West Virginia Mutual Insurance Company v. Steven R. Matulis, M.D.

IN THE INTERMEDIATE COURT OF APPEALS OF WEST VIRGINIA

Fall 2024 Term FILED

____________________________ December 12, 2024

released at 3:00 p.m.

ASHLEY N. DEEM, CHIEF DEPUTY CLERK

No. 23-ICA-409 INTERMEDIATE COURT OF APPEALS

____________________________ OF WEST VIRGINIA

WEST VIRGINIA MUTUAL INSURANCE COMPANY,

Plaintiff/Counterclaim Defendant Below, Petitioner

v.

STEVEN R. MATULIS, M.D.,

Defendant/Counterclaim Plaintiff Below, Respondent

___________________________________________________________________

Appeal from the Circuit Court of Kanawha County

The Honorable Jennifer F. Bailey, Judge

Civil Action No. 17-C-748

AFFIRMED in part, REVERSED in part, VACATED in part, and REMANDED

___________________________________________________________________

Submitted: September 25, 2024

Filed: December 12, 2024

Marc E. Williams, Esq. J. Zak Ritchie, Esq.

Robert L. Massie, Esq. Isaac R. Forman, Esq.

Shaina D. Massie, Esq. Michael B. Hissam, Esq.

Nelson Mullins Riley & Scarborough LLP Hissam Forman Donovan Ritchie PLLC

Huntington, West Virginia Charleston, West Virginia

Counsel for Petitioner Counsel for Respondent

CHIEF JUDGE SCARR delivered the Opinion of the Court.

JUDGE LORENSEN concurs, in part, and dissents, in part, and reserves the right to file a

separate opinion.

SCARR, CHIEF JUDGE:

Petitioner West Virginia Mutual Insurance Company (“Mutual”), appeals

seven orders of the Circuit Court of Kanawha County: (1) the May 4, 2021, Memorandum

Opinion and Order; (2) the May 12, 2023, Memorandum Opinion and Order; (3) the May

12, 2023, Order Granting Dr. Matulis’ Motion in Limine Concerning Sexual Misconduct;

(4) the June 6, 2023, Partial Judgment Order; (5) the August 15, 2023, Memorandum

Opinion and Order; (6) the August 18, 2023, Order Denying WVMIC’s [Mutual’s]

Renewed Motion for Judgment as a Matter of Law or, In the Alternative, For a New Trial;

and (7) the September 1, 2023, Order Awarding Attorneys’ Fees Under Hayseeds,

Dismissing Remaining Claims and Final Judgment Order.

This Court has jurisdiction over this appeal pursuant to West Virginia Code

§ 51-11-4 (2024). After considering the parties’ written and oral arguments, the record on

appeal, and the applicable law, we affirm in part, reverse in part, vacate in part, and remand

for additional proceedings consistent with this opinion.

I. FACTUAL AND PROCEDURAL BACKGROUND

In 2015, Mutual issued a medical professional liability insurance policy to

Charleston Gastroenterology Associates, PLLC (“CGA”), Policy Number PL002028 (“the

Policy”). The Policy was effective from July 1, 2015, to July 1, 2016. Respondent Steven

R. Matulis, M.D. (“Matulis”), who at the time was a physician at CGA, was named as an

1

insured under the Policy, with coverage limits of $1,000,000 for each medical incident and

$3,000,000 in annual aggregate coverage. Pursuant to an Extended Reporting

Endorsement, coverage for Matulis was retroactively extended back to July 1, 1994.

Under the Policy, Mutual agreed to:

pay those sums that the insured becomes legally obligated to

pay as damages because of a claim that is a result of a medical

incident which occurs on or after the retroactive date applicable

to such insured and which is first reported by the insured during

the policy period. [Mutual] has the right and duty to defend any

claim or suit seeking those damages; however, [Mutual] has no

duty to defend any claim, or suit which seeks damages to which

this insurance does not apply.

The Policy defines “medical incident” as:

any act, series of acts, failure to act, or series of failures to act

arising out of the rendering of, or failure to render, professional

services, to any one person by an insured or any person not

otherwise excluded for whose acts or omissions an Insured is

legally responsible which results in damages, claim, or suit[.]

The Policy defines “professional services” as “the providing of medical services, including

medical treatment, which the insured is licensed to perform.” The Policy also includes a

series of exclusions. Specifically, the Policy provides that Mutual would not defend or pay

for:

liability arising out of sexual acts or sexual activities whether

under the guise of professional services or not, on the part of

any insured, or any person for whose acts or omissions any

insured is legally responsible; or

2

injury or damage resulting from a medical incident which is

also a willful violation of a statute, ordinance or regulation

imposing criminal penalties; or

….

any claim or suit arising out of an intentional tort, dishonest,

reckless or malicious act, or breach of contract except as

otherwise provided in this policy[.]

The Policy also includes a “Broad Form Administrative Defense

Endorsement,” which provides that “[w]e will provide a legal expense benefit for

proceedings instituted against You before a regulatory or administrative entity arising out

of Your professional practice, while You are insured under the Policy to which this

endorsement attaches.” This endorsement provides that “You need to notify us within thirty

(30) days from the date of an Administrative Defense Proceeding being instituted in order

to receive coverage under this Additional Benefit.”

Beginning in April 2016, various former patients began filing lawsuits

against Matulis and CGA. The plaintiffs in these suits alleged various causes of action, but

the claims against Matulis were generally based on very specific allegations that he had

put his fingers in plaintiffs’ vaginas or touched their breasts while they were under

anesthesia for colonoscopies or other procedures. Some of the plaintiffs’ complaints

included allegations that Matulis had sexually assaulted or abused them, or that his actions

constituted sexual misconduct. Other plaintiffs characterized his actions as digital vaginal

exams (“DVEs”) or breast exams performed without informed consent in a breach of the

3

standard of care. The claims against CGA generally consisted of allegations of negligent

supervision and failure to intervene. Thirteen lawsuits filed in the Circuit Court of

Kanawha County, including two class actions, were consolidated for purposes of discovery

and pretrial matters under Civil Action No. 16-C-497. Matulis sought a defense to these

lawsuits from Mutual pursuant to the Policy. Mutual provided a defense under a reservation

of rights in four cases but refused to defend him in the other nine.

On May 30, 2017, Mutual initiated this matter by filing a complaint for

declaratory relief in the Circuit Court of Kanawha County, seeking a declaration that it had

no duty to defend or indemnify Matulis or CGA in several of these suits. Mutual filed an

amended complaint on September 28, 2018, adding some of the plaintiffs in the underlying

actions as defendants. Mutual filed a second amended complaint on March 15, 2019,

naming as defendants all of the underlying plaintiffs with pending lawsuits against Matulis

and CGA and another matter where a notice of claim had been filed.1 Mutual contended

that the plaintiffs’ claims were not covered by the Policy because Matulis’ alleged acts did

not satisfy the Policy’s definitions of “medical incidents” or “professional services.”

Mutual also argued that the claims were excluded under the Policy’s exclusions for sexual

acts and activities, criminal acts, and intentional torts. On April 15, 2019, Matulis filed an

answer to the second amended complaint, which included counterclaims against Mutual

1

Mutual also named L.B., a former patient of Matulis who had filed a notice of

claim but not a lawsuit and sought a declaration that it had no duty to defend or indemnify

as to L.B.’s claims.

4

for breach of contract, bad faith, and damages under Hayseeds, Inc. v. State Farm Fire &

Cas., 177 W. Va. 323, 352 S.E.2d 73 (1986).

Matulis was criminally indicted on June 1, 2018, on seven felony counts

stemming from his sexual abuse of unconscious patients. Following a five-day trial, a jury

found him guilty of sexual abuse in the first degree on a count relating to fondling the

breasts of T.W. on October 5, 2018. He was acquitted on all counts involving DVEs.

Matulis was sentenced to not less than one and up to five years in prison and assessed a

$10,000 fine. He also was ordered to register as a sex offender and given five years of

extended supervision. Matulis’ conviction and sentence were affirmed on appeal. See State

v. Matulis, No. 18-1053, 2020 WL 1487810, at *6 (W. Va. Mar. 23, 2020) (memorandum

decision). He spent fifteen months in prison because of his conviction for sexual abuse.

On July 8, 2019, Mutual filed a motion for partial judgment on the pleadings,

seeking a ruling that it had no duty to defend or indemnify in any of the plaintiffs’ tort

cases because the alleged acts were not “medical incidents” or “professional services” and

were excluded under the sexual acts and intentional tort exclusions.2 CGA and a group of

plaintiffs in the underlying tort actions filed responses. On February 7, 2020, Matulis filed

a motion for partial summary judgment, seeking summary judgment solely on the issue of

2

Although Mutual quoted the Policy’s criminal acts exclusion in its supporting

memorandum, it did not explicitly argue that exclusion in this motion.

5

Mutual’s defense of him in nine of the thirteen lawsuits.3 Mutual filed a response in

opposition, and on February 17, 2021, the circuit court held a hearing on both motions.

On May 4, 2021, the circuit court entered an order granting Matulis’ motion

for partial summary judgment and denying Mutual’s motion for partial judgment on the

pleadings. The circuit court rejected Mutual’s coverage arguments, focusing primarily on

the intentional tort exclusion although recognizing that Mutual had “suggested” that

coverage was also precluded by the sexual acts and criminal acts exclusions.4 The circuit

court noted that Matulis claimed that he performed limited DVEs on certain patients when

he believed that they were medically appropriate. The circuit court concluded that, because

the complaints alleged various legitimate negligence-based causes of action in addition to

alleging intentional sexual misconduct, the plaintiffs might ultimately prevail on claims

that fell within the policy. The circuit court rejected Mutual’s argument that the negligence

allegations in the complaint were merely an attempt to trigger coverage for otherwise

uncovered claims:

Based on the facts particular to these cases, the Court cannot

agree that the underlying tort claimants have engaged in “artful

pleading;” rather, they have alleged alternative theories of

liability on which they may or may not ultimately prevail.

Nevertheless, because some of these avenues for recovery may

Matulis designated this motion as his response to Mutual’s motion for partial

3

judgment on the pleadings.

4

In its opinion, the circuit court concluded that: “After considering the evidence and

argument offered on all sides, the Court readily concludes that the underlying tort actions

allege a variety of avenues for recovery, at least some of which, with evidentiary support,

could give rise to covered claims not subject to any exclusion.” (Emphasis added).

6

give rise to covered claims, the Mutual must provide its

insureds with a defense to all of the claims, even though it

might only be required to indemnify Dr. Matulis or CGA with

respect to some of them.

The circuit court acknowledged that Matulis only sought summary judgment on the duty

to defend nine of the lawsuits against him, but nevertheless denied Mutual’s motion for

partial judgment on the pleadings in all the pending lawsuits and claims.

The parties subsequently filed cross-motions for summary judgment on the

issue of the damages sustained pursuant to Mutual’s breach of the duty to defend. In its

January 9, 2023, motion for partial summary judgment on this issue, Mutual sought a ruling

that it was not liable for any attorney fees Matulis incurred in his administrative

proceedings, in his criminal proceedings, in his coverage proceeding against Mutual, or

any of his other matters because of the coverage language, policy exclusions, or late notice

of claims.

