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Vol. 8 - Issue 6
July 10, 2019


No Failure To Cooperate:
Insured’s No Show At Trial Helps -- And Does Not Prejudice -- Insurer


While insureds are obligated to cooperate with their insurers in their defense, a failure to do so does not always mean a loss of coverage.  Often times, to be able to disclaim coverage, the insurer must prove that it was prejudiced by the insured’s lack of cooperation.  In general [putting aside specific tests], the insurer must demonstrate that, because the insured did not cooperate in its defense, the outcome of the case was different than it would have been, if the insured had helped out. 

There are varying degrees of failure to cooperate.  What about when the insured does not participate at all in its defense?  As in -- he or she just doesn’t show up, including at trial.  If the insurer loses the insured’s case, or the verdict is higher than it should have been, presumably this was because the insured was not there to tell his or her side of the story.  That seems like a logical argument.  But, as demonstrated by Mora v. Lancet Indemnity Risk Retention Group, No. 18-1566 (4th Cir. May 7, 2019), this may not be so.  In fact, as the Mora court saw it, the insured’s lack of participation at trial was to the insurer’s advantage.         

The failure to cooperate issues in Mora arose this way.

“In January 2015, Dr. Ishtiaq Malik treated Juan Castillo for his complaints of chest pains and shortness of breath.  After administering a treadmill stress test and an EKG, Dr. Malik prescribed a beta blocker but did not refer Castillo to a cardiologist or instruct him to seek any other immediate medical attention. Eight days later, Castillo died from a cardiac event.”

In July 2015, Mr. Castillo’s wife and children filed a medical malpractice action against Dr. Malik, and others, in Maryland state court.  Lancet, Dr. Malik’s medical malpractice insurer, informed the insureds that it had retained defense counsel and required Dr. Malik’s assistance in discussing the allegations against the Insureds.  The attorney retained by Lancet, despite many attempts, using various forms of communications, was never able to reach Dr. Malik.  Lancet learned that Dr. Malik had moved to Pakistan and had no plans to return to the United States.

I’ll let the court tell the rest of the story: “Unable to reach Dr. Malik, Kelly [the attorney retained by Lancet] advised Lancet that because he had not obtained Dr. Malik’s consent to representation, the Maryland Rules of Professional Conduct barred him from appearing in the malpractice action. After Kelly advised Lancet that he believed he was ethically barred from appearing on Dr. Malik’s behalf, Lancet elected not to participate in the malpractice action—it did not investigate the malpractice claim, it did not obtain Castillo’s medical records, and it did not answer Plaintiffs’ complaint.  Several months later, in October 2015, Lancet sent a letter to Dr. Malik’s last known address informing him that it was disclaiming coverage because of his failure to cooperate in defense of the malpractice suit.  Lancet sent two similar letters to Pakistani addresses thought to be where Dr. Malik might be residing.  In February 2016, Plaintiffs moved for Entry of an Order of Default against the Insureds, which the state court granted on March 11, 2016. The attorney for the Plaintiffs notified Lancet that it had thirty days to move to vacate the order. Three days before a state-court scheduled hearing on damages, Lancet filed a motion to intervene—its first effort to participate in the case—which the court granted.  Thereafter, Lancet unsuccessfully moved to delay the damages hearing. The state court then entered judgment in the Plaintiffs' favor in the amount of $2.56 million.”

Mr. Castillo’s family filed an action against Lancet seeking a declaration that the insurer was obligated to pay the judgment.  Lancet filed a counterclaim seeking a declaration that it had no such obligation because of Dr. Malik’s failure to cooperate.

Following a two-day bench trial, the court declared that Lancet was liable.  The court held that “neither ethical rules, nor Maryland law, nor the terms of the Policy prevented counsel for Lancet from entering an appearance and defending the malpractice action.”  On the failure to cooperate issue, the court “concluded that Lancet had failed to meet its burden to establish that it had been actually prejudiced by Dr. Malik’s refusal to participate because, even in Dr. Malik’s absence, Lancet had several viable paths to defending the malpractice action, which it elected not to pursue.”

The federal court of appeals affirmed, including on the issue that counsel for Lancet was not precluded from entering an appearance on behalf of Dr. Malik.  This was an important issue in the case, but not important for purposes of the points to be made here.

In affirming the trial court, that Mr. Malik’s refusal to participate in his defense did not prejudice Lancet, the court described the necessary prejudice this way: “[A]lthough the insurer does not have to overcome the almost insurmountable burden of proving that the verdict was the direct result of a lack of cooperation, it must show that the insured’s failure to cooperate has, in a significant way, precluded or hampered it from presenting a credible defense to the claim.  Under this standard, possible, theoretical, conjectural, or hypothetical prejudice does not suffice.”    

The court rejected Lancet’s argument that Dr. Malik’s absence hamstrung Lancet in defending against Malik’s violation of the standard of care.  Here, the court saw Dr. Malik’s absence as a benefit to Lancet’s defense: “Lancet vigorously pressed, through its medical expert, cardiologist Dr. Richard Schwartz, that the state of the evidence absent Malik would be insufficient to establish one way or the other whether Malik violated the standard of care.  The district court explained that ‘this is itself a credible defense to the Malpractice Lawsuit’ because it demonstrated that, in Dr. Malik’s absence, ‘precious little’ evidence was available for Plaintiffs to meet their burden to show ‘that Malik’s conduct violated the standard of care.’”

But, as a general take-away, the opinion demonstrates that, simply because the insured is not present in his or her defense, prejudice may not be established: “The district court also found credible testimony by Plaintiffs’ expert on emergency medicine, Dr. Alec Anders, that ‘the medical records alone provided sufficient evidence for medical experts to opine on [the] standard of care’ because Dr. Malik’s ‘contemporaneous notes reflect[ed] his diagnostic impressions, course of care, and follow-up plan.’ According to Dr. Anders, such notes are not only used by other physicians administering additional treatment, but also are used by experts at trials testifying as to whether a defendant physician met the standard of care. Plaintiffs’ medical malpractice defense expert, Brault, likewise testified that it would have been possible for Lancet to mount a defense that Dr. Malik’s conduct met the standard of care primarily, if not exclusively, from his consultation notes[.]”



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