Xu, et al. v. Donovan, et al. (Lawyers Weekly No. 12-066-17)

This dispute relates to a high/low agreement in a prior medical malpractice case. Plaintiffs had sued two doctors and a nurse who worked at Tufts Medical Center (“Tufts”). The parties to that prior action and Tufts agreed prior to the jury verdict that Plaintiffs would receive a maximum of $ 2.5 million for each defendant found to be liable and be paid $ 300,000 for each defendant found not to be liable. The jury found that the two physicians were liable for negligence and that the nurse was not. It award $ 24.43 million as damages against the doctors. In accord with the high/low agreement, Plaintiffs recovered only $ 5.3 million.
Plaintiffs claim they were fraudulently induced to enter into the high/low agreement by representations that the available insurance was capped at $ 2.5 million per defendant, and that in reality there was an excess insurance policy that provided up to $ 30 million in coverage with no cap per defendant. They seek damages from the parent of the medical center (Tufts Medical Center Parent, Inc., or TMCP), the captive insurer that issued the primary and excess insurance policies (Tufts Medical Center Indemnity Co., Ltd., or TMCIC), and Paul Donovan, who is a Senior Claims Administrator for Tufts and signed the high/low agreement on its behalf.
TMCP and TMCIC assert a counterclaim seeking a declaratory judgment stating that the total insurance coverage available for the claims in the underlying malpractice case, including both the primary and excess insurance policies, was capped at $ 2.5 million per person per claim or medical incident. TMCP, TMCIC, and Donovan move for summary judgment on all claims and counterclaims.
The Court concludes that TMCP, TMCIC, and Donovan are entitled to summary judgment in their favor. The excess and primary insurance policies
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unambiguously provide that the maximum coverage for the doctors and nurse sued in the prior action was $ 2.5 million per individual defendant. TMCP and TMCIC are entitled to a declaratory judgment to that effect. And Plaintiffs’ claims against all Defendants for fraud and for committing unfair and deceptive practices in violation of G.L. c. 93A, and its separate claim against Donovan only for negligence, all fail as a matter of law.
1. Parsing the Insurance Policies.
1.1. Reading Unambiguous Policy Language. “[C]onstruing the language of an insurance contract is a question of law for the trial judge,” and therefore is appropriate for resolution on a motion for summary judgment. Thattil v. Dominican Sisters of Charity of the Presentation of the Blessed Virgin, Inc., 415 Mass. 381, 385 n.6 (1993), quoting Cody v. Connecticut Gen. Life Ins. Co., 387 Mass. 142, 146 (1982). “Like all contracts, if the language of an insurance policy is unambiguous,” then a court must “construe the words ‘in their usual and ordinary sense.’ ” Boazova v. Safety Ins. Co., 462 Mass. 346, 350 (2012), quoting Hakim v. Massachusetts Insurers’ Insolvency Fund, 424 Mass. 275, 280 (1997).
The Court is persuaded that there is only one correct way to read Tufts’ primary and excess insurance policies with respect to per person professional liability coverage limits, and that the policies are therefore unambiguous with respect to that issue. See Surabian Realty Co. v. NGM Ins. Co., 462 Mass. 715, 718 (2012) (court “may conclude that language [in an insurance policy] is ambiguous only ‘where the phraseology can support a reasonable difference of opinion as to the meaning of the words employed and the obligations undertaken’ ”) (quoting Bank v. Thermo Elemental Inc., 451 Mass. 638, 648 (2008), and President & Fellows of Harvard College v. PECO Energy Co., 57 Mass. App. Ct. 888, 896 (2003)).
Although the relevant policy language is somewhat difficult to parse, that does not mean that it is ambiguous. Massachusetts Prop. Ins. Underwriting Ass’n v. Wynn, 60 Mass. App. Ct. 824, 827 (2004) (“While reading and understanding an insurance policy’s provisions as to coverages, exclusions, and exceptions is often a formidable task, difficulty in comprehension does not equate with ambiguity.”).
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Similarly, the fact that the parties disagree vigorously regarding the proper way to read the insurance policies does not demonstrate that there is a legal ambiguity either. See Boazova, 462 Mass. at 351 (“an ambiguity is not created simply because a controversy exists between the parties, each favoring an interpretation contrary to the other”) (quoting Lumbermens Mut. Cas. Co. v. Offices Unlimited, Inc., 419 Mass. 462, 466 (1995)).
1.2. The Coverage Limits. This lawsuit concerns three related insurance policies that provide professional liability coverage to physicians working at and employees of Tufts Medical Center. The primary policy was issued by a captive insurer belonging to Tufts’ predecessor. There is also an excess insurance policy that was issued by the same captive insurer. Finally, two reinsurance policies were issued by different syndicates of underwriters assembled by Lloyd’s of London.
