Travelers Indem. Co. v. Ins. Co. of North America

• Decision Date: 01 September 1986
• Docket Number: No. 472,472
• Citation: 69 Md.App. 664,519 A.2d 760
• Parties: The TRAVELERS INDEMNITY COMPANY v. INSURANCE COMPANY OF NORTH AMERICA, et al. ,
• Court: Court of Special Appeals of Maryland

Page 664

69 Md.App. 664

519 A.2d 760

The TRAVELERS INDEMNITY COMPANY v. INSURANCE COMPANY OF NORTH AMERICA, et al.

No. 472, Sept. Term, 1986.

Court of Special Appeals of Maryland.

Jan. 9, 1987.

Kevin M. Murphy (L. Palmer Foret and Carr, Goodson & Lee, P.C., on the brief), Rockville, for appellant.

James A. Sullivan (Sullivan & Talbott on the brief), Rockville, for appellee, Ins. Co. of North America.

Paul T. Cuzmanes (Walter J. Smith, Jr. and Wilson, Elser, Moskowitz, Edelman & Dicker on the brief), Washington, D.C., for appellee, Scottish & York Intern. Ins. Group.

Argued before ALPERT, BLOOM, and KARWACKI, JJ.

ALPERT, Judge.

This is yet another appeal arising out of a struggle among three insurance companies over the question of insurance coverage. Appellant, The Travelers Indemnity Company ("Travelers") filed a declaratory judgment action against appellees, Insurance Company of North America and its parent company, CIGNA ("INA"), and Scottish & York International Insurance Group ("Scottish & York"). Mason-Dixon Recycling Corporation ("Mason-Dixon") is the named insured on an automobile insurance policy issued by Travelers. Rentals Unlimited, Inc. ("Rentals") is the named insured on policies issued by INA and Scottish & York (as excess liability insurer to the INA policy). That is, Travelers is Mason-Dixon's insurer; INA and Scottish & York are Rentals's insurers.

Travelers sought a declaration that Mason-Dixon was entitled to a defense and coverage as an insured under the INA and Scottish & York policies against a personal injury action filed by Kenneth Wayne Lee in the Circuit Court for Montgomery County. Lee filed the action against Mason-Dixon as a result of injuries he sustained on February 12, 1986. Travelers also sought an award of the costs and fees it incurred in the litigation. The declaration filed in the underlying tort action against Mason-Dixon and others alleged, in pertinent part:

that from on or about January 1, 1980 to February 12, 1980, Kenneth Wayne Lee was employed by Manpower, Inc., an agency which utilized Kenneth Wayne Lee for the purpose of picking up bound newspapers and trash on behalf of Mason-Dixon Recycling Corporation. That Mason-Dixon, by and through its agents, servants, and employees, instructed and/or permitted Kenneth Wayne Lee to ride in the rear of trucks which Mason-Dixon rented from defendant, Rentals, Unlimited, Inc., for the purpose of travelling from stop to stop and placing collected newspapers in the rear of said vehicles. No instructions were given Kenneth Wayne Lee relative to safety procedures in riding in said trailers by either defendant....

The declaratory judgment suit came on for trial before a jury presided over by Judge James J. McKenna. Evidence was presented which indicated, inter alia, that:

1. INA and Scottish and York had issued primary and excess liability policies respectively, to Rentals, Unlimited, Inc.

2. Travelers had issued a liability policy to Media General, Inc. and its subsidiaries which included Mason-Dixon Recycling Corporation.

3. Rentals Unlimited, Inc. and Mason-Dixon had been sued in the Circuit Court for Montgomery County in the underlying tort suit known as Annabelle Smith, guardian of the person and property of Kenneth Wayne Lee v. Commonwealth Recycling Corp., Law No. 62910.

4. INA from the inception declined to defend the action because, inter alia, its "liability policy excluded coverage because the plaintiff, Lee, was an employee of the appellant's insured (Mason-Dixon) who was injured during the course of his employment."

5. Mason-Dixon was in the business of collecting newspapers for recycling, rented trucks for that purpose from Rentals, Unlimited, and contracted with Manpower, Inc. to arrange for contract employees to service the pickup operation. Mason-Dixon did not have a payroll and, therefore, paid no employees.

6. Through an answer to an interrogatory, Mason-Dixon admitted that Lee was an employee of both Mason-Dixon and Manpower, Inc.

7. While picking up papers in the Silver Spring area, Lee fell from the rented truck and sustained serious personal injury.

8. The policies of Travelers and INA contained provisions excluding coverage for bodily injuries sustained by any employee of the insured arising out of the course of his employment by the insured, as well as exclusions for any obligation which the insured may be held liable for under any worker's compensation law.

