Free Statement - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Plaintiff Northland Insurance Company (" Northland" submits its Statement of ) Disputed in Opposition to Defendant'Motion for Summary Judgment Based on Guaranty s vs. Correctional Medical Services, Inc., a Missouri corporation, Dr. Antonio DiMaano, Dr. Reynaldo Figueroa, Nurse Lorraine Lopez-Moreno, Nurse Trina Carrasco, Nurse Jacqueline Cornwell, and ABC Insurance Company, Defendants. UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Northland Insurance Company, a Minnesota corporation, Plaintiff, No. CV 04-347 PHX-FJM NORTHLAND INSURANCE COMPANY' STATEMENT OF S DISPUTED FACTS IN OPPOSITION TO DEFENDANTS' MOTION FOR SUMMARY JUDGMENT BASED ON GUARANTY ACTS And UNDISPUTED FACTS IN SUPPORT OF NORTHLAND' S RESPONSE AND CROSS MOTION FOR PARTIAL SUMMARY JUDGMENT ON THE EFFECT OF THE GUARANTY ACTS STEPTOE & JOHNSON LLP Collier Center 201 East Washington Street Suite 1600 Phoenix, Arizona 85004-2382 Telephone: (602) 257-5200 Facsimile: (602) 257-5299 Karl M. Tilleman (013435) P. Bruce Converse (005868) Attorneys for Plaintiff

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Acts and Undisputed Facts in Support of Northland' Response and Cross Motion for s Partial Summary Judgment on the Effect of the Guaranty Acts. STATEMENT OF DISPUTED FACTS IN OPPOSITION TO DEFENDANTS' MOTION FOR SUMMARY JUDGMENT BASED ON GUARANTY ACTS 1. Responding to paragraph 1 of Defendants CMS, Lopez, Carrasco, and

Cornwell (collectively " CMS" Statement of Facts in Support of Motion for Summary ) Judgment re: Guaranty Fund Laws (" DSOF" Northland disputes this Statement [DSOF ), at ¶ 1] In addition to subrogation claims, Northland asserts other claims CMS as an assignee of Correctional Services Corporation (" CSC" [Assignment Agreement dated ). December 5, 2005, attached as Exhibit 1] 2. Responding to paragraph 7 of the DSOF and footnote 6 of the CMS' Motion,

CMS' statement is inaccurate and misleading. In fact, CMS independently rejected CSC' s tender on July 13, 2000, and did not take another step to indemnify or ensure compliance with any other contractual duty it owed to CSC under the insurance contract. [See Resp. at 7, and documents attached as exhibits to NSOF ¶ 43.] CMS' claim that it somehow complied with its duties to CSC is absolutely erroneous. 3. Responding to paragraph 11 of the DSOF, Northland disputes this statement.

The reason CSC did not hire an expert to defend the CMS nurses was because CSC and CMS were adversaries in the litigation (as the tender disputed demonstrates) and, as CMS employees, CSC' counsel was ethically prohibited from contacting, preparing, or defend s the CMS nurses because any statements made by the nurses could have been imputed to CMS for purposes of liability in to Mr. Valdez or others. ER 4.2 of the Arizona Rules of Professional Conduct provides that " [i]n representing a client, a lawyer shall not communicate about the subject of the representation with a party the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other

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lawyer or is authorized by law to do so." The comment to the 2001 version of ER 4.2, moreover, states that the rule " covers any person, whether or not a party to a formal also proceeding, who is represented by counsel concerning the matter in question." ER 4.2, Ariz. R. Prof. Conduct, cmt. (2001). The 2003 amendment to ER 4.2 makes this even more explicit: " the case of an organization, the Rule prohibits communications by a In lawyer . . . with any other person whose act or omission in connection with that matter may be imputed to the organization." ER 4.2, Ariz. R. Prof. Conduct, cmt 2 (2003); see also Penda Corp. v. STK, LLC, No. Civ. A. 03-5578, Civ. A. 03-6240, 2004 WL 1628907, at *3-5 (E.D. Pa. July 16, 2004) (ER 4.2 prohibits a lawyer from communicating with a potential party even though the lawsuit has not yet been filed). CSC specifically informed CMS of this problem and begged CMS to get involved. [Correspondence to Todd

