MEMORANDUM
Plaintiff Nautilus Insurance Company (“Nautilus” or “the Insurer”) brings this declaratory judgment action to clarify its duty to defend and indemnify its insured, defendant BSA Limited Partnership (“BSA” or “the Insured”), in a civil suit
I.
The underlying DC suit arises out of BSA’s ownership and operation of the Bates Street Townhomes (“the Town-homes”) in the District of Columbia. The Feemster Parties, plaintiffs in the underlying DC suit, were residents of the Town-homes. BSA participated in the Section 8 rental assistance program, entering into a renewable Housing Assistance Payments (“HAP”) contract for the Townhomes with the United States Department of Housing and Urban Development (“HUD”). Under HAP contracts, HUD agrees to provide rental assistance payments to the landlord on the tenant’s behalf. The low-income tenant pays 30% of his or her adjusted income, and HUD pays the difference between the tenant’s payment and the rent.
When a HAP contract expires, a private landlord may choose to opt-out of Section 8 instead of renewing, but the landlord must give proper notice to tenants affected by the opt-out and tenants have the right under federal law to remain in their units.
See
42 U.S.C. § 1437f(c)(8)(A);
id.
§ 1437f(t)(l)(B). “Enhanced vouchers” are available to enable tenants to remain
BSA decided to opt-out of the program when its HAP contract expired. BSA purported to give the one-year required notice to its tenants, effective September 80, 2004. The DC Housing Authority, which administers the tenant-based voucher program, issued enhanced vouchers to several of the Feemster Parties. However, BSA allegedly refused to accept the enhanced vouchers as rent payment and refused to sign or execute any lease agreements or lease addenda. Instead, BSA required the tenants to pay the full market rent.
The underlying DC suit was filed by the Feemster Parties in November 2004, and a temporary restraining order was issued. A second amended complaint was filed on March 17, 2005, alleging that BSA unlawfully refused to accept enhanced vouchers as rent payments or execute the necessary lease addenda. The Feemster Parties asserted violations of the United States Housing Act and the Multifamily Assisted Housing Reform and Affordability Act of 1997 (as amended), 42 U.S.C. § 1437f, the National Housing Act, 12 U.S.C. § 1701 et seq., the District of Columbia Human Rights Act, D.C.Code § 2-1402.21, and the District of Columbia Consumer Protection Procedures Act, D.C.Code § 28-3901 et seq. The Feemster Parties requested in-junctive and declaratory relief. Specifically, the Feemster Parties requested a declaration that BSA’s acts violated federal and DC law and that BSA must accept the enhanced vouchers. They requested an injunction requiring BSA to accept the enhanced vouchers and complete any requirements necessary to enter into voucher contracts, and forbidding BSA from evicting the Feemster Parties from their units on impermissible grounds. They also requested compensatory and punitive damages, attorneys’ fees, and costs.
On January 12, 2007, the District Court for the District of Columbia granted in part and denied in part the parties’ cross-motions for summary judgment.
Feemster v. BSA Ltd. P’ship (“Feemster F),
Plaintiff Nautilus issued a “Commercial Lines Policy” (“the policy”) to defendant BSA, effective September 30, 2004 to September 30, 2005. (Pl.’s Mem. in Supp. of its Mot. for Summ. J. (“Pl.’s Mem.”) Ex. A.) Nautilus provided a defense for BSA throughout the underlying litigation.
3
II.
A motion for summary judgment will be granted when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The substantive law of the cause of action determines which facts are material.
Anderson v. Liberty Lobby, Inc.,
Under Maryland law, “[t]he obligation of an insurer to defend its insured under a contract provision ... is determined by the allegations in the tort actions. If the plaintiffs in the tort suits allege a claim covered by the policy, the insurer has a duty to defend.”
Brohawn v. Transamerica Ins. Co.,
Maryland courts have established a two-part inquiry for determining whether an insurer has a duty to defend its insured. First, the court must determine “the coverage and ... the defenses under the terms and requirements of the insurance policy.”
