Case Title: The Doctors Co. v. Women's Healthcare Assocs.

Citation: 

Docket Number: 120702

State: virginia

Court: Virginia Supreme Court

Date: 2013-04-18T00:00:00Z

Document:
Present:  All the Justices 
 
THE DOCTORS COMPANY  
 
 
 
 
 
    OPINION BY 
v.  Record No. 120702 
  JUSTICE LEROY F. MILLETTE, JR. 
 
 
 
  April 18, 2013 
WOMEN'S HEALTHCARE ASSOCIATES,  
INC., ET AL. 
 
FROM THE CIRCUIT COURT OF LOUDOUN COUNTY 
Burke McCahill, Judge 
 
This appeal arises from a declaratory judgment action in 
which The Doctors Company (TDC), a professional liability 
insurance company, sought a determination that its coverage of 
policyholder Women's Healthcare Associates (WHA) did not apply 
to a pending breach of contract action brought by the Davidson 
family against WHA.  The pending breach of contract action 
relates to WHA's participation in the Virginia Birth-Related 
Neurological Injury Compensation Act, Code § 38.2-5000 et seq. 
(the "Birth Injury Fund").  For the reasons stated herein, we 
affirm the holding of the circuit court finding that the policy 
covers the claim alleged by the Davidsons in their complaint 
against WHA. 
I.  Facts and Proceedings 
The Birth Injury Fund is a statutory structure creating a 
no-fault source of compensation for families whose children 
suffer birth-related neurological injuries when delivered by a 
participating physician or hospital.  Code § 38.2-5000 et seq.  
Physicians or hospitals voluntarily pay into the fund, which 
2 
operates in lieu of civil suits for medical malpractice.  Code 
§ 38.2-5002.  Physicians and hospitals are required to give 
written notification to their obstetrical patients of their 
participation or non-participation in the fund.  Code § 38.2-
5004.1. 
The case at bar stems from an underlying breach of contract 
action by the Davidson family against WHA, which is not 
currently before this Court but integral to these proceedings.  
The Davidsons allege that, on December 27, 2006, they entered 
into an express contract in which WHA agreed 
to provide obstetrical care and pre-natal management 
of her pregnancy. . .; to provide her with management 
of her ultimate labor and delivery of that child; to 
participate in the Virginia Birth-Related Neurological 
Injury Compensation Program ("Birth Injury Fund"); and 
to inform her if they ceased participating in the 
Birth Injury Fund.  Such services and contractual 
obligations of WHA, through its employee-agents, 
continued through at least May 17, 2007, and the 
birth[.]  In exchange for such services and 
contractual obligations, Michele Davidson agreed to 
consent to treatment, tender payment on behalf of 
herself and [the baby], and waive future malpractice 
claims which might arise from a birth-related 
neurological injury to [the baby]. 
 
