Dеsign Professionals Insurance Company, a California insurance company, Appellee/Cross-Appellant, v. Chicago Insurance Company, an Illinois insurance company, Appellant/Cross-Appellee, ESI Group, Inc., an Arkansas corporation, Appellee/Cross-Appellant.
Nos. 05-2275/2276/2326
United States Court of Appeals FOR THE EIGHTH CIRCUIT
Submitted: February 16, 2006; Filed: July 21, 2006
Before WOLLMAN, ARNOLD, and GRUENDER, Circuit Judges.
Appeals from the United States District Court for the Eastern District of Arkansas.
The parties to this insurance action appeal various rulings by the district court. We affirm in part, reverse in part, and remand the case for further proceedings.
I.
Miller, England & Company (MEC) was an Arkansas accounting firm headed by Michael Miller. MEC carried what is called a claims-made professional liability insurance policy with the Chicago Insurance Company, a defendant in this action; such a policy provides coverage only for claims made аgainst an insured during the policy period. MEC‘s agent for this policy was Rhodes & Associates; Chicago‘s agent was the Herbert H. Landy Insurance Agency. The one-year policy period ended on August 11, 1999. After the policy period ended, MEC had sixty days during which to report to Chicago any claims that were first made against MEC during the policy period. During the same sixty days, an endorsement to the policy gave MEC the right to buy what is callеd tail coverage, which would provide coverage for claims first made after the policy period expired that were based on conduct that had occurred prior to the policy‘s expiration date.
Burris, Adlong & Company (BAC), headed by Gary Burris and Rosemary Adlong, was another Arkansas accounting firm. BAC also carried claims-made liability insurance, which it purchased from plaintiff Design Professionals Insurancе Company (DPIC). The policy period for BAC‘s insurance ended on September 1, 1999. According to the policy, firms that had been merged with or acquired by BAC were insured under the policy for up to thirty days following the effective date of the acquisition or merger. The policy did not define what constituted an acquisition or merger for the purpose of coverage.
After Ms. Adlong announced her intention to retire, Mr. Burris and the principals at MEC decided to combine the two accounting firms. Both firms sent notices of that decision to their clients, and on August 1, 1999, BAC closed its office and combined its operations with MEC, which changed its name to Burris, Miller & Company (BMC). BMC‘s principals abandoned the BAC corporate charter, and it was eventually revoked for failure to pay franchise taxes. At no time did MEC and BAC file articles of merger with the Arkansas Secretary of State.
With both firms now combined, BMC‘s principals chose DPIC as BMC‘s liability insurance provider. Accordingly, Rhodes sent Chicago‘s agent, Landy, a letter informing Chicago that MEC‘s claims-made policy would be allowed to expire; Landy, in turn, sent a letter to Rhodes confirming the expiration. In that letter, Landy mentioned that additional “extended reporting period options” were available. (The policy endorsеment listed premiums for what it described as twelve-, thirty-six-, or sixty-month “extended reporting period[s].“) In explaining those options, however, Landy‘s letter misstated what claims would come within the tail coverage. Although the endorsement to the policy stated that any tail coverage that MEC purchased would cover claims first made against it during the extended reporting period, the letter suggested that any “extended reporting period option” would cover only claims that were first made against MEC before the policy‘s August 11 expiration date. Thus the letter implied that any tail coverage would not cover claims first made after MEC‘s policy expired.
On August 19, eight days after MEC‘s policy expired, the president of ESI Group, Inc., telephoned Mr. Miller and made a claim against him, MEC, and an MEC employee, Stan Parks, for damages
While Mr. Miller notified Rhodes of the ESI claim, Mr. Burris contacted DPIC‘s agent to let him know about the claim. At first, DPIC refused to provide a defense. Once ESI filed suit in state court against MEC, Mr. Parks, and Mr. Miller (the MEC defendants), however, DPIC agreed to defend them under a reservation of rights, which preserves an insurer‘s right to deny that the policy covers a claim. On the eve of the ESI trial, the parties entered into a settlement agreement: DPIC paid
$100,000 to ESI and agreed to pаy an additional $600,000 if it was later determined that its policy with MEC covered ESI‘s claim, Mr. Parks agreed to a consent judgment against him for $1,000,000, and ESI agreed to look only to insurance coverage for payment on its claims. In a separate agreement, the MEC defendants assigned all of their rights against Chicago (MEC‘s original insurer) to DPIC.
While the state lawsuit was pending, DPIC filed this action in district court, naming Chicago and ESI as defendants. DPIC sought a declaration that its policy did not provide coverage for ESI‘s claim, as well as partial reimbursement from Chicago for payments that it (DPIC) had already made on that claim. ESI filed a cross-claim against Chicago to recover on the $1,000,000 consent judgment entered against Mr. Parks. The parties moved for summary judgment. The district court granted partial summary judgment to DPIC, declaring that its policy did not provide coverаge for the ESI claim because BAC, the purchaser of the policy, had not merged with MEC under Arkansas law. The court granted summary judgment to Chicago on DPIC and ESI‘s estoppel claims. On breach of contract claims against Chicago filed by DPIC and ESI, the district court concluded that Chicago was required to provide MEC with certain information about tail coverage, and a jury found that Chicago had not done so. The district court entered a judgment against Chicago based on the jury verdict. Chicago appealed, and DPIC and ESI filed cross-appeals.
