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The Stan dard Fire In surance, C o. v. Robe rt C. Berrett, No. 8, September Term, 2006. INSURANCE LAW - INSURABLE INTEREST - CONTRACT OF SALE The Standard Fire Insurance, Co., refused to pay a claim on a homeowner's insurance policy taken out by Robert Berrett on 4305 Gallatin Street, a property which was destroyed by fire after approval of a contract of sale on the p roperty by a circuit court judge in guardianship p roceedings for M r. Berrett's mother, Charlotte Berrett, but before settlement of the sale. Mr. Berrett brought an action for breach of contract, for w hich Standard Fire was granted summary judgment on the grounds that Mr. Berrett was judicially and collaterally estopped from asserting any ownership interest in the property because he had alleged in his verified petitions for h is mother's g uardiansh ip that his mother was th e own er of 43 05 Ga llatin Stre et. The Court of Special Appeals reversed the trial court's entry for summary judgmen t, determining that Mr. B errett did poss ess an insur able interest in the property at th e time of the fire and that Mr. B errett was n either collatera lly nor judicially estopped from asserting his ownership interest therein. The Court of Appeals affirmed the Court of Special Appeals's judgment and held that Mr. Berrett did possess an ownership interest, and therefore an insurable interest, in the property at the time of the fire because the sale was never completed. The Court concluded that Mr. Berrett was not collaterally estopped from asserting his ownership interest because the issue in the guardianship proceeding was not identical to the issue before the court in the insurance claim proceeding, nor was there a final judgment on the merits as to Mr. Berrett's ownership interest. Further, the Court also determined that the allegations made by Mr. Berrett in the guardianship proceedings were not inconsistent with his assertion that he possessed an economic interest in 4305 Gallatin Street in his law suit against Standard Fire, and therefore judicial estoppel was not applicable.

IN THE COURT OF APPEALS OF MARYLAND

No. 8 September Term, 2006

THE STANDARD FIRE INSURANCE, CO.

v.

ROBERT C. BERRETT

Bell, C.J. Raker Wilner Cathell Harrell Battaglia Greene, JJ.

Opinion by Battaglia, J. Raker, J., D issents

Filed: November 13, 2006

This action arises out of the refusal by the Petitioner, The Standard Fire Insurance, Co., to pay a claim on a hom eowner's insuranc e policy taken out by Respond ent, Robert Berrett, on 4305 G allatin Street, a property which was destroyed by fire, after approval of a contract of sale on th e property by a circuit cour t judge in gu ardianship proceedin gs for his mother, Charlotte Berrett, but before settlement. Standard Fire filed a petition for writ of certiorari seeking review of the Court of Special A ppeals's jud gment rev ersing the C ircuit Court for Baltimore City's entry of summary judgment for Standard Fire and raised the following questions: 1. When a person holds an unrecorded deed, pursuant to which grantor conveys to him a vested remainder and retains a life estate, does the court-ordered sale of the property in fee simple, in an action to which the grantee is a party, extinguish the gran tee's inter est in the p rope rty? 2. Under the scena rio described above, do the grantee's representations to the cou rt tha t grantor own s the prop erty, coupled with his failu re to raise an interest in the property, estop him from claiming such an interest by virtue of the unrecorded deed or im prov eme nts to the p rope rty? 3. If a person fails to protect his economic interest in a prop erty, does he r etain an in sura ble in teres t in th at property? Standard Fire Ins. v. B errett , 393 M d. 160, 9 00 A.2 d 206 ( 2006) . We shall hold that Mr. Berrett continued to possess an economic interest in the property even after the court's approval of the contract of sale of the property, and that he was not estopped from claiming an insurab le interest therein by his represen tations that his mother was the owner of the property during guardianship proceedings.1

1

We do not address the third question separately because it was not briefed, nor argued, as a unique issue, but incorporated in the presentation of the first issue.

