Westfield Ins. Group v. Affinia Dev., L.L.C. , 2012 Ohio 5348 ( 2012 )

[Cite as Westfield Ins. Group v. Affinia Dev., L.L.C., 2012-Ohio-5348.]
COURT OF APPEALS
KNOX COUNTY, OHIO
FIFTH APPELLATE DISTRICT
WESTFIELD INSURANCE GROUP : JUDGES:
:
: Hon. Patricia A. Delaney, P.J.
Plaintiff-Appellant : Hon. W. Scott Gwin, J.
: Hon. Sheila G. Farmer, J.
-vs- :
: Case No. 12-CA-2
AFFINIA DEVELOPMENT, LLC, ET :
AL. :
:
:
Defendants-Appellees : OPINION
CHARACTER OF PROCEEDING: Appeal from the Knox County Court of
Common Pleas, Case No. 10OT04-0209
JUDGMENT: AFFIRMED
DATE OF JUDGMENT ENTRY: November 14, 2012
APPEARANCES:
For Appellant: For Appellee-Affinia Development, LLC:
MICHAEL W. DEWITT ALAN E. MAZUR
280 N. High St. 140 E. Town St.
Suite 920 Suite 1015
Columbus, OH 43215 Columbus, OH 43215
DANIEL J. DE LUCA For Appellee-Jan Gabrysch d/b/a Intex:
518 Township Line Road
Suite 300 HEATHER R. ZILKA
Blue Bell, PA 19422 M. ANDREW SWAY
65 E. State St., Suite 2000
Columbus, OH 43215
Delaney, P.J.
{¶1} Plaintiff-Appellant Westfield Insurance Group appeals the August 12,
2011 and January 10, 2012 judgment entries of the Knox County Court of Common
Pleas granting summary judgment in favor of Defendant-Appellee Affinia
Development, LLC and Defendant-Appellee Jan Gabrysch d/b/a Intex.
FACTS AND PROCEDURAL HISTORY
{¶2} In July 2009, Knox County acquired ownership of a building located at
One Avalon Road, Mount Vernon, Ohio (“the building”). The building was purchased
for $187,000.00. Knox County conveyed the building to the Mid-East Ohio Regional
Council (MEROC) for use as its headquarters.
{¶3} MEROC procured commercial property insurance coverage for the
building through Plaintiff-Appellant Westfield Insurance Group under Policy No. BOP 3
098 240, effective from July 9, 2009 to July 9, 2010. The Westfield policy insured both
the structure and the contents of the building. Property coverage for the building was
$815,000.00.
{¶4} On November 6, 2009, MEROC as Owner entered into a contract with
Defendant-Appellee Affinia Development, LLC, as Contractor stating “[t]he scope of
proposed construction includes renovations and improvements to existing-building
located at 1 Avalon Rd., Mount Vernon, Ohio. Work includes, but may not be limited
to, roof replacement, storm water improvements to the site, building ADA accessibility
including access to building and restrooms, floor plan modifications for new layout
including necessary alterations to plumbing, h.v.a.c. and electrical.” The contract
amount was $201,635.00.
{¶5} The parties utilized an American Institute of Architects contract, AIA
Document A101-2007, entitled “Standard Form of Agreement Between Owner and
Contractor.” The contract included AIA Document A201-2007, entitled “General
Conditions of the Contract for Construction.” (Article §9.1.2). These documents shall
be hereinafter referred to as the “Contract.”
{¶6} Construction pursuant to the Contract commenced. Affinia
subcontracted with Defendant-Appellee Jan Gabrysch d/b/a Intex to stain the trim
woodwork.
{¶7} The MEROC building is a three-story structure. The lower level was
renovated first. By March 5, 2010, the remodeling work on the building was
substantially complete. The lower level was fully completed and being occupied by
MEROC as its administrative offices. The second floor renovations were in the final
stages. The third floor contained an apartment and by March 5, 2010, renovations
had not begun on that level. Intex workers did some staining work on Friday, March 5,
2010 and left the building that evening. On the night of Saturday, March 6, 2010, a
fire broke out in the reception area of the second floor. The fire caused damage to the
entire structure. The Mount Vernon Fire Department investigator could not determine
the cause of the fire.
{¶8} Westfield paid MEROC in excess of $100,000 pursuant to the terms of
the commercial property insurance for the damages caused by the fire.
{¶9} On April 5, 2010, Westfield, as subrogee of MEROC, filed a complaint
against Affinia and Gabrysch in the Knox County Court of Common Pleas claiming
negligence, breach of contract, and breach of warranty. Westfield alleged the fire was
caused by the negligence of Affinia and Gabrysch.
