Monday, October 10, 2011

No Coverage for Dr. Feelgood

ProSelect Ins. Co. v. Levy, 2011 VT 109 (mem.).

Insurance is a business.  As part of its business model, insurance companies are in the regular practice of excluding intentional and obvious sources of damages.  There is, for example, no general liability policy available to a serial killer.  If you are in the business of purposefully killing other people, insurance companies do not want to talk to you and will not insure against your inevitable losses. 

Aside from the obvious and blatant moral issues—no one purposely insures evil—there is a practical consideration at play here.  Intentionally bad behavior is almost always caught and almost always causes substantial damage.  Insurance companies, who are in essence betting when they sell you a policy, do not like to play those odds.  So they exclude those actions from coverage.  They will insure you for reasonable things, but if you are going to do wrong, you do it on your own dime.

One side effect from this decision is that the real loser tends to be the victim.  Often the victim, who is using the services of the insured, runs afoul of the insured’s evil actions, and then gets the double whammy of being denied compensation from what is probably the only available source. 

All of which, leads us into today’s case.  Defendant began seeing a psychiatrist in 2003.  Psychiatrist quickly initiated a sexual relationship with Defendant, began prescribing her pain medication to create an addiction, and isolated her from all other caregivers—including some family members.  These actions aggravated Defendant’s eating disorders, psychological issues and left her damaged, destabilized, and in a degraded medical condition. 

Following Defendant’s successful termination of the relationship with psychiatrist, Defendant filed suit against him for malpractice and sexual assault.  Shortly thereafter, psychiatrist’s insurance company filed a declaratory action seeking to leave the litigation because the psychologist’s intentional actions and sexual abuse violated the terms of the policy.  Defendant, who needed Plaintiff’s deep pockets, vigorously opposed the action. 

The trial court ruled that the sexual abuse allegations, as excluded by Plaintiff’s policy, terminated any insurance coverage for psychiatrist’s actions. 

On appeal, Defendant argues that the sexual abuse claims are separate and severable from psychiatrist’s malpractice (wrongfully prescribing pain medication and mistreating Defendant’s illnesses), and that the sexual abuse can be separated out for the purpose of coverage.  The SCOV rejects this argument and concluded that the sexual abuse was part and parcel of the psychiatrist’s other bad acts.  They were done at the same time, for the same purpose, and they share a common base of facts.  For these reasons, Defendant cannot look to the insurance policy, and insurer will not have to indemnify the psychiatrist’s purposefully evil acts.  Insurer is dismissed and will not be required to indemnify psychiatrist for his actions against Defendant.

Today’s decision is going to make it much more difficult, but not impossible, for Defendant to obtain compensation in this case.  While she cannot look to insurer, she can still pursue the psychiatrist, obtain a judgment, and then file a lien against any of his possessions.  But the road ahead will be difficult.  If psychiatrist was this bad with Defendant, chances are his fiscal house is not in particularly good order.  As well, pursuit of a lien will be difficult if psychiatrist’s major assets are protected (homestead) or titled to another (such as his spouse). 

At the same time, the SCOV’s decision reflects a larger balancing and policy decision.  Insurance companies build policies and set rates with the presumption that we, the insured, will act reasonably, rationally, and competently.  Mistakes happen, and that is what insurance covers.  If, however, insurance companies were to go on the hook for bad actions, then rates would rise and we, the insured, would all bear the heavier premiums that would be needed to cover such claims.  It may seem cruel to cast out a worthy victim from coverage, but it is a decision that is not done carelessly, and it is a good example of what they mean when they say that judges are forced to make tough decisions.   

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