ACCIDENTS OR OCCURRENCES
acts will not defeat coverage unless the results were also intended.
Allstate Ins. Co. v. Sparks, 493 A.2d 1110 (Md. App. 1985) (fire that destroyed
adjoining property was unintended even though insured intended to steal
gasoline from the truck that accidentally resulted in the fire).
Intent will be inferred in certain cases where the insured's conduct is inherently injurious or injury is substantially certain to occur. Harpy v. Nationwide Mutual Fire Ins. Co., 76 Md. App. 474, 545 A.2d 718, 722 (1988)(sexual abuse).
Actions for breach of contract are not covered under liability policies as they are not the result of an "accident." Lerner Corp. v. Assurance Co. of America, 120 Md. App. 525, 707 A.2d 906 (1998). Claims against a surveyor for construction delays resulting from its improper calculation of the height of a passenger train platform were held not to arise out of an "occurrence" in IA Construction Corp. v. T&T Surveying, Inc., 822 F.Supp. 1213 (D. Md. 1993).
that the insured sexually molested children are outside the scope of "occurrence"
coverage despite arguments by the insured that he had no subjective intent
or expectation that his conduct would cause injury. Petit v. Erie
Ins. Exchange, 709 A.2d 1287 (Md. 1998). The court refused to find
coverage on the basis of the insured's failure to warn of his pedophilia.
ALLOCATION AND SCOPE ISSUES
The Maryland Court of Appeals has ruled that a policyholder must prove the specific amount of damage attributable to each policy period or that it is technologically infeasible to do so in order to obtain recovery in a case where damages occurred over more than one policy period. Bausch & Lomb, 355 Md. 566 (1999).
The Court of Special Appeals ruled in Continental Cas. Co. v. Board of Education, 302 Md. 516, 489 A.2d 536, 544 (1985) that a D&O insurer was entitled to apportion the costs of defense between covered and non-covered claims. However, the court ruled that the insurer must pay all costs of defense that were either reasonably related to or supportive of a covered claim, even if it also related to the defense of non-covered counts.
Applying Texas law, Judge Harvey has adopted a "time on the risk" allocation approach for continuous injury claims arising out of the Lone Star Steel litigation. See Nationwide Mutual Life Ins. Co. v. Lafarge, 910 F.Supp. 1104 (D. Md. 1996) and LaFarge Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA, 935 F.Supp. 675 (D. Md. 1996). Both rulings were summarily affirmed by the Fourth Circuit on August 28, 1997. The District Court expressly rejected the insured's argument that it should be able to assign all of its defense costs to a single carrier under a "pick and choose" theory:
Were the court to
order that Travelers alone or some other insurer must pay all of the defense
costs incurred by LaFarge, claims of contribution asserted against other
primary insurers would certainly be pursued. An equitable apportionment
scheme should lessen or obviate the need for subsequent rounds of litigation.
In a complex case of this sort involving a great many insurers, numerous
different policy periods and two different insured entities operating in
different countries, second and third rounds of litigation can be expected
to result in substantial additional litigation costs for the parties.
has both an intermediate appellate court (The court of Special Appeals)
and a state supreme court (The Court of Appeals).
Unfair or deceptive consumer practices are proscribed by Md. Com. Law I Code Ann. § 13-101 (1990 & Supp. 1992).
The Maryland Court of Appeals has found that there is an implied obligation of good faith in all insurance contracts. Port East Transfer, Inc. v. Liberty Mut. Ins. Co, 330 Md. 376, 624 A.2d 520 (1993).
A third-party tort claimant has no right to assert bad faith claims against the tortfeasor’s liability insurer. Bean v. Allstate Instate Company, 403 A.2nd 793 (Md. 1979). On the other hand, claims for bad faith failure to settle can be assigned. Assignee's right to recovery is not limited by what insured would have been able to pay absent coverage. Medical Mut. Liability Ins. Society of Maryland v. Evans, 330 Md. 1, 622 A.2d 103 (1993).
in excess of policy limits is a prerequisite to a lawsuit against a liability
insurer for failure to settle within limits. Allstate Ins. Co. v.
Campbell, 639 A.2d 652 (Md. 1994).
Held to encompass
mental distress claims in Loewenthal v. Security Ins. Co., 50 Md. App.
112, 436 A.2d 493 (1981).
BREACH OF POLICY CONDITIONS
Maryland Code, Article 19-110 (formerly 48A § 482) requires that insurers must prove actual prejudice in order to avoid coverage on the basis of untimely notice or failure to cooperate:
An insurer may disclaim coverage on a liability insurance policy on the ground that the insured or 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 the required notice only if the insurer establishes by a preponderance of the evidence that the lack of cooperation or notice has resulted in prejudice to the insurer.
