Allstate Insurance v. Atwood

ELDRIDGE, Judge. In Brohawn v. Transamerica Ins. Co., 276 Md. 396 , 347 A.2d 842 (1975), this Court held that an insurer, prior to trial of a tort suit against its insured, ordinarily could not obtain a declaratory judgment concerning policy coverage, where the coverage issue was essentially the same as an issue to be decided in the pending tort case. This case presents the question of when an insurer may litigate this type of coverage issue.

I. The relevant facts may be briefly stated. The father of Raymond F. Dacek, III brought a tort suit, individually and as the father of Raymond, in the Circuit Court for Montgomery County, alleging that the defendant John Atwood, a minor, caused serious injury to Raymond’s face. The complaint contained alternative counts based on negligence and battery. At the time of the alleged injury, John Atwood lived with his parents who had a homeowner’s insurance policy with Allstate Insurance Company that provided, in pertinent part, as follows: “[Allstate] will pay all sums arising from the same loss which an insured person becomes legally obligated to pay ²⁵⁰ as damages because of bodily injury or property damage covered by this part of the policy.” The policy, however, contained an exclusion for “bodily injury ... intentionally caused by an insured person.” John Atwood was an insured under the policy.

Before the tort suit came to trial, Allstate filed a declaratory judgment action, seeking a declaration that the insured’s act was intentional and therefore excluded from coverage. The circuit court dismissed the action, without prejudice, stating that a decision on the issue was premature and citing this Court’s decision in Brohawn v. Transamerica Ins. Co., supra, 276 Md. 396 , 347 A.2d 842 . Allstate did not appeal from that dismissal.

The tort suit subsequently went to trial. After the presentation of evidence, the case was submitted to the jury on alternative grounds; the jury found for the plaintiffs on the negligence count. 1 Judgment was entered in the tort case in accordance with the jury’s verdict, and no appeal was taken in that case. Thirteen days after the entry of judgment in the tort case, Allstate began the present proceeding by bringing a separate declaratory judgment action in the Circuit Court for Montgomery County, naming Atwood and Dacek as defendants, and seeking the same declaration which it had earlier sought. Both Atwood and Dacek moved to dismiss the declaratory judgment action, arguing that Allstate was bound by the jury’s determination of negligence.

The cir ²⁵¹ cuit court dismissed the action, and Allstate appealed to the Court of Special Appeals. Both in the circuit court and in the Court of Special Appeals, Allstate argued that the principles set forth in this Court’s opinion in Brohawn v. Transamerica Ins. Co., supra, did not preclude Allstate from bringing, after the tort suit, this declaratory judgment action in which Allstate could litigate whether the injury was caused by an intentional action. The Court of Special Appeals rejected Allstate’s argument and affirmed.

Allstate Ins. Co. v. Atwood, 71 Md.App. 107 , 523 A.2d 1066 (1987). The intermediate appellate court concluded that the decision in Brohawn v. Transamerica Ins. Co., supra, permitted an insurance company to intervene as a party in the tort action.

The court thus, stated ( 71 Md.App. at 111-112 , 523 A.2d at 1068 ): “What seems to have been overlooked by Allstate in its reading of Brohawn is the Court’s suggestion that, in the event of a conflict of interest, independent counsel be sought for the insured. 276 Md. at 414 , 347 A.2d at 854 . Implicit in that suggestion is the inference that the insurer might also be represented at trial so as to protect its interest.” The court went on to state that, because Allstate had not intervened as a party in the tort action, Allstate was bound by the jury’s determination that the injury was caused by negligence rather than battery. Thereafter we granted Allstate’s petition for a writ of certiorari.

II

Preliminarily, we believe that it would be useful to review briefly the scope of our opinion in Brohawn v. Transamerica Ins. Co., supra, as it relates to litigating a question of insurance coverage prior to the trial of a pending tort case. ²⁵² This Court stated in Brohawn that a declaratory judgment action, prior to the trial of a pending tort action, would ordinarily be appropriate in certain instances to resolve questions of policy coverage, “where those 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 at 848 . Examples include contentions that the insured failed to comply with contractual cooperation or notification provisions, or failed to pay premiums. Ibid.

See Northern Assurance Co. v. EDP Floors, 311 Md. 217, 223, 225-226 , 533 A.2d 682 (1987) (interpretation of an exclusion in an insurance policy); St. Paul Fire & Mar. Ins. v. Pryseski, 292 Md. 187 , 438 A.2d 282 (1981) (interpretation of coverage language in policy); Truck Ins. Exch. v. Marks Rentals, 288 Md. 428, 430-431 , 418 A.2d 1187, 1188-1189 (1980) (interpretation of language of endorsement extending insurance coverage to insured); Bankers & Ship. Ins. v. Electro Enter., 287 Md. 641, 644-645 , 415 A.2d 278, 280-281 (1980) (interpretation of policy exclusion denying coverage when insured airplane was not operated by two named pilots).

