When is a policyholder not an insured? That was the issue considered by the Seventh Circuit last week in Iowa Physicians’ Clinical Medical Foundation v. Physicians’ Ins. Co. of Wisconsin, No. 08-1297 (7th Cir. October 31, 2008), an Illinois case in which the court declared that an insurer’s obligation to act in good faith in responding to offers to settle within policy limits only extends to insured entities.
The Estate of Dennis Goetz sued Dr. Randall Mullen and Iowa Health Physicians (IHP) for failing to properly vaccinate Goetz against malaria before he took a trip to Africa and, upon his return, for failing to properly diagnose or treat the malarial condition that ultimately killed Goetz. At the time, Goetz was insured under a medical malpractice policy issued by Physicians’ Insurance Company of Wisconsin with limits of $1 million. The policy was issued in the name of Iowa Health Physicians, Mullen’s employer, which also paid the premiums on behalf of Dr. Mullen as part of a financial package to entice him into working at the clinic. Although IHP was listed as the policyholder, the policy itself made clear that it was not an insured and, indeed, IHP declined to pay the additional premium that would have entitled it to coverage under its policy. Rather, IHP was covered through a combination of self-insurance and a separate commercial insurance policy.