Northern Insurance v. Baltimore Business Communications, Inc.

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

THE NORTHERN INSURANCE 
COMPANY OF NEW YORK,
Plaintiff-Appellee,
v.
BALTIMORE BUSINESS
COMMUNICATIONS, INCORPORATED,
 No. 02-1358
Defendant-Appellant.
COMPLEX INSURANCE CLAIMS
LITIGATION ASSOCIATION,
Amicus Supporting Appellee.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Marvin J. Garbis, District Judge.
(CA-01-2158-MJG)

Argued: February 26, 2003

Decided: June 19, 2003

Before WIDENER, KING, and SHEDD, Circuit Judges.

Vacated and remanded by unpublished per curiam opinion.

COUNSEL

ARGUED: Mark Herbert Kolman, DICKSTEIN, SHAPIRO,
MORIN & OSHINSKY, L.L.P., Washington, D.C., for Appellant.
Philip R. King, MECKLER, BULGER & TILSON, Chicago, Illinois,
2 THE NORTHERN INS. CO. v. BALTIMORE BUSINESS COMMUNICATIONS
for Appellee. ON BRIEF: Jerold Oshinsky, Karen Bush, Paul L.
Spackman, DICKSTEIN, SHAPIRO, MORIN & OSHINSKY, L.L.P.,
Washington, D.C.; Maureen E. Murphy, MURPHY & MURPHY,
L.L.C., Catonsville, Maryland, for Appellant. Steven D. Pearson, Ste-
ven J. Ciszewski, MECKLER, BULGER & TILSON, Chicago, Illi-
nois; Steven Ellis Leder, Craig David Roswell, Julie A. Maloney,
NILES, BARTON & WILMER, L.L.P., Baltimore, Maryland, for
Appellee. Laura A. Foggan, John C. Yang, Gary P. Seligman,
WILEY, REIN & FIELDING, L.L.P., Washington, D.C., for Amicus
Curiae.

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

OPINION

PER CURIAM:

Northern Insurance Company of New York ("Northern Insurance")
initiated this declaratory judgment action in the District of Maryland,
seeking a declaration that it was not obligated to defend and indem-
nify Baltimore Business Communications, Inc. ("Baltimore Busi-
ness") in a class action lawsuit. The district court awarded summary
judgment to Northern Insurance, concluding that it was not obliged
to defend or indemnify Baltimore Business. Northern Ins. Co. of N.Y.
v. Baltimore Business Communications, Inc., MJG-01-2158, Memo-
randum and Order (D. Md. Feb. 28, 2002) (the "Order"). Baltimore
Business has appealed the Order to this Court. Because the district
court erred in its award of summary judgment to Northern Insurance,
we vacate and remand.

I.

On April 19, 2001, J. Douglas Pinney and Patricia S. Colonell initi-
ated a class action lawsuit in Maryland state court against Baltimore
Business and twenty-five other defendants. See Pinney v. Nokia, Inc.,
 THE NORTHERN INS. CO. v. BALTIMORE BUSINESS COMMUNICATIONS 3
No. 24-C-01-001897 (Cir. Ct. Baltimore City filed Apr. 19, 2001)
(the "Pinney case").1 The Pinney Complaint (the "Complaint") alleged
that the defendants had manufactured, supplied, sold, and leased wire-
less handheld telephones ("cell phones") that emit dangerous levels of
radiation. On this basis, the Complaint asserted multiple causes of
action, specifically: failure to warn; defective design; violations of the
Maryland Consumer Protection Act; breach of implied warranties;
negligence; fraud; and civil conspiracy. On each cause of action, the
Complaint sought, inter alia, "compensatory damages including but
not limited to amounts necessary to purchase a [cell phone] headset
. . . for each class member."2

