Maryland Court upholds waiver of UM coverage
In Swartzbaugh v. Encompass Insurance Company of America, No. 100, September Term 2011 (Md. April 25, 2012), the Court held that in the context of a waiver of UM benefits under a Maryland motor vehicle insurance policy, the phrase "first named insured" refers to a person insured under the policy and specifically named in the policy, who acts on behalf of the other insured parties and is designated as such in the policy documents. In so holding, the Court rejected the insured's argument that the "first named insured" literally means the first rated driver listed on the policy.
The compulsory minimum automobile insurance liability limits under Maryland law are currently $30,000 per person for personal injuries, $60,000 aggregate, and $15,000 for property damage. A policy must include UM coverage, which under Maryland law refers both to uninsured as well as under-insured motorists. Under the Maryland Insurance Code, the default limits of UM coverage must be equal to the liability coverage under the policy. However, this level of coverage may be waived in favor of a lower amount that is at least equal to the minimum coverage required by the motor vehicle law. The waiver must be in writing on a form devised by the Maryland Insurance Administration that complies with the applicable statute. Thus, the waiver is supposed to be signed by the "first named insured", as required by statute. However, the statute does not define what the "first named insured" means.
In the Swartzbaugh case, the waiver was signed by Mrs. Swartzbaugh, who handled the family finances with respect to insurance, and who had applied for the insurance. The policy listed three vehicles, and named her husband, herself, and her daughter as drivers. Unfortunately, the daughter was later injured by an under-insured driver while she was riding as a passenger. The daughter challenged the effectiveness of the waiver of UM coverage, on the grounds that Mrs. Swartzbaugh was not in fact the "first named insured" on the policy -- rather, the father was actually the first name listed in a section labeled "Policyholder."
The Court of Appeals rejected this view, finding that name order was not determinative. Rather, the named insureds are entitled to determine who will exercise that choice and serve as primary or first named insured. The MIA waiver form fills that gap be requiring the individual who executes the form to certify his or her status as "first named insured." The Court found that this was preferable to an arbitrary designation of first named insured as whomever's name was typed first on the policy.
Posted by David B. Stratton on 05/21/2012 at 12:49 AM
Motor Vehicle Accidents
Maryland Bankruptcy Court: Trustee cannot rely on sec. 544(a)(1) or (3) to avoid equitable lien
In Janet M. Nesse, Trustee v. GMAC Mortgage, LLC, Adversary No. 11-00290 (Bankr. D. Md. Apr. 19, 2012), the Bankruptcy Court considered the issue whether the Trustee could utilize sec. 544(a)(1) or (3) to avoid an equitable lien against property held as tenants by the entireties where only on spouse is a debtor in bankruptcy. The Court concluded that the Trustee cannot rely on sec. 544(a)(1) or (3) to avoid the equitable lien, and that GMAC was entitled to relief under the doctrine of equitable subrogation. The Court granted summary judgment in favor of GMAC.
The GMAC deed of trust was never recorded. However, it was undisputed that the facts made out a prima facie claim under Maryland law of the equitable subrogation of GMAC to the loan and a deed of trust executed in favor of MortgageIT. The Trustee, however, argued that sec. 544(a) allowed her to avoid GMAC's equitable lien and defeat GMAC's equitable subrogation claim. She argued that she had the rights and powers of a judicial lien creditor under sec. 544(a)(1) and a bona fide purchaser of the Property without knowledge of the GMAC deed of trust under sec. 544(a)(3), and that those rights and powers enabled her to defeat GMAC's equitable subrogation claim. The Trustee also argued that the debtor's spouse consented to allowing her to sell the Property, and that consent bolstered the Trustee's standing under sec. 544.
GMAC argued that sec. 544(a) is not available because only the Debtor, and not the spouse, is the subject of this bankruptcy proceeding and the spouse's consent is irrelevant.
The Court found that Maryland law defeats the Trustee's claim. In Maryland, creditors of only one spouse may not reach tenancy by the entireties property for satisfaction of their claims. Property held as tenants by the entireties cannot be taken to satisfy individual debts of a husband and wife. Thus, in Maryland, a "creditor that extends credit to the debtor" could not obtain a judicial lien on property owned as tenants by the entireties. Accordingly, the Trustee could not avoid GMAC's equitable lien armed with the powers of sec. 544(a)(1).
As for sec. 544(a)(3), that section allows the Trustee to avoid an interest avoidable by "a bona fide purchaser of real property ... From the debtor . . . ." However, under Maryland law, there can be no bona fide purchaser of real property from one spouse, where the property is owned in tenancy by the entireties. Section 544(a)(3) cannot give the Trustee the status of a bona fide purchaser of the Property from the Debtor where there is no way, under Maryland law, that anyone could obtain that status.
The consent of the spouse could not give the Trustee the standing of a bona fide purchaser because the Trustee had actual knowledge of GMAC's equitable lien.
Deborah M. Whelihan of Jordan Coyne & Savits, L.L.P. was co-counsel for GMAC Mortgage, LLC in this matter.
Posted by David B. Stratton on 05/15/2012 at 01:10 PM
Maryland Premises Liability: Pit Bull Owners and Landlords Strictly Liable for Dog Bites
In Dorothy M. Tracey v. Anthony K. Solesky, et al., No. 53, Sept. Term 2012 (Md. Apr. 26, 2012), a 4-3 majority opinion, the Maryland Court of Appeals modified the common law liability principles that previously applied and established a strict liability standard against owners and landlords for harboring or control in cases of Pit Bull and/or cross-bred Pit Bull dog attacks on humans on the basis that such animals are inherently dangerous.
