THACKER, Circuit Judge:
Perini/Tompkins Joint Venture ("PTJV" or "Appellant") appeals the district court's grant of summary judgment in favor of ACE American Insurance Co. ("ACE" or "Appellee"). PTJV filed suit, claiming coverage under primary and excess insurance policies with regard to a large-scale construction project in Oxon Hill, Maryland. The district court determined ACE was entitled to summary judgment because PTJV did not obtain ACE's consent before settling the underlying dispute regarding property damage at the construction site and, pursuant to the insurance contract, PTJV was required to do so at the risk of relinquishing coverage. We hold that under Maryland and Tennessee law, PTJV violated the terms of both the primary and excess policies by not obtaining ACE's consent before settlement, and as such, cannot now claim reimbursement under those policies. We thus affirm the district court.
In 2005, Gaylord National LLC ("Gaylord") hired PTJV, a joint venture between
Gaylord then purchased from ACE an OCIP Commercial General Liability Insurance Policy (the "Primary Policy"), providing a limit of $2 million per occurrence, and an OCIP Excess Liability Policy (the "Excess Policy"), providing a limit of $25 million per occurrence (collectively, the "Policies"). The Policies provided coverage for the period from May 23, 2005, to August 30, 2008. By endorsement, PTJV was added as a named insured on the Policies. The Project was also insured by a Builders Risk Policy through Factory Mutual Insurance Company ("FM Global").
During construction of the signature feature of the building — an 18-story, 2,400 ton glass atrium — serious property damage occurred. The damage is described in the Complaint as follows:
J.A. 21.
After the Project was completed, litigation ensued. On September 18, 2008, PTJV filed a complaint against Gaylord for establishment and enforcement of a mechanic's lien, breach of contract, quantum meruit, and violation of the Maryland Prompt Payment Act. See Perini/Tompkins Joint Venture, et al. v. Gaylord Nat'l, LLC, No. CAE08-24316 (Cir.Ct.Md. Sept. 18, 2008) (the "PTJV action"). PTJV alleged Gaylord still owed $79,656,098 under the Contract and asked for damages plus interest, costs, and fees. The claims were based on the costs allegedly incurred due
Subsequently, on October 10, 2008, Gaylord countersued, filing a complaint against PTJV for breach of contract and breach of fiduciary duty. See Gaylord Nat'l, LLC v. Perini/Tompkins Joint Venture, No. CAE08-27201 (Cir.Ct.Md. Oct. 10, 2008) (the "Gaylord action"). Gaylord claimed PTJV failed to properly manage scheduling, costs, and budgets, and failed to build a high-quality project at the agreed-upon price. Specifically, Gaylord alleged it paid PTJV $802,085,712, when it should have only paid $737,091,338. Thus, Gaylord sought reimbursement of approximately $65 million in damages resulting from the alleged overpayment. Notably, PTJV did not notify ACE of the Gaylord action.
Gaylord and PTJV settled the Gaylord action on November 26, 2008.
On May 6, 2009, almost six months after the settlement and nearly two years after the Collapse, PTJV sent a letter to ACE advising that, to the extent FM Global did not pay the claim related to the Collapse, PTJV intended to seek reimbursement from ACE. This letter was the first formal, written notice of a claim to ACE, although ACE concedes its representative was present on the site when the Collapse occurred. However, this letter did not mention the settlement or the Gaylord action at all. Over ten months later, on February 23, 2010, ACE issued a reservation of rights letter, citing "[b]usiness [r]isk" exclusions, late notice, and voluntary payments made without ACE's consent as potential grounds for denial of coverage. On April 29, 2010, FM Global denied PTJV's claims.
After several additional months of back-and-forth between PTJV and ACE, on December 13, 2010, PTJV filed suit against ACE in the United States District Court for the District of Maryland, alleging
J.A. 13-15.
ACE filed a motion to dismiss on February 15, 2011, and the district court denied the motion in part on September 1, 2011, but ordered that limited discovery be conducted on issues regarding late notice to ACE, including any corresponding prejudice. After discovery, ACE filed a summary
J.A. 88-89, 92. A formal order issued the next day, October 23, 2012, granting summary judgment for the reasons stated on the record at the hearing. This timely appeal followed.
Before we proceed to the merits of this appeal, we first decide the proper law to apply. A federal court exercising diversity jurisdiction must apply the choice of law rules of the state in which it sits. See Seabulk Offshore, Ltd. v. Am. Home Assurance Co., 377 F.3d 408, 418-19 (4th Cir.2004). In this diversity action, the district court was correct in applying Maryland's choice of law rules. See CACI Int'l, Inc. v. St. Paul Fire and Marine Ins. Co., 566 F.3d 150, 154 (4th Cir.2009) ("Because we have diversity jurisdiction in this case, we apply the choice of law rules of the forum state....").
