Multicare Health System v. Lexington Insurance Company

MEMORANDUM *

Medical Staffing Network contracted with Multicare Health System (“the hospital”) to provide the hospital with temporary nursing staff. Pursuant to that contract, Medical Staffing gave the hospital a Certificate of Liability Insurance issued on behalf of Lexington Insurance Company (“Lexington”), by USI Insurance Services, LLC, and USI Holdings (collectively “USI”). The Certificate stated that Medical Staffing had a professional liability insurance policy that provided up to $5 million of coverage. It did not state, however, that the professional liability policy was subject to a $1 million self-insured retention.

The hospital sued Lexington and USI, alleging that the failure to include the $1 million self-insured retention on the Certificate was a material misrepresentation on which the hospital relied to its detriment. The hospital became liable for a $785,000 malpractice award, that resulted from a 2008 suit against a Medical Staffing nurse on contract with the hospital. The award was within Medical Staffing’s self-insured retention, but Medical Staffing went bankrupt and did not pay it.

The district court dismissed the hospital’s claims, but allowed…

concurring in part and dissenting in part:

I only write to address the negligent misrepresentation by omission claim. This claim was insufficiently pleaded in the hospital’s original complaint. However, amendment of this claim would not be futile, because the hospital’s proposed amendments allege sufficient facts to state a claim. Accordingly, the district court abused its discretion in denying leave to amend and dismissing this claim with prejudice. See Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir.2008). Otherwise, the majority “got it right.”

Under Washington law, a plaintiff may state a negligent misrepresentation by omission claim based on a duty to disclose where disclosure is “necessary to prevent a partial or ambiguous statement of facts *773 from being misleading.” Van Dinter v. Orr, 157 Wash.2d 329 , 138 P.3d 608, 610 (2006). 1 First, the district court improperly conflated the question of whether the disclosure of the self-insured retention was necessary to prevent a partial or ambiguous statement of fact with whether information about the self-insured retention was easily obtainable. These are distinct theories under which a plaintiff may…

statement of facts from being misleading.” Van Dinter, 138 P.3d at 610. “The

existence of a duty is a question of law.” Colonial Imports, Inc. v. Carlton

Northwest, Inc., 853 P.2d 913, 916 (Wash. 1993).

Here, defendants were not in a fiduciary or quasi-fiduciary relationship with

the hospital. They were not in any relationship with the hospital at all. They

-4- issued a Certificate of Liability Insurance to Medical Staffing, not the hospital.

Medical Staffing gave the Certificate to the hospital as proof that it had insurance.

The complaint alleges no facts indicating that including the self-insured retention

on the Certificate was necessary to prevent a partial statement of facts from being

misleading. “We need not accept as true conclusory allegations that are

contradicted by documents referred to in the complaint.” Manzarek, 519 F.3d at

1031. The Certificate is a one-page form document, the heart of which is a table

summarizing Medical Staffing’s insurance policies by listing in separate columns

each policy’s insurance type, policy number, policy effective date, policy

expiration date, and policy limits. There is no column for retention amount or

deductible.…