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Robert L. Ferguson, Jr. recently argued before the United States Court of Appeals for the Fourth Circuit, regarding a question of a Subcontractor’s insurance company’s duty to defend a General Contractor when the construction failure was the fault of its subcontractor. At issue was whether the subcontractor’s insurance policy that extended coverage to the contractor for the subcontractor’s acts or omissions, would provide a defense if the subcontractor itself had not been sued, and the Complaint did not expressly identify the subcontractor as responsible.

The particular language in the insurance endorsement has never before been addressed under Maryland law. It is before the Fourth Circuit after the U.S. District Court ruled that the subcontractor’s insurer did not owe a defense to the contractor.

The case is Capital City Real Estate, LLC v. Certain Underwriters at Lloyd’s, London. Capital City Real Estate is a real estate developer and General Contractor for a home improvement project. Marquez Brick Work, Inc. is a foundation subcontractor retained to do structural and underpinning work on a row house. While Marquez Brick was excavating and underpinning the common wall between the project home and the neighboring home, the rear wall of the project home collapsed, damaging the neighboring home. The owner of the next door property sued Capital City Real Estate.

Marquez Brick carried insurance required by its subcontract, the policy being issued by Certain Underwriters at Lloyd’s, London. The policy contained an ISO Form CG 20100704 endorsement which named Capital City as an additional insured if the damage was “caused in whole or in part, by … your acts or omissions.” When Capital City demanded coverage and a defense from Certain Underwriter at Lloyd’s, London, it was refused, because Marquez Brick had not been sued or specifically named in the Complaint. Capital City (represented by Mr. Ferguson and Ann Ware) filed for a declaratory judgment that a defense and indemnification were owed. This appeal has now been briefed and argued to the United States Court of Appeals for the Fourth Circuit.

There is no Maryland case that has addressed the specific policy language at issue. The question will be decided on the application of established legal principles of an insurer’s duty to defend. The seminal case in Maryland is Brohawn v. Transamerica Ins. Co. decided in 1975. That case decided that the obligation of an insurer to defend is triggered by whether the allegations in the complaint potentially bring the cause of action within the scope of the policy.

Maryland insurance law further provides that when analyzing the duty to defend an insured, the complaint must be viewed broadly, encompassing not just the language of the allegations of the Complaint, but any extrinsic evidence presented by the insured to establish a potentiality of coverage. This presents the central issue of the case. The Complaint filed against Capital City Real Estate does not expressly name Marquez Brick, and does not expressly state that Marquez Brick did the foundation and underpinning work. Therefore, Lloyd’s maintained there is no defense due, as the language of the complaint does not allege “act or omission” by Marquez Brick. But there is also no factual dispute that Marquez Brick was the subcontractor doing the underpinning work, and that the Complaint alleged that the damage arose from that work. To what extent may a court consider the undisputed extrinsic evidence to establish a duty to defend?

The case is important to contractors and insurers as it could further define and clarify a common insurance endorsement. Mr. Ferguson (a Fellow of the American College of Trial Lawyers) argued the case for Capital City Real Estate, as part of his practice experience both in construction law and insurance law. A decision is expected later this year.

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