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American Registry of Pathology v. Ohio Casualty Insurance Co.

November 15, 2006


The opinion of the court was delivered by: Rosemary M. Collyer United States District Judge


The American Registry of Pathology ("ARP") sues its insurance carrier, Ohio Casualty Insurance Co., for refusing and failing to defend ARP in two recent lawsuits. In the District of Columbia, an insurer's duty to defend is defined by comparing the allegations of a complaint with the terms of the insurance policy. Facts outside those two documents, even if known to the insured and/or insurer, are not deemed relevant to the insurance company's duty to defend. Under these precepts, Ohio Casualty had no duty to defend ARP. Summary judgment will be granted to Ohio Casualty and the complaint will be dismissed.


A. Underlying Facts

The facts that are relevant to this contract dispute are not contested. ARP is a D.C. nonprofit corporation established pursuant to 10 U.S.C. § 177. It is "not an agency or establishment of the United States government," 10 U.S.C. § 177(a)(1), but it works in close collaboration with the Armed Forces Institute of Pathology ("AFIP"). AFIP is a joint entity of the Army, Navy, and Air Force and serves as the military medical institute dedicated to research, education, and consultation in pathology for the Department of Defense. See generally 10 U.S.C. § 176. "Consultation" refers, inter alia, to providing a second opinion on tissue samples to determine if they are cancerous.

Sometime prior to April 1993, Angelica Stevens sought a position in an AFIP cytology laboratory by applying to AFIP directly, but a "hiring freeze" precluded AFIP from hiring Ms. Stevens. AFIP turned to ARP - which, by law, can "enter into contracts with the [AFIP] for the provision of such services and personnel as may be necessary," 10 U.S.C. § 177(b)(1) - and asked ARP to hire Ms. Stevens. ARP did so on behalf of AFIP and Ms. Stevens began work in April 2003 as a cytotechnologist at the AFIP Cytology Center, which processes some thirty to forty thousand gynecological slides per year for pathological analysis. Ms. Stevens worked under the direction and control of AFIP, and ARP remained involved only in the administrative and ministerial aspects of her employment such as processing her paychecks, maintaining her leave balances, and other similar functions. Pl.'s Mem. Ex. 4 (Sweeney v. AFP, 00-2390 (PLF) Op. dated July 31, 2002).

On October 4, 2000, Deborah Sweeney and her husband filed a lawsuit against ARP and Ms. Stevens alleging that Ms. Stevens's negligent analysis of a PAP smear taken of Ms. Sweeney in March 1996 delayed the diagnosis and treatment of Ms. Sweeney's cervical cancer. As amended, that complaint alleged, "[u]pon information and belief, the defendant American Registry of Pathology is the principal for defendant Stevens and vicariously liable for her actions." See Pl.'s Mem. Ex. 8 at ¶ 6. ARP sent a demand to Ohio Casualty that it assume ARP's defense and pay any judgment or settlement in the Sweeney lawsuit. Pl.'s Mem. Ex. 10. Ohio Casualty declined, relying on an exclusion from coverage in the relevant insurance policies. Id. Ex. 11. Paying for its own defense, ARP then filed a motion in the Sweeney suit to have the Court certify that Ms. Stevens was an employee of the United States and to substitute the United States for Ms. Stevens as a defendant. Judge Paul Friedman, who was presiding over Sweeney v. ARP, ruled that Ms. Stevens "was neither an ARP employee nor an independent actor" but was an employee of the United States and acting within the scope of her employment when she conducted the relevant testing of the PAP smear. Id. Ex. 8 at 16. Although ARP notified Ohio Casualty that Judge Friedman had ruled that Ms. Stevens was not an ARP employee when testing the Sweeney PAP smear, the insurance company continued to decline coverage. Id. Ex. 12.

At the close of discovery in the Sweeney lawsuit, ARP moved for summary judgment. Finding that "ARP cannot be held vicariously liable" for Ms. Stevens's alleged negligence, Judge Friedman granted partial summary judgment to ARP and dismissed all claims against ARP except for alleged negligent hiring. Id. Ex. 15 (Sweeney Mem. Op. dated January 30, 2004). ARP's counsel notified Ohio Casualty of this result and argued that the alleged negligent hiring clearly fell within the scope of its insurance policies. Id. Exs. 13 & 16. Ohio Casualty refused to alter its position. Id. Ex. 18. ARP then entered into mediation with the Sweeney plaintiffs and paid $250,000 to settle their claims. Id. Exs. 19-20. Ohio Casualty did not provide counsel or otherwise assist in ARP's defense in Sweeney and has not paid for the cost of settlement. Id. Ex. 6 (Request for Admission No. 45).

