Pennsylvania Nat'l Mut. Cas. Ins. Co. v. Roberts

• Decision Date: 03 February 2012
• Docket Number: Nos. 10–1987,10–1988.,s. 10–1987
• Citation: 668 F.3d 106
• Parties: PENNSYLVANIA NATIONAL MUTUAL CASUALTY INSURANCE COMPANY, Plaintiff–Appellee, v. Lakia C. ROBERTS, Defendant–Appellant,andAttsgood Realty Company; Stewart D. Sachs, as trustee of the assets of Dreck, Incorporated, DefendantsComplex Insurance Claims Litigation Association, Amicus Supporting Appellee.Pennsylvania National Mutual Casualty Insurance Company, Plaintiff–Appellant, v. Lakia C. Roberts, Defendant–Appellee,andAttsgood Realty Company; Stewart D. Sachs, as trustee of the assets of Dreck, Incorporated, DefendantsComplex Insurance Claims Litigation Association, Amicus Supporting Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

668 F.3d 106

PENNSYLVANIA NATIONAL MUTUAL CASUALTY INSURANCE COMPANY, Plaintiff–Appellee,

v.Lakia C. ROBERTS, Defendant–Appellant,andAttsgood Realty Company; Stewart D. Sachs, as trustee of the assets of Dreck, Incorporated, DefendantsComplex Insurance Claims Litigation Association, Amicus Supporting Appellee.Pennsylvania National Mutual Casualty Insurance Company, Plaintiff–Appellant,

v.Lakia C. Roberts, Defendant–Appellee,andAttsgood Realty Company; Stewart D. Sachs, as trustee of the assets of Dreck, Incorporated, DefendantsComplex Insurance Claims Litigation Association, Amicus Supporting Appellant.

Nos. 10–1987

10–1988.

United States Court of Appeals, Fourth Circuit.

Argued: Dec. 7, 2011.Decided: Feb. 3, 2012.

ARGUED: John Amato, Goodman, Meagher & Enoch, Baltimore, Maryland, for Lakia C. Roberts. Regina Maria Policano, Midkiff, Muncie & Ross, PC, Richmond, Virginia, for Pennsylvania National Mutual Casualty Insurance Company. ON BRIEF: Bruce Harrison Powell, Law Offices of Peter T. Nicholl, Baltimore, Maryland, for Lakia C. Roberts. Kevin Thomas Streit, Midkiff, Muncie & Ross, PC, Richmond, Virginia, for Pennsylvania National Mutual Casualty Insurance Company. Laura A. Foggan, Gregory J. Langlois, Wiley Rein LLP, Washington, D.C., for Complex Insurance Claims Litigation Association.

Before WILKINSON and DUNCAN, Circuit Judges, and RICHARD M. GERGEL, United States District Judge for the District of South Carolina, sitting by designation.

Affirmed in part, reversed in part, and remanded by published opinion. Judge WILKINSON wrote the opinion, in which Judge DUNCAN and Judge GERGEL joined.

OPINION

WILKINSON, Circuit Judge:

In this case, an insurer sought a declaratory judgment that it was required to indemnify its insured for no more than 40 percent of a state court judgment because it had covered its insured for no more than 40 percent of the time in which the state court plaintiff was exposed to lead poisoning. The district court agreed that the insurer was responsible for only a portion of the judgment, notwithstanding the fact that its insured was held jointly and severally liable for the entire judgment in the underlying state proceeding. The state plaintiff (and defendant in the federal declaratory action) appeals, and we affirm in part and reverse in part. The principle underlying our decision is a straightforward one: an insurance company cannot be held liable for periods of risk it never contracted to cover.

I.

A.

From her birth on January 17, 1991 until 1998, Lakia Roberts resided at a house on 1740 East Preston Street in Baltimore, Maryland. In September 1992, when she was 20 months old, Roberts was diagnosed with lead poisoning. A test indicated that she had an elevated blood lead level of 28 micrograms of lead per deciliter of blood (“mcg/dL”). She continued to exhibit elevated blood lead levels until August 1995.

On February 4, 2005, Roberts filed a complaint in Maryland state court against Attsgood Realty Company alleging that the injuries she sustained from the lead poisoning were the result of its negligent management of the East Preston Street property. Attsgood had owned, leased, and managed the property from Roberts's birth until November 1, 1993, when it had sold the property to Gordon Gondrezick.

Attsgood then requested defense and indemnification from Pennsylvania National Mutual Casualty Insurance Company (“Penn National”) under the terms of its insurance contract. In 1992, Penn National had issued a liability insurance policy to Attsgood covering the period from January 13, 1992 to January 13, 1993. The policy was later renewed to extend coverage to January 13, 1994. According to the terms of the contract, Penn National promised Attsgood that it would provide liability insurance for “Premises You Own, Rent or Occupy,” including 1740 East Preston Street. From Roberts's birth in January 1991 until this coverage began in January 1992, Attsgood lacked liability insurance for the East Preston Street property.

