Bankers and Shippers Ins. Co. of New York v. Electro Enterprises, Inc.

Citation415 A.2d 278,287 Md. 641
Decision Date04 June 1980
Docket NumberNo. 50,50
PartiesBANKERS AND SHIPPERS INSURANCE COMPANY OF NEW YORK v. ELECTRO ENTERPRISES, INC. et al.
CourtCourt of Appeals of Maryland

Samuel S. Smalkin, Baltimore (John H. Urner, Hagerstown, on the brief), for appellant.

William C. Wantz, Hagerstown (Kaylor, Wantz & Douglas, Hagerstown, on the brief), for Rosalie L. Turner, one of appellees.

Donald L. DeVries, Jr., Baltimore (Charles E. Iliff, Jr. and Semmes, Bowen & Semmes, Baltimore, on the brief), for Electro Enterprises, Inc., et al., other appellees.

Argued before MURPHY, C. J., and SMITH, DIGGES, ELDRIDGE, ORTH, * COLE and DAVIDSON, JJ.

ELDRIDGE, Judge.

The petitioner, Bankers and Shippers Insurance Company of New York (hereinafter "Bankers"), brought an action for a declaratory judgment that its insurance policy did not provide either coverage for or an obligation to defend its insureds against claims resulting from an airplane crash. After the declaratory judgment action was finally terminated, the defendants in that action brought the instant suit for attorneys' fees and expenses. The issues on this appeal are whether the insurer is obligated to reimburse the defendants in the declaratory judgment proceedings for reasonable attorneys' fees and expenses incurred as a result of the insurer's disclaimer of coverage, and whether the insurer is prevented by the declaratory judgment from raising certain defenses against the claims for attorneys' fees and expenses.

On April 30, 1973, Bankers issued an aircraft insurance policy on a Cessna airplane owned by the respondent Electro Enterprises, Inc., of Hagerstown, Maryland (hereinafter "Electro"). The policy, with certain exclusions that will be set forth later, provided coverage for personal injury and property damage claims arising from an occurrence while the airplane was in flight. In addition, the policy provided that Bankers would defend the insured against claims within the policy's coverage.

While on a business trip from Hagerstown to Scottsdale, Arizona, in 1974, Electro's airplane crashed, killing everyone aboard. These included Earl Bittle (a pilot employed by Electro), Paul Erickson (another pilot and president of Electro), Caswell Nuger (an employee of Electro), Irvin Turner and Joseph Urie. As a result of the crash, three negligence actions were filed in the Circuit Court for Washington County by the survivors and personal representatives of Nuger, Turner and Urie, all presumably passengers on the flight. The three actions were as follows: Rosalie L. Turner filed suit against Electro; Marie Rogers Urie sued Electro and sued Sandra E. Mose and Deborah E. Gigeous, personal representatives of Paul Erickson's estate; Lillian Nuger sued Mose and Gigeous as personal representatives of Erickson's estate, sued Juanita Bittle who was personal representative of Earl Bittle's estate, and sued Cessna Aircraft Co. The Nuger action also included, as a plaintiff, the Pennsylvania Manufacturers Association Insurance Company which claimed a right of subrogation for Workmen's Compensation benefits paid to the Nuger estate. The defendants in these tort actions demanded that Bankers provide them with a defense.

Shortly thereafter, Bankers filed a declaratory judgment action, in the Circuit Court for Washington County, seeking a declaration that its policy did not afford any insurance coverage for the tort claims or duty to defend them. Bankers named as defendants all of the plaintiffs and defendants in the wrongful death suits. The policy language upon which Bankers relied for its argument of noncoverage was as follows (Item 7 of the Declarations): "The coverage afforded by this policy shall not apply while the aircraft is operated in flight by other than the following pilots: PAUL ERICKSON AND WILFORD GOLDMAN." The policy exclusions further provided:

"This Policy does not apply:

2. to any occurrence or to any loss or damage occurring while the aircraft is operated in flight by other than the pilot or pilots set forth under Item 7 of the Declarations."

