May 16, 2012
JEHAN ZEB MIR, M.D., PLAINTIFF-APPELLANT,
ADMIRAL INSURANCE COMPANY, LEMAC & ASSOCIATES, INC., AND NARVER ASSOCIATES, INC., DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Camden County, Docket No. L-3712-10.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted March 27, 2012 --
Before Judges Reisner and Simonelli.
Plaintiff Jehan Zeb Mir, a physician, appeals from two orders dated October 15, 2010, granting summary judgment dismissing his complaint against his professional liability insurer, Admiral Insurance Company (Admiral), and granting a motion to dismiss the complaint against insurance broker Narver Associates, Inc. He also appeals from an October 29, 2010 order, granting a motion to dismiss filed by insurance broker Lemac & Associates. For the reasons that follow, we affirm.
The appeal turns on the interpretation of a professional liability policy written by Admiral, covering the period May 1, 2002 to May 1, 2003.*fn1 Plaintiff, who practiced medicine in California, obtained this professional liability insurance from Admiral, an insurer based in New Jersey. In his complaint, he contended that Admiral wrongfully refused to reimburse him for his legal costs to defend a disciplinary action filed against him by the California Medical Board. Viewed indulgently, his complaint also alleged that, if his claim was not timely transmitted to Admiral, it was the fault of the two brokers, whom he alleged were Admiral's agents for purposes of submitting a claim.
Documents in plaintiff's appendix reveal the following background information. On January 20, 2003, Pomona Valley Hospital Medical Center (Pomona Hospital) reported to the California Medical Board that the Hospital had finally terminated plaintiff's staff privileges based on a series of proceedings that started in November 10, 2000, when the Hospital summarily suspended plaintiff's "vascular surgery privileges." Plaintiff submitted a March 21, 2003 letter to one of the brokers, disclosing a "pending matter at Pomona Valley Hospital." Through the broker, he later provided Admiral a copy of an August 31, 2003 administrative complaint filed by the California Medical Board.
The 2003 Board complaint alleged that plaintiff rendered inappropriate care to patient G.F. at San Antonio Community Hospital in June of 2000. The complaint further alleged that plaintiff improperly delayed G.F.'s treatment by ordering that she be transferred from San Antonio Hospital to Pomona Hospital instead of immediately operating on her and accused him of rendering improper treatment after she was transferred to Pomona Hospital.
In 2006, plaintiff sent a letter making a claim against the May 2002-May 2003 Admiral policy, alleging that Pomona Hospital had filed a complaint against him with the California Medical Board, based on his treatment of G.F., and contending that in 2003, the Board, in turn, filed a professional disciplinary action against him. Plaintiff sought reimbursement for over $250,000 in legal fees spent to defend against the Medical Board prosecution. Admiral responded that plaintiff's claim was untimely, because it was not submitted during the policy period or the relatively short extended reporting period after the policy expired. Admiral also contended that the policy did not cover prosecutions brought by a professional licensing board, as opposed to malpractice suits for damages filed by patients.
After Admiral denied coverage, plaintiff sued Admiral and the two brokers in the Law Division in New Jersey, alleging breach of contract and other claims. All of the defendants filed motions to dismiss the complaint or for summary judgment. In its summary judgment brief to the trial court, Admiral admitted, solely for purposes of its motion, that plaintiff made a timely claim under the policy. Therefore, the only issue before the trial court was whether the policy covered the claim.
In an oral opinion issued October 15, 2010, the motion judge granted summary judgment dismissing the complaint against Admiral on the grounds that the policy did not cover professional disciplinary actions, as opposed to malpractice actions filed by patients. He then granted the motions to dismiss filed by the two insurance brokers.*fn2
We review the trial court's grant of summary judgment de novo, determining whether there are material disputes of fact and, if not, whether the undisputed facts, viewed most favorably to the non-moving party, entitle the moving party to judgment as a matter of law. See Henry v. N.J. Dep't of Human Servs., 204 N.J. 320, 329-30 (2010); Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). We likewise review de novo the grant of a motion to dismiss under Rule 4:6-2(e), using the same standard employed by the trial court. See Seidenberg v. Summit Bank, 348 N.J. Super. 243, 249-50 (App. Div. 2002). A motion to dismiss should only be granted if we cannot "glean" a cause of action, even after reviewing the complaint "in depth and with liberality," assuming all its factual allegations to be true. Id. at 250.
