ACE AMERICAN INSURANCE COMPANY VS. AMERICAN MEDICAL PLUMBING, INC. (L-0299-17, UNION COUNTY AND STATEWIDE) ( 2019 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-5395-16T4
ACE AMERICAN INSURANCE
COMPANY,
Plaintiff-Appellant, APPROVED FOR PUBLICATION
April 4, 2019
v.
APPELLATE DIVISION
AMERICAN MEDICAL
PLUMBING, INC.,
Defendant-Respondent.
_____________________________
Argued September 26, 2018 – Decided April 4, 2019
Before Judges Koblitz, Ostrer and Currier.
On appeal from Superior Court of New Jersey, Law
Division, Union County, Docket No. L-0299-17.
Daniel Q. Harrington argued the cause for appellant
(Cozen O'Connor, PC, attorneys; Daniel Q.
Harrington, on the briefs).
Fredric P. Gallin argued the cause for respondent
(Methfessel & Werbel, PC, attorneys; Fredric P.
Gallin, of counsel and on the brief).
The opinion of the court was delivered by
OSTRER, J.A.D.
This appeal requires us to interpret the waiver-of-subrogation provisions
of a widely used form construction contract – the American Institute of
Architects (AIA) form A201 – 2007 General Conditions of the Contract for
Construction (A201). 1 Contending the trial court misread the contract,
plaintiff ACE American Insurance Company (ACE) appeals from summary
judgment dismissing its subrogation action against defendant American
Medical Plumbing, Inc. (American). We affirm, based on A201's plain
language, its evident goal to transfer the risk of construction-related losses to
insurers and preclude lawsuits among contracting parties, and persuasive o ut-
of-state authority.
I.
For purposes of ACE's motion, the following facts are undisputed.
ACE's insured, Equinox Development Corporation (Equinox Development),
contracted in March 2012 with Grace Construction Management Company,
LLC (Grace Construction), to build the "core and shell" of a new health club in
1
The AIA revises the A201 contract every ten years. See Am. Inst. of
Architects, AIA Document Commentary to A201 – 2007 General Conditions
of the Contract for Construction 1 (2007) (AIA Commentary to A201). For
convenience, "A201" will refer to the 2007 version. We will include the year
when referring to previous versions.
A-5395-16T4
2
Summit.2 American was a plumbing subcontractor. Sometime in April 2013,
after the work under the contract was completed, a water main failed and
flooded the health club.
When the flood occurred, ACE provided Equinox Holdings and its
subsidiaries, including Equinox Development, with blanket all-risk insurance
including multiple forms of coverage for its operations in the United States.
The policy term was September 2012 to September 2013, with coverage of $32
million per occurrence. Among other coverages, the policy insured Equinox's
interest in its real and personal property, including "[p]roperty while in the
course of construction and/or during erection, assembly and/or installation." It
also included any interests of contractors and sub-contractors for which
Equinox would assume liability by contract. Regarding subrogation, the
policy stated, "In the event of any payment under this policy, except where
subrogation rights have been waived, the Insurer shall be subrogated to the
extent of such payment to all the Insured's rights of recovery therefore." ACE
had provided Equinox with similar coverage, with a limit of $30 million, the
preceding annual period.
2
Equinox Development is described as a subsidiary of Equinox Holdings, Inc.
(Equinox Holdings). Where the record does not clearly distinguish between
the two, we will simply use "Equinox."
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ACE paid Equinox almost $1.2 million for the net damages to its real
and personal property. Less than $8,000 was for repairs to the "core and shell"
construction covered by the A201 contract. The rest was apparently for
damage to internal construction, furnishings and equipment.
ACE eventually filed suit against American, claiming it was at fault for
the water-main break and seeking recovery of its payments to Equinox.
American promptly answered, invoking A201's subrogation-waiver provisions.
Soon thereafter, American filed its motion for summary judgment, which the
trial court granted, relying mainly on an unpublished federal district court
opinion.
