United States District Court, D. Maryland
THE HUMANE SOCIETY OF THE UNITED STATES, et al.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA
DEBORAH K. CHASANOW, District Judge.
Presently pending and ready for resolution in this insurance coverage dispute are: (1) a motion to exclude the testimony and written opinions of Dennis Connolly filed by Defendant National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union" or "Defendant") (ECF No. 74); and (2) a motion for summary judgment also filed by Defendant. The issues have been fully briefed, and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, Defendant's motion for summary judgment will be granted in part and denied in part. Defendant's motion to exclude will be denied without prejudice to renewal later in this litigation if necessary.
A. Factual Background
Unless otherwise noted, the following facts are undisputed. Plaintiffs, Humane Society of the United States ("HSUS") and two of its employees, Jonathan Lovvorn and Kimberly Ockene, assert a claim for insurance coverage against Defendant in connection with a suit filed against them by Feld Entertainment, Inc. HSUS is a national nonprofit organization dedicated to protecting animals. Plaintiffs Jonathan Lovvorn and Kimberly Ockene are employed as attorneys with HSUS.
In July 2000, the Fund for Animals ("FFA") joined other nonprofit organizations and a former circus employee in bringing a lawsuit against Feld Entertainment, Inc., Ringling Brothers, and Barnum & Bailey based on allegations that they mistreated Asian elephants used in the circus in violation of the Endangered Species Act ("the ESA Litigation").
On or about November 22, 2004, HSUS entered into an asset acquisition agreement with FFA. (ECF No. 75-3). On August 28, 2007, Feld filed a separate lawsuit in the United States District Court for the District of Columbia against, inter alia, FFA (but not HSUS or the individual attorneys). The complaint alleged violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO") and the Virginia Conspiracy Act for conspiracy to harm a business. The RICO counts alleged violations of federal and state criminal statutes, including bribery, obstruction of justice, and mail and wire fraud. (ECF No. 68-8). Feld Entertainment alleged that in bringing the ESA Litigation, FFA and the other nonprofit organizations had perpetrated a scheme to defraud them of money and property, with the ultimate objective of banning Asian elephants in all forms of entertainment and captivity (hereinafter "the Feld Litigation").
On November 7, 2007, the court in the District of Columbia stayed the Feld Litigation pending the outcome of the ESA Litigation. The ESA Litigation proceeded to a bench trial and on December 30, 2009, a judgment was entered in favor of Feld Entertainment. See American Soc. for Prevention of Cruelty to Animals v. Feld Entertainment, Inc., 677 F.Supp.2d 55 (D.D.C. 2009). Subsequently, the court lifted the stay of the Feld Litigation.
On February 16, 2010, Feld filed an amended complaint in the Feld Litigation, naming as additional defendants (the current Plaintiffs) HSUS, Jonathan Lovvorn, and Kimberly D. Ockene. ( See ECF No. 68-12, amended complaint). National Union issued to HSUS a Management Liability, Professional Liability, Crime Coverage and Kidnap and Ransom/Extortion Coverage for Non Profit Organizations, Policy No. 01-932-56-98, for the policy period June 1, 2009 to June 1, 2010 ("the Policy"). (ECF No. 68-6). The policy includes a Directors and Officers Liability ("D&O") Coverage section and provides for $20 million in insurance protection for the organization and individual insureds. On March 1, 2010, HSUS sent a letter to BB&T Insurance Services, Inc. ("BB&T"), its broker, attaching the amended complaint in the Feld Litigation and asking BB&T to provide notice on behalf of HSUS, Lovvorn, and Ockene, and FFA under two National Union policies - the 2009-2010 National Union policy and a Corporate Counsel Premier Policy - and a General Commercial Liability Policy issued by Travelers. (ECF No. 68-14, at 2). BB&T subsequently submitted an Accord General Liability Notice of Occurrence/Claim to National Union. (ECF No. 68-15).
On May 26, 2010, Michael T. Howard, an employee of Chartis, the administrator handling claims under the Not-For-Profit Risk Protector Policy on behalf of National Union, sent a letter to HSUS denying coverage. ( See ECF No. 68-16). The letter stated, in relevant part:
Effective January 1, 2005, FFA and the Humane Society of the United States ("HSUS") merged.
