Resource Real Estate Services, LLC v. Evanston Insurance Company
MEMORANDUM OPINION. Signed by Judge George Levi Russell, III on 2/17/2017. (krs, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
RESOURCE REAL ESTATE SERVICES,
Civil Action No. GLR-16-168
EVANSTON INSURANCE COMPANY,
THIS MATTER arises out of an insurance-coverage dispute between
Defendant Evanston Insurance Company (“Evanston”).
the Court are the parties’ Cross-Motions for Summary Judgment.
Resource in a lawsuit related to settlement services that Resource
The Motions are ripe for disposition, and no hearing is
See Local Rule 105.6 (D.Md. 2016).
For the reasons
outlined below, the Court will deny Resource’s Motion and grant
In November 2014, Evanston issued Resource a Professional
Liability Insurance Policy (the “Policy”).
(Compl. ¶ 10, ECF No.
The Policy provides that, subject to conditions not relevant to
this case, Evanston is obligated to pay Resource for claims related
to “Wrongful Act[s]” that Resource commits in the performance of
(Compl. Ex. A [“Policy”], at 15, ECF No.
A Wrongful Act is “any negligent act, error or omission in
Professional Services,” (id. at 17), and Professional Services
include “settlement services” and “title insurance,” (id. at 27).
The Policy excludes from coverage any claim “arising out of any
defalcation, theft, disappearance, [or] insufficiency in the amount
of escrow funds, monies, monetary proceeds, funds or property, or
any other assets, securities, negotiable instruments or any other
thing of value.”
(Id. at 4).
These exclusions apply “irrespective
of which individual, party, or organization actually or allegedly
misappropriation, commingling, defalcation, theft, disappearance,
[or] insufficiency in amount.”
The Policy also provides
investigate” any claim covered under the Policy.
(Id. at 20).
The Settlement and the Proceeds
On September 30, 2015, Resource performed settlement services
for the sale of Richard Deem’s home in Dundalk, Maryland (the
(Compl. ¶ 17).
Resource issued Deem a check for
$223,213.16 (the “Check”), representing the net proceeds from the
sale (the “Proceeds”).
Shortly after the Settlement,
Resource received numerous e-mails from someone claiming to be Deem
(the “Alleged Imposter”).
(Id. ¶¶ 18–21).
The email address
associated with all the messages was RichardDeem@mail.com (the “EMail Account”).
(Id. ¶ 18).
Just two days after the Settlement, the Alleged Imposter
emailed Resource to request that Resource wire the Proceeds to his
Resource responded that Deem already had the Check
for the Proceeds and Resource would not stop payment on the Check
until it received evidence that Deem voided the Check. (Id.).
Alleged Imposter then wrote that the Check “was trashed and payment
should be stopped immediately.”
On October 5, 2015, Resource received another email from the
Alleged Imposter. (ECF No. 19).
This time, the Alleged Imposter
requested that Resource deposit the Proceeds in a TD Bank account
(the “TD Bank Account”).
Because it did not appear that
Deem’s name was on the TD Bank Account, Resource advised that it
would not stop payment on the Check or wire the Proceeds to the TD
Bank Account unless it received confirmation that the Check was
voided or that Deem owned the TD Bank Account.
then received a voided check corresponding to the TD Bank Account,
but advised that it would not wire the Proceeds to the TD Bank
Account until it received signed authorization.
later received such authorization and observed that the signature
appeared to match Deem’s signature on the settlement documents.
Resource then placed a stop-payment on the Check and
informed the Alleged Imposter that Resource would not wire the
Proceeds until it finalized the stop-payment -- a process which
could take forty-eight hours.
On October 7 and 8, 2015, the Alleged Imposter emailed Resource
to check on the status of the wire transfer.
(Id. ¶¶ 20, 21).
October 8, 2015, Resource confirmed that it had executed the wire
(Id. ¶ 21).
Just five days later, Resource “received an
e-mail from the E-Mail Account alleging that the E-Mail Account was
hacked by an unknown individual” and requesting that Resource
disregard all previous e-mails from the E-Mail Account.
