Health Board's insurer accuses board of intentional breach of contract

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Rescue workers helping to move vaccines from Health Board cold storage. Source: Health Board

BTA Insurance, the insurer of the Health Board's cold storage facilities backed from the contract after the facilities malfunctioned, accusing the board of intentionally breaching the insurance contract and the law, a correspondence between the insurer and the Health Board reads.

ERR was able to acquire the correspondence, which was initially marked as internal use only. ERR asked for both insurance contract and the correspondence, in which BTA backed away from the contract signed with the Health Board. But the insurer refused to publish the correspondence, pointing to a confidentiality clause, which forced them to mark their communication as for internal use only.

But as BTA announced they are fine with the correspondence going public, the Health Board had nowhere to hide and ERR was able to get their hands on the communication, which shows the reasons why BTA refused to continue with the contract and is not willing to compensate the claim for €3 million in damages from the cold storage failures, which led to 250,000 vaccine and medicine doses being written off.

Health Board's insurer BTA withdrew from the insurance contract on July 28, requiring the Health Board to terminate the contract and to stop breaching the law.

BTA had asked for information and documents six times during the month of July and concluded that the board was deliberately impeding on the investigation that was supposed to shed light on the circumstances.

The correspondence shows that the Health Board and BTA had signed five analogue insurance contracts over the years. In 2017, a €12 million contract was signed with the board calling for complete risk protection, but not additional protection for electrical and equipment failure. The Health Board promised that temperature sensitive medicines would be held in the corresponding storage units, which were maintained in accordance to the manufacturer's requirements and had emergency power supplies.

The contract was updated a year later, when the insured sum had grown to €14 million. A special condition was added to the insurance policy, which stated that damages directly or indirectly caused by equipment failure were not insured events. The exclusion would not apply if there is additional failure protection separately agreed to on the contract. The Health Board did not want this exclusion, however.

In 2019, BTA signed two contracts with the Health Board, one for €300,919 and the other for €14.36 million. In this contract, the Health Board also wanted additional protection for electric and equipment failure risks. BTA added protection for the former, but refused to protect for equipment failure, because the storage devices belonged to state real estate manager Riigi Kinnisvara AS (RKAS), who was a third party in the contract.

The contract was re-signed with the same conditions in 2020.

This year, on June 1, a new insurance contract was established with the insured sum already increasing to €18.3 million. The conditions of the contract were the same as before: total risk with an additional risk of electrical failure, the deductible of which was 10 percent of the damages. The contract's conditions state that damages caused by direct or indirect equipment failure are not insured events. This exemption would not apply if the contract has separately stated an additional equipment failure protection, but it was not signed again, because the reason - devices belonging to RKAS - had not disappeared.

In addition, the contract reads that temperature sensitive medicines must be stored in corresponding devices that are maintained in accordance to manufacturer requirements and that are supplied with emergency power. The contract states that the insurer will compensate all damages to insured medicines, if the cause is electric failure or effects of electrical current, including damages caused by overvoltage or short circuiting. Protection for lightning and the concurrent electric and magnetic effects were also covered.

The insurance contract also stated that the temperature sensors had to set to stricter temperature ranges (2-8 degrees) than required (3-7) and that all vaccine storage locations had to have 24-hour monitoring.

BTA noted that the board had not informed them of any changes to risk circumstances or external factors that could affect the contract. The insurance company accused the Health Board that the board hid the cold storage malfunction, which is why the insurer only heard of it through the media on June 29 although the Health Board itself discovered the malfunction on June 25.

The Health Board forwarded information to the insurer on June 29 at 9.02 p.m. Alar Urm, the lawyer representing the board, announced in a letter to the insurance company that medicines valued €2.4-3.2 million were damaged in the malfunction.

"The possible cause for damages were electrical equipment failures, which stemmed from lightning or high heat. No equipment failure that could have caused this is identified. Circumstances are being clarified. Cooling units are operational and can be inspected," Urm wrote to BTA.

BTA is accusing the board of lying, because it later turned out that the board knew the damages were not caused by lightning at the time the letter was sent.

"What is incomprehensible is why the insurer was provided with false information. Providing false information to the insurer to mislead the insurer regarding the actual circumstances is reprehensible," the insurance company's claims handling department head Jevgeni Maksin wrote to the Health Board.

