Beta Healthcare Group Risk v. Norcal Mut. Ins.

Filed 7/28/10 Beta Healthcare Group Risk v. Norcal Mut. Ins. CA2/2

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

APPEAL from a judgment of the Superior Court of Los Angeles County.

Jane L. Johnson, Judge. Affirmed.

Murphy, Campbell, Guthrie & Alliston, George E. Murphy and Douglas R. Alliston for Plaintiff and Appellant.

Woolls & Peer, Gregory B. Scher and Jo Ann Montoya for Defendant and Respondent.

_________________________

Appellant Beta Healthcare Group Risk Management Authority (Beta) appeals the summary judgment entered in favor of respondent Norcal Mutual Insurance Company (Norcal). We find no error and affirm.

FACTS

In 2006, Dr. Michael Wang operated on the spine of Marteen Moore (Moore) at USC University Hospital (hospital). Dr. Anne M. Anglim treated an infection to the surgical wound.

Norcal issued an insurance policy (Norcal policy) to USC Care Medical Group, Inc. (USC Care), a physicians group of more than 500 physicians who are full-time faculty members of the Keck School of Medicine at the University of Southern California. USC Care was the named insured for the policy period July 1, 2007, to July 1, 2008, and covered for sums it was obligated to pay as damages caused by a medical incident if a claim was made against an insured and reported to Norcal during the policy period. At the time, Dr. Anglim and Dr. Wang were members of USC Care and listed as insureds.

On September 5, 2007, counsel for Moore sent a letter to Dr. Wang and the hospital indicating her intent to file a medical malpractice action. The letter was forwarded to Norcal on September 11, 2007.

The Norcal policy was terminated on October 1, 2007. That same day, USC Care became a member of Beta under its coverage contract (Beta contract) with a retroactive date of April 1, 2006. Dr. Anglim was identified as a member of the Beta contract with respect to her liability for work at USC Care.

On December 3, 2007, Moore sued the hospital, Dr. Wang, Dr. Anglim and others in federal court. Moores action was tendered to Norcal and Beta for a defense. When Norcal denied coverage for Dr. Anglim, Beta began paying Dr. Anglims defense costs. Norcal sent a letter to USC Care explaining that coverage was denied because Norcal did not receive notice of a claim against Dr. Anglim until after the Norcal policy was canceled.

Beta sued Norcal for a declaration that Norcal must defend and indemnify Dr. Anglim. According to the pleading, Norcals obligation was triggered when it received notice in September 2007 of a medical incident involving Moore. The parties filed cross-motions for summary judgment regarding interpretation of the Norcal policy. Norcal prevailed.

This timely appeal followed.

PROPRIETY OF REVIEW

Norcal asked us to take judicial notice of the dismissal of Dr. Anglim from Moores action on February 25, 2009. We did so. According to Norcal, because Dr. Anglim was dismissed, this appeal is moot. But even if Norcal has no current duty to defend Dr. Anglim, it may have had a duty to defend her before February 25, 2009, and it could have a duty to contribute to her defense costs. Thus, we conclude that the summary judgment remains ripe for review.

DISCUSSION

We review the entry of summary judgment on an independent basis. (Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476.) At issue in this appeal is the proper interpretation of the Norcal policy.

A. The law: contract interpretation.

Even though insurance contracts have unique features, courts resort to the ordinary rules of contract interpretation when trying to construe their meaning. (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264; London Market Insurers v. Superior Court (2007) 146 Cal.App.4th 648, 656.) Subject to the other rules of interpretation, the language of a contract governs its interpretation if the language is clear and explicit and does not involve an absurdity. (Civ. Code, 1638, 1639.) The whole contract must be considered together in order to give effect to every part, if reasonably practicable, each clause helping to interpret the other. (Civ. Code, 1641.) The words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed. (Civ. Code,  1644.)

Policy provisions will be deemed ambiguous when they are capable of two or more constructions that are reasonable. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18.) If the terms are ambiguous, we interpret them to protect the insureds objectively reasonable expectations. (State of California v. Allstate Ins. Co. (2009) 45 Cal.4th 1008, 1018.) Contract interpretation is a question of law unless extrinsic evidence introduced to resolve an ambiguity is in conflict. (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165.)

B. Interpretation of the Norcal policy.

The questions posed by Beta are these: Are the claims against Dr. Wang and Dr. Anglim deemed a single claim under the Norcal policy? Is that single claim deemed reported on September 11, 2007? According to Beta, an affirmative answer to both of these questions dictates a reversal.

The facts are undisputed.

