the-board-of-commissioners-of-the-county-of-jefferson-v-teton-corporation ( 2014 )

FOR PUBLICATION
FEB 04 2014, 11:47 am
ATTORNEYS FOR APPELLANT: ATTORNEYS FOR APPELLEE
TETON CORPORATION:
JULIA BLACKWELL GELINAS
MAGGIE L. SMITH RICHARD T. MULLINEAUX
FROST BROWN TODD, LLC CRYSTAL G. ROWE
Indianapolis, Indiana KIGHTLINGER & GRAY, LLP
New Albany, Indiana
ATTORNEYS FOR APPELLEE
INNOVATIVE ROOFING SOLUTIONS,
INC.
SCOTT L.TYLER
ERIC T. EBERWINE
WATERS, TYLER, HOFFMANN &
SCOTT, LLC
New Albany, Indiana
ATTORNEYS FOR APPELLEES
GUTAPFEL ROOFING, INC. and
DANIEL L. GUTAPFEL
GROVER B. DAVIS
JAMES T. FLANIGAN
McCLURE McCLURE & DAVIS
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
THE BOARD OF COMMISSIONERS )
OF THE COUNTY OF JEFFERSON )
)
Appellant, )
)
and ) No. 72A04-1302-CT-00055
)
TETON CORPORATION, INNOVATIVE )
ROOFING SOLUTIONS, INC., GUTAPFEL )
ROOFING, INC. and DANIEL L. GUTAPFEL )
)
Appellees. )
APPEAL FROM THE SCOTT CIRCUIT COURT
The Honorable Roger L. Duvall, Judge
Cause No. 72C01-1108-CT-15
February 4, 2014
OPINION – FOR PUBLICATION
MATHIAS, Judge
The Board of Commissioners of Jefferson County (“Jefferson County”) appeals
the Scott Circuit Court’s entry of summary judgment in favor of Teton Corporation,
Innovative Roofing Solutions, Inc., Gutapfel Roofing Inc., and Daniel L. Gutapfel
(collectively “the Appellees”). The trial court determined that Jefferson County waived
its right to subrogate damages pursuant to the terms of the American Institute of
Architects Contract (“the AIA Contract”) it entered into with the general contractor,
Teton.
On appeal, Jefferson County raises the following dispositive issue: whether the
trial court erred when it determined that the County waived its right to subrogate damages
to non-Work property. We conclude that Jefferson County waived its right to subrogate
any and all claims covered by its property insurance, and therefore, we affirm the trial
court.
Facts and Procedural History
In 2008, Jefferson County decided to repair and renovate the courthouse in
Madison, Indiana. An architect was hired to design the renovation, and the renovation
involved repairs to the roof of the courthouse, its flashing, gutters, and downspouts.
2
Jefferson County accepted Teton Corporation’s bid for the repairs. Teton subcontracted
with Innovative Roofing to furnish labor and materials for the roofing work. Innovative
Roofing sub-subcontracted with Gutapfel Roofing to repair the courthouse’s downspouts.
Jefferson County’s agreement with Teton Corporation incorporated a form
construction project contract prepared by the American Institute of Architects (“AIA”).
The relevant AIA contractual provisions relating to insurance and subrogation provide:
11.3.1 Unless otherwise provided, the Owner [Jefferson County] shall
purchase and maintain . . . property insurance in the amount of the initial
Contract Sum as well as subsequent modifications thereto for the entire
Work at the site on a replacement cost basis without voluntary deductibles.
Such property insurance shall be maintained, unless otherwise provided in
the Contract Documents or otherwise agreed in writing by all persons and
entities who are beneficiaries of such insurance, until final payment has
been made . . . or until no person or entity other than the Owner has an
insurable interest in the property required by this Paragraph 11.3 to be
covered, whichever is earlier. This insurance shall include interests of the
Owner, the Contractor, Subcontractors and Sub-subcontractors in the Work.
11.3.1.1 Property insurance shall be on an “all-risk” policy form and shall
insure against the perils of fire and extended coverage and physical loss or
damage including, without duplication of coverage, theft, vandalism,
malicious mischief, collapse, falsework, temporary buildings and debris
removal including demolition occasioned by enforcement of any applicable
legal requirements, and shall cover reasonable compensation for Architect’s
services and expenses required as a result of such insured loss. Coverage
for other perils shall not be required unless otherwise provided in the
Contract Documents.
11.3.1.2 If the Owner does not intend to purchase such property insurance
required by the Contract and with all of the coverages in the amount
described above, the Owner shall so inform the Contractor in writing prior
to commencement of the Work. The Contractor may then effect insurance
which will protect the interests of the Contractor, Subcontractors and Sub-
subcontractors in the Work, and by appropriate Change Order the cost
thereof shall be charged to the Owner. If the Contractor is damaged by the
failure or neglect of the Owner to purchase or maintain insurance as
3
described above, without so notifying the Contractor, then the Owner shall
bear all reasonable costs properly attributable thereto.
***
11.3.3. Loss of Use Insurance. The Owner, at the Owner’s option, may
purchase and maintain such insurance as will Insure the Owner against loss
of use of the Owner’s property due to fire or other hazards, however caused.
The Owner waives all rights of action against the Contractor for loss of use
of the Owner’s property, including consequential losses due to fire or other
hazards however caused.
11.3.5 If during the Project construction period the Owner insures
properties, real or personal or both, adjoining or adjacent to the site by
property insurance under policies separate from those insuring the Project,
or if after final payment property insurance is to be provided on the
completed Project through a policy or policies other than those insuring the
Project during the construction period, the Owner shall waive all rights in
accordance with the terms of Subparagraph 11.3.7 for damages caused by
fire or other perils covered by this separate property insurance. All separate
policies shall provide this waiver of subrogation by endorsement or
otherwise.
***
11.3.7 Waivers of Subrogation. The Owner and Contractor waive all
rights against [] each other and any of their subcontractors, sub-
subcontractors, agents and employees, each of the other . . . for damages
caused by fire or other perils to the extent covered by property insurance
obtained pursuant to this Paragraph 11.3 or other property insurance
applicable to the Work, except such rights as they have to the proceeds of
such insurance held by the Owner as fiduciary. . . .
Appellant’s App. pp. 585-86. The AIA contract also defines the term “Work” as “the
construction and 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 part of the Project.” Id. at 571.
4
Jefferson County did not obtain separate property (or builder’s risk) insurance for
the courthouse project, but relied instead on its existing property and casualty insurance
policy with St. Paul Fire and Marine Insurance Company. Jefferson County also did not
inform Teton Corporation that it did not intend to obtain separate insurance for the
project. The AIA contract also required Teton to obtain contractor’s liability insurance.
On May 20, 2009, during the renovation, a devastating fire occurred at the
Jefferson County Courthouse, which caused over six million dollars in damage. Per the
terms of its insurance policy, St. Paul made payments to Jefferson County for damages
caused by the fire.