The Davidsons then allege that, after they entered into this 
contract in part in reliance on WHA's participation in the Birth 
Injury Fund, WHA materially breached the contract by failing to 
pay into the fund as represented to the Davidsons; that their 
child suffered an otherwise compensable injury under the fund 
when delivered; and that, due to the breach, the Davidsons were 
3 
not able to receive compensation under the fund.  The Davidsons' 
complaint includes a copy of WHA's written notification of its 
participation in the fund, acknowledged as received by Michele 
Davidson, as evidence that such representation was part of the 
contract.  Although WHA had participated in the fund in the 
past, it is undisputed that WHA was not paying into the Birth 
Injury Fund at either the time of the notification or at the 
time of the birth of the Davidsons' son, a child alleged to have 
been born with quadriplegic cerebral palsy and static 
encephalopathy.  It is likewise undisputed that WHA never 
notified the Davidsons of its non-participation during this time 
period.  As a result of WHA's non-participation, the Davidsons 
could not file a claim with the Commonwealth under the Birth 
Injury Fund, and instead filed a complaint against WHA setting 
forth several related counts of breach of contract and breach of 
fiduciary duty.  After initial motions before the circuit court, 
only two breach of contract counts, one on behalf of Michele 
Davidson and one on behalf of her husband, Nathan Davidson, 
remain at issue between the Davidsons and WHA. 
The action before this Court is a separate declaratory 
judgment action in which WHA's professional liability insurance 
company, TDC, seeks to establish that the pending breach of 
contract action is not covered under the TDC insurance policy 
held by WHA.  TDC's policy with WHA generally states that it 
4 
provides coverage for "those sums that the [insured] becomes 
legally obligated to pay as damages for Claims covered by this 
Policy resulting from . . . Professional Services rendered."  
(Emphasis in original.)  In the policy's "Definitions" section, 
a "Claim" is defined as "a demand for payment of damages or for 
services arising from a Professional Services Incident . . . not 
otherwise excluded by the terms and conditions of this Policy."  
(Emphasis in original.)  One such exclusion is "[l]iability 
arising out of any . . . violation of any statute."  TDC argued 
below that the alleged liability does not stem from professional 
services and is therefore not covered under the policy.  In the 
alternative, TDC also argued that the liability arising from the 
inaccurate notification was in violation of a state statute 
requiring notification of participation in the Birth Injury Fund 
and therefore excluded from coverage under the language of the 
policy. 
The circuit court found in favor of WHA and the Davidsons, 
and TDC now appeals to this Court.  Only the Davidsons filed a 
brief in opposition. 
II. 
Discussion 
A. 
Standard of Review 
The material facts before the Court are undisputed.  The 
issues before the Court concern the interpretation and 
application of terms of the insurance contract to those 
5 
undisputed facts.  We therefore review these questions of law de 
novo.  Virginia Farm Bureau Mut. Ins. Co. v. Williams, 278 Va. 
75, 80, 677 S.E.2d 299, 302 (2009). 
B. 
Whether the Breach of Contract Claims are Covered as 
"Professional Services" 
 
The initial question is whether the claim falls under the 
scope of "Section II: What Liability Is Covered," subsection b: 
"Coverage B – Entity Professional Liability."  The section 
states that TDC "will pay on behalf of the [insured] those sums 
that it becomes legally obligated to pay as damages for Claims 
covered by this Policy resulting from . . . Professional 
Services rendered by a Protected Party for whose acts or 
omissions the [insured] is legally responsible."  (Emphasis in 
original.) 
In addition, Section VII of the policy provides the 
following definitions to define the scope of these terms: 
a. Claim means a demand for payment of damages or for 
services arising from a Professional Services 
Incident . . . that is not otherwise excluded by the 
terms and conditions of this Policy. 
 
. . . . 
 
l. Professional Services means the diagnosis, 
treatment, care, or consultation, regarding a 
patient's medical condition.  
 
. . . . 
 
m. Professional Services Incident means the 
performance of or failure to perform Professional 
Services . . . by: 
6 
1. a Healthcare Professional, when acting within 
the scope of his or her specialty and 
training[.] 
 
(Emphasis in original.) 
 
 
TDC takes the position that the alleged breach, injury, and 
damages resulted from a misrepresentation in a contract, which 
is not within the scope of a provider's specialty and training, 
and therefore lacked a causal nexus with professional services 
rendered.  TDC acknowledges that there were professional 
services employed in the birth of the child.  TDC argues, 
however, that the breach was the misrepresentation and the 
injury and damages sustained were incurred due to a lack of 
compensation under the fund based on the contractual 
misrepresentation, not "resulting from" the professional service 
itself as would be alleged in a tort action. 
 
The Davidsons argue that the lack of compensation cannot be 
severed from the professional services because one of the 
elements required for compensation under the fund, in addition 
to a qualifying birth injury, is that the child must have been 
delivered by a participating professional service provider or in 
a participating hospital.  The Davidsons therefore contend that 
the injury would not have been possible without the rendering of 
professional services, and so the claim is one "arising from" 
professional services. 
7 
 
The parties point to separate portions of the Policy to 
support their respective arguments.  TDC argues that a plain-
language reading of the term "resulting from" professional 
services, as stated in Section II(b) describing the coverage 
under the policy, requires a direct nexus, and that a 
contractual misrepresentation that is out of the scope of the 
doctor's professional training lacks this nexus.  The Davidsons 
respond that the operative language defining a covered claim is 
clarified by the "Definitions" of Section VII to include any 
claim "arising from" professional services and not otherwise 
excluded by the policy. 
 
