Travelers Indemnity Co. v. Liberty Mutual Insurance ( 2003 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
TRAVELERS INDEMNITY COMPANY OF 
ILLINOIS,
Defendant-Appellant,
v.
LIBERTY MUTUAL INSURANCE
COMPANY,  No. 02-1846
Defendant-Appellee,
and
RYLAND MORTGAGE COMPANY,
Plaintiff.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
William M. Nickerson, Senior District Judge.
(CA-00-1118-WMN)
Argued: May 8, 2003
Decided: July 18, 2003
Before WILKINSON, NIEMEYER, and KING, Circuit Judges.
Affirmed in part, vacated in part, and remanded by unpublished per
curiam opinion.
COUNSEL
ARGUED: Dale E. Hausman, WILEY, REIN & FIELDING, L.L.P.,
Washington, D.C., for Appellant. Warren D. Stephens, DECARO,
2 TRAVELERS INDEMNITY v. LIBERTY MUTUAL INSURANCE
DORAN, SICILIANO, GALLAGHER & DEBLASIS, L.L.P., Lan-
ham, Maryland, for Appellee. ON BRIEF: Jennifer S. Huber,
WILEY, REIN & FIELDING, L.L.P., Washington, D.C., for Appel-
lant.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
This is a dispute between two insurance companies over payment
for the costs of defense in a suit involving a trip-and-fall accident in
which a visitor to a residential duplex building was injured.
On May 28, 1994, Steve Fallen tripped and fell down the back
stairway of a duplex in Los Angeles owned by Bruce Stein, appar-
ently sustaining serious injuries. Fallen contends that the stairway was
damaged as a result of an earthquake, and none of the several people
having an obligation to maintain the building effected repairs.
Shortly before the time of the accident, Columbia Savings and
Loan, which financed Stein’s purchase of the duplex, failed, and the
deed of trust that Columbia held on the duplex passed to Resolution
Trust Corporation ("RTC"). RTC, in turn, assigned Columbia Savings
and Loan’s rights and duties under the deed of trust to State Street
Bank, as trustee under a Pooling and Service Agreement, and to
Ryland Mortgage, as the servicer of the loan pursuant to the same
Agreement. Before Fallen’s accident, Stein defaulted on his loan, and
State Street foreclosed on the property.
To recover for his injuries, Fallen sued Stein as the party in posses-
sion of the building, State Street Bank as the party with ownership
and control over the building, and Ryland Mortgage as State Street’s
agent, alleging that each owed Fallen a duty of care to maintain the
TRAVELERS INDEMNITY v. LIBERTY MUTUAL INSURANCE 3
duplex in good order and to repair defects, particularly the damage
caused by the earthquake.
When State Street Bank was served with Fallen’s suit papers, State
Street Bank tendered its defense to Ryland Mortgage pursuant to its
servicing agreement under which Ryland "agree[d] to indemnify
[State Street] from, and hold it harmless against, any and all losses,
liabilities, damages, claims or expenses (including reasonable attor-
neys’ fees) arising in respect of the Servicer’s acts or omissions in
connection with this Agreement or the Certificates." Ryland then ten-
dered defense of the suit over to its insurer, Travelers Indemnity, and
to State Street’s insurer, Liberty Mutual. Both denied coverage, and
Ryland assumed the costs of defense for the Fallen action, honoring
its indemnity agreement with State Street Bank.
Ryland commenced this action against both Travelers Indemnity
and Liberty Mutual, contending that Travelers was its principal
insurer and owed it a defense of the Fallen action and that Liberty
Mutual also owed Ryland a defense as an "other insured" based on
Ryland’s purported status as State Street’s "real estate manager" who
was expressly protected under the Liberty Mutual policy insuring
State Street. Travelers then reversed its decision and bore the costs of
Ryland’s defense in the Fallen litigation. It also filed a cross-claim
against Liberty Mutual to require it to pay a portion of the defense
costs, stating two theories for recovery. First, Travelers asserted that
it was entitled to contribution because its insured, Ryland, had borne
the cost of defending not only itself but also State Street, Liberty
Mutual’s insured. Second, it sued as a subrogee to Ryland asserting
that Ryland was an "other insured" under the Liberty Mutual policy
because Ryland was State Street’s "real estate manager."
