Opinion ID: 2383883
Heading Depth: 1
Heading Rank: 4

Heading: Potentiality of Coverage

Text: The issues raised by the board and the first issue raised by Horace Mann can be considered together. The board's position is that Doe's complaint is based entirely on the claim that he was sexually assaulted by Ms. Robbins, that there is no insurance coverage for that kind of conduct because it cannot be regarded as committed within the scope of the teacher's employment or authority, that the only extrinsic evidence regarding the allegation consists of Ms. Robbins's denial that the conduct occurred, and that such mere denial is insufficient to create even a potentiality of coverage. Horace Mann insists that the complaint itself alleges more than just sexual abuse, that the extrinsic evidence also shows other potentially actionable conduct on Ms. Robbins's part, that, as a result, there is a potentiality of coverage, and that the board therefore had a statutory duty to defend. Beginning at least with U.S.F. & G. v. Nat. Pav. Co., 228 Md. 40, 54, 178 A.2d 872, 879 (1962) and continuing, most recently, through BGE Home v. Owens, 377 Md. 236, 246, 833 A.2d 8, 14 (2003) and Walk v. Hartford Casualty, 382 Md. 1, 852 A.2d 98 (2004), we have followed the rule that, where a duty to defend is included in a liability policy, the insurer is obligated to defend its insured when there exists a ` potentiality that the claim could be covered by the policy.' BGE Home, supra, at 246, 833 A.2d at 14, quoting from Sullins v. Allstate Ins. Co., 340 Md. 503, 509, 667 A.2d 617, 619-20 (1995). In St. Paul Fire & Mar. Ins. v. Pryseski, 292 Md. 187, 193, 438 A.2d 282, 285 (1981), we pointed out that, in determining whether a liability insurer has a duty to provide its insured with a defense to a tort action, two types of questions ordinarily must be answered: (1) what is the coverage and what are the defenses under the terms and requirements of the insurance policy [and] (2) do the allegations in the tort action potentially bring the tort claim within the policy's coverage? The first question, we added, focuses upon the language and requirements of the policy, and the second question focuses upon the allegations of the tort suit. Id. In Aetna, supra, 337 Md. 98, 651 A.2d 859, we expanded the scope of the second inquiry somewhat. We held there that, at least where the underlying complaint in the tort action neither conclusively establishes nor conclusively negates a potentiality of coverage, an insurer must examine any relevant extrinsic evidence brought to its attention that might establish a potentiality of coverage. Here, of course, any obligation by the county board to defend Ms. Robbins would arise from the statutory construct in §§ 4-104 and 4-105 of the Education Article and the self-insurance program in which the board has elected to participate, rather than from an insurance policy. The first aspect of our examination must therefore be the statutory framework and the self-insurance program, which, when read together and in light of other circumstances, are not entirely free of ambiguity. As we have observed, § 4-105(a) of the Education Article requires the county boards of education to carry comprehensive liability insurance to protect the board and its agents and employees. Section 4-105(b) requires the State Board of Education to establish standards for these insurance policies, including a minimum liability coverage of not less than $100,000 for each occurrence, and further requires the policies to meet these standards. So far as we can tell, the only standard adopted by the State Board of Education is the unenlightening requirement that [t]he type and amount of liability insurance carried by the local boards of education shall conform to the requirements of Education Article, § 4-105, Annotated Code of Maryland. COMAR 13A.02.01.03A. Section 4-105(c) permits a county board to comply with the statutory requirement through self-insurance, if: (1) the board either is individually insured for at least $100,000 for each occurrence under rules and regulations adopted by the Insurance Commissioner or is part of a self-insurance pool permitted under title 19, subtitle 6 of the Insurance Article; (2) if the board elects to self-insure individually, it files the terms and conditions of the self-insurance with the Insurance Commissioner; and (3) those terms and conditions are subject to approval by the Insurance Commissioner and they conform with the terms and conditions of comprehensive liability insurance policies in the private market. [2] The Montgomery County board elected to become part of a self-insurance pool established by local ordinance. Section 20-37(c) and (d) of the Montgomery County Code authorizes the county to provide an adequate comprehensive liability insurance program for county agencies, officials, and employees and to enter into agreements with participating agencies such as the county board of education. Section 20-37(e) establishes a self-insurance program for the county government and participating agencies, subject to certain conditions. One of those