The primary insurance policy provided each defendant in the underlying malpractice lawsuit with $ 2.5 million of coverage. The primary policy states that each “Insured Individual” is covered for professional liability up to $ 2.5 million for any one “medical incident,” a term that encompasses all of Plaintiffs’ claims in the malpractice case.1 The term “Insured Individual” is defined to include any physician working at and any other person employed by a named insured. It is undisputed that the three individuals sued in the underlying action were “Insured Individuals” for purposes of the primary policy.
The primary policy only provides up to $ 5 million in aggregate professional liability coverage for any one medical incident. The excess insurance policy provides up to $ 30 million in coverage in excess of the “underlying retention” for each medical incident. The “underlying retention” referenced in the excess policy are the limits of
1 Although the Declarations section states that the primary policy provides $ 2.5 million in professional liability coverage to each insured individual per “claim,” the policy specifies (on page 15) that this stated coverage per claim “is the total limit of the [insurer’s] liability for all Damages … as to all claims … arising out of a Medical Incident.” And the definition of “Medical Incident” states (on page 4) that all acts or omissions in furnishing Professional services “to one person shall be considered one Medical Incident,” and that all damages resulting from the treatment of one person “shall be considered as arising out of one Medical Incident.” All claims in the underlying medical malpractice action concern and arise from a single “Medical Incident” as that term is defined in the policy.
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the primary policy, i.e. $ 2.5 million per physician or other medical staff and $ 5.0 million in the aggregate. In other words, the $ 30 million in total excess coverage is in addition to the $ 5 million in primary coverage for professional liability claims.
The full scope and limits of the excess insurance coverage are not spelled out in the excess insurance policy but instead are delineated in the separate reinsurance policies. The excess policy incorporates by reference the coverage limits and other terms of two specified reinsurance policies. It does so in at least three places. First, the “coverage” provision on page 1 of the excess insurance policy states:
Coverage: As provided in the reinsurance listed on Schedule A attached hereto, the policy form of which is attached and incorporated by reference.
Second, the “insuring agreement” provision on page 3 states:
The coverage afforded by this policy is limited to indemnifying the Insureds for claims and expenses that meet the criteria for coverage under the reinsurance listed on Schedule A attached hereto. Indemnification is limited by the applicable per claim and aggregate limits of liability, and is excess of the Underlying Retention, as stated on the declarations page.
Third, the general “policy terms and conditions” provision, also on page 3, states:
The insurance afforded under this policy shall follow the terms and conditions of the reinsurance listed on Schedule A, the policy form of which is attached and incorporated by reference, and this policy shall be applied and interpreted as if the Company had issued the policy form of the reinsurance listed on Schedule A as the Company’s own insurance policy, except where the conditions set forth in this policy differ.
Therefore, one must read the specified reinsurance policies to determine what is covered by the excess policy, and to determine the per claim and aggregate limits of liability under the excess policy.
These three provisions make clear that the excess policy “was a so-called ‘follow form’ policy, meaning that its terms, conditions, and exclusions were the same as those in” the specified reinsurance policies. Allmerica Financial Corp. v. Certain Underwriters at Lloyd’s, London, 449 Mass. 621, 622-623 (2007). A “follow form clause” makes one policy “a carbon copy” of another policy, “with the only differences being the names of the parties and the [aggregate] coverage limitations.” Id. at 630. “Follow form language thus allows an insured to have coverage for the same set of potential losses (and with the same set of exceptions) in each layer of the insurance
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program.” Id. In this case, Tufts and its captive insurer wrote the excess policy to follow the terms and conditions of the reinsurance policy.2
Both reinsurance policies contain the following provisions regarding coverage limits. They state (at pages 12 or 11) that the reinsurer is only liable in excess of the “Underlying Amounts,” which is defined (at pages 39 or 36) to mean $ 5.0 million per medical incident with respect to claims for medical professional liability. These policies state in the Declarations section (at pages 37 or 34) that they cover a maximum of $ 30.0 million of liability in the aggregate for each medical incident. Most important, for purpose of this dispute, the reinsurance policies also state (at pages 41 or 40) that for any one medical incident: (i) the maximum coverage limit is $ 2.5 million per insured individual, and (ii) the reinsurance policy will only cover aggregate losses that exceed the “applicable underlying amount” of $ 5.0 million.
Since the excess insurance policy incorporates all of these coverage limits, terms, and conditions, the maximum coverage available under the excess policy to individual physicians and nurses practicing or working at Tufts Medical Center is limited to $ 2.5 million for any one medical incident. And since the excess and reinsurance policies only kick in after the underlying retention of $ 5.0 million is paid out under the primary insurance policy, the coverage for individuals under the excess policy is only implicated when three or more individual insureds are found to have liability that, all together, exceeds $ 5.0 million—assuming that, as in this case, neither Tufts nor any of the other affiliated organizations that is a named insured under the excess policy has been sued or found liable.
