St. Paul Mercury Insurance Company v. American Bank Holdings, Inc. , 819 F.3d 728 ( 2016 )


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  •                                 PUBLISHED
    UNITED STATES COURT OF APPEALS
    FOR THE FOURTH CIRCUIT
    No. 15-1559
    ST. PAUL MERCURY INSURANCE COMPANY,
    Plaintiff - Appellee,
    v.
    AMERICAN BANK HOLDINGS, INC.,
    Defendant - Appellant,
    and
    AMIEL CUETO,
    Defendant.
    -------------------------
    UNITED POLICYHOLDERS,
    Amicus Supporting Appellant.
    Appeal from the United States District Court for the District of
    Maryland, at Greenbelt. Roger W. Titus, Senior District Judge.
    (8:09-cv-00961-RWT)
    Argued:    January 27, 2016                  Decided:   April 14, 2016
    Before TRAXLER, Chief Judge, and WILKINSON and NIEMEYER, Circuit
    Judges.
    Affirmed    by    published opinion.   Judge Niemeyer wrote the
    opinion,    in    which Chief Judge Traxler and Judge Wilkinson
    joined.
    ARGUED: Albert Joseph Mezzanotte, Jr., WHITEFORD, TAYLOR &
    PRESTON, L.L.P., Baltimore, Maryland, for Appellant.      Thomas
    James Judge, Jr., LOSS, JUDGE & WARD, LLP, Washington, D.C., for
    Appellee.   ON BRIEF: Dwight W. Stone, II, WHITEFORD, TAYLOR &
    PRESTON, L.L.P., Baltimore, Maryland, for Appellant.    Brent H.
    Olson, LOSS, JUDGE & WARD, LLP, Washington, D.C., for Appellee.
    Lorelie S. Masters, Christopher R. Healy, PERKINS COIE LLP,
    Washington, D.C.; Amy Bach, Dan Wade, UNITED POLICYHOLDERS, San
    Francisco, California, for Amicus Curiae.
    2
    NIEMEYER, Circuit Judge:
    On June 18, 2008, American Bank Holdings, Inc., was served
    with a complaint and summons that issued from a state court in
    Belleville,        Illinois.         Because     of       an    internal      oversight,
    however, American Bank did not respond to the summons, and the
    court,   on     July      23,   2008,    entered      a    $98.5    million      default
    judgment against it.              Some eight months after receipt of the
    summons,      on   February       25,   2009,    American        Bank   notified       its
    insurance company          -- St. Paul Mercury Insurance Company -- of
    the lawsuit, and St. Paul Insurance denied coverage due to the
    late notice.         American Bank was thereafter able to have the
    default judgment vacated and the lawsuit dismissed, but at an
    expense of some $1.8 million.
    In this action, which St. Paul Insurance filed to obtain a
    declaratory judgment that it had no duty to pay for American
    Bank’s     defense,       American      Bank    filed      a    counterclaim     for    a
    declaratory judgment that it was indeed owed reimbursement for
    its defense and for damages based on the amount of attorneys
    fees and costs incurred both in the underlying action and in
    this action.
    On the parties’ cross motions for summary judgment, the
    district court entered judgment for St. Paul Insurance.                            Among
    other things, the court concluded that because American Bank did
    not   provide       St.    Paul    Insurance       with        notice   “as    soon    as
    3
    practicable,” as required by the terms of its insurance policy,
    and because the late notice caused St. Paul Insurance prejudice,
    St. Paul Insurance was within its right to deny coverage.                                    We
    affirm.
    I
    On    June       11,    2008,    Amiel     Cueto,    a   disbarred          lawyer    and
    convicted felon who was acting pro se, filed an action in the
    St. Clair County Circuit Court in Belleville, Illinois, against
    American        Bank    and    10     other    defendants,       alleging         that     they
    fraudulently failed to fund his $8 million sale of real property
    to Lester J. Petty and Associates, Inc., causing the deal to
    collapse.        The complaint sought both compensatory and punitive
    damages.         Both    American       Bank     and     St.   Paul    Insurance         agree,
    however,        that    American      Bank,    as    a    holding     company,       did    not
    engage     in    any    lending       business      as   alleged      and    that,    in    any
    event, it conducted no business in Illinois.                           Indeed, American
    Bank, based in Maryland, asserts that it had nothing to do with
    the   Illinois         transaction       and       suggests     that        the    suit     was
    frivolous, if not fraudulent.
