ABC Imaging of Washington, Inc. v. TRAVELERS INDEMNITY COMPANY OF AMERICA

SHARER, Judge. In this appeal we are called upon to consider the language of a coverage exclusion in a fidelity bond. The Circuit Court for Prince George’s County granted summary judgment in favor of the insurer, from which the insured has noted this appeal. The insured, ABC Imaging of Washington, Inc. (“ABC Imaging”), appellant, filed a lawsuit against the insurer, The Travelers Indemnity Company of America (“Travelers”), appellee, after its claim under a fidelity bond was denied.

In its complaint, ABC Imaging alleged breach of contract, unfair claim practices violations, and misrepresentation. ABC Imaging had made a timely claim for a loss incurred when one of its employees was substantially overpaid (by $52,432.32) during several payroll periods and declined to return or otherwise account for the money. 1 ABC Imaging and Travelers filed cross-motions for summary judgment. Both parties agree that there is no dispute of material fact and that disposition by way of summary judgment was appropriate. After a hearing, the motions judge entered summary judgment in favor of Travelers on each of ABC Imaging’s claims.

ABC Imaging noted this timely appeal, asking: Did the circuit court err in granting summary judgment in favor of Travelers? We answer in the negative and affirm. FACTUAL and PROCEDURAL BACKGROUND ABC Imaging is a District of Columbia business engaged in printing, blueprinting, and graphics in the Washington area. ³⁹³ Travelers provided a business insurance policy to ABC Imaging, the coverage of which included a fidelity bond insuring against loss resulting from employee dishonesty. On November 17, 2000, ABC Imaging hired one Darrell Miller as an assistant department manager at its main office in Washington, D.C., at an annual salary of $29,000, or $558 per week.

As a result of a data entry error, a clerk at ABC Imaging entered Miller’s weekly pay rate rather than his hourly pay rate in records that were used by an outside source to generate paychecks for ABC Imaging employees. Thus, between November 20, 2000, and January 7, 2001, the six week period in which he was employed by ABC Imaging, Miller received and cashed paychecks totaling $54,832.32, or $52,432.32 more than he was entitled to receive. When ABC Imaging discovered the error on January 7, 2001, management confronted Miller about the matter, whereupon Miller ran from the premises, never to return. On January 8, 2001, ABC Imaging’s attorney sent correspondence to Miller demanding return of the overpaid funds.

Miller neither responded nor returned the money. On February 12, 2001, ABC Imaging submitted a proof of claim to Travelers as required by the policy. By letter dated April 9, 2001, Travelers denied the claim, asserting that the manner by which the funds came into Miller’s possession fell within the “salary” exclusion of the policy. ABC Imaging’s complaint in the circuit court followed.

DISCUSSION ABC Imaging contends that the motions judge erred in finding that its loss was excluded from coverage under the policy and, on that basis, granting summary judgment in favor of Travelers. Our review of a grant of summary judgment is as follows: The trial court properly grants summary judgment in accordance with Maryland Rule 2-501(e), “if the motion and response show that there is no genuine dispute as to any ³⁹⁴ material fact and that the party in whose favor judgment is entered is entitled to judgment as a matter of law.” Jones v. Mid-Atlantic Funding Co., 362 Md. 661, 675-76 , 766 A.2d 617, 624-25 (2001); Hartford Ins. Co. v. Manor Inn of Bethesda, Inc., 335 Md. 135, 144 , 642 A.2d 219, 224 (1994); Gross v. Sussex, Inc., 332 Md. 247, 255 , 630 A.2d 1156, 1160 (1993). This Court, like any appellate court, reviews the grant of summary judgment to determine whether the trial court was legally correct in entering the judgment.

Murphy v. Merzbacher, 346 Md. 525, 530-31 , 697 A.2d 861, 864 (1997); Goodwich v. Sinai Hosp., Inc., 343 Md. 185, 204 , 680 A.2d 1067, 1076 (1996); Hartford Ins. Co., 335 Md. at 144 , 642 A.2d at 224 ; Gross, 332 Md. at 255 , 630 A.2d at 1160 . And, because an appellate court has [“ ‘]the same information from the record and decide[s] the same issues of law as the trial court,’ ” its review of an order granting summary judgment is de novo. Green v. H & R Block, Inc., 355 Md. 488, 502 , 735 A.2d 1039, 1047 (1999) (quoting Heat & Power v. Air Products & Chemicals, Inc., 320 Md. 584, 591-92 , 578 A.2d 1202, 1206 (1990)).

Tyma v. Montgomery County, 369 Md. 497, 503-04 , 801 A.2d 148 (2002). The Policy Exclusion The fidelity bond provisions of the policy written by Travelers and issued to ABC Imaging contained the following exclusion: G. Property Definitions 1. a. “Employee(s)” means: (1) Any natural person: (a) While in your service (and for 30 days after termination of service); and (b) Whom you compensate directly by salary, wages or commissions; and (c) Whom you have the right to direct and control while performing service for you.... ³⁹⁵ 2. “Employee Dishonesty” means only dishonest acts, including “forgery” or extortion, committed by an “employee,” whether identified or not, acting alone or in collusion with other persons, except you or a partner, with the manifest intent to: a. Cause you to sustain loss; and also b. Obtain financial benefit (other than salaries, commissions, fees, bonuses, promotions, awards, profit sharing, pensions or other employee benefits earned in the normal course of employment) for: (1) The “employee”; or (2) Any person or organization intended by the “employee” to receive that benefit.