The requirement of prejudice was enacted by the General Assembly in 1964 in response to a 1963 case in which the Court of Appeals had adopted a strict condition precedent analysis. Watson v. USF&G, 189 A.2d 625 (Md. 1963). The Court of Appeals has more recently ruled that Section 482 does not apply to the "reporting" requirement in "claims made" policies. T.H.E. Ins. Co. v. P.T.P., Inc., 628 A.2d 223 (Md. 1993).
The Court of Appeals ruled in Washington v. Federal Kemper Ins. Co., 60 Md. App. 288, 482 A.2d 503 (1984) that there was prejudice as a matter of law where notice was received after a judgment had already been entered against the insured. However, the Court of Special Appeals ruled in Woodfin Equities Corp. v. Harford Mutual Ins. Co., 110 Md. App. 616, 678 A.2d 116 (1996), reversed on other grounds, 687 A.2d 652 (Md. 1997) that an insurer could not avoid coverage based on the insured's default in a case where the judgment had not yet become final when the insurer learned of it, so that the insurer could have cured the prejudice by intervening in the suit for the purpose of setting aside the default.
The statutory requirement of prejudice does not have retroactive effect, however. The Court of Special Appeals ruled in Commercial Union Insurance Company v. Porter Hayden Company, 698 A.2d 1167 (Md. App. 1997), review denied (Md. 1997) that the operative date was the point in time when the insured's notice obligations arose and that coverage was therefore not waived merely because, unknown to the insured, the plaintiffs had suffered injuries due to asbestos exposures that might trigger policies issued prior to 1964.
A breach of the cooperation clause will only defeat coverage if it results in prejudice to the insurer. Allstate Ins. Co. v. State Farm Mutual Ins. Co., No. 43 (Md. March 2, 2001). In Nationwide Ins. Co. v. United States Fidelity & Guaranty Co., 304 A.2d 283 (D.C. 1973) (applying Maryland law), the court rejected a per se rule that the insured’s failure to appear at trial, even if wilful and even if the insurer has done what it reasonably could do to produce the insured, suffices on its own to establish, or to create a presumption of, prejudice.
Circuit ruled in Driggs Corporation v. Pennsylvania Manufacturers
Association Insurance Company, 181 F.3d 87 (4th Cir. 1999)(Unpublished—full
text available at 1999 U.S. App. LEXIS 9182) that insurers had no
duty to pay for the cost of an expert that was retained by an insured without
their knowledge or consent. The court rejected the insured’s argument
that an expert would inevitably have been required in a complex case.
BROAD FORM COVERAGES
Court of Appeals has ruled that a GL policy was obligated to provide coverage for allegations that the insured had invaded the privacy of the family au pair by installing a videocamera in her shower. In Bailer v. Erie Insurance Exchange, 344 Md. 515, 687 A.2d 1375 (1997), the court found ambiguity in the conflict between the exclusion for intentional injury and the grant of "personal injury" coverage for intentional torts, like invasion of privacy. Earlier, the Fourth Circuit had declined to find ambiguity where the underlying torts could be distinguished between intentional and unintended acts. See Fuisz v. Selective Ins. Co. of America, 61 F.3d 238, 244-45 (4th Cir. 1995).
A federal district court has ruled in Wakefield-Dorsey Company v. The Travelers Casualty & Surety Company of Illinois, 66 F.Supp.3d 681 (D. Md. 1999) that allegations that an insurance agency sent letters to customers criticizing the performance of a competing agency triggered a duty to defend under a policy’s “personal injury” coverage for libel, slander or disparagement, even though the complaint did not specifically seek relief under any of these theories. Further, Judge Harvey declined to give effect to an exclusion for statements made with knowing falsity in view of the fact that the underlying complaint also alleged reckless conduct on the part of the insured.
State trial court rejected insured's claim that pollution liabilities were a "personal injury" in Bausch & Lomb v. Unigard Mut. Ins. Co., Baltimore County Cir. Ct., Bench Hearing (Md. December 19, 1990).
BURDEN OF PROOF
initial burden of showing that its claim is within the scope of coverage.
Towne Mgt. Corp. v. Hartford Acc. & Ind. Co., 627 F.Supp. 170 (D. Md.
