Selective Way v. Nationwide

Selective Way Insurance Company v. Nationwide Property and Casualty Insurance Company, et al., No. 755, Sept. Term 2018. Opinion by Arthur, J. LIABILITY INSURANCE—DAMAGES FOR BREACH OF DUTY TO DEFEND A liability insurer for a subcontractor has a duty to defend a suit against a general contractor where: the policy makes the general contractor an additional insured with respect to claims arising out of or caused by the subcontractor’s work for the general contractor; and the allegations in the lawsuit demonstrate a potential that the damages resulted from the general contractor’s supervision of the subcontractor’s work. In those circumstances, the insurer must provide a defense of all claims raised against the additional insured, notwithstanding alternative allegations for which there is no potentiality of coverage. An insurer that breaches this duty is liable for the reasonable costs of defending the entire suit against the additional insured.

EQUITABLE SUBROGATION—PRIMARY AND EXCESS INSURANCE Where an excess insurer pays for the defense that another insurer was primarily obligated to provide, the primary insurer must reimburse the excess insurer for the costs of defense, as well as the cost of litigation to establish the primary insurer’s duty to defend. In deciding whether one insurer is primary over another, the rights and liabilities of the insurers depend, as far as possible, upon the specific language of their policies. VERDICT SHEETS—PRESERVATION OF OBJECTION Under Md. Rule 2-522, if the court fails to submit any issue to the jury, all parties waive the right to a jury trial of the issue unless a party demands its submission to the jury before the jury retires. No party may assign as error the refusal to submit a requested issue to the jury unless the party objects on the record before the jury retires, stating distinctly the matter to which the party objects and the grounds of the objection.

In this case, an insurer waived its contention that the court erred by omitting from the verdict sheet an issue regarding contractual notice, by failing to object to the omission. PREJUDGMENT INTEREST—ATTORNEYS’ FEES AND RELATED EXPENSES A plaintiff is not entitled to prejudgment interest, as a matter of right, on the damages resulting from a liability insurer’s breach of contract, in the form of reasonable and necessary attorneys’ fees and other expenses incurred in defending a lawsuit against the insured. Such a claim is unliquidated, because the amount is not fixed by agreement and cannot be exactly determined by rules of arithmetic or law. Therefore, a plaintiff’s entitlement to prejudgment interest on the claim rests in the discretion of the fact-finder.

The court is not authorized to add prejudgment interest to damages awarded by the jury where the allowance of prejudgment interest is discretionary for the jury, but where the issue is not presented to the jury and the plaintiff does not request that the court submit the issue to the jury. ATTORNEYS’ FEES AND RELATED EXPENSES—RIGHT TO JURY TRIAL The damages resulting from a liability insurer’s breach of a contractual duty to defend include the attorneys’ fees and expenses incurred in a declaratory judgment action to establish the insurer’s duty to defend. A breaching insurer can be held liable for the amount that would have put the insured in as good a position as it would have occupied had the insurer performed the contractual obligation from the beginning. A breaching insurer is entitled to have the amount of those fees and expenses proven with certainty and under standards ordinarily applicable for proof of contractual damages.

Because those amounts are recoverable as part of the damages for breach of contract, the breaching insurer is entitled to demand that a jury determine the amount of damages. The plaintiff bears the burden of proving, by a preponderance of the evidence, the amount of reasonable and necessary fees and expenses incurred by the plaintiff as a result of the insurer’s breach. Circuit Court for Baltimore County Case No. 03-C-08-006273 REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 755 September Term, 2018 ______________________________________ SELECTIVE WAY INSURANCE COMPANY v. NATIONWIDE PROPERTY AND CASUALTY INSURANCE COMPANY, ET AL. ______________________________________ Arthur, Shaw Geter, Eyler, Deborah S. (Senior Judge, Specially Assigned), JJ.* ______________________________________ Opinion by Arthur, J. ______________________________________ Filed: October 30, 2019 Pursuant to Maryland Uniform Electronic Legal Materials Act *Judge Kathryn G. Graeff did not participate in (§§ 10-1601 et seq. of the State Government Article) this document is authentic. the Court’s decision to designate this opinion 2019-11-19 11:27-05:00 for publication pursuant to Md. Rule 8-605.1.

Suzanne C. Johnson, Clerk This case concerns a liability insurer’s duty to defend. Under its policies, the insurer was obligated to defend a general contractor from claims with respect to work performed by four subcontractors. The insurer declined to defend the general contractor against a lawsuit based on allegations that its subcontractors performed defective work. In a subsequent declaratory judgment action, the Circuit Court for Baltimore County determined that the insurer had been obligated to defend the general contractor in the construction-defect lawsuit.

The court ordered the insurer to pay the costs of defense, in an amount decided by a jury. After the jury verdict, the court ordered the insurer to pay prejudgment interest on those defense costs. The court also ordered the insurer to pay all expenses incurred in the declaratory judgment action, in an amount decided by the court rather than by a jury. The insurer appealed.

For the reasons explained in this opinion, we shall affirm the judgment with respect to the insurer’s obligation to pay defense costs from the construction-defect lawsuit; reverse the judgment with respect to the award of prejudgment interest by the court; and vacate the judgment with respect to attorneys’ fees and expenses incurred in the declaratory judgment action. The case shall be remanded for a jury trial solely to determine the amount of attorneys’ fees and expenses incurred in the declaratory judgment action as a result of the insurer’s breach of the duty to defend. FACTUAL AND PROCEDURAL BACKGROUND A. Selective Way Liability Insurance for Questar’s Subcontractors In 2001, the Highpointe Business Trust engaged Questar Builders, Inc., to oversee the construction of the Highpointe Apartments in Hunt Valley. Construction was completed in early 2004.

As the general contractor for the Highpointe project, Questar entered into contracts with dozens of subcontractors. Four of those subcontracts, executed between 2001 and 2003, are pertinent here. SEH Excavating Contractors, Inc., agreed to perform land development work for the project; Streett’s Waterproofing, Inc., agreed to perform waterproofing work for certain buildings; Justice Waterproofing, Inc., agreed to perform waterproofing work for tennis courts above a parking garage; and King Carpentry Contractors, Inc., agreed to perform rough carpentry work for certain buildings. Each subcontract required the subcontractor to indemnify Questar from claims for damages resulting from the subcontractor’s work; to maintain commercial general liability insurance with “primary and noncontributory” coverage; and to name Questar as an “additional insured[]” under those policies.

For various policy periods between 2001 and 2007, those four subcontractors purchased commercial general liability insurance from appellant Selective Way Insurance Company. In the policies that it issued to the subcontractors, Selective Way promised to indemnify its insureds if they became legally obligated to pay damages based on claims covered by the policy and to defend the insureds in any lawsuit seeking those damages. Each Selective Way policy included provisions extending this coverage to an additional party if the named insured entered into a written contract requiring it to provide insurance for that additional party. These provisions specified that any party that became an additional insured because of a contract would be treated as an insured “only with respect to” the named insured’s work for that additional party.

