Chantel Associates v. Mount Vernon Fire Insurance

CHASANOW, Judge. This appeal arises out of an action filed by Scottsdale Insurance Company (Scottsdale) against Chantel Associates (Chantel) seeking a declaration that Scottsdale had no duty to defend or indemnify Chantel in a tort action. 1 That tort action (hereinafter referred to as the Epperson action) was instituted in the Circuit Court for Baltimore City against Chantel 2 by Valerie McCree, individually and on behalf of her son, Napoleon Epperson, III, (Napoleon) and Lynelle McCree, individually and on behalf of her children, Donald Wilson, Jr. (Donald) and Quanna Wilson (Quanna) (hereinafter referred to collectively as the Epperson plaintiffs). The complaint and subsequent amendments filed in the Epperson action alleged that the plaintiffs were injured as a result of the exposure, ingestion and consumption of lead paint while residing at Chantéis property on 1224 West Lafayette Avenue in Baltimore. The original complaint alleged that “[djuring the time the infant [plaintiffs] resided in the [1224 West Lafayette Avenue] dwelling, the infant[s] ingested and consumed paint containing lead, and lead pigment thereby causing the infant [plaintiffs] to suffer the injuries, illness and infirmities hereinafter alleged.” Although the original complaint did not specify a date when the initial injuries occurred, it alleged that the plaintiffs ¹³⁶ “became seriously, painfully and permanently injured” on or about March, 1987.

A further amendment by interlineation to the original complaint alleged that Napoleon and Donald began to permanently reside at 1224 West Lafayette Avenue in September, 1985 and that Quanna resided at the dwelling from the time of her birth in May, 1986. The amendment further alleged that: “From the beginning of the time that each child resided in the premises each was exposed to lead paint, lead chips and lead dust which were ingested in some manner by the children. Each, from the beginning of their residence was injured by this exposure, as the ingestion of lead began a process of cellular damage.” (Emphasis added). During the period of time relevant to this appeal, four insurers provided liability insurance coverage to Chantel.

Those insurers were Empire Indemnity Insurance Company (Empire), Mount Vernon Fire Insurance Company (Mount Vernon), Scottsdale, and Allstate Insurance Company (Allstate). Empire issued a general liability insurance policy to Chantel which provided coverage from April 1, 1984 through April 1, 1985. Mount Vernon issued a general liability insurance policy to Chantel which provided coverage from April 1, 1985 through March 12, 1986. Scottsdale issued two consecutive general liability insurance policies to Chantel which provided coverage from March 12, 1986 through March 12, 1988.

Allstate issued a personal umbrella insurance policy to Chananie and Levitin on February 10, 1983 which was renewed annually through February 10, 1993. The Allstate personal umbrella policy provided “excess” liability coverage for certain “occurrences.” 3 Each of the general liability insurance policies issued to Chantel required the insurer to: ¹³⁷ “pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... bodily injury ... caused by an occurrence.... ” The policies define “bodily injury” as: “bodily injury, sickness or disease.... ” The policies define an “occurrence” as: “an accident, including continuous or repeated exposure to conditions, which results in bodily injury ... neither expected nor intended from the standpoint of the insured.” 4 Upon receipt of the Epperson complaint, Chantel notified each insurer of the complaint filed against it and requested that each insurer provide it -with representation in the Epperson action. Mount Vernon and Allstate refused to defend Chantel. Scottsdale responded to Chantel’s request for representation by informing it that both its policies contained exclusions from coverage for injuries arising out of lead paint poisoning; 5 however, after Chantel disputed the validity of the lead paint poisoning exclusions, Scottsdale undertook Chantel’s defense in the Epperson action.

Scottsdale reserved its right to cease defending Chantel as soon as it could obtain a judicial determination that the lead paint poisoning exclusions were valid. Empire retained counsel to defend Chantel in the Epperson action but shortly thereafter Scottsdale took over the entire defense. After undertaking Chantel’s defense in the Epperson action, Scottsdale filed a declaratory judgment action in the Circuit Court for Baltimore City against Chantel and the Epperson plaintiffs seeking a determination that it had no duty to defend or indemnify Chantel in the Epperson action based on its policies’ exclusions from coverage for injuries arising out of ¹³⁸ lead paint poisoning. Scottsdale later amended its declaratory judgment action, joining Empire, Allstate and Mount Vernon as defendants, and requesting reimbursement for costs it incurred in defending the Epperson action from those insurers found to have a duty to defend Chantel in that action.

Chan-tel then filed a motion for summary judgment seeking a declaration that Allstate, Empire, and Mount Vernon were all under a duty to defend Chantel. The motion also sought a declaration that Mount Vernon and Allstate were under a duty to indemnify Chantel up to the limits of their respective insurance policies. Chantel’s motion was supported by an affidavit of psychologist Stephen R. Schroeder which stated: “An injury is the alteration of structure or function of a cell, tissue or organ. Physical or chemical damage to the body which may be detectable only on a microscopic or subclinical level also constitute^] an injury.... [T]here are injuries to cells, tissues and organs caused by exposure to lead paint, lead paint chips, lead paint fumes, and/or lead paint dust, even though the injuries may not be noticeable to a harmed individual or diagnosable by a clinician until some later point in time.

