USCA4 Appeal: 20-2319 Doc: 41 Filed: 10/21/2022 Pg: 1 of 16

UNPUBLISHED

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 20-2319

BETHANY BOARDWALK GROUP LLC,

Plaintiff - Appellant,

v.

EVEREST SECURITY INSURANCE COMPANY,

Defendant - Appellee.

Appeal from the United States District Court for the District of Maryland, at Baltimore. Ellen Lipton Hollander, Senior District Judge. (1:18-cv-03918-ELH)

Argued: September 13, 2022 Decided: October 21, 2022

Before GREGORY, Chief Judge, and KING and HARRIS, Circuit Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: Gregory Layton Arbogast, GEBHARDT & SMITH LLP, Baltimore, Maryland, for Appellant. Peter James Jenkins, JACKSON & CAMPBELL, P.C., Washington, D.C., for Appellee. ON BRIEF: Lawrence J. Gebhardt, George B. Cunningham, GEBHARDT & SMITH LLP, Baltimore, Maryland, for Appellant. Daniel J. Lynn, JACKSON & CAMPBELL, P.C., Washington, D.C., for Appellee.

Unpublished opinions are not binding precedent in this circuit. USCA4 Appeal: 20-2319 Doc: 41 Filed: 10/21/2022 Pg: 2 of 16

PER CURIAM:

Plaintiff Bethany Boardwalk Group LLC (“Bethany”) appeals from adverse rulings

in which the District of Maryland denied its claim for insurance coverage under a

commercial property insurance policy (the “Policy”) issued in 2018 by defendant Everest

Security Insurance Company (“Everest Insurance”). Bethany initiated this civil action in

federal court in December 2018, seeking a declaratory judgment that Everest Insurance is

obliged to provide coverage under the Policy for roof and other damages sustained to

Bethany’s hotel during a 2018 windstorm. By opinions rendered in 2020, the district court

rejected Bethany’s insurance claim and its efforts to pursue further proceedings. Bethany

has appealed those rulings and, as explained herein, we affirm the comprehensive analysis

made by the district court.

I.

A.

Bethany owns and operates a hotel called the Bethany Beach Ocean Suites

Residence Inn in Bethany Beach, Delaware. Although the hotel has two buildings, only

one — the North Building — is at issue here. When the North Building was constructed

in 2015, a business called C.C.S. Roofing installed the hotel’s thermoplastic polyolefin

(“TPO”) roofing system manufactured by Firestone Building Products. A properly

installed TPO system should have withstood wind gusts of up to 55 miles per hour.

Broadly, the TPO roofing system consists of a concrete base, on top of which the installers

glue successive layers of polyiso insulation boards that form the slope and shape of the

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roof. The installers top off the insulation boards with a TPO membrane that completes the

roofing system.

The Policy underlying this dispute, which is made up of numerous forms outlining

the insurance coverage provisions and their limitations, generally provides that, as the

insurer, Everest Insurance “will pay for direct physical loss of or damage to Covered

Property at the premises described in the Declarations caused by or resulting from any

Covered Cause of Loss.” See J.A. 95. 1 The Business Income (and Extra Expense)

Coverage Form of the Policy further provides that Everest Insurance “will pay for the

actual loss of Business Income [that Bethany, as the insured] sustain[s] due to the necessary

‘suspension’ of [its] ‘operations’ during the ‘period of restoration,’” so long as “[t]he loss

or damage [was] caused by or result[ed] from a Covered Cause of Loss.” Id. at 111.

The Policy’s Causes of Loss Form — which spells out the provisions at issue here

— outlines situations in which the Policy will and will not provide coverage. Specifically,

the Policy provides coverage for certain perils, which the Causes of Loss Form designates

as “Covered Causes of Loss.” See J.A. 124-33. In general, a “Covered Cause of Loss” is

any “direct physical loss unless the loss is excluded or limited” by the Policy. Id. at 124.

