Case 1:11-cv ELH Document 17 Filed 05/05/11 Page 1 of 3 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND (NORTHERN DIVISION)

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1 Case 1:11-cv ELH Document 17 Filed 05/05/11 Page 1 of 3 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND (NORTHERN DIVISION) NORMAN J. EMANUEL d/b/a EMANUEL TIRE COMPANY, et al. Plaintiffs v. Case No. ELH-11-CV-875 ACE AMERICAN INSURANCE COMPANY Defendants OPPOSITION TO MOTION TO DISMISS Plaintiffs, Norman J. Emanuel d/b/a Emanuel Tire Company, Emanuel Tire Collection of Maryland, LLC, Emanuel Tire Management Company of Maryland, LLC, Emanuel Tire of Pennsylvania, Inc., Emanuel Tire Transportation, LLC, and Emanuel Tire Wholesale of Maryland, LLC (collectively Plaintiffs ) hereby submit this Opposition to the Motion to Dismiss filed by ACE American Insurance Company, and in support hereof, states as follows: 1. This case involves a dispute over Plaintiffs entitlement to a defense and indemnity under ACE Commercial General Liability Policy GS The Plaintiffs have been sued by wrongful death and personal injury plaintiffs ( Wrongful Death Claimants ) in lawsuits in both Maryland and Florida as a result of a single automobile accident which occurred on August 9, 2007 in the State of Florida. The automobile accident and resulting deaths and bodily injuries are alleged to have been caused by a sudden tread separation on a used automobile tire. 1

2 Case 1:11-cv ELH Document 17 Filed 05/05/11 Page 2 of 3 3. The Wrongful Death Claimants allege that the Plaintiffs sold or transferred the tire in question, and also allege that Plaintiffs were negligent in connection with the inspection, culling and grading of the subject tire. 4. One or more of Plaintiffs engage in the wholesale distribution and sale of used tires. 5. None of Plaintiffs has any operations which involve retail used tires. (See Complaint, 20). 6. ACE argues that Plaintiffs claim for Declaratory Judgment is barred by an exclusion relating to the operations that consist of retail used tires. 7. There is a potentiality for coverage under the ACE Policy, which requires ACE to provide a defense. 8. Moreover, the Exclusion in the ACE Policy extends only to ongoing operations and does not apply to products-completed operations hazard, as defined by the Policy. 9. Plaintiffs incorporate the Memorandum in Opposition to Motion to Dismiss, filed simultaneously. Respectfully submitted, /s/ Jonathan A. Azrael Jonathan A. Azrael John R. Solter, Jr. Azrael, Franz, Schwab & Lipowitz, LLC 101 E. Chesapeake Avenue, 5 th Floor Baltimore, MD Attorneys for Plaintiffs 2

3 Case 1:11-cv ELH Document 17 Filed 05/05/11 Page 3 of 3 CERTIFICATE OF SERVICE I HEREBY CERTIFY that on this 5 th day of May, 2011, a copy of the foregoing Opposition to Defendant s Motion to Dismiss was mailed first class mail, postage prepaid, to: Cynthia L. Maskol, Esq. Angela W. Russell, Esq. Wilson, Elser, Moskowitz, Edelman & Dicker, LLP 200 St. Paul Place, Suite 2530 Baltimore, MD Attorneys for Defendant /s/ Jonathan A. Azrael Jonathan A. Azrael F:\USERS\JRS\Emanuel Tire\Emanuel Tire vs Ace Ins Co (US Dist Ct)\Pleadings\Opposition to Motion to Dismiss.2.doc 3

4 Case 1:11-cv ELH Document 17-1 Filed 05/05/11 Page 1 of 11 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND (NORTHERN DIVISION) NORMAN J. EMANUEL d/b/a EMANUEL TIRE COMPANY, et al. Plaintiffs v. Case No. ELH-11-CV-875 ACE AMERICAN INSURANCE COMPANY Defendant MEMORANDUM IN OPPOSITION TO DEFENDANT S MOTION TO DISMISS Plaintiffs, Norman J. Emanuel d/b/a Emanuel Tire Company, Emanuel Tire Collection of Maryland, LLC, Emanuel Tire Management Company of Maryland, LLC, Emanuel Tire of Pennsylvania, Inc., Emanuel Tire Transportation, LLC, and Emanuel Tire Wholesale of Maryland, LLC, by their undersigned counsel, file this Memorandum in Opposition to the Motion to Dismiss filed by ACE American Insurance Company. A. The Accident I. FACTUAL BACKGROUND On August 9, 2007, a single automobile accident occurred in Alachua County, Florida. As a result of the accident three occupants of the vehicle were killed and several others suffered personal injuries. The automobile accident and resulting deaths and bodily injuries are alleged to have been caused by a sudden tread separation on a used automobile tire. B. The Florida Lawsuit 1

