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Academy of Hair Design v. Commercial Union
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MAINE SUPREME JUDICIAL COURT					Reporter of Decisions
Decision:	1997 ME 188
Docket:	Cum-96-435
Argued:	March 5, 1997
Decided:	August 12, 1997

PANEL:	WATHEN, C.J., and ROBERTS, GLASSMAN, CLIFFORD, RUDMAN, DANA and
		LIPEZ, JJ.



MAINE STATE ACADEMY OF HAIR DESIGN, INC., et al. v. COMMERCIAL UNION INSURANCE COMPANY, et al.


DANA, J.
	
	[¶1]  Maine State Academy of Hair Design, Inc. (MSAHD), Jeffrey
Saleeby, and William Malloy (collectively the Academy) appeal from the
summary judgment entered in the Superior Court (Cumberland County,
Saufley, J.)  in favor of Commercial Union Insurance Company on all five
counts of the Academy's complaint seeking to have Commercial Union
declared responsible to defend and indemnify the Academy in the actions
brought against it by Amber Martin.  The Academy argues the court erred in
granting summary judgment because, contrary to the court's conclusion,
there exists at least the potential that Martin's claims are covered by the
Academy's insurance policy issued by Commercial Union.  We agree and
vacate the judgment in part.
	[¶2]   In her underlying action in the Superior Court Martin alleges
the following:  She was an employee of MSAHD for about ten years prior to
being fired in April 1993.  Jeffrey Saleeby was the president of MSAHD at all
times relevant to her claims, and William Malloy was the operations
manager.  During the course of her employment Saleeby and Malloy made
comments and carried out acts of a sexual nature toward her and others
associated with MSAHD.  Such conduct was unsolicited and unwelcome,
hindered her job performance, and created an offensive work environment. 
Martin was fired two days after she told a supervisor she was considering
bringing charges of sexual harassment.
	[¶3]  Martin further alleges the Academy 1) violated her rights under
the Maine Human Rights Act by subjecting her to a hostile work
environment, terminating her employment, and depriving her of
employment, wages, and benefits on a sexually discriminatory basis; 2)
negligently and intentionally discriminated against her in the terms and
conditions of employment on a sexually discriminatory basis; 3) violated her
civil rights, and maliciously and wrongfully terminated her employment; and
4) negligently inflicted severe emotional distress on her by its extreme and
outrageous conduct and discriminatory actions, causing her to suffer the loss
of, among other things, her professional reputation.  Before filing her action
in the Superior Court, Martin filed a sexual harassment complaint and a
charge of discrimination with the Maine Human Rights Commission.  The
Commission issued a report in January 1994 finding reasonable grounds to
believe that unlawful sexual harassment and constructive discharge had
occurred.
	[¶4]  During the events described in Martin's complaint, MSAHD was
insured under a commercial general liability policy issued by Commercial
Union.  MSAHD requested that Commercial Union provide a defense and
indemnify it against Martin's actions in the Superior Court and provide a
defense against the proceedings before the Maine Human Rights
Commission.  Commercial Union refused.  As a result the Academy brought
the present action, a six-count complaint seeking (I) compensatory damages
for breach of the insurance contract; (II) a declaratory judgment obligating
Commercial Union to defend the Academy in Martin's actions in the
Superior Court and before the Maine Human Rights Commission; (III) a
declaratory judgment obligating Commercial Union to indemnify the
Academy in Martin's action in the Superior Court; (IV) compensatory
damages for misrepresentation; (V) compensatory damages on the theory of
promissory estoppel; and (VI) punitive damages.  After a hearing, the court
granted Commercial Union's motion for a summary judgment on all counts. 
The Academy appeals.
	[¶5]  A summary judgment is properly granted only when the
pleadings, depositions, answers to interrogatories, and admissions on file,
together with any affidavits, show there is no genuine issue of material fact. 
M.R. Civ. P. 56(c); Olson v. Albert, 523 A.2d 585, 588 (Me. 1987).  On appeal
we view the evidence in the light most favorable to the nonprevailing party
to determine whether the record supports the conclusion there is no
genuine issue of material fact and the moving party is entitled to judgment
as a matter of law.  See, e.g., Kandlis v. Huotari, 678 A.2d 41, 42 (Me. 1996). 
Whether Commercial Union has a duty to defend in this case is a question of
law; thus, the trial court's decision is reviewed de novo.  Vigna v. Allstate
Ins. Co., 686 A.2d 598, 599 (Me. 1996).  We determine the duty to defend
by comparing the allegations in the underlying complaint with the
provisions of the insurance policy.  Id.  "If a complaint reveals a 'potential    
. . . that the facts ultimately proved may come within the coverage,' a duty to
defend exists."  Id. (quoting Travelers Indem. Co. v. Dingwell, 414 A.2d 220,
226 (Me. 1980)).  See also Gibson v. Farm Family Mut. Ins. Co., 673 A.2d
1350, 1352 (Me. 1996) (describing the comparison test as whether "there
is any potential basis for recovery . . . regardless of the actual facts on which
the insured's ultimate liability may be based," and stating that "[a]n insured
is not at the mercy of the notice pleading of the third party suing him to
establish his own insurer's duty to defend.").  "Even a complaint which is
legally insufficient to withstand a motion to dismiss gives rise to a duty to
defend if it shows an intent to state a claim within the insurance coverage." 
Dingwell, 414 A.2d at 226.  The Academy contends there exists at least the
potential that the facts proved at trial may fall within the policy coverage for
bodily injury or personal injury.
I. Bodily Injury Coverage
 
