Somar Communications, Inc. v. The Cincinnati Insurance Company
Filing
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MEMORANDUM AND ORDER granting 10 Motion to Dismiss as to Count II. Signed by Judge Paul W. Grimm on 8/3/2015. (aos, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
Southern Division
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SOMAR COMMUNICATIONS, INC.,
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Plaintiff,
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v.
Case No.: PWG-14-3399
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THE CINCINNATI INSURANCE CO.,
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Defendant.
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MEMORANDUM AND ORDER
Plaintiff seeks to recover against its insurance company on two counts, the second of
which is a claim for insurance bad faith that Defendant insists is subject to dismissal because
Plaintiff did not exhaust its administrative remedies by bringing the claim first to the Maryland
Insurance Administration (“the Administration”).1 Because the applicable limit of liability does
not exceed $1 million, Plaintiff is required to bring its insurance bad faith claim to the
Administration before stating its claim before this Court. It has not. Therefore, I will grant
Defendant’s motion and dismiss Count II. Count I will continue.
I.
FACTUAL BACKGROUND
Defendant issued an insurance policy (“the Policy”) for July 21, 2011 through July 21,
2012 for real property, buildings, radio towers, and personal property that Plaintiff owned at
multiple addresses, including four radio towers (“Towers”) at 43835 St. Andrews Church Road,
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The parties fully briefed the motion. See ECF Nos. 10, 10-1, 15, 16. A hearing is not
necessary. See Loc. R. 105.6. The parties agree that Maryland law applies. See Def.’s Mot. ¶ 2;
Pl.’s Opp’n 4.
California, Maryland (“SAC Property”). 2 Compl. ¶¶ 1, 3, 4, ECF No. 2; Policy, Compl. Ex. A.,
ECF No. 2-1. Plaintiff then lost two of the Towers to “severe weather damage[]” that destroyed
them completely on August 21, 2011. Compl. ¶ 9. Defendant refused to pay Plaintiff the
amount Plaintiff sought under the Policy, but agreed to pay a lesser amount without prejudice to
Plaintiff seeking further compensation under the Policy. Id. ¶¶ 12–15. Plaintiff brought this
two-count suit to recover the balance of the compensation it sought, claiming breach of contract
(Count I) and “lack of good faith,” which commonly is referred to as “insurance bad faith”
(Count II). Id. ¶¶ 20–28.
Defendant moves to dismiss Count II for failure to comply with the “administrative
condition precedent generally applicable to judicial actions for first party bad faith, requiring any
such claim to be presented, initially, to the Maryland Insurance Administration.” Def.’s Mot.
¶ 3 (citing Md. Code Ann., Ins. § 27-1001; Md. Code Ann., Cts. & Jud. Proc. § 3-1701(c)(1)).
Defendant insists that “the applicable coverage sets forth a limit of liability of only $100,000.00
per tower and under the allegations in the Complaint, only two towers were damaged,” such that
“[t]he total potential limit of liability is far less than one million dollars,” the minimum amount
for filing suit in this case without proceeding first before the Administration. Id. ¶ 4.
II.
STANDARD OF REVIEW
When, as here, a defendant moves to dismiss for failure to exhaust administrative
remedies, asserting that “a complaint simply fails to allege facts upon which subject matter
2
For the purposes of resolving Defendant’s motion to dismiss Count II, I accept as true the facts
alleged in Plaintiff’s Complaint, see Aziz v. Alcolac, 658 F.3d 388, 390 (4th Cir. 2011), as well as
the facts established by the insurance policy attached to the Complaint and both parties’
briefings. See Sposato v. First Mariner Bank, No. CCB-12-1569, 2013 WL 1308582, at *2 (D.
Md. Mar. 28, 2013); see also Fed. R. Civ. P. 10(c) (“A copy of a written instrument that is an
exhibit to a pleading is a part of the pleading for all purposes.”).
