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Circuit Court for Baltimore County, Case No. 03-C-08-006273,
Judith Ensor, Judge.
by: Edward J. Brown, Ellicott City, MD, for Appellant.
by: Steven E. Leder (Julie F. Maloney, Leder Law Grp, PC),
Baltimore, MD, on the brief), for Appellee.
Arthur, Shaw Geter, Deborah S. Eyler (Senior Judge, Specially
Md.App. 699] This case concerns a liability insurers 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.
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 [242 Md.App. 700] 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
the reasons explained in this opinion, we shall affirm the
judgment with respect to the insurers 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 insurers breach of the duty to defend.
FACTUAL AND PROCEDURAL BACKGROUND
A. Selective Way Liability Insurance for Questars
2001, the Highpointe Business Trust engaged Questar Builders,
Inc., to oversee the construction of the Highpointe
in Hunt Valley. Construction was completed in early 2004.
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; Streetts
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.
subcontract required the subcontractor to indemnify Questar
from claims for damages resulting from the subcontractors
work; to maintain commercial general liability insurance [242
Md.App. 701] with "primary and noncontributory"
coverage; and to name Questar as an "additional insured[
]" under those policies.
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
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 insureds 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 Questars insurer with
respect to claims against Questar arising out of the work
performed at the Highpointe project by SEH Excavating
Contractors, Streetts Waterproofing, Justice Waterproofing,
or King Carpentry Contractors.
B. The Construction-Defect Lawsuit against
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.
count against Questar rested on allegations that it had
failed to properly oversee the work of its subcontractors and
[242 Md.App. 702] 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 Questars conduct.
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
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
April 1, 2008, Questars attorney made written requests for
defense and indemnification under the policies issued by
Selective Way. Selective Ways parent corporation denied the
requests under the policies issued to Streetts Waterproofing
and SEH Excavating Contractors. The denial letters cited a
lack of "proof" or "evidence" that the
subcontractors 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. Nationwides Declaratory Judgment Action Against
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 [242 Md.App. 703] [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
Questars 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
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.
the declaratory judgment action was still in its early
stages, Questar agreed to settle the construction-defect
declaratory judgment action proceeded, the court granted
Nationwides 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.
2009, Nationwide moved for summary judgment as to the
liability of 12 insurers, including Selective Way, which had
issued polices to Questars subcontractors. Nationwide
argued: that each of those insurers breached a contractual
duty to defend Questar in the construction-defect lawsuit;
that Nationwides insurance policies provided excess coverage
over the primary coverage issued by those insurers; and that
Nationwide became subrogated to Questars rights against
those insurers when Nationwide paid for Questars defense.
Nationwide [242 Md.App. 704] contended that, as a matter of
law, those insurers were obligated to reimburse Nationwide
for all costs incurred in defending Questar.
insurers collectively opposed Nationwides motion for summary
judgment and moved for summary judgment in their favor.
Primarily, they argued that they were relieved of any duty to
defend because Questar had failed to notify them until 16
months after the filing of the construction-defect lawsuit.
They further argued that Nationwide acted with "unclean
hands" by controlling the entire defense during the
period of delay. Selective Way and other insurers also filed
individualized responses and cross-motions to address issues
specifically related to their respective policies.
Eventually, in 2014, the court issued an order granting
Nationwides summary judgment motion in part, denying it in
part, and denying various cross-motions. The court determined
that each of the 12 insurers, including Selective Way,
"had a duty to defend Questar because the allegations in
the underlying lawsuit raised claims that potentially arose
from the [s]ubcontractors work at the Highpointe
Apartments." The court determined, however, that
"triable issues of fact" remained "as to
whether the [d]efendants were prejudiced by delayed notice
and whether Nationwide ha[d] unclean hands[.]"
