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REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 187 SEPTEMBER TERM, 1996 ___________________________________

AETNA INSURANCE COMPANY v. ALBERT G. AARON ___________________________________ Fischer, Hollander, Eyler, JJ. ___________________________________ Opinion by Hollander, J. ___________________________________ Filed: December 4, 1996

In this case, we are called upon to decide whether the liability portion of a homeowner's policy applies to the costs of preventative measures undertaken on the insured's property in order to prevent damage to the property of a third party. Albert G.

Aaron, appellee, instituted a declaratory judgment action against Aetna Insurance Company ("Aetna"), appellant, to determine whether Aetna is obligated to defend and indemnify him with regard to a suit instituted against Aaron by his condominium association. Circuit Court for Baltimore City (Ward, J.) granted The

summary

judgment in favor of Aaron.

On appeal, Aetna challenges that

decision, asking us to consider the following questions: 1. Did the trial court err in entering summary judgment in favor of Albert Aaron on the issue of the duty of Aetna to defend the claims brought against Albert Aaron by the Council of Unit Owners of the Warrington Condominium? 2. Did the trial court err in entering summary judgment in favor of Albert Aaron on the issue of the duty of Aetna to indemnify Mr. Aaron for any judgment entered against Mr. Aaron by the Council of Unit Owners of the Warrington Condominium? 3. Did the trial court err in ordering that Aetna was obligated to reimburse Mr. Aaron for all costs and expenses, including reasonable attorney's fees, incurred by Mr. Aaron in bringing the declaratory judgment action and in defending the underlying lawsuit? We conclude that the trial court properly determined that Aetna had a duty to defend Aaron. We also agree that, under

certain circumstances, an insurer may be obligated to indemnify its insured for remediation expenses incurred in connection with the insured's property. Accordingly, we shall affirm.

Factual Summary In 1984, Aaron purchased Unit 1300 in The Warrington Condominium (the "Warrington"), located in Baltimore. His unit,

which included a large glass enclosure (the "Glass Enclosure") installed around the balcony area, is located directly above Unit 1200. From approximately June 8, 1984 through at least June 8,

1989, Aetna issued a series of homeowner's insurance policies to Aaron (hereinafter collectively referred to as the "Policy"), which provided first-party property coverage and liability insurance with respect to Aaron's condominium unit. insured appellee against damage to In particular, the Policy his unit due to certain

specified perils, and it provided coverage for certain claims asserted by third parties. The Policy stated, in pertinent part:

If a claim is made or a suit is brought against any insured for damages because of bodily injury or property damage to which this coverage applies, we will: a. pay up to our limit of liability for the damages for which the insured is legally liable; and b. provide a defense counsel of our choice. (Bold face in original.) at our expense by

The Policy defined "property damage" as

"physical injury to or destruction of tangible property, including loss of use of this property." The Policy also included the

following "exclusion" as to coverage: 2. Coverage E - Personal Liability, does not apply to: -2-

* * * * * b. property damage to property owned by the insured; (Bold face in original). In 1985, Rita St. Clair, the owner of Unit 1200, first began to experience water leaks in her condominium. The common areas of

the building were also plagued by intermittent water problems. Between 1985 and 1993, various contractors attempted to resolve the leaks. Eventually, in 1993, it was determined that Aaron's Glass Consequently, the

Enclosure was the source of the problems.

Council of Unit Owners of The Warrington (the "Council") repaired appellee's Glass Enclosure in order to prevent further leaks into St. Clair's unit and the common areas. Thereafter, the Council

filed suit against Aaron to recover the sum of $97,370.73, which represented the amount it expended to repair the Glass Enclosure. The suit alleged that Aaron was contractually obligated to repair any part of his unit that caused damage to the property of others. Based on a theory of quantum meruit, the Council also contended that Aaron was responsible for the cost of the repairs. Aaron submitted the Council's claim to Aetna, which declined coverage. In view of Aetna's position, Aaron filed a declaratory