Although the procedural history of this case is complicated, we
need not trace its full history in detail. The district court granted sum-
mary judgment to Ryland against Travelers, requiring Travelers to
pay the full defense costs incurred by Ryland, and the only rulings
challenged on appeal involve Travelers’ cross-claim against Liberty
Mutual. On Travelers’ cross-claim, the district court entered judgment
in favor of Liberty Mutual holding (1) that Travelers was not entitled
to contribution from Liberty Mutual based on Liberty Mutual’s
alleged duty to defend State Street or on a theory of equitable subro-
4 TRAVELERS INDEMNITY v. LIBERTY MUTUAL INSURANCE
gation; and (2) that Travelers had no subrogation claim via Ryland for
coverage under Liberty Mutual’s policy. It is from these two rulings
that Travelers filed this appeal. For the reasons that follow, we affirm
the district court’s conclusion that Travelers’ claim for contribution
must fail as a matter of law, but we vacate its ruling that Travelers
did not, as a matter of law, have a subrogation claim based on
Ryland’s right to coverage under the Liberty Mutual policy. On this
latter subrogation claim, we conclude that material questions of fact
remain to be resolved.
On Travelers’ first claim, that it was entitled to contribution, Trav-
elers contends that because it footed the bill for the defense of both
Ryland and State Street and Liberty Mutual had a duty to defend State
Street, it is entitled to contribution of one-half of the defense from
Liberty Mutual based on the "other insurance" clauses in the insur-
ance contracts and equitable subrogation. The district court rejected
this claim, as do we. First, Travelers has no standing to assert directly
State Street’s rights in the policy issued by Liberty Mutual. Whether
Liberty Mutual has a duty to defend State Street under the policy
issued to State Street by Liberty Mutual is not a question that may be
raised by Travelers, a stranger to that policy insofar as it provides
coverage to State Street. Moreover, Travelers is not entitled to contri-
bution under a theory of equitable subrogation, which only applies
when one party pays a debt to protect its own interests even though
another party is "primarily liable" for the debt. See Fireman’s Fund
Ins. Co. v. Continental Ins. Co., 519 A.2d 202, 204 (Md. 1987). Trav-
elers has not shown a debt for which any party other than its own
insured is "primarily liable," for the indemnification clause required
Ryland to indemnify State Street for liability arising out of Ryland’s
"act or omissions." Even if one interpreted the underlying complaint
to create the potential for direct liability for State Street, it would not
follow that the defense costs allocable to State Street alone would be
costs for which State Street is primarily liable such that it would be
inequitable to require Ryland, as indemnitor, to bear them.
Travelers’ second claim is based on the notion that it was subro-
gated to Ryland’s position as an "other insured" under the Liberty
Mutual policy because the Liberty Mutual policy insured not only
State Street but also State Street’s "real estate manager." On this
claim, the district court concluded that Travelers/Ryland failed to
TRAVELERS INDEMNITY v. LIBERTY MUTUAL INSURANCE 5
respond to Liberty Mutual’s argument that Ryland was not a real
estate manager for State Street but rather the agent of RTC alone. The
court stated, "Having found that this argument went entirely unad-
dressed and unrebutted by Ryland, the Court finds that Liberty
Mutual should prevail on the issue."
We have previously made clear, however, that Rule 56(e) does not
implement a "default judgment" rule that permits a court to grant
summary judgment based solely on the failure of a party to oppose
facts asserted by another party. "Although the failure of a party to
respond to a summary judgment motion may leave uncontroverted
those facts established by the motion, the moving party must still
show that the uncontroverted facts entitle the party to ‘a judgment as
a matter of law.’" Custer v. Pan American Life Ins. Co., 12 F.3d 410,
416 (4th Cir. 1993).
