Case Title: Vigilant v. Luppino

Citation: 352 Md. 481

Docket Number: 88/96

State: maryland

Court: Maryland Supreme Court

Date: 1999-01-20T00:00:00Z

Document:
No. 88 - September Term, 1996
Vigilant Insurance Company v. Rocco Luppino
[Involves The Question Of When The Statute Of Limitations Began To Run On An Insured’s
Claim That An Insurer Breached Its Duty To Defend The Insured In A Tort Suit By A Third
Party Against The Insured]
IN THE COURT OF APPEALS OF MARYLAND
No. 88
September Term, 1996
___________________________________________
VIGILANT INSURANCE COMPANY
v.
ROCCO LUPPINO
____________________________________________
        Bell, C.J.,
Eldridge
Rodowsky
Chasanow
        * Karwacki
Raker
Murphy, Robert C.
   (Retired, specially assigned)
             
         JJ.
___________________________________________
Opinion by Eldridge, J.
__________________________________________
        
Filed:  January 20, 1999
*Karwacki, J., now retired, participated in the hearing
and conference of this case while an active member of
this Court; after being recalled pursuant to the
Constitution, Article IV, Section 3A, he also
participated in the decision and the adoption of this
opinion.
This case presents the question of when the statute of limitations began to run on an
insured’s claim that an insurer breached its duty to defend the insured in a tort suit by a third
party against the insured.
I.
Rocco Luppino owned a home and was insured under a homeowner’s insurance
policy issued by Vigilant Insurance Company effective from August 7, 1985, to August 7,
1986.  The policy provided coverage for property damage as well as personal liability.  The
property damage section of the policy included coverage for the insured’s home, related
structures, and certain types of personal property owned by the insured.  The personal
liability section of the policy provided coverage for damages which the insured was legally
obligated to pay for personal injury or property damage to a third party.
The policy contained the following provisions.  “Personal injury” as defined by the
policy
“includes but is not limited to:
a. bodily injury, sickness, disease, disability, shock, mental
anguish or mental injury;
b. false arrest or false imprisonment, wrongful entry or
eviction, wrongful detention; malicious prosecution or
humiliation; and 
c. libel, slander, defamation of character or invasion of right of
privacy . . . .”
“Property damage” was defined in the policy to mean “injury to or destruction of tangible
property and the resulting loss of use of that property. . . .”
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Under the personal liability coverage, Vigilant was obligated to provide a defense to
Luppino in suits by third parties for property damage or personal injury.  Vigilant agreed to
“defend any suit against an insured which seeks damages for
personal injury or property damage.  We shall defend even if the
suit is groundless, false or fraudulent.  However, we may make
investigation, negotiation and settlement of any claim or suit as
we wish.”
The policy contained the following exclusions from the personal liability coverage:
“Coverage E—Personal Liability does not provide coverage for:
* * *
“property damage to any property owned by an insured;
* * *
“[and] does not apply to personal injury or property damage:
“. . . arising out of any act intended by an insured to cause
personal injury or property damage.  However, this policy does
apply to personal injury or property damage which result from
an insured trying to protect persons or property . . . .”
The policy also contained the following provision, commonly referred to as a “no-action
clause”:
“No legal action shall be brought against [the insurer]:
“a.
unless the insured has fully complied with all the terms of
this section; and
“b.
until the amount of the insured’s ultimate net-loss has been
finally settled.  This amount may be determined either by
judgment against the insured, or by written agreement
signed by the insured, the claimant and [the insurer].”
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The policy defined “ultimate net-loss” as “all damages which an insured becomes legally
obligated to pay because of personal injury or property damage.”
