Faulkner v. American Cas. Co. of Reading, Pa.

• Decision Date: 22 January 1991
• Docket Number: No. 459,459
• Citation: 85 Md.App. 595,584 A.2d 734
• Parties: John D. FAULKNER, Jr., et al. v. AMERICAN CASUALTY COMPANY OF READING, PA., et al. Sept. Term 1990.
• Court: Court of Special Appeals of Maryland

Page 595

85 Md.App. 595

584 A.2d 734

John D. FAULKNER, Jr., et al. v. AMERICAN CASUALTY COMPANY OF READING, PA., et al.

No. 459 Sept. Term 1990.

Court of Special Appeals of Maryland.

Jan. 22, 1991.

Walter G. Birkel (Brian P. Phelan and Conlon, Frantz, Phelan & Knapp, on the brief), Washington, D.C., for appellant Faulkner.

John R. Fornaciari (Robert M. Disch, Eckert Seamans, Cherin & Mellott, Washington, D.C., David L. Jacobson and Blades & Rosenfeld, Baltimore, on the brief), for appellant, Billman.

Howard J. Sedran (Arnold Levin, Fred S. Longer and Levin, Fishbein, Sedran & Berman, on the brief), Philadelphia, Pa., for appellant Brickley.

Michael P. Tone (Anne Fiedler, Peterson, Ross, Schloerb & Seidel, Chicago, Ill., William A. Hylton, Jr., Deborah Farmer Minot and Hylton & Gonzales, on the brief), Baltimore, for appellee, American Cas.

T. Hardin Marion and Tydings & Rosenberg, Baltimore, on the brief, for MDIF and Community Sav.

Before BLOOM, KARWACKI and CATHELL, JJ.

BLOOM, Judge.

These three appeals in one record evolved from Maryland Deposit Insurance Fund Corp. v. Billman, et al., an action brought by the Maryland Deposit Insurance Fund Corporation (MDIF), as receiver for Community Savings & Loan, Inc. (Community) against various officers, directors and corporate subsidiaries of Community. MDIF's complaint contained six counts alleging multiple incidents of negligence, misappropriation, and breach of fiduciary duties. In October, 1988, a jury in the Circuit Court for Montgomery County returned verdicts of several million dollars on each count in favor of MDIF against the various defendants. On appeal, we reversed the judgment and remanded the case for a new trial in light of the court's failure to declare a mistrial after the jury was allowed to consider documents not in evidence. Billman v. Maryland Deposit Insurance Fund Corp., 80 Md.App. 333, 563 A.2d 1110 (1989). The Court of Appeals reversed our decision and reinstated the judgments that had been entered on the verdicts. Maryland Deposit Insurance Fund Corp. v. Billman, 321 Md. 3, 580 A.2d 1044 (1990).

Seeking to obtain at least partial satisfaction of the judgments it had obtained against Billman and the other defendants, MDIF brought this action against appellee, American Casualty Co. of Reading, Pa. (American Casualty), to recover the proceeds of a Directors' and Officers' Liability Insurance Policy that American Casualty had issued to Community. In that action the Circuit Court for Montgomery County (Kaplan, J.) entered summary judgments in favor of American Casualty against appellants, John D. Faulkner, Thomas J. Billman, and Roger Brickley. These three appeals, which have nothing in common except that they involve questions of coverage under the same policy issued by appellee, are from those summary judgments.

Background

Faulkner

Prior to trial in MDIF v. Billman, et al., appellant John D. Faulkner, a former president and board member of Community, executed a settlement agreement with MDIF in which he assigned to MDIF all claims he had against American Casualty arising under the policy coverage but retained the right to assert against American Casualty claims for additional damages for negligence or bad faith in the settlement process. Nevertheless, he agreed to dismiss any such action at the request of MDIF and Community if they believed that his prosecution of such claim would interfere with their recovery of funds from American Casualty. Thereafter, MDIF entered into a settlement agreement with American Casualty in which MDIF agreed to compel Faulkner to dismiss any future action he may bring as an insured of American Casualty. Faulkner subsequently attempted to bring such an action; however, the trial court, relying on the language of the MDIF-Faulkner settlement agreement, awarded summary judgment to American Casualty. Arguing that summary judgment was inappropriate and that the court's construction of the settlement agreement violates public policy, Faulkner noted this appeal. Perceiving no reversible error, we shall affirm that judgment.

