Opinion ID: 1201110
Heading Depth: 2
Heading Rank: 1

Heading: Number of Covered Claims

Text: The Fund is liable for a maximum of $99,900 per covered claim. A.R.S. § 20-664(A)(1). A covered claim is a claim that would have been covered by the insolvent insurer's policy. A.R.S. § 20-661(3). Neither the statutes nor the insurance policy defines claim, but the parties agree that it means a third party's assertion of a legal right against an insured. As the parties and court of appeals recognized, the issue becomes a matter of interpreting the indemnity provisions of the Imperial policy. Imperial contracted to indemnify its insureds separately up to the limit per occurrence for each occurrence in which an insured became legally obligated to pay damages because of professional negligence. Under A.R.S. § 20-664(A)(1), that limit became $99,900 per occurrence. The policy defines occurrence as any incident, act or omission, or series of related incidents, acts or omissions resulting in injury.... (emphasis added). The court of appeals held that the Fund is liable for only one covered claim (occurrence) because the failure of Eisenbeiss and Helme to look at Worsham's x-rays constituted a series of related ... omissions. This is so, according to the court of appeals, because the wrongful death complaint asserted only one type of negligent conduct as it pertained to the continuous and ongoing patient care performed by various parties. 153 Ariz. at 127, 735 P.2d at 449. In addition, the court found that the omissions of the two doctors were intimately related and identical. Id. at 127, 735 P.2d at 449. The number of doctors involved is irrelevant, according to the court. Id. at 127, 735 P.2d at 449. We disagree with the court of appeals' analysis. First, the statement that the complaint asserted only one type of negligent conduct, 153 Ariz. at 127, 735 P.2d at 449, is incorrect. The complaint did not specify those acts upon which it was based, and information developed during discovery supported various potential theories of recovery. More importantly, we disagree with the court of appeals' conclusion that the definition of occurrence is clear and unambiguous. 153 Ariz. at 127, 735 P.2d at 449. Ordinarily, if an insurance policy uses occurrence without defining the term, the courts inquire whether `there was but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damages.' See American Indemnity Co. v. McQuaig, 435 So.2d 414 (Fla.App. 1983); Annot., 55 A.L.R.2d 1300 (1957 and Supp. 1978); 8A J. APPLEMAN, INSURANCE LAW AND PRACTICE § 4891.25, at 16-19 (1981) (if a cause is interrupted or replaced by another cause, the chain of causation is broken and more than one occurrence has taken place). The Imperial policy definition of occurrence employs this causal test (acts or omissions resulting in injury) but modifies it by using the phrase series of related acts or omissions. Under the Imperial policy, a series of related causes of an injury merge to constitute only one occurrence. Therefore, the question we must address is whether the failures of the two doctors should be treated as one occurrence because they constituted a series of related incidents, acts or omissions which resulted in the patient's death. Neither the Imperial policy, the parties, nor the court of appeals have defined the word related and our research does not reveal any generally accepted legal meaning; therefore, we will assume that the policy uses related in its commonly accepted dictionary sense. Webster's dictionary defines the intransitive verb relate as show[ing] or establish[ing] a logical or causal connection between. WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY UNABRIDGED, at 1916 (1965). A related act or omission, therefore, is one that has a logical or causal connection with another act or omission. We do not believe that the word related as used in the policy can be equated with the phrase logical connection. Logic, like beauty, is in the eye of the beholder and greatly depends upon the subjective mental process of the reviewer. Incidents may be logically related for a wide variety of indefinable reasons. Causal connection depends, to a much greater extent, on objective facts in the record. If we were compelled to equate related with logically connected, we would be compelled to find the policy provision ambiguous, and for that reason to find in favor of the claimant. Parks v. American Casualty Co., 117 Ariz. 339, 341, 572 P.2d 801, 803 (1977). We have attempted to abandon this approach. See Transamerica Insurance Group v. Meere, 143 Ariz. 351, 355, 694 P.2d 