Galen Health Care v. Am. Cas. Co. of Reading, Pa.

• Decision Date: 25 January 1996
• Docket Number: No. 94-795-CIV-ORL-22.,94-795-CIV-ORL-22.
• Citation: 913 F. Supp. 1525
• Parties: GALEN HEALTH CARE, INC., et al., Plaintiffs, v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Defendant.
• Court: U.S. District Court — Middle District of Florida

913 F. Supp. 1525

GALEN HEALTH CARE, INC., et al., Plaintiffs, v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Defendant.

No. 94-795-CIV-ORL-22.

United States District Court, M.D. Florida, Orlando Division.

January 25, 1996.

COPYRIGHT MATERIAL OMITTED

Kenneth A. Beytin, Foley & Lardner, Tampa, FL, Michael D. Hultquist, McCullough, Campbell & Lane, Chicago, IL, for Plaintiffs.

Jennings L. Hurt, III, Richard B. Mangan, Jr., Rissman, Weisberg, Barrett, Hurt, Donahue & McLain, P.A., Orlando, FL, for Defendant.

ORDER

CONWAY, District Judge.

This cause comes before the Court for consideration of the parties' opposing Motions for Summary Judgment and Plaintiffs' Motion in Limine.

I. BACKGROUND

Plaintiffs, Galen Healthcare, Inc., Galen of Florida (d/b/a Lucerne Medical Center), and Anglo American Insurance Company Ltd. seek reimbursement,¹ as an excess insurer, from American Casualty of Reading, Pennsylvania (ACCR), the alleged primary insurer, for a payment they made in settlement of a medical malpractice claim. On December 6, 1990, Alan Boone filed a medical malpractice suit for neurological injuries he sustained after undergoing surgery at Lucerne Medical Center on December 27, 1988. The named defendants in the Boone suit were Lucerne Medical Center, Dr. David Rosen, Dr. Rosen's professional association, and Nurse Lason. The Boone case settled for $6.6 million in July 1993. The Plaintiffs allege that $4.6 million was contributed to obtain a release for Lucerne Medical Center and Nurse Lason, with Dr. Rosen's insurance carrier contributing the remaining $2 million.

Resolution of the issues raised by the summary judgment motions turns on the interpretation and application of the policies issued by the respective companies. According to copies of insurance policies provided to the Court as exhibits², Plaintiff Galen Healthcare, Inc. had primary insurance coverage with Health Care Indemnity, Inc. (HCII) covering the professional malpractice liability of the Lucerne Medical Center and Nurse Lason; HCII paid $2.5 million, the limits of its coverage, to settle the Boone claim. Nurse Lason was also covered under a professional nurses liability policy, issued by ACCR, providing $1 million in coverage. Galen Healthcare, Inc. also maintained a true excess policy with limits of $2.5 million for each occurrence in excess of HCII's underlying $2.5 million limit.³ Plaintiffs allege that ACCR's $1 million policy covering Nurse Lason provided primary coverage which should have responded to the Boone malpractice action before its true excess policy.

A. Standard for Summary Judgment

Plaintiffs seek partial summary judgment on the issue of whether ACCR's policy is a primary policy, which must cover the loss for Nurse Lason before Plaintiffs' true excess policy is require to indemnify the loss. ACCR moves for summary judgment on several bases; the crux of its motion is that Plaintiffs have failed to state a claim under the doctrine of equitable subrogation or Florida's statute governing bad faith failure to settle. Summary judgment is only granted where there are no genuine issues as to any material facts and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c). The court must view the evidence and all factual inferences arising therefrom in the light most favorable to the non-moving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157-9, 90 S.Ct. 1598, 1608-9, 26 L.Ed.2d 142 (1970). Summary judgment is inappropriate where there are material factual issues in dispute or the movant fails to "furnish an adequate basis for the court to apply the proper legal principles in resolving a difficult question of law." Bingham, Ltd. v. United States of America, 724 F.2d 921, 924 (11th Cir.1984). The interpretation of language in an insurance policy is a question of law properly decided on summary judgment. Cranford Ins. Co. v. Allwest Ins. Co., 645 F.Supp. 1440, 1441 (N.D.Cal.1986) (citing Continental Casualty Co. v. City of Richmond, 763 F.2d 1076, 1079 (9th Cir. 1985)).

B. ACCR is a Primary Insurer

Plaintiffs argue that ACCR's policy is primary, not excess, and Plaintiffs are entitled to indemnity from ACCR for settlement of claims against Nurse Lason under the law of equitable subrogation. ACCR contends that Plaintiffs' policy and ACCR's policy were both excess policies, and that Plaintiffs have no right to any reimbursement. "Florida law is quite clear that the parties' intent is to be measured solely by the language of the policies unless the language is ambiguous." Towne Realty v. Safeco Ins. Co. of America, 854 F.2d 1264, 1267 (11th Cir.1988) (citing Durham Tropical Land Corp. v. Sun Garden Sales Co., 106 Fla. 429, 138 So. 21, 23 (1931)). In this case, the language of the policies is clear and unambiguous, and Florida case law dictates the priority of coverage.

