Montgomery County Board of Education v. Horace Mann Insurance

DAVIS, J. On February 13, 1998, John Doe filed a Complaint in the United States District Court against, inter alia, appellant Montgomery County Board of Education and Ms. Barbara Robbins. The Complaint alleged that Ms. Robbins, as a teacher and mentor employed by appellant in the late 1980’s, had negligently and intentionally inflicted emotional distress upon and violated the constitutional civil rights of John Doe, a former student and mentee. These claims were grounded in allegations of a sexual relationship between Ms. Robbins and John Doe while he was a minor. Appellee Horace Mann Insurance Company represented Ms. Robbins throughout the litigation because appellant had previously denied Ms. Robbins’s request to provide representation and indemnification.

The case was ultimately settled in August 2000. On June 12, 2001, appellee filed a Complaint for Declaratory Relief against appellant. Appellee requested that the circuit court declare that appellant was required to defend and indemnify Ms. Robbins in the federal suit and order appellant to pay the legal expenses incurred by appellee for its representation in the suit and subsequent settlement. After appellant and appellee filed respective motions for summary judgment, the trial judge (Harrington, J.) conducted a hearing to consider the motions on November 26, 2002.

The trial judge issued an Opinion and Order on January 16, 2003, granting appellee’s Motion for Summary Judgment, finding that appellant was required to provide a defense and indemnification for Ms. Robbins in the federal lawsuit. After a hearing to consider damages, the trial judge entered judgment in favor of appellee in the amount of $100,556.52 for the legal costs associated with appellee’s representation of Ms. Robbins. On April 17, 2003, appellant timely noted its appeal. ⁵⁰⁵ Appellant presents three questions for our review, which we combine into one question and rephrase as follows: Did the trial court err in granting summary judgment in favor of appellee? We answer the question in the negative and, thereby, affirm the judgment of the circuit court.

FACTUAL BACKGROUND In 1989, Earle B. Wood Middle School (Wood Middle School), located in Rockville, Montgomery County, developed and implemented the Mentor Program (Program). The goal of the Program was “to assist youngsters from a diverse ethnic and socio-economic background with academic support and [] help [] improve communication patterns within the school population and with the home and community.” Through the Program, a teacher, administrator, or staffer would be paired with a student attending Wood Middle School, who would become the mentee. While any student of Wood Middle School was eligible to become a mentee, the Program generally sought “at-risk” students with academic or behavioral problems. Each mentor was charged with providing a more “humanistic” interaction with his or her protege to ultimately foster the protege’s “own individuality and self-concept.” In practical terms, a mentor not only assisted the protege in academic affairs but attempted to establish a relationship of trust and support in order to increase a mentee’s self-esteem.

In late 1989, Barbara Robbins, a teacher at Wood Middle School who was over forty years of age, was assigned through the Program to be a mentor to John Doe, a twelve-year-old student in the sixth grade. Their mentor/mentee relationship lasted throughout John Doe’s matriculation to Wood Middle School until 1991 when John Doe finished the eighth grade. In 1996, John Doe was convicted of aimed robbery and possession of controlled dangerous substances. Before his period of incarceration began, a social worker interviewed him for the purposes of an evaluation.

During the interview, John Doe claimed that, between the ages of twelve and sixteen, ⁵⁰⁶ when he attended Wood Middle School and continuing into high school, he was sexually abused by Ms. Robbins. The social worker forwarded John Doe’s allegations to the Montgomery County Police Department (MCPD) who, in turn, relayed the information to appellant. While the MCPD investigated the allegations, appellant, by correspondence dated November 22, 1996, informed Ms. Robbins that she was being reassigned from her teaching duties to a non-school-based role in the Montgomery County Public School System because of John Doe’s claims. Appellant then initiated its own investigation into the allegations of an inappropriate sexual relationship between John Doe and Ms. Robbins.

In November 1996, Dr. Elizabeth L. Arons, the Director of the Department of Personnel Services, conducted two meetings with Ms. Robbins. Throughout the meetings, Ms. Robbins consistently denied that a sexual relationship existed between her and John Doe. On February 21, 1997, Stan Schaub, the Director of the Division of Staffing, issued a memorandum to Dr. Arons regarding the investigation of Ms. Robbins. Attached to the memorandum were various transcripts of interviews from individuals ranging from John Doe to his friends and acquaintances, along with principals and secretaries of Wood Middle School at the time the alleged events occurred.