The policies further 2 specified that the coverage resulting from such a contract would be “primary and not contributory” with respect to the additional insured, if the contract so required. Through the combined effect of these policies and subcontracts, Selective Way became Questar’s insurer with respect to claims against Questar arising out of the work performed at the Highpointe project by SEH Excavating Contractors, Streett’s Waterproofing, Justice Waterproofing, or King Carpentry Contractors. B. The Construction-Defect Lawsuit against Questar In a transaction that coincided with the completion of construction, a third party purchased the Highpointe Apartments. On July 13, 2006, the purchaser filed a lawsuit based on “the defective construction of the Highpointe Apartments” by Questar.

As amended, the complaint asserted four counts against Questar and two executives. Each count against Questar rested on allegations that it had failed to properly oversee the work of its subcontractors and that defects in the construction resulted in extensive water infiltration throughout the buildings. The purchaser sought to recover $4.5 million for the property damage allegedly caused by Questar’s conduct. To undertake its defense, Questar turned to its liability insurers: Nationwide Property and Casualty Insurance Company and Nationwide Mutual Insurance Company (collectively, “Nationwide”).

Nationwide agreed to defend Questar under a reservation of rights, appointing and paying for counsel to represent Questar separately from the other defendants. Questar denied liability, but also filed a third-party complaint, seeking indemnity or contribution from 26 subcontractors that performed work at the Highpointe project. In 3 the third-party complaint, Questar claimed that, if it were found liable in the construction- defect lawsuit, then the subcontractors should be liable to it for all or some of its liability to the purchaser. The third-party defendants included the four subcontractors that Selective Way insured.

On April 1, 2008, Questar’s attorney made written requests for defense and indemnification under the policies issued by Selective Way. Selective Way’s parent corporation denied the requests under the policies issued to Streett’s Waterproofing and SEH Excavating Contractors. The denial letters cited a lack of “proof” or “evidence” that the subcontractor’s work caused the alleged damages, stated that it was “not clear when the work was completed or when the damages manifested[,]” and noted that the lawsuit also involved “separate allegations of negligence” by Questar itself. Questar received no formal denial letters under the policies issued to the other two subcontractors.

C. Nationwide’s Declaratory Judgment Action Against Various Insurers The present action was commenced on June 10, 2008, when Nationwide filed a complaint for a declaratory judgment in the Circuit Court for Baltimore County, seeking to “determin[e] insurance coverage under various policies of insurance covering [Questar].” Nationwide initially named 21 insurance companies as defendants, along with 24 subcontractors and Questar itself. The number of defendants varied over time, as Nationwide added new defendants and dismissed claims against others. Nationwide alleged that Questar was an additional insured under various liability insurance policies issued to Questar’s subcontractors. Thus, Nationwide asked the court to declare that, under those policies, the insurers were obligated to provide a defense for 4 Questar in the construction-defect lawsuit.

Nationwide contended that its own coverage for Questar was secondary to the primary coverage issued by those insurers. It sought reimbursement for all defense costs incurred in the construction-defect lawsuit. In its answer, Selective Way asserted that it had no duty to defend Questar in the construction-defect lawsuit and that “Questar and/or Nationwide ha[d] failed to provide adequate notice” to Selective Way. Selective Way demanded a jury trial on all issues.

While the declaratory judgment action was still in its early stages, Questar agreed to settle the construction-defect lawsuit. As the declaratory judgment action proceeded, the court granted Nationwide’s motion to bifurcate the issues. The court would first decide whether the defendant- insurers had a duty to reimburse Nationwide for defense costs. If necessary, the court would then proceed to determine the amount of damages that Nationwide was entitled to recover.

In 2009, Nationwide moved for summary judgment as to the liability of 12 insurers, including Selective Way, which had issued polices to Questar’s subcontractors. Nationwide argued: that each of those insurers breached a contractual duty to defend Questar in the construction-defect lawsuit; that Nationwide’s insurance policies provided excess coverage over the primary coverage issued by those insurers; and that Nationwide became subrogated to Questar’s rights against those insurers when Nationwide paid for Questar’s defense. Nationwide contended that, as a matter of law, those insurers were obligated to reimburse Nationwide for all costs incurred in defending Questar. The 12 insurers collectively opposed Nationwide’s motion for summary judgment 5 and moved for summary judgment in their favor.

Primarily, they argued that they were relieved of any duty to defend because Questar had failed to notify them until 16 months after the filing of the construction-defect lawsuit. They further argued that Nationwide acted with “unclean hands” by controlling the entire defense during the period of delay. Selective Way and other insurers also filed individualized responses and cross-motions to address issues specifically related to their respective policies. Eventually, in 2014, the court issued an order granting Nationwide’s summary judgment motion in part, denying it in part, and denying various cross-motions.

The court determined that each of the 12 insurers, including Selective Way, “had a duty to defend Questar because the allegations in the underlying lawsuit raised claims that potentially arose from the [s]ubcontractors’ work at the Highpointe Apartments.” The court determined, however, that “triable issues of fact” remained “as to whether the [d]efendants were prejudiced by delayed notice and whether Nationwide ha[d] unclean hands[.]” D. Jury Trial on Selective Way’s Obligation to Pay Defense Costs Before and after the summary judgment ruling, Nationwide reached settlements with the insurers for all of the subcontractors except Selective Way. Hence, the case proceeded towards a trial on Nationwide’s claims against Selective Way.1 Nationwide made a second summary judgment motion relating solely to Selective Way’s liability. The court granted the motion in part, rejecting the defense of unclean 1 Selective Way did not assert any cross-claim against other insurers. 6 hands. The court determined, however, that a genuine dispute of material fact remained as to whether Selective Way sustained actual prejudice because of delayed notice.

A few weeks before the trial in March of 2017, Selective Way filed a barrage of motions raising arguments that either had been raised or could have been raised in its earlier memoranda.2 The court deferred its ruling on those issues pending a motion for judgment made during the trial. The scope of the jury trial was limited to determining whether Selective Way was prejudiced by the receipt of untimely notice and, if it was not, how much Selective Way was obligated to pay in damages to compensate Nationwide for the expense of defending the construction-defect lawsuit. The trial did not include the separate issue of how much Selective Way might be obligated to pay in additional damages to compensate Nationwide for the expense of proving that Selective Way breached the duty to defend. Claims adjusters from both insurance companies testified concerning the issue of delayed notice.

Nationwide presented testimony from the attorneys who represented Questar and from an expert who opined that the fees charged were fair and reasonable. Selective Way countered with its own expert, who opined that the billing records were deficient because they did not detail how many of the hours were related to construction work performed by each individual subcontractor. The court denied the parties’ motions for judgment at the close of all evidence. 2 In an apparent effort to circumvent the scheduling order, Selective Way titled most of these motions as “motions in limine” even though none concerned the admissibility of evidence. Selective Way also asked for leave to file another summary judgment motion. 7 Both parties submitted competing proposals for extensive non-pattern jury instructions and special verdict sheets.

The court ultimately adopted a verdict sheet based on those written proposals and on oral arguments made on the final day of trial. Answering the questions on the verdict sheet, the jury first found that Selective Way had received timely notice of the lawsuit against Questar. The jury also found, by a preponderance of evidence, that Nationwide had proven total damages of $994,719.54. Finally, the jury answered two questions about the “apportion[ment]” of defense costs.