This policy, subject to its terms and conditions, provides coverage for Loss arising from only those claims that were first made against an Insured and reported to National Union during the Policy Period. The Insured had notice of this claim on or about September 6, 2007, but did not report it to National Union until on or about March 2, 2010. Consequently, the claim was not first made and reported within the Policy Period. Based on the foregoing, we deny coverage for this claim pursuant to the Insuring Agreements in Clause 1 of the "D&O Coverage Section" of the policy, the definition of Claim in Clause 2(a) of the "D&O Coverage Section" of the policy and Clause 7(a) in the General Terms and Conditions Section of the policy entitled "Notice/Claim Reporting Provisions"... National Union expressly reserves all of its rights under the policy, including the right to assert additional defenses to any claims for coverage, if subsequent information indicates that such action is warranted.
(Id. at 3, 5).
On June 16, 2010, HSUS wrote an email to National Union requesting reconsideration of the coverage denial. (ECF No. 68-17). The email stated that the "corporate combination between HSUS and the Fund for Animals which took effect on January 1, 2005, was absolutely not a merger'." (Id. at 3). HSUS also took the position that the original complaint in the Feld Litigation did not name HSUS, Lovvorn, and Ockene, thus the claim was first made against them when the amended complaint was filed in 2010. (Id. ). National Union responded on July 16, 2010, supplementing its position but maintaining the coverage denial. (ECF No. 68-18). National Union provided a defense to Defendants Lovvorn and Ockene,  subject to a reservation of rights, under the Corporate Counsel Premier Policy, a different policy from the 2009-2010 Policy at issue here. ( See ECF No. 68-19, Mar. 18, 2010 letter from Chartis regarding defense of Lovvorn and Ockene; see also ECF No. 68-1, at 15 n.4)). On September 13, 2010, Travelers agreed to defend HSUS in the Feld Litigation under the January 1, 2000-December 31, 2000 Charter Oak Fire Insurance Company policy (the "2000 Travelers Policy"), but declined to defend the FFA, Mr. Lovvorn, or Ms. Ockene. (ECF No. 68-20).
In September 2012, FFA filed suit against National Union in the Circuit Court for Montgomery County (Case No. 376268V) demanding coverage under the 2007-2008 National Union Policy and the 2009-2010 National Union Policy. The docket from that case reflects that on December 18, 2014, Judge Boynton entered an amended order granting in part National Union's motion for summary judgment as to Count II of FFA's amended complaint for breach of contract relative to the 2009-2010 policy and the part of Count III in which FFA sought a declaration that National Union was required to provide it with coverage under the 2009 2010 policy. On March 12, 2015, a final judgment was entered in favor of National Union on all claims.
On or about May 13, 2014, HSUS, FFA, and the other defendants in the Feld Litigation agreed to pay $15.75 million to settle both Feld Entertainment's claim for attorney's fees in the ESA Litigation and its claims in the Feld Litigation. ( See ECF No. 68-13). Additional facts will be presented in the analysis section.
B. Procedural Background
Plaintiffs initially filed suit against National Union in the Circuit Court for Montgomery County, Maryland. On June 21, 2013, National Union removed the action to this court on diversity grounds. (ECF No. 1). In the complaint, Plaintiffs assert a breach of contract claim against National Union, arguing that it "has breached the terms of the Policy by refusing to pay the losses that Plaintiffs may, are, or will be obligated to pay because of the Feld Litigation." (ECF No. 2 ¶ 36). Plaintiffs also seek a declaratory judgment that National Union is obligated to pay all losses that Plaintiffs may become legally obligated to pay in the Feld Litigation. (Id. ¶ 46).
In a memorandum opinion and order issued on July 3, 2014, the court denied Defendant's motion to strike the report and testimony of Plaintiffs' proposed expert, Dennis Connolly, but required Plaintiffs to cure certain deficiencies and serve a supplemental expert report. ( See ECF No. 59). After discovery concluded, Defendant moved for summary judgment. (ECF No. 68). Plaintiffs opposed the motion (ECF No. 73), and Defendant replied (ECF No. 75). Defendant also again moved to exclude the testimony and written opinions of Plaintiffs' proposed expert, Dennis Connolly. (ECF No. 74). Plaintiffs opposed the motion (ECF No. 81), and Defendant replied (ECF No. 82).
