St. Paul Fire & Marine Insurance v. Pryseski

Eldridge, J., delivered the opinion of the Court. This declaratory judgment action concerns a liability insurer’s duty to provide its insured with a defense in a tort suit brought against the insured. During the time period relevant to this case, the Sun Life Insurance Company of America was a named insured in a liability insurance policy issued by the petitioner, St. Paul Fire & Marine Insurance Company. This policy, inter alia, ¹⁸⁹ afforded coverage for "all sums which the Insured shall become legally obligated to pay as damages because of. . . bodily injury ... to which this Insuring Agreement applies, caused by an occurrence . . . .” The coverage section went on to provide that St. Paul "shall have the ... duty to defend any suit against the Insured on account of such bodily injury . . ., even if any of the allegations of the suit are groundless, false or fraudulent . . . .” The policy itself contained several exclusions and conditions, none of which is relevant in the present case.

Thus, for purposes of this case, the policy broadly covered damages because of bodily injury "caused by an occurrence.” By a subsequent endorsement, which was in effect at the time of the events giving rise to this litigation, any employee of Sun Life "while acting within the scope of his duties” was added as a named insured. The same endorsement, among other things, expressly provided coverage for injury "arising out of one or more of the following offenses committed in the conduct of the Named Insured’s business: Group A —• False arrest, detention or imprisonment, or malicious prosecution; Group B ~~ The publication or utterance of a libel or slander or of other defamatory or disparaging material, or a publication or utterance in violation of an individual’s right of privacy; except publications or utterances in the course of or related to advertising, broadcasting or telecasting activities conducted by or on behalf of the Named Insured; Group C — Wrongful entry or eviction, or other invasion of the right of private occupancy . . . The endorsement also provided that the words "bodily injury shall be deemed to include mental anguish, mental injury or ¹⁹⁰ illness whether or not accompanied by physical injury or illness suffered by any person or persons.” As far as the record in this case discloses, neither the main policy nor any endorsement provided a definition of the word "occurrence.” The respondent, Charles Pryseski, was at all relevant periods employed by Sun Life as a field manager and insurance agent. His duties included the collection of monthly premiums from policy holders of Sun Life.

In December 1977, Rosemary Grantland and her husband, John Grantland, filed a tort suit in the Superior Court of Baltimore City against Sun Life and Charles Pryseski. The declaration contained three counts. In the first count, entitled "Intentional Infliction of Emotional Distress,” it was alleged that on the morning of December 22, 1976, Charles Pryseski, "in the course of his employment as agent for . . . Sun Life,” came to the Grantlands’ home for the purpose of collecting the monthly insurance premium which was due.

It was further alleged that, after collecting the premium and receipting the Grantlands’ payment book, Pryseski questioned Rosemary Grantland about her sex life, "began to make several sexual advances towards said Plaintiff, grabbing her buttocks and grabbing her shoulder with an attempt to grab her breast,” and asked Rosemary Grantland to engage in sexual activities with him. It was asserted that Mrs. Grantland refused and insisted that Pryseski leave, which he did. The first count of the declaration recited that Pryseski’s "outrageous and intolerable” conduct was committed "during the course of and while acting in the scope of his employment” with Sun Life, and that Sun Life, "after its investigation of the Plaintiffs’ complaint, continued . . . Pryseski in its employ subsequent to the above-described intentional infliction of emotional distress, and did thereby ratify the acts of . . .

Pryseski.” Another count of the Grantlands’ declaration, entitled "Assault and Battery,” incorporated the allegations of the first count. The assault and battery count went on to assert that Pryseski, "without any provocation, encouragement, justification or consent on the part of . . . Rosemary T. Grantland, did unlawfully, brutally, maliciously and ¹⁹¹ wantonly, with force and violence, assault and lay hold of . . . Rosemary T. Grantland, and did otherwise threaten and abuse her.” This count similarly contained the allegation that Sun Life, after investigating the Grantlands’ complaint, continued Pryseski in its employ and thus ratified Pryseski’s acts.

A third count of the declaration sought damages for loss of consortium. St. Paul agreed to provide a defense for Sun Life in the tort action filed by the Grantlands and retained counsel to represent Sun Life. However, St. Paul refused Pryseski’s request that he be provided with a defense. St. Paul, in a letter dated January 13, 1978, to the attorney retained by Pryseski, based its refusal on two grounds: (1) Pryseski was not acting within the scope of Ms employment; (2) the policy does not cover "willful acts in violation of the penal statute or ordinance.” On May 8, 1978, before the tort case was scheduled for trial, Pryseski instituted the present action against St. Paul in the Superior Court of Baltimore City, requesting a declaration that St. Paul was obligated to provide Pryseski with a defense in the pending tort suit and seeking reimbursement for the attorney fees incurred by Pryseski as a result of St. Paul’s alleged breach of its duty to defend.

On November 27,1978, before either the tort suit or the present declaratory judgment action was called for trial, St. Paul settled the tort suit for $1,000.00. The release signed by the Grantlands expressly released Pryseski, and an order of satisfaction was filed in the tort suit. Thereafter, at the trial of the instant case, Pryseski testified that he had been an employee of Sun Life for thirty-four years, that he was presently an employee, and that his duties included visiting the homes of insureds each month to collect the premiums and receipt the premium books. He acknowledged visiting the Grantlands’ home on December 22, 1976, collecting the premium due and receipting the book.

