Christopher Martin

 Last updated September 10, 2020 10:40:54 am GMT

Unitrin Auto & Home Ins. Co. v. Karp

United States District Court for the District of Maryland

August 24, 2020, Decided; August 24, 2020, Filed

Civil Case No. SAG-17-3341

Reporter

2020 U.S. Dist. LEXIS 153207 *

UNITRIN AUTO AND HOME INSURANCE COMPANY, 

Plaintiff, v. ROBERT KARP, et al., Defendants.

Prior History: Unitrin Auto & Home Ins. Co. v. Karp, 

2018 U.S. Dist. LEXIS 165859 (D. Md., Sept. 26, 2018)

Core Terms

pollution, coverage, ambiguous, oil, Counterclaim, 

heating, contaminant, declaratory, default, prudent, 

manganese, monoxide, carbon, paint, non-moving, 

welding, genuine, environmental, unambiguous, irritant

Counsel: [*1] For Unitrin Auto and Home Insurance 

Company, Plaintiff: Jeffrey T Brown, LEAD ATTORNEY, 

DeCaro Doran Siciliano Gallagher and DeBlasis LLP, 

Bowie, MD.

For PennyMac Loan Services, Defendant: James 

Sumter Carter, Jr., John Albert Gibbons, Blank Rome 

LLP, Washington, DC.

Judges: Stephanie A. Gallagher, United States District 

Judge.

Opinion by: Stephanie A. Gallagher

Opinion

MEMORANDUM OPINION

Plaintiff Unitrin Auto and Home Insurance Company 

("Unitrin") filed this declaratory judgment action against 

Defendants Robert and Chaya Karp ("the Karps") and 

PennyMac Loan Services ("PennyMac"), seeking 

declaratory relief defining the scope of coverage of an 

insurance policy covering the Karps' home. ECF 1. 

PennyMac, the mortgage holder for the Karps' property, 

filed a counterclaim against Unitrin, seeking 

contradictory declaratory relief, in addition to monetary 

damages for Unitrin's alleged breach of contract and 

failure to act in good faith. ECF 37. Unitrin and 

PennyMac have now filed cross-motions for summary 

judgment. ECF 59, 61. I have reviewed those motions, 

along with the relevant oppositions and replies. ECF 62, 

65. No hearing is necessary. See Loc. R. 105.6 (D. Md. 

2018). For the reasons that follow, Unitrin's Motion for 

Summary Judgment, [*2] ECF 59, will be denied, 

although this Court will dismiss Count Three of the 

Counterclaim, without prejudice, for lack of subject 

matter jurisdiction, and PennyMac's Cross-Motion for 

Summary Judgment, ECF 61, will be granted in part and 

denied in part. Unitrin's Motion for Default Judgment as 

to the Karps, ECF 60, will be denied. Finally, Unitrin's 

Motion to Strike PennyMac's Reply, ECF 66, will also be 

denied.

I. FACTUAL BACKGROUND

The Karps purchased "Kemper Preferred" policy number 

RC 761778 from Unitrin ("the Policy") to insure their 

residence at 3911 Glengyle Avenue, Baltimore, 

Maryland. ECF 59-4. The Policy's effective dates were 

July 6, 2016 through July 6, 2017. Id. The Policy insures 

against direct loss to property, but also contains an 
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exclusion ("the absolute pollution exclusion") which 

provides:

[w]e do not insure loss. . . :

2. Caused by:

e. Any of the following:

. . .

5) Discharge, dispersal, seepage, migration, 

release or escape of pollutants unless the 

discharge, dispersal, seepage, migration, 

release or escape is itself caused by a Peril 

Insured Against under Coverage C of this 

policy.

ECF 59-4 at 20. The Policy defines "pollutants" to 

include "any solid, liquid, gaseous or [*3] thermal irritant 

or contaminant, including smoke, vapor, soot, fumes, 

acids, alkalis, chemicals and waste." Id.

On or about June 2, 2017, the Karps' son discovered a 

hole in a copper feed line between the oil tank and the 

furnace. ECF 59-16 at 1. Home heating oil had leaked 

from the hole onto the tile floor of their basement. ECF 

59-13 at 2. The Karps filed a claim under their Unitrin 

policy, which was originally processed by the "fast 

response unit" in Unitrin's Charlotte Claims Center. ECF 

59-6 at 69:12-70:15; 132:16-133:11. After receiving the 

Karps' claim, Unitrin began remediating the damage to 

their basement. ECF 59-7 at 518:1-519:10.

In September of 2017, approximately three months after 

the incident, Unitrin assigned senior claim 

representative Allen Stack to review and manage the 

claim process. ECF 59-16 at 1. Stack reviewed the 

Karps' Policy, and informed Robert Karp and the public 

adjuster retained by the Karps, Adam Levitt, that he 

believed the pollution exclusion excluded coverage for 

the loss. ECF 59-7 at 516:17-21; ECF 59-8 at 192:5-16. 

On November 9, 2017, Unitrin issued a formal coverage 

denial letter to the Karps, which explained that although 

coverage would be denied, [*4] Unitrin would complete 

payment of any clean-up and remediation expenses it 

had agreed to pay before issuing the coverage denial 

letter. ECF 59-9. Levitt confirmed, at his deposition, that 

Unitrin paid all of the expenses it had agreed to pay for 

remediation. ECF 59-8 at 190:9-191:2; 215:12-15; 

216:16-217:8. In total, Unitrin paid $86,988.93 for the 

Karps' loss, including $57,198.71 to remediate the 

damage to the residence. ECF 61-11.