The instant action arose as a result of the following events.  After advertising his
house for sale in January 1986, Luppino entered into a contract for the sale of the house to
Joseph Gray and his wife, Mary Soraci.  Settlement occurred on June 24, 1986.  On
August 8, 1986, Luppino’s attorney wrote to Vigilant, stating that the house was sold on
June 24th and requesting a return of premiums for the period after June 24th.  As required
by the contract of sale, Luppino on or before June 24th, 1986, presented Gray and Soraci
with a report by a pest control service stating that “no visible evidence of infestation from
wood destroying insects was observed at the house.”  Luppino did not, however, disclose to
Gray and Soraci the existence of extensive termite damage apparent in a crawl space under
the den, which was concealed by a wall constructed by Luppino.  While electrical work was
being performed on the house in October 1986, the crawl space and termite damage were
discovered.  Eventually it became evident that the house had been seriously infested by
termites and was structurally unsound, requiring extensive repairs.
In February 1989, Gray and Soraci filed in the Circuit Court for Prince George’s
County a complaint against Luppino which, as amended, sought both compensatory and
punitive damages for fraud, “intentional concealment,” negligent misrepresentation, and
“intentional omission.”  After a jury trial in May 1992, judgment was entered in favor of
Gray and Soraci for $97,787 compensatory damages and $82,000 punitive damages.
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 The issue presented to this Court was whether an individual, such as Luppino, had a state
1
constitutional right to a non-jury trial.  This issue arose as a result of Gray’s and Soraci’s failure to
request a jury trial when they filed the initial complaint.  They subsequently requested a jury trial in
an amendment to the complaint two years later.  The trial court denied Luppino’s motion to strike
this belated jury trial demand.  Luppino argued in this Court that under the Maryland Constitution
and the circumstances of the case, he had a right to a non-jury trial.  This Court rejected Luppino’s
constitutional argument and affirmed the judgment in favor of Gray and Soraci.
Luppino appealed to the Court of Special Appeals which affirmed in an unreported opinion.
Luppino then filed a petition for a writ of certiorari which this Court granted.  Luppino v.
Gray, 333 Md. 173, 634 A.2d 47 (1993).  This Court affirmed the judgment of the Court of
Special Appeals.  Luppino v. Gray, 336 Md. 194, 647 A.2d 429 (1994).1
When service in the tort suit filed by Gray and Soraci was made on Luppino in 1989,
Luppino’s attorney gave notice of the suit to Vigilant and requested a defense under the
personal liability provisions of the policy.  Vigilant agreed to defend the tort suit under a
reservation of rights.  In October 1990, however, Vigilant changed its position and sent a
letter to Luppino “completely deny[ing] coverage, defense and indemnity for the damages
alleged” by Gray and Soraci, stating that
“it is the position of Vigilant Insurance Company there is no
coverage for any damage sustained by the structure identified in
the Complaint prior to the transfer of ownership on June 24,
1986.  Furthermore, it is the position of Vigilant Insurance
Company that there is no coverage for any damage sustained by
the structure after cancellation of the aforementioned policy.
Lastly, it is the position of the Vigilant Insurance Company that
there is no coverage for property damage arising out of an act
intended to cause such damage.”
Vigilant indicated, however, that this denial of coverage was not necessarily final, stating:
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“We reserve the right to amend this letter if and when new
information is developed or obtained showing that any policy
provision may have been violated, or, in the alternative, whether
any amendment to the Complaint are [sic] made which might
bring this matter under the purview of coverage.”
Luppino, with his own attorney, proceeded to defend the suit by Gray and Soraci
without any assistance from Vigilant, resulting in the judgment against him.  Luppino also
was represented by his own attorney in the appellate proceedings.  As mentioned previously,
this Court affirmed the judgment in an opinion filed in September 1994.  While the case was
pending in this Court, however, Luppino, on May 31, 1994, filed a complaint in the Circuit
Court for Prince George’s County against Vigilant alleging breach of the duty to defend
contained in the insurance policy.  Subsequently, Luppino amended his complaint to include
a count for breach of the duty to indemnify.
