Medical Protective Co. v. Watkins

Opinions of the United

1999 Decisions States Court of Appeals

for the Third Circuit

11-26-1999

Medical Protective v Watkins

Precedential or Non-Precedential:

Docket 98-7515

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Recommended Citation

"Medical Protective v Watkins" (1999). 1999 Decisions. Paper 310.

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Filed November 26, 1999

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 98-7515

THE MEDICAL PROTECTIVE COMPANY, a Corporation

v.

WILLIAM WATKINS, D.D.S.;

LEONARD MEDURA, D.D.S.; JOSEPH MAZULA, D.D.S.;

DAVID WALSKI; LISA WALSKI; DAVID WALSKI,

Administrator of the Estate of Jonathan Walski, Deceased;

WATKINS AND MEDURA, a partnership

WILLIAM WATKINS, D.D.S.;

WATKINS AND MEDURA

Appellants

Appeal from the United States District Court

for the Middle District of Pennsylvania

(D.C. Civil Action No. 97-cv-00123)

District Judge: Honorable A. Richard Caputo

Argued March 23, 1999

Before: GREENBERG and ROTH, Circuit Judges, and

POLLAK,1 District Judge

(Opinion filed November 26, 1999)

_________________________________________________________________

1. Honorable Louis H. Pollak, United States District Court Judge for the

Eastern District of Pennsylvania, sitting by designation.

John W. Jordan, IV, Esquire

(Argued)

Gaca, Matis, Baum, & Rizza

Four PPG Place, Suite 300

Pittsburgh, PA 15222

Attorney for Appellee

The Medical Protective Company

James F. Mundy, Esquire

Raynes, McCarty, Binder, Ross

& Mundy

1845 Walnut Street, Suite 2000

Philadelphia, PA 19103

Attorney for Appellees

Lisa and David Walski,

David Walski, Administrator of the

Estate of Jonathan Walski,

Deceased

Carl A. Solano, Esquire (Argued)

Philip G. Kircher, Esquire

Schnader, Harrison, Segal & Lewis

1600 Market Street, Suite 3600

Philadelphia, PA 19103

Attorneys for Appellants

William Watkins, D.D.S. and

Watkins and Medura,

a partnership

OPINION OF THE COURT

ROTH, Circuit Judge.

The facts of this case are tragic. A dentist, defendant

William Watkins, decided to anesthetize a three-year old

boy in order to repair dental cavities. Watkins used the

services of an independent dental anesthesiologist to

administer general anesthesia in Watkins's office. While the

boy was anesthetized, he suffered cardiac arrest and died.

This appeal is from a declaratory judgment action in which

Watkins' insurance company, Medical Protective Co.,

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sought a ruling that Watkins and his partnership were not

covered by the Medical Protective policies. The significant

policy language was a clause that excluded coverage for

"any liability arising from the administration of any form of

anesthesia in dosage designed to render the patient

unconscious unless administered in a hospital."

The District Court granted summary judgment in favor of

the insurance company, holding that the language of the

exclusionary clause was unambiguous and applicable to

the case at hand. In addition, the District Court held that

the doctrine of reasonable expectations was inapplicable.

For the reasons stated below, we will reverse and remand

the case to the District Court.

I. FACTS

William Watkins, D.D.S., is a licensed dentist in Dallas,

Pennsylvania, practicing in a partnership known as

Watkins and Medura. Dr. Watkins does not have, and never

has had, a license to administer anesthesia. Rather,

throughout the period that Dr. Watkins and Watkins and

Medura (collectively, the "Watkins defendants") were

covered under the policies at issue, they had made

arrangements with Dr. Joseph Mazula, a licensed oral

surgeon and dental anesthesiologist, to administer

anesthesia to patients, when needed, in the Watkins offices.

Dr. Mazula had administered general anesthesia in Dr.

Watkins' office since as early as 1979, up until May 1996.

Although Dr. Mazula performed these services at Dr.

Watkins' office and used some equipment supplied by

Watkins and Medura, Dr. Mazula was not employed by Dr.

Watkins or the partnership.

In January 1985, Dr. Watkins completed a Medical

Protective insurance application that contained numerous

questions about his and the partnership's dental practice.

He provided the following answers to Question 13 on the

application:

Do you or an employee of your administer general

anesthesia? [yes or no] no . In a dental office? [yes

or no] no . In a hospital? [yes or no] no . Other?

