Nationwide Prop. & Cas. v. Selective Way , 473 Md. 178 ( 2021 )

Nationwide Property & Casualty Insurance Company, et al. v. Selective Way Insurance
Company, No. 1, September Term, 2020. Opinion by Getty, J.
CIVIL PROCEDURE – PREJUDGMENT INTEREST – DEFENSE COSTS – Court
of Appeals held that a plaintiff is not entitled to prejudgment interest, as a matter of right,
on the damages in the form of defense costs resulting from a liability insurer’s breach of
its duty to defend. Such a claim is unliquidated, not fixed by agreement, and not
ascertainable at the time of breach. Therefore, an award of prejudgment interest on
amounts paid for defense costs falls within the discretion of the finder of fact.
Circuit Court for Baltimore County
Case No. 03-C-08-006273
Argued: October 2, 2020
IN THE COURT OF APPEALS
OF MARYLAND
No. 1
September Term, 2020
NATIONWIDE PROPERTY & CASUALTY
INSURANCE COMPANY, ET AL.
V.
SELECTIVE WAY INSURANCE COMPANY
Barbera, C.J.,
McDonald
Watts
Hotten
Getty
Booth
Biran
JJ.
Opinion by Getty, J.
Filed: April 1, 2021
Pursuant to Maryland Uniform Electronic Legal
Materials Act
(§§ 10-1601 et seq. of the State Government Article) this document is authentic.
2021-10-27 16:19-04:00
Suzanne C. Johnson, Clerk
In awarding prejudgment interest, Maryland courts have traditionally operated
under a “modified discretionary approach”—that is, an approach which generally places
the award of prejudgment interest within the discretion of the trier of fact, but also
recognizes distinct exceptions in which a plaintiff is entitled to prejudgment interest as a
matter of right. See Developments in Maryland Law (1990-91), 51 Md. L. Rev. 507, 514
(1992). This case presents a question of whether prejudgment interest on defense costs
where a party breaches its duty to defend properly falls within the exception and should
therefore be awarded as a matter of right. As we explain below, we hold that it does not
fall within the exception, and we affirm the Court of Special Appeals’ conclusion that the
award of prejudgment interest is within the discretion of the factfinder.
BACKGROUND
A. The Highpointe Apartments Construction Project.
The Highpointe Business Trust undertook a large construction project in 2001 to
build a new high-end apartment complex, the Highpointe Apartments, in Hunt Valley,
Maryland. They hired Questar Builders, Inc. (“Questar”) as the general contractor for the
project. In turn, Questar hired numerous subcontractors and each subcontract required the
subcontractor to maintain commercial general liability insurance with both “primary and
noncontributory” coverage and to name Questar as an “additional insured” on the policy.
Relevant to this case, four of Questar’s subcontractors purchased commercial
general liability insurance from respondent Selective Way Insurance Company (“Selective
Way”). These four subcontractors provided land development work, waterproofing work,
and rough carpentry work. Specifically, their responsibilities were as follows: (1) SEH
Excavating Contractors, Inc. was hired to complete earthwork, excavation, disposal of
debris found buried on site, grading, sediment and erosion control, construction of retaining
walls, installation of water lines, meters and storm drain lines, partial installation of rain
collection system, and the installation of concrete curbs and gutters in the parking lots; (2)
Streett’s Waterproofing, Inc. was hired to provide all labor, tools, and equipment necessary
to complete waterproofing of select foundation walls, elevator pits, and jump walls; (3)
Justice Waterproofing, Inc. was hired to install tennis court waterproofing and a green and
red tennis court color coat system over the existing concrete surface; and (4) King
Carpentry Contractors, Inc. was hired to complete wood framing, install exterior wall and
roof sheathing, install all subflooring and exterior decks, install common area doors and
frames, and install exterior wood trim.
Each of the four general liability insurance policies procured from Selective Way
contained provisions promising to indemnify and defend the named insureds, that is, the
subcontractors themselves, against damages arising out of claims covered by the policies.
Other provisions in the policies extended this coverage to an additional party if a named
insured entered into a written contract promising to provide insurance for that additional
party. Here, the named insureds each entered into a contract with Questar promising to
name Questar as an additional insured. Taken together, these subcontracts and insurance
policies required Selective Way to indemnify and defend Questar as an additional insured
for claims arising out of the work performed on the Highpointe Apartments by the four
subcontractors.
2
Construction on the Highpointe Apartments was completed in early 2004. Prior to
closing, water damage incidents were brought to the attention of Questar, and, in response,
Questar provided cosmetic repairs such as drywall replacement and carpet replacement.
At the time of closing, Questar acknowledged the water entry into several units, but
represented that the source of water entry was corrected. However, within two and one-
half years, extensive construction defects became evident as water entry repeatedly
occurred through exterior walls, interior walls, the roof, and windows. These defects
caused mold infestation, deterioration of interior finishes, and damages to the structural
integrity of the buildings.
Overall, the extensive construction defects resulted in unsafe living conditions
throughout the apartment complex. In at least one incident, water penetrated the exterior
walls, intermingled with the electrical system, and freely flowed through electrical outlets.