Facts In Decem ber, 1995, R obert Berre tt relocated fro m Califo rnia, where he had been living for some twenty years, to his home state of Maryland and began residing at 4305 Gallatin Street, his family's home. In February, 1999, after having made numerous

improvem ents to the home, he learned tha t it was not ins ured, wh ich precipitate d his application for insurance with Standard Fire. Mr. Berrett timely paid all of the premiums on the polic y and, w hen it ex pired in Febru ary, 2000 , renew ed for a nother year. In March, 2000, Mr. Ber rett filed a verif ied petition, thro ugh cou nsel, in the C ircuit Court for Prince George's County, to be appointed guardian over the person and property of his mother, Charlotte Berrett. He alleged that he was her primary care taker and that she was no longer able to handle h er financial, b usiness, lega l, and personal matters. He also alleged that his mother "owns two parc els of real estate c ommo nly known as 4305 G allatin Street, Hyattsville, Marylan d 2078 3 and 2 303 F ordham Street, H yattsville, M aryland 2 0783," and listed himself and his four siblings as interested parties to the proceedings. Mr. Berrett filed a verified am ended pe tition in Ma y, 2000, in wh ich he aga in alleged that his mother owned 4305 Gallatin Street, and a verified emergency petition in June, iterating that she owned 4305 Gallatin Street. After a hearing on Mr. Berrett's petition, a judge of the Circuit Court for Prince George 's County ap pointed R ichard C. D aniels, an attorney, as the guardian of Charlotte Berrett's property, and Theresa Grant of the Prince George's Office of Aging, as guardian of her person. Shortly thereafter, Mr. Daniels petitioned the court for approval of a contract of sale for $89,000.00 for 4305 Gallatin Street, to which Mr. Berrett filed an -2-

opposition, alleging that the purchase amount was below market value, that the sale was not necessary to sustain his mother's care because he was supplementing her payments to the nursing home, and that his mother intended to reside at 4305 Gallatin Street in the future. The court overruled Mr. Berrett's opposition and on November 9, 2000, approved the contract. On November 25, 2000, fire destroyed the home be fore settlement and thereafter the purchaser exercised his right to rescind, pursuant to the contract's risk of loss clause, and the home was razed and the property subsequently sold to the same purchaser for a reduced price of $40,000.00. In the interim, Mr. Berrett filed a claim fo r $388,000.00 w ith Standard Fire to recover for the loss of the home. Standard Fire denied the claim, alleging that the court-approved sale of 4305 Gallatin Street extinguished Mr. Berrett's interest in the property so that he did not pos sess an insurab le interes t at the tim e of the loss. In his complaint against Standard Fire,2 Mr. Ber rett alleged tha t he had an insurable interest in 4305 Gallatin Street because his mother, in an unrecorded deed, had conveyed a remainder interest to him in the pro perty,3 while retain ing for her self a life estate, and also
2

Mr. Berrett's com plaint originally named Travelers' Property Casualty, Weaver Brothers Insurance Association, Inc. and Eleanor Cruz, both individually and as the agent of Weaver Brothers, as defendants but later dismissed his claims against Weaver Brothers and Cruz. Mr. Berrett also amended his complaint to reflect the correct name of the insurance com pany as The Stand ard F ire In sura nce C omp any.
3

The deed states: This warranty D EED is made on Augus t 4, 1973 by C harlotte Helen Berrett and herein delivered to Robert Carlyle Berrett, Charlotte Berrett's address being 2304 Fordham Street, -3-

because Mr. Berrett had resided in and made extensive improvements to the home between 1995 and 2000. He alleged that he never recorded the deed because, b y the deed's term s, it was not to be recorded until his mother's death. He further alleged that he did not disclose the existence of the unrecorded deed during the guardianship proceedings because he was under the imp ression that h is mo ther's life ten ancy e nabled h er to disp ose o f the prop erty.

Hyattsville, Md., and Robert Berrett's address being 4305 Gallatin Street, Hyattsville, Md. In consideration of the following improvements to my real prop erty, my residence, 2304 Fordham Street, performed by my Son, Robert C arlyle Berrett, (Such improvements consisting of installation of a two bedroom apartment in the basement of my residence at 2304 Fordham Street, including installation of a code approved concrete block exterior basement entrance, installation of plumbing for a complete basement bath and kitchen, laundry room, and partitions for two bedrooms one bath, living room two closets and a mechanical room containing water heater and furnace with a drainage system and sump pump installed, and m ajor alterations to the existing heating system), I hereby and herein grant to and deliver to my son, Robert Carlyle Berrett all that property situated in Prince Geo rge's Cou nty, Md. known as 4305 Galla tin Stree t, Hyattsvil le, Md ., and described as Lot 17, Block B, 2nd Addition to Wines and Johnson Subdivision in Hyattsville, Md. I cov enan t that I wa rranty the p rope rty spe cific ally. It is further agr eed herein and the right is reserved by me that I shall retain a life estate in the above described Gallatin Street property and that I shall for my life be entitled to all rents arising out o f the prop erty. It is further agreed that this DEED shall not be recorded until after my death, the death of me, Grantor of this DEED. -4-

