Utica Nat. Ins. Co. v. American Indem.

• Decision Date: 09 July 2004
• Docket Number: No. 02-0090.,02-0090.
• Citation: 141 S.W.3d 198
• Parties: UTICA NATIONAL INSURANCE COMPANY OF TEXAS, Petitioner, v. AMERICAN INDEMNITY COMPANY and Texas Property & Casualty Insurance Guaranty Association, Respondents.
• Court: Texas Supreme Court

141 S.W.3d 198

UTICA NATIONAL INSURANCE COMPANY OF TEXAS, Petitioner, v. AMERICAN INDEMNITY COMPANY and Texas Property & Casualty Insurance Guaranty Association, Respondents.

No. 02-0090.

Supreme Court of Texas.

Argued January 15, 2003.

Decided July 9, 2004.

Rehearing Denied September 3, 2004.

Appeal from the 201st Judicial District Court, Travis County, F. Scott McCown, J Robert G. Hogue, Robert G. Hogue, P.C., Dallas, for Amicus Curiae.

Fred A. Simpson, Houston, pro se.

Dana C. Livingston Cobb, Douglas Alexander, J. Woodfin Jones, Alexander Dubose Jones & Townsend, LLP, Austin, Alexander N. Beard, E. Thomas Bishop, Michael A. Hummert, Bishop & Hummert, P.C., Dallas, for Petitioner.

Thomas D. Caudle, Mateer & Shaffer, L.L.P., Dallas, and Daniel Jordan, Jordan Quinn & Carmona, P.C., Austin, for Respondent.

Chief Justice PHILLIPS delivered the opinion of the Court, in which Justice O'NEILL, Justice JEFFERSON, Justice SCHNEIDER, Justice SMITH, Justice WAINWRIGHT, and Justice BRISTER joined.

On motion for rehearing we withdraw our opinion of June 26, 2003, and substitute the following.

In this case, we must interpret the scope of a professional services exclusion in a general liability insurance policy. The insurer argues that the court of appeals erred in affirming the trial court's judgment that it had a duty to defend and to indemnify its insured, a doctors' association, against a claim filed by patients who were injured by the administration of contaminated anesthetics. The insurer relies on a provision in its policy excluding coverage for any "[b]odily injury ... due to rendering or failure to render any professional service." This exclusion, the insurer asserts, precludes coverage any time a patient's medical treatment is a but-for cause of an injury, even if the professional services themselves have been rendered to the patients with all due care.

We do not share such a narrow view of the language. We conclude that the policy excludes coverage only when the insured has breached the standard of care in rendering those professional services. In this case, the allegations in the pleadings raised both the possibility that the treating doctors were negligent in their administration of the drug and the possibility that the doctors' association was negligent in the storage of that drug. Because the plaintiffs alleged both professional and non-professional negligence, the general liability insurer had a duty to defend the underlying suit in this case under the eight-corners doctrine. But because a fact issue exists about whether the patients' injuries were caused at least in part by the doctors' rendition of professional services, in which event the insurer's policy would not cover the doctors' association, we remand the indemnity claims to the trial court for further proceedings.

I

In late 1991 and early 1992, Mid-Cities Surgi-Center (the surgical center) employed a scrub technician, David Wayne Thomas, who stole fentanyl, an anesthetic, from the surgical center. Apparently using the same syringe, Thomas removed fentanyl from the glass ampoules in which it was stored, injected himself with the drug, then injected saline solution back into the ampoules to hide his theft. Thomas then re-sealed the ampoules with super glue and re-wrapped them with cellophane to further hide his crime. Because Thomas was infected with Hepatitis C, his use of a dirty syringe allegedly contaminated the ampoules.

After Thomas's crime was discovered, he pleaded guilty to stealing the drugs and went to prison. A number of patients who received fentanyl injections before Thomas's crime was discovered subsequently tested positive for Hepatitis C. This lawsuit deals with the claims of four patients against Mid-Cities Anesthesiology, P.A., a professional association of ten doctors who practiced anesthesia at the surgical center, and the association's member anesthesiologists (hereinafter collectively called the doctors' association).¹ The patients alleged numerous negligent actions against the doctors' association and its members, including negligence in "failing to properly secure anesthesia narcotics" and in "exposing patients to contaminated medication." The association's professional liability insurer originally assumed defense of the suit, but later became insolvent. The Texas Property and Casualty Insurance Guaranty Association (TPCIGA) then assumed its obligations.