A tenant in the defendant landlord’s building owed a pit bull that had escaped from pen with only a 4 foot high fence and an open top. The Court described the pen as obviously inadequate. On the day of the attack which gave rise to this action, the pit bull escaped from the pen twice. In the first instance, the pit bull escaped and attacked a boy, however, the owner was apparently able to restrain the dog and put it back in the pen. A short time later, the dog escaped the pen a second time and attacked a young boy, Dominic Solesky, the minor Plaintiff. Dominic was mauled by the dog, and sustained life threatening injuries, having to undergo multiple surgeries, spending seventeen days in the hospital, and one year in rehabilitation.
At the close of the Plaintiff’s case, the trial court granted the Defendant landlord’s Motion for Judgment, ruling that there was insufficient evidence to permit the issue of common law negligence to be presented to the jury. On appeal, the Court of Special Appeals reversed the decision of the trial court holding that sufficient evidence did exist as to the extent of the landlord’s knowledge as to whether the dog was dangerous in respect to the common law standards in dog attack negligence cases for the issue to go to a jury.
When the matter came before the Court of Appeals, the Court stated that the trial court was correct on the state of the common law relating to dog attacks in law in existence at the time. Prior to Tracey, the common law in Maryland was that “in order to render the owner liable in damages to one bitten by his dog, it must be proved not only that the dog was fierce, but that the owner had knowledge that he was fierce”, which was a question that had to be determined by a jury. However, deciding that the common law did not reflect the dangerous nature and numerous lawsuits that resulted from dog attacks specifically by pit bull dogs, the Court decided to change the common law.
The Court cited to numerous Maryland cases over the past 100 years involving attacks by pit bulls focusing on the dicta in Matthews v. Amberwood Associates Limited Partnership, Inc., 351 Md. 544, 719 A.2d 119 (1998). The Court also cited several other federal and state cases as well as news articles and other reports detailing the significant number of injuries and fatalities associated with the pit bull breed and the dangers presented by them. In particular, the Court repeatedly cited studies that showed that those injured or killed by dog attacks were disproportionally by pit bulls. Similarly, the Court quoted sources which stated that pit bull attacks, unlike attacks by other dogs, occur more often, are more severe, and are more likely to result in fatalities. Also, pit bulls tend to be stronger than other dogs, often giving no warning signals before attacking, are less willing than other dogs to retreat from an attack, even when they are in considerable pain.
Consequently, by modifying Maryland’s common law standard for negligence in dog attack cases, the Court held it was pit bulls are inherently dangerous activity for which landlords may be held strictly liable, stating “When an owner or a landlord is proven to have knowledge of the presence of a pit bull or cross-bred pit bull (as both the owner and landlord did in this case) or should have had such knowledge, a prima facie case is established. It is not necessary that the landlord (or the pit bull’s owner) have actual knowledge that the specific pit bull involved is dangerous.” Tracey at 8.
Accordingly, Maryland common law now finds the owner or landlord is strictly liable for the injuries inflicted in a pit bull attack if a plaintiff proves that the landlord knew or had reason to know the dog being kept on the premise was a pit bull or cross-bred pit bull mix.
Judges Greene, Harrell, and Barbera dissented from the Majority’s ruling in part because it makes the issue of whether a dog is actually harmless, or the owner or landlord has any reason to know that the dog is dangerous, irrelevant to the standard of strict liability. Rather, liability will attach solely on the basis of the breed of the dog. The dissent was also critical of the Majority for grounding its ruling upon the perceptions about a particular breed of dog, rather than upon adjudicated facts showing that the responsible party possessed the requisite knowledge of the animal’s inclination to do harm, thereby transforming a clear factual question into a legal question in an effort to create liability on the part of the landlord.
Posted by Robert A. Anderson on 05/11/2012 at 10:41 AM
Maryland workers’ compensation: causal relationship required to relate a second injury to original
A recent Maryland Court of Special Appeals decision, Washington Metropolitan Area Transit Authority v. Williams, 2012 Md. App. LEXIS 46 (Md. Ct. Spec. App. 2012) has clarified the status of the law in Maryland with respect to the causal relationship required to demonstrate that a second injury (which is not physically related to the original injury, such as where a knee injury causes back pain) is causally related to an original injury, and thereby compensable.
Jan Williams, the claimant, was a mechanic for WMATA and was working for his employer in 2008 when he injured his back and left knee on the job. In March of 2009, Mr. Williams was injured while returning from lunch to physical rehabilitation for the first injury when a driver backed into him, causing injury to Williams' right knee. The Maryland Workers' Compensation Commission found the second injury to be causally related to the original injury, and the Maryland Circuit Court for Prince George's County affirmed that finding. However, the Court of Special Appeals reversed, and found that the second injury was not causally related to the original injury.
WMATA relied upon a 1996 Maryland Court of Appeals decision, Mackin v. Harris, 342 Md. 1 (1996) in support of its assertion that the second injury was not causally related to the original injury. In Mackin, the employee had slipped and fallen on a patch of ice on his way to obtain physical therapy for a work-related injury. Id. at p. 2-3. The Mackin court noted that for a subsequent injury to be compensable, it must be the "direct and material result of a compensable primary injury." Id. at 7. The Mackin court went on to note that while Professor Lex. K. Larson, a noted authority in the field of Workers Compensation law, advocated a "but-for causation" approach to the issue, the Mackin court felt this was too broad a standard, and that acceptance of that standard "leads to rather extraordinary results." Id. at p. 9.
