Philadelphia Indemnity Insurance v. Maryland Yacht Club, Inc.

HOLLANDER, Judge. This appeal focuses on whether a bodily injury exclusion in a directors’ and officers’ (“D & 0”) liability insurance policy applied to a wrongful discharge action instituted against the insureds by a former employee who claimed he was fired from his job because of a work-related injury. Philadelphia Indemnity Insurance Company (“PIIC” or the “Insurer”), appellant, denied indemnity coverage and defense costs in connection with a wrongful discharge suit brought against Maryland Yacht Club, Inc. (the “Club”) and three of its officers, Richard A. Weiss, Robin T. Barnes, and Bernard A. Fine, appellees. Dissatisfied with the Insurer’s position, appellees initiated a declaratory judgment action against PIIC in the Circuit Court for Baltimore County, in which they also claimed breach of contract and negligence.

After a motions hearing, judgment was entered in favor of appellees. On appeal, PIIC presents four questions for our review, which we have condensed and reformulated as follows: I. Did the circuit court err in construing the bodily injury exclusion? ⁴⁵⁸ II. Did the circuit court ignore the “last antecedent” rule when it determined that the bodily injury exclusion did not preclude coverage in this matter? For the reasons discussed below, we shall affirm.

FACTUAL BACKGROUND PIIC is a Pennsylvania-based insurer authorized to do business in Maryland. The Club is a nonprofit corporation that operates a navigating and sailing club in Pasadena. At the relevant time, the individual appellees were officers of the Club and members of the Club’s Board of Governors 1 and Executive Committee (collectively, the “Officers”). Article V, § 1 of the Club’s Constitution and By-Laws states that “[t]he affairs of the Corporation shall be managed by a Board of Governors.” Article VI, § 2 empowers the Executive Committee “to conduct the business of the Club between meetings of the Board of Governors.” Pursuant to Article VI, § 7, the Executive Committee is also authorized to employ and discharge the Club Manager.

Article VI, § 1 dictates the Executive Committee’s composition: There shall be an Executive Committee of the Board of Governors of the [Club] consisting of the Commodore as Chairman, the Treasurer, the Secretary and the Immediate Past Commodore, all serving as ex-officio voting members. The additional voting members shall be the Vice-Commodore, Director of Clubhouse Operations, Director of Yacht Basin Operations, the Director of Buildings, Grounds and Utilities, the Director of Food Services and the Communications Coordinator. Weiss served as the Commodore, Barnes was the Vice-Commodore, and Fine held the position of Director of Clubhouse Operations. Fine was also the Club’s Insurance Chairman.

It appears from the Constitution and By-Laws that the Officers provided their services to the Club on a volunteer basis. ⁴⁵⁹ On June 24, 1994, PIIC issued a “Non-Profit Directors and Officers Liability Insurance Policy” to the Club, Policy Number PHDO 101371 (the “Policy”). The Policy Declaration Page listed the Club as the “Named Insured” and its directors and officers as the “Insured.” Thus, both the Club and the Officers were protected in accordance with the terms of the Policy, which ran from June 4, 1994 to June 4, 1995, and had a $2,000,000.00 limit of liability for each loss. 2 The Club made all required premium payments in a timely manner. The Policy stated, in relevant part: INSURING AGREEMENTS I. COVERAGES A and B A. [PIIC] will pay on behalf of the Insured any Loss in an amount not exceeding the Limit of Liability in excess of the applicable Retention set forth in the Declarations which the Insured shall be legally obligated to pay as damages for any civil claim or claims first made against the Insured arising out of a Wrongful Act, provided that the claim is first made during the policy period and written notice of said claim is received by [PIIC] during the policy period. B. [PIIC] will pay on behalf of the Organization any Loss in an amount not exceeding the Limit of Liability in excess of the applicable Retention set forth in the Declarations which the Organization shall be legally obligated to pay as indemnification of any Insured with respect to any claim arising out of a Wrongful Act of any Insured when such claim is first made during the ⁴⁶⁰ policy period and written notice of said claim is received by [PIIC] during the policy period.

II

DEFINITIONS B. “Organization” shall mean: (1) the Parent Organization, and (2) any Subsidiary of the Parent Organization. C. “Insured” shall mean any person or persons who were, or are a director or officer of the Organization .... E. “Wrongful Act” shall mean any actual or alleged 1. act; 2. error; 3. omission; 4. misstatement; 5. misleading statements; 6. neglect or breach of duty; not excluded hereunder, committed by one or more Insureds while acting within the scope and discharge of their dutyfies) with the Organization____ F. “Loss” shall mean amounts paid by the Insured, or paid by the Organization but only with respect to Coverage B, which the Insured is legally liable to pay as damages, settlement of claims or in satisfaction of awards or judgments, including costs, charges and expenses, provided, however that Loss shall not include: (1) punitive or exemplary damages or the multiple portion of any treble damages award; or (2) criminal or civil fines or penalties imposed by law; or (3) taxes; or ⁴⁶¹ (4) matters deemed uninsurable under the law pursuant to which this Policy shall be construed. CONDITIONS VI.

