Summary
In Homsey Architects, Inc. v. Harry David Zutz Ins., Inc., 2000 Del.Super. LEXIS 240, Judge Herlihy reviewed a situation in which a claims-made policy covered claims received by the insured within the policy period and reported in writing to the company no later than sixty days after the expiration of the policy period.
Summary of this case from Southridge Capital v. Twin CityOpinion
Civil Action Number 96C-06-082-JOH
Submitted: November 5, 1999. Argued: November 19, 1999.
Decided. May 25, 2000.
Upon Motion of Defendants International Surplus Lines, Ins. Co. and Coregis Indemnity Company for Summary Judgment- GRANTED Upon Motion of Defendant Professional Coverage Managers, Inc. for Summary Judgment- GRANTED Upon Motion of Defendant Harry David Zutz Ins. Co. for Summary Judgment- DENIED Upon Motion of Plaintiff Homsey Architects, Inc., for Summary Judgment- DENIED Upon Motion of Plaintiff Homsey Architects, Inc., Leave to Amend its Complaint- DENIED
Gregory M. Johnson, Esq., (aruged) of Potter, Anderson Corroon, LLP, attorney for plaintiff Homsey Architects, Inc.
Stephen P. Casarino, Esq., (argued) and Thomas P. Leff, Esq., of Casarino, Christman Shalk, attorneys for defendants Harry David Zutz Ins., Inc., and Professional Liability Ins., Inc.
Scott J. Jensen, Esq., of Saul, Ewing, Remick Saul, LLP, and Karen J. Andersen, Esq., and Matthew J. Fink, Esq., (argued) of Bollinger, Ruberry Garvey, attorneys for defendants International Surplus Lines Ins. Co. and Coregis Indemnity Co.
Daniel P. Bennett, Esq., (argued) of Bailey Wetzel, P.A., attorney for defendant Professional Coverage Managers, Inc.
MEMORANDUM OPINION
The underlying circumstance which triggered this lawsuit arises out of the construction in 1992-93 of a parking garage for MBNA. Shortly after completion, defects were found and over a year later were repaired. During the time of the construction and when the defects were first discovered, plaintiff Homsey Architects, Inc., had a claims-made policy issued by International Surplus Lines Company [ISLIC].
Coregis Indemnity Company is also a named defendant but for all interests and purposes is the same as ISLIC. Hereafter, the only reference is to ISLIC.
ISLIC's policy covered a specific period which ended August 24, 1993. The policy provided ISLIC would honor claims subsequently made, if notice of the claim were received in the policy period or within sixty days thereafter. The policy also provided that ISLIC would honor later-made claims if Homsey provided notice of potential claims within the policy period. Homsey submitted notice of a potential claim involving the garage but only after the policy period expired. When ISLIC eventually received notice, it denied coverage on the basis that notice of the potential claim was given too late and there was no notice of a claim within the period the policy provided. Prior to the expiration of the policy period, Homsey applied for new coverage from a different insurer, since the ISLIC policy was not being renewed. The application for that new coverage contained information about the garage matter.
In 1995, Homsey reached a financial understanding with the garage developer to pay for a portion of the cost of repairs. When Homsey sought coverage for its share, ISLIC again declined to provide it. When none of the defendants agreed to pay Homsey, it filed this lawsuit.
All of the parties have filed motions for summary judgment. In addition, Homsey has moved to amend its complaint to request this Court declare that it is entitled to coverage. The parties' motions raise a number of issues, two of which are of first impression. For its coverage to be forfeited, Homsey argues, ISLIC must show it was prejudiced by late notice, which is an accurate statement of the law for an occurrencebased policy. Whether an insurer need show prejudice where a claims-made policy is involved, however, is the first novel issue. The second novel issue is whether Homsey's application for new insurance constituted notice of a potential claim.
The defendants resist both of Homsey's motions on an additional basis. Since any applicable statute of limitation would bar the garage developer from successfully suing Homsey, they argue there are no damages.
The Court holds that Homsey gave untimely notice of a potential claim. The Court also holds that, since this was a claims-made policy, ISLIC need not show prejudice to avoid liability for coverage. In addition, Homsey's application for new claims-made coverage did not constitute notice which would trigger coverage. Further, since Homsey's obligation to the garage developer is now unenforceable against Homsey, there is no actual controversy which would allow for a declaratory judgment action.
FACTUAL BACKGROUND
Homsey had obtained its ISLIC policy through Harry David Zutz Insurance, Inc., and its wholly-owned subsidiary, Professional Liability Insurance, Inc. [PLI]. The policy period was August 24, 1992 to August 24, 1993 and it was a claims-made policy with a $25,000 deductible. The policy itself contained several different notice provisions. One, printed as part of the policy declaration sheet, stated all notices were to go to ISLIC at an address in Chicago. The body of the application had another provision which required all notice of claims to go to another entity, Crum Forster Managers Corp., at the same address as ISLIC in Chicago. But, on the declaration sheet, there was also a redstamped statement affixed specifying all claims should be reported to defendant Professional Coverage Managers, Inc., [PCM] at an address in New York.
The two firms are virtually the same; so all references hereafter will be only to Zutz.
Bellevue Holding Co. hired Homsey in March 1992 to provide architectural and engineering services for the MBNA parking garage. While the drawings were mostly completed in May 1992, MBNA put the project on hold until September when construction began. The project was completed in February 1993. In early May 1993, defects were found in some of the building columns. After a series of meetings about problems in the garage, Joan Zimmerman of Homsey telephoned Zutz.
When Zimmerman called Zutz, she believed she was following notice procedures. Her memorandum of her call states:
TO: File FROM: Joan RE: MBNA Parking Deck DATE: 25 June 1993
I called Zutz Insurance and spoke with Flora Monck on the above date. I advised her that the columns at MBNA Parking Deck were cracking and spalling at the tops of the concrete columns. I also advised her that the building was designed by Keith Thornton and that he has no insurance.
Don estimated the cost of the repairs to be somewhere between 60,000 and 400,000 depending on what is done.
I told Flora that we have hired an independent structural engineer to evaluate the situation and give us a report. I told Flora that we would pass that opinion on to her when we receive it.
She told me that she will send this information to claims and ask that they open a file. She said that at this time, it was not necessary for me to send a letter or to put anything in writing. She said that our notifying them by phone was enough at this time.
Memorandum to file of Joan Zimmerman (June 25, 1993).
As Zimmerman noted, she spoke to Flora Monck at Zutz. Monck's note of their conversation states:
Joan Zimmerman, Homsey Architects
They were advised today 60 Concrete Columns on Mellon Bank [sic] are cracking. Homsey was architect on job-hired Keith Thornton as structural consultant. He is uninsured. Homsey has hired a structural engineer to evaluate cost of repair. Will advise. [Emphasis in original.]
Memorandum to file of Flora Monck (June 26, 1993).
Zutz took no action in response to this telephone call. Following Zimmerman's June telephone call, Eldon Homsey sent a letter dated July 15, 1993 to Monck stating:
I am writing this letter as a follow-up to your conversation of June 25, 1993, with Joan Zimmerman in which she advised you that several concrete columns at the MBNA Parking Deck were cracking and spalling at the tops of the columns.
We have hired an independent structural engineer to review the concerns and he will produce a written report within the next two weeks. We will supply a copy to you when it is received.
Letter from Eldon Homsey to Flora Monck (July 15, 1993).
