In East Texas Medical Ctr. Regional Health Sys. v. Lexington Ins. Co., No. 07-40904 (5th Cir. July 10, 2009) [here], the Fifth Circuit determined Lexington received proper notice from the insured of a claim by a computer-generated loss run.
Lexington's claims-made medical malpractice policy ran from June 8, 2002, to June 8, 2003. The policy provided excess liability coverage to the Medical Center, covering claims above a self-insured retention of $2 million per claim. Under the policy, the Medical Center had discretion to resolve any claim within its $2 million retention. If the Medical Center wanted coverage, it was required to provide "written notice" to Lexington of medical incidents, claims, and lawsuits.
In March 2003, the Medical Center received a medical malpractice claim on behalf of David Wayne Cornelius. The letter indicated that Cornelius had suffered unspecified personal injuries at the Medical Center. In April 2003, the Medical Center entered information about the Cornelius claim on a computer-generated spreadsheet, known as a "loss run." At the end of the policy period, the loss run remained the only notice of the Cornelius claim given Lexington. There was evidence that Lexington previously acknowledged receipt of three other claims submitted on loss runs.
On May 27, 2003, Cornelius filed a medical malpractice suit against the Medical Center. The policy period expired on June 8, 2003, shortly after the Medical Center filed its answer. Not until depositions were taken in the Cornelius suit in December 2003 did the Medical Center realize the claim was likely to exceed the $2 million self-insured retention. In January 2004, the Medical Center gave its first written notice to Lexington of the Cornelius lawsuit. Lexington denied the claim due to the Medical Center's late notice.
At trial, a jury returned a verdict in favor of the Medical Center and awarded $1.7 million in damages. The district court, however, granted Lexington's motion for judgment as a matter of law due to lack of sufficient evidence.
On appeal, the Fifth Circuit vacated and remanded. First, the Fifth Circuit agreed with the jury's determination that the loss runs provided adequate notice. Of significance were Lexington's letters accepting loss runs as notice of claims in prior cases.
Next, the Fifth Circuit ruled that the policy required separate notice of claim and of suit. The Medical Center was obligated to notify Lexington of the claim in March 2003, and then again report the filing of the lawsuit in May. Because notice of the suit was required, notification seven months after suit was filed was not given "as soon as practicable," as required by the policy. Nevertheless, on remand, Lexington had to show prejudice as a result of the Medical Center's failure to send notification as soon as practicable.
Finally, the district court found that Lexington waived the entitlement of immediate receipt of the suit papers as required by the policy. The Fifth Circuit disagreed, finding there was no waiver, but Lexington would still have to show it was prejudiced by the Medical Center's failure to provide proper notice.