Repeated water entry into units and common areas resulted in emergency repairs,
relocation of tenants to alternate living spaces, and replacement of damaged personal items
belonging to the tenants.
B. Construction Defect Lawsuit Against Questar.
On July 13, 2006, Highpointe Business Trust sued Questar and others alleging
defective construction of the apartment complex and seeking to recover $4.5 million for
resulting property damage.1 Questar’s own liability insurers, petitioners Nationwide
1
Hunt Valley, L.L.C. was a plaintiff in the original complaint, but was later removed in an
amended complaint. While Highpointe Business Trust maintained continuous ownership
of the apartment complex, Highpointe Associates, L.L.C. sold its sole beneficial interest
in Highpointe Business Trust to Hunt Valley, L.L.C. on March 10, 2004.
3
Property and Casualty Insurance Company and Nationwide Mutual Insurance Company
(collectively, “Nationwide”) appointed and paid for separate defense counsel for Questar.
Questar both denied liability and filed a third-party complaint seeking indemnity or
contribution from twenty-six subcontractors that performed work on the apartment
complex. Each of the four subcontractors insured by Selective Way was named as a third-
party defendant.
In April 2008, Questar’s attorney wrote Selective Way seeking defense and
indemnification under the policies issued to the four subcontractors. In May 2008,
Selective Way sent formal denial letters in response to requests regarding two of the
subcontractors, citing lack of “proof” or “evidence” as to the cause of the alleged damages.
Selective Way did not respond to requests regarding the other two subcontractors.
C. Nationwide’s Declaratory Judgment Action.
Several months later on June 10, 2008, Nationwide filed a declaratory judgment
action in the Circuit Court for Baltimore County seeking, among other things, a declaration
that Selective Way was obligated to defend Questar in the construction defect lawsuit by
virtue of Questar’s status as an additional insured under the Selective Way policies.
Nationwide argued that Selective Way’s coverage of Questar was primary, and its own
coverage of Questar was secondary. Thus, Nationwide sought reimbursement from
Selective Way for all defense costs incurred in representing Questar in the construction
defect lawsuit.
Selective Way denied any duty to defend Questar in the construction defect lawsuit,
asserted lack of adequate notice, and demanded a jury trial on all issues. Shortly thereafter,
4
the underlying construction defect lawsuit was settled, and the court granted Nationwide’s
motion to bifurcate the remaining issues under the declaratory judgment action. The court
would first determine if Selective Way and others had the duty to defend Questar and
thereby the obligation to reimburse Nationwide. If applicable, the court would then
calculate the amount of damages Nationwide was entitled to recover.
In September 2009, Nationwide moved for summary judgment against twelve
subcontractors’ insurers, including Selective Way, seeking to establish the insurers’ duty
to defend Questar as a matter of law. The twelve insurers opposed Nationwide’s motion
for summary judgment and filed their own motion for summary judgment asserting that a
sixteen-month delay in notice of the construction defect lawsuit relieved any duty to defend
Questar and that Nationwide’s exclusive control of the defense during the delay left
Nationwide with “unclean hands.”
On August 26, 2014,2 the court entered an order granting Nationwide’s motion for
summary judgment in part and denying it in part. The court determined as a matter of law
that the subcontractors’ insurers had a duty to defend Questar in the underlying
construction defect lawsuit but reserved the remaining issues for the jury. Specifically, the
jury would determine whether the subcontractors’ insurers suffered prejudice as a result of
the delay in notice and whether Nationwide had “unclean hands.” Before trial, Nationwide
reached settlement agreements with all the subcontractors’ insurers except Selective Way.
2
In the five-year span from 2009 until 2014, the parties engaged in discovery and disputes
surrounding discovery.
5
D. Jury Trial on Nationwide’s Claims Against Selective Way.
On December 15, 2016, Nationwide made a second motion for summary judgment
on both remaining issues before the court and again the court granted the motion in part
and denied it in part. The court rejected Selective Way’s defense of “unclean hands” and
thus narrowed the scope of the jury trial to the single remaining issue of whether Selective
Way suffered actual prejudice because of the delayed notice. In the event of finding no
actual prejudice, the jury would then determine the amount of damages Nationwide was
entitled to recover for its defense of Questar in the construction defect lawsuit.
The court held a five-day jury trial on March 7, 8, 9, 10, and 13, 2017. At trial, both
Nationwide and Selective Way presented competing expert opinion testimony regarding
the fairness and reasonableness of the fees charged. Nationwide did not request any jury
instructions on prejudgment interest and did not propose any questions about prejudgment
interest on the special verdict sheet it provided to the court. Without reference to
prejudgment interest, the verdict sheet used by the court asked broadly, “[w]hat damages,
if any, has Nationwide proved by a preponderance of the evidence?” Ultimately, the jury
found that Selective Way had received timely notice of the construction defect lawsuit
against Questar and Nationwide had proven $994,719.54 in total damages.3
In April 2017, Selective Way filed a premature appeal to the Court of Special
Appeals, which was dismissed in June 2017 because the circuit court had not yet
3
The jury also answered two additional questions regarding the apportionment of the
defense costs, finding that while the costs were readily apportionable between various
subcontractors, Nationwide was not required to apportion the costs.