II. Standard of Review
A motion for summary judgment will be granted only if there exists no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). Once a properly supported motion for summary judgment is filed, the nonmoving party is required to make a sufficient showing on an essential element of that party's claim as to which that party would have the burden of proof to avoid summary judgment. Celotex, 477 U.S. at 322-23.
Summary judgment is appropriate under Federal Rule of Civil Procedure Rule 56(a) when there is no genuine dispute as to any material fact, and the moving party is plainly entitled to judgment in its favor as a matter of law. In Anderson v. Liberty Lobby, Inc., 477 U.S. at 249 (1986), the Supreme Court explained that, in considering a motion for summary judgment, the "judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." 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. Thus, "the judge must ask himself not whether he thinks the evidence unmistakably favors one side or the other but whether a fairminded jury could return a verdict for the [nonmoving party] on the evidence presented." Id. at 252.
In undertaking this inquiry, a court must view the facts and the reasonable inferences drawn therefrom "in the light most favorable to the party opposing the motion." Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) ( quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); see also EEOC v. Navy Fed. Credit Union, 424 F.3d 397, 405 (4th Cir. 2005). The mere existence of a "scintilla" of evidence in support of the non-moving party's case is not sufficient to preclude an order granting summary judgment. See Anderson, 477 U.S. at 252.
A "party cannot create a genuine dispute of material fact through mere speculation or compilation of inferences." Shin v. Shalala, 166 F.Supp.2d 373, 375 (D.Md. 2001) (citation omitted). Indeed, this court has an affirmative obligation to prevent factually unsupported claims and defenses from going to trial. See Drewitt v. Pratt, 999 F.2d 774, 778-79 (4th Cir. 1993) ( quoting Felty v. Graves-Humphreys Co., 818 F.2d 1126, 1128 (4th Cir. 1987)).
A. Defendant's Motion for Summary Judgment
1. Standard for Interpreting an Insurance Policy
The Fourth Circuit recently explained:
Insurance policies, like other contracts, must be construed "as a whole to determine the parties' intention." Beale v. Am. Nat'l Lawyers Ins. Reciprocal, 379 Md. 643, 843 A.2d 78, 89 (2004) (internal quotation marks and citation omitted). A court will "examine the character of the contract, its purpose, and the facts and circumstances of the parties at the time of execution." Pac. Indem. Co. v. Interstate Fire & Cas. Co., 302 Md. 383, 488 A.2d 486, 488 (1985). Policy terms are given "their ordinary and accepted meanings, " and "[t]he test is what meaning a reasonably prudent layperson would attach to the term." Id. Policy language is ambiguous if it is "general" and "suggest[s] two meanings to a reasonably prudent layperson." Id. at 489 (internal quotation marks and citation omitted).
Certain Underwriters at Lloyd's, London v. Cohen, 785 F.3d 886, 890 (4th Cir. 2015); Navigators Specialty Ins. Co. v. Medical Benefits Adm'rs of MD, Inc., Civ. Action No. ELH-12-2076, 2014 WL 768822, at *7 (D.Md. Feb. 21, 2014) ("In deciding the issue of coverage under an insurance policy, the primary principle of construction is to apply the terms of the insurance contract itself." (internal quotation marks omitted)). "[T]he same rules apply to ambiguities in a policy application ... prepared by an insurer and made part of the insurance contract." Cohen, 785 F.3d at 890 n.2 (emphasis in original) ( citing Peoples Life Ins. Co. v. Jerrell, 271 Md. 536 (1974)). In Maryland, extrinsic evidence is not admissible to interpret an insurance policy that is unambiguous on its face. See Cheney v. Bell Nat'l Life Ins. Co., 315 Md. 761, 766-67 (1989); Nat'l Cas. Co. v. Lockheed Martin Corp., 415 F.Supp.2d 596, 601 (D.Md. 2006) (applying Maryland law and noting that "[w]hile the character of the [insurance] contract, its object and purposes, and the factual circumstances of the parties at the time of execution may assist in interpreting the meaning of a particular contractual provision, clear and unambiguous language must be enforced as written."). "Maryland does not follow the rule that insurance policies should, as a matter of course, be construed against the insurer.'" Navigators, 2014 WL 768822, at *8 ( quoting Megonnell v. United Services Auto. Ass'n, 368 Md. 633 at 655 (2002)). However, "if ambiguity is determined to remain after consideration of extrinsic evidence, it will ordinarily be resolved against the party who drafted the contract, ' where no material evidentiary factual dispute exists." Clendenin Bros., Inc. v. U.S. Fire Ins. Co., 390 Md. 449, 459-60 (2006).