judgment action against Aetna, seeking a determination of his rights under the Policy. After some discovery was conducted, Aaron moved for summary judgment in the declaratory judgment action. -3In his motion, he

contended that the undisputed facts established that Aetna had an obligation to defend and indemnify him under the terms of the Policy and was thus also liable for his attorneys' fees, costs, and expenses in connection with the declaratory judgment action. He

relied on the Policy language, which provides protection for "a suit for damages" (i.e., the Council's suit), instituted "because of . . . property damage . . . ." (i.e., the damage to Unit 1200 and the common areas). To support his assertion, he submitted a

report dated September 30, 1993 from an engineering firm retained by the Council, which concluded that water was leaking internally from the Glass Enclosure and "finding its way" to St. Clair's unit and the common elements of the building. Aaron further argued that the Council's claim was not within the Policy's exclusion for property that he owned (hereinafter, the "owned property exclusion"), because the repairs to the Glass Enclosure were necessary to prevent imminent damage to third-party property. Aaron asserted that the repairs were undertaken to

alleviate a condition with respect to his property that did not present any problem to him, but was damaging St. Clair's unit and the common areas. Alternatively, he argued that, if the factfinder

in the Warrington suit determined that he did not even own the Glass Enclosure, then the owned property exclusion would not apply. In its opposition, Aetna asserted that material facts were in

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dispute, making summary judgment inappropriate.1

Further, it

contended that the Council's claim was barred by the Policy's owned property exclusion, and that the claim was not "for" property damage, as defined in the Policy. On August 9, 1995, the court issued an order granting summary judgment in favor of Aaron.2 The order stated, in part:

[I]t is hereby determined that Aetna is liable to satisfy any judgment entered against Aaron in connection with the [Warrington suit] to the extent that the judgment is for (1) damages suffered by any third-party; (2) damages for the cost of investigating the source of the water leak into the condominium unit located below Aaron's condominium unit; or (3) damages for the cost of making repairs or doing other work to stop the water leak or to prevent further damage to either the common elements of the condominium or the condominium unit located below Aaron's unit; . . . . * * *

[I]t is hereby determined that Aetna shall not be liable to satisfy any judgment entered against Aaron in connection with the [Warrington suit] to the extent that the judgment is solely for property damage to property owned by Aaron, provided, however, that Aetna shall be liable for repairs to Aaron's property that were made to stop the water leak or to prevent further damage to either the common elements of the condominium or the condominium unit located below Aaron's unit; . . . .

At oral argument, Aetna conceded that the issue concerning the duty to defend is a legal one, but claimed that factual disputes prevented resolution of the indemnity issue. See Fisher v. U.S. Fidelity & Guar. Co., 86 Md. App. 322 (1991) (finding that if there is no dispute over facts relevant to issue of coverage, then the question of whether the policy provides coverage is for the court to determine). Although the circuit court held a hearing on the motion, the hearing was not recorded or transcribed. -52

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The court also concluded that Aetna was obligated to defend Aaron in the Warrington suit and to reimburse him for the costs and attorneys' fees he incurred in connection with the declaratory judgment action. On appeal, Aetna contends that the trial court improperly "extended" the scope of the Policy's coverage. It maintains that

the Council did not assert a claim to recover "for" property damage sustained by a third party, and that the repairs to the Glass Enclosure do not constitute "property damage", as defined in the Policy. property Central to Aetna's argument is its claim that the owned exclusion bars coverage under the Policy. Aaron

essentially renews the arguments he asserted below.

Discussion I. Summary judgment is not a procedural shortcut to avoid a trial. Rather, it is an appropriate method of resolving cases, Seaboard Surety To

prior to trial, when the facts are undisputed.

Company v. Richard F. Kline, Inc., 91 Md. App. 236 (1992).

grant summary judgment, a trial court must determine that there are no material facts in dispute, and that one party is entitled to judgment as a matter of law. Md. Rule 2-501; see Beatty v.

