Gulf Ins. Co. v. Dolan, Fertig and Curtis, 62786

• Decision Date: 26 May 1983
• Docket Number: No. 62786,62786
• Citation: 433 So.2d 512
• Parties: GULF INSURANCE COMPANY, Petitioner, v. DOLAN, FERTIG AND CURTIS, Respondent.
• Court: Florida Supreme Court

Page 512

433 So.2d 512

37 A.L.R.4th 374

GULF INSURANCE COMPANY, Petitioner, v. DOLAN, FERTIG AND CURTIS, Respondent.

No. 62786.

Supreme Court of Florida.

May 26, 1983.

William D. Ricker, Jr. and Michael T. Burke of Fleming, O'Bryan & Fleming, Fort Lauderdale, for petitioner.

M. Lee Gay, Jr. of McClure & Gay, Fort Lauderdale, for respondent.

EHRLICH, Justice.

This is a case of first impression in Florida. The issue is whether the Court can engraft upon an unambiguous claims-made insurance policy a reasonable additional period of time after the policy period expires for reporting claims that arise late in the contract term.

Respondent (Dolan) is a law firm. It contracted with petitioner (Gulf) for a claims-made insurance policy for the period November 20, 1978 to November 20, 1979. Gulf's policy with Dolan required Gulf to pay all sums on behalf of the insured that the insured should become legally obligated to pay as damages for any claim arising out of professional legal services first made against the insured during the policy period. The policy required that the claim arise for services performed during the policy period; that the claim be known to or made against the insured during said period; and that the insured notify the insurer thereof during said period.

Dolan did not renew the Gulf policy but instead contracted with Lawyers Professional Liability Insurance Company (LPLIC) for a claims-made policy effective for the period November 20, 1979 to November 20, 1980. That policy contained a retroactive provision extending back to 1977, except for claims arising out of any occurrence prior to the effective date of the policy if the insured knew of it prior to the policy period.

On November 19, 1979, the Gulf policy's final day, Dolan received a letter from a client advising it that it no longer represented the client, suggesting that Dolan was grossly negligent in its professional performance, and requesting that Dolan place its malpractice carrier on notice.

Dolan notified LPLIC on or about December 6, 1979 of the existence of this claim. LPLIC informed Dolan on January 16, 1980 that the claim would not be covered because the claim had been known to Dolan before the LPLIC policy was issued. Dolan then contacted Gulf in writing on February 12, 1980 concerning the malpractice claim. Gulf denied coverage, stating it was not notified during the policy period as expressly required in the contract.

Meanwhile, the aggrieved client sued Dolan and received a judgment in excess of $50,000. Dolan then commenced a suit for declaratory relief seeking a determination of whether Gulf or LPLIC or both were liable for the damages award. LPLIC's motion for summary judgment was denied; Gulf's was granted. Dolan appealed the granting of Gulf's motion for summary judgment to the district court. That court, in Dolan, Fertig & Curtis v. Gulf Insurance Co., 419 So.2d 1108 (Fla. 4th DCA 1982), reversed Gulf's summary judgment. It held that the contract was not ambiguous and that claims-made policies were not against public policy. However, "in order to make the contract fair," 419 So.2d at 1110, the district court held that there should be a reasonable time after the policy period expires for reporting claims that are discovered late in the policy period, even though that time extends beyond the termination of the policy. On Petition for Rehearing, the district court certified the following question to us:

As a matter of policy may the court require that "claims made" professional liability policies should (sic) be subjected to a reasonable additional period beyond the termination date of the policy for reporting claims that arise late in the contract term?

419 So.2d at 1111. We have jurisdiction pursuant to article V, section 3(b)(4), Florida Constitution. We answer the certified question in the negative and quash the opinion of the district court.

The liability insurance policy at issue in this case is referred to as a claims-made policy (sometimes called a discovery policy) as distinct from an occurrence policy. An occurrence policy is a policy in which the coverage is effective if the negligent act or omission occurs within the policy period, regardless of the date of discovery or the date the claim is made or asserted. Samuel N. Zarpas, Inc. v. Morrow, 215 F.Supp. 887 (D.C.N.J.1963); Bill Binko Chrysler-Plymouth, Inc. v. Compass Insurance Co., 385 So.2d 692 (Fla. 4th DCA 1980); Ranger Insurance Co. v. United States Fire Insurance Co., 350 So.2d 570 (Fla. 3d DCA 1977). See also 7A Appleman, Insurance Law and Practice 313 (Berdal ed. 1979). Initially, all professional liability policies were occurrence policies but because of numerous difficulties with this type of coverage, claims-made policies were initiated and the present trend is toward the latter type. Kroll, The "Claims Made" Dilemma in Professional Liability Insurance, 22 U.C.L.A.L.Rev. 925, 926 (1975). A claims-made policy is a policy "wherein the coverage is effective if the negligent or omitted act is discovered and brought to the attention of the insurer within the policy term." 7A Appleman at 312. See also Bill Binko Chrysler-Plymouth; Ranger Insurance Co. The essence, then, of a claims-made policy is notice to the carrier within the policy period.

Respondent has argued to this Court that we should strike down all claims-made liability insurance policies as being inequitable agreements and thus in violation of public policy. This we decline to do. Consistent with the views of numerous of our sister courts, we believe that claims-made policies are not "patently offensive or inimical to the public welfare ... [nor do they] have a clear capacity to support or encourage conduct which is deleterious, anti-social or unlawful." Rotwein v. General Accident Group, 103 N.J.Super. 406, 416, 247 A.2d 370, 376 (1968). See also James J. Brogger & Associates, Inc. v. American Motorists Insurance Co., 42 Colo.App. 464, 595 P.2d 1063 (1979); Graman v. Continental Casualty Co., 87 Ill.App.3d 896, 42 Ill.Dec. 772, 409 N.E.2d 387 (1980); Livingston Parish School Board v. Fireman's Fund American Insurance Co., 282 So.2d 478 (La.1973); Breaux v. St. Paul Fire & Marine Insurance Co., 326 So.2d 891 (La.App.1976); Gereboff v. Home Indemnity Co., 119 R.I. 814, 383 A.2d 1024 (1978). Courts ... should be guided by the rule of extreme caution when called upon to declare transactions void as contrary to public policy and should refuse to strike down contracts involving private relationships on this ground, unless it be made clearly to appear that there has been some great prejudice to the dominant public interest sufficient to overthrow the fundamental public policy of the right to freedom of contract between parties sui juris.

Bituminous Casualty Corp. v. Williams, 154 Fla. 191, 197, 17 So.2d 98, 101 (1944) (citations omitted). The great prejudice to the dominant public interest has not been clearly shown; we hold, therefore, that claims-made liability contracts, in general, are not against our public policy.

The district court, in the decision below, certified its question of great public importance on the basis of a contract having "no express provision fixing a reasonable time after the policy period expires for reporting claims that are discovered late in the policy period...." 419 So.2d at 1111 (emphasis supplied). We believe that the district court at this juncture has misapplied the concept of a "reasonable time" as it relates to a claims-made policy. Both claims-made and occurrence policies generally have provisions written into the contract that require, as a condition of the policy, that the insured give notice of the claim to the insurance carrier "immediately," "promptly," "as soon as practicable," or "within a reasonable time." See American Fire & Casualty Co. v. Collura, 163 So.2d 784 (Fla. 2d DCA), cert. denied, 171 So.2d 389 (Fla.1964). This is bottomed on the premise of prejudice to the insurer who, because of a client's delayed notice to it, has, for example, lost the opportunity of making a timely investigation, forming an estimate of its rights and liabilities, or preventing fraud upon...