Vigilant, in September 1994, filed a motion for summary judgment on the ground that
Luppino’s complaint was barred by the statute of limitations, Maryland Code (1974, 1995
Repl. Vol.), § 5-101 of the Courts and Judicial Proceedings Article, which states as follows:
“A civil action at law shall be filed within three years from the
date it accrues unless another provision of the Code provides a
different period of time within which an action shall be
commenced.”
Vigilant argued that Luppino’s causes of action for breach of the duty to defend and breach
of the duty to indemnify accrued in October 1990 when Vigilant denied coverage under the
policy and refused to provide a defense.  Therefore, according to Vigilant, Luppino’s action
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filed in May 1994 was time barred because it was filed more than three years from the date
of accrual.  Luppino opposed the motion for summary judgment, and the circuit court
initially denied the motion.  Upon Vigilant’s motion to reconsider, the circuit court granted
the motion for summary judgment, holding that the statute of limitations had run on both the
count for breach of the duty to defend and the count for breach of the duty to indemnify. 
Luppino appealed to the Court of Special Appeals which reversed.  Luppino v.
Vigilant Insurance Co., 110 Md.App. 372, 677 A.2d 617 (1996).  The intermediate appellate
court, in an opinion by Chief Judge Wilner, considered the duty to indemnify and the duty
to defend separately.  Regarding the duty to indemnify, the court held that the duty did not
arise, and thus Luppino’s cause of action for breach of the duty did not accrue, until
judgment was entered against Luppino in the underlying suit.  The intermediate appellate
court pointed out that under the policy Vigilant was only required to pay Luppino’s “ultimate
net loss,” defined in the policy as “all damages which an insured becomes legally obligated
to pay because of personal injury or property damage.”  The Court of Special Appeals
reasoned that Luppino became legally obligated to pay when judgment was entered against
him.  Regarding the duty to defend, the Court of Special Appeals stated that “the duty to
defend is necessarily a continuing one that commences upon notice of the claim and extends
at least until a judgment is entered and all appeals from it have been resolved.”  Luppino v.
Vigilant Insurance Co., supra, 110 Md.App. at 382, 677 A.2d at 622.  Based on the
continuing nature of the duty to defend, the Court of Special Appeals concluded that the
statute of limitations on Luppino’s claim for breach of the duty did not begin to run until the
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Court of Appeals affirmed the judgment in the underlying tort action.
Vigilant filed in this Court a petition for a writ of certiorari challenging the Court of
Special Appeals’ decisions both with regard to the duty to indemnify and with regard to the
duty to defend.  We denied the petition insofar as it related to the duty to indemnify, and we
granted the petition insofar as it related to the duty to defend.  We limited our  review to the
following issue:
    “When did the statute of limitations begin to run on the claim
by [Luppino] that [Vigilant] allegedly breached its covenant in
its homeowner’s policy to defend [Luppino] against the claim or
claims asserted against [Luppino] by Stephen Gray and Mary
Soraci?”
We shall affirm.
II.
An insurer’s obligation to defend is contractual, and, therefore, a cause of action for
breach of the duty to defend sounds in contract.  See, e.g., Sherwood v. Hartford, 347 Md.
32, 41-43, 698 A.2d 1078, 1082-1083 (1997); Litz v. State Farm, 346 Md. 217, 225, 695
A.2d 566, 569 (1997); Sheets v. Brethren Mutual, 342 Md. 634, 644, 679 A.2d 540, 545
(1996); Am. Motorists Ins. Co. v. ARTRA Group, Inc., 338 Md. 560, 569-573, 659 A.2d
1295, 1299-1301 (1995); Bankers & Shippers Ins. v. Electro Enterprises, 287 Md. 641, 649,
415 A.2d 278, 283 (1980); Brohawn v. Transamerica Ins. Co., 276 Md. 396, 408, 347 A.2d
842, 850 (1975).  Generally, a cause of action for breach of a contract accrues, and the
statute of limitations begins to run, when the plaintiff knows or should have known of the
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breach.  See Poffenberger v. Risser, 290 Md. 631, 431 A.2d 677 (1981).  Vigilant, therefore,
argues that Luppino’s cause of action for breach of the duty to defend accrued, and the
statute of limitations began to run in this case, when Vigilant sent its letter denying coverage
in October 1990.  According to Vigilant, it was at that point that the alleged breach occurred,
and Luppino had knowledge of the breach.  Vigilant’s position is that, upon its denying
coverage in October 1990, Luppino should have brought a declaratory judgment action to
determine whether there was coverage under the insurance policy.  
