Gables Construction v. Red Coats

Gables Construction v. Red Coats (Ct. of Special Appeals)

Filed: February 27, 2019

Opinion by: Judge Alexander Wright.

Holding:

Contractual waivers of subrogation do not shield a contracting party from third-party contribution and direct liability under the Maryland’s Uniform Contribution Among Joint Tort-Feasors Act (“UCATA”)

Facts:

Upper Rock was the owner of a residential building project and hired Plaintiff Gables Construction (“GCI”) as the General Contractor, wholly owned by Gables Residential Services, Inc. (“GRSI”), to build the building. GSRI hired Defendant Red Coats, Inc./Admiral (“Red Coats”) to provide security and fire watch services monitoring during the construction period from approximately 5 pm to 6 am pursuant to a vendor services agreement (the “VSA”).  In the GSRI-Red Coats VSA, Red Coats waived subrogation; also, GCI is named as an additional insured in the VSA.

A fire damaged a building as it was almost completed.  The fire may have been caused by space heaters.  Upper Rock sued Defendant, and they settled.  Defendant then sued Plaintiff, claiming it was liable because it provided no training on the operation of the space heaters to Defendant.

Analysis:

The Court of Special Appeals agreed with the Montgomery County Circuit Court that Red Coats’ settlement with Upper Rock does not preclude Red Coats from seeking contribution from GCI under Maryland’s UCATA.

Citing Homeseekers’ Realty v. Silent Automatic Sales, 163 Md. 541, 545 (1933), a “contract is binding only upon the parties to the contract and their privies.”  

Before Maryland enacted its UCATA in 1941, “a statutory right of contribution among joint tortfeasors….did not exist.”  See Central GMC v. Helms, 303 Md. 266, 276(1985).  Thus, injured parties cherry-picked which tortfeasor to sue.

UCATA provides that a release of one joint tortfeasor does not relieve the liability of other joint tortfeasors.  If it did, it could create a chilling effect on business relationships.

The full opinion is available PDF.

URS Corp. v. Maryland-National Capital Park & Planning Commission (Ct. of Special Appeals, Unreported)

Filed: July 6, 2018

Opinion by: Judge Doug Nazarian

Holding: Separate indemnification provisions in multiple documents that form a single agreement between the parties are not in conflict with each other where one indemnification provision provides a duty to defend but the other is silent. 

Facts:  The Maryland-National Capital Park and Planning Commission (the "Commission"), as part of Montgomery County, and URS Corporation ("URS") entered into an agreement for URS to provide the Commission with engineering services for the construction of the Rock Creek Hiker-Biker Trail Bridge over Veirs Mill Road.  The agreement consisted of: (1) a basic ordering agreement between Montgomery County and URS for transportation and engineering services to facilitate the planning and design of various projects (the "BOA"); (2) a request for proposal, extending the basic ordering agreement to include the Commission as a party; (3) a task order issued by the Commission for the specific engineering services; (4) a proposal from URS in response to the task order; (5) a contract between the Commission and URS for the specific engineering services (the "Contract"); and (6) the Commission's procurement rules, regulations and laws.  The BOA contained an indemnification provision that, in addition to indemnification, obligated URS to defend Montgomery County (including the Commission) in any action or suit arising out of URS's "negligence, errors, acts or omissions" arising under the BOA.  The Contract contained an indemnification provision that did not expressly obligate URS to defend any such claims.  The Contract also provided that, in the event of a conflict among the documents comprising the agreement among the parties, the Contract had precedence over the BOA.

Fort Myer Construction Corporation (the "Subcontractor") was retained to assist in the construction of the bridge.  The Subcontractor filed suit against the Commission claiming damages and delays due to defects in URS's design.  The Commission sent a letter to URS invoking URS's duty-to-defend and indemnification obligations under the basic ordering agreement. URS denied the Commission's demand and refused to defend or indemnify the Commission.  The Commission filed suit against URS for breach of contract and sought indemnification and contribution and URS countersued the Commission for failure to pay URS for work performed under the Contract.

Analysis: After multiple hearings and procedural matters that are not relevant for purposes of this analysis, the Court of Special Appeals (in an unreported opinion) affirmed the lower court's finding that URS had a duty to defend the Commission in the lawsuit brought by the Subcontractor.  The court was not persuaded by URS's argument that the indemnification provisions of the BOA and the Contract were in conflict because "the duty to defend is distinct from, and broader than, the duty to indemnify"; therefore, the duty to defend in the BOA supplemented the indemnification obligations in the Contract.  The Contract's silence regarding any duty to defend did not negate the express language of the BOA.  

