Dhanaraj v. Markel Ins. Co.

CHRISTINA DHANARAJ, et al., Plaintiffs, v. MARKEL INSURANCE COMPANY, et al., Defendants.

Case No. TJS-20-0970

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

July 21, 2021

MEMORANDUM OPINION

Now pending before the Court is Defendant Markel Insurance Company's ("Markel") Motion for Judgment on the Pleadings (ECF No. 45).¹ Having considered the submissions of the parties (ECF Nos. 45, 46 & 47), I find that a hearing is unnecessary. See Loc. R. 105.6. For the following reasons, Markel's motion will be granted.

I. Background

Plaintiff Christina Dhanaraj ("Dhanaraj") filed this lawsuit to recover for Markel's purported breach of contract, which arises from Markel's refusal to defend or indemnify Dhanaraj in connection with a lawsuit pending in Maryland state court, and to obtain a declaratory judgment that Markel is required to defend and indemnify Dhanaraj in connection with the underlying state court lawsuit.² See ECF No. 41.

II. Discussion

Federal Rule of Civil Procedure 12(c) provides that "[a]fter the pleadings are closed—but early enough not to delay trial—a party may move for judgment on the pleadings." The standard of review for Rule 12(c) motions is the same as that under Rule 12(b)(6). Butler v. United States, 702 F.3d 749, 751-52 (4th Cir.2012). Therefore, a motion for judgment on the pleadings "should only be granted if, after accepting all well-pleaded allegations in the plaintiff's complaint as true and drawing all reasonable factual inferences from those facts in the plaintiff's favor, it appears certain that the plaintiff cannot prove any set of facts in support of his claim entitling him to relief." Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir.1999). A Rule 12(c) motion tests only the sufficiency of the complaint and does not resolve the merits of the plaintiff's claims or any disputes of fact. Butler, 702 F.3d at 752.

A. Applicable Law

Because this case was removed on the basis of diversity, the Court applies the substantive law and choice of law rules of the state in which the court sits. See State Farm Fire & Cas. Co. v. Huguely, 432 F. Supp. 3d 587, 591 (D. Md. 2020) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938)). "In contract claims, Maryland applies the doctrine of lex loci contractus, meaning the law of the place where the contract was made applies." Huguely, 432 F. Supp. 3d at 591 (citing Allstate Ins. Co. v. Hart, 327 Md. 526, 529 (1992). "The locus contractus is the place where the last act is performed which makes an agreement a binding contract." Grain Dealers Mut. Ins. Co. v. Van Buskirk, 241 Md. 58, 65-66 (1965). In an insurance contract, the delivery of the policy and the payment of the premiums constitute these "last acts." Id. (citing Sun Ins. Office, Ltd. v. Mallick, 160 Md. 71, 81 (1931)). The parties agree that Maryland's substantive law applies to this dispute. See ECF Nos. 45-1 at 2 & 46 at 1-2 (applying Maryland law).

B. Analysis

In Maryland, an insurance company has a duty to defend its insured "for all claims that are potentially covered under the policy." Walk v. Hartford Cas. Ins. Co., 382 Md. 1, 16 (2004). In determining whether a duty to defend exists under Maryland law, the Court follows a two-part inquiry. Id. at 15. First, the Court considers the extent of the coverage and defenses under the terms and requirements of the insurance policy. Second, the Court asks whether the allegations in the underlying suit potentially bring the 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." St. Paul Fire & Marine Ins. Co. v. Pryseski, 292 Md. 187, 193 (1981). Any doubt about a potentiality of coverage must resolved in favor of the insured. Id. at 194.

Under Maryland law, insurance policies are construed using "ordinary principles of contract interpretation." Megonnell v. United Servs. Auto. Ass'n, 368 Md. 633, 655 (2002). "Maryland does not follow the rule that insurance policies should, as a matter of course, be construed against the insurer." Id.; see also W.M. Schlosser Co. v. Ins. Co. of N. Am., 325 Md. 301, 305-06 (1992) ("In the event of an ambiguity . . . . it will be construed against the insurer as the drafter of the instrument."). In general, where a duty to defend is contested, an insurer may not rely on extrinsic evidence to contest coverage, but an insured may rely on extrinsic evidence to prove that the insurer has a duty to defend. Aetna Cas. & Sur. Co. v. Cochran, 337 Md. 98, 110 (1995).

