Construction Claims

Limitations and Repose Periods

Statute of Limitations

Contract (in writing)

1. In general three (3) years. Md. Code Ann., Cts. and Jud. Proc. § 5-101.
2. Promissory notes or contract made under seal: twelve (12) years. Md. Code Ann., Cts. and Jud. Proc. § 5-102.

Contract (oral)

1. Three (3) years. Md. Code Ann., Cts. and Jud. Proc. § 5-101.

Real property: three (3) years. Md. Code Ann., Cts. and Jud. Proc. § 5-101.

Personal injury: three (3) years Md. Code Ann. Cts. and Jud. Proc. § 5-101.

Product Liability: three (3) years. Md. Code Ann., Cts. and Jud. Proc. § 5-101.

Wrongful death: three (3) years, except in the case of occupational disease, in which case ten (10) years or within three (3) years of when the cause of death was discovered, whichever is longer. Md. Code Ann., Cts. and Jud. Proc. § 3-904(g).

Statute of Repose

Construction claims are barred twenty (20) years after the date the entire improvement first becomes available for its intended use. MD. Code Ann., Cts. and Jud. Proc. § 5-108(a), except that claims against architects, professional engineers, or contractors are barred ten (10) years after the date the entire improvement first becomes available for its intend use. MD. Code Ann., Cts. and Jud. Proc. § 5-108(b).

Right to Repair Laws and/or Pre-Suit Statutory Procedures

None

Indemnity and Contribution

Indemnity – Express: indemnity clauses will generally be enforced as written and may shift significant risks to unsuspecting parties. However, “contracts will not be construed to indemnify a person against his own negligence unless an intention to do so is expressed in those very words or in other unequivocal terms.' Since the contract did not expressly or unequivocally indemnify Owner against its own negligence, the circuit court judge was correct in ruling as a matter of law that Contractor had no contractual duty to indemnify Owner.” Mass Transit Admin. v. CSX Transp., 708 A.2d 298, 308 (Md. 1998) (quoting Crockett v. Crothers, 285 A.2d 612, 615 (1971)). However, this rule “does not apply to an insurance contract.” Id. (quoting Heat & Power Corp. v. Air Products & Chemicals, Inc., 578 A.2d 1202, 1208 (MD. 1990)). Significantly, “[t]he policy consideration against implying agreements to indemnify one for one's own negligence are inapplicable to liability insurance contracts which generally have as their primary purpose indemnification against one's own negligence.” Id.

Anti-Indemnity - There are generally four circumstances where indemnity clauses are not permitted:

Indemnity – Implied: In some contexts a right to implied indemnity arises. This may occur in tort or in quasi-contractual situations (quasi-contractual indemnification arises “out of a contract implied by law.” Franklin v. Morrison, 711 A.2d 177, 182-82 (Md. 1998)). Typical situations where a right to implied indemnity has been found include: vicarious liability for another’s conduct; failing to discover a dangerous condition on land; failing to discover defeat in chattel supplied by another; and failing to discover a defect in work performed by another. Max’s of Camden Yards v. A.C. Beverage, 913 A.2d 654, 659 (2006). An implied right to indemnity is only given when the party’s actions, although negligent, are considered to be passive or secondary to those of the primary tortfeasor. Board of Trustees of Baltimore County Community Colleges v. RTKL Associates, Inc., 559 A.2d 805, 810 (Md. Ct. Spec. App. 1989). When a person is guilty of active negligence they cannot obtain implied tort indemnification, regardless of whether the alleged tortfeasor from whom indemnity is being sought was also negligent. Franklin v. Morrison, 711 A.2d 177, 163 (Md. 1998).

Contribution: A tortfeasor has an action for contribution against joint tortfeasors. Contribution among tortfeasors is governed by the Maryland Uniform Contribution Among Joint Tortfeasors Act, Md. Code Ann., Cts. & Jud. Proc. § 3-1401 – 3-1409. A joint tortfeasor who has paid more than his pro-rata share of a judgment may enforce a right of contribution by making a post-trial motion for judgment of contribution or recovery over pursuant to Md. Rule 2-614 even if he did not file a cross-claim against his joint tortfeasors. Lerman v. Heemann, 701 A.2d 426, 429-30 (Md. 1997).

