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Gemini Insurance Co. v. Earth Treks, Inc.

United States District Court, D. Maryland

May 12, 2017

GEMINI INSURANCE COMPANY, Plaintiff/Counter-Defendant
EARTH TREKS, INC., Defendant/Counter-Plaintiff.


          Richard D. Bennett United States District Judge

         Gemini Insurance Company (“Gemini”) has brought this action against Earth Treks, Inc. (“Earth Treks”), a Maryland corporation operating a series of rock climbing gyms, which purchased a commercial general liability insurance policy issued by Gemini (the “Policy”). Gemini seeks a declaration that it did not owe Earth Treks a defense[1] under the Policy or, alternatively, owed Earth Treks a defense limited to $100, 000, in the now-settled underlying action of Kelsey Fabian v. Earth Treks, Inc., Case Number 13-C-14-100242 (the “Fabian Suit”) in the Circuit Court for Howard County, Maryland. See Compl., p. 1, ECF No. 1. Earth Treks expended approximately $1, 200, 000 in defending against the Fabian Suit, but Gemini has declined to reimburse Earth Treks for any portion of that amount. Earth Treks has now filed a Counterclaim against Gemini, alleging breach of the Policy's defense provisions and requesting a monetary judgment in the full amount of its costs and expenses incurred in defending against the Fabian Suit. See Counterclaim, ¶¶ 85-89, ECF No. 7. Currently pending before this Court are Earth Treks' Motion for Partial Summary Judgment (ECF No. 19) and Gemini's Cross-Motion for Summary Judgment (ECF No. 27) on the issue of liability. Specifically, the issues before this Court are whether or not Gemini owed Earth Treks a defense in the underlying Fabian Suit and if so, whether Gemini's defense obligation is limited by one or more of the Policy's coverage limitation endorsements. Also pending is Earth Treks' Motion to Strike Gemini's Extrinsic Evidence (ECF No. 28).

         The parties' submissions have been reviewed, and no hearing is necessary. See Local Rule 105.6 (D. Md. 2016). For the reasons stated herein, Earth Treks' Motion for Partial Summary Judgment (ECF No. 19) is GRANTED IN PART and DENIED IN PART, and Gemini's Cross-Motion for Summary Judgment (ECF No. 27) is also GRANTED IN PART and DENIED IN PART. Specifically, Gemini did owe Earth Treks a defense in the Fabian Suit as a matter of law, but its defense obligation is limited to $100, 000 pursuant to the “Sexual Abuse or Molestation” (“SAM”) coverage limitation endorsement or, alternatively, the “Assault, Battery, or Assault and Battery” (“A&B”) endorsement. Accordingly, Judgment is entered for Earth Treks on Gemini's initial claim for declaratory judgment and Earth Treks' Counterclaim for breach of contract, subject to a $100, 000 limit on Gemini's defense liability. This case shall proceed to a separate determination of the specific damages to be awarded, pursuant to this Court's Bifurcation Order of December 22, 2016 (ECF No. 25). Additionally, Earth Treks' Motion to Strike Gemini's Extrinsic Evidence (ECF No. 28) is GRANTED. All extrinsic evidence submitted by Gemini is stricken and has not been considered by this Court in determining whether Gemini owed Earth Treks a defense or in determining the scope of that defense under the coverage limitation endorsements.


         I. Earth Treks Rock Climbing Gyms

         Defendant/Counterclaim-Plaintiff Earth Treks, Inc. (“Earth Treks”) is a Maryland corporation operating three rock climbing gyms in Rockville, Timonium, and Columbia, Maryland, and a fourth gym in Golden, Colorado. Fabian Second Am. Compl., ¶¶ 2, 9, ECF No. 7-7. “Each of these locations offers climbing lessons and instructions.” Id., ¶ 9. Additionally, Earth Treks leads climbing teams for children between the ages of six (6) and eighteen (18), including “Team Earth Treks, ” a nationally ranked competition team. Id. ¶ 10. In 2008, Earth Treks hired Michael Lyons (“Lyons”) to be the head coach of Team Earth Treks. Id., ¶ 17. Daniel Montague (“Montague”) was the assistant coach. Id., ¶ 29.

