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Maryland Insurer Not Permitted to Rely on Business Pursuits Exclusion to Deny Duty to Defend Where Continuity of Business Interest and Profit Motive Were Unclear

In Springer v. Erie Insurance Exchange, the Court of Appeals set out to determine whether the allegations in a complaint for defamation triggered the Business Pursuits exclusion in a homeowner’s liability insurance policy and, consequently, would negate Erie Insurance’s duty to defend its insured.  Business Pursuits exclusions are commonly found in homeowners’ insurance policies, and this was the Court’s first opportunity to interpret the exclusion in the context of an insurer’s duty to defend.  In reaching its decision that Erie did have a duty to defend because the facts of this case were insufficient to support a denial of coverage as a matter of law, the Court established a two-part test for determining whether a business pursuits exclusion in a homeowner’s policy can be the basis for denying the insurer’s duty to defend its insured against a third party claim.  Specifically, in order to determine if an underlying complaint triggers the Business Pursuits exclusion, an insurer must consider (1) the continuity of the insured’s alleged business interests and (2) the insured’s profit motive.

The Court agreed with the insured, Springer, that the underlying tort complaint was ambiguous in that it did not clearly allege that Springer had any profit motive behind his actions, which was necessary to apply the Business Pursuits exclusion. Springer further claimed that he presented evidence from outside the complaint to Erie that suggested he was not involved in a business when the allegedly defamatory remarks were made.  Using the two-pronged analysis noted above, the Court agreed with other jurisdictions that have held that seasonal or occasional activities do not meet the continuity requirement, and that profit motive, not actual profit, makes a pursuit a “business pursuit.”

In addition to the specific application of the Business Pursuits exclusion in the context of an insurer’s duty to defend, the Springer case should serve to remind liability insurers that they cannot rely solely on the “four corners” of an underlying complaint to deny coverage if the insured provides evidence that would support coverage.  The insurer must consider this extrinsic evidence before making a decision on a duty to defend request.  Maryland courts have established that the denial of an insurer’s duty to defend based solely upon the four corners of the underlying complaint is permitted only in limited instances, and there will be a duty to defend if any evidence known to the insurer presents a potentiality of coverage.

Dalene Radcliffe is an attorney practicing in Niles, Barton, and Wilmer’s litigation group, serving clients in Maryland.  For more information on this post, or related issues, please contact her at daradcliffe@nilesbarton.com.

 

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Ethics Opinions Underscore Problems That Medicare Liens Create when Negotiating Settlements

In serious personal injury cases, a common issue arises in settlement talks that affect the course of negotiations – Liens; Specifically, health insurer liens and liens asserted by Medicare.  The problem is simple: a plaintiff with medical expenses often has those expenses paid for by his or her health insurer or through Medicare/Medicaid.  Medicare is entitled under the Medicare Secondary Payor Act to be reimbursed for any payments it has made for causally related medical care, and the health insurer has a subrogation interest in the proceeds it has paid.  The existence of these liens creates difficulty negotiating settlements.  Settlements are often much less than what could be a reasonably expected verdict if the plaintiff prevails, but going to trial involves risk, whereas a settlement eliminates risk.  In addition to the risk of a low plaintiff’s verdict or defense verdict, there are other factors involved in determining a reasonable settlement value, including limitations on the amount of insurance coverage available and the prospects of otherwise recovering a judgment from a defendant.  Because of these factors, the plaintiffs often have to engage in negotiations with the lien holders in order to settle the case because having to pay the full lien amount could negate any potential benefit of accepting a settlement or even continuing with the litigation.  For example, if the reasonable settlement value of a case is $100,000.00, but the plaintiff has liens in the amount of $80,000.00, the plaintiff is in a position where he or she cannot accept the settlement unless the lien holder takes less because the full settlement would otherwise go to the lien holder and the plaintiff’s attorney, leaving plaintiff with no recovery at all.  Given this reality, the plaintiff must often participate in a second negotiation with the lien holder to negotiate the lien down to a level where the lien holder will receive something, but the plaintiff will as well.  In effect, there are two separate negotiations: one between the plaintiff and defendant, and another between the plaintiff and the lien holder. Read more

Hurry Up and Wait

The waiting is the hardest part
Every day you see one more card
You take it on faith, you take it to the heart
The waiting is the hardest part

“The Waiting”
Tom Petty and the Heartbreakers

Contrary to popular myth, this classic Tom Petty song was not written about attorneys, but you cannot blame litigators for often feeling that the song applies to them.   A litigator spends hours preparing for an important hearing or trial, has dreams (or nightmares) of presenting his argument to the court.  Then the day finally comes, and the lawyer gets in his car 20 minutes early to account for traffic, only to find out that traffic is running 25 minutes behind.  The adrenaline is kicking in.  He rushes to the courtroom just as the clock strikes the scheduled start time and then… Read more

Supreme Court’s Freedom of Religion Ruling May Create More Questions Than It Answered

Federal employment anti-discrimination laws provide a wide range of protection for employees from adverse employment actions and form a basis of a significant amount of claims and lawsuits.  However, the federal courts have routinely limited the applicability of these anti-discrimination laws when the laws interfered with the Establishment and Free Exercise Clauses of the First Amendment.  In doing so, courts developed a “ministerial exception” to discrimination claims, holding that anti-discrimination laws cannot interfere with a religious organization’s dealings with members of its clergy.  Although this exception was widely accepted in the lower federal courts, the issue had only recently come before the Supreme Court in the case of Hosanna-Tabor Evangelical Lutheran Church & School v. EEOC, where last week, the Supreme Court formally recognized the ministerial exception.  More significantly, the Court appears to have taken a broad view of who may qualify as a “minister” who would be barred from the protections of anti-discrimination laws. Read more