Physicians Ins. Co. of Wis. v. Williams

• Decision Date: 28 June 2012
• Docket Number: No. 54126.,54126.
• Citation: 128 Nev. Adv. Op. 30,279 P.3d 174
• Parties: PHYSICIANS INSURANCE COMPANY OF WISCONSIN, INC., d/b/a PIC Wisconsin, Appellant, v. Glenn WILLIAMS, Respondent.
• Court: Nevada Supreme Court

279 P.3d 174

128 Nev. Adv. Op. 30

PHYSICIANS INSURANCE COMPANY OF WISCONSIN, INC., d/b/a PIC Wisconsin, Appellant,

v.Glenn WILLIAMS, Respondent.

No. 54126.

Supreme Court of Nevada.

June 28, 2012.

Lewis & Roca LLP and Daniel F. Polsenberg, Joel D. Henriod, and Jacqueline A. Gilbert, Las Vegas, for Appellant.

Hutchison & Steffen, LLC, and Michael K. Wall and Todd L. Moody, Las Vegas, for Respondent.

BEFORE CHERRY, C.J., GIBBONS and PICKERING, JJ.

OPINION

By the Court, PICKERING, J.:

This appeal involves the interpretation of a claims-made professional liability insurance policy that appellant Physicians Insurance Company of Wisconsin, Inc., d.b.a. PIC Wisconsin (PIC), issued to nonparty dentist Hamid Ahmadi, D.D.S. The policy covers dental malpractice claims made against Dr. Ahmadi and reported to PIC during the policy period. On cross-motions for summary judgment, the district court determined that PIC received constructive notice of respondent Glenn Williams's malpractice claim against Dr. Ahmadi while the policy was in force and held that this was enough to trigger coverage. Our review is de novo, Powell v. Liberty Mutual Fire Ins. Co., 127 Nev. 14, ––––, 252 P.3d 668, 672 (2011) (citing Farmers Ins. Exch. v. Neal, 119 Nev. 62, 64, 64 P.3d 472, 473 (2003) (insurance policy interpretation presents a question of law); Wood v. Safeway, Inc., 121 Nev. 724, 729, 121 P.3d 1026, 1029 (2005) (summary judgment review is de novo)), and we reverse.

I. FACTS

Williams recovered a $480,260 default judgment against Dr. Ahmadi. His complaint alleged that, without his knowledge or consent, Dr. Ahmadi used street cocaine to anesthetize Williams's gums during a 2002 root canal. A short time later, Williams sideswiped a residential gas meter while driving a cement truck for work. His employer subjected him to a mandatory drug test, which came back positive for cocaine. Williams had never used cocaine, and he asked Dr. Ahmadi if the root canal medications might have caused a false-positive test result. Dr. Ahmadi acknowledged the possibility and wrote Williams's employer to suggest this explanation for the positive drug test result, but the employer was unconvinced. As a result, Williams lost his job and his 20–year career as a union truck driver.

The PIC policy had a retroactive date of April 13, 1998, and, through renewals, its coverage extended to April 14, 2004. Williams filed suit against Dr. Ahmadi on April 15, 2004, the day after the PIC policy expired. Earlier, on February 6, 2004, while the policy was still in force, Williams sent Dr. Ahmadi a demand letter by certified mail. Dr. Ahmadi neither responded to Williams nor alerted PIC to the demand or the suit that followed. Five months after the policy expired, Williams, through his lawyer, made demand directly on PIC.

Meanwhile, Dr. Ahmadi's personal and professional life had spun out of control. In December 2003, California authorities arrested him for possession of 57.8 grams (roughly two ounces) of cocaine and charged him with drug trafficking. A month later, the Nevada State Board of Dental Examiners obtained a stipulated order suspending his dentistry license. And on April 13, 2004, Washington authorities arrested Dr. Ahmadi for prescribing painkillers to himself in phony patient names.

PIC learned about Dr. Ahmadi's meltdown anecdotally. An entry in its file log dated January 20, 2004, notes: “Joanie heard on news last nite that [Dr. Ahmadi] has been charged w/ giving patients cocaine.” Around the same time, Dr. Ahmadi reported an office burglary in which expensive equipment was stolen (PIC also insured this risk). Because there were no signs of forced entry, PIC became suspicious and hired an investigator. The investigation turned up, among other things, two brief newspaper accounts of Dr. Ahmadi's drug-trafficking arrest. One article reported that Dr. Ahmadi told the arresting officers that he did not sell cocaine but kept it for personal use and for use in his dental practice and that the Nevada State Board of Dental Examiners was “investigating the allegations that Ahmadi used cocaine himself and if he used it on his patients.” ¹ The second article reported that Dr. Ahmadi's dental license had been suspended. PIC received fax copies of the articles in March 2004; a few days later, PIC obtained a copy of the stipulated order suspending Dr. Ahmadi's license.