6
determined Nationwide’s entitlement to additional fees as a result of Selective Way’s
breach of its duty to defend.
E. Trial Court Award of Prejudgment Interest.
Once the case returned to the circuit court, Nationwide made a motion seeking a
determination of Selective Way’s liability for attorneys’ fees and expenses incurred in the
declaratory judgment action. Prejudgment interest was not requested in the motion.
Subsequently, the circuit court held a hearing solely pertaining to attorneys’ fees and
expenses. The court awarded Nationwide $810,556.72 in fees and expenses.
After Nationwide filed the motion for attorneys’ fees and expenses, but prior to the
hearing on that motion, the two parties sent correspondence to the court regarding the issue
of prejudgment interest. On March 20, 2018, Nationwide wrote a one-page letter directly
to the circuit court with a copy to Selective Way’s counsel, seeking an award of
$430,534.82 in prejudgment interest on the damages awarded to Nationwide by the jury.4
Nationwide included a detailed calculation of the prejudgment interest and electronic files
containing invoices for attorneys’ fees paid by Nationwide with the letter.
On April 6, 2018, Selective Way responded with a two-page letter to the circuit
court judge objecting to the timing and manner in which the issue of prejudgment interest
had been raised by Nationwide. Selective Way argued that the award of prejudgment
interest was a matter of discretion for the factfinder to determine at trial, not for the court
4
The prejudgment interest amount proposed by Nationwide was calculated at a six percent
interest rate beginning at the conclusion of the construction defect lawsuit in 2009 and
ending just prior to the March 2017 hearing before the circuit court on attorneys’ fees and
expenses.
7
to add after the judgment. Selective Way further requested the opportunity to oppose any
future motion made by presenting the court with appropriate authority through “formal
channels.” However, on the issue of prejudgment interest, no formal motion was made for
the court’s consideration nor was a hearing requested or held on the matter.
On May 2, 2018, the court filed an “Order and Declaratory Judgment” establishing
that Selective Way breached its duty to defend Questar in the construction defect lawsuit
and was liable to Nationwide in the total amount of $1,647,659. This amount included the
jury award, prejudgment interest, attorneys’ fees and costs, and a reduction based on
settlement awards already received by Nationwide. Specifically, the total judgment issued
by the circuit court reflected $994,719.54 in defense costs in the construction defect
lawsuit; $430,534.82 in prejudgment interest on those defense costs; $810,556.72 in
attorneys’ fees and costs incurred in the declaratory judgment action; and a reduction of
$588,152 for settlement amounts Nationwide had received from other insurers.
Selective Way made several post-trial motions, one of which was a motion to alter
or amend the judgment, asking the court to set aside the award of prejudgment interest.
The circuit court denied Selective Way’s post-trial motions, including the motion to alter
or amend the judgment, and Selective Way noted a timely appeal to the Court of Special
Appeals.
F. Appeal and Opinion of the Court of Special Appeals.
On October 30, 2019, the Court of Special Appeals filed a reported opinion
addressing twelve separate issues raised by Selective Way. On appeal, Selective Way
challenged the declaratory judgment that it owed a duty to defend Questar in the underlying
8
construction defect lawsuit, the determination of damages incurred by Nationwide in
defending Questar in the underlying construction defect lawsuit, the award of prejudgment
interest on the damages awarded by the jury, and the award of attorneys’ fees and expenses
incurred by Nationwide in the declaratory judgment action.
The Court of Special Appeals affirmed the circuit court’s judgment with respect to
Selective Way’s duty to pay defense costs incurred by Nationwide in its representation of
Questar in the construction defect lawsuit; reversed the circuit court’s judgment with
respect to the award of prejudgment interest on those defense costs; and vacated and
remanded the circuit court’s judgment with respect to the amount of attorneys’ fees and
expenses incurred in the declaratory action. Selective Way Ins. Co. v. Nationwide Prop. &
Cas. Ins. Co., 242 Md. App. 688 (2019). On the issue of prejudgment interest, the Court
of Special Appeals held that the award of prejudgment interest was a triable issue of fact
for the jury to decide, not the court to determine as a matter of law. Id.Nationwide timely petitioned this Court for Writ of Certiorari, which we granted on
March 11, 2020. Nationwide Prop. & Cas. Ins. Co. v. Selective Way Ins. Co., 467 Md. 690(2020). Although the Court of Special Appeals’ opinion addressed numerous issues, this
Court granted certiorari on the sole issue of prejudgment interest. Accordingly, before us
is the single question:
Did the Court of Special Appeals err in ruling that prejudgment interest is
not recoverable as a matter of right on amounts paid for defense costs where
a liability insurer breaches its duty to defend?
