Reed v. Ironshore Speciality Insurance Company
MEMORANDUM OPINION. Signed by Judge Deborah K. Chasanow on 11/13/2023. (sat, Chambers)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
KIMBERLY D. REED
IRONSHORE SPECIALTY INSURANCE
Civil Action No. DKC 23-651
Presently pending and ready for resolution in this insurance
coverage dispute is the motion to dismiss filed by Defendant
Ironshore Specialty Insurance Company.
(ECF No. 11).
have been briefed, and the court now rules, no hearing being deemed
Local Rule 105.6.
For the following reasons, the
motion to dismiss will be denied.
The following facts are alleged in the Complaint.
In 2019, Plaintiff Kimberly D. Reed joined the law firm
Shulman, Rogers, Gandal, Pordy & Ecker, P.A. (“Shulman Rogers”) as
a shareholder in the Corporate and Business Transactions practice
(ECF No. 1 ¶ 7).
As part of her employment agreement with
Shulman Rogers, Plaintiff was prohibited from working for any other
firm, including her own.
(Id. ¶ 8).
Between March 15, 2020 and
March 20, 2020, Plaintiff represented Regina Lee and her company,
Lee & Lee Trading, on a pro bono basis while employed at Shulman
(Id. ¶ 15-17).
Shortly after March 31, 2020 or April 1,
2020, Plaintiff reached an agreement to cease her employment with
Shulman Rogers on April 22, 2020.
(Id. ¶ 19-20).
Plaintiff was informed that she would lose access to her Shulman
Rogers email account imminently, Plaintiff communicated with and
anticipation of her April 22, 2020 separation date.
(Id. ¶ 21).
During this time, Plaintiff communicated on behalf of Lee & Lee
Trading to negotiate a contract with Johns Hopkins Health System
(Id. ¶ 22).
On April 24, 2020, JHHSC entered
into a product purchase agreement with Lee & Lee Trading and
transferred the purchase price to an escrow account with a thirdparty escrow agent.
(Id. ¶ 23).
Lee & Lee Trading failed to
fulfill the purchase agreement, and JHHSC obtained a $1,700,109.00
default judgment against Ms. Lee and Lee & Lee Trading.
Because Ms. Lee and Lee & Lee Trading lack the funds to pay
the default judgment against them, on May 6, 2022, JHHSC filed an
amended complaint in the Circuit Court for Baltimore County against
Plaintiff and her law firm (the “Underlying Complaint”), which she
opened after leaving Shulman Rogers. (Id. ¶ 25; ECF No. 1-2, at
The remaining undismissed count that is pending in JHHSC’s
(ECF No. 1 ¶ 26).
Professional Liability policy to Shulman Rogers that was effective
from August 29, 2021 to August 29, 2022 (the “Policy”). 1
1 ¶¶ 27-28).
The Policy provides, in part:
A. The Insurer shall pay on behalf of each
Insured all sums the Insured shall become
legally obligated to pay as Damages as a
result of a Claim first made against the
Insured during the Policy Period and
reported to the Insurer during the Policy
Period and arising out of the rendering of
or failure to render Professional Legal
B. The Insurer shall have the right and duty
to defend any Claim first made against the
Insured during the Policy Period and
reported to the Insurer during the Policy
Period and arising out of the rendering of
or failure to render Professional Legal
Services, including an appeal thereof,
seeking Damages to which this insurance
applies even if any of the allegations are
groundless, false, or fraudulent.
definition of “Insured” provides, in part:
the Named Insured;
Plaintiff attached to the complaint a later version of the
Policy with effective dates spanning from August 29, 2022 to August
29, 2023, (ECF No. 1-3), and notes that the later version is
substantially identical to the Policy, (ECF No. 1 ¶ 27).
Defendant provided a copy of the Policy. (ECF No. 11-2). Because
the Policy is integral to the complaint and its authenticity is
not in dispute, the court will cite to the Policy. See Goines v.
Valley Cmty. Servs. Bd., 822 F.3d 159, 164 (4th Cir. 2016) (citing
Sec’y of State For Defence v. Trimble Navigation Ltd., 484 F.3d
700, 705 (4th Cir. 2007) (holding that a court may consider a
document attached to a motion to dismiss if the document was
“integral to the complaint and authentic[,]” such that the
complaint’s allegations turn on the document’s terms).