Matulis filed his cross-motion for partial summary judgment on January 24,

2023. In that motion, Matulis explained that he had originally claimed $479,017.32 in fees

incurred defending himself against the underlying tort claims. However, of that total, he

recognized that Mutual had conceded that $212,100.80 was no longer in dispute under the

circuit court’s coverage ruling, and that he had withdrawn his claim for some other fees.

Matulis noted that the only attorney fee amounts remaining in dispute were $129,423.65

related to the tort claims and $25,000 in administrative defense fees. Matulis sought

7

summary judgment as to both amounts and a ruling that he was entitled to prejudgment

interest in the amount of $140,816.88.

On May 12, 2023, the circuit court entered an order granting Matulis’ motion

in part, finding that he was entitled to the uncontested $212,100.80 and the $25,000 in

administrative defense fees. The circuit court rejected Mutual’s argument that these

administrative defense fees were unavailable due to Matulis’ alleged failure to provide

timely notice of the administrative proceedings.

The circuit court held its final pretrial conference on May 3, 2023, with trial

scheduled for May 15, 2023. Following that conference, on May 12, 2023, the circuit court

entered an order granting Matulis’ motion in limine to exclude any evidence related to his

sexual misconduct at the upcoming trial on the breach of contract and Hayseeds damages.

The circuit court stated that it agreed with Matulis that the evidence concerning his sexual

misconduct was not relevant to the breach of contract and Hayseeds issues.

On May 15, 2023, prior to commencement of trial, the circuit court

announced that it intended to grant summary judgment to Matulis on the remaining

contested amount of $129,423.65 for breach of contract damages. The circuit court also

ruled that the jury would decide whether prejudgment interest should be awarded, but that

the court would decide the amount of any such award. The case then proceeded to trial on

Hayseeds damages. Prior to opening statements, the circuit court confirmed that its ruling

8

excluding evidence of sexual misconduct precluded Mutual from discussing Matulis’

criminal proceedings, an investigation against him conducted by Charleston Area Medical

Center (“CAMC”), and/or the Board of Medicine’s (“BOM”) investigation.

Matulis himself was the first witness called at trial. Matulis testified that he

had paid premiums for malpractice insurance to Mutual for more than the last decade of

his practice as a physician, but that when he was sued in 2016, they refused to defend him.

He testified that he spent around $366,000 in out-of-pocket legal expenses, and that he had

been compelled to sell his property on Lake Wylie in North Carolina in order to pay his

attorneys. Matulis’ counsel then specifically asked him about annoyance and

inconvenience he had suffered due to Mutual. Matulis testified that he had not expected

that Mutual would refuse to provide him a defense after he had paid premiums every year,

that he had not anticipated that he would have to pay over $300,000 out of pocket, and that

he would not have imagined having to sell property he had purchased to be near his children

and grandchildren in retirement.

After his direct testimony, the circuit court held a bench conference, at which

counsel for Mutual moved for permission to question Matulis about the facts and

circumstances of those cases where Mutual had refused to defend him. Counsel argued that

Matulis’ testimony regarding his expectation that Mutual would pay for his defense had

opened the door for Mutual to rebut his testimony with facts about those claims and why

the defense was denied. The circuit court denied this motion. Counsel for Mutual then

9

cross-examined Matulis about his sale of the Lake Wylie property in October 2017.

Following those questions, at another bench conference, counsel for Mutual moved for

leave to introduce invoices demonstrating that Matulis had paid legal fees in other matters

in the six months following the sale of the property. The circuit court denied this request.

Counsel for Matulis also called Dean Dawson, a real estate appraiser, who

was recognized as an expert witness without objection from Mutual. On direct

examination, Mr. Dawson testified that he had performed an appraisal of the Lake Wylie

property Matulis previously owned, and that as of July 2, 2022, it was worth $600,000.

Counsel for Matulis then asked Mr. Dawson if he could opine on the value of the property

at the time of trial. Counsel for Mutual objected, arguing that such an opinion was an

undisclosed supplemental expert opinion. The circuit court overruled the objection, and

Mr. Dawson testified that the property was worth $700,000 at the time of trial. No evidence

was presented concerning the value of the property when it was sold. At the close of

Matulis’ evidence, Mutual moved for judgment as a matter of law, which the circuit court

denied.

Mutual only called one witness at trial, Tamara Huffman. Ms. Huffman

testified that when the lawsuits were initially filed against Matulis, she had been the

executive vice president to the operating officer at Mutual. She also testified about the

history of Mutual, including how it had been created as a physician-owned mutual

insurance company in 2004 due to the high medical malpractice insurance premiums West

10

Virginia physicians were charged by other companies. On cross-examination, counsel for

Matulis questioned Ms. Huffman about Mutual’s acquisition by the much larger

MagMutual and asked about MagMutual’s size and assets. Counsel for Mutual objected to

these questions, but the circuit court overruled the objections. After the close of evidence,

Counsel for Mutual renewed its motion for judgment as a matter of law, and the circuit

court denied the renewed motion.

On the morning of May 16, 2023, the second day of trial, the jury announced

its verdict. The jury awarded Matulis $200,000 in damages for net economic loss related

to the sale of his lakefront property and $150,000 for annoyance and inconvenience. The

jury also decided that Matulis should be awarded prejudgment interest. On June 6, 2023,

the circuit court entered a partial judgment order reflecting these verdicts.

On June 14, 2023, Matulis filed a motion for attorney fees incurred in the

declaratory judgment action, pursuant to Syllabus Point 2, Aetna Cas. & Sur. Co. v. Pitrolo,

176 W. Va. 190, 342 S.E.2d 156 (1986). Matulis requested $523,138.19, consisting of a

base fee of $392,907.00 and an upward adjustment of 20% based on the Pitrolo factors.

Mutual filed a response in opposition on June 30, 2023, arguing that the total amount of

attorney fees sought by the motion improperly included attorney fees incurred in matters

other than Matulis’ effort to vindicate his right to coverage under the policy. Matulis filed

a reply in support of his motion on July 7, 2023.

11

On June 21, 2023, Mutual filed a renewed motion for judgment as a matter

of law, or in the alternative, for a new trial. Mutual sought judgment as a matter of law

finding that it had no duty to defend Matulis. Mutual also argued that Matulis had failed to

set forth any evidence that Mutual’s coverage decision had proximately caused any net

economic loss or inconvenience. With respect to the motion for new trial, Mutual claimed

that a new trial was warranted due to cumulative errors at trial, including the circuit court’s

preclusion of any evidence related to Matulis’ sexual misconduct, any evidence related to

the other legal and administrative proceedings he was subject to at the time Mutual denied

a defense, and the payment of attorney fees subsequent to the sale of the lakefront property.

Mutual also argued that the circuit court’s decision to allow Matulis’ counsel to cross-

examine Ms. Huffman on MagMutual’s net worth contributed to this cumulative error. The

circuit court entered an order denying this motion on August 18, 2023.

On August 15, 2023, the circuit court entered its memorandum opinion and

order reflecting its ruling announced prior to the start of trial that Matulis’ motion for

summary judgment was granted as to the remaining contested $129,423.65 in breach of

contract damages. The circuit court also ruled that Matulis was entitled to $226,223.35 in

prejudgment interest: $148,640.02 on the breach of contract damages and $77,583.33 on

the $200,000 in economic loss damages. The circuit court explained that it calculated the

prejudgment interest on both figures pursuant to West Virginia Code § 56-6-31 (2018).5

5

W. Va. Code § 56-6-31 (2018) states in pertinent part that:

12

On September 1, 2023, the circuit court entered its Order Awarding

Attorneys’ Fees Under Hayseeds, Dismissing Remaining Claims and Final Judgment

Order. In this order, the circuit court granted Matulis’ motion and granted the requested

$523,138.19 in fees. Pursuant to the agreement of the parties, the court also dismissed

Matulis’ remaining claims, including his bad faith claim.6 The circuit court then entered

(b) Prejudgment -- In any judgment or decree that contains

special damages, as defined below, or for liquidated damages,

the court may award prejudgment interest on all or some of the

amount of the special or liquidated damages, as calculated after

the amount of any settlements. Any such amounts of special or

liquidated damages shall bear simple, not compounding,

interest. Special damages include lost wages and income,

medical expenses, damages to tangible personal property and

similar out-of-pocket expenditures, as determined by the court.

…

(1) Notwithstanding the provisions of section five, article six,

chapter forty-seven of this code, the rate of prejudgment

interest is two percentage points above the Fifth Federal

Reserve District secondary discount rate in effect on January

2, of the year in which the right to bring the action has accrued,

as determined by the court and that established rate shall

remain constant from that date until the date of the judgment

or decree, notwithstanding changes in the federal reserve

district discount rate in effect in subsequent years prior to the

date of the judgment or decree: Provided, That the rate of the

prejudgment interest may not exceed nine percent per annum

or be less than four percent per annum. … Once the rate of

prejudgment interest is established as provided in this section,

that established rate shall remain constant for the prejudgment

interest for that particular judgment or decree, notwithstanding

changes in the Federal Reserve District discount rate in effect

in subsequent years.

6

The circuit court had previously bifurcated these claims from the breach of contract

and Hayseeds claims.

13

final judgment in the amount of $1,465,885.99 in favor of Matulis. Mutual appeals from

this final order.7

II. STANDARDS OF REVIEW

A. Insurance Coverage

The circuit court’s decision regarding Mutual’s duty to defend under the

Policy is reviewed de novo on appeal. See Syl. Pt. 2, Riffe v. Home Finders Assocs., Inc.,

205 W. Va. 216, 517 S.E.2d 313 (1999) (“The interpretation of an insurance contract . . .

is a legal determination that . . . shall be reviewed de novo on appeal.”); Syl. Pt. 1, Tennant

v. Smallwood, 211 W. Va. 703, 568 S.E.2d 10 (2002) (“Determination of the proper

coverage of an insurance contract when the facts are not in dispute is a question of law.”).

The Supreme Court of Appeals of West Virginia (“SCAWV”) regularly has applied the de

novo standard of review when reviewing declaratory judgment actions regarding insurance

coverage. See Blankenship v. City of Charleston, 223 W. Va. 822, 824-25, 679 S.E.2d 654,

656-57 (2009) (“[B]ecause the purpose of a declaratory judgment action is to resolve legal

7

As noted above, Mutual also raises assignments of error related to various orders

entered earlier in the case. These orders are appealable through the September 1, 2023,

final order. See Syl. Pt. 6, Riffe v. Armstrong, 197 W. Va. 626, 477 S.E.2d 535 (1996)

(quoting Syl. Pt. 5, State ex rel. Davis v. Iman Mining Co., 144 W. Va. 46, 106 S.E.2d 97

(1958)) (“Where an appeal is properly obtained from an appealable decree either final or

interlocutory, such appeal will bring with it for review all preceding non-appealable

decrees or orders, from which have arisen any of the errors complained of in the decree

appealed from, no matter how long they may have been rendered before the appeal was

taken.”).

14

questions, a circuit court’s ultimate resolution in a declaratory judgment action is reviewed

de novo.”).

