Estate of Adams v. Continental Insurance Co.

REPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 1065
September Term, 2014
______________________________________
ESTATE OF HAROLD L. ADAMS, et al.
v.
CONTINENTAL INSURANCE COMPANY,
et al.
______________________________________
Kehoe,
Beachley,
Kenney, James A., III
(Senior Judge, Specially Assigned),
JJ.
______________________________________
Opinion by Beachley, J.
______________________________________
Filed: June 1, 2017
*Judge Kathryn G. Graff, Judge Douglas R. M. Nazarian, Judge Kevin F. Arthur,
Judge Michael W. Reed, and Judge Daniel A. Friedman did not participate in the Court’s
decision to designate this opinion for publication pursuant to Md. Rule 8-605.1.
In this opinion, we attempt to finally resolve asbestos-related litigation stemming
from complaints filed in the Circuit Court for Baltimore City more than twenty years ago.
Appellants consist of plaintiffs represented by three different groups of law firms: 1) the
Law Offices of Peter Angelos (“LOPA plaintiffs” or “LOPA”); 2) Goodman, Meagher &
Enoch, LLP and Clifford Cuniff; Ashcraft & Gerel (“GME/Cuniff/A&G Plaintiffs”); and
3) Skeen, Goldman, LLP (“Goldman Plaintiffs”). 1
Appellants were plaintiffs in asbestos-related litigation against MCIC Inc. (formerly
McCormick Asbestos Company, “MCIC”). In a lawsuit filed in the Circuit Court for
Baltimore City on May 20, 2005, appellants sought, for the second time, additional
insurance coverage and proceeds pursuant to a 1994 settlement agreement with appellees,
MCIC and its insurers: United States Fidelity and Guaranty Company (“USF&G”); Royal
Insurance Company (“Royal”); 2 Liberty Mutual Insurance Company; Continental
Insurance Company (“Continental”); 3 and Hartford Accident and Indemnity Company
(“Hartford”). Appellants brought claims against appellees for negligent misrepresentation,
1
Appellants can be further grouped as follows: LOPA plaintiffs, and non-LOPA
plaintiffs. Separating the appellants into LOPA and non-LOPA plaintiffs will become
relevant in the Discussion section of this opinion. When we refer to “appellants,” however,
we refer to both the LOPA and Non-LOPA plaintiffs.
2
Royal Insurance Company is currently known as Arrowood Indemnity Company.
We will refer to the company as “Royal” throughout this opinion.
3
According to LOPA’s complaint, Continental Insurance Company was formerly
Seaboard Fire & Marine Insurance Company. We will refer to the company as
“Continental” throughout this opinion. Continental did not file a separate brief; instead, it
filed a Line adopting the arguments made in the other appellees’ briefs.
fraudulent misrepresentation, and fraud by concealment. Specifically, appellants claim
that the appellees fraudulently obtained the settlement by intentionally misrepresenting the
extent of MCIC’s available insurance coverage, and that the appellees knew that their
misrepresentations regarding the available coverage were false.
In August 2012, appellees filed motions for summary judgment, arguing that
appellants’ claims were time-barred pursuant to the three-year statute of limitations in
Maryland Code (1973, 2013 Repl. Vol.) § 5-101 of the Courts and Judicial Proceedings
Article (“CJP”). 4 Appellees argued, inter alia, that appellants were on inquiry notice of
their claims as early as 1997 or 1998, shortly after this Court published its opinion in
Commercial Union Ins. Co. v. Porter Hayden Co., 116 Md. App. 605 (1997), cert. denied,
348 Md. 205 (1997).
On November 20, 2012, the circuit court dismissed appellants’ claims on the basis
that they were time-barred. Appellants present several questions for our review, 5 which
we have rephrased as follows:
4
The parties filed many prior pleadings, including a motion to dismiss, amended
complaints, motions to intervene and to proceed by class action.
5
Appellants presented their issues as follows:
LOPA presented the following questions in its brief:
1. Did the circuit court err in holding that this Court’s 1997 Porter
Hayden decision put Plaintiffs on inquiry notice that they may have been
defrauded by MCIC and its Insurers when they entered into the 1994
Settlement Agreement and in holding that, notwithstanding the lack of any
indication that MCIC and its Insurers had knowingly and intentionally
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1. Did the circuit court err in finding that, as a matter of law, the appellants’ claims
were barred by the statute of limitations because appellants were on inquiry
notice of the misrepresentations as early as 1997?
deceived Plaintiffs, limitations for fraud nevertheless began to run from the
date of that decision?
2. Did the circuit court err by overlooking a material dispute of fact
when it failed to recognize the importance of the second prong of the
limitations discovery rule in fraud cases and failed to apply the second prong
to the well-concealed fraud perpetrated by Defendants here?
3. Did the circuit court err by granting summary judgment without
permitting Plaintiffs to conduct discovery to demonstrate the efforts
undertaken by Defendants to conceal facts relevant to the second prong of
the limitations discovery rule?
The “GME/Cuniff/A&G Plaintiffs” presented the following question:
Did the Circuit Court improperly act as a fact-finder, fail to recognize
or address the actual alleged fraud, and otherwise misapply fundamental
summary judgment principles in holding that the GME/Cuniff/A&G
Plaintiffs were on notice as a matter of law of MCIC and the Insurers’
wrongful conduct more than three (3) years prior to filing their fraud,
misrepresentation, and concealment claims?
The “Goldman Plaintiffs” presented the following questions:
1. Did the Circuit Court improperly act as a fact-finder, fail to
recognize the basis of the alleged fraud, and otherwise misapply fundamental
summary judgment principles in holding that the Goldman Plaintiffs were on
notice as a matter of law of MCIC and the Insurers’ wrongful conduct more
than three years prior to filing their fraud, misrepresentation and concealment
claims?
2. Did the Circuit Court erroneously grant summary judgment against
the Goldman Plaintiffs on the basis of their alleged receipt of the 1993 Nagle
fragmentary policy materials, when in fact Goldman generated a triable
material issue for the jury that he never received same?
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2. Did the circuit court err in granting summary judgment without permitting
appellants to conduct additional discovery?
We answer the first question in the negative, and need not decide the second. Accordingly,
we affirm the judgment of the circuit court.
FACTUAL AND PROCEDURAL BACKGROUND
Appellants Litigate Abate I while MCIC and Its Insurers Pursue Settlement
MCIC, which was founded in 1934, sold and installed asbestos insulation products.
By the early 1970s, it was clear that asbestos was hazardous, and MCIC ceased selling and
installing asbestos-containing products in approximately 1973.
In the late 1980s, several law firms, including those representing appellants,
collectively filed several thousand lawsuits against MCIC asserting personal injury claims
resulting from exposure to asbestos-containing products. In April 1990, the cases of 8,555
plaintiffs were consolidated for trial (“Abate I”).
While the Abate I lawsuit was pending, MCIC and its insurers pursued settlement
of the lawsuits against MCIC. On February 14, 1992, MCIC’s attorney, John Nagle III,
Esq. (“Nagle”), wrote a letter to LOPA attorney Thomas Friedman, Esq. (“Friedman”),
with an attached schedule of all available insurance policies sold to MCIC. The schedule
contained a note claiming that the list was prepared by USF&G on behalf of MCIC, and
the information provided was “based primarily on secondary evidence of coverage.” The
schedule also contained two columns under the heading “products coverage,” one listing
“per person limit[s],” and the other listing “per occurrence limit[s].” Framing the
settlement discussion in terms of available “products coverage” had, as we will explain, a
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significant impact on the amount of coverage appellants received in settlement, as well as
on the eventual causes of action in this case.
On February 27, 1992, Friedman responded, submitting a total demand of
$19,527,900. Mr. Friedman concluded his letter saying:
From the insurance information you supplied, it appears that your
client may, in a best case scenario, not have sufficient insurance coverage to
satisfy our demand. Under these circumstances, we are prepared to
recommend in settlement of all our claims the total amount of your insurance
coverage. It is imperative, therefore, that you determine as expeditiously as
possible the exact amount of insurance coverage and that our tender is
submitted to your principal. 6
(Emphasis added). Notably, Friedman recommended seeking all available coverage, and
not just “products coverage.”
On July 8, 1992, the jury found MCIC strictly liable for asbestos-related injuries
suffered by foreseeable users and foreseeable bystanders. 7 Settlement discussions
pertaining to damages ensued, with counsel for MCIC repeatedly stating that there were
“limited assets available to MCIC,” and that bankruptcy proceedings or a settlement with
another claimant could likely impact the amount appellants could recover.
