Pinckney Community Schools v. Continental Cas. Co.

• Decision Date: 22 September 1995
• Docket Number: Docket No. 163986
• Citation: 213 Mich.App. 521,540 N.W.2d 748
• Parties: , 64 USLW 2464, 105 Ed. Law Rep. 709 PINCKNEY COMMUNITY SCHOOLS, Plaintiff-Appellant, v. CONTINENTAL CASUALTY COMPANY, Defendant-Appellee, and Citizens Insurance Company, National Fire & Marine Insurance Company, and Stewart Smith Mid America, Inc., Defendants.
• Court: Court of Appeal of Michigan — District of US

Page 748

540 N.W.2d 748

213 Mich.App. 521, 64 USLW 2464, 105

Ed. Law Rep. 709

PINCKNEY COMMUNITY SCHOOLS, Plaintiff-Appellant, v. CONTINENTAL CASUALTY COMPANY, Defendant-Appellee and Citizens Insurance Company, National Fire & Marine Insurance Company, and Stewart Smith Mid America, Inc., Defendants.

Docket No. 163986.

Court of Appeals of Michigan.

Submitted Jan. 18, 1995, at Lansing.

Decided Sept. 22, 1995, at 9:10 a.m.

Released for Publication Dec. 18, 1995.

Thrun, Maatsch & Nordberg, P.C. by Martha J. Marcero and Timothy R. Winship, Lansing, for plaintiff.

Meagher & Geer by Christian A. Preus, Minneapolis, MN, and Kerr, Russell & Weber by Roy H. Christiansen, Detroit, for defendant.

Before MARK J. CAVANAGH, P.J., and HOLBROOK and MARKEY, JJ.

MARKEY, Judge.

Plaintiff appeals as of right from an order granting summary disposition for defendant Continental Casualty Company (hereinafter defendant) pursuant to MCR 2.116(C)(10). We reverse and remand for further proceedings.

On March 16, 1979, plaintiff renewed its insurance policy with defendant. The policy, in effect from April 1, 1979, to April 1, 1982, provided coverage for claims against plaintiff for "Wrongful Acts," defined as "any actual or alleged errors ... or act or omission or neglect or breach of duty by the Assureds in the discharge of their duties."

In 1978, plaintiff hired Douglas Rutherford as a physical education instructor. In August 1981, Rutherford was laid off from his full-time job because of financial problems in the school district. Rutherford was assigned a part-time position teaching physical education at a district middle school. However, at the same time, plaintiff hired a full-time female instructor to teach a physical education class for girls at the same school where Rutherford had been employed full-time.

On December 18, 1981, Rutherford filed a charge of discrimination with the Department of Civil Rights (DCR), alleging that he was discriminated against on the basis of his sex in violation of the Civil Rights Act, M.C.L. § 37.2101 et seq.; M.S.A. § 3.548(101) et seq.

The DCR notified plaintiff of Rutherford's charge. In March 1982, plaintiff in turn notified defendant, which acknowledged receipt of the information in a letter and informed plaintiff that it had assigned a claim number to the case. Defendant also stated that if Rutherford were to file a lawsuit, defendant would review the complaint and make a coverage determination at that time.

Between 1981 and 1988, Rutherford's claim languished at the DCR. The delay was due in part to the illness of the investigator and to budget cuts at the DCR; in addition, the file may have been misplaced for a time. Eventually, the DCR investigated Rutherford's claim. On May 10, 1989, the DCR issued a formal complaint against plaintiff. In an opinion and order dated October 29, 1989, the DCR concluded that plaintiff had discriminated against Rutherford on the basis of his sex and awarded Rutherford monetary damages for lost wages for the 1981-82, 1982-83, 1983-84, and 1985-86 school years.

Plaintiff informed defendant of the award to Rutherford, but in a letter dated July 16, 1990, defendant declined coverage. On June 17, 1991, plaintiff satisfied the judgment by paying $67,737.46 to Rutherford.

On February 5, 1992, plaintiff filed a complaint against defendant and three other insurance companies. Plaintiff sought indemnification for the liability payment to Rutherford and for attorney fees and costs incurred in defending the action. Plaintiff and defendant both filed motions for summary disposition pursuant to MCR 2.116(C)(10). The trial court denied plaintiff's motion and granted defendant's motion on the basis that Rutherford's 1981 charge filed with the DCR did not constitute a claim but was merely an allegation of sex discrimination and notice of an impending investigation. Plaintiff's claims against the other three insurance companies were also dismissed. Plaintiff appeals only the trial court's grant of summary disposition for defendant.

