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REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 1795 September Term, 2003

PACIFIC EMPLOYERS INSURANCE COMPANY v. WAYNE D. EIG, ET AL.

Eyler, Deborah S., Adkins, Thieme, Raymond G., Jr. (Ret'd, Specially Assigned), JJ. Opinion by Thieme, J.

Filed: December 29, 2004

This is a dispute between a professional liability insurance company and its insured under a malpractice insurance policy covering the insured for mistakes made in the delivery of his professional services. The appellant and cross-appellee is Pacific Employers Insurance Company ("Pacific"). the appellee and cross-appellant.1 FACTS The controversy stems from Eig's preparation of a second "Last Will and Testament" ("the second will") for his client, Mildred Colodny, who is now deceased. Mrs. Colodny was a resident of the District of Columbia. Eig's offices were in Montgomery County, Maryland. In May of 1981, Mrs. Colodny executed a first "Last Will and Testament," also prepared by Eig. With that first will, Mrs. Colodny bequeathed all her personal property to her daughter, Elizabeth Colodny. She Attorney Wayne D. Eig is

bequeathed one-half of the residuary of her estate to Elizabeth as well, and disposed of the remaining one-half of the residuary by making specific bequests to particular persons and entities. Eig thereafter entered individually into the professional liability insurance policy with Pacific that is at issue in this

Linda Schwartz, Esq., who became Eig's law partner at some point after the Pacific policy went into effect but before the policy period terminated, is also a named appellee. That is apparently because the law firm of Eig and Schwartz, Chartered, became an "insured" under the policy upon the execution of a "Discovery Period Endorsement," which we shall discuss more fully herein. For the sake of convenience, we shall refer only to Eig as the appellee and cross-appellant.

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appeal.

The policy period began on March 1, 1987, and terminated

on March 1, 1988. In August of 1987, Mrs. Colodny asked Eig to prepare the second will and to create an inter vivos trust, to be known as "The Mildred Colodny Trust" (hereinafter referred to at times as "the trust"). Mrs. Colodny indicated that she still wanted all of her

personal property to go to Elizabeth, but that she now wanted the entire residuary of her estate to "pour over" into the trust. One-

half of the residuary would remain in the trust for the benefit of Elizabeth, with the remainder going to Elizabeth's children upon Elizabeth's death. The other half would be immediately distributed to the National Trust for Historic Preservation ("the National Trust"). Eig met with Mrs. Colodny several times between August of 1987 and early January of 1988 regarding her plans for the second will and the trust. On January 13, 1988, Eig completed a draft of the

second will, by which he believed he effectuated Mrs. Colodny's wishes. Sometime between that date and March 1, 1988, Eig gave the draft to Mrs. Colodny. The policy period for Eig's professional liability policy with Pacific terminated on March 1, 1988, but Eig obtained on behalf of his law firm, Eig and Schwartz, Chartered, a "Discovery Period Endorsement" that became effective on that date. The endorsement

provided, in pertinent part, that, in exchange for an additional

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premium of $14,767, Pacific would provide coverage for "claims first made after the termination of the Policy Period," if those claims arose from an act or omission "which occurred prior to the termination of the Policy Period . . . ." Nine days later, on March 10, 1988, Mrs. Colodny executed the second will in Eig's office, with Eig and Eig's legal assistant as witnesses. Subsequently, Mrs. Colodny executed two codicils to the will. Court. Mrs. Colodny passed away on May 4, 1995. Through a series of The codicils have no bearing on the issues now before this

events not made clear by the record extract and not relevant to this appeal, Eig became both personal representative of Mrs. Colodny's estate and successor trustee of The Mildred Colodny Trust. On May 24, 1995, Eig filed the second will with the Probate

Division of the Superior Court of the District of Columbia. The Probate Court sua sponte questioned the validity of the residuary clause in the second will. In February of 1997, it

directed Eig, as personal representative of Mrs. Colodny's estate, to file a complaint for declaratory judgment to construe the will, and thus decide the validity of the residuary clause. Eig filed

the declaratory judgment action in the Probate Court in March of 1997, asking that the residuary clause be declared valid. named, as defendants, all of the beneficiaries of the will. defendants were: He The