On December 7, 1992, Nagle sent a letter to Friedman enclosing a revised schedule
of insurance (dated November 6, 1992) that was, in most respects, identical to the earlier
version. The schedule identified the “per person” and “per occurrence” limits as “products
6
Contemporary documents indicated that the insurers (or at least USF&G) were
aware of the nature of appellants’ demand, noting in one instance that “[p]laintiffs are
actually demanding MCIC’s policy limits.”
7
The jury did not, however, determine the damages in this case.
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coverage.” Nagle indicated that he was providing the information “as it [was] related to
[him] by USF&G,” noting that “no physical copies of policies of insurance exist with
respect to coverage provided to MCIC by its various insurers over the decades,” and
explaining that “the policies were disposed of prior to the time when MCIC was first named
as a defendant,” and “[a]ll reasonable efforts have been made to locate such policies.”
The 1994 Settlement Agreement
On September 14, 1993, Baltimore City Circuit Court Administrative Judge Joseph
H.H. Kaplan held a conference to discuss settlement. Nagle had requested the conference
so that MCIC could propose to pay approximately $13 million, all of MCIC’s remaining
insurance coverage, to settle all of the cases pending against MCIC. At the conference,
appellants’ attorneys requested all of the policies that the insurers had ever issued to MCIC,
but counsel for the insurers claimed that the policies could not be produced for review.
Nagle insisted that the approximately $13 million offer represented MCIC’s remaining
insurance assets. Appellants’ counsel insisted on reviewing the policies before accepting
any settlement, and Judge Kaplan instructed the insurers to provide whatever policy
documents they possessed in anticipation of future settlement discussions.
The Nagle Documents
On October 15, 1993, Nagle sent a letter to appellants’ counsel with “insurance
coverage documents” attached, which he indicated were “recently provided to [him] by the
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respective carriers of MCIC, Inc.” 8 We shall refer to these documents as the “Nagle
Documents.” The letter stated that Royal had not yet provided him with policy
information, but that he would deliver those documents once he received them. The letter
also included two tables which summarized the “limits of each carrier and MCIC (exclusive
of Royal).” The letter concluded that the total amount of coverage available was
$12,300,000.00 with $11,877,054.90 remaining. 9
Royal, unable to locate a copy of any insurance policy it sold to MCIC, wrote a
letter to Nagle on October 21, 1993, conceding that, although it could not locate them, it
had, in fact, issued insurance policies to MCIC. Royal provided a schedule that listed the
policies it issued to MCIC and concluded that the total amount of coverage it provided to
MCIC was $1,200,000 based on the “Bodily Injury Limits” of $25,000/50,000 for the first
two years and $50,000/100,000 for the remaining 11 years. 10 Royal reiterated that it did
not possess any copies of actual policies, and therefore it claimed that the information it
8
On October 13, 1993, Benjamin Love of USF&G sent the same (or similar) packet
of insurance policy information to Judge Kaplan.
9
The letter summarized the remaining policy limits as follows: Liberty Mutual,
$581,869.80; ITT Hartford, $540,324.00; Continental, $272,875.00; USF&G,
$725,936.10; Kemper (excess coverage), $4,000,000.00; USF&G (excess coverage),
$5,000,000.00; Reliance $756,050.00.
10
Although Royal could not ascertain the exact “Bodily Injury Limits” for five of
the thirteen years, it presumed that the limits for those years were $50,000/$100,000
because Royal consistently issued MCIC policies with those limits after the first two years.
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provided was “extremely sketchy.” Nagle forwarded Royal’s letter to appellants’ counsel
on October 21, 1993.
Contents of the Nagle Documents—Types of Coverage and Limits of Coverage
The Nagle Documents included Declaration sheets 11 for the available policies,
which were standard Comprehensive General Liability (“CGL”) policies. The Declaration
sheets themselves distinguished the available limits of liability. For example, the USF&G
Declaration sheet provided maximum limits to the insured for bodily injury in the following
ways: $300,000 each occurrence; and $300,000 in the aggregate. The section titled “Limits
of Liability” provides, in pertinent part:
The total liability of the Company for all damages . . . because of
bodily injury sustained by one or more persons as the result of any one
occurrence shall not exceed the limit of bodily injury liability stated in the
declarations as applicable to “each occurrence.” Subject to the above
provision respecting “each occurrence,” the total liability of the Company for
all damages because of (1) all bodily injury included within the completed
operations hazard and (2) all bodily injury included within the products
hazard shall not exceed the limit of bodily injury liability stated in the
declarations as “aggregate.”
(Emphasis added). This language explains that a standard CGL policy provides an
aggregate limit for bodily injury claims that fall under the “products hazard” or “completed
operations hazard.” Both of these hazards fall within the “products coverage” umbrella.
By only imposing aggregate limits for the specifically mentioned bodily injury claims, the
policies implicitly permitted non-aggregated limits for “non-products coverage” claims.
11
A Declaration sheet is a summary of all coverages and limits provided by the
insurance policy.
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The distinction between “products coverage” and “non-products coverage” is at the heart
of appellants’ claims.
Reaching the Agreement
On November 2, 1993, Judge Kaplan convened a second settlement conference. At
that conference, Nagle stated that, having provided the Nagle Documents, he had now
offered all insurance coverage, primary as well as excess, in exchange for full settlement
and relief from further defense obligation. Nagle admitted that the Nagle Documents were
incomplete, but insisted that the total amount of unused and available coverage for MCIC
was $13,077,054.90, based on the insurers taking a worst case scenario in calculating that
sum. 12
Appellants’ counsel insisted on substantiating that the Nagle Documents included
all available policy documents, arguing that they needed to verify the limits of MCIC’s
coverage or the total remaining coverage before agreeing to settle. To address these
concerns, the parties agreed that the insurers would provide affidavits that stated that
MCIC’s total remaining coverage was approximately $13 million, that the appellees were
tendering the limits of remaining unpaid funds, and that the appellees were not aware of
12
The $13,077,054.90 figure is the sum of the purported $11,877,054.90 of
remaining primary and excess insurance coverage owed by Liberty Mutual, Hartford,
Continental, Kemper, and USF&G, and the purported $1,200,000.00 of remaining
coverage owed by Royal.
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any other applicable or available coverage. Judge Kaplan directed the parties to begin
drafting a settlement agreement that would include these affidavits.
On August 10, 1994, Judge Kaplan approved the settlement agreement for
$12,351,000 which both the appellants and appellees signed. 13 Section 2.2 of the
settlement agreement provided, at a minimum, a contractual cause of action if more
insurance coverage was found.
The Defendant agrees that if in addition to the insurance coverage disclosed
by Insurers and confirmed by their affidavits . . . other insurance is discovered
which would be applicable to claims made, the Defendant will promptly
notify Participating Plaintiffs’ Counsel and arrange for a pro rata distribution
to them for payment to the Plaintiffs . . . . 14
Attached to the settlement agreement were affidavits from each of the appellees, stating:
(1) “a diligent and thorough search” had been made for MCIC’s insurance policies; (2)
those searches produced information leading each insurer to report the amounts of coverage
listed in the settlement agreement; (3) there was no indication that there were any other
policies or coverages available other than what was represented; and (4) there was no
indication that the stated limits and unpaid funds were other than what was represented.
An additional affidavit, provided by Robert I. McCormick, Treasurer of MCIC, stated that,
as of April 30, 1994, the assets of MCIC had a total value of $299.89.
13
The final dollar amount represents the claimed total insurance amount minus the
payment of specific verdict amounts.
14
The settlement agreement defined “Defendant” as MCIC, Inc. and “Insurers” as
USF&G, Royal, Continental, Hartford, and Lumbermans.
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Porter Hayden and an Alternative Theory of Claim Classification
On August 29, 1997, this Court issued its decision in Porter Hayden, 116 Md. App.
605 (1997). There, Commercial Union provided liability insurance to Porter Hayden, a
company that installed insulation containing asbestos. Id. at 617. Commercial Union’s
policies for Porter Hayden only provided “premises-operations” coverage, or coverage for
bodily injury that occurred during the installation or operations process—not to be
confused with “Products Hazard” or “products coverage”—coverage for injuries resulting
from exposure to completed, hazardous products. Id. at 687-88. Noting the narrow scope
of coverage in its policy, Commercial Union argued that it had no duty to defend Porter
Hayden in asbestos litigation. Id. at 688.
We disagreed. The complaints and allegations against Porter Hayden showed that
some plaintiffs alleged they had been exposed to asbestos during installation. Id. at 691-
92. We held that, “it is evident that Porter Hayden could be held liable for the manner in
which it conducted its operations in installing the asbestos-containing products. In that
light, it is not solely covered by the ‘Products Hazard’ insurance it declined to purchase.”
