JG Link & Company v. Continental Casualty Company

• Decision Date: 12 March 1973
• Docket Number: No. 26220.,26220.
• Citation: 470 F.2d 1133
• Parties: J. G. LINK & COMPANY, a Co-Partnership of J. G. Link and Elmer F. Link, Plaintiffs-Appellants, v. CONTINENTAL CASUALTY COMPANY, an Illinois corporation, Defendant-Appellee. WAYRYNEN FUNERAL HOME, INC., a Montana corporation, et al., Plaintiffs-Appellants, v. CONTINENTAL CASUALITY COMPANY, an Illinois corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

470 F.2d 1133 (1972)

J. G. LINK & COMPANY, a Co-Partnership of J. G. Link and Elmer F. Link, Plaintiffs-Appellants, v. CONTINENTAL CASUALTY COMPANY, an Illinois corporation, Defendant-Appellee.

WAYRYNEN FUNERAL HOME, INC., a Montana corporation, et al., Plaintiffs-Appellants, v. CONTINENTAL CASUALITY COMPANY, an Illinois corporation, Defendant-Appellee.

No. 26220.

United States Court of Appeals, Ninth Circuit.

December 15, 1972.

Rehearing Denied March 12, 1973.

James A. Poore (argued), of Poore, McKenzie & Roth, Butte, Mont., John C. Sheey (argued), Billings, Mont., Neil J. Lynch, of Genzberger, Genzberger & Lynch, Butte, Mont., for plaintiffs-appellants.

Jack L. Lewis (argued), of Jardine, Stephenson, Blewett & Weaver, Great Falls, Mont., for defendant-appellee.

Before HAMLEY and HUFSTEDLER, Circuit Judges, and MUECKE, District Judge.^*

MUECKE, District Judge:

This case deals with an architect's error and omission insurance policy. The action had its inception when Wayrynen Funeral Home, Inc., a Montana corporation, together with Mr. and Mrs. Ray Wayrynen (hereinafter called the Wayrynens) initiated an action in the state court against the architectural partnership of J. G. Link & Company (hereinafter called the Links), and other parties not involved here. The state action involved a suit for damages filed by the Wayrynens arising out of a claim against the Links for negligent design and construction of a funeral home built for the Wayrynens.

In the state action, the Links filed a third party complaint against Continental Casualty Company, an Illinois corporation (hereinafter called Continental), as the insurer of the Links under an architect's error and omission policy. Continental removed the entire action to the United States District Court for the District of Montana. The District Court remanded the original action by the Wayrynens against the Links, but it retained jurisdiction over the third party complaint. A motion by the Wayrynens to intervene as third party plaintiffs in the District Court was denied.

Thereafter, the Wayrynens obtained a judgment in state court, in part against the Links, and after appeal to the state supreme court on the issue of damages, the state court judgment became final. While the state court appeal was pending, the Wayrynens initiated a second suit against Continental in the District Court seeking payment from Continental in the amount of its state court judgment. Upon motion by the plaintiffs, the Links and the Wayrynens, the two causes were ordered consolidated for trial. Judgment was entered in favor of Continental and against both plaintiffs, who filed this appeal.

The essential District Court findings of fact and conclusions of law follow. Prior to November 11, 1965, the Links arranged through a broker to obtain an architect's error and omission insurance policy to comply with a Montana statutory requirement for architects performing architectural duties on state projects. The policy period was from November 11, 1965 to November 11, 1966. Coverage under the policy was for legal liability "caused by error, omission, or negligent act" of the insured. Insurance was afforded only "if claim . . . is first made against the insured during this policy period." A condition of the policy was that the insured "as soon as practicable after receiving information as to his alleged errors, omissions or negligent acts, give written notice thereof to the Company . . ." Another clause required cooperation of the insured in the conduct of any suits. The only other pertinent provision required compliance by the insured with the terms of the policy for any action to lie against the insurance company.

During October 1965, J. G. Link of J. G. Link & Company entered an oral contract with the Wayrynens whereby the Links were to plan and supervise construction of a funeral home. Construction was begun by a contractor named Luety. While the building was under construction and sometime before October 5, 1966, Mrs. Wayrynen advised J. G. Link of squeaks that had developed in the second floor. The squeaks were called to the attention of the contractors, but all the steps taken to remedy the squeaks were to no avail. Sometime in May 1967, J. G. Link attended a meeting at the Wayrynen funeral home where the squeaking floor was discussed. Thereafter, in June 1967, the Wayrynens initiated their action in state court.

