Mount Vernon Fire Insurance v. Scottsdale Insurance

MURPHY, Judge. On October 5, 1987, Valerie McCree, on behalf of her son Napoleon Epperson (“Napoleon”), and Lynell McCree, on behalf of her children Donald Wilson, Jr. (“Donald”) and Quanna Wilson (“Quanna”), filed a complaint against Chantel Associates (“Chantel”) in the Circuit Court for Baltimore City. We shall refer to that lawsuit as the “Epperson” case. The complaint alleged that the plaintiffs were tenant[s] of the defendant at 1224 West LaFayette Avenue ... and lived in the dwelling....

That ... the Defendant had either caused or allowed the continued existence on its interior walls, doors and woodwork of paint containing lead pigment and allowed said paint to chip and flake thereby rendering the building unsafe and dangerous and unfit for human habitation, especially for children of tender years.... During the time the infant plaintiffis] resided in the dwelling, the infant[s] ingested and consumed paint containing lead and lead pigment thereby causing the infant to suffer the injuries, illness and infirmities hereinafter alleged.... the Plaintiffis] on or about March, 1987 became seriously, painfully and permanently injured, ill and in- ⁵⁵⁰ firmed in head, body and limbs and suffered and will continue to suffer a severe and permanent shock to nerves and nervous system including great physical pain and mental anguish.... On February 2, 1989, the Epperson plaintiffs filed an “Amendment by Interlineation,” adding negligence counts against David Chananie and Teresa Levitin, the owners of Chantel. These new counts alleged: That the Plaintiff[s] on or about November 1986, became seriously, painfully and permanently injured, ill and in-firmed in head, body and limbs and suffered and will continue to suffer a severe and permanent shock to nerves and nervous system including great physical pain and mental anguish. .■..

On July 9, 1992, the Epperson plaintiffs filed a “Further Amendment by Interlineation,” amending the complaint to include the following preamble: Each of the Plaintiffs herein resided at various times at the 1224 W. Lafayette Avenue address owned and operated and managed by the Defendants. In September 1985 the Plaintiffs Napoleon Epperson and Donald Wilson, Jr. began to permanently reside there. The Plaintiff Quanna Wilson resided there from her birth in May 1986. From the beginning of the time that each child resided in the premises each was exposed to lead paint, lead chips and lead dust which were ingested in some manner by the children.

Each, from the beginning of their residence was injured by this exposure, as the ingestion of lead began a process of cellular damage. During the period of time that is relevant to this appeal, the following liability insurance policies provided coverage for 1224 West Lafayette Avenue: 1. Empire Indemnity Insurance Co. (“Empire”) issued' an “Owners’, Landlords’ and Tenants’ ” liability policy to Chantel that provided coverage from April 1, 1984 to April 1, 1985; ⁵⁵¹ 2. Mount Vernon Fire Insurance Co. (“Mount Vernon”) issued an “Owners’, Landlords’ and Tenants’ ” liability policy to Chantel that provided coverage beginning on April 1, 1985 and ending on March 12, 1986; 3.

Scottsdale Insurance Company (“Scottsdale”) issued two consecutive “Owners’, Landlords’ and Tenants’ ” liability policies, the first beginning coverage on March 12, 1986 and ending on March 12, 1987, the second beginning coverage on March 12, 1987 and ending on March 12, 1988. 4. Allstate Insurance Company (“Allstate”) issued a “Personal Umbrella” policy to Chananie and Levitin on February 10, 1983. That policy was renewed annually through February 10, 1993. It provided “excess” liability coverage for certain occurrences.

On April 22, 1991, Scottsdale filed a complaint in the Circuit Court for Baltimore City, seeking a declaration that Scottsdale’s policy excluded coverage for the lead paint claims alleged by the Epperson plaintiffs. On October 8, 1991, Scottsdale amended its complaint, joining Allstate, Mount Vernon, and Empire and requesting that the insurer(s) who did have a duty to defend be ordered to reimburse Scottsdale for all attorneys’ fees, costs, and expenses it had incurred to defend the Epperson case. On December 6, 1991, Chantel filed a counterclaim against Scottsdale and a crossclaim against Empire, Mount Vernon, and Allstate. According to Chantel, because the “occurrence of each child’s bodily injury could not be determined from the Epperson pleadings, each company had a potentiality of coverage, and must therefore defend Chantel.” Every party to the declaratory judgment action, except the Epperson plaintiffs, filed a motion for summary judgment.

