Sumpter v. Pa. Nat'l Mut. Cas. Ins. Co.

MEMORANDUM OPINION

J. Mark Coulson United States Magistrate Judge

I.INTRODUCTION

Plaintiff Dilan Sumpter sustained injuries due to lead-based paint exposure while residing at several different properties in Baltimore, Maryland. (ECF No. 20 at 1). On June 4, 2019, a jury in the Circuit Court for Baltimore City returned a verdict in his favor for $1, 725, 936 based on the combined exposure. Id. at 2. The instant lawsuit relates to insurance coverage from Defendant, Pennsylvania National Mutual Casualty Insurance Company (“Penn National”), for the portion of damages he sustained between September 5, 1995 and August 1, 1997 while residing at a particular residential rental property owned and operated by City Homes, Inc. (“City Homes”) and Barry Mankowitz (“Mankowitz”), representing 27% of Plaintiff's total lead exposure.^[1] Id. at 1. In its substantive counts, this lawsuit focuses primarily on the amount of insurance coverage, if any, provided by Penn National for the subject property applicable to the 1995-96 policy year. Id. at 10-11. Pending before the Court is Defendant's Motion for Summary Judgment on Counts II and

III and Motion to Dismiss Count IV (ECF No. 59). The Court has considered Plaintiff's Response in Opposition (ECF No. 70) and Defendant's Reply (ECF No. 72). Additionally pending is Plaintiff's Motion to Compel (ECF No. 71). In response, Defendant filed a Motion in Opposition (ECF No. 73) and Plaintiff filed a Reply (ECF No. 74). The issues are fully briefed, and no hearing is necessary. See Loc. R. 105.6 (D. Md. 2021). For the reasons explained below, Defendant's Motion for Summary Judgment (ECF No. 59) is GRANTED IN PART as to Count II and GRANTED IN FULL as to Counts III and IV. Consequently, Plaintiff's Motion to Compel (ECF No. 71) is DENIED as moot.

II. BACKGROUND

Plaintiff, who is not a named insured under the policies at issue, nonetheless gained the ability to pursue rights under those policies by virtue of an assignment from the insured, City Homes, through the trustee after City Homes declared bankruptcy. (ECF No. 59-5). The assignment is explicitly not a general assignment of the policies themselves, but instead a limited transfer of rights to pursue Penn National for contractional and extra contractual damages to the extent Penn National failed to fulfill its policy obligations “in connection with [Plaintiff's] lead-based paint personal injury lawsuit” for the time he resided at the City Homes' property at issue. Id. That is, the assignment limited its grant of rights under the policies to those directly related to Plaintiff's lawsuit.

Beginning in 1991 and continuing until 1997, City Homes and Mankowitz purchased one-year commercial general liability (“CGL” or “general liability”) and commercial umbrella insurance policies from Penn National for all of their residential rental properties in Baltimore, including the property at issue. (ECF No. 20 at 4-6). The portion of the lead-paint exposure from the property at issue (September 4, 1996 to August 1, 1997) therefore implicates both the 1995-

1996 and 1996-1997 CGL and umbrella insurance policies. Id. at 10. The instant coverage dispute specifically concerns the 1995-96 policies. Id. at 10-11.

Penn National initially contended that all of its applicable policies were exhausted and refused to pay any part of the Baltimore City judgment. (ECF No. 59, Ex. 1 at 6). Plaintiff countered that Penn National's interpretation of its 1995-1996 CGL and umbrella policies was incorrect, and that the collective $11 million limits from the 1995-1996 policies should be applied on a “per property” basis rather than applied to all the approximately 278 properties owned and operated by City Homes and Mankowitz. (ECF No. 20 at 5-8). Specifically, Plaintiff argued that the absence of a “per property” endorsement in the 1995-96 policy year was a mutual oversight between insurer and insured, as such an endorsement was present in all other policy years. Id.

In response to Plaintiff's original complaint in which Plaintiff sought coverage for the entire $1, 725, 936 judgment (despite residing at the subject property for only 27% of his total exposure time), Penn National filed, inter alia, a motion to dismiss and a counterclaim on January 21, 2020. (ECF Nos. 16 & 17). In the counterclaim, Penn National sought a declaratory judgment as follows:

Under Maryland Law, which governs this claim, Penn National is contractually obligated to pay no more than that the portion of [Plaintiff's] final judgment which represents Penn National's pro-rata time on the risk. Pennsylvania National Mutual Casualty Insurance Company v. Roberts, 668 F.3d 106 (4th Cir. 2012) (applying Maryland law); Mayor & City Council of Baltimore v. Utica Mut. Ins. Co., 145 Md.App. 256 (2002).

