Coverage Perspectives on Batched Claims: Practical Approaches to a Slippery Landscape

Introduction

Over the past few years, our insurance coverage group has seen an increase in insurance claims and incidents being grouped together for coverage and litigation purposes.

Imagine the following scenario:

An insured surgical center retains a traveling nurse practitioner, who it later decides to hire full time, to work in a new program specializing in experimental orthopedic procedures. Over the course of three years, the nurse assists in hundreds of operations. And, as a functional drug addict who routinely steals syringes of fentanyl that she replaces with saline solution contaminated with Hepatitis C, infects dozens of patients, leading to multiple lawsuits, governmental investigations, civil fines, penalties and settlements.

The coverage issues presented to the claims professional responding to the inevitable insurance demands are plenty. Questions might include:

• Does the nurse qualify as an “insured” under the center’s healthcare liability policy?
• Do the negligent hiring and supervision allegations raised against the surgical center qualify as a “professional medical service” under the applicable policy language?
• Does the intentional conduct of the nurse practitioner supersede any malpractice liability for the center as an innocent insured?
• Is the nurse’s intentional conduct imputed to the center even for negligent supervision, training, oversight and hiring claims?
• What are the other insurance implications of the placement agency’s insurance coverage, and how is that allocation determined?

Another question of growing importance, both in terms of frequency and severity, is this:

How many covered “incidents” or “claims” are presented by the allegations of malpractice, negligent hiring and negligent supervision against the surgical center?

Insurers, courts, businesses and their brokers are paying more attention to the batching of claims.  Understanding batching’s history, how courts are interpreting such provisions, and practical implications will help businesses prepare for potentially managing such claims in the future.

The Origins of Batch Provisions

Batch wording refers to the insurance policy language that defines how an insurer will treat multiple related claims or occurrences. It originated as a response to rising asbestos and environmental claims in the 1970’s and 80’s. These claims, which often spanned a number of years, if not decades, led to abnormally large demands for multiple policies over several policy periods, causing reserved losses well beyond the insurers’ expectations and contributing to the insolvency of many carriers. As a result of these industry challenges, insurers adjusted the traditional occurrence-based forms to include aggregation clauses meant to limit the “occurrence” to a more limited event or time period, while still being marketable across several industries.

Insurers began writing coverage on a “claims-made” basis instead of on more traditional “occurrence-based” forms. As they had done with the proceeding general liability policies, underwriters developed language to aggregate claims to stabilize how and when the trigger and scope of coverage were determined. Typically, these early related claims provisions provided that “all claims arising out of the same acts, errors or omissions or series of related acts, errors or omissions, shall be considered one claim deemed to be first made on the date the earliest such related claim is first made against the insured.”

In the decades since, batch provisions have evolved to match the growing trend in large scale professional liability injury claims. Indeed, while conventional Directors and Officers and professional liability claims result from a single deal, action or injury, batch issues typically arise when one insured, or one incident, causes injuries to multiple parties, or a course of conduct over time causes injuries to multiple people or one person on separate occasions. For example:

• Multiple lawsuits and threatened lawsuits arising out of a merger and allegations of breached fiduciary duties to shareholders over several policy periods.
• Multiple claims arising from a series of business deals that are later alleged to have a negative impact on shareholders.
• Multiple injuries arising out of alleged contract and tort violations related to the purchase, sale or distribution of opioid products, or Covid-19 infections.
• Multiple instances of sexual abuse or harassment by an employee to a single victim over several years and with different types of physical injuries.

Why Does Batching Matter?

For both insurers and their insureds, the ability to batch claims or occurrences has enormous consequences. Doing so can determine whether per-claim or per-occurrence limits of liability have been exhausted or whether an insured is responsible for one or several separate “deductible” payments. If a policy is excess, batching may determine whether a claim exceeds the underlying policies’ per-claim limit or even self-insured retention, triggering excess coverage. Batching may also determine whether the claim was made during another policy period. Almost universally, all batched or “related” claims are deemed to have been first made at the time the first such claim was made against the insured.

