Continental Cas. Co. v. Kinsey

• Decision Date: 27 April 1993
• Docket Number: 920288,Nos. 920252,s. 920252
• Citation: 499 N.W.2d 574
• Parties: CONTINENTAL CASUALTY COMPANY, Plaintiff and Appellee, v. Robert W. KINSEY, Robert W. Kinsey, P.C., Defendants, and Anita Bjorgen, Defendant and Appellant. CONTINENTAL CASUALTY COMPANY, Plaintiff and Appellee, v. Robert W. KINSEY, Robert W. Kinsey, P.C., Defendants and Appellants, and Anita Bjorgen, Defendant. Civ.
• Court: North Dakota Supreme Court

Page 574

499 N.W.2d 574

CONTINENTAL CASUALTY COMPANY, Plaintiff and Appellee, v. Robert W. KINSEY, Robert W. Kinsey, P.C., Defendants, and Anita Bjorgen, Defendant and Appellant.

CONTINENTAL CASUALTY COMPANY, Plaintiff and Appellee, v. Robert W. KINSEY, Robert W. Kinsey, P.C., Defendants and Appellants, and Anita Bjorgen, Defendant.

Civ. Nos. 920252, 920288.

Supreme Court of North Dakota.

April 27, 1993.

Steven A. Storslee (appearance), of Fleck, Mather & Strutz, Bismarck, and Bradley M. Jones (argued), of Meagher & Geer, Minneapolis, MN, for plaintiff and appellee Continental Cas. Co.

James L. Norris, P.C. (argued), Bismarck, for defendants and appellants Robert W. Kinsey and Robert W. Kinsey, P.C.

Winkjer, McKennett, Stenehjem, Reierson & Forsberg, Williston, for defendant and appellant Anita Bjorgen; argued by Kent A. Reierson.

NEUMANN, Justice.

This is a declaratory judgment action brought by an insurance company to determine the extent of its coverage under a professional liability insurance policy. We reverse and remand.

In October 1989, Anita Bjorgen (Bjorgen) obtained a judgment against Robert Kinsey and his professional corporation (Kinsey) for intentional fraud and deceit while providing legal services for her. The jury awarded Bjorgen compensatory damages of $172,000 and exemplary or punitive damages of $100,000. The trial court trebled the compensatory damages award, pursuant to Section 27-13-08, N.D.C.C. The court then struck the jury's $100,000 punitive damages award, because it deemed the treble damages under the statute to be punitive in nature and concluded that it would be an unfair duplication of punitives to also award the $100,000 amount. The trial court entered judgment for $526,964.30, and that judgment was affirmed by this court on appeal, in Bjorgen v. Kinsey, 466 N.W.2d 553 (N.D.1991).

During all times relevant to Bjorgen's action, Kinsey had a malpractice insurance policy with Continental Casualty Company (Continental). Continental represented Kinsey in defending against the malpractice action brought by Bjorgen, but it notified Kinsey that it was representing him with a reservation of rights that the insurance policy would not provide coverage for any damages awarded to Bjorgen against Kinsey for fraudulent conduct. Upon conclusion of Bjorgen's malpractice action, Continental filed this declaratory judgment action to determine the extent of Kinsey's insurance coverage with Continental. Kinsey filed a counterclaim alleging, among other issues, that Continental failed to act fairly or in good faith in representing Kinsey in Bjorgen's malpractice action against him. All parties filed motions for summary judgment.

The district court reviewed the insurance policy, concluded that it was unambiguous, and held that Kinsey had no coverage under the policy for any of the damages awarded to Bjorgen against him in the malpractice action. The district court also ruled that, even if the contract were ambiguous, insurance coverage for punitive damages is contrary to the public policy of this state. The court also dismissed Kinsey's counterclaim, ruling that Kinsey had failed to raise genuine issues of material fact. Bjorgen and Kinsey filed separate notices of appeal, and all matters were consolidated before this court for hearing and resolution.

We hold that under Kinsey's malpractice insurance policy Continental is obligated to pay the punitive damages portion of Bjorgen's award, up to the $250,000 policy limits. We also hold that Continental can seek indemnity from Kinsey for the amounts paid to Bjorgen, because Kinsey's liability to Bjorgen is a result of his intentional acts of fraud and deceit. We further hold that the district court must reconsider Kinsey's counterclaim, in view of Kinsey's insurance coverage with Continental. We reverse the decision and remand for reconsideration of Kinsey's counterclaim and entry of a new judgment in accord with this opinion.

I. THE INSURANCE CONTRACT

Bjorgen and Kinsey assert on appeal that the trial court erred in construing the insurance policy. The construction of a written insurance contract, including a determination of whether a contract is clear and unambiguous, is a question of law which is fully reviewable by this court. State Farm Mut. Auto. Ins. Co. v. LaRoque, 486 N.W.2d 235 (N.D.1992). Dawn Enterprises v. Luna, 399 N.W.2d 303 (N.D.1987). A contract is ambiguous when reasonable arguments can be made in support of contrary positions as to its meaning. State Farm, supra, 486 N.W.2d at 238.