    The complaint against American Bank and the summons were
    served on June 18, 2008, on CT Corporation as the agent of
    American Bank for receiving service of process in Maryland.                                 The
    next day, CT Corp. transmitted the papers to American Bank’s
    office in Greenbelt, Maryland, addressed to American Bank’s CFO,
    4
    in     accordance   with     the    standing       instructions        that   it     had
    received from American Bank.             As of that time, however, American
    Bank’s CFO had left the employ of American Bank.                       An officer of
    an American Bank subsidiary subsequently came across the papers
    and forwarded them to American Bank’s local lawyer in late July
    2008.     But the lawyer claimed that he never received them.                        When
    American    Bank    failed    to       respond    to   the    Cueto     suit,      Cueto
    obtained a default judgment on July 23, 2008, in the amount of
    $7,390,855.10       in     compensatory          damages,      $66,517,695.90         in
    punitive damages, and $24,636,183.65 in attorneys fees, for a
    total of $98,544,734.65.
    More than six months later, Cueto began efforts to collect
    on the default judgment in Maryland and elsewhere, sending the
    relevant court papers to American Bank. American Bank received
    them    around   February     13,      2009,     and   thereafter      notified      its
    insurance    broker,      providing       the    broker      with   copies      of   the
    papers.     The broker in turn notified St. Paul Insurance by email
    on February 25, 2009.            This was the first point at which St.
    Paul    Insurance   had    any     knowledge      of   the    Cueto    lawsuit,      the
    default judgment, or the collection efforts.                   St. Paul Insurance
    acknowledged     receiving       the    papers    on   February       26,   2009,    and
    explained that it “retain[ed] the right to raise any and all
    coverage issues and to assert appropriate coverage defenses that
    may apply during the course of our investigation.”
    5
    American Bank’s general counsel Erik Bolog called St. Paul
    Insurance’s claims counsel, Christopher Nelson, the next day, on
    February   27,      2009.     During   the   telephone      call,   Bolog   asked
    Nelson   “if   we    were    covered   for   this,”   and    Nelson   responded
    “yes.”     During      the   ensuing   investigation     of    the    claim   and
    coverage for it, Nelson prepared draft letters dated March 13
    and March 16, 2009, stating St. Paul Insurance’s position and
    confirming that the Cueto complaint “involve[d] a Lending Act,”
    for which the policy provides coverage, but “reserv[ing] the
    right to deny coverage due to late notice.”                 On April 15, 2009,
    St. Paul Insurance formally notified American Bank that St. Paul
    Insurance was denying coverage due to a lack of timely notice.
    The letter stated:
    I have reviewed the Lawsuit and the Policy in order to
    determine whether coverage is afforded.    As we have
    discussed, I regret to inform you that [St. Paul
    Insurance] must decline coverage for this matter.   As
    you know, the Policy provides:
    The Insureds shall, as a condition precedent
    to their rights under this Policy, give to
    the Insurer written notice of any Claim made
    against the Insureds as soon as practicable,
    but in no event later than: (a) sixty (60)
    days after expiration of the Policy Year in
    which the Claim was first made . . . .
    *     *    *
    Clearly, notice was not given to [St. Paul Insurance]
    within the time provided for in the Policy and [St.
    Paul Insurance] therefore must decline coverage on
    this basis.    In addition to the Bank’s failure to
    comply with the Policy’s condition precedent to
    6
    coverage,   the  Bank’s   action,                 or         inaction,       has
    prejudiced [St. Paul Insurance].
    Before even notifying St. Paul Insurance of the Cueto suit,
    American Bank retained the law firm of Bryan Cave in St. Louis,
    Missouri, which filed unsuccessful motions in the Illinois state
    court   to    vacate      the     default   judgment        and    dismiss       the    Cueto
    lawsuit.      After American Bank then retained the Chicago firm of
    Sidley Austin to oversee appeals, an Illinois state appellate
    court     held     that     the     trial    court     did        not    have     personal
    jurisdiction over American Bank and accordingly dismissed the
    Cueto     suit,    a   ruling       that    Cueto     did     not       appeal    further.
    American Bank estimated that it spent approximately $1.8 million
    in its efforts to resist enforcement of the default judgment and
    have the Cueto lawsuit dismissed.
    During the course of the proceedings in Illinois, on June
    1, 2009, Cueto sent a demand letter to American Bank, seeking a
    settlement of his claims in exchange for payment of $10 million.
