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, REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND Nos. 1716 & 2327 September Term, 1999 _______________________________

ZURICH INSURANCE COMPANY

V.

PRINCIPAL MUTUAL INSURANCE COMPANY, ET AL.

* * * * *

ZURICH INSURANCE COMPANY

V.

PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, ET AL. _______________________________ Moylan, Salmon, Helinski, George J.,specially assigned, JJ. _______________________________

Opinion by Salmon, J.

Filed: November 2, 2000

The single issue to be addressed in this opinion is whether Zurich Insurance Company ("Zurich") had a duty to defend the owner of an apartment building and a property management company from a lawsuit brought by Sonia Davila, who was injured in an elevator accident on January 6, 1994. The firm of Barnes,

Morris, Pardoe and Foster Management Services, LP ("BMPF"), at all times here relevant, managed the office building where Ms. Davila was injured, and Principal Mutual Insurance Company

("Principal") owned it. In September entered 1993, into a Millar Elevator with Service BMPF to Company perform

("Millar")

contract

maintenance service on certain elevators and to modernize all elevators in the East-West Tower Office Building ("the Tower Building") located in Bethesda, Maryland. of the contract, an Owners policy Millar and from secured, on Pursuant to the terms of Principal and liability under the

behalf

BMPF,

Contractors Zurich. and the

Protective The named The

("OCP") insureds policy (1)

insurance policy

were

Principal to

BMPF. named

OCP

provided negligent

liability

coverage

insureds

for

supervision of Millar's work and (2) claims by third parties who suffered injuries or damages solely as a result of Millar's

negligent acts or omissions in the performance of its work. The OCP policy contained two exclusions that are of

importance:

This insurance does not apply to: * * * c. "Bodily injury" or "property damages" which occurs after the earlier of the following times: (1) When all "work" on the project (other than service, maintenance or repairs) to be performed for you by the "contractor" at the site of the covered operations has been completed; or When that portion of the "contractor's" "work" out of which the injury or damage arises, has been put to its intended use by any person or organization. . . .

(2)

In addition to the OCP policy, Millar bought a second policy from Zurich -- a Commercial General Liability ("CGL") policy. The CGL policy covered Millar -- but not Principal or BMPF -- for claims against Millar arising from Millar's negligence while

working at the Tower Building. On January 6, 1994, sometime after 4 p.m., Ms. Davila, an office worker in the Tower Building, boarded an elevator on the eleventh floor intending to return to her office on the third floor. The elevator "fell or dropped from the eleventh floor in

an extremely rapid fashion" to a position between two of the basement floors, where she was briefly trapped. the accident, Ms. Davila suffered serious As a result of physical and

psychological injuries.

2

Ms.

Davila

filed

a

tort

suit

in

the

Circuit

Court

for

Montgomery County against Principal, BMPF, and Millar. second amended complaint, she alleged that she was a passenger in an elevator, which, due to the carelessness and negligence of the defendants, failed and fell or dropped from the eleventh floor in an extremely rapid fashion past plaintiff's designated stop at her office on the third floor to a position between the B4 and B3 sublevels of the above building. Paragraph 9 of her complaint read: The defendants failed to warn the plaintiff that the elevator system she was using was being repaired or remodeled and was not properly operational and, as a result thereof, the plaintiff took the elevator and became injured as stated in Count I above.

In her

Principal and BMPF asked Zurich to provide a defense and to indemnify them from the claims asserted in Ms. Davila's lawsuit. Relying on exclusions c(1) and (2) quoted supra, Zurich refused to defend. Consequently, St. Paul Fire & Marine Insurance

Company ("St. Paul"), the insurer of Principal under a separate policy, defended Principal and BMPF in the Davila tort suit. On December 22, 1997, Millar, Principal, and BMPF settled the Davila lawsuit for $150,000. Millar contributed $75,000 to

the settlement, and St. Paul, on behalf of Principal and BMPF, paid the remainder. St. Paul, BMPF, and Principal, on December 31, 1997, filed a declaratory judgment action 3 against Zurich in the Circuit

Court for Montgomery County.

The plaintiffs asked the court to

declare, inter alia, that Zurich, under its OCP policy, had a duty to defend and indemnify Principal and BMPF for the monies ($75,000) expended in settling the Davila lawsuit.

Additionally, plaintiffs asked the court to declare that Zurich had breached a duty to defend BMPF and Principal in the Davila tort action. St. Paul, as a third party beneficiary of the OCP

policy, asked the court to enter a judgment in its favor for the amount it paid to settle the Davila suit, together with

attorneys' fees and costs incurred in defending that suit and in bringing the declaratory judgment action. Discovery in the case was conducted. Depositions revealed

that, on the day of Davila's accident, Frank Jenkins, a Millar employee, along with a helper (Bob Bohanan, also a Millar

employee), performed no-load safety tests on all four elevators in the West Tower of the Tower Building, including the elevator in which the accident occurred. that such tests be conducted The State of Maryland had asked prior to commencement of the

modernization work. To perform the safety tests, Jenkins and Bohanan placed the elevators on "independent service" so they could not be used by any of the office workers in the Tower Building. When they

finished the tests later that day, Jenkins and Bohanan returned

4

the elevators

to

regular

service.

