The plaintiffs alleged that Dr. Malik had negligently failed to refer Mr. Castillo to a cardiologist, leaving his condition undiagnosed and untreated, resulting in Mr. Castillo's death. That same day, the plaintiffs mailed a copy of the complaint to Lancet and Lancet's outside counsel.

In response to the letter and lawsuit, Lancet informed the Insureds that it had been contacted by the plaintiffs in the malpractice action, had retained defense counsel on the Insureds' behalf, and required Dr. Malik's assistance in discussing the allegations against the Insureds.

The attorney retained by Lancet made multiple attempts to contact Dr. Malik by phone, email, and in writing. Dr. Malik, however, never responded, despite repeated attempts to reach him over the course of many months. After speaking with one of Dr. Malik's former attorneys, Lancet learned that Dr. Malik had moved to Pakistan and had no plans to return to the United States.

Unable to reach Dr. Malik, Lancet's attorney advised Lancet that because he had not obtained Dr. Malik's consent to representation, the Maryland Rules of Professional Conduct barred him from appearing in the malpractice action. After Lancet's attorney advised Lancet that he believed he was ethically barred from appearing on Dr. Malik's behalf, Lancet elected not to participate in the malpractice action – it did not investigate the malpractice claim, it did not obtain Mr. Castillo's medical records, and it did not answer the plaintiffs' complaint.

In October 2015, Lancet sent a letter to Dr. Malik's last known address informing him that it was disclaiming coverage because of his failure to cooperate in defense of the malpractice suit. Lancet sent two similar letters to Pakistani addresses thought to be where Dr. Malik might be residing.

The trial court entered an order of default against the Insureds. The plaintiffs' attorney notified Lancet that it had 30 days to move to vacate the order. Three days before a state-court scheduled hearing on damages, Lancet moved to intervene – its first effort to participate in the case – which the court granted.

Lancet unsuccessfully moved to delay the damages hearing and the trial court entered judgment in the plaintiffs' favor for $2.56 million.

Thereafter, Ms. Mora and her children sued Lancet, seeking a declaration that Lancet owed coverage under the policy for the judgment in the malpractice action.

In response, Lancet sought a declaration that the policy was void because of Dr. Malik's failure to comply with the policy's notice and cooperation provisions.

The district court decided that counsel for Lancet had not been prevented from entering an appearance and defending the malpractice action under ethics rules, Maryland law, or the policy. Accordingly, the district court found, Lancet's decision not to participate in the malpractice action “belie[d] its argument that it was prejudiced by Dr. Malik's lack of cooperation.”

The district court entered judgment against Lancet, and the insurer appealed to the Fourth Circuit. It contended that it did not owe coverage under the policy because Maryland law prohibited it from defending the malpractice claim without Dr. Malik's consent and because his refusal to participate prejudiced its ability to defend the malpractice action within the meaning of the policy provision that stated, “Any failure of the Insured to cooperate that prejudices our ability to defend any Claim, shall void this Policy.”

The Fourth Circuit's Decision

The circuit court affirmed.

In its decision, the Fourth Circuit first rejected Lancet's contention that if an attorney had entered an appearance in the malpractice action without Dr. Malik's consent, the attorney would have violated the Maryland Rules of Professional Conduct. The circuit court explained that an attorney could have appeared in the malpractice proceedings on behalf of Lancet and the Insureds because the policy conferred on Lancet “the right and duty to defend any Claim covered by the Policy,” the “right” to investigate any covered claims against the Insureds, and the “right” to choose counsel to defend any claims asserted against the Insureds.

The Fourth Circuit found that Lancet's attorney's contention that he lacked the ability to enter an appearance without the consent of Dr. Malik found “no support in the [p]olicy, in Maryland law, or in the expert testimony presented to and credited by the district court.”

The Fourth Circuit also was not persuaded by Lancet's argument that it had been prejudiced by Dr. Malik's refusal to participate. It concluded that there was “ample evidentiary support in the record” for the district court's factual findings as to Lancet's failure to meet its burden to establish prejudice.

The case is Mora v. Lancet Indemnity Risk Retention Group, Inc., No. 18-1566 (4th Cir. May 7, 2019). Attorneys involved include: ARGUED: John Becker Mumford, Jr., HANCOCK, DANIEL & JOHNSON, P.C., Glen Allen, Virginia, for Appellant. Matthew Peter Maloney, MALONEY LAW OFFICE, LLC, Kensington, Maryland, for Appellees. ON BRIEF: Kathryn E. Kasper, HANCOCK, DANIEL & JOHNSON, P.C., Glen Allen, Virginia, for Appellant.