Reames v. State Farm Fire & Casualty Insurance

HARRELL, Judge. Appellants, Calvin E. Reames, his wife, Rita S. Reames, and their seventeen year old daughter Selena Reames (“Ms. Reames”), appeal from a declaratory judgment entered by the Circuit Court for Montgomery County (James S. McAuliffe, Jr., J.) declaring that appellee, State Farm Fire and Casualty Company (“State Farm”), owed no duty to defend Ms. Reames, pursuant to her parents’ homeowners’ insurance poli ⁵⁴⁸ cy, in a civil tort action brought against her. We find no reversible error and, accordingly, shall affirm the lower court’s decision. ISSUE Appellants raise the following issue for our consideration, which we have condensed and rephrased: Whether the tort complaint, with or without extrinsic evidence, alleged liability that was actually or potentially within the policy’s coverage thus giving rise to a duty to defend.

FACTS This appeals arises out of a declaratory judgment action instituted by appellants in order to determine if State Farm, under a homeowners’ insurance policy issued by State Farm on the Reames’ home in Montgomery County, Maryland, had a duty to defend Ms. Reames, in a tort action brought by her former boyfriend. Under this policy, State Farm promised to provide appellants 1 a defense “[i]f a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence[.]” 2 The policy defined bodily injury and occurrence as follows: “bodily injury” means physical injury, sickness, or disease to a person. This includes required care, loss of services and death arising therefrom. Bodily injury does not include: ****** c. emotional distress, mental anguish, humiliation, mental distress, mental injury, or any similar injury unless it arises out of actual physical injury to some person. ⁵⁴⁹ “occurrence” ... means an accident, including exposure to conditions, which results in ... bodily injury ... during the policy period.

Under this policy, there was also an exclusion for bodily injury or property damage (1) which is either expected or intended by an insured; or (2) to any person or property which is the result of willful and malicious acts of an insured. The underlying suit for which appellants requested a defense (hereinafter “Salvado v. Reames”) was instituted on 16 December 1994 when Carlos J. Salvado (“Mr. Salvado”) filed a two count complaint against Ms. Reames seeking substantial damages for malicious prosecution and abuse of process. 3 In his complaint, Mr. Salvado initially set forth facts describing an altercation that occurred among three individuals in the Reames’s family home when he allegedly walked in on his then girlfriend, Ms. Reames, and one Brian Rucker in Ms. Reames’s bedroom. According to the complaint, Mr. Salvado and Ms. Reames had begun dating in the summer of 1992 and they “became boyfriend and girlfriend.” As of 1 October 1993, the two had developed a relationship whereby Mr. Salvado was permitted to enter the Reames’s family home, where Ms. Reames resided, without obtaining additional permission from anyone. The factual allegations of the complaint continued that in the late evening of 1 October 1993 [Ms.] Ream[e]s lured Salvado to the House.

Acting pursuant to the express and implied permission which Salvado had to enter the House, he entered the House, whereupon he found another male [Mr. Brian Rucker] and [Ms.] Ream[e]s in [Ms.] Ream[e]s’ bedroom. An altercation between Salvado and said male ensued, whereupon Ms. Ream[e]s assaulted and battered Salvado. According to the complaint, a female friend of Ms. Reames who was also present at her house then called the police and, “at the behest of [Ms.] Ream[e]s, falsely reported that a ⁵⁵⁰ breaking and entering had occurred and that an assault and battery upon [Ms.] Ream[e]s had occurred.” When the police arrived, Ms. Reames allegedly told them that Mr. “Salvado had broken into and entered the House, without permission, and that Salvado had assaulted and battered her.” As a result of these statements, Mr. Salvado was arrested and charged with breaking and entering and assault and battery. After a trial on these charges, Mr. Salvado was found not guilty on both charges. 4 In the complaint’s first titled count for malicious prosecution, Mr. Salvado alleged that Ms. Reames maliciously initiated the charges brought against him by providing false information to the police with a primary purpose other than bringing him to justice.