(2) if the Named Insured is an individual,
(3) if the Named Insured is a partnership or
partnership or limited partnership and each
lawyer who is a partner thereof including
(4) if the Named Insured is a professional
corporation, professional association or
corporation and each lawyer who is a
shareholder or member thereof;
(5) each lawyer employed by the Named
(6) any person who previously qualified or
who during the Policy Period qualifies as
an Insured under 2, 3, 4 or 5 above, but
only to extent such person performs or has
performed Professional Legal Services on
behalf of the Named Insured[.]
(Id. at 6).
The “Named Insured” is Shulman Rogers.
(See id. at
The Policy also defines “Professional Legal Services” as
“legal services and activities performed for others as a lawyer,
and including pro bono legal services[.]” (Id.).
Beginning from June 2022, Plaintiff engaged in a series of
pursuant to the Policy.
(ECF No. 1 ¶¶ 32-41).
On December 9,
2022, Defendant denied coverage, stating that Plaintiff does not
qualify as an “Insured” because her email communications on behalf
of Lee & Lee Trading were sent from a non-Shulman Rogers email
(Id. ¶ 37).
On February 9, 2023, Plaintiff renewed her
demand for defense and indemnity and provided additional evidence
supporting her insured status.
(Id. ¶ 38).
On February 22, 2023,
Defendant responded that it was still investigating the matter but
reiterated its previous finding that Plaintiff does not qualify as
an “Insured” and is not entitled to coverage under the Policy.
(Id. ¶ 40).
On March 9, 2023, Plaintiff filed a complaint in this court
against Defendant, alleging that Defendant’s denial of coverage
constitutes a breach of contract (Count I) and a lack of good faith
(Id. ¶¶ 42-55).
On May 12, 2023, Defendant moved to
dismiss under Fed.R.Civ.P. 12(b)(6).
(ECF No. 11).
2023, Plaintiff responded in opposition.
9, 2023, Defendant replied.
On May 26,
(ECF No. 19).
(ECF No. 21).
Standard of Review
A motion to dismiss under Rule 12(b)(6) tests the sufficiency
of the complaint.
Presley v. City of Charlottesville, 464 F.3d
480, 483 (4th Cir. 2006).
A complaint need only satisfy the
standard of Fed.R.Civ.P. 8(a)(2), which requires “a short and plain
statement of the claim showing that the pleader is entitled to
relief.” However, “Rule 8(a)(2) still requires a ‘showing,’ rather
than a blanket assertion, of entitlement to relief.”
Corp. v. Twombly, 550 U.S. 544, 555 n.3 (2007).
That showing must
include more than “[t]hreadbare recitals of the elements of a cause
of action, supported by mere conclusory statements.”
Iqbal, 556 U.S. 662, 678 (2009). Indeed, the complaint must allege
“enough facts to state a claim to relief that is plausible on its
Twombly, 550 U.S. at 570.
In determining whether a complaint states a plausible claim
for relief, the court must consider all well-pleaded allegations
in a complaint as true.
See Albright v. Oliver, 510 U.S. 266, 268
However, the court is not required to accept legal
conclusions drawn from the facts.
265, 286 (1986).
See Papasan v. Allain, 478 U.S.
Additionally, courts generally do not “resolve
contests surrounding the facts, the merits of a claim, or the
applicability of defenses” through a Rule 12(b)(6) motion. Edwards
v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999) (quoting
Republican Party v. Martin, 980 F.2d 943, 952 (4th Cir. 1992)).
The purpose of the rule is to ensure that the complaint has given
the defendant “fair notice of what the . . . claim is and the
grounds upon which it rests.” Twombly, 550 U.S. at 555 (alteration
in original) (internal quotation marks omitted).
The court may
only consider the complaint, documents attached to the complaint,
documents explicitly incorporated into the complaint by reference,
and documents integral to the complaint where there is no dispute
as to the documents’ authenticity.
Goines, 822 F.3d at 166.
First, Defendant contends that Plaintiff’s claims in Counts
I and II should be dismissed because it owes no duty to defend
Plaintiff against the allegations in the Underlying Complaint.
