DEBORAH K. CHASANOW, District Judge.
There is one issue remaining for resolution in this insurance dispute in connection with a motion for summary judgment filed by Federal Insurance Company ("Federal"), which Judge Alexander Williams granted in part. (See ECF Nos. 46 & 47).
The factual and procedural background of this action was documented in previous opinions, thus only a brief summary of the underlying issues in the case is necessary. (See ECF Nos. 46, 54, 67). Federal, Netherlands, and Firemen's are insurance companies. Case Design, operating under the service mark, "Case Handyman," provides home remodeling services. Case Design is Case Handyman's parent company. Case Handyman entered into a franchise agreement on October 15, 2003 with Shaun Arnold, principal of Professional Home Repair ("PHR"), which allowed PHR to conduct business as Case Handyman's franchisee. (See ECF No. 29-7).
Mr. Hammerash and his wife entered into several contracts with PHR for home remodeling. As a result of alleged performance deficiencies, the Hammerashes brought a complaint in arbitration against Case Design/Remodeling, Inc. on October 5, 2007. (See ECF Nos. 29-9, 29-10, 29-13). The Hammerashes thereafter filed an amended complaint in the arbitration proceeding on March 25, 2009, naming Case Handyman as an additional respondent.
Case Design submitted the arbitration for coverage to Federal, its insurance carrier.
Consequently, Federal filed a complaint against Firemen's, Netherlands, and Case Design/Remodeling, Inc. on September 9, 2009 (ECF No. 1), and later amended the complaint on April 28, 2010 (ECF No. 32).
Federal moved for summary judgment, and Firemen's and Netherlands filed cross-motions. (See ECF Nos. 29, 38, & 39). Federal argued that its insurance policy with Case Design contained an "other insurance" clause, which obligated Netherlands and Firemen's to provide primary insurance coverage, and required Federal to provide "excess" coverage in instances where all of the insurance providers covered the "same claim." Federal maintained that because Netherlands and Firemen's were required to provide primary coverage for the Hammerash Arbitration, Federal had no duty to provide coverage for the Hammerash Arbitration, as its coverage was excess to claims over $1 million. Judge Williams rejected this argument, but granted in part Federal's motion, holding that although Netherlands was not required to indemnify Federal, it had to contribute to the defense costs of the Hammerash Arbitration. (See ECF No. 47 ¶ 2).
Netherlands and Federal then moved for partial reconsideration. Judge Williams denied Netherlands' motion, but granted in part Federal's motion, finding persuasive Federal's argument that "after supplemental briefings are filed regarding the amount of contribution that the Netherlands owes to Federal, the Court could potentially conclude that the Netherlands' duty to defend ended when the [arbitrator in the] Hammerash Arbitration issued its decision on summary judgment on June 24, 2009." (ECF No. 54, at 8-9).
Federal asserts that it is entitled to reimbursement for fifty (50) percent of all of the costs it has paid to date in connection with the Hammerash Arbitration, either from Netherlands only or from Netherlands and Firemen's. Federal informs that it has paid a total of $206,457.22 in defense costs in connection with the Hammerash Arbitration.
The Additional Insured Endorsement in Netherlands' insurance policy with PHR states:
(ECF No. 29-6, at 78) (emphasis added). The franchise agreement that Shaun Arnold executed with Case Handyman — which later substituted PHR as the franchisee instead of Mr. Arnold — required Shaun Arnold to name Case Handyman as an additional insured. Case Handyman thus became an additional insured under Netherlands' insurance policy pursuant to the above endorsement clause. The above endorsement clause limited Netherlands' coverage of Case Handyman to liability arising out of PHR's ongoing operations performed for Case Handyman. In that regard, Netherlands finds controlling a June 24, 2009 decision from the American Arbitration Association on a motion for summary judgment filed by Case Design and Case Handyman. (See ECF No. 29-16). The arbitrator considered Case Design's arguments supporting dismissal of the Hammerashes' action against them on the ground that "[the Hammerashes] have not demonstrated that the Case franchisee [PHR] who allegedly wronged them was the actual or apparent agent of the Case franchisor[, Case Handyman.]" (ECF No. 29-16, at 2). The arbitrator granted summary judgment in favor of Case Design and Case Handyman on the issue of actual authority. The arbitrator reasoned that:
(Id.). The arbitrator further remarked that "[n]o document has been presented to suggest anything other than a franchisorfranchisee relationship." The arbitrator did not find that Case Handyman exercised the requisite level of control over PHR's execution of the home remodeling contract with the Hammerashes to support a direct agency relationship. Accordingly, summary judgment was granted in favor of Case Design and Case Handyman on the issue of actual authority.