	[¶6]  The insurance policy at issue provides in pertinent part:

SECTION I-COVERAGES
COVERAGE A. BODILY INJURY . . . LIABILITY

1.	Insuring Agreement.
	a.	[Commercial  Union] will pay those sums that the
insured becomes legally obligated to pay as damages
because of "bodily injury" . . . to which this insurance
applies.  We will have the right and duty to defend
any "suit" seeking those damages. . . .
. . . .
	b.	This insurance applies to "bodily injury" . . . only if:
		(1) The "bodily injury" . . . is caused by an
"occurrence". . .
. . . .
2.	Exclusions.
This insurance does not apply to:
a.	"Bodily injury" . . . expected or intended from the
standpoint of the insured. . . .	
. . . .
d.	Any obligation of the insured under a workers'
compensation, disability benefits or unemployment
compensation law or any similar law.
e.	"Bodily injury" to:
(1)	An employee of the insured arising out of and
in the course of employment by the insured
. . . .
This exclusion applies:
(1)	Whether the insured may be liable as an
employer or in any other capacity . . . .
	. . . .
	SECTION V-DEFINITIONS
	. . . .
3.	"Bodily injury" means bodily injury, sickness or disease
sustained by a person, including death resulting from any
of these at any time.
. . . .
9.	"Occurrence" means an accident, including continuous or
repeated exposure to substantially the same general
harmful conditions.

