PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

JAMES H. FRENCH, assignee of the 

claims of Jeffco Development

Corporation; KATHLEEN B. FRENCH,

assignee of the claims of Jeffco

Development Corporation,

Plaintiffs-Appellants,

v.

ASSURANCE COMPANY OF AMERICA;

UNITED STATES FIRE INSURANCE

COMPANY,

Defendants-Appellees,  No. 05-1356

and

THE AETNA CASUALTY AND SURETY

COMPANY, now known as Travelers

Casualty and Surety Company,

Defendant.

NATIONAL ASSOCIATION OF HOME

BUILDERS,

Amicus Supporting Appellants. 

Appeal from the United States District Court

for the Eastern District of Virginia, at Alexandria.

James C. Cacheris, Senior District Judge.

(CA-04-550-1-JCC)

Argued: March 14, 2006

Decided: April 27, 2006

Before WILKINSON and MICHAEL, Circuit Judges, and

HAMILTON, Senior Circuit Judge.
Affirmed in part, vacated in part, and remanded by published opinion.

Senior Judge Hamilton wrote the opinion, in which Judge Wilkinson

and Judge Michael joined.

COUNSEL

ARGUED: David Hilton Wise, WATERS & WISE, P.L.L.C., Fairfax, Virginia, for Appellants. Thomas Sykes Schaufelberger,

WRIGHT, ROBINSON, OSTHIMER & TATUM, Washington, D.C.,

for Appellees. ON BRIEF: Paul V. Waters, WATERS & WISE,

P.L.L.C., Fairfax, Virginia, for Appellants. Edward E. Nicholas,

WRIGHT, ROBINSON, OSTHIMER & TATUM, Washington, D.C.,

for Appellee United States Fire Insurance Company; Robert Edward

Worst, KALBAUGH, PFUND & MESSERSMITH, Fairfax, Virginia,

for Appellee Assurance Company of America. David S. Jaffe,

NATIONAL ASSOCIATION OF HOME BUILDERS, Washington,

D.C., for Amicus Supporting Appellants.

OPINION

HAMILTON, Senior Circuit Judge:

This appeal presents two separate, but related, insurance coverage

questions in the construction context: (1) Whether, under Maryland

law, a standard 1986 commercial general liability policy form published by the Insurance Services Office, Incorporated (ISO) provides

liability coverage to a general contractor to correct defective workmanship performed by a subcontractor; and (2) Whether, under Maryland law, the same policy form provides liability coverage for the

costs to remedy unexpected and unintended property damage to the

contractor’s otherwise nondefective work-product caused by the subcontractor’s defective workmanship. We answer the first question in

the negative and the second question in the affirmative. Accordingly,

we affirm in part and vacate in part the judgment below in favor of

the insurance company defendants and remand for further proceedings. 

2 FRENCH v. ASSURANCE CO. OF AMERICA
I.

The following relevant facts are undisputed. In 1993, James and

Kathleen French (the Frenches) contracted with Jeffco Development

Corporation (Jeffco) for the construction of a single-family home in

Fairfax County, Virginia. Pursuant to the construction contract, and

via a subcontractor, the exterior of the home was clad with a synthetic

stucco system known as Exterior Insulating Finishing System (EIFS).

Following the completion of construction, building officials issued a

Certificate of Occupancy for the Frenches’ home in December 1994.

Nearly five years later, in late 1999, the Frenches discovered extensive moisture and water damage to the otherwise nondefective structure and walls of their home resulting from the defective cladding of

the exterior of their home with EIFS. The Frenches have since spent

in excess of $500,000 to correct the defects in the EIFS exterior of

their home and to remedy the resulting damage to the otherwise nondefective structure and walls of their home. 

On November 29, 1999, the Frenches filed suit (the Underlying

Suit) against Jeffco in Virginia state court alleging multiple claims,

including breach of contract, and seeking damages to cover the costs

to correct the construction defects with respect to the EIFS exterior

of their home and to remedy the resulting damage to the otherwise

nondefective structure and walls of their home. 

For certain time periods (some overlapping) during the entire time

period relevant to the Underlying Suit, Jeffco had commercial general

liability coverage through four different commercial general liability

insurance carriers: Assurance Company of America (Assurance),

United States Fire Insurance Company (U.S. Fire), Ohio Casualty

Insurance Company (Ohio Casualty), and Aetna Casualty and Surety

Company n/k/a Travelers Casualty and Surety Company (Travelers).

All parties agree that for purposes of resolving the issues presented

in the present appeal, the commercial general liability policies issued

to Jeffco by appellees Assurance and U.S. Fire consisted of the 1986

version of the standard commercial general liability policy form

drafted by the ISO1 and widely used in the insurance industry. See

1The ISO is "a national insurance policy drafting organization." State

Auto Prop. and Cas. Ins. Co. v. Travelers Indem. Co. of Am., 343 F.3d

249, 255 n.9 (4th Cir. 2003). 

