St. Paul Fire & Marine Insurance v. Turner Construction Co.

Opinions of the United
2009 Decisions States Court of Appeals
for the Third Circuit
3-23-2009
St. Paul Fire and Ma v. Turner Constr Co
Precedential or Non-Precedential: Non-Precedential
Docket No. 08-2292
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 08-2292
ST. PAUL FIRE AND MARINE INSURANCE COMPANY,
as subrogee of Brandywine Cira, L.P.,
Appellant
v.
TURNER CONSTRUCTION COMPANY
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 2-07-cv-00270)
District Judge: Honorable Eduardo C. Robreno
Submitted Under Third Circuit LAR 34.1(a)
January 27, 2009
Before: SCIRICA, Chief Judge, AMBRO, and SMITH, Circuit Judges
(Opinion filed March 23, 2009 )
OPINION
AMBRO, Circuit Judge
Brandywine Cira L.P. entered into a Construction Management Services
Agreement with Turner Construction Company in 2003, according to which Turner
agreed to act as construction manager for the building of Cira Centre, a 28-story Cesar
Pelli-designed office tower in Philadelphia which opened in late 2005. During
construction, a flow meter installed by a subcontractor of Turner detached from a pipe,
causing water damage to the building. St. Paul Fire and Marine Insurance Company (“St.
Paul”), which had sold property insurance to Cira, paid it $5 million to cover the
damages. St. Paul then sought reimbursement from Turner, and it refused. With
settlement not obtainable, St. Paul filed in federal court for a declaratory judgment that
the agreement between Cira and Turner permits St. Paul, as subrogee of Cira, to recover
its $5 million outlay from Turner. The parties agreed on the facts and that Pennsylvania
law governs the interpretation of the agreement. On summary judgment, the District
Court ruled against St. Paul, and it timely appealed. We affirm.
The District Court had diversity jurisdiction under 28 U.S.C. § 1332. We have
appellate jurisdiction under 28 U.S.C. § 1291. We review an order granting summary
judgment de novo, applying the standard that applies in the District Court. Gonzalez v.
AMR, 549 F.3d 219, 223 (3d Cir. 2008). Summary judgment is appropriate if there is no
genuine issue of material fact and the moving party is entitled to judgment as a matter of
law. Id.
2
Subrogation permits an insurer that has paid its insured to assert the insured’s
rights against the tortfeasor and thereby recover its payment. Universal Underwriters v.
Kacin, 916 A.2d 686, 692 (Pa. Super. 2007). On a construction project, the contractor
risks liability for negligence and the owner risks damage to its property. The contractor
purchases liability insurance and the owner purchases property insurance. If the
contractor damages the owner’s property, the owner or its property insurer (as subrogee)
may sue the contractor for negligence. To prevent such litigation, an owner may waive its
rights against the contractor for property damage to the extent covered by the owner’s
property insurance. See Commercial Union Insurance v. Bituminous Casualty, 851 F.2d
98, 101 (3d Cir. 1988); Kacin, 916 A.2d at 691. This assigns losses from property
damage caused by the contractor’s negligence exclusively to the owner’s property insurer
(again, to the extent it pays the owner for damages incurred).
The argument against permitting such waivers is that it makes the contractor less
vigilant in preventing property damage. 2 Justin Sweet et al., Sweet on Construction
Industry Contracts: Major AIA Documents § 22.04[M] (4th ed. 1999). Despite this
argument, the American Institute of Architects, which drafted the form of waiver in this
case, has made “strenuous efforts” to convince courts to enforce such waivers, and
Pennsylvania courts have agreed. Id.; Kacin, 916 A.2d at 691.
3
The waiver contained in § 13.2.9 of the construction contract before us is an AIA
standard term.1 It states that “[t]he Owner [Cira] and Construction Manager [Turner]
waive all rights against . . . each other . . . for damages caused by fire or other causes of
loss to the extent covered by property insurance obtained pursuant to this paragraph 13.2
or other property insurance applicable to the Work . . . .” This is simple enough: if the
owner is covered by property insurance, neither it nor its insurer standing in its shoes can
recover from the contractor to the extent of that coverage. But St. Paul argues that the
waiver is in tension with this sentence—apparently not standard, thus called a custom
term—in § 13.1: “Nothing contained in the insurance requirements of this Article 13 is to
be construed as limiting the extent of [Turner’s] responsibility for payment of damages
resulting from its operations under this Contract.”
