Hospital Self-Insurance: Primary or Excess? Kolli v Kaleida

On Tuesday, September 15, 2026, the New York Court of Appeals hears argument in Kolli v Kaleida Health (No. 72 on the calendar, APL 2025-85). It is a coverage case, and it turns on two documents most physicians never read closely.

The first is the physician’s employment agreement. The second is the hospital’s self-insurance plan. With the doctor’s own MLMIC policy and an excess policy, they had to fund a malpractice settlement, and nobody agreed on the order.

My practice includes no-fault and coverage litigation as well as medical malpractice and injury cases. This is the fact pattern that stalls settlements: three payors, three documents, and a fight over who goes first.

Why hospitals self-insure, and why a plan counts as insurance

Large hospital systems often retain physician malpractice risk themselves instead of buying a commercial policy for every employed doctor. The plan is funded by the hospital, administered by the hospital, and written by the hospital.

That last point matters. When a hospital writes its own coverage document, New York courts read it the way they read any insurance contract, and the drafter carries the weight of every ambiguity.

In Kolli, Kaleida argued its plan was not “other insurance” under MLMIC’s policy at all. The Fourth Department disagreed. The plan protected against physicians’ malpractice liability and required physicians to report potential claims.

That made it “other insurance policy or equivalent coverage” under MLMIC’s wording. One honest caveat: MLMIC’s clause reached “equivalent coverage,” not just other policies. A narrower clause might not pull a self-insurance plan in.

The three layers in Kolli, and who pays what

Dr. Kolli treated a patient at DeGraff Memorial Hospital as part of his on-call duties under his employment agreement with Kaleida. The patient’s malpractice case settled.

Three payors funded it under a settlement funding agreement: Kaleida, MLMIC and Healthcare Professionals Insurance Company (HPIC) each paid one-third and agreed to reimburse one another once a court sorted out their obligations.

MLMIC and the doctor’s estate then sued Kaleida for a declaration that the plan covered him. Kaleida brought HPIC in as a third-party defendant.

Supreme Court, Niagara County (Pace, A.J.) ruled that HPIC was excess and that Kaleida and MLMIC had to fund the whole settlement in proportion to their limits, as if both were primary. A unanimous Fourth Department panel modified that.

The opinion does not state the settlement amount or the limits of the two excess layers. The percentages are the court’s pro rata split between Kaleida and HPIC after MLMIC’s each-person limit is exhausted.

The priority-of-coverage rules

New York sorts multiple policies on the same risk with a few settled rules, and Kolli applies all of them.

If one policy is primary and another is excess, the primary carrier pays up to its limits before the excess coverage is triggered. The Fourth Department cited Osorio v Kenart Realty and Great Northern Insurance v Mount Vernon Fire for that.

If two policies each claim to be excess to the other, the clauses cancel out and each carrier pays in proportion to its limits, unless that would distort the policies’ plain meaning. That is Lumbermens Mutual v Allstate, 51 NY2d 651 (1980).

HPIC’s policy said in terms that it was excess to MLMIC. Easy call: excess.

Kaleida’s plan was the fight. It says physicians “shall be assumed to be maintaining primary medical practice insurance” of at least $1 million per claim and $3 million aggregate.

The court read that as a plan written to sit on top of a primary policy. So it too is excess to MLMIC.

Once MLMIC is the only primary layer, its $1.3 million each-person limit pays first and the two excess payors share the rest pro rata. Supreme Court’s approach, which had Kaleida sharing from the first dollar, was vacated.

How the court read the plan

Kaleida’s main argument on coverage was that its plan did not cover services for which the doctor retained the right to bill. The Fourth Department applied the ordinary contract rules and found the plan ambiguous.

The rules: read the contract as a whole and give effect to every term; reconcile its provisions where possible; resolve ambiguities in favor of the insured, and do so more strictly where the language limits the insurer’s liability.

The burden sits with the insurer, which must show its construction is not only reasonable but the only fair one. Kaleida could not carry it.

The billing language could reasonably limit coverage for a doctor’s private-practice patients treated at the hospital, without reaching a patient treated on call under the employment agreement. Two fair readings means the insured wins.

Two secondary rulings will matter to risk managers. Service of the malpractice complaint on Kaleida was timely notice of the claim under 11 NYCRR 73.3(a).