FRENCH v. ASSURANCE CO. OF AMERICA 3
Hartford Fire Ins. Co. v. California, 509 U.S. 764, 772 (1993) ("ISO

develops standard policy forms and files or lodges them with each

State’s insurance regulators; most CGL insurance written in the

United States is written on these forms."). From henceforth, we will

refer to these policies as the 1986 ISO CGL Policies. Of relevance in

the present appeal, the 1986 ISO CGL Policies provided: 

SECTION I — COVERAGES 

COVERAGE A. BODILY INJURY AND PROPERTY

DAMAGE LIABILITY 

1. Insuring Agreement

a. We will pay those sums that the insured

becomes legally obligated to pay as damages because of . . . "property damage" to

which this insurance applies. We will have

the right and duty to defend the insured

against any "suit" seeking those damages.

However, we will have no duty to defend

the insured against any "suit" seeking damages for . . . "property damage" to which

this insurance does not apply. We may, at

our discretion, investigate any "occurrence"

and settle any claim or "suit" that may

result. . . . 

* * *

b. This insurance applies to . . . "property

damage" only if: 

(1) The . . . "property damage" is caused by

an "occurrence" . . . . 

(J.A. 157). The 1986 ISO CGL Policies applied to completed operations, as defined in said policies under "Products-completed operations hazard." (J.A. 168). This term is defined, in relevant part, as

follows:

4 FRENCH v. ASSURANCE CO. OF AMERICA
14. "Products-completed operations hazard": 

a. Includes all "bodily injury" and "property

damage" occurring away from premises you

own or rent and arising out of "your product"

or "your work" except: 

(1) Products that are still in your physical possession; or 

(2) Work that has not yet been completed or

abandoned. However, "your work" will be

deemed completed at the earliest of the

following times: 

(a) When all of the work called for in your

contract has been completed. 

(b) When all of the work to be done at the

job site has been completed if your contract calls for work at more than one job

site. 

(c) When that part of the work done at a job

site has been put to its intended use by

any person or organization other than

another contractor or subcontractor

working on the same project. 

Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed. 

Id.

The 1986 ISO CGL Policies contained several exclusions that limit

the insurance carriers’ duty to provide coverage to Jeffco. The following two of those exclusions are relevant to the issues on appeal:

2. Exclusions

FRENCH v. ASSURANCE CO. OF AMERICA 5
This insurance does not apply to: 

a. Expected or Intended Injury

". . . [P]roperty damage" expected or intended

from the standpoint of the insured. 

* * *

(J.A. 157). 

l. Damage to Your Work

"Property damage" to "your work" arising out

of it or any part of it and included in the

"products-completed operations hazard." 

This exclusion does not apply if the damaged

work or the work out of which the damage

arises was performed on your behalf by a subcontractor. 

(J.A. 160). 

The 1986 ISO CGL Policies define the term "[o]ccurrence" as "an

accident, including continuous or repeated exposure to substantially

the same general harmful conditions." (J.A. 168). While the 1986 ISO

CGL Policies do not define the term "accident," controlling Maryland

case law provides that an act of negligence constitutes an "accident"

under a liability insurance policy when the resulting damage takes

place without the insured’s actual foresight or expectation. Sheets v.

Brethren Mut. Ins. Co., 679 A.2d 540, 548 (Md. 1996) (adopting subjective test from standpoint of the insured regarding whether act of

negligence constitutes an "accident" under liability insurance policy);

see also Cole v. State Farm Mut. Ins. Co., 753 A.2d 533, 541 (Md.

2000). The test is a subjective one, because, according to Maryland’s

highest court, "[i]f we were to adopt an objective standard and hold

that the term ‘accident’ as used in liability insurance policies excludes

coverage for damage that should have been foreseen or expected by

6 FRENCH v. ASSURANCE CO. OF AMERICA
the insured, such insurance policies would be rendered all but meaningless." Sheets, 679 A.2d at 549. Also of relevance here, the 1986

ISO CGL Policies define "[p]roperty damage" as "Physical injury to

tangible property, including all resulting loss of use of that property."

(J.A. 169).

Jeffco notified Assurance, U.S. Fire, Ohio Casualty, and Travelers

of the Underlying Suit and requested to be defended. Assurance and

U.S. Fire undertook to defend Jeffco pursuant to a reservation of

rights letter. Ohio Casualty also undertook to defend Jeffco, but Travelers refused to provide any defense. Assurance, U.S. Fire, and Ohio

Casualty jointly retained the law firm of Sinnott, Nuckols, and Logan

to represent Jeffco in the Underlying Suit. 

On July 28, 2003, the date of trial in the Underlying Suit, the only

count remaining alleged breach of contract. However, that same day,

Jeffco and the Frenches reached a settlement agreement (the Settlement Agreement). Although Ohio Casualty consented to the Settlement Agreement, Assurance and U.S. Fire did not. 

