Springer v. Erie Insurance Exchange

BATTAGLIA, J. This appeal arises out of an action filed in the Circuit Court for Frederick County by David Springer, Appellant, against Erie Insurance Exchange, Appellee (“Erie”), in which Mr. Springer sought declaratory relief and damages for breach of contract, after Erie refused to provide him with a legal defense when he was sued by a third party, J.G. Wentworth Originations, LLC (“J.G. Wentworth”), for, inter alia, defama ¹⁴⁵ tion and false light. 1 Mr. Springer claimed that, under the personal injury liability coverage provisions of his Erie homeowner’s insurance policy, Erie had a duty to provide him with a legal defense in the J.G. Wentworth lawsuit. Erie refused and filed a counterclaim for declaratory relief on its own behalf, arguing that the J.G. Wentworth lawsuit was triggered by Mr. Springer’s business interests and that his insurance policy included a “business pursuits” exclusion, which specifically barred claims based on the insured’s business pursuits. After the Circuit Court heard oral arguments on cross motions for summary judgment, it issued a declaratory judgment and summary judgment in favor of Erie, declaring, in part, that “Erie Insurance Exchange did not have a duty to defend or indemnify David Springer” and that Erie was not obligated “to pay for the costs of that defense or this action.” Mr. Springer noted an appeal to the Court of Special Appeals, and before the intermediate appellate court could decide the case, we issued a writ of certiorari on our own initiative, 433 Md. 513 , 72 A.3d 172 , to consider whether an insurer can rely solely on allegations contained within a complaint filed by a third party when denying an insured’s claim for coverage under the insurance policy’s “business pursuits” exclusion. 2 ¹⁴⁶ We shall hold that in order to determine if a third party complaint triggers the “business pursuits” exclusion in a homeowner’s liability insurance policy, an insurer must consider the continuity of the insured’s alleged business interests and the insured’s profit motive. J.G. Wentworth brought suit in 2011 against David Springer and the Sovereign Funding Group in the Circuit Court for Frederick County, alleging that they had used two websites, jgw-sucks.com and jgwentworth-scam.com, to spread defamatory and false light information in an attempt to lure customers away from J.G. Wentworth.

Mr. Springer then contacted Erie, his insurer, for the first time to request that Erie provide him with a legal defense in the J.G. Wentworth action, because he asserted that, under the terms of his “Ultracover HomeProtector” insurance policy, Erie had a duty to defend him. 3 When Erie refused to provide him with a defense, ¹⁴⁷ stating that his claim was precluded by, inter alia, the “business pursuits” exclusion in his policy, Mr. Springer retained his own lawyer, thereafter instituting this suit against Erie, in which he sought a declaratory judgment that Erie was obligated to defend him and that Erie had breached its duty by failing to do so. In his complaint against Erie, Mr. Springer cited numerous provisions of his “Ultracover HomeProtector” insurance policy issued by Erie, effective in July 2009 and renewed annually thereafter. Section II of the policy described the “Home and Family Liability Protection” offered under the policy and explained that “Personal Liability Coverage includes Bodily Injury Liability Coverage, Property Damage Liability Coverage and Personal Injury Liability Coverage.” “Personal injury” was defined as: “personal injury” means injury arising out of: 1. libel, slander or defamation of character; 2. false arrest, wrongful detention or imprisonment, malicious prosecution, racial or religious discrimination, wrongful entry or eviction, invasion of privacy, or humiliation caused by any of these. The policy also contained the following assurance: PERSONAL INJURY LIABILITY COVERAGE OUR PROMISE We will pay all sums up to the amount shown on the Declarations which anyone we protect becomes legally obligated to pay as damages because of personal injury caused by an offense committed during the policy period.

We will pay for only personal injury covered by this policy. We may investigate or settle any claim or suit for damages against anyone we protect, at our expense. If anyone we protect is sued for damages because of personal injury covered by this policy, we will provide a defense with a lawyer we choose, even if the allegations are not true. We ¹⁴⁸ are not obligated to pay any claim or judgment or defend any suit if we have already used up the amount of insurance by paying a judgment or settlement.

