HARLEYSVILLE PREFERRED INSURANCE COMPANY, et al.
RAMS HEAD SAVAGE MILL, LLC, et al.
Circuit Court for Howard County 104273 Case No.
Friedman, Fader, Rodowsky, Lawrence F. (Senior Judge,
Specially Assigned), JJ. [*]
Harleysville Preferred Insurance Company and Nationwide
Mutual Insurance Company (collectively,
"Harleysville") ask us to decide that they had no
obligation to provide a defense for two lawsuits filed
against their insured, Rams Head at Savage Mill, LLC
("Rams Head"), and Rams Head's general manager
and majority owner, Kyle Muehlhauser. The underlying lawsuits
sought damages arising from Mr. Muehlhauser's
surreptitious videotaping of women who were using a restroom
at a restaurant and tavern owned by Rams Head.
conclude that Harleysville had a duty to defend Rams Head.
Harleysville issued insurance policies that provide coverage
for damages Rams Head becomes legally obligated to pay
because of, among other offenses, the "invasion of the
right of private occupancy of a room . . . that a person
occupies, committed by or on behalf of its owner . . .
." Under the plain language of the coverage grant, we
conclude that the underlying tort suits alleged that Rams
Head and Mr. Muehlhauser invaded the plaintiffs' right of
private occupancy of the restroom when Mr. Muehlhauser
conducted his unauthorized video surveillance. We also
conclude that an exclusion for "Recording and
Distribution of Material or Information in Violation of
Law" does not preclude coverage.
did not, however, have a duty to defend Mr. Muehlhauser
because coverage for him is excluded by the policies'
Criminal Acts exclusion. There is no version of facts alleged
in the complaints under which Mr. Muehlhauser's alleged
conduct is not criminal. We therefore affirm in part and
reverse in part.
Head is a Maryland limited liability company that owns and
operates the Rams Head Tavern. Rams Head's operating
agreement designates Mr. Muehlhauser as general manager and
majority owner of the company and gives him "full,
exclusive, and complete discretion, power, and authority . .
. to manage, control, administer, and operate the business
and affairs" of Rams Head.
Head leases the property on which it operates the Rams Head
Tavern from Savage Mill Limited Partnership under a long-term
lease that was originally entered in 1998. During the term of
that lease, provided Rams Head pays its rent and abides by
the other terms of the lease, Rams Head "shall peaceably
and quietly hold and enjoy the Leased Premises . . . without
hindrance or interruption by Landlord or any other person or
persons . . . ." Rams Head is permitted to make
improvements, and is responsible for making repairs,
renovations, and renewals to the leased property, subject to
approval by Savage Mill. Savage Mill is permitted to make
changes to the leased property only with the approval of Rams
Head. The circuit court found that Rams Head exercised
"exclusive control" over the restaurant.
2014, a Rams Head Tavern patron was using its
single-occupancy women's restroom when a portable camera
fell onto the floor from underneath the sink, close to the
toilet. She reported the incident to the police, who
identified Mr. Muehlhauser as the culprit. In July 2015, Mr.
Muehlhauser pleaded guilty to two counts of conducting video
surveillance with prurient intent in violation of §
3-902 of the Criminal Law Article (2012 Repl.; 2017
different sets of plaintiffs filed class action complaints in
the Circuit Court for Howard County against Rams Head and Mr.
Muehlhauser. In Michelle Castle, et al. v. Kyle C.
Muehlhauser, et al. (Case No. 13-C-15-102598), the
plaintiffs alleged that from March 2, 2012 to May 9, 2014,
Mr. Muehlhauser mounted a camera in the women's restroom
at Rams Head Tavern to "conduct visual surveillance of
the female patrons and employees using the toilets . . .
solely for prurient intent" in "an attempt to
satiate his sexual perversions at the expense of the privacy
of the female patrons and employees." The complaint
further alleged that Mr. Muehlhauser was "at all times .
. . acting in the scope of his employment and/or authority as
a principal and employee of" Rams Head and that Rams
Head "adopted and ratified" his conduct.
Castle complaint brought claims against Rams Head
and Mr. Muehlhauser for (1) violation of § 3-902 of the
Criminal Law Article, which criminalizes certain visual
surveillance with prurient intent and also creates a private
cause of action for individuals subjected to unlawful
surveillance, and (2) the tort of unreasonable intrusion upon
seclusion. The complaint alleged that Ms. Castle and the
other putative plaintiffs incurred damages including
"expenses, mental pain and suffering, fright,
nervousness, indignity, humiliation, embarrassment and
plaintiffs in Felicia Barlow Clar, et al. v. Kyle C.