For the reasons more fully stated below, we affirm the Court of Special Appeals and
hold that damages in the form of defense costs resulting from a liability insurer’s breach of
9
its duty to defend are unliquidated, not fixed by agreement, and unascertainable at the time
of the breach. Therefore, such damages are not entitled to prejudgment interest as a matter
of right and are instead left to the discretion of the factfinder. Here, the jury as factfinder
was not presented with the issue of prejudgment interest for deliberation, and thus the
circuit court was not authorized to later award additional prejudgment interest.
STANDARD OF REVIEW
A party’s entitlement to prejudgment interest is governed by the Maryland Rules.
See Md. Rule 2-604(a). Our interpretation of the Maryland Rules is a question of law, and
therefore we review a circuit court’s decision to award prejudgment interest under a de
novo standard of review to determine whether it is legally correct. See Davis v. Slater, 383
Md. 599, 604 (2004) (“Because our interpretation of the . . . Maryland Rules [is]
appropriately classified as [a] question[] of law, we review the issues de novo to determine
if the trial court was legally correct in its rulings on these matters.”); see also Nesbit v.
Gov’t Emps. Ins. Co., 382 Md. 65, 72 (2004) (“When the trial court’s order involves an
interpretation and application of Maryland . . . case law, our Court must determine whether
the lower court’s conclusions are legally correct under a de novo standard of review.”
(internal quotation marks omitted)).
DISCUSSION
A. Requirements for Prejudgment Interest Awards.
Maryland law provides factual and procedural requirements governing the award of
prejudgment interest. To begin, this Court has explained that the “purpose of awarding
pre-judgment interest . . . is ‘to compensate the aggrieved party for the loss of the use of
10
the principal liquidated sum found due it and the loss of income from such funds.’”
Harford County v. Saks Fifth Ave. Distrib. Co., 399 Md. 73, 95 (2007) (quoting Buxton v.
Buxton, 363 Md. 634, 652 (2001)). Put another way, prejudgment interest “compensates
the judgment creditor for his or her inability to use the funds that should have been in his
or her hands at some earlier time and usually does not depend on what the debtor might
have done with the money.” Buxton, 363 Md. at 652 (emphasis in original omitted).
Prejudgment interest falls into one of two distinct categories—that which is
discretionary and that which is awarded as of right. United Cable Television of Balt. Ltd.
P’ship v. Burch, 354 Md. 658, 668 (1999). This Court has continually recognized the
general rule that a party’s entitlement to prejudgment interest is an issue for the finder of
fact and accordingly “left to the discretion of the jury, or the Court when sitting as a jury.”
I. W. Berman Props. v. Porter Bros., Inc., 276 Md. 1, 18 (1975) (quoting Affiliated
Distillers Brands Corp. v. R.W.L. Wine & Liquor Co. Inc., 213 Md. 509, 516 (1957)).
However, there are well-established exceptions to this general rule. Id.Only under certain factual circumstances that fall within an exception to the general
rule will a court award prejudgment interest as a matter of right. See Harford County, 399
Md. at 94 (quoting Ver Brycke v. Ver Brycke, 379 Md. 669, 702 (2004)). Prejudgment
interest is available as a matter of right when “the obligation to pay and the amount due”
is “certain, definite, and liquidated by a specific date prior to judgment” such that “the
effect of the debtor’s withholding payment was to deprive the creditor of the use of a fixed
amount as of a known date.” Buxton, 363 Md. at 656 (quoting First Virginia Bank v.
Settles, 322 Md. 555, 564 (1991)). This exception “arises under written contracts to pay
11
money on a day certain, such as bills of exchange or promissory notes, in actions on bonds
or under contracts providing for the payment of interest, in cases where the money claimed
has actually been used by the other party, and in sums payable under leases as rent . . . as
well [as] in conversion cases where the value of the chattel converted is readily
ascertainable.” Buxton, 363 at 656. On the other hand, no prejudgment interest is allowed
in “tort cases where the recovery is for bodily harm, emotional distress, or similar
intangible elements of damage not easily susceptible of precise measurement.” Id.Pertinent to this case and “[b]etween these poles of allowance as of right and absolute non-
allowance is a broad category of contract cases in which the allowance of pre-judgment
interest is within the discretion of the trier of fact.” Id. at 657.
While this Court’s prior decisions outline factual requirements for an award of
prejudgment interest, Maryland Rule 2-604(a) sets out the procedural requirements.
Maryland Rule 2-604(a) provides, “[a]ny pre-judgment interest awarded by a jury or by a
court sitting without a jury shall be separately stated in the verdict or decision and included
in the judgment.” The Court of Special Appeals has previously construed this rule
narrowly, holding that a jury’s addition of “plus interest” following an award of
compensatory damages on the verdict sheet was insufficient to satisfy the requirement that
a prejudgment interest award must be “separately stated.” Fraidin v. Weitzman, 93 Md.
App. 168, 219 (1992).
B. Parties’ Contentions.
Nationwide argues that this case is exceptional and meets the requirements for
prejudgment interest as a matter of right. Nationwide contends, and both lower courts
12
agreed, that Selective Way had a unilateral duty to defend Questar in the underlying case.