Thereafter, on May 16, 2011, Jefferson County filed a complaint against the
Appellees alleging negligence, breach of implied warranties, and breach of contract.
Specifically, Jefferson County alleged that Appellee Gutapfel Roofing’s negligence was
the primary cause of the fire, but also alleged that Appellees Teton Corporation and
Innovative Roofing were negligent as well.
All Appellees later filed separate motions for summary judgment. Each
Appellee’s motion argued that Jefferson County agreed to provide insurance for the
project, and the County waived its subrogation rights against the Appellees; therefore,
Jefferson County was not entitled to recover damages from the Appellees that were
caused by the fire. Jefferson County responded to the Appellees’ motions and also filed
its own motion for partial summary judgment. The trial court held a hearing on the
motions on September 25, 2012.
5
On November 21, 2012, the trial court granted the Appellees’ motions for
summary judgment and determined that as a result, Jefferson County’s motion for partial
summary judgment concerning the issue of vicarious liability was moot. The trial court
issued the following pertinent findings of fact to support its decision:
4. The Plaintiff was obligated to provide insurance to cover the remodeling
project, commonly referred to as builder’s risk insurance. Plaintiff chose
not to obtain a separate policy and instead the property was covered by the
general policy of insurance maintained by Jefferson County.
5. In addition to the requirement for the Plaintiff to provide insurance for
the project is the provision found in section 11.3.7 of the contract between
Plaintiff and Defendant, Teton Corporation. In summary form that
provision of the contract provided for a mutual waiver of the right of
subrogation between the Plaintiff and Defendant, Teton Corporation, and
all “subcontractors, sub-subcontractors, agents and employees . . . .”
6. Of these facts there is no genuine issue in dispute. The contractual
provisions reflect the agreement that Plaintiff as owner was to provide
insurance and that insurance, along with the insurance maintained by the
various Defendants, would be the source of compensation in the event of a
loss and each and every party would waive the right to seek recovery of the
loss covered by the policy of insurance.
7. Contractual provisions such as those existing in the present case do not
reflect an effort to avoid or escape responsibility. On the contrary, such
provisions serve a public interest by defining the costs to which a party
obligates itself, allocating risk and thereby reducing litigation.
Appellant’s App. p. 14.
Jefferson County subsequently filed a motion to correct error arguing that the
Appellees failed to submit evidence to the trial court to establish that Jefferson County’s
claimed damages were paid by insurance and asked the court to reconsider its decision
concerning the applicability of the waiver of subrogation provision. In its motion, the
County alleged that not all damages were covered by its St. Paul insurance policy, and
the County spent a considerable amount of its own funds for repairs to the courthouse
6
after the fire. The trial court denied the County’s motion to correct error on January 11,
2013, and this appeal ensued.1
Standard of Review
Jefferson County argues that the trial court erred when it granted the Appellees’
motions for summary judgment. Our standard of review of summary judgment appeals is
well established:
When reviewing a grant of summary judgment, our standard of review is
the same as that of the trial court. Considering only those facts that the
parties designated to the trial court, we must determine whether there is a
“genuine issue as to any material fact” and whether “the moving party is
entitled to a judgment as a matter of law.” In answering these questions, the
reviewing court construes all factual inferences in the non-moving party’s
favor and resolves all doubts as to the existence of a material issue against
the moving party. The moving party bears the burden of making a prima
facie showing that there are no genuine issues of material fact and that the
movant is entitled to judgment as a matter of law; and once the movant
satisfies the burden, the burden then shifts to the non-moving party to
designate and produce evidence of facts showing the existence of a genuine
issue of material fact.
Dreaded, Inc. v. St. Paul Guardian Ins. Co., 904 N.E.2d 1267, 1269-70 (Ind. 2009)
(citations omitted). The party appealing a summary judgment decision has the burden of
persuading this court that the grant or denial of summary judgment was erroneous.
Knoebel v. Clark County Superior Court No. 1, 901 N.E.2d 529, 531-32 (Ind. Ct. App
2009). Where the facts are undisputed and the issue presented is a pure question of law,
we review the matter de novo. Crum v. City of Terre Haute ex rel. Dep’t of Redev., 812
N.E.2d 164, 166 (Ind. Ct. App. 2004). Finally, our standard of review is not altered by
1
We held oral argument in this case on November 21, 2013. We commend counsel for the quality of
their written and oral advocacy.
7
the fact that the parties filed cross-motions for summary judgment. Ind. Farmers Mut. Ins.
Grp. v. Blaskie, 727 N.E.2d 13, 15 (Ind. Ct. App. 2000).
Furthermore, resolution of this case turns primarily upon interpretation of the
parties’ contract. “The construction of a contract is particularly well-suited for de novo
appellate review, because it generally presents questions purely of law.” Holiday
Hospitality Franchising, Inc. v. AMCO Ins. Co., 983 N.E.2d 574, 577 (Ind. 2013). The
primary goal of contract interpretation is “‘to determine the intent of the parties at the
time the contract was made as disclosed by the language used to express their rights and
duties.’” Id. at 577-78 (quoting First Fed. Sav. Bank of Ind. v. Key Markets, Inc., 559
N.E.2d 600, 603 (Ind. 1990)). Clear, plain, and unambiguous language is conclusive of
the parties’ intent, and we will neither construe unambiguous contract language nor add
provisions not agreed to by the parties. Vincennes University ex rel. Bd. of Trustees of
Vincennes v. Sparks, 988 N.E.2d 1160, 1165 (Ind. Ct. App. 2013), trans. denied. “A
contract is not ambiguous merely because the parties disagree as to its proper
construction; rather, a contract will be found to be ambiguous only if reasonable persons
would differ as to the meaning of its terms.” Id. We must attempt to interpret a contract
by reading it as a whole and construing its language so as not to render any words,
phrases, or terms ineffective or meaningless. Id. When reading all the terms of a
contract together, more specific terms control over any inconsistent general statements.
Id.8
Discussion and Decision
Jefferson County concedes that pursuant to the terms of the AIA contract
subrogation is barred when a property owner seeks to recover damages to its insured
“Work” property, but maintains that “this case involves damage to non-Work property.”
Appellant’s Br. at 10 (emphasis in original). And therefore, Jefferson County argues that
under the AIA contract, Teton was responsible for procuring insurance to cover damages
for claims “other than to the Work.” Appellant’s Br. at 7. In support of its argument,
Jefferson County relies on our court’s prior decision concluding that under the AIA
contract there is a distinction between Work and non-Work property, and the scope of the
waiver is limited to damages to the Work. See Midwestern Indemnity Company v.
Systems Builders, Inc., 801 N.E.2d 661 (Ind. Ct. App. 2004), trans. denied.
The waiver of subrogation clause at issue is well known and often used in the
construction industry. See American Zurich Ins. Co. v. Barker Roofing L.P., 387 S.W.3d
54 (Tex. Ct. App. 2012). Interpretation of the waiver provision has been litigated in
courts throughout the country, including in our court. However, our supreme court has
not addressed this issue, and therefore, the Appellees urge us to consider decisions from
other states in support of their interpretation of the AIA contract provisions at issue.