The Court is left to resolve this apparent conflict.  TDC 
has conceded that the use of different language in the drafting 
of the contract was not accidental and that "arising from" has a 
broader definition than "resulting from."  We have said that 
"when considering the meaning of any part of a contract, we will 
construe the contract as a whole."  Cappo Mgmt. V, Inc. v. 
Britt, 282 Va. 33, 37, 711 S.E.2d 209, 211 (2011) (quoting 
Lansdowne Dev. Co. v. Xerox Realty Corp., 257 Va. 392, 401, 514, 
S.E.2d 157, 161 (1999)); see Vega v. Chattan Assocs., Inc., 246 
Va. 196, 199, 435 S.E.2d 142, 143 (1993).  As a result, despite 
TDC's urging that we should apply a plain-language reading of 
the term "resulting from," we are obligated to consider both 
8 
phrases and resolve the ambiguity that arises from their 
presence in the same contract. 
 
We have consistently held that "[i]n the event of an 
ambiguity in the written contract, such ambiguity must be 
construed against the drafter of the agreement."  Cappo Mgmt., 
282 Va. at 37, 711 S.E.2d at 211 (quoting Martin & Martin, Inc. 
v. Bradley Enters., Inc., 256 Va. 288, 291, 504 S.E.2d 849, 851 
(1998)) (alteration in original); see Mahoney v. NationsBank of 
Va., 249 Va. 216, 222, 455 S.E.2d 5, 9 (1995); Winn v. Aleda 
Constr. Co., 227 Va. 304, 307, 315 S.E.2d 193, 195 (1984).  This 
document, therefore, must be construed against TDC, using the 
broader construction attributable to "arising from." 
 
Employing this broader construction thus permits a less 
direct nexus between the professional services rendered and the 
damages incurred, although such nexus must still be present.  We 
conclude that, using the common understanding of the language, 
the term "arising from" is sufficient to include the 
professional services rendered in the birth of the Davidsons' 
child, as the rendering of such services would have been 
required to receive a payment from the Birth Injury Fund and 
therefore to recover damages in the underlying suit. 
 
While not looking at this precise issue, the Fourth Circuit 
has had occasion to consider the definition of "professional 
services" in a professional liability insurance contract 
9 
construed under Virginia law, and its conclusion reinforces 
today's decision.  See St. Paul Fire & Marine Ins. Co. v. 
Jacobson, 48 F.3d 778, 782 (4th Cir. 1995).  The Court stated 
that, "in determining whether an insured physician has engaged 
in a professional service, courts must look at the nature of the 
insured's act or the service provided which gave rise to the 
damages complained of."  Id.  There, as in this case, the 
provider's actions included both acts that would be construed as 
professional services and others that would not, and the parties 
disagreed on "which . . . acts one must look to in determining 
whether the suit arose from professional services."  Id.  The 
Fourth Circuit held that, because "[t]he act complained of in 
the instant civil action[] necessarily included [a] medical 
act," the act was a professional service under the terms of the 
policy.  Id. 
 
In the case at bar, the alleged breach — non-participation 
in the Birth Injury Fund at the time of delivery — and resulting 
damages could not have occurred without the professional medical 
services provided, i.e., the delivery of the child by WHA.  The 
delivery of the child by WHA was as necessary an element in the 
chain of causation as WHA's failure to participate in the fund 
as represented; in the absence of either, the Davidsons could 
not be owed compensation under the fund and there could be no 
10 
damages.  We thus affirm the ruling of the circuit court as to 
this issue. 
C. 
Whether the liability "ar[ose] out of any . . . violation 
of any statute." 
 