Because plaintiff timely notified defendant in writing of Rutherford's DCR complaint (and the concurrent complaint filed with the Equal Employment Opportunities Commission [EEOC] ) filed against plaintiff and because the DCR complaint constituted a "claim" under defendant's "claims-made" insurance policy, we believe that the trial court erred in granting defendant's motion for summary disposition brought pursuant to MCR 2.116(C)(10).

On appeal, an order granting or denying summary disposition is reviewed de novo. A motion for summary disposition may be granted pursuant to MCR 2.116(C)(10) when, except with regard to the amount of damages, there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Giving the benefit of reasonable doubt to the nonmoving party, the trial court must determine whether a record might be developed that would leave open an issue upon which reasonable minds might differ. Michigan Mutual Ins. Co. v. Dowell, 204 Mich.App. 81, 85-86, 514 N.W.2d 185 (1994).

Defendant's policy provided coverage only for claims made "during the policy period." Thus, the policy is a "claims-made" policy. In general, a "claims-made" policy provides coverage no matter when the alleged error, omission, or act of negligence occurred as long as the misdeed is discovered and the claim for indemnity is made within the policy period. Stine v. Continental Casualty Co., 419 Mich. 89, 97, 349 N.W.2d 127 (1984). Defendant's insurance policy provided coverage for plaintiff in accordance with the following liability insurance provisions:

I. The Insurer designated in the declarations ... in consideration of the payment of the premium and subject to all of the terms, conditions and limitations of this policy agrees as follows:

* * * * * *

(c) With the School District that if during the policy period any claim or claims are made against it as a result of any Wrongful Act occurring during the policy period, the insurer will pay on behalf of, in accordance with the terms of this policy, all loss which the School District shall become legally obligated to pay.

* * * * * *

III. Definitions:

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(c) Wrongful Act shall mean any actual or alleged errors or misstatement or misleading statement or act or omission or neglect or breach of duty by the Assureds in the discharge of their duties, individually or collectively, or any matter claimed against them solely by reason of their being or having been Assureds during this policy period.

(d) Loss shall mean any amount which the Assured or School District are legally obligated to pay, including, but not limited to, any amounts which the School District may be required or permitted to pay as indemnity to an Assured, for a claim or claims made against an Assured for a Wrongful Act and shall include but not be limited to damages, judgments, settlements and costs, cost of investigation and defense of legal actions ... claims or proceedings and appeals therefrom, costs of attachment or similar bonds.... ¹

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VII. Notice of Claim:

(a) If the School District or any Assureds shall receive written or oral notice from any party that it is the intention of such party to hold the Assureds responsible for a Wrongful Act which occurred during the policy period, they shall give written notice within one year to the Insurer of the receipt of such written or oral notice, then any claim made within the space of two years following the termination of this policy ... against the Assureds arising out of such Wrongful Act shall, for the purpose of this policy, be treated as a claim made during the policy year in which the Wrongful Act occurred.

* * * * * *

(c) The School District, or the Assureds shall, as a condition precedent to their rights under this policy, give the Insurer notice in writing of any claim made and shall give the Insurer such information and cooperation as it may reasonably require. [Emphasis added.]

Courts must enforce the terms of an insurance contract as written. Courts may not read into an insurance policy an ambiguity that does not exist. When the terms of a policy are plain and unambiguous, their plain meaning should be given effect. Upjohn Co. v. New Hampshire Ins. Co., 438 Mich. 197, 206-207, 476 N.W.2d 392 (1991).

This appeal presents an issue of first impression for this Court: Whether a sex discrimination complaint filed with the DCR or the EEOC constitutes a "claim" within the meaning of an insurance policy that provides coverage where a wrongful act is discovered and a claim for indemnity is made within the policy period or two years after its termination. Stine, supra. Because defendant's insurance policy at issue does not define the term "claim," this term should be given its commonly used meaning, taking into account the reasonable expectations of the parties. Resort to dictionary definitions is helpful in this endeavor. Michigan Millers Mutual Ins. Co. v. Bronson Plating Co., 445 Mich. 558, 567-568, 519 N.W.2d 864 (1994). Although an insurance policy's failure to define a term does not render the term ambiguous, ambiguities that remain after determining a word's commonly used meaning should be construed favorably to the insured. Id.

In resolving whether Rutherford's 1981 complaint to the DCR alleging discrimination constituted a claim for a "wrongful act" within the meaning of defendant's policy, we must first ask whether "claim" is ambiguous in the context of the insurance policy. Id. at 567, 519 N.W.2d 864. Second, if "claim" is ambiguous and capable of a broad definition, we must determine whether it reasonably may be understood to encompass Rutherford's DCR complaint against plaintiff. Id.

Black's Law Dictionary (6th ed.), p. 247, defines the term "claim" as follows:

To demand as one's own or as one's right; to assert; to urge; to insist. A cause of action. Means by or through which claimant...