Id. 692. We concluded that,
The “Products Hazard” insurance is concerned with injury occurring
after possession of the goods or the product has been relinquished or the
operation has been completed or abandoned. The nature of some of the
allegations in the Master Complaint, however, concern exposure and injury
occurring during the operation, such as the emission of asbestos dust during
the installation process.
We affirm the ruling . . . that, as a matter of law, there is a potentiality
that the asbestos-related claims are covered and that there is, therefore, a duty
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on Commercial Union to defend and, depending on the ultimate findings on
the merits, potentially to indemnify.
Id. at 692-93.
The ramifications of our decision in Porter Hayden were immense to asbestos
litigants, and appellants took notice. As explained above, a standard CGL policy provides
for aggregate limits—but only as applied to “products coverage” claims. By recognizing
a new theory of recovery, and one without aggregate limits, plaintiffs in Maryland could
claim that CGL policies provided much greater coverage than previously thought.
On October 3, 1997, a mere thirty-five days after we published Porter Hayden,
Angelos sent a letter to MCIC’s treasurer inquiring about the possibility of additional
insurance available, stating:
As you will recall, there is a Settlement Agreement dated August 10,
1994[,] between MCIC, Inc., several insurance companies, and various
plaintiffs’ law firms. One of the representations made by MCIC, Inc. and its
insurers was that there was a limited amount of insurance available to pay to
victims of asbestos-related disease. In fact, each of the insurers signed
affidavits set[ting] forth the limited amount of money available to MCIC,
Inc. for asbestos-related claims. This representation was the major reason
we entered into this agreement and recommended to our clients settlements
for such small amounts. Also, this was the primary reason we stopped
naming MCIC as a defendant.
It has recently come to my attention that information provided by the
insurers may be inaccurate, and additional insurance funds may be available
under the terms of the policies. Under Section 2.2 of the Settlement
Agreement, any additional insurance funds are to be distributed to the
plaintiffs.
In light of the above, I think it appropriate that my office review the
policies of insurance as quickly as possible so that I can determine what, if
any, additional funds may be available to the plaintiffs.
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(Emphasis added).
On October 7, 1997, MCIC attorney Bruce R. Chapper responded to Angelos,
stating that, on “August 10, 1994, MCIC tendered what it believed to be the total aggregate
of insurance coverage available.” Chapper assured Angelos that, “in response to
[Angelos’s] request, there [were] no insurance policies for [his] office to review,” but he
was “happy to discuss” with Angelos whatever information had “recently come to [his]
attention.”
On February 11, 1998, Angelos replied by letter that it was “absolutely necessary
that [his firm] independently verify whether or not additional coverage exists for MCIC,
Inc.” He asked that MCIC “cooperate fully in providing [him] copies of the insurance
policies.” On February 20, 1998, Chapper responded, stating that there were “not now and
never have been in the course of [the Abate I litigation] any insurance policies for review.”
Clifford Cuniff, an attorney for GME, called Nagle on April 1, 1998, to learn the
status of MCIC with reference to his case. Nagle explained to Cuniff that MCIC no longer
had counsel for that litigation, that MCIC would not respond to service of process, and that
MCIC no longer had any assets.
Three weeks later, on April 22, 1998, Chapper met with LOPA attorneys. His
notes indicated that at the meeting, the LOPA attorneys
explained that recent court decisions had interpreted old policies containing
provisions for contractors general liability so as not to have any total limit on
the policies. Thus they contended that the insurance carriers may be liable
for considerably more than the insurance carriers had certified in the
affidavits which accompanied the settlement agreement.
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After preliminarily reviewing certain of the evidences of insurance
coverage which were in our file, namely, insurance certificates, bills, etc.,
they made arrangements to have those documents copied . . . .”
Neither party took any significant action in reference to this case until January 4,
2001, when Chapper met with LOPA attorneys to discuss the 1994 settlement and MCIC’s
insurance coverage. In a follow-up letter, dated February 2, 2001, Chapper stated that
The offer was made to you, however, to assign the plaintiffs whatever rights
you believe exist under various insurance policies, the limits of which were
believed to have been tendered as part of the settlement. In conjunction with
the settlement, MCIC informed plaintiffs of all of its past insurance carriers
and all applicable policy numbers.
He stated his impression that LOPA was “going to investigate the possibility of such an
assignment and would forward such documentation as may be required to effect the same.”
On May 25, 2001, Chapper again met with LOPA to discuss their “desire to make claims
under various insurance policies which may have insured” MCIC.
The Wallace & Gale Case Adopts the Holding in Porter Hayden
In February 2002, a federal court in the District of Maryland decided the case In re
Wallace & Gale Co., 275 B.R. 223 (D. Md. 2002). 15 There, plaintiffs sought recovery
from insurance companies for asbestos-related bodily injuries. Id. at 227. The court
acknowledged that Porter Hayden created a new theory in which plaintiffs insured by a
15
Due to excessive length, we provide the full citation with procedural history here:
In re Wallace & Gale Co., 275 B.R. 223, opinion vacated in part on reconsideration, 284
B.R. 557 (D. Md. 2002), aff’d sub nom., In re Wallace & Gale Co., 385 F.3d 820 (4th Cir.
2004), as amended, (Nov. 15, 2004), and aff’d in part sub nom., In re Wallace & Gale Co.,
385 F.3d 820 (4th Cir. 2004), as amended, (Nov. 15, 2004).
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CGL policy could pursue installation or operations claims in addition to “products
coverage” claims. Id. at 239. The court crystalized the significance of that holding with
reference to standard CGL policies, stating: “If a claimant’s initial exposure occurred while
Wallace & Gale was still conducting operations, policies in effect at that time will not be
subject to any aggregate limit.” Id. at 241.
Notably, LOPA was involved in the Wallace & Gale case as early as 1995,
providing representation to a group of intervening plaintiffs. For Wallace & Gale, LOPA
hired Scott D. Gilbert, Esq., an expert in insurance law, to prepare a report (the “Gilbert
Report”) evaluating the application of the insurance policies. LOPA filed the Gilbert
Report, dated May 1998, with the U.S. Bankruptcy Court to explain its theory of recovery.
In the Gilbert Report, Gilbert noted that, “None of these policies has an aggregate
limit for ‘nonproducts’ claims . . . . The language of the Travelers Policies follows the
standard form language used by the Insurance Services Office (“ISO”). Since 1973, ISO
has written standard CGL form policies used by insurers throughout the United States.”
After establishing that the policies at issue were standard CGL policies, where
“nonproducts” claims such as operations claims are not subject to aggregate limits, Gilbert
discussed the Porter Hayden decision:
The Maryland courts have adopted the view that asbestos installation
claims are nonproducts claims not subject to aggregate limits. In a case
directly on point, the Maryland Court of Special Appeals has held that, for
purposes of assessing the duty to defend, asbestos bodily injury claims
arising from asbestos installation activities are nonproducts claims. See
Commercial Union Ins. Co. v. Porter Hayden Co.
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(Citations omitted). Therefore, based on its expert’s report, LOPA knew, no later than May
of 1998, that Porter Hayden had created a new theory of recovery under standard CGL
policies.
LOPA Files a Motion to Enforce Settlement Agreement and Receives the “Chapper
Documents” in Discovery
On June 11, 2002, LOPA sent a letter to appellees arguing that there was additional
insurance coverage beyond what was provided in the 1994 settlement agreement. LOPA
cited the section of the settlement agreement which required MCIC to promptly notify
appellants of newly discovered coverage and stated: “We believe that such additional
coverage does now, in fact, exist.” LOPA attached a copy of the order in the Wallace &
Gale case, and noted that,
As you will see in that opinion, asbestos contractors, such as Wallace & Gale
and MCIC, are afforded much more extensive coverage under standard CGL
policies than what you and the other insurance carriers represented in the
Settlement Agreement.
In light of the Wallace & Gale decision and your familiarity therewith,
we assume that you have undertaken a review of your policies and discovered
that additional coverage now exists to fully compensate all previous . . . and
pending claims against your insured.
Enclosed . . . is a copy of the . . . cases which, pursuant to the
Settlement Agreement, should receive additional compensation because
additional insurance is now available . . . . However, please note that we are
not willing to accept the rather small amounts contained in the Settlement
Agreement. Those amounts were accepted only because we relied upon the
insurance carriers’ material misrepresentation of the insurance coverage
available.
(Emphasis added).
