Mutual Fire, Marine & Inland Insurance v. Vollmer

RODOWSKY, Judge. The Mutual Fire, Marine & Inland Insurance Company (FM & I) is suing its insured, Frederick J. Vollmer, M.D. (Vollmer), in the United States District Court for the District of Maryland seeking reimbursement of monies paid by FM & I in settlement and defense of a medical malpractice claim brought against Vollmer. FM & I maintains that its policy does not cover the underlying claim which it defended under a reservation of rights.

The federal court has certified the following questions to us: 1. Whether allegations of omissions after the date of last consultation are sufficient to allege malpractice for purposes of insurance coverage. ²⁴⁵ 2. Whether, assuming a judicial determination that there was no insurance coverage, an insurer which has defended its insured under a valid reservation of rights, and settled with the consent of the insured, is entitled to indemnification for the costs of settlement and the defense costs. (Underlining in original. 1 ) We answer the first question “Yes,” as to the particular policy involved here.

Consequently, we do not reach the second question. FM & I issued a medical malpractice liability policy to Vollmer for the policy period August 1, 1977, to August 1, 1978. The coverage is written on a claims made basis, limited by a “retroactive date” of August 1, 1975. That date is critical to the insurer’s position which we shall explain after setting forth the facts.

The underlying malpractice suit was filed on March 6, 1978, in the Eighth Judicial Circuit of Maryland. The patient, Patricia A. Keidel, died on May 19, 1978, from metastasized lung cancer leaving her husband and two children surviving. Their amended declaration, asserting an estate and wrongful death actions, claimed against Vollmer, certain radiologists, and a hospital. The theory of Vollmer’s liability was that, as the result of an x-ray report which he received following a consultation between himself and Mrs. Keidel on July 26, 1975, Vollmer should have ordered follow-up studies which would have revealed the patient’s lung cancer at a time when it would have been operable.

Specifically, the declaration alleges in relevant part that Vollmer sent [Mrs. Keidel] directly from his office to the Defendant Hospital with a slip of paper requesting a chest x-ray____ ²⁴⁶ On the aforesaid date, July 26, 1975, a chest x-ray was taken by the Defendant radiologists ... which revealed a 5-centimeter lesion in the right lower lobe of [Mrs. Keidel’s] lung. This condition compelled a diagnosis of possible malignancy in this small segment of the right lower lobe. At the time the x-ray was taken, the small lesion in [Mrs. Keidel’s] right lower lobe was confined to a 5-cen-timeter area and was operable. At the time the x-ray was taken on July 26, 1975, there had been no spread of this malignancy.

The condition revealed on the chest x-ray was fully diagnosable as a probable adenoid cystic carcioma (also known as cylindroma). Standards of care which prevailed in the diagnosis and treatment of such a condition demanded additional radiological studies and prompt removal of the lesion after follow-up studies____ . Contrary to the usual standards of medical, radiological and hospital care exercised by the medical and hospital community in the United States, [Mrs. Keidel] was not advised of this condition. Instead, [Mrs. Keidel] was negligently advised that she was suffering from pneumonitis, a transitory inflammation of the lung. [Mrs. Keidel] was advised by the Defendant Vollmer to rest and no medication was prescribed.

At no time did these Defendants or any of their agents advise [Mrs. Keidel] that she was suffering from a small area of malignancy of the right lower lobe of her lung. At no time did these Defendants or their agents recommend to [Mrs. Keidel] that she receive follow-up studies regarding the suspected lesion of her right lung. Instead, [Mrs. Keidel] was negligently caused to believe that if her symptoms disappeared, then her condition was normal and required no further studies. It is recited that from July 26, 1975 until December of 1976, [Mrs. Keidel] was negligently permitted by these Defendants to pursue a normal active life without any medical, radiological or hospital supervision to monitor the condition of the right lower lobe of her lung and to ²⁴⁷ prevent what started as a local malignancy from spreading and involving vital organs.

The statement of facts which accompanies the federal court’s certification advises that on July 28, 1975, the radioligists’ report was read to Vollmer over the telephone. Thereafter, but before August 1, 1975, Vollmer, relying on the oral report, told Mrs. Keidel that she had pneumonitis, the “walking pneumonia.” He told her there was no helpful medication, to rest, and to contact him if her symptoms did not resolve themselves. The written x-ray report, identical in its terms to that read to him, arrived at Vollmer’s offices on Tuesday, July 29, 1975. Mrs. Keidel never sought Vollmer’s advice concerning her lung, and Vollmer never prescribed further tests or medication or in any way communicated with her regarding her lung, until December of 1976, by which time the cancer was allegedly inoperable.

Expert testimony in the malpractice case indicated that, in addition to the alleged initial misdiagnosis, Vollmer should have ordered Mrs. Keidel to return for a follow-up examination which should have been conducted, in the language of the federal court’s certification order, “at some unspecified time beyond the July 26, 1975 visit.” The medical malpractice case was settled with Vollmer’s consent. FM & I’s policy, both on the declarations page and in an introduction to the body of the policy, contains the following legend: Claims Made Policy: Except to such extent as may be provided otherwise herein, this policy is limited to liability for only those CLAIMS THAT ARE FIRST MADE AGAINST THE INSURED WHILE THE POLICY IS IN FORCE. Please review the policy carefully. [Capitals in original.] The declarations state that the limit of liability is $1,000,000 for each claim and for all claims during the policy period in the aggregate. The policy period is August 1, 1977, to ²⁴⁸ August 1, 1978, and the “retroactive date” is August 1, 1975.