In response to Mr. Berre tt's complaint, Standard Fire filed a m otion for summa ry judgmen t, alleging that the judicial approval of the sale of 4305 Gallatin Street on November 9, sixteen days before the fire, had extinguished Berrett's insurable interest in the pro perty. Standard Fire also argued that, because Mr. Berrett alleged in his verified petitions for his mother's guardianship that his mother was the owner of 4305 Gallatin Street, that he now was precluded under both the doctrines of collateral estoppel and estoppel by admission from assertin g his cla im in the proper ty. Mr. Berrett responded by alleging that, as a rema inderman in the prope rty, he could not be divested of his interest until the property was sold and, at th e time of the fire, the sale had not been completed. He further contended that he was not collaterally estopped from asserting his insurable interest because the issue during the guardianship proceedings was whether Charlotte Berrett was disabled, whereas, in the Standard Fire proceedings, the issue was whether Mr. Berrett possessed an insurable interest in the property. Morever, Mr. Berrett maintained that his allegation that his mother was the owner of the property in the guardians hip proceedings was not inconsistent with his statement of ownership during proceedings on the insurance claim because both possessed ownership interests in the proper ty; his moth er's of a life estat e interes t, and his of a rem ainder in terest. After the hearing on Standa rd Fire's summary judgment motion, at which both parties were represented by counsel and presented oral arguments, the trial court granted summ ary judgment to Standard Fire, concluding that Mr. Ber rett was bo th collaterally and judicia lly estopped from asserting an insurab le interest in the property. M r. Berrett noted a timely -5-

appeal to the Cou rt of Specia l Appeals , which de termined in a reported o pinion that, b y virtue of the unrecorded deed, Charlotte Berrett had, after retaining a life estate for herself, granted Mr. Ber rett a vested, ind efeasible re mainder in 4305 Gallatin Street, which was deemed to be an insurab le interes t. Berrett v. Standard Fire Ins. Co., 166 Md. App. 333, 338, 888 A.2d 1196, 1199 (2005). The intermediate appellate court held that the court's approval of the sale of the property did not negate Mr. Berrett's economic interest in the property because, even if the sale of the property had been completed at the time of the fire, Mr. Berrett would have had a chose in ac tion against th e guardian ship estate for his s hare in the sale proceeds as a remainderman. Thus, the Court o f Special A ppeals concluded that M r. Berrett did possess an economic, and therefore an insurable, interest in the property at the time of the fire. The court also determined that the doctrine of collateral estoppel did not apply to Mr. Berrett's action to recover from Standard Fire because the guardianship proceedings did not address the nature of Mr. Berrett's interest in 4305 Gallatin Street and that the doctrine of judicial estoppel did not apply because Mr. Berrett never took a position regarding his own inter est in the property during the guardian ship proceedings w hich were incons istent w ith his as sertions in the ins urance claim p roceed ings. Before this Court, S tandard F ire contend s that, under Section 12-301 (a) of the Insurance Article, Maryland Code (1997), an economic interest in property must be present in order to constitute an insurable interest therein. Standard Fire asserts that, when the contract of sale of the p roperty was approve d by the circuit court on Nov ember 9, 2000, M r. Berrett's econom ic, and theref ore insurab le, interest in the property was extinguished because -6-

only Charlotte B errett would benef it from th e proce eds of the sale. Standard Fire also alleges that the court in the guardianship proceeding made a final determination that Ch arlotte Berrett was the owner of 4305 Gallatin Street, and that Mr. Berrett was a party in those proceedings. The Company maintains, as a result, that Mr. Berrett was required to assert his ownersh ip interest during the guardia nship proceedings and is now barred by the doctrine of collateral estoppel from claiming an ownership interest in the property. Standard Fire also claims that Mr. Berrett is precluded under the doctrine of judicial estoppel from alleging that he was the owner of the property because he stated in all of his verified petitions for guardi anship that his m other w as the o wner o f 4305 Gallatin Street. Con vers ely, Mr. Berrett claims that, as owner of a vested, indefeasib le remaind er in 4305 Gallatin Stre et, he posses sed an insu rable interest in the property of which he was not divested by the court's approval of the contract of sale. Mr. Berrett maintains that whether a party possesses an insurable interest in a property is determined at the time of the loss, and that, at the time of the loss in this case, the sale of 4305 Gallatin Street had not been completed and thus, his insurable interest was not e xtinguished . Mr. Berre tt also claims th at, even if the sale had been completed at the time of the fire, his remainder interest would not have been entirely lost, but instead, translated into a right to the proceeds, which constitutes a chose in action and thereby an insurab le interest. M r. Berrett further alleg es that any claim of nonmutual collateral estoppel fails because the issue of his insurable interest in the property was not fully litigated during the guardianship proceedings. Mr. Berrett also contends that judicial estoppel does not apply in this case because the doctrine requires that -7-

