Brander v. Nabors

• Citation: 443 F. Supp. 764
• Decision Date: 12 January 1978
• Docket Number: No. EC 76-223-K.,EC 76-223-K.
• Parties: Francis Everett BRANDER, Individually and on behalf of all those underwriters at Lloyd's subscribing to policy # 24563, Plaintiff, v. Thomas Jackson NABORS, Defendant.
• Court: U.S. District Court — Northern District of Mississippi

443 F. Supp. 764

Francis Everett BRANDER, Individually and on behalf of all those underwriters at Lloyd's subscribing to policy # 24563, Plaintiff, v. Thomas Jackson NABORS, Defendant.

No. EC 76-223-K.

United States District Court, N. D. Mississippi, E. D.

January 12, 1978.

Louis G. Baine, Jr., Jackson, Miss., for plaintiff.

William S. Lawson, Tupelo, Miss., for defendant.

MEMORANDUM OPINION

KEADY, Chief Judge.

This diversity action by Francis Everett Brander, a citizen and subject of Great Britain (hereinafter Lloyd's),¹ against Thomas Jackson Nabors, a Mississippi citizen, seeks a declaratory judgment of non-coverage under Lloyd's Policy No. 24563. The parties agreeing that no issues of material fact are raised at this juncture of the case, have filed cross motions for summary judgment under Rule 56, F.R.Civ.P.

The relevant facts, gleaned from the pleadings, policy provisions and evidentiary materials on file, may be briefly summarized.

On November 12, 1968, Lloyd's issued a medical malpractice liability insurance contract, Policy No. 24563, to the assured, Drs. Royce Houston Franks and Thomas Purser, III, of Tupelo, Mississippi. The policy explicitly states that the insurance is provided on a "claims made basis," with the original period of insurance being from November 12, 1968, to November 12, 1969. By renewal, the insurance period was extended for an additional year, or to November 12, 1970. The relevant terms of the policy provide that

"2. . . . WE THE UNDERWRITERS hereby agree, subject to the terms, limitations, exclusions and conditions of this Insurance, to pay on behalf of the Assured all sums which the Assured shall by law be held liable to pay for damages arising out of bodily injury or mental injury to or death of any patient caused by or alleged to have been caused by error, omission or negligence in professional services rendered or which should have been rendered (hereinafter referred to as Malpractice).

PROVIDED ALWAYS THAT

(a) such Malpractice results in a claim being made against the Assured during the period of Insurance as stated in the Schedule. . . .

(c) there shall be no liability hereunder for any claim made against the Assured for Malpractice committed or alleged to have been committed prior to the Retroactive Date specified in the Schedule.

5. In the event of

(a) the expiration of this Insurance by reason of nonrenewal, . . .

then this Insurance shall extend, subject otherwise to its terms, limitations, exclusions and conditions, to apply to claims made against the Assured during the thirty-six calendar months following immediately upon such expiration or termination but only for Malpractice committed or alleged to have been committed between the Retroactive Date and such expiration or termination." (Emphasis in the original)

The "retroactive date" specified in the schedule was November 12, 1968, which coincided with the precise date on which the original period of insurance commenced.

On or about March 19, 1975, Thomas Jackson Nabors, defendant in the present action, brought a diversity action in this court against Dr. Thomas Purser, III, one of the named assureds, seeking recovery for serious injury caused by acts of medical malpractice alleged to have occurred between August 1968 and June 1970. On April 15, 1976, Nabors recovered, by way of compromise settlement, a judgment for $100,000. On August 12, Dr. Purser assigned his rights under Lloyd's policy to Nabors and his attorney.²

Lloyd's contends that it is not liable since no claim under the policy was made against the assured, Dr. Purser, until March 19, 1975, a date occurring fifty-two months after its policy had expired and sixteen months after the end of the three-year extension, provided by provision 5(a) as set out above.

Defendant argues that liability is cast upon Lloyd's under alternative theories.

First, the defendant maintains that the policy provisions, when considered as a whole, create an ambiguity, which defendant is entitled to have resolved in his favor, as to the character of the coverage afforded by the policy; that is, a reasonable doubt exists as to whether the policy provides coverage on an "occurrence" basis or a "claims made" basis. Defendant reasons that once this ambiguity is resolved in his favor by a declaration that Lloyd's has provided insurance on an "occurrence" basis, the policy terms limiting the time within which a claim must be made against the assured violate the prohibitions expressly stated in Miss.Code Ann. § 15-1-5 (1972).³

Alternatively, the defendant argues that the policy provides for coverage which is so structured that it offends Mississippi public policy, and therefore its restrictions are unenforceable.

