Neuman v. Travelers Indemnity Co.

Smith, J., delivered the opinion of the Court. In this case we are obliged to determine whether damages, for which appellants, Jaye Neuman et al. (the Neumans), were held liable to their tenant, were covered by a policy issued by appellee, The Travelers Indemnity Company (Travelers). The Neumans owned a building on Asphalt Street in Baltimore described as “a one story masonry block warehouse.” National Glass & Distributing, Inc. (National Glass), was the tenant of the Neumans under a lease for a five-year term beginning on October 1, 1967. On November 27, 1969, Travelers issued a general liability policy of insurance covering various properties of the Neumans, including the subject property.

It provided protection to the Neumans for, among other things, their liability for “property damage . . . caused by an occurrence.” An occurrence was defined as “an accident . . . which results, during the policy period, in . . . property damage neither expected nor intended from the standpoint of the insured.” “Property damage” was defined as meaning “injury to or destruction of tangible property.” On June 21, 1970, during ⁶³⁸ the term of that policy, a wall of the leased warehouse collapsed, allegedly from a structural defect. A considerable amount of the inventory of National Glass was destroyed. National Glass sued the Neumans. Count 1 of the declaration alleged improper design and construction on the part of the Neumans and their agents insofar as the wall and the roof of the building were concerned.

It claimed damages in the amount of $29,740.50 for the increased rental it was obliged to pay for other quarters for the remainder of the original term of its lease. Each succeeding count in the declaration incorporated the allegations of prior counts. Count 2 claimed $296.25 for increased shipping costs by virtue of the fact that National Glass was obliged to ship its orders for a period of time from locations outside Maryland. Count 3 claimed $4,640.70 for loss of profits during the time National Glass was unable to fill orders from its regular customers.

Count 4 claimed $919.26 for “certain sums of money for travel expenses and other out-of-pocket expenses for consulting engineers and in-house engineers which it would not had to have paid had not the building collapsed due to the [Neumans’] breach.” Count 5 claimed gross negligence on the part of the Neumans and sought $200,000.00 damages. Count 6 claimed $200,000.00 in punitive damages. No claim was made for damage to the inventory. It is strongly implied by the Neumans that National Glass was protected against that damage by its own policy with Travelers and that it has been paid.

That has nothing to do with the determination of the questions here presented, however. Suit was filed by National Glass on April 28, 1971. Travelers initially assumed defense of the suit against the Neumans, pursuant to the policy terms. It notified the Neumans, however, on June 1 that they might wish to retain additional counsel at their own expense since the amount claimed was in excess of the policy limits.

On August 6, personal counsel for the Neumans were notified by Travelers that it was directing its attorney to strike his appearance in the case because the “action [arose] out of damage to property which [was] owned by the insured ⁶³⁹ [which was] specifically negated from any coverage in the policy.” 1 A copy of that notification was sent by Travelers to the Neumans. The claim of National Glass against the Neumans was settled for $9,500.00. Then the Neumans brought this action for a declaratory judgment and to recover the sums said to be due from Travelers to the Neumans under the policy as a result of this incident. The trial judge (Raine, J.) said: “Insurance policies must be strictly construed against the company that drafted the policy, this proposition cannot be denied.

However, where terms of a policy are unambiguous they are to be accorded their natural and ordinary meaning. Unfortunately for the plaintiffs there is no reasonable construction, however strict, that will avail the plaintiff. The suit by the tenant that led to the liability imposed by the settlement agreement was for the breach of the covenant in the lease to provide a tenantable building. When the tenant was forced to move after the wall collapsed it was required to pay a higher rental and sustained a loss of profits occasioned by the interruption of business.

It was for these elements of damage that the plaintiff settled. The obligation of the insurer was to pay all sums that the insured became liable for because of ‘property damage.’ Property owned by the insured was excepted and the term ‘property damage’ was defined as injury to tangible property. There are cases from other states, mostly involving tax statutes, that expand the definition of tangible property but the natural and ordinary definition is that tangible property is corporeal, i.e., such property as may be seen, weighed, measured and estimated by the physical senses. 73 C.J.S. Property Section 5. Tangible property is contrasted with choses in action and other incorporeal property ⁶⁴⁰ rights.

The loss of profits and the loss of the right to occupy a building do not fall within the definition of tangible property. There are cases holding that when an insurer undertakes to defend a suit against the insured an estoppel or waiver may arise. There was no prejudice to the plaintiff resulting from the withdrawal of insurance counsel and the mere filing of a plea followed by a withdrawal from the case is not the same as conducting a full defense. The facts of this case do not justify a holding of waiver or estoppel.

