Gables Construction v. Red Coats

Gables Construction v. Red Coats (Ct. of Special Appeals)

Filed: February 27, 2019

Opinion by: Judge Alexander Wright.

Holding:

Contractual waivers of subrogation do not shield a contracting party from third-party contribution and direct liability under the Maryland’s Uniform Contribution Among Joint Tort-Feasors Act (“UCATA”)

Facts:

Upper Rock was the owner of a residential building project and hired Plaintiff Gables Construction (“GCI”) as the General Contractor, wholly owned by Gables Residential Services, Inc. (“GRSI”), to build the building. GSRI hired Defendant Red Coats, Inc./Admiral (“Red Coats”) to provide security and fire watch services monitoring during the construction period from approximately 5 pm to 6 am pursuant to a vendor services agreement (the “VSA”).  In the GSRI-Red Coats VSA, Red Coats waived subrogation; also, GCI is named as an additional insured in the VSA.

A fire damaged a building as it was almost completed.  The fire may have been caused by space heaters.  Upper Rock sued Defendant, and they settled.  Defendant then sued Plaintiff, claiming it was liable because it provided no training on the operation of the space heaters to Defendant.

Analysis:

The Court of Special Appeals agreed with the Montgomery County Circuit Court that Red Coats’ settlement with Upper Rock does not preclude Red Coats from seeking contribution from GCI under Maryland’s UCATA.

Citing Homeseekers’ Realty v. Silent Automatic Sales, 163 Md. 541, 545 (1933), a “contract is binding only upon the parties to the contract and their privies.”  

Before Maryland enacted its UCATA in 1941, “a statutory right of contribution among joint tortfeasors….did not exist.”  See Central GMC v. Helms, 303 Md. 266, 276(1985).  Thus, injured parties cherry-picked which tortfeasor to sue.

UCATA provides that a release of one joint tortfeasor does not relieve the liability of other joint tortfeasors.  If it did, it could create a chilling effect on business relationships.

The full opinion is available PDF.

Mt. Hawley Ins. Co. v. Adell Plastics, Inc. (Maryland U.S.D.C.)

Filed:  December 3, 2018

Opinion by:  James K. Bredar

Holding:  The United States District Court for the District of Maryland (1) granted a motion for partial reconsideration to modify an interlocutory judgment and (2) denied motion for summary judgment due to genuine disputes of fact surrounding a claim for lack of good faith.

Facts: 

Defendant (“Manufacturer”) ran a business with several buildings covered by a commercial insurance policy maintained by Plaintiff (“Insurer”).  In late 2016, fire destroyed several buildings at Manufacturer’s Baltimore facility. 

Insurer sued in early 2017 seeking a declaration that the contract did not cover Manufacturer’s losses resulting from fire.  A period of significant discovery precipitated cross-motions for summary judgment; the United States District Court of Maryland denied Manufacturer’s motion in full and Insurer’s in part.  Insurer subsequently filed motions to partially reconsider and again for summary judgment, instituting the present proceeding before the same adjudicator.

Analysis: 

First, the court approached the threshold matter of the partial motion to reconsider.  Below, the court had ruled on Manufacturer’s claim that Insurer had lacked good faith in carrying out its investigation when the court denied summary judgment.  Insurer now posited that the court had failed to rule on whether Insurer had demonstrated good faith in carrying out its investigation.  Concurring with Insurer, the court agreed to modify its interlocutory judgment below and grant the motion to reconsider.

Having successfully landed its first punch, Insurer next needed to execute a haymaker: establish the absence of any genuine dispute of material fact as to both elements of a lack of good faith claim.  In order to prevail in summary judgment, Insurer would have to demonstrate that based on the developed record, no dispute of any material fact existed and that Insurer was entitled to judgment as a matter of law on the good faith claim.  "Good faith" is defined by Maryland statute "as an informed judgment based on honesty and diligence supported by evidence the insurer knew or should have known at the time the insurer made a decision on a claim." Md. Cts. & Jud. Proc. Code § 3-1701(a)(4).  The court found that few cases explained this definition of good faith, but that Maryland case law tended to take a totality-of-the-circumstances approach looking at what the insurer did to resolve the coverage dispute, the substance of the coverage dispute, and the insurer's diligence.

