U.S. v. A.C. Strip

• Decision Date: 15 March 1989
• Docket Number: Nos. 87-3421,87-3485,s. 87-3421
• Citation: 868 F.2d 181
• Parties: UNITED STATES of America, Plaintiff, v. A.C. STRIP and Strip, Fargo, Schulman and Hoppers Company, LPA, et al., Defendants-Appellants, Cross Appellees, v. HOME INSURANCE COMPANY, Third Party Defendant-Appellee, Pacific Employers Insurance Co., Third-Party Defendant-Appellee-Cross- Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 181

868 F.2d 181

UNITED STATES of America, Plaintiff, v. A.C. STRIP and Strip, Fargo, Schulman and Hoppers Company, LPA, et al., Defendants-Appellants, Cross Appellees, v. HOME INSURANCE COMPANY, Third Party Defendant-Appellee,

Pacific Employers Insurance Co., Third-Party

Defendant-Appellee-Cross- Appellant.

Nos. 87-3421, 87-3485.

United States Court of Appeals Sixth Circuit.

Argued May 9, 1988.

Decided Feb. 17, 1989.

Rehearing Denied March 15, 1989.

Richard G. Reichel, Todd S. Bundy (argued), Amerman, Burt & Jones Co., L.P.A., Canton, Ohio, for appellant.

Bruce P. Mandel (argued), Ulmer, Berne, Laronge, Glickman & Curtis, Steven G. Janik, Janik & Associates, Cleveland, Ohio, for Home Ins. Co.

Timothy G. Kasparek (argued), Reminger & Reminger, Cleveland, Ohio, for Pacific Employers Ins. Co.

Before KEITH and RYAN, Circuit Judges, and GIBSON, District Judge. ^*

RYAN, Circuit Judge.

Home Insurance Company (Home) and Pacific Employers Insurance Company (Pacific) issued professional liability insurance policies to Strip, Fargo, Schulman & Hoppers Company, L.P.A. (Law Firm). The Law Firm and one of its lawyers, A.C. Strip (Strip), were named as defendants in a suit by the United States. Strip and the Law Firm filed a third-party complaint seeking a declaratory judgment that Home and Pacific were obligated to provide a defense and coverage for liability in the underlying suit. The district court granted summary judgment in favor of Home and against both Strip and the Law Firm. The court also granted summary judgment in favor of Pacific and against Strip, but found Pacific "potentially liable" to the Law Firm. We affirm the district court on the orders granting summary judgment, but we reverse as to the court's judgment that Pacific is "potentially liable" to the Law Firm.

I.

The underlying lawsuit began as a claim by the United States against Mack Mining, Inc. and two other defendants for recovery of civil penalties for violations of the Surface Mining Control and Reclamation Act of 1977, 30 U.S.C. Sec. 1201, et seq. A first amended complaint was filed on July 25, 1985, naming Strip as a party defendant. Strip had served as receiver for Mack Mining, Inc. On April 15, 1986, the government filed a second amended complaint, this time naming the Law Firm as a party defendant. On April 29 and May 1, 1986, other defendants named in the original complaint filed cross-claims against Strip and the Law Firm. The Law Firm and Strip notified their professional liability insurance carriers, Home and Pacific, of the claims against them, but the insurance companies denied coverage and defense. On July 18, 1986, the Law Firm and Strip filed a third-party complaint against the insurance carriers seeking a declaratory judgment that the carriers were obligated to defend and provide coverage for the claims by the United States against the Law Firm and Strip. On September 15, 1986, the underlying lawsuit was settled.

Pacific Employers Insurance Company had issued a "claims made" lawyers professional liability insurance policy to the Law Firm, for a policy period from August 2, 1984, to August 2, 1985. Home Insurance Company had issued a "claims made" professional liability insurance policy to the Law Firm effective from August 2, 1985 to August 2, 1986.

The first amended complaint was served upon Strip by certified mail, with a return receipt signed on his behalf on July 26, 1985, one week prior to the end of the effective date of the Pacific policy. Written notice of the lawsuit was sent to the Siebert-Keck Insurance Agency on August 19, 1985. Siebert-Keck represented both Home and Pacific, and is the agent from whom Strip and the Law Firm purchased both policies. Included in the August 19 notification was a statement that the Law Firm and Strip were unaware of the contents of the first amended complaint served on July 26 because Strip had been out of the city until August 14. On September 20, 1985, Home responded that it would not provide coverage or a defense as the claim against Strip was made prior to August 2, 1985, the effective date of Home's policy. On May 5, 1986, Pacific denied coverage and a defense stating that the claim was not reported prior to the expiration date of Pacific's policy, August 2, 1985.

