This case presents insurance coverage and related issues arising from a policy issued to Chik S. Chang and Hye Ja Chang, appellants, by Brethren Mutual Insurance Company, appellee. The Circuit Court for Anne Arundel County entered summary judgment in favor of appellee. We shall vacate the summary judgment and remand for further proceedings not inconsistent with this opinion.
Factual background
Appellants owned property located at 7339 E. Furnace Branch Road, Glen Burnie, improved by a building leased to commercial tenants (the building). Appellee issued a “businessowners policy” (the Policy) to appellants, effective September 29, 2002 to September 29, 2003. The Policy expressly covered the premises located at 7339 E. Furnace Branch Road.
In February 2003, a heavy snowfall caused snow to accumulate on the roof of the building. This caused water to leak into the demised premises and caused concern as to whether the roof would collapse. On February 22, the Anne Arundel County Fire Department issued a notice stating that the building could not be occupied until the snow was removed and the roof inspected by an engineer.
On February 22, 2003, Ms. Chang, one of the appellants, met with Lloyd K. Butts, a representative of Security Remodeling, Inc. (Security). Ms. Chang and Security entered into an agreement whereby Security agreed “to perform all restorations which are approved by your insurance company, with the funds that are provided by your insurance company.” The contract provided that appellants would incur no “out of pocket expense,” except for “the homeowners’ deductible as described in your homeowners insurance policy.”
In his deposition, Mr. Butts testified to the following. On February 22, he contacted appellants’ insurer, using information provided by appellants. Later the same day, he received a call from Kirsten W. Barefield, an adjuster employed by Crawford Claims Management Services, an outside adjusting agency retained by appellee. Mr. Butts explained to Ms. Barefield that the snow had to be removed to prevent further water damage, and she agreed. 1 Security removed the snow by the morning of the 23rd and then inspected the interior of the building to assess the damage caused by leaking water.
A few days later, there was another significant snowfall, and Security removed that snow from the roof. Security repaired the damage caused by leaking water, and on April 11, 2003, submitted an invoice to Ms. Chang for the total amount of $30,105.50. The invoice included a charge for the first snow removal in the amount of $11,250.00 and a charge for the second snow removal in the amount of $3750.00. It included an “overhead” item in the amount of $3612.66 and a “profit” item in the amount of $2408.44. The remaining charges were for labor and materials to repair the damage.
Security’s invoice obviously was sent to Ms. Barefield because, under cover letter dated April 15, 2003, Ms. Barefield sent to Mr. Butts “a revised estimate of repair,” referring to Security’s invoice. Ms. Barefield stated that the charges for snow removal, overhead, and profit had been removed and that a check in the amount of $6834.40 would be forwarded. A copy of the Security invoice was enclosed with the April 15 letter, which contained a handwritten notation, “no coverage,” next to
Appellee forwarded a check to appellants, payable to appellants and Security, 2 dated April 28, 2003, in the amount of $18,337.03. The check purported to be full payment for all loss caused by the accumulation of snow on the roof. The total amount paid included the $6834.40 that was intended for Security. The balance was for loss sustained unrelated to Security’s work.
On September 12, 2003, Security filed a complaint in circuit court against appellants. Security recited that appellants had contracted with Security to remove snow and perform repairs but appellants had refused to pay. Security alleged breach of contract in count I, and unjust enrichment in count II, and claimed $30,105.50, attorney’s fees, and costs.
On February 10, 2004, appellants filed a third party complaint against appellee. Appellants alleged that they entered into a contract with Security to remove snow and make emergency repairs to prevent further damage to the property, to be paid out of insurance proceeds, except for the deductible amount. In count I, appellants asserted breach of contract, alleging that the claim for Security’s work was property loss and covered under the Policy. In count II, appellants requested that appellee be substituted for them as the real party in interest in the dispute with Security.
By letter dated May 3, 2004, appellants requested appellee to assume their defense in the suit by Security against appellants. By letter dated May 21, 2004, appellee refused, explaining that Security’s claims were not covered, or potentially covered, under the Policy.
On June 3, 2004, appellants filed an amended third party complaint, adding a second count for breach of contract, designated as count II, in which they alleged that appellee had a duty to defend appellants in the suit by Security. In count I, appellants sought $15,000.00, attorney’s fees, and costs. In count II, appellants sought attorney’s fees incurred in defending the suit by Security and in pursuing the third party complaint. The real party in interest claim did not change, except that it was renamed as count III.
