Walk v. Hartford Casualty

• Decision Date: 16 June 2004
• Docket Number: No. 110,110
• Citation: 852 A.2d 98,382 Md. 1
• Parties: Richard J. WALK v. HARTFORD CASUALTY INSURANCE COMPANY.
• Court: Maryland Court of Appeals

852 A.2d 98

382 Md. 1

Richard J. WALK v. HARTFORD CASUALTY INSURANCE COMPANY.

No. 110, September Term, 2003.

Court of Appeals of Maryland.

June 16, 2004.

Mark H. Kolman (Jamila Z. Hoard, Dickstein, Shapiro, Morin & Oshinsky, LLP, on brief), Washington, DC, for Appellant/Cross-Appellee.

Richard W. Driscoll (Driscoll & Seltzer, PLLC, Alexandria, VA) on brief, for Appellee/Cross-Appellant.

Argued Before BELL, C.J., RAKER, WILNER, CATHELL, HARRELL, GREENE and JOHN C. ELDRIDGE (Retired, specially assigned), JJ. RAKER, Judge.

This appeal arises out of an action filed in the Circuit Court for Howard County by Richard Walk against Hartford Casualty Insurance Company ("Hartford") alleging breach of contract and seeking damages as a result of Hartford's refusal to defend Walk in a lawsuit which had been filed against him. The Circuit Court granted summary judgment in favor of the insurer, finding no duty to defend because neither the allegations in the underlying action against Walk, nor the extrinsic evidence submitted by Walk, were sufficient to generate a potentiality of coverage under Hartford's policy (the "Policy"). The issue we must decide in this case is whether Hartford had a duty to defend Walk in a lawsuit brought against him by Victor O. Schinnerer & Company, Inc. ("Schinnerer"). We shall hold that there was no duty to defend Walk because there was no potentiality of coverage under the Policy. Accordingly, we affirm the judgment of the Circuit Court.

I.

Appellant Richard Walk filed suit against Hartford alleging that Hartford breached the provisions of the Policy by refusing to defend Walk against the Schinnerer suit. In Count I, Walk sought damages for Hartford's failure to defend; in Count II, Walk sought damages for Hartford's failure to indemnify for the amounts resulting from an "advertising injury" that were the consequence of an underlying suit which Walk had settled.

Walk was insured under a policy issued by Hartford purchased by his employer IBSC East, LLC (IBSC East). IBSC East purchased a uniform Hartford Spectrum Business Insurance Policy for the period of April 26, 1999 through April 26, 2000. The Policy provided coverage for, among other things, business personal property, business liability, and employment practices, and included the Business Liability Coverage Form. Under the business liability coverage of the Policy, Hartford agreed to "pay those sums that the insured becomes legally obligated to pay as damages because of ... `advertising injury' to which this insurance applies" and "defend any `suit' seeking those damages." An "advertising injury," as defined by the Policy, includes the copying in an advertisement of an advertising idea or style.

Walk was employed from October 1971 to May 31, 1999 by Schinnerer. In May, 1999, Walk left Schinnerer and went to work for IBSC East as CEO and President. Schinnerer underwrites professional liability insurance and risk management programs for real estate agents and other professionals. IBSC East is the east coast marketing arm and new business development coordinator for IBSC, Inc., a California-based corporation which, like Schinnerer, underwrites liability insurance for professionals. While employed with Schinnerer, Walk's primary focus was on marketing errors and omissions insurance, specifically structured for real estate agents. From 1989 to 1999, he was Senior Vice-President and Division Manager for Combined Programs, a large strategic business unit, and also headed the real estate errors and omissions division of that unit.

As a senior executive of Schinnerer, Walk participated in stock plans which entitled him to receive option grants for shares of the company's common stock. As a condition precedent to the exercise of stock options, Walk was required to sign a non-solicitation agreement in which he promised to safeguard at all times the company's trade secrets and other confidential and proprietary information and refrain from soliciting clients of the company for a period of two years from the date of termination of employment. The non-solicitation agreement provided that, in case of any breach, monetary damages may include, but not be limited to, the gain realized on exercise of the option.

Walk signed non-solicitation agreements in September and October of 1997, prior to exercising options to acquire 17,925 shares of stock in Schinnerer's parent company, Marsh & McLennan Companies, Inc. (MMC).¹ In May 1999, Walk executed four additional non-solicitation agreements and exercised stock options to acquire 5,550 shares of stock. As a result of exercising these stock options, Walk realized a gain of $628,579.66.