A. The Indiana Decisions to Date (i.e. the Minority Approach)
In South Tippecanoe School Building Corp. v. Shambaugh & Son, Inc., the school
corporation sought damages for losses sustained in a gas explosion and fire at a school
that was under construction. The school corporation sued various contractors, alleging
negligence among other theories of recovery. 182 Ind. App. 350, 395 N.E.2d 320 (Ind.
9
Ct. App. 1979). After the school corporation’s insurer paid the corporation $74,628.63
for the damages under a builder’s risk policy it had issued, the insurance company
pursued a subrogation action against the contractors. The insurer claimed that the AIA
contract’s waiver of subrogation provision did not bar recovery of amounts covered by
the builder’s risk policy.
We disagreed and concluded that “‘an agreement to provide insurance constitutes
an agreement to limit recourse of the party acquiring the policy solely to its proceeds
even though the loss may be caused by the negligence of the other party to the
agreement.’” 395 N.E.2d at 326-27 (quoting Morsches Lumber, Inc. v. Probst, 180
Ind.App. 202, 203, 388 N.E.2d 284, 285 (1979)). The AIA contract established the
“intent to place any risk of loss on the Work on insurance,” and the “requirement of
waivers, . . . [was] consistent with an intent to place the risk of loss on insurance.” Id. at
360, 395 N.E.2d at 326. Moreover, our court observed that the insurance provisions of
the AIA standard contract “reveal a ‘studied attempt’ by the parties to require
construction project risks to be covered by insurance and to ‘allocate among the parties
the burden of acquiring such insurance.’” Id. at 326. Finally, our court concluded that if
a construction project owner failed to take out sufficient insurance “‘to cover the cost of
the undertaking,’” the owner—not the contractors—was required to bear the loss caused
by such a miscalculation. Id. at 334 (quoting Morsches, 180 Ind. App. at 206, 388
N.E.2d at 387).
Much later, in Midwestern Indemnity, the parties raised an issue not addressed in
South Tippecanoe: whether the property owner waived subrogation rights for damage to
10
“non-Work” property. In that case, the general contractor and property owner entered
into substantially the same AIA contract at issue in this appeal. The general contractor
was hired to construct an addition to a commercial building. Approximately six months
after the building addition was completed, a portion of the addition collapsed during a
snowstorm. The property owner was insured by Midwestern Indemnity under a policy
issued after completion of the construction. Midwestern Indemnity paid the property
owner nearly $1.4 million for the loss, and of that amount approximately $45,000 was for
damage to the contents of the building. Midwestern Indemnity, as subrogee of the
property owner, filed a complaint against the general contractor and its subcontractors to
recover what it had paid. The trial court ultimately entered summary judgment in favor
of the subcontractor, which Midwestern Indemnity appealed.
That panel of our court observed that under the AIA contract, “waiver of
subrogation applies to recovery for damages from perils insured against under the
property insurance policy.” 801 N.E.2d at 672. However, the panel also stated that “the
waiver of subrogation is limited in scope as to what property is covered.” Id. The
Midwestern Indemnity panel stated that the waiver of subrogation is limited to the work
performed under the contract and concluded:
By definition, “Work” does not include the contents that were placed in the
building after it was completed. Further, the waiver of subrogation applies
to damage caused by perils insured against by the “property insurance
obtained pursuant to this Paragraph 11.3 or other property insurance
applicable to the Work....” Accordingly, the scope of the waiver of
subrogation is limited to the value of the Work performed under the
contract, i.e., the building addition. Because the contents are not part of the
Work or completed building addition and because there was no requirement
to waive subrogation rights as to property damage to property other than the
11
Work, we hold that the waiver of subrogation does not bar recovery for
damage to the contents of the building.
Id. at 673 (citation omitted).2 Jefferson County relies heavily on the “Work” v. “non-
Work” distinction recognized by the Midwestern Indemnity panel.
Recently, another panel of our court decided Allen County Public Library v.
Shambaugh & Son, L.P., et al., 997 N.E.2d 48 (Ind. Ct. App. 2013). In that case, the
Library hired contractors to renovate and add to its main library branch building. Before
construction commenced, the Library obtained a “Builders Risk Plus” insurance policy
specifically to cover the library renovation and addition jobsite.
While installing a concrete floor in the Library’s basement to support the
installation of an emergency diesel generator and two diesel fuel storage tanks, a steel
stake driven into the ground pierced a copper pipe. This caused approximately 3000
gallons of diesel fuel to leak into the ground underneath the Library. The Library cleaned
up the leaked fuel and filed a claim under its “Builders Risk Plus” policy. The policy
excluded coverage for damage to the water, land, grading or fill. However, “the policy
also contained a specific ‘coverage extension’ for ‘Pollutant Clean Up and Removal’ to
cover expenses to extract pollutants ‘from land or water at a job-site’ resulting in loss to
‘Covered Property.’ This coverage carried its own separate policy limit of $5,000.” Id.2
In reaching this conclusion, the panel relied on Town of Silverton v. Phoenix Heat Source System, Inc.,
948 P.2d 9 (Colo. Ct. App. 1997), a decision from the Colorado Court of Appeals. In that case, the Town
of Silverton entered into a contract for installation of a new roof on the town hall, which included the
terms of the AIA contract. The project was completed in May 1991, and in November 1992, the town
hall was damaged by fire. The Town argued that the waiver of subrogation was limited to damage to the
roof and not to other parts of the town hall damaged by the fire. The Colorado court agreed and
concluded that “the waiver of subrogation is limited to the value of the work performed under the contract,
i.e., the new roof, and is inapplicable to other parts of the town hall damaged in the fire.” Id. at 12.
12
at 51 (record citation omitted). The Library’s carrier paid the $5000 policy limit to the
Library. The Library subsequently sued the general contractor and subcontractors to
recover the nearly $500,000 it had incurred to clean up the diesel fuel leak.
The general contractor and subcontractors argued that the Library had waived its
right to seek subrogation for the diesel fuel cleanup under the terms of the AIA contract.
Citing extensively to our court’s holding in Midwestern Indemnity, the Allen County
Public Library panel concluded that the Library was not contractually prohibited from
seeking recovery in subrogation from the contractors for the pollution remediating costs.
Specifically, the panel stated:
the Library is alleging that the diesel fuel leak spread beyond the strict
confines of the library construction project and seeped into the surrounding
land, and that the Library has incurred and will continue to incur significant
costs associated with remediating that seepage from the land. The Library
was only required by Section 11.3.1 of the AIA contract to cover the cost of
“the entire Work at the site on a replacement cost basis,” just as in
Midwestern. The definition of “the Work” likewise is identical to the
definition in Midwestern—”the construction and services required by the
Contract....” This evidences an intent that the Library was under no
obligation to procure insurance for damage to property surrounding the
jobsite or to property outside of the building project itself. Such damages
could well exceed and be completely unrelated to the total replacement cost
of “the Work.” As such, the waiver of subrogation provision in Section
11.3.7 does not apply to damaged, contaminated land outside of “the
Work”—i.e ., the library building addition and renovation.