In the summer of 2004, following discovery, appellants filed a motion for summary judgment with respect to Security’s claims against them, requesting that judgment be entered in Security’s favor in the amount of $6834.40. Appellants also filed a motion for partial summary judgment against appellee, requesting that judgment be entered on count II, with respect to appellee’s duty to defend appellants. Appellee filed a motion for summary judgment with respect to appellants’ claims against it. By memorandum opinion and order dated January 3, 2005, the court denied appellants’ motions and granted appellee’s motion. The latter ruling is the subject of this appeal.
On March 16, 2005, Security’s claims against appellants were tried non-jury. At the close of Security’s evidence, the court granted appellants’ motion for judgment. Subsequently, on April 13, the court amended its judgment to require appellants to pay $6834.40 to Security. That judgment has been satisfied.
Following the entry of a final judgment, appellants noted an appeal to this Court, in which they challenge the entry of summary judgment in favor of appellee with respect to their breach of contract claims.
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The Policy
According to the declarations page, the Policy was a “businessowners policy,” issued to appellants as named insureds. The declarations page described the covered premises as 7339 E. Furnace Branch Road. Under property coverage, it provided insurance limits in the amount of $434,800 for buildings and $10,000 for business personal property, subject to a $1,000 deductible. Under liability coverage, it provided insurance limits in the amount of $1,000,000 for liability and medical expenses, $5,000 per person for medical expenses, and $100,000 for legal liability from fire. The declarations page also reflected other coverages in effect, which were optional, and not directly relevant to the issues before us.
In pertinent part, the Policy included a “special property coverage form,” modified by a “Vantage endorsement” 4 (the property coverage form); a liability coverage form; and common policy conditions.
In the “coverage” part of the property coverage form, appellee agreed to “pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.” Section A.
In the “coverages” part of the liability coverage form, appellee agreed to “pay those sums that the insured becomes legally obligated to pay as damages because of ... ‘property damage’ ... caused by an ‘occurrence[.]’ ...” Section A.l.a. and b. Appellee also agreed to defend any suit seeking such “property damage.” Section A.l.a.
In the definitions subpart, “occurrence” was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Section F.12. “Property damage” was defined as “[p]hysical injury to tangible property, including all resulting loss of use of that property” and “Moss of use of tangible property that is not physically injured.” Section F.15.
In the “exclusions” subpart, one of the exclusions was “ ‘property damage’ for which the insured was obligated to pay damages by reason of the assumption of liability in a contract or agreement.” Section B.l.b.
Contentions of the Parties
As explained above, appellants’ claims against appellee originally included the cost of snow removal, performed by Security. That claim for indemnity under the Policy is now moot because Security lost its claim against appellants for the cost of snow removal, and thus, appellants have not incurred any expense for snow removal.
Appellants’ claims for fees and costs are premised on two different parts of the Policy: the property coverage form (first party coverage) and the liability form (third party coverage). Appellants’ claims are for fees and costs incurred (1) in defending the claims by Security against them and (2) in
pursuing the third party claim against appellee, in which appellants asserted first party coverage and at least the potentiality of third party coverage, carrying with it a duty to defend appellants in the suit by Security.
Property coverage—first party coverage
The parties agree that the building in question was “covered property” and that the cause of damage to the building and contents, i.e., water leakage, was a “covered cause.”
Appellants’ first contention is: the snow removal costs were covered as a mitigation expense under section E.3.a.(4). Section E. is entitled “property loss conditions,” and subsection 3.a. is entitled “duties in the event of loss or damage.” Subsection 3.a.(4) provides that
a. You must see that the following are done in the event of loss or damage to Covered Property:
(4) Take all reasonable steps to protect the Covered Property from further damage, and keep a record of your expenses necessary to protect the Covered Property, for consideration in the settlement of the claim. This will not increase the Limit of Insurance....
Appellants’ second contention, with respect to the property coverage form, is that snow removal costs were covered as an “extra expense” under section A.5.g. Section A. is entitled “coverage,” subsection A.5. is entitled “additional coverages,” and A.5.g. is entitled “extra expense.” Subsection A.5.g. provides in part:
(1) We will pay necessary Extra Expense you incur during the “period of restoration” that you would not have incurred if there had been no direct physical loss or damage to property at the described premises[.] ...
