St. Paul Fire and Marine Ins. Co. v. House

• Decision Date: 01 September 1987
• Docket Number: No. 186,186
• Citation: 554 A.2d 404,315 Md. 328
• Parties: ST. PAUL FIRE AND MARINE INSURANCE COMPANY v. Homer C. HOUSE et al. ,
• Court: Maryland Court of Appeals

Page 328

315 Md. 328

554 A.2d 404

ST. PAUL FIRE AND MARINE INSURANCE COMPANY v. Homer C. HOUSE et al.

No. 186, Sept. Term, 1987.

Court of Appeals of Maryland.

March 9, 1989.

Robert P. Schlenger (Frederick J. Green, Jr., Donald B. Davis, Jr., Lord & Whip, P.A., all on brief), Baltimore, amicus curiae for Nat. Union Fire Ins. Co. of Pittsburgh, Pa.

Paul D. Krause, Michael E. Myckowiak, Jayson L. Spiegel, Jordan, Coyne, Savits & Lopata, all on brief, Rockville, amicus curiae for Medical Mut. Liability Ins. Society of Maryland.

David M. Funk, Terrance W. Tankard, Shapiro and Olander, Baltimore, Stephen P. Carney, Hunt Valley, all on brief, for petitioner.

Alan N. Gamse, E. Suzan Miller, Semmes, Bowen & Semmes, Baltimore, all on brief, amicus curiae for American Ins. Assn J. Joseph Curran, Jr., Atty. Gen. and Meg L. Rosthal, Asst. Atty. Gen., Baltimore, both on brief, amicus curiae for Ins. Com'r of the State of Md.

Argued before MURPHY, C.J., and ELDRIDGE, COLE, RODOWSKY, McAULIFFE, ADKINS and BLACKWELL, JJ.

RODOWSKY, Judge.

Maryland Code (1957, 1986 Repl. Vol.), Art. 48A, § 482 provides in pertinent part:

"Where any insurer seeks to disclaim coverage on any policy of liability insurance issued by it, on the ground that the insured ... has breached the policy by failing to cooperate with the insurer or by not giving requisite notice to the insurer, such disclaimer shall be effective only if the insurer establishes, by a preponderance of affirmative evidence that such lack of cooperation or notice has resulted in actual prejudice to the insurer."

We granted certiorari in this case to determine whether § 482 applies when an insurer asserts that there is no coverage under a "claims made" liability policy because the claim was not made while the policy was in effect. That issue is not presented on the facts of this case, however, because that issue arises only if the policy here involved is construed as the insurer contends. As explained below, we do not accept the policy construction on which the insurer's argument is premised.

Respondents, Homer C. House, M.D. and his professional corporation (Dr. House), had a series of annual policies (the policy) with Petitioner, St. Paul Fire and Marine Insurance Company (St. Paul) beginning January 1, 1983, the last of which ended on January 1, 1986. The policy had a retroactive date of January 1, 1977. It was a physicians and surgeons professional liability policy and was written in a "claims made" form. It provided in part:

"When is a claim made?

"A claim is made on the date you first report an incident or injury to us or our agent."

On October 29, 1984, Dr. House performed surgery on Shirley J. Platzer (Platzer) and allegedly left part of a needle in her knee. The object was removed on November 27, 1984. Subsequently, Dr. House received two letters from counsel for Platzer, dated June 21, 1985, and September 16, 1985. The letters stated a claim against Dr. House for damages and advised him to turn the matter over to his insurance carrier.

On November 15, 1985, Platzer initiated proceedings against Dr. House before the Health Claims Arbitration Office. A statement of claim was served on Dr. House on January 6, 1986, and was forwarded by him in a letter dated February 12, 1986, to his insurance broker. That broker was an agent for St. Paul.

St. Paul declined to defend Dr. House, asserting that it did not receive notice of the claim at any time before February 14, 1986, when the agent received Dr. House's letter. That notice, St. Paul maintained, was not received within the policy period and the claim was, therefore, not a covered risk. ¹

On July 1, 1986, Dr. House filed a declaratory judgment action in the Circuit Court for Baltimore City, claiming that Art. 48A, § 482 required that St. Paul prove actual prejudice before it could deny coverage for lack of notice. Both parties moved for summary judgment. The court concluded that, as a matter of law, § 482 was applicable and granted summary judgment to Dr. House.

