Maryland Joins the Rising Tide of States in Placing Limits on the Scope of Additional Insured Coverage

Maryland, home of the Chesapeake Bay, brings to mind the aphorism, aEURoeA rising tide lifts all boats.aEUR? 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 aEURoecaused, in whole or in part, byaEUR? anotheraEUR(TM)s acts or omissions. The Maryland Court of Special AppealsaEUR(TM) 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 CorporationaEUR(TM)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 TriconaEUR(TM)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 aEURoearising out ofaEUR? TriconaEUR(TM)s operations. However, TriconaEUR(TM)s Erie policy featured the 2004 edition of ISOaEUR(TM)s additional insured endorsement, which provided more limited coverage, covering Davis only for injuries aEURoecaused, in whole or in part, byaEUR? TriconaEUR(TM)s acts or omissions. To add to the discrepancy, TriconaEUR(TM)s insurance agent issued a Certificate of Insurance to Davis stating that Davis was an insured for liability aEURoearising out ofaEUR? TriconaEUR(TM)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 TriconaEUR(TM)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 TriconaEUR(TM)s actions. The trial court found that the employeesaEUR(TM) 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 aEURoecaused, in whole or in part, byaEUR? TriconaEUR(TM)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 aEURoearising out ofaEUR? TriconaEUR(TM)s operations. The majority of jurisdictions have found that aEURoecaused in whole or in partaEUR? indicates a more limited standard for causation than the phrase aEURoearising out of,aEUR? 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 aEURoecaused, in whole or in part, byaEUR? language, the appellate court looked to the 4th Circuit U.S. Court of AppealsaEUR(TM) 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 courtaEUR(TM)s ruling that additional insured coverage was limited to claims alleging that the additional insured is vicariously liable for the named insuredaEUR(TM)s actions. Based on the proximate cause standard, the court ruled that Erie had a duty to defend Davis. The employeesaEUR(TM) 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, DavisaEUR(TM)s potential liability was for injuries that were at least, in part, proximately caused by TriconaEUR(TM)s acts or omissions. Davis was entitled to additional insured coverage under TriconaEUR(TM)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 AppealaEUR(TM)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 courtaEUR(TM)s decision also saved Tricon and its insurance agent from a potential claim for failing to provide the additional insured coverage that DavisaEUR(TM)s contract with Tricon required.

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