1985) and Royal Ind. Co. v. Wingate, 353 F.Supp. 1002 (D. Md. 1973).
under Maryland Uniform Certification of Question of Law Act, §§12-601
CHOICE OF LAWS
Maryland follows rule of lex loci contractus, looking to the place where the last act occurred "which makes the agreement a binding contract." Commercial Union Ins. Co. v. Porter Hayden, 97 Md. App. 442, 630 A.2d 261 (1993), appeal dismissed (Md. 1995). Typically, this is the place where the policy was issued or countersigned. Maryland Cas. Co. v. Armco, Inc., 643 F.Supp. 430 (D. Md. 1986), aff'd, 822 F.2d 1348 (4th Cir. 1987); Eastern Stainless Corp. v. American Protection Ins. Co., 829 F.Supp. 797 (D. Md. 1993). However, issues concerning claims handling or the performance of the parties' policy obligations (e.g. bad faith or punitive damages) may be governed by the law of the state where the policy was to be performed. Alcolac, Inc. v. St. Paul Fire & Marine Ins. Co., 716 F.Supp. 1541, 1545 (D. Md. 1989).
The Maryland Court of Appeals has modified this rule in cases where the contracting occurred out of state but the subject matter of the contractual dispute is located in Maryland. In ARTRA Group, Inc. v. American Motorists Ins. Co., 659 A.2d 1295 (Md. 1995), the court refused to set aside lex loci contractus altogether but did agree that Maryland courts could apply Maryland law, even where the contracting had been performed out of state, if the choice of laws rules of the place of contracting would result in the application of Maryland law due to Maryland's substantial contacts with the dispute. For instance, if the use of Maryland’s choice of law rule were to result in New York law being applied and New York’s choice of law rule would apply substantive Maryland law because Maryland had the most significant contacts, renvoi permits the Maryland court to apply Maryland law to the dispute. See also, Rouse Co. v. Federal Ins. Co., 1998 WL 15832 (D. Md. January 14, 1998)(even though policy was countersigned in New Jersey, renvoi would result in application of Maryland law as being place where insured corporation was located and premiums were paid).
choice of law provision will be given effect, even if it results in the
application of a term that is unenforceable under the law of the forum
jurisdiction, where the subject matter of the contract involves a different
state. General Ins. Co. of America v. Interstate Service Co., Inc.,
1997 Md. App. LEXIS 164 (Md. App. November 3, 1997). The Court of
Special Appeals further held that renvoi does not apply in such circumstances.
COMPLETED OPERATION/PRODUCTS “HAZARDS”
Court of Special Appeals has ruled in Zurich Insurance Company v. Principal
Mutual Insurance Company, No. 1716 (Md. App. November 2, 2000) that Zurich
had no obligation to provide a defense to a lawsuit filed by an office
worker who was injured when an elevator that Zurich’s insured had been
testing fell eleven floors. In view of the fact that the Zurich policy
contained an exclusion for bodily injury that occurred after all of the
insured’s work had been completed or after that portion of the work has
been “put to its intended use,” the court ruled that the fact that the
insured might subsequently have to take further repairs was irrelevant
in view of the fact that the elevator had, in the interim, been returned
to regular use.
CONFLICTS OF INTEREST
Unless or until a conflict of interests develops, counsel retained to represent an insured may also represent the insurer. Fidelity & Cas. Co. v. McConnaughy, 179 A.2d 117 (Md. 1962). In Brohawn v. Transamerica Insurance Company, 347 A.2d 842, 854 (Md. 1975), the Maryland Court of Appeals ruled that an insurer could not avoid its contractual duty to defend when a conflict of interest exists due to the presence of covered and non-covered claims. Rather, in such circumstances, the insured must be given the right “either to accept an independent attorney selected by the insurer or to select an attorney himself to conduct his defense” at the insurer’s expense, whichever the insured wishes.
When a claim
exceeds the amount of applicable insurance, the potential for a conflict
of interest may exist, particularly when there is an opportunity to settle
the claim within policy limits. Allstate Insurance Company v. Campbell,
639 A.2d 652, 659 (Md. 1994).
Where a policyholder refused to accept the defense counsel appointed by the insurer and demanded that she herself be given the right to represent herself and have full authority over settlement issues, the Maryland Court of Special Appeals ruled that the insured was in breach of the cooperation clause in her auto policy. Roussos v. Allstate Insurance Company, 655 A.2d 40, 43 (Md. App. 1995). Notwithstanding the insured’s contention that her interests conflicted with Allstate’s in several important respects, the Court of Special Appeals refused to find that any conflict of interest actually existed, particularly as Allstate was not defending under a reservation of rights. The mere fact that Roussos disagreed with the way that Allstate wished to handle the case and did not want Allstate to settle or make any payment on her behalf was not itself a basis for finding a conflict of interest. The court noted that conflicts of interest may arise where both covered and non-covered claims are set forth in an action or where the claim exceeds the available insurance. The court refused to find, however, that a conflict existed merely because the insured and insurer have differing objectives in the litigation.
