Does a physician, whose license has been suspended and is facing criminal charges for the unlicensed practice of medicine, have insurance coverage against a patient’s claims arising out of medical treatment where the policy excludes physicians, incidents during professional license suspension, and criminal acts? The answer may surprise you in California.

Facts

In General Star Indemnity Company v. F and M Radiology Medical Center, Inc. et al, the United States District Court, Central District of California issued a ruling denying partial summary judgment as to whether a licensure exception excluded coverage.[i]  The issue before the court was whether General Star Indemnity Company (“General Star”) had a duty to indemnify or defend the defendants in the underlying lawsuit brought by a patient.[ii]

What is the difference between the duty to indemnify and the duty to defend? As the court explained, “the duty to indemnify ‘runs to claims that are actually covered’ by a given policy ‘in light of facts proved,’ [and] the duty to defend ‘runs to claims that are merely potentially covered, in light of facts alleged or otherwise disclosed.’”[iii]  In other words, the insurance carrier must indemnify its insureds only for claims that have been proven, but the carrier must defend its insured where there is a “potential for coverage.”[iv]

An insurer “owes a broad duty to defend its insured against claims that create a potential for indemnity.”[v]  In fact, the duty to defend is “so broad that it only requires ‘a bare “potential” or “possibility” of coverage as the trigger of a defense duty.’”[vi]  The court explained that an insured “need only show that the underlying claim may fall within policy coverage” to establish a duty to defend.[vii]  Indeed, “[t]he duty to defend arises when the facts alleged in the underlying complaint give rise to a potentially covered claim regardless of the technical legal cause of action pleaded by the third party.”[viii]  “‘If coverage depends on an unresolved dispute over a factual question, the very existence of that dispute would establish a possibility of coverage and thus a duty to defend.’”[ix]

In the case at hand, the plaintiff insurer General Star filed a motion for partial summary judgment on its claims for declaratory relief that Dr. Julian was not covered by the insurance policy, the licensure and criminal act exceptions of the policy excluded coverage, and it had reserved its rights to seek reimbursement from F and M Radiology, Dr. Tabibian, and Dr. Heikali.[x]

This declaratory judgment action arose out of claims Fetemeh Shahriari made for gross negligence, fraudulent concealment, intentional misrepresentation, medical malpractice, medical battery, and breach of fiduciary duty against F&M, Dr. Tabibian, Dr. Heikali, and Dr. Julian after she received a knee injection at an urgent care center, contracted an infection, and sustained permanent damage.[xi]  At the time of the treatment, Dr. Tabibian was the CEO and director of F&M, and both Dr. Heikali and Dr. Julian were physically present when the injection was administered.[xii]  However, only Dr. Julian had a valid medical license; Dr. Heikali and Dr. Tabibian had their medical licenses suspended and were subject to criminal charges for the unlicensed practice of medicine.[xiii]

The insurance policy at issue applied only to certain medical workers and specifically excluded physicians from coverage.[xiv]  Two policy exclusions were relevant: a “licensure exception” that excluded “any ‘medical incident involving any Insured that: a. Occurs during any time such Insured’s professional license has been suspended, revoked, or voluntarily surrendered,’” and a “criminal act exception” that excluded “‘any criminal, malicious, dishonest or fraudulent act, error or omission committed by or at the direction of any Insured.’”[xv]

General Star argued that Dr. Heikali and Dr. Tabibian were not covered by the policy on the basis that they were acting as physicians during the treatment at issue.[xvi]  Shahriari, who was a defendant here but the plaintiff in the underlying lawsuit, responded that Dr. Heikali could have been acting as a medical assistant, not a physician, and Dr. Tabibian, as the CEO officer of F&M, would be responsible for those under his direction and control regardless of his involvement in the treatment.[xvii]  The court determined that a medical license was not required to administer the injection and no evidence was presented on whether a medical license was required to serve as an officer of F&M. [xviii]  Because the policy was not clear as to whether the licensure exception excluded those activities in which a medical license was not required, court denied summary judgment on that issue. [xix]

