By: Mikhail Petrov
On February 19, 2016, in a published civil case of W.C. & A.N. Miller Dev. Co. v. Continental Casualty Co., the Fourth Circuit amended its decision from December 30, 2015, and affirmed the decision of the district court to deny W.C. & A.N. Miller Development Company (“Miller”) insurance coverage from its insurer, Continental Casualty Company (“Continental”). In 2006, Miller was sued in a contract dispute. Subsequently, Miller entered into a liability insurance contract with Continental. Miller was then sued again, in 2010, in a fraudulent conveyance action seeking recovery on the judgment entered in the 2006 lawsuit. Miller asked Continental to cover the 2010 suit. Continental, however, determined that the 2010 lawsuit was unrelated, and refused. In 2014, after Miller successfully defended the 2010 lawsuit, it sued Continental for breach of the insurance contract. The main issue was whether the 2006 and the 2010 disputes were interrelated, as defined by the insurance policy. The Fourth Circuit found that they are not.
In the early 2000s, one of the principles of Miller founded the land development company Haymount Limited Partnerships. Miller owned more than 80% of Haymount at all relevant times. Haymount’s goal was to develop land in Virginia. In order to develop the land, Haymount needed financing. Haymount entered into an agreement with two companies to search for a third party lender, International Benefits Group (“IBG”) and American Property Consultants (“APC”). The company that introduced Haymount to the eventual third-party lender would receive a finder’s fee. Haymount secured a $14 million loan from General Motors Acceptance Corporation Residential (GMAC). Haymount then paid a finder’s fee to APC. Upon learning of the GMAC loan, IBG also sought payment of its fee and sent Haymount a list of lenders, which included GMAC, to whom IBG had introduced Haymount. Haymount refused to pay and IBG sued for breach of contract. The suit commenced in 2006, and on January 8, 2010, the district court entered judgement against Haymount, awarding $4,469,158 to IBG.
Eight months after the judgment in the 2006 lawsuit, on October 29, 2010, IBG again sued Haymount. The 2010 lawsuit alleged that the Haymount took actions to render itself judgment proof so that IBG could not collect on the judgment entered in its favor after the 2006 lawsuit. The causes of action asserted in the 2010 lawsuit included fraudulent transfer, fraudulent conveyance, common law and statutory conspiracy, and creditor fraud. The complaint included detailed information of the 2006 lawsuit, which gave rise to the judgement in favor of IBG.
Miller (Haymount’s parent corporation) entered into a liability insurance contract with Continental Casualty Company in 2010. Miller sought for Continental to cover the defense costs. Continental denied coverage as being outside the scope of the policy and Miller proceeded with the defense at its own expense and won. Miller then filed a lawsuit against Continental, alleging that Continental wrongfully denied coverage under the policy and should be required to pay the costs Miller incurred defending the 2010 lawsuit.
The policy, J.A. 35-75, provided that “More than one Claim involving the same Wrongful Act or Interrelated Wrongful Acts shall be considered as one Claim which shall be deemed made on . . . the date on which the earliest such Claim was first made. . . .” In other words, this provision stated that if more than one claim involving “interrelated wrongful acts” is made against Miller or its subsidiaries, the multiple claims are considered a single claim made on the date on which the earliest of the claims was made. Further, the policy expansively defined “interrelated wrongful acts” as “any Wrongful Acts which are logically or causally connected by reason of any common fact, circumstance, situation, transaction or event.” From this language, Continental reasoned that the acts alleged in the 2006 lawsuit and other acts alleged in the 2010 lawsuit were interrelated wrongful acts. The district court agreed with Continental and dismissed Miller’s claim.
Rules of the Case
The Fourth Circuit was tasked with determining whether the district court properly interpreted and applied the provisions of the insurance contract. Because the district court sat in Maryland, Maryland law applied to the case. Under Maryland law, insurance policies are interpreted in the same manner as contracts generally. There is no rule in Maryland that insurance policies are to be construed against the insurer. Catalina Enters., Inc. Pension Tr. v. Hartford Fire Ins. Co., 67 F.3d 63, 65 (4th Cir. 1995). Clear and unambiguous language, however, must be enforced as written and may not yield to what the parties later say they meant. Additionally, unless there is an indication that the parties intended to use words in a special technical sense, the words in a policy should be accorded their “usual, ordinary, and accepted meaning.” Bausch & Lomb, Inc. v. Utica Mut. Ins. Co., 625 A.2d 1021, 1031 (Md. 1999). However, where an insurance contract is ambiguous, “any doubt as to whether there is a potentiality of coverage under [the] insurance policy is to be resolved in favor of the insured.” Clendenin Bros. v. U.S. Fire Ins. Co., 889 A.2d 387, 394 (Md. 2006).
The Fourth Circuit concluded that the conduct alleged in the 2006 and 2010 lawsuits share a common nexus of fact and are, therefore, interrelated wrongful acts under the policy’s definition. The Court noted that the policy’s definition of “interrelated wrongful acts” is expansive. Additionally, the Court did not find the definition to be ambiguous and applied it in accordance with the ordinary meaning of the words used. Like the district court, the Fourth Circuit observed that the two lawsuits are linked by (1) a multitude of common facts: in particular, that Haymount did not pay IBG the finder’s fee; (2) a common transaction: the contract between Haymount and IBG; and (3) common circumstances: namely, Haymount’s attempts to secure financing for its land development project in Virginia. These elements logically and causally connected the two lawsuits. Absent Haymount’s breach of its contract and other alleged torts, IBG would not have sued for damages in 2006, nor would it have sued for enforcement of the 2006 judgment in 2010.
Miller attempts to avoid the Fourth Circuit’s straightforward conclusion by characterizing the allegations in the two lawsuits as alleging merely a “common motive” which is insufficient to establish the interrelatedness of the 2006 and 2010 lawsuits. The Fourth Circuit rejected this argument, citing back to the definition of “interrelated wrongful acts” within the insurance policy as broad and unambiguous. Additionally, the Court cited that both the 2006 and the 2010 lawsuits focus on the same issue, payment of the finder’s fee by Haymount to IBG.
The Fourth Circuit held that Continental was correct in refusing to cover Miller’s court expenditures for the 2010 lawsuit. Because the 2010 lawsuit and the 2006 lawsuit involve interrelated wrongful acts, they were part of the same claim under the policy. The Court affirmed the judgement of the district court.