MMIC accused of manipulating record-breaking $97M malpractice verdict to force tort reform

Two sets of lawyers are bringing competing complaints against the insurance company they accuse of mishandling an Iowa medical malpractice lawsuit that resulted in a record-setting $97 million jury verdict.

Andrew and Kathleen Kromphardt won the massive award in Johnson County against Obstetric and Gynecological Associates of Iowa City and Mercy Hospital after their son suffered serious brain injuries during birth in 2018. The jury award, believed to be the largest malpractice verdict in Iowa history, includes money for anticipated lifelong 24/7 care for the couple's son.

The massive verdict was one factor Iowa legislators cited when they passed laws to cap noneconomic damages in future malpractice cases — an outcome that, according to the clinic's lawyers, may have been the insurance company's goal from the start.

Attorney Nick Rowley, representing the clinic, sued Minnesota-based insurer MMIC on Nov. 21, accusing the company of acting in bad faith in refusing to settle the Kromphardts' case before trial, pressuring the clinic to improperly declare bankruptcy to avoid paying the bill, and using the resulting catastrophic results to lobby Iowa legislators to pass tort reform the company had been seeking for years.

But on Tuesday, attorneys representing the Kromphardts filed their own lawsuit over MMIC's alleged bad faith conduct toward the clinic.

Attorneys for the family say they control the rights to that claim to go toward the roughly $65 million they are still owed by the clinic. Their attorneys say a judge will have to decide who has the right to assert the clinic's claims going forward.

However the case proceeds, the parties are looking for significant money. The Kromphardts' complaint seeks damages from MMIC of more than $100 million. Rowley's goals are even more ambitious. The attorney previously told the Iowa Capital Dispatch he intended to sue the insurer for "more than $1 billion."

MMIC, for its part, is fighting back in multiple courts, including asking a federal judge to grant a restraining order preventing Rowley from further meddling in the Kromphardts' case against the clinic. A spokesperson told the Register the new lawsuits against MMIC contain "assertions that are simply untrue" and the company expects both will be dismissed.

Two arguments allege bad faith by MMIC

Even the Kromphardts' lawyers, who have no love for the clinic, allege the insurer poorly served the doctors there.

"The arrogance of MMIC is well beyond anything I've ever seen in my 45 years as a lawyer," attorney Jack Beam told the Register. "They never offered a penny (to settle), even though the doctors desperately wanted the case to settle."

The Kromphardts' complaint cites emails between the clinic's attorneys before trial, showing the doctors trying without success to get their insurer to agree to negotiate.

Ultimately, facing an unpayable debt to the Kromphardts worth tens of millions of dollars, the clinic sold itself to Mercy Hospital Iowa City, with its shareholder doctors becoming Mercy employees. The complaint states the shareholders "lost millions of dollars in reasonably expected profits and potential sale of the practice in the future."

Rowley, in his complaint, offers a motive for MMIC's alleged failure to deal in good faith, as well as subsequently pressuring the clinic to declare bankruptcy. The attorney, who has raised similar allegations in other lawsuits against MMIC, believes the insurer was trying, and succeeded, to pressure legislators into passing the tort reforms it wanted.

"This is a badly behaved insurance company that has a long history of bad behavior in Iowa," Rowley said in a statement. "MMIC needs to be held accountable for perverting their duties to insured Iowans, and for its successful efforts to defraud Iowa lawmakers into passing legislation that fundamentally violates the constitutional rights of Iowa healthcare patients.”

Where is the money, and who gets to sue?

The dueling lawsuits set up an awkward fight between the clinic and the Kromphardts, even before MMIC files any reply in court.

Court filings show that, to satisfy the outstanding jury verdict, the Kromphardts in July sent sheriff's deputies to take legal possession of the clinic's potential causes of action against MMIC, meaning the family gets to bring those claims on the clinic's behalf and, if successful, keep the proceeds.