Several specific Covered Causes of Loss are described therein, including “fire; lightning;

explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion;

vandalism; leakage from fire-extinguishing equipment; sinkhole collapse; volcanic action;

1 Citations herein to “J.A. __” refer to the contents of the Joint Appendix filed by the parties in this appeal. 3 USCA4 Appeal: 20-2319 Doc: 41 Filed: 10/21/2022 Pg: 4 of 16

falling objects; weight of snow, ice or sleet; [and] water damage.” Id. at 133 (emphasis

added).

Meanwhile, Section B(3) of the Causes of Loss Form identifies exclusions that

preclude insurance coverage under the Policy. As pertinent in this appeal, Section B(3)

provides as follows:

3. [Everest Insurance] will not pay for loss or damage caused by or resulting from any of the following, 3.a. through 3.c. But if an excluded cause of loss that is listed in 3.a. through 3.c. results in a Covered Cause of Loss, [Everest Insurance] will pay for the loss or damage caused by that Covered Cause of Loss.

* * *

c. Faulty, inadequate or defective: . . . Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction[.]

See J.A. 127-28 (emphasis added). The emphasized sentence of Section B(3) of the Causes

of Loss Form is the specific Policy provision identified and discussed herein as the

“ensuing loss clause.” See infra section II.A.

On September 9, 2018, a windstorm struck Bethany Beach, Delaware, with wind

gusts reaching 39.6 miles per hour and 0.11 inches of rain deposited. During the

windstorm, the North Building’s roof suffered a partial blow-off. As a result, the TPO

membrane peeled back, exposing the polyiso boards and allowing rainwater to infiltrate

the hotel’s North Building. The infiltrating water damaged the drywall and carpeting in a

hotel room and the ceiling of the hotel’s restaurant.

As a result of the damages suffered by and in the North Building from the

windstorm, Bethany submitted a claim under the Policy to Everest Insurance. Everest

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Insurance accordingly dispatched a business called Applied Engineering and Technology

(“AET”) to inspect the damaged roof and the other damages and make a report to both

Everest Insurance and Bethany assessing the cause of the damages to the North Building

of the hotel (the “AET Report”). The AET Report concluded that the damages suffered

were “mainly caused by improper installation of the Firestone TPO roof system.” See J.A.

263. More specifically, the AET Report concluded that the polyiso insulation boards had

been improperly glued together, which rendered the North Building’s roof susceptible to

wind uplift pressures. Id. As a result of the AET report, Everest Insurance denied

Bethany’s claim for insurance coverage, reasoning that “the damages sustained . . . were

the result of faulty workmanship and improper installation,” and faulty workmanship is an

excluded cause of loss under Section B(3)(c) of the Policy’s Causes of Loss Form. Id. at

375-76.

B.

1.

In December 2018, Bethany initiated this civil action against its insurer Everest

Insurance, seeking a declaration that the Policy covers “all damages and losses sustained

by Bethany” as a direct or consequential result of the windstorm, plus prejudgment interest.

See J.A. 18. At the outset, the parties agreed — and jointly advised the court by letter of

February 12, 2019 — that resolution of this litigation primarily turns on the proper

interpretation of the Policy’s provisions. Id. at 34-35. They further advised the district

court that the facts were largely undisputed and that it would be most efficient to first

resolve issues of coverage and liability under the Policy and only conduct discovery later,

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if necessary, on damages. As part of that letter agreement, Bethany consented to “accept

the findings and conclusions of the expert retained by Everest [Insurance]” — that is, the

AET Report. Id. Accordingly, with the court’s authorization, the parties filed cross

motions seeking summary judgment on the issues of coverage and liability.

2.

On March 5, 2020, the district court made its initial ruling, by which it denied

Everest Insurance’s request for summary judgment and partially granted Bethany’s cross

motion for summary judgment. See Bethany Boardwalk Group LLC v. Everest Sec. Ins.

