Cordova v. Scottsdale Ins Co, 4th Cir. (2001)
Cordova v. Scottsdale Ins Co, 4th Cir. (2001)
Cordova v. Scottsdale Ins Co, 4th Cir. (2001)
No. 99-2410
COUNSEL
ARGUED: Thomas Phillip Mains, Jr., MAINS & MAINS, McLean,
Virginia, for Appellant. Ronald William Fuchs, ECCLESTON &
OPINION
PER CURIAM:
This appeal arises from a direct action initially instituted in state
court by Nestor Cordova against Scottsdale Insurance Company
("Scottsdale"), seeking to recover on a $2,000,000 default judgment
Cordova had obtained against Dr. Carl Alper, one of Scottsdales
putative insureds. Determining that Alper was not covered under the
general and professional liability policy issued by Scottsdale (the
"policy"), the district court awarded summary judgment in Scottsdales favor. Because we are unconvinced that, as a matter of law,
Alper was excluded from the policys coverage, we vacate the district
courts judgment and remand for further proceedings.
I.
A.
In October 1993, Cordova sued Physicians Clinical Services, a
Pennsylvania medical laboratory, as well as John Crawford and Carl
Alper, for negligently misreading the pap smear of Cordovas late
wife Julieta. In August 1996, Cordova obtained a $2,000,000 final
default judgment against Crawford and Alper in the Circuit Court of
Fairfax County, Virginia.1 The case against Physicians Clinical Services was nonsuited.
1
The named entity in the direct action was initially Nationwide Mutual
Insurance Company, doing business as Scottsdale Insurance Company.
3
Virginias direct action statute permits litigants bearing unsatisfied
judgments to seek recovery directly from the liable partys insurer. The
statute provides in relevant part as follows:
[I]f execution on a judgment against the insured . . . is returned
unsatisfied in an action brought to recover damages for [an]
injury sustained [then] the action may be maintained against the
insurer under the terms of the policy or contract for the amount
of the judgment not exceeding the amount of the applicable limit
of the coverage under the policy or contract.
Va. Code Ann. 38.2-2200(2).
cians Clinical Services Limited Partnership" was also formed in Delaware; the partnership agreement identified Physicians Clinical
Services, Ltd., as the sole general partner, and an individual, James
L. Flore, as the sole limited partner.
Once these legal entities had been created, a medical laboratory
doing business under the name "Physicians Clinical Services" commenced operations in Exton, Pennsylvania. Correspondence issued by
the laboratory, including the test result reports sent to patients, identified Alper as the "Laboratory Director."
2. The Policy
Scottsdale issued the policy in June 1988, and it was renewed
effective June 17, 1989. The policy provided "Comprehensive General Liability Insurance" and "Hospital Professional" coverage in the
aggregate sum of $6,000,000.4 It designated "Physicians Clinical Services, Inc." as the named insured.5
The policy defines the persons insured as follows:
II. PERSONS INSURED
Each of the following is an insured under this insurance to
the extent set forth below:
(a) the named insured[;]
(b) if the named insured is designated in the declarations
as a partnership, any partner thereof, but only with
respect to that partners liability as such;
(c) if the named insured is designated in the declarations
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as other than an individual or partnership, any executive officer, hospital administrator, stockholder, or
member of the board of directors, trustees or governors
of the named insured while acting within the scope of
that persons duties as such.
J.A. 92.
Several form endorsements accompanied the policy when it was
initially issued, and others were subsequently issued by Scottsdale.6
On August 16, 1989, a single-page endorsement to the policy was
issued by Scottsdale, bearing the caption "Endorsement No. 3" and
listing "Physicians Clinical Services, Inc." as the insured. Beyond the
identifying information found at the top of the page, Endorsement No.
3 contained the statement: "It is hereby understood and agreed the
named insured is a partnership."7 J.A. 106. Despite this attempt at
clarification, inconsistency regarding the insured entitys name (and
status) persisted. Scottsdale continued to address its insured as "Physicians Clinical Services, Inc." in certain documents post-dating the
issuance of Endorsement No. 3. For example, an endorsement dated
August 18, 1989, referred to "Physicians Clinical Services, Inc." as
the insured party. J.A. 105. On occasion, Scottsdale referred simply
to "Physicians Clinical Services" or "Physicians Limited Partnership"
as its insured party despite the fact that neither was a legal entity.
