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IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF FLORIDA 

PENSACOLA DIVISION 

ALLIED WORLD ASSURANCE 

COMPANY (U.S.), INC. 

 Plaintiff, 

vs. Case No.: 

BAY COUNTY HEALTH SYSTEM, 

LLC d/b/a BAY MEDICAL CENTER 

SACRED HEART HEALTH SYSTEM, 

 

 Defendant. 

 / 

COMPLAINT FOR DECLARATORY JUDGMENT 

 Plaintiff Allied World Assurance Company (U.S.), Inc. (“Allied World”), 

brings this action seeking declaratory relief against Defendant, Bay County Health 

System, LLC d/b/a Bay Medical Center Sacred Heart Health System (“Bay 

Medical Center”), and alleges as follows: 

Parties, Jurisdiction and Venue 

1. Allied World is a corporation organized and existing under the laws of 

the State of Delaware with its principal place of business in the State of New York. 

2. Upon information and belief, Bay Medical Center is a limited liability 

company with its principal place of business in the State of Florida. 

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3. Upon information and belief, Bay Medical Center is comprised of the 

following members: Kevin Joseph; Michael Murdoch; Alan Nickelsen; W.L. 

Nyland; Amie Remington; Kristine Rushing; Matthew Vinson; Angie Watson; 

Bernard Yates. 

4. Upon information and belief, each of the members of Bay Medical

Center are natural persons domiciled in the State of Florida, which is where they 

reside with the intent to remain. 

5. Upon information and belief, there are no members of Bay Medical 

Center who are citizens of the State of Delaware or the State of New York. 

6. Upon information and belief, Bay Medical Center was, at all material 

times, a related entity to LHP Hospital Group, the first named insured on the 

insurance policy referenced herein. 

7. The Court has subject matter jurisdiction over this dispute pursuant to 

28 U.S.C. § 1332(a) because there is complete diversity of citizenship between the 

parties and the amount in controversy is in excess of $75,000, exclusive of interest 

and costs.

8. This Court has personal jurisdiction over Bay Medical Center.

9. Venue is proper in this Division pursuant to 28 U.S.C. § 1391.

10. This action is brought pursuant to 28 U.S.C. § 2201, which provides 

that the Court may declare the rights and other legal relations of the parties. Allied 

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World and Bay Medical Center are parties having an interest in the insurance 

policy referenced herein.

11. All conditions precedent to bringing this action have been satisfied, 

performed and/or are otherwise waived.

Background 

A. The Policy 

12. Allied World issued Healthcare Excess and Umbrella Liability 

Insurance Policy to LHP Hospital Group (“LHP”) bearing policy number 0306-

3289 for the Policy Period of February 1, 2016 to August 1, 2017, which provided 

certain coverage in excess of this Court’s jurisdictional threshold pursuant to the 

policy’s terms, conditions and exclusions (the “Policy”). A true and correct copy of 

the Policy is attached as Exhibit 1. 

13. Insuring Agreement I.A. of the Policy, as amended by Endorsement 

No. 14, provides:

A. UMBRELLA CLAIMS MADE PROFESSIONAL LIABILITY 

The Insurer1 will pay on behalf of the Insured, subject to the Limits 

of Liability set forth in the Declarations, Loss, in excess of the 

Applicable Underlying Limit for the coverage identified in Item 1 of 

the Schedule of Underlying Insurance or Self-Insurance which the 

Insured becomes legally obligated to pay as a result of a Claim 

alleging a Medical Professional Incident, provided always that: 

 

1

 Bolded terms are defined in the Policy and should be ascribed the meaning given to them in the Policy. 

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1. such Claim is first made against the Insured during the Policy 

Period or any applicable Extended Reporting Period; and 

2. notice of such Claim is given to the Insurer in accordance with 

Section IV.D. of this Policy. 

Defense Expenses are paid by the Insurer in addition to the Limits of 

Liability, but excess of the Applicable Underlying Limit for the 

coverage identified in Item 1 of the Schedule of Underlying Insurance 

or Self-Insurance. 

