On Appeal from the United States District Court for the Eastern District of Missouri.
The opinion of the court was delivered by: Murphy, Circuit Judge.
Submitted: January 12, 2010
Before MURPHY and BYE, Circuit Judges, and STROM,*fn1 District Judge.
Medical Protective Company (MPC) brought this declaratory judgment action against its insured, Dr. James Bubenik, and Joseph and Mary Johnston, who had obtained a state court judgment against the doctor for malpractice, contending that it had no duty to pay because Dr. Bubenik had materially breached the terms of his insurance policy. The district court*fn2 entered a declaratory judgment in favor of MPC and the Johnstons appeal. We affirm.
Dr. Bubenik was a dentist specializing in conscious sedation dentistry and MPC provided his medical malpractice insurance. A patient named Marlon Jaudon died in July 2004 during a procedure at Dr. Bubenik's office. Six months later Dr. Bubenik performed the same type of procedure on Henry Johnston. Johnston did not regain consciousness and died four days later.
Malpractice actions were filed against Dr. Bubenik by the Jaudon family and subsequently by the Johnstons. During the course of the Jaudon litigation, Dr. Bubenik invoked his Fifth Amendment privilege against self incrimination and refused to offer any testimony. In March 2006 MPC told Dr. Bubenik that his refusal to testify might jeopardize his insurance coverage. MPC's counsel sent Dr. Bubenik a letter on April 3, 2006 stating that his continued refusal to testify might be a material breach of the cooperation clause in his policy. That clause provided that "[t]he Insured shall at all times fully cooperate with the Company in any claim hereunder and shall attend and assist in the preparation and trial of any such claim."
On the morning of the Jaudon trial, the presiding judge disqualified Dr. Bubenik's expert witness for that case because her opinion was based on information which had been given her by the doctor but was not in the record. MPC settled the Jaudon case the same day, but it was unable to contest coverage at that point because it had not sent Dr. Bubenik a reservation of rights letter.
During the course of the Johnston litigation, Dr. Bubenik again asserted his Fifth Amendment privilege. He refused to answer interrogatories, submit to a deposition, or testify at trial. When asked about the merits of his defense, Dr. Bubenik told MPC that the Johnston case was defensible but that he was unwilling to discuss how it could be defended. He also refused to release to MPC a state dental board report completed six days after Johnston's death. That report related what had occurred on Johnston's visit and contained Dr. Bubenik's opinion as to the cause of his death, information that was not contained in the dental records released to MPC.
MPC sent Dr. Bubenik's personal attorney a letter in August 2006 which stated:
Pursuant to the policy terms, including the provisions pertaining to his duty to cooperate, Dr. Bubenik is required to "fully cooperate" and "assist in the preparation and trial" of claims against him. Specifically, this duty to cooperate requires Dr. Bubenik to answer interrogatory requests, provide testimony in his defense at deposition and at trial, and assist MPC in the defense of this matter, all of which he has refused to do.
The letter from the insurer further advised that "Dr. Bubenik's failure to cooperate or testify creates a complete obstacle to the ability of MPC to defend the claims" against him and that "[a]bsent his full cooperation . . . MPC will be forced to choose between electing to deny coverage or providing a continued defense only under a full reservation of rights."
Neither Dr. Bubenik nor his counsel responded to the August letter. A similar letter was sent in October 2006. Again MPC received no response. Finally at an October mediation in the Johnston case, MPC hand delivered to Dr. Bubenik a letter stating that he had breached the cooperation clause and that MPC was reserving its rights under the policy.
By early November 2006 Dr. Bubenik knew that MPC planned to seek a declaratory judgment that it was not liable to pay any judgment in the Johnston case due to his breach of the cooperation clause. He entered into a settlement with the Johnstons in which they agreed to pursue execution of any judgment only against MPC. Shortly thereafter, MPC filed this declaratory judgment action in federal district court, joining the Johnstons as defendants. The state court action went to trial in December resulting in a $2.4 million judgment in favor of the Johnstons against Dr. Bubenik. The federal district court subsequently concluded that MPC was not liable for that judgment because Dr. Bubenik had breached the cooperation clause in his policy by failing to testify and assist with his defense. The court also concluded that MPC neither waived nor should be estopped from asserting its affirmative defense.
The Johnstons appeal, asserting that MPC failed to make the showing required by Missouri law to deny coverage for breach of a policy cooperation clause. They also claim that MPC waived this defense and should be estopped from denying coverage. We review the findings of fact made by the district court in a bench trial for clear error and its ...