B. Summary Judgment

The circuit court’s summary judgment decisions are likewise reviewed de

novo on appeal. See Syl. Pt. 1, Findley v. State Farm Mut. Auto. Ins., 213 W. Va. 80, 576

S.E.2d 807 (2002) (denial review de novo); Syl. Pt. 1, Painter v. Peavy, 192 W. Va. 189,

451 S.E.2d 755 (1994) (entry reviewed de novo). “A motion for summary judgment should

be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry

concerning the facts is not desirable to clarify the application of the law.” Syl. Pt. 3, Aetna

Cas. & Sur. Co. v. Fed. Ins., 148 W. Va. 160, 133 S.E.2d 770 (1963); see also W. Va. R.

Civ. P. 56.

C. Evidentiary Issues

The circuit court’s evidentiary rulings are reviewed for abuse of discretion

on appeal. “Rulings on motions in limine lie within the trial court’s discretion.” State v.

Dillon, 191 W. Va. 648, 662, 447 S.E.2d 583, 597 (1994). Likewise, “[t]he West Virginia

Rules of Evidence . . . allocate significant discretion to the trial court in making evidentiary

and procedural rulings. Thus, rulings on the admissibility of evidence . . . are committed to

the discretion of the trial court.” Reynolds v. City Hosp., Inc., 207 W. Va. 101, 108-09, 529

S.E.2d 341, 348-49 (2000). The appellate court inquires “as to whether the trial court acted

15

in a way that was so arbitrary and irrational that it can be said to have abused its discretion.”

State v. McGinnis, 193 W. Va. 147, 159, 455 S.E.2d 516, 528 (1994).

D. Post-trial Motions

The circuit court’s decision regarding Mutual’s renewed motion for

judgment as a matter of law is reviewed de novo on appeal. Syl. Pt. 1, Fredeking v. Tyler,

224 W. Va. 1, 680 S.E.2d 16 (2009). When this Court “reviews a trial court’s order granting

or denying a renewed motion for judgment as a matter of law after trial . . . its task is to

determine whether the evidence was such that a reasonable trier of fact might have reached

the decision below.” Id. at Syl. Pt. 2. Therefore, “when considering a ruling on a renewed

motion for judgment as a matter of law after trial, the evidence must be viewed in the light

most favorable to the nonmoving party.” Id.

The circuit court’s decision regarding Mutual’s motion for a new trial is

reviewed on appeal for abuse of discretion. See Syl. Pt. 3, in part, In re State Pub. Bldg.

Asbestos Litig., 193 W. Va. 119, 454 S.E.2d 413 (1994) (“A trial judge’s decision to award

a new trial is not subject to appellate review unless the trial judge abuses his or her

discretion.”). Appellate courts apply a “two-pronged deferential standard of review” when

reviewing challenges to findings and rulings made by a circuit court. Tennant v. Marion

Health Care Found., Inc., 194 W. Va. 97, 104, 459 S.E.2d 374, 381 (1995). This Court

must “review the rulings of the circuit court concerning a new trial and its conclusion as to

16

the existence of reversible error under an abuse of discretion standard,” and “review the

circuit court’s underlying factual findings under a clearly erroneous standard.” Id.

III. DISCUSSION

A. Duty to Defend

In its first assignment of error, Mutual contends that the circuit court erred in

its May 4, 2021, order by granting Matulis’ motion for partial summary judgment on the

duty to defend; specifically, in finding that Mutual had a duty to defend Matulis in the

thirteen lawsuits and notice of claim by former patients, as well as the administrative

proceedings concerning his license and hospital privileges. We agree as to certain matters

but disagree as to others.

Our analysis of Mutual’s alleged duty to defend is guided by well-established

principles articulated by the SCAWV. “An insurance company has a duty to defend an

action against its insured if the claim stated in the underlying complaint could, without

amendment, impose liability for risks the policy covers.” Bowyer v. Hi-Lad, Inc., 216 W.

Va. 634, 651, 609 S.E.2d 895, 912 (2004). “[I]ncluded in the consideration of whether [an]

insurer has a duty to defend is whether the allegations in the complaint . . . are reasonably

susceptible of an interpretation that the claim may be covered by the terms of the insurance

polic[y].” Syl. Pt. 5, W. Va. Fire & Cas. Co. v. Stanley, 216 W. Va. 40, 602 S.E.2d 483

(2004) (quoting Syl. Pt. 3, in part, Bruceton Bank v. U.S. Fid. and Guar. Ins., 199 W. Va.

548, 486 S.E.2d 19 (1997)). When a complaint presents multiple claims against an insured,

17

if any the claims fall within the scope of coverage, “the insurer must defend all of the

claims, although it might eventually be required to pay only some of the claims.” Horace

Mann Ins. Co. v. Leeber, 180 W. Va. 375, 378, 376 S.E.2d 581, 584 (1988).

“Any question concerning an insurer’s duty to defend under an insurance

policy must be construed liberally in favor of an insured where there is any question about

an insurer’s obligations.” Syl. Pt. 5, Tackett v. American Motorists Ins. Co., 213 W. Va.

524, 584 S.E.2d 158 (2003). “When a complaint is filed against an insured, an insurer must

look beyond the bare allegations contained in the third party's pleadings and conduct a

reasonable inquiry into the facts in order to ascertain whether the claims asserted may come

within the scope of the coverage that the insurer is obligated to provide.” Syl. Pt., Farmers

& Mechanics Mut. Fire Ins. Co. of WV v. Hutzler, 191 W. Va. 559, 447 S.E.2d 22 (1994).

Finally, “it is generally recognized that the duty to defend an insured may be broader than

the obligation to pay under a particular policy.” Aetna Cas. & Sur. Co. v. Pitrolo, 176 W.

Va. 190, 194, 342 S.E.2d 156, 160 (1986).

Mutual offers four reasons why it had no duty to defend Matulis in the

underlying tort lawsuits: 1) the claims alleged are barred by the Policy’s intentional tort

exclusion; 2) the claims are barred by the Policy’s sexual acts exclusion; 3) the claims are

barred by the Policy’s criminal acts exclusion; and 4) Matulis’ alleged actions that form

the basis of the claims do not satisfy the Policy’s definitions of “medical incidents” or

18

“professional services.” Although Mutual relies principally on the intentional acts

exclusion, we will address each of these arguments.

Both parties and the circuit court have assumed that either all the complaints

were viable or none of them were. We disagree. Based on our analysis, we conclude that

eight complaints did not allege negligence claims which could survive a motion to dismiss,

while the remaining five complaints and the stand-alone notice of claim did. Accordingly,

for reasons set forth below, the circuit court is affirmed concerning Mutual’s duty to defend

in cases 18-C-15, 17-C-1579, 18-C-176, 16-C-497, 16-C-1723, and L.B.’s notice of claim,

and reversed as to cases 17-C-1057, 18-C-575, 18-C-578, 18-C-576, 16-C-1709, 16-C-

1738, 18-C-985, and 18-C-205.8

8

In affirming coverage for some of the lawsuits brought by Matulis’s former

patients, we recognize that the conduct alleged, and in one case, proven beyond a

reasonable doubt, is troubling. We can only imagine the emotional suffering which many

of his former patients may have suffered. But in resolving the issues presented, we must be

guided by the law and not by sympathy for the women involved, disapproval of the conduct

alleged, or the potential financial impact on Matulis of our decision. Nor is it our job to

punish the insured, who has already experienced some measure of punishment for his

actions, including not just a criminal conviction resulting in his incarceration, but the loss

of his medical license and hospital privileges, and having to register as a sexual offender.

Our task is simply to determine whether Mutual owed him a defense of medical malpractice

(not sexual abuse) claims pursuant to a policy of professional insurance he faithfully paid

premiums on over a period of several years, and whether he was treated fairly in the circuit

court.

19

1. Intentional Tort Exclusion

As set forth above, the Policy provides that Mutual would not defend or pay

for “any claim or suit arising out of an intentional tort, dishonest, reckless or malicious act,

or breach of contract except as otherwise provided in this policy.” In arguing that this

exclusion precludes coverage in this matter, Mutual relies on the SCAWV’s holding in

Leeber:

There is neither a duty to defend an insured in an action for,

nor a duty to pay for, damages allegedly caused by the sexual

misconduct of an insured, when the liability insurance policy

contains a so-called “intentional injury” exclusion. In such a

case the intent of an insured to cause some injury will be

inferred as a matter of law.

Syl. Pt., Horace Mann Ins. Co. v. Leeber, 180 W. Va. 375, 376 S.E.2d 581 (1988). In

Leeber, the insured was a teacher alleged to have had sexual contacts with a minor student.

See id. at 376-77, 376 S.E.2d at 582-83. In the underlying complaint the student’s parents

asserted both intentional acts and negligence stemming from the alleged sexual

misconduct, and the insurer filed a declaratory judgment action seeking a declaration that

it had no duty to defend or indemnify the insured. Id. The Leeber Court found no duty to

defend, rejecting the insured’s argument that the allegations of negligence in the complaint

triggered such a duty, explaining:

the allegations of “negligence” in the complaint are “a

transparent attempt to trigger insurance coverage by

characterizing allegations of [intentional] tortious conduct

under the guise of ‘negligent’ activity. Our review of the

complaint reveals that [the plaintiff in the underlying action]

seeks recovery for the alleged intentional acts committed by

20

[the insured]. Thus, there was no duty [upon the homeowner's

insurer] to defend[.]”.

Id. at 381, 376 S.E.2d at 587 (quoting Linebaugh v. Berdish, 144 Mich. App. 750, 763, 376

N.W.2d 400, 406 (1985)).

In Smith v. Animal Urgent Care, Inc., the SCAWV relied on Leeber and held

that “[t]he inclusion of negligence-type allegations in a complaint that is at its essence a

sexual harassment claim will not prevent the operation of an ‘intentional acts’ exclusion

contained in an insurance liability policy which is defined as excluding ‘bodily injury’

‘expected or intended from the standpoint of the insured.’” Syl. Pt. 4, Smith v. Animal

Urgent Care, Inc., 208 W. Va. 664, 542 S.E.2d 827 (2000); see also Syl. Pt. 10, W. Va.

Fire & Cas. Co. v. Stanley, 216 W. Va. 40, 602 S.E.2d 483 (2004) (relying on Leeber and

Smith and affirming circuit court’s decision that insurer had no duty to defend insured

where allegations included both intentional torts and negligence based on sexual

misconduct).

Relying on Leeber and its progeny, Mutual argues that the underlying

complaints against Matulis stem from the allegation that he intentionally touched them in

a sexual manner during operations. Accordingly, Mutual argues that it is irrelevant that

most of the complaints also include allegations of negligence, medical malpractice, or lack

of informed consent. Mutual argues that these negligence-based allegations are insufficient

to escape the intentional tort exclusion.

21

In rejecting Mutual’s similar challenge below, the circuit court found that

Leeber did not control. The circuit court distinguished the underlying complaints from the

complaint in Leeber, noting that the plaintiffs had alleged “recognized tort theories which,

if proven, would fall squarely within the scope of coverage.” The circuit court also relied

on Matulis’ proffered defense that he sometimes performed DVEs on patients when

medically indicated. The circuit court determined that it was proper to consider Matulis’

defense under the SCAWV’s holding that “an insurer must look beyond the bare allegations

contained in the third party’s pleadings and conduct a reasonable inquiry into the facts in

order to ascertain whether the claims asserted may come within the scope of the coverage.”

