The opinion of the court was delivered by: SHAPIRO
NORMA L. SHAPIRO, District Judge.
This is an action for declaratory judgment by the plaintiff insurance company, Aetna Life and Casualty Company ("Aetna") against Dr. Donald Lee McCabe ("McCabe"), its insured under a medical malpractice policy, and Gale Greenberg ("Greenberg"), a former patient of McCabe's who obtained a judgment in her favor against McCabe in a medical malpractice action. Aetna seeks a declaration of non-coverage under Dr. McCabe's Professional Liability Policy. Before us for decision are motions for summary judgment filed on behalf of defendants McCabe and Greenberg. Defendants argue that Aetna is collaterally estopped by the jury's verdict upon special interrogatories in Greenberg's medical malpractice action against McCabe, Greenberg v. McCabe, 453 F. Supp. 765, in which Aetna defended McCabe, and that Aetna cannot relitigate facts determinative of coverage that were decided therein. The defendants also contend that Aetna has waived its right to raise certain of the defenses it now seeks to invoke and that its reservation of rights while defending Dr. McCabe was ineffective. Aetna contends the doctrines of waiver and estoppel are inapplicable and the reservation of rights was valid. Defendants claim Aetna as insurer must pay the total amount of the jury award, including that for punitive damages, but plaintiff asserts it cannot legally insure against punitive damages and that its coverage in any event was limited to $250,000 for any one claim. For the reasons which follow, defendants' motion for summary judgment will be granted in part and denied in part.
The parties have stipulated to many of the important facts. (Stipulation of Facts, Dkt. No. 62).
Aetna issued a "Professional Liability Policy," No. 57 DZ 28720, to McCabe for the period commencing January 2, 1974 through January 2, 1975. (Stipulation # 5). An identical policy was in effect between Aetna and McCabe for each prior year since 1968. (Stipulation # 6). From 1968 to 1974 inclusive, McCabe was a practicing Doctor of Osteopathic Medicine in Harrisburg, Pennsylvania. (Stipulation # 7).
The Coverage Agreements of McCabe's policy with Aetna provided:
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of:
Individual Professional Liability Coverage: injury arising out of the rendering of or failure to render, during the policy period, professional services by the individual insured, or by any person for whose acts or omissions such insured is legally responsible, except as a member of a partnership, performed in the practice of the individual insured's profession described in the declarations including service by the individual insured as a member of a formal accreditation or similar professional board or committee of a hospital or professional society.
The policy contained only one exclusion, which provided:
This insurance does not apply to liability of the insured as a proprietor, superintendent or executive officer of any hospital, sanitarium, clinic with bed and board facilities, laboratory or business enterprise.
The "limits of liability" section of McCabe's policy provided:
The limit of liability stated in the declarations as applicable to "each claim" is the limit of the company's liability for all damages because of each claim or suit covered hereby. The limit of liability stated in the declarations as "aggregate" is, subject to the above provisions respecting "each claim", the total limit of the company's liability under this coverage for all damages. Such limits of liability shall apply separately to each insured.
On January 15, 1976, Greenberg filed a complaint against McCabe in the United States District Court for the Eastern District of Pennsylvania, C.A. No. 76-342, which alleged that McCabe's negligent care and treatment had caused her injury. McCabe notified Aetna of the complaint on March 23, 1976 and Aetna retained the law firm of Kaliner and Joseph to represent McCabe on March 31, 1976. (Stipulation # 8, # 9).
On March 31, 1976, C. F. Higgins, Jr., Supervisor, Philadelphia Claim Department of Aetna, also sent a letter to McCabe regarding coverage under the policy. (Exhibit G-9 to Fact Stipulation). This letter stated in relevant part:
We have received Complaint filed against you in the above case. This matter has been referred to our (attorneys) Kaliner & Joseph, Suite 1600 Two Penn Center Plaza, Phila., Pa., 19102. Our attorneys will take all steps required on your behalf in accordance with the terms and conditions of the policy of insurance applicable to this case.