The Karps' health was adversely affected by the 

discharge of home heating oil, such that they vacated 

the dwelling and eventually stopped making mortgage 

payments to their mortgagor, PennyMac. ECF 61-12 at 

157:2-19. Because PennyMac, as mortgagor, also 

enjoyed certain rights under the Policy, both Robert 

Karp and PennyMac filed complaints, at separate times, 

with the Maryland Insurance Administration ("MIA"), 

alleging that Unitrin engaged in unfair claims practices 

by denying the claim.1 The MIA decided in favor of 

Unitrin as to the issues raised by Robert Karp. ECF 59-

13. Karp appealed the decision to the Office of 

Administrative Hearings, which held a two-day 

evidentiary hearing. ECF 59-14. After hearing the 

evidence, the Administrative Law Judge upheld [*5] the 

MIA's determination that Unitrin had not engaged in 

unfair claim settlement practices by denying Karp's 

claim. ECF 59-15. The Final Order issued on October 

22, 2018, and it was not appealed. Id. On September 

10, 2018, PennyMac filed its own complaint with the 

MIA. ECF 59-18. On March 29, 2019, after PennyMac 

had filed its Counterclaim against Unitrin in this Court, 

the MIA also decided PennyMac's complaint in Unitrin's 

favor. Id.

In its Complaint in this case, Unitrin seeks a declaratory 

judgment declaring that it owes no coverage to the 

Karps or to PennyMac under the Policy, as a result of 

the absolute pollution exclusion. ECF 1. PennyMac filed 

a Counterclaim, in which it seeks a declaratory 

judgment that it is entitled to joint coverage with the 

Karps; that the damage from the incident is covered by 

the Policy; that Unitrin is estopped from terminating 

coverage; and that the Policy requires Unitrin to provide 

coverage to PennyMac, even if coverage is unavailable 

to the Karps. ECF 37. PennyMac also asserts claims for 

monetary damages for breach of contract, and for failure 

to act in good faith. Id.

II. LEGAL STANDARD FOR SUMMARY JUDGMENT

Under Rule 56(a) of the Federal Rules of Civil 

Procedure, summary judgment is appropriate only [*6] 

"if the movant shows that there is no genuine dispute as 

to any material fact and the movant is entitled to 

judgment as a matter of law." The moving party bears 

the burden of showing that there is no genuine dispute 

of material facts. See Casey v. Geek Squad® 

Subsidiary Best Buy Stores, L.P., 823 F. Supp. 2d 334, 

348 (D. Md. 2011) (citing Pulliam Inv. Co. v. Cameo 

Props., 810 F.2d 1282, 1286 (4th Cir. 1987)). If the 

1 PennyMac is expressly named as the mortgagee in the 

Policy (ECF 59-4 at 4), and the Policy includes a "mortgage 

clause" affording the mortgagee certain rights to recover 

losses incurred. ECF 59-4 at 26.

2020 U.S. Dist. LEXIS 153207, *2
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moving party establishes that there is no evidence to 

support the non-moving party's case, the burden then 

shifts to the non-moving party to proffer specific facts to 

show a genuine issue exists for trial. Id. The non-moving 

party must provide enough admissible evidence to 

"carry the burden of proof in [its] claim at trial." Id. at 349

(quoting Mitchell v. Data Gen. Corp., 12 F.3d 1310, 

1315-16 (4th Cir. 1993)). The mere existence of a 

scintilla of evidence in support of the non-moving party's 

position will be insufficient; there must be evidence on 

which the jury could reasonably find in its favor. Id. at 

348 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 

242, 251, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986)). 

Moreover, a genuine issue of material fact cannot rest 

on "mere speculation, or building one inference upon 

another." Id. at 349 (quoting Miskin v. Baxter Healthcare 

Corp., 107 F. Supp. 2d 669, 671 (D. Md. 1999)).

Additionally, summary judgment shall be warranted if 

the non-moving party fails to provide evidence that 

establishes an essential element of the case. Id. at 352. 

The non-moving party "must produce competent 

evidence on each element of [its] claim." Id. at 348-49

(quoting Miskin, 107 F. Supp. 2d at 671). If the nonmoving party [*7] fails to do so, "there can be no 

genuine issue as to any material fact," because the 

failure to prove an essential element of the case 

"necessarily renders all other facts immaterial." Id. at 

352 (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 

322-23, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986); 

Coleman v. United States, 369 F. App'x 459, 461 (4th 

Cir. 2010) (unpublished)). In ruling on a motion for 

summary judgment, a court must view all of the facts, 

including reasonable inferences to be drawn from them, 

"in the light most favorable to the party opposing the 

motion." Matsushita Elec. Indus. Co. v. Zenith Radio 

Corp., 475 U.S. 574, 587-88, 106 S. Ct. 1348, 89 L. Ed. 

2d 538 (1986) (quoting United States v. Diebold, Inc., 

369 U.S. 654, 655, 82 S. Ct. 993, 8 L. Ed. 2d 176 

(1962)).

III. ANALYSIS

A. Motion to Strike PennyMac's Reply

The Court will address Unitrin's Motion to Strike first, to 

establish the scope of the materials to be considered in 

addressing the substantive motions. Unitrin argues that 

PennyMac's Reply exceeded the scope of Unitrin's 

Opposition to PennyMac's (belatedly filed) Motion for 

Summary Judgment, and instead constituted an 

impermissible surreply to Unitrin's Motion for Summary 

Judgment. ECF 66. Regardless of the merits of that 

position, this Court has repeatedly expressed the view 

that a Motion to Strike is not an appropriate procedural 

vehicle to use in this context. See, e.g., Dowdy v. 

Santander Consumer U.S.A., Inc., Civil No. SAG-19-

01386, 2019 U.S. Dist. LEXIS 183905, 2019 WL 

5455554, at *5 (D. Md. Oct. 14, 2019) (citing Maxtena, 

Inc. v. Marks, Civil No. DKC-11-0945, 2012 U.S. Dist. 