Policy, § I.A., as amended by Endorsement 14. 

14. Insured is defined to include the Named Insured and any Insured 

Entity. Policy, § II.M. 

15. Insured Entity is defined to mean “the organization(s) listed in 

Schedule A.” Policy, § II.O. 

16. Schedule A includes Bay Medical Center as an Insured Entity. 

Policy, Endorsement No. 6, Schedule A. 

17. With respect to Insuring Agreement I.A., Claim is defined as “a 

written notice received by any Insured that a person or entity intends to hold an 

Insured responsible for a Medical Professional Incident.” Policy, § II.F.1. 

18. The Policy defines Medical Professional Incident, in relevant part,

as “an actual or alleged act, error or omission by the Insured in the rendering of or 

failure to render Medical Professional Services.” Policy §II.W.1. 

19. The Policy defines Medical Professional Services as follows: 

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“Medical Professional Services” means services 

performed by an Insured, on behalf of the Named 

Insured or an Insured Entity, in the treatment or care of 

any person, including: medical, surgical, dental, nursing, 

psychiatric, mental health, osteopathic, chiropractic, or 

other professional healthcare or healthcare-related 

services; the use, prescription, furnishing or dispensing of 

medications, drugs, blood, blood products, or medical, 

surgical, dental or psychiatric supplies, equipment or 

appliances in connection with such treatment or care; the 

furnishing of food or beverages in connection with such 

treatment or care; the providing of counseling or social 

services in connection with such treatment or care; and 

the handling of or performance of post-mortem 

examinations on human bodies; but Medical 

Professional Services shall not include Managed Care 

Activities. 

Policy, § II.X. 

20. The Policy’s Assistance and Cooperation Condition contains the 

following relevant provisions:

As a condition to coverage, all Insureds shall assist and cooperate 

with the Insurer in the investigation, defense and settlement of all 

Claims. All Insureds are additionally required to: 

* * * 

 

3. not make any admission of liability; 

4. pursue any and all rights of subrogation, contribution or 

indemnification against any person or organization who may be 

liable to any Insured because of any injury or damage with 

respect to which coverage is provided under this Policy or any 

Underlying Insurance; . . . 

 

* * * 

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No Insured shall do anything to prejudice the Insurer’s rights under 

this policy, nor shall any Insured settle any Claim for an amount in 

excess of the Applicable Underlying Limit without the Insurer’s

prior written consent. 

Policy, § IV.E. 

21. The Applicable Underlying Limit with respect to Insuring 

Agreement I.A. is $1,000,000 Per Claim with a $6,000,000 Aggregate Limit. 

Policy § II.B.1. & Schedule of Underlying Insurance.

22. Upon information and belief, the Applicable Underlying Limit with 

respect to Insuring Agreement I.A. was exhausted through payment of other claims 

in or around June 2019.

B. Bay Medical Center’s Treatment of Patient 

23. In May 2016, a patient (“Patient”) initially visited the emergency 

department at Bay Medical Center in Panama City, Florida. 

24. At Patient’s initial visit to the Bay Medical Center, Patient was 

diagnosed, treated with antibiotics, and was discharged the same day. 

25. When Patient’s condition worsened, Patient returned to the Bay 

Medical Center emergency department two days later, where Bay Medical Center 

did not perform procedures needed to make a definitive diagnosis. 

26. Patient was discharged approximately a week later, with a discharge 

plan to follow up with a free clinic. 

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27. Patient returned to the Bay Medical Center emergency department

approximately two months later, where Patient was diagnosed with irreversible 

internal damage and advised that further medical treatment was needed. 

28. Upon information and belief, Bay Medical Center began providing

medical treatment to Patient at no charge in August of 2016. 

29. Patient’s treatment at Bay Medical Center and the resulting injuries 

are hereinafter referred to as the “Incident.” 