The only issue properly before us on this appeal is the interpretation of the insurance policy. For purposes of the summary judgment motion, Admiral declined to raise the timeliness of the claim, and therefore that issue is not before us now. Moreover, if the policy does not cover plaintiff's claim, the brokers cannot be liable for allegedly failing to properly transmit the claim to Admiral. Plaintiff's complaint suggested no other claim against the brokers, and his appellate brief does not articulate any other claim. Therefore we turn to the law relating to the construction of the insurance policy.
The first question we address is which state's substantive law applies in interpreting the policy. When New Jersey is the forum state, we look to New Jersey procedural law to resolve a choice-of-law issue. N. Bergen Rex Transp., Inc. v. Trailer Leasing Co., a Div. of Keller Sys. Inc., 158 N.J. 561, 569 (1999). In applying New Jersey's law on choice-of-law, we consider the following well established principles, set forth in a case involving the construction of an insurance contract:
[O]ur courts have adopted a more flexible approach that focuses on the state that has the most significant connections with the parties and the transaction. . . . [B]ecause the law of the place of contract "generally comport[s] with the reasonable expectations of the parties concerning the principal situs of the insured risk," that forum's law should be applied "unless the dominant and significant relationship of another state to the parties and the underlying issue dictates that this basic rule should yield." In making that determination, courts should rely on the factors and contacts set forth in Restatement sections 6 and 188. [Gilbert Spruance Co. v. Pennsylvania Mfrs. Ass'n Ins. Co., 134 N.J. 96, 102 (1993) (citations omitted) (citing Restatement (Second) of Conflicts, § 6, 188) (other citations omitted).]
See also Polar Int'l Brokerage Corp. v. Investors Ins. Co. of Am., 967 F. Supp. 135, 141 (D.N.J. 1997) ("'If a company from another state uses an insurance broker to negotiate and purchase its insurance policies, then the place of contracting is the place where the broker negotiated the policies.'" (internal citation omitted)).
In this case, any conflict between New Jersey and California substantive law on the interpretation of insurance contracts would result in our applying California law. This contract has no connection to New Jersey other than the location of Admiral's principal offices here, and this State has no special interest in applying its substantive law to an insurance policy written in California to cover risks arising from a California-resident physician's rendering of medical care to patients in California. Therefore, although the parties rely on both New Jersey and California law, we will look to California law.
Under California law, insurance contracts are subject to the ordinary rules of contract interpretation. "'The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties.' 'Such intent is to be inferred, if possible, solely from the written provisions of the contract.' 'If contractual language is clear and explicit, it governs.'" Powerine Oil Co., Inc. v. Superior Court, 118 P.3d 589, 597-98 (2005) (Powerine II) (internal citations omitted).
California courts do not strain to find ambiguity in an insurance policy, but look to the wording and context of policy language to determine whether an ambiguity exists. A genuine ambiguity will be construed against the insurer. The basic principles concerning coverage and the insurer's duty to defend are summarized as follows:
A policy provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable. The fact that a term is not defined in the policies does not make it ambiguous. Nor does "[d]isagreement concerning the meaning of a phrase," or "'the fact that a word or phrase isolated from its context is susceptible of more than one meaning.'"
[L]anguage in a contract must be construed in the context of that instrument as a whole, and in the circumstances of that case, and cannot be found to be ambiguous in the abstract.'" "If an asserted ambiguity is not eliminated by the language and context of the policy, courts then invoke the principle that ambiguities are generally construed against the party who caused the uncertainty to exist (i.e., the insurer) in order to protect the insured's reasonable expectation of coverage." . . . An insurer has a duty to defend when the policy is ambiguous and the insured would reasonably expect the insurer to defend him or her against the suit based on the nature and kind of risk covered by the policy, or when the underlying suit potentially seeks damages within the coverage of the policy. . . . It extends to allegations that are actually and even only potentially covered. [Foster-Gardner, Inc. v. Nat'l Union Fire Ins. Co., 959 P.2d 265, 272-74 (1998) (internal citations omitted).]