Returning to the factual record established below, the court found an abundance of evidence establishing a genuine dispute over both elements.  Insurer had pointed to its claim professional’s declarations and correspondence in denying the insurance claim.  Manufacturer had supported its assertions of bad faith with deposition testimony.  The record supported a genuine dispute as to why Insurer had stopped covering Manufacturer’s losses after attempts at subrogation had failed.

Finding genuine dispute of material fact as to both elements of the lack of good faith claim, the court denied motion for summary judgment.

The full opinion is available in PDF.

Rigby v. Allstate Indem. Co. (Ct. of Special Appeals)

Filed: September 30, 2015

Opinion by: Krauser, C.J.

Holding:

Insurance policy covering “any dependent person in [insured’s] care” was not ambiguous and did not cover an adult, non-relative who lived in insured’s household but had a job, paid modest rent, and was not under the control of the insured.

Facts:

In June 2011, Plaintiffs were struck by an automobile that was negligently driven by Driver.  Driver was twenty-two years old at the time, and the automobile involved in the accident was owned by Insured.  Insured’s automobile insurance limit was $500,000, an amount Plaintiffs alleged was insufficient to cover their damages.  Insured also held an “umbrella” policy with Defendant that supplied up to $5,000,000 in coverage for negligence.

Driver had been living with Insured at the time of the accident for almost three years, though the two were not related. On three separate occasions, Driver moved out of Insured’s home, only to move back in.  For nearly two years, Driver did domestic chores in exchange for room and board.  Fourteen months before the accident, Driver obtained full-time employment earning $26,000 per year, and he agreed to pay $600 per month in rent to live with Insured.  After obtaining his job, Driver was also responsible for his own personal expenses such as food, clothing, and telephone, which had previously been paid by Insured.  Driver used Insured’s vehicle to get to and from work, but Driver was responsible for fuel costs. 

In sworn testimony, Driver referred to Insured as “father” and “family,” but Insured never claimed Driver on his tax return, never designated Driver as a beneficiary on his health insurance policy, and never gave Driver any money or credit cards.  Insured did not exercise any control over Driver’s comings and goings, and Driver was free to move out at any time, as he did on three occasions.

The umbrella policy held by Insured defined “insured person” to include “any dependent person in [Insured’s] care, if that person is a resident of [Insured’s] household.”  Defendant filed for declaratory judgment against Insured, Plaintiffs, and Driver seeking a determination of whether the Insured’s umbrella policy provided coverage for Driver’s negligence.  The trial court declared that Driver was not covered under Insured’s umbrella policy with Defendant, and Plaintiff appealed. 

Analysis:

The court observed that, pursuant to principles of contract interpretation, the insurance policy must be construed in its entirety, giving effect to each clause to the extent reasonably possible.  Moreover, in the event that an insurance policy contains ambiguous language, the language of the policy is to be construed liberally in favor of the insured and against the insurer as the drafter of the instrument.  A policy term is ambiguous if it is susceptible to more than one meaning to a reasonable person, but it is not ambiguous simply because it cannot be precisely defined as to make clear its application in all varying factual situations. 

Turning to the meanings of the terms, “dependent person” and “in the care of,” the court found that the terms overlap, but are not synonymous.  In keeping with the basic principles of contract interpretation, the court was to give effect to each clause and avoid treating either term as surplusage.  Finding that no Maryland cases defined these terms in context, the court turned to two out-of-jurisdiction cases, Girrens v. Farm Bureau Mut. Ins. Co., 715 P.2d 389 (Kan. 1986) and Henderson v. State Farm Fire & Cas. Co., 596 N.W.2d 190 (Mich. 1999). 

In Girrens, the Kansas Supreme Court found that although the term “dependent person” may have different meanings under different factual situations, it was not so ambiguous as to require construction in favor of the insured.  The Girrens court further defined “dependent person” as one who relies on another to provide “substantial contributions[,] without which he would be unable to afford the reasonable necessities of life.”  Adopting that definition, the court held that Driver was not a dependent person because he had a full-time job, paid a modest rent, and performed additional work for the Insured’s household.  