{¶10} Affinia moved for summary judgment on April 11, 2011. In its motion for
summary judgment, Affinia argued it was entitled to judgment as a matter of law as to
all claims because the Contract between MEROC and Affinia contained a waiver of
subrogation clause, preventing Westfield from pursuing its claims against Affinia.
Gabrysch moved for summary judgment on August 15, 2011, arguing the waiver of
subrogation clause found in the Contract applied to the subcontractor, similarly
preventing Westfield from pursuing its claims against Gabrysch.
{¶11} The trial court granted the motions for summary judgment on August 12,
2011 and January 10, 2012. It is from these decisions Westfield now appeals.
ASSIGNMENTS OF ERROR
{¶12} Westfield raises two Assignments of Error:
{¶13} “I. THE TRIAL COURT ERRED WHEN IT GRANTED SUMMARY
JUDGMENT TO DEFENDANT-APPELLEE AFFINIA DEVELOPMENT, LLC.
{¶14} “II. THE TRIAL COURT ERRED WHEN IT GRANTED SUMMARY
JUDGMENT TO DEFENDANT-APPELLEE JAN GABRYSCH D/B/A INTEX.”
ANALYSIS
STANDARD OF REVIEW
{¶15} The trial court’s decision to grant judgment in favor of Affinia and
Gabrysch was rendered through Civ.R. 56. We review a summary judgment de novo
and without deference to the trial court's determination. When an appellate court
reviews a trial court's disposition of a summary judgment motion, it applies the same
standard of review as the trial court and conducts an independent review, without
deference to the trial court's determination. We must affirm the trial court's judgment if
any grounds the movant raised in the trial court support it. Westbrook v. Swiatek, 5th
Dist. No. 09CAE09–0083, 2011–Ohio–781, ¶ 43.
{¶16} Pursuant to Civ.R. 56(C), summary judgment “shall be rendered forthwith
if the pleadings, depositions, answers to interrogatories, written admissions, affidavits,
transcripts of evidence, and written stipulations of fact, if any, timely filed in the action,
show that there is no genuine issue as to any material fact and that the moving party
is entitled to summary judgment as a matter of law.”
{¶17} The moving party bears the initial responsibility of informing the trial
court of the basis for the motion, and identifying those portions of the record before the
trial court, which demonstrate the absence of a genuine issue of fact on a material
element of the nonmoving party's claim. Dresher v. Burt, 75 Ohio St.3d 280, 292, 662
N.E.2d 264 (1996). The nonmoving party then has a reciprocal burden of specificity
and cannot rest on the allegations or denials in the pleadings, but must set forth
“specific facts” by the means listed in Civ.R. 56(C) showing that a “triable issue of fact”
exists. Mitseff v. Wheeler, 38 Ohio St.3d 112, 115, 526 N.E.2d 798, 801 (1988).
WESTFIELD’S ARGUMENTS ON APPEAL
{¶18} Westfield raises three arguments as to why the language of the waiver of
subrogation clauses found within the AIA Contract do not bar Westfield’s claim for
damages to the building: 1) the waiver of subrogation clause is vague and ambiguous,
requiring the court to examine the parties’ intent; 2) the waiver of subrogation clause
waives Westfield’s right to sue for damages to the Work, but does not waive
Westfield’s right to sue for damages to non-Work property; and 3) the waiver of
subrogation clause is against public policy.
{¶19} We address Westfield’s second argument because it is dispositive of this
appeal.
{¶20} While the courts of Ohio have previously reviewed terms of AIA
contracts, the specific arguments raised by Westfield are matters of first impression in
the State of Ohio. As such, we look to other jurisdictions to guide our decision in
whether the waiver of subrogation clause bars Westfield’s claim for damages. During
our analysis of complex contract documents and discrete examination of words and
intent, we are lightly cautioned on the subject matter of AIA contracts by our brethren
in the State of California: “Appellate counsel for both sides have done an outstanding
job, resulting in briefs that have been more than ordinarily helpful to the court. The
fact remains that the issues are far from enthralling; they demand an almost
microscopic examination of dry, lengthy contract documents. As we embark on the
resolution of these issues, then, we think it only fair to suggest that the reader might
want to be sitting in a comfortable chair, with a cup of strong coffee nearby.”
American Guarantee and Liability Ins. Co. v. ADP Marshall, Inc., Cal. App. 4 Dist. No.
E041182, 2007 WL 4239987 (Dec. 4, 2007).