Co., No. 1:18-cv-3918 (D. Md. Mar. 5, 2020), ECF No. 34 (the “Coverage Ruling”). More

specifically, the Coverage Ruling concluded that the Policy required Everest Insurance to

cover Bethany’s costs incurred repairing the hotel’s interior water damage and the resulting

lost business income, because those damages and losses were caused by the windstorm,

which is a Covered Cause of Loss. Id. at 28. The Coverage Ruling also determined,

however, that the Policy did not oblige Everest Insurance to cover the costs of repairing

the North Building’s roof because that damage had been caused by faulty workmanship,

which is an excluded cause of loss. Id.

Bethany promptly requested the district court to reconsider its decision in the

Coverage Ruling that Everest Insurance was not obliged to pay for any of the repairs to the

hotel’s roof. Bethany claimed that Everest Insurance should pay for repairs to any portion

of the hotel roof that had been properly installed but damaged during the windstorm.

Bethany maintained that the AET Report only established that the polyiso boards had been

improperly installed, but offered no opinion as to the TPO membrane. Bethany supported

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its motion for reconsideration with the affidavit of an expert named Brad Kauffman, who

had overseen the repairs to the North Building’s roof. See J.A. 421 (the “Kauffman

Affidavit”). Kauffman summarized the findings of his roof inspection, which confirmed

the AET Report’s conclusion that the polyiso boards had been improperly glued together,

but opined that the TPO membrane had been properly installed onto the polyiso boards.

Kauffman further opined that the cost of replacing the polyiso boards had been around

$135,000, while replacing the TPO membrane had cost another $150,000. Accordingly,

Bethany requested that the court reconsider the portion of its Coverage Ruling regarding

coverage of the roof repairs and then require Everest Insurance to cover and pay for the

replacement costs of the non-defective portion of the North Building’s roof — that is, the

TPO membrane.

After the Coverage Ruling was filed, Bethany also sought to amend its complaint,

seeking primarily to add a claim for litigation expenses related to a third-party lawsuit that

Bethany had pursued in a Maryland state court against C.C.S. Roofing, the entity that had

installed the defective North Building roof in 2015. 2 Bethany also sought by its motion to

amend to add allegations to the complaint that were drawn from the Kauffman Affidavit

— specifically, that the TPO membrane had been properly installed, and that the costs of

2 Bethany has acknowledged in its appellate submissions that the Maryland state court proceedings against C.C.S. Roofing have been settled. Pursuant thereto, Bethany recovered, according to its initial brief in this appeal, “both a substantial portion of its claim against Everest under the [P]olicy and its attorneys’ fees and litigation expenses in the suit against Everest.” See Br. of Appellant 14-15. 7 USCA4 Appeal: 20-2319 Doc: 41 Filed: 10/21/2022 Pg: 8 of 16

repairing the polyiso boards and of repairing the TPO membrane were separate and

“distinct” costs. See J.A. 468-69.

For its part, Everest Insurance filed a second motion for summary judgment,

requesting the district court to further declare that under the Policy’s applicable deductible,

Everest Insurance did not owe Bethany any coverage. More specifically, Everest Insurance

contended that the expenses for which the court had found it liable — the interior water

damage and resulting lost business income — did not exceed the Policy’s $100,000

deductible.

3.

On December 2, 2020, the district court disposed of the three motions filed after the

Coverage Ruling — those being Bethany’s motion to reconsider, Bethany’s motion to

amend, and Everest Insurance’s second motion for summary judgment. See Bethany

Boardwalk Group LLC v. Everest Sec. Ins. Co., No. 1:18-cv-3918 (D. Md. Dec. 2, 2020),

ECF No. 55 (the “Final Decision”). First, the Final Decision denied Bethany’s motion to

reconsider, ruling that Bethany had failed to show that the Coverage Ruling was erroneous

and did not allege any new or substantially different evidence. Id. at 16-18. The Final

Decision then denied Bethany’s motion to amend its complaint, reasoning that the proposed

amendments were futile and, if allowed, would unduly prejudice Everest Insurance. Id. at

29. Finally, because Bethany did not dispute Everest Insurance’s contention that Bethany’s

losses due to interior water damage and lost business income do not exceed $100,000 —

the applicable deductible under the Policy — the Final Decision granted Everest

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Insurance’s second motion for summary judgment. Id. at 32. Bethany has timely noted

this appeal, and we possess jurisdiction pursuant to

.

