Nationwide Mutual Insurance v. Regency Furniture, Inc.

DEBORAH S. EYLER, Judge. Regency Furniture, Inc. (“Regency”), an appellee and cross-appellant, is a furniture store that leased premises from a landlord now known as DDRM Largo Town Center, LLC (“DDRM”), an appellee and cross-appellant. 1 During the relevant time, Nationwide Mutual Insurance Company (“Nationwide”), the appellant and a cross-appellee, issued Regency a Businessowners Policy No. 53 BO 211-358-3005 (“the Policy”), which was in force. In a single action in the Circuit Court for Prince George’s County, Regency sued DDRM for breach of lease, trespass, conversion, and accounting, and DDRM and Nationwide for a declaratory judgment of its (Regency’s) rights under the Policy. Regency’s claims arose out of three separate events.

In the first, on February 4, 2005, DDRM agents allegedly came onto Regency’s leased premises and destroyed certain items of its inventory. The second event, in June 2005, was an act of vandalism, by unknown culprits, in which seven HVAC units on the roof of the leased premises were damaged so badly they had to be replaced. The third event occurred over a period of time — from December 2004 to October 2007— during which DDRM insisted that Regency was delinquent in its rent payments. In the contract and tort claims against DDRM, Regency sought to recover damages for its destroyed inventory.

In the contract and declaratory judgment claims, Regency sought reimbursement, either from Nationwide under terms of the Policy, or from DDRM under the terms of the lease, for the expenses Regency incurred in replacing the vandalized HVAC ⁷¹⁸ units. In the accounting claim, Regency sought a reconciliation of its rent payments. The court bifurcated the trial between the counts against DDRM and the one count against Nationwide, but heard arguments of counsel for all the parties together. The case was tried to the court, which rendered a verdict in favor of Regency and against DDRM for conversion, and awarded $34,567.20 in damages.

It further rendered a verdict against Nationwide in the declaratory judgment claim, ruling that Regency’s expenses incurred in replacing the damaged HVAC units were covered under the Policy. The court did not decide whether DDRM had breached the lease by not paying for the cost of the HVAC unit replacements. The court otherwise ruled that DDRM had not breached the covenant of quiet enjoyment in the lease; that Regency and DDRM had settled the accounting claim; and that Regency had effectively withdrawn its trespass claim. 2 Nationwide noted an appeal, presenting one question for review, which we have rephrased: I. Did the trial court err in declaring that the Policy covered the replacement value of the HVAC units? Thereafter, Regency noted a cross-appeal, posing three questions for review, which we also have reworded slightly: I. Did the trial court err in ruling that DDRM did not breach the lease?

II

Did the trial court err in ruling that Regency and DDRM fully and finally settled the accounting claim?

III

Did the trial court err in not considering the issue of prevailing party attorneys’ fees under the lease? DDRM noted a cross-appeal, raising one issue, rephrased as follows: I. Did the trial court err by admitting into evidence certain testimony and documents relating to the value of the inventory items removed from the leased premises? ⁷¹⁹ Finally, in its brief, Regency moved to dismiss DDRM’s cross-appeal as untimely. For the reasons we shall explain, we shall grant Regency’s motion to dismiss DDRM’s cross-appeal. We answer “Yes” to Nationwide’s question and “No” to Regency’s questions.

Consequently, we shall affirm the judgment in favor of Regency against DDRM for conversion; vacate the judgment against Nationwide on the declaratory judgment claim; and remand the case to the circuit court for further proceedings not inconsistent with this opinion. FACTS AND PROCEEDINGS On July 15, 2002, Regency entered into a lease (“Lease”) with Largo-Springhill LP of a large retail store located in the Largo Town Center in Prince George’s County. The store, which used to be a Hechinger’s, consists of a 71,042 square foot building and an adjoining fenced-in outdoor storage area, referred to as the “Yard.” (Adopting the nomenclature in the Lease, we shall refer to both as the “Demised Premises.”) A year later, Regency received notice that the shopping center, including the Demised Premises, was being sold to DDRM. From that time on, DDRM was Regency’s landlord under the Lease.

By late 2004, a dispute had arisen between DDRM and Regency over an alleged arrearage in rent (which would constitute a default of the Lease). On February 18, 2005, DDRM sued Regency in the District Court of Maryland in Prince George’s County, alleging failure to pay rent due under the Lease. On March 4, 2005, the case was called, but by then the parties had agreed not to appear for trial. In the meantime, DDRM had acknowledged to Regency that there had been errors in its previous invoices, and the parties had agreed to dismiss the rent action and engage in settlement discussions.