The Williams court found that while the Prince George's County Circuit Court had utilized Mackin in its analysis of the issue, the Circuit Court had missed the fact that the Mackin court advocated for a much more narrow standard-- namely, that the subsequent injury must have been a "direct causal connection" between the original compensable injury and the subsequent injury in order to have been proximately caused by the original injury. 2012 Md. App. LEXIS at p. 11. Using that standard, the Williams court concluded that Mr. Williams second injury directly resulted from a cause unrelated to the first injury-- namely, the driver's actions in striking Mr. Williams with his car in the parking lot. Id. at p. 12. Because the driver's actions had no connection whatsoever to the original injury, there was no proximate cause between the original injury and the subsequent injury. (Had the same situation been presented using the "but-for" standard of causation, the claim would arguably have been compensable-- as but for the original injury, Mr. Williams would not have been in the parking lot and would not have been struck.)
While the Court reversed the Circuit Court's findings, it remanded the matter in order to resolve a different issue-- whether the subsequent injury would be compensable as a new work-related injury, standing alone. As such, the matter was remanded to the Maryland Workers' Compensation Commission to determine that issue.
Posted by Padraic K. Keane on 05/07/2012 at 05:04 PM
Insurance coverage action in Maryland dismissed based on abstention
In Evanston Insurance Company v. Dan Ryan Builders, Inc., No. 11-02366 (D. Md. Feb. 13, 2012), the Court granted the insureds' motion to dismiss an insurer's declaratory judgment action, finding in favor of abstention based on parallel litigation pending in state court.
The defendants were Maryland contractors who were sued in West Virginia concerning construction defects in a home they had built in Martinsburg, West Virginia. The West Virginia suit raised claims of negligence, breach of contract, and fraud or fraudulent concealment, based on allegations that the defendants had failed to disclose that the home was subject to flooding during major storm events, and that its septic system had failed.
The insurer filed a declaratory judgment action in the U.S. District Court for the District of Maryland, to establish that it has no duty to defend or indemnify. Three days after service of the federal suit, the West Virginia suit was amended, adding the insurer as a defendant, and adding an additional count for a declaratory judgment establishing coverage for the claims raised in the suit. Subsequently, the defendant insureds filed a motion to dismiss the federal declaratory judgment action, arguing that the same coverage issues will be decided in the West Virginia litigation, and that the federal court should abstain. (Such a procedure was authorized by the West Virginia Supreme Court of Appeals in 1989. See Christian v. Sizemore, 383 S.E.2d 810 (W. Va. 1989).
The rule in the Fourth Circuit is that when an insurer files a declaratory judgment action on coverage issues in a District Court while the underlying litigation against its insured is pending in the state courts, considerations of federalism, efficiency, and comity give the District Court the discretion to refuse to entertain the action, even when the declaratory relief sought would serve a useful purpose. The District Court is required to weigh four factors when considering whether to abstain from exercising jurisdiction over a declaratory judgment action during the pendency of a parallel state proceeding: (1) the strength of the state's interest in having the issues raised in the federal declaratory action decided in state court; (2) whether the issues can be more efficiently resolved in the court where the state claims are pending; (3) whether there are common factual and legal issues in the federal and state actions which would cause the federal action to be unnecessarily entangled with the state court action; and (4) whether the declaratory judgment action is being used merely as a device for procedural fencing, i.e., the provide another forum in a race for res judicata or to achieve a federal hearing in a case otherwise not removable. See Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 376 (4th Cir. 1994), abrogated on other grounds by Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 257-78 (4th Cir. 1996).
Analyzing these factors, the District Court decided in favor of abstention. West Virginia had the stronger interest in resolving coverage issues concerning conduct in West Virginia that allegedly caused damage to property in West Virginia. Second, the West Virginia action could resolve all issues, which was more efficient. Third, resolution of the duty to indemnify in federal court would depend on resolution of the same factual and legal issues pending in state court. Finally, the Court rejected the insurer's argument that the addition of the coverage issues to the West Virginia action was procedural fencing, which should not be countenanced. The District Court accepted the insured's argument that they had not initiated either the West Virginia action or the federal declaratory action, and that the conduct of the plaintiffs in the West Virginia action was of no import.
Posted by David B. Stratton on 04/29/2012 at 10:15 PM
Lawyers Professional Liability - Unreported administrative error results in disclaimer of coverage
In Minnesota Lawyers Mut. Ins. Co. v. Baylor & Jackson, PLLC, No. 10-2701 (D. Md. Apr. 3, 2012), the District Court granted summary judgment to the insurer, holding that the insurer is not liable to defend or indemnify the defendant law firm under an LPL policy. The Court awarded summary judgment based on the finding that any reasonable lawyer would have been worried about a malpractice claim after summary judgment had been awarded in the underlying action based on the insured law firm's administrative error in submitting an unexecuted affidavit in opposition to a motion for summary judgment.
