Case Title: St. Paul Fire & Marine v. EDGE MEMORIAL

Citation: 584 So. 2d 1316

Docket Number: 1900059

State: alabama

Court: Alabama Supreme Court

Date: 1991-06-14T00:00:00Z

Document:
584 So. 2d 1316 (1991)
ST. PAUL FIRE & MARINE INSURANCE COMPANY
v.
EDGE MEMORIAL HOSPITAL, et al.
1900059.

Supreme Court of Alabama.
June 14, 1991.
Rehearing Denied August 9, 1991.
*1317 R. Stan Morris of Harris, Evans, Berg & Morris, Birmingham, for appellant.
W. Stancil Starnes and Laura Howard Peck of Starnes & Atchison, Birmingham, for appellees.
SHORES, Justice.
This case involves the question of whether St. Paul Fire & Marine Insurance Company must defend and pay certain malpractice claims against Edge Memorial Hospital and Holy Name of Jesus Medical Center under the terms and conditions of an expired malpractice policy issued by St. Paul. A second issue concerns whether St. Paul is entitled to collect a deductible amount from Holy Name.
On September 4, 1987, Edge Memorial and Jackson Hospital filed a complaint in the Circuit Court of Jefferson County, Alabama, for a declaratory judgment against St. Paul, seeking a determination that St. Paul must defend and pay certain claims. St. Paul filed a motion to dismiss and a counterclaim for declaratory judgment. The plaintiffs amended their complaint to add as parties plaintiff, Mutual Assurance Company of Alabama, Inc., and Holy Name of Jesus Medical Center. Subsequently, Jackson Hospital dismissed its claims against St. Paul because its claims had been compromised and settled.
Plaintiffs, Edge Memorial and Holy Name, and the defendant, St. Paul, then filed cross motions for summary judgment, alleging that there was no genuine issue as to any material fact and that the issues could be resolved as a matter of law. A *1318 hearing was held and briefs were submitted to the trial judge, the Honorable Marvin Cherner. On August 23, 1990, the trial judge entered a summary judgment for the hospitals on the issue of malpractice insurance coverage. The trial judge also entered a summary judgment for Holy Name in respect to St. Paul's counterclaim to collect a deductible amount from the hospital. St. Paul appeals. We affirm.
The facts are undisputed and are set forth by the trial judge in his order, which the appellant and the appellees have adopted by reference in their briefs to this Court.
"The letter concerning William Morrison is set out below:
"The letter concerning Lillie Mae Sumpter reads as follows:
The first question presented is whether the trial court erred in declaring that Edge Memorial and Holy Name properly submitted claims to St. Paul during their respective policy periods so as to be entitled to coverage under their claims-made policies.
We affirm the judgment of the trial judge and adopt his order as the opinion of this Court:
"St. Paul says that these letters are nothing more than `patient incident reports' which cannot serve as the hospital's report of a claim or potential claim under the terms of the insurance policy.
"However, it is this Court's opinion that each of the letters contains sufficient information to place St. Paul on notice of the relevant facts concerning why each particular incident could result in a liability claim. The letters are not merely `patient incident reports,' but are notices of potential claims made to comply with St. Paul's insurance policy requirements for making a claim for insurance.
"St. Paul also says that the provision of its policy requiring notice of a `claim' refers to a `claim' for damages made by the injured person to the insured (hereinafter `legal claim'), by making demand for damages by letter or in a complaint filed in a lawsuit; that claim does not refer to the notice of a potential claim made by the insured to the insurer, (hereinafter `insurance claim').
"St. Paul says that this is a `claims-made' policy, and the ordinary meaning of `claimsmade' is that a legal claim must be made by the injured against the insured during the effective dates of the insurance policy.
"However, the meaning of the terms `claims' and `claims-made' as those terms appear in St. Paul's insurance policy are in dispute.
"The word `claim' appears a number of times in St. Paul's policy. Sometimes the word `claim' appears to mean insurance claim; at other times it is used to mean `legal claim'.
"For example, under the `General Rules' section of the policy the following sentences contain the word `claim':
"Other sentences in the insurance policy which include the word `claim' read as follows:
"In St. Paul Fire & Marine Insurance Co. v. House, 315 Md. 328, 554 A.2d 404 (1989), the Court of Appeals of Maryland undertook to interpret ... `claims-made' as that term is used in connection with a professional liability insurance policy issued by St. Paul to Homer C. House, M.D. The provisions of St. Paul's insurance policy interpreted by the Maryland Court of Appeals are substantially similar to corresponding provisions in St. Paul's insurance policies which are the subject of dispute in the present case.