    American Bank passed the letter on to St. Paul Insurance and
    demanded that St. Paul Insurance settle the claim for an amount
    “within      the   policy       limits.”        St.   Paul        Insurance,      however,
    repeated its denial of coverage.                  American Bank never accepted
    Cueto’s settlement, instead pursuing its efforts to have the
    default judgment overturned in court.
    7
    St. Paul Insurance commenced this action for a declaratory
    judgment that it had no duty to provide coverage to American
    Bank   because     American    Bank    failed     to    provide     it   with   timely
    notice of the Cueto suit, as required by the policy.                            By an
    amended complaint, it also contended that American Bank breached
    its duty under the policy to defend the Cueto suit upon being
    served   with     it.    American      Bank     filed    a   counterclaim       for    a
    declaratory       judgment    that    it    indeed     had   coverage     under     the
    policy and for damages for reimbursement of its attorneys fees
    and costs.      In its counterclaim, American Bank advanced theories
    of coverage based on waiver and estoppel.                    It also asserted a
    statutory claim under Maryland law for a lack of good faith in
    denying insurance coverage.
    On the parties’ cross motions for summary judgment, the
    district court granted judgment to St. Paul Insurance and denied
    American Bank’s motion.              It concluded that American Bank had
    provided late notice of Cueto’s suit and that St. Paul Insurance
    had suffered prejudice as a result.                     It also concluded that
    American Bank breached its duty timely to defend the suit, also
    resulting    in    prejudice    to    St.      Paul    Insurance.        Finally,     it
    rejected American Bank’s claims of coverage based on waiver and
    estoppel and its claim based on St. Paul Insurance’s lack of
    good faith in denying coverage.
    8
    From    the    district        court’s       judgment,      American       Bank    filed
    this appeal, contending (1) that it provided timely notice to
    St.   Paul    Insurance;        (2)    that     it   complied          with    its     duty   to
    defend;      and    (3)   that       material      factual       disputes       remain    with
    respect      to     its   waiver,        estoppel,         and     bad        faith    claims,
    precluding the entry of summary judgment against it.
    II
    American Bank contends first that, contrary to the district
    court’s     holding,      it    provided      St.    Paul    Insurance          with    timely
    notice of the suit because it provided St. Paul Insurance with
    notice within days of when it first learned of the suit around
    February 13, 2009.             As American Bank argues, its “obligation to
    notify St. Paul was not triggered until it had actual knowledge
    of the Cueto action, shortly after February 12, 2009.                                 Measured
    from that time, [its] notice was not late.”                             (Emphasis added).
    It argues further that the policy does not support the district
    court’s ruling that “constructive notice via service of process
    on    the     insured’s         registered         agent     [on        June     18,     2008]
    constitute[d]       actual      notice    for       purposes      of     triggering      [its]
    obligation to notify St. Paul of a claim.”                         Finally, it reasons
    that “common sense dictates that there can be no obligation to
    notify      St.    Paul   of     a    claim     until      the    insured        has    actual
    knowledge of it.”
    9
    In   making       this     lack-of-actual-notice             argument,    American
    Bank fails to provide textual support based on the terms of the
    St. Paul Insurance policy.               Indeed, the term “actual knowledge”
    is foreign to the notice provision contained in the policy.                           The
    policy provision reads:
    The Insureds shall, as a condition precedent to their
    rights under this Policy, give to the Insurer written
    notice of any Claim made against the Insureds as soon
    as practicable, but in no event later than: (a) sixty
    (60) days after expiration of the Policy Year in which
    the Claim was first made . . . .
    (Emphasis added).        The term “Claim” as used in the provision is
    defined   to    include,       as    relevant     here,      “a     civil   proceeding
    against any Insured commenced by the service of a complaint or
    similar pleading.”            (Emphasis added).         Thus, according to the
    policy,   the   requirement         to   give    notice      is    triggered    not    by
    “actual knowledge” of a claim, but by “service of a complaint”
    upon the insured.        The two, however, are effectively the same in
    the circumstances presented in this case.
    Here,     there    is     no   dispute     that   the   Cueto     complaint      was
    served on CT Corp. on June 18, 2008, and that CT Corp. was
    American Bank’s designated resident agent for receiving service
    of   process.          Under     Maryland       law,   every       corporation     must
    designate a resident agent to receive service of process.                             See
    Md. Code Ann., Corps. & Ass’ns § 2-108(a)(2).                      Maryland law also
    provides that “[s]ervice of process on the resident agent . . .
