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Professional Liability |
Mediation |
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Wrongful Death |
Pro-rata Contribution |
Two
insurers disputed their responsibility to respond to a lawsuit filed against a
mutual insured client. Lawrence Knutson was a resident of Riverside Healthcare,
Inc. (Riverside), a nursing home. Knutson died from complications of improper
medical care and his family sued Riverside for wrongful death and gross
negligence.
Riverside
was insured by Royal Insurance Company Of America (Royal) and Hartford
Underwriters Insurance Company (Hartford). Both carriers provided CGL policies
that were amended with professional liability coverage parts. Both policies
were written with a $1 million limit. Royal was the first company notified
about the suit. Several weeks into the loss investigation, Royal arranged a
mediation with the original plaintiffs. At that time, Royal notified Hartford
about the loss and asked them to participate in the mediation. Hartford did not
participate, claiming that it wasn't given time to prepare for the meeting.
Royal
agreed to settle with Knutson's family for slightly more than $950,000. The
insurer also spent more than $130,000 in defense costs. Royal sued Hartford
after the latter refuse to share the settlement and related costs. Royal
appealed after the court ruled that Hartford was only responsible on an excess
basis (under the Professional Liability provision) and its coverage was not
triggered since the settlement fell within Royal's policy limit.
The
higher court agreed with the lower court’s view on a couple of key issues. One,
the loss circumstances supported classifying the loss as involving professional
liability rather than general liability. Two, the carriers' respective
"other insurance" provisions were not alike. Royal's provision
required it to share loss responsibility with other sources of payment.
Hartford's provision positioned its coverage as excess. It is at that point
where the higher and lower courts interpreted the situation differently.
Unlike
the previous court, the higher court reviewed the carriers' provisions and
found them to be in conflict with each other. Rather than focus on how a
literal reading would position Hartford, the court considered the total
contractual situation between the insurers and their client, Riverside. In
essence, the court read the situation to be that, in absence of a 2nd source of
coverage, each carrier had an independent obligation to respond to the lawsuit
and to defend Riverside. It did not appear to be consistent with precedent
cases to allow a carrier to escape its obligation on a technicality. The higher
court interpreted the contractual arrangement as being in conflict and to be
construed in favor of the insured. In other words, Hartford was obligated to
contribute to the settlement. The lower court's ruling was reversed and the
case was remanded for re-consideration consistent with the higher court's
decision.
Royal
Insurance Company Of America, Plaintiff-Appellant, v. Hartford Underwriters
Insurance Company, Defendant-Appellee. U.S. Court of Appeals, Fifth Circuit.
No. 03-20983 November 17, 2004. Reversed and Remanded. 2004 CCH Personal and
Commercial Liability Cases. Paragraph 8069.