Pursuant to a series of commercial general liability policies (collec-
tively, the "Policy")3 that it had purchased from Northern Insurance,
Baltimore Business requested that it be defended and indemnified in
the Pinney case. Northern Insurance denied this request and, on July
23, 2001, filed this declaratory judgment action, seeking a determina-
tion of whether it is obliged to defend and indemnify Baltimore Busi-
ness in the Pinney case. Baltimore Business counterclaimed against
Northern Insurance, seeking damages resulting from its refusal to
defend. Both parties then moved the district court for summary judg-
ment. By its Order, the court decided that the Policy only covered
actions involving "damages because of bodily injury." Order at 12.
The court then concluded that, because the Complaint merely sought
cell phone headsets to prevent future injuries, its allegations against
Baltimore Business did not fall within the Policy’s coverage. Id. at
1
The Complaint was first filed in the Circuit Court for Baltimore City,
but the defendants removed it to the District of Maryland. The Judicial
Panel on Multidistrict Litigation consolidated the Pinney case with four
other class actions involving similar claims.
2
A "headset" is a wire with a plug on one end that connects to a cell
phone, and an "earbud" (a speaker/microphone device) on the other end
that fits into the user’s ear.
3
The first policy Baltimore Business purchased from Northern Insur-
ance was effective from November 11, 1998, until November 11, 1999.
At the expiration of the first policy, and continuing yearly thereafter,
Baltimore Business purchased policies from Northern Insurance that, for
purposes of this appeal, are substantively identical. As such, for ease of
reference, we refer to the policies collectively as the "Policy."
4 THE NORTHERN INS. CO. v. BALTIMORE BUSINESS COMMUNICATIONS
12-14. Accordingly, the court awarded summary judgment to North-
ern Insurance, ruling that it was not obliged to defend or indemnify
Baltimore Business. Order at 14. Baltimore Business has appealed,
and we possess jurisdiction pursuant to 28 U.S.C. § 1291.

II.

We review a district court’s award of summary judgment de novo,
viewing the facts and inferences drawn therefrom in the light most
favorable to the non-movant. Spriggs v. Diamond Auto Glass, 242
F.3d 179, 183 (4th Cir. 2001). Summary judgment is appropriate
when there is no genuine issue of material fact and the moving party
is entitled to judgment as a matter of law. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 247-48 (1986). A material fact is one "that might
affect the outcome of the suit under the governing law." Id. at 248.
A genuine issue of material fact only arises "if the evidence is such
that a reasonable jury could return a verdict for the non-moving
party." Id.

III.

A.

Before turning to the issues raised in this proceeding, it is impor-
tant to understand the pertinent legal principles governing an insurer’s
duty, under Maryland law, to defend its insured.4 In Maryland, a court
must, in assessing whether an insurer possesses a duty to defend its
insured, engage in a two-step inquiry. See St. Paul Fire & Marine Ins.
Co. v. Pryseski, 438 A.2d 282, 285-86 (Md. 1981). In this inquiry, the
court must first determine the extent of insurance coverage by review-
ing the policy’s terms, conditions, and requirements. Id. In making
this determination, the court is obliged to construe the insurance pol-
icy as it would an ordinary contract, according the policy’s terms their
"usual, ordinary, and accepted meaning," unless the parties intended
otherwise. Dutta v. State Farm Ins. Co., 769 A.2d 948, 957 (Md.
4
This lawsuit is proceeding in federal court as a diversity action, and
the parties agree that Maryland substantive law applies to the legal issues
raised.
 THE NORTHERN INS. CO. v. BALTIMORE BUSINESS COMMUNICATIONS 5
2001) (quoting Cheney v. Bell Nat’l Life Ins. Co., 556 A.2d 1135,
1138 (Md. 1989)).

After identifying the extent of coverage, the court proceeds to the
second aspect of the two-step Pryseski inquiry, determining whether
the allegations in the underlying proceeding "potentially bring the tort
claim within the policy’s coverage." Pryseski, 438 A.2d at 285. If
such a potentiality exists, the insurer is obliged to defend its insured.
To trigger the duty to defend, the underlying complaint must allege
a cause of action that is potentially covered by the policy, no matter
how "attenuated, frivolous, or illogical that allegation may be." Sheets
v. Brethren Mut. Ins. Co., 679 A.2d 540, 544 (Md. 1996). If a potenti-
ality for coverage exists, the insurer is obliged to defend its insured
even though the cause of action cannot possibly succeed, either in law
or in fact. Brohawn v. Transamerica Ins. Co., 347 A.2d 842, 850-51
(1975).

