___________ No. 96-1702

___________
St. Paul Fire and Marine * Insurance Company, * * Appellee, * * Appeal from the United States v. * District Court for the * Eastern District of Missouri. Missouri United School * Insurance Council, * * Appellant, * * Pacific Employers Insurance * Company, formerly known as * Cigna Insurance Company, * * Defendant. *

___________ Submitted: September 11, 1996 Filed: October 8, 1996

___________ Before MAGILL, FLOYD R. GIBSON, and LAY, Circuit Judges.

___________ MAGILL, Circuit Judge.

St. Paul Fire and Marine Insurance Company (St. Paul) and Missour i United School Insurance Council (MUSIC) insured the Parkway School Distric t (Pa rkway) in St. Louis, Missouri. Parents of disabled children brough t suit a gainst Parkway for allegedly violating their children's rights t o specia l education services and a nondiscriminatory education. St. Pau l expended $644,000 in settling the suit and reimbursing Parkway for it s defense, and now

### The Honorable Jean C. Hamilton, United States District 1 

### Judge for the Eastern District of Missouri.
-2- seeks cont ribution from MUSIC for these costs. The district court tried 1 the case on stipulated facts and concluded that, under MUSIC's "claims

made" policy with Parkway, MUSIC was liable for half of the settlement and defen se costs. The district court issued a judgment against MUSIC fo r $322,000. We affirm.

I.

The facts of this case are not in dispute. In May of 1986, th e Merrys, parents of a disabled student at Parkway, first complained to the school district about the treatment of their son. On June 15, 1988, the Merrys requested a due process hearing with the school, which took place in July 1 988. Dissatisfied with the results of the hearing, the Merry s filed a lawsuit against the school district on November 17, 1988. Other parent s joined the suit, which alleged unequal treatment of disable d ch ildren, discrimination, deprivation of due process, and failure t o provide special educa tion needs. The suit was later certified as a class action. Although the suit generally sought injunctive relief, paragraph 20 of th e requested relief section of the second amended complain t specifically requeste d "appropriate compensatory relief to members of the plaintiff class who have been required to expend their own funds because they w ere denied special education and related services by defendants ' practices that violate federal law." Appellant's App. at 50. The suit wa s settled before trial, and St. Paul covered the cost of the settlement and the school district's legal fees.

MUS IC began insuring the school district on July 1, 1988, an d provided coverage to the school district for the duration of 1988 pursuant to MUSIC's 1988 coverage outline. The 1988 coverage outline included a section on "Errors and Omissions Liability."

### The district court concluded that the other defendant in 2 

### this action was not liable to St. Paul. This ruling is not before us. -3- See Appellant's App. at 164. Under "Conditions of Coverage," this section provided:
"Claims-Made Form" Covers Claims from Third Parties against an insured under the program for alleged errors or omissions causing a m onetary loss to that third party Defense Costs Included

Id. Un der "Examples of Losses," the section includes "Improper Boar d Action, Failure to give a Proper Education, Discrimination, etc." Id.

St. Paul brought the instant action against MUSIC and anothe r insura nce provider for Parkway for contribution for the settlement an d de fense costs. The district court held MUSIC liable for half of St

. 2 Paul's expenditures on behalf of Parkway. After concluding tha t "M.U.S.I.C.'s 1988 coverage is not ambiguous," M em. Op. at 7, the district court held that
because the Merrys made their claim against the Parkway School Distri ct in November 1988, and M.U.S.I.C.'s 1988 coverag e became effective on July 1, 1988, M.U.S.I.C. is liable to St. Pau l Fire and Marine Insurance Company for coverage for it s sha re of the settlement amount in the underlying Merrysuit

. The claim was made during 1988, making the 1988 coverag e outline the governing document, so Defendant M.U.S.I.C. i s liable for the underlying claim amount and for atto rney's fees.

Id. at 8.

MUSIC now appeals, arguing that the district court erred in (1 ) interpreting the claims-made provision of MUSIC's policy with the school district; (2) allowing recovery because the acti on against Parkway was for injunctive relief, and MUSIC's policy only

### -4-

cover ed suits for monetary damages; and (3) holding MUSIC liable for a portion of the school district's defense costs.

