Trice, Geary & Myers, LLC v. CAMICO Mutual Insurance Company

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-1473
TRICE, GEARY & MYERS, LLC; KEVIN MYERS, CPA,
Plaintiffs - Appellants,
v.
CAMICO MUTUAL INSURANCE COMPANY,
Defendant – Appellee.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. William D. Quarles, Jr., District
Judge. (1:09-cv-02754-WDQ)
Argued: September 21, 2011 Decided: December 22, 2011
Before GREGORY, WYNN, and DIAZ, Circuit Judges.
Reversed and remanded by unpublished opinion. Judge Wynn wrote
the opinion, in which Judge Gregory and Judge Diaz concurred.
ARGUED: Kamil Ismail, GOODELL DEVRIES LEECH & DANN, LLP,
Baltimore, Maryland, for Appellants. Thomas S. Schaufelberger,
SAUL EWING, LLP, Washington, D.C., for Appellee. ON BRIEF:
Joseph B. Wolf, GOODELL DEVRIES LEECH & DANN, LLP, Baltimore,
Maryland, for Appellants. Paul A. Fitzsimmons, SAUL EWING, LLP,
Washington, D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit.
WYNN, Circuit Judge:
In this appeal, accounting firm Trice, Geary & Myers, LLC
(“TGM”) and Kevin Myers, CPA (“Myers”) contend that their
professional liability insurer CAMICO Mutual Insurance Company
(“CAMICO Insurance”) breached its duty to provide a defense in
connection with three state court lawsuits filed against them.
CAMICO Insurance responds that the claims arose from TGM’s and
Myers’s work as insurance agents and that it was thus not
obligated to provide coverage because the policy excluded claims
“in connection with or arising out of any act, error or omission
by any Insured in his/her capacity as an [insurance] agent or
broker.” J.A. 40.
However, the underlying actions allege that TGM and Myers
rendered substandard tax and accounting advice. Because these
claims raise a potentiality that there is coverage under the
professional liability policy, we conclude that CAMICO
Insurance’s duty to defend is triggered. We therefore reverse
the district court’s grant of summary judgment in favor of
CAMICO Insurance and remand for further proceedings.
Furthermore, because any determination as to whether CAMICO
Insurance has a duty to indemnify TGM and Myers must await the
resolution of the underlying actions, we reverse the district
court’s award of summary judgment in favor of CAMICO Insurance
on its Counterclaim.
2
I.
A. The Accountants Professional Liability Insurance Policy
In 2007, CAMICO Insurance issued a “claims made and
reported” Accountants Professional Liability Insurance Policy
(the “Policy”) to TGM. J.A. 20. The Policy, effective from
July 1, 2007 to July 1, 2008, insured TGM for claims arising out
of professional accounting services. 1 Myers, a principal of TGM,
is an Insured under the Policy.
The Policy’s Insuring Agreement provides in pertinent part:
I. INSURING AGREEMENTS
A. Coverage for Damages and Reporting Requirements
1. The Company will pay those sums that an
Insured becomes legally obligated to pay as Damages
because of a Claim arising out of an Insured’s
negligent act, error or omission in rendering or
failing to render Professional Services performed
after the Retroactive Date and before the end of the
Policy Period . . . .
J.A. 21. Additionally, under the Insuring Agreements section of
the Policy, CAMICO Insurance “has the right and duty to defend
and settle Claims alleging Damages potentially covered by this
Policy, even if the Claim is groundless, false or fraudulent.”
J.A. 21.
1
CAMICO Insurance also issued a second policy, effective
July 1, 2008, to July 1, 2009. The relevant terms of the two
policies are identical.
3
The Policy also defines “Professional Services” as “any
professional services performed by an Insured as long as the
fees or commissions, if any, or other benefits from such
services inure to the benefit of the Named Insured[.]” J.A. 26.
Most pertinent to this matter, the Policy includes the
following “Special Exclusion Endorsement”:
This policy does not apply to any Claims in connection
with, arising out of or relating to:
This Policy does not provide insurance for any
Insured’s professional liability arising from acts,
errors or omissions in the rendering or failure to
render services as an insurance agent or broker.