Nationwide maintains that Selective Way, by declining to defend Questar, breached that
duty, and is obligated to pay Nationwide $994,719.54 for attorneys’ fees and costs it spent
defending Questar. Nationwide argues that the amount owed was certain and definite at
the time it became due and that the amount owed was ascertainable on a specific date prior
to trial—the date the invoices were received and paid by Nationwide.
Additionally, Nationwide points out that Selective Way delayed any repayment of
Questar’s attorneys’ fees and defense costs for over ten years, and that Selective Way had
access to those funds at no cost. Therefore, the purpose of prejudgment interest—to
compensate an aggrieved party for the loss of use and income from money due to it—is
satisfied here. See Harford County, 399 Md. at 95. Accordingly, Nationwide maintains
that the circuit court judge correctly awarded it prejudgment interest on the defense costs
and attorneys’ fees as a matter of right in the amount of $430,534.82.
On the other hand, Selective Way argues that this case falls under the general rule
and thus whether Nationwide was entitled to an award of prejudgment interest should have
been left to the discretion of the jury. Selective Way points out that Nationwide did not
present a claim for prejudgment interest to the jury, the circuit court judge did not give any
jury instructions on prejudgment interest, and the jury did not separately state that
prejudgment interest should be awarded to Nationwide. Instead, more than a year after the
jury verdict, in what Selective Way labels an ex parte letter to the circuit court, Nationwide
requested that the court award it prejudgment interest. Consequently, the jury was never
given the opportunity to consider prejudgment interest and therefore could not exercise
13
proper discretion. Likewise, the requirements of Maryland Rule 2-604(a) were not adhered
to when no separate statement awarding prejudgment interest was made by the jury.
In response to Nationwide’s argument that it is entitled to prejudgment interest as a
matter of right in this case, Selective Way argues the amount due was not certain, definite,
or ascertainable at a date prior to trial. To support this contention, Selective Way points to
a series of amended complaints filed by Nationwide leading up to the trial and alleging
various amounts of damages, followed by a series of summary judgment motions that the
circuit court denied, which indicated the need for a jury trial to determine the obligation to
pay and the amount due. Moreover, Selective Way maintains that, given the complexity
of this case, it cannot be likened to cases that clearly fall within the exception of
prejudgment interest as a matter of right, such as a suit on a simple promissory note.
Instead, Selective Way argues this case is analogous to the Court of Special Appeals’
Maxima Corp. decision, where the court denied prejudgment interest on attorneys’ fees.
See Maxima Corp. v. 6933 Arlington Dev. Ltd. P’ship, 100 Md. App. 441, 463 (1994).
Lastly, Selective Way refutes that Nationwide’s argument is consistent with the purpose of
prejudgment interest, arguing that Nationwide acknowledged that it would have spent the
same amount on the defense of other insureds regardless of Selective Way’s acceptance or
rejection of its duty to defend the claims against Questar and thus did not suffer any loss
of use or income from the funds spent on Questar’s defense.
In sum, Selective Way asserts that Nationwide was not entitled to prejudgment
interest as a matter of right and therefore the issue of Nationwide’s entitlement to such
interest should have been brought before the jury to decide. Because the issue was instead
14
raised after the verdict and in the form of a letter to the circuit court, Selective Way
contends that the Court of Special Appeals was correct in holding that the circuit court
erroneously added prejudgment interest to the damages awarded by the jury in a subsequent
order. For reasons fully explained below, we agree.
C. Analysis.
To restate the guiding principles outlined above, three rules control the award of
prejudgment interest. Buxton, 363 Md. at 656. First, prejudgment interest is allowed as a
matter of right where “the obligation to pay and the amount due had become certain,
definite, and liquidated by a specific date prior to judgment so that the effect of the debtor’s
withholding payment was to deprive the creditor of the use of a fixed amount as of a known
date.” Id. (quoting First Virginia Bank, 322 Md. at 564). Second, prejudgment interest is
not allowed “in tort cases where the recovery is for bodily harm, emotional distress, or
similar intangible elements of damage not easily susceptible of precise measurement”
because “the award itself is presumed to be comprehensive.” Id. Third, prejudgment
interest is left to the discretion of the trier of fact, either the jury or the court in a bench
trial, when a contract case falls in between these two ends of the spectrum—one end being
allowance as a right and the other being non-allowance. Id. at 657. This third rule serves
as the general rule for prejudgment interest and encompasses the vast majority of contract
cases. Id. (citing Crystal v. West & Callahan, Inc., 328 Md. 318, 343 (1992)); see also I.
W. Berman Props., 276 Md. at 18. An award of prejudgment interest as a matter of right
and the non-allowance of prejudgment interest are exceptions to the general rule. See
Buxton, 363 Md. at 657.
15
1. Prejudgment Interest as a Matter of Right.
In determining whether Nationwide can recover prejudgment interest as a matter of
right for defense costs following Selective Way’s breach, we must consider the facts of this
case in light of the individual requirements necessary to satisfy the exception. Nationwide
contends both the circuit court and the Court of Special Appeals held that Selective Way
had a unilateral duty to pay Questar’s defense costs, thus establishing Selective Way’s
obligation to pay Nationwide. We agree.
