FARM BUREAU LIFE INS. v. CHUBB CUSTOM INS., 07-0958.

• Citation: 780 N.W.2d 735
• Decision Date: 09 April 2010
• Docket Number: No. 07-0958.,07-0958.
• Parties: FARM BUREAU LIFE INSURANCE CO., Appellant, v. CHUBB CUSTOM INSURANCE CO., Federal Insurance Co., and Great Northern Insurance Co., Appellees.
• Court: United States State Supreme Court of Iowa

780 N.W.2d 735

FARM BUREAU LIFE INSURANCE CO., Appellant, v. CHUBB CUSTOM INSURANCE CO., Federal Insurance Co., and Great Northern Insurance Co., Appellees.

No. 07-0958.

Supreme Court of Iowa.

April 9, 2010.

Jason T. Madden and Megan M. Althoff Wolfe of Bradshaw, Fowler, Proctor & Fairgrave, P.C., Des Moines, and James A. Pugh of Morain, Burlingame & Pugh, P.L.C., West Des Moines, for appellant.

Jeff H. Jeffries of Hopkins & Huebner, P.C., Des Moines, and Janet R. Davis and Julie L. Trester of Meckler Bulger & Tilson LLP, Chicago, Illinois, for appellees.

HECHT, Justice.

Applicants for life insurance coverage sued Farm Bureau Life Insurance Company (Farm Bureau) alleging negligence and breach of fiduciary duty. After settling the applicants' claims, Farm Bureau sued its insurers and its insurance broker claiming entitlement to reimbursement for the costs incurred in the settlement. Farm Bureau appeals from the district court's entry of summary judgment in favor of the insurers. We affirm.

I. Factual and Procedural Background.

A. The Underlying Tort Claim. John and Mary Smith¹ applied for life insurance through Farm Bureau in October 1999. Tests of the Smiths' blood samples revealed both were infected with the Human Immunodeficiency Virus (HIV). Farm Bureau sent a letter to the Smiths on November 29, 1999, advising them that their applications were denied "due to the blood profile results" and requesting authorization to disclose the results to their physician(s). The Smiths did not grant the requested authorization, and they did not discover their HIV status until approximately two years later.

After discovering their illnesses, the Smiths filed suit in the Wyoming Federal District Court on June 14, 2002, against Farm Bureau and other individuals involved in the analysis of the blood samples. In their original complaint, the Smiths alleged Farm Bureau was negligent in (1) failing to report the HIV-positive status to the State of Wyoming; (2) failing, in violation of Wyoming common law, to report the HIV-positive results to them; and (3) failing to inform them before their blood was drawn that Farm Bureau would not tell them if the blood tests were positive for HIV.²

Farm Bureau filed a motion for summary judgment on December 27, 2002. The federal district court granted the motion, concluding Farm Bureau owed no legal duty to disclose the test results to the Smiths. The Smiths appealed, and the United States Court of Appeals for the Tenth Circuit filed its decision on February 9, 2005, reversing and remanding the case to the district court for trial. After amending their complaint in May 2005 to allege a breach of fiduciary duty and to claim punitive damages, the Smiths settled their claims against Farm Bureau.

B. The Policies Insuring Farm Bureau. Farm Bureau maintained several liability insurance policies during the events described above.

1. Insurance Company Professional Liability (ICPL) policies. Farm Bureau was the insured under an ICPL policy issued by Chubb Custom Insurance Group (Chubb) from February 15, 1998, to February 15, 2001, and a series of similar policies issued annually by Federal Insurance Company (Federal) for the period from February 15, 2002, through February 15, 2006. These policies provided coverage for "Loss ... as a result of any Claim first made against Farm Bureau during the Policy Period ... arising out of any Wrongful Act" committed by Farm Bureau while performing or failing to perform "Insurance Services" or "Financial Services." A "claim" was defined in the policies as, among other things, a "written demand for monetary damages" or a "civil proceeding commenced by the service of a complaint or similar pleading." "As a condition precedent" to coverage, the ICPL policies required Farm Bureau to give the insurers written notice of any claim "as soon as practicable, but in no event later than ninety (90) days after the termination of the Policy Period."

2. Financial Institutions (FI) policies. Farm Bureau was also insured under an FI policy issued by Great Northern Insurance Company (Great Northern) in effect from February 15, 1998, to February 15, 2001. This policy provided general liability coverage for "bodily injury" caused by an "occurrence." An "occurrence" was defined in the policy as an "accident, including continuous or repeated exposure to substantially the same general harmful conditions." The policy contained an "Insurance and Related Operations Exclusion" for "bodily injury ... arising out of, or directly or indirectly" related to (1) "any obligation ... or failure to discharge, or the improper discharge of, any obligation or duty, contractual or otherwise, with respect to any ... contract ... of insurance ... including any applications" and (2) "advising, reporting or making recommendations, or the failure to do any of the foregoing, in the insured's capacity as an insurance company."

