Appeals panel to decide Duke hydraulic-fluid case

A panel of the 4th U.S. Circuit Court of Appeals is mulling Duke University Health System’s request that an insurance company ante up $6 million to cover claims stemming from a surgery sterilization mix-up.

The system last year appealed a lower-court ruling that sided with the insurer, Mitsui Sumitomo, in saying the mix-up that in 2004 resulted in surgical instruments at two Duke-controlled hospitals being washed with used hydraulic fluid was subject to a $1 million coverage limit.

Lawyers argued the case before three of the 4th Circuit’s judges in October, and are now awaiting a ruling.

At the very least, Duke lawyer Charles Holton told the panel, the Duke system should gain from legal doctrines that in this state say the benefit of any doubt over ambiguity in an insurance policy should flow to its potential beneficiaries.

“At the very worst for our position, we’d contend the policy is ambiguous,” Holton said, arguing that it didn’t close the door on the idea that the fluid mix-up involved multiple incidents that thus would require a higher coverage limit.

Holton’s clients are trying to make good some of the more than $26 million they’ve allegedly paid to settle with former patients doctors operated on with the tainted instruments.

The surgeries took place at Durham Regional Hospital and Duke Health Raleigh Hospital late in 2004.

The hydraulic fluid made its way into sterilization machines thanks to what Holton termed “a somewhat unbelievable chain of events.”

A repair contractor that drained the fluid from two elevators at Duke Health Raleigh stored it in containers previously used for instrument cleaner. Workers at Duke saw the containers, mistakenly thought they’d been delivered to the hospital in error, and had them picked up by a vendor.

The vendor later sold them back to Duke, both sides in that deal thinking they contained instrument cleaner.

Duke wound up having to warn 3,650 patients that they might have been exposed to surgical instruments that had been bathed in hydraulic fluid. It wound up settling damage claims with 127 of them.

Mitsui Sumitomo insured the elevator-repair contractor, not Duke, a point company lawyer Richard Nicolaides Jr. emphasized to the 4th Circuit.

“When [Holton] suggests the issue is what Duke is entitled to in terms of aggregated limits, they’re not entitled to anything,” Nicolaides said.

Duke has sued the repair company in state court. Filings in the Mitsui case indicate the company is “without assets,” meaning the insurer’s money is the only potential source of a payment to the health system.

Nicolaides was defending a ruling U.S. Magistrate Judge Patrick Auld handed down in September 2011.

Auld said there was, for insurance purposes, only one incident and only one policy that covered the contractor’s liability for the mix-up.

Duke contends there were two relevant policies and says there were 127 incidents, in line with the number of tainted surgeries it’s had to settle over.

Auld’s ruling acknowledged that the N.C. Supreme Court hasn’t squarely addressed a case like this one. But he said its handling of at least one other case suggests that it, like a majority of courts in other states, would likely see the fluid mix-up as a single incident.

The panel that will decide the case includes 4th Circuit judges Robert King, Henry Floyd and Bryan Harwell. Collectively, they asked few questions during October’s oral argument and didn’t say much to tip their hand about how they’re sizing up the case.

King received his appointment to the court from former President Bill Clinton. Floyd’s appointment came from President Barack Obama and Harwell’s from former President George W. Bush.