    10
    constitutes       effective      service          of   process      .     .    .     on    the
    corporation.”        Id. § 1-401(a).              Thus, service on CT Corp. on
    June 18, 2008, effected service on American Bank, triggering
    American Bank’s duty to notify St. Paul Insurance “as soon as
    practicable” thereafter.
    While the insurance policy does not use the term “actual
    knowledge” to trigger the notice requirement, American Bank was
    nonetheless       also   imputed,    as       a    matter    of     law,      with    actual
    knowledge as of June 18, 2008, under established principles of
    Maryland agency law.            Because a corporation is a fiction that
    can   have    knowledge    only    through         its    agents,    knowledge        of   an
    agent acquired within the scope of the agency relationship is
    imputable to the corporation.                 See Plitt v. Kellam, 
    160 A.2d 615
    , 619 n.4 (Md. 1960) (“The knowledge [of the agent that is]
    imputed      to   the    principal       is       considered       actual       knowledge”
    (emphasis     added));    see     also    Martin         Marietta    Corp.      v.    Gould,
    Inc., 
    70 F.3d 768
    , 773 (4th Cir. 1995) (“Thus, under the rule of
    imputation the principal is chargeable with the knowledge the
    agent has acquired, whether the agent communicates it or not”
    (applying Maryland law)).            As such, on June 18, 2008, when CT
    Corp. was served with process in the Cueto case -- process that
    was   physically     transmitted     to       American      Bank    the       next   day   --
    American Bank, as a corporation, had “actual knowledge” of the
    lawsuit.      Thus, while we reject the premise of American Bank’s
    11
    argument that it was required by the policy to give notice only
    after it received “actual knowledge” of the suit, we nonetheless
    conclude that, as a matter of law, American Bank received actual
    knowledge of the suit on June 18, 2008, when its authorized
    agent, CT Corp., was served with process.
    American Bank seeks to avoid these conclusions by claiming
    that the suit papers, which were addressed and delivered to the
    desk of its CFO, were not effectively served on it because, as
    of that time, its CFO had departed from its employ.                   But this
    argument overlooks the fact that the papers were delivered to
    American Bank by CT Corp. in the manner that American Bank had
    previously instructed.       The most that American Bank’s argument
    accomplishes is to reveal the fact that the suit papers were not
    routed internally so as to get promptly into the hands of its
    counsel.     As the district court found, “through a variety of
    corporate screw-ups, significant suit papers that should have
    gotten   immediate   attention      didn’t.”     But   internal      “corporate
    screw-ups” provide no basis to excuse American Bank’s failure to
    give St. Paul Insurance timely notice of the Cueto suit after
    being validly served with process.
    Alternatively,     American    Bank   contends   that,    in   providing
    St.   Paul   Insurance    with   notice     on   February      25,   2009,   it
    effectively satisfied the policy’s notice provision because the
    policy authorizes a notice either “as soon as practicable” or by
    12
    60 days after the expiration of the policy year on October 1,
    2008,   i.e.,     by    November    29,   2008.      Focusing      on   the    second
    option, it argues that its failure to satisfy the November 29
    deadline was of no legal moment because, by then, the July 2008
    default judgment had already been entered, making the difference
    between a “timely” notice by November 29, 2008, and notice on
    February 25, 2009, insignificant, as St. Paul Insurance could
    not have suffered prejudice, as required by Maryland law, if its
    position would have been the same on November 29, 2008, and
    February 25, 2009.
    This argument, however, rests on a misreading of the notice
    provision contained in the policy.              While American Bank suggests
    that the notice provision gives it two alternative deadlines for
    providing notice -- either “as soon as practicable” or “sixty
    (60)    days     after      expiration    of   the    Policy     Year”    --     this
    interpretation         is   not   supported    by    the   text.        The    notice
    provision reads, “The Insureds shall . . . give to the Insurer
    written notice of any Claim . . . as soon as practicable, but in
    no event later than . . . sixty (60) days after expiration of
    the    Policy    Year.”       (Emphasis    added).         The   policy’s      notice
    provision thus defines a single deadline for providing notice,
    i.e.,   “as     soon   as   practicable,”      and   the   required     notice    can
    never be later than 60 days after the expiration of the policy
    year.    This is indicated by the language, “but in no event later
    13
    than.”     In short, American Bank had a continuing duty to provide
    notice    as     soon   as    practicable,          so   long     as    the     as-soon-as-
    practicable notice did not come later than 60 days after the
    policy term, and it failed to comply with that duty here.
