A physician provided obstetrical and perinatal services to a woman during and following the delivery of her son. The family filed a medical malpractice action against the physician and his practice group. The complaint alleged that the physician negligently failed to diagnose a placental abruption, which resulted in brain damage to their son. The family alleged that the practice group was vicariously liable for the physician's negligence, but did not plead claims of direct negligence against the practice group.
The practice group was insured through a professional liability insurance policy issued by an insurer. The policy contained a provision designated as exclusion (i). Exclusion (i) excluded coverage for “injur[ies] arising solely out of acts or omissions in the rendering or failure to render professional services by individual physicians or nurse anesthetists, or by any paramedical for whom a premium charge is shown on the” list of insured parties.
For a period of approximately six years following notice of the claim, the insurer agreed to provide, and did provide, a legal defense to the practice group, without asserting any reservation of rights under the insurance policy. The practice group’s counsel informed the insurer's senior claim representative that, in light of information gleaned through depositions, he had reached the conclusion that liability favored the family and that settlement options should be pursued. The practice group’s counsel repeatedly informed the senior claim representative that various mediation sessions had been scheduled and that the insurer’s presence was required at those sessions by orders of the court because it had the authority to settle the action. In derogation of those orders, the insurer repeatedly failed to send a representative to the mediation sessions.
While the parties were trying to schedule a mediation session, the insurer’s general counsel wrote a letter to the practice group. The letter stated that pursuant to exclusion (i), there was no coverage for the practice group for its vicarious liability for the acts of individual physicians. The trial court rendered a default judgment on the issue of liability against the practice group because the insurer failed to appear at the mediation sessions on behalf of its insured. The practice group and the family executed a settlement agreement whereby the practice group agreed that it was liable for the full amount of the policy, $2 million, and that it would assign to the family its rights to recover against the insurer. In return, the family agreed that they would not proceed directly against the practice group assets. The trial court thereafter dismissed the action against the practice group.
About a year and a half later, the insurer was deemed insolvent. As a result, the Connecticut Insurance Guarantee Association (association) assumed liability for the insurer’s obligations to the extent that claims under its policies were covered by statute. The association commenced an action to determine the legal rights, seeking a determination that it had no obligations under the policy, which the insurer had issued to the practice group, for the families claims. The practice group and the family filed counterclaims seeking determinations that (1) the association was estopped from denying coverage by virtue of the insurer’s breach of its duty to defend, failure to preserve its failure to reserve its rights, and failure to honor its contractual obligations; (2) the policy provided coverage for the claims in the underlying action in the amount of $2 million; and (3) those claims were covered claims as defined by statute.
The association filed a motion for summary judgment on its action to determine legal rights on the grounds that exclusion (i) of the policy precluded coverage of the underlying claims and, therefore, the claims were not covered claims as defined by the statute. The practice group and family filed a cross motion for summary judgment on the ground that the underlying claims were covered under the policy and that, therefore, the association was statutorily obligated to pay three covered claims to the family in the amount of $1,199,700. The trial court denied the association’s motion and granted the practice group’s and family’s cross-motion. The trial court concluded that both parties had offered reasonable interpretations of exclusion (i) and, therefore, the contract should be construed in accordance with the reasonable expectations of the insured that the claims would be covered. The trial court further concluded that the insurer’s breach of its obligation to provide a defense had resulted in a default being entered against the practice group, and that the association was, therefore, liable to the same extent as the insurer would have been for such a breach. The trial court thereafter entered summary judgment in favor of the family and the practice group on both the association’s complaint and their counterclaims.
The Connecticut Court of Appeals reversed. The appellate court held that exclusion (i) unambiguously excluded coverage for the practice group’s vicarious liability arising solely from the professional negligence of one of its physician employees, and the insurer's breach of its duty to defend the practice group did not estop the association from enforcing the policy exclusion.
The Supreme Court of Connecticut affirmed the judgment of the appellate court. The court held that the insurer's preinsolvency breach of its duty to defend the practice group did not estop the association from challenging its liability under the policy, and exclusion (i) plainly and unambiguously excluded coverage for the practice group’s vicarious liability arising solely from the professional negligence of one of its physician employees.
The insurer's preinsolvency breach of its duty to defend the practice group did not estop the association from challenging its liability under the policy. The association’s liability under the statute was limited to covered claims. The default judgment and corresponding settlement agreement in the underlying malpractice action arose from a judicially imposed sanction of the insurer for its conduct in defending that litigation, namely, the imposition of a default judgment on the practice group as a consequence of insurer’s violation of two separate court orders requiring the attendance of a representative with settlement authority at pretrial mediation sessions. The association’s liability was strictly limited by statute to claims grounded in the terms of the policy issued by the insolvent insurer. The court reasoned that the practice group and the family essentially sought to hold the association vicariously liable for the misconduct of the insolvent insurer. The court’s conclusion that an insurer’s preinsolvency conduct did not estop the association from challenging its obligation to pay under the terms of the policy was consistent with the association’s limited purpose of paying only covered claims on behalf of insolvent insurers to insureds who otherwise would be left with limited recovery, if any, following the insolvency of their insurer. The association did not replace the insolvent insurer and did not assume all of the insolvent insurer’s responsibilities and obligations. The court concluded that the association was not estopped from challenging the existence of a covered claim, even when the insolvent insurer would otherwise have been bound to pay that claim because of a breach of its coverage obligations.
Exclusion (i) plainly and unambiguously excluded coverage for the practice group’s vicarious liability arising solely from the professional negligence of one of its physician employees. Despite the fact that the physician’s name was not shown on the list of parties insured, exclusion (i) applied. The qualifying phrase, “for whom a premium charge is shown on the” list of parties insured in exclusion (i) does not apply to individual physicians. The court concluded that the appellate court properly applied the last antecedent rule of contractual and statutory construction, which provides that qualifying phrases, absent a contrary intention, refer solely to the last antecedent in a sentence. The appellate court correctly observed that the phrase “for whom a premium charge is shown on the” list of parties insured was not grammatically or logically separated from the last antecedent phrase “any paramedical” and interpreted the phrase to apply only to the last antecedent, “any paramedical.” Another term of the insurance contract required the maintenance of individual professional liability coverage for physician or nurse to anesthetist employees as a condition for vicarious liability coverage. Read in conjunction with exclusion (i), that term did not render illusory the vicarious liability coverage provided. Because the wording of the exclusion was narrower than that of the other term and the general grant of coverage the sections can be harmonized in a coherent manner, rendering coverage non-illusory.
The Supreme Court of Connecticut affirmed the appellate court’s reversal of the trial court’s award of summary judgment in favor of the practice group, the patient, and his family.
See: Connecticut Ins. Guar. Ass'n v. Drown, 2014 WL 5151376 (Conn., October 21, 2014) (not designated for publication).