LEXIS 3931, 2012 WL 113386 (D. Md. Jan. 12, 2012) 

for the proposition that [*8] the "Federal Rules of Civil 

Procedure only permit a motion to strike matters 

contained in pleadings, not those contained in other 

motions, briefs, or attachments."). Unitrin's Motion to 

Strike will therefore be denied. The Court notes, 

however, that no material that could be construed as a 

"surreply" proved dispositive with respect to the merits 

of the parties' positions.

B. Declaratory Judgment Counts

Turning to the substantive issues, both parties to this 

insurance coverage dispute suggest that the other side 

is taking an unreasonable view of what they consider to 

be clearly binding precedent, instead of recognizing 

what are in fact thorny legal issues presented by this 

case. Cases throughout the country interpreting the 

absolute pollution exclusion, in various contexts, are 

both legion and inconsistent. Even focusing one's 

review on Maryland case law does not result in a 

completely self-evident answer to the legal questions 

stemming from the incident in the Karps' home.

The parties do, however, generally agree as to the 

principles governing this Court's interpretation of the 

Policy. In assessing whether an exclusion in an 

insurance contract is applicable, the insurer bears the 

burden [*9] of establishing that the exclusion applies. 

White Pine Ins. Co. v. Taylor, 233 Md. App. 479, 165 

A.3d 624, 634 (2017). Maryland law treats insurance 

policies the same as any other contract, and does not 

require that the policies "be construed most strongly 

against the insurer." Catalina Enters., Inc. Pension Tr. v. 

Hartford Fire Ins. Co., 67 F.3d 63, 65 (4th Cir. 1995)

(citing Collier v. MD—Individual Practice Ass'n, 327 Md. 

1, 5, 607 A.2d 537 (1992)). Instead, Maryland courts 

must construe the policy as a whole in order to ascertain 

the parties' intent. Cheney v. Bell Nat'l Life Ins. Co., 315 

Md. 761, 766-67, 556 A.2d 1135 (1989). "[W]here a 

contract is plain and unambiguous, there is no room for 

construction." Bd. of Trs. v. Sherman, 280 Md. 373, 380, 

2020 U.S. Dist. LEXIS 153207, *6
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Christopher Martin

373 A.2d 626 (1977).

When looking at the policy's text, courts must "accord 

words their ordinary and accepted meanings," or that 

meaning which "a reasonable person would attach to 

the term," Pac. Indem. Co. v. Interstate Fire & Cas. Co., 

302 Md. 383, 388, 488 A.2d 486 (1985), absent 

evidence that the parties intended to employ the term in 

question "in a special or technical sense," Cheney, 315 

Md. at 766. The parties' intent can also be derived from 

"the character of the contract, its object and purposes, 

and the factual circumstances of the parties at the time 

of execution." Catalina, 67 F.3d at 65 (citing Collier, 327 

Md. at 5). Courts may determine questions of 

interpretation of a policy provision as a matter of law, so 

long as (1) the provision's text is unambiguous, or (2) if 

the text is ambiguous, "if there is no factual dispute in 

the evidence." Pac. Indem., 302 Md. at 389. Where the 

text of a policy is ambiguous, the Court may consult 

extrinsic evidence. Clendenin Bros. v. U.S. Fire Ins. Co., 

390 Md. 449, 459, 889 A.2d 387 (2006) [*10] . 

Ambiguity exists where a term in a policy, "when read by 

a reasonably prudent person," is "susceptible of more 

than one meaning." United Servs. Auto Ass'n v. Riley, 

393 Md. 55, 80, 899 A.2d 819 (2006).

If, after considering extrinsic evidence, an ambiguity 

remains and there is no material evidentiary factual 

dispute, the ambiguity is construed against the party 

who drafted the policy, which is generally the insurer. 

See, e.g., Beale v. American Nat'l Lawyers Ins. 

Reciprocal (Risk Retention Group), 379 Md. 643, 660, 

843 A.2d 78 (2004); see also Haynes v. Am. Cas. Co., 

228 Md. 394, 400, 179 A.2d 900 (1962) ("[W]here an 

insurance company, in attempting to limit coverage, 

employs ambiguous language, the ambiguity will be 

resolved against [the insurer] as the one who drafted the 

instrument, as is true in the construction of contracts 

generally.").

With these principles in mind, the Court begins by 

considering the issue at the heart of the parties' dispute: 

Maryland's interpretation of the absolute pollution 

exclusion, and how it would apply in the context of home 

heating oil. A review of the most relevant Maryland 

cases is instructive.

Unitrin relies on Bernhardt v. Hartford Fire Ins. Co., 102 

Md. App. 45, 648 A.2d 1047 (1994), which was decided 

by the Court of Special Appeals of Maryland. Bernhardt

addressed a situation in which tenants sued their 

landlord, Norman Bernhardt, for damages they suffered 

resulting from the escape of carbon monoxide fumes 

from the central heating system in their building. [*11] 

Id. at 47. Bernhardt tendered the tenants' claims to his 

comprehensive business liability insurer, Hartford. Id. at 

48. Hartford denied coverage, citing the absolute 

pollution exclusion in Bernhardt's policy. Id.