conditions, § 20-37(e)(3), is that the insurance protection furnished to the participating agency may not be less than the coverage provided by the independent insurance program that the agency had when it began to receive coverage under the self-insurance program. In 1978, the county school board became part of the county comprehensive self-insurance program. The record before us does not reveal what kind of coverage the school board had when it elected to participate in the county program, notwithstanding that the Agreement provided that the insurance coverages previously in effect shall be used as the basis for any claim payments made by the Montgomery County Self-Insurance Program for claims made against the BOARD. Through an Attachment, the Agreement between the board and the county incorporated a set of program procedures which, among other things, provided that there would be no coverage for [a]ctions falling outside the scope of employment, [c]ases of wanton or malicious wrongdoing, and [i]ntentional torts. [3] The Attachment provided that the decision regarding whether the conduct was wanton, malicious, intentional, or outside the scope of employment would be made initially by the county attorney, subject to hearing and final decision by the interagency panel. The key provision in § 4-105(c) is that the terms of any self-insurance must conform with the terms and conditions of comprehensive liability insurance policies available in the private market. In BGE Home, supra, 377 Md. 236, 833 A.2d 8, we dealt with this very issue, albeit in the context of motor vehicle liability insurance. Pursuant to statutory authorization, BG & E elected to provide self-insurance for its motor vehicle fleet, and the issue arose whether, in the absence of any duty-to-defend provision in the self-insurance documents, it had such a duty when its employee arguably was not operating the company vehicle within the scope of permission at the time of the accident. In what was essentially a three-part analysis, we concluded that the duty to defend, though not explicit in the self-insurance documents, nonetheless existed. We began first by confirming what the Court had held in Hines v. Potomac Elec. Power Co., 305 Md. 369, 375, 504 A.2d 632, 635 (1986) and West American v. Popa, 352 Md. 455, 475, 723 A.2d 1, 11 (1998), that the General Assembly recognized approved self-insurance as the equivalent of an insurance policy and that there was no reason to distinguish a certificate of self-insurance from a motor vehicle liability insurance policy. BGE Home, supra, 377 Md. at 246-47, 833 A.2d at 14-15. (citations omitted). That established a statutorily mandated symmetry. We then recognized that, though normally contractual in nature, an insurer's duty to defend is nevertheless a fundamental feature of a basic liability insurance policy and existed whenever there was a potentiality of coverage. That led to the conclusion that [s]ince the duty to defend is such an important and integral part of all basic liability policies, it is highly unlikely that the General Assembly intended that motor vehicle self-insure[r]s have no duty to defend. BGE Home, supra, 377 Md. at 247, 833 A.2d at 15. The same principle applies here. The basic mandate of § 4-105 is that county boards carry comprehensive liability insurance in a minimum amount of $100,000/occurrence to protect the board and its employees. That is as much a compulsory insurance requirement as the mandatory motor vehicle liability insurance. As we observed in BGE Home, the duty to defend is an integral feature of all basic liability policies and thus would be part of any policy that might be purchased by a county board pursuant to § 4-105(a). A county board is permitted to self-insure only if the terms and conditions of the self-insurance conform with the terms and conditions of comprehensive liability policies available in the private market. Under governing State law, therefore, the county board's self-insurance must be deemed to contain the same duty to defend as would exist under a standard policy, notwithstanding any contrary interpretation that might otherwise be placed on § 20-37 of the county code or the Attachment to the Participating Agency Agreement. Under § 4-105, therefore, the board was obliged to defend Ms. Robbins if there was any potentiality of coverage. The same result pertains under § 4-104, notwithstanding some ambiguity in that statute. Section 4-104(d)(1) provides, in relevant part: In any suit or claim brought against a [teacher] by a parent or other claimant with respect to an action taken by the [teacher], the board shall provide counsel for that individual if: (i) The action was taken in the performance of his duties, within the scope of his employment, and without malice; and (ii) The board determines that he was acting within his authorized capacity in the incident. The board views § 4-104(d)(1) as establishing two separate hurdles for a teacher. First, the teacher must meet the test of sub-paragraph (i) and show that the action complained of was taken in the performance of his/her duties, that it was within