In the present case, as in Brohawn , however, the issue to be resolved in the declaratory judgment proceeding is the same as an issue in the tort action. The issue presented in both proceedings is whether Atwood intentionally struck Dacek III or negligently injured him. As was the case in Brohawn , a pre-tort trial declaratory judgment would ordinarily be inappropriate under these circumstances. 2 Allstate argues that where the insured’s conduct raises an insurance coverage issue which is the same as an issue presented in a pending tort suit, the Brohawn prohibition against use of a pre-tort trial declaratory judgment action to resolve the coverage dispute has led to collusion between ²⁵³ plaintiffs’ and defendants’ counsel in tort cases. Allstate claims that, in order to manipulate insurance coverage, plaintiffs’ attorneys bring suits for “negligent rape, negligent sodomy, ... and negligent sexual molestation.” (Petitioner’s Brief at p. 15).

Allstate describes the following scenario (ibid.): “The carrier, obligated to defend, and the defense attorney, obligated to protect his client’s best interests, [are] forced to settle these claims or face trial where all parties’ interests [are] best served only if a jury return[s] a verdict finding that even the most obvious and blatant criminal and/or intentional acts were ... negligent conduct.” Although Brohawn generally prohibits declaratory judgments, before the trials of pending tort suits, to resolve issues presented in the tort actions, Brohawn did not hold that this prohibition is absolute. Where the allegations in the tort suit against the insured obviously constitute a patent attempt to recharacterize, as negligent, an act that is clearly intentional, we believe that a declaratory judgment action prior to the trial of the tort case is permissible. The Supreme Court of Colorado, in Troelstrup v. District Court, 712 P.2d 1010 (Colo.1986), addressed a similar issue. In an earlier opinion, Hartford Ins.

Group v. District Court, 625 P.2d 1013, 1016 (Colo.1981), the Colorado Supreme Court, with respect to the use of pre-tort trial declaratory judgments, had reached a conclusion like that reached by this Court in Brohawn . In Hartford Ins. Group , however, in generally prohibiting the use of pre-tort trial declaratory judgment actions, the Colorado Supreme Court observed ( 625 P.2d at 1017 ): “This is not a case in which the tort action against the insured is based on conduct that is patently outside the terms of the insurance contract.” In Troelstrup , the tort plaintiff alleged that the insured had committed, in effect, a “negligent” sexual assault upon the plaintiff. The Colorado Court held that in situations where “the nature and character of the act is such that the intent to inflict injury may be inferred as a matter of law,” a declaratory judgment action before the tort trial is appropri ²⁵⁴ ate. 712 P.2d at 1013 .

To the same effect is Western Nat. Assur. Co. v. Hecker, 43 Wash.App. 816 , 719 P.2d 954 (1986), also involving an alleged “negligent” sexual assault. For cases addressing when an intent to injure may be inferred as a matter of law, see, e.g., Transamerica Ins.

Group v. Meere, 143 Ariz. 351, 359-360 , 694 P.2d 181, 189-190 (1984) (if defendant acted in self-defense, “with no basic purpose to injure, the exclusion will not apply____ If ... [the defendant] acted in self-defense ..., but negligently used force greater than necessary ... [the conduct] is ... within the coverage of the policy and not within the exclusion”); Globe American Cas. Co. v. Lyons, 131 Ariz. 337, 340 , 641 P.2d 251, 254 (App.1981) (insured suffering from “mental derangement which deprived her of her capacity to act in accordance with reason” did not as a matter of law act intentionally within the meaning of the exclusion); Allstate Ins. Co. v. Kim W., 160 Cal.App.3d 326, 331-332 , 206 Cal.Rptr. 609, 612-613 (1984) (sexual assault is an intentional act as a matter of law); Allstate Ins. Co. v. Novak, 210 Neb. 184, 192-193 , 313 N.W.2d 636, 640-641 (1981) (act committed in self-defense not an expected or intended act); State Farm Fire and Cas.

Co. v. Williams, 355 N.W.2d 421, 425 (Minn.1984); Ruvolo v. American Cas. Co., 39 N.J. 490, 498 , 189 A.2d 204, 209 (1963); Insurance Co. of North America v. Shore, 94 Misc.2d 451, 453 , 404 N.Y.S.2d 807, 809 (1978); Grange Ins. Ass’n v. Authier, 45 Wash.App. 383 , 725 P.2d 642 (1986), review denied, 107 Wash.2d 1024 (1987). We agree with the Supreme Court of Colorado that, when an intent to injure may be inferred as a matter of law, a pre-tort trial declaratory judgment action may be an appropriate proceeding in which to resolve the coverage issue.

We caution, however, that declaratory judgments in advance of tort trials, to resolve issues presented in pending tort cases, should be rare. 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” (Hartford Ins. Group v. District Court, supra, 625 P.2d at ²⁵⁵ 1017), and “as a matter of law” is excluded from the policy, that a pre-tort trial declaratory judgment should be rendered. The normal rule is the one set forth in Brohawn v. Transamerica Ins.

