Chicago Title Insurance v. Lumbermen's Mutual Casualty Co.

HOLLANDER, Judge. This appeal focuses on whether a release in favor of two insureds resulted in the discharge of claims against their surety. Chicago Title Insurance Company (“Chicago”), appellant, challenges the entry of summary judgment in favor of appellee, Lumbermen’s Mutual Casualty Company (“Lumbermen’s”), the surety herein. Summary judgment was predicated on Chicago’s prior settlement of claims with its former title insurance agent, Academy Title Group, Inc. (“Academy”), and Academy’s principal officer, David Therrien (collectively, the “insureds” or “agents”); Lumbermen’s was the agents’ surety.

Appellant presents three questions for our review, which we have reordered and rephrased: I. Did the trial court err in concluding that Chicago’s release and dismissal of claims against its former title agents also discharged Chicago’s claim against Lumbermen’s, the agents’ surety, even though Chicago intended to preserve that claim?

II

Did the trial court err in its alternative conclusion that Lumbermen’s was released from its surety obligation because the amount that Chicago received in its settlement with its agents equaled the maximum amount available under the surety bond? ⁵⁴² III. Did the trial court err in allowing Academy and Therrien to speak as a “friend of the court” at the summary judgment hearing? For the reasons that follow, we shall affirm. Factual Background 1 Chicago is a Missouri Corporation that underwrites real estate title insurance policies in Maryland.

Between December 1993 and February 1995, Academy served as an insurance agent for Chicago, pursuant to an agency agreement. Ther-rien was a principal of Academy. As a title insurance agent, Academy was required to post a title insurance agent’s bond, in accordance with Md.Code (1957, 1994 Repl.Vol.), Art. 48A, § 168A. 2 The purpose of the bond is to protect unknown third parties from misappropriation of settlement funds held or to be held in escrow. Lumbermen’s, which has its principal office in Philadelphia, Pennsylvania, provided the surety bond for Academy and Therrien, in the amount of $100,000.00.

Therrien executed an indemnity agreement providing that he and Academy would indemnify Lumbermen’s “against all loss, liability, costs, damages, attorneys’ fees and expenses” that Lumbermen’s may incur in investigating, defending, and prosecuting any action brought in connection with the bond agreement. Chicago was not a party to the indemnity agreement. In February 1995, Academy notified Chicago that it had overdrawn its settlement escrow account. This caused Chicago to terminate its agency contract with Academy.

After an investigation, Chicago determined that Academy had misappropriated funds from its escrow account. As a result, Chicago used its own funds to satisfy hens and to correct title defects that it had insured. . ⁵⁴³ Chicago subsequently filed a four-count complaint against Academy, Therrien, and Lumbermen’s. The first three counts were lodged against Academy and Therrien, alleging breach of contract, breach of fiduciary duty, and seeking injunctive relief. In the fourth count, asserted only against Lumbermen’s, Chicago sought payment under Academy’s surety bond.

Although Chicago alleged that it could not quantify its damages, it asserted the amount was in excess of the $100,000.00 bond issued by Lumbermen’s. Executive Risk Indemnity, Inc. (“Executive”) was the errors and omissions insurance carrier for Academy and Therrien. Pursuant to a reservation of rights, Executive provided Academy and Therrien with legal counsel in connection with Chicago’s suit. It then filed its own suit against Academy, Ther-rien, and Chicago in federal court, seeking a declaratory judgment that Chicago’s claims against Academy and Therrien were not covered by the errors and omissions policy that Executive had issued to them.