Aschbacher, Esq., dated June 20, 2000, attached as Exhibit 2 (informing CMS of pretrial deadlines); correspondence to Andrew A. Sultze, Esq., dated January 30, 2001, attached as Exhibit 3 (" is impossible for us to defend the nurses in light of the fact that we cannot It even talk to them without violating several ethical rules." correspondence to Andrew A. ); Sultze, Esq., dated April 10, 2001, attached as Exhibit 4 (" had also previously We informed Mr. Aschbacher that we obviously could not defend these nurses because we did not have access to them under Arizona law." )] 4. Responding to paragraph 17 of the DSOF, none of the documents support

the contention that " PHICO, the insolvent insurer of CMS, was subject to the insurance guaranty laws of Missouri by virtue of CMS' domicile there." This is a legal conclusion. Northland affirmatively alleges that as to these facts, this matter is governed by Arizona law. [Resp. at 9-12] 5. Responding to paragraph 20 of the DSOF, the Proof of Claim are forms

attached as Exhibit I were claim forms completed by CMS' current third-party

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administrator, Western Litigation Specialists, and they were never signed nor submitted by CSC or Northland. [See Exhibit I to DSOF (unsigned); see also, Correspondence to Donald H. Smith and Stephanie Vithoulkas from Robert C. Morrison, Esq., dated March 26, 2003 with attachments, attached as Exhibit 5 (" attached document is a proof of The claim form used in the PHICO Insurance Company liquidation. To be eligible for

compensation in the liquidation your completed and signed form must be received by Phico prior to April 1, 2003. . . . Please have the appropriate representative of Correctional Services Corporation sign and send an original to Phico Insurance Company in Liquidation if you wish to make a claim against the carrier based on their coverage in the above referenced litigation." )] 6. Responding to paragraph 22 of the DSOF, Northland denies this statement

because it is a legal conclusion not a factual statement. To the extent that it suggests that that there are no indemnity obligations, express or implied, Northland disagrees as a matter of law. The Health Services Agreement creates a relationship between the parties which serves as the basis for claims of indemnity. See, e.g., INA Ins. Co. of North Am. v. Valley Forge Ins. Co. 150 Ariz. 248, 252, 722 P.2d 975, 979 (Ct. App. 1986) (citing Busy Bee Buffet v. Ferrell, 82 Ariz. 192, 310 P.2d 817 (1957) (" Indemnity by operation of law may arise when liability is imposed on a joint tortfeasor due only to his ` passive' or ` secondary' negligence." This is a legal fiction imposed " ). when justice demands there be the right."Id. 7. Responding to paragraph 24 of the DSOF, Northland denies that CMS

complied with its obligation under the Health Services Agreement to obtain the required insurance and to ensure that CSC was specifically named as an additional insured under the policy. [See Resp. 16-17]

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8.

Responding to paragraph 32 of the DSOF, the CMS does not cite the The only endorsement

provision or endorsement purporting to confer this status.

