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Admiral Insurance Co. v. Community Insurance Group SPC Ltd.

United States District Court, D. Arizona

November 22, 2016

Admiral Insurance Company, Plaintiff,
Community Insurance Group SPC Limited, Defendant.


          David G. Campbell United States District Judge.

         The parties have filed cross-motions for summary judgment. Docs. 189, 191. The motions are fully briefed, and the Court heard oral argument on November 18, 2016. The Court will deny Plaintiff's motion and grant Defendant's motion.

         I. Background.

         This case involves a dispute over insurance coverage for a physician, Dr. Anthony Schwartz, who was sued for medical negligence. Dr. Schwartz had a professional liability policy through Plaintiff Admiral Insurance Company (“Admiral”). Dr. Schwartz was employed by the Bullhead City Clinic (the “Clinic”), and the Clinic had its own liability policy through Defendant Community Insurance Group SPC Limited (“CIG”).

         A. Dr. Schwartz's Employment and Insurance Coverage.

         On September 1, 2007, Dr. Schwartz entered into an employment agreement with the Clinic. Docs. 192, ¶ 1; 196, ¶ 1.[1] Dr. Schwartz applied for professional malpractice liability insurance with Admiral, and Admiral issued him a primary Physicians, Surgeons & Dentists Professional Liability Policy, EO000009373 (the “Admiral Policy”). Doc. 192, ¶¶ 6, 9.

         The Clinic is owned by Community Health Systems, Inc. (“CHS”), a corporation that owns hundreds of hospitals and clinics in 22 states. Doc. 191 at 2-3. CIG is a captive insurer owned by CHS. Id. Every physician employed at a CHS-affiliated hospital or clinic is required to have primary professional liability insurance. Id. CHS entities like the Clinic offer their physicians two means of obtaining liability insurance: (1) CHS procures and maintains the insurance, in which case it uses its captive insurer CIG as the primary insurer, or (2) the physician obtains insurance from an outside commercial carrier, in which event CHS pays the premiums. Id. Dr. Schwartz chose the second option and obtained his insurance from Admiral.

         CIG also issued a single master policy to all CHS entities, naming each clinic or hospital as a named insured. Id. at 4. The Clinic was covered by such a policy in this case, Policy No. 274/CIG10 (the “CIG Policy”). Id. The CIG Policy insured the Clinic, and also provided coverage to already-insured employees like Dr. Schwartz. Id.

         Admiral argues that the CIG Policy and the Admiral Policy are both primary liability policies for Dr. Schwartz. Doc. 189 at 11-12; Doc. 195 at 2. CIG asserts that its policy provides only excess coverage for Dr. Schwartz, and applies only after the limits of his primary policy - the Admiral Policy - are exhausted. Doc. 192, ¶¶ 20-23.

         B. The Underlying Litigation.

         In May 2010, Gale and Earl Radmall filed a medical negligence suit against Dr. Schwartz (the “underlying litigation”). Id., ¶ 24. Admiral retained counsel to defend Dr. Schwartz and provided coverage without a reservation of rights. Id., ¶ 27. In October 2010, the Radmalls learned that Dr. Schwartz was a Clinic employee with an additional insurance policy through the Clinic. Id., ¶¶ 31-32. In early 2011, the Radmalls added the Clinic as a defendant in the underlying litigation, and CIG retained counsel to defend the Clinic. Id., ¶¶ 34-36.

         In September 2012, Admiral settled the underlying litigation against Dr. Schwartz for $425, 000. Id., ¶ 49. In November 2012, CIG settled the underlying litigation against the Clinic in a separate, confidential settlement agreement. Id. Admiral filed this action against CIG on August 14, 2014, seeking equitable contribution for payments it made on behalf of Dr. Schwartz. Doc. 1. Following discovery, the parties briefed extensive cross-motions for summary judgment. Docs. 121, 122, 128, 129, 130, 148, 149, 150, 153, 154, 155. On August 26, 2016, the Court held a conference with the parties and directed that the motions be briefed in a more focused manner. Doc. 160. All pending motions were denied as moot and the parties were instructed to brief cross-motion for summary judgment on two issues: (1) is the CIG Policy primary or excess, and (2) if the CIG Policy is primary, is Admiral's recovery barred by the selective tender rule or for failure to reserve rights? Id. The Court will resolve this case on the first issue.[2]

         II. Legal Standards.

         A party seeking summary judgment “bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, shows “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Both parties move for summary judgment, and neither suggests that a factual dispute precludes summary judgment in this case.

         The parties agree that Arizona law governs this case. Doc. 189 at 6; Doc. 191 (citing Arizona law throughout). In Arizona, the interpretation of an insurance contract is a question of law to be determined by the court. Sparks v. Republic National Life, 647 P.2d 1127, 1132 (Ariz. 1982). The provisions of an insurance contract are interpreted according to their plain and ordinary meaning. Nat'l Bank of Ariz. v. St. Paul Fire and Marine Ins. Co., 975 P.2d 711, 713 (Ariz.Ct.App. 1999). “[T]o determine the meaning of a clause which is subject to different interpretations or constructions, [courts] examin[e] the purpose of the clause, public policy considerations, and the transaction as a whole.” Ariz. Prop. & Cas. Ins. Guar. Fund v. Helme, 735 P.2d 451, 456-57 (Ariz. 1987); see also Transamerica Ins. Group v. Meere, 694 P.2d 181, 185 (Ariz. 1984).

         “[E]quitable ‘contribution theory is based upon the equitable principle that where two companies insure the same risk and one is compelled to pay the loss, it is entitled to contribution from the other.'” Virginia Sur. Ins. Co. v. RSUI Indem. Co., No. 09-cv-928-PHX-JAT, 2009 WL 4282198, at *4 (D. Ariz. Nov. 25, 2009) (quoting Indus. Indem. Co. v. Beeson, 647 P.2d 634, 637 (Ariz.Ct.App. 1982)). “Equitable contribution ‘is not derivative from any third person, but exists as an independent action by one insurer against another.'” Navigators Specialty Ins. Co. v. Nationwide Mut. Ins. Co., 50 F.Supp.3d 1186, 1194 (D. Ariz. 2014) (quoting Am. Cont'l Ins. Co., Inc. v. Am. Cas. Co. of Reading, Pa., 903 P.2d 609, 610 (Ariz.Ct.App. 1995)). “The doctrine applies only when co-insurers have covered the same insured and the same particular risk at the same level of coverage.” Virginia, 2009 WL 4282198 at *4 (quoting U.S. Fid. & Guar. Co. v. Fed. Rural Elect. Ins. Corp., 37 P.3d 828, 832 (Okla. 2001)).

         Primary insurance generally has the first duty to indemnify and defend the insured. Am. Family Mut. Ins. Co. v. Cont'l Cas. Co., 23 P.3d 664, 666 (Ariz.Ct.App. 2001). An excess insurer normally is not obligated to indemnify or defend until all applicable primary insurance has been exhausted. Id. No right to equitable contribution generally exists between a primary and excess insurer because “they are covering separate and clearly defined layers of risk.” Virginia, 2009 WL 4282198 at *4.

         III. Analysis.

         Admiral moves for summary judgment on its claim that CIG is a primary insurer and must equitably contribute to the defense and indemnity costs of Dr. Schwartz in the underlying litigation. Doc. 189 at 2. CIG asks the Court to rule that it is not a primary ...

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