With those principles in mind, we turn to the pertinent portions of the insurance policy involved in this case. We begin with the scope of indemnification coverage. Admiral agreed to pay "damages, including loss payments, legal and claims expense" that the insured became legally obligated to pay "because of injury . . . caused by a medical incident":
I. Coverage -- Insuring Agreement
The Company will pay on behalf of the Insured all sums in excess of the deductible amount stated in the Declarations which the Insured shall be legally obligated to pay as damages, including loss payments, legal and claims expenses because of injury to which this insurance applies caused by a medical incident, occurring subsequent to the retroactive date, for which claim is first made against the Insured and reported to the Company during the policy period, arising out of the practice of the Insured's profession as a physician, surgeon or dentist. [emphasis added.]
We next consider the scope of Admiral's agreement to defend its insured. Admiral agreed to defend "any claim or suit against the Insured seeking damages to which this insurance applies" regardless of the ultimate merits of "any of the allegations of the suit":
II. Coverage -- Defense and Settlement With respect to the insurance afforded by this policy, the Company shall have the right and duty to defend any claim or suit against the Insured seeking damages to which this insurance applies even if any of the allegations of the suit are groundless, false or fraudulent. [emphasis added.]
The policy defined the terms "claim," "suit," and "medical incident" as follows:
"claim" means any notice of any act or omission of the Insured in the performance of professional medical or dental services alleged to have caused injury to any person, or any informal, formal or legal complaint or proceeding against the Insured regarding such an act or omissions, whether given or brought directly by a patient or claimant or by an attorney or other representative of a patient or claimant.
"medical incident" means any act or omission arising out of the: (1) furnishing of professional medical or dental services by the Insured, any member, partner, officer, director or stockholder of the Insured, or any person acting under the personal direction, control, or supervision of the Insured for whose conduct the Insured may be held vicariously liable, or (2) service by the Insured as a member of a formal accreditation, standards review or similar professional board or committee.
Any such act or omission, together with all related acts or omissions in the furnishing of such services to any one person shall be considered one medical incident.
"suit" includes an arbitration proceeding to which the Insured is required to submit or to which the Insured has submitted with the Company's consent.
Paragraph I of the policy unambiguously limits coverage to "damages" because of "injury" caused by a "medical incident." As defined in Paragraph IX, a "medical incident" is an "act or omission" arising from the provision of "medical services." Read together, these paragraphs make clear that the coverage is for damages brought about by alleged medical malpractice.
The language of Paragraph II, the coverage-defense paragraph, must be interpreted in that context and not in the abstract. Under Paragraph II, the duty to defend extends to "any claim or suit against the Insured seeking damages to which this insurance applies." Plaintiff argues that this phrase should be parsed as "any claim" or "any suit for damages," thus untethering the word "claim" from the relief sought in the claim. We reject that interpretation for several reasons. First, the insurer only agreed to provide indemnification for "damages," and hence it would seem anomalous in the context of this policy for the insurer to agree to provide a defense to an action in which the "claimant" was not seeking damages. Second, the term "claim" refers to a notice or informal action filed by or on behalf a "patient or claimant" and arising out of injury caused by a medical incident. Again, understood in context, this plainly refers to a claim filed by a patient or a patient's surviving relative or representative.
Third, as discussed below, where California courts have required an insurer to defend "claims," the obligation has arisen where the "claim" was either a precursor to a "suit" or was a separate action instituted in lieu of a lawsuit. However, in all of those cases, the "claim" was filed for the purpose of seeking the kind of relief (e.g., contract damages, or damages for injury to property caused by environmental pollution) for which the insurance policy provided indemnification. See, e.g., Powerine II, supra, 118 P.3d at 601-03; Ameron Int'l Corp. v. Ins. Co. of State of Pennsylvania, 242 P.3d 1020 (2010).