he have taken an inconsistent position in the guardianship proceedings in order to gain an unfair adv antage in th ose proce edings, w hich he did not. Discussion The entry of sum mary judgm ent is gover ned by M aryland Rule 2-501, which provides in pertinent p art that: (f) Entry of jud gment. The court shall enter judgment in favor of or against the moving party if the motion and response show that there is no genuine dispute as to any material fact and that the party in whose favor judgment is e ntered is entitled to judgment as a matter of law. The question of whether the trial court properly granted summary judgment is a question of law and is subject to de novo review on app eal. Miller v. Ba y City Pro perty Owners A ss'n Inc., 393 Md. 620, 632, 903 A.2d 938, 945 (2006), quoting Myers v. Kayhoe; 391 Md. 188, 203, 892 A.2 d 520, 52 9 (2006); Ross v. State Bd. of Elections, 387 Md. 649, 658, 876 A.2d 692, 697 (2005); Todd v. MTA, 373 M d. 149, 154 , 816 A.2d 930, 933 (2003); Beyer v. Morgan State Univ., 369 Md. 335 , 359, 800 A.2d 7 07, 721 (2002). If no material facts are in dispute, we must determine whether summary judgment was correctly entered as a matter of law. Ross , 387 Md. at 659, 876 A.2d at 698; Todd , 373 Md. at 155, 816 A.2d at 933; Beyer , 369 Md. at 360, 800 A.2d at 721. On appeal from an order entering summary judgmen t, we review "only the grounds upon which the trial court relied in granting summ ary judgment". Ross , 387 Md. at 659, 876 A.2d at 698, quoting Eid v. Duke, 373 Md. 2, 10, 816 A.2d 844, 849 (2003), quoting in turn Lovelace v. Anderson, 366 Md. 690, 695, 785 A.2d 726, 729 (2001 ). -8-

There are two issues in this case : the first, w hether the judicial approval of the contract of sale of 4305 Gallatin Street divested Mr. Berrett of his insurable interest in the property at the time of the fire, and th e second , whether M r. Berrett is estopped from asserting that interest by his actions during the guardianship proceedings for mo ther, Charlotte Berrett. We conclude that Mr. Berrett possessed an insurable interest in the property at the time of the fire and that he was not estopped from asserting that interest because of what he said and did during his mother's guardianship proceedings. A. Effect of the Court's Approval of the Contract of S ale on Mr . Berrett's Insurab le Interest Standard Fire alleges that, because the circuit court had approved the sale of 4305 Gallatin Street on November 9, 2000, Mr. Berrett no longer possessed an economic interest in the property on November 25 when the home was destroyed by fire. We disagree. "Insurable interest" is defined in Section 12-301 of the Insurance Article, as an actual, lawful, and substantial economic interest in the safety or preservation of the sub ject of the ins urance ag ainst loss, destruction, or pecuniary damage or impairment to the pro perty. Maryland Code (1997), Section 12-301 (a) of the Insurance Article. Whether an individual holds an insurable interest is defined statutorily at the time of the loss, rather than at the time of the contrac t. Maryland C ode (199 7), Section 1 2-301 (b) o f the Insura nce Article. M r. Berrett contends that he owned an indefeasible, vested remainder, which constitutes an insurable interest at the time of the fire. A vested, indefeasible remainder is "a prese nt, fixed right to future enjoyment, and -9-

is an estate which the owner can convey or devise o r which d escends in case of inte stacy to his heirs." Myers v. Myers , 185 Md. 210, 221, 44 A.2d 455, 460 (1945). A remainder interest is "any future interest limited in favor of a transferee in such manner that it can become a present interest upon the expiration of all prior interests simultaneously created, and cannot divest any interest except an interest left in the transferor." 2 Restatement of Property

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