In insurance contract disputes, Maryland follows the principle of lex loci contractus, which applies the law of the jurisdiction where the contract was made. Allstate Ins. Co. v. Hart, 327 Md. 526, 611 A.2d 100, 101 (1992). For choice of law purposes, a contract is made where "the last act is performed which makes the agreement a binding contract. Typically, this is where the policy is delivered and the premiums are paid." Sting Sec., Inc. v. First Mercury Syndicate, Inc., 791 F.Supp. 555, 558 (D.Md.1992) (internal quotation marks, citations, and alteration omitted). In this case, that state is Tennessee.
Under certain circumstances, however, Maryland choice of law rules follow the renvoi doctrine, an exception to the lex loci contractus rule. Under this exception, a Maryland court may disregard the rule of lex loci contractus and apply Maryland law, if
See Am. Motorists Ins. Co. v. ARTRA Group, Inc., 338 Md. 560, 659 A.2d 1295, 1304 (1995).
We recognize, however, "[c]hoice of law analysis becomes necessary ... only if the relevant laws of the different states lead to different outcomes" and where the laws "do not so conflict, the choice is immaterial, and the law of the forum — Maryland — governs." Lowry's Reports, Inc. v. Legg Mason, Inc., 271 F.Supp.2d 737, 750 (D.Md.2003); see also Int'l Adm'rs, Inc. v. Life Ins. Co. of N. Am., 753 F.2d 1373, 1376 n. 4 (7th Cir.1985) ("Conflicts rules are appealed to only when a difference in law will make a difference to the outcome."). As explained below, under either Tennessee or Maryland law, the outcome is the same.
We review a district court's grant of summary judgment de novo. See Francis v. Allstate Ins. Co., 709 F.3d 362, 366 (4th Cir.2013). We also review de novo a district court's decision on an issue of contract interpretation. See Seabulk Offshore Ltd. v. Am. Home Assurance Co., 377 F.3d 408, 418 (4th Cir.2004). Summary judgment is appropriate "only if ... `there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law.'" Id. (quoting Fed. R.Civ.P. 56(c)).
In essence, this is a simple contract interpretation case. See Rouse v. Fed. Ins. Co., 991 F.Supp. 460, 465 (D.Md.1998) ("It is axiomatic that an insurance contract is interpreted like any other contract. If the policy's language is clear and unambiguous, the Court will assume the parties meant what they said...." (citations omitted)). As with any contractual dispute, we start with the relevant policy provisions. See Prince George's Cnty. v. Local Gov't Ins. Trust, 388 Md. 162, 879 A.2d 81, 88 (2005) ("In interpreting an insurance policy, as with any contract, the primary task of the circuit court is to apply the terms of the policy itself.").
The Primary Policy contains the following provisions:
Section 19-110 of the Maryland Code provides,
Md.Code Ann. § 19-110 (emphasis added). PTJV relies heavily on this statute and argues that ACE's denial of coverage centers on PTJV's alleged "lack of notice" of the claim regarding the Collapse and "lack of cooperation" in PTJV's failure to notify ACE of the Gaylord claim and settlement. As such, it contends, ACE must show actual prejudice before denying coverage, which is an issue of fact that should survive summary judgment.
ACE, in contrast, maintains that regardless of whether PTJV provided them with timely notice of the claim (or whether they had constructive knowledge through their on-site representative), there is no dispute that PTJV did not obtain ACE's consent before settlement, in violation of the voluntary payment and no-action clauses. ACE argues prejudice is irrelevant in this instance, but even if ACE were required to show prejudice, we should infer prejudice as a matter of law because "ACE was left in the dark during the pendency of the underlying litigation and the negotiations leading to the finalization of the settlement," and otherwise, ACE will be "placed in the impossible position of having to prove a negative...." Appellee's Br. 19.
We agree with ACE that "[t]he central issue in this appeal is whether the insured... can unilaterally settle a construction defect case ..., present the settlement to its liability insurer as a fait accompli, and obtain indemnification despite its blatant breach of clear and unambiguous policy provisions." Appellee's Br. 1.
