Wake County Hosp. System v. National Cas. Co.

• Decision Date: 22 October 1992
• Docket Number: No. 91-728-CIV-5-BR.,91-728-CIV-5-BR.
• Citation: 804 F. Supp. 768
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: WAKE COUNTY HOSPITAL SYSTEM, INC., Plaintiff, v. NATIONAL CASUALTY COMPANY, Defendant.

804 F. Supp. 768

WAKE COUNTY HOSPITAL SYSTEM, INC., Plaintiff, v. NATIONAL CASUALTY COMPANY, Defendant.

No. 91-728-CIV-5-BR.

United States District Court, E.D. North Carolina, Raleigh Division.

October 22, 1992.

Dan J. McLamb, Yates, Fleishman, McLamb & Weyher, Raleigh, N.C., for plaintiff.

Michael B. Brough, Alison A. Erca, Michael B. Brough & Associates, Chapel Hill, N.C., for defendant.

ORDER

BRITT, District Judge.

This matter is before the court on plaintiff's motions for summary judgment and for protective order pursuant to Rules 56 and 26(c) of the Federal Rules of Civil Procedure respectively. The motions have been fully briefed, and oral argument was heard by the court on 15 October 1992. The court is now ready to rule.

FACTS

Plaintiff Wake County Hospital System, Inc. ("Wake") commenced this action for declaratory judgment by filing its complaint on 31 October 1991 seeking to have this court declare that an insurance policy issued by defendant is the primary and exclusive coverage for a previous settlement entered into by the parties concerning a medical malpractice claim. Specifically, this action arises out of a wrongful death medical malpractice claim involving the neonatal care rendered to Paul Lampe, Jr., a minor, by nurse Sharon Sarvey ("Sarvey"), an employee of Wake. Two resident physicians from the University of North Carolina Hospitals of Chapel Hill ("UNC") also administered care to Paul Lampe, Jr.; however, the claims against them are not the subject of, nor are relevant to, this lawsuit.

At the time of the events giving rise to the Lampe claim, Wake had professional liability insurance with St. Paul Fire and Marine Insurance Company ("St. Paul"), under which Sarvey as an employee of plaintiff was a protected person. The terms of the policy were such that Wake had a self-insured retention (in essence, a deductible) of $750,000 per person/per event and a $1,000,000 annual total. In addition, Sarvey had a separate professional liability insurance policy of her own with National Casualty Company ("National"), which had no deductible. Crucial to this lawsuit, the National policy had an "Other Insurance" clause which basically provided that the National policy was deemed to be excess over "other valid and collectible insurance."

After the Lampe incident, the parents of the baby brought a claim and an intent to file suit against Sarvey, the two UNC residents, and Wake. When notified of the claim, Wake, St. Paul, UNC, and National all agreed by way of a written, signed document that the Lampe claim should be settled. The claim was in fact settled before a suit was initiated for an amount less than Wake's deductible, or retention, of $750,000 under its policy with St. Paul. According to the written agreement dated 3 July 1991, UNC was to pay 25% of the settlement amount, and in fact paid that amount and it is not at issue in this suit. The 75% remainder was funded between Wake and National with the understanding that the coverage dispute would be litigated after the settlement. It was also agreed that the amount, if any, contributed by each party to fund the settlement would remain confidential. The parties failed to agree, however, as to which entity, Wake or National, was responsible for payment of the 75% portion of the settlement. From these events, Wake filed the instant suit and now makes this motion for summary judgment.

DISCUSSION

I. Wake's Motion for Summary Judgment

Rule 56 of the Federal Rules of Civil Procedure provides that summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In this case, the sole issue before the court is whether Wake's self-insured retention constitutes "other valid and collectible insurance" within the meaning of the National policy issued to Sarvey. Since the term "other valid and collectible insurance" is not defined in either the Wake or National policies, the determination as to the meaning of that term is one for the court to make as a matter of law. Reliance Insurance Co. v. Lexington Insurance Co., 87 N.C.App. 428, 361 S.E.2d 403, 406 (1987).