II.
We review the trial court's order de novo, applying the same standard as
the trial court. Henry v. N.J. Dep't of Human Servs., 204 N.J. 320, 330 (2010).
The dispositive issue before us is one of contract interpretation. Absent an
ambiguity arising from disputed facts, interpretation of A201, like of any
contract, involves a question of law, which we review de novo. Kieffer v. Best
Buy, 205 N.J. 213, 222-23 & n.5 (2011).
To fulfill our interpretative mission, we determine "the reasonably
certain meaning of the language used, taken as an entirety, considering the
situation of the parties, the attendant circumstances, the operative usages and
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4
practices, and the objects the parties were striving to achieve." George M.
Brewster & Son, Inc. v. Catalytic Constr. Co., 17 N.J. 20, 32 (1954); see also
Hardy ex rel. Dowdell v. Abdul-Matin, 198 N.J. 95, 103 (2009) (stating that
"[a] basic principle of contract interpretation is to read the document as a
whole in a fair and common sense manner"). In so doing, we strive to give
effect to "all parts of the writing and every word of it," to the extent possible.
Washington Constr. Co. v. Spinella, 8 N.J. 212, 217 (1951) (quoting 9
Williston on Contracts § 46, at 64 (rev. ed. 1936)). Our objective is to
determine the parties' intent. Kieffer, 205 N.J. at 223. But "[i]t is not the real
intent but the intent expressed or apparent in the writing that controls."
Friedman v. Tappan Dev. Corp., 22 N.J. 523, 531 (1956).
III.
We describe first A201's overall scheme. In broad terms, A201 requires
the owner and contractor to procure, respectively, property and liability
insurance; and requires the owner and contractor and its subcontractors (and
sub-subcontractors, agents and employees) to waive all rights against each
other for damages covered by the required property insurance policy. A201
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5
also extends the subrogation waiver to certain other forms of insurance that the
owner may procure at its own option for losses during and after construction. 3
Specifically, the contract requires an owner to procure "builder's risk
'all-risk'" insurance for the benefit of itself and its contractors. 4 A201 § 11.3.1.
The policy must cover not only the amount the owner owes for the "Work" –
that is, the construction and services covered by the contract – but the value of
the entire "Project," which may include construction by other contractors.
Ibid. See also id. §§ 1.1.3, 1.1.4 (defining "Work" and "Project"). In this case,
the Work – which consisted of the health club's "core and shell" – was
evidently only a part of the total Project, which included furnishings and
3
We note that the parties do not dispute the enforceability of a subrogation
waiver in principle, which is well-settled. See George M. Brewster & Son, 17
N.J. at 28 (stating that "parties may by agreement waive or limit the right" of
subrogation); see also Sch. Alliance Ins. Fund v. Fama Constr. Co., 353 N.J.
Super. 131, 140 (Law Div. 2001), aff'd o.b., 353 N.J. Super. 1 (App. Div.
2002).
4
See Bryan Constr. Co. v. Emp'rs Surplus Lines Ins. Co., 116 N.J. Super. 88,
97 (App. Div. 1971) (stating that a builder's risk policy "is ordinarily issued to
a contractor or a property owner in order to insure him against loss occurring
during the construction, repair or alteration of a building"), aff'd in part and
rev'd in part, 60 N.J. 375 (1972); see generally 11 Couch on Insurance §§
155:42 - :49 (3d ed. 2017) (describing builder's risk insurance). Section
11.3.1.1 of A201 states that the "all-risk" policy must insure "against the perils
of fire . . . and physical loss or damage including . . . flood."
A-5395-16T4
6
interiors, as well. 5 The insurance must cover the "interests of the Owner, the
Contractor, Subcontractors, and Sub-subcontractors in the Project." A201 §
11.3.1. The owner's insurance obligation subsists as long as contractors are
unpaid or have an insurable interest in the Project. 6 Ibid. As we discuss
below, Equinox satisfied the mandate of section 11.3.1 through its pre -existing
blanket all-risk policy from ACE, which included builder's risk coverage for
all Equinox construction sites across the United States.
