Opinion
CAUSE NO. IP 00-1544-C H/K
February 22, 2002
ENTRY ON DEFENDANT STEELE'S MOTION TO STAY
Defendant Robert J. Steele, M.D., has moved for a stay of this action because his liability insurer is in liquidation proceedings in Pennsylvania. Plaintiffs oppose such a stay.
Dr. Steele's liability insurer is PHICO Insurance Company, which is domiciled in Pennsylvania. PHICO is in liquidation proceedings in the Commonwealth Court of Pennsylvania (the "liquidation court"). On February 1, 2002, the liquidation court issued a liquidation order that states in part: "24. Unless waived or otherwise agreed by all of the parties thereto and the relevant guaranty association, all actions in which PHICO is or may be obligated to defend a party in any court are stayed to the extent provided by applicable law, subject to further order of the court. . . ." The liquidation court's order is similar to the stays authorized by Indiana statute for Indiana insurers going through liquidation. See Ind. Code § 27-6-8-17. Such provisions are similar to the automatic bankruptcy stay under 11 U.S.C. § 362 to enable orderly resolution of competing claims on limited assets of an insolvent debtor.
Dr. Steele acknowledges that the liquidation court's order is not legally binding on this federal court, but he contends that this court should exercise its discretion to accord comity to the liquidation court's order. See, e.g., Anshutz v. J. Ray McDermott Co., 642 F.2d 94, 95 (5th Cir. 1981) (according comity to stay order by state court overseeing liquidation of insurer); Glushakow v. Confederation Life Ins. Co., 1994 WL 803204 (D.N.J. Dec. 5, 1994) (same). Dr. Steele requests an open-ended stay of this action, which is scheduled for trial in June 2002.
Plaintiffs oppose the stay. They argue that Dr. Steele should be left to his own devices to finance his defense of this action, just as a plaintiff may be required to finance his own pursuit of an action. Plaintiffs assert that an open-ended stay would be unfair to the other defendants (although those defendants do not oppose a stay) and to plaintiffs themselves, whose case already has been delayed by all defendants' recalcitrant approach to discovery.
Dr. Steele's motion and plaintiffs' opposition demonstrate the powerful public interest in the insurance business. The financial difficulty for PHICO inflicts significant harm on innocent third parties — its own insureds like Dr. Steele and those like plaintiffs who are pursuing claims against its insureds. Dr. Steele's motion requires this court to allocate among the innocent parties here the consequences of PHICO's financial distress. Still, there is a strong public interest in the orderly liquidation of an insurance company and in the orderly marshaling of the resources of state insurance guaranty associations established to protect the customers of insolvent insurers (as well as those who sue those insureds). "[T]he security of insurance companies is vitally important to the economic well-being of a large number of individual citizens. Consequently, the public policy ramifications of decisions regarding insurance companies will often transcend the importance of the case at bar." Glushakow, 1994 WL 803204, at *7, quoted in Commissioner of Insurance v. Albino, 572 N.W.2d 21, 30 (Mich.App. 1997).
Plaintiffs argue in essence that PHICO's insolvency is Dr. Steele's problem, not theirs. They make the point by turning it around: "Indeed, it would be an odd motion for a plaintiff to make, and opposition from defendants could be universally expected, if a plaintiff were to petition for a stay of proceedings based upon the need for the plaintiff to obtain funding, sometime in the future, to finance the costs of prosecuting the case. What defendant would agree to such a motion? What court would grant such a motion?"
If such a motion by a plaintiff were opposed, perhaps the best response by a plaintiff would be to point out that such stays are granted for the benefit of defendants who expect an insurer to defend them, as in this case. Although it might be unusual, a reasonably brief stay for the benefit of a financially strapped plaintiff would seem to be a fair mirror-image response to the well established practice of reasonable stays for defendants whose liability insurers are in rehabilitation or liquidation proceedings. In any event, the strong public interest in regulating insurance for the protection of policyholders and principles of comity weigh in favor of taking reasonable steps to protect Dr. Steele's legitimate expectation that a liability insurer will protect his interests in this case.
Giving appropriate comity to the order of the liquidation court, Dr. Steele is entitled to a stay of the proceedings against him, pending further (and
reasonably prompt) action by the guaranty association to step into PHICO's shoes. Given the late stage of these proceedings, however, and the slow response by Dr. Steele and his counsel to legitimate discovery requests, there is one exception to the stay in favor of Dr. Steele. Plaintiffs are still entitled to the court-ordered discovery responses from Dr. Steele under Paragraph 2 of the court's order of January 18, 2002. That deadline of February 7, 2002, remains in effect, and both Dr. Steele and the counsel who have represented him are responsible for compliance with that order. See Ind. Rules of Prof. Conduct 1.16(c). With that one exception, proceedings on plaintiffs' claims against Dr. Steele are hereby STAYED pending further order of this court.
Dr. Steele filed his motion for stay on February 8, 2002. The court assumes he has in fact complied with the February 7, 2002 deadline, but the record is not clear on the point.
A complete stay of this entire action is not warranted, however. The action is against nine defendants and is scheduled for trial on June 17, 2002. The court believes that the best solution to the unpalatable problem here is to use Rule 42 of the Federal Rules of Civil Procedure to bifurcate plaintiffs' claims against Dr. Steele from their claims against the other eight defendants, and to allow the case to go forward as scheduled against those other defendants. If plaintiffs or the other defendants believe that such a course would prejudice them unfairly (such as through the risk of an "empty chair" defense by the other defendants), they shall file any objections no later than March 15, 2002.
Further, under these circumstances, it makes no sense to hold Dr. Steele's motion for summary judgment hanging over the plaintiffs' case. Along with the stay in favor of Dr. Steele, the court hereby STRIKES Dr. Steele's motion for summary judgment without prejudice to possible renewal. The possibility of renewal, however, may need to be linked to the schedule after the stay of the proceedings against Dr. Steele is eventually lifted.
Finally, pending further order of this court, Dr. Steele's counsel shall file and serve on the first business day of each month a report on the status of their communications with the guaranty association or other developments relating to PHICO's coverage of Dr. Steele.
So ordered.