Certificate of Merit-Experts

Plaintiff generally cannot recover in tort for intangible economic loss resulting from the inferior quality or unfitness of the product to serve the purpose for which it was purchased. However, there are a number of very significant exceptions to this general rule. First, where the product or deficient work causes injury to persons or other property (i.e. property other than deficiently designed or constructed property), a tort claim is allowed. Second, tort claims are allowed where the there is a dangerous condition that gives rise to a clear risk of personal injury. Council of Co-Owners Atlantis Condominium, Inc. v. Whiting-Turner Contracting Co., 517 A.2d 336, 340 (1986). See also, Morris v. Osmose Wood Preserving, 667 A.2d 624, 631 (1995). Third, tort claims for purely economic losses, where the loss is a result of a failure to exercise due care, may be allowed when there is an intimate nexus between the parties. Milton Co. v. Council of Unit Owners of Bentley Place Condominium, 708 A.2d 1047, 1054 (1998). This intimate nexus may be satisfied “by contractual privity or its equivalent.” Id.

Contractor Licensing Requirements

Contractor licensing requirements are addresses at Md. Code Ann., Business Regulation §§ 8-101 – 8-802, and at the Code of Maryland Regulations (COMAR) 09.08.01.00 – 09.08.06.9999. A person, except as otherwise provided, “must have a contractor license whenever the person acts as a contractor in the State. Md. Code Ann., Business Regulation § 8-301(a). Similarly, a person must have a subcontractor license when acting as a subcontractor. Id. at § 8-301(b). Finally, a person must have a sales person license (or a contractor’s license) when selling home improvements. Id. at § 8-301(c).

Certain Maryland Specific Common Law or Statutory Claims

Where contractors include guaranties in their agreements or provide service contracts, these agreements are governed by the Service Contracts and Consumer Products Guaranty Act at Md. Code Ann., Comm. Law §§ 14-401 – 14-410, to the extent set forth in the Act. The Act covers warranties or guaranties made at the time of sale. Service contracts may include agreements to provide repair, maintenance or replacement of items, or indemnity for repair, maintenance or replacement of items. Property owners may have a right to file suit for any expenses reasonably incurred as the result of a breach of the guaranty or service contract. Attorneys’ fees may also be recovered.

Construction Damages

Cost of Repair

Allowed. “[I]f the damaged property is reasonably susceptible of repair, the owner may recover the reasonable cost of repair, plus the difference between the value of the property before the injury and after the repair, unless the value is enhanced, in which event the increase in value would be deducted from the cost of repair.” Fred Frederick Motors, Inc. v. Krause, 277 A.2d 464, 466 (Md. Ct. Spec. App. 1971).

“There is no question that the measure of damages for property is the cost of restoring it, if it can be restored to the condition it was in before the injury without cost disproportionate to the injury; but where the cost of restoring is greater than the diminution of the market value, the correct measure is the difference between the value of the property before the injury and after.” Easter v. Dundalk Holding Co., 86 A.2d 477, 479-80 (Md. 1951).

Diminution in Value

Allowed. As a general rule, the measure of damages in actions for injuries to real property is the difference in value before and after the injury to the premises. In some cases, the cost of repair or restoration has been adopted as the measure of damages; but in such event the cost of repair must be reasonable and bear some proportion to the injury sustained. Mullan v. Belbin, 100 A. 384, 387 (Md. 1917).

Loss of Use

Allowed. When personal or real property has been damaged, recovery is not limited to the cost of repair but may include the value of the use of the property during the time that it would take to repair it. Superior Const. Co. v. Elmo, 102 A.2d 739, 743-44 (Md. 1954).