5
ACE insists without citing competent evidence in the record that the Work
and Project were "coextensive." However, it acknowledges that, in addition to
the Work, Equinox hired other contractors for interior construction, or "fit-up."
6
Section 11.3.1, under the heading, "PROPERTY INSURANCE," states:
11.3.1 Unless otherwise provided, the Owner shall
purchase and maintain . . . property insurance written
on a builder's risk "all-risk" or equivalent policy form
in the amount of the initial Contract Sum, plus value
of subsequent Contract Modifications and cost of
materials supplied or installed by others, comprising
total value for the entire Project at the site on a
replacement cost basis without optional deductibles.
Such property insurance shall be maintained . . . until
final payment has been made as provided in Section
9.10 or until no person or entity other than the Owner
has an insurable interest in the property required by
this Section 11.3 to be covered, whichever is later.
This insurance shall include interests of the Owner,
the Contractor, Subcontractors and Sub-subcontractors
in the Project.
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A201 also requires an owner to purchase insurance for boilers and
machinery during installation and until final acceptance. A201 § 11.3.2. At its
option, the owner may purchase loss-of-use insurance. A201 § 11.3.3. The
owner must also maintain its "usual liability insurance." A201 § 11.2.
A201 imposes an insurance requirement on the contractor, too. The
contractor must obtain insurance to protect itself from claims arising out of its
operations or those of its subcontractors, agents or employees. A201 §
11.1.1.5. The contractor's policy must cover "[c]laims for damages, other than
to the Work itself, because of injury to or destruction of tangible property,
including loss of use resulting therefrom." Ibid. The contractor's coverage
must name the owner as an additional insured for claims arising out of the
contractor's negligence. A201 § 11.1.4.
The waiver-of-subrogation clause bars recovery of damages from the
owner, contractor, and subcontractors "to the extent" the damages are covered
by two forms of property insurance. The first is property insurance an owner
obtains "pursuant to" section 11.3, which includes the builder's risk insurance
that section 11.3.1 references. 7 The second is any "other property insurance
7
The phrase "insurance obtained pursuant to this Section 11.3" plainly refers
to insurance that section 11.3 requires the owner to obtain, including builder's
risk, see § 11.3.1, and boiler and machinery insurance, see § 11.3.2. The
parties do not present the issue whether the phrase also encompasses insurance
(continued)
A-5395-16T4
8
applicable to the Work" that the contract does not require. Section 11.3.7
states:
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 causes of
loss to the extent covered by property insurance
obtained pursuant to this Section 11.3 or other
property insurance applicable to the Work, except
such rights as they have to proceeds of such insurance
held by the Owner as fiduciary.
[(Emphasis added).]
The contractor must obtain similar waivers from its subcontractors. The
insurance policy "shall provide such waivers of subrogation by endorsement or
otherwise." Ibid. The "waiver of subrogation shall be effective as to a person
or entity . . . whether or not the person or entity had an insurable interest in the
property damaged." Ibid.
Section 11.3.5 extends the waiver of subrogation to damages that
additional, optional insurance policies may cover. The waiver extension
applies to two forms of insurance policies, which section 11.3.5 describes in
(continued)
that section 11.3 does not require but which it addresses – such as loss-of-use
insurance, see § 11.3.3, and insurance described in section 11.3.5, which we
discuss below.
A-5395-16T4
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terms of when they are procured, what they cover, and their relation to other
policies. The first is an insurance policy procured "during the Project
construction period," which covers real or personal property at or adjacent to
the Project site, and is "separate" from the policy insuring the Project. A201 §
11.3.5. The second is an insurance policy provided "after final payment,"
which covers the completed Project, and is "other than" the policy that insured
the project during construction. Ibid. Section 11.3.5 states:
If during the Project construction period the Owner
insures properties, real or personal or both, at 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 Section 11.3.7
for damages caused by fire or other causes of loss
covered by this separate property insurance. All
separate policies shall provide this waiver of
subrogation by endorsement or otherwise.
