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Commonwealth v. Virginia Association of Counties Group Self Insurance Risk Pool

Supreme Court of Virginia

June 23, 2016


         From The Circuit Court For New Kent County Thomas B. Hoover, Judge



         This appeal involves a dispute between two sources of insurance coverage for claims asserted by a pretrial detainee against guards and nurses at a regional jail. The circuit court held that, as a matter of law, one insurance source provided primary coverage and the other offered only excess coverage. We hold that both provided concurrent primary coverage. We thus reverse and remand for the circuit court to determine the proper contributions of each to the costs of defense and indemnification associated with settlement of the underlying liability suit.


         A. Two Insurance Sources

         The Northwestern Regional Jail Authority operates the Northwestern Regional Adult Detention Center. During the relevant time frame, the jail authority purchased a general liability insurance policy ("VaCorp Policy") from the Virginia Association of Counties Group Self Insurance Risk Pool ("Risk Pool Association"). See generally Code §§ 15.2-2700 to -2709 (authorizing local government group self-insurance pools). The VaCorp Policy stated that the "coverage afforded by this Contract is primary coverage, " J.A. at 141, with a $5, 000, 000 limit on liability. The Risk Pool Association also offered excess liability coverage, but the jail authority declined to purchase it. Id. at 155, 174-75, 180.

         The jail authority also elected to participate in a government-sponsored insurance program, the VaRISK Plan, managed by the Division of Risk Management ("DRM"), a division of the Virginia Department of the Treasury. See Code § 2.2-1839. The VaRISK Plan capped its coverage liability at $1, 000, 000. In the event that a claim against an insured jail defendant involved medical malpractice by a "healthcare provider, " as defined by Code § 8.01-581.1, the VaRISK Plan expanded its coverage limit to the applicable medical malpractice cap imposed by Code § 8.01-581.15, which at all relevant times was $2, 000, 000. J.A. at 145.[1]

         Both the VaCorp Policy and the VaRISK Plan addressed the possibility of multiple sources of applicable insurance. The VaCorp Policy included an other-coverage clause stating that the policy provided "primary coverage" except when another clause stated otherwise. Id. at 141.[2] "When this coverage is primary and the Participant has other coverage, which is stated to be applicable to the loss on an excess or contingent basis, the amount of the Fund's liability shall not be reduced by the existence of such other coverage." Id. (emphasis added and clerical error omitted). The clause went on to apply a liability contribution formula in the event of concurrent coverage. Id. at 141-42.

         The VaRISK Plan included a very different other-coverage clause. In pertinent part, that clause provided, "if, at that time of loss, there is any other coverage or insurance available to a Covered Party which covers such loss or which could have covered such loss, VaRISK shall not have any liability for such loss." Id. at 150 (emphasis added). The forfeiture of coverage, however, did not apply in two situations:

This condition shall not apply if the Director of DRM approves in writing, in advance, of the issuance of such other coverage or insurance designating the Plan as primary. Further, this condition will not apply unless the Director of DRM gives written authorization for the Plan to provide the underlying coverage for any excess or umbrella coverage purchased by a Constitutional Officer or Regional Jail Authority that has paid a contribution to the Plan for this primary coverage and that otherwise meets the terms and conditions for VaRISK primary endorsement.

Id. at 150-51.

         Both the Risk Pool Association and DRM issued what they considered to be primary coverages to the jail authority. Id. at 141, 159, 280, 285, 451. Neither described their coverage as excess, rather than primary.[3] The jail authority, as the insured, had the same understanding. See id. at 402 (circuit court's final order noting that "both coverages have been contracted for by [the jail authority] for primary coverage").[4]

         B. The Underlying Lawsuit

         In 2013, a pretrial detainee in the custody of the jail filed a federal suit under 42 U.S.C. § 1983 against several guards and nurses who worked for the jail authority, claiming that they were deliberately indifferent to his serious medical needs. See Boren v. Northwestern Reg'l Jail Auth., No. 5:13-cv-00013, 2013 U.S. Dist. LEXIS 140169 (W.D. Va. Sept. 30, 2013).[5] The detainee's complaint also asserted state law claims alleging medical malpractice, negligence, and a due process violation under the Constitution of Virginia.