Therefore, the Company and the Named Insured agree to
amend the Policy as follows:
1. It is hereby agreed that the following sentence
is added to Section I. DEFINITIONS, paragraph (n):
Professional Services do not include any
professional services performed by an Insured in
his/her capacity as an agent or broker for the
placement or renewal of insurance products or for the
sale of annuities.
2. It is hereby agreed that the following is added
in Section IV. EXCLUSIONS:
This insurance does not apply to any Claim in
connection with or arising out of any act, error or
omission by any Insured in his/her capacity as an
agent or broker for the placement or renewal of
insurance products or for the sale of annuities.
It is agreed that the above coverage limitations will
not preclude coverage for any Insured’s professional
liability arising from referring any Person to another
insurance agents [sic] for placement or renewal of
life insurance products for the sale of annuities.
J.A. 40.
4
B. The Underlying Actions
1. Ruark Action
In April 2009, Thomas R. Ruark (“Ruark”), Baja Holdings,
Inc. (“Baja Holdings”), Baja Holdings, Inc. Defined Benefit
Pension Plan (“Baja Defined Benefit Plan”), and Bruce Abresch
(“Abresch”), business clients of TGM and Myers (and collectively
referred to herein as the “Ruark Companies”), filed a complaint
(the “Ruark Action”) against Myers and TGM alleging causes of
action for negligence and negligent misrepresentation in the
provision of professional accounting and tax services. See
Ruark v. Myers, Case No. 22-C-09-000708 (Cir. Ct. Wicomico
County, Apr. 24, 2009).
The Ruark Action alleged that while “purporting to act as
an accountant and tax advisor,” Myers recommended that Ruark
create the Baja Defined Benefit Plan, which would be wholly
funded by a life insurance policy and annuities written by
Hartford Life Insurance Company (“Hartford Insurance”). J.A.
44, ¶ 13. Further, according to the complaint, Myers
represented that this arrangement would comply with Internal
Revenue Code section 412(i). Allegedly in reliance upon this
advice, Baja Holdings invested some $14 million in life
insurance to fund the Baja Defined Benefit Plan. The Ruark
Companies contend that because of Myers’s incorrect advice, they
5
were audited by the Internal Revenue Service (“IRS”), incurred
substantial related expenses, and expect to have a substantial
tax debt.
2. Insurance Alternatives’ Third-Party Action
The Ruark Companies also filed a suit against Hartford
Insurance; Michael A. DiMayo, a Hartford insurance agent; and
DiMayo’s employer, Insurance Alternatives, Inc. (“Insurance
Alternatives”) in the Circuit Court for the County of Baltimore
(“Hartford Action”). See Ruark v. Hartford Life & Annuity Ins.
Co., Case No. 03-C-08-006022 (Cir. Ct. Baltimore County, Apr.
10, 2009). That suit, arising from the same events as the Ruark
Action, was consolidated with the Ruark Action in the Circuit
Court for the County of Baltimore.
In turn, Insurance Alternatives filed a third-party
complaint (“Insurance Alternatives’ Third-Party Action”) against
Myers and TGM seeking indemnification and contribution for any
liability it incurs in connection with the Hartford Action.
Insurance Alternatives’ Third-Party Action also alleged that TGM
and Myers provided tax and accounting services for the Ruark
Companies. The Insurance Alternatives’ Third-Party Action
alleged that “Myers advised [Baja Holdings], through Abresch,
that the premiums for the insurance products that funded the
6
[Baja Holdings] 412(i) Plan were tax deductible expenditures
under the Internal Revenue Code.” J.A. 91, ¶6.
3. Fowler Action
Similar to the Ruark Action, Caleb Fowler and his company,
Arbitration & Mediation, Inc. (“A&M”), filed a complaint (the
“Fowler Action”) against TGM and Myers alleging causes of action
for negligence and negligent misrepresentation. See Fowler v.
Myers, Case No. 19-C09-013249 (Cir. Ct. Somerset County, June 3,
2009). The Fowler Action alleged that, in early 2003, “Myers,
acting as an accountant and tax advisor for [Fowler] and A&M,
recommended and proposed that [Fowler] and A&M create the A&M
DBP [Defined Benefit Plan],” funded entirely by two life
insurance policies written by Hartford Insurance. J.A. 101,
¶13. The Fowler Action further asserted that “Myers arranged
for [Fowler] to receive a proposal to implement the [A&M] 412(i)
Concept.” J.A. 101, ¶14.
