Montgomery County Board of Education v. Horace Mann Insurance

WILNER, J. The Circuit Court for Montgomery County determined that the Montgomery County Board of Education was required by law to defend one of its teachers against a tort claim filed by a former student and that it was liable to the private insurance company that ultimately provided that defense for having declined to do so. The Court of Special Appeals affirmed the declaratory and monetary judgment against the board (Board of Education v. Mann, 154 Md.App. 502 , 840 A.2d 220 (2003)), and we granted cross-petitions for certiorari to review those ⁵³¹ decisions. We shall affirm the judgment of the Court of Special Appeals. BACKGROUND In February, 1998, a former student in the Montgomery County school system, using the name John Doe, filed suit in U.S. District Court against the county school board, the principal (or former principal) of Wood Middle School, and Barbara Robbins, a teacher (or former teacher) at that school.

The essence of the complaint was that, while a student at Wood from 1989 to 1998, Doe, then a pre-teen, was in a mentoring program in which Ms. Robbins acted as his mentor and that Ms. Robbins abused her professional relationship with him in a variety of ways, including her engagement in a sexual relationship with him. 1 We are concerned here only with the action against Ms. Robbins. The complaint alleged, in preliminary paragraphs applicable to all of the claims against Ms. Robbins, that in the course of more than three years, she “repeatedly, sexually abused Doe by having vaginal and other forms of sex with him” and that she “abused her special relationship with Doe in numerous, ⁵³² inappropriate ways.” Doe complained, “[m]ore specifically,” that she called him, bought him gifts, sent food to his home, invited him into the bedrooms and other rooms of her home, sent him love cards, wrote him love letters, provided him with transportation, and frequently had vaginal and other forms of sex with him. He added that Robbins “intentionally and inappropriately interfered with his parents and guardians by inappropriately blending and confusing the roles of mentor, teacher, lover, friend and parent” and that, as a result of her wrongful acts, Doe suffered severe mental and emotional distress and economic and psychic damage. Maryland Code, § 4-105 of the Education Article requires county school boards to carry comprehensive liability insurance to protect the board and its agents and employees but permits the boards to satisfy that requirement through a self-insurance program.

The Montgomery County school board elected to become part of the self-insurance program established by Montgomery County pursuant to Maryland Code, title 19, subtitle 6 of the Insurance Article and Montgomery County Code, § 20-37. Section 4-104(d) of the Education Article independently requires the board to provide counsel for teachers (and other employees) with respect to claims made against them if (1) the conduct complained of was in the performance of the teacher’s duties, within the scope of employment, and without malice; and (2) “[t]he board determines that [the teacher] was acting within [his/her] authorized official capacity in the incident.” The county self-insurance program in which the board participates also provides for defending claims. County Code, § 20-37(c) requires the insurance program generally to provide for the defense of claims, and § 20-37(e)(2) more specifically requires the county attorney to provide a defense for claims against a participating agency or its officials or employees. There are a number of explicit and implicit conditions to the coverage provided by the county program.

Section 20-37(c) authorizes the county to provide insurance to compensate for injury arising from tortious conduct of an employee “within ⁵³³ the scope of official duties,” and an Attachment to the Participating Agency Agreement between the county and the school board states that there is no coverage for actions falling outside the scope of employment, cases of wanton or malicious wrongdoing, or intentional torts. The Attachment provides, in that regal’d, that in all cases involving questions of scope of employment or allegations of intentional torts or wanton or malicious wrongdoing, the county attorney shall “evaluate whether the employee is entitled to coverage, defense or indemnification, based on the facts,” and, if the county attorney concludes that coverage, defense, or indemnification should be denied, make such a recommendation to an inter-agency panel, which would make the final administrative decision. Ms. Robbins demanded that the board defend her in Doe’s action but, upon concluding that she was being sued for actions “outside the scope of her employ,” the board refused to provide her with counsel or indemnification. It appears that the ultimate decision not to provide counsel was made by the county attorney, upon recommendation of the board, rather than by the interagency panel.

