Fireman's Fund Insurance v. Rairigh

GETTY, Judge. This is an appeal by Fireman’s Fund Insurance Company from the granting of a partial summary judgment in the amount of $1,000,000.00 and a jury verdict for $204,200.00 arising from appellant’s alleged “bad faith” in refusing to provide a defense to its insured under the terms of an excess policy of insurance issued by appellant. A cross-appeal filed by the appellees alleges error by the trial court in granting appellant’s motion for directed verdict on the issues of fraud and punitive damages. FACTS On March 30, 1978, six men — Robert Altimus, Wayne Rairigh, Jack Rockman, Robert Lynn Walker, William Matthews and Donald Erlbeck — flew to Nassau for a short vacation.

Rockman elected to extend his visit and was not aboard on April 3rd when the plane crashed in shallow water shortly after flying over the hotel where the group had spent their weekend. All five of the passengers perished in the crash. The plane in which the five men were flying was a twin engine Aero Commander owned by Phoenix Aviation, Inc. The stockholders of Phoenix were Rockman, Walker, Erlbeck and Michael T. Volatile. Volatile was scheduled to make the flight to Nassau, but canceled for business reasons and Matthews agreed to go in his place.

Phoenix had no assets other than the plane and had no employees. The stockholders each paid $50.00 a month to cover basic overhead costs and, additionally, they paid $40.00 per hour for the use of the plane for pleasure and charged $90.00 per hour when the plane was rented by others. Walker, Erlbeck, Rairigh and Matthews were pilots. Of the four, Matthews had an instrument rating, Walker and ³⁰⁹ Erlbeck were qualified to fly the plane under visual rules, and Rairigh was certified to fly single engine aircraft.

The plane had dual controls and Matthews was found in the left front seat and Erlbeck in the right front seat when the plane was retrieved from the water. Autopsies were performed on each of the five men and blood alcohol tests were conducted regarding the three pilots. Walker and Matthews were determined to have been under the influence of alcohol to some degree. The flight plan maintained at the airport listed Erlbeck as the pilot.

Whether Erlbeck or Matthews was actually in control of the plane at the time of the crash is undetermined. The tragic events of April 3, 1978, spawned a number of lawsuits. Counsel has referred to the litigation as “Phase I” and “Phase II,” and we shall do likewise. Phase I: In October, 1978, the Rairigh plaintiffs filed a claim against the Erlbeck estate in the Orphan’s Court for Baltimore County alleging that Erlbeck was piloting the plane at the time of the crash.

On October 2, 1978, the Altimus plaintiffs sued the Erlbeck estate in the Circuit Court for Baltimore County alleging negligence on the part of Erlbeck in piloting the plane, and negligent entrustment by Erlbeck in permitting Matthews, who was intoxicated, to operate the plane. On October 25, 1978, the Walker plaintiffs filed suit in the Circuit Court for Baltimore County against the estates of Erlbeck and Matthews making allegations similar to those made by the Altimus plaintiffs. Eventually, the Phase I litigation grew to six lawsuits. By amendment in November, 1979, the various plaintiffs added an allegation that the plane was “chartered with crew,” the crew being Matthews.

INSURANCE Phoenix Aviation was insured by Southeastern Aviation Underwriters, Inc. (SEAU) under a policy which covered this accident, thus requiring it to defend. The policy limits were $500,000.00 designated as $100,000.00 per seat. ³¹⁰ SEAU appointed the law firm of Shaw, Pittman, Potts and Trowbridge to represent the Erlbeck estate and Semmes, Bowen and Semmes was appointed by SEAU to represent the Matthews estate. Smith, Somerville and Case represented the personal interests of the Erlbeck estate. In 1975 Erlbeck purchased an excess liability policy from Fireman’s Fund with limits of $1,000,000.00.

On the application he listed as underlying insurance his automobile and his home owner’s policies. It is the application of the proceeds of Erlbeck’s personal excess insurance policy to the plane crash that forms the basis for the Phase II litigation. SEAU settled the Phase I claims prior to trial by paying $100,000.00 to each of the five estates. As part of that settlement the three plaintiffs (Altimus, Walker and Rairigh) obtained consent judgments totaling $1,500,000.00 against the estates of Erlbeck and Matthews, together with an assignment of any tort or contract rights that the estates had against the excess insurer, Fireman’s Fund.

