Baylor Heating & Air Conditioning, Inc. v. Federated Mut. Ins. Co.

• Citation: 987 F.2d 415
• Decision Date: 01 March 1993
• Docket Number: No. 91-3826,91-3826
• Parties: 142 L.R.R.M. (BNA) 2665, 61 USLW 2539, 124 Lab.Cas. P 10,589, 16 Employee Benefits Cas. 1641 BAYLOR HEATING & AIR CONDITIONING, INC., Plaintiff-Appellant, v. FEDERATED MUTUAL INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 415

987 F.2d 415

142 L.R.R.M. (BNA) 2665, 61 USLW 2539,

124 Lab.Cas. P 10,589,

16 Employee Benefits Cas. 1641

BAYLOR HEATING & AIR CONDITIONING, INC., Plaintiff-Appellant, v. FEDERATED MUTUAL INSURANCE COMPANY, Defendant-Appellee.

No. 91-3826.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 24, 1992.

Decided March 1, 1993.

Arthur D. Rutkowski (argued), David E. Gray, Bowers, Harrison, Kent & Miller, Evansville, IN, for plaintiff-appellant.

Danny E. Glass (argued), Thomas H. Bryan, Fine & Hatfield, Evansville, IN, for defendant-appellee.

Before CUDAHY and RIPPLE, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

CUDAHY, Circuit Judge.

This case takes place at the intersection of labor relations and insurance law. For almost three years, Baylor Heating & Air Conditioning, Inc. (Baylor) and the Sheet Metal Workers International Association, Local No. 20 (the Union) were parties to a collective bargaining agreement. The agreement obligated Baylor to make certain payments to an employee pension fund. In January 1987, Baylor informed the Union that it did not intend to renew the agreement when it expired, according to its terms, on April 30, 1987. Believing that it was free of all obligations under the agreement, and acting upon the advice of its counsel, William Michael Schiff, Baylor ceased making payments to the pension fund on May 1, 1987.

On July 23, 1987, The Sheet Metal Workers National Benefit Fund (the Fund) notified Baylor that its failure to make pension fund payments violated the collective bargaining agreement. The Fund demanded payment and threatened litigation if it were not forthcoming. Baylor denied liability, and the Fund brought suit against Baylor for delinquent payments on October 19, 1988. That suit was voluntarily dismissed until Baylor's liability under the collective bargaining agreement could be fully litigated in a separate proceeding. ¹ The Fund refiled its suit for payment on June 8, 1990. We took judicial notice that judgment had been entered in that suit against Baylor in the amount of $93,130.68, representing Baylor's liability to the Fund under the collective bargaining agreement. Baylor Heating & Air Conditioning, Inc. v. Federated Mutual Ins. Co., 987 F.2d 415 (7th Cir.1992).

The present case arises from Baylor's claim that the judgment in favor of the Fund constitutes an insured loss covered by its commercial general liability insurance. Federated Mutual Insurance Company (Federated) first issued the policy in question to Baylor on June 14, 1988. The policy included a multi-cover liability endorsement providing in pertinent part:

We will pay on your behalf all sums which you become legally obligated to pay as damages arising out of any claim made by:

(1) any employee or former employee; or

(2) the beneficiaries or legal representatives thereof; for injury or damage caused by any negligent act, error or omission in the "administration" of your "employee benefit programs" by:

(a) you; or

(b) any other person for whose acts, errors or omissions you are legally liable. ²

Baylor contended that the judgment in favor of the Union represents damages arising out of the negligent administration of its employee benefits plan and is thus covered by the endorsement to its commercial liability insurance policy. Federated denied coverage and Baylor filed suit in the United States District Court for the Southern District of Indiana seeking monetary and declaratory relief. The district court held that the policy does not cover Baylor's claim because it was not in effect when the event giving rise to the liability occurred nor when the claim for damages resulting from that occurrence was made. Baylor Heating & Air Conditioning, Inc. v. Federated Mut. Ins. Co., No. 90-73-C (S.D.Ind. Nov. 14, 1991). Baylor appealed. Applying Indiana law, we now affirm.

I.

It is a simple axiom of insurance law that "a risk covered by a policy of liability insurance is not covered if it occurs either before or after the period of coverage under the policy." 11 George J. Couch, Cyclopedia of Insurance Law § 44:8 (M. Rhodes rev. 2d ed. 1982). Insurance policies are, with respect to the event triggering coverage, generally divided into two categories: (1) "occurrence" policies, which provide coverage if the event insured against (the "occurrence") takes place within the policy period; and (2) "claims made" policies, which provide coverage only if a claim arising from an insured hazard is made against the insured during the policy period. Richard C. Tinney, Annotation, Event as Occurring Within Period of Coverage of "Occurrence" and "Discovery" or "Claims Made" Liability Policies, 37 A.L.R.4th 382, 390 (1985). We agree with Federated that the policy at issue here is of the occurrence variety, but disagree with its assertion that the event insured against occurred outside of the policy period.

