Texas Federal District Court Holds Both Professional Liability Insurers on the Hook for Insured’s Defense

In Corinth Investors Holdings, LLC v. Evanston Insurance Co., 2015 U.S. Dist. LEXIS 36273 (E.D. Tex. Mar. 24, 2015), the U.S. District Court for the Eastern District of Texas held that two professional liability insurers were both on the hook to defend an insured in an action where notice of the claim could have been received under separate, concurrent insurance policies issued by the two entities.

Corinth Investors Holdings, LLC, d/b/a Atrium Medical Center was the named insured under a “Health Care Organizations and Providers Professional Liability Policy, General Liability and Employee Benefit Liability Policy” issued by Homeland Insurance Company to Atrium. The Homeland Policy provided Atrium with professional liability coverage from January 1, 2013 through January 1, 2014. Atrium was previously insured under a similar policy issued by Evanston Insurance Company, with an effective date of January 1, 2012 through January 1, 2013.

Atrium was sued on December 21, 2012. The plaintiff alleged that one of Atrium’s physicians had negligently failed to advise him of the results of a CT scan, causing him to develop a terminal illness and other injuries. Atrium was served with this lawsuit on January 2, 2013 and immediately notified Evanston and Homeland that it was seeking defense and indemnity under the Homeland Policy and/or the Evanston Policy. Evanston and Homeland both denied coverage. Homeland stated the claim was not “first made” against Atrium during the policy period and was therefore subject to the prior knowledge exclusion. Evanston contended the claim was not covered because Atrium did not receive notice of the claim until the Evanston Policy’s coverage period had ended.

Atrium successfully moved for partial summary judgment and obtained a declaratory judgment that Homeland owed Atrium a duty to defend it in the underlying litigation. Evanston and Homeland subsequently filed cross-motions for summary judgment seeking a declaration as to whether Evanston also had a duty to defend Atrium.

Homeland argued that Evanston had a duty to defend Atrium simply because the pleadings in the underlying case indicated a possibility that the claim was covered by the Evanston policy. Evanston responded that it had no duty to defend Atrium because the pleadings in the underlying case did not specifically allege Atrium received notice of the claim prior to January 1, 2013, when the Evanston Policy expired. Evanston also argued that the court’s prior finding that Homeland had a duty to defend Atrium precluded a finding that Evanston also had a duty to defend Atrium.

The court applied Texas law, rejected both of Evanston’s arguments, and held that Evanston was required to provide Atrium a defense in the underlying case. As to Evanston’s first argument, the court noted that when analyzing the “eight corners” of the insurance policy and underlying complaint, it was possible that Atrium had received notice of the underlying claim with the Evanston Policy’s coverage period. The Evanston Policy merely required that a claim be made against Atrium and reported to the insured within the policy period. Though court documents indicated Atrium was first served with the complaint on January 2, 2013, that did not preclude the possibility that Atrium was previously notified of the suit before that date (particularly because the Texas Civil Practice and Remedies Code § 74.051 requires plaintiffs to provide defendants with “Pre-Suit Notice” of a lawsuit via certified mail). Therefore, because Atrium was first served on January 2, 2013, the court deemed it reasonable to infer that Atrium had potentially first received pre-suit notice of the underlying action during the coverage period of the Evanston Policy.

The court also rejected Evanston’s second argument, noting that it “must analyze each defendant[‘s duties] on [their] own merits without regard to other insurers’ duty to defend.” Accordingly, the court’s prior determination that Homeland was required to defend Atrium was not dispositive as to Evanston’s obligations under the Evanston Policy.

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