Nationwide Prop. & Cas. Ins. Co. v. Selective Way Ins. Co.

• Decision Date: 01 April 2021
• Docket Number: No. 1, Sept. Term, 2020,1, Sept. Term, 2020
• Citation: 473 Md. 178,248 A.3d 1044
• Parties: NATIONWIDE PROPERTY & CASUALTY INSURANCE COMPANY, et al. v. SELECTIVE WAY INSURANCE COMPANY
• Court: Court of Special Appeals of Maryland

473 Md. 178

248 A.3d 1044

NATIONWIDE PROPERTY & CASUALTY INSURANCE COMPANY, et al.

v.SELECTIVE WAY INSURANCE COMPANY

No. 1, Sept. Term, 2020

Court of Appeals of Maryland.

April 1, 2021

Argued by Steven E. Leder (Julie F. Maloney, Downs Ward Bender Hauptmann & Herzog, P.A., Hunt Valley, MD), on brief, for Petitioners.

Argued by Edward J. Brown (Law Offices of Edward J. Brown, LLC, Ellicott City, MD), on brief, for Respondent.

Argued before: Barbera, C.J.; McDonald, Watts, Hotten, Getty, Booth, and Biran, JJ.

Getty, J.

In awarding prejudgment interest, Maryland courts have traditionally operated under a "modified discretionary approach"—that is, an approach which generally places the award of prejudgment interest within the discretion of the trier of fact, but also recognizes distinct exceptions in which a plaintiff is entitled to prejudgment interest as a matter of right. See Developments in Maryland Law (1990-91) , 51 Md. L. Rev. 507, 514 (1992). This case presents a question of whether prejudgment interest on defense costs where a party breaches its duty to defend properly falls within the exception and should therefore be awarded as a matter of right. As we explain below, we hold that it does not fall within the exception, and we affirm the Court of Special Appeals’ conclusion that the award of prejudgment interest is within the discretion of the factfinder.

BACKGROUND

A. The Highpointe Apartments Construction Project.

The Highpointe Business Trust undertook a large construction project in 2001 to build a new high-end apartment complex, the Highpointe Apartments, in Hunt Valley, Maryland. They hired Questar Builders, Inc. ("Questar") as the general contractor for the project. In turn, Questar hired numerous subcontractors and each subcontract required the subcontractor to maintain commercial general liability insurance with both "primary and noncontributory" coverage and to name Questar as an "additional insured" on the policy.

Relevant to this case, four of Questar's subcontractors purchased commercial general liability insurance from respondent Selective Way Insurance Company ("Selective Way"). These four subcontractors provided land development work, waterproofing work, and rough carpentry work. Specifically, their responsibilities were as follows: (1) SEH Excavating Contractors, Inc. was hired to complete earthwork, excavation, disposal of debris found buried on site, grading, sediment and erosion control, construction of retaining walls, installation of water lines, meters and storm drain lines, partial installation of rain collection system, and the installation of concrete curbs and gutters in the parking lots; (2) Streett's Waterproofing, Inc. was hired to provide all labor, tools, and equipment necessary to complete waterproofing of select foundation walls, elevator pits, and jump walls; (3) Justice Waterproofing, Inc. was hired to install tennis court waterproofing and a green and red tennis court color coat system over the existing concrete surface; and (4) King Carpentry Contractors, Inc. was hired to complete wood framing, install exterior wall and roof sheathing, install all subflooring and exterior decks, install common area doors and frames, and install exterior wood trim.

Each of the four general liability insurance policies procured from Selective Way contained provisions promising to indemnify and defend the named insureds, that is, the subcontractors themselves, against damages arising out of claims covered by the policies. Other provisions in the policies extended this coverage to an additional party if a named insured entered into a written contract promising to provide insurance for that additional party. Here, the named insureds each entered into a contract with Questar promising to name Questar as an additional insured. Taken together, these subcontracts and insurance policies required Selective Way to indemnify and defend Questar as an additional insured for claims arising out of the work performed on the Highpointe Apartments by the four subcontractors.

Construction on the Highpointe Apartments was completed in early 2004. Prior to closing, water damage incidents were brought to the attention of Questar, and, in response, Questar provided cosmetic repairs such as drywall replacement and carpet replacement. At the time of closing, Questar acknowledged the water entry into several units, but represented that the source of water entry was corrected. However, within two and one-half years, extensive construction defects became evident as water entry repeatedly occurred through exterior walls, interior walls, the roof, and windows. These defects caused mold infestation, deterioration of interior finishes, and damages to the structural integrity of the buildings.