Muehlhauser, et al. (Case No. 13-C-15-102863), similarly
alleged that Mr. Muehlhauser, "both individually and in
his capacity as President, General Manager, and Owner of the
Rams Head . . . did plant video recording equipment in the
ladies['] restroom for the purpose of videotaping women
patrons and employees in the restroom without their
permission." The Clar plaintiffs, women who
used the restroom at the Rams Head Tavern between January and
May of 2014, alleged that "[a]t all relevant times,
Defendant Muehlhauser did violate Md. Code Ann., Crim. Law
§ 3-902 . . . ."
Clar complaint brought seven causes of action:
negligent hiring, retention, supervision, selection and
qualification (Count I); intrusion upon seclusion (Count II);
breach of contract and of the implied duty of good faith and
fair dealing (Count III); violation of § 3-902 of the
Criminal Law Article (Count IV); negligent violation of
§ 3-902 of the Criminal Law Article (Count V); negligent
entrustment (Count VI); and intentional infliction of
emotional distress (Count VII). Counts II, III, IV, V, and
VII were brought against Rams Head and Mr. Muehlhauser. Mr.
Muehlhauser was not named as a defendant in Counts I and VI.
The plaintiffs alleged that, as a result of the conduct of
Mr. Muehlhauser and Rams Head, they "suffered severe
humiliation, violation, anxiety, loss of dignity, emotional
distress, mental anguish, and loss of valuable
consideration." In Count VII, they further alleged that
they "sustained severe emotional distress resulting in
physical manifestations, emotional anguish, fear, anxiety,
humiliation, embarrassment and other physical and emotional
injuries . . . ."
the period covered by the allegations in the complaints-from
March 2012 through May 2014 for the Castle complaint
and from January 2014 through May 2014 for the Clar
complaint-Harleysville insured Rams Head under three one-year
commercial lines insurance policies. For policies running
from December 1, 2011 through December 1, 2012 and December
31, 2012 through December 31, 2013, respectively,
policy provisions relevant to this dispute were supplied on
Harleysville's Commercial General Liability Coverage Form
CG 00 0112 04 (the "04 Policy Form"). From December
31, 2013 through December 31, 2014, relevant policy
provisions were supplied on Form CG 00 0112 07 (the "07
Policy Form"). Rams Head was listed as a named insured
under each policy, and each included within the definition of
"an insured" the members and managers of the named
insureds, but only to the extent of their respective roles.
Because the policy provisions were essentially identical each
year, with one notable exception identified below, we discuss
policies each provided grants of coverage for bodily injury
and property damage liability (Coverage A) and personal and
advertising liability (Coverage B). Under Coverage A,
Harleysville agreed to "pay those sums that the insured
becomes legally obligated to pay as damages because of
'bodily injury' or 'property damage' to which
this insurance applies." Coverage A excludes property
damage or bodily injury that is "expected or intended
from the standpoint of the insured." In addition to this
duty to indemnify, the parties agreed that Harleysville would
also have "the right and duty to defend the insured
against any 'suit' seeking those damages," but
only if such damages would be covered by the policies.
Coverage B, Harleysville agreed to "pay those sums that
the insured becomes legally obligated to pay as damages
because of 'personal and advertising injury' to which
this insurance applies," including any such injury
"caused by an offense arising out of your business"
during the policy period. "'Personal and advertising
injury' means injury, including consequential 'bodily
injury,' arising out of" seven enumerated categories
of offenses. Most relevant here is "[t]he wrongful
eviction from, wrongful entry into, or invasion of the right
of private occupancy of a room, dwelling or premises that a
person occupies, committed by or on behalf of its owner,
landlord or lessor." As with Coverage A, in Coverage B
Harleysville also undertook "the right and duty to
defend the insured against any 'suit' seeking 
damages" for personal and advertising injury covered by
invokes three coverage exclusions contained in the policies.
First, only with respect to the policy in place from December
31, 2013 through December 31, 2014 (the "2014
Policy"), the "Recording and Distribution of
Material or Information in Violation of Law" exclusion
(the "Recording and Distribution exclusion")
precludes coverage under both Coverage A and Coverage B for
injuries "arising directly or indirectly out of any
action or omission that violates or is alleged to
violate" three specific statutes- the Telephone Consumer
Protection Act ("TCPA"), the CAN-SPAM Act of 2003,
and the Fair Credit Reporting Act ("FCRA")-or
[a]ny federal, state, or local statute, ordinance or
regulation, other than the TCPA, CAN-SPAM Act of 2003 or FCRA
and their amendments and additions, that addresses,
prohibits, or limits the printing, dissemination, disposal,
collecting, recording, sending, transmitting, communicating
or distribution of material or information. 
the "Criminal Acts" exclusion exempts from Coverage
B injuries "arising out of a criminal act committed by
or at the direction of the insured." Third, the
"Knowing Violation of Rights of Another" exclusion
(the "Knowing Violation exclusion") precludes
coverage under Coverage B for injuries "caused by or at
the direction of the insured with the knowledge that the act
would violate the rights of another and would inflict
'personal and advertising injury'."