St. Paul Fire & Marine Ins. Co. v. Pryseski,
When determining the scope and limitations of coverage under an insurance policy, Maryland courts “construe the instrument as a whole to determine the intention of the parties” and “ ‘examine the character of the contract, its purpose, and the facts and circumstances of the parties at the time of execution.’ ”
Clendenin Bros., Inc. v. United States Fire Ins. Co.,
As an initial matter, the Feemster Parties argue that a declaratory judgment is inappropriate because the underlying suit “remains pending with several factual issues to be decided!,] many of them implicating the very coverage issues at issue in this suit.” (Pl.’s Mem. 13.) Similarly, the Feemster Parties also argue that summary judgment is inappropriate “with material facts in dispute, going to the underlying liability of BSA.” (Pl.’s Mem. 18.) Declaratory judgments to resolve issues in pending tort cases should be rare, but can be appropriate on certain occasions to resolve questions of insurance policy coverage that are “independent and separable from the claims asserted in a pending suit by an injured third party.”
Brohawn,
The Feemster Parties present two possible sources of Nautilus’s duty to defend BSA in the underlying DC suit: Coverage A, Bodily Injury and Property Damage Liability, and Coverage B, Personal and Advertising Injury Liability.
III.
Coverage A of the policy provides Bodily Injury and Property Damage Liability. It provides in relevant part:
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages....
b. This insurance applies to “bodily injury” and “property damage” only if: (1) The “bodily injury” or “property
damage” is caused by an “occurrence” that takes place in the “coverage territory”;
(Pl.’s Ex. A, CG 00 01 10 01, at 1.) “Bodily injury” is defined as “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.”
{Id.
at 13.) “Property damage” is defined as either “[pjhysical injury to tangible property, including all resulting loss of use of that property,” or “[l]oss of use of tangible property that is not physically injured.”
{Id.
at 15.) “Occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
Nautilus asserts that it is undisputed that BSA intentionally refused to execute new leases and lease addenda for the Feemster Parties that allowed the use of enhanced vouchers, which effectively operated as a refusal to accept the enhanced vouchers. Nautilus claims that BSA “intended and expected that the Feemster parties would be unable to remain in the Townhomes,” conduct also amounting to a breach of contract, which is not an accident. (Pl.’s Mem. 11.) The Feemster Parties respond that BSA’s intentional refusal to accept the enhanced vouchers was an “accident” because “BSA claims its intentions were not to violate the law or the Feemster Parties’ rights, despite the consequences of those actions.” (PL’s Mem. 16-17.)
An injury caused by an intentional act may be caused by an “accident” “ ‘if in that act, something unforeseen, unusual and unexpected occurs which produces the event.’ ”
Cole, 753
A.2d at 540
(quoting Harleysville Mut. Cas. Co. v. Harris & Brooks, Inc.,
A similar analysis shows that coverage is also precluded by the “Expected or Intended Injury” exclusion in Coverage A.
See ABT Building Prods. Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh,
IV.
Coverage B, Personal and Advertising Injury Liability, provides: “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘personal and advertising injury’ to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages.” (Pl.’s Ex. A, CG 00 01 10 01, at 5.) The policy defines “personal and advertising injury” as:
injury, including consequential “bodily injury”, arising out of one or more of the following offenses:
a. False arrest, detention or imprisonment;
b. Malicious prosecution;
c. The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor;
d. Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services;
e. Oral or written publication, in any manner, of material that violates a person’s right of privacy;
f. The use of another’s advertising idea in your “advertisement”; or
g.Infringing upon another’s copyright, trade dress or slogan in your advertisement”.
(Id. at 14.) Coverage for personal injury need not arise from an “occurrence,” as is required under Coverage A.
The Feemster Parties argue that subsection (c) creates a duty to defend. The complaint in the underlying DC suit alleges no wrongful eviction or wrongful entry. 5 Therefore, the potentially applicable offense is “invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor.”
The Feemster Parties assert that any interference with their right to use enhanced vouchers invades their right of private occupancy of their homes. (Defs.’ Mem. 18.) Nautilus responds that neither Maryland courts nor the District of Columbia courts have found that the “right of private occupancy” includes any right not tied to the possession or use of the property, and as the Feemster Parties were not prevented from full use and enjoyment of their property, this clause does not create coverage. (Reply to Feemster Parties’ Opp. to Pl.’s Mot. for Summ. J. 9.)
The question, then, is whether the acts alleged in the underlying DC complaint amount to an “invasion of the right of private occupancy.” The phrase is “widely used” in insurance policies and “has been the subject of heated litigation throughout the entire country over the past thirty years,” generating “hundreds of law suits and widely varying judicial interpretations.”