Selective Way had proposed a question asking the jury whether it found “by a preponderance of the evidence, that the costs were readily apportionable” among the various subcontractors. Nationwide had suggested that, if the court included the question proposed by Selective Way, then it should also ask the jury whether it found “by a preponderance of the evidence, that Nationwide was required to apportion the costs to each subcontractor[.]” The court included both questions on the verdict sheet. In response, the jury found that the defense costs were “readily apportionable,” but that Nationwide was not “required to apportion” those costs. After the verdict, the court formally dismissed Nationwide’s remaining claims against any parties other than Selective Way.

The clerk of the circuit court sent notice of the entry of a “judgment” against Selective Way and in favor of Nationwide in the amount of $994,719.54. At the time of the “judgment,” the court had not yet decided how much in additional fees and expenses Nationwide could recover in proving that Selective Way breached its duty to defend. Selective Way moved for a declaration stating that it was not liable for any 8 damages. It argued that the jury’s finding that defense costs were “readily apportionable” defeated Nationwide’s right to recover defense costs that were not apportioned to the subcontractors that obtained insurance from Selective Way.

In the alternative, Selective Way moved for judgment notwithstanding the verdict. Selective Way also filed a notice of appeal, which this Court dismissed as premature, because the circuit court had not yet determined the amount of fees to which Nationwide was entitled in successfully establishing that Selective Way had breached its duty to defend. E. Awards for Prejudgment Interest and for Expenses Incurred in the Declaratory Judgment Action When the case returned to the circuit court after the dismissal of Selective Way’s premature appeal, Nationwide made a “Motion for Attorneys’ Fees,” asking the court to determine Selective Way’s liability for the fees and expenses incurred in the declaratory judgment action. Nationwide submitted an affidavit from its attorney; an affidavit from an expert on legal fees; and a summary of invoices that it had paid.

Opposing the motion, Selective Way argued that it was entitled to a jury trial, or at least a formal evidentiary hearing, regarding the attorneys’ fees and expenses incurred in the declaratory judgment action. Selective Way disputed the assertions that all fees and expenses claimed were necessary and reasonable. It argued that Nationwide was not entitled to recover all fees and expenses sought, because much of the work performed by Nationwide’s attorneys was unrelated to the claim against Selective Way. Shortly before the hearing on Nationwide’s motion for attorneys’ fees, Nationwide wrote a letter asking the court to award $430,534.82 in prejudgment interest on the 9 damages previously found by the jury.

Nationwide asked the court to calculate prejudgment interest at the legal rate of six percent, from the end of the construction- defect lawsuit in 2009 until the date of the upcoming hearing on attorneys’ fees. In response, Selective Way argued, among other things, that the jury should have decided whether to award prejudgment interest as part of its verdict and that the court could not award prejudgment interest after the verdict. At a hearing solely on the motion for attorneys’ fees, the court rejected Selective Way’s request for a jury trial or an evidentiary hearing. The court proceeded to grant the motion based on the parties’ written submissions and the oral arguments made at the hearing.

The court awarded Nationwide $810,556.72, the full amount it had requested. On May 2, 2018, the court filed a separate document titled “Order and Declaratory Judgment.” The court declared that Selective Way owed a duty to defend Questar in the construction-defect lawsuit under policies issued to Questar’s subcontractors between 2001 and 2007. The court determined that Selective Way was liable in the amounts of: $994,719.54 for defense costs in the construction-defect lawsuit; $430,534.82 for prejudgment interest on those defense costs; and $810,556.72 for attorneys’ fees and expenses incurred in the declaratory judgment action. The court reduced Selective Way’s total liability by $588,152.00, to account for the amounts that Nationwide had received from settlements with other insurers.

In aggregate, the court granted judgment in the 10 amount of $1,647,659.00 against Selective Way in favor of Nationwide.3 Selective Way made a timely motion to alter or amend the judgment, asking the court to set aside the award of prejudgment interest. Selective Way also renewed its prior requests for a judgment entirely in its favor. The court denied Selective Way’s post- judgment motions. Meanwhile, Selective Way noted this timely appeal.

DISCUSSION Selective Way’s brief raises 12 questions and various sub-questions. The full list is reproduced in the appendix to this opinion. This opinion will address all issues raised by Selective Way, but not in the order in which those issues were presented. First, this opinion will address challenges to the declaratory judgment that Selective Way owed a duty to defend Questar in the construction-defect lawsuit.

Second, this opinion will address challenges to the determination of damages for the costs incurred by Nationwide in defending Questar. Because we see no merit to those challenges, we shall affirm the judgment with respect to the declaration of rights and the award of damages in the amount of $994,719.54. Next, this opinion will address the award of prejudgment interest on the damages found by the jury. In the circumstances of this case, we conclude that the court erred in awarding prejudgment interest that was not separately stated in the jury’s verdict.

Therefore, we shall reverse the award of $430,534.82 for prejudgment interest. 3 The damages, minus the amounts that Nationwide had received from other insurers, actually equaled $1,647,659.08. The court rounded the judgment down by eight cents. 11 Finally, this opinion will address the award of $810,556.72 for attorneys’ fees and expenses incurred by Nationwide in the declaratory judgment action. Because we conclude that Selective Way was entitled to a jury trial on that element of damages, we shall vacate that part of the judgment. The case shall be remanded for a jury trial solely to determine the amount of reasonable and necessary attorneys’ fees and expenses incurred by Nationwide in the declaratory judgment action as a result of Selective Way’s breach of its duty to defend.

I. Declaratory Judgment Regarding Selective Way’s Duty to Defend Selective Way contends that the circuit court erred when it granted partial summary judgment and, ultimately, a declaratory judgment in favor of Nationwide. Selective Way contends that the court was “incorrect” in determining that Selective Way owed a duty to defend Questar in the underlying construction-defect lawsuit. We review these matters de novo. See, e.g., James G. Davis Constr.

Corp. v. Erie Ins. Exch., 226 Md. App. 25, 34-35 (2015). As explained below, the court’s determinations were correct. A. The Contractual Duty to Defend Under a Liability Insurance Policy An “insurer’s duty to defend is a contractual duty arising out of the terms of a liability insurance policy.” Litz v. State Farm Fire & Cas.

Co., 346 Md. 217, 225 (1997). “Under the typical liability insurance policy,” the insurer must “indemnify the insured . . . for the payment of a judgment based on a liability claim which is covered” by the policy and must “defend the insured against a liability claim which is covered or which is potentially covered” by the policy. Mesmer v. Maryland Auto. Ins. Fund, 353 Md. 241, 257 (1999).

The dual promises to defend and indemnify the insured are “the 12 consideration received by the insured for payment of the policy premiums.” Brohawn v. Transamerica Ins. Co., 276 Md. 396, 409 (1975). This type of insurance “is in effect ‘litigation insurance’ procured by an insured to protect the insured ‘from the expense of defending suits brought against [it].’” Aetna Cas. & Sur. Co. v. Cochran, 337 Md. 98, 110 (1995) (quoting Brohawn v. Transamerica Ins.

