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Pacific Indemnity Co. v. Interstate Fire & Casualty Co.

February 25, 1985


Certification of Question of Law from the United State Court of Appeals - Fourth Circuit Alexander Harvey II, JUDGE.

Murphy, C.J., Smith, Eldridge, Cole, Rodowsky and Couch, JJ., and W. Albert Menchine, Associate Judge of the Court of Special Appeals (retired), specially assigned.


This case comes to us from the United States Court of Appeals for the Fourth Circuit pursuant to the Maryland Uniform Certification of Questions of Law Act, Md.Code (1974, 1984 Repl.Vol.), ยงยง 12-601 to -609 of the Courts and Judicial Proceedings Article. The dispute is between the

primary and excess medical malpractice insurers of an obstetrician. The question is whether the causes of action of a brain-damaged infant for personal injuries and of the infant's father for consequential expenses are subject to but one, or to two separate, limit(s) of liability under the primary policy.

The primary carrier is the Pacific Indemnity Company (Pacific), which was a defendant in the United States District Court for the District of Maryland in the action giving rise to the proceeding before us.*fn1 The excess insurer is Interstate Fire & Casualty Company (Interstate), which was the plaintiff in the United States District Court. Their insured was Dr. Vibhakar J. Mody (Dr. Mody). On September 14, 1979, a statement of claim was filed in the Health Claims Arbitration Office of Maryland against certain health care providers, including Dr. Mody. The claimants were an infant, George M. Cross, Jr. (George Jr.), and his parents, George M. Cross, Sr. (George Sr.) and Barbara Ann Cross (Barbara Ann). Each claimant alleged negligence by Dr. Mody in rendering obstetrical services. Money awards were claimed on behalf of George Jr. for brain damage, by George Sr. for the past and prospective expenses of George Jr. consequential to the brain damage, and by Barbara Ann for a tearing of the vaginal and perineal areas. The two insurers settled these claims by a total payment of $560,500. As allocated between claimants the settlement is $350,000 on the infant's claim, $200,000 on the father's claim, and $10,500 on the mother's claim.

We are concerned with the $200,000 allocated to George Sr. which Interstate supplied for the total settlement. Interstate now claims that $200,000 from Pacific in the federal litigation on the theory that it was the primary carrier's obligation to pay it.

The "Limits of Liability" section of the declaration sheet of Pacific's policy provides: "$200,000 each claim $600,000 aggregate." Pacific's position is that "each claim" for policy limit purposes is not synonymous with a cause of action in legal theory for presenting a claim in a common law action in a Maryland court. Pacific says that one $200,000 limit applies to Barbara Ann's claim and another $200,000 limit applies to the infant's claim which, for purposes of limits under the policy provisions, includes the derivative claim of George Sr. Interstate's position is that three separate $200,000 limits are implicated with one limit applying to the claims of father, mother, and child respectively.

The United States District Court for the District of Maryland concluded that Pacific's policy was unambiguous and entered summary judgment in favor of Interstate for $200,000. Interstate Fire & Cas. Co. v. Pacific Indem. Co., 568 F.Supp. 633 (D.Md.1983). Pacific's appeal resulted in transmittal of the certified question to us. Interstate Fire & Cas. Co. v. Pacific Indem. Co., 738 F.2d 638 (4th Cir.1984). That question is:

Construing Pacific's policy under Maryland law, is Pacific liable to pay a separate $200,000 policy limit to Interstate for the claim of George M. Cross, Sr. for the financial injury sustained by him as a result of the insured's alleged malpractice?

In responding to this question we shall first state the principles applied under Maryland law to the construction of insurance contracts. They are by no means unique to this state. We shall then apply those principles to Pacific's policy. As will be seen, that application does not produce a categorical answer to the certified question. In order to comply with the spirit of the Maryland Uniform Certification of Questions of Law Act under these circumstances, we shall then explicate how this Court would decide an appeal from a Maryland circuit court which presented the certified question on the same record which was made in the federal district court.


Construction of insurance contracts in Maryland is governed by a few well-established principles. An insurance contract, like any other contract, is measured by its terms unless a statute, a regulation, or public policy is violated thereby. Bond v. Pennsylvania Nat'l Mut. Cas. Ins. Co., 289 Md. 379, 424 A.2d 765 (1981); National Grange Mut. Ins. Co. v. Pinkney, 284 Md. 694, 399 A.2d 877 (1979); Travelers Ins. Co. v. Benton, 278 Md. 542, 365 A.2d 1000 (1976). 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. Aragona v. St. Paul Fire & Marine Ins. Co., 281 Md. 371, 378 A.2d 1346 (1977); Federal Ins. Co. v. Allstate Ins. Co., 275 Md. 460, 341 A.2d 399 (1975); Pennsylvania Nat'l Mut. Cas. Ins. Co. v. Bierman, 266 Md. 420, 292 A.2d 674 (1972); Mills v. Judd, 256 Md. 144, 259 A.2d 267 (1969); Simkins Industries, Inc. v. Lexington Ins. Co., 42 Md. App. 396, 401 A.2d 181, cert. denied, 285 Md. 730 (1979). Maryland courts should examine the character of the contract, its purpose, and the facts and circumstances of the parties at the time of execution. Allstate Ins. Co. v. Humphrey, 246 Md. 492, 229 A.2d 70 (1967); First Nat'l Bank v. Maryland Cas. Co., 142 Md. 454, 121 A. 379 (1923); United States Fire Ins. Co. v. Maryland Cas. Co., 52 Md. App. 269, 447 A.2d 896 (1982).

