St. John's Regional Health Center v. American Cas. Co. of Reading, Pennsylvania

• Citation: 980 F.2d 1222
• Decision Date: 02 February 1993
• Docket Number: No. 92-1191,92-1191
• Parties: ST. JOHN'S REGIONAL HEALTH CENTER, Appellee, v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

Page 1222

980 F.2d 1222

61 USLW 2371

ST. JOHN'S REGIONAL HEALTH CENTER, Appellee, v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Appellant.

No. 92-1191.

United States Court of Appeals,

Eighth Circuit.

Submitted Sept. 14, 1992.

Decided Dec. 3, 1992.

Rehearing and Rehearing En Banc

Denied Feb. 2, 1993.

Paul Paxton Hasty, Jr., Kansas City, Mo., argued (Lee R. Hardee, III, on the brief), for appellant.

Michael J. Patton, Springfield, Mo., argued (C. Bradley Tuck, on the brief), for appellee.

Before John R. GIBSON, BEAM and MORRIS SHEPPARD ARNOLD, Circuit Judges.

BEAM, Circuit Judge.

American Casualty Company of Reading, Pennsylvania, (American) appeals a summary judgment ¹ holding it liable for indemnification of St. John's Regional Health Center (St. John's). St. John's paid $375,000 to settle a medical malpractice claim against Nurse Ruth Lierz, an employee of St. John's and American's named insured. The payment came from funds pooled by several hospitals operated, managed, or controlled by the Sisters of Mercy Health System, St. Louis, Inc., (Sisters of Mercy, Inc.). ² We affirm.

I. BACKGROUND

Nurse Lierz and St. John's were sued for Nurse Lierz's alleged malpractice. At the time of this purported negligence, she was an employee of St. John's acting within the scope of her duties and she was the owner and named insured of a personal liability policy issued to her by American. The pool agreement requires St. John's to have Nurse Lierz purchase this policy as a condition of professional employment.

Nurse Lierz asked both St. John's and American to defend her. American refused. St. John's settled the suit, and paid $375,000 to the family of the decedent. This money came, as indicated, from the Sisters of Mercy, Inc.'s pooled liability fund. St. John's, a Sisters of Mercy hospital, then sued American for reimbursement of the settlement paid on Nurse Lierz's behalf.

Nurse Lierz's policy with American has an "other insurance" ³ clause which declares that American is liable only after any other insurance covering Nurse Lierz's liability is exhausted. In its motion for summary judgment, American argued that the Sisters of Mercy, Inc.'s pooled liability fund is such "other insurance," and therefore it had no duty to defend her and is not liable for the $375,000 paid to settle the suit. St. John's also moved for summary judgment on the grounds that the pooled liability fund is self-insurance, and thus is not "other insurance" for the purposes of American's clause. Finding that the pooled liability fund was self-insurance and not "other insurance" for the purposes of American's clause, the district court granted St. John's motion for summary judgment.

The parties have stipulated that the only dispute between them is the legal status of the pooled liability fund. We have jurisdiction pursuant to 28 U.S.C. § 1291. We must determine whether the courts of Missouri would find the pooled liability agreement to be within the meaning of American's "other insurance" clause. See Interco, Inc. v. National Sur. Corp., 900 F.2d 1264, 1266 (8th Cir.1990).

II. DISCUSSION

In Missouri, the language of an insurance policy is afforded its generally understood or plain meaning. See, Fremont Indem. Co. v. Lawton-Byrne-Bruner Ins. Agency Co., 701 S.W.2d 737, 741 (Mo.Ct.App.1985). Therefore we must decide whether the pooled liability agreement is within the plain meaning of "other insurance."

A. Neither Collateral Employee Indemnification Arrangements Nor Self-Insurance Are "Other Insurance."

Determining the plain meaning of the term "insurance" is not a straightforward task, but several courts wrestling with "other insurance" clauses have noted that "[a]s a matter of common understanding, usage, and legal definition, an insurance contract denotes a policy issued by an authorized and licensed insurance company whose primary business it is to assume specific risks of loss of members of the public at large in consideration of the payment of a premium." Physicians Ins. Co. v. Grandview Hosp. & Medical Ctr., 44 Ohio App.3d 157, 542 N.E.2d 706, 707 (1988) (citing American Nurses Assn. v. Passaic Gen. Hosp., 192 N.J.Super. 486, 471 A.2d 66, 70, aff'd, 98 N.J. 83, 484 A.2d 670 (1984)). There are other sorts of risk-shifting agreements which are not insurance contracts, such as private indemnity agreements collateral to the main business or transaction between parties. Id. In order to determine the nature of St. John's agreement, we will briefly explore a small sector of the universe of noninsurance indemnification agreements.