We find Phillips Way, Inc. v. American Equity Insurance Co. to be particularly instructive in dissecting this case. See 143 Md.App. 515, 795 A.2d 216 (2002). There, Phillips Way, a construction company, contracted to design and construct a clubhouse for the University of Maryland. See id. at 217. During the course of the construction, several architectural and design defects arose, and Phillips Way decided to settle complaints about these problems to the tune of $260,000, without notifying its insurance carrier, American Equity. Once the project had been accepted by the University, Phillips Way made a claim against American Equity for $260,000. See id. at 217-18. The contract between American Equity and Phillips Way contained a no-action clause which stated, in relevant part,
Id. at 216-17.
Id. at 220-21 (internal quotation marks omitted).
Phillips Way is directly applicable to the case at hand. The no-action clause in this case states that the insured cannot sue under the Policies "unless all of its terms have been fully complied with." J.A. 314 (emphasis added). It also states that PTJV can sue to recover on a settlement only if the "settlement and release of liability" is "signed by [ACE]." Id. The voluntary payment clause requires ACE's consent before "voluntarily mak[ing] a payment, assum[ing] any obligation, or incur[ring] any expense," at the risk of relinquishing coverage. J.A. 314. These are conditions precedent to PTJV's ability to obtain coverage, that is, "fact[s], other than mere lapse of time, which, unless executed, must exist or occur before a duty of immediate performance of a promise arises." Chirichella v. Erwin, 270 Md. 178, 310 A.2d 555, 557 (1973) (internal quotation marks omitted). "[W]here a contractual duty is subject to a condition precedent, whether express or implied, there is no duty of performance and there can be no breach by nonperformance until the condition precedent is either performed or excused." Laurel Race Course, Inc. v. Regal Constr. Co., 274 Md. 142, 333 A.2d 319, 327 (1975).
ACE advances the same argument as the one in play in Phillips Way: because PTJV did not meet the condition precedent in the no-action clause (that is, it did not obtain consent before settlement), it cannot now sue ACE. Phillips Way directly vindicates this argument. Indeed, it is undisputed that PTJV did not obtain ACE's consent to settlement before settling with Gaylord. Thus, PTJV cannot satisfy the conditions precedent of the voluntary payment and no-action clauses, as they "attempt[ed] to settle" and "voluntarily ma[d]e a payment" "without [ACE's] consent," (voluntary payment clause) and did not ensure the "settlement and release of liability [was] signed by [ACE]" (no-action clause). J.A. 314, 378. The no-action clause also states PTJV has no right to sue "unless all of [the Policies'] terms have been fully complied with," and as explained above, PTJV did not comply with all of the Policies' terms.
We also note that, to the extent PTJV argues the voluntary payment and no-contest clauses are implicated by section 19-110's "lack of cooperation and notice" provisions, Phillips Way rightly rejected that argument. See Phillips Way, 795 A.2d at 218 (Even "if [the insured] had notified [the insurer] of the intended settlement and gave the latter its full cooperation, the condition precedent would still have been
Therefore, because section 19-110 does not apply here, there is no statutory ground requiring ACE to show prejudice. Nonetheless, PTJV urges us to find that ACE must yet show prejudice under Maryland common law. As explained next, however, even if this were a correct statement of the law, prejudice can be inferred as a matter of law.
PTJV and amici in this case argue that even if there is no statutory mandate that ACE show prejudice, ACE is still required to do so under common law. We disagree and read Phillips Way broadly as holding that an insured's failure to obtain the insurer's prior consent to a settlement does not ever require prejudice, primarily because — whether statutory — based or common law-based-an insurer would always have "the impossible burden ... of showing collusion or demonstrating, after the fact, the true worth of the settled claim." 795 A.2d at 221.
But even assuming ACE were required to show prejudice outside the ambit of section 19-110, we would be obliged to conclude ACE was prejudiced as a matter of law. In Prince George's County v. Local Gov't Ins. Trust, the Maryland Court of Appeals held that a trust, acting as an excess liability insurer, was prejudiced as a matter of law when it was not notified of a claim until after its resolution. See 388 Md. 162, 879 A.2d 81 (2005). The court explained,
Id. at 98, 100.
We would therefore affirm the district court's decision under Maryland law, regardless of whether prejudice is required.
We would also affirm the district court's judgment under Tennessee law. First and foremost, the Court of Appeals of Tennessee has stated, "Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties have used, and if they are clear and unambiguous, their terms are to be taken and understood in their plain, ordinary, and popular sense." Jones Masonry, Inc. v. W. Am. Ins. Co., 768 S.W.2d 686, 687 (Tenn.Ct.App.1988).