181, 185 (1984). We prefer, instead, to determine the meaning of a clause which is subject to different interpretations or constructions by examining the purpose of the clause, public policy considerations, and the transaction as a whole. Id. The correlation between series of related acts or omissions and causation is apparent after examining arguments made by claimants in other multiple-act cases and the manner in which some courts have interpreted similar words when not expressly defined in the policy. See, e.g., Home Indemnity Co. v. City of Mobile, 749 F.2d 659 (11th Cir.1984) (200 homeowners argued that occurrence should be defined in terms of the resulting damage to each of their properties  court holds that number of occurrences depends upon the number of causative acts, not the number of injuries resulting); Travelers Indemnity Co. v. New England Box Co., 102 N.H. 380, 157 A.2d 765, 767 (1960) (several parties tried to collect per accident policy limits for damage to each of their properties  words held to refer to multiple causes rather than multiple effects); Bacon v. Miller, 113 N.J. Super. 271, 273 A.2d 602 (1971) (plaintiff claimed more than one accident when car involved in collision careened into several pedestrians  court restricted recovery to limit for one accident). These cases compel the conclusion that the number of causative acts is the key to interpreting per occurrence clauses. We think it clear that Imperial limited occurrence by using the term series of related incidents ... to protect itself from the contention that multiple, causally-connected negligent acts constituted more than one occurrence. The Fund reflected this concern in its briefs when it argued that under survivors' interpretation, [i]t is foreseeable that each and every time any doctor saw or examined a patient, such failure to accurately re-diagnose the condition would constitute a separate occurrence. Limiting coverage for separate occurrences by construing a series of causally connected acts or omissions to be a single occurrence would address this concern adequately. The Fund also argues that there was only one occurrence because there was only one injury. The cases, however, show that the number of causative acts, and not the number of injuries produced, determines the number of occurrences. See, e.g., St. Paul Fire & Marine Insurance Co. v. Hawaiian Insurance & Guaranty Co., 2 Haw. App. 595, 596, 637 P.2d 1146, 1147 (1981) (separate claims made out each time doctors negligently administered anesthetic to patient-decedent  all causing a single result, death); McQuaig, supra (each of three shotgun blasts fired by homeowner was a separate occurrence although blasts only injured two people); see also Maurice Pincoffs Co. v. St. Paul Fire & Marine Insurance Co., 447 F.2d 204 (5th Cir.1971) (each of eight sales of contaminated bird seed was a separate occurrence because each separate sale subjected the insured to liability); St. Paul-Mercury Indemnity Co. v. Rutland, 225 F.2d 689 (5th Cir.1955) (one occurrence when 16 freight cars owned by 14 different owners destroyed in a single accident); Home Indemnity Co., supra (each discrete act or omission or series of acts or omissions, by city which caused flooding is an occurrence); Colbert County Hospital Board v. Bellefonte Insurance Co., 725 F.2d 651 (11th Cir.1984) (patient could recover for three claims against hospital for three separate surgeries negligently performed by same doctor  each surgery allegedly producing separate injury). Thus, we conclude that the number of acts producing injury or damage, rather than the number of injuries caused, is the key on which the definition of occurrence turns. Multiple acts causing a single injury will constitute multiple occurrences, while a single act will constitute a single occurrence even though it causes multiple injuries or multiple episodes of injury. It follows that Imperial's use of the word related in the phrase series of related acts was meant to exclude causally related acts from the rule that multiple causative acts constitute multiple occurrences. Therefore, we hold that the proper construction of Imperial's definition is that even though there have been multiple causative acts, there will be a single occurrence if the acts are causally related to each other as well as to the final result. We now turn to the record to see if it contains information from which a factfinder could infer that the omissions of the two doctors were causally connected to each other and thus constituted only one occurrence. The record shows that Worsham's treating