Bernhardt did "not deny that carbon monoxide is a 

pollutant within the literal language of the policy 

exclusion." Id. at 50. Instead, in relevant part, he argued 

that policy's language was ambiguous, because the 

parties had intended to apply the exclusion "only to 

persistent industrial pollution of the environment, and 

not to an accident of the kind generally covered by a 

comprehensive business liability policy." Id. After a 

lengthy review of the history of the absolute pollution 

exclusion, the Court of Special Appeals determined, 

"Whether the absolute pollution exclusion is viewed as 

clear and unambiguous will, of necessity, depend upon 

the facts of each case to which it is applied." Id. at 50-

52. The Court disagreed "with the landlord's contention 

that the absolute pollution exclusion is ambiguous when 

applied to the facts of this case." Id. at 53-54. It instead 

relied on the fact that, "The carbon monoxide gas in this 

case was a 'gaseous . . . irritant or contaminant' and 

constituted 'fumes' and 'chemicals' within the clear [*12] 

language of the definition of 'pollutant.'" Id. at 55. The 

Court also declined Bernhardt's invitation to limit the 

absolute pollution exclusion to "industrial" or "industryrelated" activities, because the exclusion does not 

contain those words, and because the absolute pollution 

exclusion is included as an endorsement in policies for 

non-industrial businesses and even for homeowners. Id. 

at 55-56. While ruling in favor of the insurer in the 

Bernhardt case, the Court expressly warned that, "The 

insurance industry has constructed an 'absolute' 

exclusion so broad in its application that it sweeps away 

coverage well beyond that which might be required to 

meet the industry's legitimate aims. It has done so, 

however, at least in the context of this case, in contract 

language that is clear and unambiguous." Id. at 57.

Shortly after Bernhardt, the Court of Appeals of 

Maryland addressed the absolute pollution exclusion in 

Sullins v. Allstate Ins. Co., 340 Md. 503, 667 A.2d 617 

(1995). The Sullinses were landlords who were sued by 

their tenant, who alleged that the tenant's child had 

ingested lead paint at the Sullinses' residential property. 

Id. at 507. The Sullinses sought defense and 

indemnification from Allstate, who had issued their 

homeowner's policy, including an endorsement 

providing [*13] liability coverage for their rental 

properties. Id. Allstate denied coverage, citing the 

absolute pollution exclusion. Id. at 507-08.

2020 U.S. Dist. LEXIS 153207, *9
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The Court of Appeals considered first whether, in the 

context presented in Sullins, the absolute pollution 

exclusion was ambiguous. Id. at 509-10. It reasoned 

that:

The terms in the exclusion, 'contaminants' and 

'pollutants,' are susceptible of two interpretations by 

a reasonably prudent layperson. By one 

interpretation, these terms encompass lead paint; 

by another interpretation, they apply only to cases 

of environmental pollution or contamination, and not 

to products such as lead paint. Since no extrinsic 

evidence appears in the record at this time to clarify 

the intentions of the parties in using these terms, 

the policy must be construed against Allstate as the 

drafter of the policy.

Id. The Court noted other courts' inconsistent findings 

regarding whether lead paint constitutes a 

"contaminant" or "pollutant," including court 

determinations that "products, despite their toxic nature, 

are not 'pollutants' or 'contaminants' when used 

intentionally and legally."2Id. at 512. After a lengthy 

recitation, similar to that in Bernhardt, of the history and 

evolution of the absolute pollution exclusion, [*14] the 

Court explained:

It appears from the foregoing discussion that the 

insurance industry intended the pollution exclusion 

to apply only to environmental pollution. That 

supports our conclusion that a reasonably prudent 

layperson may interpret the terms "pollution" and 

"contamination," in the circumstances of the case 

now before us, as not encompassing lead paint, a 

product used legally and intentionally. Since the 

terms 'pollution' and 'contamination' suggest more 

than one meaning to a reasonably prudent 

layperson, they are ambiguous and must be 

construed against Allstate, the drafter of the policy.

Id. at 515-16.

In 1998, the United States Court of Appeals for the 

Fourth Circuit considered and reconciled Bernhardt and 

Sullins, in Assicurazioni Generali, S.p.A. v. Neil, 160 

F.3d 997 (1998). Neil arose out of carbon monoxide 

2 The Sullins Court held "that conflicting opinions of policy 

language is not determinative of, but is a factor to be 

considered in determining the existence of ambiguity. . . [I]f 

other judges have held alternative interpretations of the same 

language to be reasonable, that certainly lends some 

credence to the proposition that the language is ambiguous 

and must be resolved against the drafter." Id. at 518.

poisoning experienced by guests at a hotel 

establishment. Id. at 999. The insurer denied coverage 

to the hotel, citing, in part, the absolute pollution 

exclusion. Id. at 1000. The hotel owners argued that "a 

Maryland court would limit the applicability of any 

pollution exclusion to instances of environmental 

pollution," in light of the language in Sullins. Id. at 1001. 

The district court had agreed, and had relied on Sullins

to rule in favor of the hotel owners, reasoning that 

Sullins "led to [*15] the inescapable conclusion that the 

[Court of Appeals of Maryland] 'would reverse Bernhardt

if that decision were to reach it for review.'" Id. at 1003.

The Fourth Circuit disagreed, and found that the district 

court should have applied the holding of the 

intermediate state court in Bernhardt. The Fourth Circuit 

noted that not only did Sullins decline to overrule 

Bernhardt, but it had actually cited Bernhardt multiple 

times while recounting the history of the absolute 

pollution exclusion. Id. at 1004. Ultimately, the Fourth 

Circuit found that Sullins had appropriately distinguished 

Bernhardt, because while the terms "contaminants" and 

"pollutants" were ambiguous in the context of lead paint 

chips, "carbon monoxide was clearly a 'gaseous . . . 

irritant or contaminant' and constituted 'fumes' and 

'chemicals' within the clear language of the definition of 

pollutant." Id. at 1005. In other words, "notwithstanding 

its ultimate holding, nothing in Sullins would suggest 

disapproval of or disinclination to follow the intermediate 

court's decision in Bernhardt in a case, like the present 

one, with unambiguous policy language." Id. The Fourth 

Circuit emphasized that Maryland's high court had not 

concluded in Sullins that the [*16] absolute pollution 

exclusion was limited to "injuries resulting from 

environmental pollution," but instead had rested its 

holding "upon the ambiguity in the exclusion language 

before it and its resolution of that ambiguity against the 

insurer." Id. In the end, the Court ruled:

For these reasons, we believe Sullins does not 

provide persuasive data that the Maryland Court of 

Appeals would refuse to follow Bernhardt. Since 

Neil offers no other persuasive data that Bernhardt

does not accurately state Maryland law, we must 

follow it and hold that the pollution exclusion bars 

coverage for the injuries allegedly caused by 

carbon monoxide poisoning.