Importantly, an insured is entitled to present extrinsic evidence to
the court in support of the potentiality of coverage.5 Aetna Cas. &
Sur. Co. v. Cochran, 651 A.2d 859, 865-66 (Md. 1995). The reason
for this rule is straightforward. If a potentiality for coverage is estab-
lished, either by the complaint or by extrinsic evidence, the insured
5
Historically, Maryland followed the exclusive pleading rule, which
dictated that the potentiality for coverage was determined by reviewing
only the complaint (from the underlying action) and the policy. In the
1990’s, Maryland courts began to indicate that an insured can establish
a potentiality of coverage by relying on the underlying complaint or
"other sources available at the time defense is tendered." See, e.g., Har-
ford Cty. v. Harford Mut. Ins. Co., 610 A.2d 286, 295 n.6 (Md. 1992).
Since 1995, an insured has been entitled to submit "extrinsic evidence"
to establish that its insurer has a duty to defend. See, e.g., Aetna Cas. &
Sur. Co. v. Cochran, 651 A.2d 859 (Md. 1995).
Maryland courts have not defined the specific extent to which "extrin-
sic evidence" may be used in the context of an insurer’s duty to defend.
See, e.g., Chantel Assoc. v. Mount Vernon Fire Ins. Co., 656 A.2d 779,
784 (Md. 1995) (merely stating that "appropriate extrinsic evidence" is
admissible in duty to defend case). However, answers, affidavits, and
depositions appear to constitute permissible "extrinsic evidence." Lloyd
E. Mitchell, Inc. v. Md. Cas. Co., 595 A.2d 469 (Md. 1991); see Litz v.
State Farm Fire & Cas. Co., 695 A.2d 566, 570-71 (Md. 1997).
6 THE NORTHERN INS. CO. v. BALTIMORE BUSINESS COMMUNICATIONS
is entitled to the benefit of its bargain, i.e., the insurer must defend.
Id.; see also Brohawn, 347 A.2d at 851 (recognizing that liability
insurance policies protect insured from expense of defending law-
suits).

By contrast, if the allegations in an underlying complaint raise the
potentiality of coverage, the general rule is that the "insurer may not
introduce extrinsic evidence that would take the claim outside the pol-
icy’s coverage." Baltimore Gas & Elec. Co. v. Commercial Union Ins.
Co., 688 A.2d 496, 509 (Md. Ct. Spec. App. 1997); see also Univer-
sal Underwriters Ins. Co. v. Lowe, 761 A.2d 997, 1012 (Md. Ct. Spec.
App. 2000) (stating that insurer "may not use extrinsic evidence to
contest coverage under an insurance policy if the tort suit complaint
establishes a potentiality of coverage") (internal quotation marks
omitted). The rule against permitting the insurer to utilize extrinsic
evidence seems to serve several interests. Most notably, it precludes
the insurer from circumventing the potentiality rule by attempting to
litigate the merits of an underlying lawsuit in the coverage action; any
potentiality for coverage triggers the duty to defend.6

Significantly, Maryland recognizes two limited exceptions to the
general rule against an insurer’s use of extrinsic evidence. Id. at 510-
12; Lowe, 761 A.2d at 1012. First, when the underlying tort plaintiff
has amended his allegations against the insured, the insurer may uti-
lize the amendments as extrinsic evidence. Baltimore Gas, 688 A.2d
at 510. If the amended allegations no longer raise a potentiality for
coverage, the insurer no longer has a duty to defend. As a second
exception to the general rule, a court is not obligated to "turn a blind
eye where [it is established] that an insured tortfeasor is excluded
from coverage under [the] particular terms of the insurance policy."
Lowe, 761 A.2d at 1012. In other words, an insurer may utilize uncon-
troverted extrinsic evidence from the underlying lawsuit if such evi-
6
The limitation on extrinsic evidence also conserves judicial resources
by avoiding duplicative litigation. 7C John A. Appleman, Insurance Law
& Practice § 4686 (Walter F. Berdal ed., 1979). And it prevents an
insured from being forced to take a position adverse to its own interests,
i.e., that it is liable to the tort plaintiff in the underlying action. Baltimore
Gas, 688 A.2d at 510.
 THE NORTHERN INS. CO. v. BALTIMORE BUSINESS COMMUNICATIONS 7
dence clearly establishes that the suit’s allegations are beyond the
scope of coverage.