According to the Fowler Action, in late 2005 and/or early
2006, Myers prepared and filed income tax returns for 2004 for
plaintiffs without including forms required for a listed
transaction, and without advising plaintiffs of the penalties
that would be incurred for failing to file such forms. As a
result, A&M was audited in 2006, incurred audit-related legal
and accounting fees and expenses, and will likely face
7
significant tax liability. The Fowler Action also alleged that
TGM and Myers received professional fees and failed to inform
plaintiffs that TGM and Myers would receive substantial
commissions on the sale of insurance policies to A&M.
C. Duty to Defend Action
CAMICO Insurance declined to defend TGM and Myers in the
actions brought by Ruark, Insurance Alternatives’ Third-Party,
and Fowler (collectively the “underlying actions”). CAMICO
Insurance explained that the claims at issue were “alleged to
have arisen because Mr. Myers sold ‘defective’ insurance
products.” J.A. 163. Therefore, according to CAMICO Insurance,
the “Special Exclusion Endorsement” and “Product Liability”
exclusion barred coverage.
In turn, on September 14, 2009, TGM and Myers filed a
declaratory judgment and breach of contract action pertaining to
CAMICO Insurance’s duty to defend the underlying actions. On
October 22, 2009, CAMICO Insurance removed TGM’s and Myers’s
action to federal district court based on diversity
jurisdiction. On October 29, 2009, CAMICO Insurance filed its
answer and counterclaim seeking a declaration that it had no
indemnity obligation to TGM and Myers arising from the claims in
the underlying actions.
8
In response, TGM and Myers moved to dismiss the
counterclaim and for partial summary judgment, seeking a
declaration that CAMICO Insurance had an obligation to provide
TGM and Myers with an ongoing defense in the underlying actions
and that CAMICO Insurance was liable for TGM’s and Myers’s
previously incurred defense costs. TGM and Myers argued CAMICO
Insurance had a duty to defend them because the claims in the
underlying actions arose from covered “Professional Services.”
Trice, Geary & Myers, LLC v. CAMICO Mut. Ins. Co., No. WDQ-09-
2754, 2010 WL 1375389, at *4 (D. Md. March 25, 2010).
CAMICO Insurance filed a cross-motion for summary judgment
as to all counts in TGM’s and Myers’s complaint. CAMICO
Insurance argued that the underlying actions all related to
Myers’s sales of Defined Benefit Plans in his capacity as a
Hartford Insurance agent, which was excluded from coverage by
the “Special Exclusion Endorsement” and the “Products Liability”
exclusion. Id.On March 25, 2010, the district court denied TGM’s and
Myer’s motions and granted CAMICO Insurance’s motion for summary
judgment. The district court determined that the claims were
excluded under the “Special Exclusion Endorsement” because all
of the claims asserted in the underlying actions were “in
connection with or arising out of” Myers’s acts, errors, and
omissions regarding the sale of the Hartford life insurance and
9
annuity products. Id. The district court therefore held that
CAMICO Insurance had no obligation to defend or indemnify TGM or
Myers. Id. at *6. TGM and Myers appeal.
II.
We first consider TGM and Myers’s argument that the
district court erred in finding no duty on the part of CAMICO
Insurance to defend TGM and Myers under the Policy.
We review de novo a grant of summary judgment. Overstreet
v. Kentucky Life Ins. Co., 950 F.2d 931, 938 (4th Cir. 1991).
Summary judgment is appropriate where “the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact.” Fed. R. Civ. P. 56(c).
“When reviewing cross-motions for summary judgment, we may, if
appropriate, direct entry of judgment in favor of the party
whose motion was denied by the district court.” Bakery &
Confectionery Union & Indus. Int’l Pension Fund v. Ralph’s
Grocery Co., 118 F.3d 1018, 1020 (4th Cir. 1997) (citing Monahan
v. Cnty. of Chesterfield, 95 F.3d 1263, 1265 (4th Cir. 1996)).