During the pendency of the suits instituted by Chicago and Executive, Chicago, Executive, Academy, and Therrien reached a mediated settlement with regard to their respective claims. In August 1996, they executed the “Settlement Agreement and General Release of Claims” (the “Release”). Lumbermen’s was not involved in the settlement, however, 3 and was not a party to the Release. The Release provided, inter alia: (1) in the Chicago action, Chicago, Academy, and Therrien would jointly move the court for an order dismissing Academy and Therrien, with prejudice; (2) upon dismissal of Chicago’s claims against Academy and Therrien, Executive would pay $100,000.00 to Chicago as payment for Chicago’s attorneys’ fees in connection with Chicago’s action against Academy, Therrien, and Lumbermen’s; (3) upon dismissal of Chicago’s claims, Executive would dismiss its declaratory action in federal court; (4) Executive ⁵⁴⁴ would release Chicago, Academy, and Therrien from all claims relating to the Chicago and Executive suits; (5) Chicago would release Executive, Academy, and Therrien from all claims relating to the Executive policy, the Chicago suit, and the Executive suit; (6) Academy would release Chicago and Executive from all claims relating to the Chicago and Executive suits; and (7) Therrien would release Executive from all claims relating to the Chicago and Executive suits.

Moreover, the Release stated that it was “a full and complete settlement.” In accordance with the terms of the Release, on October 23, 1996, Chicago, Academy, and Therrien filed a joint motion to dismiss Academy and Therrien from the suit filed by Chicago. In its response to the motion, Lumbermen’s argued that release of Academy and Therrien also required dismissal of Chicago’s claims against Lumbermen’s. On November 19, 1996, the court (Cawood, J.) dismissed Chicago’s claims against Academy and Therrien, with prejudice. The court also ordered that Lumbermen’s response to the motion be treated as a motion to dismiss the claims against it.

On the same day, Lumbermen’s filed a cross-claim against Academy and Therrien, alleging that Lumbermen’s was entitled to indemnification from Academy and Therrien for any damages that might be imposed against Lumbermen’s in the Chicago action. Lumbermen’s then filed a motion for summary judgment, arguing that Chicago’s release of Academy and Therrien discharged the surety claim, and therefore Lumbermen’s was entitled to judgment as a matter of law. In March 1997, the court heard argument on the motion filed by Academy and Therrien to strike Lumbermen’s cross-claim. At the same time, it also considered the summary judgment motion filed by Lumbermen’s.

At the hearing, over Chicago’s objection, the court permitted counsel for Academy and Therrien to speak as “a friend of the court” with regard to Lumbermen’s motion. The substance of Academy’s and Therrien’s argument was to advise the court that the Restatement (Third) of Suretyship and Guaranty § 39 (1996) (hereinafter “Restatement ⁵⁴⁵ (Third) ”) addressed the issue before the court in connection with the summary judgment motion. Thereafter, the court (Wolff, J.) issued a memorandum opinion and order granting summary judgment in favor of Lumbermen’s. 4 In its review of the Release, the court found it clear that Chicago did not provide for the discharge of Lumbermen’s in the Release, although Chicago had released Academy and Therrien. Therefore, the court concluded that, notwithstanding Chicago’s intention to preserve its claims against Lumbermen’s, the complete discharge of Chicago’s claims against Academy and Therrien operated to discharge Lumbermen’s from any liabilities under the surety bond.

In its well-reasoned opinion, the court stated: It is clear from our review of the settlement agreement that Chicago had not released its claim against Lumbermen’s. That fact is undisputed by Chicago and by Lumbermen’s. However, it is equally clear and undisputed that Chicago had released Academy and Therrien from any claim by Chicago. The issue then, is whether, as a matter of law, Chicago may pursue a claim against Lumbermen’s where the principal obligors have been released and, if they may, whether Lumbermen’s may maintain a right of subrogation against Academy and Therrien * * * * Chicago repeatedly claims and cites case law supporting the proposition that the intent of the parties is crucial in determining the effect of the release.

Chicago claims that the settlement agreement manifests a clear intent not to discharge Lumbermen’s. While this may be true, this ⁵⁴⁶ Court can not ignore the plain language relating to the release of Academy and Therrien. * * * * This Court finds that the full settlement of claims against Academy and Therrien and the subsequent dismissal of the civil claims against them operates to discharge Lumbermen’s from any duties under the surety bond. While Chicago did not release its claim against Lumbermen’s in the settlement agreement, by settling any and all claims in full that it had against Academy and Therrien, the derivative claim against the surety is extinguished by operation of law. In addition, the court was persuaded by the Restatement (Third) § 39(c)(i) that, even if the release of Academy and Therrien did not discharge Lumbermen’s, the surety was discharged up to the extent of the value of the consideration for the Release.