In Anderson v. Dudley Moore Insurance Co., the Tennessee Court of Appeals held that when an insurance agency failed to process paperwork for a potential insured and then paid a settlement to the insured without notifying their errors and omissions ("e & o") carrier, the agency could not recover from the e & o carrier because it violated the voluntary payment clause. See 640 S.W.2d 556 (Tenn.Ct.App. 1982). The court explained, "Although [the e & o carrier] had notice of a potential demand, plaintiff never made any formal request that the carrier investigate, defend, or pay the claim until long after it had made the ex parte payment to [the insured]," and this "was in express violation of the [voluntary payment] provision[]." Id. at 560. The court also rejected the notion that the voluntary payment clause "relate[d] only to disbursements involving expenses of litigation and investigation," explaining that if this were true, "an insured with `e & o' coverage could determine what sums to pay when a claim is made and thereafter make demand upon the carrier for reimbursement without the carrier having any input in the process. Such a construction would be extremely illogical and unreasonably restrictive." Id. Furthermore, "it would require that the express words contained in the agreement be ignored." Id.
Similarly, in State Auto. Ins. Co. v. Lashlee-Rich, the Court of Appeals of Tennessee held an insured that violated a voluntary payment clause in an insurance policy was precluded from claiming coverage under that policy. See No. 02A01-9703-CH-71, 1997 WL 781896 (Tenn.Ct. App.1997). In that case, a construction company (Lashlee-Rich) accidentally hit an electrical wire while doing construction work, putting a nearby ice cream toppings business in peril of losing its inventory. Lashlee-Rich quickly contracted with an electric company to perform the necessary repairs and then sought to collect reimbursement from State Auto, its insurer. Although Lashlee-Rich notified State Auto of the occurrence the following day, it did not mention that it had assumed an obligation to pay the electric company. The insurance contract in that case, like in the case at hand, contained a voluntary payment clause and a no-action clause. See id. at *2-3.
The court held, "Lashlee attempted to bypass the plain, unambiguous language in
This case is similar to both Anderson and Lashlee-Rich. Here, PTJV took matters into its own hands, admittedly without obtaining consent from ACE, which divested ACE of its rights under the Policies, and violated the terms of such Policies.
As for prejudice, PTJV points to Alcazar v. Hayes, a landmark case in which Tennessee adopted the following policy:
982 S.W.2d 845, 856 (Tenn.1998). However, Alcazar did not address situations of fait accompli, which we have here and which were present in Anderson and Lashlee-Rich. Thus, those holdings — which did not even factor prejudice into the equation — still remain good law. Therefore, we predict the highest court in Tennessee would likewise resolve the case at hand under Anderson and Lashlee-Rich, without requiring ACE to demonstrate prejudice.
We would therefore affirm summary judgment under Tennessee law as well.
PTJV argues ACE "waived [its] late notice/voluntary payment defense," or at least, this is an issue of fact that should survive summary judgment. Appellant's Br. 56. It contends "ACE consistently turned a blind eye to the Atrium Failure, ignored PTJV's claim for unreasonably long periods of time and even went so far as to tell PTJV it would pay the claim." Id. at 57.
Under Maryland and Tennessee law, a waiver requires the "intentional relinquishment of a known right existing for the benefit of the insurer." Gov't Emps. Ins. Co. v. Group Hosp. Med. Servs., Inc., 322 Md. 645, 589 A.2d 464, 466 (1991) (internal quotation marks omitted); see also Kentucky Nat. Ins. Co. v. Gardner, 6 S.W.3d 493, 498-99 (Tenn.Ct.App. 1999) ("A waiver is an intentional relinquishment of a known right."). PTJV
PTJV submits that ACE did the following things, which should constitute waiver or at least raise a genuine issue of material fact: (1) ACE "ignored" the atrium failure (i.e., did not "take any action" after the Collapse); (2) ACE "failed to acknowledge PTJV's claim for 10 months"; (3) ACE "represented to PTJV that it would pay the claim," without reserving rights; and (4) ACE "refused to pay, but not on the basis of late notice." Appellant's Br. 55-59.
However, none of these facts shows ACE's "intentional relinquishment" of its right to invoke the provisions of the no-action and voluntary payment clauses, which as explained above, are the relevant provisions to this appeal. In fact, in the September 8, 2010 letter from ACE offering to pay a certain part of the claim, it stated it "is not waiving, nor will it be estopped from asserting any other terms, conditions, exclusions or provisions of this policy." J.A. 2802. For these reasons, PTJV's waiver argument fails.
For these reasons, the judgment of the district court is
AFFIRMED.