The court looked to Henderson for defining the phrase, “in care of.”  In that case, the Michigan Supreme Court found that the phrase is not ambiguous, but rather it is “a colloquial or idiomatic phrase that is peculiar to itself and readily understood as a phrase by speakers and readers of our language.”  The Henderson court then devised a non-exclusive list of factors to determine whether one person is “in care of” someone else: (1) a legal responsibility to care for the person; (2) some form of dependency; (3) supervisory or disciplinary responsibility; (4) provision of substantial essential financial support; (5) duration of living arrangement and whether it is temporary or permanent; (6) the age of the person receiving the care; (7) the physical and mental health status of the person receiving the care.  Although there was some form of dependency of Driver on Insured in that Driver was paying only a modest rent and using Insured’s care to get to and from work, the court found that the other seven factors supported the conclusion that Driver was not “in the care of” Insured.  Thus, there was ample evidence to support the trial court’s declaratory judgment for Defendant. 

The full opinion is available in PDF.  

Payne v. Erie Insurance Exchange (Md. Ct. of Appeals)

Filed:  March 30, 2015

Opinion by:  Robert N. McDonald

Holding:  Where the first permittee is not present in the vehicle, omnibus coverage does not extend to a second permittee if that driver deviates from an authorized purpose.

Facts:  The named insured owned the vehicle, which was covered by Defendant’s insurance policy.  Defendant’s policy contained an omnibus clause which provided coverage to (1) relatives by blood, marriage, or adoption, and (2) drivers given permission by the named insured. 

Named insured had granted the first permittee unrestricted use of the car, but had forbidden the second permittee from driving the car for any reason.  Despite the named insured’s wishes, first permittee directed the second permittee to use the car to pick up the first permittee's children from school.  Instead of taking a direct route to the school, the second permittee first drove to a nearby gas station and subsequently collided with a car driven by Plaintiffs.

Plaintiffs filed a tort action against the second permittee, the named insured, Plaintiff’s insurer and Defendant insurer.  Writ of certiorari was granted to reconsider whether omnibus coverage extended to second permittee’s use of the car without the presence of the first permittee and outside the scope of authorized use.

Analysis:  Because the first permittee was undisputedly not present in the car when the accident occurred, the court’s analysis turned on the circumstances under which the second permittee operated the vehicle.  The court highlighted jurisprudence showing the disjunctive nature of the test for second permittees as illustrated by Kornke, Federal Insurance Co., and Bond:

“The general rule that a permittee may not allow a third party to use the named insured’s car has generally been held not to preclude recovery under an omnibus clause where (1) the original permittee is riding in the car with the second permittee at the time of the accident, or (2) the second permittee, in using the vehicle, is serving some purpose of the original permittee.”

The court noted the existence of two alternative situations.  In one, where the first permittee was a passenger of the vehicle, authorization of the driver’s actions could be presumed.  Even if the first permittee was not actively directing the car’s operation, mere presence of the first permittee indicated operation for his benefit.  But in the second situation, where the first permittee was absent, the court required clear evidence that the driver operated the vehicle for the benefit of the first permittee in order for the second permittee to retain omnibus coverage.

The court determined that the first permittee became entitled to omnibus coverage as a blood relative regardless of any implied or express consent.  Accordingly, the first permittee possessed unrestricted authority to delegate permission to the second permittee.  But because the second permittee lacked the discretion to use the vehicle as he pleased, his departure from the assigned task excluded him from omnibus coverage.

The full opinion is available in PDF.

Boiardi v. Freestate (Maryland U.S.D.C.)

Filed: September 25, 2013
Opinion by: Judge Ellen Lipton Hollander

Held: Question of fact precluded summary judgment where a plaintiff homeowner sued her insurance broker for negligence in failing to obtain insurance for the homeowner's property, and the broker was unable to demonstrate that there was no material dispute that insurance could not have been obtained for the property.