C. Notice to Allied World 

30. On or about August 15, 2016, LHP first provided Allied World with 

notice of the Incident involving Patient’s medical treatment at Bay Medical Center. 

A redacted copy of the Notice of Incident is attached as Exhibit 2.2

 

31. Although LHP advised Allied World of the Incident, Patient had not 

provided written notice to LHP or Bay Medical Center that Patient intended to hold 

LHP and/or Bay Medical Center responsible for the Incident, nor had Patient filed 

a lawsuit. 

32. In a letter dated December 21, 2018, Allied World advised LHP and 

Bay Medical Center that there was no coverage available for the Incident because 

neither LHP nor Bay Medical Center had received written notice from Patient, or 

 

2

 In order to protect Patient’s confidential information, Allied World has redacted protected health 

information from Exhibit 2–5 hereto. Bay Medical Center and LHP are in possession of unredacted 

copies of these Exhibits. To the extent that it is necessary to file unredacted copies of these Exhibits, 

Allied World will do so pursuant to the HIPAA Protective Order that it will seek in this action. 

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anyone on Patient’s behalf, that Patient intended to hold LHP and/or Bay Medical 

Center responsible for the Incident and, therefore, there no Claim had been made 

pursuant to the Policy. A redacted copy of Allied World’s December 21, 2018 

letter is attached as Exhibit 3. 

33. In its December 21, 2018 letter, Allied World also advised LHP and 

Bay Medical Center of their obligations under the Policy, including their 

obligations not to make any admission of liability or settle any matter without 

Allied World’s prior written consent. Ex. 3. 

34. In August of 2019, Allied World was advised that Bay Medical Center 

was engaged in settlement negotiations with Patient even though Patient still had 

not provided written notice of an intention to hold LHP and/or Bay Medical Center 

responsible for the Incident. 

35. Allied World learned that while the settlement was not final, Bay 

Medical Center had exchanged drafts of a settlement agreement with Patient or 

Patient’s counsel and had transferred settlement funds into an annuity to lock in the 

interest rate. 

36. Allied World also learned that Bay Medical Center assisted Patient in 

obtaining legal counsel so that they could engage in settlement negotiations 

through Patient’s counsel. 

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37. By letter dated January 3, 2020, Allied World advised LHP and Bay 

Medical Center that it had not been consulted about, nor had it provided its consent 

to, any settlement with Patient. A redacted copy of Allied World’s January 3, 2020 

letter is attached as Exhibit 4. 

38. In its January 3, 2020 letter, Allied World requested that, to the extent 

Bay Medical Center and LHP intended to seek coverage for any settlement under 

the Policy, Allied World be updated as to the current status of the settlement 

negotiations and, going forward, that Allied World be kept apprised of all 

settlement negotiations. Allied World further requested copies of all letters, emails 

or other communications between LHP or Bay Medical Center and Patient. Ex. 4. 

39. LHP and Bay Medical Center provided Allied World with: 1) a July 

22, 2019 letter of representation from Patient’s attorney, which requested medical 

records, but did not include a demand for any damages; 2) a July 26, 2019 letter 

from counsel for LHP and Bay Medical Center providing Patient’s medical records 

to Patient’s counsel; and 3) a September 23, 2019 letter from counsel for LHP and 

Bay Medical Center providing the draft settlement agreement already provided to 

Allied World. LHP and Bay Medical Center did not provide the requested timeline 

of all settlement negotiations or any other letters, emails or communications with 

Patient or Patient’s counsel. 

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40. On April 24, 2020, Allied World received notice that Bay Medical 

Center had reached a settlement with Patient in which Bay Medical Center agreed 

to pay Patient a total of $2,020,968.27 (the “Settlement”). 

41. Allied World was not consulted about, nor did it provide its consent 

to, this Settlement. 

42. Upon information and belief, LHP is not a party to the Settlement. 

43. Neither LHP nor Bay Medical Center have ever provided Allied 

World with a written notice from Patient of Patient’s intent to hold LHP and/or 

Bay Medical Center liable for the Incident. 