(Id. ¶ 22).
That same day, Resource received a call from a representative of
SunTrust Bank in Florida, who advised that Deem did not receive the
Proceeds from the Check.
Check on October 1, 2015.
(Id. ¶ 23).
Deem allegedly deposited the
The SunTrust representative also
explained that on October 6, 2015, it received notice of the stoppayment on the Check and advised Deem of the same.
Deem’s Suit and Evanston’s Denial of Coverage
In early December 2015, Deem sued Resource in the Circuit Court
for Baltimore County, Maryland, alleging that Resource was negligent
in handling the Proceeds (the “Deem Suit”).
(Id. ¶ 24).
alleges that at the conclusion of the Settlement, Resource issued
him the Check for $223,123.16 in Proceeds.
(Pl.’s Mot. Partial
Summ. J. Ex. F. [“Deem’s Am. Compl.”], ¶ 11, ECF No. 12-8).
next day, Deem negotiated the Check by deposit into his SunTrust
(Id. ¶ 12).
Deem then traveled to Florida and entered
into a contract to purchase a new home.
(Id. ¶ 13).
to use the Proceeds in his SunTrust account to purchase the new
(Id. ¶ 14).
About a week after depositing the Proceeds,
however, Deem learned that funds were not in his SunTrust account.
(Id. ¶ 15).
Resource advised that it had stopped payment on the
check and wired the Proceeds to the TD Bank Account in West Palm
(Id. ¶¶ 16, 21).
Deem, however, did not authorize
Resource to stop payment on the check or wire the funds to the TD
(Id. ¶¶ 17, 23).
with TD Bank.
(Id. ¶ 24).
Deem does not maintain an account
Resource failed to return the Proceeds,
leaving Deem without money from the sale of his home and unable to
purchase a new home.
(Id. ¶¶ 26, 27).
Shortly after Deem filed his suit, Resource sent a letter to
(Compl. ¶ 28).
Less than two weeks later,
Resource’s claim was excluded because it “is wholly based upon or
arises out of a theft, disappearance, or insufficiency of the
monetary proceeds of the sale of the property.”
(Id. ¶ 29).
In January 2016, Resource sued Evanston in this Court, seeking
declarations that the Policy obligates Evanston to defend (Count I)
and indemnify (Count II) Resource in the Deem Suit.1
Resource then moved for partial summary judgment in May 2016, asking
the Court to (1) declare that Evanston has a duty to defend and (2)
stay further proceedings regarding Evanston’s duty to indemnify.
(ECF No. 12).
In August 2016, Evanston filed an Opposition and
Evanston has neither a duty to defend nor indemnify. (ECF No. 18).
The Cross-Motions for Summary Judgment were fully briefed as of
October 2016 (ECF Nos. 18, 22, 23).
Standard of Review
In reviewing a motion for summary judgment, the Court views the
facts in a light most favorable to the nonmovant, drawing all
The Declaratory Judgment Act, 28 U.S.C. § 2201 (2012), grants
federal district courts discretion to entertain declaratory judgment
actions. See Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995).
District courts have “discretion to entertain a declaratory judgment
action if the relief sought (i) ‘will serve a useful purpose in
clarifying and settling the legal relations in issue’ and (ii) ‘will
terminate and afford relief from the uncertainty, insecurity, and
controversy giving rise to the proceeding.’”
Mortg. Corp. v. FISI Madison, LLC, 219 F.Supp.2d 669, 672 (D.Md.
2002) (quoting Cont’l Cas. Co. v. Fuscardo, 35 F.3d 963, 965 (4th
Cir. 1994)). Because the relief that Resource seeks will resolve
the uncertainty giving rise to this case, the Court will entertain
justifiable inferences in that party’s favor.