Sometime prior to February 2005, Prince George’s County (“the County”) issued DDRM at least two citations for County ⁷²⁰ Code violations for failure to properly maintain the Yard. 3 On February 4, 2005, agents of DDRM arrived at the Demised Premises before opening time and began removing items from the Yard. At around 11:30 a.m., Nicholas Fiandaca, a Regency employee, arrived at the Demised Premises and found the sliding gate in the fence to the Yard toppled over, the locks and chains on the gate broken, damage to the concrete slab supporting the fence, and DDRM’s agents inside the Yard, with their truck. Fiandaca saw DDRM’s agents remove items from the Yard and put them in their truck and into a nearby dumpster. He directed them to stop, and they did.

A few months later, but before June 9, 2005, someone illegally accessed the store roof and vandalized a number of roof-mounted HVAC units. The damage was discovered June 9, 2005, by a maintenance worker with HVAC Mechanical Service, LLC (“HVAC Mechanical”), who was performing a regular service visit. He found that seven of the nine HVAC units had been damaged or had parts stolen. Regency called the police.

The next day, June 10, 2005, Corporal Leonard Hilton, of the Prince George’s County Police Department, responded to the call to make a report. He wrote down the information supplied by Regency, including a description of the damage and an estimate of the damaged HVAC units’ value. That same day, Regency, through its manager Kenneth Whang, submitted a claim to Nationwide, seeking to recover under the Policy for the damage to the HVAC units. By letter of June 14,2005, Nationwide denied the claim, stating that the damage was not covered under the Policy because “the damaged property is property of the building owner and not your business personal property,” whereas the Policy “is for Business Personal Property that you own that is used in your business.” Nationwide suggested that Regency contact DDRM, which it did.

DDRM responded, stating that, under ⁷²¹ the terms of the Lease, Regency (not it) was responsible for repairing or replacing the damaged HVAC units. Regency hired HVAC Mechanical to prepare an estimate of the cost to repair or replace the seven damaged HVAC units. HVAC Mechanical determined that the seven units were damaged beyond repair, and that their replacement cost was $135,000. Meanwhile, Regency informed Nationwide of DDRM’s response, provided Nationwide with a copy of the Lease, and asked it to reconsider its claim denial.

On January 27, 2006, Nationwide confirmed that the losses were not covered under the Policy and further opined that repair or replacement of the HVAC units was the responsibility of DDRM, as owner and lessor. Regency contracted with HVAC Mechanical to replace the seven units in accordance with its estimate. The work was completed April 19, 2006. Regency paid HVAC Mechanical two installments of $67,500 each.

On July 11, 2006, in the Circuit Court for Prince George’s County, Regency filed suit against DDRM and Nationwide, as noted previously. The case was tried to the court on October 16, 2007. On November 26, 2007, the court issued a written memorandum and order, which was docketed on December 3, 2007. The court found in favor of Regency against DDRM for conversion and awarded $34,567.20 in damages for the cost of inventory taken from the yard.

It found in DDRM’s favor on the breach of Lease count and determined that Regency was not entitled to prejudgment interest, that the accounting claim had been settled, and that the trespass claim failed for lack of evidence of damages. It also ruled that neither Regency nor DDRM was a “prevailing party” under a fee-shifting provision in the Lease. Finally, it declared that the replacement cost of the damaged HVAC units was covered by the Policy and ordered Nationwide to reimburse Regency for that cost. ⁷²² We shall include additional facts in our discussion of the issues. DISCUSSION I. Because the case below was a bench trial, the standard of review is governed by Rule 8-131(c).

We shall review the trial court’s decision on both the law and the evidence, upholding factual findings unless clearly erroneous, but subjecting its legal conclusions to de novo review. Jackson v. 2109 Brandywine, LLC, 180 Md.App. 535, 567 , 952 A.2d 304 (2008). Insurance policies are contracts. Moscarillo v. Prof'l Risk Mgmt.

Servs., Inc., 398 Md. 529, 540 , 921 A.2d 245 (2007). The interpretation of a contract is a legal question subject to de novo review. Atl. Contracting & Material Co. v. Ulico Cas.

Co., 380 Md. 285, 300-01 , 844 A.2d 460 (2004); Wells v. Chevy Chase Bank, F.S.B., 363 Md. 232, 250 , 768 A.2d 620 (2001). Maryland follows the objective theory of contract interpretation. Atl. Contracting, supra, 380 Md. at 301 , 844 A.2d 460 ; Sy-Lene of Wash., Inc. v. Starwood Urban Retail II, LLC, 376 Md. 157, 166 , 829 A.2d 540 (2003).

