Sallie v. Tax Sale Investors, Inc.

JAMES R. EYLER, Judge. This is an insurance coverage dispute. The basic issue is whether the insurance policy issued by appellee, The Hartford Insurance Company (“Hartford”), to Tax Sale Investors, Inc. ¹⁴⁴ (“TSI”), provides coverage for a judgment obtained by appellants, Elbert Sallie and Diana Marshall (“Sallie”), on a wrongful eviction claim, against TSI. 1 The policy designated an office location for TSI, but the eviction occurred on other property owned by TSI. Appellants contend that the policy, a “Spectrum Policy” insuring “Business Liability” and expressly including claims for wrongful eviction, covered the claim against TSI because the wrongful eviction was initiated at the office location designated in the policy, even though the eviction occurred on other property.

Appellee argues that TSI’s policy was of a more limited nature and did not cover the wrongful eviction claim, because the eviction did not occur at the location designated in the policy. Appellee’s argument relies primarily on the language contained in two endorsements to the policy, which appellee suggests clearly and unambiguously indicate the limited nature of the policy and preclude coverage for appellants’ claim. On the other hand, appellants argue that (1) the endorsements are not valid and can not be relied on by appellee, and (2) assuming the endorsements are enforceable, the language should be interpreted to provide coverage when viewed in the context of the entire policy and in light of the circumstances surrounding the execution of the policy. On cross-motions for summary judgment, the Circuit Court for Baltimore City granted appellee’s motion on the ground that the policy unambiguously excluded coverage.

We hold that the endorsements are enforceable and that the language contained in the endorsements is ambiguous. In addition to the ambiguity as to the policy’s coverage, there remains a fact question as to whether the eviction arose out of operations covered by the policy. Regardless of whether we classify appellee’s policy as a premises liability policy or a business liability policy, our review of relevant case law suggests that coverage for the wrongful eviction may exist if there is a sufficient connection between the wrongful eviction and, in the words of the endorsements, the operation of, or ¹⁴⁵ operations incidental to, the designated premises. Accordingly, we must vacate the summary judgment entered in favor of appellee and remand to the circuit court for further proceedings.

Factual Background Appellants were tenants in an apartment located at 4800 Claybury Avenue in Baltimore City. In June, 1996, TSI acquired the property by tax sale, and on August 16, 1996, evicted appellants. Appellants filed suit in the United States District Court for the District of Maryland against TSI, John W. Anderson, Sheriff of Baltimore City, and Nicholas A. Piscatelli, an officer and stockholder in TSI. Appellants alleged, in essence, that TSI acquired title to the property at a tax sale, pursuant to Md.Code, Tax-Property sections 14-808, et seq., as it then appeared, and evicted appellants as tenants without prior notice to them.

Appellants asserted that they were deprived of due process of law in violation of the Fourteenth Amendment and Article 24 of the Maryland Declaration of Rights. Appellants also asserted a violation of section 8-203(e) and (f) of the Maryland Code’s Real Property article based on TSI’s treatment of their security deposit. 2 Ultimately, the federal court entered judgments in favor of appellants and against TSI only. On June 10, 1999, a judgment was entered in the amount of $115,030.00 for compensatory and punitive damages, and on December 13, 1999, a judgment was entered in the amount of $108,089.81 for attorney’s fees and expenses. Appellants recorded both judgments in the Circuit Court for Baltimore City.

At the time of the eviction, TSI was named as an insured in a policy issued by appellee, but appellee denied coverage. After recording the judgments in circuit court, appellants served a writ of garnishment on appellee, seeking the pro ¹⁴⁶ ceeds of its insurance policy. Appellants also filed a motion for declaratory judgment, seeking a declaration that appellee’s policy provided coverage for the judgments. The parties filed cross motions for summary judgment.

In an opinion and order dated February 22, 2002, the circuit court denied appellants’ motion and granted appellee’s motion, concluding that the language in the “Limitation of Coverage—Real Estate Operations” endorsement and the language in the “Limitation of Liability Coverage to Designated Premises” endorsement clearly and unambiguously did not extend coverage to the property on which the wrongful eviction occurred. The policy in question was issued by appellee to TSI, effective January 14, 1994. The policy was renewed on January 14, 1995, and again on January 14, 1996, and was in force on August 16, 1996, the date of the eviction. The “Limitation of Coverage Real Estate Operations” endorsement was part of the policy when originally issued, and the “Limitation of Liability Coverage to Designated Premises” endorsement was added on November 9,1995, effective January 14,1995.