Elizabeth Colodny; Elizabeth's minor son, Samuel

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E. Giddins; the National Trust; and Eig, as Trustee for The Mildred Colodny Trust. Initially, both Elizabeth and the National Trust supported Eig's position that the residuary clause was valid. changed her position, however. She filed an Elizabeth to the

answer

complaint and a countercomplaint, by which she asserted that the clause was invalid and that, as Mrs. Colodny's sole heir, she was entitled to inherit the entire residuary by intestacy. recognized that her gain was her minor son's loss. Elizabeth Through

counsel, she later notified Eig that the invalidation of the residuary clause would deprive her son of his remainder interest in the trust. Eig took this to be notification of a claim by Giddins.

In April of 1998, prior to the resolution of the declaratory judgment action, Eig notified Pacific by letter that the action had been filed and that, if the Probate Court found the residuary clause to be invalid, Eig could be subject to claims by the National Trust and Samuel Giddins. Eig expressed his belief that

Pacific would be required to defend any such claims in light of the discovery period endorsement that took effect on March 1, 1988. Subsequently, in June of 1998, the National Trust informed Eig by letter that if the residuary clause was declared invalid Eig would be liable to it. Eig promptly forwarded the letter to Pacific.

On September 30, 1998, Pacific informed Eig that it was denying coverage because it believed that any act or omission that

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led to the dispute over the residuary clause did not occur during the coverage period. Pacific added that another basis for the

denial was Eig's failure to notify it promptly of the declaratory judgment action. The Probate Court declared the residuary clause to be invalid on October 1, 1998. Elizabeth then filed Eig noted an appeal from the decision. a complaint to remove Eig as personal

representative, asserting that the appeal was frivolous and was needlessly delaying the distribution of her mother's estate.

Neither the appeal nor the complaint to remove Eig as personal representative was ever resolved, however. In December of 2000,

Eig entered into a settlement agreement with the National Trust and Giddins. The agreement called for Mrs. Colodny's estate to pay

$196,000 to the National Trust and for Eig to pay, from his personal funds, $204,000 to the National Trust and $52,000 to establish a new trust for Samuel Giddins. Thereafter, in April of 2002, Eig filed a breach of contract suit against Pacific in the Circuit Court for Montgomery County. Eig contended that Pacific breached the insurance contract by: (1) refusing to indemnify him for his legal fees in prosecuting the declaratory judgment action in the Probate Court and defending against Elizabeth's countercomplaint in that action; (2) refusing to defend against the claims by the National Trust and Samuel

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Giddins; and (3) refusing to indemnify him in connection with the settlement agreement. Both Eig and Pacific filed motions for partial summary

judgment and, on April 23, 2003, the court granted partial summary judgment in Eig's favor. It stated:

I do believe there is a duty to defend the plaintiffs under facts which are not in dispute . . . . Accordingly, I am going to grant plaintiffs' motion for partial summary judgment on the issues of defendants' duty to defend plaintiffs under the policy. I find that the defendants had a duty to provide the plaintiffs a defense at Pacific's Employer's expense . . . to a suit in the probate division of the superior court of the District of Columbia, and a claim with the National Trust for Historic Preservation. . . . I am [also] going to grant plaintiffs' motion for partial summary judgment, . . . entering partial summary judgment for the plaintiffs on the issue of defendants' liability to reimburse plaintiffs for all costs of defense incurred by them, and to make payments on behalf of plaintiffs under the indemnity provisions of the policy without reduction, proration or contribution from other sources or insurance. One of the last issues is plaintiffs' motion for partial summary judgment on the issue of plaintiffs' right to recovery of attorney's fees in this action. I think that that is an appropriate motion to grant. So, I will grant the motion for partial summary judgment on the issue of

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plaintiffs' right to recover attorney's fees in this case. The court thus determined, in essence, that Pacific had a duty to defend and indemnify Eig in connection with the declaratory judgment action that he filed, in his capacity as personal

representative, in the probate case.

