Gemini Ins. Co. v. Earth Treks, Inc.

• Citation: 260 F.Supp.3d 467
• Decision Date: 12 May 2017
• Docket Number: Civil Action No. RDB–16–2520
• Parties: GEMINI INSURANCE COMPANY, Plaintiff/Counter–Defendant v. EARTH TREKS, INC., Defendant/Counter–Plaintiff.
• Court: U.S. District Court — District of Maryland

260 F.Supp.3d 467

GEMINI INSURANCE COMPANY, Plaintiff/Counter–Defendant

v.EARTH TREKS, INC., Defendant/Counter–Plaintiff.

Civil Action No. RDB–16–2520

United States District Court, D. Maryland.

Signed May 12, 2017

William H. White, Jr., Mana Kinoshita, Bonner Kiernan Trebach and Crociata LLP, Washington, DC, for Plaintiff/Counter–Defendant.

Lawrence J. Gebhardt, Gebhardt and Smith LLP, Baltimore, MD, for Defendant/Counter–Plaintiff.

MEMORANDUM OPINION

Richard D. Bennett, United States District Judge

Gemini Insurance Company ("Gemini") has brought this action against Earth Treks, Inc. ("Earth Treks"), a Maryland corporation operating a series of rock climbing gyms, which purchased a commercial general liability insurance policy issued by Gemini (the "Policy"). Gemini seeks a declaration that it did not owe Earth Treks a defense¹ under the Policy or, alternatively, owed Earth Treks a defense limited to $100,000, in the now-settled underlying action of Kelsey Fabian v. Earth Treks, Inc. , Case Number 13–C–14–100242 (the "Fabian Suit") in the Circuit Court for Howard County, Maryland. See Compl., p. 1, ECF No. 1. Earth Treks expended approximately $1,200,000 in defending against the Fabian Suit, but Gemini has declined to reimburse Earth Treks for any portion of that amount. Earth Treks has now filed a Counterclaim against Gemini, alleging breach of the Policy's defense provisions and requesting a monetary judgment in the full amount of its costs and expenses incurred in defending against the Fabian Suit. See Counterclaim, ¶¶ 85–89, ECF No. 7. Currently pending before this Court are Earth Treks' Motion for Partial Summary Judgment (ECF No. 19) and Gemini's Cross–Motion for Summary Judgment (ECF No. 27) on the issue of liability. Specifically, the issues before this Court are whether or not Gemini owed Earth Treks a defense in the underlying Fabian Suit and if so, whether Gemini's defense obligation is limited by one or more of the Policy's coverage limitation endorsements. Also pending is Earth Treks' Motion to Strike Gemini's Extrinsic Evidence (ECF No. 28).

The parties' submissions have been reviewed, and no hearing is necessary. See Local Rule 105.6 (D. Md. 2016). For the reasons stated herein, Earth Treks' Motion for Partial Summary Judgment (ECF No. 19) is GRANTED IN PART and DENIED IN PART, and Gemini's Cross–Motion for Summary Judgment (ECF No. 27) is also GRANTED IN PART and DENIED IN PART. Specifically, Gemini did owe Earth Treks a defense in the Fabian Suit as a matter of law, but its defense obligation is limited to $100,000 pursuant to the "Sexual Abuse or Molestation" ("SAM") coverage limitation endorsement or, alternatively, the "Assault, Battery, or Assault and Battery" ("A & B") endorsement. Accordingly, Judgment is entered for Earth Treks on Gemini's initial claim for declaratory judgment and Earth Treks' Counterclaim for breach of contract, subject to a $100,000 limit on Gemini's defense liability. This case shall proceed to a separate determination of the specific damages to be awarded, pursuant to this Court's Bifurcation Order of December 22, 2016 (ECF No. 25). Additionally, Earth Treks' Motion to Strike Gemini's Extrinsic Evidence (ECF No. 28) is GRANTED. All extrinsic evidence submitted by Gemini is stricken and has not been considered by this Court in determining whether Gemini owed Earth Treks a defense or in determining the scope of that defense under the coverage limitation endorsements.

BACKGROUND

I. Earth Treks Rock Climbing Gyms

Defendant/Counterclaim–Plaintiff Earth Treks, Inc. ("Earth Treks") is a Maryland corporation operating three rock climbing gyms in Rockville, Timonium, and Columbia, Maryland, and a fourth gym in Golden, Colorado. Fabian Second Am. Compl., ¶¶ 2, 9, ECF No. 7–7. "Each of these locations offers climbing lessons and instructions." Id. , ¶ 9. Additionally, Earth Treks leads climbing teams for children between the ages of six (6) and eighteen (18), including "Team Earth Treks," a nationally ranked competition team. Id. ¶ 10. In 2008, Earth Treks hired Michael Lyons ("Lyons") to be the head coach of Team Earth Treks. Id. , ¶ 17. Daniel Montague ("Montague") was the assistant coach. Id. , ¶ 29.

II. Gemini's Commercial General Liability Insurance Policy

Earth Treks is a participating member of the "Climbing Wall Association." Counterclaim, ¶ 2, ECF No. 7. Plaintiff/Counterclaim–Defendant Gemini Insurance Company ("Gemini") has issued a commercial general liability insurance policy (Policy Number VUMC 10000010) (the "Policy") to the participating members of the Climbing Wall Association, including Earth Treks. See Policy, ECF No. 1–1; Certificate, ECF No. 7–1. At all relevant times, the Policy has provided Earth Treks general liability coverage subject to a per occurrence limit of $1,000,000 and an aggregate limit of $2,000,000. Id. at 1.

