Medchoice Retention Grp., Inc. v. Rand

Citation: 344 F. Supp. 3d 1184Docket: Case No. 3:16-cv-00418-MMD-CBC

Court: District Court, D. Nevada; September 25, 2018; Federal District Court

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Defendant Robert G. Rand, M.D., pleaded guilty to involuntary manslaughter related to a patient's death, leading to lawsuits and a coverage dispute with Plaintiff MedChoice Retention Group, Inc. The court determined that M.D. Rand's admissions during his guilty plea necessitate rescission of his MedChoice insurance policy. Although this decision does not benefit the affected patient's family, the court granted MedChoice's Motion for Summary Judgment, confirming its right to rescind the liability policy after reviewing the responses and replies from both parties.

M.D. Rand applied for professional liability coverage with MedChoice in December 2015, being aware of relevant circumstances surrounding the death of patient Michael Yenick, including prior warnings from Michael's mother about the risks of oxycodone prescriptions. On the application, Rand answered "no" to multiple questions regarding potential claims, injuries, or requests for medical records, asserting he was unaware of any facts that might affect the underwriter's judgment. MedChoice relied on these representations to issue a policy effective December 15, 2015, which excluded coverage for claims known or reasonably should have been known by Rand prior to the policy's effective date, as well as claims arising from criminal or dishonest acts. In January 2016, Rand requested and received an endorsement for increased policy limits based on the original application. In July 2017, Rand pleaded guilty to involuntary manslaughter for Michael's death and to unlawful distribution of controlled substances to another patient, acknowledging he prescribed opioids without legitimate medical purpose from January 2011 to April 2016.

Defendants seek liability coverage for three lawsuits in the Second Judicial District Court of Washoe County: 1) Cyndi Papez Yenick et al. v. Robert Rand, M.D. (Yenick Lawsuit); 2) Eric Zuhlke et al. v. Robert Rand, M.D. (Zuhlke Lawsuit); and 3) Don Robertson, II v. Robert Rand, M.D. et al. (Fribourg Lawsuit). The claims in these lawsuits include medical negligence resulting in wrongful death, deceptive trade practices, negligent misrepresentation, and neglect of a vulnerable person related to M.D. Rand's opioid prescriptions. Coverage issues regarding the Zuhlke Lawsuit have been resolved, leaving the Yenick and Fribourg lawsuits pending.

MedChoice's First Amended Complaint (FAC) includes five claims. Counts I and II seek rescission of the insurance Policy and the increase in limits endorsement under NRS 687B.110, with Count II being an alternative to Count I. Count III requests declaratory relief on the grounds that the Yenick Lawsuit falls outside the Policy's coverage due to specific exclusions. Count IV seeks a declaration that MedChoice has no duty to defend or indemnify claims reported after February 13, 2017, relevant to the Fribourg Lawsuit. Count V, contingent on a determination of no coverage for the Yenick Lawsuit, requests a declaration for reimbursement of defense costs incurred in that lawsuit. MedChoice is moving for summary judgment on the rescission claims or, alternatively, on the remaining claims for declaratory relief and reimbursement.

Summary judgment aims to prevent unnecessary trials when there are no factual disputes. It is granted when the available pleadings, discovery materials, and affidavits demonstrate the absence of any genuine issue regarding material facts, allowing the moving party to obtain judgment as a matter of law. A genuine issue exists if a reasonable fact-finder could side with the nonmoving party, while a material issue could impact the case's outcome. If reasonable minds could disagree on material facts, summary judgment is inappropriate.

To establish a genuine issue, sufficient evidence must be presented to necessitate a trial. Courts assess summary judgment motions by interpreting facts and drawing inferences favorably for the nonmoving party. The burden initially lies with the moving party to prove no genuine issues exist; once satisfied, the burden shifts to the opposing party to provide specific evidence demonstrating a genuine dispute. The nonmoving party cannot rely solely on pleadings denials but must present admissible evidence to substantiate their claims. Merely showing some doubt about the facts or a minimal amount of evidence is inadequate to overcome a summary judgment motion.

MedChoice seeks summary judgment on its first and second claims for relief under NRS 687B.110(2, 3), asserting that both claims are intertwined since they rely on the same policy application documents. MedChoice contends that had it been aware of M.D. Rand's actions—specifically, his unlawful prescription of opioids that contributed to Michael's death—it would not have issued the insurance Policy or Endorsement. The Court agrees with MedChoice, stating that NRS 687B.110 allows for policy rescission due to misrepresentations that are material to the insurer's risk assessment. MedChoice argues that M.D. Rand’s guilty plea regarding his unlawful prescriptions is relevant evidence supporting its case for rescission. The Defendants challenge this by claiming that MedChoice cannot rely on the admissions from M.D. Rand’s plea, but the Court rejects this argument, citing that in Nevada, such evidence is admissible in civil proceedings. The Court affirms that M.D. Rand's guilty plea can be used as undisputed evidence in the summary judgment process, aligning with precedents from both state and federal law. Consequently, the Court will consider the implications of M.D. Rand's plea deal in its decision on the summary judgment.