Co., 276 Md. at 410 ). The Court of Appeals has “consistently held that the duty to defend should be construed liberally in favor of the policyholder.” Springer v. Erie Ins. Exch., 439 Md. 142, 167 (2014). The insurer has the duty to defend the insured from all claims that are “potentially covered” by the policy.

See, e.g., Walk v. Hartford Cas. Ins. Co., 382 Md. 1, 15 (2004). Thus, “‘[e]ven if a tort plaintiff does not allege facts which clearly bring the claim within or without the policy coverage, the insurer still must defend if there is a potentiality that the claim could be covered by the policy.’” Id. at 16 (emphasis in original) (quoting Brohawn v. Transamerica Ins.

Co., 276 Md. at 408 ). Under this rule, “‘any potentiality of coverage, no matter how slight, gives rise to a duty to defend.’” Litz v. State Farm Fire & Cas. Co., 346 Md. at 226 (quoting Andrew Janquitto, Insurer’s Duty to Defend in Maryland, 18 U. BALT. L. REV. 1, 13-14 (1988)). “[W]here a potentiality of coverage is uncertain from the allegations of a complaint, any doubt must be resolved in favor of the insured.” Aetna Cas. & Sur.

Co. v. Cochran, 337 Md. at 107 . Because the “duty to defend is broader than the duty to indemnify[,]” a liability insurer “will be obligated to defend more [suits] than it will be required to indemnify[.]” Litz v. State Farm Fire & Cas. Co., 346 Md. at 225 . For a suit to trigger the insurer’s duty to defend, the plaintiff “need only allege 13 action that is potentially covered by the policy, no matter how attenuated, frivolous, or illogical that allegation may be.” Sheets v. Brethren Mut.

Ins. Co., 342 Md. 634, 643 (1996) (emphasis in original). The plaintiff in the underlying suit need not “allege every fact necessary to establish [the insurer’s] coverage,” as long as the allegations sufficiently indicate that “the injury in question was caused by some act or omission covered by the terms of the contract.” U.S. Fid. & Guar. Co. v. National Paving & Contracting Co., 228 Md. 40, 54-55 (1962).

An insurer may have a duty to defend “even though the claim asserted against the insured cannot possibly succeed because either in law or in fact there is no basis for a plaintiff’s judgment.” Litz v. State Farm Fire & Cas. Co., 346 Md. at 225 (citations and quotation marks omitted). An insurer breaches its duty to defend if it refuses to defend a suit where a claim is potentially covered by the policy. See Mesmer v. Maryland Auto.

Ins. Fund, 353 Md. at 258 . A cause of action against an insurer for breach of the duty to defend “sounds in contract” (Vigilant Ins. Co. v. Luppino, 352 Md. 481, 488 (1999)) and is “governed by the principles applicable to breach of contract actions.” Luppino v. Vigilant Ins.

Co., 110 Md. App. 372, 381 (1996), aff’d, 352 Md. 481 (1999). The “damages for breach of the contractual duty to defend are . . . the insured’s expenses, including attorney fees, in defending the underlying tort action, as well as the insured’s expenses and attorney fees in a separate contract or declaratory judgment action . . . to establish that there exists a duty to defend.” Mesmer v. Maryland Auto. Ins. Fund, 353 Md. at 264 . 14 B. Duty to Defend a General Contractor Under Liability Insurance Policy Issued to Subcontractor On two occasions, this Court has held that a liability insurer was obligated to defend a general contractor where, as here, the policy for a subcontractor made the general contractor an additional insured with respect to claims arising out of the subcontractor’s work.

James G. Davis Constr. Corp. v. Erie Ins. Exch., 226 Md. App. 25 (2015), cert. denied, 446 Md. 705 (2016); Baltimore Gas & Elec. Co. v. Commercial Union Ins.

Co., 113 Md. App. 540 (1997). Both cases are instructive here. In the older case, the subcontractor performed excavation work for a public utility company. Baltimore Gas & Elec.

Co. v. Commercial Union Ins. Co., 113 Md. App. at 547-48 . The subcontractor’s liability insurance policy made the utility an additional insured, but “specified that, as an additional insured, [the utility] was protected only with respect to liability arising out of” the subcontractor’s work for the utility. Id. at 557 .

The policy excluded coverage for claims arising out of the utility’s own acts or omissions, other than its supervision of the subcontractor. Id. at 558 . A plaintiff who sustained injuries at the excavation site sued the utility and the subcontractor for damages. Baltimore Gas & Elec.

Co. v. Commercial Union Ins. Co., 113 Md. App. at 548 . The plaintiff alleged that “the negligent, careless and reckless construction activities of the [d]efendants, their agents, servants and employees” caused the plaintiff’s injuries. Id. at 561-62 .

These “general” allegations did not “specify the particulars of the negligence claim” against the utility, but rather “include[d] a claim against [the utility] grounded on derivative liability, based on [the utility’s] failure to 15 supervise its agents, and a claim of liability based on its own conduct.” Id. at 562 . The Court was “amply satisfied” that these allegations created the potentiality for coverage, and thus that the subcontractor’s insurer had a duty to defend the utility (id. at 562-63) until the plaintiff dismissed the claims against the subcontractor. Id. at 576 . This Court construed slightly different terms in James G. Davis Construction Corp. v. Erie Insurance Exchange, 226 Md. App. 25 (2015).

In that case, a subcontractor’s insurance policy made the general contractor an additional insured with respect to liability for injury or damage “caused, in whole or in part, by” the subcontractor’s work for the general contractor. Id. at 30 (emphasis omitted). Under those terms, the insurer owed a duty to defend the general contractor “as long as [the general contractor] [was] alleged to be liable, in whole or in part, by the acts or omissions of [the subcontractor].” Id. at 41 . In other words, the insurer “ha[d] a duty to defend [the general contractor] against any liability that could potentially [have been] proximately caused by [the subcontractor’s] acts.” Id. at 43 .

During construction, a scaffold collapsed, injuring two employees for another company. James G. Davis Constr. Corp. v. Erie Ins. Exch., 226 Md. App. at 31 .

The injured employees sued both the general contractor and the subcontractor for negligence, alleging “that the negligence of [the subcontractor], the negligence of [the general contractor], or the negligence of both . . . contributed to the injury[.]” Id. at 43 . These allegations “demonstrate[d] that the claim of liability against [the general contractor] f[ell] within the additional insured endorsements of the [p]olicy.” Id. at 45 . Furthermore, even if it were “not clear” that the allegations were covered, the allegations “establish[ed] 16 at least the potentiality that the claim could be covered by the [p]olicy’s endorsements.” Id. (citation and quotation marks omitted).

Thus, the subcontractor’s insurer owed a duty to defend the general contractor. Id. C. Extent of Selective Way’s Liability Insurance Coverage To determine whether Selective Way owed a duty to defend Questar in the construction-defect lawsuit, we first examine “the language and requirements of the polic[ies]” to determine the extent of coverage. St. Paul Fire & Marine Ins.

