Appellate Court of Maryland applies equitable contribution principles to preserve non-settling insurers potential right to contribution against settling insurers.

 

Selective Way Insurance Company  v. Fireman’s Fund Insurance Company, et. al.

            On February 2, 2023, the Appellate Court of Maryland issued its opinion in Selective Way Insurance Company v. Fireman’s Fund Insurance Company, et. al. The opinion primarily analyzed the doctrine of equitable contribution, particularly as it pertains to liability insurers with a mutual obligation to the same insured.

            The original dispute arose from a Baltimore County apartment complex construction project gone awry. In 2006, a subsequent purchaser of the complex sued the general contractor, “Questar.” Questar was insured with Nationwide and was an additional insured on various liability policies held by Questar’s subcontractors. Nationwide defended Questar in the underlying suit while also requesting defense and indemnification from the subcontractors’ insurers.  The underlying suit against Questar was settled in 2009, however, not before Questar incurred approximately one million dollars in attorneys’ fees and other costs.

            Nationwide brought a declaratory judgment action in Baltimore County Circuit Court against the various subcontractors and their insurers alleging that they breached a contractual duty to defend Questar in the underlying construction suit.  Nationwide eventually reached settlement agreements with all but one of the other insurers: Selective Way. The settlement agreements included substantially the same provisions requiring the settling insurers to waive claims for contribution or indemnity against the other insurers. In 2017, Nationwide’s case against Selective Way (the sole non-settling insurer) proceeded to a jury trial after which the jury determined that Nationwide proved damages in the amount of: $994,719.54.

            In March of 2020, Selective Way filed an action in Baltimore County Circuit Court seeking contribution, restitution, and subrogation from the various settling insurers. In June of 2021, the Circuit Court disposed of Selective Way’s claims by dismissing and/or granting summary judgement in favor of the defendant-insurers. The court ruled that Selective Way failed to assert a cross claim against the settling insurers in the action by Nationwide. Upon settlement with Nationwide, the court reasoned that there was no longer a “common liability” between Selective Way and the settling insurers and, absent a common liability, there was no right of contribution.

            On Appeal, the Appellate Court of Maryland overturned the ruling against Selective Way on the contribution claims. The Appellate Court took issue with the trial court’s reliance on Selective Way’s failure to assert cross claims against the other insurers in the action by Nationwide, noting that cross claims are not mandatory and need not be brought in an original action.  Additionally, the Appellate Court analyzed authority from other states to determine that insurer who pays “more than its fair share” may have a right of contribution from another insurer that was obligated to cover the same loss. The Appellate Court referenced Maryland Cas. Co. v. W.R. Grace & Co., 218 F.3d 204, 210 (2d Cir. 2000) for the proposition that “a settlement agreement that absolves an insurer of its contractual obligations to the insured does not extinguish the rights of other insurers to receive equitable contribution from the settling insurer.” The Appellate Court ultimately remanded the case back to the Circuit Court for further action, particularly on the viability of Selective Way’s contribution claim against the settling insurers. 

 

 Joseph Kavanagh, Associate