M.D. Rand pleaded guilty to involuntary manslaughter concerning Michael, admitting his actions constituted gross negligence, defined as a reckless disregard for human life. He acknowledged being aware that his conduct posed a threat to others’ lives after receiving a call from Michael's mother on September 22, 2015. She warned him about the risks associated with prescribing oxycodone to Michael and pleaded with him to cease such prescriptions, cautioning that it could lead to her son's death. Despite this warning, Rand prescribed 45 doses of oxycodone the following day and an additional 180 doses just seven days later, admitting these prescriptions were not for legitimate medical purposes or in the usual course of practice. Michael died on October 2, 2015, shortly after filling the prescription for 180 doses. Rand was aware of Michael’s death when he completed his application for the Policy in December 2015. These admissions establish that Rand had full knowledge of the circumstances and his grossly negligent behavior at the time of the plea.

M.D. Rand asserts that he truthfully answered application questions regarding his knowledge of Michael's death, arguing that the circumstances surrounding the death, attributed to a combination of alcohol and oxycodone, did not necessitate affirmative responses. He claims he had no reason to suspect any compensable events or potential claims against him, and he contends he did not violate NRS 687B.110 through misrepresentations or omissions. Rand argues that the ambiguously worded application questions would not mislead MedChoice if answered negatively.

However, the court highlights that undisputed facts from Rand's plea agreement reveal he had been prescribing opioids to a patient, R.W., without legitimate medical purpose for years before applying for the policy. Rand admitted to similar illegitimate prescribing practices concerning Michael. This information was deemed material to MedChoice's underwriting risk. Therefore, the court concluded that Rand made a material misrepresentation in stating he was unaware of any relevant facts affecting the underwriter's judgment.

As a result, the court grants summary judgment in favor of MedChoice for rescission of the policy under NRS 687B.110, rendering it unnecessary to explore alternative claims regarding non-coverage related to the Yenick and Fribourg lawsuits. Additionally, the court grants summary judgment for MedChoice to recover defense costs incurred in the Yenick lawsuit due to the policy's rescission, establishing that a valid rescission negates the existence of the contract.

MedChoice's motion for summary judgment is partially granted and partially denied. Specifically, it is granted for Counts I and II concerning rescission, resulting in the granting of Count V, while it is denied for Counts III and IV, which involve alternative requests for partial summary judgment. MedChoice's objection regarding evidence from the Defendants' opposition is stricken as improper; the Court notes that MedChoice should have included these arguments in its reply brief to comply with local rules. The definition of a "potential claim" in the Policy is clarified, and the Court rejects Defendants' arguments that equate MedChoice’s lawsuit with a claim for rescission, citing relevant legal precedents. Defendants’ claim that MedChoice waived its rescission claim by defending in a related lawsuit is also dismissed, as is their assertion that the Policy is merely a renewal of a prior policy, which is irrelevant to the motion concerning the Policy effective December 15, 2015. The distinction between a claims-made-and-reported policy and an occurrence-based policy is emphasized, reinforcing that MedChoice’s coverage applies to claims reported during the policy period. Lastly, while unpublished opinions are not binding, the Court finds them persuasive in this context.

Stroud v. Cook establishes that NRS 41.133 is a substantive rule, allowing prior criminal convictions to be utilized as evidence in civil cases, and is not included in Nevada's evidence code. NRS 41.133 mandates that such criminal judgments serve as conclusive proof of the facts necessary for civil liability related to the victims of the criminal case. The Court found no conflict between the substantive rule from Taylor and the procedural evidentiary rule under Federal Rule of Evidence 807, referenced in In re Slatkin. In the Criminal Case, M.D. Rand admitted during his guilty plea that he understood prescribing a significant dose of oxycodone to Michael posed a threat to his life. Rand attempted to differentiate his admission regarding the criminal conduct from his understanding at the time of completing application documents; however, the admission pertained to his actions at the time of prescribing, not his reflections during the plea. The term "material," defined by Black's Law Dictionary as information that influences decision-making, was not contested by the Defendants in terms of its relevance. MedChoice indicated readiness to return the premium paid by the Defendants if the Court rules in favor of rescission.