On October 17, 2002, in the absence of a satisfactory response from appellees,
LOPA filed, under seal and unknown to the other appellants, a Motion to Enforce
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Settlement Agreement in the Circuit Court for Baltimore City. In the motion, LOPA
requested the court to order each insurance company to tender all insurance coverage
available, or in the alternative, to pay the LOPA plaintiffs an equitable amount taking the
new insurance coverage into account. On October 30, 2002, the LOPA plaintiffs and
appellees entered into a Standstill and Tolling Agreement, agreeing to halt litigation while
they discussed LOPA plaintiffs’ claims. 16 This agreement was amended several times,
extending the tolling of limitations for a total of 334 days.
On April 26, 2004, MCIC responded to a LOPA discovery request and produced
over one thousand pages of what appellants have designated as the “Chapper Documents.”
The Chapper Documents consist of various correspondence, notes, and memoranda
generated between MCIC and its insurers from June 1981 through November 1994.
According to LOPA, the Chapper Documents demonstrate that MCIC knew as early as
1985 that appellants had claims for operations coverage because many of the plaintiffs
were exposed to asbestos during installation.
Almost two years after LOPA filed its Motion to Enforce Settlement Agreement
under seal, the Non-LOPA plaintiffs learned of LOPA’s motion. The Non-LOPA plaintiffs
filed motions to intervene, which the court granted on June 7, 2004.
16
The non-LOPA appellants were not part of that agreement because they had not
yet moved to intervene in the case.
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The Circuit Court Dismisses the Motion to Enforce Settlement Agreement
On August 5, 2004, the circuit court dismissed appellants’ Motion to Enforce
Settlement Agreement on the ground that the motion was time-barred. The court explained
its holding:
Assuming that the development of a new legal theory of coverage amounted
to a “discovery” of the “fact” that additional coverage existed under the
settled policies, such discovery by MCIC occurred no later than 1998 when
the Angelos plaintiffs’ counsel met with counsel for MCIC, explained their
legal theory of recovery and opined that the Insurers owed more under the
Settlement Agreement than the amounts represented in their affidavits. Upon
MCIC’s discovery of this additional “other insurance,” the Angelos plaintiffs
could have brought their Motion to Enforce Settlement Agreement. They sat
on their claim, however, until October 17, 2002, over a year after the
analogous limitations period for contract actions had lapsed. Ultimately,
Plaintiffs have “failed to act with due diligence in the pursuit and
enforcement of [their asserted] rights,” and prejudice is demonstrated by their
failure to bring their Motion to Enforce within the length of the analogous
limitations period.
(Citations omitted).
Appellants appealed and a panel of this Court affirmed in an unreported opinion.
See Anderson v. Royal Indemnity, No. 1962, Sept. Term 2004 (filed May 15, 2006). In
holding that appellants’ claims pursuant to the Motion to Enforce Settlement Agreement
were time-barred, the Anderson panel stated that,
the appellants were on inquiry notice of their potential claims for additional
insurance coverage under the 1994 settlement agreement well over three
years before they filed their respective motions to enforce in 2002 (and
beyond). When we filed the reported opinion in the Porter Hayden case in
August of 1997, and that case became part of the public domain, any
Maryland attorney whose practice involved asbestos litigation and insurance
coverage for such cases was on notice that there might be nonproducts
liability, and correspondingly, insurance coverage for such nonproducts
liability, that exceeded the liability coverage previously assumed to be
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applicable. The Gilbert report makes [it] clear that by May of 1998, this
development in the asbestos field was widely known, and that the prospect
of insurance coverage that was not subject to aggregate limits was not
ignored by asbestos plaintiffs’ attorneys.
Id., slip op. at 23. 17 The Court of Appeals subsequently denied appellants’ petition for writ
of certiorari. Anderson v. Royal Indemnity, 394 Md. 479 (2006).
The Instant Case: Claims for Misrepresentation and Concealment
On May 10, 2005, while the Anderson appeal was pending, LOPA filed a new
complaint in the Circuit Court for Baltimore City. The complaint, and its subsequent
history, form the basis for this appeal. In the operative complaint, LOPA alleged that
MCIC and its insurers had committed: 1) negligent misrepresentation, 2) fraudulent
misrepresentation, and 3) fraud by concealment. 18 By virtue of these misrepresentations
and concealments, LOPA argued, the appellees settled with appellants for sums not
representative of the full amount of MCIC’s available insurance coverage.
In early 2007, the circuit court permitted the non-LOPA plaintiffs to intervene and
file complaints of their own. All appellants alleged that the Chapper Documents
indisputably demonstrated that the appellees knew prior to and during settlement
negotiations that appellants maintained claims that were operational in nature for which
non-products coverage would be available.
17
We will discuss the significance of the Gilbert Report later in the opinion.
18
The complaint contained four additional counts for declaratory relief. The circuit
court dismissed these four counts, and they are not before us on appeal.
-19-
The Circuit Court Dismisses Appellants’ Claims for Negligence and Fraud
On November 20, 2012, the circuit court granted appellees’ motions for summary
judgment, dismissing appellants’ claims for negligent misrepresentation, fraudulent
misrepresentation, and fraud by concealment on the ground that the claims were time-
barred.
The circuit court began its discussion of the time-barred counts by noting that “the
running of the statute [of limitations] is ‘activated by actual knowledge--that is express
cognition, or by awareness implied from knowledge of circumstances which ought to have
put a person of ordinary prudence on inquiry.’” (Citing Bacon v. Avery, 203 Md. App. 606,
652 (2012)) (internal quotation marks omitted). In the context of fraud, the court explained
that, “being ‘on notice’ means having knowledge of circumstances which would cause a
reasonable person in the position of the plaintiffs to undertake an investigation which, if
pursued with reasonable diligence, would have led to knowledge of the alleged fraud.”
(Citing O’Hara v. Kovens, 305 Md. 280, 302 (1986) (internal quotation marks omitted)).
Having established the applicable rules for the running of limitations, the court next
found the undisputed facts of the case. The court found that although the Nagle Documents
consisted of fragmentary policy materials, the Declaration pages and other forms made
clear the nature and scope of the policies insuring MCIC. In reviewing three largely
complete policies, the trial court found that “each of those policies contains the exact same
language relating to the products hazard, the completed operations hazard, the occurrence
definition, and the limits of liability. Each provides for an aggregate limit for claims within
-20-
the completed operations and products hazards.” The court explained that, because the
form explicitly states the circumstances in which aggregate limits do apply, inferentially,
these aggregate limits do not apply to any other form of coverage. After establishing what
appellants could and should have understood from the Nagle Documents, the court turned
to the issue of when the appellants should have been on notice of their claims.
For the third time, a Maryland court found that the date we decided Porter Hayden
put these appellants on notice that they had claims against the appellees. The circuit court
found that,
Regardless of what they may or may not have known prior to Porter
Hayden about the legal categorization of asbestos-related injuries for
purposes of insurance coverage, all plaintiffs’ counsel are charged with
knowing that such injuries could be covered under non-products CGL
provisions after its publication on August 29, 1997.
The trial court rejected the notion that the appellants had raised a genuine dispute of
material fact sufficient to survive a motion for summary judgment. Instead, it found that
possession of the Nagle Documents, coupled with the publishing of Porter Hayden, put
appellants on notice that the settlement agreement and the incorporated affidavits were
wrong. Because appellants filed their claims more than three years after being on inquiry
notice of those claims, the trial court granted summary judgment against appellants based
on limitations. It is this legal conclusion that appellants challenge on appeal.
STANDARD OF REVIEW
The Court of Appeals recently set forth the appropriate standard of review in cases
where the circuit court grants summary judgment:
-21-
We review the Circuit Court’s grant of summary judgment as a matter
of law. Goodwich v. Sinai Hosp. of Balt., Inc., 343 Md. 185, 204, 680 A.2d
1067, 1076 (1996) (“The standard of review for a grant of summary
judgment is whether the trial court was legally correct.” (citation omitted)).
Before determining whether the Circuit Court was legally correct in entering
judgment as a matter of law in favor of [appellees], we independently review
the record to determine whether there were any genuine disputes of material
fact. Hill v. Cross Country Settlements, LLC, 402 Md. 281, 294, 936 A.2d
343, 351 (2007). A genuine dispute of material fact exists when there is
evidence “upon which the jury could reasonably find for the plaintiff.”
Beatty v. Trailmaster Prods., Inc., 330 Md. 726, 739, 625 A.2d 1005, 1011
(1993) (citation omitted). “We review the record in the light most favorable
to the nonmoving party and construe any reasonable inferences that may be
drawn from the facts against the moving party.” Myers v. Kayhoe, 391 Md.