Maryland law governs our analysis in this matter because
this is a diversity action in which the Policy was issued to TGM
in Maryland. Klaxon Co. v. Stentor Elec. Mfg. Co. 313 U.S. 487,
496-97 (1941) (holding that a federal court sitting in diversity
10
jurisdiction must apply the choice-of-law principles of the
state in which the federal court is located). “[T]he law of the
place of contracting determines the validity and effect of a
contract with respect to the nature and extent of the duty owed
by a party who becomes bound to perform.” Traylor v. Grafton,
273 Md. 649, 660, 332 A.2d 651, 659 (1975) (citations omitted);
see also Roy v. Nw. Nat’l Life Ins. Co., 974 F. Supp. 508, 512
(D. Md. 1997) (“In insurance contract cases, Maryland courts
generally follow the rule of lex locus contractu, which requires
that the construction and validity of a contract be determined
by the law of the state where the contract is made.”) (citing
Sting Sec., Inc. v. First Mercury Syndicate, Inc., 791 F. Supp.
555, 558 (D. Md. 1992)).
Maryland courts construe an insurer’s duty to defend its
insured very broadly:
Our cases hold that the obligation of an insurer to
defend its insured under the provisions of a contract
of insurance is determined by the allegations in the
tort action. Thus, if the plaintiff in the tort suit
alleges a claim covered by the policy, the insurer has
a duty to defend. Even if a tort plaintiff does not
allege facts which clearly bring the claim within the
policy coverage, the insurer still must defend if
there is a potentiality that the claim could be
covered by the policy.
Lloyd E. Mitchell, Inc. v. Maryland Cas. Co., 324 Md. 44, 62
n.4, 595 A.2d 469, 478 n.4 (1991) (citing Brohawn v.
Transamerica Ins. Co., 276 Md. 396, 507, 347 A.2d 842, 850
11
(1975) (holding there was a duty to defend an insured in a tort
suit brought by injured third-parties that alleged negligence
and assault, even though the policy excluded from coverage acts
that were committed with the intent to injure)). “If there is a
possibility, even a remote one, that the plaintiff’s claims
could be covered by the policy, there is a duty to defend.”
Litz v. State Farm Fire & Cas. Co., 346 Md. 217, 231, 695 A.2d
566, 572 (1997) (citing Brohawn, 276 Md. at 408, 347 A.2d at
850; Andrew Janquitto, Insurer's Duty to Defend in Maryland, 18
U.Balt.L.Rev. 1, 13-14 (1988)).
To determine whether there is a potentiality of coverage
giving rise to the duty to defend, the Maryland Court of Appeals
in St. Paul Fire & Marine Ins. Co. v. Pryseski, 292 Md. 187, 438
A.2d 282 (1981), set forth a two-pronged inquiry:
(1) what is the coverage and what are the defenses
under the terms and requirements of the insurance
policy? (2) do the allegations in the tort action
potentially bring the tort claim within the policy’s
coverage? The first question focuses upon the
language and requirements of the policy, and the
second question focuses upon the allegations of the
tort suit.
Id. at 193, 438 A.2d at 285; see also Aetna Cas. & Sur. Co. v.
Cochran, 337 Md. 98, 103-04, 651 A.2d 859, 862 (1995).
12
A.
In addressing the first prong of the Pryseski inquiry, we
focus on the language of the insurance policy. “When
interpreting the meaning of an insurance policy under the first
prong of our analytical paradigm, we construe the instrument as
a whole to determine the intention of the parties.” Clendenin
Bros., Inc. v. U.S. Fire Ins. Co., 390 Md. 449, 458, 889 A.2d
387, 393 (2006) (citations omitted). In determining the
boundaries of coverage, a court construes an insurance policy
just as it does any other contract, by giving its terms their
“customary, ordinary, and accepted meaning.” Aetna Cas. & Sur.
Co., 337 Md. at 104, 651 A.2d at 862 (citation omitted).
Under the Policy, CAMICO Insurance owes a duty to defend
claims “arising out of an Insured’s negligent act, error or
omission in rendering or failing to render Professional
Services.” J.A. 21. The Policy defines “Professional Services”
as “any professional services performed by an Insured as long as
the fees or commissions, if any, or other benefits from such
services inure to the benefit of the Named Insured[.]” J.A. 26.