[yes or no] ___. Types of anesthetic used? _______.

3

No question on Medical Protective's application asked the

applicant whether anyone other than the applicant or the

applicant's employee ever administered general anesthesia

in the applicant's office.

Plaintiff Medical Protective Company issued malpractice

insurance policies to the Watkins defendants that provided

coverage for "any claim for damages, at any timefiled,

based on professional services rendered or which should

have been rendered, by the insured or any other person for

whose acts or omissions the insured is legally responsible

in the practice of the insured's profession." The policies also

contained a clause, referred to as Exclusion 100:

This policy does not cover any liability arising from the

administration of any form of anesthesia in dosage

designed to render the patient unconscious unless

administered in a hospital.

Dr. Watkins' policy also contained an "expanded coverage

endorsement" (Endorsement 540) that stated that the policy

was amended to add Paragraph A(7), an exclusion for:

any liability the insured, named in the policy, incurs

under a contract or agreement; provided that this

exclusion does not apply to:

. . .

(c) Any liability the insured incurs in rendering

professional services under any contract or

agreement with another dentist or other provider of

professional services in the practice of the

insured's profession; or

(d) Any liability the insured incurs in rendering

professional services in connection with furnishing

therapeutic agents or supplies in the practice of

the insured's profession.

In light of the various policy provisions and the application

he filled out, Dr. Watkins concluded when he read

Exclusion 100 that "since I was not administering the

anesthesia, that didn't really pertain to me, that I would

have coverage if someone else was administering the

anesthesia."

4

On March 5, 1996, David and Lisa Walski brought their

three-year old son, Jonathan, to Dr. Watkins' office for a

dental examination. During the examination, Dr. Watkins

discovered four cavities and scheduled an appointment in

May 1996 to fill them. Because Jonathan would not sit still,

Dr. Watkins decided during the March visit that general

anesthesia should be used while treating Jonathan. As was

his practice, Dr. Watkins arranged for Dr. Mazula to

administer the anesthesia to Jonathan in Dr. Watkins'

office during the May appointment. On May 1, Dr. Mazula

did administer general anesthesia to Jonathan, and Dr.

Watkins began the repair of Jonathan's teeth. During the

procedure, Jonathan experienced cardiac arrest and

underwent emergency treatment. Dr. Watkins, who had

been trained and previously certified in cardio-pulmonary

resuscitation (CPR), but lacked a current certification,

administered CPR to Jonathan. Emergency medical

personnel were also called to the scene, but Jonathan could

not be revived.

On July 10, 1996, the Walskis filed a wrongful death

action, in their own right and as administrators of

Jonathan's estate, against Dr. Mazula (and his professional

corporation) and the Watkins defendants in the Court of

Common Pleas of Luzerne County, Pennsylvania. The

Walskis' cause of action against Dr. Mazula alleged, among

other things, that he "administered a general anesthetic" to

Jonathan "in a negligent, careless, and reckless and

wanton manner as a result of which Jonathan D. Walski

suffered a cardiac arrest leading to his death." Ultimately,

the Walskis settled their claims against Dr. Mazula. 2

The Walski's cause of action against the Watkins

defendants asserted that Dr. Watkins did not obtain their

informed consent before prescribing the anesthesia for

Jonathan in March 1996 and that Dr. Watkins was

negligent in various ways during that March visit with

respect to his decision to anesthetize the boy and to employ

Dr. Mazula to administer the anesthesia. The action against

the Watkins defendants also alleged that Dr. Watkins was

_________________________________________________________________

2. In December 1996, Dr. Mazula also pleaded guilty to involuntary

manslaughter in connection with the death of Jonathan Walski.

5

negligent in his treatment of Jonathan in May 1996 after

Jonathan had suffered the cardiac arrest.

Medical Protective provided a defense to the Watkins

defendants, subject to a reservation of its right to seek a

declaration that its policies did not cover the Watkins

defendants with respect to the Walskis' claims. Medical

Protective then brought this declaratory judgment action in

the United States District Court for the Middle District of

Pennsylvania against the Watkins defendants and the

Walskis, seeking a declaration that the Watkins defendants

were not covered by the Medical Protective policies because

the claims "arise from the administration of anesthesia."

The case was submitted to the District Court on a joint

stipulation of facts and cross-motions for summary

judgment. On August 20, 1998, the District Court ruled

that the policies provided no coverage for any liability which

arises from the administration of anesthesia. He therefore

granted summary judgment in favor of Medical Protective.