    American Bank argues against this interpretation further by
    contending       that   St.      Paul    Insurance        never    took       the    single-
    deadline    position       as    its     own    until     its    reply    brief      at     the
    summary    judgment      stage,        suggesting        that    St.     Paul      Insurance
    forfeited the argument.             The record, however, does not support
    American Bank’s assertion.               In its complaint, St. Paul Insurance
    quoted     the    policy        provision       requiring       notice        as    soon    as
    practicable.       It then alleged that, because that provision was
    not complied with, the condition precedent to coverage was not
    satisfied.        And   again,      in    its       opening     brief    in     support     of
    summary judgment, St. Paul Insurance quoted the policy provision
    and argued, “Had St. Paul been provided with notice as soon as
    practicable,      it    could     have    ensured        that   defense       counsel       was
    properly    retained      and     timely       filed     an   appropriate          motion    to
    dismiss for lack of personal jurisdiction.”                            (Emphasis added).
    Then, during oral argument before the district court, counsel
    for St. Paul Insurance again stated:
    With respect to late notice, that’s the second duty
    that was breached by [American Bank].       Under the
    notice provision, they have to provide notice as soon
    as practicable.   And under case law back in 2009 and
    case law now, the as-soon-as-practicable provision has
    14
    always, generally in most states, [required] proof of
    prejudice, whereas the latter part of the notice
    provision, where it says notice within sixty days of
    the expiration of the policy has been considered a
    claims-made   provision  that  has  to   be  enforced
    strictly.   [American Bank] did not provide notice as
    soon as practicable.
    (Emphasis     added).       In   ruling      on     the    motions     for     summary
    judgment, moreover, the district court relied only on the “as
    soon as practicable” language to define the notice requirement,
    analyzing    it    in   conjunction    with       American    Bank’s     contractual
    duty to defend.          It concluded that “as soon as practicable”
    meant in sufficient time to file a response in court on behalf
    of American Bank “within the time set by the Illinois court
    system for responding to lawsuits,” in this case, 30 days after
    service.      American     Bank’s     argument      that     St.   Paul      Insurance
    forfeited its argument for a single deadline simply cannot be
    maintained.
    In any event, notwithstanding American Bank’s efforts to
    constrict    St.    Paul   Insurance’s       position      with    its    forfeiture
    argument and thereby limit the scope of our review, our ultimate
    task is to review the district court’s judgment and the relevant
    policy language on which the judgment was based.                       The district
    court held that American Bank failed to provide notice as soon
    as practicable, and the policy supports that ruling, describing,
    as   we    hold,    a   single   as-soon-as-practicable              deadline     for
    providing notice, so long as the notice is not more than 60 days
    15
    after    the    policy      term.       The    defining     characteristic        of    that
    notice obligation is notice given “as soon as practicable.”
    In sum, when American Bank was served with the complaint
    and summons in the Cueto suit on June 18, 2008, its duty to
    notify    St.       Paul    Insurance      was      triggered.      Yet,     it   did       not
    provide St. Paul Insurance with notice until eight months later,
    on February 25, 2009.             No one can credibly argue that that lapse
    of time was “as soon as practicable.”                        As a result, American
    Bank’s notice to St. Paul Insurance was not timely.
    American Bank maintains correctly, however, that even if it
    failed to provide notice as soon as practicable, Maryland law
    still    requires          that   St.    Paul       Insurance      “establish[]        by     a
    preponderance of the evidence that the lack of . . . notice has
    resulted in actual prejudice to [it].”                           
    Md. Code Ann., Ins. § 19-110
     (emphasis added).                 The Maryland Court of Appeals has
    recognized that “[i]t is very difficult to fashion a workable
    ‘one    size        fits   all’     standard”        to   define    actual    prejudice.
    Allstate Ins. Co. v. State Farm Mut. Auto. Ins. Co., 
    767 A.2d 831
    , 841 (Md. 2001).                 But under the facts before it, which
    involved       an    insured’s      lack      of    cooperation     rather    than      late
    notice, the Maryland Court of Appeals interpreted § 19-110’s
    prejudice requirement to hold that the insurer suffered actual
    prejudice when “there was a credible defense to be presented and
    16
    . . . [the insured’s] non-cooperation precluded State Farm from
    even presenting that defense.”                 Id. at 844.
