W.F. Gebhardt & Co. v. Amer. Euro. Ins.

W.F. Gebhardt & Co., Inc. v. American European Insurance Co., No. 93, September Term, 2020. Opinion by Fader, C.J. INSURANCE POLICES — RULES OF CONSTRUCTION — CONTRACT PRINCIPLES Insurance policies are construed according to contract principles, construing the policy as a whole according to the objective theory of contract interpretation. INSURANCE POLICES — RULES OF CONSTRUCTION — AMBIGUITY — EXTRINSIC EVIDENCE A court may consider extrinsic evidence of the parties’ intent if it determines contractual language to be ambiguous. A term in an insurance policy is ambiguous only if a reasonably prudent person would find it susceptible to more than one meaning when viewed in context of the text of the entire policy, the policy’s character and purpose, and the facts and circumstances of the parties at the time of execution.

INSURANCE POLICES — RULES OF CONSTRUCTION — USE OF DICTIONARY DEFINITIONS Courts traditionally look to dictionary definitions to supply the ordinary and accepted meanings of terms in an insurance policy. Dictionaries are thus useful in determining whether terms in an insurance policy are ambiguous. Dictionaries are not extrinsic evidence. INSURANCE POLICES — RULES OF CONSTRUCTION — USE OF DICTIONARY DEFINITIONS — SPECIFIC TERMS If the definition of a word incorporates multiple concepts, that can be a feature of its meaning rather than an inherent ambiguity.

INSURANCE POLICES — PARTICULAR WORDS OR TERMS A fire escape that is physically attached to a building, including its attached ladder that descends onto a neighboring property a few feet away from the premises boundary, was “at the premises” for purposes of a commercial property insurance policy. Circuit Court for Baltimore City Case No. 24-C-19-000218 REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 93 September Term, 2020 ______________________________________ W. F. GEBHARDT & CO., INC. v. AMERICAN EUROPEAN INSURANCE CO. ______________________________________ Fader, C.J., Kehoe, Friedman, JJ. ______________________________________ Opinion by Fader, C.J. ______________________________________ Filed: May 26, 2021 Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. 2021-06-03 16:29-04:00 Suzanne C. Johnson, Clerk Is a ladder that is part of a fire escape that is physically attached to a multi-family apartment building “at the premises” if the ladder descends to the ground at a spot in a neighbor’s backyard within a few feet of the covered premises? In this insurance coverage case, the Circuit Court for Baltimore City concluded that the answer is no, and, therefore, that American European Insurance Company (“AEI”), the appellee, was not required to provide coverage to W.F. Gebhardt & Co., Inc. (“Gebhardt”), the appellant, for damages arising from the destruction of the ladder. Based on the plain language of the insurance contract, we disagree.

Accordingly, we will reverse the circuit court’s award of summary judgment in favor of AEI and remand for further proceedings consistent with this opinion. BACKGROUND Destruction of the Fire Escape and the Claims Against the Neighbors Gebhardt is the owner of a four-unit apartment building located at 2709 N. Calvert Street in Baltimore (the “Premises”).1 Upon acquiring the Premises in 1966, Gebhardt converted it from a single- to a multi-family dwelling and paid to construct a fire escape at the building’s rear. The fire escape, then and now, ran from the Premises’s roof down to a shared metal landing connecting its second-floor balcony with the second-floor balcony of the neighboring property at 2707 N. Calvert Street. The fire escape, which Gebhardt constructed with the agreement of the then-owner of 2707 N. Calvert Street, is physically attached to both buildings.

As originally constructed, the fire escape included a narrow 1 William Gebhardt owned W.F. Gebhardt & Co., Inc. until his death in 2017. Lawrence Gebhardt and Nancy Dowling, William Gebhardt’s children, now serve as the co-personal representatives of Mr. Gebhardt’s estate and operate the company in that capacity. ladder that descended from the second-floor landing directly into the backyard of 2707 N. Calvert Street, “within a foot or two” of the Premises. Sometime in the late-summer or fall of 2017, Gebhardt discovered that the ladder was missing.2 Gebhardt did not initially know who had removed the ladder or when it had been removed. In April 2018, Gebhardt sued both the current owner of 2707 N. Calvert Street—an LLC controlled by Emery Ayers Greenidge, who lived there along with her husband (collectively, the “Greenidges”)—and the previous owners (until April 2016)— Damon Burton and Jessica Jones-Smith (“Burton/Jones-Smith”).