No one at Zutz did anything with this letter. Nor did Homsey send separate notice to ISLIC or PCM believing it had discharged that duty by its contact with Zutz. Homsey did follow up on getting the engineer s report mentioned in the July letter. The report is dated September 15th and Homsey forwarded it to Zutz on September 21st in a letter stating:
As a follow-up to my letter to you dated 15 July 1993, I am enclosing a copy of the report from Builtform, Inc., the structural engineer who examined the columns at the MENA Parking Deck. The top two paragraphs on Page 9 indicate this investigator's opinion that the design of the staircase was not the primary cause for the failure but rather errors made during construction. We hope that this will be influential in minimizing or eliminating any claim made against our firm.
Letter from Eldon Homsey to Flora Monck (September 21, 1993).
Zutz, in turn, forwarded Homsey's letter and the engineer's report to PCM in a letter dated October 1, 1993. The letter was marked, "Attached find first report of claim." Zutz asked PCM to, "Please set up claim and investigation [sic] any exposure to our insured." PCM, however, did not forward the claim to ISLIC (then known as Coregis) until November 4, 1993, stating:
This is a new first report for your handling in accordance with the terms and conditions of your policy.
Letter from Donald H. Marshall to Tom McGrath (November 4, 1993).
The ISLIC policy contains several definitions and terms germane to this litigation. As to coverage for claims, the policy provided:
The Company will pay on behalf of any INSURED those sums in excess of the deductible, as stated in the Declarations, which any INSURED shall become legally obligated to pay as DAMAGES as a result of CLAIMS first made against any INSURED during the POLICY PERIOD and reported by any INSURED to the Company in writing during the POLICY PERIOD or within sixty (60) days thereafter, in accordance with Condition I.(A) of the policy, by reason of any negligent act, error, or omission occurring subsequent to the RETROACTIVE DATE (if any), arising out of PROFESSIONAL SERVICES rendered or which should have been rendered by any INSURED or by any person for whose negligent acts, errors, or omissions any INSURED is legally liable.
ISLIC Policy at 1.
The policy defined "claim" as:
a demand made upon any INSURED for money or services, including, but not limited to, service of suit or institution of arbitration proceedings against any INSURED.
Id.
"Policy period" is defined as follows:
the period from the effective date of this policy to the expiration date as set forth in the declarations or earlier termination date, if any, of this policy.
Id. at 2.
The policy period here was August 24, 1992 to August 24, 1993. "Damages" are defined as:
the compensatory portion of any judgment, award or settlement, provided always that DAMAGES shall not include:
Id.
The exceptions listed thereafter are not relative to this dispute.
None of the information sent in writing to Zutz and/or on to PCM made a demand for services br money, nor was any lawsuit or arbitration instituted. In addition to the handling of claims, the policy also provided for the reporting of potential claims:
If, during the POLICY PERIOD, any INSURED first becomes aware of a POTENTIAL CLAIM (i.e., any act, error, or omission which might reasonably give rise to a CLAIM against any INSURED under this policy) and gives written notice of such act, error, or omission to the Company during the POLICY PERIOD, any CLAIMS subsequently made against any INSURED arising out of that act, err, or omission shall be considered to have been made during the POLICY PERIOD.
Id. at 4.
Citing many of these provisions, ISLIC denied coverage in a letter to Homsey dated November 19, 1993:
On November 12, 1993, we received notice from your broker, [PCM], by cover letter dated November 4, 1993, of the above potential claim. You had advised your agent, [Zutz], on July 15, 1993. that you were hiring an independent structural engineer to review cracking and spalling at the top of several concrete columns in the MBNA parking deck. On September 23, 1993, [sic] you sent to Zutz the report from your expert, indicating that you felt any potential claim would be minimal. On October 1, 1993, Zutz sent notice of potential claim to [PCM].
Victorine Samuel Homsey, Inc. is insured under [ISLIC] Architects and Engineers Professional Liability Policy No. PAE 4212 effective August 24 [sic] 1992 through August 24, 1993. The policy was not renewed.
* * *
The first notice to the Company of this potential claim was not received until November 12, 1993. Although we do not know whether it would have been reasonable to expect that a claim might be made as a result of the circumstance, since the POTENTIAL CLAIM was not reported during the policy period, there would be no coverage should a CLAIM be made subsequently. Additionally, there is no coverage because no CLAIM was first made against the Insured during the policy period nor reported to the Company in writing during the policy period or within sixty (60) days thereafter [sic] We recommend that you contact [Zutz] to provide you with information regarding any other carriers who might be able to protect your interests in this matter.
Letter from Jill Crane to Victorine Samuel Homsey, Inc. (November 19, 1993) at 1, 3.
In denying coverage, ISLIC also stated that Homsey had not sent notice, as the policy required, to it or Crum Forster Managers. While there had been some prior relationship between ISLIC and PCM, it apparently came apart in 1992 or early 1993. That separation is reflected, in part' in a letter PCM wrote Homsey in May 1993, which read:
Since we no longer represent [ISLIC], this letter is being sent to you at their direction.
You are hereby notified in accordance with the terms and conditions of the above mentioned policy, and in accordance with law, that the above mentioned policy will expire effective at and from the hour and date mentioned above and the policy will not be renewed.
Upon written request from you or your authorized agent or broker, we will mail or deliver loss information covering the period when coverage was provided by [ISLIC] within 20 days of such request. Loss information consists of information on closed claims, open claims and notices of occurrences, including date and description of occurrence and any payments or amounts of any payments.
Letter of Robert C. Meyer to Victorine Samuel Homsey, Inc. (May 21, 1993) at 1.
A copy of the letter was sent to ISLIC. It did not countermand the notice of claim statement.
PCM's letter prompted Homsey to seek coverage through another carrier. Through Zutz, Homsey applied for similar coverage to that of ISLIC's through Steadfast Insurance Co. On the Steadfast application, which Homsey filled out, it noted the potential parking garage claim. It said $50,000, if anything at all, could be owed. Zutz forwarded this application to PCM to place coverage, which, at this point, was acting as Steadfast's agent.
Apparently the repairs to the parking garage were finished in 1994. In the Spring of 1995, representatives of Homsey and Bellevue met to discuss the cost of repairs. Several figures have been mentioned in the record but the "working" figure was $212,000. Of this, Homsey apparently agreed to pay $87,104. In early June, Homsey paid Bellevue $5,000 but it has paid nothing since. Bellevue made a formal demand on Homsey for $87,104 in a letter dated June 27, 1995. On July 17, 1995, Homsey renewed its request for coverage from ISLIC. Citing the reasons for its denial in 1993, ISLIC again denied coverage.
Homsey, as noted, has paid $5,000 to Bellevue but nothing more. Neither Bellevue nor MBNA have sued Homsey. In addition to the $5,000, Homsey paid over $6,000 to the engineering firm for the inspection and report done in 1993.
PROCEDURAL HISTORY
Homsey's motion to amend its complaint to add the declaratory judgment action represents the fourth amendment. Homsey asks this Court to declare that ISLIC is required to provide it with a defense and indemnity for the MBNA claim. It alleges that, as a result of the actions of all three defendants, it has been deprived of insurance coverage. Homsey asserts there is a justiciable controversy and states that it is entitled to a declaration that the defendants are jointly and severally liable for all sums above the $25,000 deductible and other costs and expenses.