Punitive Damages

Punitive damages are allowable only in tort actions and only when there is an award of compensatory damages based on that tort. VF Corp. v. Wrexham Aviation Corp.,715 A.2d 188, 192 (Md. 1998). “An award of punitive damages must be based upon actual malice, in the sense of conscious and deliberate wrongdoing, evil or wrongful motive, intent to injure, ill will, or fraud.” Montgomery Ward v. Wilson, 664 A.2d 916, 932 (Md. 1995). In order for punitive damages to be awarded for fraud the plaintiff must show by clear and convincing evidence that the defendant had actual knowledge that his misrepresentation was false. Bowden v. Caldor, Inc., 710 A.2d 267, 276 (Md. 1998).

Attorney’s Fees

In Maryland, the general rule is that costs and expense of litigation, other than the usual and ordinary court costs (not attorney’s fees), are not recoverable in an action for compensatory damages. Bresnahan v. Bresnahan, 693 A.2d 1, 10 (Md. Ct. Spec. App. 1997). Attorney’s fees may be awarded where a statute allows for the imposition of such fees, or where parties to a contract have an agreement regarding attorney’s fees. Id. Where the wrongful conduct of a defendant forces a plaintiff into litigation with a third party, the plaintiff may recover from the defendant, as damages, reasonable counsel fees incurred in the action with the third party. Id.

Joint and Several Liability (specific to construction)

Maryland’s joint and several liability rules are not specific to construction matters. Maryland follows pure joint and several liability, where each defendant may be liable for full amount of damages. See Section I(C)(2) above, and Md. Code Ann., Cts. & Jud. Proc. § 3-1401 – 3-1409.

Cost Incurred to Access Repair Areas

Costs to access areas requiring repair will likely be treated as recoverable consequential damages based on the reasoning regarding damage measures articulated in Certain-Teed Prods. Corp. v. Goslee Roofing & Sheet Metal, Inc., 339 A.2d 302 (Md. Ct. Spec. App. 1975). See references in Section II(H) below, regarding consequential damages.

Consequential Damages

Allowed. In order to recover consequential damages under Maryland law, such damages must have been foreseeable to the breaching party at the time the contract was entered into. Maryland v. Safeway, Inc., 65 Fed. Appx. 442, 448 (4th Cir. 2003). “That a subcontractor, faced with the obligation to repair a defective roof as a result of the supplier’s defective product will have to borrow the funds to finance such an undertaking and thus will have to pay interest on those funds is clearly an injury which follows in the ‘normal course of events’ from the breach.” Certain-Teed Prods. Corp. v. Goslee Roofing & Sheet Metal, Inc., 339 A.2d 302, 314-15 (Md. Ct. Spec. App. 1975).

Liquidated Damages

A valid liquidated damage provision is enforceable. Barrie School v. Patch, 933 A.2d 382, 388 (Md. 2007). To be valid, a liquidated damages clause must satisfy two primary requirements: first, at the time of contracting the parties must intend the amount stated as liquidated damages to be reasonable compensation for breach; and second, at the time the time of contracting damages for breach must be difficult to ascertain with accuracy. Id. at 388-89; Anne Arundel County v. Norair Engineering Corp., 341 A.2d 287, 293 (Md. 1975).

Coverage Trigger of Coverage

An "occurrence" is an "accident, including continuous or repeated exposure to substantially the same general harmful conditions." Thus, property damage may "occur" when exposure to the "general harmful conditions" arises, even if the extent of the property damage manifests over time as a result of the continuous exposure to those conditions. Griffith Energy Servs. Nat’l Union Fire Ins. Co., 120 A.3d 808, 824 (Md. Ct. Spec. App. 2015).

Duty to Defend

1. Scope and Damages: The scope of the duty to defend is dependent on policy language. Generally, an insurer has a duty to provide the insured with a defense, as well as indemnity for a judgment up to policy limits. “[I]f the complaint alleges a claim covered by the policy, the insurer has a duty to defend.” Allstate Ins. v. Campbell, 639 A.2d 652, 657 (Md. 1994). “Even if it is unclear, given the facts alleged, whether a claim is within policy coverage, the insurer must defend as long as the claim could potentially be covered by the policy.” Id.