Ricci v. DeStefano,
557 U.S. 557, 586 (2009); Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 255 (1986) (citing Adickes v. S.H. Kress & Co., 398 U.S. 144,
demonstrates, through “particular parts of materials in the record,
including depositions, documents, electronically stored information,
interrogatory answers, or other materials,” that “there is no
genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.”
Fed.R.Civ.P. 56(a), (c)(1)(A).
Once a motion for summary judgment is properly made and
supported, the burden shifts to the nonmovant to identify evidence
showing there is genuine dispute of material fact.
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586–87 (1986).
The nonmovant cannot create a genuine dispute of material fact
“through mere speculation or the building of one inference upon
Beale v. Hardy, 769 F.2d 213, 214 (4th Cir. 1985)
A “material fact” is one that might affect the outcome of a
Anderson, 477 U.S. at 248; see also JKC Holding Co.
v. Wash. Sports Ventures, Inc., 264 F.3d 459, 465 (4th Cir. 2001)
(citing Hooven-Lewis v. Caldera, 249 F.3d 259, 265 (4th Cir. 2001)).
Whether a fact is considered to be “material” is determined by the
substantive law, and “[o]nly disputes over facts that might affect
the outcome of the suit under the governing law will properly
preclude the entry of summary judgment.”
Anderson, 477 U.S. at 248;
concerning a “material” fact arises when the evidence is sufficient
to allow a reasonable jury to return a verdict in the nonmoving
Anderson, 477 U.S. at 248.
If the nonmovant has
failed to make a sufficient showing on an essential element of her
case where she has the burden of proof, “there can be ‘no genuine
[dispute] as to any material fact,’ since a complete failure of
proof concerning an essential element of the nonmoving party’s case
necessarily renders all other facts immaterial.”
Celotex Corp. v.
Catrett, 477 U.S. 317, 322–23 (1986).
When the parties have filed cross-motions for summary judgment,
the court must “review each motion separately on its own merits to
‘determine whether either of the parties deserves judgment as a
matter of law.’”
Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir.
2003) (quoting Philip Morris Inc. v. Harshbarger, 122 F.3d 58, 62
n.4 (1st Cir. 1997)).
Moreover, “[w]hen considering each individual
motion, the court must take care to ‘resolve all factual disputes
and any competing, rational inferences in the light most favorable’
to the party opposing that motion.”
Id. (quoting Wightman v.
Springfield Terminal Ry. Co., 100 F.3d 228, 230 (1st Cir. 1996)).
This Court, however, must also abide by its affirmative obligation
to prevent factually unsupported claims and defenses from going to
Drewitt v. Pratt, 999 F.2d 774, 778–79 (4th Cir. 1993).
the evidence presented by the nonmovant is merely colorable, or is
not significantly probative, summary judgment must be granted.
Anderson, 477 U.S. at 249–50.
Standard for Construing an Insurance Contract
The parties ask the Court to interpret the Policy to determine
whether it requires Evanston to defend and indemnify Resource in the
The Court will interpret the Policy under Maryland law.2
In Maryland, contract interpretation is a question of law.
of Wash., Inc. v. Starwood Urban Retail II, LLC, 829 A.2d 540, 544
Maryland interprets insurance policies according to
ordinary principles of contract interpretation.
Prof’l Risk Mgmt. Servs., Inc., 921 A.2d 245, 251 (Md. 2007).
Because the Court has diversity jurisdiction over this case,
the Court must apply Maryland’s choice-of-law rules. See Harvard v.
Perdue Farms, Inc., 403 F.Supp.2d 462, 466 (D.Md. 2005) (citing
Limbach Co., LLC v. Zurich Am. Ins. Co., 396 F.3d 358, 361 (4th Cir.
Maryland generally applies the doctrine of lex loci
contractus, which provides that a contract dispute is governed by
the law of the jurisdiction in which the contract was made. See
Allstate Ins. Co. v. Hart, 611 A.2d 100, 101 (Md. 1992). When the
contract is an insurance policy, the contract is usually “made” in
“the state in which the policy is delivered and the premiums are
paid.” Francis v. Allstate Ins. Co., 709 F.3d 362, 370 (4th Cir.
