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AVES v. SHAH11/3/1995
The opinion of the court was delivered by
This case is before the court on questions certified by the United States District Court for the District of Kansas under the Uniform Certification of Questions of Law Act, K.S.A. 60-3201 et seq. Judge Patrick F. Kelly certified to this court the following questions:
I. Whether, in light of the provisions of the Health Care Provider Insurance Availability Act, Kansas law recognizes a claim of bad faith against the Health Care Stabilization Fund when a judgment is returned in excess of the Fund's statutory limits of liability.
II. May the plaintiffs holding the excess judgment prosecute such a bad faith action against the Fund by way of garnishment in light of K.S.A. 60-723(d)?
The facts as set forth in the district court's order certifying these questions are as follows. Plaintiffs Darcy Aves, a minor, and her parents, Faye and Dan Aves, brought an action in 1988 for medical malpractice against Dr. Nasreen B. Shah and the Central Kansas Medical Center (CKMC) for damages arising from negligence related to Darcy's birth. On November 15, 1990, the jury returned a verdict which found Dr. Shah 90% at fault and CKMC 10% at fault. The jury awarded total damages in excess of $23 million; Dr. Shah's share of the damages was in excess of $21 million. The United States 10th Circuit Court of Appeals affirmed the verdict on appeal. Aves v. Shah, 997 F.2d 762 (10th Cir. 1993).
The present action pending before Judge Kelly is a garnishment action filed on October 18, 1993. Plaintiffs contend that Fletcher Bell, the former Commissioner of Insurance of the State of Kansas, serving as Administrator of the Health Care Stabilization Fund (the Fund), acted negligently and in bad faith in conducting the defense of Dr. Shah in the underlying action and in failing to settle the claim. The plaintiffs named Ron Todd as the garnishee in this action. He succeeded Fletcher Bell as Commissioner of Insurance of the State of Kansas.
Judge Kelly made the following assumptions for the purposes of certification: The Fund acted negligently and in bad faith in failing to settle plaintiffs' claims. During 1990, the Fund effectively assumed the defense of Dr. Shah, employing an attorney for her defense. The Fund required this attorney to report to and take directions from the Fund's staff. Prior to and during the trial, the attorney notified the Fund that he did not believe he could obtain a verdict for less than the combined policy limits of Dr. Shah's insurance policies, which was $3.2 million. A second attorney hired by the Fund as an independent advisor also advised the Fund that the plaintiffs would probably receive a verdict for more than $3.2 million. Despite being informed by two attorneys that a verdict in excess of the $3.2 million policy limits was likely, the Fund rejected the plaintiffs' offers to settle for either $3.1 or $3.2 million. Instead, the Fund extended settlement offers of $1.2 million prior to trial and $1.5 million during trial. Representatives of the Fund advised plaintiffs' counsel that they were not concerned with whether Dr. Shah was "stuck" with a big verdict, but they were only concerned with "trying to avoid paying $3.2 million."
Before this court addresses the merits of the case, an understanding of the statutory insurance plan is helpful. In the mid-1970s, the legislature, in response to the high cost and unavailability of medical malpractice insurance, adopted the Health Care Provider Insurance Availability Act (the Act), K.S.A. 40-3401 et seq. The Act required licensed health care providers to obtain primary malpractice insurance as a conditi
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