Facts: Plaintiff and her late husband were owners of a home.  At its purchase in 2000, the home was insured through Chubb Insurance Company ("Chubb").  Following the death of her husband in 2007, the insurance premium for the home was not paid and on August 20, 2008, Chubb canceled the policy for nonpayment.  The mortgagee, Washington Mutual Bank ("WMB"), pursuant to the deed of trust, obtained a lender-placed insurance policy at a higher annual premium than the Chubb policy.  WMB billed this premium to the escrow account for the home loan.  Plaintiff subsequently learned of WMB's actions and contacted her insurance broker, the Defendant,  on January 9, 2009. She requested that the Defendant find less expensive insurance for the home.

The Defendant, with the assistance of an associate, contacted two other insurers to find alternate insurance for the property, including AIG, however, the broker failed to secure coverage.  While the application for coverage with AIG was pending, a fire broke out in the garage of the home resulting in substantial damage to the home and its contents. A claim was apparently made against the policy obtained by the bank. That insurance company issued a check payable to the Plaintiff's deceased husband on October 5, 2009 for a portion of the loss. However, the Plaintiff failed to cash the check or otherwise have ASIC re-issue the payment prior to the foreclosure sale of the home in 2010. The Plaintiff subsequently brought this action against the Defendant for negligence, breach of fiduciary duty, negligent misrepresentation, intentional misrepresentation, and fraud.  Following discovery, the Defendant moved for summary judgment on all counts.

Analysis: Under Maryland law, an insurance broker, retained to obtain insurance, may be liable for negligence to his employer if he (1) fails to obtain a policy and (2) fails to inform his employer of his failure to obtain the insurance.  See Intl. Bhd. of Teamsters v. Willis Corroon Corp. of Md., 369 Md. 724 (2002).  Alternately, a broker can be liable to his employer if he fails to exercise reasonable diligence and due care, resulting in a void or defective policy issuing to the employer.  See Lowitt v. Pearsall Chem. Corp. of Md., 242 Md. 245 (1966).  In order to prevail on a claim based in negligence in Maryland, a plaintiff has the burden to prove that the defendant had a duty of care, which he breached, proximately causing the plaintiff's damages.  See 100 Inv. Ltd. P'ship v. Columbia Town Ctr. Title Co., 430 Md. 197 (2013).  Unavailability of insurance is an affirmative defense of the defendant broker.  The defendant raising this defense has the burden to demonstrate insurance was not available in order to prevail.  United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488 (4th Cir. 1998).

The Defendant argued that neither insurer he approached would have issued insurance because of the prior policy cancelation, the home itself had a poor insurance rating, one insurer approached by the Defendant had denied coverage, and the Defendant's expert opined that AIG would have ultimately denied insurance even if the property had not been lost to a fire while the application was pending.

The Court found that there was a genuine material dispute as to the insurability of the property because the home had previously been insured, was subsequently insured under the policy obtained by the bank, and a jury could have decided that AIG would have issued a policy based on statements made by the AIG underwriters prior to the fire loss.  Summary judgment as to Plaintiff's action for negligence was therefore denied.

The full opinion is available in .pdf.

TIG Insurance Company v. Monongahela Power Company (Ct. of Special Appeals)

Filed: December 21, 2012

Opinion by Judge Shirley M. Watts

Held:  Pennsylvania law applies to the interpretation of insurance policies where the policies are delivered to and paid from a company’s office within that state.

Facts: Appellee, a Maryland corporation, is a holding company that purchased numerous insurance policies from various insurance companies (hereafter collectively referred to as “insurers”). Among these policies were four Excess Insurance policies issued by appellant, which provided indemnification of appellee for loss exceeding certain amounts. On each of these policies, appellee listed a New York address.

In 2001 and 2002, appellee demanded that the insurers indemnify it for costs related to the settlement of asbestos suits that triggered the policies and informed insurers to expect thousands of additional. Following these demands, one of the insurers filed a complaint against appellee and the other insurers requesting a declaratory judgment for the purpose of determining what obligations were owed under the policies. In 2010, appellee filed a motion for partial summary judgment requesting that the court find that Pennsylvania law apply to all policies made within a certain timeframe. It argued that the policies were “made” in Pennsylvania because the policies were accepted through payment of premiums by its insurance managers in that state.  Appellant joined in the arguments of another insurer, contending that New York law should apply due to appellee's headquarters there.  The trial court granted appellee’s motion for partial summary judgment.