    In this case, the district court concluded that American
    Bank’s late notice precluded St. Paul Insurance from exercising
    its contractual rights, as stated in the policy, to participate
    in     American      Bank’s     defense          and      advance     credible    defense
    strategies       before      the      default        judgment       was    entered.       It
    explained:
    Had the insured not breached its obligation [to give
    timely notice and] to defend, this would have been a
    relatively trivial matter [based on a lack of personal
    jurisdiction] and, by any standards -- with apologies
    to Potter Stewart, I know it when I see it -- this is
    prejudice.
    Even   though      American        Bank      had    the   contractual      duty    to
    provide its own defense, for which it would, under the policy,
    be    reimbursed     by   St.      Paul    Insurance,        the     policy   nonetheless
    provides that St. Paul Insurance “shall have the right and shall
    be    given   the    opportunity        to     effectively       associate      with,    and
    shall be consulted in advance by, [American Bank] regarding:
    (a)     the     selection       of      appropriate          defense       counsel;      (b)
    substantive       defense     strategies,           including       decisions    regarding
    the    filing       and   content         of     substantive         motions;    and     (c)
    settlement negotiations.”                 (Emphasis added).               American Bank’s
    late    notice      denied      St.    Paul         Insurance      the    opportunity    to
    participate in the selection of counsel, to speak with counsel,
    17
    and    to    discuss    credible        defense         strategies       for     dismissing
    Cueto’s suit before the default judgment.                             St. Paul Insurance
    was also denied the opportunity to involve itself in considering
    the possibility of settlement negotiations with Cueto prior to
    the    default     judgment       and   prior      to     the    expenditure       of    $1.8
    million incurred by American Bank to vacate it.                                When a late
    notice      precludes        an    insurer         from      exercising          meaningful
    contractual rights provided to it by the policy -- in this case,
    all the contractual rights -- we agree with the district court
    that the insurer has suffered actual prejudice.
    Accordingly,     we        affirm     the      district         court’s    judgment
    concluding that St. Paul Insurance was entitled, by reason of
    late notice, to deny insurance coverage to American Bank for the
    Cueto suit.        Because we conclude that American Bank’s notice was
    untimely     and    caused    prejudice,         we   need      not    address    St.    Paul
    Insurance’s alternative argument that American Bank should also
    be    denied   coverage      because       it    breached       its     contractual      duty
    timely to defend the Cueto action.
    III
    American Bank also contends that St. Paul Insurance waived
    or    is    estopped    from      asserting        its     late-notice         defense    to
    coverage and that the district court erred in granting St. Paul
    Insurance summary judgment with respect to these arguments.                               It
    18
    relies    mainly      on   a   telephone      conversation        initiated       by    its
    general counsel, Erik Bolog, with St. Paul Insurance’s claims
    counsel, Christopher Nelson, on February 27, 2009, during which
    Nelson     stated,      according       to    American     Bank,      that      insurance
    coverage existed for the Cueto suit.                    American Bank claims that
    it   relied      on   this     representation       “in       deciding     to   continue
    litigating the Cueto Action, whereas it would have pursued early
    settlement if St. Paul had instead declined coverage.”
    The    district       court,      relying     on   the    absence     of   evidence
    showing     that      American    Bank       changed     its    position,       rejected
    American Bank’s arguments, stating, “I don’t see any basis on
    this summary judgment record, with all of the inferences given
    in favor of American Bank Holdings, that there was any change of
    position in reliance upon that or any prejudice to American Bank
    Holdings to the extent that I credit the notion that someone
    said, ‘You’re covered,’ and then changed their mind.”                           We agree
    with the court’s conclusion for multiple reasons.
    With respect to waiver, the record facts do not support any
    finding of an intentional waiver by St. Paul Insurance of its
    late-notice      defense.        The    record     shows      that   American     Bank’s
    insurance broker forwarded the Cueto suit papers by email to St.
    Paul Insurance on February 25, 2009, telling St. Paul Insurance
    that American Bank was “no[t] involved or related to any of the
    entities    or     individuals      that     are   listed.”          The   broker      also
    19
    advised St. Paul Insurance that American Bank had hired the law
    firm of Bryan Cave in St. Louis to represent it.                       Responding the
    next day, February 26, St. Paul Insurance acknowledged receipt
    of the email, stating that it “retain[ed] the right to raise any
    and   all     coverage     issues   and     to       assert   appropriate       coverage
    defenses that may apply during the course of our investigation.”