Overall, the extensive construction defects resulted in unsafe living conditions throughout the apartment complex. In at least one incident, water penetrated the exterior walls, intermingled with the electrical system, and freely flowed through electrical outlets. Repeated water entry into units and common areas resulted in emergency repairs, relocation of tenants to alternate living spaces, and replacement of damaged personal items belonging to the tenants.

B. Construction Defect Lawsuit Against Questar.

On July 13, 2006, Highpointe Business Trust sued Questar and others alleging defective construction of the apartment complex and seeking to recover $4.5 million for resulting property damage.¹ Questar's own liability insurers, petitioners Nationwide Property and Casualty Insurance Company and Nationwide Mutual Insurance Company (collectively, "Nationwide") appointed and paid for separate defense counsel for Questar.

Questar both denied liability and filed a third-party complaint seeking indemnity or contribution from twenty-six subcontractors that performed work on the apartment complex. Each of the four subcontractors insured by Selective Way was named as a third-party defendant.

In April 2008, Questar's attorney wrote Selective Way seeking defense and indemnification under the policies issued to the four subcontractors. In May 2008, Selective Way sent formal denial letters in response to requests regarding two of the subcontractors, citing lack of "proof" or "evidence" as to the cause of the alleged damages. Selective Way did not respond to requests regarding the other two subcontractors.

C. Nationwide's Declaratory Judgment Action.

Several months later on June 10, 2008, Nationwide filed a declaratory judgment action in the Circuit Court for Baltimore County seeking, among other things, a declaration that Selective Way was obligated to defend Questar in the construction defect lawsuit by virtue of Questar's status as an additional insured under the Selective Way policies. Nationwide argued that Selective Way's coverage of Questar was primary, and its own coverage of Questar was secondary. Thus, Nationwide sought reimbursement from Selective Way for all defense costs incurred in representing Questar in the construction defect lawsuit.

Selective Way denied any duty to defend Questar in the construction defect lawsuit, asserted lack of adequate notice, and demanded a jury trial on all issues. Shortly thereafter, the underlying construction defect lawsuit was settled, and the court granted Nationwide's motion to bifurcate the remaining issues under the declaratory judgment action. The court would first determine if Selective Way and others had the duty to defend Questar and thereby the obligation to reimburse Nationwide. If applicable, the court would then calculate the amount of damages Nationwide was entitled to recover.

In September 2009, Nationwide moved for summary judgment against twelve subcontractors’ insurers, including Selective Way, seeking to establish the insurers’ duty to defend Questar as a matter of law. The twelve insurers opposed Nationwide's motion for summary judgment and filed their own motion for summary judgment asserting that a sixteen-month delay in notice of the construction defect lawsuit relieved any duty to defend Questar and that Nationwide's exclusive control of the defense during the delay left Nationwide with "unclean hands."

On August 26, 2014,² the court entered an order granting Nationwide's motion for summary judgment in part and denying it in part. The court determined as a matter of law that the subcontractors’ insurers had a duty to defend Questar in the underlying construction defect lawsuit but reserved the remaining issues for the jury. Specifically, the jury would determine whether the subcontractors’ insurers suffered prejudice as a result of the delay in notice and whether Nationwide had "unclean hands." Before trial, Nationwide reached settlement agreements with all the subcontractors’ insurers except Selective Way.

D. Jury Trial on Nationwide's Claims Against Selective Way.

On December 15, 2016, Nationwide made a second motion for summary judgment on both remaining issues before the court and again the court granted the motion in part and denied it in part. The court rejected Selective Way's defense of "unclean hands" and thus narrowed the scope of the jury trial to the single remaining issue of whether Selective Way suffered actual prejudice because of the delayed notice. In the event of finding no actual prejudice, the jury would then determine the amount of damages Nationwide was entitled to recover for its defense of Questar in the construction defect lawsuit.

The court held a five-day jury trial on March 7, 8, 9, 10, and 13, 2017. At trial, both Nationwide and Selective Way presented competing expert opinion testimony regarding the fairness and reasonableness of the fees charged. Nationwide did not request any jury instructions on prejudgment interest and did not propose any questions about prejudgment interest on the special verdict sheet it provided to the court. Without reference to prejudgment interest, the verdict sheet used by the court asked broadly, "[w]hat damages, if any, has Nationwide...