The Norcal policy defines a claim to mean an actual or potential claim. An actual claim means [w]ritten notice or demand for Damages that an Insured has received regarding a MedicalIncident or Occurrence. A potential claim is [a]ny MedicalIncident or Occurrence that may result in an actual Claim. The word damages is defined to mean all sums that an Insured becomes legally obligated to pay by reason of the liability imposed upon an Insured by law because of injury or damage to which [the Norcal policy] applies. In plain terms, these provisions establish that an actual claim exists only if there is a demand for damages against a single insured, the single insured receives the demand, and the demand relates to a medical incident or occurrence. Nothing in the definition of claim or damages supports Betas contention that a demand for damages made against Dr. Wang constitutes a demand for damages made against Dr. Anglim.

The insuring agreement provides that Norcal has a duty to defend an Insured against any Claim based on a medical incident that results in a Claim first made against an Insured and reported during the policy period. The policy language plainly indicates that the duty to defend is to be understood in terms of a single insured. By parity of reasoning, it is reasonable to conclude that a claim relates to a single insured, not to multiple insureds. Case law supports the conclusion that no actual claim could have been made as to Dr. Anglim under the Norcal policy unless and until she received a demand from Moore. (Safeco Surplus Lines Co. v. Employers Reinsurance Corp. (1992) 11 Cal.App.4th 1403, 1407 [claim not made on insurance brokers until they received a demand for money or services].)

In the common conditions, the Norcal policy contains a provision entitled Separation of Insureds. It states: Except for any rights or duties specifically assigned to [USC Care,] the Named Insured, this insurance applies separately to each Insured against whom a Claim is made. This type of clause is widely recognized. It provides each insured with separate coverage, as if each were separately insured with a distinct policy, subject to the liability limits of the policy. [Citation.] [Citation.] (Safeco Ins. Co. v. Robert S. (2001) 26 Cal.4th 758, 772, citing AmericanNat. Fire Ins. v. Fournelle Est. (Minn. 1991) 472 N.W.2d 292, 294 (Fournelle).) If insurance provided to multiple insureds is considered separate as to each, this suggests that related claims against two physicians will not be considered a single claim, and that notice of one claim does not constitute notice of the other.

The Norcal policy specifies that in the event of a claim, an insured must provide Norcal with notice of (1) how, when and where the medical incident or occurrence took place; (2) the names, addresses and ages of any claimants and witnesses; and (3) the nature and location of any injury or damage arising from the medical incident or occurrence. The plain language of the Norcal policy establishes that an insured, or USC Care on behalf of the insured, must notify Norcal of a claim against that particular insured. The claim notice provision nowhere suggests that notice of a claim against one physician constitutes notice of a claim against a second physician and that the second physicians duty to report is absolved.

In an endorsement, each physician was listed as an Insured(s) and was provided with a separate limit of $1 million of liability insurance per medical incident. This indicates that a claim and related medical incidents must be understood on a per physician basis.

But not all the provisions in the Norcal policy indicate that a claim relates to a single insured. Beta uses those provisions to advance a contrary argument.

In the common conditions of the Norcal policy, in a section entitled Multiple Claims Arising From The Same Circumstances, the Norcal policy provides that all claims arising from the same medical incident or occurrence, or a series of similar or related medical incidents and occurrences, will be deemed a single Claim on the date the first of such Claims is reported[.] Elsewhere, a medical incident is defined to mean any act or omission or series of related acts or omissions in the rendering of or failure to render professional health care services. These provisions are silent as to whether the word claim must be understood in terms of a single insured. In the abstract, that is one possible meaning. As urged by Beta, a second possible meaning is that separate claims against two physicians based on related medical incidents constitute a single claim, and that the single claim will be deemed reported as to both physicians even if (a) only one physician notifies Norcal and (b) the notice discloses a demand for damages against the reporting physician but is silent as to the other physician. If the Norcal policy is reasonably susceptible to both meanings, it is ambiguous and we would have to resolve the ambiguity, if possible, by determining the insureds objectively reasonable expectations.

For purposes of the parties dispute, the word claim was not adequately defined. This does not mean, however, that we are required to conclude that the Norcal policy is ambiguous. (Powerine Oil Co., Inc. v. Superior Court (2005) 37 Cal.4th 377, 390391.) Nor does [d]isagreement concerning the meaning of a phrase, or the fact that a word or phrase isolated from its context is susceptible of more than one meaning. [Citation.] [L]anguage in a contract must be construed in the context of that instrument as a whole, and in the circumstances of that case, and cannot be found to be ambiguous in the abstract. [Citation.] (Ibid.) When viewed in the context of the whole Norcal policy, we conclude that the section entitled Multiple Claims Arising From The Same Circumstances pertains to multiple claims asserted against a single insured, not multiple claims asserted against multiple insureds. In other words, we conclude that the Norcal policy is not legally ambiguous.