D. Jury Trial on Selective Ways Obligation to Pay
and after the summary judgment ruling, Nationwide reached
settlements with the insurers for all of the subcontractors
except Selective Way. Hence, the case proceeded towards a
trial on Nationwides claims against Selective
Nationwide made a second summary judgment motion relating
solely to Selective Ways liability. The court granted the
motion in part, rejecting the defense of unclean hands. The
court determined, however, that a genuine dispute of material
[242 Md.App. 705] fact remained as to whether Selective Way
sustained actual prejudice because of delayed notice.
weeks before the trial in March of 2017, Selective Way filed
a barrage of motions raising arguments that either had been
raised or could have been raised in its earlier
memoranda. The court deferred its ruling on those
issues pending a motion for judgment made during the trial.
scope of the jury trial was limited to determining whether
Selective Way was prejudiced by the receipt of untimely
notice and, if it was not, how much Selective Way was
obligated to pay in damages to compensate Nationwide for the
expense of defending the construction-defect lawsuit. The
trial did not include the separate issue of how much
Selective Way might be obligated to pay in additional damages
to compensate Nationwide for the expense of proving that
Selective Way breached the duty to defend.
adjusters from both insurance companies testified concerning
the issue of delayed notice. Nationwide presented testimony
from the attorneys who represented Questar and from an expert
who opined that the fees charged were fair and reasonable.
Selective Way countered with its own expert, who opined that
the billing records were deficient because they did not
detail how many of the hours were related to construction
work performed by each individual subcontractor. The court
denied the parties motions for judgment at the close of all
parties submitted competing proposals for extensive
non-pattern jury instructions and special verdict sheets. The
court ultimately adopted a verdict sheet based on those
written proposals and on oral arguments made on the final day
Md.App. 706] Answering the questions on the verdict sheet,
the jury first found that Selective Way had received timely
notice of the lawsuit against Questar. The jury also found,
by a preponderance of evidence, that Nationwide had proven
total damages of $994,719.54.
Finally, the jury answered two questions about the
"apportion[ment]" of defense costs. Selective Way
had proposed a question asking the jury whether it found
"by a preponderance of the evidence, that the costs were
readily apportionable" among the various subcontractors.
Nationwide had suggested that, if the court included the
question proposed by Selective Way, then it should also ask
the jury whether it found "by a preponderance of the
evidence, that Nationwide was required to apportion the costs
to each subcontractor[.]" The court included both
questions on the verdict sheet. In response, the jury found
that the defense costs were "readily
apportionable," but that Nationwide was not
"required to apportion" those costs.
the verdict, the court formally dismissed Nationwides
remaining claims against any parties other than Selective
Way. The clerk of the circuit court sent notice of the entry
of a "judgment" against Selective Way and in favor
of Nationwide in the amount of $994,719.54. At the time of
the "judgment," the court had not yet decided how
much in additional fees and expenses Nationwide could recover
in proving that Selective Way breached its duty to defend.
Selective Way moved for a declaration stating that it was not
liable for any damages. It argued that the jurys finding
that defense costs were "readily apportionable"
defeated Nationwides right to recover defense costs that
were not apportioned to the subcontractors that obtained
insurance from Selective Way. In the alternative, Selective
Way moved for judgment notwithstanding the verdict. Selective
Way also filed a notice of appeal, which this Court dismissed
as premature, because the circuit court had not yet
determined the amount of fees to which Nationwide was
entitled in successfully establishing that Selective Way had
breached its duty to defend.
Md.App. 707] E. Awards for Prejudgment Interest and
for Expenses Incurred in the Declaratory Judgment
the case returned to the circuit court after the dismissal of
Selective Ways premature appeal, Nationwide made a
"Motion for Attorneys Fees," asking the court to
determine Selective Ways liability for the fees and expenses
incurred in the declaratory judgment action. Nationwide
submitted an affidavit from its attorney; an affidavit from
an expert on legal fees; and a summary of invoices that it
Opposing the motion, Selective Way argued that it was
entitled to a jury trial, or at least a formal evidentiary
hearing, regarding the attorneys fees and expenses incurred
in the declaratory judgment action. Selective Way disputed
the assertions that all fees and expenses claimed were
necessary and reasonable. It argued that Nationwide was not
entitled to recover all fees and expenses sought, because
much of the work performed by Nationwides attorneys was
unrelated to the claim against Selective Way.