Dr. Ahmadi's license suspension gave PIC grounds to cancel the policy and/or to assess an additional premium for continued coverage.² On April 2, 2004, PIC gave Dr. Ahmadi written notice of cancellation “due to the change in the status of your dental license as ordered by the Nevada State Board of Dental Examiners.” It offered Dr. Ahmadi renewal coverage through June 2, 2004, and an extended reporting endorsement or “tail” coverage beyond that, contingent on Dr. Ahmadi paying additional premiums of $199 and $2,862, respectively. Dr. Ahmadi paid neither, and the policy expired on April 14, 2004.

When Williams later made direct demand on PIC. the company took the position that coverage did not exist because the claim had not been made and reported during the policy period. Williams responded by filing the suit underlying this appeal. After discovery, the district court granted in part and denied in part the parties' cross-motions for summary judgment. The district court held that Williams did not have a direct right of action against PIC to enforce his default judgment against Dr. Ahmadi. Nonetheless, it granted Williams declaratory relief, holding that Williams's claim had been made and reported during the policy period:

In consideration of the language used in the policy in place, the totality of the information in the possession of [PIC], coupled with the nature of the information and the manner in which it was received, constitutes a timely claim having been made on behalf of Mr. Williams pursuant to the terms of the claims-made professional dental liability insurance policy.

PIC appeals.³

II. DISCUSSION

The PIC policy is a claims-made-and-reported malpractice policy. For coverage, a claim must be made and reported within the policy period. In granting Williams declaratory relief, the district court focused on the policy's definition of “claim” without considering its insuring agreement clause and related provisions. This was error, in that the decision interpreted “claim” more broadly than the policy's language reasonably allows and effectively recast the policy from a claims-notice policy to an occurrence-notice policy. A court may not rewrite a policy under the guise of construing it. See Griffin v. Old Republic Ins. Co., 122 Nev. 479, 483, 133 P.3d 251, 254 (2006).

A. Occurrence versus claims-made coverage

An occurrence-based policy provides broader coverage but at greater cost to the insured than a claims-made policy. Under an occurrence policy, “it is irrelevant whether the resulting claim is brought against the insured during or after the policy period, as long as the injury-causing event happens during the policy period.” 1 Barry R. Ostrager & Thomas R. Newman, Handbook on Insurance Coverage Disputes § 8.03[a], at 638 (15th ed. Supp. 2011). “By contrast, the event that invokes coverage under a ‘claims made’ policy is transmittal of notice of the claim [during the policy period] to the insurance carrier.” Zuckerman v. Nat. Union Fire Ins., 100 N.J. 304, 495 A.2d 395, 406 (1985).

Claims-made policies come in several varieties. “The most restrictive type of claims-made policy is one that requires not only that the claim be both made and reported to the insurer during the policy period, but also that the claim arise out of wrongful acts that take place after the inception of the policy and during the policy period.” Ostrager & Newman, supra, § 4.02[b], at 165. Some claims-made-and-reported policies contain “awareness”or “discovery” provisions. Such provisions “allow the insured to report potential claims or events, acts or circumstances that the insured reasonably believes may give rise to a claim against it in the future.” Id. at 166. This affords an insured “additional protection for a claim or suit that may not be brought until years after the policy has expired, as long as the insured provided notice to the insurer, during the policy period, of the facts, circumstances, or events out of which the claim or suit arises.” Id.

The limited-coverage drawback of claims-made insurance “is not without a corresponding benefit to the insured: in claims made policies, risk exposure is terminated at a fixed point and, as a result, underwriters may more accurately predict an insurer's potential liability. This decreased risk allows insurers to supply claims made policies at a lower price, thereby benefitting insureds.' ” Simpson & Creasy, P.C. v. Continental Cas. Co., 770 F.Supp.2d 1351, 1355 (S.D.Ga.2011) (quoting Gerald P. Dwyer, Jr., Appleman on Insurance Law and Practice § 4.04[4][d][1] (2010)).

The knowledge that after a certain date the insurer is no longer liable for newly reported claims under a claims-made policy enables the insurer to fix its reserves more accurately for future liabilities and to compute premiums with greater certainty. By limiting the maximum “tail” exposure period, the insurer also avoids the increased risks associated with future inflation, the prospect of increasing jury awards, and unanticipated changes in the substantive law. Thus, the premiums on claims-made policies can be set at lower rates than comparable coverage under an occurrence form.

Ostrager & Newman, supra, § 4.02[b], at 162–63 (citations omitted) (internal quotation marks omitted); see American Cas. Co. v. Continisio, 17 F.3d 62, 68 (3d Cir.1994) (“Claims-made policies are less expensive because underwriters can calculate risks more precisely since exposure ends at a fixed point.”).

The Nevada Legislature has recognized that claims-made insurance plays an important role in meeting health care provider...