Pursuant to the Settlement Agreement: (1) Jeffco agreed to confess

judgment to the Frenches for $450,000; (2) Jeffco and Ohio Casualty

would only be responsible to collectively pay the Frenches $45,000

of the $450,000 confessed judgment; (3) the judgment would be

marked "paid and satisfied" upon the Frenches’ receipt of the

$45,000, (J.A. 111); and (4) Jeffco would assign the Frenches all

rights, claims, and interest it has or may have against Assurance and

U.S. Fire in connection with the allegations in the Underlying Suit.

Jeffco and Ohio Casualty fulfilled their obligations under the Settlement Agreement and, by order entered September 2, 2003, the state

court marked the $450,000 judgment "fully paid and satisfied in

accordance with the settlement agreement." (J.A. 122). 

On April 1, 2004, the Frenches, as assignees of Jeffco’s rights,

claims, and interest against Assurance and U.S. Fire in connection

with commercial general liability coverage for the allegations in the

Underlying Suit, filed the present civil action in Virginia state court

against Assurance and U.S. Fire (from henceforth, collectively, Insurance Defendants). The complaint alleged counts for declaratory judgment; breach of contractual duty to indemnify; breach of contractual

FRENCH v. ASSURANCE CO. OF AMERICA 7
duty to defend; breach of the implied covenant of good faith and fair

dealing; and unjust enrichment. Insurance Defendants permissibly

removed the case to federal court based upon diversity jurisdiction.

All parties agreed below and continue to agree on appeal that Maryland substantive law controls the coverage disputes presented in the

present action. 

On January 21, 2005, the Frenches filed a motion for partial summary judgment, and the Insurance Defendants filed a motion for summary judgment. The Frenches subsequently voluntarily dismissed

their counts alleging breach of express duty to defend and unjust

enrichment. This left the counts for declaratory judgment, breach of

contractual duty to indemnify, and breach of the implied covenant of

good faith and fair dealing. "The Frenches sought summary judgment

on the basis that there was no genuine issue of material fact that the

property damage to their home was caused by an occurrence during

[the Insurance Defendants’ respective] policy periods and that they

were entitled to judgment as a matter of law for $450,000 in direct

damages." (Frenches’ Opening Br. at 4). 

The district court granted summary judgment in favor of the Insurance Defendants and denied the Frenches’ motion for partial summary judgment. Relying on the Maryland Court of Special Appeals’

decision in Lerner Corp. v. Assurance Co. of Am., 707 A.2d 906 (Md.

Ct. Spec. App. 1998), the district court concluded that no coverage

existed under the 1986 ISO CGL Policies pursuant to the express

exclusion of coverage for property damage expected or intended from

the standpoint of the insured. 

II.

On appeal, the Frenches seek reversal of the district court’s grant

of summary judgment in favor of the Insurance Defendants with

respect to their claims for declaratory judgment and breach of contract

with respect to the express duty to indemnify.2 The Frenches base

2Federal Rule of Appellate Procedure 28(a)(9)(A) requires that the

argument section of an appellant’s opening brief contain the "appellant’s

contentions and the reasons for them, with citations to the authorities and

8 FRENCH v. ASSURANCE CO. OF AMERICA
both claims upon their assertion that the 1986 ISO CGL Policies provide Jeffco liability coverage for the cost to correct their home’s

defective EIFS exterior and to remedy the resulting moisture damage

to the home’s otherwise nondefective structure and walls. The Insurance Defendants urge affirmance based upon the reasoning of the district court. Alternatively, the Insurance Defendants suggest

affirmance on three separate and independent grounds they asserted

below, but which the district court did not address.3See infra at 20-

21. 

We review de novo the district court’s grant of summary judgment.

Williams v. Staples, Inc., 372 F.3d 662, 667 (4th Cir. 2004). Summary

judgment is appropriate when there is no genuine issue of material

fact and the moving party is entitled to judgment as a matter of law.

Fed. R. Civ. P. 56(c); Edell & Assocs. v. Law Offices of Peter G.

Angelos, 264 F.3d 424, 436 (4th Cir. 2001). Thus, the overarching

issue that we must decide de novo is whether there is no genuine issue

of material fact and the Insurance Defendants are entitled to judgment

as a matter of law. To answer this question, we apply, as the parties

agree, Maryland’s substantive law regarding the interpretation of an

insurance policy, which law provides in general as follows: 

[a]n insurance policy is interpreted in the same manner as

any other contract. Maryland courts do not follow the rule

parts of the record on which the appellant relies . . . ." Id. "Failure to

comply with the specific dictates of this rule with respect to a particular

claim triggers abandonment of that claim on appeal." Edwards v. City of

Goldsboro, 178 F.3d 231, 241 n.6 (4th Cir. 1999). 

Here, the Frenches did not comply with the specific dictates of Federal

Rule of Appellate Procedure 28(a)(9)(A) with respect to their claim

alleging breach of the implied covenant of good faith and fair dealing,

and therefore, such claim is abandoned on appeal. While the Frenches

mention their claim alleging breach of the implied covenant of good faith

and fair dealing in the procedural history portion of their opening brief,

they never refer to it again in their opening brief. 