This matter arose out of the insured law firm's representation of a client who was involved in a dispute concerning various agreements as to the funding of litigation against the United States and the allocation of any proceeds from that litigation. That dispute resulted in a lawsuit in the Circuit Court for Baltimore City, before Judge Kaplan, in which the insured law firm represented the defendant. Judge Kaplan awarded summary judgment to the plaintiff in that action, in part because the defendants never contested the validity of the underlying agreement. One of the defendants tried to contest the validity in his opposition to the plaintiff's motion for summary judgment, but he failed to submit either an affidavit or a sworn statement to support his contention, and Judge Kaplan disregarded his argument. In the subsequent coverage action, the District Court noted that the record indicated that an unexecuted affidavit had been attached to the opposition memorandum in error, and at the ensuing hearing in August, 2006, Judge Kaplan refused either to allow the defendant to execute the affidavit or to testify to the contents of the affidavit despite his presence at the hearing. The total damages awarded to the plaintiff in that action was about $2.6 million, and the judgment was affirmed on appeal in 2009. The appellate court also observed that the defendants opposition to summary judgment was not supported by any sworn evidence as required by Md. Rule 2-501. The appellate court noted that the failure to properly place facts in dispute affected the arguments on all the counts.
The insured law firm had placed Minnesota Mutual on notice as soon as it they had received the appellate court's opinion on July 9, 2009. The former client filed a malpractice suit in August, 2009. Although Minnesota Mutual initially defended, presumably under a reservation of rights, it eventually withdrew from the defense and disclaimed coverage. This was because the insurer had concluded that the insured law firm should have reported the potential claim during the policy period of August 1, 2006 to August 1, 2007, because it was during that time that the firm "first became aware of facts which could have reasonably supported the claim asserted against it . . . ." Minnesota Mutual filed a declaratory judgment action to establish its lack of liability for the defense and indemnification of the insured law firm in the legal malpractice action.
The Minnesota Mutual policy was a claims made and reported policy. It stated, among other things, that a claim is deemed made when "an act, error or omission by any INSURED occurs which has not resulted in a demand for DAMAGES but which an INSURED knows or reasonably should know, would support such a demand." The Policy definition of "CLAIM(S)" also provided, in part, that it means "An act, error or omission by any INSURED which has not resulted in a demand for DAMAGES but which an INSURED knows or reasonably should know, would support such a demand."
The District Court, in awarding summary judgment to Minnesota Mutual, found that "the act, error, or omission giving rise to the Underlying Defendants' malpractice claim occurred on August 11, 2006, when [the insured law firm] . . . filed the opposition to summary judgment without supporting evidence." Maryland employs an objective standard for evaluating the reasonableness of an insured's actions in relation to the obligation to notify an insurance company of a potential claim. An insured's notice obligation accrues when the circumstances known to the insured at that time would have suggested to a reasonable person the possibility of a claim. The District Court found that:
Thus, any reasonable lawyer faced with a motion for summary judgment could simply have read Maryland Rule 2-501 and known that an unexecuted affidavit does not satisfy the Maryland standard for summary-judgment practice. [The insured law firm] . . . reasonably could have become aware, probably acutely aware, of that during the motions hearing when Judge Kaplan refused to let [the client] . . . either execute the affidavit or provide testimony at the hearing. . . . It certainly should have become aware of its shortcoming when Judge Kaplan rendered his opinion on August 22, 2006, specifically pointing out the absence of admissible evidence from the opposition that could possibly establish a genuine dispute of material fact. Any reasonable lawyer would have read Judge Kaplan's opinion with alarm as to what it meant to him or her personally. Any reasonable lawyer would have been worried it could lead to a malpractice claim. At that point, a claim was deemed made under the 2006 Policy. And at that point, [the insured law firm] . . . had to report the claim during the 2006 Policy term in order for it to be a covered claim. Consequently, [the insured law firm's] . . . failure to report it during the 2006 Policy term precluded coverage.
The Court rejected the insured law firm's argument that it had no reason to give notice to Minnesota Mutual in 2006 because Judge Kaplan's grant of summary judgment was based upon multiple alternative grounds, only one of which was the lack of an affidavit. The Court reasoned that any reasonable lawyer would have been aware that Maryland appellate courts may affirm a summary judgment on any one of several alternative grounds, and thus, the insured law firm risked appellate affirmance solely on the basis of the firm's malpractice.
The District Court also found that an alternative ground for finding no coverage was that the insured law firm in 2007 failed to report on its application for renewal of its Minnesota Mutual policy, "any INCIDENT which could reasonably result in a claim being made against the firm or a member of the firm". The Court found that the failure to report this incident until July 9, 2009 could have been reasonably regarded by Minnesota Mutual as a material misrepresentation, and the insurer was entitled to decline coverage under the 2009 policy on the ground of material misrepresentation.
Finally, the District Court rejected the insured law firm's argument that Minnesota Mutual could not show actual prejudice due to late notice, under Md. Ins. Code sec. 19-110. The District Court concluded that under the language of the Minnesota Mutual policy, the time for reporting was no mere "notice provision", but was incorporated into the definition of coverage and therefore became a condition precedent to coverage. Consequently, the insured law firm's failure to report the claim within the policy term or extended reporting period amounted to a failure to perform a condition precedent to coverage. The 2006 policy expired by the time the claim was reported to the insurer, and so coverage was never triggered for this incident. Thus no breach of the 2006 policy occurred and the insurer is not required to show actual prejudice in order to disclaim coverage under Section 19-110. Even if the insurer were required to show prejudice, the Court found that it could have easily done so by showing it had been excluded from the post-summary judgment and appellate proceedings which were the only opportunities in which the insurer could have had to fashion a request for relief.