B.

With these legal principles in mind, we turn to the first step of the
Pryseski test, i.e., the identification of the scope of the Policy’s cover-
age. Several of the Policy’s provisions are relevant to this issue. Spe-
cifically, under the Policy, Northern Insurance agreed that it would
"pay those sums that the injured becomes legally obligated to pay as
damages because of ‘bodily injury’ . . . to which this insurance
applies." See, e.g., J.A. 229 (emphasis added). Further, Northern
Insurance possesses the "duty to defend any ‘suit’ seeking those dam-
ages." Id. The Policy limits coverage to situations where a "‘bodily
injury’ is caused by an ‘occurrence’ in the ‘coverage territory’ [and]
occurs during the policy period." Id. at 230. An "occurrence" is an
"accident, including continuous or repeated exposure to substantially
the same general harmful conditions." Id. at 241. With these Policy
provisions in mind, we must assess whether there is a potentiality that
the allegations of the Complaint are covered by the Policy.

C.

The Complaint specifically alleged that the defendants, including
Baltimore Business, "manufactured, supplied, promoted, sold, leased,
and provided service for [cell phones] when they knew or should have
known that their products generate and emit radio frequency radiation
. . . that causes an adverse cellular reaction and/or cellular dysfunction
through its adverse health effect[s]" on the body. Complaint at ¶ 1. It
further alleges that the biological injury caused by the cell phones
creates an increased health risk that the Pinney defendants (including
Baltimore Business) could have eliminated or significantly mitigated
by providing cell phone purchasers with headsets and appropriate
warnings. Id. at ¶ 77. For each cause of action arising out of these
common factual allegations, the Complaint sought, inter alia, "com-
pensatory damages including but not limited to amounts necessary to
purchase a [cell phone] headset . . . for each class member."7 Id. at
¶ 100.
7
The Complaint also sought reimbursement for class members who
had already purchased headsets; instructions for using headsets and a list
of advantages of such use; new cell phones with headsets for any class
member whose phone cannot be used with a headset; punitive damages;
costs, attorneys’ fees, and prejudgment interest.
8 THE NORTHERN INS. CO. v. BALTIMORE BUSINESS COMMUNICATIONS
On the basis of its allegations, the Complaint asserts a claim for
"damages because of bodily injury," as contemplated within the terms
of the Policy. First, in alleging that persons using cell phones without
headsets suffer from the radiation emitted by such phones, the Com-
plaint alleges a "bodily injury." The Maryland courts have uniformly
held that bodily injuries include those that occur at the minute, cellu-
lar level. See, e.g., Chantel Assocs. v. Mt. Vernon Fire Ins. Co., 656
A.2d 779, 884 (Md. 1995) (concluding that lead exposure causing
direct and indirect damage to cells, tissues, and organs constitutes
"bodily injury"); see also Lloyd E. Mitchell, Inc. v. Md. Cas. Co., 595
A.2d 469, 476-78 (Md. 1991) (holding that allegation involving
cellular-level bodily changes occurring after asbestos exposure consti-
tutes "bodily injury"). In sum, in claiming that the Pinney plaintiffs
suffered harm from radiation, the Complaint alleges a "bodily injury,"
as contemplated by the Policy.

Second, the allegations of the Complaint are sufficient to claim
"damages because of" bodily injury. On this point, Northern Insur-
ance asserts that the Pinney plaintiffs are seeking headsets to repair
an alleged defect in Baltimore Business’s own product and to limit
the potential risk of future injury. Thus, according to Northern Insur-
ance, the Pinney plaintiffs are not seeking "damages because of" bod-
ily injury. We are unable, however, under Maryland law, to read the
Complaint as Northern Insurance seeks to have it read. On the face
of the Complaint, the Pinney plaintiffs are seeking unspecified com-
pensatory damages flowing from their bodily injuries, i.e., harm suf-
fered from radiation. Baltimore Business could therefore be
potentially liable to the Pinney plaintiffs for any and all compensatory
damages recoverable under Maryland law, including damages for
already existing bodily injuries.8 Therefore, unless admissible extrin-
sic evidence negates the allegations in the Complaint, Northern Insur-
ance has a duty to defend Baltimore Business in the Pinney case. Litz
v. State Farm Fire & Cas. Co., 695 A.2d 566 (Md. 1997) ("[A]ny
8
Under Maryland law, compensatory damages are defined as those
"‘damages awarded to a person as compensation, indemnity, or restitu-
tion for harm sustained by him.’" Nast v. Lockett, 539 A.2d 1113, 1116
(Md. 1988) (quoting Black’s Law Dictionary 352 (5th ed. 1979)), over-
ruled on other grounds by Owens-Illinois, Inc. v. Zenobia, 601 A.2d 633
(Md. 1992).
 THE NORTHERN INS. CO. v. BALTIMORE BUSINESS COMMUNICATIONS 9
potentiality of coverage, no matter how slight, gives rise to a duty to
defend.").