The 4th Circuit ruled in an environmental liability case that insurers had not created a conflict entitling the insured to independent counsel where they had provided a defense while reserving rights as to the applicable trigger of coverage and whether the absolute pollution exclusion applied. In Driggs Corporation v. Pennsylvania Manufacturers Association Insurance Company, 181 F.3d 87 (4th Cir. 1999)(Unpublished—full text available at 1999 U.S. App. LEXIS 9182) the court noted that, whatever trigger was found to apply, one insurer or the other would pay and that, as to the exclusion, the insured had conceded that it precluded any indemnity obligation.
The Maryland Court of Appeals has ruled that "damages" does not have a technical meaning and that its ordinary and popular meaning is sums of money that are paid to an injured party in compensation for an injury suffered by that party. However, the sums must be paid to the injured party. Thus, in Bausch & Lomb, Inc. v. Unigard Mutual Ins. Co., 330 Md. 758, 625 A.2d 1021 (1993) the Court of Appeals ruled that neither the United States nor the State of Maryland owned or had a sufficient proprietary interest in the polluted groundwater to support a claim for "damages." Bausch & Lomb rejected an earlier line of authority based on Maryland Cas. Co. v. Armco, Inc., 822 F.2d 1348 (4th Cir. 1987), which had held that Superfund clean-up costs are an equitable form of relief and not "damages." See also Maryland Cup Corp. v. Employers Mutual Liability Ins. Co., 81 Md. App. 518, 568 A.2d 1129 (1990)(claims in equity to remedy past employment discrimination did not seek "damages") and Haines v. St. Paul Fire & Marine Ins. Co., 428 F.Supp. 435 (D. Md. 1977)(SEC demand for disgorgement of illegally acquired profits not a claim for "damages").
The Court of Appeals of Maryland has also refused to find coverage for mitigation costs, ruling on a certified question that costs incurred by an insured to prevent a catastrophic loss are not covered under a CGL policy. Schlosser v. INA, 325 Md. 301, 600 A.2d 836 (1992)(costs incurred by general contractor to avoid an imminent catastrophic damage to property of others were not recoverable under terms of CGL policy because, despite the exigent circumstances and the obvious good faith efforts of the insured, "the liability policy at issue did not provide coverage for preventive costs...." The court noted in dicta, however, the possibility of a quasi contract claim on the theory that the prudent actions of the insured resulted in a cost saving to the insurer.) .
In Lerner Corp. v. Assurance Co. of America, 120 Md. App. 525, 707 A.2d 906 (1998), the Court of Special Appeals stated that "doing the right thing" that prevented an accident from happening that might have been insured under a GL policy is not a covered "occurrence" or "accident." See also Baltimore Gas & Electric Co. v. Certain Underwriters at Lloyd's, London, 113 Md. App. 540, 688 A.2d 496 (1998).
In Aetna Ins. Co. v. Aaron, 112 Md. App. 472, 685 A.2d 858, 872 (1996), the Court of Special Appeals ruled in the context of "owned property" exclusion that "[a]s a policy matter, it is more desirable to take remedial action as soon as possible, rather than waiting until off site environmental harm has occurred." The Court identified various factual questions which would determine recoverability: (1) did the third party property actually suffer damage that was caused by property defects or hazards on the insured’s property? (2) Were the repairs to the insured’s property necessary to prevent imminent, additional damage to the third party property? (3) To what extent, if any, did the cost of repairs relate to repairs solely for the benefit of the insured’s property?
Court of Appeals has ruled that auto accident victims have no right to
sue a tortfeasor’s auto insurer to recover sums that the insured agree
to pay as restitution pursuant to a criminal plea bargain. In Gray
v. Allstate Ins. Co., No. 81 (Md. April 9, 2001) the court ruled that restitution
paid pursuant to Article 27, § 807 is a criminal sanction, not a civil
remedy, and even when entered as a civil judgment, it “does not convert
the insurer’s contractual obligation of indemnity into property of the
insured in the hands of the insurer that is subject to garnishment.”
DECLARATORY JUDGMENT ACTIONS
Maryland courts have refused to permit declaratory judgment actions to proceed where the dispositive issue is one that will be addressed or resolved in the underlying tort proceeding. Allstate Ins. Co. v. Atwood, 319 Md. 247, 572 A.2d 154, 155 (1990) and Brohawn v. Transamerica Ins. Co., 276 Md. 396, 405 (1975). In Atwood, the Maryland Court of Appeals ruled that an insurer was not permitted to intervene in the underlying action prior to the entry of judgment against its insured for the purpose of seeking an allocation of damages between covered and non-covered claims, nor could it seek declaratory relief as to this issue while the underlying case was still pending.
