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Nursing Home Cases: Insurance

Am. Econ. Ins. Co. v. Jackson, 2007 U.S. App. LEXIS 3232 (8th Cir. 2007). This case involves an insurance coverage dispute after Freddie Mae Burns died at Leland Health Care Center, a 128 bed skilled nursing facility, due to excessive heat. Teresa Johnson, administrator and former director of nursing, was responsible for controlling the HVAC settings and failed to set them properly during a heat wave. Leland Health Care, LLC owned and operated the facility. Morris Esformes was the sole owner of Leland. Esformes also owned EMI Enterprises which had management agreements with other nursing homes, but not Leland. American Economy Insurance Company issued a special business owners policy to EMI where EMI was described as an “office – accounting bookkeeping.” EMI also listed the insured address in Illinois, although Leland was in Missouri. American Economy had never issued insurance to a nursing home and its policy included a policy exclusion for claims relating to professional services, including any health or therapeutic treatment. It moved for summary judgment, which was granted by the district court. On appeal the decision was affirmed because Johnson’s decision to refrain from switching the HVAC system to air condition rested on her training and experience as a nurse, director of nursing and administrator. Thus, the professional services exclusion applied. District court decision at Am. Econ. Ins. Co. v. EMI Enter., 2006 U.S. Dist. LEXIS 34871 (D. Mo. 2006).

Hartford Accident & Indem. Co. v. Beaver, 466 F.3d 1289 (11th Cir. 2006). The district court granted insurer’s motion to defense where insurer claimed it had no duty to defend case where the only potential claims are by putative class members until the class is certified. The district court was reversed on appeal. Applying Florida law, the Court held that the duty to defend is determined from the allegations in the complaint; the duty to defend arises when the complaint alleges facts that fairly and potentially bring it within policy coverage. There is nothing qualitatively different under Florida law between the duty to defend individual claims and class claims. Further, the Court rejected Hartford’s claim that injuries were intentional and non-covered since Plaintiff alleged a scheme to defraud creditors and maximize profits. An injury is not excluded from coverage because the complaint may arguably allege that defendant’s conduct was intentional.

Prime Ins. Syndicate, Inc. v. Damaso, 2007 U.S. Dist. LEXIS 4516 (D. Nev. 2007). Insurer denied coverage under a claims made policy. On motion for summary judgment, the Court ruled for the insurer, finding that the two policies in issue were clearly written. The first policy did not apply because, although the incident occurred during the policy period, it was not reported during the policy period. The second policy did not apply because, although the incident was reported during the policy period, it did not occur during it. Each policy expressly required both that the incident occur and that it be reported while the policy was in force.

Fireman’s Fund Ins. Co. v. Evergreene Props. of N.C., LLC, 2007 U.S. Dist. LEXIS 571 (D. Ark. 2007). Insurer issued two insurance policies to Defendant’s nursing home. When suit was filed in Arkansas, the insurer employed counsel to defend the action and paid all costs associated with the defense. Insurer asked Defendant to contribute to a settlement and when Defendant refused, the insurer funded the settlement. Insurer then brought an action for reimbursement. Defendant counterclaimed for breach of contract and bad faith. Defendant’s motion for summary judgment was denied; since insurer paid all defense costs and did not seek reimbursement of those costs, there was no breach or bad faith. Insurer’s request that Defendant participate in funding the settlement is not a breach of contract. Although insurer’s right to reimbursement is a disputed fact, Defendant’s motion was denied. In later proceeding, Fireman’s Fund Ins. Co. v. Evergreene Props. of N.C., L.L.C., 2007 U.S. Dist. LEXIS 18920 (D. Ark. 2007), court granted summary judgment after finding MLMIC did not breach insurance contracts when they fully funded settlement within policy limits or filed lawsuit; MLMIC fulfilled terms of contract when it paid all defense costs and settled suit, and Evergreen failed to present evidence of bad faith).

