Commentary: R.I. Court’s Ruling on Self-Insured Retentions in Med-Mal Policies

In a surprising decision, the Rhode Island Supreme Court held that a self-insured retention (SIR) endorsement in a nursing facility’s professional liability policy was void. However, the Court’s ruling is broad enough to include all medical malpractice policies in Rhode Island.

In Peloquin v. Haven Health Center of Greenville, LLC, 61 A.3d 419 (R.I. 2013), the issue before the Court was whether a $2,000,000 SIR was void because SIRs were not authorized under Rhode Island law in cases involving a healthcare provider.

Under Rhode Island law, Gen. Laws (1956) § 42-14.1-2(a), the Director of the Department of Business Regulations (DBR) was authorized to establish rules and regulations allowing persons and entities with sufficient financial resources to become self-insurers. However, the DBR had not yet promulgated any such regulations. The issue before the Court was whether healthcare providers could lawfully self-insure through the utilization of SIRs in the absence of DBR action.

After carefully reviewing the statutory provision, the Rhode Island Supreme Court concluded that before any self-insurance could be incorporated into an insurance policy governed by § 42-14.1-2(a), the DBR first was required to promulgate a regulatory framework expressly “allowing” for self-insurance.

Based upon the Court’s reading of the statute, before any Rhode Island healthcare provider could lawfully self-insure, the DBR is required to take the affirmative step of “allowing” self-insurance and defining the conditions under which “persons or entities” possess “sufficient financial resources to be self-insurers.” The Court concluded that unless and until the DBR promulgates regulations that expressly make provision for self-insurance by healthcare providers, by the statute’s plain language, § 42-14.1-2(a) did not permit SIRs.

The Peloquin case involved a situation where a nursing facility’s patient’s estate filed a medical malpractice suit against the facility and the facility’s liability insurance carrier. The case involved an allegation that one of the nurses at the facility negligently administered a lethal dose of morphine to the decedent patient.

The facility was insured by Columbia Casualty Company with a claims-made professional liability insurance policy. The policy limit for professional liability was $1,000,000 per claim and $3,000,000 in the aggregate. The policy also contained a SIR Endorsement requiring the facility to pay the first $2,000,000 of all damages and all claim expenses resulting from each claim under the professional liability coverage form.

When the medical malpractice complaint was filed the facility was in bankruptcy and therefore, under Rhode Island law, Gen. Laws (1956) § 27-7-2.4, the plaintiff estate was able to bring litigation against Columbia because of the insured’s bankruptcy. Litigation ensued which resulted in a judgment against Columbia for $238,007.96. The judgment consisted of $100,000 in damages (the amount of coverage that the plaintiff estate argued Columbia was statutorily obligated to provide), prejudgment interest amounting to $105,060.21, and postjudgment interest amounting to $32,947.75.

Rhode Island law mandated minimum coverage requirements for healthcare providers of $100,000 per claim, $300,000 in the aggregate.

The Peloquin case is significant to agents who sell healthcare provider policies within the state of Rhode Island. According to the Rhode Island Supreme Court, Rhode Island law has required the DBR to promulgate regulations setting forth the financial prerequisites of self-insurance and other appropriate regulations. Until the DBR promulgates regulations involving self-insurance for healthcare providers, any SIR Endorsement set forth in a Rhode Island healthcare provider policy will be void as against public policy.