Co. v. Pryseski, 292 Md. 187, 193 (1981). For various policy periods between 2001 and 2007, Selective Way sold commercial general liability insurance to four of Questar’s subcontractors. These policies included standard promises to “pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’” and to “defend the insured against any ‘suit’ seeking those damages.” The four subcontractors were the “Named Insured[s]” in their respective policies. In addition, each policy included the following language: “WHO IS AN INSURED is amended to include as an additional insured any person or organization with whom you agreed, because of a written contract, . . . to provide insurance . . ., but only with respect to . . . [y]our ongoing operations,4 ‘your work,’ ‘your product,’ or premises owned or used by you[.]” 4 Provisions in the Selective Way policies issued before 2003 stated “with respect to . . . [y]our operations”; while the policies issued during or after 2003 stated “with respect to . . . [y]our ongoing operations[.]” 17 Certain policies also included more specific “Additional Insured” endorsements.

Some endorsements stated that any person or organization made an additional insured because of a contract would be treated as an insured “only with respect to their liability arising out of ‘your work’ . . . performed for that insured[.]” Some endorsements stated that any person or organization made an additional insured because of a contract would be treated as an insured “only with respect to their liability for ‘bodily injury’ or ‘property damage’ caused, in whole or in part, by ‘your work’ performed for that additional insured[.]” Between 2001 and 2003, each of the four subcontractors executed written contracts with Questar to perform construction work at the Highpointe project. Each subcontract required the subcontractor to maintain commercial general liability insurance “with respect to” the subcontractor’s work on the project. Each subcontract further provided: “The Subcontractor’s coverage shall be primary and noncontributory; [Questar] and [the property owner] . . . shall be named as additional insureds[.]” Because each subcontractor agreed, in a written contract, to provide insurance for Questar, Questar became an additional insured under each policy “with respect to” the subcontractor’s work for Questar. Under the policies in which Questar became an additional insured “with respect to [Questar’s] liability arising out of” the subcontractor’s work, Selective Way was obligated to defend Questar against any claim grounded on the failure to properly supervise the subcontractor’s work.

See Baltimore Gas & Elec. Co. v. Commercial Union Ins. Co., 113 Md. App. 540, 562 (1997). Under the policies in which Questar became an additional insured with respect to its liability for injury or damage 18 “caused, in whole or in part, by” the subcontractor’s work, Selective Way was obligated to defend Questar against any claim for liability alleged to be proximately caused by the subcontractor’s work for Questar.

See James G. Davis Constr. Corp. v. Erie Ins. Exch., 226 Md. App. 25, 43 (2015). D. Allegations from the Lawsuit Against Questar Our focus now shifts to the allegations in the lawsuit against Questar to assess whether those allegations potentially fall within the coverage provided by Selective Way.

See St. Paul Fire & Marine Ins. Co. v. Pryseski, 292 Md. 187, 193 (1981). The allegations against Questar are set forth in an original complaint filed in 2006 and an amended complaint filed in 2007. Both complaints concerned “the defective construction of the Highpointe Apartments[.]” In both versions, the plaintiffs sued Questar for breach of a construction contract, negligent construction, and negligent misrepresentation.

In each count, the plaintiffs sought $4.5 million for property damage that allegedly resulted from Questar’s conduct. All counts against Questar rested on common allegations that Questar failed to properly oversee and supervise the construction of the Highpointe Apartments. The plaintiffs alleged that two Questar executives supervised “all construction activities with regard to the Highpointe Apartments on behalf of” Questar; that during construction “there were failures to comply with applicable building codes, use of faulty, inferior and unspecified materials, deviations from plans and specifications and unworkmanlike construction that did not meet the minimum industry standards and building practices for construction and design of residential apartments”; that “[t]hese defective conditions . . . 19 resulted in damage to real and personal property, including, but not limited to damages of other portions of the apartment buildings, such as water damage, water infiltration at windows, roofs and exterior walls”; and that Questar “knew” or “should have known” of “the existence of these defects” but either “failed to” repair the defects or made ineffective repairs that “exacerbated” the problems. The breach of contract count included an allegation that Questar breached its obligations “to use its best skill and attention to supervise and direct the work[,]” and “to be responsible . . . for acts and omissions of its employees, subcontractors and their agents and employees, and other persons performing portions of the work on behalf of [Questar] or any of its subcontractors[.]” In the negligence count, the plaintiffs claimed that Questar, through “its officers, agents and employees,” failed to exercise ordinary care, “in that among other things” Questar “failed to properly supervise, oversee, direct and/or inspect the development and construction” and “was otherwise negligent in constructing, supervising, directing, inspecting, repairing, overseeing and approving the development and construction of the Highpointe Apartments[.]” In the misrepresentation count, the plaintiffs alleged that Questar, “through its principals, agents, servants and employees” made false representations that the work was free from defects.

These allegations show that Questar had been sued “with respect to” the work of its subcontractors, sued for “liability arising out of” the work of its subcontractors, and sued for property damage alleged to be “caused, in whole or in part, by” the work of its subcontractors. See James G. Davis Constr. Corp. v. Erie Ins. Exch., 226 Md. App. 25, 44-45 (2015). 20 The plaintiffs did not confine their allegations to the work of any particular subcontractor or group of subcontractors, but the complaints did include a description of the allegedly defective work: The defective conditions at the Highpointe Apartments included, but [were] not limited to, those which were discovered in the exterior roof systems, vent stacks, flashing, exterior walls, plumbing systems, gutter, downspouts, masonry veneer walls, exterior siding, exterior insulations and finish systems, windows, expansion joints between garages and residential buildings, grading and other site conditions, and other areas of the Highpointe Apartments.

By way of example, construction deficiencies at the Highpointe Apartments include an absence of through-the-wall flashing at the brick / siding interface; absence of through-the-wall flashing at the base of the brick façade; improper below ground foundation waterproofing; incomplete and/or defective installation of below ground drainage system; improper flashing of windows; improper roof flashing; a failure to properly construct expansion joints between the two garages and the adjoining residential buildings; improper installation and construction of sealant joints at garage roof decks; improper sealant materials at windows; lack of through-the-wall flashing at the concrete masonry / siding interface on the rear of the residential buildings facing the garage; and the potential defective construction of retaining walls.5 When Nationwide moved for summary judgment, Nationwide provided copies of the subcontracts, which included descriptions of the work performed by each subcontractor. SEH Excavating Contractors performed “land development work” at the project, including earthwork, paving work, and the installation of a retaining wall system, water lines, storm drain lines, and utility lines. Streett’s Waterproofing performed “[a]ll 5 In support of its motion for summary judgment, Nationwide also offered the plaintiffs’ interrogatory responses from the construction-defect lawsuit. The interrogatory responses include allegations that are consistent with, and more detailed than, the allegations from the complaints. 21 waterproofing work” for the apartment buildings and two garages, which involved treating the foundation walls with a waterproofing spray.

Justice Waterproofing installed a waterproofing system for a tennis court on the roof of one garage, including “sealant work” and the installation of “expansion joints at sheet flashings.” King Carpentry Contractors performed “rough carpentry work” at certain buildings, which included installing all exterior doors and windows and setting them in sealant. The allegations of defective work, when viewed alongside these descriptions of the work performed by the subcontractors, together “demonstrated a reasonable potential that the issue triggering coverage” would “be generated at trial” in the construction-defect lawsuit. Litz v. State Farm Fire & Cas. Co., 346 Md. 217, 231 (1997).