In so doing, we accord words their ordinary and accepted meanings. The test is what meaning a reasonably prudent layperson would attach to the term. This Court has consulted Webster's Dictionary, Random House Dictionary, or, less often, Black's Law Dictionary. See, e.g., DeJarnette v. Federal Kemper Ins. Co., 299 Md. 708, 475 A.2d 454 (1984) ("use of a motorcycle"); St. Paul Fire & Marine Ins. Co. v. Pryseski, 292 Md. 187, 438 A.2d 282 (1981) ("occurrence"); Fisher v. Tyler, 284 Md. 100, 394 A.2d 1199 (1978) ("loan" and "used under contract in behalf of"); Aragona, supra, ("any dishonest, fraudulent, criminal

In the first instance the inquiry is confined to analysis of the language used. Truck Ins. Exchange v. Marks Rentals, Inc., 288 Md. 428, 418 A.2d 1187 (1980); Benton, supra; Levy v. American Mut. Liab. Ins. Co., 195 Md. 537, 73 A.2d 892 (1950). Courts may construe unambiguous contracts as a matter of law. Aragona; C & H Plumbing; DeJames, all supra.

The language used may be ambiguous if it is "general" and may suggest two meanings to a reasonably prudent layperson. Pryseski, supra; Truck Ins. Exchange, supra. If the language of the contract is ambiguous, extrinsic evidence may be consulted to determine the intention of the parties and whether the ambiguous language has a trade usage. Pryseski, supra; Truck Ins. Exchange, supra; Planters Mut. Ins. Co. v. Deford, 38 Md. 382 (1873); Baltimore Fire Ins. Co. v. Loney, 20 Md. 20 (1863). Construction of the contract by the parties to it before the controversy arises is an important aid to interpretation of uncertain terms. Hurt, supra.

If the extrinsic evidence presents disputed factual issues, construction of the ambiguous contract is for the jury. The court may construe an ambiguous contract if there is no factual dispute in the evidence. Truck Ins. Exchange, supra.

A sampling of contract terms found ambiguous includes Pryseski, supra, 292 Md. at 196-98, 438 A.2d at 287-88 (meaning of "occurrence"); Truck Ins. Exchange, supra, 288 Md. at 433, 418 A.2d at 1190 (meaning of "operate under his Thrifty Rent-A-Car franchise"); and DeJames, Page 390} supra, 256 Md. at 719-25, 261 A.2d at 749-52 (meaning of "collapse").

Illustrative of contract terms found unambiguous are DeJarnette, supra, 299 Md. at 714-22, 475 A.2d at 457-61 (meaning of "use of a motorcycle"); Fisher, supra, 284 Md. at 110-12, 394 A.2d at 1204-06 (meaning of "loan"); Aragona, supra, 281 Md. at 374-75, 378 A.2d at 1348-49 (meaning of "any dishonest, fraudulent, criminal . . . act . . . of . . . partner"); Benton, supra, 278 Md. at 544-46, 365 A.2d at 1003-04 ("[n]o person may recover benefits as prescribed by law and afforded under this insurance from more than one motor vehicle liability insurance policy on either a duplicative or supplemental basis"); and C & H Plumbing, supra, 264 Md. at 513-17, 287 A.2d at 239-42 (meaning of "loss by infidelity of an . . . employee").


The printed heading on Pacific's policy is: "Obstetricians' and Gynecologists' Professional Liability and Professional Premises Liability Policy." As the policy form is designed, Part I provides coverage for professional services liability, while Part II would afford professional premises liability coverage. The declarations indicate that Dr. Mody did not purchase Part II coverage. With respect to Part I the declarations reflect that Dr. Mody had "Individual Coverage" as opposed to "Partnership Coverage" or "Corporation Coverage." The dollar amounts for "each claim" and "aggregate" were typed in the preprinted limits of liability portion of the declarations. By preprinted declaration Dr. Mody represented that he was "engaged in practice as an OBSTETRICIAN/GYNECOLOGIST."

We reproduce below the relevant provisions from Part I. Words which Interstate emphasizes are reproduced in italics and words which Pacific emphasizes are underlined.

In consideration of the payment of the premium, in reliance upon the statements in the declarations made a

part hereof and subject to all of the terms of this policy, the company agrees with the named insured as follows:


The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of:


Injury arising out of the rendering of or failure to render, during the policy period, professional services by the individual insured . . . performed in the practice of the individual insured's profession described in the declarations including service by the individual insured as a member of a formal accreditation or similar professional board or committee of a hospital or professional society[.]


[T]he liability of the company for damages because of injury to which this insurance applies, sustained by any one person, shall not exceed the limit of liability stated in Part I ...

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