Employers Ins. of Wausau v. Bodi-Wachs Aviation Ins. Agency, Inc.
| Decision Date | 26 October 1994 |
| Docket Number | No. 94-1789,BODI-WACHS,94-1789 |
| Parties | EMPLOYERS INSURANCE OF WAUSAU, Plaintiff-Appellant, v.AVIATION INSURANCE AGENCY, INC., an Illinois corporation, Robert West and Bernadine West, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Robert M. Chemers, Donald J. Kindwald, David B. Gelman (argued), Pretzel & Stouffer, Chicago, IL, for Employers Ins. Co. of Wausau.
Alan R. Dolinko (argued), Cary S. Fleischer, Chuhak & Tecson, Chicago, for Bodi-Wachs Aviation Ins. Agency, Inc.
Richard R. Haldeman, Haldeman & Associates, Rockford, Harold L. Turner, Turner & McGraw, Rockford, for Robert West and Bernadine West.
Before COFFEY, and ROVNER, Circuit Judges, and FOREMAN, District Judge. *
Employers Insurance of Wausau appeals from the district court's judgment holding Employers liable under an errors and omissions insurance policy issued to the Bodi-Wachs Aviation Insurance Agency, 846 F.Supp. 677. Because we find that the district court properly interpreted the terms of the policy, we affirm.
After Robert West was injured in a helicopter crash on March 22, 1989, he and his wife, Bernadine, brought a declaratory judgment action against the helicopter company and various insurance agencies to determine the coverage limits of the company's liability insurance policy. They alleged that prior to the accident, the insurance policy provided a $5 million single limit of liability, including passenger liability, but that the policy was improperly modified after Mr. West's accident to reduce the amount of coverage for passengers from $5 million to $100,000 for each passenger.
Although the new policy was issued on March 27, 1989, it provided for an effective date of March 20, 1989. The Wests alleged that the policy was modified with full knowledge of the March 22, 1989, accident. They further alleged that the defendants knew that the modifications were contrary to the contract between the helicopter company, Eagle Air Helicopters, Inc., and West's employer, Commonwealth Edison Company, which required Eagle Air to maintain liability insurance of $5 million.
Bodi-Wachs Aviation Insurance Agency was one of the insurers named in the West lawsuit, which was filed in February 1992 and served sometime in late February to early March 1992. Bodi-Wachs apparently had acted as Eagle Air's agent in obtaining insurance from TransAmerica Insurance through Southern Marine and Aviation Underwriters. However, the Wests' original complaint did not expressly seek relief from Bodi-Wachs, but instead requested a declaratory judgment that: (1) the TransAmerica policy provided $5 million in coverage for bodily injury or property damage; (2) the attempt by the defendants to issue a policy with a $100,000 limit was ineffective; (3) that the $100,000 coverage limit provided $100,000 in coverage for Robert West as well as $100,000 for Bernadine West's loss of consortium claim; and (4) "for such other and further relief as the Court deems fit and proper." Bodi-Wachs, therefore, filed a motion to dismiss, arguing that it could not be affected by the relief sought in the case.
The Wests responded to the motion by seeking leave to amend their complaint to add a count against Bodi-Wachs pursuant to Illinois Supreme Court Rule 224, which provides that: "A person or entity who wishes to engage in discovery for the sole purpose of ascertaining the identity of one who may be responsible in damages may file an independent action for such discovery." Ill.Sup.Ct.R 224. Accordingly, the state court judge ordered Bodi & Wachs to comply with a subpoena issued by the Wests.
Counsel for the Wests subsequently sent a letter to counsel for Bodi-Wachs in April 1992, stating: "I wish to alert you that the errors and omissions carrier for Bodi-Wachs is potentially involved." In support of this potential allegation, the letter referred to specific portions of the original complaint which alleged generally that all of the defendants knew that the owners/operators of the helicopter were required, under a contract with Commonwealth Edison, to maintain an insurance policy for $5 million on the helicopter and all of them knew that the policy had been renewed for only $100,000. The letter stated that the prayer for relief--apparently the request for "such other and further relief"--includes "the potential of a negligence claim against Bodi & Wachs." Thus, the letter suggested that "[i]t is in the best interest of Bodi & Wachs to alert the errors and omissions carrier as to this potential claim so as not to lose coverage."
