Two insurers disputed their responsibility to respond to a lawsuit filed against a mutual insured client. Lawrence Knutson was a resident of Riverside Healthcare, Inc. (Riverside), a nursing home. Knutson died from complications of improper medical care and his family sued Riverside for wrongful death and gross negligence.

Riverside was insured by Royal Insurance Company Of America (Royal) and Hartford Underwriters Insurance Company (Hartford). Both carriers provided CGL policies that were amended with professional liability coverage parts. Both policies were written with a $1 million limit. Royal was the first company notified about the suit. Several weeks into the loss investigation, Royal arranged a mediation with the original plaintiffs. At that time, Royal notified Hartford about the loss and asked them to participate in the mediation. Hartford did not participate, claiming that it wasn't given time to prepare for the meeting.

Royal agreed to settle with Knutson's family for slightly more than $950,000. The insurer also spent more than $130,000 in defense costs. Royal sued Hartford after the latter refuse to share the settlement and related costs. Royal appealed after the court ruled that Hartford was only responsible on an excess basis (under the Professional Liability provision) and its coverage was not triggered since the settlement fell within Royal's policy limit.

The higher court agreed with the lower court’s view on a couple of key issues. One, the loss circumstances supported classifying the loss as involving professional liability rather than general liability. Two, the carriers' respective "other insurance" provisions were not alike. Royal's provision required it to share loss responsibility with other sources of payment. Hartford's provision positioned its coverage as excess. It is at that point where the higher and lower courts interpreted the situation differently.

Unlike the previous court, the higher court reviewed the carriers' provisions and found them to be in conflict with each other. Rather than focus on how a literal reading would position Hartford, the court considered the total contractual situation between the insurers and their client, Riverside. In essence, the court read the situation to be that, in absence of a 2nd source of coverage, each carrier had an independent obligation to respond to the lawsuit and to defend Riverside. It did not appear to be consistent with precedent cases to allow a carrier to escape its obligation on a technicality. The higher court interpreted the contractual arrangement as being in conflict and to be construed in favor of the insured. In other words, Hartford was obligated to contribute to the settlement. The lower court's ruling was reversed and the case was remanded for re-consideration consistent with the higher court's decision.

Royal Insurance Company Of America, Plaintiff-Appellant, v. Hartford Underwriters Insurance Company, Defendant-Appellee. U.S. Court of Appeals, Fifth Circuit. No. 03-20983 November 17, 2004. Reversed and Remanded. 2004 CCH Personal and Commercial Liability Cases. Paragraph 8069.