This litigation began when Homsey sued Zutz (and PLL). The original causes of action were for negligence, negligent misrepresentation and breach of contract. In answering Homsey's complaint, Zutz sued PCM and ISLIC. Zutz alleged PCM was negligent and that ISLIC breached its insurance contract with Homsey. Thereafter, Homsey, with court approval, amended its complaint to add PCM and ISLIC as defendants. It added a negligence claim against PCM and a breach of contract claim against ISLIC. Its second amended complaint made some minor changes in some of the allegations but added substantive new causes of action arising out of alleged violations of various statutory provisions. In September 1998, Homsey again obtained court approval to amend its complaint for the third time. It deleted several, but not all, of the statutory causes of action.
APPLICABLE STANDARD
Cross motions for summary judgment often imply that there are no genuine issues of material fact. But, sometimes that proposition is not true and despite such motions, the normal rules of summary judgment apply. All parties, as noted, have moved for summary judgment. That, means any such motion may be granted, if there are no genuine issues of material fact and the particular moving party is entitled to judgment as a matter of law. All factual inferences must be viewed in a light most favorable to the non-moving party.
Browning-Ferris, Inc. v. Rockford Enters., Inc., Del.Supr., 642 A.2d 820, 823 (1993).
Mason v. United Servs. Auto. Assoc., Del.Supr., 697 A.2d 388, 392 (1997).
Dale v. Town of Elsmere, Del.Supr., 702 A.2d 1219, 1221 (1997).
DiOssi v. Maroney, Del.Supr., 548 A.2d 1361, 1362 (1988).
Since Homsey has moved for leave to file an amended complaint and to file a declaratory judgment action, additional rules apply. Employing a liberal construction of Superior Court Civil Rule 15, such amendments are usually allowed unless the opposing party or parties are prejudiced. Homsey's current motion to amend the complaint is its fourth.
Dunfee v. Blue Rock Van Storage, Inc., Del.Super., 266 A.2d 187, 188 (1970).
DISCUSSION
The resolution of Homsey's claims and Zutz's third party action against ISLIC and PCM is not barred by any genuine dispute of material fact. The same cannot be said about Homsey's claims against Zutz. Zimmerman claims that Monck said, as to notice, Homsey need do nothing more. Whether this was said and what it really means can only be resolved by a fact finder. Whether Zutz was negligent in not passing along to PCM and/or ISLIC Zimmerman's telephone call or the July 15th letter cannot be resolved at this stage either. Finally, the issue of whether Homsey has suffered any compensable damages by Zutz's actions or inactions must also go to a fact finder.
I. Notice A. Notice Recipient
Part of Homsey's claim against Zutz is that it was required to pass along to PCM or ISLIC the content of Zimmerman's telephone call and/or the July letter. It is undisputed, however, that Homsey never sent written notice of anything in 1993 to PCM or ISLIC. Zutz, of course, did forward to PCM Homsey's September letter and report which PCM, in turn, sent on to ISLIC.
Homsey contends that PCM is liable because it failed to timely forward that material to ISLIC. While agreeing it was authorized to receive and forward the material, PCM argues that it came too late to it. In disclaiming liability, ISLIC contends not only did PCM's letter to it come too late, PCM was no longer at that time authorized to receive any kind of notice. Homsey counters this contention by pointing to the red stamp language on the declaration sheet directing that notice of claims be sent to PCM. The threshold issue to resolve, therefore, is to whom should notice have been sent. This is a legal question.
When ISLIC issued the policy to Zutz, PCM was authorized to receive notice. ISLIC argues, however, that it was unaware that PCM was placing the red stamp notice provision on the declaration sheet. But, when PCM wrote Homsey in May 1993, it said it was no longer representing ISLIC and that the ISLIC policy was not being renewed. PCM's letter went on to tell Homsey, however, that it would still forward to ISLIC any written information about a loss or claim. ISLIC received a copy of this letter.
ISLIC did not send PCM, Zutz or Homsey any contrary information subsequent to the letter. Nor was Homsey's policy with ISLIC ever amended to remove the provision allowing notice to PCM. That leaves, therefore, the policy with, essentially, three notice provisions. One allowed notice to PCM, the other to ISLIC and the third to Crum Forster Managers. This circumstance creates an ambiguity in the policy. That ambiguity must be resolved against ISLIC and in favor of Homsey. PCM was, therefore, an authorized recipient of notice of a claim or potential claim.
Emmons v. Hartford Underwriters Ins. Co., Del.Supr., 697 A.2d 742, 745 (1997).
B. Claim v. Potential Claim
But, there are other policy provisions at issue. To resolve them, the Court uses certain well — established interpretative guidelines. Construction and interpretation of an insurance contract is a question of law. Clear and unambiguous policy language should be given its ordinary and usual meaning. If language in a policy is clear and unambiguous, the Court will not destroy or twist the words to construe them An ambiguity exists when policy language is susceptible to two or more reasonable interpretations. Since insurance contracts are viewed as contracts of adhesion, they are interpreted most strongly against the insurer/drafter.
Aetna Cas. and Sur. Co. v. Kenner, Del.Supr., 570 A.2d 1172, 1774 (1990).
ABB Flakt, Inc. v. National Union Fire Ins. Co. of Pittsburgh, P.A., Del.Supr., 731 A.2d 811, 816 (1999).
State Farm Fire and Cas. Co. v. Hackendorn, Del.Super., 605 A.2d 3, 7 (1991).
Cheseroni v. Nationwide Mut. Ins. Co., Del.Super., 402 A.2d 1215, 1217 (1979) aff'd sub nom. Del.Supr., 410 A.2d 1015 (1980).
Mount Vernon Fire Ins. Co. v. Pied Piper Kiddie Rides, Inc., Del.Super., 445 A.2d 949, 953 (1982).
Steigler v. Insurance Co. of North America, Del.Supr., 384 A.2d 398, 400 (1978).
These principles are needed to analyze the policy provisions involved in the next contentions which the parties raise. Those contentions revolve around the policy terms of "claim" and "potential claim." ISLIC's policy required that written notice of either was to be provided. But, before analyzing these words, it was necessary to establish to whom that written notice of a claim or potential claim was to go.
Homsey argues that the policy does not distinguish between the terms "claim" and "potential claim." From that premise, it argues the policy permitted notice of a potential claim to be made up to August 24, 1993 (the end of the policy period) and up to sixty days thereafter. ISLIC, on the other hand, disputes this argument and says the policy requires notice of a potential claim to have been made no later than August 24th It says the policy only allows notice of a claim to have been made within the sixty-day window following August 24th.
The arguments which Homsey makes about these two policy terms are designed to show it met the policy's notice requirements. Homsey first contends it provided notice of a potential claim when it sent to Zutz its July 15, 1993 letter, if not by Zimmerman's June telephone call. of course, this letter never went to PCM or ISLIC. But, Homsey argues, as to Zutz, that Monck told Zimmerman that sending the communication to Zutz was all Homsey needed to do to satisfy the policy's notice requirement. Zutz, as Homsey argues, was obligated to forward that letter to PCM and/or ISLIC. Since the letter arrived in July, it was well before the policy period expired. At that time, whatever distinction exists between claim and potential claim is irrelevant. Zutz's failure to forward the letter, Homsey asserts, constitutes negligence.