2013) (quoting Aetna Cas. & Sur. Co. v. Souras, 552 A.2d 908, 911
(Md.Ct.Spec.App. 1989)). Resource asserts -- and Evanston does not
dispute -- that Evanston delivered the Policy and Resource paid the
premiums in Maryland. (See ECF No. 12-1 at 10).
Court will apply Maryland’s rules of contract interpretation.
See Sy–Lene, 829 A.2d at 546 (“Maryland follows the
law of objective contract interpretation.”).
Under Maryland’s objective approach to contract interpretation,
the Court “must first determine from the language of the agreement
itself what a reasonable person in the position of the parties would
have meant at the time it was effectuated.”
Gen. Motors Acceptance
Corp. v. Daniels, 492 A.2d 1306, 1310 (Md. 1985).
If “the language
of the contract is plain and unambiguous there is no room for
construction, and a court must presume that the parties meant what
In this situation, “the true test of what is
meant is not what the parties to the contract intended it to mean,
but what a reasonable person in the position of the parties would
have thought it meant.”
Plain and unambiguous language “will
not give away to what the parties thought that the agreement meant
or intended it to mean.”
Id. (citing Board of Trustees v. Sherman,
373 A.2d 626, 629 (Md. 1977)).
The construction of an unambiguous contract is for the Court
alone to determine.
Wells v. Chevy Chase Bank, F.S.B., 768 A.2d
620, 630 (Md. 2001).
Thus, if the Court determines that a contract
is unambiguous on a dispositive issue, “it may then properly
interpret the contract as a matter of law and grant summary judgment
because no interpretive facts are in genuine issue.”
Norkunas, 919 A.2d 700, 709 n.8 (Md. 2007) (quoting Wash. Metro.
Area Transit Auth. v. Potomac Inv. Props., Inc., 476 F.3d 231, 235
(4th Cir. 2007)).
litigation, the parties offer different meanings to the language.”
Diamond Point Plaza Ltd. P’ship v. Wells Fargo Bank, N.A., 929 A.2d
932, 952 (Md. 2007).
Rather, “a written contract is ambiguous if,
when read by a reasonably prudent person, it is susceptible of more
than one meaning.”
Calomiris v. Woods, 727 A.2d 358, 363 (Md. 1999)
(citing Heat & Power Corp. v. Air Prods. & Chems., Inc., 578 A.2d
1202, 1208 (Md. 1990)).
When determining whether a contract is
ambiguous, the Court will consider “the character of the contract,
its purpose, and the facts and circumstances of the parties at the
time of execution.”
Id. (quoting Pac. Indem. Co. v. Interstate Fire
& Cas. Co., 488 A.2d 486, 488 (Md. 1985)).
If the terms of a
contract are ambiguous, the court may consider extrinsic and parol
evidence to ascertain the intentions of the parties.
Allstate Ins. Co., 667 A.2d 617, 619 (Md. 1995).
When construing an insurance policy, “[u]nless there is an
indication that the parties intended to use words in the policy in a
technical sense, [the words] must be accorded their customary,
ordinary, and accepted meaning.”
Lloyd E. Mitchell, Inc. v. Md.
Maryland does not follow the rule that insurance policies should be
construed against the insurer as a matter of course.
Dutta v. State
Farm Ins. Co., 769 A.2d 948, 957 (Md. 2001). But if the allegations
in Deem’s complaint make it uncertain whether the Policy potentially
covers Resource’s claim, “any doubt must be resolved in favor of
Aetna Cas. & Sur. Co. v. Cochran, 651 A.2d 859, 863–64
Similarly, “if no extrinsic or parol evidence is
introduced, or if . . . ambiguity remains after consideration of the
extrinsic or parol evidence that is introduced, [the ambiguity] will
be construed against the insurer as the drafter of the instrument.”
Sullins, 667 A.2d at 619 (citations omitted).