Id. at 54 (record citation omitted).3
B. The Majority Approach
3
This case is not yet certified. It was handed down on October 22, 2013, and the Appellees filed a
petition for rehearing. On January 28, 2014, the Allen County Public Library panel issued an opinion on
rehearing to address certain arguments raised in the petition, but reaffirming the original decision in all
respects.
13
The majority of courts that have addressed the waiver of subrogation issue under
AIA contract documentation has rejected the “Work” v. “non-Work” approach adopted
by the Midwestern Indemnity panel and followed by the Allen County Public Library
panel. Their approach turns on both the standardized language of the AIA contract and
the public policy behind it.
For example, the Nebraska Supreme Court declined to adopt the “Work” v. “non-
Work” approach in Lexington Insurance Co. v. Entrex Communication Services, Inc.,
749 N.W.2d 124 (2008). In that case, the property owner entered into an AIA contract
with Entrex to remove an analog antenna from its broadcast tower and replace it with a
digital antenna. To provide insurance coverage for the project, the property owner relied
upon its existing “all-risk” property insurance policy instead of obtaining a separate and
specific “builder’s risk” property insurance policy to cover the Project. The broadcast
tower collapsed approximately six months after the antenna was replaced causing damage
to the antenna (the “Work” property), tower, transmission building, and personal property
within the building. The property owner sued the contractor alleging the contractor’s
gross negligence caused the collapse.
Rejecting the minority “Work” v. “non-Work” approach, the Nebraska Supreme
Court discussed the provision equivalent to Section 11.3.54 in the contract in this case and
stated:
4
The Lexington Insurance AIA contract contained the relevant and analogous property insurance
provisions in Article 11, Chapter 4. As we noted in the Facts and Procedural History section, Section
11.3.5 of the AIA contract at issue here states:
If during the Project construction period the Owner insures properties, real or personal or
both, adjoining or adjacent to the site by property insurance under policies separate from
14
We understand this provision to mean that if the owner acquires a separate
property insurance policy to cover non-Project property —a policy that did
not cover the Project or Work property— and the non-Project property is
damaged, the owner waives subrogation rights for the insurer as to those
damages. So even though the damage occurred to non-Work property, the
owner waived subrogation rights because the damages were insured. This
provision shows that the contracting parties were not opposed to waiving
damages to non-Work property.
Id. at 135.
In response to the property owner’s citation to cases holding that the waiver of
subrogation does not apply to non-work property, the Court stated:
the minority approach is inconsistent with the waiver’s purpose of avoiding
disruption and disputes among the parties to the project by eliminating the
need for litigation. Adopting the minority approach would actually
encourage litigation about whether the claimed loss was damage to the
Work or non-Work property. More important, we are unable to reconcile
subparagraph 11.4.5 with the minority approach. If we applied the minority
approach, we would be left with two disparate results depending on
whether the owner (1) purchased a single policy covering both the Work
and the non-Work or (2) purchased two separate policies. An owner relying
on a single policy, as Hearst did here, would waive only damages to the
Work (11.4.7). But an owner purchasing two separate policies, as in the
example above, would waive damages to both the Work (11.4.7) and the
non-Work (11.4.5). We do not believe the parties intended this disparity.
Because we must construe the contract as a whole, subparagraph 11.4.5 is a
hurdle that prevents us from deciding that the minority approach is a
reasonable interpretation of subparagraph 11.4.7.
Id. at 136. Ultimately, the Nebraska Supreme Court concluded that “the waiver of
subrogation applies to all damages covered by a property insurance policy ‘obtained
those insuring the Project, or if after final payment property insurance is to be provided
on the completed Project through a policy or policies other than those insuring the Project
during the construction period, the Owner shall waive all rights in accordance with the
terms of Subparagraph 11.3.7 for damages caused by fire or other perils covered by this
separate property insurance. All separate policies shall provide this waiver of
subrogation by endorsement or otherwise.
Appellant’s App. p. 586.
15
pursuant to . . . Paragraph 11.4’ or other property insurance policy that covers the Work.
When that policy is broad enough to cover both the Work and the non-Work property, the
waiver extends to non-Work damages.” Id.
The Lexington Ins. Co. case relied extensively on a much earlier decision from the
California Court of Appeals, Lloyd’s Underwriters et al. v. Craig and Rush, Inc., et al., 26
Cal. App. 4th 1194 (1994), in reaching its conclusion. In that case, the property owner
hired Craig and Rush to perform repairs to its roof. During the construction, rain
intruded and caused damage to the interior of the facility. The property owner’s
insurance company, Lloyd’s Underwriters, paid for the damage (less the deductible) and
then sued Craig and Rush and additional contractors for the contractors’ alleged
negligence.
The property owner and contractors had entered into the standard AIA contract,
which obligated the owner to maintain property insurance for “the Work” and contained a
waiver of claims that were covered by insurance. Notably, the provisions of the AIA
contract in Lloyd’s Underwriters were substantially the same as the provisions at issue in
this appeal. Also, as in this case, the property owner in Lloyd’s Underwriters elected not
to purchase a separate “builder’s risk” policy but relied on its existing “all risk” policy to
satisfy its obligations under the AIA contract.
After the losses to “non-Work” property, Lloyd’s as the subrogee of the owner
argued that under the AIA contract a loss “outside the Work” would remain the
contractors’ responsibility. Id. at 1200. The California Court of Appeals rejected
Lloyd’s argument stating:
16
This contention, however, ignores the language defining the scope of
claims falling within the waiver clause. The waived claims are not defined
by what property is harmed (i.e., “any injury to the Work”); instead, the
scope of waived claims is delimited by the source of any insurance
proceeds paying for the loss (i.e., whether the loss was paid by a policy
“applicable to the Work”).
Id.
The Massachusetts Court of Appeals’ decision in Haemonetics Corp. v. Brophy &
Phillips Co., Inc. et al., 501 N.E.2d 524 (Mass. Ct. App. 1986) is yet another example of
the majority approach. In Haemonetics, the property owner entered into a 1977 standard
AIA form contract for the construction of a mezzanine in its building. While a
subcontractor was engaged in electric arc welding during the construction, a fire occurred
causing damage to the property owner’s real and personal property. The property owner
had relied on an existing property insurance policy to meet its obligation to provide
property insurance under the terms of the AIA contract, and the owner was compensated
for its loss by the “all risks” insurance carrier that provided that coverage. The parties
further agreed that the damage sustained by the property owner for which it received the
insurance proceeds was not damage to the “Work” as that term is defined in the AIA
contract.
