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State v. University Physicians Inc.12/13/1994
VOSS, Judge
This appeal arises out of the trial court's finding that the liability insurance coverage provided by Arizona Revised Statutes Annotated ("A.R.S.") section 41-621 (Supp. 1993) is not "occurrence coverage" as that term is used in the insurance industry. We disagree and reverse the trial court's ruling.
FACTS AND PROCEDURAL HISTORY
University Physicians, Inc. ("UPI") is a nonprofit corporation formed in 1984. UPI employs physicians ("Physicians") who provide health care services to the public. Physicians also are employed by the State of Arizona Board of Regents to teach and to conduct research as faculty of the University of Arizona College of Medicine.
As employees of the Board of Regents, Physicians are provided liability insurance coverage pursuant to A.R.S. sections 41-621 to -625 (1992 & Supp. 1993) when acting as state employees. Until July 1, 1993, Physicians also were provided liability insurance coverage for acts or omissions in providing health care services to the public even though they were not acting as state employees.
Prior to the formation of UPI, many of the physicians who ultimately made up UPI and the University Medical Center ("UMC") were part of the University of Arizona College of Medicine. In 1975, the State of Arizona, Risk Management Division ("Risk Management") took out an insurance policy that provided coverage for any "occurrence" which gave rise to a malpractice claim against any University physician. In 1984 UMC decided to leave the state insurance program and form its own nonprofit corporation to purchase malpractice insurance. Risk Management continued all coverage for acts and omissions that occurred prior to UMC's departure, not requiring UMC to pay tail coverage.
In 1985, Risk Management extended this same occurrence coverage to UPI. Risk Management provided Physicians with malpractice coverage for their public and private clinical activities "under the provisions of A.R.S. § 41-621." James Mullen, former Risk Manager, and Betsey Bayless, former Director of the Department of Administration, determined that Physicians fell within the statutory definition of "such others as may be necessary to accomplish the functions or business of the state" and that covering Physicians in their private clinical practice was in the "best interest of the state." A.R.S. § 41-621(A)(3).
The extent of UPI coverage arose again in 1990 when the state insurance program was under reconsideration. At that time Risk Management agreed to continue coverage for Physicians who were also state employees; however, Risk Management discontinued coverage to Physicians' staff at this time.
UPI's coverage was confirmed in writing by Risk Management in 1992. Risk Management sent a letter to UPI accountants, Ernst & Young, specifying that coverage "is essentially, 'occurrence' which does not require tail coverage." Also in 1992, Risk Management gave a Certificate of Insurance to the Veterans' Administration, advising it that UPI was insured on a "medical occurrence basis."
In 1993, UPI notified Risk Management that on July 1, 1993, it would withdraw from the state's insurance program, and it would insure its risk of liability for acts or omissions in providing health care services through its own captive insurance company, CADUCEUS. UPI also informed Risk Management that because it was withdrawing from the state insurance program, it would not pay the 1994 fiscal year premium due July 1, 1993.
In response, Risk Management stated that if the 1994 premium was not paid, it was no longer responsible for any
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