7416 Baltimore Avenue Corp. v. Penn-America Insurance

JAMES S. GETTY, Judge, Specially Assigned. The issue presented by this appeal is whether the appellant, 7416 Baltimore Avenue Corporation, is entitled to a defense by its insurer, Penn America Insurance Company, ⁶⁹⁴ the appellee. Appellant alleges that appellee has a duty to provide a defense in a personal injury case filed against appellant by Michael Stanton. Both parties filed motions for summary judgment in appellant’s declaratory judgment action.

Thereafter, the Circuit Court for Prince George’s County (Ross, J.) granted appellee’s motion and this appeal followed. In his suit against appellant, Michael Stanton alleged that he was injured when employees of appellant, usually referred to as “bouncers,” forcibly evicted him from appellant’s nightclub in College Park. Stanton’s complaint alleges “assault and battery” (Count 1) and “negligent supervision of employees” (Count 2). The appellee subsequently declined to defend the appellant citing the following policy provisions in support of its argument that it owed no such duty: Coverage A — Bodily Injury Liability Coverage B — Property Damage Liability This company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of A. bodily injury or B. property damage to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company’s liability has been exhausted by payment of judgments or settlements.

(Emphasis added.) ⁶⁹⁵ The policy contains the following endorsement on which the appellee insurer relies in refusing to provide a defense for appellant. • Assault and Battery Exclusion In consideration of the premium charged, it is hereby understood and agreed that this policy excludes claims arising out of Assault and Battery, whether caused by or at the instigation of, or at the direction of, the insured, his employees, patrons or any cause whatsoever. Appellee’s policy, allegedly standard, is not a model of clarity. Initially, it acknowledges a duty to defend “any suit ... on account of ... bodily injury ... even if any of the allegations are groundless, false or fraudulent.” Immediately thereafter, the endorsement provides that “this policy excludes claims arising out of Assault and Battery.” Clearly, the appellee would not be required to pay a claim if it were established that the claim was groundless, false or fraudulent. It is equally obvious that the appellee would not be required to pay a claim where the cause of the injury was excluded from coverage.

What is not as clear, however, is whether the appellee owes its insured a defense in either situation based upon the language it has included in the policy. In the recent case Allstate Insurance Company v. John Atwood, et al., 319 Md. 247 , 572 A.2d 154 (1990), the Court of Appeals (Eldridge, J.) made clear that resort to “declaratory judgments in advance of tort trials to resolve issues presented in pending tort cases should be rare.” Citing Hartford Ins. Group v. District Court, 625 P.2d 1013 (Colo.1981), the Court of Appeals establishes that “it is only where the alleged conduct of the insured as to one or more of the claims made is patently outside the terms of the insurance contract and as a matter of law is excluded from the policy, that a pretrial declaratory judgment should be rendered.” The normal rule, the Court reiterated, is as set forth in Brohawn v. Transamerica Ins. Co., 276 Md. 396 , 347 A.2d 842 (1975), “that a pre-tort trial declaratory judg ⁶⁹⁶ mént action to resolve an issue presented in the pending tort case is prohibited.” Within that framework, we turn to the case before us.

Count 1 of Stanton’s complaint alleges the following: (Assault and Battery) At the aforesaid time and place, agents and employees of the defendants, including Robert Paul Arnold, acting within the course and scope of their employment by the defendant, wilfully and intentionally assaulted and battered the plaintiff, causing the aforesaid injuries. Count 2 charges: (Negligence) Defendant [7416 Baltimore Avenue Corporation] was under a duty, to supervise its employees and to make certain that they acted lawfully and properly with regard to patrons. The defendants as aforesaid negligently failed to supervise the activities of its employees and as a result thereof, plaintiff suffered injuries as aforesaid. The appellant’s piece de resistance is that the case falls squarely under Brohawn .

The appellee, conversely, relies on the holding in Northern Assurance Co. v. EDP Floors, 311 Md. 217 , 533 A.2d 682 (1987), authored by Chief Judge Murphy. Any doubt as to whether a particular case falls within the narrow exception (patently outside the terms of the insurance contract as a matter of law) should be resolved in favor of dismissing the declaratory judgment action and allowing the issue to be resolved in the pending tort case. Atwood, supra. 1 Brohawn is authority for the proposition that if a claimant alleges a cause of action that is potentially covered by the policy, the insurer has a duty, because of a conflict of ⁶⁹⁷ interest, to provide independent counsel for its insured. That statement is solely concerned with the insurer’s contractual obligation to provide its insured with a defense if the tort plaintiff alleges a claim that may be covered by the policy.

The actual holding in Brohawn , as it relates to litigating a coverage question prior to the trial of a pending court case, is that a declaratory judgment may be appropriate where the coverage questions “are independent and separable from the claims asserted in a pending suit by an injured third party.” 276 Md. at 405 , 347 A.2d 842 . In Brohawn the issues were not separable, because they were the identical issues to be decided in the pending tort action, i.e., whether the alleged injuries resulted from an intentional act or from a negligent occurrence. Declaratory judgment, therefore, was held to be inappropriate. Examples of “independent and separable” questions of policy coverage that may be litigated by resort to declaratory judgment proceedings prior to a tort trial include: Northern Assurance Co. v. EDP Floors, supra, relied upon by the appellee herein (interpretation of an exclusion in the policy); St. Paul Fire and Marine Ins. v. Pryseski, 292 Md. 187 , 438 A.2d 282 (1981) (interpretation of coverage language in policy); and Bankers & Ship.

Ins. Co. v. Electro Enter., 287 Md. 641 , 415 A.2d 278 (interpretation of exclusion denying coverage where insured plane not operated by named pilots). In EDP Floors, supra, an accident occurred when an intoxicated employee of EDP caused floor tiles to fall on the plaintiff in the course of unloading EDP’s truck at a job site. The plaintiff sued EDP alleging vicarious liability of the employer, EDP, for the employee’s negligence and direct liability for negligent hiring and for negligent supervision.

EDP notified both its automobile and general liability carriers of the suit and requested a defense. The general liability carrier, NAC, denied coverage based upon a policy provision excluding coverage for injury arising out of the unloading of a vehicle. ⁶⁹⁸ The Court of Appeals determined that the Brohawn principle did not apply, because EDP had a material interest in