The property owner argued that under the terms of the AIA contract its waiver of
subrogation only applied to damages to the Work property. The Massachusetts Court of
Appeals disagreed and concluded that “the preexisting insurance policy . . . was the
insurance the owner chose to provide to comply with § 11.3 even though that policy may
have been more extensive than what was required. By the terms of [the waiver of
17
subrogation provision], the waiver of rights extends to the proceeds of any insurance
provided under § 11.3.” Id. at 526.
The Ohio Court of Appeals recently considered this issue in Westfield Insurance
Group v. Affinia Development, LLC., 982 N.E.2d 132 (Ohio Ct. App. 2012), and adopted
the majority approach. In that case, the property owner entered into an AIA contract with
certain contractors for renovations and improvements to its headquarters. As in the case
before us, during the construction, a fire ensued which damaged the entire structure. The
property owner did not purchase a builder’s risk policy, but relied on its commercial
property insurance policy to cover both the structure and contents of the building, and
Westfield Insurance paid the property owner’s claim in excess of $100,000. Westfield, as
a subrogee of the property owner, sued the contractors alleging that their negligence
caused the fire.
After reviewing the differing reasoning of courts across that country interpreting
the AIA contract’s waiver of subrogation, the Ohio Court of Appeals concluded that the
majority approach “is consistent with the plain and unambiguous language of the
Contract and furthers the purpose of the waiver clause as a risk-shifting provision.”5 Id.
at 144. The court observed: “The Contract defined the waived claims by the source of
5
Like the Nebraska court, the Ohio court relied on section 11.3.5 in arriving at its conclusion. There are
two minor differences between section 11.3.5 in the above cited cases and the contract language at issue
in this case. Jefferson County’s AIA contract with the contractors substitutes the word “adjoining” for “at”
and the word “causes of loss” for “perils.” See Appellant’s App. p. 586.
18
the insurance proceeds, not by the property damaged. It is not relevant to the analysis as
to whether the damage was to Work or non-Work property.”6 Id.
C. The AIA Contract between Jefferson County and the Appellee Contractors
Applying the law to this case, we begin and end with the standard language of the
AIA contract the parties chose to use to memorialize their agreement regarding the
construction project. That form contract has long been recognized as having as a central
tenet its intention to liquidate and settle construction-related claims through non-
subrogated insurance coverage purchased specifically for the project. See Lexington Ins.
Co., 749 N.W.2d at 135; Haemonetics Corp., 501 N.E.2d at 526.
Under the plain language of this AIA contract, Jefferson County was directed to
insure the construction project and the building or property it pertains to, and to waive
claims against the associated contractors for losses covered by its insurance. The contract
contains the following specific requirements concerning property insurance coverage:
Unless otherwise provided, the Owner [Jefferson County] shall purchase
and maintain . . . property insurance in the amount of the initial Contract
Sum as well as subsequent modifications thereto for the entire Work at the
site on a replacement cost basis without voluntary deductibles. Such
property insurance shall be maintained, unless otherwise provided in the
Contract Documents or otherwise agreed in writing by all persons and
entities who are beneficiaries of such insurance, until final payment has
been made . . . or until no person or entity other than the Owner has an
insurable interest in the property required by this Paragraph 11.3 to be
6
See also American Zurich Ins. Co. v. Barker Roofing, L.P., 387 S.W.3d 54, 64-65 (Tex. Ct. App. 2012)
(observing that “waived claims are not defined by what property is harmed, but by the source of any
insurance proceeds paying for the loss”); ASIC II Ltd. v. Stonhard, Inc., 63 F.Supp.2d 85, 92 (D.Me.
1999) (concluding that waiver clause did not restrict waiver of damages to Work but to proceeds of any
insurance provided under the contract); Employers Mut. Cas. Co. v. A.C.C.T., Inc., 580 N.W.2d 490, 493
(Minn. 1998) (concluding that if owner relies on an existing policy broad enough to cover the Work and
the non-Work property, it waives right to sue for all damages so long as that damage is covered by the
policy).
19
covered, whichever is earlier. This insurance shall include interests of the
Owner, the Contractor, Subcontractors and Sub-subcontractors in the Work.
Appellant’s App. p. 585.
The unambiguous contract language instructed Jefferson County not only to have
in force or even just maintain insurance on the project, but rather, to both “purchase and
maintain” the insurance. Subsection 11.3.1.1 further requires the Owner, i.e. Jefferson
County, to purchase “property insurance on an all-risk policy form,” which “shall insure
against the perils of fire and extended coverage and physical loss or damage. . . .” Id.The AIA contract also contains specific provisions requiring Teton, as the general
contractor, to purchase liability insurance. Section 11.1.1 of the AIA contract obligated
Teton to purchase liability insurance to protect itself from certain specifically delineated
types of claims “which may arise out of or result from the Contractor’s operations under
the Contract and for which the Contractor may be legally liable, whether such operations
be by the Contractor or by a Subcontractor or by anyone directly or indirectly employed
by any of them, or by anyone for whose acts any of them may be liable.”7 Id. at 584.
And the Contractor was required to file certificates of insurance with the Owner before
the Work began. Id. at 585.
7
In support of its argument that it did not waive its subrogation rights to non-work damages, Jefferson
County cites to 11.1.1.5 of the AIA contract which required Teton to “purchase and maintain” liability
insurance to protect itself from “claims for damages, other than to the Work itself, because of injury to or
destruction of tangible property, including loss of use resulting therefrom[.]” Appellant’s App. p. 585.
However, the purpose of the Section 11.1.1 liability insurance requirement is to assure the Owner that the
Contractor is insured against claims by third parties for alleged damages or negligent acts for which the
Contractor is liable. Moreover, there is no language in Section 11.1.1 that would allow Jefferson County
to recover damages to non-Work property insured under its own property insurance.
20
The AIA contract also required Jefferson County to notify Teton if it chose not to
purchase the “all risk” property insurance called for in section 11.3.1.2, and granted
Teton the right to obtain the coverage and pass its premium cost on to Jefferson County
through a change order. See id. Section 11.3.1.2 specifically provides:
If the Owner does not intend to purchase such property insurance required
by the Contract and with all of the coverages in the amount described above,
the Owner shall so inform the Contractor in writing prior to
commencement of the Work. The Contractor may then effect insurance
which will protect the interests of the Contractor, Subcontractors and Sub-
subcontractors in the Work, and by appropriate Change Order the cost
thereof shall be charged to the Owner.
Id. (emphasis added).
While Jefferson County had the right not to purchase separate “all risk” insurance
under Section 11.3.1, it breached the contract by failing to notify Teton under Section
11.3.1.2 of its decision to rely on existing coverage, and that breach had several important
effects. First, because such separate, non-subrogated coverage is so important to the
parties’ relationships under the contract, Jefferson County’s failure to notify rendered
Teton unable to take advantage of the provisions of Section 11.3.1.2, which would have
allowed Teton to purchase the contemplated separate coverage at Jefferson County’s
cost.8 Next, Section 11.3.1.2 provides that “[i]f the Contractor is damaged by the failure
or neglect of the Owner to purchase or maintain insurance as described above, without so
notifying the Contractor, then the Owner shall bear all reasonable costs properly
8
We cannot agree with the dissent’s conclusion that Jefferson County’s blanket property and casualty
insurance policy “meets the definition of an ‘all risk’ policy.” Slip op. at 31 (Brown, J., dissenting).
