On Appeal from the United States District Court for the Western District of Pennsylvania. (D.C. No. 03-cv-1675). District Judge: Honorable Thomas M. Hardiman.
The opinion of the court was delivered by: Becker, Circuit Judge.
Before: FUENTES, VAN ANTWERPEN, and BECKER, Circuit Judges.
Lexington Insurance Company ("Lexington") sought a declaratory judgment in the District Court that it is not liable for payment of a medical malpractice claim against its insured, Western Pennsylvania Hospital ("West Penn"), because West Penn notified Lexington of the claim more than a year and a half after the policy period ended. The District Court found for Lexington, determining that the claim was governed by Lexington's excess coverage provision created by Endorsement #007 of the policy, which provides follow-form, claims-made coverage; and that the policy required West Penn to notify Lexington of any claims before the close of the policy period, which it failed to do.
West Penn relies on Endorsement #001, which provided that the Lexington policy would apply immediately over the coverage limit of the Pennsylvania CAT Fund (described infra p.4). West Penn contends that Endorsement #007 and Endorsement #001 are mutually exclusive, such that, where, as here, the CAT Fund took responsibility for paying the underlying claim, the notice provisions contained in Lexington's occurrence policy-which permits a more flexible time limit for reporting claims than under Endorsement #007-should apply instead of Endorsement #007's notice provisions. The District Court, however, rejected West Penn's argument that Endorsement #001 superseded Endorsement #007, and held that West Penn's failure to timely report the claim relieves Lexington of liability under the terms of the policy. For the reasons that follow, we agree with the District Court that the two Endorsements are complementary and not exclusive, and that Endorsement #007's time bar applies.
In view of this conclusion, this appeal turns on whether West Penn gave Lexington notice of the claim during the policy period. West Penn's General Counsel admitted that she did not report the Lieb claim until February 12, 2003, well after the policy period, and the first correspondence in the record between West Penn and Lexington regarding the Lieb claim is a letter dated February 12, 2003. Nevertheless, West Penn relies on an internal Lexington document, called an "HPL Create Sheet," which contained a notation that arguably suggests that West Penn reported the medical malpractice claim to Lexington during the policy period. While we find this document to be (barely) admissible evidence, notwithstanding strong objections to it on authentication and hearsay grounds, we conclude that its probative value is too slight to enable West Penn to survive summary judgment.
Neither is West Penn's notice contention supported by the speculative affidavit and deposition testimony of West Penn's thenAssistant General Counsel, Karen Barringer, who merely assumed that Lexington had been made aware of the claim. This absence of evidence, coupled with the concession of West Penn's General Counsel that West Penn did not provide notice during the policy period, compels the conclusion that a reasonable jury could not find compliance with the notice requirement. We will therefore affirm the order of the District Court granting summary judgment in favor of Lexington.
I. Factual and Procedural Background
On May 25, 2001, Elizabeth and Harry Lieb filed a medical malpractice claim in state court against West Penn, alleging that, eleven years earlier, the Lieb's daughter, Kathryn, suffered long-term brain damage as a result of West Penn's negligent delay in performing a caesarean section. West Penn submitted a "Notice of Claim" to its primary professional liability insurer, PHICO Insurance Company ("PHICO"), under the terms of its policy. PHICO provided West Penn with institutional professional liability coverage for medical incident claims made against West Penn and reported to PHICO between January 1, 2001, and January 1, 2002 ("the PHICO policy").
The PHICO policy was a "claims-made" policy, which provided coverage for any claim actually reported during the policy period, even if the incident occurred in prior years. See St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531, 535 n.3 (1978). The PHICO policy states that it will pay for damages "caused by a medical incident which occurs on or after the Initial Effective Date . . . and for which claim is reported to Company during the policy period."(emphasis added).