The court said: “Since Chicago has already recovered $100,000 from Academy and since Lumbermen’s surety bond provides coverage up to $100,000 Lumbermen’s would be released in full.” We will include additional facts in our discussion. Standard of Review Md. Rule 2-501 establishes a two-part test for summary judgment. “In deciding a motion for summary judgment ... the trial court must decide whether there is any genuine dispute as to material facts and, if not, whether either party is entitled to judgment as a matter of law.” Bagwell v. Peninsula Regional Medical Ctr., 106 Md.App. 470, 488 , 665 A.2d 297 (1995), cert. denied, 341 Md. 172 , 669 A.2d 1360 (1996); see also Beatty v. Trailmaster Prods., Inc., 330 Md. 726, 737-38 , 625 A.2d 1005 (1993); Bits “N” Bytes Computer Supplies, Inc. v. Chesapeake & Potomac Tel. Co., 97 Md.App. 557, 580-81 , 631 A.2d 485 (1993), cert. denied, 333 Md. 385 , 635 A.2d 425 (1994); Seaboard Sur. Co. v. Richard F. Kline, Inc., 91 Md.App. 236, 242-15 , 603 A.2d 1357 (1992). ⁵⁴⁷ On review, like the trial court, we must determine whether there are any genuine disputes of material fact.

Honaker v. W.C. & A.N. Miller Dev. Co., 285 Md. 216, 230-31 , 401 A.2d 1013 (1979); Impala Platinum, Ltd. v. Impala Sales (U.S.A), Inc., 283 Md. 296, 326 , 389 A.2d 887 (1978). In order to defeat the motion for summary judgment, the party opposing the motion must produce evidence demonstrating that the parties genuinely dispute a material fact. Scroggins v. Dahne, 335 Md. 688, 691 , 645 A.2d 1160 (1994); Fearnow v. Chesapeake & Potomac Tel.

Co., 104 Md.App. 1, 49 , 655 A.2d 1 (1995), aff'd. in part and rev’d in part, 342 Md. 363 , 676 A.2d 65 (1996). A material fact is one that “will alter the outcome of the case depending upon how the factfinder resolves the dispute over it.” Bagwell, 106 Md.App. at 489 , 665 A.2d 297 ; see also King v. Bankerd, 303 Md. 98, 111 , 492 A.2d 608 (1985). To demonstrate a factual dispute and defeat the motion, the non-moving party must present more than “mere general allegations which do not show facts in detail and with precision.” Beatty, 330 Md. at 738 , 625 A.2d 1005 . In this regard, all factual disputes are resolved in favor of the non-moving party.

Moreover, all inferences reasonably drawn from the facts must be resolved in favor of the non-moving party. Tennant v. Shoppers Food Warehouse Md. Corp., 115 Md.App. 381, 387 , 693 A.2d 370 (1997); see also Berkey v. Delia, 287 Md. 302, 304-05 , 413 A.2d 170 (1980); Maloney v. Carling Nat’l Breweries, Inc., 52 Md.App. 556, 560-61 , 451 A.2d 343 (1982). If there are no disputes of material fact, the trial court resolves the case as a matter of law. Fearnow, 104 Md.App. at 48 , 655 A.2d 1 .

We then review the trial court’s decision to determine whether the court reached the correct legal result. Beatty, 330 Md. at 737 , 625 A.2d 1005 . Appellate courts generally review a grant of summary judgment based “only on the grounds relied upon by the trial court.” Blades v. Woods, 338 Md. 475, 478 , 659 A.2d 872 (1995); see also Gross v. Sussex Inc., 332 Md. 247 , 254 n. 3, 630 A.2d 1156 (1993); Hoffman v. United Iron and Metal Co., 108 Md.App. 117, 132-33 , 671 A.2d 55 (1996). ⁵⁴⁸ Discussion Releases are contractual, and they are therefore governed by ordinary contract principles. See Bernstein v. Kapneck, 290 Md. 452, 457-58 , 430 A.2d 602 (1981); Parish v. Maryland & Virginia Milk Producers Ass’n, 250 Md. 24, 101 , 242 A.2d 512 (1968); see also, e.g, Creamer v. Helferstay, 294 Md. 107 , 448 A.2d 332 (1982).