Specifically, the court found that the language of Exclusion

100 was unambiguous and applicable, see District Court

Memorandum at 4-5, and that the doctrine of reasonable

expectations was inapplicable, id. at 5-6. The Watkins

defendants appealed.

II. DISCUSSION

The District Court had subject matter jurisdiction under

28 U.S.C. S 1332(a), as the diversity and amount-in-

controversy requirements were met. We have jurisdiction

under 28 U.S.C. S 1291, as this appeal is from a final

judgment that disposed of all parties' claims.

"When reviewing an order granting summary judgment

we exercise plenary review and apply the same test the

district court should have applied." Armbruster v. Unisys

Corp., 32 F.3d 768, 777 (3d Cir. 1994). "Under Federal Rule

of Civil Procedure 56(c), that test is whether there is a

genuine issue of material fact and, if not, whether the

moving party is entitled to judgment as a matter of law." Id.

"As to materiality, the substantive law will identify which

facts are material. Only disputes over facts that might affect

the outcome of the suit under the governing law will

6

properly preclude the entry of summary judgment."

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

In addition, "summary judgment will not lie if the dispute

about a material fact is `genuine,' that is, if the evidence is

such that a reasonable jury could return a verdict for the

nonmoving party." Id. Finally, "[w]e review the facts in the

light most favorable to the party against whom summary

judgment was entered." Coolspring Stone Supply, Inc. v.

American States Life Ins. Co., 10 F.3d 144, 146 (3d Cir.

1993).

In addition, the interpretation of the scope of coverage of

an insurance contract is a question of law properly decided

by the court, a question over which we exercise plenary

review. Reliance Ins. Co. v. Moessner, 121 F.3d 895, 900

(3d Cir. 1997); McMillan v. State Mut. Life Assur. Co., 922

F.2d 1073, 1074 (3d Cir. 1990). The parties agree that

Pennsylvania law governs this case.

A. Ambiguity

We are guided by well-settled principles of Pennsylvania

law governing the interpretation of insurance policies.

When the language of an insurance contract is clear and

unambiguous, a court is required to enforce that language.

Standard Venetian Blind Co. v. American Empire Ins. Co.,

469 A.2d 563, 566 (Pa. 1983). Furthermore, if possible, "a

court should interpret the policy so as to avoid ambiguities

and give effect to all of its provisions." Little v. MGIC Indem.

Corp., 836 F.2d 789, 793 (3d Cir. 1987).

The courts have held, however, that "if the policy

provision is reasonably susceptible to more than one

interpretation, it is ambiguous." McMillan, 922 F.2d at

1075. "In determining whether a contract is ambiguous, the

court must examine the questionable term or language in

the context of the entire policy and decide whether the

contract is `reasonably susceptible of different

constructions and capable of being understood in more

than one sense.' " Reliance Ins. Co., 121 F.3d at 900 (citing

Gamble Farm Inn, Inc. v. Selective Ins. Co., 656 A.2d 142,

143-44 (Pa. Super. Ct. 1995) (quoting Hutchison v.

Sunbeam Coal Corp., 519 A.2d 385, 390 (Pa. 1986))); see

also Little, 836 F.2d at 794 (holding that, even if insurer's

7

interpretation is reasonable, if insured's interpretation is

also reasonable, then provision is ambiguous and should

be construed in favor of insured). "Ambiguous provisions in

an insurance policy must be construed against the insurer

and in favor of the insured; any reasonable interpretation

offered by the insured, therefore, must control." McMillan,

922 F.2d at 1075. This rule has been applied liberally in

Pennsylvania. Id. at 1075 & n.1.

As we explained in McMillan, two pragmatic justifications

have been offered by the courts for this rule of

interpretation. First, "insurance policies are not ordinary

contracts but are contracts of adhesion between two parties

not equally situated and thus equity requires their

interpretation in favor of the weaker party." Id. at 1075.

"The insurer is an expert in its field `and its varied and

complex instruments are prepared by it unilaterally

whereas the assured . . . is a layperson unversed in

insurance provisions and practices.' " Id. (quoting Allen v.

Metropolitan Life Ins. Co., 208 A.2d 638, 644 (N.J. 1965)).

The second justification is that the courts apply"the

familiar contract rule interpreting ambiguity against the

scrivener, recalling the hoary maxim ambigua responsio

contra proferentem est accipienda" -- that is, "[a]n

ambiguous answer is to be taken against him who offers it."