CONTRACT INTERPRETATION
{¶21} The parties’ arguments as to the Contract’s waiver of subrogation
clauses require this Court to engage in contract interpretation. Contractual
subrogation clauses are controlled by the usual rules of contract interpretation. Acuity
v. Interstate Const., Inc., 11th Dist. No. 2007-P-0074, 2008-Ohio-1022, ¶ 12 citing
Blue Cross & Blue Shield Mut. of Ohio v. Hrenko, 72 Ohio St.3d 120, 122, 647 N.E.2d
1358 (1995). When confronted with an issue of contract interpretation, our role is to
give effect to the intent of the parties. We will examine the contract as a whole and
presume that the intent of the parties is reflected in the language of the contract. In
addition, we will look to the plain and ordinary meaning of the language used in the
contract unless another meaning is clearly apparent from the contents of the
agreement. When the language of a written contract is clear, a court may look no
further than the writing itself to find the intent of the parties. “As a matter of law, a
contract is unambiguous if it can be given a definite legal meaning.” Sunoco, Inc. (R &
M) v. Toledo Edison, Co., 129 Ohio St.3d 397, 2011-Ohio-2720, 953 N.E.2d 285, ¶ 37
citing Westfield Ins. Co. v. Galatis, 100 Ohio St.3d 216, 2003-Ohio-5849, 797 N.E.2d
1256, ¶ 11.
RELEVANT CONTRACT PROVISIONS
{¶22} In their motions for summary judgment, Affinia and Gabrysch referred to
the Contract as barring Westfield’s claims for subrogation. AIA Document A101-2007
incorporates the terms of AIA Document A201-2007. It is within AIA Document A201-
2007 we find the relevant provisions to this appeal.
Commonly Used Terms
{¶23} We first review three relevant terms used by the Contract in defining the
obligations of the Owner and Contractor – “Contract,” “Work,” and “Project.” AIA
Document A201-2007 states as to “Contract:” “The Contract Documents form the
Contract for Construction. The Contract represents the entire and integrated
agreement between the parties hereto and supersedes prior negotiations,
representations or agreements, either written or oral.” AIA Document A201-2007
defines “Work” under §1.1.3 as meaning “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
a part of the Project.” AIA Document A201-2007 defines “Project” under §1.1.4 as
meaning “the total construction of which the Work performed under the Contract
Documents may be the whole or a part and which may include construction by the
Owner and by separate contractors.”
Contractor’s Obligations Under the Contract
{¶24} Article 11 of AIA Document A201-2007, entitled “Insurance and Bonds,”
outlines the insurance obligations for the Contractor and Owner.
{¶25} §11.1 of AIA Document A201-2007 establishes the Contractor’s
responsibility to procure liability insurance. Article 10 of AIA Document A101-2007
requires the Contractor to purchase and maintain insurance and provide bonds as set
forth in Article 11 of AIA Document A201-2007. §11.1 states:
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 and completed 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:
***
.5 Claims for damages, other than to the Work itself, because of
injury or destruction of tangible property, including loss of use resulting
therefrom;
***
§11.1.4 The Contractor shall cause the commercial liability coverage
required by the Contract Documents to include (1) the Owner, the
Architect and the Architect’s Consultants as additional insureds for
claims caused in whole or in part by the Contractor’s negligent acts or
omissions during the Contractor’s operations; and (2) the Owner as an
additional insured for claims caused in whole or in part by the
Contractor’s negligent acts or omissions during the Contractor’s
completed operations.
Owner’s Obligations Under the Contract
{¶26} Article §11.3 establishes the property insurance the Owner is required to
purchase under the Contract. §11.3 also contains the waiver of subrogation clause
relevant to this appeal:
§11.3.1 Unless otherwise provided, the Owner shall purchase and
maintain, in a company or companies lawfully authorized to do business
in the jurisdiction in which the Project is located, 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,
compromising total value for the entire Project at the site on a
replacement cost basis without optional 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
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.
§11.3.1.1 Property insurance shall be on an “all-risk” or equivalent
policy form and shall include, without limitation, insurance against the
perils of fire (with extended coverage) and physical loss or damage
including, without duplication of coverage, theft, vandalism, malicious
mischief, collapse, earthquake, flood, windstorm, falsework, testing and
startup, temporary buildings and debris removal including demolition
occasioned by enforcement of any applicable legal requirements, and
shall cover reasonable compensation for Architect’s and Contractor’s
services and expenses required as a result of such insured loss.
§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 the commencement of the Work. The Contractor may
then effect insurance that 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 described above, without so notifying the
Contractor in writing, then the Owner shall bear all reasonable costs
properly attributable thereto.
***
§11.3.5 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 or otherwise.