physician requested Eisenbeiss to do a neurological consultation after Worsham's April 29, 1975 accident. Eisenbeiss either failed to review Worsham's x-rays or, reviewing them, failed to recognize the problem, and thus did not diagnose or report a fracture dislocation of the spine. On May 1, 1975, Worsham's condition deteriorated and Helme, who was on call while Eisenbeiss had the day off, performed emergency surgery. During a 1979 deposition, Helme stated that he had examined Worsham's spinal x-rays before operating. In June 1982, he admitted that he had not followed his usual practice and had not looked at the x-rays before operating on Worsham. Helme conceded that had he done so and seen the fracture dislocation, he would have immobilized Worsham during surgery. The surgery without immobilization is alleged to have caused Worsham's spinal cord injury, hastening his quadriplegia and resulting death. In essence, therefore, survivors claim that both doctors were negligent in failing to look at the x-rays in connection with separate activities  consultation and surgery. Each of the diagnostic failures allegedly was a cause of injury and contributed to the ultimate result  death. The doctors' failures clearly were separate causal acts of separate doctors on separate days. Nothing in the record indicates that Eisenbeiss's conduct caused Helme to fail to examine the x-rays. [7] Certainly, on this record the finder of fact could not find a causal connection. Accordingly, we find that the trial court did not err in holding that the doctors' omissions constituted two occurrences under the Imperial policy, and that survivors could recover for two covered claims. We affirm the trial court's grant of partial summary judgment in favor of survivors on this issue. C. Breach of Duty of Cooperation The Fund contends that if the doctors' omissions did give rise to two covered claims, its obligation to pay survivors on the second claim has been discharged by the doctors' collusion and breaches of the express duty of cooperation and implied duty of good faith. The Imperial policy contains a standard cooperation clause: the insured shall not, except at his own cost, voluntarily make any payment, assume any obligation, or incur any expense. The guaranty law required Helme and NSPC to cooperate with the Fund to the same extent they would have been required to cooperate with Imperial. A.R.S. § 20-667(A). [8] Helme and NSPC breached this duty to cooperate, according to the Fund, and were obviously willing to say anything necessary to save their personal backsides. The Fund contends that Helme and NSPC set it up by entering into an unauthorized settlement and by creating an alleged `claim' so that both groups could profit at the expense of public funds. [9] A cooperation clause such as Imperial's is used to protect the insurer's right to a fair adjudication of the insured's liability and to prevent collusion between the insured and the injured person. 8 J. APPLEMAN, supra § 4771, at 213 (1981). Ordinarily, an insured's breach of the cooperation clause relieves a prejudiced insurer of liability under the policy. Globe Indemnity Co. v. Blomfield, 115 Ariz. 5, 8, 562 P.2d 1372, 1375 (App. 1977); 8 J. APPLEMAN, supra § 4772, at 215. Insurance policies, however, are governed by the basic contract law principle that if one party to a contract breaches the agreement, the other party is no longer obligated to perform his or her contractual obligations. A. WINDT, INSURANCE CLAIMS AND DISPUTES: REPRESENTATION OF INSURANCE COMPANIES AND INSUREDS § 3.10, at 97 (1982); 8 J. APPLEMAN, supra § 4786, at 316. Throughout this litigation, survivors have claimed that the doctors were justified in settling the claims against them because the Fund had breached the material obligations of the insurance contract first. Survivors suggest that the Fund abandoned its insureds by breaching both its express duties to defend and indemnify, and its implied duty of good faith. Because we find as a matter of law that the Fund anticipatorily repudiated its duty to indemnify, we need not address the other breaches raised by survivors. The insurance policy expressly obligated Imperial to indemnify Helme and NSPC (for its vicarious liability for Helme's acts) against all sums they became legally obligated to pay as damages because of injury arising out of Helme's professional malpractice. This duty is the most fundamental of an insurer's obligations. A. WINDT, supra § 6.01, at 225. In purchasing an insurance company's express agreement to pay covered claims, the insured is buying security from financial