A professional liability insurer had no duty to defend its insured against a claim that the insured knew about, or reasonably could have foreseen, before the effective date of the policy. (Admiral Insurance Company v. Superior Court (2017) 18 Cal.App.5th 383)
Facts
A Perfect Match, Inc. (Perfect Match) is a company that matches egg donors and gestational surrogates with infertile families. Perfect Match not a licensed health care provider and does not employ doctors, nurses, or other health care professionals.
In 2011, Monica Ghersi and Carlos Arango utilized the services of Perfect Match to locate an egg donor and a gestational surrogate. The surrogate later gave birth to a baby girl who developed a rare cancer.
Following an investigation, Ghersi and Arango retained an attorney. In June 2012, the attorney sent Perfect Match three letters, one on behalf of each parent and one on behalf of their infant daughter. Each letter referred to Code of Civil Procedure section 364 and announced an intent to file a complaint against Perfect Match for “negligent and unprofessional … conduct … while in the performance of professional duties….” Upon receiving the letters, Perfect Match consulted with its insurance broker. Because Perfect Match interpreted the letters as something less than an actual “claim” and because Perfect Match was concerned about a possible increase in premiums, Perfect Match decided not to notify its current insurer.
In October 2012, Perfect Match applied to Admiral Insurance Company (Admiral) for a new liability policy. Among other things, the application inquired whether Perfect Match was “aware of any act, error, omission, fact, circumstance, or records request from any attorney which may result in a malpractice claim or suit?” Perfect Match responded “No.”
Admiral subsequently issued a professional liability policy to Perfect Match covering claims made during the period of December 5, 2012, through December 5, 2013. The policy’s insuring agreement stated that Admiral would pay amounts that Perfect Match was “legally obligated to pay as damages caused by a professional incident … for which a claim is first made against the insured during the policy period.” However, the insuring agreement further provided that Admiral was obligated to pay only if “prior to the inception date of the policy, no insured knew, nor could have reasonably foreseen, that the professional incident might result in a claim.” The policy defined a “professional incident” as “a negligent act, error or omission in the rendering of or failure to render professional services by the insured.”
Ghersi and Arango filed suit against Perfect Match in the latter part of 2012, and had the complaint served on Perfect Match in March 2013. Perfect Match tendered the lawsuit to Admiral for defense, but Admiral refused to provide Perfect Match with a defense.
Perfect Match later sued Admiral for breach of contract and bad faith arising from Admiral’s alleged wrongful refusal to defend Perfect Match against Ghersi’s and Arango’s lawsuit. Admiral moved for summary judgment, arguing that there was no possibility of coverage under the policy because prior to the inception of the policy Perfect Match knew or reasonably could have foreseen that the professional services it provided to Ghersi and Arango might result in a claim. The trial court denied Admiral’s motion. Admiral sought appellate review.
Holding
The California Court of Appeal held that the trial court erred in denying Admiral’s motion for summary judgment against Perfect Match. According to the appellate court, the policy’s “prior notice” provision is an “integral part of the insuring agreement itself” and specifies that “there is no coverage if the insured knew or reasonably could have foreseen that the professional incident might result in a claim.” Here, Perfect Match had been aware of Ghersi’s and Arango’s intention to sue Perfect Match since June 2012, some six months prior to inception of the Admiral policy in December 2012. Thus the “undisputed facts demonstrate that Perfect Match had notice prior to the inception of the policy that Ghersi and Arango intended to file a lawsuit” against Perfect Match. As such, the Admiral policy did not potentially cover any liability Perfect Match might have to Ghersi and Arango in the underlying action. Because there was no potential for coverage, Admiral had no duty to defend.
Comment
Admiral also moved for summary judgment on the separate ground that Perfect Match had made a material misrepresentation in the application for the Admiral policy. However, the appellate court held that “the application form and the responses to the questions on it are largely a red herring because the policy (i.e., the parties’ agreement) itself explains there is no coverage for a claim arising from a professional incident if, prior to the inception of the policy, the insured knew or could have reasonably foreseen that the professional incident might result in a claim'” Because there was no coverage under the policy as written, there was no need to consider whether the insured had made a material misrepresentation in the application.