Declaratory Judgment Action
sought a declaratory judgment that it did not owe a defense
to Rams Head or Mr. Muehlhauser with respect to either
underlying action. Harleysville argued that the complaints
did not allege injuries covered under either Coverage A or
Coverage B and, with respect to the 2014 Policy, that the
Recording and Distribution exclusion precluded coverage.
Harleysville further argued that Mr. Muehlhauser does not
qualify as an insured under the policies because the Criminal
Acts and Knowing Violation exclusions preclude coverage for
hearing, the circuit court issued a memorandum opinion and
declaration that Harleysville had a duty to defend Rams Head
and Mr. Muehlhauser against both complaints. The court
observed that the duty to defend "depends on whether the
allegations" in a complaint "potentially come
within the Policy coverage," regardless of whether the
claims have a "probability of success." Thus, the
court concluded, Harleysville had an obligation under
Coverage A to provide a defense for Rams Head to the
Clar complaint, which the court concluded
"clearly set forth numerous
'occurrences'" of negligence by Rams Head that
"enabled" Mr. Muehlhauser to conduct surveillance
in the restroom, causing "bodily injury" to the
court held that both defendants were entitled to a defense
under Coverage B, specifically the policy's coverage for
injuries arising from an alleged "invasion of the right
of private occupancy of a room . . . that a person occupies,
committed by or on behalf of its owner." Finding that
coverage grant to be ambiguous, the court interpreted it in
the light most favorable to the policyholder. The court
further rejected Harleysville's reliance on exclusions,
concluding that: (1) the Recording and Distribution exclusion
is limited to the protection of "personal and
financial" information; and (2) the Knowing Violation
and Criminal Acts exclusions are invalid under Bailer v.
Erie Ins. Exch., 344 Md. 515 (1997), because applying
them would render the coverage grant illusory. Because the
complaints alleged that Mr. Muehlhauser was, at all relevant
times, acting on behalf of Rams Head, the court also
concluded that Harleysville owed a duty to defend Mr.
Muehlhauser. In light of the pendency of the underlying
cases, the court declined to accept extrinsic evidence to
resolve whether Mr. Muehlhauser was actually acting on behalf
of Rams Head.
underlying complaints have now been resolved finally in favor
of Rams Head and Mr. Muehlhauser. As a result, the sole
remaining coverage issue is whether Harleysville had a duty
an action has been tried without a jury, the appellate court
will review the case on both the law and the evidence. It
will not set aside the judgment of the trial court on the
evidence unless clearly erroneous . . . ." Maryland Rule
8-131(c). "To the extent this case involves questions of
law, including the interpretation of a contract, we review
for legal error." White Pine Ins. Co. v.
Taylor, 233 Md.App. 479, 493 (2017); see
Clickner v. Magothy River Ass'n, 424 Md.
253, 266-67 (2012) ("Where a case involves both issues
of fact and questions of law, this Court will apply the
appropriate standard to each issue.").
an insurer has a duty to defend "is determined by the
allegations in the tort actions. If the plaintiffs in the
tort suits allege a claim covered by the policy, the insurer
has a duty to defend." Brohawn v. Transamerica Ins.
Co., 276 Md. 396, 407 (1975). We employ a two-part test
to make this determination. First, we determine the
"coverage[s] and . . . the defenses under the terms and
requirements of the insurance policy." St. Paul Fire
& Marine Ins. Co. v. Pryseski, 292 Md. 187, 193
(1981). Second, we review the allegations of the underlying
suit to determine whether they "potentially bring the
tort claim within the policy's coverage."
Id. "Even if a tort plaintiff does not allege
facts which clearly bring the claim within or without the
policy coverage, the insurer still must defend if there is a
potentiality that the claim could be covered by the
policy." Brohawn, 276 Md. at 408. The
scope of the duty to defend is broad; it applies whenever a
tort plaintiff brings an "action that is potentially
covered by the policy, no matter how attenuated,
frivolous, or illogical that allegation may be."
Sheets v. Brethren Mut. Ins. Co., 342 Md. 634, 643
address the first part of this test, we must construe the
relevant language of the policy according to contract
principles. Md. Cas. Co. v. Blackstone Int'l
Ltd., 442 Md. 685, 694 (2015). "Maryland follows
the law of objective contract interpretation."
Sy-Lene of Wash., Inc. v. Starwood Urban Retail II,
LLC, 376 Md. 157, 166 (2003). Thus, "[i]n
construing insurance contracts in Maryland we give the words
of the contract their ordinary and accepted meaning, looking
to the intention of the parties from the instrument as a
whole." Taylor, 233 Md.App. at 498 (quoting
Finci v. Am. Cas. Co., 323 Md. 358, 369-70 (1991)).
We must construe a contract "as a whole" and give