Exeter Hospital, Inc. v. Steadfast Insurance Co.

          Argued: October 19, 2016

         Rockingham

          Sheehan Phinney Bass & Green, PA, of Manchester (James Q. Shirley and Jason D. Gregoire on the brief, and Mr. Shirley orally), for the petitioner.

          McLane Middleton, Professional Association, of Manchester (Jeremy T. Walker and Nicholas F. Casolaro on the brief), and Chadbourne & Parke LLP, of Washington, D.C. (Joy L. Langford and Samantha Miller on the brief, and Ms. Langford orally), for the respondent.

          CONBOY, J.

         In this declaratory judgment proceeding, the petitioner, Exeter Hospital, Inc. (Exeter), appeals an order of the Superior Court (Anderson, J.) denying its motion for partial summary judgment as to the amount at which coverage is triggered under an umbrella policy (the policy) issued to Exeter by the respondent, Steadfast Insurance Company (Steadfast). We reverse and remand.

         The summary judgment record reflects the following pertinent facts. In the spring of 2011, Exeter hired a cardiovascular technician (technician) to work in its Cardiac Catheterization Laboratory (Lab). In October 2011, the technician became a full-time employee. In the spring of 2012, an outbreak of Hepatitis C infections among patients serviced by the Lab led investigators to discover that the technician had spread the virus to patients "through a clandestine drug diversion scheme." The technician allegedly injected certain drugs into his body by way of intravenous needles. He then used the same needles on patients thereby infecting them with the Hepatitis C virus. The technician's actions resulted in numerous lawsuits against Exeter by affected patients.

         During the relevant time period, Exeter was primarily insured through a Self-Insurance Trust Agreement (SIT), which provided professional liability coverage in the amount of $1 million per medical incident, with a $4 million annual aggregate cap. Exeter also maintained the policy with Steadfast, which provided excess health care professional liability coverage. The policy set the following limits on coverage: a specific loss limit of $20 million, a health care professional liability aggregate limit of $20 million, and a "Retained Limit" of $100, 000.

         Section I.A.1 of the policy, titled "Coverage A - Health Care Professional Liability Insurance" (Coverage A), provides, in pertinent part, that Steadfast "will pay on behalf of the insured those sums that the insured becomes legally obligated to pay as damages because of injury caused by a medical incident to which this insurance applies." (Bolding omitted.) It further provides that Steadfast "will pay only such damages that are in excess of the Retained Limit specified in Item 4. of the Declarations or that are in excess of the applicable underlying limit, whichever is greater." (Bolding omitted.) The term "Retained Limit" is not specifically defined in the policy; however, the policy's declarations list the "Retained Limit" as $100, 000. "Applicable underlying limit" is defined as "the total of all available limits of insurance for the underlying insurance plus any alternative insurance." (Bolding omitted.) "Underlying insurance means the policy or policies of insurance listed in the Schedule of Underlying Insurance, forming a part of this policy." (Bolding omitted.) "Alternative insurance means any type of self-insurance or other mechanisms by which an insured arranges for funding of legal liabilities and is listed in the Schedule of Underlying Self-Insurance." (Bolding omitted.) It is undisputed that Exeter maintained only alternative insurance - the SIT.

         In August 2013, after Exeter had paid approximately $3 million in claims through the SIT, Steadfast accepted Exeter's tender of the defense of the remaining claims. In doing so, Steadfast informed Exeter that "each claimant constitutes a separate medical incident." Steadfast further stated that, once Exeter's $4 million aggregate limit was exhausted, it would "pay only such damages that are in excess of the Retained Limit of $100, 000. The Retained Limit is the minimum amount for which Exeter is liable for each and every claim, following exhaustion." When Exeter paid out its $4 million annual aggregate under the SIT, Steadfast notified Exeter that:

As Exeter has now exhausted its self-insurance aggregate limit of $4, 000, 000.00 there no longer exists an applicable underlying limit (because the underlying self-insurance is exhausted) to be compared to the Retained Limit for purposes of determining "whichever is greater." Thus, for purposes of determining what portion of damages Steadfast is obligated to reimburse in connection with damages for a medical incident that are incurred post-exhaustion of the self-insured aggregate, the Retained Limit is necessarily the trigger as exhaustion of the underlying self-insurance means there is no longer an applicable underlying limit to compare to the Retained Limit.

(Bolding omitted.) Thus, Steadfast maintained that it would pay damages only in excess of the $100, 000 retained limit for each medical incident.