(2) Extra Expense means expense incurred (a) To avoid or minimize the suspension of business and to continue “operations”: (i) At the described premises[.] ...
Appellants contend snow removal costs were unambiguously covered under both of the above Policy provisions. In the alternative, according to appellants, the provisions were ambiguous, and in the absence of extrinsic evidence, the ambiguity had to be resolved against appellee.
Assuming snow removal costs were covered, appellants’ theory, apparently, is that appellee’s failure to pay the costs of snow removal constituted a breach of contract (the Policy), causing Security to sue appellants and appellants to sue appellee. According to appellants, the fees and expenses incurred in defending and pursuing the claims were recoverable as damages resulting from the breach.
Appellants suggest that appellee’s conduct constituted a breach of a “common law” duty. We shall consider appellee’s conduct only with respect to a breach of contract action. In circuit court, appellants pled and argued breach of contract only, as the basis of liability of appellee. There was no tort claim.
Appellee contends that snow removal costs were not covered. Appellee argues that (1) snow removal costs did not constitute “direct physical loss of or damage to covered property” as required in the general insuring language in section A.; (2) section E., “property loss conditions,” did not provide a separate grant of coverage under the property coverage form and, in any event, by clear language, required only “consideration” of, not payment of, mitigation expenses; and (3) the cost of snow removal was not covered under “additional coverages.”
Appellee also contends that appellants could not recover under the property coverage form, even if the costs were covered, because attorney’s fees were not recoverable on a first party coverage claim.
Liability coverage—third party coverage
Appellants contend that, because the Policy provided both first and third party coverage, it was an all risks policy. Appellants observe that, like all policies, it must
Appellee contends there was no potentiality of coverage because (1) appellants did not sustain damages as a result of “property damage” within the meaning of coverage section A.l. and (2) the claims against appellants were contract claims, expressly excluded under the liability coverage form. 5
Standard of Review
Under Maryland Rule 2-501(e), the circuit court may enter summary judgment for the moving party if it determines there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Md. Rule 2-501(e);
Rite Aid Corp. v. Hagley,
In analyzing a circuit court’s decision, we are generally confined to the bases relied on by the court, and will not affirm the grant of summary judgment for a reason not relied on by the court.
Warner v. German,
Discussion
Property coverage—first party coverage
As previously noted, the parties differ as to whether snow removal costs, on the facts before us, come within the definition of a mitigation expense, under section E.3.a.(4), or an “extra expense,” under section A.5.g. We shall address this issue, even though there is no longer an indemnity
Preliminarily, we i,.ote that this issue does not turn on whether the snow removal costs were within “covered property.” The definitions of “covered property” and “cause of loss,” and thus the scope of coverage under the general insuring agreement, do not change even if the costs were a mitigation expense. Appellants’ claim is based on a contractual imposition of duty on the insured, once “covered property” has been damaged, to take reasonable action to protect the “covered property” from further damage. The question is whether appellee agreed to pay for that action and, if so, under what circumstances. Any damages, based on a breach of a duty to pay, would be consequential damages.
In order for section E.3.a.(4) to apply, (1) a covered loss must have occurred, (2) followed by the performance of work necessary to prevent further loss, and (3) the costs incurred for the work must be reasonable. Appellants contend that this section required appellee to pay appellants for costs incurred in preventing further damage to the property. Appellee asserts that there is no language in the provision indicating that appellee would pay any or all expenses incurred by appellants in protecting the property from further damage, but rather, “consideration” would be given to any documented expenses in settlement of the claim.
In Maryland, insurance policies are generally construed in the same manner as contracts.
Collier v. MD-Individual Practice Ass’n, Inc.,
When the language is unambiguous, we shall give effect to its plain meaning and not construe the contract any further.
ABC Imaging of Washington, Inc. v. The Travelers Indem. Co. of Am.,
Some courts have permitted an insured to recover mitigation expenses from an insurer providing first party property coverage, based on either an insured’s common law duty to mitigate damages or an insured’s contractual duty to mitigate damages.
See
12 Couch on Insurance 3d § 178:10 (3d ed.2005) (citing
Witcher Constr. Co. v. Saint Paul Fire & Marine Ins. Co.,
In
Curtis O. Griess & Sons, Inc. v. Farm Bureau Ins. Co. of Nebraska,
for example, the insured’s livestock, which were infected by a virus, were covered by a first party coverage policy.
