Harford Mutual Insurance v. Jacobson

ROSALYN B. BELL, Judge. Appellant, Harford Mutual Insurance Company, appeals a judgment of the Circuit Court for Baltimore City in favor of appellee, the Estate of Israel Louis Shapiro. The estate had filed suit, alleging, inter alia, that Harford, an insurer, ⁶⁷³ refused to defend the estate or pay settlement proceeds or attorney’s fees in a suit filed against the estate. The circuit court found, under an insurance policy issued by Harford to the estate, that Harford had a duty to provide representation in defense of the case and pay the settlement figure.

The court awarded the estate $32,000, the amount the estate paid to settle the underlying case plus attorney’s fees. On appeal, we address the following issues: 1 1. Whether appellant had a duty to defend the estate in the underlying court case. 2. Whether the “occurrence” for which coverage is claimed was within the policy period. 3.

Whether the trial court erred by admitting a bill of services as evidence of attorney’s fees. Israel Louis Shapiro died in March of 1983 and Martin M. Jacobson and Dora Shapiro were appointed Personal Representatives of his estate. 2 Included in the assets of the estate were 69 one-family rental properties in Baltimore City. Jacobson obtained a liability insurance policy, effective June 3, 1983 to June 3, 1984, insuring the Estate and Personal Representatives against claims for damages arising out of the ownership, maintenance or use of the 69 designated properties. On August 25, 1983, the Baltimore City Health Department issued a “Violation Notice to remove Lead Paint Nuisance.” The notice reported that a child who frequented the dwelling at 1429 Madison Avenue, one of the properties covered by the insurance policy, had an abnormal amount of lead in her blood.

The notice also stated that an inspection of the property indicated it contained lead-based paint which must be removed. In November of 1983, a suit was filed in the Circuit Court for Baltimore City against Jacobson in his capacity as personal representative of the ⁶⁷⁴ estate, for lead paint poisoning, by Keisha Carter and Brenda Carter, her mother. Appellee made a claim to appellant under the policy effective June 3, 1983 for coverage and defense of the Carter suit. Appellant retained counsel to defend appellee in the Carter case.

During the course of its investigation, appellant discovered that the Baltimore City Health Department records indicated that Keisha Carter was afflicted with lead poisoning as early as September 8, 1982. Appellant also found that in November, 1982 and January, 1983, the child’s mother had signed Baltimore City Health Department forms, indicating that there had been lead paint on the premises. Consequently, appellant withdrew its defense of the suit in April, 1984, having concluded that coverage was not available under the policy because the occurrence alleged in the Carter suit did not arise during the policy period. ° Appellee retained its own counsel to defend the Carter suit. The case was settled for $32,000 and a release was entered into by the parties.

Appellee made a claim to Harford for the amount paid in settlement and an additional $8,000 for attorney’s fees paid in defending and settling the case. After appellant failed to respond to the request for reimbursement of the $40,000, appellee filed suit in the Circuit Court for Baltimore City. The court, sitting without a jury, found that there was a potential claim made under the policy in that the first time that the estate had notice of the injury to Keisha Carter was in August of 1983. The court concluded that appellant did not carry out the terms of the policy by refusing representation in defense of the case and in handling the settlement.

The court awarded appellee $32,000. Although a check of $8,000 for attorney’s fees was admitted into evidence over appellant’s objection, the court found the basis for the check unclear. Consequently, the court evaluated the services performed by estate counsel on a reasonable value basis, and awarded the sum of $5,000 to the ⁶⁷⁵ estate for attorney’s fees. It is from those findings and awards that appellant appeals.

Duty to Defend The duty of an insurer to defend its insured is determined by the allegations in the underlying tort action. If the plaintiff in the underlying suit alleges a claim covered by the policy, the insurer is obligated to defend. Brohawn v. Transamerica Ins. Co., 276 Md. 396, 407 , 347 A.2d 842 (1975).

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. U.S.F. & G. v. National Paving and Contracting Co., 228 Md. 40, 54 , 178 A.2d 872 (1962). The complaint in the Carter case alleges, in pertinent part: “That in 1981 the Plaintiff was in fact a tenant of said premises and the Defendant was in fact landlord of said premises____[t]hat at or about 1981 the infant Plaintiff did consume said dangerous and illegal leaded paint chips found on the premises ... that as a result of consuming said leaded paint chips, the infant Plaintiff became seriously ill. That subsequent it was determined that the infant Plaintiff respectively had been subjected to lead poisoning attributable to consuming paint chips---That the Defendant was found to be in violation of the Baltimore City Health Laws and ordinances regulating same and was ordered to remove said dangerous substance from the leased premises.

That as a result of the negligence of the Defendant in permitting a potentially dangerous and fatal condition to exist on the leased premises, the infant Plaintiff has required extensive and continuous medical care, attention and treatment, and detoxification of blood lead level. The infant Plaintiff is still receiving treatment.” Under the insurance policy, Harford agreed to pay all sums which the estate became legally obligated to pay as a result ⁶⁷⁶ of bodily injury caused by an occurrence arising out of the use of the insured premises. Appellant asserts that the only allegation in the complaint specifying the time the alleged hazardous material was consumed states that it was “at or about 1981.” Appellant argues that the facts alleged in the Carter complaint establish that the operative acts or omissions giving rise to liability préceded the inception of the policy in June of 1983. Thus, appellant concludes it did not have a duty to defend appellee.

