First District says insurance company must provide coverage to medical school in $3M settlement

A Lake County medical school will receive coverage from one of its liability insurers as part of a deal it reached to settle a lawsuit alleging that it improperly shut down a breast cancer vaccine trial, the First District Appellate Court has ruled.

At the same time, however, the appeals panel determined that another one of the school’s insurers will not be required to pay out, meaning the full burden of the $3 million settlement will be borne by its primary insurer.

In a March 7 opinion, the panel ruled that North Chicago-based Rosalind Franklin University of Medicine and Science was entitled to coverage for its defense and settlement payments under the terms of two policies it held through Boston-based subsidiary of AIG, Lexington Insurance Co.

The ruling came despite Lexington’s continued contentions that Rosalind’s settlement deal arose to end a lawsuit, the causes of which fell outside the scope of the coverage terms of its policy, and that Rosalind’s payments represented a “disgorgement” from funds that were not covered under the policy's terms.

The panel's opinion was written by Justice William Henry Taylor II. Justices Robert E. Gordon and Stuart E. Palmer concurred.

The appeal arose following a 2011 judgment rendered by now-retired Cook County Circuit Judge Richard J. Billik Jr. in the suit, which Rosalind filed in 2006 against Lexington and another insurer, Oklahoma-based Landmark American Insurance Co.

In that case, Rosalind asserted that Lexington and Landmark both had a duty to cover the medical school for costs incurred in arguing and settling a lawsuit brought against the medical school over its termination of a specific cancer treatment research program.

From 1989 to 2004, Rosalind Franklin, formerly known as The Chicago Medical School, conducted a research study of a “breast cancer vaccine” with the intention of determining if cancer could be warded off by stimulating patients’ immune systems.

The study was funded through a $2.5 million donation from Georg Springer, the doctor who developed the potential treatment. Rosalind discontinued the study in 2004, essentially claiming the treatment had not shown the results study investigators had hoped for.

Study participants disagreed and about 50 of them sued Rosalind in 2004, “claiming that the decision to discontinue the vaccination program put their lives at risk.”

Plaintiffs in that suit, all of whom had suffered earlier bouts with cancer and feared recurrences, claimed the school had been negligent in terminating the program because they believed the treatment had kept them cancer free and the medical school had not made sufficient efforts to find them alternative care when it discontinued the program.

They also argued that Rosalind needed to release the money it had obtained from Springer and available vaccination treatments. The case went to a hearing, but Rosalind’s legal team, which included the school’s general counsel and an attorney hired by Lexington, quickly negotiated a $3 million settlement.

Rosalind expected its insurers would pay the settlement and its defense costs, but Lexington and Landmark declined coverage, citing various exclusions under their policies with the school.

At trial, the circuit court found that Lexington was required to pay Rosalind $1 million and Landmark, $2 million, as the judge determined Landmark’s policy was primary to an “excess” policy held by Rosalind through Landmark, and needed to be exhausted before Lexington’s excess policy could be triggered.

On appeal, however, a panel of the First District overturned part of the judge’s ruling, while affirming others.

The justices found that Rosalind was sued over “an exercise of medical judgment” and, therefore, the settlement was covered under the terms of Rosalind’s policies with Lexington.

They also determined that since the underlying action concerned medical actions, it triggered a medical malpractice exclusion under the Landmark policy, meaning Lexington would be required to cover the full settlement and defense in the matter.