3These alternative arguments appear at pages 24 through 30 of the

Insurance Defendants’ appellate brief filed in response to the Frenches’

opening appellate brief. 

FRENCH v. ASSURANCE CO. OF AMERICA 9
that an insurance policy must be strictly construed against

the insurer. The principal rule in the interpretation of contracts is to effect the intentions of the parties. When a contract’s wording is clear, the court will presume that the

parties intended what they expressed, even if the expression

differs from the parties’ intentions at the time they created

the contract. If reasonably possible, effect must be given to

every clause and phrase of a contract, so as not to omit an

important part of the agreement. 

Nationwide Ins. Co. v. Rhodes, 732 A.2d 388, 390-91 (Md. Ct. Spec.

App. 1999) (internal quotation marks and citations omitted). 

A.

We will first address the reasoning of the district court. The district

court relied heavily upon the Maryland Court of Special Appeals’

opinion in Lerner Corp. v. Assurance Co. of Am., 707 A.2d 906 (Md.

Ct. Spec. App. 1998), in ruling in favor of the Insurance Defendants.

The Insurance Defendants also argue that Lerner is dispositive in their

favor. Accordingly, a thorough discussion of Lerner is in order. However, before we undertake such a discussion, we deem it helpful to

provide some background information regarding relevant provisions

of the 1986 ISO CGL Policies. 

Prior to 1986, the ISO had not significantly revised its standard

commercial general liability form since 1973. Ernest Martin, Jr., Daniel T. Mabery, Erika L. Blomquist & Jeffrey S. Lowenstein, Insurance Coverage for the New Breed of Internet-Related Trademark

Infringement Claims, 54 SMU L. Rev. 1973, 1987-88 (2001) ("ISO

frequently makes minor revisions to its CGL form, but rarely undertakes a major, substantive overhaul. . . . The standard ISO form in

existence before the 1986 revision was promulgated in 1973 . . . .").

"‘In the 1973 version of the [ISO’s CGL policy form], the work

performed exclusion precluded coverage for "property damage to

work performed by or on behalf of the named insured arising out of

the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith."’"4 Kvaerner Metals Division

4

In the 1973 version, this was exclusion (o). F. Malcolm Cunningham,

Jr. & Amy L. Fischer, Insurance Coverage in Construction-The Unanswered Question, 33 Tort & Ins. L. J. 1063, 1092 n.152 (1998). 

10 FRENCH v. ASSURANCE CO. OF AMERICA
of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 825 A.2d 641,

656 (Pa. Super. Ct. 2003) (some internal quotation marks omitted)

(internal citations omitted) (quoting Collett v. Ins. Co. of the West, 64

Cal. App. 4th 338, 341 (Cal. Ct. App. 1998)); see also 21 Eric Mills

Holmes, Holmes’ Appleman on Insurance 2d, § 132.9 at 152 (Matthew Bender, Inc. 2002). The "on behalf of" language was interpreted

to mean that no coverage existed for damage to a subcontractor’s

work, or for damage to the insured’s own work for damage resulting

from a subcontractor’s work. Kvaerner Metals, 825 A.2d at 656;

Maryland Casualty Co. v. Reeder, 221 Cal. App. 3d 961, 972 (Cal.

Ct. App. 1990); Steven Plitt, Daniel Maldonado & Joshua D. Rogers,

Couch on Insurance 3d § 129:18 (1995); Holmes’ Appleman on

Insurance 2d, § 132.9 at 153. 

"Many contractors were unhappy with this state of affairs, since

more and more projects were being completed with the help of subcontractors." American Family Mut. Ins. Co. v. American Girl, Inc.,

673 N.W.2d 65, 82-83 (Wis. 2004). See also Couch on Insurance 3d

§ 129:18 ("Due to the increasing use of subcontractors on construction projects, many general contractors were not satisfied with the

lack of coverage provided under [the 1973 ISO CGL] commercial

general liability policies where the general contractor was not directly

responsible for the defective work."). In response to this unhappiness,

beginning in 1976, an insured under the 1973 ISO CGL policy form

could pay a higher premium to obtain a broad form property damage

endorsement (the BFPD Endorsement) which effectively eliminated

the "on behalf of" language and excluded coverage only for property

damage to work performed by the named insured. Kvaerner Metals,

825 A.2d at 656; Reeder, 221 Cal. App. 3d at 972; Couch on Insurance 3d § 129:18; Holmes’ Appleman on Insurance 2d, § 132.9 at

153. Thus, liability coverage was extended to the insured’s completed

work when the damage arose out of work performed by a subcontractor. Kvaerner Metals, 825 A.2d at 656; Reeder, 221 Cal. App. 3d at

972; Couch on Insurance 3d § 129:18; Holmes’ Appleman on Insurance 2d, § 132.9 at 153. 