188, 203, 892 A.2d 520, 529 (2006) (citation omitted).
Windesheim v. Larocca, 443 Md. 312, 326 (2015).
“We generally limit our review to the grounds relied upon by the trial court.”
Benway v. Md. Port Admin., 191 Md. App. 22, 46 (2010). Accord PaineWebber Inc. v.
East, 363 Md. 408, 422 (2001) (stating that, “In appeals from grants of summary judgment,
Maryland appellate courts, as a general rule, will consider only the grounds upon which
the lower court relied in granting summary judgment.”). “We may, however, affirm the
grant of summary judgment on a ground not relied upon by the circuit court if the
alternative ground is one upon which the circuit court would have no discretion to deny
summary judgment.” Rogers v. Home Equity USA, Inc., 228 Md. App. 620, 635 (2016)
(internal quotation marks and citations omitted) (quoting Warsham v. James Muscatello,
Inc., 189 Md. App. 620, 635 (2009)).
-22-
DISCUSSION
Inquiry Notice
The trial court correctly granted summary judgment in dismissing the claims as
time-barred. “A civil action at law shall be filed within three years from the date it accrues
unless another provision of the Code provides a different period of time within which an
action shall be commenced.” CJP § 5-101 (emphasis added). In determining when an
action accrues, Maryland courts recognize the discovery rule. Originally, the discovery
rule was an exception that prevented the statute of limitations from starting to run until a
victim became aware of a wrong. Lumsden v. Design Tech Builders, Inc., 358 Md. 435,
442 (2000). The exception became the rule in Poffenberger v. Risser, where the Court of
Appeals held “the discovery rule to be applicable generally in all actions and the cause of
action accrues when the claimant in fact knew or reasonably should have known of the
wrong.” 290 Md. 631, 636 (1981).
A claimant should know of the wrong “if the claimant has ‘knowledge of
circumstances which ought to have put a person of ordinary prudence on inquiry [thus,
charging the individual] with notice of all facts which such an investigation would in all
probability have disclosed if it had been properly pursued.’” Lumsden, 358 Md. at 445
(quoting Poffenberger, 290 Md. at 637). The concept of “inquiry notice” controls when
limitations begin to run. A claimant is on inquiry notice when the claimant “has
‘knowledge of circumstances which would cause a reasonable person in the position of the
plaintiff[] to undertake an investigation which, if pursued with reasonable diligence, would
-23-
have led to knowledge of the alleged [tort].’” Lumsden, 358 Md. at 446 (citation omitted)
(quoting O’Hara v. Kovens, 305 Md. 280, 302 (1986)).
Inquiry Notice: The Similarities Between Negligent and Fraudulent
Misrepresentation
A claim for negligent misrepresentation requires the defendant to make a false
statement negligently. Lloyd v. General Motors Corp., 397 Md. 108, 136 (2007) (citations
omitted). Fraud claims differ only in that they require the defendant to know the falsity of
the statement, or to have made the statement with such reckless disregard for the truth as
to impute knowledge. Univ. Nursing Home, Inc. v. R.B. Brown & Assocs., Inc. 67 Md.
App. 48, 61 (1986). Maryland courts have used the term “scienter” to refer to the legally
culpable state of mind that encompasses either reckless indifference or actual knowledge.
See Ellerin v. Fairfax Sav., F.S.B., 337 Md. 216, 232 (1995) (recognizing that the tort of
fraud or deceit requires scienter—the defendant’s knowledge that either his statement was
false, or that he was recklessly indifferent as to whether his statement was true or false.)
When Porter Hayden became part of the public domain, and the controlling law in
Maryland, all appellants knew that they had been wronged—they had settled a case based
on the misrepresentation that only products coverage was available—and then learned that
operations coverage had been available all along. The publication of Porter Hayden
combined with possession of the Nagle Documents put all appellants on inquiry notice that
the assurances in the affidavits and settlement agreement were false. All appellants were
on inquiry notice, at the very least, that the statements may have been made negligently.
-24-
Generally, “[o]nce on notice of one cause of action, a potential plaintiff is charged
with responsibility for investigating, within the limitations period, all potential claims and
all potential defendants with regard to the injury.” Doe v. Archdiocese of Washington, 114
Md. App. 169, 188 (1997). We note that reckless indifference, a basis for a fraudulent
misrepresentation claim, is the next step up the evidentiary ladder from mere negligence.
Because here these torts stem from the same false statements and the same harm, we hold
that appellants were also on inquiry notice of their claims for fraudulent misrepresentation.
The Scienter in Fraudulent Misrepresentation is Not Limited to Actual Knowledge
of the Falsity of the Statement
All appellants incorrectly classify the scienter here in terms of a “knowing” falsity.
The LOPA plaintiffs, in their opening brief, state that, “Defendants concealed all of the
many key facts showing that their settlement representations were knowingly false and
made with the intent to deceive.” The Goldman plaintiffs wrote in their opening brief that,
“fraud requires scienter, and the fraud claim here arose from facts that the Insurers
concealed what they all knew the true ‘limits’ of the policies to be in 1994.” (Emphasis
added). Finally, the GME plaintiffs wrote that, “The fact that MCIC and the Insurers knew
the ‘public classification’ was false, and hence the ‘knowledge’ or ‘scienter’ element of the
fraud, would never have been discovered but for the production of . . . [the Chapper
Documents].” (Emphasis added). The inherent error in these statements is that they all
treat scienter as if it only means actual knowledge. This is not always the case. In Ellerin,
the Court of Appeals reaffirmed that the scienter element in a fraud claim can also refer to
reckless indifference, a mental state falling short of actual knowledge. The Court
-25-
acknowledged that most fraud cases contain allegations of actual knowledge, but stated
that Maryland still recognizes reckless indifference as a basis for fraud:
Although Maryland cases since McAleer v. Horsey, supra, 35 Md.
439, have consistently stated that the tort of fraud or deceit may be committed
by a defendant who is recklessly indifferent to the truth of the statement that
deceives the plaintiff, there appears to be no decision of this Court sustaining
a judgment in favor of the plaintiff on this basis. The fraud cases in this
Court have generally involved findings or allegations that the falsity of the
representation was actually known to the defendant.
Ellerin, 337 Md. at 232-33. This does not mean that Maryland does not recognize a claim
for fraud under a theory of reckless indifference. Instead, the Court explained the line of
demarcation for culpability between reckless indifference and actual knowledge. The
Ellerin Court explained that the mental state of reckless indifference does not rise to the
level of knowingness in actual knowledge.
On the other hand, when a particular fraud or deceit action is based on
the alternative form of the knowledge element, namely a “reckless disregard”
as to the truth of the representation, the traditional basis for the allowability
of punitive damages is not present. As we have earlier explained, “reckless
disregard” in this context does not mean a situation where the defendant
honestly, but negligently, believed that the representation was true.
Nevertheless, it does not mean actual knowledge of the falsity. Under the
principles set forth in several of our earliest cases, and reaffirmed in Owens-
Illinois v. Zenobia and other recent cases, “reckless disregard” or “reckless
indifference” concerning the truth of the representation falls short of the
mens rea which is required to support an award of punitive damages.
Id. at 235 (emphasis added). Therefore, while a plaintiff alleging fraud may recover
punitive damages for proving actual knowledge, this relief is not available to the plaintiff
who alleges reckless indifference. Id.
-26-
When the appellants here treat “actual knowledge” interchangeably with “scienter”
they do so because they believe that they are entitled to relief based on their theory that the
appellees had actual knowledge of the falsity of their statements. The statute of limitations,
however, depends on inquiry notice of a harm, not the legal theory that applies to that harm.
“Knowledge of facts . . . not actual knowledge of their legal significance, starts the statute
of limitations running.” Moreland v. Aetna U.S. Healthcare, Inc., 152 Md. App. 288, 297
(2003) (quoting Miller v. Pac. Shore Funding, 224 F. Supp. 2d 977, 986-87 (D. Md. 2002)).
It is not the legal theory that starts the clock for the purposes of inquiry notice—it is a
recognition of the facts. Id. Limitations begin to run when a plaintiff reasonably knows
or should know of facts that show he has been injured or harmed by a wrong. Lumsden,
358 Md. at 452. To be on inquiry notice of their potential claims, the appellants did not
need to be able to articulate a complete theory that appellees actually knew that their
representations were false. As we will show, appellants should have known after Porter
Hayden that appellees’ false statements could have been negligently made; likewise they
should have reasonably suspected reckless indifference, a mental state more culpable than
mere negligence, but below that of actual knowledge.
