Court Opinion

ID: 1018583
Source: CourtListenerOpinion
Date Created: 2013-07-04 22:22:42.46338+00
Date Added: 2024-06-11T15:27:19.288958
License: Public Domain

UNPUBLISHED

                   UNITED STATES COURT OF APPEALS
                       FOR THE FOURTH CIRCUIT

                            No. 05-1731

SCOTTSDALE INSURANCE COMPANY, INCORPORATED,

                                              Plaintiff - Appellee,

          versus

NATIONAL    CENTER   ON    INSTITUTIONS    AND
ALTERNATIVES, INCORPORATED,

                                              Defendant - Appellant.

Appeal from the United States District Court for the District of
Maryland, at Baltimore. William D. Quarles, Jr., District Judge.
(CA-04-2356-WDQ)

Submitted:   February 14, 2006             Decided:   March 3, 2006

Before KING and SHEDD, Circuit Judges, and HAMILTON, Senior Circuit
Judge.

Affirmed by unpublished per curiam opinion.

Gary R. Jones, Adam H. Garner, BAXTER, BAKER, SIDLE, CONN & JONES,
P.A., Baltimore, Maryland, for Appellant.      David B. Stratton,
JORDAN, COYNE & SAVITS, L.L.P., Washington, D.C., for Appellee.

Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:

       The National Center on Institutions and Alternatives, Inc.

(“NCIA”), appeals the district court’s award of summary judgment to

Scottsdale Insurance Company (“Scottsdale”).                                Scottsdale initiated

this civil action in the District of Maryland in July 2004, seeking

a declaratory judgment that an insurance policy it had issued to

NCIA       is   void       ab    initio.        On        June    7,    2005,   after    discovery

proceedings, the court granted summary judgment to Scottsdale.                                    As

explained below, we affirm.

       The      facts,          viewed   in     the       light    most     favorable    to    NCIA,

disclose the following.                  In 1995, at the request of his mother, the

State of Maryland placed Mark Hepburn, a developmentally disabled

adult, in a residential facility operated by NCIA.1                                    In December

1996,       Hepburn        was     evaluated         by     the    Athelas      Institute,      Inc.

(“Athelas”),           a        Maryland       non-stock          corporation     that    is    not

affiliated        with          NCIA,    for    placement          in   a    daytime    vocational

program.        Hepburn began attending the vocational program in early

1997.       In order for him to participate, a van would take Hepburn

from NCIA’s facility to that of Athelas each weekday morning, and

then return him in the afternoon.                           Although NCIA and Athelas are

       1
      NCIA is a non-profit corporation that focuses on providing
rehabilitative and other services to non-violent criminal
offenders.   It has offices and treatment centers in Maryland,
Virginia, Pennsylvania, and New York.

                                                      2
separate      organizations,   their        respective     representatives

participated in quarterly meetings concerning Hepburn’s status.

       On September 29, 1999, while at the Athelas facility, Hepburn

choked on part of a bologna sandwich.         The incident left him in a

persistent vegetative state and prompted an investigation by the

Developmental Disabilities Administration (“DDA”), a Maryland state

agency.    On March 6, 2000, following its investigation, DDA sent

NCIA a “Notice of Intent to Impose Intermediate Sanctions” (the

“DAA notice”), asserting that NCIA was aware of prior choking

incidents involving Hepburn, but had nevertheless failed to advise

Athelas that he required one-on-one supervision while eating.           The

DAA notice stated that NCIA had contravened Maryland regulations in

connection with the Hepburn choking incident.            It informed NCIA

that DAA intended to impose sanctions on NCIA as a result of such

violations.    According to NCIA Executive Director Herbert Hoelter,

a notice of sanctions from DDA is unusual, and upon receipt of the

DAA notice he became concerned that NCIA could be liable for

Hepburn’s injuries.    DDA and NCIA thereafter settled the Maryland

administrative proceedings by a Consent Agreement, entered into on

May 8, 2000.

       On June 15, 2001, NCIA applied to Scottsdale for a one-year

claims-made general and professional liability insurance policy

(the    “Initial   Policy”).    By       executing   a   Retroactive   Date

Endorsement for the Initial Policy, NCIA represented to Scottsdale,

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through Hoelter, that it “could not have reasonable foreseen that

any prior acts or incidents might be the basis of any claim or

‘suit.’”   Relying on NCIA’s representations, Scottsdale issued the

Initial Policy, which was effective from July 2001 until July 2002.

On July 19, 2002, NCIA applied to renew the Initial Policy’s

coverage, with the renewal to be effective from July 30, 2002,

until July 30, 2003.      By Question 12 on the renewal application,

Scottsdale asked “[a]re there any circumstances known which may

give rise to a claim or lawsuit.”      NCIA, through Hoelter, checked

the answer “No.”     The renewal application was then approved by

Scottsdale, which issued a renewal policy (the “Renewal Policy”).