Posted by David B. Stratton on 04/16/2012 at 01:34 PM
Claims for Negligent Title Search by Title Company are Limited to Breach of Contract in Maryland
In Columbia Town Center Title Co., et al., v. 100 Inv. Ltd. P’ship, et al., No., 0915 Sept. Term 2009 (Feb. 2, 2012), the Maryland Court of Special Appeals reversed the judgment of the Circuit Court for Howard County. The Court held that in cases where a title company performs a title examination merely in order to issue title insurance, Maryland law limits the liability of the title company to breach of contract and does not extend tort liability for negligence.
Mr. and Mrs. Miller conveyed the same 1.145-acre parcel (the "Parcel") to two different purchasers; first in 1982 to Ashan Khan, M.D., then in 1986 to Appellee, 100 Investment Limited Partnership (the "Partnership") as part of a larger parcel (the “Miller Tract”).
In conjunction with the Partnership conveyance, Cambridge Title Company ("Cambridge"), and later, Columbia Town Center Title Company ("Columbia") were engaged to issue title insurance for the property that include the Parcel, as agents for a title insurance company. However, neither Cambridge nor Columbia discovered the prior conveyance of the Parcel to Dr. Kahn.
In 1994, the Partnership subdivided the Miller Tract, including the Parcel, for residential development, conveying part of the Parcel to a developer for townhouse lots and conveying the remainder to another developer, thereby eliminating the Partnership’s interests in the Parcel.
The Partnership first learned of the conveyance to Dr. Kahn in July 2001, when developers buying the Parcel from Dr. Kahn commissioned a survey which discovered townhouses located on Dr. Kahn’s portion of the Parcel.
To cure any title defect in its prior conveyances, the Partnership agreed to purchase the Parcel from the developer involved in the Kahn purchase, paying $175,348.56 for the Parcel and $16,162.32 in associated expenses.
Nevertheless, Dr. Kahn sued the Partnership for trespass in the District Court for Howard County. Even though judgment was entered against the Partnership, Dr. Kahn was only awarded one dollar ($1.00) in nominal damages.
As a result of the Kahn litigation, Chicago Title filed a suit for declaratory judgment against the Partnership in the U.S. District Court for the District of Maryland, to determine Chicago Title’s responsibilities under the 1986 title insurance policy. The federal court granted summary judgment in the Partnership’s favor and awarded $201,744.37 in damages for the 2001 re-purchase of the Parcel and expenses defending the Kahn litigation. On appeal the Fourth Circuit found that Chicago Title was only obligated to pay for the costs associated with the Kahn Litigation under the policy and was under no obligation to compensate the Partnership for the cost of re-purchasing the Parcel. The Court reasoned that the instruments of conveyance by the Partnership contained, at most, a special warranty “promising only that the Partnership had not itself created any defect in title”, and that Chicago Title’s duty to defend was limited to claims made against the Partnership for loss or damage occurring prior to the time it conveyed its interest in the Parcel.
Dissatisfied with the Fourth Circuit’s ruling, the Partnership filed a complaint in the Circuit Court for Howard County, Maryland, alleging negligence, against the Title Companies for failing to discover the Kahn deed, and vicarious liability, against Chicago Title for the Title Companies’ negligence. After a bench trial, the Circuit Court determined that the Partnership’s “economic injury was proximately caused by the title companies breach of the duty of care they owed to the Partnership,” and that “Chicago Title was vicariously liable for the negligence of the Title Companies” because the Title Companies its agents, awarding the Partnership $191,510.88. The Title Companies and Chicago Title appealed.
On Appeal, the Court of Special Appeals noted that title insurance is now the predominant method for real estate purchasers and mortgage lenders to protect themselves against title risks. Title insurance typically affords three "kinds" of coverage: (1) indemnity for loss or damage resulting from a title defect; (2) provide a legal defense if a third party attacks title through litigation; and (3) hire experts in title matters, if necessary. Title insurance policies are generally standardized and include the terms, dollar amount of coverage, exclusions from coverage, and any prerequisites required.
Title insurance differs from a title opinion based on a title abstract, which covers a particular period of time, reflects what appears in the public title records, and includes any conveyances or encumbrances on property discovered in a title search. Under the abstract-and-opinion method (i.e. "title reporting") the title abstract is reviewed by an attorney who issues a title opinion explaining any defects and the overall validity (or invalidity) of title as reflected in the abstract.
The Title Companies
The Title Companies argued that the trial courts finding of negligence was in error, citing Corcoran v. Abstract & Title Co. of Md., Inc., 217 Md. 633, 143 A.2d 808 (1958), to contend that Maryland law dispositively establishes that a title examiner's duties are contractual in nature, and therefore, the Partnership cannot recover damages in tort. The Partnership contended that a contractual obligation does not preclude the court from also imposing a duty in tort for a breach of that obligation citing Jacques v. First Nat’l Bank of Md., 307 Md.527 (1986), as a matter of public policy.
Ultimately, the Court was not persuaded by Jacques, rejected the determination that the Title Companies owed a legal duty to the Partnership, stating that an independent basis for a tort claim is required. Specifically, in Maryland, "[t]he mere negligent breach of a contract, absent a duty or obligation imposed by law independent of that arising out of the contract itself, is not enough to sustain an action sounding in tort," even though, in some situations, a duty imposed by law and enforceable in tort overlaps with a contractual obligation. In essence, the basis for liability was the breach of the agreed upon undertaking, rather than the negligent title search because absent a contract, a title company owed no duty regarding the status of title. Thus, the Court reaffirmed Corcoran which stands for the proposition that a title examiner is contractually bound to exercise "a reasonable degree of skill and diligence," but the contract establishes the bounds of the examiner's liability, whether enforced in tort or contract.