Mr. Salvado alleged that these actions injure[d][him] personally ... by ... defaming him, seeing that he was arrested and prosecuted, causing him emotional distress, and otherwise causing him personal injury.... As a direct and proximate result of [Ms.] Ream[e]s’ actions and statements, ... [he] has ... suffered the creation of a criminal record, material harm to his reputation and standing in the community, emotional distress and turmoil, embarrassment, humiliation, and other personal injuries.' The second count of Mr. Salvado’s complaint for abuse of process alleged that Ms. Reames instigated, initiated, and procured the bringing of the charges against Mr. Salvado by advising, assisting, or encouraging the police to arrest him “not for a purpose for which criminal process ordinarily is used, but in order to accomplish an ulterior purpose, which was to harass, annoy, embarrass, and otherwise personally harm Salvado.” The complaint alleged further that [a]s a direct and proximate result of [Ms.] Ream[e]s’ actions and statements, Salvado has been injured ... and has suffered the creation of a criminal record, material harm to ⁵⁵¹ his reputation and standing in the community, emotional distress and turmoil, embarrassment, humiliation, and other personal injuries. On 10 January 1995, Ms. Reames entered into a retainer agreement with John R. Dugan, Esquire, under which Mr. Dugan was to represent her in connection with her defense in Salvado v. Reames and to determine if she was covered by her parents’ homeowners’ insurance policy. Also on 10 January, Mr. Dugan sent a letter to State Farm “requesting that State Farm defend [Ms. Reames in Salvado v. Reames ] ... under the Reames’ Homeowner’s policy.” 5 On 17 January 1995, State Farm, in a letter to appellants, stated that, based on its preliminary review “it appears that the allegations in ... [the][c]omplaint [filed against Ms. Reames] do not fall within the purview of coverages under [the policy].” State Farm therefore recommended that Ms. Reames’ personal attorney file an answer to the complaint while the case was submitted “for a formal review.” 6 In support of its anticipatory denial of coverage, State Farm explained: ‘[It] is questionable whether the damages alleged in the Complaint resulted from an occurrence as defined in the policy.’ ‘Occurrence’ ... means an accident ... which results in ... bodily injury ... during the policy period.... ‘[B]odily injury’ means physical injury, sickness, or disease to a person.... [It] does not include ... emotional distress, mental anguish, humiliation, mental distress, mental injury, or any other similar injury unless it arises out of actual physical injury to some person.

Alternatively, State Farm opined that coverage could possibly be denied under the intentional acts exclusion because “[i]t is questionable ... [whether] the damages resulted from intentional acts caused by Selena Reames.” ⁵⁵² Thereafter, Mr. Dugan undertook the defense of Ms. Reames in Salvado v. Reames, and on 26 January 1995 filed therein a Motion to Dismiss, Or in the Alternative, for Summary Judgment and for Sanctions. The motion to dismiss, or in the alternative, for summary judgment was granted with prejudice by the circuit court by order dated 1 March 1995. 7 Also on 26 January 1995, in response to State Farm’s initial denial of coverage, appellants’ personal counsel sent a letter to State Farm contesting State Farm’s position regarding its duty to defend. This letter referred State Farm to Aetna Cas. & Surety Co. v. Cochran, 337 Md. 98, 111-12 , 651 A.2d 859 (1995), wherein the Court of Appeals held that “an insured may establish a potentiality of coverage under an insurance policy through the use of extrinsic evidence.” The letter stated: [Cochran held that] the insured should have the opportunity to submit additional information to show that there is a potentiality of coverage. I think the records relating to the underlying criminal case[ 8 ] demonstrate that there was no intentional conduct on the part of the insured, Selena Reames, and despite the allegations in the lawsuit it is clear he got into a fight with Selena’s friend, Brian Rucker, and surely he sustained some physical injury which is a covered claim in addition to the alleged emotional injuries.

I believe, therefore, this is enough ‘potentiality’ of coverage that warrants you having the obligation to defend this action. On 6 February 1995, State Farm responded to this letter, stating that although it was still reviewing appellants’ claim, it appeared that coverage would not apply. On 27 February 1995, appellants’ counsel sent a letter to State Farm and its local counsel, Michael J. Budow of Budow and Noble, P.C., contending in part: ⁵⁵³ [I]t seems the focus on the lack of coverage is that presently in the complaint there is no count seeking damages for bodily injury from the alleged assault and battery Ms. Reames or Brian Rucker inflicted on Mr. Salvado. I do not believe the absence of a separate count defeats coverage because the definition ... of bodily injury provides for coverage of emotional distress when ‘it arises out of actual physical injury to some person.’ The complaint, as it now stands alleges ... [that] ‘[Ms.] Ream[e]s assaulted and battered Salvado.’ Again, the complaint in both substantive counts ... specifically states Salvado suffered ‘... other personal injuries’ in addition to emotional distress. [Moreover] ‘bodily injuries’ would be synonymous with ‘personal injuries.’ The letter provided further: The potentiality of coverage test ... is established by the allegations in the complaint as supplemented by the additional information we have provided[ 9 ] in the form of pleadings in defense of the lawsuit.

Moreover, we have asked you to pay for the expense of a court reporter to transcribe the trial tapes. State Farm, however, stuck to its position that it did not have a duty to defend and on 6 March 1995 sent appellants’ counsel a letter formally denying coverage and a duty to defend, stating: [T]he allegations of the Complaint ... do not fall within the purview of coverage under the Homeowner’s policy ... [as] [t]he damages alleged in this Complaint result from mali ⁵⁵⁴ cious prosecution and abuse of process, neither of which meet the [policy’s] definition of occurrence as outlined in the policy. However, should the insured receive an Amended Complaint, please forward it for our immediate review and consideration. On 6 April 1995, appellants filed a complaint for a declaratory judgment against State Farm requesting a declaration that the insurer had a duty to pay all legal fees that had been incurred in defense of Salvado v. Reames, 10 as well as all legal fees and litigation expenses incurred in bringing the declaratory judgment action.

