On appeal from the Superior Court of New Jersey, Law Division, Union County, UNN-L-4828-99.
Before Judges Newman, Parrillo and Landau.
The opinion of the court was delivered by: Parrillo, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
In these consolidated appeals from an underlying medical malpractice action, we consider primarily whether the physician alleged to be negligent is covered under a "claims made" professional liability insurance policy issued by a successor insurer and, if not, whether the hospital where he enjoys admitting privileges has a duty to third parties to ensure that he is insured. We also consider whether the predecessor insurer has a duty to advise the hospital of the cancellation of the physician's insurance, the event that caused the gap in insurance coverage, and whether the insurance broker breached a professional duty of care in failing to bridge the gap. As did the trial judge, we answer these questions in the negative. Accordingly, we affirm the grant of summary judgment in favor of both insurers and the broker, as well as the denial of plaintiff's motion to amend her complaint to assert a claim against the hospital on the basis of such a perceived duty.
The material facts are not in dispute. Plaintiff Deborah President (plaintiff) experienced undiagnosed eclampsia during labor and delivery of her child, and as a result, sustained brain damage, partial paralysis and seizure disorder. She and her husband *fn1 sued her attending obstetrician, Dr. Reginald Jenkins, the hospital where he had admitting privileges, St. Barnabas Medical Center (St. Barnabas), and two of its resident physicians, Drs. Lamberto Flores and Francine Hughes, alleging professional negligence in plaintiff's care and treatment on January 3 and 4, 1998. Eventually, the malpractice claims were dismissed against all defendants except Jenkins.
At the time of the incident giving rise to the medical malpractice claim, Jenkins was in the process of securing new insurance coverage, changing from "occurrence" to "claims made" protection. *fn2 He had been insured by Princeton Insurance Company (Princeton) since 1987 under an "occurrence plus" malpractice insurance policy that was renewed for successive one-year periods through February 1998. However, Princeton canceled the most recent renewal policy, effective October 26, 1997, because Jenkins repeatedly failed to make his premium payment. In fact, throughout the fall of 1997, Jenkins received notices from Princeton advising that unless he paid his premium, the insurance policy would be canceled. Eventually, in a letter dated January 9, 1998, Princeton canceled Jenkins' insurance policy retroactive to October 26, 1997.
Despite these notices, Jenkins never advised St. Barnabas, whose by-laws require all admitting physicians to maintain professional liability coverage, of the cancellation of his insurance policy. Back in January 1996, he had advised the hospital's Risk Management department that he had medical malpractice insurance coverage with Princeton, and later in November 1996 provided St. Barnabas with the renewal certificate indicating coverage running from February 1, 1997 to February 1, 1998. However, Jenkins failed to notify the hospital of this latest development. Apparently, he was of the opinion that if he eventually paid the late premium, his insurance would be reinstated. Yet, despite this belief, Jenkins never paid the delinquent premium.
Instead, he negotiated with an insurance broker, C&R Insurance Agency (C&R), to obtain medical malpractice coverage under a "claims made" policy underwritten by the Zurich Insurance Company (Zurich). Jenkins advised C&R, both orally and in writing, that his policy with Princeton would expire on February 1, 1998 and, therefore, he needed coverage with Zurich commencing February 1, 1998. Accordingly, his premium was calculated based on a policy period of February 1, 1998 through January 1, 1999. Zurich, through C&R, issued Jenkins a binder, a certificate of insurance and an "additional insured physician's endorsement" naming him as an additional insured to the master policy of the Garden State Physicians' Alliance (GSPA) effective as of February 1, 1998.
Zurich does not issue medical malpractice insurance directly to individual physicians. Accordingly, C&R created GSPA for the express purpose of procuring liability insurance for its member health care professionals on a group basis. GSPA is registered and licensed with the New Jersey Department of Banking & Insurance as a recognized "Risk Purchasing Group" as defined in Section 3901 of the Liability Risk Retention Act, 15 U.S.C.A. §§ 3901 to 3906. GSPA had a "master policy" with Zurich under policy No. GPC-2727906-01. When a new physician would be added to the policy, an endorsement would be issued containing a "retroactive date", identical to the effective date of the endorsement, on which the additional insured physician would be entitled to insurance under the master policy as an additional insured. In other words, the effective date of coverage for the "additional insured" is the "retroactive" date applicable to each insured physician. On the other hand, a physician who joins the policy on a date after the effective date of the GSPA policy is charged a prorated premium to account for the fact that the physician is not receiving the benefit of coverage for "errors and omissions" that occur prior to the "retroactive" date. The effective date and the expiration date of the master policy are previously established, as the policy was purchased by the GSPA Purchasing Group prior to the addition of the "additional insured physicians."
The policy under which Jenkins was insured was denominated a "claims made" policy. The cover page of the insuring agreement bore the following notice:
THIS POLICY PROVIDES CLAIMS MADE COVERAGE. CLAIMS MUST FIRST BE MADE AGAINST THE INSURED DURING THE POLICY PERIOD AND MUST BE REPORTED IN WRITING TO THE COMPANY DURING THE POLICY PERIOD, OR WITHIN 60 DAYS AFTER EXPIRATION OF THE POLICY OR IF ENDORSED, DURING THE EXTENDED REPORTING PERIOD. PLEASE READ THE ENTIRE POLICY CAREFULLY.
