Cochran v. Aetna Cas. and Sur. Co.

• Decision Date: 01 September 1993
• Docket Number: No. 665,665
• Citation: 637 A.2d 509,99 Md.App. 350
• Parties: Robert COCHRAN v. AETNA CASUALTY & SURETY COMPANY. ,
• Court: Court of Special Appeals of Maryland

Page 350

99 Md.App. 350

637 A.2d 509

Robert COCHRAN v. AETNA CASUALTY & SURETY COMPANY.

No. 665, Sept. Term, 1993.

Court of Special Appeals of Maryland.

Feb. 24, 1994.

Certiorari Granted June 29, 1994.

William S. Barton (M. Lynn Williams, Karen L. Smith and Urner, Nairn, Barton & Williams, on the brief), Hagerstown, for appellant.

John B. Kaiser (Kevin J. McCarthy and McCarthy, Bacon & Costello, on the brief), Lanham, for appellee.

Argued before MOYLAN, ALPERT and DAVIS, JJ.

ALPERT, Judge.

This is an appeal from an order of the Circuit Court for Allegany County, Maryland, granting summary judgment in favor of Aetna Casualty & Surety Co. ("appellee" or "Aetna") and thus denying Aetna's insurance coverage to Robert Cochran ("appellant"). Appellant asks us the following:

I. Did the circuit court err in granting summary judgment to Aetna based upon the determination that there was no potentiality of coverage under the Aetna policies and therefore, no duty to defend appellant in the Beyer action?

II. If the circuit court properly applied the exclusive pleading rule to conclude that no potentiality of coverage existed, does the application of the rule in the circumstances of this case offend the rationale and public policy which underlie the rule?

The Proceedings Below

This case arises out of the refusal by Aetna to defend the appellant in an underlying tort action, pursuant to two liability insurance policies issued to J. Edward Cochran and Company, Inc. The exclusionary clause of each policy provides, in pertinent part:

This insurance does not apply to:

a. "Bodily injury" or "property damage" expected or intended from the standpoint of the "insured". This exclusion does not apply to "bodily injury" resulting from the use of reasonable force to protect persons or property.

The circuit court summarized the relevant facts as follows:

It is uncontroverted that Aetna issued two policies of liability insurance to J. Edward Cochran and Company, Inc. and that, at the time of the issuance of those policies, and on May 17, 1989 [the day of the incident] [appellant] was an officer, employee, Stockholder and director of J. Edward Cochran and Company, Inc. On May 17, 1989 the events giving rise to Beyer, et ux v. Cochran [the Beyer action] occurred. It is also uncontested that both policies were in full force and effect on that date. Assault and battery are alleged by the plaintiff in Beyer v. Cochran. Upon receipt of the suit papers in that action, Cochran notified his insurer, Aetna, and tendered his defense to Aetna. Aetna declined coverage and refused to provide Cochran a defense. Cochran then hired private counsel to defend him in Beyer.

Appellant filed an action seeking declaratory relief against Aetna. He asserted that:

8. On March 19, 1990, the [appellant] and his father, who was an eyewitness [to the events in dispute], met with agents of the [appellee] to discuss the circumstances giving rise to the Complaint [i.e., the Beyer suit] and the [appellant] fully informed the agents of the [appellee] of the factual details regarding the allegations in the Complaint. The [appellant] requested that [Aetna] defend the pending action.

9. The [appellant] denies that his actions constitute an assault and battery or intentional infliction of emotional distress. Victoria Beyer [the plaintiff in the underlying tort suit] voluntarily joined into an argument between the [appellant] and his brother, Edward W. Cochran, Jr., and the [appellant] was protecting himself from the assault by his brother, Edward W. Cochran, Jr.

10. Thereafter, on April 2, 1990, with full knowledge of the facts as related by the [appellant], the [appellee] declined to provide coverage for losses claimed in the suit as well as to provide a defense to the same.

11. The allegations of Victoria Beyer ... are so conclusory and so vague as to make it impossible for the [appellee] to determine whether or not the exclusions in any of the policies are applicable. A "potentiality" of coverage exists because the suit fails to address the exception to the exclusion for bodily injury occurring while the insured is acting in defense of persons or property, and the suit allegations are so conclusory as to require investigation, which was in fact undertaken.

12. Since there is a "potentiality" of coverage, the [appellant] claims the [appellee] should be required to provide a defense on behalf of the [appellant].

The action sought to obtain a declaratory judgment requiring Aetna to defend appellant in the Beyer action, to provide reimbursement up to the extent of policy limits for any judgment entered against the appellant and to require Aetna to reimburse the appellant for attorney's fees incurred in the declaratory judgment action.

