National Fire & Marine Insurance Company v. Infini PLC, 2:16-cv-03874

Background

Dr. William Hall (Infini, PLC) performed liposuction on Donna Willis on Aug. 12, 2014; Willis was hospitalized and later sued in Maricopa County Superior Court.
Infini previously had malpractice coverage through Lexington; Lexington’s renewal excluded liposuction and refused to defend Willis’s claim; Infini sought new coverage.
Infini applied to National Fire & Marine (NF&M); NF&M issued a policy effective May 29, 2015–May 29, 2016 that covered "claims" and "potential claims" first discovered during the policy period, but excluded "potential claims" discovered prior to the period (a prior-acts exclusion).
Facts undisputed: Willis’s hospitalization, requests for medical records, and retention of counsel occurred before NF&M’s policy period; Infini notified prior insurer(s) of these events and, in its application, referenced Willis as a patient whose injury might reasonably result in a claim.
Willis filed suit on Jan. 7, 2016; NF&M defended under a reservation of rights and later asserted the prior-acts exclusion; NF&M sued for declaratory relief and Infini counterclaimed for coverage and tort claims (bad faith, negligence, fraud, breach of contract).
The court considers policy language and the parties’ pleadings on a Rule 12(c) record and grants declaratory relief that NF&M need not cover Willis’s claim, but denies judgment on Infini’s bad-faith and negligence claims.

Issues

Issue	Plaintiff's Argument (NF&M)	Defendant's Argument (Infini)	Held
Whether Willis’s suit is excluded by NF&M’s prior-acts exclusion ("potential claim" discovered before policy)	The policy’s definition of "potential claim" is objective; facts show Infini reasonably should have known Willis’s injury would likely lead to a claim before the policy period, so exclusion applies	Infini contends coverage should apply and NF&M’s initial defense indicated coverage; disputes over what was "discovered" prior to policy	Held: Exclusion applies — Willis’s claim was a "potential claim" discovered before policy, so no coverage/declaratory relief for NF&M
Standard for "potential claim" — objective vs. subjective test	The word "reasonably" in the policy creates an objective standard; court can decide as a matter of law	Infini implies subjective knowledge or expectations should control (pointing to representations)	Held: Objective test governs; court applies reasonableness objectively and finds Infini should have known a claim was likely
Applicability of the reasonable-expectations doctrine to overcome written exclusion	NF&M argues written policy controls; any post-contract defenses or letters do not alter policy terms	Infini argues NF&M’s initial defense and reservation of rights limited NF&M’s coverage defenses and gave rise to reasonable expectations of coverage	Held: Doctrine inapplicable — no allegation NF&M’s pre-contract representations or policy drafting hid the exclusion; post-contract conduct does not rewrite the policy
Viability of Infini’s tort and extra-contractual claims (bad faith, negligence, fraud, breach of contract)	NF&M moves to dismiss these claims: breach of contract and fraud fail as to NF&M; bad faith and negligence are premature to resolve	Infini seeks to preserve bad-faith and negligence claims based on NF&M’s handling (initial defense, delayed reservation, alleged procurement/agent duties)	Held: Breach of contract and fraud claims against NF&M are dismissed; bad-faith and negligence claims survive the Rule 12(c) motion and proceed

Key Cases Cited

Merchants Home Delivery Serv., Inc. v. Frank B. Hall & Co., 50 F.3d 1486 (9th Cir.) (standard for Rule 12(c) judgment on the pleadings)
James River Ins. Co. v. Hebert Schenk, P.C., 523 F.3d 915 (9th Cir.) (distinguishing insured’s subjective belief from objective foreseeability in notice/claim contexts)
Ohio Cas. Ins. Co. v. Henderson, 939 P.2d 1337 (Ariz.) (shows language determines whether exclusion is subjective or objective)
Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 682 P.2d 388 (Ariz.) (reasonable-expectations doctrine and when extrinsic evidence may overcome written policy terms)
Rawlings v. Apodaca, 726 P.2d 565 (Ariz.) (insurer’s duty of good faith and fair dealing)
Keggi v. Northbrook Prop. & Cas. Ins. Co., 13 P.3d 785 (Ariz. Ct. App.) (insured bears burden of establishing coverage; insurer bears burden on exclusions)
Lloyd v. State Farm Mut. Auto. Ins. Co., 943 P.2d 729 (Ariz. Ct. App.) (bad-faith claim can proceed even where coverage is ultimately lacking, depending on insurer’s conduct)
Deese v. State Farm Mut. Auto. Ins. Co., 838 P.2d 1265 (Ariz.) (bad-faith liability may depend on manner insurer reached its coverage decision)