"St. Paul's position in House was that the insurance policy issued to Dr. House was a `claims-made' policy; that the policy defined when a claim is made as `the date you first report an incident or injury to us or our agent,' and that Dr. House did not report the incident to St. Paul and therefore did not make his claim, in accordance with the policy definition while the policy was in effect. St. Paul v. House, 554 A.2d  at 406. Dr. House contended that the policy was ambiguous and that he reasonably interpreted the policy to mean that so long as the injured party made his claim against Dr. House during the term of the policy, Dr. House was afforded coverage even though Dr. House did not give notice to St. Paul during the term of the policy.
"In House, the `claims-made' provision in St. Paul's insurance policy reads:
"In the present case a substantially similar provision [appears] in St. Paul's insurance policies with Edge Memorial and Holy Name. It reads as follows:
"In House, St. Paul asserted that under its `claims-made' policy, by definition, an insurance claim is effectively made when the insured reports the potential legal claim to St. Paul. St. Paul said that it intended the term `claims-made' as used in its policy to apply to the insurance claim made by the insured to the insurer, not the legal claim made by the injured person to the insured.
"St. Paul Fire & Marine Insurance Co. v. House, supra, 554 A.2d  at 407.
"The Maryland Court of Appeals held that the term `claims made,' as used by St. Paul was ambiguous, that it could be reasonably construed to refer to legal claims made by the injured to the insured (the ordinary meaning) as well as to insurance claims made by the insured to the insurer.
"Chief Judge Murphy, agreeing with St. Paul, filed a dissenting opinion, arguing that the policy at issue was not ambiguous, that the only meaning of `claims made' under St. Paul's policy was `insurance claims made by the insured to the insurer.'
A portion of his dissenting opinion reads as follows:
"St. Paul, in the present case before this Court, now takes the opposite position from the position asserted by it in House, supra. St. Paul now says that the same insurance policy provision construed in House, is not ambiguous and requires the injured person to make claim upon the insured during the term of the policy (the ordinary meaning of `claims made').
"In support of its position, St. Paul cites the case, Langley v. Mutual Fire, Marine and Inland Insurance Company, 512 So. 2d 752 (Ala.1987), overruled on other grounds, Hickox v. Stover, 551 So. 2d 259, 264 (Ala.1989). In Langley, the Alabama Supreme Court reviewed an ordinary *1322 `claims made' insurance policy issued by Mutual Fire, Marine and Inland Insurance Company:
"The Mutual Fire insurance policy clearly expresses that claims must be `made against the insured while the policy is in force.'
"However, the language in the Mutual Fire insurance policy is obviously not the same as the language in St. Paul's policies in the present case. Unlike the Mutual policy, St. Paul's insurance policies do not have language requiring claims to be made against the insured while the policy is in force.
"St. Paul says that this requirement is stated in the following provision of its insurance policy:
"Language in an insurance policy should be given the same meaning which a person of ordinary intelligence (not a lawyer) would reasonably conclude the language means. [National] Union Fire Insurance Co. v. Leeds, 530 So. 2d 205, 207 (Ala.1988).
"An attorney may know that the ordinary legal meaning of `claims-made' is that the injured must make a legal claim against the insured. However, St. Paul's policy defines `claims-made' to mean the insured must make a claim against the insurer. See, House, supra, 554 A.2d  at 407, 411. A person of ordinary intelligence reading the St. Paul insurance policy would give great weight to St. Paul's definition of `claims-made' in its insurance policy, not knowing that the St. Paul definition differs from the ordinary legal meaning of `claimsmade.'
"Ambiguous language in an insurance policy must be construed by the courts liberally in favor of the insured and strictly against the insurance company. National Union Fire Insurance Co. v. Leeds, 530 So. 2d 205, 207 (Ala.1988).
"Insurance policies, typically, are carefully drafted to designate what is covered and what is excluded from coverage in order to avoid confusion. Possibly the single most important word in St. Paul's `claims-made' policy is the word claim. It is essential for the insured to know what constitutes a legal claim in order to ascertain what coverage the insured can expect to receive under the insurance policy. St. Paul failed to define the word claim in its insurance policy. St. Paul might easily have drafted the disputed provision to require `the injured person to make claim (by filing a lawsuit, etc.) against the insured' during the effective dates of the policy. See, e.g., Langley, supra, at 754. It failed to do so.
"Accordingly, this Court finds that the St. Paul policies only impose the following requirements on the insured in making an insurance claim:
"1. The incident for which the insured seeks coverage must occur within the effective dates of the policy;