In Maryland, “[t]he obligation of an insurer to defend its
insured under a contract provision . . . is determined by the
allegations in the tort actions.”
A.2d 842, 850 (Md. 1975).
Brohawn v. Transam. Ins. Co., 347
Thus, “[i]f the plaintiffs in the tort
suits allege a claim covered by the policy, the insurer has a duty
Id. (citation omitted).
And, “[e]ven if a tort
plaintiff does not allege facts which clearly bring the claim within
or without the policy coverage, the insurer still must defend if
there is a potentiality that the claim could be covered by the
See St. Paul Fire & Marine Ins. Co. v.
Pryseski, 438 A.2d 282, 286 (Md. 1981) (referring to the rule
pronounced in Brohawn as the “potentiality rule”).
To ascertain whether an insurer has a duty to defend its
insured, the Court must answer two questions.
First, “what is the
coverage and what are the defenses under the terms and requirements
of the insurance policy?”
Id. at 285.
the language of the policy.
This question focuses upon
Second, “do the allegations in the
tort action potentially bring the tort claim within the policy’s
This question focuses upon the allegations of the
tort suit -- not the language of the policy.
potentiality rule only applies to this second question.
Indeed, “when the question of coverage or defenses under the
language or requirements of the insurance policy is separate and
‘potentiality rule’ . . . has no application.”
Id. at 286.
Additionally, when interpreting an exclusion clause in an
insurance contract, “[t]he words ‘arising out of’ must be afforded
growing out of, flowing from, or the like.”
N. Assur. Co. of Am. v.
EDP Floors, Inc., 533 A.2d 682, 688 (Md. 1987).
An injury arises
out of excluded conduct when the excluded conduct is one cause of
the injury -- it need not be the only cause.
For example, in EDP
Floors, an EDP employee was intoxicated when he attempted to unload
floor tiles from a truck and injured a bystander.
The bystander sued EDP for negligence.
Id. at 683–84.
Id. at 684.
claimed against the Northern Assurance Company, EDP’s insurer,
seeking a declaration that Northern Assurance had a duty to defend
and indemnify EDP.
The insurance policy between Northern
Assurance and EDP excluded claims for damages arising out of the
unloading of automobiles.
Id. at 686.
Assurance’s policy excluded the bystander’s claims because unloading
the truck was at least one cause of the bystander’s injuries.
The Court explained that the phrase “arising out of”
“do[es] not require that the unloading of the truck be the sole
‘arising out of’ cause of the injury; [it] require[s] only that the
injury arise out of the unloading of the vehicle.”
Id. at 688.
Thus, the Court reasoned, “if Davis’s bodily injury arose out of
EDP’s employee’s unloading of the truck, then that injury is
excluded from coverage.”
Id. at 688–89.
This is so, the Court
clarified, “regardless of whether the injury may also be said to
have arisen out of other causes further back in the sequence of
events, such as . . . the employer’s negligent failure to supervise
Id. at 689.
Construing the Policy
The Policy unambiguously obligates Evanston to defend and
indemnify Resource for any negligent acts that Resource commits
while performing settlement services.
The section of the Policy
entitled “Insuring Agreement” plainly provides that Evanston will
indemnify Resource for all “Claims” concerning “Wrongful Acts” in
the performance of “Professional Services.”
(Policy at 15).
Policy also states that Evanston “shall have the right and duty to
defend and investigate any Claim to which coverage under this policy
(Id. at 20).
A Claim exists when Resource receives
service of process in a lawsuit.
(Id. at 16).
A Wrongful Act is
any “negligent act, error or omission in Professional Services,”
services,” (id. at 27).
There is no dispute that Resource received
service of process in the Deem Suit or that Deem alleges Resource
was negligent in performing settlement services.
(Deem’s Am. Compl.
¶¶ 7, 8).
