Fund for Animals, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh

226 Md.App. 644

130 A.3d 1155

The FUND FOR ANIMALS, INC.

v.NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

No. 2598, Sept. Term, 2014.

Court of Special Appeals of Maryland.

Feb. 1, 2016.

Robert T. Shaffer (Conor B. O'Croinin, Zuckerman, Spaeder LLP, on the brief) Baltimore, MD, for Appellant.

Joseph B. Wolf (Linda S. Woolf, Cheryl Zak Lardieri, Goodell, DeVries, Leech & Dann, LLP, on the brief) Baltimore, MD, for Appellee.

EYLER, DEBORAH S., MEREDITH, ALAN M. WILNER, (Retired, Specially Assigned), JJ.

DEBORAH S. EYLER, J.

In Maryland, an insurer on a liability insurance policy may disclaim coverage on the ground that the insured breached the policy by giving late notice of a claim "only if the insurer establishes by a preponderance of the evidence that the ... [late] notice has resulted in actual prejudice to the insurer." Md.Code (1997, 2011 Repl.Vol.), § 19–110 of the Insurance Article ("Ins."). In this case, we hold that when an insured gives late notice and during the period of delay in notification the insured's defense becomes impaired, to the actual prejudice of the insurer, the insurer may disclaim coverage only if there is a causal link between the late notice and the prejudice.

The Fund for Animals, Inc. ("the FFA"), the appellant, was an insured on a liability policy issued by National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union"), the appellee. National Union disclaimed coverage on a claim against the FFA on the ground that the FFA gave it late notice. In the Circuit Court for Montgomery County, the FFA sued National Union for breach of the insurance policy. At the close of all the evidence in a jury trial, the circuit court granted National Union's motion for judgment, ruling that the evidence established as a matter of law that the FFA's late notice of the claim had caused actual prejudice to National Union, and therefore it properly disclaimed coverage. We shall reverse the judgment and remand the case for further proceedings not inconsistent with this opinion.

FACTS AND PROCEEDINGS

The FFA, a national non-profit organization headquartered in Gaithersburg, is dedicated to the protection of animals. Since 2005, it has been an affiliate of the Humane Society of the United States ("HSUS"). It operates animal sanctuaries and wildlife centers around the country and engages in lobbying and advocacy, including litigation, to advance its goals.

National Union issued a "Not–For–Profit Individual and Organization Insurance Policy" to HSUS that was in effect between January 1, 2007, and June 8, 2008 ("the 2007 Policy"). The FFA is an "Additional Insured" on the policy. As relevant, Coverage C provides:

This policy shall pay on behalf of the Organization [here, the FFA] Loss arising from a Claim first made against the Organization during the Policy Period ... and reported to the Insurer pursuant to the terms of this policy for any actual or alleged Wrongful Act of the Organization. The Insurer shall, in accordance with and subject to Clause 8, advance Defense Costs of such Claim prior to its final disposition.

This language establishes that the 2007 Policy is a claims-made-and-reported-policy, which means that it will cover a claim (otherwise covered by the policy) made against the insured and reported to the insurer during the policy period. The relevant policy language defines a "Claim" to mean "a written demand for monetary relief" or "a civil ... proceeding for monetary ... relief which is commenced by ... service of a complaint or similar pleading." ¶ 2. (b)(1) & (2). The "Notice/Claim Reporting Provisions" section of the policy states that "the Insureds shall, as a condition precedent to the obligations of the Insurer under this policy, give written notice to the Insurer of any Claim made against an Insured as soon as practicable [or at] anytime during the Policy Year." ¶ 7.(a). "A Claim shall be considered to have been first made against an Insured when written notice of such Claim is received by any insured...." ¶ 7.

In the 2007 Policy, National Union assumes a duty to pay defense costs for any covered claim, but does not assume a duty to defend unless the insured tenders a Claim to it within thirty days of the claim being made. ¶¶ 1 & 8. Even if a claim is not tendered, National Union maintains the right to "effectively associate with the Insureds in the defense of any Claim that appears reasonably likely to involve [National Union], including but not limited to negotiating a settlement." ¶ 8.