In sum, none of the insurance policies at issue here, read separately or together, would ever cover any individual physician or nurse for more than $ 2.5 million in professional liability arising from providing a course of treatment to a single patient. Tufts Medical Center and its predecessor provided its employees and physicians with $ 2.5 million in insurance coverage for professional liability arising from any one medical incident. Tufts limited the total exposure of its captive insurer
2 The assertion by Plaintiffs’ expert that the excess policy follows the terms and definitions contained in the primary policy is incorrect. The follow form clause quoted above specifies that the excess policy “shall follow the terms and conditions of the reinsurance” policies, not the primary policy.
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under the primary policy to $ 5.0 million. It arranged for any total liability above that amount—which could occur, for example, if three or more than individual defendants were found jointly liable for damages exceeding $ 5.0 million—to be covered indirectly through Lloyds of London. This was achieved by having Tufts’ captive insurer issue an excess insurance policy that provides coverage for an additional $ 30.0 million in aggregate coverage above the $ 5.0 million covered by the primary policy, and arranging for Lloyds to reinsure the entire amount of the excess coverage.3 But the excess and reinsurance policies did not expand the amount of professional liability coverage available for any one physician or nurse arising out of any one medical incident. That coverage was capped at $ 2.5 million per insured individual per medical incident.
Plaintiffs note that the excess policy also incorporates a term (at pages 43 and 42 of the reinsurance policies) stating that the $ 30 million limit on aggregate professional liability coverage for any one medical incident applies “[r]egardless of the number of persons and organisations who are insured under this Policy and regardless of the number of claims made and suits brought in connection therewith[.]” Plaintiff argue that this provision means that excess coverage of up to $ 30 million is always available with respect to any medical incident, regardless of the number of insureds found liable.
That is incorrect. The quoted language does not negate the $ 2.5 million limit on coverage for each physician, nurse, or other individual insured. It merely clarifies that the $ 30 million cap on aggregate insurance coverage applies even if the liability of any one individual insured would otherwise be fully covered. For example, if thirteen individual clinicians were found to be jointly liable for $ 32.5 million in damages arising from one medical incident, the excess and reinsurer’s total liability would be capped at $ 30 million even though paying the full damage award would not exceed the sub-limit $ 2.5 million per insured individual (since $ 32.5m ÷13 = $ 2.5m).
3 Presumable one advantage of this arrangement is that Lloyds would only have to deal with a single insured, i.e. Tufts’ captive insurer, which in turn would have to deal directly with Tufts and any other named insured or unnamed individual insured whose liability triggers the excess coverage.
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Plaintiffs cannot challenge the meaning of the unambiguous policy language through testimony by their expert witness, or using deposition testimony by a representative of Tufts Medical Center in the underlying malpractice case, regarding how one should construe the excess and reinsurance policies. “When the words of a contract are clear, they must be construed in their usual and ordinary sense, and we do not admit parol evidence to create an ambiguity when the plain language is unambiguous.” General Convention of New Jerusalem in the United States of America, Inc. v. MacKenzie, 449 Mass. 832, 835 (2007) (internal citation omitted). The same rule applies when interpreting an insurance policy. See, e.g., Commercial Union Ins. Co. v. Walbrook Ins. Co. Ltd., 7 F.3d 1047, 1052-1053 (1st Cir. 1993).
2. Resolving the Parties’ Claims. The Court’s reading of the insurance policies at issue resolves all of the claims and counterclaims asserted in this case.
The Tufts defendants, TMCP and TMCIC, are entitled to a judgment declaring that (a) the maximum coverage available to physicians, nurses, and other individuals insured or indemnified under the primary and excess insurance policies numbered NEMCIC-2006/07 and NEMCIC-XS-2006 together is $ 2,500,000 per claim or medical incident; and (b) the total coverage or indemnity available to Theresa M. Willett, M.D., John Fiascone, M.D., and Robert Bowen, N.P., for the claims asserted against them by the Plaintiffs in a prior medical malpractice lawsuit was $ 2,500,000 each. For the reasons discussed above, both conclusions follow from the plain language of the primary, excess, and reinsurance policies.
This conclusion also resolves all of Plaintiffs’ affirmative claims. Plaintiffs allege that Defendants’ fraudulently represented that the two physicians and nurse who were sued in the underlying malpractice case had only $ 2.5 million in professional liability coverage, and that Plaintiffs agreed to enter into the high/low agreement based on that representation.4 As explained above, however, this representation regarding the available insurance coverage was entirely accurate.
