No coverage due for exposure to lead paint after policies are canceled
Insurers who canceled general liability policies issued to homeowners who misrepresented their exposure to lead paint claims owe no cover to 12 plaintiffs who had yet to obtain a final judgment from the courts, the High Court of Maryland.
The Court of Appeals on Monday reversed rulings by the Baltimore City Circuit Court and the Special Court of Appeals that found the plaintiffs to be third party beneficiaries who were grandfathered to insurance policies such as they existed before the cancellation.
The unanimous opinion says “…we believe that aggrieved plaintiffs who have not yet obtained a judgment or reached an approved settlement with an insured are not the intended beneficiaries of general liability insurance policies, absent changes to the public policy or contractual language to the contrary.”
On the other hand, the High Court found that three claimants who had obtained judgments or settled lawsuits against their landlords before the policies were voided were beneficiaries of the insurance policies.
The case stems from commercial general liability policies that CX Reinsurance Co. Ltd., in association with Liberty Mutual Mid-Atlantic Insurance Co., issued in 1997 to several companies that leased residential properties in Baltimore. Each of the owners had checked boxes on their insurance applications or otherwise indicated that they had no “previous lead paint violations” at their properties.
The policies were continuously renewed until 2015, when CX and Liberty sued the owners to override them. The insurers alleged that the owners lied; the Baltimore Department of Health had cited policyholders for lead paint violations in many of the policyholders’ buildings.
Meanwhile, 15 plaintiffs who had lived in the owners’ buildings as children have filed lawsuits alleging they were injured by exposure to lead paint. These lawsuits received a boost in 2011, when the Maryland Court of Appeals ruled that a state law that imposed a $17,000 cap on damages for lead paint claims violated the state constitution.
The owners and CX entered into settlement agreements that voided or reduced the coverage provided by the liability policies. Devon S. Johnson, one of the former tenants alleging exposure to lead pain, responded by filing a lawsuit seeking a court declaration that he was beneficiary of his former landlord’s insurance policy . Other plaintiffs have joined the lawsuit. The third amended complaint that proceeded in the Baltimore City Circuit Court named 15 plaintiffs.
Three of the plaintiffs, Devon Johnson, Chauncey Liles and Shyliyah Streeter, won judgments against the homeowners for lead paint injuries before the insurance policies were canceled in 2015. The other 12 plaintiffs continued to litigate. their cause.
The Baltimore court ruled that the 15 plaintiffs were grandfathered as third-party beneficiaries of the insurance policies as they existed before the cancellation. The Court of Special Appeal upheld the decision. The Court of Appeal granted the insurer’s motion to hear the case.
According to the notice, the trial court and intermediate appeals court had based their decisions on Maryland’s direct action law, which allows tort claims to be brought directly against the perpetrator’s insurer. offense. Lower courts have held that this created a legal obligation for insurers at the time the injury occurred – long before the policies were voided.
The Court of Appeals, however, said that under the plain language of the policies, tort plaintiffs only become beneficiaries after making final judgments.
“Thus, tort plaintiffs without a final judgment or settlement are not additional interested parties under the plain language of the policies,” the opinion states. “In other words, they are incidental beneficiaries of the policies.”
The court rejected plaintiff’s argument that direct action law creates a public policy that insurance policies are generally issued for the benefit of third parties.
“Had the General Assembly intended to provide enforcement rights to tort plaintiffs who have failed to obtain a judgment or enter into approved settlements, it would likely have drafted Maryland’s direct action statute differently,” indicates opinion.
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