T.H.E. Ins. Co. v. P.T.P. Inc., 120

Citation331 Md. 406,628 A.2d 223
Decision Date01 September 1992
Docket NumberNo. 120,120
PartiesT.H.E. INSURANCE COMPANY v. P.T.P. INCORPORATED et al. ,
CourtCourt of Appeals of Maryland

R. Wayne Pierce, Niles, Barton & Wilmer, Baltimore, on brief, for appellant.

David E. Manoogian, Epstein, Becker & Green, and Jean M. Jones, on brief, Washington, DC, for amicus curiae Ohio Hosp. Ins. Co.

David M. Funk, Richard A. Froehlinger, III, of Shapiro and Olander, on brief, Baltimore, for amicus curiae Medical Mut. Liability Ins. Soc. of MD.

Donald C. Allen, Denise Ramsburg Stanley, Allen, Johnson, Alexander & Karp, on brief, Baltimore, for amicus curiae Scottsdale Ins. Co.

E. Dale Adkins, III, Anderson, Coe & King, on brief, Baltimore, Joseph F. Cunningham, Joseph F. Cunningham & Associates, Washington, DC, on brief, for appellee.

Argued before ELDRIDGE, RODOWSKY, McAULIFFE, CHASANOW, KARWACKI and ROBERT M. BELL, JJ., and CHARLES E. ORTH, Jr., Associate Judge of the Court of Appeals (retired) Specially Assigned.

RODOWSKY, Judge.

This case involves the effect of the notice-prejudice provisions of Md.Code (1957, 1991 Repl.Vol.), Art. 48A, § 482, on an insurer's denial of coverage under a claims made liability insurance policy for a claim made and reported after the policy had expired. It is the issue that we did not reach in St. Paul Fire & Marine Ins. Co. v. House, 315 Md. 328, 554 A.2d 404 (1989), but which the dissenting judges in House would have reached. In deciding the issue in this case we apply, in substance, the analysis presented in Chief Judge Murphy's dissent in House. Under that analysis § 482 does not produce coverage in this case.

One of the three appellees, P.T.P. Incorporated (P.T.P.), operated a go-kart track near Ocean City, Maryland. On August 27, 1987, nine year old Lisa Buckley (Buckley) was injured at P.T.P.'s track when the go-kart in which she was riding with her uncle struck a barrier. Buckley was ministered to by her mother at the scene and left the premises with her, without receiving any other medical attention.

At that time P.T.P. was insured under a comprehensive general liability policy issued in April 1987 by the appellant, T.H.E. Insurance Company (T.H.E.). The policy was the first one issued to P.T.P. by T.H.E. P.T.P. purchased the policy through Atlantic Insurance Associates (Atlantic), whose president is Alfred Melson (Melson). Both are appellees. At the time of Buckley's accident, P.T.P. did not report the occurrence to T.H.E., Atlantic, or Melson.

The policy acquired by P.T.P. from T.H.E. was written on a claims made basis. The policy period was from April 2, 1987, to April 2, 1988, with a retroactive date of April 2, 1987. 1 In the following year T.H.E. issued to P.T.P. a comprehensive general liability "renewal" policy for the period May 27, 1988, to May 27, 1989, with a retroactive date of May 27, 1988.

On June 6, 1988, counsel for Buckley, by letter, made a claim for damages against P.T.P. based on the accident of August 27, 1987. This claim letter was sent some nine months after the accident and more than sixty days after the policy period that ended April 2, 1988. P.T.P. informed Atlantic of the claim, and Atlantic mailed notice of the claim to T.H.E. The insurer's response of June 23, 1988, stated that the claim was received on June 20, 1988. In that response T.H.E. denied coverage for the Buckley claim.

Thereafter, Buckley sued P.T.P. and others in an action that ultimately was transferred to the United States District Court for the District of Maryland. T.H.E. did not defend.

On April 18, 1990, P.T.P. filed in the Circuit Court for Worcester County a complaint for declaratory judgment and damages against T.H.E., Atlantic, and Melson. P.T.P. sought a judgment declaring that under either the initial or renewal policy T.H.E. provided indemnity for, and had a duty to defend, the Buckley claim. P.T.P. also claimed damages for breaches of the insurance contract. The complaint further alleged that Atlantic and Melson were negligent in failing to place proper insurance coverage. Atlantic and Melson cross-claimed against T.H.E.