The amount sued for is "In excess of Ten Thousand Dollars" for injuries allegedly sustained by the above claimant. We must call to your attention the fact that it is possible for a judgment to be obtained in excess of your policy limits. We must also call to your attention the fact that there is demand made for punitive damages. According to present Pennsylvania law it is against public policy for an Insurance Carrier to pay that portion of a judgment allocable to punitive damages against a Tort Feasor. For these reasons you are at liberty, if you so desire, to associate your own personal counsel, at your own expense, in the defense of this suit.
On April 23, 1976, Edward Joseph of Kaliner & Joseph entered an appearance on behalf of McCabe and continued to represent McCabe through the entire proceedings. (Stipulation # 13). Aetna conducted the investigation of the Greenberg v. McCabe case.
Greenberg v. McCabe was originally scheduled for trial before the Honorable Joseph S. Lord, III, on or about March 14, 1977. (Stipulation # 28). Aetna first claimed a "reservation of rights" to disclaim coverage by letter to McCabe dated March 11, 1977. (Stipulation # 26; Exhibit G-30 to Stipulation of Facts). This letter stated:
This is to advise you that we reserve our rights to disclaim coverage for you in the above case. Under the terms of our policy, coverage is afforded for:
"all sums which the insured shall become legally obligated to pay as damages because of: injury arising out of the rendering of or failure to render, during the policy period, professional services by the individual insured . . ."
Review of your deposition in this case indicates that you have testified very specifically that your sexual activity with Mrs. Greenberg was not part of your therapy. The injuries claimed in the complaint, some or all of which are claimed to be permanent, are as follows:
Left frontal skull fracture;
Injury to her nerves and nervous system;
Pain and mental suffering;
Lost earnings and earning capacity;
We will continue to afford you a defense throughout this case, but this cannot be construed in any way to be a waiver of our position that you are not entitled to coverage on the facts involved in this case.
Aetna wrote a supplemental letter to McCabe regarding coverage on March 16, 1977. (Stipulation # 27, Exhibit G-31 to Stipulation of Facts). That letter stated:
This letter will supplement our correspondence of March 11, 1977. This is to advise you that we reserve our rights to disclaim coverage for any damages, in the above captioned case, incurred at any time that did not arise out of professional services rendered by you or professional services that you failed to render.
As previously indicated, we will continue to afford you a defense throughout this case, but this cannot be construed in any way to be a waiver of our position that you are not entitled to coverage in the facts envolved [sic] in this case.
Greenberg v. McCabe was tried before the Honorable Joseph S. Lord, III and a jury from September 6, 1977 to September 16, 1977. (Stipulation # 29). Joseph was sole counsel representing Dr. McCabe (Stipulation # 30); Chief Judge Lord did not permit the personal attorney retained and paid for by Dr. McCabe to participate in the trial. (No. 76-342, N-T 1-17, dkt. #67).
Greenberg testified at that trial that she had come as a patient to McCabe in 1968, for treatment of asthma and anxiety, on the recommendation of a friend. During therapy sessions McCabe administered certain drugs that were either illicit or "contraindicated." She testified that she and McCabe began to have sexual relations after she had been his patient for approximately six months and that their affair continued through February, 1974; Greenberg lived with McCabe beginning in the fall of 1972. There was also testimony that McCabe continued to prescribe drugs for Greenberg until an altercation on February 11, 1974.
Expert testimony was presented with regard to McCabe's drug therapy and the phenomenon of transference in psychiatric treatment. Transference was described as a phenomenon in psychiatric practice by which the patient transfers feelings toward everyone else to the doctor, who then must react with a proper response, the countertransference, in order to avoid emotional involvement and assist the patient in overcoming problems. There was also expert testimony that McCabe's drug treatment and his sexual involvement with his patient, a mishandling of Greenberg's transference, was treatment below the standards of the medical profession. The jury was charged on the law of medical malpractice.
Special interrogatories were submitted to the jury. (Stipulation # 31; Exhibit G-3 to Stipulation of Facts). The jury returned a verdict upon special interrogatories as follows:
INTERROGATORIES TO THE JURY
1. Was the defendant negligent in his treatment of the plaintiff as a patient?
If you answer this question "NO", sign this interrogatory and return to Court.
2. If you answer Interrogatory #1 "YES", was that negligence a substantial factor in causing harm to the plaintiff?
If you answer this question "NO", sign this interrogatory and ...