Southern Md. Agr. Ass'n v. Bituminous Cas. Corp.

• Decision Date: 07 May 1982
• Docket Number: Civ. A. No. M-81-1632.
• Citation: 539 F. Supp. 1295
• Parties: SOUTHERN MARYLAND AGRICULTURAL ASSOCIATION, INC. (A Maryland Corporation) and Southern Maryland Agricultural Fair Association of Prince George's County (A Maryland Corporation) v. The BITUMINOUS CASUALTY CORP. and Fireman's Fund Insurance Company.
• Court: U.S. District Court — District of Maryland

539 F. Supp. 1295

SOUTHERN MARYLAND AGRICULTURAL ASSOCIATION, INC. (A Maryland Corporation) and Southern Maryland Agricultural Fair Association of Prince George's County (A Maryland Corporation) v. The BITUMINOUS CASUALTY CORP. and Fireman's Fund Insurance Company.

Civ. A. No. M-81-1632.

United States District Court, D. Maryland.

May 7, 1982.

COPYRIGHT MATERIAL OMITTED

William R. Dorsey, III, E. Charles Dann, Jr., and Semmes, Bowen & Semmes, Baltimore, Md., for plaintiffs.

Robert E. Cahill, Ira L. Oring and Melnicove, Kaufman, Weiner & Smouse, Baltimore, Md., for defendant Bituminous Cas. Corp.

Donald L. Merriman and Merriman, Crowther & Merriman, Baltimore, Md., for defendant Fireman's Fund Ins. Co.

MEMORANDUM AND ORDER

JAMES R. MILLER, Jr., District Judge.

The plaintiffs, the Southern Maryland Agricultural Association, Inc. (Bowie) and the Southern Maryland Agricultural Fair Association of Prince George's County (Marlboro), brought this declaratory judgment action against the Bituminous Casualty Corporation (Bituminous) and the Fireman's Fund Insurance Company (Fireman's Fund), seeking a declaration that, under their respective insurance policies, the defendants are: (1) obligated to defend the plaintiffs in a tort suit now pending in state court; (2) obligated to pay the legal fees and expenses so far incurred by the plaintiffs in connection with the defense of that suit; and (3) obligated to allow the plaintiffs to select their own independent counsel to defend that suit, whose fees and expenses are to be paid by the defendants.

This case is presently before the court on the plaintiffs' motion for partial summary judgment.¹ The motion does not seek to establish the amount of fees and expenses, if any, the defendants are obligated to pay the plaintiffs. The issues have been briefed by the parties, and the court heard argument from counsel on April 23, 1982.

I. Overview

In October of 1979, William Bender and other former employees of the plaintiffs filed suit against Bowie, Marlboro, and other individuals and entities in the Superior Court of Baltimore City. That lawsuit (the Bender suit) was removed by Bowie and Marlboro to this Court, but was subsequently remanded to the Superior Court where it is presently pending.

The original declaration in the Bender suit contained seven counts seeking damages for the plaintiffs' allegedly improper charges of theft against Bender and his co-employees, which resulted in their indictment (subsequently nolle prosequi) and termination from employment.

The original declaration² filed on October 18, 1979, contained seven counts. The specific causes of action were preceded by "factual allegations" common to all of the counts. In brief, the Bender claimants alleged that they were members of a union having a collective bargaining agreement with Bowie and Marlboro; that they had worked as admission ticket sellers; that during the Bowie fall meet of 1976, Bowie, Marlboro and others³ investigated the claimants for alleged theft; that the investigation was superficial and without merit but led to the claimants' indictment and re-indictment in 1976 and 1977 for various theft-type offenses; and that after the charges were dismissed against Bender the charges against the remaining claimants were nolle prosequi.

Bowie and Marlboro removed the Bender suit to this Court on November 16, 1979, and filed a motion to dismiss. Judge Jones dismissed, without leave to amend, two counts of the original declaration. An amended and second amended declaration were filed in the Bender suit, the latter after remand to state court on May 4, 1981. In state court, a demurrer was sustained, without leave to amend, as to count seven, leaving for trial counts one, three, and six of the second amended declaration.⁴

Count one seeks to recover on a theory of malicious interference with contract, arising out of the allegation that Bowie and Marlboro caused the criminal indictments to be issued against the Bender claimants so they would be terminated from their employment with other racetracks. Count three seeks to recover against Bowie, Marlboro and others under a theory of malicious prosecution. In count six, the claimants contend that Bowie, Marlboro and others caused the issuance of the criminal indictments with the intention of inflicting emotional distress.