Northland can locate in the policy that makes such a statement is Endorsement 0018 to Policy No. HCL 10335 and Endorsement 0006 to Policy No. PUP 10335, but they apply by their own terms only to the Corporation Association or Partnership Liability (CL) coverage part, and not the Professional Employee Liability (PE) coverage part that is at issue in this matter. [PHICO Policy No. HCL 10335, attached at the end of Exhibit J of DSOF, Endorsement 0018; PHICO Policy No. PUP 10335, Ex. K to DSOF, Endorsement 0006; see also PHICO Policy No. HCL 10335, attached at the end of Exhibit J of DSOF, Professional Corporation Association or Partnership Liability & Professional Employee Liability Coverage Part (CP/PE); PHICO Policy No. PUP 10335, attached as Ex. K of DSOF, Professional Corporation Association or Partnership Liability & Professional Employee Liability Coverage Part (CP/PE).] To the extent that CMS argues that this provision applies to this dispute in its Reply, Northland reserves the right to assert the " insured versus insured" exclusion also contained in Endorsement 0018 and Endorsement 0006. [Id.] STATEMENT OF UNDISPUTED FACTS IN SUPPORT OF NORTHLAND' S RESPONSE AND CROSS MOTION FOR PARTIAL SUMMARY JUDGMENT ON THE EFFECT OF THE GUARANTY ACTS Northland hereby submits the following undisputed facts in opposition to the CMS' Motion for Summary Judgment re Guaranty Fund Laws and in support of its Response to Defendants' Motion for Summary Judgment Based on Guaranty Acts (" NSOF" ): 9. Correctional Services Corporation (" CSC" operated the Florence West )

prison under an agreement with the State. [Agreement for Provision, Operation and Management of a Private Secure Prison, attached as Exhibit 6]

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10.

Northland insured CSC for liability from its operations at Florence West up

to a per-occurrence limit of $5 million. [Northland Policy No. KA990018, attached as Exhibit 7] 11. 12. The State was an additional insured under that policy. [Id. at NNAS0520] CSC in turn contracted with CMS to provide medical care to inmates at

Florence West. [Health Services Agreement, attached as Exhibit J to DSOF] 13. The primary care nurses and other medical personnel at Florence West were

employees of CMS. [DSOF ¶ 30] 14. In their agreement, CSM agreed to name CSC as an additional insured, and

maintain insurance coverage with per incident limits of at least $3 million. 15. On February 25, 1999, Jose Valdez was transferred from the State of

Arizona' Alhambra facility to the Florence West prison, where he was to serve out his s prison term. [Valdez Compl. ¶¶ X-XI, Ex. A to DSOF; Deposition of Jose E. Valdez dated June 26, 2001, attached as Exhibit 8, at 73:21-23.] 16. CMS begin providing him medical care the very day Mr. Valdez arrived at

Florence West. [Arizona Department of Corrections Health Needs Request dated February 25, 1999, attached as Exhibit 9; Arizona Department of Corrections Continuous Progress Record entry dated February 26, 1999, attached as Exhibit 10] 17. On February 25, 1999, the same day Mr. Valdez arrived at Florence West, he

submitted a Health Needs Request (" HNR" asking to see a medical professional because ) Mr. Valdez felt he had " eyes lazy eye might need glasses." [Health Needs Request, bad Ex. 9]. 18. In the early hours of morning on February 26, 1999, the CMS night nurse on

staff, Nurse Lorraine Lopez-Moreno, reviewed this HNR, and recommended that Mr. Valdez be sent to the Health Clinic at Florence West and seen by a nurse to check his

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visual acuity. [Health Needs Request, Ex. 9 (" Nurse' Line for vision test and assessment s . . . Time: 0745" Deposition of Rita Lorraine Lopez (" ); Lopez II" R.N., dated November ), 30, 2005, attached as Exhibit 11, at 32:15-35:7] 19. That same night, Nurse Lopez reviewed and evaluated Mr. Valdez'medical s

records that had come with him from the prior facility (the State' Alhambra facility). s [Continuous Progress Record, Ex. 10; Lopez II, Ex. 11, at 29:23-30:6] 20. At a minimum, Nurse Lopez became aware from her review of those

