Vigilant Insurance Company v. Luppino

• Decision Date: 20 January 1999
• Docket Number: No. 88,88
• Citation: 352 Md. 481,723 A.2d 14
• Parties: VIGILANT INSURANCE COMPANY v. Rocco LUPPINO.
• Court: Maryland Court of Appeals

723 A.2d 14

352 Md. 481

VIGILANT INSURANCE COMPANY v. Rocco LUPPINO.

No. 88, Sept. Term, 1996.

Court of Appeals of Maryland.

January 20, 1999.

Valerie L. Tetro (Joseph F. Cunningham, Joseph F. Cunningham & Associates, on brief), Washington, DC, for Petitioner.

Thomas A. Farrington, Bowie, for Respondent.

Argued before BELL, C.J., ELDRIDGE, RODOWSKY, CHASANOW, KARWACKI¹, and RAKER, JJ., and ROBERT C. MURPHY, C.J. (Retired, Specially Assigned).

ELDRIDGE, Judge.

This case presents the question of when the statute of limitations began to run on an insured's claim that an insurer breached its duty to defend the insured in a tort suit by a third party against the insured.

I.

Rocco Luppino owned a home and was insured under a homeowner's insurance policy issued by Vigilant Insurance Company effective from August 7, 1985, to August 7, 1986. The policy provided coverage for property damage as well as personal liability. The property damage section of the policy included coverage for the insured's home, related structures, and certain types of personal property owned by the insured. The personal liability section of the policy provided coverage for damages which the insured was legally obligated to pay for personal injury or property damage to a third party.

The policy contained the following provisions. "Personal injury" as defined by the policy

"includes but is not limited to:

a. bodily injury, sickness, disease, disability, shock, mental anguish or mental injury;

b. false arrest or false imprisonment, wrongful entry or eviction, wrongful detention; malicious prosecution or humiliation; and

c. libel, slander, defamation of character or invasion of right of privacy...."

"Property damage" was defined in the policy to mean "injury to or destruction of tangible property and the resulting loss of use of that property...."

Under the personal liability coverage, Vigilant was obligated to provide a defense to Luppino in suits by third parties for property damage or personal injury. Vigilant agreed to

"defend any suit against an insured which seeks damages for personal injury or property damage. We shall defend even if the suit is groundless, false or fraudulent. However, we may make investigation, negotiation and settlement of any claim or suit as we wish."

The policy contained the following exclusions from the personal liability coverage:

"Coverage E—Personal Liability does not provide coverage for:

* * *

"property damage to any property owned by an insured;

* * *

"[and] does not apply to personal injury or property damage:

"... arising out of any act intended by an insured to cause personal injury or property damage. However, this policy does apply to personal injury or property damage which result from an insured trying to protect persons or property...."

The policy also contained the following provision, commonly referred to as a "no-action clause":

"No legal action shall be brought against [the insurer]:

"a. unless the insured has fully complied with all the terms of this section; and

"b. until the amount of the insured's ultimate net-loss has been finally settled. This amount may be determined either by judgment against the insured, or by written agreement signed by the insured, the claimant and [the insurer]."

The policy defined "ultimate net-loss" as "all damages which an insured becomes legally obligated to pay because of personal injury or property damage."

The instant action arose as a result of the following events. After advertising his house for sale in January 1986, Luppino entered into a contract for the sale of the house to Joseph Gray and his wife, Mary Soraci. Settlement occurred on June 24, 1986. On August 8, 1986, Luppino's attorney wrote to Vigilant, stating that the house was sold on June 24th and requesting a return of premiums for the period after June 24th. As required by the contract of sale, Luppino on or before June 24th, 1986, presented Gray and Soraci with a report by a pest control service stating that "no visible evidence of infestation from wood destroying insects was observed at the house." Luppino did not, however, disclose to Gray and Soraci the existence of extensive termite damage apparent in a crawl space under the den, which was concealed by a wall constructed by Luppino. While electrical work was being performed on the house in October 1986, the crawl space and termite damage were discovered. Eventually it became evident that the house had been seriously infested by termites and was structurally unsound, requiring extensive repairs.