Lead ... is especially harmful to the developing brain and nervous systems of fetuses____ There is probably no safe threshold at which lead has no effect.... [C]hildren under ... age three, whose brains are rapidly growing and developing are most vulnerable to damage by low levels of lead exposure. * 'Jfi * * * # There is general agreement that human infants and toddlers below the age of three years are at special risk because of in útero exposure.... Cumulative exposure has many central nervous system effects relatively immediately. These effects can accumulate and children show great variability in their response to different amounts of lead ingestion. Thus they may be suffering from the effects of cumulative low level lead exposure years before they are clinically observable. ¹³⁹ Thus, it is my opinion ... that exposure to lead produces both direct and indirect damage to the cells, tissues and organs of the body that begin immediately or shortly after exposure, notwithstanding the fact that the symptoms, especially at low levels of exposure, may not be apparent until much later, sometimes years after exposure.” (Emphasis added).

Empire, Mount Vernon, and Allstate also filed summary judgment motions, each seeking a declaration that it was under no duty to defend or indemnify Chantel in the Epperson action. After a hearing on the motions for summary judgment, the circuit court (Rombro, J.) issued an order granting Scottsdale’s requested relief and declaring that Scottsdale’s “policy clearly had an exclusion for both indemnification and ... defense of any lead paint suit [a]nd that was ... clearly the understanding between the parties.” The court granted Empire’s motion for summary judgment and held that it had no duty to defend or indemnify Chantel in the Epperson action because “clearly, the policy expired on April 1, 1985.... Empire cannot possibly be responsible because ... [the Epperson plaintiffs] weren’t even living in the premises” when the policy was in effect. The court denied Mount Vernon’s motion for summary judgment and declared that Mount Vernon must defend Chantel “against all personal injury lead-related claims brought by any or all of the plaintiffs in the Epperson case.” The court further ordered Mount Vernon to indemnify Chantel for the “amount of any judgments rendered against [Chantel] ... in favor of any or all of the plaintiffs” in the Epperson action.

The court granted Allstate’s motion for summary judgment in part on the ground that its homeowner’s policy did not provide coverage to Chantel in the Epperson action. The court denied the remainder of Allstate’s motion and held that its personal umbrella insurance policy provided coverage to Chantel in the Epperson action. 6 ¹⁴⁰ The court held, however, that Allstate had no duty to defend Chantel in the Epperson action because Allstate’s policy provides that it does “not have to defend when there is [an] underlying policy” and that underlying policy was provided by Mount Vernon. The court held that although Allstate did not have a duty to defend Chantel, Allstate must indemnify Chananie and Levitin under the personal umbrella policy for any judgments entered against them in the Epperson action “to the extent that there is any recovery above [Mount Vernon’s] basic underlying coverage.” Finally, the court held that Mount Vernon must reimburse Chantel and Scottsdale for all costs incurred in defending the Epperson action and that Mount Vernon must reimburse Chantel for all costs it incurred in litigating the declaratory judgment action. Mount Vernon appealed the circuit court’s judgment to the Court of Special Appeals which affirmed the circuit court’s judgment that Mount Vernon had a duty to defend Chantel in the Epperson action.

The Court of Special Appeals held, however, that Mount Vernon’s duty to defend did not arise until the Epperson plaintiffs filed their further amendment by interlineation on July 9, 1992. See Mount Vernon Ins. v. Scottsdale Ins., 99 Md.App. 545, 559 , 638 A.2d 1196, 1202 (1994). The court also held that Mount Vernon’s duty to defend Chantel extends only to claims brought on behalf of Napoleon and Donald because Quanna did not begin to reside at the Chantel property until after the Mount Vernon policy expired. Mount Vernon Ins., 99 Md.App. at 559 , 638 A.2d at 1202-03 .

The intermediate appellate court reversed the circuit court’s judgment that Mount Vernon had a duty to indemnify Chantel under its insurance policy and held that “[n]o duty to indemnify arises until the Epperson plaintiffs have obtained a judgment against Chantel.” Mount Vernon Ins., 99 Md.App. at 561 , 638 A.2d at 1204 . The court also held that if it is determined that Mount Vernon is obligated to indemnify Chantel, Mount Vernon should be given an opportu ¹⁴¹ nity to demonstrate that it is “obligated to make only a partial indemnification.” Mount Vernon Ins., 99 Md.App. at 562 , 638 A.2d at 1204 . The intermediate appellate court reversed the circuit court’s judgment that Mount Vernon must reimburse Scottsdale for attorneys’ fees incurred while defending the Epperson action. The court held, however, that Chantel is entitled to reimbursement from Mount Vernon for any costs Chantel incurred in defending the Epperson action and litigating the declaratory judgment action subsequent to the time that Mount Vernon’s duty to defend Chantel arose.