II.

On appeal, Bethany challenges the district court’s judgment in multiple respects.

First, Bethany challenges the Coverage Ruling’s determination, in its denial of Bethany’s

summary judgment motion, that the Policy does not cover the costs of repairing the North

Building’s roof damage. More specifically, Bethany relies on the “ensuing loss clause”

and maintains that the Policy covers all damages sustained as a result of the windstorm,

including all damages to the North Building’s roof. Next, Bethany challenges the Final

Decision’s denial of its motion to reconsider, contending that, even if the Policy does not

cover the costs of repairing the entire North Building roof, it nevertheless covers the costs

of repairing the TPO membrane, which had been properly installed but was damaged by

the windstorm. Finally, Bethany challenges the Final Decision’s denial of the motion to

amend its complaint, contending that, if Bethany ultimately succeeds on its breach of

contract claim, it is entitled to recover the litigation expenses incurred as a result of its state

court proceedings against C.C.S. Roofing. We assess and dispose of Bethany’s appellate

contentions in turn.

A.

We first assess Bethany’s contention that the district court erred in its Coverage

Ruling partially denying Bethany’s summary judgment motion by deciding that the Policy

does not cover any of the costs of repairing the North Building roof. We review a summary

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judgment ruling de novo, “applying the same legal standards as the district court and

viewing all facts in the light most favorable to the nonmoving party.” See W.C. Eng., Inc.

v. Rummel, Klepper & Kahl, LLP,

(4th Cir. 2019) (internal quotation

marks omitted). An award of summary judgment is appropriate “if the movant shows that

there is no genuine dispute as to any material fact and the movant is entitled to judgment

as a matter of law.” See Fed. R. Civ. P. 56(a).

In initially requesting summary judgment, Bethany maintained that Everest

Insurance had improperly denied coverage that was required under the Policy. More

specifically, Bethany identified and relied on the Policy’s “ensuing loss clause,” which

provides that “if an excluded cause of loss that is listed in 3.a through 3.c [i.e., faulty

workmanship] results in a Covered Cause of Loss, [Everest Insurance] will pay for the loss

or damage caused by the covered cause of loss.” See J.A. 127. In other words, Bethany

claimed that the Policy’s ensuing loss clause provides for coverage when, despite the

exclusions specified, “a separate, independent, and subsequent Covered Cause of Loss

causes or contributes to the loss.” Id. at 37.

Arguing its view of the applicable Maryland law, Bethany maintained that, because

Section B(3) does not limit the degree to which the covered cause of loss must contribute

to the claimed damages — which Everest Insurance could have accomplished by writing a

more explicit Policy — the fact that a covered cause of loss contributed concurrently with

an excluded cause of loss is sufficient to provide coverage for all damages to the North

Building that resulted from the windstorm. Accordingly, Bethany requested the district

court to declare that Everest Insurance was liable under the Policy for the costs of replacing

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the North Building’s entire roof, repairing the hotel’s internal water damage, and

compensating Bethany for the business income it had lost as a result of those damages.

Put most simply, we agree with the district court. Recognizing in its Coverage

Ruling that state courts around the country are split between two approaches for

interpreting an “ensuing loss clause,” the court acknowledged that whether an ensuing loss

clause provides coverage when a covered cause of loss and an excluded cause of loss

concurrently cause damages is a novel question that the Maryland courts have not

heretofore resolved. Under the majority approach taken by the states that have addressed

that issue, an ensuing loss clause does not cover damages resulting in part from a defect

when “the very risk raised by the flawed construction came to pass.” See TMW Enters.,

Inc. v. Fed. Ins. Co.,

(6th Cir. 2010). Instead, the damages must result

from “an independent or fortuitous intervening cause.” See Taja Invs. LLC v. Peerless Ins.

