In Reardon Case, Tens Of Millions Ride On Fine Print In St. Francis' Insurance Policies

The Hartford Courant

Stuck for years in an unpopular defense of negligence suits by victims of Dr. George Reardon, St. Francis Hospital now is being pulled into a new legal fight, this one involving efforts by its own insurers to reduce their exposure to the $100 million or more the victims could win.

The showdown among insurers over the terms of their coverage is another impediment to efforts by the hospital — which just finished a $180 million overhaul of its Hartford campus — to divert attention from the legal nightmare Reardon created. The new dispute now has one of Connecticut's premier medical institutions fighting a war on two fronts.

On one side are the 60 or so Reardon victims, approaching the fifth year of a bitter fight to be compensated for abuse inflicted on them as children by the hospital's former chief endocrinologist. On the other are three insurers — beneficiaries of millions of dollars in hospital premiums and each prepared to argue that someone else should pay most of whatever the victims ultimately are awarded.

If the insurers succeed in reducing their obligations to fund damage awards, responsibility for the difference could fall to the hospital, an outcome that victim lawyer Steven Ecker called "catastrophic." If St. Francis is stripped of coverage it counted on, Ecker argues, a string of multimillion-dollar damage awards could push the hospital into bankruptcy, leaving victims nowhere to turn for compensation.

The hospital considers that scenario remote and overwrought, according to a source familiar with its position. Barring an astronomical jury award, St. Francis is unlikely to be left "naked" of coverage because of the way it layered insurance across the years Reardon was at his abusive worst.

But, depending on the outcome of the coverage dispute, the hospital's share of Reardon costs could rise. On their side, the insurers have tens of millions of dollars at stake.

Unlikely Alliances

The coverage dispute is unfolding in federal court in New Haven and could take a year or more to resolve. Already, it has demonstrated how exigencies of litigation can forge unlikely alliances.

The Travelers Cos., which carries most of the hospital's insurance, has indicated to other parties in the Reardon cases that its effort to limit its coverage will involve arguing that St. Francis contributed to the abuse by failing to supervise Reardon. That is the same position Reardon's victims take and one the hospital rejects.

Should St. Francis challenge efforts by any insurer to limit coverage, it will join forces with the victims, who are opposed to anything that reduces the insurance pot on which they can draw for damages.

In the simplest terms, the coverage dispute turns on a single question: Does serial abuse of children by a doctor in his hospital office trigger the hospital's general liability coverage or its malpractice coverage?

U.S. District Judge Mark R. Kravitz will have to decide, if mediation fails in October. His answer could be worth huge savings or losses among Hartford-based Travelers and the two other insurers involved, Pacific Employers Insurance Co. of Philadelphia and Evanston Insurance Co. of Deerfield, Ill.

The hospital will not discuss its coverage from 1963 to 1993, the years during which Reardon used a growth study as a pretext to abuse hundreds of children.

"St. Francis will not comment on the specific issues raised in the litigation," hospital lawyer Kevin O'Connor said. "The hospital has, however, paid a substantial amount of money in premiums over many years to various insurers and believes strongly that, regardless of the outcome of the coverage litigation, it will have sufficient insurance coverage in place for any anticipated judgments or settlements in the underlying Reardon cases."

The three insurers also declined to comment. But an outline of the coverage over the years has emerged through the litigation.

Travelers, which inherited St. Francis as a client from Aetna, has the bulk of the insurance, both primary and excess, from 1963 to 1985. Excess insurance is coverage that is triggered after primary coverage is exhausted. After 1985, St. Francis became self-insured.

Pacific and Evanston appear in the hospital insurance picture for relatively brief periods. Evanston has what amounts to primary coverage from 1984 to 1985. Pacific has excess coverage from 1981 to 1985. There is a perplexing gap in the excess coverage from 1971 to about 1975, apparently because of missing documents.

"There is another dispute going on there," said a source familiar with the insurance issues. "They cannot find evidence of the excess coverage. No checks, nothing. The hospital has an affidavit from the broker who placed this insurance with Travelers for years, saying that in his opinion it must have been there. But they cannot find any record. It is just odd."

