The Travelers Indemnity Co. v. Crown Corr Inc. , 589 F. App'x 828 ( 2014 )

FILED
NOT FOR PUBLICATION OCT 31 2014
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
THE TRAVELERS INDEMNITY No. 12-15170
COMPANY, as subragee of Tourism and
Sports Authority, DBA Arizona Sports & D.C. No. 2:11-cv-00965-JAT
Tourism Authority,
Plaintiff - Appellant, MEMORANDUM*
v.
CROWN CORR INC., an Indiana
corporation,
Defendant - Appellee.
THE TRAVELERS INDEMNITY No. 12-16663
COMPANY, as subragee of Tourism and
Sports Authority, DBA Arizona Sports & D.C. No. 2:11-cv-00965-JAT
Tourism Authority,
Plaintiff - Appellant,
v.
CROWN CORR INC., an Indiana
corporation,
Defendant - Appellee.
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Appeal from the United States District Court
for the District of Arizona
James A. Teilborg, Senior District Judge, Presiding
Argued and Submitted March 11, 2014
San Francisco, California
Before: THOMAS, FISHER, and BERZON, Circuit Judges.
Plaintiff-appellant The Travelers Indemnity Co. (“Travelers”) appeals the
district court’s decision to grant defendant-appellee Crown Corr, Inc.’s (“Crown
Corr”) motion to dismiss Travelers’ two contract claims and one tort claim.
Because the parties are familiar with the facts and procedural history of the case,
we need not recount them here.
We have jurisdiction under 28 U.S.C. § 1291. “We review de novo a
dismissal under [Fed. R. Civ. P.] 12(b)(6) for failure to state a claim.” Kaiser
Aluminum & Chem. Corp. v. Catellus Dev. Corp., 976 F.2d 1338, 1340 (9th Cir.
1992). We also “review a district court’s application of state substantive law in
diversity actions de novo.” Giles v. Gen. Motors Acceptance Corp., 494 F.3d 865,
872 (9th Cir. 2007). For the reasons discussed below, we affirm the district court’s
decision.
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I
A
The district court dismissed Travelers’ contract claims on the basis of the
subrogation waiver in Section 11.4.6 of the Design/Build Agreement
(“agreement”), which set out parameters for the construction of the University of
Phoenix Stadium (“stadium”). Section 11.4.6 reads, in its entirety:
The Parties waive subrogation against one another, the
Design/Builder, Design Consultants, Subcontractors, and their
respective agents and employees on all property and consequential
loss policies that may be carried by any of them on adjacent properties
and under property and consequential loss policies purchased for the
Facility.
When Arizona courts interpret contracts, they “attempt to ascertain and give
effect to the intention of the parties at the time the contract was made if at all
possible.” Taylor v. State Farm Mut. Auto. Ins. Co., 854 P.2d 1134, 1139 (Ariz.
1993) (internal quotation marks omitted). The Arizona Supreme Court has
instructed that a “judge first considers the offered evidence and, if he or she finds
that the contract language is ‘reasonably susceptible’ to the interpretation asserted
by its proponent, the evidence is admissible to determine the meaning intended by
the parties.” Id. at 1140. However, a court “need not waste much time if the
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asserted interpretation is unreasonable or the offered evidence is not persuasive.”
Id. at 1141.
The district court did not err in concluding that Section 11.4.6 was not
“reasonably susceptible” to Travelers’ proffered interpretation and therefore
rejecting Travelers’ parol evidence. Travelers contends that the district court erred
in interpreting the term “Facility” in Section 11.4.6 to mean “the Stadium after it is
fully operational.” However, Travelers fails to put forth a narrower reading that
shows the term refers only to the stadium before substantial completion. At most,
Travelers establishes that the term refers to the stadium both before and after
substantial completion. For example, Travelers notes that in Recital A of the
agreement, “Facility” is used as a shorthand version of the term “multipurpose
stadium facility” and that the Recital states that the Authority is empowered to
“construct, finance, furnish, maintain, improve, own, operate, market and provide”
the “Facility.” Travelers argues that because the agreement envisions
“construct[ing]” and “financ[ing]” the Facility, both of which will occur before
completion, the term could apply to the stadium before completion. Similarly,
Travelers argues that the terms “Work” and “Project,” refer to the services
necessary to complete the stadium and the construction process, not the pre-
completion stadium itself, so that “Facility” could still be used pre-completion.
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Even if Travelers is correct as to both of these arguments, it only succeeds in
showing that the term applies to the stadium before and after completion. Indeed,
if the fact that Recital A uses “construct” and “finance” in describing the early
stages of the stadium shows that the term “Facility” could apply to the pre-
completion stadium, the fact that “maintain,” “operate,” and “market” are also used
shows that “Facility” must also apply to the stadium after completion and
throughout its lifetime.