The Art of Batching

The first task in assessing the likelihood of a batched claim or aggregated occurrence is to determine the type of policy language guiding that analysis. That language can vary, intentionally or not, to focus on collecting claims and incidents across an array of diverse factors – e.g., time, place or people. A close second in assessing any batching issue is choice of law. Indeed, even while courts generally look at batching language with the goal of maximizing insurance coverage, the standard (and inherent bias) governing a court’s inquiry changes depending on the law of the state applied. Courts look to the law to fill in gaps in policy language and to construe it but generally not to replace it. In doing so, they often rely upon three common law tests (and one variant) to help them apply contractual batching provisions.

1. The Cause Test
   In the majority of U.S. jurisdictions, including Pennsylvania and Florida, the cause of an injury or injuries, rather than the number of actors, affected individuals, or injuries determines the number of “occurrences” or claims. While most of the decisions applying this test are construing the term “occurrence,” even in instances where a policy prescribes batching parameters, “cause test” jurisdictions generally take a broader view of batching claims. Thus, in a “cause” jurisdiction, a single actor, event or course of conduct can cause multiple consequences to multiple persons over a longer period and still result in a single insurable event.
2.  Effects Test
   Some jurisdictions, such as New York and Tennessee, follow the minority rule, which looks to the effect on the persons injured or property damaged in determining relatedness of occurrences or claims. “Effect tests” courts will generally view the limit of liability specified on a “per occurrence” or “per claim” basis as applying to each injured person or damaged party. Thus, a single actor or event that causes multiple injured parties will generally favor multiple claims. Conversely, multiple actors or causes of injury to one person will, all things being equal, lend itself to a single claim under this standard.
3.  The Unities Doctrine
   Under the unities doctrine, a court analyzes whether, from the perspective of an informed observer in the insured’s position, there is a sufficient unity of time, locality, cause and motive. While this is primarily a feature of English law (and by extension, Bermuda and Cayman Islands law as well), elements of this doctrine can be seen in courts from both “cause” and “effects” states in determining the number of occurrences or construing batching provisions. That is because courts will almost always view the “cause” of an injury or injuries or the “effect” of any action or omission in the context of their temporal, spatial and logical connections to each other. Even in a “cause” state, a court will often view multiple events occurring at the same time in a single location as a single insurable event, and an “effects test” jurisdiction will view a single twenty-minute long attack by seven actors on a single victim, resulting in multiple, different wounds, as one batched claim.
4. The Integrated Occurrence
   A fourth variant is the Bermuda Form 004 language, which allows batching of “occurrences” and “integrated occurrences.” “Integrated occurrences” are typically defined as an occurrence encompassing actual or alleged to two or more persons or properties which extends over a period longer than thirty consecutive days. The “integrated occurrence” must also be attributable directly or indirectly to the same actual or alleged event, condition, or breach. The test here is both temporal (e.g., commences for a period over 30 days) and causal (e.g., attributable to the same event).

Practical Implications for the Claims

There are several practical considerations to keep in mind when confronted with a potential batch claim or when planning for the likelihood of one in the future

First, remember that the policy language controls. Claim professionals, brokers and insureds should be aware of the variations of batching language used by their carrier in both the primary and excess forms.

Second, be mindful of potential inconsistencies in the insurance tower. Some excess insurer forms might have additional or different batching language than the primary, which could affect follow-form provisions and exhaustion for higher level carriers, leaving a loss uninsured under an excess policy that might otherwise be covered by the primary carrier.

Third, underwriters and insureds that pay attention to the trends in claims can negotiate new provisions and details that appeal to their market while addressing specific risks. Special provisions for Covid-19 losses and business interruption claims come to mind.

Focusing on the insureds’ needs at the time a policy is purchased can greatly reduce future claim issues and help provide fair coverage consistent with the parties’ intent. If the goal is to batch injuries resulting from a single consent form used across hospitals over a period of time, then applying the batching language will be consistent, fair, credible with insureds, brokers, and even the courts, and benefit the insurer in the long term. The insured can also limit its exposure, the number of “deductibles” payable for a batched claim, and provide certainty for when a claim might be placed for coverage purposes, helping business risk managers and insurance underwriters anticipate how much coverage is available for business and personal claims in any given year.