Insurer must defend hospital against defamation claim.

• Author: Sanders, Carol McHugh
• Position: New York

An insurer has to defend a New York-based hospital and its staff in a defamation action brought by a doctor who had risen to the "limited public figure" status with his very vigorous campaign supporting midwifery at the facility. The New York Court of Appeals held in Town of Massena v. Healthcare Underwriters Mutual Insurance Co., 2002 N.Y. Lexis 2729, that Healthcare must defend Massena Memorial Hospital in an underlying federal lawsuit the doctor filed alleging a host of wrongs, including defamation.

In the underlying action, Dr. Olof Franzon, who operated a women's medical and surgical health care office, filed a federal court complaint against the hospital, its board of managers and various physicians and hospital executives. He alleged that the defendants conspired to deprive him of his civil rights under the First and 14th Amendments by trying to "excommunicate him from, and ruin him, in the Massena medical community." He also charged that the hospital and medical personnel disparaged him in internal reviews and to his patients, refused to renew his hospital privileges and defamed him.

In the action that reached the New York Court of Appeals, the Town of Massena, which owned the hospital, sought a declaration that three insurers owed it a defense in the federal action. The trial court found that all three insurers owed a duty to defend. The Appellate Division reversed, holding that coverage for the alleged wrongs were either specifically excluded under the applicable policies' provisions or were intentional and therefore excluded as a matter of public policy. 724 N.Y.S.2d 107 (App.Div. 3d Dep't 2001). The appeal to the state's high court drew amicus curiae briefs from the Medical Society of the State of New York and the Healthcare Association of New York State.

The Court of Appeals concluded that one insurer is obligated to defend the hospital and its employees while the other two insurers are off the hook, based on specific policy exclusions. The court, in an opinion by Judge Smith, held that Healthcare Underwriters must...