Syl., in part, Farmers & Mechanics Mut. Fire Ins. Co. of W. Va. v. Hutzler, 191 W. Va.

559, 447 S.E.2d 22 (1994). The circuit court also quoted the single syllabus point of

Columbia Cas. Co. v. Westfield Ins. Co., 217 W. Va. 250, 617 S.E.2d 797 (2005) in

explaining “that Dr. Matulis’ perspective is entitled to ‘primary consideration, relevance,

and weight’ in determining whether the complaints allege intentional misconduct.”

In determining whether Matulis has asserted valid claims for negligent

conduct, we must consider our law concerning the ability to plead inconsistent facts and

theories in the same pleading. Under Rule 8 of the West Virginia Rules of Civil Procedure,

parties may plead inconsistent claims in the alternative.9 For example, a plaintiff may plead

9

Rule 8(e)(2) provides in pertinent part that:

A party may set forth two or more statements of a claim or

defense alternately or hypothetically, either in one count or

22

an intentional tort in one count and a negligence claim in another. See, e.g., Terra Nova

Ins. Co. Ltd. v. 900 Bar, Inc., 887 F.2d 1213, 1225-226 (3d Cir. 1989) (complaint alleging

both intentional and negligent shooting); Doe v. Fournier, 851 F.Supp.2d 207, 226 n. 11

(D. Mass. 2012) (complaint may allege both negligent infliction of emotional distress and

intentional infliction of emotional distress); Gulf Ins. Co. v. Dooley, 286 F.Supp. 16, 17

(N.D. Ill. 1968) (applying Illinois law) (duty to defend under homeowner’s policy where

complaint contained one count alleging willful and wanton misconduct but another count

alleged negligence on the part of the homeowner); Iacobelli Const. Co., Inc. v. Western

Cas. & Sur. Co., 343 N.W.2d 517, 522 (Mich. Ct. App. 1983) (finding duty to defend

where complaint alleged both deliberate and unintentional trespass); Benjamin v. Amica

Mut. Ins. Co., 140 P.3d 1210 (Utah 2006) (insurer was required to defend lawsuits alleging

sexual assault and negligent infliction of emotional distress in the alternative); cf. Arnold

Agency v. W. Va. Lottery Comm’n, 206 W. Va. 583, 596, 526 S.E.2d 814, 827 (1999)

(recognizing that a plaintiff could plead both breach of contract and fraud in the same

complaint).

Given that complaints are filed before the parties have conducted any

discovery, it will often be desirable to plead claims in both negligence and intentional tort.

See A. Benjamin, 5 Federal Practice and Procedure (Wright & Miller) § 1283 Westlaw (4th

defense or in separate counts or defenses…. A party may also

state as many separate claims or defenses as the party has

regardless of consistency….

23

ed. database updated June 2024) (“frequently a party, after a reasonable inquiry and for

proper purposes, must assert contradictory statements when he or she legitimately is in

doubt about the factual background of the case or the legal bases that underlie affirmative

recovery or defense.”) (footnote omitted). As one court has observed, Rule 8 “permits

alternative pleading, and any careful civil lawyer would include a negligence claim as well

as one for an intentional tort, in order to protect his client against development at trial of

the evidence along a line different from the facts as related to him by his client.” State v.

Dodge, 397 A.2d 588, 591 (Me. 1979).

A factual assertion regarding one claim will not be treated as an admission

contradicting an alternative or inconsistent claim in another part of the same complaint.

Syl. Pt. 10, Arnold Agency v. Va. Lottery Comm’s, supra. If it were otherwise, the portions

of Rule 8 allowing parties to plead alternative and inconsistent claims would be a nullity,

defeating the salutary purposes of that rule. Id. at 595, 526 S.E.2d at 826.

A party need not expressly allege that it is pleading claims in the alternative.

See Coleman v. Standard Life Ins. Co., 288 F.Supp.2d 1116, 1120 (E.D. Cal. 2003)

(plaintiff does not need to use particular words “plead in alternative”); Arnold & Assocs.,

Inc. v. Misys Healthcare Systems PLC, 275 F.Supp.2d 1013, 1029 (D. Ariz. 2003) (no need

to use “magic words” of “in the alternative”). No particular language is required; even

under the most conservative reading of Rule 8, it is sufficient if a party uses language from

which one can reasonably infer that the party was pleading in the alternative. Holman v.

24

Indiana, 211 F.3d 399, 407 (7th Cir. 2000); Ocean’s 11 Bar & Grill, Inc. v. Indem. Ins.

Corp. of DC, No. 11-61577-CIV, 2011 WL 3843931, at *3 (S.D. Fla. Aug. 26, 2011); G-I

Holdings, Inc. v. Baron & Budd, 238 F.Supp.2d 521, 536 (S.D. N.Y. 2002). If two counts

allege claims based on mutually exclusive theories, they should be read as stating claims

in the alternative. See Joe Hand Promotions, Inc. v. Lynch, 822 F.Supp.2d 803, 805 (N.D.

Ill. 2011) (court concluded that a complaint evidenced “a sufficient intent to plead in the

alternative” despite the absence of express language to that effect because any complaint

asserting that a single action violates two mutually exclusive statutes can only be

interpreted as alleging alternative claims.); J&J Sports Prods., Inc. v. Premium Lounge,

Inc., No. 4:13CV1749 TIA, 2014 WL 2711852, at *3 (E.D. Mo. June 16, 2014) (same).

Having recognized the general rule allowing alternative and inconsistent pleadings,

however, we must recognize there are some factual situations which can be reasonably

characterized in only one way.

For example, when a teacher pleads guilty to sexually abusing a junior high

school student, a plaintiff cannot avoid policy exclusions for intentional conduct, sexual

conduct, or criminal conduct by describing the teacher’s actions as “negligent.” See Horace

Mann Ins. Co. v. Leeber, 180 W. Va. 375, 376 S.E.2d 581 (1988). The SCAWV has made

it abundantly clear that it will not countenance “transparent” attempts to create coverage

where none exists. See id. at 381, 376 S.E.2d at 587. Similarly, when a person repeatedly

rapes his young niece, both vaginally and anally, over a period of several years, while she

is screaming, crying, and kicking, a plaintiff cannot avoid the usual policy exclusions by

25

describing the defendant’s actions as “negligent.” See W.Va. Fire & Cas. Co. v. Stanley,

216 W. Va. 40, 602 S.E.2d 483 (2004). As Justice Starcher observed in his concurring

opinion in West Virginia Fire & Casualty Company v. Stanley, when referring to Leeber

and West Virginia Fire & Casualty Company, “[t]here is no way on God’s green earth that

either of these tortfeasors should have been permitted to shift the cost of their conduct onto

an insurance company.” Id. at 55, 602 S.E.2d at 498.10

Similarly, in the context of health care, there is conduct which cannot be

described as acting “negligently.” See St. Paul Fire and Marine Ins. Co. v. Engelmann, 639

N.W.2d 192, 198 (S.D. 2002) (doctor inserted his penis in a patient’s vagina during a

gynecological examination); Rivera v. Nevada Med. Liab. Ins. Co., 814 P.2d 71 (Nev.

1991) (sodomy during breast, vaginal and rectal examination); Physicians Ins. Co. v.

Pistone, 726 A.2d 339 (Pa. 1999) (physician exposed himself, fondled patient, and

masturbated in front of her). But other conduct by health care professionals may be either

permissible or inappropriate depending on whether the action is taken for medical purposes

or for purposes of sexual gratification. It is not unusual for doctors and nurses to insert their

fingers or instruments into mouths, vaginas, or anuses of patients to diagnose or treat

10

Smith v. Animal Urgent Care, Inc., 208 W. Va. 664, 542 S.E.2d 827 (2000),

another case cited by Mutual, also involves claims that were in “essence” for sexual

misconduct with some “negligence-type allegations” that were insufficient to trigger a duty

to defend or indemnify. In Smith, the plaintiff alleged that the veterinarian she worked with

“engaged in various acts for the purpose of harassing, degrading, and embarrassing her

through unwelcome sexual advances and exploitation. According to Ms. Smith, these acts

included both verbal and physical conduct of a sexual nature.” Id. at 665, 542 S.E.2d at

828.

26

medical conditions, but such conduct would be unacceptable in other contexts, at least

where consenting sexual partners are not involved. See Am. Cas. Co. v. Corum, 910 P.2d

1151, 1154 (Or. Ct. App. 1996) (noting that “[t]he [digital] probing of a vagina by a

registered nurse in a hospital setting” could be either “the rendering of professional

services” or “criminal sexual abuse” depending on the circumstances).11 Likewise, as the

court observed in Illinois State Medical Ins. Servs., Inc. v. Cichon, 629 N.E.2d 822, 827

(Ill. Ct. App. 1994), it is usually a crime when someone thrusts a knife into someone, but

surgeons routinely cut their patients with scalpels.12

In this case, where the insured was convicted of sexual abuse for fondling

T.W.’s breasts, and Matulis has never offered any evidence or argument that breast

examinations are appropriate during colonoscopies and similar procedures, and two experts

11

In Gray v. Mena, 218 W. Va. 564, 625 S.E.2d 326 (2005), the SCAWV

recognized that a DVE could be either a tortious act or the provision of medical care

depending on why it was performed. In that case, the plaintiff sought to avoid the

requirements of the MPLA by filing a complaint which alleged only civil battery and

assault. In upholding a dismissal (albeit without prejudice), the court observed that the

physician would undoubtedly argue at trial that his actions were medically required for

diagnosis and treatment, and warned litigants that such cases were “exceedingly fact-

driven,” and that litigants should be diligent in meeting the requirements of the MPLA

“where the healthcare provider’s action could possibly be construed as having occurred

within the context of the rendering of health care services.” Id. at 570, 625 S.E.2d at 332.

12

Given that physicians and nurses, especially OBGYNS, gastroenterologists,

urologists, and proctologists, routinely exam and manipulate intimate areas of their

patients, it is hard to imagine how healthcare providers could enjoy the benefits of medical

malpractice insurance if their carriers could deny a defense whenever a patient alleged in

a complaint that he or she had been touched without their knowledge or consent, or in a

way which the patient deemed inappropriate.

27

have opined that breast examinations would be inappropriate, that conduct cannot be

considered merely negligent, and would be covered by the intentional tort exclusion.

In the case of DVEs, however, Matulis informed Mutual, when he first

notified them of pending claims, that he performed limited vaginal examinations when

appropriate during colonoscopies and similar procedures. He also provided them with two

expert opinions that DVEs were medically appropriate, and sometimes required, by the

applicable standard of care. His position was not frivolous, and Mutual was required to

provide him with a defense where a complaint pleaded the performance of a DVE as an act

of medical malpractice, rather than, or as an alternative to, sexual misconduct. In cases

where a plaintiff alleged both a breast examination and a DVE, the duty to defend would

exist if the DVE claim was properly pleaded.