D.

Northern Insurance asserts that, even if the Complaint triggers its
duty to defend, extrinsic evidence clearly shows that the allegations
in the Pinney case are beyond the Policy’s coverage. As mentioned
above, under Maryland law, an insurer is entitled, in contesting cover-
age, to utilize extrinsic evidence of: (1) an amendment to the underly-
ing complaint; or (2) uncontroverted evidence that clearly establishes
that there is no potentiality for coverage. The first of these exceptions
is inapplicable here, because the Complaint has not been amended to
eliminate its broad request for compensatory damages. Thus, the only
exception possibly applicable here is whether the uncontroverted
extrinsic evidence establishes that the Pinney plaintiffs are not seek-
ing "damages because of bodily injury."

In seeking to bring itself within the second exception to the general
rule against an insurer’s use of extrinsic evidence, Northern Insurance
points to one of the plaintiff’s filings in the Pinney case (the "Memo-
randum"). In that case, the defendants had sought dismissal of the
Complaint, asserting, inter alia, that the plaintiffs had failed to allege
the existence of a legally cognizable injury. In response, the Memo-
randum asserted that the plaintiffs were not seeking to redress any
personal injuries resulting from the use of cell phones, stating:

The [defendants] argument is based on the mistaken premise
that this case is a personal injury action seeking damages for
biological injury which has yet to symptomatically manifest
itself. However, [we] are not seeking compensation for any
personal injury suffered as a result of the use of cell phones.
Rather, [our] pecuniary injuries are limited to the defective
product itself. Plaintiffs’ claims for damages relate to the
need to repair or replace the portable wireless phones so as
to remedy Defendants’ failure to deliver a product that con-
forms with its contractual warranties and lives up to their
representations.

Memorandum at 7. On the basis of this argumentative submission by
their counsel, Northern Insurance contends that the Pinney plaintiffs
10 THE NORTHERN INS. CO. v. BALTIMORE BUSINESS COMMUNICATIONS
have conceded that they are not seeking "damages because of bodily
injury," and that the Complaint simply seeks to obtain headsets to
cure an allegedly defective product.

For at least two apparent reasons, Northern Insurance’s reliance on
the Memorandum, and its characterization of the allegations in the
Pinney case, fail to conclusively establish that the Pinney plaintiffs
have foresworn any claim for "damages because of bodily injury."
First, such legal memoranda, unlike pleadings or affidavits, do not
generally constitute binding judicial admissions.9 See Martel v. Staf-
ford, 992 F.2d 1244, 1248 (1st Cir. 1993) ("[U]nlike . . . trial court
pleadings, statements contained in briefs submitted by a party’s attor-
ney in one case cannot routinely be used in another case as evidenti-
ary admissions of the party." (citing Hardy v. Johns-Manville Sales
Corp., 851 F.2d 742, 745 (5th Cir. 1988)); Lockert v. Faulkner, 574
F. Supp. 606, 609 n.3 (N.D. Ind. 1983) (stating that memorandum in
support of motion does not constitute binding judicial admission).
Thus, we are unable to rely on the Memorandum to excuse Northern
Insurance’s duty to defend.