Zutz contends the July 15th letter did not amount to notice of a potential claim. It also says that it did not represent Homsey and had no obligation to give notice directly to either PCM or ISLIC. The first notice of anything which Zutz says rises to even the level of a potential claim was Homsey's September 21st letter. This was, of course, after the policy period's expiration period. Zutz sent the letter to PCM on October 1st, still within the sixty-day window, but, as the record shows, PCM did not forward it to ISLIC until after the window was closed.
Since PCM received its letter within the sixty-day window, Homsey alternatively argues it discharged its notice obligations in the policy. It does not dispute that its September 21st letter is anything more than a notice of a potential claim. But, it says the policy allowed for the submission of a potential claim during the sixty-day period after August 24th. Zutz suggests that the policy permitted notice of a potential claim within the sixty-day window and PCM's receipt in that period of the material Zutz forwarded fell within the opening. Its primary argument, however is that Homsey has not and cannot submit a claim, since it has not suffered any damage. That argument is addressed in Part
III.
The policy language does not support Homsey's arguments or Zutz's suggestions that there are no differences between claim and potential claim. "Claim" is defined as:
a demand made upon any INSURED for money or services, including, but not limited to, service of suit or institution of arbitration proceedings against any INSURED.
ISLIC Policy at 1.
"Potential claim" is defined as:
If, during the POLICY PERIOD, any INSURED first becomes aware of a POTENTIAL CLAIM (i.e., any act, error, or omission which might reasonably give rise to a CLAIM against any INSURED under this policy) and gives written notice of such act, error, or omission to the Company during the POLICY PERIOD, any CLAIMS subsequently made against any INSURED arising out of that act, error, or omission shall be considered to have been made during the POLICY PERIOD.
Id at 4.
The Court would do what it is not permitted to do if it twisted these definitions into meaning the same thing.
The distinction is also important because the policy says ISLIC will recognize potential claims, if made during the policy period. In this case, the policy period was August 24, 1992 to August 24, 1993. If Homsey's letter of July 15, 1993 to Zutz were to be treated as giving notice of a potential claim, it, to that extent, would satisfy the policy requirement. There remains, of course, the separate issue arising from Homsey never sending notice of a potential claim directly to PCM or any other entity identified on the policy during the policy period or even within the sixty-day window. The record is uncontradicted that it did not. Realizing that, Homsey argues instead that it relied upon assurances from Zutz that Homsey need do no more and it would pass along the information. Zutz's failure to do so prior to August 24, 1993, Homsey contends, was negligence, and caused it $87,104 and other damages.
Being in a posture of summary judgment motions, the July 15th letter will be viewed in a light most favorable to Homsey. As such, it will be treated as giving notice to Zutz of a potential claim. When considered in the context of Zimmerman's version of her earlier call to Zutz, that view is a little stronger. But, viewing the July 15th letter as notice of a potential claim does not change the fact that it can be considered as no more than notice of a potential claim, as that is defined in the policy.
As notice of a potential claim, however, the record is uncontradicted that Zutz did not forward it to PCM or anyone else specified in the policy. Instead, Zutz waited until it received Homsey's September 21st letter enclosing the engineer's report. Zutz forwarded that letter and the report to PCM on October 1st. Even viewing Homsey's September 21st letter and the enclosed report in a light most favorable to Homsey, neither meets the criteria for a claim as defined under the policy.
The importance of this discussion is that potential claims must be reported during the policy period. That period ended August 24th and no one argues otherwise. The record is uncontradicted that neither PCM nor ISLIC received notice of a potential claim prior to that date. On that basis, Homsey did not comply with the policy provisions. The policy permitted written notice of a claim to have been made up to October 23, 1993. Again, the record is uncontradicted that no one received notice of a claim, as that word is defined in the policy, prior to that date.
If the Court's analysis were to stop there, the summary judgment motions of PCM and ISLIC would have to be granted and Zutz's would have to be denied. But, of course, the analysis cannot stop there. The analysis must continue because Homsey argues that some courts have construed policy language similar to that here as triggering coverage even when a potential claim is made during the extended period. In a letter of October 1st, Zutz forwarded copies of Homsey's September 21st letter and the engineer's report. In terms of a qualified recipient, PCM's receipt of these documents satisfied that requirement of ISLIC's policy. As noted, what was sent, of course, was only notice of a potential claim. It is unknown when exactly PCM received these documents. Allowing several days for delivery, it was still early October.
But, for unknown reasons, PCM did not forward the documents to ISLIC until November 4, 1993. It received them on November 12th As earlier stated, it declined coverage because (1) the potential claim was not received prior to August 24th and (2) no claim was received within the extended sixty-day period.
To rebut this basis for ISLIC's denial, Homsey points first to the uncontradicted fact that PCM received notice of the potential claim within the sixty-day extended reporting period. It does not argue that anyone received notice of a claim within either the policy period or extended reporting period. Instead, Homsey argues receipt of the notice of a potential claim, even during the extended period, has been held to trigger coverage.
But, the cases Homsey cites do not help it. The first one cited is McCuen v. American Cas. Co. of Reading, Pennsylvania. The policy language at issue there differs materially from that applicable here. In McCuen, coverage was provided for wrongful acts of directors where claims were made during the policy period or within the "Discovery Period." Any claim, the policy continued, made subsequent to the policy period would be covered, if notice were given to the insurer during the policy period in accordance with notice provisions elsewhere in the policy.
8th Cir., 946 F.2d 1401 (1991).
Id. at 1405-1406.
The applicable notice clause stated that a claim made subsequent to the policy's termination would be treated as a claim made during the period covered by the policy, if several conditions were met. One, if the insured became aware of an "occurrence" which could later become a claim and, two, during the applicable period (policy period plus the "Discovery Period"), the insured gave written notice of the claim.
Id. at 1406.
The policy in McCuen did not define "claim" or "occurrence." The Court held the policy's notice provision treated notice of an occurrence to be notice of a claim. The insured had provided notice of an occurrence. Since occurrence, therefore, meant the same as claim, when the Discovery Period allowed notice of claims to be made, notice of an occurrence during the Discovery Period was notice of a claim.
Id.
Id.
ISLIC's policy does not allow for such a construction. First, "claim" and "potential claim" are defined words. Arguably. "potential claim" and "occurrence" are roughly equivalent terms. Second, as to potential claims, ISLIC's policy says subsequent claims will be honored, if notice of the potential claim is provided during the policy period. Third, the ISLIC policy did not provide for any extended reporting period for potential claims, only for claims. The court in McCuen found no distinction between the words "claim" and "occurrence" and once it decided that the use of claim in the extended reporting period, i. e., Discovery Period, included notice of an occurrence, the insured's notice of an occurrence was sufficient to trigger coverage.
But, not only are the terms "claim" and "potential claim" defined here, the policy is unambiguous about when either is to be reported. Unlike McCuen, the policy does not allow notice of potential claims to be made in the extended period. In McCuen, the insured gave timely notice of a claim when it gave notice of an occurrence. In this case, when Homsey gave notice of a potential claim, it did not give timely notice of a claim. And, the record is uncontroverted that its notice of a potential claim, the September 21st letter, was not timely given to PCM or to ISLIC.
Homsey cites other cases, in addition to McCuen, in support of its argument that notice of a potential claim during the extended period is sufficient to trigger coverage. As with McCuen, these cases are not helpful. In Slaughter v. American Cas. Co. of Reading, Pennsylvania, the policy language (and defendant) was the same as in McCuen. Following McCuen's holding, the word claim encompassed occurrence. Notice of an occurrence given during the Discovery Period was, therefore, notice of a claim.
