PG v. LOCAL GOVERNMENT INS. TRUST

Decision Date21 July 2005
Docket NumberNo. 127,127
Citation879 A.2d 81,388 Md. 162
PartiesPRINCE GEORGE'S COUNTY, Maryland v. LOCAL GOVERNMENT INSURANCE TRUST.
CourtMaryland Court of Appeals

Geoffrey S. Gavett (Rhoda S. Barish of Gavett and Datt, P.C. of Rockville), on brief, for petitioner

David M. Funk and Jefferson L. Blomquist (Funk & Bolton, P.A. of Baltimore,) on brief, for respondent.

Argued before BELL, C.J., RAKER, WILNER, CATHELL, HARRELL, BATTAGLIA and GREENE, JJ.

RAKER, J.

This appeal is an excess insurance case arising from a claim of police brutality against Prince George's County and three of the County's police officers. The excess insurer for the County denied coverage because the County failed to inform the excess insurer of the incident, claim, and lawsuit until after the trial. The insured sought declaratory judgment in the Circuit Court for Prince George's County, and the Circuit Court granted summary judgment to the excess insurer. The Court of Special Appeals affirmed, holding that the insured violated the notice requirements of the policy and that the excess insurer was prejudiced as a matter of law. We affirm.

I.

Respondent Local Government Insurance Trust ("the Trust") was established by Maryland local governments, pursuant to Md.Code (1997, 2002 Repl.Vol., 2004 Cum.Supp.), § 19-602 of the Insurance Article,1 to pool together to provide insurance protection to themselves and their employees.2 The Trust consists of separate pools providing coverage for different types of risk. Members may participate in any one or in several pools. The Maryland Municipal League, the Maryland Association of Counties, and approximately 163 Maryland local governments participate in the Trust through the execution of a Trust Agreement, designation of one or more pools, and contribution of premiums into the selected pools. The premiums cover administrative expenses, claim costs, loss reserves, and other expenses. If a pool runs a deficit, the trustees may assess a premium adjustment or increase premiums for the following years.

Petitioner, Prince George's County ("the County"), was a member of the Trust and participated in its Excess Liability Program from July 1, 1996 through July 1, 1998.3 The County self-insured for up to one million dollars, and the Excess Liability Program covered losses by the County in excess of one million dollars and up to five million dollars.

Underlying the instant case is a civil action brought by Freddie McCollum, Jr. and his family in the United States District Court for the District of Maryland against the County and three of its police officers. The McCollums alleged that on June 28, 1997, following a traffic stop, the three officers, accompanied by a police dog, entered McCollum's home without a warrant and savagely beat him. McCollum suffered severe injuries, including the loss of his right eye. McCollum notified the County of his fifty million dollar claim by letter on November 7, 1997 and filed suit on March 19, 1998.

The federal jury found that the entry of one of the officers into McCollum's home violated his federal and state constitutional rights and awarded him nominal damages of one dollar. The jury also found that all the officers had used excessive force in violation of McCollum's federal and state constitutional rights and had battered him maliciously. The jury awarded him damages of over $4,100,000. The District Court granted the County and the officers' request for remittitur and entered judgment for $1,597,670. The County and the officers appealed to the United States Court of Appeals for the Fourth Circuit, which affirmed the judgment per curiam in an unreported opinion. The County paid the judgment.

At no point prior to the jury verdict did the County notify the Trust of the incident involving the officers and McCollum or of McCollum's suit against the County and its officers. On April 13, 2000, ten days after the jury returned its verdict, the County first wrote to the Trust, informed the Trust of the judgment, noted the excess coverage policy, and expressed the expectation that the Trust would want to participate in an upcoming settlement conference. The Trust replied to the County and denied coverage and indemnification.

The County filed suit against the Trust in the Circuit Court for Prince George's County, alleging a breach of contract and seeking a declaratory judgment. The two parties filed cross-motions for summary judgment. Following a hearing, the court granted summary judgment in favor of the Trust. The court concluded that the Trust was not obligated to indemnify the County because the County had failed to give notice as required by the policy. Additionally, the court found that the underlying suit by McCollum against the County did not meet the coverage requirements of the Commercial General Liability section of the policy.

