Lexington Ins. Co. v. American Healthcare Providers

• Decision Date: 13 September 1993
• Docket Number: No. 49A02-9208-CV-354,49A02-9208-CV-354
• Citation: 621 N.E.2d 332
• Court: Indiana Appellate Court
• Parties: LEXINGTON INSURANCE COMPANY, Appellant/Cross-Appellee-Defendant, v. AMERICAN HEALTHCARE PROVIDERS, et al., Appellee/Cross-Appellant-Plaintiff.

Page 332

621 N.E.2d 332

LEXINGTON INSURANCE COMPANY, Appellant/Cross-Appellee-Defendant, v. AMERICAN HEALTHCARE PROVIDERS, et al.,

Appellee/Cross-Appellant-Plaintiff.

No. 49A02-9208-CV-354.

Court of Appeals of Indiana,

Second District.

Sept. 13, 1993.

John D. Nell, Julie L. Michaelis, Wooden McLaughlin & Sterner, Indianapolis, for appellant/cross-appellee-defendant.

Frederick J. Ball, Timothy G. Kline, Goodman Ball & Van Bokkelen Professional Corporation, Highland, for appellee/cross-appellant-plaintiff.

FRIEDLANDER, Judge.

CASE SUMMARY

Defendant-appellant/cross-appellee Lexington Insurance Company (Lexington) and plaintiffs-appellees/cross-appellants American Healthcare Providers, Inc. d/b/a American HMO (American), Asif Sayeed (Sayeed), Ramesh Joshi (Joshi), and David Lutz (Lutz) (collectively referred to as Plaintiffs) appeal from the denial of their respective motions for summary judgment in the Plaintiffs' declaratory judgment action against Lexington.

We affirm the denial of the Plaintiffs' motions for summary judgment, reverse the denial of Lexington's motion for summary judgment, and remand this cause to the trial court with instructions that it enter summary judgment for Lexington.

FACTS

The relevant facts reveal that Sayeed, Joshi and Lutz were either officers, directors, employees or agents of both American, an Illinois corporation, and Physician's Choice of Northwest Indiana, Inc. (PCNI), an Indiana corporation. American and PCNI are pre-paid health maintenance organizations. Both American and PCNI obtained directors and officers liability insurance from Lexington.

PCNI was formed in 1985 and its stock was owned by Comprehensive Healthcare Utilization Alternatives, Inc. (CHUA), an Indiana Corporation. In January, 1987, PCNI and CHUA entered into a management agreement with American which provided that American would provide PCNI with all management services and operational staffing necessary for its operation in return for a percentage of PCNI's net premium. CHUA also entered into a contract for sale with American which granted American rights to purchase a total of eighty percent (80%) of CHUA's stock by exercising options pursuant to the terms contained therein. The contract for sale also provided that American agreed it would be responsible for funding any operating deficits of CHUA or PCNI from the date of the execution of the contract through the date it exercised its first option. American managed PCNI in accordance with the management agreement, however, it did not timely exercise either of its options to purchase CHUA's shares. Pursuant to the agreements, American appointed several of its officers or directors as officers or directors of PCNI.

Financial difficulties plagued PCNI, and in December, 1988, a petition for the rehabilitation of PCNI was filed in the Marion Circuit Court. In February, 1989, a petition for the liquidation of PCNI was filed in the same court and the acting commissioner of the Indiana Department of Insurance was appointed Liquidator of PCNI.

On October 11, 1989, PCNI's Liquidator filed two lawsuits. The first action (Lawsuit A) named Sayeed, Lutz ¹ and nine other directors (the Director Defendants) of PCNI as defendants to a claim for breach of fiduciary duties owed to PCNI. The second action (Lawsuit B), comprised of three counts, was filed against the Plaintiffs. The first count of Lawsuit B alleged that American had obtained preferential transfers from PCNI totaling almost $700,000 when American knew PCNI was insolvent, and sought to recover those transfers. The second count was a claim against Sayeed, Joshi and Lutz alleging that, while acting on behalf of PCNI, they participated in the preferential transfers and that they were personally liable for the On April 16, 1990, the Plaintiffs filed a complaint for declaratory judgment against Lexington, claiming that Lexington owed them a duty to defend in the suits and indemnify them and the Director Defendants from any judgment rendered in Lawsuit A or B all pursuant to PCNI's and American's insurance policies with Lexington. The Director Defendants filed a separate declaratory judgment action in the Newton Circuit Court which was consolidated with the Plaintiffs' action.

amount of the preferences. The third count of the complaint alleged that American had violated its management agreement with PCNI by failing to provide certain services and that it had violated the contract of sale by failing to fund PCNI's operating deficits.