Simply put, Betas urged meaning is unreasonable because it conflicts with the other provisions in the Norcal policy. They contemplate that a claim is a demand for damages against a single insured and each insured has separate insurance, a separate reporting duty and a separate limit of liability. Also, we note that under Betas interpretation, a claim made and reported as to one physician during the policy period would have required Norcal to investigate every related medical incident in anticipation of future demands for damages against other physicians. Further, it would require Norcal to defend any physician notified of a claim after the policy period on a related medical incident. That would alter the insurance provided to a nonreporting physician such as Dr. Anglim. As to her, it would change the insurance into an occurrence policy for lawsuits arising from related medical incidents rather than what was paid for, i.e., a claims made and reported policy.^[1]

Beta defends its interpretation by suggesting that the claim notice provision does not specifically require a physician who reports a claim against him or her to state the names of other treating physicians, and that therefore it is reasonable to conclude that while Norcal is entitled to notice of the first claim during the policy period, notice of claims related to other physicians can occur at any time. Stated otherwise, Beta suggests that the Norcal policy did not entitle Norcal to receive prompt notice of claims against Dr. Anglim. But as we have explained, that would change the insurance as to Dr. Anglim into an occurrence policy.

Next, Beta contends that the trial court erred when it concluded that the separation of insureds provision modified the claim reporting provision. According to Beta, the separation of insureds provision was designed to protect the insureds, not help Norcal avoid liability. In support, Beta quotes Fournelle, supra, 472 N.W.2d page 294 when it states that severability demands that policy exclusions be construed only with reference to the particular insured seeking coverage. [Citations.] It may well be that the purpose of the provision is to guarantee that all insureds are not denied coverage just because an exclusion applies to one insured. But, in our view, it would ignore the plain language of the Norcal policy to treat the Norcal policy as separate insurance for purposes of exclusions but not for reporting claims.

Forging ahead, Beta argues that the Norcal policy did not require Dr. Anglim to report a claim against her. Beta correctly points out that USC Care was authorized to act on Dr. Anglims behalf. We fail to see the point. USC Care did not, within the policy period, notify Norcal of a claim against Dr. Anglim, meaning a demand for damages asserted against Dr. Anglim by Moore.

We are told by Beta that Norcal successfully argued below that Norcal was entitled to notice that its potential exposure was $2 million for claims against Dr. Wang and Dr. Anglim as opposed to $1 million for a single claim against Dr. Wang. Beta contends that Norcals position was flawed because Moore was not entitled to a double recovery just because she sued two physicians. We see it differently. The Norcal policy provided insured physicians with a separate $1 million in coverage per medical incident. If Moore had obtained a joint and several award against Dr. Wang and Dr. Anglim for $5 million, Norcals exposure indeed would have been $2 million instead of $1 million. It is unreasonable for Beta to suggest that Norcal was not entitled to notice of a $2 million exposure.

Citing law for the proposition that exclusions must be conspicuous, plain and clear to be enforceable (De May v. Interinsurance Exchange (1995) 32 Cal.App.4th 1133, 1137), Beta argues that the separation of insureds provisions was none of those things and cannot be invoked by Norcal. But the separation of insureds provision was not an exclusion. Nor was the insuring agreement, which created coverage only for claims made and reported during the policy period. In any event, the Norcal policy was a claims made and reported policy, a condition of coverage that was conspicuous, plain and clear in the insuring agreement.

In sum, we interpret the Norcal policy to mean that an insured is entitled to a defense only if, during the policy period, a claim was made against the insured and the insured or USC Care reported it. Because we conclude the trial court properly interpreted the Norcal policy, we perceive no error.

DISPOSITION

Summary judgment is affirmed.

Norcal is entitled to its costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

______________________________, J.

ASHMANN-GERST

We concur:

_______________________________, P. J.

BOREN

_______________________________, J.

CHAVEZ

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^[1] All professional liability policies were at one time occurrence policies. [Citation.] Underwriters soon realized, however, that occurrence policies were unrealistic in the context of professional malpractice because the injury and the negligence that caused it were often not discoverable until years after the delictual act or omission. In an effort to reduce their exposure to an unpredictable and lengthy tail of lawsuits filed years after the occurrence they agreed to protect against, underwriters shifted to the claims made policy. . . .  This type of policy differed materially from an occurrence policy in several aspects. Most notably, it was transmittal of notice of the claim to the insurer which was the event that invoked coverage. (Slater v. Lawyers Mutual Ins. Co. (1991) 227 Cal.App.3d 1415, 14221423.)