Conflation of the two very different types of insurance is what allows work v. non-work litigation to
proliferate. Jefferson County’s existing, subrogated insurance coverage did not provide the independent,
non-subrogated coverage that Jefferson County was required either to purchase or to notify Teton of its
decision not to purchase under the AIA contract at issue.
21
attributable thereto.” Id. The Owner’s separate “all-risk” and Contractor’s liability
policies required under the AIA contract, together with the notice thereof that each was
properly insured before work on the project would begin, clearly indicate all parties’
reasonable expectations that their insurers’ subrogation rights would be waived under
their respective coverages for the Project.
While the Owner’s obligation to purchase “all-risk” insurance is clearly stated in
the AIA contract, Jefferson County points to alleged ambiguity in the waiver of
subrogation clause in Section 11.3.7 of the contract. That section provides:
The Owner and Contractor waive all rights against [] each other and any of
their subcontractors, sub-subcontractors, agents and employees, each of the
other . . . for damages caused by fire or other perils to the extent covered by
property insurance obtained pursuant to this Paragraph 11.3 or other
property insurance applicable to the Work, except such rights as they have
to the proceeds of such insurance held by the Owner as fiduciary. . . .
Id. at 586 (emphasis added). The Jefferson County Commissioners rely on this language,
and the minority view of the language, to claim that Teton Corporation is liable for the
damages claimed to areas that were not part of the project, i.e., to “non-Work.”
However, we believe that Jefferson County’s limited interpretation of the waiver
of subrogation does not further the underlying purpose of the waiver, i.e. “encouraging
parties to anticipate risks and to procure insurance covering those risks, thereby avoiding
future litigation, and facilitating and preserving economic relations and activity.” See
Lexington Ins. Co., 749 N.W.2d at 131. Furthermore, Jefferson County’s proposed
interpretation ignores the language defining the scope of claims falling within the waiver
clause. Id. at 135. In this regard, Section 11.3.7 also provides:
22
A waiver of subrogation shall be effective as to a person or entity even
though that person or entity would otherwise have a duty of
indemnification, contractual or otherwise, did not pay the insurance
premium directly or indirectly, and whether or not the person or entity had
an insurable interest in the property damaged.
Appellant’s App. p. 586. In our view, this language “reconciles any inconsistency
between the waiver of subrogation and the [AIA] agreement’s allocation of insurance
responsibilities.” See Lexington Ins. Co., 749 N.W.2d at 136.
When Section 11.3.7 is considered within the context of the entire AIA contract,
the Owner’s contractual obligation to purchase “all-risk” insurance leads us to conclude
that the majority view is the better interpretation of this ambiguity and the better
approach to risk allocation in construction projects in general. We agree with the Ohio
Court of Appeals that “[w]aiver of subrogation is useful in construction contracts because
it avoids disrupting the project and eliminates the need for lawsuits because it offers
certainty as to the liability of the parties. . . . [B]y applying the waiver to all losses
covered by the owner’s property insurance, the parties avoid the predictable litigation
over liability issues and whether the claimed loss was damage to Work or non-Work
property.” Id. at 145. See also American Zurich Ins. Co. v. Barker Roofing, L.P., 387
S.W.3d 54, 62 (Tex. Ct. App. 2012) (stating “a waiver of subrogation clause substitutes
the protection of insurances for the uncertain and expensive protection of liability
litigation”). Adoption of the minority, non-Work distinction would throw many projects
into protracted litigation, possibly even years after project completion and acceptance.
Each and every major construction project adds both value and risk to the owner’s
property. Section 11.3.1 of the AIA contract therefore requires owners to insure their
23
interests in the construction project at least to the value of the underlying contract. The
AIA contract expressly requires property owners to separately insure these interests and,
in order to facilitate the completion of the project without delaying and debilitating
litigation, to obtain an “all-risk” insurance policy that waives the carrier’s rights to be
subrogated to any loss arising within the extremely broad coverage described in the
contract.9 If the owner does not secure such insurance, then it still waives its subrogation
rights for any loss described within the AIA contract that it sustains. See e.g. Westfield
Ins. Group, 982 N.E.2d at 141; Lexington Ins. Co., 749 N.W.2d at 135. This waiver is
the product of both the language of the contract and longstanding public policy. See
South Tippecanoe School Bldg. Corp., 182 Ind. App. at 360, 395 N.E.2d at 326(recognizing that the purpose of insurance and waiver of subrogation provisions of the
AIA contract constitute a “studied attempt by the parties to require construction project
risks to be covered by insurance and to allocate among the parties the burden of acquiring
such insurance”). This is the conclusion reached by the majority of states who have
9
Property owners must take care to insure the project-related risks for which they desire coverage when
purchasing and maintaining non-subrogated builder’s risk insurance required by AIA documentation.
The AIA contract language clearly allows an owner to purchase coverage in excess of that generally or
specifically described in the contract, and in a modern world of ever-larger environmental risks, it is
certainly prudent to purchase environmental coverage for a large construction project. However, under
the majority view that we adopt in this case, owners would be limited in their recovery to the description
and amount of such environmental coverage they “purchase[d] and maintain[ed]” and would waive
subrogation rights under such coverage. Cf. Allen County Public Library v. Shambaugh & Son, L.P., et
al., 997 N.E.2d 48 (Ind. Ct. App. 2013). Specifically, applying the majority view that we adopt in this
appeal to the facts and circumstances in the Allen County Public Library case would limit the Library’s
recovery to the amount of environmental insurance coverage purchased by the Library, i.e. $5000. This
result is in keeping with the underlying rationale of AIA contractual documentation, which seeks to
liquidate and cover such losses according to the builders risk coverage obtained by the Owner for that
purpose. This result also eliminates the inevitable work v. non-work disputes driven by owners’ generic,
subrogated property and casualty insurance.
24
considered the waiver of subrogation, and we find it to be the more logical and
compelling resolution.
For all of these reasons, we disagree with the Midwestern Indemnity panel and
hold that, under the terms of the AIA contract, Jefferson County’s claims for damages
against the Appellees are barred.10 We therefore affirm the trial court’s entry of summary
judgment in favor of the Appellees.
Affirmed.
NAJAM, J., concurs.
BROWN, J., dissents with separate opinion.
10
In its brief, Jefferson County argued that a property owner does not waive its right to subrogate when
the conduct at issue was grossly negligent, willful or wanton, and that it designated evidence creating a
genuine issue of material fact as to whether the Appellees were grossly negligent, or acted willfully and
wantonly. Although stated in dicta, our court has observed that where a property owner’s loss is caused
by a contractor’s gross negligence or willful and wanton acts, the property owner may assert its
subrogation rights despite a contractual waiver of such rights. See S.C. Nestel, Inc. v. Future Const., Inc.,
836 N.E.2d 445, 451 (Ind. Ct. App. 2005); Morsches Lumber v. Probst, 388 N.E.2d 284 (Ind. Ct. App.
1979).