NOTIFICATION A. If during the Policy Period ... any Claim is made against any Insured, the Organization and the Insured shall, as a condition precedent to their rights for compensation under this Policy, give to [PIIC] notice in writing as soon as practicable of any such Claim, but in no event later than sixty (60) days after such Claim is first made. B. If during the Policy Period ... the Insured or the Organization first become aware of a specific Wrongful Act, and if the Insured or the Organization shall, during such period, give written notice to [PIIC] as soon as practicable of: (1) the specific Wrongful Act, and (2) the consequences which have or may result therefrom, and (3) the circumstances by which the insured or the Organization first became aware thereof; then any Claim not otherwise excluded by the terms of this policy which is subsequently made against an Insured or Organization arising out of such Wrongful Act shall be deemed for the purpose of this Policy to have been made during the Policy Year in which such notice was first given. It is undisputed that, under the Policy, the Club is the “Parent Organization” and the Officers are the “Insured.” Various endorsements were executed and made a part of the Policy. One endorsement, the “Volunteers Endorsement,” stated: “In consideration of the premium paid, it is agreed ⁴⁶² that the Directors and Officers shall be deemed to include volunteers.” On May 20, 1994, Thomas E. Bock was discharged from his position as Club Manager.

Thereafter, on October 24, 1994, Bock initiated suit against appellees for wrongful discharge, seeking compensatory relief and punitive damages of $4,000,-000.00. The following circumstances surrounding Bock’s discharge are derived from his amended complaint, filed on January 5,1995, and are relevant here. Bock alleged that he sustained an injury to his leg during the course of his employment. Thereafter, he filed a claim with the Workers’ Compensation Commission.

Subsequently, he underwent several surgical procedures that were paid by the Club’s workers’ compensation insurance carrier. In the spring of 1994, appellees were allegedly advised that the Club’s workers’ compensation insurance premiums would increase substantially unless Bock were discharged. About the same time, Bock’s attorney and the Club’s workers’ compensation insurer “became involved in a protracted argument over whether or not a vocational rehabilitation nurse could follow [Bock] around when he went to see his physicians.” Bock’s lawyer and Bock evidently refused to permit the nurse to do so. Bock alleged that the Officers subsequently held a meeting and decided to terminate his employment “solely because of his filing for workers [sic] compensation benefits and the expenses associated with the claim.” On or about November 17, 1994, appellees notified PIIC of Bock’s wrongful discharge suit, in order to activate coverage under the Policy.

By letter dated December 13, 1994, PIIC denied coverage for the suit. Although PIIC cited a number of Policy provisions in its letter, the only one material here is § 111(A)(2), which states: III. EXCLUSIONS A. [PIIC] shall not be liable to make payment for Loss in connection with any claim against any Insured or Organization, arising out of, directly or indirectly re- ⁴⁶³ suiting from or in consequence of, or in any way involving: (2) Any actual or alleged bodily injury, sickness, disease or death of any person, or any actual or alleged damage to or destruction of any tangible property including loss of use thereof, or any actual or alleged invasion of privacy, wrongful entry, eviction, false arrest, false imprisonment, malicious prosecution, assault, battery, mental anguish, emotional distress, or loss of consortium. (Emphasis added).

On March 20, 1995, following the Insurer’s denial of coverage under the Policy, appellees initiated suit against PIIC. They sought a declaratory judgment with respect to the parties’ rights and responsibilities under the Policy, and alleged breach of contract and negligence. In their complaint, appellees asserted that PIIC wrongfully “refused to acknowledge coverage for the claims under the Policy, refused to indemnify [them] for any judgment or settlement, refused to defend the lawsuit, and refused to pay [them] their costs and expenses incurred in the defense of the lawsuit.” In October 1995, while appellees’ suit was pending, appellees settled Bock’s suit for a lump sum payment of $15,000, without PIIC’s assistance. On March 23,1998, PIIC filed its answer. 3 Subsequently, it filed a motion for summary judgment on April 17, 1998, averring that appellees’ claim was not covered under the Policy.