In 1986, as part of a major revision, the subcontractor exception

aspect of the BFPD Endorsement was added directly to the body of

the ISO’s CGL policy in the form of an express exception to the

"Your Work" exclusion. Limbach Co. LLC v. Zurich Am. Ins. Co.,

FRENCH v. ASSURANCE CO. OF AMERICA 11
396 F.3d 358 (4th Cir. 2005); American Family Mut. Ins. Co., 673

N.W.2d at 83. Thus, under the 1986 ISO CGL Policies, the "Your

Work" exclusion, i.e., exclusion (l), specifically states that it "does

not apply if the damaged work or the work out of which the damage

arises was performed on [the insured contractor’s] behalf by a subcontractor." (J.A. 160) (emphasis added). 

One other distinction between the 1973 ISO CGL policy and the

1986 ISO CGL Policies is the definition of "[o]ccurrence." Rather

than containing a separate exclusion from coverage for property damages "expected or intended from the standpoint of the Insured," as

does the 1986 version of the ISO CGL policy, i.e., exclusion (a), the

1973 version includes the same language within its definition of

occurrence. "‘Occurrence’ is defined by the 1973 [ISO CGL] policy

as ‘an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither

expected or intended from the standpoint of the Insured.’" Lerner,

707 A.2d at 909. 

With this background in mind, we now turn to a thorough discussion of Lerner. In Lerner, the Maryland Court of Special Appeals

addressed the issue, in the construction context, of what damages are

"expected" from the standpoint of the insured under the terms of a

1973 ISO CGL policy and a 1986 ISO CGL policy. In Lerner, the

plaintiffs were a developer and the firm that provided the developer

with construction management services in regard to the construction

of an office building in Rockville, Maryland. Id. at 907. A third party

acted as the general contractor and all construction work on the building was performed by subcontractors. Id.

The plaintiffs sold the building to the United States. Id. at 907-08.

The contract of sale provided that acceptance of the work performed

under the contract was deemed to be final except as to latent defects.

Id. Following the actual sale of the building, the General Services

Administration (GSA) discovered latent defects in the building’s marble and stone exterior facade. Id. at 908. There was no damage to

other parts of the building resulting from such defects. 

The plaintiffs undertook to repair the defective facade and then

sued their commercial general liability insurers for indemnity. Id. at

12 FRENCH v. ASSURANCE CO. OF AMERICA
908. The defendant general liability carriers defended on the ground

that the policies did not provide coverage for the plaintiffs’ economic

losses arising out of breach of contract and, in addition, that any

alleged damages were specifically excluded under the provisions of

the policy. Id. at 907. 

The trial court granted summary judgment in favor of the defendant

insurance carriers on the ground that the damages alleged by the

plaintiffs arose out of a breach of contract and therefore, were not

covered. Id. The plaintiffs appealed. Id.

On appeal, Maryland’s Court of Special Appeals affirmed, holding

that the plaintiffs’ liability to correct the building’s defective facade

did not result from "the happening of an ‘accident’" but resulted "simply from its failure to satisfy its obligation under their contract," and

therefore, did not constitute an "occurrence" under any of the CGL

policies at issue. Id. at 911. The court reasoned that "[i]f the damages

suffered relate to the satisfaction of the contractual bargain, it follows

that they are not unforeseen. In other words, and in the context of this

case, it should not be unexpected and unforeseen that, if the Building

delivered does not meet the contract requirements of the sale, the purchaser will be entitled to correction of the defect." Id. at 912. The Lerner court went on to opine in dicta, however, that "if the defect causes

unrelated and unexpected . . . property damage to something other

than the defective object itself, the resulting damages, subject to the

terms of the applicable policy, may be covered. For example, if a collapse of the veneer had injured a user of the facility or damaged property other than the veneer itself, these may well be covered." Id.

In the case before us, the district court held that coverage to correct

the defective EIFS exterior of the Frenches’ home and to remedy the

resulting damage to the nondefective structure and walls of such

home was excluded pursuant to the express exclusion in the 1986 ISO

CGL Policies for property damage that was expected from the standpoint of the insured.5

 Relying on Lerner Corp. v. Assurance Co. of

Am., 707 A.2d 906 (Md. Ct. Spec. App. 1998), the district court held

that "the property damage to the residence was ‘expected’ from the

5There is no contention that the property damage at issue was intended

by anyone. 

FRENCH v. ASSURANCE CO. OF AMERICA 13
standpoint of Jeffco," and therefore, no coverage existed for the

Frenches’ breach of contract claim. (J.A. 211). 

In our view, the district court is partly right and partly wrong.

Under the 1986 ISO CGL Policies, the Insurance Defendants agreed

to defend and, if necessary, indemnify Jeffco for "property damage"

caused by an "occurrence," unless such "property damage" was otherwise excluded by the terms of the policies. An "[o]ccurrence" is

defined by the 1986 ISO CGL Policies as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (J.A. 168). "Property damage" is defined as "Physical

injury to tangible property, including all resulting loss of use of that

property." (J.A. 169). Thus, our initial inquiry is whether the property

damage to the Frenches’ home falls within the initial grant of coverage in the 1986 ISO CGL Policies.