Gebhardt sought to establish easement rights from the Greenidges to rebuild the ladder and to recover the cost of rebuilding the ladder from the culpable party. In late 2018, Gebhardt learned through discovery that Burton/Jones-Smith had removed the ladder in February 2016, before transferring the property to the Greenidges. Because the Greenidges neither recognized Gebhardt’s easement claim nor permitted Gebhardt to rebuild the ladder into their yard, Gebhardt continued the suit against both parties. The Building Code Violation On December 10, 2018, the City issued a violation notice and suspended Gebhardt’s multi-family occupancy permit for the Premises due to “[i]nadequate means of egress” as a result of the lack of a fully operational fire escape.

The notice informed Gebhardt that it would be liable for fines of up to $500 daily unless it corrected the infraction within 30 2 Until relatively recently, both properties were operated as multi-family dwellings that were required to have a fire escape by the City of Baltimore (“City”) building code. At some point before the ladder was destroyed, the owners of 2707 N. Calvert Street apparently decided to revert use of that property to a single-family dwelling. 2 days. Gebhardt sought administrative review and asked the City to rescind the violation notice because Gebhardt was engaged in litigation for the purpose of obtaining an easement to resolve the matter. Gebhardt also informed the City that the Premises did not at the time have tenants and would not be re-occupied until Gebhardt remedied the violation.

In its letter requesting administrative review, Gebhardt explained its quandary: To install the fire escape so it is solely on [the Premises] would cost in the area of $70,000, according to one estimate. Installing the lower portion of the fire escape on 2707 N. Calvert Street will cost approximately $16,000 according to the same estimate. The current owners of 2707 N. Calvert Street will not permit the fire escape to be reconstructed and discharge into the yard of 2707 N. Calvert Street without a court order. The problem was that the original fire escape was built with 24-inch wide ladders from both the roof to the second-floor landing and from the second-floor landing to the ground.

Although those ladders were compliant with the 1966 City building code, the current code required 36-inch wide ladders. Gebhardt believed that grandfather provisions of the building code would permit it to rebuild a 24-inch ladder descending into the yard of 2707 N. Calvert Street, without any further changes, but that those provisions might not have permitted it to install a ladder descending onto the Premises without also widening and reconfiguring the rest of the fire escape at significantly greater cost. At some point during the administrative review, the City agreed to permit Gebhardt to install a new, 36-inch wide set of steps descending from the second-floor landing onto the Premises without reconfiguring the remainder of the fire escape. Gebhardt did so, at a cost of $23,570, and the City eventually abated the violation notice and reissued the multi- family dwelling license.

The City never charged Gebhardt any of the threatened fines. 3 Resolution of Litigation with the Neighbors On September 5, 2019, after regaining its occupancy permit, Gebhardt reached a settlement with Burton/Jones-Smith, whose insurance carrier paid $30,000 to resolve the claim. Of that amount, Gebhardt allocated $23,570 to cover the cost of adding the new steps, $1,563.11 to cover its attorneys’ fees in defending the City’s violation notice, and $4,866.89 toward the cost of its suit against Burton/Jones-Smith and the Greenidges. Gebhardt then dismissed its easement claim against the Greenidges. Gebhardt asserts that it incurred attorneys’ fees in connection with its lawsuit against the Greenidges and Burton/Jones-Smith, over and above the $4,866.89 it allocated from the settlement, of $114,628.83.

The Policy AEI insured Gebhardt for the policy period March 5, 2015 through March 5, 2016 pursuant to Commercial Package Policy CPP 1900299 10 (the “Policy”).3 The Policy provided commercial property insurance for the Premises with limits of $294,000 for building coverage, $30,000 for business income coverage, and $324,000 for equipment breakdown coverage. This dispute centers on the Policy’s Building and Personal Property Coverage, pursuant to which AEI undertook an obligation to “pay for direct physical loss of or damage to Covered Property at the [Premises] caused by or resulting from any Covered Cause of 3 In addition to the commercial property coverage, the Policy also included general liability insurance. That coverage is not at issue in this appeal, so we will not consider it. 4 Loss.”4 The coverage form defines Covered Property by reference to three different “type[s] of property”: (1) Building; (2) Your Business Personal Property; and (3) Personal Property Of Others. Only the first two are at issue in this appeal.5 The Policy defines the Building type of coverage as follows: a.