Vigilant is correct insofar as it argues that the alleged breach of the duty to defend
initially occurred in October 1990 when the insurer denied any coverage.  As we recently
held in Sherwood v. Hartford, supra, 347 Md. at 48, 698 A.2d at 1085, “the duty to defend
arises upon the happening of the insured event but . . . the duty is not breached until, after
notice of the event, the insurer unjustifiably declines to fulfill its obligations . . . .”
Nevertheless, as the Court of Special Appeals held, the duty to defend, by its very
nature, is a continuing one that extends throughout the tort suit by the third party against the
insured.  See, e.g., Paul Holt Drilling, Inc. v. Liberty Mut. Ins. Co., 664 F.2d 252, 255 (10th
Cir. 1981) (“the insurer’s obligation to defend [is] one that continues throughout the course
of the litigation against the insureds”); Home Savings Assoc. v. Aetna Casualty and Surety
Co., 109 Nev. 558, 565, 854 P.2d 851, 855 (1993) (“An insurer obligated by contract to
defend an insured owes the insured a continuing duty to defend, and this duty continues
throughout the course of the litigation against the insured”). 
If Vigilant owed a duty to provide legal defense services to Luppino, it was a duty
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which continued throughout the tort case and until the tort litigation was terminated.  In this
situation, an insured would ordinarily have three years from the termination of the litigation
to sue the insurer for compensation for the legal services which the insured had been forced
to pay for.  As explained by this Court many years ago in W., B. & A. Elec. R. R. Co. v.
Moss, 130 Md. 198, 204-205, 100 A. 86, 89 (1917), in which compensation was sought for
services rendered over a period of time,
“[t]he general rule seems also settled that in the computation of
the statutory period, in cases where there is an undertaking
which requires a continuation of services, or the party’s right
depends upon the happening of an event in the future, the statute
begins to run only from the time the services can be completed
or from the time the event happens.”
See, e.g., Hecht v. Resolution Trust, 333 Md. 324, 337, 635 A.2d 394, 401 (1994)
(“Maryland has recognized . . . [certain] common law theories which depart from the strict
‘date of the wrong’ rule of accrual.  The ‘continuation of events’ theory was first recognized
by this Court in W., B. & A. Elec. R. R. Co. v. Moss”).  Cf. Hilliard & Bartko v. Fedco
Systems, 309 Md. 147, 157-158, 522 A.2d 961, 966-967 (1987).  
Courts have applied the above-quoted principle under circumstances like those in the
case at bar.  In Lambert v. Commonwealth Land Title Ins. Co., 53 Cal.3d 1072, 1075, 282
Cal.Rptr. 445, 446, 811 P.2d 737, 738 (1991), for example, the Supreme Court of California
rejected the insurer’s argument that the insured’s cause of action had accrued when the
insurer denied coverage, and held that “the statute of limitations for the . . . insurer’s breach
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of the duty to defend commences when final judgment is entered in the underlying
litigation.”  In doing so, the court pointed out that adoption of the insurance company’s
position often
“would allow expiration of the statute of limitations on a lawsuit
to vindicate the duty to defend even before the duty itself
expires.  This grim result is untenable.  The insured must be
allowed the option of waiting until the duty to defend has
expired before filing suit to vindicate that duty.