California courts have rejected efforts by insureds to extend ordinary malpractice or commercial liability policies into more global forms of litigation coverage. See Jaffe v. Cranford Ins. Co., 168 Cal. App. 3d 930, 933-34 (1985). In the rare case where an insurer was held obligated to defend a lawsuit for which there was clearly no duty to indemnify the insured, it was because the policy contained a specific clause extending the duty to defend to situations in which there was no duty to indemnify. See Marie Y. v. Gen. Star Indem. Co., 110 Cal. App. 4th 928 (Cal. Ct. App. 2003). In this case, the California Medical Board was not suing plaintiff for "damages." It was seeking to revoke or suspend his medical license. That administrative prosecution was not a "claim or suit for damages" and did not fall within either the indemnification or defense paragraphs of the policy.
Plaintiff has cited no cases, and research reveals none, in which a California court has ordered a malpractice insurer to defend a doctor in a professional disciplinary action before the Medical Board. Moreover, tracing the development of California insurance coverage law, we find no basis to infer, from a standard malpractice policy like the one here, coverage for an administrative disciplinary prosecution. First, California courts do not consider a professional disciplinary hearing before the State's Board of Medical Quality Assurance to be a "suit for damages." Hackethal v. Nat'l Cas. Co., 189 Cal. App. 3d 1102 (Cal. Ct. App. 1987). In that case, the court ruled against a doctor seeking coverage under a policy that provided reimbursement for income lost while a doctor was attending the "trial of a civil suit for damages against the insured." Id. at 1110. The doctor sought reimbursement for time he spent attending his disciplinary hearing before the Board. The court reasoned that "'[d]amages describes a payment made [by the insured] to compensate a party for injuries suffered.'" Ibid. (quoting Jaffe, supra, 168 Cal. App. 3d at 935). Since the Board was not seeking "damages," but rather, was seeking to suspend the doctor's medical license, the claim was not covered under the policy.
The California courts have also held that a malpractice policy does not cover a doctor's defense costs for a criminal case. In the context of a claim by a California psychiatrist that his insurer should pay his counsel fees for defending against a criminal prosecution for Medicaid fraud, the court stated:
It is true the duty to pay damages is not necessarily coextensive with the duty to defend. This conclusion results from the "necessarily uncertain" nature of the obligation to defend. It is possible, for instance, that an insured may be entitled to legal defense against a cause of action even though the insurer is ultimately prohibited from paying losses arising therefrom. As long as the potentiality of coverage exists, the duty to defend also exists.
In the present case, the outcome of Jaffe's criminal case could not result in damages payable under the policy since neither imprisonment nor a fine constitutes "damages" for insurance purposes. In addition, the limitation excluding coverage for damages arising from criminal charges precludes the possibility of coverage by Cranford. Jaffe responds, of course, that he was found innocent of the criminal charges, but that simply means that the criminal "suit" against him resulted in no penalty, financial or otherwise, for which Cranford is obliged to pay. As we have pointed out, the critical question . . . is not whether the insurer is ultimately determined to be liable but only whether such a potential existed at the time the insured's defense must be commenced. In the present case, there is no conceivable set of facts under which Cranford could be liable for the result in the criminal case. [Jaffe v. Cranford Ins. Co., supra, 168 Cal. App. at 933-34 (citations omitted).]
The Cranford insurance policy provided: "Cranford agrees . . . to pay . . . such damages as may be awarded against Jaffe 'in respect of professional services rendered by him in his practice of psychiatry, or which should have been rendered by [him] . . . resulting from any claims or suits . . . based solely upon malpractice, error, . . . . or mistake.'" Id. at 933. In commenting on the policy, the court noted: "We question whether the terms "claim" and "suit" as they appear in the policy can reasonably be interpreted to apply to other than a civil action." Id. at n. 5.
The court also rejected Jaffe's reliance on policy language obligating the insurer to "defend '. . . any suit against the Assured, and subject to the conditions and limitations contained in this insurance.'" Id. at 935. The court noted that:
In effect, Jaffe attempts to convert his malpractice policy into an insurance policy for comprehensive legal services. The policy clearly indicates this was not the intent of the parties at the time the insurance contract was entered into. Read in proper context, Clause (4) does no more than incorporate the . . . duty-to-defend concept into the policy. As we have explained, that concept applies only where there is potential coverage under the policy. We will not rewrite this policy to fasten on the insurer liability it did not assume and which the insured could not reasonably expect existed. [Id. at 936.]