In interpreting contracts, Pennsylvania courts strive to identify the intent of the
parties. Steuart v. McChesney, 444 A.2d 659, 661 (Pa. 1982). The object is not their
inner, subjective intent, but rather the intent a reasonable person would apprehend in
considering the parties’ behaviors. See Ingrassia Construction v. Walsh, 486 A.2d 478,
483 (Pa. Super. 1984). Courts initially try to resolve disputes relating to a written contract
(agreed to be the final expression of the intent of the parties) without resort to evidence
about prior negotiations. See Steuart, 444 A.2d at 662–63; E. Allan Farnsworth,
1
The waiver is substantively identical to language in AIA contracts A201-1987
§ 11.3.7 and A201-1997 § 11.4.7.
4
Contracts § 7.12 (3d ed. 1999) (“Farnsworth”). Regardless, they may consider other
circumstances relevant to the contract, such as industry practice. See Mellon Bank v.
Aetna, 619 F.2d 1001, 1011 & n. 12 (3d Cir. 1980). (Although not binding authority in
Pennsylvania, a New Jersey court stated the rationale for considering surrounding
circumstances well when it wrote that “since almost all language is susceptible of more
than one reasonable construction, the attendant circumstances are always relevant in
ascertaining the intended meaning.” Deerhurst Estates v. Meadow Homes, 165 A.2d 543,
551 (N.J. Super. Ct. App. Div. 1961).)
We believe that the contract here waives subrogation, as it is not reasonable that
people seeking to limit the waiver would have done so in the manner St. Paul contends
the parties did. The contextual information that we find determinative is that the waiver
has been a part of standard AIA contracts (hence, industry practice) for at least 20 years
and courts have litigated related issues since at least the 1970s. See, e.g., E. C. Long v.
Brennan's of Atlanta, 252 S.E.2d 642 (Ga. Ct. App. 1979). Pennsylvania courts have
repeatedly enforced the waiver in the face of varied objections. Jalapenos v. GRC Gen.
Contractor, 939 A.2d 925 (Pa. Super. 2007) (waiver enforceable despite apparent conflict
with indemnification provision and inability of owner to obtain compensation due to its
failure to buy insurance as required); cf. Kacin, 916 A.2d 686 (waiver enforceable despite
lack of notice to or consent of insurer and apparent conflict with contractors’ warranties
as to materials and workmanship); Penn Avenue Place v. Century Steel Erectors, 798
5
A.2d 256 (Pa. Super. 2002) (waiver enforceable despite public policy prohibiting
exculpation of liability for negligence). These courts do so “[b]ecause it is economically
inefficient for both parties to insure against the same risk, the parties’ inclusion of an
insurance procurement clause indicates that the parties intended to avoid both parties
having to face potential liability for the same risk.” Jalapenos, 939 A.2d at 930 (internal
quotation marks omitted).
We do not think a reasonable person would read the preservation-of-liability
provision to nullify the waiver. The former does not refer specifically to the waiver and
the drafters buried it at the end of a separate section. In light of Pennsylvania’s history of
vigorous enforcement of the waiver, a reasonable person would assume that if the parties
wished to nullify it, they would have amended the text of the waiver itself, not included it
at all, or included a statement of nullification that referred to it specifically, appeared with
it in the same section, or appeared in a stand-alone section. Although Pennsylvania courts
generally give more weight to custom terms than to standard terms, cf. Woytek v.
Benjamin Coal, 446 A.2d 914, 917 (Pa. Super. 1982), the custom term here needs to stand
out as a reasonable signal of the parties’ intent to override the waiver, and it does not.
(An example of such an attempted signal would be what is known as a “super-override”
provision, where the sentence in § 13.1 would stand out, typically at the beginning of a
section and with an appropriate lead, such as “Notwithstanding anything contained in this
Section 13 to the contrary, nothing contained in the insurance requirements of this Article
6
13 is to be construed as limiting the extent of the Construction Manager’s responsibility
for payment of damages resulting from its operations under this Contract.” Though this
wording would come closer to the conflict St. Paul argues to exist, it too falls short; the
super-override would apply only to “the insurance requirements of this Article 13,” and
the waiver in § 13.2.9 is one of liability. Thus, we cannot conclude that the custom
sentence amidst § 13.1 supervenes the waiver of liability in § 13.2.9.
* * * * *
We thus affirm the order of the District Court.
7