D.C.E.D. Ark., 842 F. Supp. 376 (1993) rev'd on other grounds 8th Cir., 37 F.3d 385 (1994).
Id. at 378.
In American Cas. Co. of Reading, Pennsylvania v. Sentry Federal Sav. Bank, notice of a potential claim was submitted during the time provided but there was an ambiguity regarding policy year and policy period. Because of that ambiguity, the notice requirement was extended to include the longer time. There is no such ambiguity here.
Mass.Dist.Ct., 867 F. Supp. 50 (1994).
Id. at 61.
The court in United States Fire Ins. Co. v. Fleekop was confronted with interpreting the word claim in a "tail" coverage provision. It was not defined in the policy and the court held that it encompassed other acts "which could reasonably be expected to give rise to a claim." Part of its reasoning was that the "tail" provision blurred the line between the actual policy period and the period covered by the "tail" coverage.
Fla.Dist.Ct.App., 682 So.2d 620 (1996).
Id. at 623.
Id. at 626.
The U.S. Fire court stated the issue confronting it was "[w]hether an insured's notice of an occurrence or potential claim to the insurer during the tail period is sufficient to trigger coverage." The court, citing many cases, acknowledged, however that the majority answer to that question was negative. It allied itself, however, with the minority in answering the question in the affirmative. While the policy language in that case differs enough from that here to make U.S. Fire inapplicable, this Court allies itself with the majority view. This is particularly necessary in this case because of that very difference in policy language in U.S. Fire and in this case.
Id. at 625.
Id.
Id. at 626.
The cases Homsey cites interpreted the policies involved as notice of an occurrence or potential claim to be the same as notice of a claim, if given during a specified period following the policy coverage period. These periods were variously referred to as "tail" or "Discovery Period." ISLIC's policy contained a somewhat similar post-policy-period window. ISLIC's policy stated it would honor any subsequent claim arising out of a potential claim, if Homsey gave written notice of the potential claim within the policy period. It did not do that. Contrary to the policies in the cases Homsey cites, the ISLIC policy does not blur the definitions of claim or occurrence or potential claim. Nor is the time for giving notice blurred.
Also, unlike the insureds in the cases it cited, Homsey did not comply with notice provisions in the ISLIC policy. Through Zutz, it sent to PCM the September 21st letter and the engineer's report. The Court has held that PCM was an authorized recipient of that notice. But, Homsey's material was notice of a potential claim. The policy required Homsey to give notice of any potential claim within the policy period which ended August 24, 1993. It is uncontradicted that PCM received Homsey's material in early October. Homsey, therefore, did not give timely notice of a potential claim to ISLIC.
Through PCM, ISLIC received notice of Homsey's potential claim past the deadline set in the policy. Therefore, ISLIC's rejection of Homsey's potential claim as untimely is supported by unambiguous policy language.
C. Prejudice
To avoid the consequences of this holding, Homsey next argues that ISLIC has the burden of showing it has been prejudiced by the late notice. Homsey relies upon the holding in State Farm Mut. Auto. Ins. Co. v. Johnson for this proposition. There, the Supreme Court said:
Del.Supr., 320 A.2d 345 (1974).
Therefore, we hold that when an insured fails in his burden of proving compliance with the notice condition, before any forfeiture can result, the insurer has the burden of showing that it has thereby been prejudiced.
Id. at 347.
The policy, however, in Johnson was an occurrence policy. It had an "`as soon as practicable'" notice provision. Up until this case, no Delaware court has been asked to determine if that showing — of-prejudice burden applies to a claims-made policy.
Id. at 346.
While this particular issue is novel, Delaware has recognized the fundamental difference between claims-made and occurrence-based policies. In describing claims-made policies, the Supreme Court in Hoechst said:
Hoechst Celanese Corp. v. Certain Underwriters at Lloyd's London, Del.Supr., 656 A.2d 1094, 1095 n. 1 (1995).
Claims-made policies provide coverage only where the underlying claim is first made, in writing, during the policy period. Therefore, the initial focus under a claims-made policy is on the date of the first written assertion of the claim, rather than the date of the injury or the damage alleged within that claim.
Id at 1095.
Many other courts recognize, too, these obvious differences between claims-made and occurrence-based policies. That recognition has led a majority of courts confronting the same issue presented here to hold that the actual prejudice test will not be required in cases involving claims-made policies.
Matador Petroleum Corp. v. St. Paul Surplus Lines Ins. Co., 5th Cir., 174 F.3d 653 (1999); Lexington Ins. Co. v. St. Louis Univ., 8th Cir., 88 F.3d 632 (1996); DiLuglio v. New England Ins. Co., 1st Cir., 959 F.2d 355 (1992); Burns v. International Ins. Co., 9th Cir., 929 F.2d 1422 (1991); National Union Fire Ins. Co. v. Talcott, 1st Cir., 931 F.2d 166 (1991); The Rouse Co. v. Federal Ins. Co., D.C.D.Md., 991 F. Supp. 460 (1998); Winthrop and Weinstine v. Travelers Cas. and Sur. Co., D.C.D.Minn, 993 F. Supp. 1248 (1998); City of Utica, N.Y. v. Genesee Management, Inc., D.C.N.D.N.Y., 934 F. Supp. 510 (1996); Civic Assocs., Inc. v. Security Ins. Co. of Hartford, D.C.D.Kan., 749 F. Supp. 1076 (1990); City of Harrisburg v. International Surplus Lines Ins. Co., D.C.M.D.Pa., 596 F. Supp. 964 (1984); Helfand v. National Union Fire Ins. Co. of Pittsburgh, Pa., Cal.Ct.App., 13 Cal.Rptr.2d 295 (1992); Chas. T. Main, Inc. v. Fireman's Fund Ins. Co., Mass.Supr., 551 N.E.2d 28 (1990); T.H.E. Ins. Co. v. P.T.P., Inc., Md.Supr., 628 A.2d 223 (1993); Zuckerman v. National Union Fire Ins. Co., N.J.Supr., 495 A.2d 395 (1985); Medical Inter. Ins. Exch. of N.J. v. Health Care Ins. Exch., N.J.Super.Ct.App. Div., 651 A.2d 1029 (1995); Rochwarger v. National Union Fire Ins. Co. of Pittsburgh, Pa., N YApp. Div., 192 A.2d 305 (1993).
One of these cases is Chas. T. Main v. Fireman's Fund Ins. Co. The Massachusetts Supreme Judicial Court found the prejudice inquiry irrelevant to the untimely notice under a claims-made policy. Until the Main decision, Massachusetts had the same rule as Delaware that with an occurrence-based policy, the insurer rejecting notice of a claim as untimely must show prejudice. In reaching the result in Main, the court cited the differences between the notice requirements in an occurrence-based policy and in a claims-made policy. Like the policy in the Delaware case, the occurrence-based policy in the Massachusetts case contained the usual notice requirement of "as soon as practicable." In claims-made policies, notice is required during the term of the policy or within a short period thereafter.
Id. at 30.
Johnson Controls, Inc. v. Bowes, Mass.Supr., 409 N.E.2d 185 (1980).
Id. at 186, n. 2.
Main 551 N.E.2d at 29.