Walk terminated his employment with Schinnerer on May 31, 1999 and signed a severance agreement on June 2, 1999, which included $294,330.77 as enhanced severance pay. The severance agreement provided that Walk would not use or disclose confidential or proprietary information at any time or for any purpose and that for a period of fifteen months after termination of his employment Walk would not solicit the company's clients.

On June 19, 2000, Schinnerer and two of its parent companies, the plaintiffs in the underlying action, filed suit against Walk in the Circuit Court for Howard County, Civil Action No. 13-C-00-045331 (the underlying action), alleging that Walk, in his employment with IBSC East, solicited Schinnerer's clients for IBSC's real estate errors and omissions liability insurance program and used Schinnerer's confidential and proprietary information, including its business and marketing plans. The complaint contained five counts. Counts I and II alleged that Walk breached the non-solicitation and severance agreements by soliciting Schinnerer's clients and using proprietary and confidential information for his benefit and that of his new employer. Count III alleged that Walk violated the Maryland Uniform Trade Secrets Act by misappropriating Schinnerer's trade secrets and using them for the benefit of IBSC. Count IV alleged that Walk breached his fiduciary duty to Schinnerer by disclosing confidential and proprietary information and by soliciting Schinnerer's clients for the benefit of IBSC. Count V alleged fraud related to the exercise of options. The plaintiffs sought to recover in damages the full amount of gain realized by Walk upon his acquisition of the stock that were the subject of the non-solicitation agreements, the amount of the severance pay paid to Walk, lost profits, and exemplary damages and attorney's fees.

The complaint did not allege or infer that Walk copied any advertising idea belonging to Schinnerer into a publication that is given widespread public distribution. Walk relies on evidence extrinsic to the complaint to support his argument that Hartford is required to defend him in the underlying action. He argues that the extrinsic evidence supports his argument that there is at least a potentiality of coverage.

During his deposition in the underlying suit, Walk answered questions about some of his activities while employed at IBSC East, including the transmission of communications to insurance brokers regarding real estate errors and omissions insurance being offered by IBSC. Walk stated that his secretary sent several hundred "blast faxes"² to brokers in six to eight states announcing the availability of IBSC's real estate errors and omissions program outside of California. He also stated that he rewrote a press release for IBSC which announced the same thing and was sent to several insurance publications. Walk stated that he gave his secretary the names and addresses of between 100 to 200 brokers with whom he had dealt while employed by Schinnerer, and that the secretary sent the blast faxes to these individuals, among others.

Each blast fax was one side of one page and consisted of a headline, "Real Estate E & O Coverage For The New Millennium from IBSC Insurance Services & Associates Insurance Company," underneath of which were two columns of short bullet points describing the insurance. The bullet points included such information as limits of liability available and deductibles. The bottom of the page listed contact information for representatives of IBSC. Another blast fax was substantially the same but also listed contact information for Richard Walk at IBSC East. See apps. at 1-2. The press release was one side of one page and consisted of seven short paragraphs describing IBSC's origins, its new partnership with American Equity Insurance to provide a real estate errors and omissions insurance program nationwide, and the existence of IBSC East, headed by Walk. See app. at 3.

Walk notified Hartford of the claim and requested that Hartford defend him in the action.³ Hartford declined, explaining that there was no coverage under the Policy for the claim. Walk continued to demand that Hartford undertake his defense. In correspondence with Hartford, Walk insisted that the plaintiffs' allegations that he had used their confidential and proprietary information to solicit their customers created the possibility that he could be found liable for causing "advertising injury" to the plaintiffs, thus triggering Hartford's duty to defend. As discovery in the underlying lawsuit progressed, Walk supplied Hartford with a copy of the deposition transcript and renewed his demand that Hartford provide him with a defense. Hartford maintained that it had no duty to defend Walk.

In February 2001, the plaintiffs offered to settle the underlying action. Walk again wrote to Hartford, referring Hartford to portions of the settlement offer letter about Walk's marketing efforts—the "blast faxes," "other advertising material," and "marketing brochures." Walk argued that the plaintiffs' claims implicated the "advertising injury" coverage of Hartford's policy. Hartford once more declared that the plaintiffs had not asserted a cause of action that would trigger Hartford's duty to defend. In May...