As the binder, certificate of insurance, and each of the four policy endorsements issued to Jenkins plainly indicate, the effective date of coverage applicable to the individual "additional insured" was February 1, 1998, which was also designated the "retroactive" date in those same documents. And as made equally clear in the "coverage" section of the insuring agreement, the "retroactive" date of February 1, 1998 was the inception date on and after which acts of negligence committed by Jenkins, as the additional insured, would be covered provided they were reported during the policy period. Thus, the insuring agreement of the Zurich policy provides in pertinent part:
A. Coverage Provided . . . . Coverage B - Physicians Professional Liability:
We will pay on behalf of a physician, damages that the physician shall become legally obligated to pay because of a claim first made during the policy period arising out of a medical incident which occurred on or after the retroactive date and which is reported to us during the policy period.
[(emphasis added).] Therefore, unlike the standard "claims made" policy, Zurich's policy provided Jenkins no retroactive coverage during its first year. In that year, the coverage provided by the policy applied only to errors and omissions that occurred during the policy year commencing February 1, 1998 and reported to the company within the policy year. Of course, during the renewal years, the policy afforded "retroactive" coverage for negligence that occurred subsequent to February 1, 1998.
Jenkins remained an "additional insured" under the GSPA group policy for the renewal year under policy No. GPC 2727906-02 for the policy period January 1, 1999 through January 1, 2000, with the same "retroactive" date of February 1, 1998. It was during this renewal period that Jenkins made his claim for coverage for the January 3 and 4, 1998 incident involving plaintiff. Zurich denied coverage after Jenkins reported the claim because the acts of professional negligence alleged against him occurred prior to the February 1, 1998 "retroactive" date applicable to him.
Because of the gap in Jenkins' coverage created by the cancellation of the Princeton policy effective October 26, 1997 and the commencement of the Zurich policy on February 1, 1998, plaintiff, through amendments to her original complaint, added Princeton, Zurich and C&R as defendants, seeking direct recovery against them as a third-party beneficiary of the insurance coverage alleged to be available through those insurers to Jenkins. As to Princeton, plaintiff alleged negligence because, among other things, Princeton failed to notify St. Barnabas of the cancellation of Jenkins' policy. Plaintiff also moved for leave to amend her complaint to add an additional count against St. Barnabas for negligently permitting Jenkins admitting privileges without liability insurance coverage, but this effort was rejected by the trial judge who recognized no such cause of action.
In her fourth amended complaint, plaintiff also sought a declaratory judgment, pursuant to N.J.S.A. 2A:16-53, that the professional liability insurance policy issued by Zurich through C&R covered plaintiff's medical malpractice claim against him. Similarly, Jenkins was granted leave to amend his answer to plaintiff's fourth amended complaint to add cross-claims against Zurich and C&R, seeking a declaration of rights and coverage that he is entitled to defense and indemnity for plaintiff's claims against him.
Motions and cross-motions for summary judgment were filed by all parties save plaintiff. Judge Lawrence Weiss granted Princeton's motion for summary judgment and dismissed all claims against the insurer. Judge Weiss denied Jenkins' cross-motion for summary judgment and granted those of Zurich and C&R dismissing all claims against them by both plaintiff and Jenkins. On October 30, 2001, Jenkins, the only remaining defendant, and plaintiff entered into a settlement agreement memorialized in a consent order, resolving all issues between the two parties, thus rendering the prior orders of the trial court final.
Appeals were filed by plaintiff and Jenkins and consolidated. Plaintiff challenges both the dismissal of her complaint as to Princeton and the denial of her motion to amend the pleading to claim negligence by St. Barnabas in its failure to ensure that its admitting physicians have professional liability insurance coverage. Jenkins challenges the dismissal of its cross-claims against Zurich and C&R. We now address each of these claims individually.
Jenkins' claims against Zurich are twofold. First, he argues that the coverage limitations in Zurich's "claims made" policy, restricting coverage to claims reported to Zurich during the policy year for incidents occurring after the effective date of coverage, should not be enforced as violative of public policy and inconsistent with his reasonable expectations. Alternatively, he argues that even if enforceable, the policy language is vague and ambiguous and therefore should be construed to afford coverage effective January 1, 1998, the date applicable to the group policy, rather than February 1, 1998, the date applicable to Jenkins as an individual "additional insured," so as to encompass the underlying incident of January 3 and 4, 1998. We disagree as to both claims.
