Other Considerations/Practical Tips

IV. OTHER CONSIDERATIONS/PRACTICAL TIPS

A. Insured's Obligations

The standard policy requires the insured to notify the insurer in the event of an "occurrence, claim or suit", and to cooperate in defending any claims or suits. An insured's duty to cooperate "include[s] the obligation to make a fair, frank and truthful disclosure to the insurer for the purpose of enabling it to determine whether or not there is a defense, and the obligation, in good faith, both to aid in making every legitimate defense to the claimed liability and to render assistance at trial."²⁰⁵ An insured's duty to provide required notice is generally an obligation to give the insurer notice of a claim or occurrence to ensure that the insurer has the "opportunity to acquire full information about the circumstances of the case, assess its rights and liabilities, and take early control of the proceedings."²⁰⁶

However, an insurer's ability to disclaim for late notice or failure to cooperate is limited by § 19-110 of the Insurance Article, which reads as follows:

An insurer may disclaim coverage on a liability insurance policy on the ground that the insured or a person claiming the benefits of the policy through the insured has breached the policy by failing to cooperate with the insurer or by not giving the insurer required notice only if the insurer establishes by a preponderance of the evidence that the lack of cooperation or notice has resulted in actual prejudice to the insurer.²⁰⁷

The "actual prejudice" standard is difficult to meet.²⁰⁸ "The actual prejudice element requires that the harm be more than possible, theoretical, hypothetical, speculative, or conjectural."²⁰⁹ The insurer bears the burden of proof to show prejudice from insured's violation of a notice or cooperation provision.²¹⁰ Whether actual prejudice exists from the insured's failure to cooperate or provide notice must be determined on a case-by-case basis.²¹¹ It is worth noting that Maryland courts have indicated that this particular "actual prejudice" analysis only applies in the insurance coverage context to when an insurer disclaims coverage for an insured's late notice or failure to cooperate.²¹² "When an insurer denies coverage on the basis of something other than a failure of notice or a failure of cooperation, § 19-110 [of the Insurance Article] does not apply."²¹³

The insurer's burden of proof to disclaim coverage due to an insured's delay in providing notice of a claim is the preponderance of the evidence standard.²¹⁴ For instance, with notice provisions, prejudice can occur when the insurer cannot exercise any of its rights to investigate, defend, control, or settle the suit.²¹⁵ However, the Maryland Supreme Court has noted that an insurer, in an attempt to disclaim coverage for an insured's failure to timely notify the insurer of a claim, cannot solely base its disclaimer on developments that occurred prior to receiving notice.²¹⁶ There must be a connection or link between the alleged actual prejudice and delayed notice.²¹⁷

B. Additional Insured Coverage

A majority of construction contracts require that the contractor name the owner as an additional insured under the contractor's insurance policy. Likewise, subcontract agreements normally require that the subcontractor name the general contractor and owner as additional insureds under the subcontractor's policy. Additional insured status is obtained by a contractual agreement with the insurer reflected by the policy endorsement. By virtue of the additional insured endorsement, an additional insured has a direct contractual relationship with the insurer.²¹⁸ Essentially, the entity or individual becomes an insured under the policy, although the coverage can be limited to liability arising out of operations/work performed for the named insured. As a result, additional insureds have been afforded coverage for liability incurred due to their sole or active fault.²¹⁹

C. Certificate of Insurance v. Policy Language

Construction contracts may require that the...