Travelers also cites several sections, including Sections 1.5, 1.8.1, and 2.1.1,
that use adjectives beyond the term “Facility” itself to describe the “completed and
fully operational Facility.” It argues these phrases show that “Facility” cannot
refer only to the post-completion stadium. But, again, Travelers’ argument does
not establish that “Facility” refers only to the pre-completion stadium. Moreover,
in other provisions, like Recitals A and B, and Sections 1.7.1.10, 2.8.1.b, 11.4.1.m,
the contract refers to “Facility” in a way that describes a post-completion stadium.
Indeed, Recital B forecasts that the Arizona Cardinals football team will play
football games “at the Facility for thirty (30) years.” In that context, the term
envisions a fully completed stadium over the course of three decades. In short, the
term “Facility” means the stadium at any time. The waiver therefore still applies
today and is not “reasonably susceptible” to Travelers’ more restrictive view.
5
The broader context of the Design/Build Agreement confirms our view of
the subrogation waiver. Section 11.4.6 does not include any language as to how
long it will be in effect. Travelers argues that the agreement was written to
facilitate construction of the stadium and, as a result, it only mentions duration
when a provision, like Section 2.2.20, is meant to apply beyond substantial
completion. See, e.g., Agreement § 2.2.20 (“The provisions of this Article [2] shall
survive the completion, suspension or termination of this Agreement.”). However,
other sections, like Section 11.4.1, explicitly state that they will apply through
substantial completion only.
Other provisions in Section 11.4 are written narrowly as well. Section
11.4.3 explains the extent to which the Authority and the Cardinals may occupy the
partially completed stadium (labeled in this provision “the Work” and not “the
Facility”). Section 11.4.5 contains a waiver of rights due to loss or damage to
equipment used during construction. Section 11.4.4 includes a waiver of rights
“for damages caused by perils covered by insurance provided under Section 11.4.”
Section 11.4.6 is different from each of these provisions. It contains a
subrogation waiver by the Parties against all others involved, including
subcontractors, “under property or consequential loss policies purchased for the
Facility.” It does not limit itself to injuries or harm arising from “the Work,” and it
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does not include the Section 11.4.4 restriction that the waiver applies only to
“insurance provided under Section 11.4.” Instead, the language is far broader.
In sum, we conclude that Section 11.4.6 is not reasonably susceptible to
Travelers’ narrow interpretation. The district court did not err in rejecting that
interpretation and refusing to consider Travelers’ parol evidence.1
B
Travelers also challenges the district court’s conclusion, assuming the
subrogation waiver applies to Travelers, that the Authority had the ability to waive
the subrogation rights of a post-construction property insurer.
Arizona courts recognize the right of an insured, when the insured is waiving
its own rights, to waive its insurer’s subrogation rights. Monterey Homes Ariz.,
Inc. v. Federated Mut. Ins. Co., 212 P.3d 43, 47 (Ariz. Ct. App. 2009) (noting that
“an insurer’s right to subrogation derives from its insured’s right to recover against
a third party” and concluding that “if the insured releases its claims against the
third party—even without the insurer’s consent—the insurer will be barred from
asserting that claim against the third party by way of subrogation”).
1
Both Travelers and Crown Corr cite to a number of cases from other states.
These cases are of limited relevance because, unlike this case, they all involve the
American Institute of Architects’ (“AIA”) form contract, or some close variation
thereof.
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The Authority waived its rights against Crown Corr. Section 11.2, in
general, requires the Design/Builder (i.e., Hunt) to carry liability insurance. In
Section 11.2.5, the agreement provides that Hunt, and its consultants and
subcontractors via separate agreements, releases the Authority and other “Released
Parties” “from any and all claims or causes of action” which Hunt or its consultants
or subcontractors possess “resulting in or from or in any way connected with any
loss covered and actually paid . . . by an insurance policy as agreed by the Parties
hereunder.” In return, that same provision states that
[t]he Released Parties . . . release the Design/Builder . . . [and]
Subcontractors . . . from any and all claims or causes of action
whatsoever which any of the Released Parties might otherwise possess
resulting in or from or in any way connected with any loss to the
extent it is covered and actually paid by any insurance policy provided
hereunder or any other insurance policy otherwise available to the
Released Party or that should have been covered by any insurance
policy any Released Party was required to maintain.
Hunt’s agreement with Crown Corr, at Section 8.3, contains a similarly
broad release provision. Crown Corr also notes that Travelers’ insurance policy
explicitly acknowledges that an “Insured,” like the Authority, “may waive its rights
against another party by specific written agreement.” As a result, Travelers has
implicitly acquiesced to the subrogation waiver in Section 11.4.6. Moreover,
savvy insurers like Travelers have several options available, when negotiating an
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insurance contract, for limiting the effect of a subrogation waiver. See Bakowski v.
Mountain States Steel, Inc., 52 P.3d 1179, 1186 (Utah 2002).
In sum, we conclude the district court did not err in determining that the
Authority could waive the subrogation rights of a property insurer hired years after
the property in question was completed. As a result, we conclude that the
subrogation waiver in Section 11.4.6 applies to Travelers and bars its contract
claims against Crown Corr.
