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Litz v. State Farm Fire and Casualty Co.6/27/1997
' fees incurred due to the insurer's wrongful denial of a duty to defend. Hess v. Board of Educ., 341 Md. 155, 160, 669 A.2d 1352, 1354 (1996). As this Court held in Bankers & Shippers Insurance Company v. Electro Enterprises, 287 Md. 641, 648, 415 A.2d 278, 282 (1980), this rule applies to attorneys' fees incurred in a declaratory judgment action to determine policy coverage as well as to fees incurred in defending the tort action. The Electro Enterprises case, like the one before us, involved a declaratory judgment action initiated by the insurer asking that it be relieved of any obligation to defend the insureds. The Court wrote:
An insurer is liable for the damages, including attorneys' fees, incurred by an insured as a result of the insurer's breach of its contractual obligation to defend the insured against a claim potentially within the policy's coverage, and this is so whether the attorneys' fees are incurred in defending against the underlying damage claim or in a declaratory judgment action to determine coverage and a duty to defend.
Id., 415 A.2d at 282.
The circuit court concluded that State Farm owed Pamela Litz no duty to defend because her babysitting constituted a business pursuit, and this issue was not raised on appeal. Thus, Mrs. Litz is responsible for her attorney's fees incurred in defending the declaratory judgment action.
State Farm owed Mr. Litz a duty to defend. Thus, the attorney's fees incurred by Mr. Litz in defending against State Farm's declaratory judgment action are fees "incurred by an insured as a result of the insurer's breach of its contractual obligation to defend the insured against a claim potentially within the policy's coverage . . . ." Id., 415 A.2d at 282. State Farm is liable for those fees.
VI.
We consider now the second question presented in the petition for certiorari: whether, apart from the circuit court's decision on the merits of the declaratory judgment action, the circuit court erred in entertaining the declaratory judgment action prior to the resolution of the underlying tort trial.
We again turn to Brohawn v. Transamerica Insurance Company, 276 Md. 396, 347 A.2d 842 (1975). In Brohawn, Mary Brohawn, the insured, was sued for both assault and negligence arising out of an incident at a nursing home in which Brohawn allegedly hit a nursing home employee. The comprehensive liability sections of Brohawn's homeowner's insurance policy excluded injury caused by the intentional act of the insured. Transamerica Insurance contended that it had no duty to defend due to the intentional act exclusion and sought a declaratory judgment that Brohawn's acts were intentional. The trial court in Brohawn properly denied Transamerica's requested relief because the factual issues relied upon to deny coverage would be resolved in the underlying tort trial, specifically, whether Brohawn acted intentionally or negligently.
We recognized in Brohawn that a declaratory judgment action prior to the underlying tort trial can be both a valuable and appropriate means of resolving questions of policy coverage when the question of policy coverage is "independent and separable from the claims asserted in a pending suit by an injured third party." Brohawn, 276 Md. at 405, 347 A.2d at 848. When a question sought to be resolved in the declaratory judgment proceeding would be decided in the pending tort action, however, it is ordinarily inappropriate to grant a declaratory judgment prior to resolution of the underlying tort trial. Id. at 406, 347 A.2d at 849; see Allstate Ins. Co. v. Atwood, 319 Md. 247, 252, 254-55, 572 A.2d 154, 157-58 (1990).
In the case before us, State Far
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