J. M. Brown Const. Co. v. D & M Mechanical Contractors, Inc., 7651

• Decision Date: 14 April 1969
• Docket Number: No. 7651,7651
• Citation: 222 So.2d 93
• Parties: J. M. Brown construction COMPANY, Inc. v. D & M MECHANICAL CONTRACTORS, INC., et al.
• Court: Court of Appeal of Louisiana — District of US

Page 93

222 So.2d 93

J. M. Brown construction COMPANY, Inc. v. D & M MECHANICAL CONTRACTORS, INC., et al.

No. 7651.

Court of Appeal of Louisiana, First Circuit.

April 14, 1969.

Carey J. Guglielmo and Carlos G. Spaht, of Kantrow, Spaht, Weaver & Walter, Baton Rouge, Felix H. Savoie, Jr., of Simmons & Savoie, Napoleonville, for third-party defendant-appellant.

Timothy J. McNamara, of Davidson, Meaux, Onebane & Donohoe, Lafayette, for third-party defendants-appellees.

Before LANDRY, SARTAIN and MARCUS, JJ.

LANDRY, Judge.

This appeal concerns the scope and extent of coverage afforded under an 'errors and omissions' policy of insurance issued to Delchamps Insurance Agency (Delchamps), defendant and third party plaintiff herein, by Delchamps' insurer and codefendant, Agrippina Versicherungs-Aktiengesellschaft (Agrippina), a foreign surplus underwriter. The trial court sustained Agrippina's exception of no cause of action and motion for summary judgment on the finding the error for which Delchamps is sought to be held was not covered by the policy in question. Plaintiff J. M. Brown Construction Company, Inc. (Brown) has appealed the judgment of the lower court rejecting his principal demand against Agrippina and Delchamps has also appealed the dismissal of his third party action against said same defendant. We find the trial court has correctly resolved the question of coverage and affirm his decision in the matter.

The pertinent facts and circumstances are virtually without dispute herein. Brown was prime contractor for construction of a dormitory facility on the campus of Southeastern Louisiana College, Hammond, Louisiana. A portion of the work was subcontracted by Brown to D & M Mechanical Contractors (D & M), who were obligated to furnish a performance bond. D & M applied to Delchamps for a surety bond which was furnished, the surety thereon being Commonwealth Marine and General Assurance Company Ltd. Subsequently D & M defaulted on its sub-contract and it thereupon became known its aforenamed surety was insolvent. Consequently, Brown incurred considerable loss in making good the obligations of D & M under the subcontract. Brown then instituted suit against D & M, Delchamps and Phoenix Insurance Company, allegedly an errors and omissions insurer of Delchamps. By supplemental petition, Agrippina was also impleaded as Delchamps' insurer.

It is conceded the effective dates of Agrippina's policy were March 6, 1964, through March 6, 1965, and the alleged error of Delchamps in placing the D & M performance bond with an insolvent surety occurred during said policy period. Also acknowledged is the fact that the claim against Delchamps for failure to obtain a solvent surety was made in May, 1966, and Delchamps did not call upon Agrippina for indemnification until May 30, 1967.

The question before us, therefore, is one of law only. Simply put, the issue is whether the professional liability policy issued by Agrippina to Delchamps provided coverage for an orror committed by the insured during the term of the policy, where claim was not made thereon until after policy expiration and notice of the claim was not given the insurer until approximately 26 months subsequent to the last effective policy date .

Appellants contend the policy should be construed to apply to any breach of professional responsibility by Delchamps committed within the policy period, irrespective of when Agrippina might subsequently be called upon to make indemnification on behalf of its insured. Agrippina, however, insists its coverage plainly states its responsibility only for such claims as they receive notice of during the policy dates, regardless of when the claim originated. A single exception is acknowledged by Agrippina, namely, potential claims of which it is notified during the life of the policy, notwithstanding actual claim might be made thereon following expiration of the contract.

It appears, therefore, that in large measure the outcome of this matter depends upon whether the policy in question is a 'discovery policy' or an 'occurrence policy'. The former is one wherein coverage is effective if the negligent or omitted act is discovered and brought to the attention of the insurer within the policy period . The latter is a policy in which the coverage is effective if the negligent or omitted act occurs within the policy period, regardless of the date of discovery. Samuel N. Zarpas, Inc. v. Daniel J. Morrow et al., D.C., 215 F.Supp. 887. See also Taylor Contracting and Supply Company v. American Mutual Liability Insurance Company, 163 So.2d 450.