II.

The substantive law of Missouri cont rols this diversity action. See Langleyv. Allstate Ins. Co. , 995 F.2d 841, 844 (8th Cir. 1993) ("[W]hen feder al courts are exercising diversity jurisdiction, the rules fo r construing insurance policies are controlled by state law."). This Court reviews de novo the d istrict court's interpretation of Missouri law. See Empire Bank v. Fidelity & Deposit Co. of Md. , 27 F.3d 333, 335 (8th Cir. 1994). We also review the district court's interpretation of the insuranc e contract's terms de novo. See GRE Ins. Group v. Metropolitan Boston Hous. Partnership, Inc. , 61 F.3d 79, 81 (1st Cir. 1995); Principal Health Care of La., Inc. v. Lewis Agency, Inc. , 38 F.3d 240, 242 (5th Cir. 1994).

Under Mis souri law, we must construe an insurance contract in favor of the insured, so long as that construction is reasonable. West v
. Jacobs , 790 S.W.2d 475, 477 (Mo. App. 1990). We must, however, "accept th e written policy as the expression of the agreemen t made by the parties, and give effect to the intentions of the parties as disclosed by clear an d unambiguous language." Childers v. State Farm Fire & Casualty Co. , 79 9 S.W.2d 138, 140 (Mo. App. 1990). See also Haggard Hauling & Rigging Co. v. Stonewall Ins. Co. , 852 S.W.2d 396, 399 (Mo. App. 1993) ("An insurance pol icy that is unambiguous will be enforced as written . . . .")

. Ambigu ityin an insurance contract "exists when there is duplicity , indistinctness or uncertainty in the meaning of the language used in the policy." Haggard Hauling , 852 S.W.2d at 399. S ee also Southern Gen. Ins. Co. v. Web Assocs./Elecs., Inc. , 879 S.W.2d 780, 782 (Mo. App. 1994) ("The language of a contract is ambiguous when there is uncertainty as to it s meaning, and it is fa irly susceptible of multiple interpretations."). An ambiguous

### -5-

policy " will be interpreted in the manner that would ordinarily b e understood by the lay person who bought and paidfor the policy." Haggard Hauling , 852 S.W.2d a t 399. See also Missouri Property and Casualty Ins. Guar. Ass'n v. Petrolite Corp. , 918 S.W.2d 869, 872 (Mo. App. 1996) ("If
an insurance policy is open to different constructions the one mos t favorable to the insured must be adopted."); Universal Underwriters Ins. Co. v. Dean Johnson Ford, Inc. , 905 S.W.2d 529, 533 (Mo. App. 1995) ("[I]f the language [of an insurance policy] is ambiguous, it will be construed aga inst the insurance company."). Whether the language of an insuranc e contract is ambiguous is a question of law. Haggard Hauling , 852 S.W.2d at 399.
A claims-made insurance policy generally "covers negligent or o mitted acts discovered and brought to the attention of the insurer during th e policy period, regardless of when the act or omission occurred." Universa l Underwriters , 905 S.W.2d at 535 n.2. See also C ontinental Casualty Co. v. Maxwell , 799 S.W.2d 882, 886 (Mo. App. 1990) ("The claims made policy is triggered by the pres entation of a claim."). Because some of the parents involved in the class action against Parkway sought administrative relief prior to the initiation of the coverage under MUSIC's policy, the principl e iss ue in this case is whether a claim is "discovered" upon the forma l filing of a lawsuit o r, as MUSIC argues, when parents first complained to Parkway of the treatment of their children.

In Katz Drug Co. v. Commercial Standard Ins. Co. , 647 S.W.2d 83 1 (Mo. App. 1983), the Missouri Court of Appeals consid ered a notice provision in an insurance policy w hich provided that, "[i]f claim is made or a suit is brought against the I nsured, the Insured shall immediately forward to the company every demand, notice, summons or other process received by him or his representative." Id. at 835. The court stated that:

### -6- The parties disagree only as to whether the policy equates a claim with a suit, requiring that absent a filing o f a lawsuit, no claim has been filed. We hold that in this cont ext, a claim and a suit are not equal. First, both paragraph thirteen and the endorsemen t distinguish between a claim and a suit by using bot h terms. If the terms were equivalent, the wording would be redundant.