Travelers' counsel conceded that Lee was on the business of both Manpower, Inc. and Mason-Dixon and did not seem to dispute that, while Lee was an employee of Manpower, he was actually under the control of Mason-Dixon's agents.

Before Travelers closed its case, the trial court ruled as a matter of law that Lee had been an employee of Mason-Dixon at the time of the accident, "thereby limiting the said Kenneth Wayne Lee to an exclusive remedy in workmen's compensation with respect to claims against ... Mason-Dixon." Further, the court ordered that "INA-CIGNA, Scottish & York ... are not required to either defend and/or indemnify ... Mason-Dixon ... for injuries and damages allegedly sustained by Kenneth Wayne Lee." From that order, this appeal was noted and the following questions were presented by the appellant:

I. Whether the court below erred in directing a verdict in this declaratory judgment action by finding that Kenneth Wayne Lee, the injured plaintiff in the underlying tort suit, was as a matter of law an employee of Mason-Dixon Recycling Corporation at the time of the accident alleged in the underlying tort suit, thereby excluding coverage for Mason-Dixon (and its successor Commonwealth Recycling Corporation) under the INA and Scottish & York policies, when the issue of Lee's employment was an issue to be decided in the underlying tort suit.

II. Whether Mason-Dixon Recycling Corporation (and its successor Commonwealth Recycling Corporation) is entitled to first and second layer liability coverage under the INA and Scottish & York policies respectively, in the underlying tort suit, by virtue of Md. Transp. Code § 18-102 (1977) and Md. Admin. Code (Transportation) 11.18.01.04.

III. Whether the Insurance Company of North America must reimburse Travelers for fees and costs incurred by Travelers in bringing this action.

IV. Whether the court below erred when it denied Travelers' motion for summary judgment.

As though the legal issues were not complicated enough, as the fates would have it, the underlying tort suit was settled while this appeal was pending. Seizing upon that fact, INA moved to dismiss the appeal on the theory that it was moot. Obviously, the question of which company must defend Mason Dixon at trial is now moot. Nevertheless, we shall decide whether the circuit court properly denied all relief to Travelers since the pre-settlement duty-to-defend and its attendant consequences survive Travelers's settlement with Lee.

QUESTIONS I, II AND IV

In our view, these three questions are so intertwined that they will be addressed collectively.

a. The Potentiality of Coverage

The circuit court's declaration that INA and Scottish & York were not responsible for Mason-Dixon's defense was based on exclusions contained in the INA policy. Those exclusions read in pertinent part:

We Will Not Cover--Exclusions:

This insurance does not apply to

* * *

2. Any obligation for which the insured or his or her insurer may be held liable under any workers' compensation or disability benefits law or under any similar law.

* * *

5. Bodily injury to any employee of the insured arising out of and in the course of his or her employment by the insured.

In arriving at its conclusion, the court first determined that Lee, as a matter of law, was an employee of Mason- Dixon. In the underlying tort action, Lee's status vel non as Mason-Dixon's employee would determine whether his remedy was, instead, under the Workmen's Compensation Statute.

We agree with appellant that the centrality of Lee's status as an employee in the underlying tort action made it improper for the court to decide the issue in the declaratory judgment proceedings. See St. Paul Fire & Marine Insurance Co. v. Pryseski, 292 Md. 187, 438 A.2d 282 (1981); Brohawn v. Trans-America Insurance Company, 276 Md. 396, 347 A.2d 842 (1975); Oweiss v. Erie Ins. Co., 67 Md.App. 712, 509 A.2d 711 (1986); Ohio Casualty Insurance Company v. Lee, 62 Md.App. 176, 488 A.2d 988 (1985). The theoretical basis of this rule is the desire to avoid inconsistent judgments. Id. Further, the fact that INA's policy excludes coverage for losses incurred in the course of Mason-Dixon's employment does not necessarily resolve the question of whether INA ¹ was obliged to share or to carry the burden of defending Mason-Dixon. That question is resolved by the somewhat distinct standard of "potentiality" of coverage:

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. 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.

Brohawn, 276 Md. at 407-408, 347 A.2d 842 (citations omitted) (emphasis in original). Because the trial court effectively usurped the function of the underlying tort action, its decision should be reversed. The allegations in the underlying tort declaration indicate that Lee's claim might be covered by the INA policy. ² We rely upon the following parts of Lee's declaration:

Lee was employed by Manpower, Inc., an agency which utilized ... Lee for the purpose of picking up bound newspapers and trash on behalf of Mason-Dixon Recycling Corporation. That Mason-Dixon, by and through its agents, servants and employees,...