In this complaint, appellants alleged in part that State Farm[’s decision that there was no duty to defend] ... made no reference to ... the extrinsic evidence offered by [appellants]. * * * * * ❖ State Farm failed to follow the applicable law, narrowly read its policy terms in declining to provide a defense to [appellants], refused to consider the potentiality of coverage based upon the words used in the complaint that had the same or equivalent meanings, refused to consider defending the case unless and until there was an amendment of the complaint, and thus required [appellants] to incur substantial legal fees and expenses to defend the lawsuit which legal services ultimately led to its dismissal with prejudice. On 13 April 1995, appellants filed a motion for summary judgment. Attached to this motion was a partial transcript of the Salvado criminal trial testimony 11 which, according to appellants, was introduced “to supplement the extrinsic evidence already proffered ... and to be the factual predicate showing that the acts of Selena Reames were unplanned, non- ⁵⁵⁵ intentional and that Salvado sustained bodily or physical injuries during the altercation.” This transcript provided in part: [Prosecutor]: And what happened during that fight? What did you observe?

Reames: Carlos [Salvado] was mostly, he’s bigger than Brian [Rucker]. I felt that I need to, I felt that I might be able to break them up, you know, stop the fighting, but instead I guess I just made things worse. He started throwing me into the door, I was on his back.... [Prosecutor]: Why did you get on the defendant’s back? Reames: I wanted to break them up.

Carlos, as I said, is a lot bigger than Brian. I didn’t know that I could be of help, but I didn’t want him to get hurt. [Defense attorney]: Now, you were the one who initiated the physical contact to the extent that there was any between yourself and Mr. Salvado? Reames: Yes, I was. [Defense attorney]: And you jumped on his back, did you not? Reames: I tried to pull him off Brian. [Defense attorney]: And you put your arms around his neck, did you not?

Reames: I put my arm across his shoulder, under his arm.... [Defense attorney]: So you had both hands around him, you were holding him and you were trying to bring him down, correct? Reames: Yes I did. I was trying to bring him off of Brian Rucker. % # sfe ❖ ❖ [Defense attorney]: Isn’t it true that she jumped on his back? Rucker: Yeah.

After he was fighting with me. [Defense attorney]: And isn’t it true that you attempted to trip Mr. Salvado and indeed did trip him using a leverage ⁵⁵⁶ exerted upon Mr. Salvado by Ms. Reames being on his back, correct? The two of you tag teamed him, correct? Rucker: Yeah, I guess you could call it that. [Defense attorney]: And isn’t it true that at one point he was even knocked out by the force of the two of you being on him, correct? Rucker: And that’s when I left the room, yeah.

State Farm opposed this motion on 16 May 1995, at which time it also filed a cross-motion for summary judgment, arguing: [It was] entitled to summary judgment ... because the allegations of the underlying Complaint clearly establish that the insurer had no duty to defend Selena Reames under the terms of the applicable insurance policy. Furthermore, [appellants] have presented no extrinsic evidence to establish the existence of a potentiality of coverage under the liability provisions of said policy. After holding a hearing on the cross-motions for summary judgement, 12 the circuit court on 14 July 1995 rendered an oral opinion, concluding that State Farm did “not have an obligation to defend in this case; and therefore, the ... judgment will be for [State Farm].” 13 In support, the trial judge found that under the Cochran decision, although extrinsic evidence can be used to show the potentiality of coverage, such extrinsic evidence is limited by the causes of action that a third party actually alleged in its complaint, stating: [T]he inquiry is whether or not the allegations of a complaint against the insured state a cause of action within the ⁵⁵⁷ coverage of a liability policy ... not within what could have been brought, but within what has been brought. The circuit court continued: It is clear from the way [Mr. Salvado] has alleged it that any personal injuries that he is alleging are personal injuries of a kind, like and growing out of emotional distress, which is specifically by policy excluded. % * # sf: # # I conclude that inasmuch as the policy defines occurrence in terms of bodily injury, and bodily injury as defined in the policy would not have been recoverable by the third party complainant based on the complaint as filed [that State Farm does not have a duty to defend].... [I]t would have been [different] if a simple third count [of assault and battery] had been involved.

The circuit court also ruled that the intentional act exclusion did not apply, based upon its finding that under a Cochran analysis “the extrinsic evidence [which was available to State Farm] shows self-defense as a potential.” Appellants filed this timely appeal. DISCUSSION I. Appellants contend under alternative theories that the tort complaint filed in Salvado v. Reames alleged liability that was actually or potentially within the policy’s coverage, thus giving rise to a duty to defend. Appellants first argue that after analyzing the complaint, together with the submitted extrinsic evidence, the circuit court “should have held there was a duty to defend [under the potentiality rule] irrespective of the ... causes of action actually pled.” 14 In support, ⁵⁵⁸ appellants assert that because “Maryland law looks not only to causes of action pled but also to factual allegations in determining whether there is or may potentially be a claim covered by the policy,” State Farm had actual or potential notice of a claim of assault and battery, which was alleged in the factual allegations of the complaint and illustrated through the extrinsic evidence, even though such a cause of action was never actually pled. 15 As we shall explain, infra, because we con-' elude that the insurer’s duty to defend a claim that is potentially covered by a policy is determined by evaluating the causes of action that were actually alleged, not those that might have been brought, as well as the relevant extrinsic evidence, this argument fails under the