Livingston Parish School Bd. v. Fireman's Fund Am. Ins. Co.

• Decision Date: 11 June 1973
• Docket Number: No. 52667,52667
• Citation: 282 So.2d 478
• Court: Louisiana Supreme Court
• Parties: LIVINGSTON PARISH SCHOOL BOARD v. FIREMAN'S FUND AMERICAN INSURANCE COMPANY et al. J. C. KERSTENS d/b/a J. C. Kerstens & Associates, Third-Party Plaintiff-Appellant-Relator, v. CONTINENTAL CASUALTY COMPANY, Third-Party Defendant-Appellee-Respondent.

Page 478

282 So.2d 478

LIVINGSTON PARISH SCHOOL BOARD v. FIREMAN'S FUND AMERICAN INSURANCE COMPANY et al.

J. C. KERSTENS d/b/a J. C. Kerstens & Associates, Third-Party Plaintiff-Appellant-Relator, v. CONTINENTAL CASUALTY COMPANY, Third-Party

Defendant-Appellee-Respondent.

No. 52667.

Supreme Court of Louisiana.

June 11, 1973.

Rehearing Denied Sept. 24, 1973.

Durrett, Hardin, Hunter, Dameron & Fritchie, Calvin E. Hardin, Jr., L. Michael Cooper, Baton Rouge, for plaintiff-applicant.

Kantrow, Spaht, Weaver & Walter, Carlos G. Spaht, Carey J. Guglielmo, Baton Rouge, for defendant-respondent.

TATE, Justice.

The plaintiff school board sues to recover damages for the collapse of a roof on a building. Among the defendants was Kerstens, a civil engineer, employed in the construction of the building that collapsed. Kerstens filed a third-party demand against Continental Casualty Company, his engineers' professional liability insurer.

The court of appeal affirmed the dismissal of Kerstens' third-party demand against Continental. 263 so.2d 356 (La.App.1st Cir. 1972). It did so on the ground that (a) the roof-collapse of July 14, 1969, was not covered by Continental's policy, which terminated on July 11, 1969, and (b) that such policy had not been renewed so as to provide coverage for the loss three days later. The dismissal of this third-party demand is the sole ruling before us for review.

We granted certiorari, 262 La. 1085, 266 So.2d 219 (1972), primarily to consider whether a policy clause was void, as against public policy, which denied protection against a loss from conduct covered during the policy year Unless, also, formal claim was made during the policy year.

The Policy Coverage

The plaintiff school board sues Kerstens and others for damages caused by the collapse of the roof of a newly constructed building. It collapsed on July 14, 1969 (which was three days after Kerstens' policy coverage with Continental had expired).

The defendant Kerstens was responsible for architectural and engineering design, planning, and supervision of the construction of the building. All of these services had been performed between August 9, 1968 and prior to July 11, 1969.

During that period, Kerstens was insured by an Architects' and/or Engineers' Professional Liability Policy. It was issued by Continental on July 11, 1968 and covered a policy period terminating on July 11, 1969. Continental had insured Kerstens by similar policies continuously renewed commencing July 11, 1966.

The present policy, however, was not renewed on July 11, 1969. This was three days Before the building collapsed, due (allegedly) to the negligent performance by Kerstens of his service as architect and engineer for the new construction.

The coverage of Continental's policy extended to payment of all damages based on legal liability arising out of the performance of professional services.¹ However, the insurance afforded by the policy only extended to negligent acts occurring during the policy period 'if claim therefor is first made against the insured during this policy period',² i.e., between July 11, 1968 and July 11, 1969. (The policy also afforded insurance against negligent acts occurring prior to the policy period of this policy, (a) If occurring during the policy period of a prior policy issued by Continental and (b) if the insured had been continuously insured by successive professional liability policies with Continental since then.³)

Is Clause against Public Policy which Limits Coverage to Claims 'made' during Policy Year?