Erie defended against Mr. Springer’s action, and as its own basis for declaratory relief, argued that Mr. Springer’s claim for coverage was precluded by the policy’s exclusions, which were detailed in a section of the policy entitled, “What We Do Not Cover-Exclusions.” Specifically, the “business pursuits” exclusion provided: We do not cover under ... Personal Injury Liability Coverage ...: 2. .. .personal injury arising out of business pursuits of anyone we protect.[ 4 ] The policy defined “business” as “any full-time, part-time or occasional activity engaged in as a trade, profession or occupation, including farming.” In its counterclaim, Erie also cited another portion of its policy Erie asserted precluded Mr. Springer’s claim: 19. The policy further excludes from the Personal Injury Liability Coverage “Bodily injury or personal injury ¹⁴⁹ arising out of business pursuits of anyone we protect, other than business pursuits covered by this policy. 21. The policy further excludes from the Personal Injury Liability Coverage “Suits for libel, slander or defamation of character made against anyone we protect if the publication or statement” a. took place before the effective date of this insurance or; b. was knowingly untrue.” The basis for Mr. Springer’s claim, and Erie’s claim of exclusion, was the action brought against Mr. Springer by J.G. Wentworth.

J.G. Wentworth, a business specializing in purchasing structured settlements and annuities from individuals, sued Mr. Springer and Sovereign Funding Group, a company allegedly specializing in purchasing structured settlements and annuities, in the Circuit Court for Frederick County, alleging that Mr. Springer and the Sovereign Funding Group had engaged in false and misleading advertising in violation of Section 1125 of Title 15 of the United States Code, entitled the “Lanham Act,” unfair and deceptive trade practices under Section 13-303 of the Commercial Law Article, Maryland Code (1975, 2013 Repl.Vol.) entitled “Practices generally prohibited” under the Maryland Consumer Protection Act, defamation per se, injurious falsehood, 5 false light, tortious interference with prospective business advantage, and tortious interference with contractual relations. Specifically, J.G. Wentworth alleged in the complaint that Mr. Springer and the Sovereign Funding Group had created, maintained, and publicized two websites that disseminated false and defamatory information regarding J.G. Wentworth, specifically that Mr. Springer and the Sovereign Funding Group had sought, through the websites, “to mislead and ¹⁵⁰ misrepresent facts to the public, unfairly and deceptively compete, defame, disparage, and tortuously interfere with the business interests of J.G. Wentworth.” The scheme was defined as follows: 2. Upon information and belief, Defendants intentionally and maliciously use or used the websites jgw-sucks.com (“jgw-sucks site”) and jgwentworth-scam.com (“jgw-scam site”) to deliver web content to J.G. Wentworth’s customers and potential customers that Defendants know contains false and misleading statements about J.G. Wentworth. The Defendants also intentionally and maliciously link J.G. Wentworth’s name with the word “scam” in a large number of bogus Internet articles for the sole purpose of creating a false belief on the part of customers and potential customers that J.G. Wentworth’s business is a “scam” when Defendants know that J.G. Wentworth is, in fact, a legitimate business and not a scam.

Defendants personally instructed, and continue to instruct, a large number of potential customers, through direct telephone communication, to visit the jgw-scam site and the jgw-sucks site, while misrepresenting to the potential customers that these are independent sites not controlled by the Defendants. Defendants, in fact, control these sites. 3. Defendants, through their scheme, attempted to conceal their role and avoid attribution by using Internet practices designed to keep their true identities, and tortious, anti-competitive purpose, hidden from potential customers. The Defendants intended to thereby endow their untrue, defamatory, and anti-competitive statements with a false aura of credibility.

The Defendants know that if they claimed authorship of the jgw-sucks site, the jgw-scam-site, and the larger number of feeder sites and bogus articles containing reference to “jgwentworth” and “scam,” then potential customers would have given these materials the credence they deserved: none. Defendants’ unlawful conduct is ongoing and continuing. 4. Defendants, through direct, personal contact with potential customers, use these websites, domains, and bogus ¹⁵¹ articles to distribute negative content about J.G. Wentworth to actual and potential customers, as well as to the public at large, in order to purposefully and dramatically damage J.G. Wentworth’s online brand and business reputation and discourage customers from doing business with J.G. Went-worth. Defendants engage in this conduct knowing that their conduct is misleading, unfair, and unlawful.

Although the complaint contained numerous counts and factual allegations, the two counts, “defamation per se ” and “false light,” with which we are concerned, contained the following: 93. Defendants published false and defamatory statements concerning J.G. Wentworth on websites that they operated, including the jgw-scam site, the jgw-sucks site, and the scam-related sites. 94. The statements published by Defendants portray J.G. Wentworth in a negative light and discourage potential customers from doing business with J.G. Wentworth. 95. Among other false and defamatory statements, Defendants published statements accusing J.G. Wentworth of being “guilty” of criminal conduct, “fraud, misrepresentation and practices that were oppressive and unconscionable,” “deceptive marketing practices,” being liars, and that the company is a “scam.” 96.

