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November 28, 2014

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Proposed settlements at issue in endoscopy case

Insurance company wants to settle 18 lawsuits of thousands that were filed

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Dr. Dipak Desai, the majority owner of the Endoscopy Center of Southern Nevada, leaves a hearing at Las Vegas City Hall on March 3, 2008.

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Attorneys in the Endoscopy Center of Southern Nevada bankruptcy case are battling over whether an insurance company should be allowed to settle 18 of the thousands of lawsuits filed by patients who were exposed to hepatitis C because of irregular procedures at the Las Vegas clinic.

Attorneys for clinic co-owner Dr. Dipak Desai and the bankruptcy case's trustee, Brian Shapiro, are fighting the settlement plan by Nevada Mutual Insurance Co., saying the settlements in just 18 of the cases would likely exhaust the available insurance proceeds from Nevada Mutual and leave other patients short-changed.

"These 18 cases are the tip of a massive litigation iceberg involving to date hundreds of lawsuits involving potentially thousands of plaintiffs arising out of the same series of events," attorneys for Desai said in court papers filed Thursday.

"It is clear what Nevada Mutual's strategy is here. It wants to settle a few of the hundreds of lawsuits, exhaust policy limits in that manner and then declare it has no further obligation to defend the remaining lawsuits," Desai's filing said. "It clearly has no interest in the consequences of its action on the thousands of claimants who may be denied compensation, even though claimants in some of the unsettled cases may have more meritorious claims than the settling plaintiffs. Both federal and state law make it clear that such an inequitable course of action should not be permitted."

Attorneys for Desai, Rodney Jean and Todd Kennedy of the Las Vegas law firm Lionel Sawyer & Collins, also complained Nevada Mutual has failed to disclose the terms of the 18 proposed settlements and hasn't addressed the number of lawsuits and plaintiffs in the lawsuits in which its insureds are named as defendants.

"Despite this lack of information, it is safe to say that there are hundreds of lawsuits, which could involve thousands of plaintiffs, brought by former patients of the debtors (the Endoscopy Center and related companies) against the debtors, Dr. Desai, and a variety of other defendants, many of whom are insured by Nevada Mutual," the attorneys' filing said.

Desai believes $30 million in coverage is available under the Nevada Mutual policy, though that amount is in dispute.

With an estimated 5,000 patients suing Desai and his clinics, charging they were either infected with hepatitis or lived in fear of being infected, the $30 million is likely to fall short of covering their claims.

Instead of paying lawsuit verdicts and settlements in a manner that is fair to all the patients with confirmed claims, Desai's attorneys claim Nevada Mutual "proposes to compensate plaintiffs solely on the basis of a combination race to the courthouse and race to the insurance proceeds."

"The bankruptcy court, by contrast, is well-suited to establish just such an equitable procedure," Desai's attorneys said.

Attorneys for Shapiro, the appointed trustee in the Endoscopy Center's Chapter 7 liquidation, added in a court filing Monday: "If you are Nevada Mutual Insurance Co., the quickest way out of this bankruptcy, the hepatitis litigation and all the other contractual obligations undertaken by virtue of its insurance contract with the debtors and their co-insureds is to exhaust the policy's limits of liability and leave the debtors to fend for themselves in the remaining mass tort cases."

Shapiro's attorneys called Nevada Mutual's strategy "a textbook bad faith insurance practice."

But attorneys for Nevada Mutual said in their Nov. 25 request to settle the suits that according to the terms of the policy, Nevada Mutual has the exclusive right to reach settlements "and allocate payments as it deems appropriate."

Nevada Mutual said the settlements involve non-debtor doctors and other professionals who were associated with the clinics but are not technically part of the Endoscopy Center bankruptcy case.

"Nevada Mutual submits that the settlement proceeds for the proposed settlements are not property of the (bankruptcy) estate," Nevada Mutual's filing said.

"The policy plainly provides that the debtors in these (bankruptcy) cases have absolutely no right to the proceeds," the insurance company's filing said, adding if the insurance proceeds became part of the bankruptcy case they would be used to pay costs not associated with patient injuries.

Those costs include bankruptcy administration costs as well as the costs of non-patient creditors.

"None of those persons or entities have any rights whatsoever under the terms of the policy," the insurance company's filing said.

Bankruptcy Judge Mike Nakagawa has set a Jan. 15 hearing on Nevada Mutual's request to settle the 18 lawsuits.

A December report from the Southern Nevada Health District on the hepatitis C outbreak associated with Desai's clinics found nine cases of hepatitis C were genetically linked to the Endoscopy Center and 106 more were possibly linked to the clinic, which passed along infection by reusing syringes and single-use medicine vials.

The outbreak prompted health officials in February 2008 to urge about 50,000 patients to be tested for hepatitis B, hepatitis C and HIV.

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