Conn. Ins. Guaranty Ass'n v. Drown

314 Conn. 161

101 A.3d 200

CONNECTICUT INSURANCE GUARANTY ASSOCIATION

v.Joshua DROWN et al.

No. 18975.

Supreme Court of Connecticut.

Argued Jan. 8, 2014.

Decided Oct. 21, 2014.

Sean K. McElligott, Bridgeport, for the appellants (defendants).

Kurt M. Mullen, with whom were Thomas P. O'Connor, Greenwich, and, on the brief, Mark D. Robins, pro hac vice, and Charles W. Pieterse, Greenwich, for the appellee (plaintiff).

ROGERS, C.J., and PALMER, ZARELLA, EVELEIGH, McDONALD, ESPINOSA and ROBINSON, Js.

Opinion

ROBINSON, J.

This certified appeal presents us with two issues of first impression in Connecticut, specifically: (1) whether an insurer's preinsolvency breach of its duty to defend a claim during an underlying litigation estops the plaintiff, the Connecticut Insurance Guaranty Association (association), from contesting its obligation under the Connecticut Insurance Guaranty Association Act, General Statutes § 38a–836 et seq. (guaranty act), to pay a claim made under the insolvent insurer's policy; and (2) whether certain vicarious liability claims are covered under a professional liability policy (policy), issued by the now insolvent Medical Inter–Insurance Exchange (Exchange), which contained a provision, designated in the policy as exclusion (i), excluding coverage for “injur[ies] arising solely out of acts or omissions in the rendering or failure to render professional services by individual physicians or nurse anesthetists, or by any paramedical for whom a premium charge is shown on the declarations page.” The defendants, Associated Women's Health Specialists, P.C. (Health Specialists), Susan Drown and Rodney Drown, individually and on behalf of their minor son, Joshua Drown,¹ appeal, upon our grant of their petition for certification,² from the judgment of the Appellate Court reversing the trial court's award of summary judgment in their favor. Connecticut Ins. Guaranty Assn. v. Drown, 134 Conn.App. 140, 37 A.3d 820 (2012). On appeal, the defendants contend that the Appellate Court improperly concluded that: (1) Exchange's preinsolvency breach of its duty to defend Health Specialists from certain claims made by the Drowns did not estop the association from challenging its liability under the policy; and (2) exclusion (i) plainly and unambiguously excluded coverage for Health Specialists' vicarious liability arising solely from the professional negligence of one of its physician employees. We disagree and, accordingly, affirm the judgment of the Appellate Court.

The record reveals the following undisputed facts and procedural history. In May, 2000, the Drowns filed a medical malpractice action against Health Specialists, a professional corporation that provides obstetrical and perinatal services, and two of its physicians, France Bourget and Richard Holden, in relation to care rendered to Susan Drown preceding, during and following her delivery of Joshua Drown. The Drowns alleged, inter alia, that Bourget and Holden negligently failed to diagnose a placental abruption, which resulted in brain damage to Joshua Drown. The Drowns alleged that Health Specialists is vicariously liable for the physicians' negligence, but did not plead claims of direct negligence against Health Specialists. At some point during the proceedings, the Drowns withdrew the counts against Holden without any settlement of those claims.

During the relevant period, Health Specialists was insured through a professional liability insurance policy issued by Exchange. For a period of approximately six years following notice of the claim, Exchange agreed to provide, and did provide, a legal defense to Health Specialists, without asserting any reservation of rights under the insurance policy. In June, 2006, Health Specialists' counsel, Thomas Anderson, informed Exchange's senior claim representative that, in light of information gleaned through depositions, he had reached the conclusion that liability favored the Drowns and that settlement options should be pursued. In July, 2006, Anderson informed the senior claim representative that a mediation session had been scheduled for September 28, 2006, and that Exchange's presence was required at that session by order of the court because it had the authority to settle the action. In derogation of that order, Exchange failed to send a representative to the September mediation session, and the mediation was continued until December 7, 2006.