Complete Healthcare Res. – E., Inc. v. Pac. Life Ins. Co., 2006 U.S. Dist. LEXIS 90794 (D. Pa. 2006). Complete Healthcare Resources Eastern, Inc. sought a declaratory judgment that it was not liable to an insurer in subrogation and that it was not obligated to mediate and/or arbitrate the insurer’s subrogation claim. Complete Healthcare had entered into a management agreement with a nursing home. A claim arose on November 16, 2002, when Bertha Small died as a result of being overfed by continuous tube feedings. When Complete Healthcare refused to defend the claim, the insurer did, eventually settling for $800,000. The insurer then informed Complete Healthcare of its subrogation claim and demanded mediation or binding arbitration consistent with Complete Healthcare’s management services agreement with the nursing home. Complete Healthcare preemptively filed suit against the insurer in Pennsylvania. The insurer sought to enforce the arbitration agreement and have the action transferred to Maryland, consistent for a forum selection clause in the management services agreement. The court denied both of the insurer’s motions, finding that the insurer was not a party to the agreement. “Pacific cites no authority for the proposition that an insurer can enforce an arbitration provision contained in a service agreement between its insured and a third party…. Without legal or factual support for this claim, the Court declines to adopt Pacific’s position as a matter of first impression. or that the parties intended the contract’s arbitration provision to encompass claims brought by a non-signatory. Without legal or factual support for this claim, the Court declines to adopt Pacific’s position as a matter of first impression.”

Note: The Court’s treatment of this business claim appears to be inconsistent with the trend in consumer arbitration disputes. For example, if a nursing home resident signed an arbitration clause buried in an admission contract, then the resident’s non-signing heirs would likely be bound by that agreement if wrongful death litigation ensured. This case appears to be an example of how industry arguments in favor or arbitration fall short when put to the test.

Medical Liab. Mut. Ins. Co. v. Alan Curtis Enters, 2006 U.S. Dist. LEXIS 89180 (D. Ark. 2006). Insurer sought declaratory judgment against its named insureds, the nursing home, the company owning the realty and the management company after they were all named in a suit alleging they failed to provide adequate care for a resident. The suit alleged negligence, violations of the Arkansas Resident Rights Statute, breach of contract, and wrongful death. The insurer sought a determination that the claim arose outside the coverage period. The policy covered 2001, the claim arose in 2003 and the suit was filed in 2005. The Court rejected the insured’s argument that a continuing treatment theory brought the claim within the scope of the policy period and granted the insurer’s motion. The insurer also sought a ruling that punitive damages cannot be covered in Arkansas; the court denied that motion. Prior proceeding Med. Liab. Mut. Ins. Co. v. Alan Curtis, LLC, 2006 U.S. Dist. LEXIS 1444 (D. Ark. 2006)

Jones v. Lexington Manor Nursing Ctr., LLC., 2006 U.S. Dist. LEXIS 88755 (D. Miss. 2006). Insurer denied coverage because a claim made against the insured during the coverage period was not reported to the insurer until after the coverage period. The court examined the policy and found that reporting the claim to the insurer during the coverage period was not a condition of coverage. The insurer’s motion for summary judgment was denied.

Essex Ins. Co. v. Parnell, 2006 U.S. Dist. LEXIS 79080 (D. Miss. 2006). Plaintiff filed a wrongful death action against nursing home alleging the nursing home and its employees were responsible for her father’s death. Essex Insurance filed a declaratory judgment action seeking a determination of its duties of defense and indemnity. Plaintiff in the underlying action against the nursing home moved to dismiss the claim or, in the alternative, remand its to State court. The motion to remand was denied because remand is only available when the action was first removed from State court. Citing St. Paul Ins. Co. v. Trejo, 39 F.3d 585 (5th Cir. 1994), which used a seven factor test for determining whether to retain jurisdiction in a declaratory judgment action, the Court denied Plaintiff’s motion to dismiss and retained jurisdiction over the declaratory judgment action because it was not evident that all matters relating to the declaratory judgment action would be fully litigated in the underlying action, Essex’s decision to seek a coverage determination was not demonstrably linked to threatened litigation by the insured, there was no evidence of forum shopping, federal court was equally convenient, retaining jurisdiction served judicial economy, and early resolution of the declaratory judgment action would work to the advantage of all parties.

Certain Underwriters at Lloyds, London v. Magnolia Mgmt. Corp., 2006 U.S. Dist. LEXIS 60635 (D. Miss. 2006). Lloyds commenced the defense of a wrongful death case against the insured nursing home and various other entities. It did so under a reservation of rights. Later, when on of the employees pleaded guilty to manslaughter, Lloyds filed a declaratory judgment action alleging it had no duty to defend or indemnify because criminal acts committed by any insured are excluded. The court refused to allow Lloyds to rely on the guilty plea in establishing its policy defense. Instead Lloyds was required to produce independent evidence of the employee’s guilt and causation. Lloyds satisfied its burden and its motion was granted after establishing to a preponderance of the evidence that the employee, a nurse, was recklessly negligent by failing to monitor blood glucose levels for a brittle diabetic, and that autopsy reports, along with witness statements from the week preceding her death, established to a reasonable degree of medical certainty that the resident died of hyperglycemia, due to diabetes.