Id. at 1075 & n.2. Explaining its adoption of this rule of

interpretation, the Pennsylvania Supreme Court wrote: "The

person who writes with ink which spreads and

simultaneously produces two conflicting versions of the

same proposition cannot complain if the person affected by

both propositions chooses to accept that which is more

helpful to him and which is against the interests of the

contract writer." Sykes v. Nationwide Mut. Ins. Co., 198

A.2d 844, 845 (Pa. 1964) (quoted in McMillan, 922 F.2d at

1075).

In the instant case, Exclusion 100 states that the policy

does not cover "any liability arising from the administration

of any form of anesthesia in dosage designed to render the

patient unconscious unless administered in a hospital." The

clause fails to refer specifically to the person or class of

persons for whose acts of administering general anesthesia

the exclusion applies. Medical Protective's position is that

8

the clause is clear and unambiguous in denying coverage

for any liability arising from the administration by any

person of any form of anesthesia, unless administered in a

hospital. While this interpretation may be reasonable, the

interpretation offered by the insured is also reasonable. The

Watkins defendants suggest that one could interpret the

clause to exclude coverage only when the administration of

the anesthetic is performed by the policy holder, Dr.

Watkins, or his employees. We find this interpretation

eminently reasonable, especially since the exclusion is in

the context of a policy that provides coverage against

liability for Dr. Watkins' own acts and the acts of persons

for whom he is legally responsible. In the case of a dentist

who does not administer general anesthesia, review of

Exclusion 100 could lead the dentist reasonably to

conclude that, because he does not administer such

anesthesia, he will not be subject to the exclusion if he is

sued in connection with the administration of general

anesthesia by a qualified independent contractor. Indeed,

Dr. Watkins testified: "I felt that since I was not

administering the anesthesia, [the exclusion] didn't really

pertain to me, that I would have coverage if someone else

was administering the anesthesia."

Medical Protective's interpretation, moreover, requires an

insured to read into the exclusionary clause the phrase "by

any person." The burden of precisely drafting the policy

rested with the insurance company and scrivener, Medical

Protective, and it was free to employ more precise language.

"An insurer's failure to utilize more distinct language which

is available reinforces a conclusion of ambiguity under

Pennsylvania law." McMillan, 922 F.2d at 1077.

We note that we do not find persuasive the District

Court's reliance on Northern Ins. Co. v. Aardvark Assoc.,

942 F.2d 189, 194 (3d Cir. 1991), in which we held that an

insurance policy clause excluding coverage for liability

" `arising out of the discharge, dispersal, release or escape'

of pollutants" was unambiguous, even though the clause

did not identify the polluters (active or passive). Id. (quoting

policy language). The District Court analogized Exclusion

100 to the pollution exclusion, holding that "[a]s in

Northern Ins., the identity of the one who administers the

9

anesthesia is not necessary to render the language of the

exclusion clear and unambiguous." District Court

Memorandum at 5. Medical Protective urges us to follow

Northern Ins. and other pollution cases construing identical

policy language that have also rejected distinctions based

on the identity of the actor or the nature of its conduct. See

Hyde Athletic Indus., Inc. v. Continental Cas. Co. , 969 F.

Supp. 289 (E.D. Pa. 1997); Federal Ins. Co. v. Susquehanna

Broad. Co., 727 F. Supp. 169 (M.D. Pa. 1989), aff'd mem.,

928 F.2d 1131 (3d Cir. 1991); O'Brien Energy Sys., Inc. v.

American Employers' Ins. Co., 629 A.2d 957 (Pa. Super. Ct.

1993).

We must, however, examine purportedly ambiguous

language in the context of the entire policy. Reliance Ins.

Co., 121 F.3d at 900. The pollution exclusion clause in the

general liability policies at issue in the Northern Ins. line of

cases does not deal with personal, professional services.

Rather than turning on what any individual did or did not

do, the exclusion depends on whether something was done

by, or happened to, any of a specific group of inanimate

things -- that is, on whether any pollutants were

discharged, dispersed, released, or escaped. The exclusion

applies to any resulting claim against the insured, and it

does not matter whether any individual employed by the

insured, or anyone else, did or did not do anything to cause

the pollution. In contrast, the professional liability policy in

this case necessarily deals with professional services

performed by the named dentists and their employees. The

"administration of anesthesia" in Exclusion 100 must refer

to the administration of anesthesia by someone specific.

