September 1, 2012
Anyone ever confused by fine print in an insurance policy: Take heart. Even judges assigned to settle multi-million dollar disputes occasionally are confronted by the "unparsable."
The judge refereeing a fight among insurers over how to divide costs associated with years of child abuse claims against St. Francis Hospital and Medical Center encountered a particularly impenetrable paragraph in the hospital's policy.
The passage — called Special Endorsement No. 1 — is an important element in the fight. The Travelers Cos.' says that passage, an attachment to the policy, exempts it from reimbursing St. Francis for a portion — perhaps millions of dollars worth — of the legal expenses the hospital paid to defend itself from sexual abuse suits by the child victims of its former chief endocrinologist, Dr. George Reardon.
U.S. District Judge Mark R. Kravitz disagreed, unambiguously. "The court remains unconvinced," Kravitz said in a written decision. "For one thing, Travelers' reading runs up against the fact that [the attachment cited] is written in gibberish."
"Suffice it to say," the judge continued, "that the Connecticut Supreme Court must not have encountered Special Endorsement No. 1 when it observed, in reference to insurance contracts, that 'parties ordinarily do not insert meaningless provisions in their agreements.'"
Turgid, if not meaningless, language is familiar to insurance professionals because, as Hartford insurance lawyer Michael Menapace said, "Insurers generally want to cover only those risks they are intending to insure." Bad language becomes an issue in high stakes cases when competing insurers move their disagreements into court and hire specialty lawyers to minimize their exposure in expensive settlements.
The stakes certainly are high for St. Francis.
While working for the hospital for 30 years, Reardon used a sham study of pediatric growth rates as a pretext to sexually molest and improperly photograph as many as 500 children. After his death, about 160 adults learned he had hidden pornographic slides he had taken of them decades earlier behind a wall in his cellar. Armed with photographs depicting their abuse as it happened, they sued. After years of litigation, negotiation, repeated mediation and just one trial that reached verdict — a $2.75 million award to one victim — the hospital and three of its insurers concluded settlements with the victims earlier this year for $150 million or more.
Special Endorsement No. 1 was subjected to forensic examination after one of the insurers, Pacific Employers Insurance Co., sued to impose its view of how the hospital and its insurers should divide the costs of Reardon's abuse. The suit is concerned with five policy years during the early 1980s when Travelers, Pacific and Evanston Insurance Co. shared the hospital's layers of primary and excess coverage.
The suits seeks the answer to a question on which the hospital and its insurers cannot agree: Does serial abuse of children by Reardon in his hospital office trigger hospital malpractice or general liability coverage?
Because of the way the different policies aggregate coverage and claims, the answer could shift responsibility for millions of dollars in liability and legal fees from one insurer to another.
Kravitz has yet to decide what coverage will be drawn on for abuse damages: Professional liability, as Travelers argues, because the hospital's failure to supervise Reardon was malpractice; or general liability, as Pacific asserts, because Reardon's acts of pedophilia were not connected to the delivery of medical service.
But Special Endorsement No. 1 was a factor in a more limited decision last month, when the judge concluded that both kinds of coverage can be used to pay the hospital's legal bills. The ruling appears to save Pacific money at Travelers' expense. Details are limited because the insurers decline to discuss the litigation and have been allowed to file briefing papers in court under seal.
The endorsement says the insurance policy recognizes hospital professional liability claims around the world, but drifts on the subject of reimbursement: "For all reasonable expense incurred in connection with the investigation, settlement, or defense of such claims or suits and the Company's reimbursement obligation for the settlement of all damages imposed on and expenses incurred by the insured shall be limited to the amount stated in the policy as the applicable limit of the Company's Liability for damages that the Company may, at its discretion, participate, in, in the defense or settlement of such claims or suit."
University of Connecticut law professor Peter Kochenburger, executive director of the school's insurance clinic, said thousands of lawsuits are filed each year as the result of insurance coverage disputes.
"There are certainly any number of opinions that will criticize language used," he said, "But 'gibberish' is one of the stronger terms."
In his decision, Kravitz chose to be guided by language that was comprehensible and jettison the rest.
"Provisions which are meaningless — despite having been negotiated and accepted by two sophisticated parties, as here — must necessarily be ignored," he wrote. "Rather than drawing inferences for any party based on phrases that are unparsable, the Court will simply give operative effect to as much of the policy language as it can."