The opinion of the court was delivered by: PRATT
John H. Pratt, United States District Judge.
This case arises from a dispute over insurance coverage for a $5.75 million judgment rendered in Lee v. Children's Hospital National Medical Center, et al. (Lee), Civ. Action 84-2456 (D.D.C. Apr. 28, 1986), on a claim of alleged medical malpractice.
St. Paul Fire and Marine Insurance Company (St. Paul) seeks a judgment declaring that neither of two excess liability policies issued by St. Paul to Children's Hospital National Medical Center (Children's Hospital) provides coverage for any portion of the Lee judgment. Children's Hospital and Dr. Beale Ong have raised the affirmative defenses of estoppel, waiver, laches and failure to join an indispensable party. In addition, Children's Hospital and Dr. Ong have counterclaimed for a declaration that St. Paul's excess liability policies provide coverage for the Lee judgment, and for damages based on alleged bad faith, bad faith failure to settle, and breach of contract.
Defendants Beale Ong and Children's Hospital in turn moved for summary judgment on the issue of coverage of the Lee judgment under St. Paul's excess policies. St. Paul has cross-moved for summary judgment on the complaint. Oppositions were filed to both the motion for summary judgment and the cross-motion. The matter has been fully briefed.
A. The Insurance Policies at Issue
Children's Hospital, during all the periods in question in this action, obtained both primary liability insurance and umbrella excess coverage from several sources. From December 31, 1965 until December 31, 1971, the primary liability insurance coverage was provided by St. Paul Policy No. 666NA9277 (St. Paul Primary Policy), which had applicable policy limits of $300,000. From August 1, 1967 to August 1, 1970, excess coverage was provided to Children's Hospital by American Casualty, pursuant to Policy No. RDU9001808 (American Excess Policy). The limits of the American Casualty excess policy were $1 million for each "occurrence" and $1 million in aggregate. From August 1, 1970 to August 1, 1971, St. Paul provided excess coverage pursuant to Policy No. 581XA2533 (St. Paul 1970 Excess Policy), which had applicable policy limits of $1 million per occurrence and $1 million in aggregate. From August 1, 1971 to December 31, 1971, St. Paul provided excess liability coverage pursuant to Policy No. 581XA5854 (St. Paul 1971 Excess Policy), with limits of $5 million per occurrence and $5 million in aggregate.
Alan Lee first came to Dr. Beale Ong, a pediatrician, on June 13, 1969.
Lee had previously been diagnosed as suffering from cerebral palsy. St. Paul's Stmt. of Mat. Facts to Which No Genuine Issue (St. Paul's Stmt.) at para. 2. During the June 13, 1969 visit, Dr. Ong took Lee's medical history and conducted a physical examination.
Resp. of Ong to Pltf. Req. for Adms. (Ong Resp.) at Resp. 2.
On the basis of this visit, Dr. Ong concluded that Lee suffered from cerebral palsy. Dr. Ong determined that he would like to see Lee again in one year. Ltr. of Ong to Robt. Schleinkofer, June 16, 1969.
Dr. Ong next examined Lee on April 6, 1970, at which time he found that Lee's spasticity had increased since the previous visit. Ong Resp. at Req. 8. On the basis of this examination, Dr. Ong referred Lee to Dr. Paul Griffin, who saw Lee on the same day. Dr. Griffin also concluded that Lee suffered from cerebral palsy, and recommended to Dr. Ong that Lee be hospitalized for more testing. Ong Resp. at Req. 13.
In June 1970, Dr. Ong recommended to Lee's parents that Lee be hospitalized for further testing because of "a small possibility that some other central nervous system problem may be associated." Ong Resp. at Reqs. 10, 15. Lee subsequently was hospitalized at Children's from July 27 to July 30, 1970. One of the principal purposes of this hospitalization was to determine whether Lee suffered from a cervical cord lesion. Tests and examinations were performed for this purpose. Ong Resp. at Req. 23. During the hospitalization and thereafter, Dr. Ong referred Lee to Dr. Gloria Eng for muscle evaluation and an ongoing program of physical therapy. Ong Resp. at Req. 29.
Dr. Ong's responsibility for Lee's treatment after July 31, 1970 is a matter of dispute between the parties. St. Paul contends that Dr. Eng became Lee's primary treating physician following the hospitalization. Dr. Ong and Children's Hospital contend that Dr. Ong continued to oversee Lee's treatment and that Dr. Ong conducted an additional physical evaluation of Lee on December 28, 1970.
In June, 1971, Dr. Eng wrote to Dr. Robert Haslam at the John F. Kennedy Institute in Baltimore, Maryland. Ong Resp. at Req. 30. Lee was admitted to the Kennedy Institute on October 12, 1971. Ong Resp. at Req. 32. During Lee's hospitalization at the Kennedy Institute, he was diagnosed for the first time as suffering from a cervical cord tumor. Ong Resp. at Req. 33. Dr. Ong and Children's Hospital admit that Lee was suffering from a cervical cord tumor at the time of Lee's initial visit to Dr. Ong in June 1969, and at all relevant times thereafter. Ong Resp. at Req. 35.
C. Lee v. Children's Hospital
On August 9, 1984, Alan Lee filed his complaint in Lee v. Children's Hospital, et al., Civ. No. 84-2456. Lee sued Children's Hospital, Dr. Ong, Dr. Eng and the members of Dr. Ong's partnership alleging that the failure to diagnose Lee's cervical cord tumor constituted medical malpractice. St. Paul Stmt. at para. 13. Children's Hospital and Dr. Ong notified St. Paul of the action and tendered the defense to St. Paul, as primary liability carrier. St. Paul, as primary carrier, accepted the defense of the Lee action without reservation and retained counsel to represent Children's Hospital and Dr. Ong. St. Paul Stmt. at para. 15.
As the Lee litigation wended its way through a tortured course of discovery and pre-trial proceedings, Lee demanded, on March 21, 1985, $7 million to settle the claims against all defendants. Counterclaim at para. 17(h). On April 9, 1985, Dr. Ong, by letter, demanded that St. Paul settle within the limits of the primary and the two St. Paul excess policies. Counterclaim at para. 17(k). Lee renewed the $7 million settlement demand on January 2, 1986. Id. On February 7, 1986, Children's Hospital also demanded that St. Paul settle within the limits of the primary and the excess policies. Id. The Lee trial began on February 12, 1986.
Two days later, on February 14, 1986, St. Paul sent Children's Hospital a letter requesting the basis for Children's assertion that the 1971 Excess Policy provided coverage for Lee's claim. Counterclaim at para. 17(m). Children's Hospital responded by letter on February 24, 1986. Id. On March 20, 1986, St. Paul formally notified Children's Hospital, by letter, of possible ...