The insured Kerstens points out that the effect of the policy clauses limiting coverage to claims 'made' during the policy period is to deny coverage for negligent acts insured against and committed during the policy year unless (a) the damage manifests itself during the year, (b) claim is made during the year, or (c) the insured renews (and is permitted to renew) this policy continuously year after year with Continental, so as to insure protection against negligence in construction this year which does not manifest itself until several months or years later.

At this point we should note that, under the showing made, the insurer routinely offered to renew the present policy long before its expiration date of July 11th and that, had Kerstens renewed it, he would have been covered by a claim made for the July 14th collapse during the policy year of the successor policy. We will therefore not consider a contention that enforcement of the clause would be against public policy if an insurer had refused to renew coverage or had offered to do so only at exorbitant rates.⁴

The issue before us, then, is limited to whether the clause itself offends public policy as being manifestly unfair or oppressive, and as unreasonably restricting the coverage to claims for policy-covered negligence which are actually Made within the year or within policy periods provided by successive and continuously renewed policies with Continental and Continental alone.

The policy at issue is known as a 'discovery' policy, In it, the coverage is effective only if the negligent harm is discovered and reported within the policy term; this is to be contrasted with an 'occurrence' policy, where the coverage is effective if the negligent harm occurs within the policy period, regardless of the date of discovery. See 7 Appleman, Insurance Law and Practice (Supp.1972), Section 4262.

Where a policy unambiguously and clearly limits coverage to acts discovered and reported during the policy term, such limitation of liability is not per se impermissible. J. M. Brown Const. Co. v. D & M Mechanical Contr., Inc., 222 So.2d 93 (La.App.1st Cir. 1969); see also Home Ins. Co. v. A. J. Warehouse, Inc., 210 So.2d 544 (La.App.4th Cir. 1968), syllabus 6. This is in accordance with the general principle that, in the absence of conflict with statute or public policy, insurers may by unambiguous and clearly noticeable provisions limit their liability and impose such reasonable conditions as they wish upon the obligations they assume by their contract. Snell v. Stein, 261 La. 358, 259 So.2d 876, 878 (1972), and decisions there cited.

No American decision we could find holds public policy to be offended by discovery and reporting provisions similar to the present. In the decisions cited below, such provisions were uniformly upheld, unless waived.

These decisions include: Cornell, Howland, Hayes and M., Inc. v. Continental Cas. Co., 465 F.2d 22 (C.A. 9, 1972); Lehr v. Professional Underwriters, 296 Mich. 693, 296 N.W. 843 (1941); San Pedro Properties, Inc. v. Sayre & Toso, Inc., 203 Cal.App.2d 750, 21 Cal.Rptr. 844 (Ct.App.1962) ; Reid v. Dayton Title Co., 278 N.E.2d 384 (Ohio Mun.Ct.1972); Samuel N. Zarpas, Inc. v. Morrow, 215 F.Supp. 887 (D.C.N.J.1963).

Perhaps the most complete discussion rejecting similar public policy contentions is found in Rotwein v. General Accident Group, 103 N.J.Super. 406, 247 A.2d 370, 376--378 (1968). There, the plaintiff architects were denied coverage for 1963 negligence from their professional liability insurer (General Accident), which had issued a policy providing coverage during 1961--64. The claim arose (1964) during the policy period, but the insured architects did not receive notice of it until a 1966 suit, following which they made a claim against their insurer.

The basis for the denial of recovery were clauses of the insuring agreement coverage (a) to negligent acts occurring during and discovered and reported during the present policy period and (b) to negligence occurring before the policy's effective date when discovered and reported during the present policy period, but only if at the time of occurrence and continuously thereafter such negligence had been covered by a professional liability policy.

The court rejected the contention that the clauses offended public policy (a) by violating the freedom of contract or (b) on the grounds of unconscionability, because of the manifest unfairness of the provisions and the superior bargaining power of the insurer:

(a) The freedom of contract contention is that...