         II. Gemini's Commercial General Liability Insurance Policy

         Earth Treks is a participating member of the “Climbing Wall Association.” Counterclaim, ¶ 2, ECF No. 7. Plaintiff/Counterclaim-Defendant Gemini Insurance Company (“Gemini”) has issued a commercial general liability insurance policy (Policy Number VUMC 10000010) (the “Policy”) to the participating members of the Climbing Wall Association, including Earth Treks. See Policy, ECF No. 1-1; Certificate, ECF No. 7-1. At all relevant times, the Policy has provided Earth Treks general liability coverage subject to a per occurrence limit of $1, 000, 000 and an aggregate limit of $2, 000, 000. Id. at 1.

         The Policy provides insurance against “bodily injury” or “property damage” caused by an “occurrence” that takes place in the “coverage territory.” Id. at 6. The Policy defines “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Id. at 19. The Policy further provides that “[Gemini] will have the right and duty to defend any ‘insured' against any ‘suit' seeking those damages . . . . [h]owever, [Gemini has] no duty to defend the insured against any ‘suit' seeking damages for ‘bodily injury' or ‘property damage' to which [the] insurance does not apply.” Id. at 6. Additionally, the Policy excludes coverage for “ ‘bodily injury' . . . expected or intended from the standpoint of the insured.' ” Id. at 7. The Policy further includes two separate coverage limitation endorsements for damages resulting from “Sexual Abuse or Molestation” (the “SAM” endorsement) and “Assault, Battery, or Assault and Battery” (the “A&B” endorsement”). Id. at 59-60. Coverage for claims that fall within the scope of those endorsements is limited to $100, 000 for “Each Claim” and $300, 000 in the “Aggregate.” Id. Under both endorsements, “[a]ll claims for damages made by one or more persons because of any one act or series of acts . . . shall be deemed to be one claim.” Id. (emphasis added).

         III. The Underlying “Fabian Suit” - Fabian v. Earth Treks, Inc., No. 13-C-14-100242

         On April 16, 2014, Kelsey Fabian (“Fabian”), a former member of Team Earth Treks, filed suit against Earth Treks in the Circuit Court for Baltimore County, Maryland. See Fabian v. Earth Treks, Inc., Case No. 13-C-14-100242 (the “Fabian Suit”). The case was subsequently transferred to the Circuit Court for Howard County, Maryland on Earth Treks' motion. Fabian, then a minor acting under the direction of her parents, initially brought suit under the pseudonym “Jane Doe, ” but was required to proceed under her real name after the case was transferred. The Second Amended Complaint was the operative Complaint in that now-settled action. Kelsey Fabian's allegations were as follows:

         In September of 2010, Fabian joined Team Earth Treks at the Earth Treks gym in Columbia, Maryland. Fabian Second Am. Compl., ¶ 29, ECF No. 7-7. At that time, Fabian was thirteen years old. Id. Head Coach Lyons was thirty years old, and Assistant Coach Montague was nineteen years old. Id. Fabian has claimed that Lyons had a history of inappropriate relationships with Earth Treks students and team members, of which Earth Treks personnel were aware. Id., ¶¶ 21-22. She has alleged that Lyons and Montague “engaged in a course of increasingly aggressive sexual behavior” targeted at her and at least one other climber. Id., ¶¶ 30-31. It is specifically alleged that “Montague . . . engaged in sexual activity with [her] on multiple occasions between March and May of 2011.” Id., ¶ 34.