It further determined that

Pacific had a duty to defend and indemnify Eig in connection with the claims by National Trust and Giddins. Pacific's contention that, because Eig The court rejected held a professional

liability policy with Continental Casualty Company ("CNA") for the coverage period of March 1, 1998, to March 1, 1999, Pacific was entitled to reduction, proration, or contribution. On June 1, 2003, trial was held solely on the issue of damages. In a "Memorandum Opinion" entered on July 31, 2003, the

court determined that Eig was entitled to indemnification for the payments made to settle the claims by the National Trust and Giddins; indemnification for attorneys' fees in connection with both the declaratory judgment action and the settlement of the claims by the National Trust and Giddins; and attorneys' fees for the prosecution of the breach of contract claim against Pacific. The court held, however, that Pacific was not required to indemnify Eig for the full LLP amount of fees billed in by one law with firm, the

McGuireWoods,

("McGuireWoods"),

connection

declaratory judgment action and the settlement.

It expressed the

belief that Eig could not be required to pay the firm $141,213.28 7

of the $341,213.28 in fees incurred. total of $754,911.36,2 consisting of:

The court thus awarded Eig a

- $257,012.15 for settlement payments to the National Trust and to establish a trust for Samuel Giddins, - $65,635.99 for prejudgment interest, - $208,911.02 for attorneys' fees paid to various law firms, including McGuireWoods, in connection with the declaratory judgment action and the settlement of the claims by the National Trust and Giddins, and - $223,352.20 for attorneys' fees for the prosecution of the breach of contract claim. ISSUES On appeal to this Court, Pacific argues, in essence, that the trial court erred in granting partial summary judgment in Eig's favor, in that: I. The trial court erred in determining that the acts or omissions were committed by Eig during the coverage period, The trial court erred in determining that the policy required Pacific to indemnify Eig for counsel fees and costs in connection with the declaratory judgment action,

II.

III. The trial court erred in determining that the policy required Pacific to indemnify Eig for the settlement costs and counsel fees incurred in settling the claims by the National Trust and Giddins, and

The court initially awarded Eig a total of $611,286.07. Upon Eig's motion for reconsideration, the court determined that it had "inadvertently included and neglected to include certain amounts in its calculation," and therefore recalculated the award. 8

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IV.

The trial court erred in requiring Pacific to pay the full amount of damages, without "reduction, proration, or contribution" from CNA.

In his cross-appeal,3 Eig argues: V. The trial court erred in determining that he was not obligated to pay the full amount of attorneys' fees billed by McGuireWoods and in therefore refusing to order Pacific to indemnify him for the full amount. We therefore

We find merit in Pacific's second argument.

vacate the judgment of the trial court and remand the case to that court for such further proceedings as are necessary to recalculate the award without indemnification for the attorneys' fees and costs incurred in the declaratory judgment action, or for the attorneys' fees incurred in the pursuit of those damages. As to Eig's cross-appeal, we agree that the trial court erred in determining that Eig could not be required to pay $141,213.28 of the McGuireWoods bill. Upon remand, the trial court must determine what portion of McGuireWoods's fees was incurred in connection with the settlement agreement and is therefore subject to

Eig has moved to strike two unreported opinions which Pacific has cited in its brief and has attached in an appendix. One of the opinions was filed by the United States Court of Appeals for the Fourth Circuit, the other by the United States Court of Appeals for the Ninth Circuit. Neither the courts of this State nor the Courts of Appeals for the Fourth or Ninth Circuits recognize unreported opinions as precedent or persuasive authority. See Md. Rule 1-104; Fourth Circuit Local Rule 36(c); Ninth Circuit Rule 36-3. Therefore, we shall grant Eig's motion. We shall not consider the unreported opinions. 9

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indemnification,

as

opposed

to

what

portion

was

incurred

in

connection with the declaratory judgment action and is not subject to indemnification. In doing so, the court must consider that Eig

can be required to pay, from any funds remaining from his award after he pays all other fees and costs incurred in connection with his claim against Pacific, the amount remaining on McGuireWoods's bill. DISCUSSION - PACIFIC'S APPEAL We turn first to Pacific's challenge to the trial court's grant of partial summary judgment in Eig's favor. "In determining whether a party is entitled to summary

judgment, a trial court will not determine any disputed facts, but rather makes a ruling as a matter of law." Megonnell v. United See generally Md.

