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CHANDLER v. VALENTINE2014 OK 61Case Number: 108614Decided: 06/24/2014As Corrected: July 2, 2014THE SUPREME COURT OF THE STATE OF OKLAHOMACite as: 2014 OK 61, __ P.3d __
NOTICE: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION. UNTIL 
RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL. 

Tracey Chandler, Personal Representative of the Estate of David 
Wurtz, deceased, Plaintiff/Appellee,v.Mark W. Valentine, MD and Idabel 
Surgical Clinic, a professional corporation, Defendants,andPhysicians 
Liability Insurance Company, Garnishee/Appellant.

CERTIORARI TO THE COURT OF CIVIL APPEALSDivision 
II

¶0 Medical malpractice insurer brought an appeal from a summary judgment 
granted to the personal representative of the estate of a deceased patient by 
the Honorable Willard Driesel, District Court of McCurtain County. The Court of 
Civil Appeals reversed the summary judgment and remanded the matter with 
instructions to enter judgment for the insurer.

CERTIORARI PREVIOUSLY GRANTED;OPINION OF COURT OF CIVIL 
APPEALS VACATED;JUDGMENT OF TRIAL COURT AFFIRMED.

Glendell Nix, NIX LAW GROUP, PLLC, Edmond, Oklahoma and Jeremy Thurman, 
Oklahoma City, for Plaintiff/Appellee.Barry K. Roberts, Norman, Oklahoma, 
for Plaintiff/Appellee.Robert N. Naifeh, Jr., Sarah Lee Gossett Parrish, 
DERRYBERRY & NAIFEH, LLP, Oklahoma City, for Garnishee/Appellant.


COLBERT, C.J.
¶1 The issue in this matter is whether an insurer may agree to cancel a 
"claims made" policy with the knowledge that a potential claim is pending 
without violating the statutory prohibition on retroactive annulment of an 
insurance policy following the injury, death, or damage for which the insured 
may be liable. See Okla. Stat. tit. 36, § 3625 (2011). This Court holds 
that it may not and affirms the holding of the trial court.
FACTS AND PROCEDURAL HISTORY
¶2 Physicians Liability Insurance Company (PLICO) insured Defendant Mark 
Valentine pursuant to a claims made policy with a policy period from July 1, 
2004, to December 31, 2006. On November 1, 2004, Valentine operated on David 
John Wurtz. As a result of Valentine's negligence during the operation, Wurtz 
died. On March 10, 2005, the Oklahoma Board of Medical Licensure held a hearing 
to determine whether Valentine should be disciplined. At the hearing, the Board 
revoked Valentine's license.
¶3 On March 14, 2005, Valentine sent a letter to his insurance agency which 
provided in part:


As we discussed, I last practiced on November 2, 2004, secondary to 
    health reasons. In December 2004, I renewed my liability insurance policy 
    for 2005, anticipating that I would return to the practice some time within 
    the first several months of this year. This will not be the case, secondary 
    to my licensure having been revoked in the state of Oklahoma.Because of 
    the circumstances and the unexpected financial hardship as a result, I 
    respectfully request that my policy for 2005 be cancelled, and I also 
    request a consideration of receiving a refund of the premium value having 
    been paid for the year 2005. In December, $6,870.60 was paid as an initial 
    payment for the 2005 policy and in February another $4,436.85 payment was 
    made.
A few days later, the agency forwarded the letter to PLICO along with a 
newspaper article dated March 12, 2005, that stated in part:


The Oklahoma State Board of Medical Licensure and Supervision on Thursday 
    also revoked the license of Idabel physician Dr. Mark Valentine . . ... 
    . . .Valentine of Idabel was cited for performing surgery while impaired 
    by the pain medication Vicodin at McCurtain Memorial Hospital.
The Oklahoma medical board found Valentine guilty of unprofessional 
    conduct, and his medical license was revoked. He can reapply in one 
  year.
PLICO's Vice-President of Underwriting would later state in his deposition 
that, at the time PLICO cancelled the policy, he was aware of the article and 
considered the fact that Valentine was no longer licensed in PLICO's decision to 
cancel the policy.
¶4 On March 22, 2005, PLICO notified Valentine by letter that the policy had 
been cancelled effective March 10, 2005, with "Company's Decision" stated as the 
reason for cancellation and offered to sell him tail coverage. That letter was 
followed by another that addressed the premium refund issues and stated that the 
policy had been cancelled at Valentine's request.1 On June 2, 2005, Wurtz' personal 
representative, Tracey Chandler, filed suit against Valentine and others for the 
wrongful death of Wurtz. Valentine forwarded the petition and summons served on 
him to PLICO on July 12, 2005. On July 19, 2005, PLICO sent Valentine a letter 
denying coverage because the claim was not made until after the policy was 
cancelled and asserting the policy exclusion for acts performed while under the 
influence of intoxicating substances.2
¶5 Valentine's debts were discharged in bankruptcy on February 1, 2006. 
Chandler filed a motion for summary judgment against Valentine in August of 
2007. Valentine entered into a Consent Judgment with Chandler on December 5, 
2007, in the amount of $2,250,000.00. The trial court granted summary judgment 
in favor of Chandler and ruled that Valentine was entitled to a set off by 
virtue of settlements with other parties in the amount of $1,275,000.00
¶6 Chandler filed garnishment proceedings against PLICO in May of 2008. 
Chandler asserted that Valentine is indebted to Chandler in the amount of 
$975,000.00 plus pre and post judgment interest. PLICO denied any indebtedness 
asserting a lack of coverage under any insurance policy. Both Chandler and PLICO 
filed motions for summary judgment in the garnishment action. On July 16, 2010, 
the trial court entered summary judgment in favor of Chandler, holding that 
cancellation of the policy violated section 3625 of title 36 and was therefore 
void.
STANDARD OF REVIEW
¶7 A motion for summary judgment "should be rendered if the pleadings, the 
discovery and disclosure materials on file, and any affidavits show that there 
is no genuine issue as to any material fact and that the movant is entitled to 
judgment as a matter of law." Okla. Stat. tit. 12, § 2056(C) (2011).
ANALYSIS
¶8 Resolution of this matter requires an understanding of a "claims made" 
policy of liability insurance.


Under a claims made policy, coverage is only triggered when, during the 
    policy period, an insured becomes aware of and notifies the insurer of 
    either claims against the insured or occurrences that might give rise to 
    such a claim. . . .
In a 'claims made' policy, the notice is the event that invokes coverage 
    under the policy. Clear notice of a claim or occurrence during the policy 
    period is crucial, because allowing actual notice beyond the policy period 
    would 'constitute an unbargained for expansion of coverage, gratis, 
    resulting in the insurance company's exposure to a risk substantially 
    broader than that expressly insured against in the policy.' [citations 
    omitted] Claims made policies are often a more economical way to provide 
    coverage for risks like professional responsibility, because the notice 
    requirements allow an insurer to 'close its books' on a policy at the 
    expiration date and thus 'attain a level of predictability unattainable 
    under standard occurrence policies.' [citations omitted]
. . . Such a policy reduces the potential exposure of the insurer, thus 
    reducing the policy cost to the insured.
State ex rel. Crawford v. Indemnity Underwriters Ins. Co., 1997 OK CIV APP 39, ¶ 4, 943 P.2d 1099 (quoting LaForge v. 
Am. Cas. Co., 37 F.3d 580, 583 (10th Cir. 1994).
¶9 "Occurrence liability policies, on the other hand, allow for notice after 
the term of the insurance contract, so long as the insurable event occurred 
during the term, because these policies historically covered identifiable events 
such as collision, fire and war." Id., ¶ 5. "Notice provisions contained 
in such occurrence policies were 'included to aid the insurer in investigating, 
settling, and defending claims,' not as a definition of coverage." Id. 
(quoting Slater v. Lawyer's Mut. Ins. Co., 227 Cal. App.3d 1415, 1422, 
1423, 278 Cal. Rptr. 479 (1991)).
¶10 The principal advantage of the claims made policy for insurers is the 
avoidance of "tail liability" during the lapse of time between the date of the 
liability-producing event and the date of the claim. Carolyn M. Frame, 
'Claims-Made' Liability Insurance: Closing the Gaps with Retroactive 
Coverage, 60 Temple L.Q. 165, 166 & n.7 (1987). Thus, in a claims made 
policy the risk of tail liability is borne by the insured, absent the purchase 
of tail coverage for claims filed after the cancellation or termination of a 
policy. Id. at 182. However, insurers and policies of insurance are at 
all times subject to the regulation and limitations imposed by the Oklahoma 
Insurance Code which constitutes all of title 36 of the Oklahoma Statutes. Okla. 
Stat. tit. 36, § 109 (2011) ("No person shall transact a business of insurance 
in Oklahoma without complying with the applicable provisions of this 
Code.").
¶11 The question in this matter is whether section 3625 of the Insurance Code 
applies to a claims made policy. The section provides:


No insurance contract insuring against loss or damage through legal 
    liability for the bodily injury or death by accident of any individual, or 
    for damage to the property of any person, shall be retroactively annulled by 
    any agreement between the insurer and the insured after the occurrence of 
    any such injury, death, or damage for which the insured may be liable, and 
    any such attempted annulment shall be void.
Okla. Stat. tit. 36, § 3625 (2011). The provision dates to the enactment of 
the Insurance Code in 1957.
¶12 PLICO argues that, because the provision predates the wide-spread 
adoption of claims made policies in Oklahoma, the provision could not have been 
intended to apply to claims made policies. PLICO further argues that, because 
the provision makes the "occurrence" of damage or injury the event that triggers 
its operation, it must be intended to apply only to occurrence policies.
¶13 The primary goal of any statutory analysis is the determination of 
legislative intent which begins with an examination of the text of the 
provision. TRW/Reda Pump v. Brewington, 1992 OK 31, ¶ 5, 829 P.2d 15. The text of section 
3625 clearly applies to all contracts that provide insurance coverage for 
damage, injury, or death. The provision's focus is the protection of injured 
third parties, not on policy provisions. It limits the ability of the parties to 
an insurance contract to manipulate the term of policy coverage in a way that 
deprives an injured third party from asserting a claim. The Oklahoma Legislature 
has not amended the statute since its adoption in 1957 to limit its operation to 
occurrence policies and it is not within this Court's purview to do so. However, 
the difference in the nature of the risks protected by claims made versus 
occurrence policies requires a slightly different application of the provision 
to claims made policies.
¶14 As to an occurrence policy, the provision is straightforward because the 
date of occurrence is fixed by the liability-producing event and no agreement to 
cancel a policy may cut off the right to recover under the policy. Under a 
claims made policy, however, the date of the claim is unknown and liability 
generally does not attach until a claim is submitted by the insured. Therefore, 
section 3625 applies to a claims made policy only when there is an agreement to 
cancel the policy in a way that cuts off a potential claim and the insurer is 
actually aware3 at the time of agreement of the act or acts that 
will potentially result in a claim.4 Thus, the question in this matter becomes whether 
there was an agreement between the insured and the insurer to cancel the policy 
and whether PLICO knew of the alleged malpractice that could lead to a claim 
against the policy.
¶15 Faced with difficulty maintaining adequate reserves, PLICO converted its 
occurrence policies to claims made policies effective July 1, 2004. Under the 
claims made policies, physicians who wanted to continue PLICO coverage had to 
agree to thirty-month policies that could be cancelled only in the event of 
moving the medical practice out of state, death, disability, or retirement. 
There was no provision for cancellation based on the revocation of a medical 
license and the parties agree that Valentine had no right to cancel the policy. 
The parties disagree as to the effect of Valentine's lack of right to cancel the 
policy. PLICO urges that Valentine's inability to cancel the policy establishes 
that the cancellation was the unilateral act of the insurer.5 PLICO's argument ignores the 
obvious; there was an agreement between the insured and the insurer to cancel 
the agreement.
¶16 The evidentiary materials attached to the personal representative's 
motion for summary judgment clearly establish that a written offer was made by 
the insured to cancel the policy and obtain a refund of policy premiums. It is 
equally clear that PLICO accepted that offer with actual knowledge of the events 
that would certainly generate a wrongful death action against the insured. The 
agreement to cancel, however, was squarely within the statutory prohibition on 
annulment contained in section 3625 and thus it was void. The policy remained in 
effect in July, 2005, when the wrongful death action was filed. PLICO's conduct 
in cancelling the policy, when it knew that the actions of its insured during 
the policy period would be the basis of an impending claim, indicates, at best, 
ignorance of the section 3625 prohibition. At worst, it indicates collusion with 
its insured to deprive the decedent's estate of the benefits of coverage. The 
trial court was correct to grant summary judgment to the personal representative 
of the estate.

CERTIORARI PREVIOUSLY GRANTED;OPINION OF COURT OF CIVIL 
APPEALS VACATED;JUDGMENT OF TRIAL COURT AFFIRMED.

CONCUR: Colbert, C.J., Reif, V.C.J., Kauger, Watt, Edmondson, Gurich, JJ.
DISSENT: Winchester, Taylor, Combs, JJ.