The statements published by Defendants concerning J.G. Wentworth are defamatory per se because the statements falsely accuse J.G. Wentworth of criminal conduct, of immorality, and tend to injure J.G. Wentworth’s profession or trade. 97. Defendants published the statements with actual malice, i.e. with knowledge of their falsity and/or reckless disregard for the truth and with the intention to gain an unfair business advantage. 98. Despite multiple demands to cease and desist operation of the websites by Defendants and remove the false and defamatory statements, Defendants refuse to remove the false statements from their websites. ¹⁵² 99. As a direct result of Defendants’ false and defamatory publications, J.G. Wentworth has suffered and continues to suffer actual business losses as well as irreparable injury to its reputation, good will, and business interests.

Many similar allegations were made in the complaint regarding the second claim at issue, “false light”: 111. Defendants published false statements about J.G. Wentworth on the jgw-scam site, the jgw-sucks site, and the scam-related domains. 112. The statements published by Defendants portray J.G. Wentworth in a negative light and discourage potential customers from doing business with J.G. Wentworth. 113. Defendants published the statements with actual malice, i.e., with knowledge of their falsity and/or reckless disregard for the truth. 114.

Despite multiple demands to cease and desist operation of the websites by Defendants and to remove the false statements which portray J.G. Wentworth in a negative light, Defendants refused to do so. 115. J.G. Wentworth has suffered and continues to suffer actual harm to its reputation and business interests as a direct result of Defendants’ conduct. The J.G. Wentworth complaint is terse regarding Mr. Springer’s involvement with the structured" settlement business as he was sued individually, and the Sovereign Funding Group was sued as a corporation. 6 J.G. Wentworth, however, did allege that Mr. Springer “is the CEO of Sovereign Funding Group and is associated with other entities or associations in the business of buying structured settlement payment streams” and that Mr. Springer and the Sovereign Funding Group benefitted from business lost by J.G. Wentworth, because of the alleged defamation. The viability of Sovereign as ¹⁵³ an entity, however, was questioned in the first footnote in the J.G. Wentworth complaint: The Maryland State Department of Assessments and Taxation (“SDAT”) online Business Records Search did not result in any matches for a business entity call “Sovereign Funding Group.” The SDAT Business Records Search did result in a record for the “Sovereign Group,” which was registered at an address in Columbia, Maryland to Melissa Springer, who, upon information and belief, is the wife of Defendant David Springer.

According to SDAT, the corporate status for the Sovereign Group was forfeited in April 2009.... Eventually, however, pursuant to a joint stipulation between Mr. Springer and J.G. Wentworth, the case was dismissed with prejudice. After the J.G. Wentworth litigation had been dismissed, Mr. Springer again contacted Erie in an attempt to recover the funds that he had expended in defending himself. When Erie refused to pay, Mr. Springer brought the instant action.

Appended to Mr. Springer’s complaint is a letter from his attorney responding to Erie’s earlier denial of his claim for legal coverage and informing Erie of the outcome of J.G. Wentworth litigation. The letter also sought reimbursement of Mr. Springer’s legal costs: At the outset, I am happy to advise that this [J.G. Went-worth] matter has been successfully resolved. With a modest amount of attorney time and expense, we successfully defended against the preliminary injunction and raised such significant legal impediments to the plaintiffs claim that, following a conference with the court, an agreement was reached by which the plaintiff took a voluntary dismissal with prejudice. The matter is fully resolved, except of course for recovering the defense costs and expenses from Erie.

(footnote omitted). Also appended to the complaint is a letter in which Erie had denied coverage under Mr. Springer’s homeowner’s policy and ¹⁵⁴ indicated that it had “reviewed all policy periods from inception forward in consideration of coverage” and that it had “determined the policy does not provide coverage for defense or indemnification of any potential judgment.” The letter from Erie also duplicated portions of the policy related to personal injury liability exclusions and stated: The cited exclusions serve to preclude coverage for this matter. Erie Insurance will not make a defense referral. The policy does not provide coverage for defense or indemnification of any potential judgment.

Again, this letter is written to serve as a full denial of coverage. The letter concluded that it was “not meant to be exhaustive” and that Erie reserved the right “to deny coverage under any of the terms conditions or exclusions set forth in its policies.” Mr. Springer, thereafter, filed suit in the Circuit Court for Frederick County seeking declaratory relief, which Erie also sought in a counterclaim, as well as $70,337 to compensate him for legal fees expended and $3,920.07 in costs incurred. Both Mr. Springer and Erie filed motions for summary judgment in the Circuit Court. After hearing argument, the court granted summary judgment in favor of Erie and entered a declaratory judgment which stated: 1.

