FILED
United States Court of Appeals
Tenth Circuit
UNITED STATES CO URT O F APPEALS
October 31, 2007
Elisabeth A. Shumaker
TENTH CIRCUIT Clerk of Court
STA R IN SU RA N CE C OM PA NY;
SAV ERS PRO PERTY & CA SUALTY
IN SU RAN CE C OM PA N Y ;
EM PLOYERS REINSURANCE
C ORPO RA TIO N , No. 06-3337
(D.C. No. 01-CV-2128-CM )
Plaintiffs-Counter-Defendants - (D . Kan.)
Appellants,
v.
B ERRY IN SU RA N CE A G EN CY;
W ALTER G. BERRY, III,
Defendants-Counter-Claimants -
Appellees,
ACE AM ERICAN INSURANCE
C OM PA N Y ,
Garnishee - Appellee.
OR D ER AND JUDGM ENT *
Before KELLY, B AL DOC K , and BR ISC OE, Circuit Judges.
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
Plaintiffs-A ppellants Star Insurance Company, Savers Property & Casualty
Insurance Company, and Employers R einsurance Corporation (collectively
“Plaintiffs”), appeal from the district court’s grant of summary judgment on its
garnishment claim in favor of Defendant-Appellee ACE American Insurance
Company (“ACE”). The district court held that the insurance policy provides no
coverage for Plaintiffs’ claims. Our jurisdiction arises under 28 U.S.C. § 1291,
and we affirm.
Background
Plaintiffs seek to garnish a professional liability insurance policy (an errors
and omissions policy) issued to W alter G. Berry, III d/b/a Berry Insurance
Agency (“Berry”) by ACE. The policy is a “claims-made and reported” policy
under which claims against the insured must be made and reported to the insurer
within the policy term to obtain coverage. The one-year policy term was from
January 25, 2001 to January 25, 2002, with a retroactive date of January 25, 1993.
Aplt. App. at 67. The policy also contains a basic extended reporting provision
which provides specific benefits for 90 days following the end of the policy term.
Id. at 76.
On M arch 16, 2001, and within the policy term, Plaintiffs filed a verified
complaint against M r. Berry alleging various wrongful acts relating to an agency
and service agreement between Plaintiffs and M r. Berry. Id. at 137–53. The
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original complaint contained counts for breach of contract, breach of fiduciary
duty, declaratory judgment for the ownership of policy expirations, a demand for
an equitable accounting, and also sought injunctive relief. Id. M r. Berry did not
report this action to ACE prior to the end of the policy term. Aplt. Reply Br. at
20; see also Aplt. App. at 39. On December 20, 2001, still within the policy term,
Plaintiffs moved for leave to file an amended complaint against M r. Berry. Aplt.
App. at 155–58. The amended complaint contains four additional counts alleging
negligence, negligent misrepresentation, and fraud. Id. at 103–06. M r. Berry did
not oppose the amendment if the court continued discovery for at least three
months. Id. at 160–61. On February 6, 2002, the court granted the motion for
leave to amend, and the amended complaint was deemed filed on that date. Id. at
164–65.
On January 28, 2002, three days after the policy term ended, Plaintiffs sent
a letter to Crump Services of Houston, Inc. (Crump), the entity to whom the
policy directs notice of claim is to be sent, advising of the pending suit and
forwarding a copy of the proposed amended complaint. The following day,
Crump forwarded the letter and proposed amended complaint to ACE. Id. at
89–108. The parties stipulated that Plaintiffs have no evidence that ACE or
Crump learned of the claim set forth in the first amended complaint prior to
January 29, 2002. Id. at 39. Plaintiffs admit that no notice was given to ACE of
the amended complaint during the 12-month policy period. Aplt. Reply Br. at 20.
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The district court determined that the initial complaint and amended
complaint contained claims potentially within the policy, and the reporting
provisions of the insurance policy are unambiguous. Star Ins. Co. v. Berry Ins.
Agency, No. 01-2128, 2006 W L 2460646, at *5–*6 (D . Kan. Aug. 23, 2006).
Coverage was properly denied because M r. Berry was aware of the original
complaint and proposed amended complaint before the expiration of the policy
but did not notify ACE until after the policy expired. Id. at *6.
