Stine v. Continental Cas. Co.

• Decision Date: 05 June 1984
• Docket Number: No. 10,Docket No. 68720,10
• Citation: 349 N.W.2d 127,419 Mich. 89
• Parties: Robert W. STINE, A.I.A., Plaintiff and Appellee, v. CONTINENTAL CASUALTY COMPANY, Defendant and Appellant. Calendar
• Court: Michigan Supreme Court

Page 127

349 N.W.2d 127

419 Mich. 89

Robert W. STINE, A.I.A., Plaintiff and Appellee, v. CONTINENTAL CASUALTY COMPANY, Defendant and Appellant.

Docket No. 68720.

Calendar No. 10.

Supreme Court of Michigan.

Argued May 4, 1983.

Decided June 5, 1984.

Googasian, Hopkins & Forhan by George A. Googasian (P14185), Jacquelyn K. Hayes (P33853), Bloomfield Hills, Mich., for plaintiff and appellee.

Plunkett, Cooney, Rutt, Watters, Stanczyk & Pedersen, P.C., by D.J. Watters (P 22042), Christine D. Oldani (P 25596), Detroit, Mich., for defendant and appellant.

Geo. Bushnell, Gage, Doctoroff & Reizen, Southfield, Mich., filed brief amici curiae on behalf of Gen. Acc. Ins. Co. of America et al.

LeBoeuf, Lamb, Leiby & MacRae, New York City, filed brief amicus curiae on behalf of Underwriters at Lloyd's, London; Peter K. Demmerle, E. Michael Joye, Donald J. Greene, P.C., New York City, of counsel.

Baxter & Hammond, Attys. for State Bar of Mich. by William S. Farr (P13306), James R. Piggush (P29221), Grand Rapids, Mich., amicus curiae brief filed on behalf of the State Bar of Mich.

RYAN, Justice.

The issue for which leave to appeal was granted in this case is the applicability of M.C.L. § 500.3008; M.S.A. § 24.13008 to the professional liability insurance policy issued to plaintiff by defendant. The Court of Appeals held that the cited statute is applicable to the insurance policy involved in this case and operates to provide coverage which, by the terms of the policy, would not otherwise exist. We hold that it is not applicable and reverse the decision of the Court of Appeals.

In addition, because of the manner in which the foregoing issue has been framed and addressed by the parties, we are required to address the broader question whether the type of insurance policy involved in this case is void as against public policy. We hold that it is not void for public policy reasons.

I

Plaintiff is a licensed architect whose work ordinarily involves designing residences, restaurants, offices, and furniture. Prior to 1972, he had never obtained professional liability insurance. However, in 1972, he entered into a contract with the Maple Hill Apartment Company to provide architectural services for an apartment project. The Federal Housing Administration supplied the financing for the Maple Hill project, and, pursuant to FHA regulations, required plaintiff to obtain professional liability insurance for his services.

Mr. Stine's insurance agent directed him to Steinhoff, Maas & Whitlaw, an insurance agency which dealt in professional liability insurance contracts for architects. Mr. Stine purchased an errors and omissions policy from Continental Casualty Company through the agency. It was effective on February 28, 1972, for one year and was renewed on February 28, 1973. On January 16, 1974, CNA sent plaintiff a cancellation notice, effective January 26, 1974, for nonpayment of installment premiums. Plaintiff had stopped paying premiums when the FHA informed him that the project was completed to its satisfaction. On November 26, 1976, Maple Hill filed a lawsuit against Mr. Stine for errors or omissions or acts of negligence alleged to have occurred sometime between June, 1971, and November 27, 1975. This was the first indication plaintiff had of a claim against him.

Mr. Stine promptly notified CNA that the suit had been filed and requested that CNA defend him. On February 3, 1977, CNA notified Mr. Stine of its refusal to do so. The reason given was that the claim by Maple Hill was not filed against Mr. Stine during the policy period for which defendant insured plaintiff, as required by the following relevant provisions of the policy:

"(a) Place

"The insurance afforded by this policy applies only to errors, omissions or negligent acts which occur within the United States of America, its territories or possessions or Canada, except as otherwise provided by endorsement.

"(b) Time

"The insurance afforded by this policy applies to errors, omissions or negligent acts which occur on or after the date stated in item 6 of the declarations (the effective date of the first policy issued and continuously renewed by the Company) provided that claim therefor is first made against the insured during this policy period and reported in writing to the Company during this policy period or within 60 days after the expiration of this policy period." (Emphasis added.)