PHICO, however, did not ultimately pay the Lieb claim because it referred the matter to the Medical Professional Liability Catastrophe Fund ("the CAT Fund"), which is governed by the Pennsylvania Health Care Services Malpractice Act, 40 Pa. Stat. Ann. § 1301.101 et. seq. When a claim is made against a health care provider more than four years after the incident giving rise to the claim, the CAT Fund takes responsibility, in the place of a primary insurer, for defending the claim and for indemnifying the health care provider for the first one million dollars. Such claims are commonly referred to as "605 claims." Because the Lieb claim was asserted more than four years after the occurrence giving rise to it, the CAT Fund assumed PHICO's responsibility for defending West Penn in the ensuing litigation. As it emerged, however, the damages resulting from the Lieb claim exceeded the one million dollars of CAT Fund coverage.
During this same period, Lexington provided two types of coverage to West Penn.*fn1 First, it provided liability coverage on an occurrence basis as set forth in Lexington's pre-printed policy form ("Lexington's occurrence policy"). In contrast to a claims-made policy, an occurrence policy provides coverage if the incident giving rise to the claim occurred during the policy period, regardless of when the claim is ultimately brought against the insured, provided the claim is reported to the insurer "as soon as practicable." See City of Harrisburg v. Int'l Surplus Lines Ins. Co., 596 F. Supp. 954, 960-61 (M.D. Pa. 1984), aff'd w/o opinion 770 F.2d 1067 (3d Cir. 1985).
Second, Lexington provided excess coverage for medical professional liability over and above the primary insurer's policy limits ("Lexington's excess policy"). This expansion of coverage was effected by Endorsement #007 which provided excess coverage to West Penn on proof that it had purchased primary medical liability coverage. This excess policy was, by its terms, "follow-form, claims-made" coverage, meaning that the Lexington policy incorporated the terms and conditions of the primary PHICO policy for medical malpractice claims. As mentioned above, the PHICO policy extended coverage to claims that were both "made and reported" during the policy period, even if the injury occurred prior to the policy period. Because the Lieb claim exceeded the coverage limits under the CAT Fund and the PHICO policy, Lexington's excess policy was implicated.
Endorsement #007 of the Lexington Policy provided, in relevant part:
Medical Professional Liability--Follow Form
PROVIDES CLAIMS-MADE COVERAGE-PLEASE READ CAREFULLY
Insuring Agreement IA--Medical Professional Liability Coverage
Insofar as coverage is available to the Insured in the underlying insurance as set forth in the Schedule of Underlying Insurance, this policy applies to liability arising out of medical incidents. All of the terms and conditions of said underlying insurance shall apply to this insuring agreement except as otherwise expressly stated herein.
The dispute on appeal arises out terms of Endorsement #007 and the interplay between Endorsement #007 and Endorsement #001, described below.
The 2001 Lexington Policy expired on December 31, 2001. On the last day of the PHICO and Lexington policy period, West Penn advised Lexington of 23 claims, but Lexington contends that the Lieb claim was not among those discussed. Lexington submits that West Penn did not give notice of the Lieb claim until February 12, 2003, more than a year after the policy ended. As West Penn failed to notify Lexington of the Lieb claim until after the policy terminated, Lexington asserts it should not be required to cover the claim.
Lexington filed suit against West Penn seeking a declaratory judgment that it could deny coverage for the Lieb claim. On cross-motions for summary judgment, the District Court granted summary judgment for Lexington. The District Court held that the Lexington insurance policy was unambiguous in requiring West Penn to provide notice of medical malpractice claims during the policy period, as required by Endorsement #007's follow-form, claims-made language. Because the Court found that West Penn had conceded that it did not report the Lieb claim to Lexington until February 12, 2003, it held as a matter of law that Lexington was not required to cover the claim. West Penn timely moved for reconsideration, which was denied.