The trial court concluded that the exclusion regarding bodily injury to an
employee arising out of employment-so called exclusion "e"-applies to all
the claims in the underlying complaint because no allegation in the
complaint alleges conduct by MSAHD outside of Martin's employment.
A. Unintended Injury & Exclusion "a"
	[¶7]  As a preliminary matter, we address Commercial Union's
contentions that the trial court's rationale need not be reached because it is
entitled to a summary judgment on other grounds.  Commercial Union
argues that we need not reach the exclusions of the policy because the
underlying claims are not within the coverage for bodily injury.  It contends
that due to the intentional nature of the unlawful conduct amounting to
sexual harassment and discrimination, such conduct does not constitute an
accident as a matter of law, and therefore, does not constitute an
"occurrence" as defined and covered under the policy.
	[¶8]  The Academy argues that any bodily injury to Martin (i.e., her
claim of severe emotional distress) that resulted from the alleged sexual
harassment and wrongful discharge constitutes an accident because the
claimed bodily injury was at least potentially unanticipated.  It contends,
among other things, that sexual harassment can take a myriad of forms,
including everything from excessive sexually-oriented "joking" to demands
for sexual favors, and that Commercial Union's contentions reflect a narrow,
unrealistic view of sexual harassment.  The Academy contends that such
allegations, as well as the allegations of emotional distress, trigger the duty
to defend.  We agree.
	[¶9]  The accidental nature of an event for purposes of a liability
insurance contract does not derive from the volitional nature of the act, but
rather from the unintentional nature of the consequences flowing from the
act.  We have consistently found a duty to defend under policies containing
language similar to the policy at issue, even though the underlying claims
alleged intentional conduct, provided the alleged harms could constitute an
accidental unintended consequence of the intentional conduct.  See Vigna,
686 A.2d at 600-01 (emotional pain and suffering resulting from failure to
pay for contracted services); Gibson, 673 A.2d at 1353 (harm resulting from
trespass); Maine Bonding & Cas. Co. v. Douglas Dynamics, 594 A.2d 1079
(Me. 1991) (emotional distress resulting from wrongful discharge).  Here
Martin's claimed bodily injury was, at least, potentially unanticipated. 
Moreover, Martin's claim of negligent infliction of emotional distress also
triggers the duty to defend.  See Hanover Ins. Co. v. Crocker, 1997 ME 19, ¶
5, 688 A.2d 928, 930 ("[I]njuries resulting from negligent conduct are
considered 'accidental' and not 'expected or intended' and . . . those
injuries are therefore caused by an occurrence within the language of a[n
insurance] policy.").
	[¶10]  Commercial Union next argues that, as a matter of public policy,
all claims of unlawful sexual harassment and sexual discrimination based on
disparate treatment, as opposed to disparate impact, should be within the
exclusion for expected or intended injury-so called exclusion "a"-as a
matter of law.  In other words, it contends that an expectation of harm
should be inferred from conduct constituting actionable sexual harassment
and sexual discrimination.  The Academy counters that the question is not
whether there exists an expectation of harm, but rather whether there
exists an expectation of bodily injury, and bodily injury is not necessarily
expected or intended by the perpetrator of unwanted sexual advances and
wrongful discharge.  We agree.
	[¶11]  Commercial Union's arguments on this issue are similar and
related to its contentions regarding the scope of the coverage for bodily
injury, and as such, they are similarly unavailing.  Although Commercial
Union attempts to distinguish our decision in Maine Bonding, as involving
wrongful discharge rather than sexual harassment or discrimination, the
principle of law outlined in that case is applicable here.  In Maine Bonding,
we held that an exclusion for expected or intended injury applies only if the
insured subjectively intended harm or subjectively foresaw harm was
practically certain to occur.  Maine Bonding, 594 A.2d at 1081-82.  Here it
is at least possible that Martin could recover for injury that the insured
parties neither subjectively intended nor foresaw and therefore the
exclusion would not apply.  Moreover, Commercial Union's arguments
ignore that Martin could potentially recover for the wrongful discharge
alleged in one count of her complaint; thus Maine Bonding is controlling, at
least with respect to that count.  Commercial Union's arguments also ignore
that the policy may provide coverage for one of the insured parties whose
negligence contributed to Martin's injuries.  Crocker, 1997 ME 19, ¶¶ 6-9.
B. Exclusion "e"
	[¶12]   The Academy argues that because the language of the exclusion
"e" mirrors the immunity provisions of the workers' compensation law, it
should be construed in a similar fashion.  Thus, it excludes only claims
already covered by workers' compensation.  The Academy contends the
court erred by applying the exclusion here because various injuries alleged
by Martin either did not arise out of her employment, or did not arise in the
course of her employment.  Commercial Union contends that nothing in
exclusion "e" limits its application to claims covered by workers'
compensation and that the presence of exclusion "d" regarding such claims
supports rejection of the Academy's overly narrow interpretation. 
Commercial Union further contends that exclusion "e" applies in this case
because all claims in the underlying complaint are based on wrongful acts
occurring during the course of Martin's employment with MSAHD and there
are no factual allegations unconnected with such employment.  Although we
agree that the Academy's interpretation of the exclusion is more narrow
than warranted by the policy language, we disagree that exclusion "e"
precludes coverage in this case.
	[¶13]  Both parties rely on Bond Builders, Inc. v. Commercial Union
Ins. Co., 670 A.2d 1388 (Me. 1996), to support their interpretations of the
exclusion at issue.  In Bond Builders the underlying complaint consisted of
an action brought by a former employee of the defendant, Bond Builders,
Inc., against the company, its president, and another employee.  The
complaint contained allegations of, among other things, assault and battery,
employment discrimination, and infliction of severe emotional distress.  Id.
at 1389.  After concluding Bond Builders' workers' compensation insurer
had no duty to defend, we concluded that the comprehensive general
liability and umbrella insurers had such a duty despite the fact each policy
contained an employee exclusion provision similar to the exclusion at issue
here.  We stated:  "[The insurers] fail to recognize that the complaint does
not allege that [the plaintiff's] injuries arose out of and in the course of his
employment.  In fact the contrary is alleged."  Id. at 1391.  Similarly, in the
instant case Martin does not allege in her complaint that all of her injuries
arose out of and in the course of her employment, but rather claims merely
that all the incidents occurred during the period of time that she was
employed by MSAHD.  Martin's notice pleading does not necessarily imply
that all of the alleged actions leading to her injuries occurred at the work
place, nor does it necessarily imply that her injuries arose while working. 
For example, based on the allegations in her complaint, at trial Martin may
prove that inappropriate sexual advances occurred at her home, or at other
locations or under circumstances that trigger coverage.  Because Martin's
complaint reveals at least the potential that the facts proved at trial may
come within the policy coverage, the duty to defend exists.  Vigna, 686 A.2d
at 599.  See also Gibson, 673 A.2d at 1352 ("Given the possible existence of
any legal or factual basis for payment under a policy, an insurer's duty to
defend should be decided summarily in favor of the insured.").	
II. Personal Injury Coverage
	[¶14]  The insurance policy provides in pertinent part:

