Insurer Must Defend Violation of Privacy

The defendant, Muehlhauser, was the general manager and majority owner of Rams Head LLC, a Maryland limited liability company that owns and operates the Rams Head Tavern. In July 2015, Muehlhauser plead guilty to two counts of conducting video surveillance with prurient intent after it was revealed that he videotaped female patrons and employees using the restroom of the Rams Head Tavern. This case arises from a dispute between Muehlhauser and his insurer, Harleysville Preferred Insurance Company and Nationwide Mutual Insurance Company (collectively, “Harleysville”) over the extent to which Harleysville has an obligation to defend their insured, Rams Head and Muehlhauser, in his individual capacity.

Harleysville sought a declaratory judgment before the circuit court that it did not owe a defense to Rams Head or Muehlhauser under its policy. Harleysville cited two policy exclusions to this end: an exclusion for injuries arising out of violations of the Telephone Consumer Protection Act (“TCPA”), the CAN-SPAM Act of 2003, and the Fair Credit Reporting Act (“FCRA”), as well as an exclusion for injuries arising out of criminal acts committed by the insured. Noting that the duty to defend “depends on whether the allegations” in a complaint “potentially come within the Policy coverage,” the circuit court concluded that Harleysville had a duty to defend Rams Head and Muehlhauser.

Considering the issue on appeal, the Maryland Court of Special Appeals began its analysis by construing the relevant language of the policy according to contract principles. It noted that while Maryland does not follow the rule that insurance contracts should be construed against the insured, courts construe any ambiguity liberally in favor of the insured. Similarly, exclusions will be construed more strictly than coverage clauses under Maryland law. To this end, the Court of Special Appeals focused on the language of the contract providing coverage for damages arising from the “invasion of the right of private occupancy of a room….that a person occupies, committed by or on behalf of its owner.” Finding that this language unambiguously applies to the right of an individual who is occupying a single-occupancy restroom for its intended purpose, the court construed the coverage grant in favor of the insured and rejected Harleysville’s assertion that its policy exclusions excluded it from liability as to Rams Head.

The Court of Special Appeals considered the question of Harleysville’s duty to Muehlhauser in a different light. It attempted to construe the “criminal acts” exclusion narrowly, but nevertheless found that Muehlhauser’s actions fall squarely within this exclusion. The fact that none of the complaints against Muehlhauser “includes any alternative factual allegation under which Mr. Muehlhauser’s conduct might not be criminal” was critical to this determination. As such, the Court of Special Appeals reversed the circuit court on these grounds and found that Harleysville did not have a duty to defend Muehlhauser, in his individual capacity, in connection with his videotaping of female patrons and employees.