Recently, the Court of Special Appeals in White Pine Insurance Company v. Howard R. Taylor detailed who has the burden to prove coverage existed and whether the settlement agreement was reasonable.   Plaintiff, Taylor, was shot by an unknown shooter as he left the West End Pub in Hagerstown.  The triggerman was never apprehended or identified.  There was no indication as to why Mr. Taylor was shot, or why the gun discharged in general.

White Pine Insurance Company was the insurer of West End Pub.  After White Pine refused to provide West End Pub with a defense, West End and Taylor reached a consent judgment agreement that had three key elements: West End admitted negligence; a settlement of $100,000.00; and West End assigned to Taylor its claims against White Pine for denying indemnity coverage.

Taylor filed a breach of contract action against White Pine to obtain the settlement amount, and after a trial, Taylor was awarded $100,000 in damages.  On appeal, the court considered both Taylor and White Pine’s burden of proof for coverage determinations. The Court affirmed the trial court, except as to the amount of the judgment.  The judgment was reduced to the ad damnum pled by Taylor.

In disputes regarding coverage, the insured has the burden of establishing whether a claim falls within the scope of coverage.  This burden can be met by showing proof of a valid settlement agreement.  After the insured establishes an injury is within the scope of coverage, the burden shifts to the insurer to establish that an exclusion removes the insurer’s duty to indemnify.    

In this case, the consent judgment was sufficient to meet the insured’s burden of proof that coverage would exist under a commercial liability policy.  The consent judgment provided the insured’s admission of negligence, and that a settlement was owed by the insured. Therefore, the burden shifted to White Pine to show an exclusion applied.  

Under the policy, assaults, batteries and combinations of both were excluded.  Assault was defined as (a) “an act creating an apprehension in another of immediate harmful or offensive contact”, or (b) “an attempt to commit a ‘Battery’.”  Battery was defined as “an act which brings about harmful or offensive contact to another or anything connected to another.” Neither definition contained a requirement for intent.  

White Pine’s contention was that a shooting is always a “harmful and offensive contact” and therefore, the circumstances of how the shooting occurred or why the shooting occurred were irrelevant.  Under this theory, the shooting itself was sufficient for coverage to be excluded.  Taylor’s contention was that White Pine’s burden required evidence of an intent to create an apprehension of or to actually commit a harmful or offensive contact.

The Court acknowledged that the definition of “battery” in the policy “blurs the line between a covered bodily injury as a result of an ‘accident’ and an excluded bodily injury that conceivably arose out of ‘an act which brings about harmful or offensive contact to another’ – – the policy’s definition of a ‘battery’.”  Stated another way, the court considered whether the exclusion in White Pine’s policy can exclude coverage arising out of any harmful or offensive contact of another, without any consideration of intent.

In Maryland, “A contract must be construed as a whole, and effect given to every clause and phrase, so as not to omit an important part of the agreement.”  Further, exclusionary provisions are construed and interpreted narrowly “in favor of a finding of coverage”.   The Court of Special Appeals held that the policy was ambiguous with respect to unintentional or accidental acts that also fall within the policy’s definition of battery under the exclusion.  An example given by the court was a waitress hands a patron a broken glass without realizing it is broken.  This is a harmful or offensive touching that occurs because of an act, but the action was not intentional, which White Pine conceded would likely be a covered incident.  

Specifically, the court relied on three factors to hold that the exclusion was ambiguous.  First, the use of the term “commit” reinforces the idea that a battery or assault is limited to intentional actions.  Second, it is “universally understood that some form of intent is required for battery.” citing to Nelson v. Carroll, 355 Md. 593, 601 (1999).  If the insurer uses language of intentional tort law in their policy, but intends the exclusion to encompass accidental acts, then the insurer needs to explicitly and conspicuously state its intent.  Finally, the definition of battery in the exclusion provided no way to distinguish between an act that results in a “battery” and a accidental act that was set into motion by a person and results in bodily injury.

Due to the ambiguity of the policy, the Court used the traditional definitions of assault and battery, including the requirement of intent, to determine if White Pine had met its burden of proof that the exclusion applied.  At the trial, no evidence was presented regarding the circumstances of the shooting.  There was no indication as to who pulled the trigger, why the person pulled the trigger, or even circumstantial evidence that would lead a fact finder to determine an intentional shooting had occurred.  Based on the facts presented at the trial, the firearm could have discharged because of a malfunction in the firearm or from poor handling by an individual who had no intention to shoot.  As such, White Pine failed to prove the incident was excluded from coverage.

As to whether or not the settlement was reasonable, the agreement to settle was evidence of reasonableness.  White Pine, the party challenging the reasonableness, “was required to create an issue properly before the court before Taylor, as a proxy for the insured, was required to refute any evidence of unreasonableness.”  White Pine did not produce sufficient evidence to create an issue before the trier of fact as to the unreasonableness of the consent judgment.  Therefore, the Court upheld the trial court’s finding as to reasonableness.

This case is a warning to all insurers, who deny coverage based on an exclusion or who assert that a settlement by its insured was unreasonable.  Insurers in these situations need to be ready and able to present specific evidence as to both of these issues. Not having foreseen this ruling, White Pine could not retroactively alter its theory or evidence below to conform to the articulated standard.