5 Case 1:11-cv ELH Document 17-1 Filed 05/05/11 Page 2 of 11 On July 31, 2009, multiple wrongful death and personal injury plaintiffs ( Wrongful Death Claimants ) filed suit against, Norman J. Emanuel d/b/a Emanuel Tire Company, Emanuel Tire Collection of Maryland, LLC, Emanuel Tire Management Company of Maryland, LLC, Emanuel Tire of Pennsylvania, Inc., Emanuel Tire Transportation, LLC, and Emanuel Tire Wholesale of Maryland, LLC ( Plaintiffs ). The Wrongful Death Claimants also filed suit against three other entities (not parties to the instant declaratory judgment action), including, inter alia, Emanuel Tire Retail of Maryland, LLC ( Emanuel Tire Retail ), Emanuel Tire Company, LLC, and Emanuel Tire at Hollins Ferry, LLC. Notably, Emanuel Tire Retail is defending the tort suits in both Florida and Maryland and is not a Plaintiff in this Declaratory Judgment action. The Florida Lawsuit does not distinguish between the various Emanuel entities. Instead, the Florida Lawsuit refers to these entities collectively as Emanuel and the Emanuel Tire Entities. The Florida Amended Complaint (attached as Exhibit 4 to Plaintiff s Complaint) alleges as follows: 41. The subject tire was selected and sold to Plaintiff by Defendants EMANUEL and EMANUEL TIRE ENTITIES doing business as Emanuel Tire Company and the decision to place the subject tire on the rear of the vehicle was made by representatives of Emanuel Tire Company. 83. Defendants EMANUEL and EMANUEL TIRE ENTITIES breached their duty of reasonable care to the Plaintiffs in the following manner: (b) failing to properly inspect the tire for impending tread belt separations (g) otherwise failing to act reasonably and prudently under the circumstances. 2

6 Case 1:11-cv ELH Document 17-1 Filed 05/05/11 Page 3 of 11 C. The Maryland Lawsuits In August of 2010, the Wrongful Death Claimants filed three separate Complaints in the Circuit Court for Baltimore City against Plaintiffs and the three other Emanuel entities which are not parties to the above captioned lawsuit. The three Maryland Complaints filed on behalf of different plaintiffs, but which contain identical Counts, allege as follows: 75. At all times material hereto, Defendant Emanuel and Emanuel Tire Defendants, were engaged in the business of servicing and selling tires, including the subject Continental Contitrac TRP 245/65R17 tire which was installed on the right rear of the Chevrolet Trail Blazer at the time of the vehicle crash that caused the injuries and deaths as above set forth. 76. Defendant Emanuel and Emanuel Tire Defendants sold the subject tire and injected said tire into the stream of commerce. 78. The subject tire was unfit and unsafe for its intended uses and purposes. The tire was defectively designed, manufactured, tested and inspected resulting in sudden and catastrophic failure during the normal service life of the tire. 87. Defendant Emanuel and Emanuel Tire Defendants breached their duty of reasonable care to the Plaintiffs and Plaintiffs decedent in the following manner: (b) failing to properly inspect the tire for impending tread belt separations (g) negligently transferring the subject tire with defects to Emanuel Tire Retail for sale; (h) negligently inspecting, grading, culling and selecting the subject tire from used tires as fit for sale to the general public; and (i) otherwise failing to act reasonably and prudently under the circumstances. D. ACE s denial of coverage 3