Appellants Do Not Need to Know Appellees’ Mental States to be on Inquiry Notice
of Their Misrepresentation Claims
Appellants argue that the only way they could have been on inquiry notice of their
fraud claims was to know the appellees’ scienter. Appellants point to O’Hara to support
this argument. The unique facts in O’Hara, however, involved a scenario in which the
only way the plaintiffs could have known of their injury would have been to know the
-27-
mental state—the scienter—of the defendants. In O’Hara, plaintiffs owned approximately
30% of the outstanding stock in the Marlboro racetrack. 305 Md. at 282. In May of 1971,
Governor Mandel, working with the Kovens Group—co-defendants with the Governor—
vetoed a bill that would have allowed additional racing days at the Marlboro track, and
consequently, would have increased the value of the plaintiffs’ stock. Id. at 283-84. In
December of 1971, plaintiffs sold their stock to the Kovens Group. Id. at 282-83. After
the Kovens Group purchased the stock, the Maryland General Assembly overrode the veto
in January of 1972. Id. at 284-85.
On November 24, 1975, the federal government filed indictments against Governor
Mandel and other members of the Kovens Group for mail fraud. Id. at 285, 303. The
plaintiffs thereafter developed a theory that the Kovens Group and Governor Mandel had
artificially depressed the value of the Marlboro stock by having Governor Mandel veto the
bill permitting additional racing days. Id. at 286. Then, with the price artificially
depressed, the Kovens Group would purchase the stock. Id. Finally, once the Kovens
group was in possession of the stock, Governor Mandel would induce the General
Assembly to override his veto and consequently raise the stock’s value. Id. The O’Hara
plaintiffs filed their claim on November 22, 1978, and alleged that the Kovens Group
defrauded them in December of 1971 when they purchased the devalued stock. Id. at 283.
The Kovens Group argued that, due to various news articles and media coverage prior to
the issuance of the indictments, the plaintiffs’ claims accrued on October 23, 1975, and
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were therefore time-barred. Id. at 290. The plaintiffs disagreed, arguing that they were
only on inquiry notice of their harm in November of 1975. Id. at 292.
The Court of Appeals began its limitations analysis by noting that “[inquiry] [n]otice
is not limited to actual knowledge of the fraud. Nor does it mean discovery of proof which,
if believed, would, in the opinion of counsel, take the case to the jury on the merits. It is
not limited to admissible evidence.” Id. at 301. The Court explained,
We have seen, as discussed above, how being “on notice” means having
knowledge of circumstances which would cause a reasonable person in the
position of the plaintiffs to undertake an investigation which, if pursued with
reasonable diligence, would have led to knowledge of the alleged fraud.
Further, because the notice must relate to the fraud alleged, notice in this case
must relate to the plaintiffs' claim that a conspiracy within the Kovens Group
antedated the veto. Critical to the claim is the state of mind of Governor
Mandel prior to May 28, 1971. The theory is that the veto message . . .
misrepresented the true reasons for the veto, which had been cast to depress
Marlboro stock, not simply incidentally, but for the purpose of benefiting co-
conspirators as future stock purchasers.
Id. at 302 (emphasis added) (citation omitted). The Court observed that the claim itself
hinged upon Governor Mandel’s state of mind, or his alleged scienter. Selling one’s stock,
on its own, would not put a reasonable person on inquiry notice of a wrong. Knowledge
that the stock sold had been artificially depressed in value at the time of sale, however,
would put a reasonable person on inquiry notice to investigate further and uncover the
fraud. Without inquiry notice of Governor Mandel’s state of mind—his alleged scienter—
the plaintiffs in O’Hara would not have had any reason to investigate the fairness of their
transaction and uncover the fraud. This does not mean, however, that inquiry notice for all
fraud claims depends upon a recognition of the defendant’s scienter or mental state.
-29-
Another leading case on inquiry notice, Lumsden, demonstrates that mere
recognition of an injury suffices to place a plaintiff on inquiry notice. In Lumsden,
plaintiffs discovered that their driveways suffered from peeling and scaling following a
snow storm in March of 1994. 358 Md. at 437. Despite recognizing the harm to their
driveways, the plaintiffs did not discover the cause of that damage—application of de-icing
chemicals—until five months later, in August of 1994. Id. The plaintiffs filed claims for
breach of an implied statutory warranty against defects on April 8, 1996, two years and one
month after observing the damage to their driveways. Id. at 438. The trial court found that
the claims were time-barred and dismissed them. 19 Id. On appeal, the plaintiffs argued
that limitations did not begin to run until August 1994, when their investigation revealed
what caused the harm to their driveways. Id.
The Court of Appeals held that the plaintiffs were on inquiry notice of their claims
in March of 1994 when they discovered the harm. Id. at 452. In holding that the plaintiffs
were time-barred from pursuing their claims, the Court stated that the plaintiffs “knew
immediately upon seeing the damage done to their driveways that a defect existed for
which someone was responsible.” Id. at 448-49. Further, the Court noted that, “[i]n this
case, the harm to petitioners was . . . apparent, enough so that a reasonably prudent person
would have begun investigating the cause of the harm.” Id. at 449. The Court held that
plaintiffs were on inquiry notice upon recognizing the harm stating,
The statute of limitations begins to run when claimants gain knowledge
sufficient to put them on inquiry notice generally when they know, or should
19
A two year statute of limitations applied in Lumsden. 358 Md. at 439.
-30-
know, that they have been injured by a wrong. From that date forward, a
claimant will be charged with knowledge of facts that would have been
disclosed by a reasonably diligent investigation, regardless of whether the
investigation has been conducted or was successful.
Id. at 452 (emphasis added). The Court noted that mere knowledge that a plaintiff “may
have been harmed” would suffice to put that plaintiff on inquiry notice. Id. at 447 (quoting
Russo v. Ascher, 76 Md. App. 465, 470 (1988)). The Court also noted that a plaintiff need
not be on inquiry notice of all of the elements of his claim to be on inquiry notice of the
wrong. “[I]t is the discovery of the injury, and not the discovery of all of the elements of
a cause of action that starts the running of the clock for limitations purposes.” Id. at 450
(quoting Bayou Bend Towers Council of Co-Owners v. Manhattan Const. Co., 866 S.W.2d
740, 743 (Tex. App. 1993)). Inquiry notice is triggered when the plaintiff recognizes, or
reasonably should recognize, a harm—not when the plaintiff can successfully craft a legal
argument and not when the plaintiff can draft an unassailable and comprehensive
complaint.
The final case that supports our holding that a plaintiff need not be on inquiry notice
of a defendant’s scienter in order for limitations to begin to run is Windesheim, 443 Md.
312. In Windesheim, plaintiffs obtained home equity lines of credit (“HELOCs”) from
defendants in order to participate in a “buy-first-sell-later” plan to buy new homes before
selling their current residential homes. Id. at 319. The plaintiffs signed applications in
2006 and 2007 that defendants had created in furtherance of that plan. Id. at 320. Allegedly
unbeknownst to plaintiffs, the defendants falsely represented on these applications that the
plaintiffs were receiving income from their primary residences so that they could qualify
-31-
for the loans needed to buy their new homes. Id. at 323. In 2010 and 2011, plaintiffs
allegedly learned for the first time that the applications they had signed in 2006 and 2007
reported this false rental income, and filed suit for fraud. Id. Defendants moved to dismiss
the claims as time-barred. Id. at 324.
On appeal, the plaintiffs contended that “even assuming . . . that they [the plaintiffs]
had read the applications, the contents of those documents would not induce a reasonable
person to investigate a potential fraud.” Id. at 328. The Court of Appeals disagreed. It
rejected the plaintiffs’ theory that they could not have known about the fraud in 2006 and
2007, and held that the plaintiffs were on inquiry notice by virtue of their signing the
applications. Id. at 334. It explained,
[W]e conclude that [plaintiffs’] knowledge of the contents of the
Applications was sufficient to place them on inquiry notice of their claims
against [defendants] when [plaintiffs] closed their HELOCs and primary
residential mortgages in 2006 and 2007. Because [plaintiffs] signed the
Applications at the closings, they are presumed to have read and understood
their contents. With knowledge of facts about which they claim they were
deceived and that suggested that their loan transactions were not proceeding
as they expected, [plaintiffs] had information that “would cause a reasonable
person in the position of [plaintiffs] to undertake an investigation which, if
pursued with reasonable diligence, would have led to knowledge of the
alleged [fraud].”
Id. (emphasis added) (citation omitted). The Court held that the plaintiffs were on inquiry
notice of their fraud claims based upon their knowledge of the contents of the applications
and the fact that the applications did not comport with the agreed upon loan transactions.