West Penn appeals the District Court's grant of summary judgment, asserting that (1) the Lexington policy did not require notice of the claim to be given during the life of the policy; and alternatively, that (2) there was a genuine issue of material fact as to whether West Penn gave Lexington notice prior to December 31, 2001. We describe the basis for jurisdiction and our standard of review in the margin.*fn2
II. Was West Penn Required to Give Notice During the Policy Period?
West Penn disputes that it was required to give notice to Lexington during the policy period. As this is a diversity case, we must apply Pennsylvania law to interpret the Lexington policy. Under Pennsylvania law, the interpretation of an insurance contract is a matter of law for the court. Madison Constr. Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100, 106 (Pa. 1999). "Where a provision of a policy is ambiguous, the policy provision is to be construed in favor of the insured and against the insurer, the drafter of the agreement. Where, however, the language of the contract is clear and unambiguous, a court is required to give effect to that language." Id. (quoting Gene & Harvey Builders, Inc. v. Pennsylvania Mfrs.' Ass'n, Ins. Co. 517 A.2d 910, 913 (1986)).
"Contractual language is ambiguous 'if it is reasonably susceptible of different constructions and capable of being understood in more than one sense.'" Id. (quoting Hutchison v. Sunbeam Coal Corp., 519 A.2d 385, 390 (1986)).
West Penn's primary argument is that Endorsement #007's follow-form provision does not apply to the Lieb claim because the CAT Fund substituted for PHICO in this case. West Penn first points to the portion ofEndorsement #007 that provides, "[i]nsofar as coverage is available to the Insured in the underlying insurance," to argue that Endorsement #007's follow-form provision only applies when the underlying medical malpractice claim is actually paid by the primary policy. West Penn contends that since the CAT Fund assumed responsibility for the Lieb claim, coverage was not "available" under the PHICO policy, and thus Endorsement #007 does not apply.
Additionally, West Penn points to Endorsement #001, which it contends renders Endorsement #007, and thus terms of the PHICO policy, inapplicable to "605 claims" like the Lieb claim. Endorsement #001, entitled "Coverage Amendment-Section 605 Claims," provides:
In the event underlying insurance shall not be applicable to any claim for the reason that the [CAT] Fund shall assume or be required to assume primary responsibility for payment . . . ,coverage under this policy as to such claim shall apply as excess immediately over the limit of liability of the [CAT] Fund.
All other terms and conditions remain unchanged.
West Penn argues that Endorsement #007 and Endorsement #001 are mutually exclusive provisions, such that, where the CAT Fund assumes responsibility for payment, the notice provisions contained in Lexington's occurrence policy, rather than PHICO's notice requirements, should control.
Condition F of the pre-printed form, see supra note 1, sets forth the notice provisions for Lexington's occurrence policy. Entitled "Duties In The Event Of An Occurrence, Claim Or Suit," Condition F states that West Penn must notify Lexington "as soon as practicable of an Occurrence which may result in a claim under this policy." Relying on Condition F, West Penn contends that it was required to report the Lieb claim "as soon as practicable," rather than during the policy period, as would have been required under the PHICO policy.
Lexington responds that Endorsement #001 and #007 are complementary, not exclusive, and that the policy must be read as a whole so as to give effect to both Endorsements. In Lexington's submission, the purpose of Endorsement #007 was to provide medical professional liability coverage to West Penn so long as West Penn purchased primary coverage. Endorsement #001, it is contended, served a different purpose: it recognized that § 605 claims, like the Lieb claim, are particularly susceptible to "drop down" coverage disputes because the indemnity available from the CAT Fund may be less than the underlying policy's limits.*fn3 Endorsement #001 avoids this problem by providing that "coverage under this policy as to such claim" will apply "as excess immediately over the limit of liability" of the CAT Fund; it does not, however, negate the policy requirements applicable to medical professional liability coverage.
The District Court found Lexington's arguments persuasive, holding:
Although the Court agrees that Endorsement #001 requires Lexington to provide umbrella coverage to West Penn for liability over the CAT Fund's limit, nothing in Endorsement #001 suggests that Endorsement #007 is ineffective when Endorsement #001 is implicated. Contrary to West Penn's claims, . . . these two endorsements are complementary. Endorsement #007 requires Lexington to provide excess claims-made professional liability coverage while Endorsement #001 ...