In any event, there is no need to decide whether a waiver or estoppel was present for it is well settled that these principles will not lead to an extension of coverage. A policy condition or some irregularity on the part of the insured may be the subject of a waiver or an estoppel but they will not extend the insurance contract beyond its defined limits. A/C Electric Company vs. Aetna Insurance Company, 251 Md. 410 , 419 and cases there cited, particularly American Auto Insurance Company vs. Master Building Supply Company, 179 F. Supp. 699 . “The plaintiffs are entitled to no relief against the defendant and this Court will so decree.” This was an action at law. The last docket entry prior to the order of appeal was that on August 31, 1973, reflecting filing of the memorandum opinion of the court.

A judgment for costs in favor of the defendant against the plaintiff should have been entered. We shall treat the memorandum opinion of the trial judge as the declaratory judgment and as including a direction for entry of a judgment for costs. Two questions are presented by the Neumans. They first contend that the trial judge erred in his finding that the loss was not covered by the policy.

They then argue that, by having assumed the defense of the action by National Glass againsjt the Neumans, Travelers is estopped from raising the defense of non-coverage. ⁶⁴¹ I The principles for interpreting insurance policies in Maryland are well known and have been stated many times. See, e.g., C & H Plumbing v. Employers Mut., 264 Md. 510 , 287 A. 2d 238 (1972), and Gov’t Employees Insur. v. DeJames, 256 Md. 717 , 261 A. 2d 747 (1970). In the latter case, Judge Singley said for the Court: “It is well settled that in interpreting insurance contracts, words are to be given their customary and normal meaning. . . . Absent ambiguity the construction of the contract remains within the province of the court and Maryland has not adopted the rule, followed in many jurisdictions, that an insurance policy is to be most strongly construed against the insurer ....

If the language of an insurance contract is ambiguous, however, construction is for the jury . . . and the ambiguity is to be resolved against the company which prepared the policy and in favor of the insured . . . .’’Id. at 720. (Citations omitted.) The Neumans here contend that the leasehold interest of National Glass was tangible property. From this they reason that Travelers is liable under the terms of its policy for the damages sustained by National Glass for which it sued the Neumans since those losses all stem from injury to the building leased by National Glass and thus from damage to its leasehold interest. The lease of National Glass was for a term of years.

Accordingly, it was a chattel real. A chattel real is personal property and subject to all the rules of law governing personal property except as modified by express legislation. This is true even with respect to a lease for 99 years, notwithstanding the fact that such lease is renewable forever. Holzman v. Wager, 114 Md. 322, 333 , 79 A. 205 , 1912A Ann. Cas. 619 (1911); Culbreth v. Smith, 69 Md. 450, 458 , 16 A. 112 , 1 L.R.A. 538 (1888); and Devecmon v. Devecmon, 43 Md. 335, 347 (1875).

To like effect see 1 H. Tiffany, The Law of Real Property § 19, at 39, and § 38, at 98 ⁶⁴² (enlarged ed. 1920); and 51C C.J.S. Landlord & Tenant § 202(9) (1968). The precise question here before us does not appear to have been considered by this Court before. As a matter of fact, if it has been before any other appellate court that fact eluded counsel and this Court. The term “tangible property” is succinctly defined in Black’s Law Dictionary (4th ed. 1951): “That which may be felt or touched, and is necessarily corporeal, although it may be either real or personal. . . . “The phrase is used in opposition to such species of property as patents, franchises, copyrights, rents, ways, and incorporeal property generally.

In 73 C.J.S. Property § 5 (1951) the statement is made: “Tangible property is that which may be felt or touched; property capable of being possessed or realized; readily apprehensible by the mind; real; substantial; evident; such property as may be seen, weighed, measured, and estimated by the physical senses; that which is visible and corporeal; having substance and body as contrasted with incorporeal property rights such as franchises, choses in action, copyrights, the circulation of a newspaper, annuities, and the like. It is visible, accessible, and easy to identify. Tangible property must necessarily be corporeál, but it may be either real or personal. ‘Tangible property’ is synonymous with ‘goods, wares, and merchandise.’ “Intangible property is property which has no intrinsic and marketable value, but is merely the representative or evidence of value, such as certificates of stock, bonds, promissory notes, and franchises. Intangible property is quite different in nature from corporeal property, and there is an obvious distinction between tangible and intangible ⁶⁴³ property.

Intangible property is held secretly; that is, it cannot be readily located, and there is no method by which its existence or ownership can be ascertained in the state of its situs except, perhaps, in the case of mortgages or shares of stock. The value of intangible property is not easily ascertained.” Id. at 156. In Restatement, Conflict of Laws § 46, comment c at 77 (1934), it is said: “Things are either tangible or intangible. A tangible thing is one which has physical substance.