Specifically, Defendant argues that Plaintiff is not an “Insured”
covered by the Policy given that the allegations in the underlying
complaint do not allege that she was providing professional legal
services on behalf of Shulman Rogers and Plaintiff improperly uses
extrinsic evidence to support her claim to coverage under the
(ECF Nos. 11-1, at 10; 21, at 2-6).
Even if the court
considers Plaintiff’s extrinsic evidence, Defendant contends that
the extrinsic evidence fails to show that Plaintiff was providing
professional legal services on behalf of Shulman Rogers.
Nos. 11-1, at 13-14; 21, at 7).
Second, Defendant argues that
Plaintiff fails to allege sufficient facts to state a claim in
(ECF Nos. 11-1, at 14-18; 21, at 8-10).
contends that she has sufficiently stated a claim for relief on
(ECF No. 19, at 7, 12).
Under Maryland law, if claims are brought against an insurance
policyholder that potentially come within the insurance coverage,
the insurer has a duty to defend the insured.
See, e.g., St. Paul
Fire & Marine Ins. Co. v. Pryseski, 292 Md. 187, 193-94 (1981).
An insurer’s duty to defend, which is “broader than the duty to
indemnify[,]” is a “contractual duty arising out of the terms of
a liability insurance policy.”
Litz v. State Farm Fire & Cas.
Co., 346 Md. 217, 225 (1997).
Determining whether an insurer has a duty to defend is a twostep process.
Pryseski, 292 Md. 187, 193.
First, the policy must
be reviewed to determine the scope of, and any limitations on,
Id.; Aetna Cas. & Sur. Co. v. Cochran, 337 Md. 98, 103–
Insurance policies are to be construed pursuant to
“ordinary principles of contract interpretation.”
United Servs. Auto. Ass’n, 368 Md. 633, 655 (2002) (internal
quotation marks omitted).
Thus, the words used in a policy should
be given “their usual, ordinary, and accepted meaning”—i.e., the
“meaning a reasonably prudent layperson would attach to the term.”
Bausch & Lomb Inc. v. Utica Mut. Ins. Co., 330 Md. 758, 779 (1993).
determine whether they would potentially be covered under the
Pryseski, 292 Md. at 193; Cochran, 337 Md. at
To trigger the duty to defend, the underlying complaint
must allege a cause of action that is potentially covered by the
policy, no matter how “attenuated, frivolous, or illogical that
allegation may be.”
634, 643 (1996).
Sheets v. Brethren Mut. Ins. Co., 342 Md.
If a potentiality for coverage exists, the
insurer is obliged to defend its insured even though the cause of
action cannot possibly succeed, either in law or in fact.
v. Transamerica Ins. Co., 276 Md. 396, 408-09 (1975).
that an insurance policy covers the allegations in the underlying
complaint should be resolved in the insured’s favor. Cochran, 337
Md. 98, 107 (quoting U.S. Fid. & Guar. Co. v. Nat’l Paving &
Contracting Co., 228 Md. 40, 54 (1962)).
Here, the parties agree
on the scope of the Policy with regard to the definition of
“Insured” and limit their dispute to whether the allegations in
the Underlying Complaint are covered by the Policy.
(ECF No. 21,
An insured is entitled to present extrinsic evidence beyond
the four corners of the underlying complaint in support of a
potentiality of coverage “where the underlying complaint ‘neither
conclusively establishes nor negates a potentiality of coverage.’”
Walk v. Hartford Cas. Ins. Co., 382 Md. 1, 16 (2004) (quoting
Cochran, 337 Md. at 108).
This is because “[t]he promise to defend
consideration received by the insured for payment of the policy
Transamerica Ins. Co., 276 Md. 396, 409 (1975)).
insured the opportunity to establish a defense to tort allegations
which may provide a potentiality of coverage under an insurance
policy prior to the insured incurring expenses associated with
maintaining a defense in that tort action is precisely what the
insured bargained for under the insurance contract.”
An insured plaintiff states a claim for breach of contract
against a defendant insurer by alleging that the insurer owed a
duty to defend against allegations in the underlying complaint and
breached it by denying coverage.
