Lexington Ins. Co. v. St. Louis Univ. ( 1996 )

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No. 95-3090EM
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Lexington Insurance Company, *
*
Plaintiff - Appellee, *
* Appeal from the United States
v. * District Court for the
* Eastern District of Missouri.
St. Louis University, *
*
Defendant - Appellant. *
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Submitted: February 15, 1996
Filed: July 8, 1996
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Before BEAM, LOKEN, and MORRIS SHEPPARD ARNOLD, Circuit Judges.
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LOKEN, Circuit Judge.
Lexington Insurance Company ("Lexington"), a London-based insurer,
issued a liability policy to St. Louis University for claims made during
the period July 1, 1990, through July 1, 1991. On May 20, 1991, Shelly
McCormick sued the University for medical malpractice allegedly committed
in 1979. The University mistakenly listed McCormick's claim as a 1979
rather than a 1991 claim on "loss run" reports submitted to Lexington
before the policy expired. Therefore, the district court1 granted summary
judgment declaring that Lexington need not indemnify the University for
McCormick's claim because it was not made and reported during the policy
period. The University appeals, seeking to distinguish
1
The HONORABLE CAROL E. JACKSON, United States District Judge
for the Eastern District of Missouri.
controlling Missouri and Eighth Circuit cases construing claims made
policies. We affirm.
1. The issues here turn on the crucial difference between
"occurrence" and "claims made" liability insurance policies. Under an
occurrence policy, there is coverage for negligent conduct of the insured
that occurs during the policy period. A claims made policy, on the other
hand, provides coverage if the third party's claim is made against the
insured, and brought to the insurer's attention, during the term of the
policy. See Esmailzadeh v. Johnson & Speakman, 869 F.2d 422, 425 (8th Cir.
1989). Both types of policies require the insured to promptly notify the
insurer of possible covered losses. With a claims made policy, however,
that notice is not simply part of the insured's duty to cooperate. It
defines the limits of the insurer's obligation -- if there is no timely
notice, there is no coverage. A claims made policy "allows the insurer to
more accurately fix its reserves for future liabilities and compute
premiums with greater certainty." FDIC v. St. Paul Fire & Marine Ins. Co.,
993 F.2d 155, 158 (8th Cir. 1993).
Like many States, Missouri has adopted regulations prohibiting unfair
insurance claims settlement practices. One of those regulations, adapted
from prior court decisions, provides:
No insurer shall deny any claim based upon the insured's
failure to submit a written notice of loss within a specified
time following any loss, unless this failure operates to
prejudice the rights of the insurer.
20 Mo. Code Regs. § 100-1.020(4). In Esmailzadeh, we held that a
comparable Minnesota regulation did not apply to claims made policies.
Unless there is timely notice, the claim is not covered, we explained, so
excusing tardy notice "would alter a basic term of the insurance contract."
869 F.2d at 424.
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The Missouri Courts of Appeals have followed Esmailzadeh, holding
that an insurer need not prove prejudice to avoid coverage under a claims
made policy if the claim was not reported until after the policy expired.
See Insurance Placements, Inc. v. Utica Mut. Ins. Co., 917 S.W.2d 592, 597
(Mo. App. 1996); Continental Casualty Co. v. Maxwell, 799 S.W.2d 882, 886-
87 (Mo. App. 1990). As the district court recognized, this principle is
governing law in a diversity case. The question then is whether the
University can avoid its grasp.
2. Lexington's claims made policy insured the University for medical
malpractice losses that exceeded $2 million. The policy's Hospital
Professional Liability endorsement covered:
all sums which the Named Insured shall become legally obligated
to pay as damages because of Bodily Injury caused by a Medical
Incident which results in a claim or claims being first made,
in writing, against the Insured during the period of this
Policy.
(Emphasis added.) Noting that the insuring clauses in the policies at
issue in Esmailzadeh and other cases covered "claims first made and
reported," 869 F.2d at 423, the University argues that the absence of "and
reported" language in Lexington's insuring clause means that the prejudice
rule of the above-quoted regulation should apply. The district court
rejected that contention. Looking at the policy as a whole, the court held
that it should be construed like other claims made policies. We agree.
The Lexington policy begins, "THIS IS A CLAIMS MADE POLICY." The
policy's Reporting and Claims Handling Endorsement provides that the
University "shall give" Lexington notice of each claim "as soon as
practicable," and in any event, "during the period of this Policy." The
Reporting and Claims Handling Endorsement expressly provides that
compliance with these notice provisions is a "condition of the Insured's
right to indemnity under this Policy."
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The Hospital Professional Liability Endorsement likewise includes the duty
to notify in its "Conditions" section.
This policy language making notice a condition of coverage is
virtually identical to the policy notice requirement in Continental
Casualty, 799 S.W.2d at 884. Moreover, the relevant Missouri cases
emphasize that timely reporting of claims to the insurer under a claims
made policy is an essential part of the contract. See Insurance
Placements, 917 S.W.2d at 597; Continental Casualty, 799 S.W.2d at 886.
The University bases its argument for a prejudice requirement on Tuterri's,
Inc. v. Hartford Steam Boiler Inspection & Ins. Co., 894 S.W.2d 266, 269
(Mo. App. 1995), a case that did not involve a claims made policy. We
agree with the district court that Continental Casualty is controlling.
Therefore, Lexington need not prove prejudice to deny coverage if the
University failed to report the McCormick claim within the policy term.
3. Turning to that fact issue, the University argues that it did in
fact provide Lexington adequate notice of the McCormick claim before the
policy expired. Lexington agreed to accept the University's "loss run"
computer printout as a notice of claims first made. This document
recorded, tracked, and provided information regarding all claims asserted
over a number of years. The McCormick claim was mistakenly listed on the
June 28, 1991, loss run as a 1979 claim. Pointing to policy language
excusing harmless "inadvertent error" in reporting claim information, the
University contends that it simply made a good faith reporting mistake that
must be forgiven absent prejudice to Lexington.
The policy language cited by the University relates to errors in
reporting claim information after initial notice of the claim has been
given. Here, on the other hand, the issue is lack of an initial notice.
The June 1991 loss run was a fifteen-page document reporting over 500
incidents. The University reported the McCormick claim in the first
section of the loss run, which covered
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years prior to 1987, when the University was solely self-insured. The
second section covered years after 1987, when the University first obtained
excess liability coverage. That section listed claims by the year in which
they were first asserted. We agree with the district court that listing
the McCormick claim in the 1979 portion of the loss run reports did not
give Lexington notice that a new claim had been made during the 1990-1991
policy period. Because the University presented no evidence that it
reported the McCormick claim to Lexington in any other fashion prior to the
end of the policy period, there was no coverage as a matter of law.
The judgment of the district court is affirmed.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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