Insurer required to defend Rams Head, not owner, in hidden-camera suit

The insurer for Rams Head Tavern in Savage Mill had a duty to defend the business but not its owner in a series of invasion of privacy lawsuits for the owner’s surreptitious videotaping of women using a restroom at the restaurant, the Court of Special Appeals ruled last week.

In a reported opinion, the court ruled on an issue of first impression in Maryland: whether a patron using a restaurant bathroom has a right to private occupancy of the room, according to attorney Wayne T. Kosmerl.

“I think the decision recognized law in Maryland for the first time,” said Kosmerl, of Council, Baradel, Kosmerl & Nolan P.A. in Annapolis. He represented Rams Head and former majority owner and general manager of the company Kyle Muehlhauser.

Muehlhauser pleaded guilty to conducting video surveillance with prurient interest in 2015 after a woman discovered the camera on May 9, 2014. He was ordered to pay $2,500 restitution and placed on probation.

Two sets of plaintiffs filed class-action complaints in Howard County Circuit Court where the judge denied Harleysville Preferred Insurance Company and Nationwide Mutual Insurance Company’s request for a declaratory judgment that it did not have to defend Rams Head or Muehlhauser.

Both lawsuits were eventually resolved in favor of the defendants because the plaintiffs could not prove they used the restroom at the tavern on the only day there was evidence Muehlhauser had placed a camera.

The issue of whether Harleysville had a duty to defend remained and the Court of Special Appeals determined that the policies required the company to defend Rams Head based on the plain language of the contracts.

The tavern claimed a right to coverage for an “invasion of a right of private occupancy room” which Harleysville claimed did not apply because the plaintiffs lacked a possessory interest in the restroom and Rams Head did not own it because it leased the premises.

Judge Matthew J. Fader wrote on behalf of a three-judge panel and rejected those arguments, citing the dictionary definitions for “occupancy,” which covers the use of a restroom, and “owner,” which includes lessee Rams Head and not just the property owner.

Fader was joined by Judge Daniel A. Friedman and Judge Lawrence F. Rodowsky, a senior judge specially assigned to the case.

Harleysville offered interpretations suggesting the coverage was only for someone with a possessory interest, but the court determined the provision must be construed in favor of Rams Head’s reasonable interpretation as the policyholder.

“We consider it confirmation of our interpretation of the plain language of the policy that coverage would be rendered illusory if we were to instead accept Harleysville’s interpretation,” Fader wrote.

Because the court made new law on policy interpretation, Kosmerl said he would be surprised if the insurance company does not appeal the reported opinion.

Harleysville is represented by William T. Salzer of Swartz Campbell LLC in Philadelphia. Salzer did not respond to a request for comment Tuesday.

Criminal acts

The policies included exclusions for criminal acts, defined as injuries “arising out of a criminal act committed by or at the direction of the insured,” and the knowing violation of the rights of another.

Fader wrote that the insurance policy exclusion for criminal acts “cannot be disregarded” as it applies to the claims against Muehlhauser.

“The complaints both allege that Mr. Muehlhauser acted with prurient intent in surreptitiously videotaping women who were using the restroom,” Fader wrote. “Neither complaint includes any alternative factual allegations under which Mr. Muehlhauser’s conduct might not be criminal.”

Muehlhauser was only covered with respect to his duties as manager, which the complaints alleged included his tortious conduct, but the exclusion for criminal acts bars coverage.

“This is not a case in which the allegations of the complaints allow the possibility that there was tortious-but-not-criminal conduct by Mr. Muehlhauser that would give rise to a potentiality of coverage for him,” Fader wrote.

Kosmerl said he was not surprised by the ruling as to Muehlhauser, which he knew would be the most difficult argument to overcome.

The case is Harleysville Preferred Insurance Company et al. v. Rams Head Savage Mill LLC et al., No. 2409, Sept. 2016.