The principal rule governing the interpretation of a release, as with other contracts, is to effect the intention of the parties. See Hartford Accident and Indem. Co. v. Scarlett Harbor Assocs. Ltd. Partnership, 109 Md.App. 217, 290-91 , 674 A.2d 106 (1996), aff'd, 346 Md. 122 , 695 A.2d 153 (1997); see also Wheaton Triangle Lanes, Inc. v. Rinaldi, 236 Md. 525, 530-31 , 204 A.2d 537 (1964); Shriver v. Carlin & Fulton Co., 155 Md. 51, 64 , 141 A. 434 (1928); Kramer v. Emche, 64 Md.App. 27, 37 , 494 A.2d 225 , cert. denied, 304 Md. 297 , 498 A.2d 1184 (1985); Federal Land Bank of Baltimore, Inc. v. Esham, 43 Md.App. 446, 465 , 406 A.2d 928 (1979); Roe v. Citizens Nat’l Bank, 32 Md.App. 1, 3-8 , 358 A.2d 267 (1976); see also Pantazes v. Pantazes, 77 Md.App. 712, 720 , 551 A.2d 916 , cert. denied, 315 Md. 692 , 556 A.2d 673 (1989). “The primary source for determining the intention of the parties is the language of the contract itself.” Scarlett Harbor, 109 Md.App. at 291 , 674 A.2d 106 .

The interpretation of unambiguous contract terms presents a question of law for the court to resolve. Keyworth v. Industrial Sales Co., 241 Md. 453, 456 , 217 A.2d 253 (1966); Shapiro v. Massengill, 105 Md.App. 743, 754 , 661 A.2d 202 cert. denied, 341 Md. 28 , 668 A.2d 36 (1995); McIntyre v. Guild, Inc., 105 Md.App. 332, 355 , 659 A.2d 398 (1995). When the language of the contract is clear, the court will presume that the parties intended what they expressed, even if the expression differs from the parties’ intentions at the time they created the contract. Roged, Inc. v. Paglee, 280 Md. 248, 254 , 372 A.2d 1059 (1977); Scarlett Harbor, 109 Md.App. at 291 , 674 A.2d 106 ; McIntyre, 105 Md.App. at 355 , 659 A.2d 398 ; Shapiro, 105 Md.App. at 754 , 661 A.2d 202 ; Bernstein v. Kapneck, 46 Md.App. 231, 244 , 417 A.2d 456 (1980), aff'd, 290 ⁵⁴⁹ Md. 452, 430 A.2d 602 (1981).

When the language of the contract is ambiguous, however, the ambiguity must be resolved by the trier of fact. Shapiro, 105 Md.App. at 754-55 , 661 A.2d 202 . It is undisputed that, in its settlement agreement, Chicago did not intend to release appellee from suit, notwithstanding that it fully released Academy and Therrien. The settlement agreement stated, in pertinent part: ...

Chicago Title, on behalf of itself and its related persons, hereby releases, acquits and forever discharges Academy Title and Therrien and their respective predecessors and successors in business and interest, past, present and future parent corporations, subsidiaries, affiliates, assigns, liquidators, administrators, executors, shareholders, officers, directors, employees, attorneys, agents, and all persons claiming through them ... from any and all claims, counterclaims, demands, payments, rights, obligations, loss, judgments, awards, attorneys fees, costs, fees, interest, damages, claims, liabilities or causes of action of whatever kind or character that it has asserted or might have asserted, whether known or unknown, and whether based upon statute, common law, regulation, or any other source of legal authority of any type, in connection with, arising out of, or in any way relating to any acts, circumstances, facts, omissions or other subject matters involved, embraced within, arising out of, relating to or otherwise touching upon the Chicago Title Action; the facts and circumstances giving rise to the Chicago Title Action.... (Emphasis added). Therefore, we must determine, as a matter of law, whether Chicago’s settlement with Academy and Therrien, and its execution of the Release, operated to discharge Lumbermen’s from any duty under its surety bond, thereby precluding Chicago’s right to pursue any recovery from Lumbermen’s based on the conduct of Lumbermen’s insureds, Academy and Therrien. As a threshhold matter, we note that the parties all characterize Lumbermen’s role as that of a surety, rather than a ⁵⁵⁰ guarantor.

