Warren Hospital v. American Casualty Co. of Reading

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________

No. 09-4104
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WARREN HOSPITAL,

Appellant

v.

AMERICAN CASUALTY COMPANY OF READING;
CNA INSURANCE COMPANY

____________

On Appeal from the United States District Courtfor the
District of New Jersey
(D.C. Civ. No. 07-cv-00558)
District Judge: Jose L. Linares

Submitted Under Third Circuit L.A.R. 34.1(a)
on October 4, 2010

Before: SCIRICA, FUENTES, AND JORDAN, Circuit Judges.

(Opinion Filed: October 22, 2010)

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OPINION OF THE COURT
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FUENTES, Circuit Judge:

Warren Hospital (“Warren” or “Hospital”), a non-profit hospital in Phillipsburg,

New Jersey, brought this action for indemnification and equitable subrogation against

Defendant American Casualty Company of Reading, Pennsylvania (“ACC”).1 Warren

sought to recover the $425,0000, plus legal fees and costs, that it expended defending and

settling an underlying medical malpractice action brought against Warren and Tracy Lee,

a nurse at the Hospital. Lee had her own professional liability insurance with ACC (the

“ACC Policy”). The ACC Policy’s coverage is at issue in this case. The District Court

granted ACC’s motion for summary judgment and denied a motion from the Hospital.

Plaintiff filed this timely appeal. We will affirm, largely for the reasons stated in the

District Court’s opinion.2

I.

Because we write primarily for the parties, we set forth only the facts and history that

are relevant to our conclusion. While providing care to a patient, Lee irrigated the patient’s

abdominal cavity with an excess amount of fluid, causing him to require a temporary

colostomy. In a separate action, the patient sued the Hospital and Lee for negligence. The

Hospital was sued under a theory of vicarious liability. The Hospital assumed its own

1
According to ACC, there is no legal entity denominated as “CNA Insurance Co.,”
which Warren has also named as a Defendant in this action. We therefore will use the
singular “Defendant” throughout this opinion.
2
The District Court had subject matter jurisdiction pursuant to 28 U.S.C. § 1332.
We have jurisdiction under 28 U.S.C. § 1291.

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defense and that of Lee. Unable to find an expert to support its position, the Hospital settled

with the patient for $425,000.

Warren Hospital layered its insurance coverage. The first $1 million per incident was

a self-insured retention, which functioned similarly to a deductible. From $1 million to $5

million was covered by excess insurance from Lexington Insurance. Additional excess

insurance, from One Beacon Insurance, covered claims above $5 million. Warren’s policy

with Lexington identified employees as “Insureds.” (J.A. at 712.) Lee had her own

malpractice insurance with Defendant “ACC”, for up to $1 million per claim, for which she

paid an annual premium of $89.29.

At issue in this case is the “Other Insurance and Risk Transfer Arrangements”

provision of the ACC Policy, which states, in part:

If there is any other insurance policy or risk transfer instrument, including but
not limited to, self insured retentions, deductibles, or other alternative
arrangements (“other insurance”), that applies to any amount payable under
this Policy, such other insurance must pay first. It is the intent of this policy
to apply only to the amounts covered under this Policy which exceed the
available limit of all deductibles, limits of liability or self-insured amounts of
the other insurance, whether primary, contributory, excess, contingent, or
otherwise. This insurance will not contribute with any other insurance.

Lee contacted ACC regarding the patient’s lawsuit and the Hospital’s defense. ACC

took the position that its insurance was excess to the Hospital’s self-insured retention

(“SIR”). The Hospital argued in response that the ACC Policy was primary insurance and

that it expected to be indemnified by ACC for its defense of Lee. Unable to resolve this

dispute, ACC and the Hospital entered a “stand-still” agreement, permitting the Hospital to

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settle with the patient before trial, but preserving the Hospital’s claims for indemnity and

contribution.

The Hospital filed this action in state court and it was subsequently removed to federal

court. The District Court found that, while under New Jersey law an employer could seek

indemnity from an employee in a case like this, so as to reach the employee’s insurance

policy, the ACC Policy expressly included self-insured retentions as coverage that would

precede its own payment. The Court rejected Plaintiff’s argument that the Hospital’s self-

insured retention covered a different risk than the ACC Policy. The Hospital appealed,

challenging the District Court’s interpretation of the ACC Policy and its application of New

Jersey law.

II.

We review de novo a District Court’s decision granting summary judgment and apply

the same standard of review as that applied by the District Court. Twp. of Piscataway v.