The central issue is whether National Union is required to provide coverage to Plaintiffs with respect to the Feld Litigation under the terms of the 2009-2010 Policy. National Union offers five separate reasons for why it properly denied coverage to Plaintiffs and why summary judgment should be entered in its favor. National Union argues: (1) HSUS is not covered because it cannot meet its burden of proving that the Feld Litigation was a Claim first made against the "Organization, " as defined in the Policy, during the 2009-2010 Policy Period; (2) coverage for the Feld Litigation is barred as to all Plaintiffs under the exclusion in the 2009 Application; (3) coverage for the Feld Litigation is excluded as to all Plaintiffs pursuant to Endorsement No. 6 to the National Union Policy; (4) coverage for the Feld Litigation is barred as to all Plaintiffs by Exclusion 4(b) of the Policy; and (5) the 2009-2010 National Union Policy is excess of the 2000 Travelers Policy. ( See ECF No. 68-1).
As an initial matter, Plaintiffs argue that National Union waived all defenses aside from the "claims first made" argument by failing to raise them in the first coverage denial letter. Plaintiffs contend that "the May 26 letter did not alert HSUS that National Union was challenging the accuracy of the application that HSUS submitted for coverage.  Nor did it identify Endorsement No. 6, which National Union now contends is the lynchpin of its coverage position." (ECF No. 73, at 41-42). The Court of Appeals of Maryland explained waiver in insurance coverage disputes in Creveling v. Government Employees Ins. Co., 376 Md. 72, 96-98 (2003):
The doctrine of waiver may work to deprive an insurer of a right it would otherwise possess. See GEICO v. Medical Services, 322 Md. 645, 650 (1991). Waiver, in general, is "the intentional relinquishment of a known right, or such conduct as warrants an inference of the relinquishment of such right, and may result from an express agreement or be inferred from circumstances." Food Fair v. Blumberg, 234 Md. 521, 531 (1964) (citations omitted). In insurance law, waiver requires "an actual intention to relinquish an existing right, benefit, or advantage, with knowledge, either actual or constructive, of its existence, or such conduct as to warrant an inference of such intention to relinquish.'" Medical Services, 322 Md. at 650-51....
The doctrine of waiver cannot operate to expand or establish insurance coverage. See Medical Services, 322 Md. at 651; Neuman v. Travelers Indemnity Co., 271 Md. 636, 654 (1974)... Judge Wilner, writing for the Court of Special Appeals in Insurance Co. of North Am. v. Coffman, described the doctrine of waiver and this exception as follows:
"The Court of Appeals sees a distinction between defenses founded upon lack of basic coverage and those arising from the failure of the claimant to satisfy some technical' condition subsequent. The former, it is apparent, may not be waived merely by the company's failure to specify them in its initial response to the claim, for the effect of that would be to expand the policy to create a risk not intended to be undertaken by the company."
52 Md.App. 732, 742-43 (1982)....
To determine whether the doctrine of waiver may apply, the pivotal issue is whether a policy clause or condition proffered as a defense pertains to coverage or whether it arises from "the failure of the claimant to satisfy some technical' condition subsequent." See Medical Services, 332 Md. at 651.... "Conditions going to the coverage or scope of a policy as distinguished from those furnishing a ground for forfeiture may not be waived by implication from conduct or action.
Here, the defenses raised by National Union relate to coverage and National Union did not waive them by failing to raise all possible defenses in the initial coverage letter. See, e.g., Emcor Group, Inc. v. Great Am. Ins. Co., Civ. No. ELH-12-0142, 2013 WL 1315029, at *29 (D.Md. Mar. 27, 2013) ("GAIC argues that the 2004 Policy did not provide coverage beyond the 2003 Policy, not that Emcor failed to abide by a technical prerequisite in filing its claim.... Accordingly, GAIC's purported failure to preview Condition 10 as a basis for its motion for partial summary judgment does not open the door to waiver ...