Chang v. Brethren Mut. Ins. Co.

• Decision Date: 01 May 2006
• Docket Number: No. 657, September Term, 2005.,657, September Term, 2005.
• Parties: Chik S. CHANG et al. v. BRETHREN MUTUAL INSURANCE COMPANY.
• Court: Court of Special Appeals of Maryland

Page 854

897 A.2d 854

168 Md. App. 534

Chik S. CHANG et al. v. BRETHREN MUTUAL INSURANCE COMPANY.

No. 657, September Term, 2005.

Court of Special Appeals of Maryland.

May 1, 2006.

Tonja E. Kelley (Thomas M. Wilson, III, Tydings & Rosenberg, LLP, on brief), Baltimore, for appellant.

Lucinda E. Davis (George E. Reede, Jr., Niles, Barton & Wilmer, LLP, on brief), Baltimore, for appellee.

Panel JAMES R. EYLER, KENNEY and PAUL E. ALPERT (Ret., specially assigned), JJ.

EYLER, JAMES R., J.

This case presents insurance coverage and related issues arising from a policy issued to Chik S. Chang and Hye Ja Chang, appellants, by Brethren Mutual Insurance Company, appellee. The Circuit Court for Anne Arundel County entered summary judgment in favor of appellee. We shall vacate the summary judgment and remand for further proceedings not inconsistent with this opinion.

Factual background

Appellants owned property located at 7339 E. Furnace Branch Road, Glen Burnie, improved by a building leased to commercial tenants (the building). Appellee issued a "businessowners policy" (the Policy) to appellants, effective September 29, 2002 to September 29, 2003. The Policy expressly covered the premises located at 7339 E. Furnace Branch Road.

In February 2003, a heavy snowfall caused snow to accumulate on the roof of the building. This caused water to leak into the demised premises and caused concern as to whether the roof would collapse. On February 22, the Anne Arundel County Fire Department issued a notice stating that the building could not be occupied until the snow was removed and the roof inspected by an engineer.

On February 22, 2003, Ms. Chang, one of the appellants, met with Lloyd K. Butts, a representative of Security Remodeling, Inc. (Security). Ms. Chang and Security entered into an agreement whereby Security agreed "to perform all restorations which are approved by your insurance company, with the funds that are provided by your insurance company." The contract provided that appellants would incur no "out of pocket expense," except for "the homeowners' deductible as described in your homeowners insurance policy."

In his deposition, Mr. Butts testified to the following. On February 22, he contacted appellants' insurer, using information provided by appellants. Later the same day, he received a call from Kirsten W. Barefield, an adjuster employed by Crawford Claims Management Services, an outside adjusting agency retained by appellee. Mr. Butts explained to Ms. Barefield that the snow had to be removed to prevent further water damage, and she agreed.¹ Security removed the snow by the morning of the 23rd and then inspected the interior of the building to assess the damage caused by leaking water.

A few days later, there was another significant snowfall, and Security removed that snow from the roof. Security repaired the damage caused by leaking water, and on April 11, 2003, submitted an invoice to Ms. Chang for the total amount of $30,105.50. The invoice included a charge for the first snow removal in the amount of $11,250.00 and a charge for the second snow removal in the amount of $3750.00. It included an "overhead" item in the amount of $3612.66 and a "profit" item in the amount of $2408.44. The remaining charges were for labor and materials to repair the damage.

Security's invoice obviously was sent to Ms. Barefield because, under cover letter dated April 15, 2003, Ms. Barefield sent to Mr. Butts "a revised estimate of repair," referring to Security's invoice. Ms. Barefield stated that the charges for snow removal, overhead, and profit had been removed and that a check in the amount of $6834.40 would be forwarded. A copy of the Security invoice was enclosed with the April 15 letter, which contained a handwritten notation, "no coverage," next to the snow removal items, and a handwritten notation, "O & P not applicable," next to the overhead and profit items.

Appellee forwarded a check to appellants, payable to appellants and Security,² dated April 28, 2003, in the amount of $18,337.03. The check purported to be full payment for all loss caused by the accumulation of snow on the roof. The total amount paid included the $6834.40 that was intended for Security. The balance was for loss sustained unrelated to Security's work.

