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Can the PCF Control Issues of Liability Prior to Judgement, Settlement, or Arbitration Awards?

    CAN THE PCF CONTROL ISSUES OF LIABILITY PRIOR TO JUDGMENT,
    SETTLEMENT OR ARBITRATION AWARDS?  Potier v. Commissioner of
    Insurance, 98 CA 1063 (La. App. 1st Cir. 11/5/99)

On November 5, 1999, the Louisiana First Circuit Court of Appeal rendered an important and far-reaching decision which affects the Louisiana Patients’ Compensation Fund’s (PCF) ability to control a lawsuit between an underlying healthcare provider and a patient.

In 1991, Darryl Potier filed suit in Vermillion Parish against the Estate of Dr. Bruce Grovenburg and his medical malpractice carrier, Physicians’ National Risk Retention Group (“PNRRG”), and several other defendants.  Mr. Potier alleged that the late Dr. Grovenburg, prior to his death in 1990, treated Mr. Potier for obesity and an ulcerated stomach.  He further alleged that Dr. Grovenburg and the other defendants had information concerning Mr. Potier’s medical condition that they failed to share with him and prescribed certain medications that were contraindicated for his medical condition.  As a result of these actions, Mr. Potier suffered renal failure, and he had to undergo kidney dialysis. 

Following suit, the PCF confirmed that Dr. Grovenburg was a qualified healthcare provider.  In 1991, however, PNRRG was purportedly placed in liquidation by the Louisiana Department of Insurance, and all suits and seizures were apparently stayed.  In connection with this proceeding, the liquidation court ordered the plaintiffs and the Estate of Dr. Grovenburg to settle their differences.

The plaintiffs asserted that the settlement was never finalized because the PCF sought to avoid it (and the corresponding acknowledgment of liability), by agreeing to fund the costs incurred by the Estate of Dr. Grovenburg in defense of the matter. 
 
Accordingly, in January of 1998, plaintiffs filed a suit in East Baton Rouge Parish seeking a temporary restraining order and injunctive relief against the PCF to prohibit it from continuing to pay the costs of defense in the malpractice action.  A TRO was issued pending a full hearing on plaintiffs’ application for preliminary injunction.  Judge Kay Bates subsequently conducted a preliminary injunction hearing, at the conclusion of which she dissolved the TRO, denied plaintiffs’ application for a preliminary injunction, and dismissed plaintiffs’ petition for injunctive relief with prejudice. 

The plaintiffs appealed that ruling, arguing that the district court erred in liberally construing the Louisiana Medical Malpractice Act (“LMA”) to permit the PCF to control issues of liability between a claimant and a healthcare provider, thereby violating prior jurisprudence. 

The PCF argued that, as a state agency, its decision regarding the management and regulation of the fund was an administrative decision which should be afforded great deference by the court under the Administrative Procedures Act (“APA”).  Moreover, the PCF relied upon La. R.S. 40:1299.44 A(5)(a), (b) and (e) and D(2)(a) and (4) as authority for its contention that its actions in funding the defense were justified because it was broadly authorized and statutorily obligated to protect and to defend the fund.  Thus, if it did not provide “defense resources” to the estate, plaintiffs would be unopposed at trial and the PCF would be obligated to pay the excess of $100,000 without the opportunity to contest liability.

The First Circuit initially rejected the PCF’s reliance upon the APA as authority for giving deference to its decisions.  It found that the PCF’s decision to fund the defense of the Estate of Dr. Grovenburg was not an “adjudication” triggering the deference requirement embodied in the APA.
 
The court next considered the main issue of whether the PCF could assume responsibility and expend trust fund money to affect issues of liability between a claimant and a healthcare provider before there was a judgment, settlement or arbitration award.  In this respect, the court noted “ . . . the precise issue of whether the PCF may expend trust fund money to furnish a defense for a party in an attempt to minimize exposure is a matter of first impression.” 

The court began its analysis by recognizing the MMA’s provision limiting the liability of the qualified healthcare provider to $100,000 for the injury or death of any one person and the excess liability of the PCF to $400,000 plus interest and costs.  The court also took note of the MMA’s provision establishing a statutory admission of liability by payment of $100,000 by the healthcare provider.

The court, citing  Stuka v. Fleming, 561 So. 2d 1371 (La. 1990), reiterated that the status of the PCF, after a settlement between the malpractice claimant and a healthcare provider or his insurer for $100,000, is more in the nature of a statutory intervenor than a party defendant.  Thus, as an intervenor, the PCF could put on evidence and unite with the defendant in resisting the claimant’s demands or could appeal a judgment, but it could not object to the form of the action. 
The court then determined that under the provisions of the MMA, the PCF’s statutory responsibility was not triggered until there was a settlement as to liability by, or on behalf of, the healthcare provider and the claimant seeks an additional amount in excess thereof from the PCF. 
Since no such settlement as to liability had been consummated between plaintiffs and defendants, the court held that the PCF’s involvement in the matter was premature:
 
Under the [MMA], the [PCF] cannot contest liability.  If the Malpractice Act does not contemplate the [PCF] as a party defendant, then neither does it contemplate the [PCF] as an intervenor on the issue of liability.  By attempting to so intervene, to object to a settlement by the healthcare provider for the maximum liability permitted by the statute, the [PCF] is being an interloper and is attempting to do indirectly what it cannot do directly.  If the legislature desired for the [PCF] to intervene or be able to object to a binding settlement for the maximum amount, it could and would have so provided.

The court reasoned that although the PCF never formally intervened as a party in the underlying malpractice litigation, its attempt to fund the defense was an effort to do indirectly what it was prohibited from doing directly.  The court therefore reversed the trial court’s decision and granted plaintiffs’ request for a preliminary injunction prohibiting the PCF from attempting to fund the underlying healthcare provider in an effort to avoid the statutory admission of liability.

As an aside, it is interesting to note that in this case, the plaintiffs had authorized settlement with the Estate of Dr. Grovenburg for the statutory limit of $100,000.  Due to the liquidation status of PNRRG, however, the plaintiffs would only receive 22% or $22,000.  The court was cognizant of this fact and noted that because PNRRG would not have paid the full sum of $100,000, the settlement would not satisfy the provisions of the La. R.S. 40:1299.44(c)(5) and would not be sufficient to trigger the PCF’s statutory liability for excess damages.  Therefore, when the settlement was consummated, plaintiffs would still bear the additional burden of establishing malpractice liability and resultant damages in excess of $100,000.

This decision is extremely significant and important given recent legislative efforts.  During the past legislative session, the legislature passed a bill prohibiting the PCF from paying the underlying healthcare provider’s defense costs in return for the underlying healthcare provider refusing to admit liability by payment of its $100,000.  Unfortunately, Governor Foster vetoed this bill.  This case now provides powerful authority prohibiting the PCF from funding the defense costs to an underlying healthcare provider to avoid the statutory admission of liability.  It further recognized the PCF’s tactic for what it was -- an end-run around the statutory admission of liability.