Patrons Oxford Mut. Ins. Co. v. Garcia

• Decision Date: 26 February 1998
• Citation: 707 A.2d 384,1998 ME 38
• Parties: PATRONS OXFORD MUTUAL INSURANCE COMPANY v. Jesus GARCIA.
• Court: Maine Supreme Court

Page 384

707 A.2d 384

1998 ME 38

PATRONS OXFORD MUTUAL INSURANCE COMPANY v. Jesus GARCIA.

Supreme Judicial Court of Maine.

Argued Dec. 2, 1997.

Decided Feb. 26, 1998.

James D. Poliquin (orally), Portland, for plaintiff.

Rebecca S.K. Webber (orally), Douglas A. Grauel, Linnell, Choate & Webber, L.L.P., Auburn, for defendant.

Before WATHEN, C.J., ROBERTS, CLIFFORD, RUDMAN, DANA, LIPEZ, and SAUFLEY, JJ.

SAUFLEY, Justice.

¶1 Patrons Oxford Mutual Insurance Company appeals from a judgment entered in the Superior Court (Androscoggin County, Bradford, J.) dismissing its complaint for declaratory judgment seeking a determination that it had no duty to defend or indemnify its insured, Jesus Garcia, against claims that might be brought by Garcia's lessee. The sole issue presented by this appeal is whether the court correctly concluded that the issue was not yet ripe for judicial determination. We affirm the judgment.

¶2 Patrons's complaint alleges the following facts. In June of 1996, Garcia leased a single-family residence in Turner to Theodore Collins ¹ and Carmen Baldwin for a one- year term. In July of 1996, Collins sustained injuries when he received an electrical shock while operating a pump in the flooded basement of the residence. At the time of the injury, the residence was insured under a standard homeowner's policy issued to Garcia by Patrons. The policy excludes coverage for bodily injury "[a]rising out of the rental or holding for rental of any part of the premises" by an insured. The policy also contains an exception to that exclusion for the occasional rental of the insured premises as a residence.

¶3 Patrons's declaratory judgment action asserted that Patrons had no obligation to defend or indemnify Garcia in connection with any claim that Collins might assert as a result of the injuries sustained in July of 1996. Based on the coverage exclusion for injuries arising out of the rental of the premises, Patrons asserted that coverage is precluded and that the occasional basis exception to the exclusion does not apply because Garcia had leased the residence to Collins for one year. Garcia moved to dismiss the complaint, contending that the action was not ripe because Collins had not filed a complaint against Garcia. Concluding that "the question of coverage is not ripe for determination[,]" the court granted the motion. ² This appeal followed.

¶4 The Uniform Declaratory Judgments Act, 14 M.R.S.A. §§ 5951-5963 (1980 & Supp.1997), may be invoked only where there is a genuine controversy. See Wagner v. Secretary of State, 663 A.2d 564, 567 (Me.1995). A genuine controversy exists if a case is ripe for judicial consideration and action. Id. An "[a]nalysis of the ripeness issue involves two principal points of focus[:] the fitness of the issue for judicial decision, and the hardship to the parties of withholding court consideration." Maine Pub. Serv. Co. v. Public Utils. Comm'n, 524 A.2d 1222, 1226 (Me.1987).

¶5 We first address whether Patrons's duties to defend and indemnify are fit for adjudication at this time. Because an insurer's duty to defend its insured against a suit is ordinarily determined by comparing the facts alleged in the complaint with the terms of the policy, the insurer's duties are not usually fit for adjudication until a complaint has been filed against its insured. See, e.g., State Mut. Ins. Co. v. Bragg, 589 A.2d 35, 36 (Me.1991). Generally, "[i]n determining the duty to defend ... the court's consideration is limited to the underlying complaint and the insurance policy." Northern Sec. Ins. Co. v. Dolley, 669 A.2d 1320, 1322-23 (Me.1996) (citing American Policyholders' Ins. Co. v. Cumberland Cold Storage Co., 373 A.2d 247, 249 (Me.1977)).

¶6 Once the complaint has been filed, "[i]f the allegations in the underlying tort action are within the risk insured against and there is any potential basis for recovery, the insurer must defend the insured regardless of the actual facts on which the insured's ultimate liability may be based." Gibson v. Farm Family Mut. Ins. Co., 673 A.2d 1350, 1352 (Me.1996). See also Maine State Academy v. Commercial Union Ins. Co., 1997 ME 188, p 5, 699 A.2d 1153, 1156. Where there is any possible legal or factual basis for payment under a policy, an insurer's duty to defend must be decided summarily in favor of the insured. Gibson, 673 A.2d at 1352. In Travelers Indem. Co. v. Dingwell, 414 A.2d 220 (Me.1980), we explained the justification for this general rule:

If we were to look beyond the complaint and engage in proof of actual facts, then the separate declaratory judgment actions ... would become independent trials of the facts which the [insured] would have to carry on at his expense.... We see no reason why the insured, whose insurer is obligated by contract to defend him, should have to try the facts in a suit against his insurer in order to obtain a defense.

Id. at 227. "Except in limited circumstances, an insurer cannot avoid its duty to defend by establishing, before the underlying action has concluded, that ultimately there will be no duty to indemnify." Northern Sec. Ins. Co. v. Dolley, 669 A.2d at 1320 (footnote omitted).

¶7 We have identified several instances where the insurer is not required to await the filing of the complaint in order to seek declaratory relief. A narrow exception exists where the insurer disputes its duties to defend and indemnify based on issues such as "nonpayment of a premium, cancellation of a policy, failure to cooperate or lack of timely notice[.]" Cumberland Cold Storage Co., 373 A.2d at 250. In these circumstances, both obligations may be appropriately determined prior to the entry of judgment in the underlying tort action. Id. The rationale for these exceptions is that the coverage dispute depends entirely on the relationship between the insurer and the insured, not on facts to be determined in the underlying litigation. ³ Additional exceptions exist where the insured, the insurer, and the injured claimant stipulate to the facts material to the insurer's duty to indemnify ⁴ or where the pertinent facts have been determined in other proceedings. ⁵ In either case, the concern about requiring the insured to litigate the facts of a claim simply to obtain a defense is not present.

¶8 Patrons argues that its complaint falls within the exception allowing adjudication of the insurer's declaratory judgment action where the coverage determination is entirely separable from the merits of the injured party's claims. Patrons's assertion, however, that the coverage issues in this matter are entirely separable from the underlying claim is not accurate. The coverage decision directly involves resolution of facts regarding the relationship, not between the insurer and the insured, but between the insured and the claimant. ⁶ The nature of Collins's relationship with Garcia and the reason for Collins's presence in the basement will be relevant both on issues of coverage and Garcia's liability to Collins.

¶9 Patrons next urges this court to create an additional exception where the insurer asserts that there can be no reasonable dispute regarding the applicability of a coverage exclusion. Essentially, Patrons's declaratory judgment action invites the court to resolve issues of fact regarding Collins's injuries that have not been determined either through prior litigation or through a stipulation. Although the rental exclusion may ultimately be determined to be applicable, its applicability cannot be determined without factual inquiry by the court. Such an inquiry into the relationship between Collins and Garcia...