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Mora v. Lancet Indemnity Risk Retention Group, Inc.

United States District Court, D. Maryland

March 1, 2017

CLAUDIA M. MORA et al. Plaintiffs,


          Paula Xinis, United States District Judge

         Pending in this insurance action is a motion for summary judgment filed by Plaintiffs Claudia Mora, her two children, and Juan Carlos Castillo and a cross-motion for summary judgment filed by Defendant Lancet Risk Retention Group, Inc. (ECF Nos. 74, 76). The issues have been fully briefed and a hearing was held on Friday, February 24, 2017. For the reasons that follow, both motions are denied.

         I. BACKGROUND

         This case arises out of an insurance coverage dispute between insurer Lancet Risk Retention Group, Inc. (“Lancet”), its insureds, and several plaintiffs who have filed suit against the insureds. In 2014, Lancet issued a claims-made-and-reported policy[1] (the “Policy”) to two interrelated medical practices, Union Multi-Care Medical Center, Inc. and Advanced Walk-In Urgent Care, LLC, both located in Silver Spring, Maryland. ECF No. 74-3 at 2. Dr. Ishtiaq A. Malik (“Dr. Malik”) owned and operated both practices. He and his colleague, Dr. Lendicta Madden (“Dr. Madden”), were additional named insureds on the Policy. See Insurance Policy, ECF No. 76-5 at 12. The Court will refer to the two medical practices and Dr. Malik collectively as the “Insureds.” Union Multi-Care Medical Center and Advanced Walk-In Urgent Care are entities solely owned by Dr. Malik and thus Dr. Malik serves as their representative. The Policy was in effect from July 1, 2014 through July 31, 2015.

         On January 15, 2015, Juan G. Castillo visited Dr. Malik at his Silver Spring offices because Castillo was experiencing chest pains. See Consultation Note, ECF No. 75-2 at 2. According to Dr. Malik's consultation note, Mr. Castillo arrived complaining of atypical chest pain associated with shortness of breath a few times day. Id. Mr. Castillo's history was recorded, his vitals were taken, and a physical exam was performed. Based on his assessment, Dr. Malik prescribed Mr. Castillo a thirty-day supply of heart medicine. Id. Eight days later, Mr. Castillo died from a sudden cardiac event while at work.

         On July 15, 2015, Mr. Castillo's widow, Claudia Mora, and two of their minor children (the “Plaintiffs”) filed a medical malpractice claim against the Insureds and others with the State of Maryland Health Claims Alternative Dispute Resolution Office (“HCADRO”) and elected to waive arbitration. See Ex. 10, ECF No. 75-3 at 18-43. In that action, the Plaintiffs alleged that Dr. Malik and the rest of the Insureds negligently failed to refer Mr. Castillo to a cardiologist after evaluating him, leaving Castillo's heart condition undiagnosed and untreated which resulted in his death. Id. Before filing their claim with HCADRO on July 2, 2015, Plaintiffs' counsel put Lancet on notice in writing that Plaintiffs' lawsuit against its Insureds was forthcoming. ECF No. 22 at 7; Letter, Ex. 8, ECF No. 75-3 at 14. On July 24, 2015, Plaintiffs filed the medical malpractice/wrongful death case in the Circuit Court for Montgomery County, naming as defendants the Insureds and Richard O. Akoto.[2] See Mora v. Advanced Walk-In Urgent Care LLC, Case No. 407276-V (Montgomery Cnty. Cir. Ct. filed July 24, 2015) [hereinafter the “Lawsuit”]. That same day, Plaintiffs' counsel sent a letter enclosing the complaint and the related filings to Lancet and Lancet's outside counsel for this matter. ECF No. 22-4; ECF No. 75-4 at 6.