On September 12, 2003, Security filed a complaint in circuit court against appellants. Security recited that appellants had contracted with Security to remove snow and perform repairs but appellants had refused to pay. Security alleged breach of contract in count I, and unjust enrichment in count II, and claimed $30,105.50, attorney's fees, and costs.

On February 10, 2004, appellants filed a third party complaint against appellee. Appellants alleged that they entered into a contract with Security to remove snow and make emergency repairs to prevent further damage to the property, to be paid out of insurance proceeds, except for the deductible amount. In count I, appellants asserted breach of contract, alleging that the claim for Security's work was property loss and covered under the Policy. In count II, appellants requested that appellee be substituted for them as the real party in interest in the dispute with Security.

By letter dated May 3, 2004, appellants requested appellee to assume their defense in the suit by Security against appellants. By letter dated May 21, 2004, appellee refused, explaining that Security's claims were not covered, or potentially covered, under the Policy.

On June 3, 2004, appellants filed an amended third party complaint, adding a second count for breach of contract, designated as count II, in which they alleged that appellee had a duty to defend appellants in the suit by Security. In count I, appellants sought $15,000.00, attorney's fees, and costs. In count II, appellants sought attorney's fees incurred in defending the suit by Security and in pursuing the third party complaint. The real party in interest claim did not change, except that it was renamed as count III.

In the summer of 2004, following discovery, appellants filed a motion for summary judgment with respect to Security's claims against them, requesting that judgment be entered in Security's favor in the amount of $6834.40. Appellants also filed a motion for partial summary judgment against appellee, requesting that judgment be entered on count II, with respect to appellee's duty to defend appellants. Appellee filed a motion for summary judgment with respect to appellants' claims against it. By memorandum opinion and order dated January 3, 2005, the court denied appellants' motions and granted appellee's motion. The latter ruling is the subject of this appeal.

On March 16, 2005, Security's claims against appellants were tried non-jury. At the close of Security's evidence, the court granted appellants' motion for judgment. Subsequently, on April 13, the court amended its judgment to require appellants to pay $6834.40 to Security. That judgment has been satisfied.

Following the entry of a final judgment, appellants noted an appeal to this Court, in which they challenge the entry of summary judgment in favor of appellee with respect to their breach of contract claims.³ Appellants acknowledge that their claim for indemnification is moot because a judgment was entered in their favor with respect to the claim for snow removal costs. Appellants assert that their claims for attorney's fees and costs incurred in the defense of Security's claims and in prosecuting their third party claims are not moot.

The Policy

According to the declarations page, the Policy was a "businessowners policy," issued to appellants as named insureds. The declarations page described the covered premises as 7339 E. Furnace Branch Road. Under property coverage, it provided insurance limits in the amount of $434,800 for buildings and $10,000 for business personal property, subject to a $1,000 deductible. Under liability coverage, it provided insurance limits in the amount of $1,000,000 for liability and medical expenses, $5,000 per person for medical expenses, and $100,000 for legal liability from fire. The declarations page also reflected other coverages in effect, which were optional, and not directly relevant to the issues before us.

In pertinent part, the Policy included a "special property coverage form," modified by a "Vantage endorsement"⁴ (the property coverage form); a liability coverage form; and common policy conditions.

In the "coverage" part of the property coverage form, appellee agreed to "pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss." Section A.

In the "coverages" part of the liability coverage form, appellee agreed to "pay those sums that the insured becomes legally obligated to pay as damages because of . . . `property damage' . . . caused by an `occurrence[.]' . . ." Section A.1.a. and b. Appellee also agreed to defend any suit seeking such "property damage." Section A.1.a.

In the definitions subpart, "occurrence" was defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Section F.12. "Property damage" was defined as "[p]hysical injury to tangible property, including all resulting loss of use of that property" and "[l]oss of use of tangible property that is not physically injured." Section F.15.

In the "exclusions" subpart, one of the exclusions was "`property damage' for which the insured was obligated to pay damages by reason of the assumption of liability in a contract or agreement." Section B.1.b.

Contentions of the Parties

As explained above, appellants' claims against appellee originally included the cost of snow removal, performed by Security. That claim for indemnity under the Policy is now moot because Security lost its claim against appellants for the cost of snow removal, and thus, appellants have not...