In National Fire & Marine Insurance Company v. Hampton, No. 19-17235 (9th Cir. Oct. 21, 2020), the Ninth Circuit held that a doctor’s guilty plea to the unlawful distribution of a controlled substance barred insurance coverage under his professional liability policy for a subsequent wrongful death lawsuit resulting from a patient’s overdose. According to the Ninth Circuit, the doctor’s admission that he intentionally distributed fentanyl clearly implicated the policy’s exclusion for willful violations of the law and thus relieved the insurer from its duties to defend and indemnify the doctor in the wrongful death lawsuit.
In Hampton, Steven Holper was indicted on several felony charges, including the unlawful distribution of a controlled substance. Holper pleaded guilty to count two of the indictment for the unlawful distribution of a controlled substance to Diana Hampton, a Nevada municipal judge, who was found dead following a fentanyl overdose. Holper’s plea agreement stated that he intentionally distributed fentanyl “outside the usual course of his professional practice and without a legitimate medical purpose.”
Following her death, Hampton’s estate brought a wrongful death lawsuit against Holper. National Fire & Marine Insurance Company, Holper’s professional liability insurer, provided Holper with a defense in the wrongful death suit under a reservation of rights.
While defending Holper in the wrongful death suit, National Fire simultaneously sought a declaration from the United States District Court for the District of Nevada that there was no coverage under the policy based on, inter alia, the policy’s exclusion for “[a]ny loss arising from, or in connection with . . . any event, health care event, or managed care event when intertwined with, or inseparable from . . . any willful violation of any law, statute, or regulation.” Based on this exclusion, National Fire moved for summary judgment, arguing that its duty to defend and indemnify was entirely precluded because Holper conceded in his plea agreement that he had violated the law by intentionally distributing a controlled substance. The district court agreed, granting summary judgment in National Fire’s favor and declaring that National Fire had no duty to defend or indemnify Holper against the estate’s claims.
On appeal, the Ninth Circuit first noted that for an insurer to avoid coverage under an exclusion under Nevada law, it must “(1) write the exclusion in obvious and unambiguous language in the policy, (2) establish that the interpretation excluding coverage under the exclusion is the only interpretation of the exclusion that could fairly be made, and (3) establish that the exclusion clearly applies to [the] particular case.” Here, the Ninth Circuit held, in no uncertain terms, that the exclusion was clear and unambiguous—“[t]here is only one fair interpretation of this exclusion: it excludes coverage for willful violations of the law.”
The Ninth Circuit then rejected Holper’s argument that the exclusion rendered the policy illusory. According to the court, the exclusion did not exclude coverage for all malpractice, just for malpractice stemming from willful violations of the law. Because the wrongful death complaint alleged—and Holper’s plea agreement confirmed—that Holper willfully violated federal controlled substances laws resulting in Hampton’s death, the Ninth Circuit determined that the exclusion clearly applied and affirmed summary judgment in National Fire’s favor. As such, National Fire was relieved of its duties to defend and indemnify because there was no potential for coverage for the wrongful death suit.
The Ninth Circuit also was not convinced that the district court should have permitted additional discovery under Federal Rule of Civil Procedure 56(d) because the affidavits submitted in support of the request sought discovery related only to Holper and Hampton’s doctor-patient relationship and the cause of Hampton’s death. Because this additional discovery was not necessary to determine the applicability of the professional liability policy, the Ninth Circuit held that the district court did not abuse its discretion in denying leave to conduct further discovery.
Lastly, the Ninth Circuit rejected the argument that public policy compelled a different result. Quoting the Nevada Supreme Court, the Ninth Circuit held that public policy considerations do not disfavor “the enforcement of intentional, criminal, and sexual act exclusions in professional liability policies.”
The Hampton decision is a reminder to insureds of the scope of professional liability coverage. Such policies are intended to cover professional malpractice—they are not intended to provide coverage for an insured’s willful and illegal conduct.