"Maryland recognizes two limited exceptions to the general rule against an insurer's use of extrinsic evidence." Gemini Ins. Co. v. Earth Treks, Inc., 260 F. Supp. 3d 467, 480 (D. Md. 2017) (quoting Northern Ins. Co. of New York v. Baltimore Bus. Commc'ns, Inc., 68 F. App'x 414, 418 (4th Cir. 2003) (unpublished)). "First, when the underlying tort plaintiff has amended hisallegations against the insured, the insurer may utilize the amendments as extrinsic evidence." Id. (citing Baltimore Gas & Elec. Co. v. Com. Union Ins. Co., 113 Md. App. 540, 568 (1997)). "If the amended allegations no longer raise a potentiality for coverage, the insurer no longer has a duty to defend." Id. Second, "a court is not obligated to 'turn a blind eye where [it is established] that an insured tortfeasor is excluded from coverage under [the] particular terms of the insurance policy.'" Id. (quoting Universal Underwriters Ins. Co. v. Lowe, 135 Md. App. 122, 151 (2000)). "In other words, an insurer may utilize uncontroverted extrinsic evidence from the underlying lawsuit if such evidence clearly establishes that the suit's allegations are beyond the scope of coverage." Id.

The sole question before this Court is whether any claims brought against Dhanaraj in the underlying state court lawsuit are potentially covered by the Markel insurance policy. The Court begins its analysis by reviewing the terms of that policy.

1. Policy Terms

On or about June 25, 2017, Markel issued Policy No. FMP20014404-04 (the "Policy") to Dhanaraj for the operation of an individual-owned in-home childcare business. ECF Nos. 45-1 at 2 & 45-2. The Policy identifies Dhanaraj individually as the insured and makes no reference to any entity named "Christina Dhanaraj Daycare."³ ECF No. 45-2 at 2-5, 13 & 66.

The Policy's Commercial General Liability Coverage provides coverage for claims arising from "bodily injury" to which the Policy applies. ECF No. 45-2 at 17. An endorsement to the Policy titled "Abuse or Molestation and Employee and Volunteer Worker Defense Coverage" provides that the Commercial General Liability Coverage does not cover claims arising from "[b]odily injury . . . arising out of the actual or threatened abuse, molestation or exploitation byanyone." Id. at 55. The endorsement goes on, however, to provide coverage for claims of "bodily injury arising out of abuse, molestation or exploitation," so long as such abuse "[r]esults from the insured's negligence in employment, investigation, supervision, reporting to the proper authorities or failure to so report, training or retention."⁴ Id. at 55-56. The endorsement also provides coverage for "employee and volunteer worker defense costs" for an employee or volunteer worker of the insured who is alleged to have committed a covered act of abuse, molestation or exploitation. Id. at 56. The endorsement excludes coverage from "[a]ny insured who takes part in the abuse, molestation or exploitation." Id. Another endorsement to the Policy modifies an exclusion in the Commercial General Liability Coverage so that "[c]orporal punishment to [the insured's] student administered by or at the direction of any insured" is not excluded from the Policy's general exclusion for claims arising from bodily injury "expected or intended from the standpoint of the insured." Id. at 45.

2. Underlying Lawsuit

A copy of the First Amended Complaint (the "Complaint") from the underlying state court lawsuit is filed at ECF No. 46-1. The Complaint was filed by Jane and John Doe, individually and as parents and guardians on behalf of the minor child Jane Roe, against Dhanaraj and "Christina Dhanaraj Daycare." ECF No. 46-1 at 1. The Complaint alleges that "Dhanaraj subjected Jane Roe, a two-year old girl at the time of the allegations made herein, to child abuse, assault and battery causing severe emotional distress to Plaintiffs." Id. ¶ 2.

Specifically, the Complaint alleges that Dhanaraj provided daycare services to Jane Roe beginning in June 2015, when Jane Roe was about three months old. Id. ¶ 13. On January 12, 2018,Dhanaraj was recorded on video "using the palm of her hand, violently striking then 2-year old Jane Roe about her face and head." Id. ¶ 18. The video shows "Jane Roe sitting quietly on the floor of a room" of Dhanaraj's daycare when Dhanaraj "approaches Jane Roe and scolds her verbally." Id. ¶¶ 19-20. The video then shows Dhanaraj delivering "approximately eight violent, brutal open-handed slaps to Jane Roe's face, alternating from the right to left side." Id. ¶ 21. Jane Roe hyperventilated and cried inconsolably. Id. ¶ 22. Dhanaraj then pushed Jane Roe to the floor, grabbed her by the head to pull her up again, and continued to violently strike Jane Roe on her face and head. Id. ¶¶ 23-25. At the end of the video, Jane Roe is seen "sitting by herself crying and reeling from the beating." Id. ¶ 26.

The Montgomery County Police Department and the Maryland Office of Child Care investigated the incident. Id. ¶ 27. Dhanaraj was arrested and admitted during questioning that she had "hurt" Jane Roe. Id. ¶¶ 28-29. She explained that she "hurt" Jane Roe because Jane Roe (then only two years old) "would not use the bathroom on the toilet and instead had a bowel movement in her diaper." Id. ¶ 30. Dhanaraj went on to explain that she became angry, "really lost it," and struck Jane Roe. Id. ¶¶ 31-32. Dhanaraj was subsequently charged with...