Pacific Indemnity Co. v. Interstate Fire & Casualty Co.

RODOWSKY, Judge. This case comes to us from the United States Court of Appeals for the Fourth Circuit pursuant to the Maryland Uniform Certification of Questions of Law Act, Md.Code (1974, 1984 RepLVol.), §§ 12-601 to -609 of the Courts and Judicial Proceedings Article. The dispute is between the ³⁸⁶ primary and excess medical malpractice insurers of an obstetrician. The question is whether the causes of action of a brain-damaged infant for personal injuries and of the infant’s father for consequential expenses are subject to but one, or to two separate, limit(s) of liability under the primary policy.

The primary carrier is the Pacific Indemnity Company (Pacific), which was a defendant in the United States District Court for the District of Maryland in the action giving rise to the proceeding before us. 1 The excess insurer is Interstate Fire & Casualty Company (Interstate), which was the plaintiff in the United States District Court. Their insured was Dr. Vibhakar J. Mody (Dr. Mody). On September 14, 1979, a statement of claim was filed in the Health Claims Arbitration Office of Maryland against certain health care providers, including Dr. Mody. The claimants were an infant, George M. Cross, Jr. (George Jr.), and his parents, George M. Cross, Sr. (George Sr.) and Barbara Ann Cross (Barbara Ann).

Each claimant alleged negligence by Dr. Mody in rendering obstetrical services. Money awards were claimed on behalf of George Jr. for brain damage, by George Sr. for the past and prospective expenses of George Jr. consequential to the brain damage, and by Barbara Ann for a tearing of the vaginal and perineal areas. The two insurers settled these claims by a total payment of $560,-500. As allocated between claimants the settlement is $350,000 on the infant’s claim, $200,000 on the father’s claim, and $10,500 on the mother’s claim.

We are concerned with the $200,000 allocated to George Sr. which Interstate supplied for the total settlement. Interstate now claims that $200,000 from Pacific in the federal litigation on the theory that it was the primary carrier’s obligation to pay it. ³⁸⁷ The “Limits of Liability” section of the declaration sheet of Pacific’s policy provides: “$200,000 each claim $600,000 aggregate.” Pacific’s position is that “each claim” for policy limit purposes is not synonymous with a cause of action in legal theory for presenting a claim in a common law action in a Maryland court. Pacific says that one $200,000 limit applies to Barbara Ann’s claim and another $200,000 limit applies to the infant’s claim which, for purposes of limits under the policy provisions, includes the derivative claim of George Sr. Interstate’s position is that three separate $200,000 limits are implicated with one limit applying to the claims of father, mother, and child respectively. The United States District Court for the District of Maryland concluded that Pacific’s policy was unambiguous and entered summary judgment in favor of Interstate for $200,000.

Interstate Fire & Cas. Co. v. Pacific Indent. Co., 568 F.Supp. 633 (D.Md.1983). Pacific’s appeal resulted in transmittal of the certified question to us.

Interstate Fire & Cas. Co. v. Pacific Indent. Co., 738 F.2d 638 (4th Cir.1984). That question is: Construing Pacific’s policy under Maryland law, is Pacific liable to pay a separate $200,000 policy limit to Interstate for the claim of George M. Cross, Sr. for the financial injury sustained by him as a result of the insured’s alleged malpractice?

In responding to this question we shall first state the principles applied under Maryland law to the construction of insurance contracts. They are by no means unique to this state. We shall then apply those principles to Pacific’s policy. As will be seen, that application does not produce a categorical answer to the certified question.

In order to comply with the spirit of the Maryland Uniform Certification of Questions of Law Act under these circumstances, we shall then explicate how this Court would decide an appeal from a Maryland circuit court which presented the certified question on the same record which was made in the federal district court. ³⁸⁸ (1) Construction of insurance contracts in Maryland is governed by a few well-established principles. An insurance contract, like any other contract, is measured by its terms unless a statute, a regulation, or public policy is violated thereby. Bond v. Pennsylvania Nat’l Mut. Cas.