The transcripts reflected that John Doe had made statements concerning the sexual nature of his relationship with Ms. Robbins and that certain staff members of Wood Middle School personally observed unusual interactions between the two. Mr. Schaub also obtained several letters and other correspondence that John Doe had received from Ms. Robbins that were allegedly “love letters” exchanged while he was in the Program. By letter dated December 12, 1997, counsel for Ms. Robbins formally requested that appellant “undertake to represent and defend the interests of [his] client ... in matters pertaining to the pending claim of John Doe.” The letter further stated that Ms. Robbins had “vigorously denied” the claims set forth in the “draft [c]omplaint.” On February 13, 1998, John Doe filed a Complaint in the United States District Court for the ⁵⁰⁷ District of Maryland against appellant, Montgomery County (County), the principal of the Wood Middle School at the time of the alleged events, and Ms. Robbins. In the Complaint, which consisted of five counts, John Doe asserted claims for alleged violations of his constitutional civil rights, sexual abuse of a minor, and for negligent and intentional infliction of emotional distress.

By letter dated February 27, 1998, appellant, through county attorney Charles W. Thompson, Jr., declined to provide Ms. Robbins with a defense and indemnification for the civil suit filed by John Doe. Through an Educators Employment Liability Policy issued by appellee to the Maryland State Teachers Association, of which Ms. Robbins was a member, appellee provided representation to Ms. Robbins in the case before the U.S. District Court. By orders dated March 2, 1999 and May 12, 2000, the U.S. District Court judge dismissed or granted summary judgment in favor of all of the defendants, except for Ms. Robbins. In August 2000, the parties settled the case.

Pursuant to the settlement agreement, appellee paid John Doe $15,000 in exchange for a dismissal of all of the claims against Mrs. Robbins. On June 12, 2001, appellee tiled a Complaint for Declaratory Relief in the Circuit Court for Montgomery County against appellant. Appellee requested that the circuit court declare that appellant had a duty to defend and indemnity Ms. Robbins in the U.S. District Court case, that appellant’s duty was primary to appellee’s duty to defend, and that appellant breached that duty. Based on these declarations, appellee ultimately sought an order requiring appellant to reimburse appellee for the costs of representation and payment of the settlement.

Appellee filed a Motion for Summary Judgment on September 25, 2002, to which appellant responded on October 25, 2002. Appellant additionally filed its own Motion for Summary Judgment on September 27, 2002. Appellee filed an Opposition to that motion on October 16, 2002 and, on November 26, 2002, the open motions came before the trial judge for ⁵⁰⁸ a hearing. After considering the motions, exhibits attached thereto, and the arguments of counsel, the trial judge issued an Opinion and Order on January 16, 2003.

The trial judge found that there was no genuine dispute as to a material fact that some of Ms. Robbins’s actions alleged in the Complaint were within the scope of her duties. As a result, the trial judge granted appellee’s Motion for Summary Judgment, declared that appellant had a duty to defend or indemnify Ms. Robbins, and ordered appellant to reimburse appellee for legal expenses associated with defending and settling the claims against Ms. Robbins. In ruling against appellant, the trial judge opined: This declaratory judgment action is appropriate for summary judgment and can be decided as a matter of law. The material facts are not in dispute.

The issue for the [cjourt to determine is whether those portions of the allegations of the complaint that are potentially within [Ms. Robbins’s] authorized official capacity as a mentor created a duty on the part of [appellant] to provide her with a defense. The complaint alleges actions by [Ms. Robbins] in her role as a mentor that are potentially within the scope of her employment as a teacher, within the range of duties of someone in the [Program], undertaken without malice and performed while she was acting within her authorized official capacity. The extrinsic evidence supports this. John Doe incorporates into each count of the complaint his allegations of the ways in which [Ms. Robbins] abused her special relationship with him (even the actions that are arguably appropriate for a mentor such as calling him and providing transportation).

For those acts he seeks economic, non-economic and punitive damages. Rather than consider those allegations independently, [appellant] focused its attention on the sexual abuse allegations, determined they were inextricably linked to each count of the [C]omplaint, and declined coverage. [Appellant’s] analysis ignores the potential dynamics of the process of a civil case, wherein theories of liability are added or deleted as the case develops. Even if all allega ⁵⁰⁹ tions of sexual abuse stated in the complaint are disregarded, a cause of action remains for economic and non-economic damages resulting from [Ms. Robbins’s] alleged misuse of her position as a teacher/mentor. The potential exists that judgment in the tort suit could have been entered against [Ms. Robbins] for alleged improper conduct separate and apart from any sexual abuse.