***
§11.3.7 WAIVERS OF SUBROGATION
The Owner and Contractor waive all rights against (1) each other
and any of their subcontractors, sub-subcontractors, agents and
employees, each of the other, and (2) the Architect, Architect’s
consultants, separate contractors described in Article 6, if any, and any
of their subcontractors, sub-subcontractors, agents and employees, 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 insurance held by the Owner as fiduciary. The
Owner or the Contractor, as appropriate, shall require of the Architect,
Architect’s consultants, separate contractors described in Article 6, if
any, and the subcontractors, sub-subcontractors, agents and employees
of any of them, by appropriate agreements, written where legally
required for validity, similar waivers each in favor of other parties
enumerated herein. The policies shall provide such waivers of
subrogation by endorsement or otherwise. 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.
GENERAL VALIDITY OF SUBROGATION CLAUSES
{¶27} “In Ohio, there are three distinct kinds of subrogation: legal, statutory,
and conventional. Legal subrogation arises by operation of law and applies when one
person is subrogated to certain rights of another so that the person is substituted in
the place of the other and succeeds to the rights of the other person. State v. Jones
(1980), 61 Ohio St.2d 99, 100–101, 15 O.O.3d 132, 133, 399 N.E.2d 1215, 1216–
1217. Statutory subrogation is a right that exists only against a wrongdoer.
Conventional subrogation is premised on the contractual obligations of the parties,
either express or implied. The focus of conventional subrogation is the agreement of
the parties. Id. at 101, 15 O.O.3d at 133, 399 N.E.2d at 1217.” Blue Cross & Blue
Shield Mut. of Ohio v. Hrenko, 72 Ohio St.3d 120, 121, 647 N.E.2d 1358, (1995).
{¶28} Waiver of liability clauses are valid expressions of the parties' freedom to
contract. Hanover Ins. Co. v. Cunningham Drug Stores, 8th Dist. No. 44066, 1982 WL
5341, *3 (May 6, 1982). Ohio courts have held that “such a clause * * * which mutually
prohibits the owner [and] contractor * * * from enforcing their rights against each other
for damages caused by fire or other perils covered by insurance * * * is not void as
being against public policy.” Acuity v. Interstate Const., Inc., 11th Dist. No. 2007-P-
0074, 2008-Ohio-1022, ¶ 13 quoting Insurance Co. of North America v. Wells, 35 Ohio
App.2d 173, 177, 300 N.E.2d 460 (10th Dist. 1973). Ohio courts have repeatedly held
that waiver-of-subrogation provisions are valid and enforceable. Nationwide Mutual
Fire Ins. Co. v. Sonitrol, Inc. of Cleveland, 109 Ohio App.3d 474, 482, 672 N.E.2d 687(8th Dist. 1996); Len Immke Buick, Inc. v. Architectural Alliance, 81 Ohio App.3d 459,
464, 611 N.E.2d 399 (10th Dist. 1992).
{¶29} “It is axiomatic that an insurer-subrogee cannot succeed to or acquire any
right or remedy not possessed by its insured-subrogor.” Chemtrol Adhesives, Inc. v.
Am. Mfrs. Mut. Ins. Co., 42 Ohio St.3d 40, 537 N.E.2d 624 (1989), paragraph one of the
syllabus.
SCOPE OF WAIVER OF SUBROGATION – MINORITY VS. MAJORITY VIEW
{¶30} Westfield argues that while §11.3.7 of the Contract may waive
Westfield’s right to sue for damages to the Work, Westfield did not waive its right to
sue Affinia and Gabrysch for damages to the non-Work property. Affinia and
Gabrysch argue the waiver of subrogation clause bars all recovery for damages to
property, regardless if it is Work or non-Work property. “Work” is defined 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 a part of the Project.” The Project is the total
construction of which the Work is performed under the Contract. The Contract stated
the scope of construction included: “renovations and improvements to existing-building
located at 1 Avalon Rd., Mount Vernon, Ohio. Work includes, but may not be limited
to, roof replacement, storm water improvements to the site, building ADA accessibility
including access to building and restrooms, floor plan modifications for new layout
including necessary alterations to plumbing, h.v.a.c. and electrical.”
{¶31} On the date of the fire, the renovations to the first level were completed.
The second level was in the process of being renovated. The third floor was not
renovated.
{¶32} The waiver of subrogation provision in §11.3.7 states in relevant part,
“the Owner [Westfield as subrogee] and Contractor [Affinia] waive all rights against ***
each other and any of their subcontractors [Gabrysch] * * * 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.”
{¶33} §11.3.1 required MEROC to purchase a builder’s risk “all-risk” or
equivalent policy form in the amount of the initial Contract sum compromising the total
value for the entire Project at the site. MEROC did not purchase a separate builder’s
risk policy covering the Work, but instead relied upon its commercial property
insurance coverage through Westfield. The Contract amount was $201,635.00. The
amount of insurance coverage on the building was $815,000.00. §11.3.5 states that if
the Owner insures properties at or adjacent to the site by property insurance separate
from those insuring the Project, the Owner shall waive all rights in accordance with the
terms of §11.3.7 for damages caused by fire or other causes of loss covered by this
separate property insurance.