the scope of his/her employment, and that it was without malice. Even if the teacher satisfies that test, the board contends that the teacher must seek the Board's determination that she was acting in an authorized capacity in the incident. The addition of sub-paragraph (ii) creates an ambiguous redundancy in the statute that, in light of the board's argument, needs to be resolved. Subparagraph (i) sets an objective standard for coverage  the employee was acting in the performance of his/her duties, within the scope of his/her employment, and without malice. If that test is met, the employee was necessarily acting in an authorized capacity. We cannot imagine any circumstance in which the board could properly conclude that the employee was not acting in an authorized capacity if the employee was acting in the performance of his/her duties, within the scope of his/her employment, and without malice. The question, then, is whether the Legislature, having articulated a proper objective standard, nonetheless intended that the board, in its own discretion and based on its own subjective analysis, make the ultimate decision whether to provide a defense. [4] When called upon to construe an ambiguous statute, we are left, in the absence of some clear extrinsic evidence of legislative intent, to rely on the most relevant of the various canons of statutory construction. Two are paramount in this context: (1) § 4-104(d) is quintessentially remedial legislation enacted for the benefit of school employees and, as remedial legislation, it is to be liberally construed to effectuate its beneficent purpose, Coburn v. Coburn, 342 Md. 244, 256, 674 A.2d 951, 957 (1996), and (2) that section must be read in harmony with § 4-105, to which it is clearly related. In Tucker v. Fireman's Fund Ins. Co., 308 Md. 69, 77, 517 A.2d 730, 734 (1986), we applied the liberal-construction-of-remedial-legislation principle in construing the statute requiring motor vehicle insurance policies to contain personal injury protection coverage, observing that, in view of the clear remedial purpose of the law, a liberal construction of the statute is required. The relationship between § 4-104(d) and § 4-105 is evident. As we have observed, the duty to defend whenever there is a potentiality of coverage is an integral part of comprehensive liability insurance and is therefore implicit under § 4-105. Although it is the insurer, of course, that makes the initial decision whether such a potentiality of coverage exists, that decision is reviewable de novo by a court when properly challenged in a breach of contract or declaratory judgment action. The court, upon its own analysis, determines whether, on the facts presented, there exists a duty to defend. It would be wholly inconsistent with our case law  case law that predates the enactment of the statutes now contained in §§ 4-104(d) and 4-105 and that was therefore presumably known to the Legislature when they enacted those statutes  to construe § 4-105 as allowing the board to make its own unreviewable decision whether a potentiality of coverage exists in any given case. That being so, it would be absurd to construe § 4-104(d), enacted to make explicit the duty to defend that was implicit in § 4-105, to achieve that inconsistent result. We therefore reject the board's argument that there is a two-part test that teachers must pass in order to be entitled to a defense. There is only one, and that is a potentiality that the conduct at issue was undertaken in the performance of the teacher's duties, was within the scope of employment, and was without malice. That is the test to be objectively applied by the board, the county attorney, the interagency panel, and, ultimately, the court. [5] The question, then, is whether the allegations of the Doe complaint and the extrinsic evidence collected by the board in its investigation of the claim demonstrate a potentiality of coverage. If, indeed, the allegations in the Doe complaint and the relevant extrinsic evidence established only a charge of sexual abuse, there would be no duty on the part of the board to defend Ms. Robbins. Apart from being malicious, sexual abuse of a minor is criminal conduct ( see Maryland Code, § 3-602 of the Criminal Law Article) that is not within the scope of a teacher's employment or authority. See Deloney v. Board of Educ. of Thornton Tp., 281 Ill.App.3d 775, 217 Ill.Dec. 123, 666 N.E.2d 792, 797-98 (1996), and cases cited there; also Wolfe v. Anne Arundel, 374 Md. 20, 821 A.2d 52 (2003) (sexual assault of citizen following traffic stop not within police officer's scope of employment). Although most of the cases establishing that principle of law dealt more directly with whether the employer is vicariously liable for the teacher's or other employee's conduct, the principle has been applied as well to relieve the employer or insurer from the duty to defend the teacher in a civil action resulting exclusively from such conduct, a conclusion which would, in any event, naturally follow from a determination that sexual child abuse is not within a teacher's scope of employment or