Shortly before the hearing on Nationwides motion for
attorneys fees, Nationwide wrote a letter asking the court
award $430,534.82 in prejudgment interest on the damages
previously found by the jury. Nationwide asked the court to
calculate prejudgment interest at the legal rate of six
percent, from the end of the construction-defect lawsuit in
2009 until the date of the upcoming hearing on attorneys
fees. In response, Selective Way argued, among other things,
that the jury should have decided whether to award
prejudgment interest as part of its verdict and that the
court could not award prejudgment interest after the verdict.
hearing solely on the motion for attorneys fees, the court
rejected Selective Ways request for a jury trial or an
evidentiary hearing. The court proceeded to grant the motion
based on the parties written submissions and the oral
arguments made at the hearing. The court awarded Nationwide
$810,556.72, the full amount it had requested.
Md.App. 708] On May 2, 2018, the court filed a separate
document titled "Order and Declaratory Judgment."
The court declared that Selective Way owed a duty to defend
Questar in the construction-defect lawsuit under policies
issued to Questars subcontractors between 2001 and 2007. The
court determined that Selective Way was liable in the amounts
of: $994,719.54 for defense costs in the construction-defect
lawsuit; $430,534.82 for prejudgment interest on those
defense costs; and $810,556.72 for attorneys fees and
expenses incurred in the declaratory judgment action. The
court reduced Selective Ways total liability by $588,152.00,
to account for the amounts that Nationwide had received from
settlements with other insurers. In aggregate, the court
granted judgment in the amount of $1,647,659.00 against
Selective Way in favor of Nationwide.
Selective Way made a timely motion to alter or amend the
judgment, asking the court to set aside the award of
prejudgment interest. Selective Way also renewed its prior
requests for a judgment entirely in its favor. The court
denied Selective Ways post-judgment motions. Meanwhile,
Selective Way noted this timely appeal.
Selective Ways brief raises 12 questions and various
sub-questions. The full list is reproduced in the appendix to
this opinion. This opinion will address all issues raised by
Selective Way, but not in the order in which those issues
this opinion will address challenges to the declaratory
judgment that Selective Way owed a duty to defend Questar in
the construction-defect lawsuit. Second, this opinion will
address challenges to the determination of damages for the
costs incurred by Nationwide in defending Questar. Because we
see no merit to those challenges, we shall affirm the [242
Md.App. 709] judgment with respect to the declaration of
rights and the award of damages in the amount of $994,719.54.
this opinion will address the award of prejudgment interest
on the damages found by the jury. In the circumstances of
this case, we conclude that the court erred in awarding
prejudgment interest that was not separately stated in the
jurys verdict. Therefore, we shall reverse the award of
$430,534.82 for prejudgment interest.
Finally, this opinion will address the award of $810,556.72
for attorneys fees and expenses incurred by Nationwide in
the declaratory judgment action. Because we conclude that
Selective Way was entitled to a jury trial on that element of
damages, we shall vacate that part of the judgment. The case
shall be remanded for a jury trial solely to determine the
amount of reasonable and necessary attorneys fees and
expenses incurred by Nationwide in the declaratory judgment
action as a result of Selective Ways breach of its duty to
I. Declaratory Judgment Regarding Selective Ways
Duty to Defend
Way contends that the circuit court erred when it granted
partial summary judgment and, ultimately, a declaratory
judgment in favor of Nationwide. Selective Way contends that
the court was "incorrect" in determining that
Selective Way owed a duty to defend Questar in the underlying
construction-defect lawsuit. We review these matters de novo.
See, e.g., James G. Davis Constr. Corp. v. Erie
Ins. Exch., 226 Md.App. 25, 34-35, 126 A.3d 753 (2015).