Several factors indicate that Baylor purchased an occurrence-type policy. The first page of Baylor's policy is captioned: "Commercial General Liability Coverage Part (Occurrence Form CG 00 01)." Appellee's App. at 36 (emphasis supplied). Section I of the policy itself, denominated "coverages," provides: "This insurance applies only to 'bodily injury' and 'property damage' which occurs during the policy period. The 'bodily injury' or 'property damage' must be caused by an 'occurrence.' " We give this language its plain and ordinary meaning, Eli Lily & Co. v. Home Ins. Co., 482 N.E.2d 467 (Ind.1985) and conclude that Baylor's policy covers only events occurring within the policy period. ³

We must next determine when the alleged coverage-triggering event occurred. Coverage under an occurrence policy is activated when the insured sustains actual damage, irrespective of when the negligent act or omission that caused the damage occurred. United States Fidelity & Guar. Co. v. American Ins. Co., 169 Ind.App. 1, 345 N.E.2d 267, 270 (1976). See also George W. Deer & Son v. Employers Indem. Corp., 77 F.2d 175 (7th Cir.1935) (applying Indiana law). ⁴ Here the allegedly negligent omission occurred on May 1, 1987, and continued each month thereafter while Baylor failed to make payments to the employee pension fund. It does not necessarily follow, however, that Baylor sustained actual damage at that time. Indeed, until this court held on June 13, 1989, that Baylor was bound by the terms of the collective bargaining agreement pursuant to the National Joint Adjustment Board's arbitration award, Baylor's liability to the pension fund was merely potential. After our decision in Sheet Metal Workers Local 20 v. Baylor Heating, Baylor's liability to the pension fund, and hence its damage, became fixed and actual. ⁵ Consequently, the insured event occurred while the policy was in effect.

We have been referred to no cases directly on point, and this appears to be a case of first impression. The situation here, however, is somewhat analogous to that presented in certain other cases. For example, in State v. Glen Falls Ins. Co., 125 Ariz. 328, 609 P.2d 598 (App.Div. 1 1980), the court held that coverage under an occurrence policy guaranteeing deposits in a failed savings and loan was not activated until the savings institution was placed in receivership and depositors were prohibited from withdrawing funds. The court stated: "[U]ntil a depositor was actually unable to withdraw funds, there was no loss sustained which would constitute damage under the insurance policies.... The actual damage for purposes of insurance coverage occurred when the thrift associations were ordered into receivership. At that point withdrawal of deposits was impossible." Id. at 600-01. Similarly here, no matter how likely it was that Baylor would have to make payments with respect to pensions after the original collective bargaining agreement expired on April 30, 1987, before our decision of June 13, 1989, Baylor's liability was only potential. After that date, its liability was fixed and its damage actual.

In Roess v. St. Paul Fire & Marine Ins. Co., 383 F.Supp. 1231 (M.D.Fla.1974), the court considered the coverage of an occurrence-type policy that provided indemnification for liabilities arising from personal injuries caused by the insured, including malicious prosecutions. The insured argued that he was entitled to indemnification for liability because the claim against him accrued only when the maliciously prosecuted action was terminated in favor of the plaintiff, an event that occurred after the policy was issued. The parties agreed that such favorable termination was an essential element of the tort of malicious prosecution under the applicable state law. Id. at 1233. The court agreed with the insured stating:

[A] cause of action for the tort of malicious prosecution ... does not arise ... until all of the essential elements of the tort have materialized.... Thus ... the date of favorable termination (rather [than] the commencement) of the malicious action ... was the operative occurrence upon which the effectiveness of the policy stands or falls.

Id. at 1235. But see Muller Fuel Oil Co. v. Insurance Co. of N. America, 95 N.J.Super. 564, 232 A.2d 168 (1967) (holding that coverage was determined as of the date the maliciously prosecuted action was commenced). Similarly, our decision of June 13, 1989, was the last essential precursor to Baylor's liability, and it was only then that it sustained actual damage.

We thus conclude that the alleged coverage-triggering event occurred on June 13, 1989, the date Baylor's contested liability was resolved in favor of the pension fund. Because this event occurred while the policy was in effect, we must now determine whether Baylor's failure to pay the pension fund contributions in question was a "negligent act, error or omission" within the policy's substantive coverage.

II.

The multi-cover liability endorsement does not provide coverage for all sums which Baylor must pay to the Fund but...