Id. at 1006.

The last significant entry in the series of relevant cases 

interpreting Maryland law is Clendenin Bros., Inc. v. 

United States Fire Ins. Co., 390 Md. 449, 889 A.2d 387 

2020 U.S. Dist. LEXIS 153207, *13
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(2006). Clendenin's employees sued their employer, 

alleging that "proper use of the Insured's welding 

products produced harmful localized fumes containing 

manganese which caused bodily harm and neurological 

damage." Id. at 452-53. Clendenin's insurer, U.S. Fire, 

argued that the absolute pollution exclusion applied to 

the welding-related claims. Id. The Court of Appeals 

noted that the issue of the exclusion's application to 

"localized, workplace manganese welding fumes" was 

an issue [*17] of first impression, id. at 454, but 

reviewed the relevant holdings in Bernhardt and Sullins, 

id. at 454-57. Echoing its rationale in Sullins, the Court 

reasoned:

Guided by our principles of insurance contract 

interpretation, we conclude that the language of the 

pollution exclusion in the present case is 

ambiguous in the context of manganese welding 

fumes. A reasonably prudent person could construe 

the pollution exclusion clause in the present case 

as both including and not including manganese 

welding fumes.

Id. at 461. The Court found ambiguity because 

reasonably prudent persons (including, in a prior case, 

the United States Court of Appeals for the Fourth 

Circuit) could conclude that "the contractually defined 

term 'pollutant' encompasses manganese welding 

fumes," which are indisputably capable of harming 

human health. Id. at 461. Nevertheless, the Court of 

Appeals noted that "manganese, in certain 

concentration forms, has positive applications and long 

has been used in the normal course of business by 

welders," such that "a reasonably prudent person might 

not consider manganese generally to be an irritant or 

contaminant." Id. at 462. The Court emphasized that, in 

Sullins, it had "considered and rejected" the "potentially 

limitless view" that any substance [*18] with the 

potential to irritate or damage some person or property 

could constitute a pollutant subject to the exclusion. Id. 

at 464. Significantly, the Court went on to state, "[G]iven 

our assessment in Sullins of the historical development 

of the pollution exclusion clause, in conjunction with the 

conclusions reached by foreign courts reviewing similar 

policy language as is presently before us, we conclude 

that the policy exclusion does not apply beyond 

traditional environmental pollution situations." Id. at 466. 

In conclusion, the Court stated, "Accordingly, 

considering the policy as a whole, as well as the facts 

and circumstances surrounding its execution, we 

conclude that the language of the present total pollution 

exclusion is ambiguous in the context of manganese 

welding fumes."3Id. at 467.

A comparison of the absolute pollution exclusion 

clauses in the four cases reviewed above reveals no 

meaningful distinctions in terms of wording. The 

analysis conducted by the Maryland courts, instead, is a 

case-by-case analysis that turns on whether the 

substance at issue is exclusively viewed as a pollutant, 

placing it squarely within the exclusion's definitions, or 

whether the substance instead [*19] serves some 

useful purpose as a non-pollutant, rendering its status 

ambiguous. The home heating oil at issue in this case, 

which was intentionally introduced into the Karps' 

residence to serve a useful purpose, is more akin to the 

manganese in Clendenin Bros. and the lead paint chips 

in Sullins than it is to the carbon monoxide in Bernhardt

and Neil. A reasonably prudent person could contend 

that home heating oil, which causes known deleterious 

effects to the occupants of the home when it is spilled, is 

a pollutant or contaminant, but a reasonably prudent 

person could also argue that this same oil, which is 

brought into the home for productive use in the furnace, 

is not a pollutant intended to be covered by the 

exclusion. This useful application, which does not exist 

for the carbon monoxide in the cases so heavily relied 

upon by Unitrin, creates the critical ambiguity here.

Tellingly, other courts interpreting the absolute pollution 

exclusion as it pertains to home heating oil have 

reached varied results. Compare Eastern Cas. Inc. Co. 

v. Home Store, Inc., 19 Mass. L. Rptr. 363 (Sup. Ct. 

Mass. 2005) (finding that the absolute pollution 

exclusion did not relieve the insure of its obligations to 

cover damages from a leak in the oil-fired heating 

system because an objectively [*20] reasonable 

insured would expect the damage to be covered) with 

Barg v. Encompass Home & Auto Ins. Co., Civil No. 16-

6049, 2018 U.S. Dist. LEXIS 8951, 2018 WL 487830, at 

*5 (E.D. Pa. 2018) (finding that the absolute pollution 

exclusion applied to a home heating oil leak where "the 

record contains extensive evidence that heating oil is a 

contaminant"). Such conflicting judicial interpretations, 

while not dispositive, further support the existence of 

3 After Clendenin Bros., the Court of Appeals of Maryland 

issued one additional case touching on the absolute pollution 

exclusion, in Brownlee v. Liberty Mutual Fire Ins. Co., 456 Md. 

579, 175 A.3d 697 (2017). Because the Brownlee opinion 

decided the limited question of whether a Georgia court's 

interpretation of the absolute pollution exclusion violated 

Maryland public policy, it does not directly bear upon the 

contractual interpretation issues relevant here.

