WILLIAM D. QUARLES Jr., District Judge.
Trice, Geary & Myers, LLC ("TGM") and Kevin E. Myers sued CAMICO Mutual Insurance Company ("CAMICO") for breach of contract and a declaratory judgment on the duty to defend. CAMICO counterclaimed for declaratory judgment on the duty to indemnify. Pending are the Plaintiffs' motions for partial summary judgment and to dismiss, and CAMICO's motion for summary judgment. For the following reasons, the Plaintiffs' motions will be denied, and CAMICO's motion for summary judgment will be granted.
TGM is an accounting firm in Salisbury, Maryland. Compl. ¶ 4. In 2007 and 2008, TGM purchased "claims made and reported" Accountants Professional Liability Insurance Policies from CAMICO ("the Policy"). See Compl. Ex. B-1 [hereinafter APLIP]; Answer Ex. 1.
Under the Policy, CAMICO agreed to indemnify
The Policy's limits of liability are $5,000,000 per claim and $10,000,000 in the aggregate. Id. at 5. Covered "claims" include, inter alia, suits filed against the insured for money or services. Id. § IV.c. The Policy limits coverage to $100,000 for damages and claims expenses
Claims in connection with or arising out of services provided by the insured acting in another capacity
On June 2, 2008, Thomas R. Ruark and affiliated entities
In 2004, the IRS made several rulings about funding 412(i) plans. Id. ¶¶ 34-36. The complaint alleges that Myers "acting as [an] agent[ ] of Hartford . . . wrongly represented to [the Hartford] Plaintiffs that the Revenue Rulings would not affect them," which induced Ruark and Baja Holdings to pay Hartford additional premiums and file tax returns without the required forms for a listed transaction. Id. ¶ 36. In 2006, an IRS audit of Baja DBP disclosed numerous defects in the Baja Policy. Id. ¶ 37. As a result of the Hartford Defendants' alleged misrepresentations, the Hartford Plaintiffs have incurred substantial audit-related expenses and may be liable for impermissible deductions taken in connection with the Baja Policy. Id. ¶ 38.
In January 2009, Myers and TGM learned that Ruark and his affiliates intended to pursue claims against them for the Baja Policy transaction unless a settlement was negotiated. Ronald B. Klein Cert. ¶ 4, Ex. A, Dec. 21, 2009. Myers and TGM gave notice to CAMICO of these "potential claims" under the Policy. Id. ¶ 5. On February 13, 2009, CAMICO informed Myers and TGM that it "owe[d] no coverage obligation under the Policy in connection with [that] claim." Id. at Ex. B at 1. CAMICO explained that any accounting and financial services provided by Myers associated with the sale of the Baja Policy had been in his capacity as an agent of Hartford. Id. at 6. Thus, his activities were outside the scope of "professional services" covered by the Policy and within the "Special Exclusion Endorsement," "Insured Acting in Another Capacity," and "Products Liability" exclusions to coverage. Id. at 6-7.
On April 10, 2009, IAI filed a third party complaint in the Hartford Action for indemnification and contribution against, inter alia, TGM and Myers. Compl. Ex. B-4 ¶¶ 19-25, 34-35. On April 24, 2009, Ruark and his affiliates sued Myers and TGM in Wicomico County Circuit Court for negligence and negligent misrepresentation in connection with the Baja Policy transaction (the "Ruark Action").
On September 14, 2009, TGM and Myers sued CAMICO in Wicomico County Circuit Court for breach of contract and a declaration of CAMICO's obligation under the Policy to defend TGM and Myers in the underlying actions. Compl. ¶¶ 40-50. On October 22, 2009, CAMICO removed that case to federal court based on diversity jurisdiction. Notice of Removal ¶ 11. On October 29, 2009, CAMICO filed its answer and counterclaims for a declaration that it "owed and owes no . . . indemnity obligation concerning the underlying actions" and for attorneys' fees. Answer at 11-16.
On November 11, 2009, the Plaintiffs filed a motion to dismiss the counterclaim, Paper No. 15, and a motion for partial summary judgment, requesting (1) a declaration that CAMICO must provide them with a defense in the underlying actions, (2) expenses incurred in defending themselves "in an amount to be determined," and (3) attorney fees and costs incurred in bringing this action, Paper No. 14 at 20. On December 21, 2009, CAMICO filed a cross-motion for summary judgment on all the claims and counterclaim. Paper No. 18 at 2.