That theory focuses on the written text: the construing court’s task is to “ ‘determine from the language of the agreement itself what a reasonable person in the position of the parties would have meant at the time it was effectuated.’ ” Taylor v. Nations-Bank, N.A., 365 Md. 166, 178-79 , 776 A.2d 645 (2001) (quoting GMAC v. Daniels, 303 Md. 254, 261 , 492 A.2d 1306 (1985)). We begin with the “customary, ordinary, and accepted” meaning of the contractual language, “[ujnless there is an indication that the parties intended to use words in the [contract] in a technical sense.” Lloyd B. Mitchell, Inc. v. Md. Cas. Co., 324 Md. 44, 56 , 595 A.2d 469 (1991). “The words employed in the contract are to be given their ordinary and usual meaning, in light of the context within which they are employed.” Wells, supra, 363 Md. at 251 , 768 A.2d 620 . “Where the contract comprises two or more documents, the ⁷²³ documents are to be construed together, harmoniously, so that, to the extent possible, all of the provisions can be given effect.” Rourke v. Amchem Prods., Inc., 384 Md. 329, 354 , 863 A.2d 926 (2004). If the contract language in question is clear and unambiguous, “there is no room for construction, and a court must presume that the parties meant what they expressed.” GMAC, supra, 303 Md. at 261 , 492 A.2d 1306 . “[T]he clear and unambiguous language of an agreement will not give way to what the parties thought the agreement meant or was intended to mean.” Atl.

Contracting, supra, 380 Md. at 301 , 844 A.2d 460 . Words in a contract are ambiguous if they reasonably can be understood to have more than one meaning. Diamond Point Plaza Ltd. P’ship v. Wells Fargo Bank, N.A., 400 Md. 718, 751 , 929 A.2d 932 (2007). Whether the words in a contract are ambiguous is a question of law, which we decide and review de novo.

Id. “In deciding whether the [language of a] contract is ambiguous, the court may not resort to extrinsic evidence if it will alter the plain meaning of the writing. Instead, the court is confined to a review of the contract language itself; it must consider what a reasonable person in the position of the parties would have thought it to mean.” Univ. of Balt. v. Iz, 123 Md.App. 135, 162 , 716 A.2d 1107 (1998) (citations omitted). If contract language is ambiguous, extrinsic evidence may be considered and “the meaning of the contract is a question to be determined by the trier of fact,” subject to review for clear error. Iz, supra, 123 Md. App. at 162 , 716 A.2d 1107 ; Md. Rule 8-131(c).

In the case at bar, the Policy was moved into evidence. In pertinent part, it consists of the Businessowners Policy Declarations (3 pages); the Businessowners Policy Supplemental Declarations (1 page); the Businessowners Special Property Coverage Form (24 pages); the Additional Coverage Endorsement (1 page); the Businessowners Liability Coverage Form ⁷²⁴ (13 pages); and the Businessowners Common Policy Conditions (3 pages). 4 The Policy Declarations identify Nationwide as the insurer, Regency as the named insured, establish the coverage period as May 3, 2005 to May 3, 2006, and describe the insured premises by number (002) and building number (01) and by address and type of business. The Declarations go on to state: IN RETURN FOR THE PAYMENT OF THE PREMIUM, AND SUBJECT TO ALL THE TERMS OF THIS POLICY, WE AGREE TO PROVIDE YOU WITH THE INSURANCE AS STATED IN THIS POLICY. PROPERTY COVERAGES ( ) Standard Form (x) Special Form LIMITS OF INSURANCE Premises No. Building No. 002 01 Limits of Insurance for Buildings Replacement Cost (RC)/Aetual Cash Value (ACV) ( ) RC ( ) ACV Automatic Increase ( ) % Business Personal Property $1,300,000 Deductible $ 250 This Policy includes Business Income and Extra Expense Coverage Optional Coverage/Exterior Building Glass Deductible $ SOO The Declarations then list Optional Property Coverages, some of which are checked and followed by Limits of Insurance amounts (but none of which are relevant here), Coverage Extensions (none selected), Additional Coverages (none selected), and Liability and Medical Expense Coverages, for which Limits of Insurance are stated.

