AXIS REINSURANCE CO. v. HLTH CORP.
| Decision Date | 22 April 2010 |
| Docket Number | 569,2009,No. 565,565 |
| Citation | 993 A.2d 1057 |
| Parties | AXIS REINSURANCE COMPANY, et al., Defendant Below, Appellants, v. HLTH CORPORATION and Emdeon Practice Services, Inc., Plaintiff Below, Appellees. HLTH Corporation and Emdeon Practice Services, Inc., Plaintiffs Below, Appellants, v. Axis Reinsurance Company, et al., Defendants Below, Appellees. |
| Court | Supreme Court of Delaware |
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David J. Baldwin and Jennifer C. Wasson of Potter Anderson & Corroon LLP, Wilmington, DE; Of Counsel: William G. Passannante (argued) and Alexander D. Hardiman of Anderson Kill & Olick, P.C., New York City, for plaintiffs HLTH Corporation and Emdeon Practice Services, Inc.
William L. Doerler of White and Williams LLP, Wilmington, DE; Of Counsel: Lawrence J. Bistany (argued) of White and Williams LLP, Philadelphia, PA, for defendant National Union Fire Insurance Company of Pittsburgh, PA.
Robert J. Katzenstein of Smith, Katzenstein & Furlow LLP, Wilmington, DE; Of Counsel: Joan M. Gilbride (argued) and Robert A. Benjamin of Kaufman Borgeest & Ryan LLP, New York City, for defendant RSUI Indemnity Company.
Robert J. Katzenstein of Smith, Katzenstein & Furlow LLP, Wilmington, DE; Of Counsel: William E. Smith and Parker J. Lavin of Wiley Rein LLP, Washington, DC, for defendant Axis Reinsurance Company.
Neal J. Levitsky and Seth A. Niederman of Fox Rothschild LLP, Wilmington, DE; Of Counsel: Michael Goodstein (argued) and Matthew J. Burkhart of Bailey Cavalieri LLC, Columbus, OH, for defendant Old Republic Insurance Company.
J.R. Julian of J.R. Julian, P.A., Wilmington, DE; Of Counsel: Barry T. Bassis (argued) of Tressler LLP, New York City, for Fireman's Fund Insurance Company.
Before STEELE, Chief Justice, HOLLAND and JACOBS, Justices.
In this consolidated action,1 National Union Fire Insurance Company2 and HLTH appeal from two separate denials of summary judgment arising out of disputed insurance policy language affecting HLTH's right to coverage. HLTH contends that the judge erroneously concluded that HLTH's failure to give simultaneous notice to two separate towers of insurance triggered a Prior Notice Exclusion that barred HLTH's claim for coverage. National Union contends that the judge improperly found that an Amend Retention endorsement implied that the insurer knew of HLTH's claims and prevented National Union from invoking its Prior Acts Exclusion. We find that both exclusions definitively bar HLTH's demand for coverage. Accordingly, we AFFIRM in part and REVERSE in part.
A federal grand jury indicted several former directors and officers of Medical Manager Corporation on December 15, 2005 for participating in a scheme to "defraud holders of Medical Manager and WebMD securities, members of the investing public and others" by deliberately inflating the company's earnings and laundering money between 1997 and 2003.3 During the period of the alleged fraud, Medical Manager Corporation was twice acquired and was renamed HLTH Corporation.
HLTH sought coverage for defense costs incurred on behalf of its directors and officers in the criminal case under three separate claims-made D & O insurance programs: Program I—Medical Manager Tower (Policy period of January 30, 1999 to July 23, 2005); Program II—Synetic Tower (Policy period of December 14, 1999 to December 14, 2000, with an extended reporting period expiring on September 12, 2006); and Program III—Emdeon Tower (Policy period of September 13, 2005 to September 13, 2006).
All of the insurers in Programs I and II either settled or advanced their policy limits leaving HLTH's recourse to seek coverage only under Program III. Program III was an insurance tower consisting of a primary policy issued by National Union and several excess policies issued by Federal Insurance Company, Fireman's Fund Insurance Company, RSUI Indemnity Company, Old Republic Insurance Company, and Axis Reinsurance Company. Five of the six Program III insurers denied coverage asserting that their Prior Notice exclusions precluded coverage because HLTH notified the Program I insurers of its claims on July 21, 2005 but did not notify the Program III insurers until December 22, 2005. The Program III insurers also denied coverage because the Prior Acts exclusions in their policies barred coverage for any claims arising before February 1999.
