eNotes: Liability – November 2022 – Maryland

SIGNIFICANT CASE SUMMARIES

Maryland Case Summaries

CX Reinsurance Co. v. Johnson
Maryland Court of Appeals
2022 Md. LEXIS 342

Decided: August 29, 2022

Maryland’s Highest Court holds that claimant tenants who had not obtained final judgments against their alleged tortfeasor landlords were not intended beneficiaries of their landlords’ insurance policies.

Background

Plaintiffs were allegedly exposed to lead paint while residing in homes owned by several Baltimore landlords in the late 1990s and early 2000s. These landlords held general liability policies issued by CX Reinsurance Limited Company (CX) in combination with Liberty Mutual Mid-Atlantic Insurance Company (collectively “the insurers”). In 2015, CX sued the landlords in Federal Court in Maryland, seeking rescission of the policies on the grounds that the landlords had made fraudulent misrepresentations in their insurance applications. Ultimately, CX and the landlords entered into Rescission Settlement Agreements. The Rescission Settlements substantially reduced the insurance coverage afforded by the policies. The majority of the Plaintiffs had not obtained final judgments against, or settled with, the landlords prior to the execution of the Rescission Settlements.

Plaintiffs filed a Complaint, against the insurers in the Circuit Court for Baltimore City, seeking a declaration that they were intended third-party beneficiaries of the insurance policies and that the Rescission Settlements had no legal effect on their rights to enforce the policies. Following a Motion and a Cross-Motion for summary judgment, the Circuit Court declared that Plaintiffs were intended third-party beneficiaries of the policies and that the Rescission Settlements did not affect Plaintiffs’ rights under the policies. The Circuit Court found that Plaintiffs’ rights to enforce the policies vested at the time of injury, before the landlords and the insurers executed the Rescission Settlements. The insurers appealed to the Court of Special Appeals. The Court of Special Appeals affirmed the decision of the Circuit Court, holding that Plaintiffs were intended third party beneficiaries of the policies and that their rights vested when they were allegedly injured on the landlords’ properties, prior to the execution of the Rescission Settlements. The Court of Special Appeals’ decision was summarized in our October 2021 liability eNotes.

Holding

The Court of Appeals affirmed in part and reversed in part the judgment of the Court of Special Appeals. The Court of Appeals, relying on the language of the policies, held that the three Plaintiffs who had obtained final judgments prior to the Rescission Settlements were intended beneficiaries of the policies as of the date of those judgments. Therefore, those three Plaintiffs had the right to enforce the pre-Rescission Settlement terms of the policies. However, the other twelve Plaintiffs who had not obtained final judgments or entered into approved settlements prior to the Rescission Settlements were not intended beneficiaries of the policies at the time of the Rescission Settlements. Therefore, those twelve Plaintiffs could not enforce the pre-Rescission Settlement terms of the policies as long as the Rescission Settlements were made in good faith. The Court of Appeals remanded the case to the Circuit Court in order for a trier of fact to determine whether the Rescission Settlements were made in good faith.

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

Nesbitt v. Mid-Atlantic Builders of Davenport, Inc.
Maryland Court of Special Appeals
No. 895, September Term, 2021, 2022 Md. App. LEXIS 692

Decided: September 28, 2022

The Court retained jurisdiction under the Uniform Arbitration Act to confirm arbitration award in Defendants’ favor and to consider Defendants’ Counterclaim for attorneys’ fees, even after Plaintiffs voluntarily dismissed their action.

Background

Plaintiffs filed a Complaint against Defendants alleging various statutory violations in the sale of residential real property. The case was stayed pending arbitration. Defendants’ request for attorneys’ fees was not addressed in the Stay Order.

At the arbitration proceeding, Defendants filed a Counterclaim that again raised the issue of attorneys’ fees, to recover the costs associated with Plaintiffs’ Complaint that had been filed in violation of the arbitration provision in the parties’ agreement. After the arbitrator rendered a decision that was adverse to Plaintiffs – where the arbitrator found that Defendants had not violated the relevant statute and deferred the issue of attorneys’ fees to the Circuit Court – Plaintiffs sought to dismiss their case with prejudice and filed a Notice of Dismissal in the Circuit Court. In response, Defendants filed a Motion requesting the Court to strike Plaintiffs’ Notice of Dismissal and grant an award of attorneys’ fees to Defendants.

The Court granted Defendants’ requests. Plaintiffs filed a Motion to Alter Judgment challenging the Court’s authority to strike Plaintiffs’ Notice of Dismissal and award attorneys’ fees. The Court denied Plaintiffs’ Motion.

On appeal, Plaintiffs maintained that the Court had erred in striking Plaintiffs’ Notice of Dismissal and awarding attorneys’ fees to Defendants. Plaintiffs further argued that, as Defendants had not filed an Answer, Plaintiffs were not only entitled to a voluntary dismissal under Maryland Rule 2-506(a), but that such a dismissal thereby also precluded the Court from even considering Defendants’ Motion to Strike their Notice of Dismissal.

Holding

The Court of Special Appeals held that despite the Circuit Court’s error in striking Plaintiffs’ Notice of Dismissal, the Court still retained jurisdiction under the Uniform Arbitration Act to confirm the arbitration award and adjudicate Defendants’ claims for attorneys’ fees, including those incurred at the appellate level. As there was no case law in Maryland that directly addressed this issue, the Court of Special Appeals further held that in such cases, courts may consider federal cases as persuasive authority in interpreting the rule, if the federal rule is substantively similar to the Maryland Rule in question. Accordingly, based upon the substantive similarity of Maryland Rule 2-506(a) and Fed. Rule 41(a)(1), the Court of Special Appeals looked to an Eleventh Circuit case that contained a nearly identical fact pattern, to apply the Eleventh Circuit’s interpretation and analysis of Fed. Rule 41(a)(1) to the instant case. The Court of Special Appeals further noted that costs, attorneys’ fees, contempt, and sanctions were all collateral issues that remained under the jurisdiction of a court even after an action is no longer pending.

In addressing Plaintiffs’ arguments that were raised for the first time in their Motion to Alter Judgment, including the argument that an award of attorneys’ fees to Defendants was precluded by Maryland Rule 2-704, the Court of Special Appeals further held that Plaintiffs had waived appellate review on such arguments as they had not been raised in their opening brief.

Questions about this case can be directed to Sunny Chung Lapera at (443) 641-0567 or schung@tthlaw.com.