Duke Energy, 488 F.3d 203, 208 (3d Cir. 2007); Curley v. Klem, 298 F.3d 271, 276 (3d Cir.

2002). Summary judgment is appropriate if “there is no genuine issue as to any material fact

and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). In

evaluating the grant of summary judgment to Defendant, we review the evidence in the light

most favorable to Warren Hospital, the non-moving party. Am. Eagle Outfitters v. Lyle &

Scott Ltd., 584 F.3d 575, 592 (3d Cir. 2009).

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 Warren’s primary contention on appeal is that the District Court focused on the

reference to “self-insured retentions”in the ACC policy, but failed to consider the qualifying

clause “that applies to any amount payable under this Policy.” According to the Hospital, its

own self-insured retention, for the first $1 million of a claim against it, does not apply to “any

amount payable” under Lee’s policy with ACC. Warren further emphasizes that its claims

against ACC involve indemnity and equitable subrogation and not the patient’s underlying

malpractice claims. Accordingly, it argues that its own SIR cannot now apply to bar its claim

against ACC, particularly as equitable subrogation allows it to step into Lee’s shoes and

receive the benefits of her coverage. Finally, the Hospital notes that ACC’s advertising

claimed the policy would cover a nurse for indemnity claims brought against the insured

nurse by a self-insured employer who paid damages on the nurse’s behalf. The District Court

found this last argument inapplicable in this case, as Lee was not sued by the Hospital. We

agree.

The District Court began its analysis by determining that, under New Jersey law, the

doctrine of employee indemnity of an employee applies in this case. The Court then

examined the ACC Policy and concluded that it did not provide coverage in this case in light

of Warren’s self-insured retention. Because we agree that the language of the ACC Policy

clearly excludes coverage in this situation, we will decline to address the applicability of the

doctrine of employee indemnity.

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 Under New Jersey law, an insurance policy is interpreted like any other contract and,

absent any ambiguity, its terms “should ‘be given their plain ordinary meaning.’” Royal Ins.

Co. of America v. KSI Trading Corp., 563 F.3d 68, 73 (3d Cir. 2009) (quoting Zacarias v.

Allstate Ins. Co., 775 A.2d 1262, 1264 (2001)). New Jersey courts endeavor “to interpret

insurance contracts to accord with the objectively reasonable expectations of the insured.”

Doto v. Russo, 659 A.2d 1371, 1376-77 (N.J. 1995). Applying this standard, we must

conclude that the ACC Policy, which expressly states that it will only pay after “any other

. . . self-insured retentions . . . that appl[y] to any amount payable under this policy” expressly

excludes coverage where, as here, Warren’s own self-insured retention also applies to acts

of Lee “within the scope of [her] employment.” (J.A. at 720.)

We find American Nurses Ass’n v. Passaic Gen. Hosp, 484 A.2d 670, 674 (N.J. 1984),

which Warren relies on in support of its position, inapposite. As the District Court noted, the

language in the ACC Policy is quite distinguishable from that at issue in American Nurses.

The ACC Policy, in an exclusion provision, expressly included “self insured retentions,”

unlike the relevant provision in American Nurses, which merely referenced “valid and

collectible insurance.” Id. Moreover, the provision of the policy in American Nurses began

with the phrase “[i]f the Member has valid and collectible insurance for an occurrence

protected by this Agreement.” Id. Such language might be read to apply only to insurance

for which the “Member” is a named insured or insurance that the Member has individually

purchased. Here, in contrast, the relevant provision of the ACC Policy begins, “[i]f there is

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any other insurance policy or risk transfer instrument,” and hence includes with in its scope

any insurance policy or risk transfer instrument that would apply to the underlying incident

for which coverage is sought.

We similarly reject the Hospital’s separate but related argument that its own insurance

did not cover the “same risk” as the ACC Policy and that therefore, under the relevant case

law, the excess insurance clause does not apply. In support of this position, Warren

emphasizes that it is not required to reimburse or indemnify Lee for her liability due to her

own negligence, and therefore contends that its SIR does not cover the “same risk.”

However, as we have noted, Warren’s insurance policy with Lexington expressly included

nurses as “Insureds” for acts committed in performance of their duties for Warren. As such,

Warren did insure against the same risks covered by the ACC Policy, risks resulting from the

negligent acts of Lee.

III.

We have considered the remainder of the Appellant’s arguments and find them to be

without merit. Accordingly, for the foregoing reasons we will affirm the District Court.

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