Second, if we accepted the Memorandum as binding, we would
nonetheless be obliged to read it as a whole, and other statements
made therein indicate that the Pinney plaintiffs, while not seeking tra-
ditional compensation, are in fact seeking relief designed to address
an already existing bodily injury. Indeed, the Memorandum makes it
apparent that the Pinney plaintiffs have reasserted the claims for relief
made in the Complaint. The Memorandum states: "[t]he complaint
seeks a remedy (a headset and appropriate warnings/instructions)
designed to eliminate the present and existing biological injury to
which the defendants have exposed users of their products and ser-
vices." Memorandum at 5 (emphasis added). Examined as a whole,
9
Maryland has neither approved nor specifically disapproved the use
of legal memoranda and briefs as extrinsic evidence in this context. Its
courts, however, have heretofore placed reliance on such materials as
answers, depositions, and affidavits, that traditionally bind a party in an
underlying action. See supra n.5. As a result, Maryland would likely
adhere to the general rule enunciated above, that legal memoranda and
briefs are not binding judicial admissions. We are thus unable to accord
the Memorandum the weight suggested by Northern Insurance.
 THE NORTHERN INS. CO. v. BALTIMORE BUSINESS COMMUNICATIONS 11
the Memorandum fails to eliminate the potentiality that Baltimore
Business could be liable to the Pinney plaintiffs for damages as a
result of bodily injury.10 In sum, the Pinney plaintiffs are seeking rem-
edies designed to eliminate already existing bodily injuries. While
their claims may lack merit, we are unable to state with certainty that
they do not seek "damages because of bodily injury." We must, in
these circumstances, resolve the duty to defend in favor of the
insured, Baltimore Business. See Zurich Ins. Co. v. Principal Mut.
Ins. Co., 761 A.2d 344, 348 (Md. Ct. Spec. App. 2000) ("Doubts as
to whether an allegation indicates the possibility of coverage should
be resolved in the insured’s favor.").11
10
Following briefing in this appeal, Northern Insurance submitted to
us, pursuant to the Rule 28 of the Federal Rules of Appellate Procedure,
two rulings from the Pinney case. In the first ruling, the district court
declined to remand the Pinney case to state court. In re Wireless Tele-
phone Radio Frequency Emissions Products Liability Litigation, 216
F.Supp. 2d 474 (D. Md. 2002) (the "Remand Decision"). In the Remand
Decision, the court concluded that the Pinney lawsuit did not involve a
traditional claim of compensation for personal injury. Instead, the court
characterized the Complaint as a "disguised attack on federal" safety reg-
ulations. In the second ruling, addressing a preemption issue, the court
again concluded that the Pinney plaintiffs "do not seek to compensate
personal injury in these suits," and that the Pinney plaintiffs are seeking
to overrule federal agency judgments regarding the safety of cell phones.
In re Wireless Telephone Radio Frequency Emissions Products Liability,
248 F.Supp. 2d 452 (D. Md. 2003) (the "Preemption Decision").
In both the Remand Decision and the Preemption Decision, the court
viewed the Complaint as a disguised attack on the adequacy of federal
regulations governing radiation emission levels, rather than as an action
seeking remedies for already existing injuries. As stated above, however,
the Pinney plaintiffs view the Complaint quite differently. Moreover, the
Pinney plaintiffs have appealed the Preemption Decision, and their
appeal is presently pending in this Court.
11
Northern Insurance has also presented us with alternative grounds for
affirmance. First, it asserts that the Policy excludes coverage for: (1)
damage to an insured’s product; (2) damage to the insured’s work in a
product; (3) damage to property arising from an insured’s product; and
(4) damage involving a product’s withdrawal or recall. The first three of
these exclusions relate to property damage, rather than bodily injury, and
are thus inapplicable. The fourth of these exclusions does not apply here
because the cell phones have neither been withdrawn nor recalled.
12 THE NORTHERN INS. CO. v. BALTIMORE BUSINESS COMMUNICATIONS
IV.

Pursuant to the foregoing, we vacate the summary judgment award
to Northern Insurance, and we remand for such further proceedings
as may be appropriate.

VACATED AND REMANDED

Second, Northern Insurance asserts that the Complaint fails to allege
an "occurrence" under the Policy. We must reject this contention. As
mentioned above, an "occurrence" is an "accident, including continuous
or related exposure to substantially the same general harmful condi-
tions." J.A. at 241. The Complaint alleges that the defendants negligently
sold cell phones that emit radiation, thereby exposing users to an injury.
Such a negligent act is clearly an occurrence. See Sheets, 679 A.2d at
548-59.