See RRC Northeast, LLC v. BAA
Maryland, Inc., 413 Md. 638, 658 (citing Taylor v. NationsBank,
N.A., 365 Md. 166, 175 (2001)) (“[I]n order to state a claim for
breach of contract, a plaintiff need only allege the existence of
a contractual obligation owed by the defendant to the plaintiff,
and a material breach of that obligation by the defendant.”).
an insured fails to state a claim for a breach of contract because
the plaintiff does not plead facts triggering coverage under the
insurance policy, the corresponding lack of good faith claim
arising from the denial of coverage necessarily fails.
Class Const., LLC v. Mut. Ben. Ins. Co., 3 F.Supp.3d 409, 417
(D.Md. 2014) (stating that because “no actual damages under an
insurance policy [for a lack of good faith] can be claimed by one
who is not entitled to coverage under the policy[,]” conduct in
the context of a correct denial of coverage that would otherwise
evidence a lack of good faith
“does not itself create coverage
when the insured is not otherwise entitled to it.”).
coverage under the Policy, the court should not consider extrinsic
evidence in the form of Plaintiff’s allegations that (1) Ms. Lee
was a Shulman Rogers client whom Plaintiff began representing prior
Plaintiff’s employment contract with Shulman Rogers barred her
from concurrently working for any other law firm, including her
own; and (4) Plaintiff used a non-Shulman Rogers email account to
communicate with JHHSC because access to her Shulman Rogers account
was terminated before she left the firm. 2
(ECF No. 11, 10-12).
According to the Underlying Complaint, Plaintiff and her law firm,
Reed International Law & Consulting, LLC (“Reed International”),
negligently misrepresented Lee & Lee Trading’s ability to timely
procure and deliver masks “[p]rior to entering into the product
purchase agreement [on April 24, 2020.]”
(ECF No. 1-2 ¶ 42).
Under the Policy, Defendant must provide coverage to the extent
that Plaintiff provided legal services on behalf of Shulman Rogers.
In response, Plaintiff contends that Defendant’s argument
that Plaintiff may not use extrinsic evidence to establish a
potentiality of coverage triggering Defendant’s duty to defend is
improper in the context of a motion to dismiss because it “ask[s]
the court to reach the merits and decide the issue of coverage by
finding that [Plaintiff] does not qualify as an ‘insured’ under
the [P]olicy.” (ECF No. 19, at 2, 9). Plaintiff is incorrect.
Here, the court’s threshold inquiry focuses on whether Plaintiff
may allege a potentiality of coverage via extrinsic evidence,
which, taken as true, trigger Defendant’s duty to defend Plaintiff
as an “Insured” under the Policy. This inquiry does not reach the
merits of whether Plaintiff’s allegations are actually true, such
that she qualifies as an “Insured” under the Policy. Hence,
Plaintiff’s observation that Defendant cites to cases reaching the
merits on summary judgment in support of its arguments regarding
the duty to defend and the use of extrinsic evidence has no bearing
on whether the court’s determination of those issues is meritsrelated. (Id. at 8 n.1).
misrepresentations at issue in the Underlying Complaint first
separation from Shulman Rogers, because the Underlying Complaint
mentions Reed International and not Shulman Rogers.
(ECF No. 21,
Defendant misconstrues the Underlying Complaint.
Underlying Complaint’s allegations of when the misrepresentations
As Plaintiff states, the Underlying Complaint does
not clearly limit its allegations of misconduct to the time period
after Plaintiff’s separation from Shulman Rogers on April 22, 2020,
as required to negate conclusively the potentiality of coverage
under the Policy.
(ECF No. 19, at 10).
Rather, the Underlying
Complaint alleges that Plaintiff made negligent misrepresentations
during the negotiation period leading up to the product purchase
agreement’s consummation, which could potentially include the time
period in which Plaintiff represented Lee & Lee Trading while
employed at Shulman Rogers.
Defendant’s reliance on Walk v. Hartford Cas. Ins. Co. and
Maryland Cas. Co. v. Blackstone Intern. Ltd. fares no better. (ECF
No. 21, at 4-5).
The Walk court held that the plaintiff insured
“stretche[d] the concept of ‘potentiality’ of coverage too far” by
conclusively negated coverage.
(Id. at 4) (citing Walk, 382 Md.
