APPALACHIAN REGIONAL HEALTHCARE, ET AL.
JACQUELINE K. CUNNINGHAM, COMMISSIONER OF INSURANCE, ET AL.
THE STATE CORPORATION COMMISSION
ARTHUR KELSEY JUSTICE
State Corporation Commission ("SCC") denied claims
filed by a group of Kentucky hospitals (the
"Hospitals") requesting reimbursement for $439,
375.20 in legal fees and costs from Reciprocal of America
("ROA"), an insolvent insurer. The Hospitals
appeal, arguing that certain agreements constituting an
assumption reinsurance transaction provided a contractual
basis for the claims and that the SCC erred in concluding
otherwise. We disagree and affirm.
late 1970s and early 1980s, a group of Kentucky hospitals
created two self-insured Trusts - the Compensation Hospital
Association Trust ("CHAT") and the Kentucky
Hospital Association Trust ("KHAT") (collectively,
the "Trusts"). See 1 J.A. at 422. CHAT
provided workers' compensation and employers'
liability coverage to the Hospitals and other healthcare
providers. KHAT provided professional liability and general
liability coverage to the Hospitals and other healthcare
providers. The Hospitals were member insureds of CHAT and
1997, CHAT and KHAT each entered into "Master
Agreements" with ROA that merged both Trusts into ROA as
the surviving entity. See id. at 66-105, 112-50. The
partiesexecuted the Master Agreements and related
agreements as part of a holistic transaction and, thus,
accepted that the agreements should be construed together.
See id. at 101, 146 (incorporating exhibits into the
Master Agreements). The Master Agreements also stipulated that
the "provisions of this Agreement were negotiated by the
parties hereto and such Agreement shall be deemed to have
been drafted by all of the parties hereto, "
id., thereby seeking to avoid the application of the
contra proferentem canon of construction.
each of the Master Agreements was an "Indemnification
Agreement" in which ROA agreed to indemnify the Trusts
for certain kinds of liabilities and expenses. See
id. at 334-40, 342-48. In the Indemnification
Agreements, ROA agreed
to indemnify and hold harmless [each Trust] and its
member-insureds from any and all Damages arising out of or in
connection with the Business, the Assumed Liabilities, the
conveyance and delivery of the Transferred Assets, or any
related transactions, provided no such indemnification shall
be provided for any and all Damages of such member-insureds
relating to their obligations under their respective policies
of insurance issued by [ROA]. The indemnification by [ROA] .
. . shall include reasonable costs and expenses (including
fees and expenses of [each Trust's] or any of its
member-insured's counsel) in defending itself against any
claim Damages arising from or in connection with the Damages.
Id. at 336, 344 (quoted verbatim in pertinent part).
Several of the terms in these Indemnification Agreements had
contractually defined meanings:
■ "Damages" meant "any liability,
expense, cost or obligation, however incurred or
characterized, assumed by [ROA] as provided for in
this Agreement." Id. (emphasis added).
■ "Assumed Liabilities" included "all
obligations" of the Trusts "in connection with
[their] Business except for the Excluded Liabilities."
Id. The Master Agreements clarified that ROA agreed
"to assume and become responsible for all of the Assumed
Liabilities at the Closing Date." Id. at 72,
118; see also id. at 176-81 ("Agreement of
■ "Business" was defined according to
"the meaning set forth in the Recitals, " which
described the Trusts' pre-merger self-insurance business.
Id. at 335-36, 343-44.
both Trusts were wholly merged into ROA, they had no separate
legal existence after the merger. Neither Trust continued to
conduct its pre-merger self-insurance business. The
liabilities that ROA assumed included the business
liabilities of the Trusts prior to the merger. In that
context, the Indemnification Agreements expressly addressed
legal fees. ROA agreed to indemnify the Trusts for fees and
associated costs that the Trusts or any of their member
insureds incurred "in defending [themselves] against any
claim Damages arising from or in connection with the
Damages." Id. at 336, 344.
2003, the Circuit Court of the City of Richmond placed the
financially troubled ROA into receivership and appointed the
SCC as the Receiver, the Commissioner of Insurance as the
Deputy Receiver, and a Special Deputy Receiver. The SCC later
found ROA to be insolvent and ordered its liquidation. During
the liquidation process, the Hospitals became involved in two
separate judicial proceedings.
Deputy Receiver initiated the first case ("the Virginia
litigation") by filing an application with the SCC
requesting authorization for ROA to continue paying
workers' compensation claims that ROA had assumed from
various self-insured trusts and group self-insurance
associations, including CHAT and KHAT. See id. at
579. He filed the application because various state guaranty
associations, including the Kentucky Insurance Guaranty
Association ("KIGA"), had denied or were likely to
deny guaranty fund coverage for these claims. See
Hospitals joined the Virginia litigation in support of the
Deputy Receiver, appearing as the "Kentucky
Claimants" or the "Claimants" throughout this
litigation and the receivership proceedings. See id.
at 2-22, 380 & n.25, 382, 384, 586 & n.25, 588, 590;
2 id. at 667-68, 700-20, 768-69 nn.30-31, 938 n.25.
After the Hearing Examiner issued his report in the Virginia
litigation, the SCC adopted most of his findings, including
his conclusion that "[t]he Assumed Claims constitute
'claims of other policyholders arising out of insurance
contracts' pursuant to [Code §
38.2-1509(B)(1)(ii)]" and that the claims were therefore