American Home Assurance Co. v. Osbourn

Moore, J., delivered the opinion of the Court. Two separate actions are before us in this consolidated appeal: in one, the insured sought a declaratory judgment and an awárd of expenses and settlement payments against his insurer which had disclaimed liability and declined to defend; in the other, filed the same day, the insured sued his insurance broker for breach of warranty and negligence because of alleged failure to procure complete insurance ⁷⁵ coverage for his business. The insured prevailed in the first case and the insurer has appealed. In the second case, the court granted summary judgment for the broker on the ground that the insured’s claim was barred by limitations, and the insured has appealed.

We reverse the judgment in the first case and affirm the judgment in the second. I Each case had its origin in an incident on April 24, 1974 at the Capital Centre in Largo, Prince George’s County, where Mr. Frank Sinatra was performing and the guests included then Vice-President Spiro Agnew and then Secretary of State Henry Kissinger. Nine private cars were improperly parked in a fire lane, described in testimony as an "escape route” for Messrs. Sinatra, Agnew and Kissinger.

The Maryland Park Police ordered the vehicles towed away and impounded. This service was duly performed, pursuant to a contractual agreement, by appellant-appellee, Ronald Osbourn, the operator since 1969 of Central Avenue Sunoco, in nearby Seat Pleasant. 1 Eight of the car owners ("Colby” et al.), later united in a declaration against Mr. Osbourn and his company 2 seeking compensatory and punitive damages aggregating $4,040,000 for alleged trespass and conversion. The ninth owner ("Varasano”) filed a separate suit for $550,000 alleging negligence, malicious prosecution and false imprisonment. At the time these cases were filed, Osbourn was insured under a "package” Service Station Policy by the appellant, American Home Assurance Company (hereinafter ⁷⁶ "American Home”), effective January 6, 1972 to January 6, 1975.

Osbourn purchased the policy through Hay Brothers Insurance Agency, Inc., insurance brokers. American Home provided representation for Osbourn in the Varasano case. The record is unclear as to the ultimate disposition of the Varasano case and it is not involved in this appeal. 3 In the Colby case, the company first notified Osbourn by letter dated August 14, 1974 that it would present a defense on his behalf but that he might also engage counsel of his choice because the suit was in excess of policy limits and there was no coverage for punitive damages under the policy. 4 Shortly thereafter, by letter dated September 11, 1974, American Home retracted and advised Osbourn that there was no coverage because of an exclusion in the policy for "intentional acts.” 5 Therefore, it disclaimed liability and declined to provide a defense. Osbourn then retained private counsel.

The case was ultimately settled for $3,000 in December 1977. On September 25, 1978, Osbourn instituted two suits in the Circuit Court for Prince George’s County. One was a declaratory judgment action against American Home, with a demand for a jury trial, seeking a determination that American Home should have defended Osbourn in the Colby case and recovery of the settlement costs in that proceeding as well as reimbursement of attorneys’ fees, costs, and expenses incurred in both the Colby suit and the declaratory judgment action. The other lawsuit was filed against Hay Brothers Insurance Agency, Inc. on grounds of negligence and breach of warranty for not procuring complete insurance coverage.

The broker raised the issue of limitations by a special plea. ⁷⁷ The cases were consolidated for trial. The court granted Hay Brothers’ motion for summary judgment, holding that the action was not brought within three years of the time it accrued and was therefore barred by limitations. In the declaratory judgment action, upon the conclusion of the evidence and denial of motions for a directed verdict, the following "special issue”, was submitted to the jury over objection by American Home: "If any property damage resulted in the Colby case, was it caused intentionally by or at the direction of Mr. Osbourn or his employees?” The court instructed briefly and defined "intentional.” After 19 minutes’ deliberation, the jury returned with a negative response to the issue presented. The trial court then rendered an opinion finding that American Home was under a duty to defend Osbourn in the Colby case pursuant to the policy coverage.

The question of damages was heard at a later date. At that time, the court awarded Osbourn a judgment of $22,250.10, plus interest, representing $10,419.05 in legal fees and costs in the Colby case as well as the $3,000 paid in settlement, and $8,831.05 in legal fees and costs in the declaratory judgment action. II We shall address first the issues raised in the appeal of American Home. Its primary contention is that the court erred in declaring that American Home should have defended Osbourn in the Colby case and that a totally irrelevant issue was submitted to the jury.

It also complains that the court improperly awarded Osbourn legal fees and costs in the prosecution of the declaratory judgment action. 6 With respect to the principal assignment of error, our analysis begins with the policy itself, particularly the ⁷⁸ provisions of Section II, Part I pertaining to liability and the insurer’s duty to defend: "Coverage C — Liability — The Company agrees to pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of bodily injury or property damage caused by an occurrence and arising out of the service station operations hazard; and the Company shall have the right and the duty to defend any suit against the Insured seeking damage payable under the terms of this policy, even if any of the allegations of the suit are groundless, false or fraudulent; but the Company may make such investigation and settlement of any claim or suit as it deems expedient.” (Emphasis added.) "Service Station Operations Hazard — The ownership, maintenance or use of the premises for the purposes of a gasoline service station, and all operations necessary or incidental thereto, herein called 'service station operations,’ including the automobile hazard defined as follows: (a) The ownership, maintenance or use of any automobile for the purpose of service station operations, and the occasional use for other business purposes and the use for non-business purposes of any automobile owned by or in charge of the Named Insured and used principally in service station operations. .. Under "definitions,” the word "occurrence” as used in Section II, Part I means: "An accident or continuous or repeated exposure to conditions which results in bodily injury or property damage during the policy period, provided all damages arising out of such exposure to substantially the same general conditions existing at or emanating from each premises location of the ⁷⁹ Named Insured shall be considered as arising out of one occurrence.” (Emphasis added.) Turning to the question of whether American Home was under a contractual obligation to defend Osbourn in the Colby suit, the applicable Maryland law was set forth by Judge Eldridge in Brohawn v. Transamerica Insurance Co., 276 Md. 396 , 347 A.2d 842 (1975): "The obligation of an insurer to defend its insured under a contract provision such as here involved is determined by the allegations in the tort actions. If the plaintiffs in the tort suits allege a claim covered by the policy, the insurer has a duty to defend.. .. Even if a tort plaintiff does not allege facts which clearly bring the claim within or without the policy coverage, the insurer still must defend if there is a potentiality that the claim could be covered by the policy.” (Citations omitted.) (Emphasis in original.) Id. at 407-08 , 347 A.2d at 850 .