Additional relevant facts will be set forth as necessary. Issues Presented and Parties’ Contentions The principal question before us is whether the policy in question covers the wrongful eviction claims by appellants that resulted in judgments. Appellants contend that (1) appellee should be estopped from relying on the endorsement in the original policy because it did not expressly rely upon it until long after this litigation had commenced, (2) the endorsement added in 1995 is void because proper notice was not given of the change, and (3) there is coverage under the basic policy provisions, and coverage is not excluded under either endorsement. Appellants assert that the policy unambiguously provides coverage, or if ambiguous, that it should be construed against the insurer to provide coverage as a matter of law, or at the very least, that there is sufficient ambiguity to create an issue of fact.

With respect to the existence of an ambiguity, appellants rely on evidence of representations made by appel ¹⁴⁷ lee’s agent, in addition to the language in the policy and related documents. Appellee contends that (1) under the terms of the endorsements, the policy unambiguously excludes coverage, (2) proper notice was given of the 1995 endorsement, and (3) coverage was not created by any representations or other acts by appellee. With respect to (3), appellee asserts that the evidence relied upon by appellants is not legally sufficient to create coverage, but if it were, there would be a factual dispute that could not be resolved on summary judgment. Discussion Before reaching the coverage issue, we must determine whether appellee may rely on either endorsement.

First, appellants argue that because the “Limitation of Coverage— Real Estate Operations” endorsement in the original policy was not expressly relied upon until after years of litigation, appellee is estopped from now relying on it. Second, appellants contend that the “Limitation of Liability Coverage to Designated Premises” endorsement should be declared void as a matter of law because appellee failed to provide adequate notice of the change effected by the endorsement. For the reasons explained below, we find both of appellants’ arguments unpersuasive, and therefore consider the scope of the policy’s coverage, including the language of both endorsements. Estoppel Appellants’ estoppel argument must be rejected based on “the rule in Maryland that ‘waiver or estoppel may occur only when it does not create new coverage; an extension of coverage may only be created by a new contract.’ ” Allstate Ins.

Co. v. Reliance Ins. Co., 141 Md.App. 506, 515 , 786 A.2d 27 (2001) (quoting United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 497 (4th Cir.1998) (citing Prudential Ins. Co. v. Brookman, 167 Md. 616, 620 , 175 A. 838 (1938))). ¹⁴⁸ This Court, relying on a crucial distinction highlighted by the Court of Appeals in St. Paul Fire & Marine Ins.

Co. v. Molloy, 291 Md. 139 , 146 n. 4, 433 A.2d 1135 (1981), in dicta, has explained that defenses founded upon lack of basic coverage [as opposed to] those arising from the failure of the claimant to satisfy some ‘technical’ condition subsequent ... may not be waived merely by the company’s failure to specify them in its initial response to the claim, for the effect of that would be to expand the policy to create a risk not intended to be undertaken by the company. Ins. Co. of North America v. Coffman, 52 Md.App. 732, 743, 451 A.2d 952 (1982) (citing Molloy and Neuman v. Traveler’s Indemnity Co., 271 Md. 636 , 319 A.2d 522 (1974)). In Coffman, the insurer failed to mention the additional defense that coverage would be excluded under a certain section of the policy exclusions until it submitted its motion for summary judgment.

Id. at 740 , 451 A.2d 952 . This Court held that the doctrine of waiver or estoppel could not be applied because the condition contained in the exclusionary provision was “not merely a prerequisite to consideration of a claim ... [but] rather, an exclusion from coverage,” and coverage could not be established by waiver or estoppel. Id. at 743 , 451 A.2d 952 . In addition, in Washington Metropolitan Area Transit Authority v. Bullock, 68 Md.App. 20, 39-40 , 509 A.2d 1217 (1986), this Court held that “[t]he mere failure of the adjustor to raise the defense therefore cannot, by waiver or estoppel, create coverage that would otherwise not exist,” pointing out that “[t]he defense at issue [there went to] basic coverage, not to some precondition to asserting the claim.” Similar to the circumstances in Coffman and Bullock , the defense at issue here goes to the substantive question of the policy’s coverage, not a technical condition to recovery.

