Maryland Appellate Court Grapples With Equitable Contribution Among Insurers
May 8, 2023
In 2006, the owner of an apartment complex sued a general contractor alleging construction defects. The general contractor was a named insured under an insurance policy issued by Nationwide and was an additional insured under twelve policies obtained by subcontractors. Nationwide ultimately paid about $1 million in defense costs before the construction defect case settled.
Nationwide later brought a declaratory judgment action against the insurers who had issued policies to the subcontractors in which it sought reimbursement of the defense costs it paid in the construction defect case, plus the attorneys fees incurred in prosecuting the declaratory judgment action. Nationwide subsequently settled with 11 of the 12 subcontractor’s insurers, but went to trial against one insurer, Selective Way.
At trial, Selective Way was found liable for $994,719 in defense costs from the construction defect case, plus $802,556 for attorneys fees incurred by Nationwide in the declaratory judgment case. The total amount of Selective Way’s liability was then reduced by $588,152, the amount Nationwide had received from the 11 settling insurers.
Selective Way then sued the 11 settling insurers seeking a “proportionate share” of the defense costs and attorneys fees it had been ordered to pay.
After the Circuit Court granted summary judgment to the settling insurers, the Appellate Court of Maryland reversed in part and affirmed in part. The Appellate Court found that Selective Way could maintain an action for equitable contribution against the settling insurers for their share of the defense costs incurred in the underlying construction defect case, but could not recover contribution for attorneys fees it was ordered to pay in the declaratory judgment case. In doing so, the court noted that while Selective Way’s claim for contribution against the settling defendants for their share of the defense costs incurred in the underlying construction defect case involved a common obligation that the insurers owed, the claim related to the attorneys fees incurred by Nationwide in prosecuting the declaratory judgment action did not involve a common obligation. The court also rejected the settling defendants’ argument that their settlements with Nationwide released them from liability to Selective Way for contribution by finding that an insurer’s right to equitable contribution could not be released by the insured. Selective Way Insurance Co. v. Fireman’s Fund Insurance Co. (decided February 2, 2023)