Chantel, Chananie, and Levitin (hereinafter “Chantel”) sought summary judgment against Empire, Mount Vernon, and Allstate on the basis of an affidavit prepared by a psychologist named Stephen R. Schroeder, who stated: ⁵⁵² Lead is a poison that affects virtually every system in the body, it is especially harmful to the developing brain and nervous systems of fetuses and young children.... # # sj; ífc ij? .... There is general agreement that human infants and toddlers below the age of three years are at special risk because of in útero exposure, increased opportunity for exposure because of normal mouthing behavior of lead-containing objects, and increased rate of lead absorption due to various factors, e.g., iron and calcium deficiencies. Cumulative exposure has many central nervous system effects relatively immediately. These effects can accumulate and children show great variability in their response to different amounts of lead ingestion.

Thus they may be suffering from the effects of cumulative low level lead exposure years before they are clinically observable. Thus, it is my opinion within a reasonable degree of scientific probability that exposure to lead produces both direct and indirect damage to the cells, tissues and organs of the body that begin immediately or shortly after exposure, notwithstanding the fact that the symptoms, especially at low levels of exposure, may not be apparent until much later, sometimes years after exposure. On August 17,1992, after a hearing on all of the motions for summary judgment, the circuit court granted Scottsdale’s motion, stating: Now with regard ... to Scottsdale ... that policy clearly had an exclusion for both indemnification and the defense of any lead paint suit. And that was, I think, clearly the understanding between the parties.... [Chananie and Levitin] were told by their insurance agent that [lead paint coverage] couldn’t be obtained, so they were aware of the fact that they were getting a policy from Scottsdale that had a lead paint exclusion. ____ But I could go beyond that on the facts of this case and say that it is clear that the diagnoses, which would be the manifestation of the injuries, occurred during the period ⁵⁵³ of the first policy of, indeed, in the case of the minor Napoleon it occurred on March 3rd, 1986 which was some nine days before the first policy. .... [Ujnder the facts that are uncontradicted the manifestations of the injury occurred during the period or prior to the first policy.

So I will grant Scottsdale’s motion for summary judgment. The circuit court also granted Empire’s motion, stating: [Cjlearly, the policy expired on April 1,1985, Empire cannot possibly be responsible because nothing occurred, they weren’t even ... living in the premises in two cases and they weren’t born yet in the third case during the policy period. So I’m going to grant Empire’s motion for summary judgment. The circuit court concluded that Mount Vernon had a duty to defend and to indemnify because Mount Vernon had a policy from April 1 of 1985, ran to April 1, 1986 but was cancelled on March 12, 1986.

And here two of the children ... Napoleon and Donald, were residing in the premises during the period of time that that policy was in effect. And Quanna is born some two months afterwards. Napoleon, the manifestation of his illness which is borne out by the diagnosis was March 3, 1986 which is during the policy period.

For Donald it’s March 14, 1986 which is two days after the policy terminated. And for Quanna was January 29, 1987 some months later. But the exhibits that have been given to the Court by Chantel in it’s motion for summary judgment include the affidavit of Dr. Stephen R. Schroeder, and Dr. Schroeder’s affidavit which is not contradicted by any other affidavits is that, and I’m quoting: “Exposure to lead produces both direct and indirect damage to the cells tissues and organs of the body that begin immediately or shortly after exposure. Notwithstanding ⁵⁵⁴ the fact that the symptoms especially at low level of exposure may not be apparent until much later, sometimes years after the exposure.[”] There is also ... that the exposure to lead can affect even children in útero.... ____ [T]here is no affidavit in opposition to Dr. Schroeder’s affidavit and that is sufficient to bring the children within the period of time that Mt.

Vernon had the policy.... Mt. Vernon.... is responsible for the defense and indemnification. Finally, with regard to Allstate, the circuit court ruled: [T]here is ... an exclusion for Allstate that they do not have to defend when there is the underlying policy.

In this case I found that there is an underlying policy, Allstate does not have to defend. Allstate will be required to indemnify to the extent that there is any recovery above the basic underlying coverage. ... I’ll make it clear that the [Allstate] homeowner’s policy does not come into play in this situation, and I would grant the Allstate motion with regard to the homeowner’s policy; deny it as to the [personal umbrella policy]. And grant Chantel’s motion as to Allstate.

Subsequent to these rulings, Chantel filed a motion requesting that Mount Vernon and Allstate be ordered to pay Chan-tel’s attorney’s fees incurred both in the declaratory judgment action and in the Epperson case. Scottsdale then filed a motion requesting that Mount Vernon be ordered to pay Scottsdale’s attorneys’ fees and costs incurred in both the Epperson litigation and in the declaratory judgment action. Finally, Empire filed a motion requesting that Mount Vernon be ordered to pay Empire’s attorneys’ fees and costs incurred in the declaratory judgment action. At the conclusion of a hearing on all open motions, the circuit court (1) denied Mount Vernon’s motion for reconsideration of the August 17, 1992 rulings; (2) ordered Mount Vernon to pay all of the attorneys’ fees, costs, and expenses ⁵⁵⁵ incurred by Chantel in the defense of the “lead-related personal injury claims” and in the prosecution of the coverage dispute; (3) ordered Mount Vernon to pay attorneys’ fees, costs, and expenses incurred by Scottsdale in defending the “lead-related personal injury claims;” and, (4) denied the requests of Empire and Scottsdale for reimbursement of attorneys’ fees and costs they incurred while litigating the coverage issue.

