Courts in coverage cases are often quick to point out that, when interpreting an insurance policy, all of the provisions must be given effect and terms should not be treated as surplusage. It is hard to imagine that message coming through any louder and clearer than in Interstate Fire & Cas. Co. v. Dimensions Assurance Ltd., No. 15-1801 (4th Cir. Dec. 6, 2016).

At issue in Dimensions was whether a nurse, employed by a staffing agency and assigned to work at a hospital, qualified as an “employee” of the hospital, to be an insured under the hospital’s policy.

A former patient brought a medical malpractice action against Laurel Regional Hospital and several of its doctors and nurses, including a nurse Cryer, who had been placed at the hospital by staffing agent Favorite Healthcare Staffing. Dimensions Assurance, the insurer for the hospital, claimed that Cryer she was not an employee of the Hospital – so not an insured -- and, thus, refused to defend her. Interstate Fire, which had issued a professional liability policy to the staffing agency, for its medical professionals, undertook Cryer’s defense and settled the case against her for $2.5 million and incurred nearly $500,000 in defense costs.

Interstate filed an action for contribution against Dimensions. Interstate alleged that, under the terms of the hospital’s Dimensions policy, Cryer qualified as an employee of the hospital and, thus, was a “protected person” (an insured) entitled to coverage under the policy. And as Interstate saw it, the coverage provided by the Dimensions policy was primary and the coverage provided by the Interstate policy was “excess,” in cases where there was other valid insurance. Thus, Interstate alleged that Dimensions was responsible for the entire amount it paid to defend and settle the claims against Cryer.

Nurse Cryer’s claim came under the Professional Liability section of the Dimensions policy, which defined “protected person” (an insured) to include: “[The Hospital’s] present and former employees, students and authorized volunteer workers are protected persons while working or when they did work for you within the scope of their duties. Unless added by amendment to this Agreement, interns, externs, residents, or dental, osteopathic or medical doctors are not named protected persons for professional injury, even if they are your employees, students or authorized volunteer workers.”

Interstate maintained that Nurse Cryer was a “protected person” (an insured), under the Dimensions policy, because she was an employee of the hospital. In support of its argument, Interstate looked to the General Liability section of the Dimensions policy, which excluded agency-provided practitioners from its definition of “employee.”

So Interstate’s argument went, “the fact that the general-liability definition excludes Agency provided practitioners while the professional-liability definition does not exclude them demonstrates that the Policy provides coverage for Nurse Cryer. The presence of this language in the general-liability section shows that Dimensions knew the Hospital was staffed by direct-hire and Agency-provided practitioners and that the word ‘employee’ as used in the Policy includes direct-hire employees and Agency-provided practitioners. After all, if ‘employee’ did not include Agency-provided practitioners, then there would have been no need to specifically exclude them from the general-liability definition of ‘protected person.’”

The court, needing to give effect to all of the provisions in the Dimensions policy, agreed with Interstate: “Dimensions’ decision to use different language in different sections of the Policy when addressing the coverage available to ‘employees’ must be understood as an intentional decision. Under Maryland law, we must respect this decision and apply the Policy in a way that gives effect to the full ‘Worker Protection’ clause in the general-liability section and to the full ‘Worker Protection’ clause in the professional liability section. The only way to do that is, as Interstate argues, to conclude that the term ‘employee’ as used in the Policy includes Agency-provided Hospital workers as well as direct-hire Hospital workers. Accordingly, because the professional-liability section of the Policy extends ‘protected person’ status to Hospital workers without excluding Agency-provided workers, we conclude that Nurse Cryer is a protected person under the professional-liability section of the Policy.”

However, Dimensions, seemingly aware of the risk that one coverage portion of its policy could be used to interpret another, had drafted a pre-emptive strike. It’s policy provided that each “agreement” (the three sections of the policy separately addressing coverage for general liability, hospital professional liability, and group physicians’ professional liability) must “be read and interpreted separately and independently of the other and no terms, conditions or exceptions from one agreement shall be construed to apply to any other agreement or provide a basis for interpretation of any other agreement.”

But the court never addressed the possible impact of this provision, concluding that, even examining the professional liability section in isolation, Cryer was an employee of the hospital – based on the manner in which employee status is established under Maryland law.

The take-away from Dimensions – and especially the lesson for policy drafters -- is a simple one.