II.
We review de novo an award of summary judgment, viewing the
facts in the light most favorable to the nonmovant. Myers v. Finkle,
950 F.2d 165, 167 (4th Cir. 1991). Summary judgment is appropriate
only "if the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show that there
6
is no genuine issue as to any material fact and that the moving party
is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c).
III.
A.
Despite the confusion with respect to the entities referenced as the
insured, the issue on appeal is straightforward: Does the policy
encompass and insure the acts of Alper, insofar as he was serving as
an agent and employee of the "Physicians Clinical Services" medical
laboratory?
1.
Maintaining that Alper was beyond the scope of coverage, Scottsdale relies on the plain language of Endorsement No. 3, which provided that "[i]t is hereby understood and agreed that the named
insured is a partnership." Scottsdale insists that Endorsement No. 3
must be read in conjunction with the policys "persons insured"
clause. Accordingly, Scottsdale concludes that the policy unambiguously designated Physicians Clinical Services Limited Partnership as
the named insured, with coverage encompassing Physicians Clinical
Services, Ltd., as its sole general partner, under subparagraph (b) of
Section II, "but only with respect to that partners liability as such[.]"
In Scottsdales view, Physicians Clinical Services, Ltd. enjoyed coverage in its capacity as general partner, but such coverage did not
trickle down as would be the case under subparagraph (a) of Section II to its individual corporate directors, officers or shareholders, including Alper.
In awarding summary judgment, the district court essentially
adopted Scottsdales position, concluding:
[Endorsement No. 3] was issued two months after the original policy and, importantly, weeks before the negligent
reading of Julieta Cordovas lab reports. Moreover, each
subsequent endorsement lists the named insured as "Physicians Clinical Services[,]" the trade name of the limited
Neither party to this appeal quarrels with the district courts decision
to treat Pennsylvania law as that governing the policy. See Memorandum
Opinion, at 8 ("[B]ecause the general partner which arranged for the
insurance contract was located in Pennsylvania and the insurance contract was delivered to Pennsylvania, we find that Pennsylvania law
should cover the interpretation of the insurance policy at issue."). We
also accept the district courts decision to apply Pennsylvanias substantive law.
Scottsdale, however, summarily contends on appeal that the Virginia
direct action statute, see supra note 2, is not applicable to Cordovas suit,
since that statute "expressly limits its application to policies issued and
delivered in this Commonwealth." Appellees Br. at 20. If Pennsylvanias direct action counterpart were instead applied, Scottsdale contends,
it would be incumbent upon Cordova "to allege and present admissible
evidence demonstrating that his collection efforts against Alper were
unsuccessful due to Dr. Alpers insolvency or bankruptcy." Id. at 23
(emphasis added). Cordova failed to so allege and establish; accordingly,
Scottsdale insists, Cordova lacked standing to bring this direct action. In
his Reply Brief, Cordova asserts that Scottsdale waived this defense
"[b]y contending in its summary judgment motion that the sole issue
before the court involved the question of coverage for Alper[.]" Appellants Reply Br. at 8. Moreover, as Cordova observes, this issue was neither addressed nor decided by the district court. Id.
While Scottsdale characterizes this issue as one of "standing," it relates
solely to the adequacy of Cordovas pleadings. As such, we will decline
to consider the issue, since it was neither addressed by the district court
B.
1.
Although the plain terms of Endorsement No. 3 cannot be ignored,
we must reject the district courts conclusion that this endorsement
validly and unambiguously amended the policy. Under Pennsylvania
law, if the provisions of an insurance policy are clear and unambiguous, they are to be given their plain and ordinary meaning. Riccio v.
Am. Republic Ins. Co., 705 A.2d 422, 426 (Pa. 1997). If, instead, the
policys provisions are ambiguous, they must be construed in favor
of the insured and against the insurer as the drafter of the instrument.
Id. In determining ambiguity, a court must read the policy in its
entirety and ascertain its intent from consideration of the entire instrument. Id.