Section VI of the policy, styled "Exclusions," states that 
TDC "will not pay any damages arising from, or defend against, 
any of the following: . . . f. Liability arising out of any: 
. . . 3. violation of any statute, code, ordinance, or 
regulation."  (Emphasis added.) 
Arguing that WHA's misrepresentation of its participation 
was in violation of Code § 38.2-5004.1, which requires 
disclosure of participation status to patients, TDC disclaims 
any obligation to pay.  TDC argues that the Court should apply 
the plain meaning of the phrase "arising out of," and that, 
because the liability arises out of actions that also violate 
Code § 38.2-5004.1, the claim should be excluded from coverage 
under the policy. 
The Davidsons agree that a plain-language reading is 
appropriate, but argue that such a reading requires the Court to 
consider from where the liability itself arises.  In this case, 
they argue, the liability is not based on a violation of the 
statute, although one may have occurred, but rather on the 
breach of WHA's contractual obligation to participate in the 
Birth Injury Fund as claimed in the amended complaint. 
11 
Thus, the Court is once again asked to construe the term 
"arising" in the context of this insurance policy.  Unlike the 
first question, however, which required the Court to choose 
between the narrower term ("resulting from") and the broader 
term ("arising from"), the parties here both correctly 
acknowledge that, under Virginia law, a plain meaning 
application is appropriate.  See Bentley Funding Group, L.L.C. 
v. SK&R Group, L.L.C., 269 Va. 315, 329, 609 S.E.2d 49, 56 
(2005) ("When contract terms are clear and unambiguous, we must 
construe those terms according to their plain meaning."  
(quoting Lansdowne, 257 Va. at 400, 514 S.E.2d at 161)); accord, 
Bridgestone/Firestone, Inc. v. Prince William Square Assocs., 
250 Va. 402, 407, 463 S.E.2d 661, 664 (1995). 
Here, we conclude that a plain reading of the contract 
requires that the Court direct its attention to the elements 
necessary for liability, as pled in the action brought by the 
Davidsons against WHA.  Consistent with our interpretation of 
the similar term "arising from" in Part II.B., while there need 
not be a direct causal nexus between the statutory violation and 
the liability, there must be a sufficient nexus between them to 
consider the liability to be "arising out of" the statutory 
violation in order for the claim to be exempt. 
We therefore consider the allegations within the well-
established framework of breach of contract claims:  a legally 
12 
enforceable obligation between the defendant and plaintiff, 
breached by defendant, which proximately caused damages to the 
plaintiff.  Filak v. George, 267 Va. 612, 619, 594 S.E.2d 610, 
614 (2004).  Here, liability would thus arise out of a finding 
that a contract existed between WHA and the Davidsons that 
included a legal obligation to participate in the Birth Injury 
Fund, that WHA materially breached the contract by failing to 
participate in the fund, and that this breach proximately caused 
the damages – the lack of compensation from the fund – when the 
Davidsons' child was delivered by this provider and suffered an 
injury otherwise compensable by the fund. 
The alleged liability arises specifically out of WHA's 
failure to participate after a promise of participation — that 
is, failure to act in accordance with the terms of the express 
contract when performing its services — not its failure to 
accurately notify of participation, which is the act alleged to 
be in violation of the statute.  Thus, WHA would be equally 
liable for breach of the contract if it were indeed a 
participant in the Birth Injury Fund at the time of the 
notification but not at the birth, thereby complying with the 
statute but denying the child coverage.  Furthermore, WHA would 
be in no way liable if it had not been a participant at the time 
of the notification but began paying into the fund in Mrs. 
13 
Davidson's eighth month of pregnancy, therefore having violated 
the statute but resulting in no damages to the Davidsons. 
The Davidsons will have to prove at trial that the promise 
of participation was a material aspect of WHA's performance of 
the contract and that it was breached.  Nonetheless, the fact 
that the breach is in part evidenced by a written notification 
reflecting the misrepresentation of its participation status at 
the alleged initiation of the contract does not bear upon the 
liability.  The statute has no private cause of action, and the 
misrepresentation in the notification is incidental to the 
breach of contract action.  The performance of the alleged 
contract included WHA's promise of participation in the fund. 
Thus, using even the broad and common meaning of the term, 
the alleged liability is "arising out of" the elements of the 
breach of the contract, not a violation of the statute.  None of 
these elements – the lack of participation months after a 
representation of participation, the delivery of the baby, and 
alleged resulting lack of coverage – arise out of a violation of 
the statute.  Interpreting "arising out of" to include any 
overlap with statutory law, even when that law affords no cause 
of action and is not necessary to the elements of the cause of 
action, would be outside the scope of the common usage of the 
term.  We therefore affirm the ruling of the circuit court as to 
this issue. 
14 
III.  Conclusion 
TDC concedes that in this instance its duty to defend and 
duty to indemnify are one and the same:  TDC has a duty to 
defend that which would be indemnified under the policy.  
Because the underlying action is covered by the insurance 
policy, it must both defend and indemnify WHA in the underlying 
breach of contract action. 
For the aforementioned reasons, we affirm the holding of 
the circuit court. 
Affirmed. 
 
