In March, we posted an article reporting that Robert L. Ferguson, Jr. had argued a question of first impression before the United States Court of Appeals for the Fourth Circuit. At issue was a standard ISO insurance endorsement used extensively by contractors and subcontractors that defines when the subcontractor’s insurer must provide a defense to a general contractor as an additional insured. Although this ISO endorsement (CG-20-10-07-04) was in wide use, Maryland case law had never determined the question of whether an insurer is required to defend the additional insured when the Complaint, upon which a defense and indemnity is requested, does not allege or name the insured as a party possessing some liability for the incident. In June, the Court of Appeals issued its decision, agreeing with Mr. Ferguson’s argument, and requiring the insurer to provide a defense to the general contractor who was an additional insured under the policy. The case is Capital City Real Estate, LLC v. Certain Underwriters at Lloyd’s, London, ___ F.3d _____, (June 10, 2015) WL3606861. The full text of the opinion is available here.
Capital City was a real estate developer and general contractor for a row home improvement project. Marquez Brick Work, Inc. was the foundation subcontractor retained to do structural and underpinning work on the 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, allegedly damaging the neighboring home. The insurance carrier for the neighboring home, as subrogee, sued Capital City Real Estate.
As required by its subcontract with Capital City, Marquez Brick carried an insurance policy that was issued by Certain Underwriters at Lloyd’s, London. The policy contained the ISO endorsement which named Capital City as an additional insured and provided a defense and indemnity if the damage to property was “caused in whole or in part, by … your acts or omissions.” When Capital City demanded a defense and coverage from Certain Underwriter, it was refused, because Marquez Brick had not been sued or specifically named in the Complaint. Capital City (represented by Mr. Ferguson and Ms. Ware) filed suit in the United States District Court for the District of Maryland for a declaratory judgment that a defense and indemnification were owed. Capital City presented the Court with the extrinsic evidence that it was Marquez Brick’s excavation and underpinning work that may have caused the wall to collapse. Soon after the declaratory judgment action was filed both parties filed for summary judgment. Capital City’s motion for summary judgment that a dense and indemnity were owed was denied and Certain Underwriter’s motion for summary judgment was granted because the court found that the complaint in the underlying action did not allege that Capital City was vicariously liable for Marquez’s negligence.
The Fourth Circuit Court of Appeals reversed the lower court and unanimously ruled that a defense was due. In the opinion by Judge Roger Gregory, the Court ruled that Capital City could use extrinsic evidence to bring the suit within the bounds of the policy language. The Court explained that “an insurer may not use extrinsic evidence to contest coverage … [but] an insured may establish a potentiality of coverage under an insurance policy through the use of extrinsic evidence.” This is because “an insured is not foreclosed from receiving the defense to which it is entitled merely because the complaint fails to plead allegations that establish a potentiality of coverage under the insurance policies.” Therefore, Capital City’s extrinsic evidence that the subcontractor’s work caused the wall to collapse created the necessary potentiality for coverage.
The opinion has been published and is now established precedent. It is important to contractors and insurers as it further defines this common additional insured insurance endorsement.
Mr. Ferguson, who argued the case, is a Fellow of the American College of Trial Lawyers, with extensive experience both in construction law and insurance law. Ms. Ware, who assisted in writing the successful brief, is an experience attorney, with an established practice at the firm.