A hospital’s captive insurer, a corporation organized for the purpose of insuring the liabilities of its owner, issued an insurance policy providing coverage for claims arising out of medical incidents. The captive insurance policy insured all past, present, or future full-time or part-time employees of the hospital. The captive policy also included an “other insurance” clause—i.e., a clause apportioning liability in the event multiple insurance policies covered the same risk. The clause stated that the insurance afforded by the policy was primary insurance except when otherwise specified.
The hospital entered into a staffing agreement with a nurse staffing company. The nurse staffing company agreed to provide registered nurses to the hospital for long-term and per-diem assignments. The hospital retained the right to terminate the assignment of any nurse from the staffing company who failed to meet the hospital's reasonable expectations or failed to follow the hospital's patient care policies. The hospital and the nurse staffing agency also agreed that each would indemnify the other for any and all claims and expenses arising out of or resulting from the negligent acts of its employees or agents.
Another insurer issued a professional liability insurance policy providing coverage to employees of the nurse staffing agency with a cap of $1 million per incident. The policy included an “other insurance” clause which stated that, “[i]f there is other valid insurance (whether primary, excess, contingent, or self-insurance) which may apply against a loss or claim covered by this policy, the insurance provided hereunder shall be deemed excess insurance over and above the applicable limit of all other insurance or self-insurance.” The insurer simultaneously issued an excess commercial liability policy to the nurse staffing agency, which covered the agency and its current and former employees for up to $4 million per incident. The policy also applied “as excess of and not contributory with” any primary or other insurance.
A registered nurse was hired by the nurse staffing agency and assigned to the hospital. The RN was one of several medical professionals at the hospital involved in the treatment of a woman who had been admitted to Washington Hospital while pregnant with her first child. The woman underwent a caesarean section and could not move her legs afterward. She sued the hospital and two of its doctors in the District of Columbia Superior Court for negligence, alleging that she became completely wheelchair-bound as a result of injuries she sustained at the hospital. The hospital filed a third-party complaint in the woman’s action seeking indemnification and contribution from the RN and the nurse staffing agency. The RN and the nurse staffing agency then filed a fourth-party complaint against the hospital and one of its doctors, likewise seeking indemnification and contribution.
The woman, hospital, RN, nurse staffing agency, and nurse staffing agency’s insurer entered into a settlement agreement resolving their respective claims. The hospital agreed to pay the woman and her attorneys $1.05 million, while the nurse staffing agency’s insurer agreed to pay $3.055 million, consisting of a $1.455 million payment to the woman and her attorneys as well as the purchase of two annuities for the woman at a combined cost of $1.6 million. Significantly, the nurse staffing agency’s insurer “expressly reserv[ed] the right to rely on the ‘other insurance’ clauses incorporated into its policies to seek reallocation of the settlement as may be warranted.”
The nurse staffing agency’s insurer followed through on its reservation. It sued the hospital, its parent company, and its captive insurer in the United States District Court for the District of Columbia. The complaint alleged that the defendants owed a duty under the captive insurer’s general liability policy to provide primary insurance coverage for the RN. The nurse staffing agency’s insurer asserted that it stood in the shoes of the RN and the nurse staffing agency for purposes of the litigation, and it sought damages equal to all legal fees and costs it had paid on behalf of the RN and the nurse staffing agency. The complaint invoked the district court's diversity jurisdiction.
The district court granted partial summary judgment to the nurse staffing agency’s insurer with regard to the captive insurer’s liability. The district court concluded that the nurse qualified as an employee of the hospital for purposes of the hospital’s insurance policy. The district court ordered the hospital’s captive insurer to pay the nurse staffing agency’s insurer $3.055 million for payments under the settlement agreement and $153,248.72 for attorneys' fees and costs, along with pre-judgment and post-judgment interest.
The United States Court of Appeals for the District of Columbia Circuit affirmed. The court held that the RN was a covered employee of the hospital for purposes of the captive insurance policy, the nurse staffing agency’s insurer was entitled to reimbursement on the contribution claim, the district court did not have any discretion to displace the terms of the settlement agreement, and the hospital's contractual indemnity claim against the nurse staffing agency did not reduce the amount of the reimbursement.
The RN was a covered employee of the hospital for purposes of the captive insurance policy. The court noted that as a general rule, under District of Columbia law, an entity is vicariously liable for the torts of an employee but not for those of an independent contractor. The court reasoned that although the nurse staffing agency paid the RN’s salary, the hospital had the right to control her conduct and to terminate her assignment at any time. Her conduct that gave rise to the claim was part of the hospital's regular business. According to the definition of “employee” in Black's Law Dictionary, the RN qualified as an “employee” of the hospital. More specifically, the RN was a “borrowed employee” of the hospital, an “employee whose services are, with the employee's consent, lent to another employer who temporarily assumes control over the employee's work.”
The nurse staffing agency’s insurer was entitled to reimbursement on the contribution claim under District of Columbia law from the hospital's captive insurer for amounts paid to defend and settle the underlying action. The court reasoned that the hospital released any contractual right to indemnification as part of the underlying settlement. Even if the hospital had not released any contractual right to indemnification, the captive insurer would not step into the hospital's shoes if it paid $3.055 million on the RN's behalf to settle the underlying action. The captive insurer instead would step into the RN's shoes with respect to the $3.055 million payment, and the RN would have no indemnity claim against the nurse staffing agency because an employer “held vicariously liable for the tort of an employee” generally has “a right of indemnity from the employee,” not the other way around.
The district court did not have any equitable discretion to displace the terms of the settlement agreement. The court held that, while contribution was generally governed by equitable principles, a contribution action was still subject to any express or implied agreements between or among the parties sharing the liability. Where the parties had a contract governing an aspect of the relation between themselves, a court would not displace the terms of that contract and impose some other equitable duties not chosen by the parties. The hospital and the nurse staffing agency’s insurer were parties to a settlement agreement broadly governing any matter connected with the underlying litigation. They agreed to release each other from all claims, demands, and obligations with one exception: the nurse staffing agency’s insurer reserved the right to seek reallocation of the settlement based on the language of the insurance policies. The district court had no discretion to displace the terms of that agreement and impose an equitable duty upon the nurse staffing agency’s insurer to pay more than the insurance policies provided.
The hospital's contractual indemnity claim against the nurse staffing agency did not reduce the amount of the reimbursement. In its third-party complaint in the underlying litigation, the hospital alleged that the nurse staffing agency, as the RN’s employer, was vicariously liable for the RN’s negligence under the doctrine of respondeat superior. But the hospital asserted no independent negligence claims against the nurse staffing agency (such as for negligent hiring or negligent supervision). An employer who was vicariously liable for an employee's torts may recover from the employee the amount paid to discharge the liability plus reasonable legal expenses. The court reasoned that, even if the nurse staffing agency were vicariously liable to the hospital for the RN’s negligence, and even if some portion of the nurse staffing agency’s insurer’s $3.055 million payment went to discharge the nurse staffing agency’s liability, the nurse staffing agency’s insurer —standing in the shoes of the nurse staffing agency—would be entitled to recover that amount from the RN. And the hospital’s captive insurer, as the RN’s primary insurer, would be obligated to reimburse the nurse staffing agency’s insurer for any amount that the nurse staffing agency’s insurer had paid on account of the nurse staffing agency’s vicarious liability.
The United States Court of Appeals for the District of Columbia Circuit affirmed the district court’s grant of partial summary judgment in favor of the nurse staffing agency’s insurer.
See: Interstate Fire & Cas. Co. v. Washington Hosp. Center Corp., 2014 WL 3538081 (C.A.D.C., July 18, 2014) (not designated for publication).