[(Emphasis added).]
IV.
We turn now to ACE's claim on appeal. At bottom, ACE argues that its
claim against American is not the kind that A201 subjects to a subrogation
waiver. ACE contends that the subrogation waiver under section 11.3.7 has a
spatial limit, applying only to claims for damage to the Work itself but not
A-5395-16T4
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adjacent property, as well as a temporal limit, applying only to claims arising
before construction is complete. Since the bulk of the water damage affected
not the health club's "core and shell" but its internal construction and
furnishings, and since the claim here arose after the Work was completed,
ACE concludes that section 11.3.7 does not restrict it from suing American.
Regarding section 11.3.5, which expressly applies the subrogation
waiver to certain post-completion insurance, ACE contends that its insurance
policy was not "other than" a policy that insured the Project during
construction.8 Noting that the record does not disclose the exact date
construction began and ended, ACE contends that its 2012-2013 policy simply
extended its 2011-2012 policy and was thus not a policy "other than" the one
8
We reject ACE's contention that American conceded this point in responding
to ACE's statement of material facts. ACE asserted, "The property damage
giving rise to this claim was not insured under a policy or policies 'separate
from' or 'other than' that which insured the Project during the construction
period within the meaning of Section 11.3.5." Recognizing that ACE's
assertion was really a legal conclusion – contrary to Rule 4:46-2, which
requires a statement of material facts – American responded, "[W]e disagree
with the implied legal conclusion that the nature of Ace's insurance policy
removes it from the waiver of subrogation." Furthermore, only undisputed
factual assertions that are "sufficiently supported" are deemed admitted.
Claypotch v. Heller, Inc., 360 N.J. Super. 472, 488 (App. Div. 2003) (quoting
Rule 4:46-2(b)). The meaning of "a policy . . . other than those insuring the
Project during the construction period" is a legal issue for the court.
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that insured the construction project. 9 Alternatively, ACE contends that even
if its policy qualified as post-completion coverage governed by section 11.3.5,
that section refers back to section 11.3.7 – "the Owner shall waive all rights in
accordance with the terms of Section 11.3.7" – and section 11.3.7 does not
apply to claims for damage to non-Work property.
We are unpersuaded by these arguments. ACE misconstrues the basic
structure of the two subrogation-waiver provisions. Section 11.3.7 applies the
waiver to any insured damage, whether occurring during or after construction,
whether to the Work, to the Project, or to other insured property – so long as
the policy covering the damage falls within one of the two categories
identified: "property insurance obtained pursuant to this Section 11.3" or
"other property insurance applicable to the Work." Augmenting section
11.3.7, section 11.3.5 extends the waiver even to damage insured by a discrete
policy. Thus, the waiver applies "[i]f during the Project construction period
the Owner insures properties, real or personal or both, at or adjacent to the site
by property insurance under policies separate from those insuring the Project."
9
In light of the analysis that follows, we need not decide whether a policy
extension qualifies as "other than" a prior policy. However, a strong argument
can be made that a policy extension that covers a different time period,
includes different coverage limits, and presumably has a different premium, is
"other than" its predecessor-policy, even if its terms were otherwise
unchanged.
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(Emphasis added). The waiver also applies "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."
(Emphasis added).
