Clinic says malpractice award was engineered to push for tort reform

An insurance company engineered a record-setting medical malpractice judgment against an Iowa clinic as part of a successful scheme to have state lawmakers approve tort-reform legislation this year, according a court filing by the clinic's lawyers.

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 new attorney, Nick Rowley, filed papers in federal court arguing the insurer, MMIC Insurance Inc., acted in bad faith. MMIC, Rowley claims, engineered the jury award to help 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.

MMIC officials did not return a message seeking comment for this article.

Once the jury in the Kromphardt case returned a verdict against the clinic for $97 million, "MMIC used that result to convince Iowa politicians to put a cap on noneconomic damages," Rowley alleges. The insurer then used a "bazooka shoved into the clinic's mouth," Rowley claims, and forced the clinic to declare bankruptcy, enabling lobbyists and lawmakers to claim tort reform was needed to save clinics from closing and discourage doctors from moving out of state.

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.

In the new court filings, Rowley argues MMIC "unreasonably chose not to settle and make the lawsuit and verdict go away, and then used the clinic's financial and reputational demise as propaganda to get tort reform passed in Iowa … It orchestrated the bankruptcy, hired and paid the bankruptcy lawyers, and refused to shield the clinic or its insured doctors from financial ruin."

While executing this "deceitful and fraudulent plan," MMIC was also "holding seminars and lobbying for the implementation of noneconomic caps in Iowa and involving the governor in the process," Rowley claimed in the court documents.

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.

Rowley claims that MMIC, in executing the alleged scheme, 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."

Insurer pursues appeal while clinic pursues settlement

The new court filing is part of the clinic's response to a federal lawsuit MMIC recently filed in an effort to block Rowley and the clinic from undermining MMIC's appeal of the $75.6 million judgment. MMIC is currently seeking a federal court order that will allow its appeal of the $75.6 million judgment to move forward, noting that the appeal has been fully briefed by all parties and is simply awaiting a decision by Iowa's appellate courts.

MMIC is seeking a federal-court injunction that will preserve the Iowa Supreme Court's opportunity to decide the appeal and protect what MMIC calls its "right to control" any litigation over the matter.

Rowley's new filing on behalf of the clinic is in direct response to that request for an injunction. Rowley is asking the federal court to refrain from issuing the injunction and is asking the court to allow the clinic and its physicians to negotiate a settlement with the Kromphardts.

Separately, the clinic and its physicians want to sue MMIC for bad faith and "expose what happened," Rowley told the court. Instead, the insurer is tying their hands by pursuing an appeal that could lead to a new trial, while the clinic and its doctors want to negotiate a settlement now, Rowley told the court.

Rowley is a high-profile plaintiffs' attorney and Iowa native who says he has won more than $2 billion for his clients in verdicts and settlements. He said in an interview he intends to sue the company for more than $1 billion.

"We're working on the complaint right now," he said, adding that he expects the lawsuit to expose details of the lobbying efforts that led to the Iowa Legislature's decision to cap noneconomic damages.

Judge tossed out bankruptcy case in March

This latest round of 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.

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