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Hospital's captive must pay staffing agency nurse's settlement in suit: Court


A Washington medical center's captive insurer is liable for defending and settling a lawsuit filed against a staffing agency nurse, under terms of the insurance policies involved, says an appeals court, in upholding a lower court ruling.

Washington Hospital Center, a subsidiary of Columbia, Maryland-based MedStar Health Inc., entered into a staffing agreement with Springfield, Virginia-based Progressive Nursing Staffers Inc. in February 2002, under which it agreed to provide registered nurses to the hospital, according to Friday's ruling by the U.S. Court of Appeals for the District of Columbia Circuit in Interstate Fire & Casualty Company v. Washington Hospital Center Corporation et al.

Cayman Islands-based Greenspring Financial Insurance Ltd., MedStar's captive, issued a general liability policy to MedStar in August 2003, under which Greenspring must indemnify insureds for damages of up to $5 million per incident resulting from covered medical incidents. The policy defines insureds as employees of MedStar.

Meanwhile, Chicago-based Interstate Fire and Casualty Co., a unit of Novato, California-based Fireman's Fund Insurance Co., issued a professional liability policy covering Progressive and its current and former employees for claims made between November 2006 and November 2007 with a cap of $1 million per incident, according to the ruling.

The policy states other valid insurance may apply against a loss covered by the policy. Interstate also issued an excess commercial liability policy, providing coverage of up to $4 million per incident, according to the ruling.

Chichio Hand a registered nurse, was hired by Progressive Nursing in 1999 and assigned to work at Washington Hospital, according to the ruling. In April 2004, Ms. Hand was one of several medical professionals involved in the treatment of Radianne Banks, who was left paralyzed after she underwent a caesarian section at the hospital.

Ms. Banks filed suit against the hospital and two of its doctors in March 2007. Washington Hospital then filed a complaint against Ms. Hand and Progressive.

In August 2009, Ms. Banks, Washington Hospital, Ms. Hand, Progressive and Interstate Fire entered into a settlement agreement under which Washington Hospital agreed to pay Ms. Banks and her attorneys $1.05 million, while Interstate Fire agreed to pay $3.055 million, including a $1.455 million payment to Ms. Banks and her attorneys, and the purchase of two annuities for Ms. Banks at a combined cost of $1.6 million. Interstate, however, expressed the right to seek reallocation of the settlement.

In July 2010, Interstate followed through on its reservation of rights and sued Washington Hospital, MedStar and Greenspring in federal District Court in the District of Columbia charging that the defendants owed a duty to provide primary insurance coverage for Ms. Hand, and reimbursement for all the fees and costs it had paid on her behalf.

The federal District Court agreed with Interstate that Nurse Hand was a Washington Hospital employee for purposes of the Greenspring policy. In a subsequent decision, it ruled that Interstate was entitled to recover $3.055 million from Greenspring for payments under the settlement agreement, and $153,000 in attorney's fees and costs, along with prejudgment and post judgment interest.

A three-judge panel of the appeals court agreed with the lower court, in a unanimous ruling. “The principal issue in this case is whether Nurse Hand … qualified as an 'employee' of the hospital. If so, Nurse Hand is an insured under the Greenspring policy, implicating Greenspring's primary coverage,” says the appeals ruling.

The ruling concludes she was a hospital employee. “We agree with the district court that the common law test supports concluding that Nurse Hand qualifies as an 'employee' of Washington Hospital,” says the ruling.

The ruling cites an affidavit from Larry Smith, vice president of risk management at MedStar and Greenspring's president, which states that Greenspring and MedStar both understood the Greenspring policy would not apply to temporary workers such as agency nurses.

However, said the ruling, “District of Columbia courts apply unambiguous provisions of insurance policies without resort to extrinsic evidence of the parties' subjective intent,” says the ruling.

“The Smith Affidavit, coming eight years after the Greenspring policy was written and more than one year after Interstate Fire filed suit, cannot outweigh the various considerations establishing that Nurse Hand qualifies as an 'employee' of Washington Medical under the Greenspring policy,” said the appeals court, in affirming the lower court ruling.