ACE's blanket all-risk policy fell within both categories of coverage
subject to section 11.3.7. Its builder's risk coverage constituted "property
insurance obtained pursuant to this section 11.3" because it met the builder's
risk insurance requirement. See Bd. of Comm'rs v. Teton Corp., 30 N.E.3d
711, 716 (Ind. 2015) (holding, with respect to identical provisions of A201 -
1987, that pre-existing all-risk property insurance policy "that covers both the
entire existing property and the work" constitutes "property insurance obtained
pursuant to this Paragraph 11.3"); Haemonetics Corp. v. Brophy & Phillips
Co., 501 N.E.2d 524, 526 (Mass. App. Ct. 1986) (stating that "[t]he preexisting
insurance policy the owner had . . . 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"). Moreover, inasmuch as the ACE policy
exceeded the coverage required by section 11.3.1, it was also "other property
insurance applicable to the Work." See Lloyd's Underwriters v. Craig & Rush,
Inc., 32 Cal. Rptr. 2d 144, 146 & n.4 (Ct. App. 1994) (stating that an existing
all-risk property insurance qualified as "insurance applicable to the Work");
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Emp'rs Mut. Cas. Co. v. A.C.C.T., Inc., 580 N.W.2d 490, 493 (Minn. 1998)
(stating that "[t]he owner has the option of purchasing an all-risk policy
specifically to cover the 'work' or can rely on any existing property insurance
which would cover the 'work'").
Since the all-risk coverage both satisfied A201's insurance requirement
and was "applicable to the Work," section 11.3.7 waived all claims for
damages "to the extent covered" by the policy. As the Indiana Supreme Court
persuasively observed in reviewing the identical language from A201-1987,
"The positioning and plain meaning of the word "covered" restricts the scope
of the subrogation waiver based on the source and extent of the property
insurance coverage, not the nature of the damages or the damaged property."
Bd. of Comm'rs, 30 N.E.3d at 716. Therefore, if one of the two identified
policies provides coverage for the loss, then subrogation is waived, even if the
policy provides broader coverage than required. See also Emp'rs Mut. Cas.
Co., 580 N.W.2d at 493 (stating, "[I]f the owner relies on an existing policy
which is so broad that it covers both 'work' and 'nonwork' property, it waives
the right to sue for all damages done as long as that damage is covered by the
policy."). Thus, even where the damages are almost entirely non-Work-
related, as they were here, the subrogation waiver applies, because the policy
also covered the Work-related damages.
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Reading sections 11.3.5 and 11.3.7 together supports our interpretation.
Section 11.3.5 extends the subrogation waiver to damage covered by a policy
"separate from those insuring the Project" that covers "properties, real or
personal or both, at or adjacent to the site." It would be absurd to extend the
waiver to damage to non-Project property only if the policy covering it were
completely "separate from" the policy that the owner is required to obtain. As
the Nebraska Supreme Court observed, considering the identical provisions of
A201-1997, "We see no reason why the parties would intend a different result
when, instead of purchasing two separate policies, the owner relied on one
policy covering both the Work and the non-Work property." Lexington Ins.
Co. v. Entrex Commc'n Servs., Inc., 749 N.W.2d 124, 135 (Neb. 2008).
Rather, section 11.3.5 "shows that the contracting parties were not opposed to
waiving damages to non-Work property." Ibid. In other words, section 11.3.5
is designed to extend the waiver related to non-Work property even when
covered by separate policies. Cabining these sections as ACE proposes would
leave a dead zone where the waiver, inexplicably, would not apply – where
damage occurred to non-Work property covered not by a "separate" policy but
by the same policy that covered the Work.
Our interpretation is also consistent with the majority view of other
courts that have rejected the argument, pressed here by ACE, that the section
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11.3.7 subrogation waiver is limited to damage to the Work. See, e.g., Lloyd's
Underwriters, 32 Cal. Rptr. 2d at 148 (stating that "[t]he 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'")); Bd. of Comm'rs, 30 N.E.3d at 712-13 (adopting, along with "the
majority of jurisdictions," the "'any insurance' approach," under which the
Owner waives subrogation "based on the extent and source of the coverage,
not the nature of the property damaged") (citing cases); Emp'rs Mut. Cas., 580
N.W.2d at 493 (stating its interpretation followed "the majority of
jurisdictions" and citing cases); Lexington Ins. Co., 749 N.W.2d at 133-35 &
n.30 (adopting the "majority interpretation" applying the waiver "to all
damages – including Work and non-Work damages," and citing cases);
Westfield Ins. Grp. v. Affinia Dev., LLC, 982 N.E.2d 132, 140, 144 (Ohio Ct.