The County noted a timely appeal to the Court of Special Appeals. That court affirmed, holding that the County breached the notice requirement of the policy and that the Trust was prejudiced by the breach as a matter of law. See Prince George's v. LGIT, 159 Md.App. 471, 484, 487, 859 A.2d 353, 360, 362 (2004). The court did not reach the issue of whether the underlying claims otherwise qualified under the policy. Id. at 475, 859 A.2d at 355.

This Court granted the County's petition for a Writ of Certiorari. 384 Md. 581, 865 A.2d 589 (2005). Three questions are presented for our consideration:

"1. Whether an endorsement to an excess insurance policy ... [conflicts with and] supersedes the `Conditions' provisions of the main policy part."
"2. Whether an excess insurer ... is prejudiced as a matter of law by the insured's late notice [given after judgment was entered in the underlying suit]...."
"3. Whether the use of excessive force by a County's police officers which caused the plaintiffs bodily injury, mental anguish, and other harms, constitutes an `occurrence' and `personal injury' as defined by a commercial general liability policy."

In response to the first question, we hold that the Circuit Court did not err in finding that the main part of the policy and the endorsement did not conflict, that both required the County to notify the Trust well before the judgment, and that the County violated the notice requirements of the policy. In considering the second question, we first determine whether the Trust was required to show prejudice. We conclude that the Trust is exempted from the statute requiring a showing of prejudice, but that the Trust was required to show prejudice under the common law. The Trust was prejudiced as a matter of law because it did not receive notice until after the verdict. Accordingly, we hold that the Trust was entitled to deny the County coverage.4

II.

The Excess Liability Program provided coverage for four types of liability: Commercial General Liability, Police Legal Liability, Public Officials Liability, and Business Automobile. In this appeal, the County claims coverage only under the Commercial General Liability coverage.5 The terms of the Program were governed by three documents: the Coverage Declaration Form, the Excess Liability Scope of Coverage ("Scope of Coverage"), and the Self-Insurance Program Excess Coverage Endorsement ("Endorsement").6

The position of the County is that the "Claim Reporting" conditions in the Endorsement contradict and supercede the notice provisions in the Scope of Coverage. The County argues that the notice provisions in the Scope of Coverage applied only to the Trust members for whom the Trust was their primary coverage. Unlike those members, members who self-insured for primary coverage and only participated in the Excess Liability Program were responsible for the investigation, settlement, and defense of any claims or suits brought against them. The County reasons that the Trust only required pre-trial notice for claims and suits it was required to investigate, settle, and defend. The County fulfilled its notice obligations under the Endorsement, the County claims, and, therefore, the Trust could not deny coverage. Additionally, the County argues that even viewing the Scope of Coverage by itself, the County was not required to notify the Trust before the judgment.

The County next argues that the Court of Special Appeals erred in holding that the Trust was prejudiced as a matter of law. According to the County, the Trust suffered no prejudice because the Trust, as an excess insurer, did not have the right to control the defense, investigation, and settlement of the suit. At the least, the County argues, the issue of whether the Trust suffered prejudice is a question of fact. Specifically, the County notes that it vehemently disputed in the Circuit Court the allegations of the Trust that the County had made strategic mistakes in defending the underlying suit.

The Trust responds that the County violated the express terms of the Scope of Coverage and the Endorsement by failing to notify the Trust of the incident between McCollum and the police and of the subsequent legal action and by failing to furnish the Trust with relevant documents. The Trust rejects the contention of the County that the Endorsement conflicted with and superceded the notice requirements detailed in the Scope of Coverage. First, the Trust notes that it maintains an interest in the outcome of suits brought against its members participating in its Excess Liability Program and possesses a right to participate in the defense of the suits, despite the fact that it is not obligated to investigate, settle, or defend the suits. Second, the Trust argues that even if the Scope of Coverage and the Endorsement conflict, the express language of the Scope of Coverage mandates that the conflict be resolved in favor of the provision in the Scope of Coverage.

The Trust argues that it was not required to show prejudice and that even if it were, the Court of Special Appeals did not err in finding that...

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