Moscarillo v. Professional Risk Management Services, Inc.

KRAUSER, J. Appellant, Frank M. Moscarillo, M.D., a psychiatrist, and his patient, Evelyn Toni Mulder, were sued in the United States District Court for the District of Columbia by Mulder’s employer, William M. Mercer, Inc. (“Mercer”), and its parent company, Marsh & McLennan Companies, Inc. (“Marsh & McLennan”), for fraud and conspiring to defraud. Mercer and Marsh & McLennan claimed that appellant had, in connivance with Mulder, misdiagnosed Mulder as suffering from “Major Depression” so that she could wrongfully collect short-term disability benefits. Because appellant was sued for fraud and not negligence, his professional liability insurance carrier, appellee Legion Insurance Company (“Legion”), 1 denied coverage and declined to represent him. When the Mercer suit was dismissed, appellant sought to recover the legal expenses he had incurred by filing a declara ¹⁴¹ tory judgment and breach of contract action in the Circuit Court for Montgomery County against the now insolvent Legion, and appellee Property and Casualty Insurance Guaranty Corporation (“PCIGC”), an entity that was created by the General Assembly to address the unpaid obligations of insolvent insurers. 2 In that suit, he also named as a defendant appellee Professional Risk Management Services, Inc. (“PRMS”), the producer and administrator of his policy.

When appellant filed a motion for partial summary judgment, appellees responded with cross-motions for summary judgment, claiming, among other things, that they had no duty to defend appellant in the Mercer case. The circuit court agreed and granted appellees summary judgment. Challenging that decision, appellant contends that, under his insurance policy, Legion had a duty to defend him in the Mercer litigation. Although sued for fraud and conspiracy to defraud, neither of which was covered by the Legion policy, he claims that appellees had a duty to defend him because the Mercer plaintiffs “clearly intended to prove at trial [his] alleged negligent acts.” Nor was that duty obviated, he maintains, by the policy’s fraud exclusion.

That exclusion, he insists, applied only to fraudulent acts actually committed by an insured and not “to unproven allegations of fraud.” Finding no merit to appellant’s first contention, we need not reach his second to conclude that the judgment of the circuit court should be affirmed. The Policy On November 4, 1998, appellant purchased a “claims-made” professional liability insurance policy from Legion, which was retroactive to May 1, 1996. It provided that Legion would “pay on behalf of an Insured all sums which the Insured shall become legally obligated to pay as Damages arising out of a Medical Incident, to which this policy applies.” It further ¹⁴² provided that Legion had a “duty to defend any Claim or Suit against an Insured for Damages which are payable under the terms of this policy, even if any of the allegations of such actions or proceedings are groundless, false, or fraudulent.” In the Legion policy, a “Claim” meant “a written demand received by an Insured for money including the service of Suit, demand for arbitration or the institution of any other similar legal proceeding to which this policy applies”; “Damages” included “any compensatory amount which an Insured is legally obligated to pay for any Claim to which this insurance applies”; and a “Medical Incident” encompassed “any negligent act or omission in the furnishing of Psychiatric Services by a Named Insured or any person for whose acts or omissions the Named Insured is legally responsible.” The Legion policy contained several exclusions, but only one is at issue here. That exclusion provided: “This policy does not apply to: ... ‘[a]ny Claim arising out of or in connection with any dishonest, fraudulent, criminal, maliciously or deliberately wrongful acts or omissions, or violations of law committed by an Insured.’ ” The Mercer Litigation On February 24, 1999, Mercer and Marsh & McLennan, Mercer’s parent company, filed suit in federal district court against appellant and his patient, Evelyn Toni Mulder, alleging fraud and conspiracy to defraud in connection with Mulder’s application for and receipt of disability benefits.

The complaint stated that Mercer hired Mulder as an actuary in 1992. On February 27, 1997, the head of Mulder’s practice group, Henry Essert, met with Mulder to advise her that, as part of Mercer’s restructuring plan, her office was to be closed. Two months later, he sent Mulder a letter offering her a severance package and notifying her that her employment would end on May 31,1997. Two weeks after that letter was sent, on May 22, 1997, Mulder sought treatment from appellant, a psychiatrist.

She continued to see appellant during the spring and summer of ¹⁴³ that year. During that time, appellant prescribed Prozac and other antidepressants for her. By June, appellant had concluded that Mulder was suffering from major depression. That diagnosis enabled Mulder to apply for and receive disability benefits under the Marsh & McLennan benefit plain.

According to the Mercer complaint, three weeks later, on June 23, 1997, Mulder told appellant about the employment dispute she was having with Mercer. At that time, appellant and Mulder “completed” Mulder’s application for short-term disability benefits. The application stated that Mulder had major depression and had been unable to work since May 14, 1997. In July and August of 1997, appellant purportedly told a disability coordinator and a health care consultant for Marsh & McLennan that Mulder had not yet recovered from that depression.

The Mercer complaint further alleged that on October 23, 1997, a senior Mercer human resources representative told Mulder that, consistent with Mercer’s original decision, there was no longer any position for her at Mercer; her disability benefits were terminated effective November 1, 1997. On October 31st, the day before her benefits were to end, Mulder sent a letter to Mercer appealing the termination of her benefits. In reply, Mercer suggested that Mulder submit to an independent medical examination. That suggestion, according to the complaint, prompted appellant to write a note to Mercer’s medical consultant stating that Mulder would be able to return to work on December 1,1997. 3 When the Mercer litigation commenced, appellant invoked Legion’s duty to defend him under the terms of his insurance policy.

