Superior court holds that insurer's mistaken belief that one policy period applies does not estop it from recovery under the correct policy period

Jacob Hanks suffered brain damage as a result of complications during his birth at UMass Medical Memorial Center, an affiliate of UMMHC. For some reason his parents filed three separate actions against UMMHC personnel in three different years. Those claims settled for $4.9 million. Defense costs totalled $1,034,140.

UMMHC had claims-made insurance policies. Its primary provider was CPAC, a captive insurer of UMMHC. UMHHC's excess policies were with other carriers.

In a claims made policy the policy providing coverage is the one in effect when the insurer was notified of the claim. (This is in contrast to an occurrence policy, in which the policy providing coverage is the one in effect when the underlying incident occurred.)

While the lawsuits were pending, UMMHC believed it had given notice of the claim to the excess insurers during the 2003-2004 policy period, when the CPAC policy had a limit of $5 million. It later came to light that the excess carriers may have been notified in the 2001-2002 policy period, when the policy limit was $2.5 million.

UMMHC then sued the excess carriers to recover the additional $2.5 million, the difference between the underlying limits of the two policy years.

In UMass Memorial Health Care, Inc. v. Lexington Ins. Co., 2010 WL 5071868 (Mass. Super.) the Massachusetts Superior Court ruled on the motion for summary judgment of excess carrier First Specialty.

First Specialty argued that UMMHC had suffered no loss within the meaning of the policies because between CPAC and the excess carriers it actually received more than the loss amount.

UMMHC responded that amounts paid by CPAC are not a recovery by UMMHC, because UMMHC funds CPAC itself and is essentially self-insured.

The court held that under the language of the policy, whether loss below the excess policy was paid by a captive insurer, self-insurance, or a regular insurer was irrelevant.

The court held, however, that indemnity under an underlying policy is not a recovery for the purposes of determining UMMHC's loss, because doing so would count the same amount twice -- first as the underlying policy limit and then as a recovery.

It also held that UMMHC did not "elect" to use the later policy period; it merely made a claim under the policy it believed applied. In fact, the earlier policy applied, and First Specialty's obligations needed to be determined under that policy.