A bankruptcy filing by a clinic hit with a $75 million malpractice verdict is halted by a judge

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In the aftermath of a $75 million malpractice judgment, a federal judge has barred an eastern Iowa medical clinic from declaring bankruptcy.

Obstetric and Gynecologic Associates of Iowa City and Coralville filed for bankruptcy late last year, and U.S. Bankruptcy Judge Anita L. Shodeen dismissed the case, ruling there is evidence the filing was intended to shield the clinic’s insurer from a $12 million policy payout.

A Johnson County jury awarded more than $97.4 million to the family of a boy who suffered serious brain damage during his birth at an Iowa City hospital in March 2022. The award, which was thought to be the largest in Iowa history, was later reduced to $75.6 million.

Kathleen and Andrew Kromphardt, the boy’s parents, had sued Obstetric and Gynecologic Associates of Iowa City and Coralville, as well as Dr. Jill Goodman, one of the clinic’s directors, as defendants.

The Kromphardts claimed that their son’s brain damage was caused by medical personnel’s failure to properly respond to signs that the baby was deficient in oxygen in the hours before his birth in August 2018.

The boy, now four, is unable to walk on his own and is largely unable to communicate. During the trial, the family’s lawyer argued that the child will most likely require 24-hour care for the rest of his life.

According to court records, the Kromphardts’ attorneys made offers to settle the dispute for the insurance policy limit of $12 million prior to the trial. MMIC, on the other hand, appears to have refused to negotiate or make any settlement offer to the plaintiffs, which contradicted the clinic’s position in the case.

Following the verdict, the clinic filed an appeal and requested that any collection efforts be halted until the appeal was heard. That request was denied by the Iowa Supreme Court.

MMIC reportedly refused to engage in settlement negotiations at that point, prompting the Kromphardts’ attorney to begin collection efforts. The sheriff arrived at the clinic in October to begin the seizure of the clinic’s assets, and the clinic filed for Chapter 11 bankruptcy to protect its assets and remain in business.

On Jan. 20, the conservator in the bankruptcy case filed a motion with the court, alleging that the clinic filed for bankruptcy in bad faith, claiming it was a litigation ploy to avoid paying a bond that would secure some of the clinic’s assets.

Judge Shodeen expressed concern about “the relationship” between the clinic and its insurer, MMIC, in his March 29 decision dismissing the bankruptcy case. The judge speculated that the insurance company may have given the clinic certain financial benefits in exchange for the clinic filing for bankruptcy in order to protect MMIC from having to pay a $12 million policy payout.

She stated that MMIC paid the clinic’s bankruptcy professionals’ fees and provided the clinic with favorable insurance terms when no one else would. Furthermore, the judge stated that MMIC had offered the clinic credit.

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