Northern Assur. Co. of America v. EDP Floors, Inc.

Decision Date25 November 1987
Docket NumberNos. 145,s. 145
Citation311 Md. 217,533 A.2d 682
PartiesNORTHERN ASSURANCE COMPANY OF AMERICA et al. v. EDP FLOORS, INC. Sept. Term 1986 and 156 Sept. Term 1986.
CourtMaryland Court of Appeals

Daniel Karp (Allen, Thieblot & Alexander, on brief), Baltimore, for appellant.

Russell J. Pope and Kristine A. Crosswhite (James R. Eyler, Amy S. Owen and Miles & Stockbridge, on brief), Baltimore, for appellee.

Argued before MURPHY, C.J., ELDRIDGE, COLE, RODOWSKY, COUCH, * McAULIFFE and ADKINS, JJ.

MURPHY, Chief Judge.

This case involves two appeals. The first, No. 145, concerns the final judgment rule; the second, No. 156, raises issues relating to an insurer's duty to defend its insured and damages from an alleged breach of that duty.

I

On April 12, 1984, EDP Floors, Inc. (EDP) planned to deliver a load of floor tile to a jobsite. One of EDP's employees, a helper on the delivery truck, arrived for work that day with bloodshot eyes; his speech was slurred and he smelled of alcohol. Because no one else was available, EDP allowed the helper to accompany the driver. Between EDP's warehouse and the jobsite, the driver and helper stopped for lunch, and the helper consumed additional alcoholic beverages. When they arrived at the jobsite, the driver determined that the helper was too drunk to be of any assistance; thus, he obtained help from others at the jobsite, including Jeffrey Davis, the plaintiff in the underlying tort suit. At some point during the unloading of the floor tiles, the helper returned to the truck and operated the hydraulic lift at the rear of the truck. The floor tiles fell off the lift and injured Davis who subsequently sued EDP in the Circuit Court for Prince George's County. Davis alleged EDP's vicarious liability for the helper's negligence in Count I, direct liability for negligent hiring and retention and negligent supervision in Counts II and III, and liability for punitive damages in Count IV. 1

EDP notified both its automobile and general liability insurance carriers of the suit and requested a defense. State Farm, the automobile carrier, entered the case, but apparently has consistently disputed the extent of its coverage. 2 2] Northern Assurance Company (NAC), the general business liability carrier, denied coverage. Davis sued NAC and EDP, seeking a declaratory judgment that NAC owed EDP a defense in the underlying tort suit as well as a duty to indemnify EDP for any judgment against it. NAC moved for dismissal or for summary judgment on the grounds that Davis had no standing to maintain the action, that no justiciable controversy existed, and that NAC's policy did not cover the alleged torts. EDP then filed a cross-claim against NAC, seeking a declaration that NAC had a duty to defend EDP, to indemnify it, and to pay its attorneys' fees in the declaratory judgment action. NAC's answer to the cross-claim incorporated its earlier motion for dismissal or summary judgment. EDP also filed a motion for summary judgment.

On August 26, 1986, the trial court (Briscoe, J.) held a hearing on the various motions. It granted the motion to dismiss as to Davis, finding that he had no standing to seek a declaratory judgment that NAC had a duty to defend EDP. Davis did not appeal that ruling. The court also determined that NAC did have a duty to defend EDP with respect to Counts II-IV and pay any resulting judgment against EDP on those counts. The court, after hearing from counsel on the issue of attorneys' fees, reserved its ruling on that question. 3 The Court of Special Appeals, citing Maryland Rule 2-602, dismissed NAC's appeal from the trial court's judgment. We granted certiorari to determine whether the intermediate appellate court erred in dismissing the appeal (No. 145).

In the meantime, EDP filed a memorandum in support of its request for attorneys' fees. NAC filed a request for discovery as well as a memorandum opposing the fee petition. When EDP objected to the discovery requests, NAC also filed a motion to compel discovery. At a hearing on December 11, 1986, the trial court heard argument on the issue of fees and NAC's discovery requests; it denied NAC's discovery requests and granted attorneys' fees to EDP in the amount of $7,488.20. NAC then appealed from that judgment. We granted certiorari (No. 156) prior to argument in the Court of Special Appeals and consolidated the argument with No. 145.

II

Here counsel fees were sought as damages for breach of the insurance contract. That breach of contract claim was not finally adjudiciated until the counsel fee was determined. Md. Rule 887 provides that upon an appeal from a final judgment, every interlocutory order entered in the action is open to review. See Cant v. Bartlett, 292 Md. 611, 618-19, 440 A.2d 388 (1982). The merits of the trial court's August 26 orders, therefore, are properly part of the appeal in No. 156. Hence, the appeal in No. 145 is moot and will be dismissed.

