Lexington Ins. Co. v. St. Louis University

• Decision Date: 09 August 1996
• Docket Number: No. 95-3090,95-3090
• Citation: 88 F.3d 632
• Parties: 110 Ed. Law Rep. 995 LEXINGTON INSURANCE COMPANY, Plaintiff-Appellee, v. ST. LOUIS UNIVERSITY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 632

88 F.3d 632

110 Ed. Law Rep. 995

LEXINGTON INSURANCE COMPANY, Plaintiff-Appellee, v. ST. LOUIS UNIVERSITY, Defendant-Appellant.

No. 95-3090.

United States Court of Appeals Eighth Circuit.

Submitted Feb. 15, 1996.

Decided July 8, 1996.

Rehearing Denied Aug. 9, 1996.

F. Douglas O'Leary, St. Louis, MO, argued, for appellant.

Paul Stephen Turner, Chicago, IL, argued (Edwin D. Akers, Jr., St. Louis, MO, James D. Wangelin and Marc J. Pearlman, Chicago, IL, on the brief), for appellee.

Before BEAM, LOKEN, and MORRIS SHEPPARD ARNOLD, Circuit Judges.

LOKEN, Circuit Judge.

Lexington Insurance Company ("Lexington"), a London-based insurer, issued a liability policy to St. Louis University for claims made during the period July 1, 1990, through July 1, 1991. On May 20, 1991, Shelly McCormick sued the University for medical malpractice allegedly committed in 1979. The University mistakenly listed McCormick's claim as a 1979 rather than a 1991 claim on "loss run" reports submitted to Lexington before the policy expired. Therefore, the district court ¹ granted summary judgment declaring that Lexington need not indemnify the University for McCormick's claim because it was not made and reported during the policy period. The University appeals, seeking to distinguish controlling Missouri and Eighth Circuit cases construing claims made policies. We affirm.

1. The issues here turn on the crucial difference between "occurrence" and "claims made" liability insurance policies. Under an occurrence policy, there is coverage for negligent conduct of the insured that occurs during the policy period. A claims made policy, on the other hand, provides coverage if the third party's claim is made against the insured, and brought to the insurer's attention, during the term of the policy. See Esmailzadeh v. Johnson & Speakman, 869 F.2d 422, 425 (8th Cir.1989). Both types of policies require the insured to promptly notify the insurer of possible covered losses. With a claims made policy, however, that notice is not simply part of the insured's duty to cooperate. It defines the limits of the insurer's obligation--if there is no timely notice, there is no coverage. A claims made policy "allows the insurer to more accurately fix its reserves for future liabilities and compute premiums with greater certainty." FDIC v. St. Paul Fire & Marine Ins. Co., 993 F.2d 155, 158 (8th Cir.1993).

Like many States, Missouri has adopted regulations prohibiting unfair insurance claims settlement practices. One of those regulations, adapted from prior court decisions, provides:

No insurer shall deny any claim based upon the insured's failure to submit a written notice of loss within a specified time following any loss, unless this failure operates to prejudice the rights of the insurer.

20 Mo.Code Regs. § 100-1.020(4). In Esmailzadeh, we held that a comparable Minnesota regulation did not apply to claims made policies. Unless there is timely notice, the claim is not covered, we explained, so excusing tardy notice "would alter a basic term of the insurance contract." 869 F.2d at 424.

The Missouri Courts of Appeals have followed Esmailzadeh, holding that an insurer need not prove prejudice to avoid coverage under a claims made policy if the claim was not reported until after the policy expired. See Insurance Placements, Inc. v. Utica Mut. Ins. Co., 917 S.W.2d 592, 597 (Mo.App.1996); Continental Casualty Co. v. Maxwell, 799 S.W.2d 882, 886-87 (Mo.App.1990). As the district court recognized, this principle is governing law in a diversity case. The question then is whether the University can avoid its grasp.

2. Lexington's claims made policy insured the University for medical malpractice losses that exceeded $2 million. The policy's Hospital Professional Liability endorsement covered:

all sums which the Named Insured shall become legally obligated to pay as damages because of Bodily Injury caused by a Medical Incident which results in a claim or claims being first made, in writing, against the Insured during the period of this Policy.

(Emphasis added.) Noting that the insuring clauses in the policies at issue in Esmailzadeh and other cases covered "claims first made and reported," 869 F.2d at 423, the University argues that the absence of "and reported" language in Lexington's insuring clause means that the prejudice rule of the above-quoted regulation should apply. The district court rejected that contention. Looking at the policy as a whole, the court held that it should be construed like other claims made policies. We agree.

The Lexington policy begins, "THIS IS A CLAIMS MADE POLICY." The policy's...