And because the plan did not define “claim” as a demand for coverage by the insured, the doctor’s failure to make a formal demand did not defeat coverage. A laches defense to the carriers’ reimbursement claims also failed.

What the Court of Appeals could do

The Court’s issue statement asks two questions: was the decedent covered under Kaleida’s plan, and did the Appellate Division err in holding the plan excess to MLMIC’s policy? Each side has something to lose.

Affirm on both. Plans with assumed-primary language are excess; the physician’s own carrier pays first. Hospitals keep the lower exposure but stay in every case where an employed doctor is sued for on-call work.

Reverse on coverage. If the Court reads the billing carve-out Kaleida’s way, on-call physicians who retain billing rights fall outside the hospital’s plan, and the doctor’s own carrier and excess layer carry the loss alone.

Reverse on allocation. If the assumed-primary language is not a priority clause, the plan and MLMIC are co-primary and Supreme Court’s split from dollar one returns. That moves real money from carriers to hospital balance sheets.

For injured patients, the lesson is the same either way. This settlement funded because the three payors signed a funding agreement and fought later. Without one, a priority dispute can hold a settlement hostage for years.

The same dynamic shows up when subrogation or a health insurance lien complicates a car accident settlement: the money exists, but the order of payment is contested.

Reading your own paperwork

What to watch on September 15

Listen for whether the judges treat a hospital’s self-insurance plan as an insurer for purposes of the ambiguity rule, or as an employer’s contract to be read neutrally. That framing may decide the coverage question.

On allocation, the key exchange is whether “shall be assumed to be maintaining primary medical practice insurance” states priority or merely a condition of eligibility. The Fourth Department read it as priority.

And watch for any discussion of “equivalent coverage.” If the Court narrows when a self-insurance plan counts as other insurance, carriers across the state will be rewriting their clauses.

I will update this post when the decision issues.

FAQ

Is a hospital self-insurance plan considered insurance in New York? Yes, in Kolli: a plan covering malpractice liability and requiring physicians to report claims was “other insurance policy or equivalent coverage” under MLMIC’s policy.

What is the difference between primary and excess coverage? Primary coverage pays first, up to its limits. Excess coverage is triggered only after the primary layer is exhausted.

What happens when two policies both say they are excess? Under Lumbermens v Allstate, the excess clauses cancel out and the carriers share the loss in proportion to their limits, unless that would distort the policies’ plain meaning.

Why was Kaleida’s plan held to be excess? The plan assumes each physician maintains primary insurance of at least $1M per claim and $3M aggregate. A plan written on top of an assumed primary policy is an excess layer.

Does an on-call physician have coverage under the hospital’s plan? In Kolli, yes: the billing carve-out could reasonably be read to reach only private-practice patients, not on-call duties. The Court of Appeals is reviewing that.

Was the doctor required to demand coverage from the hospital? Not under this plan. Service of the malpractice complaint on Kaleida was timely notice under 11 NYCRR 73.3(a), and the plan did not define “claim” as a demand for coverage.

How does a coverage fight affect an injured patient’s settlement? It can delay funding. In Kolli the three payors agreed to pay one-third each and reimburse one another later, which let the case settle while they litigated priority.

When will the Court of Appeals decide Kolli v Kaleida Health? Argument is September 15, 2026. The Court does not announce decision dates in advance.

Sources

• Kolli v Kaleida Health, 2024 NY Slip Op 03998, 229 AD3d 1303 (4th Dept July 26, 2024): https://www.nycourts.gov/reporter/3dseries/2024/2024_03998.htm
• New York Court of Appeals, September 2026 session case issues (No. 72, APL 2025-85): https://www.nycourts.gov/ctapps/calendar/2026/Monthly/Sep26CaseIssues.pdf
• 11 NYCRR 73.3(a), the regulation the Fourth Department applied to notice of the claim in Kolli.
• Lumbermens Mut. Cas. Co. v Allstate Ins. Co., 51 NY2d 651 (1980), as cited in Kolli.

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Coverage is a stack, and the order of the stack is written down somewhere. The side that reads it first usually wins the allocation.

Call 516-750-0595 or request a free case review if a coverage dispute is holding up your malpractice or injury settlement.