Alhambra medical records that: (1) Mr. Valdez had been diagnosed with decreased visual acuity in his right eye on February 8, 1999, (2) that on February 19, 1999 (six days before arriving at Florence West), the security guards at the prior prison facility had referred him to the Health Unit in that facility on the afternoon of that day because Mr. Valdez had been complaining since the morning of dizziness, headaches and tongue numbness; and (3) that he was later diagnosed on that same day by a doctor as having " strabismus" a floating or eye, and told to see a Spanish Speaking provider if he continued to experience these conditions. [Exhibit 1 to Lopez II, attached as Exhibit 12, at " DOC 1," DOC 2" and ; " DOC 4"Lopez II, Ex. 11, at 16:25-33:14] ; 21. Then, at approximately noon on February 26, 1999, less than 24 hours after

he had submitted his initial HNR at Florence West, two CMS nurses were called to Mr. Valdez' cell on a potential emergency because he was found on the floor after having s apparently passed out or having had seizures. [Exhibit 1 to Lopez II, attached as Exhibit 12, at " DOC 6"Lopez II, Ex. 11, at 41:20-48:4] ; 22. Mr. Valdez complained to the nurses that day of headaches, dizziness, and

he informed them that he had been kicked in the head by a horse in October 1998! [Exhibit 1 to Lopez II, Ex. 12, at " DOC 6"Lopez II, Ex. 11, at 42:2-44:7] ;

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23.

The nurses took Mr. Valdez back to the health unit in a wheelchair, checked

his visual acuity, and found that had 20/40 vision in his right eye, 20/50 in his left, and 20/50 in both. [Exhibit 1 to Lopez II, Ex.12, at " DOC 6"Lopez II, Ex. 11, at 45:5-14] ; 24. These nurses gave him 24 200 mg. tablets of Ibuprofen for the pain, and told

him to submit another HNR if he continued to experience these problems. [Exhibit 1 to Lopez II, Ex. 12, at " DOC 6"Lopez II, Ex. 11, at 47:17-48:1] ; 25. The CMS nurses also recommended that Mr. Valdez see an optometrist at

some undefined point in the future to have his visual acuity checked (it took over two months for this actually to occur). [Exhibit 1 to Lopez II, Ex. 12, at " DOC 6" Lopez II, ; Ex. 11, at 47:18-48:4; Exhibit 1 to Lopez II, Ex. 12, at " 1" OD ] 26. On the form prepared for the optometrist, Nurse Trena Carrasco informed

the optometrist of the following observations/impressions she had: " [Valdez] fell off horse 10/98 eye injury." [Exhibit 1 to Lopez II, Ex.12, at " 1" Lopez II, Ex. 11, at 37:25OD ; 39:18] 27. On March 17, 1999, Mr. Valdez became significantly more desperate in his

pleas for help from the CMS nurses. [Exhibit 1 to Lopez II, Ex. 12, at " DOC 13" ] 28. He wrote an alarming HNR that stated: " have sent a request about 1 week I

ago. I pass out about 1 ½ weeks ago. I' getting severe headaches and dizziness because m of my eyes. I need some help. I can'see hardly and having a bad time." [Exhibit 1 to t Lopez II, Ex. 12, at " DOC 13"Lopez II, Ex. 11, at 58:20-25] ; 29. Just three days later, Mr. Valdez sent in another, even more alarming, HNR.

On March 20, 1999, he wrote: " Since I got here in this unit which is February the 25th I sand [sic] a kite [prison language for HNR] to see a doctor because I' having problems m with my eyes and each day it is getting worse. I don'know what it is, I have some t

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itching and can'see very much. I need to see a doctor immediately. [Lopez II, Ex. 12, t at " DOC 14"Lopez II, Ex. 11, at 59:10-61:14] ; 30. In response, the CMS nurses checked to see if Mr. Valdez had any foreign

object in his eye, which he obviously did not. [Lopez II, Ex. 12, at " DOC 14" ] 31. At this point, the CMS nurse supervisor told Mr. Valdez that he was going to

see an optometrist, he had been informed of that fact three times since he arrived at Florence West, and -- amazingly -- " not kite [complain] about this issue again."[Id.]. do 32. Having been instructed on March 20, 1999, not to complain again, Mr.

