Iowa City clinic owes $75 million bankruptcy judgment as insurer fails to pay

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IOWA CITY – An Iowa City medical clinic grapples with a malpractice judgment worth more than $75 million – in which a newborn baby suffered permanent brain damage during childbirth due to negligence – filed for bankruptcy last month after its Minnesota insurer failed to pay its share of the liability.

Legal experts told The Gazette that the clinic likely filed for bankruptcy in anticipation of suing its insurer for failing to pay its $12 million policy limits.

Bankruptcy will further delay the child’s family from receiving judgment from a jury. In addition to the appeal process, the family will now have to file a claim with the bankruptcy court.

Sixth Judicial District Judge Kevin McKeever previously denied motions for a new trial or a reduced verdict from the $97.4 million awarded by Johnson County jury in March against Mercy Hospital in Iowa City and OB GYN Associates in Iowa City and Coralville.

The jury found that the hospital and clinic were equally negligent and equally liable for damages and awarded the parents, Andrew and Kathleen Kromphardt of Iowa City, the $97.4 million.

The Kromphardts sued the hospital and Dr. Jill Goodman and OB GYN Associates for negligence after the 2018 birth. Their attorney at trial said health care providers “misused forceps and a vacuum, crushing the baby’s head” during delivery.

The child, now 4, has cerebral palsy, a learning disability, cannot walk on his own and requires round-the-clock care for the rest of his life.

The jury award is the largest ever awarded in an Iowa medical malpractice case, Geoffrey Fieger, lead attorney for the Kromphardts of Southfield, Michigan, said after the 14-day trial.

However, according to a pretrial agreement between Mercy Hospital and the Kromphardts, the hospital’s liability was capped at $7 million, which the hospital paid.

Court documents say the clinic is liable for more than $75.6 million and must now pay its damages following the judge’s orders on post-trial motions. The clinic’s insurer, MMIC Inc., headquartered in Minneapolis, must pay $12 million, which the clinic is insured for under its policy.

In a letter to the Kromphardts, an attorney for MMIC said he would be prepared to pay his $12 million limits pending appeal, according to a show cause motion filed by the Kromphardts. The motion asks the court for a hearing to order MMIC to explain why it has not yet paid and why the company should not be held in contempt.

Even after an MMIC lawyer admitted liability, he still hasn’t paid his debt, the petition says. The company has now offered to place $12 million in an interest-bearing account to be paid only while the appeal is completed.

Attorneys for the Kromphardts last month filed an enforcement of judgment — orders requiring payment of money or possession of property — in Johnson County on both the clinic and the MMIC, court documents show. . The request for payment was made by the Polk and Johnson County Sheriff’s Offices, but neither MMIC nor the clinic paid their obligations.

The clinic then filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Iowa on October 31, according to court documents. Chapter 11 allows a company to stay in business while it seeks to reorganize.

Fieger said Friday that this “tactic” — filing for bankruptcy — could have been avoided had MMIC paid the clinic’s policy limits of $12 million. He said he plans to file a complaint with Iowa Insurance Commissioner Doug Ommen and will bring a claim for his customers in the bankruptcy action.

Tim Semelroth, a Cedar Rapids attorney who regularly handles medical malpractice cases, pointed to a lawsuit — in which he is not involved — filed in Polk County that also involves MMIC not wanting to pay the limits of politics at another medical clinic in Iowa.

This clinic is being sued for performing a “radical prostatectomy” when it mistakenly diagnosed a patient with prostate cancer, according to the lawsuit. In that lawsuit, Nick Rowley and Dominic Pechota with Trial Lawyers for Justice in Decorah, claimed that MMIC refused to act in good faith.

There have been three cases in Iowa that have gone to trial in the past six years that have resulted in jury verdicts totaling more than $150 million. In each of those cases, MMIC made “low” settlement offers, forcing the cases to go to trial, the suit said.

Semelroth said it was the first time in 25 years of handling medical malpractice cases that he’s seen a defendant take this action because his carrier wouldn’t pay his share of the liability.

The clinic filed for bankruptcy to protect its assets, but also as a legal strategy in case it decides to file a lawsuit against MMIC, he said.

Kromhardt’s show cause motion asks the court to schedule an in-person hearing later this month.

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