7 Case 1:11-cv ELH Document 17-1 Filed 05/05/11 Page 4 of 11 Shortly after being served with the Florida and Maryland Lawsuits, Plaintiffs submitted the claims to ACE with a request for a defense and coverage. ACE denied coverage and refused to defend the Florida and Maryland Lawsuits. E. The instant Declaratory Judgment Action Plaintiffs filed a Complaint for Declaratory Judgment against ACE claiming that they are entitled to a defense and coverage of the claims asserted by the Wrongful Death Claimants. In paragraph 20 of the Complaint, Plaintiffs allege that Plaintiffs did not sell or install the subject tire, as the Plaintiffs do not perform any operations that consist of retail used tires. Furthermore, extrinsic evidence will show that one or more of Plaintiffs engage in the wholesale distribution and sale of used tires. The distinction between wholesale and retail operations is important to the instant case. II. APPLICABLE LAW Maryland law applicable to this case was recently summarized by District Judge J. Frederick Motz in Nautilus Insurance Company v. BSA Limited Partnership, et al., 602 F.Supp.2d. 641, (D. Md. 2009): 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., 276 Md. 396, 347 A.2d 842, 850 (1975). Even if a tort plaintiff does not allege facts which clearly bring the claim within or without the policy coverage, the insurer still must defend if there is a potentiality that the claim could be covered by the policy. Id. (emphasis added); see also Sheets v. Brethren Mut. Ins. Co., 342 Md. 634, 679 A2d 540, 544 (1996) (duty to defend exists if plaintiffs in a tort action allege an action that is potentially covered by the policy, no matter how attenuated, frivolous, or illogical that allegation may be ). [A]ny doubt as to whether there is a potentiality of coverage under an insurance policy is to be resolved in favor of the insured. Chantel Assocs. v. Mount Vernon Fire Ins. Co., 338 Md. 131, 656 A.2d 779, 786 (1995); see also Aetna Cas. & Sur. Co. v. Cochran, 337 Md. 98, 651 A.2d 859, (1995) ( Our cases indicate 4

8 Case 1:11-cv ELH Document 17-1 Filed 05/05/11 Page 5 of 11 that where a potentiality of coverage is uncertain from the allegations of a complaint, any doubt must be resolved in favor of the insured. ). 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, 292 Md. 187, 438 A.2d 282, 285 (1981). This inquiry focuses upon the language and requirements of the policy. Id. Second, focusing upon the allegations of the underlying suit, the court must determine whether the allegations in the tort action potentially bring the tort claim within the policy s coverage. Id. 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., 390 Md. 449, 889 A.2d 387, 393 (2006) (quoting Pacific Indem. Co. v. Interstate Fire & Cas. Co., 302 Md. 383, 488 A.2d 486, 488 (1985)). When interpreting the language of a contract, we accord a word its usual, ordinary and accepted meaning unless there is evidence that the parties intended to employ it in a special or technical sense. Id. (quoting Cheney v. Bell Nat l Life Ins. Co., 315 Md. 761, 556 A.2d 1135, 1138 (1989)). If the terms used are unambiguous, the meaning of the terms are determined by the court as a matter of law. Id. If the terms of the policy are ambiguous, the court may consult extrinsic evidence. Id. A contract term is ambiguous if, to a reasonably prudent person, the term is susceptible to more than one meaning. Id. (quoting Cole v. State Farm Mut. Ins. Co., 359 Md. 298, 753 A.2d (2000)). While Maryland does not apply the principle found in other jurisdictions that an insurance policy is to be construed most strongly against an insurer, an ambiguous term will ordinarily be resolved against the party who drafted the contract. Id. at 394. III. ARGUMENT: The Florida and Maryland Lawsuits contain allegations that are potentially covered by the Policy. A. The exclusion in the ACE Commercial General Liability Policy does not extend to the sale and distribution of tires at wholesale. The exclusion applies only to OPERATIONS THAT CONSIST OF RETAIL USED TIRES. 5

9 Case 1:11-cv ELH Document 17-1 Filed 05/05/11 Page 6 of 11 ACE contends that the Endorsement is unambiguous and means there is no coverage under this Policy for bodily injury arising out of that portion of their business operations having anything whatsoever to do with used tires in a retail setting irrespective of whether the allegations as to that used tire is as to its design manufacture, testing, inspection, sale, installation or failure to warn. The Plaintiffs disagree. Both the Florida and Maryland Lawsuits assert claims against Plaintiffs for negligent inspection of the subject tire. Furthermore, the Maryland Lawsuits specifically allege that Plaintiffs negligently transferred the subject tire with defects to Emanuel Tire Retail for sale, and negligently inspected, graded, culled and selected the subject tire from used tires as fit for sale to the general public. These allegations are directed specifically to Plaintiffs wholesale operations, as opposed to the retail operation conducted exclusively by Emanuel Tire Retail. In this Declaratory Judgment action, Plaintiffs allege (in Paragraph 20) that they did not sell or install the subject tire, as the Plaintiffs do not perform any operations that consist of retail used tires. This allegation must be taken as true for purposes of a Motion to Dismiss. There is no question that Wrongful Death Claimants allegation that Plaintiffs negligently transferred the subject tire with defects to Emanuel Tire Retail for sale is a claim relating exclusively to Plaintiffs wholesale operations. Clearly, there is a potentiality for coverage under the ACE Insurance Policy because a trier of fact could find the following: 1. The subject tire was installed and sold by Emanuel Tire Retail of Maryland, LLC. 6