{¶34} As stated above, the argument raised by Westfield is a matter of first
impression in the State of Ohio. The Eleventh District Court of Appeals in Acuity v.
Interstate Const., Inc., 11th Dist. No. 2007-P-0074, 2008-Ohio-1022, reviewed an AIA
contract and the scope of the waiver of subrogation provision, but under different
circumstances. In Acuity, the owner and contractor entered into a construction
contract utilizing the AIA contract with the waiver of subrogation provision recited
above. The contractor finished construction on the project in 1998. In 2001 and 2003,
the owner purchased insurance covering property damage. Water pipes froze and
burst at the property, causing damage to the property in 2002 and 2004. Id. at ¶ 2-3.
The insurer filed an action as subrogee of its insured to recover its damages. The
issue in that case was whether the waiver of subrogation provision contained in the
AIA contract between the owner and contractor applied to damage covered by
insurance purchased after construction was completed. Id. at ¶ 1. The Eleventh
District Court of Appeals reviewed the same waiver of subrogation clause as found in
the present case, but answered a different question as to the scope of the waiver of
subrogation provision from that raised in our case. In our case, there is no argument
that MEROC purchased insurance after the completion of construction; MEROC
purchased the property insurance before construction. We look to Acuity for guidance
but it is not dispositive of this appeal.
{¶35} We therefore look to other jurisdictions to examine the issue of the scope
of the waiver of subrogation clause in the AIA contract. As pointed out by the parties,
other state courts have ruled on this issue in such a manner as to result in a “minority”
and “majority” approach. In Trinity Universal Ins. Co. v. Bill Cox Const., 75 S.W.3d 6(Tex.Civ.App. 2001), the Texas Court of Appeals summarized the two approaches:
Courts addressing similar AIA contracts agree that the contract
bars the owner, or its subrogee insurance company, from bringing suit
against either general contractors or subcontractors for damages caused
by fire or other peril. However, the courts disagree as to the scope of the
waiver. A review of cases from other jurisdictions involving language
identical to or substantially similar to the language in the AIA Agreement
here reveals two approaches to the question of when an insurer's
subrogation rights are barred: one approach makes a distinction between
Work (as that word is defined in the contract) and non-Work property and
limits the scope of the waiver to damages to the Work; and the second
approach draws no distinction between Work and non-Work, but instead,
limits the scope of the waiver to the proceeds of the insurance provided
under the contract between the owner and contractor.
The courts that interpret the scope of the waiver by drawing a
distinction between Work and non-Work property ask only whether the
Work was damaged -- if yes, then the waiver applies; if no, then the
waiver does not apply. See Fidelity & Guar. Ins. Co. v. Craig–Wilkinson,
Inc., 948 F.Supp. 608, 611 (S.D.Miss.1996), aff'd, 101 F.3d 699 (5th
Cir.1996) (plaintiff's claim for damage to non-work property not barred
because contractual waiver provided solely for waiver of claims for
damage to Work); Town of Silverton v. Phoenix Heat Source Sys., Inc.,
948 P.2d 9, 12 (Colo.Ct.App.1997) (waiver limited to value of work
performed under contract and inapplicable to other parts of town hall
damaged by fire); S.S.D.W. Co. v. Brisk Waterproofing Co., 76 N.Y.2d
228, 557 N.Y.S.2d 290, 292–93, 556 N.E.2d 1097 (1990) (waiver applies
only to damage to areas within the limits of the Work). Under this
interpretation, “It makes no difference whether the policy under which
subrogation is sought is one which the owner purchased specifically to
insure the Work pursuant to [the contract] or some other policy covering
the owner's property in which the owner has also provided coverage for
the Work. In either event, the waiver clause, if given its plain meaning,
bars subrogation only for those damages covered by insurance which
the owner has provided to meet the requirement of protecting the
contractor's limited interest in the building- i.e., damages to the Work
itself.” S.S.D.W., 557 N.Y.S.2d at 292–93, 556 N.E.2d 1097.
However, the majority of jurisdictions considering the issue
criticize the work/non-work distinction as ignoring the language defining
the scope of claims falling within the waiver clause. These courts
interpret the scope of the waiver as limited to the proceeds of the
insurance provided under the contract, and ask whether the owner's
policy was broad enough to cover both Work and non-Work property and
whether the policy paid for damages. ASIC II Ltd. v. Stonhard, Inc., 63
F.Supp.2d 85, 92 (D.Me.1999) (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) (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); Lloyd's
Underwriters v. Craig and Rush, Inc., 26 Cal.App.4th 1194, 32
Cal.Rptr.2d 144, 146, 148 (1994) (waiver limited by the coverage
afforded by the identified policy and not by the nature of the structure
harmed); Haemonetics Corp. v. Brophy & Phillips Co., 23 Mass.App.Ct.
