The Connecticut Supreme Court affirmed June 18 a trial court decision that multiple deaths and injuries to several individuals resulting from a nursing home fire do not constitute one “medical incident” under the nursing home’s professional liability insurance policy, but reversed the total amount of available coverage from $10 million to $1 million. The Connecticut Supreme Court also held the insurer is not responsible for the $250,000 self-pay deductible under the policy where the nursing home is insolvent and unable to pay that amount. Under this scenario, however, the insurer’s coverage liability is not reduced by the unpaid deductible, the high court concluded. 

According to the opinion, written by Connecticut Supreme Court Chief Justice Rogers, Greenwood Health Center, a Hartford nursing home operated by Lexington Healthcare Group (Lexington Healthcare), was set ablaze by a resident resulting in several resident deaths and injuries. As a result, 13 negligence wrongful death or serious bodily injury claims were filed. The claims allege varying degrees of negligence from the initial admission of the resident who caused the fire to the staff’s failure to properly supervise that resident and respond appropriately during the fire and evacuation of the facility.

The insurance carrier for Lexington Healthcare, Lexington Insurance Company, brought a declaratory judgment action against Lexington Healthcare to define the limits of its potential liability under the policy. In addition, Nationwide Health Properties, Inc. (Nationwide), the property owner, along with several others, including the individuals asserting the negligence actions, each filed counterclaims, also seeking declaratory judgments about the insurer’s obligations under the policy. The trial court interpreted the policy as providing more coverage for the individual claims overall, but reduced the amount of coverage under the per medical incident limit. The Connecticut Supreme Court affirmed in part and reversed in part, focusing on three policy interpretations: ambiguity of terms, aggregate policy limits, and a self-insured retention provision.

Ambiguity of Policy Terms

The policy provided: “All claims arising from continuous, related, or repeated medical incidents shall be treated as arising out of one medical incident.” (Emphasis added). The interpretation of this provision is significant because it determines whether a single, $500,000 per medical incident coverage limit applies to all of the individuals’ negligence claims collectively, or whether that coverage limit applies to each individual separately.

The Connecticut Supreme Court agreed with the lower court’s determination that the term “related” is ambiguous in this context. Construing the policy in favor of more coverage, the high court held the individual negligence claims arise from unrelated medical incidents despite a “common, precipitating factor” and therefore are not subject to a single, $500,000 limit. According to the opinion, this conclusion is supported by case law from other courts finding similar incidents unrelated where they involved “multiple losses” to “multiple people.” The high court also cited with approval the lower court’s reasoning that Lexington Healthcare owed separate duties to each resident, based on individual service needs, that it failed to meet in different ways, resulting in distinct and separate injuries.

Aggregate Policy Limits

The high court reversed, however, the trial court’s determination that the professional liability policy provided up to $10 million in total coverage for all of the individual claims. The trial court erroneously concluded a subsequent policy endorsement setting the $10 million limit trumped the $1 million aggregate limit specified for professional liability coverage. The high court stressed the importance of interpreting the policy as a whole and, unlike the trial court, found the terms “aggregate policy limit” and “aggregate limit” do not mean the same thing. The high court pointed out that the policy covers both general and professional liability for seven healthcare facilities and that the latter is the only type of coverage available for the individual claims at issue. When considered in this context, the $10 million “aggregate policy limit” applies as a cap for general and professional liability coverage available at all facilities and does not replace the $1 million “aggregate limit” for professional liability coverage at each facility, the high court said.

Self-Insured Retention Provision

Under the policy’s Self-Insured Retention provision, Lexington Healthcare is responsible for the first $250,000 of claims resulting from each medical incident, the high court noted. Relying on the clear language of the policy, the high court concluded that the insurance company must only pay claims that exceed $250,000 (up to the appropriate policy limit), even if Lexington Healthcare is insolvent and unable to pay the initial amount. The high court rejected, however, the trial court’s conclusion that the insurer’s liability is limited to the next $250,000 in damages and not to the $500,000 per medical incident set forth in the policy. The self-insured retention provision limits the insurer’s liability only to the extent of “payment of damages and expenses” and does not address the situation where the insured is unable to pay the initial $250,000. In these circumstances, the high court held, the ambiguity is construed in favor of coverage and the insurer’s potential liability is up to the $500,000 limit.

Lexington Ins. Co. v. Lexington Healthcare Group, Inc., No. SC 18681, No. SC 18682 (Conn. Jun. 18, 2013).