The Main court discussed the different purposes for the two types of reporting requirements. The occurrence-based reporting requirement is to enable the insurer to make an investigation of the facts and occurrence relating to liability. "However, fairness in rate setting is the purpose of a requirement that notice of a claim be given within the policy period or shortly thereafter. . . ." The court went on to say:
Id.
Id.
The closer in time that the insured event and the insurer's payoff are, the more predictable the amount of the payment will be, and the more likely it is that' rates will fairly reflect the risks taken by the insurer. The purpose of a claims-made policy is to minimize the time between the insured event and the payment. For that reason, the insured event is the claim being made against the insured during the policy period and the claim being reported to the insurer within that same period or a slightly extended, and specified, period. If a claim is made against an insured, but the insurer does not know about it until years later, the primary purpose of insuring claims rather than occurrences is frustrated. Accordingly, the requirement that notice of the claim be given in the policy period or shortly thereafter in the claims-made policy is of the essence in determining whether coverage exists. Prejudice for an untimely report in this instance is not an appropriate inquiry.
Id. at 30.
The First Circuit, in a case where it had to apply Rhode Island law, adopted the reasoning of the Massachusetts court when it confronted the same issue of whether to apply the prejudice test to an untimely report in a claims-made case. The First Circuit agreed with another basis offered by the Main court in rejecting the prejudice test for claims-made policies. To impose such a requirement on such policies would mean "[t]he likely result would be that claims-made policies, which offer substantial benefits to purchasers of insurance as well as insurance companies, would vanish from the scene."
DiLuglio, 959 F.2d at 359.
Main, 551 N.E.2d at 30.
New Jersey, too, has held that in a case involving a claims-made policy where coverage was denied for untimely reporting, the insurer need not show "appreciable prejudice. Like Massachusetts and Delaware, New Jersey had such a requirement for occurrence-based policies.
Zuckerman, 495 A.2d at 405.
Cooper v. Government Employees Ins. Co., N.J.Supr., 237 A.2d 870 (1968).
When citing the differences between a claims-made and an occurrence-based policy, the Delaware Supreme Court focused on the date of claims versus the date of injury. This is but one reason, and an important one, why so many courts have rejected applying the prejudice test to a claims-made policy where the notice was untimely. The Delaware Supreme Court's characterization of a claims-made policy comports with the observations made by the Massachusetts Supreme Judicial Court and those made by the First Circuit, as well as other courts.
For that reason and because of the persuasiveness of the additional reasons offered by these courts, this Court holds that the insurer does not have to show prejudice when it denies coverage under a claims-made policy. This holding, of course, does not apply to an occurrence-based policy, thus, leaving State Farm v. Johnson intact. Accordingly, to sustain its denial of coverage of Homsey's potential claim contained in its September 21st materials, ISLIC does not have to show prejudice. In sum, Homsey cannot obtain coverage through these materials.
D. Application to Steadfast
But Homsey does not rely alone on the September 21st materials to show it provided notice of a potential claim. It argues it provided notice of the potential claim within the policy period with the information it supplied in its application for Steadfast coverage after ISLIC's coverage expired. The application was signed on July 15, 1993 and provided to PCM around that date. This, of course, would have been within the policy period and PCM is, otherwise, a qualified notice recipient. On the application, Homsey was asked to list claims (the word on the application). After giving some background on the garage project, Homsey stated:
At this time, we believe the maximum claim against our firm would be $50,000 and a possibility of no claim against our firm. The information was reported to [Zutz], our local agent, on June 25, 1993, for our current carrier, [ISLIC]
Homsey's Application to Steadfast, Exhibit B.
Zutz forwarded this application to PCM. PCM was surprised to see this, as it had not, of course, received any other information from Zutz about this situation. But, as Homsey knew from PCM's May letter, PCM was no longer ISLIC's agent for writing insurance. No one contends that Homsey supplied this information for the purpose of providing PCM of notice of a claim or potential claim under the ISLIC policy. Despite this, however, Homsey now argues when PCM received this application, that provided constructive notice to ISLIC.
This Court cannot agree. The information on the Steadfast application cannot constitute notice through PCM on the ISLIC policy. ISLIC's policy, of course, is a claims-made policy. As mentioned earlier, the Delaware Supreme Court in Hoechst recognized the uniqueness of a claims-made policy. It is an issue of first impression in Delaware whether information on a reapplication or application for new insurance can, under a claims-made policy, constitute constructive notice to the then current insurer.
In American Cas. Co. of Reading, Pennsylvania v. Continisio, the Third Circuit confronted this issue where the information was on a reapplication, but to the same insurer. In discussing the need for an insured to give notice to the insurer's claims department, the court, per Judge Seitz, said:
3rd Cir., 17 F.3d 62 (1994).
Because the notice of claim provision defines coverage under this policy, the only reasonable interpretation of the policy provision is that the insureds must regard the information they possess as a potential claim and formally notify their insurer through its claims liability department that a claim may be asserted. . . . We concur that the notice must be given through formal claims channels because we recognize that the information needed, or at least the perspective utilized in reviewing it, varies when predicting the probability of future losses and recognizing the need to investigate a claim that may be made based on past occurrences.
Id. at 69.
In holding that there had been no constructive notice, the court continued:
Insureds may not deny knowledge of potential claims in their renewal application and rely on information submitted with the same application to support an argument that the insurer should have known a claim could be made. In so holding, we join a growing line of cases prohibiting an insured from insisting that its insurer's underwriting department sift through a renewal application and decide what should be forwarded to the claims department on the insured's behalf.
Id.
All these considerations apply with equal force here. The Steadfast application was not submitted to PCM's claims department nor to ISLIC's claims department. PCM was not even the procuring agent for ISLIC at that time. While the Court has said that Homsey was unaware PCM's authority to receive notice of claims may have been revoked, it knew in May that PCM could not write ISLIC coverage. The propositions authored by the Third Circuit rejecting constructive notice where the renewal application went to the same insurer apply, therefore, with greater effect in this case. The Steadfast application was not notice to PCM or ISLIC.
In sum, Homsey did not give timely notice of a potential claim or of a claim to any entity specified in the policy. The September 21st letter contains a potential claim. PCM and ISLIC received it past the expiration of the policy period, the deadline for giving notice of a potential claim. To be entitled to coverage under this claims-made policy, Homsey was required to provide timely written notice. Its failure to do so means that it is not entitled to coverage. This conclusion means Homsey has no cause of action, therefore, against either PCM or ISLIC. Their motions for summary judgment will be granted. Zutz's claims against these same two defendants are premised on the same arguments as Homsey. Zutz's third-party claims against PCM and ISLIC will also be dismissed.
E. Zutz Negligence
Homsey's action against Zutz, however, has a basis independent of the insurance policy. First, it asserts it relied upon Monck's statement to Zimmerman that telephone notice was all that was needed. Second, Zutz timely received the notice from Homsey, both in the original telephone call and the letter Homsey sent in July 1993. Both the telephone call and that letter were within the policy period. Homsey has submitted an affidavit, which the Court will view for the current motions, as from a person qualified to render an expert opinion, that Zutz should have forwarded to PCM the contents of Zimmerman's call. Zutz's failure to do so, the expert opines, was gross negligence.
The expert's opinion contends that the standard of care required Zutz to forward the telephone call's content. The current record does not allow this Court to determine whether such a standard of care exists. Zutz has not provided a rebuttal affidavit and argues it did not anticipate there would be a need to do so. Further, this may be a situation where the issue is standard of care-a factual issue-and whether it was breached. Homsey also argues it relied upon Monek's representation. Whether that reliance is reasonable or justifiable, when the policy required written notice of a claim or potential claim be given to an entity other than Zutz, is another issue which cannot be resolved in these motions.