2020 U.S. Dist. LEXIS 153207, *16
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Christopher Martin

ambiguity. See Sullins, 340 Md. at 518.

Unitrin argues that heating oil's status as a pollutant is 

not ambiguous because, when it spilled "it was not 

being used in the ordinary and expected course of 

business," and thus no reasonably prudent person could 

conclude the oil was not a pollutant. ECF 62 at 13. The 

heating oil, however, was being used how an ordinary 

household would—brought in to supply the house with 

heat—when it spilled. The spill was certainly not an 

intended result of the introduction of heating oil into the 

house, but neither was the inhalation of toxic fumes as 

part of the welding process in Clendenin nor the 

ingestion of lead paint in Sullins. Those cases teach that 

the ambiguity analysis is not cabined solely to whether 

the form in which the substance caused the harm is 

useful, but rather requires a broader view of the 

substance's "positive applications." The fact [*21] that a 

reasonably prudent person could conclude that heating 

oil in its un-spilled form has a useful application in the 

Karps' furnace is enough to give rise to ambiguity here.4

Unitrin attempts to distinguish Clendenin Bros. by 

pointing out that it involved a general commercial 

insurance policy as opposed to the homeowner's 

insurance policy at issue here, ECF 62 at 12, but that 

difference is not a substantive one insofar as this case 

is concerned. The terms of the Policy here and the one 

in Clendenin Bros. are very similar. See ECF 59-4 at 20; 

Clendenin Bros., 390 Md. at 453 (using similar language 

regarding "discharge, dispersal, seepage, migration, 

release or escape of pollutants," as well as the exact 

same definition of pollutant). Indeed, Clendenin Bros. 

itself relied heavily on Sullins, which involved a 

homeowners insurance policy, to inform its commercial 

insurance policy analysis, Clendenin Bros., 390 Md. at 

463-67, demonstrating that where such similar 

exclusionary language is at issue, courts need not erect 

a formalistic wall between the types of insurance 

policies used in their interpretive efforts.

In light of the ambiguity described above, and the lack of 

extrinsic evidence suggesting the parties' intent with 

respect to coverage of [*22] home heating oil, the 

4 Unitrin's emphasis that home heating oil in all of its forms is 

an irritant and thus satisfies the literal wording of the policy, 

ECF 59 at 15, similarly falls short. The fact that it is an irritant, 

even one that caused the Karps to move out, does not 

preclude the substance from having a useful purpose and thus 

does not alter the ambiguity analysis. See Clendenin Bros., 

390 Md. at 464.

Policy must be construed against its drafter, Unitrin.5 As 

a result of this Court's determination that the absolute 

pollution exclusion is ambiguous in this context, Unitrin 

cannot invoke the exclusion to deny coverage under the 

policy. PennyMac's arguments about estoppel, and 

about its own coverage under the policy being broader 

than that afforded to the Karps, need not be addressed, 

and Unitrin's Motion for Summary Judgment as to its 

Complaint seeking a declaratory judgment will be 

denied.

The Court does need to address Unitrin's contention 

that PennyMac is barred by collateral estoppel from 

asserting its own affirmative claims against Unitrin. The 

MIA's disposition of PennyMac's complaint is not 

binding on this Court, and by law becomes a legal nullity 

upon the filing of a court action. See Fakhoury v. Great 

N. Ins. Co., No. CIV. WDQ-12-0268, 2012 U.S. Dist. 

LEXIS 60382, 2012 WL 1554487, at *3 (D. Md. Apr. 30, 

2012) (noting that the MIA's decision is a nullity once an 

insured has filed a civil action under § 3-1701 of the 

Courts & Judicial Proceedings Article); Thompson v. 

State Farm Mut. Auto. Ins. Co., 196 Md. App. 235, 251, 

9 A.3d 112 (2010) (finding that the MIA record is not 

before the court and the MIA decision appears to be a 

nullity once the insured files a civil action). Thus, [*23] 

collateral estoppel does not bar PennyMac's claims. 

PennyMac's motion for summary judgment as to Count 

5 Alternatively, while not exceedingly clear, it also appears that 

the Court of Appeals, in Clendenin Bros., expressed some 

intent to limit application of the absolute pollution exclusion to 

"traditional environmental pollution situations." See 390 Md. at 

466 ("[W]e conclude that the policy exclusion does not apply 

beyond traditional environmental pollution situations."). While 

the Court did not offer a precise definition of that term, and 

appears to ultimately have based its holding on the ambiguity 

in the Clendenin Bros. policy, the Court of Appeals is 

disinclined to construe the total pollution exclusion broadly in 

situations like that presented in this case. See id. at 468 (citing 

approvingly the Sixth Circuit's holding in Meridian Mut. Ins. Co. 

v. Kellman, 197 F.3d 1178 (6th Cir. 1999), which concluded 

"the total pollution exclusion clause at bar does not shield the 

insurer from liability for injuries caused by toxic substances 

that are still confined within the general area of their intended 

use."). Unitrin's suggestion that the apparent seepage of the 

Karps' home heating oil into the soil below the basement 

converts this incident into "traditional environmental pollution," 

ECF 62-1 at 15-16, is unpersuasive. The soil issue here 

clearly emanated from a leak within the Karps' residence, 

remained confined to the "general area of intended use" even 

if there is evidence of limited seepage into the immediate soil, 

and is not traditional environmental pollution affecting the 

property from an external source.

2020 U.S. Dist. LEXIS 153207, *20
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Christopher Martin

One of its Counterclaim will be granted, to the extent it 

seeks a declaratory judgment that the pollution 

exclusion does not exclude coverage for the incident.

