The Pennsylvania Commonwealth Court Rules That MCARE Owes Coverage Over Extended Reporting Endorsements Despite The Absence Of Additional Surcharge

In the latest installment of the long-running Fletcher v. Pennsylvania Property & Casualty Insurance Guaranty Ass'n case, the Pennsylvania Commonwealth Court rebuked the state insurance department's effort to negate the excess medical liability coverage obligation of the Medical Care Availability and Reduction of Error Fund ("MCARE") where the claim was covered by an extended reporting endorsement.

In December 2002, Johanna Fletcher initiated a medical malpractice action on behalf of her husband's estate, alleging that negligent medical treatment over a 10-year period by two doctors and their medical practice resulted in Mr. Fletcher's untimely death in February 2001. Fletcher won a verdict in excess of $7.727 million, which included delay damages.

In an odd set of circumstances, both doctors predeceased Mr. Fletcher. Therefore, when Fletcher filed the lawsuit in December 2002, no current insurance policies existed. PHICO insured one of the doctors and the medical practice for five successive years from 1997 through 2001. The MCARE Fund, Pennsylvania's state-run excess medical liability fund, provided coverage excess to PHICO. To further complicate matters, PHICO was placed into liquidation in January 2002, and the Pennsylvania Property & Casualty Insurance Guaranty Association became liable for the statutory maximum of $300,000 per claim.

Prior to the underlying verdict, both the Guaranty Association and MCARE denied coverage. MCARE claimed that the health care providers were not entitled to access MCARE's coverage because of nonpayment of an MCARE assessment for tail coverage.

Fletcher filed a declaratory judgment action against MCARE and the Guaranty Association in April 2006. Fletcher settled with the Guaranty Association, but MCARE challenged the Commonwealth Court's jurisdiction, arguing that the state insurance department maintained exclusive subject-matter jurisdiction over MCARE's written coverage determinations. This aspect of the dispute resulted in a widely reported decision from the Pennsylvania Supreme Court, in which the court ruled that the Commonwealth Court had original jurisdiction over coverage disputes involving MCARE. Fletcher v. Pa. Prop. & Cas. Ins. Guar. Ass'n, 985 A.2d 678 (Pa. 2009).

Subsequently, MCARE asserted two primary defenses to coverage: (1) because the primary PHICO policies did not contain an extended reporting endorsement, MCARE owed no excess coverage; and (2) MCARE never received a surcharge payment...