Policy Must Be Read as A Whole Single Fire – Multiple Occurrences

Policy Must Be Read as A Whole Single Fire – Multiple Occurrences

Bad facts with severe injuries make bad insurance law when courts attempt to interpret policies to provide maximum funds available for the victim.

The Supreme Court of Connecticut was asked to interpret various provisions of a professional liability insurance policy to determine the amount of coverage available when the same general event has given rise to a large number of claimants against the policy. In Lexington Ins. Co. v. Lexington Healthcare Group, Inc., SC 18681, S.C. 18682 (Conn. 01/28/2014) the Supreme Court dealt with such a decision and read the policy as a whole rather than as a means to help the injured.

Insurance is important to the operation of a modern society. It is not an eleemosynary entity. Insurers are only obligated to pay that which they agree to pay by the terms and conditions of the policy agreed to by the insured and the insurer.

FACTS

On February 26, 2003, multiple residents of Greenwood Health Center (Greenwood), a Hartford nursing home, tragically died or were injured when the facility was set ablaze by another resident and rescue efforts by staff members fell short. As a result, thirteen negligence actions seeking damages for wrongful death or serious bodily injury were filed by some of the victims’ personal representatives against Greenwood, Nationwide Health Properties, Inc. (Nationwide), the owner and lessor of the property housing Greenwood, Lexington Healthcare Group, Inc. (Lexington Healthcare), the lessee of that property, and Lexington Highgreen Holding, Inc. (Highgreen), the operator of Greenwood. This case concerns the amount of liability insurance coverage available for these claims. The plaintiff, Lexington Insurance Company, brought this declaratory judgment action against Lexington Healthcare, which is the insured party under a general and professional liability insurance policy issued by the plaintiff, as well as Highgreen, Nationwide and the victims’ personal representatives (individual defendants). Nationwide and most of the individual defendants each filed counterclaims in regard to the policy, also seeking declaratory judgments. Following the parties’ filing of cross motions for summary judgment, the trial court determined the amount of coverage available under the policy and rendered judgment accordingly.

The plaintiff appealed from the judgment of the trial court determining the available coverage. The plaintiff claimed that the trial court misconstrued the policy language pertaining to ‘‘related medical incidents’’ and the endorsement relating to the “aggregate policy limit,” thereby providing more coverage for the individual defendants’ claims than that to which they were entitled.

The policy issued by the plaintiff to Lexington Healthcare provided both general liability and professional liability coverage for Lexington Healthcare’s seven nursing home facilities. As to the amount of coverage available for those claims, the trial court found that: (1) for purposes of applying the policy’s $500,000 per medical incident limit for professional liability coverage, the acts, errors or omissions underlying each individual defendant’s injuries or death constituted separate medical incidents and did not collectively comprise related medical incidents, in which case a single $500,000 limit would have applied; (2) the total amount of professional liability coverage available under the policy for all of the individual defendants’ claims was the $10 million “aggregate policy limit” provided via an endorsement to the policy, rather than the $1 million “aggregate limit” for professional liability coverage stated in the policy declarations; and (3) a $250,000 “self insured retention (SIR) per occurrence” described in another endorsement to the policy applied to reduce the $500,000 per medical incident coverage to $250,000 per medical incident.

ANALYSIS

Related Incidents

The plaintiff claims first that the trial court improperly interpreted the phrase “related medical incidents” as used in the policy, thereby affording greater coverage for the individual defendants’ claims than the parties to the policy had intended. According to the plaintiff, the individual defendants’ claims arose from “related medical incidents,” because all of their injuries or deaths stemmed from the same root cause, namely, the admission of the individual who started the fire to Greenwood and the failure to supervise her properly. The plaintiff argues, therefore, that a single policy limit applies to all of the individual defendants’ claims collectively rather than to each claim individually.

“Related” generally is defined as “connected by reason of an established or discoverable relation,” or “associated; connected” or “standing in relation; connected; allied; akin”. Courts of other jurisdictions, considering these or similar definitions, have opined that the term related covers a broad range of connections, both causal and logical.

Applying the foregoing definitions and their associated limits to the specific allegations of negligence raised by the individual defendants, the court noted that each individual defendant has raised multiple  allegations of negligence, in some cases upwards of twenty. Although some allegations pertain to negligent supervision of the individual who started the fire, others aver a wide variety of different safety and response failures by Lexington Healthcare. Overall, the medical incidents underlying the individual defendants’ claims are as dissimilar as they are alike.

The phrase related medical incidents does not clearly and unambiguously encompass incidents in which multiple losses are suffered by multiple people, when each loss has been caused by a unique set of negligent acts, errors or omissions by the insured, even though there may be a common precipitating factor.

