individually.  With respect to the owned-but-not insured exclusion, the court held that the exclusion applied to Ms. Chase.

The insurance carrier argued that the trial court erred when it found that Ms. Chase’s policy was not a new policy that did not include the reduced UM coverage and non-stacked coverage.  In its analysis, the court indicated that Florida Statute section 627.727(1) provided that “UM coverage or higher limits of UM coverage did not have to be included in any policy that renews, extends, changes, supersedes, or replaces an existing policy with the same bodily injury liability limits” when the named insured had previously rejected the coverage or selected lower limits.”   Chase, 121 So.3d at 1193.  Thus, since no policy limits were changed when Ms. Chase became the named insured, the existing policy was renewed, extended, changed or superseded and Mr. Chase’s waiver of higher UM coverage bound Ms. Chase individually and as personal representative of Mr. Chase’s estate.

With respect to the UM stacking waiver, the court, citing to Florida Statute section 627.727 (9)[11], concluded that the waiver of non-stacked coverage must be personally made by the insured who claims benefits.  Therefore, since Mr. Chase signed the UM stacking waiver, his estate and Ms. Chase, as personal representative, were bound by the waiver and not entitled to stacked coverage.  However, the waiver did not apply to Ms. Chase individually because she did not sign the UM stacking waiver as an insured.  Chase, 121 So.3d at 1194.

With respect to the “owned but not insured vehicle exclusion,” the court stated that the exclusionary language was binding because there was no new policy requiring a new UM election.  In this case, because Ms. Chase was not issued a new policy, the owned but not insured exclusion was binding on Ms. Chase individually and as personal representative of Mr. Chase’s estate.  Chase, 121 So.3d at 1194.

IV.     Perdido Sun Condominium Association, Inc. v. Citizens Property Insurance Corporation,  (Fla. 1st DCA 2014)

FACTS AND PROCEDURAL HISTORY

This matter involved a lawsuit filed by an insured against its insurance carrier alleging that the carrier acted in bad faith in handling its insurance claim.  The insured, a condominium association, was insured under a policy issued by Citizens Property Insurance Corporation (“Citizens”).  In 2004, the insured filed a claim for property damage caused by a Hurricane.  The insured was not satisfied with the amount that was paid by Citizens and filed a breach of contract action against Citizens to recover additional monies under the insurance policy.  The insured prevailed in the underlying breach of contract action and the court affirmed judgment in Citizens Prop. Ins. Corp. v. Perdido Sun Condo. Ass’n, Inc., 22 So.3d 71 (Fla. 1^st DCA 2009). The insured then filed a bad faith action pursuant to Florida Statutes section 624.155(1)(b).

Citizens moved to dismiss the complaint contending that it was immune from the suit under Florida Statute 627.351(6)(s).[12]  The trial court granted the motion to dismiss and entered final judgment adopting the analysis in Citizens Property Ins. Comp. v. Garfinkel.  In Garfinkel, the court found that Citizens was immune from bad faith claims since it was a state body created by legislature to ensure markets for property insurance and there were only five exceptions to the statutory grant of immunity and bad faith was not one of the exceptions.  The circuit court concluded that Citizens was immune from bad faith under Florida Statute 627.351(6)(s) and a cause of action under Florida Statute section 624.155 was not a listed exception.

APPELLATE COURT DECISION

The First District Court of Appeal reversed the final order granting the motion to dismiss holding that Citizens could be sued for bad faith pursuant to Fla. Stat. §624.155 under the “willful tort” exception of section 627.361(6)(s)(2) as the immunity provided to Citizens did not extend to the failure to attempt in good faith to settle claims as provided by Fla. Stat. §624.155.    On appeal, the insured argued that the immunity that applied to Citizens under section 627.351(6)(s)(2)  did not apply to willful torts and that actions by insurers described in section 624.155(1)(b) constituted willful torts. Citizens argued that the exceptions under the immunity provision should be strictly enforced and there was no reference to a section 624.155 cause of action among the exceptions.

In its analysis the court explained that although Citizens was not a private insurance carrier, section 627.351(6)(s)(2) imposed a duty of good faith on Citizens to its policy holders to handle claims “carefully, timely, diligently, and in good faith.” Id.  Further, since the statute imposed a duty to handle its insured’s claims in good faith, a breach of that duty fell under the definition of “tort.”  Additionally, the fact that Citizens was not a private insurance carrier did not indicate that Citizens was not an insurer as defined in section 624.155(1).

After considering the definitions of “willful” and “tort,” the court concluded that the “willful tort” exception to Citizens’ immunity allowed Citizens to be sued under section 624.155(b) and the immunity did not extend to the failure to attempt in good faith to settle claims as provided under section 624.155.  The First District Court of Appeal certified the following question as one of public importance to the Florida Supreme Court:

Whether the immunity of Citizens Property Insurance Corporation, as provided in section 627.351(6)(s), Florida Statutes, shields the Corporation from suit under the cause of action created by section 624.155(1)(b), Florida Statutes for not attempting in good faith to settle claims?

We will continue to monitor this case and will prepare a subsequent update as the case progresses.

We hope you find the above cases helpful and insightful.  Should you have any questions with respect to the foregoing, please do not hesitate to contact the undersigned at your earliest convenience.

Very truly yours,

JOHN BOND ATKINSON

VERONICA RUBIO

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