As explained below, the courts determinations were correct.
A. The Contractual Duty to Defend Under a Liability
"insurers duty to defend is a contractual duty arising
out of the terms of a liability insurance policy."
Litz v. State Farm Fire & Cas. Co., 346 Md. 217,
225, 695 A.2d 566 (1997). "Under the typical liability
insurance policy," the insurer [242 Md.App. 710] must
"indemnify the insured ... for the payment of a judgment
based on a liability claim which is covered" by the
policy and must "defend the insured against a liability
claim which is covered or which is potentially covered"
by the policy. Mesmer v. Maryland Auto. Ins. Fund,
353 Md. 241, 257, 725 A.2d 1053 (1999). The dual promises to
defend and indemnify the insured are "the consideration
received by the insured for payment of the policy
premiums." Brohawn v. Transamerica Ins. Co.,
276 Md. 396, 409, 347 A.2d 842 (1975). This type of insurance
"is in effect litigation insurance procured by an
insured to protect the insured from the expense of defending
suits brought against [it]. " Aetna Cas. & Sur. Co.
v. Cochran, 337 Md. 98, 110, 651 A.2d 859 (1995)
(quoting Brohawn v. Transamerica Ins. Co., 276 Md.
at 410, 347 A.2d 842).
Court of Appeals has "consistently held that the duty to
defend should be construed liberally in favor of the
policyholder." Springer v. Erie Ins. Exch., 439
Md. 142, 167, 94 A.3d 75 (2014). The insurer has the duty to
defend the insured from all claims that are "potentially
covered" by the policy. See, e.g., Walk v.
Hartford Cas. Ins. Co., 382 Md. 1, 15, 852 A.2d 98
(2004). Thus, " [e]ven if a tort plaintiff does not
allege facts which clearly bring the claim within or without
the policy coverage, the insurer still must defend if there
is a potentiality that the claim could be covered by
the policy. " Id. at 16, 852 A.2d 98 (emphasis
in original) (quoting Brohawn v. Transamerica Ins.
Co., 276 Md. at 408, 347 A.2d 842). Under this rule,
" any potentiality of coverage, no matter how slight,
gives rise to a duty to defend. " Litz v. State
Farm Fire & Cas. Co., 346 Md. at 226, 695 A.2d 566
(quoting Andrew Janquitto, Insurers Duty to Defend in
Maryland, 18 U. BALT. L. REV. 1, 13-14 (1988)).
"[W]here a potentiality of coverage is uncertain from
the allegations of a complaint, any doubt must be resolved in
favor of the insured." Aetna Cas. & Sur. Co. v.
Cochran, 337 Md. at 107, 651 A.2d 859. Because the
"duty to defend is broader than the duty to
indemnify[,]" a liability insurer "will be
obligated to defend more [suits] than it will be required to
indemnify[.]" Litz v. State Farm Fire & Cas.
Co., 346 Md. at 225, 695 A.2d 566.
Md.App. 711] For a suit to trigger the insurers duty to
defend, the plaintiff "need only
allege action that is potentially covered
by the policy, no matter how attenuated, frivolous, or
illogical that allegation may be." Sheets v.
Brethren Mut. Ins. Co., 342 Md. 634, 643, 679 A.2d 540
(1996) (emphasis in original). The plaintiff in the
underlying suit need not "allege every fact necessary to
establish [the insurers] coverage," as long as the
allegations sufficiently indicate that "the injury in
question was caused by some act or omission covered by the
terms of the contract." U.S. Fid. & Guar. Co. v.
National Paving & Contracting Co., 228 Md. 40, 54-55, 178
A.2d 872 (1962). An insurer may have a duty to defend
"even though the claim asserted against the insured
cannot possibly succeed because either in law or in fact
there is no basis for a plaintiffs judgment." Litz
v. State Farm Fire & Cas. Co., 346 Md. at 225, 695 A.2d
566 (citations and quotation marks omitted).
insurer breaches its duty to defend if it refuses to defend a
suit where a claim is potentially covered by the policy.