III

The appeal in No. 156 presents three principal issues: (1) whether a justiciable controversy exists between NAC and EDP, (2) whether NAC has a duty to defend EDP against Counts II-IV and to pay resulting judgment on these counts, and (3) whether EDP was entitled to attorneys' fees in the declaratory judgment action.

(A) Justiciability

NAC contends that the trial court has no jurisdiction to enter a declaratory judgment in this case because no justiciable controversy existed between NAC and EDP. Alternatively, NAC claims that the trial court abused its discretion in entering a declaratory judgment.

A circuit court has jurisdiction to construe a written contract and declare the rights of the parties under it. Maryland Code (1984 Repl. Vol.) §§ 3-402, -406 of the Courts and Judicial Proceedings Article. The court may grant this discretionary relief in order to terminate an actual controversy if "[a] party asserts a legal ... right ... [that] is challenged or denied by an adversary party, who also has or asserts a concrete interest in it." § 3-409(a)(3) of the Courts Article. Thus, when interested parties advance adverse claims upon a state of facts that has accrued, a justiciable controversy exists, and a trial court may enter a declaratory judgment. Hatt v. Anderson, 297 Md. 42, 45-46, 464 A.2d 1076 (1983); Reyes v. Prince George's County, 281 Md. 279, 288, 380 A.2d 12 (1977).

These requirements were satisfied in this case. EDP had an insurance contract with NAC that required NAC to defend EDP in actions asserting claims within the policy coverage. It notified NAC of the suit filed by Jeffrey Davis and requested a defense; NAC refused. According to NAC's reading of the policy, Davis's claim was excluded from coverage. Because EDP disagreed with this policy interpretation, it requested the trial court to declare its rights under the insurance policy.

Occasionally a declaratory judgment action may involve questions to be decided in another pending action. In those cases, it may be an abuse of discretion for the trial court to resolve those issues in the declaratory judgment action. Brohawn v. Transamerica Ins. Co., 276 Md. 396, 405-06, 347 A.2d 842 (1975). This principle, however, does not apply to this case. EDP sought an interpretation of its insurance policy. It had a material interest in obtaining this interpretation, for if the contract were given one construction NAC would be required to defend EDP in Davis's tort action; if it were given another, EDP would need to rely exclusively on its automobile liability insurance carrier for a defense on all four counts in Davis's complaint. The automobile insurance carrier, however, would have less incentive to defend the negligent supervision and negligent hiring and retention counts, for which the carrier's coverage was unclear, than the vicarious liability count, for which coverage was not doubted. Hence EDP had reasonable grounds to want the contract interpreted to require NAC to provide a defense. The outcome of Davis's pending tort action had no bearing on that issue. 4 Thus, the trial court properly exercised its jurisdiction in the declaratory judgment action.

(B) Duty to Defend

The insurance policy issued by NAC to EDP provides in Section II:

"A. WHAT IS COVERED

The following coverages apply only when caused by an occurrence insured by this policy and not otherwise excluded:

1. BODILY INJURY AND PROPERTY DAMAGE LIABILITY. We cover all sums which the insured is legally required to pay as damages because of bodily injury or property damage.

....

B. WHAT IS NOT COVERED

Coverage provided under A. WHAT IS COVERED does not apply as described below:

....

2. AUTOMOBILES, AIRCRAFT AND WATERCRAFT. Coverage does not apply to bodily injury or property damage arising out of the ownership, maintenance, operation, use, loading or unloading of:

a. any automobile, aircraft or watercraft owned or operated by, or rented or loaned to, any insured, or

b. any other automobile, aircraft or watercraft owned or operated by a person in the course of his employment by any insured." (Emphasis in original policy language.)

The policy also contains the following definitions in Section 1:

"Automobile means a land motor vehicle, trailer or semi-trailer, designed to travel on public roads (including any attached machinery or apparatus), but does not include mobile equipment.

....

Loading Or Unloading means, with respect to an automobile, the handling of property:

1. after it is moved from the place where it is accepted for movement into or onto an automobile;

2. while it is in or on an automobile; or

3. while it is being moved from an automobile to the place where it is finally delivered." (Emphasis in original policy language.)

EDP contends that the exclusion for "bodily injury ... arising out of the ... loading or unloading of [a truck]" applies only to EDP's alleged vicarious liability for the negligence of its employee. Because the other counts allege negligence by EDP apart from its employee's negligence,...

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