Opinion
No. 1-798 / 01-101.
Filed May 15, 2002.
Appeal from the Iowa District Court for Warren County, RICHARD D. MORR, Judge.
Winifred Law Opportunity Center Corporation appeals the district court's grant of summary judgment to Cincinnati Insurance Company in this breach of contract action. AFFIRMED.
David H. Luginbill of Ahlers, Cooney, Dorweiler, Haynie, Smith Allbee, P.C., Des Moines, for appellant.
Nancy K. Tordai of Hanson Peters, Barrington, Illinois, and Barbara A. Hering of Hopkins Huebner, P.C., Des Moines for appellee.
Heard by SACKETT, C.J., and HUITINK and HECHT, JJ.
The Winifred Law Opportunity Center Corporation (WLOC) appeals the grant of summary judgment to Cincinnati Insurance Company (Cincinnati) in this action for breach of contract. WLOC claims summary judgment was not appropriate because there were genuine issues of material fact concerning whether it was covered by an insurance policy issued by Cincinnati. We affirm on appeal.
WLOC is a nonprofit organization providing residential services and vocational training to mentally and physically challenged persons. In April 1997 WLOC received notice from the Iowa Department of Human Services (DHS) that four of its employees were being placed on the dependent adult abuse registry due to a founded report against them for denial of critical care to a resident at WLOC.
The employees challenged the agency decision through administrative procedures. Based on a settlement agreement, DHS removed the employees' names from the registry. The parents of the alleged victim filed a petition for judicial review of the agency's decision, and the employees intervened in that action. In January 1998 the four employees requested that WLOC pay their legal fees for these proceedings.
WLOC had a directors and officers liability insurance policy (D O policy) with Cincinnati that was in effect from September 1, 1996, until September 1, 1997. On August 6, 1997, Cincinnati received the following notice: "Four employees have been found negligent in an injury to two workers. They are appealing the decision and the Iowa Civil Rights Commission is investigating." After the D O policy expired, WLOC obtained a non-profit organization, director and officer liability policy (NPO policy), which was in effect from September 1, 1997, until September 1, 1998. On November 2, 1998, WLOC sought coverage from Cincinnati for the employees' legal fees. Cincinnati refused, stating WLOC's original policy covered only directors and officers, and no claim had been made as defined under the policy.
The policy stated it would be in effect from September 1, 1997, until September 1, 2000, but WLOC did not pay the premium after the first year, so the policy lapsed on September 1, 1998. On March 16, 1999, WLOC notified Cincinnati the policy should be cancelled effective September 1, 1998, because it purchased insurance from a different company.
On March 31, 1999, the four employees filed suit against WLOC claiming breach of contract and against Cincinnati claiming bad faith. On October 6, 1999, WLOC demanded Cincinnati defend and indemnify it under the terms of the NPO policy. Cincinnati denied coverage, on the ground the claim arose prior to the time the policy was in effect, and the policy did not cover claims made by an insured against an insured.
WLOC filed a cross-claim against Cincinnati alleging breach of contract due to Cincinnati's refusal to defend and indemnify it in the action. Cincinnati filed a motion for summary judgment in the original action and the cross-claim. The district court granted both motions for summary judgment. WLOC's motion pursuant to Iowa Rule of Civil Procedure 1.904(2) was denied. WLOC appeals.
The case proceeded to trial on the four employees' claims against WLOC. After a jury verdict for the employees, they appealed the grant of summary judgment to Cincinnati on their bad faith claims against the company. That appeal was later dismissed.
I. SCOPE OF REVIEW
We review a district court's ruling on a motion for summary judgment for correction of errors of law. Financial Mktg. Servs., Inc. v. Hawkeye Bank Trust, 588 N.W.2d 450, 455 (Iowa 1999). Summary judgment will be upheld when the moving party shows there are no genuine issues of material fact and the party is entitled to judgment as a matter of law. See Iowa R. Civ. P. 1.981(3). A fact is material only when its determination might affect the outcome of the suit. Keokuk Junction Ry. Co. v. IES Indus., Inc., 618 N.W.2d 352, 355 (Iowa 2000). We consider the evidence in the light most favorable to the nonmoving party. Crippen v. City of Cedar Rapids, 618 N.W.2d 562, 565 (Iowa 2000).
II. D O POLICY
We first address the question of whether Cincinnati had a duty under the D O policy to reimburse WLOC for any attorney fees it was required to pay on behalf of the four employees. In looking at the policy, we keep these principles in mind:
Construction of an insurance policy — the process of determining its legal effect — is a question of law for the court unless it depends on extrinsic evidence or a choice among more than one reasonable inference. In the construction of insurance policies, the cardinal principle is that the intention of the parties must prevail. If the language of the policy is unambiguous, . . . that intent is determined by what the policy itself says. When words in a policy are left undefined, we give them the meaning that a reasonable person would understand them to mean.Monroe County v. Int'l Ins. Co., 609 N.W.2d 522, 525 (Iowa 2000) (citations omitted).
The D O policy was a claims made policy, which provided coverage only for claims made during the coverage period of the policy. See Federal Deposit Ins. Corp. v. Amer. Cas. Co., 528 N.W.2d 605, 607 (Iowa 1995). The policy provides:
B. Company Reimbursement. To pay on behalf of the company all loss arising from any claim or claims made during the policy period against each and every person, jointly or severally, who was or now is or shall hereafter be a director or office of the company by reason of any wrongful act in their respective capacities of directors or officers of the company, . . . .