For analytical purposes, we deem it necessary to divide the property damage to the Frenches’ home into two categories. The first category is the defective EIFS exterior. The second category is the

damage to the nondefective structure and walls of the Frenches’ home

directly resulting from moisture intrusion through the defective EIFS

exterior. 

With respect to the first category, Lerner unequivocally answers

the question. We hold that just as the defective application of the

building’s stone facade in Lerner did not constitute an "accident,"

and, therefore, not an "occurrence" under the materially similar CGL

policies at issue in Lerner, so does the defective application of the

EIFS exterior to the Frenches’ home not constitute an "accident," and

therefore, not an "occurrence" under the 1986 ISO CGL Policies.6

Lerner, 707 A.2d at 912-13. As the Lerner court reasoned: "[T]he

obligation to repair the facade itself is not unexpected or unforeseen

under the terms of the sales contract. Therefore, the repair or replace6Similarly, as the district court held in the case before us, Jeffco’s contractual obligation to provide the Frenches with a defect-free EIFS exterior was known to Jeffco at the time that it entered into the contract to

construct the Frenches’ home, and therefore, the exclusion for "‘property

damage’ expected or intended from the standpoint of the insured," (J.A.

157), operates to defeat coverage. 

14 FRENCH v. ASSURANCE CO. OF AMERICA
ment damages represent economic loss and consequently would not

trigger a duty to indemnify under a CGL policy." Id. at 911-12.

However, despite the position of the district court and the Insurance Defendants, Lerner does not answer the question with respect to

the second category of damage claimed by the Frenches—i.e., damage to the nondefective structure and walls of the Frenches’ home

caused by moisture intrusion through the defectively installed EIFS

exterior. Unlike the undisputed factual situation in the case before us,

factually, Lerner did not involve property damage to otherwise nondefective parts of the building. This is a significant distinction, and

one which brings into play the subcontractor exception to the "Your

Work" exclusion in the 1986 ISO CGL Policies. 

Thus, the question only referenced by Lerner in dicta, and not

answered by any other controlling Maryland authority, is whether,

under Maryland law, the 1986 ISO CGL Policies provide a general

contractor liability coverage for the cost to remedy property damage

to the contractor’s otherwise nondefective work-product caused by a

subcontractor’s defective workmanship? The Supreme Court of Wisconsin’s thoughtful opinion in American Family Mutual Insurance

Company v. American Girl, Inc., 673 N.W.2d 65 (Wis. 2004) and

dicta in Lerner conclusively persuade us that the answer to this question is yes. 

In American Family, the Supreme Court of Wisconsin considered

a materially analogous set of facts. The court found coverage under

the 1986 version of the ISO CGL policy to indemnify a general contractor for the costs to remedy property damage to a warehouse (i.e.,

the sinking of the building’s foundation and buckling and cracking of

the building’s structure necessitating the building being declared

unsafe and torn down) caused by faulty site-preparation advice by a

soil engineering subcontractor. Id. 69-71. With respect to the initial

grant of coverage, the court held that the property damage to the

warehouse was the result of an accident, i.e., the settling of the soil,

and therefore, an "occurrence" within the meaning of the 1986 ISO

CGL policy form. Id. at 78. 

Moreover, in American Family, the liability carrier, like the Insurance Defendants here, asserted, inter alia, that the "expected or

FRENCH v. ASSURANCE CO. OF AMERICA 15
intended" exclusion, i.e., exclusion (a), applied to defeat coverage in

full. Id. at 79. Specifically, the liability carrier argued that given poor

soil conditions at the site and the insured general contractor’s recognition that special measures were required to prepare the soil to carry

the weight of the warehouse, the insured general contractor expected

that some settlement would occur, and thus, the exclusion applied. Id.

The court held the exclusion was not triggered because the liability

carrier was not arguing that property damage was expected or

intended by the general contractor, but only that some degree of settlement must have been expected under the circumstances. Id.

Additionally, the insurance carrier in American Family also argued

that coverage to remedy the property damage caused by the faulty

site-preparation advice by one of the insured general contractor’s subcontractors was defeated by the "Your Work" exclusion, i.e., exclusion (l). After recounting the history of the ISO’s inclusion of the

subcontractor exception to the "Your Work" exclusion in the 1986

ISO CGL policy form, the Supreme Court of Wisconsin reiterated

that the 1986 revision restored otherwise excluded coverage for damage caused to construction projects by subcontractor negligence. Id.

at 83. The court also admonished against applying case law involving

the 1973 ISO CGL policy form to cases involving the 1986 ISO CGL

policy form. Id. 

