Eastern Shore Financial Resources, Ltd. v. Donegal Mutual Insurance

WILNER, Judge. At issue here is whether appellees Old Guard Mutual Insurance Co. (Old Guard) and Donegal Mutual. Insurance ⁶¹¹ Co. (Donegal) were obligated to defend appellant John W. Insley in an action brought against him by Kim and Pamela Henry and whether, as a result of not defending him, they were required to reimburse Insley for the sums he expended in defending that action himself. The Circuit Court for Talbot County found that the companies had no such duty.

We shall affirm. I. The Parties And The Policies John Insley was the president, and an employee, of a Delaware corporation known as Eastern Shore Financial Resources, Ltd. (ESFR). ESFR did business in Maryland, trading as Benson & Wales Insurance (B & W Ins.). B & W Ins. is apparently just a trade name and not an entity in itself.

Insley, individually, had a homeowner’s policy issued by Old Guard. That policy obligated Old Guard to defend Insley against any claim for bodily injury or property damage “to which this coverage applies.” Specifically excluded from that coverage, however, was “bodily injury or property damage ... which is expected or intended by the insured.” The Donegal policy was one of business insurance. It was issued to, and declared as the named insured, “Eastern Shore Financial Resources Ltd./Benson & Wales Ins,” but it defined an “insured” as including not only the named insured but also “any employee of the named insured while acting within the scope of his duties as such” and, if the named insured was designated as other than an individual, partnership, or joint venture, “any executive officer ... thereof while acting within the scope of his duties as such.” Donegal undertook in the policy to defend “any claim or suit against the insured seeking damages under this policy.” Part of the damages payable under the policy were those arising from bodily or personal injury caused by an “occurrence.” An “occurrence,” in turn, was defined as an accident which results in bodily injury or property damage ⁶¹² “neither expected nor intended from the standpoint of the insured.” II. The Tort Action Kim and Pamela Henry sued Insley and “Benson & Wales, Inc.” in the Circuit Court for Talbot County. 1 In their Amended Complaint — the pleading relevant to these proceedings — they alleged in introductory paragraphs that Benson & Wales, Inc. was a corporation doing business in Maryland, that Insley was a Delaware resident who was a “shareholder and employee of Benson & Wales, Inc.,” that on the afternoon of March 5, 1987, Kim Henry (inferably a police officer) encountered Insley on the parking lot of Benson & Wales, Inc. in St. Michaels, and, aware that several warrants were outstanding against Insley, approached him to question him about the warrants, and that, upon this encounter, Insley jumped into his car and led Henry on a high-speed chase through St. Michaels, eventually returning to the Benson & Wales, Inc. parking lot.

The complaint then alleged in relevant part, that Insley left his vehicle, whereupon: “9. Plaintiff took ahold of the defendant by the arm in order to arrest the defendant. Defendant Insley, however, physically struck Officer Henry shoving him out of the way while trying to run in the front door of Benson & Wales, Inc. Officer Henry followed the defendant and tried to hold the defendant to keep him from entering the door. 10. At this time, the defendant again struck the plaintiff shoving and pushing him, causing severe and permanent injuries to the plaintiffs knee. 11.

By this time, Officer Evans was able to assist Officer Henry in restraining the defendant and handcuffing the defendant, putting him under arrest. ⁶¹³ 12. Within an hour after the arrest, the plaintiffs knee became swollen to the extent that he could no longer walk on it.” Upon these averments, six causes of action were pled, only two of which (Counts I and III) are relevant to this proceeding. 2 In Count I, Kim Henry first incorporated by reference all earlier allegations and then stated that “in the course of the events set forth in the preceding paragraphs, the defendant committed an intentional battery on the plaintiff in such a way that the defendant knew or should have known that the plaintiff would be injured as a result of the bodily contact.” He further stated that, “as a result of the bodily contact set forth above,” he was caused to suffer permanent injuries to his knee and other parts of his body by Insley. In Count III, after incorporating fully all preceding averments, including those contained in Count I, Henry alleged that: “21. On March 5, 1987, in the course of the events set forth in the preceding paragraphs, the defendant had a duty to cooperate with the plaintiff who was attempting to make an orderly arrest. 22.

Defendant, by forc[i]bly shoving, striking, and pushing plaintiff while resisting plaintiffs attempts to make an orderly arrest, breached this duty to cooperate. 23. As a result of defendant’s conduct in negligently resisting arrest, plaintiff was caused to suffer serious, severe, and permanent injury to his knee.” III. These Proceedings ESFR and Insley filed this declaratory judgment action against Donegal and Old Guard in January, 1989. They ⁶¹⁴ alleged the issuance of the two policies noted above, that Insley was the president of ESFR, a Delaware corporation doing business in Maryland and sometimes trading as Benson & Wales Insurance, that Insley was an insured under both policies, that he was arrested on March 3, 1987, that during the course of the arrest, a police officer was injured, and that the officer and his wife thereafter sued Insley and Benson & Wales for intentional battery and negligence.