Building, meaning the building or structure described in the Declarations, including: (1) Completed additions; (2) Fixtures, including outdoor fixtures; (3) Permanently installed: (a) Machinery and (b) Equipment; (4) Personal property owned by you that is used to maintain or service the building or structure or its premises, including: (a) Fire-extinguishing equipment; (b) Outdoor furniture; (c) Floor coverings; and (d) Appliances used for refrigerating, ventilating, cooking, dishwashing or laundering; 4 The version of the Policy included in the record extract omits the page that identifies the premises that are covered. A version of the Policy included in the record includes that page, which identifies the Premises as one of two covered premises. 5 The Policy states that it applies to each “type of property . . . if a Limit of Insurance is shown in the Declarations for that type of property.” The declarations page lists a limit of liability for Building coverage but not for Your Business Personal Property coverage. Nonetheless, the parties appear to agree that the Policy provides Your Business Personal Property coverage and neither raised or addressed the absence of a limit of liability for that coverage in the circuit court or on appeal. As a result, we will not consider that issue further. 5 (5) If not covered by other insurance: (a) Additions under construction, alterations and repairs to the building or structure; (b) Materials, equipment, supplies and temporary structures, on or within 100 feet of the described premises, used for making additions, alterations or repairs to the building or structure.

The Policy defines the Business Personal Property type of coverage as follows: b. Your Business Personal Property located in or on the building described in the Declarations or in the open (or in a vehicle) within 100 feet of the described premises, consisting of the following . . . : (1) Furniture and fixtures; (2) Machinery and equipment; (3) “Stock”; (4) All other personal property owned by you and used in your business; (5) Labor, materials or services furnished or arranged by you on personal property of others; (6) Your use interest as tenant in improvements and betterments. Improvements and betterments are fixtures, alterations, installations or additions: (a) Made a part of the building or structure you occupy but do not own; and (b) You acquired or made at your expense but cannot legally remove; (7) Leased personal property for which you have a contractual responsibility to insure, unless otherwise provided for under Personal Property Of Others. Gebhardt’s Insurance Claim Gebhardt submitted an insurance claim to AEI for the destruction of the ladder on November 5, 2018, which was shortly after Gebhardt learned when the ladder had been destroyed, but more than a year after Gebhardt had discovered that the ladder was missing, 6 and approximately seven months after it brought suit against the Greenidges and Burton/Jones-Smith.6 In its claim, Gebhardt described the fire escape and its shared, second-floor landing; informed AEI of the fire escape’s history and damage; and provided information about its litigation against Burton/Jones-Smith and the Greenidges.

Gebhardt asked AEI to provide coverage for (a) the costs of reconstructing the lower portion of the fire escape in the yard of 2707 Calvert N. [sic] Street and obtaining a declaratory judgment and injunction permitting the construction, including attorney’s fees and litigation expenses, or (b) the cost of constructing a new fire escape solely on 2709 N. Calvert Street if possible, or (c) the diminution in the fair market value of 2707 Calvert N. [sic] Street if it must revert to single family use due to a lack of a serviceable fire escape and must be sold as a single family residence configured as a multi-family four unit apartment building. On November 26, 2018, AEI denied coverage. AEI based its coverage decision on two Policy exclusions. First, AEI cited an exclusion “for loss or damage caused by or resulting from . . . loss of use or loss of market,” which it contended precluded Gebhardt’s alternative request for diminution in the Premises’s market value if Gebhardt were not able to repair the fire escape.

