Third-Party Complaint Seeking Indemnity from IT Company for Underlying Medical Malpractice Suit Barred by Medical Services and Bodily Injury Exclusions

An Alabama federal district court has ruled that a third-party claim seeking indemnification for a medical malpractice suit, allegedly resulting from the insured’s allegedly faulty performance of technology services, was barred from coverage by “medical services” and bodily injury exclusions.  Jackson, Key & Assocs., LLC v. Beazley Ins. Co., Inc., 2018 WL 6710041 (S.D. Ala. Nov. 30, 2018) (report and recommendation adopted on December 20, 2018).

The insured was a software development and data hosting company.  It contracted to convert certain electronic medical records for a health care provider from one platform to another.  Two years later, a patient sued the provider for malpractice, alleging that he was incorrectly prescribed a particular medication.  The provider asserted a third-party claim for contribution and indemnification against the insured and other parties.  The provider alleged that the insured improperly converted its electronic medical records.  The insured sought coverage under a technology errors and omissions policy, but its insurer declined coverage based on two exclusions.

In the ensuing coverage litigation, the court ruled in favor of the insurer on its motion to dismiss, finding two exclusions independently barred coverage.

First, the court held that coverage was barred by an exclusion for any Claim “based on or arising out of medical professional malpractice including, but not limited to, the rendering o[r] failure to render medical professional services, treatment or advice.”  The court noted that the phrase “arising out of” had a “broad, comprehensive … meaning.”  The court also observed that the underlying claim, upon which the third-party claim was based, alleged medical malpractice.  Thus, the court deemed the exclusion to apply.  The court also rejected the insured’s argument that the exclusion did not apply because the insured provided technology services, not medical services, reasoning that the medical services exclusion, unlike certain other exclusions, did not require that such services be performed “by any insured.”

Next, the court held that the exclusion for any Claim “[f]or or arising out of or resulting from: physical injury” barred coverage as well.  The court noted that the underlying claim alleged physical injuries and sought to recover damages for those injuries.  The third-party complaint, in turn, sought to recover if the provider was found liable for such injuries.  The court ruled that the third-party claim thus arose out of and resulted from physical injury and that coverage therefore did not apply.


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