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Wording of “Other Insurance” Provision Determines Which Policy is Excess


An insurer issued professional liability insurance to a nurse working at a medical center. The medical center had general liability insurance for itself and its staff from another insurer. The nurse was sued for medical malpractice in state court. The nurse’s insurer was informed of the case against the nurse, but opted not to participate in pretrial negotiations. Twenty-two months after the suit was filed, the nurse, the hospital, and the medical center’s insurer all tried to get the nurse’s insurer to participate in mediation and settlement talks. Instead of participating, the nurse’s insurer, through its counsel, demanded that the medical center’s insurer continue to defend the nurse throughout mediation and settlement negotiations. The nurse settled and the medical center’s insurer paid the settlement costs.

 

The medical center’s insurer sued the nurse’s insurer for indemnification. The nurse’s insurer argued that the coverage it supplied to the nurse was junior to the medical center’s general liability insurance. Therefore, the medical center’s insurer should have paid first, with the nurse’s insurer owing only the amount in excess of the medical center’s coverage.

 

The United States District Court for the Southern District of New York disagreed, holding that language in the medical center’s insurance policy rendered it excess to the nurse’s policy. The district court granted the medical center’s insurer’s motion for summary judgment and awarded $1,211,342.47 plus interest.

 

The Second Circuit United States Court of Appeals affirmed. The court held that the medical center’s insurance was excess and the nurse’s insurance must be exhausted first.

 

Under New York law, when each of two insurance policies generally purported to be excess to the other, the excess coverage clauses were held to cancel out each other and each insurer contributed in proportion to its limit amount of the insurance. This rule was inapplicable, however, when its use would distort the meaning of the terms of the policies involved, which turned on consideration of the purpose each policy was intended to serve as evidenced by both its stated coverage and the premium paid for it, as well as upon the wording of its provision concerning excess insurance. Even insurance policies that claim to be excess could be placed in a pecking order consistent with the nature of protection each competing policy conferred.

 

Both the nurse’s policy and the medical center’s policy had “other insurance” clauses, but the plain language of each policy provided for different coverage. The court held that the nurse’s policy belonged to a category of policies generally stating that they are excess to other sources of insurance. The nurse’s policy provided that “if there is other insurance, which applies to the loss covered under this Policy, the other insurance must pay first.” While the nurse’s policy would be considered “excess” of primary insurance, it contained no explicit statement about its position with respect to other excess policies.

 

The court held that the medical center’s policy belonged to a category of policies stating that they are excess to other policies, but specifically addressing their interplay with other excess policies. The medical center’s policy provided that it was excess of any valid and collectible insurance or self-insurance coverage afforded or provided to a nurse, whether such other insurance or self-insurance was stated to be primary, contingent, or excess. The medical center’s policy thus specifically provided that it was excess to any policy provided to a nurse, whether excess or otherwise. Although the medical center’s policy also contained a provision contemplating equal contribution, this provision was triggered only when another policy applied on the same basis. That was not the case here: by its explicit terms, the medical center’s policy did not apply on the same basis as the nurse’s policy.

 

The plain language of these other insurance provisions compelled the conclusion that these policies should be tiered, consistent with policies in their respective categories. Accordingly, the court agreed with the district court that the medical center’s policy was excess and the nurse’s policy must be exhausted first.

 

The disparity in premiums for each policy did not vitiate this conclusion because the policies themselves were not comparable. The medical center's policy provided comprehensive professional liability and commercial liability coverage for an entire hospital and its employees, while the nurse’s policy merely covered professional liability for one nurse. The difference in premiums was thus not instructive in determining tiers of coverage.

 

The court also disagreed with the nurse’s insurer’s argument that the medical center’s insurer did not have the authority to enter into a settlement on behalf of the nurse. The court noted that the nurse’s insurer failed to object to the medical center’s insurer’s involvement in settlement negotiations-of which it was fully aware and in which it could have participated.

 

The Second Circuit United States Court of Appeals affirmed the district court’s judgment in favor of the medical center’s insurer that the medical center’s policy was excess and the nurse’s policy must be exhausted first.

 

See: WCHCC (Bermuda) Ltd. v. Granite State Ins. Co., 2014 WL 1758662 (C.A.2 (N.Y.), May 5, 2014) (not designated for publication).

 

 

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