Services Auto. Assoc., 368 Md. 633, 641 (2002). Rule 2-501(e). judgment is

"`[T]he standard of review for a grant of summary the trial court was legally correct.'"

whether

Megonnell, 368 Md. at 641-42 (citation omitted).

"The appellate

court has the same facts from the record before it and considers the same issues of law as the trial court and is tasked with determining whether the trial court reached the correct result as a matter of law." Mamsi Life & Health Ins. Co. v. Callaway, 375 "We ordinarily will uphold the grant of

Md. 261, 278 (2003).

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summary judgment only on a ground relied on by the trial court." Id. at 279. "It is well established in Maryland that insurance policies are construed like other contracts." Cas. Co., 346 Md. 217, 224 (1997). Litz v. State Farm Fire & "When determining coverage

under an insurance policy, `the primary principle of construction is to apply the terms of the insurance contract itself.'" Bausch

& Lomb, Inc. v. Utica Mutual Insurance Co., 355 Md. 566, 581 (1999) (Bausch & Lomb II) (citation omitted). "In doing so, we ascertain Id. "In

the parties' intentions from the policy as a whole."

construing the terms of the insurance contract, unless `there is an indication that the parties intended to use words in the policy in a technical sense, we accord the words their usual, ordinary, and accepted meaning.'" Id. "When the terms of a contract are

ambiguous, courts look to extrinsic sources to ascertain the meaning of the terms." 279. Mamsi Life & Health Ins. Co., 375 Md. at

"If the terms are unambiguous, the court may construe the Id.

language as a matter of law."

"`The promise to defend the insured, as well as the promise to indemnify, is the consideration received by the insured for payment of the policy premiums.'" Litz, 346 Md. at 225 (citation omitted). "The duty to defend is broader than the duty to indemnify," id., and "should be construed liberally in favor of the policyholder." Id. at 231. As the Court of Appeals has explained, "an insurer has 11

a duty to defend when there exists a `potentiality that the claim could be covered by the policy.'" Id. at 225 (citation omitted) (emphasis in original). "Under the potentiality rule, the insurer

will be required to defend more cases than it will be required to indemnify because the mere possibility that the insurer will have to indemnify triggers the duty to defend." Id. "The duty to

defend exists `even though "the claim asserted against the insured cannot possibly succeed because either in law or in fact there is no basis for a plaintiff's judgment."'" Id. (citations omitted).

Unlike the law of some states, which construes insurance contracts against the insurer, this Court holds that an insurance contract will be construed against the insurer only when an ambiguity remains after considering the intentions of the parties from the policy as a whole and, if necessary, after admitting and considering any relevant parol evidence. Bailer v. Erie Ins. Exchange, 344 Md. 515, 522 (1997). As with all insurance contracts, the language of a policy's insuring clause is always subject to interpretation. One of the

prime inquiries in interpreting a liability insurance policy is: what triggers coverage? [T]here are two types of Errors and Omissions Policies: the "discovery" [or claims made] policy and the "occurrence" policy. In a discovery policy the coverage is effective if the negligent or omitted act is discovered and brought to the attention of the insurance company during the period of the policy, no matter when the act occurred. In an occurrence policy the coverage is effective if the negligent or omitted act occurred during

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the period of the policy, whatever the date of discovery. Samuel N. Zarpas, Inc. v. Morrow, 215 F. Supp. 887, 888 (D. N.J. 1963). The difference between claims made policies and occurrence policies was contrasted in Mut. Fire, Marine & Inland Ins. Co. v. Vollmer, 306 Md. 243, 252 (1986). "Generally speaking,

`occurrence' policies cover liability inducing events occurring during the policy term, irrespective of when an actual claim is presented. Conversely, `claims made' (or `discovery') policies

cover liability inducing events if and when a claim is made during the policy term, irrespective of when the events occurred."4 Id.

