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McDowell Building, LLC v. Zurich American Insurance Co.

United States District Court, D. Maryland

April 13, 2015



RICHARD D. BENNETT, District Judge.

In this diversity action, Plaintiff McDowell Building, LLC ("McDowell Building") has sued Zurich American Insurance Co. ("Zurich American") for breach of an architect's malpractice insurance policy. McDowell Building alleges that it was harmed by the negligence of its architect, and that Zurich wrongfully denied coverage under the policy. Pending before this Court are the parties' cross-motions for summary judgment. The parties' submissions have been reviewed, and this Court held a hearing on March 24, 2015. For the reasons that follow, Defendant Zurich American Insurance Co.'s Motion for Summary Judgment (ECF No. 29) and Plaintiff McDowell Building, LLC's Cross-Motion for Summary Judgment (ECF No. 31) are DENIED.[1]


In ruling on a motion for summary judgment, this Court reviews the facts and all reasonable inferences in the light most favorable to the nonmoving party. Scott v. Harris, 550 U.S. 372, 378 (2007); see also Hardwick ex rel. Hardwick v. Heyward, 711 F.3d 426, 433 (4th Cir. 2013).

I. Origins of Dispute

Plaintiff McDowell Building, LLC ("McDowell Building") is a real estate developer involved in a project known as the "McDowell Building, " located in the Mt. Vernon neighborhood of Baltimore, Maryland. By spring of 2003, McDowell Building included the following members: D. Ronald Brasher, John Day II, John Day III, Kemp Byrnes, and Frank Zokaites. As part of the development plan, the members of McDowell Building hoped to obtain state and federal tax credits.[2]

On October 31, 2002, the accounting firm Reznick Fedder & Silverman (the Reznick Firm) wrote a letter to one of the McDowell Building members indicating that the project had received Part II approval from the Maryland Historical Trust and noting that the project should be eligible for a tax credit provided it met the other criteria. See Def.'s Mem. Supp. Mot. Summ. J. Ex 1, ECF No. 29-2. McDowell Building relied upon this letter when deciding to purchase the property.

McDowell Building hired DR Brasher, Inc., d/b/a Brasher Design, ("Brasher Design") to complete the applications necessary for obtaining the required credits. Karen Starika, an employee of Brasher Design, was tasked with preparing and filing the applications.

By September 23, 2004, Brasher Design had discovered that the Maryland Historical Trust had no application for the McDowell Building project on file. See Def.'s Mem. Supp. Mot. Summ. J. Ex. 5, ECF No. 29-6 (internal Brasher Design email). The Maryland Historical Trust further declared that it was now too late for McDowell Building to apply for the tax credit. Ronald Brasher contends that, at that time, his firm conducted an investigation and concluded that the applications had been submitted and that he and his firm had made no error. See Brasher Aff. ΒΆ 10, Mem. Supp. Cross-Mot. Summ. J. Ex. 1, ECF No. 34-1.

Ronald Brasher ultimately informed the other members of McDowell Building about the issue with the tax credit application. Thereafter, the record indicates there was at least some discussion of the potential liabilities of various parties. Specifically, Kemp Byrnes, one of the other McDowell Building members, sent an email on May 20, 2005 to Ronald Brasher and the other members, that stated, in part: "I would rather spend my legal money pursuing you and let you and your attorney try to recoup some of your damages from the State and Reznick." Def.'s Mem. Supp. Mot. Summ. J. Ex. 4. Similarly, on June 6, 2005, John Day sent a letter to the other members stating that "[t]he partnership also faces other issues which will cause significant stress and possibly money to the members[, ].... [including] potential lawsuits between the Company, John E. Day Associates, and Brasher Design as well as possible suits between the actual individual partners." Def.'s Mem. Supp. Mot. Summ. J. Ex. 6.

Despite these communications, McDowell Building brought suit against the Maryland Historical Trust on October 28, 2005 in the Circuit Court for Baltimore City, seeking a writ of mandamus and a declaratory judgment forcing the Maryland Historical Trust to process McDowell Building's Maryland tax credit application. The suit also sought damages from the Reznick Firm for professional negligence because McDowell Building had relied on the letter from the Reznick Firm in deciding to purchase the property.

On June 27, 2006, however, Frank Zokaites, an individual member of McDowell Building, filed a cross-claim and third party complaint (the "Zokaites Complaint") against Brasher Design on behalf of himself and McDowell Building. The Zokaites Complaint included a professional negligence claim against Brasher Design, which was contingent upon the state court finding that no tax credit application had been filed. The court severed the Zokaites Complaint and stayed it pending resolution of McDowell Building's suit against the Maryland Historical Trust.

II. Relevant Policy Language

Brasher Design was covered by a series of consecutive one-year Architects and Engineers Professional Liability insurance policies from the time of initial discovery of the tax credit problem in September 2004 to the commencement of the suit against Brasher Design in June 2006. Brasher Design's original policy with Zurich, the 2004-05 Policy, was effective July 6, 2004 to July 6, 2005, while its 2005-06 Policy was effective July 6, 2005 to July 6, 2006. The final policy covered Brasher Design from July 6, 2008 to July 6, 2009. The relevant terms of the 2005-06 and the 2004-05 policies are essentially identical unless otherwise noted.

The first line of the 2005-06 Policy states that "THIS POLICY PROVIDES CLAIMS-MADE AND REPORTED COVERAGE." Similarly, the 2005-06 Policy defines the terms of coverage accordingly:

We will pay on behalf of the "Insured" all sums in excess of the Deductible noted in Item 6, of the Declarations that you are legally obligated to pay as "Damages" because of "Claims" first made against you during the "Policy Period" and reported to us during the "Policy Period, " or the Extended "Claims" Reporting Period if applicable, provided that:
A. the "Claim" arises out of an actual or alleged negligent act, error or omission with respect to "Professional Services" rendered or that should have been rendered by you or any entity for whom you are legally responsible, including your interest in joint ventures;
B. the act, error, or omission took place during the "Policy Period" or on or after the "Retroactive Date" specified in the Declarations;
C. prior to the effective date of this policy you or any Insured' had no knowledge of any claim' or circumstances, involving an act, error, or omission, which may result in a claim' under this policy;[3]
D. all "Claims" made against you are made during the "Policy Period"; and
E. you give prompt notice of a "Claim", but not later than 60 days after expiration or termination of this policy, in accordance with the Notice of Claims conditions of this policy.

The term "Claim" is defined as "any demand received by you seeking Damages' or Professional Services' and alleging liability or responsibility on your part." Finally, the section "Claim Provisions" provides that "[w]ritten notice must be provided to [Zurich] no ...

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