Ins. Co., 289 Md. 379 , 424 A.2d 765 (1981); National Grange Mut. Ins. Co. v. Pinkney, 284 Md. 694 , 399 A.2d 877 (1979); Travelers Ins.

Co. v. Benton, 278 Md. 542 , 365 A.2d 1000 (1976). To determine the intention of the parties to the insurance contract, which is the point of the whole analysis, we construe the instrument as a whole. Aragona v. St. Paul Fire & Marine Ins. Co., 281 Md. 371 , 378 A.2d 1346 (1977); Federal Ins.

Co. v. Allstate Ins. Co., 275 Md. 460 , 341 A.2d 399 (1975); Pennsylvania Nat’l Mut. Cas. Ins.

Co. v. Bierman, 266 Md. 420 , 292 A.2d 674 (1972); Mills v. Judd, 256 Md. 144 , 259 A.2d 267 (1969); Simkins Industries, Inc. v. Lexington Ins. Co., 42 Md.App. 396 , 401 A.2d 181 , cert. denied, 285 Md. 730 (1979). Maryland courts should examine the character of the contract, its purpose, and the facts and circumstances of the parties at the time of execution. Allstate Ins.

Co. v. Humphrey, 246 Md. 492 , 229 A.2d 70 (1967); First Nat’l Bank v. Maryland Cas. Co., 142 Md. 454 , 121 A. 379 (1923); United States Fire Ins. Co. v. Maryland Cas. Co., 52 Md.App. 269 , 447 A.2d 896 (1982).

In so doing, we accord words their ordinary and accepted meanings. The test is what meaning a reasonably prudent layperson would attach to the term. This Court has consulted Webster’s Dictionary, Random House Dictionary, or, less often, Black’s Law Dictionary. See, e.g., DeJarnette v. Federal Kemper Ins.

Co., 299 Md. 708 , 475 A.2d 454 (1984) (“use of a motorcycle”); St. Paul Fire & Marine Ins. Co. v. Pryseski, 292 Md. 187 , 438 A.2d 282 (1981) (“occurrence”); Fisher v. Tyler, 284 Md. 100 , 394 A.2d 1199 (1978) (“loan” and “used under contract in behalf of”); Aragona, supra, (“any dishonest, fraudulent, criminal ³⁸⁹ ... act ... of ... partner”); C & H Plumbing & Heating, Inc. v. Employers Mut. Cas. Co., 264 Md. 510 , 287 A.2d 238 (1972) (“loss caused by infidelity of an ... employee”); Government Employees Ins.

Co. v. DeJames, 256 Md. 717 , 261 A.2d 747 (1970) (“collapse”) and cases cited therein; Hurt v. Pennsylvania Threshermen & Farmers’ Mut. Cas. Ins. Co., 175 Md. 403 , 2 A.2d 402 (1938) (“damages”).

In the first instance the inquiry is confined to analysis of the language used. Truck Ins. Exchange v. Marks Rentals, Inc., 288 Md. 428 , 418 A.2d 1187 (1980); Benton, supra; Levy v. American Mut. Liab.

Ins. Co., 195 Md. 537 , 73 A.2d 892 (1950). Courts may construe unambiguous contracts as a matter of law. Aragona; C & H Plumbing; DeJames, all supra.

The language used may be ambiguous if it is “general” and may suggest two meanings to a reasonably prudent layperson. Pryseski, supra; Truck Ins. Exchange, supra. If the language of the contract is ambiguous, extrinsic evidence may be consulted to determine the intention of the parties and whether the ambiguous language has a trade usage.

Pryseski, supra; Truck Ins. Exchange, supra; Planters Mut. Ins. Co. v. Deford, 38 Md. 382 (1873); Baltimore Fire Ins.