On appeal, Plaintiffs contend that various provisions concerning extended
reporting and the policy’s duration are ambiguous, and construed properly, the
January 28, 2002, notice provided to ACE through its agent timely reported the
claim under the 90-day extended reporting period. Alternatively, Plaintiffs
contend that the amended complaint did not become a claim under the policy until
February 6, 2002, when their amended complaint was deemed filed.
Discussion
In this diversity action, we review the district court’s grant of summary
judgment de novo applying the same standard as the district court. Thom v.
Bristol-M yers Squibb Co., 353 F.3d 848, 851 (10th Cir. 2003). Summary
judgment is appropriate if “there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ.
P. 56(c). The parties agree that Texas law governs the substantive issues given
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Kansas conflict of laws rules (based upon place of contract formation). Aplt. Br.
at 15; Aplee. Br. at 1. W e give no deference to the district court’s view of Texas
law. Salve Regina C ollege v. Russell, 499 U.S. 225, 231 (1991).
The interpretation of insurance contracts in Texas is governed by general
rules of contract construction. Forbau v. Aetna Life Ins. Co., 876 S.W .2d 132,
133 (Tex. 1994). The terms of a contract are considered as a whole and not in
isolation. State Farm Life Ins. Co. v. Beaston, 907 S.W .2d 430, 433 (Tex. 1995).
An insurance policy is ambiguous if it is subject to two or more reasonable
interpretations. Nat’l Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W .2d
552, 555 (Tex. 1991). If a policy is found to be ambiguous, the policy is
construed against the insurer. Id.
Plaintiffs first contend that two provisions in the basic extended reporting
period make the policy ambiguous, and that the ambiguity should be resolved in
favor of the insured. Alternatively, Plaintiffs contend that there is another
reasonable interpretation of the basic extended reporting provision in addition to
the interpretation of the district court, i.e., whatever is covered during the basic
policy period is also covered during the extended reporting period, as long as the
wrongful act occurred before the end of the policy period and was reported by the
end of the extended reporting period. Although creative, both arguments are
entirely without merit given the language of this policy.
Section VI of the policy concerns “Extended Reporting Period Coverage.”
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Aplt. App. at 76. The introduction provides, in part: “Extended Reporting
Periods provide additional time in which to report claims that arise from wrongful
acts which occur subsequent to the RETROACTIVE DATE but prior to the end of
the policy period. They do not extend the policy period or change the scope of
coverage provided by the policy” Id. Section VI.A provides that a “Basic
Extended Reporting Period” is provided without additional charge and extends 90
days from the end of the policy. Id. It also provides: “This automatic extension
will cover claims made against you during this 90 day period arising from
wrongful acts that took place subsequent to the RETROACTIVE DATE and
before the end of the policy period.” Id.
Plaintiffs argue that the district court erred in relying on the last quoted
provision to conclude that the basic extended reporting provision is limited to
claims made during the 90-day period. Plaintiffs argue that this interpretation
contradicts the introduction to the section because no “additional time” is granted
to report these claims made during the 90-day period.
Plaintiffs’ argument fails because the policy language cannot reasonably
support this interpretation. Indeed, the Plaintiffs’ interpretation is flatly
contradicted by the policy. The introductory language upon which Plaintiffs rely
generally indicates that additional time is provided to report claims based on
wrongful acts during the policy period under one of two extended reporting
provisions, but that sentence does not state which claims receive the additional
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time to report. Plaintiffs interpret this sentence to include claims made prior to
the end of the policy period. However, Plaintiffs’ interpretation conflicts w ith
Section VI.A which specifies that the claims that receive additional time are those
“made against you during this 90 day period.” Id. Of course, contracts are to be
read as a whole. State Farm, 907 S.W .2d at 433.
Other provisions of the policy support this interpretation as w ell. In
highlighting that this is a “claims made and reported” policy, the preamble to the
policy distinguishes between claims “which are first made against you and
reported to us while this policy is in force” and claims “first made against you
and reported to us after the end of the policy term.” Aplt. App. at 71
(capitalization in original omitted). It indicates that the policy provides coverage
for the first set of claims, but not for the second set of claims “unless, and to the
extent, an extended reporting period applies.” Id. (capitalization in original
omitted). Thus, the policy draws a distinction in the coverage provided based
upon when the claims are made and reported to the insurer. This clear distinction
eliminates any ambiguity in the “additional time” language in the Extended
Reporting Period Coverage section. For these same reasons, Plaintiffs’ argument
that there is another reasonable interpretation of the provision also fails.