"2. The incident for which the insured seeks coverage must be reported to St.
*1323 Paul within the effective dates of the policy; and
"3. The report concerning the incident for which the insured seeks coverage must contain more particular information designating an incident as a potential claim rather than a `Patient Incident Report.'
"The relevant portions of St. Paul's insurance policies read as follows:
"`We've designed this agreement to protect against liability claims resulting from professional services provided or which should have been provided by your hospital. Of course there are limitations which are explained later in this agreement.
"Edge Memorial and Holy Name have complied with the terms of their insurance policies with St. Paul and are entitled to coverage with respect to the three lawsuits filed against them. Summary judgment is therefore due to be granted in favor of Edge Memorial and Holy Name with respect to this issue."
The second question presented concerns St. Paul's counterclaim for the collection of a deductible amount from Holy Name in the matter of Claudia Childs. We must determine whether the trial judge erred in his holding that St. Paul breached *1324 its legal duty to Holy Name by failing to obtain the hospital's consent before settling the Childs claim and thus cannot collect a deductible from the hospital. The facts surrounding this issue are also set forth in the trial court's judgment. We affirm the judgment of the trial judge as to this issue and adopt his reasoning as the opinion of this Court:
"St. Paul has also asserted a counterclaim against Holy Name, the material facts of which are not in dispute. St. Paul and Holy Name have both filed motions for summary judgment with respect to this counterclaim.
"On October 8, 1986, Claudia Childs went to visit her daughter, a patient at Holy Name hospital. After visiting with her daughter, Claudia Childs left the hospital, and began walking toward her car down a dirt pathway adjacent to the hospital. The dirt pathway had been used as an alternative walkway from the hospital to the parking lot.
"Before Claudia Childs arrived at her car, she slipped on some gravel in the pathway and fell to the ground, injuring her right leg.
"Claudia Childs was subsequently admitted to Holy Name and treated by Dr. Rivard for the fracture of her right tibia and fibula. The medical expenses which she incurred for the treatment of the injuries sustained in the fall totalled approximately $7,000.00.
"On October 14, 1986, Ginger Woodard, Administrative Coordinator for Medical Affairs at Holy Name, sent a copy of Claudia Childs' patient incident report to St. Paul's Claim Representative, Dale Nellums.
"On November 21, 1986, Ginger Woodard received a letter from Mac Downs, an attorney representing Claudia Childs. In the letter, Mac Downs stated, `I wish to make a claim on ... behalf [of Claudia Childs] with your insurance carrier and if you wish to discuss this matter prior to litigation, please have your carrier contact me within fifteen days.' On the same day, Ginger Woodard forwarded a copy of Mac Downs's letter to Dale Nellums at St. Paul.
"On November 9, 1987, Dale Nellums of St. Paul submitted a request for payment of $10,000.00 to Holy Name. The request stated that the Claudia Childs case had been settled, and Holy Name was required to reimburse St. Paul in the amount of $10,000.00, representing the deductible amount under the terms of the insurance policy.
"On December 8, 1987, by letter, and on December 10, 1987, by telephone, Ginger Woodard of Holy Name contacted Dale Nellums of St. Paul objecting to the manner in which St. Paul handled the Claudia Childs matter. Ginger Woodard requested an explanation why no attorney was appointed to represent Holy Name, and why Holy Name was not contacted prior to settlement of the Claudia Childs case.
"On December 14, 1987, in response to these objections, Dale Nellums of St. Paul sent the following letter to Holy Name:
"Holy Name has not remitted the deductible in the Claudia Childs case to St. Paul. The failure of Holy Name to remit the deductible to St. Paul is the basis for St. Paul's counterclaim against Holy Name in this action.
"The `Health Care Facility Comprehensive General Liability Protection' portion of the St. Paul insurance policy applies to the insurance coverage of Holy Name in the Claudia Childs matter. That portion of the policy includes a provision for what is covered. It reads in pertinent part:
"It also contains the following provision for defending lawsuits:
"The insurance policy also contains a `Hospital Liability Protection Deductible Endorsement.' This endorsement provides for a $50,000.00 deductible for each accidental event involving bodily injury or personal injury, and a total deductible of $250,000.00.
"St. Paul says that under the terms of the insurance policy it had the legal right to settle the Claudia Childs case, and it is entitled to reimbursement of the applicable deductible amount from Holy Name.
"St. Paul says it is owed $9,000.00 of the amount of the applicable deductible. The original amount requested ($10,000.00) has been reduced by $1,000.00 under `Med Pay' provisions of the insurance policy which are not at issue here.
