MARCH 2011 BAD FAITH CASES INSURER HAS TO DEFEND BECAUSE (1) PROFESSIONAL LIABILITY EXCLUSION NOT APPLICABLE TO ALL CLAIMS; AND (2) NO FRAUD IN APPLYLING FOR POLICY (Philadelphia Federal)
The insured was a health care company that managed a personal care home. In an underlying law suit, the plaintiff alleged that the insured breached its duty of care to her deceased husband by leaving him unsupervised and allowing him to leave the facility undetected. The husband was eventually found with severe injuries, and the plaintiff claimed that his weakened physical condition contributed to his death less than two years later. The plaintiff asserted that the insured was negligent in failing to provide a safe residential environment, failing to allow the decedent to access his living quarters (which led to him leaving the facility), and failing to maintain sufficient staffing to supervise the premises.
The insured was covered by the insurer under a business liability insurance policy. The insurer brought the current action seeking a declaration that it has no duty to defend or indemnify the insured in the underlying negligence suit.
The policy stated that the insurer would compensate the insured for damages due to bodily injury, property damage, or personal and advertising injury. It specifically excluded, however, claims “arising out of the rendering of or failure to render any professional service.” The insurer alleged that the claims against the insured were for professional negligence, which would fall under the exclusion.
The court therefore had to determine whether the law dictated that the insurer had to defend the insurer under the language of the policy. The insured felt that the allegations in the underlying action did not involve professional services, but the insurer believed they did. The court recognized that the duty to defend is broader than the duty to indemnify, noting that “all doubts as to coverage [are] resolved in favor of the insured.”
It decided that because the exclusion for professional services included only a non-exhaustive list of examples, it was ambiguous, and therefore had to be construed against the insurer. In one section of the Complaint in the underlying suit, the plaintiff alleged that the insured deviated from acceptable professional standards when treating the decedent. These claims did fall under the professional services exclusion, and the court held that the insurer had no duty to defend and indemnify the insured for those claims. The remainder of the original Complaint, however, contained several allegations that did not arise from rendering professional services. For example, monitoring the premises (including patient rooms) and knowing where the residents were did not require special professional training. These non-professional services led the court to conclude that the exclusion did not apply to the rest of the Complaint.
Finally, the insurer argued that the insured falsely represented the nature of its business when applying for the policy, but the court did not believe that based on the evidence presented about the policy application and related testimony about the subject. The court therefore ruled that the insurer was not relieved of its duty to defend and indemnify the insured, and it denied the insurer’s Motion for Summary Judgment.
Date of Decision: March 16, 2011
Hartford Cas. Ins. Co. v. New Hope Healthcare, Civil Action No. 09-5056, United States District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 26987, (Mar. 16, 2011) (Savage, J.)