Analysis: The court engaged in a thorough analysis of contract construction, explaining that insurance policies are contracts and under the doctrine of lex loci contractus, absent a contractual choice of law provision, a contract will be governed by the law of the state where the last act necessary to complete the contract occurs. For insurance policies, Maryland appellate courts have consistently held that this occurs in the state where “the policy is delivered and premiums are paid.” In this case, there was undisputed evidence that this occurred in Pennsylvania.  The record showed that: 1) appellee’s insurance department was located in Pennsylvania; 2) its insurance broker was also located in that state; 3) it was the general practice of appellee for insurance policies to be received by the insurance broker and forwarded to appellee’s Pennsylvania office; 4) it considered itself bound by a policy after the policy was received in its Pennsylvania office, at which point it would begin paying premiums; and 5) premium payments were made from its Pennsylvania office.

Appellant contended that New York law should apply because appellee was headquartered in New York, making it reasonable to conclude that the policies were delivered to that state. The court, however, noted that a company being headquartered in a state does not mean that all contracts into which the company enters are made in that state. Because appellant offered nothing to show that the policies were delivered to New York or that the premiums were paid from New York, the court affirmed the lower court’s grant of partial summary judgment and found that Pennsylvania law applies to the interpretation of the insurance policies.

The court went on to address a separate issue raised by appellant regarding whether, under Pennsylvania law, appellant is entitled to a set-off against the appellee’s loss which reflects the settling insurers’ proportionate shares of coverage for responsibility of the loss. 

The full opinion is available in  PDF.

Minnesota Lawyers Mut. Ins. Co. v. Baylor & Johnson, PLLC (Maryland U.S.D.C)

Filed: April 3, 2012
Opinion by Judge James K. Bredar

Held: In a declaratory action, the Court held that the Plaintiff was not liable to the Defendants under a professional liability insurance policy for defense and indemnification in a legal malpractice case.

Facts: The Plaintiff insurance company brought this declaratory action to determine its liability to the Defendant law firm in a legal malpractice case. In the underlying case, the Defendant failed to submit any affidavits, testimony or other sworn evidence in support of its Client’s opposition to summary judgment. The Client received a judgment against him, which was affirmed by the Maryland Court of Special Appeals on July 8, 2009. As soon as the Defendant read the Court of Special Appeals’ opinion, it contacted the Plaintiff to give notice that there may be a possible legal malpractice claim. The Client brought a legal malpractice claim against Defendant on August 11, 2009. The Plaintiff defended the Defendant until October 1, 2010, when it informed the Defendant that it would cease representation because the Defendant did not properly report the claim during the time when the firm “first became aware of the facts which could have reasonably supported the claim asserted against it by [Client].” The Defendant settled the case with the Client.

Analysis: The Court first construed the insurance policy language in light of the facts in this case. The insurance policy is a claims-made policy that covers all claims made during the policy period. The pertinent part of the policy states that “[a] CLAIM is deemed made when . . . (3) an act, error or omission by any INSURED occurs which has not resulted in a demand for DAMAGES but which an INSURED knows or reasonably should know, would support such a demand.” Under Maryland law, the Court uses an objective standard to determine if an insured has reasonable knowledge of the claim. Here, the Court found that that the malpractice claim happened when the Defendant submitted a faulty opposition to summary judgment motion and the Defendant should have known of the possible claim at this time because a reasonably lawyer barred in Maryland should know the standard for summary judgment motions. The Defendant had to inform the Plaintiff during the 2006 policy term, in order to be covered by the policy and it did not.

Second, the Court determined whether Md. Code Ann., Ins. § 19-110 (LexisNexis 2011) applies to this policy. This statute requires the insurance company to prove that it was actually prejudiced by the insured’s failure to give notice. Maryland Courts have interpreted § 19-110 to apply to insurance policies when the notice requirement is a covenant but not a condition precedent. See Sherwood Brands, Inc. v. Great Am. Ins. Co., 13 A.3d 1268 (Md. 2011) (interpreting the notice requirement as a covenant); T.H.E. Ins. Co. v. P.T.P. Inc., 628 A.2d 223 (Md. 1993) (interpreting the notice requirement as a condition precedent). If the notice requirement is a condition precedent, then a contract does not exist if the notice was not given and the insurance company has no obligation to the insured. The courts focus on the specific language of the policy to determine whether § 19-110 applies. Here, the Court found that the notice was a condition precedent and § 19-110 did not apply.