2. Sexual Acts or Activities Exclusion

According to the policy, Mutual “will not defend or pay for… liability arising

out of sexual acts or sexual activities whether under the guise of professional services or

not, on the part of any insured[.]” Because the policy does not define either “sexual acts”

or “sexual activities,” we must consider the ordinary and usual meaning of these words,

keeping in mind that we are dealing with health care providers who routinely touch patients

in intimate areas. See W. Va. Code § 61-8B-1(5) (2024) (“‘Sexual contact’” means any

intentional touching, either directly or through clothing, of the breasts, buttocks, anus, or

any part of the sex organs of another person, or intentional touching of any part of another

28

person’s body by the actor’s sex organs and the touching is done for the purpose of

gratifying the sexual desire of either party”) (emphasis added); Illinois State Med. Ins.

Servs., Inc. v. Cichon, 629 N.E.2d 822, 826 (Ill. Ct. App. 1994) (“Routine physical

examinations of female patients often involve such actions [rectal exams, rubbing and

application of creams and lotions to breasts and rectal and vaginal areas, invasive

manipulations, and digital penetrations] by a physician [but] are not sexual conduct as a

matter of law.”).

Consequently, we conclude that Matulis’ actions in performing DVEs were

not sexual acts or activities unless they were performed to satisfy his sexual urges rather

than any medical purpose. As noted above, some of the complaints allege in the alternative

causes of action which are not based on the performance of sexual acts or sexual

misconduct. If a complaint alleges both sexual misconduct and medical malpractice, there

will be a duty to defend unless the conduct is essentially sexual in nature and the allegation

of negligence is mere window dressing. See generally St. Paul Fire and Marine Ins. Co. v.

Engelmann, 639 N.W.2d 192 (S.D. 2002) (insurer was required to defend lawsuit where

claim based on negligent performance of gynecological exams using improper positions,

procedures, and methods was covered but not claim of raping patients); Chung v.

Physicians Reciprocal Ins., 635 N.Y.S.2d 386, 387 (Ct. App. 1995) (insurer was required

to defend where complaint was not cast solely within sexual acts exclusion and reasonably

could be read as alleging negligent professional treatment).

29

3. Criminal Acts Exclusion

The policy provides that Mutual “will not defend or pay for…injury or

damage resulting from … a willful violation of a statute, ordinance or regulation imposing

criminal penalties.” Here, Matulis was criminally convicted for the sexual assault of T.W.

related to his fondling of her breasts and that conviction was upheld on appeal. See State v.

Matulis, No. 18-1053, 2020 WL 1487810, at *6 (W. Va. Mar. 23, 2020) (memorandum

decision). At no point has Matulis offered any medical justification for doing breast

examinations during colonoscopies or similar procedures. Even his own expert witnesses

failed to offer any justification for doing breast examinations during colonoscopies or other

procedures. Nor have any of his former patients alleged that there was any medical reason

(mistaken or otherwise) for Matulis to conduct breast examinations. Therefore, we

conclude that Mutual had no duty to defend or indemnify any claims related solely to breast

“examinations” of T.W. or any other patients.

As noted above some actions cannot be characterized as anything but

criminal conduct, but DVEs are not criminal per se.13 Physicians routinely insert their

fingers in the vaginas of female patients or otherwise manipulate the genitals of female

patients in health care settings. These actions are not criminal unless they are performed

for purposes of sexual gratification, rather than any medical reason, mistaken or otherwise.

In this case, there was expert testimony that DVEs during colonoscopies are permitted, if

13

We note in this regard that Matulis was acquitted on all counts related to DVEs

during his criminal case.

30

not required, by the applicable standards of care under at least some circumstances. Under

Rule 8, plaintiffs could assert in one count that their DVEs were done for sexual

gratification, and in another count that their DVEs were performed tortiously but not

criminally. In that situation, the first count would allege a criminal act which was not

covered by the policy, while the second count would allege a malpractice claim which

would be covered.

4. Medical Incidents/Professional Services

The Policy provides that Mutual “will pay those sums that the insured

becomes legally obligated to pay as damages because of a claim that is a result of a medical

incident.” The Policy defines a medical incident as “any act, series of acts, failure to act,

or series of failures to act arising out of the rendering of, or failure to render, professional

services, to any one person by an insured.” Professional services, in turn, are defined as

“the providing of medical services, including medical treatment, which the insured is

licensed to perform.” Thus, for the underlying claims to fall within the Insuring Agreement

of the Policy, the damages would have to be the result of an act or failure to act in rendering

medical services or treatment which Matulis is licensed to perform. Sexual misconduct

would not fall under the rubric of medical services or treatment. Many of the complaints,

however, allege in the alternative that Matulis was negligent in providing medical care.

Mutual was required to provide a defense in those cases where alternative claims for

medical malpractice were adequately pleaded.

31

5. Analysis of Complaints

Having laid the groundwork for our analysis, we turn to the complaints and

notice of claim at issue. As more fully set forth below, we agree with Mutual that it was

not required to defend claims of sexual abuse, criminal acts, or intentional misconduct

under its policy with Matulis. But it was required to defend plausible claims of medical

malpractice. By plausible, we simply mean that a claim of professional negligence has been

expressly stated, is supported by law, and is based on conduct which can be reasonably

characterized as having a non-frivolous medical basis. A claim of professional negligence

is not plausible when sexual misconduct is the “essence” of the complaint and words such

as “negligence” are inserted merely in a “transparent” attempt to create coverage.

a. Cases Where the Complaints Triggered a Duty to Defend

B.D. v. Matulis, Civil Action No. 18-C-15

This complaint expressly states that it involves alternative and inconsistent

pleadings. Its Introduction states in pertinent part:

This cause of action arises as a result of the negligence and

wrongful conduct of numerous persons and entities…. While

the conduct of the Defendants alleged herein is egregious, it is

yet to be determined as to whether the acts of the Defendants

are negligent, intentional, medically related and/or criminal.

Therefore, the causes of action set forth herein are pled

together and in the alternative.

Paragraph 33 of the complaint alleges that “Matulis placed his fingers in and

about the Plaintiff’s vaginal area without the knowledge or consent of the Plaintiff” while

32

she was under anesthesia. There is no allegation that he touched or examined her breasts.

As noted above, although claims related to breast examinations would not be covered by

Mutual’s policy, there would be a duty to defend claims related to DVEs if they were

properly pleaded.

The complaint contains several counts, some of which involve intentional

misconduct, while others are based on negligence. The Fourth Cause of Action alleges that

the defendants negligently inflicted emotional distress. The Eleventh Cause of Action,

which is most pertinent to our analysis, asserts a claim for violation of the MPLA (Medical

Professional Liability Act). Among other things, it alleges that:

78. Defendant Matulis … had a duty to undertake the

colonoscopy performed on the Plaintiff in a non-negligent and

reasonably prudent manner as would a reasonably prudent

gastroenterologist acting under the same or similar

circumstances.

79. Defendant Matulis… breached said standard of care by (a)

failing to obtain consent from the Plaintiff prior to placing his

fingers in or about her vaginal area; (b) placing his fingers in

or about the Plaintiff’s vaginal area without having proper

training, expertise or specialty in gynecology, (c) engaging in

the practice of gynecology without proper licensing,

credentialing or privileges; (d) failing to properly note all

actions taken by Defendant during the procedure, and (e)

failing to advise the Plaintiff, after the procedure, of his

conduct.

80. As a direct and proximate result of Defendant Matulis[‘s]

breach of the standard of care expected of reasonably prudent

gastroenterologists…, the Plaintiff has incurred damages….

These allegations clearly state a claim for professional negligence rather than

a claim for sexual misconduct, criminal acts, or intentional tort. The action alleged is not

33

inherently sexual in nature because physicians routinely conduct DVEs. Thus, the

complaint is not “essentially” one for sexual misconduct with a thinly veiled attempt to

create coverage by merely inserting the word “negligent.” Furthermore, claims that a

physician negligently performed a medical procedure are precisely the sort of risk for

which professional malpractice policies are purchased, and the defense of such claims is

within the reasonable expectations of the insured.

A.H. and Fleming v. Matulis, Civil Action No. 18-C-176 (Class Action) (amended

complaint)

Class Representative A. H. underwent a colonoscopy, sigmoidoscopy, and

gastroscopy. Class representative Adriana Fleming underwent a colonoscopy. According

to the complaint, the members of the class may have been subjected to non-consensual

touching of their breasts or genitalia. As noted above, Mutual was not required to defend

claims related to nonconsensual ogling or fondling of breasts.

The first paragraph of the A.H. complaint alleges that:

1. The litigation concerns the Defendants' failure to obtain

consent from Plaintiffs, … during and following

colonoscopies, sigmoidoscopies and vaginal and/or breast

examinations and improper and wrongful non-consensual

touching and the failure to document the consent in their

medical charts, … [and] medical negligence….

Furthermore, the Defendants’ failure to obtain consent

in order to perform a vaginal and/or breast

examination, failure to document consent for a breast

and/or vaginal examination in the medical

34

records…and medical negligence of defendants violate

the Medical Professional Liability Act….

(Emphasis added).

The Background Facts section of the complaint also contains allegations of

professional negligence, stating that Matulis had a duty to obtain informed consent, that he

had a duty to “perform his services in a manner and according to standards of a reasonably

prudent” gastroenterologist, that he had a duty to inform plaintiffs of any procedures

performed without their consent, that he “breached the standard of care of a reasonably

prudent gastroenterologist,” and that his “acts, conduct and omissions were negligent,

careless and wrongful and as a proximate result of [his] negligence,” the plaintiffs were

injured.

The complaint contains several counts, some of which allege intentional

and/or sexual misconduct, while others allege professional misconduct, at least in part.

Count 1 (“Lack of Informed Consent”) alleges, among other things, that Matulis had a duty

to “act in a reasonable and prudent manner and to obtain consent from” the Plaintiffs

“before performing a breast and/or vaginal examination,” see Paragraph 57, and that he

negligently breached his duties to them. See Paragraph 60.

Similarly, Count II (“Medical Negligence”) contains allegations of both

negligent and malicious, conscious, reckless, and outrageous conduct, including

35

allegations of medical negligence. See Paragraph 63 (“[Matulis] owed a duty… to Plaintiffs

to exercise that degree of care, skill and learning required or expected of a reasonable,

prudent healthcare provider in [his] profession or class”) and Paragraph 64 (Matulis “failed

to meet the applicable standards of care and violated this duty of care through various

negligent acts including failing to obtain consent from plaintiffs… to perform vaginal

and/or breast examinations and failing to document the consent in their medical charts.”).

This complaint clearly alleged professional malpractice and sexual misconduct in the

alternative, and Mutual had a duty to defend the claims of professional negligence.

Jane Doe I and Jane Doe 2, Civil Action No. 16-C-1723 (Class Action) (second

amended complaint)

Matulis performed a colonoscopy on Jane Doe 1. He performed a

colonoscopy and gastroscopy on Jane Doe 2. All these procedures were performed under

anesthesia. Both class representatives are concerned that they may have been subjected to

touching or observation of their breasts or genitalia, without their knowledge or consent,

while they were unconscious. Likewise, other members of the class may have been

subjected to breast or vaginal procedures without their knowledge or consent.

