Suit Must Allege Facts Giving Rise to a Potential for Coverage

Facts Ultimately Proven in the Underlying Litigation Have No Bearing on an Insurer’s Duty to Defend

In Maryland and many other states coverage for defense or indemnity are determined from the allegations in the suit brought against the insured for which it seeks defense and indemnity. A declaratory relief suit seeks an order from the court that the insurer owes the insured defense or defense and indemnity. The pleading of the declaratory relief suit and the underlying action control the decision.

In Robert A. Casero, Jr.; Catherine Mary Hattenburg v. Chicago Title Insurance Company; Fidelity National Title Group, Inc., No. 18-1234, United States Court of Appeals for the Fourth Circuit (December 11, 2018) the Appellants, Robert A. Casero, Jr. and Catherine Mary Hattenburg, appealed the district court’s orders granting the Appellees’ (Chicago’s and Fidelity’s) motion to dismiss the declaratory relief complaint and denying reconsideration. The suit asked the court to render a declaratory judgment that the Appellees had a duty under a title insurance policy to defend and indemnify the Appellants from various claims asserted by their neighbors.

DECISION

On review the Fourth Circuit Court of Appeals must assume all well-pled facts to be true, and draw all reasonable inferences in favor of the plaintiff. Under Maryland law, which is applicable here, in determining whether an insurer has a duty to defend, a court must determine the coverage under the terms of the policy and determine whether the allegations in the underlying complaint bring the claim within the policy’s coverage.

The inquiry focuses on the language and requirements of the policy and the allegations of the underlying suit. The facts ultimately proven in the underlying litigation have no bearing on an insurer’s duty to defend.

A court determines whether there is any potentiality of coverage, i.e. whether the allegations in the complaint could possibly give rise to coverage under the policy. The duty to defend is broader than the duty to indemnify and arises when allegations of a law suit demonstrate any claim potentially covered by policy. Where a potentiality of coverage is uncertain from the allegations of a complaint, any doubt must be resolved in favor of the insured.

The Fourth Circuit thoroughly reviewed the record and the relevant legal authorities and concluded that the district court did not err in concluding that, based on the allegations of the underlying complaint, there was no potentiality of coverage under the policy. Therefore, the Appellees had no duty to defend the Appellants in the underlying suit.

ZALMA OPINION

Appellate pleadings are called “briefs” but are seldom brief. Appellate decisions often emulate the briefs filed by the lawyers by being anything but brief. The Fourth Circuit refused to follow the rule of thumb and issued a truly brief decision that found no potentiality for coverage and, therefore, no need for the insurers to defend.


© 2018 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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