The Businessowners Special Property Coverage Form provides, in relevant part: A. Coverage We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss. 1. Covered Property Covered Property, as used in this policy, means the type of property as described in this section, A.1, and limited ⁷²⁵ in A.2, Property Not Covered, if a Limit of Insurance is shown in the Declarations for that type of property. a. Buildings, meaning the buildings and structures at the premises described in the Declarations, including: (1) Completed additions; (2) Fixtures, including outdoor fixtures; (3) Permanently installed: (a) Machinery; and (b) Equipment; (4) Your personal property in apartments or rooms furnished by you as landlord; (5) Personal property owned by you that is used to maintain or service the buildings or structures or the premises, including: (a) Fire extinguishing equipment; (b) Outdoor furniture; (c) Floor coverings; and (d) Appliances used for refrigerating, ventilating, cooking, dishwashing or laundering; (6) If not covered by other insurance: (a) Additions under construction, alterations and repairs to the buildings or structures; (b) Materials, equipment, supplies and temporary structures, on or within 100 feet of the described premises, used for making additions, alterations or repairs to the buildings or structures. b. Business Personal Property located in or on the buildings at the described premises ... including: (1) Property you own that is used in your business; (2) Property of others that is in your care, custody or control, except as otherwise provided in Loss Payment Property Loss Condition E.6.d.(3)(b); (3) Tenant’s improvements and betterments.

Improvements and betterments are fixtures, alterations, installations or additions: ⁷²⁶ (a) Made a part of the building or structure you occupy but do not own; and (b) You acquired or made at your expense but cannot legally remove; and (4) Leased personal property for which you have a contractual responsibility to insure unless otherwise provided for under Paragraph A.1 b.(2). In its memorandum opinion, the circuit court described the declaratory judgment question before it as “the status of the [HVAC] units under the [L]ease and whether repair or replacement of the units is the responsibility of Nationwide as Regency’s insurer, or [DDRM] as landlord.” Focusing first on subsection A. l.b of the Policy, the court decided that the HVAC units were “fixtures,” because they were “immovable and permanent once affixed, and [did] not maintain ... portability,” and they satisfied the definition of a fixture in Black’s Law Dictionary. 5 The court reasoned that, as fixtures, the HVAC units were real property and thus could not fall under the definition of “Business Personal Property”; therefore, “Nationwide properly declined coverage under section A. l.b of the Policy.” The court then turned its attention to subsection A. l.a(2) of the Policy and ruled that, because the units were “fixtures,” they were “covered property under [A.l.a(2) ] and Nationwide improperly denied coverage. Accordingly, Nationwide is liable to Regency for the replacement value of the HVAC units.” Nationwide contends the trial court misread the Policy language to mean that Regency had purchased “Buildings” coverage, which would include the replacement cost of the damaged HVAC units, when, in fact, Regency only had purchased “Business Personal Property” coverage. Nationwide further argues that, on the facts adduced at trial, the court correctly found that the HVAC units were fixtures and there ⁷²⁷ fore were not “Business Personal Property” that would be covered under the Policy.

The operative language for our purposes is in Policy Section A.1 “Covered Property.” As quoted above, that subsection defines “Covered Property” as “the type of property as described in this section, A.1, and limited in A.2, Property Not Covered, if a Limit of Insurance is shown in the Declarations for that type of property.” (Emphasis added.) The Declarations pages of the Policy show “Limits of Insurance” only for “Business Personal Property” and not for “Buildings.” In short, Regency did not buy “Buildings” coverage. It is apparent from his Memorandum Opinion that, in deciding the coverage question, the trial judge looked to the definition of “Covered Property” in the Policy without reference to the Declarations. The trial judge wrote: However, the preceding section of the Policy, § A.l.a (1)-(3), specifically provides for the type of property covered under the Policy. Covered property in the policy means: A. Coverage We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss. 1.

Covered Property Covered Property, as used in this policy, means the type of property as described in this section, A.1, and limited in A.2, Property Not Covered, if a Limit of Insurance is shown in the Declarations for that type of property, a. Buildings, meaning the buildings and structures at the premises described in the Declarations, including: (1) Completed additions; (2) Fixtures, including outdoor fixtures; (3) Permanently installed: (a) Machinery; and (b) Equipment; ⁷²⁸ See Nationwide Insurance Policy A. l.a at p. 205 (emphasis added). As set forth above, HVAC units are fixtures. Therefore, the HVAC units are covered property under the enumerated terms in § A. l.a. and Nationwide improperly denied coverage.

