Lawsuit claims insurer conned Iowa lawmakers into passing tort reform

By Clark Kauffman

November 22, 2023 via Iowa Capital Dispatch

A newly filed lawsuit claims an insurance company engineered a record-setting medical malpractice judgment in Iowa to spur state legislators into passing tort-reform legislation.

In March 2022, a Johnson County jury awarded more than $97.4 million to the family of a boy who sustained serious brain damage during his birth at an Iowa City hospital. The award, believed to be the largest medical malpractice judgment in Iowa history, was later reduced to $75.6 million.

The boy’s parents, Kathleen and Andrew Kromphardt, had sued Obstetric and Gynecologic Associates of Iowa City and Coralville and others, alleging their son’s brain damage was caused by negligence in the hours leading up to his birth in August 2018.

Court filings by parties on both sides of the case suggest that the clinic, the doctors and the family were interested in settling the case out of court for an amount that would be covered by the clinic’s insurance policy. The insurance company resisted, however, and rejected proposals to settle the case for any amount, which resulted in the malpractice case going to trial.

This week, the clinic’s attorney, Nick Rowley, filed a lawsuit in state court arguing that the insurer, MMIC Insurance/Constellation Inc., and its attorneys, Shuttleworth & Ingersoll of Cedar Rapids, acted in bad faith.

MMIC, the lawsuit claims, used the lawsuit and the resulting jury award to persuade state lawmakers to pass tort-reform legislation that would save insurance companies millions by capping damages for malpractice that could be paid out to patients and their families.

“Once a jury decided the case was worth $97 million, MMIC/Constellation used the jury’s verdict to convince Iowa politicians to put a cap on non-economic damages in place in the state of Iowa,” the lawsuit claims. “MMIC/Constellation unreasonably chose not to settle and make the lawsuit and verdict go away, and then used OB-GYN Associates’ financial and reputational demise as propaganda to pass tort reform in Iowa. MMIC/Constellation had been attempting to get a hard non-economic damages cap put in place in Iowa for many years … MMIC/Constellation knew that the story of a $97 million verdict and three female OB/GYN physicians having to file bankruptcy and close their practice because of a large jury verdict, would give MMIC/Constellation what it needed to convince Iowa lawmakers to vote to pass the cap.”

The defendants in the case have yet to file a response to the lawsuit but have denied any wrongdoing in related federal-court filings.

Rowley acknowledged Wednesday that the lawsuit speaks not just to the insurance company’s actions, but to its motives — but, he said, he doesn’t anticipate it will be a difficult case to prove.

“I don’t think it’s going to be that tough,” he said. “A jury is going to see what happened. It’s right there, it’s right out in the open, because that’s how bold they are in Iowa. And wait until I get all their emails and their text messages and everything. We’re going to look at everything and leave no stone unturned.”

Lawsuit: Governor and lawmakers were lobbied 

The allegations in the lawsuit echo those made in court filings related to the original malpractice lawsuit and the clinic’s bankruptcy. In relation to those filings, Rowley claimed the insurer’s decision to take the case to trial, rather than settle, was part of predetermined strategy of forcing the clinic into bankruptcy, enabling lobbyists and lawmakers to claim tort reform was needed to save medical providers from moving out of Iowa.

The bankruptcy element of the plan was almost successful, Rowley claims, until a federal judge in the bankruptcy case stepped in and dismissed the case as fraudulent.

The newly filed lawsuit claims that in the wake of the record-setting judgment, MMIC/Constellation “held seminars and lobbied for the implementation of non-economic caps in Iowa, involving the governor in the process. MMIC/Constellation told the story of three female OB/GYN physicians who had to file for bankruptcy and close down their clinic because of greedy trial lawyers and out-of-control civil litigation in Iowa. What MMIC/Constellation failed to share in these seminars and meetings with Iowa lawmakers is the fact that MMIC/Constellation was the insurer in the case of the $97 million verdict and all of the other large jury verdicts in Iowa — and that each case went to trial because MMIC/Constellation refused to negotiate and settle reasonably.”

House File 161 capped noneconomic damages in lawsuits against health care providers for medical incidents that result in the loss or impairment of a bodily function, disfigurement or death, at $1 million for clinics and individual doctors, and $2 million for hospitals.

Rowley has argued that MMIC/Constellation, in executing the alleged scheme to “bamboozle” state legislators, repeatedly put its own financial and political interests ahead of its policyholder, the clinic, which it used as “a pawn to change Iowa law regarding noneconomic damages – telling Iowans, at best, half-truths and, at worst, straight-up lies … The bad faith runs deep and will prove to be one of the worst cases of bad-faith conduct justifying punitive damages in Iowa state history.”

Rowley said Wednesday that the insurance companies have been “playing the long game” and focusing on long-term profits rather than short-term losses. “They sit up there on their high insurance-company thrones, and they see the world through a whole different lens than the rest of us,” Rowley said.

Judge questioned bankruptcy filing

The lawsuit seeks unspecified damages for bad faith, legal malpractice, breach of fiduciary duty and breach of contract.

The new litigation follows an aborted bankruptcy filing by the clinic last fall. The Kromphardts’ attorneys had challenged the filing, arguing it was filed in bad faith to avoid payment of the malpractice award.

On Jan. 20, the conservator in the bankruptcy case filed a motion with the court, alleging the clinic was acting in bad faith by filing for bankruptcy and arguing it was a litigation tactic to avoid payment of a bond that would secure some of the clinic’s assets.

In a March 29 decision dismissing the bankruptcy case, U.S. Bankruptcy Judge Anita L. Shodeen expressed concern over “the relationship” between the clinic and its insurer, MMIC. The judge suggested the insurance company may have given the clinic certain financial favors in return for the clinic filing for bankruptcy as part of an effort to shield MMIC from having to make a $12 million policy payout.

She noted that MMIC paid fees to the clinic’s bankruptcy professionals and offered the clinic favorable terms on its insurance coverage when no one else would. In addition, the judge stated, MMIC had offered to extend credit to the clinic.

“A question arises about whether the bankruptcy was motivated by a proper purpose or to obtain financial advantages from MMIC in exchange for filing bankruptcy to attempt to protect it from making payment under the policy,” Shodeen stated in her decision.