Analysis

Why did the licensure exception not clearly apply to Dr. Heikali and Dr. Tabibian? In California, “‘[a] policy provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable.’”[xx]  “[C]overage provisions are interpreted broadly, and exclusions are interpreted narrowly.”[xxi]  The court determined that the policy at issue did not state whether the licensure exception “applie[d] when the Insured [was] operating in a capacity for which the suspended license would not be required.” [xxii]  Construing this ambiguity in favor of coverage, the court held that genuine issues of material fact existed as to whether unlicensed physicians “would be considered ‘Insureds’ under the Policy” and whether the licensure exception applies to “‘medical incidents’ for which the suspended license would not be required.”[xxiii]

Because Dr. Julian was a licensed physician, and the policy excluded coverage for physicians, and General Star issued a reservation of rights letter, the court did grant summary judgment as to those issues.[xxiv]  The court, however, deferred its ruling as to the criminal act exception as the criminal cases against Dr. Tabibian and Dr. Heikali were still pending.[xxv]

Takeaway

This case stands as a reminder that coverage issues can be complex.  A policy exclusion may not necessarily extinguish the duty to defend.  Insurers should understand the differences between the duty to defend and the duty to indemnify, as well as when the duty to defend arises.

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Sources

[i] (Gen. Star Indemnity Co. v. F & M Radiology Med. Ctr., Inc. et al. (C.D. Cal., Jan. 13, 2023, Case No. CV 22-2233-DMG (JCX)), 2023 WL 1959120, at *1).

[ii] Id.

[iii] Id. at *3(quoting Buss v. Superior Ct. (1997)16 Cal. 4th 35, 45–46.)

[iv] Gen. Star Indemnity Co. at *3 (citing Manzarek v. St. Paul Fire & Marine Ins. Co. (9th Cir. 2008) 519 F.3d 1025, 1031)[citations omitted.]

[v] (Montrose Chem. Corp. v. Superior Ct. (1993) 6 Cal. 4th 287, 295 [861 P.2d 1153, 1157].)(quoting Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal. 4th 1076, 1081 [846 P.2d 792, 795].)[citations omitted.]

[vi] (Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Seagate Techs., Inc. (9th Cir. 2012) 466 F. App’x 653, 655.)(quoting Montrose Chem. [861 P.2d at 1160].)[emphasis added.]

[vii] (Gen. Star Indemnity Co. at *3)(quoting Montrose Chem., 6 Cal. 4th at 300)[emphasis in original.]

[viii] (Crosby Est. at Rancho Santa Fe Master Ass’n v. Ironshore Specialty Ins. Co. (S.D. Cal. 2022) 578 F. Supp. 3d 1123, 1129–30.)(quoting Barnett v. Fireman’s Fund Ins. Co. (2001) 90 Cal. App. 4th 500, 510 [108 Cal.Rptr.2d 657].)

[ix]  (Gen. Star Indemnity Co. at *3.)(quoting Mirpad, LLC v. California Ins. Guarantee Assn. (2005) 132 Cal. App. 4th 1058, 1068.)

[x] (Gen. Star Indemnity Co. at *2.)

[xi] Id.

[xii] Id.

[xiii] Id.

[xiv] Id. at *1.

[xv] Id. at *2[quoting the insurance policy][less emphasis].

[xvi] Id. at *4.

[xvii] Id.

[xviii] Id.

[xix] Id.

[xx] (Mirpad, LLC, 132 Cal. App. 4th at 1069 [34 Cal. Rptr. 3d 136, 143].)(quoting Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18, 44 Cal.Rptr.2d 370, 900 P.2d 619)[citations omitted][less emphasis].

[xxi] (Medina v. GEICO Indem. Co. (2017) 8 Cal. App. 5th 251, 259 [213 Cal. Rptr. 3d 502, 509].)(quoting Stellar v. State Farm General Ins. Co. (2007) 157 Cal.App.4th 1498, 1503 [69 Cal.Rptr.3d 350].)

[xxii] (Gen. Star Indemnity Co. at *4.)

[xxiii] Id.

[xxiv] Id. at *3–5.

[xxv] Id. at *5.