Trailmaster Products, Inc., 330 Md. 726, 737-38 (1993); Bagwell v. Peninsula Regional Med. Ctr., 106 Md. App. 470, 488 (1995), cert. -6-

denied, 341 Md. 172 (1996); Bits "N" Bytes Computer Supplies, Inc. v. Chesapeake & Potomac Tel. Co., 97 Md. App. 557, 576-77 (1993), cert. denied, 333 Md. 385 (1994). In the absence of disputed

material facts, an appellate court will review the trial court's grant of summary judgment to insure that the trial court reached the correct legal result. Beatty, 330 Md. at 737; Heat & Power

Corp. v. Air Prods. & Chems., Inc., 320 Md. 584 (1990). To defeat a motion for summary judgment, the party opposing the motion must produce evidence demonstrating that there is a dispute as to material facts. (1994). Scroggins v. Dahne, 335 Md. 688

A fact is material if the outcome of the case depends on King v. Bankerd,

how the factfinder resolves the disputed fact.

303 Md. 98, 111 (1985); Keesling v. State, 288 Md. 579, 583 (1980); Miller v. Fairchild, 97 Md. App. 324, 340, cert. denied, 333 Md. 172 (1993). Moreover, the trial court must view all facts, and the

possible inferences from the facts, in the light most favorable to the party opposing the motion. Bagwell, 106 Md. App. at 488.

Applying summary judgment principles, we must resolve whether the trial court properly concluded that Aetna has a duty to defend and indemnify Aaron. This task requires us to construe the scope

of Aetna's liability coverage, in order to determine if the Policy extends to expenses incurred by an insured to remediate a hazardous condition on the insured's property, for the purpose of preventing imminent and further harm to third-party property. -7We think that

it does.

We conclude that, if Aaron's property caused actual

damage to property of another, and there was imminent risk of additional harm if preventative measures were not implemented, and the insured had a duty to remediate, then the Policy protects the insured for the fair and reasonable costs of necessary remedial measures, but only to the extent that the repairs were not merely to benefit the insured's property. In reaching our conclusion, we

focus first on the general principles that govern construction of insurance contracts. The "duty to defend is broader than and different from the duty to pay." (1996). Luppino v. Vigilant Ins. Co., 110 Md. App. 372, 381

An insurer has a duty to defend its insured if the claim

asserted against the insured is covered, or even potentially covered, by the applicable insurance policy. Chantel Assoc. v. Mt.

Vernon Fire Ins. Co., 338 Md. 131 (1995); Aetna Casualty & Surety Co. v. Cochran, 337 Md. at 98, (1995); St. Paul Fire & Marine Ins. v. Pryseski, 292 Md. 187 (1981); Brohawn v. Transamerica Ins. Co., 276 Md. 396 (1975); Reames v. State Farm Fire & Cas. Ins., Md.

App. ____, No. 1650, September Term 1995, slip op. at 15 (filed Oct. 1, 1996). We recently said that "the analysis concerning an

insurer's duty to defend a lawsuit filed against its insured . . . is governed solely by evaluating the causes of action actually alleged by the plaintiff in that lawsuit, along with the relevant extrinsic evidence." Reames, slip op. at 15; see also Chantel, 338

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Md. at 142 ("[A]n insurer's duty to defend is triggered when an examination of the policy, the complaint and appropriate extrinsic evidence discloses a potentiality of coverage under the insurance coverage."); Cochran, 337 Md. at 107-12. Thus, the duty to defend

arises as long as the complaint against the insured alleges "action that is potentially frivolous, covered or by the policy, no matter may how be."

attenuated,

illogical

that

allegation

Sheets v. Brethren Mut. Ins. Co., 342 Md. 634, 643 (1996) (italics in original). In St. Paul Fire & Marine Ins. v. Pryseski, 292 Md. 187, the Court applied a two part test to determine if an underlying suit raises a potential for coverage under an insurance policy. Court said: In determining whether a liability insurer has a duty to provide its insured with a defense in a tort suit, two types of questions ordinarily must be answered: (1) what is the coverage and what are the defenses under the terms and requirements of the insurance policy? (2) do the allegations in the tort action potentially bring the tort 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. Pryseski, 292 Md. at 193. Applying the Pryseski test, we must The

determine the extent of coverage that the Policy affords to Aaron, and whether the allegations in the Council's suit are potentially covered by the Policy.3 Cochran, 337 Md. at 103-04.

