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Essex Insurance Co. v. Lutz

March 20, 2009

ESSEX INSURANCE COMPANY, PLAINTIFF,
v.
DENNIS LUTZ, INDIVIDUALLY AND AS LIQUIDATION AGENT, SAINT ELIZABETH MEDICAL CENTER, AND SISTERS OF DIVINE PROVIDENCE, D/B/A SAINT ELIZABETH HEALTH SERVICES, DEFENDANTS/THIRD PARTYPLAINTIFFS,
v.
JOHN RIFFLE, LAWRENCE PARRES AND LEWIS, RICE & FINGERISH, L.C., THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Herndon, Chief Judge

MEMORANDUM and ORDER

I. Introduction and Background*fn1

Now before the Court is Plaintiff's motion for summary judgment (Doc. 105). Plaintiff maintains that summary judgment is proper as the undisputed facts show that Saint Elizabeth Medical Center ("SEMC") and the Sisters of Divine Providence ("SDP") were contractually obligated to purchase the $1 million in insurance coverage for their emergency room physicians and that they must pay the deductible under the Policy. Defendants and Third Party Defendants oppose the motion (Docs. 113 & 117). Based on the record, the applicable case law and the following, the Court grants the motion.

On February 7, 2006, Essex Insurance Company ("Essex") filed a four count complaint against Dennis Lutz, SEMC and SDP based on diversity jurisdiction, 28 U.S.C. § 1332 (Doc. 1). Count I is a claim for breach of contract; Count II is a claim for breach of fiduciary duty; Count III was a claim for conversion and Count IV is a claim for declaratory relief. This case arises out of Defendants' alleged failure to pay a deductible under a liability insurance policy. Count I seeks money damages for deductible amounts already expended and Count IV seeks a declaratory judgment for future amounts paid.

On March 20, 2007, the Court granted in part and denied Defendants' motion to dismiss (Doc. 35). In that Order, the Court dismissed with prejudice Count III of Plaintiff's complaint. Thereafter on November 1, 2007, SEMC, SDP and Lutz filed a third party complaint against John J. Riffle, Lawrence Parres and Lewis, Rice & Fingersh, L.C. for contribution and indemnity alleging that their malpractice is the proximate cause of any liability Defendants may have to Essex (Doc. 57). On June 24, 2008, the Court denied Defendants' motions for summary judgment (Doc. 104). The Court found that the Policy is clear and unambiguous and that SEMC and SDP must pay the deductible. Specifically, the Court found:

After reviewing the Policy as a whole and the case law, the Court finds that the plain language of the Policy is unambiguous. On page 1 of the Declarations, item 7. Deductible states: "As per Endorsement No. 1." and Endorsement No. 1 states the Names Insured as: "SISTERS OF DIVINE PROVIDENCE DBA ST. ELIZABETH HEALTH SERVICES AND ST. ELIZABETH MEDICAL CENTER." Considering the Policy, the Declarations and the Endorsements, the Court finds on its face that the Policy provides that SEMC and SDP are responsible for the deductible. (Doc. ps. 11-12).

Thereafter, Plaintiff filed its motion for summary judgment. Defendants and Third Party Defendants have responded and Plaintiff replied. As the motion is ripe, the Court turns to address the merits of the motion.

II. Facts

On March 1, 2001, Dennis Lutz ("Lutz"), Vice President of Finance/CFO of SEMC, executed an application for a Locum Tenens and Contract Staffing Organization Professional Liability Policy. The application that Lutz signed identifies the "applicant organization" as "St. Elizabeth Medical Center." SEMC purchased the Essex Policy to fulfill its contractual obligation with each emergency room physician, pursuant to which SEMC was to supply the physicians with $1 million in insurance coverage.

One of the contracts with the emergency room physician provides in part:

9.0 Insurance. SEMC shall produce, procure and maintain, during the term of this agreement, malpractice insurance policy with an insurance company licensed to do business in the State of Illinois, with coverage to both in minimum amounts of $1 million per occurrence in the aggregate. Such policy shall provide coverage to both SEMC and physician for activities of physician performed in or for the benefit of SEMC pursuant to this agreement. Such policy shall not provide any coverage for the actions of physician taken outside of SEMC and not pursuant to this agreement.

In addition, the contracts with the emergency room physicians state that "upon termination of this contract, the medical center will continue to provide the physician with insurance coverage for professional services the physician rendered in the SEMC Emergency Room during the terms of this contract." Lutz testified that SEMC purchased the Essex Policy to provide coverage for the independent emergency room physicians because that was a component of the independent contractor's agreement with the physicians.

Essex issued a Locum Tenens/Physician Staffing Services Proffessional Liability Insurance Policy, Policy No. MM-802793 ("the Policy") to named insureds, Sisters of Divine Providence d/b/a St. Elizabeth Health Services and St. Elizabeth Medical Center. The Policy was issued "in consideration of the payment of the premium, [and] the undertaking of the Named Insured to pay the deductible as described herein." The Policy provided that Essex would provide coverage to certain specified "employed and/or contracted emergency room physicians" of St. Elizabeth Health Services and SEMC. SEMC paid the premium for the Essex Policy.

During the Policy period, March 1, 2001 to March 2, 2002, SEMC began to investigate selling its assets. Lutz was involved in the sale of assets and was also involved in negotiating and purchasing the Policy and was the Chief Financial Officer ("CFO") of SEMC at the relevant times. In connection with this sale, Lutz and SEMC's broker began investigating the cancellation of the Essex policy, and the purchase of an optional extension period. After consultation with the brokers and the law firm Lewis Rice, Lutz and the Board of SEMC decided that they were obligated to purchase the tail coverage. On January 14, 2002, Lutz, now President of SEMC, wrote to Essex Insurance Company in care of Marsh USA stating "SEMC is requesting cancellation of Locum Tenens/Physician Staffing Services Professional Liability Insurance Policy ... effective midnight on January 3, 2002." Lutz further stated "I am also requesting that a three year extended reporting endorsement be issued per your quotation at a premium of $610,524.00." Pursuant to Lutz's request, Essex cancelled the Policy effective January ...


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