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jurisdiction can be based,” it is a Fed. R. Civ. P. 12(b)(1) motion for lack of subject matter
jurisdiction, and “the facts alleged in the complaint are assumed to be true and the plaintiff, in
effect, is afforded the same procedural protection as he would receive under a 12(b)(6)
consideration.” Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982); see Lutfi v. United States,
527 F. App’x 236, 241 (4th Cir. 2013); Fianko v. United States, No. PWG-12-2025, 2013 WL
3873226, at *4 (D. Md. July 24, 2013). Thus, “the facts alleged in the complaint are taken as
true, and the motion must be denied if the complaint alleges sufficient facts to invoke subject
matter jurisdiction.” Kerns v. United States, 585 F.3d 187, 192 (4th Cir. 2009); see In re KBR,
Inc., Burn Pit Litig., 925 F. Supp. 2d 752, 758 (D. Md. 2013) (quoting Kerns, 585 F.3d at 192).
This Court must act “on the assumption that all the allegations in the complaint are true (even if
doubtful in fact).” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555–56 (2007) (citations omitted).
III.
DISCUSSION
Insurance bad faith is a statutory cause of action under Maryland law, but it is not
available until a party first has pursued its claim to a final decision before the Administration.
See Md. Code Ann., Cts. & Jud. Proc. § 3-1701(c)(1), (d)(2); Md. Code Ann., Ins. § 271001(c)(1), (d)(1). One exception to this requirement that an insured exhaust its administrative
remedy is that an action “under a commercial insurance policy on a claim with respect to which
the applicable limit of liability exceeds $1,000,000” may be filed in court without first seeking
relief before the Administration. Cts. & Jud. Proc. § 3-1701(c)(2)(iii); Ins. § 27-1001(c)(2)(iii).
Cts. & Jud. Proc. § 3-1701(c)–(d) provides:
(c) Time for filing; exceptions. — (1) Except as provided in paragraph (2) of this
subsection, a party may not file an action under this subtitle before the date of
a final decision under § 27-1001 of the Insurance Article.
(2) Paragraph (1) of this subsection does not apply to an action:
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...
(iii) Under a commercial insurance policy on a claim with respect to
which the applicable limit of liability exceeds $1,000,000.
(d) Civil action to determine coverage and entitlement to payment; alleging that
insurer failed to act in good faith; and seeking damages. — This section applies
only in a civil action:
(1) (i) To determine the coverage that exists under the insurer's insurance
policy; or
(ii) To determine the extent to which the insured is entitled to receive
payment from the insurer for a covered loss;
(2) That alleges that the insurer failed to act in good faith; and
(3) That seeks, in addition to the actual damages under the policy, to recover
expenses and litigation costs, and interest on those expenses or costs, under
subsection (e) of this section.
Ins. § 27-1001(b)–(d) provides:
(b) Scope. — This section applies only to actions under § 3-1701 of the Courts
Article.
(c) Prerequisite to action filed under § 3-1701 of the Courts Article; exceptions.
— (1) Except as provided in paragraph (2) of this subsection, a person may
not bring or pursue an action under § 3-1701 of the Courts Article in a court
unless the person complies with this section.
(2) Paragraph (1) of this subsection does not apply to an action:
(iii) under a commercial insurance policy on a claim with respect
to which the applicable limit of liability exceeds $1,000,000.
(d) Procedure. — (1) A complaint stating a cause of action under § 3-1701
of the Courts Article shall first be filed with the Administration.
...
As Defendant sees it, the limit of liability for the Towers is $100,000 for each tower, such
that Cts. & Jud. Proc. § 3-1701(c)(2)(iii) and Ins. § 27-1001(c)(2)(iii) are inapplicable and
Plaintiff cannot bring this claim in court without first exhausting its administrative remedies.
Def.’s Mem. 2. But, in Plaintiff’s view, “Plaintiff has pleaded, and the policy demonstrates, that
the third exception applies as the applicable limit of the commercial policy on which the action is
brought, exceeds $1,000,000.” Pl.’s Opp’n 5.
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It is true that Plaintiff claims that “[t]he Policy is a commercial insurance policy on a
claim with respect to which the applicable limit of liability exceeds $1,000,000.” Compl. ¶ 6.
But, “[t]he court may consider documents attached to the complaint, as well as documents
attached to the motion to dismiss, if they are integral to the complaint and their authenticity is not
disputed.” Sposato v. First Mariner Bank, No. CCB-12-1569, 2013 WL 1308582, at *2 (D. Md.
Mar. 28, 2013); see CACI Int’l v. St. Paul Fire & Marine Ins. Co., 566 F.3d 150, 154 (4th Cir.