In support of its motion, Wake asserts that its self-insured retention of $750,000 under the St. Paul policy does not constitute "other valid and collectible insurance" as that term is used in National's policy protecting Sarvey. The gist of Wake's argument is that National's policy provides the sole coverage for the claims arising out of the Lampe incident because the "other insurance" clause in National's policy should be interpreted to mean that it is applicable only as excess over another insurance policy, not a self-insured retention. Specifically, Wake contends that self-insurance is not insurance at all because: 1) there is no payment of a premium or other consideration to Wake; 2) there is no shifting of a risk of loss; 3) Wake is not in the business of insurance; and, 4) Wake is not subject to the requirements of ordinary insurers under North Carolina General Statutes, namely Chapter 58. Thus, a self-insured retention, as the argument goes, does not fall within the plain and ordinary meaning of the term "insurance" — an insurance policy issued by a licensed insurer in exchange for a premium charged.

National first argues that there is an additional issue before the court on this motion for summary judgment as to whether National's maximum potential exposure is one-half of or all of the amount paid to settle the Lampe claim against Wake and Sarvey. In other words, National contends that the relative liabilities of Wake and Sarvey arising out of the Lampe claim need to be determined and litigated so that a proper payment obligation may be apportioned to each. Because the relative liabilities of Wake and Sarvey regarding the Lampe claim are in dispute here, as National alleges, summary judgment is not warranted.

National next argues, as to the self-insured retention/"other insurance" issue, that Wake had a contractual obligation to defend and indemnify Sarvey, as a third-party beneficiary under the Wake/St. Paul insurance policy, for claims up to $750,000, and thus this contractual obligation constitutes "other insurance" as the term is used in National's policy. Essentially, National suggests that since it is undisputed that St. Paul had an obligation to provide coverage for Sarvey for any claim in excess of $750,000, it should likewise be determined that Wake had a similar obligation, under the St. Paul policy, to Sarvey, as an employee of Wake, for any claim less than $750,000 which arose out of the performance of her employment duties.

Further, National asserts that Wake should not be allowed to shift to National a risk that Wake accepted and for which it received a benefit. To explain, National maintains that it would be inequitable to allow a company to shift the risk of loss to another once it has accepted a benefit — i.e., the advantage of a lower premium for a higher deductible — in return for a promise to provide coverage.

After a thorough and careful review of all the materials submitted, the court agrees with plaintiff's position. First, addressing National's argument with regard to the respective liabilities between Wake and Sarvey concerning the Lampe claim, the court notes that no such issue is raised by the pleadings. The complaint seeks a declaratory judgment that the National policy was the primary coverage for Sarvey concerning the Lampe claim. Paragraph 11 of the complaint alleges: "Notwithstanding their agreement as to the appropriate amount of settlement, Wake and National disagreed as to which party (Wake or National) was responsible for payment of the settlement amount (other than that portion to be contributed by UNC Hospitals which is not in issue here)." Complaint, para. 11 (emphasis in complaint). The answer admits that allegation. "The settlement amount" is referred to as a whole. Nothing indicates any contention by defendant that Wake was responsible for a part of that amount by virtue of its own negligence, and there is nothing in the answer to indicate that defendant contends that Wake was independently negligent.

The prayer for relief in the complaint and the answer request the court to find the other party "solely responsible for payment of the amount paid in settlement of the Lampe claim, (other than that portion paid by UNC Hospitals)."

The Lampe claim against UNC, Wake, and Sarvey was indeed settled, and a written agreement was entered into by Wake, St. Paul, and National to iron out the settlement. The parties specifically agreed that the only issue to be later litigated was "whether National or Wake is responsible for the settlement amount." (Hartung Aff. Ex. A at 1 (emphasis added)). No mention is made in the agreement that the respective liabilities between Wake and Sarvey need to be determined so that the relative insurance payment obligations between Wake and National may be apportioned to each based on that determination. National cites no authority, other than to recite a synopsis of North Carolina law on contribution and indemnity, for its proposition that Wake has the burden of showing that the amount paid in settlement was paid on the basis of Sarvey's negligence alone rather than the negligence of both Sarvey and Wake.¹ Thus, the only issue before the court is which party is liable for "the settlement amount."

In deciding the question presented, an examination into the language of the respective policies must be made. At the time of the Lampe incident, Wake was insured under St. Paul policy no. 566XM0393 which provided coverage as follows:

Professional injury liability. We'll pay amounts any protected person is legally required to pay as damages for covered claims or suits resulting from

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