Evanston Ins. Co. v. Centennial Healthcare Corp., 2006 U.S. Dist. LEXIS 55385 (D. Ga. 2006). In December, 2002, Centennial filed a Chapter 11 bankruptcy petition in the Northern District of Georgia. Nursing home negligence cases pending around the country were stayed as a result. A plan of reorganization set forth a procedure for addressing the claims against Centennial. On July 14, 2005, Evanston Insurance was given leave to file a declaratory judgment action relating to the respective rights and obligations under a policy of insurance. Other insurers that issued policies to Centennial were also parties. Centennial filed a counterclaim and cross claim against all parties. On the motion of another insurer, the action was dismissed, finding that the bankruptcy court was the appropriate forum for making determinations concerning which policies apply during which time periods, as well as obligations to pay under the bankruptcy plan.

Essex Ins. Co. v. Greenville Convalescent Home, Inc., 2006 U.S. Dist. LEXIS 56502 (D. Miss. 2006). Plaintiff filed an action in State court alleging negligence, gross negligence, intentional infliction of emotional distress and fraud. Essex filed its action for declaratory judgment and then filed a motion for summary judgment alleging there was no coverage “because: (1) many of the claims occurred before the first policy took effect and after the third policy expired; (2) there was no “occurrence” triggering coverage for “bodily injury”; and (3) some or all of the claims fall under one or all of the following exclusions: (a) the expected or intended injury exclusion (b) punitive damages exclusion; (c) hiring and/or supervision exclusions; (d) dishonest, fraudulent, criminal, or malicious acts or omissions exclusion; (e) the third policy’s breach of contract exclusion; and (f) the assault and battery exclusion.” Initially the court found the duty to defend is broader than the duty to indemnify and that Essex had a duty to defend the insured. Next, the court found that Essex’s duty to indemnify was limited by the duration of coverage, July 7, 1997 through July 7, 2001. The court found that claims of negligence, gross negligence and medical malpractice were an occurrence within the meaning of the policy, but fraud and intentional infliction of emotional distress were not since by their nature they are intentional conduct. The policies included an exclusion for punitive damages so, if recovered, they are not covered by the policy. Citing Roman Catholic Diocese v. Morrison, 905 So. 2d 1213 (Miss. 2005), the court concluded there is no distinct claim for negligent hiring, training, placement or supervision in Mississippi, so an exclusion of those claims was no applicable as they were simply a negligence claim. The assault and battery exclusion did not apply to Plaintiff’s abuse claims since none of them were framed as civil assault or battery. The same result was reached in the following related cases: Essex Ins. Co. v. Greenville Convalescent Home, Inc., 2006 U.S. Dist. LEXIS 56329 (D. Miss. 2006); Essex Ins. Co. v. Greenville Convalescent Home, Inc., 2006 U.S. Dist. LEXIS 56503 (D. Miss. 2006); Essex Ins. Co. v. Greenville Convalescent Home, Inc., 2006 U.S. Dist. LEXIS 56505 (D. Miss. 2006).

W. World Ins. Co. v. Resurrection Catholic Mission of the S., Inc., 2006 U.S. Dist. LEXIS 51119 (D. Ala. 2006). Insurer filed a declaratory judgment action seeking coverage determination. Underlying suit, filed in State court, alleged sexual abuse by an employee who had disclosed prior accusations of sexual abuse when he was filed. The third amended complaint in State court alleged the resident, 90 years old, was physically abused and/or sexually molested and/or beaten, and that she was found covered with blood, skin tears, vaginal tears, black eyes and bruising. The policy included an exclusion providing that “no coverage exists for claims or suits brought against any insured for damages arising from sexual action.” The exclusion further provided that it applied even if the alleged cause of action was insured’s negligent hiring, placement, training, supervision, act, error or omission. There was separate coverage titled “Sexual Molestation Insurance” which limited coverage to $100,000 for each claim or $300,000 in aggregate. The insurer sought a declaratory judgment that its maximum indemnity amount was $100,000. The Court found that the rape allegations were clearly excluded and that the only coverage for the rape related allegations was $100,000, finding that claim (undefined in the policy) meant per occurrence and there was one attack. The court refused to hold that the non-rape injuries were inextricably intertwined with the rape, that the other injuries were severable and, therefore, those injuries may be covered under the policy.