App. 2012) (adopting the "majority approach" that A201 "define[s] the waived
claims by the source of the insurance proceeds, not by the property damaged,"
whether "Work or non-Work property," and citing cases).
ACE's attempt to place a temporal limit on the waiver fails, as well. By
its terms, the subrogation waiver under section 11.3.7 also continues after
completion of construction if the policy that satisfied section 11.3.7 remains in
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force. The plain language of section 11.3.7 includes no temporal limitation.
Thus, ACE's argument that the section 11.3.7 waiver is limited to damages
incurred while construction was underway lacks textual support.
Nor does section 11.3.7 imply a temporal limitation. Where an owner
chooses to continue a policy that both satisfied and exceeded the coverage
required by section 11.3, the subrogation waiver continues, too. In Town of
Silverton v. Phoenix Heat Source Sys., 948 P.2d 9, 13 (Colo. Ct. App. 1997),
the town maintained insurance during and after installation of a new roof on
the town hall. A post-completion fire triggered a claim against a
subcontractor. Id. at 10. The court held that to the extent the town's insurance
exceeded what section 11.3.1 required – meaning that it constituted "other
property insurance applicable to the Work" – the subrogation waiver subsisted
as long as the insurance remained in force. Id. at 13. "[T]he fact that a
contractor had finished its work and had no remaining insurable interest in the
property did not terminate the waiver of subrogation rights." Ibid. "Because
property insurance applicable to the work, other than that obtained pursuant to
paragraph 11.3.1, may remain in effect after the final completion date, so too
may a waiver of subrogation rights under paragraph 11.3.7 remain in effect."
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Ibid.10 The court noted that the "Work" that an owner insures means "the
construction and services required by the Contract Documents, whether
completed or partially completed." Ibid. (citing A201-1987 § 1.1.3) (emphasis
added).
That section 11.3.7 waives subrogation for post-completion damages is
also evident from its relationship with section 11.3.5. Section 11.3.5 extends
the waiver to separate policies an owner may procure post-completion to
insure the Project. See A201 § 11.3.5 (waiving subrogation where "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."); see also, e.g., Colonial Props. Realty Ltd. P'ship v.
Lowder Constr. Co., 567 S.E.2d 389, 391-92 (Ga. Ct. App. 2002) (applying the
subrogation waiver where the owner obtained "a separate policy covering the
completed project after final payment was made"); Middleoak Ins. v. Tri-State
Sprinkler Corp., 931 N.E.2d 470, 471 n.2, 472 (Mass. App. Ct. 2010) (holding,
where the owner procured insurance policy two years after construction was
complete, "the contractual provision for waiver of subrogation applies to
10
We recognize that the Colorado court adopted the minority view as to
whether the subrogation waiver extends to damages to non-Work. Town of
Silverton, 948 P.2d at 12; see also Copper Mountain, Inc. v. Indus. Sys., Inc.,
208 P.3d 692, 697 (Colo. 2009) (approving Silverton approach to non-Work
damages). As to that aspect of the court's decision, we respectfully disagree.
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postconstruction losses as well as to losses during construction"); TX. CC.,
Inc. v. Wilson/Barnes Gen. Contractors, Inc., 233 S.W.3d 562, 571 (Tex. Ct.
App. 2007) (stating that "as long as property insurance covered the damages to
the structure, whether completed or not, the waiver applies").