Appellees filed their motion for partial summary judgment on May 4, 1998, seeking attorneys’ fees, costs, and expenses incurred in defending Bock’s suit, and a declaratory judgment as to PIIC’s liability. ⁴⁶⁴ A hearing was held on the parties’ summary judgment motions on July 27, 1998. In its opinion and order filed on August 27,1998, the court stated, in part: PIIC contends that Bock’s wrongful discharge claim arose out of the injury to his leg and therefore is excluded from coverage.... PIIC argues that the broad judicial interpretation given ... to the phrase “arising out of,” as used in liability insurance policies, compels the conclusion that because Bock’s wrongful discharge claim was premised upon his termination for having sought benefits for a leg injury, it is encompassed in the personal injury exclusion under the Policy. [T]he loss for which Bock sought recovery in his wrongful discharge action against [the Club] was not the personal injury that he had sustained to his leg. (In fact, the exclusive bar of the Worker’s Compensation Act would have prohibited him from suing [the Club] to recover damages for his leg injury.) Rather, the loss for which Bock was seeking damages was the loss of his job.

That loss did not “arise out of’ Bock’s leg injury in the causal sense in which the Court of Appeals interpreted the phrase in Northern Assurance [Co. v. EDP Floors, 311 Md. 217 , 533 A.2d 682 (1987) ]. The natural consequence of Bock’s leg injury was not [the Club’s] wrongful act in terminating him; nor did the wrongful discharge “flow from, .[sic] originat[e] from, [or] grow[ ] out of’ the leg injury. [Id. at 230, 533 A.2d 682 .] Bock’s claim for worker’s compensation benefits for his leg injury was the improper motive for his termination, not its cause. (Sixth, seventh, and eighth alterations in original). Accordingly, the court denied appellant’s motion for summary judgment and granted appellees’ motion for partial summary judgment.

Thereafter, the parties stipulated to damages in the amount of $74,934.35. Consequently, on Feb ⁴⁶⁵ ruary 18, 1999, the circuit court entered a final judgment in that amount in favor of appellees. We will include additional facts in our discussion. STANDARD OF REVIEW Maryland Rule 2-501 establishes a two-part test for summary judgment. “In deciding a motion for summary judgment ... the trial court must decide whether there is any genuine dispute as to material facts and, if not, whether either party is entitled to judgment as a matter of law.” Bagwell v. Peninsula Regional Med.

Ctr., 106 Md.App. 470, 488 , 665 A.2d 297 (1995), cert. denied, 341 Md. 172 , 669 A.2d 1360 (1996); see Md. Rule 2-501(e); Beatty v. Trailmaster Prods., Inc., 330 Md. 726, 737-38 , 625 A.2d 1005 (1993); Kramer v. Mayor of Baltimore, 124 Md.App. 616, 622-23 , 723 A.2d 529 , cert. denied, 354 Md. 114 , 729 A.2d 405 (1999). In reviewing the circuit court’s grant of summary judgment, we evaluate “the same material from the record and decide[ ] the same legal issues as the circuit court.” Lopata v. Miller, 122 Md.App. 76, 83 , 712 A.2d 24 , cert. denied, 351 Md. 286 , 718 A.2d 234 (1998). To defeat a motion for summary judgment, the party opposing the motion must produce evidence demonstrating that the parties genuinely dispute a material fact. Scroggins v. Dahne, 335 Md. 688, 690-91 , 645 A.2d 1160 (1994); Fick v. Perpetual Title Co., 115 Md.App. 524, 533 , 694 A.2d 138 , cert. denied, 347 Md. 153 , 699 A.2d 1168 (1997).

A material fact is one that will alter the outcome of the case depending upon how the fact-finder resolves the dispute. King v. Bankerd, 303 Md. 98, 111 , 492 A.2d 608 (1985); Keesling v. State, 288 Md. 579, 583 , 420 A.2d 261 (1980). In opposing the motion, the non-moving party must present more than “mere general allegations which do not show facts in detail and with precision.” Beatty, 330 Md. at 738 , 625 A.2d 1005 . But, the court views the facts, and all reasonable inferences drawn from the facts, in the light most favorable to the non-moving party.

Berkey v. Delia, 287 Md. 302, 304-05 , 413 A.2d 170 (1980); Maloney v. Carling ⁴⁶⁶ Nat'l Breweries, Inc., 52 Md.App. 556, 560 , 451 A.2d 343 (1982). If the parties do not dispute any material facts, the court may resolve the case as a matter of law. See Md. Rule 2-501(e). In reviewing the trial court’s decision, we must determine whether the court reached the correct legal result.

