A California appellate court, reversing a trial court's decision, has ruled that an insurance company did not have to cover a claim brought against a company that matched surrogates and egg donors with infertile families.

The Case

In 2011, Monica Ghersi and Carlos Arango used the services of Perfect Match, Inc., a company that “match[ed] surrogates and egg donors with infertile families,” to locate an egg donor and gestational surrogate. The surrogate gave birth to a baby girl who developed a retinoblastoma, a rare cancer of the eye.

Following an investigation, Ms. Ghersi and Mr. Arango retained counsel who sent Perfect Match three letters in June 2012, one on behalf of each parent and one on behalf of their infant daughter. Each letter referenced California Code of Civil Procedure Section 364 and announced an intent to file a complaint against Perfect Match alleging “negligent and unprofessional . . . conduct, while in the performance of professional duties, intentionally or recklessly causing physical and emotional harm. . . .” The letters on behalf of Ms. Ghersi and Mr. Arango stated that the complaint would be based on “medical negligence and lack of informed consent.” The daughter's letter said the complaint would be based on “medical negligence, lack of informed consent and any other applicable causes of action.”

Upon receiving the letters, Perfect Match consulted with its insurance broker. Interpreting the letters as something less than an actual “claim” and concerned about a possible increase in premiums, it decided not to notify the insurer it had at the time.

In October 2012, Perfect Match applied to Admiral Insurance Company for a new liability policy. Perfect Match did not disclose anything about the potential Ghersi/Arango claim to Admiral, and Admiral issued a policy to Perfect Match covering claims made during the period from December 5, 2012 through December 5, 2013. 

Ms. Ghersi and Mr. Arango sued Perfect Match, alleging professional negligence, and a first amended complaint was served on the company in March 2013.

Perfect Match notified Admiral, which refused to defend or indemnify.

Perfect Match sued Admiral, alleging breach of the insurance contract and bad faith. Admiral moved for summary judgment, arguing that there was no possibility of coverage under the policy because, prior to the inception of the policy, Perfect Match knew or reasonably could have foreseen that the professional services it had provided to Ms. Ghersi and Mr. Arango might result in a claim.

It also contended that Perfect Match had made material misrepresentations in its application for insurance.

In its response, Perfect Match focused on its assertion that the application for insurance it was directed to complete was “wholly inappropriate for the kind of business” it operated. It emphasized that it was not a licensed health care provider and did not employ doctors, nurses, or other health care professionals. 

The trial court denied Admiral's summary judgment motion, determining that triable issues of fact were created by Admiral's reliance on an application form that was designed for “medical laboratories, medical imaging centers and blood plasmapheresis centers.” As a result, it concluded there was a disputed question whether Perfect Match could truthfully have answered “no” to the question on the application it had completed for Admiral of whether it was aware of anything that might result in a malpractice claim, since it was not a health care provider that rendered professional medical services. The trial court also found an issue of fact “as to whether Admiral may rely on the 'prior notice' condition to deny coverage. . . .”

Admiral appealed.

The Admiral Policy

The application for the Admiral policy inquired, among other things, whether the applicant was: 

aware of any act, error, omission, fact, circumstance, or records request from any attorney which may result in a malpractice claim or suit? 

Perfect Match responded, “No.” 

The Admiral policy provided that Admiral would provide coverage for certain claims made during the policy period arising from a: 

professional incident, . . . provided that 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. 

It defined: 

professional incident 

as:

a negligent act, error or omission in the rendering of or failure to render professional services by the insured. 

The Appellate Court's Decision

The appellate court reversed and directed the trial court to grant Admiral's motion.

In its decision, the appellate court pointed out that the policy provided that there was no coverage for a claim arising from a “professional incident” if, prior to the inception of the policy, the insured “knew” or “could have reasonably foreseen, that the professional incident might result in a claim.” It then decided that Admiral, relying on the letters sent by the lawyer representing Ms. Ghersi and Mr. Arango, had “persuasively argued” that the plain meaning of this “prior notice” provision precluded any coverage.

The appellate court was not persuaded by Perfect Match's contention that the “prior notice” language of the policy had to be read in conjunction with the application, which provided “context” for understanding the policy – that is, that the policy excluded coverage only if, prior to the inception date, an insured health care professional knew or could have reasonably foreseen that its actions might result in a medical malpractice claim. 

According to the appellate court, the policy's “prior notice” provision was “an integral part of the insuring agreement” that specified that there was no coverage if the insured knew or reasonably could have foreseen that the professional incident might result in a claim. Coverage, the appellate court added, was tied to a “professional incident,” and the policy provided coverage for amounts the insured was required to pay as damages “caused by a professional incident.” The appellate court then reasoned that if “professional incident” were construed to mean “medical malpractice,” Perfect Match (which was not a licensed health care provider) would have “no coverage for anything.” That result would be inconsistent with the reasonable expectations of all the parties, the appellate court said.

The appellate court found that the undisputed facts demonstrated that Perfect Match had notice prior to the inception of the policy that Ms. Ghersi and Mr. Arango intended to file a lawsuit for breach of contract and negligence, and that even if there was some confusion as to whether they had properly labeled their claim as a “medical negligence” action or invoked the appropriate code section, the policy only required that the insured be able to foresee that a claim “might” be made. Their counsel's June 2012 letters provided “indisputable notice to Perfect Match that its professional services” rendered to Ms. Ghersi and Mr. Arango “might result in a claim.” Accordingly, by the clear terms of the policy, there was no coverage, the appellate court concluded. 

The case is Admiral Ins. Co. v. Superior Court, No. D072267 (Cal. Ct.App. Nov. 21, 2017). Attorneys involved include: Walsh McKean Furcolo, John H. Walsh, and Laura E. Stewart for Petitioner. Law Offices of Craig A. Miller, and Craig A. Miller for Real Party in Interest.