Co. v. Loney, 20 Md. 20 (1863). Construction of the contract by the parties to it before the controversy arises is an important aid to interpretation of uncertain terms. Hurt, supra. If the extrinsic evidence presents disputed factual issues, construction of the ambiguous contract is for the jury.

The court may construe an ambiguous contract if there is no factual dispute in the evidence. Truck Ins. Exchange, supra. A sampling of contract terms found ambiguous includes Pryseski, supra, 292 Md. at 196-98 , 438 A.2d at 287-88 (meaning of “occurrence”); Truck Ins.

Exchange, supra, 288 Md. at 433 , 418 A.2d at 1190 (meaning of “operate under his Thrifty Rent-A-Car franchise”); and DeJames, ³⁹⁰ supra, 256 Md. at 719-25, 261 A.2d at 749-52 (meaning of “collapse”). Illustrative of contract terms found unambiguous are DeJarnette, supra, 299 Md. at 714-22 , 475 A.2d at 457-61 (meaning of “usé of a motorcycle”); Fisher, supra, 284 Md. at 110-12, 394 A.2d at 1204-06 (meaning of “loan”); Aragona, supra, 281 Md. at 374-75 , 378 A.2d at 1348-49 (meaning of “any dishonest, fraudulent, criminal ... act ... of ... partner”); Benton, supra, 278 Md. at 544-46 , 365 A.2d at 1003-04 (“[n]o person may recover benefits as prescribed by law and afforded under this insurance from more than one motor vehicle liability insurance policy on either a duplicative or supplemental basis”); and C & H Plumbing, supra, 264 Md. at 513-17 , 287 A.2d at 239-42 (meaning of “loss by infidelity of an ... employee”). (2) The printed heading on Pacific’s policy is: “Obstetricians’ and Gynecologists’ Professional Liability and Professional Premises Liability Policy.” As the policy form is designed, Part I provides coverage for professional services liability, while Part II would afford professional premises liability coverage. The declarations indicate that Dr. Mody did not purchase Part II coverage.

With respect to Part I the declarations reflect that Dr. Mody had “Individual Coverage” as opposed to “Partnership Coverage” or “Corporation Coverage.” The dollar amounts for “each claim” and “aggregate” were typed in the preprinted limits of liability portion of the declarations. By preprinted declaration Dr. Mody represented that he was “engaged in practice as an OBSTETRICIAN/GYNECOLOGIST.” We reproduce below the relevant provisions from Part I. Words which Interstate emphasizes are reproduced in italics and words which Pacific emphasizes are underlined. In consideration of the payment of the premium, in reliance upon the statements in the declarations made a ³⁹¹ part hereof and subject to all of the terms of this policy, the company agrees with the named insured as follows: I. COVERAGE AGREEMENTS The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of: COVERAGE A—INDIVIDUAL PROFESSIONAL LIABILITY Injury arising out of the rendering of or failure to render, during the policy period, professional services by the individual insured ... performed in the practice of the individual insured’s profession described in the declarations including service by the individual insured as a member of a formal accreditation or similar professional board or committee of a hospital or professional society[.] IV. LIMITS OF LIABILITY [T]he liability of the company for damages because of injury to which this insurance applies, sustained by any one person, shall not exceed the limit of liability stated in Part I of the declarations as applicable to each claim.