After service of summons and complaint on the Links, by letter dated June 23, 1967, which was received by Continental on June 29, 1967, the Links notified Continental of the impending suit. Continental referred the matter to a local adjuster for investigation sometime prior to July 18, 1967. After several attempts by the adjuster to contact Link to discuss insurance coverage, a letter of September 25, 1967 from Continental to the Links disclaimed coverage. Another letter to the Links' attorney dated September 28, 1967 left the matter of coverage open due to a lack of information. Finally, a meeting was held on October 6, 1967, at which time J. G. Link told the adjuster that his first knowledge of the squeaking floors came when he received notice of the May 1967 meeting at the Wayrynen's funeral home.

It should be noted that by letter dated September 18, 1967, before Continental disclaimed coverage as to the Links, the Wayrynens offered to provide Continental with the information necessary so that no forfeiture of insurance would occur. This first letter was followed by a second on September 26, 1967 which notified Continental of the dates of depositions to be taken of certain parties to the state court action.

By reason of the disclaimer of coverage by Continental, the Links defended the state court action through their own attorney. Judgment against the Links was essentially for negligent design and for negligently failing to supervise and inspect the construction of the funeral home.

In the action in the United States District Court against Continental by the Wayrynens and the Links, the Court concluded that coverage did not extend to the Links since the Links failed to give notice to Continental as soon as practicable after receiving information as to their errors, omissions, or negligent acts. This, it was found, was in derogation of provisions in the insurance policy. Even though Continental had defended against coverage primarily on the basis that coverage was not afforded in that "no claim" had been made during the period of the policy, the Court concluded that Continental was not estopped from also asserting that notice of the claim was untimely. The court found that Continental was not estopped because when Continental denied coverage on the basis that no claim had been made during the period of the policy, it was entitled to rely on Link's representation of October 6, 1967 that the first he knew of any squeaking was in May 1967. The District Court further found there was no waiver by Continental in asserting the notice provision since, it was concluded, Continental was misled by the Links into disclaiming on other grounds. Having misled Continental, the District Court determined that the Links were estopped from asserting that a claim for error had been made during the policy period which would have entitled them to coverage. Finally, the District Court concluded that the rights of the Wayrynens were coextensive with the rights of the Links, hence the Wayrynens were denied any coverage due to the estoppel of the Links.

Of the many contentions of both parties, we deal primarily with two issues. Does the "if claim" clause of the instant insurance policy, which requires that claim be made against the insured during the policy period, violate the public policy of Montana as asserted by appellants? And, are the rights of the injured Wayrynens under the instant policy coextensive with the rights of the insured party, the Links as determined by the District Court?

DOES THE "IF CLAIM" CLAUSE OF THE INSURANCE POLICY VIOLATE MONTANA PUBLIC POLICY?

Appellants contend, in essence, that the insurance policy in question here is an "occurrence" policy which is void under R.C.M. § 13-806 insofar as it limits the time within which the insured may enforce his rights. R.C.M. § 13-806 provides:

Restraints upon legal proceedings. Every stipulation or condition in a contract by which any party thereto is restricted from enforcing his rights under the contract, by the usual proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void.

Appellants argue further that the policy is void under Montana case law insofar as this insurance contract creates a condition impossible of fulfillment. Carl Weissman & Sons, Inc. v. St. Paul Fire & Marine Insurance Co., 152 Mont. 291, 448 P.2d 740 (1968). Appellee contends that the policy in issue is not void as against public policy since it merely creates a condition precedent to enforcement of a right. Being a condition precedent, it is argued that a claim must be made within the policy period before any right exists which might be affected by R.C.M. § 13-806. In essence, appellee seems to be saying that the policy in question is valid as a "discovery" policy.

It is, of course, a fundamental principle of insurance law that ambiguous insurance contracts will be construed against the insurer. National Farmers Union Property & Casualty Co. v. Colbrese, 368 F.2d 405 (9th Cir. 1966) cert. denied 386 U.S. 991, 87 S.Ct. 1306, 18 L.Ed.2d 336 (1967); Keating v. Universal Underwriters, 133 Mont. 89, 320 P.2d 351 (1958); Cacic v. Slovenska Narodna Podporna Jednota, 102 Mont. 438, 59 P.2d 910 (1936). In the instant case, the insurance contract is ambiguous in that it is not clear whether the policy is a "discovery" or an "occurrence" policy, and it is likewise unclear whether information given the insured in October 1966 constituted a claim within the terms of the policy. An insurance company will...