Valdez waited until April 27, 1999 before he sent in his next HNR, which simply said: " Its [sic] been 5 days that I can'see."[Lopez II, Ex. 12, at " t DOC 15" ] 33. With all the information they had concerning the severity of Mr. Valdez' s

medical condition, the last of which was his reporting he could not see for five days, the CMS nurses once again said, " have already been seen by medical and referred to the you eye clinic. Please do not re-kite [re-complain]."[Id.] 34. On April 29, the optometrist examined Mr. Valdez (two days after he said it

had been five days since he could last see), noted that his visual acuity in the right was not even 20/400, and recommended referral " opthalmology for retina exam!" [Exhibit 1 to to Lopez II, Ex. 12, at " 1" OD ] 35. On May 6, 1999, an attorney representing the family of Mr. Valdez wrote the

Warden at Florence West and informed him (1) that Mr. Valdez had made repeated complaints that he is experiencing intense headaches and loss of vision, (2) that he had not received medical treatment, and (3) that Mr. Valdez'family had seen him several times at s Florence West and were getting increasingly concerned that he was seriously ill and that his condition was worsening. [Correspondence to Warden Copeland from Gabriel Valdez, Jr., dated May 6, 1999, attached as Exhibit 13]

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36.

The Warden asked the nurse superintendent -- Nurse Cornwell -- to obtain

information so the Warden could respond. Remarkably, in her response to the Warden, Ms. Cornwell left out virtually every significant complaint Mr. Valdez had concerning his eyes -- including his statement that on April 27, 1999, it had been five days since he could see. [Correspondence, Ex. 13; Memorandum to Dale E. Copeland, Warden from Nurse Jacqueline Cornwell dated May 11, 1999, attached as Exhibit 14] 37. Therefore, no urgency was afforded to Mr. Valdez' condition even in s

response to a letter from an attorney, to which the CMS nurses responded by omitting many key facts that indicated Mr. Valdez had a very serious medical condition causing him to go blind. [Memorandum, Ex. 14; Correspondence to Gabriel Valdez, Jr., from Dale E. Copeland dated May 17, 1999, attached as Exhibit 15] 38. It was not until May 19, 1999, that CMS provided a specialist to diagnose

and treat Mr. Valdez. [Exhibit 1 to Lopez II, Ex. 12, at " 7" SW ] 39. He was diagnosed with hydrocephalus and papilledema, and transported to

Tucson for emergency surgery. [Arizona Department of Corrections Continuous Progress Record entry dated May 19, 1999, attached as Exhibit 16 (" optic nerve swelling . . . Transporting officers instructed to transfer inmate to SMH ER. Hospital notified." ); Consultation Report of Thomas B. Scully, M.D., dated May 19, 1999, attached as Exhibit 16] 40. A shunt was placed in Mr. Valdez'brain to relieve the intracranial pressure, s

but it was too late to save his vision. [Operative Report of Thomas B. Scully, M.D., dated May 20, 1999, attached as Exhibit 17] 41. Mr. Valdez is now permanently blind. [Report of Wayne W. Bixenman,

M.D., dated October 6, 2000, attached as Exhibit 18]

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42.

On January 5, 2000, Mr. Valdez brought suit against the State of Arizona,

CSC and others (the " Valdez Action" [Valdez Compl., Ex. A to DSOF ). 43. CSC tendered its defense of the Valdez Action to CMS, which CMS

rejected. [Correspondence from Donald H. Smith to Ruth Kim, Esq., dated April 25, 2000 (NOR00104), attached as Exhibit 19; Correspondence from Donald H. Smith to Todd Aschbacher, Esq., dated May 2, 2000, attached as Exhibit 20]; Correspondence from Donald H. Smith to Todd Aschbacher, Esq., dated June 20, 2000, attached as Exhibit 21; Exhibit B to DSOF (" CMS is unable at this time to accept your tender of the defense and indemnity in this case." )] 44. CSC asserted a third-party claim in the Valdez Action against CMS, seeking