         “Despite the increasingly apparent nature of Michael Lyons' inappropriate, sexual behavior, ” Earth Treks permitted him to lead a team trip to Massachusetts in the “late Spring/early Summer of 2011.” Id., ¶ 43. Lyons and members of Team Earth Treks stayed in the same hotel room, “an arrangement that was known to Earth Treks beforehand.” Id., ¶ 44. During this trip, Lyons “engaged in sexual intercourse with [Fabian] twice in his hotel room.” Id. The following weekend, “Earth Treks again permitted Mr. Lyons to organize and conduct a sleepover event with Earth Treks' youth climbers” at the Earth Treks gym in Columbia, Maryland. Id., ¶ 45. That night, Lyons again sexually assaulted then-fourteen-year-old Fabian in a storage closet. Id.

         In connection with these allegations, Fabian brought a three-count Second Amended Complaint against Earth Treks for Negligence (Count I), Negligent Hiring, Retention, and Supervision (Count II), and Respondeat Superior Liability (Count III). Id., ¶¶ 54-98. Earth Treks coaches Lyons and Montague each subsequently pled guilty to various sex offenses in the Circuit Court for Howard County, Maryland. Id., ¶ 11 (citing State v. Lyons, Case No. 13-K-11-051485; State v. Montague, Case No. 13-K-11-51536). As a result of repeated sexual assaults by both Lyons and Montague, Fabian has claimed injuries “in the form of significant, negative effects on [her] health.” Id., ¶ 50. In August of 2016, Earth Treks and Fabian reached a settlement in the Fabian Suit that was reflected in a confidential Settlement Agreement and Release. See Gemini Counterclaim, ¶ 50, ECF No. 7.

         IV. Earth Treks' Extrinsic Evidence as to the Fabian Allegations

         Earth Treks Chief Executive Officer Christopher Warner (“Warner”), Chief Operating Office Christopher Jenkins (“Jenkins”), and Vice President of Operations Scott Heidtman (“Heidtman”) have stated that “[n]o one in Earth Treks' senior management knew or suspected that Michael Lyons or Daniel Montague would engage in inappropriate sexual activity or conduct with Kelsey Fabian or with any other Earth Treks team member.” See, e.g., Warner Aff., ¶ 4, ECF No. 19-1. Prior to joining Earth Treks, Lyons was a USA Climbing certified coach and coached a competitive climbing team in Ohio. See Lyons Dep., pp. 18:14-19:3; 15:7-16:10, ECF No. 19-16. Additionally, Lyons was referred to Earth Treks by the parent of a Team Earth Treks climber. Jenkins Dep., p. 46:4-9, ECF No. 19-14. Before offering Lyons the coaching position, Earth Treks contacted Lyons' references, and members of Earth Treks management interviewed him. Id. at 51:10-17; 53:8-20; 58:4-9.

         Detective Aaron Miller of the Howard County Police Department was an investigator in the criminal cases against Lyons and Montague. When asked by Earth Treks parents if they could have detected Lyons' and Montague's actions sooner, Detective Miller responded that “with no prior allegations, no criminal investigation, no criminal conviction, there would be no record of it.” Miller Dep., p. 159:1-8, ECF No. 19-17. Detective Miller has explained that perpetrators of child sex abuse “groom” both their “victim[s]” and “social fabric” “to see the [perpetrator] as being . . . above reproach.” Id. at 154:11-155:5. Detective Miller has concluded that Lyons groomed both the Earth Treks parents and “Earth Treks as a corporate employer” because “no one seemed to have anything bad to say about him or would say anything bad about him . . . [t]hey all had praise about him.” Id. at 157:1-15.