In addition, the limit of the company’s liability under Part I for all damages shall not exceed the limit of liability stated in Part I of the declarations as ‘aggregate.’ V. DEFINITIONS When used in reference to this insurance: damages means all damages, including damages for death, which are payable because of injury to which this insurance applies, and injury includes libel, slander, defamation of character or invasion of rights of privacy; each claim means all claims or suits brought on account of injury sustained by any one person. Interstate argues that the policy does not expressly limit “injury” to bodily injury and that “injury” literally em ³⁹² braces the economic injury suffered by George Sr. The district court agreed. It “concluded that no ambiguity exist[ed] in connection with the interpretation of [the] policy,” 568 F.Supp. at 638 , after having said: The word “injury” has been defined as “the invasion of any legally protected interest of another,” Restatement (Second) of Torts, § 7 (1965), and as “Any wrong or damage done to another, either in his person, rights, reputation or property.” Black’s Law Dictionary (4th ed. 1951). [ 568 F.Supp. at 637-38 .] Nothing expressed in Pacific’s policy contradicts an interpretation under which “injury” carries a meaning identical to its Restatement usage. If one assumes Interstate’s reading, the economic injury of George Sr. falls within Coverage A because, under Maryland law, the subject invasion of George Sr.’s economic interest gives rise to a cause of action in George Sr. in addition to the action of George Jr. See Meyers v. Meagher, 277 Md. 128 , 352 A.2d 827 (1976); Hudson v. Hudson, 226 Md. 521 , 174 A.2d 339 (1961).

On the same assumption, the father’s loss becomes an “injury to which this insurance applies” within ¶ IY and the loss thereby is subject only to the “each claim” limitation. That limitation is itself defined in IIV in terms of “injury.” Consequently the father’s economic loss is an “injury sustained by any one person” and triggers a separate $200,000 limit. The foregoing exercise demonstrates that Pacific’s policy is drafted in a circular fashion. “Injury” is not a fully defined term in the policy (“injury includes libel, slander, defamation of character or invasion of rights of privacy”). Consequently the reader must enter the circle carrying a concept or definition of injury from a source outside of the words used.

The district court entered the circle carrying definitions from the Restatement and Black’s Law Dictionary. Once that assumption is made the reader may go around and around the circle without encountering any linguistic obstacle to the use of the extraneously derived concept of “injury.” ³⁹³ In terms of the policy’s partial (ie., “includes”) definition of “injury” the meaning ascribed to “injury” by the district court is not illogical. A genus as broad as invasion of any legally protected interest necessarily subsumes the species of invasion known as libel, slander, defamation, or invasion of privacy. Pacific on the other hand emphasizes that the certified question deals with policy limits and not with coverage.

Under ¶ IV the $200,000 “each claim” limit applies to “damages because of injury to which this insurance applies, sustained by any one person____” Because the policy covers injury arising out of rendering obstetrical/gynecological service, Pacific sees the “injury to which this insurance applies” as bodily injury suffered by a person subjected to medical malpractice by the insured. There are two such persons in the instant case, George Jr. and Barbara Ann. Limits on the father’s claim, says Pacific, are governed by the ¶ V definition under which “each claim” means “all claims or suits brought on account of injury sustained by any one person.” Pacific’s more narrow reading of “injury” attaches the father’s claim, which is factually dependent on the injury to his son, to the son’s claim when applying the $200,000 “each claim” limit on damages payable “on account of injury sustained by any one person.” Because that “one person” is George Jr., as to George Sr.’s claim, Pacific says only one $200,000 limit applies to both claims. One of the difficulties which we encounter with Pacific’s argument, and with the district court’s rejection of that argument, is that neither undertakes to analyze the meaning of “injury” in relation to all of the policy language. The analysis has been limited to the portions of the insuring agreement which are pertinent to coverage of the kind of claims presented here.

A shorthand characterization of Pacific’s argument is that “person” should be read as “patient” and “injury” should be read as “bodily injury” or “personal injury.” On this aspect the district court said: “Had the intention been to restrict the policy limits to a claim asserted on behalf of a patient for personal injury, the ³⁹⁴ more precise terms would certainly have been used.” 568 F.Supp. at 637 . In our view that reasoning might apply if Coverage A embraced only “[ijnjury arising out of the rendering of ... professional services ... performed in the practice of the individual insured’s profession described in the declarations,” i.e., “practice as an OBSTETRICIAN/GYNECOLOGIST.” Coverage A, however, contin-. ues with the words, “including service by the individual insured as a member of a formal accreditation or similar professional board or committee of a hospital or professional society.” From the standpoint of the policy as a whole, this apparently expanded definition of the practice of obstetrics/gynecology clearly meshes with the definition of “injury” in ¶ V, namely, “[w]hen used in reference to this insurance ... injury includes libel, slander, defamation of character or invasion of rights of privacy.” Consequently this policy also insures the individual obstetrician/gynecologist when acting as a member of a professional board or committee against liability for defamation or invasion of privacy. Patients would not ordinarily assert such claims. They would likely be asserted by other medical professionals.