The terms are often used interchangeably and, for the most part, the distinction is immaterial for purposes of the doctrines governing the relationships between a surety or guarantor and the obligee and obligor. See Laurence P. Simpson, Handbook on the Law of Suretyship 8 (1950). Nevertheless, Maryland does recognize a distinction between a guarantor and a surety. See General Motors Acceptance Corp. v. Daniels, 303 Md. 254, 259-61 , 492 A.2d 1306 (1985); Mercantile Club, Inc. v. Scherr, 102 Md.App. 757, 766-68 , 651 A.2d 456 (1995).

The Daniels Court explained: A contract of suretyship is a tripartite agreement among a principal obligor, his obligee, and a surety. This contract is a direct and original undertaking under which the surety is primarily or jointly liable with the principal obligor and therefore is responsible at once if the principal obligor fails to perform. A surety is usually bound with his principal by the same instrument, executed at the same time, and on the same consideration____ Ultimate liability rests upon the principal obligor rather than the surety, but the obligee has a remedy against both---- A contract of guaranty, similar to a contract of suretyship, is an accessory contract. Despite this similarity, a contract of guaranty has several distinguishing characteristics.

First, this particular contract is collateral to and independent of the principal contract that is guaranteed and, as a result, the guarantor is not a party to the principal obligation. A guarantor is therefore secondarily liable to the creditor on his contract and his promise to answer for the debt, default, or miscarriage of another becomes absolute upon default of the principal debtor and the satisfaction of the conditions precedent to liability. Daniels, 303 Md. at 259-60 , 492 A.2d 1306 (citations omitted). Although it would appear that Lumbermen’s role here is that of a guarantor, rather than a surety, we need not resolve this matter, because it is undisputed that Lumbermen’s liability in this case is derivative of the liability of Academy and ⁵⁵¹ Therrien.

For purposes of our discussion, we will use the term “surety” in the broad sense to refer to Lumbermen’s, as it is the common term used in discussing the doctrines applicable here. See Simpson, supra, at 6-8; see generally id. at 5-11. As a general rule, the release of the principal discharges the surety. 5 Noma Electric Corp. v. Fidelity & Deposit Co., 201 Md. 407, 412 , 94 A.2d 277 (1953); Fidelity Deposit Co. v. Olney Assocs., Inc., 72 Md.App. 367 , 371 n. 2, 530 A.2d 1 (1987); 74 Am.Jur.2d Suretyship § 98, at 71-72 (1995). “The effect given to a release may, however, depend upon the intention and perhaps upon a showing of prejudice.” Noma Electric, 201 Md. at 412 , 94 A.2d 277 (citations and internal quotations omitted). It is uncontroverted, as we noted, that Chicago did not intend to release Lumbermen’s.

The release stated: “If Chicago Title’s claims against Lumbermens asserted in the Chicago Title Action proceed to trial, Academy Title shall voluntarily produce one of its officers to testify at deposition and/or trial, upon the request of Chicago Title.” Because Chicago did not intend to release Lumbermen’s when it released the agents, it contends that it should be permitted to pursue its action against Lumbermen’s. We turn to an 1833 case for guidance. In Clagett v. Salmon, 5 G. & J. 314 (1833), the Court considered a release that sought to preserve a claim against the surety. Clagett had operated a business and Salmon loaned him money.

In return, Clagett, his mother, and his siblings agreed to indemnify Salmon in the event of loss resulting from Clagett’s default. To secure their agreement of indemnity, they executed a mortgage on their real and personal property. Thereafter, when Clagett was unable to meet his obligations to ⁵⁵² Salmon and other creditors, he placed his assets in a trust for the benefit of his creditors. Salmon, Clagett, and the trust administrators executed the release in issue, which provided, inter alia, that Salmon would retain the mortgage to indemnify him in the event of any deficiency, notwithstanding the release.