2009); see also Fed. R. Civ. P. 10(c) (“A copy of a written instrument that is an exhibit to a
pleading is a part of the pleading for all purposes.”). Moreover, where the allegations in the
complaint conflict with an attached written instrument, “the exhibit prevails.” Fayetteville
Investors v. Commercial Builders, Inc., 936 F.2d 1462, 1465 (4th Cir. 1991); see Azimirad v.
HSBC Mortg. Corp., No. DKC-10-2853, 2011 WL 1375970, at *2-3 (D. Md. Apr. 12, 2011).
Plaintiff attached the ninety-page Policy to the Complaint, and both parties attach the section of
the Policy with the heading “Radio and Television Tower / and Equipment Coverage Part
Declarations” (“Tower Declarations”) to their briefings. See Tower Decl., Def.’s Mem. Ex.,
ECF No. 10-2; Tower Decl., Pl.’s Opp’n Ex. 4, ECF No. 15-4. As part of the Policy at issue in
this case, the Tower Declarations are integral to the Complaint, and given that both parties attach
them to their briefings, their authenticity is undisputed. Therefore, I may consider them. See
Sposato, 2013 WL 1308582, at *2.
Under the subsection “Coverage Provisions,” the Tower Declarations state: “Each item
that is covered must be described below or on a schedule that is a part of this policy. A Limit of
Insurance must be shown for each item. This is the most that we will pay for a loss to that item.”
Tower Decl. 1. The subsection describes towers at other locations and sets limits of insurance
ranging from $35,000 to $100,000 for each tower, and then it states “REFER TO MA950.” Id.
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The page numbered MA950, which has the heading “Radio and Television Tower/And
Equipment Coverage Supplemental lists four Towers at the SAC Property. Id. at 3. For each,
the “Limit of Insurance” listed is “100,000.” Id. Indeed, Plaintiff acknowledges this limit,
noting in its Opposition the “breakdown of Coverages” and that it includes “$100,000 each for
towers 5-1, 5-2, 5-3 and 5-4” at the SAC Property. Pl.’s Opp’n 5–6 & n. 23.
Undeterred, Plaintiff contends that the “applicable limit of liability” is the “total limits of
liability under Policy [for] all loc[ations],” or $2,498,000. Id. at 6.
Plaintiff also argues that,
considering “additional coverages which were purchased by the Plaintiff,” the coverage for its
SAC Property alone exceeds $1 million.3 Initial coverage for Plaintiff’s SAC Property included
$104,000 for the building, $50,000 for business personal property, $100,000 each for the four
Towers, and $150,000 for “Utility,” for a total of $704,000. Id. at 5–6. Plaintiff asserts that it
acquired additional coverage of $325,000 under a Commercial Property Expanded Coverage
Endorsement (“Endorsement”), Pl.’s Opp’n Ex. 5, ECF No. 15-5, and additional coverage of
$345,000 under an Electronic Data Processing Equipment Coverage Form (“Form”), Pl.’s Opp’n
Ex. 6, ECF No. 15-6. See Pl.’s Opp’n 7–8. The Endorsement and Form provide additional
coverage totaling $670,000.4 Thus, assuming that the Endorsement and Form apply to the SAC
Property, coverage for Plaintiff’s SAC Property totals the sum of $704,000 and $670,000, or
$1,374,000, which is, indeed, well over $1 million.
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Coverage for Plaintiff’s SAC Property includes $104,000 for the building, $50,000 for business
personal property, $100,000 each for the four Towers, and $150,000 for “Utility.” Pl.’s Opp’n
5–6.
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Plaintiff notes that “[t]he aggregate of the coverages which are found under the ‘Commercial
Property Expanded Coverage Endorsement’ aggregate $325,000,” and the Form “provides an
additional $345,000 in coverage.” Pl.’s Opp’n 7–8. Plaintiff then adds the coverage together
and erroneously arrives at the sum of $697,000, rather than $670,000. Also, Plaintiff, without
explanation, adds $697,000 and $325,000, instead of $345,000 and $325,000, or $670,000, to the
total coverage for the SAC Property.