The Policy provides insurance against "bodily injury" or "property damage" caused by an "occurrence" that takes place in the "coverage territory." Id. at 6. The Policy defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Id. at 19. The Policy further provides that "[Gemini] will have the right and duty to defend any ‘insured’ against any ‘suit’ seeking those damages.... [h]owever, [Gemini has] no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’ to which [the] insurance does not apply." Id. at 6. Additionally, the Policy excludes coverage for " ‘bodily injury’ ... expected or intended from the standpoint of the insured.’ " Id. at 7. The Policy further includes two separate coverage limitation endorsements for damages resulting from "Sexual Abuse or Molestation" (the "SAM" endorsement) and "Assault, Battery, or Assault and Battery" (the "A & B" "endorsement"). Id. at 59–60. Coverage for claims that fall within the scope of those endorsements is limited to $100,000 for "Each Claim" and $300,000 in the "Aggregate." Id. Under both endorsements, "[a]ll claims for damages made by one or more persons because of any one act or series of acts ... shall be deemed to be one claim. " Id. (emphasis added).

III. The Underlying "Fabian Suit"—Fabian v. Earth Treks, Inc. , No. 13–C–14–100242

On April 16, 2014, Kelsey Fabian ("Fabian"), a former member of Team Earth Treks, filed suit against Earth Treks in the Circuit Court for Baltimore County, Maryland. See Fabian v. Earth Treks, Inc. , Case No. 13–C–14–100242 (the "Fabian Suit"). The case was subsequently transferred to the Circuit Court for Howard County, Maryland on Earth Treks' motion. Fabian, then a minor acting under the direction of her parents, initially brought suit under the pseudonym "Jane Doe," but was required to proceed under her real name after the case was transferred. The Second Amended Complaint was the operative Complaint in that now-settled action. Kelsey Fabian's allegations were as follows:

In September of 2010, Fabian joined Team Earth Treks at the Earth Treks gym in Columbia, Maryland. Fabian Second Am. Compl., ¶ 29, ECF No. 7–7. At that time, Fabian was thirteen years old. Id. Head Coach Lyons was thirty years old, and Assistant Coach Montague was nineteen years old. Id. Fabian has claimed that Lyons had a history of inappropriate relationships with Earth Treks students and team members, of which Earth Treks personnel were aware. Id. , ¶¶ 21–22. She has alleged that Lyons and Montague "engaged in a course of increasingly aggressive sexual behavior" targeted at her and at least one other climber. Id. , ¶¶ 30–31. It is specifically alleged that "Montague ... engaged in sexual activity with [her] on multiple occasions between March and May of 2011." Id. , ¶ 34.

"Despite the increasingly apparent nature of Michael Lyons' inappropriate, sexual behavior," Earth Treks permitted him to lead a team trip to Massachusetts in the "late Spring/early Summer of 2011." Id. , ¶ 43. Lyons and members of Team Earth Treks stayed in the same hotel room, "an arrangement that was known to Earth Treks beforehand." Id. , ¶ 44. During this trip, Lyons "engaged in sexual intercourse with [Fabian] twice in his hotel room." Id. The following weekend, "Earth Treks again permitted Mr. Lyons to organize and conduct a sleepover event with Earth Treks' youth climbers" at the Earth Treks gym in Columbia, Maryland. Id. , ¶ 45. That night, Lyons again sexually assaulted then-fourteen-year-old Fabian in a storage closet. Id.

In connection with these allegations, Fabian brought a three-count Second Amended Complaint against Earth Treks for Negligence (Count I), Negligent Hiring, Retention, and Supervision (Count II), and Respondeat Superior Liability (Count III). Id. , ¶¶ 54–98. Earth Treks coaches Lyons and Montague each subsequently pled guilty to various sex offenses in the Circuit Court for Howard County, Maryland. Id. , ¶ 11 (citing State v. Lyons , Case No. 13–K–11–051485; State v. Montague , Case No. 13–K–11–51536). As a result of repeated sexual assaults by both Lyons and Montague, Fabian has claimed injuries "in the form of significant, negative effects on [her] health." Id. , ¶ 50. In August of 2016, Earth Treks and Fabian reached a settlement in the Fabian Suit that was reflected in a confidential Settlement Agreement and Release. See Gemini Counterclaim, ¶ 50, ECF No. 7.

IV. Earth Treks' Extrinsic Evidence as to the Fabian Allegations

Earth Treks Chief Executive Officer Christopher Warner ("Warner"), Chief Operating Office Christopher Jenkins ("Jenkins"), and Vice President of Operations Scott Heidtman ("Heidtman") have stated that "[n]o one in Earth Treks' senior management knew or suspected that Michael Lyons or Daniel Montague would engage in inappropriate sexual activity or conduct with Kelsey Fabian or with any other Earth Treks team member." See, e.g. , Warner Aff., ¶ 4, ECF No. 19–1. Prior to joining Earth Treks, Lyons was a USA Climbing certified coach and coached a...