In a significant ruling for healthcare insurers, the Tenth Circuit Court of Appeals decided on May 2 that AdHealth, Ltd. is not liable for covering over $40 million in claims related to sterilization failures at a Colorado hospital. This decision affects how excess insurance policies are interpreted, especially in cases involving multiple claims stemming from systemic issues.
The case revolves around PorterCare Adventist Health Systems, which operates as Centura Health-Porter Adventist Hospital in Denver. The hospital faced serious scrutiny after a whistleblower reported failures in surgical sterilization procedures in February 2018. Investigations revealed that the hospital had not properly sterilized instruments, failed to train staff adequately, underreported patient infections, and operated with dangerously low staffing levels. As a result, the hospital had to shut down its operating rooms for a week and notify thousands of patients about potential exposure to infections.
Following these revelations, lawsuits emerged. PorterCare settled four major cases, including two involving actual infections and two concerning about 6,000 patients who claimed emotional distress due to the exposure risks. The total liability exceeded $40 million.
PorterCare sought full coverage from AdHealth, arguing that the numerous patient claims should be considered as arising from a single “medical incident” related to their systemic failures. However, AdHealth disagreed, citing specific language in the insurance policy that limited coverage to individual patient injuries. The policy defined a “medical incident” as any act or omission resulting in injury to a patient, clearly indicating that each patient’s claim must be treated separately.
PorterCare was responsible for the first $2 million of liability per claim due to its self-insured retention. AdHealth maintained that since no individual claim exceeded this threshold, it owed nothing. The district court sided with AdHealth in May 2024, and the Tenth Circuit upheld this decision, emphasizing that the policy language was clear and unambiguous.
The court’s ruling reinforces the importance of precise language in insurance contracts. It serves as a reminder for hospitals and large insured entities to closely examine their coverage terms, especially when facing the risk of multiple claims from an operational failure. For now, AdHealth will not be responsible for the hospital’s multi-million-dollar settlements, as each patient’s claim stands alone according to the court’s interpretation of the policy.