Nationwide Insurance Companies v. Rhodes

KENNEY, Judge. Appellant, Nationwide Insurance Companies, appeals from the decision and Order of the Circuit Court for Baltimore City granting summary judgment in favor of Connie Rhodes, appellee, in appellee’s action to recoup attorneys’ fees incurred in defending the estates of John Gray Watson and Ethel Watson, decedents, against a worker’s compensation claim. Facts and Procedural History Connie Rhodes, appellee, is the personal representative of the estates of John and Ethel Watson. Ethel Watson died on March 7, 1995, and John Watson died on December 10, 1995.

On December 28, 1992, the Watsons’ home health aide, Barbara Dower, was injured when she slipped on ice on the exterior steps of the Watsons’ home while getting medicine for Mrs. Watson. Ms. Dower filed a claim with the Workers’ Compensation Commission (“WCC”) against the Watsons and the Uninsured Employers Fund, alleging that she was the Watsons’ employee and entitled to recover for any injury suffered in the course of the employer-employee relationship. Notified of Ms. Dower’s claim, appellant denied coverage, informing the Watsons by letter that “You have Medical Payment coverage under your Homeowner’s policy that applies to bodily injury to others but it excludes a person eligible ²³⁴ to receive benefits required to be provided under the Workmen’s Compensation. Since Ms. Dower was employed by you, this coverage would not be available to her.” The Watsons informed appellant that, in their view, (1) Ms. Dower was an independent contractor, and therefore not subject to the workers’ compensation exclusion, and (2) Ms. Dower was also covered under the policy as a “residence employee.” The WCC conducted a hearing on April 26, 1994, at which the Watsons were represented by an attorney at their own expense.

On May 27, 1994, the WCC released its finding that Ms. Dower was an independent contractor and not entitled to workers’ compensation benefits under Maryland law. Ms. Dower appealed the WCC’s decision to the Circuit Court for Baltimore City on June 3, 1994. On December 2, 1994, Ms. Dower also filed a separate negligence suit in the Circuit Court for Baltimore City against the Watsons. Ethel Watson died on March 7, 1995.

Appellant notified John Watson that, pursuant to the personal liability section of the Watsons’ homeowner’s policy, it would appoint an attorney to represent Mr. Watson in the negligence suit, but it would not represent Mr. Watson’s interests in Ms. Dower’s appeal of the WCC’s decision because the homeowner’s policy did not cover that issue. John Watson died on December 10, 1995. In January 1996, the circuit court ruled in Ms. Dower’s favor in her appeal of the WCC’s decision, finding that she was entitled to workers’ compensation benefits. 1 Because the Watsons did not have workers’ compensation insurance, Ms. Dower collected her benefits from the Maryland Uninsured Workers’ Compensation Fund and dismissed her negligence suit against the Watsons. Appellee, on behalf of the Watsons’ estates, filed a complaint against appellant to recoup the attorneys’ fees incurred in opposing Ms. Dower’s workers’ compensation action and included a motion for summary judgment.

Appellee claimed that appellant’s duty to defend was triggered by the existence ²³⁵ of a “potentiality for coverage.” Appellant filed an answer and a motion for summary judgment, arguing that it had no obligation to defend the Watsons in the workers’ compensation proceedings because the homeowner’s policy excluded any potentiality of coverage for workers’ compensation liability. After a hearing on February 25, 1998, the circuit court granted appellee’s motion for summary judgment and awarded appellee $3,475.50 in attorneys’ fees related to the workers’ compensation proceedings and $2,500 in attorneys’ fees for the present case. Question Presented Appellant presents one question for our review, which we have condensed: 1. Did the circuit court err by granting appellee’s Motion for Summary Judgment?

Because we answer in the affirmative, we shall reverse. Discussion Standard of Review When granting a motion for summary judgment, a trial court makes rulings as a matter of law, resolving no disputed issues of fact. Heat & Power Corp., et al. v. Air Prods. & Chems., Inc., 320 Md. 584, 591 , 578 A.2d 1202 (1990) (citations omitted); Maryland Rule 2-501. The standard for appellate review of a trial court’s grant or denial of a motion for summary judgment is whether the trial court was legally correct.

Heat & Power, 320 Md. at 592 , 578 A.2d 1202 . When reviewing a trial court’s construction or interpretation of a written contract, we do so as a matter of law. Metropolitan Life Ins. Co. v. Promenade Towers Mut.

Housing Corp., 84 Md.App. 702, 716-717 , 581 A.2d 846 (1990), aff'd, 324 Md. 588 , 597 A.2d 1377 (1991). The “clearly erroneous” standard of review does not apply to a trial court’s determinations of legal questions or conclusions of law based on findings of fact. Heat & Power, 320 Md. at 591-92 , 578 A.2d 1202 (citations omitted). ²³⁶ An insurance policy is interpreted in the same manner as any other contract. Baltimore Gas and Elect.

Co. v. Commercial Union Ins. Co., et al., 113 Md.App. 540, 553 , 688 A.2d 496 (1997). “Maryland courts do not follow the rule that an insurance policy must be strictly construed against the insurer.” Id., at 554 , 688 A.2d 496 (citing Bausch & Lomb, Inc. v. Utica Mut. Ins. Co., 330 Md. 758, 779 , 625 A.2d 1021 (1993)).