254, 501 N.E.2d 524, 526 (1986) (waiver of rights extends to proceeds of
any insurance provided under the contract). “The plain import of the
emphasized language is that so long as a policy of insurance ‘applicable
to the Work’ pays for the damage, the waiver applies.... 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’).” Lloyd's Underwriters, 32
Cal.Rptr.2d at 148; see also ASIC II Ltd., 63 F.Supp.2d at 92–93
(explaining that waiver form used in S.S.D.W. contract was later revised
to overcome the holding in this case); A.C.C.T., Inc., 580 N.W.2d at 493(adopting reasoning of Lloyd's Underwriters ); Haemonetics, 501 N.E.2d
at 526.
Trinity Universal Ins. Co., 75 S.W.3d 6, 11-12.; Accord Lexington Ins. Co. v. Entrex
Communication Servs., Inc., 275 Neb. 702, 749 N.W.2d 124 (Neb. 2008).
Westfield Supports the First Approach
{¶36} Westfield urges this Court to adopt the first approach, which has been
characterized as the minority view. In support of its argument, Westfield refers this
Court to Copper Mountain, Inc. v. Industrial Systems, Inc., 208 P.3d 692 (Co. 2009).
In that case, the owner hired the contractor to perform renovations and build an
addition to a ski lodge. The parties used the AIA contract with substantially the same
provisions as the Contract in the present case. Pursuant to the terms of the AIA
contract, the owner added an endorsement to its existing insurance policy to cover the
Work, so that the insurance policy insured the Work and the existing ski lodge
property. While the contractor performed the Work, a fire broke out in the ski lodge
and caused significant damage to the existing lodge and its contents. All real and
personal property were covered under the owner’s insurance policy. The owner
sought contribution from the contractor for the damage to the property.
{¶37} Upon review, the Supreme Court of Colorado reversed the decision of
the court of appeals that found the waiver of subrogation clause in the AIA contract
precluded the owner’s claims against the contractor. The Supreme Court analyzed
the AIA contract and waiver clauses as to the issue of whether the owner waived its
right to sue the contractor for damages to its non-Work property, even though the
owner insured the property under an existing policy covering Work property. Id. at
698. The Supreme Court adopted the minority approach to find the language of the
waiver of subrogation clause did not bar the owner’s claim for damages to its non-
Work property. In making its decision, the Supreme Court cited the New York Court of
Appeals in S.S.D.W. Co. v. Brisk Waterproofing Co., 76 N.Y.2d 228, 556 N.E.2d 1097(1990):
The court held that the plain meaning of the phrase “to the extent
covered by insurance obtained pursuant to this Article or any other
property insurance applicable to the Work” was that the waiver only
applies to damages to the Work. Id., 557 N.Y.S.2d 290, 556 N.E.2d at
1099–1100. The court stated:
It makes no difference whether the policy under which subrogation
is sought is one which the owner purchased specifically to insure the
Work pursuant to [the article requiring the owner to procure property
insurance] or some other policy covering the owner's property in which
the owner has also provided coverage for the Work. In either event, the
waiver clause, if given its plain meaning, bars subrogation only for those
damages covered by insurance which the owner has provided to meet
the requirement of protecting the contractor's limited interest in the
building—i.e., damages to the Work itself. Id., 557 N.Y.S.2d 290, 556
N.E.2d at 1100. The court found that this interpretation gives “full effect”
to the contractual provision requiring the contractor to obtain liability
insurance protecting it from claims for damages to non-Work property.
Id.
Copper Mountain at 698 quoting S.S.D.W. Co. at 1099-1100.
{¶38} The Supreme Court in Copper Mountain ultimately concluded the plain
meaning of the AIA contract meant the subrogation clause applied solely to the
insurance “applicable to the Work;” therefore, the contractor was liable to the owner
for damage to non-Work property.
Affinia and Gabrysch Support the Second Approach
{¶39} Affinia and Gabrysch argue this Court should adopt the majority view as
held in Trinity Universal Ins. Co. v. Bill Cox Const., supra and Lexington Ins. Co. v.
Entrex Communication Servs., Inc., 275 Neb. 702, 749 N.W.2d 124 (Neb. 2008). In
those cases, the courts determined the waiver applied to all damages insured by the
owner’s property insurance policy, regardless of whether they represented damages to
the Work or non-Work property.
