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Somerset Medical Center v. Executive Risk Indemnity

March 22, 2010

SOMERSET MEDICAL CENTER, PLAINTIFF-RESPONDENT,
v.
EXECUTIVE RISK INDEMNITY, INC., DEFENDANT-APPELLANT.



On appeal from Superior Court of New Jersey, Law Division, Somerset County, Docket No. L-1122-08.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued February 24, 2010

Before Judges Graves, Sabatino and Newman.

This is an insurance coverage case. Defendant, Executive Risk Indemnity, Inc. (ERII), issued to plaintiff, Somerset Medical Center (Somerset), a "Directors, Officers and Trustees Liability Insurance Including Healthcare Organization Reimbursement Policy." Somerset seeks coverage under the policy for defense and indemnity for underlying lawsuits, which were consolidated in Middlesex County under the designation In re Cullen Litigation with a master complaint. In the underlying lawsuits, nurse Charles Cullen pleaded guilty to committing approximately twenty-nine murders and six attempted murders at various health care facilities, including Somerset. In the master complaint, allegations were made against Somerset and its officers for negligent hiring, negligent supervision and entrustment, negligent reporting, and negligent continuation of employment. The question presented is whether a bodily injury exclusion contained in the ERII policy bars coverage of claims against Somerset and its officers for allegations of negligence relating to the employment of Cullen.

Somerset and ERII filed cross-motions for partial summary judgment and the trial court granted Somerset's. It held that ERII was precluded from asserting the bodily injury exclusion as an affirmative defense for two reasons. First, ERII was barred by collateral estoppel, also known as issue preclusion, because the same exclusion was unsuccessfully asserted as a defense in Warren Hospital v. Executive Risk Indemnity, Inc., No. L-6277-06 (Law Div. June 26, 2009).*fn1 Second, even if collateral estoppel did not apply, the bodily injury exclusion did not bar coverage for the underlying claims.

We granted leave to appeal.*fn2 While we disagree that collateral estoppel could bar the use of the bodily injury exclusion in the policy, we are persuaded that the exclusion did not bar coverage for the underlying claims and affirm.

ERII issued to Somerset a "Directors, Officers and Trustees Liability Insurance Including Healthcare Organization Reimbursement Policy." Somerset sought coverage under the policy for defense and indemnity for the underlying lawsuits in the In re Cullen Litigation. Section I of the policy, "Insuring Agreements," states:

(A) The Underwriter will pay on behalf of the Insured Persons Loss from Claims first made against them during the Policy Period, except for Loss which the Insured Entity pays to or on behalf of the Insured Persons as indemnification.

(B) The Underwriter will pay on behalf of the Insured Entity Loss from Claims first made against the Insured Persons during the Policy Period which the Insured Entity pays to or on behalf of the Insured Persons as indemnification.

(C) [OPTIONAL COVERAGE] If there is a premium charge in ITEM 5(b) of the Declarations, the Underwriter will pay on behalf of the Insured Entity Loss from Claims first made against it during the Policy Period.

The term "Claim" means: "(1) written notice received by an Insured that any person or entity intends to hold any Insured responsible for a Wrongful Act, or (2) a legal, injunctive or administrative proceeding against an Insured Person solely by reason of his or her status as such." "Wrongful Act" is defined as: any actual or alleged error, omission, misstatement, misleading statement or breach of duty (1) by an Insured Person solely in his or her capacity as such, or while serving as a director or trustee or any other non-profit entity at the express written direction of the Insured Entity; or (2) with respect to coverage under Insuring Agreement C, by the Insured Entity.

The bodily injury/property damage exclusion under Section III (as amended) provides:

(B) The Underwriter shall not pay Loss, including Defense Expenses, for Claims:

(1) based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any actual or alleged bodily injury, sickness, mental anguish, emotional distress, disease or death of any person, or damage to or destruction of any tangible property including loss of use thereof[.]

The directors, officers, and trustees liability insurance policy issued by ERII to Somerset is the same type of policy issued by ERII to Warren Hospital. With the exception of certain endorsements not relevant to this appeal, the Warren Hospital policy is identical to Somerset's policy. The bodily injury exclusions in both policies are identical.

Warren Hospital is a defendant in the underlying In re Cullen Litigation. On August 14, 2006, it brought a declaratory action against ERII, Warren Hospital v. Executive Risk Indemnity, Inc., supra, seeking coverage for claims made against it in the underlying In re Cullen Litigation. ERII moved to dismiss Warren Hospital's action, arguing that the bodily injury exclusion in the Warren Hospital policy precluded coverage. On February 2, 2007, Judge Bryan D. Garruto denied ERII's motion to dismiss, ruling that the bodily injury exclusion was not a defense to coverage for the underlying claims.

ERII moved for leave to appeal, and on March 20, 2007, this court denied the motion. Thereafter, ERII and Warren Hospital settled the case. They jointly stipulated to a dismissal with prejudice on June 10, 2008.

On appeal, ERII raises the following issues for our consideration:

POINT I

EXECUTIVE RISK IS NOT COLLATERALLY ESTOPPED FROM ASSERTING THE ...


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