Billman

Appellant Thomas J. Billman, a former officer and director of Community and a defendant in MDIF's suit against American Casualty, filed a cross-claim against American Casualty, contending that he was entitled to insurance coverage to satisfy the judgment against him on Count I of the MDIF v. Billman, et al. complaint. He also sought immediate payment of costs incurred in defending the action. Finding that Count I of MDIF's complaint alleged acts that are excluded from insurance coverage, the court awarded summary judgment to American Casualty. In this appeal from that judgment, Billman asserts that a genuine dispute of material facts exists, thus rendering summary judgment inappropriate. We agree and shall reverse the award of summary judgment as to coverage. We shall affirm, however, that part of the judgment which denied Billman's request for immediate reimbursement of defense costs.

Brickley

American Casualty filed a cross-claim in MDIF v. American Casualty, et al. As part of that cross-claim, brought against everyone who had brought an action against an officer or director of Community that could result in the insurer's liability under its insurance policy, American Casualty sought to establish an interpleader fund. Named as a defendant in that interpleader action was appellant Roger Brickley. As one of about 5,000 investors who had purchased units in a number of limited partnerships managed by Equity Programs Investment Corporation (EPIC), which was affiliated with Community, Brickley had instituted in the Federal District Court for the District of Maryland a class action against Billman and the other officers and directors of EPIC, who were defendants in MDIF v. Billman, et al., as well as against Community, its subsidiaries, and other related corporations.

The trial court established an interpleader fund and set a deadline by which all claims against the funds were to be filed. Brickley failed to file any claim against the fund. The trial court subsequently ruled that Brickley's claims, as well as those of the class he represented, against the insurance fund were barred. Further, the court ruled that, assuming Brickley's federal action is successful, no insurance coverage exists for the claims asserted in his complaint as a matter of law. Based on those rulings, the court granted American Casualty's motion for summary judgment on the issue of insurance coverage and released the interpleader funds to MDIF. Appealing from that summary judgment, Brickley asserts that the court's rulings were premature. We shall affirm the summary judgment barring Brickley's claim against the interpleader fund but reverse the judgment on the issue of insurance coverage.

Additional facts relating to each of the appeals will be set forth in the discussions relating to those appeals.

I The Faulkner Appeal

On 17 May 1988, appellant John D. Faulkner (Faulkner) a former president and director of Community and a defendant in MDIF v. Billman, et al., as well as in MDIF v. American Casualty, et al., executed a settlement agreement with MDIF. The relevant portions of the agreement provide as follows:

3(a) Except as specifically set forth below, Faulkner hereby assigns, transfers and conveys to MDIF and Community all of his rights, title, and interest in, to, and under the Insurance Policy for the payment of all covered losses that American Casualty is obligated to pay on his behalf.

(b) Faulkner hereby retains, and does not assign, transfer or convey to MDIF and Community, any and all claims and causes of action that Faulkner may have against American Casualty beyond the limits of the Insurance Policy, with respect to American Casualty's conduct, actions or inactions, including, but not limited to, his claim for attorneys' fees, costs and expenses incurred in connection with the American Casualty Action, and any claim concerning American Casualty's failure or refusal to fund the settlement proposal made by MDIF and Community to dismiss its claims against Faulkner in exchange for payment of $4,500,000.

(c) Faulkner shall bear the expense of the prosecution of any claims that he retains. Faulkner agrees that he shall consult with counsel for MDIF and Community in his prosecution of any claims against American Casualty, and agrees that if prosecution of any such claim against American Casualty shall in the determination of MDIF and Community interfere with MDIF's and Community's recovery of any monies from American Casualty, then at MDIF's and Community's election, he shall either stay or dismiss such claims. (Emphasis added.)

In April 1989, MDIF and Community executed a settlement agreement with American Casualty, the relevant portion of which provides:

6(b) MDIF and Community, as assignees of Faulkner's rights, if any, under the Insurance Policy:

(1) hereby assign those rights to American Casualty; and

(2) shall dismiss with prejudice and release all of the claims assigned by Faulkner to MDIF and Community.

(c) MDIF and Community, pursuant to paragraph 3(c) of their Settlement Agreement with Faulkner (Exhibit D), have determined that the prosecution of any claims by Faulkner against American Casualty would interfere with MDIF and Community's ability to enter into this Agreement; accordingly, MDIF and Community shall cause Faulkner to dismiss and/or abandon any other claim he has brought or may bring against American Casualty.

Thereafter, by a letter dated 8 September 1989, Faulkner advised the trial court of his intention to institute an action against American Casualty for its failure to negotiate in good faith with MDIF on his behalf. MDIF subsequently informed Faulkner that, pursuant to p 3(c) of the Settlement Agreement between them, MDIF would require him to dismiss his bad faith claim against American Casualty. On 5 October 1989, American Casualty filed a Second Amendment...