Selective Way Ins. v. Nat'l Fire Ins., 988 F. Supp. 2d 530

Background

Whiting-Turner was general contractor for a new Towson University building; its contract required builder’s risk insurance naming contractors and subcontractors as insureds.
National Fire issued a builder’s risk policy to Whiting-Turner that named subcontractors (including L.H. Cranston) as additional insureds and covered “direct physical loss or damage” except as excluded.
Cranston installed a water-supply fitting that detached on October 20, 2010, causing water damage to multiple floors. Cranston’s CGL carrier, Selective, paid $1.15M to Whiting-Turner (plus $185K to SI Restoration) and obtained Cranston’s assignment of claims against the builder’s risk policy.
National Fire denied coverage, citing exclusions for neglect and faulty workmanship/installation; Selective sued National Fire in diversity, seeking recovery under the builder’s risk policy by assignment.
The parties filed cross-motions for summary judgment; the court treated Maryland law as governing and found the facts undisputed.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Cranston (and by assignment Selective) is an “insured” with an insurable interest	Cranston had a substantial economic interest (exposure to liability) in the project and thus an insurable interest under Md. Ins. §12-301	National Fire contended the subcontractor status does not create an insurable interest sufficient to claim under the policy	Court held Cranston had an insurable interest beyond ownership — economic exposure sufficed — and therefore was an insured under the policy
Whether the faulty workmanship/installation exclusion (§3.c) bars coverage for the water damage	The policy’s ensuing-loss clause covers physical damage (water intrusion) resulting from excluded faulty installation; thus water damage is covered	National Fire argued exclusions for faulty workmanship and negligence bar coverage for the loss	Court held the ensuing-loss provision applies: although the fitting’s failure was excluded, resulting water damage is a covered peril and coverage exists
Whether assignment or subcontract indemnity provisions limit Selective’s claim	Selective (as assignee) stands in Cranston’s shoes and may enforce the policy; the subcontract’s hold-harmless does not eliminate rights under the independent policy	National Fire argued assignee cannot have greater rights than Cranston and that subcontract indemnity precludes Cranston from claiming against insurer	Court rejected the subcontract argument: policy is an independent contract and Cranston’s policy rights remain enforceable; assignment is valid
Prejudgment interest entitlement	Plaintiff requested prejudgment interest but did not brief entitlement or computation	Defendant opposed or did not concede entitlement	Court denied prejudgment interest for lack of requested relief and briefing; awarded costs only

Key Cases Cited

Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard under Rule 56)
Transatlantic Fire Ins. Co. v. Dorsey, 56 Md. 70 (Md. 1881) (ensuing-loss principle: excluded cause producing covered peril can yield coverage)
McEvoy v. Security Fire Ins. Co. of Baltimore, 110 Md. 275 (Md. 1909) (ensuing-loss clause covers fire following excluded earthquake)
Bausch & Lomb, Inc. v. Utica Mutual Ins. Co., 355 Md. 566 (Md. 2000) (distinction between first-party property coverage and third-party liability)
Brodsky v. Princemont Construction Co., 30 Md. App. 569 (Md. Ct. Spec. App. 1976) (property loss covered regardless of negligence as cause)
Bartram, LLC v. Landmark American Ins. Co., 864 F. Supp. 2d 1229 (N.D. Fla. 2012) (builder’s risk policies with ensuing-loss clauses cover water damage resulting from faulty workmanship)
Dyson & Co. v. Flood Engineers, Architects, Planners, Inc., 523 So. 2d 756 (Fla. Dist. Ct. App. 1988) (subcontractor’s insurable interest in being free from liability under statute)