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On November 4, 2019, Robert Ferguson and Timothy Dygert argued a construction case of first impression before the Court of Appeals of Maryland.  The case concerns a critical question of insurance and joint liability that is being watched by contractors, architects, and insurers in the construction industry.

The case is Gables Construction, Inc. v. Red Coats, Inc. and concerns a fire in a building under construction that occurred in 2014, and which caused $17.6 million in property damage. Gables Construction (represented by Ferguson, Schetelich & Ballew) was the general contractor.  The construction contract had standard clauses by which the property owner promised to insure the entire project against fire loss and the owner waived all claims against the general contractor and sub-contractors for damages caused by fire. It also provided for waiver of subrogation by the fire insurer against the general contractor and sub-contractors.

These waivers prevented the owner and the insurer from making any claim against Gables Construction.  It instead sued a third-party who had caused the fire.  The question being presented is whether the third party at fault can, in turn, seek contribution against Gables Construction, or whether such a claim is barred by the waivers in the general contract.

Messrs. Ferguson and Dygert, who together wrote the Briefs for Gables Construction, argued the case before the Maryland Court of Appeals as to why the waiver of claims by the owner also barred the third-party claim for contribution.

This issue has far reaching implications within the construction industry.  The contracts involved have long established clauses that are prevalent in construction contracts.  They are risk-shifting provisions that balance the rights and duties of the parties so that they do not need to separately insure against the same risk.  This is a long standing practice that has been reflected in standard construction contracts since 1915.  It is supported by the clear language of the Maryland statutes and the clear language of the contracts; and is also to the great benefit to the construction industry as a whole, by requiring a risk of loss to be insured only once and the cost spread among the parties.

Maryland’s highest court has never directly addressed this question, and the decision will impact the construction industry throughout the State. The case is of such importance that the American Institute of Architects, the Associated General Contractors of America, and the Maryland Associated General Contractors have filed an Amicus Brief, arguing in support of the position advanced by Messrs. Ferguson and Dygert.   These “trade associations all agree that property insurance and waiver of subrogation approach, adopted over a century ago by AIA, is the best mechanism for fairly allocating the risks addressed.”

A decision on the case is expected in 2020.

 

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