Chang v. Brethren Mutual Insurance

EYLER, JAMES R., J. This case presents insurance coverage and related issues arising from a policy issued to Chik S. Chang and Hye Ja Chang, appellants, by Brethren Mutual Insurance Company, appellee. The Circuit Court for Anne Arundel County entered summary judgment in favor of appellee. We shall vacate the summary judgment and remand for further proceedings not inconsistent with this opinion. ⁵³⁸ Factual background Appellants owned property located at 7339 E. Furnace Branch Road, Glen Burnie, improved by a building leased to commercial tenants (the building). Appellee issued a “businessowners policy” (the Policy) to appellants, effective September 29, 2002 to September 29, 2003.

The Policy expressly covered the premises located at 7339 E. Furnace Branch Road. In February 2003, a heavy snowfall caused snow to accumulate on the roof of the building. This caused water to leak into the demised premises and caused concern as to whether the roof would collapse. On February 22, the Anne Arundel County Fire Department issued a notice stating that the building could not be occupied until the snow was removed and the roof inspected by an engineer.

On February 22, 2003, Ms. Chang, one of the appellants, met with Lloyd K. Butts, a representative of Security Remodeling, Inc. (Security). Ms. Chang and Security entered into an agreement whereby Security agreed “to perform all restorations which are approved by your insurance company, with the funds that are provided by your insurance company.” The contract provided that appellants would incur no “out of pocket expense,” except for “the homeowners’ deductible as described in your homeowners insurance policy.” In his deposition, Mr. Butts testified to the following. On February 22, he contacted appellants’ insurer, using information provided by appellants. Later the same day, he received a call from Kirsten W. Barefield, an adjuster employed by Crawford Claims Management Services, an outside adjusting agency retained by appellee.

Mr. Butts explained to Ms. Barefield that the snow had to be removed to prevent further water damage, and she agreed. 1 Security removed the snow ⁵³⁹ by the morning of the 23rd and then inspected the interior of the building to assess the damage caused by leaking water. A few days later, there was another significant snowfall, and Security removed that snow from the roof. Security repaired the damage caused by leaking water, and on April 11, 2003, submitted an invoice to Ms. Chang for the total amount of $30,105.50. The invoice included a charge for the first snow removal in the amount of $11,250.00 and a charge for the second snow removal in the amount of $3750.00.

It included an “overhead” item in the amount of $3612.66 and a “profit” item in the amount of $2408.44. The remaining charges were for labor and materials to repair the damage. Security’s invoice obviously was sent to Ms. Barefield because, under cover letter dated April 15, 2003, Ms. Barefield sent to Mr. Butts “a revised estimate of repair,” referring to Security’s invoice. Ms. Barefield stated that the charges for snow removal, overhead, and profit had been removed and that a check in the amount of $6834.40 would be forwarded.

A copy of the Security invoice was enclosed with the April 15 letter, which contained a handwritten notation, “no coverage,” next to the snow removal items, and a handwritten notation, “O & P not applicable,” next to the overhead and profit items. Appellee forwarded a check to appellants, payable to appellants and Security, 2 dated April 28, 2003, in the amount of $18,337.03. The check purported to be full payment for all loss caused by the accumulation of snow on the roof. The total amount paid included the $6834.40 that was intended for Security.

The balance was for loss sustained unrelated to Security’s work. On September 12, 2003, Security filed a complaint in circuit court against appellants. Security recited that appellants had contracted with Security to remove snow and perform repairs but appellants had refused to pay. Security alleged breach of contract in count I, and unjust enrichment in count II, and claimed $30,105.50, attorney’s fees, and costs. ⁵⁴⁰ On February 10, 2004, appellants filed a third party complaint against appellee.

Appellants alleged that they entered into a contract with Security to remove snow and make emergency repairs to prevent further damage to the property, to be paid out of insurance proceeds, except for the deductible amount. In count I, appellants asserted breach of contract, alleging that the claim for Security’s work was property loss and covered under the Policy. In count II, appellants requested that appellee be substituted for them as the real party in interest in the dispute with Security. By letter dated May 3, 2004, appellants requested appellee to assume their defense in the suit by Security against appellants.

