219 A.3d 20
Md. Ct. Spec. App.2019Background
- Questar, the general contractor for the Highpointe Apartments, was sued (2006–2007) for construction defects and alleged failures to supervise subcontractors; plaintiffs sought ~$4.5M. Nationwide (Questar’s insurer) defended Questar under reservation of rights.
- Four subcontractors (excavation, two waterproofing, carpentry) had CGL policies from Selective Way that named Questar as an additional insured for work performed for Questar; some endorsements made that coverage "primary and noncontributory."
- Questar requested defense/indemnity from Selective Way in April 2008; Selective Way denied some requests and disputed notice timing. Nationwide paid for Questar’s defense and sued other insurers (including Selective Way) for declaratory relief and reimbursement by equitable subrogation.
- After bifurcation and trial limited to whether Selective Way was prejudiced by late notice and the amount of defense costs, a jury found timely notice and awarded $994,719.54 in defense costs and that costs were "readily apportionable" but Nationwide not required to apportion; court later reduced by other settlements.
- The trial court added $430,534.82 prejudgment interest and awarded $810,556.72 in attorneys’ fees/expenses for the declaratory action; on appeal the Court of Special Appeals affirmed duty to defend and the defense-cost award, reversed the prejudgment-interest award, and vacated the attorneys’-fees award (remanding for a jury to determine those fees).
Issues
| Issue | Nationwide's Argument | Selective Way's Argument | Held |
|---|---|---|---|
| Duty to defend Questar as additional insured | Policies made Questar an additional insured for subcontractors' work; allegations potentially implicated subcontractors' work so duty to defend exists | No duty because complaints primarily alleged Questar’s own acts or damages outside subcontractors' work | Affirmed: duty to defend exists where complaint creates any potential that damage arose from subcontractors' work or GC supervision (liberal potentiality rule) |
| Scope of duty — defend entire suit vs. apportion defense costs | If any claim is potentially covered insurer must defend entire suit and bear reasonable cost of entire defense | Where defense costs can be ‘‘readily apportioned,’’ insurer should pay only portion attributable to covered claims | Held for Nationwide: insurer must defend entire action when any claim potentially covered; apportionment not generally required here |
| Right of Nationwide (excess insurer) to recover defense costs (equitable subrogation) | Nationwide, as excess insurer that paid defense, is subrogated to Questar’s rights and may recover from the primary insurer (Selective Way) including litigation costs to establish duty | Argues Nationwide cannot recover amounts it would have paid anyway, and Questar did not assign rights | Held: Nationwide entitled to reimbursement by subrogation where Selective Way’s policy was primary/primary-and-noncontributory and Nationwide paid to protect its interests; legal subrogation suffices (no assignment required) |
| Prejudgment interest on defense costs | Nationwide sought prejudgment interest (6%) on jury’s defense-cost award | Selective Way argued prejudgment interest was discretionary and should have been submitted to jury, so court could not add it post-verdict | Reversed: prejudgment interest on these unliquidated attorney-fee/expense damages is discretionary; award must be separately stated by the factfinder and could not be added by court after verdict |
| Attorneys’ fees/expenses for declaratory action — right to jury and proof | Nationwide sought award by court as fees/recoverable expenses incurred litigating coverage | Selective Way demanded jury trial/evidentiary hearing and argued many fees were unrelated or not proximately caused by Selective Way’s breach | Vacated and remanded: such fees are damages for breach of contract and Selective Way is entitled to have a jury determine the reasonable and necessary amount; plaintiff bears burden to prove causation and reasonableness by preponderance |
Key Cases Cited
- Brohawn v. Transamerica Ins. Co., 276 Md. 396 (1975) (insurer must defend entire suit when complaint contains any potentially covered claim)
- Litz v. State Farm Fire & Cas. Co., 346 Md. 217 (1997) (duty to defend is contractual and construed liberally; any potentiality of coverage obligates defense)
- Mesmer v. Maryland Auto. Ins. Fund, 353 Md. 241 (1999) (damages for breach of duty to defend include defense fees and fees to establish duty)
- James G. Davis Constr. Corp. v. Erie Ins. Exch., 226 Md. App. 25 (2015) (additional-insured endorsement covering liability "caused in whole or in part" by subcontractor triggers duty to defend GC)
- Baltimore Gas & Elec. Co. v. Commercial Union Ins. Co., 113 Md. App. 540 (1997) (additional-insured coverage for liability "arising out of" subcontractor work can obligate defense where allegations include supervision-based liability)
- Continental Cas. Co. v. Bd. of Educ. of Charles Cty., 302 Md. 516 (1985) (insurer’s duty to defend covers entire action while potential coverage exists)
- Bankers & Shippers Ins. Co. of N.Y. v. Electro Enters., Inc., 287 Md. 641 (1980) (attorneys’ fees incurred to establish insurer’s duty to defend are damages for breach; plaintiff must prove amount with ordinary standards; trial required)
- Cohen v. Am. Home Assur. Co., 255 Md. 334 (1969) (foundational recognition that insurer who wrongfully refuses defense may be obligated to pay attorneys’ fees incurred to establish duty)
- Fraidin v. Weitzman, 93 Md. App. 168 (1992) (prejudgment interest is an element of damages and must be separately stated by the factfinder; court cannot add it post-verdict)
- Maxima Corp. v. 6933 Arlington Dev. Ltd. P'ship, 100 Md. App. 441 (1994) (attorneys’ fees are unliquidated and prejudgment interest on such fees is discretionary with the factfinder)