The release also said: “It is expressly understood that nothing contained in this agreement shall in any manner affect the mortgage heretofore given by Thomas Clagett and his family, to indemnify said Salmon against certain risks and losses, except so far as to delay foreclosing said mortgage for two years from the date hereof.” Id. at 819. The Court concluded that the express reservation in the release did not discharge the surety. It stated: Here then, we find an express contract on the part of Thomas Clagett, that notwithstanding this agreement for his discharge, the remedy of Salmon upon the mortgage, should not in the slightest manner be affected by it, but that his rights should remain the same as they were before such agreement, with the exception only of the delay of foreclosure, as therein stated. This reservation of his rights to proceed against the sureties, contained in the same instrument stipulating for the discharge of the principal, amounted to an agreement on the part of the principal, to waive the benefit of that discharge, and to hold himself responsible to his sureties, in case Salmon should find it necessary to resort to them for payment or indemnity.

As therefore in such an event, their right and remedies against Clagett remained wholly unimpaired and unaffected, we do not perceive that they have any cause to complain, or that there is any ground, either in law, justice or reason, upon which they can claim to be discharged. By coercing payment from the sureties under this express agreement, no fraud would be practised [sic] upon the principal, or injustice done to him, in case they should resort to him for reimbursement or indemnity; because the assent of the principal to continue ⁵⁵³ liable to them, was implied in the reservation of the rights of the creditor to proceed against the sureties. Id. at 355-56. Thus, the Court held that the sureties were not discharged, and affirmed the trial court.

The trial court had discussed the importance of the debtor’s consent to the creditor’s reservation of rights against the surety, stating: If [the] general reservation [of rights] had been made in an agreement between Salmon and the other creditors of Thomas Clagett alone, there might have been some difficulty in treating it as such a reservation as would preserve to the sureties the benefit of the implied contract in all respects; because it is not enough that the creditor alone should make such a stipulation, the principal debtor must also consent, that his liability to the surety should remain entire and undiminished. But here, Thomas Clagett, by signing this agreement, has thereby distinctly assented to this express reservation of the remedies upon the mortgage itself, as well as upon its incident implied contract; for the stipulation, that nothing therein contained should affect the mortgage, must, according to every fair interpretation of the expression, be considered a complete reservation of the remedies to this whole extent. And so considered, it is clear, that these sureties cannot found any claim to be discharged from the mortgage upon anything contained in the agreement.... Id. at 333 (emphasis added).

The case of Shriver v. Carlin & Fulton Co., 155 Md. 51 , 141 A. 434 (1928), also provides guidance. There, the plaintiff obtained a judgment in the amount of $5,273.75 against multiple defendants. The plaintiff then obtained an order stating that the case against one of the judgment debtors would be settled upon that debtor’s payment of costs. The order stated: “ ‘Please enter this case agreed and settled as to G. Howard White only, upon payment of costs by the said G. Howard White.’ ” Id. at 53 , 141 A. 434 .

One of the other judgment debtors appealed, arguing that the settlement as to ⁵⁵⁴ one operated as a release of all. The Court disagreed. In reviewing the harshness of the common law rule that a release of one obligor in a bond or one joint tortfeasor operated to discharge all others jointly bound, the Court applied equitable principles that tempered the operation of the rule. The Court reasoned that, if the parties intended to reserve their rights against the co-obligors or other tortfeasors, the agreement would be construed as a covenant not to sue, rather than as a release.

What the Shriver Court explained as to the operation of a release is pertinent here: “Although many early cases may be cited to the effect that the rule applied by courts of law was otherwise, and that a saving clause repugnant to the nature of the grant was void, and that the grant remained absolute and unqualified, such is not the modern rule of construction. The equitable rule now prevails, and a release is to be construed to the intent of the parties and the object and purpose of the instrument, and that intent will control and limit its operation. Hence, the legal operation of a release of one of two or