Security Ins. Co. of Hartford v. Kevin Tucker & Associates, Inc.
| Decision Date | 07 September 1995 |
| Docket Number | Nos. 93-6366,93-6462,s. 93-6366 |
| Parties | SECURITY INSURANCE COMPANY OF HARTFORD, Plaintiff-Appellant/Cross-Appellee, v. KEVIN TUCKER & ASSOCIATES, INC.; Tucker-Hinson Associates, Inc.; The Kevin Tucker Group, Inc.; Kevin Tucker, Individually; J.T. Buckner, Individually; Alan Wyatt, Individually, Defendants-Appellees (93-6366), City of Bowling Green, Kentucky, Defendant-Appellee/Cross-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Robert M. Brooks (argued and briefed), Boehl, Stopher & Graves, Louisville, KY, John J. Blasi, Rooks, Pitts & Poust, Chicago, IL, for plaintiff-appellant/cross-appellee.
Dixie R. Satterfield (briefed), H. Eugene Harmon (argued and briefed), Satterfield & Kafoglis, Bowling Green, KY, for defendants-appellees.
Before: MARTIN and SILER, Circuit Judges; JOINER, District Judge. *
The city of Bowling Green contracted with Kevin Tucker & Associates, Inc., (KT & A, Inc.) for site analysis, design and construction supervision of the city's Hartland Municipal Golf Course. Dissatisfied with the professional services rendered, Bowling Green filed suit in state court against KT & A, Inc. and the other named defendants in this case, all individuals or entities affiliated with firms formed by Kevin Tucker. Plaintiff Security Insurance Company of Hartford (Security) filed this declaratory judgment action, alleging that the professional liability policy it had issued to Kevin Tucker & Associates, a sole proprietorship, and The Kevin Tucker Group, Inc. did not insure the other named defendants and did not cover claims based on errors and omissions which occurred prior to the effective date of the policy. Security also alleged that its duty to defend was limited accordingly.
Both Security and Bowling Green appeal the district court's declaratory judgment. Their competing claims call into question which of the defendants are insureds under the policy, and whether the policy applies to claims based on errors and omissions which predated the effective date of the policy. We conclude that the district court correctly construed the provisions of the policy, but that it erred in denying Security's motion to amend its complaint to add claims for reformation and misrepresentation. Accordingly, we affirm in part, reverse in part, and remand for further proceedings.
Kevin Tucker, an engineer and landscape architect, formed KT & A, Inc. in 1975. KT & A, Inc. entered into the contracts with Bowling Green regarding the golf course in early 1988. KT & A, Inc. employees Alan Wyatt and J.T. Buckner served as project manager and civil engineer, respectively, on the golf course project. In May 1988, Don Hinson purchased 50 percent of the stock of KT & A, Inc. and the corporation changed its name to Tucker-Hinson Associates, Inc. (T-H). Bowling Green was informed of the name change, and the corporation's work on the project continued.
In March 1989, the construction contractor discovered a "graphics problem," i.e., alleged errors in T-H's plans' description of the property boundaries and topography. T-H proposed remedial measures, but apparently could not correct the problem to Bowling Green's satisfaction. The graphics problem forms the basis of Bowling Green's claims in state court against Tucker and his various entities and employees.
Tucker later decided to resign from T-H, and incorporated a new firm, The Kevin Tucker Group, Inc. (KT Group) in February 1990. Buckner, but not Wyatt, became an employee of the KT Group. Tucker and Hinson jointly communicated their plan to dissolve T-H to Bowling Green. Tucker individually wrote to the city manager, announcing the formation of the KT Group, which, according to Tucker, would continue work on the Hartland project. One month later, Tucker and Hinson informed the city manager that T-H had ceased all consulting operations, would not perform the services under its contract with the city, and agreed to an assignment of the project to the KT Group. No formal assignment was executed, and Tucker testified that the KT Group performed only final inspections necessary to close out the project and that these inspections were not performed under T-H's contract.
Bowling Green removed the KT Group from the Hartland project in the summer of 1990, claiming numerous errors and omissions. The city filed suit in August 1990 against the defendants in this action and other entities unrelated to this insurance dispute.