Eventually, Ms. Robbins was defended by Horace Mann Insurance Company pursuant to an Educators Employment Liability Policy that it had issued to the Maryland State Teachers Association. Under that policy, Horace Mann agreed to defend teachers against claims arising from an occurrence in the course of the teacher’s educational employment activities but retained the right to negotiate and settle any such claim. Horace Mann settled the claim for $15,000 and then filed this action in the Circuit Court for Montgomery County seeking reimbursement from the county school board for the cost of defense and settlement and for attorneys’ fees incurred in prosecuting the instant declaratory judgment action. The action for declaratory and other relief was based on the assertion that the school board had breached its statutory duty to defend Ms. Robbins.

There being no genuine dispute of material fact, and the amount of damages, if liability was found, being stipulated, the issue was presented to the court ⁵³⁴ on cross-motions for summary judgment. After examining the allegations in the Doe complaint and the extrinsic evidence produced by the parties, the court determined that there was a potentiality of coverage for Ms. Robbins under the board’s self insurance and entered a declaratory judgment that the school board had a duty to defend the action, that the duty was primary to that of Horace Mann, that the board breached its duty, and that it therefore must reimburse Horace Mann for the sums it expended in defending and settling the Doe claim. The final order entered judgment against the board for the stipulated amount of $100,556. Aggrieved by the substantive ruling as to liability, the school board appealed to the Court of Special Appeals, which affirmed.

Board of Education v. Mann, 154 Md.App. 502 , 840 A.2d 220 (2003). The intermediate appellate court treated the “gravamen” of the Doe complaint as charging only sexual misconduct — a sexual relationship between the teacher and the student — which, the court concluded, would not be within the scope of Robbins’s employment and therefore did not produce even a potentiality of coverage under the board’s self insurance program. Observing then that, under this Court’s decision in Aetna v. Cochran, 337 Md. 98 , 651 A.2d 859 (1995), it was necessary to consider not just the allegations set forth in Doe’s complaint but also any extrinsic evidence called to the board’s attention that might create a potentiality of coverage, the court noted that Ms. Robbins had denied the existence of a sexual relationship, that some of her co-workers had said that they were unaware of such a relationship, and that, as a result, the extrinsic evidence regarding any sexual relationship was inconclusive. Viewing the extrinsic evidence in a light most favorable to Ms. Robbins, the court concluded that “her conduct and the relationship -with John Doe was potentially within the scope of employment, authorized in her official capacity, and not malicious or intentional,” and that it was therefore “potentially covered” under the self insurance program.

Board of Education, supra, 154 Md.App. at 518 , 840 A.2d at 229 . ⁵³⁵ We granted the board’s petition for certiorari to consider whether (1) a county board of education is required to provide counsel to defend an action against an employee if the board determines that the employee’s actions were outside the scope of her employment and that she was not acting within her authorized official capacity, (2) whether a claim against a teacher based on sexual abuse of a student is potentially covered under the board’s self-insurance program “where the only extrinsic evidence favorable to the employee is her denial,” and (3) whether the holding of the Court of Special Appeals expanded an insurer’s duty to defend beyond that set forth in Brohawn v. Transamerica Ins. Co., 276 Md. 396 , 347 A.2d 842 (1975) and Aetna v. Cochran, supra, 337 Md. 98 , 651 A.2d 859 . We also granted Horace Mann’s cross-petition to consider whether the Court of Special Appeals erred (1) in holding that the allegations in Doe’s complaint, alone, were insufficient to establish a potentiality of coverage, and (2) in failing to address the additional argument that the board failed to comply with its own mandated procedures in determining not to defend Robbins. Although we do not embrace all of the reasoning of the Court of Special Appeals, we find no merit in the board’s arguments, some merit in Horace Mann’s first argument, and none in its second argument.

DISCUSSION Mandated Procedures We shall deal first with Horace Mann’s second argument. Section 20-37(e) of the county code creates an interagency insurance panel to advise the agencies participating in the county self-insurance program and to prepare a budget for the program. The code does not give the panel any responsibility for evaluating or resolving claims. The Attachment to the Participating Agreement entered into by the board and the county imposed certain additional duties on the interagency panel, however, including duties relating to the evaluation and settlement of claims.