Second, AEI cited an exclusion for “[a]cts or decisions, including the failure to act or decide, of any person, group, organization or governmental body.” AEI asserted that this exclusion precluded any coverage for Gebhardt’s loss, which it concluded was due to the acts and decisions of Burton/Jones-Smith. On that basis, subject to a general 6 On appeal, Gebhardt explains that it did not submit a coverage claim earlier because it was unsure when the ladder was destroyed and, therefore, which of three different insurers’ policies was implicated. 7 reservation of rights, AEI disclaimed any “duty to defend or indemnify; or to take action; or perform acts or services,” and it declined coverage.7 Procedural History In January 2019, Gebhardt sued AEI in the Circuit Court for Baltimore City for breach of contract. Gebhardt alleged that AEI had breached its obligations under the Policy by declining coverage for the destruction of the ladder. By the time of trial in October 2019, Gebhardt had settled its claim with Burton/Jones-Smith, dismissed its claim against the Greenidges, built a new ladder descending exclusively onto the Premises, and obtained a new permit from the City.

As a result, the focus of Gebhardt’s damages claim was its $114,628.83 in unreimbursed attorneys’ fees and costs incurred in the litigation against the neighbors, which Gebhardt contended it had incurred due to AEI’s wrongful denial of coverage. Of that amount, $59,050.50 had been incurred before Gebhardt had placed AEI on notice of its claim and $55,578.33 was incurred after that date. A primary focus at trial was on whether the destroyed ladder was “at” the Premises. The Policy obligated AEI to provide coverage “for direct physical loss of or damage to Covered Property at the premises[.]” Gebhardt argued that “at” could mean both “on” and “near,” and because the ladder was part of a shared fire escape attached to the Premises and descending just feet away from the Premises, it was “at” the Premises for purposes of the Policy’s Building coverage.

In the alternative, Gebhardt contended that even if “at” were interpreted to be synonymous with “on,” the ladder was “on” the Premises because 7 AEI did not identify late notice as a basis for its denial of coverage. 8 Gebhardt had a prescriptive easement to use the premises of 2707 N. Calvert Street for purposes of the fire escape. Finally, Gebhardt argued that even if not covered under the Building coverage, the ladder was nonetheless covered as Your Business Personal Property because it was owned by Gebhardt and “within 100 feet of the described premises[.]” AEI responded that the Policy did not cover the ladder at all. With respect to the Building coverage, AEI argued that “at” was ambiguous and should be interpreted to mean “on” because it would be unreasonable to interpret it to mean “near” in the context of the Policy. In response to Gebhardt’s alternative argument that it held a prescriptive easement, AEI argued that Gebhardt’s use of the neighboring property had always been by consent and it had never recorded an easement.

With respect to the Your Business Personal Property coverage, AEI argued that the fire escape was a fixture that was attached to 2707 N. Calvert Street, rather than the Premises, and it was therefore not Gebhardt’s personal property. AEI also asserted that coverage was barred by the “acts or decisions” of others exclusion, on which it had relied in its initial coverage denial, although that exclusion was mentioned only briefly at trial. After a bench trial, the circuit court ruled that AEI did not owe coverage because the ladder was not “at” the Premises. In its written opinion, the circuit court identified the dispositive issue as “the meaning of the preposition ‘at’ as it was employed in the [Policy.]” The court looked to dictionaries to assess whether “at” was ambiguous, stating: According to the Merriam Webster Dictionary, “at” is used as a function word to indicate presence or occurrence in, on, or near.

(emphasis added). Black’s Law Dictionary (4th Ed.) describes “at” as “a term of considerable elasticity of meaning . . . at may often express 9 simply nearness and proximity . . .” On that basis, this Court concludes that the meaning of “at” is indeed ambiguous. To resolve that purported ambiguity, the court relied on “common sense.” Observing that an “insurer has to know the parameters of its duties under the policy,” the court concluded that interpreting “at” to include concepts of “nearness and proximity” would render application of the Policy problematic to the point that it is non-sensical. Where does the zone considered “near” [the Premises] end under this contract?

A foot off the premises? A meter? The adjacent zip code? Simply put, the definition urged by Gebhardt is simply too amorphous and indefinite, and cannot possibly be what was contemplated by the parties when they entered into the instant insurance contract.

In a footnote, the court disposed of Gebhardt’s alternative argument that it had a prescriptive easement, stating that the absence of a recorded easement meant that AEI was never put “on notice of its potential liability for coverage on that ladder.” The court did not specifically address Gebhardt’s alternative claim to coverage under the Policy’s Your Business Personal Property coverage. After the court entered judgment in AEI’s favor, Gebhardt noted this timely appeal. DISCUSSION The basic facts underlying Gebhardt’s coverage claim are not in dispute. AEI does not contest that Gebhardt built and paid for the entire fire escape, including the ladder.