{¶40} In Lexington Ins. Co., the owner contracted with the contractor to modify
a television broadcast tower. The owner and contractor utilized the AIA contract with
substantially similar waiver of subrogation provisions. The owner did not obtain a
specific insurance policy to cover the Project, but instead relied upon its existing “all-
risk” property insurance policies. The television broadcast tower collapsed, causing
damages to Work and non-Work property.
{¶41} The Supreme Court of Nebraska in Lexington Ins. Co., supra analyzed
the question of whether the waiver of subrogation was limited to damages to the Work
or whether it also applied to non-Work property. In finding the waiver applied to
damages to both Work and non-Work property, the Supreme Court analyzed the
majority approach as follows:
The California Court of Appeal adopted this approach in Lloyd's
Underwriters v. Craig and Rush, 26 Cal.App.4th 1194, 32 Cal.Rptr.2d
144 (1994). Like Hearst [the owner], the owner in Lloyd's Underwriters
elected not to purchase a separate “builder's risk” policy with coverage
limited to the construction work. Instead, the owner chose to rely on its
existing “all-risk” property insurance to satisfy its obligations under the
contract to provide property insurance for the Work. Non–Work property
was damaged while the contractor was repairing the roof of the owner's
facility. The owner's insurers argued that these damages, although
insured, fell outside the waiver of subrogation.
The Lloyd's Underwriters court read the waiver's language to
mean that “so long as a policy of insurance ‘applicable to the Work’ pays
for the damage, the waiver applies.” The court observed that the
owner's insurers “[did] not dispute that their policies (1) were ‘applicable
to the Work’ and (2) ‘covered’ or paid for the loss.” The court reasoned
that satisfaction of these two criteria allowed the court to conclude the
waiver applied. Stated another way, the Lloyd's Underwriters court
essentially concluded that if a policy covering the Work paid for the
losses, the parties waived subrogation for those losses, regardless of
whether they were damages to the Work or non-Work property.
Another case often cited for the majority approach is Haemonetics
Corp. v. Brophy & Phillips Co., 23 Mass.App. 254, 501 N.E.2d 524(1986). There, the owner also relied on an existing property insurance
policy to meet its obligation to provide property insurance covering the
Work. During construction, a fire damaged non-Work property, and the
owner received insurance proceeds to cover the damage. The owner
later argued that the parties' contract required only that it maintain
property insurance on the Work, so the waiver applied only to damages
to the Work property. The court disagreed, reasoning:
[“]The preexisting insurance policy ... was the insurance the owner
chose to provide to comply with § 11.3 [here subparagraph 11.4.1] even
though that policy may have been more extensive than what was
required. By the terms of [the waiver of subrogation provision], the
waiver of rights extends to the proceeds of any insurance provided under
§ 11.3.[“] Haemonetics Corp., 23 Mass.App. at 257, 501 N.E.2d at 526.
The Haemonetics Corp. and Lloyd's Underwriters courts reached
the same conclusion, but with different rationales. Again, for clarification,
the waiver applies to the extent losses are covered by (1) insurance
obtained to meet the owner's obligation to acquire property insurance
covering the Project or (2) “other property insurance applicable to the
Work.” The Haemonetics Corp. court reasoned that the owner's
preexisting policy fell within the first alternative as the policy the owner
chose to provide to comply with the contract. In contrast, the Lloyd's
Underwriters court reasoned that the owner's preexisting policy came
within the second alternative as “other property insurance applicable to
the Work.” Despite their different classifications of the policies, both
courts decided the owner's preexisting policy fell within the waiver of
subrogation clause. The courts concluded 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: All losses covered by those policies were subject to the waiver,
whether those losses related to the Work or non-Work property.
(Footnotes omitted.) Lexington Ins. Co., 275 Neb. 702, 715-717, 749 N.W.2d 124,
132-134.
The Majority Approach Applies to the Present Case
{¶42} We find the reasoning adopted by the majority of jurisdictions addressing
this issue to be persuasive and adopt it in resolution of this case. The second
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. The Contract
defined the waived claims by the source of 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. §11.3.5 of the Contract states in relevant part:
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, * * * 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. * * *
{¶43} In Lexington Ins. Co. and Lloyd’s Underwriters both interpreted this
provision to mean “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.” Lexington Ins. Co., 275 Neb. 702, 717-718, 749
N.W.2d 124, 135 citing Lloyd’s Underwriters, supra.{¶44} Further, this approach comports with the Contract’s allocation of
insurance responsibilities and the language defining the scope of claims falling within
the waiver clause. Lexington Ins. Co., 275 Neb. 702, 719, 749 N.W.2d 124. Under
§11.1, Affinia was required to obtain liability insurance covering claims for damages to
non-Work property, while §11.3.1 required MEROC to obtain property insurance
covering the Project (Work). The Contract does not define waived claims by the
characterization of the property harmed (i.e. “any injury to the Work”); but rather,
claims are limited by the source of the insurance proceeds paying for the loss (i.e.,
whether the loss was paid by a policy “applicable to the Work”).