In its complaint, Homsey alleged that Zutz was negligent. But, the expert opined that Zutz's conduct was grossly negligent. While the issue of whether a party is negligent is most often a jury question, the issue of whether Zutz's conduct amounted to gross negligence can be decided. Homsey's brief usually refers to Zutz's conduct as negligent but in one place, however, it does refer to "Zutz's gross professional negligence." Gross negligence has been described as signifying "more than ordinary inadvertence or inattention. It has also been defined or described as "an extreme departure from the ordinary standard of care.
Illsworth Affidavit, ¶ 5.
Robelen Piano Co. v. DiFonzo, Del.Supr., 169 A.2d 240, 245 (1961).
Plaintiffs Opening Brief at 26.
Jardel Co., Inc. v. Hughes, Del.Supr., 523 A.2d 518, 530 (1987).
Browne v. Robb, Del.Supr., 583 A.2d 949, 953 (1990).
Even acknowledging that whether or not conduct is grossly negligent is often a jury question and that the record must be viewed most favorably to Homsey, Zutz's conduct here cannot meet the threshold of gross negligence. At most, it represented it would send notice to PCM and failed to do so. There is no indication that, assuming such a representation were made, its failure was an extreme departure from the ordinary standard of care. Homsey's expert uses the words gross negligence in a conclusory way without providing the necessary specifics. The determination, however, of whether Zutz's conduct was negligent cannot be made on this record. There are also genuine issues of material fact about the content of the Zimmerman June 1993 telephone conversation and whether the July Homsey letter to Zutz is even notice of a potential claim or amounted to anything which required Zutz to sent notice to PCM or ISLIC.
Homsey originally sued Zutz for negligence, negligent misrepresentation and breach of contract. It added in later amended complaints causes of action arising out of alleged violations of several statutes. These causes of action have not been briefed in the current exchange of motions. As to Homsey's original causes of action against Zutz, there remain genuine issues of material fact barring an award of summary judgment to either Zutz or Homsey.
II. Declaratory Judgment Action
The Court has before it, however, Homsey's motion to amend its complaint for the fourth time by adding an action for declaratory judgment. In addition to the defenses ISLIC, PCM and Zutz raised to the causes of action against them in the first three complaints, the defendants raise additional arguments why the motion, in reality the substance of the declaratory judgment action, should be denied. First, they contend Homsey has not been damaged, primarily because Homsey has yet to pay Bellevue the balance of what is the deductible. Second, all three contend that Bellevue is now barred by statute of limitations from suing Homsey. Therefore, they argue Homsey has suffered no damage and has no legal obligation to anyone.
These arguments. have several ramifications. They address two considerations of the motion to add the declaratory judgment action. The first is whether there is a justiciable controversy. The second is whether the defendants would be prejudiced by now allowing Homsey to amend its complaint to add this action.
Declaratory judgment actions are of statutory creation. Prior to 1981, the statute granting this Court jurisdiction over such actions specifically required that there be an actual controversy. The particular statute at issue was amended in 1981 and the words "actual controversy," among other language, were removed. Despite that revision, however, the Supreme Court has said the revised statute still, in effect, requires that there be an actual controversy:
10 Del. C. c. 65; 46 Del. Laws c. 269.
63 Del. Laws c. 63.
Delaware's adoption of the uniform act in 1981 does not invalidate this caveat on its use. Thus, it is clear that the "prerequisites of an `actual controversy,'" as Rollins delineates, must still be met:
(1) It must be a controversy involving the rights or other legal relations of the party seeking declaratory relief; (2) it must be a controversy in which the claim of right or other legal interest is asserted against one who has an interest in contesting the claim; (3) the controversy must be between parties whose interests are real and adverse; (4) the issue involved in the controversy must be ripe for judicial determination.
Stroud v. Milliken Enters., Inc., Del.Supr., 552 A.2d 476, 479-80 (1989) citing Rollins International, Inc. v. Int'l. Hydronics Corp., Del.Supr., 303 A.2d 660, 662-63 (1973) (citations omitted).
The Court again acknowledges that motions for leave to amend should be liberally granted. The usual practice of this Court is to allow the amendment and at a later time review its merits. That happens because often some additional discovery is needed. No additional discovery on whether there is to be coverage is needed here. And, this case has been in this Court for nearly four years. Besides, Homsey has moved for summary judgment on all of its other claims against the three defendants. The disposition of that motion and the defendants' cross motions makes it more efficient to rule on the substance of the declaratory judgment action.
Gott v. Newark Motors, Inc., Del.Super., 267 A.2d 596, 599 (1970).
Going to the merits, therefore, Homsey's declaratory judgment action fails to satisfy two of the four criteria. Its proposed action meets criteria (1) since it involves rights or legal relations of Homsey and (2) the right asserted involves these defendants. It fails to meet criteria (3) and (4), however.
While Homsey makes its claims against these parties, the real issue is whether the parties' interests are real and adverse. A review of the record demonstrates that such is not the case. In the proposed amended complaint to add the declaratory judgment action, Homsey states, "[It] is entitled to a declaratory judgment determining and adjudging that [Zutz, PCM and ISLIC] are jointly and severally liable to [it] for all sums (above the Policy's $25,000 deductible) that [Homsey] is or may become legally obligated to pay. . . . (emphasis added]" But, Homsey's briefing and the factual/legal context of any money due manifest it is no more than a moral obligation, at best. Homsey and Bellevue were aware in 1993 that there were defects in the garage. Repairs were made and finished in 1994. One option for Bellevue to collect from Homsey is to sue. There are, however, two statutes of limitations which would be implicated if that happens. If Bellevue claims Homsey was negligent, a three-year statute of limitations would bar that action. Since the circumstances involved work by Homsey, as an architect, another statute is implicated. It is a special one covering work of architects, among others. It is a six-year statute and is a statute of repose. If Bellevue sued Homsey now for any moneys due for the MBNA garage repairs, the six-year statute would also bar the claim.
Proposed fourth amended complaint ¶ 91.
10 Del. C. § 8127.
See Cheswold Volunteer Fire Co. v. Lambertson Constr. Co., Del.Supr., 489 A.2d 413, 415 (1984).
But, Homsey says, if sued, it will not interject either the statute of repose or the statute of limitations. "Homsey does not intend to assert the statute of limitations as an affirmative defense because it would be patently unfair to do so." Homsey claims it will honor its obligation to Bellevue and has always intended to do so regardless of whether it recovered from any of these defendants. It represents it has "always intended to pay Bellevue."
"Homsey has no intention of asserting the statute of limitations as an affirmative defense to any claim asserted by Bellevue against it." Plaintiffs Answering Brief at 6.
Id. at 7.
Id. at 2.