The Title Insurer
Whether a title insurance company can be vicariously liable for the actions of its agents in regard to title searches appears to be a question of first impression in Maryland. The Court stated that if the Title Companies do not owe a tort duty to the Partnership, Chicago Title would not be vicariously liable for the Title Companies' negligence. Nevertheless, in the Court’s view, even if the Partnership's tort claims against the Title Companies were cognizable, Chicago Title would not be liable for the negligence of the Title Companies.
While there is no Maryland decision directly addressing the duty of a title insurer or its agents to conduct a full title examination, the Court of Special Appeals adopted the view in Stewart Title Guaranty Co. v. West, 110 Md. App. 114, 131, 676 A.2d 953 (1996), that a title insurance policy is a contract for indemnity and not a guarantee of marketable title. Quoting West the Court stated:
[T]he insurer is not immediately in breach simply because title is defective on the day the policy is issued -- is more in line with both title insurance law and the standard form title insurance policy that we have before us. [A] title insurer does not guarantee the state of the title. Instead, a title insurance policy is a contract of indemnity. The view that a title insurer is in breach simply because there are defects in the title at the time the policy is issued would turn the title insurer into the guarantor of the grantee's title.
[T]he mere existence of title defects does not, in and of itself, mean that a title insurer is in breach of the insurance policy," because, "[o]nce advised of a title problem, the insurer still has the option of paying the insured's loss, clearing the defects within a reasonable time, or showing that the defects do not exist."
West, 110 Md. App. at 131-141 (emphasis added). The Court was persuaded that holding a title insurer liable in tort for a negligent title examination by its agents conflicted with its holding in West. To create a tort remedy for a negligent title search performed for the issuance of a title insurance policy would make the title insurer a guarantor of title and deprive the insurer of its option to cure the title or to pay for covered losses as contracted for in the title insurance policy. Jurisdictions that consider a title insurance policy as an indemnity contract do not provide an independent tort remedy because, to do so, would undermine an insurer's ability to manage its risks by the terms of its policies. That title examinations performed for the issuance of title insurance are essentially an underwriting function is consistent with the West decision and the statutory authority granted to title insurers to examine and insure title. Even if an agent of a title company is authorized to examine title, independent of the title insurance policy, there would need to be some special agreement outside of the title insurance commitment and the title insurance policy.
The Agency Agreement
The Court noted that the agency agreement unambiguously restricted the Title Companies’ authority to matters regarding the scope of title insurance, as an agent for Chicago Title "for the promoting and transacting of a title insurance business in the state of Maryland." Even though the Agency Agreement contained a provision indemnifying Chicago Title for acts by its agents, Chicago Title's liability to the Partnership was governed by the terms of the policy and did not turn on whether a covered defect could have been reasonably located. The Court stated that even though it is obvious that a title insurer would want to exclude a defect clearly shown on the public record from coverage, ultimately the provision indemnifying Chicago Title for errors in abstracting and examining title affirmed that the title search was for the benefit of the Chicago Title and would reimburse them for insured losses that could have been excluded from coverage based on an accurate title search.
The Title Insurance Policy
The Court of Special Appeals stated that as a general rule, the extent and scope of liability of an insurer is determined by the insurance policy itself. An insurance company that underwrites specific coverage "should not subsequently be expected to assume liability for a risk which it expressly excluded." Any clause in an insurance contract restricting liability or coverage will be held enforceable unless contrary to "the public policy of this State, as set forth in . . . the Insurance Code" or another statute.
In this case, the policy agreed to indemnify the Partnership related to any defect in title losses, but the policy did not guarantee title was without defect, or that the exclusions listed represented all defects disclosed in the public record. Any preliminary commitment issued by Chicago Title and the Title Companies related only to the issuance of a title insurance policy since it was not a title abstract or independent title opinion for which the title insurer would be liable outside the terms of its policy. As a result, the Court held that both policies and any binders put the Partnership on notice that the Title Companies were agents of the insurer only for the issuance of title insurance and did not confer actual or apparent authority on the Title Companies to provide the Partnership with a separate guarantee of title for which the insurer would be responsible. Similarly, the Court held that to permit an insured to sidestep the policy limitations through a claim of vicarious liability undermines the contractual agreement and potentially title insurance in general.
The Court went on to state that because of the essential and primary role that title insurance plays in the purchase and sale of real estate and the shift from title reporting to title insurance to protect both purchasers and lenders, a sea change would occur in allowing an action in tort against the Title Companies and the title insurers with the risk of unintended consequences would be better handled by the legislature and regulatory branches of government after appropriate study and hearings. Therefore, the Court is obligated to enforce the title insurance policy as written which does not conflict with any statute or regulation in Maryland.
Ultimately, the Court concluded that the Partnership could not hold Chicago Title vicariously liable for any negligence of the Title Companies related to the status of title to the Parcel and that the insurer's liability is limited to the terms of its policy, thereby reversing the decision of the trial court.
For advice on potential matters involving the defense of claims against title companies in Maryland, contact Deborah M. Whelihan, Esq. at 202-296-4747.
