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Controversy Existed On Insurer’s Duty to Indemnify Malpractice Action


A doctor served as a temporary attending physician for full-time rotations in a hospital’s pediatric intensive care unit (PICU) as part of an agreement to assist the hospital with a staffing shortage in the PICU. A former patient initiated a medical malpractice action against the doctor and others for damages allegedly incurred as a result of negligent treatment she received at the PICU.

 

The doctor was insured under a professional liability insurance policy. The insurer treated its coverage as broad enough to cover the claims asserted against the doctor in the underlying malpractice action. The hospital maintained that the doctor was not entitled to coverage under its insurance, which provides coverage for claims against its employees and agents, because he was not a full-time employee at the time of the events giving rise to the underlying malpractice action. In the absence of coverage by the hospital’s insurance, the damages demanded in the underlying malpractice action allegedly exceeded the doctor's professional liability insurance coverage.

 

The doctor and his insurer filed an action to determine their legal rights against the hospital and determine whether the doctor was entitled to coverage under the hospital’s insurance policy and the relative liabilities of the doctor’s insurer and the hospital’s insurer. The Superior Court stayed the doctor’s and insurer’s action pending final resolution of the underlying medical malpractice action. The court held that while an actual controversy existed as to the hospital’s insurer’s duty to defend, no such controversy existed as to the hospital’s insurer’s duty to indemnify until the underlying malpractice action was finally resolved.

 

The Court of Appeals of North Carolina reversed the trial court’s stay order. The court held that the trial court’s interlocutory order granting the stay was immediately appealable, the trial court erred by granting the stay based on its determination that no actual controversy existed as to the hospital’s insurer’s duty to indemnify until the underlying malpractice action was finally resolved.

 

The court held that the trial court’s interlocutory order granting the stay was immediately appealable. Although interlocutory orders are not generally appealable, immediate appeal is available from an interlocutory order which affects a substantial right. Where there is a pending suit or claim, an interlocutory order concerning the issue of whether an insurer has a duty to defend in the underlying action affects a substantial right that might be lost absent immediate appeal.

 

The trial court erred by granting the stay based on its determination that no actual controversy exists as to the hospital’s insurer’s duty to indemnify until the underlying malpractice action was finally resolved. An actual controversy exists in an action to determine legal rights and determine the liability of an insurer under its policy where the policy contains a pro rata clause and the other applicable policy contains either an excess clause or a pro rata clause. The “other insurance” clause in the hospital’s insurance policy’s Memorandum of Coverage provided that the hospital’s insurer shared liability with other collectible insurance according to their respective limits. Thus, the hospital’s insurance policy’s “other insurance” clause was a pro rata clause. While the hospital’s insurance policy’s “other insurance” clause did not expressly provide that the hospital’s insurance policy was primary to other insurance, the pro rata clause nonetheless meant that the hospital’s insurance policy provided primary coverage regardless of the terms of the doctor’s insurance policy. The court reasoned that because the hospital’s insurance policy afforded primary coverage, an actual controversy existed as to the hospital’s insurer’s duty to indemnify, and the trial court erred by granting the stay based on its determination that no such controversy existed pending a final resolution in the underlying malpractice action.

 

The Court of Appeals of North Carolina reversed the trial court’s stay order.

 

See: Cinoman v. University of North Carolina, 2014 WL 2937050 (N.C.App., July 1, 2014) (not designated for publication).

 

 

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