Section 3.5 of that Attachment provided that there would be no coverage for (1) claims arising from ⁵³⁶ actions falling outside the scope of employment, (2) cases of wanton or malicious wrongdoing, and (3) intentional torts. It stated that, in all cases involving those issues, the county attorney would evaluate whether the employee was entitled to coverage, defense, or indemnification based on the facts of the case and that, if the county attorney decided that coverage, defense, or indemnification should be denied, he/she would make such a recommendation to the panel. The panel would then meet, allow interested parties to be heard, and determine those issues. Horace Mann complained that the decision not to provide a defense to Ms. Robbins was made by the county attorney, on recommendation of the board, and that the matter was never submitted to the interagency panel, as required by the Attachment to the Participating Agency Agreement.

That complaint was not addressed by the Circuit Court, however, in its granting of summary judgment and was therefore not a basis for the summary judgment. Citing its decision in Warner v. German, 100 Md.App. 512 , 642 A.2d 239 (1994), which, in turn, relied on Cheney v. Bell Nat’l Life Ins. Co., 315 Md. 761 , 556 A.2d 1135 (1989) and Geisz v. Greater Baltimore Medical Center, 313 Md. 301 , 545 A.2d 658 (1988), the Court of Special Appeals observed that, when a matter is resolved by the trial court on summary judgment, the appellate court ordinarily will not affirm on any ground not relied upon by the trial court in granting the motion. That principle is a correct one, see Lovelace v. Anderson, 366 Md. 690, 695 , 785 A.2d 726, 729 (2001), Eid v. Duke, 373 Md. 2, 10 , 816 A.2d 844, 849 (2003), but it is not entirely applicable here.

It generally governs when the appellate court is unable to affirm on any ground relied upon by the trial court and, but for affirming on a ground not relied on by the lower court, would be required to reverse, vacate, or modify the judgment. Because, in Maryland, a trial court has some discretion to deny summary judgment even when it could grant that relief, we have been reluctant to permit such judgments to be affirmed on a ground not relied upon below ⁵³⁷ and upon which, if no other ground for entering the judgment existed, the lower court could lawfully have denied summary judgment and permitted the case to proceed to trial. Here, of course, the Court of Special Appeals affirmed the summary judgment on the ground relied upon by the Circuit Court, so there was no reason for it to address as well the additional ground raised by Horace Mann. Potentiality of Coverage The issues raised by the board and the first issue raised by Horace Mann can be considered together.

The board’s position is that Doe’s complaint is based entirely on the claim that he was sexually assaulted by Ms. Robbins, that there is no insurance coverage for that kind of conduct because it cannot be regarded as committed within the scope of the teacher’s employment or authority, that the only extrinsic evidence regarding the allegation consists of Ms. Robbins’s denial that the conduct occurred, and that such mere denial is insufficient to create even a potentiality of coverage. Horace Mann insists that the complaint itself alleges more than just sexual abuse, that the extrinsic evidence also shows other potentially actionable conduct on Ms. Robbins’s part, that, as a result, there is a potentiality of coverage, and that the board therefore had a statutory duty to defend. Beginning at least with U.S.F. & G. v. Nat. Pav.

Co., 228 Md. 40, 54, 178 A.2d 872, 879 (1962) and continuing, most recently, through BGE Home v. Owens, 377 Md. 236, 246 , 833 A.2d 8 , 14 (2008) and Walk v. Hartford Casualty, 382 Md. 1 , 852 A.2d 98 (2004), we have followed the rule that, where a duty to defend is included in a liability policy, the insurer is obligated to defend its insured “when there exists a ‘potentiality that the claim could be covered by the policy.’” BGE Home, supra, at 246 , 833 A.2d at 14 , quoting from Sullins v. Allstate Ins. Co., 340 Md. 503, 509 , 667 A.2d 617, 619-20 (1995). In St. Paul Fire & Mar. Ins. v. Pryseski, 292 Md. 187, 193 , 438 A.2d 282, 285 (1981), we pointed out that, in determining ⁵³⁸ whether a liability insurer has a duty to provide its insured with a defense to a tort action, “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 [and] (2) do the allegations in the tort action potentially bring the tort claim within the policy’s coverage?” The first question, we added, “focuses upon the language and requirements of the policy, and the second question focuses upon the allegations of the tort suit.” Id.