{¶45} Finally, our decision to adopt the majority approach is supported by
policy considerations. Waiver 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. As demonstrated in the present case,
by 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. Lexington Ins. Co., supra; Accord
Haemonetics Corp., supra. The Contract stated, “[the] scope of proposed construction
includes renovations and improvements to existing-building located at 1 Avalon Rd.,
Mount Vernon, Ohio. Work includes, but may not be limited to, roof replacement,
storm water improvements to the site, building ADA accessibility including access to
building and restrooms, floor plan modifications for new layout including necessary
alterations to plumbing, h.v.a.c. and electrical.” There would most likely be lengthy
litigation to discern Work from non-Work as stated in the general language of the
Contract from the factual evidence.
{¶46} As expressed by the Judge Alexander in his S.S.D.W. Co., dissent:
The majority holds today that the subrogation waiver clause in this
standard American Institute of Architects (AIA) form contract does not
bar the owner's insurer from seeking recovery from the contractor for
property damage to the owner's building so long as the damage is not to
the actual work to be performed under the contract. This limited
construction of the subrogation waiver clause ... undermines the very
purpose of the clause. Rather than promoting certainty as to the liability
of the parties to these standard contracts, the majority's construction of
this standard waiver clause invites litigation as to whether the damages
in any particular case fall within the scope of the work to be performed
under the contract. In my view, a construction of the clause to bar the
owner from seeking all damages as to which it has obtained insurance
under the contract, thereby barring any subrogation action by the
owner's insurer, best effectuates the intent of the parties to the contract.
***
***
* * * [T]hese subrogation waiver clauses are intended to avoid
litigation over claims for damages while also protecting the parties by “in
effect simply requir[ing] one of the parties to the contract to provide
insurance for all of the parties.” Here, it is the owner who was required
to insure against damage to the building and to waive all claims against
the contractor for losses covered by that insurance. I agree with those
courts holding that in these circumstances the parties have agreed that
the owner's recovery for these losses is limited to its insurance proceeds
and neither the owner, nor its insurer (as subrogee) has any cause of
action against the contractor. * * *
***
* * * The limited construction of the subrogation waiver clause
adopted by the majority today requires further litigation, and perhaps a
trial, to determine the extent to which the damages suffered by plaintiff
was related to that Work. In my view, this construction leaves the
contractor's liability uncertain in every case and thus completely
undermines the purpose of the subrogation waiver clause. * * *
557 N.Y.S.2d at 295–97, 556 N.E.2d 1097 (Alexander, J., dissenting); See also Trinity
Universal Ins. Co., 75 S.W.3d 6, 13.
{¶47} For all these reasons, this Court adopts the majority approach to find the
plain language of the waiver of subrogation clause within the AIA Contract bars
Westfield’s claim for damages against Affinia and Gabrysch because the damages to
the building were covered by an insurance policy issued to MEROC by Westfield. The
trial court did not err in granting summary judgment in favor of Affinia and Gabrysch on
this issue.
{¶48} Westfield’s two Assignments of Error are overruled.
CONCLUSION
{¶49} Based on the above analysis, we hold MEROC, and therefore Plaintiff-
Appellant Westfield Insurance Group as subrogree, is barred from making a claim for
damages against Defendant-Appellee Affinia Development, LLC as contractor and
Defendant-Appellee Jan Gabrysch d/b/a Intex as subcontractor by the terms of the
AIA Contract to the extent those damages were covered by an insurance policy issued
by Westfield.
{¶50} We affirm the judgment of the Knox County Court of Common Pleas to
grant summary judgment in favor of Affinia and Gabrysch based on the waiver of
subrogation clauses within the AIA Contract.
By: Delaney, P.J.
Gwin, J. and
Farmer, J. concur.
HON. PATRICIA A. DELANEY
HON. W. SCOTT GWIN
HON. SHEILA G. FARMER
PAD:kgb
IN THE COURT OF APPEALS FOR KNOX COUNTY, OHIO
FIFTH APPELLATE DISTRICT
:
WESTFIELD INSURANCE GROUP :
:
Plaintiff - Appellant : JUDGMENT ENTRY
:
:
-vs- :
: Case No. 12-CA-2
AFFINIA DEVELOPMENT, LLC, et al. :
:
Defendants-Appellees :
:
For the reasons stated in our accompanying Opinion on file, the judgment of the
Knox County Court of Common Pleas is affirmed. Costs assessed to Appellant.
HON. PATRICIA A. DELANEY
HON. W. SCOTT GWIN
HON. SHEILA G. FARMER