Civic Associates v. Security Ins. Co.

• Decision Date: 16 October 1990
• Docket Number: Civ. A. No. 89-2206-V.
• Citation: 749 F. Supp. 1076
• Parties: CIVIC ASSOCIATES, INC., Plaintiff, v. SECURITY INSURANCE COMPANY OF HARTFORD and Continental Casualty Company, Defendants.
• Court: U.S. District Court — District of Kansas

749 F. Supp. 1076

CIVIC ASSOCIATES, INC., Plaintiff, v. SECURITY INSURANCE COMPANY OF HARTFORD and Continental Casualty Company, Defendants.

Civ. A. No. 89-2206-V.

United States District Court, D. Kansas.

October 16, 1990.

Robert L. Wehrman, Lisa A. Weixelman, Polsinelli, White, Vardeman & Shalton, Kansas City, Mo., Bruce Beye, Joseph R. Colantuono, Polsinelli, White, Vardeman & Shalton, Overland Park, Kan., for Civic Associates, Inc.

John P. Connor, Federated Rural Elec. Ins. Corp., Lenexa, Kan., Anthony F. Rupp, Shughart, Thomson & Kilroy, Overland Park, Kan., Kurt D. Tilton, Thomas J. Leittem, Shughart, Thomson & Kilroy, Kansas City, Mo., for Security Ins. Co. of Hartford.

Michael G. Norris, Payne & Jones, Michael K. Seck, Fisher, Patterson, Sayler & Smith, Overland Park, Kan., for Continental Cas. Co.

MEMORANDUM AND ORDER

VAN BEBBER, District Judge.

This case comes before the court on the motion of defendant Security Insurance Company of Hartford (Security) for summary judgment pursuant to Fed.R.Civ.P. 56(b) (Doc. 31). Plaintiff has responded and opposes defendant Security's motion (Doc. 38). For the reasons stated below, the motion is granted.

Originally, this declaratory judgment action involved two succeeding policies of insurance. The first policy was issued to plaintiff Civic Associates, Inc., by defendant Security, and the second policy was issued to plaintiff by defendant Continental Casualty Company (Continental). Plaintiff asserted a claim against both policies. Defendants denied coverage of the claim. Plaintiff brought a declaratory judgment action to ascertain the rights and obligations of the parties regarding the two succeeding policies of insurance. On October 12, 1990, pursuant to an agreement between plaintiff and defendant Continental, we dismissed defendant Continental from this case without prejudice (Doc. 85). The only claims remaining in this action are those asserted against defendant Security. These claims are contested in the present motion.

Factual Background

The uncontroverted facts, as established by the materials submitted by the parties and the record of the case, appear as follows. Plaintiff is a small architectural and engineering firm incorporated in the State of Missouri. For the policy year March 1, 1987, at 12:01 a.m., through March 1, 1988, at 12:01 a.m., plaintiff carried insurance coverage in the form of an architects/engineers professional liability policy of insurance through defendant Security. For the subsequent policy year, March 1, 1988, to March 1, 1989, plaintiff purchased similar professional liability insurance from defendant Continental.

While insured by defendant Security, plaintiff performed work for Lockwood Properties, Inc. By January, 1988, Lockwood owed plaintiff approximately $300,000 for services rendered. Over the next two months, plaintiff had numerous conversations with Lockwood concerning the collection of these fees. On February 26, 1988, Lockwood notified plaintiff, by letter, that it was concerned about plaintiff's apparent inability to complete projects in a timely, professional and satisfactory manner. At that time, plaintiff did not consider this a claim or a potential claim, but rather a ploy by Lockwood to avoid resolution of the fee situation.

On March 1, 1988, after plaintiff's policy of insurance with defendant Security had expired, plaintiff's president and chief executive officer, Thomas J. Langley, met with members of Lockwood in St. Louis, Missouri. At the meeting, Langley learned that Lockwood intended to assert a claim against plaintiff for negligent performance of professional services. On March 3, 1988, Langley informed plaintiff's insurance agent of the potential claim against it, and instructed the agent to notify plaintiff's insurers of the potential claim. By letter, dated March 7, 1988, defendant Security denied coverage for the potential claim.

