Prime Insurance Company is not liable for $60 million in damages after two patients died following liposuction at a Georgia clinic, thanks in part to the clear wording of the insurance policy and timely action by the insurer, a federal appeals court decided last week.
A panel of the 11th U.S. Circuit Court of Appeals in Atlanta upheld a federal district court’s decision that the insurance carrier’s payout was limited to $100,000 under the terms of the clinic’s professional liability policy – and most of that had already been burned up by defense attorney fees.
“Prime’s duty to defend its insured ends ‘when the applicable limits of liability of the policy are exhausted by payment of damages and/or claim expenses,’” the court wrote in its Feb. 8 opinion, quoting from the policy.
The judges also found that a four-year statute of limitations applied because part of the legal action claimed an alleged breach of fiduciary duty by Prime. The state’s six-year statute for breach of contract actions did not apply in this case, the court noted. The plaintiffs also cannot pursue a claim that Prime had violated Georgia’s surplus-lines statute by selling a surplus policy without fully disclosing it in documentation.
Georgia law provides for no private cause of action on that, only punitive action by the state insurance commissioner, the court said.
The ruling will likely be seen as a breath of fresh air for property-casualty insurers, many of which have been held responsible for damages well above policy limits through the years, in multiple courts. Some of those court rulings have turned on ambiguous policy wording or from insurers failing to respond quickly to claims, leading to bad-faith actions.
In this case, the Kennesaw, Georgia, clinic known as Opulence Aesthetic Medicine had purchased a professional liability policy with a $50,000 limit per claim and a $100,000 aggregate limit. The premium was $3,992.
In 2013, Dr. Nedra Dodds performed liposuction surgery on April Jenkins, the court explained. Jenkins died later that day. A few months later, Dodds performed a similar procedure on Erica Beaubrun, who died hours after the surgery. The incidents were widely publicized in Georgia news reports. Police investigated the clinic, which is owned by a company that has clinics around the world, but criminal charges against Dodds were later dropped. The doctor filed for bankruptcy protection in 2017.
Jenkins’ and Beaubrun’s families sued the clinic and each won $60 million, one in a jury verdict and one in a consent judgment. After the Beaubrun judgment, the clinic assigned its policy benefits to the victim’s family.
But the clinic’s insurance policy contained a diminishing-limits provision, which, the court said, clearly stated that the cost of defending the clinic and the doctor had diminished the $50,000 available for the Jenkins estate. It also meant that legal fees had eaten through most of the indemnity available to the Beaubrun family. Despite that, Prime at one point had offered a $50,000 settlement, but the Beaubrun family rejected that.
“The bottom line for this appeal is that under the terms of the policy, the defense of the Jenkins and the Beaubrun estates’ lawsuits exhausted the clinic’s insurance coverage,” the appeals court judges wrote. “In other words, defending the Beaubrun estate lawsuit diminished the amount of coverage available for that claim, and defending both the Beaubrun and the Jenkins estates’ lawsuits diminished the aggregate limit until there was no coverage left.”
Prime Insurance had communicated this to the plaintiffs and the trial court in a timely manner. Prime, a specialty insurer headquartered in Utah, early on also asked a federal court in that state to declare that it had no duty to defend the clinic beyond the policy limits. The court agreed and that ruling was incorporated as part of the Georgia lawsuit defense.
The 11th Circuit, one stop below the U.S. Supreme Court, affirmed the lower court decision, granting a significant win for the insurer.
