Utica Mutual Ins. Co. v. Miller

• Decision Date: 02 February 2000
• Docket Number: No. 6709,6709
• Citation: 130 Md. App. 373,746 A.2d 935
• Parties: UTICA MUTUAL INSURANCE COMPANY v. William Ray MILLER, II, et al.
• Court: Court of Special Appeals of Maryland

746 A.2d 935

130 Md. App. 373

UTICA MUTUAL INSURANCE COMPANY v. William Ray MILLER, II, et al.

No. 6709, September Term, 1998.

Court of Special Appeals of Maryland.

February 2, 2000.

Reconsideration Denied March 28, 2000.

Lon A. Berk (Sandra Tvarian Stevens and Wiley, Rein & Fielding, Washington, DC, Bradford Carney and Royston, Mueller, McLean & Reid, L.L.P., Towson, on the brief), for appellant.

Eugene R. Anderson (Anderson, Kill & Olick, P.C., New York, NY, Michele A. Gallagher and Anderson Kill & Olick, LLP, Washington, DC, on the brief), for appellees.

Argued before MOYLAN, KENNEY, and ADKINS, JJ.

ADKINS, Judge.

We must decide in this appeal whether Utica Mutual Insurance Company, appellant, has a duty to defend William Ray Miller II, appellee, in a tort action. Appellant denied coverage, contending that under the terms of an errors and omissions insurance policy issued to appellee's employer, it has no duty to defend appellee because the underlying case against appellee asserts claims that are expressly barred from coverage. Appellee subsequently filed a suit for declaratory relief in the Circuit Court for Baltimore County seeking, inter alia, a declaration that appellant has a duty to defend him in the tort action. On August 31, 1998, the circuit court held a hearing on cross-motions for summary judgment and held that appellant was required to defend appellee. This appeal followed.

Appellant contends that the trial court erred in determining that it is required to defend appellee because: 1) the "money received" exclusion in the policy bars coverage; and 2) the policy only provides coverage for errors or omissions "in the rendering or failure to render professional services" and that the claims asserted in the underlying tort action do not arise out of professional services. Secondarily, appellant contends that even if it was not entitled to a finding that it had no duty to defend appellee, the trial court erred by not permitting it to conduct discovery before the court ruled on appellee's summary judgment motion.

FACTS AND LEGAL PROCEEDINGS

Appellee was an employee of J.L. Hickman and Company, Inc., d/b/a IFA Insurance Services ("JLH") from early 1993 until March 1997. As an employee of JLH, appellee served various insurance companies that had entered agency relationships with JLH. His responsibilities included selling and writing insurance policies on behalf of insurance companies, and collecting premiums from and forwarding premiums on behalf of JLH customers who had purchased insurance from insurance companies through JLH.

JLH was covered under an insurance contract for errors and omissions purchased from appellant, covering the period from May 13, 1996, through May 13, 1997. JLH originally applied for liability insurance from appellant for the policy year 1993-1994. On the original application, appellee was listed as an employee of JLH. Additionally, appellee was listed as an employee in the renewal applications for the policy years 1994-1995, 1995-1996, and 1996-1997. After the expiration of the insurance contract, the successor in interest to JLH, North American Risk Management, Inc., ("NARM"), entered into a contract with appellant for an optional extended reporting period for the two-year interval between July 12, 1997, to July 12, 1999. This policy provided that a claim which is "first made against an insured during the [extended period] for negligent acts, errors, or omissions which take place after the retroactive date ... but before the end of the policy period" would be covered.

JLH was the named insured on the policy. The policy also provided coverage to "[a]ny partner, executive officer, director, or employee of [JLH], while acting within the scope of his or her duties on behalf of [JLH]" and "any person who was formerly an insured ... but only with respect to negligent acts, errors, or omissions committed prior to the termination of such relationship."

On July 23, 1997, Insurance Company of North America ("CIGNA") filed suit against appellee in the Circuit Court for Baltimore County claiming: 1) appellee owed CIGNA an accounting for $326,480.12 that appellee should have collected as premiums on CIGNA's behalf; 2) conversion; 3) breach of fiduciary duty; 4) unjust enrichment; and 5) negligence.

The primary thrust of CIGNA's complaint against appellee was that appellee converted $326,480.12 received as premiums on CIGNA's behalf for his own use. Additionally, CIGNA claimed, inter alia, that appellee acted negligently because:

[Appellee] had a duty to exercise ordinary care in the handling and timely remittance of funds to the CIGNA Companies, and he had a duty to monitor business operations to detect and prevent the diversion and misapplication of funds that occurred here. As a direct and proximate result of the negligence of [appellee], the CIGNA Companies have suffered damages....

