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PROVIDENCE HOSP. v. ROLLINS BURDICK HUNTER OF ILLI

May 24, 1993

PROVIDENCE HOSPITAL, Plaintiff,
v.
ROLLINS BURDICK HUNTER OF ILLINOIS, INC., et al., Defendants. BERTRAND GOLDBERG ASSOCIATES, INC., Cross-claimant, v. CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, et al., Cross-defendants.



The opinion of the court was delivered by: JOHN A. NORDBERG

 STATEMENT OF FACTS

 Defendant and cross-claimant Bertrand Goldberg Associates, Inc. ("BGA") is an Illinois architectural firm. BGA has been sued in the Southern District of Alabama by Providence Hospital for negligence in performing architectural services for a replacement hospital project in Mobile. BGA filed a cross-claim against its co-defendant and its professional liability insurer, certain underwriters at Lloyd's, London, et al. ("Insurers"), seeking a declaratory judgment of the Insurers' duty to defend under BGA's policy, and full coverage under the policy and punitive damages for the exercise of bad faith in its denial of coverage. Fed. R. Civ. P. 13(g). The insurers' for their part have filed a counterclaim, seeking, through seven rather finitely drawn counts, a declaratory judgment of non-coverage. Fed R. Civ. P. 13(a). While the underlying action by Providence Hospital rages on in Alabama, the coverage dispute between BGA and the insurers has been transferred to this court under the change of venue statute. 28 U.S.C. ยง 1404(a). Ironically, a declaratory judgment action filed by the insurers in the Illinois' courts was dismissed under forum non conveniens, although that decision is under appeal. Before the court now is BGA's motion to dismiss the insurers' counterclaim.

 The counterclaim alleges that BGA's coverage is contained in four policies of professional liability insurance covering the period from August 17, 1987 through August 17, 1988. *fn1" BGA operated without professional liability insurance for some 27 months prior to this period. The policies provided "claims made " coverage, meaning that BGA would be covered for claims about which the insurers were notified within the policy period. Through BGA's insurance broker, Eugene Tkalitch & Associates, the insurers arranged to insure BGA for this period provided the policy did not provide coverage for acts which took place prior to its effective date. All placement slips or telexes confirming coverage indicated that the policies "retro date" was the inception of coverage.

 Subsequently, a broker for AIIC filed two "cover notes" and a copy of AIIC's policy with the Illinois Department of Insurance as part of a state tax filing. These cover notes did not contain a retro date for coverage, although they did refer to such a date in concept. An employee of Tkalitch & Associates mistakenly informed BGA that the cover notes were the original policies.

 Counts I-IV of the seek alternative relief of: 1) a declaratory judgment that the policies issued to BGA, and not the cover notes, are the controlling policy documents; 2) a declaratory judgment that, assuming the cover notes are the controlling documents, they be found to have a retro date of August 17, 1987, the commencement of coverage; or 3) assuming the cover notes are found to provide retroactive coverage prior to this date, their reformation. Counts V-VII seek a declaratory judgment of noncoverage under either the cover notes or the policies for Providence Hospital's claim pursuant to various exclusions and limitations in policy language.

 ANALYSIS

 The court's task in resolving a Rule 12(b)(6) motion is to ask whether relief is possible under any set of facts that could be established consistent with the allegations. Bartholet v. Reishauer AG, 953 F.2d 1073, 1078 (7th Cir. 1992). In doing so, the court takes the allegations in the counterclaim, and any reasonable inferences which can be drawn from them, in a light most favorable to the counterclaimant. See Mosley v. Klincar, 947 F.2d 1338, 1339 (7th Cir. 1991)

 As the recipient of a diversity case transferred under the change of venue statute, the court must apply the choice of law rules of the transferor court's forum state. Van Dusen v. Barrack, 376 U.S. 612, 639, 11 L. Ed. 2d 945, 84 S. Ct. 805 (1964). This principal applies whether transfer is requested by the plaintiff or defendant. Ferens v. John Deere Co., 494 U.S. 516, 110 S. Ct. 1274, 1280-81, 108 L. Ed. 2d 443 (1990). Thus the court must apply Alabama's choice of law principles. *fn2"

 In interpreting an insurance policy, Alabama courts apply the law of the state of the policy's issuance. Ailey v. Nationwide Mutual Insurance Co., 570 So. 2d 598, 599 (Ala. 1990); Donegal v. Mutual Insurance Co. v. McConnell, 562 So. 2d 201, 203 (Ala. 1990). Thus Illinois law would normally govern the interpretation of the policy between BGA and insurers.

 However, BGA has provided authority for the proposition that Alabama courts will prevent enforcement of a contract in violation of the state's public policy even if another state's law governs its interpretation. Cherry, Bekaert & Holland v. Brown, 582 So. 2d 502, 507 (Ala. 1991); Wixom Bros. Co. v. Truck Insurers Exchange, 435 So. 2d 1231, 1233 (Ala. 1983), overruled on other grounds, U.S. Fidelity & Guaranty Co. v. Warwick Development Co, Inc., 446 So. 2d 1021, 1024 (Ala. 1984). The Brown case is distinguishable because there the initial choice of law came from the parties' contractual stipulation, not application of Alabama's other choice of law rules. The Wixom decision, on the other hand, is controlling, and mandates consideration of BGA's public policy argument.

 I. Alabama Public Policy on Prior Acts Coverage For Claims Made Policies

 BGA argues that in First Alabama Bank v. First State Insurance Co., 1990 U.S. Dist. LEXIS 17355 (N.D. Ala.), aff'd in part and rev'd in part, 899 F.2d 1045 (11 Cir. 1990), the district court for the Northern District of Alabama concluded that under Alabama law, claims made policies which do not offer prior acts coverage violate the state's public policy. The court's conclusions in First Alabama Bank were based on review of a quartet of Alabama cases, Wixom, Warwick, Utica Mutual Insurance Co. v. Tuscaloosa Motor Co., 295 Ala. 309, 329 So. 2d 82 (Ala. 1976), overruled by Wixom, 435 So. 2d 1231,, and Langley v. Mutual Fire, Marine & Inland Insurance Co., 512 So. 2d 752 (Ala. 1987), overruled on other grounds, Hickox v. ...


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