Nor may the issue of coverage be introduced into a case until the insured's liability has been decided. Washington Transit Co. v. Queen, 597 A.2d 423, 425 (Md. 1991). However, the Court of Appeals ruled in Harford Mut. Ins. Co. v. Woodfin Equities Corp., 687 A.2d 652 (Md. 1997) that a tort claimant's right to bring an action for declaratory relief under Article 48A §481 to obtain a determination of the available coverage for its claims did not have to wait until a judgment had entered in the underlying suit and had been returned unsatisfied after execution.
While a declaratory decree does not need to be in any particular form, it must pass upon and adjudicate the issues raised in the proceeding, to the end that the rights of the parties are clearly delineated and the controversy terminated. Dart Drug Corporation v. Heckinger Company, Inc., 272 Md. 15, 29 (1974).
As set forth by the U.S. Court of Appeals for the Fourth Circuit in Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371 (4th Cir. 1994), four factors should be considered by a district court in deciding whether to relinquish jurisdiction over a diversity dispute: (1) the strength of the state's interest in having the issues raised and the federal declaratory action decided in the state court; (2) whether the issues raised in the federal action can more efficiently be resolved in the court in which the state action is pending; (3) whether permitting the federal action to go forward would result in unnecessary entanglement of state and federal courts given the overlapping issues of fact or law; and (4) whether the declaratory judgment action is being used merely as a device for "procedural fencing" or to achieve a federal hearing in a case otherwise not removable.
The Court of Special Appeals ruled in Nationwide Mutual Ins. Co. v. Regional Electric Contractors, Inc., 680 A.2d 547 (Md. App. 1996) that an insured could not file a DJ seeking coverage for sums that it paid to repair damage to a third party's property where its liability for the damage had not been adjudicated and where, indeed, the third party had never made a demand for payment at all. Absent any finding that the insurer had breached its duty to defend, the court ruled that the insured had no right to prosecute a declaratory judgment action for damages that it had not yet been adjudged to owe.
In Bankers and Ship Insurance v. Electro Enterprises, 415 A.2d 278 (Md. 1980), the Maryland Court of Appeals ruled that an insurer was obligated to reimburse the insured for reasonable attorney’s fees incurred in responding to a declaratory judgment action brought by the insurer. More recently, the Court of Appeals declared that an insured has an absolute right to obtain attorneys' fees where it prevails in coverage litigation with its carrier, even if the case was a "very close" one and the insurer had a reasonable basis for disputing coverage. Nolt v. USF&G, 617 A.2d 578 (Md. 1993). This right only extends to disputes involving liability policies, however. Bausch & Lomb v. Utica Mut. Ins. Co., No. 40 (Md. August 26, 1999)(no right to recover fees where coverage dispute concerned a “first party” endorsement adding owned property coverage under a liability policy).
Court of Appeals has affirmed a lower court’s ruling that the insured’s
suit was not barred merely because three years had elapsed since the insurer’s
initial denial of coverage. the court ruled in Vigilant Ins.
Co. v. Luppino, No. 88 (Md. January 20, 1999),
that the duty to defend continues throughout the pendency of the underlying
suit against a policyholder and that the statute of limitations for breach
of that duty to defend therefore runs throughout the period.
DIRECT ACTION CLAIMS
of Appeals ruled in Harford Mut. Ins. Co. v. Woodfin Equities Corp., 687
A.2d 652 (Md. 1997) that a tort claimant's right to bring an action for
declaratory relief under Article 48A §481 to obtain a determination
of the available coverage for its claims did not have to wait until a judgment
had entered in the underlying suit and had been returned unsatisfied after
--Other Policyholder Claims
DUTY TO DEFEND
“In determining whether a liability insurer has a duty to provide its insured with a defense in a tort suit, two questions ordinarily must be answered: (1) What is the coverage and what are the defenses under the terms and requirements of the insurance policy? (2) Do the allegations in the tort action potentially bring the coverage claim within the policy’s coverage?” St. Paul Fire & Marine Insurance Company v. Prysecki, 292 Md. 187, 193 (1981). In considering whether the insurer has a duty to defend, a court may consider not only the allegations set forth in the underlying suit but also extrinsic evidence to support the insured’s claim for coverage. Aetna Cas. & Sur. Co. v. Cochran, 337 Md. 98, 110, 651 A.2d 859 (1995)
The Court of Appeals held in Cochran that an insurer may look beyond the allegations in the complaint in considering whether a potential for coverage exists. While reaffirming its earlier holdings that insurers may not rely on such evidence to refute allegations that might otherwise require a defense, the court ruled that a more lenient standard should apply to policyholders, so long as the facts asserted by the insured were not "frivolous" and there was a "reasonable potential" that the extrinsic facts would be generated at trial, even if not alleged in the suit.
