Mandatory Coverage Requirements Trump Self-Insured Retention
The Rhode Island Supreme Court has dealt a blow to insurers that rely on a self-insured retention (SIR) to limit coverage to liability in excess of the retention. In Peloquin v. Haven Health Center of Greenville, LLC (Jan. 14, 2013), the Court held that notwithstanding the express language of an SIR, the insurer was required to provide first dollar coverage to the extent of mandatory coverage required by state law.
The case arose from the mistaken administration of a lethal overdose of morphine to a patient at Haven Health Center. During her deposition, the nurse who had administered the overdose acknowledged that she was negligent in misinterpreting the physician’s order. Although liability was clear, the patient’s estate faced a hurdle to recovery due to the bankruptcy of both Haven Health and the nurse, coupled with the fact that their professional liability policy was subject to a $2 million SIR.
The defendants’ bankruptcy did not deter the Estate. Instead, it added Columbia Casualty Company, Haven Health’s professional liability insurer, as a defendant in the action, as permitted by Rhode Island law. However, the SIR Endorsement to the Columbia Casualty policy stated that Columbia’s obligation to pay damages was in excess of the SIR and that Haven Health was required to pay all damages and claim expenses up to the amount of the SIR. The Endorsement expressly contemplated the potential for the insured’s bankruptcy and sought to avoid first dollar coverage, stating:
The Limits of Liability. . . are in excess of the Self-Insured Retention regardless of [Haven Health’s] financial ability or inability to pay the Self-Insured Retention and in no event are we required to make any payments within [the] Self-Insured Retention.
The Court, reversing the trial court, held that the SIR Endorsement was invalid, at least in part, under Rhode Island Law which requires healthcare providers to be insured for at least $100,000 per claim. In reaching its holding, the Court explained that because self insurance is not insurance, it cannot be used to satisfy the mandatory insurance requirements. Therefore, notwithstanding the express language of the SIR, Columbia must provide $100,000 in first dollar coverage.
The Court rejected Columbia’s argument that an SIR was permitted in a professional liability policy because G.L. 1956 § 42-14.1-2(a) authorized the department of business regulation to establish rules and regulations allowing persons or entities with sufficient financial resources to be self-insurers. The Court noted that the department had not yet promulgated any such regulations. Accordingly, the SIR did not provide a safe haven for Haven Health’s insurer.
The Court declined to reach the Estate’s additional argument that the nurse and the nursing home were each entitled to a separate $100,000 limit, because the Estate failed to raise that issue below. Although the Court did not reach the issue of whether the mandatory coverage applied separately to each insured, the potential for an insurer to be liable for multiple compulsory limits is present when there are multiple insolvent insureds.
About Tamara: I specialize in Insurance Law and Litigation at Anderson & Kreiger. On the subject of insurance in the medical arena, I blogged about MA’s Health Payment Reform Act will affect malpractice litigation for Between the Lines here.
Posted In: Self Insurance