Minnesota Court Holds Patient Bodily Injury Exclusion Applicable

In its recent decision in Volk v. ACE Am. Ins. Co., 2013 U.S. Dist. LEXIS 15450 (D. Minn. Feb. 5, 2013), the United States District Court for the District of Minnesota had occasion to consider the application of a patient bodily injury exclusion in the general liability coverage section of a policy issued to a healthcare provider.

The insured, North Country Home Care, Inc. (“North Country”), was in the business of providing personal care attendant (“PCA”) services.  One of the individuals to whom it provided such services, a mentally-handicapped individual, was blinded as a result of a BB gun accident that happened while under North Country’s supervision.  At the time of the accident, North Country was insured by ACE under a combined general liability and healthcare professional liability policy.  The general liability coverage was provided on an occurrence basis whereas the professional liability coverage was provided on a claims made basis.  The ACE policy was in effect from July 5, 2005 through June 26, 2006, which was the date that North Country sold its assets and ceased operations. 

In 2009, the guardian for the injured individual gave notice of its intent to file suit.  This notice was forwarded to ACE, which denied coverage on the basis that the incident was properly considered for coverage under the policy’s professional liability insuring section, but that coverage was not available thereunder since the claim was not made while the policy was in force.  ACE also disclaimed coverage under its policy’s general liability coverage on the basis of an exclusion titled Patient Exclusion that barred coverage for “[a]ny loss, cost or expense arising out of 'bodily injury' to your patients.”  The underlying claimant subsequently entered into a settlement with North Country and later brought suit against ACE, arguing that the Patient Exclusion was inapplicable.

The claimant’s primary argument was that the exclusion did not apply since the injured person was not a “patient” of North Country, but instead was a “recipient” or “consumer” of North Country’s PCA services.  Claimant further argued that the term “patient” was ambiguous since it was not defined by the policy.  The court disagreed, concluding that the term “patient” could only be considered ambiguous if read in isolation from the policy.  Looking to the policy as a whole, however, the court observed that the terms “recipient” or “consumer” were not used, whereas the term “patient” was used in both coverages.  Notably, the policy’s professional liability coverage applied to acts or errors arising out of North Country’s “professional healthcare services,” a term defined as services provided by the insured to “care for or assist your patients.”  The court noted that if claimant’s assertions regarding a distinction between patient and recipient or consumer were correct, then the policy’s professional liability coverage could never be triggered by North Country’s PCA services (which was its primary business), and the coverage provided thereunder would be illusory – an impermissible result for the court.  The court therefore concluded that the claimant necessarily qualified as a patient, and that as a result, the Patient Exclusion was applicable.

The claimant further argued that North Country was statutorily required to maintain liability coverage, and that North Country had a reasonable expectation of coverage.  The court rejected both arguments.  With respect to statutory requirements under Minnesota law, the court observed that North Country had long since ceased operations by the time suit was filed, and that it was not required to maintain coverage indefinitely.  With respect to reasonable expectations, the court held that because the policy was unambiguous, and did not provide illusory coverage as argued by claimant, the doctrine of reasonable expectations was not a relevant consideration.