The Court of Special Appeals, amplifying upon Cochran, has ruled that the extrinsic evidence must pertain to a claim that is actually asserted in the underlying complaint. Evidence pertaining to claims that might be (but have not yet been) asserted may not be considered. Reames v. State Farm Fire & Cas. Ins., 683 A.2d 179 (Md. App. 1996). See also Litz v. State Farm & Casualty Co., 346 Md. 217, 695 A.2d 566 (1997)(insured's answer denying allegation that he had baby-sat the plaintiff was sufficient to overcome application of business pursuits exclusion).
On the other hand, it does not appear that an insurer may rely on extrinsic evidence to contradict or refute allegations that otherwise would trigger its policy obligations. Thus, an insurer was held to have a continuing obligation to provide a defense to a law suit that alleged lead poisoning during its policy period despite extrinsic evidence that the plaintiffs did not reside in the insured premises during the subject policy. In Mutual Benefit Insurance Company v. Jordan, No. 00-1977 (4th Cir. April 2, 2001), the Fourth Circuit declared that the insurer was not permitted to rely on extrinsic evidence to defeat allegations that clearly triggered its policy period.
The Court of Appeals also ruled in Chantel Associates v. Mt. Vernon Fire Ins. Co., 338 Md. 131, 656 A.2d 779 (1995) that a duty to defend arose in a lead poisoning case, even prior to the date that the complaint was amended to allege specific dates of injury, so long as there had always been a potentiality for coverage.
Brands, Inc. v. Hartford Accident & Indemnity Co., 347 Md. 32,, the
Court of Appeals overturned a line of authority from the Court of Special
Appeals which had found that the duty to defend does not arise until such
time as a claim is tendered to the insurer. To the contrary, the
Court of Appeals held that the duty to defend arises at the same moment
that a claim is made against the insured. As with the issue of whether
late notice defeats coverage based upon the insured's breach of a policy
condition, the Court of Appeals held that the insurer may still be obligated
to reimburse its policyholder for pre-notice costs unless it can show prejudice
as a result of the delay in tender. The court ruled that the duty
arises at the date of the original suit but that no claim for breach may
exist until such time as the insurer is made aware of her claim.
An insurer who wrongfully refuses to defend a suit against its insured is liable to the insured for the natural consequences of the breach, including sums expended in payment or settlement of the claim, defense costs (including attorneys’ fees and expenses), court costs, and any other costs incurred because of the refusal of the insurer to defend. Mesmer v. The Maryland Auto. Ins. Fund, 725 A.2d 1053, 1064 (Md. 1999).
If an insurer
refuses to defend, the insured is also free to take reasonable steps to
protect its own interests, including a settlement of the claim for which
the insurer has denied coverage. International Assoc. of Chiefs of
Police, Inc. v. St. Paul Fire & Marine Ins. Co., 686 F.Supp. 115, 118
(D. Md. 1988).
ESTOPPEL AND WAIVER
the “intentional relinquishment of a known right existing for the benefit
of the insurer.” St. Paul Fire & Marine Ins. Co.
v. Molloy, 433 A.2d 1135, 1138 (Md. 1981). By contrast,
a party claiming estoppel must show that he was mislead to his detriment
by relying on the representation of the party sought to be estopped.
Rubinstein v. Jefferson National Life Ins. Co., 302 A.2d 49,
52 (Md. 1973).
In a case
of first impression, however, the court of Special Appeals ruled in Nationwide
Mutual Ins. Co. v. Regional Electric Contractors, Inc., 1996 WL 284989
(Md. App. May 31, 1996), that the same rule did not apply to the doctrine
of estoppel as long as the insured could show prejudice. Similarly,
in Certain London Market Insurers v. United Industrial Services, Inc.,
No. 95-2481 (4th Cir. April 17, 1996), the Fourth Circuit affirmed a lower
court ruling that a liability insurer was estopped to dispute coverage
for a pollution claim that it had agreed to defend without reserving its
rights where, during the period of representation, the time for claiming
a jury had passed.
NUMBER OF OCCURRENCES
Court of Appeals ruled in CSX Transportation, Inc. v. Continental Ins. Co., 680 A.2d 1082 (Md. 1996) that noise induced hearing loss claims against railroad did not share a common cause and therefore could not be aggregated as a single "occurrence" as the insured had argued.