By letter dated May 21, 2004, appellee refused, explaining that Security’s claims were not covered, or potentially covered, under the Policy. On June 3, 2004, appellants filed an amended third party complaint, adding a second count for breach of contract, designated as count II, in which they alleged that appellee had a duty to defend appellants in the suit by Security. In count I, appellants sought $15,000.00, attorney’s fees, and costs. In count II, appellants sought attorney’s fees incurred in defending the suit by Security and in pursuing the third party complaint.

The real party in interest claim did not change, except that it was renamed as count III. In the summer of 2004, following discovery, appellants filed a motion for summary judgment with respect to Security’s claims against them, requesting that judgment be entered in Security’s favor in the amount of $6834.40. Appellants also filed a motion for partial summary judgment against appellee, requesting that judgment be entered on count II, with respect to appellee’s duty to defend appellants. Appellee filed a motion for summary judgment with respect to appellants’ claims against it.

By memorandum opinion and order dated January 3, 2005, the court denied appellants’ motions and granted appellee’s motion. The latter ruling is the subject of this appeal. ⁵⁴¹ On March 16, 2005, Security’s claims against appellants were tried non-jury. At the close of Security’s evidence, the court granted appellants’ motion for judgment. Subsequently, on April 13, the court amended its judgment to require appellants to pay $6834.40 to Security.

That judgment has been satisfied. Following the entry of a final judgment, appellants noted an appeal to this Court, in which they challenge the entry of summary judgment in favor of appellee with respect to their breach of contract claims. 3 Appellants acknowledge that their claim for indemnification is moot because a judgment was entered in their favor with respect to the claim for snow removal costs. Appellants assert that their claims for attorney’s fees and costs incurred in the defense of Security’s claims and in prosecuting their third party claims are not moot. The Policy According to the declarations page, the Policy was a “businessowners policy,” issued to appellants as named insureds.

The declarations page described the covered premises as 7339 E. Furnace Branch Road. Under property coverage, it provided insurance limits in the amount of $434,800 for buildings and $10,000 for business personal property, subject to a $1,000 deductible. Under liability coverage, it provided insurance limits in the amount of $1,000,000 for liability and medical expenses, $5,000 per person for medical expenses, and $100,000 for legal liability from fire. The declarations page also reflected other coverages in effect, which were optional, and not directly relevant to the issues before us.

In pertinent part, the Policy included a “special property coverage form,” modified by a “Vantage endorsement” 4 (the ⁵⁴² property coverage form); a liability coverage form; and common policy conditions. In the “coverage” part of the property coverage form, appellee agreed to “pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.” Section A. In the “coverages” part of the liability coverage form, appellee agreed to “pay those sums that the insured becomes legally obligated to pay as damages because of ... ‘property damage’ ... caused by an ‘occurrence[.]’ ...” Section A.l.a. and b. Appellee also agreed to defend any suit seeking such “property damage.” Section A.l.a. In the definitions subpart, “occurrence” was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Section F.12. “Property damage” was defined as “[p]hysical injury to tangible property, including all resulting loss of use of that property” and “Moss of use of tangible property that is not physically injured.” Section F.15.

In the “exclusions” subpart, one of the exclusions was “ ‘property damage’ for which the insured was obligated to pay damages by reason of the assumption of liability in a contract or agreement.” Section B.l.b. Contentions of the Parties As explained above, appellants’ claims against appellee originally included the cost of snow removal, performed by Security. That claim for indemnity under the Policy is now moot because Security lost its claim against appellants for the cost of snow removal, and thus, appellants have not incurred any expense for snow removal. Appellants’ claims for fees and costs are premised on two different parts of the Policy: the property coverage form (first party coverage) and the liability form (third party coverage).