The Factual Allegations section of the complaint contains statements of both

professional negligence and intentional and/or sexual misconduct. Specifically, pertaining

to negligence, the complaint states that Matulis was negligent and fell below the standard

of care by performing vaginal and/or breast examinations without consent and without

36

documenting that consent in the medical records, that he fell below the standard of care by

failing to inform plaintiffs of any procedures that were performed without their consent,

and that his “acts, conduct and omissions were negligent, careless and wrongful,” and that

his negligence proximately resulted in injury to Plaintiffs. See Paragraphs 9, 10, 26 and 36.

The complaint contains several counts, some of which allege professional

misconduct, while others present claims of sexual misconduct. Count I (Lack of Informed

Consent) alleges in part that Matulis owed duties to the Plaintiffs “to act in a reasonable

and prudent manner and to obtain consent from them before performing breast and/or

vaginal examination[s],” that he failed to obtain consent, and that he negligently breached

his duties to the Plaintiffs, thereby proximately injuring them. See Paragraphs 41, 42 and

44. Count II (“Medical Negligence”) contains similar allegations of professional

negligence, and also alleges that his negligent acts included a failure to document any

consent in the medical charts. See Paragraphs 46 and 47.

R.K. v. Matulis, Civil Action No. 17-C-1579

In the R.K. case, Matulis performed a vaginal examination during an

evaluation for acute pancreatitis. The facts portion of the complaint alleges both

professional negligence and “intentional, willful, wanton, and reckless actions and

inactions.” Specifically, regarding professional negligence, the factual portion of the

complaint states in Paragraph 10 that: “Defendant Matulis fell below the standard of care

by performing a vaginal examination that was not medically indicated, failing to obtain

37

informed consent and failing to document the vaginal examination in the medical

record…” See also Paragraphs 8 and 9.

The complaint contains four counts, one of which clearly alleges negligence

on the part of Matulis. Count 1 (Negligent and Reckless Misconduct) states in Paragraph

17 that: “[Matulis] failed to act in a reasonable and prudent manner and deviated from the

applicable standard of care by performing a vaginal examination that was not medically

indicated, failing to obtain informed consent and failing to document the vaginal

examination in the medical record during the consultation….” Paragraph 19 stated that

“[a]s a direct and proximate result of [Matulis’] negligent and reckless misconduct,” the

Plaintiffs were entitled to damages.

T.W. v. Matulis, Civil Action No. 16-C-497

According to this complaint, Matulis placed his hands inside T.W.’s hospital

gown and “groped her breasts” and “used his fingers repeatedly to penetrate her vagina”

during a colonoscopy when she was anesthetized. As noted above, the breast groping by

itself would not trigger a duty to defend, given the circumstances of this case, but the

allegations of digital penetration of her vagina could, if properly pleaded. The complaint

does not allege sexual acts, activities or misconduct, or describe the plaintiff as a victim of

sexual assault. Paragraph 11 of the amended complaint states that: “Defendant Matulis did

not obtain informed consent from T.W. prior to touching her breasts and inserting his

fingers inside her vagina. Likewise, Defendant Matulis did not document a breast exam or

38

vaginal exam in his operative report or the medical chart.” Paragraph 12 alleges that:

“Defendant Matulis was negligent, reckless and committed a battery upon Plaintiff.”

(Emphasis added). Paragraph 21 states that plaintiff is entitled to damages because of the

Defendants’ “negligent, willful, wanton, and reckless misconduct.” (Emphasis added).

Given the liberal pleading requirements of Rule 8, this language was sufficient to trigger a

duty to defend.

L.B. Notice of Claim

L.B. filed a notice of claim, but her claim was settled without filing a lawsuit.

Although no complaint was filed, Mutual included this claim in its declaratory judgment

action, and the circuit court decided that there was a duty to defend. Although minimal, the

certificate of merit alleges that Matulis “breached the applicable standard of care,”

“negligently fail[ed] to conduct a proper colonoscopy exam,” and was “otherwise

negligent,” in addition to asserting that “Mrs. [B.] was sexually assaulted by Dr. Matulis.”

These allegations, though minimal, are sufficient to trigger a duty to defend. “[A]n

insured’s right to a defense will not be foreclosed unless such a result is inescapably

necessary.” Horace Mann Ins. Co. v. Leeber, 180 W. Va. 375, 378, 376 S.E.2d 581, 584

(1988).

39

b. Cases Where There Was No Duty to Defend

J.L. v. Charleston Gastroenterology Associates, P.L.L.C., Civil Action No. 16-C-1738

This complaint does not contain any allegations that a DVE was performed.

According to Paragraph 20 of the complaint, “[w]ithout her knowledge or consent, and

while Plaintiff was under anesthesia and incapacitated, Defendant Matulis placed his hands

upon her, upon or inside her hospital gown, and pulled away her hospital gown for the

purpose of ogling and/or fondling her breasts.” “Dr. Matulis made a comment to agents,

servants and employees of Charleston Gastroenterology and/or Day Surgery Center, prior

to pulling away her hospital gown, indicating the lascivious and wrongful purpose for

removing her hospital gown.” Paragraph 21. “There was no legitimate purpose for

Defendant Matulis to remove Plaintiff’s hospital gown, ogle and/or fondle Plaintiff’s

breasts before, during or after the course of the esophagogastroduodenoscopy procedure.”

Paragraph 33.

This complaint is “essentially” for sexual misconduct. In addition to the

language quoted above, there are frequent references to the sexual nature of Matulis’

misconduct. See Paragraph 2 (“J.L. was a victim of sexual assault”); Paragraph 28 (“At no

time did Dr. Matulis or any other defendant healthcare provider advise plaintiff that she

had been sexually assaulted while under anesthesia.”); Paragraph 29 (“Upon information

and belief, Plaintiff was not the first female patient to be sexually assaulted by Dr.

Matulis…”); Paragraph 37 (“Defendant Matulis sexually assaulted the Plaintiff while she

was incapacitated and under anesthesia without her consent.”).

40

The complaint contains four counts, two pertaining to Matulis and two

pertaining to the corporations which employed him. The counts relevant to Matulis are not

torts of negligence. Count I is for battery, a tort which, by definition, is intentional. Count

II is for the tort of outrage, which requires intentional or reckless conduct, so outrageous

as to exceed the bounds of decency. See Syl. Pt. 6, Harless v. First Nat’l Bank in Fairmont,

169 W. Va. 673, 289 S.E.2d 692 (1982).14 Although “negligent, reckless, willful, wanton,

and intentional misconduct” are alleged in both counts, tossing “negligent” into these

counts did not trigger a duty to defend, any more than describing “seduction” as “negligent”

in Leeber circumvented the policy exclusion for intentional misconduct.

P.W. v. Charleston Gastroenterology Associates, P.L.L.C., Civil Action No. 17-C-

1057

The complaint in this case alleges that Matulis placed his fingers inside the

plaintiff’s genitalia, with no legitimate reason for doing so, and without her knowledge or

consent, while she was anesthetized during a colonoscopy. Once again, this is “essentially”

a complaint for intentional sexual misconduct, although there are two passing references

to “negligent” conduct. There are counts against Matulis for battery and the tort of outrage,

but none for negligence, professional or otherwise. The complaint is replete with references

to “sexual assault.” See Paragraph 17 (“Upon information, knowledge and belief, the

sexual assault was witnessed by one or more agents, servants or employees of Charleston

14

What we have been referring to as the “intentional tort” exclusion in the policy

includes “reckless” as well as “intentional” conduct.

41

Gastroenterology.”); Paragraph 21 (“…after the colonoscopy procedure and sexual

assault”); Paragraph 23 (“At no time did Dr. Matulis or any other defendant healthcare

provider advise Plaintiff that she had been sexually assaulted…”); Paragraph 24 (“Upon

information, knowledge and belief, Plaintiff was not the first female patient to be sexually

assaulted by Dr. Matulis during a procedure…).

K. H. v. Matulis, Civil Action No. 16-C-1709

Although the complaint alleges that Matulis deviated from the standard of

care, the factual allegations of the complaint concern behavior which would not have

triggered a duty to defend. The complaint relates that Matulis performed breast

examinations which were not required for the medical condition being treated, and that

Matulis made “inappropriate and sexually suggestive, and explicit, remarks and comments

to Plaintiff.” See Paragraphs 8 and 9. Clearly, the claim based on inappropriate comments

to the Plaintiff did not trigger a duty to defend. Nor, as we have discussed above, would

the claim based on an unwarranted breast examination trigger such a duty in the context of

this litigation where there was no argument or evidence to support breast examinations

during colonoscopies and similar procedures.

R.L., Civil Action No. 18-C-576; T.W. & R.W., Civil Action No. 18-C-578; D.C. &

R.C., Civil Action No. 18-C-575

The language of these complaints is basically the same, so they will be

discussed together. Although these complaints use negligence language in places, and

42

contain a count for lack of informed consent, the conduct alleged is clearly sexual

misconduct. Even in the counts for lack of informed consent, the plaintiffs characterize

Matulis’ conduct as “inappropriate and unwelcome sexual conduct.” The factual

statements of the complaints also contain paragraphs stating that the plaintiffs were

“subjected to inappropriate and offensive sexual misconduct by Dr. Matulis, including

failing to obtain informed consent from [the plaintiffs] for the inappropriate touching, and

failing to document the same in any medical chart.” These complaints do not indicate

whether the plaintiffs were touched upon their breasts, genitalia, or both.

Y.T. v. Matulis, Civil Action No. 18-C-985

Although the plaintiff raises a medical negligence claim against Matulis, it is

based on an understanding that he had a pattern or practice of sexual assault, and that

because of that pattern, her colonoscopy deviated from the standard of care, and its findings

were therefore unreliable. Consequently, her allegations do not fall within the purview of

a possibly negligent examination; they assume that Matulis did commit sexual misconduct,

either against the plaintiff or someone else. Accordingly, they arise from sexual

misconduct.

J.W. v. Matulis, Civil Action No. 18-C-205

The plaintiff alleges that Matulis inserted his hand and/or fingers into her

vagina, and “us[ed] a medical device on her in a sexual, non-medical manner,” during a

colonoscopy. Although the plaintiff raises a medical negligence claim against Matulis, it

43

is based on her understanding that he had a practice of sexual misconduct when performing

colonoscopies and that because of this practice, her colonoscopy deviated from the standard

of care. Therefore, her allegations do not fall within the purview of a possibly negligent

examination; they assume that Matulis did commit sexual misconduct, either against her

or others. Accordingly, her allegations arise from sexual conduct.

B. Damages For Breach of the Duty to Defend

Mutual’s second and third assignments of error relate to the circuit court’s

decision, set forth in its May 12, 2023, and August 15, 2023, orders, to grant Matulis’

motion for partial summary judgment on damages for Mutual’s breach of contract. As an

initial matter, the Court’s ruling on the duty to defend issue necessitates that the Court also

vacate the circuit court’s award of attorney fees incurred in defending the underlying

lawsuits as breach of contract damages. As discussed above, Mutual only owed a duty to

defend in some of these underlying lawsuits, so the damages resulting from this breach

must necessarily be recalculated in light of this Court’s ruling. However, because Mutual’s

assignments of error on the breach of contract damages raise issues which will remain

relevant on remand, this Court will address them on the merits.