The policy defines "loss" as including damages, judgments, settlements, and charges and expenses incurred in the defense of actions, suits, or proceedings. A "claim" is generally understood as "a demand for something due or believed to be due." Dico, Inc. v. Employers Ins., 581 N.W.2d 607, 613 (Iowa 1998).
Under its by-laws, WLOC had a board of directors. The by-laws defined the company's officers as the chairperson, vice-chairperson, secretary, and treasurer. WLOC admitted none of the four employees ever served as a director or officer of the company. It is clear the present case does not involve any losses by the directors and officers of WLOC due to claims made against them. Cincinnati had no duty to reimburse WLOC under the D O policy.
III. NPO POLICY
We turn to the question of whether Cincinnati had a duty under the NPO policy to reimburse WLOC for any attorney fees it was required to pay on behalf of the four employees, or to defend WLOC in the employees' suit against it. The NPO policy covered employees and volunteers, as well as directors and officers for a loss the insured was legally obligated to pay because of an wrongful act, provided the claim was made during the policy period. This was also a claims made policy. See Hasbrouck v. St. Paul Fire Marine Ins. Co., 511 N.W.2d 364, 368 (Iowa 1993).
The first exclusion under the NPO policy provided Cincinnati would not be responsible for any claim:
alleging, arising out of, based upon, or attributable to the facts alleged, or to the same or related "wrongful acts" alleged or contained, in any "claim" which has been reported, or in any circumstances of which notice has been given, under any policy of which this policy is a renewal or replacement or which it may succeed in time.
The front page of the NPO policy states it is a renewal of the D O policy. On August 6, 1997, Cincinnati received a notice, which stated, "Four employees have been found negligent in an injury to two workers. They are appealing the decision and the Iowa Civil Rights Commission is investigating." Thus, Cincinnati clearly received a report of the potential "claim" regarding the same "wrongful acts" prior to the inception of the NPO policy. Under this exclusion, Cincinnati has no responsibility to reimburse WLOC for the employees' attorney fees.
The policy also excludes claims made against an insured:
which are brought by or on behalf of an Insured or any entity which is controlled by, controls, or is under common control with you; however, this exclusion shall not apply to claims for wrongful termination of employment brought by a former employee.
Here, the four employees who would be considered insureds under the NPO policy made a claim for payment of attorney fees against WLOC, which was also an insured under the same policy. Because this case involves a claim by an insured against an insured, under this exclusion as well Cincinnati has no duty to reimburse WLOC for payment of the employees' attorney fees.
Where there is no coverage, there is no duty to defend. Pursell Constr., Inc. v. Hawkeye-Sec. Ins. Co., 596 N.W.2d 67, 71 (Iowa 1999); Stine Seed Farm, Inc. v. Farm Bureau Mut. Ins. Co., 591 N.W.2d 17, 19 (Iowa 1999). Since we have found no coverage under the facts in this case, we correspondingly determine there was no duty to defend.
IV. REASONABLE EXPECTATIONS
WLOC contends that even if it is not covered under its policies with Cincinnati, it had a reasonable expectation Cincinnati would be responsible for the four employees' attorney fees. WLOC states that at the time it purchased the D O policy it thought it was getting a NPO policy. There was also evidence the insurance agent thought he had sold an NPO policy.
The supreme court has stated:
The doctrine of reasonable expectations is more than a rule of interpretation. It seeks to avoid the frustration of an insured's expectations notwithstanding policy language that appears to negate coverage. It is a narrow doctrine that is primarily employed when the insurance coverage provided eviscerates terms explicitly agreed to or is manifestly inconsistent with the purpose of the transaction for which the insurance was purchased.Monroe County, 609 N.W.2d at 526. The doctrine, however, will not be applied where an ordinary person reading the policy would not misunderstand the extent of the coverage or where there are no circumstances attributable to the insurer which would foster expectations beyond that covered in the policy. Id. (citing Rodman v. State Farm Mut. Auto. Ins. Co., 208 N.W.2d 903, 906 (Iowa 1973)).
Here, an ordinary person, or layman, would not misunderstand that WLOC had purchased a D O policy from Cincinnati. The cover page states in large type, "DIRECTORS AND OFFICERS LIABILITY POLICY," and as we noted above, the terms of the insurance policy clearly limit Cincinnati's coverage to losses arising from claims made against the directors and officers of WLOC. There is no language in the policy that would lead a reasonable person to believe it provided coverage for employees who were not directors or officers. We find WLOC has not shown it had reasonable expectations the D O policy covered the claims of the four employees.
WLOC also claims it reasonably expected the NPO policy to cover the four employees' claims for attorney fees. WLOC states it was never told it needed to give a new notice to Cincinnati of the employees' claims.
The NPO policy provides coverage for a loss that an insured, including employees, becomes legally obligated to pay because of a wrongful act. "Wrongful act" is defined as "any error, misstatement or misleading statement, act or omission, or neglect or breach of duty." Thus, WLOC could reasonably expect the NPO policy to cover its employees' wrongful acts. An ordinary person reading the policy, however, would not conclude the policy covered breach of contract actions, such as that raised here. Furthermore, the policy clearly excludes WLOC's claims for coverage under the exclusions discussed above.
We determine the district court properly granted summary judgment to Cincinnati. We affirm the district court.
AFFIRMED.