American Nurses Ass'n v. Passaic General Hosp.

• Decision Date: 10 January 1984
• Parties: AMERICAN NURSES ASSOCIATION, National Union Fire Insurance Company and Flora Panicucci, R.N., Plaintiffs-Respondents, v. PASSAIC GENERAL HOSPITAL and ESIS, etc., Defendants-Appellants, and The Insurance Company of North America, et al., Defendants-Respondents.
• Court: New Jersey Superior Court — Appellate Division

Page 486

192 N.J.Super. 486

471 A.2d 66

AMERICAN NURSES ASSOCIATION, National Union Fire Insurance Company and Flora Panicucci, R.N., Plaintiffs-Respondents, v. PASSAIC GENERAL HOSPITAL and ESIS, etc., Defendants-Appellants and The Insurance Company of North America, et al Defendants-Respondents.

Superior Court of New Jersey Appellate Division.

Argued Oct. 18, 1983.

Decided Jan. 10, 1984.

John I. Lisowski, Livingston, for defendants-appellants Passaic General Hosp. and Esis (Morgan, Melhuish, Monaghan & Spielvogel, Livingston, attorneys; John I. Lisowski of counsel and on the brief).

Walter E. Monaghan, Mendham, for plaintiffs-respondents American Nurses Ass'n, Nat. Union Fire Ins. Co. and Flora Panicucci, R.N. (Haggerty & Donohue, Union, attorneys; Walter E. Monaghan of counsel; Walter E. Monaghan and J. David Woods, Union, on the brief).

Antonio D. Favetta, Jersey City, for defendant-respondent Ins. Co. of North America (Lamb, Chappell, Hartung, Gallipoli & Coughlin, attys.; Mary B. Rogers, Jersey City, of counsel and on the brief).

Before Judges BOTTER, PRESSLER and O'BRIEN.

The opinion of the court was delivered by

PRESSLER, J.A.D.

The novel issue of insurance law posed by this appeal involves the typical "other insurance" clause of a policy of liability insurance pursuant to which the coverage afforded by the policy is rendered excess to other valid and collectible insurance covering the insured for the same risk. The trial judge held that an employer's contractual undertaking with its employees to indemnify them for acts of their own negligence was "in the nature of insurance" and, to the extent the employer did not shift the risk of loss, it had thus assumed, to an insurance company, it was a "self-insurer" of that risk. He concluded, furthermore, that this "self-insurance" constituted "other insurance" within the scope of a standard other-insurance clause. We disagree and reverse.

Defendant, Insurance Company of North America (INA), issued a hospital-medical institutional policy to defendant Passaic General Hospital (Hospital), a nonprofit charitable corporation. The policy contained an additional interest endorsement pursuant to which all Hospital employees were expressly included as insureds and were provided with liability coverage in the amount of $500,000 per claim. The endorsement further provided that Hospital itself would assume the risk for the first $100,000 of each claim. This was referred to in the endorsement as Hospital's "self-insured sum." The endorsement also included a representation by Hospital that it had entered into a contract with defendant ESIS, Inc., a wholly owned subsidiary of INA, whereby ESIS would provide Hospital with such services as the investigation, defense and settlement of claims made against its employees. Finally, the endorsement provided that if any employee-insured "has another policy or policies covering a loss insured hereunder, the insurance with respect to such loss under this policy shall be excess over the amount set forth as the limit of liability under such other policy or policies." There is no question that the coverage of the endorsement extended to the professional malpractice of nurses employed by Hospital.

During the period of INA's policy coverage, plaintiff Flora Panicucci was a nurse in Hospital's employ. She was also a member of plaintiff American Nurses Association, which is the named insured of a policy of insurance issued by plaintiff National Union Fire Insurance Company (National) insuring each of the association's members for loss due to professional negligence in the amount of $200,000 per claim. The policy contained a clause providing that "if the member has valid and collectible insurance for an occurrence protected by this Agreement, the protection provided by this Agreement shall apply only as excess of such insurance...."

The genesis of the controversy among these insurers and insureds is a malpractice action instituted by the guardian ad litem of one Frank Wade, an incompetent, seeking recovery against Panicucci for the personal injuries he allegedly sustained as a result of Panicucci's professional negligence in rendering nursing care to him in Hospital's post-operative recovery room to which she was assigned. That action was ultimately settled for $375,000. Pursuant to a reservation of their rights as against each other, National contributed $150,000 to the settlement payment, INA contributed $125,000, and Hospital contributed $100,000.