That the allegations in the underlying suit filed against David Springer ... were not potentially covered under the terms and conditions of the insurance policy.... 2. That the Underlying Action alleged wrongful acts that were expected or intended by David Springer and that arose out of the business pursuits of David Springer (as business is defined by the policy cited herein); and 3. That Erie Insurance Exchange did not have a duty to defend or indemnify David Springer in the Underlying Action, or to pay for the costs of that defense or this action. On the same day, the Circuit Court issued an opinion and order explaining, in part, the rationale underlying the declaratory judgment and the granting of summary judgment in favor of Erie.

The judge explained that, “It is quite clear from the ¹⁵⁵ underlying Complaint ... that the allegations involved arose from the business pursuits of Mr. Springer” and that: Each of the allegations against Mr. Springer in the underlying case are derived from his position as a business competitor with Mr. Wentworth. It is asserted in the underlying complaint that the purpose of Mr. Springer’s actions ... was to gain a business advantage over Mr. Wentworth by dissuading customers from choosing Went-worth Originations, LLC. Citing Northern Assurance Co. of America v. EDP Floors, Inc., 311 Md. 217, 230 , 533 A.2d 682, 688 (1987), the court explained that, pursuant to the policy’s definition of “business,” it was established “very clearly” that the J.G. Went-worth litigation “arose from [Mr. Springer’s] “business pursuits” and noted that: There is no requirement that Plaintiff be currently engaged in such business, but rather that the action, “arose out of’ Plaintiffs business pursuits. See Northern Assurance Co. of America, 311 Md. at 230 [ 533 A.2d 682 ], Therefore, because [ ] Springer’s conduct, as alleged by Wentworth, originated from Springer’s motive to gain an unfair business advantage/profits, the very description of Springer’s actions fit neatly into the definition of business as it was done, “for the purpose of a livelihood or profit.” Zurich Insurance Co., 261 Md. at 616 [ 276 A.2d 658 ].

Because the Circuit Court determined that Mr. Springer’s claim was “excluded for coverage under the business pursuits provision,” it did not address the applicability of the “intended or expected” exclusion. 7 With regard to the standard of review used by this Court when considering a declaratory judgment entered in tandem with summary judgment, we consider “ ‘whether that declaration was correct as a matter of law.’ ” Catalyst Health Solutions, Inc. v. Magill, 414 Md. 457, 471 , 995 A.2d 960 , 968 ¹⁵⁶ (2010), quoting Olde Severna Park Improvement Ass’n, Inc. v. Gunby, 402 Md. 317, 329 , 936 A.2d 365, 371 (2007). We review a grant of summary judgment on the following basis: The question of whether the trial court properly granted summary judgment is a question of law and is subject to de novo review on appeal. Standard Fire Ins. Co. v. Berrett, 395 Md. 439, 450 , 910 A.2d 1072, 1079 (2006); Miller v. Bay City Prop.

Owners Ass’n, Inc., 393 Md. 620, 632 , 903 A.2d 938, 945 (2006), quoting Myers v. Kayhoe, 391 Md. 188, 203 , 892 A.2d 520, 529 (2006); Ross v. State Bd. of Elections, 387 Md. 649, 658 , 876 A.2d 692, 697 (2005); Todd v. MTA, 373 Md. 149, 154 , 816 A.2d 930, 933 (2003); Beyer v. Morgan State Univ., 369 Md. 335, 359 , 800 A.2d 707, 721 (2002). If no material facts are in dispute, we must determine whether summary judgment was correctly entered as a matter of law. Standard Fire Ins. Co., 395 Md. at 450 , 910 A.2d at 1079 ; Ross, 387 Md. at 659 , 876 A.2d at 698 ; Todd, 373 Md. at 155 , 816 A.2d at 933 ; Beyer, 369 Md. at 360 , 800 A.2d at 721 .

On appeal from an order entering summary judgment, we review “only the grounds upon which the trial court relied in granting summary judgment.” Standard Fire, 395 Md. at 450 , 910 A.2d at 1079 ; Ross, 387 Md. at 659 , 876 A.2d at 698 , quoting Eid v. Duke, 373 Md. 2, 10 , 816 A.2d 844, 849 (2003), quoting in turn Lovelace v. Anderson, 366 Md. 690, 695 , 785 A.2d 726, 729 (2001). River Walk Apartments, LLC v. Twigg, 396 Md. 527, 541-42 , 914 A.2d 770, 778-79 (2007). Before this Court, Mr. Springer argues that the “business pursuit” exclusion of his policy does not apply because, he asserts, he was not “actively managing or operating, or participating in the management or operation of a business” at the time of the events alleged in the J.G. Wentworth litigation. Mr. Springer points to the “contradictory and ambiguous” allegations in the J.G. Wentworth complaint, which stated Sovereign Funding Group had forfeited its corporate status as of 2009 and that Mr. Springer’s wife, not Mr. Springer himself, had served as its CEO.