Plaintiffs' policy states in four separate places that their coverage is in excess of "the Underlying Amounts" of other insurance:⁴

1) "This is a claims made policy with legal costs and expenses inclusive within the `Limit of Liability' ... and is excess of Underlying Amounts (as set forth in the attached schedule of underlying amounts), which provide for legal costs and expenses to be paid in addition to the amounts specified." (Excess Liability Policy, p. 1);

2) "This extension of coverage shall apply in excess of the Underlying Amounts for Hospital Professional Liability." (Hospital Professional Liability Endorsement, p. 1, ¶ I.A.);

3) "Underwriters shall only be liable in excess of the amounts as stated in the attached Schedule of Underlying Amounts...." (Excess Liability Policy, p. 2, ¶ 2 of Insuring Agreements);

4) "Liability under this Policy ... shall not attach unless and until the Underlying Amounts have been satisfied by actual payment of such Loss ..." (Excess Liability Policy, p. 13, ¶ H).

Plaintiffs' policy makes clear that it is a true excess policy, that is, it extends only excess coverage above the "Underlying Amounts." Cf. Towne Realty, 854 F.2d at 1268 (interpreting language of policy with excess coverage). According to the policy's Schedule of Underlying Amounts, Plaintiffs' policy attached only to excess of $2.5 million.⁵

ACCR contends that the "other insurance" clause in its policy insuring Nurse Lason presumptively makes its policy an "excess policy". The "other insurance" clause in the Professional Liability section reads:

OTHER INSURANCE

If there is other insurance which applies to the loss resulting from your professional services, the other insurance must pay first. It is the intent of this policy to apply to the amount of loss which is more than:

A. the limits of liability of the other insurance; and

B. the total of all deductibles and self-insured amounts under all such other insurance.

We will not pay more than our limit of liability.⁶

However, the "Coverage Agreements" in the Liability Coverage section contains no limitation for "excess" coverage and, in contrast, obligates the insurer to pay "all amounts up to the limit of liability":

COVERAGE AGREEMENTS

We will pay all amounts up to the limit of liability, which you become legally obligated to pay as a result of injury or damage to which this insurance applies. The injury or damage must be caused by a medical incident arising out of professional services by you....

We have the right to and will defend any claim. We will:

A. do this even if any of the charges of the claim are groundless, false or fraudulent;

B. investigate and settle any claim as we feel appropriate;

Our payment of the limit of liability ends our duty to defend or settle. We have no duty to defend any claim not covered by this policy.

The language of the "Coverage Agreement" requires ACCR to defend and indemnify Nurse Lason. Courts have interpreted this duty to defend to be consonant with a primary policy. See Trizec Properties v. Biltmore Construction Co., 767 F.2d 810 (11th Cir.1985). Under Florida law all doubts as to whether a duty to defend exists are resolved against the insurer and in favor of the insured and if the complaint alleges facts which create potential coverage under the policy, the duty to defend is triggered. Id. (citing 7C Appleman, Insurance Law & Practice 99-100 (Berdal ed. 1979)). ACCR has maintained throughout the action that HCII was a primary insurer based on the coverage agreement in HCII's policy. However, HCII's policy also contains an "other insurance" clause that mirrors ACCR's clause.⁷ Despite the language of HCII's primary policy,⁸ which parallels its own, ACCR asks this Court to construe its policy as an excess, rather than primary policy. ACCR cites no Florida case law on point, giving effect to the "other insurance" clause, when both primary policies contain them.

However, Florida law is quite clear: When two insurance policies contain "other insurance" clauses the clauses are deemed mutually repugnant and both insurers share the loss on a pro rata basis in accordance with their policy limits. Travelers Ins. v. Lexington Ins., 478 So.2d 363, 365 (Fla. 5th DCA 1985), rev. denied, 488 So.2d 69 (1986). See also Rouse v. Greyhound Rent-A-Car, Inc. 506 F.2d 410, 415 (5th Cir.1975) (interpreting Florida law); Motor Vehicle Casualty Co. v. Atlantic Nat'l Ins. Co., 374 F.2d 601, 603 (5th Cir.1967). Accordingly ACCR's and HCII's "other insurance" clauses cancel each other out and both insurers share the loss on a pro rated basis. See Travelers, 478 So.2d at 365. The policies in this case are not pro rated since the $6.6 million settlement exceeded the limits of the combined primary policy amounts: $2.5 million of HCII's coverage and $1 million of ACCR's coverage.

The Court must next determine ACCR's priority vis a vis the Plaintiffs'. In Towne Realty, the Eleventh Circuit clarified Florida law on the priority of a true excess policy as compared to policies containing "other insurance clauses." Id. at 1269. By applying the Florida Supreme Court...