The Court is troubled, however, by those statements in light of Homsey's deeds. Since apparently reaching some kind of accommodation with Bellevue in 1995 to pay a portion of the cost of the garage repairs, namely $87,104, it has only paid $5,000. And that was by check dated June 6, 1995. It has not made any payments since that date. But the ISLIC policy contained a $25,000 deductible. Even though Homsey is liable up to that sum and could not recover it from ISLIC, it has not paid Bellevue more than the $5,000. The three defendants contend Homsey agreed to pay Bellevue out of a desire to continue a business relationship not because it was at fault. This motivation, they argue, makes it a moral obligation, not a legal one, meaning Homsey has suffered no loss or damage for which they can be legally held liable. Homsey's motivation is irrelevant. What is relevant is that Homsey has not paid Bellevue up to the deductible or anything else for over four years. This lack of payment undercuts its statement that it has always intended to pay Bellevue regardless of whether it recovered from any of these defendants. The lack of payment is another indication that Homsey does not have a legal obligation.
Bellevue, of course, is not a party to this action. But, Homsey's declaratory judgment action seeks to tether these defendants to Homsey's accommodation with Bellevue. To do so under the circumstances just described does not involve a controversy which is either real or adverse. These circumstances also illustrate, in the Court's view, that the controversy is not ripe for judicial determination, which is another prerequisite to be weighed in determining whether there is an actual controversy. One way of looking at it is whether these defendants should be liable for $57,104 ($87,104 less the $5,000 paid and the $25,000 deductible) to allow Homsey to maintain a positive business relationship with Bellevue for a "debt" on which Bellevue cannot even collect. Further, Homsey has valid defenses in the two statutes but has said it will not invoke them. The controversy in these circumstances cannot be considered ripe.
In addition to Homsey's declaratory judgment action failing two of the four prerequisites for such actions, ISLIC argues it would be prejudiced to allow such an action now. The prejudice to which it points is the amount of time that has transpired since the repairs, Homsey's conversations with Bellevue and that this proposed amendment comes years after the original lawsuit was filed and certain scheduling deadlines have passed.
The prejudice which ISLIC argues is not the potential prejudice that must beweighed when an amendment is sought to change or add a party under Superior Court Civil Rule 15(c)(3); see Hess v. Cannine, Del.Super., 396 A.2d 173, 176 (1978).
Scheduling deadlines could be reset, if the amendment were allowed. Homsey's motion to amend to add the declaratory judgment action was made about three years after it initiated the lawsuit. The Court concurs that to permit the amendment would require some additional discovery, mostly about the garage repairs, etc. But, much has already been done and is known.
The Court is troubled by the implication of additional discovery and other matters which could prolong the resolution of this case. While not the traditional "prejudice" test of Rule 15 (c)(3), the discussion showing where Homsey's proposed declaratory judgment fails several prerequisites for such actions demonstrates prejudice in another sense. Despite alleging in its proposed fourth amended complaint that it has a legal obligation, Homsey says it will not raise valid and determinative defenses of statutes of limitations to any claim from Bellevue. It seeks to impose liability, however, on the other defendants for an "obligation" which is legally unenforceable and where it has not demonstrated good faith by paying any significant sum to Bellevue, let alone up to the deductible. Its motion to amend the complaint to add a declaratory judgment action must be denied.
To state it another way, to allow Homsey to amend the complaint to add the declaratory judgment action and require these defendants to contest it is futile. Anticipating that, of course, Homsey moved for summary judgment on its other causes of action against the three defendants. The foregoing discussion shows that the motion to amend must be denied, and, of course, Homsey's motion for summary judgment has been denied as to all of the defendants.
These rulings mean that the Court will not declare that insurance coverage exists and that liability to Homsey results from such a declaration. This Court has earlier held that Homsey's actions against ISLIC and PCM must be dismissed. While Zutz is off the hook, as part of the proposed declaratory judgment action, it is not off the hook for the original causes of action against it.
III Homsey's Claims Against Zutz
The applicable statutes of limitations bar any action Bellevue may have against Homsey, but they do not bar Homsey's actions against Zutz. Nor has Zutz argued that they do. Homsey's action was filed in a timely manner.
Zutz raises several defenses to Homsey's claims against it. They overlap Zutz's arguments opposing the proposed declaratory judgment action. It contends Homsey's obligation to Bellevue is moral not legal, as it is unenforceable due to the two statutes. If Zutz were negligent, its earliest negligence was on June 25, 1993, the date of the Zimmerman call to Monck. Homsey flied its complaint June 12, 1996, which also, of course, is within three years of Homsey's July 1st letter. In addition to the $5,000 paid to Bellevue, Homsey paid the engineer over $6,000 for the report forwarded to Zutz in September that year and which was sent on to PCM and ISLIC.
In resisting Homsey's motions, Zutz has argued that the obligation to Bellevue is, at best, moral, not legal, and not encompassed within the definition of "claim" in ISLIC's policy. Zutz made this contention also within the context of whether there was an actual controversy in Homsey's declaratory judgment action.
Supra at 7.
The Court's reasons for holding, however, that there was not such a controversy, do not translate into saying Homsey did not suffer damages as a result of any action by Zutz. As the court discussed earlier, Homsey may have an action in negligence against Zutz, in addition to its other potential causes of action. But, because the whole issue of damages was more overriding to the dispute over Homsey's declaratory judgment action, the Court determined it was necessary to address the damage issue, as to that action, first before focusing on the narrower issue of Homsey's damage claim against Zutz. While there is a question whether Homsey suffered damages, if any, the record at this point does not enable the Court to say, as a matter of law, that it did or did not and, if so, to what extent.
Supra at Part I. E.
In addition to arguing Homsey suffered no damages, Zutz contends that it is not liable because Homsey breached the ISLIC policy in the manner in which it reached its understanding with Bellevue. The policy provision which it breached, Zutz contends, states:
No INSURED shall, without prior written consent of the Company, make any payment, admit liability, settle CLAIMS, assume any obligation, agree to arbitration or any similar means of resolution of any dispute, waive any rights or incur any CLAIMS EXPENSES on behalf of the Company.
ISLIC Policy at 4.
It is undisputed that Homsey reached its accommodation with Bellevue without any involvement of ISLIC. It did not even notify ISLIC until after that accommodation was reached. Homsey's counsel sent written notice of Bellevue's claim in a letter to ISLIC and PCM dated June 17, 1995 (really July 15, 1995). Bellevue had put its claim in writing in a letter to Homsey dated June 27, 1995. Based on the June 6, 1995, $5,000 check from Homsey, the accommodation had been reached prior to that date. In short, this record shows that Homsey did not seek, let alone get ISLIC's advance approval, for its accommodation with Bellevue.
Zutz argues Homsey's breach, therefore, is a defense ISLIC would have which would shield ISLIC from liability. But, this defense, if available to ISLIC, is not available to Zutz, as Homsey's actions against Zutz are independent of the policy requirements. But, this defense would not even be available to ISLIC, since it denied coverage on both occasions on the basis of late notice. Even in 1995, it did not interpose a denial of coverage on this ground.
No statute of limitations would appear to bar Homsey's claims against Zutz. This Court has said that there are genuine issues of material fact concerning negligence and damages. The existence of these fact issues means Zutz's motion for summary judgment against Homsey and Homsey's against Zutz must be denied.
CONCLUSION
For the reasons stated herein:
1. The motion for summary judgment of defendant International Surplus Lines Ins. Co. and Coregis Indemnity Company is GRANTED.
2. The motion for summary judgment of defendant Professional Coverage Managers, Inc. is GRANTED.
3. The motion for summary judgment of defendant Harry David Zutz Ins., Inc. is DENIED.
4. The motions of plaintiff Homsey Architects, Inc., for leave to file an amendment to its complaint to add a declaratory judgment action and for summary judgment are DENIED.
IT IS SO ORDERED.