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Admiral Insurance Company v. Superior Court (Real Party in Interest a Perfect Match, Inc.)

In Admiral Ins. Co. v. Superior Court (A Perfect Match, Inc. – Real Party In Interest), 18 Cal.App.5th 383 (December 12, 2017), the California Fourth District Court of Appeal reversed the trial court's denial of a motion for summary judgment filed by Admiral Insurance Company (“Admiral”) arguing that the insured, A Perfect Match, Inc. (“Perfect Match”), had knowledge of a potential claim against Perfect Match prior to the inception of a professional liability policy issued by Admiral to Perfect Match.

Admiral issued a professional liability policy to Perfect Match covering claims made during the period from December 5, 2012 to December 5, 2013. It agreed to pay amounts that Perfect Match was “legally obligated to pay as damages caused by a professional incident . . . for which a claim is first made against the insured during the policy period." “Professional Incident” was defined in the Admiral policy as “a negligent act, error or omission in the rendering of or failure to render professional services by the insured." Admiral's obligation to pay claims first made during the policy period only applied if prior to the inception date of the policy, no insured knew, nor could have reasonably foreseen, that the professional incident might result in a claim."

Prior to the inception of the Admiral policy, Perfect Match received three letters from an attorney representing Monica Ghersi and Carlos Arango giving notice of their intent to file a complaint alleging professional negligence against Perfect Match. The negligence claim related to the birth of the plaintiffs’ baby girl who developed a retinoblastoma, a rare cancer of the eye.

Perfect Match consulted with its broker and decided not to advise Admiral of the letters received from the plaintiffs’ counsel. Thereafter, plaintiffs filed a lawsuit against Perfect Match during the Admiral policy period alleging professional negligence. Perfect Match tendered the defense of the lawsuit to Admiral. In response, Admiral denied coverage of Perfect Match’s tender of the lawsuit based on the prior incident requirement in its insuring agreement as well as an alleged misrepresentation made by Perfect Match in its application for insurance. Thereafter, Perfect Match filed a lawsuit for declaratory relief and bad faith against Admiral. Subsequently, Admiral filed a summary judgment motion arguing that the prior incident exclusion in its insuring agreement barred coverage of the underlying lawsuit. The trial court denied Admiral’s motion based on the language in the application setting forth questions related to medical malpractice as well as a question of fact related to whether Admiral could rely on the prior notice condition in the insuring agreement in its policy to bar coverage of Perfect Match for the underlying lawsuit.

In reversing the trial court's decision, the Court of Appeal held that Perfect Match did have prior notice of a potential claim due to its receipt of three letters from plaintiffs’ counsel prior to the inception of the Admiral policy. As such, the Court of Appeal held that the trial court should have entered summary judgment in favor of Admiral. The Court of Appeal held as follows:

Here, the undisputed facts demonstrate that Perfect Match had notice prior to the inception of the policy that Ghersi and Arango intended to file a lawsuit for breach of contract and negligence. Even if there was some confusion as to whether Ghersi and Arango properly labeled their claim as a "medical negligence" action or invoked the appropriate code section, the policy only requires that the insured be able to foresee that a claim “might” be made. Counsel’s June 2012 letters provided indisputable notice to Perfect Match that its professional services rendered to Ghersi and Arango “might result in a claim.”  Accordingly, by the clear terms of the policy, there was no coverage. (See Phoenix Ins. Co. v. Sukut Construction Co. (1982) 136 Cal.App.3d 673, 676-677 [186 Cal.Rptr. 513].)

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