St. Paul appealed to the Court of Special Appeals, arguing that § 482 was inapplicable to denials of claims made coverage. The intermediate appellate court recognized "the persuasiveness of [St. Paul's] argument to the contrary and the cases in support thereof," but finding the unqualified language of § 482 to be "dispositive," it affirmed the judgment. St. Paul Fire & Marine Ins. Co. v. House, 73 Md.App. 118, 132, 533 A.2d 301, 308 (1987). We granted certiorari. ²

Section 482 was originally enacted by Ch. 185 of the Acts of 1964, in apparent response to our decision in Watson v. United States Fidelity & Guar. Co., 231 Md. 266, 189 A.2d 625 (1963). ³ Watson was an insurer's action against the insured seeking a declaratory judgment that an occurrence coverage, automobile liability policy did not apply to claims arising out of a particular accident. Reporting the accident to the insurer, as soon as practicable, was an express condition precedent to any action on the policy. Watson held that the condition was not satisfied because the insured, who was present at the accident of March 5, 1961, did not report to the insurer until April 10, 1961. The response of § 482, in substance, makes policy provisions requiring notice to, and cooperation with, the insurer covenants and not conditions. The statute measures by the standard of actual prejudice the materiality of any breach of those covenants by the insured for the purpose of determining if the breach excuses performance by the insurer.

St. Paul's argument rests on the difference between claims made policies and occurrence policies. In Mutual Fire, Marine & Inland Ins. Co. v. Vollmer, 306 Md. 243, 252, 508 A.2d 130, 134 (1986), we contrasted the two types of policies.

" 'Generally speaking, "occurrence" policies cover liability inducing events occurring during the policy term, irrespective of when an actual claim is presented. Conversely "claims made" (or "discovery") policies cover liability inducing events if and when a claim is made during the policy term, irrespective of when the events occurred. There are, of course, hybrids of the two varieties. [Parker, The Untimely Demise of the "Claims Made" Insurance Form? A Critique of Stine v. Continental Casualty Company, 1983 Det.C.L.Rev. 25, 27-28 (footnotes omitted).]' "

St. Paul's position is, quite simply, that the subject policy is a claims made policy, that it defines when a claim is made as "the date you first report an incident or injury to us or our agent," and that here the claim was not made, in accordance with that definition, while the policy was in effect. Under that reading of the policy, there never has been any claims made coverage for Platzer's claim, St. Paul has not disclaimed coverage by basing the disclaimer on the insured's failure to give notice required under the policy, and, consequently, § 482 does not apply.

The premise of St. Paul's argument is that the clause--"When is a Claim Made?"--exclusively controls how a claim is made under this policy. St. Paul treats that clause as a special definition which changes the ordinary meaning of "claim made." The ordinary meaning of "claim made" refers to the assertion of a claim by or on behalf of the injured person against the insured. In this case Platzer's claim was made, in the ordinary meaning, during the policy period. St. Paul reads the policy specially to define "claim made" as the reporting of a claim or potential claim by the insured to the insurer. On that basis the claim was not made until after the policy had expired.

Reading the policy as a whole leaves St. Paul's interpretation far from clear. The policy is, at a minimum, ambiguous on whether a claim is made only by the insured's reporting to the carrier, and ambiguous on whether a claim can ever be made solely by the injured person's assertion of a claim against the insured. The policy can fairly be read (1) to cover unreported claims made (in the ordinary meaning) during the policy period and (2) to give a power to the insured to effect coverage during the policy period for a claim which has not yet been made (in the ordinary meaning) but which the insured anticipates will be made (in the ordinary meaning). The insured may effect the latter expansion of basic coverage by reporting an anticipated claim to the insurer before that claim is made (in the ordinary meaning). In other words, the policy can be read to be a hybrid of claims made and reporting.

Demonstrating the ambiguity requires immersion in the policy as a whole. The introduction page and two other pages of the policy are headed "Physicians and Surgeons Professional Policy--Claims Made." The policy advises that "[w]e [i.e., St. Paul] have written this policy in plain English" and "in clear, straightforward English." ⁴ The page containing the insuring agreement is introduced by the following:

"Important Note: This is a claims made coverage. Please read it carefully, especially the When A Claim Is Made and Optional Reporting Endorsement sections."

The basic insuring agreement provides "protection against professional liability claims which might be brought against you in your practice as a physician or surgeon."

The page containing the insuring agreement, after explaining the monetary limits of the coverage, presents two clauses which we shall call, respectively, the "Basic Coverage Clause" and the "Accelerated Coverage Clause." They read in full:

"When you're covered [Basic Coverage Clause]

"To be covered the professional service must have been performed (or should have been performed) after your retroactive date that applies. The claim must also first be made while this agreement is in effect.

"When is a claim made? [Accelerated Coverage Clause]

"A claim is made on the date you first report an incident or injury to us or our agent. You must include the following information:

. Date, time and place of the incident.

. What happened and what...