Langley v. Mutual Fire, Marine and Inland Ins. Co.

• Decision Date: 24 July 1987
• Citation: 512 So.2d 752
• Parties: John LANGLEY v. MUTUAL FIRE, MARINE AND INLAND INSURANCE COMPANY, a corporation, et al. 85-320.
• Court: Alabama Supreme Court

Page 752

512 So.2d 752

John LANGLEY v. MUTUAL FIRE, MARINE AND INLAND INSURANCE COMPANY, a corporation, et al.

85-320.

Supreme Court of Alabama.

July 24, 1987.

Richard E. Browning of Cunningham, Bounds, Yance, Crowder, and Brown, Mobile, for appellant.

James H. Crosby and R. Alan Alexander of Brown, Hudgens, Richardson, Mobile, for appellee Mutual Fire, Marine & Inland Ins. Co.

Edward A. Dean of Armbrecht, Jackson, DeMouy, Crowe, Holmes & Reeves, Mobile, for appellees A. Pharr Hume and W.K.P. Wilson & Son, Inc.

BEATTY, Justice.

This is an appeal by plaintiff, Dr. John Langley, from an order granting summary judgment in favor of defendants, Mutual Fire, Marine and Inland Insurance Company ("Mutual Fire"); W.K.P. Wilson and Son, Inc.; and Mr. Pharr Hume. We affirm.

From August 9, 1977, through August 8, 1978, Dr. Langley's medical malpractice liability insurance carrier was Mutual Fire. The policy issued to Dr. Langley by Mutual Fire was a "claims-made" insurance policy. The first sentence appearing in Dr. Langley's policy is a statement alerting the insured as to the nature of the "claims-made" type of policy; it provided as follows:

"Claims Made Policy: Except to such extent as may be provided otherwise herein, this policy is limited to liability for only those CLAIMS THAT ARE FIRST MADE AGAINST THE INSURED WHILE THE POLICY IS IN FORCE. Please review the policy carefully."

Further down on the same page of the policy, under the section entitled "The Coverage," there appears another statement explaining the claims-made character of the policy:

"Claims Made Clause: This policy applies to CLAIMS FIRST MADE AGAINST THE INSURED DURING THE POLICY PERIOD arising out of malpractice committed or alleged to have been committed subsequent to the retroactive date set forth in the Declarations."

According to Dr. Langley, during the summer of 1978, W.K.P. Wilson & Son, Inc., through its agent, Pharr Hume, contacted Dr. Langley and solicited his malpractice insurance business. Wilson & Son and Hume, however, contend that they did not contact Dr. Langley until the fall of 1978. In any event, Dr. Langley did not renew his coverage with Mutual Fire, nor did he execute the optional extension of coverage offered by Mutual Fire that would have continued his coverage for three years for claims based on acts or omissions that occurred during the primary term of the Mutual Fire policy. This "optional extension period" is described at length on the second page of Dr. Langley's policy:

"4. Optional Extension Period: In the event of the termination of this insurance by reason of non-renewal or cancellation by the Insured, or if the Company shall cancel this policy or terminate it by refusing to renew, then the Insured upon payment of an additional premium shall have the option to extend this policy, subject otherwise to its terms, limits of coverage, exclusions and conditions, to apply to claims first made against the insured during thirty-six calendar months following immediately upon the effective date of such cancellation or non-renewal, but only for such malpractice committed or alleged to have been committed between the retroactive date and the effective date or such cancellation or termination. This interval shall be hereinafter referred to as the OPTIONAL EXTENSION PERIOD.

"...

"However, the Insured's right to purchase an optional extension period must be exercised by the Insured by notice in writing not later than forty-five days after the cancellation or termination date of this policy. If such notice is not given the Insured shall not at a later date be able to exercise such right.

"The fact that the period during which claims may be first made under this policy is extended by virtue of the optional extension period shall not in any way increase the limits of liability set forth in the Declarations." (Emphasis added.)

Following Dr. Langley's non-renewal of his Mutual Fire policy, which was effective on August 9, 1978, he received the following letter from Mutual Fire concerning his option to extend his coverage in accordance with the above-quoted provision of his policy with Mutual Fire:

"CERTIFIED MAIL

"RETURN RECEIPT REQUESTED

"August 14, 1978

"John Olin Langley, MD

"John Olin Langley, MD, PC

"1701 Springhill Avenue

"Mobile, AL 36604

"Re: Non-Renewal of Professional Liability Insurance for Physicians and Surgeons

Insurer: The Mutual Fire, Marine & Inland Insurance Company

Contract Number: MP 702567

Effective Date of Non-Renewal: August 9, 1978

OPTION TO EXTEND THE CLAIMS REPORTING PERIOD

"Dear Dr. Langley:

"We are hereby notifying you of your right in accordance with the terms and conditions of your contract to purchase the Optional Extension Period as defined in your contract under the Section entitled THE COVERAGE.

