BOARD OF EDUCATION OF WORCESTER CTY. v. Horace Mann Ins. Co.

GREENE, J. In August of 2005, Pocomoke High School student Bradley Souders (“Souders”) brought a civil action in the Circuit Court for Worcester County, 1 alleging that Vice Principal, James L. Covington (“Mr. Covington”), had assaulted him. The issue presented for our review is whether the Board of Education of Worcester County (“the Board”) had a duty to provide Covington with a defense in this action pursuant to Md. Code (J978, 2004 Repl. Vol.), § § 4-104 and 4-105 of the Education Article. We shall hold that § 4-104 of the Education Article required the Board to provide Covington with a defense because the allegations of the complaint, and extrinsic evidence brought to the Board’s attention, established the potentiality that Covington’s actions were taken within the performance of his duties, within the scope of his employment and without malice.

I. Background The parties agree that Mr. Covington summoned Souders to his office because Souders had been accused of harassing another student. While Souders was in Covington’s office, the events that gave rise to Souders’ complaint occurred. In his complaint, Souders described the events as follows: On March 17, 2004, [Mr. Covington] summoned [Souders] to his office, closed the door, removed the cord from the handset of the telephone, and in the course of subsequent ²⁸⁰ conversation, removed from the bottom drawer of his desk, a knife with a six to seven inch blade and brandished it directly in front of [Souders], hereby [sic] placing [Souders] in fear of imminent harm. Souders’ complaint also alleged: That because of the student-vice principal relationship between the parties, giving [Mr. Covington] control over [Souders], because they were alone in [Mr. Covington’s] office, because [Mr. Covington] remove [sic] the cord from the handset of his telephone, and because [Mr. Covington] brandished the knife, [Souders] was caused to suffer and continue to suffer mental pain, suffering fright [sic], nervousness, indignity, humiliation, embarrassment, and other damages.

Mr. Covington’s version of the events differed significantly. In response to Souders’ complaint, Mr. Covington indicated that his duties as Vice Principal required him to address disciplinary issues and that he called Souders to his office to address a potential disciplinary problem. When Souders arrived in Mr. Covington’s office, according to Mr. Covington, he engaged in a discussion with Souders regarding “where harassment could lead.” Mr. Covington stated that during the course of this discussion, he showed Souders a knife that he had confiscated from a former student who was small and often teased at school. Mr. Covington asserted' that he then asked Souders “how he would feel if someone that he had picked on had brought the knife to school.” 2 Mr. Covington denied assaulting Souders and indicated that he believed his actions were appropriate and pursuant to his duties as Vice Principal.

Accordingly, Mr. Covington asked the Board to provide him with a defense in the assault action pursuant to Md. Code (1978, 2004 Repl. VoL), § 4-104(d) of ²⁸¹ the Education Article. 3 The Board refused to defend Covington because he was charged with assault, an intentional tort. The Board contended that assault could never be without malice, and thus, did not fall within the purview of § 4-104(d) of the Education Article. The Board self-insures through the Maryland Association of Boards of Education Group Insurance Pool (“the Pool”).

As a member of the Pool, the Board is covered under the Pool’s self-insurance agreement. The Pool also refused to provide Covington with a defense, asserting that the actions alleged in Souders’ complaint were not covered under the self-insurance agreement because the agreement excludes coverage for intentional acts. The Pool further asserted that Souders’ complaint alleged a type of damage, emotional distress, that was not covered under its policy. Ultimately, Horace Mann Insurance Company (“Horace Mann”) provided Mr. Covington with a defense pursuant to an Educators Employment Liability Policy that it had issued to the Maryland State Teachers Association. 4 The case was tried before a jury and the jury found Mr. Covington did not assault Souders.

