Additional Insured

4th Circ. Requires Lloyd’s to Defend Contractor as Additional Insured

The Fourth Circuit, applying Maryland law, overturned the district court and found that Lloyd’s was required to defend a contractor as an additional insured under a subcontractor’s policy even though the underlying suit did not name the subcontractor. The court also allowed the contractor to rely on extrinsic evidence to establish coverage.

The underlying suit arose when a wall collapsed in a building for which Capital City Real Estate, LLC (“Capital City”) was the General Contractor. Capital City, however, subcontracted the foundation, structural, and underpinning work for the building to Marquez Brick Work, Inc. (“Marquez”). After being sued as a result of the wall collapse, Capital City sought a declaration that Marquez’s insurer, Certain Underwriters at Lloyd’s London (“Underwriters”), were obligated to defend them in the underlying suit as an additional insured. The district court disagreed and found that the Underwriters did not have a coverage obligation to Capital City.

The contract between Capital City and Marquez required Marquez to indemnify Capital City for damages caused by its work and required Marquez to name Capital City as an additional insured on its comprehensive general liability policy. The policy at issue included an endorsement which required the Underwriters to cover Capital City as an additional insured, “but only with respect to liability for … “property damage” … caused in whole or in part by: 1. [Marquez’s] acts or omissions; or 2. The acts or omissions of those acting on [Marquez’s] behalf; in the performance of Marquez’s ongoing operations for Capital City in Washington, D.C.].”

On appeal, the Fourth Circuit held that “the plain language of the Endorsement provides for exactly what it says: coverage to Capital City for property damage caused by Marquez, either in whole or in part.” In making this ruling, the court rejected the Underwriters’ argument that the scope of coverage was limited to Capital City’s vicarious liability for Marquez’s acts or omissions. The court found that the language of the endorsement must control and the endorsement at issue lacked the vicarious liability limitation that the Underwriters sought to impose.  Even though the underlying complaint did not name Marquez, but rather attributed the collapse and damages to Capital City, the court also held that the allegations in the underlying complaint created a potentiality of coverage. According to the Fourth Circuit, Maryland courts generally look to the pleadings in the underlying lawsuit to determine whether there is a potentiality of coverage, but where the potentiality of coverage is uncertain from the allegations of a complaint an insured may establish coverage through the use of extrinsic evidence. Here, although the complaint was silent as to Marquez’s involvement, Capital City had filed a third party complaint against Marquez and introduced extrinsic evidence that the collapse of the wall was caused by Marquez. The court ruled that “[b]ecause the underlying complaint does not make clear that Marquez conducted the foundation, structural, and underpinning work that led to the collapse of the common wall, Capital City is entitled to rely on its extrinsic evidence to establish those facts and to thereby establish a potentiality of coverage.” Capital City Real Estate, LLC v. Certain Underwriters at Lloyd’s London, No. 14-1239 (4th Cir.  June 10, 2015).

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