Products-Completed Operations Hazard Coverage Doesn’t Cover Liability Based on Negligent Professional Services

In a lawsuit brought by the Illinois city of Park Ridge against its liability insurer, involving the defense of alleged wrongs of city employees, the Appellate Court of Illinois refused to recognize emergency medical services as the city’s “work” under a standard “Products-Completed Operations Hazard” coverage provision of the city’s liability insurance policy, issued by Clarendon American Insurance Company.

The decision, filed October 18, 2017, is City of Park Ridge v. Clarendon American Insurance Company. It is reported at 2017 Ill. App. LEXIS 656.

The insurance coverage dispute arose from cases involving two sets of plaintiffs who sued Park Ridge based on separate occurrences, thus triggering the policy limits of $2 million for each occurrence. The question presented to the court was whether the Clarendon policy called for imposition, as well, of the policy’s $2 million aggregate limit for the combination of coverages for personal injury liability, products-completed operations hazard and public officials’ errors and omissions. The court decided that it did not, since the events did not bring any of the claims within the reach of the products-completed operations hazard coverage of the Clarendon policy.

The relevant events were alleged in lawsuits based on two separate occurrences. In the first Marzena Sassak and Gregory Gorman sued the city in federal court after a confrontational traffic stop ended in “personal injury,” as defined in the policy. After a subsequent, but related, action was filed by the Gormans on behalf of their minor child, Gregory Gorman settled his case for more than $600,000, the first $250,000 of which was paid by Park Ridge because it had a self-insured retention in that sum. The remainder was paid by Clarendon.

In the second lawsuit, Park Ridge paramedics were alleged to have failed to provide any medical treatment whatsoever to a 15-year-old boy whose father summoned paramedics when the child was found to be unresponsive in the early morning hours. Sometime later, the paramedics were summoned again, when the boy was unresponsive and blue. He was pronounced dead at the hospital due to a drug overdose.

The boy’s mother, Jo Ann Abruzzo, filed survival and wrongful death actions based on the boy’s death, which was dismissed but then reinstated by the Illinois Supreme Court. A jury returned a verdict of $5,187,500 against the city, which was affirmed on appeal by the Appellate Court of Illinois. The Appellate Court found that the evidence established a complete lack of any assessment, diagnosis, treatment or exercise of professional judgment by the responding emergency medical technicians or paramedics.

Faced with the large verdict, Clarendon resisted Park Ridge’s efforts to settle the drug overdose case by seeking to apply the monies paid in the Gorman matters to a $2 million aggregate limit in its policy with the city. Park Ridge and its excess insurer settled the Gorman matters, but reserved the matter of Clarendon’s responsibility for the cases afterwards. Park Ridge contended that Clarendon was obligated to pay its $2 million occurrence limit in the Abruzzo case, because the facts of that case took it out of the aggregate limit the policy provided for the combination of claims for personal injury, public officials errors and omissions, and products-completed operations hazard. For its part, Clarendon argued that the money it had paid in the Gorman matters was a credit against the $2 million aggregate limit under the policy.

To justify its position, Clarendon attempted to convince the court that the city’s liability in the Abruzzo case triggered the products-completed operations hazard of the policy, arguing that the city’s “work” on the Abruzzo child had been “completed” when the paramedics first left the residence. “It was on this basis that the trial court held that the ‘aggregate’ coverage [limit] applied,” said the court. Reversing the trial court ruling, the Appellate Court said that the trial court “plainly ignored the language in the policy that directly covered the paramedics’ failure to provide any treatment [to the Abruzzo child]. Specifically, the Clarendon policy coverage that applied to the Abruzzo case was not subject to the aggregate limit, so Clarendon was obligated to pay up to $2 million, per occurrence, for ‘incidental medical malpractice… which should have been rendered… by any duly qualified medical practitioner, nurse or technician employed by… the Insured.” (Emphasis in the original.)

The Appellate Court concluded its discussion by pointing out that even if it were to attempt to apply the products-completed operations hazard coverage to the circumstances of the Abruzzo case, it must construe the terms of the policy in favor of the insured city, and that coverage historically and generally applies to construction activities, maintenance and related trades, not to professional services such as those rendered by EMTs or paramedics. For example, in American Red Cross v. Travelers indemnity Co. of Rhode Island, 816 F. Supp. 755 (D.D.C. 1993), “the District Court held that HIV-contaminated blood claims did not fall within the scope of the ‘completed operations hazard’ provision of the insurance policy, and thus, the aggregate limit of the provision was inapplicable to the claim because each act of distribution constituted a separate ‘occurrence’ under the policy.” Likewise, the Ninth Circuit Court of Appeals observed in Hydro Systems, Inc. v. Continental Insurance Co., 929 F.2d 472, 477 (9th Cir. 1991) that products-completed operations hazard exclusions generally arise after completion of work by the insured on construction or service contracts.

The Appellate Court found the case law precedent so persuasive, and the products-completed operations hazard coverage provision of the policy so clear as to have everything to do with construction operations undertaken by the city of Park Ridge nothing to do with the failure of treatment and transport by the city’s EMTs and paramedics. Accordingly, it ordered the case remanded and the entry of summary judgment for Park Ridge and its excess insurer.