With respect to the costs to remedy the property damage to the

structure and walls of the Frenches’ home, the case before us appears

to be on all fours with American Family. Here, there is no evidence

that Jeffco subjectively expected or intended that the nondefective

structure and walls of the Frenches’ home would suffer damage from

moisture intrusion. Indeed, there does not appear even to be an allegation that Jeffco either expected or intended that its subcontractor

(Coronado Stucco & Stone) would defectively install the EIFS exterior on the Frenches’ home. Accordingly, as was the case of the sinking soil in American Family, the moisture intrusion into the

nondefective structure and walls of the Frenches’ home was an accident, and therefore, an "occurrence" under the initial grant of coverage of the 1986 ISO CGL Policies, which coverage is not defeated by

the express exclusion for coverage of damage which is expected or

intended from the standpoint of the insured. 

16 FRENCH v. ASSURANCE CO. OF AMERICA
Critically, we emphasize that the record contains no evidence, and

there appears to be no allegation, that upon completion of the

Frenches’ home, and the issuance of the Certificate of Occupancy for

the home in December 1994, any defect existed with respect to the

structure and walls of the Frenches’ home. The nondefective structure

and walls were damaged over a period of nearly five years when the

defective EIFS exterior allowed harmful moisture and water penetration. Thus, to the extent the Frenches, standing in the shoes of Jeffco,

seek coverage for the costs to remedy the property damage to the otherwise nondefective structure and walls of their home, our holding in

favor of such coverage does not act as a source of warranty for contractually provided workmanship. As delivered per the construction

contract, the structure and walls of the Frenches’ home were defectfree. 

At oral argument, counsel for Insurance Defendants candidly and

correctly acknowledged that had a portion of the defective EIFS exterior on the Frenches’ home fallen outwardly onto an automobile or

inwardly onto a painting hanging on an interior wall or on furniture

in the home, the 1986 ISO CGL Policies would have provided Jeffco

liability coverage for damages to the automobile, the painting, and the

furniture. In this same vein, it is illogical to contend that had the

defective EIFS exterior on the Frenches’ home failed and caused

damage to the flooring inside the home or to the structural members

of the house, neither of which was defective at completion of construction and certification for occupancy, coverage would not have

been provided under the 1986 ISO CGL Policies. This aspect of coverage is inherently different from coverage to correct the defective

EIFS exterior on the Frenches’ home. As we have already held, coverage to correct the defective EIFS exterior is not provided under the

1986 ISO CGL Policies, as opposed to damage to other nondefective

parts of the home, i.e., the interior and structural members of the

home, which were not damaged or defective upon completion of construction, certification for occupancy and delivery of the home, but

may have sustained damage as the result of the failure of the EIFS

exterior. 

Maryland’s Court of Special Appeals makes the same point in dicta

in Lerner. There, the court distinguished between the cost to correct

a defect in work performed under a construction contract, for which

FRENCH v. ASSURANCE CO. OF AMERICA 17
no coverage under the 1986 ISO CGL policy form exists, and "property damage to something other than the defective object itself . . . ."

Lerner, 707 A.2d at 912. "For example, if a collapse of the veneer had

injured a user of the facility or damaged property other than the

veneer itself, these may well be covered." Id. That is exactly the situation here. The defective EIFS exterior on the Frenches’ home allowed

moisture intrusion into the structure and walls of the Frenches’ home,

which constitutes damage to property other than to the defective EIFS

exterior itself. This dicta in Lerner strongly suggests that, if faced

with the facts before us in the present appeal, Maryland’s highest

court would find in favor of coverage for the costs to remedy the

property damage to the otherwise nondefective structure and walls of

the Frenches’ home. 

Finally and significantly, our holding today that, under Maryland

law, coverage exists under the 1986 ISO CGL Policies for the costs

to remedy the damage to the nondefective structure and walls of the

Frenches’ home, unlike that of the district court and the position of

the Insurance Defendants, gives effect to the subcontractor exception

to the "Your Work" exclusion in these policies. As Maryland’s highest court has continually reiterated: "It is a recognized rule of construction that a contract must be construed in its entirety and, if

reasonably possible, effect must be given to each clause or phrase so

that a court does not cast out or disregard a meaningful part of the

writing." Bausch & Lomb, Inc. v. Utica Mutual Ins. Co., 625 A.2d

1021, 1033 (Md. 1993). The very existence of the "Your Work"

exclusion and the history of subcontractor exception to that exclusion

provide us solid confirmation that our holding with respect to the nondefective structure and walls of the Frenches’ home is correct. As the

Court of Appeals of Kansas expressly quoted with approval:

"If the policy’s exclusion for damage to the insured’s work

contains a proviso stating that the exclusion is inapplicable

if the work was performed on the insured’s behalf by a subcontractor, it would not be justifiable to deny coverage to

the insured, based upon the absence of an occurrence, for

damages owed because of property damage to the insured’s

work caused by the subcontractor’s work. Reading the policy as a whole, it is clear that the intent of the policy was

to cover the risk to the insured created by the insured’s use

18 FRENCH v. ASSURANCE CO. OF AMERICA
of a subcontractor. Moreover, if coverage were never available for damage to the insured’s work because of a subcontractor’s mistake, on the theory that there was no occurrence

even under those circumstances, the foregoing subcontractor

proviso to the exclusion for damage to the insured’s work

would be meaningless, and if possible, policies should not

be interpreted to render policy provisions meaningless." 