If the section 11.3.7 waiver did not apply to post-completion damages
insured by the same policy insuring the Project, yet extended under section
11.3.5 to such damages when covered by discrete policies, the waiver
provisions would leave a temporal gap as implausible as the spatial gap we
noted above. The evident purpose of section 11.3.5 is to preserve the
subrogation waiver for post-completion damages, even if the owner happens to
shift policies or insurers after construction is complete.
Reading section 11.3.7 as waiving subrogation for non-Work damage is
also consistent with the waiver's general purpose, to avoid post-insurance-
claim litigation. As the AIA's commentary to section 11.3.7 explains: "The
purpose of the required property insurance is to transfer the risk of insured
losses from the owner and contractor to the insurance company. It would
defeat this purpose if the insurance company were allowed to sue either party
to recover such losses." AIA Commentary to A201, at 46. See also Bd. of
Comm'rs, 30 N.E.3d at 714 (stating that A201's waiver and insurance
provisions are designed to "ensure that the parties resolve damages disputes
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through insurance claims, not lawsuits"); cf. Sch. Alliance Ins. Fund, 353 N.J.
Super. at 140 (stating generally that "[t]he purpose behind a mutual waiver of
subrogation is to assure that, to the extent any loss is covered by a policy, the
insurer should bear the risk of loss, regardless of any fault on the part of one or
both of the parties"). Our interpretation, as the court in Haemonetics pointed
out, "has the potential for avoiding litigation not only over liability issues
related to the . . . cause of damage to the owner's property, but also over the
issue whether the claimed loss is to the 'Work' or not." 501 N.E.2d at 526.
The commentary to section 11.3.5 also rejects the spatial and temporal
gaps ACE advocates. The commentary states, "[Section 11.3.5] extends the
provisions for waiver of subrogation to other property insurance the owner
may purchase. Such policies may cover property at or adjacent to the project,
or they may replace the property insurance that was in effect on the work
during construction." Ibid. (emphasis added). Describing section 11.3.5 as an
extension implies that its purpose is to fill the gaps left by section 11.3.7 by
continuing the waiver for any property and for any period that the owner’s required
or Work-related insurance may not cover but that it nonetheless insures through a
separate policy. Together, the two provisions ensure a seamless waiver that shields
the contracting parties from suit by subrogees.
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We reject ACE's argument that applying the subrogation waiver here is
inconsistent with the contractor's obligation to obtain liability insurance. ACE
contends the liability insurance requirement would be unnecessary if the
subrogation waiver shields the contractor from suit by the owner's insurer. We are
unpersuaded. The contract expressly recognizes that the subrogation waiver takes
precedence over the contractor's insurance obligation. Section 11.3.7 states that
the "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 . . . ." Accord Lexington Ins., 749 N.W.2d at 136 (noting the identical
provision in A201-1997 in rejecting a similar argument); Chadwick v. CSI, Ltd.,
629 A.2d 820, 826 (N.H. 1993) (noting that this language in Section 11.3.7
"reconciles any inconsistency" between the contractor's duty to indemnify and the
subrogation waiver).11
The contractor's liability insurance serves an important purpose by providing
an additional layer of coverage for damage that the owner's property insurance may
not reach. For example, if the owner's losses exceed its policy limit, the
11
Section 10.2.5 requires the Contractor to "promptly remedy damage and
loss . . . to property referred to in Sections 10.2.1.2 and 10.2.1.3" – including
"the Work and materials and equipment" and "other property at the time or
adjacent thereto" – that the contractor or subcontractor causes "in whole or in
part." However, the same section carves out "damage or loss insured under
property insurance required by the Contract Documents." A201 § 10.2.5.
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contractor's liability insurance could cover at least part of the balance. The liability
insurance would also provide a source of compensation to injured third parties,
who might otherwise seek remedies from the owner.
In sum, notwithstanding that most of the damage affected non-Work
property and occurred after construction was completed, the subrogation waiver
bars ACE's action against American, since its blanket all-risk insurance satisfied
A201's requirements and covered the Work.
Affirmed.
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