Unlike the courts in the cases just discussed, we do not base our conclusion on a common law duty to mitigate, and we do not hold that, when an insured has a duty to mitigate, the insured is always entitled to mitigation expenses, as a matter of law. That is not the issue before us. We base our conclusion on the language in the Policy before us. More than one meaning can reasonably be inferred from the word “consideration.” It may mean that appellee would consider the measures taken and costs incurred in mitigating damage, and if the measures and costs were reasonable, necessary, and, in fact, mitigated the loss, appellee would pay for them. That is consistent with the language of the Policy that any such costs paid “in settlement of the claim” would “not increase the Limit of Liability.” We certainly do not read it as unambiguously providing that appellee could arbitrarily and unreasonably decline to pay for costs that met the necessity and reasonableness requirement. We hold that “consideration,” in the context before us, is ambiguous.
This case is distinguishable from
W.M. Scklosser Co., Inc. v. Ins. Co. of N. Am.,
By contrast, in our case, in a first party coverage context, with an express mitigation expense provision, it is undisputed that a covered loss had already occurred. The measures taken by appellants were to prevent further loss. The question here is whether snow removal costs were mitigation expenses within the meaning of the property coverage form, and Schlosser does not apply. 7
In the case before us, it is undisputed that a covered loss occurred before the snow was removed, but there are other disputed material issues of fact. Appellants argue that Ms. Barefield, an authorized agent for appellee, authorized removal of the snow before the work was actually done and, at least impliedly, agreed to pay for it. We cannot treat that as an undisputed material fact, however, based on our reading of the summary judgment papers. Additionally, even if there was such an agreement, whether the scope of the actual snow removal was necessary and effective in preventing further loss and whether the costs incurred were reasonable are disputed material facts. Therefore, we shall remand for a determination of fact with respect to these issues.
If it is determined that an authorized agent did authorize and approve the work to be performed by Security, acting as an agent of appellants, the ambiguity in the Policy would not have to be resolved. In that situation, appellee in fact determined that the work was necessary and reasonable, authorized it, and agreed to pay for it. The question whether the work was within the scope of the authorization and whether the costs were reasonable would still have to be resolved.
If it is determined that there was no prior valid authorization, the ambiguity would have to be resolved. The parties may present admissible extrinsic evidence to explain the ambiguity. If they do so, the court will resolve the ambiguity based on the evidence. If the parties do not present extrinsic evidence, the court will construe the provision against appellee. After resolving the ambiguity, the only issues will be whether the work was necessary and effective in preventing further loss and whether the costs were reasonable.
The property coverage form does not expressly provide a duty to defend the insureds or for payment of litigation fees and expenses, as part of a covered loss. Ordinarily, in the absence of a statute, rule, or contract expressly allowing the recovery of attorney’s fees, a prevailing party in a lawsuit may not recover attorney’s fees.
Bausch & Lomb, Inc. v. Utica Mut. Ins. Co.,
An exception to that general rule is when an action is brought to enforce an insurer’s obligations under third party liability provisions in a policy, and it is determined that there is coverage.
Id.
at 591,
The exception does not apply, however, to an action against an insurer to enforce first party coverage.
Bausch & Lomb,
In the case before us, appellants incurred attorney’s fees in the defense of Security’s claims and in enforcing appellee’s alleged liability under the Policy. With respect to fees incurred in enforcing appellees’ liability under the Policy, Bausch & Lomb makes it clear that, even if there was coverage for snow removal costs, appellants would not be entitled to recover. With respect to fees and expenses incurred in defending Security’s claim, Bausch & Lomb did not resolve the issue because the claim before the Court was for fees incurred in pursuing the claim against the insurer.
Several Maryland appellate decisions, after stating the general rule that attorney’s fees are not recoverable as damages, whether incurred in the litigation for which they are sought or outside of the litigation, have recognized exceptions. One of those exceptions has sometimes been called the “collateral litigation” exception.
Archway Motors, Inc. v. Herman,
The leading Maryland case cited to support this exception is
McGaw v. Acker, Merrall & Condit Co.,
Courts in several other jurisdictions have similarly stated that a party has a right to recover attorney’s fees incurred in collateral litigation.