“Allowing this option is equitable.  It is harsh to require an
insured — often a private homeowner — to defend the
underlying action, at the homeowner’s own expense, and
simultaneously to prosecute — again at the homeowner’s own
expense — a separate action against the title company for
failure to defend.  ‘[T]he unexpected burden of defending an
action may itself make it impractical to immediately bear the
additional cost and hardship of prosecuting a collateral action
against an insurer.’”  53 Cal.3d at 1077-1078, 282 Cal. Rptr. at
447-448, 811 P.2d at 740.
The court in Colpan Realty Corp. v. Great American Ins. Co., 83 Misc.2d 730, 732, 373
N.Y.S.2d 802, 804 (1975), aptly stated:
“The breach was not complete until final dismissal for until such
event [the insurer] could have assuaged [the insured’s] grief,
sealed the breach and redeemed its wrong by taking up the
cudgels of the action.  Although afforded the opportunity [the
insurer] did not rise to the occasion.  The action therefore
accrued when the breach was complete and the failure to
perform was final, to wit, [the date the appeal was dismissed.]”
Many other courts have reached the same conclusion.  See, e.g., Israelsky v. Title Ins. Co.
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of Minnesota, 212 Cal.App.3d 611, 261 Cal.Rptr. 72 (1989); Continental Casualty Co. v.
Florida Power & Light Co., 222 So.2d 58 (Fla. App.), cert denied, 229 So.2d 867 (1969);
Sandbulte v. Farm Bureau Mut. Ins. Co., 343 N.W.2d 457 (Iowa 1984); Home Savings
Assoc. v. Aetna Casualty and Surety Co., supra, 109 Nev. 558, 854 P.2d 851; Terteling v.
United States, 334 F.2d 250, 167 Ct.Cl. 331 (1964); Boyd Bros. Trans. Co., Inc. v.
Fireman’s Fund Ins. Cos., 540 F.Supp. 579 (M.D. Ala. 1982), aff’d, 729 F.2d 1047 (11th
Cir. 1984); Oliver B. Cannon and Son, Inc. v. Fidelity and Casualty Co. of New York, 484
F.Supp. 1375 (D. Del. 1980); Moffat v. Metropolitan Casualty Ins. Co. of New York, 238
F.Supp. 165 (M.D. Penn. 1964).
We agree with these decisions.  It would be unfair to start the running of the statute
of limitations from the date Vigilant first denied coverage in this case in light of the
continuing nature of Vigilant’s duty to defend.  An insured should be allowed to expect the
insurer to step in and cure its breach so long as the underlying action is continuing.  This is
particularly so in the instant case because the letter denying coverage which Vigilant sent to
Luppino specifically reserved the right of Vigilant to change its position regarding coverage
and the provision of a defense.  In addition, the insurance policy issued by Vigilant purported
to preclude Luppino from bringing any action against Vigilant prior to a final determination
of his liability in the underlying tort action.
Vigilant also argues that a declaratory judgment action could have been brought by
Luppino against Vigilant in October 1990 and that, therefore, the statute of limitations began
to run in October 1990.  As pointed out by our predecessors in W., B. & A. Elec. R. R. Co.
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v. Moss, supra, 130 Md. at 205, 100 A. at 89, the statute of limitations
“‘does not attach to a claim for which there is no right of action,
and does not run against a right for which there is no
corresponding remedy or for which judgment can not be
obtained.  The true test therefore to determine whether a cause
of action has accrued is to ascertain the time when plaintiff
could have first maintained his action to a successful result.  The
fact that he might have brought a premature . . . action is
immaterial.’”
See Goldstein v. Potomac Elec. Power Co., 285 Md. 673, 684, 404 A.2d 1064, 1069 (1979)
(statute of limitations ordinarily begins to run “when the plaintiff could have maintained his
action to a successful result”); James v. Weisheit, 279 Md. 41, 44, 367 A.2d 482, 484 (1977).