         In May 2014, Exeter filed this declaratory judgment proceeding, seeking a declaration that it is not required to pay the "$100, 000 retained limit per claim for those claims that settle or that are reduced to judgment after August 1, 2013." Exeter also asserted a breach of contract claim against Steadfast, arguing that it is entitled to recovery of excess payments from Steadfast "because the writs brought against Exeter assert claims that constitute a single 'medical incident'" and, therefore, Exeter should only have "been required to satisfy the single $1.0 million limit of its self[-]insurance in order to trigger Steadfast's obligations of defense and indemnification." Subsequently, Exeter moved for partial summary judgment on its request for a declaratory judgment, arguing that, pursuant to the policy, once it paid its $4 million annual aggregate, it did not have to pay the retained limit amount of $100, 000 for each remaining claim. Steadfast objected.

         Following a hearing, the trial court denied Exeter's motion. The court identified "[t]he crux of the dispute between the parties" as being the interpretation of the clause in Coverage A limiting Steadfast's liability to the "excess over the greater of the retained limit [or] the applicable underlying limit." The court then interpreted the term "applicable underlying limit" as being a variable amount "dependent on the actual coverage remaining under [the] other [limits of] insurance, " here, the limits of the SIT. Because Exeter had paid out the limits of the SIT, the court found that the "applicable underlying limit" was zero, thereby rendering the $100, 000 retained limit greater than the "applicable underlying limit." Thus, the court determined that, pursuant to Coverage A, Steadfast is required "to pay damages in excess of $100, 000 for each medical incident." Exeter sought reconsideration of the court's order, which the court denied.

         In September 2015, the court approved the parties' stipulation for entry of final order regarding all remaining issues, thereby dismissing Exeter's claim that it is entitled to recovery because the actions against it constituted a single medical incident requiring it to satisfy only its $1 million self-insured obligation rather than its $4 million annual aggregate obligation. This appeal followed.

         In reviewing a trial court's summary judgment ruling, we consider the affidavits and other evidence, and all inferences properly drawn from them, in the light most favorable to the non-moving party. Rivera v. Liberty Mut. Fire Ins. Co., 163 N.H. 603, 606 (2012). "If our review of the evidence does not reveal a genuine issue of material fact, and if the moving party is entitled to judgment as a matter of law, we will affirm the trial court's decision." Amica Mut. Ins. Co. v. Mutrie, 167 N.H. 108, 111 (2014) (quotation omitted). We review the trial court's application of law to the facts de novo. Rivera, 163 N.H. at 606.

         "In a declaratory judgment action to determine the coverage of an insurance policy, the burden of proof is always on the insurer, regardless of which party brings the petition." Cogswell Farm Condo. Ass'n v. Tower Group, Inc., 167 N.H. 245, 248 (2015) (quotation omitted). The interpretation of insurance policy language is a question of law for this court to decide. Bartlett v. Commerce Ins. Co., 167 N.H. 521, 530 (2015). "The fundamental goal of interpreting an insurance policy, as in all contracts, is to carry out the intent of the contracting parties." Id. (quotation omitted). To discern the parties' intent, we begin with an examination of the insurance policy language. Id. In interpreting policy language, we look to the plain and ordinary meaning of the policy's words in context. Id. We construe the terms of the policy as would a reasonable person in the position of the insured based upon more than a casual reading of the policy as a whole. Id. at 530-31. This is an objective standard. Great Am. Dining v. Philadelphia Indem. Ins. Co., 164 N.H. 612, 616 (2013). Where an insurance policy's language is reasonably susceptible of more than one interpretation, however, and one reasonable interpretation favors coverage, we construe the ambiguity against the insurer and in favor of coverage in order to honor the reasonable expectation of the policyholder. State Farm Mut. Ins. Co. v. Pitman, 148 N.H. 499, 501 (2002). "The doctrine that ambiguities in an insurance policy must be construed against the insurer is rooted in the fact that insurers have superior understanding of the terms they employ." Id. (quotation omitted).

         Exeter argues that the trial court erred by finding that, after it has satisfied the $4 million aggregate limit of its self-insurance, it is required to pay the retained limit of $100, 000 for each claim before Steadfast will provide coverage. It contends that Coverage A "requires Exeter to pay either the amount of its alternative insurance (the limit of the SIT) or the retained limit, [but] not both." (Bolding omitted.) Because the $4 million aggregate limit of the SIT is greater than the $100, 000 retained limit, ...