New Castle County v. Nat’l Union
Several courts that have interpreted this phrase in insurance policies emphasize that the term “invasion of the right of private occupancy” follows the enumeration of two specific actions related to possessory interests in real property: wrongful eviction and wrongful entry. Courts often employ the rule of
ejusdem generis,
a principle of contract interpretation suggesting that when a general word follows a series of specific words, the specific words restrict the general. Here, the rule would operate to limit the phrase’s meaning to “actions of the same general type as, though not specifically embraced within, ‘wrongful entry or eviction.’ ”
Liberty Mut. Ins. Co. v. E. Cent. Okl. Elec. Coop.,
Other courts have construed the term more broadly. In
New Castle County,
a landowner brought suit against a town, the insured, because the town frustrated the landowner’s development plans by denying a building permit, voiding a record plan for a property, and rezoning the property.
In a case cited by Nautilus, the District Court for the District of Columbia found that violations of the warranty of habitability constituted an “invasion of the right of private occupancy.”
Beltway Mgmt. Co. v. Lexington-Landmark Ins. Co.,
In find that the phrase “invasion of the right of private occupancy” is ambiguous because it is reasonably susceptible to more than one meaning.
See Clendenin Bros.,
Because the parties present no extrinsic evidence as to the intention of the parties at the time of contract, this ambiguity is construed against the insurer.
See Cheney,
A.
The two federal claims in the underlying complaint in essence allege that the tenants had a right to remain in their homes after BSA’s opt-out and to use enhanced vouchers as rent payments.
{See
Even under a stricter interpretation of the phrase, requiring “invasions of the qualitative aspects of established possesso-ry interests,”
Bernstein v. N.E. Ins. Co.,
Nautilus argues that even if the federal claims allege injuries within the scope of Coverage B, two exclusions apply so as to preclude coverage. First, Nautilus argues that the breach of contract policy exclusion contained in Coverage B applies because BSA’s alleged duty to accept enhanced vouchers and execute new leases arose from BSA’s contract with HUD and any failure to do so breaches that contract. (See Pl.’s Mem. 19-20; Pl.’s Ex. A, CG 00 01 10 01, at 6 [“ ‘Personal and advertising injury’ arising out of a breach of contract, except an implied contract to use another’s advertising idea in your ‘advertisement’.”].) However, the federal causes of action arise from violation of rights created by federal statute, not by contracts. While BSA’s liability potentially rests in part on its refusal to enter into a contract — the lease addenda — this does not itself bring the plaintiffs allegations within the scope of the exclusion. The breach of contract exclusion does not operate to preclude coverage.
Second, Nautilus asserts that coverage is precluded by the “Knowing Violation of Rights of Another” exclusion, which states that the insurance does not apply to “ ‘[p]ersonal and advertising injury’ caused
B.
The District of Columbia Human Rights Act (“DCHRA”) claim, however, does not allege injuries arising out of the “invasion of the right of private occupancy.”
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Plaintiffs alleged BSA violated the
It shall be an unlawful discriminatory practice to do any of the following acts, wholly or partially for a discriminatory reason based on the actual or perceived ... source of income ... of any individual:
(1) To interrupt or terminate, or refuse or fail to initiate or conduct any transaction in real property; or to require different terms for such transaction; or to represent falsely that an interest in real property is not available for transaction;
(2) To include in the terms or conditions of a transaction in real property, any clause, condition or restriction;....
D.C.Code § 2-1402.21(a).
Even if the discrimination claims could be considered an invasion of the right of private occupancy, coverage for the DCHRA claim is precluded by the “knowing violation of rights of another” exclusion because discrimination is an intentional tort. The injury would be caused by BSA “with the knowledge that the act would violate the rights of another.” Therefore, Nautilus has no duty to defend BSA as to the DCHRA claim.
Even though the DCHRA claim is not covered by the policy and Nautilus has no independent duty to defend BSA against it, Nautilus does have a duty to defend the non-covered claims while the covered federal claims are being litigated. “[I]n most circumstances, ‘if any claims potentially come within the policy coverage, the insurer is obligated to defend all claims, notwithstanding alternative allegations outside the policy’s coverage.’ ”
Perdue Farms, Inc. v. Travelers Cas. & Sur. Co. Of America,
Nautilus also seeks summary-judgment regarding indemnification due under the policy. “[T]he duty to defend is broader than the duty to indemnify.”
Walk v. Hartford Cas. Ins. Co.,
The litigation in the underlying DC suit is ongoing. On November 14, 2008, the D.C. Circuit remanded the case to the district court for further proceedings. Any damages have not yet been determined or calculated. Of course, Nautilus ultimately will have no duty to indemnify BSA for any damages arising from the non-covered DCHRA claim, but until damages for all of the Feemster Parties’ claims have been determined and calculated, a declaratory judgment ruling on the indemnity question would be premature. Therefore, I decline to determine Nautilus’s duty to indemnify BSA in the underlying suit.