Appellants’ claims are for fees and costs incurred (1) in defending the claims by Security against them and (2) in ⁵⁴³ pursuing the third party claim against appellee, in which appellants asserted first party coverage and at least the potentiality of third party coverage, carrying with it a duty to defend appellants in the suit by Security. Property coverage—first party coverage The parties agree that the building in question was “covered property” and that the cause of damage to the building and contents, i.e., water leakage, was a “covered cause.” Appellants’ first contention is: the snow removal costs were covered as a mitigation expense under section E.3.a.(4). Section E. is entitled “property loss conditions,” and subsection 3.a. is entitled “duties in the event of loss or damage.” Subsection 3.a.(4) provides that a. You must see that the following are done in the event of loss or damage to Covered Property: (4) Take all reasonable steps to protect the Covered Property from further damage, and keep a record of your expenses necessary to protect the Covered Property, for consideration in the settlement of the claim.

This will not increase the Limit of Insurance.... Appellants’ second contention, with respect to the property coverage form, is that snow removal costs were covered as an “extra expense” under section A.5.g. Section A. is entitled “coverage,” subsection A.5. is entitled “additional coverages,” and A.5.g. is entitled “extra expense.” Subsection A.5.g. provides in part: (1) We will pay necessary Extra Expense you incur during the “period of restoration” that you would not have incurred if there had been no direct physical loss or damage to property at the described premises[.] ... (2) Extra Expense means expense incurred (a) To avoid or minimize the suspension of business and to continue “operations”: (i) At the described premises[.] ...

Appellants contend snow removal costs were unambiguously covered under both of the above Policy provisions. In the ⁵⁴⁴ alternative, according to appellants, the provisions were ambiguous, and in the absence of extrinsic evidence, the ambiguity had to be resolved against appellee. Assuming snow removal costs were covered, appellants’ theory, apparently, is that appellee’s failure to pay the costs of snow removal constituted a breach of contract (the Policy), causing Security to sue appellants and appellants to sue appellee. According to appellants, the fees and expenses incurred in defending and pursuing the claims were recoverable as damages resulting from the breach.

Appellants suggest that appellee’s conduct constituted a breach of a “common law” duty. We shall consider appellee’s conduct only with respect to a breach of contract action. In circuit court, appellants pled and argued breach of contract only, as the basis of liability of appellee. There was no tort claim.

Appellee contends that snow removal costs were not covered. Appellee argues that (1) snow removal costs did not constitute “direct physical loss of or damage to covered property” as required in the general insuring language in section A.; (2) section E., “property loss conditions,” did not provide a separate grant of coverage under the property coverage form and, in any event, by clear language, required only “consideration” of, not payment of, mitigation expenses; and (3) the cost of snow removal was not covered under “additional coverages.” Appellee also contends that appellants could not recover under the property coverage form, even if the costs were covered, because attorney’s fees were not recoverable on a first party coverage claim. Liability coverage—third party coverage Appellants contend that, because the Policy provided both first and third party coverage, it was an all risks policy. Appellants observe that, like all policies, it must be read as a whole.

Appellants argue that the language in section A. of the liability coverage form, specifically the phrase “this insur ⁵⁴⁵ anee,” means all insurance provided by the Policy, not just liability insurance, and snow removal costs were covered under a portion of the Policy. Thus, according to appellants, Security’s suit sought damages “because of ... property damage ... to which this insurance applies.” Thus, the duty to defend provision was satisfied. Appellee contends there was no potentiality of coverage because (1) appellants did not sustain damages as a result of “property damage” within the meaning of coverage section A.l. and (2) the claims against appellants were contract claims, expressly excluded under the liability coverage form. 5 Standard of Review Under Maryland Rule 2-501(e), the circuit court may enter summary judgment for the moving party if it determines there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Md. Rule 2-501(e); Rite Aid Corp. v. Hagley, 374 Md. 665, 683 , 824 A.2d 107 (2003).

A party opposing a motion for summary judgment that meets threshold requirements must produce admissible evidence to show that a genuine dispute of material fact exists. Id. at 684 , 824 A.2d 107 . This requires more than “general allegations which do not show facts in detail and with precision.” Id. (quoting Beatty v. Trailmaster Prods., Inc., 330 Md. 726, 738 , 625 A.2d 1005 (1993)).