Manor Care, Inc. v. First Specialty Ins. Corp., 2006 U.S. Dist. LEXIS 48249 (D. Ohio 2006). Manor Care purchased a policy from First Specialty for coverage of “triggering events” in excess of $500,000 up to an aggregate amount of $25,000,000. The dispute concerned “1) what constitutes a triggering event under the policy; 2) whether a lawsuit is a single “triggering event” for purposes of the policy or if each separate injury alleged in the lawsuit is distinct; 3) the extent of First Specialty’s exposure once a “triggering event” occurs; 4) how settlement damages stemming from suits alleging covered injuries and also injuries not covered by the policy are to be apportioned; and 5) whether Manor Care breached its duty of good faith to First Specialty, particularly with respect to claims handling procedures. … As an example, consider a resident suing Manor Care for malpractice, alleging four separate injuries each causing $ 1 million in damage. Under Manor Care’s reading of the policy, only one SIR would apply per lawsuit, and Manor Care would pay $ 500,000 of the resident’s claim and First Specialty would pay the remaining $ 3.5 million. Under First Specialty’s view, a separate SIR would apply to each injury alleged in the lawsuit, regardless if they were brought together. Manor Care, accordingly, would pay $ 2 million to the resident and First Specialty would pay the remaining $ 2 million.” The Court found that a trigger event occurs only if negligence and injury occur during the policy period. Separate triggering events can occur within a single lawsuit, meaning that Manor Care’s self-insurance retention could exceed $500,000 if more than one occurrence causing injury is alleged. Because it is relatively easy to determine who must bear the loss, First Specialty was not required to respond in full for all damages first and then seek contribution. Factual disputes remained relating to apportionment of settlement damages and claims handling procedures to summary judgment was not appropriate on those issues.

Emplr. Reinsurance Corp. v. Laurier Indem. Co., 2006 U.S. Dist. LEXIS 40451 (D. Fla. 2006). This is a reinsurance case involving Laurier, an insurer of Extendicare, and its reinsurance carrier, Employers. In 2002 Laurier, Extendicare’s insurer, settled a wrongful death case and allocated $2.5 million to alleged negligence at Extendicare’s Alpine location during 1996. Laurier sought indemnification from Employers which was denied. Employers claimed Laurier’s failure to give prompt notice of the claim prejudiced it and that prejudice due to failure to give due notice is presumed under Florida law. The issue at bar was whether Florida law governed the contract. The court adopted the Magistrate’s recommendation in part, finding that Florida choice of law rules applied, but found that Florida would apply the doctrine of Lex Loci Contractus. The case was remanded to the magistrate to determine the location of contract execution.

RLI Ins. Co. v. Phila. Indem. Ins. Co., 421 F. Supp. 2d 956 (D. Tex. 2006). Diversity case where RLI sued PIIL and USF to recover part of what RLI paid to settle a nursing home case. The nursing home and all three insurance companies settled the underlying claim in 2003 for $3.9 million. The issue on summary judgment was allocation of the settlement amount among the insurers. Applying Texas law, the court found that RLI (the excess carrier) was entitled to judgment against the primary carriers because each was required to exhaust their limits before the excess carrier’s duty to indemnify was triggered.

Strine v. Commonwealth Med. Care Availability & Reduction of Error Fund, 586 Pa. 395 (Pa. 2006). Suit was filed after a CNA failed to check the water temperature before bathing resident; resident was burned and died 3 days later. Suit was settled for $1.5 million. One of Defendant’s insurers paid $200,000; Defendant paid the balance of $1.3 million because its other insurer was in liquidation. Defendant then sought indemnification from the Medical Professional Liability Catastrophe Loss Fund. The fund refused to indemnify the facility because, it alleged, giving a bath did not constitute a medical service. After summary judgment was entered for the facility, the fund appealed arguing that giving a bath does not constitute professional health services. The court affirmed the decision below finding it was “uncontested that Mrs. Barnes was under the care of a nursing home licensed to provide health care or professional medical services at the time of the incident. In that setting she required specialized care for her skin condition as initially ordered by a doctor and as provided by a trained nurse’s aide pursuant to a regimen that exceeded routine custodial care. Although the bath that Mrs. Barnes received departed from the doctor’s orders in that it lacked a whirlpool component, the salient point for present purposes is that, while providing the bath, Chester Care’s employees were delivering medical services in light of the overall circumstances concerning Mrs. Barnes’ physical and mental infirmities.”

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