C. Count Two of Counterclaim: Breach of Contract

Unitrin seeks summary judgment in its favor as to Count 

Two of the Counterclaim. ECF 59-3 at 1 (seeking 

summary judgment "as to all claims" in the 

Counterclaim). While the memorandum in support of 

Unitrin's motion for summary judgment does not 

address Count Two expressly, presumably Unitrin 

contends that it could not have breached its contract 

with PennyMac, because it did not owe coverage in light 

of the exclusion. As discussed above, Unitrin's position 

lacks merit, and its motion for summary judgment as to 

Count Two of the Counterclaim will be denied.

PennyMac also moves for partial summary judgment as 

to its claims in Count Two.6 On the present record, that 

motion will be denied. Despite this Court's conclusion 

that coverage is available to PennyMac under the 

Policy, the record does not clearly establish that 

PennyMac has expressly sought coverage for any 

monies it has expended, [*24] that have not been 

covered by Unitrin to date.

D. Count Three: Good Faith

Both parties seek summary judgment as to the claim 

PennyMac asserts in Count Three: that Unitrin failed to 

act in good faith in deciding the coverage issues, as it is 

required to do by Md. Code. Ann., Inc. § 27-1001(a) and 

Md. Code Ann, Cts. and Jud. Proc. § 3-1701. The 

Maryland statute requires an insurer to make "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 the 

claim." Md. Code Ann., Cts. and Jud. Proc. 3-

1704(a)(4). An insurer's good faith is judged by the 

totality of the circumstances, including:

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 insured; the 

substance of the coverage dispute or the weight of 

legal authority on the coverage issue; [and] the 

6 Like Unitrin, this Court did not read PennyMac's motion to 

include a claim for partial summary judgment as to Count Two. 

However, in its Reply, PennyMac asserts that it did intend its 

motion to encompass Count Two. ECF 65-1 at 2 n.1.

insurer's diligence and thoroughness in 

investigating the facts specifically pertinent to 

coverage.

All Class Constr., LLC v. Mutual Ben. Ins. Co., 3 F. 

Supp. 3d 409, 416 (D. Md. 2014) (quoting Cecilia 

Schwaber Trust Two v. Hartford Accident & Indem., Co., 

636 F. Supp. 2d 481, 486-87 (D. Md. 2009)). Denial of 

policy benefits does not constitute a "lack of good faith," 

because the insured is entitled only to pursue contract 

remedies. Bierman Family Farm, LLC v. United Farm 

Family Inc. Co., 265 F. Supp. 3d 633, 637-38 (D. Md. 

2017).

Unitrin raises, for the first time in this Motion, a lack of 

subject matter jurisdiction, alleging that PennyMac [*25] 

did not have the requisite final order from its 

administrative proceeding before the MIA in advance of 

filing its Counterclaim in this Court. ECF 59-3 at 7-10. 

As Judge Theodore D. Chuang recently reasoned:

[T]he Maryland General Assembly has signaled that 

exhaustion of the MIA administrative process is a 

jurisdictional prerequisite to a claim under Section 

3-1701. Section 3-1701 states that absent certain 

circumstances not present here, "a party may not 

file an action under this subtitle before the dates of 

a final decision under § 27-1001 of the Insurance 

Article," the provision describing an administrative 

claim before the MIA. Cts. & Jud. Proc. § 3-

1701(c)(1). Crucially, this provision falls within Title 

3 of the Courts and Judicial Proceedings Article of 

the Maryland Code, which is entitled "Courts of 

General Jurisdiction—Jurisdiction/Special Causes 

of Action." Thus, the Maryland legislature has 

expressed its intent that this exhaustion 

requirement constitute not merely an element of a 

claim, but a jurisdictional prerequisite to the 

presentation of such a claim in a Maryland court. 

Accordingly, an allegation that a plaintiff has failed 

to exhaust administrative remedies before bringing 

a Section 3-1701 claim is properly considered as a 

challenge [*26] to the Court's subject matter 

jurisdiction. See Class Produce Grp., LLC v. 

Harleysville Worcester Ins. Co., No. ELH-16-3431, 

2017 U.S. Dist. LEXIS 83669, 2017 WL 2377105, 

at *6 (D. Md. May 31, 2017) (stating that a motion 

to dismiss a claim under Section 3-1701 for failure 

to exhaust administrative remedies is a challenge to 

the court's subject matter jurisdiction) (quoting 

Carlyle v. Travelers Home & Marine Ins. Co., No. 

WDQ-13-2964, 2014 U.S. Dist. LEXIS 78890, 2014 

WL 2573381, at *3 (D. Md. June 5, 2014)).

2020 U.S. Dist. LEXIS 153207, *23
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Christopher Martin

Jackson v. Standard Fire Ins. Co., Civil No. TDC-17-

1612, 2018 U.S. Dist. LEXIS 4220, 2018 WL 348148, at 

*3 (Jan. 9, 2018).

The timeline in this case is as follows: Unitrin filed its 

declaratory judgment action in this Court on November 

9, 2017. ECF 1. PennyMac filed its administrative claim 

with the MIA on September 10, 2018, and filed its 

Counterclaim shortly thereafter, on October 24, 2018. 

ECF 37. While this case was pending, on March 29, 

2019, the MIA issued its opinion on the administrative 

claim, which would constitute its final order under the 

statute. ECF 59-18. Although something of a 

technicality, it is undisputed that PennyMac, at the time 

of the Counterclaim's filing, lacked the final order 

required to provide subject matter jurisdiction for its 

Counterclaim.

