Selective Way Ins. Co. v. Nationwide Prop. & Cas. Ins. Co.
|30 October 2019
|No. 755, Sept. Term, 2018,755, Sept. Term, 2018
|219 A.3d 20,242 Md.App. 688
|SELECTIVE WAY INSURANCE COMPANY v. NATIONWIDE PROPERTY AND CASUALTY INSURANCE COMPANY, et al.
|Court of Special Appeals of Maryland
Argued by: Edward J. Brown, Ellicott City, MD, for Appellant.
Argued by: Steven E. Leder (Julie F. Maloney, Leder Law Grp, PC), Baltimore, MD, on the brief), for Appellee.
Panel: Arthur, Shaw Geter, Deborah S. Eyler (Senior Judge, Specially Assigned), JJ.*
This case concerns a liability insurer's duty to defend. Under its policies, the insurer was obligated to defend a general contractor from claims with respect to work performed by four subcontractors. The insurer declined to defend the general contractor against a lawsuit based on allegations that its subcontractors performed defective work.
In a subsequent declaratory judgment action, the Circuit Court for Baltimore County determined that the insurer had been obligated to defend the general contractor in the construction-defect lawsuit. The court ordered the insurer to pay
the costs of defense, in an amount decided by a jury. After the jury verdict, the court ordered the insurer to pay prejudgment interest on those defense costs. The court also ordered the insurer to pay all expenses incurred in the declaratory judgment action, in an amount decided by the court rather than by a jury. The insurer appealed.
For the reasons explained in this opinion, we shall affirm the judgment with respect to the insurer's obligation to pay defense costs from the construction-defect lawsuit; reverse the judgment with respect to the award of prejudgment interest by the court; and vacate the judgment with respect to attorneys' fees and expenses incurred in the declaratory judgment action. The case shall be remanded for a jury trial solely to determine the amount of attorneys' fees and expenses incurred in the declaratory judgment action as a result of the insurer's breach of the duty to defend.
FACTUAL AND PROCEDURAL BACKGROUND
A. Selective Way Liability Insurance for Questar's Subcontractors
In 2001, the Highpointe Business Trust engaged Questar Builders, Inc., to oversee the construction of the Highpointe Apartments
in Hunt Valley. Construction was completed in early 2004.
As the general contractor for the Highpointe project, Questar entered into contracts with dozens of subcontractors. Four of those subcontracts, executed between 2001 and 2003, are pertinent here. SEH Excavating Contractors, Inc., agreed to perform land development work for the project; Streett's Waterproofing, Inc., agreed to perform waterproofing work for certain buildings; Justice Waterproofing, Inc., agreed to perform waterproofing work for tennis courts above a parking garage; and King Carpentry Contractors, Inc., agreed to perform rough carpentry work for certain buildings.
Each subcontract required the subcontractor to indemnify Questar from claims for damages resulting from the subcontractor's work; to maintain commercial general liability insurance
with "primary and noncontributory" coverage; and to name Questar as an "additional insured[ ]" under those policies.
For various policy periods between 2001 and 2007, those four subcontractors purchased commercial general liability insurance from appellant Selective Way Insurance Company. In the policies that it issued to the subcontractors, Selective Way promised to indemnify its insureds if they became legally obligated to pay damages based on claims covered by the policy and to defend the insureds in any lawsuit seeking those damages.
Each Selective Way policy included provisions extending this coverage to an additional party if the named insured entered into a written contract requiring it to provide insurance for that additional party. These provisions specified that any party that became an additional insured because of a contract would be treated as an insured "only with respect to" the named insured's work for that additional party. The policies further specified that the coverage resulting from such a contract would be "primary and not contributory" with respect to the additional insured, if the contract so required.
Through the combined effect of these policies and subcontracts, Selective Way became Questar's insurer with respect to claims against Questar arising out of the work performed at the Highpointe project by SEH Excavating Contractors, Streett's Waterproofing, Justice Waterproofing, or King Carpentry Contractors.
B. The Construction-Defect Lawsuit against Questar
In a transaction that coincided with the completion of construction, a third party purchased the Highpointe Apartments. On July 13, 2006, the purchaser filed a lawsuit based on "the defective construction of the Highpointe Apartments" by Questar. As amended, the complaint asserted four counts against Questar and two executives.
Each count against Questar rested on allegations that it had failed to properly oversee the work of its subcontractors and
that defects in the construction resulted in extensive water infiltration throughout the buildings. The purchaser sought to recover $4.5 million for the property damage allegedly caused by Questar's conduct.
To undertake its defense, Questar turned to its liability insurers: Nationwide Property and Casualty Insurance Company and Nationwide Mutual Insurance Company (collectively, "Nationwide"). Nationwide agreed to defend Questar under a reservation of rights, appointing and paying for counsel to represent Questar separately from the other defendants.
Questar denied liability, but also filed a third-party complaint, seeking indemnity or contribution from 26 subcontractors that performed work at the Highpointe
project. In the third-party complaint, Questar claimed that, if it were found liable in the construction-defect lawsuit, then the subcontractors should be liable to it for all or some of its liability to the purchaser. The third-party defendants included the four subcontractors that Selective Way insured.
On April 1, 2008, Questar's attorney made written requests for defense and indemnification under the policies issued by Selective Way. Selective Way's parent corporation denied the requests under the policies issued to Streett's Waterproofing and SEH Excavating Contractors. The denial letters cited a lack of "proof" or "evidence" that the subcontractor's work caused the alleged damages, stated that it was "not clear when the work was completed or when the damages manifested[,]" and noted that the lawsuit also involved "separate allegations of negligence" by Questar itself. Questar received no formal denial letters under the policies issued to the other two subcontractors.
C. Nationwide's Declaratory Judgment Action Against Various Insurers
The present action was commenced on June 10, 2008, when Nationwide filed a complaint for a declaratory judgment in the Circuit Court for Baltimore County, seeking to "determin[e] insurance coverage under various policies of insurance covering
[Questar]." Nationwide initially named 21 insurance companies as defendants, along with 24 subcontractors and Questar itself. The number of defendants varied over time, as Nationwide added new defendants and dismissed claims against others.
Nationwide alleged that Questar was an additional insured under various liability insurance policies issued to Questar's subcontractors. Thus, Nationwide asked the court to declare that, under those policies, the insurers were obligated to provide a defense for Questar in the construction-defect lawsuit. Nationwide contended that its own coverage for Questar was secondary to the primary coverage issued by those insurers. It sought reimbursement for all defense costs incurred in the construction-defect lawsuit.
In its answer, Selective Way asserted that it had no duty to defend Questar in the construction-defect lawsuit and that "Questar and/or Nationwide ha[d] failed to provide adequate notice" to Selective Way. Selective Way demanded a jury trial on all issues.
While the declaratory judgment action was still in its early stages, Questar agreed to settle the construction-defect lawsuit.
As the declaratory judgment action proceeded, the court granted Nationwide's motion to bifurcate the issues. The court would first decide whether the defendant-insurers had a duty to reimburse Nationwide for defense costs. If necessary, the court would then proceed to determine the amount of damages that Nationwide was entitled to recover.
In 2009, Nationwide moved for summary judgment as to the liability of 12 insurers, including Selective Way, which had issued polices to Questar's...
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