Opinion ID: 1304563
Heading Depth: 2
Heading Rank: 3

Heading: The Instant Coverage Litigation

Text: On December 27, 2005, four years after initially receiving notice of a potential claim and more than two years after the underlying complaint was filed St. Paul issued its first and only pre-trial reservation of rights letter regarding coverages applicable to the Boggs' suit. In that letter, St. Paul acknowledged that the Boggs' suit alleged causes of action for negligent medical care and spoliation of evidence and sought both compensatory and punitive damages. After reciting various policy provisions, the letter indicated that coverage would not exist under the policy for the spoliation of evidence cause of action and disclaimed any damages awarded to the Plaintiffs pursuant to their cause of action for spoliation of evidence. [12] The letter continued by stating [w]e note that the Plaintiffs' complaint seeks both compensatory and punitive damages. Please note that St. Paul reserves its right to deny indemnification for any punitive damages which are awarded to the Plaintiff because of intentional acts by the named insured and/or which arise from non-covered damages such as spoliation of evidence. St. Paul did not exercise its policy right to participate in the defense of Camden-Clark during the trial of the underlying action or at any time prior to trial. [13] Camden-Clark was represented throughout the underlying litigation by an attorney it selected and retained for its defense. After entry of the judgment order, Camden-Clark requested indemnification from St. Paul under both the basic liability coverage and excess liability coverage provisions of the policy. In response to that request, St. Paul retained an outside attorney to perform an interim coverage analysis. In the July 18, 2006, letter provided to Camden-Clark outlining St. Paul's coverage position based upon that analysis, St. Paul acknowledged coverage for claims arising from medical professional negligence. However, St. Paul declined to provide coverage for damages arising from fraudulent concealment or based upon the tort of outrage. Ultimately, the letter concluded that St. Paul had no payment obligations because any damage award based upon medical negligence would go toward exhaustion of the SIR and all other awards were excluded from coverage. [14] Camden-Clark responded to this coverage decision by letter dated October 20, 2006. In this letter, Camden-Clark argued that the claims for fraudulent concealment and tort of outrage were not necessarily excluded from coverage because such damages may be awarded under West Virginia law without a finding of intentional conduct which would be required under the policy to exclude coverage. [15] Additionally, they contend that as punitive damages were not excluded from the policy, they may be covered under West Virginia law. Camden-Clark also took issue with the manner with which St. Paul calculated off-sets to covered damages. After asking St. Paul to reconsider its coverage position, Camden-Clark indicated that it would file a declaratory judgment action to determine applicable coverages if necessary. Ultimately, the instant declaratory judgment action was filed in the United States District Court for the Southern District of West Virginia. Camden-Clark moved for summary judgment before the district court arguing that all awarded damages were covered under the policy because the tort of outrage may be based upon negligent and/or intentional conduct and the jury made no findings regarding the intentional nature of Camden-Clark's action. Further, Camden-Clark argued that the jury made no finding as to whether the punitive damages awarded against Camden-Clark were based upon intentional rather than negligent or other conduct. St. Paul responded by arguing that as both the plaintiff and insured, Camden-Clark bore the burden of demonstrating that the tort of outrage and punitive damages claims came within policy coverage. According to St. Paul, the allegations involving the tort of outrage had nothing to do with medical professional liability and, therefore, Camden-Clark did not set forth a prima facie demonstration of coverage such that an analysis of the intentional acts exclusion would even be relevant. Further, St. Paul argued that the facts clearly demonstrated that the punitive damages award arose from improper conduct in the handling, destruction and falsification of documents. Camden-Clark replied by asserting that St. Paul failed to demonstrate that the tort of outrage did not fall within the insurance agreement because under the express terms of the insuring agreement, the tort of outrage claim results from health care professional services. Camden-Clark further noted that St. Paul never requested special interrogatories be submitted to the jury to differentiate between awards based upon intentional versus negligent or other conduct such that findings necessary to invoke the intentional act exclusion could be made by the fact-finder. Finding no clear guidance under our existing law as to the burdens borne by an insured and insurer to allocate a jury verdict between covered and non-covered claims, the district court found it appropriate to certify the issue to this Court. Specifically, the district court found West Virginia law was unclear as to the appropriate burdens of demonstrating coverage borne by an insurer and an insured where an insurer monitors the case but has no duty to defend, and where a jury verdict is ambiguous. The district court's certification order acknowledged that a determination of the appropriate burdens would be determinative of the coverage issue in this litigation because it would be impossible for the party bearing the burden of proof to meet its burden[.] Accordingly, in an order dated February 20, 2008, the district court asked this Court to answer the following two questions: 1. Under West Virginia law, when an insured is found liable for a tort, and the complaint indicates that the tort could be based on conduct that the insurance policy covers, on conduct that the insurance policy does not cover, or both, and when the jury verdict does not specify which conduct gave rise to the insured's liability, does the insured bear the burden of proving that the liability was based on covered conduct, or does the insurer bear the burden of proving that the liability was based upon non-covered conduct? 2. Under West Virginia law, when a jury awards punitive damages against an insured, and the punitive damages could be based on a claim covered by the insurance policy, on a claim not covered by an insurance policy, or both, does the insured bear the burden of proving that the punitive damages were based upon a covered claim, or does the insurer bear the burden of proving that the punitive damages were based on a non-covered claim? On April 3, 2008, the Court granted the district court's request.