Next, we consider whether the amount due was fixed—that is certain, definite, and
liquidated—on a specific date prior to trial. We first note that an amount is liquidated if it
is “settled or determined, esp[ecially] by agreement.” Baltimore County v. Aecom Servs.,
Inc., 200 Md. App. 380, 430 n.19 (2011). In order “[f]or a sum to be liquidated, it is not
necessary that the exact amount of money owed be expressly stated in the contract;
however, the sum must be capable of ascertainment at the time of breach.” First Virginia
Bank, 322 Md. at 569. By contrast, “[a]n unliquidated claim is ‘one, the amount of which
has not been fixed by agreement or cannot be exactly determined by the application of rules
of arithmetic or of law.’” Baltimore County v. Balt. County Fraternal Ord. of Police,
Lodge No. 4, 220 Md. App. 596, 664 (2014). This Court has determined that where a
contract requires a “sum certain on a date certain[,]” the amount due is fixed. United Cable
Television of Balt. v. Burch, 354 Md. 658, 669 (1999) (quoting Crystal, 328 Md. at 343.)).
On this point, Nationwide maintains that the defense costs were definite and certain at the
time they were incurred, and that, but for Selective Way’s breach of its duty to defend
Questar, Selective Way would have been aware of the exact costs as evidenced by paid
16
invoices and receipts. Nationwide likewise argues that the parties’ dispute as to the cost
of defense does not render the amount any less definite. On the other hand, Selective Way
asserts that neither the obligation to pay nor the amount due was certain until the jury
rendered its verdict.
As Nationwide emphasizes, this Court has awarded prejudgment interest as a matter
of right in cases where the amount owed was in dispute and unable to be established until
a court rendered a judgment. In Mullan Contracting Co. v. International Business
Machines Corp., this Court held that International Business Machines Corporation
(“IBM”) was entitled to prejudgment interest as a matter of law despite a dispute about the
amount owed. 220 Md. 248 (1959). IBM sued a general contractor and its sureties for a
balance due on electrical and fire alarm equipment supplied by IBM for a school
construction project. Id. at 251. The trial court granted IBM’s motion for summary
judgment, which included deposition testimony that the price of the equipment was fair
and reasonable, reflecting current market prices. Id. at 252. In response, the general
contractor and sureties disputed the amount due and alleged that part of the balance was
not attributable to the school project at issue. Id. at 254. On appeal, this Court
acknowledged that interest is typically a matter for the trier of fact, but concluded that in
the present case interest as a matter of right was appropriate and began accruing when IBM
demanded payment, analogizing the demand to a “unilateral contractual obligation which
17
required payment of a liquidated sum at a certain time.” Id. at 262 (citing Affiliated
Distillers Brands Corp., 213 Md. at 509).
Likewise, in Travel Committee, Inc. v. Pan American World Airways, Inc., an airline
sued a travel agency and its owners to recover ticket sale proceeds. 91 Md. App. 123(1992). The Court of Special Appeals noted the general rule affording discretion to the
trier of fact on issues of interest, but held that the airline was entitled to prejudgment
interest as a matter of right because the record demonstrated the travel agency collected
money from ticket sales, the amounts became payable to the airline thereafter, and instead
of paying the amounts due, the travel agency used the money it collected. Id. at 188. The
court reasoned, “[t]he fact that [the travel agency] and [the airline] disputed adjustments to
the amount . . . owed . . . indicates that the sum owed was not certain until the jury made
its determination, but we see no reason why this should interfere with an award for pre-
judgment interest as to that amount actually due and owing.” Id. Thus, the court identified
the case as one “in which the money has been used, and in which there is a unilateral
contractual obligation to pay money at a certain time,” justifying an exception to the
general rule of prejudgment interest. Id. (citing Affiliated Distillers Brands Corp., 213 Md.
at 516).
Nationwide points to Mullan Contracting Co. and Travel Committee, Inc.5 as
support for the argument that a disputed amount reaching resolution only at the time of a
5
Nationwide cites to Hartford Accident & Indemnity Co. v. Sherwood Brands, Inc. for the
proposition that defense costs are entitled to prejudgment interest as a matter of right. 111
Md. App. 94 (1996). However, as the Court of Special Appeals aptly noted in the decision
18
court’s judgment may still constitute a fixed amount for the purposes of prejudgment
interest as a matter of right. Nationwide maintains that, like the amounts due in Mullan
Contracting Co. for the delivered equipment and Travel Committee, Inc. for the tickets
sold, the defense costs in this case were fixed at the time Nationwide incurred them, and
the following dispute on liability and amount due does not render the amount indefinite or
uncertain. We do not agree with Nationwide because Mullan Contracting Co. and Travel
Committee, Inc. are distinguishable from this case.