Under Kinsey's professional liability policy, Continental agreed:

"I....

"A....

"To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages:

"1. arising from the performance of professional services for others in the insured's capacity as a lawyer * * * because of an act or omission of the insured or any other person or firm for whose act or omission the insured is legally responsible...."

The insurance policy contained several exclusions from coverage; the following two are relevant to this case:

"II....

"This insurance does not apply under Coverage A to:

"A. any dishonest, fraudulent, criminal or malicious act or omission of the insured or any partner, employee, officer or stockholder of the insured....

* * * * * *

"J. punitive or exemplary damages or any fine, penalty or claim for return of fees."

The policy also contained an endorsement form which provided:

"The Company agrees with the insured that the exclusion referring 'to an award of punitive damages' does not apply to this policy."

The trial court reviewed these provisions and construed the policy as unambiguously excluding coverage for any damages arising from Kinsey's fraudulent conduct. The court concluded that even though the endorsement form waived the policy exclusion for punitive damages, Continental was not obligated to pay the punitive damages portion of Bjorgen's judgment against Kinsey, because the underlying basis for Kinsey's liability in that action was his fraudulent conduct. The court reasoned that the exclusion of fraudulent conduct from coverage relieved Continental of any obligation to pay either the compensatory or punitive damages awarded to Bjorgen.

Although the trial court's construction of the policy may be a possible interpretation of it, we disagree that the policy is unambiguous. A reasonable alternative interpretation of the policy is that the endorsement expressly waiving the punitive damages exclusion applies here and obligates Continental to pay the punitive damages portion of Bjorgen's judgment against Kinsey, up to the $250,000 policy limits. Because there are at least two interpretations of these policy provisions, the policy is ambiguous. State Farm, supra.

The primary goal of contract interpretation is to give effect to the mutual intention of the parties as it existed at the time of contracting. Section 9-07-03, N.D.C.C.; National Bank v. International Harvester Co., 421 N.W.2d 799 (N.D.1988). If possible, the intention of the parties is to be ascertained from the written contract, alone. Section 9-07-04, N.D.C.C.

As a tool for interpreting insurance policies, this court has expressly adopted the "Doctrine of Contract of Adhesion," whereby ambiguous policies are construed most strongly against the insurers and in favor of providing insurance coverage. Mills v. Agrichemical Aviation, Inc., 250 N.W.2d 663, 671 (N.D.1977); Hughes v. State Farm Mut. Auto. Ins. Co., 236 N.W.2d 870 (N.D.1975); see also Heitkamp v. Milbank Mut. Ins. Co., 383 N.W.2d 834 (N.D.1986) (when an ambiguity exists, if one interpretation of the policy language will impose liability on the insurer and the other will not, the interpretation favorable to the insured will be adopted). The doctrine was explained in Aid Ins. Services, Inc. v. Geiger, 294 N.W.2d 411, 414-415 (N.D.1980):

"We recognize that when the language of an insurance policy is clear and explicit, the language should not be strained in order to impose liability on the insurer.... However, it is well-established in North Dakota that, because an insurance policy is a contract of adhesion, any ambiguity or reasonable doubt as to the meaning of the policy is to be strictly construed against the insurer and in favor of the insured. If the language in an insurance contract will support an interpretation which will impose liability on the insurer and one which will not, the former interpretation will be adopted.

* * * * * *

"Insurance contracts are unipartite in character. They are drafted by company experts learned in the law of insurance. Insurance policies should be written so that an ordinary layperson, untrained in the field of insurance, can clearly understand them and know whether or not coverage is afforded. If they are not so written, the insurance company must assume the consequences of the ambiguity and resulting confusion." (Citations omitted.)

However, we do not apply this doctrine in a vacuum. If parol evidence is offered which clearly indicates that the parties, particularly the insured, did not contemplate insurance coverage under the circumstances, or if application of other relevant rules of contract interpretation clearly shows that the parties did not intend coverage, then the Doctrine of Contract of Adhesion will not be applied to obtain a contrary result.

Walle Mutual Insurance Co. v. Sweeney, 419 N.W.2d 176 (N.D.1988), is an example of a case where parol evidence clearly showed that the parties did not intend coverage under the circumstances, even though strict construction of the policy against the insurer would have led to an opposite result. The dispute in Walle was whether a farm liability policy provided coverage for the insured's pickup truck. The policy terms "motor vehicle" and "farm implements" were undisputedly ambiguous, and the insured argued that "there is automatic coverage as a matter of law" because the rule of strict...