Insurance policy contract and penThis case demonstrates the need for providers to know and follow the notification provisions set forth in their insurance policies in order to avoid an inadvertent loss of coverage.

Once again, the terms of a hospital’s insurance policy coverage have evolved to a hospital’s detriment. Darwin National Assurance provided first-layer excess liability coverage to a hospital. The hospital provided notice of a potential claim, and in response Darwin stated, “[I]t appears no claim has been made. … Accordingly, we will not be investigating this matter … and Darwin reserves all rights and defenses under the Policy and applicable law.” Despite Darwin’s inaction, the hospital’s primary carrier investigated and defended the claim.

The injured patient later filed suit against the hospital and third parties seeking recompense for his injuries, and made a settlement demand of $1.7 million to the hospital. Counsel for the primary carrier notified Darwin of the patient’s legal action nearly two years after the initial lawsuit had been served on the hospital and 15 months after the filing of a second lawsuit. The hospital did not provide any notice to Darwin after its initial notification of a potential claim.

Darwin subsequently denied coverage for both actions, arguing that the hospital had failed to satisfy the policy’s notice and reporting requirements, which required, as a condition precedent to coverage, that the hospital provide Darwin with (1) quarterly reports summarizing all claims and circumstances, and (2) any offer or demand which may implicate coverage under the policy.

The court agreed, holding that Darwin had the right to deny coverage absent estoppel or waiver. Further finding that Darwin’s notice to the hospital did not result in the prejudice necessary to invoke estoppel, the court “found no indication” that Darwin’s actions had prevented the hospital “from conducting an investigation and/or assuming the defense of the lawsuit, and the insured engaged counsel.” The court also held that Darwin had not voluntarily and intentionally waived its right to deny coverage and, therefore, waiver was inapplicable. As this case demonstrates, providers should ensure they comply with all applicable policy notice requirements.

Kennedy Univ. Hospital v. Darwin National Assurance Company, No. 1:2016-cv-02494 (D.N.J. Apr. 7, 2017).