United States District Court, D. Maryland
K. BREDAR CHIEF JUDGE.
pending before the Court is Intervenor Defendant Katiara
Harper's Motion to Alter/Amend Judgment or Motion for
Reconsideration. (ECF No. 135.) The motion has been briefed
(ECF Nos. 136, 137), and no hearing is required, Local Rule
105.6 (D. Md. 2016). The motion will be granted. Also before
the Court is the Joint Motion for Leave to File Surreply,
filed by Plaintiff CX Reinsurance Company Limited (“CX
Re”) and Defendants Leader, Inc. d/b/a/ Leader Realty
(“Leader”) and Charles Piccinini (together,
“Defendants”). (ECF No. 138.) The latter motion
will be found moot based upon the Court's ruling in this
memorandum and accompanying order.
case began with CX Re's filing a complaint seeking
rescission of the liability insurance policies issued by CX
Re's predecessors to protect Defendants from financial
loss stemming from claims made against Defendants by their
tenants; besides rescission, CX Re sought a return to it of
all sums paid under the policies, offset by premiums paid by
Leader. (Compl. Prayer for Relief, ECF No. 1.) Alternatively,
CX Re asked that the Court award CX Re damages flowing from
the allegedly fraudulent representations made by Defendants
in their application for insurance coverage. (Id.)
Court permitted Harper and another individual, Natasha
Johnson, to come into the case as Intervenor Defendants.
(Mem. & Order, Jan. 10, 2017, ECF No. 74.) Both Harper
and Johnson filed answers to CX Re's complaint (ECF Nos.
75, 76), but Harper's included a counterclaim against CX
Re and a cross-claim against Defendants (Harper's Ans.,
ECF No. 76). Harper's pleading sought a declaratory
judgment that the insurance policies issued by CX Re to
Defendants were enforceable and should not be rescinded.
(Id., p. 1.) After the case proceeded through
discovery, CX Re and Defendants filed a joint motion to
dismiss premised upon their settlement that, they asserted,
rendered moot all claims in the case. (ECF No. 131.) The
settlement agreement took the form of an “Endorsement
Amending Policy Terms.” (ECF No. 131-3.) The policies
in issue-Policy No. CNAGL1112-97, Policy No. CNAGL1229-98,
M&B Policy No. 19337608-99, and M&B Policy No.
19338040-00 (collectively, the “Policies”)-were
modified to limit the amount of insurance available for
losses sustained during the four-year period the Policies
were in effect. Since CX Re was thereby abandoning its quest
to have the policies declared invalid and unenforceable and
to recover compensatory damages from Defendants, the
settlement agreement made moot CX Re's case against
Defendants and the Intervenor Defendants. And since
Harper's only claim was to have the Policies declared
enforceable, it seemed to the Court that her claim was also
reflection, the Court now believes its conclusion of mootness
for Harper's claim was likely error. Consequently, the
case shall be reopened, and the Court's dismissal order
shall be vacated insofar as it disposed of Harper's claim
because of mootness. However, in doing so, the Court deems it
advisable to consider the nature of Harper's claim.
scope of relief requested in Harper's claim indicates it
should be dismissed without prejudice. In her prayer for
relief, Harper asked the Court not only to declare the
Policies valid and enforceable, but also to declare that
“CX Re has an obligation to indemnify Defendants with
respect to any judgment obtained by
Defendant/Counter-Plaintiff against Defendants in the Lead
Paint Action, as well as with respect to any other lead paint
judgment obtained against Defendants by a claimant who has
vested rights in the Policies.” (Harper's Ans.,
Prayer for Relief.) Whether CX Re has an obligation to
indemnify Defendants in the event Harper or anyone else
obtains a judgment against Defendants cannot be declared yet.
Such a declaration would depend upon the facts of the
underlying suit(s) and a determination that those facts
constitute an insured loss under the Policies' terms. To
the Court's knowledge, Harper's case has not
proceeded to judgment in Maryland state court. And Maryland
courts frown upon a tort plaintiff's declaratory judgment
action, prior to judgment in the underlying tort suit, that
seeks a declaration of entitlement to liability insurance
Maryland law, declaratory judgment actions by or against the
tortfeasor's liability insurer, in advance of a
determination of liability in a tort suit, are normally
precluded except when the issues in the declaratory judgment
action are independent and separable from the claims of the
tort claim.” Washington Metro. Area Transit Auth.
v. Queen, 597 A.2d 423, 426 n.6 (Md. 1991).
“[E]ven when declaratory judgment actions to determine
coverage are permitted before a trial of the underlying tort
action, they are not favored.” Vigilant Ins. Co. v.
Luppino, 723 A.2d 14, 20 (Md. 1999). See also
Chantel Associates v. Mt. Vernon, 656 A.2d 779, 788 (Md.
1995) (“[I]t is within the trial court's discretion
to defer resolution of an issue presented in a declaratory
judgment action until the time of trial of the underlying
tort action, even if that issue is one which is
‘independent and separable' from the issues to be
resolved at the underlying tort trial.”).
discretionary nature of declaratory judgment actions in
federal court is well established. “The Declaratory
Judgment Act of 1934 . . . is an enabling Act, which confers
a discretion on the courts rather than an absolute right upon
the litigant.” Pub. Serv. Comm'n of Utah v.
Wycoff Co., 344 U.S. 237, 241 (1952); Ellis v.
Louisiana-Pacific Corp., 699 F.3d 778, 788 (4th Cir.