See, e.g., Frommeyer v. L. & R. Constr. Co.,
We conclude that an insured may recover, as an element of damage in a contract action, attorney’s fees and expenses reasonably incurred in defending an action against it, when initiation of the action by a third party was the natural and probable consequence of an insurer’s wrongful denial of a first party coverage claim. On remand, if it is determined that appellee was contractually bound to pay for some or all of the snow removal costs, damages may include the amount of fees and expenses reasonably incurred in the defense of Security’s claim against appellants.
Liability coverage—third party coverage
The liability coverage form imposed a duty to defend claims made against appellants. This duty exists when the claims are covered or potentially covered under the policy.
Aetna Cas. & Sur. Co. v. Cochran,
Appellants’ contention, in essence, is that, regardless of whether a duty to defend would have existed if the Policy had contained only the liability coverage form, a duty to defend existed because snow removal costs were covered under the property coverage form, and the duty to defend extended to claims made because of a first party covered claim.
Even if it is determined that appellee would have been liable for snow removal costs under the property coverage form, appellee did not owe a duty to defend appellants with respect to Security’s claims.
It is not unusual for policies to contain first party and third party coverages. There is no duty to defend contained either in the property coverage form or in any portion of the Policy that applies to the Policy as a whole.
The duty to defend is contained in the liability coverage form, under “business liability,” and is limited to claims for
“damages” because of “property damage.” “Property damage” is not a term used in the property coverage form,
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and the
Even if the snow removal costs were within “property damage,” the claims against appellants came within an exclusion. The liability coverage form excluded “ ‘property damage’ for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.” Security and appellants entered into an express contract. The obligation and any liability by appellants to Security arose solely because of that agreement. As it turned out, the terms of the contract were such that appellants incurred no liability under the contract. That does not change the fact, however, that its obligation and potential liability were contractual in nature. 9
JUDGMENT VACATED. CASE REMANDED TO THE CIRCUIT COURT FOR ANNE ARUNDEL COUNTY FOR FURTHER PROCEEDINGS NOT INCONSISTENT WITH THIS OPINION. COSTS TO BE PAID BY APPELLEE.
Notes
. On February 24, 2003, Mr. Butts sent a handwritten note to Ms. Barefield enclosing the agreement between Ms. Chang and Security and confirming Ms. Barefield’s oral authorization to remove all snow.
. The check also included a bank as payee, presumably a mortgagee.
. Appellants have abandoned their real party in interest claim.
. The modifications made by the endorsement are not relevant to the issues before us.
. As previously mentioned, the court entered summary judgment in favor of appellee prior to the trial of Security's claims against appellants. Appellants contend that we properly may consider the trial testimony in deciding the issue before us, even though the testimony was not before the motions judge. Appellee contends that we may not consider the testimony.
Appellants argue that the trial testimony established three points: (1) appellee authorized Security to remove the snow; (2) Security sued appellants because appellee did not pay for the snow removal; and (3) appellants assumed no personal liability under their contract with Security.
We need not decide this issue because there is nothing in the trial testimony that is material to our conclusion that was not, in substance, before the motions judge. Appellee was not a participant at trial.
. In Schlosser, the Court rejected the rationale that an insured was entitled to recover from an insurer mitigation expenses incurred in preventing a covered loss, when no covered loss had occurred, because permitting recovery in that situation would effectively rewrite the policy. Some of the cases cited in Couch, section 178:10, supra, fail to distinguish between the situation in Schlosser and the situation before us.
. Appellants also argue in their reply brief that the snow removal costs are covered under section A.5.g as an "extra expense.” This section was not argued prior to the reply brief and thus is not properly before us.
See Beck v. Mangels,
Even if this issue were properly before us, the Extra Expense provision does not apply in this case. Such a provision provides coverage for additional costs expended by the insured that are necessary to continue the operation of the business to the extent possible after it has suffered an insured loss. This provision typically covers extra compensation for employees, property obtained for temporary use, additional security, and cleanup of debris.
See, e.g., Travelers Indem. Co.
v.
Pollard Friendly Ford Co.,
. As discussed above, appellants contend that the snow removal costs were mitigation expenses or extra expenses.
. Appellants rely heavily on
Johnson & Towers Baltimore, Inc. v. Vessel Hunter,