JUSTICE POWELL, with whom JUSTICE McCLANAHAN joins, dissenting. 
 
In my opinion, the majority ignores the fact that the 
Davidsons specifically allege that the basis of their breach of 
contract claim is the misrepresentation, which, in turn, is a 
violation of Code § 38.2-5004.1.  Therefore, I must respectfully 
dissent. 
 
According to the majority, “[t]he alleged liability arises 
specifically out of WHA’s failure to participate after a promise 
of participation - that is, failure to act in accordance to the 
terms of the express contract when performing its services, not 
its failure to accurately notify of participation, which is the 
act alleged to be in violation of the statute.”  In their 
15 
complaint, however, the Davidsons repeatedly reference the 
failure to notify as the material breach that serves as the 
basis for the present action.  Indeed, in Count I of their 
complaint, the Davidsons specifically state: 
As of at least January 1, 2007, Defendant 
WHA was not participating in the Birth 
Injury Fund.  Under the terms of the 
contract and the laws of Virginia, WHA was 
required to notify Plaintiff Michelle 
Davidson that it did not participate in the 
Birth Injury Fund. . . . At no time prior to 
Baby Grant’s birth did WHA notify Plaintiff 
Michele Davidson that it did not participate 
in the Birth Injury Fund.  WHA’s failure to 
notify Plaintiff Michele Davidson 
constituted a material breach of its 
contract with Plaintiff Michele 
Davidson[.] . . . Had Defendants fulfilled 
their obligations under the contract, 
Plaintiff Michele Davidson would have sought 
medical treatment from an obstetrician who 
did participate in the Birth Injury Fund. 
(Emphasis added.) 
 
Similarly, the Davidsons repeatedly state that, “[h]ad WHA 
informed Plaintiff Michele Davidson that they did not 
participate in the Birth Injury Fund, then Plaintiff Michele 
Davidson would not have entered into a contract for WHA’s 
services.”  (Emphasis added.)  The clear implication here is 
that it was the misrepresentation that formed the basis of their 
breach of contract claim.  Were it not for the 
misrepresentation, the Davidsons affirmatively state that they 
would have taken their business elsewhere. 
16 
 
Conspicuously, the only document produced by the Davidsons 
in support of their allegations directly rebuts the majority’s 
claim.  The “Notice to Obstetrical Patients” states that WHA 
“does . . . participate in the Virginia Birth-Related 
Neurological Injury Compensation Program.”  As the Notice is 
written in the present tense, the only inference that can be 
drawn is that WHA was misrepresenting its participation in the 
Birth Injury Fund, not that it was promising to participate in 
the Birth Injury Fund. 
 
Thus, in my opinion, the entire basis of the majority’s 
holding is belied by the plain language of the Davidsons’ 
complaint.  Therefore, I would hold that the liability alleged 
by the Davidsons arises out of WHA’s failure to accurately 
notify - in violation of Code § 38.2-5004.1- and therefore the 
Exclusions provisions apply. 
 