Co.,

, 192 (4th Cir. 2017); Costco Wholesale Corp. v. Commonwealth

Ins. Co.,

(9th Cir. 2002).

Under the minority approach, on the other hand, an ensuing loss clause will provide

insurance coverage for damages caused by a covered cause of loss — even when an

excluded cause of loss like faulty workmanship contributed to the damages — but not for

the costs of repairing the excluded cause of loss. See e.g., Arnold v. Cincinnati Ins. Co.,

(2004). In other words, that approach distinguishes between the original

defective work and other property damages. See e.g., Eckstein v. Cincinnati Ins. Co.,

, 462 (W.D. Ky. 2007). For example, in the Arnold case, the Wisconsin

Supreme Court ruled that, when a rainstorm leaked through defective caulking and caused

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interior water damage, the ensuing loss clause provided insurance coverage for repairing

the water damage — which was a cause of loss covered under the applicable policy — but

not for repairing the faulty caulk, in that faulty workmanship was an excluded cause of loss

under the applicable policy. See Arnold,

.

In its Coverage Ruling, the district court explained that it did not need to “predict

how the Maryland Court of Appeals would read the ensuing loss clause, because the result

is the same under either approach.” See Coverage Ruling 27. That is, the Policy does not

cover the costs of repairing the North Building roof, but it covers the costs of repairing the

interior water damage and the resulting lost business income. As the court explained, it

was undisputed that, “but for the defective installation, the roof should have withstood the

wind.” Id. at 28. Therefore, as the Coverage Ruling reasoned, the very risk implicated by

the faulty workmanship — the roof being blown off — had actually occurred, and it would

not be covered under the majority approach. Moreover, the North Building roof repairs

also would not be covered under the minority approach because the improper adhesion of

the polyiso boards was faulty workmanship, which Section B(3)(c) of the Causes of Loss

Form excludes from coverage. The water damage to the hotel, on the other hand, was

caused by the rain that occurred during the windstorm. Because water damage is not a risk

implicated by the faulty workmanship on the North Building roof, and the windstorm —

an independent and fortuitous intervening cause — is a covered cause of loss, there is

coverage under the Policy for all other damages caused by the windstorm under both

approaches that are utilized to interpret ensuing loss clauses. Id. at 28-29.

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Put succinctly, we are constrained to reject Bethany’s challenge with respect to the

Policy’s ensuing loss clause. That is, we agree with the district court that faulty

workmanship — an excluded cause of loss — caused the North Building’s roof damage.

Everest Insurance is therefore not liable for the costs of any of the hotel’s roof repairs under

the ensuing loss clause.

B.

We turn next to Bethany’s appellate contention that the district court erred in the

Final Decision by denying Bethany’s motion to reconsider the Coverage Ruling. That

motion is pursued under Federal Rule of Civil Procedure 54(b), and we review the denial

of such a motion for abuse of discretion. See Carlson v. Bos. Sci. Corp.,

(4th Cir. 2017). As a threshold matter, a trial court should only reconsider and revise an

earlier ruling in three narrow circumstances: (1) if the trial produces substantially different

evidence; (2) if there is a change in applicable law; or (3) when the court has committed a

clear error resulting in a manifest injustice. See U.S. Tobacco Coop. Inc. v. Big South

Wholesale of Va., LLC,

(4th Cir. 2018). Of importance, a motion to

reconsider is not an opportunity for a losing party to present evidence that it could have

presented before the adverse ruling. See Carlson, 865 F. 3d at 325. And it is not sufficient

for a party to show that legal precedent could support an alternative resolution. As we have

said, a successful challenge to a trial court’s order under Rule 54(b) must be “wrong with

the force of a five-week-old, unrefrigerated dead fish.” See TFSW, Inc. v. Franchot,

(4th Cir. 2009).