In Walk, the insurer agreed to pay the insured’s damages
for “advertising injuries,” such as copying an advertising style
in another advertisement.
Walk, 382 Md. at 6.
underlying complaint alleged that the Walk plaintiff breached
injuries”-the Walk plaintiff attempted to create the possibility
of coverage with extrinsic evidence in the form of cherry-picked
phrases from the discovery generally related to advertising.
underlying complaint] need not have used the words ‘advertising
injury,’ or labeled a count in the complaint as ‘advertising
injury,’” the Walk court held that the plaintiff cannot establish
a potentiality of coverage when the underlying complaint did not
allege an “advertising injury” in any way.
Id. at 18.
Blackstone court similarly declined to consider extrinsic evidence
in support of the plaintiff’s entitlement to coverage under the
“advertising injury” provision of the insurance policy because the
intentional misrepresentation, and accounting did not assert any
“advertising injury” and conclusively negated a potentiality of
Maryland Cas. Co. v. Blackstone Int’l Ltd., 442 Md.
685, 696-97 (2015).
Walk and Blackstone are distinguishable from
this case because here, the Underlying Complaint does not allege
a tort that plainly lies outside the Policy’s coverage. Rather,
arising out of Plaintiff’s legal representation of Lee & Lee
Trading, which would be covered by the Policy if the timing of
those misrepresentations overlapped with Plaintiff’s employment at
Shulman Rogers–failure to mention specifically Shulman Rogers is
possibility that the alleged misrepresentations at issue took
place prior to Plaintiff’s departure from Shulman Rogers, it
neither conclusively negates nor establishes the potentiality of
Thus, the court is permitted to consider Plaintiff’s
Defendant then argues that Plaintiff’s extrinsic evidence
also fails to trigger Defendant’s duty to defend Plaintiff against
the Underlying Complaint’s allegations because it does not show
performing legal services on behalf of Shulman Rogers.
21, at 7).
Given that the Underlying Complaint “alleges that
Plaintiff and her law firm made alleged misrepresentations prior
to entering into the product purchase agreement[,]”
contends that Plaintiff’s extrinsic evidence admits that “she
could not possibly have been acting on Shulman Roger[s]’s behalf
or for its benefit during her representation of Lee & Lee Trading
in the underlying transaction without violating her employment
agreement with Shulman Rogers.” (Id.). The Underlying Complaint’s
designation of Reed International as a co-defendant, however, does
misrepresentations made through Reed International because the
representatives on Lee & Lee Trading’s behalf through her law firm,
not Shulman Rogers,” is incorrect.
(Id. at 7-8).
extrinsic evidence shows that she began engaging in contract
negotiations with JHHSC on behalf of Lee & Lee Trading before
prohibiting her from working for any other firm, including her
misrepresentations could have occurred.
(See ECF No. 1 ¶¶ 17,
Resolving all doubts regarding the Policy’s coverage of the
Underlying Complaint’s allegations in favor of Plaintiff, see
Cochran, 337 Md. 98, 107 (quoting Nat’l Paving & Contracting, 228
Md. 40, 54), Plaintiff has alleged facts plausibly establishing a
potentiality of coverage triggering Defendant’s duty to defend her
as an “Insured” under the Policy.
Accordingly, as Plaintiff
argues, Plaintiff has stated a plausible breach of contract claim
because she asserts that pursuant to the Policy, her representation
of Lee & Lee Trading during her employment at Shulman Rogers
triggers Defendant’s duty to defend, and Defendant breached the
Policy by denying coverage.
(ECF No. 19, at 7).
It follows that
Plaintiff’s allegation that Defendant lacked good faith in denying
coverage also cannot fail on the basis that Defendant did not owe
Plaintiff a duty to defend.
allege any facts to state a claim in Count II because she relies
only on legal conclusions that Defendant did not act in good faith.
(ECF Nos. 11-1, at 16; 21, at 8-9).
Plaintiff contends that she
has provided sufficient factual allegations that Defendant denied
coverage solely based on the email address used in Plaintiff’s
communications, without “honestly and accurately” considering the
during the negotiation of Lee & Lee Trading’s product purchase
agreement with JHHSC.
(ECF No. 19, at 13).