The “Special Exclusion Endorsement,” which seeks to limit
coverage, includes an insurance agent or broker exclusion.
However, this “Special Exclusion Endorsement” contains several
materially different versions of exclusionary language that
13
create inconsistencies in the scope of the limitation of
coverage.
As guidance for interpreting an ambiguity in an insurance
policy, we observe that the Maryland Court of Appeals has held
that:
Maryland does not follow the rule, adopted in many
jurisdictions, that an insurance policy is to be
construed most strongly against the insurer. Rather,
following the rule applicable to the construction of
contracts generally, we hold that the intention of the
parties is to be ascertained if reasonably possible
from the policy as a whole. In the event of an
ambiguity, however, extrinsic and parol evidence may
be considered. If no extrinsic or parol evidence is
introduced . . . it will be construed against the
insurer as the drafter of the instrument.
Cheney v. Bell Nat. Life Ins. Co., 315 Md. 761, 766-67, 556 A.2d
1135, 1138 (1989)(citations omitted); see also Pryseski, 292 Md.
at 193, 438 A.2d at 285. Accordingly, under Maryland law,
because there is no extrinsic or parol evidence introduced in
this matter, any ambiguity in the “Special Endorsement
Exclusion” should be resolved against CAMICO Insurance, the
party that prepared the Policy.
We agree with TGM’s and Myers’s assertion that because
CAMICO Insurance invoked the exclusion for claims “in connection
with or arising out of any act, error or omission by any Insured
in his/her capacity as an [insurance] agent or broker,” the
exclusion applies only to claims asserting insurance agent or
broker professional liability.
14
Three similar, but not identical, clauses of the “Special
Exclusion Endorsement” concern the scope of the endorsement.
First, the introductory paragraph of the “Special Exclusion
Endorsement” states in an incomplete clause: “This policy does
not apply to any Claims in connection with, arising out of or
relating to”[.] J.A. 40 (emphasis added). A later phrase
reads: “This Policy does not provide insurance for any
Insured’s professional liability arising from acts, errors or
omissions in rendering or failure to render services as an
insurance agent or broker.” J.A. 40 (emphasis added). Finally,
a third clause states, in part: “This insurance does not apply
to any Claim in connection with or arising out of any act, error
or omission by any Insured in his/her capacity as an agent or
broker for the placement or renewal of insurance products or for
the sale of annuities.” J.A. 40 (emphasis added). Thus, the
second clause notably does not contain the broader “in
connection with and arising out of” language that appears in the
first and third clauses.
We decline to accept CAMICO Insurance’s argument that when
CAMICO Insurance and its insureds agreed to the “in connection
with or arising out of” language in the “Special Exclusion
Endorsement”, they also agreed that, even if there were several
grounds for a claim, coverage would be barred so long as one of
the grounds was any insured’s having placed or sold an insurance
15
product. To support this contention, CAMICO Insurance and the
district court rely on N. Ass. Co. of America v. EDP Floors,
Inc., 311 Md. 217, 533 A.2d 682 (1987), and Mass Transit Admin.
v. CSX Transport., Inc., 349 Md. 299, 708 A.2d 298 (1998).
We find these two cases inapposite, as the present case
deals with a “Special Exclusion Endorsement” in a professional
liability policy, whereas EDP Floors involved the interpretation
of an exclusion in a general liability policy, 311 Md. at 225,
533 A.2d at 686, and CSX Transportation concerned the
interpretation of an indemnification clause in a contract, 249
Md. at 301, 708 A.2d at 300. As such, the focus of the
exclusion at issue here is whether the acts, errors, or
omissions of the insureds arise out of their capacity as brokers
and agents.
Here, the focus of the exclusion is not a particular type
of accident or instrumentality of the injury. Instead, we must
interpret whether the acts, errors, or omissions of the insureds
arise out of their capacity as brokers and agents. “To be sure,
the phrase ‘arising out of’ is used frequently in insurance
contracts, and has been the subject of prior interpretation by
Maryland courts . . . . Nevertheless, it does not have a single,
‘settled meaning’ that applies to every insurance policy.