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Plaintiff’s reliance on Bierman v. United Farm Family Ins. Co., No. RDB-12-2445, 2013
WL 1897781 (D. Md. May 6, 2013), as a basis for aggregating these limits is misplaced. In
Bierman, the insured had three separate policies with the insurer and “argue[d] that the aggregate
liability limit of their three insurance policies with Farm Family exceed[ed] $1,000,000.” Id. at
*7. In determining whether Ins. § 27-1001(c)(2)(iii) applied, the Court found that the contract
was ambiguous because “the parties d[id] not point out, and this Court [could] not find, any
specific provision of the insurance policies that states whether the liability limits on the Essex
property [could] be aggregated.” Id. at *8. Therefore, the Court “interpret[ed] the policies in
favor of Plaintiffs and against the drafter,” concluding that “the liability limits of the insurance
policies on the Essex property [could] be aggregated.” Id. Plaintiff contends that “[h]ere, just as
in Bierman, there is nothing in the policy which provides whether the various limits set out
above can be aggregated, and therefore, they can be aggregated.” Pl.’s Opp’n 11. To the
contrary, this case is unlike Bierman because here, only one Policy is at issue.
Moreover, contract language is ambiguous “if, to a reasonably prudent person, the
language used is susceptible of more than one meaning and not when one of the parties disagrees
as to the meaning of the subject language.” Pacific Indem. Co. v. Interstate Fire & Cas. Co., 488
A.2d 486, 489 (Md. 1985). Here, the Policy clearly states separate limits of liability for different
covered property, such as the $100,000 limit for each of the Towers. E.g., Tower Decl. 1.
Further, the Tower Declarations provide: “Each item that is covered must be described below or
on a schedule that is a part of this policy. A Limit of Insurance must be shown for each item.
This is the most that we will pay for a loss to that item.” Id. (emphasis added). This language
unambiguously states that the insurance company will not pay more than the limit shown for
each covered item, that is, the limits cannot be aggregated.
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See id. When construing an
unambiguous contract, “courts focus on the four corners of the agreement[,] and ascribe to the
contract’s language its customary, ordinary, and accepted meaning.” Dynacorp Ltd. v. Aramtel
Ltd., 56 A.3d 631, 670 (Md. Ct. Spec. App. 2012) (citations and quotation marks omitted); see
100 Inv. Ltd. P’ship v. Columbia Town Ctr. Title Co., 60 A.3d 1, 23 (Md. 2013). In these
circumstances, the contract’s construction is “an issue of law for resolution by the trial judge.”
Bd. of Educ. of Charles Cnty. v. Plymouth Rubber Co., 569 A.2d 1288, 1296 (Md. Ct. Spec. App.
1990).
Thus, as a matter of law, the Policy limits cannot be aggregated, based on the
unambiguous language of the Policy and, specifically, the Tower Declarations. See Tower Decl.
1; Dynacorp, 56 A.3d at 670.
Consequently, the liability limit is $100,000 on each of the Towers. Two Towers were
destroyed, and Plaintiff seeks coverage on those two Towers. That translates to an applicable
limit on liability of $200,000, which is considerably less than $1 million. Even assuming,
arguendo, that the additional coverage in the Endorsement and Form modified the Policy such
that it could be aggregated, and assuming that it applied in full to the two Towers, the total
coverage for the two Towers would be only $670,000 greater, or $870,000, and still less than $1
million. Because the applicable limit of liability does not exceed $1 million, Plaintiff must
pursue its claim before the Administration to a final determination before it may bring an
insurance bad faith claim in this Court. See Ins. § 27-1001(c), (d); Cts. & Jud. Proc. § 3-1701(c),
(d).
Plaintiff’s bad faith claim is dismissed without prejudice for failure to exhaust
administrative remedies. See Kerns v. United States, 585 F.3d 187, 192 (4th Cir. 2009); Fed. R.
Civ. P. 12(b)(1).
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ORDER
Accordingly, it is, this 3rd day of August, 2015, hereby ORDERED that
1. Defendant’s Motion to Dismiss Count II, ECF No. 10, IS GRANTED; and
2. Count II IS DISMISSED.
I will enter a Case Management Order, Scheduling Order, and Discovery Order to govern
the remainder of the case.
/S/
Paul W. Grimm
United States District Judge
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