"Holy Name says that it is not liable to St. Paul for reimbursement of the deductible ($9,000.00) because (1) it was never `legally required' to pay Claudia Childs any amount; (2) it was not informed of the settlement offer prior to settlement; (3) it never consented to settlement; and (4) no attorney was provided to defend Holy Name against Claudia Childs' claim.
"Where there is a provision in an insurance policy which authorizes the insurer to settle any claim against the insured in its discretion, such a provision `vests the insurer with absolute authority to settle claims within the limits of the policy with the insured's having no power to compel the insurer to make settlements or to prevent it from so doing.' (Emphasis added.) Employers' Surplus Line Insurance Co. v. Baton Rouge, 362 So. 2d 561, 564 (La.1978); Mitchum v. Hudgens, 533 So. 2d 194, 197 (Ala.1988).
"However, where the insured has a direct financial stake in the litigation, the law generally requires that the insured have control over acceptance or rejection of settlement offers. Mitchum v. Hudgens, 533 So. 2d 194, 202 (Ala.1988) (for instance, where the insurer reserves the right to contest the existence of coverage); Employers' Surplus Line Insurance Co. v. Baton Rouge, 362 So. 2d 561, 564-565 (La. 1978) (where settlement prior to judgment requires the insured to pay a deductible). See also, L & S Roofing Supply Co. v. St. Paul Fire & Marine Insurance Co., 521 So. 2d 1298, 1303 (Ala.1987).
"The insured must make the ultimate choice regarding settlement since it is the insured who must eventually pay the settlement amount. See, L & S Roofing Supply Co. v. St. Paul Fire & Marine Insurance Co., 521 So. 2d 1298, 1303 (Ala.1987).
"In the present case, St. Paul did not inform Holy Name of its intent to settle the Claudia Childs matter. Holy Name had no opportunity to consent to or reject the option to settle. Under the insurance policy, Holy Name was required to reimburse St. Paul for any settlement up to $50,000.00. Holy Name, therefore, had a direct financial stake in any settlement under this portion of the insurance policy.
"Therefore, St. Paul breached its legal duty to Holy Name by failing to obtain Holy Name's consent before settling the Claudia Childs matter for $10,000.00.
"In addition, even in cases where the insured has no direct financial stake in the outcome, an attorney appointed by the insurer to handle a claim against the insured is under an ethical duty to make full disclosure of the progress of the litigation to the insured. Mitchum v. Hudgens, 533 So. 2d 194, 202 (Ala.1988). `[A]ppointed counsel should keep [the] client, the insured, apprised of all developments in the case, including settlement negotiations.' Mitchum, supra, at 202.
"Where, as in the present case, the insured has a direct financial stake in the outcome, the attorney's duty to keep the insured informed is greater, since the attorney may not settle the claim at the direction of the insurers over the objection of the insured. Cf., Mitchum, supra, at 202.
"In the present case, Dale Nellums, the St. Paul Claim Representative is also a licensed attorney. However, it does not appear that she, nor anyone else, was appointed to conduct a defense on behalf of the insured. And no attorney appointed by St. Paul advised Holy Name of the settlement negotiations.
*1327 "The provision of the insurance policy authorizing St. Paul the right to settle claims is included under the subheading: `Defending lawsuits.' St. Paul was required under the insurance policy to defend any suit against the insured even if the suit is `groundless.'
"Where the insured must ultimately pay the amount of a settlement as part of the deductible amount, a reasonable construction of the applicable provision of the insurance contract where it is also considered that the insured must itself pay the amount of the deductible is that the insurer cannot agree to pay money in a settlement which must be repaid by the insured without first obtaining the consent of the insured. See, Employers' Surplus Line Insurance Co. v. Baton Rouge, 362 So. 2d 561, 565 (La. 1978).
"It is undisputed that Holy Name did not consent to the settlement of this matter, though it had a direct financial stake in the outcome.
"Accordingly, summary judgment is due to be granted in favor of Holy Name with respect to this issue."
The judgment of the trial court that St. Paul is obligated to defend Edge Memorial and Holy Name against liability arising from the claims asserted against them[1] and to indemnify them against any judgment rendered against them with respect to such claims is due to be affirmed. The judgment of the trial court that, in failing to obtain Holy Name's consent before settling the Claudia Childs matter, St. Paul breached its legal duty to Holy Name and is thus not entitled to collect the deductible from Holy name is also due to be affirmed.
AFFIRMED.
HORNSBY, C.J., and MADDOX, ALMON, ADAMS, HOUSTON, STEAGALL, KENNEDY and INGRAM, JJ., concur.
[1]  Civil Actions numbered CV-87-553-PH; CV-87-825-WWC; and CV-89-124.