In Count I, against Donegal, the plaintiffs contended that the incident alleged in the Henry suit constituted an “occurrence” under the policy, that Donegal was obliged to defend them, that they had requested a defense, and that Donegal had refused to provide one. They asked for a declaratory judgment that they were covered and owed a defense under the policy, that they be entitled to select their own counsel to defend the Henry suit, and that they be reimbursed for all costs of that defense. Count II was against Old Guard and contained similar allegations and prayers for relief. Copies of the Amended Complaint in Henry and the two policies were attached as exhibits to the Complaint.

Donegal and Old Guard answered the complaint, raised a number of affirmative defenses, and moved for summary judgment. Insley and ESFR filed a cross-motion for summary judgment against Old Guard. Common to the defenses raised by both companies was the assertion that no coverage existed, and therefore no defense was due, because the injuries alleged by Henry were intentionally inflicted by Insley. That was certainly clear, they said, in Count I; even Count III, charging a negligent resisting of arrest, they contended, was based on Insley’s intentional battery.

Donegal raised the additional defense that Insley was not an insured under its policy, in part because he was not a named insured and, with the dismissal of Counts II and IV, was not alleged to be an employee or executive officer of a named insured, and in part because, even if he were an employee or executive officer of the named insured, the intentional behavior alleged was not within the scope of his duties. ⁶¹⁵ On August 18, 1989, the court entered an order granting the insurers’ motions for summary judgment and denying Insley’s and ESFR’s cross-motion. The basis for the order was as follows: “This Court finds as a matter of law that plaintiff John W. Insley was not acting within the scope of his employment on March 5, 1987 at the time of the occurrence of the alleged events giving rise to these lawsuits. This Court further finds that the underlying tort suit filed by the Henrys is clearly based on the alleged intentional torts of plaintiff John W. Insley and thus as a matter of law there is no potentiality of coverage under defendant Donegal Mutual Insurance Company’s policy.” When this order was entered, the Henry case had not yet been tried, although it apparently had not been dormant. On August 28, Insley and ESFR filed a motion to alter or amend the judgments, contending, in essence, that (1) as to Donegal, the court erred in finding, as a matter of law, that Insley was not acting within the scope of his employment with ESFR and (2) the court erred in concluding that the Henry case was based solely on intentional tort and that, consequently, there was no potential coverage.

Attached to the motion was an excerpt from the deposition testimony of Kim Henry taken on August 11, 1989, in which he described his altercation with Insley. Henry said that he grabbed Insley, that Insley twisted and tried to pull away, and that Henry then lost strength in his left leg and felt a pain in his knee. In the course of the deposition, Henry stated (referring to a conversation later at the jail): “A We read the charges to him. Officer Evans read the citations to him.

Mr. Insley looked at me and says, I don’t know what happened to your knee, but says, if I caused any trouble, I’m sorry. And my insurance will take care of the troubles, you know, if you’re not covered through the department. Q Did he intend to injure you, do you think? A I don’t believe so. ⁶¹⁶ Q And every motion that he made, according to what you have said here today, seemed to be a motion of a person attempting to get away from you?

A Yes, sir. Q And not to go back to assault you? A Right.” Based to a large extent on that testimony, Insley and ESFR urged that the injury was not an intentional one. On September 15, 1989, Insley and ESFR filed a Supplemental Memorandum in support of their motion, in which they informed the court that, on September 12, the Henry case was tried and the jury returned a special verdict that Insley was liable for $100,000 under the negligence count.

This, they contended, established that Insley was entitled to a defense. It is not clear whether the court ever considered this Supplemental Memorandum; on September 20, it filed an order dated September 11 denying the motion to alter or amend the judgment. This appeal ensued, in which Insley and ESFR complain that: (1) “Old Guard Mutual’s refusal to defend its insured was unjustified where the terms of the homeowner’s policy and the allegations of the tort suit created a potentiality for coverage.” (2) “The Circuit Court erred in denying the insureds’ motion to alter or amend judgment where extrinsic facts revealed there was a potentiality for coverage.” and (3) “The Circuit Court erred in finding that Donegal Mutual had no duty to indemnify its insured because as a matter of law the insured was acting outside the scope of his employment.” Before entering into a discussion of these questions, we add a postscript. Following the jury’s verdict in the Henry case, the court granted a new trial.

The Henrys then filed a Second Amended Complaint adding ESFR as a defendant, deleting Count III — the charge of negligent resisting arrest ⁶¹⁷ that is the focal point of the dispute here — and substituting for it an action for negligence that Donegal and Old Guard concede creates potential coverage. Donegal has assumed the defense of ESFR and Old Guard has agreed to defend Insley with respect to the retrial.

IV

Discussion A. Old Guard The issues raised by appellants relevant to Old Guard present essentially three questions: (1) whether the averments of Count III of the Henry complaint suffice to show potential coverage under its policy; (2) if not, whether the documents and events brought to the court’s attention in the motion to alter or amend the judgment — Kim Henry’s deposition testimony and the special verdict of the Henry jury — may be considered in determining whether there was potential coverage; and (3) if so, whether they suffice to establish potential coverage. We shall answer the first two questions in the negative and will therefore be spared from addressing the third. (1) The Complaint The duty which Insley seeks to enforce here is a contractual one based on the insurance policy. The substantive law in this regard was succinctly stated in Brohawn v. Transamerica Ins.

