Massena v. Healthcare Underwriters Mutual Opinion and Order Ins. Co

Massena v. Healthcare Underwriters Mutual Opinion
and Order Ins. Co.,
No. 88465 (N.Y. App. Div. Apr. 26, 2001)

A New York physician sued a public hospital and its governing committees
and staff for violations of his 1st Amendment right to free speech, defamation,
tortious interference with business relations, and tortious interference with
contract. The physician alleged that after he suggested that nurse midwives
be allowed to practice in the hospital, the hospital intentionally and maliciously
terminated his privileges. The hospital had several insurance policies with
several different companies, each of which offered the hospital and staff indemnification
for defense costs and judgments entered against them in lawsuits arising from
credentialing and staffing decisions. Each of these policies contained an exclusion
for libel, slander, defamation, humiliation, and other such intentional torts.
The Town of Massena, by statute, had extended its right to indemnification to
its employees in cases where other insurance failed to provide those employees
full coverage. The town brought this action seeking to have a court force the
insurance companies to defend and indemnify the hospital and its staff.

The New York Supreme Court,
Appellate Division, held that the insurance companies were not obligated to
indemnify and defend the hospital and its staff because the claims against them
arise from allegations of intentional and malicious defamation and interference
with contractual and business relations. Coverage for these claims was specifically
excluded by the policies. However, the court went on to hold that, as for claims
which the insurance companies were obligated to cover, the township’s obligation
to defend and indemnify arises only after the insurance policies have been exhausted.