In February 1989, Gray and Soraci filed in the Circuit Court for Prince George's County a complaint against Luppino which, as amended, sought both compensatory and punitive damages for fraud, "intentional concealment," negligent misrepresentation, and "intentional omission." After a jury trial in May 1992, judgment was entered in favor of Gray and Soraci for $97,787 compensatory damages and $82,000 punitive damages. Luppino appealed to the Court of Special Appeals which affirmed in an unreported opinion. Luppino then filed a petition for a writ of certiorari which this Court granted. Luppino v. Gray, 333 Md. 173, 634 A.2d 47 (1993). This Court affirmed the judgment of the Court of Special Appeals. Luppino v. Gray, 336 Md. 194, 647 A.2d 429 (1994).²

When service in the tort suit filed by Gray and Soraci was made on Luppino in 1989, Luppino's attorney gave notice of the suit to Vigilant and requested a defense under the personal liability provisions of the policy. Vigilant agreed to defend the tort suit under a reservation of rights. In October 1990, however, Vigilant changed its position and sent a letter to Luppino "completely deny[ing] coverage, defense and indemnity for the damages alleged" by Gray and Soraci, stating that

"it is the position of Vigilant Insurance Company there is no coverage for any damage sustained by the structure identified in the Complaint prior to the transfer of ownership on June 24, 1986. Furthermore, it is the position of Vigilant Insurance Company that there is no coverage for any damage sustained by the structure after cancellation of the aforementioned policy. Lastly, it is the position of the Vigilant Insurance Company that there is no coverage for property damage arising out of an act intended to cause such damage."

Vigilant indicated, however, that this denial of coverage was not necessarily final, stating:

"We reserve the right to amend this letter if and when new information is developed or obtained showing that any policy provision may have been violated, or, in the alternative, whether any amendment to the Complaint are [sic] made which might bring this matter under the purview of coverage."

Luppino, with his own attorney, proceeded to defend the suit by Gray and Soraci without any assistance from Vigilant, resulting in the judgment against him. Luppino also was represented by his own attorney in the appellate proceedings. As mentioned previously, this Court affirmed the judgment in an opinion filed in September 1994. While the case was pending in this Court, however, Luppino, on May 31, 1994, filed a complaint in the Circuit Court for Prince George's County against Vigilant alleging breach of the duty to defend contained in the insurance policy. Subsequently, Luppino amended his complaint to include a count for breach of the duty to indemnify.

Vigilant, in September 1994, filed a motion for summary judgment on the ground that Luppino's complaint was barred by the statute of limitations, Maryland Code (1974, 1995 Repl.Vol.), § 5-101 of the Courts and Judicial Proceedings Article, which states as follows:

"A civil action at law shall be filed within three years from the date it accrues unless another provision of the Code provides a different period of time within which an action shall be commenced."

Vigilant argued that Luppino's causes of action for breach of the duty to defend and breach of the duty to indemnify accrued in October 1990 when Vigilant denied coverage under the policy and refused to provide a defense. Therefore, according to Vigilant, Luppino's action filed in May 1994 was time barred because it was filed more than three years from the date of accrual. Luppino opposed the motion for summary judgment, and the circuit court initially denied the motion. Upon Vigilant's motion to reconsider, the circuit court granted the motion for summary judgment, holding that the statute of limitations had run on both the count for breach of the duty to defend and the count for breach of the duty to indemnify.

Luppino appealed to the Court of Special Appeals which reversed. Luppino v. Vigilant Insurance Co., 110 Md.App. 372, 677 A.2d 617 (1996). The intermediate appellate court, in an opinion by Chief Judge Wilner, considered the duty to indemnify and the duty to defend separately. Regarding the duty to indemnify, the court held that the duty did not arise, and thus Luppino's cause of action for breach of the duty did not accrue, until judgment was entered against Luppino in the underlying suit. The intermediate appellate court pointed out that under the policy Vigilant was only required to pay Luppino's "ultimate net loss," defined in the policy as "all damages which an insured becomes legally obligated to pay because of personal injury or property damage." The Court of Special Appeals reasoned that Luppino became legally obligated to pay when judgment was entered against him. Regarding the duty to defend, the Court of Special Appeals stated that "the duty to defend is necessarily a continuing one that commences upon notice of the claim and extends at least until a judgment is entered and all appeals from it have been resolved." Luppino v. Vigilant Insurance Co., supra, 110 Md.App. at 382, 677 A.2d at 622. Based on the continuing nature of the duty to defend, the Court of Special Appeals concluded that the statute of limitations on Luppino's claim for breach of the duty did not begin...