44. Allied World has never been provided with any written demand from 

Patient or Patient’s counsel to LHP and/or Bay Medical Center regarding the 

Incident. 

45. Patient has never filed a lawsuit against LHP and/or Bay Medical 

Center regarding the Incident. 

D. The Parties’ Dispute 

46. On April 24, 2020, Bay Medical Center, through its third party 

administrator, requested that Allied World provide its coverage position with 

respect to the Incident and Settlement. 

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47. Upon information and belief, Bay Medical Center seeks to recover a 

portion the of the $2,020,968.27 Settlement in excess of $75,000 from Allied 

World. 

48. By letter dated May 21, 2020, Allied World advised Bay Medical 

Center and LHP that there was no coverage available for the Settlement under the 

Policy. A redacted copy of Allied World’s May 21, 2020 letter is attached as 

Exhibit 5. 

49. Consequently, there is presently a bona fide, actual, and justiciable 

controversy between Allied World and Bay Medical Center regarding whether the 

Policy provides coverage for the Incident and Settlement. 

50. Allied World is entitled to a declaration construing the Policy, 

resolving the dispute between the parties, and declaring that there is no coverage 

under Policy for the Incident or Settlement. 

COUNT I 

Declaration of No Coverage 

51. Allied World incorporates by reference and reallages each and every 

allegation of Paragraphs 1 through 50 of its Complaint, as it fully stated herein. 

52. There is no coverage for the Incident or Settlement under the Policy 

for the following reasons: 

a. Bay Medical Center never received written notice from Patient, or 

anyone on Patient’s behalf, that Patient intended to hold Bay Medical 

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Center responsible for a Medical Professional Incident. 

Accordingly, no Claim was made under the Policy. 

b. Even if Bay Medical Center received written notice from Patient, or 

anyone on Patient’s behalf, that Patient intended to hold Bay Medical 

Center responsible for a Medical Professional Incident, such written 

notice was never provided to Allied World. 

c. Bay Medical Center breached its assistance and cooperation 

obligations under Section IV.E. of the Policy, thereby prejudicing 

Allied World’s rights, by, without limitation: 1) settling with Patient 

for an amount in excess of the Applicable Underlying Limit without 

Allied World’s prior written consent; 2) failing to keep Allied World 

apprised of the settlement negotiations with Patient; 3) assisting 

Patient in obtaining Patient’s own counsel; and 4) failing to provide 

all information requested by Allied World. 

53. As a result of the forgoing, there is presently a bona fide, present, 

actual, and justiciable controversy regarding coverage under the Policy in 

connection with the Incident and Settlement, and therefore a declaratory judgment 

pursuant to 28 U.S.C. § 2201(a) is necessary to determine the parties’ respective 

rights and duties under the Policy. 

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54. Allied World is entitled to a declaratory judgment in its favor stating 

that it has no liability under the Policy for the Incident or Settlement. 

WHEREFORE, Allied World Insurance Company respectfully prays that the 

Court declare the rights of the parties and declare that Allied World has no liability 

under the Policy for the Incident or Settlement and for such other and further relief 

as the Court may deem just and proper. 

Dated: May 22, 2020 

Respectfully submitted, 

/s/ Gregory A. Gidus 

Gregory A. Gidus 

Florida Bar No. 105930 

Primary: ggidus@carltonfields.com 

Secondary: dlester@carltonfields.com 

Secondary: tpaecf@cfdom.net

Heidi Hudson Raschke 

Florida Bar No. 61183 

Primary: hraschke@carltonfields.com

Secondary: 

pparrey@carltonfields.com 

Carlton Fields, P.A. 

P.O. Box 3239 

Tampa, FL 33601-3239 

Telephone: (813) 223-7000 

Facsimile: (813) 229-4133 

Attorneys for Allied World Assurance 

Company (U.S.), Inc. 

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