In October 2002, K.B.K., Inc. ("K.B.K.") entered into a contract (the "contract") with John L. Mattingly Co., Inc. ("Mattingly") to build a restaurant whereby K.B.K. would be the owner and Mattingly would be the general contractor. Wilma L. Phoebus d/b/a Wilma Phoebus Electric Co. ("Phoebus") was hired as a subcontractor to perform electrical work. The restaurant opened in 2003.

One provision in the contract required K.B.K. to have property insurance in place during construction and required that the insurance be maintained until final payment was made or until no person or entity other than K.B.K. had an insurable interest in the property, whichever was later. The "Waivers of Subrogation" clause in the contract provided that K.B.K. and Mattingly waived all of their rights against each other and any subcontractor for damages caused by fire or other causes of loss, to the extent covered by other property insurance applicable to the work.

K.B.K. purchased property insurance for the restaurant from Hartford Underwriters Insurance Company ("Hartford"). During the policy period, a fire occurred in the restaurant causing substantial damage. Hartford paid the claim, minus K.B.K.'s deductible. Hartford, as subrogee of K.B.K. then sued Mattingly and Phoebus (collectively the "Defendants") alleging that both were responsible for the fire. Mattingly and Phoebus filed Motions for Summary Judgment, asserting that the "'Waivers of Subrogation' clause in the contract barred Hartford from pursuing its subrogation claim against them." Specifically, the Defendants argued that K.B.K. had agreed in the contract to look only to its own property insurance to cover peril such as fire after completion of the project, and therefore Hartford had no subrogation rights to enforce. The Motions for Summary Judgment were granted and the Circuit Court found that K.B.K. waived its right to bring suit; therefore, it had to find that Hartford did not have an interest as a subrogee.

Hartford appealed. The Court of Special Appeals of Maryland believed that the issue of whether, when the fire loss occurred, Harford's subrogation rights were waived, depended on the meaning of "covered by . . . other property insurance applicable to the work" language found in the contract. "Work" was defined in the contract as
the construction services required by the Contract Documents, whether completed or partially completed, and includes all other labor, materials, equipment and services provided, or to be provided by the Contractor to fulfill the Contractor's obligations. The Work may constitute the whole or a part of the project.

Unfortunately, there were no Maryland cases interpreting the phrase; therefore, the court looked to other jurisdictions. In those cases, the court found that the words in the completed project insurance clauses informed the meaning of the words in the waivers of subrogation clauses. The instant contract, however, did not contain a completed project clause. The court also could not find any other language plainly addressing the waiver of rights consequences, if any, that would have flowed from K.B.K's obtaining property insurance on the completed restaurant. Without such a clause, or a similar clause, the "Waivers of a Subrogation" clause and the definition of the word "Work" could be read to have more than one meaning, temporally; therefore, "existing as they do without a related completed project insurance clause," they were not clear as to temporal scope.

The real issue, the court stated, was whether K.B.K. waived its right to pursue liability claims against Mattingly and Mattingly's sub-contractors for losses sustained after the restaurant was in operation, so long as the losses at issue were covered by insurance. The court found that the meaning of the word "Work" could not have been clear to any of the parties when executing the contract so that it would comprise not only the construction of the restaurant, but also the finished restaurant itself, after construction and final payment. The court wrote:

It further would not have been readily apparent to K.B.K. (or to any reasonable Owner) that, if it were to obtain property insurance on the finished restaurant at some time or times in the future, it would be relinquishing its right to pursue liability claims against Mattingly (and the subcontractors) for all time, as long as the property insurance was in effect. Given the lack of clarity and the language of the Contract, in the absences of any other language, such as completed project insurance clause ambiguity, the Contract cannot reasonably be interpreted as a waiver by K.B.K. of its liability rights for damages covered by insurance.

(Emphasis added). In sum, the contract could not be interpreted to mean that K.B.K. continued to waive its liability rights and its property insurers' subrogation rights against Mattingly and the subcontractors, after the restaurant was paid for, as long as K.B.K. maintained property insurance on its own.