    On the following day, February 27, 2009, American Bank’s
    general counsel Bolog called St. Paul Insurance’s claims counsel
    Nelson to discuss the suit.              As of that time, American Bank had
    already retained Bryan Cave to represent it in the Cueto suit,
    and Bryan Cave had already filed a motion on American Bank’s
    behalf to      vacate      the   $98.5   million       default      judgment.     Bolog
    stated   in    his   deposition      that       he   called    because   of     the   big
    problem he had, especially because the judgment was so large and
    the suit was so frivolous.               In this context, he asked whether
    American      Bank   was    “covered      for    this,”       and   Nelson    responded
    “yes.”      Taken in context, this statement related to whether the
    type of claim described by Bolog would fall under the policy and
    did not respond or even relate to a late-notice question.                             The
    conversation, according to Bolog, went as follows:
    My recollection of the call with Mr. Nelson was that I
    called him and told him we had a problem. It was a 98
    million-dollar judgment against us.
    The judgment was in my mind disturbing for numerous
    factors, most importantly being that [American Bank]
    had never done any business whatsoever in Illinois,
    20
    had no relationship whatsoever to the transaction,
    which was part of the underlying claim, that somehow a
    by now I know convicted felon who had done 7 and a
    half years for fraud and other related issues upon a
    court had obtained a 98 million-dollar judgment
    against [American Bank] for something [American Bank]
    had no involvement in nor did [American Bank’s
    subsidiary] for that matter have any involvement in,
    that the judgment on its face was certainly corrupt,
    that somehow 66 million dollars in punitive damages
    had been awarded into a trust on behalf of St. Clair
    County, and this judge allowed this person who had
    been disbarred and spent 7 and a half years in prison
    for frauds upon the court to be the trustee, to be
    able to use those funds for whatever purpose he so
    chose, including settling the compensatory part of the
    claim, and then awarded 30 some-odd million dollars in
    legal fees to a law firm that entered its appearance
    the day after the judgment had been entered. I found
    all that to be disturbing to say the least.
    Then I’ve learned of course that the plaintiff was a
    former trial lawyer who was a convicted felon.       I
    advised him that this felon’s brother was the chief
    judge of this court, that the associate judge,
    Gleeeson, who was the judge that signed this order,
    somehow needed the approval of the brother to become a
    tenured judge, and that from all accounts from
    newspapers and all the information I could gather, St.
    Clair County, Illinois, was known as a judicial
    cesspool and that questionable judgments and verdicts
    happened there on a regular basis.
    I asked him if we were covered for this.      He said,
    yes.   He did not equivocate.    He did not say, we’re
    taking a look at it.    I have no recollection of any
    type of ambivalence in his position.
    (Emphasis added).    Remarkably, this conversation did not include
    any discussion of notice, nor did it indicate that St. Paul
    Insurance   was   waiving   any   late-notice   defense.   Indeed,   the
    record makes clear that St. Paul Insurance intended to preserve
    a late-notice defense, as further evidenced during the next two
    21
    weeks, when it drafted at least two letters stating that as its
    position.     In   each    draft,      it    recited     the    facts    and     then
    explained,   “Although     it   appears       that     the   Claim     involves    a
    Lending Act [for which Lender Liability Coverage was afforded by
    the policy], it is not clear whether notice was given to [St.
    Paul Insurance] as soon as practicable.                  [St. Paul Insurance]
    reserves the right to deny coverage due to late notice.”                           On
    April 15, 2009, at the conclusion of its investigation, St. Paul
    Insurance sent American Bank a letter formally denying coverage
    for a lack of timely notice.
    In this context, there was no waiver of the late-notice
    defense.     Maryland     Law   requires       that    waiver    be     “an   actual
    intention    to    relinquish     an        existing    right,        benefit,     or
    advantage, with knowledge, either actual or constructive, of its
    existence, or such conduct as to warrant an inference of such
    intention to relinquish.”       Creveling v. GEICO, 
    828 A.2d 229
    , 243
    (Md. 2003) (emphasis added) (internal quotation marks omitted)
    (quoting GEICO v. Grp. Hosp. Med. Servs., 
    589 A.2d 464
    , 466 (Md.
    1991)).
    If Bolog’s testimony is accurate -- and, at this stage we
    assume that it is -- it appears that Nelson’s affirmation of
    coverage was referring to no more than the nature of the claim
    as a Lending Act and the Lender Liability Coverage provided by
    the policy, as noted in Nelson's draft letters.                       In no manner
    22
    could Nelson’s response be construed as an actual intention to
    waive the late-notice defense.                  And there is no basis to infer
    waiver     from       Nelson’s    conduct.        Moreover,        because     St.   Paul
    Insurance had the suit papers for only a day, it would not be
    reasonable to conclude that it had conducted an investigation
    and intentionally decided in the conversation on February 27,
    2009, to waive any late-notice defense.
