Applying Colorado law, the United States District Court for the District of Colorado has held that a medical professional liability insurer was entitled to reimbursement of a settlement payment made on behalf of an insured to settle a dispute with a former patient.   Evanston Ins. Co. v. Aminokit Labs., Inc., 2019 WL 479204 (D. Colo. Feb. 7, 2019).

The insured, a doctor, was sued along with two other parties by a former patient who alleged that the doctor engaged in a scheme to submit fraudulent insurance claims and failed to provide adequate medical treatment to the patient.  The insured submitted the lawsuit to his medical professional liability insurer, which accepted coverage under a full reservation of rights.  The insurer also filed a declaratory judgment action to determine its rights and obligations under the policy.

While the declaratory judgment action was pending, the former patient made a settlement offer.  The insurer asked the insured to contribute a portion of the settlement, but the insured refused and threatened a bad faith claim.  The insurer advised the insured that it would pay the full settlement subject to the right to seek reimbursement.

The insurer accepted the settlement offer and agreed to fund the settlement in exchange for dismissal with prejudice of all the defendants.  The settlement agreement was signed by all the parties except the insured, who did not want the settlement to constitute a “reportable event” for purposes of any medical board.  The insured also made sure the settlement agreement did not reflect any apportionment of the settlement to him.

In a prior opinion, the district court held on summary judgment that the policy did not respond to the lawsuit and the insurer had no duty to defend or indemnify.  Here, the district court held that the insured had been unjustly enriched and the insurer was entitled to reimbursement of the settlement payment.  The court found that: (1) the insured had received a benefit from the settlement payment because he was dismissed with prejudice from the lawsuit; (2) the insured’s benefit was at the insurer’s expense because it funded the settlement; and (3) the insured received the benefit “under circumstances that would make it unjust for him to retain the benefit without commensurate compensation.”

The court held that the insured had insisted that the insurer fund the settlement offer “while threatening [the insurer] with the potential for a bad faith lawsuit.”  The insured also had clear knowledge that the insurer would seek reimbursement.  Finally, the court rejected the doctor’s argument that he had no liability because no portion of the settlement was specifically allocated to him in the agreement, finding that the insurer had not agreed that no portion would be allocated to the insured and that the settlement had resulted in the doctor’s dismissal with prejudice in any event.

The court also found that the insured was jointly and severally liable for the full amount of the settlement payment because the insured received the full benefit of the settlement payment.  In addition, the court awarded the insurer prejudgment interest.