     On November 4, 2002, NCIA informed Scottsdale that Hepburn’s

mother had sued NCIA, on behalf of her son, for damages stemming

from the 1999 choking incident.        On June 11, 2003, Scottsdale

forwarded NCIA a letter stating that it would defend NCIA in the

litigation involving the Hepburn claim.       Scottsdale specifically

reserved its right, however, to disclaim any duty to indemnify or

defend NCIA if Scottsdale later discovered that NCIA knew or could

have foreseen, when it applied for the Renewal Policy, that it

might be sued on Hepburn’s behalf.           Scottsdale’s letter also

informed   NCIA    that   Scottsdale   was    initiating   a   coverage

investigation of the Hepburn claim.     On July 21, 2004, Scottsdale

sent NCIA a letter of rescission on the Renewal Policy, and

                                   4
tendered to NCIA a check for over $89,000, the amount of the

premiums NCIA had paid thereon.

       On July 22, 2004, NCIA acknowledged receipt of Scottsdale’s

rescission letter and advised Scottsdale that it would place the

refunded premiums in a trust account, pending resolution of this

declaratory     judgment      proceeding.            That     same    day,   Scottsdale

initiated this action, seeking a judgment declaring the Renewal

Policy   to    be    void   ab    initio,       and    that    Scottsdale         was   not

responsible for defending or indemnifying NCIA in litigation on the

Hepburn claim.       By its complaint, Scottsdale contended that NCIA

made   material      misrepresentations         on    its     applications        for   the

Initial Policy and the Renewal Policy in failing to disclose the

Hepburn choking incident.              On March 4, 2005, following discovery

proceedings, Scottsdale moved for summary judgment, which the

district court granted by its Memorandum Opinion and Order of June

7,   2005.      Scottsdale       Ins.    Co.    v.    Nat’l    Ctr.    on    Insts.     and

Alternatives, No. CA-04-2356, 2005 WL 1367079 (D. Md. June 7,

2005).        NCIA   has    timely      noted    an    appeal,        and    we   possess

jurisdiction pursuant to 28 U.S.C. § 1291.

       We review de novo an award of summary judgment, viewing the

facts and inferences drawn therefrom in the light most favorable to

the non-moving party.            See Seabulk Offshore, Ltd. v. Am. Home

Assurance Co., 377 F.3d 408, 418 (4th Cir.2004).                     Such an award “is

appropriate     only    ‘if      the    pleadings,      depositions,         answers     to

                                           5
interrogatories,    and   admissions   on   file,   together   with   the

affidavits, . . . show that there is no genuine issue of material

fact and that the moving party is entitled to a judgment as a

matter of law.’”    Id. (quoting Fed. R. Civ. P. 56(c)) (alteration

in original).

     The parties agree that Maryland law governs any legal issues

relating to the Renewal Policy.        And, in Maryland, an insurance

policy may be voided ab initio if it was issued in reliance on a

material misrepresentation.      See N. Am. Specialty Ins. Co. v.

Savage, 977 F. Supp. 725, 728 (D. Md. 1997).        NCIA’s contends on

appeal that a genuine issue of fact exists concerning whether it

made such misrepresentations when it asserted (1) that there were

not “any circumstances known [to NCIA] which may give rise to a

claim or lawsuit,” and (2) that it “could not have reasonable

foreseen that any prior acts or incidents might be the basis of any

claim or ‘suit.’”     NCIA acknowledges that these representations

were material to Scottsdale’s policy issuance decisions, and that

Scottsdale relied on them in issuing the Renewal Policy. Moreover,

NCIA does not contend that Hoelter was unaware of the Hepburn

choking incident when he made representations for NCIA on the

relevant policy applications.

     NCIA’s asserts that the policy applications called for NCIA to

subjectively determine whether it thought a future civil action was

likely. It contends that, although the relevant limitations period

                                   6
had not expired, the facts relating to the Hepburn choking incident

could give rise to a reasonable inference that, by July 2001,

Hoelter and NCIA reasonably believed that no legal actions would

result   from    the   incident.      Question   12   on   NCIA’s   renewal

application, however, did not require NCIA to speculate as to the

likelihood that some event, such as the Hepburn choking incident,

might lead to a future lawsuit.           Rather, it asked whether there

were “any circumstances known [to NCIA] which may give rise to a

claim or lawsuit.”       NCIA acknowledges on appeal that the word

“may,” as used in Question 12, means “might possibly.”          See Reply

Br. at 3.       As a result, NCIA was required to answer “Yes” to

Question 12 if it knew of circumstances that might possibly give

rise to a claim or lawsuit.        At the time Question 12 was answered

in connection with the Renewal Policy, NCIA knew of the Hepburn

Choking Incident and, from the DAA notice of March 2000, that it

might be liable for Hepburn’s injuries.               NCIA was, in these

circumstances, aware that a claim or lawsuit might possibly arise

out of the Hepburn choking incident.          In face of such knowledge,

NCIA incorrectly answered “No” on Question 12.

     Accordingly, the district court did not err in concluding that

there is no genuine issue of fact on whether NCIA made a material

misrepresentation upon which Scottsdale relied in its issuance of

                                      7
the Renewal Policy.   We are thus obliged to affirm the court’s

award of summary judgment to Scottsdale.2

                                                        AFFIRMED

     2
      We dispense with oral argument because the facts and legal
contentions of this appeal are adequately presented in the
materials before the Court and argument would not aid us in the
decisional process.

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