Penn National is not required to cover the entire judgment because it is not obligated to indemnify its insured(s) for bodily injury to [Plaintiff] that occurred before the policy period(s) for the period of time it covered the Property while [Plaintiff] was living at the Property or after said time period. A time-on-risk analysis must be undertaken in order to determine the allocation of the amount of Penn National's liability under its policies for the judgment at issue.

(ECF No. 17 at 4-5).

Plaintiff filed an Amended Complaint (ECF No. 20) on February 25, 2020 wherein he asserted the following: a claim of bad faith failure to settle within the 1995-1996 and 1996-1997 CGL and commercial umbrella policy limits prior to verdict when the settlement demand was $400, 000 (Count I); a claim for breach of contract based on Defendant's alleged breach of the 1995-1996 and 1996-1997 CGL and commercial umbrella policies (Count II); a claim for reformation of the 1995-1996 CGL policy to the per property endorsement based on mutual mistake (Count III); and a claim for a declaratory judgment that the per property endorsement applied to the 1995-1996 CGL policy (Count IV). In response, Defendant renewed his Motion to Dismiss on May 22, 2020 (ECF No. 31).

On December 2, 2020, Judge Boardman of this Court granted Defendant's Motion to Dismiss in part, finding that Plaintiff had failed to state a claim for bad faith, and allowing only one of two breach of contract theories posited by Plaintiff to go forward. (ECF No. 38). In so doing, Judge Boardman stated:

Sumpter's bad faith claim is predicated largely on Penn National's position that the per property endorsement was not part of the 1995-1996 policies. Am. Compl. ¶¶ 92-95. That central issue will be decided by the reformation claim. Thus, even if the bad faith claim had been properly pled, the Court would have stayed the claim because it would be more efficient to decide the other pending claims first. Should discovery regarding the reformation claim, or its ultimate resolution, provide plaintiff with sufficient facts to state a claim for bad faith failure to settle, the Court will entertain a motion to amend at that time. Because Sumpter has failed to state a claim for bad faith failure to settle, Count I is dismissed without prejudice.

Id. at 15. As for the surviving breach of contact theory, Judge Boardman held that if, as Plaintiff alleged, the policies at issue were not exhausted yet Penn National refused to honor its policy obligations, the Amended Complaint stated a claim for breach of contract. Id. at 18, 19. Judge Boardman also denied Penn National's Motion with regards to Counts III and IV.

On February 25, 2021, Penn National moved for summary judgment on its counterclaim, seeking a declaration that its indemnity obligation was limited to its “time on risk.” (ECF No. 53). Penn National relied on the principle first announced in Mayor and City Council of Baltimore v. Utica Mut. Ins. Co., 145 Md.App. 256 (2002), that “[e]ach insurer is liable for the period of time it was on the risk compared to the entire period during which damages occurred.” Id. at 314. By Penn National's calculation, this limited its potential policy obligations to 329 days, representing 27% of Plaintiff's 1, 215-day lead exposure as determined in the underlying tort case and, correspondingly 27% of the $1, 725, 936 jury verdict obtained by Plaintiff in that case. (ECF No. 53, Ex. 1 at 16-19). Plaintiff did not oppose Penn National's Motion (ECF No. 54), and Judge Boardman therefore ordered “that Penn National is obligated to indemnify its insured for 27.0% of the $1, 725, 936.00 underlying judgment in the Baltimore City Circuit Court action Sumpter v. City Homes, Inc., et al, Case No. 24-C17-002383.” (ECF No. 55). Thus, Penn National's indemnity obligations pursuant to the policies at issue have been previously decided by this Court.

Such ruling, of course, did not address the central contention of this lawsuit-whether coverage had already been exhausted under the 1995-96 policy such that Penn National would have no further obligation to pay notwithstanding its attributed 27% allocation. As summarized by Penn National:

Penn National asserts that the 1995-1996 policy has been exhausted. Plaintiff, on the other hand, contends that the polic(ies) for this time period should be reformed so as to extend coverage. If Penn National's position as to reformation is ultimately determined to be correct, then the insured would be responsible for the allocated amount for this twenty-seven day period.^[2] If, on the other hand, the Plaintiff's position with respect to reformation is determined to be correct, then Penn National would be responsible for the allocated amount for this twenty-seven day period.

(ECF 53, Ex. 1 at 9-10).

Importantly, however, Penn National went a...