In Physicians, a hospital's employment contract providing malpractice coverage for an employee was determined not to be "other insurance" for the purposes of the employee's personal malpractice insurance policy. This was because the contractual coverage was collateral to the main purpose of the contract, employment. It was, therefore, merely an indemnity agreement shifting the risk from the doctor to the hospital. The hospital was an independent organization which elected to self-insure, rather than carry commercial insurance. In Physicians, as in American Nurses, the court considered the collateral nature of the hospital's contractual responsibility to the employee, as well as the hospital's lack of any duty to indemnify employees for their own primary negligence. It decided that the hospitals' own noncommercial provisions to indemnify their employees did not constitute "other insurance." In the case at hand, the pooled liability fund is a noncommercial indemnity arrangement by the Sisters of Mercy, Inc.; it is collateral to Nurse Lierz's employment; and thus it is not her own "insurance" as insurance is commonly understood. The pool agreement is not available to the public at large, the Sisters of Mercy, Inc., is not a licensed insurer, and the Sisters of Mercy, Inc., is not in the business of issuing insurance. ⁴ Thus, when compared with the cases factually most similar to this one, it is evident that the pooled liability agreement is not within the plain meaning of "insurance."

The Missouri Supreme Court has not addressed the precise question presented here, but it has determined that a statutory self-insurer is not its employee's "other insurer" as far as the employee's personal liability insurance is concerned. American Family Mut. Ins. Co. v. Missouri Power & Light Co., 517 S.W.2d 110 (Mo.1974) (en banc). In American Family, an employee had an accident while using Missouri Power & Light's car. Missouri Power & Light was a self-insurer, statutorily obligated to pay judgments to the same extent an insurance company would be obligated to pay if it were the insurer. The Missouri Supreme Court found that Missouri Power & Light's certificate of self-insurance and statutory obligation to pay--as an insurance company would--did not make its obligation "other insurance" for the purposes of an American Family policy issued to the employee. Thus, the Missouri Supreme Court agrees with the many cases that have found that primary self-insurance does not fall within the "other insurance" clauses of liability insurers. See, e.g., State Farm Mut. Auto. Ins. Co. v. Universal Atlas Cement Co., 406 So.2d 1184, 1186-87 (Fla.Dist.Ct.App.1981), petition denied, 413 So.2d 877 (Fla.1982); United Nat'l Ins. Co. v. Philadelphia Gas Works, 221 Pa.Super. 161, 289 A.2d 179, 181 (1972); Universal Underwriters Ins. Co. v. Marriott Homes, Inc., 286 Ala. 231, 238 So.2d 730, 732 (1970). This finding indicates to us that the Missouri Supreme Court would interpret the "other insurance" clause in Nurse Lierz's policy narrowly, and further convinces us that the pooled liability fund is not "other insurance."

Furthermore, the Missouri Supreme Court noted in American Family that because an employee may not sue his or her employer to recoup damages paid for the employee's own primary negligence, neither may the employee's own insurance company, standing in the employee's shoes, evade its responsibilities by looking to the employer. American Family, 517 S.W.2d at 113. Likewise, American may not evade its responsibilities to Nurse Lierz by looking through Nurse Lierz to St. John's and the pooled liability agreement.

B. Categorizing The Pooled-Liability Fund

The Saint Louis Province of the Sisters of Mercy, through the Sisters of Mercy, Inc., manages, operates, and controls a multi-state network of nonprofit hospitals. St. John's is one of those hospitals. The Sisters of Mercy, Province of St. Louis, Self-Insurance Trust is a fund from which tort liabilities incurred by its hospitals (business units) are to be paid. Sisters of Mercy, Inc., maintains this fund by pooling assessments from each business unit, based on that hospital's past history of claims and on future risk projections. The funding of the pool is reassessed periodically on the basis of the amount each hospital has paid into the fund, and the amount each has needed to withdraw. The fund covers only hospitals controlled by the Saint Louis Province of the Sisters of Mercy or one of its business units. Joint Appendix at 125. If a hospital leaves the fold of the Saint Louis Province of the Sisters of Mercy, it may no longer participate in the fund and the fund will no longer protect it. Id.

The above facts describe a self-insuring scheme by the Corporate Members of Sisters of Mercy, Inc. "Self-insurance is the retention of the risk of loss by the one upon whom it is ... imposed by law or contract." Physicians, 542 N.E.2d at 707. As the entity which controls, manages, or operates the hospitals, Sisters of Mercy, Inc., (along with St. John's, Nurse Lierz's employer) would likely be liable for any judgments rendered as a result of hospital employees' work. See Blanchette v. Cataldo, 734 F.2d 869, 875 (1st Cir.1984); see also Burks v. Leap, 413 S.W.2d 258, 266 (Mo.1967); Restatement (Second) of Agency § 21, § 5 cmt. c, and reporter's note to § 5, app. vol. 3 at 33 (1958). Th...