The plaintiffs did not immediately amend their complaint but instead continued with discovery. Several depositions were taken with Jay Bodi, half-owner of Bodi-Wachs, in November 1992. During one of these depositions, the plaintiffs' counsel asked whether Bodi & Wachs had errors and omissions insurance coverage. The Wests' counsel then told Bodi and his counsel that it was likely that the Wests would file an amended complaint seeking damages against Bodi-Wachs. In January 1993, plaintiffs' counsel "stated affirmatively that they were going to articulate a claim of some type" against Bodi-Wachs or Mr. Bodi by an amended pleading in the near future. An amended pleading was in fact filed on March 19, 1993, containing counts for fraud and negligence against Bodi-Wachs and seeking up to $5 million in monetary damages.
During the period of August 4, 1991, to August 4, 1992, Bodi-Wachs had errors and omissions insurance coverage under a policy issued by General Insurance Company of America (Safeco). However, from August 4, 1992, to August 4, 1993, coverage was provided by Employers Insurance of Wausau. Bodi-Wachs did not notify either insurer about the West lawsuit until December 28, 1992, when it sent a letter to Employers stating the following:
[T]here is currently a lawsuit pending in the Circuit Court of the 17th Judicial Circuit, Winnebago County, Illinois, captioned West v. Eagle Air Helicopters, Inc., No. 92 MR 23. At the present time, Bodi & Wachs Aviation Insurance has been named as a party in this litigation only for purposes of obtaining discovery from Bodi & Wachs Aviation; no claim for monetary relief has been asserted against Bodi & Wachs in this matter.
Nevertheless, as a result of developments which have occurred in this litigation, including the recent deposition of Mr. Bodi, pursuant to policy paragraph XI 3., "Notice of Claim or Suit," we wish to bring this matter to your attention. As stated, no claim has yet been asserted against Bodi & Wachs. However, should a claim be asserted against Bodi & Wachs in the future, Bodi & Wachs would tender this claim to you and expect full coverage in accordance with the above identified policy. If you believe this matter should be tendered to the company at the present time, please let us know and we will be happy to comply with any obligations under the policy.
Employers denied coverage and brought the pending declaratory judgment action in April 1993 to determine whether it was obligated to indemnify and/or defend Bodi-Wachs in the underlying action. Employers' argument rests primarily upon the fact that coverage was provided under a "claims made" policy. Part III of the policy states:
This policy applies only to claims for which coverage is provided hereunder and then only where such covered claim is first made and reported to the Company during the policy period or during the policy periods of consecutive renewal policies issued by the Company or, if applicable, during the discovery period.
A claim for injury shall be considered as being first made at the earlier of the following times:
A. When claim is first made against the insured for injury, or
B. When notice is first given to the Company by or on behalf of the insured of specific circumstances involving a particular person or organization which may result in a claim for injury.
The policy contains certain notice provisions in Part X, which states:
3. NOTICE OF CLAIM OR SUIT. In the event of any circumstance likely to result in a claim to which this insurance applies, written notice shall be given by or on behalf of the Insured to the Company as soon as practicable. If thereafter any suit or other proceeding is instituted against the Insured, the Insured shall immediately inform the Company in like manner. The Insured shall upon request furnish the Company with investigations, pleadings and all other papers relating to such suit or proceedings.
The policy definition of a "claim" states: " 'Claim' shall include all claims or suits for damages arising out of the same negligent act, error or omission of one or more of the Insureds." The definition for "damages" states: " 'Damages' means monetary judgment, award or settlement including compensatory, punitive or exemplary damages but does not include fines or penalties or damages for which insurance is prohibited by the applicable law." 1
Employers argued that its policy did not cover the Wests' lawsuit because the Wests' claim was made prior to August 4, 1992, when the Employers policy period began. Employers contends that the West action constituted a claim when the lawsuit was first filed in February 1992 or, at the very latest, when the plaintiff's counsel sent the letter in April 1992 advising Bodi-Wachs to put its errors and omissions carrier on notice. Employers further argued that Bodi-Wachs did not comply with the requirement of immediate notice because the latter did not give notice until December 1992 despite the fact that it was aware of the lawsuit when it was served in February or March 1992.
The district court rejected both arguments. The court held that the policy required Bodi-Wachs to give notice only when there was an actual claim for money damages. Here, the original suit did not seek money damages and the April letter from Wests' counsel merely suggested the "pot...
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