indemnity on the basis that its liability was due to the negligence of CMS employees. [DSOF ¶ 9; CSC' Third-Party Complaint dated December 22, 2000, attached as Exhibit s 22] 45. CSC also contended that it was not liable for the portion of Valdez'

blindness attributable to negligent medical care received at other prison facilities prior to his arrival at Florence West. [CSC' Answer to State' Cross-Claim dated January 9, s s 2001, attached as Exhibit 23 ¶ XVIII; Correspondence to Michelle Linkvis from Christopher A. Nelson dated June 29, 2001, attached as Exhibit 24 (" is our position that It the State of Arizona and the Department of Corrections are additional insureds under CSC' Commercial General Liability Coverage and its Commercial Professional Liability s Coverage, but only for liability arising out of CSC' operations at the Florence, Arizona s facility and not for any liability the State may have arising out of Valdez'incarceration at s either the Durango or Alhambra facilities." )] 46. On February 1, 2001, CSC moved for partial summary judgment against all

parties that it had no independent negligence, and was only liable vicariously for the acts

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of others.

[CSC' Motion for Summary Judgment re Independent Negligence dated s

February 1, 2001, attached as Exhibit 25] 47. The court granted that motion on May 7, 2001. [Minute Entry dated May 7,

2001 in Valdez v. Maricopa County, et al., No. CV2000-000205, attached as Exhibit 26] 48. CMS was a party to the Valdez Action at the time. [Docket in Valdez v.

Maricopa County, et al., No CV 2000-00205, attached as Exhibit 27] The Court may, and Northland hereby requests that the Court, take judicial notice of the Maricopa County Superior Court Docket in the Valdez lawsuit pursuant to Rule 201 of the Federal Rules of Evidence. 49. On May 25, 2001, CMS moved to sever the third-party actions from the

underlying liability claims of Mr. Valdez. [CMS' Motion to Sever Indemnification Claims dated May 25, 2001, attached as Exhibit 28] 50. The Court granted CMS'motion on August 1, 2001. [Minute Entry in

Valdez v. Maricopa County, et al., No CV 2000-00205, dated August 1, 2001, attached as Exhibit 29] 51. The issues related to the extent of CMS' liability for Valdez' injury were to

be tried separately, after Valdez' claim for negligent injury was established in a first trial. [Motion to Sever, Ex. 28; Minute Entry, Ex. 29] 52. The first trial was set to begin on September 18, 2001. [Minute Entry in

Valdez v. Maricopa County, et al., No CV 2000-00205, dated July 12, 2001, attached as Exhibit 30] 53. Settlement negotiations in August were unsuccessful. [Correspondence to

Donald H. Smith from Michael L. Parrish dated August 14, 2001, attached as Exhibit 31] 54. In order to ensure that neither of its insureds (the State and CSC) were

exposed to liability in excess of its policy limits, CSC and Northland entered into a " high-

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low"agreement with Mr. Valdez, pursuant to which Mr. Valdez agreed to limit any judgment to a maximum of $5 million, and Northland agreed to pay a minimum of at least $1.5 million to Valdez, regardless of the outcome of the trial. [Settlement Agreement, attached as Exhibit 32] 55. As part of the agreement, the claim by Mr. Valdez against CSC was

dismissed. [Settlement Agreement, Ex. 32; Minute Entry dated September 18, 2001 in Valdez v. Maricopa County, et al., No. CV2000-000205, attached as Exhibit 33] 56. There was no need for this claim, as the remaining direct defendant, the

State, was also vicariously liable, and insured by Northland, for any liability of CSC. [Minute Entry dated December 12, 2000 in Valdez v. Maricopa County, et al., No. CV2000-000205, attached as Exhibit 34; see also DSOF ¶¶ 36-38] 57. Moreover, CSC remained a party to the cross-claims and third-party claims,

pursuant to which any ultimate liability would be apportioned among these parties in a second phase of the litigation. [Valdez Docket, Ex. 27 (CMS still a third party defendant as of March 31, 2003); Minute Entry, Ex. 29] 58. The jury in the first trial awarded Mr. Valdez $6 million in damages.