The possibility that some damage resulted from one of the four subcontractors’ work for Questar “create[d] a potentiality of coverage and entitle[d] [Questar] to a defense” in the suit. Id. It is true that the complaints included allegations of defects in work not performed by those four subcontractors and of additional negligence by Questar. It is also true that Selective Way might ultimately have been found not to have any obligation to indemnify Questar if Questar incurred liability.

Yet the “mere possibility” that Selective Way might need to indemnify Questar was enough to trigger Selective Way’s duty to defend. See Commercial Union Ins. Co. v. Porter Hayden Co., 116 Md. App. 605, 688-89 (1997). Because “some of the allegations” concerned work covered by the Selective Way policies, the allegations triggered Selective Way’s duty to defend Questar, an additional insured.

See id. at 692 . In summary, the circuit court correctly determined, based on the parties’ 22 submissions with their summary judgment motions, that Selective Way “had a duty to defend Questar because the allegations in the underlying lawsuit raised claims that potentially arose from the [s]ubcontractors’ work at the Highpointe Apartments.” E. Limitations on the Additional-Insured Coverage for Questar Selective Way nonetheless contends that the lawsuit fell outside of the provisions under which Questar became an additional insured. Selective Way draws our attention to two types of coverage limitations: provisions concerning the time of covered activities and provisions concerning the location of covered activities.6 As mentioned previously, the coverage extension provisions in each Selective Way policy amended the definition of “insured” to include any person or organization with whom the subcontractor agreed, because of a written contract, to provide insurance. It further stated: “The provisions of this coverage extension do not apply unless the written contract or agreement has been executed prior to . . . the ‘property damage[.]’” Justice Waterproofing executed a subcontract with Questar on September 17, 2003; and King Carpentry Contractors executed a subcontract with Questar on October 28, 2003.

Selective Way asserts that the plaintiffs in the construction-defect lawsuit alleged that damages first appeared “as long ago as early 2003,” and thus before 6 Selective Way did not rely on either of these coverage limitations when it opposed Nationwide’s motion for summary judgment and cross-moved for summary judgment. Selective Way first made an argument about time restrictions in a motion for judgment at the close of all evidence. Selective Way first made an argument about location restrictions in a motion for judgment notwithstanding the verdict. The latter argument is, therefore, unpreserved.

See, e.g., Davis v. Board of Educ. for Prince George’s Cty., 222 Md. App. 246, 264-66 (2015) (applying Md. Rule 2-532(a)). 23 execution of those two subcontracts. In fact, however, the complaints made no allegation that property damage occurred in “early 2003.” The original complaint stated that construction “began in 2002 and was completed in 2004[,]” and that “during construction” Questar either knew or had reason to know of defects that “were and would continue to be a major source of water entry into the exterior walls, roofs and interiors of the apartment buildings.” The complaint alleged that Questar knowingly failed to disclose the existence of defects when it sold the property around “December 2003.” The complaint went on to allege that much of the property damage became apparent after the sale. The complaint also mentioned that the plaintiffs discovered evidence of “a dated water entry problem” sometime during 2005. With no clear allegation, the complaint left open the possibility that some or all of the property damage occurred after the execution of subcontracts in September and October of 2003.

The allegations, therefore, showed a potentiality of coverage and triggered Selective Way’s duty to defend Questar. See Chantel Assocs. v. Mount Vernon Fire Ins. Co., 338 Md. 131, 146 (1995) (holding that insurer had duty to defend where “the complaint did not allege the date of initial injury” and thus “le[ft] open the potentiality that the . . . plaintiffs’ . . . injuries occurred during the [insurer’s] policy period”); see also Hartford Accident & Indem. Co. v. Sherwood Brands, Inc., 111 Md. App. 94, 107-08 (1996) (holding that insurer had duty to defend where “[o]ne [could not] tell by reading the . . . complaint” whether the allegations occurred within the policy period), vacated on other grounds, 347 Md. 32 (1997). 24 Because the original complaint from 2006 established a potentiality of coverage under these policies, Selective Way had a duty to defend Questar “from the time the action was commenced.” Chantel Assocs. v. Mount Vernon Fire Ins.

Co., 338 Md. at 145-46 . The duty continued until “the claim might be confined to non-covered allegations.” Baltimore Gas & Elec. Co. v. Commercial Union Ins. Co., 113 Md. App. 540, 573 (1997) (citation and quotation marks omitted).

The amended complaint, filed in 2007, was even less specific about the date of the initial property damage. Thus, the amended complaint continued to show a potentiality of coverage under the policies issued to each of the four subcontractors. See Chantel Assocs. v. Mount Vernon Fire Ins. Co., 338 Md. at 146 .

Selective Way looks well beyond the formal pleadings in asserting that the alleged property damage predated the execution of subcontracts in September and October of 2003. At trial, Selective Way elicited testimony about a letter from Questar’s opponents, created shortly before the settlement of the lawsuit, which mentioned reports of water infiltration in February, April, May, and December of 2003. Whatever the letter may have said,7 it certainly was not a formal amendment of the complaint. Nor is there any indication that this letter was somehow “the functional equivalent of an amendment of the complaint” (Baltimore Gas & Elec.

Co. v. Commercial Union Ins. Co., 113 Md. App. 7 The letter has not been reproduced in the record extract. Selective Way relies on portions of the trial transcript in which it cross-examined Questar’s attorney about the letter. The transcript indicates that a copy of the letter was introduced into evidence, but Selective Way’s trial exhibits are not part of the record that was transmitted to this Court. 25 at 572) or “tantamount to an amendment of the allegations.” Id. at 568.

There is no basis to conclude that, by sending the letter, Questar’s opponents confined their allegations to damages that predated Questar’s coverage under the policies issued to two of the subcontractors, Justice Waterproofing and King Carpentry Contractors. The pleadings that created the potentiality of coverage and a duty to defend remained viable. As a separate argument, Selective Way contends that it had no duty to defend Questar under policies that restricted the additional-insured coverage to work at designated locations. As an “example,” Selective Way refers to the endorsement from a policy covering Justice Waterproofing in 2003.8 That endorsement states that the person or organization made an insured because of a contract would be treated as an additional insured “only with respect to their liability arising out of ‘your work’ at the location designated and described in the Schedule of this endorsement performed for that insured[.]” The accompanying schedule lists the “Location” as “Various.” Selective Way argues that, because the site of the Highpointe project was not listed on the schedule of locations, Questar did not become an additional insured under this endorsement.

This argument is meritless. A reasonably prudent person purchasing insurance would understand that, by designating the location of work as “Various,” the policy imposed no location-based restriction on the additional-insured coverage. Otherwise, the entire endorsement would become meaningless, because it would deny 8 Selective Way tells us that the policies covering SEH Excavating Contractors and Streett’s Waterproofing included this same restriction. The excerpts included in the record extract in no way support that assertion. 26 coverage arising out of work at every location not specifically listed.

If Selective Way intended to deny additional-insured coverage at all locations, it needed to communicate that intention clearly. “Drafters of insurance policies have it within their power to draft policies . . . so that exclusions and coverage options are not open to more than one inference or interpretation.” Nationwide Mut. Fire Ins. Co. v. Tufts, 118 Md. App. 180, 189 (1997). An insurer “must use clear and unambiguous language to distinctly communicate the nature of any limitation of coverage to the insured.” Megonnell v. United Servs.