The court was also not persuaded by URS's argument that the BOA applied only to the pricing of goods and services because the Contract unambiguously and unqualifiedly stated that the BOA was incorporated into the Contract.  The court found URS breached its agreement with the Commission by refusing to defend the Commission in the lawsuit brought by the Subcontractor, even though the suit was ultimately dismissed for a procedural error committed by the Subcontractor, because the duty to defend was triggered by the Subcontractor filing suit against the Commission regardless of the validity of the Subcontractor's claim.

This is an unreported opinion.  See Md. Rule 1-104.

The full opinion is available in pdf.

Bainbridge St. Elmo Apts v. White Flint Express Realty (Ct. of Special Appeals)

Filed: July 18, 2017

Opinion By: Raker

Holding: Bainbridge was liable for White Flint's attorney's fees under an express attorney fees shifting provision found in the indemnification agreement between the parties.

Facts: The case involves a written easement agreement between the parties that permitted Bainbridge St. Elmo Apartments ("Bainbridge") access to White Flint Express Realty's ("White Flint") property for a construction project of a 17 story high rise building immediately adjacent to White Flint's property in Bethesda, Maryland.  Bainbridge promised in the agreement to perform in a professional manner and would not use a pile-drive system to secure the hole for the foundation of the apartment building.  In exchange, Bainbridge received the right of access to the White Flint property, including air rights for a crane, as a part of the construction.

Article 9 of the agreement provided that "[t]he prevailing party in any arbitration shall be awarded reasonable counsel fees, expert and non-expert witness costs and expenses and all other costs and costs and expenses reasonably incurred, directly or indirectly, in connection with said arbitration, and all costs and fees of such arbitration shall be borne exclusively by the non-prevailing party.”  Article 19 provided the following indemnification language: "Bainbridge hereby indemnifies, and agrees to defend and hold harmless White Flint . . . from any and all claims, demands, debts, actions, causes of action, suits, obligations, losses, costs, expenses, fees, and liabilities (including reasonable attorney’s fees, disbursements, and litigation costs) arising from or in connection with Bainbridge’s breach of any terms of this Agreement or injuries to persons or property resulting from the Work, or the activities of Bainbridge or its employees, agents, contractors, or affiliates conducted on or about the White Flint Property, including without limitation, for any rent loss directly attributable to any damage to the White Flint Property caused by the construction of the Project, however Bainbridge shall not be liable for matters resulting from the negligence or intentional misconduct of White Flint, its agents, employees, or contractors. The indemnification obligations set forth herein shall survive the termination of this Agreement indefinitely.”

During construction, damaged occurred to the buildings on White Flint's property, resulting in a stop work order from Montgomery County, leading to White Flint terminating the agreement for material breach by Bainbridge.  Subsequently, White Flint filed an action against Bainbridge, resulting in the grant of a motion for summary by the trial court, finding: "that Bainbridge’s obligations survived the termination, that Bainbridge materially breached the agreement ... [and] under Article 19 of the Agreement, White Flint was entitled to attorney’s fees."  After a hearing, the trial court then entered an order awarding a total of $3,931,648.47 in attorney's fees and costs to White Flint.  Bainbridge appealed the fee order.

Analysis: The Court of Appeals analyzed the dispute over first-party attorney fee shifting by using traditional contract interpretation principles, including interpreting language in a contract based on its customary meaning, and looking at the entire agreement for context of a disputed provision. Under Maryland law, the American Rule for attorney fee shifting means that each party typically bears its own attorney's fees in a lawsuit, absent an applicable exception to that rule.  One such exception - where the parties have agreed to a fee shifting provision - is at issue in the present litigation.  Under the American Rule, typically an agreement to indemnify a party may include a fee shifting provision, but that Rule distinguishes between first and third party attorney's fees.  The former - where a party expends attorney's fees to determine the existence of an indemnification obligation - is distinguished from the latter - where a party expends attorney's fees to defend itself from a third party claim which was the obligation of the other party to defend.  Generally, first party attorney's fees are not recoverable under the American Rule in indemnification clauses where third party attorney's fees are recoverable in such clauses.

The Court then explains that the Nova Research v. Penske, 405 Md. 435 (2008), case required that first party fee shifting provisions must be express and strictly construed in indemnity agreements to be enforceable, using traditional contract interpretation principles.  The Court goes on to distinguish Nova Research from the present case, as Article 19 of the agreement here expressly provided for recovery of attorney's fees as a part of the indemnification obligations of Bainbridge to White Flint.  The Court then construed Article 19 by examining the purpose of the agreement - to make sure White Flint was made whole in the event that Bainbridge caused damage during construction - and then by examining the specific language in the indemnification provision itself.  The Court held that the clause involved three different clauses of indemnification, and that each clause was read independently.  Only the latter two of these clauses involved defense of third-party claims by Bainbridge, meaning that Bainbridge was still obliged "to defend and hold harmless White Flint" in the event that Bainbridge breached the agreement.  This first clause contained an express provision to shift attorney's fees.