In order to remedy the procedural defect without 

prejudicing either party, rather than granting summary 

judgment as urged by Unitrin, [*27] this Court will 

dismiss Count Three of the Counterclaim sua sponte, 

without prejudice. However, although it is not the basis 

for this Court's ruling, it is worth noting that PennyMac 

would have an uphill battle establishing Unitrin's failure 

to act in good faith, in light of the close legal questions 

discussed above. Its contention that Unitrin "ignored 

legal authority" or "decided to terminate coverage 

without consideration for Clendenin Brothers" is 

unpersuasive, in light of the somewhat balanced legal 

authority described above and other courts' 

determinations that home heating oil constitutes a 

pollutant. An insurer must be permitted to litigate close, 

debatable coverage issues without incurring a finding 

that it did not act in good faith, if a court ultimately rules 

for the insured. Moreover, there do not appear to be any 

factual issues, relating to whether home heating oil is a 

pollutant that Unitrin either ignored or failed to 

investigate.

In addition, PennyMac's repeated contention that Unitrin 

did not properly remediate the oil in the Karps' 

basement is a red herring with respect to the coverage 

decision. Whether or not the cleaning and remediation 

efforts were deficient, PennyMac [*28] has adduced no 

evidence linking such deficiencies to Unitrin's legal 

position or its subsequent denial of coverage. This case, 

then, bears all the hallmarks of a traditional contractual 

coverage dispute, and not an instance of bad faith. That 

said, because PennyMac subsequently obtained a final 

order from the MIA, Count Three of its Counterclaim will 

be dismissed without prejudice to PennyMac filing a 

motion seeking leave to amend its Counterclaim to reassert a § 3-1701 claim, if it believes it to be viable.

E. Motion for Default Judgment

Finally, Unitrin seeks default judgment against the 

Karps, who did not appear in court or defend this action. 

Despite a strong preference that cases be decided on 

the merits, "default judgment is available when the 

adversary process has been halted because of an 

essentially unresponsive party." Disney Enters., Inc. v. 

Delane, 446 F. Supp. 2d 402, 405 (D. Md. 2006)

(citation and quotation marks omitted).

In considering a motion for default judgment, the Court 

generally "takes as true the well-pleaded factual 

allegations in the complaint, other than those pertaining 

to damages." Choice Hotels Int'l, Inc. v. Vishal, Inc., No. 

PWG-13-2078, 2014 U.S. Dist. LEXIS 160347, 2014 WL 

6391092, at *2 (D. Md. Nov. 14, 2014) (Connelly, J.) 

(citing Ryan v. Homecomings Fin. Network, 253 F.3d 

778. 780 (4th Cir. 2001)). In cases involving multiple 

defendants, Rule 54(b) "authorizes entry of a final [*29] 

judgment as to one of multiple defendants in a civil 

action following an express finding that there is 'no just 

reason for delay.'" Choice Hotels Intl., Inc. v. Mander, 

Civil No. GJH-14-3159, 2015 U.S. Dist. LEXIS 53551, 

2015 WL 1880277 (Apr. 22, 2015) (citing Fed. R. Civ. P. 

54(b)). However, entry of a default judgment should not 

produce "logically inconsistent judgments resulting from 

an answering defendant's success on the merits and 

another defendant's suffering of a default judgment." 

Jefferson v. Briner, Inc., 461 F. Supp. 2d 430, 434 (E.D. 

Va. 2006).

Given that this Court has ruled, on the merits, that 

Unitrin's declaratory judgment action lacks merit, it 

cannot enter default judgment against the Karps on 

Unitrin's declaratory judgment claim without producing 

inherently inconsistent judgments. Accordingly, Unitrin's 

motion for default judgment will be denied.

IV. CONCLUSION

For the reasons set forth above, Unitrin's Motion for 

Summary Judgment, ECF 59, will be denied as to all 

counts, and PennyMac's Motion for Partial Summary 

Judgment, ECF 61, will be granted in part as to Count 

One, and otherwise denied. Specifically, PennyMac is 

entitled to a declaration that the absolute pollution 

exclusion does not bar coverage for the losses arising 

from the home heating oil leakage in the Karps' 

2020 U.S. Dist. LEXIS 153207, *26
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Christopher Martin

basement. Genuine issues of material fact [*30] remain 

as to the other claims, including the other claims for 

declaratory relief. Unitrin's Motion for Default Judgment, 

ECF 60, and its Motion to Strike, ECF 66, will also be 

denied. Count III of PennyMac's Counterclaim will be 

dismissed without prejudice for lack of subject matter 

jurisdiction. A separate Order follows, which will include 

information about a scheduling conference to discuss 

the remaining proceedings in this litigation.

Dated: August 24, 2020

/s/ Stephanie A. Gallagher

United States District Judge

ORDER

For the reasons stated in the accompanying 

memorandum opinion, it is this 24th day of August, 

2020, ORDERED that Plaintiff's Motion for Summary 

Judgment, ECF 59, is DENIED as to all counts. 

Plaintiff's Motion for Default Judgment, ECF 60, and its 

Motion to Strike, ECF 66, are both DENIED. 

Defendant's Motion for Partial Summary Judgment, ECF 

61, will be GRANTED in part as to Count I, and DENIED

with respect to all other counts. Count III of Defendant's 

Counterclaim will be DISMISSED WITHOUT 

PREJUDICE. Defendant is GRANTED thirty (30) days 

within which to seek leave to amend its Counterclaim to 

remedy the deficiencies in the claim dismissed, should it 

so choose.

A telephonic [*31] scheduling conference will be held 

on Wednesday, September 2, 2020 at 11 a.m., and 

the parties should be prepared to address scheduling 

issues, including whether there is consent to referral to 

a United States Magistrate Judge for a settlement 

conference. Chambers staff will circulate the conference 

call dial-in information.

/s/ Stephanie A. Gallagher

United States District Judge

End of Document

2020 U.S. Dist. LEXIS 153207, *29