Mr. Springer also emphasizes that he provided extrinsic evidence to Erie, in the form of a letter ¹⁵⁷ from his attorney, demonstrating that he was no longer affiliated with the Sovereign Funding Group and that he was only acting in his personal capacity during the time period subject to J.G. Wentworth’s complaint. Moreover, Mr. Springer urges this Court to require Erie to consider more than the face of the complaint before denying his claim, stating two factors explored by various tribunals when determining whether a business pursuits exclusion applies: continuity and profit motive. Mr. Springer, relying on such cases, argues that the business pursuits exclusion is inapplicable without a finding that an individual has continuously engaged in a certain field of business without a significant break. In the present case, Mr. Springer asserts: Here, there is no continuity in the business pursuits Springer was alleged to have engaged in.

No evidence demonstrated that Springer was acting within his “customary engagement” or “stated occupation” when he engaged in the alleged defamation. Rather, the evidence demonstrated only that Springer was previously in the business of structured settlements in connection with [Sovereign Funding Group], but that he had discontinued his involvement in that business. Similarly, when addressing the profit that Mr. Springer stood to gain from his alleged defamation against J.G. Wentworth, he again focuses on the scant record developed in the trial court, stating: Nor is there evidence of a “profit motive” for the alleged defamation.... The Underlying [J.G. Wentworth] Complaint contained a bare allegation that Springer was connected to the structured settlement business, but that allegation was refuted by Springer himself when he, through counsel, informed his Erie agent that he was not ...

The only evidence before Erie when it denied coverage was that Springer was not engaged in business pursuits related to structured settlements or [Sovereign Funding Group]. Thus, Springer would have had no profit motive to engage in the alleged defamation. ¹⁵⁸ The evidence presented to Erie demonstrated that Springer was not engaged in business pursuits, was not actively managing or operating a business, and was not motivated by profit. At best, the evidence was contradictory on this issue. In response to Mr. Springer’s argument, Erie relies primarily on the language of the policy to argue that the Circuit Court properly granted its motion for summary judgment.

Erie also contends that “there is no need to refer” to evidence outside of the J.G. Wentworth complaint, because a court should first interpret the policy and determine “whether there is coverage for the allegation actually made in the tort complaint.” When examining an insurance policy, we begin by applying established contract principles to its language. Moscarillo v. Professional Risk Management Services, Inc., 398 Md. 529, 540 , 921 A.2d 245, 251 (2007). In deciding an issue of coverage under an insurance policy, the foremost rule “of construction is to apply the terms of the insurance contract itself.” Bausch & Lomb Inc. v. Utica Mut. Ins.

Co., 330 Md. 758, 779 , 625 A.2d 1021, 1031 (1993); Mitchell v. Maryland Casualty Co., 324 Md. 44, 56 , 595 A.2d 469 (1991); Mut. Fire, Marine & Inland Ins. Co. v. Vollmer, 306 Md. 243, 250 , 508 A.2d 130, 133 (1986). When interpreting an insurance policy, we give the words of the policy their “ ‘customary, ordinary, and accepted meaning.’ ” MAMSI Life & Health Ins.

Co. v. Callaway, 375 Md. 261, 279 , 825 A.2d 995, 1005 (2003), quoting Mitchell, 324 Md. at 56 , 595 A.2d at 475 . The “business pursuits” exclusion states that Erie will not cover personal injuries “arising out of business pursuits,” and contains two key phrases, “arising out of’ and “business pursuits.” The term “arising out of’ is undefined in the policy, and the parties suggest different meanings to us. Mr. Springer argues that he was “not actively engaged in business” with the Sovereign Funding Group at the time of the alleged torts and he specifically argues that he did not “ ‘actively manage[ ] or operate[], or participate[ ] in the management or opera ¹⁵⁹ tiori ” of a business, quoting our opinion in Zurich Insurance Co. v. Friedlander, 261 Md. 612, 617 , 276 A.2d 658, 660 (1971). Erie counters this argument by pointing to our broad definition of “arising out of’ and noting that the “business pursuits” exclusion does not require an active engagement.

The Circuit Court found, citing Northern Assurance Co. of America v. EDP Floors, Inc., 311 Md. 217, 230 , 533 A.2d 682, 688 (1987), that “[t]here is no requirement that Plaintiff be currently engaged in such business, but rather that the action ‘arose out of Plaintiffs business pursuits.” In EDP Floors, we did construe the phrase “arising out of’ to equate to “originating from, growing out