However, Pryseski specifically denied engaging in any of the other conduct alleged in the Grantlands’ tort suit. After the trial, the court declared that ¹⁹² under the provisions of the policy, St. Paul had been required to provide Pryseski with a defense in the tort suit. The court also entered a money judgment in favor of Pryseski for $3,081.65. St. Paul appealed to the Court of Special Appeals, arguing that the alleged tortious conduct of Pryseski was not an "occurrence” within the meaning of the coverage clause of the policy.

The Court of Special Appeals, however, affirmed in an unreported opinion. The intermediate appellate court stated that "the rule for determining whether an insurer has a duty to defend its insured” was set forth in Brohawn v. Transamerica Ins. Co., 276 Md. 396, 407-408 , 347 A.2d 842 (1975), and it quoted from the Brohawn case as follows: "The obligation of an insurer to defend its insured under a contract provision such as here involved is determined by the allegations in the tort actions. If the plaintiffs in the tort suits allege a claim covered by the policy, the insurer has a duty to defend. . ..

Even if a tort plaintiff does not allege facts which clearly bring the claim within or without the policy coverage, the insurer still must defend if there is a potentiality that the claim could be covered by the policy.” The Court of Special Appeals also relied upon U. S. F. & G. v. Nat. Pav. Co., 228 Md. 40 , 178 A.2d 872 (1962), to the effect that, even though the declaration in the tort case "did not allege every fact necessary to establish . . . coverage, . . . there was enough to indicate a potentiality that, under the allegations actually made, the injury in question was caused by some act or omission covered by the terms of the contract.” 228 Md. at 54-55 , emphasis supplied. The Court of Special Appeals then concluded in the case at bar: "Applying the above rule to the case before us, we believe that while coverage cannot be established clearly from the facts alleged in the Grantlands’ suit, the allegations were sufficient to indicate a possibility that the claim in question was covered ¹⁹³ by the terms of the policy.

The declaration alleged that the defendant, Pryseski, was acting 'in the course of his employment as an agent for the defendant, Sun Life . . . .’ That allegation was sufficient, under the policy provisions above quoted, to raise a potentiality that coverage existed if Defendant Pryseski were liable for the injuries alleged by the Grantlands. Under the circumstances of this case, the appellant, St. Paul, had a duty to defend Mr. Pryseski.” St. Paul filed a petition for a writ of certiorari, contending that the holding of the Court of Special Appeals in this case "expands” an insurer’s duty to defend beyond that delineated in Brohawn v. Transamerica Ins. Co., supra, and other cases in this Court. St. Paul further argued that the Court of Special Appeals should have decided the meaning of "occurrence” in the coverage clause of the policy.

We granted the petition, and, for the reasons set forth below, we shall vacate the decision of the Court of Special Appeals and remand the case to the trial court for further proceedings. I In determining whether a liability insurer has a duty to provide its insured with a defense in a tort suit, two types of questions ordinarily must be answered: (1) what is the coverage and what are the defenses under the terms and requirements of the insurance policy? (2) do the allegations in the tort action potentially bring the tort claim within the policy’s coverage? The first question focuses upon the language and requirements of the policy, and the second question focuses upon the allegations of the tort suit.

At times these two questions involve separate and distinct matters, and at other times they are intertwined, perhaps involving an identical issue. The "rule” applied by the Court of Special Appeals in this case, namely that the insurer has a duty to defend if the allegations of the tort suit raise a "potentiality” that ¹⁹⁴ coverage exists, is generally applicable only to the second question set forth above. It may, however, be applicable to an issue raised under the first question set forth above if that issue must also be resolved in the underlying tort suit. Normally, however, when the question of coverage or defenses under the language or requirements of the insurance policy is separate and distinct from the issues involved in the tort suit, the "potentiality rule” relied on by the court below has no application.

Instead, in a declaratory judgment action like the instant one, presenting an independent coverage issue under the terms of the policy, it is the function of the court to interpret the policy and decide whether or not there is coverage. If such a coverage issue depends upon language of the policy which is ambiguous, the court in the declaratory judgment action nevertheless must resolve that ambiguity in favor of the insured before it can conclude that the insurer has or had an obligation to provide a tort defense. This is the clear teaching of cases such as Truck Ins. Exch. v. Marks Rentals, 288 Md. 428 , 418 A.2d 1187 (1980); Bankers & Ship.

Ins. v. Electro Enter., 287 Md. 641 , 415 A.2d 278 (1980); Brohawn v. Transamerica Ins. Co., supra; U. S. F. & G. v. Nat. Pav. Co., supra.

Thus in Brohawn v. Transamerica Ins. Co., supra, upon which the Court of Special Appeals relied, this Court clearly distinguished an independent question of policy coverage from the question of whether the tort suit allegations set forth a claim potentially covered by the policy. We there stated ( 276 Md. at 405 ): "A declaratory judgment action prior to the trial of a tort action against the insured may under some circumstances be a valuable means of resolving questions of policy coverage where those questions are independent and separable from the claims asserted in a pending suit by an injured third party. An early resolution could