Appellate Court upholds $5 million arbitration award against TDC

Steve Gonzalez Jun. 21, 2007, 8:59am

Lola Maddox

The Fifth District Appellate Court affirmed a ruling by former Madison County Circuit Judge Lola Maddox that ordered an arbitration award of $5,781,082.67 against The Doctors' Company (TDC).

Michael E. Beatty, M.D., filed suit on Dec. 10, 2004, against TDC alleging he was a named insured under a policy of professional liability insurance issued by TDC and that the policy required TDC to provide a defense and indemnity to him for claims arising out of rendering or failing to render professional services.

Beatty claimed that a suit was filed in federal court on July 23, 1999, that alleged causes of action under the False Claims Act for Beatty's alleged billing of Medicaid and Medicare for medically unnecessary surgeries, for services not rendered, and for miscoded medical procedures.

Beatty contacted TDC requesting coverage for the lawsuit pursuant to his professional liability policy, and although TDC offered to provide a defense to Beatty it refused to provide him a defense pursuant to the professional liability portion of the policy.

On Aug. 1, 2005, Beatty and TDC agreed to arbitration and it was conducted by a panel of three arbitrators on Dec. 8 and 9, 2005.

According to court records, the arbitrators found TDC liable to Beatty in the amount of $1,281,082.67 in compensatory damages and $4.5 million in punitive damages, for a total judgment of $5,781,082.67.

On May 26, 2006, TDC filed a motion for reconsideration and to modify the judgment, which Maddox denied on June 23, 2006, causing TDC to appeal on July 20, 2006.

TDC raised four questions on appeal;

  • whether the arbitrators exceeded their powers by awarding punitive damages;

  • whether the arbitration award should be vacated on the basis that the arbitrators grossly erred in finding that TDC owed a duty to defend Beatty;

  • whether the arbitration award should be vacated on the basis that the arbitrators grossly erred in awarding Beatty attorney fees, costs, and a statutory penalty pursuant to section 155 of the Illinois Insurance Code; and

  • whether the arbitration award should be vacated on the basis that the arbitrators grossly erred in holding that an insurer owes a fiduciary duty to defend and indemnify its insured.

    Authoring the opinion for the three-judge panel, Justice Stephen Spomer wrote, "A court may only vacate an arbitration award where a gross error of law or fact appears on the award's face."

    "As the Illinois Supreme Court has made clear, 'Errors of judgment in law are not grounds for vacating an arbitrator's award when the interpretation of law is entrusted to the arbitrator,'" he wrote.

    "This court would have to undertake an independent analysis of the underlying complaint and insurance policy in order to determine whether the arbitrators erred."

    "Accordingly, there is no gross error of fact or law that is apparent on the face of the award regarding The Doctors' Company's duty to defend Dr. Beatty in the underlying lawsuit, and the award may not be vacated on this basis.

    "It appears from the face of the award that the arbitrators found that The Doctors' Company had been unreasonable and vexatious in its refusal to defend Dr. Beatty in the underlying lawsuit.

    "The arbitrators made specific factual findings to support this conclusion.

    "These included findings that The Doctors' Company failed to respond to Dr. Beatty's repeated requests for a defense, failed to notify Dr. Beatty of the reasons for their denial of coverage, disparaged Dr. Beatty for continuing to request coverage, and failed to renew his coverage.

    "Again, it is outside the scope of review for this court to reanalyze the facts the arbitrators considered in making their determination that The Doctors' Company engaged in unreasonable and vexatious conduct, because any error in the arbitrators' analysis would not be a gross error appearing on the face of the award."

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