Lee Builders, Inc. v. Farm Bureau Mut. Ins. Co., 104 P.3d 997, 1003

(Kan. Ct. App. 2005) (quoting Windt, Insurance Claims and Disputes

§ 11.3, Supp. p. 48 (4th ed. 2001)). 

The 1986 ISO CGL Policies, like the ISO liability policies before

them, are structured such that express exclusions, like the "Your

Work" exclusion, limit an initial grant of coverage. Then exceptions

to exclusions, such as the subcontractor exception to the "Your Work"

exclusion, restore otherwise excluded coverage. See, e.g., Lee Builders, Inc. v. Farm Bureau Mut. Ins. Co., 104 P.3d 997, 1003 (Kan. Ct.

App. 2005) (concluding that damage caused to structure of home as

a result of continuous exposure to moisture due to subcontractor’s

defective materials and work was an occurrence triggering indemnity

provisions of ISO CGL policy containing subcontractor exception to

"Your Work" exclusion); American Family, 673 N.W.2d at 83-84

("There is coverage [to remedy damage to warehouse resulting from

subcontractor’s faulty site-preparation advice] under the insuring

agreement’s initial coverage grant. Coverage would be excluded by

the business risk exclusionary language, except that the subcontractor

exception to the business risk exclusion applies, which operates to

restore the otherwise excluded coverage."); O’Shaughnessy v. Smuckler Corp., 543 N.W.2d 99 (Minn. Ct. App. 1996) (recognizing that

1986 amendments to "Your Work" exclusion changed standard CGL

policy so as to provide coverage for property damage to a contractor’s

work when that damage is caused by a subcontractor’s defective

work), abrogated on other grounds by Gordon v. Microsoft Corp.,

645 N.W.2d 393 (Minn. 2002). In sum, our holding is consistent with

the intent and structure of the 1986 ISO CGL Policies and Maryland

law. 

To be clear, we will reiterate our holdings. We hold that, under

Maryland law, a standard 1986 commercial general liability policy

FRENCH v. ASSURANCE CO. OF AMERICA 19
form published by the ISO does not provide liability coverage to a

general contractor to correct defective workmanship performed by a

subcontractor. We also hold that, under Maryland law, the same policy form provides liability coverage for the cost to remedy unexpected

and unintended property damage to the contractor’s otherwise nondefective work-product caused by the subcontractor’s defective workmanship. With respect to this last holding, we assume arguendo that

no other policy exclusion applies.

Based upon these holdings, we: (1) affirm the district court’s grant

of summary judgment in favor of the Insurance Defendants with

respect to the Frenches’ claims for declaratory judgment and breach

of the express duty to indemnify to the extent those claims seek coverage under the 1986 ISO CGL Policies to correct the defective EIFS

exterior on the Frenches’ home; (2) vacate the district court’s grant

of summary judgment in favor of the Insurance Defendants with

respect to the Frenches’ claims for declaratory judgment and breach

of the express duty to indemnify to the extent those claims seek coverage to remedy the damage to the otherwise nondefective structure

and walls of the Frenches’ home; and (3) remand for further proceedings consistent with this opinion. 

B.

Because the district court did not address the Insurance Defendants’ three alternative arguments and each appears to involve at least

one underlying factual dispute, we adhere to the general rule that a

federal appellate court does not consider an issue not passed upon

below. Singleton v. Wulff, 428 U.S. 106, 120 (1976) ("It is the general

rule, of course, that a federal appellate court does not consider an

issue not passed upon below."). On remand, the district court is free

to consider the three alternative arguments raised by the Insurance

Defendants both below and in the present appeal, which arguments

the district court did not previously pass upon. 

If none of the Insurance Defendants’ alternative arguments defeat

coverage to remedy the damage to the otherwise nondefective structure and walls of the Frenches’ home, the district court should conduct proceedings to apportion any damages due the Frenches between

the costs to correct the defective EIFS exterior and the costs to rem20 FRENCH v. ASSURANCE CO. OF AMERICA
edy the damage to the otherwise nondefective structure and walls of

the Frenches’ home. Following such apportionment, the district court

should enter an appropriate judgment in favor of the Frenches with

respect to their declaratory judgment claim and their claim for breach

of the duty to indemnify for an amount equal to the amount apportioned for remedying the damage to the otherwise nondefective structure and walls of the Frenches’ home. 

III.

For the reasons stated, we affirm in part, vacate in part, and remand

for further proceedings consistent with this opinion. 

AFFIRMED IN PART, VACATED IN PART,

AND REMANDED

FRENCH v. ASSURANCE CO. OF AMERICA 21