Posted by Robert D. Anderson on 04/11/2012 at 01:23 PM
Liability of Agents and Brokers
Maryland Workers’ Compensation Defense: Court rejects special mission exception
In Garrity v. IWIF, No. 1185, September Term, 2010 (Md. App. February 9, 2012), appellant was a part-time bailiff at the District Court for Baltimore City, where he was involved in an automobile accident as he was returning to the courthouse. Appellant had already arrived at work earlier in the morning but realized the tie he was wearing, a Christmas themed tie, was inappropriate for work. Additionally, shortly after realizing his tie did not conform to his usual work attire, Appellant spilt coffee on his shirt and tie, which prompted him to go home to change. Believing it was ok to run this errand, Appellant asked the other bailiff assigned to the courtroom to cover for him. While traveling back from his house to the courthouse, Appellant was struck head-on by another vehicle. The Workers’ Compensation Commission found that Appellant’s injury arose out of and was in the course of his employment. A Petition for Review was filed and Appellant attempted to show that his claim was compensable under the special mission and dual purpose exceptions to the going and comings rule, as well as the personal comfort exception. The Circuit Court for Baltimore City reversed the Commission’s findings and Appellant filed an appeal with the Court of Special Appeal where the Circuit Court’s decision was ultimately upheld.
The special mission exception, first recognized in Maryland in Reisinger-Siehler Co. v. Perry, 165 Md. 191, (1933), is “when an employee is acting in the course of employment when traveling on a special mission or errand at the request of the employer and in furtherance of the employer’s business, even if the journey is one that is to or from the workplace.” Here, Appellant relied upon the “Policy on Appropriate Attire and Appearance,” which governs Appellant’s dress code at work. Appellant argued that the policy “mandated” that he leave work and change his shirt and tie once he spilled coffee on them. The Court of Special Appeals correctly identified that the special mission exception is raised when an employee, acting at the direction of their employer, is injured on the job. Here, Appellant was not directed by his employer to go home and change his shirt and tie, therefore the special mission exception must fail. The Court of Special Appeals went further, stating that the policy which Appellant relied upon simply provides “guidance on professional attire,” and is not a mandate requiring employees to leave work when they realize their attire is out of compliance.
While the Court of Special Appeals determined that the “Policy on Appropriate Attire and Appearance” did not provide express authority to leave work, Appellant contends that it contained implied authority. In support of this belief, Appellant argued that a liberal policy existed for bailiffs to run errands. Even if bailiffs were able to run minor errands without authorization, the Court of Special Appeals determined that this practice was never approved or acquiesced to by supervisors.
The dual purpose doctrine, as outlined in Stotskin v. Bd. of Ed. Montgomery County, 11 Md. App. 355 (1997), is applicable when a “trip involves the performance of a service for the employer which would have caused the trip to be taken by someone even if it had not coincided with the personal injury.” Relying upon this doctrine, Appellant reasoned that because he had his radio with him to monitor courtroom communications and that the dress policy stated that an employee must maintain “a professional and appropriate image . . .,” his injury should be compensable. The Court of Special Appeals determined that neither express nor implied authority to leave the courthouse without authorization was provided. Furthermore, Appellant’s decision to take his radio with him could not remedy the situation because if he was needed, there would be no way for him to comply. The Court reasoned that only if Appellant’s supervisors authorized him to leave and take his radio with him, would the dual purpose doctrine apply.
Appellant also relied upon the personal comfort exception as set forth in King Waterproofing Co. v. Slovsky, 71 Md. App. 247 (1987). In Slovsky, Claimant was a part-time telephone solicitor who was struck by an automobile while on a paid break. At the time Claimant was struck, he was crossing the street in order to get food and a drink from a nearby restaurant. To determine whether Claimant’s injury was compensable, the Court considered whether the Claimant sustained his accidental injury while engaged in some personal comfort activity incidental to his employment. The Court reasoned that an injury during an off-premises coffee break could easily occur during an on-premises coffee break; therefore, the injury was compensable.
Here, the Court of Special Appeals recognized that in order for the personal comfort exception to apply, there must be some mutual benefit between the employee and employer. While Appellant believes the personal comfort exception was applicable because he would have been compensated while running personal errands, this activity was neither encouraged nor accepted by his supervisor and his argument must therefore fail.
The Court of Special Appeals affirmed the Circuit Court’s ruling finding that Appellant did not suffer a compensable injury arising out of and in the course of employment.
For further information concerning the defense of Maryland workers' compensation matters, call Steve Schwinn at 202-496-2806.
Posted by Mark Kopelman, Associate on 03/11/2012 at 01:31 PM
Police civil liability: Maryland federal court grants summary judgment in racial profiling case
On February 7, 2012 the U.S. District Court of Maryland issued a memorandum opinion granting summary judgment to the defendant police officers in a civil lawsuit alleging liability for unlawful arrest (allegedly due to racial considerations). Santos v. Frederick County Board of Commissioners, No. L-09-2978 (D. Md. Feb. 7, 2012). On an obviously smaller scale, the case is somewhat of a preview of some of the issues that will be addressed by the Supreme Court when the Court examines an Arizona law that requires police to determine the immigration status of any person they detain who they believe to be in the country illegally.
Roxana Santos, the Plaintiff, was taking a break behind her place of employment when she was approached by two sheriff's deputies. Santos claimed that she never moved from where she was sitting, while the deputies claimed that they decided to approach her because she saw them, gathered her belongings quickly, and moved away. The deputies approached Santos, and asked her what she was doing, and if she had any identification. Santos provided the deputies with her full name, which was used by the deputies to run a warrant check. At that point, Santos produced a Salvadoran identification card. Shortly thereafter, the dispatch contacted the deputies, and advised that Santos was the subject of an Immigration & Customs Enforcement ("ICE") warrant for immediate deportation. While the warrant was being verified with ICE, Santos asked the deputies if she could leave, and they gestured that she was to remain seated. At that point, she got up to leave, but was handcuffed and placed under arrest.