(1) Background.

The insurance industry has, for some years, provided two basic types of professional liability insurance which may be classified as (a) "claims made" policies (sometimes called "discovery" policies), and (b) "occurrence" policies.

The basic "claims made" or "discovery" policy provides for indemnity, regardless of when the act complained of occurred, if the act is discovered and brought to the attention of the insurer during the policy period.

The basic "occurrence" policy provides for indemnity, regardless of when the act complained of is discovered or brought to the attention of the insurer, if the act occurred during the policy period.⁴

The case law throughout the country has generally recognized the difference in these two basic types of coverage. See e. g., Samuel N. Zarpas, Inc. v. Morrow, 215 F.Supp. 887 (D.C.N.J.1963), Rotwein v. General Accident Group, 103 N.J.Super. 406, 247 A.2d 370 (1968), see also Comment, The "Claims Made" Dilemma in Professional Liability Insurance, 22 U.C.L.A.L.Rev. 925 (1975), Comment, Professional Liability Insurance: The Doctor's Dilemma, 7 Loyola U.L.Rev. 459 (1976).

Basically, the "claims made" policy would provide unlimited retroactive coverage and no prospective coverage at all, while the "occurrence" policy would provide unlimited prospective coverage and no retroactive coverage at all.

Despite the judicial harmony in defining these two forms of professional liability insurance, courts have reached divergent views when construing policies containing more restrictive, or different provisions.

In Jones v. Continental Casualty Co., 123 N.J.Super. 353, 303 A.2d 91 (Sup.Ct.N.J. 1973), the court was confronted with a policy containing the following relevant terms:

IV. Policy Period, Territory.

(a) During the Policy Period. The insurance afforded by this policy applies to errors, omissions or negligent acts which occur * * * during this policy period if claim therefor is first made against the insured during this policy period.

(b) Prior to the Policy Period. The insurance afforded by this policy also applies to errors, omissions or negligent acts which occur within the United States of America, * * * prior to the effective date of this policy if claim therefor is first made against the insured during this policy period and if all of the following requirements are present:

(1) the error, omission, or negligent act was also insured by this Company under the prior policy (as defined below) * *

(2) no insured, at the effective date of the prior policy (as defined below), had any knowledge of a pending claim which might be made against any insured or had any knowledge or any circumstance which may reasonably be expected to create a claim against any insured.

Prior policy (for the purpose of this insuring agreement) means the combined total of all architects' and/or engineers' professional liability policies issued by this Company beginning with the first architects' and/or engineers' professional liability policy followed continuously by successive architects' and/or engineers' professional liability policies, the last of which expired on the effective date of this policy.

The court held that the terms which limited retroactive coverage to acts which occurred while the insured maintained coverage with the same insurer inhibited freedom of contract, and, further, that the total absence of any prospective coverage violated the public policy of New Jersey "in favor of extending time for making claim or bringing suit for a wrong in the professional liability field." Jones v. Continental Cas. Co., supra, 303 A.2d at 96.

J. G. Link v. Continental Casualty Co., 470 F.2d 1133 (9 Cir. 1973), which was a Montana diversity based action, involved a policy providing coverage "if claim . . is first made against the insured during this policy period." The court found the policy ambiguous in two respects: ". . . 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 on a date within the policy period constitutes a claim . . ." The court regarded it unnecessary to resolve the first ambiguity since it held that the insured was entitled to prevail upon a favorable resolution of the second. In dictum, the court noted that the insured would also prevail if the policy were found to be an "occurrence" policy since the "if claim" clause would then be void under Montana's statute prohibiting limitation of the "time within which the insured may . . . enforce his rights." R.C.M. § 13-806.

In Livingston Parish School Board v. Fireman's Fund American Ins. Co., 282 So.2d 478 (La.1973), a policy having terms identical to those held to have violated New Jersey public policy in Jones and held to be ambiguous in Link was found neither ambiguous nor violative of the public policy of Louisiana.

Although the policy terms are not set forth in the opinion, the Ninth Circuit, in Cornell, Howland, Hayes & Merryfield, Inc. v. Continental Cas. Co., 465 F.2d 22 (1972), construing Oregon law, one year before Link, upheld the "claims made" policy of Continental Casualty Company and dismissed suit against the insurer in...