Accordingly, Nationwide is liable to Regency for the replacement value of the HVAC units. By interpreting the term “Covered Property” without reference to the Limits of Insurance in the Declarations, the court erred. Because the Declarations do not contain Limits of Insurance for “Buildings” coverage, no such coverage was purchased by Regency, and therefore it has no such coverage. Recognizing the trial court’s error, Regency does not ask this Court to affirm the declaratory judgment finding of coverage on the ground relied upon by the trial court.

Instead, it argues that the HVAC units are “Business Personal Property,” under subsection A.l.b.(2), because they are the “[pjroperty of others [DDRM] that is in your [Regency’s] care, custody or control.” 6 It reasons as follows: The HVAC units were “property of others,” as they belonged to DDRM, not to Regency; and they were in Regency’s “care, custody or control,” because the Lease required Regency to maintain them. Therefore, even if the HVAC units were “fixtures,” as the court found, and “fixtures” ordinarily are real property, the units fall under subsection (b)(2) of the “Business Personal Property” coverage. Regency cites two Nebraska cases to support the “care, custody or control” part of its argument. It further argues that the HVAC units are not excluded from being Business Personal Property merely because they are real property.

Given that the “Buildings” coverage in subsection A. l.a lists some items that are personal property, and the “Business Personal Property” coverage in subsection A. l.b. lists some items that are “fixtures,” ⁷²⁹ and thus a species of real property, the two categories of coverage are not mutually exclusive. 7 Nationwide counters that the opening sentence of the “Building Personal Property” coverage section requires covered items of property to be “Business Personal Property located in or on the buildings at the described premises,” and that the sections that follow merely are examples that are included. Although some of the examples could be classified as species of real property, they are covered because they are listed specifically. Otherwise, for an item to be covered under section A. l.b., it must be personal property, and the HVAC units are not. Nationwide maintains that the trial court correctly found that the units were fixtures that are expressly covered under section A. l.a. of the Policy (the coverage Regency did not purchase); and viewing the language of the Policy as a whole, it would make no sense for the same item of property, here the HVAC units, to be covered under both the “Buildings” coverage and the “Business Personal Property” coverage.

The issue here is whether the Policy language affording coverage for “Business Personal Property located in or on the building[s]”... including “[pjroperty of others that is in [the insured’s] care, custody or control” is clear, ie., not ambiguous, and, if so, whether it covers the HVAC units. We conclude that the Policy language in question, as quoted above, is clear and does not cover the HVAC units. An item of “personal property” is a “thing,” whether movable or intangible, “that is subject to ownership and not classified as real property.” Black’s, 8th ed. Thus, the plain meaning of the introductory language of Section A. l.b., “Business Personal Property located in or on the buildings at the described ⁷³⁰ premises,” is any thing on or in the building.

The plain meaning of subsection (2) of the list of included items in that section — “Property of others that is in [the insured’s] care, custody, or control” — is a thing other than real property that belongs to someone other than the insured but is being kept in or on the building by the insured. The trial judge in the case at bar found, and we agree, that HVAC units are fixtures, which means that, although they may have started out as “things,” they have become attached to and part of real property, and therefore are real property. Because the HVAC units are not things, as opposed to real property, they cannot be covered items under subsection (2) of Section A. l.b., regardless of who owns them, who has care, custody or control over them, or what care, custody or control means. We see no merit in Regency’s argument that, because some items of real estate are included in the subsections that are examples of “Business Personal Property,” it is not a requirement, generally, that, for an item to be “Business Personal Property,” it must not be real property.

To be sure, some specifically identified items that might be categorized as real property are listed, expressly, as being included in the “Business Personal Property” section. Because they are specifically identified, however, their inclusion does not modify, generally, the meaning of “personal property” as used in the introductory sentence in section A. l.b. so as to qualify any item of real property as an item of personal property, for purposes of coverage. Indeed, if that were the case, there would be virtually no distinction between the “Buildings” and “Business Personal Property” coverages, which would be illogical, because the coverages are separately purchased and therefore are meant to be different. Regency advances an alternative argument that, even if the Policy language does not cover the replacement cost of the damaged HVAC units, Nationwide is estopped to deny coverage because of representations made in its letter of January 27, 2006.

In that letter, an agent from Nationwide’s Claims Department stated that “[i]tem A.l.b.(4) [of the Policy] ⁷³¹ would provide coverage if the lease agreement states the tenant has a duty to insure.” This argument also is without merit. As already noted, soon after the damage to the HVAC units was discovered, Regency notified Nationwide, which responded by letter of June 14, 2005, that the Policy did not cover the loss. The letter explained that, under the Policy language, the HVAC units were not “Business Personal Property”