It is also undisputed that the fire escape, of which the ladder was an integral part, was physically attached to the outside of the Premises, as well as to 2707 N. Calvert Street, and that it was a fixture. The issue before this Court is whether the circuit court correctly interpreted the Policy in determining that the ladder was not “at the premises” when it was 10 destroyed. We conclude that the circuit court erred in adopting an overly restrictive interpretation of “at” as synonymous with “on.” Based on the unambiguous terms of the Policy, we hold that the fire escape ladder was “at the premises” and, therefore, AEI owed coverage unless precluded by an applicable exclusion. We will therefore reverse the court’s ruling and remand for further proceedings in line with our decision, including adjudication of any remaining coverage issues and, if appropriate, damages.

Whether the court reopens the factual record is within its discretion. “We construe an insurance policy according to contract principles.” Maryland Cas. Co. v. Blackstone Int’l Ltd., 442 Md. 685, 694 (2015). “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.” Pac. Indem. Co. v. Interstate Fire & Cas.

Co., 302 Md. 383, 388 (1985). Generally, Maryland courts subscribe to the objective theory of contract interpretation. See Myers v. Kayhoe, 391 Md. 188, 198 (2006). Under this approach, if the language of the contract is unambiguous, we interpret the contract “based on what a reasonable person in the position of the parties would have understood the language to mean and not ‘the subjective intent of the parties at the time of formation.’” Credible Behav.

Health, Inc. v. Johnson, 466 Md. 380, 393 (2019) (quoting Ocean Petroleum, Co. v. Yanek, 416 Md. 74, 86 (2010)). “Thus, ‘the written language embodying the terms of an agreement will govern the rights and liabilities of the parties, irrespective of the intent of the parties at the time they entered into the contract.’” Maryland Cas. Co., 442 Md. at 695 (quoting Long v. State, 371 Md. 72, 84 (2002)). Only “[w]here a court determines contractual language to be ambiguous, [do] the narrow bounds of the objective approach 11 give way, and the court is entitled to consider extrinsic or parol evidence to ascertain the parties’ intentions.” Credible Behav. Health, 466 Md. at 394 . “[T]he interpretation of a contract, including the question of whether the language of a contract is ambiguous, is a question of law subject to de novo review.” Id. at 392 (quoting Myers, 391 Md. at 198 ); Montgomery County v. Lake, 68 Md. App. 269, 273 (1986) (“Where the facts are proved without contradiction and there exists no dispute as to any material inference of fact, a reviewing court may decide the issue as one of law.”).

I. THE POLICY’S BUILDING COVERAGE APPLIED TO THE FIRE ESCAPE BECAUSE THE FIRE ESCAPE WAS “AT THE PREMISES” WHEN THE LADDER WAS DESTROYED. The Policy requires AEI to “pay for direct physical loss of or damage to Covered Property at the premises . . . caused by or resulting from any Covered Cause of Loss.” AEI argues that the circuit court was correct in determining that the meaning of “at,” in the phrase “at the premises,” is ambiguous because it could mean “in,” “on,” or “near”; and that the court properly resolved that ambiguity in favor of excluding the meaning of “near” because such a meaning would provide insufficient guidance for AEI to determine its coverage obligations. Gebhardt contends that “at” is unambiguous and that it applies to a ladder that is part of a fire escape that is physically attached to the building, even if the ladder ultimately descends onto the neighboring property. Gebhardt further argues that even if the term is ambiguous, extrinsic evidence favors its interpretation.

We conclude that the phrase “at the premises,” as used in the Policy and as applied to these facts, is not ambiguous, and that the fire escape ladder was “at the premises[.]” 12 “A policy term is considered ‘ambiguous if, to a reasonably prudent person, the term is susceptible to more than one meaning.’” Connors v. Gov’t Employees Ins., 442 Md. 466, 481 (2015) (quoting Cole v. State Farm Mut. Ins., 359 Md. 298, 305-06 (2000)). Merely because “a term cannot be precisely defined so as to make clear its application in all varying factual situations does not mean that it is ambiguous.” Allstate Ins. v. Humphrey, 246 Md. 492, 496 (1967).