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While the Pryseski test specifically refers to tort suits, (continued...) -9-

"Under Maryland law, when deciding the issue of coverage under an insurance policy, the primary principle of construction is to apply the terms of the insurance contract itself." Bausch & Lomb, We begin by

Inc. v. Utica Mut. Ins. Co., 330 Md. 758, 779 (1993). examining the Policy itself. that an insurance contract. policy is

The law is well settled in Maryland interpreted just like any other

Collier v. MD-Individual Practice Ass'n, 327 Md. 1

(1992); National Grange Mut. Ins. Co. v. Pinkney, 284 Md. 694 (1979); Bentz v. Mutual Fire, Marine & Inland Ins. Co., 83 Md. App. 524 (1990). Therefore, courts in Maryland do not follow the rule

that an insurance policy must be strictly construed against the insurer. Bausch & Lomb, 330 Md. at 779; Cheney v. Bell National See also Hartford Acc. and Indem.

Life, 315 Md. 761, 766 (1989).

Co. v. Scarlett Harbor Assoc. Ltd. Partnership, 109 Md. App. 217, 290, cert. granted, 343 Md. 334 (1996). As with other contracts,

a court must ascertain and effectuate the parties' intentions by analyzing the terms of the agreement. Bausch & Lomb, 330 Md. at The

779; Cochran, 337 Md. at 98; Scarlett, 109 Md. App. at 290.

language of the contract is thus the "primary source" to determine the parties' intentions. Scarlett, 109 Md. App. at 291.

(...continued) and the Council's suit against Aaron sounds in contract and quasicontract, we do not believe this distinction affects the validity or the usefulness of the Pryseski test. -10-

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In construing the language in an insurance policy, courts accord the words their usual, ordinary, and accepted meaning, unless the parties intended to use the words in a technical sense. Bausch & Lomb, 330 Md. at 779; Cochran, 337 Md. at 104. A word's

usual, ordinary, and accepted meaning is determined by the meaning that a reasonably prudent layperson "would attach to the term." Bausch & Lomb, 330 Md. at 781; see also Pacific Indem. Co. v. Interstate Fire & Cas. Co., 302 Md. 383 (1985). Further, the court

considers the policy as a whole in determining the intention of the parties. Nolt v. USF&G, 329 Md. 52 (1993); Finci v. American Cas.

Co. of Reading Pennsylvania, 323 Md. 358 (1991); Aetna Cas. and Sur. Co. v. Hartford Acc. & Indem. Co., 74 Md. App. 539 (1988). If the contractual language is clear and unambiguous, we presume that the parties meant what they actually said, regardless of what they may have actually intended. 291. Scarlett, 109 Md. App. at

"Where the language of a contract is clear and unambiguous,

there is no room for construction and we `must presume that the parties meant what they expressed.'" Shapiro v. Massengill, 105

Md. App. 743, cert. denied, 341 Md. 30 (1995) (quoting General Motors Acceptance Corp. v. Daniels, 303 Md. 254, 261-62 (1985)). Courts may consider extrinsic evidence as to the meaning of a policy term only if it is ambiguous. 779. Bausch & Lomb, 330 Md. at

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With these principles in mind, we turn to an examination of the Policy and the parties' claims. Aetna essentially denies any

obligation to indemnify or defend Aaron, because the remedial measures were performed exclusively on Aaron's own property, the preventative measures do not constitute damages in Aetna's view, and the injured third party is not the one who has lodged the claim for damages. Aetna urges us to adopt a construction of the term

"damages" that is limited to actual loss sustained directly by third party property. Moreover, Aetna asserts that the Council's

claim for reimbursement for the cost of repairs to the Glass Enclosure is not embodied within the Policy term "for damages". Based on the owned property exclusion, Aetna would also foreclose protection for preventative measures undertaken on the insured's property to avoid prospective harm to third-party property. Conversely, Aaron asserts that the plain meaning of the words in the Policy necessarily includes coverage for repairs to the Glass Enclosure, because the claim is "for damages because

of...property damage."