In October, 2006, Exchange's general counsel wrote a letter to Health Specialists for the first time to “remind [it] of some important limitations on coverage....” The letter went on to state that, “pursuant to exclusion (i), there is no coverage for [Health Specialists] for its vicarious liability for the acts of individual physicians.” Thereafter, Exchange failed to send a representative to the December mediation session, despite having been specifically alerted again by counsel that the court required the presence of such a representative. As a result, the trial court, Hon. Samuel H. Teller, judge trial referee, rendered a default judgment on the issue of liability against Health Specialists because Exchange failed to appear at the mandated mediation sessions on behalf of its insured. In March, 2007, Health Specialists and Susan Drown, individually and on behalf of Joshua Drown, executed a settlement agreement whereby Health Specialists agreed that it was liable for the full amount of the policy, $2 million, and that it would assign to the Drowns its rights to recover against Exchange. In return, the Drowns agreed that they would not proceed directly against Health Specialists' assets. The trial court, Agati, J., thereafter dismissed the action against Health Specialists pursuant to Practice Book § 14–19.

In April, 2008, Exchange, domiciled in the state of New Jersey, was declared insolvent by a judge in the Superior Court of New Jersey, Chancery Division. As a result, the association assumed liability for Exchange's obligations to the extent that claims under its policies were covered under the guaranty act, specifically General Statutes § 38a–841.³

In February, 2009, the association commenced the present declaratory judgment action, seeking a declaration that it had no obligations under the policy, which Exchange had issued to Health Specialists, for the Drowns' claims. The defendants filed counterclaims seeking declarations that: (1) the association was estopped from denying coverage by virtue of Exchange's breach of its duty to defend, failure to reserve its rights, and failure to honor its contractual obligations; (2) the policy provided coverage for the claims in the underlying action in the amount of $2 million; and (3) those claims are “ ‘[c]overed claim[s]’ ” under the guaranty act as defined by General Statutes § 38a–838 (5).⁴

Thereafter, the association filed a motion for summary judgment on its declaratory action on the ground that exclusion (i) of the policy precluded coverage of the underlying claims and, therefore, the claims were not “ ‘[c]overed claim[s]’ ” as defined by § 38a–838 (5).⁵ The defendants filed a cross motion for summary judgment on the ground that the underlying claims were covered under the policy and that, therefore, the association was statutorily obligated to pay three covered claims to the Drowns in the amount of $1,199,700. The trial court denied the association's motion and granted the defendants' cross motion. The trial court concluded that both parties had offered reasonable interpretations of exclusion (i) and, therefore, the contract should be construed in accordance with the reasonable expectations of the insured that the claims would be covered. The trial court further concluded that Exchange's breach of its obligation to provide a defense had resulted in a default being entered against Health Specialists, and that the association was, therefore, liable to the same extent as Exchange would have been for such a breach. The trial court thereafter rendered summary judgment in favor of the defendants on both the association's complaint and the defendants' counterclaims.

The association appealed to the Appellate Court, which reversed the trial court's judgment. Connecticut Ins. Guaranty Assn. v. Drown, supra, 134 Conn.App. at 159, 37 A.3d 820. In a unanimous decision, the Appellate Court concluded that exclusion (i) unambiguously precluded coverage for the vicarious liability claims asserted against Health Specialists. Id. at 156, 37 A.3d 820. The Appellate Court rejected the defendants' argument that exclusion (i) barred only a claim based on the negligence of a physician “ ‘for whom a premium charge is shown on the declarations page,’ ” concluding that this construction would contravene rules of grammar and the last antecedent rule of contractual or statutory construction. Id. at 149–52, 37 A.3d 820. The Appellate Court further concluded that the construction yielded upon application of these rules is supported by the definitions of persons insured under each coverage part. Id. at 151 n. 9, 37 A.3d 820. It also disagreed with the defendants' contention that the association's construction of exclusion (i) rendered Health Specialists' coverage under the policy illusory, noting that there were some circumstances in which claims predicated on vicarious liability would be covered. Id. at 152–54, 37 A.3d 820. Finally, the Appellate Court concluded that Exchange's breach of its duty to defend Health Specialists did not estop the association from enforcing the policy exclusion because, under the act, the association is liable only for “ ‘[c]overed claim[s]’ ” as defined by § 38a–838 (5). Id. at 156–59, 37 A.3d 820. Accordingly, the Appellate Court remanded the case to the trial court “with direction to deny the defendants' cross motion for summary judgment, to grant the association's motion for summary judgment and to render judgment thereon for the association.” Id. at 159, 37 A.3d 820. This certified appeal followed. See footnote 2 of this...