Accordingly, appellants may not rely on an estoppel theory to change the scope of the policy’s coverage by prohibiting appellee from relying on language in the original endorsement. ¹⁴⁹ Notice Appellants’ second argument, that appellee may not rely on the November 1995 endorsement because it failed to provide adequate notice of the change to TSI and is, therefore, void as a matter of law, must also be rejected. Appellants rely on a regulation, rather than common law, to support their argument. COMAR 31.08.05.02(A), 3 the provision governing notice when adding, reducing, or eliminating property and casualty insurance coverage, provides: After July 30, 1981, if any insurer upon renewal or by endorsement initiates any change in any primary property or casualty policy, which is not at the request of the insured (except for motor vehicle liability insurance to which Insurance Article, § 27-605, Annotated Code of Maryland, is applicable), which effects an elimination of or reduction in benefits including any increase in deductible, the insurer shall give the insured, in general terms, written notice of the change in the policy. The notice may be mailed or delivered to the insured by the insurer or its authorized representative, in which case the insurer shall provide its authorized representative with the appropriate notice.

This notice can be by way of the following phrase or its equivalent: Notice: Certain coverage in this policy has been eliminated or reduced, or a change has been made in the deductible. The description of the change in coverage or deductible is as follows: In the present case, the endorsement contained the words— “This endorsement changes the policy. Please read it carefully.”—at the top in bold, capitalized letters. Appellants argue that appellee did not comply with the regulatory requirements because the endorsement did not state that coverage had been eliminated or reduced or provide a description of the change in ¹⁵⁰ coverage.

They also argue that other documents, such as a policyholder notice sent to TSI by appellee at roughly the same time as the endorsement,- failed to convey a reduction in coverage. Based on our review of the regulatory language, applicable case law, and the limited facts relating to the issuance of the endorsement, we hold that appellants are not entitled to judgment as a matter of law on this point. COMAR 31.08.05.02(A) does not require specific language to indicate that a change has been made. An insurer, under the circumstances in this case, is not required to paraphrase or otherwise explain the change in addition to the language in the endorsement itself.

Requiring an insurer to state the substantive change in two different ways would increase the possibility of ambiguity. The purpose of the regulation is to require the insurer to give notice of the change. The endorsement to appellee’s policy expressly stated that it effected a change. In a prior opinion discussing the regulation in question, this Court emphasized the importance of providing adequate notice but did not impose any bright line rules regarding necessary language.

See CIGNA Prop. & Cas. Co. v. Zeitler, 126 Md.App. 444, 472 , 730 A.2d 248 (1999) (upholding the trial court’s instructions to the jury as to the requirements of the regulation, including the statement that no specific language must be used when providing notice). J.A.M. Assocs. of Baltimore v. Western World Ins. Co., Inc., 95 Md.App. 695, 704 , 622 A.2d 818 (1993), and Gov’t Employees Ins.

Co. v. Ropka, 74 Md.App. 249, 268 , 536 A.2d 1214 (1988), discussed by the parties, did not interpret the regulation in question. Appellants’ arguments regarding the endorsement tend to bear on the question whether the endorsement limited coverage as appellee suggests, and whether coverage was already limited by the original endorsement to the policy, rather than whether appellee provided adequate regulatory notice. The endorsement did not fail as a matter of law to provide sufficient notice to TSI, and we reject appellants’ argument ¹⁵¹ that the November 1995 endorsement is void as a matter of law. The resolution of the notice issue will ultimately be determined as part of the resolution of the coverage issue.

Coverage Our interpretation of the policy, including the language in the endorsements, is guided by well-settled principles set forth in Pacific Indemnity Co. v. Interstate Fire & Casualty Co., 302 Md. 383 , 488 A.2d 486 (1985), where the Court of Appeals stated: 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. 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. Maryland courts should examine the character of the contract, its purpose, and the facts and circumstances of the parties at the time of execution.

