Executive Risk Indemnity, Inc. v. Charleston Area Medical Center, Inc. (S.D. W.Va. May 12, 2011)
Defendant revoked a doctor’s clinical privileges when it determined that the doctor’s proposed plan for self-funding his medical professional liability was inadequate and not actuarially sound. The doctor filed a lawsuit seeking the injunctive relief of reinstatement of his clinical privileges in addition to punitive damages. The state court ordered that the doctor’s clinical privileges be restored and the claim for damages proceeded. The doctor moved to amend the complaint seeking to add claims for defamation and claim for invasion of privacy. These claims were tried and a jury returned a sizable verdict against defendant, $5,000,000 in compensatory damages and $20,000,000 in punitive damages. The verdict was reduced and the parties eventually settled for $11,500,000.
After settlement, this dispute arose over which of defendant’s insurers, if any, must provide coverage to defendant for the settlement, with all parties filing motions for summary judgment. Plaintiff provided Directors, Officers and Trustees Liability insurance to defendant. The policy contained an exclusion providing that plaintiff will not pay for claims resulting from any dishonest or fraudulent act or omission or any willful violation of any statute, rule or law by the insured. Additionally, the policy contained an endorsement explicitly adding punitive damages to the definition of loss subject to a maximum aggregate limit. Defendant also had a reinsurance policy.
Defendant argued that by virtue of the jury’s findings, as illustrated on the jury verdict form, at least some portion of the settlement fell under the dishonest/fraudulent acts exclusion and was not covered. The court disagreed, holding that the claims presented to the underlying jury were for defamation and invasion of privacy, not fraud. Defendant was alleged to have wronged the doctor by communicating to others his lack of insurance coverage, the actuarial deficiencies of his self-insurance program and his revoked clinical privileges. Because the doctor never presented a cause of action that was predicated on fraudulent or dishonest conduct, the jury could not have found for him on such a claim, excluding the settlement from coverage. Additionally, plaintiff could not identify any particular dishonest or fraudulent act or omission on defendant’s part. The mere fact that the jury made predicate findings with regard to punitive damages and attorney’s fees did not alter the nature of the conduct giving rise to the claim.
Defendant also argued that it was entitled to concurrent coverage from its reinsurer. That policy provided coverage for Directors and Officers Liability, Employment Practices Liability and Fiduciary Liability in excess of the underlying insurance policies providing coverage for the same categories of losses. The court determined that defendant’s policy with plaintiff covered defendant’s claim and as such, defendant’s losses fall under the reinsurance policy. However, the reinsurer argued that it was only obligated loss in excess of the aggregate policy limits, or in excess of $20,000,000. Because the underlying claim only totaled $11,500,000, the reinsurer contended that defendant was not entitled to coverage. The court agreed, holding that because defendant did not show that the policy limits were exhausted, it had not made out a prima facie case of coverage under this provision of the reinsurance policy.
The reinsurance policy also contained a “catch-all” provision covering all coverages provided under the policy which were not listed in other coverage groups. The “catch-all” did not apply to any liability for which coverage is provided, or would be provided except for limits or exclusions. The court held that in this case, all of defendant’s claims are explicitly covered in under other provisions of the policy. The court noted that if defendant could obtain coverage under the “catch-all” for any loss exceeding its self-insured retention amount, such an outcome would completely obliterate the function of the two underlying insurance policies and ignore the policy language.
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