Matt Patterson, another of the Kromphardts' attorneys, said they intend to argue to the court that they are the ones entitled to bring the clinic's claims against MMIC.

"(We will) intervene in the (clinic's) case and have the issues/cases consolidated for the judge to rule who is prosecuting the cause of the action, which we believe will be ruled on in our favor," he said in an email.

Rowley, via email, said he does not believe the Kromphardts can extinguish the clinic's right to bring its own claims, and that the family's attorneys are "jumping on the train that we have set in motion because we have the case against MMIC that has teeth to it."

Even if a court rules the Kromphardts have sole rights to the clinic's claims, Rowley said, his suit also brings claims on behalf of the three individual doctors who owned it, claims that the Kromphardts do not own — meaning the two sides will still likely have to cooperate against their mutual foe.

"The practical effect is that the (clinic) and the Kromphardt estate will have to work jointly to prosecute the case against MMIC under the law," Patterson said.

Supreme Court delays case, and MMIC responds

The back-to-back filings have roiled an already sprawling dispute.

In addition to suing MMIC, Rowley's complaint also brings legal malpractice claims against the Shuttleworth & Ingersoll law firm, which defended the clinic at the malpractice trial. The law firm, which did not respond to a request for comment, subsequently withdrew from that case over the resulting conflict of interest — two weeks before the clinic's appeal was to be argued before the Iowa Supreme Court.

On Tuesday, citing the shakeup of the legal team, Rowley asked the Supreme Court to postpone those oral arguments and allow more time for settlement negotiations. The same day, the court agreed, imposing a 60-day stay on the case.

In response, MMIC filed several motions Thursday asking the Supreme Court to lift the stay and let the case proceed. While the Shuttleworth law firm now has a conflict of interest, the clinic still has other competent appellate attorneys on the case, the company argued.

More importantly, the company says, Rowley has no right to postpone the case, conduct settlement negotiations or do anything else about the case, because the clinic's insurance policy gives MMIC the full right to control its legal defense.

"MMIC believes in the propriety of Dr. (Jill) Goodman’s care and has merely sought to have her conduct reviewed by this court," the insurer's attorneys argue. "It is telling that attorney Rowley is set on avoiding such review."

MMIC is also fighting back in federal court. In June, after Rowley was first hired by the clinic and began threatening to negotiate a settlement, the company asked a federal court to rule that it had the exclusive right to manage the clinic's legal defense, and that if the clinic were to dismiss or otherwise interfere with the appeal, it would void its malpractice insurance and abandon any bad faith legal claim against MMIC by doing so.

The federal court has not yet ruled in that case, and after Rowley asked the Iowa Supreme Court to postpone the case, MMIC returned to the federal court Wednesday with an emergency motion for a restraining order to prevent any further "interference" by Rowley.

The motion cites numerous examples of what the company believes are bad faith and conflicts of interest on Rowley's part. MMIC accuses Rowley of filing his lawsuit earlier this month specifically to force the Shuttleworth law firm off the case and delay the malpractice appeal; of colluding with the Kromphardts' attorneys despite, nominally, being opposing parties; and of acting against the clinic's legal interest to further his own grudge against MMIC.

With multiple pending cases, what next?

The timeline for the expanding dispute to move forward is unclear.

The Iowa Supreme Court has not scheduled a new oral argument date, or responded to MMIC's motion to lift the stay Rowley requested. The Kromphardts have not filed to intervene in Rowley's suit against MMIC, and MMIC has not yet filed a response to either of the bad-faith suits against it.

In MMIC's federal case, the court has given Rowley until Dec. 8 to respond to the emergency restraining order request.

William Morris covers courts for the Des Moines Register. He can be contacted at wrmorris2@registermedia.com, 715-573-8166 or on Twitter at @DMRMorris.

This article originally appeared on Des Moines Register: Insurer MMIC accused of bad faith in $97M Iowa medical malpractice case