         After Plaintiffs' counsel informed Lancet of the impending Lawsuit, Lancet's counsel immediately reached out to the Insureds via telephone, e-mail, and other correspondence to investigate Plaintiffs' claims. ECF No. 76-1 at 11-12. Specifically, on July 24, 2014, Lancet advised via letter Union Multi-Care, Advanced Walk-In, and Dr. Malik at Dr. Malik's last-known personal residence and his last-known email address, that it: (i) received the July 2, 2015 letter from Plaintiffs; (ii) appointed defense counsel on the Insureds' behalf; (iii) defense counsel required the Insureds' and Dr. Malik's assistance and cooperation in discussing the allegations in the July 2, 2105 letter; and (iv) its investigation remained ongoing and its defense under the Policy was being provided under a strict reservation of rights. See Letter, ECF No. 76-14. Lancet received no response.

         On August 6, 2015, Lancet sent another letter to Dr. Malik again requesting that he cooperate with the pending litigation and referencing Lancet's prior attempts to contact him. See Letter, ECF No. 76-17. No one responded. Lancet then contacted Dr. Malik's former counsel in a False Claims Act action who informed Lancet that Dr. Malik had moved to Pakistan and did not intend on returning to the United States. See Letter, ECF No. 76-18.

         Lancet sent several more letters to Dr. Malik at his last known address in Silver Spring and a coverage denial letter of October 16, 2015 explaining that Lancet would not provide Dr. Malik or the other Insureds a defense in the Lawsuit for Dr. Malik's failure to cooperate in violation of the Policy. ECF Nos. 75-1 at 42-47, 76-19, 76-20.

         On February 1, 2016, Plaintiffs' counsel informed Lancet in writing that he had learned of Dr. Malik's whereabouts in Pakistan and provided Lancet with two possible addresses. ECF No. 76-22. Lancet then sent packages to these two addresses dated February 26, 2016, referencing Lancet's prior attempts to communicate with him. Lancet told Dr. Malik that because Lancet was unable to reach him in an effort to investigate and defend against the claims in the Lawsuit, Lancet disclaimed coverage. See February 26, 2016 Letter, ECF No. 76-23.

         Aside from responding to a subpoena request from Plaintiffs, Lancet did not participate in the Lawsuit. Lancet asserts it did not participate because without the Insureds' cooperation, Lancet could not meaningfully defend against Plaintiffs' allegations. ECF No. 75-4 at 7. No attorney entered an appearance for the Insureds and none of the Insureds participated in the trial proceedings.

         On March 11, 2016, the circuit court entered an Order of Default against the Insureds. See Order, ECF No. 75-4 at 19-20. The Insureds never moved to vacate the Order. On August 8, 2016, Lancet moved to intervene for a limited purpose of damages. The Montgomery County circuit court granted this motion over the objection of Plaintiffs' counsel. See Order, ECF No. 75-4 at 26. On August 11, 2016, the circuit court entered a judgment against the Insureds, jointly and severally, for $2.56 million. See Entry of Judgment, ECF No. 75-4 at 30.

         On March 2, 2016 Claudia Mora, her two children, Juan Carlos Castillo, Advanced Walk-In Urgent Care, LLC, Union Multi-Care Medical Center, Inc., and Dr. Richard Akoto filed this declaratory judgment action against Lancet in the Circuit Court for Montgomery County seeking a judgment declaring that the Insureds are covered by the Policy for claims asserted against them in the Lawsuit. See Amended Complaint, ECF No. 6. Lancet removed the case to this Court and filed a counterclaim. ECF Nos. 1 and 22. The counterclaim seeks a declaration that the Policy is void because of the Insureds' failure to comply with the Policy's notice and cooperation provisions. ECF No. 22 at 15-16. Plaintiffs moved for summary judgment and Lancet filed a cross-motion for summary judgment. For the reasons that follow, both motions are denied.


         “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (citing predecessor to current Rule 56(a)). The burden is on the moving party to demonstrate the absence of any genuine dispute of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144 (1970). If sufficient evidence exists for a reasonable jury to render a verdict in favor of the party opposing the motion, then a genuine dispute of material fact is presented and summary judgment should be denied. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). However, the “mere existence of a scintilla of evidence in support of the [opposing party's] position” is insufficient to defeat a motion for summary judgment. Id. at 252. The facts themselves, and the inferences to be drawn from the underlying facts, must be viewed in the light most favorable to the opposing party, Scott v. Harris, 550 U.S. 372, 378 (2007); Iko v. Shreve, 535 F.3d 225, 230 (4th Cir. 2008), who may not rest upon the mere allegations or denials of his pleading but instead must, by affidavit or other evidentiary showing, set out specific facts showing a genuine dispute for trial, Fed.R.Civ.P. 56(c)(1).

