Nautilus Ins. Co. v. Bsa Ltd. Partnership, Civil No. JFM-07-11.

• Decision Date: 10 March 2009
• Docket Number: Civil No. JFM-07-11.
• Parties: NAUTILUS INSURANCE COMPANY v. BSA LIMITED PARTNERSHIP, et al.
• Court: U.S. District Court — District of Maryland

602 F.Supp.2d 641

NAUTILUS INSURANCE COMPANY v. BSA LIMITED PARTNERSHIP, et al.

Civil No. JFM-07-11.

United States District Court, D. Maryland.

March 10, 2009.

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Stacey Ann Moffet, Eccleston and Wolf PC, Hanover, MD, Gerald P. Konkel, Morgan Lewis and Bockius LLP, Washington, DC, for Nautilus Insurance Company.

Tracie N. Wesner, Eccleston and Wolf PC, Washington, DC.

Isabelle Marie Thabault, Washington Lawyers Committee for Civil Rights, Daniel E. Chefitz, Gerald P. Konkel, Steven Andrew Luxton, Morgan Lewis and Bockius LLP, Washington, DC, for BSA Limited Partnership, et al.

MEMORANDUM

J. FREDERICK MOTZ, District Judge.

Plaintiff Nautilus Insurance Company ("Nautilus" or "the Insurer") brings this declaratory judgment action to clarify its duty to defend and indemnify its insured, defendant BSA Limited Partnership ("BSA" or "the Insured"), in a civil suit brought by defendants Bridgette Feemster, Sabrina Lymore, Mary Brown, Betrice Harris, Michelle Hawkins, Shirley Holland, Dyanne Johnson, Lillian Johnson, Shirley Lattimore, and Dorothy Paul (collectively "Feemster Parties") against BSA.¹ The underlying suit was brought by the Feemster Parties in the United States District Court for the District of Columbia in an action captioned Bridgette Feemster, et al. v. BSA Limited Partnership, Case No. 1-04 cv-01901-RBW ("underlying DC suit"). Now pending before the court is plaintiff Nautilus's motion for summary judgment and motion for default judgment against BSA. The issues have been fully briefed and no hearing is necessary. Local Rule 105.6. For the reasons stated below, plaintiffs summary judgment motion is denied in part and granted in part, and plaintiffs motion for default judgment against BSA is granted.²

I.

The underlying DC suit arises out of BSA's ownership and operation of the Bates Street Townhomes ("the Townhomes") in the District of Columbia. The Feemster Parties, plaintiffs in the underlying DC suit, were residents of the Townhomes. BSA participated in the Section 8 rental assistance program, entering into a renewable Housing Assistance Payments ("HAP") contract for the Townhomes with the United States Department of Housing and Urban Development ("HUD"). Under HAP contracts, HUD agrees to provide rental assistance payments to the landlord on the tenant's behalf. The low-income tenant pays 30% of his or her adjusted income, and HUD pays the difference between the tenant's payment and the rent.

When a HAP contract expires, a private landlord may choose to opt-out of Section 8 instead of renewing, but the landlord must give proper notice to tenants affected by the opt-out and tenants have the right under federal law to remain in their units. See 42 U.S.C. § 1437f(c)(8)(A); id. § 1437f(t)(1)(B). "Enhanced vouchers" are available to enable tenants to remain in units no longer governed by the HAP contract. The vouchers may be used to rent the same unit, if the unit remains a rental property, or a unit at another location. The vouchers are termed "enhanced" because they cover any difference between the previous rent amount under the HAP contract and the new, likely higher, market rent. After opting-out of the Section 8 program, landlords have an obligation to complete the paperwork needed for the tenants' participation in the enhanced voucher program, including execution of a lease that includes a HUD-prescribed tenancy addendum.

BSA decided to opt-out of the program when its HAP contract expired. BSA purported to give the one-year required notice to its tenants, effective September 30, 2004. The DC Housing Authority, which administers the tenant-based voucher program, issued enhanced vouchers to several of the Feemster Parties. However, BSA allegedly refused to accept the enhanced vouchers as rent payment and refused to sign or execute any lease agreements or lease addenda. Instead, BSA required the tenants to pay the full market rent.