Moreover, in the present case, Travelers’ purported failure to
respond to the assertion that Ryland was acting as a real estate man-
ager for RTC alone, if it acted as a real estate manager at all, did not
leave the assertion uncontroverted, as the district court ruled. Travel-
ers did submit evidence indicating facts which controverted Liberty
Mutual’s assertion that any real estate management services were per-
formed only for RTC. Travelers’ best evidence of a genuine dispute
of material fact is the Pooling Agreement, a 109-page document that
defines the relationships among Ryland, State Street, and RTC. When
the district court first addressed itself to the "real estate manager"
issue, it noted Liberty Mutual’s reliance on language in the Agree-
ment providing that "[t]he relationship of the Servicer [i.e., Ryland]
. . . to the Trustee [i.e., State Street] under this Agreement is intended
by the parties to be that of an independent contractor and not that of
a joint venturer, partner or agent." The court reasoned that "Liberty
Mutual has not established that despite the Agreement, Ryland was
not performing duties normally performed by that of a ‘real estate
manager.’ That issue presents a material question of fact, which is
disputed by the parties." (Emphasis added). This determination was
entirely correct. The court later supplanted this determination with its
subsequent ruling that Travelers failed to controvert Liberty Mutual’s
argument that Ryland acted as a real estate manager, if at all, for RTC
only. Liberty Mutual argued that the Pooling Agreement created a
contract between Ryland and RTC and a contract between State Street
6 TRAVELERS INDEMNITY v. LIBERTY MUTUAL INSURANCE
and RTC, but not a contract between Ryland and State Street. Yet the
very language from the Agreement that the district court quoted in the
course of making its initial determination demonstrates the infirmity
of Liberty Mutual’s argument. Because the Agreement defines the
relationship between Ryland and State Street as an independent con-
tractor relationship, there can be no doubt that there is some formal
contractual relationship directly between Ryland and State Street. The
question then becomes whether this contractual relationship was one
in which Ryland performed as a "real estate manager" for State Street.
Because the facts before the district court established that there was
a direct contractual relationship between Ryland and State Street
under the Pooling Agreement, it was erroneous for the district court
to conclude as a matter of law that any "real estate manager" services
performed by Ryland would have been performed only for RTC. As
the district court properly determined when it first examined this
issue, factual development is necessary to resolve this question.
Further factual development may also be necessary to determine
the extent to which the Pooling Agreement applies at all. If State
Street became the owner of the property through foreclosure before
Fallen fell on the property, a question arises as to Ryland’s continuing
liability as a servicer on that property under the Agreement. The typi-
cal understanding of a mortgage servicer would lead one to conclude
that a mortgage servicer might drop out of the picture completely
upon foreclosure. Once foreclosure takes place, there is no longer any
mortgage to service. Even if the facts in this case tracked this typical
understanding, however, Ryland may remain liable for pre-
foreclosure negligence as well as for any post-foreclosure activities
that the Agreement obligated it to undertake. For example, the record
contains a letter sent by counsel for Ryland to Liberty Mutual that
argues for coverage under the "real estate manager" provision. This
letter states that "[t]he mortgage servicing agreement and the Fannie
Mae guidelines that inform it obviously require Ryland to take pos-
session of, secure, inspect and maintain foreclosed property before the
property can be re-sold by a broker." We have no idea what provision
of the Agreement or the Fannie Mae guidelines underlay this assertion
by counsel for Ryland, let alone what makes the conclusion "obvi-
ous," but this letter, the Agreement, and the course of conduct attri-
buted to Ryland in the Fallen complaint certainly indicate a genuine
TRAVELERS INDEMNITY v. LIBERTY MUTUAL INSURANCE 7
dispute of material fact regarding the nature of the contractual rela-
tionship between Ryland and State Street.
Accordingly, we affirm the district court’s entry of summary judg-
ment in favor of Liberty Mutual on Travelers’ direct claim for contri-
bution and we vacate the district court’s entry of summary judgment
in favor of Liberty Mutual on Travelers’ subrogation claim that
Ryland was a "real estate manager" insured by Liberty Mutual’s pol-
icy. We remand for further proceedings.
AFFIRMED IN PART, VACATED IN PART, AND REMANDED