Appellee denied the allegations of wrongdoing alleged in the CIGNA complaint. By letter dated August 6, 1997, NARM submitted a copy of the CIGNA complaint to appellant. On August 26, 1997, appellant denied coverage, by letter to appellee, claiming that Exclusion 4 of the insurance contract, the "money received" exclusion, relieved it of any duty to defend. Appellee then filed a third party complaint against appellant, seeking a declaration that appellant had a duty to defend him in the underlying lawsuit.

On August 31, 1998, Judge Levitz held a hearing on the parties' cross motions for summary judgment. In granting appellee's motion for summary judgment, Judge Levitz determined that "[b]ased on the allegations in the [CIGNA] complaint, that have been made against [appellee], I believe [appellant] is required to provide him with coverage...." The ruling was entered on September 3, 1998. This appeal was timely filed.

Additional facts will be added as necessary to supplement our discussion.

DISCUSSION

a. Standard of Review

Summary judgment is appropriate where there is no dispute of material fact and the moving party is entitled to judgment as a matter of law. See Md. Rule 2-501. The review of the grant of summary judgment involves the determination of whether a dispute of material fact exists, and whether the trial court was "legally correct." Hartford Ins. Co. v. Manor Inn of Bethesda, Inc., 335 Md. 135, 144, 642 A.2d 219 (1994).

Although "summary judgment in a declaratory judgment action is `the exception rather than the rule,' summary judgment may be warranted where there is no dispute as to the terms of an insurance contract but only as to their meaning." Nationwide Mut. Ins. Co. v. Scherr, 101 Md. App. 690, 695, 647 A.2d 1297 (1994), cert. denied, sub nom., Scherr v. Nationwide, 337 Md. 214, 652 A.2d 670 (1995) (quoting Loewenthal v. Security Ins. Co., 50 Md. App. 112, 117, 436 A.2d 493 (1981)). In the instant case, the parties do not dispute the terms of the insurance contract, but disagree as to the proper interpretation of the contract. Thus, because appellant's duty to defend rests on the construction and interpretation of the contract, resolution by summary judgement is appropriate.

b. Duty to Defend

The duty to defend an insured is broader than the duty to indemnify. See Litz v. State Farm Fire and Cas. Co., 346 Md. 217, 225, 695 A.2d 566 (1997)

. Indeed, Maryland courts have recognized liability insurance policies as "litigation insurance... protecting the insured from the expense of defending suits brought against him." Brohawn v. Transamerica Ins. Co., 276 Md. 396, 410, 347 A.2d 842 (1975). In St. Paul Fire & Marine Ins. Co. v. Pryseski, 292 Md. 187, 438 A.2d 282 (1981), the Court of Appeals articulated the following test:

In determining whether a liability insurer has a duty to provide its insured with a defense in a tort suit, two ... 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?

Id. at 193, 438 A.2d 282. To answer these questions, a court "must ascertain the scope and limitations of coverage under the ... insurance policies and then determine whether the allegations in the [underlying] action would potentially be covered under those policies." Aetna Cas. & Sur. Co. v. Cochran, 337 Md. 98, 104, 651 A.2d 859 (1995).

In applying the first part of the Pryseski test, we turn to the language of the insurance contract to determine the scope of coverage. In analyzing an insurance contract, we shall:

construe [the contract] as a whole to determine the parties' intentions. Words are given their `customary, ordinary, and accepted meaning,' unless there is an indication that the parties intended to use the words in a technical sense. `A word's ordinary signification is tested by what meaning a reasonably prudent layperson would attach to the term.'

Sheets v. Brethren Mut. Ins. Co., 342 Md. 634, 640, 679 A.2d 540 (1996) (citations

omitted) (quoting Sullins v. Allstate Ins. Co., 340 Md. 503, 508, 667 A.2d 617 (1995)).

The policy issued by appellant to JLH provided insurance for errors or omissions made by JLH in the scope of its business. In terms of coverage, the policy stated:

[W]e will pay for loss up to the Limits of Liability, in excess of the deductible, that the insured becomes legally obligated to pay as a result of a claim.... The loss must arise out of negligent acts, errors, or omissions in the conduct of the insured's business, wherever committed or alleged to have been committed, by the insured ... in the rendering or failure to render professional services as:

a. A General Insurance Agent;

b. An Insurance Broker;

c. An Insurance Agent;

d. An Insurance Consultant;

e. A Managing General Agent;

f. A Life Insurance Agent; or

g. A Surplus Lines Broker.

The contract expressly stated that appellant would provide a defense to any claim that fell under the policy....