II.
A.
DPIC and ESI alleged that Chicago breached its contract with MEC by failing to disclose that any tail coverage that MEC purchased would have covered the ESI claim. They asserted that the duty to disclose that fact arose from
and ESI, the district court agreed that
We review de novo the district court‘s interpretation of a specific provision of the Arkansas Code. See BancInsure, Inc. v. BNC Nat‘l Bank, N.A., 263 F.3d 766, 770 (8th Cir. 2001).
Where a term in a statute is clear and unambiguous, it will be given its ordinary meaning. Cash v. Arkansas Comm‘n on Pollution Control & Ecology, 300 Ark. 317, 320, 778 S.W.2d 606, 607 (1989). A statutory term is ambiguous when it is capable of two or more constructions, or when it is so unclear that reasonable minds could disagree or be uncertain as to its meaning. R.K. Enter., L.L.C. v. Pro-Comp Mgmt., Inc., 356 Ark. 565, 572, 158 S.W.3d 685, 688 (2004). When an ambiguity exists, the court will interpret the provision in a way consistent with the legislature‘s intent. Central & S. Cos. v. Weiss, 339 Ark. 76, 80, 3 S.W.3d 294, 297 (1999). That intent
may be divined by looking “to the language of the statute, the subject matter, the object to be accomplished, the purpose to be served, the remedy provided, the legislative history, and other appropriate means that throw light on the subject.” Saforo & Assocs., Inc. v. Porocel Corp., 337 Ark. 553, 565, 991 S.W.2d 117, 124 (Ark. 1999).
The subtitle of the Arkansas Code dealing with insurance does not provide a definition for the word termination, nor is the term consistently employed throughout that subtitle. In some instances, the legislature clearly meant for the words “terminate” or “termination” to refer only to the unilateral actions of the insurer in cutting a policy short. See, e.g.,
Another guide to what the legislature intended is the purpose that the statute was meant to serve. DPIC and ESI both contend that
In Jarboe v. Shelter Ins. Co., 307 Ark. 287, 819 S.W.2d 9 (1991), the Arkansas Supreme Court looked at the purpose behind another notification statute,
ended. The court reasoned that the purpose of the relevant statute was to protect the public against uninsured pest control providers, a goal that could not be accomplished if an insurer needed tо notify the board only when it prematurely ended the policy. The court therefore concluded that the legislature must have intended to require such notification even where the policy lapsed due to non-payment or expired of its own terms. Because the insurer had not notified the board, it remained liable to third parties under the policy. Jarboe, 307 Ark. at 288-91, 819 S.W.2d at 10-11.
We do not believe that the purpose behind the statute аpplicable to our case, however, justifies the broad construction that DPIC and ESI would have us give it. When a policy is cut short by an insurer, the insured may be suddenly left without coverage. In an attempt to avoid prejudice from an unexpected loss of claims-made coverage,
B.
DPIC and ESI also contended that Chicago breached its insurance contract with MEC by violating Rule 43 of the Arkansas Insurance Department. That rule prohibits insurers from concealing or failing to disclose to “first party claimants” all of the benefits, coverages, or other provisions of an insurance policy pertinent to a claim. Ark. Ins. Rule 43 § 9(g), (h). According to DPIC, Chicago violated Rule 43 because
it used the Landy letter to conceal from MEC the provisions and coverages of MEC‘s insurance policy. Chicago argues that thе district court erred in denying its motion for judgment as a matter of law, which was based, in part, on the ground that Rule 43 did not create a private cause of action and thus no violation of Rule 43 could amount to a breach of its contract with MEC. We review the district court‘s denial of Chicago‘s JAML motion de novo. Margolies v. McCleary, Inc., 447 F.3d 1115, 1123 (8th Cir. 2006).
The Arkansas insurance commissioner cited the Arkansas Trade Practices Act, which “regulate[s] trade practicеs in the business of insurance,”
The purpose of Rule 43 was to establish “certain minimum standards” to control how insurance companies settle claims. Ark. Ins. Rule 43, § 1. The rule places a duty on an insurer to settle claims in a manner that cоmplies with the standards set forth in the rule, and if an insurer repeatedly disregards those standards the state insurance department may proceed against it. See id. But because the insurer owes the duty to the state, not to the individual insured, the insured has no private right of action for a breach of that duty. We therefore conclude that the district court erred in holding that Rule 43 was incorporated into the Chicago-MEC insuranсe policy.