On December 20, 1991, the Plaintiffs and the Director Defendants settled all claims asserted by the Liquidator in Lawsuits A and B. On December 23, 1991, Lexington filed its motion for summary judgment. On February 28, 1992, the Plaintiffs responded to Lexington's motion and filed a cross-motion for summary judgment. After a hearing on the motions, the trial court denied Lexington's motion on June 23, 1992 and denied the Plaintiffs' motion on August 18, 1992. The trial court certified each denial for interlocutory appeal, and this court accepted jurisdiction.

ISSUE

Whether the Plaintiffs and Director Defendants are entitled to coverage under either PCNI's or American's policy.

DECISION

PARTIES' CONTENTIONS--Lexington argues that coverage is precluded under both policies because each policy excluded claims relating to the insolvency or liquidation of any person, including claims asserted by liquidators of insurers or Commissioners of Insurance. The Plaintiffs mount a three-pronged attack on the exclusion, challenging it as being ambiguous, contrary to public policy and inapplicable because they did not receive notice of its provisions.

CONCLUSION--As the policies do not cover any of the claims asserted against the Plaintiffs or the Director Defendants, ² the trial court should have entered summary judgment in Lexington's favor, and we affirm as to the trial court's denial of the Plaintiffs' cross-motions for summary judgment.

The pertinent provision in each policy, Exclusion Q, excludes from coverage:

"Claims based upon, arising out of, due to or involving directly or indirectly the insolvency, receivership, bankruptcy, liquidation or financial inability to pay of any Insured, any Insurer or any other person, including Claims brought by any insurer guarantee or insolvency fund or any receiver or liquidator of any insurer or any Commissioner or Superintendent of Insurance."

Record at 193 (emphasis supplied).

When interpreting an insurance policy, our goal is to ascertain and enforce the parties' intent as manifested in the contract for insurance. American Family Mut. Ins. Co. v. National Ins. Assoc. (1991), Ind.App., 577 N.E.2d 969. We will not extend coverage beyond that provided in the contract and we may not rewrite the plain and unambiguous language of the insurance policy. Id.; Landis v. American Interinsurance Exch. (1989), Ind.App., 542 N.E.2d 1351, trans. dismissed.

If the policy language is clear and unambiguous, it should be given its plain and ordinary meaning. Tate v. Secura Ins. (1992), Ind., 587 N.E.2d 665; Eli Lilly & Co. v. Home Ins. Co. (1985), Ind., 482 N.E.2d 467, cert. denied 479 U.S. 1060, 107 S.Ct. 940, 93 L.Ed.2d 991. An insurance policy will be considered ambiguous only if reasonable persons upon reading the contract would differ as to the meaning of its terms, and an ambiguity is not established merely because one party controverts another party's interpretation of the policy. Meridian Mut. Ins. Co. v. Cox (1989), Ind.App., 541 N.E.2d 959, trans. denied.

Further, as Lexington is appealing from the denial of its motion for summary judgment, it bears the burden of demonstrating that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Jordan v. Deery (1993), Ind., 609 N.E.2d 1104. When reviewing the trial court's ruling on a motion for summary judgment, we consider the evidence designated to the trial court by the parties in the light most favorable to the nonmoving party. Rosi v. Business Furniture Corp. (1993), 615 N.E.2d 431.

The provisions of an insurance contract are subject to the same rules of interpretation and construction as other contracts, and summary judgment based upon the construction of a contract is a determination, as a matter of law, that the contract is not so ambiguous that resort must be made to extrinsic evidence in order to ascertain the contract's meaning. Cox, supra. As the construction of a contract is a question of law, summary judgment is particularly appropriate when the terms of the contract are unambiguous. Bicknell Minerals, Inc. v. Tilly (1991), Ind.App., 570 N.E.2d 1307, trans. denied.

I. Ambiguity

The Plaintiffs first assail Exclusion Q as being ambiguous. The Plaintiffs attempt to bolster their position by relying on several federal cases which construed regulatory exclusions to directors and officers' liability insurance policies issued to failed financial institutions. See American Casualty Co. v. Federal Savings and Loan Ins. Corp. (E.D.Ark.1989), 704 F.Supp. 898; American Casualty Co. v. Federal Deposit Ins. Corp. (N.D.Iowa 1987), 677 F.Supp. 600. Lexington counters by pointing out that such exclusions are not uniformly considered to be ambiguous. See American Casualty Co. v. Baker (C.D.Cal.1991), 758 F.Supp. 1340; Gary v. American Casualty Co. (W.D.Okla.1990), 753 F.Supp. 1547. However, the regulatory exclusions considered in those cases are significantly different from the exclusion before us. Because of the difference in the applicable policy language, we conclude the federal decisions offer little support for the Plaintiffs' argument.

Lexington relies on Barron v. Scaife (1988), La.App., 535 So.2d 830. In Barron, the court considered an insurer insolvency endorsement which excluded from coverage claims "arising from or related to" the insolvency or liquidation of any insurance company. Id. at 832. The court concluded the exclusion was unambiguous:

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