On February 18, 1986, the United States filed a motion for leave to file a second amended complaint, naming the Law Firm as a party defendant. The second amended complaint was filed on April 15, 1986. Notice of the second amended complaint was sent by the Law Firm to Siebert-Keck on February 25, 1986, and April 18, 1986. On April 29 and May 1, 1986, the originally named defendants filed cross-claims against appellants, notices of which were given to the insurance agent on April 30 and May 5, 1986, respectively.

The Law Firm and Strip then filed a third-party complaint against Pacific and Home seeking a declaratory judgment that the insurance companies were obligated to defend Strip and his law firm, and to provide coverage for any liability that might be adjudged against them in the claim by the United States and the cross-claims by the other initial defendants. The Law Firm and Strip moved for a preliminary injunction to halt the underlying suit until the insurance coverage issues could be resolved. The trial court held a hearing on the motion for a preliminary injunction and, on August 15, 1986, denied the injunction and bifurcated the third-party action against Home and Pacific.

The trial court granted leave to Home to file a motion for summary judgment against Strip on the basis that (1) the policy did not cover the claim because the claim was asserted prior to the effective date of Home's coverage, and (2) the policy did not cover the nature of the claim. Home was also granted leave to file a motion for summary judgment against the Law Firm on the basis that the policy did not cover the nature of the claim asserted. Pacific was granted leave to file a motion for summary judgment against Strip on the basis that Strip failed to give timely notice.

On March 31, 1987, the district court granted Home's motions for summary judgment as against both Strip and the Law Firm. Pacific's motion for summary judgment was granted as against Strip, but denied as against the Law Firm. On April 29, 1987, the trial court modified its judgment of March 31, 1987 to provide that Pacific was only "potentially liable" to the Law Firm. From the trial court's order granting summary judgment, the Law Firm and Strip appeal, and Pacific cross-appeals the denial of its motion for summary judgment as against the Law Firm.

As a preliminary matter we note that since the third-party complaint is based upon diversity jurisdiction, the law of Ohio is controlling. Gettins v. United States Life Ins. Co., 221 F.2d 782 (6th Cir.1955). In the absence of a provision to the contrary, a policy issued in Ohio is governed by Ohio law. Celina Mut. Ins. Co. v. Sadler, 6 Ohio App.2d 161, 165-66, 217 N.E.2d 255 (1966).

II.

The insurance policies issued by both Home and Pacific are "claims made" policies, as opposed to "occurrence" policies. A claims made policy provides coverage for claims brought against the insured only during the life of the policy. An occurrence policy provides coverage for acts done during the policy period regardless of when the claim is brought. Mominee v. Scherbarth, 28 Ohio St.3d 270, 298 n. 24, 503 N.E.2d 717 (1986) (Wright, J., dissenting). See also St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531, 535 n. 3, 98 S.Ct. 2923, 2926 n. 3, 57 L.Ed.2d 932 (1978); Trizec Properties v. Biltmore Const. Co., 767 F.2d 810, 812 (11th Cir.1985); Stine v. Continental Casualty Co., 419 Mich. 89, 96-100, 349 N.W.2d 127 (1984).

A.

Pacific v. Strip

The claims made policy issued by Pacific covered the period from August 2, 1984 to August 2, 1985. The claim against Strip was made on July 25, 1985, well within the policy period, with service perfected upon him on July 26, 1985. Strip, however, did not notify Pacific of the claim until August 19, 1985, more than two weeks after the expiration of the policy period. The insurance policy issued by Pacific to the Law Firm, and covering Strip, states in pertinent part:

I. THE COVERAGE

INSURANCE AGREEMENT AND CLAIMS MADE CLAUSE

The Company shall pay on behalf of the insured in excess of the deductible all sums which the insured shall become legally obligated to pay as Damages as a result of Claims first made against the insured and reported to the Company during the Policy Period by reason of any act, omission, or Personal injury caused by the insured or any person for whom the insured is legally liable in the rendering of or failure to render Professional Services for others.

PROVIDED ALWAYS THAT such act, omission or Personal Injury occurs:

(a) during the Policy Period; or

(b) prior to the effective date of the policy, provided no insured had knowledge of any Claim or act, omission or Personal Injury that might give rise to a Claim.

(Emphasis added.) Pacific argues that the language under the coverage provision clearly provides that only claims made and reported during the policy period are covered by Pacific's policy, and that because Strip did not report the claim until after the policy period, the claim is not covered by the policy.

Strip and the Law Firm respond that all of the various provisions of the policy must be read together to determine whether there is coverage and, when they are read together, the policy language is seen to be ambiguous, requiring resort to other evidence to determine what the parties intended the conditions of coverage to be.

Ohio law guides our determination of the issue. "In determining the plain meaning of an insurance contract, the contract should be read as a whole and each word given its appropriate meaning, if possible." Burdett Oxygen Co. of Cleveland v. Employers Surplus Lines Ins. Co., 419 F.2d 247, 248 (6th Cir.1969) (citing Farmers'...