Maryland law creates an independent statutory cause of action
against insurer breach of good faith performance under insurance
See Dominant Investments 113, LLC v. United States
Liab. Ins. Co., 247 F.Supp.3d 696, 704 (D.Md. 2017) (citing Md.
Code, Cts. & Jud. Proc. § 3-1701).
“‘Good faith’ means an informed
judgment based on honesty and diligence supported by evidence the
insurer knew or should have known at the time the insurer made a
decision on a claim.”
Id.; see also Md. Code, Ins. § 27-1001.
Good faith is evaluated under a “totality of the circumstances”
test, which includes:
[(1)] efforts or measures taken by the insurer
to resolve the coverage dispute promptly or in
such a way as to limit any potential prejudice
to the insureds; [(2)] the substance of the
coverage dispute or the weight of legal
authority on the coverage issue; [and] [(3)]
the insurer's diligence and thoroughness in
pertinent to coverage.
Barry v. Nationwide Mut. Ins. Co., 298 F.Supp.3d 826, 830 (D.Md.
2018) (quoting All Class Const., LLC v. Mut. Ben. Ins. Co., 3
F.Supp.3d 409, 416 (D.Md. 2014)). “To assess those factors, courts
consider ‘the insurer’s efforts to obtain information related to
the loss, accurately and honestly assess this information, and
support its conclusion regarding coverage with evidence obtained
or reasonably available.’”
Id. (quoting All Class, 3 F.Supp.3d at
Magistrate Judge Sullivan’s opinion in Jerry v. Allstate Ins.
Co., 553 F.Supp.3d 287 (D.Md. 2021), is instructive. In Jerry,
allegation that an insurer failed to make an informed judgment by
disregarding substantial evidence from the plaintiff’s experts
while relying entirely on its own experts to justify denying
coverage sufficiently states a claim of lack of good faith to
survive a motion to dismiss.
Id. at 294-95.
analogously alleges that Defendant failed to exercise good faith
by denying coverage solely based on the non-Shulman Rogers email
address used in Plaintiff’s communications without considering
evidence that (1) Plaintiff began representing Ms. Lee while
working at Shulman Rogers; (2) Plaintiff’s negotiations with JHHSC
took place while Plaintiff was employed at Shulman Rogers; (3)
Plaintiff’s employment contract with Shulman Rogers prohibited her
from working for any other firm, including her own; and (4)
Plaintiff used a non-Shulman Rogers email account because she was
informed that she would imminently lose email access, (ECF No. 1
Defendant’s contention that the Complaint contains “no allegation
claim, that its assessment of the facts was not honest, or that
[Defendant] failed to provide a reasonable explanation for its
denial of Plaintiff’s claim[,]” (ECF No. 11-1, at 10-11, 16-17).
underlying lawsuit, reviewed the text of the Policy, provided a
reasonable explanation for its coverage decision, communicated the
reason for that decision, and subsequently reviewed the decision
in light of additional information[,]” (ECF No. 21, at 9), fares
no better as it is plainly contradicted by Plaintiff’s allegation
unreasonably denying coverage.
(See ECF No. 1 ¶¶ 52-54).
While Defendant is correct that an insured’s disagreement
with an insurer’s denial of coverage does not necessarily mean
that the insurer did not act in good faith, (ECF No. 21, at 9-10)
disagreement does not obscure the fact that Plaintiff has alleged
sufficient facts to state a cognizable claim for Defendant’s lack
of good faith.
See Jerry, 553 F.Supp.3d at 294-95 (stating that
the defendant insurer’s argument that it is entitled to disagree
with the plaintiff insured’s evidence “misses the point” because
the court’s inquiry focuses on whether the plaintiff has alleged
that the defendant failed to make an honest, diligent, and informed
judgment based on the totality of circumstances and all available
evidence); see also All Class, 3 F.Supp.3d 417 (stating that when
the defendant insurer provided the plaintiff insureds with a
reasoned basis for a denial of coverage, the defendant did not
fail to act in good faith in being unpersuaded by the plaintiffs’
arguments in support of coverage).
For the foregoing reasons, Defendant’s motion to dismiss will
A separate order will follow.
DEBORAH K. CHASANOW
United States District Judge
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