In exchange, the plaintiffs agreed not to attempt to collect the consent judgments from the estates. The agreement also provided that the allegations that Erlbeck was piloting the plane were to be deleted from the plaintiffs’ suits. On June 16, 1980, the settlement agreement was signed and Phillip Bostwick, counsel for the Erlbeck estate, advised Fireman’s Fund that the judgments would be entered in the Circuit Court for Baltimore County 1 on June 20, unless Fireman’s entered an appearance on behalf of the defendants prior thereto in the event that Fireman’s Fund disagreed with the settlements. Fireman’s Fund did not participate in the settlement agreement involving the SEAU policy.

The reasons expressed included the fact that the Erlbeck estate was already represented by competent counsel; that Erlbeck’s estate did not ask for a defense; that ³¹¹ Fireman’s Fund would preclude the Erlbeck estate from receiving the $100,000.00 by denying coverage; that Fireman’s Fund was not required to defend under the terms of its policy; and that the Erlbeck estate suffered no loss. The consent judgments were entered in the Rairigh, Walker and Altimus cases on June 20, 1980. By the terms of the SEAU policy, it was not obligated to provide any defense after the limits of the policy had been exhausted by payment of judgment or settlement. Phase II: The second phase of the case unfolded in December, 1980, involving the plaintiffs’ suits against Fireman’s Fund in the Circuit Court for Baltimore City.

It is from the judgments rendered in that trial that the present appeal by Fireman’s Fund, and the cross-appeal by the plaintiffs, arises. The trial court granted the plaintiffs’ motion for partial summary judgment in the amount of $1,000,000.00, that amount being the limits of the Fireman’s Fund policy. The court decided that by the terms of its policy Fireman’s Fund was required to provide a defense to the Erlbeck estate irrespective of the representation provided by SEAU; that Fireman’s breached the terms of the policy by refusing to defend after SEAU terminated its representation on June 16, 1980; and that by reason of the breach, Fireman’s was estopped to litigate the coverage issue. A four week trial ensued relating to Fireman’s alleged “bad faith” in refusing to defend its insured.

The jury awarded the plaintiffs the sum of $204,200.00, representing the unsatisfied portion of the consent judgments. 2 The combined judgment entered by the court, including interest, amounted to $1,452,747.90. A directed verdict was entered for Fireman’s on the claims for punitive damages with respect to all counts and upon the fraud, deceit and negli ³¹² gent misrepresentation counts. Fireman’s Fund appealed and the plaintiffs filed cross-appeals. The appeals raise the following issues: Fireman’s Fund: 1.

Did the court err in ruling that Fireman’s was es-topped to deny coverage of the consent judgments? 2. Did the court err in ruling that Fireman’s had breached the terms of its policy by failing to provide a concurrent defense to the Erlbeck estate? 3. Did the court err in ruling that Erlbeck’s estate suffered damages on account of Fireman’s “bad faith” failure to defend it? 3 Plaintiffs: 1. Was the evidence of fraud in the inducement of the insurance contract, or negligent misrepresentation, sufficient to submit the issue to the jury? 2.

If the answer to issue one is in the affirmative, was there sufficient evidence of implied malice to submit to the jury the issue of punitive damages? 3. Was there sufficient evidence of fraud by Fireman’s to submit the issue to the jury? 4. If the answer to issue three is in the affirmative, was there sufficient evidence of actual or implied malice to submit to the jury the issue of punitive damages? 5. Was there sufficient evidence of implied malice by Fireman’s to submit to the jury the issue of punitive damages based upon bad faith? 6.

Did the court err in excluding certain documents from admission into evidence? Fireman’s Fund challenges the trial court’s granting summary judgment which precluded it from litigating the coverage issue. The trial that followed the entry of partial ³¹³ summary judgment did not involve the coverage issue, because the court instructed the jury that whether the plane was chartered with crew or whether Erlbeck was the pilot or co-pilot “are matters which the Court has ruled as a matter of law are not to be proven in this case.” The trial, therefore, was confined to the issue of Fireman’s bad faith in not defending the Erlbeck estate. Md. Rule 610 We hold that the trial court was in error in precluding Fireman’s Fund from raising the coverage issue in the Phase II litigation.

We shall, therefore, reverse and remand for a new trial. The trial court granted summary judgment for the $1,000,000.00 limits of the Fireman’s Fund policy based upon the court’s determination that Fireman’s Fund was required to provide a defense to the Erlbeck estate as of the date of the settlement on June 16, 1980. The sanction for refusal to defend, the court decided, is barring the insurer from litigating the coverage issue in a subsequent proceeding seeking to collect the amount of the consent judgments from the excess insurer. Summary judgment cannot be granted if there is a genuine dispute as to any material fact.

