New York high court shifts malpractice exposure to Kaleida Health
New York’s highest court has placed Buffalo-based Kaleida Health on the hook for most of a malpractice settlement tied to an on-call physician, after finding that the health system’s self-insurance arrangement covered care delivered under the doctor’s employment duties. The unanimous ruling in Kolli v. Kaleida Health leaves a useful paper trail for hospitals, physicians and insurers who rely on layered coverage structures to allocate risk after a claim settles.
The case turns on a familiar but expensive question in modern physician employment: when a doctor is working for the hospital, whose coverage actually pays when a patient sues? Here, the answer came down to contract wording, policy interpretation and the legal status of a self-insurance plan that functioned like insurance even if the system tried to characterize it differently.
One sentence captures the financial consequence: Kaleida will pay most of the excess settlement, not the physician’s private insurers.
On-call care, not private practice care, controlled the coverage dispute
Venkateswara Kolli, MD, was treating a patient at DeGraff Memorial Hospital as part of on-call duties under his employment agreement when the patient later sued. The case settled, and the amount was not disclosed. Dr. Kolli has since died, and his estate is now the plaintiff in the coverage dispute. To keep the settlement moving while the coverage question worked its way through court, Kaleida, MLMIC and Healthcare Professionals Insurance Co. each advanced one-third of the payment pending a ruling on who ultimately owed what.
The legal fight began when Kaleida argued its plan did not cover Dr. Kolli’s care. The courts rejected that reading. Their interpretation found no exclusion for on-call patients and instead treated the plan as limiting coverage only when Dr. Kolli treated his own private practice patients at Kaleida. In practical terms, the employment relationship mattered because the alleged negligence occurred during work assigned by the hospital, not in an outside practice setting.
That distinction is more than contractual fine print. In physician employment agreements, the line between hospital work and outside practice can determine whether a claim lands on the hospital’s balance sheet, the physician’s primary policy or an excess layer above it. On-call coverage is especially sensitive because the physician is often functioning inside a hospital-controlled clinical structure while still carrying separate individual malpractice limits.
The court treated self-insurance as real coverage for purposes of the case
Kaleida also argued that its self-insurance plan was not insurance at all. The court looked past the label and focused on function. The plan protected physicians against risk, required claims reporting and included terms governing coverage, exclusions and priority. Those features were enough for the court to treat it as equivalent coverage under HPIC’s policy, even if Kaleida preferred a narrower legal description.
This part of the ruling matters because health systems increasingly use internal risk-retention structures, captive-like arrangements or self-insurance mechanisms to manage exposure. When those programs are built to respond like a true insurance product, courts may treat them that way when deciding who pays after a claim resolves. The legal vocabulary cannot erase the operating reality of risk transfer.
For hospitals, the practical effect is direct: if a plan promises coverage for physicians performing assigned duties, a later attempt to recast that arrangement as something less protective can fail. Courts are unlikely to let one clause swallow the rest of the agreement.
Contract language overrode Kaleida’s narrower reading
The Court of Appeals concluded that Kaleida’s reading of the employment agreement would have effectively nullified other provisions guaranteeing coverage for physicians carrying out their employment duties. In other words, the hospital’s interpretation created internal conflict inside the contract, while the court’s reading preserved the agreement as a whole.
The result is a reminder that coverage disputes often turn less on broad principles than on how carefully the underlying documents were drafted. When employment agreements, self-insurance plans and excess policies are layered on top of one another, a single ambiguity can shift seven-figure exposure. The physician’s care pathway may be clinical, but the money trail follows a legal architecture built long before the first deposition.
The court’s unanimous stance also gives the ruling added force. A split decision might have suggested a closer question; unanimity suggests the judges saw the contractual route as straightforward once the documents were read together.
The settlement split now falls heavily on Kaleida
Under the Appellate Division ruling that the high court affirmed, MLMIC remains the primary insurer with a $1.3 million per-person limit. Above that amount, Kaleida owes 91.67% and HPIC owes 8.33%. Those percentages are the financial heart of the case, because they determine who absorbs the excess settlement after the primary layer is exhausted.
A second hard fact stands out: the hospital’s share dwarfs the excess insurer’s share. That imbalance reflects the structure the courts accepted and leaves little room for the system to argue it was merely a peripheral participant in the loss. Once primary coverage runs out, the allocation formula becomes the difference between a manageable claims expense and a material hit to the institution’s self-insured reserves.
Hospitals that employ physicians to cover inpatient and on-call duties will read the decision as a warning about precision. The more an employment agreement promises coverage for work done on behalf of the system, the more difficult it becomes to later deny that those same duties fall inside a self-insurance or equivalent coverage arrangement. In a malpractice settlement, wording is not an administrative detail; it is the payment mechanism.
The case leaves a narrower question for future disputes: how many other employment and risk-sharing agreements contain similar cross-references that only become visible once a claim is large enough to litigate. For systems that rely on self-insurance, the document set now deserves the same scrutiny as a policy limit or a reserve study.