10 Case 1:11-cv ELH Document 17-1 Filed 05/05/11 Page 7 of The Plaintiffs did not sell or install the subject tire and do not perform any operations that consist of retail used tires. 3. That one or more of the Plaintiffs is engaged in the business of selling and/or providing used tires on a wholesale basis to used tire dealers within and throughout the United States, including Emanuel Tire Retail. 4. That one or more of the Plaintiffs was negligent in failing to inspect the tire for impending tread belt separations, or negligently inspecting, grading, culling and selecting the subject tire as fit sales to the general public and/or negligently transferring the subject tire with defects to Emanuel Tire Retail for sale or otherwise failing to act reasonably and prudently under the circumstances. In short, a trier of fact could find that one or more of the Plaintiffs distributed the tire on a wholesale basis and was negligent in allowing the subject tire to enter the stream of commerce where it might be sold to a customer and installed on his or her vehicle. Therefore, Plaintiffs are entitled to a defense (and potential coverage) under the insurance policy with ACE. B. The exclusion in the ACE Commercial General Liability Policy only applies to ongoing operations. It does not extend to completed operations. The exclusion applies only to ongoing OPERATIONS THAT CONSIST OF RETAIL USED TIRES. The language of the Endorsement is not nearly as broad as ACE says it is: (a) The Endorsement is on a form entitled, Exclusion DESIGNATED ONGOING OPERATIONS. (b) The Endorsement states: This insurance does not apply to bodily injury or property damage arising out of the ongoing operations described in the Schedule of this endorsement. 7

11 Case 1:11-cv ELH Document 17-1 Filed 05/05/11 Page 8 of 11 (c) (d) Designated Ongoing Operations are described as ANY AND ALL OPERATONS THAT CONSIST OF RETAIL USED TIRES, TO INCLUDE PERSONAL INJURY AND PROPERTY DAMAGE. The Exclusion specifies ALL LOCATIONS, and provides. If a specific location is designated in the Schedule of this endorsement, this exclusion applies only to the described ongoing operations conducted at that location. New Applemon on Insurance Law Library Edition, Vol. 3, 16.02[3][a][ii] explains that commercial general liability insurance traditionally distinguishes between operations risks and completed operations : Operations (or premises or premises-operations ) risk occur while the insured s normal business operations are taking place. By contrast, completed operations risks occur after the insured s work has been completed. These risks have different actuarial bases and are sometimes excluded from (or, added to) policies. Where the insured is a manufacturer, distributor, or seller, the analog of the completed operations risk is the product hazard, which refers to the risk that a product handled by the insured will cause an injury after it has left the insured s control. General liabilities policies consider these two similar risks as a single one, called the products/completed operations hazard. The Policy Declaration specifies a $2,000, limit for Products/Completed Operations Aggregate. Section V, 16 defines Products-completed operations hazard to include all bodily injury and property damage occurring away from premises you own or rent and arising out of your product or your work [subject to exceptions which are inapplicable here]. Case law construing Commercial General Liability ( CGL ) policies makes clear that coverage for owners and contractors often turns on whether the insured has engaged in ongoing operations at the time of the accident or whether the accident occurred after the operations were completed. 8