FOOTNOTES

1 The 
letter stated:
This letter will serve to advise you that we have cancelled your professional 
liability policy effective March 10, 2005 per your request as well as the 
request of your agent, OHA Insurance Agency. Please note that you signed a 30 
month commitment with PLICO on June 22, 2004 and the policy referenced above 
indicated the cancellation provisions. It also indicated that the premiums for 
2005 would be fully earned under your cancellation situation.
When your policy was cancelled by PLICO and the cancellation notice was 
processed by A. I. Credit based on payments made to date, there was a return 
premium of $1,986.67. However, the 2005 premium was full[y] earned by PLICO and 
you would actually owe the remaining premium for 2005 which would total $37,147. 
Due to your situation, PLICO is agreeable to applying the $1,986.67 toward the 
fully earned premium amount of $37,147 and forgiving you for the remaining 
balance of $35,183.33. Also, PLICO is forgiving you of your 2006 premium which 
is a part of the same commitment.
Should you ever desire to have insurance again with PLICO and PLICO agrees to 
provide you professional liability coverage, the forgiven amount must be paid in 
addition to any premiums generated by the new policy. This issue arises out of 
the 30 month commitment that you signed as referenced above and a copy is 
attached for your review.

2 In its 
order granting the summary judgment that is the subject of this appeal, the 
trial court found:
PLICO fails to offer any evidence that Dr. Valentine was in fact under the 
influence at the time of the event which gives rise to the medical negligence 
claim which is the subject of the judgment. PLICO has further failed to show a 
causal connection between Dr. Valentine's ingestion of Vicodin and the death of 
Mr. Wurtz.

3 Notice 
of existence of a potential claim for the purpose of application of section 3625 
need not satisfy the reporting provisions of the policy. Section 3625 addresses 
agreements to cancel coverage, not the duties of the parties to the insurance 
contract concerning notice of a claim. An insurer's lack of notice of a 
potential claim may be a basis for denying coverage. It is not, however, a 
legitimate basis for cancellation of a policy when it has actual knowledge of a 
potential claim.

4 This 
Court acknowledges the decision of the Washington Supreme Court in Am. Cont'l 
Ins. Co, v. Steen, 91 P.3d 864 (Wash. 2004), which construed a Washington 
provision that is identical to Oklahoma's section 3625 under very similar facts. 
The decision appears to be the first and only published decision to apply the 
provision to a claims made policy. That court held that its provision was not 
limited to occurrence policies and therefore the claims made policy could not be 
cancelled after the occurrences which led to a patient's death.
Today's holding in this matter is less broad as to a claims made policy. 
Today's decision acknowledges that the risk in a claims made policy is the risk 
of a claim, not the occurrence. Nevertheless, when an insurer knows of the 
potential claim and agrees to cancel the policy in a way that defeats assertion 
of a claim until after the cancellation of the policy, the cancellation violates 
section 3625 and is therefore void. This Court believes its application of the 
statute is consistent with the fundamental difference in the nature of the risk 
insured by the claims made versus the occurrence policy.

5 In its 
cross motion for summary judgment, PLICO offered another justification for its 
assertion that it unilaterally cancelled the policy. It argued that the 
revocation of Valentine's medical license permitted cancellation of the policy 
because it constituted "[t]he occurrence of a change of risk that substantially 
increases any hazard insured against after insurance coverage has been issued or 
renewal." However, the policy excludes specifically "claims arising out of 
professional healthcare services rendered by any individual who was not 
authorized to provide such services due to the suspension; revocation; 
surrender; or restriction of or failure to obtain, the proper professional 
license in the state or locality in which the professional healthcare services 
were provided." Therefore, the March 10, 2005, revocation of Valentine's medical 
license eliminated the risk of hazzard as PLICO would not have been liable for 
the payment of any claim for any healthcare he provided after that 
date.

Citationizer© Summary of Documents Citing This DocumentCite
Name
Level
None Found.Citationizer: Table of AuthorityCite
Name
Level
Oklahoma Court of Civil Appeals Cases CiteNameLevel 1997 OK CIV APP 39, 943 P.2d 1099, 68 OBJ        2715, STATE ex rel. CRAWFORD v. INDEMNITY UNDERWRITERS INSURANCE CO.DiscussedOklahoma Supreme Court Cases CiteNameLevel 1992 OK 31, 829 P.2d 15, 63 OBJ        682, TRW/Reda Pump v. BrewingtonDiscussed