1. Attorney Fees Awarded as Breach of Contract Damages Under the Policy

Mutual does not question that it was required to pay $212,100.80 in attorney

fees if it had a duty to defend the underlying tort claims, but it challenges whether the

additional $129,423.65 were actually related to the defense of the underlying claims.

44

Specifically, it contends that it should not be responsible for: (1) attorney fees incurred in

Matulis’ criminal prosecution for sexually abusing his patients; (2) his disputes with

Mutual over coverage; (3) disputes with an entirely unrelated insurer regarding coverage;

and (4) various matters related to financial asset protection and potential bankruptcy.

Matulis claims that Mutual should have identified which items they contested

line by line in his breakdown of the $129,423.65, but Mutual says that it disputed all of

them, either because of policy exclusions or because they were not related to the defense

of the underlying civil actions by former patients. In general, Matulis contends that all his

attorney fees were recoverable because they were somehow for “common defense,” a

position adopted by the circuit court.

a. Criminal Prosecution

Mutual argues that its policy with Matulis expressly disclaims responsibility

for defending criminal actions. Matulis responds that attorney fees related to his criminal

defense should be recoverable under a theory of “common defense” because work done in

connection with the criminal actions would be useful in defending the civil actions. For

example, many of the entries related to using focus groups to test a defense that would be

used in both the criminal and civil cases, i.e., that there were valid medical reasons for

doing a DVE during a colonoscopy. Similarly, some of the entries deal with research to

locate experts who could testify about sexual gratification and whether the use of latex

45

gloves during an examination was consistent with touching patients for purposes of sexual

gratification. Matulis has cited no legal authority that he should be able to recover attorney

fees under a so-called theory of “common defense.” Absent some formal agreement

between the parties (Matulis and Mutual) about sharing costs in providing the different

defenses, there is no basis to automatically impose liability even if there happens to be

some collateral benefit. Consequently, we hold that the circuit court erred in awarding

attorney fees to Matulis for defending the criminal actions against him.

b. Disputes with Mutual Over Coverage

The circuit court awarded $129,423.65 in disputed attorney fees as damages

for breach of contract to compensate Matulis for attorney fees incurred in defending

underlying lawsuits by former patients. After the Hayseeds trial, it also awarded attorney

fees for work spent litigating Mutual’s declaratory judgment action. Mutual appears to

argue that there may have been some overlap in these awards of attorney fees, and that the

circuit court may have also awarded attorney fees for pursuing bad faith claims against

Mutual. Matulis was not entitled to duplicative fees, and the circuit court erred to the extent

that it may have awarded duplicative fees.

c. Disputes with Another Carrier Over Coverage

Matulis seeks to recover attorney fees for work done in a federal declaratory

judgment action brought by another insurer against Matulis; his former employer,

46

Charleston Gastroenterology; and ten of his patients. See Westfield Ins. Co. v. Matulis, 421

F.Supp.3d 331, 335 (S.D. W. Va. 2019). The scope of Matulis’ participation in this lawsuit

was allegedly limited. He did not contest Westfield Insurance Company’s position that

there was no coverage, but he contends that it was necessary to litigate this action to a

limited extent because some of the claimants in the underlying tort actions were seeking to

conduct discovery in the Westfield coverage action. Among other things, Matulis seeks

attorney fees for opposing a motion to compel his testimony in the Westfield action.

Apparently, he was concerned about avoiding duplicative discovery and possible attempts

to circumvent discovery limitations in other actions. We conclude that the circuit court

erred in allowing Matulis to recover attorney fees for litigating the Westfield case.15

d. Asset Protection and Bankruptcy

Attorney fees allegedly related to asset protection and bankruptcy seem to

account for very little, if any, of the attorney fees claimed. Row 554 on Exhibit One to

Matulis Supplemental Memorandum in Support of Cross-Motion for Partial Summary

15

In most cases, requiring an insurer to defend its insured in coverage related

declaratory judgment actions brought by another carrier will put the first carrier in an

untenable position, because both carriers would probably have similar policy exclusions.

For example, in the present case, Mutual had an exclusion for “intentional torts” while

Westfield had an exclusion for “expected or intended injury.” Mutual could hardly be

expected to take inconsistent positions in the two declaratory judgment actions brought by

itself and Westfield. Mutual’s duty to defend was limited to the underlying actions brought

by Matulis’s patients and did not extend to declaratory judgment actions brought by other

insurers.

47

Judgment filed February 6, 2023, has an entry pertaining to bankruptcy: 2170 “call from I.

Forman re: pending discovery and bankruptcy filing options along with impact of

bankruptcy on litigation-0.3 hr.” This chart does not seem to have any entries identified as

pertaining to asset protection, i.e., the transfer and handling of retirement funds and

accounts. It is possible that this category of fees may have been withdrawn. In any event,

hours incurred for work on asset protection and bankruptcy would not be related to the

defense of the underlying civil actions by patients and would not be recoverable. The circuit

court erred to the extent it may have awarded attorney fees for asset protection or

bankruptcy research.

2. Administrative Defense Fees Awarded Under the Broad Form

Endorsement

Matulis’ policy does not cover the defense of administrative proceedings, but

the Broad Form Administrative Endorsement to the policy does, up to a limit of

$25,000.00. In this case, there were two such proceedings, the BOM licensing investigation

and the investigation and suspension of privileges by CAMC. Mutual argues that there was

no coverage under this endorsement because it was not notified by the insured within thirty

days of when the administrative proceedings were instituted as required by the

endorsement; Matulis was not an insured when Mutual was notified; and the Broad Form

states that “[p]ersonal injury arising out of sexual misconduct is not covered.”

48

The Endorsement provides that the insured must notify Mutual “within thirty

(30) days from the date of an Administrative Defense Proceeding being instituted in

order to receive coverage…” The BOM investigation involved two complaints, one of

which was received on April 13, 2016, while the other one was submitted between March

23, 2016, and May 16, 2016. Matulis’ counsel did not notify Mutual of these BOM

complaints until March 20, 2017,16 nearly a year after the first investigation was instituted.

Mutual was never notified of the CAMC investigation by either Matulis or his counsel.

According to Matulis, he reasonably believed that Mutual had been notified of at least the

BOM proceedings by a third party.

In Syllabus Point One of Colonial Insurance Co. v. Barrett, 208 W. Va. 706,

542 S.E.2d 869 (2000), the SCAWV held that "[a] provision in an insurance contract

requiring a policyholder to give the insurance company notice of a claim may be satisfied

when notice of a potential claim is provided to a claims representative for the insurance

company regardless of whether it was the policyholder who provided the notice." If notice

is late, whether provided by the insured or someone else, "several factors must be

considered before the Court can determine if the delay in notifying the insurance company

will bar the claim against the insurer." Id. at Syl. Pt. 2.

On March 20, 2017, Matulis’ counsel forwarded to Mutual a March 13, 2017,

16

“Complaint, Notice of Hearing, Pre-Hearing Deadlines and Protective Order” from BOM.

49

Assuming notice was actually provided to Mutual, and it was not timely,

there is a two-step inquiry when determining whether a late notice precludes coverage.

Travelers Indem. Co. v. U.S. Silica, 237 W. Va. 540, 546, 788 S.E.2d 286, 292 (2015).

First, the court must consider the length of the delay and whether it was reasonable. Id. If

it was not reasonable, then the inquiry ends there, and there is no coverage. Id. If the delay

was reasonable, then the burden shifts to the insurer to show that it was prejudiced. Id.

“Absent a demonstration of reasonableness, the burden does not shift to the insurer to prove

that it was prejudiced by the delayed notice, and the inquiry necessarily ends with a finding

that coverage is precluded by the insured's failure to comply with the policy's notice

provision.” Id. at 548, 788 S.E.2d at 294; see also Colonial Ins. Co. v. Barrett, 208 W. Va.

706, 713, 542 S.E.2d 869, 876 (2000) (because the delay seemed reasonable, the burden

shifted to the insurer to show that late notice prejudiced its investigation and defense).

Where notification is provided by a third party, instead of by the insured, the court will

review whether any delay by the third party was reasonable. See id. (holding that the notice

requirement had been met when there was a timely notice by a third party even though the

insured had never notified the insurer).

Whether a delay in providing notice is reasonable is usually a question of fact

for the jury to determine. Id. at 712, 542 S.E.2d at 875; Travelers Indem. Co. v. U.S. Silica,

237 W. Va. at 547, 788 S.E.2d at 293; State Auto. Mut. Ins. Co. v. Youler, 183 W. Va. 556,

561, 396 S.E.2d 737, 742 (1990). But where “the length of the delay is substantial or the

proffered reason for the delayed notice is simply untenable, reasonableness ‘may be

50

determined as a matter of law where the evidence, construing all inferences in favor of the

insured, establishes that the [delay] was unreasonable or in bad faith.’” Travelers Indem.

Co. v. U.S. Silica, 237 W. Va. at 547, 788 S.E.2d at 293.

In its Memorandum Opinion and Order of May 12, 2023, the circuit court

did not explain its ruling on the timeliness of notice or indicate what evidence it might have

reviewed and relied on in sufficient detail for us to conduct meaningful appellate review.17

Significantly, the order does not make any findings as to whether Mutual received actual

notice of any administrative claims within thirty days, who might have provided such

notice, or when. Nor does it expressly make any findings as to the length of any delay or

whether such delay was reasonable. The circuit court did conclude that Matulis reasonably

believed that Mutual had actual notice of the claims (apparently from a third party) but did

not state the basis for this conclusion, or indicate when Matulis came to this conclusion,

when or if he eventually realized that this conclusion was wrong, or when he believed that

Mutual received such notice. The circuit court opined that even if the notice was not timely,

17

“DR. MATULIS' RESPONSE IN OPPOSITION TO WEST VIRGINIA

MUTUAL INSURANCE COMPANY'S MOTION FOR PARTIAL SUMMARY

JUDGMENT” filed in the circuit court alleges at page 3 that “on April 21, 2016, the Mutual

sent a letter denying coverage for the T.W. complaint, which expressly alleged that the

incident had created licensing ramifications for Dr. Matulis. The Mutual was therefore

aware of Dr. Matulis' licensing issues no later than that date.” This letter was not included

in our record on appeal, and it is not clear whether it was contained in the circuit court’s

record. Moreover, even the statement contained in this circuit court pleading does not claim

that Mutual had notice of the administrative proceedings concerning hospital privileges, or

that proceedings to revoke Matulis’ license had actually been instituted as of April 26,

2016.

51

Mutual failed to demonstrate “sufficient prejudice.” But if Matulis failed to establish that

his delay was reasonable, then there was no need to show prejudice.

The circuit court erred in failing to make findings concerning when and if

Mutual was notified of any administrative proceedings; whether the delay was reasonable

if notice was not provided within thirty days; and if any such delay was reasonable, whether

Mutual suffered any prejudice.