A California court reached a similar result, on similar grounds, in Perzik v. St. Paul Fire & Marine Insurance Co., 228 Cal. App. 3d 1273, 1275-77 (Cal. Ct. App. 1991), denying defense costs to a doctor charged with criminal wrongdoing. The court held that "'[w]here the language of an insurance policy plainly obligates an insurer to defend an action for damages against the insured, the insurer has no obligation to defend an insured in criminal or administrative proceedings where damages are not sought.'" Id. at 1277 (citation omitted).
Plaintiff's reliance on insurance cases concerning environmental remediation is misplaced. In AIU Ins. Co. v. Superior Court, 799 P.2d 1253 (1990), the Court held that a CGL policy provided coverage for environmental clean-up costs, where the insured was sued by a government agency seeking those costs, rather than by a private party. The court found that restitution for clean-up costs constituted a form of "damages" due to "property damage" covered by the policy. The court noted that environmental damage was one area where there was no public policy against providing insurance coverage for legal violations, noting that federal law specifically allowed insurance coverage for environmental clean-up costs.
The court distinguished Jaffe and other cases holding that punitive sums imposed by the government for wrongdoing are not "damages."
California courts have held that, as a matter of public policy, an insured's payment of certain types of restitution cannot be covered by insurance. (See, e.g., State Farm Fire & Cas. Co. v. Superior Court (1987) 191 Cal. App. 3d 74 [236 Cal. Rptr. 216] [insurer has no duty to defend criminal prosecution of insured, because "restitution" to victims of criminal conduct is punitive remedy not coverable as "damages"]; Jaffe v. Cranford Ins. Co., supra, 168 Cal. App. 3d 930 [insurer has no duty to defend insured against criminal prosecution for Medicaid fraud, despite fact that state could have sought civil reimbursement of fraudulently procured funds instead of prosecuting; such reimbursement would be "restitution," not "damages"].) [AIU, supra, 799 P.2d at 1274-75.]
California courts have distinguished between "suits" and "claims" when those terms are specifically used in an insurance policy. As the court observed in Foster-Gardner, supra, 959 P. 2d at 280 "[t]he primary attribute of a 'suit,' as that term is commonly understood, is that parties to an action are involved in actual court proceedings initiated by the filing of a complaint." On the other hand, "[a] 'claim' can be any number of things, none of which rise to the formal level of a suit--it may be a demand for payment communicated in a letter, or a document filed to protect an injured party's right to sue a governmental entity, or the document used to initiate a wide variety of administrative proceedings. . . . While a claim may ultimately ripen into a suit, 'claim' and 'suit' are not synonymous." Ibid. (citation omitted). In Foster-Gardner, the court held, based on the policy language, that the insurer was obligated to defend the insured against "suits" (i.e., lawsuits filed in court) by a governmental agency seeking environmental clean-up costs, but not against "claims" in the form of administrative actions seeking to recover those same costs.
Notably, in Foster-Gardner, the court also rejected the idea that an insurer might be obligated to defend an insured in an administrative or criminal proceeding solely because the outcome of that proceeding might make it more difficult for the insured to later defend against a lawsuit relating to the same issue:
In our view, however, even if many of the factual predicates for any future lawsuit are determined either prior or in response to the [administrative] Order, that does not ineluctably lead to the conclusion that the policies' language must be interpreted to require a duty to defend such an Order. Indeed, in even simpler, more routine insurance claims, information that may prove damaging to the insured is gathered prior to the filing of a lawsuit. For example, "[i]t is well established that an insurer is not required to provide a criminal defense to an insured under a liability policy obligating the insurer to pay 'damages' for which the insured is found liable." Nevertheless, a guilty verdict against the insured in the criminal proceeding may well affect the insured's ability to meaningfully defend any subsequent civil action. The fact that damaging, perhaps even irrefutable, findings will be made does not mean that a duty to defend arises in the criminal proceeding. Similarly, in an automobile accident, medical reports are written, collision experts consulted, and other information obtained often long before the institution of any lawsuit. The fact that the insured's liability will be affected by such information does not alter the language of the insurance contract which does not require a defense until the lawsuit is filed. [Id. at 282-83 (citations omitted).]