Although Netherlands characterizes the arbitrator's decision as holding "as a matter of law that the claims against Case Handyman in the Hammerash Arbitration did not arise from work being performed by PHR on behalf of Case Handyman," this is not quite the case. (ECF No. 61, at 5). As Federal and Firemen's both point out, the arbitrator held that there was no evidence to support the claim that PHR was operating under a grant of actual authority from Case Handyman. (See ECF No. 63, at 4). What Netherlands fails to address, however, is the second part of the arbitrator's June 24, 2009 decision, in which he explained that "[t]he claims of agency based upon the apparent authority of the franchisee to act on behalf of and bind the franchisor requires a different analysis and result." (ECF No. 29-16, at 2) (emphasis added). The arbitrator rejected Case Design's and Case Handyman's argument that the Hammerashes' claims of agency based upon apparent authority should also be dismissed as a matter of law. In so concluding, the arbitrator observed that the contract that the Hammerashes signed for remodeling and repair work on their premises was signed by Case Handyman Services and was on "Case Handyman Services" letterhead. (See ECF Nos. 29-9, 29-10, & 29-16, at 3). The arbitrator also found convincing testimony that "the persons with whom [the Hammerashes] dealt gave them business cards with the Case logo and legend on them and spoke of the long history of the Company and the assurance that [the Hammerashes] and their project would be taken care of no matter what happened." (ECF No. 29-16, at 3). He further stated:
(Id.). Accordingly, the arbitrator denied summary judgment on the issue of whether PHR operated under a grant of apparent authority from Case Handyman.
Netherlands argues that "any duty on [its] part [sic] to defend [] Case Handyman (and thus per the Court's prior ruling, Case Design) was triggered solely by the possibility that Case Handyman could be found liable for PHR's operations performed on its behalf (i.e., as Case Handyman's agent) and could thus potentially be an additional insured under The Netherlands Policy." (ECF No. 61, at 8). Consequently, Netherlands concludes that:
(ECF No. 61, at 8). But as Firemen's points out, "Netherlands incorrectly interprets [the arbitrator's] finding [regarding actual authority] to mean that PHR was not acting on behalf of Case Handyman." (ECF No. 63, at 4). Indeed, the endorsement clause in the Netherlands Policy does not condition coverage of Case Handyman only where PHR's liability arises out of PHR's ongoing operations performed under a grant of actual authority for Case Handyman. See, e.g., Nautilus Ins. Co. v. BSA Ltd. P'ship, 602 F.Supp.2d 641, 649 (D.Md. 2009) ("[i]f the terms used are unambiguous, the meaning of the terms are determined by the court as a matter of law."). Because the endorsement clause leaves open the possibility that PHR may be found liable for ongoing operations performed under a grant of apparent authority — a possibility that the June 24, 2009 arbitration decision also left open — Netherlands' construction of the endorsement clause appears to be too narrow. See, e.g., Bakery and Confectionary Union and Industry Intern. Pension Fund v. New World Pasta Co., 309 F.Supp.2d 716, 728-29 (D.Md. 2004) ("[a] corporation is bound by the acts of its agent where those acts are performed by any express grant of power or within the agent's implied or apparent authority, unless the agent acted for his own benefit without the corporation's ratification of his action.") (emphasis added). Federal's reading of the endorsement clause, which broadly extends coverage "to any matter based on PHR's `operations performed for' Case Handyman" is correct. The clause does not limit coverage of Case Handyman for claims based on PHR's status as Case Handyman's direct agent. (See ECF No. 62, at 6).