Evanston’s duty to defend and indemnify Resource for its
The Policy excludes any Claim “based upon or arising
out of any actual or alleged  conversion,  misappropriation,
 commingling,  defalcation,  theft,  disappearance, [or]
 insufficiency in the amount of escrow funds, monies, [or]
(Policy at 4)(emphasis added).
that none of these Exclusions apply because the Alleged Imposter
entirety of the claim and the [Deem Suit] arise out of an actual or
alleged theft or conversion of funds held in escrow, causing them to
disappear and creating an insufficiency in the amount required to
pay the proper owner.”
(ECF No. 18 at 3).
Evanston intended to use the Exclusions in their technical sense,
(citation omitted). When ascertaining this meaning, the Court may
consult case law and dictionaries.
See Cheney v. Bell Nat. Life
Ins. Co., 556 A.2d 1135, 1139–40 (Md. 1989).
The Court will review
the Exclusions to determine whether Deem’s Suit arises out of them.
Insufficiency of Proceeds
The Court will deny Resource’s Motion and grant Evanston’s
Motion because Deem’s Suit arises out of an insufficiency in the
amount of the Proceeds.
It goes without saying that to be insufficient means to be not
Unabridged at 1172 (Philip Babcock Gove, ed., Merriam-Webster 1986)
(defining insufficient as “not sufficiently furnished or supplied”).
To be sufficient means to be “marked by quantity, scope, power, or
quality to meet with the demands, wants, or needs of a situation or
of a proposed use or end.”
synonymous with “enough.”
Webster’s at 2284.
Resource argues that Deem’s Suit does not arise out of an
Settlement, Resource issued him a check for $223,123.16 -- the exact
amount listed on the HUD-1 Settlement Statement.
Indeed, in Thames
v. Evanston Insurance Co. -- the only case upon which Evanston
-- the Court found that the plaintiff’s suit arose out of an
insufficiency of funds because there were not enough funds at the
(N.D.Okla. Nov. 17, 2015), aff’d, No. 15-5125, 2016 WL 7228800 (10th
Cir. Dec. 14, 2016).
The Policy, however, does not specify when the
insufficiency must exist.
As a result, the Court finds that a
reasonable person in the position of Resource and Evanston would
have understood that the insufficiency could exist at any time -before, during, or even after the Settlement.
Deem alleges that approximately one week after he deposited the
Proceeds into his SunTrust account, he discovered that all the
Proceeds were missing.
(Deem’s Am. Compl. ¶ 15).
In other words,
Deem alleges that there were not enough Proceeds in his account
because he was entitled to $223,123.16 in Proceeds, but his account
contained $0 in Proceeds.
Since the timing of the insufficiency is
irrelevant, the Court concludes that Deem’s Suit arises out of an
excludes such an insufficiency.
In sum, the Policy unambiguously requires Evanston to defend
Resource against Deem’s negligence claims.
Out of the seven
Exclusions, however, Deem’s Suit arises out of at least one of them:
insufficiency in the amount of the Proceeds.3
Deem alleges that
Resource’s negligence caused his injuries, but he also alleges that
the insufficiency in the amount of the Proceeds did, too.
Deem’s Suit to arise of an insufficiency of Proceeds, he only needs
to allege that the insufficiency was one cause of his injuries.
EDP Floors, 533 A.2d at 688.
Indeed, it does not matter that Deem’s
suit may have also “arisen out of other causes further back in the
sequence of events,” such as Resource’s negligence.
See id. at 689.
Accordingly, because Deem’s Suit arises out of an unambiguous
Exclusion, the Court will grant Evanston’s Cross-Motion for Summary
Judgment and declare that Evanston is not obligated to defend or
indemnify Resource in the Deem Suit.
For the foregoing reasons, the Court will DENY Resource’s
Evanston’s Cross-Motion for Summary Judgment (ECF No. 18).
Court will also DECLARE that Evanston is not obligated to defend or
indemnify Resource in the Deem Suit, and direct the Clerk to CLOSE
A separate Order follows.
Entered this 17th day of February, 2017
George L. Russell, III
United States District Judge
Because Deem’s Suit arises out of at least one of the
Exclusions, the Court need not examine the other Exclusions.
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