The facts and inferences that can reasonably be drawn from those facts must be viewed ⁵⁴⁶ in the light most favorable to the non-moving party. Remsburg v. Montgomery, 376 Md. 568, 579-80 , 831 A.2d 18 (2003). In reviewing a grant of summary judgment, we must determine whether there is a genuine dispute of material fact and whether the court was legally correct. Hagley, 374 Md. at 683 , 824 A.2d 107 ; Carter v. Aramark Sports & Entm’t Servs., Inc., 153 Md.App. 210, 224 , 835 A.2d 262 (2003).

In analyzing a circuit court’s decision, we are generally confined to the bases relied on by the court, and will not affirm the grant of summary judgment for a reason not relied on by the court. Warner v. German, 100 Md.App. 512, 517 , 642 A.2d 239 (1994) (citing Cheney v. Bell Nat’l Life Ins. Co., 315 Md. 761, 764 , 556 A.2d 1135 (1989), and Geisz v. Greater Baltimore Med. Ctr., 313 Md. 301 , 314 n. 5, 545 A.2d 658 (1988)).

Discussion Property coverage—first party coverage As previously noted, the parties differ as to whether snow removal costs, on the facts before us, come within the definition of a mitigation expense, under section E.3.a.(4), or an “extra expense,” under section A.5.g. We shall address this issue, even though there is no longer an indemnity claim because, as discussed below, it is necessary to do so in order to address the question of liability for attorney’s fees and expenses. Preliminarily, we i,.ote that this issue does not turn on whether the snow removal costs were within “covered property.” The definitions of “covered property” and “cause of loss,” and thus the scope of coverage under the general insuring agreement, do not change even if the costs were a mitigation expense. Appellants’ claim is based on a contractual imposition of duty on the insured, once “covered property” has been damaged, to take reasonable action to protect the “covered property” from further damage.

The question is whether appellee agreed to pay for that action and, if so, under what ⁵⁴⁷ circumstances. Any damages, based on a breach of a duty to pay, would be consequential damages. In order for section E.3.a.(4) to apply, (1) a covered loss must have occurred, (2) followed by the performance of work necessary to prevent further loss, and (3) the costs incurred for the work must be reasonable. Appellants contend that this section required appellee to pay appellants for costs incurred in preventing further damage to the property.

Appellee asserts that there is no language in the provision indicating that appellee would pay any or all expenses incurred by appellants in protecting the property from further damage, but rather, “consideration” would be given to any documented expenses in settlement of the claim. In Maryland, insurance policies are generally construed in the same manner as contracts. Collier v. MD-Individual Practice Ass’n, Inc., 327 Md. 1, 5 , 607 A.2d 537 (1992). An insurance contract, like any other contract, is measured by its terms unless a statute, a regulation, or public policy is violated thereby.

Pac. Indem. Co. v. Interstate Fire & Cas. Co., 302 Md. 383, 388 , 488 A.2d 486 (1985).

We do not follow the rule, adopted in other jurisdictions, that an insurance policy is to be construed most strongly against the insurer. Collier, 327 Md. at 5 , 607 A.2d 537 ; Cheney, 315 Md. at 766 , 556 A.2d 1135 . We construe the instrument as a whole in order to determine the parties’ intent. Pac.

Indem., 302 Md. at 388 , 488 A.2d 486 ; Collier, 327 Md. at 5 , 607 A.2d 537 ; Aragona v. St. Paul Fire & Marine Ins. Co., 281 Md. 371, 375 , 378 A.2d 1346 (1977). In order to determine the intention of the parties, “Maryland courts should examine the character of the contract, its purpose, and the facts and circumstances of the parties at the time of execution.” Pac. Indem., 302 Md. at 388 , 488 A.2d 486 (citations omitted).

In doing so, we give the words their usual, ordinary, and accepted meanings. Id.; Mut. Fire Ins. Co. v. Ackerman, 162 Md.App. 1, 5 , 872 A.2d 110