TPCIGA first tendered the suit for a defense and coverage to American Indemnity Co., the association's general liability insurer at the time of litigation. American Indemnity originally denied coverage, arguing that its policy was not yet effective when the patients became infected. The defense was then tendered to Utica National Insurance Company, the general insurer at the time of the infection. Utica also refused to assume the defense, arguing that its policy exclusion for any injury caused by the rendition of professional services precluded any possible coverage. Subsequently, American Indemnity agreed to assist TPCIGA in settling these claims. Together TPCIGA and American Indemnity settled the case against the doctors' association for approximately one million dollars. Utica did not participate in the settlement.

American Indemnity then filed this suit against Utica and TPCIGA, seeking reimbursement from Utica for the settlement costs and a judgment declaring the respective rights and obligations of all three insurance companies for defense of the underlying suit. TPCIGA filed a cross-claim against Utica for its defense and settlement costs and a counter-claim against American Indemnity for defense costs. American Indemnity and TPCIGA settled their claims against each other, and both companies proceeded against Utica.

All three parties moved for summary judgment. The trial court denied Utica's motion and granted TPCIGA's and American Indemnity's motions, holding that Utica breached its obligation to defend and was therefore liable for defense costs. The trial court also held that Utica's professional services exclusion did not preclude coverage of the claims, and further granted summary judgment to American Indemnity and TPCIGA for the full cost of their settlement, together with attorneys' fees and pre- and post-judgment interest. The court of appeals affirmed the judgment. 110 S.W.3d 450.

II

A liability insurer is obligated to defend a suit if the facts alleged in the pleadings would give rise to any claim within the coverage of the policy. Nat'l Union Fire Ins. Co. v. Merchs. Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997). In this case, the parties disagree about whether the facts alleged in the pleadings could potentially give rise to a claim covered by Utica's general liability policy. Utica's policy generally covered liability for "those sums that the insured becomes legally obligated to pay as damages because of `bodily injury,' `property damage,' `personal injury,' or `advertising injury,' to which this insurance applies." The policy contained several exclusions, including one which specified that the policy "does not apply" to any "[b]odily injury... due to rendering or failure to render any professional service ... [including but] not limited to ... [a]ny health service or treatment." TPCIGA and American Indemnity argue that this exclusion is intended to prevent any overlap between the association's general liability insurance and its professional malpractice insurance. Under TPCIGA and American Indemnity's argument, therefore, the exclusion would only preclude coverage when the plaintiff's injury is caused by the breach of a professional standard of care. Here, TPCIGA and American Indemnity agree that a claim for the doctors' negligent administration of the anesthesia would be excluded from Utica's policy. But they assert that negligence in failing to secure the cabinets does not implicate a professional standard of care. Because the injured patients also alleged that the doctors' association was negligent in failing to secure the cabinets, TPCIGA and American Indemnity argue that Utica had a duty to defend the claim.

In this appeal, Utica does not dispute that its general liability policy could cover a claim for the negligent failure to store or secure drugs.² But Utica argues that its policy precludes coverage for a claim of negligent storage in this particular case because the doctors later rendered a professional service by injecting the patients with the anesthetic. Utica points to the policy language which excludes injury due to professional services, noting that (1) the injection of fentanyl was a health service, and therefore a professional service as defined by the policy, and (2) the injection was a but for cause of the infection — without the injection, the patients could not have been infected with Hepatitis C. Because the professional service was a but-for cause of the injury, Utica argues that coverage is excluded even if that professional service were rendered with all due care. Thus, Utica concludes that it had no duty to defend because the pleadings negated any possibility of coverage.

In determining the scope of coverage, we examine the policy as a whole to ascertain the true intent of the parties. Mid-Century Ins. Co. v. Lindsey, 997 S.W.2d 153, 158 (Tex.1999) ("Fundamentally, of course, the issue is what coverage is intended to be provided by insurers and acquired and shared by premium payers."); Nat'l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995) ("Insurance policies are controlled by rules of interpretation and construction which are applicable to contracts generally. The primary concern of a court in construing a written contract is to ascertain the true intent of the parties as expressed in the instrument.") Reasonable expectations are often affected by the conditions surrounding the formation of the policy language and by the type of clause at issue. Here, Utica did not...