On October 30, 1978, plaintiff filed this action against CNA, praying for a declaration of rights under the insurance policy. He sought an adjudication that CNA was required to defend him in the action by Maple Hill and claimed damages for the insurer's refusal to do so. The plaintiff specifically averred that despite the fact that he had not given CNA "notice of the claim made by Maple Hill Apartment Co. within 60 days after the expiration of said policy", as required by the policy provision quoted, but not emphasized, he was nevertheless entitled to coverage and defense because the provisions of § 3008 of the Insurance Code excused the failure to give notice when it is not reasonably possible to do so, and in this case it was not. ¹ In its answer, CNA declared that it was not denying coverage because of the manner or timeliness of Mr. Stine's notice to it of the claim against him, but because, by its terms, the policy provided no coverage for claims made against the insured after the expiration of the policy period.

Both parties filed motions for summary judgment. The trial court, declaring itself bound by Honner v. Continental Casualty Co., an unpublished opinion of the Court of Appeals, decided June 22, 1978 (Docket No. 77-3553), ² granted the plaintiff's motion on the ground that the defendant had not, under GCR 1963, 117.2(2), stated a valid defense to the plaintiff's claim. The defendant's motion for summary judgment was therefore denied.

On appeal, a divided Court of Appeals panel affirmed, stating, however, that it "was not necessarily relying upon" the unpublished Honner decision. Specifically, the Court of Appeals held that the insurance policy in question would be construed as providing coverage for the malpractice claim against the plaintiff architect because of the applicability of § 3008.

We granted the defendant's application for leave to appeal. 414 Mich. 876 (1982).

II

The primary issue, restated, is whether § 3008, a provision of the Insurance Code of 1956, applies to the insurance policy in this case which, by its terms, limits its coverage to indemnification of Mr. Stine for losses suffered as a result of errors, omissions, or negligent acts occurring on or after the effective date of the policy, "provided that [a] claim [under the policy] is first made against the insured during the policy period and is reported in writing to the Company during this policy period or within 60 days after the expiration of this policy period".

We hold that on the facts of this case, § 3008 is not applicable to the insurance policy in question, and that the Court of Appeals erred in affirming the trial court's summary judgment in plaintiff's favor.

A

Historically, there have been two general types of errors and omissions insurance policies made available to the professional person. They are the "discovery" or "claims made" type of policy, and the so-called "occurrence" policy. The parties are in general agreement that "claims made" or "discovery" policies are ordinarily written to provide professional liability coverage for architects, engineers, accountants, attorneys, physicians and other professionals. Indeed, the parties agree that "claims made" coverage of the kind involved in this case was, and is, the only coverage written in Michigan to indemnify architects against professional liability claims.

As a general proposition, although not in every case and indeed not in this case, a "discovery" or "claims made" policy is one in which indemnity is provided no matter when the alleged error or omission or act of negligence occurred, provided the misdeed complained of is discovered and the claim for indemnity is made against the insurer during the policy period. Some "claims made" policies, and this case involves one of them, are written to provide coverage only for negligent acts or omissions which occur during the policy period and for which the claim is made against the insurer during that period.

An "occurrence" insurance policy, on the other hand, generally is one in which indemnity is provided no matter when the claim is brought for the misdeed complained of, providing it occurred during the policy period.

One writer described the difference between "claims made" and "occurrence" policies as follows:

"The major distinction between the 'occurrence' policy and the 'claims made' policy constitutes the difference between the peril insured. In the 'occurrence' policy, the peril insured is the 'occurrence' itself. Once the 'occurrence' takes place, coverage attaches even though the claim may not be made for some time thereafter. While in the 'claims made' policy, it is the making of the claim which is the event and peril being insured and, subject to policy language, regardless of when the occurrence took place". Kroll, The Professional Liability Policy "Claims Made", 13 Forum 842, 843 (1978).

Or, as the United States Supreme Court put it:

"An 'occurrence' policy protects the policyholder from liability for any act done while the policy is in effect, whereas a 'claims made' policy protects the holder only against claims made during the life of the policy". St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531, 535, fn. 3, 98 S.Ct. 2923, 2926, fn. 3; 57 L.Ed.2d 932 (1978).

There is greater public familiarity with the "occurrence" type of policy than with the "claims made" type, largely because automobile insurance liability policies are "occurrence" policies, although other perils are covered in such policies as well. Coverage in an "occurrence"...