Judgment was entered for $5 million, based on the high-low agreement. [Minute Entry dated September 21, 2001 in Valdez v. Maricopa County, et al., No. CV2000-000205 (NOR01189-NOR01192), attached as Exhibit 35; Minute Entry dated October 6, 2001 in Valdez v. Maricopa County, et al., No. CV2000-000205, attached as Exhibit 36] 59. Immediately following the trial, the State filed a separate action against

Northland, seeking a declaration that Northland'policy covered all of the conduct at issue s in the Valdez Action including any negligence at other prison facilities prior to Mr. Valdez'arrival at Florence West! [Complaint dated September 28, 2001 in State v. Northland Ins. Co., No. CV2001-016785, attached as Exhibit 37]

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60.

The Superior Court ruled in favor of the State, and Northland appealed.

[Minute Entry dated March 31, 2003, in State v. Northland Ins. Co., No. CV2001-016785, attached as Exhibit 38; Notice of Appeal dated August 27, 2003, attached as Exhibit 39] 61. The Court of Appeals reversed, but not until September 21, 2004. [State v.

Northland Ins. Co., No. 1 CA-CV 03-0643, Mem. Decision, dated September 21, 2004, attached as Exhibit 40] 62. While the appeal was pending, Northland paid the underlying $5 million

Valdez judgment (plus an additional $700,000 in accrued interest), which extinguished the State'cross-claim against CSC, and subrogated Northland to CSC' third-party claim for s s indemnity against CMS. [Judgment in Valdez v. Maricopa County, et al., CV2000-

000205, Maricopa County Superior Court, dated October 3, 2001, attached as Exhibit 41; Check for $2 million from Northland Ins. Co. to Metropolitan Ins. and Annuity Co. dated June 2, 2003, attached as Exhibit 42 (for payment of $2 million annuity for Mr. Valdez as part of settlement); Check for $ 694,532.36 from Northland Ins. Co. to Metropolitan Ins. and Annuity Co. dated June 2, 2003, attached as Exhibit 43 (for payment of interest on the $5 million judgment, with $100,000 annuity discount, as part of settlement); Check for $3 million from Northland Ins. Co. to Metropolitan Ins. and Annuity Co. dated June 2, 2003, attached as Exhibit 44 (cash payment of $3 million to Mr. Valdez as part of settlement); Correspondence to Karl M. Tilleman from Peter A. Guerrero, attached as Exhibit 45 (describing structured settlement); Annuity Contract, attached as Exhibit 46] 63. Northland was not a party to the Valdez Action, so CSC voluntarily

dismissed its third party claim for indemnity against CMS, but only after all parties were aware that Northland, as subrogee of that claim, would pursue that claim (and others) in this action. [Minute Entry dated February 16, 2004 in Valdez v. Maricopa County, et al., No. CV2000-000205, attached as Exhibit 47]

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64.

Northland also asserts two other claims which were assigned by CSC to

Northland. [Assignment Agreement dated December 5, 2005, attached as Exhibit 1] 65. First, Northland asserts that CMS breached its medical services agreement

with CSC in several ways. [Compl., attached as Exhibit 48, ¶¶ 102-20] 66. Second, Northland asserts that CMS committed fraud upon CSC in

connection with its insurance obligations to CSC. [Compl., Ex.48, ¶¶ 154-62] 67. The Health Services Agreement between CSC and CMS states that " [t]his

