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Litz v. State Farm Fire and Casualty Co.6/27/1997
ate Farm policy and as such, the business pursuits exclusion in the State Farm policy is applicable." The court continued: "As a result of the business pursuits exclusion in the policy there is no coverage for Pamela and David Litz."
The Litzes noted a timely appeal to the Court of Special Appeals. That court, by a divided panel, affirmed the judgment of the circuit court in an unreported opinion. The Court of Special Appeals held that the homeowner's policy did not extend coverage to Mr. Litz because "the event itself is beyond the scope of the coverage provided, regardless of who participated in that event." The Court of Special Appeals also affirmed the circuit court's denial of attorneys' fees to Mr. Litz.
This Court granted the Litzes' petition for certiorari to consider whether State Farm owed David Litz, an apparently innocent spouse, a duty to defend and attorney's fees incurred in this declaratory judgment action. We will also consider whether the circuit court erred as a matter of law in entertaining the declaratory judgment action prior to the conclusion of the underlying tort case. We shall hold that the business pursuits exclusion of the Litzes' homeowner's liability does not exclude coverage for Mr. Litz and that State Farm had a duty to defend him. Consequently, Mr. Litz is entitled to attorney's fees incurred in defending the declaratory judgment action. Finally, we shall hold that the trial court erred as a matter of law in granting a declaratory judgment prior to resolution of the underlying tort trial.
II.
Mr. Litz contends that the business pursuits exception should not exclude him from coverage under the policy because he did not participate in the business pursuits of his spouse. He argues that the liability coverage under the policy applies separately to each insured and, as such, the business pursuits of his wife do not deprive him of coverage under the policy. Mr. Litz further contends that the trial court erred in denying his motion for attorney's fees because he incurred attorney's fees in defending against a breach of the insurer's duty to defend. Both Mr. Litz and Mrs. Litz also maintain that the trial court erred in entertaining the declaratory judgment action prior to the resolution of the underlying tort suit.
State Farm disputes the Litzes' interpretation of the business pursuits exclusion. State Farm contends that the exclusion denies coverage to all insureds when the injury arises out of an excluded activity, no matter who actually participated in the activity. Accordingly, State Farm denies that it is liable to Mr. Litz for attorney's fees. It has not, State Farm continues, breached its duty to defend Mr. Litz against a claim potentially within the policy's coverage because the business pursuits exclusion removes the claim from coverage. State Farm also maintains that the trial court properly entertained the declaratory judgment action prior to the resolution of the underlying tort case because the issues decided in the declaratory judgment action were independent and separate from those to be resolved at the tort trial.
III.
It is well established in Maryland that insurance policies are construed like other contracts. "When deciding the issue of coverage under an insurance policy, the primary principle of construction is to apply the terms of the insurance contract itself." Bausch & Lomb v. Utica Mutual, 330 Md. 758, 779, 625 A.2d 1021, 1031 (1993). We construe insurance policies as a whole to determine the parties' intentions. Sullins v. Allstate Ins. Co., 340 Md. 503, 508, 667 A.2d 617, 619 (1995). This Court has summarized these principles of construction as follows:
Co
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