The Court's view was that the indemnity agreement between the parties.  "Bainbridge and White Flint designed the agreement to ensure that Bainbridge, and not White Flint, carried all of the risk from the construction work; otherwise, White Flint had no incentive to support Bainbridge’s plans. Thus, the parties designed Article 19 to ensure that White Flint would be made whole if Bainbridge breached the agreement, which supports first-party fee shifting."

As a result, the Court affirmed the Court of Special Appeals and the trial court's order, directing Bainbridge to pay White Flint's attorney's fees incurred in the litigation.

The full opinion is available in PDF.

Schneider Electric Buildings Critical Systems v. Western Surety (Ct. of Appeals)

Filed: July 28, 2017

Opinion by: Judge Adkins

Holding:

A surety company that guarantees performance of a construction subcontract with a performance bond is not bound by the subcontract’s mandatory arbitration clause when the subcontract is incorporated by reference into the bond and the clause refers only to the subcontract’s parties and the bond allows for dispute resolution in court.

Facts:

In May 2009, Plaintiff, a construction contractor, signed a Master Subcontract Agreement (“MSA”) with NCS, an electrical subcontractor, to cover future projects.  The MSA included a mandatory arbitration clause (the “Clause”).  In October 2009, Plaintiff was hired by another construction contractor to help build a medical research facility.  Plaintiff in turn hired NCS to help with the project.  Plaintiff and NCS signed a subcontract (“NCS Subcontract”) that incorporated the MSA by reference.  The NCS Subcontract required NCS to furnish a performance bond (“Bond”), which it obtained from Defendant.  The Bond made NCS and Defendant jointly and severally liable to Plaintiff for performance of the NCS Subcontract.

During construction, a dispute arose, NCS abandoned the site and Plaintiff terminated the contract.  In February 2014, Plaintiff filed a demand for arbitration with NCS.  In April 2014, Plaintiff amended the demand to include Defendant.  Defendant filed a petition in Howard County Circuit Court in which it requested a declaratory judgment that it was not bound by the Clause.

The case was transferred to a more proper venue, Harford County Circuit Court, which granted partial summary judgment for Defendant.  That court explained that the Bond is only insuring that Defendant is liable for any construction that has not been performed, and found no evidence of an intention that Defendant should be bound to dispute resolution provisions of the MSA.  

The Court of Special Appeals affirmed, holding that “the ‘joint and several’ obligation clause in the (Bond) does not evince (Defendant’s) assent to be bound by the (Clause) in the incorporated-by-reference chain of documents.”  Schneider Elec. Bldgs. Critical Sys., v. Western Sur. Co., 231 Md. App. 27, 46 (2016).  The Court of Appeals granted Plaintiff’s petition for a writ of certiorari.

Analysis:

The Court of Appeals applied Maryland contract law to determine if Defendant is bound by the Clause.  Precedent in Maryland requires courts to look at the intention of the parties as expressed in the language of the contracts.  The Court of Appeals explained in Hartford Accident & Indem. Co. v. Scarlett Harbor Assocs., 346 Md. 122, 127 (1997) that “arbitration is a process whereby parties voluntarily agree to substitute a private tribunal for the public tribunal otherwise available to them” and an arbitration clause “cannot impose obligations on persons who are not a party to it and do not agree to its terms.” 

The Court of Appeals interpreted the Bond by “constru(ing) (the Bond, NCS Subcontract, and MSA) as a whole…not (by) read(ing) each clause or provision (of each contract) separately.”  Owens-Illinois v. Cook, 386 Md. 468, 497 (2005).

Here, the Court of Appeals agreed with the lower courts because the Clause refers to the “parties” to the NCS Subcontract (which are Plaintiff and NCS) and the Bond permits court actions to resolve disputes between NCS and Defendant.  Since Defendant was not a “party” to the NCS Subcontract, the Clause does not apply to Defendant.  The Court of Appeals found support in its holding in Liberty Mutual Insurance v. Mandaree Public School District #36, 503 F.3d 709 (8th Cir. 2007), whose facts are similar to this case.

The full opinion is available PDF.

Montgomery County v. Parsons Brinckerhoff, Inc. (Cir. Ct. Mont. Cnty.)