The full opinion is available in PDF.

Sherwood Brands, Inc. v. Great American Insurance Company (Ct. of Appeals)

Filed: February 24, 2011
Opinion by Judge Glenn T. Harrell, Jr.

Held: Pursuant to Maryland Code (1997, 2006 Repl. Vol.) Insurance Article Section 19-110, which provides that "an insurer may disclaim coverage on a liability insurance policy on the ground that the insured...has breached the policy...by not giving the insurer required notice only if the insurer establishes...that the lack of...notice has resulted in actual prejudice to the insurer," an insurer is required to demonstrate how it was prejudiced by late-bestowed notice so long as the claim against the insured arose before the expiration of the policy.

Facts: Sherwood (the "Insured") was issued a series of insurance policies by Great American Insurance Company (the "Insurer"). The most relevant policy (the "Policy") provided that Insurer would pay on behalf of Insured all "Claims" made against Insured during the Policy Period. Claims included civil proceedings made against Insured. The policy also provided that as a condition precedent to Insured's rights under the policy, Insured was required to provide written notice to Insurer of any Claim made against Insured during the policy period, including civil proceedings, as soon as practicable, but in no event later than ninety (90) days after the end of the Policy Period.

Two separate civil claims were filed and served on Insured within the Policy Period. However, in both cases, Insured failed to notify Insurer of the claims before ninety days after the expiration of the Policy Period. Insurer denied coverage of both claims stating that while both claims were covered by the policy, and that suits were filed against Insured within the Policy Period, Insurer did not receive notice of the suits until after the ninety-day notice requirement, and therefore was not obligated under the policy.

Insured filed a complaint and a motion for summary judgment in the Circuit Court alleging that Insurer breached the Policy by denying the claims. Insured also averred, regarding the claims, that Insurer was not prejudiced by any alleged delay in notification. Insurer denied any breach of the policies and asserted that coverage for the claims was barred due to Insured's failure to provide notice within 90 days after the end of the policy period. The Circuit Court agreed with Insurer's reasoning and granted its motion for summary judgment. Insured timely appealed to the Court of Special Appeals, and the Court of Appeals issued a writ of certiorari to consider "whether the lower court erred by ruling that Great American was not required by Section 19-110 of the Maryland Insurance Code to show actual prejudice in order to deny coverage based on the Sherwood's failure to comply with the notice condition of the [Policy] at issue."

Analysis: The Court engaged in a thorough historical review of relevant Maryland notice-prejudice legislation and case law to determine the status of the law today. The statute now governing notice-prejudice clauses in insurance policies is Maryland Code (1997, 2006 Repl. Vol.) Insurance Article Section 19-110. This statute provides:

An insurer may disclaim coverage on a liability insurance policy on the ground that the insured or a person claiming the benefits of the policy through the insured has breached the policy by failing to cooperate with the insurer or by not giving the insurer required notice only if the insurer establishes by a preponderance of the evidence that the lack of cooperation or notice has resulted in actual prejudice to the insurer.

Applying the text of Section 19-110, and the analyses and holdings from the cases reviewed by the Court, the court reached the following holdings:

First, the Court held that Section 19-110 does apply to claims-made policies in which the act triggering coverage occurs during the policy period, but the insured does not comply strictly with the policy's notice provisions. In this situation, Section 19-110 mandates that notice provisions be treated as covenants (rather than conditions precedent), such that failure to abide by them constitutes a breach of the policy sufficient for the statute to require the disclaiming insurer to prove prejudice.

Second, the Court held that Section 19-110 does not apply to claims-made policies in which the act triggering coverage does not occur until after the expiration of the liability policy, as this non-occurrence of the conditions precedent to coverage is not a "breach of the policy," as required by the statute.