         The detainee alleged that he had been placed in the jail on a charge of public intoxication. While there, he allegedly suffered from seizures resulting from alcohol withdrawal. The detainee claimed that the jail nurses and guards were deliberately indifferent to his need for prompt medical care, causing him to suffer multiple untreated seizures due to "severe metabolic acidosis." J.A. at 19. He alleged that these seizures left him permanently disabled.

         While the federal suit was pending, the detainee filed a declaratory judgment action in circuit court against DRM and the Risk Pool Association, seeking a determination of their respective liabilities for insuring the jail defendants. The Risk Pool Association filed a third-party claim against DRM, seeking a declaration that, pursuant to Code § 2.2-1839, the VaCorp Policy only provided, at most, excess coverage for the underlying suit. Id. at 225-26. DRM filed a corresponding claim against the Risk Pool Association, contending that the VaCorp policy provided primary insurance coverage, making the VaRISK Plan an excess policy pursuant to an other-coverage provision in the VaRISK Plan. Id. at 231-33.

         While both the federal and state proceedings were pending, the detainee entered into a settlement with the jail defendants for an undisclosed amount. DRM and the Risk Pool Association agreed to fund the settlement contingent upon the final judicial resolution of their respective liabilities. In the proceeding for declaratory judgment, the circuit court dismissed the detainee and jail defendants based upon their settlement, leaving only DRM and the Risk Pool Association's opposing claims for declaratory relief. Id. at 398-99. Both filed motions for summary judgment based upon undisputed facts.

         DRM argued that the VaCorp policy provided sole primary coverage for the detainee's claims in the federal suit and that the VaRISK Plan's other-coverage clause extinguished any DRM liability as a matter of law. DRM also contended that its $1, 000, 000 policy limit, not the expanded $2, 000, 000 limit applicable to medical malpractice claims, should cap any coverage liability that the VaRISK Plan might otherwise have with respect to the detainee's civil rights claims. In response, the Risk Pool Association claimed that the VaRISK Plan was the sole primary policy as a matter of law and that the VaCorp policy provided, at best, excess coverage.

         The circuit court found that "both coverages have been contracted for by [the jail authority] for primary coverage." Id. at 402.[6] However, the court interpreted Code § 2.2-1839 to preclude DRM's VaRISK Plan from being anything other than the sole source of primary coverage. From this premise, the court reasoned that the jail authority "was permitted only to secure excess liability coverage beyond the primary coverage provided by DRM." Id. After finding the VaRISK Plan to be the sole primary coverage, the court concluded that DRM had the exclusive duty to defend the jail defendants.

         In addition, the circuit court found that the VaRISK Plan's $2, 000, 000 coverage extension for medical malpractice claims applied to all of the detainee's claims (whether based on state tort law, federal § 1983 law, or state constitutional law) against "the named defendant healthcare providers, " i.e., the jail nurses. See id. Turning to the VaCorp Policy, the court held that it would be converted by operation of law into an excess policy. In that capacity, the court further concluded, the Risk Pool Association had no duty to contribute toward the defense costs incurred by the jail defendants in the federal suit.


         DRM argues on appeal that the circuit court misinterpreted Code § 2.2-1839 to mandate that the VaRISK Plan be treated as the sole source of primary coverage and, working from this faulty premise, erroneously declared void the other-coverage clause in the VaRISK Plan.[7] DRM also contends that the court erred in applying to the detainee's federal § 1983 claim the $2, 000, 000 extended coverage cap applicable only to medical malpractice claims.

         A. The VaRISK Plan

         Code § 2.2-1839(A) directs DRM to "establish one or more risk management plans" for qualified participants, such as, for example, state officers and agencies, constitutional officers, political subdivisions, jail authorities, and certain individuals serving the public interest. The DRM plans, if approved by the Governor, may include "purchased insurance, self-insurance ...

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