SECTION I-COVERAGES
. . . .
COVERAGE B. PERSONAL INJURY . . . LIABILITY
1.	Insuring Agreement.
a.	[Commercial Union] will pay those sums that the
insured becomes legally obligated to pay as damages
because of "personal injury" . . . to which this
coverage part applies.  We will have the right and
duty to defend any "suit" seeking those damages. . . .
	. . . .
SECTION V-DEFINITIONS
. . . .
10.	"Personal injury" means injury, other than "bodily injury,"
	arising out of one or more of the following offenses:
	. . . .
d.	Oral or written publication of material that slanders
or libels a person or organization or disparages a
person's or organization's goods, products or
services; or
e.	Oral or written publication of material that violates a
person's right of privacy.

The trial court concluded that the acts alleged in the underlying action are
not within the definition of "personal injury" contained in coverage B of the
policy.  The Academy argues the court erred because there exists at least the
potential that Martin could recover for disparagement or invasion of privacy, 
each of which is covered by the policy.  We agree.
	[¶15]  	In her complaint Martin alleges that the Academy's extreme
and outrageous conduct and discriminatory actions damaged her
professional reputation.  In light of that allegation, there exists at least the
potential for coverage under part B of the policy, and thus the court erred by
determining that the acts were not within the definition of personal injury. 
See Gibson, 673 A.2d at 1352 (duty to defend exists if there is any potential
basis of recovery regardless of the actual facts on which the insured's
ultimate liability is based); cf. City of Old Town v. American Employers Ins.
Co., 858  F. Supp. 264, 269 (D. Me. 1994) (duty to indemnify jury verdict
finding damages from emotional distress and injury to reputation because
policy was ambiguous in that it contained broad language covering the
utterance of "defamatory or disparaging material" and the "violation of an
individual's right of privacy").
III. Maine Human Rights Commission Proceeding
	[¶16]  The remaining issue asserted on appeal is whether Commercial
Union has a duty to defend the proceedings before the Maine Human Rights
Commission. The trial court did not address the Academy's arguments in
detail, concluding merely that because Commercial Union has no duty to
defend Martin's claims in the Superior Court, it has no duty to defend the
claims presented to the Maine Human Rights Commission.
	[¶17]  The insurance policy provides in pertinent part:

SECTION I-COVERAGES
COVERAGE A. BODILY INJURY . . . LIABILITY
1.	Insuring Agreement.
a.	[Commercial  Union] will pay those sums that the
insured becomes legally obligated to pay as damages
because of "bodily injury" . . . to which this insurance
applies.  We will have the right and duty to defend
any "suit" seeking those damages. . . .
. . . .
. . . .
SECTION V-DEFINITIONS
. . . .
13. "Suit" means a civil proceeding in which damages because
of "bodily injury" . . . [or] "personal injury". . .to which this 
insurance applies are alleged.  "Suit" includes:
a.	An arbitration proceeding in which such damages
are claimed and to which you must submit or do
submit with our consent; or
b.	Any other alternative dispute resolution proceeding
in which such damages are claimed and to which you
submit with our consent.