"The premium for the three year Optional Extension Period is $8,833.00, plus any applicable tax.

"The right to exercise the Optional Extension Period must be exercised by you in writing no later than forty-five (45) days following August 9, 1978 or ten (10) days from the date of this letter, whichever date is later. Please return your signed and dated response in the business envelope enclosed for your use.

"Sincerely,

"Carolyn J. Sayre

"CJS/jr

"cc: Mr. Alan Murray

John Lloyd & Co.

PO Box 7503-A, Office Park

Birmingham, AL 35223"

As previously noted, Dr. Langley did not exercise his option to purchase the extended coverage with Mutual Fire. Instead, on October 20, 1978, Dr. Langley applied for coverage through Wilson & Son, the insurance to be underwritten by St. Paul Fire & Marine Insurance Company ("St. Paul").

Dr. Langley contends that Hume represented to him that his insurance coverage would be continuous; that is, that there would be no lapse in coverage from the date of the changeover from the Mutual Fire policy to the St. Paul policy. Nevertheless, Dr. Langley's application for insurance through Wilson & Son indicated that coverage would not be effective until October 24, 1978, the date on which Dr. Langley's policy was, in fact, issued. In other words, the retroactive date on Dr. Langley's St. Paul policy was October 24, 1978, and, therefore, the policy did not provide coverage for any period of time prior thereto. Indeed, because Dr. Langley's cancellation of his Mutual Fire policy was effective August 9, 1978, Dr. Langley was completely without coverage for the period between August 9 and October 24, 1978. Additionally, the St. Paul policy issued to Dr. Langley in October was also a claims-made type of policy.

Dr. Langley continued his malpractice coverage through Wilson & Son until March 24, 1980, when Wilson & Son cancelled the policy for nonpayment of premiums. Dr. Langley also subsequently declined to purchase an optional "Reporting Endorsement" from St. Paul, which would have offered him the same type of benefit as the optional extension of coverage that had been offered Langley by Mutual Fire. Under the terms of the St. Paul policy and the reporting endorsement offered to Dr. Langley by St. Paul, that endorsement would have covered Dr. Langley on a continuous basis for injuries or deaths occurring during the policy period (October 24, 1978, through March 24, 1980) without regard to when the claim was made.

In February 1983, a medical malpractice claim was filed against Dr. Langley alleging negligence in the delivery of a child on July 9, 1978, which negligence resulted in the severe and permanent brain damage of the child. Dr. Langley first notified Wilson & Son of the claim, but it declined to defend, responding that Mutual Fire was Dr. Langley's insurer on the date of the alleged negligent delivery. Mutual Fire, however, also refused to defend because the policy under which Dr. Langley had been insured was expressly "limited to liability for only those CLAIMS THAT ARE FIRST MADE AGAINST THE INSURED WHILE THE POLICY IS IN FORCE." (Emphasis added.) Further, Dr. Langley had declined to purchase the optional extension of coverage at the time he cancelled his policy with Mutual Fire. Dr. Langley filed this action on January 9, 1984, naming as defendants Mutual Fire; Wilson & Son; and Pharr Hume, individually.

In the interest of clarity and convenience, the above narrative of pertinent events is set out below in chronological fashion:

August 9, 1977 Effective date of Dr. Langley's claims-

made policy with Mutual Fire.

July 9, 1978 Date of alleged medical malpractice by

Dr. Langley.

August 9, 1978 Mutual Fire policy cancelled (non-

renewed).

August 14, 1978 Mutual Fire's letter to Dr. Langley

notifying him of his option to purchase

extention contract.

October 20, 1978 Date of Dr. Langley's application for

coverage through Wilson & Son.

October 24, 1978 Effective date of Dr. Langley's claims-

made policy with St. Paul.

March 24, 1982 St. Paul policy cancelled for nonpayment

of premiums.

February 1983 Medical malpractice action filed against

Dr. Langley for alleged negligence on

July 9, 1978.

January 9, 1984 Langley's fraud, negligence, and breach

of contract action filed against Mutual

Fire, Pharr Hume, and Wilson & Son.

By his initial complaint, Dr. Langley's claim against Mutual Fire alleged breach of contract, and his claims against Pharr Hume and Wilson & Son alleged misrepresentation and negligent design and structuring of his insurance coverage. Discovery ensued, and then, together, Wilson & Son and Hume moved for summary judgment, as did Mutual Fire. The trial court granted defendants' motions by separate orders entered August 13, 1985. Dr. Langley subsequently sought to amend his complaint on September 11, 1985, to allege a breach of contract claim against Wilson & Son and Pharr Hume. The same day, Dr. Langley also filed a motion to reconsider. The trial court granted both motions and set aside the summary judgment entered August 13, 1985. Wilson & Son and Hume moved to strike the amended complaint, but that motion was denied. Subsequently, on October...