Agreement and the rights and obligations hereto shall be governed by, and construed according to, the laws of the State of Arizona." [Health Services Agreement, attached as Exhibit J to DSOF, at Art. VIII § 4] 68. The basic insuring agreement under the PHICO policy does not include

liability for breach of contract. [PHICO Policy No. HCL 10335, attached at the end of Exhibit J of DSOF, General Exclusion (f)] 69. The policy also expressly excludes provides that it: " does not apply . . . (f) to

any claim arising from the acts of another for which the insured has assumed responsibility under contract or agreement, whether written or oral, other than any written contract provision under which the named insured agrees to hold a third-party harmless for claims arising from the conduct of an insured under this policy for an event for which coverage is otherwise provided under this policy." [PHICO Policy No. HCL 10335, attached at the end of Exhibit J of DSOF, General Exclusion (f)] 70. The PHICO policy also provides that " policy does not apply to any this

claim arising from the failure to effect and maintain insurance, including policies, bonds, or self-retention service."[PHICO Policy No. HCL 10335, attached at the end of Exhibit J of DSOF, General Exclusions (i)]

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71.

CMS agreed to " maintain professional liability insurance covering CMS, its

employees, its officers, and agents" and to name CSC " an additional insured under the as CMS' policies."[Health Services Agreement, attached as Exhibit J to DSOF, at § 7.1(a)] 72. CSC " furnished CMS a copy of the contract requirements [imposed by the

State]" and CMS " agreed to abide by and comply with applicable requirements." [Id. § 2.8] 73. CSC' contract with the State required CMS to " s provide and maintain and

cause its subcontractors to provide and maintain insurance coverage." [Agreement: Provision, Operation and Management of a Private Secure Prison, attached as Exhibit 6, § 8.2.1 at 49] 74. CSC' contract with the State further required that " policies shall name s the

the State of Arizona and the Department of Corrections as additional insureds." [Id. § 8.2.2 at 49] 75. The State and CSC communicated this understanding to CMS.

[Correspondence to Wendy Donaldson from Steve Spangler dated September 25, 1997, attached as Exhibit 49] 76. Northland also asserts that CMS breached the Health Services Agreement by

failing to " immediately notify CSC in the event the Arizona Department of Corrections (ADC) transfers any physically debilitated inmate to the Facility." [Health Services Agreement, attached as Exhibit J to DSOF, at Art. I § 1.2] 77. Northland does not assert the foregoing contractual claims under a

subrogation theory, but rather under an assignment theory. [Assignment Agreement, Ex. 1] 78. The PHICO policy provides that " policy does not apply . . . (a) to any the

claim arising from the performance of any dishonest, fraudulent, criminal or malicious act,

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or omission, by or with the knowledge and consent of, or at the direction of, the insured." [PHICO Policy No. HCL 10335, attached at the end of Exhibit J of DSOF, General Exclusions (i)] DATED this 5th day of December, 2005. STEPTOE & JOHNSON LLP

By S/S Karl M. Tilleman
P. Bruce Converse

201 East Washington, Suite 1600 Phoenix, Arizona 85004 Attorneys for Defendant Northland Insurance Company

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CERTIFICATE OF SERVICE I hereby certify that on the 5th day of December 2005, I caused the attached document to be electronically transmitted to the Clerk'Office using the CM/ECF System s for filing and transmittal of a Notice of Electronic Filing to the Following CM/ECF Registrants: Dennis E. O' Connell Bryan Cave LLP 211 North Broadway, Suite 3600 St. Louis, Missouri 63102-2750 Attorneys for Correctional Medical Services, Inc. Stephen Paul Forrest, Esquire Holloway Odegard Forrest Kelly & Kasparek 3101 North Central Avenue, Suite 1200 Phoenix, Arizona 85012 Attorneys for Defendants Correctional Medical Services, Inc., Lorraine Lopez-Moreno, Trina Carrasco, and Jacqueline Cornwell

With a COPY of the foregoing mailed / hand-delivered on December 5, 2005, to: Honorable Frederick J. Martone United States District Court Sandra Day O' Connor U.S. Courthouse Suite 526 401 West Washington Street, SPC 62 Phoenix, AZ 85003-2158 STEPTOE & JOHNSON LLP By: S/L Karl M. Tilleman P. Bruce Converse 201 East Washington, Suite 1600 Phoenix, Arizona 85004 Attorneys for Defendant Northland Insurance Company

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