Insurance Policy Interpretation Makes it Essential to Read The Full Policy

Claim Must Establish Fulfillment of the Insuring Agreement

Insurance policies are nothing more than a contract. To interpret the terms of the contract of insurance it is necessary to read, and apply, all of the provisions of the policy.

In Catholic Medical Center v. Fireman’s Fund Insurance Company, United States District Court District Of New Hampshire, Civil No. 14-cv-180-JL, (06-01-2015) the plaintiff claimed coverage from its insurer for the possible contamination of surgical instruments after exposure to a communicable neurological disease. The litigation centered on whether those instruments constitute “premises” under the terms of an insurance policy — led to a coverage dispute that culminated in a suit from Catholic Medical Center (“CMC”) against Fireman’s Fund Insurance Company (Fireman’s Fund).

Factual Background

On May 24, 2013, CMC personnel performed neurosurgery on a patient. Several months after the surgery, CMC learned that the patient was experiencing symptoms consistent with Cruetzfeldt-Jakob Disease (“CJD”), a communicable, incurable and fatal neurological disease. A lab test in mid-August 2013 established that the patient likely had CJD. The patient died soon after and post-mortem analysis confirmed the CJD diagnosis.

Since it could not be determined which of the two surgical kits was used on the original patient, New Hampshire HHS advised CMC that both kits had to be decontaminated, a process that will result in the destruction of the instruments. CMC took the required steps or agreed to do so without need of an order from HHS.

CMC notified Fireman’s Fund of a potential claim as soon as it became aware of the CJD incident, and later filed a formal claim for the loss of the surgical instruments and losses occasioned by the suspension of CMC’s neurosurgery program. Fireman’s Fund denied the claim as a non-covered loss.

The Insurance Policy

During the relevant time period, Fireman’s Fund insured CMC pursuant to a Commercial Property policy. As pertinent to this case, the policy includes two endorsements. The first is a Health Care Extension Endorsement, which, in turn, includes Communicable Disease Coverage, which provides, in relevant part:

As is often the case in insurance policies, the emphasized terms have been assigned particular meanings. “Premises” is defined as “that part of the location you occupy.” The Endorsement defines “communicable disease” as “any disease caused by a biological agent that may be transmitted directly or indirectly from one human or animal to another” and defines “communicable disease event” as an “event in which a public health authority has ordered that the premises described in the Declarations be evacuated, decontaminated, or disinfected due to the outbreak of a communicable disease at such premises.” (emphasis in original). Finally, with respect to the Crisis Management Endorsement, “covered premises” are defined as “that part of the location you occupy which is covered by this policy, including the area within 100 feet thereof.”


Policy Interpretation

It was Fireman’s Fund’s burden to prove that CMC’s claim is not covered. The interpretation of insurance policy language is a question of law for the court to determine. Policy terms are construed objectively; where the terms are clear and unambiguous, the court accords the language its natural and ordinary meaning. Where disputed terms are not defined in the policy, the court construes them in context, and in the light of what a more than casual reading of the policy would reveal to an ordinarily intelligent insured. If policy terms are clear and unambiguous, the search for the parties’ intent is limited to the words of the policy

Communicable Disease Coverage

Fireman’s Fund’s overall point is that the CJD incident did not constitute a “communicable disease event,” as that term is defined in the policy.

The policy defines “premises” as “that part of the location you occupy.” Engrafting that definition onto that of a “communicable disease event” yields “an event in which a public health authority has ordered that that part of the location that [CMC] occup[ies] be evacuated, decontaminated or disinfected . . . .” (emphasis added)

CMC did not dispute that the only action taken was with respect to the possibly contaminated surgical instruments and that there was no evacuation, decontamination or disinfection of any other part of the hospital.

Given this policy language, the existence of a “communicable disease event” is an important gateway to coverage. Covered instruments at the premises are indeed covered, but only, insofar as relevant here, if lost or damaged as a result of a “communicable disease event,” which requires not just a disease outbreak at the “premises,” but also that those very same “premises,” i.e., “that part of the location that CMC occupies” be decontaminated. “Premises”  connotes a physical location. The two references to “premises” read consistently and in context refers to the physical structure of the hospital.

It would make little sense to read the policy as covering instruments at the premises and to consider the instruments also to be the premises. Therefore, the court found that the Fireman’s Fund’s Communicable Disease Coverage does not cover CMC’s claim.

Crisis Management Coverage

CMC argued that the Crisis Management Coverage Extension Endorsement covers the losses it sustained when it had to suspend its neurosurgery program in the absence of surgical instruments. While CMC is correct that the policy covers various losses caused by “suspension of operations,” such suspension must be the result of a “covered crisis event,” which requires “closure of the covered premises.”

Eschewing, “linguistic gymnastics,” the court found that, as relevant to CMC’s claims, the Fireman’s Fund policy is not ambiguous and does not cover those claims. Accordingly, Fireman’s Fund’s motion for summary judgment was granted and CMC’s motion for summary judgment was denied.


Unfortunately, some lawyers who bring suit against insurers attempt to use what the court called “linguistic gymnastics” when trying to obtain the benefits of the policy of insurance. The language of the policy was clear and unambiguous. The court, reading the entire policy proved the importance of RTFP and since the facts did not comport with the wording of the policy, Fireman’s Fund’s conclusion that there was no coverage was upheld and the linguistic gymnastics were eschewed.

© 2020 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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