authority. See Horace Mann Ins. Co. v. Barbara B., 4 Cal.4th 1076, 17 Cal.Rptr.2d 210, 846 P.2d 792 (1993); Queen v. Minneapolis Public Schools, 481 N.W.2d 66 (Minn.App.1992); cf. Pettit v. Erie, 349 Md. 777, 709 A.2d 1287 (1998) and Wolfe v. Anne Arundel. supra, 374 Md. 20, 821 A.2d 52. As in Horace Mann Ins. Co. v. Barbara B., supra, 4 Cal.4th 1076, 17 Cal.Rptr.2d 210, 846 P.2d 792, a case close in point factually, there was more alleged and discovered here, both in the complaint and in the available extrinsic evidence, than simply sexual abuse, and that is what dooms the board's position. As we have observed, Doe alleged in his complaint that Robbins abused her special relationship with him in numerous, inappropriate ways, one of which was the sexual relationship that he alleged and she denied. He averred a number of other contacts of a personal nature that, if proved, a jury could find went well beyond the proper role of a teacher/mentor  personal gifts, sending food to his home, writing love letters and cards to him, inviting him into her bedroom. The extrinsic evidence collected by the board supported and enhanced those allegations. Among other things, the board discovered a letter sent to Doe by Ms. Robbins that began Hi Sweets, I do miss you, ended with I love you and truly miss your smiling face, and was signed Love You! Me; a note expressing the assurance that you're loved, and always will be! Especially by me! and ending with a valentine heart and the letter B, presumably for Barbara, Ms. Robbins's first name; a valentine card signed Love, B, and a number of other letters and cards signed Love, Me. Doe stated that Ms. Robbins regularly bought him food, cassette tapes, clothes, and video games, that he was at her home practically every weekend, and that he spent the night there two or three times. He indicated that she gave him money regularly  $20 to $40 a week. Doe's mother, in deposition testimony, recalled finding in Doe's room one or two pairs of jeans costing over $100 and other expensive clothes that Ms. Robbins had bought for her son without consulting her. She said that she objected to her son having those clothes, that she objected as well to Ms. Robbins constantly bringing food to the house, that she remonstrated with Ms. Robbins, but that the gifts and the bringing of food continued. The mother objected as well to her son spending all of his time with Ms. Robbins rather than with children his own age. An attorney for the board recalled a meeting with school officials to discuss the allegations made by Doe and that the general consensus was that the evidence collected by the board showed that the relationship, exclusive of any sexual contact, was an inappropriate relationship, that it had gone over the line from a teacher mentoring a student into a more personal relationship that was not appropriate and not within the behavior expected of a professional. (Emphasis added). Although Doe's complaint could certainly have been more carefully drawn, under our conception of the duty to defend the complaint does not have to establish coverage but show only the potentiality of coverage. In ¶ 6 of his complaint, titled Preliminary Statement and Summary of Action and incorporated by reference in all five counts of the complaint, Doe listed the various ways in which he claimed Ms. Robbins abused her special relationship with him  the gifts, the love notes, etc.  and averred that she intentionally and inappropriately interfered with his parents and guardians by inappropriately blending and confusing the roles of mentor, teacher, lover, friend and parent. At the end of his preliminary statement and summary, Doe alleged that [a]s a direct and proximate result of the wrongful acts of the Defendants he suffered damages for which he sought compensation. That covered more than just the alleged sexual abuse. There is no doubt, as the Court of Special Appeals held, that the gravamen of the allegations contained in the three counts applicable to Ms. Robbins (Counts I, II, and V) was the alleged sexual abuse, and Count II, in particular, alleging sex discrimination in violation of 20 U.S.C. §§ 1681  1688 (Title IX of the Education Amendments of 1972), seems limited to the claimed sexual abuse. Counts I and III, however, though certainly focusing on the sexual abuse, claim injuries suffered as a direct and proximate result of the Defendants' actions and/or omissions, which potentially could be construed to include the non-sexual conduct set forth in the Preliminary Statement and Summary of Action. On this record, it is clear that there was a potentiality of coverage for Ms. Robbins, at least with respect to Counts I and III of the complaint, and that there was therefore a duty on the board's part to defend the entire action. In light of this holding, the question raised by Horace Mann in its cross-petition for certiorari, whether the Court of Special Appeals erred in finding that the allegations in Doe's complaint alone were insufficient to establish a potentiality of coverage, is therefore, moot. JUDGMENT OF COURT OF SPECIAL APPEALS AFFIRMED, WITH COSTS.