See Mesmer v. Maryland Auto. Ins. Fund, 353
Md. at 258, 725 A.2d 1053. A cause of action against an
insurer for breach of the duty to defend "sounds in
contract" (Vigilant Ins. Co. v. Luppino, 352
Md. 481, 488, 723 A.2d 14 (1999)) and is "governed by
the principles applicable to breach of contract
actions." Luppino v. Vigilant Ins. Co., 110
Md.App. 372, 381, 677 A.2d 617 (1996), affd, 352
Md. 481, 723 A.2d 14 (1999). The "damages for breach of
the contractual duty to defend are ... the insureds
expenses, including attorney fees, in defending the
underlying tort action, as well as the insureds expenses and
attorney fees in a separate contract or declaratory judgment
action ... to establish that there exists a duty to
defend." Mesmer v. Maryland Auto. Ins. Fund,
353 Md. at 264, 725 A.2d 1053.
B. Duty to Defend a General Contractor Under
Liability Insurance Policy Issued to Subcontractor
occasions, this Court has held that a liability insurer was
obligated to defend a general contractor where, as here, the
policy for a subcontractor made the general contractor an
[242 Md.App. 712] additional insured with respect to claims
arising out of the subcontractors work. James G. Davis
Constr. Corp. v. Erie Ins. Exch., 226 Md.App. 25, 126
A.3d 753 (2015), cert. denied, 446 Md. 705, 133 A.3d
1110 (2016); Baltimore Gas & Elec. Co. v. Commercial
Union Ins. Co., 113 Md.App. 540, 688 A.2d 496 (1997).
Both cases are instructive here.
older case, the subcontractor performed excavation work for a
public utility company. Baltimore Gas & Elec. Co. v.
Commercial Union Ins. Co., 113 Md.App. at 547-48, 688
A.2d 496. The subcontractors liability insurance policy made
the utility an additional insured, but "specified that,
as an additional insured, [the utility] was protected only
with respect to liability arising out of" the
subcontractors work for the utility. Id. at 557,
688 A.2d 496. The policy excluded coverage for claims arising
out of the utilitys own acts or omissions, other than its
supervision of the subcontractor. Id. at 558, 688
plaintiff who sustained injuries at the excavation site sued
the utility and the subcontractor for damages. Baltimore
Gas & Elec. Co. v. Commercial Union Ins. Co., 113
Md.App. at 548, 688 A.2d 496. The plaintiff alleged that
"the negligent, careless and reckless construction
activities of the [d]efendants, their agents, servants and
employees" caused the plaintiffs injuries. Id.
at 561-62, 688 A.2d 496. These "general"
allegations did not "specify the particulars of the
negligence claim" against the utility, but rather
"include[d] a claim against [the utility] grounded on
derivative liability, based on [the utilitys] failure to
supervise its agents, and a claim of liability based on its
own conduct." Id. at 562, 688 A.2d 496. The
Court was "amply satisfied" that these allegations
created the potentiality for coverage, and thus that the
subcontractors insurer had a duty to defend the utility
(id. at 562-63, 688 A.2d 496) until the plaintiff
dismissed the claims against the subcontractor. Id.
at 576, 688 A.2d 496.
Court construed slightly different terms in James G.
Davis Construction Corp. v. Erie Insurance Exchange, 226
Md.App. 25, 126 A.3d 753 (2015). In that case, a
subcontractors [242 Md.App. 713] insurance policy made the
general contractor an additional insured with respect to
liability for injury or damage "caused, in whole or in
part, by" the subcontractors work for the general
contractor. Id. at 30, 126 A.3d 753 (emphasis
omitted). Under those terms, the insurer owed a duty to
defend the general contractor "as long as [the general
contractor] [was] alleged to be liable, in whole or in part,
by the acts or omissions of [the subcontractor]."
Id. at 41, 126 A.3d 753. In other words, the insurer
"ha[d] a duty to ...