Moreover, "[p]ursuant to Maryland law, apparent authority arises where the purported agent, [] may or may not have actual authority to act for the purported principal, but because of conduct on the purported principal's part the third person believes that the authority to act exists." Progressive Northern Ins. Co. v. Airborne Express, Inc., No. Civ. RDB 03-2987, 2005 WL 1712396, at *10 (D.Md. July 20, 2005) (quoting Medical Mut. Liability Ins. Soc. Of Maryland v. Mutual Fire, Marine & Inland Ins. Co., 37 Md.App. 706, 720 (1977)). "The principal, either actively or passively, creates a situation that causes the third person to be misled." Medical, 37 Md.App. at 720. The arbitrator determined that there were "definite disputes as to material facts concerning the applicability of the doctrine of apparent authority to the claims by the [Hammerashes]." (ECF No. 29-6, at 3). This holding undermines Netherlands' position that after the June 24, 2009 decision, Case Handyman could no longer have been found liable for work PHR was performing on its behalf.
Further buttressing Federal's and Firemen's argument that Netherlands' duty to insure Case Handyman did not cease after the June 24, 2009 decision is the fact that the summary judgment decision did not end the case against Case Handyman and Case Design. As Firemen's points out:
(ECF No. 63, at 5) (emphasis added). In fact, Federal informs that the Hammerash Arbitration has since settled. (ECF No. 62, at 4 n.1). Had the arbitrator's decision negated the potential that Case Handyman could be found liable, there would have been no need to settle with the Hammerashes. See, e.g., Mitcheson v. Harris, 955 F.2d 235, 240 (4th Cir. 1992) (noting that under Maryland law, the "duty to defend continues, if actual or potential coverage is established, until such coverage is negated." (citing 7416 Balt. Ave. Corp. v. Penn-America Ins. Co., 83 Md.App. 692 (1990))).
Based on the foregoing, the June 24, 2009 arbitration decision did not relieve Netherlands of the duty to defend and provide coverage in the Hammerash Arbitration.
For the foregoing reasons, Netherlands will be ordered to contribute to Federal in the amount of $103,228.61. A separate order will follow.
(ECF No. 54, at 9). Judge Williams agreed that Firemen's should be reinstated as a party to the litigation pending supplemental briefing on the contribution issue.
Netherlands is required to reimburse Federal in the amount of $103,228.61, "and also is required to provide coverage for 50 percent of all future costs incurred." (ECF No. 62, at 4) (emphasis added). Federal assures that "[b]ecause the Hammerash Arbitration has settled it is not anticipated that significant costs will be incurred in the future." (ECF No. 62, at 4 n.1). Netherlands, however, argues that its contribution should not exceed $103,228.61.
Federal has not filed any supplemental document indicating how much additional costs it has incurred. Moreover, Firemen's argued in its supplemental brief that "based on the documents provided by Federal on August 15, 2011 evidencing defense costs, this case took from August 2008 to May 2011[] to resolve." (ECF No. 63, at 9). Federal has submitted as an exhibit a spreadsheet prepared by the law firm representing Case Design and Case Handyman in the Hammerash Arbitration, which reflects the attorney fees and other expenses incurred by the firm that Federal paid; the last billing date appears to be June 16, 2011. (See ECF Nos. 64-1 & 65-1). In October 2011, Federal submitted its supplemental brief identifying the appropriate contribution amount. The parties have since been instructed to file a joint status report, which they submitted on February 10, 2014. (ECF No. 74). Federal has not alerted the undersigned to any additional costs incurred in connection with the Hammerash Arbitration. Accordingly, judgment will be entered in the amount representing fifty (50) percent of the total costs Federal has identified as having incurred.