On April 26, 1988, Lockwood asserted a counter-claim against plaintiff in an arbitration proceeding previously instituted by plaintiff, styled Civic Associates, Inc., Claimant v. Lockwood Commercial Properties, Inc., et al., Case No. 57 110 0031 88, pending before the American Arbitration Association, Kansas City, Missouri, seeking damages for breach of contract, negligent performance of services, negligent or fraudulent misrepresentations, interference with contractual relationships, invasion of Lockwoood's rights to privacy, libel, and failure to perform in a workmanlike manner. Plaintiff notified both defendants Security and Continental of the counter-claim. In a letter dated September 9, 1988, defendant Security again denied coverage for the claim and refused to provide plaintiff with either a defense or indemnification for defense. Likewise, in correspondence dated October 12, 1988, defendant Continental denied coverage for the claim and withdrew its defense of the case. On May 8, 1989, plaintiff filed this action for declaratory judgment.

Standards for Summary Judgment

A moving party is entitled to summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). One of the principal purposes of summary judgment is to isolate and dispose of factually unsupported claims or defenses, and the rule should be interpreted in a way that allows it to accomplish this purpose. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). The court's proper inquiry is "whether there is a need for a trial — whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986).

The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact on its claim(s). This burden may be discharged by "showing," that is, pointing out to the district court, that there is an absence of evidence to support the nonmoving party's case. Celotex, 477 U.S. at 325, 106 S.Ct. at 2553-54. Fed.R.Civ.P. 56, however, imposes no requirement on the moving party to "support its motion with affidavits or other similar materials negating the opponent's claim." Id. at 323, 106 S.Ct. at 2553 (emphasis in original). Once the moving party has properly supported its motion for summary judgment the burden shifts to the nonmoving party: "a party opposing ... may not rest on mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 256, 106 S.Ct. at 2514. Thus, the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. Id. The court reviews the evidence on summary judgment under the substantive law and based on the evidentiary burden that the party will face at trial on the particular claim. Id. at 254, 106 S.Ct. at 2513.

Choice of Law

The threshold issue in this case is whether Kansas or Missouri law governs this case. In determining the applicable law, a federal court hearing a non-federal claim must apply the law of the state in which it sits, including that state's choice of law rules. Klaxon v. Stentor Electric Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021-22, 85 L.Ed. 1477 (1941); Robert A. Wachsler, Inc. v. Florafax Int'l, Inc., 778 F.2d 547, 549 (10th Cir.1985). Kansas courts apply the rule of lex loci contractus (the place where the contract was made) where the case involves contract law. See Simms v. Metropolitan Life Ins. Co., 9 Kan.App.2d 640, 642, 685 P.2d 321 (1984). Because the insurance in question in this case was issued in Missouri, we conclude that Missouri law governs the insurance contract between plaintiff and defendant Security.

Discussion

(1)

In its motion for summary judgment defendant Security asserts that plaintiff purchased a "claims made" policy of insurance. Defendant Security asserts that the uncontroverted facts reveal that plaintiff's claim did not arise and was not reported to defendant Security until after the policy had expired. For these reasons, defendant Security argues that it was released from liability under the policy of insurance and that it is entitled to summary judgment. We agree.

We conclude that the policy that plaintiff purchased is, as defendant Security asserts, of the "claims made" variety. A "claims made" or "discovery" policy of insurance provides coverage for claims that are discovered and brought to the attention of the insurer during the term of the policy. Esmailzadeh v. Johnson and Speakman, 869 F.2d 422, 424 (8th Cir.1989) (citing 7A J. Appleman, Insurance Law & Practice § 4504.01, at 312-13 (Bendal ed. 1979 & Supp.1988)) (emphasis supplied). A "claims made" policy of insurance is usually best understood in contrast to an "occurrence" policy of insurance. An "occurrence" policy of insurance protects the policyholder from liability for any act done while the policy is in effect. The following example illuminates the contrast: a doctor who practiced for only one year, say 1985, would need only one 1985 "occurrence" policy to be fully covered, but he would need several years of "claims made" policies to protect himself from claims arising out of his conduct in 1985. See St. Paul Fire & Marine Ins. v. Barry, 555 F.2d 3, 5 n. 1 (1st Cir.1977).

Plaintiff concedes that defendant Security was not notified of the claim until after the policy had expired. However, plaintiff argues, in response to defendant Security's motion, that defendant Security is not entitled to summary judgment for three reasons: (1) the policy is ambiguous, thereby precluding summary judgment...