All other things are intangible.” Further insight into the meaning of the term “tangible property” is provided by Blodgett v. Silberman, 277 U.S. 1 , 48 S. Ct. 410 , 72 L. Ed. 749 (1928); Curry v. McCanless, 307 U. S. 357 , 59 S. Ct. 900 , 83 L. Ed. 1339 , 123 A.L.R. 162 (1939); and Pagliarulo v. National Shawmut Bank, 353 Mass. 449 , 233 N.E.2d 213 (1968). In Blodgett an individual died domiciled in Connecticut. He held an interest in a New York partnership which owned real estate. He also owned certain U.S. bonds which were in a safe-deposit box in New York.

It was necessary to determine whether the partnership interest and the bonds were tangible or intangible property for purposes of computing Connecticut transfer taxes. Mr. Chief Justice Taft said for the Court, relative to the partnership property: “It is very plain, therefore, that the interest of the decedent in the partnership . . . was simply a right to share in what would remain of the partnership assets after its liabilities were satisfied. It was merely an interest in the surplus, a chose in action. It is an intangible and carries with it a right to an accounting.” Id. at 11 .

The government securities were held to be intangibles with no situs different from the domicile of the owner. The Court differentiated between these securities and tangible personal property. ⁶⁴⁴ In Curry an individual died domiciled in Tennessee. By trust indenture he had transferred certain stocks and bonds upon specified trusts to an Alabama corporation doing business in Alabama. The question presented to the Court was whether the States of Alabama and Tennessee might each constitutionally impose death taxes upon the transfer of an interest in intangibles held in trust by the Alabama trustee, but passing under the will of a beneficiary domiciled in Tennessee.

Mr. Justice Stone there said for the Court: “Very different considerations, both theoretical and practical, apply to the taxation of intangibles, that is, rights which are not related to physical things. Such rights are but relationships between persons, natural or corporate, which the law recognizes by attaching to them certain sanctions enforceable in courts. The power of government over them and the protection which it gives them cannot be exerted through control of a physical thing. They can be made effective only through control over and protection afforded to those persons whose relationships are the origin of the rights.” Id. at 365-66 .

In Pagliarulo the Supreme Judicial Court of Massachusetts concluded that tangible personal property within the meaning of a will included horses since they were “personal property, palpable, susceptible to the sense of touch, capable of ownership, and endowed with intrinsic value.” Two Maryland cases have been cited by the parties, Baltimore City v. Johnson, 96 Md. 737 , 54 A. 646 , 61 L.R.A. 568 (1903), and Levy v. American etc. Ins. Co., 195 Md. 537 , 73 A. 2d 892 (1950). Little assistance in deciding the issue at hand is provided by those cases. In Baltimore City v. Johnson our predecessors had before them the question of whether a seat on the Baltimore Stock Exchange was property within the meaning of that term as used in Art. 15 of the Declaration of Rights and the revenue statutes of this State.

Chief Judge Boyd said for the Court: ⁶⁴⁵ “The learned Judge below correctly determined that by the great weight of authority it cannot be said to be merely a personal privilege but must be regarded as property, although in a limited and qualified sense.” Id. at 738. In the process of his discussion for the Court he observed “that while a membership in the exchange is in a sense property, it is qualified and limited and lacks one of the most valuable and usual characteristics of property — the right of disposing of it as the owner deems proper, so long as he violates no law.” He pointed out that it was “not tangible personal property” and, therefore, could not “be said to be assessable as that is, ‘at its full cash value without looking to a forced sale.’ ” He further said: “Seeing what has been the uniform and unvarying construction placed on the statutes providing for taxation in this State, for over fifty years, by the tax officers of the State and the City of Baltimore, and apparently by the Legislature itself, and having before us such statutes as we have referred to, which provide different methods of taxation of property much nearer akin to that under consideration than tangible personal property is, we are forced to the conclusion that the Legislature did not, by the statute now in force, intend to tax seats in this exchange, and, if it did, it is utterly uncertain as to what rate it intended they should be taxed, although it has established rates for other incorporeal property.” Id. at 746. In Levy the Court had before it a claim under “what is known as a comprehensive crime policy, covering dishonesty of employees, burglary, theft, safe burglary, inside robbery, kidnapping, outside robbery, paymasters’ robbery, destruction of or damage to monies and securities, money orders and counterfeit paper currency, forgery of issued instruments and forgery of accepted instruments.” Suit was brought under a clause in the policy by which the company agreed to indemnify the insured “for all loss of property due ⁶⁴⁶ to the fraud or dishonesty of any of the insured’s employees, whether acting alone or in collusion with others.” Levy was in the business of selling shirts, uniforms, caps, etc. One of its full-time employees accepted an order for some uniform caps from a cab company, an established customer. The employee placed the order with Levy’s regular source of supply.

When the caps were ready, he had them billed to himself, took them to the cab company, received the money, paid the source of supply, and retained the balance for his own use. He later told the cab company that his employer could no longer supply this item, but that he could. He then placed orders which he had billed in his own name and