         While Fabian was a minor incapable of legal consent, she has acknowledged her own wrongdoing. In a police interview on June 24, 2011, Fabian stated that the sexual abuse was “a little bit” her fault, that she “could have said no, ” that Montague did not threaten her, and that engaging in sexual intercourse with Lyons was a “mutual decision.” Kelsey Fabian Interview, pp. 41-47, ECF No. 19-24. Additionally, Kelsey Fabian has indicated that she and her friend Clarissa Sheltraw composed a “bucket list” of sexual acts that they sought to complete. Id. at 20-29. Fabian completed several of those acts with Montague and Lyons, and initialed various items on the list with a “K” to indicate that she had completed them. Id. Fabian has further stated that she had a “little girl crush” on Montague shortly after joining Team Earth Treks. Kelsey Fabian Dep., p. 91, ECF No. 19-11. Fabian kissed Montague at Earth Treks and subsequently engaged in sexual acts with him about “four or five times” at her mother's home. Kelsey Fabian Interview, pp. 33-36, ECF No. 19-24. Sometime later, Fabian learned that Montague was also “doing stuff” with another sixteen-year-old climber named “Steph.” Id. at 34-38. She has stated that she “was kind of upset with Dan.” Id. at 43. Accordingly, when Lyons “started coming on to [her]” around that time, “[she] really didn't say no.” Id. Fabian has stated that Lyons began “touching” her “[a]t Earth Treks in Columbia, ” “and [she] didn't say no.” Id. at 44:1-6.

         Earth Treks Executives Warner, Jenkins, and Heidtman have stated that “Daniel Montague was not working for Earth Treks when he and Kelsey Fabian engaged in their consensual sexual activity in Linda Fabian's home” and, accordingly, that “Kelsey Fabian at this time was not in the care, custody, or control of Earth Treks.” See, e.g., Warner Aff., ¶ 15, ECF No. 19-1. Additionally, Warner, Jenkins, and Heidtman have stated that “Earth Treks did not accept responsibility for the care, custody, control of Kelsey Fabian during the competitive-climbing trip to Massachusetts on June 11-12, 2011.” Id., ¶ 17. Kelsey travelled to the climbing competition in June of 2011 “in the care of” Georgann Sheltraw, her friend Clarissa's mother. See, e.g., Georgann Sheltraw Dep., p. 19, ECF No. 19-21.

         V. The Instant Action - Gemini Insurance Co. v. Earth Treks, Inc. - No. RDB-16-2520

         On January 2, 2014, counsel for Kelsey Fabian, then-proceeding under the pseudonym “Jane Doe, ” issued a demand letter upon Earth Treks, informing Earth Treks of Fabian's intent to file the Fabian Suit, discussed supra. See Demand Letter, ECF No. 7-9. After receiving that demand letter, Earth Treks notified Verus Underwriting Managers, LLC (“Verus”), claims services representative for Gemini, that Earth Treks may have a claim under the Policy in connection with the impending Fabian Suit and, via letter dated February 21, 2014 (ECF No. 7-10), Verus acknowledged receipt of Earth Treks' notice. Subsequently, Verus forwarded to Earth Treks a letter from Verus' outside coverage counsel, DeCaro, Doran, Siciliano, Gallagher, & DeBlasis, LLP (ECF No. 7-11), providing counsel's opinions as to, inter alia, Gemini's duty to defend Earth Treks in the Fabian Suit. The opinion letter stated that “if suit were filed [Gemini] would have a duty to defend under the [P]olicy, ” but that “coverage for this claim would be limited to $100, 000 each claim and $300, 000 aggregate, ” pursuant to the Policy's “Sexual Abuse or Molestation” (“SAM”) endorsement.

         After Kelsey Fabian filed the Fabian Suit on April 16, 2014, Verus confirmed via letter dated May 8, 2014 (ECF No. 7-13) that the Fabian Suit did constitute a “claim” under the Policy, but that the SAM endorsement limited coverage for the lawsuit to “$100, 000.” In a response dated May 9, 2014 (ECF No. 7-14), counsel for Earth Treks agreed to this limitation, but “reserve[d] the right to renew its demand for indemnity and a defense based on the changed situation or circumstances.” Additionally, Earth Treks declined to draw on the $100, 000 coverage amount as defense costs were incurred, but rather requested that it be held in reserve to cover potential costs. Over a year later, on October 30, 2015, Verus inquired as to whether Earth Treks was ready to receive the $100, 000 payment. See Verus October 30, 2015 Email, ECF No. 7-15. Earth Treks declined Verus' offer and instead sent Verus a letter (ECF No. 7-16), in which it reasserted its demand for indemnification and defense and argued that the SAM endorsement did not apply. Following several weeks of ...

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