Co., supra, namely that a pre-tort trial declaratory judgment action, to resolve an issue presented in the pending tort case, is prohibited. In light of the policy considerations underlying the Brohawn rule, and discussed in the Brohawn opinion, any doubt as to whether a particular case falls within the narrow exception here recognized should be resolved in favor of dismissing the declaratory judgment action and allowing the issue to be resolved in the pending tort case. Moreover, even when an insurer is convinced that the insured’s alleged tortious conduct is patently excluded from the coverage, the insurer is not required to bring a pre-tort trial declaratory judgment action in order to preserve the insurer’s position. Because declaratory judgment actions in advance of the tort trials should not be encouraged, the insurer’s failure to bring such a declaratory judgment action, or to take an appeal from the dismissal of such an action without a declaration, will not operate as an estoppel or a waiver against the insurer.

The insurer will still be able to litigate the matter in accordance with Parts IV and V of this opinion. In the instant case, we have no occasion to examine the plaintiff Dacek’s allegations in the tort complaint to determine whether Atwood’s alleged “negligent” conduct was patently outside the insurance coverage and was intentional as a matter of law. This is not an appeal from the dismissal of Allstate’s pre-tort trial declaratory judgment action, and, as previously mentioned, Allstate took no appeal from the dismissal of that action.

III

In holding that Brohawn v. Transamerica Ins. Co., supra, requires that an insurance company intervene in the tort trial itself, and that if it fails to do so it is always bound ²⁵⁶ by the judgment in the tort case, the Court of Special Appeals mis-read the Brohawn opinion. Moreover, the intermediate appellate court overlooked some of the policy considerations underlying our decision in that case. Preliminarily, we point out that nowhere in the Brohawn opinion is there any statement or intimation that the insurer might become a party at the trial of the tort case.

The Court of Special Appeals found an “inference” that the insurer could be a party at the tort trial from the holding in the Brohawn opinion that, because of the conflict of interest, the insurer might be required to provide independent counsel for the insured. The statement in Brohawn concerning the duty of the insurer to provide independent counsel because of a conflict of interest related solely to the insurer’s contractual undertaking to provide its insured with a defense if the tort plaintiff alleged a claim potentially covered by the policy. We pointed out in Brohawn that the existence of a conflict of interest between the insured and the insurer was not a contractual exception to the insurer’s duties under the policy and thus did not relieve the insurer of its contractual obligations. Brohawn v. Transamerica Ins.

Co., supra, 276 Md. at 407-415 , 347 A.2d at 850-854 . The holding in Brohawn concerning the duty of the insurance company to pay for independent counsel for its insured in the conflict of interest situation was because of the insurance company’s agreement to provide a defense. 276 Md. at 414-415 , 347 A.2d at 854 . There was no suggestion that the insurer could also intervene. The only course of action for the insurer, which was suggested in the Brohawn opinion, was that “the insurer, in drafting the policy, could have included a provision limiting its duty to defend the insured when a conflict of interests arises,” 276 Md. at 410 , 347 A.2d at 851 .

The initial question discussed in the Brohawn case related to the propriety of allowing the insurer to obtain a declaratory judgment, prior to the tort trial, regarding an issue presented in the tort trial. We emphasized in Brohawn that, in determining whether to allow the pre-tort ²⁵⁷ trial declaratory judgment action, the inconvenience to or burden on the parties must be considered. 276 Md. at 406 , 347 A.2d at 849 . This Court pointed out that, if the pre-tort trial declaratory judgment proceeding were allowed, the insured would suffer great prejudice: not only would she have to defend against the plaintiff but also against the insurer. The Court thus stated 276 Md. at 406-407 , 347 A.2d at 849-850 ): “Allowing Transamerica to litigate the question of whether any injuries were intentionally inflicted would permit it, and not ... the plaintiffs in the tort suits, to control the litigation.

Transamerica would assume the burden of establishing not only that ... [the plaintiffs] were in fact injured but also that they were injured intentionally, exposing its insured Mrs. Brohawn to potential punitive damages. And Mrs. Brohawn would be forced not only to defend against the allegations of ... [the plaintiffs], but also against the vast resources and expertise of her insurer who would be trying to prove that which was its contractual duty to disprove. “... The essential unfairness to ... [the plaintiffs] of allowing Transamerica to prosecute their case, and the harsh burden of forcing Mrs. Brohawn to defend against a third plaintiff, far outweigh any possible advantages advanced by Transamerica in support of granting declaratory relief.” The above-discussed considerations are equally applicable in the present case. Requiring or permitting the insurance company to be a party litigant during the tort trial would lead to the same types of problems that concerned this Court in Brohawn .

The insured would have to defend against the resources of both the insurer and the tort plaintiff. Moreover, insurance company intervention in tort trials would be tantamount to authorizing direct actions by plaintiffs against defendants’ liability insurers. Maryland law