The court noted that, although an insurer may have no legal obligation to do so, it may voluntarily defend the insured in preliminary proceedings, in order to protect its ability to defend the insured against a later-filed "suit." Id. at 283 (citing Harleysville Mut. Ins. Co. v. Sussex Cnty., 831 F. Supp. 1111, 1132 (D. Del. 1993)). We therefore infer that the California courts would reject plaintiff's argument, asserted here, that Admiral was obligated to defend him before the Medical Board because, if he lost before the Board, it might be harder to defend him in a future malpractice suit.*fn3
After Foster-Gardner, the California Supreme Court decided Powerine II, which addressed an insurer's duty to indemnify rather than its duty to defend. The Court had previously held that Powerine was not entitled to indemnification from its first-level CGL insurers for "environmental cleanup costs ordered by an administrative agency," because the standard CGL policies only provided coverage for damages ordered by a court in a lawsuit. Powerine II, supra, 118 P.3d at 592 (citing Certain Underwriters at Lloyd's of London v. Superior Court, 16 P.3d 94 (2001) (Powerine I)). However, in Powerine II, the court reached a different conclusion when considering the broader language of Powerine's excess/umbrella policies.
In Powerine II, the policy language obligated the insurers to pay for adjustment of "claims" in addition to "lawsuits." Notably, the court explained that in AIU, it had defined "damages" as including the cost of environmental remediation, because environmental damage was a form of "damage to property" which was covered under the policy. Id. at 601 and n.7. In Powerine II, the court construed the insurer's agreement to indemnify the insured for "expenses" incurred through the "adjustment and investigations of claims and suits" to encompass an administrative agency's demands for payment through administrative orders, even if the agency never actually filed a lawsuit. Id. at 603. See also Ohaus v. Cont'l Cas. Ins. Co., 292 N.J. Super. 501, 509-10 (App. Div. 1996) (insurance covered insured's investigation and remediation of groundwater pollution, required by administrative consent order entered by state Department of Environmental Protection).
However, although the case recognizes the distinction between a "claim" and a "suit," Powerine II does not support plaintiff's position, because there the environmental prosecution was still aimed at requiring the insured to spend money to remediate the injury to property caused by pollution. As a "claim," it was, in essence, a substitute for a damage lawsuit. Here, the Board action was neither a claim nor a lawsuit for damages. The Board was seeking to suspend or revoke plaintiff's medical license for disciplinary purposes; it was not seeking to obtain damages, costs, or any other form of reimbursement for the medical injury to the patient.
Ameron International Corp. v. Insurance Co. of State of Pennsylvania, 242 P.3d 1020 (2010), a recent case on which plaintiff heavily relies, is equally unhelpful to his appeal. Like the other environmental-related cases cited previously in this opinion, Ameron involved a legal action in which a litigant sought "damages" from the insured. In that case, a federal agency brought an administrative complaint seeking damages based on Ameron's having supplied allegedly defective concrete piping for a public construction project. The insurance contracts at issue promised defense and indemnification for "suits" but did not define that term. The court held that the federal administrative proceeding, before an administrative law judge, was considered a "suit" under the pertinent federal statute governing contract claims; it was sufficiently like a trial so as to qualify as a "suit"; and a reasonable insured would expect coverage for such proceedings, which were no different in terms of the relief sought than a typical lawsuit seeking contract damages in the Court of Claims. Id. at 1030.
Based on the foregoing California case law, we conclude that the Admiral policy does not require either defense or indemnification for a professional disciplinary action. We reach this conclusion based on our reading of the policy language, which read sensibly as a whole, clearly limits coverage to either "claims" or "suits" seeking damages for alleged medical malpractice. The promised coverage does not include a professional disciplinary action seeking to suspend or revoke plaintiff's medical license, and the insurer did not undertake to provide a defense in an action for which there was no coverage.*fn4
Plaintiff's remaining appellate arguments are without sufficient merit to warrant discussion in a written opinion.