Wednesday, October 14, 2009

Lackawanna County Trial Judge Terrence Nealon Addresses Case of First Impression Regarding Supersedeas Bonds On Appeal

In an opinion filed on October 7, 2009 in the case of White v. Behlke, OB-GYN Consultants, LTD., et al., No. 03-CV-2663 (Lacka. Co. 2009), Judge Terrence Nealon addressed the novel issue of the amount of the appellate security/supersedeas bond that must be filed by a defendant and/or the defendant's insurer when the jury verdict far exceeds the total amount of the available insurance coverage. According to Judge Nealon, the question presented appears to be a matter of first impression in Pennsylvania and there was no reported decisional precedent found on this issue in Pennsylvania prior to this opinion.

In White, after a trial in an obstetrical medical malpractice matter, the jury entered a verdict finding Dr. Behlke and his practice group, OB-GYN Consultants, Ltd. 60% causally negligent and the CMC Hospital in Scranton 40% negligent. The November 17, 2008 verdict was in the amount of $20.5 million dollars, the largest ever in Lackawanna County.

On June 17, 2009, post-trial motions by Defendant Behlke and OB-GYN were denied (CMC previously settled out after the verdict for $6 million dollars) and the court also granted the Plaintiff delay damages that ballooned the judgment in favor of the Plaintiffs on the verdict up to $27,352,195.21.

Pursuant to the joint tortfeasor settlement previously secured by the CMC Hospital, Dr. Behlke and OB-GYN still remained responsible for their 60% of the molded judgment of over $27 million dollars. That 60% figure was $16,411,317.13.

On July 13, 2009, Dr. Behlke and OB-GYN filed an appeal to the Superior Court. Judge Nealon noted that a party filing an appeal may obtain an automatic supersedeas against an execution on that judgment "upon the filing with the clerk of the lower court an appropriate security in the amount of 120% of the amount found due by the lower court and remaining unpaid." Pa.R.A.P. 1731(a). The purpose of the bond is to protect the judgment in favor of the prevailing party while the other party appeals.

In this matter, Dr. Behlke and OB-GYN filed an application to the trial court to stay the execution on the judgment along with a request to reduce the amount of the required appellate security.

It was argued that the moving defendants should not have to pay a bond to cover the 40% of the verdict that was assessed to the co-defendant CMC Hospital or a bond to cover the amount that would have to be paid by MCARE as the MCARE Fund is not required to post bond in appellate matters under Pennsylvania law. It was additionally argued by the moving defendants that the amount of the required bond should be further reduced so that the defendants would not be deprived of their right to pursue their appeal by virtue of their inability to pay the required bond to stay the execution.

Dr. Behlke and OB-GYN did post bond in the amount of over $1.6 million dollars, which represented 120% of these defendants' primary coverage and pro rata share of delay damages. The primary coverage was provided through their carrier, the Medical Protective Company (Med Pro). It was noted in the opinion that the provisions of Med Pro's policy of insurance expressly limited the bond payment to that calculation of the payment based upon the amount of available policy limits.

The moving defendants additionally asserted that their insurer should not have to post bond in an amount in excess of the available policy limits as that would expose the carrier to possibly having to make a payment above the policy limits should the opposing party prevail on appeal.

The Plaintiffs in White agreed that the moving defendants did not have to post bond to cover the 40% of the verdict assessed to CMC or to cover that portion of the verdict to be paid by the MCARE Fund. The Plaintiffs also agreed that Dr. Behlke did not have to attempt to post bond from his personal assets.

However, the Plaintiffs asserted that, since they had secured an assignment from Dr. Behlke and OB-GYN to pursue a bad faith "failure to settle" claim against Med Pro, Med Pro should be required to pay 120% of the remaining net judgment against Dr. Behlke and OB-GYN in order to obtain the supersedeas and a stay against the execution on the judgment. That bond amount would be over $17 million dollars.

The Plaintiffs argued that Med Pro assumed the risk of the verdict when they refused to enter into a binding high/low agreement prior to the entry of the verdict and should therefore be responsible to pay the appropriate bond in full. The moving defendants opposed this argument by asserting that no bad faith liability on the part of Med Pro had been established to date and, as such, that company should not be obligated to bond the full amount of the net judgment in the interim.

Judge Nealon noted that while Pennsylvania law generally allowed for reductions in supersedeas bonds in certain circumstances under Pa.R.A.P. 1737(1) and under Section 515 of the MCARE Act, there was a dearth of Pennsylvania decisions addressing the judicial reduction of a supersedeas security in appeals in civil litigation matters. Accordingly, Judge Nealon turned to a thorough review of authorities from other jurisdictions for guidance on the issue presented.

Ultimately, Judge Nealon held that "since (1) the insurer's alleged bad faith liability for the excess, uninsured verdict has yet to be established in a separate proceeding, (2) the applicable insurance policies obligate the insurer to furnish bond in an amount not to exceed its policy limits and proportionate share of delay damages and (3) the plaintiffs have already agreed not to seek collection of the excess judgment from the defendant's personal assets in exchange for the defendants' assignment of their putative bad faith claims against their insurer, the defendants have made the requisite showing under Pa.R.A.P. 1737(1) and 40 Pa.C.S.A. Section 1303.515(d) for the requested reduction of their appellate security and the concomitant issuance of a supersedeas against execution."

As such, the reduction sought by Dr. Behlke and OB-GYN (and Med Pro) was allowed.

Obviously, this case can have impact outside of the medical malpractice field and could come into play in premises liability cases and automobile cases where a large verdict is entered.

It is emphasized that, in his opinion, Judge Nealon relied upon, in part, authority from other jurisdictions holding that "the question of whether an insurer is obligated to post security or a supersedeas bond for that portion of a judgment which exceeds the insurer's policy limits depends upon the language of the applicable insurance policy." Therefore, carriers may be wise to ensure that they have such language in their policies as an additional means of limiting their exposure in terms of the amount of a the bond or security that would have to be paid to prevent execution on an excess judgment while appellate remedies are sought after.

Anyone desiring a copy of this opinion may contact me at dancummins@comcast.net.

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