This declaratory judgment was thereafter instituted by American Nurses Association, Panicucci and National seeking an adjudication that the coverage afforded by National's policy was excess both in respect of INA's coverage and Hospital's undertaking to assume the first $100,000 of the loss covered by INA. This undertaking, it claimed, was self-insurance which constituted other valid and collectible insurance within the scope of its own other insurance clause. All parties moved for summary judgment asserting that there was no genuine dispute as to any material fact, an assertion with which the trial judge agreed and with which we concur as well. It was the trial judge's conclusion, for the reasons stated in his opinion reported at 184 N.J.Super. 170, 445 A.2d 448 (Law Div.1981), that Hospital was primarily responsible for the first $100,000 of the settlement payment and that National and INA were equally responsible for the $275,000 balance. Judgment was entered requiring INA to reimburse National to the extent of $12,500. Hospital appeals. We reverse.

The basis of the trial judge's determination was his agreement with National's contention that Hospital, by reason of its assumption of the first $100,000 of loss pursuant to the terms of the INA policy, was a self-insurer to that extent and that that self-insurance of this indemnity undertaking was indeed other insurance within the intendment of National's policy. He, therefore, reasoned that Hospital was the only insurer of the first $100,000 and therefore primarily obligated to pay that portion of the loss. As to the remaining $275,000, there was only the excess insurance afforded by both INA and National. Applying the doctrine of Cosmopolitan Mut. Ins. Co. v. Continental Cas. Co., 28 N.J. 554, 147 A.2d 529 (1959), he concluded that these mutually repugnant excess provisions rendered each of the two carriers primarily liable for that portion of the loss on a shared basis.

For the reasons hereafter stated, we disagree with the trial judge's conclusion that the Hospital's undertaking constituted other insurance within the meaning of National's other-insurance clause. In our view, there was no other insurance within the intendment of that clause for the first $100,000 of the loss. Therefore, National is exclusively liable for that portion of the settlement. As to the balance thereof, we are satisfied that under Cosmopolitan Mut. Ins. Co., supra, National and INA share responsibility on a prorated basis.

We start from the premise that so-called self-insurance is not insurance at all. It is the antithesis of insurance. The essence of an insurance contract is the shifting of the risk of loss from the insured to the insurer. The essence of self-insurance, a term of colloquial currency rather than of precise legal meaning, is the retention of the risk of loss by the one upon whom it is directly imposed by law or contract. See, e.g., Universal Underwriters Ins. Co. v. Marriott Homes, Inc., 286 Ala. 231, 238 So.2d 730, 732 (1970); Johnson v. Yellow Cab Company of Philadelphia, 456 Pa. 256, 317 A.2d 245, 249 (1974). Clearly then, one may be regarded as a self-insurer as to any risk of loss to which he is subject and which is susceptible to insurance coverage but as to which he has not obtained such coverage. As a matter of colloquial usage, he is a self-insurer of that risk. But as a matter both of common sense and the fundamentals of insurance law, a failure to purchase obtainable insurance is not itself insurance. That failure simply and inevitably means that there is no insurance for that risk. Thus, the undertaking to self-insure cannot, by definition, be regarded as insurance. The same is true when only part of the risk of loss is shifted to an insurer. The insured's retained portion of the risk is the so-called "deductible" amount, if any, and the extent to which the risk exceeds the policy limits. The insured is a "self-insurer" as to both retained portions of the risk. Neither, however, constitutes insurance, and it has indeed been held that a deductible from coverage, which can be loosely termed self-insurance, does not constitute other insurance within the meaning of a standard other-insurance clause, irrespective of the size of the deductible and whether or not the deductible amount is funded and administered by an insurance company. See State Farm Mut. v. Universal Atlas Cement, 406 So.2d 1184, 1186 (Dist.Ct.App.Fla.1982); Pacific Power and Light Co. v. Transport Indemnity, 460 F.2d 959 (9 Cir.1972).

We are aware that within the general, imprecise and amorphous concept of self-insurance there is one type of self-insurance which does have a legally-recognized identity and a clearly defined consequence. We refer to the situation in which compulsory liability insurance is mandated by a statute which also provides that a person subject to the mandate may, in accordance with specified standards and upon a satisfactory showing of financial ability to bear the risk, be exempted from the obligation to purchase insurance upon issuance by a designated administrative officer or agency of a certificate of self-insurance. See, e.g., N.J.S.A. 39:6-52 (permitting the Director of the Division of Motor Vehicles to issue a certificate of self-insurance to serve in the place of the liability insurance mandated by the Motor Vehicle...