In Aetna, supra, 337 Md. 98 , 651 A.2d 859 , we expanded the scope of the second inquiry somewhat. We held there that, at least where the underlying complaint in the tort action neither conclusively establishes nor conclusively negates a potentiality of coverage, an insurer must examine any relevant extrinsic evidence brought to its attention that might establish a potentiality of coverage. Here, of course, any obligation by the county board to defend Ms. Robbins would arise from the statutory construct in §§ 4-104 and 4-105 of the Education Article and the self-insurance program in which the board has elected to participate, rather than from an insurance policy. The first aspect of our examination must therefore be the statutory framework and the self-insurance program, which, when read together and in light of other circumstances, are not entirely free of ambiguity.

As we have observed, § 4-105(a) of the Education Article requires the county boards of education to carry comprehensive liability insurance to protect the board and its agents and employees. Section 4-105(b) requires the State Board of Education to establish standards “for these insurance policies,” including a minimum liability coverage of not less than $100,000 for each occurrence, and further requires the policies to “meet these standards.” So far as we can tell, the only standard adopted by the State Board of Education is the unenlightening requirement that “[t]he type and amount of liability insurance carried by the local boards of education ⁵³⁹ shall conform to the requirements of Education Article, § 4-105, Annotated Code of Maryland.” COMAR 13A.02.01.03A. Section 4-105(c) permits a county board to comply with the statutory requirement through self-insurance, if: (1) the board either is “individually” insured for at least $100,000 for each occurrence under rules and regulations adopted by the Insurance Commissioner or is part of a self-insurance pool permitted under title 19, subtitle 6 of the Insurance Article; (2) if the board elects to self-insure individually, it files the terms and conditions of the self-insurance with the Insurance Commissioner; and (3) those terms and conditions are subject to approval by the Insurance Commissioner and they “conform with the terms and conditions of comprehensive liability insurance policies in the private market.” 2 The Montgomery County board elected to become part of a self-insurance pool established by local ordinance. Section 20-37(c) and (d) of the Montgomery County Code authorizes the county to provide an adequate comprehensive liability insurance program for county agencies, officials, and employees and to enter into agreements with “participating agencies” such as the county board of education.

Section 20-37(e) establishes a self-insurance program for the county government and participating agencies, subject to certain conditions. One of those conditions, § 20-37(e)(3), is that the insurance protection furnished to the participating agency may not be less than the coverage provided by the independent insurance program that the agency had when it began to receive coverage under the self-insurance program. In 1978, the county school board became part of the county comprehensive self-insurance program. The record before us does not reveal what kind of coverage the school board had when it elected to participate in the county program, notwithstanding that the Agreement provided that the insurance ⁵⁴⁰ coverages previously in effect “shall be used as the basis for any claim payments made by the Montgomery County Self-Insurance Program for claims made against the BOARD.” Through an Attachment, the Agreement between the board and the county incorporated a set of program procedures which, among other things, provided that there would be no “coverage” for “[a]ctions falling outside the scope of employment,” “[c]ases of wanton or malicious wrongdoing,” and “[i]ntentional torts.” 3 The Attachment provided that the decision regarding whether the conduct was wanton, malicious, intentional, or outside the scope of employment would be made initially by the county attorney, subject to hearing and final decision by the interagency panel.

The key provision in § 4-105(c) is that the terms of any self-insurance must “conform with the terms and conditions of comprehensive liability insurance policies available in the private market.” In BGE Home, supra, 377 Md. 236 , 833 A.2d 8 , we dealt with this very issue, albeit in the context of motor vehicle liability insurance. Pursuant to statutory authorization, BG & E elected to provide self-insurance for its motor vehicle fleet, and the issue arose whether, in the absence of any duty-to-defend provision in the self-insurance documents, it had such a duty when its employee arguably was not operating the company vehicle within the scope of permission at the time of the accident. ⁵⁴¹ In what was essentially a three-part analysis, we