The principal rule in the interpretation of contracts is to effect the intentions of the parties. Kasten Constr. Co., Inc. v. Rod Enterprises, Inc., 268 Md. 318, 328 , 301 A.2d 12 (1973); McIntyre v. Guild, Inc., 105 Md.App. 332, 355 , 659 A.2d 398 (1995). When a contract’s wording is clear, the court will presume that the parties intended what they expressed, even if the expression differs from the parties’ intentions at the time they created the contract.

Roged, Inc. v. Paglee, 280 Md. 248 , 254 372 A.2d 1059 (1977). If reasonably possible, effect must be given to every clause and phrase of a contract, so as not to omit an important part of the agreement. Bausch & Lomb, 330 Md. at 782 , 625 A.2d 1021 . The Homeowner’s Policy and Statutory Requirements The “Liability Coverages” section of the Watsons’ homeowner’s policy (“the policy”) states in “Coverage E — Personal Liability” that [w]e [appellant] will pay damages the insured [the Watsons] is legally obligated to pay due to an occurrence. [2] We will provide a defense at our expense by counsel of our choice.

We may investigate and settle any claim or suit. Our duty to defend a claim or suit ends when the amount we pay for damages equals our limit of liability. In the “Exclusions” section, the pertinent provisions state: 2. Coverage E — Personal Liability does not apply to: ²³⁷ d. bodily injury to a person eligible to receive benefits required to be provided or voluntarily provided by the insured under the following: a workers’ or workmen’s compensation, non-occupational disability, or occupational disease law.

The policy also provides, in “Coverage F — Medical Payments to Others,” that [w]e will pay the necessary medical and funeral expenses incurred within three years after an accident causing bodily injury. This coverage does not apply to you [the insured]. It does not apply to regular residents of your household. It does apply to residence employees.[ 3 ] This coverage applies to others as follows: a. to a person on the insured location with the consent of an insured. b. to a person off the insured location, if the bodily injury: (1) arises out of a condition in the insured location.

The applicable exclusion provides: 3. Coverage F — Medical Payments to Others does not apply to bodily injury: b. to a person eligible to receive benefits required to be provided or otherwise provided under the following: workers’ or workmen’s compensation, non-occupational disability, or occupational disease law. The Circuit Court’s Decision At the summary judgment hearing, the circuit court, after reviewing other provisions of the policy, appeared to focus its analysis on exclusion 2.d., and ultimately found that that ²³⁸ provision did not exclude Ms. Dower’s claim from the policy’s coverage. The court found that the Watsons had not provided the benefits voluntarily, and “[t]hat narrows it right down to one verb in that sentence.

Required. Were they required to be provided----” Shortly thereafter, the trial' court announced its decision: [T]he fundamental issue here ... which is ... when you have this sense of uncertainty, the burden is shifted to the carrier to move in and provide the benefit. Now I am saying to you, as an insured of Nationwide ... [the trial court analogized to a hypothetical situation in which he, as an insured, was sued by a gardener for worker’s compensation for a job-related injury]. I don’t know what’s going on here.

I’m talking to my agent or my broker. All I’ve got is this homeowner’s policy. And he’s — I have to answer this— I got this thing called a claim and it says I have to appear at the Worker’s Compensation Commission next month. What do I do?

The court stated further: We all understand that in the public policy sense, a person who buys homeowner’s coverage is entitled to protection for any reasonable expectation of expense to them arising out of — This is, I grant you, a very broadly stated insurance policy that I’m writing as we speak here, for any untoward, unexpected occurrence, arising out of the ownership of that home. That’s basically what you’re buying. Now you have lots of exclusions and you have limits, but essentially that’s what the purpose of homeowner’s is. In fact, I have always been somewhat amazed at the extent to which homeowner’s goes to cover things that go outside the house, but are related back to ownership of that property.

So in a sense you have almost a presumption, when a person can make a reasonable case that by reason of the ownership of this property, I have sustained the following liability, to wit, attorney’s fees. You then have the duty to say, I’m sorry but it’s been excluded. You would have to come to a particularized exclusion and if you don’t, it’s covered. ²³⁹ I. Appellant presents two arguments on appeal. First, appellant argues that the Medical Payments section of the policy did not implicate appellant’s duty to defend the Watsons, because the Watsons had no direct liability under that section, as any claim is made directly against the insurer.

Appellant also argues that, even if there was potential coverage under the Medical Payments section, it had no duty to defend the Watsons, because that section did not specifically create a duty as is provided for in the personal liability provisions. Appellant’s second argument relates to the personal liability coverage. It contends that it had no duty to defend the Watsons because Workers’ Compensation benefits are not damages, and the policy’s coverage specifically excluded workers’ compensation benefits. In appellant’s opinion, once it had informed Ms. Dower that she was not covered by the Medical Payments section, to invoke liability coverage, she would have had to sue appellant directly, which she did and which appellant defended. 4 We begin our analysis fully recognizing that the duty to defend should be construed liberally in favor of the policyholder.

Litz v. State Farm Fire & Casualty Co., 346 Md. 217, 231 , 695 A.2d 566 (1997); Aetna Cas. & Sur. Co. v. Cochran, 337 Md. 98,