January 4, 2011 

HEALTHCARE ALERT
 

Written By Attorney: Lawrence D. Jackson

This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.

Under Pennsylvania's Medical Care Availability and Reduction of Error Act (MCARE Act), the General Assembly established a fund (the MCARE Fund) for the payment of medical liability claims to make medical professional insurance obtainable at an affordable cost. The MCARE Fund serves primarily as a "statutory excess insurer" providing excess medical malpractice insurance coverage to the extent a health care provider's liability exceeds its basic coverage in effect at the time of an occurrence. The MCARE Fund also assumes an additional role as a "primary insurer" in situations where a medical professional liability claim against a health care provider is made more than four years after the breach of contract or tort occurred, and if the claim is filed within the applicable statute of limitations. These claims are known as "extended claims" and are covered under Section 715 of the MCARE Act.

An extended claim could arise where, under the "discovery rule," the applicable statute of limitations period is extended. Such a claim can also arise where the statute of limitations is tolled because the claimant is an unemancipated minor at the time the cause of action accrued. Under Section 715 of the MCARE Act, extended claims are defended by the MCARE Fund, and if the health care provider is found liable, the claim is paid by the Fund in an amount up to $1 million per occurrence.

The obligation of the MCARE Fund under Section 715 to defend and fully indemnify health care providers for claims against them is commonly referred to as "first-dollar indemnity." Unlike Section 712 of the MCARE Act, which sets forth both per occurrence and annual aggregate limits for excess claims, Section 715 of the MCARE Act sets out only a per occurrence limit for these "first dollar" or "extended claims." Notwithstanding, the MCARE Fund has taken the position that both excess claims and extended claims are subject to the Fund's annual aggregate liability limit. But in West Penn Allegheny Health System v. Medical Reduction of Error Fund (MCARE), et al, No. 101 M.D. 2010 (Pa. Commwlth. 2010), the Commonwealth Court recently held that MCARE Fund's obligation to pay extended claims is not subject the Fund's annual aggregate liability set forth in Section 712 of the MCARE Act., and its predecessor, the Health Care Services Malpractices Act. 40 P.S. §§1301.101-1301.1004.

The West Penn Allegheny Health System case arose in the context of a medical malpractice claim filed in June 2008, against Allegheny General Hospital by Tamara Blanchard, guardian for Kiana Townes. Blanchard alleged that Townes was born on March 29, 1998, at Allegheny General via an emergency C-section and experienced seizures at birth. Blanchard also alleged that Townes was diagnosed with birth asphyxia and multi-organ dysfunction as a result of the negligent care of Allegheny General and its nursing staff on the day of her birth. The parties eventually settled the action for $1.1 million. Before the settlement, however, Allegheny General filed a declaratory judgment action against the MCARE Fund seeking a declaration that the Fund's $1-million per occurrence limit is not subject to an annual aggregate liability limit. This action was necessary because MCARE claimed that Allegheny General had eroded its available annual aggregate limit on other claims, leaving less than $400,000 available to cover Townes' extended claim.

On the parties' cross-motion for summary judgment, the Commonwealth Court entered judgment for Allegheny General holding that the hospital is entitled to an indemnity payment of up to $1 million from the MCARE Fund for Townes' extended claim. Applying general rules of statutory construction, the Court observed that when Section 701(d) of the former Malpractice Act and Sections 712(a) and (c) (relating to "excess claims") and 715(b) (relating to "extended claims") of the MCARE Act are construed in conjunction with each other and in the context in which they appear, it is evident that the MCARE Fund's annual aggregate liability limit was not intended to apply to extended claims.

Additionally, the Court accepted Allegheny General's argument that the legislature included MCARE Fund's annual aggregate liability limit for excess claims under Section 712, but omitted such a limit for extended claims under Section 715 to relieve primary insurance carriers from the effects of very long tails of potential liability due to the discovery rule and the tolling of limitations period for minors, and also to provide stability and predictability in assessing accurate insurance rates.

This decision is important for insurers providing basic medical liability coverage in two respects. First, it confirms that MCARE has the primary defense obligation with respect to extended claims. Second, it requires the Fund to indemnify the insured for an amount up to its entire per occurrence limit million regardless of amounts paid by MCARE on other claims.

Nelson Levine de Luca & Hamilton provides comprehensive legal services to the insurance industry in the areas of reinsurance, regulatory, complex litigation, class action, coverage, subrogation, bad faith consulting and insurance fraud. The firm is devoted solely to helping build and protect the insurance industry's business practices. For additional information related to this or other health care insurance issues, please contact Lawrence D. Jackson at 215.358.5080 or via email at ljackson@nldhlaw.com or John T. Salvucci at 215.358.5162 or via email at jsalvucci@nldhlaw.com.