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Litz v. State Farm Fire and Casualty Co.6/27/1997
determine whether there is a potentiality of coverage for Mr. Litz under the Litzes' homeowner's policy. The allegations contained in the Wright's complaint alone do not create a potentiality of coverage because those allegations, if proven, would establish that Mr. Litz was engaged in a business pursuit, namely babysitting, and thus excluded from coverage. The inquiry does not end here, however, and these peculiar facts do not necessarily deprive Mr. Litz of a defense. Cochran teaches that the insured may rely on evidence outside the four corners of the complaint to establish the potentiality of coverage. Here, we look to the Litzes' answer to State Farm's complaint in the declaratory judgment action. David Litz asserts in the answer that "regardless of whether or not his wife, Pamela Litz, was engaging in a 'business pursuit' out of which the alleged bodily injury arose, that he was never so engaged and as such, the purported exclusion does not apply to him." Furthermore, both Mr. and Mrs. Litz stated in depositions that Mr. Litz was not at home during the hours that Mrs. Litz cared for Stephanie and did not participate in his wife's babysitting activities.
Before we can conclude that there exists a potentiality of coverage for Mr. Litz, we must interpret the business pursuits exclusion in the policy to determine whether the business pursuits of any insured excludes all insureds from coverage under the policy. The Court of Special Appeals agreed with State Farm's contention that it was not necessary to consider whether the policy applied separately to each insured because "the event itself is beyond the scope of the coverage provided, regardless of who participated in that event." Before we can decide whether the Litzes' extrinsic evidence establishes a potentiality of coverage, we must construe the business pursuits exclusion in the policy to determine whether the Court of Special Appeals was correct or whether, as Judge Hollander asserted in her dissent, the business pursuits of one insured do not exclude all insureds from coverage under the policy.
A.
The business pursuits exception in the Litzes' insurance policy excluded coverage for injuries arising out of "business pursuits of an insured." We must decide whether the business pursuits of "an" insured were intended to deprive coverage for "all" insureds. We conclude that the business pursuits exclusion in David and Pamela Litz's homeowner's policy applies separately to each insured such that one insured's excluded activity does not preclude coverage for other insureds who did not participate in the excluded activity. This Court concluded similarly in St. Paul Fire & Marine Insurance v. Molloy, 291 Md. 139, 150, 433 A.2d 1135, 1140 (1981).
In our opinion, whether an innocent co-insured, notwithstanding his or her spouse's misconduct, can recover under an insurance contract, depends primarily upon whether the parties intended, and thus whether the contract contemplates, the obligations of the co-insureds to be joint or several. To hold otherwise would be to deny the parties to agreements insuring jointly owned property the ability to determine the nature of the co-insureds' contractual interests and obligations.
(citations omitted). See D. D'Antonio et al., Protecting the Innocent, A.B.A J., Feb. 1997, at 78 (describing "innocent co-insureds" as an insured who suffers a loss due to the other insured's wrongdoing or omission but played no role in it). We agree with the reasoning of Judge Hollander in her dissent to the Court of Special Appeals' opinion. She stated:
The policy in issue here specifically bars coverage for bodily injury arising "out of business pursuits of an insured." (
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