In support of his first contention, Jenkins relies exclusively on Sparks v. St. Paul Ins. Co., 100 N.J. 325 (1985), wherein the Court held that provisions of a policy limiting coverage to claims brought for negligence committed during the policy term and providing only limited retroactive coverage were unenforceable as violating public policy absent factual circumstances that would render such limited retroactive coverage both reasonable and expected. In Sparks, the insurer, St. Paul, had issued consecutive "claims made" policies to its insured, which only covered claims arising from the performance of professional services subsequent to the retroactive date and then only to claims first made during the policy year. Unlike the standard "claims made" policies that provide unlimited retroactive coverage for all errors and omissions occurring prior to the policy's inception, provided the claim is reported during the policy period, St. Paul's policy provided no retroactive coverage whatsoever in its first year, and only limited retroactive coverage during the renewal years, i.e., to the retroactive or effective date of the original policy. Although the legal malpractice incident in Sparks occurred during the policy period, it was not reported until after the policy had been canceled and, due to the cancellation, there was no "extended reporting" protection. Therefore, St. Paul denied coverage. The Court, however, refused to enforce the policy's coverage limitations as failing to conform to the objectively reasonable expectations of the insured that, in "claims made" policies, are to extend coverage for negligence occurring prior to the policy's inception, and as violative of public policy. 100 N.J. at 339. The Court reasoned: [I]ndeed, St. Paul's policy combines the worst features of "occurrence" and "claims made" policies and the best of neither. It provides neither the prospective coverage typical of an "occurrence" policy, nor the "retroactive" coverage typical of a "claims made" policy. During the first year that the policy was in force, it provided no retroactive coverage for occurrences prior to the effective date of the policy. Thus, it afforded the insured only minimal protection against professional liability claims. Only claims asserted during the policy year, based on negligence that occurred during the policy year, and that were subsequently communicated to the company during the policy year were under the umbrella of coverage.
[Ibid.] Sparks, however, did not set a precise standard by which the reasonableness of retroactive coverage is to be measured in every instance where coverage is claimed to be unreasonably narrow. On the contrary, it expressly recognized certain factual circumstances and contexts that would render such limited retroactive coverage both reasonable and expected.
Id. at 340. Thus, for instance, "claims made" policies with no retroactive coverage "might be appropriate" where "offered at a reduced premium to the professional in his very first year of practice, or to the professional who changes from 'occurrence' to 'claims made' protection." Id. at 340 n.4.
Such is the case here. Zurich's policy immediately followed a prior period of "occurrence" coverage, thus obviating the need for any greater retroactive coverage than was bargained for and obtained by Jenkins. Based on both the oral and written representations of the insured, Zurich insured Jenkins as an additional insured on its group policy as of February 1, 1998. The predecessor policies issued by Princeton to Jenkins since 1987 were "occurrence plus" policies, the most recent of which was scheduled to terminate on February 1, 1998, coincident with the effective date of the inception of the Zurich policy. Such "occurrence" policies typically provide unlimited prospective coverage, that is for acts occurring during the period of the policy whatever the date of discovery and whenever reported. Thus, had the Princeton policy been in effect, as represented by Jenkins and reasonably understood by Zurich and C&R, there would have been seamless, uninterrupted coverage provided by both Princeton and Zurich covering, respectively, acts of negligence occurring prior to the inception of the Zurich policy, and claims made and reported after termination of the Princeton policy. Also, unlike Sparks, the Zurich policy offered Jenkins unlimited "extended reporting" coverage.
To be sure, Zurich's coverage diverges from customary "claims made" coverage in terms of retroactive protection. However, although the Zurich policy afforded no retroactive coverage for acts prior to the effective date of the policy, Jenkins was protected against professional liability claims for those incidents under his "occurrence plus" policy with Princeton. Thus, unlike the situation in Sparks, here there would have been no gap in coverage in the transition from "occurrence" to "claims made" protection but for the premature cancellation of the Princeton policy due to Jenkins' failure to pay premiums due.
It is solely this lapse on the part of the insured, due exclusively to his own actions, that has created the break in protection and, therefore, Jenkins should not now be heard to complain that Zurich's limited retroactive coverage was neither reasonable nor expected. Indeed, nothing in the record suggests other than that good faith bargaining took place between the parties, that the terms of the policy were specifically bargained for and understood by Jenkins, and that the insured specifically elected to purchase this policy with limited retroactive coverage. We therefore reject Jenkins' argument because the unambiguous provisions of the policy clearly restricted retroactive coverage, the premiums were presumably reduced to reflect this limited protection, and such protection was adequate given the facts known and available to Zurich and C&R at the time the policy was issued. Under these circumstances, we hold that the limited retroactive coverage afforded by Zurich was both reasonable and expected, and not violative of public policy. Thus, the coverage limitations of the policy are enforceable and preclude coverage of Jenkins' claim in this instance, arising as it does from alleged negligence occurring before the policy's effective date.
Jenkins argues, alternatively, that even if the policy's coverage restrictions are enforceable, his claim is nevertheless covered since it arises from an alleged act of negligence occurring after the effective date of the policy, which, because of an ambiguity, he construes to be January 1, 1998. The motion judge found no such ambiguity, and "[t]hat the document couldn't be clearer." Judge Weiss reasoned:
It is clear, unequivocal, effective date of policy for incident, 2/1/98, insurance company, Zurich Insurance Company.
Subsequent thereto, Exhibit D, shows that Zurich issued a binder to Dr. Jenkins. Binder period from ...