In Capital City Real Estate, LLC v. Certain Underwriters at Lloyd’s, London, No. 14-1239 (4th Cir. June 10, 2015), the Fourth Circuit Court ruled that a Maryland federal court erred in granting summary judgment to Certain Underwriters at Lloyd’s, London (“Lloyd’s”) in a coverage dispute between it and its insured, a construction contractor, by misinterpreting the “additional insured” endorsement in the policy issued by Lloyds.

The lawsuit arose out of a construction project in Washington, D.C. owned by 57 Bryant Street, NW LP and Bryant St., LLC (collectively “Bryant Street”). Bryan Street hired Capital City Real Estate, LLC (“Capital City”) as a general contractor to renovate an existing building. Capital City then hired Marquez Brick Work, Inc. (“Marquez”) as a subcontractor to renovate the building’s foundation and underpinning. The subcontract required Marquez both to indemnify Capital City for any damages caused by Marquez’s work as well as to obtain general liability insurance naming Capital City as an additional insured. Marquez accordingly took out a general liability policy from Lloyd’s that contained a standard additional insured endorsement (“Endorsement”) that insured Capital City 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 the midst of Marquez’s renovation work, a common wall between the building and an adjacent building collapsed. Capital City’s insurer sent a letter to Lloyd’s notifying them of the collapse and tendering to Lloyd’s “all claims” asserted as a result of the collapse. Lloyd’s never responded.

Three years later, Standard Fire Insurance Company (“Standard Fire”), the property insurer of the adjacent building, sued Capital City and Bryant Street for negligence. Standard Fire’s complaint did not name Marquez as a defendant, so Capital City brought Marquez into the lawsuit by filing a third-party complaint. This third-party complaint alleged that Marquez’s negligence caused the collapse and that Marquez was required to indemnify Capital City pursuant to the subcontract’s terms.

Lloyd’s denied coverage on Capital City’s claim asserting that the Endorsement covered only Capital City’s vicarious liability for Marquez’s acts or omissions. Because Standard Fire’s complaint did not allege Marquez’s negligence or that Capital City was liable based on Marquez’s negligence, Lloyds argued the damage caused by the collapsed wall was not covered.

Capital City filed a declaratory judgment against Lloyd’s in the District Court of Maryland, seeking a declaration from the court that Lloyd’s has a duty to defend Capital City under the Policy. The parties filed cross motions for summary judgment and the district court ruled in favor of Lloyd’s. Capital City appealed.

The Fourth Circuit rejected Lloyds narrow interpretation of the endorsement. In particular, the court noted that “there is no mention of vicarious or derivative liability in the Endorsement,” and that “if the parties had intended coverage to be limited to vicarious liability, language clearly embodying that intention was available,” citing to and adopting the Tenth Circuit’s treatment of the issue in McIntosh v. Scottsdale Ins. Co., 992 F.2d 251, 255 (10th Cir. 1993). The Fourth Circuit Court found that “the plain language of the Endorsement provides exactly what it says: coverage to Capital City for property damage caused by Marquez, either in whole or in part.” Consequently, Lloyd’s had agreed to insure Capital City for property damage caused in whole or in part by Marquez without regard to whether the underlying suit explicitly alleged Capital City’s vicarious liability for Marquez’s acts or omissions.

Accordingly, the Fourth Circuit Court vacated the district court’s order granting summary judgment to Lloyd’s and remanded the case back to the district court with instructions to enter summary judgment in favor of Capital City.