Auto. Ass’n, 368 Md. 633, 656 (2002) (citation and quotation marks omitted). The provision purporting to limit coverage to various, unspecified locations is “ineffective to remove coverage otherwise granted by the insuring agreements.” Id. (citation and quotation marks omitted).

Selective Way was not entitled to a judgment in its favor based on either time- based restrictions or location-based restrictions on the additional-insured coverage. The circuit court did not err when it declared that Selective Way had a duty to defend Questar under each of the identified policies. F. Sufficiency of the Written Declaration In addition to challenging the correctness of the declaratory judgment, Selective Way asserts that the circuit court failed to issue a proper “written declaratory judgment defining the rights and obligations of the parties.” Salamon v. Progressive Classic Ins. Co., 379 Md. 301 , 307 n.7 (2004).

Selective Way criticizes the court, at some length, for failing to issue a more “detailed” declaration. At the same time, Selective Way offers only vague hints about what details it believes should be added. Without supporting 27 authority, Selective Way suggests that the court was “required” to make and declare “finding[s] as to the dates of loss, the dates of agreement, and other fact-specific matters for each subcontractor and each carrier.” A declaratory judgment “need not be in any particular form,” but “it must pass upon and adjudicate the issues raised in the proceeding, to the end that the rights of the parties are clearly delineated and the controversy terminated.” Messing v. Bank of Am., N.A., 373 Md. 672, 703 (2003) (citation and quotation marks omitted); see also Jennings v. Government Emps. Ins.

Co., 302 Md. 352, 355 (1985). By the time the court issued its declaratory judgment, Nationwide’s claims against all defendants other than Selective Way had been dismissed, and so the controversy was limited to those two remaining parties. To terminate a controversy such as this one, the declaration should state that the insurer was required to provide a defense in the underlying action, that the insurer is required to pay the costs of defending the underlying action, and that the insurer is required to pay the expenses incurred in the declaratory judgment action to establish the insurer’s duty to defend. See Lloyd E. Mitchell, Inc. v. Maryland Cas.

Co., 324 Md. 44, 63 (1991). The level of detail in the circuit court’s declaratory judgment was entirely appropriate for resolving the dispute over Selective Way’s obligations. Nevertheless, because the court also incorporated its damage awards into the declaratory judgment (some of which are subject to change, consistent with the remainder of this opinion), it will be necessary for the court to issue a revised declaratory judgment after further proceedings. Any revisions to the declaratory judgment should relate solely to the 28 amounts of Selective Way’s liability.

II

Damage Award for the Costs of Defending the Underlying Lawsuit Although Selective Way denies that it owed any duty to defend Questar, most of its arguments concern the damages for breaching that duty. Selective Way contends that, if it owed a duty to defend Questar in the construction-defect lawsuit, it had no duty to defend the “entire” suit and no obligation to pay all defense costs. Selective Way also disputes whether Nationwide, as an insurer for Questar, has the right to be reimbursed for all of those costs. Selective Way argues that it is entitled either to a judgment in its favor or to a new trial under a different framework for determining its liability.

The premises of these arguments are faulty, and so are the conclusions. As explained below, the circuit court did not err in permitting the jury to find Selective Way liable for all costs incurred by Nationwide in the defense of Questar. A. Selective Way’s Duty to Defend the Entire Action At least since the Court of Appeals decided Brohawn v. Transamerica Insurance Co., 276 Md. 396 (1975), liability insurers doing business in this State have been on notice that they often must defend the insured in a suit where some allegations are potentially covered by a policy even though other allegations are not. In Brohawn the Court determined that the insurer owed a duty to defend a suit based on allegations that the insured either intentionally assaulted or negligently injured the plaintiffs.

Id. at 407- 10. Even though the policy did not cover intentional misconduct by the insured, the insurer was obligated to assume the reasonable costs of defending the entire action. Id. at 414-15 . 29 The potentiality rule “give[s] effect to the duty to defend where the allegations . . . present claims both within and without the policy[.]” Continental Cas. Co. v. Board of Educ. of Charles Cty., 302 Md. 516, 528 (1985) (citing Brohawn v. Transamerica Ins.

Co., 276 Md. at 408 ). “Under Maryland’s comprehensive duty to defend, if an insurance policy potentially covers any claim in an underlying complaint, the insurer . . . must typically defend the entire suit, including non-covered claims.” Perdue Farms, Inc. v. Travelers Cas. & Sur. Co. of Am., 448 F.3d 252 , 258 (4th Cir. 2006).9 Maryland law on this point is in harmony with the law in a majority of jurisdictions. See 14 Couch on Insurance § 200:25 (3d ed. 2019) (“an insurer’s duty to defend extends to the entire action, which includes covered, potentially covered, and uncovered allegations within the claim”); 16 Williston on Contracts § 49:105 (4th ed. 2019) (“[w]hen even one of multiple claims potentially falls within the policy, the insurer has a duty to accept the defense of the entire lawsuit, even though the remainder of claims fall clearly outside the policy”). This Court has repeatedly explained that, “if any claims potentially come within the policy coverage, the insurer is obligated to defend all claims, notwithstanding alternative allegations outside the policy’s coverage, until such times . . . that the claims have been limited to ones outside the policy coverage.” Utica Mut.

Ins. Co. v. Miller, 9 Accord Gemini Ins. Co. v. Earth Treks, Inc., 260 F. Supp. 3d 467, 477 (D. Md. 2017); Ellicott City Cable, LLC v. Axis Ins. Co., 196 F. Supp. 3d 577, 586 (D. Md. 2016); Marvin J. Perry, Inc. v. Hartford Cas.

Ins. Co., 615 F. Supp. 2d 432, 434 (D. Md. 2009); Parts Inc. v. Utica Mut. Ins. Co., 602 F. Supp. 2d 617, 620 (D. Md. 2009); Nautilus Ins.

Co. v. BSA Ltd. P’ship, 602 F. Supp. 2d 641, 656 (D. Md. 2009); Hartford Cas. Co. v. Chase Title, Inc., 247 F. Supp. 2d 779, 782-83 (D. Md. 2003); Warfield-Dorsey Co., Inc. v. Travelers Cas. & Sur. Co. of Illinois, 66 F. Supp. 2d 681, 688 (D. Md. 1999). 30 130 Md. App. 373, 383 (2000) (citations and quotation marks omitted); see also Blackstone Int’l Ltd. v. Maryland Cas. Co., 216 Md. App. 471, 481 (2014), aff’d in part, rev’d in part on other grounds, 442 Md. 685 (2015); Back Creek Partners, LLC v. First Am.

Title Ins. Co., 213 Md. App. 703, 714-15 (2013); Montgomery Cty. Bd. of Educ. v. Horace Mann Ins. Co., 154 Md. App. 502, 512 (2003), aff’d, 383 Md. 527 (2004); Zurich Ins.

Co. v. Principal Mut. Ins. Co., 134 Md. App. 643, 650 (2000); Hartford Accident & Indem. Co. v. Sherwood Brands, Inc., 111 Md. App. 94, 106 (1996), vacated on other grounds, 347 Md. 32 (1997).