Subsequently, Horace Mann filed an action for declaratory judgment in the Circuit Court for Worcester County, seeking a declaration that: (1) the Board had a duty to defend Covington against the allegations in the underlying action, (2) the Board breached its duty by refusing to provide ²⁸² Covington with such defense, and (3) the Board was obligated to reimburse Horace Mann for the expense of defending Covington in the underlying action and for the expense of bringing the declaratory judgment action. The Circuit Court for Worcester County determined that if the Board had a duty to defend Covington, that duty either arose out of the Pool’s self-insurance agreement or § 4-104(d) of the Education Article. The court then concluded that Souders’ complaint and Covington’s defense did not allege facts that invoked a potentiality of coverage under the terms of the Pool’s self-insurance agreement and thus, the Pool owed no duty to defend Covington under that policy. The court analyzed the Pool’s policy as follows: There are two potential scopes of coverage applicable, to this situation.

The “Legal Liability Scope” specifically disclaims responsibility for any assault case, no matter how frivolous. The “Casualty Scope” is limited to payments for “bodily injury” and requires an “occurrence.” An “occurrence” is defined as an accident or a professional incident. The underlying complaint, and Mr. Covington’s defense, do not allege there was an accident and the term “professional incident” applies to medical services. Next, the court held that the Board was required to provide Covington with a defense pursuant to § 4-104(d) of the Education Article.

Analogizing the case to Aetna v. Cochran, 337 Md. 98 , 651 A.2d 859 (1995), the Court reasoned: Mr. Covington was entitled to a defense when he was acting in the “scope of his employment” and “without malice.” Like self-defense, acting in the scope of his employment is not something that would be pled in a complaint if the plaintiff were seeking recovery solely against Mr. Covington. That defense serves to disprove the intent element necessary in an assault case and, if proved, would mean that Mr. Covington met all the criteria of 4-104(d). :¡: * * * [A] legitimate defense that raises a potentiality of coverage must be considered. Mr. Covington raised a credible ²⁸³ defense that was covered by 4-401(d), so credible in fact that he won his case. The Defendants were obligated to provide a defense and they are obligated to compensate Horace Mann for the cost of the defense they provided.

The Board noted a timely appeal to the Court of Special Appeals, but before that court could consider the case, we issued a writ of certiorari on our own initiative, Board of Educ. v. Horace Mann, 406 Md. 192 , 957 A.2d 999 (2008). 5 II. DISCUSSION The Board asserts that the Circuit Court for Worcester County misapplied the Education Article and established precedent. Specifically, the Board contends that the trial court’s holding that “a county board of education has a duty to defend one of its employees pursuant to the Education Article, § 4-104, even where the only claim asserted against the employee was an intentional assault, effectively imposes upon county school boards an absolute duty to defend virtually any claim against a board employee.” The Board also urges that the holding below breaks the chain that exists between §§ 4-104 and 4-105 of the Education Article 6 in contradiction to this ²⁸⁴ Court’s holding in Board of Ed. v. Horace Mann Insurance, . 388 Md. 527 , 860 A.2d 909 (2004). The Board explains: [T]he Board in this instance did procure the coverage required under § 4-105, coverage which, as the trial court itself held and which Horace Mann does not challenge on appeal, provided no duty to defend a single count of intentional assault.

The trial court’s holding, therefore, or at least its effect, is to break the very relationship between §§ 4-104 and 4-105 that the Court of Appeals recognized exists in [Mann Insurance], 383 Md. 527 , 860 A.2d 909 . Simply put, the Circuit Court in this case found a duty to defend under § 4-104 that would not exist under the likely terms of insurance that the Board was required to procure under § 4-105. Conversely, Horace Mann argues that the trial court correctly held that under § 4-104(d) of the Education Article, the Board was required to provide Mr. Covington with a defense, because there was a potentiality that Mr. Covington’s conduct was performed pursuant to his duties as Vice Principal, within the scope of his employment, and without malice. Horace Mann asserts that the Board is required to defend employees for acts performed within the scope of the employee’s employment and without malice, not simply for damages arising out of an occurrence as that term is typically used in liability policies.

According to Horace Mann, § 4-104(d) of the Education Article is to be “liberally construed to effectuate its beneficent purpose because it is remedial legislation enacted for