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McClain v. James

Court of Appeals of Missouri, Southern District, First Division

October 1, 2014

JERRY JACOB McCLAIN, by and through his Mother and Next Friend, Lori Rutledge, DR. ALLEN NORTHERN, and ROLLA MEDICAL GROUP AND WOMEN'S CLINIC, INC., Plaintiffs-Appellants,
v.
MARY JAMES, Defendant ad Litem for Estate of Charles A. James, M.D. [sic], LLOYD DOWNARD, JOHN LINDE, M.D., JOHN SCHWENT, M.D., JAMES CESAR, D.O., ALAN DOERHOFF, M.D., CARTER FENTON, D.O., ADELUOLAG G. LIPEDE, M.D., JAMES FLANARY, D.O., PHYSICIANS DEFENSE ASSOCIATION, and BENNY THOMAS, D.O., Defendants-Respondents

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APPEAL FROM THE CIRCUIT COURT OF PHELPS COUNTY. Honorable John B. Berkemeyer, Associate Circuit Judge.

For Appellants: Matthew J. Padberg, Theresa A. Appelbaum, and Anna E. Haber, of St. Louis, Missouri.

For Mary James and Estate of Charles James, Respondent: Steven P. Kuenzel, of Washington, Missouri.

For Downard, Thomas, Schwent, Fenton, Linde, Lipede and PDA, Respondents: Jonathan L. Downard, of Union, Missouri.

For Doerhoff, Flanary, and Cesar, Respondents: Dale C. Doerhoff, of Jefferson City, Missouri.

WILLIAM W. FRANCIS, JR., C.J./P.J. - OPINION AUTHOR. NANCY STEFFEN RAHMEYER, P.J. - CONCURS IN MAJORITY OPINION. DANIEL E. SCOTT, J. -- CONCURS IN PART AND DISSENTS IN PART IN SEPARATE OPINION.

OPINION

WILLIAM W. FRANCIS, JR., C.J./P.J.

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Plaintiff Jerry Jacob McClain, by and through his mother and next friend, Lori Rutledge (collectively " McClain" ), Dr. Allen Northern, and Rolla Medical Group and Women's Clinic, Inc. (collectively " Northern" ), appeal from a judgment in favor of Defendants James Flanary, James Cesar, Alan Doerhoff, Carter Fenton, Adeluolag Lipede, Benny Thomas, John Linde, and John Schwent (collectively " Physicians" ), Lloyd Downard, Mary James as defendant ad litem for the Estate of Charles James, and Physicians Defense Association (" PDA" ) on all eleven counts of Plaintiffs' Fourth Amended Petition. Counts II through VII, " equitable claims of action," were bench-tried on July 26, 2012, without jury involvement by agreement of the parties. Counts I and VIII through XI, " legal claims of action," were decided by summary judgment on December 13, 2012, resulting in the final judgment now before us. For reasons stated herein, we affirm the judgment as to Counts II through X, but reverse and remand as to Counts I and XI.

Factual and Procedural Background

This is the third trip to this court for these historically-complex proceedings. See McClain v. Carpio, 338 S.W.3d 361 (Mo.App. S.D. 2011); Northern v. Physicians Defense Association, 88 S.W.3d 130 (Mo.App. S.D. 2002). We borrow extensively from Carpio, 338 S.W.3d at 364-68, in describing the background of the litigation.

In April 1986, the Director of the Missouri Division of Insurance (" DIFP" ),[1] by authority granted in Chapter 383, RSMo,

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issued PDA a Certificate of Authority to engage as a corporation, in accordance with its Articles of Association, in the business of malpractice insurance in the state of Missouri. The next day, PDA filed its Articles of Association with the Missouri Secretary of State. PDA's purpose was to provide professional liability insurance or indemnification for persons licensed under the provisions of Chapter 334, RSMo, and corporations formed for the practice of medicine under Chapters 351 and 356, RSMo. PDA was an assessment mutual insurance company in which members paid an assessment upon membership and agreed to pay additional assessments as necessary for coverage of liability. Its board of directors, however, never made any special assessments against any policyholders or members. PDA had no shareholders.

