Opinion ID: 1727608
Heading Depth: 1
Heading Rank: 4

Heading: Validity of the St. Paul Policy

Text: The purpose of the claims-made-and-reported requirement [6] of the policy in the present case purportedly is to alleviate problems in determining when a claim is made or whether an insured should have known a claim is going to be made. Warren Freedman, 2 Richard on the Law of Insurance § 11:7 (6th ed. 1990). A claimsmade policy works perfectly as long as the insured who is covered under the retroactive date requirement continues to purchase successive policies from the same insurer. Problems sometimes arise, however, when the insured changes insurers or when the insured, for whatever reason, does not renew the policy and does not obtain extended coverage, as occurred in the present case. Unless there is a conflict with statutory provisions or public policy, insurers are entitled to limit their liability and to impose and enforce reasonable conditions upon the policy obligations they contractually assume. Louisiana Insurance Guaranty Association v. Interstate Fire & Casualty Co., 93-0911 at p. 6 (La. 1/14/94), 630 So.2d 759, 763; Livingston Parish School Board v. Fireman's Fund American Insurance Co., 282 So.2d 478, 481 (La.1973) (stating that in the absence of conflict with statute or public policy, insurers may by unambiguous and clearly noticeable provisions limit their liability and impose such reasonable conditions as they wish upon the obligations they assume by contract). Here, the insured changed insurers and did not purchase extended coverage from St. Paul. While the coverage of the insured is excluded by the unambiguous terms of the St. Paul policy, plaintiffs assert two bases for attacking the provisions on public policy grounds. First, plaintiffs contend that La.Rev. Stat. 22:655, the Direct Action Statute, expresses the public policy that liability insurance is issued primarily for the protection of the public. Citing West v. Monroe Bakery, 217 La. 189, 46 So.2d 122 (1950), plaintiffs assert that the statute confers substantive rights on third party tort victims which are vested when the injury occurs. [7] The Direct Action Statute affords a victim the right to sue the insurer directly when the liability policy covers a certain risk. The statute does not, however, extend the protection of the liability policy to risks that were not covered by the policy or were excluded thereby (at least in the absence of some mandatory coverage provisions in other statutes). The unambiguous terms of the policy in the present case limit coverage to professional services for which claims were made during the policy period. No claim was made against either the insured or the insurer during the policy period, and the insured has no right to coverage under the terms of the policy. Under these circumstances, the Direct Action Statute does not extend any greater right to third party tort victims who were damaged by the insured. [8] Plaintiffs further contend that the insurance contract provisions are contrary to public policy under La.Rev.Stat. 40:1299.45 D(2), which prohibits cancellation of medical malpractice insurance policies insofar as the cancellation affects any claim that arose against the insurer or its insured during the life of the policy. Plaintiffs argue that their claim for medical malpractice arose from professional acts or omissions that occurred during the policy period and therefore could not be adversely affected by cancellation of the policy. Cancellation and expiration have entirely distinct meanings. As a general rule, expiration of a policy in accordance with its terms is not considered a cancellation of the policy. McKenzie & Johnson, supra at § 226. Although the terms `cancellation' and `termination' are frequently used synonymously, they are two separate and distinct acts, each carrying significantly different legal requirements and consequences. Guidry v. Shelter Insurance Co., 535 So.2d 393 (La.App. 3d Cir. 1988). The term cancellation means the termination of coverage under an insurance contract, with or without cause, by unilateral action of the insurer. Mezzacappo v. Travelers Ins. Co., 523 So.2d 291 (La.App. 3d Cir. 1988), cert. denied, 531 So.2d 473 (La.1988) (citing La.Rev.Stat. 22:636). The term Termination means cessation of coverage under an insurance contract by reason of passage of the policy period or the occurrence of some event anticipated by the terms of the contract. Id. It follows then that although insurance coverage terminates upon cancellation, termination of insurance coverage does not necessarily arise as a result of cancellation. Id. Cancellation of the policy never occurred in the present case. The policy simply expired by its terms, and Dr. Ichinose chose not to extend the coverage Significantly, the event that triggered policy coverage did not occur during the policy period. We conclude that application of the requirements of the claims-made policy under the facts of the present case does not violate public policy.