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June 2013

Connecticut Supreme Court Limits Insurer's Aggregate Exposure to $1 Million in Nursing Home Fire

On June 18, the Connecticut Supreme Court released a decision concerning the amount of coverage available under a policy of professional liability insurance for claims related to a nursing home fire.  The appeal followed a 2009 ruling in a declaratory judgment action brought by Lexington Insurance Co. against its insured, Lexington Healthcare Group (Healthcare), owner of the involved nursing home.  In a split decision, the court reduced Lexington Insurance’s aggregate coverage exposure from $10 million to $1 million based on its reading of a policy endorsement. 

The fire was allegedly started by one of the nursing home residents who was smoking cigarettes and resulted in a number of fatalities and injuries.  The underlying plaintiffs pursued a wide variety of negligence theories against Healthcare concerning its acceptance, placement and supervision of the resident who allegedly caused the fire; its safety procedures; and its individual handling and treatment of each of the injured claimants and decedents during the fire. 

The policy contained two coverage parts: a general liability coverage part and a professional liability coverage part.  There was no dispute that only the professional liability coverage part could apply to the claims. 

In Lexington Ins. Co. v. Lexington Healthcare Group, Inc., the Connecticut Supreme Court first upheld the trial court’s decision that a separate $500,000 per medical incident coverage limit applied to each of the individual claims against Healthcare.  The “Limits of Insurance” section of the policy contained a provision that “[a]ll claims arising from continuous, related, or repeated medical incidents shall be treated as arising out of one medical incident.”  Lexington Insurance argued that all of the claims arose from related medical incidents because they all had a causal or logical connection to the alleged failure to supervise the resident who caused the fire. 

The court, however, found the term “related” was ambiguous.  While there may have been a common precipitating factor in the losses, each loss had been caused by a unique set of negligent acts, errors or omissions.  The court also explained that decisions from other jurisdictions generally hold that, where multiple losses are caused, either to the same or multiple parties, the causative acts are not related.  Accordingly, the court construed the term broadly, in keeping with the doctrine that an ambiguous term in an insurance policy will be construed in favor of providing broader coverage.

The high court reversed the trial court’s decision that a $10 million aggregate limit applied to the individual claims.  The trial court had read an endorsement providing a $10 million “aggregate policy limit” as amending language in the policy declarations providing a $1 million “aggregate limit” for the professional liability coverage part.  The Supreme Court disagreed, relying on the doctrine that different words used in the same writing should have different meanings. 

The court found the phrase “aggregate policy limit” clearly conveys that $10 million will be the limit of coverage for all coverage parts at all the insured’s locations.  The court also found the endorsement did not purport to alter or supersede any particular language in the policy, but only to “amend” the policy as a whole.  The court’s interpretation gave effect to all of the policy’s provisions as opposed to the trial court’s reading that rendered the aggregate limits contained in the declarations superfluous.

Finally, the court upheld in part and reversed in part the trial court’s decision concerning the effect of the insured’s insolvency on the self-insured retention (SIR) provision and the coverage available for each claim.  The policy provided for a $250,000 SIR, and $500,000 limit, per medical incident.  The Supreme Court agreed with the trial court’s decision that there was no requirement the insurance should “drop down” to cover the SIR due to Healthcare’s insolvency because the policy clearly provided the SIR amounts were Healthcare’s responsibility.  Lexington Insurance only had a duty to defend and settle claims when a medical incident was in excess of the SIR. 

The court disagreed, however, with the trial court’s conclusion that Lexington Insurance was only responsible for $250,000 per claim, which is the $500,000 limit per medical incident less the $250,000 SIR.  The court concluded the policy was ambiguous with respect to this issue, because it provided that the $500,000 limit per medical incident would be reduced by “payment” of the SIR, and it made no provision for insolvency.  The court acknowledged that this issue “likely has been rendered academic” by its decision concerning the aggregate policy limits that limited Lexington Insurance’s aggregate exposure for all the claims to $1 million.

click here for the opinion. 

This opinion is not final.  It may be modified following reargument or reconsideration.  These events would render the opinion unavailable for use as legal authority.  This opinion is uncorrected and may be revised prior to official publication.

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