II
The district court rejected Travelers’ negligence claim under Arizona’s
economic loss doctrine. We affirm on a separate ground, namely that the
subrogation waiver in Section 11.4.6. precludes tort claims as well as contract
claims. See Atel Fin. Corp. v. Quaker Coal Co., 321 F.3d 924, 926 (9th Cir. 2003)
(“We may affirm the district court’s judgment on any ground supported by the
record, whether or not the decision of the district court relied on the same grounds
or reasoning we adopt.”).
Generally, subrogation waivers apply “regardless of the nature of the claim.”
2 Philip L. Bruner & Patrick J. O’Connor, Jr., Bruner & O’Connor on Construction
Law, Analysis of AIA General Conditions: Waivers of Subrogation, § 5:231
(2014). Travelers argues the waiver of subrogation in this case nonetheless should
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not apply to tort claims because: (1) Arizona law requires waivers of liability for
negligence to be expressed in “clear and unequivocal terms,” Sirek v. Fairfield
Snowbowl, Inc., 800 P.2d 1291, 1295 (Ariz. Ct. App. 1990), and the Design/Build
Agreement does not contain the necessary language; (2) the Design/Build
Agreement, in Section 15.8.1, notes that nothing in the agreement should be read to
limit rights and remedies available to the parties by law; and (3) the Arizona
Constitution, article XVIII, section 5, requires that defenses in tort cases of
contributory negligence or assumption of risk be heard by a jury.
Travelers is correct that exculpatory clauses, which exempt a negligent
tortfeasor from liability and leave a victim with no recourse, are disfavored and
construed strictly in Arizona, because such clauses“may encourage carelessness.”
Sirek, 800 P.2d at 1294-96; see also Bothell v. Two Point Acres, Inc., 965 P.2d 47,
51 (Ariz. Ct. App. 1998); Morganteen v. Cowboy Adventures, Inc., 949 P.2d 552,
553-56 (Ariz. Ct. App. 1997); Mauer v. Cerkvenik-Anerson Travel, Inc., 890 P.2d
69, 73-74 (Ariz. Ct. App. 1994).
However, subrogation waivers are different from traditional exculpatory
clauses. Subrogation waivers do not present the same dangers as exculpatory
clauses, because no risk exists that the injured party will be left without
compensation, and subrogation waivers serve important policy goals. Lexington
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Ins. Co. v. Commc’n Servs., Inc., 749 N.W.2d 124, 130-31 (Neb. 2008); see also
Am. Motorist Ins. Co. v. Morris Goldman Real Estate Corp., 277 F. Supp. 2d 304,
307-08 (S.D.N.Y. 2003) (noting that a “waiver of subrogation clause is an
allocation of risk provision, which places the ultimate risk of loss on the insurer,”
and that subrogation waivers “are not true exculpatory clauses”).
The cases Travelers cites all relate to exculpatory clauses. Although Arizona
does not appear to have ruled explicitly on whether a subrogation waiver applies to
a tort claim, Travelers cites no case law that would compel us to conclude Arizona
would depart from the general rule. Travelers points to language in the Arizona
constitution and to language in the Design/Build Agreement itself. But
subrogation waivers are also different from the assumption of risk waivers
contained in many form contracts and targeted by the Arizona Constitution, again
because the injured party is not left without recompense. And while Section 15.8.1
of the agreement clarifies that nothing in the agreement serves as “a limitation of
any duties, obligations, right and remedies otherwise imposed or available at law,”
Travelers cites no authority that supports construing such a provision to constrain a
subrogation waiver—a common type of waiver found in many contracts in the
construction context. Moreover, although neither is completely factually
analogous, both United States Fidelity and Guaranty Co. v. Farrar’s Plumbing and
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Heating Co., 762 P.2d 641, 641-43 (Ariz. Ct. App. 1988), and Fire Insurance
Exchange v. Thunderbird Masonry, Inc., 868 P.2d 948, 952-53 (Ariz. Ct. App.
1993), lend support to the general proposition that a valid subrogation waiver
encompasses tort claims. Thus, because we conclude that the Authority waived its
rights against Hunt and subcontractors and that the subrogation waiver applies
against Travelers as to its contract claims, we also conclude the waiver applies to
Travelers’ tort claim.2
III
Because we affirm the district court’s decision to grant Crown Corr’s motion
to dismiss, we also affirm the court’s decision to grant attorneys’ fees to Crown
Corr.
AFFIRMED.
2
Travelers also contends that, even if the subrogation waiver applies to its
tort claim, “the scope of that waiver could extend only to damage to property that
was the subject of the subcontractor’s work” and not to other property—such as the
separate roof system and sound system speaker clusters—that was allegedly
damaged by the falling roof panels in this case. We conclude that the district court
did not err in deciding that the subject of the Design/Build Agreement, and the
subrogation waiver specifically, was the entire completed stadium and that
Travelers has not sufficiently supported its argument that certain portions of the
stadium are so separate and distinct as to constitute “other property” outside the
scope of the agreement and waiver.
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