11th Cir. - Physician's Failure to Comply With State Financial Responsibility Act Does Not Make Underlying Malpractice Award Nondischargeable
In Guerra v. Fernandez-Rocha, 2006 U.S. App. LEXIS 14339 (11th Cir. June 12, 2006), the plaintiffs had obtained a judgment against the debtor physician for negligence in the death of their newborn baby. The physician subsequently filed a bankruptcy petition and the plaintiff filed an adversary contending that the debt should be excepted from discharge pursuant to §523(a)(4) (fraud or defalcation while acting in a fiduciary capacity).
The plaintiffs' claim was based upon the debtor's failure to comply with Florida's Financial Responsibility Act, which requires physicians to maintain malpractice insurance, a letter of credit, or maintain an escrow account sufficient to pay a claim of $250,000. Fla. Stat. § 458.320(1). Plaintiffs claimed that this statute created a fiduciary duty to the extent of the fund required to be maintained. The Bankruptcy Court dismissed the proceeding and the District Court affirmed.
The Eleventh Circuit affirmed. The statute was a regulatory statute, and did not create a fiduciary duty or technical trust between physician and patient. Moreover, the statute did not create a debt for purposes of §523(a)(4), as the statute excepts debts based on "defalcation" and not negligence. The plaintiffs' debt was based upon negligence and malpractice and the nature of that debt was not altered by the existence of the state statute.
Interesting decision. I wonder if the Guerras might have pursued relief under Section 523(a)(6). Could it be argued that a physician who fails to carry State mandated insurance is acting "wilfully?" The (a)(4) argument is the only one dicussed in the decision.
This finding reminds me of a case in which I represented an debtor who bought a car from a buy here/pay here dealer, let the insurance lapse then wrecked the car. The car dealer objected to the confirmation of a low percentage Chapter 13. In that case Judge Drake overruled the objection because the same creditor had not objected to confirmation in a prior case that was confirmed, but he indicated that had this been the first Chapter 13 he would have ruled for the creditor. I therefore wonder if the "bad faith" limitations set out in Kitchens would support an objection to confirmation in a case like Fernandez-Rocha.