All claims for reimbursement from Allstate were dismissed without prejudice. Mount Vernon presents the following issues for our review: I. Whether the Court below erroneously concluded that Mount Vernon had a duty to defend and indemnify Chantel for claims made in the underlying Epperson lawsuit.

II

Whether the Court erred in ruling as a matter of law that there was no dispute as to any material fact.

III

Whether the Court erred in considering a non-medical affidavit which offered conclusions as to medical findings and whether the Court further erred in finding that the affidavit created potential coverage when there was no factual evidence or claim.

IV

Whether the Court below erroneously awarded costs and attorneys fees for defense in the underlying action and for defense in the declaratory action. Scottsdale presents the following issue: V. Whether the court below erred in not ordering Mt. Vernon to reimburse Scottsdale for the attorneys’ fees and costs incurred by Scottsdale in bringing this declaratory judgment action. Empire presents the following issue: VI.

Should Mount Vernon be required to reimburse Empire’s costs and attorneys’ fees incurred in this declaratory proceeding? We shall address each of these issues as we explain why we have reached the following conclusions: ⁵⁵⁶ Mount Vernon has a duty to defend Chantel against the claims made on behalf of Donald and Napoleon, but not against the claim made on behalf of Quanna. That limited duty to defend did not arise, however, until July 9, 1992. The extent of Mount Vernon’s duty to indemnify cannot yet be resolved.

The circuit court should not have entered a judgment on that issue. Mount Vernon’s limited duty to defend makes it obligated to pay for some of the litigation expenses incurred by Chantel. A remand is necessary to determine the extent of that obligation. Mount Vernon does not have an obligation to reimburse either Scottsdale or Empire.

I

(a) The Exclusive Pleading Rule Establishes Mount Vernon’s Duty to Defend The issue of whether an insurance company owes a duty to defend its insured against a particular lawsuit is resolved by application of the exclusive pleading rule: “The exclusive pleading rule holds that an insurer’s defense obligation is determined solely by the allegations against the insured in the claimant’s pleadings.” Andrew Janquitto, Insurer’s Duty to Defend in Maryland, 18 U.Balt.L.Rev. 1, 7 (1988). See also Eastern Shore Financial v. Donegal Mutual Ins., 84 Md.App. 609, 624 , 581 A.2d 452 (1990), cert. den. sub nom. Insley v. Old Guard Mut. Ins.

Co., 322 Md. 131 , 586 A.2d 13 (1991); Cochran v. Aetna Casualty and Surety Company, 99 Md.App. 350, 512 , 637 A.2d 509 (1994). This rule has been called several different names, the most accurate of which may be the “eight corners rule” because resolution of the duty to defend issue actually requires an examination of what is contained within the four ⁵⁵⁷ corners of the insurance policy and what is contained within the four corners of the complaint. 1 In determining whether a liability insurer has a duty to provide its insured with a defense in a tort suit, 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? (2) do the allegations in the tort action potentially bring the tort claim within the policy’s coverage? The first question focuses upon the language and requirements of the policy, and the second question focuses upon the allegations of the tort suit.

St. Paul Fire & Marine Ins. Co. v. Pryseski, 292 Md. 187, 193 , 438 A.2d 282 (1981). Even if the complaint does not allege enough facts to establish whether the claim is or is not covered, the insurer has a duty to defend. It is the potential for coverage that creates the duty to defend.

U.S.F. & G. v. Nat. Pav. Co., 228 Md. 40, 54 , 178 A.2d 872 (1962). In Brohawn v. Transamerica Ins.

Co., 276 Md. 396 , 347 A.2d 842 (1975), proof that an insured had been charged with assault, and evidence that he had entered a guilty plea to that misdemeanor, did not establish as a matter of law that the insured had committed an intentional tort. The insurer’s obligations had to be “determined by the allegations in the tort actions.” Id. at 407 , 347 A.2d 842 . The exclusive pleading rule is easy to apply and serves an important public interest. A duty to defend issue should be resolved promptly and without litigation.

In most cases, those goals are achieved by applying the exclusive pleading rule. The case before us, however, is complicated by (1) various amendments to the Epperson complaint, each of which ⁵⁵⁸ has asserted different dates of injury; (2) a dispute over whether the plaintiffs were actually injured during the period of time in which Mount Vernon was providing coverage; and (3) a dispute over whether the