Beatty, 330 Md. at 737 , 625 A.2d 1005 . Furthermore, we generally review an award of summary judgment “only on the grounds relied upon by the trial court.” Blades v. Woods, 338 Md. 475, 478 , 659 A.2d 872 (1995). DISCUSSION I. As the language of § 111(A)(2) is the focus of the dispute, we begin by restating it here for convenience: III. EXCLUSIONS A. [PIIC] shall not be liable to make payment for Loss in connection with any claim against any Insured or Organization, arising out of, directly or indirectly resulting from or in consequence of, or in any way involving: * * * (2) Any actual or alleged bodily injury, sickness, disease or death of any person, or any actual or alleged damage to or destruction of any tangible property including loss of use thereof, or any actual or alleged invasion of privacy, wrongful entry, eviction, false arrest, false imprisonment, malicious prosecution, assault, battery, mental anguish, emotional distress, or loss of consortium.

(Emphasis added). Appellant complains that the circuit court erred by failing to conclude that the bodily injury exclusion applied to the wrongful discharge suit lodged by Bock against appellees, so as to preclude coverage under the Policy. The Insurer maintains ⁴⁶⁷ that Maryland courts have given the phrase “arising out of’ a broad interpretation. Thus, PIIC contends that because Bock’s wrongful discharge suit “arises out of’ Bock’s bodily injury claim, Bock’s wrongful discharge suit is within the ambit of the bodily injury exclusion.

Further, appellant avers that the lower court erred by failing to give effect to the remainder of the introductory language in the bodily injury clause, which stated: “directly or indirectly resulting from or in consequence of, or in any way involving.” Appellees counter that PIIC’s contentions “lead this court on an esoteric and metaphysical journey that is unduly confusing and complicated in its approach to the simple question posed by this case.” They assert, inter alia, that the purpose of including a bodily injury exclusion in a D & 0 policy would not be served by denying coverage in this case. Alternatively, appellees posit that the exclusion is ambiguous and, accordingly, it should be construed in their favor. We begin with a review of the applicable principles that govern the construction of insurance policies. “Maryland does not follow the rule, adopted in many jurisdictions, that an insurance policy is to be construed most strongly against the insurer.” Bausch & Bomb Inc. v. Utica Mut. Ins.

Co., 330 Md. 758, 779 , 625 A.2d 1021 (1993); see Nationwide Ins. Cos. v. Rhodes, 127 Md.App. 231, 236 , 732 A.2d 388 (1999); Baltimore Gas & Elec. Co. v. Commercial Union Ins. Co., 113 Md.App. 540, 554 , 688 A.2d 496 (1997).

Rather, the interpretation of an insurance policy is guided by the same principles that apply to the construction of other contracts. Rhodes, 127 Md.App. at 236 , 732 A.2d 388 ; Baltimore Gas & Elec., 113 Md.App. at 553 , 688 A.2d 496 . The goal in construing a contract is to ascertain and effectuate the intention of the contracting parties, unless that intention is at odds with an established principle of law. Hartford Accident & Indem.

Co. v. Scarlett Harbor Assocs. Ltd. Partnership, 109 Md.App. 217, 290-91 , 674 A.2d 106 (1996), aff'd, 346 Md. 122 , 695 A.2d 153 (1997). “The primary source for determining the intention of the parties is the ⁴⁶⁸ language of the contract itself.” Id. at 291, 674 A.2d 106 . Therefore, “[i]n construing insurance contracts in Maryland we give the words of the contract their ordinary and accepted meaning, looking to the intention of the parties from the instrument as a whole.” Finci v. American Cas. Co., 323 Md. 358, 369-70 , 593 A.2d 1069 (1991).

Moreover, “[a] contract must be construed as a whole, and effect given to every clause and phrase, so as not to omit an important part of the agreement.” Baltimore Gas & Elec., 113 Md.App. at 554 , 688 A.2d 496 ; see Bausch & Lomb, 330 Md. at 779, 625 A.2d 1021 . Ordinarily, the clear and unambiguous language of a written agreement controls, even if the expression is not congruent with the parties’ intent at the time of the document’s creation. See Auction & Estate Representatives, Inc. v. Ashton, 354 Md. 333, 340 , 731 A.2d 441 (1999); Calomiris v. Woods, 353 Md. 425, 435-36 , 727 A.2d 358 (1999); Adloo v. H.T. Brown Real Estate, Inc., 344 Md. 254, 266 , 686 A.2d 298 (1996); Nicholson Air Servs., Inc. v. Board of County Comm’rs, 120 Md.App. 47, 63 , 706 A.2d 124 (1998); Baltimore Gas & Elec., 113 Md.App. at 554 , 688 A.2d 496 . Whether a contract is ambiguous is a question of law.