What Kind Of Coverage?

The broader coverage dispute turns, ultimately, on the question of what kind of primary insurance coverage Reardon triggered when he abused children. Was it general liability coverage, typified by slip and fall injuries? Or was it professional liability coverage, typically triggered by malpractice claims?

Travelers and Evanston assert it is malpractice, a position that, coincidentally, limits their exposure and shifts most of the liability to Pacific's excess coverage for the applicable policy years. Malpractice coverage is triggered, Travelers and Evanston contend, because Reardon's abuse was the result of the hospital's failure to perform a professional service: supervision.

If that argument stands up, it could shift tens of millions of dollars in liability from the Travelers and Evanston primary policies to the Pacific Employers excess policies.

That is because the hospital's primary insurance coverage aggregates its malpractice claims each year, regardless of the number made. Any claims that push the aggregate total over $2 million are allocated to excess policies, according to filings in court and other sources.

The Travelers malpractice policies also permit the insurer to deduct legal costs from the aggregated $2 million — before any money reaches victims. St. Francis has been represented by two of New England's biggest law firms in the Reardon cases for at least three years.

Pacific argues that Reardon's abuse triggers general liability coverage, a position that would shift Reardon costs away from Pacific's excess policy and to the Travelers and Evanston primary policies. That's because the general liability coverage in the primary policies has no annual aggregate and pays up to $500,000 for each of an unlimited number of claims.

Depending on how the general/malpractice disagreement is resolved, Evanston could be exposed to as little as $2 million in liability or as much as $18 million for a single year, according to an expert familiar with the insurance issues. The $18 million is based on the hospital's claim that Reardon abused children 36 times that year. The expert said Evanston, not surprisingly, claims abuse occurred far fewer times over the year it insured the hospital.

Pacific made the coverage dispute public when it sued St. Francis and the other insurers in federal court. If Kravitz interprets the policies in its favor, Pacific argues, St. Francis also will win, because it will have more coverage.

"Greater coverage is potentially available to St. Francis Hospital if the defendant insurance companies recognize that St. Francis Hospital's negligent supervision and failure to prevent Reardon's alleged abuse falls within St. Francis Hospital's general liability coverage, consistent with the policy language and case law," Pacific's lawyers at the Hartford firm Rome McGuigan wrote in a legal brief.

Tallying The Financial Damage

How much Reardon's compulsive pedophilia eventually costs in jury awards or settlements is anyone's guess.

The victims, viewed by the insurers as being overly aggressive in the mostly fruitless settlement talks, say the price could reach $200 million. The victims want permission to be made a party in court to the coverage dispute to make sure the hospital's insurance is maximized. Ecker warns in an ominous footnote to his motion to intervene that "sexual abuse litigation" last year forced another well-heeled target, the Archdiocese of Portland, Ore., into bankruptcy.

The insurers, viewed by the victims as being heartless pinch-pennies, believe the figure is significantly lower than $100 million. The insurers have used their coverage to leverage the hospital during negotiations with the victims, according to sources on all sides.

The hospital's combined insurance coverage over the Reardon years is estimated to be worth $250 million, according to the expert familiar with the insurance issues.

The event that started the litigation was the discovery in 2007 of more than 60,000 pornographic photographs of children in Reardon's former West Hartford home. The doctor died in 1998. Most of the photographs were taken by Reardon, in his hospital office, of children whose parents enrolled them in his so-called growth study.

One hundreds and forty-nine of the now middle-aged victims sued after identifying themselves in the photographs.

About a third of those suing reached a confidential settlement with St. Francis after a court ruled that their cases fell outside the statute of limitations. Another judge ordered the remaining 90 or so cases to be tried in succession.

The first suit to go to trial, brought by a firefighter, was settled on May 9, after the jury began deliberating. The settlement grew to include 32 victims. The terms were confidential, but sources valued it at about $17 million.

On July 9, another jury awarded $2.75 million in a second suit, brought by an insurance professional.

A third trial is scheduled for next month, barring an unexpected agreement between the hospital and the victims.

About 60 more suits are pending.

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