eNotes: Liability – February 2023 – Maryland

SIGNIFICANT CASE SUMMARIES

Maryland Case Summary

T.H.E. Ins. Co. v. Davis
United States Court of Appeals for the Fourth Circuit
2022 U.S. App. LEXIS 33931

Decided: December 9, 2022

Fourth Circuit Court of Appeals upholds entry of summary judgment in favor of insurer on coverage issue, finding that the insurer’s coverage suit was not barred by a settlement agreement reached between the insureds and the claimants in a separate damages suit.

Background

T.H.E Ins. Co. (“Insurer”) provided liability insurance coverage to a hot air balloon business (“Insured”) under a policy which provided a coverage limit of $1,000,000.00 per occurrence for bodily injury to persons other than passengers of a hot air balloon (“Coverage A”), and a separate bodily injury coverage limit of $100,000.00 per passenger for passengers of a commercial hot air balloon (“Coverage B”). Claimants Davis and Spence were injured in an accident in August 2015 in Lancaster County, PA while riding a balloon piloted by an Insured. Claimants subsequently filed a damages lawsuit in the United States District Court for the District of Maryland against the Insureds. While the damages suit was pending, the Insurer filed a coverage suit in the Eastern District of Pennsylvania against the Insureds and the Claimants. In the coverage suit, the Insurer sought a declaration that Coverage B’s $100,000.00 limit applied to Claimants because they were “passengers” in the balloon at the time of the accident. Claimants filed counterclaims for both contractual and statutory bad faith. The coverage suit was stayed pending the resolution of the damages suit and transferred to the District of Maryland.

In August of 2019, Claimants settled the damages suit with the Insureds for $11,700,000.00, an amount that was to be collectable solely and exclusively by Claimants suing the Insurer. The Insurer was not a party to the settlement agreement and did not consent to its execution by the Insureds. Following the settlement of the damages suit, the stay in the coverage suit was lifted. At the close of discovery in the coverage suit, the Insurer filed for summary judgment on all claims on the basis that Claimants were passengers under the policy and therefore Coverage B applied. Claimants filed an opposition and also moved for summary judgment. Claimants argued that the coverage suit of the Insurer was barred by the settlement agreement in the damages suit. The District Court disagreed and granted summary judgment in favor of the Insurer. The Claimants appealed to the Fourth Circuit.

Holding

The Fourth Circuit upheld the decision of the District Court. The Court found that the settlement agreement in the damages suit did not bar the Insurer’s coverage action because the Insurer was not a party to the damages lawsuit, the Insurer’s coverage claim was not identical to the claims raised in the damages lawsuit, and there was no final judgment in the damages lawsuit on the issue of whether Coverage A or Coverage B applied. The Fourth Circuit further found that the District Court did not err in finding that the Claimants were passengers under the policy and that Coverage B’s $100,000.00 limit applied to their claims. The Fourth Circuit upheld the District Court’s rejection of the Claimants’ bad faith claims.

Questions about this case can be directed to Andrew White at (443) 641-0572 or awhite@tthlaw.com.