Contractual language cannot be construed in a vacuum.”
Philadelphia Indem. Ins. Co. v. Md. Yacht Club, Inc., 129 Md.
16App. 455, 469, 742 A.2d 79, 86 (1999) (citing Finci v. Am. Cas.
Co., 323 Md. 358, 369-70, 593 A.2d 1069, 1075 (1991)) (internal
quotation omitted).
Additionally, CAMICO Insurance asserts that merely “acting”
as an agent or broker is itself sufficient to invoke the
“Special Exclusion Endorsement”. The terms “agent” and “broker”
are not defined in the policy. But they are terms of art under
Maryland law, which sets forth three factors to determine
whether a principal-agent relationship exists: “(1) the agent’s
power to alter the legal relations of the principal; (2) the
agent’s duty to act primarily for the benefit of the principal;
and (3) the principal’s right to control the agent.” Green v. H
& R Block, Inc., 355 Md. 488, 503, 735 A.2d 1039, 1048 (1999) 2
(citations omitted). The burden is on the insurer, not the
insured, to prove the applicability of an exclusion. See Ace
Am. Ins. Co. v. Ascend One Corp., 570 F. Supp. 2d 789, 798 (D.
Md. 2008) (“Under Maryland law, the burden rests on the insurer
to establish the applicability of a particular exclusion from
coverage.”) (citing Warfield-Dorsey Co., Inc. v. Travelers Cas.
2
Similarly, a “broker” is an “agent who acts as an
intermediary or negotiator, esp. between prospective buyers and
sellers; a person employed to make bargains and contracts
between other persons in matters of trade, commerce, or
navigation.” Black’s Law Dictionary 219 (9th ed. 2009).
17
& Sur. Co. of Illinois, 66 F. Supp. 2d 681, 685 (D. Md. 1999)).
CAMICO Insurance has not proven the principal-agent factors.
Thus, in answer to the first part of our inquiry under
Pryseski, we conclude that the language of the “Special
Exclusion Endorsement” does not preclude coverage for TGM and
Myers.
B.
Under the next prong of the Pryseski inquiry, we must
determine whether the facts alleged in the underlying actions
are potentially within the scope of the Policy’s coverage. The
controlling factor relating to CAMICO Insurance’s duty to defend
is whether the allegations contained in the underlying actions
“are such that a ‘potentiality’ of coverage exists.” W. World
Ins. Co., Inc. v. Harford Mut. Ins. Co., 784 F.2d 558, 562, (4th
Cir. 1986) (citing Brohawn, 276 Md. 396, 347 A.2d 842).
“The fact that the pleadings state a cause of action
that is not covered by the policy does not excuse
insurer if another ground for recovery is stated that
is covered . . . . Accordingly, the insurer is
obligated to provide a defense against the allegations
of covered as well as the noncovered claims.” Doubts
as to whether an allegation indicates the possibility
of coverage should be resolved in the insured’s favor.
Utica Mut. Ins. Co. v. Miller, 130 Md. App. 373, 383, 746 A.2d
935, 940-41 (2000) (quoting John Alan Appleman, Insurance Law &
Practice, § 4684.01 (Rev. ed. 1979) at 102-06) (internal
18
parenthesis omitted); see also Clendenin Bros., 390 Md. at 460,
889 A.2d at 394; Litz, 346 Md. at 217, 695 A.2d at 572.
This Court must analyze each of the complaints filed
against TGM and Myers and compare the allegations to the scope
of the Policy’s coverage to determine if TGM and Myers are
entitled to a defense in each of the actions. See Pryseski, 292
Md. at 193, 438 A.2d at 285. The central issue is the capacity
in which Myers acted when he provided advice to the plaintiffs
in the underlying actions.
1.
The Ruark Action contained specific assertions regarding
Myers’s and TGM’s professional accounting and tax services to
plaintiffs. Myers and TGM were retained to provide accounting
and tax advice. Acting on Myers’s advice, Ruark and Baja
Holdings allegedly invested some $14 million in life insurance
to fund the Baja Defined Benefit Plan. Thereafter, the IRS
audited Ruark and disallowed deductions based on the Baja
Defined Benefit Plan. In 2004 and 2005, Myers prepared tax
returns for Ruark and did not include required forms for the
listed transaction.