Mount Vernon Ins., 99 Md.App. at 564 , 638 A.2d at 1205 . We granted certiorari to consider whether Mount Vernon has a duty to defend and/or indemnify Chantel in the Epperson action. 7 I. In Brohawn v. Transamerica Ins. Co., 276 Md. 396 , 347 A.2d 842 (1975), we held that an insurance company has a duty to defend its insured for all claims which are potentially covered under an insurance policy. In Brohawn we stated: “The obligation of an insurer to defend its insured under a contract provision ... 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). 276 Md. at 407-08 , 347 A.2d at 850 . Our recent opinion in Aetna v. Cochran, 337 Md. 98 , 651 A.2d 859 (1995), further clarified the Brohawn potentiality rule and held that an in ¹⁴² sured may establish a potentiality of coverage under an insurance policy through the use of extrinsic evidence so long as the “insured demonstrates that there is a reasonable potential that the issue triggering coverage will be generated at trial.” Aetna, 337 Md. at 112 , 651 A.2d at 866 . Thus, according to our holdings in Brohawn and Aetna , an insurer’s duty to defend is triggered when an examination of the policy, the complaint and appropriate extrinsic evidence discloses a potentiality of coverage under an insurance policy.

In determining coverage under an insurance policy, we initially focus on the terms of the insurance policy to determine the scope and limitations of its coverage. See Mitchell v. Maryland Casualty, 324 Md. 44, 56 , 595 A.2d 469, 475 (1991) (stating that in a declaratory judgment action brought to determine coverage under an insurance policy, “ ‘it is the function of the court to interpret the policy and decide whether or not there is coverage’ ”) (quoting St. Paul Fire & Mar. Ins. v. Pryseski, 292 Md. 187, 194 , 438 A.2d 282, 286 (1981)); Mut. Fire, Marine & Inland Ins. v. Vollmer, 306 Md. 243, 250 , 508 A.2d 130, 133 (1986).

In construing the terms of the insurance contract, we must accord the terms their “customary, ordinary, and accepted meaning.” Mitchell, 324 Md. at 56 , 595 A.2d at 475 ; Cheney v. Bell National Life, 315 Md. 761, 766 , 556 A.2d 1135, 1138 (1989). In Pacific Indem. v. Interstate Fire & Cas., 302 Md. 383 , 488 A.2d 486 (1985), this Court stated that: “An insurance contract, like any other contract, is measured by its terms unless a statute, a regulation, or public policy is violated thereby. To determine the intention of the parties to the insurance contract ... we construe the instrument as a whole ... [and] should examine the character of the contract, its purpose, and the facts and circumstances of the parties at the time of execution.” (Citations omitted). 302 Md. at 388 , 488 A.2d at 488 . With these principles of construction in mind, we note that Mount Vernon’s general liability insurance policy requires it to “pay on behalf of the insured all sums which the insured shall ¹⁴³ become legally obligated to pay as damages because of ... bodily injury ... caused by an occurrence.” Bodily injury is defined in the policy as “bodily injury, sickness or disease.” The policy defines an “occurrence” as “an accident, including continuous or repeated exposure to conditions, which results in bodily injury ... neither expected nor intended from the standpoint of the insured.” In Mitchell , we were called upon to interpret the term “bodily injury” under a general liability insurance policy.

In so doing, we relied on the definitions accorded that term by other courts. We relied on Zurich Ins. v. Northbrook Excess & Surplus, 145 Ill.App.3d 175 , 98 Ill.Dec. 512, 520 , 494 N.E.2d 634, 642 (1986), which held that “the plain meaning of the term ‘bodily injury’ is harm or damage of, or relating to the body.” We further looked to Ins. Co. of North America v. Forty-Eight Insulations, 633 F.2d 1212 , 1222 (6th Cir.1980), which noted that “for insurance purposes, courts have long defined the term ‘bodily injury’ to mean ‘any localized abnormal condition of the living body’ ” (citing Appleman, Insurance Law and Practices § 355 (1965)). See Mitchell, 324 Md. at 58-62 , 595 A.2d at 476-78 .

Although we were interpreting the term “bodily injury” in the context of asbestos-related injuries in Mitchell , we accorded the term its “ordinary and accepted” definition under a general liability insurance policy. Because the language in the Mount Vernon policy is identical to the policy language in Mitchell , the term “bodily injury” must be accorded the same meaning in the instant case as it was accorded in Mitchell . Thus, harm or damage of, or relating to the body or any localized abnormal condition of the living body constitutes a bodily injury under the Mount Vernon policy. Having established the definition of “bodily injury” under the Mount Vernon policy, we must now determine if the Epperson plaintiffs suffered “bodily injury.” According to the further amendment by interlineation to the complaint, the Epperson plaintiffs were “exposed to lead paint, lead chips and lead dust [from the beginning of their residence and each child] ... was injured by this exposure, as the ingestion of ¹⁴⁴ lead began a process of cellular damage.” In addition, Dr. Schroeder’s undisputed affidavit states: “An injury is the alteration