In addition to arguing that notice of the administrative proceedings was late

in the case of the BOM investigation, and nonexistent in the case of the CAMC

investigation, Mutual argues that Matulis was not an Insured when his counsel notified

Mutual, and that being an Insured was a requirement for coverage. The Policy states that it

“applies only to claim(s) that arise out of a medical incident which occurs on or after the

retroactive date stated in the policy declarations and schedule of insureds that are first

made against an insured and reported to the Company by the insured during the policy

period.” Matulis could report claims that arose from medical incidents occurring between

the retroactive date of July 1, 1994, and May 16, 2016, when he surrendered his license

and was no longer covered by the policy. Thus, he would not qualify for coverage when

his counsel notified Mutual on March 20, 2017, if that were the first notice received by

Mutual. Whether Matulis was an insured when his administrative claims were reported

depends on when, if ever, Mutual received notice, either from Matulis himself or some

other person.

52

Finally, Mutual argues that personal injury arising from sexual conduct was

not covered by the broad form endorsement for administrative proceedings. Matulis

responds that it was, relying on the definition of “Administrative Defense Proceedings”

which includes “[a] claim or investigation instituted by a patient of Yours, alleging sexual

misconduct or harassment by You in the course of providing professional services to such

patient.” The language of the endorsement is arguably ambiguous, but the circuit court did

not address this issue, so we will not consider it on appeal.

C. Hayseeds Attorney Fees

Under Syl. Pt. 1 of Hayseeds, Inc. v. State Farm Fire & Cas., 177 W. Va.

323, 352 S.E.2d 73 (1986), an insured who “substantially prevails” may recover reasonable

attorney fees for vindicating his or her claims, along with damages for aggravation and

inconvenience, and “net economic loss caused by the delay in settlement.” Hayseeds does

not authorize recovery of attorney fees incurred for pursuing a bad faith claim against the

insurer.

Matulis’ counsel requested, and the circuit court awarded, $523,138.19 in

attorney fees pursuant to Hayseeds (the base amount was $366,524 with a 20% upward

adjustment). Mutual argues that the fee award under Hayseeds may have included some

fees related to hours that were not necessary to recover benefits under the policy, such as

hours related to defending the underlying claims, hours related to potential bad faith claims,

and hours for which fees were already awarded. Mutual asserts that the circuit court should

53

have parsed out the entries that could not have been recovered, relying on Moses

Enterprises, LLC v. Lexington Insur. Co., 66 F.4th 523, 529 (4th Cir. 2023) (emphasis

added), where the fourth circuit remanded a case “[b]ecause the district court committed

legal error in awarding Moses the full amount of its requested fees without determining

whether any of the work was properly attributed only to the Jenkins [bad faith] claim [.]”

The Moses court recognized that a bad faith claim might be “so intertwined with their work

on the breach of contract claim that some (or all) of the time cannot be disentangled.” Id.

In this case, some of the entries do look like they might be related to a potential bad faith

claim, or some other matter where Hayseeds fees might not be appropriate. On remand, the

circuit court should carefully examine the fees requested to determine what should be

awarded and what should not.

In addition to arguing that some entries were not recoverable, Mutual also

argued that Matulis was not entitled to an upward adjustment of twenty percent of the base

fees because the court should not have considered the amount of the settlements paid in the

underlying cases, and because the court said that a fee equal to one third of the insurance

limits, which were $3 million,18 would be presumptively reasonable. Because it will be

necessary for attorney fees to be recalculated, we do not address whether these upward

adjustments were appropriate in this case.

18

Mutual allegedly paid $3.5 million to settle the underlying claims, which was half

a million more than the policy limit.

54

Given our ruling, which recognizes a duty to defend some cases but not

others, the question arises as to how to determine whether Matulis has substantially

prevailed in this litigation, and if so, how to award attorney fees. Should the legal

proceedings be treated as one matter for Hayseeds purposes because there was one policy,

one declaratory judgment action, one plaintiff and one defendant? Or should each

underlying lawsuit against Matulis be treated as a separate action under Hayseeds? If one

considers the matter as a single piece of litigation, should one look at how many underlying

lawsuits Matulis prevailed on, or consider the number of plaintiffs, because some lawsuits

had more plaintiffs than others? Understandably, these issues were not briefed or argued

on appeal because the parties believed that all the cases would stand or fall together.

Moreover, we do not know whether Matulis kept separate hours for each underlying

lawsuit or aggregated all the fees for the declaratory action. In the latter case, it would be

necessary to allocate fees among the underlying actions in some way. These issues are not

ripe for appellate review, so we leave it to the circuit court to determine whether Matulis

has substantially prevailed, whether attorney fees are to be allocated among the underlying

lawsuits, and if so, how.

D. Evidentiary Rulings at the Hayseeds Trial

1. Exclusion of Evidence Concerning Sexual Abuse

Mutual complains that it was not allowed to produce voluminous

documentary evidence related to Matulis’ sexual abuse of patients, “including documents

related to proceedings before the BOM, documents relating to Matulis’ suspension from

55

CAMC, attorney fee invoices, attorney fee summaries, and documents relating to his

criminal conviction.” Moreover, Mutual “was not allowed to mention the nature of the

claims, the basis for its decision making, nor the fact that the Mutual did provide Matulis

a defense in many of the claims” and “was prevented from offering evidence that it settled

the underlying sexual abuse claims.” Allegedly, “[i]n precluding this evidence, the circuit

court mislead the jury into thinking that the only fees incurred included those for which the

circuit court previously determined the Mutual was liable—not fees for Matulis’ criminal

defense or asset protection.” We conclude that the circuit court abused its discretion in

refusing to allow Mutual to present any evidence concerning sexual abuse.

2. Exclusion of Other Evidence Concerning Annoyance, Inconvenience, and

Emotional Distress

At trial, the jury was asked to award damages for the annoyance,

inconvenience, and emotional distress related to Mutual’s denial of a defense but was not

allowed to consider other events and circumstances which might have caused or

contributed to his annoyance, inconvenience, and emotional distress. Moreover, his

attorneys were primarily concerned with the coverage issue, and he trusted them to make

decisions. We hold that Mutual should have been allowed to put on evidence of other

matters that might have caused or contributed to emotional distress, such as the

investigation and loss of Matulis’ hospital privileges, the investigation and loss of his

medical license, the complaints filed by his patients and their lawsuits, and his criminal

56

investigation, prosecution, and incarceration. The circuit court erred in excluding such

evidence.

3. Admission of Evidence Concerning Acquisition by MagMutual and

MagMutual’s Assets

During the Hayseeds trial, Matulis was allowed to cross-examine Ms.

Huffman on the acquisition of Mutual by MagMutual, and on MagMutual’s size, reserves,

and assets. Among other things covered during cross-examination, Matulis brought out that

MagMutual was the largest mutual insurer of physicians in the United States, with reserves

of $966 million, and total assets of $2 billion. Mutual contends that this information was

irrelevant because Mutual made its decision to deny a defense before it was purchased by

MagMutual and because punitive damages were not at issue at this stage of the

proceedings. Matulis responds that MagMutual would be responsible for any judgment

against Mutual and that Mutual “opened the door” when it attempted to characterize itself

as a small local company created to provide coverage to West Virginia physicians who

might not be able to obtain it otherwise.

We agree that Mutual opened the door to this line of inquiry and therefore

the circuit court did not abuse its discretion in allowing some cross-examination concerning

the size, assets and reserves of MagMutual. This issue concerning the proper scope of

cross-examination may not recur on remand, because Mutual may decide not to present

Ms. Huffman as a witness or may conduct her direct examination differently. Given that

57

the circuit court must exercise its discretion in the context of how cross-examination

proceeds, we do not hold that such cross-examination would always be proper but remind

the circuit court that it must be sensitive to the prejudicial effect that evidence of

MagMutual’s financial resources may have, and that it must carefully weigh possible

prejudice against the probative value of such evidence.

E. Net Economic Loss From the Sale of Property to Pay Attorney Fees

According to Matulis, he purchased his property in North Carolina in 2009

for $300,000.00. In 2017, he sold this property for $360,000.00 to raise money to pay his

attorneys. No appraisal was done prior to this sale, and no evidence was ever presented at

trial concerning the value of the property at the time of sale. In his report, Matulis’ appraisal

expert indicated that the value of the property as of July 4, 2022, was $600,000.00. Over

the objection of Mutual, the appraiser was allowed to testify at trial that the value of the

property as of May 15, 2023, was $700,000.00. The jury awarded $200,000.00 for net

economic loss concerning the sale of this land. Mutual argues that the loss associated with

this sale, if any, would have been the difference between the price Matulis received for the

land, and its value at the time of sale. Because there was no evidence concerning the value

of the land when it was sold, the jury should not have been allowed to award damages for

net economic loss because it had no basis for doing so. Mutual argues that the jury was

essentially asked and allowed to award damages for lost opportunity rather than net

economic loss. We agree. Matulis’ net economic loss, if any, would be the difference

between the money paid for the property, and the market value of the property at the time

58

of its sale in October 2017. The circuit court erred in awarding damages for net economic

loss without any evidence of the value of the property at the time of sale.

We turn next to the question of whether it was necessary for Matulis to sell

his property to pay attorney fees he was forced to incur because of Mutual’s refusal to

defend some of his lawsuits brought by former patients. Some of his attorney fees were

incurred for matters that were clearly not covered by the policy or broad form endorsement,

such as any defense costs, in excess of $25,000.00, associated with administrative

proceedings related to licensing19 and hospital privileges. Similarly, Matulis was not

entitled to recover attorney fees for criminal defenses, bankruptcy, asset protection, or

litigating a coverage action against another carrier. There was no evidence presented as to

how Matulis used the proceeds from the sale of his lakefront property. Mutual should have

been allowed to cross-examine Matulis concerning how he spent the proceeds from the

sale. Mutual should also have been allowed to inquire about other financial demands which

may have contributed to his decision to sell the lakefront property.20 The circuit court erred

in refusing to allow this cross-examination.

19

According to a chart at page 9 of Respondent’s Corrected Brief, the attorney fees

related to administrative proceedings exceeded the limit of $25,000 by $72,339.00.

20

Mutual also alleges that Matulis’ expert should not have been allowed to testify

concerning the current value of the property at the time of trial because it had not been

previously disclosed. We need not address this disclosure issue, having concluded that the

relevant value was the value of the property at the time of sale.

59

F. Prejudgment Interest

The jury determined that Matulis was entitled to prejudgment interest for

breach of contract damages, but the circuit court calculated the amount of prejudgment

interest to be awarded. Mutual argues that the jury was required to determine not just

whether such interest should be awarded, but the amount thereof. Matulis argues that it was

appropriate for the circuit court to calculate the amount of prejudgment interest because it

involved nothing more than an arithmetic operation prescribed by statute. Moreover,

Mutual has not argued that a different formula should have been followed. We hold that it

was appropriate for the court to determine the amount of prejudgment interest because that

process involved nothing more than a mechanical calculation.

IV. CONCLUSION

We affirm in part, reverse in part, vacate in part, and remand this matter for

further proceedings consistent with this opinion.

Affirmed, in part, Reversed, in part, Vacated, in part, and Remanded.

60