United States District Court, D. Maryland
Richard D. Bennett United States District Judge
Ellicott City Cable, LLC (“ECC”) and Dr. Bruce
Taylor (“Dr. Taylor”) (collectively,
“Plaintiffs”) bring this action against Defendant
Axis Insurance Company (“Axis” or
“Defendant”), seeking a declaratory judgment
pursuant to 28 U.S.C. § 2201. Plaintiffs claim that Axis
breached its duties to defend and indemnify ECC in an action
also before this Court, DirecTV, LLC v. Taylor, et
al., Civ. A. No. RDB-15-01760 (the “Underlying
Action”). While the present action was pending, the
parties in the Underlying Action reached a settlement
agreement. See DirecTV, LLC v. Taylor, et al., Civ.
A. No. RDB-15-01760, ECF No. 95. This Court accordingly
dismissed that action on November 9, 2015. DirecTV, LLC
v. Taylor, et al., ECF No. 96.
pending are Plaintiffs’ Cross-Motion for Partial
Summary Judgment (ECF No. 21) on Defendant’s duty to
defend and Defendant’s Motion to Dismiss (ECF No. 15).
The parties’ submissions have been reviewed and no
hearing is necessary. See Local Rule 105.6 (D. Md.
2016). For the reasons that follow, Defendant’s Motion
to Dismiss (ECF No. 15) is DENIED; and Plaintiffs’
Cross-Motion for Partial Summary Judgment (ECF No. 21) is
GRANTED. In sum, Axis had a duty to defend ECC in the
Court is presented with dueling motions-the Defendant’s
Motion to Dismiss (ECF No. 15) and the Plaintiffs’
Cross-Motion for Partial Summary Judgment (ECF No. 21). As
this Court is granting the Plaintiffs’ Motion, this
Court will review the facts and all reasonable inferences in
the light most favorable to the nonmoving party. Scott v.
Harris, 550 U.S. 372, 378 (2007); see also Hardwick
ex rel. Hardwick v. Heyward, 711 F.3d 426, 433 (4th Cir.
2013). This action arises out of successive multimedia
liability policies (the “Policies”) issued by
Defendant Axis to Plaintiffs Dr. Taylor and ECC from May 1,
2009 to May 1, 2013.Mem. in Support of Pls.’ Cross-Mot.
for Partial Summ. J. at 9. Under the Policies, Axis agreed to
defend ECC against any suit seeking damages for a specified
media “occurrence . . . during the Policy
Period[.]” Compl. Ex. 4 at 2. For purposes of the
present action, the parties concede that the relevant terms
and conditions of the Policies do not vary. Mem. in Support
of Def.’s Mot. to Dismiss, 6, ECF No. 15-1; Mem. in
Support of Pls.’ Cross-Mot. for Partial Summ. J., 9,
ECF No. 21-1.
2005, Dr. Taylor formed Ellicott City Cable, LLC
(“ECC”) to provide television, internet, and
telephone services to residents of the Taylor Village and
Waverly Woods communities. ECC contracted to obtain satellite
television programming from DirecTV, LLC
(“DirecTV”) through DirecTV agents Sky Cable, LLC
(“Sky Cable”) and North American Cable Equipment
(“NACE”). Compl. Ex. 8, 43, ECF No. 1-9 (Taylor
Decl. ¶ 6). Under the contracts, ECC distributed the
DirecTV programming through equipment and credentials
provided by Sky Cable and NACE. Id. ECC, in turn,
made monthly payments to DirecTV for access to its
programming. Underlying Action Amended Compl. ¶ 81.
According to Dr. Taylor, this arrangement continued until
2014, when ECC terminated its relationship with DirecTV.
Taylor Decl. ¶¶ 23-24. ECC never contracted with
DirecTV to provide internet or telephone services. Taylor
Aff. ¶¶ 8-9.
December 6, 2013, DirecTV filed the Underlying Action
against, inter alia, ECC, Dr. Taylor, and Sky Cable,
in the United States District Court for the Western District
of Virginia. See Underlying Action Amended
Complaint. The Underlying Action was subsequently transferred
to this Court. See Compl. Ex. 7, ECF No. 1-8;
DirecTV, LLC v. Taylor, et al., Civ. A. No.