In addition, we question whether the requirements of Rule 43 even apply to the circumstances present here. DPIC and ESI argue that Chicago violated § 9(g) and (h) of the rule when the Landy letter misstated the coverage that an extended reporting period option would have provided to MEC. As we noted above, these sections of the rule prohibit insurers from concealing or failing to disclose specific information about the policy to first-party claimants. Section five of the rule defines a first-party claimant as an individual who asserts a right to payment or services under an insurance contract because of the occurrence of a contingency or loss that the contract covers. A classic example of this would be a beneficiary who seeks to collect the proceeds of a deceased loved one‘s life insurance policy; the beneficiary is a first-party claimant because a contingency or loss has occurred that allows him or her to make a claim under the policy. In this case, though, the Landy letter was sent to Rhodes more than a week before MEC became aware of a claim. Because there was no claim for which MEC could аssert a right to any payment or defense from Chicago, we do not think that MEC was a first-party claimant within the meaning of the rule. We therefore doubt that any misstatements in the Landy letter amounted to a violation of Rule 43.
C.
For the above reasons, we reverse the judgment entered against Chicago on DPIC and ESI‘s breach of contract claims.
III.
All the parties to this litigation agree that had MEC purchased the extended rеporting period endorsement from Chicago, the endorsement would have provided MEC with coverage for the ESI claim. Mr. Miller said in an affidavit that he would have purchased tail coverage had he known that it would have covered the ESI claim, and that MEC relied on the statements made in the Landy letter when it decided not to buy tail coverage. Because the statements in the letter were incorrect, DPIC аnd
ESI contended that Chicago should be estopped from denying coverage for the ESI claim. The district court granted summary judgment to Chicago on the estoppel claim. We review the grant of summary judgment de novo. Woods v. DaimlerChrysler Corp., 409 F.3d 984, 990 (8th Cir. 2005).
An equitable estoppel precludes a party from invoking a right that it could have otherwise asserted. Clemmons v. Office of Child Support Enforcement, 345 Ark. 330, 352, 47 S.W.3d 227, 242 (2001) (Imber, J., concurring). The party seeking estoppel has the burden to prove that the party to be еstopped knew the facts and intended that the conduct be acted on or acted so that the party asserting the
The Arkansas Supreme Court has held that the doctrine of estoppel, which it described as “defensive in character,” may not be used to enlarge or extend the coverage available under an insurance contract, nor may it be used to create an insurance contract. Peoples Protective Life Ins. v. Smith, 257 Ark. 76, 84-88, 514 S.W.2d 400, 406-08 (Ark. 1974); see Harasyn v. St. Paul Guardian Ins. Co., 349 Ark. 9, 19, 75 S.W.3d 696, 701-02 (2002). Though the Arkansas Court of Appeals has indicated that exceptions to this rule exist, see Time Ins. Co. v. Graves, 21 Ark. App. 273, 278-80, 734 S.W.2d 213, 215-17 (1987) (en banc), the district court reasoned that the facts of this case did not require it to deviate from thе general rule. We agree with this conclusion, and also note our uneasiness about whether Graves can be reconciled with Harasyn and Peoples Protective Life in any event.
IV.
Chicago and ESI challenge the district court‘s summary judgment determination that DPIC‘s policy did not cover ESI‘s claim. According to DPIC‘s policy with BAC, firms that BAC merged with or acquired were covered for thirty days. The parties do not dispute that MEC and BAC finished combining their operations on August 1, 1999, nineteen days before ESI first made a claim against MEC. If the combination of operations was a merger under the DPIC policy, then the policy covered the claim. The district court concluded that under the terms of the policy in order for two firms to “merge” they had to comply with the provisions of
“The language in an insurance policy is to be construed in its plain, ordinary, popular sense.” Farmers Home Mut. Fire Ins. Co. v. Bank of Pocahontas, 355 Ark. 19, 23, 129 S.W.3d 832, 835 (2003). If a policy does not define a word, Arkansas courts may look to a standard English-language dictionary to determine its common meaning. See State Farm Fire & Cas. Co. v. Midgett, 319 Ark. 435, 438, 892 S.W.2d 469, 471 (1995). Where a term is unambiguous, however, the court will give effect to its plain meaning. Id. If a term is ambiguous, however, the court will “construe the policy liberally in favor of the insured and strictly against the insurer.” Castaneda v. Progressive Classic Ins. Co., 357 Ark. 345, 351, 166 S.W.3d 556, 560-61 (2004). A term in a policy is ambiguous when there is doubt as to its meaning and it is susceptible to two or more reasonable interpretations. Harasyn, 349 Ark. at 18, 75 S.W.3d at 701.
The issue here is whether two firms can be deemed to have merged, for the purposes of the policy, when they combine their operations. The Oxford English Dictionary defines a merger as “[t]he combinаtion or consolidation of one firm or trading company with another.” Oxford English Dictionary (2d ed. 1989). Another
dictionary similarly defines a merger as “any of various methods of combining two or more business concerns.” Webster‘s Third New International Dictionary 1414 (1986). In neither of these definitions is the term merger restricted in a way that excludes business combinations that do not follow a specific statutory framework.
V.
For the foregoing reasons, we affirm the ruling of the district court as to estoppel, reverse on all other issues, and remand the case to the district court for further proceedings not inconsistent with this opinion.