         When a court is called upon to decide cross-motions for summary judgment, it must review each motion separately on its own merits to decide whether either party deserves judgment as a matter of law. Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003). Thus, as with any motion for summary judgment, the court must review the facts and reasonable inferences therefrom in the light most favorable to the party opposing that motion. Id.

         III. ANALYSIS

         A. Lancet's Cross-Motion for Summary Judgment[3]

         Lancet contends that it properly denied coverage because the Insureds failed to notify Lancet of the Lawsuit before the Policy expired, and further failed to cooperate in investigating and defending the claims. As a result, Lancet need not reimburse the Insureds for the damages and costs it incurred in the Lawsuit. Plaintiffs respond that before Lancet can disclaim coverage under either of these provisions, it must show that the Insureds' failure to notify or cooperate “actually prejudiced” it pursuant to Maryland's “notice-prejudice” rule.[4] See Md. Ins. Code Ann. § 19-110. Lancet, however, notes that § 19-110 is preempted by the federal Liability Risk Retention Act (“LRRA”), 15 U.S.C. § 3901 et seq.

         Here, it is undisputed that Lancet is a risk retention group governed by the LRRA. The Court, therefore, first addresses the LRRA's impact on the substantive law governing this analysis.

         i. Federal Preemption Law and the Liability Risk Retention Act of 1986

         Federal preemption emanates from the Constitution's Supremacy Clause. See U.S. Const. art. VI, cl. 2. In addressing a preemption issue, a court's first task is to determine whether Congress, in enacting a federal law, intended to preempt state law covering the same subject matter. See California Fed. Savings & Loan Ass'n, 479 U.S. 272, 280-81 (1987). Once the court determines congressional intent with regard to preemption, it must then turn to the the scope of that preemption. See Duvall v. Bristol-Myers-Squibb Co., 103 F.3d 324, 328 (4th Cir. 1996).

         Two presumptions guide this inquiry. See Id. First, “‘the purpose of Congress is the ultimate touchstone' in every preemption case.” Medtronic, Inc. v. Lohr, 518 U.S. 470, 485 (1996) (quoting Retail Clerks v. Schermerhorn, 375 U.S. 96, 103 (1963)). Second, a court applies “the basic assumption that Congress did not intend to displace state law.” Maryland v. Louisiana, 451 U.S. 725, 746 (1981). This presumption of non-displacement “is strongest when Congress legislates ‘in a field which the States have traditionally occupied.'” S. Blasting Servs., Inc. v. Wilkes Cnty., N.C. , 288 F.3d 584, 590 (4th Cir. 2002) (quoting Medtronic, Inc., 518 U.S. at 485). Insurance is one of those traditional state-occupied areas. See FMC Corp. v. Holliday, 498 U.S. 52, 53 (1990).

         In 1981, Congress enacted the Products Liability Risk Retention Act (“PLRRA”), allowing “‘product manufacturers to purchase insurance on a group basis at more favorable rates or to self-insure through insurance cooperatives called ‘risk retention groups.'” Ophthalmic Mut. Ins. Co. v. Musser, 143 F.3d 1062, 1064 (7th Cir. 1998) (quoting H.R. Rep. No. 190 at 4 (1981), reprinted in 1981 U.S.C.C.A.N. 1432, 1432). However, risk retention groups faced difficulties in providing insurance nationwide because they were obligated, like traditional insurance companies, to obtain licenses and comply with the regulations of every state in which they seek to do business. See Vonda Mallicoat Laughlin, State Laws Restricting the Operation of Risk Retention Groups-Necessary Protection or Illegal Regulation?, 60 Drake L. Rev. 67, 68 (2011) (citing Baird Webel, Cong. Research Serv., RL 32176, The Risk Retention ...

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