(Emphasis added). The “salary and benefits” exclusion has been standard in fidelity bonds since 1980. Prior to that time, similar language was frequently added to policies by rider. Our research reveals that the rationale for the standard exclusion is two-fold.

The exclusion avoids the involvement of insurers in employer — employee disputes about entitlement to salary, commissions, or benefits, for in all such cases the conduct of the employee is within the internal control of the insured employer. The other aspect of the rationale is also industry driven, and was a response to a trend in court decisions that expanded the coverage beyond the limit intended by insurers. See Jane Landes Foster, Jeffrey A. Lutsky and Daniel T. Fitch, Does a Criminal Conviction Equal Dishonesty? Criminal Intent Versus Manifest Intent, 24 Torts & Ins.

L.J. 785, 800-02 (1989). Since the introduction of the standard exclusion, as we shall discuss, infra, most courts have taken a more restrictive view of the type of employee dishonesty that is covered by the fidelity bond. There are two prongs to the proof required in order for an insured to recover for employee dishonesty under the policy written by Travelers. First, there must be proof of the ³⁹⁶ employee’s “manifest intent” to cause loss to the employer and second, that the employee, by his dishonest actions, did obtain a benefit for himself “other than salaries, etc.” There is no question that Miller’s acts were “dishonest” and done with the intent to confer a benefit upon himself.

Because there is no evidence that Miller acted with intent to cause loss to ABC Imaging (in fact, the parties concede that his conduct was indicative of the intent to enrich himself, not to harm his employer), our focus will of necessity be upon the second prong — whether the benefits obtained by him were, or were not, salary, as defined by the policy language. An insurance policy is a contract between the insurer and the insured. In construing an insurance contract, we look to the rulings of this Court and the Court of Appeals, which, in Kendall v. Nationwide Insur. Co., 348 Md. 157 , 702 A.2d 767 (1997), declared: An insurance policy is a contract between the parties, the benefits and obligations of which are defined by the terms of the policy.

We have repeatedly held that the construction of insurance contracts in Maryland is confined to the few well-established principles that are applied to the construction of contracts generally. Pacific Indent. Co. v. Interstate Fire & Cas. Co., 302 Md. 383, 388 , 488 A.2d 486, 488 (1985). “An insurance contract, like any other contract, is measured by its terms unless a statute, a regulation, or public policy is violated thereby.” Id. at 388 , 488 A.2d 486 .... “Under Maryland law, when deciding the issue of coverage under an insurance policy, the primary principle of construction is to apply the terms of the insurance contract itself.” Bausch & Lomb v. Utica Mutual, 330 Md. 758, 779 , 625 A.2d 1021, 1031 (1993).

As we clearly held in Cheney v. Bell National Life, 315 Md. 761, 766 , 556 A.2d 1135, 1138 (1989), “Maryland does not follow the rule, adopted in many jurisdictions, that an insurance policy is to be construed most strongly against the insurer. Rather, following the rule applicable to the construction of contracts generally, we ³⁹⁷ hold that the intention of the parties is to be ascertained if reasonably possible from the policy as a whole.” Kendall, supra, 348 Md. at 165-66 , 702 A.2d 767 . The interpretation of a written contract is ordinarily a question of law for the court and, therefore, is subject to de novo review by an appellate court. Auction & Estate Reps., Inc. v. Ashton, 354 Md. 333, 341 , 731 A.2d 441, 445 (1999); Calomiris v. Woods, 353 Md. 425, 434 , 727 A.2d 358, 362 (1999); Kendall v. Nationwide Ins.

Co., 348 Md. 157, 170-71 , 702 A.2d 767, 773 (1997); JBG/Twinbrook Metro Ltd. Partnership v. Wheeler, 346 Md. 601, 625 , 697 A.2d 898, 911 (1997); Suburban Hosp., Inc. v. Dwiggins, 324 Md. 294, 306 , 596 A.2d 1069, 1075 (1991). In determining the meaning of contractual language, Maryland courts have long adhered to the principle of the objective interpretation of contracts. Ashton, 354 Md. at 340 , 731 A.2d at 444 ; Calomiris, 353 Md. at 435 , 727 A.2d at 363 ; Adloo v. H.T. Brown Real Estate, Inc., 344 Md. 254, 266 , 686 A.2d 298, 304 (1996); Maryland v. Attman/Glazer P.B. Co., 323 Md. 592, 604 , 594 A.2d 138, 144 (1991); Cloverland Farms Dairy, Inc. v. Fry, 322 Md. 367, 373 , 587 A.2d 527, 530 (1991); Feick v. Thrutchley, 322 Md. 111, 114 , 586 A.2d 3, 4 (1991); Aetna Cas. & Sur. Co. v. Insurance Comm’r, 293 Md. 409, 420 , 445 A.2d 14, 19 (1982).

Under the objective interpretation principle, where the language employed in a contract is unambiguous, a court shall give effect to its plain meaning and there is no need for further