Under the contract, Penn National promised to “pay those sums that [Attsgood] becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies” as well as “defend any ‘suit’ seeking those damages.” This guarantee was in turn qualified by a provision stating that “this insurance applies to ‘bodily injury’ and ‘property damage’ only if ... the ‘bodily injury’ or ‘property damage’ occurs during the policy period.” The contract also made clear that Attsgood's “rights and duties under this policy may not be transferred without [Penn National's] written consent except in the case of death of an individual [n]amed [i]nsured.”

In accordance with the policy, Penn National agreed to defend Attsgood subject to a reservation of its rights. Attsgood then filed a third party complaint against Gondrezick seeking contribution and indemnification in the event that Roberts prevailed. After Gondrezick failed to appear or otherwise defend himself, the Maryland court entered an order of default against him in favor of Attsgood.

Following discovery, the state case went to trial on May 4, 2009 on counts of negligence and unfair trade practices. To prove the property owners' liability, Roberts's mother and her expert witness provided testimony indicating that Roberts had been exposed to lead poisoning at the East Preston Street property since her infancy and that this exposure had resulted in permanent brain damage. Attsgood in turn challenged the contention that the presence of lead at its property was the actual source of Roberts's injuries.

The trial ended on May 8, 2009. The jury returned a verdict in favor of Roberts for $2,000,000, which was reduced to $850,000 following an application of Maryland's noneconomic damages cap. It is undisputed that Attsgood and Gondrezick are jointly and severally liable for this amount.

B.

On October 9, 2009, Penn National filed a declaratory judgment action against Attsgood and Roberts in federal court on the basis of diversity jurisdiction. The insurer sought a determination that it was obligated to indemnify Attsgood for no more than 40 percent of the total judgment, or $340,000. Penn National filed a motion for default judgment against Attsgood after it failed to respond. Penn National also filed a motion for summary judgment against Roberts arguing that it should be liable for only 22 months of the entire period of Roberts's exposure to the risk of lead poisoning. It calculated that while it had insured Attsgood for the 24 months from January 1992 to January 1994, Attsgood had sold the property to Gondrezick in November 1993, thereby resulting in a total of 22 months of coverage.

Roberts saw the matter differently. She argued that Penn National was responsible for paying the entire $850,000 judgment in light of “the joint and several liability of [its] insured.” She also contended that even if the district court decided to allocate liability, “virtually all” of her “lead exposure occurred during Penn National's two policy periods,” beginning with the discovery of her elevated blood lead level in September 1992.

The district court largely agreed with Penn National. Relying on Mayor & City Council of Baltimore v. Utica Mutual Insurance Co., 145 Md.App. 256, 802 A.2d 1070, 1104 (2002), the court observed that in lead paint or “continuous trigger” cases such as this, Maryland courts determine an insurer's liability through a “pro-rata allocation by ‘time on the risk.’ ” Applying this method of allocation to the $850,000 judgment, the district court determined that the “evidence in the underlying litigation ... established that Roberts was first exposed to lead paint when she was born on January 17, 1991.” It then used August 1995, the month of Roberts's final elevated blood lead level, as the cut-off point for her period of exposure. Based on these dates, the district court concluded that Roberts had been exposed to lead poisoning from January 17, 1991 to August 1995, for a total of 55 full months.

The district court then calculated Penn National's period of coverage. It concluded that Penn National provided insurance to Attsgood from January 13, 1992 to January 13, 1994, for a total of 24 months. The court rejected Penn National's argument that its period of coverage should be reduced to 22 months because Attsgood had sold the property to Gondrezick on November 1, 1993, concluding that while “under the terms of the insurance contract Penn National may be correct, the record is entirely barren of facts showing that Penn National's coverage in fact was terminated.”

In its allocation of liability, the district court used the 24 months of coverage as the numerator and the 55 months of exposure to lead poisoning as the denominator to conclude that Penn National was responsible for 24/55, or approximately 43.6 percent, of the judgment. It then found that “Penn National is liable to Roberts for $370,600 (43.6% x $850,000), but no more.”

C.

Both Roberts and Penn National appeal from the district court's judgment. On appeal, Roberts advances two main arguments. She first contends that the district court erred in allocating Penn National's liability on a pro rata basis. She next argues that even if pro rata allocation was appropriate, the district court should have used the date of her first elevated blood lead level rather than her date of birth to calculate her period of exposure. For its part, Penn National challenges the district court's refusal to reduce its period of coverage to 22 months.

We review the grant of a motion for summary judgment de novo, applying the same standards as the district court. Because jurisdiction here was founded on diversity of citizenship, we apply the same substantive law that a court in Maryland, the forum state, would apply if it were deciding this case. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496–97, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The parties...