Vigilant maintains that, upon receipt of the October 1990 letter denying coverage, Luppino
could have obtained a declaratory judgment declaring whether there was coverage under the
homeowner’s insurance policy. This is so, the insurer asserts, because “Vigilant’s declination
letter presents textbook examples of coverage issues that are separate and distinct from issues
raised in the underlying [tort] action.”  (Petitioner’s brief in this Court at 20).  According to
Vigilant, any contention that a declaratory judgment action would have been “dismissed
contravenes established case law and is therefore legally incorrect.”  (Ibid.)  Luppino, on the
other hand, argues that the coverage issues were not entirely separate from the issues in the
tort suit and that a declaratory judgment determining coverage could not have been obtained
prior to a trial of the underlying tort action.
Our cases have repeatedly pointed out that declaratory judgment actions conclusively
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to determine liability insurance coverage, “by or against the tortfeasor’s liability insurer, in
advance of a determination of liability in a tort suit, are normally precluded except when the
issues in the declaratory judgment action are independent and separable from the claims of
the tort claimant.”  Washington Transit v. Queen, 324 Md. 326, 333 n.6, 597 A.2d 423, 426
n.6 (1991).  See, e.g., Litz v. State Farm, supra, 346 Md. at 233, 695 A.2d at 574 (“When
a question sought to be resolved in the declaratory judgment proceeding would be decided
in the pending tort action, however, it is ordinarily inappropriate to grant a declaratory
judgment prior to resolution of the underlying tort trial”); Brohawn v. Transamerica Ins. Co.,
supra, 276 Md. at 405-407, 347 A.2d at 848-850.  Although a declaratory judgment finally
determining coverage is normally precluded in advance of the underlying tort suit unless the
issues are independent and separable from the issues in the tort action, a declaratory
judgment before trial of the tort action, determining whether there is a potentiality of
coverage and thus a duty to defend, may be appropriate.  See, e.g., Litz v. State Farm, supra,
346 Md. at 225-226, 695 A.2d at 569-570; Sheets v. Brethren Mutual, supra, 342 Md. at
639, 679 A.2d at 542; Aetna v. Cochran, 337 Md. 98, 104-108, 651 A.2d 859, 862-864
(1995), and cases there cited.
Nevertheless, even when declaratory judgment actions to determine coverage are
permitted before a trial of the underlying tort action, they are not favored.  Chantel
Associates v. Mt. Vernon, 338 Md. 131, 147, 656 A.2d 779, 787 (1995); Allstate Ins. Co. v.
Atwood, 319 Md. 247, 254-255, 572 A.2d 154, 157 (1990).  As Judge Chasanow pointed out
for the Court in the Chantel case, 338 Md. at 149, 656 A.2d at 788, 
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“it is within the trial court’s discretion to defer resolution of an
issue presented in a declaratory judgment action until the time
of trial of the underlying tort action, even if that issue is one
which is ‘independent and separable’ from the issues to be
resolved at the underlying tort trial.”
Furthermore, in the Atwood case, 319 Md. at 255, 572 A.2d at 158, we stated:
“Moreover, even when an insurer is convinced that the
insured’s alleged tortious conduct is patently excluded from the
coverage, the insurer is not required to bring a pre-tort trial
declaratory judgment action in order to preserve the insurer’s
position.  Because declaratory judgment actions in advance of
the tort trials should not be encouraged, the insurer’s failure to
bring such a declaratory judgment action, or to take an appeal
from the dismissal of such an action without a declaration, will
not operate as an estoppel or a waiver against the insurer.”
For the same reason, the insured should not be prejudiced by his or her failure to seek
a declaratory judgment prior to the trial of the underlying tort suit.  Consequently, limitations
should not begin to run against the insured because the insured failed to bring a pre-tort trial
declaratory judgment action.
The Court of Special Appeals correctly held that Luppino’s action was not barred by
limitations.
JUDGMENT AFFIRMED.  PETITIONER TO
PAY THE COSTS