Lexington Ins. v. Western Pennsylvania Hosp.

• Decision Date: 09 September 2005
• Docket Number: No. 04-1642.,04-1642.
• Parties: LEXINGTON INSURANCE COMPANY v. WESTERN PENNSYLVANIA HOSPITAL; Elizabeth Lieb; Harry Lieb, h/w, Parents, and Natural Guardians of Kathryn Lieb, a Minor Western Pennsylvania Hospital, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

423 F.3d 318

LEXINGTON INSURANCE COMPANY v. WESTERN PENNSYLVANIA HOSPITAL; Elizabeth Lieb; Harry Lieb, h/w, Parents, and Natural Guardians of Kathryn Lieb, a Minor Western Pennsylvania Hospital, Appellant.

No. 04-1642.

United States Court of Appeals, Third Circuit.

Argued June 7, 2005.

Filed September 9, 2005.

COPYRIGHT MATERIAL OMITTED

Thomas E. Birsic (Argued), Charles E. McChesney II, Kirkpatrick & Lockhart LLP, Pittsburgh, PA, for Appellant.

Edward B. Wood, Wood Group, P.C., Pittsburgh, PA, for Appellant.

Stephen A. Cozen (Argued), Deborah M. Minkoff, Nancy Stuart Portney, Cozen O'Connor, Philadelphia, PA, for Appellee.

Before FUENTES, VAN ANTWERPEN, and BECKER, Circuit Judges.

BECKER, Circuit Judge.

Lexington Insurance Company ("Lexington") sought a declaratory judgment in the District Court that it is not liable for payment of a medical malpractice claim against its insured, Western Pennsylvania Hospital ("West Penn"), because West Penn notified Lexington of the claim more than a year and a half after the policy period ended. The District Court found for Lexington, determining that the claim was governed by Lexington's excess coverage provision created by Endorsement # 007 of the policy, which provides follow-form, claims-made coverage; and that the policy required West Penn to notify Lexington of any claims before the close of the policy period, which it failed to do.

West Penn relies on Endorsement # 001, which provided that the Lexington policy would apply immediately over the coverage limit of the Pennsylvania CAT Fund (described infra p.4). West Penn contends that Endorsement # 007 and Endorsement # 001 are mutually exclusive, such that, where, as here, the CAT Fund took responsibility for paying the underlying claim, the notice provisions contained in Lexington's occurrence policy—which permits a more flexible time limit for reporting claims than under Endorsement # 007—should apply instead of Endorsement # 007's notice provisions. The District Court, however, rejected West Penn's argument that Endorsement # 001 superseded Endorsement # 007, and held that West Penn's failure to timely report the claim relieves Lexington of liability under the terms of the policy. For the reasons that follow, we agree with the District Court that the two Endorsements are complementary and not exclusive, and that Endorsement # 007's time bar applies.

In view of this conclusion, this appeal turns on whether West Penn gave Lexington notice of the claim during the policy period. West Penn's General Counsel admitted that she did not report the Lieb claim until February 12, 2003, well after the policy period, and the first correspondence in the record between West Penn and Lexington regarding the Lieb claim is a letter dated February 12, 2003. Nevertheless, West Penn relies on an internal Lexington document, called an "HPL Create Sheet," which contained a notation that arguably suggests that West Penn reported the medical malpractice claim to Lexington during the policy period. While we find this document to be (barely) admissible evidence, notwithstanding strong objections to it on authentication and hearsay grounds, we conclude that its probative value is too slight to enable West Penn to survive summary judgment.

Neither is West Penn's notice contention supported by the speculative affidavit and deposition testimony of West Penn's then-Assistant General Counsel, Karen Barringer, who merely assumed that Lexington had been made aware of the claim. This absence of evidence, coupled with the concession of West Penn's General Counsel that West Penn did not provide notice during the policy period, compels the conclusion that a reasonable jury could not find compliance with the notice requirement. We will therefore affirm the order of the District Court granting summary judgment in favor of Lexington.

I. Factual and Procedural Background

On May 25, 2001, Elizabeth and Harry Lieb filed a medical malpractice claim in state court against West Penn, alleging that, eleven years earlier, the Lieb's daughter, Kathryn, suffered long-term brain damage as a result of West Penn's negligent delay in performing a caesarean section. West Penn submitted a "Notice of Claim" to its primary professional liability insurer, PHICO Insurance Company ("PHICO"), under the terms of its policy. PHICO provided West Penn with institutional professional liability coverage for medical incident claims made against West Penn and reported to PHICO between January 1, 2001, and January 1, 2002 ("the PHICO policy").