Gross negligence is defined as “‘[a] conscious, voluntary act or omission in reckless disregard
of . . . the consequences to another party.’” Ind. Pub. Serv. Co., v. Sharp, 790 N.E.2d 462, 465 (Ind.
2003) (quoting Black’s Law Dictionary 1057 (7th ed. 1999). And conduct is wanton and willful if the
intentional act is done with reckless disregard of the natural and probable consequence of injury to a
known person under the circumstances known to the actor at the time. See Davidson v. Bailey, 826
N.E.2d 80, 89 (Ind. Ct. App. 2005).
Jefferson County argues that Teton and Innovative Roofing were grossly negligent for failing to
supervise Gutapfel Roofing and by allowing Gutapfel to hot solder a historically significant building
without any training or assistance. But, the designated evidence establishes that Gutapfel was aware of
the risks inherent in its work and took precautions to guard against fire. Moreover, Gutapfel proposed use
of an adhesive bond instead of solder to attach new copper gutters to the existing copper box gutters.
Jefferson County rejected Gutapfel’s proposal and instructed him to use solder. Gutapfel also extensively
checked the downspout area for heat and smoke after it finished soldering. Jefferson County has not
designated any evidence that would establish that Gutapfel or the other Appellee contractors were grossly
negligent (or acted willfully or wantonly) in this case.
25
IN THE
COURT OF APPEALS OF INDIANA
THE BOARD OF COMMISSIONERS )
OF THE COUNTY OF JEFFERSON, )
)
Appellant, )
)
vs. ) No. 72A04-1302-CT-00055
)
TETON CORPORATION, INNOVATIVE )
ROOFING SOLUTIONS, INC., GUTAPFEL )
ROOFING, INC. and DANIEL L. GUTAPFEL, )
)
Appellees. )
BROWN, Judge, dissenting
I respectfully dissent. This court, in Midwestern Indem. Co. v. Sys. Builders, Inc.,
801 N.E.2d 661, 664 (Ind. Ct. App. 2004), trans. denied, examined a contract containing
identical versions of Section 11.3.5 and 11.3.7 as are present here. In Midwestern, a
snowstorm caused the collapse of a building which had been completed six months
previously, causing $1,391,818.90 worth of damages, $44,971.21 of which pertained to
damage of the contents of the building. 801 N.E.2d at 665. Among other issues, this
court examined “whether the waiver of insurance and subrogation provisions of the
construction contract bar recovery for amounts paid for damages to the contents of the
building.” Id. at 672. We noted that although the waiver provisions apply “to recovery
for damages from perils insured against under the property insurance policy,” they are
26
“limited in scope as to what property is covered.” Id. We held that “[b]ecause the
contents are not part of the Work or completed building addition and because there was
no requirement to waive subrogation rights as to property damage to property other than
the Work,” the scope of such waiver did not include the contents of the building. Id. at
673. This court recently affirmed the reasoning of Midwestern in Allen Cnty. Pub.
Library v. Shambaugh & Son, L.P., 997 N.E.2d 48, 53-56 (Ind. Ct. App. 2013)
(“Consistent with our holding in Midwestern, we conclude that the Library is not
precluded by Section 11.3.7 of the standard AIA contract from seeking recovery for
pollution cleanup costs for property contaminated by the Defendants’ allegedly faulty
construction that is outside the scope of ‘the Work’ for which the Defendants were
contracted to perform.”), reh’g pending.
Furthermore, to the extent that the majority relies upon Lexington Ins. Co. v.
Entrex Comm’n Servs., Inc., 749 N.W.2d 124 (Neb. 2008), and Westfield Ins. Grp. v.
Affina Dev’t, LLC, 982 N.E.2d 132 (Ohio Ct. App. 2012), I believe the relevant contract
provisions in those cases are distinguishable and materially impact their applicability to
the instant case. As noted above, Section 11.3.5 provides:
If during the Project construction period the Owner insured properties, real
or personal or both, adjoining or adjacent to the site by property insurance
under policies separate from those insuring the Project . . . the Owner shall
waive all rights in accordance with the terms of Subparagraph 11.3.7 for
damages caused by fire or other perils covered by this separate property
insurance.
27
Appellants’ Appendix at 586 (emphasis added). As noted by the majority, the versions of
this provision used in Lexington Ins. Co. and Westfield Ins. Grp. substitute the word “at”
for the word “adjoining” in the emphasized portion above. See Draft at 18 n.5.
The majority declares the versions used in Lexington Ins. Co. and Westfield Ins.
Grp. to be “equivalent” or “analogous” to the version at issue here, deeming any
differences to be “minor.” Id. at 14, 14 n.4, 18 n.5. I disagree. The American Heritage
Dictionary defines the word “at” as follows: “1a. In or near the area occupied by; in or
near the location of: at the market; at our destination. b. In or near the position of:
always at my side; at the center of the page. . . .” AMERICAN HERITAGE DICTIONARY 112
(4th ed. 2006). Conversely, the dictionary defines the term “adjoining” as
“[n]eighboring; contiguous,” and “adjoin” as: “1. To be next to; be contiguous to:
property that adjoins ours. 2. To attach: ‘I do adjoin a copy of the letter that I have
received’ . . . To be contiguous. . . .” Id. at 21. The dictionary also defines “adjacent,”
which is present in both versions of Section 11.3.5., as “1. Close to; lying near: adjacent
cities. 2. Next to; adjoining: adjacent garden plots. . . .” Id.
Thus, the plain meaning of the terms “adjoining” and “adjacent” are synonymous,
while the term “at,” which is not present in the instant version of Section 11.3.5, carries a
different meaning. Because the damaged personal property at issue was contained within
the work property, the courthouse, the fact that the term “at” is not used in Section 11.3.5
is material. Simply put, the waiver provision in the instant version of Section 11.3.5 is
applicable only to damage occurring to sites adjoining or adjacent to the courthouse, not
personal property contained within the courthouse. Accordingly, I find that reliance upon
28
Lexington Ins. Co. and Westfield Ins. Grp. is misplaced. As discussed by the majority
and in Lexington Ins. Co., the Nebraska Supreme Court adopted the “Majority Approach,”
concluding that “the scope of the waiver clause was not defined by the property damaged,
but, rather, by the extent the damages were covered by those policies described in the
clause.” 749 N.W.2d at 134. After reciting subparagraph 11.4.5, which, as noted above,
is akin to Section 11.3.5 except that it applies to policies insuring property “at or adjacent
to the site,” the court stated: “We understand this provision to mean that if the owner
acquires a separate property insurance policy to cover non-Project property—a policy
that did not cover the Project or Work property—and the non-Project property is
damaged, the owner waives subrogation rights for the insurer as to those damages.” 749
N.W.2d at 134-135 (emphasis added). The court observed that “Subparagraph 11.4.5
reinforces our conclusion that the waiver in subparagraph 11.4.7 applies to all damages—
including Work and non-Work damages—covered by the owner’s property insurance
policy.” Id. at 135. However, because Section 11.3.5 in the contract at issue here does
not apply to property at the project site, the reasoning contained in Lexington Ins. Co.
does not apply.