The policy in question appears of record. It consists of six pages purporting to be a standard form adaptable to different types of coverage. The first page is entitled 'Companies Collective Policy's indicating, among other things, that the several insurers bound are obligated each for the portion assumed as subsequently set forth. Page 2 indicates Agrippina's assumption for total responsibility under the policy. Page 3 consists of a division into five paragraphs providing space for notation in each instance of the following vital information: (1) Policy Number; (2) Name and address of the insured; (3) Amount of premium; (4) Policy dates, and (5) The risk and sum insured. Page 4 is entitled in large black letters 'INSURANCE BROKERS AND AGENTS ERRORS AND OMISSIONS INSURANCE'. Centered on Page 4, approximately one-third distance from the top is to be found the word 'CONDITIONS', underscored and printed in type larger than the general content of that page. The remainder of Page 4 and all of Page 5 in small type sets forth certain detailed aspects of the policy provisions. Page 6 is simply a table showing the percentage of premium returnable upon short rate cancellation at the request of the named insured. Paragraph 5 on Page 3 contains, inter alia, the following pertinent provision: 'The Risk and Sum Insured hereunder are ERRORS AND OMISSIONS--as per wording attached which is to be taken and read as forming part of this policy.'

On the first or title page of the policy we note the following language:

'The insurers hereby severally agree each for the proportion set against its name to pay or make good to the Assured or the Assured's Executors, Administrators and Assigns all such loss, damage or liability as set forth herein that the Assured may sustain during the period of insurance stated in the said Schedule or during any subsequent period as may be mutually agreed between the Assured and the Insurers; payment to be made within Seven Days after such loss, damage or liability is proved.'

Unquestionably Page 4 (entitled as hereinabove shown) together with Page 5 constitute the general insuring agreement.

Preceding the CONDITIONS contained in Paragraphs numbered 1 through 10, inclusive, appearing on Pages 4 and 5, is found the following coverage provision:

'NOW THEREFORE this Insurance, subject to the terms and conditions hereof indemnifies the Assured against any claim or claims for breach of duty as Insurance Brokers, Insurance Agents or General Insurance Agents which may be made against them during the period stated in the said Schedule by reason of any negligent act, error or omission, whenever or wherever committed or alleged to have been committed, on the part of the Assured or any person who has been, is now, or may hereafter during the subsistence of this Insurance be employed by the Assured, in the conduct of any business conducted by or on behalf of the Assured in their capacity as Insurance Brokers, Insurance Agents or General Insurance Agents.'

Also appropos this discussion is Paragraph Number 6 of the specified CONDITIONS which appears on Page 4 and is quoted in full as follows:

6. (1) The Assured shall as a condition precedent to their right to be indemnified under this Insurance give to the Underwriters immediate notice in writing.

(a) of any claim made against them or

(b) of the receipt of notice from any person of an intention to hold the Assured responsible for the results of any breach of duty as Insurance Brokers, Insurance Agents or General Insurance Agents,

and shall in either case, upon request, give to the Underwriters such information as the Underwriters may reasonably require.

(2) If during the subsistence hereof the Assured shall become aware of any occurrence which may subsequently give rise to a claim against them by reason of any negligent act, error or omission and shall during the subsistence hereof give written notice to the Underwriters of such occurrence, any claim which may subsequently be made against the Assured arising out of that negligent act, error or omission shall be deemed for the purposes of this Insurance to have been made during the subsistence hereof.'

In substance appellants contend (1) the policy in question expressly affords coverage under the circumstances; (2) alternatively, the policy is ambiguous consequently under the well established jurisprudence such doubt must be resolved in favor of the insured and coverage afforded; and (3) summary judgment does not lie inasmuch as there is dispute as to material facts.

In support of their primary argument that the policy expressly extends coverage herein, appellants depend upon the hereinabove quoted provision appearing upon the policy face. Relying thereon, appellants maintain the protection therein afforded against 'all such loss, damage or liability as set forth herein that the Assured may sustain during the period of insurance * * *. ' is plain and explicit. They further contend it does not require that a claim be made within the policy period for coverage to obtain. On this basis they aver the loss occurs upon the happening of the event which gives rise thereto which, in this instance, is the placing of the D & M bond with an allegedly insolvent insurer. Therefore, according to appellants, since this event transpired during the policy period, it fixed Agrippina's liability which...