The underlying DC suit was filed by the Feemster Parties in November 2004, and a temporary restraining order was issued. A second amended complaint was filed on March 17, 2005, alleging that BSA unlawfully refused to accept enhanced vouchers as rent payments or execute the necessary lease addenda. The Feemster Parties asserted violations of the United States Housing Act and the Multifamily Assisted Housing Reform and Affordability Act of 1997 (as amended), 42 U.S.C. § 1437f, the National Housing Act, 12 U.S.C. § 1701 et seq., the District of Columbia Human Rights Act, D.C.Code § 2-1402.21, and the District of Columbia Consumer Protection Procedures Act, D.C.Code § 28-3901 et seq. The Feemster Parties requested injunctive and declaratory relief. Specifically, the Feemster Parties requested a declaration that BSA's acts violated federal and DC law and that BSA must accept the enhanced vouchers. They requested an injunction requiring BSA to accept the enhanced vouchers and complete any requirements necessary to enter into voucher contracts, and forbidding BSA from evicting the Feemster Parties from their units on impermissible grounds. They also requested compensatory and punitive damages, attorneys' fees, and costs.

On January 12, 2007, the District Court for the District of Columbia granted in part and denied in part the parties' crossmotions for summary judgment. Feemster v. BSA Ltd. P'ship ("Feemster I"), 471 F.Supp.2d 87 (D.D.C.2007). BSA's motion to alter or amend that order was denied on October 1, 2007, and both parties appealed to the United States Court of Appeals for the District of Columbia. The D.C. Circuit affirmed in part and reversed in part and remanded the case to the district court. Feemster v. BSA Ltd. P'ship ("Feemster II"), 548 F.3d 1063, 1071 (D.C.Cir.2008).

Plaintiff Nautilus issued a "Commercial Lines Policy" ("the policy") to defendant BSA, effective September 30, 2004 to September 30, 2005. (Pl.'s Mem. in Supp. of its Mot. for Summ. J. ("Pl.'s Mem.") Ex. A.) Nautilus provided a defense for BSA throughout the underlying litigation.³ Nautilus now seeks a determination of its duty to defend and indemnify BSA in the underlying DC action.

II.

A motion for summary judgment will be granted when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The substantive law of the cause of action determines which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. The parties agree that Maryland law applies.

Under Maryland law, "[t]he obligation of an insurer to defend its insured under a contract provision ... is determined by the allegations in the tort actions. If the plaintiffs in the tort suits allege a claim covered by the policy, the insurer has a duty to defend." Brohawn v. Transamerica Ins. Co., 276 Md. 396, 347 A.2d 842, 850 (1975). "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.; see also Sheets v. Brethren Mut. Ins. Co., 342 Md. 634, 679 A.2d 540, 544 (1996) (duty to defend exists if plaintiffs in a tort action allege an "action that is potentially covered by the policy, no matter how attenuated, frivolous, or illogical that allegation may be"). "[A]ny doubt as to whether there is a potentiality of coverage under an insurance policy is to be resolved in favor of the insured." Chantel Assocs. v. Mount Vernon Fire Ins. Co., 338 Md. 131, 656 A.2d 779, 786 (1995); see also Aetna Cas. & Sur. Co. v. Cochran, 337 Md. 98, 651 A.2d 859, 863-64 (1995) ("Our cases indicate that where a potentiality of coverage is uncertain from the allegations of a complaint, any doubt must be resolved in favor of the insured.").

Maryland courts have established a two-part inquiry for determining whether an insurer has a duty to defend its insured. First, the court must determine "the coverage and ... the defenses under the terms and requirements of the insurance policy." St. Paul Fire & Marine Ins. Co. v. Pryseski, 292 Md. 187, 438 A.2d 282, 285 (1981). This inquiry "focuses upon the language and requirements of the policy." Id. Second, focusing upon the allegations of the underlying suit, the court must determine whether the "allegations in the tort action potentially bring the tort claim within the policy's coverage." Id.

When determining the scope and limitations of coverage under an insurance policy, Maryland courts "construe the instrument as a whole to determine the intention of the parties" and "`examine the character of the contract, its purpose, and the facts and circumstances of the parties at the time of execution.'" Clendenin Bros., Inc. v. United States Fire Ins. Co., 390 Md. 449, 889 A.2d 387, 393 (2006) (quoting Pacific Indem. Co. v. Interstate Fire & Cas. Co., 302 Md. 383, 488 A.2d 486, 488 (1985)). "When interpreting the language of a contract, `we accord a word its usual, ordinary and accepted meaning unless there is evidence that the parties intended to employ it in a special or technical sense.'" Id. (quoting Cheney v. Bell Nat'l Life Ins. Co., 315 Md. 761, 556 A.2d 1135, 1138 (1989)). If the terms used are unambiguous, the meaning of the terms are determined by the court as a matter of law. Id. If the terms of the policy are ambiguous, the court may consult extrinsic evidence. Id. A contract term is ambiguous "`if, to a reasonably prudent person, the term is susceptible to more than one meaning.'" Id. (quoting Cole v. State Farm Mut. Ins. Co., 359 Md. 298, 753 A.2d 533, 537 (2000)). While Maryland does not apply the principle found in other jurisdictions that an insurance policy is to be construed most strongly...