In a case in which surgical instruments were mistakenly washed with elevator hydraulic fluid, an insurer was obligated to pay only $1 million under its policy, not the $6 million sought, said an appellate court, which based its ruling on an analysis of policy language.

According to Monday's ruling by the 4th U.S. Circuit Court of Appeals in Richmond, Va., in Mitsui Sumitomo Insurance Co. of America v. Duke University Health System Inc. and Automatic Elevator Co. Inc., Durham, N.C.-based Duke in 2004 engaged Automatic Elevator, which is no longer in business, to renovate two elevators in a Raleigh, N.C., hospital's parking deck.

During the work, Duke made available to Automatic several empty 15-gallon plastic barrels that previously contained surgical detergents and lubricants for hydraulic fluid disposal. When Automated completed its renovation of the second elevator, it left the barrels containing the fluid in its designated storage area at the hospital's parking deck.

A hospital employee saw the barrels and mistakenly thought they contained surgical detergents and lubricants. The barrels eventually were sold to four hospitals, two of which used the hydraulic fluid to clean hundreds of surgical instruments.

When Duke employees realized the error in late December 2004, they sent letters explaining the situation to 3,650 surgical patients who may have come in contact with the affected instruments.

About 150 of these patients filed claims in the case. By May 2008, Automatic Elevator had settled with every individual who brought a claim against it, while Duke reached settlements with about 127 claimants for more than $6 million, according to the ruling.

%%BREAK%%

Duke then sued Automatic Elevator, and Mitsui filed suit against Duke and its policyholder, Automatic Elevator, seeking a declaratory judgment in the case as to its coverage obligation.

Mitsui had issued to Automatic two insurance policies that each had a $3 million aggregate limit and a per-elevator endorsement for any one occurrence. Duke argued that the mistake involved at least three occurrences and the per-elevator endorsement applied, which obligated the insurer to pay $6 million on its behalf.

Mitsui argued the incident was a single occurrence and it was obligated to pay only the $1 million it had already paid. It also said the per-elevator endorsement did not apply because it had serviced only one elevator during the relevant period.

The appellate court, which said North Carolina law would apply in this case, ruled there had been only one occurrence. “The only action that Automatic Elevator took in this case was placing the barrels of hydraulic fluid in its designated storage area” at the hospital, said the 2-1 ruling.

The consensus among rulings by other courts “suggests that the Supreme Court of North Carolina would find that the hydraulic fluid mistake involved one occurrence because it would similarly look to Automatic Elevator's single act of negligence rather than Duke's intervening actions,” said the ruling. Duke's “contention that the hydraulic fluid incident involved multiple occurrences are unreasonable,” said the ruling.

Because the case involves only one occurrence, the per-elevator endorsement does not apply, said the appellate ruling, which upheld a lower court ruling in the case.