Id. The Katz court noted that this interpretation favored the insured, and would apply even if the provision was ambiguous. See id. :

Here, the term "claim" can be considered either a demand fo r som e asserted right (as argued by plaintiffs) or an actua l lawsuit (as argued by defendant). Assuming arguendo tha t either of these interpretations is reasonable, we apply th e meaning most favorable to [the insured], and determine tha t "claim"

. . . must include anydemand made upon [the insured] as a result of the company's negligent acts, errors o r omissions . . . and cannot be restricted to lawsuits alone.
(emphasis in original).
Applying the principles of Katz to t he facts of the instant case, we believe that, in this context, a claim and a suit are equal. Unlike the pol icy in Katz , MUSIC's 1988 coverage outline describes only a "claim. " The 1988 coverage outline does not mention "suit s," and does not otherwise distinguish between a suit and a claim. Without this distinction, it is unclear whether under MUSIC's 1988 coverage outline a phone call from an irate parent constitutes a "claim," or if a claim arises only when a lawsuit is filed against the insured. Based on the language of the policy , we cannot say that one interpretation is more ne cessary or likely than the other. This uncertainty regarding when coverage would apply

### In its 1989 coverage outline, MUSIC added an explicit 3 

### definition of claim to mean: (1) Any written or oral notice from any party to the [Insured] or a covered person that it is the intention of such party to hold them responsible for a specified Wrongful Act . . . or (2) Any occurrence which the [insured] or a covered person shall become aware of which may subsequently give rise to a claim being made in respect to any alleged Wrongful Act. Appellant's App. at 196. While MUSIC's clarification of ambiguous language in its policies will undoubtedly be of help to it in the future, we must reject MUSIC's invitation to use this ex post facto definition to assist us in our interpretation of its 1988 coverage outline. MUSIC argues that we should follow Edinburg Consol. I.S.D. 4 

### v. INA , 806 S.W.2d 910 (Tex. App. 1991), a Texas appellate case which relied on dictionary definitions to determine that a claim for a claims-made policy included an administrative hearing. Id. at 913. The Edinburg decision is, of course, not binding in this litigation, and we reject that court's reasoning. We do not believe that "claim" is self-defining and necessarily incorporates any request for assistance; indeed, under the definitions provided by the Edinburg court, "claim" is at least as reasonably interpreted as referring to the filing of a formal lawsuit as an informal complaint. See id. (defining "claim" as a "challenge of something, as a matter of right; a Demand for money
-7- constitute s an ambiguity in the policy. We must therefore disagree with 3 the district court--although we arrive at the same ultimate conclusion tha t MUSIC is liable under its policy--and hold that this element of the 1988 coverage outline is ambiguous.

Because of ambiguity in MUSIC's 1988 coverage outline, we mus t construe the claims-made provision in favor of Parkway. Under thi s construction, we conclude that the claim against Parkway was not made unti l the lawsuit was filed in November 1988. Because MUSIC's coverage o f Parkway b egan in July 1988 and included the November 1988 filing of th e lawsuit, MUSIC is liable for contribution to St. Paul for the settlement and defense of the claim. 4

### or property; a demand for something rightfully or allegedly due;

assertion of one's right to something" (citations and quotations omitted)). -8- MUSIC's remaining claims are meritle ss. MUSIC asserts that, because it was not liable for the underlying claim, it could not have been liable for the school district's defense of the claim. MUSIC specifically agreed to cover costs of defense, however, so a finding as to liability for the settlement is controlling on this issue. Simila rly, MUSIC's argument that the class action laws uit was only for injunctive relief and therefore not covered by the policy ignores the terms of the l awsuit, which specifically sought compensatory damages.
Accordingly, the judgment of the district court is affirmed.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.