Where, as appears to be the situation here, an amendatory endorsement has been issued containing terms which conflict with those in
the main policy, the endorsements terms prevail. See St. Paul Fire
& Marine Ins. Co. v. United States Fire Ins. Co., 655 F.2d 521, 524
(3d Cir. 1981). In particular, an endorsement that expands the scope
of coverage will be regarded by Pennsylvania courts as trumping
more restrictive coverage terms contemplated by its underlying form
policy. See id. On the other hand, an insurer cannot reduce the scope
of coverage merely by issuing an amendatory endorsement. Of importance, Pennsylvania law instructs that insurance policies, like other
contracts, cannot be changed or modified without the consent of both
parties. See, e.g., J.M.P.H. Wetherell v. Sentry Reinsurance, Inc., 743
F. Supp. 1157, 1170 (E.D. Pa. 1990) (noting that an insurer "may not
modify the terms of a contract by issuing a certificate which conflicts
with the terms of the agreed upon contract"); Murray v. John Hancock Mut. Life Ins. Co., 69 A.2d 182, 183 (Pa. Super. Ct. 1949)
("[O]rdinarily, a contract of insurance cannot be changed without the
consent of both parties."); see also 4 Eric Mills Holmes, Holmes
Appleman on Insurance 2d, 20.1 at 157-58 ("Almost any change of
the policy may be made by endorsement with consent. . . . [N]o consideration is required where the endorsement is attached before the
policy is delivered.") (emphasis added).
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2.
In order to evaluate the validity and effect of Endorsement No. 3
which, Scottsdale implicitly concedes, was issued separately from
the policy we must first identify the insured party when the policy
was issued. As we have observed, the district court construed the policys references to "Physicians Clinical Services, Inc." to warrant the
conclusion that the original insured was the corporation, Physicians
Clinical Services, Ltd. See Memorandum Opinion, at 9. While the district courts inference was not entirely unreasonable, we are not satisfied, as a matter of law, that Physicians Clinical Services, Ltd. was
the intended insured.
Scottsdales use of "Inc." in references to the insured entity certainly implies an understanding that the entity enjoyed corporate status; the fact that the policy denominated the insured as a corporate
entity cannot, however, support a legal conclusion that Physicians
Clinical Services, Ltd. was the actual insured. By its terms, the policy
was by no means clear and unambiguous as to the insureds identity.
In the absence of other compelling evidence evincing the parties
intent, we must conclude that a factual question remains as to the
identity of the insured at the time the policy was issued.
3.
Just as the policy, when initially issued, did not denominate the
insured entity clearly and unambiguously, the factual record available
to us also does not clearly establish the intended effect of Endorsement No. 3. That is, it is not apparent whether this endorsement was
intended to memorialize the parties understanding of the policy as
issued, or was instead intended to materially alter the terms of the policys coverage.
Under these circumstances we also must conclude that genuine
issues of material fact remain as to the identity of the named insured
at the time of the endorsements issuance. If, as the district court
determined, the corporation (Physicians Clinical Services, Ltd.) was
the original named insured, then Endorsement No. 3 would have the
effect of modifying, indeed diminishing, the scope of coverage. Corporate directors, officers, and stockholders (including Alper) who
11
were initially insured, under subparagraph (c) of Section II of the policy, would be stripped of coverage by Endorsement No. 3 despite
the fact that neither the insureds written consent had been obtained
nor the premium reduced to reflect the diminished coverage. Such a
result would do violence to the fundamental principle that a contract
cannot be modified without the consent of both parties. See J.M.P.H.
Wetherell, 743 F. Supp. at 1170.
The evidence produced by Scottsdale in support of its motion for
summary judgment fails to establish that it obtained valid consent and
agreement to the issuance of Endorsement No. 3. Without such consent, this endorsement, which would give rise to coverage of a partnership under subparagraph (b) of Section II of the policy, cannot be
given legal effect. In sum, because factual issues exist as to the identity and nature of the insured, and also as to the validity of Endorsement No. 3, Alpers coverage under the policy cannot be denied as
a matter of law.
IV.
For these reasons, we vacate the district courts award of summary
judgment to Scottsdale and remand for further proceedings.
VACATED AND REMANDED