That request was denied. On April 26,1999, appellant filed an answer, and discovery commenced. Nine months later, on January 29, 2001, Mercer and Marsh & McLennan filed a stipulation under seal stating that, “fol ¹⁴⁴ lowing extensive discovery and intense discussions between counsel ... plaintiffs’ counsel has advised his clients of his opinion that the allegations that Dr. Moscarillo himself engaged in fraud or conspiracy to defraud with respect to his diagnosis and treatment of defendant Mulder or with respect to Mulder’s application for disability benefits would likely be rejected by a finder of fact.” On January 30, 2001, Mercer and Marsh & McLennan agreed to dismiss with prejudice their claims against appellant. Thereafter, appellant demanded payment from appellees of the costs he had incurred during the Mercer litigation.

On June 29, 2000, and October 15, 2001, PRMS, PCIGC, and Legion denied coverage of appellant’s claim. Two years later, on July 28, 2003, Legion was declared insolvent by the Commonwealth Court of Pennsylvania. The Instant Case On January 28, 2004, appellant filed suit against appellees PRMS, PCIGC, and Legion, seeking a declaratory judgment and damages for breach of contract arising out of Legion’s refusal to reimburse him for the costs of the Mercer litigation. Eight months later, appellant filed a motion for partial summary judgment seeking a judicial declaration that appellees had a duty to defend him and that Legion, by failing to pay or reimburse appellant for his defense costs, had an unpaid obligation to him at the time it was declared insolvent.

In response, appellees moved for summary judgment on the grounds that they had no duty to defend appellant in the Mercer litigation. Following a hearing on the cross-motions, the circuit court granted appellees’ motion for summary judgment, prompting this appeal. Standard of Review Summary judgment is appropriate only when, after viewing the motion and response in favor of the non-moving party, there is no genuine issue of material fact, and the party in whose favor judgment is entered is entitled to judgment as a matter of law. Pittman v. Atl.

Realty Co., 127 Md.App. 255 , ¹⁴⁵ 269, 732 A.2d 912 , rev’d on other grounds, 359 Md. 513 , 754 A.2d 1030 (2000); Md. Rule 2-501(e). In short, when there is no genuine issue of material fact, our standard of review “is whether the trial court was legally correct.” Heat & Power Corp. v. Air Prods. & Chems., Inc., 320 Md. 584, 591 , 578 A.2d 1202 (1990). In making that determination, “we do not accord deference to the trial court’s legal conclusions.” Lopata v. Miller, 122 Md.App. 76, 83 , 712 A.2d 24 (1998). In fact, we review the trial court’s legal conclusions de novo.

See Matthews v. Howell, 359 Md. 152, 162 , 753 A.2d 69 (2000). Applying that standard to the instant case, we conclude, for the reasons set forth below, that the circuit court was legally correct in granting appellees’ motion for summary judgment. Coverage To determine whether an insurer has a duty to defend its insured in a tort suit, a court conducts a two-part inquiry: “(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?” St. Paul Fire & Marine Ins.

Co. v. Pryseski, 292 Md. 187, 193 , 438 A.2d 282 (1981). As the Pryseski Court noted, “The first question focuses upon the language and requirements of the policy, and the second question focuses upon the allegations of the tort suit.” Id. To answer the first question, we look to the terms of the insurance policy to determine the scope of its coverage. Aetna Cas. & Sur.

Co. v. Cochran, 337 Md. 98, 104 , 651 A.2d 859 (1995). Because an insurance policy is essentially a contract, we construe it according to contract principles. See Walk v. Hartford Cas. Ins.

Co., 382 Md. 1, 14 , 852 A.2d 98 (2004); Litz v. State Farm Fire & Cas. Co., 346 Md. 217, 224 , 695 A.2d 566 (1997). Thus, like other contracts, an insurance policy must be construed as a whole to determine the parties’ intentions. Sullins v. Allstate Ins.

Co., 340 Md. 503, 508 , 667 A.2d 617 (1995); Cheney v. Bell Nat’l Life Ins. Co., 315 Md. 761, 766 , 556 A.2d 1135 (1989). In doing so, words must be given their “customary, ordinary, and accepted meaning,” ¹⁴⁶ unless there is some indication that the parties intended to use the words in a special sense. Sullins, 340 Md. at 508 , 667 A.2d 617 (citations and internal quotation marks omitted).

The policy at issue provided that Legion had a “duty to defend any Claim or Suit against an Insured for Damages ... payable under the terms of this policy.” “Payable damages” were those resulting from a “Medical Incident,” which was defined by the policy as “any negligent act or omission in the furnishing of Psychiatric Services.” Giving the words of the policy their “customary, ordinary, and accepted meaning” it is clear that the policy covered negligent acts or omissions and not intentional torts, such as fraud and conspiracy to defraud, the gravamen of the Mercer complaint. The second part of the Pryseski inquiry requires us to determine whether any of the claims in the Mercer litigation could potentially fall within the scope of the policy’s coverage. See Cochran, 337 Md. at 105 , 651 A.2d 859 . If the plaintiff in the underlying action alleges a claim