A second lawsuit, Hatton v. ARP, 02-cv-1852 (PLF), was filed by Mary J. Hatton against ARP and Ms. Stevens on September 19, 2002. Pl.'s Mem. Ex. 21. Ms. Hatton is the executrix of the estate of her sister, Cindy Jill Miller, whose PAP smear was allegedly misinterpreted by Ms. Stevens in June 1998. Id. Ex. 22. As a result, cancerous cells were undetected but continued to grow and spread, leading to Ms. Miller's death on October 2, 2001. Id. The Hatton complaint, as amended, alleged:

Upon information and belief, the defendant, American Registry of Pathology, was one of the employers and principals responsible for defendant Stevens and [was] both vicariously and independently liable for her actions. The defendant ARP was involved with and had a duty of continued supervision over Angelica Stevens. ARP also knew or should have known that Angelica Stevens was not competent. They had an independent duty to take action to prevent her from committing continued malpractice, whether or not some other entity may have had a similar duty.

Id. ¶ 15. ARP notified Ohio Casualty of the Hatton lawsuit, but Ohio Casualty eventually declined coverage based on the same policy exclusion it relied upon when it declined coverage for Sweeney. Id. Exs. 6 (Requests for Admission 17-19) & 23-26.

ARP was forced to retain its own counsel to conduct the lawsuit. It again moved to substitute the United States for Ms. Stevens and Judge Friedman, to whom Hatton had been assigned as a related case, again granted that motion. See Pl.'s Mem. Ex. 27 (Hatton v. ARP, 02-1852 (PLF) Op. dated Mar. 22, 2004 (noting that the facts in the two suits were "identical" and adopting "the reasoning laid out in the Sweeney" decision). ARP notified Ohio Casualty of Judge Friedman's decision, but the insurance company nonetheless formally denied coverage. Id. Exs. 14 & 18. Forced to defend itself, ARP entered mediation with the Hatton plaintiffs and settled the suit for $75,000. Id. Ex. 6 (Request for Admission No. 47). Ohio Casualty did not provide counsel or otherwise assist in the defense of ARP or pay the settlement of the Hatton lawsuit. Id.

B. Insurance Provisions

Ohio Casualty is the successor in interest to the Great American Insurance Company, from whom ARP obtained the insurance policies at issue. See Answer ¶ 10. Great American issued two policies to ARP: Policy No. MAC-705-82-05, covering October 6, 1995 to October 6, 1996; and Policy No. MAC-705-66-82-07, covering October 6, 1997 to October 6, 1998 (collectively, "the Policies"). Pl.'s Mem. Exs. 5 & 7. Both Policies contained the following description of coverage: [Ohio Casualty] will pay those sums that the insured becomes legally obligated to pay as damages because of that "bodily injury" . . . to which this insurance applies. [Ohio Casualty] will have the right and duty to defend any "suit" seeking those damages.

Id. Ex. 5 at p. 8; Ex. 6 at p. 34. The Policies define "bodily injury" to include "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time." Id. Ex. 5 at p. 17. The "insureds" include, in relevant part, ARP's "employees, other than [ARP's] 'executive officers,' but only for acts within the scope of their employment . . . or while performing duties related to the conduct of [ARP's] business. . . . [But] no employee is an insured for . . . 'bodily injury' or 'personal injury' . . . arising out of his or her providing or failing to provide professional health care services." Id. at pp. 13-14.

Both Policies also contained exclusions for "Testing or Consulting Errors and Omissions" ("Testing Exclusions"). Id. Ex. 5 at p. 30; Ex. 7 at p. 57. In the 1995 -- 1996 Policy, the Testing Exclusion stated, in pertinent part, that general liability coverage under the policy would: not apply to 'bodily injury' . . . arising out of (1) An error, omission, defect or deficiency in any test performed, or an evaluation, a consultation or advice given by or ...

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