Mutual Ins. Co. v. Lafarge Corp., No. 96-1389 (4th Cir. August 28, 1997),
the Fourth Circuit affirmed the lower court's ruling that only a single
$250,000 "per occurrence" deductible should apply to the underlying Lone
Star Steel products claims, rejecting the insurer's argument that each
shipment of cement should be treated as a separate "occurrence."
Pollution that occurs gradually or in the course of on-going operations at a waste disposal site is not "sudden." ARTRA Group, Inc. v. American Motorists Ins. Co., 659 A.2d 1295 (Md. 1995). The Court of Appeals reversed the holding of the intermediate state appellate court, which had agreed that "sudden" has a temporal meaning, but had found that AMICO nonetheless had a duty to defend in view of the possibility that specific releases might have occurred that were "sudden and accidental."
Insurance Commissioner did not permit the use of the exclusion in policies
issued prior to 1983. In the only reported case before ARTRA, the
Court of Appeals held in Bentz that the exclusion was unambiguous, had
a temporal meaning and barred coverage for intended discharges. However,
the court held that it did not bar coverage for a homeowner's claim against
a pesticide applicator, since the sprayings were the very thing that the
insurance was meant to protect against.
The Court of Special Appeals took a narrower view of the exclusion a year before Sullins, declaring in Bernhardt v. Hartford Fire Ins. Co., 102 Md. App. 45, 648 A.2d 1047 (1994), appeal dismissed (Md. 1995). In upholding the exclusion in an indoor carbon monoxide poisoning case, the court ruled that the carbon monoxide gas was clearly a "gaseous irritant or contaminant." While concurring that the underlying claims were not in the nature of "pollution," the court refused to find ambiguity on this basis alone, holding that a person of ordinary intelligence reading the actual text of the exclusion would have understood it to apply to such claims. The court therefore refuse to limit the scope of the exclusion to "industrial" contamination. Finally, the court rejected the insured's contention that the insurer should be estopped to deny coverage based upon alleged contrary representations to insurance regulators with respect to the scope of this exclusion. While agreeing that the insurance industry, in its zeal to avoid pollution claims, "has cut with a meat axe rather than with a scalpel", the court ruled that it was not the function of the court to rewrite contracts. This ruling was accepted for review by the Court of Appeals but was settled by the parties after Sullins was decided.
have suggested that Sullins impliedly reversed Bernhardt, the U.S. Court
of Appeals for the Fourth Circuit ruled in Assicurazioni Generali S.p.A.
v. Neil, 160 F.3d 997 (4th Cir. 1998) that Sullins did not necessarily
limit all such exclusions to industrial contamination. The court
refused to find that Sullins had overruled Bernhardt, noting that
the Court of Appeals cited Bernhardt no less than four times without in
any way suggesting an intent to overrule it.
for claims "arising out of the ingestion or inhalation of lead or lead
compounds" was upheld in Nationwide Mutual Fire Ins. Co. v. Mekiliesky,
976 F.Supp. 351 (D. Md. 1997), aff’d, No. 97-2338 (4th Cir.
August 13, 1998) despite the insured's argument that it hadn't been made
aware of this reduction in coverage, based on evidence that Nationwide
had, in fact, mailed its policyholders a copy of the endorsement with the
renewal declaration and a stuffer highlighting the exclusion.
Costs incurred by hotel chain to break through room walls to remove and replace defective HVAC units installed by insured held not to allege damage to third party property in Woodfin Equities Corp. v. Harford Mutual Ins. Co., 110 Md. App. 616, 678 A.2d 116 (1996), reversed on other grounds, 687 A.2d 652 (Md. 1997) although the court permitted recovery for loss of use of the plaintiff's hotel rooms.
A federal district
court in Maryland has ruled that the obstruction of the plaintiff’s view
caused by the insured’s building project did not give rise to a claim for
“property damage.” In Mitchell, Best and Visnic, Inc. v. Travelers
Property Casualty Corp., 2000 WL 1745202 (D. Md. November 22, 2000), Judge
Williams ruled that “loss of enjoyment, caused by the obstruction of a
view, is not property damage.” The court refused to find that the
cost of tearing down buildings which had been constructed in breach of
restricted covenants supported a claim for “property damage.”
Court of Appeals refused to find that public policy was a basis for refusing
to afford coverage for an award of punitive damages awarded in a malicious
prosecution action, even though the damages required an underlying finding
of malice. First National Bank of St. Mary's v. Fidelity Deposit
Co., 389 A.2d 359 (Md. 1978).
for "all sums." Alcolac, supra and First Nat. Bank v. Fidelity and
Deposit Co., 389 A.2d 359 (Md. 1978).