4 Plaintiffs assert separately numbered claims for fraud, intentional misrepresentation, and fraud in the inducement against each Defendant. These are all claims for intentional fraud; the different labels are mere variations in nomenclature, not differences in substance.
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The various claims of intentional fraud all fail as a matter of law because Plaintiffs cannot prove that any of the Defendants “made a false representation of a material fact,” which is an essential element of these claims. Masingill v. EMC Corp., 449 Mass. 532, 540 (2007), quoting Kilroy v. Barron, 326 Mass. 464, 465 (1950). Defendants are therefore entitled to summary judgment on these claims. See generally Roman v. Trustees of Tufts College, 461 Mass. 707, 711 (2012) (“A nonmoving party’s failure to establish an essential element of her claim ‘renders all other facts immaterial’ and mandates summary judgment in favor of the moving party.” (quoting Kourouvacilis v. General Motors Corp., 410 Mass. 706, 711 (1991)); Global NAPs, Inc. v. Awiszus, 457 Mass. 489, 500 (2010) (“The issue whether an attorney’s negligence was a proximate cause of a client’s loss may be resolved at the summary judgment stage.”).
Both Li Chen and Peter Xu have stated in sworn affidavits that, given the catastrophic nature of the injuries suffered by their son Edward Xu, they never would have entered into the high/low agreement if they had known there was an excess insurance policy that could “even possibly provid[e] greater coverage” than the $ 2.5 million per individual coverage limits of the primary policy.
This evidence is not sufficient to keep the fraud claims alive because Plaintiffs cannot establish that any of the Defendants committed a “fraud by omission” by failing to disclose the existence of the excess insurance policy. “Fraud by omission requires both concealment of material information and a duty requiring disclosure.” Sahin v. Sahin, 435 Mass. 396, 402 n.9 (2001). “A duty to disclose exists where ‘(i) there is a fiduciary or other similar relation of trust and confidence, (ii) there are matters known to the speaker that he knows to be necessary to prevent his partial or ambiguous statement of the facts from being misleading, or (iii) the nondisclosed fact is basic to, or goes to the essence of, the transaction.’ ” Knapp v. Neptune Towers Assocs., 72 Mass. App. Ct. 502, 507 (2008), quoting Stolzoff v. Waste Sys. Intl., Inc., 58 Mass. App. Ct. 747, 763 (2003).
Defendants had no duty to disclose the excess insurance policy. By statute, Tufts’ captive insurer had a duty to reveal to Plaintiffs “the amount of the limits” of its insureds’ liability coverage. G.L. c. 175, § 112C. That duty was satisfied when
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Tufts informed Plaintiffs that the defendants in the medical malpractice case each had $ 2.5 million in professional liability insurance coverage. Nothing in the statute required any Defendant to disclose the existence of the excess insurance policy; Tufts’ insurer merely had to accurately disclose the coverage limits, which it did through Tufts’ agent. None of the Defendants had a fiduciary or similar relationship with Plaintiffs that would give rise to any duty to disclose the existence of the excess insurance policy. Nor have Plaintiffs produced any evidence that Defendants falsely stated that there was no excess policy.
Since Plaintiffs’ claims under c. 93A are based solely on and thus are “wholly derivative of” their fraud claims, and the summary judgment record shows that Plaintiffs’ fraud claims are “legally unsupportable,” Defendants are entitled to summary judgment on the c. 93A claims as well. See Frohberg v. Merrimack Mut. Fire Ins. Co., 34 Mass. App. Ct 462, 465 (1993); accord Private Lending & Purchasing, Inc. v. First American Title Ins. Co., 54 Mass. App. Ct. 532, 539-540 (2002).
Finally, Plaintiffs’ claim for negligence against Mr. Donovan fails as a matter of law for much the same reasons. Count V of the complaint asserts that Mr. Donovan negligently failed to disclose either the maximum insurance coverage available in the underlying case or the existence of the excess insurance policy. As explained above, however, the undisputed facts demonstrate that Donovan accurately disclosed the correct maximum insurance coverage amounts. And Donovan had no duty to disclose the existence of the excess policy. Cf. Lev v. Beverly Enterprises-Massachusetts, Inc., 457 Mass. 234, 240 (2010) (“The existence of a duty of care is a question of law and, therefore, is an appropriate subject for summary judgment. If a defendant does not owe a legal duty to a plaintiff, then there can be no actionable negligence.”) (citation omitted).
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Defendants’ motion for summary judgment on all claims and counterclaims is ALLOWED. Final judgment will enter declaring that the maximum coverage available under the primary and excess insurance policies together was $ 2.5 million per individual defendant, and dismissing Plaintiffs’ claims with prejudice.
June 2, 2017
Kenneth W. Salinger
Justice of the Superior Court

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