RDB-15-01760. DirecTV alleged that the Underlying Action
Defendants “fraudulently obtain[ed], and assist[ed]
others in obtaining DIRECTV’s satellite television
programming and distribut[ed] that programming over
unauthorized cable television systems.” Underlying
Action Amended Compl. ¶ 1. Specifically, DirecTV alleged
that ECC, through Sky Cable, set up private cable systems to
deliver DirecTV Satellite Master Antenna Television
(“SMATV”) to more units in Taylor Village and
Waverly Gardens than set forth in the contracts. Id.
¶¶ 58, 63, 72. ECC was also alleged to have created
multiple dwelling unit (“MDU”) accounts with
DirecTV for both properties, but distributed the programming
to occupants and residents outside of the scope of the
agreements. Id. ¶¶ 60, 64. In so doing,
ECC allegedly used wiring to traverse public rights of way.
Id. ¶ 75.
asserted six claims against ECC and Dr. Taylor. In Count I,
DirecTV alleged that the Underlying Action Defendants
violated 47 U.S.C. § 605(a) by (a) “creating and
assisting in creating DIRECTV MDU and SMATV accounts with
false information and for improper purposes[;]” (2)
“installing and maintaining DIRECTV receiving equipment
at locations or facilities not authorized by
DIRECTV[;]” (3) “re-broadcasting and
retransmitting DIRECTV programming to unauthorized
locations[;]” and (4) “distributing and selling
DIRECTV programming in a manner contrary to DIRECTV policy
and federal law[.]” Id. ¶ 89. Count II,
asserting a violation of 18 U.S.C. § 2511(1)(a),
levied similar allegations to those of Count I. Id.
¶ 94. In Count III, DirecTV alleged that ECC and Dr.
Taylor (Sky Cable and its managing member, Robert Saylor)
committed fraud by falsely representing material information
upon which DirecTV relied “in authorizing the SMATV and
MDU accounts, ” activating the equipment, and supplying
its television programming. Id. ¶¶
100-103. ECC and Dr. Taylor were allegedly unjustly enriched
by their purported wrongful conduct (Count IV). Id.
¶¶ 107-109. Finally, DirecTV asserts that ECC and
Dr. Taylor conspired with Sky Cable and Robert Saylor to
defraud DirecTV in this manner, in violation of the common
law and Virginia Code §§ 18.2-499, 18.2-500 (Counts
V & VI). Id. ¶¶ 111-17. DirecTV
sought, inter alia, compensatory damages for any
notified Axis of the Underlying Action on May 28, 2015,
requesting coverage under the applicable Policy. Compl. Ex.
6, ECF No. 1-7. On July 9, 2015, AXIS denied coverage on the
grounds that the Underlying Action arose from ECC’s
alleged intentional unauthorized use of DirecTV’s
programming. Compl. Ex. 7, 2-3, ECF No. 1-8. ECC responded to
dispute this conclusion, offering documentation to rebut the
allegations of unauthorized access, intentional or otherwise.
Compl. Ex. 8, 1-8, ECF No. 1-9.
Axis refused to change its original determination, ECC and
Dr. Taylor filed the subject action in this Court. See
generally Compl. Plaintiffs seek a declaratory judgment
on the related issues of Axis’s duties to defend and
indemnify the Plaintiffs in the Underlying Action.
Id. ¶ 1. During the pendency of this action,
DirecTV and the Plaintiffs reached a settlement agreement in
the Underlying Action. Mem. in Support of Pls.’s Mot.
for Partial Summ. J. at 16. Axis did not participate in the
settlement. Id. This Court dismissed the Underlying
Action on November 9, 2015. DirecTV, LLC v. Taylor, et
al., Civ. A. No. RDB-15-01760, ECF No. 96. ECC and Dr.
Taylor seek Partial Summary Judgment on the duty to defend of
Axis, which contends that this action should be dismissed in
its entirety. Axis contends that ECC’s alleged
intentional unauthorized use of data precludes a duty to
defend and is within the exclusions of the liability policies
resolution of the pending Motions requires this Court to
confront only legal, and not factual, issues. As such, this
Court will examine the parties’ respective arguments
for or against coverage through the lens of Rule 56 of the
Federal Rules of Civil Procedure, and not Rule 12(b)(6).
of the Federal Rules of Civil Procedure provides that a court
“shall grant summary judgment if the movant shows that
there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.”