Lawless v. Merrick, 227 Md. 65 , 175 A.2d 27 (1961). If the facts are susceptible of more than one inference, the materiality of that arguable factual dispute must be judged by looking to the inferences drawn in a light most favorable to the person against whom the motion is made and light least favorable to the movant. Brewer v. Mele, 267 Md. 437 , 298 A.2d 156 (1972); Berg v. Merricks, 20 Md.App. 666 , 318 A.2d 220 (1974). We believe that the issue of whether the Erlbeck estate sought a defense from Fireman’s Fund, considered in the context of the inferences most favorable to Fireman’s Fund, presented a genuine dispute as to a material fact that precluded the entry of summary judgment under Md.Rule 610. ³¹⁴ On August 7, 1978, Phillip D. Bostwick, a member of the law firm appointed by SEAU to represent the Erlbeck estate, tendered claims control of the three plaintiffs’ suits to Fireman’s Fund, suggesting that if the tender was refused that Fireman’s Fund participate in further settlement negotiations and contribute to the $100,000.00 tendered to, and rejected by, the plaintiffs.

Fireman’s Fund refused. After the settlement agreement was finalized, whereby the Erlbeck estate received $100,000.00 from SEAU, plus an agreement that the consent judgments entered for the three plaintiffs were collectible only from the excess insurer, a second tender was made. The second request to defend came in a letter dated June 16, 1980, from Phillip D. Bostwick. After setting forth the pertinent terms of the consent judgments to be entered for the three plaintiffs, the letter concluded: “A jury was selected in the Altimus and Walker cases in the Circuit Court of Baltimore County on June 16, 1980, for the trial of those cases.

We have obtained a brief postponement of that jury trial from Judge Brizendine to afford Fireman’s Fund an opportunity to have counsel of their choosing enter an appearance on behalf of the Erlbeck and Matthews Estates and all other persons who may be insureds under the above numbered Fireman’s Fund insurance policies to settle these cases or to assume the defense of all said Defendants in the event Fireman’s Fund disagrees with the above settlement agreement. Judge Brizendine will reconvene this jury at 10:00 a.m. on Friday, June 20, 1980. If Fireman’s Fund has not entered an appearance in these cases on behalf of said Defendant by 9:30 a.m. on that date, the above-mentioned consent judgments will be entered at 10:00 a.m.” The tender amounted to an ultimatum — settle the cases or assume the defense if you disagree with the settlement. Fireman’s Fund did neither.

Understandably, SEAU wished to avoid the considerable expense in defending the suits, which it was required to defend absent a settlement. Intervention by Fireman’s Fund in the four days before ³¹⁵ trial would have scuttled the settlement, because it was in the interests of the excess insurer to establish that the plane was not chartered with crew and, in any event, that Earlbeck was part of the “crew,” which would, if proved, establish non-coverage. King Hill, an attorney representing the personal interests of the Erlbeck estate, testified: “I didn’t want anything to upset the settlement that we had reached after we had reached it, after a long period of time, and all the efforts that were made at that time. I never gave any thought of any remote possibility of Fireman’s Fund to come in and do anything at that time.” Charles Iliff, appointed by SEAU to represent the Matthews estate, responding to questions involving Fireman’s Fund, testified, “I didn’t want them to come in, no.” Considered in the light most favorable to Fireman’s Fund, Lawless, supra, the evidence established that, absent any participation by Fireman’s Fund, the Erlbeck estate was to be paid $100,000.00 by SEAU; that the assets of the estate were protected against all claims by the other plaintiffs by assignment of Erlbeck’s rights against the excess insurer, Fireman’s Fund; that personal counsel for the Erlbeck estate did not want anything to upset the settlement; that no tender of the defense was made until four days prior to trial of the Altimus and Walker suits in the Circuit Court for Baltimore County; and that the eleventh hour tender was an attempt by SEAU to avoid the costs of trial rather than obtain a defense of the Erlbeck estate.

In our judgment the facts generated a genuine factual dispute as to whether a defense was sought by the Erlbeck estate from Fireman’s Fund. Accordingly, the issue was one for the jury. Estoppel The underlying purpose of the doctrine of estoppel is to obviate the delay and expense of two trials upon the same issue, one by the injured party against the insured ³¹⁶ and the other by either the injured party or the insured against the insurer. This is possible because it is assumed that the interests of the parties to the insurance contract in opposing the injured person’s claim are identical.

Farm Bureau Mut. Automobile Ins. Co. v. Hammer, 177 F.2d 793 (4th Cir.1949), cert. denied, 339 U.S. 914 , 70 S.Ct. 575 , 94 L.Ed. 1339 (1950). On the other hand, there is the policy of due process which requires