12 Case 1:11-cv ELH Document 17-1 Filed 05/05/11 Page 9 of 11 See for example, One Beacon Insurance v. Travelers Property Casualty Company of America, 51 A.D.3d 1198, 856, N.Y.S.2d 737 (2008), wherein a golfer slipped and fell on a newly constructed deck at the club house. The golfer sued the owner and general contractor, who sought indemnity as additional insureds under a CGL policy issued to the subcontractor which built the deck. The policy expressly limited coverage of additional insureds to liability arising out of [subcontractor s] ongoing operations, [T]hus, said the court, the existence of CGL coverage for the owner and [the general contractor] as to the underlying accident depends upon whether [the subcontractor s] work on the owner s project had been completed at the relevant time. The appellate court affirmed a denial of summary judgment in favor of the insurer because there was a material question of fact as to coverage. In Perez v. New York City Housing Authority, 302 A.D.2d 222, 754 N.Y.S.2d 635 (2003), a contractor s liability policy insured the Housing Authority for the contractor s ongoing operations under the subject contract. A tenant sued the Housing Authority, alleging he was scaled by hot water and steam released from a defective radiator valve. A finding by the lower court that the accident occurred while the work was ongoing was affirmed on appeal, and the contractor s insurer was ordered to defend and indemnify the Housing Authority. See also Fleniken v. Entergy Corporation, 790 So.2d 64 (La.App. 1 Cir.), dealing with an endorsement providing that owners and contractors with whom the Named Insured executes a written contract, [are] include[d] as an insured but only with respect to liability arising out of your [the Named Insured s] ongoing operations performed for that insured. 9

13 Case 1:11-cv ELH Document 17-1 Filed 05/05/11 Page 10 of 11 ACE wants the Endorsement to apply to both ongoing operations and Productscompleted operations. This interpretation ignores the fact that the Endorsement is headed Exclusion-DESIGNATED ONGOING OPERATIONS as well as the phrase this exclusion applies only to the designated ongoing operations conducted at that location. If the Endorsement is ambiguous, in the absence of extrinsic evidence, it should be construed against ACE, which drafted it. Nautilus, supra; Clendenin Brothers, Inc., et al. v. United States Fire Insurance Company, 390 Md. 449, 459, 889 A.2d 387, 394 (2006), and cases therein cited. 1 The Court should reject ACE s broad construction of the Endorsement, and hold, as a matter of law, that the Exclusion does not apply to claims following under Productscompleted operations hazard. At the very least, Plaintiffs must be given the opportunity to show, by extrinsic evidence, that the Exclusion does not apply to Plaintiffs wholesale activities. For example, the premium for the ACE Policy is based on a Premium Audit. This is detailed on pages 6 through 10 of the Declarations. The operations at 1300 Moreland Avenue in Baltimore, Maryland are classified as paper, rag or rubber stock dealers or distributors second hand. This classification would include the distribution and sale of used tires both at wholesale and retail. The premium is based on Gross Sales. As evidence that Plaintiffs sell and distribute only tires at wholesale and do not perform any operations that consist of retail used tires, Plaintiffs should have the opportunity to adduce 1 If ACE wanted the Exclusion to apply to the completed operations hazard, it should have used plain, unambiguous language. See, e.g., Deason v. J. King Harrison Co., Inc., 127 N.C. App. 514, 516, 491 S.E. 2d 666, 667 (1997) wherein a liability policy contained the following exclusion: This insurance does not apply to (p) to bodily injury or property damage included within the completed operations hazard; American States Insurance Co., et al. v. Aetna Life & Casualty Company, 177 Ind.App. 299, 303, 379 N.E. 2d 510, 513; where florist s liability policy provided under Exclusions, This policy does not apply (c)(2) [to] the Products (including completed operations hazard.) 10

14 Case 1:11-cv ELH Document 17-1 Filed 05/05/11 Page 11 of 11 evidence that their Gross Sales, for purposes of a Premium Audit, include wholesale tire sales, but exclude retail tire sales, and that ACE did not exclude risks arising from Plaintiffs wholesale used tire operations. WHEREFORE, for all of the foregoing reasons, Defendant s Motion to Dismiss should be denied. Respectfully submitted, /s/ Jonathan A. Azrael Jonathan A. Azrael John R. Solter, Jr. Azrael, Franz, Schwab & Lipowitz, LLC 101 E. Chesapeake Avenue, 5 th Floor Baltimore, MD Attorneys for Plaintiffs CERTIFICATE OF SERVICE I HEREBY CERTIFY that on this 5 th day of May, 2011, a copy of the foregoing Memorandum in Opposition to Defendant s Motion to Dismiss was mailed first class mail, postage prepaid, to: Cynthia L. Maskol, Esq. Angela W. Russell, Esq. Wilson, Elser, Moskowitz, Edelman & Dicker, LLP 200 St. Paul Place, Suite 2530 Baltimore, MD Attorneys for Defendant /s/ Jonathan A. Azrael Jonathan A. Azrael F:\USERS\JRS\Emanuel Tire\Emanuel Tire vs Ace Ins Co (US Dist Ct)\Pleadings\Memo in Opp to Ace's Motion to Dismiss.2.doc 11