Slater v. Lawyers' Mutual Ins. Co.

• Decision Date: 26 February 1991
• Docket Number: No. B048744,B048744
• Citation: 227 Cal.App.3d 1415,278 Cal.Rptr. 479
• Court: California Court of Appeals Court of Appeals
• Parties: Robert I. SLATER, Plaintiff and Appellant, v. LAWYERS' MUTUAL INSURANCE COMPANY, etc., Defendant and Respondent.

Page 479

278 Cal.Rptr. 479

227 Cal.App.3d 1415

Robert I. SLATER, Plaintiff and Appellant, v. LAWYERS' MUTUAL INSURANCE COMPANY, etc., Defendant and Respondent.

No. B048744.

Court of Appeal, Second District, Division 7, California.

Feb. 26, 1991.

Tremaine, Shenk, Stroud & Robbins, and Terence C. McGaughey, Los Angeles, for plaintiff and appellant.

Musick, Peeler & Garrett, R. Joseph De Briyn, Harry W.R. Chamberlain, II, and James L. Wellman, Los Angeles, for defendant and respondent.

LILLIE, Presiding Justice.

Plaintiff Robert I. Slater (Slater), an attorney, appeals from summary judgment ¹ entered against him and in favor of defendant Lawyers' Mutual Insurance Company (LMIC), Slater's professional liability insurer, on plaintiff's complaint alleging LMIC breached its insurance contract and the implied covenant of good faith and fair dealing in denying Slater coverage under the policy with respect to a legal malpractice action filed against Slater.

FACTUAL AND PROCEDURAL BACKGROUND

In a complaint filed by Slater against LMIC in January 1989 for breach of written contract and breach of the implied covenant of good faith and fair dealing, he alleges that in April 1984, LMIC issued to him a professional liability insurance policy which policy was renewed for the period from April 15, 1985 to April 15, 1986, and then from April 15, 1986 to April 15, 1987; on February 26, 1987, Cesar Lopez filed in the Superior Court a complaint against Slater for legal malpractice; Slater was unaware of Lopez's claim and the action until July 1, 1987, when he was served with the summons and complaint; on October 6, 1987, Slater requested in writing that LMIC provide him a defense to the Lopez action, which LMIC refused on December 28, 1987; LMIC's December 28 letter advised Slater that no coverage would be afforded for the Lopez action because Slater did not make a claim during the pendency of the policy; on October 13, 1988, LMIC agreed to accept Slater's tender of defense with a reservation of rights based on a recent court of appeal decision; on October 25, 1988, LMIC notified Slater that it was withdrawing the defense in view of the decertification of the court of appeal decision; Slater alleged that LMIC wrongfully refused to accept the tender of defense and wrongfully refused to pay benefits with respect to the Lopez action.

In answer to the complaint, LMIC alleged, inter alia, that it has no duty under the policy or otherwise to provide Slater with a defense to the Lopez action or to indemnify him with respect to any sum of money he may be obligated to pay in said action.

Thereafter, LMIC filed motion for summary judgment on the ground that it was without dispute that LMIC was not obligated to afford coverage to Slater because under the terms of the policy, no "claim" was "made" to LMIC during the policy period. Although Slater filed declarations and points and authorities in opposition to the motion, the motion was submitted on a joint statement of undisputed facts which essentially included all of the background facts alleged in the complaint, but not any of its legal conclusions. The joint statement also established that in February 1987, LMIC notified Slater that the policy would not be renewed after its April 15, 1987 expiration date; however, Slater could apply for an Extended Reporting Period Endorsement upon payment of an additional premium; Slater did not apply for such Extended Reporting Period Endorsement, and the policy expired on April 15, 1987.

After hearing on the motion for summary judgment, the court granted the motion; Slater filed timely notice of appeal from the summary judgment. As Slater acknowledges

in his opening brief on appeal, the appeal presents one major issue: "Whether [LMIC] must provide coverage to an insured under a 'claims-made' professional liability policy or is the insured without coverage."

DISCUSSION

"Summary judgment is an appropriate vehicle to determine coverage under an insurance policy when it appears there is no material issue of fact to be tried and the sole issue before the court is one of law." (Pepper Industries, Inc. v. Home Ins. Co. (1977) 67 Cal.App.3d 1012, 1017, 134 Cal.Rptr. 904.) "Where, as here, the trial court was asked to interpret a written contract based upon a stipulation of facts our review is de novo. The issue presented is one of law and the appellate court 'must make its own independent determination of the meaning of the contract.' " (Travelers Ins. Co. v. National Union Fire Ins. Co. (1989) 207 Cal.App.3d 1390, 1397, 255 Cal.Rptr. 727.)