In response to the denials, HLTH contended that the only way the insurers could exclude coverage based on the Prior Notice exclusions was if Emdeon—the contracting insured—gave prior notice to another Emdeon Tower insurer. Here, HLTH gave prior notice to a MMC Tower insurer—not another Emdeon Tower insurer. HLTH further contends that the Prior Notice Exclusion only applied to renewals, replacements, or successors of the Program I policies, and that the Program III policies did not fall into any of the three categories. Finally, HLTH alleged that the Program III insurers knew about the Singer Action4 when they issued the policies and specifically agreed to provide coverage for Singer claims;5 therefore, the insurers were equitably estopped from relying on the Prior Acts exclusions.
On August 31, 2009, a Superior Court judge denied National Union's Motion for summary judgment and granted HLTH's Cross-Motion for partial summary judgment, concluding that National Union failed to "demonstrate that the Prior Acts Exclusion clearly and unambiguously controlled conflicting language" in the Policy.6 In reaching that conclusion, the judge noted that (i) National Union specifically amended its policy to include coverage for claims arising out of the Singer Action7 and (ii) National Union knew that the Singer Action centered largely on conduct occurring between 1997 and 1999, when it sold HLTH the Policy with an Amend Retention endorsement. The judge determined that National Union and HLTH "did not intend the Prior Acts Exclusion to be a complete bar to claims arising from the Singer Action."8
The judge also granted the excess insurance carriers' motion for summary judgment after finding that the Prior Notice exclusions in their policies expressly barred HLTH's demand for coverage because HLTH notified the MMC Tower insurers before it notified the Emdeon Tower excess carriers.9 This appeal and cross-appeal followed.
The parties' coverage dispute turns on (i) whether the National Union Prior Acts Exclusion unambiguously precludes coverage for any claims associated with the Singer Action or conflicts with the language of the Amend Retention endorsement, so as to uniquely create coverage for those claims and (ii) whether the Prior Notice Exclusion definitively bars coverage of the claims arising out of the Singer Action because HLTH notified the MMC Tower insurers several months before it notified the Emdeon Tower insurers.
We review de novo a Superior Court judge's grant or denial of summary judgment.10
National Union's Prior Acts Exclusion bars coverage for "losses in connection with any Claim made against an Insured alleging any Wrongful Act which provides coverage for Wrongful Acts occurring on or after and otherwise covered by this policy." Additionally, National Union modified its policy to include an "Amend Retention" endorsement, which provided that "for each claim, the Insurer shall only be liable for the amount of the Loss arising from a Claim which is in excess of the applicable Retention amounts stated in Items 4(a), 4(b), and 4(c) of the Declarations, such Retention amounts to be borne by an Organization ... and remain uninsured"
4(a) Securities Claims (other than Securities Claims
that contain a Medical Manager Claim): $ 5,000,000
4(c) Securities Claims that Contain a Medical
Manager Claim: $10,000,000
National Union contends that the Amend Retention endorsement, read together with the Prior Acts Exclusion, does not create an ambiguity, because the Amend Retention endorsement only affects retentions for otherwise covered claims and does not, and was not intended, to create coverage. HLTH responds that the Prior Acts Exclusion is ambiguous because it conflicts with the Amend Retention endorsement, which creates and defines a specific category of coverage for claims arising from the Singer Action. HLTH asserts that an ambiguous exclusion should be construed strictly against the drafter and to bestow on the insured the most beneficial interpretation.11
HLTH further contends that the Amend Retention endorsement trumps the Prior Acts Exclusion, because specific terms of a contract supersede more general terms.12 Finally, HLTH contends that even if the Prior Acts Exclusion applies, the doctrines of equitable estoppel and waiver preclude the insurer from invoking it in these circumstances. The Superior Court motion judge found HLTH's arguments more convincing, and concluded that National Union had failed to "demonstrate that the Prior Acts Exclusion clearly and unambiguously controlled conflicting language" in the endorsement.13
We disagree. We find National Union's contentions more persuasive. An insurance contract is not ambiguous simply because the parties do not agree on its proper construction.14 Rather, a contract is ambiguous only when the provisions in controversy are reasonably or fairly susceptible to different reasonable interpretations.15 Reading the Prior Acts Exclusion in tandem with the Amend Retention endorsement does not create an ambiguity, because each has a distinct and independent purpose and function.
The Prior Acts Exclusion relates to coverage and excludes coverage for any claims occurring before a prescribed date. Unlike the Prior Acts Exclusion, the Amend Retention endorsement does not relate to events that trigger or preclude coverage. Rather, the Amend Retention...
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