STANDARDS FOR POLICY INTERPRETATION
Under Maryland law, insurance contracts are interpreted under the principles applicable to contracts generally. Bond v. Pennsylvania National Mutual Casualty Ins. Co., 424 A.2d 765, 768 (Md. 1981).
In Sullins v. Allstate Ins. Co., 340 Md. 503, 667 A.2d 617 (1995), the Maryland Appeals Court summarized the rules for interpretation of insurance policies:
In Maryland, insurance policies, like other contracts, are construed as a whole to determine the parties' intentions. Words are given their 'customary, ordinary, and accepted meaning,' unless there is an indication that the parties intended to use the words in a technical sense. A word's ordinary signification is tested by what meaning a reasonably prudent layperson would attach to the term. If the language in an insurance policy suggests more than one meaning to a reasonably prudent layperson, it is ambiguous. Aterm which is clear in one context may be ambiguous in another.
Where terms are ambiguous, extrinsic and parol evidence may be considered to ascertain the intentions of the parties. Maryland does not follow the rule, adopted in many jurisdictions, that an insurance policy is to be construed most strongly against the insurer. Nevertheless, if no extrinsic or parol evidence is introduced, or if the ambiguity remains after consideration of the extrinsic or parol evidence that is introduced, it will be construed against the insurer as the drafter of the instrument.
Id. at 508-09, 667 A.2d at 619.
As the court has otherwise ruled, words in a policy are to be interpreted in accordance with their ordinary and accepted meanings. Pacific Indemnity Co. v. Interstate Fire & Casualty Co., 488 A.2d 486, 488 (Md. 1985). In interpreting a policy, a court will examine the contract as a whole, focusing on its character, purpose and the circumstances surrounding its execution. Id.
Likewise, the rule of contra proferentum has not been adopted in Maryland. Collier v. Maryland Individual Protective Assoc., 327 Md. 1, 5, 607 A.2d 537 (1992), cited in Catalina Enterprises Inc. v. Hartford Fire Ins. Co., 1995 WL 066641 (4th Cir. October 17, 1995). Accordingly, an ambiguous term in a policy will not automatically be construed in favor of coverage and will only be construed against the insurer if the ambiguity remains after considering the intentions of the party from the policy as a whole and, if necessary, after admitting and considering any relevant parole evidence. Cheney v. Bell National Life Ins. Co., 556 A.2d 1135, 1138 (Md. 1989).
Where a policy
provision is otherwise unambiguous, courts may not look to extrinsic evidence
of meaning as a means of introducing ambiguity. CSX Transportation, Inc.
v. Continental Ins. Co., 680 A.2d 1082 (Md. 1996).
THEORIES OF ALTERNATIVE LIABILITY
theories rejected in Tidler v. Eli Lilly Co., 851 F.2d 418 (D.C. Cir. 1988)(DES),
Lee v. Baxter Health Care Corp., 898 F.2d 146 (4th Cir. 1990)(breast implants)
and In re Baltimore City Asbestos Cases, Baltimore County Circuit Court
(Md., November 24, 1987)(asbestos suits).
TRIGGER OF COVERAGE
The 4th Circuit ruled in Mraz v. American Universal Ins. Co., 804 F.2d 1325 (4th Cir. 1986) that Maryland would follow a "first discovery" trigger for pollution claims involving buried containers. However, the Maryland Court of Appeals has since indicated that earlier policies may be triggered depending on the facts of a given case. In Maryland Cas. Co. v. Lloyd E. Mitchell, 324 Md. 44, 595 A.2d 469 (1991), the court adopted an "exposure" trigger for asbestos personal injury cases. In 1992, the court extended this rule to pollution cases, ruling in Harford County v. Harford Mut. Ins. Co., 324 Md. 418, 610 A.2d 286 (1992) that a trial court had erred in holding that only the policy in effect on the date of "manifestation" could be triggered and remanded the case for further findings as to when or how injury occurred. More recently, the court has ruled in Chantel Associates v. Mt. Vernon Fire Ins. Co., 338 Md. 131, 656 A.2d 779 (1995) that exposure to lead paint during the insurer's policy is a "trigger" of coverage.
An insurer was held to have a continuing obligation to provide a defense to a law suit that alleged lead poisoning during its policy period despite extrinsic evidence that the plaintiffs did not reside in the insured premises during the subject policy. In Mutual Benefit Insurance Company v. Jordan, No. 00-1977 (4th Cir. April 2, 2001), the Fourth Circuit declared that the insurer was not permitted to rely on extrinsic evidence to defeat allegations that clearly triggered its policy period.