Maryland, home of the Chesapeake Bay, brings to mind the aphorism, “A rising tide lifts all boats.” Therefore, it should come as no surprise that Maryland has joined the rising tide of states that have adopted a proximate cause standard to determine when an additional insured is entitled to coverage for injuries “caused, in whole or in part, by” another’s acts or omissions. The Maryland Court of Special Appeals’ October 28, 2015 decision in James G. Davis Construction Corp. v. Erie Insurance Exchange
, marks the first time a Maryland state appellate court has dropped anchor on the often-litigated question of the scope of additional insured coverage under widely used ISO policy language.
The Davis Construction
case involved James G. Davis Construction Corporation’s claim for coverage as an additional insured under an Erie Insurance policy. Davis, a general contractor for a home construction project, subcontracted with Tricon Construction for drywall and insulation work on the project. The subcontract required Tricon to name Davis as an additional insured on Tricon’s CGL policy. The subcontract specifically required Tricon to provide additional insured coverage to Davis under a 1989 edition ISO form endorsement that granted broad coverage for claims “arising out of” Tricon’s operations. However, Tricon’s Erie policy featured the 2004 edition of ISO’s additional insured endorsement, which provided more limited coverage, covering Davis only for injuries “caused, in whole or in part, by” Tricon’s acts or omissions. To add to the discrepancy, Tricon’s insurance agent issued a Certificate of Insurance to Davis stating that Davis was an insured for liability “arising out of” Tricon’s operations. This distinction in wording makes a difference.
During the construction project, two employees of another subcontractor were injured when a Tricon scaffold collapsed. The employees sued Tricon and Davis, and Davis sought coverage from Erie as an additional insured on Tricon’s policy. Erie denied coverage, and Davis sued Erie for declaratory judgment and breach of contract. Erie prevailed in the trial court when the court held that Davis was not entitled to coverage because the Erie policy provided additional insured coverage only for a claim alleging that Davis was vicariously liable for Tricon’s actions. The trial court found that the employees’ claims against Davis were not for vicarious liability because the employees alleged that Davis itself was negligent. Davis appealed.
On appeal, the Court of Special Appeals focused on the interpretation of the language in the policy stating that additional insureds were covered for liability “caused, in whole or in part, by
” Tricon’s acts or omissions. Of note, the certificate of liability insurance contained slightly different language, in that it purported to provide coverage to an additional insured for liability “arising out of
” Tricon’s operations. The majority of jurisdictions have found that “caused in whole or in part” indicates a more limited standard for causation than the phrase “arising out of,” and this narrower language was specifically included in 2004 revisions to the ISO forms in order to limit additional insured coverage.
Because no Maryland appellate court had previously analyzed the “caused, in whole or in part, by” language, the appellate court looked to the 4th
Circuit U.S. Court of Appeals’ recent interpretation of this language. The 4th
Circuit held that this language created a duty to defend an additional insured only if the underlying pleadings alleged that the named insured, or someone acting on its behalf, proximately caused the injury or damage. The Court of Special Appeals adopted this interpretation, and in doing so rejected the trial court’s ruling that additional insured coverage was limited to claims alleging that the additional insured is vicariously liable for the named insured’s actions. Based on the proximate cause standard, the court ruled that Erie had a duty to defend Davis. The employees’ complaint alleged that Tricon failed to exercise reasonable care in erecting the scaffold. Therefore, although they also alleged that Davis was negligent in failing to supervise the work site, Davis’s potential liability was for injuries that were at least, in part, proximately caused by Tricon’s acts or omissions. Davis was entitled to additional insured coverage under Tricon’s Erie policy for this claim.
Another issue determined by the Maryland appellate court was whether the Certificate of Insurance alone created a duty to defend, especially when the certificate was prepared by an independent insurance agent. The appellate court found that it did not. Here the Certificate of Insurance presented to Davis was not produced by Erie, and included the caveat that the certificate was for information only and did not amend the coverage afforded by the policies. Thus the terms of the Certificate Additional Insured Endorsement were not part of the policy and not binding on Erie.
The Court of Special Appeal’s decision brings Maryland in line with the majority of jurisdictions that have applied a proximate cause standard when evaluating coverage for an additional insured under the 2004 edition of the ISO form. In so doing and in holding that Davis was entitled to additional insured coverage, the court’s decision also saved Tricon and its insurance agent from a potential claim for failing to provide the additional insured coverage that Davis’s contract with Tricon required.