Santos was not deported, and filed suit against the deputies and a variety of other defendants. With respect to the deputies, Santos claimed Unlawful Seizure, Unlawful Arrest, and Violation of the 14th Amendment's guarantee of equal protection (all under 42 U.S.C. § 1983), and conspiracy (under 42 U.S.C. § 1985). Judge Legg granted summary judgment on all counts.
With respect to the claim of unlawful seizure and arrest (under the Fourth Amendment), the court first noted that there are three types of police-citizen interactions, each of which require different levels of justification: arrests, which must be supported by probable cause; brief investigatory stops, which must be supported by reasonable articulable suspicion; and consensual encounters, which require no justification whatsoever. Santos claimed that she had been "seized" as soon as the deputies approached and began to question her; the deputies claimed she had not been seized until she was placed in cuffs. The court took the middle ground, finding that she was seized prior to being cuffed, but after she was initially approached, when the deputy gestured for her to remain sitting, as at that point any reasonable person in Santos' position would not feel free to terminate the encounter with the police.
Based on that determination, Santos was "seized" after the deputies had already been advised of the outstanding ICE warrant-- and as such, they possessed probable cause to detain her at that point. As such, there was no violation of Santos' Fourth Amendment rights.
With respect to Santos' claim that her 14th Amendment rights were violated (on the grounds that the deputies allegedly decided to question her based upon her Latina appearance), the court noted that the deputies had ample neutral evidence on which to seize Santos at the time of the seizure (the outstanding ICE warrant). Santos argued, however, that the Equal Protection Clause may be violated short of a seizure if police target an individual for questioning based on his or her ethnicity, and relied on the case of United States v. Avery, 137 F.3d 343 (6th Cir. 1997), in which the Sixth Circuit held that even a consensual encounter may violate the Equal Protection Clause when initiated solely based on racial considerations. Id. at 353. Judge Legg declined to adopt the Avery position on the issue, on the grounds that under existing law, either a Terry stop or an arrest must serve as the basis for a suit, and under the Avery approach nearly every encounter between the police and a citizen might be actionable based upon the subjective intent of the officer. (Judge Legg notes in his opinion that this focus on the officer's subjective intentions is an area the Supreme Court has attempted to avoid in the past.)
Regardless, the court found that even if Avery was the standard in the Fourth Circuit, Santos' claims would still fail, as Santos failed to offer sufficient evidence, whether direct, circumstantial, or statistical, from which a jury could conclude that the deputies were motivated solely by Santos' ethnicity.
As the claims asserting underlying discriminatory animus failed, the claim for conspiracy was dismissed as well.
Posted by Padraic K. Keane on 02/22/2012 at 09:27 PM
Police Civil Liability
Commercial ambulances not shielded by the Maryland Good Samaritan Act or the Fire and Rescue Act
In Murray v. Transcare Maryland, Inc., No. 1791, Sept. Term 2010 (Feb. 9, 2012), the Court of Special Appeals held that a private for-profit ambulance service is not subject to Maryland’s Good Samaritan Act (Md. Courts and Jud Code Ann. § 5-603) or to the Fire and Rescue Act (§ 5-604). Both statutes are designed to provide immunity to certain individuals and companies that commit negligent torts while providing emergency services.
The facts were as follows: Transcare is a private, for-profit ambulance service. Bryson Murray, a child, was taken to the emergency room at Easton Memorial Hospital with complaints of congestion and trouble breathing. Bryson was intubated and subsequently transported by helicopter to the Pediatric Intensive Care Unit of the University of Maryland Medical System. Chris Barbour, a paramedic employed by Transcare, accompanied Bryson in the helicopter. During the flight, Bryson’s airway became blocked, and he required an oxygen mask. Barbour was unable to timely locate the mask, and Bryson suffered permanent brain damage as a result.
Bryson’s mother filed suit against Transcare, alleging that Barbour failed to exercise reasonable care. Transcare moved for summary judgment, invoking the Good Samaritan Act and the Fire and Rescue Act. After extensive analysis of the statutory language and legislative history, the Court of Special Appeals held that neither statute was applicable. The Good Samaritan Act does not apply to a for-profit company like Transcare because the Act’s protection of corporate entities is limited to volunteer service providers. By contrast, the Act would cover an individual paramedic employed by a commercial ambulance company, and therefore would likely immunize Barbour from personal liability.
Likewise, the court held that Transcare was not protected under the Fire and Rescue Act. That statute only applies to “fire companies” and “rescue companies.” The court held that Transcare was not a rescue company because the primary purpose of an ambulance is to transport the sick, not to save people from danger. The court stated in dicta that since ambulance companies are not defined as “rescue companies” under the Fire and Rescue Act, the Act would not apply even if a tort occurs while an ambulance company is engaged in providing rescue services (e.g. in an emergency situation).
In a separate part of its opinion, the Court of Special Appeals affirmed the trial court’s decision to transfer venue from Baltimore City to Talbot County under the doctrine of forum non conveniens. The Court of Special Appeals held that the trial court did not abuse its discretion because the tort occurred in Talbot County, several witnesses were located in Talbot County, and neither party resided in Baltimore City.
Posted by Raphael J. Cohen on 02/16/2012 at 03:29 PM
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