Ashton, 354 Md. at 341 , 731 A.2d 441 ; Calomiris, 353 Md. at 434 , 727 A.2d 358 . Contractual language is considered ambiguous “if, when read by a reasonably prudent person, it is susceptible of more than one meaning.” Calomiris, 353 Md. at 436 , 727 A.2d 358 ; accord Ashton, 354 at 340, 731 A.2d 441 ; Heat & Power Corp. v. Air Prods. & Chems., Inc., 320 Md. 584, 596 , 578 A.2d 1202 (1990); see Pacific Indem. Co. v. Interstate Fire & Cas. Co., 302 Md. 383, 389 , 488 A.2d 486 (1985).

Appellant asserts that in Maryland the phrase “arising out of’ has a settled meaning that bars coverage under the Policy for Bock’s ’wrongful discharge suit. Relying on Mass Transit Admin, v. CSX Transp., Inc., 349 Md. 299 , 708 A.2d 298 (1998), appellant posits that the circuit court erroneously applied “last act” causation and a “sole cause” analysis. Instead, appellant contends that the trial court should have applied “but for” causation. Appellant states: “[T]his Court ⁴⁶⁹ must ask whether ‘but for’ Bock’s injury, could he have been wrongfully terminated for filing a workers’ compensation claim?” Appellant’s reliance on CSX is unavailing.

To be sure, the phrase “arising out of’ is used frequently in insurance contracts, and has been the subject of prior interpretation by Maryland courts. See CSX Transp., 349 Md. 299 , 708 A.2d 298 , and cases cited therein. Nevertheless, it does not have a single, “settled meaning” that applies to every insurance policy. Contractual language cannot be construed in a vacuum.

See Finci, 323 Md. at 369-70 , 593 A.2d 1069 . Thus, language used in one contract may carry a different meaning in another; we construe such phrases “on a contract by contract or case by case basis, and not by sweeping language saying that regardless of the exact provisions of the contract we shall interpret all similar, but not identical, contracts alike.” National Grange Mut. Ins. Co. v. Pinkney, 284 Md. 694, 706 , 399 A.2d 877 (1979) (discussing construction of omnibus clause in motor vehicle liability policy).

CSX Transp., supra, 349 Md. 299 , 708 A.2d 298 , on which appellant relies, is noteworthy. CSX Transportation (“CSXT”) was under contract to the Mass Transit Administration of the Maryland Department of Transportation (“MTA”) to provide commuter rail service. The contract’s indemnity provision stated, in part: “(a) CSXT will provide regularly scheduled daily commuter rail service.... This train operation, plus the maintenance of equipment, access of and use of facilities, ticket sales, and other activities required to support the operation of the train service as provided in this Article I, shall be called the ‘Contract Service.’ CSXT will make available its rail facilities on the above stated lines to provide the Contract Service.

CSXT will operate the Contract Service in a safe and efficient manner with use of appropriate facilities and staff for management, train operations, and maintenance .... ⁴⁷⁰ * * * (b) Indemnification by [MTA] (1) [MTA] agrees to indemnify, save harmless, and defend CSXT from any and all casualty losses, claims, suits, damages or liability of every kind arising out of the Contract Service under this Agreement.... (2) CSXT will promptly advise [MTA] of pending claims for which [MTA] is responsible under subsection (b)(1) with estimates of settlement costs in each instance. Any proposed settlement or payment in excess of Ten Thousand Dollars ($10,000) will be submitted to [MTA] for prior approval.” CSX Transp., 349 Md. at 301-02 , 708 A.2d 298 (quoting Commuter Rail Passenger Service Agreement) (first and third omissions not in original) (footnote omitted). CSXT hired a contractor to pave several of its public road crossings.

The contractor left his backhoe on the tracks as a commuter train approached. The train struck and destroyed the backhoe. Because the central dispatcher was not advised of the work, he was unable to warn the train’s engineer. The contractor subsequently brought suit against CSXT for damages to the backhoe.

CSXT and the contractor settled the action and CSXT sought indemnification from MTA. When MTA refused, CSXT filed suit. On appeal, CSXT averred that the train operation constituted “Contract Service,” and that the contractor’s claim against it “arose out of’ Contract Service because the train was the direct and immediate physical cause of the damage to the backhoe — a “but for” analysis. Id. at 307 , 708 A.2d 298 .

The MTA contended that CSXT’s negligence “further back in the chain of causation, caused the accident, either by failure to warn the