Kiley, Swygert and Cummings, Circuit Judges.
This diversity action sought a declaratory judgment that the plaintiff insurance company was not obligated under a professional liability policy issued to Northwest Hospital, a Chicago institution.
The facts are largely undisputed. On January 7, 1960, Anne Schwartz was injured on a sidewalk in Chicago and became a patient at Northwest Hospital. On her February 12, 1960, discharge from treatment, Mrs. Schwartz fell in the vestibule of the hospital and had to be readmitted. Her second discharge was on March 16, 1960. The February 12 accident is the one involved in this suit. On the following day the hospital's administrator learned of Mrs. Schwartz' injury but inadvertently failed to report it to plaintiff Insurer or its agents.
On February 9, 1962, Mrs. Schwartz and her husband sued Northwest Hospital and the City of Chicago in the Circuit Court of Cook County, Illinois.*fn1 Count I was against the City of Chicago and concerned Mrs. Schwartz' January 7, 1960, fall on a public sidewalk. Count II was against Northwest Hospital and concerned Mrs. Schwartz' February 12, 1960, fall in the hospital vestibule and claimed $170,000 in damages to herself and her husband. The summons and amended complaint were served on Northwest Hospital on February 16, 1962.
Plaintiff Insurer first received notice of the February 12, 1960, accident on February 28, 1962. The notice came to Insurer through a February 23, 1962, letter from its Chicago agents who had been notified by Northwest Hospital's insurance broker after the filing of the Schwartz suit.
On March 5, 1962, plaintiff Insurer forwarded the Schwartz summons and complaint to its Chicago law firm, stating that the $170,000 demand exceeded the policy limit*fn2 and that:
"It would also be advisable to reserve our rights under the policy before putting in a general appearance inasmuch as the [Schwartz] Summons and Complaint constitute first notice to this [plaintiff] Company."
As to notice, Paragraph 2 of the insurance policy provided:
"Notice of Injury, Claim or Suit. Upon the insured becoming aware of any alleged injury covered hereby, written notice shall be given by or on behalf of the insured to the company or any of its authorized agents as soon as practicable, together with the fullest information obtainable. If claim is made or suit is brought against the insured, the insured shall immediately forward to the company every demand, notice, summons or other process received by him or his representative."
On April 6, 1962, plaintiff wrote Northwest Hospital to acknowledge receipt of the notice of accident. This letter stated:
"We wish to advise you that this Company accepts this notice subject to a full reservation of all of its rights under Policy No. NGPL 1687 and that any investigation or other action in connection with this accident will be undertaken with the distinct understanding that in so doing this Company does not waive any of its rights under the said policy to disclaim coverage because of your failure to give this Company written notice of the accident as soon as practicable, and for such other reasons as may appear."
Northwest Hospital concedes that in 1961 the landing above the place where Mrs. Schwartz fell was extended 6 inches, and that the entire entrance was eliminated in 1964 or 1965.
Because of Northwest Hospital's two-year delay in notifying it of the accident, plaintiff Insurer asserted below that the hospital breached the above-quoted notice clause, thus relieving the Insurer of its obligations under the policy. The District Court sustained this ...