Three lawsuits are in play in this coverage dispute: the Endangered Species Act case ("ESA Case"); the Racketeer Influence and Corrupt Organizations Act case ("RICO Case"); and the "Coverage Case." The FFA was a plaintiff in the ESA Case. It, other organizational plaintiffs, and one individual plaintiff¹ sued Feld Entertainment, Inc. ("Feld"), the owner of Ringling Brothers and Barnum & Bailey Circus ("Ringling Brothers"), and Ringling Brothers.² While the ESA Case was pending, Feld brought the RICO Case against the FFA and the other organizational plaintiffs in the ESA Case, alleging that they were bribing the individual plaintiff to testify falsely and were committing other criminal acts in prosecuting the ESA Case, for the purpose of establishing standing to sue. In the RICO Case, Feld sought to recover as damages the attorneys' fees and costs it was incurring in defending the ESA Case.

It is undisputed that the FFA did not give National Union notice of the RICO Case for more than two years after it was filed. By then, the court in the ESA Case had granted judgment in favor of Feld, on the ground that the ESA plaintiffs lacked standing. That ruling was based on numerous detailed factual findings, including that the FFA and the organizational plaintiffs had paid the individual plaintiff for testimony that was false. National Union denied coverage to the FFA based on late notice. In the Coverage Case brought against it by the FFA, National Union took the position that it suffered actual prejudice due to the late notice because, as a defendant in the RICO Case, the FFA would be precluded from contesting many of the essential facts found by the court in the ESA Case, and those facts undermined any defense the FFA would have.

1. The ESA Case

In 2000, in the United States District Court for the District of Columbia, the FFA, the American Society for the Prevention of Animal Cruelty ("ASPCA"), the Animal Welfare Institute ("AWI"), and Thomas Rider sued Feld for declaratory and injunctive relief, upon allegations that Ringling Brothers' mistreatment of Asian elephants in its circus violated the Endangered Species Act, 16 U.S.C. § 1531 et seq.

The ESA Case was brought under the citizen-suit provision of the ESA, which eliminates judicially imposed limits on the exercise of federal jurisdiction, known as "prudential standing." See Bennett v. Spear, 520 U.S. 154, 164, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997). There still must be standing under the "case or controversy" provision of Article III of the United States Constitution, however. Id. Thus, at least one plaintiff must show that he or she

(1) ... suffered an "injury in fact"—an invasion of a judicially cognizable interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) that there [is] a causal connection between the injury and the conduct complained of—the injury must be fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court; and (3) that it [is] likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.

Id. (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) ).

In the operative complaint in the ESA Case, Rider alleged that he had worked for Ringling Brothers for two years as a barn man, cleaning up after the elephants; that, during that time, he had grown emotionally attached to some of the elephants, who he called "his girls"; that he had witnessed their mistreatment with bull hooks at the hands of other Ringling Brothers' employees; and that he wished to "visit" the elephants again and "enjoy observing them," but he could not do so because he feared he would witness their scars and behavioral tics, which are manifestations of abuse, and would experience emotional distress.

The ESA Case was assigned to Judge Emmet G. Sullivan. In 2001, Judge Sullivan granted a motion to dismiss for lack of Article III standing. In particular, Judge Sullivan ruled that the facts alleged in the operative complaint were legally insufficient to support a finding that Rider had suffered a cognizable and redressable injury; and, with the exception of one organizational plaintiff (not the FFA), the organizational plaintiffs only could demonstrate standing through Rider.

The FFA, the other organizational plaintiffs, and Rider appealed, and on February 4, 2003, the United States Court of Appeals for the District of Columbia reversed. ASPCA v. Ringling Bros. and Barnum & Bailey Circus,

317 F.3d 334 (D.C.Cir.2003). The court held that the operative complaint alleged facts sufficient to show that, because of Rider's personal, emotional attachment to the elephants, the alleged ESA violations had caused him to suffer a cognizable injury that differed in kind from any injury experienced by members of the public at large and that amounted to more than a generalized interest in the enforcement of the law; and Rider's injury was redressable because, were Ringling Brothers to be enjoined from using the elephant training techniques the organizational plaintiffs were alleging to be abusive, Rider could visit the elephants he once tended to without suffering emotionally, or fearing that he would.

On remand to the district court, the FFA and the other plaintiffs filed a new lawsuit making the same allegations against Feld and Ringling Brothers and dismissed...