For the foregoing reasons, I grant in part and deny in part plaintiffs motion for summary judgment. Plaintiffs motion for default judgment against BSA is granted. A separate order to that effect is being entered herewith.
ORDER
For the reasons stated in the accompanying Memorandum, it is, this 10th day of March 2009
ORDERED
1. Plaintiffs motion for default judgment against defendant BSA is granted;
2. Plaintiffs motion for summary judgment is granted in part and denied in part;
3. It is declared that Nautilus Insurance Company has a duty to defend BSA Limited Partnership as to the first and second causes of action in Feemster v. BSA Limited Partnership, No. 04-CV1901-RBW, in the United States District Court for the District of Columbia;
4. I decline to enter a declaratory judgment as to Count III for lack of ripeness;
5. This action is administratively closed, subject to being reopened as to Count III upon notice by either party within 30 days of the resolution of the
Notes
. The Fourth Circuit has stated that "[a] dispute between a liability insurer, its insured, and a third party with a tort claim against the insured over the extent of the insurer's responsibility for that claim is an 'actual controversy’ within the meaning of the federal Declaratory Judgment Act, even though the tort claimant has not yet reduced his claim against the insured to judgment.”
Nautilus Ins. Co. v. Winchester Homes, Inc.,
. While defendant BSA accepted service of Nautilus's Complaint through its attorney, Robert Greenberg, BSA has failed to respond to Nautilus’s Complaint and has not filed an opposition to Nautilus’s motion for summary judgment or motion for default judgment against BSA. Therefore, plaintiff’s motion for default judgment is granted. However, the Feemster Parties are "not bound by the default judgment because, as an injured third party, [they are] entitled to defend on the merits in the declaratory judgment proceeding.”
Penn America Ins. Co. v. Valade,
. The Feemster Parties argue that Nautilus’s defense of BSA thus far in the underlying DC action shows that Nautilus recognizes the underlying DC suit is potentially covered by the policy. (Defs.’ Mem. in Supp. of its Opp. to Pl.'s Mot. for Summ. J. ["Defs.' Mem.”] 14.) Nautilus alleges that it provided a defense to BSA subject to a full reservation of rights. The Feemster Parties respond that they do not have any evidence of this, such as a reservation of rights letter showing that Nautilus is actually defending under a reservation of
. Given this ruling, I need not address Plaintiff's argument that BSA had knowledge of the claim before the policy period. (See Pl.’s Mem. 13.)
. The Feemster Parties argue that a claim involving threats of wrongful eviction invokes coverage under the “wrongful eviction” provision. (Defs.’ Mem. 18.) But threats of wrongful eviction are not an injury arising from wrongful eviction. The Feemster Parties did not allege that any tenant had actually been wrongfully evicted.
. On the other hand, both wrongful entry and wrongful eviction involve some physical intrusion upon an interest in real property. Refusing to accept a form of payment or execute a lease may interfere with a tenant's ability to pay, but do not physically interfere with a tenant’s property. If the Feemster Parties paid in full without using enhanced vouchers, their occupancy continued uninterrupted. While BSA may have interfered with the tenant's interest in personal property — the enhanced vouchers — this does not necessarily create an interference with the tenant’s interest in real property. However, given that all ambiguities are to be construed in favor of the insured, I find that the federal law claims are covered under Coverage B.
. I note that if all intentional acts came within the scope of the intent exclusion, coverage would be precluded for personal and advertising injuries
specifically covered
in Coverage B. For example, false imprisonment, a specifically covered offense, requires a showing of intent.
See
Md. Pattern Jury Instructions-Civil § 15-463 (Intentional Interference with the Person) ("False imprisonment is the intentional restriction without legal justification of the freedom of movement of a person who is aware of the restriction and who does not consent.”). If the intent exclusion precluded coverage for false imprisonment claims, litigation coverage for suits bringing those claims would be illusory.
See Secura Ins. Co. v. Gorsick,
No. 3:06CV-596R,
. The Feemster Parties also brought a claim under the District of Columbia Consumer Protection Procedures Act ("DCCPPA”),
. I note that the duty to defend ends when the "claim might be confined to non-covered allegations.’’
Baltimore Gas & Elec. Co. v. Commercial Union Ins. Co. ("BGE"),