Bankers raised two arguments based on this language. First, noting that Bittle had not been named as an approved pilot in Item 7 of the Declarations, Bankers appeared to argue that Bittle was actually operating the plane when it crashed. Bankers contended that there was no coverage when Bittle was piloting the plane. Second, Bankers argued in the alternative that the language in Item 7 of the Declarations should be interpreted as providing coverage only if Goldman was in the plane along with Erickson, and as not providing coverage if Goldman did not accompany Erickson while the plane was in flight. Consequently, according to Bankers, it was legally irrelevant whether, as a factual matter, Erickson alone, Bittle alone, or Erickson and Bittle together were operating the plane at the time of the crash. Because Goldman was not in the plane, as allegedly required by the policy, Bankers argued that the policy would not provide any coverage, and consequently, it did not have a duty to defend. Bankers sought a declaratory judgment that it should be "relieved of any obligation to defend " Mose, Gigeous, Electro and Bittle and that it had "no coverage under the policy . . . (for) any liability that may be adjudged" against them. (Emphasis supplied.)

In response, the declaratory judgment defendants disputed Bankers' interpretation of the policy provisions, argued that the policy would provide coverage as long as one of the named pilots was operating the plane, and maintained that Erickson was operating the plane. According to the defendants, there would be coverage if Erickson were operating the plane regardless of whether or not Goldman was in the plane. 1 They requested a jury trial to decide the factual issue of whether Erickson or Bittle was operating the plane at the time of the crash.

After a full trial, the jury found that Erickson, and not Bittle, was operating the plane at the time of the crash. The trial court then interpreted the disputed policy provisions, concluding that the policy afforded coverage if Erickson were operating the plane, regardless of Goldman's absence or presence. The court declared that there was coverage under the policy and that "(t)he plaintiff is not relieved from defending cases filed against it in related proceedings arising out of the said accident." The declaratory judgment was affirmed by the Court of Special Appeals, Bankers & Shippers Ins. v. Urie, 38 Md.App. 232, 380 A.2d 243 (1977), and this Court denied a petition for a writ of certiorari, 282 Md. 729 (1978).

Thereafter, all of the declaratory judgment defendants brought the present action, again in the Circuit Court for Washington County, pursuant to Maryland Code (1974, 1980 Repl.Vol.), § 3-412(a) of the Courts and Judicial Proceedings Article, for the reimbursement of the attorneys' fees and other expenses incurred in defending against the declaratory judgment action. 2 Moreover, Electro, Mose, Gigeous and Bittle additionally sought the attorneys' fees and other expenses incurred when they were forced to begin providing their own defense in the underlying wrongful death actions.

In response, Bankers generally denied that it was liable for any attorneys' fees. With regard to the fees incurred by Mose, Gigeous and Bittle, Bankers contended that it could be liable for their attorneys' fees only if it were required to provide them with a defense in the underlying tort actions. Bankers maintained that it was not obligated to defend them because the policy expressly excluded from coverage the tort claims against them. As to Bittle, Bankers argued that any tort claim against Bittle would necessarily have to allege, in order to recover, that Bittle was operating the plane at the time of the crash. However, because Bittle was not a named pilot in the policy and because Item 7 of the Declarations expressly excluded coverage if the plane were operated by other than a named pilot, Bankers argued that any claim against Bittle would have to allege facts that placed the claim outside of the coverage of the policy. Bankers argued that the Nuger tort action against Mose and Gigeous was excluded from coverage because the claim was, in effect, by an Electro employee (Nuger) against a fellow employee (Erickson) and, in addition, was covered by Workmen's Compensation insurance paid to the Nuger estate.

After a hearing, the trial court held that all declaratory judgment defendants were entitled to the attorneys' fees and expenses incurred in the declaratory judgment action. The court based its decision on the belief that an insurer who unsuccessfully brings a declaratory judgment action, attempting to disclaim coverage, must reimburse the successful defendants for the attorneys' fees incurred in that proceeding. However, because the fee petitions, according to the court, also included fees for work performed in the personal injury suits, the court decided that each party should receive 30% of the amount sought. All parties took appeals from the order awarding fees. Before any proceedings were held in the Court of Special Appeals, this Court issued a writ of certiorari.

I.

In the insurance policy issued to Electro, Bankers agreed that:

"1. Defense, Settlement, Supplementary Payments. With respect to such insurance as is afforded by this Policy for bodily injury liability and for property damage liability coverages the Company shall:

(a) defend any suit against the Insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the Company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient.

(e) reimburse the Insured for all reasonable expenses, other than loss of earnings, incurred at the Company's request."

With respect to similar policy provisions, this Court has held that an insurer is...

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