"Relying on lightning was an attempt to mislead the insurer to the actual circumstances. The fact that the Health Board knew on June 29 that the damages were not caused by lightning is proven by the Health Board's kept care diary, which reads on June 25: '112, 113 (cold storage unit numbers - ed) - high pressure alarm, too hot on the roof. Restored, in order'."

BTA claims that even though it asked repeatedly - on July 6, 8, 12, 19, 22 and 23 - for information and documentation for claims handling operations, the board has not forwarded this info.

"The insurance contract is signed between the Health Board and the insurer, which means the Health Board has to fulfill their contractual obligations. The Health Board is intentionally concealing important information. The insurer has repeatedly directed the board's attention to the circumstance that a large part of the required information is time-critical. The Health Board has deliberately gone the way of blocking the insurer's actions in order to obstruct the truth and to rule out the insurer's opportunity to use legal remedies," the BTA's letter to the Health Board reads.

In a letter sent on July 28, the insurance company notes that it has received some information, but it is incomplete. "The Health Board has selected information from previous cold storage failures. The insurer assesses that this cannot be accidental," the BTA wrote.

The BTA also claims that the Health Board's statement of not being able to respond to all of the company's questions, as the board notified the public, is incorrect because RKAS confirmed to the insurer that the information is not stuck behind them, since the Health Board has access to RKAS' maintenance platform. Information gathered by the BTA showed that the board had most of the required information in June and July. The Health Board also had the communication info with other institutions, which BTA required them to present.

The insurer claims the Health Board concealed the circumstance that there were issues with the refrigeration devices for years. The Health Board also concealed log extracts of cold storage access cards during the period of temperature rises, messages sent through the notification registry over the previous three years, temperature logs over the previous three years and an internal classified report.

Despite the missing cooperation, BTA was able to find out that there have been other malfunctions in the Health Board's cold storage facilities from 2017 to 2021, the reasons for which mostly relate to the operation of an overpressure protection system implemented in the cooling mechanism's condenser ventilators, which causes the roof-installed units to switch off.

Over the years, the insurance company claims there were at least 21 such cases. In addition, the refrigeration devices had switched off on at least five occasions over the previous two years. The Health Board had, however, deliberately concealed this information from the insurer for years.

In the process of collecting this information, it became clear to the insurance company that the Health Board and its partners had forbidden witnesses to communicate with BTA, which stopped the company from conducting an independent investigation.

One Health Board employee had admitted to the prevailing attitude at the board: "The attitude was that as long as it's insured, everything is good. We will write it off and that's that."

The Health Board's previous director Merike Jürilo had also admitted to BTA that the refrigeration devices had to be managed yearly during her term in 2017-2019. There were also situations, where vaccines and medicines had to be written off. There was an attitude of "insurance will cover it", risk circumstances were concealed.

"In a situation, where refrigeration devices do not work properly for years and nothing has been done to get them into working order over the years, this information is decisive in decisions over signing insurance contracts. What is also decisive from the BTA's side when it comes to signing an insurance contract is that the Health Board building's emergency reporting system does not work 24/7. Medicines have not been stored in accordance with law for years, storage conditions nor emergency systems have not been tested, since it was only discovered that the system did not work days after the cold storage units' temperatures were incorrect. Considering the Health Board's behavior, it can be confirmed that BTA would have never signed a insurance contract for a building with such cold storage conditions. We are dealing with a circumstance, which had a direct effect on what happened in June 2021, the circumstance rules out and limits the insurer's obligation to comply," the insurance company explained in their withdrawal from the contract.

On August 18, the BTA added to their explanation for withdrawal with statements by state secretary Taimar Peterkop, which stated that there were major mistakes made at every stage in the construction and management of the Health Board's cold store, and the accumulation of errors led to the breakdown of the cold store during the heat wave in the second half of June.

Based on this, BTA refused to compensate damages and recommended the Health Board turn to the Estonian Insurance Association's contracting authority.

Health Board spokesperson Imre Kaas told ERR that the board has not turned to the authority yet. "The first steps are being decided on, but any arguments stemming from the insurance contract will be solved in the county court of the policyholder," Kaas said.

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Editor: Kristjan Kallaste

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