Bowie and Marlboro retained the law firm of Semmes, Bowen and Semmes (Semmes) to represent them in the Bender suit. Semmes has kept Bituminous and Fireman's Fund apprised of the developments in that litigation. It is undisputed that, despite repeated requests from Bowie and Marlboro, both Bituminous and Fireman's Fund have refused to assume the defense of the Bender suit.⁵

Bowie and Marlboro are named insureds under the terms of insurance policies issued by Bituminous⁶ and Fireman's Fund.⁷ The Bituminous policy covered the period January 1, 1976 to January 1, 1977. The Fireman's Fund policy covered the period January 1, 1977 to January 1, 1978.

The plaintiffs contend that under the terms of the respective insurance policies, the defendants are required to defend the Bender suit. The plaintiffs also contend that because the defendants have indicated that not all of the claims in the Bender suit are within the policy coverage, there is a conflict of interest and the plaintiffs are entitled to select independent counsel at the defendants' expense.

II. Discussion

The legal principles governing this sort of declaratory action are relatively well settled, and were recently reviewed in St. Paul Fire & Marine Insurance Co. v. Pryseski, 292 Md. 187, 438 A.2d 282 (1981). Writing for the Court of Appeals, Judge Eldridge stated:

"In determining whether a liability insurer has a duty to provide its insured with a defense in a tort suit, two types of questions ordinarily must be answered: (1) what is the coverage and what are the defenses under the terms and requirements of the insurance policy? (2) do the allegations in the tort action potentially bring the tort claim within the policy's coverage? The first question focuses upon the language and requirements of the policy, and the second question focuses upon the allegations of the tort suit.

At times these two questions involve separate and distinct matters, and at other times they are intertwined, perhaps involving an identical issue."

292 Md. at 193, 438 A.2d 282.

Thus, the court must first attempt to determine what sorts of claims are covered under the policy. If the question of what sorts of claims are covered is the same as the issue to be tried in the underlying tort suit, the court proceeds to the second inquiry. If not, the court must construe the policy to determine coverage.

If the policy language is unambiguous, the court determines as a matter of law the scope of the policy coverage. If, on the other hand, the language is ambiguous, the court must consider extrinsic evidence of the parties' intent and trade usage. Should the ambiguity not be resolved by resort to such extrinsic evidence, the policy is construed against the insurer, as the party which drafted the agreement, and in favor of coverage for the insured. St. Paul Fire & Marine Insurance Co. v. Pryseski, 292 Md. at 194-96, 438 A.2d 282; Truck Insurance Exchange v. Marks Rentals, Inc., 288 Md. 428, 433-36, 418 A.2d 1187 (1980).

If the court concludes that certain "claims" are covered under the policy language, or cannot so decide because that is the issue to be tried in the underlying action, the court then applies the rules of Brohawn v. Transamerica Insurance Co., 276 Md. 396, 347 A.2d 842 (1975). Judge Eldridge for the Court of Appeals stated the first rule as follows:

"The obligation of an insurer to defend its insured under a contract provision such as here involved 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. Journal Pub. Co. v. General Cas. Co., 210 F.2d 202, 207, (9th Cir. 1954); Boyle v. National Cas. Co., 84 A.2d 614, 615-616, (D.C.Mun.App.1951); Travelers Insurance Co. v. Newsom, 352 S.W.2d 888, 892 (Tex.Civ.App.1961); 7A Appelman, Insurance Law and Practice § 4682; Annot., 50 A.L.R.2d 458. 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. U.S.F.&G. v. Nat. Pav. Co., 228 Md. 40, 54, 178 A.2d 872 (1962)."

276 Md. at 407-08, 347 A.2d 842 (emphasis in original).

Should any of the claims in the underlying suit be within the policy coverage, the insurer, at least initially, is obligated to defend against all claims not specifically excluded by the policy. This court so held in Steyer v. Westvaco Corp., 450 F.Supp. 384 (D.Md.1978), stating:

"Once it is determined that the insurance policy creates a duty to defend against claims made within the policy's coverage and it is further determined that the complaint alleges a cause of action within the policy's coverage, the company is obligated to defend the suit, notwithstanding alternative allegations outside the policy's coverage, until such time, if ever, that the claims have been limited to ones outside the policy coverage. See, e.g., Brohawn v. Transamerica Ins. Co., 276 Md. 396, 347 A.2d 842 (1975) (implicit); Employers Mutual Liability Ins. Co. v. Hendrix, 4th Cir. 199 F.2d 53 at 56-57; Bundy Tubing Co. v. Royal Indemnity Co., 298 F.2d 151, 154 (6th Cir. 1962)."

450 F.Supp. at 389.⁸ See Minnick's, Inc. v. Reliance Insurance Co., 47 Md.App. 329, 333-34, 422 A.2d 1028 (1980) (quoting Steyer with approval).

Brohawn also established the rule that an insurer is not relieved of its duty to defend even if so doing would place the insurer in a situation of conflict of interest with the insured. For example, if under one theory of recovery (i.e. negligence) there is policy coverage...