Plaintiffs also contend that other provisions in the policy cause the policy’s
extended reporting provision to be ambiguous. Plaintiffs contend that the terms
“policy term,” “policy period,” and when the policy is “in force” are ambiguous
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in defining the coverage window in relation to the basic extended reporting
period. Aplt. Br. at 18–20. However, we need not address these arguments as
they were not presented to the district court. See Southern Hospitality, Inc. v.
Zurich Am. Ins. Co., 393 F.3d 1137, 1142 (10th Cir. 2004) (noting that “a new
theory on appeal that falls under the same general category as an argument
presented to the trial court . . . will not be considered on appeal”) (alterations
omitted).
Plaintiffs also contend that the district court improperly concluded that the
insured was not diligent in giving notice, even if the extended reporting period
applied. They challenge the district court’s reliance on the “eight corners” rule in
concluding that the initial and amended complaints required notice to ACE.
“Under the eight-corners . . . rule, an insurer's duty to defend is determined by the
third-party plaintiff's pleadings, considered in light of the policy provisions, [and]
. . . [t]he rule takes its name from the fact that only [these] two documents are
ordinarily relevant to the determination of the duty to defend . . . .” GuideOne
Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W .3d 305, 308 (Tex. 2006).
Plaintiffs suggest that even if the insured did not give notice of the initial
complaint, the proposed amended complaint contained new claims, that coverage
is determined by claim, and that diligence is a question of fact.
Regardless of the district court’s reference to the “eight corners” rule, the
claims in the initial complaint and the proposed amended complaint implicated
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the policy. See Nat’l Union Fire Ins. Co. v. W illis, 296 F.3d 336, 342–43 (5th
Cir. 2002). Plaintiffs’ contentions that the initial complaint was only for
misappropriated premiums, and that the amended complaint did not overlap are
not supported by the record. As w e have discussed, M r. Berry had notice of both
the initial complaint and the proposed amended complaint within the policy
period and did not notify ACE; therefore, there is no coverage. W e need not
address these arguments further.
Plaintiffs’ next argument is that claims may be eligible for reporting more
than once, and alternatively that the amended complaint only became a claim once
the district court granted leave to file the amended complaint in February 2002.
Insofar as an option exists to defer reporting a claim until the extended reporting
period, Plaintiffs argue that the extended reporting provision does not contain a
limitation contained in other policy provisions— defining coverage in terms of
“claims first made against you.” Aplt. App. at 71, 77 (supplemental extended
reporting provision). This argument was not raised below, and this court need not
address it. See Southern Hospitality, 393 F.3d at 1142.
Regarding the contention that notice was not required until the amended
complaint was filed, Plaintiffs reason that the pleading did not have “legal effect”
as a claim until the district court granted the motion for leave to amend the initial
complaint. If the amended complaint became a claim in February 2002, then
Plaintiffs argue the claim was timely reported to ACE and satisfies the
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requirements for coverage under the basic extended reporting provision.
The policy defines a claim as “a written demand received by you for money
or professional services including the serving of a suit or receipt of notification of
arbitration which alleges a w rongful act by you or any other person for whose
wrongful acts you are legally responsible.” Aplt. App. at 72. The proposed
amended complaint falls within this definition. The proposed amended complaint
is a written demand that the insured M r. Berry received demanding both money
and professional services. The proposed amended complaint alleges additional
damages and wrongful conduct by the insured, including four new counts alleging
negligence, negligent misrepresentation, and fraud. See id. at 103–06.
The district court’s grant of the motion for leave to file the amended
complaint is irrelevant to this analysis because the definition of a claim does not
specify that the claim must be filed in a legal proceeding, only that it must be a
written demand alleging a wrongful act and received by the insured. For
example, a letter sent to the insured alleging wrongful conduct and demanding
money or professional services would constitute a claim under the policy.
Plaintiffs raised many minor arguments dependent upon the court adopting their
construction of the policy. W e have considered these other arguments and find
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them w ithout merit, though not individually discussed.
A FFIR ME D.
Entered for the Court
Paul J. Kelly, Jr.
Circuit Judge
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