Record-setting malpractice case pits medical clinic against insurer

A Johnson County medical clinic hit with a record-setting malpractice claim in 2022 is now being sued by its insurer over alleged efforts to scuttle an appeal of that decision.

A nationally prominent attorney for the clinic has fired back, saying he intends to sue the insurer for more than $1 billion for the harm he says the company has caused Iowans.

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 as defendants, along with Dr. Jill Goodman, one of the directors of the clinic.

The Kromphardts contended their son's brain damage was caused by medical workers' failure to properly respond to signs the baby was deprived of oxygen in the hours leading up to his birth in August 2018.

The boy, now 4, is unable to walk by himself and is largely unable to speak. At trial, the family's lawyer argued the child will likely need 24-hour care for the rest of his life.

The $75.6 million judgment was appealed by the clinic's insurance company, MMIC Insurance Inc.

Clinic and its insurer are now at odds

MMIC alleges that last September, with its appeal of the judgment still pending, it offered to pay the policy limit, $12 million, into a trust account for Kromphardts' legal counsel, contingent on the funds being returned to MMIC should the insurer prevail in its appeal.

According to MMIC, the Kromphardts' attorney allegedly refused that offer and so, two months ago, MMIC agreed to simply pay the $12 million to the Kromphardts.

At about that same time, however, the clinic allegedly retained new legal counsel in the form of Nicholas C. Rowley, a high-profile plaintiffs' attorney and Iowa native who says he has won more than $2 billion for his clients in verdicts and settlements. Rowley, according to MMIC, was hired by the clinic to take possible legal action against the insurer for its handling of the malpractice case.

Earlier this week, MMIC filed a federal lawsuit against the clinic in an effort to block Rowley and the clinic's alleged efforts to undermine MMIC's appeal of the $75.6 million judgment. In court filings, MMIC alleges Rowley and the clinic are now considering filing a "bad faith claim against MMIC arising out of the March 2022 verdict."

According to MMIC, Rowley wrote to the insurance company on June 2 and stated, "I went and found Judge Bennett and spent approximately a half-hour in the room with (the Kromphardts) discussing how we could work together and dismiss the appeal and move forward with an action together against MMIC."

The letter from Rowley is also alleged to have said, "I do believe that the optics of this case will be changing very soon and that after the unprecedented motions that we — the clinic — intend to file, the chances of MMIC getting a new trial will go down to less than 10%."

Citing those alleged statements by Rowley, MMIC is now seeking a federal court order that will allow its appeal of the $75.6 million judgment "to play out," noting that the appeal has been fully briefed by all parties and is simply awaiting a decision by Iowa's appellate courts.

MMIC alleges that "Rowley's stated agenda is to eliminate or otherwise impair the appeal," and it is seeking an injunction that will protect the Iowa Supreme Court's opportunity to decide the appeal and protect what MMIC calls its "right to control" any litigation over the matter.

When asked about MMIC's allegations, Rowley told the Iowa Capital Dispatch on Friday, "MMIC is a greedy, out-of-state insurance corporation that has been causing harm to Iowa patients, families and healthcare providers for far too long. MMIC comes into Iowa and takes money and refuses to give back when it is supposed to. This case is where it is at because of textbook insurance bad faith by MMIC that it would not get away with in other states. This out-of-state corporation influences Iowa politicians and gets laws passed that harm the civil rights of Iowans. I do, in fact, intend on suing MMIC on behalf of the clinic. The lawsuit will be for more than $1 billion dollars for the harm this greedy insurance corporation has caused to good people in my home state. I will be successful no matter what shenanigans MMIC throws at us."

Lawsuit follows bankruptcy filing

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.

Court records indicate that prior to the trial, offers were extended by the Kromphardts' attorneys to resolve the dispute for the insurance policy limit of $12 million. However, MMIC apparently refused to negotiate or make any settlement offer to the plaintiffs, which was in direct contradiction to the clinic's position in the case.

After the verdict, the clinic appealed and requested that a stay be imposed to halt any collection efforts until the appeal could be heard. The Iowa Supreme Court denied that request, but the appeal remained in place.

Last October, the sheriff arrived at the clinic to initiate seizure of the business' assets and the clinic filed for Chapter 11 bankruptcy to protect its assets and remain in business.

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, 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.

The clinic, meanwhile, had supplied "little evidence to establish its good faith" in the matter, Shodeen added. The clinic has appealed Shodeen's decision in the case.