The damages for breach of such duties may include the insured’s defense expenses, including attorney fees, and the amount of an underlying tort judgment against the insured up to policy limits. Mesmer v. Maryland Auto Ins. Fund, 725 A.2d 1053, 1065 (Md. 1999); Allstate Ins. v. Campbell, 639 A.2d 652, 657 (Md. 1994) (the allowance of attorneys’ fees in these circumstances is an exception to the American rule). An insurer may have liability in tort beyond its policy limits where it fails to act in good faith and, thereby, exposes its insured to liability beyond the policy limits. State Farm v. White, 236 A.2d 269, 272-74 (Md. 1967).

2. Contractual Indemnity: See Sections I(C)(1) and (2) above. Contractual agreements to indemnify are enforceable, with limitations discussed above. Mass Transit Admin. v. CSX Transp., 708 A.2d 298, 304-10 (Md. 1998). As previously discussed contracts will not be construed to indemnify a person against his or her own negligence absent an express intent, and this limitation “does not apply to an insurance contract.” Mass Transit Admin., 708 A.2d at 308 (quoting Heat & Power Corp. v. Air Products & Chemicals, Inc., 578 A.2d 1202, 1208 (Md. 1990)).
3. Anti-Indemnity Statutes: See Section I(C)(1)(a) above and Md. Code Ann. Cts. & Jud. Proc. § 5-401(a).
4. Additional Insureds:
   1. Coverage for Additional Insureds’ Own Negligence vs. Vicarious Liability for Named Insured: This is dependent upon the language of the policy and the additional insured endorsement. James G. Davis Construction Corp. v. Erie Insurance Exchange, 126 A.3d 753, 761-62 (Md. Ct. Spec. App. 2015). The Davis court, interpreting language from the Insurance Services Office, Inc.’s standard form Additional Insured Endorsement as revised in 2004, found that coverage for the additional insured existed for allegations beyond vicarious liability. In short, the court concluded that coverage existed for the additional insured where the injury or damage alleged in the complaint was allegedly “caused, in whole or in part,” by the named insured or someone (including the additional insured) acting on the named insured’s behalf. Id. at 126 A.3d 761-62.
   2. Determining Primary and Non Contributory vs. Excess Position: It is difficult to draw too many broad conclusions here as the underlying facts combined with competing and specific policy language can produce widely different results. That said, this issue was addressed in Universal v. Crystal Ford, 638 A.2d 1220, 1994 Md. App. LEXIS 49, at *12-17 (Md. Ct. Spec. App. 1993). In Universal the Maryland Court of Special Appeals noted that where two policies are applicable and the two policies contain directly conflicting excess clauses, the majority rule is that the excess clauses “are to be disregarded (as mutually repugnant) and each of the coverages is treated as primary insurance (and the liability is prorated).” The Maryland court adopted the majority position and concluded that “[t]he excess clauses in the Universal and Allstate policies are mutually repugnant and so must be disregarded; each policy is to be treated as providing primary insurance. Universal and Allstate are, thus, obligated to share equally the costs of providing a defense and indemnification to Mr. Lynn.” Id. Additional cases addressing this issue include: Nolt v. U.S. Fidelity & Guaranty Co., 617 A.2d 578, 581-82 (Md. 1993); Ryder Truck Rental, Inc. v. Schapiro & Whitehouse, Inc., 269 A.2d 826, 829-30 n.1 (Md. 1970); Centennial Ins. Co. v. State Farm Mut. Automobile Ins. Co., 524 A.2d 110, 113-14 (Md. Ct. Spec. App. 1987), cert denied, 310 Md. 491 (1987); and Nat. Indem. Co. v. Continental Ins. Co., 487 A.2d 1191, 1193-95 (Md. Ct. Spec. App. 1985). In Nat. Indem. The Court of Special Appeals discussed the general rules for dealing with conflicting priority clauses. Initially the court noted that it must be determined whether the insurance clauses at issue are escape, excess or pro rata. Once this determination is made “the conflict is resolved as follows: 1) An excess clause always prevails over an escape or a pro rata clause. In effect, the policy with either of the latter two clauses becomes primary coverage, and the excess insurer becomes secondarily liable. (2) A conflict between two policies containing pro rata clauses results in each insurer sharing liability. Neither policy is considered primary or secondary. (3) When a conflict occurs between two excess clauses, liability is shared equally by the insurers.” Nat. Indem., 487 A.2d at 1191 (quoting from headnote 2).
   3. Additional Insurers Right to Reimbursement for Defense Expenses from Other, Co-primary Carriers: See the preceding section (b).
5. Insureds Right to Independent Counsel and Consequences of Rejecting a Defense: An insurer has an obligation to “assume the reasonable costs of the defense provided by an independent attorney where independent counsel is necessary because there exists a conflict of interest between the insurer and the insured.” Allstate Ins. v. Campbell, 639 A.2d 652, 657 (Md. 1994) (citing Brohawn v. Transamerica Ins. Co., 347 A.2d 842, 849-52 (Md. 1975)). As indicated in Section III(B)(1) above, damages for breach of such duty may include the insured’s defense expenses, attorney fees, and the amount of an underlying tort judgment against the insured up to policy limits. Mesmer v. Maryland Auto Ins. Fund, 725 A.2d 1053, 1065 (Md. 1999); Allstate Ins., 639 A.2d at 657 (the allowance of attorneys’ fees in these circumstances is an exception to the American rule).