Of course, every fact necessary to establish coverage need not be alleged. As the Court of Appeals held in the case of United States Fidelity and Guaranty Co. v. National Paving and Contracting Co., 228 Md. 40 , 178 A.2d 872 (1962), the allegations actually made may be sufficient "to indicate a potentiality” that the injury in question was caused by some act or omission "covered by the terms of the contract.” (Emphasis added.) Id. at 54-55 , 178 A.2d at 879 . 7 Moreover, under the language of the liability provision previously quoted, even if the allegations of the suit are "groundless, false, or fraudulent,” the insurer must defend any suit against the insured seeking damages payable under the terms of the policy if the injury claimed is covered. ⁸⁰ "This language [groundless, false, or fraudulent allegations] means that the insurer will defend the suit, if the injured party states a claim, which, qua claim, is for an injury 'covered’ by the policy; it is the claim which determines the insurer’s duty to defend;” Brohawn, supra at 408 , 347 A.2d at 850 quoting Chief Judge Learned Hand in Lee v. Aetna Casualty & Surety Co., 178 F.2d 750, 751-52 (2nd Cir. 1949). Here, the amended declaration of the eight aggrieved car owners contained, in Count I, a claim for intentional, wilful trespass. It was alleged that the removal of the automobiles from the Capital Centre parking lot was "without the consent or authority” of the plaintiffs; and that the defendants "deflated the tires . .. and disabled the vehicle[s] on defendant’s premises in a locked, enclosed area. .. .” Count II alleged conversion in that the vehicles were "wrongfully and unlawfully detained.” 8 As a result of the trespass and conversion, plaintiffs claimed to have suffered damages by "loss of use” of their family vehicles, "loss of and interruption in their normal activities, embarrassment, and money losses for the recovery of their vehicle[s]. . ..” None of the counts in the thirty-two count declaration alleged negligence.

More importantly, no count alleged facts which fall — even potentially — within the meaning of "occurrence” as defined in the policy. Because the policy defines an occurrence as an "accident” or a "continuous or repeated exposure to conditions,” those terms must be considered separately. "Accident” is defined in Webster’s Third New International Dictionary (unabr. ed. 1966) as "1 a: an event or condition occurring by chance or arising from unknown or remote causes . .. b: lack of intention or necessity.” Black’s Law Dictionary 31 (rev. ed. 1968) states that in the context of accident insurance contracts, "[a]n accident ... is an event happening without any human agency, or, if happening through such agency, ⁸¹ an event which, under circumstances, is unusual and not expected by the person to whom it happens.” As for the second meaning of occurrence, i.e., a "continuous or repeated exposure to conditions,” the appellant presented the testimony of an expert in the field of underwriting, who cited as an example the discharge of fumes from a pipe over a period of time. In the instant case it cannot seriously be asserted that the trespass and conversion even remotely alleged an accident.

In this connection, we observe that the trial testimony made it abundantly clear that in the process of towing the vehicles from Largo to Seat Pleasant there was no improper driving, no mishaps occurred and there was no resulting damage to either persons or property. 9 Clearly, there was no "occurrence” insofar as the policy defined occurrence as "an accident.” Furthermore, a one-time towing operation does not fall within the "continuous or repeated exposure to conditions” language of the definition of occurrence. Plainly, the second meaning of "occurrence” is not alleged. See Steyer v. Westavo Corp., 450 F. Supp. 384 (D. Md. 1978). It is settled law that insurance contracts must be interpreted like other contracts, according to the sense and meaning of the terms, John Hancock Life Insurance Co. of Boston v. Plummer, 181 Md. 140, 142 , 28 A.2d 856, 857 (1942), and if an ambiguity exists it will be resolved against the draftsman of the policy.

United States Fidelity and Guaranty Co. v. National Paving and Contracting Co., 228 Md. 40, 50 , 178 A.2d 872, 877 (1962). In the instant case there was no ambiguity. There was nothing resembling an "occurrence” alleged in the declaration which would trigger appellant’s duty to defend under the liability provisions of the policy. Osbourn’s position, as we understand it, is that the liability section of the policy must be read in conjunction with the paragraph which immediately follows, entitled "Service Station Operations Hazard.” We agree.

However, the appellee seeks to apply the hazard provision in isolation, ⁸² independently of the immediately preceding provision (Coverage C-Liability) of the policy. Appellee overlooks the conjunctive "and” after the word "occurrence.” 10 There must first be an "occurrence” as defined in the policy; and it must arise out of the service station operations hazard. We have already concluded that there was no "occurrence” under the facts and circumstances of this case. Finally, it is apparent that improper reliance was placed below upon one of the exclusions in the insurance policy which provided that the insuring clause contained in Section II did not apply "to bodily injury or