Fed.R.Civ.P. 56(c). A material fact is one that “might
affect the outcome of the suit under the governing
law.” Libertarian Party of Va. v. Judd, 718
F.3d 308, 313 (4th Cir. 2013) (quoting Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). A
genuine issue over a material fact exists “if the
evidence is such that a reasonable jury could return a
verdict for the nonmoving party.” Anderson,
477 U.S. at 248. When considering a motion for summary
judgment, a judge’s function is limited to determining
whether sufficient evidence exists on a claimed factual
dispute to warrant submission of the matter to a jury for
resolution at trial. Id. at 249. In undertaking this
inquiry, this Court must consider the facts and all
reasonable inferences in the light most favorable to the
nonmoving party. Libertarian Party of Va., 718 F.3d
at 312; see also Scott v. Harris, 550 U.S. 372, 378
parties have filed motions for summary judgment, then this
Court “must consider each motion separately on its own
merits to determine whether either of the parties deserves
judgment as a matter of law.” Bacon v. City of
Richmond, 475 F.3d 633, 637-38 (4th Cir. 2007) (internal
quotation marks omitted). Similarly, this separate analysis
must apply to the competing Motion for Partial Summary
Judgment and the Motion to Dismiss this case. Regardless,
this Court “must not weigh evidence or make credibility
determinations.” Foster v. University of
Md.-Eastern Shore, 787 F.3d 243, 248 (4th Cir. 2015)
(citing Mercantile Peninsula Bank v. French, 499
F.3d 345, 352 (4th Cir. 2007)); see also Jacobs v. N.C.
Administrative Office of the Courts, 780 F.3d 562, 569
(4th Cir. 2015) (explaining that the trial court may not make
credibility determinations at the summary judgment stage).
However, this Court must also abide by its affirmative
obligation to prevent factually unsupported claims and
defenses from going to trial. Drewitt v. Pratt, 999
F.2d 774, 778-79 (4th Cir. 1993). If the evidence presented
by the nonmoving party is merely colorable, or is not
significantly probative, summary judgment must be granted.
Anderson, 477 U.S. at 249-50.
noted supra, Axis refused to defend ECC in the
Underlying Action due to ECC’s alleged intentional
unauthorized use of DirecTV’s programming. In Maryland,
the duty of an insurer to defend the insured is
“determined by the allegations in the tort
actions.” Brohawn v. Transamerica Ins. Co.,
347 A.2d 842, 850 (Md. 1975). If the underlying claims are
clearly covered by the insurance policy, then the insurer is
obligated to defend the insured. Id. Yet, under the
“potentiality rule, ” the insurer has a duty to
defend the insured “[e]ven if the [underlying]
plaintiff does not allege facts which clearly bring the claim
within or without the policy coverage.” Id.
(internal citations omitted). The “potentiality
rule” thus broadens the insurer’s duty to defend
beyond the scope of the duty to indemnify. Id. As a
result, the allegations in the underlying complaint may
trigger the duty to defend where it is unclear whether the
insurer is ultimately obligated to indemnify the insured.
Id.; see also St. Paul Fire & Mar.
Ins. v. Pryseki, 438 A.2d 282, 285 (Md. 1981). Where the
duty to defend is contested, an insurer may not look outside
the underlying pleadings to deny its obligations. Aetna
Cas. & Sur. Co. v. Cochran, 651 A.2d 859, 863 (Md.
1995). An insured, however, may use extrinsic evidence to
establish the potentiality of coverage. Id. at 866;
see also Walk v. Hartford Cas. Ins. Co., 852 A.2d
98, 110 (Md. 2004) (“[p]otentiality of coverage may be
shown through the use of extrinsic evidence so long as the
insured shows that there is a reasonable potential that the
issue triggering coverage will be generated at
Policies at issue in the present action provide coverage to
ECC for certain forms of media liability.See
Compl. Ex. 3 at 2-3. Specifically, under Section I.A