As to the latter, the declarations advise: “(For effect, see Claims Made Clause in THE COVERAGE section of this policy).” Under the policy’s section headed, “THE COVERAGE,” the insurer agrees [t]o pay on behalf of the Insured all sums that the Insured shall become legally obligated to pay as damages arising out of: ... personal injury caused by error, omission or negligence in professional services rendered or which should have been rendered by the Insured ... arising out of the Insured’s profession as a medical practitioner ... (hereinafter referred to as malpractice). The Company shall have no liability or duty to defend hereunder for malpractice committed or alleged to have been committed prior to the retroactive date specified in the Declarations. Claims Made Clause: This policy applies to CLAIMS FIRST MADE AGAINST THE INSURED DURING THE POLICY PERIOD arising out of malpractice committed or alleged to have been committed subsequent to the retroactive date set forth in the Declarations. [Italics added.] FM & I asserts that any malpractice, in order to be covered, had to have occurred on or after August 1, 1975, but that Vollmer’s malpractice occurred before that date.

This conclusion is based on the proposition which FM & I would have us adopt as a matter of Maryland law, namely, that there can be no medical malpractice after the date of last consultation. The position advanced by FM & I is that treatment ceases after the date of last consultation and that malpractice cannot occur outside of the context of treatment. FM & I undertakes to demonstrate the validity of its proposition by reference principally to decisions concerning ²⁴⁹ statute of limitations issues in medical malpractice cases. 2 In general these decisions represent a corollary to the continuing treatment rule which we described in Hill v. Fitzgerald, 304 Md. 689, 698 , 501 A.2d 27, 31 (1985) as operating in the following fashion: “[I]f the treatment by the doctor is a continuing course and the patient’s disease or condition is of such a nature as to impose on the doctor a duty of continuing treatment and care, the statute does not commence running until treatment by the medical [practitioner] for the particular disease or condition involved has terminated, unless during the course of treatment the patient learns or should reasonably have learned of the harm, in which case the statute runs from the time of knowledge, actual or constructive.” [Quoting Waldman v. Rohrbaugh, 241 Md. 137, 140-41 , 215 A.2d 825, 827 (1966).] Where the running of the statute of limitations is triggered by accrual of the cause of action, even if then undiscovered, the continuing course of treatment rule tends to enlarge the time within which suit may be timely filed. A necessary companion to the continuous treatment rule is that accrual is not further postponed into the period of time following the date of last treatment.

From cases which in the above context reject a continuing duty to treat and which thereby reject deferral of accrual beyond the last consultation, FM & I concludes that Vollmer could not, as a matter of law, have committed malpractice after July 28, 1975, when he last consulted with Mrs. Keidel. The argument advanced by FM & I is irrelevant to the issue before us. We are concerned with the allegations of malpractice only for purposes of insurance coverage under the subject policy. From that standpoint it is immaterial whether, as a matter of substantive tort law or for limita ²⁵⁰ tions purposes, the allegations in the underlying suit pinpoint negligence of Vollmer to July 28, 1975.

We deal rather with contract law. The concern here is with the interpretation of the policy which FM & I issued to Vollmer. Consequently we intimate no opinion on when, in the contemplation of the law, the alleged tort was committed. Unless a statute, regulation, or public policy would be violated, the first principle of construction of insurance policies in Maryland is to apply the terms of the contract.

See Pacific Indemnity Co. v. Interstate Fire & Casualty Co., 302 Md. 383, 388 , 488 A.2d 486, 488 (1985). Applying the terms of the subject policy to the facts of this case results in coverage. Vollmer, as insured, became legally obligated to pay damages for malpractice, as defined in the policy, when the underlying case was settled with his consent. By its policy FM & I agreed to pay on behalf of Vollmer all such damages up to the policy limit with certain qualifications.

The qualification relied upon by FM & I here is the claims made clause. It is undisputed that the underlying claim was first made against Vollmer during the policy period. That claim so made arose out of malpractice “alleged to have been committed subsequent to” August 1, 1975. The declaration in the malpractice suit alleges that Vollmer failed to perform follow-up studies and alleges that from July 26, 1975, until December of 1976 he negligently permitted Mrs. Keidel to lead a normal life without medical, radiological or hospital supervision to monitor her condition and to prevent the spread of the malignancy.

Those are allegations of malpractice. Whether they are legally sufficient allegations of malpractice is not a material consideration under this policy as written. As written, the policy specifies alternative methods for determining whether a malpractice claim made against the insured during the policy period arises out of malpractice subsequent to the retroactive date. The claims made clause is satisfied if the claim made during the policy period arises out of (1) “malpractice committed ... subsequent to” August 1, 1975, or ²⁵¹ (2) “malpractice ... alleged to have been committed subsequent to” August 1, 1975.

The policy also contains an exclusion, quoted