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Perini/Tompkins Joint Venture v. ACE American Insurance Company, No. 12-2415

Decided: December 16, 2013

The Fourth Circuit held that, under Maryland statutory law, Maryland common law, or Tennessee law, the United States District Court for the District of Maryland properly granted summary judgment to ACE American Insurance Company (ACE), as Perini/Tompkins Joint Venture (PTJV)’s failure to obtain ACE’s consent prior to settling an underlying dispute precluded PTJV from claiming reimbursement under certain insurance policies with ACE.  Furthermore, PTJV did not demonstrate that ACE intentionally relinquished its right to invoke the voluntary payment and no-action clauses in these policies.  The Fourth Circuit therefore affirmed the decision of the district court.

In 2005, Gaylord National LLC (Gaylord) hired PTJV to manage the construction of a $900 million hotel and convention center (the Project) in Maryland.  Under its construction contract with PTJV, Gaylord agreed to purchase an Owner Controlled Insurance Policy (OCIP)—a program sold by ACE “to insure only the Project and its participants.”  Gaylord purchased two OCIP policies from ACE: a general liability policy and an excess liability policy (collectively, the Policies).  PTJV was, by endorsement, added as a named insured on both Policies.  Each of the Policies contained voluntary payment clauses, under which an insured could not—except at its own cost—“voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without [ACE’s] consent.”  Each of the Policies also contained no-action clauses, under which an insured could not sue for coverage “unless all of [the] terms [of the Coverage Part] have been fully complied with.”

During construction, certain property damage to the Project occurred.  After the completion of the Project, PTJV and Gaylord settled certain litigation arising from the Project—but PTJV did not seek to obtain ACE’s consent prior to settlement.  On May 6, 2009—about six months after the settlement and almost two years after the underlying damage to the Project occurred—PTJV sent ACE a formal, written notice of an insurance claim.  The letter did not mention PTJV’s settlement with Gaylord.  ACE issued a reservation of rights letter over ten months later, listing the potential grounds for denial of coverage.  On December 13, 2010, PTJV sued ACE in the district court, alleging breach of contract and other claims.  The district court granted summary judgment in ACE’s favor, and PTJV appealed.  PTJV argued on appeal that, inter alia, ACE must demonstrate actual prejudice before denying coverage under section 19-110 of the Maryland Code or under Maryland common law—thus creating an issue of fact—and that certain statements and conduct on the part of ACE should constitute waiver of its right to invoke the voluntary payment and no-action provisions in the Policies.

The Fourth Circuit first noted a choice of law issue—specifically, whether to apply the law of Maryland or the law of Tennessee, the state in which the Policies became binding insurance contracts.  However, the Fourth Circuit found that the outcome of the case was the same under either Maryland or Tennessee law.  While section 19-110 of the Maryland Code provides that the insurer may only disclaim coverage due to the insured’s failure to cooperate or failure to provide notice if the insurer proves, by a preponderance of the evidence, “that the lack of cooperation or notice has resulted in actual prejudice to the insurer,” the court applied the Maryland case Phillips Way, Inc. v. American Equity Insurance Co., 795 A.2d 216, to find this section inapplicable to PTJV’s failure to meet a condition precedent in the no-action clause.  The Fourth Circuit also held that ACE was not required to show prejudice under Maryland common law; the court applied a broad reading of Phillips Way, under which “an insured’s failure to obtain the insurer’s prior consent to a settlement does not ever require prejudice.”  However, even if ACE was required to show prejudice, the court held that ACE would have been prejudiced as a matter of law per the Maryland case of Prince George’s County v. Local Gov’t Ins. Trust, 879 A.2d 81.  Furthermore, the Fourth Circuit held that the Tennessee cases of Anderson v. Dudley Moore Insurance Co., 640 S.W.2d 556, and State Auto. Ins. Co. v. Lashlee-Rich, 1997 WL 781896, counseled the same result: ACE would also not be required to demonstrate prejudice under these cases.  Lastly, with regard to ACE’s purported waiver of its right to invoke the voluntary payment and no-action clauses, the Fourth Circuit noted that the statements and conduct cited by PTJV did not demonstrate intentional relinquishment.  Indeed, ACE stated that it would not waive “any other terms, conditions, exclusion or provisions” of one of the Policies in a September 8, 2010 letter, in which ACE offered to pay part of the claim.

Full Opinion

– Stephen Sutherland