The Court noted that its opinion may place Maryland jurisprudence at odds with the majority of other jurisdictions, but concluded that the text of, and the policies underlying Section 19-110, require the conclusions reached by the Court.

The full opinion is available in PDF.

Clipper Mill Federal, LLC v. The Cincinnati Insurance Co. (Maryland U.S.D.C.)

Filed: October 20, 2010
Opinion by Judge J. Frederick Motz

Held: When alleged property damage arising from an insured's failure to perform under a contract is limited to the property to be provided under the contract, there is no "occurrence" subject to coverage under a commercial general liability policy.

A "pollution exclusion" written to encompass more than environmental pollution will be enforced according to its plain terms.

Where a court cannot rule out the "potentiality of coverage" for even a single claim, the insurance carrier has a duty to defend all claims.

Facts: Tenants sued their landlord for defects in the HVAC system on a leased premises. The tenants alleged that the system failed to balance temperature, conducted sound between rooms, and exposed them to toxic and dangerous airborne pollutants. The tenants alleged six counts: 1) breach of warranty of quiet enjoyment, 2) negligence, 3) negligent misrepresentation, 4) strict liability, 5) nuisances, and 6) loss of consortium.

The landlord tendered the defense to its insurance carrier. The insurance carrier denied coverage, and the landlord sued seeking a declaration that the insurance carrier had a duty to defend the underlying litigation.

Analysis: Under Maryland law, the obligation of an insurance carrier to defend its insured is determined by the allegations in the tort actions. If the plaintiffs in the tort suits allege a claim covered by the policy, the insurer has a duty to defend. The duty to defend arises whenever there is a "potentiality that the claim could be covered by the policy." If there is a possibility, even a remote one, that the claims could be covered, there is a duty to defend. Any doubt as to whether there is a potentiality of coverage is ordinarily resolved in favor of the insured.

The analysis depends on the allegations of the underlying complaint. If these are ambiguous, the insured may rely on extrinsic evidence. The insurance carrier, however, may not use such evidence to contest coverage if the allegations sufficiently establish a potentiality of coverage. If any claim is potentially covered under the policy, the insurer is obligated to defend all claims. The insurance carrier argued it had no duty to defend on several grounds.

No "Occurrence":
First, there was no "occurrence" subject to coverage. Rather, the alleged damages were caused by the landlord's failure to fulfill its contractual obligations under the lease. Because the plaintiffs' alleged damages involved only the use of the property that the landlord was obligated to provide, the court concluded that the damage was not the result of an "occurrence," as defined by the policy and Maryland law, and thus was not covered.

Pollution Exclusion:
Second, the insurance carrier argued the pollution exclusion barred coverage for damage caused by the alleged "airborne pollutants." The landlord countered that the pollution exclusion applied only to environmental pollution. The exclusion provided:

"Pollutant” means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, petroleum, petroleum products and petroleum byproducts, and waste. Waste includes materials to be recycled, reconditioned or reclaimed. “Pollutants” include but are not limited to substances which are generally recognized in industry or government to be harmful or toxic to persons, property or the environment regardless of whether the injury or damage is caused directly or indirectly by the “pollutants” . . .

The court noted that the Maryland Court of Appeals concluded that pollution exclusion in a commercial general liability policy did "not apply beyond traditional environmental pollution situations." Clendenin Bros., Inc. v. United State Fire Insurance Co. The court further noted, however, that an insurance policy is a contract and is to be read as any other contract. Thus, although the Maryland courts previously determined the meaning of a pollution exclusion, the parties to subsequent insurance contracts remain free to change the scope of the exclusion by altering the language of the contract. The policy in the present case contained an important distinction from that involved in Clendenin Bros. Specifically, it tracked the traditional language but added "‘Pollutants’ include but are not limited to substances which are generally recognized in industry or government to be harmful or toxic to persons, property or the environment. . . .”

The addition of this sentence expanded the definition of pollutant beyond environmental pollutants to include irritants and contaminants that harm persons but not the environment. Accordingly, the pollution exclusion applied to bar coverage for the alleged claim.

