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No. 96-1702

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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. *

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 Submitted: September 11, 1996

 Filed: October 8, 1996

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

___________

MAGILL, Circuit Judge.

St. Paul Fire and Marine Insurance Company (St. Paul) and Missouri

United School Insurance Council (MUSIC) insured the Parkway School District

(Parkway) in St. Louis, Missouri. Parents of disabled children brought

suit against Parkway for allegedly violating their children's rights to

special education services and a nondiscriminatory education. St. Paul

expended $644,000 in settling the suit and reimbursing Parkway for its

defense, and now 
 The Honorable Jean C. Hamilton, United States District 1

Judge for the Eastern District of Missouri.

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seeks contribution from MUSIC for these costs. The district court tried 1

the case on stipulated facts and concluded that, under MUSIC's "claimsmade" policy with Parkway, MUSIC was liable for half of the settlement and

defense costs. The district court issued a judgment against MUSIC for

$322,000. We affirm.

I.

The facts of this case are not in dispute. In May of 1986, the

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 1988. Dissatisfied with the results of the hearing, the Merrys

filed a lawsuit against the school district on November 17, 1988. Other

parents joined the suit, which alleged unequal treatment of disabled

children, discrimination, deprivation of due process, and failure to

provide special education needs. The suit was later certified as a class

action. Although the suit generally sought injunctive relief, paragraph

20 of the requested relief section of the second amended complaint

specifically requested "appropriate compensatory relief to members of the

plaintiff class who have been required to expend their own funds because

they were denied special education and related services by defendants'

practices that violate federal law." Appellant's App. at 50. The suit was

settled before trial, and St. Paul covered the cost of the settlement and

the school district's legal fees. 

MUSIC began insuring the school district on July 1, 1988, and

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.

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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 monetary loss

to that third party

Defense Costs Included

Id. Under "Examples of Losses," the section includes "Improper Board

Action, Failure to give a Proper Education, Discrimination, etc." Id.

St. Paul brought the instant action against MUSIC and another

insurance provider for Parkway for contribution for the settlement and

defense costs. The district court held MUSIC liable for half of St.

2

Paul's expenditures on behalf of Parkway. After concluding that

"M.U.S.I.C.'s 1988 coverage is not ambiguous," Mem. Op. at 7, the district

court held that

because the Merrys made their claim against the Parkway School

District in November 1988, and M.U.S.I.C.'s 1988 coverage

became effective on July 1, 1988, M.U.S.I.C. is liable to St.

Paul Fire and Marine Insurance Company for coverage for its

share of the settlement amount in the underlying Merry suit.

The claim was made during 1988, making the 1988 coverage

outline the governing document, so Defendant M.U.S.I.C. is

liable for the underlying claim amount and for attorney'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 action against Parkway was for

injunctive relief, and MUSIC's policy only 
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covered 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 controls this diversity action. See

Langley v. Allstate Ins. Co., 995 F.2d 841, 844 (8th Cir. 1993) ("[W]hen

federal courts are exercising diversity jurisdiction, the rules for

construing insurance policies are controlled by state law."). This Court

reviews de novo the district 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 insurance

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 Missouri 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 the

written policy as the expression of the agreement made by the parties, and

give effect to the intentions of the parties as disclosed by clear and

unambiguous language." Childers v. State Farm Fire & Casualty Co., 799

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

policy that is unambiguous will be enforced as written . . . .").

Ambiguity in 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. See 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 its

meaning, and it is fairly susceptible of multiple interpretations."). An

ambiguous 
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policy "will be interpreted in the manner that would ordinarily be

understood by the lay person who bought and paid for the policy." Haggard

Hauling, 852 S.W.2d at 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 most

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

against the insurance company."). Whether the language of an insurance

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 omitted

acts discovered and brought to the attention of the insurer during the

policy period, regardless of when the act or omission occurred." Universal

Underwriters, 905 S.W.2d at 535 n.2. See also Continental Casualty Co. v.

Maxwell, 799 S.W.2d 882, 886 (Mo. App. 1990) ("The claims made policy is

triggered by the presentation 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 principle

issue in this case is whether a claim is "discovered" upon the formal

filing of a lawsuit or, 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 831 (Mo.

App. 1983), the Missouri Court of Appeals considered a notice provision in

an insurance policy which provided that, "[i]f claim is made or a suit is

brought against the Insured, 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:
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The parties disagree only as to whether the policy equates a

claim with a suit, requiring that absent a filing of a lawsuit,

no claim has been filed. We hold that in this context, a claim

and a suit are not equal.

First, both paragraph thirteen and the endorsement

distinguish between a claim and a suit by using both 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 for

some asserted right (as argued by plaintiffs) or an actual

lawsuit (as argued by defendant). Assuming arguendo that

either of these interpretations is reasonable, we apply the

meaning most favorable to [the insured], and determine that

"claim" . . . must include any demand made upon [the insured]

as a result of the company's negligent acts, errors or

omissions . . . and cannot be restricted to lawsuits alone.

(emphasis in original).

Applying the principles of Katz to the facts of the instant case, we

believe that, in this context, a claim and a suit are equal. Unlike the

policy in Katz, MUSIC's 1988 coverage outline describes only a "claim."

The 1988 coverage outline does not mention "suits," 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 necessary 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

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constitutes an ambiguity in the policy. We must therefore disagree with 3

the district court--although we arrive at the same ultimate conclusion that

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 must

construe the claims-made provision in favor of Parkway. Under this

construction, we conclude that the claim against Parkway was not made until

the lawsuit was filed in November 1988. Because MUSIC's coverage of

Parkway began in July 1988 and included the November 1988 filing of the

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)).

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MUSIC's remaining claims are meritless. 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. Similarly, MUSIC's argument that

the class action lawsuit was only for injunctive relief and therefore not

covered by the policy ignores the terms of the lawsuit, 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.