Thus, only the waiver language contained in Section 11.3.7 is applicable to the
circumstances, and in my view the Work/non-Work or Minority Approach applies with
equal force. Section 11.3.7, titled “Waivers of Subrogation,” provides that “[t]he owner
and Contractor waive all rights against [] each other and any of their subcontractors, sub-
subcontractors, agents and employees, each of the other . . . for damages caused by fire or
other perils to the extent covered by property insurance obtained pursuant to this
29
Paragraph 11.3 or other property insurance applicable to the Work . . . .” Appellant’s
Appendix at 586 (emphasis added). This “either/or” language in the provision lets an
owner choose between purchasing a builder’s risk policy or relying upon another all-risk
policy, and here Jefferson County chose to rely upon its general all-risk policy in
accordance with the emphasized language. This reading gives effect to both clauses in
Section 11.3.7. The “Work” involves refurbishing the courthouse building, and the
general policy protects against damage to the building. Indeed, the record appears to
indicate that the policy did pay Jefferson County based upon such Work-related damages,
and, in light of the fact that at the time of the contract Midwestern was valid Indiana law,
I believe it was precisely what the parties agreed upon in allocating risk when they chose
to use the term “adjoining” in place of the word “at.”
Additionally I am not convinced by the majority’s conclusion that Jefferson
County was in material breach of the contract when it did not notify Teton of its intent to
rely upon its existing all-risk policy rather than purchase a “builder’s risk” policy. Again,
Section 11.3.1 provides that “[u]nless otherwise provided, the Owner [Jefferson County]
shall purchase and maintain . . . property insurance in the amount of the initial Contract
Sum as well as subsequent modifications thereto for the entire Work at the site . . . .”
Appellant’s Appendix at 585. Section 11.3.1.1 denotes the specifics of the type of
property insurance policy and states that such insurance:
shall be on an ‘all-risk’ policy form and shall insure against the perils of
fire and extended coverage and physical loss or damage including, without
duplication of coverage, theft, vandalism, malicious mischief, collapse,
falsework, temporary buildings and debris removal including demolition
occasioned by enforcement of any applicable legal requirements, and shall
30
cover reasonable compensation for Architect’s services and expenses
required as a result of such insured loss.
Id.
“All-risk policies cover all losses, except those specifically excluded.” Copper
Mountain, Inc. v. Industrial Sys., Inc., 208 P.3d 692, 694 n.7 (Colo. 2009) (citing Heller v.
Fire Ins. Exch., 800 P.2d 1006, 1007 n.1 (Colo. 1990)). The property insurance policy
owned by Jefferson County was titled as “BLANKET BUILDING AND BUSINESS
PERSONAL PROPERTY AT LOCATIONS SCHEDULED BELOW” which included
the courthouse located at 300 West Main Street in Madison, Indiana. Appellee’s
Designation of Evidence at Tab 4, pages 358, 360. The limit of coverage to the building
is listed at $25,859,000, and the policy notes that for “Business Personal Property” that
the limit of coverage is “Incl W Bldg.” Id. at 358. The policy also states, under the
heading “Covered Causes Of Loss,” that “[w]e’ll protect covered property against risks
of direct physical loss or damage except as indicated in the Exclusions – Losses We
Won’t Cover section.” Id. at 369. Thus, the policy meets the definition of an “all-risk”
policy.
The majority concludes that the County breached the agreement because it did not
notify Teton of its decision to rely on existing coverage rather than procure separate all-
risk insurance, relying on Section 11.3.1.2 which states: “If the Owner does not intend to
purchase such property insurance required by the Contract and with all of the coverages
in the amount described above, the Owner shall so inform the Contractor in writing prior
to commencement of the Work.” Supra at 21; see also Appellants’ Appendix at 585.
31
Section 11.3.1.2 specifically provides that the purpose of the notification would be that
the contractor could “then effect insurance which will protect the interest of the
Contractor, Subcontractors and Sub-subcontractors in the Work.” Appellants’ Appendix
at 585 (emphasis added). However, there is no dispute that Jefferson County’s property
insurance policy covered the courthouse for work-related damages. It would have been
superfluous for Teton to have purchased additional property insurance for the courthouse.
Thus, any breach of the agreement by Jefferson County was not a material breach and
should not dictate the outcome.
By adopting the Majority Approach, the majority extinguishes Jefferson County’s
ability to attempt to recoup damages from Teton’s liability insurer based upon alleged
negligence on the part of Teton and its subcontractors.11 For the reasons discussed above,
11
At oral argument, Teton’s counsel suggested that Section 11.1.1, which obligated Teton to
purchase liability insurance, applied only to claims by third parties. Section 11.1.1 provides:
11.1.1 The Contractor shall purchase from and maintain in a company or companies
lawfully authorized to do business in the jurisdiction in which the Project is located such
insurance as will protect the Contractor from claims set forth below which may arise out
of or result from the Contractor’s operations under the Contract and for which the
Contractor may be legally liable, whether such operations be by the Contractor or by a
Subcontractor or by anyone directly or indirectly employed by any of them, or by anyone
for whose acts any of them may be liable:
.1 claims under workers’ or workmen’s compensation, disability benefit
and other similar employee benefit acts which are applicable to the
Work to be performed;
.2 claims for damages because of bodily injury, occupational sickness or
disease, or death of the Contractor’s employees;
.3 claims for damages because of bodily injury, sickness or disease, or
death of any person other than the Contractor’s employees;
.4 claims for damages insured by usual personal injury liability coverage
which are sustained by (1) by a person as a result of an offense
32
I believe this to be error, and I would uphold Midwestern and the so-called “Minority
Approach” as valid Indiana law, and allow Jefferson County to bring suit under these
circumstances to recoup liability damages to non-Work property. I respectfully dissent.
directly or indirectly related to employment of such person by the
Contractor, or (2) by another person;
.5 claims for damages, other than to the Work itself, because of injury to
or destruction of tangible property, including loss of use resulting
therefrom;
.6 claims for damages because of bodily injury, death of a person or
property damage arising out of ownership, maintenance or use of a
motor vehicle; and
.7 claims involving contractual liability insurance applicable to the
Contractor’s obligations under Paragraph 3.18.
Appellants’ Appendix at 584-585. Although certain subsections of Section 11.1.1 are intended to apply
to third parties, including Subsection .3 and the second part of Subsection .4, other portions, notably
Subsection .5, do not appear to be so constrained.
33