Liability Insurance Company Liable for Breach of Contract Claim When Doctor Failed to Participate in Virginia Birth-Related Injury Fund

The Supreme Court of Virginia recently held that because one of its licensed obstetricians, Chauncey Stokes, M.D., of Women’s Healthcare Associates, did not participate in the Virginia Birth-Related Neurological Injury Compensation Program and represented to his patients that he was in fact a participant, that his insurance carrier is liable for paying up to $4 million for a breach of contract claim surrounding a 2007 birth. 

The coverage dispute arises out of an emotionally charged case in which the distraught mother, Michele Davidson of Ashburn, a nurse midwife employed by Dr. Stokes and his practice, confronted Dr. Stokes and his wife at their home, threatening a violent suicide, before surrendering to police.  The incident occurred a year after the birth of her son, Grant, who has severe cerebral palsy and would have been eligible for the Birth-Injury Program had Dr. Stokes been a participant.1   Ms. Davidson claimed that a major factor in the selection of Dr. Stokes as her obstetrician was because of his participation in the Birth-Injury Program, as confirmed in a Birthing Contract.  All Virginia-licensed providers are required by law to inform obstetrical patients if they participate in the Birth-Injury Program.  If a birth injury is covered by the program, the child and his or her family are not entitled to compensation from a malpractice lawsuit but are entitled to high-quality care for the affected child.

In the mid-1980’s, up to one-quarter of Virginia’s obstetricians were threatened with having to close their office doors due to sky rocketing medical malpractice premiums and “run away” verdicts.  To alleviate this crisis, Virginia worked with all stakeholders – including physicians, associations, insurers, lawyers and others – to develop an innovative solution – the Virginia Birth-Related Neurological Injury Compensation Program, a first of its kind nationally.2   Obstetricians may participate by making an annual $5,000 contribution to the fund in exchange for protection from medical malpractice lawsuits stemming from covered birth injuries.3   This recent Supreme Court decision has rocked a previously stable medical malpractice environment.  

The Virginia Code limits recovery for a 2007 birth to $1.85 million.  Unfortunately, for Dr. Stokes, Women’s Healthcare Associates and their insurer, which has limits of $2 million per claim, there is no statutory cap for breach of contract actions.  Dr. Stokes and Women’s Healthcare Associates may be personally liable for upwards of $2 million.

The Supreme Court held that the alleged breach of nonparticipation in the Birth-Injury Program and resulting damages could not have occurred without Dr. Stokes’ professional medical services.  The court ruled that Dr. Stokes’ misrepresentation about participation in the Birth-Injury Program was merely “incidental” to the contract action, thus allowing breach of contract coverage under the applicable medical malpractice policy.    

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1″Medical Law Report,” Volume 10, Number 1, January 2013.
3Injury to the brain or spinal cord of an infant caused by the deprivation of oxygen or mechanical injury occurring in the course of labor, delivery or resuscitation necessitated by a deprivation of oxygen or mechanical injury that occurred in the course of labor or delivery, in a hospital which renders the infant permanently motorically disabled and (i) developmentally disabled or (ii) for infants sufficiently developed to be cognitively evaluated, cognitively disabled. In order to constitute a “birth-related neurological injury” within the meaning of this chapter, such disability shall cause the infant to be permanently in need of assistance in all activities of daily living.