Filed: March 22, 2016

Opinion by Michael D. Mason

Holding:  Neither tortfeasor is entitled indemnification by the other in a case where they are concurrent or joint tortfeasors and where each tortfeasor owes a separate duty to the same third party, but there is no legal relationship between the tortfeasors.

Facts:  Parsons Brinkcerhoff, Inc. (“PB”) and Foulger-Pratt Contracting, LLC (“FPC”) were hired by Montgomery County (the “County”) and Washington Metropolitan Area Transit Authority (“WMATA”) to design and supervise the construction of the Silver Spring Transit Center. FPC hired Facchina Construction Company, Inc. (“Facchina”) as the primary concrete subcontractor for the project. The County and WMATA filed suit against PB and FPC, among others, alleging injuries suffered as a result of negligence in the design and construction of the center. The majority of complaints related to concrete work; thus PB filed a cross-claim against Facchina for indemnity.

Analysis:  Because there was no legal relationship between PB and Facchina, the court dismissed PB’s cross-claim against Facchina, finding each party owed a separate legal duty to the County and WMATA. The court, citing the Court of Appeals in Franklin v. Morrison, 350 Md. 144, 162 (1998), stated that “[i]n the case of concurrent or joint tortfeasors, having no legal relationship to one another, each of them owing the same duty to the injured party, and involved in an accident in which the injury occurs…no right of indemnity exists on behalf of either against the other; in such a case there is only a common liability and not a primary and secondary one, even though one may have been much more negligent than the other” (emphasis added by the court). Conversely, the court reasoned that a concurrent or joint tortfeasor’s right to indemnity from the other tortfeasor results from the obligations between the tortfeasoers and not from the duty each tortfeasor owes to the injured party. The court, quoting Board v. RTKL Associates, 80 Md. App. 45, 55-56 (1989) followed the reasoning that, “Indemnity requires that, where one of the wrongdoers is primarily liable, that wrongdoer must bear the whole loss. The joint tortfeasoer must have had some sort of relationship prior to the tort which justified the claim for indemnity.” (emphasis added by the court).

The court acknowledged it was possibly that the negligence of PB was minor in comparison to the negligence of Facchina, but that the difference in degree would not justify a claim for indemnity. Any negligence by PB was active, not passive, and therefore PB is not entitled to indemnity by Facchina.

The full opinion is available in PDF.

Pennsylvania National Mutual Casualty Insurance Co. v. City Homes, Inc. (Maryland U.S.D.C.)

Filed: June 25, 2010
Opinion by Judge Catherine C. Blake.

Held: An insurance company will owe a duty to indemnify an insured for any judgment against it for negligence and/or negligent misrepresentation if the insured does not foresee or expect an injury resulting from a negligent act. The act of negligence is an “accident” under liability insurance.

Facts: An insurance company filed a declaratory judgment action claiming that it did not have a duty to indemnify and defend a rental property company and its president in a lawsuit filed by two minors who alleged they were exposed to lead paint. The rental property company counterclaimed and both sides moved for summary judgment.

The house in question had been a subject property in a “Lead-Based Paint Abatement and Repair & Maintenance Study.” It had undergone a lead-abatement intervention. During the time period in which the two minors lived in the house, the rental property company held commercial general liability insurance. After the rental property company sought indemnification from the insurance company, the insurance company argued that it did not owe a duty to defend or indemnify the rental property company because the underlying litigation did not involve an “occurrence,” as defined in the insurance contract.

The insurance company also argued that, even if the underlying case involved an “occurrence,” the contract’s exclusion for bodily injury that was expected or intended by the insured applies. The insurance company argued that the participation in the lead paint study showed the rental property company must have foreseen and expected the alleged injuries.

The insurance contract defined an “occurrence” as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

Analysis: The court applied the standard set forth in Sheets v. Brethren Mutual Insurance Company, 342 Md. 634, 679 A.2d 540 (1996). In Sheets, the Maryland Court of Appeals held that an act of negligence constitutes an “accident” under a liability insurance policy and identified the relevant inquiry to be whether the insured actually foresaw or expected the injury resulting from the insured’s negligent act. By this standard, the court held that it could not be inferred from the rental property company’s participation in the study and its knowledge of the risks of lead poisoning that it foresaw the injuries sustained by the two minors.

Granting the rental property company’s motion and denying the insurance company’s motion for summary judgment, the court held that the insurance company will owe a duty to indemnify the rental property company for any judgment against it if the rental property company is ultimately found liable for negligence and/or negligent misrepresentation because the alleged were accidental and caused by an “occurrence.”

The full opinion is available in pdf.