Defense costs for ongoing litigation are dissimilar to the amount due following the
purchase or sale of tangible items. Legal fees are not quantifiable prior to the completion
of representation, and thus legal fees in a pending action cannot appropriately be classified
as liquidated under Maryland law. Here, the attorneys’ fees incurred by Nationwide in its
defense of Questar were billed at an hourly rate as litigation work was completed. As such,
Nationwide’s costs to defend Questar in the ongoing construction defense lawsuit were not
ascertainable at the time of Selective Way’s breach because the full cost to defend Questar
had not been incurred by Nationwide at the time of Selective Way’s refusal to defend
below, “[b]ecause the Court of Appeals vacated this Court’s judgment and affirmed no part
of it, the Sherwood Brands . . . opinion is at most a persuasive authority.” Selective Way
Ins. Co.., 242 Md. App. at 746 (citing West v. State, 369 Md. 150, 157 (2002) (holding a
vacated appellate opinion “no longer supports or reflects a viable appellate judgment[, and]
. . . such an opinion is not a precedent for purposes of stare decisis.”)). We rely on other
binding authority that is in conflict with Hartford Accident & Indemnity Co. v. Sherwood
Brands, Inc. See Maxima Corp., 100 Md. App. 441.
19
Questar in May 2008.6 See generally First Virginia Bank, 322 Md. at 569. Likewise,
unlike contractual agreements to purchase equipment or the sale of airline tickets at a
certain price, legal fees in an ongoing lawsuit, particularly those billed at an hourly rate,
are not “settled or determined” especially by contractual agreement and, further, cannot be
“exactly determined by the application of rules of arithmetic or of law” on a date prior to
trial. See Baltimore County, 200 Md. App. at 430 n.19; see also Baltimore County
Fraternal Ord. of Police, Lodge No. 4, 220 Md. App. at 664.
There are few Maryland appellate decisions examining prejudgment interest for
legal fees.7 However, we find sound reasoning in Maxima Corp., 100 Md. App. 441. In
Maxima Corp., the Court of Special Appeals rejected the argument that prejudgment
interest on legal fees was recoverable as a matter of right, holding that attorneys’ fees
constitute an “unliquidated amount.” Id. at 463. In that case, the court reviewed a trial
court’s grant of prejudgment interest on tenant incentive payments agreed upon in a
commercial lease and the trial court’s rejection of prejudgment interest on legal fees under
an abuse of discretion standard. Id. at 461–63. The court explained, “tenant incentive
payments were a liquidated amount and a sum certain that [the landlord] owed on specific
6
In its brief to this Court, Selective Way asserts that at the time it declined to defend
Questar in May 2008, “$719,545.47 of the alleged $994,000.00 in defense fees and costs
were incurred.” Thus, defense costs were ongoing and the full amount not yet ascertainable
at the time of breach.
7
Other examples of fixed amounts include bills of exchange, promissory notes, payment
of bonds, contracts in which interest is stipulated, sums payable as rent, and conversion
cases where the value of the chattel is readily ascertainable. I. W. Berman Props., 276 Md.
at 16–17. Of these fixed amounts, none are analogous to the amount due in this case.
20
dates pursuant to a contract.” Id. at 460. The court further determined, “[t]he same logic
is not applicable with respect to legal fees. Prejudgment interest was not recoverable as a
matter of right on this unliquidated amount[.]” Id. at 463 (emphasis added). The court
accordingly held, “the award of prejudgment interest [as to the legal fees] was
encompassed within the trial court’s discretion.” Id. Thus, the court rejected the argument
for prejudgment interest on legal fees as a matter of right.
As explained above, we agree. Therefore, we conclude that the legal fees incurred
by Nationwide in its defense of Questar were not ascertainable at the time of breach and
therefore not liquidated on a date prior to trial. Under the exception to the general rule,
prejudgment interest on defense costs in an ongoing suit is a matter of discretion for the
trier of fact. Thus, under these facts, Nationwide is not entitled to prejudgment interest as
a matter of right.
2. Requirements of Maryland Rule 2-604(a) for Prejudgment Interest.
Maryland Rule 2-604(a) requires that “[a]ny prejudgment interest awarded by a jury
or by a court sitting without a jury shall be separately stated in the verdict or decision and
included in the judgment.” This rule was examined by the Court of Special Appeals in
Fraidin v. Weitzman, 93 Md. App. 168. In that case, the jury was not instructed on
prejudgment interest. Id. at 219. However, when the jury returned a verdict, it awarded a
compensatory damages amount “plus interest.” Id. The Court of Special Appeals held that
“the mere addition of the words ‘plus interest’ after the amount of the compensatory award
is insufficient to satisfy the requirement” of Rule 2-604(a) that an award of prejudgment
interest be “separately stated in the verdict.” Id. In reaching this holding, the court relied
21
on the decision by the United States District Court for the District of Maryland in Eden v.
Amoco Oil Co., Inc., that reasoned:
Because prejudgment interest is an element of the plaintiff’s damages, the
decision to include it as part of an award properly lies with the finder of
fact. . . . The notion that prejudgment interest is discretionary with the fact
finder . . . does not authorize a court, once a jury has determined damages, to
add to those damages a sum for prejudgment interest. The allowance of
prejudgment interest would have been discretionary with the jury had it been
presented to the jury for consideration and had [the plaintiff] requested the
Court so to instruct the jury. No such claim was presented to the jury and no
such request for instruction was made by [the plaintiff]. It is not now within
the province of the Court to add to the verdict that which was within the
province of the jury.