The Ruark Action alleged that TGM and Myers received
professional fees in connection with the accounting and tax
advice they provided but failed to disclose that they would
19
receive substantial commissions on the life insurance sales.
However, the Ruark Action did not identify TGM or Myers as
agents or brokers, and there were no allegations that plaintiffs
relied on them to perform any duties on their behalf as
insurance agents or brokers. In fact, the Ruark Action
specifically identified Michael DiMayo as the Hartford insurance
agent: “Myers put [Ruark and Baja Holdings] in contact with
Michael DiMayo (‘DiMayo’) . . . , a licensed Hartford agent, who
provided Plaintiffs with various proposals to implement the
412(i) Concept.” J.A. 45, ¶14. DiMayo allegedly represented
that the arrangement would comply with tax regulations, and
Myers concurred with those representations in his advisory
capacity.
2.
The Insurance Alternatives’ Third-Party Action also
included specific allegations relating to TGM’s and Myers’s role
as accountants and tax advisors. The Insurance Alternatives’
Third-Party Action alleged specifically that “Myers and TGM . .
. have performed tax and accounting services for Ruark Company.”
J.A. 91, ¶3. The Insurance Alternatives’ Third-Party Action
also alleged that Baja Holdings, through Abresch, relied upon
TGM and Myers’s tax advice. The Action further alleged that
Myers and TGM “had a duty to ensure that information conveyed .
20
. . as to the deductibility of premiums . . . was accurate.”
J.A. 94, ¶21.
3.
The Fowler Action also included allegations that TGM and
Myers provided negligent accounting and tax services:
Myers and TGM had duties (a) to act with care and
skill of reasonably competent accountants and tax
advisors in advising Plaintiffs with respect to the
implementation of the 412(i) Concept, the formation of
A&M DBP, and the selection of the A&M Policy to fund
the A&M DBP; (b) to inform Plaintiffs of the risks
involved with the 412(i) Concept; and (c) to inform
Plaintiffs of all facts material to the transaction.
J.A. 108, ¶45. Myers and TGM allegedly breached the duty of
care by “[f]ailing to advise Plaintiffs of the February 2004 IRS
Guidance making the 412(i) Concept a listed transaction; [n]ot
advising Plaintiffs to file the required listed transaction
forms with their 2004 and 2005 tax returns; [and]. . .
[a]dvising Plaintiffs that IRS Ruling 2004-20 would not apply to
Plaintiffs.” J.A. 109, ¶46.
In sum, contrary to the district court’s interpretation,
all of the underlying actions asserted that Myers and TGM acted
as accountants and tax advisors. Only the Insurance
Alternatives’ Third-Party Action, which seeks indemnification
and contribution from TGM and Myers, contained a fleeting
allegation relating to Myers’s status as a Hartford Insurance
21
agent. Even so, this sole allegation does not irrefutably put
all of the underlying actions within the “Special Exclusion
Endorsement.” There are no allegations in the Ruark and Fowler
Actions that Myers acted as an insurance agent or broker.
Additionally, although CAMICO Insurance and the district court
noted that Myers and TGM received a commission on the insurance
sales, this fact does not show a principal-agent relationship or
employment as a broker, and there is no evidence in the record
to support such a conclusion. Moreover, even if such evidence
existed, it would not change the fact that the underlying
actions raise the specter of coverage. And “[s]o long as a
complaint raises a potentiality of coverage, an insurer is under
a duty to defend an insured named in that complaint.” W. World
Ins. Co., 784 F.2d at 562.
We conclude that CAMICO Insurance has a duty to defend TGM
and Myers. Accordingly, we reverse the district court’s
judgment to the contrary and direct the district court to grant
TGM and Myers’s motion for partial summary judgment seeking a
declaration that CAMICO Insurance must provide them with a
defense in the underlying actions.
III.
