Postlethwaite & Netterville, APAC v. Royal Indemnity Co.

Citations: 857 So. 2d 590; 2002 La.App. 1 Cir. 2162; 2003 La. App. LEXIS 2569Docket: Nos. 2003 CA 0063, 2002 CW 2162

Court: Louisiana Court of Appeal; September 26, 2003; Louisiana; State Appellate Court

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The case involves professional liability insurance disputes between Postlethwaite and Netterville, APAC (P. N) and Royal Indemnity Company (Royal). Following a hearing on cross-motions for summary judgment, the trial court partially ruled in favor of P. N, determining that it had timely requested an extended reporting period (ERP) endorsement and that Royal was required to defend P. N against malpractice claims in a separate proceeding.

P. N, an accounting firm based in Baton Rouge, Louisiana, purchased a professional liability insurance policy from Royal, effective from September 15, 2000, to September 15, 2001. This policy, a 'claims made' type, covered claims reported during the policy period for professional services. P. N chose not to renew this policy and instead acquired coverage from Kemper Insurance Companies for a subsequent period.

The Royal Policy included provisions for an ERP, allowing P. N to extend the time for reporting claims for an additional premium, contingent upon timely request and payment of premiums. P. N was eligible to request the ERP within sixty days of the policy's expiration.

On October 15, 2001, Union Planters Bank filed a claim against P. N based on alleged errors in audit services provided to a borrower, with formal notification to P. N occurring on October 30, 2001. P. N promptly notified both Louisiana Companies and Royal of this claim. Subsequently, on November 14, 2001, a related claim was filed by Commercial Capital Holding Corporation against P. N, with P. N again notifying Royal of both claims and demanding a defense. 

The appellate court affirmed part of the trial court's decision, reversed another part, and remanded the case for further proceedings.

On November 14, 2001, P. N exercised its right to an Extended Reporting Period (ERP) under the Royal Policy by submitting a check for $41,850.00 to Louisiana Companies, which was made payable to Royal. Louisiana Companies notified Jorgensen Company, the managing general agent for Royal, of P. N's election to extend the ERP for one year, indicating that the premium would be sent by overnight mail. However, Jorgensen responded on November 17, 2001, acknowledging receipt of the request but stating it was untimely per the Royal Policy, suggesting that Royal would not grant the ERP. On November 21, 2001, Royal returned P. N's premium check, claiming the exercise period had expired. This refusal led P. N to file a lawsuit on December 14, 2001, seeking: (1) a declaratory judgment affirming timely exercise of the ERP; (2) an order for Royal to issue the ERP; (3) a ruling that Royal must provide defense and indemnity against claims made against P. N; (4) a judgment for breach of good faith and fair dealing by Royal; and (5) damages, costs, and attorney fees. On June 13, 2002, P. N filed a motion for partial summary judgment asserting its timely exercise of the ERP, supported by various documents including affidavits and the Royal Policy. Royal opposed this motion and filed a cross-motion for summary judgment on July 19, 2002, providing its own evidence to argue it had no obligation to provide coverage or defense to P. N in related lawsuits.

On August 5, 2002, the trial court ruled on P. N's motion for partial summary judgment and Royal's cross-motion for summary judgment. The court granted P. N's motion, confirming that P. N had timely exercised its rights to the Extended Reporting Period (ERP) and ordered Royal to issue the ERP from September 15, 2001, to September 15, 2002. Additionally, the court mandated that Royal provide P. N with a defense against claims from Union and CCHC, while denying Royal's cross-motion. Subsequently, P. N submitted a proposed judgment and sought a final designation for appeal, which Royal contested, arguing that the trial court had not definitively ruled on its duty to defend P. N and that the determination of the ERP's timeliness did not resolve coverage issues. 

On August 23, 2002, the court granted P. N's motion to designate the judgment as final, and a judgment was signed on August 27, 2002. Royal then appealed, raising three legal issues: (1) whether the trial court erred in granting P. N's motion regarding the ERP, claiming P. N did not timely request it; (2) whether the court erred in denying Royal's cross-motion and enforcing the policy's terms; and (3) whether the court incorrectly held that Royal must provide a defense despite no judicial coverage determination.

On September 16, 2002, Royal filed an 'Exception Of No Cause Of Action Or, Alternatively, Motion For Summary Judgment Regarding Plaintiff's Claim For Defense Costs Incurred In The Underlying Lawsuit,' asserting that P. N lacked standing for defense costs, which should be claimed by its primary insurer, Kemper. The trial court denied Royal's exception, stating that the duty to defend was under appeal, and subsequently signed a judgment on September 23, 2002. Royal then sought supervisory writs from the appellate court, requesting reversal of the denial or consolidation with its ongoing appeal.