The coverage must be tied to the performance of

professional services by the named insureds. Professional

medical services simply are not analogous to a condition

like pollution that may be caused by many parties that are

difficult to identify.

Thus, in light of the fact that the Watkins defendants

have offered a reasonable alternative interpretation of the

exclusionary clause, we find that the clause is ambiguous.

See Butterfield v. Giuntoli, 670 A.2d 646, 652 n.8 (Pa.

Super. Ct. 1995) ("[I]f a policy is reasonably susceptible of

two interpretations, it must be construed in the insured's

10

favor so as not to defeat, unless clearly necessary, the claim

to indemnity which the insured intended to obtain."). The

rule of construing insurance policies in favor of the insured

applies especially when, as here, an exclusionary clause is

purportedly ambiguous, because "exceptions to the general

liability of the insurer are to be strictly construed against

the insurance company." Contrans, Inc. v. Ryder Truck

Rental, Inc., 836 F.2d 163, 169 (3d Cir. 1987) (quoting

Frisch v. State Farm Fire & Cas. Co., 275 A.2d 849, 851 (Pa.

Super. Ct. 1971)). Finally, the Pennsylvania Supreme Court

has cautioned that "if [a court] should err in determining

the meaning of an insurance policy provision . . . ,[its]

error should be in favor of coverage for the insured." Motley

v. State Farm Mut. Ins. Co., 466 A.2d 609, 611 (Pa. 1983).3

Therefore, we must interpret the exclusionary clause in

favor of Dr. Watkins. We hold that Exclusion 100 is

inapplicable to the instant case and that the insurance

policy covers the malpractice claims asserted against Dr.

Watkins.

B. Reasonable Expectations

We also disagree with the District Court's analysis of the

reasonable expectations argument. In light of

Pennsylvania's doctrine of reasonable expectations, we find

that a genuine issue of material fact exists as to whether

Dr. Watkins had a reasonable expectation that he would be

_________________________________________________________________

3. We note that we do not take into consideration the Watkins

defendants' further argument that, in Dr. Watkins' policy, the scope of

Exclusion 100 is further rendered ambiguous by Endorsement 540,

which amends (under the heading "Expanded Coverage Endorsement")

the insurance policy by excluding liability incurred"under contract or

agreement," but then excepts from that exclusion any liability incurred

by the insured "in rendering professional services under any contract or

agreement with another dentist or other provider of professional services

in the practice of the insured's profession," as well as any liability

incurred by the insured "in rendering professional services in connection

with furnishing therapeutic agents or supplies in the practice of the

insured's profession." This argument was not raised in the District

Court, and "[i]t is well established that failure to raise an issue in the

district court constitutes a waiver of the argument." Brenner v. Local

514,

United Brotherhood of Carpenters and Joiners of America, 927 F.2d 1283,

1298 (3d Cir. 1991).

11

covered by the insurance policy as long as he arranged for

anesthesia to be administered by a qualified person other

than himself or one of his employees.

In our recent discussion of Pennsylvania's reasonable

expectations doctrine, we observed that "the proper focus

for determining issues of insurance coverage is the

reasonable expectations of the insured." Reliance Ins. Co.,

121 F.3d at 903 (citing Collister v. Nationwide Life Ins. Co.,

388 A.2d 1346 (Pa. 1978) and Tonkovic v. State Farm

Mutual Auto Ins. Co., 521 A.2d 920 (Pa. 1987)). We noted

that "[i]n most cases, `the language of the insurance policy

will provide the best indication of the content of the parties'

reasonable expectations.' " Id. (quoting Bensalem Tp. v.

International Surplus Lines Ins. Co., 38 F.3d 1303, 1309 (3d

Cir. 1994)). Nevertheless, we instructed that "[c]ourts . . .

must examine `the totality of the insurance transaction

involved to ascertain the reasonable expectations of the

insured.' " Id. (quoting Dibble v. Security of Am. Life Ins. Co.,

590 A.2d 352, 354 (Pa. 1991)). "As a result, even the most

clearly written exclusion will not bind the insured where

the insurer or its agent has created in the insured a

reasonable expectation of coverage." Id."[T]he insurer is

bound not only by the expectations that it creates, but also

by any other reasonable expectation of the insured. The

insured's reasonable expect