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Utica v. American Indemnity Addresses Scope of the "Professional Services" Exclusion in a Medical Malpractice Action with Allegations of Professional and Non-Professional Negligence
by David L. Plaut
In Utica National Insurance Company of Texas v. American Indemnity Co., 46 Tex. Sup. Ct. J. 866 (June 28, 2003), the Texas Supreme Court recently held that a CGL insurer is obligated to defend a doctor when a plaintiff alleges both professional and non-professional negligence. The case addressed the applicability of a CGL "professional services" exclusion, and involved the question of whether a CGL insurer had to defend a medical association.
The Texas Supreme Court held that the CGL insurer was required to defend because the underlying plaintiffs "alleged both professional and non-professional negligence." 46 Tex. Sup. Ct. J. at 866. A former employee of a surgical center stole anesthetic from the center using a dirty syringe and contaminated the supply. Patients of the medical association contracted Hepatitis C from the contaminated anesthetic and subsequently sued the association alleging numerous causes of action against the doctors' association and its members, including negligence in "failing to properly secure anesthesia narcotics" and in "exposing patients to contaminated medication." 46 Tex. Sup. Ct. J. at 867.
The association's professional liability insurer (subsequently Texas Property and Casualty Insurance Guaranty Association "TPCIGA") originally assumed the defense but later became insolvent. 46 Tex. Sup. Ct. J. at 867. TPCIGA tendered the suit for defense and indemnity to American Indemnity, the association's general liability insurer at the time of litigation. American Indemnity originally denied coverage and the case was subsequently tendered to Utica, the general liability insurer at the time of the infection. Id. Utica refused to defend based on the "professional services" exclusion of its CGL policy. Subsequently, American Indemnity agreed to assist TPCIGA in settling the infection claims for approximately one million dollars. Utica did not participate in that settlement. Id.
American Indemnity then filed suit against Utica and TPCIGA seeking reimbursement for the cost of settlement. American Indemnity and TPCIGA settled, but both companies proceeded against Utica. 46 Sup. Ct. J. at 867. The trial court granted the motions for summary judgment of American Indemnity and TPCIGA holding that Utica breached its obligation to defend and was therefore liable for defense costs. Id. The court also held that Utica's professional services exclusion did not preclude coverage of the claims. The court of appeals and Texas Supreme Court affirmed.
Finding that Utica had to defend under these circumstances, the Texas Supreme Court emphasized that the "professional services" exclusion "is intended to prevent any overlap between the association's general liability insurance and its professional malpractice insurance." 46 Sup. Ct. J. at 868. The court concluded that the CGL policy excludes "coverage normally provided by professional liability policies -- that is coverage for liability caused by the breach of a professional standard of care." Id. at 868, 870.
With regard to indemnity coverage, the court noted that if a patient is injured because a doctor breaches a professional standard of care, then there is coverage under the professional liability policy. 46 Sup. Ct. J. at 869. On the other hand, if a patient is injured because a doctor breaches a non-professional standard of care -- in securing a medicine cabinet, for example -- then there is coverage under the CGL policy. If, however, a patient is injured because a doctor breaches both professional and non-professional standards of care, then only the professional indemnity coverage applies. Id (citations omitted). Again, a CGL insurer is obligated to defend, however, when a plaintiff alleges both professional and non-professional negligence. Id. at 866.