We disagree. While it is true that the declaration in the Carter case did not allege every fact necessary to establish Harford’s coverage, we hold that there was enough to indicate a potentiality that the injury in question occurred during the time the policy was in effect. The complaint specifically alleges that, as a result of the dangerous conditions that existed on the leased premises, Keisha Carter “has required extensive and continuous medical care, attention and treatment” and “the plaintiff is still receiving treatment.” It is not disputed that, at the time the complaint was filed, and at the time Keisha Carter first received medical care and continued to seek treatment, appellee was covered under appellant’s policy. In addition, the complaint states that the estate was found in violation of the city health laws and was ordered to remove the lead chips from the leased premises.

This notice of violation and order to eradicate the dangerous condition was issued after the policy became effective. This was sufficient to put Harford on notice that there was potential coverage under the policy if Keisha Carter’s injuries and need for medical care were found to be the result of a dangerous condition existing at the insured premises. In Brohawn, 276 Md. at 396 , 347 A.2d 842 , the complaint in the underlying action against the insured was based on alternative allegations of negligence and assault. The insurer, Transamerica Insurance Company, argued that it was not obligated to defend or indemnify the insured ⁶⁷⁷ because the insurance policy specifically excluded from coverage any act committed by the insured with the intent to injure.

In addition, the insured had pled guilty to assault in a previous criminal action arising from the same incident. Brohawn, 276 Md. at 401 , 347 A.2d 842 . In holding that the insurer had a duty to defend the insured, the Court said: “While Transamerica may believe that the evidence of the guilty plea would establish that any injuries sustained by Mrs. Shaffer or Mrs. Friend were the result of intentional acts by Mrs. Brohawn, this belief will not relieve Transamerica of its duty to defend its insured in suits which allege an unintentional tort covered by the policy. The obligation is contractual and exists because of the agreement made by Transamerica with Mrs. Brohawn.

Transamerica has expressly promised to ‘defend any suit against the Insured alleging such bodily injury ... and seeking damages which are payable under the terms of this [policy], even if the allegations of the suit are groundless, false, or fraudulent.’ ” (Brackets in original. Emphasis in original.) Brohawn, 276 Md. at 408 , 347 A.2d 842 . The Court quoted with approval Chief Judge Learned Hand’s interpretation of the same policy provision: “ ‘This language means that the insurer will defend the suit, if the injured party states a claim, which, qua claim, is for an injury “covered” by the policy; it is the claim which determines the insurer’s duty to defend; and it is irrelevant that the insurer may get information from the insured, or from any one else, which indicates, or even demonstrates, that the injury is not in fact “covered.” The insurer has promised to relieve the insured of the burden of satisfying the tribunal where the suit is tried, that the claim as pleaded is “groundless.” ’ ” Brohawn, 296 Md. at 408, 347 A.2d 842 , quoting Lee v. Aetna Casualty & Surety Co., 178 F.2d 750, 751-52 (2d Cir.1949). In the case sub judice, the insurance policy provides, in pertinent part: ⁶⁷⁸ “The Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of A. bodily injury or B. property damage to which this insurance applies, caused by an occurrence and arising out of the ownership, maintenance or use of the insured premises ... and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent____” (Emphasis added.) Thus, while Harford may believe that the incidents giving rise to liability preceded the date the policy became effective, in a suit which alleges the existence of bodily harm during the policy period, this belief will not relieve it of its duty to defend its insured.

We are not saying that upon discovering sufficient evidence that the policy did not cover the alleged occurrence Harford necessarily had no option but to continue to defend the insured. When a dispute over coverage arises during the course of a pending tort suit, that question can be determined by a trial court in a declaratory judgment action. 3 Brohawn, 276 Md. at 404 , 347 A.2d 842 . In Brohawn , the Court said: “A declaratory judgment action prior to the trial of a tort action against the insured may under some circumstances be a valuable means of resolving questions of ⁶⁷⁹ policy coverage where those questions are independent and separable from the claims asserted in a pending suit by an injured third party. An early resolution could avoid unnecessary expense and delay to the parties.

Thus, where an insurance company claims lack of coverage because of the insured’s failure to comply with contract provisions such as the cooperation or notification clause, or failure to pay premiums, a declaratory judgment would ordinarily be appropriate and should be granted.” (Citations omitted.) Brohawn, 276 Md. at 405 , 347 A.2d 842 . 4 In the case sub judice, appellant unilaterally determined that it had no duty to defend appellee and withdrew from the case. This was not appropriate and appellant must expect to be held accountable for its actions. We, therefore, affirm the trial court’s finding and its award to appellee of reasonable attorney’s fees. Coverage Under the Policy The trial court found that the policy covered the claim alleged in the Carter case because the first notice the estate had with respect to the injury suffered by Keisha Carter was on August 15, 1983, which was within the policy period.

Appellant asserts that the first time Keisha Carter was diagnosed as having elevated blood lead levels was in September of 1982, which was outside the policy period. Thus, appellant contends that, because the “occurrence” happened prior to the inception of the policy issued by appellant to appellee, no coverage is available. Appellee, on the other hand, would have us hold that the definition of “occurrence” as “including continuous or repeated exposure to conditions” should be interpreted broadly to include ⁶⁸⁰ coverage