All parties to the state court action moved for summary judgment, raising a multitude of issues. The circuit court decided only one issue, and that by reliance on only one legal ground. The circuit court entered a judgment declaring that the original T.H.E. policy, i.e., the policy for the period April 2, 1987, to April 2, 1988, obliged T.H.E. to defend the Buckley claim. The trial judge reasoned that under Art. 48A, § 482, the burden was on T.H.E. to show that it had been prejudiced by the fact that the Buckley claim was reported to it sometime after June 1, 1988, but that there was no evidence that T.H.E. had been prejudiced by late reporting of the claim. 2

Art. 48A, § 482 reads:

"Where any insurer seeks to disclaim coverage on any policy of liability insurance issued by it, on the ground that the insured or anyone claiming the benefits of the policy through the insured has breached the policy by failing to cooperate with the insurer or by not giving requisite notice to the insurer, such disclaimer shall be effective only if the insurer establishes, by a preponderance of affirmative evidence that such lack of cooperation or notice has resulted in actual prejudice to the insurer."

In concluding that § 482 applied in that fashion to claims made policies, the circuit court relied entirely upon the opinion by the Court of Special Appeals in St. Paul Fire & Marine Ins. Co. v. House, 73 Md.App. 118, 533 A.2d 301 (1987). Although it recognized that decisions in other states supported St. Paul 's contention, the intermediate appellate court read "any insurer" in § 482 to mean every insurer, including those writing claims made policies. 73 Md.App. at 135, 533 A.2d at 309. The decision by the Court of Special Appeals in House was affirmed, in a 4-3 decision by this Court, on policy construction grounds and not by applying § 482 in the fashion approved by the Court of Special Appeals. 315 Md. 328, 554 A.2d 404.

While the Buckley action was pending in the federal court, the parties to the action before us stipulated to P.T.P.'s cost of defense of the Buckley action. Based on that stipulation and on its prior grant of partial summary judgment, the circuit court entered judgment in favor of P.T.P. against T.H.E. in the stipulated amount for breach of the duty to defend. At the request of all parties to this action, the circuit court certified as a final judgment its declaration that T.H.E. was obliged under the original policy to defend P.T.P. against the Buckley claim, and the court certified as a final judgment its award of damages for that breach.

T.H.E. appealed to the Court of Special Appeals. 3 We granted certiorari on our own motion prior to consideration of the matter by the intermediate appellate court.

I

T.H.E.'s argument rests on the original policy provisions, and P.T.P.'s argument in support of the circuit court's ruling necessarily rests on § 482. Relevant to these arguments are the following policy provisions:

"SECTION I--COVERAGES

"COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY

"1. Insuring Agreement.

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies.... This insurance does not apply to 'bodily injury' or 'property damage' which occurred before the Retroactive Date, if any, shown in the Declarations or which occurs after the policy period.... We will have the right and duty to defend any 'suit' seeking those damages....

b. This insurance applies to 'bodily injury' and 'property damage' only if a claim for damages because of the 'bodily injury' or 'property damage' is first made against any insured during the policy period.

(1) A claim by a person or organization seeking damages will be considered to have been made when written notice of such claim is received and recorded by

us...." 4

....

"SECTION IV--COMMERCIAL GENERAL LIABILITY CONDITIONS

....

"2. Duties In The Event Of Occurrence, Claim Or Suit.

a. You must see to it that we are notified as soon as practicable of an 'occurrence' which may result in a claim. To the extent possible, notice should include:

(1) How, when and where the 'occurrence' took place;

(2) The names and addresses of any injured persons and witnesses; and

(3) The nature and location of any injury or damage arising out of the 'occurrence.'

....

b. If a claim is received by any insured you must:

....

You must see to it that we receive written notice of the claim as soon as practicable."

"SECTION V--EXTENDED REPORTING PERIODS

....

"2. A Basic Extended Reporting Period is automatically provided without additional charge. This period starts with the end of the policy period and lasts for:

a. Five years for claims arising out of an 'occurrence' reported to us, not later than 60 days after the end of the policy period, in accordance with paragraph 2.a. of SECTION IV ...; or

b. Sixty days for all other claims."

....

"4. Extended Reporting Periods do not extend the policy period or change the scope of coverage provided. They apply only to claims for 'bodily injury' or 'property damage' that occurs before the end of the policy period (but not before the Retroactive Date ...).

Claims for such injury or damage which are first received and recorded during the Basic Extended Reporting Period ... will be deemed to have been made on the last day of the policy period."

T.H.E.'s argument is basic. Although the accident occurred (8/27/87) after the retroactive date (4/2/87), and before the end of the policy period (4/2/88), the claim was not first made until more than sixty days after the end of the policy period. Under the policy involved here, for a claim to be first made, it must be received by the insurer. Policy, § I.A.1.b(1). The outside time limit within which either the occurrence of Buckley's...

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