The construction-defect lawsuit here involved “alternative allegations” (Utica Mut. Ins. Co. v. Miller, 130 Md. App. at 383 ) inside and outside of Selective Way’s coverage. The plaintiffs alleged one set of injuries (property damage from water infiltration) with one or more potential causes (construction defects throughout various parts of the buildings).

Although Selective Way might have reason to doubt that the waterproofing work, land development work, and rough carpentry work of four subcontractors proximately caused all of the alleged damages, the complaints made no such distinction. Because the complaints expressly alleged that these alleged defects caused the alleged property damage, the suit was potentially covered under Selective Way’s policies even if the allegation of causation was groundless. See Sheets v. Brethren Mut. Ins.

Co., 342 Md. 634, 644 (1996). Selective Way concedes that, “[i]n general, if there are covered and non-covered counts in one lawsuit. . . . an insurer must defend both counts.” Nonetheless, Selective Way argues that this principle is limited to situations where a plaintiff pleads alternative 31 legal theories arising out of the same incident or conduct. No such limitation appears in Brohawn or the cases that have followed it. Rather, the Court of Appeals has held that the duty to defend extends to an entire lawsuit even where most of the allegations concern additional conduct outside of the policy.

In Montgomery County Board of Education v. Horace Mann Insurance Co., 383 Md. 527 (2004), the Court held that a county board of education owed a duty to defend a teacher from a lawsuit based almost entirely on sexual-abuse allegations for which no coverage existed. By statute, the board was required to maintain private insurance or self-insurance for school employees (id. at 538-39) with “the same duty to defend as would exist under a standard” liability insurance policy in the private market. Id. at 541 . Because the board had no duty to defend claims for malicious conduct or conduct outside of the scope of employment (id. at 542), the board would have had no duty to defend a suit in which the allegations “established only a charge of sexual abuse[.]” Id. at 545 .

The “‘gravamen’ of the allegations” against the teacher related to sexual abuse, but the complaint also included allegations that the teacher had abused her authority in other ways. Id. at 547 . Some counts, “though certainly focusing on the sexual abuse, . . . potentially could be construed to include the non-sexual conduct[.]” Id. at 548 . The Court concluded that “there was a potentiality of coverage for [the teacher], at least with respect to” to two of the counts; “therefore” the board had a duty “to defend the entire action.” Id.

Selective Way misconceives of its promise to defend suits against its insured as a more limited promise to pay a portion of the defense costs attributable to covered 32 allegations. Throughout this case, Selective Way repeatedly invoked Continental Casualty Co. v. Board of Education of Charles County, 302 Md. 516 (1985), to illustrate the “apportionment of litigation expenses between covered and noncovered claims.” Id. at 525 . There, however, the policy provisions “relating to defense [were] substantially different from the duty to defend clause of a conventional liability policy.” Id. at 530 . The policy was a form of directors’ and officers’ liability insurance, under which the insurer had no duty to defend, but merely the obligation to pay fees and expenses for defense of covered claims.

Id. at 529-31 . The Court explained that the breach of this contractual duty is “not the same as a breach of the contractual duty to defend the entire suit under a policy and under a state of facts like those presented in Brohawn.” Id. at 531 . For that reason, the insurer was responsible “for the cost of defense attributable to” covered counts, rather than “the reasonable cost of defending the entire . . . suit.” Id. To its credit, Selective Way has unearthed two seldom-cited cases in which this Court arguably appeared to endorse a more limited conception of the duty to defend.

In the first such case, a contractor’s liability insurance policy excluded coverage for the type of property damages alleged in four separate actions against the contractor. Minnick’s, Inc. v. Reliance Ins. Co., 47 Md. App. 329, 332-33 (1980). Two of those actions also included allegations of bodily injury, which were “sufficient to obligate [the insurer] to provide a defense to that part of the claim.” Id.

Our predecessors said that there was a potentiality of coverage “at least with respect to the damages claimed” for bodily injury and that the insurer had “a duty to provide [the contractor] a defense . . . with respect to the claims” for bodily injury. Id. at 333-34 . 33 This Court offered little elaboration on its statement that the insurer owed a duty to defend “part of the claim.” Minnick’s, Inc. v. Reliance Ins. Co., 47 Md. App. at 333 . Selective Way assumes that this statement means that the insurer only needed to pay a portion of the defense costs.

The opinion itself, however, says nothing about defense costs. The more sensible interpretation of the statement is that the insurer had the obligation to pay for the defense of the suit “‘until such time, if ever, that the claims have been limited to ones outside the policy coverage.’” Id. at 334 (quoting Steyer v. Westvaco Corp., 450 F. Supp. 384, 389 (D. Md. 1978)). That interpretation would be consistent with other case law on the subject. See Utica Mut.

Ins. Co. v. Miller, 130 Md. App. 373, 387 (2000); Baltimore Gas & Elec. Co. v. Commercial Union Ins. Co., 113 Md. App. 540, 573 (1997).

In arguing that the additional insured bears the burden to “apportion” defense costs among the various subcontractors, Selective Way mainly relies on Loewenthal v. Security Insurance Co. of Hartford, 50 Md. App. 112 (1981), cert. denied, 292 Md. 596 (1982). In that case, the allegations in the underlying suit against an insured contractor “fit[] squarely within” an exclusion for certain property damage (id. at 120), but some allegations concerned bodily injury claims, which were not excluded. Id. at 121-22. The Court said that the insurer was not “obligated to defend the entire suit,” but that it was “obligated to defend that portion of the claim which related to bodily injuries.” Id. at 123.

In a footnote, the Court added: “Although many courts which have addressed the issue have not permitted apportionment of defense costs between the insurer and the insured, the rationale behind these authorities is that an insurer must bear the entire cost 34 of defense only when there is no reasonable means of prorating the costs of defense between excluded and uncovered items. Such a consideration is not the case here since defense costs can be readily apportioned.” Id. at 123 n.5 (citations omitted). Selective Way cites no Maryland case, before or since Loewenthal, using an “apportionab[ility]” test to limit an insurer’s duty to defend. Selective Way nonetheless interprets the final footnote of Loewenthal to “set forth” “[w]hat the law requires” in a broad category of cases.

Selective Way theorizes that, where defense costs can be “readily apportioned” between covered and non-covered claims, a liability insurer has no obligation to pay defense costs attributable to non-covered claims. Extrapolating further, Selective Way theorizes that a breaching insurer is not liable for any defense costs, unless the insured affirmatively proves what portion of defense costs related to covered claims. This expansive interpretation of Loewenthal fails to account for other authorities establishing that, “if any claim could potentially be covered” under a policy, then the insurer “is required to defend all of the claims asserted.” Montgomery Cty. Bd. of Educ. v. Horace Mann Ins.

Co., 154 Md. App. at 512 (citing Zurich Ins. Co. v. Principal Mut. Ins. Co., 134 Md. App. at 649 -50 (quoting Utica Mut.

Ins. Co. v. Miller, 130 Md. App. at 383 )). To the extent that Loewenthal permitted an insurer to pay only a portion