The United States Court of Appeals for the Fifth Circuit recently rejected an excess insurer’s arguments in favor of temporal and subject matter stacking and affirmed summary judgment dismissing its subrogation claims against certain primary insurers. North American Specialty Insurance Co. v. Royal Surplus Lines Insurance Co., et al., No. 07-20488 (Aug. 22, 2008).
The widow of a deceased nursing home patient brought a lawsuit against the nursing home, its parent company, and its employees for negligent care. During the period over which the plaintiff alleged negligence, the insureds had three successive, non-overlapping primary insurance policies. The first two policies had separate $1 million hospital liability and CGL limits, while the third had separate $500,000 limits. The insured also had two successive, non-overlapping excess policies (each of which had a limit of $5 million) that ran concurrently with the first two primary policies.
The underlying case resulted in a verdict of $4.5 million in compensatory and punitive damages. A primary insurer settled the underlying case on behalf of the employees and took the position that its coverage was exhausted. The remaining corporate defendants in the underlying lawsuit appealed the verdict, with the excess insurer paying the costs of the appeal. The judgment was reversed and the case remanded for a new trial against the nursing home. Before the new trial commenced, the excess insurer funded a settlement on behalf of the nursing home. The excess insurer then commenced a subrogation action against the primary carriers.
The excess insurer argued that the underlying negligence suit sought damages for multiple discrete acts of negligence over the course of the three primary policy periods such that the primary coverage limits should be “stacked” (commonly referred to as “temporal stacking”). Under its interpretation, the excess insurer’s indemnity coverage would not be triggered until the total limit of all three primary policies ($2.5 million) was exhausted. The excess insurer also argued that defense costs also fell within CGL coverage under the primary policies and that, therefore, the CGL and hospital liability limits of each primary policy should be stacked (commonly referred to as “subject matter stacking”). The district court rejected both arguments and granted the primary insurers summary judgment.
On appeal by the excess insurer, the Fifth Circuit Court of Appeals affirmed, finding that neither temporal nor subject matter stacking was justified under the circumstances. First, the Court of Appeals found that the alleged negligent acts were “related” under the terms of the primary policies and, therefore, were to be deemed a single act, eliminating any basis for temporal stacking. Second, the Appeals Court held that care-related negligence allegations implicate hospital liability coverage rather than CGL coverage, so subject matter stacking was likewise inappropriate.
For a copy of the opinion, please click here.