On January 1, 1995, Northern purchased a professional liability insurance policy (" the Policy" ) from PDA covering the period January 1, 1995, to December 31, 1997, which provided coverage in the amounts of $200,000 per person and $600,000 per occurrence for " claims made."

During that coverage period, on January 2, 1997, McClain filed a medical malpractice claim in Phelps County Circuit Court against Northern and others based on their negligence during Jerry McClain's delivery and birth on May 2, 1995 (" McClain I" ). Jerry McClain was born with severe birth defects.

Also during the first part of 1997, PDA's board of directors decided to discontinue business and endorsed another insurance carrier to replace outstanding policies of liability insurance. All business activity of PDA associated with new business and underwriting was discontinued effective July 1, 1997. A special meeting of the PDA members was held on August 12, 1997, at which the members voted to dissolve PDA. The membership also accepted the resignation of the board of directors and approved the appointment of Lloyd Downard and Charles James to continue as officers and trustees of PDA to complete all acts necessary for its dissolution. Also on that date, PDA's membership and board of directors approved payment to Lloyd Downard and Charles James in the sum of $168,000 each, which had not previously been required by their employment contracts.

In 1997, at the time of these actions, all Physicians were PDA members.[2]

Between August 25, 1997, and September 29, 1997, PDA distributed to some Physicians sums ranging from $965 to $19,046.

McClain's malpractice case that was pending in Phelps County was dismissed without prejudice in June 1999 and then

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re-filed in that same county on August 16, 1999 (" McClain II" ).

After a trial on the record, judgment was entered in McClain II on August 10, 2000, in favor of McClain and against Northern in the amount of $14,425,916. This judgment also found that a section 537.065 settlement agreement entered into between McClain and Northern on March 27, 2000, was made in good faith and was reasonable.[3]

In September 2000, Plaintiffs filed a three-count action against PDA (" McClain III" ) in which Plaintiffs sought a declaration that the Policy issued by PDA covered the McClain II judgment; McClain sought equitable garnishment; and Northern sought damages against PDA, his insurer, for failing to defend and indemnify him against McClain's malpractice claims.

On or about December 1, 2000, PDA again distributed to some Physicians sums ranging from $100 to $4,900.

On January 29, 2001, Downard, in his capacity as secretary of PDA, signed and filed Articles of Dissolution and Articles of Termination with the Missouri Secretary of State. The articles stated that " all debts, obligations and liabilities of the corporation have been paid and discharged, or adequate provision has been made therefore." Contrary to that representation, PDA had not made adequate provision to discharge its liabilities, specifically the judgment entered against it in McClain II, nor any contingent plans for potential liability in McClain III. Downard testified in his deposition[4] that when he filed and signed the Articles of Termination, it was with full knowledge that McClain III was pending, and that if a judgment was rendered in favor of Northern, PDA would be responsible for payment of any judgment up to the policy limits, as well as payment of Northern's attorney fees and expenses. Further, Downard had been previously notified in 1997 by Dennis Engel, Examiner-In-Charge from the DIFP, that some of PDA's contract payments were in question. On that same day, January 29, 2001, the Missouri Secretary of State issued a Certificate of Termination of PDA certifying that the corporate existence of PDA ceased as of that date.

PDA published notice of dissolution and notice to file claims pursuant to section 351.482(3), RSMo (previously section 351.565, RSMo) in the Jefferson City Tribune on February 9, 2001, and in Missouri Lawyers Weekly on February 12, 2001.

By letter dated February 12, 2001, counsel for Jerry McClain provided notice to PDA of his claims and the judgment in McClain II against Northern. The letter also advised of the pending McClain III action.

Partial summary judgment was entered in McClain III on October 23, 2001, in favor of Plaintiffs and against PDA, finding that PDA's Policy provided coverage for the judgment in McClain II. On interlocutory appeal in Northern, this court affirmed.

Thereafter, on May 12, 2003, the trial court in McClain III finally decided Northern's damages claim, entering a $15,000 judgment in Northern's favor against PDA " as compensatory damages for [PDA]'s breach of contract." PDA did not appeal, nor has PDA satisfied

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Northern's judgment or the $14,425,916 McClain ...


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