AdHealth, Ltd. v. PorterCare Adventist Health Systems.
No. 24-1273. 5/2/2025. D.Colo. Judge Phillips. Hospitals—Self-Insurance—Excess Liability Coverage—Definition of Medical Incident.
May 2, 2025
PorterCare Adventist Health Systems (PorterCare) is a hospital that self-insured for the first $2 million of liability per medical incident. To cover liability that exceeded its self-insurance, in 2018 PorterCare bought insurance from AdHealth Limited (the policies). The “First Layer Excess Policy” covers PorterCare’s excess liability above the $2 million self-insurance, up to $25 million per medical incident. The “Second Layer Excess Policy” covers liability that exceeds the first-layer policy, up to another $15 million per medical incident. In early 2018, a whistleblower notified a hospital accreditation organization that PorterCare had inadequate surgical sterilization procedures. The organization investigated PorterCare and declared it “an immediate threat to health and safety.” Colorado’s public health department also began investigating the hospital. When the inadequacies in PorterCare’s surgical sterilization procedures became public, PorterCare incurred over $40 million in liability to resolve thousands of patients’ claims. PorterCare sought coverage from AdHealth for the full $40 million policy limit based on its claim that the thousands of claims arose from one medical incident. AdHealth refused coverage and filed a complaint for declaratory judgment that it did not owe PorterCare coverage because as defined in the policies, a medical incident covers the injuries of only a single person, not multiple people. It sought a declaratory judgment that each patient’s claim constituted a single medical incident and that it had no duty to pay under the insurance policy until a claim’s liability exceeded PorterCare’s $2 million self-insurance. PorterCare counterclaimed for declaratory judgment and for breach of contract. On cross-motions for summary judgment, the district court granted summary judgment to AdHealth, determining that under the policies, a medical incident is limited to the acts or omissions that cause an injury to one person. And because PorterCare’s breach-of-contract claim was based on AdHealth owing it coverage, the district court sua sponte dismissed that claim, resolving all claims in the case.
On appeal, PorterCare argued that the district court erred because under the policies, the definition of medical incident unambiguously includes all the sterilization patients as falling within a single medical incident. The Tenth Circuit applied Colorado law to construe the insurance policies. It cited the second half of the medical incident definition—“Any such act or omission, together with all related acts or omissions in the furnishing of such services to any one person, shall be considered one medical incident”—as unambiguously stating that each patient’s claim is a separate medical incident. PorterCare’s excess liability coverage thus unambiguously covers medical incident liability for individual claimants rather than systemically inadequate treatment procedures that cause injuries to thousands of patients. Accordingly, AdHealth owes coverage only for claims of a single patient that trigger the excess policy’s liability threshold, not for coverage of multiple patients’ claims grouped together.
The judgment was affirmed.