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Simply put, we discern no abuse of discretion with respect to the Final Decision’s

denial of Bethany’s motion to reconsider. By its motion, Bethany maintained that, because

only the polyiso boards were improperly installed, the Policy requires Everest Insurance to

cover the repairs to the TPO membrane. To support its position, Bethany relied on the

AET Report, which concluded that the polyiso boards were improperly installed, and the

Kauffman Affidavit, which confirmed that conclusion and opined that the TPO membrane

was properly installed. The district court explained, however, that the Kauffman Affidavit

did not present any new evidence. It simply highlighted material that was available to

Bethany throughout the court proceedings. Moreover, Bethany failed to present any

controlling precedent that would support its proposed position of isolating the costs of

repairing the defective polyiso boards from the costs of repairing the assertedly non-

defective TPO membrane. In these circumstances, the district court did not abuse its

discretion in declining to reconsider its Coverage Ruling.

C.

Finally, we turn to the contention that the district court erred in denying Bethany’s

request for leave to amend its complaint. We review the denial of such a motion for abuse

of discretion. See Laber v. Harvey,

(4th Cir. 2006) (en banc). Federal

Rule of Civil Procedure 15(a)(2) provides a court with wide discretion to grant a motion to

amend when “justice so requires.” That discretion, however, is not unlimited: a court

should deny such a motion, inter alia, if the amendment would be futile or would prejudice

the opposing party. See Davison v. Randall,

(4th Cir. 2019). Generally,

a proposed amendment will unduly prejudice the nonmoving party if it “raises a new legal

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theory that would require the gathering and analysis of facts not already considered by the

opposing party.” See Johnson v. Oroweat Foods Co.,

(1986).

In these circumstances, we are satisfied that the district court did not abuse its

discretion in ruling that Bethany’s proposed amendments were futile or in deciding that its

approval of them would unduly prejudice Everest Insurance. Bethany sought primarily to

augment its breach of contract claim with a request for recovery of the litigation expenses

it had incurred in pursuing its state court lawsuit against C.C.S. Roofing. Bethany was

contending that Everest Insurance should be liable for those fees and costs under the

collateral litigation doctrine, which can authorize the recovery of such items when the

defendant’s wrongful conduct has necessitated third-party litigation. See E. Shore Title

Co. v. Ochse,

(2017). Bethany also sought to make new factual

allegations in its complaint that were predicated on the views set forth in the Kauffman

Affidavit.

As the Final Decision ruled, however, Bethany’s proposed new claim is futile

because the collateral litigation doctrine does not apply here. Bethany had waited more

than a year to initiate its state court lawsuit and failed to demonstrate to the district court

that the state court litigation was a necessary result of Everest Insurance’s denial of

coverage. Moreover, the court did not abuse its discretion by ruling in the Final Decision

that the proposed amendments would unduly prejudice Everest Insurance. Indeed, the

parties had agreed to an expedited schedule and not to conduct discovery on the issues of

coverage and liability. As the Final Decision recognized, it would unduly prejudice Everest

Insurance to allow Bethany to produce additional evidence supporting a novel theory of

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liability after initially losing on that issue. Accordingly, the Final Decision did not err in

denying Bethany’s motion to amend.

III.

Pursuant to the foregoing, we are unable to identify any reversible error committed

by the district court in the underlying proceedings. 3 We are therefore satisfied to affirm

the well-considered and thoroughly explained rulings made by the district court in the

Coverage Ruling and in the Final Decision.

AFFIRMED

3 With respect to the Final Decision’s award of summary judgment to Everest Insurance, Bethany concedes on appeal that its claim for coverage of the interior water damage and loss of business does not exceed the applicable deductible of the Policy. As a result, the summary judgment awarded to Everest Insurance in the Final Decision is proper unless Everest Insurance is liable for the North Building’s roof damages. Because we affirm the district court’s ruling that Everest Insurance is not liable for those roof damages, the Final Decision’s summary judgment award is not disturbed. See Br. of Appellant 16. 16