As "[t]he proper initial focus for a court in resolving a question of insurance coverage is on the language of the insurance policy itself, rather than on judicially created 'general' rules that are not necessarily responsive to the policy language or facts of the dispute" (Garriott Crop Dusting Co. v. Superior Court (1990) 221 Cal.App.3d 783, 790, 270 Cal.Rptr. 678), we set out the relevant portions of the policy.

On the cover page of the policy under a bold heading titled "NOTICE," as well as in bold type on the next page, the first page of the policy, it is stated: "This is a 'Claims-Made' policy. The coverage afforded by a 'Claims-Made' policy is generally limited to claims arising from the performance of professional services which are first made against the attorney and reported to the Company while the policy is in force. A 'Claims-Made' policy does not generally provide coverage for claims first made against the attorney or reported to the Company after the expiration of the policy even if the acts or omissions on which the claim is predicated occurred, or are alleged to have occurred, while the policy was in force. Please review the policy carefully and discuss the coverage thereunder with your insurance agent or broker."

A portion of the policy titled "Definitions," states that " 'Claim' whenever used in this policy means a demand, including service of suit or institution of arbitration proceedings, for money against the insured. [p] A claim shall be considered 'made': (1) when it is first reported to the Company or (2) when the Insured, having become aware that the Insured has committed an act, error or omission which may give rise to a claim, reports to the Company: (i) Such specific act, error or omission; (ii) The injury or damage which has or may result from such act, error or omission; and (iii) the date and circumstances by which the Insured first became aware of such act, error or omission."

Under a provision titled "THE COVERAGE," the policy in pertinent part provides: "The Company agrees to pay on behalf of the Insured all sums ... which the Insured shall become legally obligated to pay as damages as a result of CLAIMS FIRST MADE AGAINST THE INSURED DURING THE POLICY PERIOD: (a) By reason of any act, error or omission in professional legal services ...; (b) Because of personal injury and arising out of the professional services of the Insured as a lawyer.... [p] PROVIDED ALWAYS THAT such act, error or omission or such personal injury happens: (a) During the policy period or (b) Prior to the policy period provided that on the effective date of this policy, THE INSURED DID NOT KNOW ... THAT SUCH ACT, ERROR, OMISSION ... WOULD BE THE BASIS OF A CLAIM, and only if the claim for which coverage is otherwise available hereunder is reported in compliance with the subsection of this policy entitled 'Notice of Claim or Suit'...."

The subsection entitled "Notice of Claim or Suit" provides that "As a condition precedent to the Insured's right to the protection afforded by this insurance, the insured shall, as soon as practicable during the policy period give to the Company, written Appellant makes three major arguments to support his contention that the policy provides coverage: (1) California's "notice-prejudice" rule operates to bar LMIC from denying coverage on the ground that it received notice of the claim after the policy period had expired, unless LMIC shows it was substantially prejudiced by such late notice; (2) the notice-prejudice rule is a matter of public policy that should prevail over a strict enforcement of the policy's provisions; and (3) the policy language concerning reporting and notice of the claim is ambiguous, requiring that coverage be provided.

notice directed to the Company's Claims representative, of any claim made against the insured."

In arguing that the policy is ambiguous and should be construed to afford coverage for the Lopez action (which, unknown to Slater and LMIC, was filed during the policy period), appellant essentially urges us to consider the portion of the policy defining the scope of coverage in isolation and without applying the policy's definition of when a claim is "made." Because we must look at the provisions of the policy as a whole (Producers Dairy Delivery Co. v. Sentry Ins. Co. (1986) 41 Cal.3d 903, 916, fn. 7, 226 Cal.Rptr. 558, 718 P.2d 920), we conclude that the reporting and notice provisions are not ambiguous and do not render the coverage language ambiguous. When the policy definition of when a claim is considered "made" is applied to the coverage provision, the only reasonable interpretation of the latter provision is consistent with the "Notice" portion on the face sheet of the policy: "The coverage afforded ... is generally limited to claims arising from the performance of professional services which are first made against the attorney and reported to the Company while the policy is in force."

As it is without dispute that the Lopez action was not reported to LMIC during the policy period, there is no coverage under the terms of the policy unless public policy considerations or the "notice-prejudice" rule operates to bar LMIC from denying coverage. "California's 'notice-prejudice' rule operates to bar insurance companies from disavowing coverage on the basis of lack of timely notice unless the insurance company can show...