E-Alert Case Updates

Maryland District Court Declines to Issue Declaratory Judgment Despite Finding “Actual Controversy” Over Insurance Policy Coverage

Empire Fire & Marine Ins. Co. v. Carroll Gross, Jr. et al.
United States District Court for the District of Maryland, CCB-11-3598 (D. Md. Feb. 12, 2013)
by Jhanelle Graham, Law Clerk
Semmes, Bowen & Semmes (www.semmes.com)

In Empire Fire & Marine Ins. Co. v. Carroll Gross, Jr. et al., the United States District Court for the District of Maryland was asked to issue a declaratory judgment that Plaintiff, Empire Fire & Marine Insurance Company (“Empire”), owed no defense or indemnity to Defendants, Carroll Gross (who operates Carroll Gross Trucking) and Selective Insurance Company (“Selective”), under an insurance policy for a fly ash delivery mishap that occurred in 2009. District Judge Catherine Blake declined to issue any declaratory judgment and dismissed the parties’ claims without prejudice.

On May 15, 2009, one (1) of Gross’s employees delivered a load of fly ash to Superior Concrete (“Superior”), but the employee allegedly hooked his delivery truck up to the wrong intake pipe, ruining a batch of Superior’s concrete. The resulting weakness in the concrete, according to a claim submitted to Gross by Superior, led to $485,000 in structural repairs at the construction sites of two (2) of Superior’s customers. Gross alerted Selective, his general liability insurance provider, and later Empire, his trucking insurance provider, of Superior’s claim against him, but both providers denied that their respective policies would cover the claim. Gross did not reimburse Superior for any loss, and the two (2) companies parted ways sometime after the incident. Importantly, Superior’s injured customers did not bring suit against Superior for their losses, and Superior, in turn, did not bring suit against Gross to recover any loss. It was also undisputed that the applicable statute of limitations had run on any claim Superior’s customers could have brought against Superior for the defective concrete it provided.

Nevertheless, because Empire believed that Gross could still be liable for an indemnification claim brought against him by Superior at some point in the future, Empire filed an action in the Maryland district court seeking a declaratory judgment that the policy it issued to Gross would not cover such a claim and that Selective’s policy would provide coverage. Gross and Selective filed claims seeking judgments that each policy would or would not cover such a claim, respectively. Gross also filed a third party complaint against his insurance broker alleging that, to the extent neither insurance company was held liable for a potential claim by Superior, the broker was negligent and breached its contract with Gross in procuring insurance coverage for him.

In the Maryland district court, Gross argued that the case did not involve an “actual controversy” because an action had not been filed and was unlikely to ever be filed, given that the statute of limitations had run on the underlying claim. Empire contended, however, that an actual controversy existed even though Superior’s injured customers may not be able to bring suit, because the operative statute of limitations was not between Superior and its customers but between Superior and Gross as to a potential action for indemnification and contribution. Such an action would not have accrued until Superior actually paid its customers for the damage its concrete caused. Thus, Empire argued, the statute of limitations between Superior and its customers would not necessarily bar an indemnification claim by Superior against Gross because it had not necessarily run.

First, the court articulated that “a dispute between a liability insurer, its insured, and a third party with a tort claim against the insured over the extent of the insurer’s responsibility for that claim is an ‘actual controversy’ within the meaning of [28 U.S.C. § 2201], even though the tort claimant has not yet reduced his claim against the insured to judgment.” Maryland Casualty Co. v. Pac. Coal & Oil Co., 312 U.S. 270 (1941). The court acknowledged that the statute, known as the Federal Declaratory Judgment Act, gives a federal district court the power, in any case of actual controversy within its jurisdiction, to “declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.” Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 375 (4th Cir. 1994) (quoting 28 U.S.C. § 2201).

Second, the district court agreed with Empire’s contention that there might be some possible threat of litigation, though tenuous. Because there was no indication in the record that Superior’s customers formally released it for the damage, the possibility that Superior may have made later payments to the injured parties—or even future payments—was enough to support Empire’s concern that a judgment against Gross related to the mistaken fly ash delivery was not entirely barred by law. Therefore, the mere prospect that Empire could, under Maryland law, be obligated to defend Gross against such a suit, even if only to file a brief stating such a claim was time barred, was enough to create an “actual controversy” related to the scope of the insurance policies at issue.

Nonetheless, in declining to issue a declaratory judgment, the court restated that an actual controversy does not confer an absolute right upon parties seeking a declaratory judgment but may be issued at the discretion of the court. The court reasoned that the risk to the parties of any actual liability emerging from this incident was so low, and the threat of further litigation in the matter so tenuous, that a declaratory judgment by the court, setting out the rights of the parties, would come precariously close to being an advisory opinion. The court also opined that even though declaratory relief would not be entirely frivolous—because it would clarify the scope of the parties’ insurance contracts with regard to a unique set of facts—the threat of further liability from the underlying controversy was too slight for the court to grant any relief in the matter. In concluding, however, the court noted that if the parties were someday confronted with any actual indication that liability may arise related to the fly ash mishap, they could justifiably return to the court seeking declaratory relief.