For that reason, the [c]ourt is persuaded that [appellant] had a duty to defend part of the suit. Consequently, [appellant] had a duty to defend the lawsuit in its entirety. On March 17, 2003, after a hearing on damages, appellant was ordered to pay appellee $100,556.52 plus court costs. This appeal followed.

LEGAL ANALYSIS Appellant contends that the trial court erred in granting summary judgment in favor of appellee because, pursuant to its Self-Insurance Agreement (Agreement), it was not required to defend Ms. Robbins against allegations that were not within the scope of her duties. Appellee counters that the trial judge was legally correct when she determined that the allegations in the Complaint had the potential to come within the scope of Ms. Robbins’s employment and, thus, appellant was required to defend and indemnify Ms. Robbins in the federal lawsuit. Pursuant to Maryland Rule 2-501, a trial judge may grant summary judgment only if “there is no genuine dispute as to any material fact and that the party in whose favor judgment is entered is entitled to judgment as a matter of law.” Here, there are no genuine disputes as to any material facts because the sole question in this appeal involves a legal interpretation of relevant statutes, the various insurance agreements between the parties, and the Complaint. On this appeal, we are not required to give any deference to the trial judge’s conclusions of law.

East v. PaineWebber, Inc., 131 Md.App. 302, 308 , 748 A.2d 1082 (2000)(quoting Lopata v. Miller, 122 Md.App. 76, 83 , 712 A.2d 24 (1998)). Ultimately, we will review ⁵¹⁰ the trial court’s grant of summary judgment to determine “whether the trial court was ‘legally correct.’ ” Cooper v. Berkshire Life Ins. Co., 148 Md.App. 41, 56 , 810 A.2d 1045 (2002). . To determine whether Ms. Robbins was entitled to coverage under the Montgomery County Self-Insurance Program (MCSIP), we will engage in a two-part inquiry.

First, we must ask, “[W]hat is the coverage and what are the defenses under the terms and requirements of the insurance policy?” St. Paul Fire & Ins. Co. v. Pryseski, 292 Md. 187, 193 , 438 A.2d 282 (1981). Second, we review whether “the allegations in the tort action potentially bring the tort claim within the policy’s coverage.” Id. In Brohawn v. Transamerica Ins.

Co., 276 Md. 396, 407-08 , 347 A.2d 842 (1975), the Court of Appeals set forth the basis for the potentiality rule: 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. In the factual scenario before us, there is no insurance contract but there is the Agreement that is derived from §§ 4-104 and 4-105 of the Education Article, which provide the framework for comprehensive liability insurance and self1 insurance.

While Brohaiun’s analysis applies to the instant matter, the issue of “potentiality must be drawn from the terms of the self[-]insurance authorized by the statute.” Matta v. Bd. of Educ. of Prince George’s County, 78 Md.App. 264, 269 , 552 A.2d 1340 (1989). The analytical framework enunciated in Pryseski and Bro-hawn is still valid today subject to one further modification created by the Court of Appeals in Aetna Cas. & Sur. Co. v. Cochran, 337 Md. 98 , 651 A.2d 859 (1995). Prior to that decision, Maryland courts reviewed insurance policies and ⁵¹¹ pleadings utilizing the “exclusive pleading rule.” See Nationwide Ins.

Cos. v. Rhodes, 127 Md.App. 231, 241 , 732 A.2d 388 (1999). Simply stated, the rule, also known as the “eight comers rule,” required a reviewing court to analyze only the complaint and the insurance policy when determining whether a claim could potentially come within the coverage and, consequently, disregard any extrinsic evidence. See id. In Cochran , however, the Court of Appeals pointed out that, while Brohawn prohibited the use of extrinsic evidence for the benefit of the insurer to contest the potentiality of coverage, there was no language preventing an insured from utilizing extrinsic evidence to demonstrate the potential for coverage under the insurance policy.

Cochran, 337 Md. 98, 107-08 , 651 A.2d 859 (1995). Thus, the Court held that, when a complaint fails to assert tort allegations that are sufficient to establish potentiality of coverage, an insured is permitted to introduce extrinsic evidence that attempts to bring the action within the ambit of coverage under the insurance policy. Id. at 107-08, 112 , 651 A.2d 859 . The expansion of the original inquiry to include extrinsic evidence, if necessary, serves to protect an insured from a factually-deficient complaint filed by a disinterested third party and allows a greater opportunity for an insured to obtain representation from the insurer, which is part of the bargained-for exchange in any insurance policy.

Id. at 110 , 651 A.2d 859 . Consequently, the second part of our inquiry will