Doctor’s Criminal Plea Vitiates Malpractice Coverage for Related Wrongful Death Suit Arising Out of Over-Prescription of Opioids
BatesCarey’s Kristi S. Nolley and Lindsey D. Dean explore a recent Ninth Circuit ruling in National Fire & Marine Insurance Co. v. Hampton, et al., in which the Court held that a Willful Violation of Law Exclusion barred coverage for a malpractice suit where the physician admitted to unlawful distribution of opioids in separate criminal proceeding.
Thousands of state and local governments have filed lawsuits against opioid manufacturers, distributors and retailers seeking to hold them accountable for their role in the opioid crisis. The litigation against these companies has been well-publicized and is already the subject of coverage litigation. On a smaller stage outside of the opioid MDL, the DOJ and similar state agencies have instituted investigations and criminally charged individual health practitioners who distributed opioids outside of their regular practice. Relatedly, individuals who lost loved ones as a result of these practitioners’ overprescribing have sought to hold the practitioners civilly liable in civil wrongful death lawsuits. On October 21, 2020, the Ninth Circuit Court of Appeals held that a criminal plea bargain entered into by an insured doctor for overprescribing opioids triggered a willful violation of law exclusion in the doctor’s malpractice policy, thereby precluding coverage for a companion wrongful death lawsuit filed against the doctor.
National Fire & Marine Ins. Co. v. Scott Hampton, as heir, executor and personal representative of the Estate of Diana Hampton, et al., No. 19-17235, 2020 WL 6158314 (9th Cir. Oct. 21, 2020).
Steven Holper, M.D. was indicted for the unlawful distribution of opioids. Holper plead guilty to unlawful distribution of a controlled substance to a former municipal judge that died of a fentanyl overdose. In the plea agreement, Holper admitted to intentionally distributing fentanyl “outside the usual course of his professional practice and without a legitimate medical purpose.”
After the indictment but before the plea deal, the judge’s estate filed a civil wrongful death suit against Holper. Holper sought coverage for the wrongful death lawsuit under his National Fire professional liability policy, which provided coverage for all loss arising from a covered “health care event.” The policy excluded coverage for “[a]ny loss arising from, or in connection with . . . any willful violation of any law, statute, or regulation” and “any event, health care event, or managed care event, when intertwined with, or inseparable from any . . . willful violation of any law, statute, or regulation” (the “Willful Violation of Law Exclusion”).
Holper’s insurer agreed to defend Holper under a reservation of rights and then demanded an examination under oath, which Holper failed to attend. The insurer filed a declaratory judgment action, arguing that Holper’s alleged conduct did indeed constitute a willful violation of the law. Holper filed a counterclaim for breach of contract; breach of the implied covenant of good faith and fair dealing; and violations of the Nevada unfair claims practices statute.
Holper’s insurer moved for summary judgement, asserting that the Willful Violation of Law Exclusion barred coverage in light of the Holper’s admission in the plea agreement that he intentionally distributed fentanyl outside of his usual professional practice and without a legitimate medical purpose. The U.S. District Court for the District of Nevada agreed, finding that the Willful Violation of Law Exclusion stated “in obvious and unambiguous language” that the policy did not apply to willful, unlawful conduct. The court held that the Willful Violation of Law Exclusion precluded coverage for the wrongful death lawsuit, reasoning that Holper had specifically admitted in the related criminal action plea agreement that he had violated the law by intentionally distributing opioids. The court rejected Holper’s argument that the guilty plea was inadmissible under Federal Rule of Evidence 410 (which excludes evidence of withdrawn and nolo contendere pleas, or statements made during a plea proceeding or plea negotiations) because Holper’s plea agreement specifically provided that he waived all rights under Rule 410.
In a brief, two-page opinion, the Ninth Circuit affirmed the district court’s decision, holding that the wrongful death complaint alleged, and the plea agreement supported, that Holper willfully violated federal controlled substances laws. The Ninth Circuit also noted that the policy was not rendered illusory by its interpretation of the Willful Violation of Law Exclusion because the policy only excludes coverage for willful, not negligent, violations of the law.
The nature of the wrongful conduct alleged against Holper in the civil suit alone may have been sufficient to trigger to Willful Violation of Law Exclusion in this case, but it would have been a closer call had Holper not expressly admitted to that he intentionally violated the Controlled Substances Act in the criminal plea agreement. Admissions by insureds in criminal pleas can often have the far-reaching effect of also vitiating coverage for any related civil claims, either under a willful violation of law exclusion like the one at issue in this case, or even a more broadly-worded intentional conduct exclusions that require a final adjudication.
In the absence of the plea agreement here, Holper (and the estate), may have focused on the fact that the wrongful death complaint alleged causes of action for negligence, which does not require any willful conduct. The plea agreement, however, sealed Holper’s fate on coverage in light of the Willful Violation of Law Exclusion.