The analysis focused on what the plaintiffs could and should have known rather than the
defendants’ mental states. The plaintiffs, upon receiving and signing the applications, were
-32-
able to learn of the facts necessary to uncover the fraud alleged, and were therefore on
inquiry notice of their claims at that time.
We hold that, as a matter of law, the appellants here were on inquiry notice of their
claims for misrepresentation because two important facts revealed themselves to the
appellants when we published Porter Hayden. First, that under the express terms of the
insurance policies, the appellees owed appellants more money than initially thought.
Limitations began to run when the appellants gained “knowledge sufficient to put them on
inquiry notice generally when they [knew], or should [have known], that they [had] been
injured by a wrong.” Lumsden, 358 Md. at 452. Second, that the statements provided in
the affidavits and settlement agreement—that all applicable coverage had been tendered—
were false. “With knowledge of facts about which they claim they were deceived,”
appellants could have realized that the appellees had made actionable misrepresentations.
Windesheim, 443 Md. 334.
The Gilbert Report Establishes that LOPA Plaintiffs were on Inquiry Notice after
Porter Hayden
We have explained that a party is on inquiry notice of a cause of action when it
obtains “knowledge of circumstances which would cause a reasonable person in the
position of the plaintiffs to undertake an investigation which, if pursued with reasonable
diligence, would have led to knowledge of the alleged fraud.” O’Hara, 305 Md. at 302.
The record shows that the LOPA plaintiffs did, in fact, recognize their harm, and pursued
an investigation before they received the Chapper Documents.
-33-
LOPA plaintiffs sent a letter to MCIC shortly after the Porter Hayden decision—
which demonstrates what a reasonable person in the position of the plaintiffs would have
suspected—and indisputably shows what LOPA plaintiffs did suspect. In its October 3,
1997 letter, Angelos wrote to MCIC that, “It has recently come to my attention that the
information provided by the insurers may be inaccurate, and additional insurance funds
may be available under the terms of the policies.” By suspecting that the insurers had
provided “inaccurate” information and that additional funds were possibly available,
Angelos’s letter establishes that he was aware of the harm to his clients in October 1997—
they deserved more money. Even if Angelos had been uncertain that additional funds were
available, the Gilbert Report should have confirmed his suspicions.
In May 1998, LOPA hired Scott Gilbert to prepare an expert report in In re Wallace
and Gale. The Gilbert Report relied on Porter Hayden, and stated that “Maryland courts
have adopted the view that asbestos installation claims are nonproducts claims not subject
to aggregate limits.” By May of 1998, LOPA was arguing for nonaggregated limits from
operations coverage in other court cases—but not this case. LOPA recognized that a
standard CGL policy provided nonaggregated limits for injuries sustained during
installation. The suspicions LOPA raised in its October 3, 1997 letter were now confirmed,
proving that LOPA was on inquiry notice that it had been harmed by appellees’
misrepresentations. Consequently, limitations began to run for LOPA no later than May
4, 1998 when Gilbert filed his report. Lumsden, 358 Md. at 452. LOPA filed its claims
-34-
for negligent and fraudulent misrepresentation in May 2005, seven years after it was on
inquiry notice, and at least four years too late. 20
Non-LOPA Plaintiffs were also on Inquiry Notice after Porter Hayden
Although they were not involved with the Gilbert Report, the Non-LOPA plaintiffs
were also on inquiry notice after the Porter Hayden decision. Like the LOPA Plaintiffs,
they signed the settlement agreement only after receiving assurances from the affidavits
and settlement agreement itself that no other coverage applied or was available. Although
the Non-LOPA plaintiffs did not take any overt action that demonstrably shows they were
on inquiry notice of their claims, the test here is whether a reasonable person in the position
of the plaintiffs would have made such an investigation. As a panel of this Court explained
in Anderson, “When we filed . . . Porter Hayden . . . any Maryland attorney whose practice
involved asbestos litigation and insurance coverage for such cases was on notice that there
might be nonproducts liability.” Slip op. at 23. Although the Non-LOPA plaintiffs did not
outwardly acknowledge the theory of recovery like the LOPA plaintiffs did with the Gilbert
Report, the Non-LOPA plaintiffs were nevertheless on inquiry notice of the harm stemming
from the settlement agreement.
As we previously explained, the plaintiffs in Windesheim sought to sue defendants
for fraud based on “an elaborate ‘buy-first-sell-later’ mortgage fraud arrangement.” 443
Md. at 319. As part of the arrangement, the plaintiffs completed applications which falsely
20
The Standstill and Tolling Agreement that LOPA entered into with appellees on
October 30, 2002, is immaterial to our analysis.
-35-
claimed that the plaintiffs were receiving rental income from their primary residences. Id.
at 321-22. The Court of Appeals held that the plaintiffs were on notice when the loan
transactions failed to comport with the signed applications in plaintiffs’ possession. Id. at
334. Here, all appellants possessed the fragmentary policy documents—they refused to
settle without them. With the publication of Porter Hayden, the Non-LOPA plaintiffs
should have recognized that they had not received all of the available and applicable
coverage that had been promised. This should have also revealed to them that the
statements contained in the affidavits and settlement agreement pertaining to available and
applicable coverage were false. A reasonable person in the position of these plaintiffs, on
inquiry notice, would have pursued an investigation. Id. A reasonably prudent
investigation would have independently revealed most, if not all, of the conclusions in the
Gilbert Report.
Limitations is not a Jury Question in this Case
Appellants urge us to remand the case so that a jury can resolve disputed material
facts and determine when they were on inquiry notice for purposes of limitations. They
correctly note that “questions of fact on which a limitations defense will turn are to be
decided by the jury or, when sitting as a jury, by the court.” O’Hara, 305 Md. at 301. We
are not unmindful of the fact that,
whether or not the plaintiff’s failure to discover his cause of action was due
to failure on his part to use due diligence, or to the fact that defendant so
concealed the wrong that plaintiff was unable to discover it by the exercise
of due diligence, is ordinarily a question of fact for the jury.
-36-
Id. at 294-95 (internal citations and quotation marks omitted). We note, however, that
“When a cause of action accrues is usually a legal question for the court.” Moreland, 152
Md. App. at 296. “Depending on the nature of the assertions being made with respect to
the limitations plea, th[e] determination [of whether the action is barred] may be solely one
of law, solely one of fact, or one of law and fact.” Id. (quoting Poffenberger, 290 Md. at
634). When a party is on inquiry is not always a question of fact, and not always a question
for the jury. We hold that here, however, there are no disputes of material fact that require
remand to a fact-finder.
O’Hara provides useful guidance as to why this case should not be remanded to a
fact-finder. As we explained above, Governor Mandel’s state of mind, or his scienter, was
quintessential to the plaintiffs’ inquiry notice. Selling stock, on its own, would not put a
reasonable person on inquiry notice that he had been harmed. Rather, knowledge that the
stock sold had been artificially depressed in value would put a reasonable person on inquiry
notice to investigate further and uncover the fraud. To determine whether the O’Hara
plaintiffs were on inquiry notice, the Court “place[d] [itself] back in time to on or before
November 21, 1975. This is before any indictments were returned.” O’Hara, 305 Md. at
302. The Court then reviewed the possible hypotheses the plaintiffs could have articulated
at that time as to their fraud claim.
These hypotheses included:
1. A conspiracy antedated the veto.
2. There was an innocent acquisition of foreknowledge of the veto by
persons in the Kovens Group without any conspiracy having been
formed.
-37-
3. Purchase in June 1971 by one or more of the persons in the Kovens Group
of Marlboro stock was without any foreknowledge of the veto.
4. A conspiracy was formed after June 1971 but prior to the stock purchase
of December 1971.
5. A conspiracy was formed after the stock purchase of December 1971 but
prior to the veto override.
6. A conspiracy was formed after the veto override for the purpose of
obtaining enactment of racing consolidation legislation.
7. There was no conspiracy at any time.
Id. at 302-03. Of these seven hypotheses, the Court held that “The first hypothesis is the
only one involving a conspiracy which could have included as a purpose the injury of
Marlboro shareholders, as such, by the veto.” Id. at 303. In deciding whether the trial
court could decide, as a matter of law, whether the plaintiffs were on notice of the fraud,
the Court explained,
Even if we were to assume that the mass of media attention to the Mandel
investigation would put reasonable persons on notice as a matter of law that
there may have been a fraud in the sense of the mail fraud indictment, it
would still be necessary to infer from that notice that the plaintiffs were also
on notice of a conspiracy to depress Marlboro stock which antedated the
veto. That latter inference cannot be drawn as a matter of law on this record
because of a multitude of conflicting inferences.