A. Standards of Review
1. Rule 12(b)(6)
Under Fed. R. Civ. P. 12(b)(6), an action may be dismissed for failure to state a claim upon which relief can be granted. Rule 12(b)(6) tests the legal sufficiency of a complaint, but does not "resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Presley v. City of Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006).
The Court bears in mind that Rule 8(a)(2) requires only a "short and plain statement of the claim showing that the pleader is entitled to relief." Migdal v. Rowe Price-Fleming Int'l Inc., 248 F.3d 321, 325-26 (4th Cir. 2001). Although Rule 8's notice-pleading requirements are "not onerous," the plaintiff must allege facts that support each element of the claim advanced. Bass v. E.I. Dupont de Nemours & Co., 324 F.3d 761, 764-65 (4th Cir. 2003). These facts must be sufficient to "state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007).
To present a facially plausible complaint, a plaintiff must do more than "plead[ ] facts that are `merely consistent with a defendant's liability'"; the facts as pleaded must "allow[ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (quoting Twombly, 550 U.S. at 557). The complaint must not only allege but also "show" the plaintiff is entitled to relief. Id. at 1950 (citing Fed. R. Civ. P. 8(a)(2)). "Whe[n] the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged — but it has not shown — that the pleader is entitled to relief." Id. (internal quotation marks omitted).
The Court "should view the complaint in a light most favorable to the plaintiff," and "accept as true all well-pleaded allegations," Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993), but the Court is "not bound to accept as true a legal conclusion couched as a factual allegation," Papasan v. Allain, 478 U.S. 265, 286 (1986), or "allegations that are mere[ ] conclus[ions], unwarranted deductions of fact, or unreasonable inferences," Veney v. Wyche, 293 F.3d 726, 730 (4th Cir. 2002).
2. Rule 56
Under Rule 56(c), summary judgment "should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). In considering a motion for summary judgment, "the judge's function is not . . . to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). A dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. at 248. The Court must "view the evidence in the light most favorable to . . . the nonmovant, and draw all reasonable inferences in h[is] favor," Dennis v. Columbia Colleton Med. Ctr., Inc., 290 F.3d 639, 645 (4th Cir. 2002), but the Court also "must abide by the affirmative obligation of the trial judge to prevent factually unsupported claims and defenses from proceeding to trial," Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 526 (4th Cir. 2003).
B. APLIP Policy
1. Choice of Law
"In a diversity action, [the] law of the forum court governs the substantive issues, and federal law governs the procedural issues." Lampe v. Kim, 105 Fed. Appx. 466, 468 (4th Cir. 2004) (citing Dixon v. Edwards, 290 F.3d 699, 710 (4th Cir. 2002)). Maryland's choice of law rules govern. See id.; Wells v. Liddy, 186 F.3d 505, 521 (4th Cir. 1999). Maryland courts follow the rule of lex loci contractus, which provides that the construction of a contract is determined by the law of the state where the contract was made. Allstate Ins. Co. v. Hart, 327 Md. 526, 611 A.2d 100, 101 (Md. 1992). The parties appear to agree that the contract was made in Maryland, and Maryland law governs the interpretation of the Policy.
2. Duty to Defend
The parties have filed cross motions for summary judgment on CAMICO's duty to defend the Plaintiffs in the underlying actions. See Paper Nos. 14 & 18. The Plaintiffs argue that CAMICO has a duty to defend them because the claims in the underlying complaints arise, in part, from covered Professional Services. Paper No. 14 at 10-13. CAMICO argues that it has no duty to defend because the allegations in the underlying actions all relate to Myers's sales of the DBP Plan in his capacity as a Hartford agent, activities which are barred from coverage by the "Special Exclusion Endorsement" and the "Products Liability" exclusion. Paper No. 18 at 13-22.