KT & A, Inc./T-H was insured by CNA between 1985 and 1989. 1 In November 1989, in anticipation of resigning from T-H, Tucker completed an application for liability insurance with a Security agent, listing his company name as Kevin Tucker & Associates. Tucker testified that he was operating as a sole proprietorship, and simply needed a firm name in order to apply for insurance. Nonetheless, Tucker's application discloses a five-year business and financial history of KT & A, Inc./T-H. Tucker's application further stated that none of the firm's key personnel or project managers had knowledge of any incident or condition that could potentially give rise to a claim against the firm.
Security issued a professional liability policy with an effective date of December 8, 1989, to Kevin Tucker & Associates, designated to be an individual, not a corporation. The basic insuring agreement obligates Security to "pay those sums in excess of the deductible that you [the insured] become legally obligated to pay as damages because of 'claims' to which this insurance applies arising from conduct of your professional practice." The standard form policy states that it "applies":
3. To "claims made" during the policy period if:
a. The claim arises during the policy period, or
b. The error, omission, or negligent act giving rise to the claim took place prior to the policy period but after the retroactive date specified in the declarations, if applicable, provided that [the insured had no knowledge of the claim or the events giving rise to the claim, and had no other coverage].
Subparagraph b was deleted by endorsement 10, and substituted with the following:
3.b. The error, omission or negligent act giving rise to the "claim" took place after 12/08/89. Except for: Golf Club of Tennessee, Nashville, Tennessee.
The policy defines the term "claim" broadly to include the filing of a suit against an insured which alleges an error or omission arising out of the insured's professional practice. "Claims made" is defined as a "claim that is reported to us [Security] during the policy period."
The policy further states that it does not apply to any partnership, joint venture or corporation of which the insured is or was a partner, member or participant, unless such entity is designated in the declarations as a named insured. The policy defines who is an insured as well, stating that if the insured is an individual, he is insured only with respect to the conduct of a professional practice of which he is the sole owner. The insured's employees are also "insureds," but only for acts within the scope of their employment by the insured.
Tucker testified that, except with respect to the unrelated project noted in endorsement 10, he negotiated with Security's broker for prospective coverage only, and did not intend to purchase coverage for any work performed by KT & A, Inc./T-H. Tucker testified that he understood that endorsement 10, together with the rest of the policy, precluded retroactive coverage. Security's agent testified by affidavit that he discussed the option of purchasing retroactive coverage with Tucker, and that Tucker's premium was discounted to reflect the fact that such coverage was not purchased.
Kevin Tucker & Associates, the sole proprietorship, never actually performed professional services. With the formation of the KT Group in February 1990, Security's policy was amended to add the KT Group as a named insured, and to reflect its corporate status. Kevin Tucker & Associates was retained as a named insured.
Security filed this declaratory judgment action in June 1991 against the city of Bowling Green and the state court defendants previously affiliated with Kevin Tucker. The district court held that the city's state court lawsuit, filed in August 1990, constituted a "claim" which "arose" during the policy period, and that the claims asserted in that suit thus fell within the policy's coverage, regardless of the fact that they were based in large part on errors and omissions which predated the policy's effective date. The court rejected, however, Bowling Green's contention that KT & A, Inc./T-H and Alan Wyatt were insureds under the policy. The court entered a declaratory judgment identifying Kevin Tucker & Associates, a sole proprietorship, and the KT Group as insureds under the policy, and providing that Buckner was an insured under the policy only to the extent that he performed acts within the scope of his employment with the KT Group.
The district court entered its declaratory judgment in response to Bowling Green's motion under Fed.R.Civ.P. 12(b)(6) to dismiss for failure to state a claim on which relief can be granted. Treating the motion as one for partial judgment on the pleadings under Rule 12(c), the court held that the policy covered the claims asserted in the state court suit. The court referred to matters outside the pleadings to determine which persons and entities were insured under the policy, and, under Rule 12(b)(6), the court's determination is regarded as the grant of partial summary judgment under Fed.R.Civ.P. 56. This court reviews de novo both the grant of judgment on the pleadings under Rule 12(c), and the grant of summary judgment under Rule 56. Miller v. Currie, 50 F.3d 373, 377 (6th Cir.1995); Anderson Dev. Co. v. Travelers Indem. Co., ...
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