Aaron also argues that the owned property

exclusion does not preclude coverage for repairs to the insured's property, if the repairs are made to prevent imminent damage to third-party property that has already sustained harm due to a dangerous condition on the insured's property. In the area of environmental pollution, the issue of whether "response" costs or remediation expenses constitute "damages" has

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been extensively litigated.

Anderson Dev. Co. v. Travelers Indem. See also Maryland Cas.

Co., 43 F.3d 1128, 1132 (6th Cir. 1995).

Co. v. Wausau Chem. Corp., 809 F.Supp. 680, 690-1 (W.D. Wis. 1992) (compiling cases). Similarly, numerous jurisdictions have

considered whether an owned property exclusion forecloses recovery for the costs of environmental response measures employed on an insured's own property. Allstate Ins. Co. v. Quinn Constr. Co., The results are by no means

713 F.Supp. 35, 39-41 (D. Mass. 1989). uniform or consistent.

Figgie Int'l, Inc. v. Bailey, 25 F. 3d See New Jersey v. Signo Trading Compare Continental

1267, 1273-74 (5th Cir. 1994).

Int'l, Inc., 130 N.J. 51, 612 A.2d 932 (1992).

Ins. Cos. v. Northeastern Pharm. & Chem. Co., 842 F.2d 977, cert. denied, 488 U.S. 821 (1988) (denying recovery for clean-up costs under Missouri law) with Independent Petrochemical Corp. v. Aetna Cas. & Sur. Co., 944 F.2d 940, 946-7 (D.C. Cir. 1991), cert. denied, 503 U.S. 1011 (1992) (concluding, under Missouri law, that insured is entitled to recover). See also Kenneth Abraham,

Environmental Liability and the Limits of Insurance, 88 Colum. L. Rev. 942, 966-70 (1988). In our review of these cases, it appears that, with certain limitations, environmental response costs are considered damages within the meaning of a comprehensive general liability policy. Moreover, in order to protect third-party property from imminent harm, the overwhelming weight of authority favors coverage under -13-

such

liability

policies

for

remediation

expenses

incurred

in

connection with an insured's own property, notwithstanding an owned property exclusion, when the concern is primarily addressed to the premises of a third party. See, e.g., Intel Corp. v. Hartford Acc.

& Indem. Co., 952 F.2d 1551 (9th Cir. 1991); Gerrish Corp. v. Universal Underwriters Ins. Co., 947 F.2d 1023 (2nd Cir. 1991); South Carolina Ins. Co. v. Coody, 813 F.Supp. 1570 (M.D. Ga. 1993); Maryland Cas. Co., 809 F.Supp. at 696; Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 788 F.Supp. 846 (D.N.J. 1992); Claussen v. Aetna Cas. & Sur. Co., 754 F.Supp. 1576 (S.D.Ga. 1990); Boyce Thompson Inst. for Plant Research, Inc. v. Insurance Co. of North America, 751 F.Supp. 1137 (S.D.N.Y. 1990); Allstate Ins. Co. v. Quinn Constr. Co., 713 F.Supp. 35, 40-41 (D.Mass. 1989); Bankers Trust Co. v. Hartford Acc. Indem. Co., 518 F.Supp. 371, 374, vacated to permit submission of additional evidence, 621 F. Supp. 685 (S.D.N.Y. 1981); City of Edgerton v. General Cas. Co. of Wisconsin, 172 Wis. 2d 518, 493 N.W. 2d 768 (1992). See also 7A J.

Appleman, Insurance Law & Practice

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