Aetna contended that appellant's actions were not covered under the policies and moved for summary judgment. It asserted that

[t]he policy exclusions ... make clear that any injury or property damage resulting from intentional acts are not covered. The undisputed facts of this case make clear that the [appellant's] actions in the Washington County suit fall within the exclusionary language of the policy. The [appellant] has been sued for committing an assault and battery against a fellow employee. Both the General Liability provisions of the policy at issue and the umbrella coverage make clear that bodily injury expected or intended by the insured is specifically excluded from coverage.

(emphasis in the original) Aetna asserted that Eastern Shore Financial v. Donegal Mutual Ins., 84 Md.App. 609, 581 A.2d 452 (1990), cert. den. sub nom, Insley v. Old Guard Mut. Ins. Co., 322 Md. 131, 586 A.2d 13 (1991) was dispositive of the issue since that case addressed whether intentional torts fell within or potentially within a similar insurance policy with a similar exclusionary clause. Aetna further contended that its duty to defend is determined by reference to the policy and the allegations made in the Complaint only and is not determined by extrinsic evidence as contended by the appellant. Therefore, pursuant to the exclusive pleading rule enunciated in Eastern Shore, Aetna asserted that the court may only review the Beyer complaint and the two policies in determining whether coverage should be provided to the appellant.

Appellant filed a cross-motion for summary judgment. He began by noting the exclusions to the insurance policy. He then asserted that the second sentence of the exclusionary clause creates an exception to the exclusion. He contended that

the coverage clause of Aetna's policy of insurance establishes that it will pay for damages which are the result of injuries sustained in an occurrence. The exclusion then creates a class or type of injury that Aetna will not pay for, i.e., "bodily injury or property damage which is expected or intended from the standpoint of the insured." The language emphasized above then creates an exception to the exclusion which immediately precedes it and says, in essence, that Aetna will pay for bodily injury even though it may have been intended or expected from the standpoint of the insured if it "results from the use of reasonable force to protect persons or property." Aetna's creating coverage, then excluding certain injuries from coverage, and then creating an exception to the exclusion, has the effect of putting back into the coverage clause certain injuries that might be intended or expected from the standpoint of the insured.

Appellant then distinguished the exclusionary clause in Eastern Shore from the one in his case. He claimed that if the Aetna insurance policy clause only contained the first sentence, the court would be restricted, under Eastern Shore, to construe the alleged torts in the Beyer suit as intentional torts and exclude them from coverage. Due to the second sentence, however, the alleged torts were not necessarily excluded and there was a potentiality that they were covered.

The court heard oral argument on the matter and granted summary judgment in favor of appellee. In so doing, the court determined that Aetna, as a matter of law, did not have a duty to defend appellant due to the applicability of the exclusionary clause. The court relied on Eastern Shore for the proposition that in determining whether coverage existed, it was limited to reviewing the allegations made in the Beyer complaint. This appeal followed.

The Duty to Defend

As presented above, appellant seeks to enforce Aetna's contractual obligation under the insurance contract. ¹ Our review is limited to determining whether the circuit court was legally correct. Heat & Power Corp. v. Air Prods. & Chems., 320 Md. 584, 590-92, 578 A.2d 1202 (1990); King v. Bankerd, 303 Md. 98, 111, 492 A.2d 608 (1985). See also Baltimore Import Car v. Md. Port Auth., 258 Md. 335, 339, 265 A.2d 866 (1970).

An insurer's duty to defend its insured is determined by the allegations contained in the underlying tort action. Oweiss v. Erie Ins. Exchange, 67 Md.App. 712, 717, 509 A.2d 711 (1986); Brohawn v. Transamerica Ins. Co., 276 Md. 396, 407, 347 A.2d 842 (1975). In Brohawn, the Court of Appeals stated that:

[t]he obligation of an insurer to defend its insured under a contract provision such as here involved is determined by the allegations in the tort actions. If the plaintiffs in the tort suit allege a claim covered by the policy, the insurer has a duty to defend. Even if a tort plaintiff does not allege facts which clearly bring the claim within or without the policy coverage, the insurer still must defend if there is a potentiality that the claim could be covered by the policy.

Id. (citations omitted). In St. Paul Fire & Mar. Ins. v. Pryseski, 292 Md. 187, 193, 438 A.2d 282 (1981), the Court further explained:

In determining whether a liability insurer has a duty to provide its insured with a defense in a tort suit, two types of questions ordinarily must be answered: (1) what is the coverage and what are the defenses...