Chicago Ins. Co. v. Pacific Indem. Co.

• Decision Date: 17 December 1980
• Docket Number: Civ. No. H-79-1891.
• Citation: 502 F. Supp. 725
• Parties: The CHICAGO INSURANCE COMPANY, Plaintiff, v. PACIFIC INDEMNITY COMPANY and Chubb & Son, Inc., Defendants.
• Court: U.S. District Court — District of Maryland

502 F. Supp. 725

The CHICAGO INSURANCE COMPANY, Plaintiff, v. PACIFIC INDEMNITY COMPANY and Chubb & Son, Inc., Defendants.

Civ. No. H-79-1891.

United States District Court, D. Maryland.

December 17, 1980.

E. Dale Adkins, III, Baltimore, Md., for plaintiff.

Read K. McCaffrey, Baltimore, Md., for defendants.

ALEXANDER HARVEY, II, District Judge.

In this diversity action, two insurance companies dispute the meaning of a policy coverage provision, and each seeks judgment. The case was tried by the Court sitting without a jury, with the material facts having been stipulated by the parties. This opinion constitutes the Court's findings of fact and conclusions of law.

On November 22, 1977, suit was filed in the Superior Court of Baltimore City against three doctors and the partnership which they had formed.¹ The plaintiffs in that action were Ryan Andrew Ely (an infant), Barbara N. Ely (his mother) and Edward A. Ely (his father). Named as defendants were Dr. Francis L. Grumbine, Dr. Ercoline Gresia, Dr. Vernon M. Gelhaus and Grumbine, Gresia and Gelhaus, a Maryland partnership.² The plaintiffs alleged, inter alia, that the negligence of Drs. Grumbine and Gresia in delivering Ryan during his birth led to his permanent brain damage and caused harm and expense to his parents. Following various discovery proceedings in that state action, a settlement was reached on July 6, 1979 with the doctors and their partnership. In return for $300,000, the plaintiffs released the three doctors and their partnership from any and all claims arising out of the incident in question.³

The doctors and their partnership were insured under professional liability insurance policies issued both by The Chicago Insurance Company, the plaintiff in this action (hereinafter "Chicago") and by Pacific Indemnity Company, the defendant in this action (hereinafter "Pacific").⁴ Pacific's policy provided primary coverage, while Chicago was the excess liability insurer. The dispute in this case concerns how much of the settlement in the Ely case is covered by Pacific's primary policy, or conversely, how much of the $300,000 will have to be paid by Chicago as the excess insurer.

Pacific's policy is divided into "Coverage A: Individual Coverage," and "Coverage B: Partnership Coverage." Under Coverage A, Pacific agreed:

To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injuries arising out of:

(a) malpractice, error or mistake of the insured, or of a person for whose acts or omissions the insured is legally responsible except as a member of a partnership, in rendering or failing to render professional services, * * *

Under Coverage B, Pacific agreed:

To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury arising out of malpractice, error or mistake in rendering or failing to render professional services in the practice of the professions described in the declarations, committed during the policy period by any person for whose acts or omissions the insured is legally responsible.

The term "insured" is separately defined for each coverage:

(a) Under Coverage A the term "the insured" means each individual named in the declarations as insured; provided if more than one individual is so named as insured, the limits of liability and other terms of the policy shall apply separately to each, in the same manner as though each was the only individual so named.

(b) Under Coverage B, the term "the insured" means the partnership described in the declarations, including each member thereof with respect to the acts or omissions of others, but the inclusion herein of more than one insured shall not operate to increase the limits of the company's liability.

The policy's limits are $100,000 for "each claim" and $300,000 in the "aggregate." As to these limits, "Condition 1" provides that subject to the definitions of "insured" above:

The limit of liability stated in the declarations as applicable to "each claim" is the limit of the company's liability for all damages on account of each claim or suit covered hereby; subject to the foregoing provision respecting each claim, the limit of liability stated in the declarations as "aggregate" is the total limit of the company's liability hereunder for all damages. The limits of liability apply separately to coverages A and B.

Another provision of the Pacific policy is "Exclusion (c)," which provides that the policy does not apply

under Coverage B, to such insurance as is or can be afforded under Coverage A to any member of the partnership described in the declarations.

Chicago had issued the doctors and their partners an excess liability insurance policy. The Chicago policy provided coverage to a limit of $2,000,000 in excess of any primary professional liability coverage on the doctors. Thus, the Chicago excess policy does not cover any loss of the doctors and their partnership unless and until any such loss is not covered by Pacific's primary policy.

In a "Letter of Intent" executed by Chicago, Pacific, and Chubb, an agreement was reached concerning the settlement in the Ely case. Pacific agreed to contribute $100,000 for Dr. Grumbine and $50,000 for Dr. Gresia under Coverage A, and $50,000 for the partnership under Coverage B, or a total of $200,000. Under its excess policy, Chicago agreed to contribute the difference, or $100,000, for the partnership and for Dr. Gelhaus as a co-partner under Coverage B. It was further agreed that what was paid under Coverage A would exhaust that coverage and that either party might proceed by way of a declaratory judgment action to determine the nature and extent of partnership "Coverage B" under the policy.

In this suit, plaintiff Chicago contends that Pacific and Chubb are liable for all $150,000 paid under Coverage B, and plaintiff Chicago is here seeking a judgment in the amount of $100,000. Defendants Pacific and Chubb contend that they are liable for nothing under Coverage B, and they have filed a counterclaim seeking $50,000. In the alternative, they argue that their liability under Coverage B is limited to $100,000, and that therefore they owe Chicago merely $50,000.

The threshold issue in this case is the extent of Coverage B. Defendants read it very narrowly. They assert that Coverage B insures the partnership as an entity against liability for the torts of employees such as nurses, technicians, and clerks, but not for the malpractice of the doctors who make up the partnership. The latter, they assert, is what Coverage A covers. On the other hand, plaintiff argues that Coverage B insures the partnership and each partner against liability for the torts of other partners as well as for the torts of employees.

There can be no dispute concerning the legal principles involved. The parties agree that in this diversity action, Maryland law is controlling. An insurance policy is a contract and is to be read as any other contract. Little v. First Federated Life Ins. Co., 267 Md. 1, 296 A.2d 372 (1972). Its words are to be given their ordinary meaning. C & H Plumbing and Heating, Inc. v. Employers Mut. Cas. Co., 264 Md. 510, 287 A.2d 238 (1972). An insurance policy must be read and construed as a whole so as to carry out the intentions of the parties. Aragona v. St. Paul Fire and Marine Ins. Co., 281 Md. 371, 378 A.2d 1346 (1977); Simkins Industries, Inc. v. Lexington Ins. Co., 42 Md.App. 396, 401 A.2d 181 (1979). A policy is not to be construed against the insurer in the absence of ambiguity. National Grange Mut. Ins. Co. v. Pinkney, 284 Md. 694, 399 A.2d 877 (1979). Reading the Pacific policy with the above principles in mind, this Court concludes that the interpretation urged by the plaintiff Chicago is the correct one.

Coverage B insures against liability for the acts of "any person" for whose acts the insured is "legally responsible." The insured under Coverage B is the partnership, and it is clear that in Maryland a partnership (and each partner) is legally responsible for the tortious acts of a partner committed in the course of...