Further, defamation and invasion of privacy claims are not personal injury claims, at least in the bodily injury sense. Given the mixture of coverages for the individual obstetrician/gynecologist under Coverage A, the person drafting Pacific’s policy could not use “patient” in lieu of “person” without contradicting Coverage A’s application to service on professional committees and without contradicting that part of the definition of “injury” which includes invasion of privacy and defamation. Further, while the policy might have expressly employed the term “bodily injury” for “injury,” the policy’s author would still have been required to enlarge the meaning of “bodily injury” by artificial definition so as to cover the injuries intended to be covered by having provided that “professional services” embrace work on professional committees. ³⁹⁵ The role which the partial definition of “injury” necessarily plays under the respective versions has been given little attention in the briefs. Under Interstate’s concept of “injury” as an invasion of any legally protected interest which causes actual harm, each person who has a cause of action arising out of covered activity by an obstetrician/gynecologist is a person who has suffered an “injury.” Seemingly this could include the personal representative who seeks funeral expenses, the relative who sues for solatium damages because of wrongful death, the dependent relative who sues for lost support because of wrongful death, the spouse who sues for loss of consortium in states which allow one spouse to sue alone for that loss, and, in states in which a husband is liable for necessaries for his wife, or in which one spouse is liable for the necessaries of another, a spouse’s action for consequential expenses for necessaries.

This reading makes the policy’s partial definition of “injury” surplusage. The enumerated torts which “injury includes” are merely selected illustrations which also could have included trespass q.c.f because all are invasions of legally protected interests. Under Pacific’s version the “damages” and “injury” definitions would more precisely read: When used in reference to this insurance: damages means all damages, including damages for death, which are payable because of [bodily] injury to which this insurance applies, and [bodily] injury includes [i.e., in addition means] libel, slander, defamation of character or invasion of rights of privacy[.] In order to maintain consistency with the policy language, while nevertheless presenting an interpretation which does not reach the high plateau of generalization for “injury” which Interstate advances, the result sought by Pacific requires interpreting the partial definition of “injury” as if it in effect said: [A]nd for purposes of this Part I read “injury,” which in the context of medical malpractice liability usually means “bodily injury,” also to include libel, slander, defamation ³⁹⁶ of character or invasion of rights of privacy, because of the expanded definition of professional services found in Coverage A hereof. In other words, Pacific would have “includes” in the ti V definition of “injury” enlarge “[bodily] injury” while Interstate sees the list of torts following “includes” as merely subsets illustrating the larger set, “invasion.” In Group Health Ass’n v. Blumenthal, 295 Md. 104, 111 , 453 A.2d 1198, 1203 (1983), we said that “[o]rdinarily the word ‘including’ means comprising by illustration and not by way of limitation.” The context was an interpretation of Md.Code (1974, 1980 Repl.Vol.), § 3-2A-02(a) of the Courts and Judicial Proceedings Article, which is part of the Health Care Malpractice Claims Act.

It subjects to mandatory arbitration “[a]ll claims, suits, and actions, including cross claims, third-party claims, and [wrongful death actions], by a person against a health care provider for medical injury....” While “include” or “including” may introduce illustrations of a general term, the words also may signal an expansion in meaning of previous language. Group Health Ass’n gave a “[s]ee also” reference to Md.Code (1982), § l-101(e) of the