TGM and Myers also argue on appeal that the district court
erred by granting summary judgment on CAMICO Insurance’s
22
Counterclaim seeking a declaration that it had no duty to
indemnify. “Under the potentiality rule, the insurer will be
obligated to defend more cases than it will be required to
indemnify because the mere possibility that the insurer will
have to indemnify triggers the duty to defend.” Litz, 346 Md.
at 225, 695 A.2d at 570 (citation omitted). “The duty to
indemnify, by contrast, refers to an insurer’s responsibility to
pay a monetary award when its insured has become liable for a
covered claim.” Perdue Farms, Inc. v. Travelers Cas. & Surety
Co. of America, 448 F.3d 252, 257-58 (4th Cir. 2006).
If the issue upon which coverage is denied were not
the ultimate issue to be determined in a pending suit
by a third party, a declaratory judgment would be
appropriate. But where, as here, the question to be
resolved in the declaratory judgment action will be
decided in pending actions, it is inappropriate to
grant a declaratory judgment.
Brohawn, 276 Md. at 406, 347 A.2d at 849 (citing Watson v.
Dorsey, 265 Md. 509, 512 n.1, 290 A.2d 530 (1972)); see also
Nautilus Ins. Co. v. BSA Ltd. P’ship, 602 F. Supp. 2d 641, 657
(D. Md. 2009) (“Generally, the question of whether a company
must indemnify ‘turns on a comparison of the ultimate findings
of fact concerning the alleged occurrence with the policy
coverage.’”) (quoting USAA Cas. Ins. Co. v. Mummert, 213 F.
Supp. 2d 538, 541 (D. Md. 2002)). Thus, a declaration
concerning indemnification is inappropriate when related to
23
issues to be litigated. See Chantel Assocs. v. Mount Vernon
Fire Ins. Co., 338 Md. 131, 149, 656 A.2d 779, 788 (1995).
The issue of whether Myers acted as Hartford Insurance’s
agent or broker is not independent and separable from the issues
to be decided in the underlying actions. Again, the gravamen of
the underlying actions is that Myers and TGM rendered
substandard accounting and tax advice. Nevertheless, the
underlying actions also contain causes of action for negligent
misrepresentation, based in part on TGM’s and Myers’s failure to
disclose that they would receive substantial commissions on the
life insurance sales.
Additionally, although CAMICO Insurance is obligated to
defend the underlying actions based on the allegations as set
forth in the complaints, the “ultimate findings of fact,”
Nautilus Ins. Co., 602 F. Supp. 2d at 657, at trial may be that
TGM and Myers received commissions and/or acted as undisclosed
agents for Hartford Insurance, and that the allegedly negligent
tax advice “arose out” of the conflict of interest that TGM and
Myers may have had stemming from their role as tax advisers to
the plaintiffs, on the one hand, and as brokers or agents to
Hartford Insurance on the other. These findings may in fact
trigger the application of the “Special Exclusion Endorsement”
and absolve CAMICO Insurance of any duty to indemnify TGM and
Myers for any damages awarded to the plaintiffs in the
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underlying actions, notwithstanding our conclusion that CAMICO
Insurance is obligated to defend the underlying actions in the
first place.
Consequently, a declaration as to CAMICO Insurance’s duty
of indemnification would be premature at this time; such a
declaration should instead be made after the underlying actions
are resolved. See Brohawn, 276 Md. at 404–06, 347 A.2d at 848–
49. Accordingly, we agree with TGM and Myers that the district
court erred by granting summary judgment in favor of CAMICO
Insurance on its Counterclaim. Similarly, because the
determination of CAMICO Insurance’s duty of indemnification
would be premature at this time, we dismiss TGM’s and Myers’
motion to dismiss CAMICO Insurance’s Counterclaim.
IV.
In sum, because there is a potentiality of coverage, we
hold that CAMICO Insurance has a duty to defend TGM and Myers.
We therefore reverse the district court’s ruling to the contrary
and direct it to grant TGM and Myers’s motion for partial
summary judgment seeking a declaration that CAMICO Insurance is
obligated to defend them in the underlying actions. Further,
because any determination as to whether CAMICO Insurance has a
duty to indemnify TGM and Myers must await the resolution of the
underlying actions, we reverse the district court’s award of
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summary judgment in favor of CAMICO Insurance on its
Counterclaim.
REVERSED AND REMANDED
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