The PHICO policy was a "claims-made" policy, which provided coverage for any claim actually reported during the policy period, even if the incident occurred in prior years. See St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531, 535 n. 3, 98 S.Ct. 2923, 57 L.Ed.2d 932 (1978). The PHICO policy states that it will pay for damages "caused by a medical incident which occurs on or after the Initial Effective Date... and for which claim is reported to Company during the policy period." (emphasis added).

PHICO, however, did not ultimately pay the Lieb claim because it referred the matter to the Medical Professional Liability Catastrophe Fund ("the CAT Fund"), which is governed by the Pennsylvania Health Care Services Malpractice Act, 40 Pa. Stat. Ann. § 1301.101 et. seq. When a claim is made against a health care provider more than four years after the incident giving rise to the claim, the CAT Fund takes responsibility, in the place of a primary insurer, for defending the claim and for indemnifying the health care provider for the first one million dollars. Such claims are commonly referred to as "605 claims." Because the Lieb claim was asserted more than four years after the occurrence giving rise to it, the CAT Fund assumed PHICO's responsibility for defending West Penn in the ensuing litigation. As it emerged, however, the damages resulting from the Lieb claim exceeded the one million dollars of CAT Fund coverage.

During this same period, Lexington provided two types of coverage to West Penn.¹ First, it provided liability coverage on an occurrence basis as set forth in Lexington's pre-printed policy form ("Lexington's occurrence policy"). In contrast to a claims-made policy, an occurrence policy provides coverage if the incident giving rise to the claim occurred during the policy period, regardless of when the claim is ultimately brought against the insured, provided the claim is reported to the insurer "as soon as practicable." See City of Harrisburg v. Int'l Surplus Lines Ins. Co., 596 F.Supp. 954, 960-61 (M.D.Pa.1984), aff'd w/o opinion 770 F.2d 1067 (3d Cir.1985).

Second, Lexington provided excess coverage for medical professional liability over and above the primary insurer's policy limits ("Lexington's excess policy"). This expansion of coverage was effected by Endorsement # 007 which provided excess coverage to West Penn on proof that it had purchased primary medical liability coverage. This excess policy was, by its terms, "follow-form, claims-made" coverage, meaning that the Lexington policy incorporated the terms and conditions of the primary PHICO policy for medical malpractice claims. As mentioned above, the PHICO policy extended coverage to claims that were both "made and reported" during the policy period, even if the injury occurred prior to the policy period. Because the Lieb claim exceeded the coverage limits under the CAT Fund and the PHICO policy, Lexington's excess policy was implicated.

Endorsement # 007 of the Lexington Policy provided, in relevant part:

Medical Professional Liability-Follow Form

PROVIDES CLAIMS-MADE COVERAGE—PLEASE READ CAREFULLY

....

Insuring Agreement IA-Medical Professional Liability Coverage

Insofar as coverage is available to the Insured in the underlying insurance as set forth in the Schedule of Underlying Insurance, this policy applies to liability arising out of medical incidents. All of the terms and conditions of said underlying insurance shall apply to this insuring agreement except as otherwise expressly stated herein.

The dispute on appeal arises out terms of Endorsement # 007 and the interplay between Endorsement # 007 and Endorsement # 001, described below.

The 2001 Lexington Policy expired on December 31, 2001. On the last day of the PHICO and Lexington policy period, West Penn advised Lexington of 23 claims, but Lexington contends that the Lieb claim was not among those discussed. Lexington submits that West Penn did not give notice of the Lieb claim until February 12, 2003, more than a year after the policy ended. As West Penn failed to notify Lexington of the Lieb claim until after the policy terminated, Lexington asserts it should not be required to cover the claim.

Lexington filed suit against West Penn seeking a declaratory judgment that it could deny coverage for the Lieb claim. On cross-motions for summary judgment, the District Court granted summary judgment for Lexington. The District Court held that the Lexington insurance policy was unambiguous in requiring West Penn to provide notice of medical malpractice claims during the policy period, as required by Endorsement # 007's follow-form, claims-made language. Because the Court found that West Penn had conceded that it did not report the Lieb claim to Lexington until February 12, 2003, it held as a matter of law that Lexington was not required to cover the claim. West Penn timely moved for reconsideration, which was denied.

West Penn appeals the District Court's grant of summary judgment, asserting that (1) the Lexington policy did not require notice of the claim to be given during the life of the policy; and alternatively, that (2) there was a genuine issue of material fact as to whether West Penn gave Lexington notice prior to December 31, 2001. We describe the basis for jurisdiction and our standard of review in the margin.²

II. Was West Penn Required to Give Notice During the Policy Period?

A.

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