On March 10, 2003, the court ordered that writ application 2002 CW 2162 be referred to the same panel as 2003 CA 0063 and denied a motion to consolidate, allowing the issues in Royal’s writ application to be reviewed. A motion for summary judgment is a procedural tool to avoid a trial when there are no genuine issues of material fact, as defined by La.Code Civ. P. art. 966(B). Summary judgment is encouraged to ensure just, speedy, and inexpensive resolutions (La. Code Civ. P. art. 966(A)(2)). Appellate courts review the evidence de novo, applying the same standards as trial courts (Allen v. State ex rel. Ernest N. Morial-New Orleans Exhibition Hall Authority, 2002-1072). Materiality of disputed facts is determined by the applicable substantive law (Foreman v. Danos and Curole Marine Contractors, Inc. 97-2038).

Royal claims the trial court erred in granting P. N’s partial summary judgment motion and denying Royal’s cross-motion regarding the Early Renewal Provision (ERP). Royal argues that the Royal Policy's terms are clear and that P. N’s attempt to purchase the ERP on November 14, 2001, was untimely. Royal asserts that La. Civ. Code art. 1784, cited by P. N, is irrelevant because the policy period is defined by a specific date and time, negating the need for general contract interpretation rules.

Conversely, P. N argues that the option to purchase the ERP is not bound by a specific date, maintaining that the period began after the policy period ended on September 15, 2001. P. N contends that the sixty-day period to exercise the ERP began on September 16, 2001, and included November 14, 2001, when it notified Royal and tendered the premium payment, thus exercising its option timely.

P. N. Louisiana's rule for computing time periods when a performance term is not fixed is established in La. Civ. Code art. 1784, stating that the term begins the day after the contract is made or the relevant event occurs and includes the last day of the period. Only whole days are counted, not fractions. P. N could exercise its option to purchase the ERP by requesting it within sixty days after the policy period, paying all due premiums, and promptly paying any additional premium for the endorsement. The Royal Policy included an endorsement stipulating that the right to the ERP would terminate sixty days after the policy period unless written notice and the additional premium were received within that timeframe. The term to exercise the ERP began on September 16, 2001, and ended on November 14, 2001, during which P. N timely exercised the option. However, Royal contended that Louisiana Companies was not its authorized agent for the policy, claiming that P. N's request and premium payment were untimely as they were not received within the sixty-day period. P. N countered this argument, citing La. R.S. 22:1118(E), which mandates an agency relationship for premium collection, stating that payments made to an unauthorized agent are considered payments to the insurer, thereby fulfilling the obligations related to premium payment.

The jurisprudence surrounding La. R.S. 22:1118 emphasizes its protective purpose for insured parties, establishing an agency relationship between insurance agents and insurers regarding premium collection. In this case, Louisiana Companies was not officially recognized as an agent for Royal in relation to the professional liability policy for P. N. Despite this, Fernie Wood, a Vice President at Louisiana Companies, failed to inform P. N that he lacked binding authority for the coverage, having previously accepted and processed premium payments from P. N. Ralph J. Stevens, P. N's administrative director, testified that he believed Wood was authorized to bind insurance for Royal based on their long-standing relationship.

The court determined that P. N's premium payment to Louisiana Companies constituted a binding action on Royal, affirming P. N's timely exercise of its option to purchase an Extended Reporting Period (ERP) policy. Consequently, the trial court’s ruling in favor of P. N, which included an order for Royal to issue the ERP for the specified period, was upheld.

However, regarding Royal's obligation to defend P. N in a malpractice suit, the court found that Royal had erred in asserting it was not required to provide a defense due to the absence of a judicial determination on coverage. The trial court had previously ordered Royal to defend P. N based on the claims against it, but since Royal's ERP coverage was contingent on the exhaustion of other policies, and there was no evidence of such exhaustion, the trial court's decision was deemed premature. Thus, this aspect of the judgment was reversed, and the case was remanded for a determination of coverage under the Royal Policy.

Royal's writ application in docket number 2002 CW 2162 is interconnected with the duty to defend issue that Royal raised on appeal. The trial court was found to lack jurisdiction on this duty to defend matter due to the pending appeal, validating its decision to deny Royal's exception claiming no cause of action. Consequently, the writ application is granted, reversing the trial court's September 23, 2002 judgment, and the case is remanded for further proceedings regarding coverage under the Royal Policy. The August 27, 2002 judgment, which ordered Royal to defend P. N in malpractice claims, is reversed in relation to the duty to defend but affirmed in all other respects. Additionally, Royal's appeal costs are equally borne by Royal and P. N. The trial court's designation of the judgment as final and immediately appealable under La.Code Civ. P. art. 1915(B) is upheld after de novo review, confirming it aligns with established precedent. The relevant statute, La. R.S. 22:1118(E), was repealed and replaced by La. R.S. 22:1150(A) in 2002, with similar language.