After this, the insured notified the insurer that he was cancelling the policy and asserted his right to purchase an extended reporting endorsement. The insurer granted the insured's request but denied this right to the hospital. The hospital sued the insurer, asserting that it was entitled to a $1,000,000 limit of liability separate from Doctor Konasiewicz and that it was also entitled to purchase an extended reporting endorsement. The trial court granted summary judgment to the insurer and this appeal followed.

St. Luke's argued on appeal that the additional insured endorsement is ambiguous because it is susceptible to more than one meaning. The hospital said that the policy language can be reasonably interpreted to mean that St. Luke's is entitled to its own separate limits of liability because it was added to the who is an insured provision of the policy. The additional insured endorsement declared that the who is an insured provision is amended to include the entity shown in the schedule with respect to liability arising out of the named insured's operation or premises. The who is an insured provision in the policy stated that each individual person named in the declarations as an insured, and any employee or other person acting under the direction, control, or supervision of any person named in the declarations is insured under the policy.

The appeals court took this language to mean that St. Luke's was added as an insured to the policy and that there then were three categories of insureds: those listed in the declarations; those acting under the direction, supervision, or control of someone listed in the declarations; and St. Luke's. So, the court saw St Luke's as an insured but not equivalent to one who is named on the declarations page. In fact. St. Luke's coverage was limited by the endorsement's language to liability arising from the doctor's operations. The court said this was typical of an additional insured endorsement and so, St. Luke's status under the policy did not entitle it to its own liability limits. Moreover, the court noted that the limits of liability provision in the policy stated that the per occurrence limit applied separately to each person named in the declarations and St Luke's was definitely not named in the declarations.

As for the extended reporting endorsement, the court found that the optional reporting provision stated that the insured shall have the right to purchase an extended reporting endorsement. The hospital asserted that this provision gave it the right to purchase the extended reporting endorsement, but the court said that such a stance produces an absurd result. This is so because it would grant St Luke's the right to purchase an insurance product that is either unnecessary or without value. Coverage for St Luke's is dependent on the coverage provided to Doctor Konasiewicz, so if he buys the extended reporting endorsement, that coverage is also provided to St. Luke's; a separate right to buy the endorsement is simply not necessary.

The hospital also brought up the reasonable expectations doctrine, but the court noted that the Minnesota Supreme Court has limited the use of this doctrine for resolving ambiguity in policy terms and for correcting extreme situations. The doctrine should not be applied where a prominent policy term excludes coverage and the evidence does not indicate the insured was misled. In this instance, the facts do not show any extreme situations, the policy language was very prominent, and St. Luke's was, due to its business operations, very aware of insurance terms and coverages.

The ruling of the trial court was affirmed.

Editor's Note: This ruling by the Minnesota Court of Appeals affirms the point that, while the insurance policy will apply separately to each insured against whom a claim is made, the separation of insureds clause does not mean each insured will have the per occurrence policy limits paid out on its behalf. If the policy limits are $1,000,000 per occurrence, that means the total amount the insurer will pay per occurrence is $1,000,000, regardless of whether there is one, or two, or three, or more insureds are involved in the claim or lawsuit. This is especially true for additional insureds whose coverage is vicariously dependent on the actions and omissions of the named insured.

This case also reminds that the reasonable expectations doctrine is not supposed to supersede unambiguous policy language that is coupled with the knowledge and experience of the insured.