Coverage Defenses

Coverage defenses are highly specific and in most cases dependent on the terms of the policy at issue. That said, primary defenses include: first, whether the activities or injuries alleged fall outside the coverage grant of the insuring agreement; and second, whether the activities or injuries alleged are excepted from coverage by a policy exclusion. Numerous other defenses are also available. These defenses may often be thought of broadly as breach of contract defenses, some of the more common defenses include, but are not limited to:

• failure to provide sufficient notice;
• late notice;
• failure to provide proof of loss;
• failure to comply with conditions precedent;
• failure to cooperate with the insurer;
• impairment of the insurer’s rights; and
• lack of standing under the policy.

Choice of Law (Forum Selection Clauses)

Maryland courts generally view forum selection clauses as presumptively enforceable. See M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972); and Main Line Mech. of Va., Inc. v. Herman/Stewart Con., 2011 U.S. Dist. LEXIS 98751, at *6-12 (D. Md. 2011) (applying forum selection clause in Maryland contract); Gilman v. Wheat, First Securities, Inc., 692 A.2d 454, 463 (Md. 1997) (Maryland has adopted the federal standard in analyzing enforceability of forum selection clauses). Forum selection clauses can be invalidated; however, the burden of invalidation is high. In order to invalidate a forum selection clause a party will generally have to show that: (1) “enforcement would be unreasonable and unjust;” (2) “the clause was invalid for such reasons as fraud or overreaching;” (3) “enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or judicial decision;” or (4) “trial in the contractual forum would be so gravely difficult and inconvenient that [the plaintiff] will for all practical purposes be deprived of his day in court.” Hara v. Hardcore Choppers, LLC, 2012 U.S. Dist. LEXIS 162552, at *6-7 (D.D.C. 2012) (quoting Cheney v. IPD Analytics, LLC, 583 F. Supp. 2d 108, 118 (D.D.C. 2008)).

Targeted Tenders

Consent judgments are allowed in Maryland. In Maryland consent decrees are not appealable. Royal Insurance Company v. Austin, 558 A.2d 1247, 1248-49 (Md. Ct. Spec. App. 1988). “The reasoning behind this jurisdictional bar is that an appeal from consensual rulings is patently inconsistent with the intent of such voluntary rulings expeditiously to resolve legal disputes.” Id.