The Academy argues that Commercial Union's duty to defend is limited only
by the definition of "suit" contained in the policy.  The Academy argues that
Commercial Union has a duty to defend because the proceeding before the
Maine Human Rights Commission is a civil proceeding in which damages are
alleged.  The Academy further contends that the proceedings before the
Commission and Martin's action in the Superior Court are so interrelated
that the duty to defend arises.  Commercial Union argues that its duty to
defend is not limited only by the definition of suit, but also by the language
limiting its "duty to defend any 'suit' seeking those damages."  Commercial
Union contends that the proceeding before the Commission is merely an
investigatory proceeding rather than a civil proceeding within the policy
definition of suit.  Commercial Union further argues that its duty to defend
applies only to a suit seeking damages for those injuries to which the
insurance applies, and the proceeding before the Commission does not seek
such damages.  We agree.
	[¶18]  First, the policy states clearly that the insurer's duty to defend
is limited to suits seeking damages covered by the policy, and not any suit
included within the policy definition.  Proceedings before the Commission
do not seek damages; instead, damages may only be sought in a subsequent
enforcement action in the Superior Court.  See 5 M.R.S.A. § 4612(4)(A)
(Supp. 1996);{1} cf. Patrons Oxford Mut. Ins. Co. v. Marois, 573 A.2d 16, 20
(Me. 1990) (no duty to defend administrative proceeding brought by the
Department of Environmental Protection to compel clean-up because the
agency action was not a suit seeking damages).  Second, contrary to the
Academy's contention, the Commission proceeding is not a necessary
antecedent to Martin's action in the Superior Court.  Instead, pursuant to 5
M.R.S.A. § 4622(1), filing a complaint with the Commission is merely a
prerequisite to obtaining, in a subsequent civil action, attorney fees pursuant
to 5 M.R.S.A. § 4614 and civil penal damages pursuant to 5 M.R.S.A. § 4613. 
	[¶19]  Because we conclude Commercial Union has a duty to defend,
we further conclude the trial court erred by granting a summary judgment
on Count I, seeking compensatory damages for breach of contract, and Count
VI, seeking punitive damages, but only to the extent that such counts
pertain to Martin's underlying suit in the Superior Court.  Similarly, we
conclude the court erred by granting a summary judgment on Count III,
seeking a declaratory judgment regarding the duty to indemnify; however,
we do not further address Commercial Union's duty to indemnify because it
is premature at this time.{2}  Because the Academy does not challenge the
summary judgment as to Counts IV and V, we affirm the judgment on those
counts.
	The entry is:
Judgment on Count III vacated, and judgment
on Counts I, II and VI vacated with respect to
the duty to defend in the Superior Court, and
affirmed with respect to the duty to defend the
Maine Human Rights Commission proceeding. 
Remanded for (1) entry of a judgment
declaring Commercial Union Insurance
Company is obligated to provide a defense to
Maine State Academy of Hair Design, Inc.,
Jeffrey Saleeby, and William Malloy in Amber
Martin's underlying action in the Superior
Court, and (2) further proceedings consistent
with the opinion herein.  Judgment on Counts
IV and V affirmed.

Attorney for plaintiffs: John G. Connor, Esq. (orally) 415 Congress Street, Suite 304 Portland, ME 04101 Attorneys for defendants: Anne M. Carney, Esq. (orally) James D. Poliquin, Esq. Norman, Hanson & DeTroy P O Box 4600 Portland, ME 04112-4600
FOOTNOTES******************************** {1}. 5 M.R.S.A. § 4612(4)(A) (Supp. 1996) provides: If the commission finds reasonable grounds to believe that unlawful discrimination has occurred, and further believes that irreparable injury or great inconvenience will be caused the victim . . . or [others] if relief is not immediately granted, or if conciliation efforts under subsection 3 have not succeeded, the commission may file in the Superior Court a civil action seeking such relief as is appropriate, including temporary restraining orders. {2}. An insurer's duty to indemnify is not determined until the liability of the insured has been decided. Cambridge Mut. Fire Ins. Co. v. Perry, 1997 ME 94, 692 A.2d 1388, 1391 n.3. The duty to defend is broader than the duty to indemnify, and an insurer may have to defend before it is clear whether a duty to indemnify exists. Hanover Ins. Co. v. C