AGGREGATE LIMITS

The plaintiff also claims that the trial court improperly concluded that the policy provides a total of $10 million in professional liability coverage for all of the individual defendants’ claims, rather than a total of only $1 million.

The policy contains a number of endorsements, including endorsement no. 3, which provides in an amendment to the definitions section of the policy, which applies to both the general and professional liability parts, to add seven locations. Endorsement no. 3 also amended the policy to make the aggregate policy limit at $10,000,000. After examining endorsement no. 3 of the policy, the trial court concluded that the total amount of professional liability coverage available for the individual defendants’ claims clearly and unambiguously was $10 million and not $1 million. The Supreme Court found that the trial court’s interpretation of the policy was incorrect for the following reasons. First, the court improperly equated the different terms aggregate limit and aggregate policy limit when no compelling reason existed to do so. Using the ordinary meanings of its component words, the phrase aggregate policy limit, which appears only in endorsement no. 3, clearly conveys that the amount specified, $10 million, is the maximum amount of insurance available under the entire policy when claims for both general liability and professional liability coverage, at all insured locations, are combined. Additionally, that endorsement explicitly provides that the aggregate policy limit is the most the plaintiff will pay annually for the sum of all damages under both the general liability and professional liability parts of the policy.

In contrast, the term aggregate limit appears both in the declarations page, directly beneath the heading, Healthcare Professional Liability. By virtue of its placement and the absence of the word “policy,” the term aggregate limit logically means the total amount available for professional liability coverage only, at a particular location.

Next, in reading the policy as it did, the trial court rendered the portion of the declarations page pertaining to aggregate limits superfluous, referring to it as ‘‘irrelevant, ’’ instead of attempting to read the declarations in conjunction with endorsement no. 3 to see if each part of the policy could be given effect. By its plain terms, the portion of endorsement no. 3 providing for an aggregate policy limit for general and professional liability coverage does not purport to alter or supersede any specific, preexisting part of the policy, but only to amend the policy as a whole.

The policy, without consideration of the endorsements, provides for a total of $1 million in general liability coverage and a total of $1 million in professional liability coverage for a single location. These coverage limits are stated clearly on the declarations page under the heading of “Limits of Insurance,” where an “Aggregate Limit” of $1 million is listed for each type of coverage.

The clear language of the policy, read as a whole, with the endorsements provides $1 million in the aggregate at each location. Properly construed, the aggregate policy limit amends the policy to reduce the total combined coverage to an amount that is less than what it otherwise would have been. A firm foundational rule in the construction of insurance contracts is that the expressed intent of the parties is to be ascertained by examining the contract or policy as a whole. By equating distinct terms and reading endorsement no. 3 in isolation, rather than in conjunction with other parts of the policy, the trial court improperly rendered the aggregate limits provided by the declarations superfluous and improperly concluded that a total of $10 million in professional liability coverage was available for all of the individual defendants’ claims. The Supreme Court concluded, to the contrary, that the policy provides for only $1 million in professional liability coverage for those claims, because that is the aggregate limit for that coverage part at a single insured location.

The SIR

The trial court interpreted the SIR endorsement as requiring the plaintiff to provide coverage to Lexington Healthcare for each medical incident only to the extent that damages for that incident exceeded $250,000, the amount of the self-insured retention. According to the court, even though Lexington Healthcare is insolvent and, therefore, unable to pay the self-insured retention amount itself, the policy clearly provides that the plaintiff is not responsible for the first $250,000 of damages for each medical incident. The trial court concluded further that the SIR endorsement operates to reduce the maximum amount payable by the plaintiff for any one medical incident from $500,000, as stated in the declarations, to $250,000. To begin, paragraphs A and B of the SIR endorsement make it abundantly clear that Lexington Healthcare, and not the plaintiff, must pay the first $250,000 of damages attributable to any one medical incident, including investigation and defense expenses. The Supreme Court disagreed with the trial court’s conclusion that, once the plaintiff’s duty to indemnify is triggered by the amount of a particular claim exceeding $250,000, its liability for that claim is limited to only the next $250,000 of damages, and not the $500,000 per medical incident provided in the declarations, which is the most the plaintiff will pay.

Because the $500,000 per medical incident limitation provided in the declarations was not altered by the SIR endorsement the plaintiff remains potentially liable for the next $500,000 in damages for each medical incident over the first $250,000.

ZALMA OPINION

This is an important decision on several levels, the most important of which was taking the time and effort to read the insurance policy as a whole rather than take its component parts out of context to provide additional indemnity dollars available to the victims of a bankrupt defendant. Although the  victims of the fire deserve to be compensated, because of the insolvency of the defendant, they are limited to recovery from the insurance available.