3. Commercial Umbrella General Liability (CU) policy. Farm Bureau was further insured under a CU policy issued by Federal and in effect during the period from February 15, 1999, to February 15, 2000.³ The coverage provided by this policy was expressly limited by the terms and conditions of the FI policy in the absence of CU policy provisions to the contrary. An endorsement to the policy included a "Financial Institution-Activities Exclusion" that mirrored the "Insurance and Related Operations Exclusion" within the FI policy referenced above.

C. District Court Proceedings. After settling the lawsuit with the Smiths, Farm Bureau filed suit in the Iowa District Court for Polk County alleging contract claims against its insurers, Chubb, Federal, and Great Northern.⁴

The insurers moved for summary judgment. The district court, concluding the insurers owed Farm Bureau no coverage under the policies, granted the motion. The court held no coverage was owed by Chubb or Federal under the ICPL policies because Farm Bureau failed to give the insurers timely notice of the Smiths' claims. The court further held no coverage was owed by Great Northern and Federal under the FI and CU coverages because (1) the claims against Farm Bureau were not occasioned by an "occurrence" as that term is defined in the policies, and (2) the Insurance and Related Operations Exclusion in the FI policy and the Financial Institution-Activities Exclusion in the CU policy excluded coverage. Farm Bureau appealed.

II. Scope of Review.

The parameters of our review of summary judgment rulings are well established. "We review rulings on summary judgment motions for the correction of errors of law." Swainston v. Am. Family Mut. Ins. Co., 774 N.W.2d 478, 481 (Iowa 2009). "To obtain a grant of summary judgment on some issue in an action, the moving party must affirmatively establish the existence of undisputed facts entitling that party to a particular result under controlling law." Interstate Power Co. v. Ins. Co. of N. Am., 603 N.W.2d 751, 756 (Iowa 2000).

When no extrinsic evidence is offered on the meaning of language in a policy, "the interpretation and construction of an insurance policy are questions of law for the court." Lee v. Grinnell Mut. Reins. Co., 646 N.W.2d 403, 406 (Iowa 2002). "We adhere to the rule `that the intent of the parties must control'" when construing insurance contracts. Swainston, 774 N.W.2d at 481 (quoting A.Y. McDonald Indus., Inc. v. Ins. Co. of N. Am., 475 N.W.2d 607, 618 (Iowa 1991)). Except in cases of ambiguity, the intent of the parties is determined by what the policy says. A.Y. McDonald Indus., 475 N.W.2d at 618.

III. Discussion.

Farm Bureau contends the district court erred in concluding (1) no coverage exists under the ICPL policies because Farm Bureau failed to give timely notice of the claims against it, and (2) no coverage exists under the FI and CU policies because Farm Bureau failed to establish an "occurrence" and because the "Insurance and Related Operations Exclusion" and the "Financial Institution-Activities Exclusion" apply under the circumstances of this case. We will address these contentions separately.

A. Coverage Under the ICPL Policies. As we have noted, Chubb provided ICPL coverage to Farm Bureau from February 15, 1998, through February 15, 2001. Thereafter Farm Bureau purchased such coverage from Federal from February 15, 2002, through February 15, 2006, through a series of policies issued annually. The parties agree that each of these policies was a claims-made professional liability policy providing coverage for losses resulting from claims first made against Farm Bureau during the policy period.

It is uncontroverted that a claim was first made by the Smiths for purposes of this coverage no later than July of 2002 when the summons and complaint filed in the Wyoming Federal District Court were served on Farm Bureau. Thus, the claim in question was first made after the ICPL policy issued by Chubb had expired but while the policy issued by Federal for the term of February 15, 2002, to February 15, 2003, was in effect.

The ICPL policy for the period commencing February 15, 2002, specifically provided "as a condition precedent" to coverage, Farm Bureau must give Federal written notice of claims. The policy expressly required the written notice be given to Federal at its home office claims department located at 15 Mountain View Road, Warren, New Jersey, "as soon as practicable, but in no event later than ninety (90) days after the termination of the Policy Period." As the insured under the policy in question, Farm Bureau bears the burden of showing it satisfied this prerequisite to coverage. Henschel v. Hawkeye-Sec. Ins. Co., 178 N.W.2d 409, 417 (Iowa 1970).

The record establishes Farm Bureau waited until February 11, 2003, to notify its insurance broker, Holmes Murphy, of the Smiths' claims. Holmes Murphy did not notify Federal of the claim until June 2005, more than two years after the relevant ICPL policy had expired.

The district court...