Thus,

the

elevators

were

available for normal use when Ms. Davila was injured. St. Paul, Principal, and BMPF filed a motion for partial summary judgment in the declaratory judgment action. They

asserted that Zurich, under its OCP policy, breached its duty to defend its named insureds. Zurich filed an opposition to the motion for partial summary judgment. It contended, based on the exclusions set forth in

exclusion c(1) and (2) of the OCP policy, that it had no duty to defend the Davila claim. Moreover, relying primarily on the

decision in James v. Hyatt Corp., 981 F.2d 810 (5th Cir. 1993), Zurich moved for summary judgment in its favor as to all of the plaintiffs' claims. On March 23, 1999, a hearing was held regarding the motion for partial summary judgment. Zurich's counsel argued that it

was undisputed that, at the time of the accident, no employees of Millar's were at the Tower Building and that, based on the allegations in Ms. Davila's own complaint, there was not even a potentiality of coverage because she was using the elevator for its intended purpose at the time the accident occurred. The

trial judge rejected Zurich's arguments and granted plaintiffs' summary judgment as to their claim that Zurich had a duty to defend the Davila action. follows: The court explained its ruling as

5

Okay. Well, it is certainly an interesting argument both of you make in terms of this nifty issue of duty to defend coverage. I am going to rule in favor of the plaintiff. I do that because I think I am right, but I acknowledge that I may not be. I just think that given these circumstances and given the allegations that are in the complaint, that it is at least close enough to trigger a duty to defend. When the plaintiff alleges in the complaint a failure to warn about repair and remodeling, that is close enough to an allegation that would allow the exclusion not to apply. That is sort of a double negative and I hope I said that right. Even though it is not a general liability policy which includes the general litigation insurance, the exclusion to whatever extent it is ambiguous, the ambiguity needs to be resolved against the writer, the insurance company, the exclusion does not throw the claim for duty to defend out. Therefore, I will rule in favor of the plaintiff with respect to the claim for partial summary judgment as to the issue of duty to defend subject to further proof as to damages. I guess that makes [Zurich's] crossmotion moot but I will leave that up to you as to whether you think it does or not. It is not before me now. I am simply ruling on what is before me, which is the plaintiff's motion for partial summary judgment. Madam Clerk, for the reasons stated, indicate the [c]ourt grants the plaintiff's motion for partial summary judgment as to duty to defend. 6

Subsequently, the plaintiffs moved for full summary judgment against Zurich, asking the court to rule, as a matter of law, that Zurich had a duty to indemnify them for the $75,000

expended in settling the Davila tort suit. granted.

That motion was also

Subsequently, the trial judge filed a written order

declaring the rights of the parties and granting the plaintiffs a judgment of $74,705.59 (representing court costs and

attorneys' fees) resulting from Zurich's [alleged] breach of its duty to defend and $75,000 due to Zurich's [purported] breach of its duty to indemnify.

ANALYSIS During oral argument in this case, counsel for appellees (St. Paul, BMPF, and Principal) made an unusual concession.

Appellees' counsel said that his clients no longer contended that the trial judge was correct when he ruled that Zurich owed Principal and BMPF indemnification for the amount they expended Based on that concession, together

to settle the tort case.

with our own review of the record, we shall reverse the grant of summary judgment should declare for and that the order Zurich that had upon no to remand duty the trial court the tort

to

indemnify Davila

appellees suit.

monies

expended

settle

the

7

This leaves us with the issue of whether the trial judge erred when he entered partial summary judgment in favor of the appellees concerning Zurich's duty to defend. A. Standard of Review

A trial court may grant summary judgment only if "the motion and response show that there is no genuine dispute as to any material fact and the party in whose favor judgment is entered is entitled to judgment as a matter of law." Md. Rule 2-501(e).

In reviewing a trial judge's grant of a summary judgment motion, we must consider the facts, and any reasonable inferences drawn

from those facts, in the light most favorable to the non-moving party. See Dobbins v. Washington Suburban Sanitary Comm'n, 338

Md. 341, 345 (1995); Richman v. FWB Bank, 122 Md. App. 110, 146 (1998), aff'd, 354 Md. 472 (1999). B. Duty to Provide a Defense

Recently, in Utica Mutual Insurance Company v. Miller, 130 Md. App. 373, 383 (2000), Judge Adkins, for this Court,

summarized the "potentiality" rule by saying: [I]f any claims potentially come within the policy coverage, the insurer is obligated to defend all claims "'notwithstanding alternative allegations outside the policy's coverage, until such times . . . that the claims have been limited to ones outside the policy coverage.'" Southern Md. Agric. Assoc., Inc. v. Bituminous Cas. Corp., 539 F.Supp. 1295, 1299 (D. Md. 1982) (quoting Steyer v. Westvaco Alan Appleman Insurance Law and Practice, 450 F.Supp. 384, 389 (D. Md. 1978)); see John Alan Appleman, 8

Insurance Law and Practice,

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