    American Bank also relies on a telephone conversation on
    March 16, 2009, in which St. Paul Insurance’s claims counsel
    allegedly told American Bank representatives that American Bank
    could not settle the Cueto suit without St. Paul Insurance’s
    consent,        allegedly       implying     coverage.            But,   again,      that
    conversation did not relate to the late-notice issue, nor did it
    in any way indicate a waiver of the notice requirement.                           To the
    contrary, at the time the statement was made, St. Paul Insurance
    was     still     considering       whether      to     provide     coverage    with   a
    reservation of rights to deny coverage due to late notice, as
    indicated in the draft letters dated March 13 and March 16,
    2009.      While       St.   Paul   Insurance         ultimately    decided     to   deny
    coverage,       the    record    facts     do    not,    to   any    extent,     support
    American Bank’s claim that this March 16 conversation manifested
    St. Paul Insurance’s intent to waive its right to assert a late-
    notice defense to coverage.
    23
    The same record facts also require rejection of American
    Bank’s estoppel argument.              Under Maryland law, “[o]ne asserting
    the benefit of an estoppel must have been misled to his injury
    and have changed his position for the worse.”                          Rubinstein v.
    Jefferson      Nat’l    Life    Ins.     Co.,    
    302 A.2d 49
    ,    52   (Md.    1973)
    (emphasis added).           We again see no evidence in the record that
    would permit a reasonable jury to conclude that American Bank
    actually changed its position for the worse in reliance on its
    conversations with St. Paul Insurance representatives.
    American Bank contends that, had it known that St. Paul
    Insurance      would    deny    coverage       in    April   2009,    it   would    have
    sought a settlement, mediation, or other resolution of the Cueto
    suit in February or March 2009.                     But no reasonable jury could
    credit such claims.             Indeed, Bolog’s conversation with Nelson
    and American Bank’s early retention of Bryan Cave suggest that,
    based    on    its     assessment      that      the   suit    was     frivolous      and
    apparently corrupt, American Bank was not thinking of settlement
    or an alternative dispute resolution at all.                       Moreover, there is
    no evidence that if it had sought a settlement, it would have
    received a more favorable outcome than it actually received --
    i.e., vacating the default judgment and dismissing the case at a
    cost    of    some   $1.8     million.      In      fact,    the    only   evidence    of
    settlement was Cueto’s later offer to settle for $10 million,
    which    American      Bank    refused    to     accept.       In    short,   American
    24
    Bank’s       estoppel    argument        amounts       to    pure     speculation.                See
    Creveling, 828 A.2d at 247 (refusing to find an estoppel when
    the   “prejudice        or   detrimental         reliance      suffered         . .      .    [was]
    purely speculative”).
    We   therefore       conclude         that    the    district         court      properly
    rejected American Bank’s waiver and estoppel arguments.
    IV
    Finally,   American         Bank      contends      that     St.      Paul      Insurance
    failed to act in good faith in denying coverage for the Cueto
    claim, in violation of Maryland statutory law.                                  See 
    Md. Code Ann., Cts. & Jud. Proc. § 3-1701
    .                      We conclude that this claim
    was properly dismissed.
    Section 3-1701(d)(1)(i) provides that the statutory claim
    for failure to act in good faith applies to civil actions in
    which    the    insured      seeks       a    determination         of   whether         coverage
    actually       exists    under      an       insurance      policy,      and       §    3-1701(e)
    requires a finding “in favor of the insured” on that coverage
    question.       See 
    Md. Code Ann., Cts. & Jud. Proc. §§ 3-1701
    (d), 3-
    1701(e).       In view of our ruling that the district court did not
    err     in    concluding      that       American      Bank    failed         to       satisfy     a
    condition       precedent      of    coverage         by    failing        to    give        timely
    notice, American Bank cannot satisfy the statutory requirement
    under    §    3-1701(e)      that    there       be   a     finding      in     favor        of   the
    25
    insured that coverage actually existed.   We therefore affirm the
    district court’s summary judgment on this claim.
    *   *    *
    For the reasons given, the judgment of the district court
    is
    AFFIRMED.
    26
    

Document Info

Docket Number: 15-1559

Citation Numbers: 819 F.3d 728

Filed Date: 4/14/2016

Precedential Status: Precedential

Modified Date: 1/12/2023