See generally St. Paul Fire & Marine Ins. v. House, 315 Md. 328, 332-33 (1989). ("`"[C]laims made" (or "discovery") policies cover

liability inducing events if and when a claim is made during the policy term, irrespective of when the events occurred.'" (citation omitted)). Under "discovery" policies, the trigger is: when did the

injury take place? Such policies are characterized by coverage for acts or omissions only if they are discovered and brought to the

Variations on this definitional theme pervade the law. The fundamental distinction between the two types of policies has been expressed in different terms and with differences in emphasis. As Judge Rodowsky points out for the Court of Appeals in Mut. Fire, Marine & Inland Ins. Co. v. Vollmer, 306 Md. 243, 252 (1986), the Michigan case of Stine v. Continental Casualty Co., 349 N.W.2d 127 (Mich. 1984), contains an excellent comparison of occurrence coverage with pure, i.e., nonhybrid, claims made coverage. 13

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attention

of

the

insurer

during

the

policy

term.

Under

"occurrence"

policies, the trigger is:

when was the claim

reported to the carrier?

Under this latter type, liability can be

extended for an indefinite period beyond the actual policy period unless the retrospective coverage is restricted in some manner by the terms of the policy. A "discovery" policy or in "claims at made" one policy very differs important from an

"occurrence"

least

aspect:

transmittal of the notice of the claim to the insurer, because it triggers coverage, is the most important aspect of the "discovery" policy. The essence, then, of a "discovery" policy is notice to the carrier within the policy period. Thus, the timing of the making

of the claim in such policies is of equal importance with the error or omission. Notice to the insurer of a claim made against the

insured generally must be given during the policy period or within a specified amount of time after the policy period. With this general description of the insurance topography, we begin our peregrination. I. Acts or Omissions During Coverage Period Preliminarily, Pacific argues that the "acts" or "omissions" committed by Eig that led to his demands for coverage did not occur during the coverage period.

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As we explained in our recitation of the relevant facts, the Pacific policy became effective on March 1, 1987, and terminated on March 1, 1988. In pertinent part, it provided: I. THE COVERAGE INSURING AGREEMENT AND CLAIMS MADE CLAUSE The Company shall pay on behalf of the insured in excess of the deductible all sums which the insured shall become legally obligated to pay as Damages as a result of Claims first made against the Insured and reported to the Company during the Policy Period by reasons of any act, omission, or Personal Injury caused by the Insured or any person for whom the insured is legally liable in the rendering or failure to render Professional Services for others. PROVIDED ALWAYS THAT such act, omission or Personal Injury occurs: (a) during the Policy Period; or (b) prior to the effective date of the policy, provided no Insured had knowledge of any Claim or act, omission or Personal Injury that might give rise to a claim. On March 1, 1988, the "Discovery Period Endorsement" became effective. That endorsement stated: Coverage will be provided according to the applicable terms, conditions and exclusions of this policy for claims first made after the termination of the Policy Period, arising out of any act, omission or Personal Injury by the Insured in rendering Professional Services for others in the Insured's capacity as an Attorney, which occurred prior to the termination of the Policy Period and were caused by the Insured[] or any other person for whose acts or

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omissions the Insured is legally responsible, and are otherwise covered by this policy. (Emphasis added.) The endorsement thus extended coverage to acts

or omissions that occurred prior to March 1, 1987, but were reported later.5 The policy here clearly defined the extent of coverage in its insuring clause, which required (1) acts, omissions, or Personal Injury, (2) caused by the insured, (3) prior to the termination of the Policy Period and (4) "for claims first made after the

termination of the policy period."

Thus, although initially a

claims made policy, the endorsement is typical of "occurrence" policies, the policy provided coverage for a specific act or omission, generally ascertainable with some precision as to date and time, that occurred during a particular period, regardless of when the claim was asserted. The event that triggers coverage

under such a policy is transmittal of notice of the claim to the insurance carrier. In issuing such an endorsement, the carrier

The declaration page of the Pacific policy provided: "This is a claims made policy. Except to such extent as may be provided otherwise herein, this insurance is limited to liability for only those claims that are first made against the insured during the policy period." (Emphasis added.) In light of the above-quoted "Discovery Period Endorsement," the "claims made" language is inapplicable here. Because a substantial lapse of time often occurs between the claim and the occurrences in these types of cases, the trail coverage provided by occurrence policies is sometimes referred to as long-tail coverage. For a good explanation of such situations, see Allan D. Windt, Insurance Claims f& Disputes

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