Bodily Injury Claims & the Pollution Exclusion:
Finally, the insurance carrier admitted that the bodily injury claims alleged harm to something other than the insured's work product but argued that they too were precluded by the pollution exclusion. The court concluded, however, that the claims were covered by an exception to the pollution exclusion for bodily injuries caused by the inadequate ventilation of "vapors." The basis: though the complaint did not allege facts placing the airborne particles within the definition of "vapors," it did not foreclose the possibility either. Accordingly, the court could not rule out the possibility that the exception applies, and a potentiality of coverage existed.

On that basis, the court held that the insurance carrier had a duty to defend all claims.

The full opinion is available in pdf.

Pennsylvania National Mutual Casualty Insurance Co. v. City Homes, Inc. (Maryland U.S.D.C.)

Filed: June 25, 2010
Opinion by Judge Catherine C. Blake.

Held: An insurance company will owe a duty to indemnify an insured for any judgment against it for negligence and/or negligent misrepresentation if the insured does not foresee or expect an injury resulting from a negligent act. The act of negligence is an “accident” under liability insurance.

Facts: An insurance company filed a declaratory judgment action claiming that it did not have a duty to indemnify and defend a rental property company and its president in a lawsuit filed by two minors who alleged they were exposed to lead paint. The rental property company counterclaimed and both sides moved for summary judgment.

The house in question had been a subject property in a “Lead-Based Paint Abatement and Repair & Maintenance Study.” It had undergone a lead-abatement intervention. During the time period in which the two minors lived in the house, the rental property company held commercial general liability insurance. After the rental property company sought indemnification from the insurance company, the insurance company argued that it did not owe a duty to defend or indemnify the rental property company because the underlying litigation did not involve an “occurrence,” as defined in the insurance contract.

The insurance company also argued that, even if the underlying case involved an “occurrence,” the contract’s exclusion for bodily injury that was expected or intended by the insured applies. The insurance company argued that the participation in the lead paint study showed the rental property company must have foreseen and expected the alleged injuries.

The insurance contract defined an “occurrence” as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

Analysis: The court applied the standard set forth in Sheets v. Brethren Mutual Insurance Company, 342 Md. 634, 679 A.2d 540 (1996). In Sheets, the Maryland Court of Appeals held that an act of negligence constitutes an “accident” under a liability insurance policy and identified the relevant inquiry to be whether the insured actually foresaw or expected the injury resulting from the insured’s negligent act. By this standard, the court held that it could not be inferred from the rental property company’s participation in the study and its knowledge of the risks of lead poisoning that it foresaw the injuries sustained by the two minors.

Granting the rental property company’s motion and denying the insurance company’s motion for summary judgment, the court held that the insurance company will owe a duty to indemnify the rental property company for any judgment against it if the rental property company is ultimately found liable for negligence and/or negligent misrepresentation because the alleged were accidental and caused by an “occurrence.”

The full opinion is available in pdf.

McDevitt v. Reliance Standard Life Insurance Co. (Maryland U.S.D.C.)

Filed October 13, 2009
Opinion by Judge J. Frederick Motz

Held: Medical condition caused by inhalation of toxic fumes was an "illness" under the terms of a worker's disability insurance policy. It was not an "injury" which would be excluded from coverage.

Facts: The plaintiff suffered a harm when he inhaled toxic fumes in the course of his employment. This manifested in the form of pneumonia. He claimed disability insurance benefits, and his carrier denied the claim, asserting that the condition was excluded pursuant to the terms of the policy. The policy excluded coverage for "injury" occurring in the course of employment.

Analysis: Relying in part on the dictionary, the court held that the condition was an "illness", not an "injury". The court stated that "insurance policies must be construed not in the context of academic discourse but in the context of the language used by ordinary persons whose contractual relationships the policies are intended to govern."

The court also opined that “the ultimate purpose of insurance is to provide coverage to those who have contracted for it (or who are beneficiaries of a contract made on their behalf by an employer or other third party). It is not to erect administrative barriers, increase transaction costs, or delay the payment of legitimate claims. Whenever a non-governmental insurer becomes blind or indifferent to this simple proposition, public confidence in the integrity and efficacy of the system of private insurance inevitably is eroded.”

The full opinion is available in PDF.