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Apple v. Jewish Hospital and Medical Center

decided: September 18, 1987.

JEAN APPLE, AS ADMINISTRATRIX OF THE ESTATE OF DENISE SMITH, DECEASED, PLAINTIFF-APPELLEE ,(IN 86-6218 & 86-6224)
v.
JEWISH HOSPITAL AND MEDICAL CENTER, WILLIAM ADEL AZIZ AND THE UNITED STATES OF AMERICA, DEFENDANTS-APPELLEES (IN 86-6218 & 86-6224), WILLIAM ADEL AZIZ, DEFENDANT-APPELLEE (86-6218), CROSS-APPELLANT (86-6224); MEDICAL LIABILITY MUTUAL INSURANCE, COMPANY, DEFENDANT INTERVENOR APPELLANT (IN 86-6218) CROSS-APPELLEE (IN 86-6224)



Appeal by defendant William Adel Aziz and defendant-intervenor Medical Liability Mutual Insurance Company from an October 1, 1986 order entered in the United States District Court for the Eastern District of New York (Costantino, J.) that denied Aziz a setoff for a settlement paid to plaintiff by defendants-appellees, Jewish Hospital and Medical Center and the United States, for decedent's conscious pain and suffering. Medical Mutual appeals from a findings that it acted in bad faith in refusing to defend and/or settle the instant malpractice action and from the refusal of the district court to recuse itself. Reversed in part; insofar as the appeal is from a denial of a motion to recuse, it is affirmed.

Author: Cardamone

CARDAMONE, Circuit Judge:

This appeal encompasses two claims arising from the settlement of part, and trial of the remainder of, a medical malpractice action. Dr. William Adel Aziz appeals from so much of an October 1, 1986 order of the United States District Court for the Eastern District of New York (Costantino, J.) that denied his motion for a setoff from a jury award for the pain and suffering of decedent Denise Smith. Appellant seeks -- pursuant to New York's General Obligations Law ยง 15-108 -- to set off the amount of the settlement paid by two defendants -- the Jewish Hospital and Medical Center and the United States of America -- to the plaintiff, Jean Apple, the administratrix of decedent Smith's estate. The details of the settlement are set out below. Intervenor-appellant Medical Liability Mutual Insurance Company (Medical Mutual), which provided medical malpractice insurance for Dr. Aziz, appeals from that part of the same order denying its motion to strikes the findings that it was guilty of bad faith in not honoring its duty either to defend or to settle the action. Medical Mutual also appeals from the denial of its motion for the district court judge's recusal.

I BACKGROUND

A. Facts

Denise Smith was admitted to Jewish Hospital and Medical Center (Jewish Hospital) on April 24, 1981 under the care of Dr. Lesly Kernisant, an obstetrician and gynecologist. At that time, she was a week later in delivery and a decision was made to effect her delivery by caesarian section. Unfortunately, due to complications during that operation, the patient -- who delivered a healthy baby boy -- died a week later. Dr. Aziz, an anesthesiologist, was acting chief of the obstetrics anesthesia department at Jewish Hospital. Although his name was signed to the hospital record indicating that he had administered the anesthesia during Smith's operation, he did not actually administer it.

B. Proceedings Below

Jean Apple, as administratrix of the estate of Denise Smith and guardian of Smith's son, originally brought suit in New York State Supreme Court in June 1982. In her complaint against Jewish Hospital and Drs. Aziz and Kernisant, she alleged causes of action for conscious pain and suffering and wrongful death. Dr. Kernisant, an employee of the United States Public Health Service, a federal organization, informed the government of the suit, and Drs. Kernisant and Aziz also advised Medical Mutual, their malpractice carrier. The insurer retained counsel to represent both physicians.

In February 1983, the government removed the suit to the Eastern District of New York and moved to dismiss the action against Dr. Kernisant and to substitute itself for him. Apple cross-moved to remand the action in its entirety to New York Supreme Court. The district court granted both of the government's motions and denied plaintiff's cross-motion in a memorandum decision and order dated September 13, 1983, which is reported at 570 F. Supp. 1320 (E.D.N.Y. 1983).

The action went to trial on May 27, 1986. Although the parties were conducting settlement discussions, Medical Mutual rejected efforts to settle the litigation. The first findings of bad faith against it was made at a conference held in the district judge's chambers on May 30, 1986. Attorneys representing the government, Jewish Hospital, and the plaintiff were present at that conference. Dr. Aziz had two attorneys: one, Robert Gibbons, Esq., was retained by Medical Mutual to present Dr. Aziz in the action, the other, Paul Callan, Esq., was retained by Dr. Aziz personally to "observe . . . portion of the trial."

During the conference, attorney Callan stated that the carrier had not "participated in a good faith manner in the settlement of the negotiations in any way, shape or form." Mr. Gibbons declined to address this contention but promised "to convey the relevant information to the carrier." Treating attorney Callan's statement as an application for a motion for a finding of bad faith against Medical Mutual, the district court granted the motion and ruled further that "any judgment [against Dr. Aziz] shall be a judgment against the insurance company." The effect of this ruling was to make Medical Mutual liable for any judgment against Dr. Aziz above the limits of his policy.

Subsequently at the same conference, the government's attorney claimed that Dr. Kernisant's policy with Medical Mutual required the company to defend the government as well as the doctor, and stated that it had previously asked the company to join in Dr. Kernisant's defense, but that the company had refused. The government's attorney then stated that the government "believes that the insurance company to be in bad faith with respect to the representational obligations to the doctor [Dr. Kernisant]."

The attorney representing Jewish Hospital also joined in the government's "motion" for a bad faith finding. Attorney Gibbons -- perhaps recognizing the conflict of interest implications of his position -- declined either to challenge or to concede bad faith. The district court again made a finding that Medical Mutual was acting in bad faith. While not specifically addressing the government's bad faith claim, the trial judge stated that any judgment entered against the government at trial would also be against the insurance company. The effect of the holding was to make Medical Mutual and indemnitor of the government as well as of Dr. Aziz. No determination was made at that time that Jewish Hospital would also be indemnified against any adverse judgment.

Against this backdrop, the trial resumed. On June 4 during a conference between the court and the attorneys for all the parties, plaintiff's attorney suggested continuing settlement talks, but said that Medical Mutual was reluctant to send a representative. The district court expressed its irritation at the carrier's failure to send anyone with authority to settle the case on behalf of Dr. Aziz and threatened to sent out United States marshals "to bring in the head of the company." Mr. Gibbons offered to secure the attendance the following day of a representative with authority to settle.

Barry Aquilino, a claims examiner for the company appeared the next day, along with several lawyers representing Medical Mutual. The district court judge apparently instructed these individuals not to leave the courtroom or face arrest. The record is unclear at what time they arrived or when they were told of the threatened arrests. During the early afternoon of June 5, the district judge conducted a colloquy with them and the attorneys for the various parties. One of Medical Mutual's attorneys identified himself as representing the carrier and described Mr. Aquilino's position. Dissatisfied with Aquilino's lack of authority, the district judge again reiterated his desire to have a company official with "the final word" on a possible settlement involved in the negotiations. The judge again warned these company representatives that they were not free to leave the courtroom.

At the end of the day's trial session, one of the carrier's lawyers asked the court whether they would have to appear on the next day and was advised that all three must return. At that point, a Medical Mutual attorney attempted to serve the district court judge with a petition for a writ of mandamus seeking relief in this Court, which the judge refused to accept. Nonetheless, the petition was presented to this Court, which promptly stayed the district ...


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