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. In the first instance the inquiry is confined to analysis of the language used.

Courts may construe unambiguous contracts as a matter of law. The language used may be ambiguous if it is “general” and may suggest two meanings to a reasonably prudent layperson. 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. Construction of the contract by the parties to it before the controversy arises is an important aid to interpretation of uncertain terms.

If the extrinsic evidence presents disputed factual issues, construction of the ambiguous contract is for the jury. The ¹⁵² court may construe an ambiguous contract if there is no factual dispute in the evidence. Id. at 388-89 , 488 A.2d 486 (citations omitted). We must first determine whether the language of the policy is clear or ambiguous.

If it is clear, then we need not look beyond the words of the policy. If the language is deemed ambiguous, extrinsic evidence is admissible to determine the intention of the parties. Appellee relies on two separate endorsements to support its argument that appellants’ claim is not covered. The first, entitled “Limitation of Coverage—Real Estate Operations,” and in place when the policy was initially executed, states: With respect to real estate operations, the insurance applies only to “bodily injury,” “property damage,” “personal injury” or “advertising injury” arising out of the ownership, operation, maintenance or use of: 1.

Such part of any premises you use for general office purposes; and 2. Premises listed with you for sale or rental, if: a. You do not own, operate, manage or rent the premises; b. They are not in your care, custody, or control; or c.

You do not act as agent for the collection of rents in any supervisory capacity. (emphasis added). The second endorsement, entitled “Limitation of Liability Coverage to Designated Premises,” was added to the policy on November 9, 1995, effective January 14, 1995, and provides that “[t]his insurance applies only to ‘bodily injury, “property damage,’ ‘personal injury,’ and ‘advertising injury,’ and medical expenses arising out of the ownership, maintenance or use of the premises described in the Declarations and operations 'necessary or incidental to those premises.” (emphasis added). There is no dispute about the following: (1) the only address listed in the Declarations pages of the policy was “1015- ¹⁵³ 1017 Cathedral Street, Baltimore, Md. 21201,” described as “offices-real estate agents,” and (2) the policy further defined “personal injury” to include injury resulting from a wrongful eviction.

The parties dispute whether the underlined language limits coverage to an eviction occurring at the designated premises, or whether the provisions cover an eviction occurring on another property but initiated by TSI in its office located at the designated premises. Again, the starting point of our analysis requires that we determine whether the policy is clear and unambiguous. After considering the relevant Maryland cases, we conclude that the language in appellee’s policy “may suggest two meanings to a reasonably prudent layperson.” Consequently, we vacate the summary judgment. Many cases, arguably analogous if not on point, are distinguishable either on the factual circumstances or the policy’s language.

We shall not undertake to review all such cases in this opinion. We find four cases, discussed by the parties, to be particularly instructive. We shall set them forth in chronological order and then discuss their pertinence to the present case. In 1963, in Pennsylvania Threshermen & Farmers’ Mut.

Cas. Ins. Co. v. Travelers Ins. Co., 233 Md. 205 , 196 A.2d 76 (1963), the Court of Appeals construed policy language similar to the language in the present case to provide coverage for an auto repair shop whose employee was involved in an auto accident while driving one of its customer’s vehicles to the customer’s home.

Despite the fact that it was not standard practice for the repair shop to deliver its customers’ vehicles, the Court concluded that “[t]he relationship between [employee’s] use of the car and [insured’s] business was clearly sufficient ... to render the use of the car an operation ‘necessary or incidental’ to the maintenance of the repair shop.” Id. at 213 , 196 A.2d 76 . Consequently, the Court held that the insured’s policy covered its employee’s accident that occurred away from the repair shop premises. ¹⁵⁴ In Northern Assurance Co. of America v. EDP Floors, Inc., 311 Md. 217 , 533 A.2d 682 (1987), an intoxicated employee of the insured injured a third party while unloading tiles from a truck with a hydraulic lift. The accident occurred away from the insured’s premises, and the insured’s general liability carrier denied coverage. The trial court determined that the insurer did have a duty to defend and pay any resulting judgment, and the insurer appealed.

The Court of Appeals carefully examined the language in an exclusionary clause of the policy, which excluded coverage for