Maryland courts recognize that "[t]he promise to defend the insured, as well as the promise to indemnify, is the consideration received by the insured for payment of the policy premiums." Clendenin Bros., Inc. v. U.S. Fire Ins. Co., 889 A.2d 387, 392 (Md. 2006) (quoting Brohawn v. Transamerica Ins. Co., 276 Md. 396, 347 A.2d 842, 851 (Md. 1975)). Because the primary purpose of litigation insurance is to "protect[ ] the insured from the expense of defending suits brought against him," Brohawn, 347 A.2d at 851, "[t]he duty to defend an insured is broader than the duty to indemnify," Utica Mut. Ins. Co. v. Miller, 130 Md.App. 373, 746 A.2d 935, 939 (Md. Ct. Spec. App. 2000).
"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." Brohawn, 347 A.2d at 850.
To determine whether a liability insurer must defend its insured in a tort suit, Maryland courts consider: "(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?" St. Paul Fire & Marine Ins. Co. v. Pryseski, 292 Md. 187, 438 A.2d 282, 285 (Md. 1981).
To interpret the scope and limitations of an insurance policy, the court must "construe the instrument as a whole to determine the intention of the parties." Clendenin Bros., 889 A.2d at 393. First, the court examines the contract language chosen by the parties. Cole v. State Farm Mut. Ins. Co., 338 Md. 131, 656 A.2d 779, 784 (Md. 1995).
Under the Policy, CAMICO has a duty to defend TGM and its employees against claims "arising out of . . . [a] negligent act, error or omission in rendering or failing to render Professional Services" unless those claims are within an exclusion. APLIP § I.A.1. By a "Special Exclusion Endorsement," the Policy expressly excluded from coverage "any [c]laim in connection with or arising out of any act, error or omission by any [i]nsured in his/her capacity as an agent or broker for the placement or renewal of insurance products or for the sale of annuities." Id. at Special Exclusion Endorsement.
Given their common understanding, the words "arising out of" mean "originating from, growing out of, flowing from, or the like." Mass Transit Admin. v. CSX Transp., Inc., 349 Md. 299, 708 A.2d 298, 305 (Md. 1998)(quoting N. Assurance Co. of Am. v. EDP Floors, Inc., 311 Md. 217, 533 A.2d 682, 688 (Md. 1987)). The words "in connection with" ordinarily mean associated with, related to, or the like. The stated purpose of the Special Endorsement Exclusion was to preclude coverage of "any claims in connection with or arising out of or relating to . . . acts, errors, or omissions in the rendering or failure to render services as an insurance agent or broker" by the insured. APLIP at Special Exclusion Endorsement. Considered in this context, the phrase "in connection with or arising out of" reinforces the intended breadth of this Policy exclusion.
The Plaintiffs seek to distinguish between the allegations against them as insurance agents — which are within the Special Endorsement Exclusion — and the allegations against them as professional accountants and financial advisors, which are not. All the underlying claims are "in connection with or arising out of" Myers's sale and promotion of the DBP Plans in his capacity as an agent or broker of Hartford, and under the Special Exclusion Endorsement, any of the Plaintiffs' alleged acts, errors, and omissions connected with the DBP Plan sales are excluded from coverage.
An examination of the underlying complaints shows that all the Plaintiffs' alleged acts and omissions — even those arguably made in their sole capacity as accountants and financial advisors — were connected with the DBP Plan sales.
2. Duty to Indemnify
CAMICO's counterclaim requests a declaration that, under the Policy, it does not have any indemnity obligation in the underlying actions. Answer 16. Under Maryland law, when there is no potentiality of liability coverage under an insurance policy, there may be no duty to indemnify. See Progressive Cas. Ins. Co. v. Dunn, 106 Md.App. 520, 665 A.2d 322, 324 (Md. Ct. Spec. App. 1995). Because the Policy does not cover any of the claims made in the underlying actions, CAMICO may not be liable for indemnification and must be granted summary judgment on its declaratory judgment counterclaim.
3. Attorneys' Fees
Without providing a legal basis for its claim, CAMICO requested an award of costs and attorneys' fees associated with this action. Answer 16. The Plaintiffs argue that Maryland law does not provide for recovery of costs and attorneys' fees by an insurer who must defend its decision to deny coverage of an insurance claim. Paper No. 22 at 4. As CAMICO has failed to address that argument or otherwise provide a legal basis for its claim, CAMICO may not recover its costs and attorneys' fees.
For the reasons stated above, the Plaintiffs' motions to dismiss and for summary judgment will be denied, and CAMICO's motion for summary judgment will be granted.
APLIP § IV.s.