Furthermore, I agree with the majority that our focus must 
be on the elements necessary for liability in a breach of 
contract action.  As this Court has repeatedly recognized:  
The elements of a breach of contract action 
are (1) a legally enforceable obligation of 
a defendant to a plaintiff; (2) the 
defendant's violation or breach of that 
obligation; and (3) injury or damage to the 
plaintiff caused by the breach of 
obligation. 
Filak v. George, 267 Va. 612, 619, 594 S.E.2d 610, 614 (2004) 
(citations omitted). 
17 
 
However, application of these elements to the present case 
clearly demonstrates that liability arises from WHA’s violation 
of Code § 38.2-5004.1.  As evidenced by the “Notice to 
Obstetrical Patients,” the legally enforceable obligation 
created by the alleged contract between the parties is only 
WHA’s statutorily mandated obligation to inform the Davidsons of 
its participation or non-participation in the Birth Injury Fund.  
The breach of that obligation came when WHA violated Code 
§ 38.2-5004.1 and misrepresented its participation in the Birth 
Injury Fund.  Finally, the injury or damage to the Davidsons was 
their inability to collect from the Birth Injury Fund as a 
result.  Notably, the Davidsons assert that WHA’s express 
communication of its participation, which forms the basis for 
their breach of contract claim, was through the notification 
required by Code § 38.2-5004.1.  Clearly, if WHA had not 
violated the statute, there would have been no 
misrepresentation, and thus, no breach of contract. 
 
As I previously noted, in bringing this action, the 
Davidsons specifically relied upon WHA’s violation of “the laws 
of Virginia.”  Indeed, even the majority recognizes that the 
elements include “the lack of participation months after a 
representation of participation” - in other words the lack of 
participation after a misrepresentation.  Thus, the “promise” at 
the heart of the majority’s claimed promise to participate is 
18 
the misrepresentation by WHA, which was in violation of the 
statute.  Therefore, it is inconceivable that the violation of 
the statute is merely “incidental” to the breach of contract 
when it serves as the very basis for the underlying action. 
 
Furthermore, the majority’s narrow application of the 
phrase “arising out of” with regard to the Exclusions provisions 
is inconsistent with its broad application of the phrase 
“arising from” with regard to Professional Services.  As the 
majority explained, a broad construction of the phrase “permits 
a less direct nexus between the professional services rendered 
and the damages incurred, although such nexus must still be 
present.”1  Employing the same broad application to the 
Exclusions provisions would require a holding that also permits 
a less direct nexus between the violation of the statute and the 
breach of contract, although such nexus must still be present.  
Thus, even though the majority has deemed the direct 
relationship between the breach of contract and the violation of 
the statute as merely “incidental,” it is clear that such a 
relationship would be sufficient to exclude the claim from 
                     
1 “In the insurance context ‘arising out of’ is broader than 
‘caused by,’ and ordinarily means ‘originating from,’ ‘having 
its origin in,’ ‘growing out of,’ ‘flowing from,’ or ‘incident 
to or having connection with.’”  Trex Co. v. ExxonMobil Oil 
Corp., 234 F.Supp.2d 572, 576 (E.D. Va. 2002) (applying Virginia 
law) (quoting St. Paul Fire & Marine Ins. Co. v. Insurance Co. 
of North America, 501 F.Supp. 136, 138 (W.D. Va. 1980) (applying 
Virginia law)). 
 
19 
coverage under the broad application espoused by the majority 
with regard to Professional Services.2 
 
It is further worth noting that, under the majority’s 
logic, we look only to how the claim is styled and ignore the 
actual basis of that claim.  Such an approach is destined to 
lead to unreasonable results, such as those in this case: a 
medical malpractice insurer having to defend a breach of 
contract claim that does not require the victim to prove that 
any malpractice actually occurred.  Furthermore, the majority 
ignores the unintended consequences of its actions.  As this is 
a breach of contract claim, it is not subject to limitations on 
recovery that apply to medical malpractice claims.  See Code § 
8.01-581.15.  Thus, not only is The Doctors Company required to 
defend a claim that does not require the Davidsons to actually 
prove malpractice, it could be potentially liable for $4 
million, more than twice the total amount it would be liable for 
in a medical malpractice claim under Code § 8.01-581.15. 
 
For these reasons, I would reverse the decision of the 
trial court and grant the declaratory judgment sought by The 
Doctors Company. 
                     
2 I recognize that the majority uses the term “claim” rather 
than liability.  However, the term “claim,” as defined in 
Section VII of the policy “means a demand for payment of 
damages . . . arising from a Professional Services 
Incident . . . that is not otherwise excluded by the terms and 
conditions of this Policy.”  Thus, the term “claim” in this 
context is clearly synonymous with liability.