NATIONAL UNION V. UNDERWRITERS

SUPREME COURT CASES

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State: Florida

Court: Florida Third District Court

Docket No: 06-3191

Case Date: 11/28/2007

Preview:Third District Court of Appeal
State of Florida, July Term, A.D. 2007
Opinion filed November 28, 2007. Not final until disposition of timely filed motion for rehearing. ________________ No. 3D06-3191
Lower Tribunal No. 04-07145

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National Union Fire Insurance Company of Pittsburgh, PA, on behalf of itself and as Assignee of Physician's Corporation of America, a Delaware corporation.
Appellant, vs.

Underwriters at Lloyd's, London and Certain Insurance Companies Subscribing to Certificate Number 509/QB283796, a foreign corporation, and Underwriters at Lloyd's, London and Certain Insurance Companies Subscribing to Certificate Number 509/QB283896, a foreign corporation,
Appellees.

An Appeal from the Circuit Court for Miami-Dade County, Jose M. Rodriguez, Judge. Carlton Fields and Sylvia H. Walbolt, and Steven J. Brodie, and Frederick T. Hawkes, for appellant.

Pivnik & Nitsche, Jerome Pivnik; Hanson Peter Nye and Nancy K. Tordai; Fowler, White, Burnett and Allan R. Kelley and Helaine S. Goodner; Pattison and Flannery and Martin Flannery, Jr., for appellees.

Before RAMIREZ, SUAREZ, and ROTHENBERG, JJ. RAMIREZ, J. National Union Fire Insurance Company of Pittsburgh, PA, appeals the trial court's order denying its motion for partial summary judgment and granting appellees Underwriters at Lloyd's, London and Certain Insurance Companies' cross-motion for summary judgment. We affirm the trial court's decision because National Union has failed to show that Physician's Corporation of America ("PCA") provided Lloyd's with the notice required under PCA's insurance contract with Lloyd's. I. Factual and Procedural Background

This is a dispute between two insurers over a sizeable class action settlement paid on behalf of the insured, PCA, which was a Miami-based, publicly-traded health care company. Both Lloyd's and National Union had issued consecutive liability policies covering PCA's directors and officers. Lloyd's had issued

primary and excess "claims-made" director-and-officer policies to PCA for the period of April 7, 1996, to September 8, 1997. National Union's policy covered the period of September 8, 1997, to September 8, 2003.

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The class action that eventually was settled was filed in November of 1997, which fell within National Union's coverage period. National Union argues,

however, that Lloyd's should respond for the loss because Lloyd's was obligated to pay for any "[l]oss resulting from any Claim first made during the policy period for a Wrongful Act" and to reimburse PCA for any loss PCA paid as indemnification "to any Directors and Officers resulting from any Claim during the policy period for a Wrongful Act." A "Wrongful Act" was defined in the policy as "any actual or alleged error, omission, misstatement, misleading statement, neglect, breach of duty or negligent act by any of the Directors or Officers." This would be a viable argument if Lloyd's had been given proper written notice during the covered period. Resolution of this issue requires an examination of the policy language. As to coverage for a potential claim, Clause VI.B. of the policy provided that: If during the Policy Period the Assureds first become aware of a specific Wrongful Act, and if the Assureds during the Policy Period give written notice to Underwriters as soon as practicable of: 1. the specific Wrongful Act, and 2. the consequences which have resulted or may result therefrom, and 3. the circumstances by which the Assureds first became aware thereof, then any Claim made subsequently arising out of such Wrongful Act shall be deemed for the purposes of this Policy to have been made at the time such notice was first given.

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In 1996, PCA and Sierra Health Services began to discuss a merger. PCA's representatives disclosed to Sierra that it was "under-reserved" by approximately $100 million, in violation of Florida's insurance laws. The two companies

nevertheless entered into a merger agreement on November 2, 1996. Two days later, PCA informed Sierra that PCA was under-reserved by $130 million. A financial review by the accounting firm of William H. Mercer, Inc., indicated that the amount under-reserved was actually $190 million. As the deficits continued to increase, the Florida Insurance Department, on February 25, 1997, filed a

complaint seeking a receivership for PCA, resulting in the entry of a court order that effectively froze PCA's business and assets. In March 1997, Sierra rescinded its agreement with PCA and, in response, PCA brought suit in federal court seeking specific performance. That same month, Sierra sued PCA in Delaware state court, seeking a declaration that Sierra had rightfully terminated the Merger Agreement. consolidated. On April 29, 1997, PCA sent Lloyd's a letter crucial to our resolution of the dispute on this appeal. This letter purported to place Lloyd's "on notice of the attached Summons & Complaint and a potential claim brought by Sierra." PCA enclosed a copy of the summons, the Sierra complaint, and the receivership pleadings, which had been generated by the Department of Insurance. Lloyd's 4 These suits eventually were

responded that the purported notice presently represented only a "potential claim situation" because no director or officer of PCA had been named a defendant to the Sierra lawsuit. The response further noted: "If any director or officer of PCA is subsequently added as a defendant to the Sierra lawsuit, notice shall be deemed to have been made during the policy period when the Sierra lawsuit was first given to Underwriters." The Sierra lawsuit eventually was settled. As we know, in November of 1997, several shareholders lawsuits were filed against several of PCA's directors and officers. These suits were consolidated into a federal class action entitled In Re: Physician Corp. of Am. Sec. Action ("In re PCA"). On December 30, 1999, PCA notified Lloyd's of In re PCA by sending it a copy of the complaint. Lloyd's denied coverage on the grounds that: (1) In re PCA had been filed after the policy period; and (2) In re PCA involved wrongful acts different from those alleged in the Sierra lawsuit. Lloyd's noted that no claim was ever made under the policy since the Sierra lawsuit was never amended to include directors and officers. PCA responded to Lloyd's arguing that In re PCA arose out of the same misrepresentations regarding its financial health and its under-reserves. In November of 2003, PCA and National Union jointly settled In re PCA for $10.2 million. Thereafter, PCA and National Union demanded reimbursement from Lloyd's for $15.9 million ($10.2 million plus $5.7 million incurred from

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litigation expenses). When Lloyd's refused to pay, PCA assigned its rights under the policy to National Union. National Union brought a declaratory action--as Assignee and on its own behalf--seeking a determination of coverage. Both sides moved for summary judgment. The trial court granted Lloyd's motion, finding that PCA's notice to Lloyd's of the Sierra lawsuit was not legally sufficient to provide notice of the specific wrongful acts at issue in In re PCA. We agree. II. Analysis

We review the trial court's order granting summary judgment de novo. Fayad v. Clarendon Nat'l Ins. Co., 899 So. 2d 1082, 1085 (Fla. 2005). Summary judgment is proper if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Id. The construction of an insurance policy is a question of law for the court and may be appropriately decided on motions for summary judgment. Escobar v. United Auto. Ins. Co., 898 So. 2d 952, 954-55 (Fla. 3d DCA 2005) (finding that the trial court erred in holding that the determination of whether ambiguity exists in an insurance contract is a question for the jury rather than for the court). An insurance policy is construed as a whole according to its plain and unambiguous terms. See Nugget Oil, Inc. v. Universal Sec. Ins. Co., 584 So. 2d 1068, 1070 (Fla. 1st DCA 1991); see also

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