Id. (emphasis added). Despite extensive media coverage of Mandel’s possible mail fraud,
the Court held that the plaintiffs had no way of recognizing that Mandel had also defrauded
them into selling their Marlboro stock at a depressed price. The Court emphasized the fact
that inquiry notice needed to relate to the Marlboro stock fraud itself. “Notice of the fraud
alleged here would require, inter alia, awareness of a possibility, to a degree warranting
further investigation, that the veto message was designed to cover the real motive for the
veto.” Id. at 304. Because “[i]t [was] at least debatable whether reasonable persons by
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November 21, 1975, should have considered that the message might have been a sham,”
the Court remanded the case for a fact-finder to make that determination. Id.
The Court of Appeals’ analysis in O’Hara focused entirely on what the plaintiffs
knew or could have known, and what the plaintiffs did or should have done prior to the
issuance of the federal indictments. This makes sense because an inquiry notice analysis
hinges upon what the plaintiffs can know and whether their actions are reasonable. In
O’Hara, the Court held that the only way the plaintiffs could have known of their claims
against Governor Mandel and the Kovens Group was to know the true motive behind
vetoing the racing bill. The sale of stock provided no indication of fraud—but the sale of
stock whose value had been artificially depressed by an intentional scheme did provide an
indication of fraud. The challenge for the plaintiffs in O’Hara was that Governor Mandel’s
motive, and not the purchase of the stock, gave rise to inquiry notice. The sale of the
depressed stock resulting from the conspiracy, and not the sale of the stock in and of itself,
created the actionable harm. 21
Unlike O’Hara, the appellants here could independently verify two important facts
after Porter Hayden: 1) whether they should have received additional coverage stemming
from the insurance policies; and 2) whether the statements made in the affidavits and
settlement agreement, that all applicable insurance coverage had been tendered, were false.
21
Appellants also rely on the U.S. District Court case Green v. Pro Football, Inc.,
31 F. Supp. 3d 714 (D. Md. 2014) to support their argument that limitations is a jury
question. The case is not binding upon us, and we do not find its analysis instructive in
resolving inquiry notice for appellants’ negligent and fraudulent misrepresentation claims.
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The appellants knew they had not received proceeds under operations coverage, but learned
that operations coverage was available when we published Porter Hayden. Appellants
knew or should have known almost immediately that something was amiss. They knew
that they had never received any proceeds under non-products (operations) coverage and
therefore had not received all available insurance proceeds as appellees had expressly
represented. In short, appellants knew or should have known as early as the release of
Porter Hayden in August of 1997, or at the latest, in May of 1998 when LOPA filed the
Gilbert report, that they had tort claims based on misrepresentations. Whereas Governor
Mandel’s subjective intent could not possibly have been known and therefore alleged until
outside sources revealed those facts, here, Porter Hayden made clear both the injury and
the misrepresentation. After we published Porter Hayden, reasonable people in the
position of these appellants would have undertaken an investigation to determine whether
they had legal recourse. Specifically, appellants were on notice that appellees’
misrepresentations were negligent or reckless. Thus, there are no disputed material facts a
jury could find that would change that the appellants here were on inquiry notice, at the
very latest, in May, 1998. 22
22
The Goldman plaintiffs allege that they neither received nor possessed the Nagle
Documents. The Goldman plaintiffs never produced any evidence below to support the
contention that they did not know of the existence of these materials. Instead, as the trial
court noted, the record reflects that all plaintiffs knew about and had ready access to these
materials. Accordingly, the Goldman plaintiffs raised neither a disputed fact, nor a material
one.
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Appellants Incorrectly Rely on Anderson to Argue that They Could not Have
Known About the Fraud
Appellants also argue that the unreported opinion in Anderson held that there was
no evidence of fraud in this case—at least, not until appellants received the Chapper
Documents. In Anderson, a panel of this Court stated that,
There was, however, no evidence of knowingly false representations
proffered to Judge Kaplan, who rejected the plaintiffs’ vague accusations of
fraud, noting, “As of 1994, no Maryland court had determined whether
personal injury claims arising from exposure to asbestos . . . fell outside of
the products/completed operations hazard and were subject only to per
occurrence limits.” Aside from suspicion and speculation, there was nothing
presented to Judge Kaplan to support the plaintiffs’ bald assertion that the
Insurers knew in 1994 what the courts were going to decide in 1997 regarding
asbestos coverage under CGL policies. The only evidence offered by the
appellants to support the accusation of fraud is the fact that some or all of the
Insurers currently concede that the MCIC policies contained unaggregated
operations coverage, as did, apparently, all standard CGL policies of the
time. But there was no evidence that any of the Insurers would have made
such a concession prior to the Porter Hayden decision, let alone any evidence
that any of the Insurers (or, for that matter, any persons anywhere) were of
that opinion at the time the Insurers executed the affidavits attached to the
1994 settlement agreement.
Slip op. at 24-25. Appellants argue that, if the panel in Anderson held that there was no
evidence of fraud pending the appeal of the Motion to Enforce, they could not have been
on inquiry notice prior to receiving the Chapper Documents. As we have explained,
appellants did not need to know about the knowing or intentional misrepresentations to be
on inquiry notice of their fraud claims—they only needed to know about the harm which
resulted from the false statements. Not only do they conflate actual knowledge of fraud
with mere inquiry notice, but the holding in Anderson does not reach that far.
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In stating that there was “no evidence of knowingly false representations proffered
to Judge Kaplan,” the Anderson panel meant just that—the Motion to Enforce and its
supporting documents did not contain any evidence of knowingly false representations.
The panel simply stated that, at that point, the appellants had not sufficiently alleged fraud.
Furthermore, the Anderson panel did not discuss inquiry notice, reasonable investigations,
or rely on any law in the context of recognizing fraud. In fact, the Anderson panel did hold
that, “appellants were on inquiry notice of their potential [contract] claims for additional
insurance coverage under the 1994 settlement agreement well over three years before they
filed their respective motions to enforce in 2002 (and beyond).” Id., slip op. at 23. The
Anderson panel held that the publication of Porter Hayden placed appellants on inquiry
notice of their contract claims. “Once on notice of one cause of action, a potential plaintiff
is charged with responsibility for investigating, within the limitations period, all potential
claims and all potential defendants with regard to the injury.” Doe, 114 Md. App. at 188.
A logical extension of the inquiry notice doctrine allows us to conclude that when the
plaintiffs were on inquiry notice of their contract claims, they were also on inquiry notice
of their misrepresentation tort claims. Indeed, there are substantial policy reasons
underlying our conclusion that appellants’ contract and tort claims–all arising out of the
same facts–should have the same accrual date for limitations.
Appellants Cannot Rely on CJP § 5-203 to Further Toll Limitations
Appellants argue that § 5-203 of the Courts and Judicial Proceedings Article
provides a basis to toll limitations in this case. Section 5-203 provides, “If the knowledge
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of a cause of action is kept from a party by the fraud of an adverse party, the cause of action
shall be deemed to accrue at the time when the party discovered, or by the exercise of
ordinary diligence should have discovered the fraud.”
We have stated that, “the complaint relying on the fraudulent concealment doctrine
must also contain specific allegations of how the fraud kept the plaintiff in ignorance of a
cause of action, how the fraud was discovered, and why there was a delay in discovering
the fraud, despite the plaintiff’s diligence.” Doe, 114 Md. App. at 187 (citations omitted).
Even if we assume that the appellees intentionally lied in their affidavits and in the
settlement agreement, they could not have hidden from appellants that Porter Hayden
allowed them to recover under operations coverage, or that Porter Hayden revealed
actionable negligent or reckless (fraudulent) misrepresentations. In fact, appellees did
provide appellants with fragmentary, yet sufficient, documentation to notify them that the
policies at issue were standard CGL policies; after Porter Hayden, that documentation was
sufficient to put them on inquiry notice of their claims. Therefore, appellants cannot rely
on § 5-203 of the Courts and Judicial Proceedings Article to toll limitations. In our
analysis, appellants have no right to claim, under the circumstances in this case, that the
appellees fraudulently prevented them from discovering their claims.
Conclusion
We hold that appellants were on inquiry notice of their negligent and fraudulent
misrepresentation claims as early as when we published Porter Hayden, and at the latest,
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when LOPA filed the Gilbert Report. The trial court correctly concluded that appellants’
claims are barred by the statute of limitations. Accordingly, we affirm.
JUDGMENT OF THE CIRCUIT
COURT FOR BALTIMORE CITY
AFFIRMED. COSTS TO BE PAID
BY APPELLANTS.
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