loss which he may sustain from claims against him.... Rawlings v. Apodaca, 151 Ariz. 149, 154, 726 P.2d 565, 570 (1986). The Fund interpreted the statutes and the Imperial policy as obligating it to pay a maximum of $99,900, no matter what amount of damages were found at trial. The Fund admits that it told its insureds that it would pay only one covered claim. This contraction of coverage was based on the Fund's erroneous interpretation of the policy's occurrence definition. We recently stated that a party which repudiates its contract obligations on the basis of an incorrect interpretation of a contract has committed an anticipatory breach. Snow v. Western Savings & Loan Association, 152 Ariz. 27, 33-34, 730 P.2d 204, 210-11 (1986). The Fund, therefore, anticipatorily breached its contractual and statutory obligations as a matter of law. As a general matter, insurance carriers owe their insureds three duties, two express and one implied. These are the duties to indemnify, the duty to defend, and the duty to treat settlement proposals with equal consideration. See generally A. WINDT, supra § 4.01 to § 6.37, at 100-297. Any breach, actual or anticipatory, of these duties deprives the insured of the security that he has purchased because the breach leaves him exposed to personal judgment and damage which may not be covered or may exceed the policy limits. Accordingly, when such a breach occurs, the insured is generally held to be freed from his obligations under the cooperation clause. Damron v. Sledge, 105 Ariz. 151, 460 P.2d 997 (1969); State Farm Mutual Automobile Insurance Co. v. Paynter, 122 Ariz. 198, 593 P.2d 948 (App. 1979); A. WINDT, supra §§ 3.10 to 3.11, at 97-99. Although the insurers in Damron and Paynter breached by refusing to defend, the principle of those cases remains the same: once an insurer breaches any duty to its insured, the insured is no longer fully bound by the cooperation clause. Accord 7C J. APPLEMAN, supra § 4714; A. WINDT, supra § 3.10, at 97 and § 4.09, at 120. No other rule is sensible. The insured exposed by his insurer to the sharp thrust of personal liability ... need not indulge in financial masochism.... Damron, 105 Ariz. at 153, 460 P.2d at 999, quoting Critz v. Farmers Insurance Group, 230 Cal. App.2d 788, 801, 41 Cal. Rptr. 401, 408 (1964). Whatever may be [the insured's] obligation to the carrier, it does not demand that he bare his breast to the continued danger of personal liability. By [settling], he attempts only to shield himself from the danger to which the company has exposed him.... The insurer's breach so narrows the policyholder's duty of cooperation that the self-protective [settlement] does not violate it. Critz, 230 Cal. App.2d at 801-02, 41 Cal. Rptr. at 408-09. We do not hold that the insurer's anticipatory repudiation eliminates the insured's duty of cooperation so that the insured may enter into any type of agreement or take any type of action that may protect him from financial ruin. We hold only that once the insurer commits an anticipatory breach of its policy obligations, the insured need not wait for the sword to fall and financial disaster to overtake. The insurer's breach narrows the insured's obligations under the cooperation clause and permits him to take reasonable steps to save himself. Among those steps is making a reasonable settlement with the claimant. So long as that settlement agreement is neither fraudulent, collusive, nor otherwise against public policy, the insured has not breached the cooperation clause. Damron agreements are not inherently collusive or fraudulent. Paynter, 122 Ariz. at 201, 593 P.2d at 951; Miller v. Shugart, 316 N.W.2d 729, 734 (Minn. 1982). The insureds did not breach their duty of cooperation merely by entering into the Damron agreement to protect themselves after the Fund denied the full extent of its potential financial responsibility, thus abandoning its duty to indemnify and to fairly consider settlement proposals. See Communale v. Traders & General Insurance Co., 50 Cal.2d 654, 328 P.2d 198 (1958). The court of appeals erred in holding that the making of the Damron agreement, without more, was a breach of the cooperation clause. The parties have not argued, and this opinion does not reach, any issue regarding the extent to which the stipulations which form part of the settlement agreement are binding upon the insurer. This case must be remanded for a factual determination of issues not resolved by the partial summary judgment. These include the question of whether Helme and NSPC fraudulently misreported Helme's treatment of Worsham.