Opinion ID: 1831069
Heading Depth: 3
Heading Rank: 1

Heading: Tail Insurance

Text: ¶ 17. On March 19, 1993 Baptist Memorial Hospital leased the community hospital facilities from Lowndes County, Mississippi. Jones contends that the lease agreement obligated BMH to purchase tail insurance, and the failure of BMH to purchase tail insurance constitutes a breach of the agreement. As a result, Jones argues, BMH is obligated to indemnify Lowndes County and Golden Triangle for any judgment rendered against either party for causes of action which would otherwise have been covered by the tail insurance. We have not previously defined tail insurance in prior case law. An explanation of the term is necessary for this opinion. Professional liability insurance policies are generally categorized into two types: occurrence policies and claims made policies. A claims made policy protects the holder only against claims made during the life of the policy, while an occurrence policy protects the policyholder from liability for any act done while the policy is in effect. St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531, 535, fn. 3, 98 S.Ct. 2923, 57 L.Ed.2d 932 (1978). The two types are distinguishable in that a claims made policy covers losses caused by any wrongful action taking place at any point in time as long as the claim is made during the period the policy is in effect. Conversely, an occurrence policy only protects against liability for wrongful acts which occurred during the term of the policy, i.e., the policyholder is protected by an occurrence policy even if a claim is made against the holder after expiration of the policy if the wrongful act took place while such policy was in effect [4] . A gap in coverage may occur if a claims made policy is followed by an occurrence policy and either (1) a wrongful act occurred during the term of the claims made policy but no claim was filed before expiration of the policy; or (2) a wrongful act occurred after expiration of the claims made policy but before inception of the occurrence policy. Tail insurance bridges the gap. ¶ 18. The lower court, relying on the exculpatory language contained in the lease agreement, dismissed BMH from the suit without addressing the issue of whether BMH was required to purchase tail insurance. We find no obligation in the lease agreement language requiring BMH to purchase tail insurance in this case. ¶ 19. Paragraph 12.2 of the lease agreement reads: 12.2 Supplemental Insurance. As of the Commencement Date [March 19, 1993], Lessor [Lowndes County, Mississippi and Golden Triangle Regional Medical Center] may pay from the funds of the Hospital to purchase for Lessor an extended reporting endorsement providing insurance coverage for professional and general liability for claims made in respect of periods through the Commencement Date (Tail Insurance). If the purchase of Tail Insurance as of the Commencement Date is unnecessary because the Lessee [BMH] includes Lessor under its policy but should the purchase of Tail Insurance become necessary after the Commencement Date the Lessor shall approve such tail insurance, which approval shall not be unreasonably withheld, and the payment for such Tail Insurance shall be deemed to constitute a current liability of Lessor as of the Commencement Date and the Lessee shall have the right to decrease the next installment payment for the Current Assets by such amount or in the event all such installments shall have been paid the payment by the Lessee for such tail insurance shall constitute an indemnifiable obligation of Lessor and the Lessee shall have a right to submit a bill for the same and be paid from the principal of the Foundation Fund. Lessee expressly does not assume any obligation of any kind or nature whatsoever with respect to any claim arising out of, resulting from, or incident to any event which occurred or any state of facts which existed prior to the Commencement Date (even though not asserted until after the Commencement Date and even though not discovered until after the Commencement Date). In addition, Lessor may pay from the unrestricted funds of the Hospital the necessary premium for supplemental insurance policies in respect of directors and officers coverage providing for an extended reporting period for claims made in respect of periods through the Commencement Date. ¶ 20. According to the language of the contract, any obligation to purchase supplemental insurance would not have arisen until March 19, 1993, the Commencement Date of the lease. As of the Commencement Date and until January 1, 1994 Golden Triangle was covered by a claims made policy issued by State Farm Insurance Company. On the Commencement Date of the lease agreement, Golden Triangle added BMH to its insurance policy. On January 1, 1994, the day the former policy expired, BMH purchased a separate claims made policy naming BMH as the sole insured. ¶ 21. Golden Triangle was insured as of the Commencement Date of the lease agreement; thus, the purchase of tail insurance was not necessary on that date. Further, there was no obligation to purchase tail insurance after the Commencement Date because there was no gap in coverage. The claims made policy held by Golden Triangle and also covering BMH extended past the Commencement Date. Upon its expiration, BMH purchased another claims made policy. Accordingly, tail insurance was simply not required.