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Garrou v. Shovelton

Court of Appeals of Colorado, Division A

January 24, 2019

John L. Garrou and Denice Garrou, Plaintiffs-Appellees,
Lawrence A. Shovelton, Defendant-Appellant.

          Chaffee County District Court No. 16CV30040 Honorable Amanda Hunter, Judge

          Announced January 24, 2019 Wm. Andrew Wills II, P.C., Wm. Andrew Wills II, Colorado Springs, Colorado, for Plaintiffs-Appellees

          Hershey Decker Drake, Kari M. Hershey, Matthew W. George, Lone Tree, Colorado, for Defendant-Appellant


          FREYRE, JUDGE

         ¶ 1 This is a C.A.R. 4.2 interlocutory appeal of a district court order denying a motion to stay the proceedings. It arises from a medical malpractice action brought by plaintiffs, John L. Garrou and Denice Garrou, against defendant, Lawrence A. Shovelton, as well as Monarch Anesthesia, LLC (Monarch), and Salida Hospital District (hospital).[1] Shovelton moved to stay the proceedings based on a South Carolina state court order commencing liquidation proceedings and granting an injunction and automatic stay of all proceedings against his malpractice carrier, Oceanus Insurance Company, and any of Oceanus' policyholders (South Carolina order). Oceanus is a risk retention insurance group, and Shovelton is one of its policyholders. We granted Shovelton's petition for interlocutory review because the appealed order involves controlling and unresolved questions of law, and our immediate review will promote a more orderly disposition of this litigation.[2]

         ¶ 2 Resolution of the petition requires us to answer a novel question: Must a Colorado court recognize and give effect to a South Carolina court's liquidation order concerning a South Carolina risk retention insurance group and its policyholders when one of those policyholders is sued in Colorado? Our answer is "yes," for two reasons. First, both South Carolina and Colorado have adopted the Uniform Insurers Liquidation Act (UILA), §§ 10-3-501 to -559, C.R.S. 2018; S.C. Code Ann. §§ 38-27-10 to -1000 (2018), which contains a reciprocity provision requiring states to recognize stays in insurance proceedings from other UILA states. Second, Oceanus is a risk retention group that was chartered in South Carolina and is governed by the Federal Liability Risk Retention Act of 1986 (LRRA), 15 U.S.C. §§ 3901-3906 (2018). The LRRA gives a risk retention group's charter state primary authority to regulate the group's operations under the UILA and to issue orders binding a risk retention group and its policyholders in other states where the group conducts business. Accordingly, we conclude that Colorado must recognize and give effect to South Carolina's order and, therefore, we reverse the district court's order denying Shovelton's motion for a stay. We remand the case with directions to stay the proceedings as to Shovelton, and for the district court to determine, in its discretion, whether the Garrous may proceed against Monarch and the hospital without Shovelton.

         I. Relevant Facts and Procedural History

         ¶ 3 Mr. Garrou was admitted to a Colorado hospital for podiatric surgery, during which Shovelton, a nurse anesthetist, administered a popliteal[3] nerve block. The Garrous allege that Shovelton negligently administered the nerve block and caused Mr. Garrou to suffer permanent injury to his right leg. Consequently, they filed this medical malpractice suit in January 2017 against Shovelton, Monarch, and the hospital asserting claims for negligence and loss of consortium.

         ¶ 4 Oceanus is Shovelton's malpractice insurer and is a South Carolina industrial insured captive corporation formed as a risk retention group. It is owned by its policyholder group members throughout the United States. In August 2017, the Director of the State of South Carolina Department of Insurance filed a petition to commence liquidation proceedings against Oceanus, alleging that Oceanus had failed to maintain the required minimum capital and surplus to cover its policyholders; that further business transactions would be hazardous to Oceanus' policyholders, creditors, and the public; and that Oceanus was insolvent under South Carolina law.

         ¶ 5 On September 21, 2017, a South Carolina court granted the Director's petition, appointed him as liquidator, and issued an order commencing liquidation proceedings. The order imposed an injunction and automatic stay of proceedings "applicable to all persons and proceedings." As relevant here, it prohibited (1) "[t]he institution or further prosecution of any actions or proceedings"; (2) "[t]he obtaining of preferences, judgments, attachments, garnishments, or liens against the insurer, its assets, or its policyholders"; (3) "[t]he levying of execution against its insurer, its assets or its policyholders"; and (4) "[a]ny other threatened or contemplated action that might lessen the value of the insurer's assets or prejudice the rights of policyholders, creditors, or shareholders, or the administration of any proceeding under Chapter 27 of Title 38 of the South Carolina code." The order further provided that "the rights and liabilities of the insurer and its creditors, policyholders, shareholders, members, and other persons interested in its estate become fixed as of the date of entry of the order of liquidation."

         ¶ 6 While the defendants' motions for summary judgment were pending, Shovelton received a letter from the liquidator dated September 29, 2017, advising him that "all claim matters that you have [with] Oceanus are now stayed." Separately, the Garrous filed a notice of the South Carolina order in October and requested a stay consistent with the order. Monarch and the hospital opposed the stay, arguing that the order was limited to the institution of new proceedings following issuance of the order and that the Colorado suit would not interfere with the out-of-state liquidation proceedings. On November 21, 2017, a magistrate denied defendants' summary judgment motions and the Garrous' request for a stay. Neither side appealed the order denying the stay.

         ¶ 7 On February 8, 2018, the South Carolina court issued an "Order of Clarification." That order provides as follows:

It has been brought to the attention of the Court that there is some confusion among the Bench and Bar in other jurisdictions as to whether the injunction and automatic stay set forth in the Order which is "applicable to all persons and proceedings" and which prohibits, among other things, "the institution of further prosecution of any actions or proceedings" includes prohibiting actions against the policyholders of Oceanus which would be the insured physicians which are also referred to as covered providers and additional named insureds of Oceanus Insurance Company.
So as to clarify my Order of September 21, 2017, this Order is to confirm that the automatic stay prohibiting "the institution of further prosecutions of any action or proceedings" includes prohibiting actions or proceedings against the policyholders, covered providers and additional named insureds of Oceanus Insurance Company.

         ¶ 8 On May 3, 2018, Shovelton filed a motion to stay all proceedings. He argued that Colorado must give full faith and credit to the South Carolina order because both states have adopted a version of the UILA and are bound by reciprocity under it. The hospital joined the motion a few days later, and the Garrous filed a motion opposing the stay. The Garrous argued that (1) the court had already ruled on this issue in its November 21, 2017, order; (2) no appeal had been taken from the magistrate's order; (3) the Colorado proceedings did not interfere with the Oceanus liquidation; and (4) any delay would be unjust. The district court denied Shovelton's motion on July 23, 2018, finding that a stay is not required because (1) if the South Carolina order applies to any actions or proceedings against any policyholder, it would be "dangerously broad"; (2) any judgment in Colorado would not affect the assets of Oceanus, but instead would only affect Shovelton's ability to pay the costs of his defense and to receive assistance in paying ...

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