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Allied, Zurich not obligated to indemnify physician, hospital system


Allied World Assurance Co. Ltd. and Zurich Insurance Corp. N.A. units are not obligated to indemnify a hospital system and physician under their excess medical malpractice policies for the birth of a girl who suffers from cerebral palsy and other issues, a federal appeals court said Friday in affirming a lower court ruling.

Dr. Erica Kesselman delivered the baby, who also suffers from brain injury and “mental disabilities and defects,” at a hospital operated by Putnam, Connecticut-based Day Kimball Healthcare Inc. in 2013, according to the underlying ruling by the U.S. District Court in Bridgeport, Connecticut in Day Kimball Healthcare Inc., Erica J. Kesselman, M.D. v. Allied World Surplus Lines Insurance Co., FKA Darwin Select Insurance Co., Steadfast Insurance Co.

A surgical sponge was also left inside the mother requiring surgical removal that caused inflammation, urinary tract infection and deformity, according to the district court ruling.

American International Group Inc. unit Lexington Insurance Group, which provided primary coverage and is defending the hospital system and Dr. Kesselman in the underlying medical malpractice litigation in state court, is not a party to the lawsuit.

The district court held that the excess insurers were not obligated to provide coverage under their policies and was affirmed by a three-judge panel of the 2nd U.S. Circuit Court of Appeals in New York.

The hospital and physician were not able to obtain coverage for professional claims because there had not been timely notice under the claims made policies, the ruling said.

Instead, the hospital system and Dr. Kesselman had sought coverage under a policy provision for claims related to employee benefit programs, the ruling said.

The panel agreed with the lower court that this was not covered under the excess policies, which “unambiguously provides excess coverage to the Lexington Policy only for claims related to employee benefit programs.”

“The underlying litigation is a medical malpractice action that clearly implicates only the professional liability coverage,” it said, in affirming the lower court’s ruling.

Attorneys in the case did not respond to requests for comment.