2012). See 28 U.S.C. § 2201 (“any court
of the United States, upon the filing of an appropriate
pleading, may declare the rights and other legal
relations of any interested party seeking such
declaration” (emphasis added)). And although
“this discretion should be liberally exercised to
effectuate the purposes of the statute and thereby afford
relief from uncertainty and insecurity with respect to
rights, status and other legal relations, ” Aetna
Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 324 (4th
Cir. 1937), the Court observes that the declination of such
jurisdiction at this case's present juncture is
consistent with the hesitancy of Maryland courts to jump
ahead to insurance coverage questions raised by a tort
plaintiff who has not yet obtained a judgment against the
alleged tortfeasor, even if those questions include
“independent and separable” ones from whether a
loss is a covered loss under an insurance policy's terms.
Whether the Policies are valid and enforceable may be
considered independent and separable from the question of
coverage, but the Court is not obligated to address that
issue now. Instead, Harper may raise the matter after her
underlying suit proceeds to judgment, presuming the judgment
is in her favor. In addition, Harper is free to raise her
claim to indemnification in state court; it need not be
litigated here. Thus, the Court concludes it appropriate
to dismiss Harper's counterclaim and cross-claim without
prejudice to her refiling her claim at a later time.
has also raised in her motion papers a new claim that CX Re
and Defendants could not modify the Policies because of her
asserted status as a third-party beneficiary. She also
provides citations to some Maryland cases that suggest the
Court's conclusion in CX Reinsurance Co. Ltd. v.
Levitas, 207 F.Supp.3d 566 (D. Md. 2016), aff'd
sub nom. CX Reinsurance Co. Ltd. v. Loyal, 691 Fed.Appx.
130 (4th Cir. June 6, 2017), that the intervenor defendant
there was not an intended third-party beneficiary was in
upon the principle that the primary source for determining
the intention of contracting parties is the contract's
own language, see Shillman v. Hobstetter, 241 A.2d
570, 576 (Md. 1968) (applying principle to question of
whether party is third-party beneficiary), and relying upon
the quite restrictive Maryland case law regarding third-party
beneficiary status, CR-RSC Tower I, LLC v. RSC Tower I,
LLC, 56 A.3d 170, 212 (Md. 2012), this Court concluded
that the intervenor-defendant in Levitas was only an
incidental beneficiary of the liability insurance policy CX
Re issued to the Levitas defendants in relation to
the rental properties they owned. That conclusion was based
upon the insurance contract's own language, which
provided no evidence that the insurer and the insureds
intended to make the defendants' tenants primary parties
in interest. The undersigned has now become aware that a
sub-strain of third-party beneficiary law apparently exists
in Maryland because of a judicially created qualification of
the doctrine. That qualification seems to be based upon a
public policy exception to contract interpretation when
applied to liability insurance contracts. Under this apparent
exception, the public policy requires that liability
insurance contracts be interpreted as expressing the
insurer's and the insured's intent to make any
potential tort claimant against the insureds an intended
third-party beneficiary, Jones v. Hyatt Ins. Agency,
Inc., 741 A.2d 1099, 1103 & n.4, 1109 (Md. 1999),
even though the contract's language may not support such
an inference. Thus, Harper in the instant case contends the
Court's conclusion in Levitas was incorrect. She
is probably right.
the Court's conclusion in Levitas as to the
intervenor-defendant's lack of third-party beneficiary
status was dictum because it was an issue that related to the
motion to dismiss and did not relate to the Court's
disposition of the case through summary judgment. See
Bland v. Roberts, 730 F.3d 368, 400 n.6 (4th Cir. 2013)
(“Dictum is statement in a judicial opinion that could
have been deleted without seriously impairing the analytical
foundations of the holding- that, being peripheral, may not
have received the full and careful consideration of the court
that uttered it.” (Internal quotation marks omitted.)).
It should be noted that the Court also concluded in
Levitas that, even if the intervenor-defendant could
be considered a third-party beneficiary, she did not acquire
any greater rights than the insured defendant; thus, if CX Re
could validly claim a right to rescission because of the
insured defendant's misrepresentation, the
intervenor-defendant was subject to the same defense.
Further, even if she could be considered a third-party
beneficiary, her contention that, upon the occurrence of her
injury, CX Re and the insured lost their ability to agree to
vary the terms of the policy with respect to the
intervenor-defendant's injury, was a principle that could
not be applied to her because her claimed injury could not be
considered an insured loss under the terms of the policy.
Consequently, the Court was not presented with an
intervenor-defendant who had an insured loss and who was able
to claim a right to prevent the insurer's and the
insured's agreed modification of the insurance contract,
under the aegis of comment e to Section 311 of the
Restatement (Second) of Contracts, even presuming that
Maryland courts would apply that principle.
Harper's new claim regarding modification of the Policies
is not a cognizable issue before the Court in this case.
Based on the pleadings here, the sole permissible issue
joined by Harper's counterclaim and cross-claim and
answers thereto was the validity and enforceability of the
insurance policies. Only in Harper's motion to alter or
amend the judgment has the issue of modification been raised,
but her motion papers are not an adequate substitute for a
duly filed complaint. Further, Harper concedes it is a
question of first impression in Maryland law since
“Maryland's appellate courts have not yet applied
Restatement Section 311 in this context . . . .”
(Harper's Mot. Alter Supp. Mem. 22, ECF No. 135-1.) Thus,
even if the question were properly before the Court, it would
require certification to the Court of Appeals of Maryland for
resolution. Although Harper could advance such a claim in
this Court in a new case, it could also be raised in the
first instance in a suit in Maryland state court, where it
ultimately must be resolved.
the Court concludes Harper's motion has merit and should
be granted. Her claim, however, shall be dismissed ...