Co., 276 Md. 396, 407 , 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.” (Emphasis in original.) As further explicated in St. Paul Fire & Mar. Ins. v. Pryseski, 292 Md. 187, 193 , 438 A.2d 282 (1981): ⁶¹⁸ “In determining whether a liability insurer has a duty to provide its insured with a defense in a tort suit, two types of questions ordinarily must be answered: (1) what is the coverage and what are the defenses under the terms and requirements of the insurance policy? (2) do the allegations in the tort action potentially bring the tort claim within the policy’s coverage?

The first question focuses upon the language and requirements of the policy, and the second question focuses upon the allegations of the tort suit.” Unlike the situation in Pryseski , there is no dispute here with respect to the first of these questions, at least as to the Old Guard policy. It would cover a claim for bodily injuries unless those injuries were “expected or intended by the insured.” The issue before us concerns the second question — specifically whether the allegations in the Henrys’ amended complaint suffice to create at least a potentiality that the finder of fact could determine that the bodily injuries allegedly inflicted upon Kim Henry by Insley were not “expected or intended by the insured.” The factual underpinning of the Henrys’ complaint is set forth in ¶¶ 9-12, quoted verbatim above. Insley “physically struck Officer Henry shoving him out of the way while trying to [evade arrest].” When Henry pursued him, Insley “again struck the plaintiff shoving and pushing him, causing severe and permanent injuries to the plaintiff’s knee.” Those were the injuries sued upon and the circumstances under which they were inflicted. In Count I, Henry asserted that this conduct on Insley’s part constituted an intentional battery “in such a way that the defendant knew or should have known that the plaintiff would be injured as a result of that bodily contact.” In Count III, as we noted, all of these allegations, including those asserted in Count I, were specifically incorporated by reference.

That Count, then, was not only based on the same conduct but was also premised on the charge that the striking, pushing, and shoving was intentional and that Insley knew or should have known that Henry would be ⁶¹⁹ injured thereby. Count III adds to that the averment that this conduct was committed in the course of Insley’s resisting Henry’s attempt to effect an arrest, that Insley had a duty to cooperate with Henry in that endeavor, that he breached that duty, and that his breach constituted negligence. It is these additional statements, and they alone, that arguably create potential coverage. Like Judge Horne below, we are not persuaded.

The charge leveled in Count III is not like the alternative negligence claims that have been found to create potential coverage. In Brohawn , for example, the injuries alleged in the complaint arose from an altercation that occurred as the plaintiffs, employees of a nursing home, attempted to prevent the defendants from removing the latter’s relative from the home. In Count I of the complaint, the plaintiffs contended that they were willfully and maliciously assaulted; in Count II, they contended that the defendants “did strike and push [them] in a negligent and careless manner, and the negligence of the defendants consisted of their placing of their hands upon the plaintiff[s] and pushing [them] in such a manner and with such force that the plaintiff[s] would be injured if they persisted in their conduct____” See Record Extract (S.T.1975, No. 1) E 6-7. Similarly, in Oweiss v. Erie Ins.

Exchange, 67 Md.App. 712 , 509 A.2d 711 (1986), the tort action, arising from an altercation following a traffic accident, alleged, in one count, that the defendant willfully and maliciously assaulted the plaintiff; in another, it alleged that the defendant “did come into contact with the plaintiff ... and ... then and there failed to exercise reasonable control and care and he negligently caused the plaintiff to suffer ... injuries ...” and that “[t]he plaintiff did not in any way cause or contribute to this injury which was negligently caused by the defendant.” See Record Extract (S.T.1985, No. 1157) E 199. In neither Brohawn nor Oweiss were the averments of intentional conduct incorporated into the negligence counts. Unlike those cases, there is nothing in Count III of the complaint before us even to suggest, much less to assert, ⁶²⁰ that the striking, pushing, or shoving was done negligently or that the harm resulting from it was unexpected or unintended. Nor is there any contention, in the complaint, that Insley was acting in self-defense — “perfect” or “imperfect” — for which coverage might exist.

See Transamerica Ins. Group v. Meere, 143 Ariz. 351 , 694 P.2d 181 (1984); Allstate Ins. Co. v. Novak, 210 Neb. 184 , 313 N.W.2d 636 (1981). With its incorporation of the earlier allegations, Count III continues to charge that the conduct was deliberate and that the harm caused by it was at least expected, if not intended.

The negligence pled there was not directed at either the bodily contact or the resulting harm but arose instead from the wrongful perception by Insley that it was all right to resist Henry’s effort to arrest him. That Insley was negligent in reaching that conclusion and thus in acting as he did does not mean that the injuries he inflicted on Henry were either unintended or unexpected. Given this combination — the express incorporation of averments of deliberate conduct and intentional or expected harm and the absence of specific averments that the bodily contact or