741 F. Supp. 1192, 1196–97 (D. Md. 1990). The Court of Special Appeals concluded that
“[w]ithout some instruction on prejudgment interest, we cannot be certain that the jury
intended to award prejudgment interest when it said ‘plus interest.’ Absent a clear and
separate statement from the jury that the compensatory award should include prejudgment
interest, the trial judge[] erred in awarding it.” Fraidin, 93 Md. App. at 220.
Several pertinent facts here mirror those of Fraidin. In both cases the plaintiff did
not request a jury instruction be given on prejudgment interest. Further, here, Nationwide
did not propose any questions on prejudgment interest in the special verdict sheet it
provided to the court. In both cases no jury instruction on awarding prejudgment interest
was given, and where the Fraidin jury added “plus interest” to the compensatory damages
award in the verdict, the jury here made no mention of interest at all. Thus, we find that
the facts in this case are more clearly indicative of non-compliance with Maryland Rule 2-
604(a) than those examined by the Fraidin court.
22
Furthermore, we find the Fraidin court’s reliance on Eden particularly relevant and
agree that where an award of prejudgment interest falls within the discretion of the
factfinder, as it does here, it is improper for a court to add an award of prejudgment interest
after the jury has not separately stated such award in the verdict. As we explained above,
the allowance of prejudgment interest in this case would have been discretionary for the
jury had it been presented to the jury. However, it was not presented to the jury, and
consequently the jury offered no separate statement awarding prejudgment interest in the
verdict. Accordingly, it was improper for the circuit court to issue an order awarding
Nationwide $430,534.82 in prejudgment interest following Nationwide’s letter to the court
on March 20, 2018.8
Lastly, Nationwide seeks to distinguish this case from Fraidin by pointing out that
these facts involve a breach of contract instead of an intentional interference with a
contract. However, we find the distinction irrelevant for the purposes of our analysis.
Maryland Rule 2-604(a) does not distinguish procedural requirements for prejudgment
interest on the basis of the underlying claims. Instead, Maryland Rule
2-604(a) provides one uniform rule requiring any discretionary award of prejudgment
interest by the factfinder to be separately stated in the verdict or decision. This requirement
8
Selective Way argues that Nationwide’s March 20, 2018 letter seeking prejudgment
interest was improper, in part, because it was an “ex parte letter.” On this point, we
disagree. An ex parte communication is defined as a “communication between counsel
and the court when opposing counsel is not present.” Communication, Black’s Law
Dictionary (11th ed. 2019). Selective Way’s counsel was copied on the letter and received
it contemporaneously with the court. Thus, the March 20, 2018 letter was not an ex parte
communication.
23
was not met, and the underlying claim—breach of contract—provides no basis to deviate
from the rule.9
CONCLUSION
For the foregoing reasons, we hold that Nationwide is not entitled, as a matter of
right, to prejudgment interest on defense costs resulting from Selective Way’s breach of its
duty to defend Questar because such damages are unliquidated, not fixed by agreement and
not ascertainable at the time of breach. Consequently, prejudgment interest on defense
costs are left to the discretion of the factfinder. Here, the jury as factfinder was not
presented with a claim of prejudgment interest, was not instructed on the issue of
prejudgment interest, and did not separately state an award of prejudgment interest in the
9
In their briefs and at oral argument, Nationwide and Selective Way offer competing
arguments on whether the purpose for awarding prejudgment interest—to compensate the
aggrieved party for the loss of the use and income of the principal liquidated sum due—is
supported by the facts of this case. See Buxton, 363 Md. at 652. Nationwide contends
Selective Way withheld payment due for the defense costs of Questar for over ten years
and enjoyed the use of those funds during that time, thereby rendering compensation for
the loss of use and income from those funds appropriate and satisfying the purpose of
awarding prejudgment interest. Selective Way counters that Nationwide “decided to
defend the case largely due to its insured separate exposure” and thus would have incurred
similar defense costs regardless of Selective Way’s acceptance or denial of the duty to
defend Questar. Selective Way maintains that Nationwide did not experience any
substantial loss of income or use of funds, and the purpose of prejudgment interest would
not be fulfilled under the facts of this case. However, finding prejudgment interest is not
allowable under any circumstances because the amount in question was unliquidated,
thereby not a matter of right, and the procedural requirements under Maryland Rule 2-
604(a) were not met, we do not need to reach the question of whether the purpose for
awarding prejudgment interest is satisfied under the facts of this case.
24
verdict as required by Maryland Rule 2-604(a). Therefore, the circuit court was not
authorized to award Nationwide prejudgment interest in the amount of $430,534.82.
JUDGMENT OF THE COURT OF
SPECIAL APPEALS AFFIRMED.
COSTS TO BE PAID BY PETITIONERS.
25